The cozy relationship between financial institutions and their respective regulators has long been known. Concern from reformers and activists comes from all stripes of ideological perspectives.
With the attention that Carmen Segarra, the whistleblower of Wall Street, has gained, the noise from the banking establishment pushes back. Here comes the expected spin from the Fed: The New York Fed Slams Tape-Recording Whistleblower, Says She Was Fired After Just 7 Months Over Performance. Read their Statement Regarding New York Fed Supervision. So what is this controversy all about?
How dare a mere low-level regulator document the goings on within the financial establishment, Inside the New York Fed: Secret Recordings and a Culture Clash, writes.
As ProPublica reported last year, Segarra sued the New York Fed and her bosses, claiming she was retaliated against for refusing to back down from a negative finding about Goldman Sachs. A judge threw out the case this year without ruling on the merits, saying the facts didn’t fit the statute under which she sued.
At the bottom of a document filed in the case, however, her lawyer disclosed a stunning fact: Segarra had made a series of audio recordings while at the New York Fed. Worried about what she was witnessing, Segarra wanted a record in case events were disputed. So she had purchased a tiny recorder at the Spy Store and began capturing what took place at Goldman and with her bosses.
Segarra ultimately recorded about 46 hours of meetings and conversations with her colleagues. Many of these events document key moments leading to her firing. But against the backdrop of the Beim report, they also offer an intimate study of the New York Fed’s culture at a pivotal moment in its effort to become a more forceful financial supervisor. Fed deliberations, confidential by regulation, rarely become public.
In an attempt at damage control, the Fed was looking for a favorable review. What they got was not what they wanted, N.Y. Fed Staff Afraid to Speak Up, Secret Review Found.
The investigation, conducted by Columbia University finance professor David Beim, was initially confidential but was later released by the Financial Crisis Inquiry Commission.
Mr. Beim’s report called on the New York Fed to demand that its regulatory staffers maintain a “more distanced, high-level and skeptical view” of how the banks they oversee make money.
A Short History of the Breathtaking Cluelessness of U.S. Financial Regulators, is outlined by the Motley Fool analysis. Any serious observer of the cozy relationships that permeate the financial community knows all too well that the revolving door turns when favorable regulation decisions spin in the right direction.
The significance of this latest scandal, points out just how the regulation process is conducted in the suites of money manipulation. This next account is most telling; You Should Listen To The Goldman New York Fed Story.
This American Life has a banking supervision story that turns on secret recordings made by a former employee of the New York Fed, Carmen Segarra, and it’s pretty good, because it shows how regulators basically do a lot of their regulating of banks through meetings, with no action items after. That’s weird, and it’s instructive to see how intertwined banking and supervision are. There’s a killer meeting after a meeting with Goldman Sachs where Fed employees talk about what happened, and – though we don’t know what was left on the cutting room floor – the modesty of the regulatory options being considered is fascinating. Nothing about fines, stopping certain sorts of deals, stern letters, or anything else. The talk is self-congratulation (for having that meeting with Goldman) and “let’s not get too judgmental, here, guys.”
The takeaway of the story, which is blessedly not an example of the “me mad, banksters bad!” genre, is that this kind of regulation isn’t very effective. It clearly hasn’t prevented banks from being insanely profitable until recently, in a way that you’d think would get competed away in open markets.
Why is Goldman exempt from any meaningful oversight? William D. Cohen over at Politico provides an answer to the question, Why the Fed Will Always Wimp Out on Goldman.
Although Michael Silva, Segarra’s superior, didn’t doubt that the Goldman-Santander transaction was legal, he didn’t think it passed the smell test. “It’s pretty apparent when you think this thing through that it’s basically window dressing that’s designed to help Banco Santander artificially enhance its capital position,” he told his New York Fed team before a meeting on the topic with Goldman executives.
Segarra thought her boss’s preoccupation with whether Goldman “should” have done the deal, or been allowed to do the deal, was all just a big waste of time and obfuscated the larger issue that Goldman, and other Wall Street banks, were busy pushing around a key regulator – the New York Fed – rather than the other way around. She worried that her bosses were focusing on “fuzzy” and “esoteric” issues such as Goldman’s “reputational risk.” Silva also shared with Segarra that it was all moot anyway, because Tom Baxter, the New York Fed’s general counsel, had, he said, “reined him in” on the subject. “I was all fired up, and he doesn’t want me getting the Fed to assert powers it doesn’t have,” Silva tells Segarra, according to the tape recording.
Breaking down all the details and dialogues that transpire in the normal course of banking reviews comes down to the undeniable fact that Goldman is in charge of the process. The ownership of the Federal Reserve, a private entity, is ultimately owned by the shadow families that control the major financial institutions. Only a very naïve analysis or a compromised minion of the financial elite Plutocracy would dispute the power and clout that is applied to the political nature of regulatory oversight.
Banksters earn this graphic title by the way they conduct their protection racket. Courageous regulators like Carmen Segarra are treated as traitors to a system that is designed to facilitate every abuse that firms like Goldman can devise. Now you know who really owns the gold, because they make up whatever rules that foster their financial corruption.
James Hall, a reformed, former political operative. This pundit’s formal instruction in History, Philosophy and Political Science served as training for activism, on the staff of several politicians and in many campaigns. A believer in authentic Public Service, independent business interests were pursued in the private sector. Speculation in markets, and international business investments, allowed for extensive travel and a world view for commerce. Hall is the publisher of BREAKING ALL THE RULES. Contact [email protected]