Leaked Audio Reveals Just How Much Wall Street Walks All Over the U.S. Government
The Federal Reserve Bank of New York is one of the most powerful institutions in the American financial system, as well as one of the most impenetrable to the general public. As one of the key regulatory agencies in charge of making sure big Wall Street banks play by the rules, it supposedly has a critical role preventing financial meltdowns like the one that wrecked the economy in 2007.
There's just one problem: The banks walk all over them.
Whistleblower Carmen Segarra, a special investigator specifically appointed to help figure out what went wrong in 2008, recorded a stunning 46 hours of conversations both within the Fed and between Goldman Sachs and regulators in 2012. The results, published by This American Life, demonstrate what everyone already suspected: Wall Street bankers have the upper hand on the men and women entrusted to regulate them, with a culture of deference to senior managers who want to avoid rocking the boat.
In the words of Bloomberg View's Michael Lewis, "The Ray Rice video of the financial sector has arrived."
ProPublica reports that Segarra was ultimately fired after raising the alarm a few too many times, including a contentious battle over Goldman's conflict of interest policy. While her superiors apparently decided the financial giant's policy was sufficient to prevent abuse, Segarra was alarmed by its many apparent loopholes that allowed the company to advise clients on both sides of multibillion-dollar deals. From the tapes:
Carmen Segarra: Do you have in the policy the definition of a conflict of interest, and what that is, and what that means?
According to Segarra, senior Fed managers "wanted me to falsify my findings, and when I wouldn't, they fired me."
Segarra also observed a pattern of Fed officials refusing to pressure the companies they were supposed to be overseeing on shady financial practices. That included a "senior compliance officer" from Goldman arguing that rich clients were somewhat above regulatory law, a comment shoved under the rug by another Fed employee. Goldman employees pressured her to change the minutes of meetings Segarra kept a log of (she didn't). A senior manager named Mike Silva took her into his office and told her "credibility at the Fed is about subtleties and about perceptions, as opposed to reality."
One of the most destructive habits Segarra identified was the Fed's "culture of consensus," which prevented the institution from taking quick action, deflected accountability and ensured compromises that essentially let the banks do whatever they wanted. In most cases, the furthest that regulators would go was to address major firms like Goldman with letters of concern that were often ignored. When Segarra asked about these issues, many Fed employees reacted with alarm, embarrassment or by telling her to tone it down.
According to reporter Jake Bernstein, Segarra's eventual firing was not because she was inappropriately injecting herself into discussions that shouldn't have involved her, but because she was irritating people who didn't want their way of doing business questioned:
One of Carmen's colleagues while she was at the Fed told me Carmen did ask direct questions — sometimes embarrassingly direct — but this person said they were all questions that needed to be asked and that Carmen was "a breath of fresh air." I also spoke to three people who worked with Carmen at jobs she'd had before the Fed, and none of them remembered Carmen behaving unprofessionally, disrespectfully or arrogantly. And it's clear that other Fed employees in her position were experiencing similar tensions with their colleagues.
The New York Fed has rejected Segarra's allegations. "The New York Fed works diligently to execute its supervisory authority in a manner that is most effective in promoting the safety and soundness of the financial institutions it is charged with supervising," it said in a statement. "The decision to terminate Ms. Segarra's employment with the New York Fed was based entirely on performance grounds, not because she raised concerns as a member of an examination team about any institution."
Batman asking the Joker where Rachel is: "WHERE IS SHE?"
Our regulators might want to consider being a little bit more like Batman, considering how easy America's biggest financial institutions have proven it to be to wreck the economy and the lives of millions. But while the Fed is taking the heat right now, remember that pretty much no one in the government seems to think keeping Wall Street honest is a major priority: