Tags: Fed | Segarra | Goldman | recording

Secret Fed Recordings Might Be 'Ray Rice Video for Financial Sector'

By    |   Friday, 26 September 2014 12:19 PM

Secret audio recordings by a Federal Reserve insider show regulators are fearful about disagreeing with their bosses and criticizing the banks they're supposed to be supervising.

The recordings are so unfavorable to the New York Fed they could become "the Ray Rice video for the financial sector," predicts Bloomberg columnist Michael Lewis.

The recordings reveal that the Fed's culture pushes employees to agree with their bosses, water down their findings and appease the banks they're hired to examine, according to a ProPublica expose co-published with "This American Life" from WBEZ Chicago.

New York Fed examiner Carmen Segarra, hired to supervise Goldman Sachs, secretly recorded 46 hours of meetings with Fed and Goldman Sachs employees. The recordings show the Fed is reluctant to use its clout and prefers to agree with Wall Street banks.

For instance, Segarra raised concerns about a Goldman Sachs transaction with Spanish bank Banco Santander, pointing out a clause in the deal's terms that called for the Fed to give its approval. Still, the Fed declined to get involved.

Segarra clashed with her boss when she refused to drop her conclusion that Goldman Sachs lacked a policy to handle conflicts of interest. After intense pressure, she altered the wording in her finding but stuck to her opinion.

She was terminated shortly afterwards, after seven months on the job, and sued the New York Fed, saying she was axed for not backing down from her negative findings. The Fed says she was dismissed for performance reasons.

A judge through out the lawsuit this year, saying it didn't fall under the statute Segarra used to sue but didn't rule on the case's merit, ProPublica notes.

An investigation by Columbia University finance professor David Beim about three years ago said the New York Fed is plagued by risk-averse culture and groupthink. Examiners are discouraged from asking tough questions and offering their opinions.

Lewis calls the recordings "jaw dropping." Much of the meaning is in the tone of the voices, he says, "especially in the breathtaking wussiness of the people at the Fed charged with regulating Goldman Sachs."

Fed employees would defer to Goldman Sachs people and ignore or downplay their alarming comments at meetings. For instance, a Goldman Sachs employee said, "Once clients are wealthy enough certain consumer laws don't apply to them."

After Segarra told another Fed regulator how surprised by the comment, she was told, "You didn't hear that."

The recordings will show listeners that the banks control their regulators, if they didn't already know, Lewis says.

"At this moment the Fed is probably telling itself that, like the financial crisis, this, too, will blow over. It shouldn't."

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Secret audio recordings by a Federal Reserve insider show regulators are fearful about disagreeing with their bosses and criticizing the banks they're supposed to be supervising.
Fed, Segarra, Goldman, recording
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2014-19-26
Friday, 26 September 2014 12:19 PM
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