The latest eposide of This American Life featured secret recordings made by Carmen Segarra, a regulator for the NY Fed who was embedded at Goldman Sachs; it seems to be causing a stir in the bubbles. I just listened, and it’s disturbing stuff. No matter how you feel about the show, I hope you’ll take the time to listen, too.
I pretty much agree with conventional wisdom on the relationship between the Fed and the banks it regulates: it’s way too cozy. In the wake of the financial crisis, it’s obvious that the Fed showed deference to banks, not to people; banks were made whole, with individual people left holding the bag. The program to help underwater homeowners defers first to banks, and has helped a tiny proportion of people harmed through no doing of their own. But the economic destruction to American families is still a huge problem. [Note: this link goes to a journalist resource tip sheet from the Harvard Kennedy School’s Shorenstein Center on Media, politics and Public Policy.]
The piece left me very unsatisfied. I had a huge question that should have been at least acknowledged. The background story says Segarra and others were preparing a finding that Goldman’s did not have a conflict-of-interest policy; she was not she alone in coming to the conclusion that there was no bank-wide policy that met federal requirements in place. She was fired before the finding was filed.
I wanted to know what would have happened to the finding. What’s the process? The relationship between Fed regulators and banks is private and confidential, but a finding is a legal result of that relationship. Does the finding become public record? If it becomes public record, is there some risk to financial markets? Because, remember, we live in a world that trembles at every whisper from the Federal Reserve, and Goldman’s actions both. If it’s not public record, what is the process for moving forward?
I would also like to have known if these types of conflict-of-interest concerns are a problem of other TBTF American banks, and if regulating by insinuation – not by stating facts – is how banking goes down? Segarra’s boss seemed to think simply raising the question of the appearance that the Fed had signed off on something it hadn’t signed off an action. This reminds me of the careful phrasing of all public Fed statements, of Janet Yellen’s early thrown-elbows that set the markets aflutter.
In a world that trembles at every whisper from the Federal Reserve, can it actually regulate the banking industry without causing financial chaos?
A few thoughts on Carmen Segarra. The woman’s a hero. She deserves whistle-blower protection. But she was also secretly recorded those meetings. So while I want to go all rah-rah sisboomba on her; I wonder if her decision to begin recording the meetings secretly may have changed how she performed her job. That’s an ethical nut I’m having trouble cracking. I want to give her the benefit of the doubt, particularly in a world where her bosses words so echoed the ‘you’re too abrasive’ meme women receive in job evaluations. I think that her suggesting to her boss that she was going to be fired probably opened the door to her firing. Even so, I cling to what feels like a healthy dose of skepticism.
For anyone considering such a thing, I’d advise you to talk to a lawyer before you purchase the recording devices from Spies ‘R Us. Your right to record, without whistle-blower protection, is regulated by the state in which you’re recording; particular care is required with interstate phone calls.