Secret Goldman Sachs Tapes Put Pressure on New York Fed

Wall Street’s top regulator is coming under new criticism for failing to adequately police the banks under its supervision, years after the financial crisis. Lawmakers are scrutinizing allegations that the Federal Reserve Bank of New York went easy on one of the most prominent banks under its watch, Goldman Sachs, despite concerns voiced by those inside the Fed that a deal Goldman was pursuing was “legal, but shady.”

Now committees in the Senate and House of Representatives are looking at whether to hold hearings or conduct more extensive investigations into the Fed’s oversight of Goldman and other banks.

The renewed interest in the Fed’s role came after the release of secret recordings detailing interactions between employees of the New York Fed and Goldman, which were made public by the investigative news organization ProPublica and the radio program “This American Life.”

The former Fed employee, Carmen M. Segarra, who made the recordings had previously sued the New York Fed, arguing that she had been fired for being too hard on Goldman. While Ms. Segarra’s suit was dismissed, the newly released recordings suggest that her supervisor at the New York Fed went easy on Goldman, even after saying he wanted “to put a big shot across their bow” on a deal in which Goldman was suspected of helping make Banco Santander look financially stronger than it was.

The pressure on the New York Fed was apparent on Thursday when the head of the agency, William C. Dudley, came to the defense of his staff, unprompted, at the end of a speech at New York University.

“We will continue striving to improve, but I don’t think anyone should question our motives or what we are attempting to accomplish,” Mr. Dudley said.

Soon after the financial crisis, a report on the New York Fed’s practices by a Columbia University professor, David Beim, found that the regulator needed to be “willing to stand up to banks and demand both information and action” and was “too risk-averse to respond quickly and flexibly to new challenges.”

Mr. Dudley, the current president of the New York Fed, said on Thursday that after he received the Beim report in 2009, the agency’s bank supervision arm went through a “significant reorganization.”

But the conduct detailed in Ms. Segarra’s recordings came later, in 2012.

This week, three Democratic members of the House Committee on Financial Services — Representatives Maxine Waters of California, Al Green of Texas and Keith Ellison of Minnesota — wrote a letter to the committee’s chairman calling for a hearing on “whether adequate changes in management and workplace culture have taken place” at the New York Fed.

Senator Elizabeth Warren has called for a Senate Banking Committee hearing as well, and she said more scrutiny of the Fed was warranted.

“The tapes reveal a basic cultural issue: The Fed can identify problems, but can’t bring itself to make the banks fix those problems,” Ms. Warren said in a statement on Thursday. “We need congressional hearings to dig into what’s gone wrong at the Fed, and we need to do it now because our whole economy is riding on the Fed’s ability to supervise the biggest banks.”


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commented 2014-10-04 04:12:29 -0400 · Flag
A.A. writes:

I have actually listened to the 62 minutes of the American Life report containing Segarra’s recordings, etc. This is the dark underbelly of our “Capitalist” system…the dirty, filthy, amoral, unethical pits of the otherwise glossy world of investment banking. It is a racket…pure and simple. The Masters Of The Universe are nothing more than tawdry, avaricious crooks with University Degrees…moneylenders in silk shirts…a credentialed, legalized Mafia…organized crime with the thieves in pin-striped suits…“regulatory capture” is the Name of the Game and everybody wants to cash in…may the entire edifice of this whorehouse soon collapse into ruination…
commented 2014-10-04 03:40:58 -0400 · Flag
Ed writes:

Wow what a story. It really says it all as to why government is mostly self serving and impotent. By the way, NFL is a tax exempt organization. How is that possible?
commented 2014-10-04 03:38:43 -0400 · Flag
C.R. writes:

I work in a destroyed and despicable industry. It literally gnaws at me.
commented 2014-10-04 03:35:11 -0400 · Flag
Ben writes:

Don’t waver – Republican control of the Senate is much preferred to control by Dems.
commented 2014-10-04 03:34:26 -0400 · Flag
T.N. writes:

and the Real Contempt I have is for the Republicans, WHO SEE NO EVIL, HEAR NO EVIL
SPEAK NO EVIL that Tool McConnel is worthless piece of excrement,
the Republicans are Unworthy to take back control of the Senate
they are Nothing But enabling tools of the financial criminal class now Running the Freak Show ! called Amerika !!