Sep262014
- Carmen
Segarra, 41, made recordings while working for the Fed at Goldman
- Says
her tapes show a culture of ‘fear’ and ‘deference’ towards bankers
- Senior
regulator heard gently bringing up a potential lapse in meeting then
trailing off – despite previously calling the deal ‘shady’
- In
another meeting afterwards he congratulates himself and says bank will
‘think twice’ before trying to do the same thing again
- Segarra
was fired after seven months on the job – and lost lawsuit over it
- Claimed
she was kicked out for refusing to back down over critical
report
- Michael
Lewis: ‘The Ray Rice video for the financial sector has arrived’
PUBLISHED: 14:03 EST, 26 September 2014 | UPDATED: 21:19
EST, 26 September 2014
Secret tapes: Carmen Segarra, a fired NY Fed
regulator, recorded meetings which she claims show deferential officials
failing to hold banks to ACCOUNT
A fired New York Fed regulator recorded hours of
meetings which allegedly show how government supervisors were afraid to ask
tough questions of the biggest banks on Wall St.
Carmen Segarra, 41, was brought in by New York’s
banking watchdog in the wake of the financial crisis to tighten the
government’s grip on the major banks, and assigned to Goldman Sachs.
And after encountering a culture of ‘fear’ and
‘deference’ to the finance giants at Goldman, Segarra explosively started
recording meetings in which regulators offer softball questions to bankers,
then congratulate themselves for standing up to them.
The Big Short and Liar’s author Michael Lewis has dubbed the recordings
the ‘Ray Rice video of the financial sector.’
Segarra was fired after just seven months working at
Goldman for the Fed – which she says was because she refused to back down from
a damning report on the bank’s policies on conflicts of interest.
The tapes, handed over to an investigation by ProPublica andThis American
Life,
record meetings between where the Fed’s live-in regulators do not press Goldman
on parts of its dealings which they themselves admit are ‘shady’.
Recordings show Michael Silva, the Fed’s top man at
Goldman, gently raising an issue of potential regulatory lapse in a way that
allows Goldman to skirt over it.
A clause in a deal which Silva describes in the tapes
before a meeting as ‘legal but shady’ seemed to require approval from the Fed –
which had not been given.
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In the private meeting, Silva aims to ‘put a big shot
across their bow on that’. But in the meeting itself – after more than 45
minutes without mentioning it, he only mentions that it ‘sounds like’ the
clause ‘dropped out’.
He is heard saying: ‘Just to button up one point. I
know the term sheet called for a notice to your regulator. The original term
sheet also called for expression of non-objection – sounds like that dropped
out at some point, or…?’
+5
Refused to toe the line: Segarra claims she was fired
from the Fed because she refused to back down over a report which was critical
of Goldman Sachs
+5
Heart of Wall St: Segarra made the recordings during
her seven-month tenure at Goldman Sachs before she was fired.
Silva is later heard reflecting on the meeting, and
says that by asking the question – and even having a meeting in the first place
– the Fed has succeeded in making Goldman ‘think twice’.
He says: ‘At a minimum, we made them, I guarantee
they’ll think twice about the next one, because by putting them through their
paces and having that large Fed crowd come in. You know we fussed at ‘em pretty good.’
+5
Soft questions: Michael Silva, the Fed’s top man at
Goldman, is recorded during the tapes
He considers sending a letter – which he acknowledges
the bank may ignore – but it is unclear whether it was ever sent.
Segarra’s analysis of the situation is that it shows
the Fed was in the grip of an irrational ‘fear’ of Goldman which led to them
giving the bank an easy ride.
She told the radio show: ‘They were all sort of afraid
of Goldman… What I was sort of seeing and experiencing was this level of
deference to the banks. This level of fear.’
She is asked whether the attitude amounts to
‘regulatory capture’ – a form of corruption when officials put the interests of
those they are scrutinizing ahead of doing their job.
Her response is: ‘You know, if that isn’t [it], I
don’t know what is.’
Segarra also recorded interviews with her own
superiors, in which she is told to adopt a less confrontational style in order
to get taken seriously.
Segarra filed a lawsuit against the Fed, claiming she
was dismissed unfairly and demanded $7million in damages. But her case was
struck down by a judge and is now undergoing an appeal.
Goldman Sachs and the New York Federal Reserve
declined to comment on the specifics of the deals and exchanges mentioned.
But in a response to This American Life, the Fed said:
‘The New York Fed categorically rejects the allegations being made about the
integrity of its supervision of financial institutions.
+5
‘Afraid of Goldman': Segarra has now claimed that her
recordings show a meek and deferential attitude from government regulators
towards the banks they are supposed to be in charge of
On the issue of whether it is difficult for regulators
to express concerns, the Fed said: ‘Examiners are encouraged to speak up and
escalate any concerns they may have regarding the New York Fed or institutions
that we supervise.
‘The New York Fed provides multiple venues and layers
of recourse to help ensure that its employees freely express their views and
concerns…’
And on Segarra in particular, it said: ‘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 an institution.’
SECRET GOLDMAN RECORDINGS: HOW THE FED DEALS WITH THE
BANKS IT’S CHARGED WITH REGULATING
Carmen Segarra’s 46 hours of tapes record
conversations between her and superiors at the Fed, as well as interactions
between Goldman and its regulators.
One of the earliest parts relates to a transaction
between Goldman and Satander, a Spanish bank, designed to move shares to help
them meet regulations in Europe.
Mike Silva, the Fed’s top man at Goldman,makes the
following plan about how to put his concerns to the bank:
Silva: ‘My own personal thinking right now is
that we’re looking at a transaction that’s legal but shady.
I want to put a big shot across their bow on
that. Poking at it, maybe we find something even shadier than we already
know.
So let’s poke at this thing, let’s poke at it
with our usual faces, you know. I’d like these guys to come
away from this meeting confused as to what we think about it. I want to keep
then nervous.’
Others: OK.
Silva: Does that make sense?
Woman: Yeah yeah, it does.
However, in the meeting, Silva does not make his point
for more than 45 minutes. When he does, he says the following.
Silva to Goldman bankers: ‘Just to button up one
point. I know the term sheet called for a notice to your regulator.
‘The original term sheet also called for expression of
non-objection – sounds like that dropped out at some point, or…?’
Silva, who appears not to get a definitive answer,
doesn’t bring it up again.
After the meeting, another Fed worker is recorded
saying the following:
Fed worker: ‘I would add to his comments in
that I think we don’t want to discourage Goldman from disclosing these types of
things in the future, and therefore maybe you know some comment that says don’t
mistake our inquisitiveness, and our desire to understand more about the
marketplace in general, as a criticism of you as a firm necessarily.
‘Like I don’t want to, I don’t want to hit them on the
bat with the head, and they say screw it we’re not gonna disclose it again, we
don’t need to.’ [Goldman are required by law to give the Fed any information
they ask for]
Later Silva mentions his performance in the meeting,
and says he thinks it will bring about change:
Silva: ‘At a minimum, we made them, I guarantee
they’ll think twice about the next one, because by putting them through their
paces and having that large fed crowd come in.
‘You know we fussed at ‘em pretty good.’
Segarra also recorded her superior at the Fed –
Johnathan Kim – giving her advice on her role, in which he tries to change her
attitude.
Kim: I want to manage your sort of career and
expectations, right? I want you to be successful. Ok? There are –there’s
information that’s coming in, there’s opinions that are coming in. Right?…
‘I’m never questioning about the knowledge base or the
assessments or those things, it’s really about how you are perceived, right? So
if there’s more a general sort of feedback that says that it’s not only one
person, it’s not only two persons, but many more people who are perceiving that
you’re –um, you have more sharper elbows, right.
‘ Or that you’re sort of breaking eggs. And obviously
I don’t know what the right word is.’
Two weeks before she was fired, Kim told Segarra the
following:
Kim: ‘Couple of things, ok, that I would suggest: Have
a sense of humility, right?
‘Because a lot of the things that you say, and this is
the way you’re coming across,I think I know you well enough that that’s not
what you’re saying, right?
‘But if I were to be a new person, I would say Carmen,
you’re very arrogant. Right?’
Read
more:
- Inside
the New York Fed: Secret Recordings and a Culture Clash – ProPublica
- The
Secret Recordings of Carmen Segarra | This American Life
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