Corruption at the Fed

Senators Elizabeth Warren and Sherrod Brown have called for an investigation of the Federal Reserve Bank of New York. This comes as a response to a ProPublica article by Jake Bernstein, true yeoman’s work, that exposes an all-too-cozy relationship between the Fed and Goldman Sachs. Relying on secret recordings made by a former Fed compliance attorney, he writes:

In a tense, 40-minute meeting recorded the week before she was fired, Segarra’s boss repeatedly tries to persuade her to change her conclusion that Goldman was missing a policy to handle conflicts of interest. Segarra offered to review her evidence with higher-ups and told her boss she would accept being overruled once her findings were submitted. It wasn’t enough.

“Why do you have to say there’s no policy?” her boss said near the end of the grueling session.

“Professionally,” Segarra responded, “I cannot agree.”

The New York Fed disputes Segarra’s claim that she was fired in retaliation.

As far as I can tell, this story boils down to the firing of Carmen Segarra, an “expert examiner” hired by the Fed who dared to ask questions of her Fed boss about Goldman Sachs’ nonexistent conflict of interest policy. The concern here is that Goldman Sachs has undue influence over policy making at the New York Fed–more specifically, that Fed officials aren’t willing to hold Goldman Sachs accountable.

A classic case of regulatory capture, if you ask me. And why aren’t Republicans on top of issues like this? Where’s Rand Paul? I like most Republicans, but their apparent unwillingness to involve themselves in issues like this–issues other than run-of-the-mill low taxes, less regulation, more freedom, etc.–will doom them among young voters, if it hasn’t already.

Update: Apparently Michael Lewis has covered this story for Bloomberg. He highlights the following quote that should get people’s attention:

for instance, in one meeting a Goldman employee expressed the view that “once clients are wealthy enough certain consumer laws don’t apply to them.” After that meeting, Segarra turned to a fellow Fed regulator and said how surprised she was by that statement — to which the regulator replied, “You didn’t hear that.”

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