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The Secret Goldman Sachs Tapes

The public doesn't seem to understand just how dysfunctional our financial regulatory system is, Michael Lewis writes. That may change today with a radio report from "This American Life."


Probably most people would agree that the people paid by the U.S. government to regulate Wall Street have had their difficulties. Most people would probably also agree on two reasons those difficulties seem only to be growing: an ever-more complex financial system that regulators must have explained to them by the financiers who create it, and the ever-more common practice among regulators of leaving their government jobs for much higher paying jobs at the very banks they were once meant to regulate. Wall Street’s regulators are people who are paid by Wall Street to accept Wall Street’s explanations of itself, and who have little ability to defend themselves from those explanations.

Segarra was ultimately fired by the NY Fed. She alleges that her firing was retaliation for refusing to soften her Goldman report. For their part, the New York Fed has maintained that the allegations by Ms. Segarra are inaccurate, and they note that Ms. Segarra lost her initial court case alleging wrongful termination (Ms. Segarra is appealing the decision).

But even if we ignore the facts surrounding Ms. Segarra’s termination, no one would dispute that the tapes humiliate the Fed, and fortify the public’s already dim view of the backbone of financial regulators.

In the wake of this bombshell story – and in the face of the Fed’s continued intransigence – it’s important to contextualize Ms. Segarra’s story and remind the public of the Fed’s long history of ignoring and abetting Wall Street failure. Here’s a brief look back.

Secretly propping up the banks

Perhaps the most egregious example of the Federal Reserve pursuing its mission of maintaining the “safety and soundness of the banking system” at any cost is their secret aid deployed in the heat of the financial crisis. From 2007–2010, the Fed provided loans and other liquidity programs not just to failing U.S. banks, but also to foreign-owned banks, and non-financial firms like Caterpillar and Toyota.

These programs were separate from the $700 billion TARP bailout, and its beneficiaries were undisclosed to Congress at the time. We only know the full details of these programs because of the diligence of the late Mark Pittman, and the rest of the Bloomberg News team.

The Fed fought hard to keep secret just how unstable hundreds of firms were during the worst parts of the financial crisis. When Bloomberg News filed a Freedom of Information Act (FOIA) request to find out which firms the Fed was loaning money to through these programs, the Fed refused to disclose it. They argued most relevant documents were at the NY Fed, who they alleged wasn’t subject to FOIA law. So Bloomberg LP sued, prevailed in court, and carefully compiled their findings in 2011, including a stunning visualization.

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