Carmen Segarra is the former bank examiner who is filing a wrongful termination lawsuit against her employer, the Federal Reserve of New York, alleging that she was fired for "not going soft" on financial giant Goldman Sachs. Moral hazard runs rampant as clearly, Goldman Sachs still does not have a conflict of interest policy that would stand up to Fed criticism, if the Fed ever bothered to do their job.
After hours of correspondence and interviews, Jake Bernstein, reporter for ProPublica, obtained Carmen Segarra's 46 hours of secret recordings within her time at the Fed and they were released today, with the airing of today's episode of 'This American Life' on National Public Radio. You can listen online here, with a running time of 69 minutes of jaw-dropping potency as one of the most powerful establishments of the world is exposed. Read the transcript here.
The Story of Carmen Segarra
ProPublica reports that Carmen Segarra was hired into the Federal Reserve as an effort to monitor systemically significant financial institutions after the Dodd-Frank regulatory overhaul. In her short 7 months working there, she witnessed the crony foundation of their lax oversight atmosphere, leading to what experts call "regulatory capture."
'Regulatory Capture' is a term referring to when the institutions appointed with government oversight and regulation end up being controlled or 'captured' by those they were meant to regulate. In late October of 2011, Carmen Segarra stepped into the Federal Reserve for her first day as senior bank examiner to find that she would be assigned to oversee investment banking giant Goldman Sachs. Almost immediately, she was met with pushback. In one instance, at a meeting with a Goldman Sachs senior executive, she was shocked to hear him say that once clients were wealthy enough, certain consumer laws don't apply to them. In December of 2011, not two months after she was hired, she was approached by a business line associate and told to change the minutes from a key meeting with Goldman executives. She refused.
Her time at the Fed coincided with a string of disturbing events (obviously happening on a wider scale), including many turned-away eyes and major buddying-up with Wall Street, showing just how government agencies tasked with regulating corporate giants end up as collusive tools, or at least lazy pets, of those that they were meant to keep controlled. Worried and shaken by what she was witnessing, she decided to begin secretly recording important meetings. Today, these meetings are being broadcasted for the first time to the public.
The most disturbing recording involved a tense 40 minute meeting with Segarra's boss as he repeatedly attempts to persuade her to revert her conclusion that Goldman was missing a policy in regards to any conflicts of interest, notably in this event, a conflict of interest in a deal between Kinder Morgan and El Paso. This was a week before she was fired, her phone confiscated, and she was marched out of the Federal Reserve offices in lower Manhattan.
In October of last year, she filed a wrongful termination lawsuit against the Federal Reserve which was later thrown out by a judge, sating that it did not fit the statute under which she sued. The Fed responded with a two-page statement, stating that their decision in terminating Carmen Segarra's position was because they did not trust her judgement.
"The New York Fed categorically rejects the allegations being made about the integrity of its supervision of financial institutions."
The Federal Reserve Black Box
What little we know of the Federal Reserve's inner workings are only unraveling now as the secrets may be busting at the seams. This is one of many issues that is finally reaching the light of day. As the US financial regulatory environment, as well as much of the modern world's, is still obscured in secrecy, perhaps this may be a shocking wake-up moment for people nationwide. In the next few years, cryptocurrencies will only become more and more a viable alternative to the traditional banking and financial system. The structure and functions are in code, not in secret meetings and buddy-buddy relationships.
This is something immeasurably important as we consider the proposed regulation by the NYDFS on BitLicensing as well. Not only would the draft attempt to force the Bitcoin industry to become like the traditional system, but it would force the Bitcoin industry to be overseen by institutions like the Federal Reserve; shrouded in secrecy and kept away from the light of the media. What we know of the proposed draft right now is that big banks like Goldman Sachs would not have to file with the NYDFS, already giving them the upperhand. Only time will tell what implications these may have.
Bull image from Dealbreaker; other images from Shutterstock.