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Vampire Squid and the Fed

by Crazy Horse Mon Sep 29th, 2014 at 02:13:21 PM EST

I haven't read through (or listened to) a story Michael Lewis is pushing regarding the  NY Fed's "Regulation" of Big Banks ; with a transaction between Goldman and Santander as a highlight.

I don't know if this story appears elsewhere on ET in the past days, but immediately felt I should post it here.

front-paged by afew


Perhaps it needs a Diary, especially to discuss what "civilization" should do, or how to react to this story. The story revolves around secret tapes made by a Fed employee which detail a Vampire Squid's activities.


Jake Bernstein  Carmen says this wasn't an isolated incident. In December -not even two months into her job -a business line specialist came to Carmen and told her that her minutes from a key meeting with Goldman executives were wrong, that people didn't say some of the things Carmen noted in the minutes. The business line specialist wanted her to change them. Carmen didn't.

That same day, Carmen was called into the office of a guy named Mike Silva. Silva had worked at the Fed for almost twenty years. He was now the senior Fed official stationed inside Goldman. What Mike Silva said to Carmen made her very uncomfortable. She scribbled notes as he talked to her.

Carmen Segarra  Even looking at my own meeting minutes, I see the handwriting is like nervous handwriting. It's like you can tell. He started off by talking about he wanted to give me some mentoring feedback. And then he started talking about the importance of credibility. And he said, you know, credibility at the Fed is about subtleties and about perceptions, as opposed to reality.

Brian Reed  Wait he said that?
Carmen Segarra  Yes.
Brian Reed  What does that even mean?
Carmen Segarra  I found it to be completely incredible. For somebody to tell me that credibility is about perception as opposed to reality? I mean, I come from the world of legal and compliance, we deal with hard evidence. It's like, we don't deal with, you know, perceptions.

So find out what's changed my Sunday completely...


Ira Glass  Which brings us to the secret recordings. For over a hundred years, the Fed has done everything it could to keep its behind-the-scenes interactions with banks from
being seen by the public. But what Carmen Segarra witnessed going on at the Fed was so alarming, she started secretly making recordings of what she experienced as a bank examiner -recordings that raise serious questions about whether the Fed has changed enough since 2008 to protect us from another financial disaster.

This is a spoiler but just to put it out there: things went very badly for Carmen Segarra in her new job. She's currently suing the Fed over this. So what you're going to hear today is a dispute between an employee and her bosses, though of course what we're interested in is not the he-said-she-said of all that but in what her secret recordings show us about how the Fed works.

Throughout this hour you're going to hear her recordings of what she saw at the Fed and you're going to hear more from David Beim's 2009 report, which lays out the way the Fed should be operating. He explained the changes the Fed needed to make. With Carmen's tapes, we get to see if they actually made those changes. And it is not reassuring. From WBEZ Chicago, it's This American Life, I'm Ira Glass. Stay with us.

Viel Spass, Alle

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Michael Lewis' phrase "the breathtaking wussiness of the people at the Fed charged with regulating Goldman Sachs" sums up the real (emotional) monkey hierarchy nicely.

Could the AG Eric Holder resignation anything to do with this?

by das monde on Sun Sep 28th, 2014 at 12:38:45 PM EST
There were times, under Benjamin Strong and then several years later under Marriner Eccles, when the Fed was run, as best they could, in the interest of the nation as a whole. But from some time in the '60s to the present it seems that it has become a giant control fraud. I say 'seems' because it may well turn out that nothing done was illegal - or not.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Sep 28th, 2014 at 01:12:56 PM EST
[ Parent ]
I now understand the artfulness of Tim Giehtner's response during confirmation questioning by Congress:

Tim Geithner: "I have never been a regulator."

Technically true. At the Fed he had been a 'supervisor', but one with the power to regulate the banks under their purview -- a power he found it better not to exercise with any vigor. That attitude certainly paid off well for him. For the nation - not so much.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Sep 28th, 2014 at 01:48:22 PM EST
There is now at least some press reaction to the broadcast: was published in Bloomberg View on Friday, Sept. 26. The Secret Goldman Sachs Tapes Elizabeth Warren Calls For Investigation Of NY Fed Over Secret Tapes in HuPo on Sunday and 'Bent' Fed now blind in Asia Times Online today. The Washington Post had coverage in their online media section consisting of links to some of the recordings. I am not certain if anything has appeared in print as yet. I found no mention on McKlatchey, NYT, LAT or WaPo headlines for today.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Sep 29th, 2014 at 02:35:30 PM EST
Apart from Elisabeth Warren, everyone else in the political, media Olympus would be working to bury the story (if keeping mum is not enough).
by das monde on Tue Sep 30th, 2014 at 01:56:50 AM EST
[ Parent ]
Head down, mouth shut.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Oct 2nd, 2014 at 02:03:39 PM EST
[ Parent ]
Cant say I'm the least bit surprised. As to what might happen, there will be much sound and fury, but signifying nothing.

the Fed is not appointed by Govt to regulate Wall St, but vice versa

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Mon Sep 29th, 2014 at 04:15:18 PM EST
I found it to be completely incredible. For somebody to tell me that credibility is about perception as opposed to reality? I mean, I come from the world of legal and compliance, we deal with hard evidence. It's like, we don't deal with, you know, perceptions.

I come from that world too, and she's missed the obvious element.  You only find that incredible if you've never worked in a politically sensitive area.

In my world, people bang on about "optics" all the time.

Optics are total fucking bullshit, of course.  I try to explain this a fair bit.  "Barring some horrendous scandal, the optics mean fuck all in this election.  You know why So-and-So's going to win?  Because s/he hasn't screwed up too badly, and s/he's not a (Dem/Rep).  That's how elections work in this scenario."

Similarly, "Why does anybody give a shit about the optics here?  Folks have made up their minds on that anyway.  Just roll with it.  Fuck'em."

Nothing pisses me off quite like "optics".  People who care about optics are gutless trash who don't know how anything works.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon Sep 29th, 2014 at 07:45:26 PM EST
...adding:

I mean, I come from the world of legal and compliance, we deal with hard evidence.....

This is, in no way, meant to discount the validity of her story.  Maybe she's totally sincere.

But I doubt it.  This wreacks of pearl-clutching.

She's worked for Bank of America, Citi and Societe Generale.  Three of the scummiest banks on the planet.

To borrow a bit from Christopher Hitchens: If you gave her an enema, you could bury her in a matchbox.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon Sep 29th, 2014 at 07:57:32 PM EST
[ Parent ]
I'm willing to not pass judgement at all on her, given that i simply know nothing relevant. I know enough to not tar her with the same brush used on the banks where she worked, as she did work compliance sections, i believe.

That's not enough to question her body mass after an enema.

Because there are tapes of FED senior managers, and her top boss, asking her to change her meeting notes, and her appraisal of the deal, or whether GS had a conflict of interest policy. That seems to be key to the story, which is about evidence of the regulator averse to regulating.

"Life shrinks or expands in proportion to one's courage." - Anas Nin

by Crazy Horse on Mon Sep 29th, 2014 at 08:19:34 PM EST
[ Parent ]
I'm willing to not pass judgement at all on her

I'm not.  I've been doing this stuff too long and have seen too much.

Nothing she's said has been shocking.  We've all been commenting on it for years here.  It's great that it's out there, although, alas, I assume it'll make no difference.  

It reads like a book pitch to me.  "I'm a dirtbag who reached the end of the line when things went to shit, so I'm gonna tell on the other dirtbags."

This is a bit like the Ray Rice thing with the NFL.  "Oh, well, that video's awful.  He punched his wife and knocked her out.  We have to suspend him forever now."  What the fuck did people think was on the video -- that he sighed at her and she fell down?

Of course the NY Fed is in bed with the banksters.  The notion that she didn't know that when she was working for the other side is ludicrous.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon Sep 29th, 2014 at 08:27:46 PM EST
[ Parent ]
She may well have never had to deal directly with 'inside administrators' working for the Fed. She obviously knew enough to be concerned when she was assigned to Goldman and her going public with this will not enhance her credentials for working at financial institutions or government agencies. And I don't think she will be a highly paid speaker on the rubber chicken circuit. Qui bono?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Sep 29th, 2014 at 08:49:00 PM EST
[ Parent ]
(She would have to sell an awful lot of books to make up for future lost earnings in her specialty.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Sep 29th, 2014 at 08:55:50 PM EST
[ Parent ]
It reads like a book pitch to me.  "I'm a dirtbag who reached the end of the line when things went to shit, so I'm gonna tell on the other dirtbags."

Which, all things considered, is a socially gainful activity that should be encouraged, not demeaned or scolded.

At the end of the day, the personal character and career choices of whistleblowers are largely irrelevant to the value of their contribution to public discourse.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Sep 30th, 2014 at 02:29:43 AM EST
[ Parent ]
I will simply let the gurgling cynicism of these preceding posts shine out in all its glory.

Look! A Whistleblower! With tape-recorded evidence of the obvious we've all known about since before Banking was invented (or dredged from the remains of a collective enema).

Kill the Messenger!

At least Hitchens had moments of brilliant insight.

"Life shrinks or expands in proportion to one's courage." - Anas Nin

by Crazy Horse on Tue Sep 30th, 2014 at 02:50:56 AM EST
[ Parent ]
I meant Obvious, not obvious.

"Life shrinks or expands in proportion to one's courage." - Anas Nin
by Crazy Horse on Tue Sep 30th, 2014 at 02:52:14 AM EST
[ Parent ]
Yes, sometimes amidst all our gurgling cynicism, we forget that point

keep to the Fen Causeway
by Helen (lareinagal at yahoo dot co dot uk) on Tue Sep 30th, 2014 at 10:15:38 AM EST
[ Parent ]
Not interested in shooting the messenger (I'm glad someone finally had the chutzpah to tape the inside crap.), but she isn't helping the case by taking a "wide-eyed and innocent" pose.  Given the places she worked, the only way this could have taken her by surprise is if she practiced a pattern of willful ignorance.  She reminds of Louis Renault closing down Rick's because he is "shocked, SHOCKED to find that there is gambling going on here," as the roulette operator hands him his winnings.  Also, "I mean, I come from the world of legal and compliance, we deal with hard evidence...."  Come on.  Every American litigator is laughing over such first-year law school earnestness.  It doesn't take long to figure out that "reality" and "hard evidence" only meet by accident.  She needs to try a different reading, or her credibility will go flying over the ridgetop with its hair on fire.
by rifek on Sun Oct 5th, 2014 at 11:09:19 PM EST
[ Parent ]
She hasn't been doing litigation, though, she's been doing compliance.

I can totally believe that the places she previously worked at kept their compliance officers ignorant of reality on the trading floor, while allowing them to produce lots of great paperwork documenting compliance processes which were signed off in all the right places, despite never actually being followed. All you have to do is have a pervasive culture of "compliance is this annoying ass-covering paperwork that you have to lie on to close a deal" and a couple of layers between compliance and execution. Then the compliance officer will be presented with indisputable documentation that a totally fictitious set of policies were strictly adhered to.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Oct 6th, 2014 at 02:33:00 AM EST
[ Parent ]
If you do compliance, you hear about the things that are made to "comply."  Unless your ears are plugged.
by rifek on Mon Oct 6th, 2014 at 05:22:48 PM EST
[ Parent ]
Or somebody plugs them for you.

Notice how much time she spends in the interview on the existence or not of a conflict of interest policy, versus how little she spends on the fact that there was a massive conflict of interest. This is fairly typical for my experience with compliance officers: Their job is to ensure that there are adequate policies in place, and that middle managers sign off on those policies being followed.

In organizations that actually care about compliance, it is then said middle managers' jobs to actually follow up and ensure that the policies are adhered to. In organizations that view compliance as an annoying cul de sac grafted onto their process by annoying regulators, that step tends to go missing.

And if the people she interacts with are reasonably intelligent and not too indiscreet, the compliance officer has no way to know which of those worlds she's living in.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Oct 7th, 2014 at 01:53:38 AM EST
[ Parent ]
Interesting that Holder announced his resignation the same day this story broke. But it looks like he will be around for a while more to fly air cover for the banks.


"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Sep 29th, 2014 at 08:53:30 PM EST
I found her quite credible enough on the podcast. The insidious way they try to capture her is chilling.

Jake's right, it's not about her. The recordings tell the story, how the great crash of 2008 has not changed the culture one jot or iota.

She is not especially memorable as a personality, similar to Snowden that way.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue Sep 30th, 2014 at 03:02:30 PM EST
No, but like Snowden, she grasped the need for documentation. Actually, I'm astonished this doesn't happen constantly. Smartphones are a thing. Buy a head set with a good mic, keep it in the right pocket and what you have is a wire with memory enough to log a week worth of audio, no need to buy custom gear and the odds of people questioning you having those things on you are about zero. So if you see a trainwreck coming recording everything ought to be standard practice. Which it doesn't seem to be?
by Thomas on Tue Sep 30th, 2014 at 03:16:22 PM EST
[ Parent ]
Carmen Segarra: Wall Street's Spy Vs Spy  By Pam Martens: September 28, 2014  Wall Street on Parade

If you missed our coverage in 2012 of the Lower Manhattan Security Coordination Center where Wall Street sleuths from those serially charged firms like Goldman Sachs and JPMorgan dunk donuts alongside New York's finest in a $150 million spy center, keeping tabs on the comings and goings of their own Wall Street employees as well as innocent pedestrians, then you may not fully appreciate why Carmen Segarra has been celebrated all weekend for her temerity in taping her boss and colleagues at the New York Fed, as well as employees inside the cloistered bowels of Goldman Sachs.

While Wall Street was spying on everyone else in lower Manhattan in a high tech center funded by the taxpayer, Segarra strolled over to a Spy Store, plunked down a modest sum and walked out with a tiny tape recorder. She then proceeded to capture the essence of the quintessential captured regulators who didn't see the 2008 crash coming and won't see the next one coming either - because their job is not to see too much. (We called the Spy Store on Saturday to ask if they had experienced an upsurge in sales of the tiny recorder. We were informed that sales were brisk but not unusual.)

Segarra is a lawyer and former bank examiner at the Federal Reserve Bank of New York, one of Wall Street's key regulators, who charged in a lawsuit filed in October 2013 that she was told to change her negative examination of Goldman Sachs by colleagues, who also obstructed and interfered with her investigation. According to her lawsuit, when she refused to alter her findings, she was terminated in retaliation and escorted from the Fed premises.



"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Sep 30th, 2014 at 06:06:39 PM EST


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