Open Thread: The Vampire Squid Pwns Its (Supposed) Regulators

Well, I joked first thing this morning about a Friday doc-dump, and (as commentor Cat pointed out) then this happened, per Annie Lowrey at NYMag:

ProPublica and “This American Life” are out with a blockbuster story, so blockbuster they got none other than Michael Lewis to tease it. It is the tale of one Carmen Segarra, a former regulator for the Federal Reserve Bank of New York. A compliance specialist, Segarra was embedded in Goldman Sachs to ensure that the megabank followed the rules.

For instance, in an incident that seems to have contributed to Segarra’s firing less than a year after she started on the job, she questioned whether Goldman had an adequate conflict-of-interest policy, ultimately determining that it did not. Her superiors pressured her to change her finding. Soon after, they canned her.

Of course, Goldman strongly disputes Segarra’s version of events, as does the New York Fed. And of course, Segarra is not an impartial observer — she’s a disgruntled former employee. But the brilliant thing is that we do not have to take her word for any of it. Shocked by what she saw, Segarra snuck a recording device into work. There are two days’ worth of tape supporting her version of events…

There will, I hope, be a lot more discussion about this over the weekend and into next week…
***********
Apart from confirming all our worst fears about the new Gilded Age, what’s on the agenda for the start of the weekend?

99 replies
  1. 1
    srv says:

    Why isn’t she facing wiretapping charges already?

  2. 2
    jl says:

    @srv: Ha, Who fell down and hit their head now? Why did you not add that nothing should count in public policy discussion unless the evidence can, guaranteed, lead a conviction in a court of law? We can all ignore any evidence she gathered, since we should assume it would not be admissible in court.

  3. 3
    Bunter says:

    @srv: New York is a one party consent state. What she taped is legal.

  4. 4
    Baud says:

    That article needs a tl;dr.

  5. 5
    🚸 Martin says:

    @Bunter: So? When has that ever stopped the powerful and well-connected from getting charges filed against people?

  6. 6
    Howard Beale IV says:

    This story won’t go away so easily. Of course, the biggest thing here is that GS should have never been allowed to join FRBNY in the first place as they were not a true commercial bank and had no retail bank presence.

    As much as I loathe HuffPo for being cllickwhores, their one article headline I think nails it:

    ‘The Ray Rice Video For The Financial Sector Has Arrived’

  7. 7
    FlipYrWhig says:

    @Baud: I’m kind of stupid about this kind of thing, but I really did read it all, and I truly have no comprehension of what the block-busting part of the “blockbuster story” is. Bureaucrats wrangling over bureaucratic things and turf and tone doesn’t sound like a blockbuster. Tell me like I’m even stupider than I am what this is all about and why it matters. I’m willing to believe it does, but I’m not getting it.

  8. 8
    Bunter says:

    @🚸 Martin: I’m sure an “appropriate” charge can be found, but illegal wiretapping isn’t it. Maybe something in Employee handbook about not taping; maybe something about proprietary information; maybe something in her employment contract. I answered the original question about illegal wiretapping,something in which she did not engage.

  9. 9
    FlipYrWhig says:

    @Howard Beale IV: The Ray Rice video is comprehensible: punching people until they lose consciousness is bad. Getting in an argument about an investment bank’s having or not having an adequate conflict of interest policy is… less comprehensible, to me at least.

  10. 10
    Howard Beale IV says:

    @🚸 Martin: Right now she’s on the offensive for suing for wrongful termination, and it’s SOP for firms to issue press pieces that always deny everything. Her recordings are now a matter of public record, and will be impossible to impeach in any litigation.

  11. 11
    Villago Delenda Est says:

    Unless these assholes start going to federal pound me in the ass prison, this shit will not stop.

  12. 12
    Baud says:

    @FlipYrWhig:

    I gave up about halfway and skimmed the rest. But that was my reaction also. Maybe there’s a there there, but it didn’t grab my short attention span.

  13. 13
    Howard Beale IV says:

    @FlipYrWhig: OCC and FRB regulations spell out what levels are acceptable and what aren’t. You also have to take in consideration that there are not only the GS and NYFRB folks involved but also external auditors (typically one of the Big Four) whose asses are on the line as well.

  14. 14
    Warren Terra says:

    Anyone remotely interested in this story should listen to the most recent episode of BBC Radio 4’s File On Four documentary series:

    Rigged Markets?

    Financial regulators in the UK, across Europe and in the US are investigating whether the benchmarks have been rigged to increase bank profits – and to short change their customers.
    Banks are already receiving big fines over the LIBOR interest rate scandal but the focus is now shifting to the way prices in the foreign exchange, gold and interest rate swap markets have been set. Reporter Lesley Curwen assesses the evidence that banks have got together to manipulate the markets and asks what it means for the reputation of London as a global financial sector and public confidence in banking.

    As is often the case, the scandal is what may even be legal …

  15. 15
    Tree With Water says:

    The tenor of these recorded deliberations don’t surprise me, at all. Or anyone else, I suspect.

    Two consecutive democratic party administrations have essentially acknowledged-and-endorsed assumptions inherent in the so-called Reagan Revolution (“greed is good”). Should the rank and file begin to perceive otherwise, it would be tantamount to cutting them from the herd.

    Now there’s a thought.

  16. 16
    FlipYrWhig says:

    @Howard Beale IV: Sorry, still not stupid enough for my needs. WAY not stupid enough.

  17. 17
    jl says:

    @Bunter: Thanks. That is very bad news for the pundits. If what you say is true, that will destroy their very first go-to dismissive talking and outrage point. But, they will probably say it anyway, especially Fox News.

  18. 18
    FlipYrWhig says:

    @Howard Beale IV: Someone who was supposed to be helping to regulate the bank leaned on her to be less critical of the bank? Is that it?

  19. 19
    jl says:

    @FlipYrWhig: I am not a NY lawyer type, But she was not just ‘leaned on’. She was fired and they made stuff about why.

    Edit: were they not Masters of the Universe Bankers, I would have said ‘they lied’, but that would be rude and disrespectful for a lesser person like myself.

  20. 20
    FlipYrWhig says:

    @jl: She was fired for? Being a pest about conflict of interest policies? And by whom? Whose role was what?

    These aren’t rhetorical questions. I can’t keep track. The embedding and so forth.

  21. 21
    Howard Beale IV says:

    @FlipYrWhig: Have you ever dealt with bank auditors (internal/external)? Separation of Duty conflicts? Bank Regulations?

  22. 22
    jl says:

    @FlipYrWhig: I will leave the technicalities to the NY lawyers in the BJ lawyer squad. But to my layman’s eyes, it looks like they canned her for doing her job and then lied about why. So, yes, the tapes do not contain some blockbuster about how she went apeshit and beat the crap our of her boss, or she could not add and subtract and it was all her problem, or something like that. But that seems to be exactly the point. Bu IANANYL, so that is just my impression.

  23. 23
    FlipYrWhig says:

    @Howard Beale IV: No.

    This is the problem with all the financial scandal stuff. The audience is educated people who are absolutely clueless about money, banks, and economics and cannot at all follow it at a basic level. That’s me.

  24. 24
    FlipYrWhig says:

    @jl: Who’s the “they” who fired her? Even that I can’t figure out. And I swear I read the thing.

  25. 25
    Omnes Omnibus (the first of his name) says:

    @FlipYrWhig: And people wonder why it is difficult to prosecute financial crimes.

  26. 26
    Tissue Thin Pseudonym (JMN) says:

    As of now, I’m only halfway through the ProPublica article, but so far this strikes me as a big nothingburger. What Segarra’s team was doing was trying to aggressively signal to Goldman that the regulators didn’t approve of a deal that the regulators themselves thought was almost certainly perfectly legal. They just thought it was kind of “shady” in some vague, amorphous way because they thought Goldman was trying to help a Spanish bank game the Spanish banking regulators.

    Aside from the fact that the article has done nothing to this point to substantiate any charge of gaming the system, that’s not the Fed’s job. Spanish banking regulators had already signed off on the deal. The Fed’s investigators are embedded in U.S. banks to make sure that those banks are complying with U.S. regulations. There’s no suggestion that Goldman wasn’t doing so, and Segarra admits that they probably were. There’s a fishing expedition over whether Goldman has filed all of the anti-laundering regulations but to say that that was a hunch is overstating the evidence. And if there really is something bad going on here, ProPublica has succeeded mostly in burying the lead about 12 feet underground.

    If the complaint is that Goldman doesn’t like the regulators digging through everything in order not to enforce banking regulations but rather to express disapproval of Goldman engaging in perfectly legal behavior, I’m on Goldman’s side. And if the complaint is that the Fed isn’t going to tolerate its investigators overstepping their authority in order to do so, I’m on the side of the Fed.

    This isn’t a blockbuster. It’s an embarrassment.

  27. 27
    FlipYrWhig says:

    @Omnes Omnibus (the first of his name): Even sorting out whether the Federal Reserve Bank is or isn’t the government is like opening Schrodinger’s box while sipping from a Klein bottle.

  28. 28
    jl says:

    @FlipYrWhig:

    My impression is that the NY Fed had the authority to fire her. From the first link in the blockquote. But I don’t know the ins and outs of the NY technicalities. The important thing, IMO, is that she made the recordings and now we have a nice inside of view of how bank regulation is really done on Wall Street.

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

  29. 29
    jl says:

    @Tissue Thin Pseudonym (JMN): Maybe legally is nothing, but I think from a policy and economic point of view, I am glad she is making a stink and made the recordings.

  30. 30
    Howard Beale IV says:

    @FlipYrWhig: Here’s an example on how one of the deficiencies Ms. Segarra tried to write up played out:

    Toward the end of 2000 Goldman pushed me to meet with various of its “stock-buying” clients. Although I wasn’t enthusiastic, it was part of the job and it said it would consider it a favor. So in early December, Goldman Sachs introduced me to three notorious short-selling hedge funds: SAC Capital, Galleon Group and Duquesne Capital. I was floored. Each meeting revealed that these funds were not friends to Monster. And they seemed to know too much about what was going on inside the company for my comfort.

    On the first trading day of 2001, the stock markets plunged, with Monster’s share price falling a whopping 25 percent. The next morning, Monster shares were down another 20 percent in 45 minutes. I was baffled. Then I learned that our CEO & Control Shareholder, who apparently supported his lavish lifestyle via stock margin loans, had been called on one. The one at Goldman Sachs. I wondered whether the Goldman-hosted, short-sellers tour, just three weeks earlier, was more than coincidence.

    To me, this turn-of-events always seemed more like a textbook example of conflicts-of-interest than a sample of “doing God’s work.” Godspeed, Ms. Segarra. I’m behind you. I’m just not so sure the Feds are.

  31. 31
    FlipYrWhig says:

    @Tissue Thin Pseudonym (JMN): Like I said I’m not really following the twists and turns, but I think it’s supposed to be that the person who’s supposed to be an internal red flag was being harassed for waving the red flag rather than just going along with the prevailing winds. I get that that has the makings of a story. At the level of details, though, it’s confusing.

  32. 32
    Tissue Thin Pseudonym (JMN) says:

    @jl: So, is it your opinion that the Fed should not only be enforcing U.S. banking regulations but also trying to keep the banks from doing things that individual regulators disapprove of but that are within the scope of what the banks are allowed to do?

  33. 33
    FlipYrWhig says:

    @Howard Beale IV:

    the powers that be are trying NOT to write up GS for their deficiencies.

    I guess that makes more sense. The example of a conflict-of-interest policy that doesn’t literally exist in a single place but may exist by implication in multiple places seems like a pretty squishy way to make that point, though. It just seems like the kind of thing bureaucrats wrangle over in all lines of work: bylaws, handbooks, black letter vs. penumbras, and so forth.

  34. 34
    Tissue Thin Pseudonym (JMN) says:

    I’m sorry, but the picture of Segarra that comes through in that piece is that she’s so inflexible as to be useless. She insists on saying that Goldman doesn’t have a conflict-of-interests policy when it very manifestly does have one. The policy is, in the view of all involved, inadequate and needs to be revised and expanded, but its existence is a actual fact. That she can’t even bend enough to acknowledge that truth badly undercuts any argument she wants to make about it.

    Sorry, this isn’t going to shake the foundations of anything.

  35. 35
    Howard Beale IV says:

    @Tissue Thin Pseudonym (JMN): Until the financial crises of 2008/2009, Goldman Sachs was never a member of the Federal Reserve. Then, all of a sudden when they were, they were able to access the Fed’s discount window, even though they were not a commercial bank.

    Why the fuck an investment bank was granted not only membership into the Federal Reserve of New York, but was able to access the discount window?

  36. 36
    cckids says:

    @Warren Terra:

    As is often the case, the scandal is what may even be legal …

    This. When Holder’s resignation story broke, so many people were bitching about how no-one’s gone to jail for the mortgage f-up. Way, way too much of happened was not illegal. I’m not talking about the faked signatures on paperwork, but the big-ticket crap that truly took down the economy – the bundling, the interlaced insurances & CDS’s – not illegal.

  37. 37
    jl says:

    @Tissue Thin Pseudonym (JMN): (and others)

    There is a post just up at Mark Thomas’ economics blog that gives my view of the economic and regulatory implications. If you disagree, let me know, I will check back. I don’t care so much about the legal technicalities.

    ‘Why the Fed Is So Wimpy’
    Economists View blog
    http://economistsview.typepad......wimpy.html

    The link goes to the story at a HBR site.

  38. 38
    Tissue Thin Pseudonym (JMN) says:

    @jl: I don’t disagree that regulatory capture is a problem. But this particular article isn’t evidence of it.

  39. 39
    Suffern ACE says:

    I’m kinda missing booman. Still no word on what ails him.

  40. 40
    Howard Beale IV says:

    @cckids: Hate to tell you this, but that shitstorm is still winding its way through the court system with issuing banks suing trust holding banks, via the fact that MERS never conveyed proper tittles, and that NY laws wern’t followed when bundling the securities, etc. etc.

  41. 41
    FlipYrWhig says:

    @Howard Beale IV: Of course 97% of America doesn’t know what a discount window is or thinks that it’s the part of the supermarket where they sell the day-old donuts.

  42. 42
    Tissue Thin Pseudonym (JMN) says:

    @Howard Beale IV: What does that have to do with anything in the article? Goldman wasn’t a commercial bank. Then it reorganized and set itself up as a bank holding company.

    Your throwing up a lot of chaff: this and citing events of 2001 as if they have relevance to bank regulators in 2012.

  43. 43
    Suffern ACE says:

    @Howard Beale IV: because they and jpmc were the only solvent institutions left?

  44. 44
    FlipYrWhig says:

    @Suffern ACE: His co-blogger is not one of my favorites, either. Does anyone have any idea what’s going on there?

  45. 45
    cckids says:

    @Howard Beale IV: Oh, I know. The fallout from this will be going on for YEARS. If they can even find the people responsible. I’m sure some will die of old age before they see justice.

  46. 46
    jl says:

    @Tissue Thin Pseudonym (JMN): I’d read the Economists View post this morning. That may have colored my view of the other stories.

  47. 47
    FlipYrWhig says:

    @jl: The linked piece made the whole thing make a lot more sense to me. Still hazy but not puzzling like before.

  48. 48
    Howard Beale IV says:

    @Tissue Thin Pseudonym (JMN): It’s directly related. But since you can’t pay attention, I’ll let you wallow in your ignorance.

  49. 49
    Howard Beale IV says:

    @Suffern ACE: Morgan Stanley also got the treatment.

  50. 50
    Tissue Thin Pseudonym (JMN) says:

    @jl: I’m just not sure how anyone can read the actual ProPublica and see any dynamite there without engaging in a lot of confirmation bias. The thing is, I don’t have any problem believing that the regulators go too easy on the banks, just that Carmen Segarra does not seem like the poster child for it. It’s not even that she’s a disgruntled former employee because she seemed pretty disgruntled before she left. In what is meant to an article sympathetic to her she still comes off as out of control. Insisting that the report say that Goldman didn’t have a conflict-of-interests policy at all is just being a dogmatic asshole.

  51. 51
    Tissue Thin Pseudonym (JMN) says:

    @Howard Beale IV: Okay, you’re just a bullshit artist.

  52. 52
    Suffern ACE says:

    @Howard Beale IV: so did Amex. And I forget which life insurance companies. A lot of. “Now were banks” suddenly appeared.

  53. 53
    Tissue Thin Pseudonym (JMN) says:

    @Suffern ACE: During the depths of the crisis, the Fed encouraged a lot of non-commercial banks to reorganize as bank holding companies in order for the Fed to act as lender of last resort. The problem was that you had a lot of major financial companies that were inextricably intertwined with the banking system but that weren’t legally backstopped in any way. Bear Stearns and Lehman were two of them and their collapse without any sort of resolution authority made things much, much worse.

    That’s what the Fed was trying to contain. And it’s worth noting that Goldman and a couple of the others, far from relishing the situation, now wish that they hadn’t done so. They’d really prefer not to have access to the discount window if it meant that they could go back to their former status but that’s something that’s hard to put back into the bottle.

    And I’m still not at all clear what that has to do with the article, other than that those examiners wouldn’t be on site at all; there are about two orders of magnitude more examiners embedded at banks with access to the deposit window that there are at ones that don’t. So Howard Beale IV seems to be advocating that Carmen Segarra should never have been hired at all.

  54. 54
    srv says:

    @Bunter: Well, presumably she was not wiretapping on Fed grounds, so state law would apply. Perhaps Fed members should be treated as extra-legal entities and given the same protection as gov’t entities against this kind of behavior.

    How is an institution like Goldman Sachs supposed to operate when they can’t partner with the Fed in good faith?

  55. 55
    Ken Pidcock says:

    @Tissue Thin Pseudonym (JMN):

    She insists on saying that Goldman doesn’t have a conflict-of-interests policy when it very manifestly does have one.

    Are you sure about that? From what I gather, they have documents that address conflicts of interest, but nothing close to a policy that would satisfy any reasonable standard. They certainly don’t point to one in their reply to Pro Publica.

  56. 56
    FlipYrWhig says:

    @Tissue Thin Pseudonym (JMN): The story jl linked above on Harvard Business Review, Why the Fed Is So Wimpy, sets that connection amid a larger set of questions about bank regulation.

  57. 57
    Howard Beale IV says:

    @Tissue Thin Pseudonym (JMN): (cough) Insider trading (cough)

  58. 58
    Tissue Thin Pseudonym (JMN) says:

    @Ken Pidcock: Given that ProPublica sent a copy of the conflict-of-interests policy to outside sources, I think it’s safe to say that not only did Goldman have one, but that ProPublica managed to get their hands on it somehow. Again, no one was claiming that the policy was adequate but Segarra kept insisting that it didn’t exist at all, which seems to be undercut by ProPublica actually obtaining it.

  59. 59
    Tissue Thin Pseudonym (JMN) says:

    @FlipYrWhig: The problem is that the HBR piece also misrepresents what happened, at least according to the ProPublica article.

    The other smoking gun is that Segarra pushed for a tough Fed line on Goldman’s lack of a substantive conflict of interest policy, and was rebuffed by her boss.

    No. That simply is not what the ProPublica piece says. It says that Segarra insisted on a report that said that the policy didn’t exist. It in no way supports a contention that Silva was opposed to pushing a tough line on the issue, just that Silva was opposed to pushing the specific tough line that Segarra insisted on and that also seems to be contradicted by actual facts.

  60. 60
    Howard Beale IV says:

    @Tissue Thin Pseudonym (JMN):

    During the depths of the crisis, the Fed encouraged a lot of non-commercial banks to reorganize as bank holding companies in order for the Fed to act as lender of last resort.

    And they shouldn’t have been. They were not commercial/retail banks, which operates 1000% differently than investment banks.

  61. 61
    Tissue Thin Pseudonym (JMN) says:

    @Howard Beale IV: Actually, there’s no evidence that Goldman was ever in danger of failing. And if they had failed without a backstop, it would have made the crisis that occurred when Lehman went bust look trivial. Sorry, but I’m not big on letting the entire world economy collapse just to spite the people that run Goldman.

  62. 62
    Howard Beale IV says:

    @Tissue Thin Pseudonym (JMN): Even more reason for them to have never been part of the FRB in the first place-they had no depositors to cover for. Goldman could have always said no-but they didn’t.

  63. 63
    FlipYrWhig says:

    @Tissue Thin Pseudonym (JMN): I don’t think it’s inaccurate, it’s just that it’s told to be sympathetic to Segarra — so that the HBR writer can then say that that’s only part of the story. IOW, that for Segarra and ProPublica it reads like a smoking gun if you spin it her way. But this goes back to what I was saying before: this kind of sounds to me like bureaucrats squabbling over bureaucracy, not obvious corruption. Segarra thinks that the policy is so insufficient it might as well not exist, and Segarra’s superiors think the important part is that it in fact exists, not whether it’s sufficient. The implication is that it’s not just bureaucratic squabbling but favoritism verging on corruption. It’s hard to see it for me, but again I’m not sure I have a great sense of what a purely bureaucratic squabble would look and sound like in this milieu.

  64. 64
    Tissue Thin Pseudonym (JMN) says:

    @FlipYrWhig:

    . . . Segarra’s superiors think the important part is that it in fact exists, not whether it’s sufficient.

    No. This is not what it says. Even in the ProPublica article, that is not the position of her superiors.

    “I’m going to lose this entire case,” Silva says, “because of your fixation on whether they do or don’t have a policy. Why can’t we just say they have basic pieces of a policy but they have to dramatically improve it?”

    Silva absolutely did NOT argue that the important thing was that Goldman had a policy even though it was inadequate. In fact, what he says on tape is almost the exact opposite of that. He says that whether Goldman had a policy at all isn’t the ground over which the battle should be fought. That question was a distraction from getting Goldman to have an adequate policy.

    The HBR piece lies about what Silva actually said.

  65. 65
    Tissue Thin Pseudonym (JMN) says:

    @Howard Beale IV: I’m still not clear as to what the downside is of making Goldman give up some (though certainly not all) of its more problematic business practices and agree to a huge increase in the amount of regulatory oversight it’s subject to in exchange for a backstop it didn’t need.

  66. 66
    FlipYrWhig says:

    @Tissue Thin Pseudonym (JMN): I think you’re taking more straightforwardly than it’s meant the phrase “smoking gun,” which the HBR article seems to be to be using tongue in cheek, i.e., if Segarra’s characterization as reported by ProPublica were correct it’d be a smoking gun, but it isn’t, and here’s why — whereupon the analysis proceeds to correspond largely with yours. And then he raises other issues about “oughts” rather than “is”es.

    But, like I said, I plead layman, and layman who struggles with economic concepts.

  67. 67
    Gravenstone says:

    Not wanting to despoil the happy nuptials thread above, so I’ll dump this here. Seems there’s a member of the House Armed Services Committee who claims he (and others) are trying to convince multiple General rank officers to resign in protest of the Obama administration policies in Iraq/Syria. No points for guessing his party affiliation. My question, how the fuck is this not approaching incitement to mutiny?

  68. 68
    Howard Beale IV says:

    @Tissue Thin Pseudonym (JMN): The real question becomes was Goldman forced into the Fed or not?

  69. 69
    Tree With Water says:

    @Tissue Thin Pseudonym (JMN): I counsel that any agreement with Goldman-Sachs begin with the plea bargained testimony of those of its employees who would seek to avoid life/capital sentences.

    I also stand prepared to accept the president’s nomination to become the Attorney General of the United States.

  70. 70
    Gex says:

    And I can’t help noticing that a lot of their complaints about her are the bullshit complaints women get when they are firm and competent and stand up for their views. She was abrasive.

    Instead of firing her in retaliation they’d rather indicate indirectly that they fired her because she was a woman. At least, that’s how one of the articles reads to me.

  71. 71
    Tissue Thin Pseudonym (JMN) says:

    @Howard Beale IV: Why do I care whether they were forced in or not?

  72. 72
    Tissue Thin Pseudonym (JMN) says:

    @Gex: Except that her own recordings indicate that not only was she abrasive, but also unreasonable. Just because those accusations are often a smokescreen for misogyny doesn’t mean that they aren’t sometimes true. And, frankly, if she didn’t have the recordings, I’d be a lot more inclined to agree with you. The recordings, at least as ProPublica uses them, weaken her position rather than strengthening it.

  73. 73
    Tissue Thin Pseudonym (JMN) says:

    @FlipYrWhig: Where I disagree is that I don’t think that even Segarra’s characterization, as reported by ProPublica, would constitute a smoking gun even if it were true. I’m sure she thinks it is, but it’s so weak that even the sympathetic reporting attempt torpedoes it.

    I also think that we are reading the HBR piece differently.

    The other smoking gun is that Segarra pushed for a tough Fed line on Goldman’s lack of a substantive conflict of interest policy, and was rebuffed by her boss. This is a big deal, and for much more than the legal/compliance reasons discussed in the piece. That’s because, for the past two decades or so, not having a substantive conflict of interest policy has been Goldman’s business model. Representing both sides in mergers, betting alongside and against clients, and exploiting its informational edge wherever possible is simply how the firm makes its money. Forcing it to sharply reduce these conflicts would be potentially devastating.

    I don’t know how you read that as saying anything other than that Segarra’s accusations over the conflict of interest policy are a smoking gun. And this is the paragraph that misrepresents what Silva said. It is just flat out dishonest.

  74. 74
    Leo says:

    Tissue Thin Pseudonym (JMN) is right. I read this story this morning and I thought it was weak. No one discussing it subsequently has convinced me otherwise. Too bad; it would be fantastic if we had something like those Irish banking tapes from a few years ago for a major U.S. institution.

  75. 75
    Katy says:

    @Tissue Thin Pseudonym (JMN): then WTF did Silva say that matters so much?

    If those statements re Goldman’s business model are correct – eg repping both sides – then if they had a conflicts of interest policy it was either not substantive or ignored.

  76. 76
    FlipYrWhig says:

    @Tissue Thin Pseudonym (JMN): I think that section is essentially saying that the “smoking gun” is of a different nature, and it’s not a case of localized corruption but that the whole system basically runs on things that look like conflicts that aren’t really conflicts but entirely legal and there’s no stopping it through even the most zealous and adversarial regulators.

  77. 77
    nwerner says:

    Not an at all a regular commenter but these are issues I am interested in.

    I agree that there’s not much in this story and certainly nothing Joe Public could sink their teeth into. I also agree that Segarra doesn’t come off very sympathetically in this piece. The only point to this that I could see would be that there’s a long game and something worse in the recordings but that doesn’t seem likely.

    A few other thoughts:

    Am I wrong in my understanding that it was the repeal of Glass-Steagall that allowed broker-dealers to operate as commercial banks and that was how GS and a few others were able to so quickly reorganize?

    I’d love to hear someone on the inside come out about the conversations between the NY Fed and JPMC that allowed for the takeover of Washington Mutual.

    I’d also love for Obama to pass an executive order suspending the statute of limitations for any potential crimes related to the financial meltdown.

    Finally, there was an article a few weeks back about a case in Sacramento where a defendant won in a case where prosecutors sought to prove mortgage fraud because fraud would have required that the victims actually cared that they were being defrauded.

    http://tinyurl.com/kot6d4a

  78. 78
    Leo says:

    @Katy: Yes, everyone seems to agree it was both insufficient and ignored. So why does Segarra insist on arguing a point that doesn’t seem to be true (the policy does not exist) rather than the point that clearly is true (the policy was insufficient and ignored)?

  79. 79
    Comrade Nimrod Humperdink says:

    The most potentially useful thing I ran across in all that reading and those links was the Regulatory Capture book that the HBR article links to. I might actually give that a read.

  80. 80
    jl says:

    @Tissue Thin Pseudonym (JMN):

    ” The HBR piece lies about what Silva actually said. ”

    The HBR piece does not even quote Silva that I can find. It says he rebuffed her. It seems to me from the Pro Publica piece that he did rebuff her. At one point in the Pro Publica piece Goldman is quoted as saying that it did not in fact, have a comprehensive conflict of interest policy and Segurra conferred with experts who agreed. Goldman had multiple policies for various specific cases that were backed up some unstated flexible philosophy or attitude or some such thing.

    I read the the Pro Publica piece as saying that Silva wanted to report that this did in fact constitute a comprehensive policy, and is quoted as saying that having a bunch of polices that cover specific cases is the same as having a sufficient policy. Goldman seemed to have nothing overall except some language on a webpage.

    Segurra is quoted in the Pro Publica article as saying that the Fed officials could overrule her conclusions if they wanted, but she had to be allowed to report what she believed to be the facts.

    So, this is all written in English and other commenters can read for themselves and reach their own conclusions.

    I don’t know the legalities of this, but I think this is a smoking gun for pretty piss poor and weak regulation, pretty rotten. In my opinion: inaccurate information being recorded in regulatory documents and going up the chain. If this is OK under current law and regulations for oversight, those need to be greatly strengthened.

    Also, the case that the failure of a few more To Big to Fail Banks would have led to Super Duper Greater Depression than ever is not a consensus view among economists. You can check Dean Bakes’s Beat the Press blog for counter arguments to your view, with links to research.

    Note: edited for clarity.

  81. 81
    Leo says:

    @jl:

    I read the the Pro Publica piece as saying that Silva wanted to report that this did in fact constitute a comprehensive policy, and is quoted as saying that having a bunch of polices that cover specific cases is the same as having a sufficient policy.

    He is quoted in the story: “they have basic pieces of a policy but they have to dramatically improve it.”

    That’s pretty far from saying they have a sufficient policy.

  82. 82
    Tissue Thin Pseudonym (JMN) says:

    @jl:

    The HBR piece does not even quote Silva that I can find.

    No, but it does make claims as to what he said. Inaccurate ones.

    It seems to me from the Pro Publica piece that he did rebuff her.

    About something very specific, whereas the HBR article claims that he rebuffed her in general.

    At one point in the Pro Publica piece Goldman is quoted as saying that it did not in fact, have a comprehensive policy, but had a some multiple policies that were backed up some unstated flexible philosophy or attitude or some such thing.

    Again, that’s not what they claimed. They never said they didn’t have a comprehensive policy; they claimed that they had a policy that was collected in multiple places. It is possible for it to be comprehensive without it being all in one piece. Now, I am deeply skeptical that Goldman had a comprehensive conflict-of-interests policy that it actually followed, but it is inaccurate to claim that they said they didn’t have one.

    I read the the Pro Publica piece as saying that Silva wanted to report that this did in fact constitute a comprehensive policy . . .

    No. That simply is NOT what he said in the tape recording. He said that they had a policy but that it was not adequate and needed major changes. The ONLY thing he claimed is that they had A policy. You and other people are putting words into his mouth about saying that it was comprehensive.

    . . . and is quoted as saying that having a bunch of polices that cover specific cases is the same as having a sufficient policy.

    No. He absolutely did not say this. In fact, he said the exact opposite and I really can’t figure out how you would read it otherwise. He said that he wanted to say that they had a policy “but they have to dramatically improve it.” How can that possibly be construed as saying that have a sufficient policy?

    Segurra is quoted in the Pro Publica article as saying that the Fed officials could overrule her conclusions if they wanted, but she had to be allowed to report what she believed to be the facts.

    And what the Fed said is that if you are going to write reports that you believe to be the facts when the facts are demonstrably otherwise, you’re going to need to find a new job.

    In my opinion inaccurate information being recorded in regulatory documents and going up the chain.

    What inaccurate information is being passed up the chain? Again, I don’t doubt that there is insufficient regulation on the banks. My position has long been that Dood-Frank was both a big improvement on what we had before while also falling well short of what I’d like to see. But there is nothing in this particular article that demonstrates that.

    Also, the case that the failure of a few more To Big to Fail Banks would have led to Super Duper Greater Depression than ever is not a consensus view among economists. You can check Dean Bakes blog for counter arguments for your view and links.

    I’ve read them and think that in this instance, Baker really doesn’t know what he’s talking about. I think he’s completely out to lunch on it.

  83. 83
    FlipYrWhig says:

    @jl: But I’m not sure any of those specifics pass the “who cares?” test. One bureaucrat says she thinks a policy is poorly articulated and ineffective, another says he thinks it needs work, and they clash. Mostly what the quotations do for me is point out that mid-level bureaucrats sound the same everywhere, fussing over words and being passive-aggressively challenging. For the gun to smoke, there’d have to be much more obvious corruption. Like money changing hands, or physical threats. This sounds like my office arguing about whether some part of the handbook should say “should” or “must.”

  84. 84
    Leo says:

    Just to be clear, I think the larger policy issues discussed in the Pro Publica story, especially regarding regulatory capture, absolutely are real and important issues. I just think this story does little to illustrate the issue.

  85. 85
    jl says:

    @Tissue Thin Pseudonym (JMN): We obviously disagree on how to interpret Silva’s words, and we disagree about what specific quotes in the Pro Publica article mean, and what constitutes an actual policy. For example, from the Pro Publica article:

    Silva in the Pro Publica article as saying:

    “Why can’t we just say they have basic pieces of a policy but they have to dramatically improve it?”

    But that is not what the Pro Publica article reported Goldman as saying, as I interpreted it, that Goldman had specific policies for for different specific cases and scenarios, guided by some unwritten philosophy or whatever. That is not a written policy, and it is not the pieces of basic policy. And I believe that is what should have been reported.under decent regulatoy oversight.

    People can read the stories for themselves, they are not that long. I do not have time to respond to every one of your tendentious rejoinders, but let that one response above stand. People can decide for themselves whether it is worth their time to read the articles.

  86. 86
    jl says:

    @FlipYrWhig: Well if you don’t care, then you don’t care. That is not my business to judge.

  87. 87
    Tissue Thin Pseudonym (JMN) says:

    @jl:

    But that is not what the Pro Publica article reported Goldman as saying, as I interpreted it, that Goldman had specific policies for for different specific cases and scenarios, guided by some unwritten philosophy or whatever.

    Yes, but by “interpret” you mean adding pieces that Goldman didn’t actually say so that it matches your impression. Which is fine, but that doesn’t mean that Goldman ever said that they don’t have a comprehensive policy, just that you think it makes more sense that way. And you may well be right; I’m pretty dubious about it, too, but if you want to report what Goldman said, then that’s not a part of it.

    And I have no idea what you mean by putting that right after the quote from Silva. And I notice that you don’t even defend your earlier claim that Silva thought that the Goldman policy was sufficient.

  88. 88
    Leo says:

    @jl:
    From the story:

    Silva wrote: “In light of your repeated and adamant assertions that Goldman has no written conflicts of interest policy, you can understand why I was surprised to find a “Conflicts of Interests Section” in Goldman’s Code of Conduct that seemed to me to define, prohibit and instruct employees what to do about it.”

    But in Segarra’s view, the code fell far short of the Fed’s official guidance, which calls for a policy that encompasses the entire bank and provides a framework for “assessing, controlling, measuring, monitoring and reporting” conflicts.

    So Segarra herself seems to admit that there was a code of some sort but it fell short of the Fed’s requirements. I suppose at some point arguing about whether this is a “policy” or not becomes a purely semantic exercise, but the bottom line is that they did have guidance to their employees regarding conflicts of interest but that guidance was grossly insufficient. And that what the Fed needed to report and focus on, not some philosophical/semantic argument over what the word “policy” means.

  89. 89
    jl says:

    @Tissue Thin Pseudonym (JMN): @Leo:

    OK, I will go back and read the thing slowly and think over it when I have time tomorrow.. Sorry our opinions differ, sorry that TMN has to interpret a difference of opinion. as bad faith or coming in with a fixed opinion.

    I don’t see how separate written documents guided by an unwritten philosophy or approach is ‘a policy” period I don’t see how that is a semantic issue or reading stuff into the article. I don’t see how that can be interpreted as even the pieces of anything.

    TMN, I think you have gone off the deep end on this, frankly, and not thinking very straight. For example, I say there is no consensus about the effect of additional large bank failures on the course of the 2007/8 recession, and cite Baker as an opposing view. And then you respond that you think he is full of it. OK, you two disagree. So, no consensus. How do you think you are even disagreeing with me or that is even a rational response to what I said?

    But, again, all the posts and articles are not that long, people can read them for themselves and make up their own minds. I will read your comments and the articles again tomorrow.

  90. 90
    jl says:

    @jl: To be specific on what I mean by ‘a policy’ does not exist. What if the separate documents were mutually contradictory, or produced conflicting guidance when two situations or scenarios were related to each other. There was no overall comprehensive guidance. So, Goldman did not have ‘a policy’. I see this as a very simple issue of reporting the facts accurately.

  91. 91
    Tissue Thin Pseudonym (JMN) says:

    @jl: Again, you claimed that Silva said that Goldman’s policy was sufficient. And I maintain that I have no idea how an honest reading of what he actually said can come close to supporting that.

  92. 92
    Tissue Thin Pseudonym (JMN) says:

    @jl:

    What if the separate documents were mutually contradictory, or produced conflicting guidance when two situations or scenarios were related to each other. There was no overall comprehensive guidance. So, Goldman did not have ‘a policy’. I see this as a very simple issue of reporting the facts accurately.

    Well, sure, if you are going to play “What If” then you can conclude just about anything you want.

  93. 93
    jl says:

    @Tissue Thin Pseudonym (JMN): No, I agree that Silva said what Goldman had was not sufficient. I think he was wrong or made a serious error in how to report what I see as simple facts on the ground. For whatever reason, in my view, Silva did not understand that it was important to accurately report the facts. Maybe Silva would strenuously argue against that. So, he would disagree with me.

    We don’t even seem to be speaking the same language and I have to go. People can read for themselves and make up their own minds.

  94. 94
    Leo says:

    @jl: Even in the situation you describe the most accurate way to describe it is something like “Goldman has no coherent policy.” Saying they have no policy just invites them to pull out the document they do have and embarrass you. Which is in fact what seems to have happened.

  95. 95
    Xenos says:

    The Santander deal is an interesting one from an EU perspective. The Basel II regulations are designed for banks like Santander to do what they did in the Goldman transaction – find someone to take risky subsidiaries off their books. The deal seems to have removed the risk from Santander’s books without transferring it, really, to Goldman’s.

    You really have to admire Goldman’s ability to take this deal and get it past their regulator. This is not mean ironically. The problem here is not so much of a compliance one as it is a policy one (that arises from the interface of US and EU regs), and, in the end, outside the scope of Segarra’s job. Segarra does not seem to have recognized this. She may be a brilliant regulator but she makes for a dreadful compliance officer.

    Silva, in turn, is right that that the Santander deal undermines the policy behind Basel II, but if it does not put Goldman or the US banking system at risk then his superiors were right to tell him to back off on it. If he wants to make a stink to influence the shaping of policy, then good for him. But the weakness of policy is the scandal here, not alleged failing in regulatory compliance.

  96. 96
    Ken Pidcock says:

    @Tissue Thin Pseudonym (JMN): Goldman provides documents and you want this to mean that they have a policy.

  97. 97
    Leo says:

    @Ken Pidcock: Read the quote above. Everyone agrees it was inadequate, but they did have a section in their “Code of Conduct” addressing conflicts of interest.

    I am familiar with legal definitions of “policy” in certain contexts that require some level of formality. I.e., for public school districts a “policy” would typically need to be passed by the board and posted publicly. As far as I know there are no similar requirement for private companies. If a company articulates a rule that its employees are supposed to follow, that’s a policy as far as I can tell. In this case, a shitty, unenforced policy.

    Segarra just chose the absolute worst ground to have an argument. She chose to have a pointless definitional argument over what a “policy” is rather than just pressing the strong and important point that Goldman needed to completely change the way it addressed conflict of interest situations.

    Let’s play this out on the assumption her view prevailed. Her boss goes forward with the position that Goldman has “no policy.” That ends up in a report. Someone reads that report and relies on it to move forward with some kind of consequence for Goldman. Goldman then produces the Code document and says they do have a policy. Now whoever relied on that report is surprised by this information. Maybe they examine it and decide it is not a good/sufficient policy. Or maybe they decide that whoever wrote the report is full of shit and give up. Either way, they end up having to redo the work that Segarra was supposed to have done in the first place — examining the Code document and deciding whether it is sufficient or not. Which means Segarra has wasted everyone times by not just writing the report correctly in the first place.

  98. 98
    Ken Pidcock says:

    @Leo:

    Let’s play this out on the assumption her view prevailed. Her boss goes forward with the position that Goldman has “no policy.”

    No. Her boss goes forward with the position that Segarra is wrong in asserting that Goldman has no policy. But that doesn’t happen, does it?

  99. 99
    Leo says:

    @Ken Pidcock: You seem to have a reading comprehension problem.

    “Let’s play this out on the assumption her view prevailed.”

    What do you think that means?

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