NY Federal Reserve Examiner Fired After Submitting Critical Report of Goldman Sachs
Superiors told Carmen Segarra to change her report. When she refused, they fired her.
JESSICA DESVARIEUX: Welcome to The Real News Network. I’m Jessica Desvarieux in Baltimore.
Carmen Segarra–that’s a name that you’re probably not familiar with, but this former senior examiner at the New York Federal Reserve has been making waves on Wall Street. She filed a wrongful termination lawsuit alleging she was fired after her superiors asked her to alter her findings on Goldman Sachs and she refused. The New York Fed is now asking the judge to seal the case, arguing that the Fed is not a public institution and therefore not bound by the Freedom of Information Act.
Now joining us to discuss all this is Bill Black. Bill Black is an associate professor of economics and law at the University of Missouri-Kansas City. He’s a white-collar criminologist and a former financial regular regulator, and he’s a regular contributor to The Real News.
Thanks for joining us, Bill.
BILL BLACK: Thank you.
DESVARIEUX: So, Bill, Segarra wrote to Michael Silva, the senior executive of the New York Fed, quote, Goldman Sachs “does not have a conflicts-of-interest policy, not firmwide, and not for any divisions.” “I would go so far as to say they have never had a policy on conflicts.” Bill, can you please tell us what Carmen Segarra was working on before she was fired from the New York Fed?
BLACK: So the investment banks that survived the catastrophe realized that they needed to have access to deposit insurance and the Fed. So they became banks or bank holding companies. And that meant that they’re subject, as bank holding companies [inaud.] bank holding companies to examination and regulation by the Federal Reserve.
The Federal Reserve is, contrary to many people’s understanding, actually a federal agency. It’s an independent agency like–I was–worked for an independent regulatory agency, the Federal Home Loan Bank Board, for example. But just like the Federal Home Loan Bank Board did its examination and supervision primarily through entities that were not wholly governmental–in our case, federal home loan banks–the board of governors of the Federal Reserve, the federal agency, does its examination and supervision through entities that are not fully federal. And these are the regional Federal Reserve banks.
And so the first thing that the examiner has proven is that there is a massive problem with conflict of interest. But well before we get to Goldman Sachs, the problem is in the Federal Reserve system, and it’s built in, because the examiners and supervisors are employees in many cases of these essentially private Federal Reserve banks, which they’re owned by the banks they’re supposed to regulate, and in which the board of directors is controlled by the banks that they’re supposed to regulate, in which when they fire you for trying to do the right thing, their defense is, hey, we’re not no stinking federal government; you have no rights here, and the public have no rights here–it should be excluded from any information.
In the context of the savings and loans, Congress realized–and it realized this in 1989, so a whole long time ago–that this was an intolerable conflict of interest, having a federal function, examination and supervision, being run through private entities that have just notorious conflicts of interest. And so they did away with that, in the savings and loan context, in the FIRREA legislation in 1989. Now, precisely the same logic and policy applies to the Federal Reserve banks. But nothing has been done–again, since 1989, when we realized this was intolerable–to end this conflict of interest in the Federal Reserve bank system.
DESVARIEUX: Let’s talk about Goldman Sachs a little bit and how she had reported that they have never had a policy on conflicts. What conflict of interest is she referring to there?
BLACK: Well, she’s actually referring to many different potential conflicts of interest. Conflicts of interest can arise in a large corporation in innumerable ways. And that’s why a conflict-of-interest policy isn’t one sentence that says, hey, you should avoid conflicts of interest in the following specific situation.
Now, I must tell you there’s a real difference in the two major news stories about this scandal. The New York Times story is quite brief, and on the specific subject you’re asking about, that quotation that you just read, The New York Times version makes it look like the examiner is a fool. The much better version is the combined efforts of Politico and Washington Post, a much longer article which gives the details.
So, for example, The New York Times quotes what you just quoted, her letter where she made those comments and then says that, look, Goldman Sachs has online a conflict of interest policy; and the examiners’ bosses looked at that and said, well, she’s obviously wrong, it has a conflict of interest policy. And so under The New York Times’ version, if you read it, you go, well, you know, of course they were upset with the examiner. She just got the facts just plain wrong.
If you read the more detailed story, however, you’ll see that she repeatedly asked Goldman Sachs about their written conflict-of-interest policies, and instead of getting back an answer, yes, this is our policy, here’s where it is, this is what it means, kept on getting back answers that said, well, this isn’t really a conflict-of-interest policy. The wording and the nature of the response does vary from Goldman Sachs, and indeed it’s so odd that it should have been a warning sign in itself that something out of the normal and not good is going on, or they’d simply say, what are you talking about, we have six written policies on conflict of interest, here they are [incompr.] you know, A through E or F or whatever six of them comes to, right? And that didn’t happen in this case all.
DESVARIEUX: Okay. Well, let’s continue this conversation in our extended interview with Bill Black. You can check it out after the end of this interview. But Bill, thank you so much for joining us.
BLACK: Thank you.
DESVARIEUX: And thank you for joining us on The Real News Network.