
The Secret Goldman Sachs Tapes - pdknsk
http://www.bloombergview.com/articles/2014-09-26/the-secret-goldman-sachs-tapes
======
Aqueous
If the tapes only contain content describing a general culture of
discouragement of rigorous oversight, it's not totally surprising or any more
jaw-droppingly incriminating than previous knowledge concerning the Fed's
relationship with the banks. Basically this is what we already knew.

The question isn't whether or not regulation is lax and whether or not this
happened, it's how to fix it. And this poses a big problem because of the
revolving door between regulatory agencies and private banks. No one wants to
regulate a company that might offer them a million dollar job one day. It's
kind of a tough problem to fix, since the only people who know enough about
financial industry to regulate it are the people who work for the industry.
And if we prevented people from working for the industry they regulate in any
capacity for say, up to 10 years after they leave their government job (is
this even Constitutional?), much fewer people would want to work for the
government or the Fed. But even so I think that kind of reform is necessary -
because it will attract to government service only people who are serious
about regulation.

~~~
enraged_camel
>>The question isn't whether or not regulation is lax and whether or not this
happened, it's how to fix it.

In my opinion the only way to reliably fix this is to create a group similar
to the one that the federal government created to end Al Capone's illegal
activities during the Prohibition.

That group was nicknamed "The Untouchables" because they were fearless and
incorruptible (by reputation, which is what's important). They were hand-
picked by Eliot Ness, who reportedly went through the records of hundreds of
Prohibition agents and personally identified a small group of them who were
known for their honesty and integrity (as well as special skills, such as car
tailing). What's remarkable about this group is that they were not only
stubborn as hell but also extremely resilient to Capone's attempts at bribery
and intimidation. Ness himself declined a bribe that was equal to his salary
but would be paid to him monthly. They had a huge impact on bringing down the
kingpin.

It's pretty clear that the regulators in charge of overseeing the financial
industry today don't have this type of drive. To them, it's just a job. They
are normal men and women who are up against groups of massive political power.
As such, they are not in a position to do their jobs effectively. That's why
the system is rife with rampant corruption.

Before you say I'm dramatizing, consider the possibility that Enron was just
the tip of the iceberg, and under the surface there is ten Enrons that are
propping up huge sectors of the economy with lies and deceit. Maybe ignorance
is bliss and we should just let it operate like that. But truth has a habit of
coming out sooner or later - and the sooner it comes out and everything comes
crashing down, the sooner we can rebuild the system.

~~~
javert
The US Constitution grants us the legal right to pursue happiness, and for
some, that was consuming and/or making a living brewing alcohol. Elliot Ness
and his goons were a bunch of arrogant asshats who wanted to trample on that.

They go down in the historical category of bad people who get off by forcibly
inflicting their immoral, mistaken ideology on others.

Comparing this persent witch hunt to that one is, ironically, very
appropriate, I think.

~~~
pyre
I'm confused. Al Capone wasn't a freedom fighter that was looking out for your
freedoms during the time of an unjust law. He was a gangster that capitalized
an opportunity created by poorly thought out government policies. Just because
the government created the situation that made him rich, doesn't mean he gets
some sort of 'free pass' on being a kingpin that killed people. Do you feel
that Al Capone would have just been an honest businessman if only Prohibition
didn't exist?

If people inside financial institutions are, as common practice / policy,
picking the winners/losers and hiding conflicts of interest, do you think that
going after such people is a 'witch hunt?' Do you feel that when regulators
meet with the people that they are regulating that they should have a "he
looks honest, I'll just trust whatever he says" attitude?

~~~
javert
The point about Al Capone is irrelevant. What is relevant is all the honest
businessmen that Prohibition violated.

Yes, I think it's a witch hunt. And any system with regulators "embedded" is a
sick one. The proper thing to do is let the financial system self-regulate.

Of course at this point, that's like saying the proper thing for the Soviet
Union to do when it fell was to suddenly become capitalist. Doing the right
thing here would require an (additional and probably worse) period of sickness
because we've been doing the unhealthy thing for decades.

~~~
Aqueous
'The proper thing to do is let the financial system self-regulate' \- What are
you kidding me? Just six years ago, a lack of enforced rules - in other words,
lax regulation - and a complete lack of regulation of derivatives led to a
runaway housing bubble that practically destroyed the entire economy, killed
thousands of people (through suicide/inability to afford medical bills) and
lost 8.2 million people their homes. You can't let something which has all of
our welfares wrapped up in it hinge on the momentary greed of a few people who
have every incentive to take short cuts to greater success. If this "creative
destruction" is acceptable to you, then I guess we have vastly different views
of acceptability.

Markets are great at solving lots of problems but they have blind spots. And
one of them is the welfare of the people who are systemically connected, but
not directly participating in the market. Human beings are not perfectly
rational, and so neither are the markets that they make up. Until humans and
markets are perfectly rational, we will need regulation to prevent gratuitous
human suffering.

And if like most economic libertarians you're going to come back at with me
with the absurd "It was too much regulation, not too little" argument (which I
assume you will), we have very little to discuss.

~~~
pyre
I think that @javert would have a vastly different view if it was _his /her_
welfare that was 'creatively' destroyed... As such, @javert is probably well-
removed from needing to deal with such issues, so it's easy for those people
to be a statistic.

------
canvia
Audio: [http://www.thisamericanlife.org/radio-
archives/episode/536/t...](http://www.thisamericanlife.org/radio-
archives/episode/536/the-secret-recordings-of-carmen-segarra)

Transcript:
[http://www.thisamericanlife.org/sites/default/files/TAL_536_...](http://www.thisamericanlife.org/sites/default/files/TAL_536_transcript.pdf)

------
darkhorse05
I worked at the Federal Reserve for some time, so I know that the culture is
as toxic as the article says it to be. Professionally, this experience has
been the most aggravating of my career.

Oh, let me tell you about the laziness! One of the developers I worked with
would come to work at 11 am every single day and leave at 5 PM—sharp. He would
then take a two hour lunch break.

It wouldn’t be so bad if he actually did some work, but there was none. I
remember vividly this one incident: we were trying hard to meet a deadline and
he was responsible for an important component. Every week, he would paint a
rosy picture of his progress, saying he was THIS close to finishing the
project. The week of the deadline comes and it’s time for him to lay down his
cards—and surprise, surprise—there was no working code! All he produced was a
jumbling mishmash of code that had no hope of working. I spent the next week
in the office writing this component.

Close to 70 hours. Unreal.

[Oh yeah, this guy was getting paid $130K, not to mention those sweet
government bennies!]

His direct manager would complain about him all the time, and many meetings
were asking him to improve his output. And yet, he was never punished. The
truth is, when it comes to working at the Federal Reserve, your work output is
not as important as who your friends are. And this guy had friends in high(er)
places.

This guy is just one employee, but I believe it is just endemic of the kind of
culture the Fed breeds. One of nepotism, of indolence, of apathy. I am truly
scared for the future of this country knowing that these are the people behind
the wheel.

------
jackgavigan
There's also a print version of the story at ProPublica:
[http://www.propublica.org/article/carmen-segarras-secret-
rec...](http://www.propublica.org/article/carmen-segarras-secret-recordings-
from-inside-new-york-fed)

------
AndrewKemendo
_The Ray Rice video for the financial sector has arrived._

Not even close. That metaphor would only be apt if there was literally video
of a Federal Reserve employee accepting cash from an employee of a major bank
with an explicit statement from the bank saying something along the lines of

"So you're going to keep the interest rates low so we can keep doing bond
arbitrage instead of lowering rates for consumer lending right?"

Even then most people wouldn't care because they have no idea how financial
institutions work.

~~~
lotsofmangos
With your hypothetical there, I think you have just described fairly
accurately how I think most financial institutions work

------
vfclists
There are times when I can't tell whether people are stupid or not, making
comments like stopping employees of regulatory bodies seeking jobs at the
companies they regulate would amount to restriction of trade or non-compete
clause or whatever.

How about saying that if FBI or DEA agents were banned from working or
consulting for drug cartels and crime bosses after retiring that would be
restriction of their employment prospects.

Are we living in some kind of twilight zone or is that what happens when
debates a left to guys on HN?

Why can't American media simply call spades spades and simply come out and
rather than say that Fed employees and bosses are simply weak and spineless,
the simply say that they are corrupt and lacking in integrity?

In fact the media are the biggest problem here, because instead of calling out
things at the right time they weasel around the whole issue and belatedly come
out with 'startling new revelations' after the horse has bolted.

Why couldn't the Bloomberg journalists who revealed this information simply
ask their employer about this? He could have told them about the Fed's
dubiousness 30 years ago.

------
georgeecollins
I wonder if there isn't a way to deal with this problem through something like
the South African divestment movement of the 80's. If institutions like
universities, pensions, and corporations were under pressure from their
constituents to not do business from Goldman Sachs, Goldman Sachs would start
feeling the pressure to not capture regulators.

It is not clear that banking advice from GS is that great. Often times their
customers are effectively the victim. If there was popular pressure to not
deal with them they might clean up their act.

~~~
josho
I'll rephrase your suggestion:

Since the regulator responsible for monitoring private financial institutions
has failed, we along with universities, pensions, etc should stop investing in
those financial institutions.

The above strikes me as very backwards. Isn't the appropriate response to fire
the heads of the regulators, rebuild the agency to act on the recommendations
that an outside body proposed to the regulators, and ensure that congress
follows up to ensure changes have occurred.

Oh wait. Therein lies the problem, congress has been captured by the finance
sector's lobbying, so I'm being idealistic and your proposal is not as
backwards as I first thought. I'm starting to understand Lawrence Lessig's
focus on removing money from election campaigns, so that we can have real
government policy because that's the real root cause of issues like this.

------
Tloewald
I will definitely listen to the broadcast. It surprises me that this kind of
thing doesn't happen more often, given how easy it is to record conversations
these days, and the liberality of the relevant laws in most states (one party
consent).

------
cyphunk
The environment of the FED sounds more like the paternal architecture of the
military:

    
    
        Just the opposite: The Fed encourages its employees to
        keep their heads down, to obey their managers and to
        appease the banks. That is, bank regulators failed to do
        their jobs properly not because they lacked the tools but
        because they were discouraged from using them.

------
vfclists
The Fed can do whatever it bloody wants so long as it uses its own money to
bail out the banks it is supposed to regulate, rather than taxpayers money.

So long as they and the banks they are supposed to supervise stick to that
they can do whatever they bloody want.

This is where the quality of debates on HN become so sucky and surreal.

Given that more than a few of the Treasury Secretaries, SEC bosses and what
nots are ex Goldman Sachs et al employees, why do any intelligent people
expect the Fed and other government agencies to regulate the banks properly,
if the failure of the institutions they are supposed to regulate would result
in the loss of the pensions the continue to receive from such institutions?

------
orin_hanner
Story posted late this afternoon:

[http://www.bloomberg.com/news/2014-09-26/goldman-sachs-
said-...](http://www.bloomberg.com/news/2014-09-26/goldman-sachs-said-to-
prohibit-bankers-from-buying-stocks.html)

> Goldman Sachs Group Inc. (GS), the top adviser on corporate takeovers, is
> changing its conflict-of-interest policy to bar investment bankers from
> trading individual stocks and bonds, a person with direct knowledge of the
> matter said.

------
rock57
Here's one more secret Goldman Sachs tape))
[http://www.youtube.com/watch?v=sX7TWstSV_E](http://www.youtube.com/watch?v=sX7TWstSV_E)

------
rayiner
This stuff is fairly innocuous if that's all Lewis can come up with after
reviewing 46 hours of tapes. "I'm not going to comment until I know what my
boss thinks?" That's something nearly every underling has or will say at some
point.

The bigger issue is that being a regulator in the U.S. is a shitty job. Half
the country thinks we shouldn't even have regulators, and the other half
blames regulators for not understanding what they're doing out of one side of
their mouth while condemning anyone with industry experience who does know out
of the other side. So no surprise that the regulators are deferential to the
banks. At any given time they're one presidential election away from losing
what little leverage they have.

Our regulatory system is the result of a clash of cultural values. One one
hand we aren't comfortable with doing away with regulation. To the contrary,
we demand it. On the other hand we think of regulatory bodies as leeching off
"value-creating businesses" and condemn anyone who undertakes government
service. Unsurprisingly, we get regulatory bodies that try not to rock the
boat.

~~~
canvia
I guess you haven't read or listened to the whole thing?

"Goldman had advised one energy company, El Paso Corp., as it sold itself to
another energy company, Kinder Morgan, in which Goldman actually owned a $4
billion stake, and a Goldman banker had a big personal investment. The
incident forced the Fed to ask Goldman to see its conflict of interest policy.
It turned out that Goldman had no conflict of interest policy -- but when
Segarra insisted on saying as much in her report, her bosses tried to get her
to change her report. Under pressure, she finally agreed to change the
language in her report, but she couldn't resist telling her boss that she
wouldn't be changing her mind. Shortly after that encounter, she was fired.)"

~~~
rayiner
I did skim the examples. The one you quoted isn't damning either. Its not
illegal for M&A professionals to have conflicts of interest. That's the rule
in the business world. The exceptions (e.g. fiduciary duties of corporate
officers) are provided by law.

~~~
wavefunction
Sure it's not illegal, but do you think it's ethical?

Do you think it's a thoughtful policy for Goldman Sachs?

I know if I were one of the M&A parties, I would irate to find out that the
supposed advisor had a personal stake that could have influenced how things
shook out.

~~~
rayiner
Contemporary understanding is that outside of special cases, ethics is
dictated by the market. If Goldman's clients have a problem with with bankers
having personal stakes, they'll not use Goldman's services. Its not like they
don't know. Its very common for investment professionals to get in on the
deals they work on.

In any case, regulators are entrusted with making sure people follow the law,
not some ethical code that differs from person to person.

~~~
pstuart
> ethics is dictated by the market

Maybe we can start trading in ethics? /s

------
ethbro
Here's the original story at This American Life (no slight intended to
Bloomberg, as the attribution and respect is crystal clear in the article):

[http://www.thisamericanlife.org/radio-
archives/episode/536/t...](http://www.thisamericanlife.org/radio-
archives/episode/536/the-secret-recordings-of-carmen-segarra)

------
shimjim45
Germane to the topic:

Century of Enslavement: The History of The Federal Reserve

[http://m.youtube.com/watch?v=5IJeemTQ7Vk](http://m.youtube.com/watch?v=5IJeemTQ7Vk)

~~~
ubernostrum
Sorry, can't watch due to all the chemtrail smoke in my eyes. And once it
clears my mind will be controlled by them anyway, so I won't want to watch
anymore.

~~~
shimjim45
It sounds like your brain has already died from a steady diet of Statist
pablum. Perhaps when you grow up you'll be able to masticate actual history.

------
JimA
So after listening to the entire show, I'd have to say she doesn't come across
as being in the right at all.

The big showdown on whether Goldman had a conflicts of interest policy came
down to a difference of opinion that she was clearly in the wrong on. Her
boss's request to amend her statement to say that they had one but it was
totally inadequate should have been an easy one to agree to. Especially if the
Fed's legal department was the one objecting to saying there was no policy.

Instead she comes across as extremely stubborn and unable to compromise or see
other viewpoints besides her own. I would have fired her too just because she
was so difficult to work with.

Silva does seem spineless in going out of the way to not verbally offend
Goldman, but IMO that is more of a personality trait that him ignoring
evidence.

Now she's suing wanting to be vindicated that she was really right all along
and everyone else was wrong, and releasing the tapes to support that. Not a
Goldman fan, but for this report there is really no moral outrage to be had.

~~~
waterlesscloud
>"Instead she comes across as extremely stubborn and unable to compromise or
see other viewpoints besides her own. I would have fired her too just because
she was so difficult to work with."

And frankly, that would be a reason for you not to be a manager of Fed
regulators.

The Beim report specifically, _specifically_ , says the kind of dissent she
represented is exactly what the Fed needs.

And she did offer options, that she could simply be overruled if her superiors
disagreed. This is how it should work. If they disagree, they need to
personally be taking responsibility for that disagreement, not forcing the
employee to change their views.

Not to mention it's pretty clear Goldman had no _operative_ conflict of
interest policy. They've simply been in blatant conflict too often for it to
be believable there's anything limiting it.

~~~
JimA
The dissent is totally acceptable if there were degrees or shades of opinion
(i.e. is the policy acceptable or not, does it meet established requirements,
is it being enforced).

The issue is when she knowingly states as fact something that is not accurate
(i.e. there is NO policy). That crosses the line into slander since it can
cause reputational and financial harm to the institution being investigated.

Even more importantly, by one regulator giving the appearance of "gunning" for
Goldman it jeopardizes the work of countless others who also have findings and
research that may actually be true.

