An Ignoble Experiment: Elizabeth Warren

Tell Congress: Hold Hearings on the "Goldman Sachs tapes"

To Members of the U.S. Senate and House of Representatives
"Regulators are supposed to protect Americans from wrongdoing on the part of big banks, not serve Wall Street's interests. Congress must hold oversight hearings on the allegations of a deferential and broken regulatory culture at the Federal Reserve, as exposed in the recently released 'Goldman Sachs tapes.'"

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Dear Indiana,

In the run-up to the Wall Street crash of 2008, regulators repeatedly deferred to the interests of big banks instead of holding their feet to the fire – and we all suffered. Now, we have new proof that little has changed in how regulators behave.

A bombshell report last week outlines numerous occasions in which employees of the New York Federal Reserve, tasked with regulating Wall Street banks, instead watered down criticism and even sought to protect Goldman Sachs.¹ Based on 46 hours of secret audio recordings made by a former bank examiner who was fired for being too critical of the bank, it offers some of the first hard evidence of what we've known all along: Too many regulators serve the banks, not the people they are tasked with protecting.

Senators Elizabeth Warren and Sherrod Brown are calling for immediate oversight hearings as soon as Congress returns to work after the elections.² We need to echo their call right now to make sure Wall Street can't sweep these reports under the rug.

Tell Congress: Hold hearings on the Goldman Sachs tapes. Click here to sign the petition.

Carmen Segarra was a 13-year veteran of bank compliance work when she began her new job as a bank examiner with the New York Federal Reserve. A graduate of top universities who speaks four languages, news reports paint a picture of her as the kind of regulator we all want – independent, strong-willed, and unwilling to back down. She was tasked with monitoring Goldman Sachs from within.³ But in just a few months, she became unnerved by her Federal Reserve colleagues' behavior, ranging from an unwillingness to challenge bank executives to pressuring her to change the minutes of meetings to cover up problematic statements.

In one meeting early in her tenure, a Goldman executive said that "once clients were wealthy enough, certain consumer laws didn't apply to them."⁴ When Segarra tried to investigate, she faced protest from Fed colleagues who claimed the executive either did not say that, or did not mean it.⁵

Soon, Segarra began secretly recording her meetings - 46 hours in total. Caught on tape was a dispute over the terms of a Goldman Sachs financial deal that required the bank to get Federal Reserve approval, which it had not done. Instead of forcefully reprimanding the bank, Federal Reserve officials are heard on the recording meekly requesting documents at the end of a meeting, as if afraid of angering Goldman - even though it would have been a criminal offense for the bank to deny regulators the documents.

But worse than any single allegation is the overall impression from the tapes that Federal Reserve regulators cared more about tamping down criticism and staying on friendly terms with the bank than doing their jobs on behalf of the American people. These tapes are some of the first tangible proof of what Wall Street critics have called "regulatory capture," where the regulators prioritize friendships and future job opportunities -- and start serving the interests of the very institutions they are supposed to regulate.

Tell Congress: Hold hearings on the Goldman Sachs tapes. Click here to sign the petition.

After a number of run-ins, Carmen Segarra's supervisor told her she was "arrogant," and should have "a sense of humility," deferring to consensus more than her own instincts.⁶ The breaking point arrived when she came to the conclusion that Goldman Sachs lacked a clear and precise conflict of interest policy. Her bosses originally agreed with her findings – only to change their position after speaking to other Federal Reserve officials. Segarra was pressured to recant and instead say only that Goldman's policy must be improved. When she refused, she was fired after only 7 months on the job.⁷

Segarra sued the Federal Reserve for wrongful termination before releasing the tapes, though her case was dismissed on grounds not relating to the substance of the lawsuit. Goldman Sachs has defended itself by noting that Segarra applied for jobs with the bank on a number of occasions, and that the firm has since revamped its conflict of interest policy. The Federal Reserve issued a statement "categorically rejecting" her claims.

The truth is, Wall Street banks would love to dismiss these tapes as lacking a smoking gun and make Segarra the story, not the Federal Reserve. But in 2009, an internal Federal Reserve report warned of the same deferential attitudes and fearful regulator culture that Segarra encountered years later.

This story is not about Carmen Segarra – it is about an out-of-control banking sector that has seized control of our economy and our democracy. That's why we need to back Senators Warren and Brown's call for immediate hearings to investigate the Federal Reserve's behavior. Click the link below to sign the petition urging Congress to hold hearings on the Goldman Sachs tapes:

http://act.credoaction.com/sign/warren_goldman_sachs_tapes?t=6&akid=11814.7925804.h4IDHj

Thanks for helping make sure regulators work for us, not big banks.

Becky Bond, Political Director
CREDO Action from Working Assets

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