The secret Goldman Sachs tapes released this week by ProPublica and This American Life are attracting a lot of attention, and rightly so. They were clandestinely recorded by Carmen Segarra, an investigator for the New York Federal Reserve Bank who was eventually fired — either for being uncooperative or, as she says and the tapes suggest, for attempting to be a strong regulator.
Financial cases can seem complicated, especially in situations when there are multiple parties involved. But the reality that is revealed in these tapes is clear enough, and can be summarized in seven takeaways:
1. The New York Fed’s investigators are surprisingly fearful and defensive.
They’re called “regulators,” although the proper title for the Fed officials who monitor America’s banks is “supervisor.” When it comes to protecting our economy, they’re the cops on the beat. One of the striking things that these tapes make clear is that, rather than being forceful and assertive — in other words, rather than “supervising” — the Fed’s staff is defensive, diffident, and afraid to antagonize the bankers they oversee.
The tapes suggest that Mike Silva, Segarra’s boss, wants to do a good job. But he is constantly worried that Goldman Sachs executives might be upset or angered if Segarra or another member of his team becomes too aggressive.
This seems to reflect a culture that comes from higher up in the New York Fed. It’s a culture of submissiveness, not authority. As we will see, there are reasons for that.