The Ray Rice video for the financial sector has arrived.

[YankeeFan]

Will this break trough the noise, and catch the public's attention?

Probably most people would agree that the people paid by the U.S. government to regulate Wall Street have had their difficulties. Most people would probably also agree on two reasons those difficulties seem only to be growing: an ever-more complex financial system that regulators must have explained to them by the financiers who create it, and the ever-more common practice among regulators of leaving their government jobs for much higher paying jobs at the very banks they were once meant to regulate. Wall Street's regulators are people who are paid by Wall Street to accept Wall Street's explanations of itself, and who have little ability to defend themselves from those explanations.

Our financial regulatory system is obviously dysfunctional. But because the subject is so tedious, and the details so complicated, the public doesn't pay it much attention.

That may very well change today, for today -- Friday, Sept. 26 --- the radio program "This American Life" will air a jaw-dropping story about Wall Street regulation, and the public will have no trouble at all understanding it.

The reporter, Jake Bernstein, has obtained 46 hours of tape recordings, made secretly by a Federal Reserve employee, of conversations within the Fed, and between the Fed and Goldman Sachs. The Ray Rice video for the financial sector has arrived.

First, a bit of background -- which you might get equally well from today's broadcast. After the 2008 financial crisis, the New York Fed, now the chief U.S. bank regulator, commissioned a study of itself. This study, which the Fed also intended to keep to itself, set out to understand why the Fed hadn't spotted the insane and destructive behavior inside the big banks, and stopped it before it got out of control. The "discussion draft" of the Fed's internal study, led by a Columbia Business School professor and former banker named David Beim, was sent to the Fed on Aug. 18, 2009.

It's an extraordinary document. There is not space here to do it justice, but the gist is this: The Fed failed to regulate the banks because it did not encourage its employees to ask questions, to speak their minds or to point out problems.

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.

http://www.bloombergview.com/articles/2014-09-26/the-secret-goldman-sachs-tapes

 

[BitterYoungMatador2]

Gee, a few bank lobbyists didn't pay for that kind of treatment from The fed now, did they? Naah. We'd never allow that.

 

[Evil ... Thy name is Orville Redenbacher!!]

Just read this morning ... I thought the article was eye-opening.
The tapes will be something else. Like you, I wonder what - if any - fallout there will be.

 

[cranberry]

I heard this story and a portion of one of the tapes on Morning Edition. The conclusion seemed to be that the culture among regulators wasn't as confrontational as perhaps it should be and that places like Goldman got away with things they shouldn't have. Well, no ****. Anyway, it didn't seem as sensational on NPR, maybe because their reporters didn't compare 46 hours of regulatory meeting audio to the Ray Rice video.

 

[Dick Whitman]

Will this break trough the noise, and catch the public's attention?

Probably most people would agree that the people paid by the U.S. government to regulate Wall Street have had their difficulties. Most people would probably also agree on two reasons those difficulties seem only to be growing: an ever-more complex financial system that regulators must have explained to them by the financiers who create it, and the ever-more common practice among regulators of leaving their government jobs for much higher paying jobs at the very banks they were once meant to regulate. Wall Street's regulators are people who are paid by Wall Street to accept Wall Street's explanations of itself, and who have little ability to defend themselves from those explanations.

Our financial regulatory system is obviously dysfunctional. But because the subject is so tedious, and the details so complicated, the public doesn't pay it much attention.

That may very well change today, for today -- Friday, Sept. 26 --- the radio program "This American Life" will air a jaw-dropping story about Wall Street regulation, and the public will have no trouble at all understanding it.

The reporter, Jake Bernstein, has obtained 46 hours of tape recordings, made secretly by a Federal Reserve employee, of conversations within the Fed, and between the Fed and Goldman Sachs. The Ray Rice video for the financial sector has arrived.

First, a bit of background -- which you might get equally well from today's broadcast. After the 2008 financial crisis, the New York Fed, now the chief U.S. bank regulator, commissioned a study of itself. This study, which the Fed also intended to keep to itself, set out to understand why the Fed hadn't spotted the insane and destructive behavior inside the big banks, and stopped it before it got out of control. The "discussion draft" of the Fed's internal study, led by a Columbia Business School professor and former banker named David Beim, was sent to the Fed on Aug. 18, 2009.

It's an extraordinary document. There is not space here to do it justice, but the gist is this: The Fed failed to regulate the banks because it did not encourage its employees to ask questions, to speak their minds or to point out problems.

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.

http://www.bloombergview.com/articles/2014-09-26/the-secret-goldman-sachs-tapes

This so goes right along with something I told my wife last night while we were watching the report on the Ray Rice video. I said that the problem isn't that the NFL is particularly corrupt. The problem is that institutions, in general, are incurious, and will choose the path of least resistance 99 times out of 100. From the SEC to the EPA to college athletic department compliance, what matters is process and paperwork. Not truth. Jury trials are like that, too. Process, process, process. We are a CYA nation. We couldn't care less about the truth.

 

[Boom_70]

I would have liked to get John Slattery's take

 

[The Big Ragu]

That piece said nothing. Maybe the tapes will say something. I have no doubt people will make the wrong conclusions, because few people understand the Federal Reserve or how destructive it has been to the country since it was created in 1914.

None of this should be surprising to anyone. The Federal Reserve itself is the problem. It is a secretive organization (independent of Congress and the President -- what are we North Korea?) that was given authority to manipulate our interest rate markets (but it has taken MORE power -- now it outright rigs our financial markets by buying assets) and control us by controlling the money supply -- without any rhyme or reason or any accountability or ability for anyone to stop them from running amok if they are ****ing things up.

It is nominally given the task of "regulating" banks (ask yourself, why do they need to be regulated and for what ends except creating winners and losers?), but it carries out its mandates with regard to employment and inflation (which it never gets right; it can't) by carrying out it's shenanigans THROUGH those banks. Without those banks doing the work for it, the Fed is powerless. So those banks are given HUGE powers that unfairly hurt the rest of us.

You have 9 directors at the Fed who oversea 12 Federal Reserve banks. 6 of them are CHOSEN by those private banks, including Goldman. It has to be that way. The banks and the central bank need to be in bed together, or else neither benefits. And to get Goldman to play the game, they need to get something return. Without those private banks, the Fed has no ability to actually do anything. And without the Fed giving those banks a leg up (that the rest of us don't get), they don't have such an easy time being profitable. The Fed gives those banks risk-free income -- at the expense of OTHERs.

Which is why the farce the Fed "regulating" the banking system is so maddening. The Fed ****s the rest of us by giving advantage to those banks. It is in the nature of what the Fed does. For example, since the financial crisis, the Fed has embarked on all kinds of unprecedented action that has robbed savers to largely benefit those banks. It encourages riskier and riskier behavior by those banks similar to what created the financial crisis in the first place, although that is a whole other conversation.

Three rounds of buying assets (treasuries and mortgage-backed securities) that have swelled the Fed's balance sheet to more than $4 trillion -- a looming disaster, because there is no market out there for them to unwind those assets in an unrigged market.

in the short-term, with the Fed buying up every piece of **** piece of paper out there, it has boosted the prices of those assets and the beneficiaries have been those banks that you all think the Fed regulates. They have been handing money to those banks.

At the same time, the Fed has rigged interest rates down to 0 percent to encourage more and more debt (with the twisted idea that we can only grow the economy by encouraging people to borrow). So if you are saver, or a retiree who needed nominal, relatively-risk free income, you are ****ed. It doesn't exist because of the mess the Fed has created. Treasuries pay nothing. High quality corporate debt pays nothing. So it has boosted the value of every risky asset you can get your hands on as people have thrown themselves into another frenzy. We learned nothing from the early to mid 2000s.

The beneficiaries? Those banks, which have leveraged themselves up to the hilt and have driven the prices of risky assets (stocks, junk bonds, real estate again, securities that are asset-backed by auto loans, which are the new mortgage bubble, etc.) up. The Fed does it to try to pretend we have a healthy economy rather than dealing with the mess they created in the first place. But it is more of, and to a much more dangerous degree, of what the Fed created prior to 2008, in which it rigged interest rates to encourage people to put themselves into debt, and use the money to engage in riskier and riskier behaviors. We are sitting exactly where we were, but worse. Higher debt levels and with more inherent risk that can and will eventually crumble our financial system. And the Fed is responsible. IT is the problem.

By the way, private banks choose 9 of the Fed's directors. The other three currently? They came from the financial sector. The actual Fed presidents? The current New York Fed chairman CAME right from Goldman Sachs before heading to the Fed. The Fed president who he took over for, went right to Warburg Pincus (that is Tim Geithner, who helped create the mess, and then gets credit for saving the world somehow!). The Fed president before Geithner, right to Merrill Lynch. The Fed president before him? Right to Goldman Sachs.

Whatever comes out in those tapes. ... Rather than knee-jerk about amorphous "regulation," people should be asking why we have a central bank that is centrally planning our economy in the first place. You should ask why Goldman Sachs needs to be regulated? Without the competitive advantage the Federal Reserve gives those large banks, Goldman Sachs has absolutely nothing -- zero power. It isn't Apple that produces products that sell like crazy in a marketplace. It has NO competitive advantage on its own that any of us couldn't have. It would have to actually compete, and honestly, it wouldn't be able to. But with the Federal Reserve controlling our monetary system (and ****ing it up), and needing Goldman (and a handful of other financial institutions) to do it, it is an unfair relationship that screws us all.

It's amazing that people still don't get it.

 

[Bob Cook]

I heard this story and a portion of one of the tapes on Morning Edition. The conclusion seemed to be that the culture among regulators wasn't as confrontational as perhaps it should be and that places like Goldman got away with things they shouldn't have. Well, no ****. Anyway, it didn't seem as sensational on NPR, maybe because their reporters didn't compare 46 hours of regulatory meeting audio to the Ray Rice video.

More of it will air later on "This American Life."

http://www.thisamericanlife.org/radio-archives/episode/536/the-secret-recordings-of-carmen-segarra

ProPublica's story:

http://www.propublica.org/article/carmen-segarras-secret-recordings-from-inside-new-york-fed

This may not end up being the Ray Rice of the financial sector. It'll be the Edward Snowden.

 

[Songbird]

Eh, it'll turn political and be a Red and Blue thing leading up to '16. Each side is now figuring out how to blame the other.

 

[cranberry]

This may not end up being the Ray Rice of the financial sector. It'll be the Edward Snowden.

I don't know. I think if there was anything stunning on the tapes we'd probably know it by now. But is anyone surprised regulators have been, at times, too deferential to the big investment banks?

The recordings make clear that some of the cultural obstacles Beim outlined in his report persisted almost three years after he handed his report to Dudley. They portray a New York Fed that is at times reluctant to push hard against Goldman and struggling to define its authority while integrating Segarra and a new corps of expert examiners into a reorganized supervisory scheme.

 

[cranberry]

It's amazing that people still don't get it.

People get that actions by the fed saved us from a far worse economic catastrophe. They get that inflation never materialized. They get that the dollar is strong. They get that printing money and buying up assets didn't turn the US into a socialist country. They get that the US economy is the strongest and most resilient in the world.

 

[LongTimeListener]

I thought it was universally known that regulators let the big banks walk all over them.

Bribery would be news. Some other tangible corruption would be big news. The Fed being in bed with the banks is as old as the Fed and the banks.

 

[Boom_70]

Dog bites man. News at 11

 

[The Big Ragu]

It's amazing that people still don't get it.

People get that actions by the fed saved us from a far worse economic catastrophe. They get that inflation never materialized. They get that the dollar is strong. They get that printing money and buying up assets didn't turn the US into a socialist country. They get that the US economy is the strongest and most resilient in the world.

1) The Fed created the economic catastrophe. I'd explain, but you have always been oblivious when we discuss this.

2) In what world don't we have inflation? And in what world is the dollar stronger than anything -- unless you are looking in terms of days and not years? You don't need to actually have any understanding of anything. How much were your household expenses 10 years ago? 20 years ago? 30 years ago? What do basic things cost relative to where they were 10 years ago?

Their latest bull**** involves this "2 percent inflation" objective? Please answer this? Why is 2 percent inflation good? Why wouldn't deflation be a a GREAT thing? Who doesn't go out shopping every weekend looking for deflation? Why 2 percent inflation? Why not 1 percent or 3 percent to create "price stability"?

Which miss the point, anyhow. Inflation, by definition, is expansion of the money supply. We have run a printing press intermittently for decades, and NONSTOP for the past 6 years. Seriously?

Two percent inflation a year takes your $50,000 and makes it worth $30,000 in 25 years. Why is that a good thing exactly? It's not even benign. It's malignant.

But what is particularly worrisome is you could post that we don't have inflation? Even using their rigged measure of prices (as the proxy for inflation), they have managed to take what SHOULD be a blissful deflationary environment the last 40 or 50 years and turn it into skyrocketing prices.

The Fed's primary mandate, in fact, is "price stability." Since the Fed's creation, the value of a dollar has declined by 99 percent (not exagerated, btw). When you hear your dad talking about how "I used to be able to buy that for a nickel," that is the Federal Reserve at work.

We went through the 1800s, before the Fed, with VERY stable prices. In fact, prices declined in the late 1800s, and our economy benefited. It's natural. The industrial revolution and automation created huge productivity gains. You could produce more for less. And prices decline when that happens.

We SHOULD be going through a similar period. Since the advent of the microprocessor, prices SHOULD be coming down. Remember when early desktop computers cost $2,500? You now get something way more powerful for $500? And with all of the productivity gains computerization has enabled, it should have filtered through to create falling prices across our economy. And people should be BENEFITING from that.

Instead, we have a money-printing machine that exists to create inflation -- we run up government debt, and they try to inflate it away to enable more debt. It drives up prices. And instead of the dramatically falling prices we SHOULD have seen, their money printing has made the cost of living for everyone just keeping rising. In what world do you think that your expenses aren't rising year by year, decade by decade because of the Federal Reserve?

3) Our economy is ****. We are 6 years past a collapse, in which we never got a recovery. There has been no breakout momentum, WITH the extreme measures. Personally, I'd rather stop trying to win a "least ugly contest" that is focused on the short-term (and it doesn't even have short-term benefit -- it is grasping at straws), while we create a bigger and bigger long-term mess.

What you don't seem to get is that the Fed is painted into a corner now. It can't rig rates any lower. Zero is the lower bound, And it has a massive balance sheet that is now an albatross around its neck. The FED is now the systematic "too big to fail" problem. Who bails it out?

It has no way to unwind its balance sheet. It drove up prices in a market by buying everything in sight. It has to just sit and pray that a miracle happens. The problem is that it has created a very unstable world through its actions, so chances are something is going to go bad a la 2008 (a mess created by the Fed rigging interest rates and pushing people into risk in the first place!). Except next time, what does it do, and how bad will things get? I'm not like you. I don't want unaccountable people, flying by the seat of their pants, doing random things with such huge consequences. I'd rather determine my own future, rather than some corrupt central-planning authority doing it, and rigging the world against me in the process.

 

[Bob Cook]

I thought it was universally known that regulators let the big banks walk all over them.

Bribery would be news. Some other tangible corruption would be big news. The Fed being in bed with the banks is as old as the Fed and the banks.

The scandal in recent times has not been in what's been done illegally, but what is actually legal.

And it's one thing to have a sense that big banks are basically beholden to no one. It's another to have it made loud and clear on tape. Whether that actually brings any change remains to be seen, of course.

 

[cranberry]

I thought it was universally known that regulators let the big banks walk all over them.

Bribery would be news. Some other tangible corruption would be big news. The Fed being in bed with the banks is as old as the Fed and the banks.

The scandal in recent times has not been in what's been done illegally, but what is actually legal.

And it's one thing to have a sense that big banks are basically beholden to no one. It's another to have it made loud and clear on tape. Whether that actually brings any change remains to be seen, of course.

Has that happened? Certainly not on the snippet I heard this morning on NPR.

 

[The Big Ragu]

Yes, the tapes are likely going to spell that out.

This is all related to Carmen Segara, the whistleblower who sued the Fed when she was fired. In short, the tapes are going to show her trying to get the central bank to downgrade Goldman's regulatory rating over conflicts of interest, and her bosses telling her to back off.

This thing has been brewing for more than a year -- nobody paid attention (well, not quite true -- Zero Hedge had a field day with it, for example: http://www.zerohedge.com/news/2013-10-10/goldman-whistleblower-sues-ny-fed-wrongful-termination). Now Michael Lewis steps into an old story again and creates a headline. But it will have no lasting impact. The lawsuit didn't go anywhere. A judge whose wife does a lot of work for Goldman dismissed it.

 

[Bob Cook]

Yes, the tapes are likely going to spell that out.

This is all related to Carmen Segara, the whistleblower who sued the Fed when she was fired. In short, the tapes are going to show her trying to get the central bank to downgrade Goldman's regulatory rating over conflicts of interest, and her bosses telling her to back off.

This thing has been brewing for more than a year -- nobody paid attention (well, not quite true -- Zero Hedge had a field day with it, for example: http://www.zerohedge.com/news/2013-10-10/goldman-whistleblower-sues-ny-fed-wrongful-termination). Now Michael Lewis steps into an old story again and creates a headline. But it will have no lasting impact. The lawsuit didn't go anywhere. A judge whose wife does a lot of work for Goldman dismissed it.

Speaking of cozy relationships.

 

[The Big Ragu]

As I said originally, it's all a farce. You can't create a central bank that is designed to work intimately with the largest private banks (to those banks advantage) to rig our markets, and then turn around and say it is its "regulator." The fact that anyone ever bought this nonsense is what is kind of unbelievable. But the Fed was created to ensure that people have no clue what it is or how it works -- it was created by JP Morgan, Nelson Rockefeller, etc. Rockefeller's father in law was Nelson Aldrich, the senator who actually got the law through.

People don't understand this. Those private banks, including Goldman, own the Federal Reserve. Not figuratively. Literally.

Each of the 12 Fed banks is a corporation whose shares are owned by the commercial banks operating in its district. The New York Fed is obviously the most powerful because of the commercial banks in NY. Those commercial banks choose the majority of the directors for each Fed bank -- it is how it was designed. The idea of the Federal Reserve also somehow being a "regulatory body" of the companies that control it and choose its board of directors, is so dumb as to be nonsensical. Except most people don't understand what the Fed is or how it came into existence in the first place.

 

[cranberry]

The Fed's primary mandate, in fact, is "price stability." Since the Fed's creation, the value of a dollar has declined by 99 percent (not exagerated, btw). When you hear your dad talking about how "I used to be able to buy that for a nickel," that is the Federal Reserve at work.

Well, no.

The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.