How big banks like Goldman Sachs rule the government

The independent investigative journalistic outfit ProPublica reports that when Carmen Segarra, a lawyer who worked as an examiner at the Federal Reserve Bank of New York, looked into whether investment banks were following the rules that enabled them to avoid conflict of interest problems in their dealings with their clients, she determined that banking giant Goldman Sachs had a problem in that they had not only not put into place the required safeguards, they didn’t seem to even feel the need to do so and mixed the functions in a way that prevented oversight to ensure that no conflict of interest occurred.

Goldman officials stated that the bank did not have a company-wide conflict-of-interest program, Segarra’s minutes show. Moreover, the head of the business selection and conflicts group, Gwen Libstag, who is not a lawyer, said in a subsequent meeting on Dec. 8 that she did not consider what her staff did a “legal and compliance function,” according to Segarra’s minutes.

“That’s why it’s called business selection,” another Goldman executive added. “They do both.”

Given the Fed’s requirements, the regulators were stunned, Segarra recounted in an interview. “Our eyes were open like saucers,” she said. “Business selection is about how you get the deal done. Conflicts of interest acknowledge that there are deals you cannot do.”

So Segarra told her superiors of her concerns as she worked on the case.

Before she could formalize her findings, Segarra said, the senior New York Fed official who oversees Goldman pressured her to change them. When she refused, Segarra said she was called to a meeting where her bosses told her they no longer trusted her judgment. Her phone was confiscated, and security officers marched her out of the Fed’s fortress-like building in lower Manhattan, just 7 months after being hired.

“They wanted me to falsify my findings,” Segarra said in a recent interview, “and when I wouldn’t, they fired me.”

The article goes on to cite the incestuous relationship between the bank and the New York Fed.

Goldman is known for having close ties with the New York Fed, its primary regulator. The current president of the New York Fed, William Dudley, is a former Goldman partner. One of his New York Fed predecessors, E. Gerald Corrigan, is currently a top executive at Goldman. At the time of Segarra’s firing, Stephen Friedman, a former chairman of the New York Fed, was head of the risk committee for Goldman’s board of directors.

Goldman also has an inside track into the Treasury department. Dudley also appears in the book Bailout by Neil Barofsky, the Special Inspector General of TARP, that I reviewed here. Barofsky says that Dudley was one of many (in addition to Hank Paulson, Lee Sachs, David Miller, and Neil Kashkari) who rotated through the revolving door between government and the big banks during the short time he was there. As Barofsky says (p. 19):

I had no idea that the US government had been captured by the banks and that those running the bailout program I’d be charged with overseeing would come from the very same institutions that had both helped cause the crisis and then become the beneficiaries of the generous terms of their bailout.

Segarra has filed a wrongful termination suit.

Her lawsuit also alleges that she uncovered evidence that Goldman falsely claimed that the New York Fed had signed off on a transaction with Santander, the Spanish bank, when it had not. A supervisor ordered her not to discuss the Santander matter, the lawsuit says, allegedly telling Segarra it was “for your protection.”

Her suit does not directly address the question of whether Goldman Sachs was involved in her firing. But that is not how it works. The banks are far too sophisticated to act so crudely. What they have done is create a culture where people know that if they Goldman Sachs and other big banks favors while they are in government, they can get high-paying jobs when they leave.

Notorious lobbyist Jack Abramoff, who was convicted of conspiracy, fraud, and tax evasion, also followed that scheme to win influence. He says that the easiest way to ‘buy’ a congressperson or a senior congressional office staff member is to suggest that that person could work for him once he or she left government. That was enough to earn their allegiance.

I hope Segarra’s lawsuit brings to light the kinds of things that go on behind closed doors and the pressure that lower-level people in government, who are usually hard-working and honest professionals who go into public service with a genuine desire to serve people, feel from upper-level management (people like Lawrence Summers and Robert Rubin) who are the ones with their eyes on that alluring revolving door and know that a fat paycheck awaits them if they are of service to the financial wing of the oligarchy during their time in government.


  1. Pteryxx says

    In an email, spokesman Jack Gutt said the New York Fed could not respond to detailed questions out of privacy considerations and because supervisory matters are confidential. Gutt said the Fed provides “multiple venues and layers of recourse for employees to freely express concerns about the institutions it supervises.”

    “Such concerns are treated seriously and investigated appropriately with a high degree of independence,” he said. “Personnel decisions at the New York Fed are based exclusively on individual job performance and are subject to thorough review. We categorically reject any suggestions to the contrary.”

    translation: We won’t say anything because privacy/confidentiality, she had plenty of private/confidential options besides going public, how sad, if we COULD say anything there’d be nothing to see here except our exemplary behavior, and even though we’re not saying anything and if we did it’d be exemplary, whoever made the firing decision was acting independently so we can’t be blamed anyway.

    I don’t even have enough *spits* to express my contempt.

  2. Pteryxx says

    oh, and they’ve taken steps to improve “conflict management”. DOING ONE’S JOB IS NOT A CONFLICT YOU-- *fizzle spark*

  3. Pteryxx says

    from that interview with Abramoff:

    One of the offices he keyed on was that of his good friend, the Majority Leader Tom Delay, eventually hiring his deputy chief of staff and his press secretary, and going into business with Delay’s chief of staff.

    Stahl: Did you own his staff?

    Abramoff: I was as close to his staff as to any staff. I had a very strong personal relationship with a lot of his staff.

    Stahl: How many congressional offices did you actually own?

    Abramoff: We probably had very strong influence in 100 offices at the time.

    Stahl: Come on.

    Abramoff: No.

    Stahl: A hundred offices?

    Abramoff: In those days, I would view that as a failure. Because that leaves 335 offices that we didn’t have strong influence in.


  4. trucreep says

    Just like how Jamie Dimon gets to decide how to roll out the prosecution’s case looking into his own company. Must be great!

  5. AaronV says

    I’m surprised that the Federal Reserve Bank of New York didn’t get an gag order on Ms. Segarra, stating that her findings--however preliminary--were work product and confidential.

    Maybe they can still do so. That might prevent them being brought up in court.

  6. Nick Gotts says

    Maybe Gold in Sacks could hint to some of the Republican Congresspersons that if they release their hostages without harming them, they can have nice fat sinecures if they get primaried?

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