Those interested in why federal regulators seem unable to rein in big banks might want to check out a new ProPublica report and a companion piece airing on public radio's This American Life this weekend. The reports center on secret recordings made by Carmen Segarra, a Federal Reserve specialist hired in 2012 to help keep an eye on Goldman Sachs. She ended up getting fired after seven months, but before she left, worried that regulators were being way too deferential to the bank, she began recording meetings. The tapes "portray a New York Fed that is at times reluctant to push hard against Goldman and struggling to define its authority," writes Jake Bernstein. At one point, for example, an examiner is quoted as suggesting that the team tell Goldman, "Don't mistake our inquisitiveness, and our desire to understand more about the marketplace in general, as a criticism of you as a firm necessarily." In other words, let's not upset the bank.
After listening to the recordings, financial writer Michael Lewis concludes that "the Ray Rice video for the financial sector has arrived." Taken in full, they show a "breathtaking wussiness" on the part of Fed employees, he writes at Bloomberg. His top takeaway: "You sort of knew that the regulators were more or less controlled by the banks. Now you know." Segarra, he adds, lost her job and undermined her career on Wall Street in making this information public, and he hopes it's not in vain. "The Fed is probably telling itself that, like the financial crisis, this, too, will blow over. It shouldn't." Click to read his full column or to read the full report at ProPublica. Links to the radio broadcast with the actual recordings are here. (Read more Federal Reserve stories.)