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Posts Tagged ‘Bank examiners’

Yesterday, US Senator Elizabeth Warren called for a Federal investigation of the passionate relationships between the New York Federal Reserve Bank and the investment banks of Wall Street. The senator wrote on her Facebook page, “When regulators care more about protecting big banks from accountability than they do about protecting the American people from risky and illegal behavior on Wall Street, it threatens our whole economy. We learned this the hard way in 2008. Congress must hold oversight hearings on the disturbing issues raised by yesterday’s whistle-blower (sic) report when it returns in November – because it’s our job to make sure our financial regulators are doing their jobs.”

US Senator Sharrod Brown serves on the Senate Banking Committee with Warren. He backed her request in a statement of his own. “These allegations deserve a full and thorough investigation, and American taxpayers deserve regulators who will fight each day on their behalf,” the Ohio senator and frequent financial industry critic said.

Carmen Segarra, fired by the New York Federal Reserve for doing her job.

Carmen Segarra is the whistle blower in question. The former bank examiner jumped into public consciousness earlier this month when she filed a wrongful termination lawsuit alleging that the Federal Reserve Bank of New York fired her after she refused to go soft on investment banking behemoth Goldman Sachs.

Her allegations of cozy relationships between the big investment banks and a 2009 internal report cited by This American Life and Pro Publica paint a picture of what’s called “regulatory capture” at the Fed. That means that an independent oversight body has stopped acting on its intended motivations of protecting the public from misdeeds by the entities it regulates and started acting on behalf of those entities’ own interests. Regulatory capture is a subtle thing defined less by concrete facts and figures and more by the tone of meetings and the way friendships between regulators and businesses color the regulators’ actions and views. If capture takes hold and goes unchecked, the regulatory cops on the beat turn into enablers. In the radio segment based on Segarra’s tapes, host Ira Glass compares captured regulators to “a watchdog who licks the face of an intruder, and plays catch with the intruder, instead of barking at him.”

Regulatory capture is just one example of the many abstract cultural forces on Wall Street that create an environment where financial misdeeds can flourish, imperiling the real economy that employs everyone else in the business of making and selling goods and services. Surveys of industry insiders have repeatedly found worrying evidence of ethical lapses among people in the financial business, including outright disregard for the law. A quarter of those surveyed in 2013 said that they would knowingly break the law for financial gain. That number jumped to 38 percent for respondents who have worked in finance for less than a decade. The same survey also found that women are twice as likely to fear retaliation for whistle blowing as men.

Most government regulations of Wall Street are to keep things honest, which you can’t expect Wall Street to do. The result of Wall Street investment bank transgressions in both the short and long term are typically income redistribution from the 99 to the 0.01 percent.

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