Mercury Rising 鳯女

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How the financial crisis happened: The contribution of regulatory failure

Posted by Charles II on September 27, 2014

Michael Lewis’ piece (via Truthout:

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 as well as from this article by ProPublica. 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.

ProPublica’s article by Jake Bernstein.

As it appeared on WBEZ

536: The Secret Recordings of Carmen Segarra
SEP 26, 2014
An unprecedented look inside one of the most powerful, secretive institutions in the country. The NY Federal Reserve is supposed to monitor big banks. But when Carmen Segarra was hired, what she witnessed inside the Fed was so alarming that she got a tiny recorder and started secretly taping.

2 Responses to “How the financial crisis happened: The contribution of regulatory failure”

  1. Well look, the Federal Reserve Bank of New York is privately owned by the banks and serves only as agent of the Federal government. So the actual employer of said regulators is the private banking system they regulate.

    • Charles II said

      I don’t think it’s that simple, Mahakal.

      The Chairman of the Board of the NY Fed:

      Emily K. Rafferty is president of the Metropolitan Museum of Art, the largest art museum in the United States, where she oversees administrative staff of 1,500 full- and part-time employees and serves ex officio on its Board of Trustees

      The full board includes many people who are in/of the banking industry, but many others. As you can see, Class B and C directors cannot be employees of banks (including directors or CEOs), although they are chosen by member banks. So there is some outside influence.

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