The Ray Rice video last week; today, the ear-opening audio from inside the Fed

The hottest story in economics today debuted on both NPR’s This American Life and ProPublica. Many of you will hear it on Ira Glass’ show this weekend, but it’s already up online. It concerns secret tape recordings — never good for people in power.

They are actual audio from inside private meetings of the Federal Reserve Bank of New York, charged with supervising Wall Street. As Michael Lewis writes for Bloomberg View Friday, “The Ray Rice video for the financial sector has arrived.”

In the wake of the 2008 financial crisis, lawmakers wanted answers: why hadn’t the Fed seen the crisis coming? And they wanted reform. As ProPublica journalist Jake Bernstein reports, New York Fed president William Dudley needed an outside appraisal. He gave Columbia University finance professor David Beim unlimited access to the Fed to investigate. Beim’s 2009 report foreshadowed many of the revelations about the Fed’s regulatory culture that are causing a stir today.

As Bernstein writes, “The New York Fed had become too risk-averse and deferential to the banks it supervised. Its examiners feared contradicting bosses, who too often forced their findings into an institutional consensus that watered down much of what they did.”

Beim recommended that the Fed hire expert examiners to go inside the too-big-to-fail banks. In October 20011, they embedded Ivy League-educated lawyer Carmen Segarra at Goldman Sachs.

But when she sensed that the Fed had little interest in an arms-length regulatory role, and she ran the risk of becoming a perhaps troublesome gadfly, she bought a miniature tape recorder to protect herself. That’s where the tapes come from.

Through the release of those recordings on this weekend’s edition of This American Life, the public, too, is getting a front row seat to one of the most powerful regulatory institutions in the world.

Segarra’s actions were spurred by her own experiences of trying to speak out, but repeatedly being silenced by her own bosses, about Goldman Sachs’ shady dealings. The Fed fired her — and they didn’t even know about the tapes.

Bernstein, writing in ProPublica:

Segarra became a polarizing personality inside the New York Fed — and a problem for her bosses — in part because she was too outspoken and direct about the issues she saw at both Goldman and the Fed. Some colleagues found her abrasive and complained. Her unwillingness to conform set her on a collision course with higher-ups at the New York Fed and, ultimately, led to her undoing.

In a tense, 40-minute meeting recorded the week before she was fired, Segarra’s boss repeatedly tries to persuade her to change her conclusion that Goldman was missing a policy to handle conflicts of interest.

This American Life plays Segarra’s whole exchange with Fed employee Michael Silva, which Bernstein narrates:

Mike Silva: Why do we have to say they don’t have a policy? They have one. We can say it’s a miserable one.

Jake Bernstein: Silva and Carmen went back and forth. Finally, after more than thirty minutes of this, Silva asks one last time:

Mike Silva: Can you tell me again why do you have to say there’s no policy?

Jake Bernstein: Can you tell me again why do you have to say there’s not a policy? Why can’t you just say there was a very poor policy? Carmen says she was desperate to get out of that office. She relented.

Carmen Segarra: Ok, I can work with you on that. I hear your plea, I hear your plea. I can say it’s a poor policy.

Jake Bernstein: “Ok, I can work with you on that,” she says. “I hear your plea. I hear your plea. I can say it’s a poor policy.” Only she doesn’t stop there. She can’t help herself.

Carmen Segarra: Between you and me and these four walls…

Jake Bernstein: “Between you and me and these four walls,” she says…

Carmen Segarra: No way, no way this is a policy.

Jake Bernstein: “No way, no way this is a policy.”

Carmen Segarra: I will work with you. I will say they have a very poor policy, ok, but professionally I cannot agree.

Bernstein, again, in ProPublica:

The New York Fed disputes Segarra’s claim that she was fired in retaliation.
“The decision to terminate Ms. Segarra’s employment with the New York Fed was based entirely on performance grounds, not because she raised concerns as a member of any examination team about any institution,” it said in a two-page statement responding to an extensive list of questions from ProPublica and This American Life.

But as Ira Glass says on This American Life, we’re not interested “in the he-said-she-said of all that but in what her secret recordings show us about how the Fed works.” Or more precisely, what the Fed says when it doesn’t think the rest of us are listening.

Be sure to watch Making Sen$e’s segments about Goldman Sachs, which are among our most popular YouTube hits.