Painful Irregularity

I recently received an email from one of my friend and blog-followers showing shock and surprise at the revelations gleaned from 46 hours of secret recordings made by a senior Fed bureaucrat, since fired from her job, of the Federal Reserve and that body’s dealings with Goldman Sachs. Why the shock, Sarah? It is the new normal and has been for years. More details to follow, but the bottom line is that federal regulators openly admit that Goldman and comparable powerful commanders of wealth are generally immune from the kinds of rules and regulations that are supposed to apply to everybody, but are only applied to lesser fish in the pond. Wealth buys the kinds of campaign support that elected officials desperately need in a world where running for office is as much about raising money as it is about representing “everybody.”

And we know that regulators are routinely recruited from the industry’s they regulate. They know the issues well and have probably worked for companies that have made more than their fair share of campaign-support as well as paid for sustained lobbying. They just aren’t good at chastising their buddies who are engaging in activities that pretty much reflect what the new regulators were doing in their old jobs themselves. Look at how many Goldman bankers have wound up as senior managers at the Department of the Treasury, including at the Secretary level itself, appointed by Presidents on both sides of the aisle.

It is not by accident that despite the clear market manipulation, strong layers of corporate mendacity ranging from lying to clients about expected market trends (while betting against the very investment being peddled to the client) to credit ratings agencies’ knowingly labeling unsustainable “sub-prime” economic assumptions as “A” level products, or outright violations of statutes and regulations (more lying), not one single senior Wall Street player has been convicted of any criminal wrongdoing. None of the big boyz and girlz who caused this mess have served a nanosecond of jail time for causing what is conservatively $30 trillion in global economic damage and resetting the economy to remove hope and future wellness for most of Americans while creating the severe income inequality that threatens to bring down the nation… sooner or later. We are at each other’s throats with rage, but the perpetrators go unpunished.

Let’s start with the Federal Reserve’s own self-examination, an August 18, 2009 Fed-commissioned report led byColumbia Business School professor and former banker named David Beim. Noted financial author, Michael Lewis, explains in the September 26^th Bloomberg View: “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.

“Just the opposite: The Fed encourages its employees to keep their heads down, to obey their managers and to appease the banks. That is, bank regulators failed to do their jobs properly not because they lacked the tools but because they were discouraged from using them.

“The report quotes Fed employees saying things like, ‘until I know what my boss thinks I don't want to tell you,’ and ‘no one feels individually accountable for financial crisis mistakes because management is through consensus.’ Beim was himself surprised that what he thought was going to be an investigation of financial failure was actually a story of cultural failure.”

So now, let’s look at that fired Fed employee, the one with the incriminating tapes: “[I]n late 2011, as those managers staffed up to take on the greater bank regulatory role given to them by the Dodd-Frank legislation, they hired a bunch of new people and one of them was a strong-willed, independent-minded woman named Carmen Segarra… She is obviously bright and inquisitive: speaks four languages, holds degrees from Harvard, Cornell and Columbia. She is also obviously knowledgeable: Before going to work at the Fed, she worked directly, and successfully, for the legal and compliance departments of big banks. She went to work for the Fed after the financial crisis, she says, only because she thought she had the ability to help the Fed to fix the system.

“In early 2012, Segarra was assigned to regulate Goldman Sachs, and so was installed inside Goldman. (The people who regulate banks for the Fed are physically stationed inside the banks.).. The job right from the start seems to have been different from what she had imagined: In meetings, Fed employees would defer to the Goldman people; if one of the Goldman people said something revealing or even alarming, the other Fed employees in the meeting would either ignore or downplay it. For instance, in one meeting a Goldman employee expressed the view that ‘once clients are wealthy enough certain consumer laws don't apply to them.’ After that meeting, Segarra turned to a fellow Fed regulator and said how surprised she was by that statement -- to which the regulator replied, ‘You didn't hear that.’

“This sort of thing occurred often enough -- Fed regulators denying what had been said in meetings, Fed managers asking her to alter minutes of meetings after the fact -- that Segarra decided she needed to record what actually had been said. So she went to the Spy Store and bought a tiny tape recorder, then began to record her meetings at Goldman Sachs, until she was fired.” Bloomberg View. Goldman, of course, denied the allegations. But is the story of almost every federal regulatory agency. It happens every day at every level. And if you think this could only happen in Washington with the federal government, think again. It is repeated, perhaps even more brazenly, in state capitals across the land.

Take North Carolina, for example, one of the most gerrymandered states in the union. The big bad economic boy in North Carolina is Duke Energy. Back in February, massive amounts of toxic coal ash were washed into the NC river system (specifically the Dan River, pictured above), all stemming from Duke Energy facilities. How, people asked, could this have happened? On February 16^th, the entire editorial board of the New York Times wrote: “North Carolina citizens have good reason to wonder just whom their environmental regulators are trying to protect. The state’s Department of Environment and Natural Resources has engaged in a series of maneuvers that seem designed to protect the state’s largest utility, Duke Energy, from paying big fines for water pollution from coal ash ponds and meeting reasonable requirements that it move toxic coal ash to lined landfills away from rivers and lakes used for drinking water and recreation…

“In North Carolina, a coalition of environmental groups, led by the Southern Environmental Law Center, tried three times over the past year to sue Duke Energy in federal court for violating the Clean Water Act, only to be pre-empted by the state regulatory agency, which asserted its authority to protect the public through enforcement actions in state courts. Once in control of the litigation, the state regulators quickly proposed a sweetheart settlement of suits against two Duke Energy plants. It would have imposed total fines and costs of about $99,000, a pittance for a company with operating revenues of $19.6 billion in 2012, plus a cleanup plan riddled with loopholes.”

The state’s Department of Environment and Natural Resources was overseen by industry-friendly regulators, appointed by 29-year Duke Energy employee and now Governor Pat McCrory (R), who systematically shut down their bureau from enforcing the state’s clean water laws. And when pressed to the wall to fine the offender, what resulted was less than a slap on the wrist. “Federal prosecutors have opened a criminal investigation into the Dan River spill and issued subpoenas for the records of Duke Energy and the environmental department.” NY Times.

As our non-strict-constructionist Supreme Court (what they claim is not what they actually do) repeals federal voting rights and campaign restrictions statutes, reverses older rulings from the same court, and as their own suggestion that their activism is based on an archaic constitution (Scalia’s statement that the Constitution is “dead” for example), what we are seeing is a steady reinforcement of a two-tiered legal system: one for most of us, and another with hall-pass exemptions at every turn, for the captains of finance and industry. We are becoming a plutocracy, a banana republic, where every year generates a decreasing stake in our country and our economy for all but those at the rarified few at the top.

 I’m Peter Dekom, and for those who have actually studied history, these patterns are a roadmap to the complete destruction of the entire American political system; history simply does not condone or support such polarization for long.