New Scrutiny of Goldman's Ties to the New York Fed After a Leak

http://dealbook.nytimes.com/2014/11/19/rising-scrutiny-as-banks-hire-from-the-fed/?hp&action=click&pgtype=Homepage&module=first-column-region&region=top-news&WT.nav=top-news&_r=1

by taivare • 12 years ago

90 45 12 years ago

dealbook.nytimes.com

rayiner2• 12 years ago

Leaking confidential information is clearly not okay, and good on Goldman for firing everyone involved.

That being said, look at how the government and regulators approach the tech industry: Words like "open," "distributed," "inter-operable," which have not just technical but philosophical meanings in the tech industry have no meaning to lawmakers or regulators. That's precisely because there's no revolving door bringing people with these perspectives from the industry into the government, where they can shape policy.

There's no particularly good solution to regulation, and I'm not convinced our status quo is worse than the alternatives. Most people do not believe you can achieve societal goals in a free-market without regulation. So you have some sort of regulation, and the question becomes: who are the regulators? A professional class of bureaucrats well-insulated from industries, or a class of practitioner-bureaucrats that move fluidly from industry to government and back? There's good and bad that comes with both options.

ceejayoz• 12 years ago

Did they fire everyone involved, or did they fire everyone who got caught? It wouldn't be shocking if their managers were aware and just careful not to get provably implicated.

comboy4• 12 years ago

good on Goldman for firing everyone involved

There's too much for one comment, but from the sound of it I think you may not be seeing the full picture. E.g.

http://www.zerohedge.com/news/2014-11-20/here-are-highlights...

rayiner2• 12 years ago

What in that article has anything to do with information leaking between regulators and banks? That is an article about banks manipulating commodities prices by buying up vast quantities of them. Which is a good argument in favor of regulating the free market, but doesn't address the point I'm making.

wglb2• 12 years ago

"Zerohedge" and "full picture" in the same sentence is a matter of concern.

mercurial• 12 years ago

I see where you're going with that, and it's particularly an issue in France, where most lawmakers seem extremely ignorant about anything technical. However, I'd rather live with that than with, say, regulatory capture by Microsoft. Having businesses and governments live in symbiosis is never a good idea.

unclebucknasty• 12 years ago

Most people do not believe you can achieve societal goals in a free-market without regulation.
...who are the regulators? A professional class of bureaucrats well-insulated from industries, or a class of practitioner-bureaucrats that move fluidly from industry to government and back?

If you do subscribe to the premise of the first quote (i.e. that regulation is required) AND you accept the premise of the second quote (that those represent the only two choices), then it seems obvious that you have to go with the insulated bureaucrats.

Otherwise, you effectively have regulatory capture, which is to say, effectively, no regulation at best.

And, at worst, this capture represents no achievement of societal goals PLUS a distorted marketplace which further compounds societal problems.

This, versus imperfect or inefficient regulation, but regulation nonetheless.

incision• 12 years ago

The episode of This American Life referenced is well worth a listen if you've ever been curious about what trying to do good work inside a crushing bureaucracy sounds like.

1: http://www.thisamericanlife.org/radio-archives/episode/536/t...

001sky2• 12 years ago

See also: on how they pick the bosses of career regulators

http://www.huffingtonpost.com/elizabeth-warren/presidents-wa...

cryoshon• 12 years ago

Scrutiny? The article is pretty weak on real scrutiny. It's not quite a whitewash, but it's definitely limp when it comes to hammering the bottom line:

The "ties" described by the article would be better described as symbiosis between regulatory bodies and Goldman Sachs designed to maximize wealth for Goldman Sachs to the detriment of the public. Everyone knew that Goldman Sachs owned most of the politicians and regulatory groups before. This article puts forth a few more pieces of evidence, to nail the coffin shut. Cue apologists denying that these are established facts.

Why is this corruption tolerated?

sillysaurus3• 12 years ago

Why is this corruption tolerated?

A more illuminating way to phrase this is, "What are you going to do about it?"

001sky2• 12 years ago

- Audit the Fed

- Bar "revolving door" employment for 5 years

- Lots of others...

alphonse23• 12 years ago

use bitcoins, stop using banks.

philrapo6• 12 years ago

Everyone knew that Goldman Sachs owned most of the politicians and regulatory groups before.

I didnt know this. Source please?

jgalt212• 12 years ago

Goldman, it seems, has become very effective in the practice of Regulatory Capture.

http://en.wikipedia.org/wiki/Regulatory_capture

philrapo6• 12 years ago

While the "revolving door" between banks and regulators clearly presents some problems, consider the alternative.

I personally hate the idea of career politicians who have no practical experience in the private sector trying to write laws. (We see examples of bad legislation all the time from people who are clueless about tech, for example). Finance and central banking are very complicated areas, and I'd prefer to see regulations written by those who have an intricate and practical understanding of how those industries/markets work.

It makes sense to me that the most qualified regulators would be those who spent years in the private sector working at places like GS.

And on the flip side, it makes sense that private firms would be interested in hiring former govt officials and regulators who best understand how compliance and regulation work from the inside. It's like wanting to have an ex-IRS guy do your taxes. Regulators and public officlas who spent years earning little pay and doing public service also want to monetize their experience and finally get a good paycheck after leaving office. (Lots of examples of this in the bitcoin space lately.. e.g. Arthur Leavitt.. it's not just happening at goldman sachs).

In this article, it sounds like a foolish (and possibly illegal) decision by a 29 year old former Fed guy, and as soon as it was identified by Goldman, they self-reported the issue to make it public. What else are they supposed to do?

dreamweapon• 12 years ago

It makes sense to me that the most qualified regulators would be those who spent years in the private sector working at places like GS.

I can see how what you're saying could make sense, from a utilitarian perspective. But unfortunately lifetimes of empirical evidence suggest that we just can't trust any of these industries (oil/gas/mining, banking, pharma, telecom, etc) to self-regulate (which in effect is what the "revolving-door" culture leads to).

Not all of the people in these companies are bad (most are not). But enough of them are, and the temptation for malfeasance (both to maximize profit, or to simply save their asses when the inevitably run into hot water), along with the human tendency to rationalize away such malfeasance (if it serves a perceived higher end) are simply too great.

philrapo6• 12 years ago

So are you then suggesting that it's preferable to have regulators who never had hands-on industry experience in their relevant sector?

ams6110• 12 years ago

Maybe we should just have less regulation? Nip the problem at the source.

alexqgb8• 12 years ago

See "Beijing / air quality of" to understand why the little-to-no-regulation crowd finds so little traction with the general public.

dragonwriter• 12 years ago

(We see examples of bad legislation all the time from people who are clueless about tech, for example).

I'm not sure we have, except coincidentally. Most of the instances of "bad legislation" relating to tech that people point to aren't a result of either:

(1) People who don't know about tech drafting laws, or

(2) Laws that don't serve exactly the interest that their drafters and legislative sponsors intended them to serve.

Its true that people selling this kind of legislation to the public often use inaccurate, misleading, and even nonsensical statements about technology to sell them, but that's very different than the fundamental problem (insofar as the laws are considered bad) being ignorance of technology among lawmakers.

alexqgb8• 12 years ago

The worst tech-related legislation was SOPA/PIPA, and that had less to do with ignorance on the part of regulators and more to do with a full-court press by IP holders deliberately trying to break the internet to preserve their lock on content.

alexqgb8• 12 years ago

"Regulators and public officlas who spent years earning little pay and doing public service also want to monetize their experience and finally get a good paycheck after leaving office."

Do you really think any company is going to hire an honest, competent ex-regulator who has made a career of fining and frustrating their top executives - and possibly referring them to prosecutors? Or do you think they're more likely to hire that regulator's "friendlier" colleague who spent the same amount of time defusing and deflecting warranted regulatory actions in hopes that he'd be rewarded with a plum gig once he left the government?

Assuming they did hire the softie, can you see how they'd want everyone still working for the government what cushy well-paid gig the guy ended up with? And isn't that exactly what happens?

"Lots of examples of this in the bitcoin space lately.. e.g. Arthur Leavitt.. it's not just happening at goldman sachs)"

Well, yes, my point exactly. "Lots of people doing it means it's okay" is one view. Others would call the same pattern "evidence of entrenched systemic corruption." Indeed, the very fact that this is so widespread that's so problematic as that's what signals to our shadier "regulator" in the previous example that he will, in fact, be suitably rewarded if he plays ball.

"In this article, it sounds like a foolish (and possibly illegal) decision by a 29 year old former Fed guy,"

No, not "possibly illegal". Flagrantly illegal. That's why he's got a criminal defense lawyer.

mariodiana• 12 years ago

Let me share a little story that I find analogous.

In New York City, the Mafia runs the illegal gambling. I don't know if it still goes on, but some years ago I know for a fact that the bookies used to stay friendly with the cops by cashing their paychecks for them. (You see, if you bring your paycheck to the bank, your wife will know how much you make.)

One cop I was acquainted with became, when he retired, a small time bookie himself in a suburb of NYC. The small time bookies can't make it on their own, because you need someone to pass the big bets onto, when the action is a little too rich for your blood.

Now, do you think the retired-cop-turned-bookie was a ballbuster to the mobsters in New York, or one of the "friendlier" cops?

(I think I know what you think. My little story is really in support of your answer to the guy you're responding to. The way I see it, bankers and regulators aren't that much different from mobsters and cops.)

philrapo6• 12 years ago

Do you really think any company is going to hire an honest, competent ex-regulator who has made a career of fining and frustrating their top executives - and possibly referring them to prosecutors?

Yes, absolutely. I think it's ridiculous to suggest that competent and strict regulators are not in demand by the private sector. They clearly have valuable experience, advice, and skills. A timely example is Ben Lawsky, former head of the NY DFS, who is often referred to as one of the "most feared" regulators in banking. I have no doubt he will find himself in demand by the private sector. Another example is Mary Shapiro, former head of the SEC, who now works for Promontory Financial (along with dozens of former regulators) providing consulting services and regulatory advice for the private sector. [1]

Well, yes, my point exactly. "Lots of people doing it means it's okay" is one view.

So after one does public service, they should not be allowed to work in the private sector? How is that not okay? I think that people should be free to work whereever they like, provided the do not break laws. There is nothing illegal about taking a profitable position after public service.

[1] http://www.promontory.com/Bios.aspx?id=2731

richardw• 12 years ago

I know a tax lawyer who worked for the tax authorities and with specific interest in corporate tax avoidance. He loved the challenge of going after companies who were trying to avoid tax. He left to set up his own consulting company and now prints money, for those same companies.

I think a rational company would have no problem hiring a competent person who proved they know the business better than the people who currently work for them.

jostmey• 12 years ago

After listening to the entire article what struck me hard was the secretive nature of the "fed". Their behavior was the exact opposite of what I consider to be a transparent and corrupt free government agency.

New Scrutiny of Goldman's Ties to the New York Fed After a Leak

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