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I guess you haven't read or listened to the whole thing?

"Goldman had advised one energy company, El Paso Corp., as it sold itself to another energy company, Kinder Morgan, in which Goldman actually owned a $4 billion stake, and a Goldman banker had a big personal investment. The incident forced the Fed to ask Goldman to see its conflict of interest policy. It turned out that Goldman had no conflict of interest policy -- but when Segarra insisted on saying as much in her report, her bosses tried to get her to change her report. Under pressure, she finally agreed to change the language in her report, but she couldn't resist telling her boss that she wouldn't be changing her mind. Shortly after that encounter, she was fired.)"

I did skim the examples. The one you quoted isn't damning either. Its not illegal for M&A professionals to have conflicts of interest. That's the rule in the business world. The exceptions (e.g. fiduciary duties of corporate officers) are provided by law.

Sure it's not illegal, but do you think it's ethical?

Do you think it's a thoughtful policy for Goldman Sachs?

I know if I were one of the M&A parties, I would irate to find out that the supposed advisor had a personal stake that could have influenced how things shook out.

Contemporary understanding is that outside of special cases, ethics is dictated by the market. If Goldman's clients have a problem with with bankers having personal stakes, they'll not use Goldman's services. Its not like they don't know. Its very common for investment professionals to get in on the deals they work on.

In any case, regulators are entrusted with making sure people follow the law, not some ethical code that differs from person to person.

> ethics is dictated by the market

Maybe we can start trading in ethics? /s

Why was the Fed looking at Goldman's conflict of interest policy at all then?

"ethics is dictated by the market"

How can you seriously say that? It's fine to hurt people as long as they're willing to tolerate it or remain ignorant to it? Preying on ignorance isn't ethical even if it markets well.

But the change in the report was minuscule, and I think her boss was actually correct.

Goldman had written materials about conflicts. Segarra claimed they weren't enough to a "policy" by her opinion. Her boss argued, it was a policy even if it was a really poor one. He didn't tell her to change the report to say they had a policy, he told her to change it to say Goldman's policy was very deficient and need to be improve a lot.

It's essentially a semantics argument, not some huge cover up.

And her boss's stance is arguably more detailed and accurate.

I think this is actually missing the point. Her boss may have been right, and I think he was. But as a regulator she's entitled to file her opinion and have him override it. Then it's all in writing.

The fact that they refused to do this and instead bullied her into their own opinion is remarkable. If they'll do this for something so minuscule, imagine what they'll do for bigger issues.

The tapes aren't exposing that Goldman got away without a conflict of interest policy, they're exposing that the Fed is still refusing to let staff stand by their independent opinions.

Please listen to the "This American Life" episode he links to. Lewis explicitly says, "I don't want to spoil the revelations of 'This American Life': It's far better to hear the actual sounds on the radio, as so much of the meaning of the piece is in the tones of the voices -- and, especially, in the breathtaking wussiness of the people at the Fed charged with regulating Goldman Sachs."

Also keep in mind that at that point, he's quoting from the Beim report, which is not from the tapes. As Lewis and the episode say, that report was written by a Columbia Business School professor in 2009, at the request of the Fed.

This isn't quite accurate. Since 2007 there's been much more regulatory pressure--particularly on large commercial banks, but all financial institutions to a lesser extent.

A major issue is the regulations themselves are extraordinarily complicated and the regulatory regime is unclear. What you characterize as "deference" is more like this: the regulators don't know what regulations out of (literally) hundreds of thousands of pages' worth of regulation they can get away with enforcing or not enforcing, but for political reasons they might be called to enforce whatever regulations at whatever time, such as with the retroactive enforcing of mortgage regulations everyone was ignoring before 2007 because the political incentives were such that everyone should have access to mortgages. So regulators are incentivized--whether corrupt or not--to build soft, close relationships. (As an aside, regulators and banks are continually building sophisticated machine-learning algorithms that have access to all your financial data, as well as powerful search systems to find whatever a regulator might demand.)

Hobbes, writing in England in the 1600s, described the "silence of the law", wherein if the king's agents enforced all his laws his rule would quickly become tyrannical and lose legitimacy. Well, again, there are literally hundreds of thousands of pages of financial regulation, depending on who you ask, that can be characterized as "must follow". Enforcing them all would draw the wrath of most Republicans and moderates, because the world does need a financial system.

The regulators work softly because, honestly, they don't know what they are doing or are supposed to do. Banks try to get in bed with regulators because they don't want to end up like HSBC; people calling for their heads essentially because they were lazy about regulatory demands for an issue that ended up being politically sensitive. A large part of compliance nowadays is trying to predict what Congress cares about or might care about in the future. Regulators are glad to get the extra access. After all, when the political winds blow the right way, they have the real power. Otherwise, don't rock the boat.

There is also corruption--always, everywhere--but if I was to imagine how a "good" regulator could do his job in the way Michael Lewis demands, well, I can't imagine that ever happening.

Your greatly misrepresenting the situation. A friend worked as a lawyer for the SEC for years and as he put it, the regulations are generally sensible and straightforward, the issue is your regulating people with money which have lot's of ways to apply pressure. At the same time stepping outside of regulations generally makes you money in the short term, so nobody want's to play by even vary minimal rules.

I would hesitate to describe the SEC's regulations as "sensible and straightforward". I've never heard anything to that effect from a candid observer, and we're talking about more than just the SEC here.

But anyway, there are always bad people and there is always regulatory capture, but a robust system is one in which there is no excuse for bad things and good people are allowed to work honestly. My aim was to describe how financial regulation is broken even if it was full of good guys. In fact, what constitutes doing the "right thing" is hard to determine except in retrospect.

I am not going to suggest you spend a lot of time on this, but poke around http://www.sec.gov/about/laws/secrulesregs.htm and mostly the regulations seem reasonable. At least compared to generic government regulations which can be far far worse. Consider, some raw materials would classify as nuclear waste if used to build an outbuilding at a nuclear power plant but you could use the same stuff to build a school.

Anyway, IMO I think the issues come down to financial transactions being somewhat abstracted from 'morals'. Sure, people rarely get into finance to make the world a better place. But, it's hard to feel telling your friends to sell stock before bad news hit's is a bad idea. Toss in people chasing after a few points here and their to hit their bonus and the incentives tend to be messed up.

Many regulations seem reasonable when applied to a financial system, but seem arbitrary for any one transaction.

Having worked at a few of Goldman's peer banks, I'd also throw in that sometimes the regulatory compliance is more expensive than the fine. I worked on a board level system for tracking regulatory compliance issues and there were hundreds at any given time.

As cynicalkane points out, these regulations are far more complex than "don't be bad." You don't know who's got an ax to grind to enforce a regulation this year that's been lax for years before. Plus, IT is not cheap, generating all the reports vs paying a $50K fine? Just pay the fine, but now you're an evil big bank. You'll get over it.

"I'm not going to comment until I know what my boss thinks?" That's something nearly every underling has or will say at some point.

If you'd prefer to cherry-pick, and boil Lewis's findings down to an innocuous sentence or two, then you're welcome to do so. But if you'd read his findings as a whole you can easily find much more damning material; for example, the following:

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."

The quote I used is in the first paragraph. If he leads with it, presumably its one of his strongest arguments.

Also, nothing alarming about the quote you just mentioned either. To the extent consumer laws consider sophistication of the consumer, its probably quite right. Sophisticated investors, for example, do not have many of the protections that apply to the general public.

Nothing at all alarming about "You didn't hear that?", really? Actually, the non-alarming part you do address is invalidated by the actually-alarming part you don't: if it was so unremarkable, why did her colleague instruct her to pretend it never happened?

If it was so unremarkable, why did her colleague instruct her to pretend it never happened?

Most likely the regulator simply didn't know what to make of what the Goldmanite had said (and might not have even been aware of the exemptions granted to accredited investors -- assuming those are applicable here). So (being in over his head) rather than confess his ignorance, he did what must have come naturally for him: he shat his (presumably male) pants, and told his co-worker to keep her trap shut.

Are you seriously suggesting a Fed regulator at Goldman wouldn't know about something as basic as accredited investors?

Based on available evidence, it seems that there are two basic outlines that can be drawn around what transpired:

(1) What the Goldmanite said was innocuous (and the regulator simply didn't know what to make of it -- i.e. yes, he must have not known about exemptions for accredited investors); or

(2) What the Goldmanite said was potentially quite troubling (and the regulator knew it), for reasons we don't know yet (due to the missing context).

Which it was, or even likely was, of course I cannot say. But the basic point is that the fact that the regulator tried to hush his colleague up in this situation is by itself quite troubling. Especially if it's part of a larger pattern.

(2)

Maybe I'm missing some context, but isn't that just an accurate statement of fact? There are, indeed, consumer protection laws that only apply to people who do not either make a certain amount of money per year or have a certain level of assets. This is the notion behind accredited investors[1], and I wouldn't be surprised if more esoteric laws have other similar sorts of exceptions. (There are definitely laws the deal with small businesses differently than with large corporations, for example.)

[1]: http://en.wikipedia.org/wiki/Accredited_investor

That is true (and definitely a valid point). But still, we have to wonder why the regulator tried to hush her up in that situation.

Seriously, dude? That's the least damaging point in the article, much less the piece itself.

Slow down in your urgent rush to minimize this release. At least read the whole article if listening to the piece is too much to ask.