Here’s Theory Why Segarra Drove New York Fed Crazy: Opening Line

We’ve lost something in our human nature since -- we’re guessing -- the conclusion of the Second World War. Certainly since Vietnam. It’s the willingness to be firm, to say things no one wants to hear, in person.

We lost the muscle that allows us to say “no” to something because it might risk upsetting someone, even if it’s the right thing to do, because people are petty and insecure, and no matter the substance of the message that goes along with “no,” it will be how you say “no” that overshadows why you say “no.”

“No” means anything negative: I disagree. You are wrong. You didn’t do what you said you would. You’re late and wasted my time.

This is central to why Carmen Segarra was fired from the New York Federal Reserve, the dirty laundry from it all now scattered about Wall Street’s front yard for all the neighbors to see. Beyond the other elements to the conflict that resulted in the termination of a woman who did the job she was hired to do, but didn’t do it the way Jennifer Aniston would have done it, lies human nature.

It’s now human nature to play nice. Above all, be nice. It will be referred to as being “professional” or being “collegial.” We’d always thought that risking screwing something up because of a preoccupation with hurting someone’s feelings was being unprofessional.

There are those other elements that might explain why Segarra was fired besides the nice quotient, but it’s almost impossible to believe her termination had anything to do with job performance. Like most except Goldman Sachs, we hate to disagree with the New York Fed, but what Ivy League- and Sorbonne-educated international lawyer secretly records herself doing a crappy job for 46 hours?

After reading the Pro Publica story and listening to the parallel radio version produced by “This American Life,” we came away asking why, exactly, someone at the New York Fed or any regulator would be afraid of, or intimidated by, the bank or industry they regulate so much that they’d sacrifice Segarra or anyone else in her position. We had to know to help us understand.

Michael Lewis knows his way around Wall Street a little, so we asked him. His column on all this hit the same day as the news. He came up with some of the other, more practical elements.

“The simple answer is that it’s become standard practice for Fed employees to go to work for Wall Street firms, so the last thing they want to do is to alienate those firms and come across as people who don’t ‘get it,’” Lewis wrote to us in an e-mail.

That’s “regulatory capture” for you. (By the way, the idea of “capture” isn’t limited to regulatory bodies. Newsrooms suffer the same thing.)

Senators Elizabeth Warren and Sherrod Brown immediately called for a congressional investigation into this. (Why is it always Elizabeth Warren?)

Lewis continued:

“When you ask a person making $150,000 a year to control a person making $1.5 million a year, you are asking for trouble,” he wrote. “To that, add the problem that the typical Fed regulator is in the awkward position of having to be educated about whatever the Wall Street firm has dreamed up.”

It’s unlikely the government’s going to start paying the Segarras of the world a million dollars, but it could do more to make them understand what they’re supervising without having to learn it from the supervised.

Besides, that wasn’t the case with Segarra. In the anecdotes at the heart of her saga, notably the dispute over whether Goldman had a companywide conflict-of-interest policy that met the New York Fed’s (supposed) standards, she knew her job. She was a trained expert in compliance, and she said Goldman’s didn’t cut it.

But her bosses didn’t like the discomfort her results produced. Her findings weren’t, well, nice.

“It’s not like Goldman doesn’t know what an adequate policy contains, she says,” Jake Bernstein writes for Pro Publica, recounting Segarra’s confrontation with her boss. “They have proper policies in other areas.”

“But can’t we say they have a policy?” her boss asks her in one recording. You can hear a little whine that says, “Can’t you be nice?”

Funny, then, that the day this all broke, last Friday, Goldman issued a new conflict-of-interest policy that prohibits investment bankers from trading individual stocks and bonds.

That wouldn’t have anything to do with the fact that, like Goldman Sachs itself, one of its investment bankers was on both sides of Kinder Morgan’s acquisition of El Paso Corp., would it? Steve Daniel had an undisclosed $340,000 personal investment, and Goldman Sachs had a $4 billion stake, in Kinder Morgan while both were selling El Paso advice on the deal.

This was just one of the issues that led the New York Fed to assign Segarra the task of examining the bank’s conflict policy, according to the stories.

In the end, “the New York Fed had ‘lost confidence in (her) ability to not substitute (her) own judgment for everyone else’s.’” That’s the reason offered by Segarra’s boss for her dismissal, Bernstein wrote, citing the tapes.

It sounds exactly like the job description supplied by David Beim, the retired Columbia School of Business professor who was commissioned in 2009 with analyzing what might have gone wrong inside the New York Fed in the lead-up to the credit crisis in 2008 that became the Great Recession.

The report, which Bernstein says Beim handed to New York Fed President Bill Dudley, was the impetus for ultimately hiring Segarra, among others. It understood human nature. It warned of the dangers of consensus, of going along to get along.

The Beim report recommended hiring  "‘out-of-the-box thinkers,’ even at the risk of getting ‘disruptive personalities,’’’ Bernstein wrote. “It called for expert examiners who would be contrarian, ask difficult questions and challenge the prevailing orthodoxy. Managers should add categories like ‘willingness to speak up’ and ‘willingness to contradict me’ to annual employee evaluations.”

We’ve been through a few employee evaluations. This was never prized.

“He’s the only one who dare say it because he doesn’t have ordinary social instincts,” Beim said to Bernstein in the “This American Life” broadcast, speaking hypothetically of the personality type he envisioned. “He doesn’t act politely. And somebody like that has to -- or a number of people like that -- have to be employed by organizations that want to be able to catch a big systemic problem brewing. They’re willing to say what they think is right even if people don’t like them as a result. They don’t care.”


Today’s U.S. economic indicators are the Case-Shiller home price index at 9 a.m. EDT, Chicago purchasing managers index at 9:45 a.m. and the Conference Board’s consumer confidence index at 10 a.m.

Walgreen reports earnings before the market opens. Moody’s and Intuit hold investor days, and Microsoft will update analysts on the next version of Windows.

Overnight, Japan said industrial output and unemployment fell, while retail sales rose. In China, HSBC and Markit said manufacturing PMI for September was unchanged from August at 50.2, lower than the preliminary reading of 50.5.

A short time ago, the U.K. said second-quarter GDP rose 0.9 percent. The EU said the September CPI came in at 0.3 percent, and August unemployment stayed at 11.5 percent. Unemployment in Germany unexpectedly rose in September, the Federal Labor Agency said.


- The UN General Assembly meeting of world leaders concludes. Separately, the Security Council meets to discuss Syria. - The House Committee on Oversight and Government Reform holds a hearing on U.S. Secret Service Security protocols at 10 a.m. in Washington. - Boris Johnson, London’s mayor, speaks at the U.K. Conservative Party Conference at 6:50 a.m. EDT. - A Brazilian held hostage was released unharmed and his captor arrested. - Ford to miss profit projections. - The Portugal Conference was scheduled to begin at 4:15 a.m. EDT at the Millennium Hotel Mayfair in London. Speakers include Bank of Portugal Vice Governor Pedro Duarte Neves and Portuguese Economy Minister Antonio Pires de Lima. - The Bloomberg Canadian Fixed Income Conference begins at 8:30 EDT at Bloomberg headquarters in New York. Speakers include Canadian Finance Minister Joe Oliver. - The World Retail Congress begins in Paris and runs through Oct. 1. - Argentina must make a $200 million payment to exchange bondholders today, one day after being found in contempt by a New York judge over its plans to do so. - Sweden’s parliament opens for the first time after voters ousted the government of Prime Minister Fredrik Reinfeldt in Sept. 14 elections. - The FCC holds an open meeting at 10:30 a.m. in Washington on a proposal to scrap the rule providing blackouts of local sporting events when ticket sales are insufficient. - Spain’s Constitutional Court preliminarily blocked the Catalan government’s plan to hold a vote on independence. - UPS worker steals package with $160,000 diamond, trades it for $20 in weed.

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