“A lone whostle blower exposes the giants of Wall Street.”
(or, I paraphrase here, “Is Goldman Sachs the rottenest “bank” on Wall Street?”)
I was drawn to this book because, in the heady heyday of the sumptuously optimistic Obama administration there appeared (to me) to be an early fly in the ointment. His administration was RIFE with Goldman Sachs consultants, advisers, “specialists” and other fluff merchants. At the time I thought of Sachs as another weird financial cult along the lines of Merrill Lynch (the thundering herd) or McKinsey, but I didn’t realise how profoundly stupid they all are.
Leading up to and during the 2008 economic fiasco, the world lost, among other things, two of Wall Street’s biggest and most prestigious “investment banks” or gambling houses – Bear Stearns and, yes, Lehman Brothers. Hugely over extended by greed, opportunism, and the removal of Glass Steagal inhibitions, these houses of cards collapsed in upon themselves – taking many unfortunate souls with them.
The next teetering gambling houses in line were Sachs and Morgan Stanley – who were saved by we the grunts and some dodgy emergency legislation. The latter was a clever wheeze by which the above mentioned Glass Steagal removal was stood on its head. Instead of allowing proper banks to become gambling houses, it was used to let gambling houses become “proper banks”.
Why let gambling houses become “proper banks”? Because “markets no longer trusted standalone investment banks” (gambling houses) AND “bank status provided access to central bank liquidity, deposits, and regulatory protection” (thank you ChatGPT). In short, Sachs and Stanley were made banks so that we the grunts could protect them.
In supposed exchange, Sachs and Stanley were to be more closely regulated by the Federal Reserve in the way proper banks supposedly are. And this is where Carmen’s book comes in.
Carmen used to work as a lawyer “in the trenches of some of the world’s biggest banks: MBNA America Bank (now part of Bank of America) Citigroup, Societe Generale” and had been “courted” and interviewed “countless times” by the likes of Sachs itself plus “JP Morgan Chase, UBS, Barclays, Morgan Stanley, Merrill Lynch”. In short, she was a very highly regarded, respected, and in-demand banking attorney.
However, instead of sticking to a massively overpaid career path with these Wall Street colossi, 3 or 4 years AFTER the 2008 fiasco, she altruistically chose to work for the New York Federal Reserve. (The NY Fed is the most powerful of the offshoots of the national Federal Reserve system – to some extent, the tail which now wags the dog).
She took the job “thinking I would be protecting the safety and soundness of the financial system on behalf of the taxpayers who paid my salary”.
Her first assignment was to audit Goldman Sachs’ safety and security risk management policies and procedures. She was appalled. Such policies and procedures appeared not to exist! The gambling house which had become a bank had not put in place even the most basic safety measures as required by we the grunts in exchange for protecting them in 2008. Worse, as she dug deeper and found yet more ghastly realisations, she discovered that she was being obstructed not just by Sachs employees but even by fellow workers at the NY Fed. There appeared to be intimate relationships and revolving doors between the two organisations which heavily compromised the work she was trying to do.
Despite the pressures from all quarters, Carmen stuck to her principles and refused to sign off on Goldman Sachs’ compliance reports. This was for the simple reason that they were not compliant and their shoddy and cavalier attitudes to compliance with banking rules specifically and record-keeping generally might well trigger another 2008-type fiasco. Meaning of course, yet another bailout from the only people who pay taxes – we, the grunts.
The book catalogues her journey through the financial mire which culminated in her becoming a formal pariah to the financial establishment and, after a mere 6 months, being fired from her job at the NY Fed.
For a financial lawyer, being fired by the New York Federal Reserve is effectively a career stopper. She knew what was at stake when she took her stand, but that didn’t make life any easier. So, what could a woman like her do?
She took the NY Fed to court.
Suing the New York Fed is no mean feat. It is a massive undertaking. You are effectively taking on the entire might of Wall Street. This would terrify a global corporation, let alone one woman and her circle of immediate friends (the “Allies”).
The lawsuit itself became a sideshow in compromise and conflict of interest as the financial establishment struggled to maintain the upper hand.
Carmen beautifully explained the difference between “common law” and “civil law”. I will quote directly.
“The world of law is divided into two camps – civil law and common law. Common law is law made by judges. A case is brought to court, and the judge’s decision becomes the law and remains the law until another judge, usually in a more powerful position, decides something different. Great Britain and some of its former colonies, including the United States, based their legal systems on common law. About one third of the world’s population currently lives under this legal system.
“In the United States the underlying assumption that governs how the legal system operates is that whoever controls the process wins. Two things are key to control the process: money and access to the judge assigned to the case. Facts and evidence are of tertiary consideration.
“In a civil law country, civil law is written in a code of Law. When the case is brought to court, judges don’t make the law; they apply the law to the facts. A judge’s decision does not change the code of Law. Most of the world’s countries and two-thirds of the world’s population live under this legal system.”
So, faced with the constraints and likelihoods of the common law system, Carmen would experience high levels of trepidation as she awaited the assignation.
The judge chosen by “the court” was Ms Ronnie Abrams – a lifetime Obama appointment. Court processes are generally long and tedious, but within 24 hours of her appointment, at the behest of NY Fed lawyers, she issued a gagging order which meant Carmen was not only not allowed to speak to the press, but she was also not allowed to tell anybody that a gagging order was in place.
And just to add zest to the case, it turned out that Abrams had not only previously worked with one of the NY Fed lawyers, but she was married to a lawyer who worked for Goldman Sachs! Under US law, she was required to disclose these factlets, but under the same law she herself could decide whether or not to recuse herself on the basis of conflicts of interest. Magnanimously, she chose not to!
So with the cards continuing to stack up against her, Carmen plodded on. The NY Fed lawyers filed a motion asking Abrams to dismiss the case. Unsurprisingly, she complied. Carmen filed an appeal and, unsurprisingly, it was rejected and the case was dismissed.
So, essentially, the rottenest “bank” on Wall Street, continues on its merry way and the Federal Reserve, at national and state levels, continues its light touch and deviant friendly “regulatory” role.
On the meagre plus side, once the case was dismissed, the gagging order was lifted and a furore of media and public attention descended upon Carmen and her Allies. As the whole story emerged there was general shock and horror at the state of the sorry US legal and financial systems, waves of revulsion swept through, and a full Congressional Hearing was launched.
Regrettably, despite the outrage generated and expressed at the Hearing and thereafter, nothing changed. As Carmen’s career lies in tatters, all the leading flawed characters at Goldman Sachs and the NY Fed continue to rise and prosper as if nothing had ever happened.
Fortunately for us, she wrote the book which is a serious contribution to understanding why western model banks crash.