Before the 2008 financial meltdown, The Federal Reserve contributed to manipulating interest rates and distorting the true value of the dollar. In 2010, regulations such as the Dodd-Frank Act and the Volcker Rule were implemented to limit corruption inside the Fed and prevent such crises from happening again. But this September, Carmen Segarra uncovered forty-six hours of secretly recorded audiotapes revealing that the Fed is not necessarily enforcing these ethical reforms.
Segarra was hired in wake of the financial crisis as a confident and independent-minded bank examiner– someone who could help lead the Fed to an honorable recovery. However, not long after working with Goldman Sachs, Segarra began to face corrupt business interaction. The biggest eye-opener for Segarra occurred when a Goldman employee stated that if, “clients are wealthy enough, certain consumer laws don’t apply to them”. When Segarra followed up on such disreputable statements, her colleagues negated the claims and encouraged Segarra to look the other way. This prompted Segarra to begin secretly recording private meetings and negotiations inside the Fed. Segarra was fired after seven months and is currently suing the Fed for wrongful termination. Her released recordings demonstrate the Fed’s reluctance to challenge the firms they regulate, resistance to new ideas, susceptibility to corruption, and prevalence of regulatory capture in lieu of the Dodd-Frank reform.
Instead of embracing new and improved corporate principles, the Fed continues to tolerate blow-through ethics and act under segregation of knowledge and isolation of victims. Rather than attending to Segarra’s ethical apprehensions, the Fed strategically concealed specific aspects of deals, and purposefully suppressed shady contracts from the American public. The Fed also manipulated the frame of the situation, claiming that Segarra’s termination was “based entirely on performance grounds, not because she raised concerns as a member of an examination team about any institution.” The Fed could take on a utilitarian ethical approach in their business practices, and think about how the consequences of their actions could benefit the American public, the cutthroat, money-driven corporate culture of the Federal Reserve is quite oppressive to change.
To prevent this from happening in the future, more regulation is not the answer. Though reforms like the Dodd-Frank legislation may seem ethically sound, the implementation of such laws are nearly impossible to quantify. To improve corruption within the Fed a method of certification must be utilized to verify that the agency is working in the best interest of the American public, rather than working to benefit the banking industries they regulate. For this to be accomplished, the Fed should employ regular survey reports that raise questions concerning the ethics within the agency. The Fed should then act on the feedback they receive from their employees’ assertions. Assuming that the majority of the Fed’s workforce is not completely immoral, this could eventually help decrease demoralization in the Fed.
This American Life. “The Secret Recordings of Carmen Segarra.” 536: The Secret Recordings of Carmen Segarra (n.d.): n. pag. Thisamericanlife.com. Chicago Public Media, 26 Sept. 2014. Web. 11 Nov. 2014.
Baer, Justin, and Pedro Da Costa. “Internal Review Was Critical of New York Fed’s Culture.” The Wall Street Journal. Dow Jones & Company, 26 Sept. 2014. Web. 11 Nov. 2014.
“Regulatory Capture 101.” The Wall Street Journal. Dow Jones & Company, 26 Sept. 2014. Web. 12 Nov. 2014.
“The Federal Reserve Deserves Blame For The Financial Crisis.” Forbes. Forbes Magazine, 6 July 2011. Web. 11 Nov. 2014.