Elizabeth Warren Blasts New York Fed President William Dudley

This Elizabeth Warren grilling of New York Fed William Dudley over the revelations in tapes made by ex-New York Fed employee Carmen Segarra, is a bit more Socratic than her normal approach, presumably because she has more than the typical five minutes for questions. Don’t be deceived by her pacing.

Warren goes after a derivatives transaction that Goldman did with Bank Santander to help the bank create the impression it had more capital than it did. What is appalling about the exchange is it revealed that the New York Fed’s general counsel Tom Baxter effectively pulled the supervisory team off the transaction by deeming it to be legal. But he never checked with the intended victim, the European Banking Authority, to see if it was kosher. Worse, Dudley acts as if this is all fine because the deal was public. In fact, the transaction was so complex that even Bloomberg’s house derivatives maven Matt Levine couldn’t puzzle it out.

There’s another deceptive element that Warren doesn’t mention: that Goldman in its closing documents stated that Goldman was required to present the deal to the New York Fed and have the Fed say it had no objection to the deal. That had never happened. So Goldman also falsely implied that the Fed gave tacit approval when no such thing had taken place. Back in the stone ages of my youth, if Goldman or any bank had tried that stunt with a regulator, they would have gotten in some serious hot water. Here, all it appears the Fed did was shrug its shoulders.

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  1. Blurtman

    Recall that during his Treasury Secretary confirmation hearing, Tim Geithner claimed he did not regulate the Wall Street banks when he was president of the NY Fed, because he did not view the NY Fed to have regulatory responsibilities. As the Fed’s website description of its responsibilities include that of bank regulation, Geithner’s apparent defense was that he was not doing his job and therefore should not be blamed for what happened. And yet he was confirmed.

    And while ownership of the Fed is a bit difficult to determine, the NY Fed is owned by the TBTF’s. How, therefore, to regulate your owners and still have a job?

    1. Wnston Smith

      Maybe we should ask ourselves why we continue to allow the United States Central Bank to be owned by private banking interests instead of by “The People” of the United States of America. Maybe it’s time the Fed is Fedralized.

      1. Yves Smith Post author

        As indicated in my response to MRW, the regional Feds are NOT owned by banks. This is a myth and repeating it discredits critics of the Fed.

        The Fed is best thought of as a public-private partnership that is cognitively captured by the banks. The OCC is if anything even more of a bank toady. You don’t need inaccurate governance theories to explain its bad behavior.

        The Board of Governors (appallingly but of course typical Greenspan) chose to delegate nomination of Fed presidents to the regional Fed advisory boards. That nomination is still subject to approval of the Board of Governors and the regional Fed presidents are subject to policies set by the Board of Governors (for instance, Dudley’s newly tough talk on bank culture is reported by credible sources to be the result of pressure from the Board of Governors).

        Similarly, it was the Board of Governors that approved the AIG bailout, and authorized a term sheet which set the parameters for the New York Fed to make the various loans (the deal was retraded multiple times). The NY Fed advisory board had no role in the process.

        Congress is proposing to not just reverse but put under Congressional control the nomination of regional Fed presidents. They see undue bank influence over the nomination of the New York Fed president when there is already too much cognitive capture.

        1. Pepsi

          Yves, the ‘banks owning the fed’ thing comes up so much that it would maybe be good to do a ‘debunking common myths’ post.

          1. economicminor

            If it walks like a duck and quacks like a duck?
            Technically it may not be a duck but ……. it sure acts like one.

          2. Blurtman

            Banks including TBTF’s within the NY Fed’s region can be shareholders in the NY Fed, which is a privately held bank. I welcome the input of others on proportionality of share ownership in the NY Fed. I can find no description of ownership on the NY Fed’s website.

            From the Richmond Fed’s website:

            “More than one-third of U.S. commercial banks are members of the Federal Reserve System. National banks must be members; state chartered banks may join by meeting certain requirements…..Each state member bank must subscribe to capital stock in the Federal Reserve Bank of its district in an amount equal to six percent of its combined capital and surplus (but excluding retained earnings); three percent must be paid in and the remaining three percent is on call. The paid in portion currently earns an annual dividend of six percent.”


            From the website of the Federal Reserve is the following:

            “The 12 regional Federal Reserve Banks, which were established by the Congress as the operating arms of the nation’s central banking system, are organized similarly to private corporations–possibly leading to some confusion about “ownership.” For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.”

            1. Yves Smith Post author

              Please read what I wrote.

              The stock pays a fixed dividend. It is preferred stock. It is not common stock. It does not have votes or confer ANY governance rights. These bank preferred stock owners have NO say in how the regional Feds are run, nada.

              I can’t stand this conspiracy theory talk.

              1. Blurtman

                The NY Fed has a history of not regulating its largest preferred shareholders. There. Nothing to see. Move along.

                1. Blurtman

                  Carmen Segarra, an employee of the NY Fed, is terminated after seeking tighter regulation of one of the largest preferred shareholders of the NY Fed. Nothing to see here. Move along.

                2. Yves Smith Post author

                  As I said, the OCC is even more of a bank toady that the Fed, and you don’t need inaccurate conspiracy theories about governance to explain its behavior. All you need is revolving door and cognitive capture.

                  You are discrediting yourself by persisting.

            2. John Zelnicker

              “The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System.”

              Non-profit organizations do not have “owners”. As I see it, the ownership of preferred stock is much like the Membership Bond that one is required to buy when joining an elite country club. It is only redeemable by the club at the time of resignation and confers no control over the operations of the club.

              1. EconCCX

                Non-profit organizations do not have “owners”.
                Nor do they pay dividends, nor do they have shareholders responsible for their liabilities. The Reserve Banks do, and formerly paid Franchise Tax as well.

                §502. Liability of shareholders of Federal reserve banks on contracts, etc.
                The shareholders of every Federal reserve bank shall be held individually responsible equally and ratably, and not one for another, for all contracts, debts, and engagements of such bank to the extent of the amount of their subscriptions to such stock at the par value thereof in addition to the amount subscribed, whether such subscriptions have been paid up in whole or in part under the provisions of this chapter.
                (Dec. 23, 1913, ch. 6, §2, 38 Stat. 252.)


                Unlike members of elite country clubs, shareholders of a Reserve Bank have owners’ liability for that bank’s “contracts, debts and engagements.” It’s comforting to rely on surmises and analogies, but these institutions are accurately depicted by public documents, no longer behind the veil of obscurity in an internet age.

                1. John Zelnicker

                  I wasn’t trying to give a comprehensive legal description of the structure of the Reserve Banks’ organization, just a rough analogy to avoid the trap of thinking that the ownership of preferred stock granted the member banks any kind of operational control.

                2. Yves Smith Post author

                  They do not have any governance rights.

                  How hard is it for you to understand that? They can’t exert control, nor do they have any formal influence. Preferred stock does not convey “ownership” in any formal sense.

                  And parse that sentence. This is normal preferred stock terms, abeit stated in language that is now antique. They are liable to the value of their preferred stock, whether they have fully paid up or not. That just means they can lose their “investment”. This is not unlimited liability.

                  I suggest you bone up on corporate finance and financial instruments before going off half-cocked.

                  Moreover, other central bankers (Willem Buiter) have written if the Fed were ever to need a bailout (due to being limited on how much it could “print” by running up against an inflation constraint, the Fed otherwise does not need equity), it would be bailed out by the Treasury. The member banks in fact would be liable.

            1. EconCCX

              Any net Fed income at the end of the fiscal year goes to the US Treasury. So who is the owner then?

              That counts USG bond interest payments as income. The Fed Banks retain ownership of the bonds or sell them. If Fed Banks were USG entities, they could extinguish the bonds and the intergovernmental debts they would thereby represent. Moreover, the Fed Banks weren’t obligated by law to rebate their excess earnings when they began to do so in 1947. They were required to pay explicit franchise taxes until 1933.


              The payments to the US Treasury were instated at the Board’s administrative whim, described as “interest on Federal Reserve notes”, and I challenge anyone to quote the law that compels those payments now. That means that those rebated tens of billions are held over the head of Congress and the Treasury.

              The authority to levy an interest charge on Federal Reserve notes not covered by gold certificates has not been used previously, chiefly because of the existence, prior to 1933, of so-called franchise tax provisions of the law which had a similar effect; that is, of transferring excess earnings of the Reserve Banks to the Treasury. Under these provisions, which were repealed in 1933, each Federal Reserve Bank was required to pay a franchise tax to the Government equal to 90 per cent of its net earnings after it had accumulated a surplus equal to its subscribed capital. To the end of 1932, the Federal Reserve Banks had paid franchise taxes to the United States Treasury amounting to 149 million dollars

              That same Federal Reserve Bulletin item delivered a sharp message about what would happen if Congress ever attempted to tax the Reserve Banks again:

              In the event of restoration of a franchise tax by the Congress, the Board would, of course, withdraw the requirement that Federal Reserve Banks pay interest on Federal Reserve notes, as there would be no justification for utilizing both means of accomplishing the same purpose—namely, payment of excess earnings of the Federal Reserve Banks to the Treasury.

              Reserve Notes are successors to National Bank Notes. Those too were printed by USG, bore the signatures of the SecTreas and the Treasurer, and they were also USG obligations, i.e. accepted for taxes without recourse. But they were issued by, and were liabilities of, private commercial banks. The 1929 series of notes looked like this:


              The Reserve Notes are issued by a monopoly consortium rather than individual commercial banks. The Reserve Banks are private entities; that’s why they were subject to Franchise Tax until 1933, why they pay “interest on Federal Reserve Notes” now, and why they can’t be compelled to clear USG expenditures via keystrokes. As Joe acknowledges when he flogs the Trillion Dollar Coin.

              That’s the public/private distinction that matters about the Federal Reserve System. Not Yves’ exquisite distinction between common and preferred stock, and its implications about day-to-day operational control.

              1. Clifford Johnson

                You are right that the Fed remits its so-called profits at its own volition, and under its definition of profits as interest paid on notes after deductions for operating expenses that now include interest paid on reserves, dividends, and the capital surplus matching fund. The Fed explained this in an early 2014 press release:
                “Under the Board’s policy, the residual earnings of each Federal Reserve Bank are distributed to the U.S. Treasury, after providing for the costs of operations, payment of dividends, and the amount necessary to equate surplus with capital paid-in.”
                I consider the most egregious element in this narrow definition of Fed profits to be implicit and explicit representations that outstanding Fed notes are face-value liabilities. As fiat notes unbacked by commodities, the outstanding notes do not meet the definition of “liability” under GAAP or any other accounting standard. In my opinion, the bulk of the outstanding value should be counted as a unique form of equity in the Fed’s balance sheet. This could preclude the Fed de facto billing the Treasury for losses when said IOR payments give rise to negative profits.

                I think your history is incomplete. Immediately before the late 1960s, the Fed did not return any interest to the government-I think it claimed that expenses regularly swallowed it up. See The Strange Case of Richard Milhaus Nixon, by Congressman Jerry Voorhis (1973), which tells that this was fixed only “after relentless agitation by members of Congress… It was done, quite obviously, as acknowledgment that the Federal Reserve Banks were acting on the one hand as a national bank of issue, creating the nation’s money, but on the other hand charging the nation interest on its own credit– which no true bank of issue could conceivably, or with any show of justice, dare to do.”

                Not until Congress was about to compel the return of Fed profits by force of law (thanks to Congressman Wright Patman) did the Fed yield, by voluntarily returning interest earnings, after said deductions.

        2. Clifford Johnson

          While not taking direct issue with your references to major matters of importance approved by the Fed Board, the independent role of the Fed Banks must not be undrestimated. For instance, consider the following language of Fox News Network, LLC v. Bd. of Governors of the Fed. Reserve Sys, 601 F.3d 158, 160 (2nd cir. 2010), in delimiting a FOIA request:
          “[S]ome records at the Federal Reserve Banks — those kept at the Federal Reserve Banks under certain conditions for ‘administrative reasons’ — are records of the Board; these [only] must be searched [in response to a FOIA request.]… In any event, it seems clear from the statutory scheme that enacted the Federal Reserve System that the lending activities of the Federal Reserve Banks do not take place ‘on behalf of’ or under the ‘delegated authority’ of the Board. The Board itself has no power to make a loan to any bank, and does not authorize each loan made by the Federal Reserve Banks. The power to make loans is explicitly granted by statute only to the Federal Reserve Banks themselves. 12 U.S.C. § 347b(a). In that way, ‘Congress divided the powers of the Federal Reserve System between the Board, which is a federal agency, and the [Federal Reserve Banks], which were established as regional banks.’ [Citation.]”

        3. psychohistorian

          The question I keep trying to see made and answered is why is the Fed any bit private? Why not have a totally sovereign banking system and get rid of private banking entirely (when does the hit s/he come for me?)

          This attitude goes hand in hand with my desire to neuter inheritance at the high end and end the ongoing accumulation of private property that we have now.

          Where is the Fortune 500 Trust Fund families? Those are the folks that have created the world with sketchy future we live in.

    2. MRW


      The ownership of the Fed isn’t “a bit difficult to determine.” It’s published. You can google it. I think the Board of Governors site has the entire list for the country. The NY Fed is owned by all the member banks in the district. Ditto the rest. See the map of all 12 districts here.

      You might be interested in this, Myth #5. The Federal Reserve is owned and controlled by foreigners. By Dr. Edward Flaherty. The series starts here: http://www.publiceye.org/conspire/flaherty/Federal_Reserve.html. Scribd has the entire series on one page here

      1. Yves Smith Post author

        I have gone over this repeatedly in comments. You are not correct.

        Banks hold non-voting preferred stock. It does not give them ownership rights of any sort.

        1. Clifford Johnson

          Ownership of the Fed banks is a sui generis matter of definition. At law, “[e]ach Federal Reserve Bank is a separate corporation owned by commercial banks in its region.” See: Scott v. Federal Reserve Bank Of Kansas, 406 F.3d 532 (8th Cir. 2005) (Fed bank not a federal agency under rule of procedure); Lewis v. United States, 680 F.2d 1239 (9th Cir. 1982) (Fed bank not a Fed agency under tort claims act); and the 1976 congressional report Federal Reserve Directors: A Study of Corporate and Banking Influence (1976): “[I]t is difficult to imagine a more narrowly-based board of directors for a public agency than has been gathered together for the twelve banks of the Federal Reserve System.”
          On the other hand, you are of course correct to note that this member-bank ownership does not entail anything like the usual concomitants of corporate ownership.
          Control is the issue, whether or not labeled “ownership.”

          1. Yves Smith Post author

            The Fed has an ownership structure in which those banks do NOT have governance rights.

            They have no say over who is selected to be the bank president, directly or indirectly. They do not elect the Board of Governors, which is the body that oversees the Fed. They do not have the right to vote proxies of any sort.

            The regional Feds are best thought of as public/private partnerships that are lacking in proper governance. They are most certainly NOT governed or controlled by member banks.

            1. susan the other

              I’m starting to get the complexity. Liz was killer. She shredded Timmy years ago. And she cannot be easily evaded by her witnesses. Poor Dudley. My complaint with Liz is that she drops the ball because – I do not have the resources to trace her every email or her every public relations blurb. Liz has the capacity to get shit done. I want to see it. This was great.

            2. Clifford Johnson

              I wasn’t and don’t dispute any of the facts re formal governance that you point out. On the contrary, I intended to express recognition of them, in saying that “you are of course correct…”

              I used the word “control” to distinguish the de facto realities of control, which is subtler than the formal mechanics of governance, entailing degrees of capture and correlated misinformation. In my opinion, those realities vary with the particular monetary topic at issue.

          2. MRW

            Doesn’t matter, Cliff. Yves is 100% correct. And the reason why they did it back in 1913 (make the local banks “shareholders”) was because the American people were terrified of “socialism.” They didn’t want their government owning these things. The Federal Reserve did not come about because of the Panic of 1907 (a Paul Samuelson assertion), which was a distinctly American event, but because of the Panic of 1893, a global event that sparked the Russian revolution. CW Barron, the father of modern financial reporting and managing director of the WSJ, wrote about it, and described it in detail.

            1. Clifford Johnson

              The banker’s fear of socialism (a la Lincoln’s original greenbacks) had a hell of a lot more to do with the twisted creation of the Fed than the public’s fear of socialism. Read The Independent Treasury of the United States and Its Relations to the Banks of This Country, the 1910 National Monetary Commission report to Congress that set the stage for the 1913 Federal Reserve Act. This blue-ribbon report meticulously recounts decades of corrupt private banking practices, until Congress was driven to protect the Treasury from otherwise incorrigible lootings, by the Independent Treasury Act of 1840. There followed decades throughout which the Treasury was relatively impervious to more or less wild private bank shenanigans and public panics.
              But when the 1860s are reached, without the slightest explanation the report’s narrative abruptly about-faces. The Treasury becomes the bogeyman, concurrent with its issuance of greenbacks during the civil war. The report characterizes these United States fiat notes as a proven-disastrous sham, as though this were self-evident to the sane. There is no mention of Lincoln’s commonsense veto of fiat national bank notes (like today’s Fed notes), or of the interest savings thereby realized, let alone of the subsequent congressional finding that the greenbacks were “indispensably necessary, and a most powerful instrumentality in saving the government and maintaining the national unity.” See History Of The Legal Tender Paper Money Issued During The Great Rebellion , p. 6, Appendix p. 36.

        2. not_me

          Banks hold the economy hostage (eg. via their ability to slow the new creation of credit). So to the extent that the Fed cares about the economy, the banks hold the Fed hostage too.

    3. EconProf

      Perhaps Blurtman should read the Fed’s website more closely. The Fed is independent within the government, created by an act of Congress, and not owned by anyone (just as the U. S. Treasury is part of the government). I’m always amazed by this belief that the Fed is privately owned. Perhaps it is a result of the fact that the Bank of England was privately owned for over 250 years, nationalized in 1946.

  2. kimsarah

    As Max Keiser suggests, regulators must be held liable for these misdeeds as well, perhaps more so. If that takes new legislation with teeth to make regulators do their job, so be it.

    1. economicminor

      Of course then you need a Justice Department that is willing to do its job and we don’t have one of those either.

  3. David Mills

    It is painful to watch Dudley’s contortions. I have to apologize to the memory of John Banner when I describe Dudley as the Sgt. Shultz of financial regulators. Just another sad episode in the ongoing regulatory #FAIL.

    1. RepubAnon

      It sounds as though Goldman made misleading statements for the purpose of selling stock. How is this not securities fraud?

      1. OpenThePodBayDoorsHAL

        LOL Goldman to be charged under securities laws LOL
        LOL the leaders of ANY of our institutions to be held accountable under law LOL
        Last time I can remember that happening was Nixon

  4. charger01

    You mean former Goldman bigwig Dudley is protecting Goldman to the detriment of some Muppet Spanish bank?

    Say it ain’t so.


    1. James

      Should have been to David Mills above:

      Painful for you maybe. Dudley looked to be having a rather good time with it all.

      Subtext from Dudley’s point of view: OK! This is my chance to make a public declaration of fealty and ensure my lifetime position position in the protection racket. My opportunity to get made! And since my bosses either ARE their bosses or OWN their bosses, this is little more than a charade for the benefit of the viewing public. Lights, camera, ACTION!!!

      Subtext from Warren’s point of view: This is my chance to polish my “get tough on corruption” bonafides, which are of course all total bullshit, but the voting public just can’t seem to get enough of this crap. I’ll be more than fairly compensated later after a Prez run or two, and then won’t I be sump’n’? History books and everything! Lights, camera, ACTION!!!

      1. Banger

        You’re right about Dudley and his ilk but wrong about Warren. I’ve followed her career since before her fame and she is genuinely interested in our welfare unlike the vast majority of the pieces of shit who work the power game in DC. Is she ambitious? Yes she is. She seems willing to play the Machiavellian game and therefore she has to be duplicitous and so on. Just as, to play basketball you must learn to dribble the ball so to play politics at the Imperial Court you must conspire and lie and take positions you don’t believe in to make deals with the various devils inhabiting that milieu.

        1. Jagger

          So where does Warren get her campaigning funds? Clearly it isn’t the banks but someone must be putting up the millions. Who is she owned by?

            1. Ucallit

              This is an interesting assertion.
              Is there any evidence to back it up?
              As far as I know, and I know a bit, I have never seen any evidence of the kind.
              What I have seen is that she is supported by the Progressive Change Alliance, basically people who go with the evidence Modern Monetary Theory is the correct model, that economic growth is demand driven, that reducing wages reduces demand in a vicious cycle, and that the financial crisis was an intentional and well thought out swindle carried out over a period of 10 years that decoupled the health of the big banks from the health of the general economy.
              She is backed by the same people who back Allen Grayson and Bernie Sanders.

          1. Banger

            Warren is a politician. A truly skilled politician plays various sides against the other and thereby gains some freedom of movement–hopefully she is doing just that. Now, again, if she wants to play in the game she must get money form rich a-holes and genuflect before the mandarins of the Deep State–there is no alternative to that road. You either do that or you don’t play. This is normal for imperial courts–being all huffy about the reality of reality will get us nowhere. There is no democracy here and no ability for the popular will to be heard in its totality except where it benefits the oligarchs. The media is completely controlled by the National Security State (Deep State) and therefore TINA is in full operation at this time. We have only ourselves to blame for swallowing the endless and obvious lies of the past half-century.

            1. Yves Smith Post author

              Ahem. The media is not “completely controlled by the National Security State”. Please tell me how you explain ProPublica, which got a Pulitzer Prize, Gretchen Morgenson, who has received two Pulitzer Prizes, or some of the anti-NSA stories (there were some, I could dig them up) broken by the Washingon Post?

              Your “Deep State” is not the source of all evil. The reason the media has gotten to be so terrible is much simpler and are well known.

              1. The Internet killed classified ads. This was over half the revenues of most newspapers. That led to the death of many local papers and the considerable thinning of the newsrooms of the survivors, making it much more difficult for them to do original reporting.

              2. A large proportion of news reporting has always been propaganda, as in stories planted by business and government. Eddie Bernays did a little analysis in the 1920s and found that half the stories on the front page of the New York Times then were propaganda.

              3. Partly as a result of getting more and more clever about PR over time, companies generally and later the media started denying reported who had been unhelpful to them access (this technique started with freezing out equity analysts, BTW, they realized it had broader applications). Then they started playing a much bigger access journalism game, of giving and leaking stories to the reported who gave them the most favorable coverage. This trend was already becoming important in the 1990s and became even more powerful in light of 1., that newspapers had fewer resources to do original reporting.

              4. The Internet hurt reporting in another way, by accelerating news cycles, independent of 1. I had a reporter who had gone to open up the Journal’s Shanghai office in 1993 and returned in 1999 say he could not recognize how much the practice of news had changed in the intervening six year. He said between accelerating news cycles and much better company control of spin (which also meant more strict instructions to and control of their employees) that it was impossible to get to the bottom of things in a normal news cycle.

              5. As a result of 1, newspapers are more dependent on major display ad advertisers and hence less willing/able to annoy them out of fear of losing their ad dollars

              6. Some major newspapers also have managements that over time have become less inclined to buck powerful companies. Punch Sulzberger joined the board of the Met IIRC in 1980 or so. As one Met trustee told me, “He started dining with people he should be dining on.”

              While I appreciate your comments generally, your Deep State thesis is way way overdone. Honestly, it discredits you.

              1. James


                In defense of Banger and all due, I think you’ve largely…

                a. Perhaps inadvertently, made his case for him, and…

                b. Elaborated on it.

                In short, I’d suggest that Banger’s “Deep State” is a whole lot less deep and and a whole lot more wide than even he imagines. In further short, why “hide” at all, when you can just “hide in plain sight” and defy anyone to do anything about it?

                1. OpenThePodBayDoorsHAL

                  The estimated number of people with sufficiently “classified” clearances giving them some kind of access to NSA snooping is 1.5 million. I’ve always asserted this is a crisis of core values, only Bradley/Chelsea Manning and Ed Snowden had the working moral compass to know the simple difference between right and wrong. Everyone else was just the rank and file of Nazi soldiers and citizens, “just following orders” despite all of those bad odors coming from that camp at the edge of town. Applies across the length and breadth of corporate America, Washington D.C., and Wall St., would be nice to think Warren has her direction finder working but there are some very hard questions to ask regarding emergency funding approvals so Israel had sufficient ammunition to continue the Gaza genocide.

                2. Lambert Strether

                  Well, it’s always possible to defend a concept by completely redefining it. When I do that, I try to do it more subtly.

                  And if you’re going to say that X has made Y’s case, then it behooves you to explain why, instead of just a drive-by. Do consider it.

                3. Yves Smith Post author


                  Your comment is a reading comprehension fail. He said the media is controlled by the National Security State. That is patently ridiculous and didn’t deserve the length of rebuttal that I supplied.

            2. Banger

              You twisted my meaning–the “control” is not about micro-managing which you imply. The control comes when a story comes out that threatens the security apparatus it will be altered or forbidden. A friend of mine was assigned in El Salvador to cover the civil war and death-squad activity there in the eighties–one day my friend’s major MSM publication asked him to go home because there was “no” story–he resisted and complained and eventually resigned. Every MSM outlet pulled out at once on, what later came out, as indirect orders from the Reagan administration. Is that control or not?

              Yves, I can name as many stories that were suppressed or radically distorted by the security services and their agents in the media as there are leaves on that tree in front of me.

              The mainstream media is controlled by the NSS state to deny that is absurd to deny it–much depends on how we define “control.”

              1. Yves Smith Post author

                You said the Security State, which you then defined as the “Deep State” completely controls the media. That means on all fronts. Now when challenged you retreat and say they censor stories on subjects of interest to them. Even with that, we’ve had a great deal of MSM unflattering reporting in the wake of the Snowden disclosures. Pray tell, how does this rise to the level of “complete control”?

                I’m not putting words in your mouth. Go read what you read. You’ve recanted your earlier statement but are trying to act as if I’m unreasonable or nit-picking. Sorry, it was you who made a sweeping, inaccurate statement.

        2. James

          I admire your continued optimism Banger. You’re made of sterner stuff than I!

          Of course the beauty of it all is that regardless of whether or not she’s on the take or not, she ain’t getting anything done all by her lonesome. And any leeway she’s being shown now is calculated and with a definite endgame in mind. My guess is it’s something along the lines of we need these public displays of “earnest investigative righteousness” from time to time to “keep the dream alive,” lest the peeps go totally renegade on us. The dream being that we still have an honest to goodness democratic (oh the irony!) republic that isn’t wholly owned by Wall St and their enforcement arm the MIC.

          But Jagger’s point is a good one. Who is she owned by? I’d like to see more information on that!

        3. bob

          She’s very savvy. She went from prez adviser that he didn’t want to senior senator of MA in a few months.

          That’s a sell-out I can support.

          What she does with that “power” is yet to be seen. But, it is hers, and it’s a pretty good pulpit.

    2. BondsOfSteel

      The Spanish bank wasn’t the muppet. Both Goldman and it benefited from the transaction by making the bank look more sound.

      The muppets are:
      1) The shareholders of Santander who took on additional risk, but ended up getting paid for it.
      2) The bondholders of Santander who took on additional risk, but did not get compensated for it.
      3) The taxpayers of Spain who would be the ultimate bag-holders.

      Santander trades as an ADR (Level III) on the NYSE and their subsidiary’s bonds are traded in the US. Forget the European regulators… why didn’t the Fed tell the SEC?

  5. Stella

    I don’t believe it’s correct to say that Goldman falsly implied that the Fed had no objection to the deal.

    According to the transcript (http://www.thisamericanlife.org/radio-archives/episode/536/transcript):

    “Mike Silva: just to button up one point– I know the term sheet called for a notice to your regulator. The original term sheet also called for expression of non-objection. Sounds like that dropped out at some point, or–
    Jake Bernstein: That’s everything he says on the topic in this meeting. Here it is again.
    Mike Silva: Sounds like that dropped out at some point, or–
    Jake Bernstein: That’s it? That’s him poking Goldman on this?”

    It seems that an early version of the deal’s term sheet said that GS would seek a no-action letter from the Fed but the final version of the term sheet – the one that actually governed the transaction – said that GS would notify the Fed, which is what they did.

    1. Yves Smith Post author

      Please do your homework before making criticisms.

      The radio broadcast is not the main account. ProPublica published a long story, which reflected listening to all 46 hours of the tapes plus extensive interviews with Segarra and protracted fact-checking with Goldman and the New York Fed. Here is what the story says:

      Shortly after the Santander transaction closed, Segarra notified her own risk-specialist bosses that Silva was concerned. They told her to look into the deal….

      As requested, Segarra had dug further into the transaction and found something unusual: a clause that seemed to require Goldman to alert the New York Fed about the terms and receive a “no objection.”

      This appeared to pique Silva’s interest. “The one thing I know as a lawyer that they never got from me was a no objection,” he said at the pre-meeting. He rallied his team to look into all aspects of the deal. If they would “poke with our usual poker faces,” Silva said, maybe they would “find something even shadier.”


      This conversation took place AFTER the deal had closed. The language was clearly not from a preliminary term sheet.

  6. Banger

    It was hoped here that when this scandal (and it is a scandal) emerged that it would have legs. It didn’t have legs then and does not seem to have legs despite the fact that the hearing was at least reported my most of the financial press but not much in the political press (that I could find). All that means that no matter what the Senators find the issue will be dealt with quietly–perhaps Dudley will resign but nothing will or can change barring major political realignment in Washington. It will be interesting to see whether the RP will decide to tangle a bit with Wall Street–certainly I don’t think they could be worse than this Administration. There are elements in the RP that don’t culturally align with Wall Street/City of London and don’t depend as much on the support of that particular alliance as the DP does.

    1. Lambert Strether

      Yep, I was perhaps too optimistic on that one. I never could see, and still can’t, why that sleeping dog wasn’t left to lie.

      Anyhow, there’s no particular reason I can see to shield my tender sensibilities with “It was hoped here.” Lack of agency in a sentence is never a good thing.

  7. Jackrabbit

    Its good to see strong Congressional support for the supervisory staff.

    Other Congresspeople should take note.


    Fire Warden vs. ‘Cop on the beat’: which is best to protect the community against a serial arsonist?

    H O P

  8. James

    The first thing I noticed was that Dudley was smiling and smirking throughout the whole interview as he took Warren round and round the block of circular logic. Lots of conceit and smugness there. Shades of Jamie Dimon. Of course he knows Barry and the boys are in on the fix, so why not laugh at the stupidity of it all? In best Alfred E. Neuman fashion, his demeanor screams, “What? Me worry?” Weighing the promise of $millions in his future in the biz vs the slight chance of a few months in a white collar country club should he ever need to take one for the team, he makes the rational choice. He knows damn well who’s buttering his bread, and it damn sure ain’t anyone on Warren’s side of the fence. This is all nothing more than Capone style gangsterism updated for the 21st century. Realistic solutions? What’s the term? Kneecapping?

  9. Jay M

    Alternative world riposte to the Warren blasts by the Dud:
    “This is a very complicated case, Maude. You know, a lotta ins, lotta outs, lotta what-have-you’s. And, uh, lotta strands to keep in my head, man. Lotta strands in old Duder’s head. Luckily I’m adhering to a pretty strict, uh, drug regimen to keep my mind, you know, limber.”

  10. SoCal rhino

    The almost complete lack of pretense still gets to me. I thought I was more jaded than that. Sunlight alone isn’t as effective a disinfectant as it once seemed to be. Needs some bleach.

    Seeing parallels inside the corporate work world where it is more iron fist, less velvet glove and less faux transparency in decision making. Interestingly, the younger cohorts seem more aware of the mood if not the specifics.

    1. James

      On the other hand, it’s somehow refreshing to see natural born white collar criminals in their natural habitat frolicing to and fro with such utter abandon and nary a care in the world. Their jocular repartee and convivial thrust and parry is truly a sight to see.

  11. Roy

    His comment that it would not be a practical requirement to be aware of every transaction makes sense.

    To turn it around, if the Fed would be required to have sufficient awareness and capability to determine the illegality and system risk of every transaction and aspect, how many Fed employees would be required (employees with the knowledge and skills to understand financial system on a global scale) and what would be the budget?

    1. Yves Smith Post author

      No, this is a straw man by Dudley. I’ve been a consultant to major financial firms. You look at lines of business and major transaction TYPES with those lines of business. You didn’t need to look at every CDO or every subprime loan to see the misrepresentations in selling or the crappy credit quality before the crisis. It was pervasive and obvious if anyone had bothered to look. Ditto mortgage servicing abuses. Muni finance is another known swamp of abuses, yet regulators refuse to go there until a scandal erupts. And look at how much the SEC is finding in PE with a limited staff for audits.

  12. GuyFawkesLives

    Ultimately, the DOJ is the cop on the beat that should be actively prosecuting the bankers. They have not. Therefore, Warren needs to haul Barack Obama in front of her committee to answer why he has not nominated top lawyers whose mandate is to prosecute white collar criminals.

  13. Chauncey Gardiner

    Really appreciated Senator Warren’s ability and values displayed in this exchange. Thank you for posting this piece.

  14. flora

    Dudley tap dances pretty fast. He answers questions about protecting bank safety and soundness by first talking about protecting bank reputation. Sen. Warren quickly cuts through Dudley’s flim-flam. Thanks for this post.

  15. ErnstThalmann

    I’ll believe that Elizabeth Warren is worth more than two dead flies when she has the moxie to blast Bibi Netanyahu over his genocide of the Palestinians. Until she does that, Warren will be nothing more than a posturing, self serving hack who deserves the back of our hand. I really don’t want to hear about her alleged economic populism until she gets the fascist rot out of her soul.

  16. phichibe


    Thanks so much for calling our attention to this wonderful video of EW. This is why I come to NC! And thanks for the explication in the comments. A question: Are all the regional Fed presidents nominated by their boards (and are these boards stacked with local bankers?) or is it only the NY Fed? And secondly, is William Greider’s book still useful for understanding the Fed structures or did Greenspan’s machinations change it so much that Greider is now obsolete?

    Thanks again,


    1. Yves Smith Post author

      The nominating committee is made of directors that are NOT from member banks. So the regional Fed directors from banks are excluded from the process.

  17. Lambert Strether

    If Warren, former Republican, was pegged at the right end of the Overton Window instead of the left, the political discourse in this country might have approached sanity.

    Everything I like about Warren is on display in this video, especially the “cornering the weasel in his own sleaze” part. That said, I don’t see the hearings, I don’t see the legislation, I don’t see the Pecora Commission, and I don’t see any CEOs chivvied into jail or auto-defenestration or even ritual confessions of shame and remorse. And now she works for Chuck Schumer.

    “Words are wind,” as they say in Game of Thrones. Like YouTubes.

    1. Paul Niemi

      Dudley could well smirk. He had the knowledge that in mere weeks Sen. Warren would be in the minority, and further that all the machinery of the Democratic party was groaning into motion to campaign for her adversary, the Iron Maiden, in 2016. What will Elizabeth Warren be able to do in the wilderness of the minority? She does what I admire greatly: she asks the questions. It is by asking the questions, and keeping on asking the questions, that brings about change. As the video shows, she does this to great effect.

        1. Demeter

          Lambert, speaking as one of those inscrutable women creatures….You KNOW when we are working together. These two, Warren and Clinton, aren’t. In fact, Hillary doesn’t play well with anyone, that I’ve ever noticed, and I’m including Bill.

  18. MedicalQuack

    Good video and commentary. It seems Elizabeth Warren is about all we have as I think I read only 5 senators bothered to show up for this? Correct me if I’m off base on that comment. We sure need the OTC derivatives regulation to move a little faster if it could. Brooksley Born is certainly having her day of “I told you so” from a few years back. If you have not seen the PBS documentary, it’s one of the group I call the Killer Algorithms videos. There’s some additional links there and I tried to find material that was not over the head of the layman and just put the page together just for that, education so consumers have something in one place all together.


    I have Senator Warren on my privacy list of members of Congress and the FTC that I write to and I get her office on my blog once in a while reading so I guess it might help. I have a link to the privacy page and the campaign there to pass a law to license all data sellers, so we know who they are and banks are making money there too. I pretty much try to cover healthcare and nobody esle besides me seems to want to talk models in healthcare, but I do and the flaws and proof of concepts that don’t work in the real world as too many today get fooled and can’t separate virtual world values from the real world and we have this collision course going all the time. I actually learned from the financial side to recognize how they are functioning with insurers, enough to recognize the pattern there, pretty similar.

    So if you don’t like your health insurance policies as they are modeled and frequently changed, it’s the work of the armies of quants over there now, some of which used to work for banks and hedge funds, so get the tip off? Go look at some classifieds and see the jobs for health insurance quants as the math has moved beyond what actuaries do (and they still use actuaries) but now it’s creating moving for profits with the quants who are used to carving out money everywhere. Our poor bodies with getting care can’t run through exchanges like algos do but when separated from the fact that there are humans attached to their numbers, they don’t even think about how it will or will not play out in the real world.


      1. MedicalQuack

        Elizabeth Warren is just about all we have back there trying to do something. Her office actually answered me a while back when I wrote and told them Glass-Steagall is not enough and that you need to go after the bank models to get anywhere, so I guess I struck a nerve. The Office of the Comptroller of the Currency is trying to work on that and get some “real” quants to review bank models, but again how much access will they “really” have to the proprietary code used that is basically becoming law in the US is the question. I wrote about it a while back and Warren’s office has taken on the agency as just being a profit center that collects the money and that’s about it. With the proposed Glass Steagall rules, shoot we give the banks 5 more years to create more math models to get more of our money before implementing it fully. augh..


        So until such time we get treated to the emotions inquisitions and not a lot gets done. I see that over and over with my privacy campaign too and it’s digital illiteracy or the refusal to perceive that they’ve taken over by computer code. Until this reality really hits consumers smack in the face, not much will change and we have it in healthcare too with become a quantitated system that hurts consumer access. They talk about repealing the law, well who’s going to fix the machines that run it? To quote Nancy Pelosi “we just make laws” and thus the IT infrastructure that run “laws” is left up to the quants, actuaries, programmers, etc. on how to implement, make money, and stay within the verbiage parameters of the law:)


  19. bh2

    Let’s hope Senator Warren has alert and agile bodyguards, especially if she gets in the way of the Clintons or the Honorable Chuck Schumer.

    Given the forces arrayed against her, it seems unlikely she will be permitted her to sink her teeth deeply into the flanks of the running dogs of cronyism.

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