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.