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A New York Times story manages to bury the lede, even given the salacious material, in an important story that provides more evidence of the overly-cozy relationship between the New York Fed and its favored large banks, particularly Goldman. The issue is sensitive in the wake of former New York Fed staffer Carmen Segarra releasing hours of tape recordings that show undue deference by the Fed employees towards Goldman. One particularly troubling incident was the Fed allowing Goldman to pretend it had gotten Fed approval for a derivatives deal designed to snooker Spanish banking regulators. Another was Goldman’s lack of a conflicts of interest policy (see former regulator Justin Fox’s discussion of why this is a serious matter).

What is striking about the New York Times expose is how tortuous the writing is, and how it takes (and I am not exaggerating) three times as many words as necessary to finally describe what happened. For instance, it isn’t until the 9th paragraph that the article mentions that this sharing of confidential information can be a crime and the authorities are giving a serious look into that very question.

The overview: a former New York Fed employee who had been assigned to work with banks obtained confidential information about a bank client that amounted to impermissible sharing of privileged regulatory information. As the Times states at the very end of the story:

Goldman determined that the spreadsheet contained confidential bank supervisory information. Federal and state rules classify certain records, including those generated during bank exams, as confidential. Unless the Federal Reserve provides special approval, it can be a federal crime to share them outside the Fed. But proving that someone “willfully” violated the rules, as is required for a criminal prosecution, could be difficult. The rules are vague and even contradictory about which documents must remain confidential — and when regulators are allowed to share them. Some of [Goldman employee] Mr. [Rohit] Bansal’s information, the lawyers said, may have come from Jason Gross, who worked at the New York Fed at the time. Mr. Gross’s lawyer, Bruce Barket, said, “We are cooperating with the federal investigation to the best we can.”

The Times story finesses the damning part: the significance fact that Goldman and the Fed took action on September 26, firing Bansal and his supervisor, Joseph Jiampietro, and the New York Fed terminating Jason Gross.

ProPublica released its story on Carmen Segarra officially at 4 AM of that day.

In fairness, the New York Times article mentions at the start of paragraph 6 that:

On the same day in September that ProPublica and the radio program “This American Life” released excerpts from Ms. Segarra’s tapes, Goldman stopped the unrelated leak of confidential New York Fed records.

But at this point in the story, the reader is struggling to figure out what the (at that point) vague allegations of misconduct amount to. In a rambling, poorly focused presentation, authors Jessica Silver-Greenberg, Ben Protess, and Peter Eavis go a full 19 paragraphs before they name Bansal and describe, even then in very general terms, the conduct at issue. The start of the story is remarkably oblique, that the at that point nameless Goldman banker to be a subject of a controversy, by getting confidential information from “inside the government.” It also seeks to defuse whether this really matters:

Although it is unclear how Goldman bankers used the information, if at all, the confidential details could have helped them advise the client.

All the Times mentions early on is a leak of confidential information from the New York Fed involving a Goldman bank client, and then it moves away to talk about general concerns about the Fed’s overly-cozy relationship with banks, in particular the Carmen Segarra revelations. The beating-around-the-bushness, the excessive caution of the write-up, feels designed to deter reader interest. So the mention of the timing doesn’t have the impact that it warrants, particularly when to look at who knew what when, you need to dig a bit at the ProPublica site.

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By news cycle standards, Goldman and the New York Fed had ample warning the ProPublica story was coming. ProPublica sent the New York Fed a letter with detailed questions about the information in the tapes and requested a response by the end of the business day on September 12; the list of questions to Goldman was dated 9/9/14, and one assumes both missives went out at pretty much the same time.

So both institutions knew a major, unflattering story was coming out, reinforcing the allegations Segarra had already made in her failed unlawful termination lawsuit, but with much more specific and damning ammo. The fact that ProPublica clearly wanted to launch the piece shortly after September 12 but didn’t release it until September 26 strongly suggests that at least one and probably both institutions got into a protracted debate about ProPublica’s interpretation of the recordings and made strenuous objections to some of the inferences it was drawing.

The drawn-out timetable also meant that both institutions had some time to see if they had any other related dirty laundry it might behoove them to clean up. So let’s look at the section we highlighted earlier, along with the rest of the paragraph:

On the same day in September that ProPublica and the radio program “This American Life” released excerpts from Ms. Segarra’s tapes, Goldman stopped the unrelated leak of confidential New York Fed records. Although it is unclear whether the Goldman banker or the New York Fed employee knew that sharing such information was inappropriate — and federal rules are somewhat vague about what records are confidential — Goldman promptly fired the banker. The bank also fired one of his supervisors, saying he should have caught the leak. The New York Fed then fired the employee it suspected of sharing the information.

Here are the additional details regarding the “leak”. Three paragraphs later (emphasis ours):

Soon after Goldman detected the leak, the bank and the Fed alerted authorities, which opened preliminary investigations, according to the lawyers briefed on the matter. The F.B.I., along with the United States attorney’s office in Manhattan, the Federal Deposit Insurance Corporation and New York State’s banking regulator, Benjamin M. Lawsky, are examining the release of records and whether it amounted to a crime. The investigations are at an early stage and there is no indication that the three men will face charges. It is unclear whether more senior individuals at Goldman or the New York Fed knew about the sharing of the information before it was stopped.

So after what amounts to the authors positioning Goldman as having acted promptly (“Goldman stopped the leak…Soon after Goldman detected the leak,” we find out that other higher ups at Goldman might indeed have been aware that Bansal and Jiampietro were engaged in less than kosher conduct some time before the firings.

Here is the detail on how Goldman says it handled the matter:

Mr. Bansal was asked to help Goldman clients handle regulatory issues like the Fed’s annual stress test, which measures how a bank might fare under dire economic circumstances. Goldman also advised the banks on potential mergers and other transactions. At the request of his bosses, Mr. Bansal gathered information about how regulators might view various issues facing Goldman’s banking clients, the lawyers briefed on the matter said. Much of what Mr. Bansal learned, the lawyers said, was fair game. But in an email to his supervisor, Joseph Jiampietro, Mr. Bansal shared some potentially confidential supervisory information about a Goldman banking client. Mr. Jiampietro — a managing director at Goldman who was once a senior adviser to Sheila Bair, the former F.D.I.C. head — has since told colleagues he had no idea the information was subject to regulatory restrictions. “Mr. Jiampietro never knowingly or improperly reviewed or misused” confidential supervisory information, his lawyer, Adam Ford, said in a statement. “He should not have been terminated. Any compliance failings regarding Mr. Bansal had nothing to do with Mr. Jiampietro.” It was not until the morning of Sept. 26 that Goldman executives objected to some of Mr. Bansal’s information, the lawyers briefed on the matter said. During a conference call with Mr. Jiampietro and two higher-ranking Goldman executives, Mr. Bansal circulated an email with a spreadsheet attached. The email apparently set off alarms within Goldman. Within hours, the bank opened an internal investigation and alerted the New York Fed.

So Bansal and his boss are presented as know-nothings despite having bank regulatory backgrounds; indeed, that’s almost certainly the reason both were hired in the first place.

And the tell here is “It was not until the morning of Sept. 26 that Goldman executives objected to some of Mr. Bansal’s information..”. That is a de facto admission, a full 28 paragraphs into the story, that on the very same morning that the damaging ProPublica story hit the wires, that Goldman senior brass decided that what Bansal had extracted from the Fed might put the bank in hot water. But see how easy this is to miss?

In other words, it looks like Goldman was aware of Bansal and Jiampietro’s conduct and waited to decide whether or not to act based on how damaging the ProPublica story turned out to be. Correlation may not be causation, but the timing here looks awfully sus.

The idea that Goldman’s decisions are driven by simple reputational considerations rather than a desire to comply is reinforced by the leakage of this story to Wall Street’s most friendly news outlet, the New York Times’ Dealbook, prior to Senate hearings on the Segarra tapes last Friday. The bank clearly wants to spin this new PR problem as them being pro-active and dealing with a bad situation promptly, when it looks like they actually waited until events forced their hand.