FED Comes Under Fire - Accused of Favoring Big Banks

I am not sure how much legs this story will have but it did get a lot of media attention yesterday and is also circulating on many alternative news sites and blogs. The NY Post ran this story titled "Tapes Showing Meek Oversight of Goldman are about to rock Wall Street".

The gist of the story can be found in the first two paragraphs of this article:

"Wall Street is about to be rocked by secretly recorded audio tapes that purport to show a too-cozy relationship between the New York Federal Reserve Bank and the financial institutions it is supposed to regulate."

"The 45 hours of tapes, made by Carmen Segarra, a former NY Fed worker, capture former co-workers, whose job was to keep banks like Goldman Sachs in line, instead deferring to the banks, being unwilling to take action and being extremely passive, according to public radio’s “This American Life,” andProPublica which obtained the tapes and is scheduled to air a program about the matter Friday night."

Obviously the FED is denying the accusations as seen in many media articles like this one. However, there is a lot of buzz over the story as Bloomberg runs this article by Micheal Lewis. And the Wall Street Journal runs this article. 

In addition to all the above, Senator Elizabeth Warren is calling for an investigation into the actions of the Fed related to this matter. Her call was supported by Sen. Sherrod Brown of Ohio.

Here an a quote from this article about these two senators calling for the investigation:

“These allegations deserve a full and thorough investigation, and American taxpayers deserve regulators who will fight each day on their behalf,” he (Sen. Brown) said in a statement."

"The Fed is already under fire from lawmakers who have called for it to be more closely audited. The central bank has aroused public anger over its involvement in the rescue of Wall Street banks during the financial crisis."

And all this comes right after the House of Representatives just voted overwhelmingly to audit the Fed (something long sought by former Congressman Ron Paul and now by his son Rand Paul). Harry Reid is about to decide if the audit the Fed bill will be voted on in the Senate. Some speculate that all this news will put pressure on him to allow the vote.

Obviously if an investigation does happen and the Fed is revealed to be favoring big banks it will be yet another credibility hit for the Fed. And that does impact what we follow here on this blog.

Again, it is hard to tell how far this story will go. It has certainly gotten a lot of attention for now. We will follow it here to see what comes of it.