The independent investigative journalistic outfit ProPublica reports that when Carmen Segarra, a lawyer who worked as an examiner at the Federal Reserve Bank of New York, looked into whether investment banks were following the rules that enabled them to avoid conflict of interest problems in their dealings with their clients, she determined that banking giant Goldman Sachs had a problem in that they had not only not put into place the required safeguards, they didn’t seem to even feel the need to do so and mixed the functions in a way that prevented oversight to ensure that no conflict of interest occurred.

Goldman officials stated that the bank did not have a company-wide conflict-of-interest program, Segarra’s minutes show. Moreover, the head of the business selection and conflicts group, Gwen Libstag, who is not a lawyer, said in a subsequent meeting on Dec. 8 that she did not consider what her staff did a “legal and compliance function,” according to Segarra’s minutes.

“That’s why it’s called business selection,” another Goldman executive added. “They do both.”

Given the Fed’s requirements, the regulators were stunned, Segarra recounted in an interview. “Our eyes were open like saucers,” she said. “Business selection is about how you get the deal done. Conflicts of interest acknowledge that there are deals you cannot do.”

So Segarra told her superiors of her concerns as she worked on the case.

Before she could formalize her findings, Segarra said, the senior New York Fed official who oversees Goldman pressured her to change them. When she refused, Segarra said she was called to a meeting where her bosses told her they no longer trusted her judgment. Her phone was confiscated, and security officers marched her out of the Fed’s fortress-like building in lower Manhattan, just 7 months after being hired.

“They wanted me to falsify my findings,” Segarra said in a recent interview, “and when I wouldn’t, they fired me.”

The article goes on to cite the incestuous relationship between the bank and the New York Fed.

Goldman is known for having close ties with the New York Fed, its primary regulator. The current president of the New York Fed, William Dudley, is a former Goldman partner. One of his New York Fed predecessors, E. Gerald Corrigan, is currently a top executive at Goldman. At the time of Segarra’s firing, Stephen Friedman, a former chairman of the New York Fed, was head of the risk committee for Goldman’s board of directors.

Goldman also has an inside track into the Treasury department. Dudley also appears in the book Bailout by Neil Barofsky, the Special Inspector General of TARP, that I reviewed here. Barofsky says that Dudley was one of many (in addition to Hank Paulson, Lee Sachs, David Miller, and Neil Kashkari) who rotated through the revolving door between government and the big banks during the short time he was there. As Barofsky says (p. 19):

I had no idea that the US government had been captured by the banks and that those running the bailout program I’d be charged with overseeing would come from the very same institutions that had both helped cause the crisis and then become the beneficiaries of the generous terms of their bailout.

Segarra has filed a wrongful termination suit.

Her lawsuit also alleges that she uncovered evidence that Goldman falsely claimed that the New York Fed had signed off on a transaction with Santander, the Spanish bank, when it had not. A supervisor ordered her not to discuss the Santander matter, the lawsuit says, allegedly telling Segarra it was “for your protection.”

Her suit does not directly address the question of whether Goldman Sachs was involved in her firing. But that is not how it works. The banks are far too sophisticated to act so crudely. What they have done is create a culture where people know that if they Goldman Sachs and other big banks favors while they are in government, they can get high-paying jobs when they leave.

Notorious lobbyist Jack Abramoff, who was convicted of conspiracy, fraud, and tax evasion, also followed that scheme to win influence. He says that the easiest way to ‘buy’ a congressperson or a senior congressional office staff member is to suggest that that person could work for him once he or she left government. That was enough to earn their allegiance.

I hope Segarra’s lawsuit brings to light the kinds of things that go on behind closed doors and the pressure that lower-level people in government, who are usually hard-working and honest professionals who go into public service with a genuine desire to serve people, feel from upper-level management (people like Lawrence Summers and Robert Rubin) who are the ones with their eyes on that alluring revolving door and know that a fat paycheck awaits them if they are of service to the financial wing of the oligarchy during their time in government.