Breaking News: Carmen M. Segarra v. The Federal Reserve Bank of New York, et al.--Case Analysis

Tue, Oct 15, 2013 - 5:20pm
Whistleblower lawsuit versus the Federal Reserve Bank of New York
This is right in line with Pining 4 the Fjords’ recent blog post about criminal organizations and fraud, and the effort to pin any blame on underlings because the criminal orders that come from the top are not able to be proved by real evidence. In short, those at the top escape prosecution, because the underlings do the deeds, and either get caught, or quit before getting caught.
Carmen M. Segarra’s story is right in line with that thesis.
On October 10, 2013, plaintiff Carmen M Segarra filed a lawsuit alleging violations of 12 US code section 1831 and other laws “prohibiting obstruction and interference with a bank examiners examination and retaliation for her preliminary examination findings,” against the Federal Reserve Bank of New York, Michael Silva, Michael Koh, and Jonathon Kim. In the lawsuit, Ms. Segarra contends she was wrongfully terminated in violation of a federal law that affords protections to bank examiners who find wrongdoing in the course of doing their jobs. Mr. Silva, who is chief of staff for the executive group at the New York Fed, is among the defendants named in the suit.
The formal document initiating the lawsuit is properly referred to as the “complaint.” The complaint sets out the allegations–a fancy word for “facts”–which then triggers the named defendants to file a responsive pleading, in which the defendants either admit or deny the allegations. The defendants can challenge the lawsuit right from the start, by filing a motion to dismiss, or can assert other legal challenges as well.
The complaint was not originally uploaded as an electronically filed a complaint, but copies of the complaint were made available online which copies did not bear a filing stamp or case number.
One such site where the complaint is available for viewing is here:
Here, the tone of the lawsuit was set immediately. The defendant FED jumped into court screaming about privacy, and secrecy, and that Plaintiff is committing wrongdoing because she is alleging wrongdoing at the FED in violation of her supposed duties and obligations while working at the FED. Look for this to be a battle of epic proportions, as this litigation plays out.
In any event, I found the actual case number, here:
From there, on my PACER account, I obtained the docket sheet from the US District Court, Southern District of New York, which shows the activity on the lawsuit to date.
Fortunately, the Wall Street Journal, online edition, has a filed-stamped copy of the entire complaint here:
Anyhow, I am going to go through the complaint, in order, and give my impressions. There is an excellent summary of the lawsuit, and Carmen’s story, here:
There is another excellent piece, here, and I encourage all to read these great stories to get the full understanding:
The back story is this:
“In the spring of 2012, a senior examiner with the Federal Reserve Bank of New York [Carmen M. Segarra] determined that Goldman Sachs had a problem.
Under a Fed mandate, the investment banking behemoth was expected to have a company-wide policy to address conflicts of interest in how its phalanxes of dealmakers handled clients. Although Goldman had a patchwork of policies, the examiner concluded that they fell short of the Fed’s requirements.
That finding by the examiner, Carmen Segarra, potentially had serious implications for Goldman, which was already under fire for advising clients on both sides of several multibillion-dollar deals and allegedly putting the bank’s own interests above those of its customers. It could have led to closer scrutiny of Goldman by regulators or changes to its business practices.
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.” That blurb is from
This quote from the story caught my attention: “After the Dec. 8 meeting, the New York Fed’s senior supervising officer at Goldman, Michael Silva, called an impromptu session with Fed staffers, including Segarra. Silva said he was worried that Goldman was not managing conflicts well and that if the extent of the problem became public, clients might abandon the firm and cause serious financial damage, according to Segarra’s contemporaneous notes.”
What Silva is saying is so simple, yet so evil. Silva was saying, in short, that illegal activity, so long as kept hidden from the public, is okay, because the alternative is unacceptable, i.e., “might cause serious financial damage.” Again, for whose benefit? Passive language always is murky, because Silva does not say for WHOM the financial damage would be caused to! Was it the insiders at the banks? Or was it some other group? There you have it. Institutionalized fraud, on a grand scale, countenanced by the regulators of the supposed “fair” system of capitalism in the United States. Disgusted yet?
I am not going to spend any time further addressing the back story which was done very well by, et al., but I will analyze the actual allegations and give my humble legal opinion about the lawsuit.
Plaintiff Carmen M. Segarra is represented by Linda Stengle, an attorney with the law firm Kenny & Kenny out of Cherry Hill, New Jersey. Linda’s email is lstengle[at]kenneymccafferty[dot]com. I suggest anyone interested please email her with support. This lawsuit will no doubt be a memorable one. For all of us who hope that truth emerges about the shadowy world of the FED, the discovery in this case should prove fantastically interesting and enlightening. My only hope is that they do not settle confidentially before such discovery unfolds.
The FED is not yet shown as being represented by counsel. Instead, on October 11, 2013 the FED directly mailed a letter to the Judge, asking that the complaint be withheld from the public. The judge granted the request, and ordered that the complaint was not to be available electronically to the public until after a hearing, (Docket Entry #2). A hearing regarding the request to seal certain matters was set for October 15, 2013, today.
At today’s hearing, the judge DENIED the motion to seal. Judge Ronnie Abrams denied the Federal Reserve Bank of New York’s motion to seal or redact certain paragraphs of plaintiff’s complaint and exhibits. Further, Judge Abrams ordered plaintiff to submit to the clerk of the court an electronic copy of the complaint for filing on ECF. The court finally ordered that the clerk is to make the complaint and all attachments available on ECF. The Wall Street Journal already has the entire complaint, emails and all attachments, up on line. Go read it.
This means, that shortly, the allegations of the complaint, along with all exhibits supporting allegations, will be made part of the public record and accessible to all who wish to look at them. I find this to be a remarkable order, especially given the allegations. I wonder if judge Abrams will have the temerity to continue the courageous rulings.
Section I of the complaint is the Introduction. Here is what stands out in my mind. From the back stories, Carmen is an elite insider. Her linked in profile is here:
Carmen attended Harvard, BA in History, 1990-1994. She received a MA in French Cultural Studies at Columbia University, from 1994-1995. She attended and received her JD degree from Cornell University Law School, 1995 through 1998. She did a European stint during law school at the Institute of International and Comparative Law Cornell Law School and Universite de Paris (Sorbonne), studying International Litigation and European Community Law in 1996.
Her educational pedigree is EXCEPTIONAL. She is fluent in many languages: “Interests:
Fluent in Spanish, English, French Intermediate Italian and German Beginner Dutch.”
Her work history is impressive, and proves beyond doubt that she was being groomed for promotions to the very top. From October 1998 through December 2002, Carmen was corporate counsel for MBNA America Bank (now Bank of America), Banco Popular de Puerto Rico, Banco Santander, First Bank, Oriental Bank, Government Development Bank of Puerto Rico, Tishman Speyer, Four Seasons, Hilton, Goya Foods, Shell, Sears, Pfizer. Her profile says she “represented clients in securities public and private transactions, bond issuances, emerging markets, investments, banking and financing, mergers and acquisitions, corporate and public finance, real estate and commercial financing, tax, legislation, hotel and resort development.”
Carmen went on to work for Bank of America: “Legal Counsel - Government Affairs & Law
Bank of America
January 2003 – December 2004 (2 years)
•Government Affairs Department: Responsible for legal review of all state and federal consumer banking and investment legislation and regulation. Created and implemented legal review and tracking procedures, drafted new legislation and amendments; lobbied, developed strategy, and drafted white papers.
•Legal Department: Advised on portfolio acquisitions, contracts, customer failures, privacy, and civil law issues.
•Business Development: Developed, implemented, and supervised translation of all pertinent legal documents, marketing, and telemarketing copy. Coordinated, evaluated, selected and managed third-party vendors and outside counsel. Oversaw quality control efforts. Participated in bilingual employee recruitment efforts. Developed new business.”
Carmen worked at Citi from January 2005 through December 2008, then went to Altura Capital from August 2008 through August 2009. Something happened such that her resume shows she was not employed from August 2009 until April 2010. It could have been time off for personal reasons, who knows. Anyhow, Carmen ended up at Societe General, where she was “Legal Counsel - Private Banking.” She left there after 1 year and three months, ending up at the Federal Reserve Bank of New York, where she worked in the ‘Legal and Compliance SBE onsite Goldman Sachs.”
She is, by any measure, a perfect example of an elite insider–and an Ivy League trained lawyer, too. Except, she did not toe the line like she was supposed to. Why not? Who on earth would have the audacity, the temerity, to stand proud and refuse to perform illegal activity, especially after such a long, and storied educational and occupational history? I for one, am flabbergasted with this insider turning on the FED. It seems, almost Karen Hudes-like. Really. So, it could be that whoever was grooming and mentoring her will be on the chopping block for allowing this protégé to tell tales . . .
Back to the lawsuit.
The introduction points out that Carmen started work at the Fed as a senior bank examiner on Halloween, 2011. She was assigned to examine the legal and compliance divisions of the vampire squid, formerly referred to as the Goldman Sachs group. Carmen says that the squid repeatedly obstructed and interfered with Carmen’s examination of Goldman over several months, when in May 2012, the squid directed Carmen to change the findings of her examination. Carmen says she refused, and three days later she was terminated, on May 23, 2012. She asks for traditional legal remedies such as reinstatement, back pay, compensation for loss benefits, compensatory and punitive damages, attorneys fees etc. No doubt this case is worth multiple seven figures given Carmen’s pedigree and now black stain essentially precluding any future employment for her in any meaningful position.
Strangely, Carmen waited until just now to file suit. I wonder why the delay? Why now, why not earlier? What happened to cause Carmen to file suit now? Is it the economy? Is it Bernanke leaving, and Yellen coming aboard? Is it something sinister? Or is it just timing, in that unless she files suit within the statute of limitations, her lawsuit will be time barred? I’m not sure.
Carmen points out that “there is a history of employees moving from employment at Goldman to employment at the Federal Reserve and vice versa. Top level management for the federal reserve worked at Goldman previously. There are also federal reserve personnel who are embedded at Goldman. Prior to 2011, approximately 3 federal reserve employees were embedded on-site at Goldman, and one of those employees was Michael Koh.”
Michael F. Silva is “a relationship manager for the Fed Reserve Bank of NY.” Here is the interesting part: “prior to serving as the relationship manager for the FRBNY – Goldman relationship, Silva was chief of staff to Timothy Geithner . . . [and] is currently chief of staff and senior vice president for the executive group at the FRBNY. Silva first became employed by the Federal Reserve as a law clerk in 1992.”
WELL LOOKEY THERE . . . Silva was Geithner’s boy. He is trusted, having worked at the FRBNY since 1992.
S. Michael Koh was Michael Silva’s deputy, with a title of assistant vice president. Koh used to work at Shearson Lehman Brothers. Is there any connection to the Lehman failure? Hmmmm . . .
Johnathon J. Kim was Carmen’s supervisor, with a title of supervising officer of the legal and compliance risk team. He did such a good job, that two months after Carmen’s firing, Kim got promoted.
The factual allegations are laid out in section IV, Statement of the Facts. There is a lot of detail here, but suffice it to say, that Carmen easily alleges sufficient facts to state a case. Carmen points out she was looking into conflict of interest policy at Goldman Sachs. Goldman, not surprisingly to any of us here on tfmr, was woefully lacking in the adherence to ethics, such as avoiding conflicts of interests. Carmen pointed that out, in detail, and her bosses did not like that she had identified that Goldman was lacking in conflicts of interest policy, asked her to “fix” her findings, she refused, and they fired her.
Silva specifically told Carmen “that Goldman would suffer significant financial harm if consumers and clients learned the extent of Goldman's noncompliance with rules on conflict of
interest.” [Complaint, at paragraph 30]. To this I say: No kidding! <sarc off>
Here is a flavor of the blatant disregard for illegality at Goldman: “In addition to finding that Goldman fabricated information about performing due diligence on the Santander transaction, Carmen's examination of the Santander transaction revealed Goldman misrepresented Defendant's approval of the transaction.
40. As of January 6, 2012, Defendant Federal Reserve had not approved the Santander transaction. Goldman stated to third parties that it had approval for the Santander transaction when Goldman did not have approval.
41. Carmen informed Defendants of Goldman's misrepresentation of the Federal
Reserve's approval of the Santander transaction.
42. Without Carmen's prior knowledge, Defendant Koh discussed with Goldman Carmen's finding of misrepresentation of the FRBNY's approval of the Santander transaction. Afterwards, Defendant Koh told Carmen [that] Goldman admitted the misconduct. Defendant Koh told Carmen [that] Goldman said it engaged in such misrepresentations "all the time." Koh said he did not think Goldman's misrepresentation was important, and Koh further opined that because the Santander transaction was closed, Goldman's misrepresentation about FRBNY's approval of the transaction was moot.”
See! The Fed insiders ACTIVELY disregard illegality. It is not even a close call. These allegations are sensational, and provable, from the testimony of Carmen and her well-documented emails. The perpetrators will deny it all, but that only creates the need for a jury trial to see who is telling the truth. The case will most certainly NOT be dismissed by a 12(b) motion, and is almost certain to resolve by way of confidential, multiple seven figure settlement.
Strangely, I feel myself rooting for Carmen, even though she is as insider an elitist as they come. Maybe she and Bill Black can get together and make something of this? Who knows?
This whole case reminds me of a professional colleague of mine. He used to work as a VP for a major bank in California. He was in IT, mainly. He noted that during the build up towards the bursting of the real estate bubble, that senior management refused to take seriously their duties in compliance with regulations. The senior management paid lip service to compliance issues, underfunded that department, and basically ignored any attempts of any underlings to comply with the law regarding any number of critical transactions. In short, the entire bank business model succeeded–meaning profits and bonuses paid to those at the top–based on the bank NOT complying with existing laws. This is exactly the control group accounting fraud which has become the norm, is not punished, and threatens to bring down the whole system because trust is being destroyed.
We see it, we read about it, and now we have proof that it exists, is widespread, and IGNORED and covered up at the highest levels.
Here is where Pining’s brilliant insight hits home: [Complaint, at paragraphs 88-90] “On May 15, 2012, Defendants Silva and Koh met with Carmen and attempted to force her to change the findings of her examination of Goldman. They said they did not believe her finding that Goldman had no conflict of interest policy was "credible." Defendants Silva and Koh told Carmen that she had to "come offof that position."
89. To change her findings and to provide support for those false findings, Carmen would also have to alter, destroy, and or suppress meeting records and documents produced by Goldman in response to the examination questions and document requests. Such conduct was illegal and could subject Carmen to criminal charges. Carmen told Defendants Silva and Koh she did not believe it was responsible or proper to change her findings to say Goldman had a firmwide conflict of interest policy when so much evidence existed showing Goldman's non-compliance. She emailed Defendant Silva to confirm her refusal to change her findings, and she
em ailed Defendant Kim to notify him of Defendant Silva's improper request.
90. Three business days later, on May 23, 2012, Defendants terminated Carmen and had security escort her from the building. Defendants terminated Carmen because her bank examination found that Goldman had no conflict of interest program in compliance with SR08-08 and because Carmen refused to change her examination findings.”
So there you have it. Carmen investigated the giant vampire squid, found them lacking in critical conflict of interest procedures, that Goldman actively lied about it to regulators, repeatedly, actively, unabashedly, and remained protected from any adverse regulatory action by the very regulators assigned to root out and prevent this exact harm from occurring. Then when Carmen was forced to do something illegal, Carmen chose to disobey orders from on high at great risk to her personal career. Wow. Heady stuff. It seems true enough for me. Note that there is no paper link to Goldman. The underlings, Carmen and her bosses at the FRBNY are all on the hook for their potential actions, but not the squid, who remains hidden in the shadows.
So, those facts give rise to legal claims under 12 U.S.C. § 1831, which prohibits termination of bank examiners for engaging in protected conduct. There is an allegation of violation of state consumer protection law, a common law wrongful termination in violation of public policy theory, and finally, a breach of contract claim. There is the traditional prayer, seeking money and other remedies.
The attachments include Carmen’s handwritten notes, some Goldman excerpts in response to the FRBNY document requests, various memoranda, and some emails from May 11 and 13, 2012. I have not read them all, but they do seem to provide more than ample factual proof of the allegations. The email of May 13, 2012 from Silva to Carmen, is as “cover-your-ass” as it gets. They were going to terminate her, no question about it. Silva is rotten to the core. Carmen documented her efforts, Silva basically threatened Carmen and used key, soon-to-be-found-in-a-termination-letter language and phrases such as “have caused me to raise serious questions in my mind as to your judgement [sic],” and “I find your failure to follow that process very troubling.”
Carmen was being run out, by Silva, et al., and Carmen forced the issue with her decision to stand up to the bosses at the FRBNY who were beholden to Goldman. She got fired for it.
Let’s see what comes of it.

About the Author


Oct 15, 2013 - 5:22pm



Oct 15, 2013 - 5:31pm



Oct 15, 2013 - 5:55pm

Thanks TF

My normal post days are Wednesday, but this was just too important not to put out there right away.

Unlike the silver manipulation lawsuit vs. JPM, this Carmen Segarra lawsuit is riddled with detailed facts, handwritten notes, emails, and importantly, Goldman's own documentation. The truth of the allegations is immediate, and provable. Why Goldman did not seek pre-lawsuit settlement discussions is a mystery, but it u$ually come$ down to the $settlement demand, under$stand?

So, now we as the consuming public get to have front row seats to this fantastic lawsuit. I hope and pray that it gets as far as depositions. This is a case to salivate over. (Remember, I am an employment attorney, so this is right in my wheelhouse). If Carmen can prove any of her legal claims, and from what is alleged, it looks to be pretty simple to do so, then the real question is whether this case gets tried or not. If a jury gets to decide the case, they will also decide the question whether FRBNY acted with malice, that is, with an intent to harm. If so, then Carmen can get punitive damages.

This case has all the hallmarks of a classic battle about who is going to blink first. From the opening salvo, the FRBNY tried to hit back hard and keep the allegations quiet. They misfired, though, and now we all get to see what really happened. Oops for Goldman Sachs; they should be mitigating the PR mess instead of making it worse.

So, the counter move by Goldman's legal team will be one of two things: (1) immediate capitulation; or (2) scorched-earth litigation, in which they will blame Carmen as a lying, incompetent, scheming, drug-addled, child-molesting conservative republican racist homophobe, then try to wear down Carmen's legal team with a withering blizzard of paper, law and motion, heavy-handed tactics, and when that fails, or if Carmen were to suddenly take ill, they will fall back to option 1.

Stay tuned.

p.s.: I did not want to derail TF's excellent post of today, sorry!

Oct 15, 2013 - 5:56pm


Bring it on!!!!

sierra skier
Oct 15, 2013 - 6:06pm


Now for the read.

Edit in:

Great story. Why am I not surprised at all to hear about the lack of concern of FRBNY or any others and Goldman to lack integrity? As in Pinings report yesterday all of the folks in charge are looking after their own interests and unconcerned about following the rules. None of the large banking institutions follow the rules, the CFTC does nothing to enforce the rules and those in charge lie, cheat and fraudulently carry on while receiving bonuses for the huge earnings their companies make while cheating in every conceivable way.

It is time for the for the Banking, Corporate and Elected officials in charge to take the fall they all truly deserve. Just taking the funds they have earned illegally and applying them to our government shortages would likely go a long way.

I only hope Carmen is successful in this endeavor and the courts continue to follow through. It may be too late to save our economic situation but maybe justice will prevail.

Oct 15, 2013 - 6:06pm

Missed the top spot... THIS much...


I wish her well, for she appears obviously in the right, but am unsure how much of a chance she stands at any kind of justice.

A cynical point of view might be that the timing of the filing is because lengthy negotiations regarding a settlement BEFORE more explicit legal steps had hit a dead end, and this is the monetization part continued by other means.

The other (off-the-wall) idea is that she wanted to get the case in while there still IS a FRBNY.

Or MAYBE, just MAYBE there appears to be a shift in who can and cannot be prosecuted and held accountable. Perhaps the lower minions of the FR system and/or Vampire Squid have been declared fair game. But this latter is likely just a pipedream, and in any case just means window-dressing. The rot at the top will not be routed through such means, even if a few scapegoats are thrown under the bus (Fabulous Fab et al).

I hope to be proven wrong (on the first, not the second two)...

"WERE Fabrice Tourre merely an ordinary defendant in a case brought by the Securities and Exchange Commission (SEC), it would be time to forget his name. But on August 1st a jury in a Manhattan federal court found him liable on six counts of securities fraud—including one of “aiding and abetting” his former employer, Goldman Sachs. This means that a jury has found that the world’s most successful investment bank has done something wrong—and that the case may be far from over." -- Economist

Fabulous Fab is now pursuing his economics PhD at the University of Chicago while awaiting a retrial and eventual dismissal of his verdict (appeal paid for by GS, natch), and is of course a free man. Maybe even potential future FedChair...

Oct 15, 2013 - 7:14pm

very informative post. thanks

very informative post. thanks CL.

as skeptical as I am that anything significant comes of this, I'll still be following along.

please keep us up to date on your findings.

Clarki Stomias
Oct 15, 2013 - 7:15pm

Thank You Cal

It's a lot to digest and I am trying to appreciate the amount of research and digging you had to do just to compile this write up. Impressive. Grateful for your work.

From your analysis, she has them dead to rights. But, even so, it sounds as if you think that this will probably be settled out of the light of the courts and hidden in the dark alleyways (how much of that, I wonder, would be due to her being a part of the elite and knowing that she doesn't really need to expose them, but simply represent the threat of exposure to get a payoff).

Still. Is it naiveté to hope that she and her lawyer may decide to see this through all the way to the end and not settle? That she may be the rarest of humans: a moral Ivy Leaguer? Probably.

Oct 15, 2013 - 7:22pm

Overdose: The Next Financial Crisis

With the US raising their debt ceiling, are we in a global bail-out bubble that will eventually burst?

This doc offers a fresh insight into the greatest economic crisis of our age: the one still awaiting us.

Video unavailable

In the aftermath of the worst financial crisis since the Great Depression, NOVA presents "Mind Over Money"—an entertaining and penetrating exploration of why mainstream economists failed to predict the crash of 2008 and why we so often make irrational financial decisions.

The program reveals how our emotions interfere with our decision-making and explores controversial new arguments about the world of finance. In the face of the recent crash, can a new science that aims to incorporate human psychology into finance—behavioral economics—help us make better financial decisions?

Video unavailable
Mr. Fix
Oct 15, 2013 - 7:26pm

DPH, Are you being presumptuous?

You started that last post with “With the US raising their debt ceiling,"

and immediately, I started looking around the web thinking that somehow I had missed something over the past hour or so.

Apparently not.

Why does everyone just simply assume that the United States is going to raise their debt ceiling again?

With the current inhabitant of the White House hell-bent on this country's destruction,

I would not make that assumption.

Oct 15, 2013 - 7:27pm

The sun is setting on dollar supremacy

Nice job CAL

The Dollar Bubble


The sun is setting on dollar supremacy, and with it, American power

A serious alternative to the dollar is still a long way off, but the latest shenanigans on Capitol Hill have given the search for them renewed momentum

Such is the dollar's dominance that, to begin with at least, investors might simply have to take default on the chin. Photo: Bloomberg News

All great empires – from the Greek, to the Roman, the Spanish and the British - have at their heart a dominant means of exchange which is very much part of their political and social hegemony. Once upon a time, it was Roman coinage which was the world's pre-eminent currency. In more recent times it was the British pound.

Today, it's the US dollar to which international investors flock as a safe haven for their money. Highly liquid and apparently reliable – until recently at least – nothing else comes even remotely close to the greenback's dominant position in the international monetary system.

That this position – what Giscard d'Estaing referred to as America's "exorbitant privilege" – could so casually be put at risk by politicians on Capitol Hill is an extraordinary spectacle that may be indicative of a great power already seriously on the wane.

With the pound, the fall from grace was swift. Britain emerged from the devastation of the First World War an irreparably damaged economic and military power, with crushing debts and a deeply impaired manufacturing sector.

The dollar was able quickly to usurp the pound's position. Final defeat for sterling came with Britain's decision to leave the gold standard in 1931 – an economically sensible decision but a psychological turning point for sterling from which it never recovered.

Lack of any credible alternative means it won't happen so quickly with the dollar. For all the progress of the last 30 years, China for now remains a much smaller economy than the US and in any case is nowhere near ready financially to assume such a role. As for the euro, the dollar needn't trouble itself much about this one-time pretender to the throne.

Yet rarely before has international dissatisfaction with the dollar's role as reserve currency to the world been as great as it is now. The most visible anger comes from China, with more than $3 trillion of dollar foreign exchange reserves, $1.3 trillion of them held in US Treasuries. For ordinary Chinese, it has come as a revelation to discover they own so much American debt. That they own it in a country which because of political brinkmanship may actually default has provoked understandable fury.

"It is perhaps a good time for the befuddled world to start considering building a de-Americanised world", China's official government news agency has said.

A steady erosion of trust which began with the financial crisis five years ago has reached apparent breaking point with the pantomime antics on Capitol Hill. The search for long-term alternatives to the dollar is on as never before. Regrettably, there aren't any, or not for the time being in any case. Everyone can only look on in horror as the US commits apparent economic suicide.

Such is the dollar's dominance that, to begin with at least, investors might simply have to take default on the chin. More than 60pc of global foreign exchange reserves are held in US dollars, which also account for more than 80 per cent of global foreign exchange trading.

So important is dollar liquidity in global trade that if, for instance, you wanted to sell Singapore dollars and buy South African rand, your forex dealer would first typically buy US dollars with your Singapore dollars and then use them to buy the South African rand. The dollar is the middle currency in the vast bulk of international transactions.

By the same token, US Treasuries are the very backbone of the global financial system. They are the supposed "risk-free asset" against which everything else is benchmarked, and as such are the collateral of choice in a huge array of financial market transactions. The dollar is also the currency used to price most commodities, from oil to gold.

The dollar's hegemony is all pervasive. This has given the greenback a degree of leverage unmatched by any other reserve currency in history. If China starts to sell dollar assets, it will only weaken the dollar, undermining Chinese exports and reducing the value of its remaining portfolio of dollar assets.

I'd been part of the received wisdom that any act of US default would set off a devastating chain reaction of bankruptcies that would provoke a second global financial crisis. But David Bloom, chief currency strategist at HSBC, has convinced me that dollar hegemony might perversely act in the opposite way, at least initially.

Unlike a generalised credit event, where all instruments default at the same time, the US would initially engage in a series of little, self contained defaults, or "selective defaults", whose individual impact would probably not be that great.

Each bond has a life and coupon of its own. The missed coupon payment might therefore be regarded as not so bad – especially as this is a case of "won't pay", rather than "can't pay".

Markets see such defaults differently, with missed payments expected to be made up eventually once a political resolution is found. It's also very likely that the Federal Reserve would attempt to counter the damage in financial markets with more QE, buying up the Treasuries that investors dumped.

Furthermore, the financial uncertainty created by default would likely drive investors towards past safe havens of choice – in particular, US dollar assets. Alternative safe havens, such as Japan and Switzerland, have been rendered defunct by central bank money printing. Ironically, emerging markets are likely be more damaged by default than the US itself, with further capital flight.

Such is the degree of "exorbitant privilege" enjoyed by the dollar that it might therefore be the first currency in history to see an asset price rally on the back of a default. However, if there were repeated selective defaults, a second, less benign phase would eventually set in. Spooked markets would begin to sell off the dollar.

The consequent stronger euro and pound would have powerfully deflationary consequences for Europe. Internal demand in the US would also collapse as a result of the wrenching fiscal squeeze that would result from federal government attempts to match expenditures with tax revenues.

Dollar hegemony has long been a destabilising force at the centre of the international monetary system; it's a major part of the sharp build-up in global.....

Oct 15, 2013 - 7:31pm

Thanks California Lawyer

The quality of guest posts is stunning, thought provoking, and, what the heck, hope bringing.

Regardless of the outcome or her reasons for filing now I would hope that the squids clients would take note and find another vendor for their needs. If it's so obvious that the squid is only helping themselves why would anyone hire them? Surely there are more pleasurable ways to get screwed.

Judge Ronnie Abrams deserves a standing ovation for his courage and honesty; who could imagine, justice in a courtroom?

Mr. Fix
Oct 15, 2013 - 7:33pm

Thank you California Lawyer,

I love the work you do here, then this post does seem quite timely, it's nice to keep tabs on the evil Empire's lawlessness.

Why wouldn't they settle?

I can only assume that they no longer give a crap about being caught anymore, they probably own the judges.


Okay, I take that last statement back, they thought they owned the judge.

People have died for less.

I hope his life insurance is all paid up in full.

Oct 15, 2013 - 7:53pm

"bitter", you say?

"..... bitter piecemeal situation it appears headed towards."

"Bitter" to whom?

"Bitter" to some implies "sweet" to others.

Oct 15, 2013 - 7:55pm

Thanks CL...

And thank you for explaining this case in such a manner that someone who is not a lawyer can understand!!!

Mr. Fix
Oct 15, 2013 - 7:59pm

AlienEyes, Someone who thinks this is just as sweet as can be:

Harry Reid Is One Optimistic Guy

Submitted by Tyler Durden on 10/15/2013 - 19:56

In the aftermath of the latest House Republican debacle, the Senate had no choice but to go back to where it was on Thursday morning, and attempt to cobble a deal together. Only unlike Thursday, it now has just a little over 24 hours, and a House that it knows will not play ball with pretty much anything that the Senate proposes (at least not until that ultimate arbiter Joe Biden shows up and starts laughing). So while the outcome of this latest regression to square 0 is unknown, one thing we do know is that when it comes to matters such as these, Harry Reid is one very optimistic guy.

Oct 15, 2013 - 8:07pm

Mr Fix

It's an older video from the last debt ceiling hike but the theme still resonates.

And yes...they're going to raise the debt ceiling at some point. No question about it.

Just a matter of when and how much. It could take awhile if it's the bitter piecemeal situation it appears headed towards.

Mr. Fix
Oct 15, 2013 - 8:13pm

Another day, and another cover-up. What are they hiding?

Workers demolishing Sandy Hook Elementary School required to sign confidentiality agreements

Fox News
Oct. 15, 2013

Contractors demolishing Sandy Hook Elementary School are being required to sign confidentiality agreements forbidding public discussion of the site, photographs or disclosure of any information about the building where 26 people were fatally shot last December.

Selectman Will Rodgers said officials want to protect the Newtown school where the 20 children and six educators were killed, The News-Times reported.

Read More

Oct 15, 2013 - 8:22pm

Hi gang, just checking in -

Hi gang, just checking in - thanks for the concerns about the typhoon. Sunny day here and nothing untoward - not glowing green yet :)

Bloomin tired from the noise and didn't get much sleep but day off today as always so I can relax and catch up a bit :) Everyone else is off to work as normal.

Picked this up on my morning rounds of the net. This is page one. Click link for the rest BEHIND THE SHUTDOWN/DEBT CEILING SWINDLE

Wall Street Orders Obama

To Kill Glass-Steagall by Jeffrey Steinberg and Nancy Spannaus

Oct. 7—On Oct. 5, the following release was issued in the name of Lyndon LaRouche by LaRouchePAC, as part of an emergency mobilization.

“Wall Street had demanded that President Barack Obama stop the reinstatement of Glass-Steagall at all costs, and instead move ahead with more bailouts and bail-in looting of the American people to preserve Wall Street’s thoroughly bankrupt system. The Wall Street policy means an acceleration of crippling hyperinfla- tion, devastating austerity, and, ultimately, mass murder of the nation’s most vulnerable citizens.

“Several highly qualified Washington sources have confirmed that this was the ultimatum delivered by the Wall Street delegation that met privately with Obama on Wednesday afternoon, Oct. 2, at the White House. The delegation was organized by the Financial Services Forum, a coalition of the nation’s 19 biggest banks and insurance companies, and included Jamie Dimon, CEO of JPMorgan Chase; Lloyd Blankfein, CEO of Gold- man Sachs; Brian Moynihan, CEO of Bank of America; Michael Corbat, CEO of Citibank; and Anshu Jain, CEO of Deutsche Bank.

“IMF Managing Director Christine Lagarde deliv- ered the same message in an interview with the Finan- cial Times on Oct. 4, in which she demanded that the Federal Reserve maintain the $85 billion a month quan- titative easing bailout of the top Wall Street and Europe banks indefinitely. And U.S. Treasury Secretary Jack

Lew, speaking for Obama, threatened that any U.S. de- fault will trigger a financial crisis far worse than the September 2008 meltdown.

“The reality, as bluntly stated by Lyndon LaRouche today, is that the ongoing government shutdown and threatened default on U.S. sovereign debt on Oct. 17 is nothing more than an orchestrated swindle, aimed at conditioning the American people for the murderous policies that have already been accepted by Obama and by leading Congressional Republicans.”

LaRouche’s Warning

“LaRouche warned: ‘Unless Glass-Steagall is passed into law immediately, Obama and Wall Street plan to unleash the worst mass murderous austerity and looting of the American people ever. The total separa- tion of commercial banking from all the gambling ac- tivities under Glass-Steagall is the only remedy. Bank- rupt Wall Street now, before they can unleash their genocidal schemes full-force. President Obama is noth- ing but a tool of these Wall Street interests, as evidenced by his slavish commitment to maintain the bailout/bail- in program and stop Glass-Steagall.’

“LaRouche continued: ‘In a matter of days or weeks, Obama and his Congressional Republican cohorts, on orders from Wall Street, are going to unleash absolute Hell on the American public through even deeper, killer austerity cuts than the sequestration of the past months. The government shutdown is the biggest dog-and-pony.............

4 National

EIR October 11, 2013

BagOfGold ¤
Oct 15, 2013 - 8:32pm

California Lawyer...

An outstanding article!...Thank You!!!...

Bag Of Gold

Mr. Fix
Oct 15, 2013 - 8:34pm

@ Hammer:

I am so happy that you are okay.

The only way us folks in the US get any real news about the US is from people like you on the other side of the world, where our bought and paid for by the elites press corps (propaganda corps) has little to no influence.

As far as “warning Obama about mass murderous austerity”, I think it will fall on deaf ears.

Mass murdering Americans is about to become his favorite past time.

I think it's safer in Japan.

Dagney Taggart
Oct 15, 2013 - 8:50pm

Nothing will change until...

1. Americans grow the balls to see if bankers actually do bounce off Liberty Street from 30 stories.

2. Stuff a burning Talmud in Lloyd's mouth after he reveals who his god is.

Burn these Tares, girl!

PS. Hey Fix!

Oct 15, 2013 - 8:51pm

Gold Manipulation goes mainstream

Just over at ZH and Goldcore has article that MSM picking up the massive dump of contracts with no concern about best price. I keep asking myself, why now??? why is this news now?

Is it so obvious that it has to be reported? Have the big boys got their ducks in a row for a run up?

Hmmmmm...enquiring minds want to know


Mr. Fix
Oct 15, 2013 - 8:55pm
Oct 15, 2013 - 9:09pm

I wonder why the delay?

Strangely, Carmen waited until just now to file suit. I wonder why the delay?

Could it have taken her several months to find a competant attorney willing to take on the F'ed Reserve?

Oct 15, 2013 - 9:26pm

Thank you...

Thanks very much for this narrative. Your writing makes what should be a dry and somewhat esoteric matter as juicy, exciting, and riveting as can be.

I'm grateful for your ability to follow the threads and brightly color them for those of us who have the impaired attention span thing.

This TF site sure beats reality tv, and you have the start of a great series going here.

One of the questions I've come away from your story with is, just who does business with Goldman?

After all the revelations over the past couple years, I've got to think the folks who deal with Goldman do it BECAUSE they are corrupt, not in spite of it. The Goldman customers may themselves be engaging in shady and manipulative deals they count on Goldman executing for them.

Yes, some may get screwed here and there, but so do the high rollers at a casino. They are all in it for the game and our Treasury is the backer.

Looking forward to the next chapter!

Oct 15, 2013 - 9:34pm

You know the old adage with

You know the old adage with hawkers of news, "If it bleeds, it leads........."

Some train lines in Tokyo are still not running out of caution (and further north) as they have to check the lines to make sure there is no debris etc on the lines. Right now, the wind has completely dropped and everyone is heading to the stations to get to work. Some may have been inconvenienced by an hour or two in their efforts to get to work. that's about it. Buddies out in the countryside complained that the lids came off their BBQs and they found a couple of holes in their window sills that they didn't know existed (where some water came through obviously).

Anyway, back to CL's very interesting write up.

Fred Hayek
Oct 15, 2013 - 10:03pm

Why such short tenures at various jobs?

Cali, very interesting stuff.

But one thing that struck me right away is the short duration of Segarra's tenure at several jobs. One year. 15 months etc. To me that seems very odd. Was getting a little taste of all these jobs and companies the way that she was being groomed? Down here below the economic stratosphere, that gets described with phrases like "bounced around from job to job" and can get one the reputation of not having any staying power. But was that just the nature of how she was being groomed?

Oct 15, 2013 - 10:14pm

Harvey's Up!

  • Harvey: GOFO numbers are moving closer and closer into negative territory. Gold is now extremely scarce as the boys are finding it harder to find physical. One-month-GOFO is 0.0000, very close to negative.
  • GoldCore: "The massive single sell trade on Friday, estimated to be worth a staggering $650 million, which knocked prices $25 lower in three minutes and the poor performance of gold despite the appalling political chicanery in Washington and the U.S. fiscal and monetary position is leading to more questions regarding price manipulation and suppression. There is only one conclusion that seems logical regarding Friday's gold trade and the one from a month ago, and that's that they were designed to manipulate prices
  • Stephen Pope: GFMS has reported that India imported 4,073 tonnes of silver from January to August. This was 2.12 x the volume in all of 2012, when a jump in prices in the peak season hurt demand. Do, however, note that there is a long way to go before a record annual figure is broken. That stands at 5,048 tonnes in 2008, just when the world was suffering the heat of the financial crisis.
  • US Global Investors: I would be worried about gold if real interest rates solidly crossed the 2 percent threshold for an extended amount of time, because it would have a dramatic effect on gold as an asset class. In a high interest rate environment, gold and silver lose their attraction as a store of value. In order for that tipping point to happen, rates would need to continue rising above inflation, and inflation would need to remain low. These are the forecasts made by many gold sellers today; however I wouldn’t get too trigger happy just yet, as recent data challenges these assumptions.
  • James Grant: America has defaulted on debt thrice before. Once was after the Revolutionary War and once was when FDR redefined the gold clause in contracts from 1/20 of an oz of gold per dollar to 1/35 oz of gold per dollar.
  • John Embry (via King World News): There is no rule of law in the United States anymore. We have these corrupt central planners and they are trying to destroy people. And when I say there is no rule of law, this is particularly true when it comes to financial markets. “And when I say they are trying to destroy people, I mean they are trying to destroy anyone who is attempting to intelligently invest as we enter the end game.
  • James Turk said, ‘The vast majority of the people in the West don’t appreciate the extent of the decline that the West is experiencing.’ Embry: To me it’s so apparent what’s unfolding, but because most people don’t want to confront something which there is no easy answer to, they just stick their heads in the sand and ignore the fact that the West is in serious decline.
  • Bill Kaye: various entities or high net worth individuals who have presented 100,000 shares or more to JP Morgan for the purposes of redeeming those shares for physical gold have already been told, or are currently being told by the banks, ‘No, we will not act on your behalf.’ This goes right to the heart of the reason why these ETFs were set up in the first place, which is so the bullion banks could loot them when they needed the physical gold from the vault to engage in the kind of manipulative behavior that we are witnessing today.
  • Bill Holter: Isn't it interesting that “it’s” happening again? “It” being that the GOFO rates which had gone slightly positive for the last month have collapsed again over the last 2-3 days as the price of gold was forced lower and are nearly negative again.

All this and more on...

The Harvey Report!


Fred Hayek
Oct 15, 2013 - 10:27pm

One more question, Cali . . . what about the next guy?

Presumably, after Carmen Segarra was fired, her slimy bosses got some financy boy to put his name on the Sargent Schultz (I see NOthing!) findings that they wanted from Segarra.

Okay, now let's say there's a trial. Maybe the slimy bosses want the financy boy to testify. But he knows that everything she said is true! He knows that he signed off on lies. He knows that he's wrong and he'll be committing perjury. He sees that she's got a lot of documentation. He knows that he can't point to anything to prove that Goldman had procedures and policy in place to avoid ass-raping its clients because Goldman's business model revolved around ass-raping everyone. Ass-raping everyone is the carbon atom of Goldman life.

If the Justice Department wasn't actually the Just-us Department, the financy boy would feel compelled to consider turning on Goldman himself. How frigging openly can I perjure myself, he must be wondering.

That financy boy who signed off on utterly fraudulent bank examination statements must also be wondering how permanent the present status of things is. What if things start falling to shit and they suddenly want to show that they're willing to prosecute bank wrong doing? And what is the statute of limitations on the crime I committed that Carmen Segarra is exposing?


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Key Economic Events Week of 4/15

4/16 9:15 ET Cap Util and Ind Prod
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