Over the weekend This American Life aired a fascinating set of tapes made by a Fed examiner working as a regulator at Goldman Sachs. I worked at Goldman Sachs during the financial crisis and thought I’d share a few thoughts on the topic.

The main thing that I noticed in the recorded conversations was the dramatic mismatch in drive between the regulators and the bankers. One thing that is immediately obvious at GS is that everyone comes to work prepared to play and win. Moreover, from my experience, everyone at Goldman follows the law. Yes, they may walk right up to the line and kick sand at it, but they operate legally. (There are of course the bad apples, but as a general statement I found this to be true.) The Fed on the other hand was just showing up and “fussing at ’em”.

What people fail to recognize is that it is our responsibility to legislate and regulate the banks. To think they they will self-impose extra regulations is just insane. In fact, as publicly traded companies all investment banks are bound to generate returns for their shareholders. If they don’t try as hard as they can, including doing things that are legal but that one might find morally questionable, they are failing in that mission. If you don’t like it, vote for representatives who want to pass stricter regulations for the finance sector, I know I have.

Essentially, it seemed like Carmen Segarra was the only one who wanted to hold GS accountable. And as I alluded to above, you can be sure that Goldman would do the same if the tables were turned.

The more interesting question is why the Fed is so languid in its ability to ask the tough questions and demand answers. It isn’t that the Fed is outsmarted as is sometimes proposed. The tapes made it clear that they knew the exact question to ask with respective to the Spanish bank deal. And judging by those same tapes, it seemed that they didn’t want to offend, anger, or stand-up to the bankers. It is this specific short-fall that the Beim report was meant to address. What’s frustrating is that the Fed officials seemed to just ignore the advice!

If the problem is that Fed officials want a fat paycheck from Wall Street either before or after their tenure in the public sector, then the solution is simple. Equalize the pay gap between public and private sectors. You could do this they way mentioned in the program by paying public officials a lot more (like Singapore). Or my preferred way would be to impose a highly progressive income tax, so we don’t have bankers taking home 7, 8, or 9 figure paychecks. This might also have the desirable side effect of decreasing the incentive to take on outsized risk to bolster individual bonuses.

Some might point to the remark by a Goldman exec that consumer protections don’t apply once you have a certain amount of money. Gasp! While it was a poor choice of words, the truth of the matter is they don’t. If you are making $200K a year or have $5 million in the bank, you are what is termed an accredited investor. This allows you to participate in “riskier” investments like hedge funds. Moreover, I think everyone basically should recognize it is caveat emptor when making investments. If you don’t understand what the fund/company/security is doing don’t buy it. Honestly, even if you are an accredited investor you’d probably do better (return wise) with a simple assert allocation that doesn’t try to get too cute.

What about the issue at the center of the whole story – Goldman didn’t have a comprehensive conflict of interest policy. This, I agree, is bad. On the other hand, I never saw a client’s interests put second to the firm. The point remains that the Fed should have stood up to Goldman on this one. Point GS (come on ref!). It should be noted that GS is already taking steps to fix this oversight; all it took was a little prodding – prodding which should have be done by the Fed, not ProPublica and This American Life.

The fact of the matter is simple. Goldman’s employees take their job seriously and want to do it well. We should expect the same from regulators at the Fed and of ourselves as citizens. Maybe by reducing the pay gap, legislating some additional safeguards for the financial industry, and by actually implementing the suggestions that Beim made, everyone will start playing to win and we’ll have more people like Carmen Segarra looking out for our interests.