The Shrews that Tame Wall Street?

In interviews with whistleblowers, many say that they didn't talk sooner because of their loyalty to the institutions they were a part of. Perhaps women, never being fully embraced by the institution, don't develop a deep loyalty, or perhaps only sip the Kool-Aid.
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The biggest financial stories this fall centered around two whistleblowers: Carmen Segarra whose secret recordings showed that the New York Federal Reserve was in the hands of Goldman executives, and Alayne Fleishmann who violated her "$9 billion gag order" to reveal JP Morgan's fraudulent mortgage practices. These two threw some hard-to-dodge bombs into the financial sector (there was a Senate hearing last Friday on regulatory capture and a Workshop on Reforming Culture and Behavior a few week ago) and blew up their own lives in the process--they are both essentially unemployable. In a way, this is a repeat of 2002 when Cynthia Cooper and Sherron Watkins were named TIME's "Person of the Year: The Whistleblowers" (along with Coleen Rowley from the FBI) for exposing fraud at Worldcom and Enron.

Then there are the financial regulators: The only regulator in the last decade who spoke up about the very beast that would take down the economy, the unregulated derivatives market, was Brooksley Born (more on her below). Elizabeth Warren, a.k.a. "Wall Street's Nightmare," is known for the "blood and teeth" she would have preferred to see on the floor rather than a neutered consumer protection agency. TIME ran yet another cover calling Warren, Sheila Bair (former head of the FDIC), and Mary Schapiro (former head of the SEC) the New Sheriffs of Wall Street for their collective effort to clean up the mess after the financial crisis.

From the academic side, there is Anat Admati, a Stanford business school professor who has been calling out the banks. She likens their opposition to capital limits to the tale of the Emperor's new clothes, and she has been labeled "a persistent industry gadfly" who "makes banks shudder" even as the banks contend that "her ideas are wildly impractical, bad for the American economy and not to be taken seriously."

Although plenty of men are whistleblowers and financial reformers, too, the ones making the most noise are women. Women are significantly underrepresented in Wall Street firms as well as in Congress and the regulatory agencies. Research shows that they're also punished more when they blow the whistle. So why is it that the few who make it through make such a big fuss?

I don't know the answer, but I have my suspicions based purely on anecdotes--stories from friends, colleagues, and my own experiences. It is a fairly obvious and non-controversial statement that there is overt and subtle sexism in the financial industry, but what is not obvious is how high up this "outsider-ness" goes and the outcomes it produces.

Take, for example, Timothy Geithner's description of Brooksley Born's warnings about derivatives in his memoir "Stress Test:"

"Born's motives were noble, and her concerns about lack of regulatory oversight of the derivatives market were prescient. She just didn't have a concrete or plausible plan. I remember she began one meeting at the CFTC by pulling out a yellow pad and reading from dozens of pages of handwritten notes about our messy securities laws. She clearly felt strongly about the cause of reform, but her proposals for reform were mostly impenetrable. With limited knowledge, I found myself sympathetic to the substantive case that Larry [Summers], Greenspan, and the New York faction of the derivatives industry were making against Born's proposal." Italics added.

There is nothing overtly sexist about this passage, but it made my blood boil. Born was the head of the federal agency in charge of regulating derivatives, and an experienced and highly educated attorney and Geithner (in this passage and others) acts as though she's some confused intern who wandered into a meeting she didn't belong in. I've been in similar rooms--among a group of "insiders" who nod approvingly about your concerns, but seem to have an unspoken agreement to roll their eyes and get "back to business" as soon as you leave the room. To repeat, Summers, Geithner, and Greenspan were all wrong. Derivatives did need to be regulated. They were, as Buffet claimed, the "financial weapons of mass destruction," but Geithner admits that his biases were with the Fed because of the "quality of the Fed officials [he] had worked with..." These are the same ones, by the way, that Carmen Segarra showed served as financial-industry lap dogs. But Geithner chose to side with his buddies over Born.

And of Warren, Geithner says: "Her criticisms of the financial rescue, if well intentioned, were mostly unjustified, and her TARP oversight hearings often felt more like made-for-YouTube inquisitions than serious inquiries. She was worried about the right things, but she was better at impugning our choices--as well as our integrity and our competence--than identifying any feasible alternatives."

And Sheila Bair? Geithner admits that he and Ben Bernanke and Henry Paulson tried again and again to persuade her against haircuts on bailed out firms. He admits that he even "lost his composure" and used some "pretty harsh words" in frustration. Bair finally came around after Geithner, Paulson, and Bernanke worked on her for months. Geithner said he was "more aggressive, dismissing her focus on limiting immediate risks to the FDIC insurance fund as parochial and shortsighted, warning that she was dragging us toward an epic disaster."

I don't mean to pick on Geithner here, but his account is a thorough insider's take. And he's surprisingly honest about the play by play. The picture that emerges is not a surprising one. The men are the "deciders" and the women mean well, but they just don't get it.

It is no wonder then that women whose hard work and intelligence is constantly met with dismissiveness or even disdain would want to pull the curtains on the wizards behind it. In her book, Warren talks about being at the shoot for the TIME cover with two other women named as "Sheriffs" of an industry where women are a rarity: "some people argue that if you're never in the club, you simply can't understand it. But in this case, I think not being in the club means never drinking the club's Kool-Aid. I had studied the banking system from the outside for two decades so none of it was sacred for me."

Anita Hill (another famous whistleblower) said the same thing in 2002 of the spate of female whistleblowers in the New York Times: "Though each woman had attained respected insider status, I can't help but wonder whether, given their gender and the nature of the institutions, the feeling of being inside was complete."

In interviews with whistleblowers, many say that they didn't talk sooner because of their loyalty to the institutions they were a part of. Perhaps women, never being fully embraced by the institution, don't develop a deep loyalty, or perhaps only sip the Kool-Aid.

In fact, this is exactly the atmosphere that Carmen Segarra depicts. She was never part of the club and her repeated attempts at pushing the Fed to press Goldman on compliance issues were met by supervisors telling her that she needed to tone it down. They told her that she had "sharp elbows" and was "breaking eggs." The subtext is clear--you are not part of the club, and you don't know how to behave inside it.

This presents the potential for tension between industry inclusion and oversight. As the industry becomes more inclusive, more women will feel like insiders, a development that is good for women and has been proven good for the industry (companies with women on the board consistently outperform those with less women), but we may lose the sheriffs, the thorns in the side, the outsiders without loyalties who are comfortable throwing bombs into sacred spaces that may be deceitful, corrupt, or just filled with delusional insiders.

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