“A few weeks ago, This American Life aired an hour long story showing how the regulators at the Federal Reserve in New York were cozying up with Goldman Sachs, a member of the too-big-to-fail team that of course the Fed is supposed to oversee. For instance, thanks to some secret recordings, you can hear Fed officials talk about how they suspect a Goldman deal with Santander to be “legal but shady” . . . before shrugging the whole thing off. You can also hear both the regulators and Goldman executives acknowledge that the deal should have required Fed approval and then . . . see to no consequences for Goldman.
While this came as a shock to most people listening to the story, this behavior isn’t new. It’s called regulatory capture, and economists have known about it for over 40 years.’
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