Wall Street and its top regulators are in for a horrible week

(Image credit: Spencer Platt/Getty Images)

last updated 8 January 2015

Through design or, more likely, happenstance, federal financial regulators are in for a tough, tough week in Washington. And they'll be getting hammered from both sides.

On Monday, former longtime AIG CEO and chairman Hank Greenberg is taking the Federal Reserve and Treasury Department to court, arguing the government was too tough on AIG during the financial crisis of 2008. Meanwhile, over the weekend, two U.S. senators called for an investigation into the Federal Reserve's New York branch after ProPublica and This American Life disclosed secretly recorded tapes purporting to show that Wall Street's top regulator was too lenient on and cozy with large financial firms, especially Goldman Sachs.

The Greenberg case, to be heard before the U.S. Court of Federal Claims in Washington, is actually a class action brought by Greenberg's Starr International, AIG's largest shareholder before the bailout, and 300,000 other former AIG shareholders. Greenberg and his lawyer, David Boies, say that if AIG and the New York Fed had returned then-retired Greenberg's calls and emails in 2008, he could have saved the company without a massive $85 billion loan, which grew to $184.6 billion and a 92 percent stake held by the government, all since repaid. The government's position is that AIG asked for the help to avoid bankruptcy, took the aid voluntarily, and taxpayers took on great risk "to protect and stabilize the United States economy." At stake is more than $40 billion in taxpayer money if Starr and its co-plaintiffs win.

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The ProPublica/This American Life story features Carmen Segarra, a lawyer brought in to examine the New York Fed's dealings with Goldman Sachs, after a New York Fed–commissioned report found that Wall Street's closest federal regulator was too cozy and deferential to Wall Street's "too big to fail" banks. After seven months, Segarra was fired, she says for refusing to back down on her tough Goldman Sachs report — but before she was dismissed she recorded 46 hours of secret tape. It was these tapes, and the stories they led to, that prompted Sens. Elizabeth Warren (D-Mass.) and Sherrod Brown (D-Ohio) — both on the Senate Banking Committee — to demand "oversight hearings on the disturbing issues raised by [Friday's] whistleblower report."

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Peter has worked as a news and culture writer and editor at The Week since the site's launch in 2008. He covers politics, world affairs, religion and cultural currents. His journalism career began as a copy editor at a financial newswire and has included editorial positions at The New York Times Magazine, Facts on File, and Oregon State University.