The level of corruption in our society is so high that it is not only out in the open, but actively enabled by people in very high places. It shouldn’t be any surprise that the famed Turbo Timmie, a man who somehow was forgiven for having neglected to pay payroll taxes while a consultant to the IMF, would not be terribly sensitive as far as ethics rules are concerned. The latest fiascos involve the already-overly-bank-friendly New York Fed.
We’ve commented on some recent revolving door horrorshows. One is that David Stevens, the Commissioner of the FHA and Assistant Secretary for HUD is going to join the Mortgage Bankers Association, and did not immediately quit his government posts. How can anyone pretend that his actions while still in office will not be hopelessly tainted by Similarly, Brian Peters, whose duties at the New York Fed included overseeing Fed loans to TARP recipients, most notably AIG, went from the central bank to AIG, during the period when AIG lobbed its bid on Maiden Lane II. We suspect that AIG actually secretly preferred the outcome that resulted, that of having the bonds auctioned (AIG is the equity holder and thus gets to monetize that position plus any upside) but presumably made its offer at a favorable enough price that it would also have been able to buy them with a decent built-in profit.
Chris Whalen, in his latest Institutional Risk Analyst newsletter, discusses the institutionalization of the revolving door at the New York Fed. And he highlights how Geithner continues to wield power there, which in turn allows former bank regulators at the Fed (yes, a virtual oxymoron) to lobby Geithner more effectively from their new posts. Per Whalen:
We hear that Treasury Secretary Tim Geithner is still calling the shots at the Fed of New York via his lieutenants in the bank supervision area. This de facto control is not challenged by former Goldman Sachs (“GS”) economist Bill Dudley. It seems the stench of the prosposed non-competitive resale of the assets to AIG without a public auction was too great even for Dudley to ignore. But the almost-botched disposal of the AIG assets is just the start of the dysfunction and ethical conflicts at the Fed of New York.
With former Federal Reserve Bank of New York veteran Brian Peters helping AIG to manage the “risk book,” the central bank needs to conduct all transactions with AIG at several arms length. Perhaps the Fed ought to even require that Peters be recused from any dealings with the central bank? ….
Query to Fed Chairman Ben Bernanke, members of the Board of Governors, and Pat Parkinson, head of the Fed’s division of supervision and regulation: When did AIG first offer Peters a job? Why did not Peters (and the many other former officials of the Fed of New York who have gone to work for the banks which they supervised) not have to sit in a windowless room for six months reading the newspaper after they announced their resignations? This seemingly is yet another proud legacy of former FRBNY President Tim Geithner.
When is Chairman Bernanke going to shut the revolving door policy at the Fed which allows senior officials of the DS&R to go to work for the entities they regulate?…The relevant committees of Congress need to start an immediate inquiry into the conflicts of interest that seemingly are rife among senior managers at the Fed of New York and the banks which they supervise…
Take another example of the revolving door at the Fed of New York, Theodore Lubke. Isn’t it ironic that the individual who led the OTC derivatives fight against the industry while at the FRBNY for the past 4 years — and someone closely linked to Tim Geithner until leaving the FRB this past December — is now the “Chief Regulatory Strategist” at Goldman Sachs?
One former colleage of Lubke told The IRA that he had “switched sides” and is now being paid to make precisely the opposite arguments that he made as a federal regulator. Lubke is a former SVP at the FRBNY and is now a Managing Director at GS with the functional title of “Chief Regulatory Strategist.” Another former colleague of Lubke at the FRBNY told The IRA:
“It is an absolute outrage that individuals are getting paid by the industry so overtly to use their contacts in the regulatory community to persuade and lobby policymakers from the other side of the fence. This is horrible for morale. And what about using access to the Secretary of the Treasury to relax arguments on behalf of their current employer in some of the most lucrative and unregulated markets? So much for transparency.”
This pattern, needless to say, does not look like the sort of accident that one might explain by notions like “cognitive regulatory capture”. This is corruption, plain and simple. And it’s now hit the point where it’s virtually hard wired. The gap between public sector senior jobs and private sector posts in related industries is so large that it’s a no-brainer that anyone other than the independently wealthy will go into the private sector. Nothing wrong with that per se, except the highest bidders by a large margin are those who want to influence policy directly, via leveraging the personal relationships of the former staffer. Some simple ethics rules, such as forbidding current members of regulatory bodies from meeting with recent colleagues in the employ of regulated firms, would dilute the effectiveness of these efforts. But with people like Geithner instead winking and nodding at these practices, we might as well hang out a “For Sale” sign over the door of every regulator in his considerable sphere of influence.