Jack Lew’s appointment as secretary of the Treasury and Mary Jo White as head of the SEC are two of the innumerable examples of the movement of personnel between Wall Street and Washington. Regulators regularly take jobs related to the industries they oversee, later returning to higher-level oversight positions. Some see this revolving door as an incestuous relationship vastly reducing the likelihood of regulators getting tough on the industries that have made them rich and to which many hope to return once their days in D.C. are done. But what practical options exist?
Historians point to 1934 as the kickoff year for the revolving door syndrome when Joseph P. Kennedy became the first chairman of the SEC. More recently, Mary Jo White was chosen as the new head of the SEC. She is a senior partner at Debevoise & Plimpton and until recently defended Ken Lewis of Bank of America, JPMorgan Chase, and the NFL, among others. Within the White House itself, Bill Daley went from J.P. Morgan Chase to become Barack Obama’s chief of staff. Jack Lew replaced him, leaving Citicorp to do so. When Lew left an earlier government position in 2006 for Citicorp, his employment contract stated that he would not receive certain payments if he left before the scheduled payment date unless he departed "as a result of [his] acceptance of a full-time high level position with the United States government or regulatory body." In other words, his arrival at Citicorp anticipated his departure from the bank for a return to government. Lew's choice to leave Citicorp, where he worked in private equity, was a foregone conclusion when he arrived.
While the Obama administration has been the focus of many of the media stories on this topic, this issue precedes him and involves both parties. For example, Laura Tyson, a board director of Morgan Stanley, served as chair of Clinton’s National Economic Council, succeeding Robert Rubin. Faryar Shirzad served on the staff of George W. Bush’s National Security Council of Economic Advisers, and is now managing director and global head of governmental affairs at Goldman Sachs. For him and others, the revolving door may have been transformed into a golden staircase leading to a well-paying executive position that could preclude a return to government service. In other cases government workers may have one chance to take advantage of the brass business ring. Rahm Emanuel, now Chicago’s mayor, left the Clinton administration in 1998, and made $16.2 million in two and a half years at Wasserstein Perella before running successfully for Congress.
The revolving door permeates deep into government ranks. Beyond the big names, a 2011 techdirt.com report lists 16 federal government staff of various levels who moved to Big Oil. The list demonstrates similar numbers of post-government personnel have shifted between the government and Comcast, GE, Goldman Sachs, Monsanto, Big Pharma, and the media.
Can the revolving door be stopped? Alternatives are limited and may be worse than the current practices. One alternative might force all government bureaucrats to be "lifers," dedicated to enforcing regulations but untainted by the marketplace. However, bureaucrats without ambition often possess neither the insight, energy, nor innovation we want to see in officials and instead harm businesses, increase costs, and slow decision-making.
Many Wall Streeters go to Washington because they truly believe they can make a contribution to better government. Others view Washington as a steeping stone to a Wall Street pay scale; that is where the conflict can occur. One colleague who accepted a job in a recent administration said he intended to leverage his D.C. years into an executive position. His eye was already on the prize beyond the job he was about to accept, making it difficult for him to make decisions without considering their personal impact. For him and many others, government positions serve as a means to a lucrative end.
While we might like to see the end of the movement back and forth between business and government, such a change is both unlikely and unworkable. After all, consider who is making the rules related to the revolving door. Increased transparency and public disclosure may avoid some of the most egregious back-and-forth moves. However, neither governmental staff nor Wall Streeters embarrass easily when they have the chance to obtain big payoffs. Mary Jo White responded to concerns about her potential conflicts saying, "The American people will be my client." We can only hope so.