I have already posted that I met on Friday evening with Pippa Malmgren. Her father, Harold, worked under four presidents. She has under two, Ronald Reagan and George W. Bush. She was also a member of the President's Working Group on Financial Markets, aka, the Plunge Protection Team.
We talked of many things when we met and as I left I told her I had enough material from her for months of posts. I will be posting much here at EPJ and also, in Monday's EPJ Daily Alert, I will report on her views on the future of interest rates and price inflation.
In this post, I want to focus on one of the most important things we discussed, how Wall Street ends up influencing top Washington D.C. officials and, therefore, policy.
It started when I questioned her about the Plunge Protection Team. "Tell me, what are they up to and do they really manipulate markets?" I asked.
She laughed and said, " I don't know why all the focus is on them. They are mostly middle managers, who don't understand economics or the markets.
"It's a large group and they have trouble getting out a statement, never mind directing policy."
She took a sip of her white wine, but I didn't interrupt. I could tell she wanted to say more.
"But there is a much smaller group. That group is very powerful and they do make policy decisions. It is called the Plus One," she continued.
"It's composed of roughly 10 people. The heads of the SEC, the Federal Reserve, the Treasury, the CFTC and the National Economic Council. The actual agency heads who attend a given meeting may vary a bit depending on the crisis, but these five agencies are the core.
"It is just the heads of these agencies and each head is allowed to bring one additional person along. That's where the name for the group, Plus One, comes from. When I was at the National Economic Council, I was the plus one," she said.
Now I took a sip of my sapphire tonic. "Go on," I said,
"They are the decision makers. They make the big policy decisions, but they don't necessarily understand economics or the markets. They either have political backgrounds, academic backgrounds or business backgrounds, but they don't have market backgrounds,
"When they enter this world, they are way over their heads and they know it. So each one finds one or two people that they trust and who they feel comfortable saying to, 'Explain what this means.' It is those doing the explaining that control policy. It's a very small group."
She said a lot of financial executives and experts visit these heads and show off using all kinds of lingo and technical jargon, but the heads don't understand what they are talking about. "It's the guys that know how to explain things in a simple manner without being condescending that are going to be relied on," she said.
"Each head of every agency has these 'go to' people.
"Look at the meeting logs and phone logs of the agency heads and you will see who these 'go to' people are. They talk to them all the time. And, of course, the 'go to' person's explanations are always given in a way that suggest policy moves that will benefit the 'go to' person's firm," she went on.
Pippa wouldn't go on record with me with who these "go to" people are, but a quick check of the records indicates that Lloyd Blankfein, CEO of Goldman Sachs, must be a master explainer and the ultimate "go to" guy.
Here is HuffPo on Timothy Geithner meetings with Blankfein, when Geithner was Treasury Secretary:
Treasury Secretary Timothy Geithner has met more often with Goldman Sachs CEO Lloyd Blankfein than Congressional leaders, including the Speaker of the House and the Senate Majority Leader, according to his official calendar.
Goldman CEO Lloyd Blankfein has shown up on Geithner's calendar at least 38 times through March 2010 since the Treasury Secretary took office in January 2009, three more entries than Senate Majority Leader Harry Reid, 13 more than House Speaker Nancy Pelosi, and nearly four times as many as Senate Minority Leader Mitch McConnell and House Minority Leader John Boehner combined, according to a copy of Geithner's daily log recently published online by the Treasury Department. The imbalance is striking, considering that Geithner was heavily involved in financial regulatory reform legislation, which Congress was grappling with during the period covered by the calendar.It is also instructive to see how often former Goldman head Hank Paulson, when he was Treasury Secretary, talked to Blankfein, including at a secret meeting with Goldman's board in Moscow.
It should be remembered that Paulson came from the investment banking side of Goldman. He may have been very good at taking people out to lunch, but it does not mean he understood, markets and trading. Did Blankfein play the role of great explainer even to a former Goldman head?
Bottom line, these "go to" guys, such as Blankfein, don't have to be in the Plus One meetings, their policy recommendations will be.
This may help shed light, also, on how people are selected to head these type agencies, possibly bright people, but people who are unfamiliar with the ins and outs of the sector they are ruling over, who will need the guidance of the "go to" guys .
It is noteworthy that the current head of the Federal Reserve, Janet Yellen, comes from an academic and government background and the Treasury Secretary, Jack Lew, is a government number-cruncher guy. Just perfect for what the great explainers are looking for, to advance their policy agenda at future Plus One meetings.
Robert Wenzel is Editor & Publisher at EconomicPolicyJournal.com and at Target Liberty. He is also author of The Fed Flunks: My Speech at the New York Federal Reserve Bank. Follow him on twitter:@wenzeleconomics