Thursday, December 27, 2012

The Completely Disgusting Government/Crony Capitalism Revolving Door (CFTC Edition)

WSJ reports:
After working long hours over many months crafting new rules for Wall Street, a number of government regulators are switching sides to work for the firms that will have to follow and interpret them.

Whenever there is a major policy change in Washington like the 2010 Dodd-Frank financial overhaul, it enhances the marketability of government employees with specialized skills and contacts. But in the past, it was officials at the Securities and Exchange Commission, the Federal Reserve and the Treasury Department in particular who found their expertise and contacts most highly valued in the financial industry[...]

At least nine CFTC employees have decamped since June for firms in finance, law and accounting that are figuring out how to comply with the Dodd-Frank overhaul. Six of the staffers were directly involved in rule making and three were in enforcement.

Among the firms doing the hiring are J.P. Morgan Chase, Deutsche Bank AG, Nomura Securities, Covington & Burling LLP and PricewaterhouseCoopers LLP. Some are subject to the rules, while others advise clients who are[...]

Carl Kennedy, a staffer to Commissioner Scott O'Malia, went to J.P. Morgan, and Adedayo Banwo, a lawyer in the agency's general counsel's office, joined Deutsche Bank. Both firms and several other large banks are expected early next year to register as "swap dealers," a designation that carries with it governance rules and capital requirements.[...] critics of the revolving door between Washington and Wall Street say they worry ex-staffers could use their personal connections to pressure the agency into crafting rules favorable to their new employers.
What's really evil here is not just that these characters will provide workarounds to legislation they just crafted, but that they will influence the creation of new rules and regulations that will provide an edge for their crony firms, and create a moat that makes it extremely difficult for others to enter a sector.


  1. Some studies of international differences in capital costs and efficiency in financial markets look at differences in legal regimes across countries. The assertion is that English common law traditions, like what we have in the US, tend to be more efficient than those deriving from French civil law, given the reliance on complicated/numerous/specific laws in the latter compared to the general rules and flexibility in the former. Every time I run over those assertions, I scratch my head. How close are we to a flexible common law tradition, in our financial markets? About as close as Jupiter is to the sun.

  2. "What's really evil here is not just that these characters will provide workarounds to legislation they just crafted [sic for 'crapped']"