Revolving doors of power

The US government's hiring of bankers who then return to Wall Street has raised concerns that the political system is being subverted

PUBLISHED : Wednesday, 15 May, 2013, 12:00am
UPDATED : Wednesday, 15 May, 2013, 4:46am

In Europe, it seems unthinkable that the head of Deutsche Bank would ever become the finance minister of Germany. It is less likely since the financial debacle of 2008 that any British bank boss would become chancellor of the exchequer. In European eyes, such appointments would be the classic case of putting the fox in the hencoop, besides the fact that the country could not afford the bankers.

However, in the United States, there has long been a revolving door between Washington and Wall Street. But a flurry of recent appointments of key political players to well-placed jobs on Wall Street is beginning to cause concern that the banksters - as the big Wall Street bankers are not so affectionately called - are subverting the system.

Weary cynics claim that the revolving door between the centre of political power and the financial centre goes back to Alexander Hamilton, the first US treasury secretary, who went from his law practice to the treasury and then back again to make more money from an even more lucrative law practice.

"The Wall Street-Washington revolving door is as American as apple pie," declared a recent headline in Forbes magazine.

In the 1930s, Joseph Kennedy, the father of President John Kennedy, was a power on Wall Street who became the first chairman of the Securities and Exchange Commission and then ambassador to Britain.

Dean Acheson was a successful lawyer who went to the treasury, back to his law practice, and then became secretary of state before resuming the law.

But recently, the revolving door has begun to spin with so many people passing through that the Wall Street-Washington-Wall Street nexus seems to have become dangerously institutionalised.

Most dangerously these days, it is not a case of merely an occasional distinguished individual who gives up a highly paid job to serve the country, but almost a government of them, and the considerable traffic back to well-paid private sector jobs to cash in on government experience, revolving door to golden staircase.

The worry is that the moves are not about sacrifice to serve, but threaten the capture of the commanding heights of power for greed and gain.

The modern trend started in the 1990s when Robert Rubin went from being chairman of Goldman Sachs into president Bill Clinton's administration. He was followed by other colleagues that some critics mockingly talked of "Government Sachs".

Rubin was neither the first nor the last of modern high-powered and highly paid movers and shakers who moved with ease between Wall Street and Washington. Martin Feldstein, who was chairman of president Ronald Reagan's council of economic advisers, was on the boards of AIG Financial Products and JP Morgan and later served as adviser to President Barack Obama.

The first treasury secretary to move to Wall Street was Henry Fowler, who joined Goldman in 1969, where he was befriended by Rubin and introduced him to politics through Robert Strauss, the Washington powerbroker.

Rubin occupies a special place in the dark history of modern finance because he was the prime mover in the dismantling of the Glass-Steagall Act that since the 1930s had separated plain vanilla commercial banking from the more exciting and risky investment banking.

The end of Glass-Steagall, according to the critics, let loose a rampage of greed and speculation that led to the financial crash of 2008, recession and allowed too-big-to-fail-banks to become even bigger monsters, with Goldman winning fame in Rolling Stone as a giant blood-sucking vampire squid.

In addition, Rubin developed a whole team of protégés that, according to critics, have given him continuing political power in Washington for more than 20 years. They include Larry Summers, the Harvard academic whom Rubin brought to the treasury and who succeeded him as secretary, Timothy Geithner, and Jacob Lew, whom Rubin recommended for a job at Citigroup, where Rubin went after his time in government.

He is also accused of using his powerful political connections to protect the too-big-to-fail banks.

Rahm Emanuel, now mayor of Chicago, is another prominent figure who benefited from trips between public and private service: he left the Clinton administration to make US$16.2 million in 2-1/2 years with Wasserstein Perella before winning a seat in Congress and then joining Obama's administration.