Multiple fronts have opened up in recent weeks in the battle against corruption in the United States, with particular attention focusing on the corrupting influence of the revolving door between the public and private sectors.
With Securities and Exchange Commission Chair Mary Schapiro announcing in November that she would step down, leaving behind an agency riven by partisanship and the influence of a well-financed financial industry lobby, progressives launched a campaign to pressure President Obama to pick a strong progressive replacement.
CREDO Action launched a petition urging President Obama to “[a]ppoint an S.E.C. chair who will hold Wall Street accountable.” Obama has already named current SEC commissioner Elisse Walter as the new acting SEC chairman, but a long-term replacement is expected in the near future.
“The S.E.C. is one of the top regulators of Wall Street,” says the CREDO petition, “so the president can and should ensure it’s led by a champion for accountability on Wall Street.”
A number of outstanding issues before the SEC could have an enduring impact on corporate and financial sector governance for years to come. The SEC, for example, is considering money market reforms and market structure safeguards and still needs to write a number of major rules dictated by the 2010 Dodd-Frank financial reform law, including a rule to prohibit banks from trading for their own accounts.
CREDO worries however about indications that the president is leaning towards appointing a Wall Street insider to the position, which could render newly adopted financial reforms toothless. The New York Times reported for example that Sallie Krawcheck, the former head of global wealth management at Merrill Lynch and a former top executive at Citigroup, is being considered for the position.
The petition names several alternative ideal choices, including former prosecutor and TARP inspector general Neil Barofsky, former Delaware Senator Ted Kaufman, former Senate aide and leader of the pro-reform group Better Markets Dennis Kelleher and former FDIC chair Sheila Blair.
But with the Obama administration’s track record in turning to industry insiders to implement policy, it would, to say the least, be a break from precedent to see a true “champion for accountability” taking the helm at the Securities and Exchange Commission.
Obama provided an indication of his inclinations to entrust public policy with Wall Street insiders from the earliest days of his administration after being elected on a platform of “hope and change” in 2008.
As Rolling Stone financial reporter Matt Taibbi wrote in December 2009,
Elected in the midst of a crushing economic crisis brought on by a decade of orgiastic deregulation and unchecked greed, Obama had a clear mandate to rein in Wall Street and remake the entire structure of the American economy. What he did instead was ship even his most marginally progressive campaign advisers off to various bureaucratic Siberias, while packing the key economic positions in his White House with the very people who caused the crisis in the first place. This new team of bubble-fattened ex-bankers and laissez-faire intellectuals then proceeded to sell us all out, instituting a massive, trickle-up bailout and systematically gutting regulatory reform from the inside.
Some of the more prominent members of his administration who have previous experience on Wall Street include:
- Former acting director of the Office of Management and Budget Jeffrey Zients, who once founded Portfolio Logic, which invests heavily in health-care companies.
- Former White House Chief of Staff Rahm Emanuel, who earned a reported $16.2 million working in investment banking for Wasserstein Perella for two and a half years. He also sat on Freddie Mac’s board, making a total of $320,000 from the mortgage finance company.
- Bill Daley, Emanuel’s successor as chief of staff, who worked at Chicago’s Amalgamated Bank, and later JPMorgan Chase, where he reportedly made about $5 million per year. He’s also served as a corporate lawyer, the head of SBC Communications, and on the boards of Boeing, Abbott Laboratories, and Loyola University Chicago.
- Daley’s replacement Jacob “Jack” Lew, the previous head of the Office of Management and Budget, who previously worked at the alternative investments unit of Citigroup. As chief operating officer of the unit, which profited enormously from betting on the collapse of the housing bubble, Lew reportedly made $1.1 million, possibly not including bonus income.
- Lew’s predecessor at the OMB, Peter Orzsag, who left the White House for a job at Citigroup, in global investment banking, pulling in an estimated $2 million to $3 million per year.
The heads of the National Economic Council — Larry Summers and now Gene Sperling — also benefited from Wall Street. Summers worked at the hedge fund D.E. Shaw after leaving his post as the president of Harvard University. There, he earned $5.2 million in 2008, plus another $2.7 million in speaking fees for engagements, including many at Wall Street banks. Sperling earned $887,727 from Goldman Sachs for work advising on a nonprofit project in 2008, as well as $158,000 for speeches, many to financial firms.
Based on public records, Slate estimates the Obama administration’s earnings from Wall Street in the tens of millions. And despite some tough words from Obama early in his administration, denouncing Wall Street bankers as “fat cats” and some criticism from Republicans that he is “anti-business,” Wall Street has profited handsomely since Obama’s election in 2008. Three years after that election, the Washington Post reported that Wall Street firms “earned more in the first 2 1/2 years of the Obama administration than they did during the eight years of the George W. Bush administration.”
The securities industry earned $82.52 billion in profits during the first two and a half years of Obama’s presidency, compared to $77.17 billion total under President Bush, according to data compiled by The Washington Post.
Another industry set to profit substantially from Obama administration policies is the health insurance industry. Because the Affordable Care Act, commonly known as “Obamacare,” includes mandate that every American must purchase the product of the private health insurance industry but no public alternative was included in the legislation, the law was a huge gift to that industry. The key legislator of this law was the Democratic Chairman of the Senate Finance Committee, Max Baucus, whose committee took the lead in drafting the legislation. But as Baucus himself has stated, it was Elizabeth Folwer, his chief health policy counsel who took the lead in drafting it.
Prior to joining Baucus’ staff, Fowler was the Vice President for Public Policy and External Affairs at WellPoint, the nation’s largest health insurance provider. And when that health care bill was drafted, the person whom Fowler replaced as chief health counsel in Baucus’ office, Michelle Easton, was lobbying for WellPoint as a principal at Tarplin, Downs, and Young.
When Obama needed someone to oversee implementation of the bill after it passed, he chose Fowler. Good government groups roundly condemned Obama’s choice as a violation of the “spirit” of governing ethics rules and even “gross”, but those objections were ignored by the White House. She then became Special Assistant to the President for Healthcare and Economic Policy at the National Economic Council.
Now, as Politico’s “Influence” column reported on December 4, Fowler is leaving the Obama administration to return to the private health care industry, where she stands to make a fortune from the legislation that she crafted and helped implement.
“Elizabeth Fowler is leaving the White House for a senior-level position leading ‘global health policy’ at Johnson & Johnson’s government affairs and policy group,” Politico briefly noted.
As columnist Glenn Greenwald noted in response to this development, “It’s difficult to find someone who embodies the sleazy, anti-democratic, corporatist revolving door that greases Washington as shamelessly and purely as Liz Fowler.”
This sort of routine revolving door corruption “is precisely the behavior which, quite rationally, makes the citizenry so jaded about Washington,” observed Greenwald. “It’s what ensures that the interests of the same permanent power factions are served regardless of election outcomes. It’s what makes a complete mockery out of claims of democracy. And it’s what demonstrates that corporatism and oligarchy are the dominant forms of government in the US.”
It is also, incidentally, a violation of international treaty obligations to which the United States has subscribed. As a state party to the United Nations Convention against Corruption, the U.S. has agreed to taking measures to prevent conflicts of interest and corruption in both the public and private sphere.
Specifically, the Convention requires states parties to
Prevent conflicts of interest by imposing restrictions, as appropriate and for a reasonable period of time, on the professional activities of former public officials or on the employment of public officials by the private sector after their resignation or retirement, where such activities or employment relate directly to the functions held or supervised by those public officials during their tenure.
With its endlessly revolving door between government and private industry, Washington is flagrantly violating the letter and spirit of this provision.
There is some hope in the new year however to bring the United States into compliance with its anti-corruption obligations and to restore some modicum of democratic legitimacy in Washington.
A group called Represent.Us has unveiled an important legislative proposal it is calling the American Anti-Corruption Act. One of the key points of this piece of legislation is to “close the ‘revolving door’ so that elected representatives and their senior staff can no longer sell off their legislative power in exchange for high-paying jobs when they leave office.”
“Today, politicians routinely move straight from Congress to lucrative lobbying jobs on K Street, in order to influence their former colleagues and friends,” Represent.Us laments. “This corrupts policymaking in two ways: members and their staff anticipate high-paying jobs with lobbying firms, and routinely do favors to their future employers while still in Congress; and once out of congress they enjoy undue access and influence to members of Congress.
Other key points of the proposed legislation include stopping politicians from taking bribes, requiring SuperPACs to abide by the same contribution limits as other political committees, limiting lobbying donations and ending secret money in politics.
Represent.Us is attempting to rally at least a million American citizens to join its cause, building on popular revulsion to what it deems “the worst political corruption in American history.” After that, it plans to introduce the Anti-Corruption Act to Congress by the end of 2013 and rally cosponsors.
To add your name to the Represent.Us petition, click here.