In 2014 I had a front row seat when Senators Sherrod Brown (D‑OH) and Elizabeth Warren (D‑MA) chastised the president of the New York Fed for the “legal but shady” relationship between it and Goldman Sachs. Brown and Warren, the flag bearers of populist rage against Wall Street, were on a mission to stop the “revolving door” between government regulators and the nation’s largest financial firms.
Warren said she wanted to “put a lock on” that door (see the 2:27:48 mark), and that unless it was locked, the United States would never have a reliable oversight system.
This episode was not unique.
In 2013, Brown chaired a Banking Committee hearing on “Outsourcing Accountability? Examining the Role of Independent Consultants.” The hearing was called after it was discovered that Promontory, a private financial consulting firm, earned almost $1 billion for work it did after the 2008 financial crisis (reviewing over 250,000 “shoddy” mortgage files at institutions such as Wells Fargo, Bank of America, and PNC).
In his opening statement, Brown said that:
,In hundreds of cases, banks have been ordered by regulators to hire private independent consultants to review their behavior. At the OCC alone, nearly one third of their legal actions since 2008 have required banks to hire an outside consultant to review their actions and propose solutions.
The top consultants are staffed by scores of former regulators and big bank employees that reportedly charge as much as $1,500 per hour to give banks their expertise. And because most consulting firms are private companies, there is little transparency – to the public or to Congress – and we can only speculate about the financial incentives and business relationships that consultants have.
Brown was particularly disturbed by “the lack of transparency and disclosure” in the relationship. He also lamented that “With such a potential for cognitive capture and the influence of the revolving door, bright line rules are essential.”
Fast forward to January 2022. President Biden has nominated Sarah Bloom Raskin to be the new Vice Chair for Supervision at the Federal Reserve.
According to their website, Raskin is currently the Vice Chair of Promontory’s Advisory Board. From 2014 to 2017, Raskin served as a deputy secretary in the U.S. Treasury. From 2010 to 2014, Raskin was a Federal Reserve Board Governor. Prior to her time at the Fed, Raskin “was one of Promontory’s first managing directors, having first joined the firm shortly after its founding.”
Surely this was a time to stop the revolving door.
Instead, Brown was thrilled with the nomination. He announced that “With these nominees [Raskin and two others], President Biden is showing the country what a Federal Reserve standing on the side of workers and their local communities looks like.”
Apparently, Brown has forgotten that he had a problem with the revolving door.
Senator Warren, on the other hand, will have a tougher time blaming such memory issues. For instance, she recently took to Twitter to chastise Randy Quarles, the outgoing Fed Vice Chair for supervision, for beating a retreat through the revolving door. Of Quarles’ decision to return to the private equity firm he helped start, she said:
,This is corruption, plain & simple. Randall Quarles was a high‐level policymaker at the @Federalreserve just a few months ago, but now he’s back to work at his private equity firm in the financial sector.
We need to slam shut this revolving door & I’ve got a bill to get it done.
It seems that the same set of standards do not apply to Raskin.
Rather than block her nomination–a surefire way to “slam shut this revolving door”–Warren asked for no more than “significant ethics commitments” from Raskin (and the administration’s two other Fed nominees).
I could be wrong, but I don’t recall Warren supporting anything like that–a mere promise not to be corrupt in the future–back in 2014.
It makes matters even worse for Warren and Brown that Raskin recently served on the board of Reserve Trust, a fintech firm that had trouble getting a master account at the Fed until after Raskin personally called Kansas City Fed President Esther George.
For the record, it remains unclear whether Raskin even did anything shady. Tons of people lobby government agencies, both before and after working for those agencies.
As I argued in 2014, the more expansive the Fed’s role, and the more complex the rules and regulations, the more lucrative the revolving door will remain. If Warren and Brown want to reduce those profit opportunities, they could craft legislation to create simple, straightforward rules. There are many reasons, after all, to doubt the efficacy of the existing U.S. regulatory framework.
Regardless, Warren and Brown’ double standard is obvious. They have made public careers out of condemning the revolving door between federal regulators and Wall Street.
Yet now, faced with what may be the clearest opportunity in some time to do something about it, they’re looking the other way. I guess they have revolving principles.
