The whole problem with "revolving doors" is that people regulate the same places they then work at. This creates bad incentives and corruption. If Bernanke was in charge of HF regulation and made special rules that helped Citadel and then went to work there..that's an issue. And it happens all the time in certain industries.
I don't see the corruption angle here. Can you point to specific actions Bernanke took as Fed Chairman that you think he is now being paid for?
The Fed "regulates" (I use the word loosely) interest rates. Lots of trading (by hedge funds and others) depends on expectations about future monetary policy. _Maybe_ the former Fed chairman would have insights about that?
You want me to point out a moment where Bernanke is corrupt, but I'm suggesting that the setup itself is the corrupt part. The people who steward the economy live and work alongside the people working their hardest to exploit it. With his turn at the helm complete he seamlessly steps across the boundary that never really was there in the first place.
No, but the SEC does, and to say that Bernanke is familiar with the leadership at the SEC would be the understatement of the century.
Given that his title is "adviser", I struggle to believe they hired him for any other reason. That term seems to come up again and again when people leave capital hill for the private sector to land cushy jobs where they get paid to take their friends out to dinner.
No, but the SEC does, and to say that Bernanke is familiar with the leadership at the SEC would be the understatement of the century.
Given that his title is "adviser", I struggle to believe they hired him for any other reason. That term seems to come up again and again when people leave capital hill for the private sector to land cushy jobs where they get paid to take their friends out to dinner.
While I don't hold strong opinions against the Fed's policies in general, I think there is legitimate cause for concern here.
The Fed and mainstream economists argued that they really didn't want to bail out the entire finance industry in the global financial crisis, but they had no choice. But how can they credibly make arguments like this if there is a revolving door with the finance industry? There needs to be some evidence of unbiasedness if the Fed and SEC are to be the enforcers of the deal by which banks are regulated in exchange for this kind of bailout.
The article makes a good point, but it assumes that Bernanke will somehow exploit his former position. That might or might not be possible, depending on multiple variables. If the article is on to something, then Bernanke's role will most likely be lobbying and not risk analysis, etc.
The most prominent example or revolving door I've ever seen is Hennry Paulson. For some context, see Felix Salmon[2]. IMHO Paulson should be in prison.
- Bernanke has never worked in private industry before
- The Fed doesn't regulate hedge funds or HFT firms (Citadel has both)
They're hiring him because he's going to be amazing in front of new LPs when Griffin raises funds. How do you not give a global macro firm that employs Ben money?
OK: "Hi Ben, what are your views on rates?"
Still OK: "Hi Ben, John Smith is in your old seat, what do you think of him, what does it imply for our strategy?"
Less OK (I think, still legal in FICC although not in equities): "Hi Ben, mind giving John a call before his morning press meet to check what he's going to say" [1]
Really bad (if somewhat unlikely): "Hi Ben, John's going to be more bullish than expected, but we have a fairly large short on; mind having lunch with him this week before the next meeting and try change his mind?"
The Carlyle Group (headquartered in Washington, unlike, at the time, most of the industry) is probably the most famous for hiring fresh-off-the-administration politicians [2], and being "lucky" with portfolio companies and defence contracts. Disclaimer: I'm of course not implying they are related in any way; could just be that their better insider knowledge allowed them to present a more appropriate offer in those cases.
Yellen has worked at the Fed forever and knows how to speak to private citizens. She's not going to leak her press conference material because her old boss called her up.
Your two links are 1) Outright insider trading 2) An unrelated example where perhaps you do want to look at revolving door rules.
That's not what I meant (e.g. Bernanke influencing Yellen), I guess I was not clear enough or the subtleties were lost in translation. The examples are simple, obvious cases of the more subtle fears one could have about public officials moving to the private sector. Influence is not by phone calls asking for things (unless you are really stupid, as Rajaratnam's circle seemed to be) but by cautious alignment of interests and game theoretic considerations (a la House of Cards). You don't ask the CFO how his company is doing; you have someone in your team take him for frequent drinks and lunches and to clubs and get to know him well, and then wait for "mosaic" pieces when he's had too much to drink...
As a more subtle example, some Austrian economists argue (and I can't remember the books off the top of my head) that Keynes' policies were influenced by what politicians and the academic elite of his era wanted to hear; this allegedly enabled Keynes to become the first "superstar" economist with significant personal advantages, in exchange for providing backing for policies that classical economists would not want to touch. (Others might argue that Keynes, as an all-but-by-name Fabian, was thus inclined in the first place and didn't need prompting.)
This is the real risk: when the interests of people close to government start influencing government actions, not necessarily outright or implicitly, but with the same effect on the stakeholders (the governed).
Without wanting to step into a hornet's nest, a more obvious recent example is the way the interests of Mr. Cheney aligned so nicely with the case for war in the Middle East a decade ago. Some argue that, even if the war was justified, the lack of any kind of open bidding process for contracting during the period would be concerning as regards the judicious use of taxpayer money.
From my relatively few and junior years in the global macro space, I didn't get a feel that Bernanke would be a particularly egregious case of this; he struck me as an honest man and competent academic (even if I'm not a fan of his policies); as for what it's worth, seemed Trichet. But it's a discussion worth having because not every departing civil servant is motivated by academic immortality or policy legacy.
Well, I never had a particularly brilliant P&L and eventually left the industry, so maybe my opinion is not worth much.
The Fed has in recent years done a lot (billions of dollars) of buying that helped hedge funds, beginning with the bailout of Long-Term Capital Management and continuing through the quantitative easing.
This doesn't imply a conspiracy, but it is definitely a revolving door.
LTCM was bailed out by the banks, not the Fed or anyone else in Government. LTCMs LPs got wiped out. The bailout was to contain systemic risks to the rest of Wall Street.
QE is actually more like trillions of dollars.
A revolving door is frowned upon when one party benefits directly to the deteriment of competitors. Citadel can't really get special favors from the Fed as there's little the Fed could even do if they wanted to benefit Citadel over other hedge funds
Honestly, Citadel is getting exactly what they deserve: Ben Bernanke missed the biggest economic event in three generations, despite having all the resources of the Federal Reserve. If they think they're tapping into his rolodex, do they think that everyone at the SEC or Fed has somehow missed this point?
And the funny part is that he's probably being paid handsomely for that talent.
Realistically that was Greenspan, Bernanke was in the fed chairman role for less than two years before SHTF. Greenspan exited at the very height of the bubble just as things were starting to roll over. By the time he was Chairman there was pretty much bugger all he could have done to stop things falling apart, you don't build up a system so chronically imbalanced like that and have it unwind safely.
While Greenspan certainly did his part to inflate the housing bubble, he had little to do with the incredible slowness that Bernanke had recognizing the problem. For example:
Okay, so let's actually tackle the problem here: what sort of jobs should people who have a high understanding of $technicalfield and policy making be allowed to hold?
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[ 3.3 ms ] story [ 78.0 ms ] threadI don't see the corruption angle here. Can you point to specific actions Bernanke took as Fed Chairman that you think he is now being paid for?
The Fed "regulates" (I use the word loosely) interest rates. Lots of trading (by hedge funds and others) depends on expectations about future monetary policy. _Maybe_ the former Fed chairman would have insights about that?
Given that his title is "adviser", I struggle to believe they hired him for any other reason. That term seems to come up again and again when people leave capital hill for the private sector to land cushy jobs where they get paid to take their friends out to dinner.
Given that his title is "adviser", I struggle to believe they hired him for any other reason. That term seems to come up again and again when people leave capital hill for the private sector to land cushy jobs where they get paid to take their friends out to dinner.
I presume the in-article title has been changed since?
The Fed and mainstream economists argued that they really didn't want to bail out the entire finance industry in the global financial crisis, but they had no choice. But how can they credibly make arguments like this if there is a revolving door with the finance industry? There needs to be some evidence of unbiasedness if the Fed and SEC are to be the enforcers of the deal by which banks are regulated in exchange for this kind of bailout.
The most prominent example or revolving door I've ever seen is Hennry Paulson. For some context, see Felix Salmon[2]. IMHO Paulson should be in prison.
[2] http://economistsview.typepad.com/economistsview/2009/10/how...
- Bernanke has never worked in private industry before
- The Fed doesn't regulate hedge funds or HFT firms (Citadel has both)
They're hiring him because he's going to be amazing in front of new LPs when Griffin raises funds. How do you not give a global macro firm that employs Ben money?
Not everything is a conspiracy.
The Carlyle Group (headquartered in Washington, unlike, at the time, most of the industry) is probably the most famous for hiring fresh-off-the-administration politicians [2], and being "lucky" with portfolio companies and defence contracts. Disclaimer: I'm of course not implying they are related in any way; could just be that their better insider knowledge allowed them to present a more appropriate offer in those cases.
[1] http://www.theguardian.com/business/2012/jan/04/switzerland-...
[2] http://www.amazon.com/Iron-Triangle-Inside-Secret-Carlyle/dp... - although the book obviously has an agenda.
Your two links are 1) Outright insider trading 2) An unrelated example where perhaps you do want to look at revolving door rules.
As a more subtle example, some Austrian economists argue (and I can't remember the books off the top of my head) that Keynes' policies were influenced by what politicians and the academic elite of his era wanted to hear; this allegedly enabled Keynes to become the first "superstar" economist with significant personal advantages, in exchange for providing backing for policies that classical economists would not want to touch. (Others might argue that Keynes, as an all-but-by-name Fabian, was thus inclined in the first place and didn't need prompting.)
This is the real risk: when the interests of people close to government start influencing government actions, not necessarily outright or implicitly, but with the same effect on the stakeholders (the governed).
Without wanting to step into a hornet's nest, a more obvious recent example is the way the interests of Mr. Cheney aligned so nicely with the case for war in the Middle East a decade ago. Some argue that, even if the war was justified, the lack of any kind of open bidding process for contracting during the period would be concerning as regards the judicious use of taxpayer money.
From my relatively few and junior years in the global macro space, I didn't get a feel that Bernanke would be a particularly egregious case of this; he struck me as an honest man and competent academic (even if I'm not a fan of his policies); as for what it's worth, seemed Trichet. But it's a discussion worth having because not every departing civil servant is motivated by academic immortality or policy legacy.
Well, I never had a particularly brilliant P&L and eventually left the industry, so maybe my opinion is not worth much.
This doesn't imply a conspiracy, but it is definitely a revolving door.
QE is actually more like trillions of dollars.
A revolving door is frowned upon when one party benefits directly to the deteriment of competitors. Citadel can't really get special favors from the Fed as there's little the Fed could even do if they wanted to benefit Citadel over other hedge funds
And the funny part is that he's probably being paid handsomely for that talent.
Bernanke: There's No Housing Bubble to Go Bust (2005) http://www.washingtonpost.com/wp-dyn/content/article/2005/10...
(2007 Testimony) "At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained." http://www.federalreserve.gov/newsevents/testimony/bernanke2...
I clicked this link bait assuming he was leaving the Brookings Institution.