Revolving Door

Cohete Rojo · Apr 9, 2013

William Cohen claims that former federal government managers (specifically Mary Schapiro) are using their time in government management positions to leverage up positions in the private sector. Why should she not use her government management experience to snatch a private sector job?

William Cohan said:

Mary Schapiro, the former chairman of the Securities and Exchange Commission, must take us for fools.

No need to worry about her and the so-called revolving door between government and Wall Street, she told the Wall Street Journal on April 2, after announcing she would be joining the Promontory Financial Group LLC as a managing director in its Washington office, in charge of its governance and markets practice. “In my case, there’s no revolving door,” she said. “I won’t ever be going back to government.”

Oh well, then, I guess that makes it OK that four months after leaving the SEC, Schapiro is joining a firm stuffed to the gills with former government financial-services regulators peddling their knowledge of Washington’s regulatory thicket to the banks and financial-services companies they once oversaw. (Schapiro, remember, also had a swell incoming trip through the revolving door: She previously ran the Financial Industry Regulatory Authority, Wall Street’s self-appointed watchdog, which paid her a bonus of almost $9 million after she left to go to the SEC in 2009.)

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What the company does is allow someone to hand over, say, $1 million, which is then broken up for him into four $250,000 pieces and farmed out to separate financial institutions so that, voila, each $250,000 is FDIC-insured. The depositor notices no difference on a daily basis -- he can still get his money whenever he wants, unless the money is in a savings account, where access is limited to six times a month -- but, like magic, $1 million is federally insured instead of just $250,000.

Nassim Nicholas Taleb, the best-selling author of the “Black Swan,” describes in his latest book, “Antifragile,” how he ran into Blinder at the World Economic Forum in Davos, Switzerland, one year and thought he was going to engage the former Fed vice chairman on ideas about how to save the financial system. Instead, Blinder tried to sell him on Insured Cash Sweep. It quickly dawned on Taleb what Blinder was up to.

“It would allow the super-rich to scam taxpayers by getting free government sponsored insurance,” Taleb wrote. “Yes, scam taxpayers. Legally. With the help of former civil servants who have an insider edge.”

“Isn’t this unethical?” Taleb asked Blinder.

According to Taleb, Blinder told him, “It is perfectly legal,” adding that, “we have plenty of former regulators on the staff.”

Taleb felt this implied “that what was legal was ethical and asserting that former regulators have an edge over citizens.” Taleb calls it the Alan Blinder Syndrome: “A model of how people use public office to, at some point, legally profit from the public.”

http://www.bloomberg.com/news/2013-04-07/where-bank-regulators-go-to-get-rich.html
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Is Cohan right for calling her out? Is Taleb right for this little bit? How to deal with this.

Taleb told me the other day that he views Schapiro’s move to Promontory -- and to a seat on the board of General Electric Co. -- no differently. “I find Mary Schapiro morally repulsive,” he said, because there is an “implicit deal” whereby regulators such as Schapiro and Blinder (and many others) “make regulations complex” and then “sell their services at a higher price when they go to the private sector.”
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Dairy Ashford · Apr 10, 2013

They can manipulate the legislative and administrative process, and call in favors that have nothing to do with the legitimacy of their advocated position: just give them an advance on their pension to not do it for ten years.

dback816 · Apr 10, 2013

Clearly just a man upset that a woman is getting paid big money at a high profile position.

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Revolving Door

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