Big Banks and hedge funds usually have a cozy relationship with government regulators; a situation that Congress supports and the media seldom reveals to the public.
The term for this is “regulatory capture” and each actor has a role to play.
We begin our story with an article last week in the business section of the Boston Globe that was written by a journalist with the Associated Press. The article informed readers that Mary Jo White, the president’s nominee to be chairman of the Securities and Exchange Commission (which regulates stocks and bonds and the companies that trade them) is a former federal prosecutor. During her confirmation hearing before the Senate Banking Committee, she said “Strong enforcement is … essential to the integrity of our financial markets.” The article concluded that the president’s nomination of a former prosecutor sent “a signal that he wants the government to get tougher with Wall Street.”
However, readers of Truthout, a much smaller group of Americans, discovered that Mary Jo White left government more than ten years ago to join a Wall Street law firm and represent clients such as JPMorgan Chase, UBS, General Electric, and a former Goldman Sachs board member who is appealing an insider trading conviction. Her role at the firm was to “concentrate on internal investigations and defense of companies and individuals accused by the government of involvement in white collar corporate crime or Securities and Exchange Commission and civil securities law violations.”
While serving as SEC Chairperson, she will be receiving $42,000 a month in retirement pay from her former firm, Debevoise and Plimpton LLP, which pays partner retirement benefits out of its current operating income – i.e. fees from large banks and corporations.
The Senate Banking Committee did not find this apparent conflict of interest troubling. In fact, the Washington Post noted that no senator voiced opposition and some of the time was spent discussing Ms. White’s active recreational habits such as riding motorcycles.
After exchanging pleasantries with Ms. White, the Republicans on the Banking Committee spent the rest of the day attacking Richard Cordray, who the president re-nominated to head the Consumer Financial Protection Bureau. These ever aggressive defenders of big corporations and big banks denounced the Bureau and said they would filibuster Mr. Cordray’s nomination.
I believe this situation presents a good case study of regulatory capture in action. The less obvious, but still important things to note are:
(1) even Democratic liberals on the committee – including Sherrod Brown of Ohio, Jack Reed of Rhode Island, Robert Menendez of New Jersey, and Charles Schumer of New York – were not willing to challenge the president’s nominee or Wall Street influence, and
(2) voters who read only the Associated Press account of the hearing would have no idea of the compromised politics involved in the nomination.
I believe that regulatory capture, which happens everywhere in Washington, can only be prevented by interventions carried out by a political movement that pressures Democrats and demands media attention. We can not wait for them to stand up to Wall Street and big business.