It has been called “corrupt,” “corrosive” and “hazardous to our health.” Yet, Washington’s revolving door spins on.
Countless prosecutors, regulators and congressional aides continue to enter the metaphoric portal that shuttles government officials to the private sector and back again. The officials swap their government résumés for seven-figure salaries at law firms and lobbying shops, making it a way of life in Washington and on Wall Street.
Free-market ideals dictate that all this job-hopping is perfectly legal, if not desirable. Why shouldn’t relatively low-paid government employees trade their knowledge for better incomes, and perhaps better lives, in the private sector?
While they may be entitled to do so, the fear remains that the revolving door fosters a clubby culture in Washington, where regulators and prosecutors might tread lightly on banks to bolster job prospects. When these officials secure private sector jobs, critics fret, they also might exert undue influence on former colleagues and friends who remain in the government.
The problem runs both ways. The public is similarly skeptical of Wall Street lawyers joining regulatory agencies like the Securities and Exchange Commission, fearing that the lawyers never truly cut their industry ties.
To address those concerns, watchdog groups, former government officials and even the White House are pushing policies that might better protect the public interest. The Obama administration took the first steps, increasing the restrictions on presidential appointees.
Now, groups like Public Citizen and the Project on Government Oversight are thinking bigger, advocating novel, if long-shot, ideas to narrow the revolving door. Raise the annual salary of government officials to $400,000. Require agencies to post a webcast of their meetings with industry lobbyists. Lengthen the one-year cooling-off period during which some lawyers and lobbyists are barred from having official contact with their former government employers.
And then there is Sheila C. Bair’s idea: a lifetime ban on former regulators’ working for institutions they once policed. A former banking regulator who shunned the revolving door herself, Ms. Bair said such a ban could erase any incentive regulators have to curry favor with Wall Street.
“It would change the regulatory mind-set,” Ms. Bair, the former head of the Federal Deposit Insurance Corporation and now a senior adviser to the Pew Charitable Trusts, said in an interview.
Already, lawyers face the cooling-off period and a permanent ban on defending cases they helped prosecute. Too many rules, critics concede, would stymie the government from attracting top talent.
Ms. Bair’s goal is not to eliminate the revolving door. Even so, her idea could obstruct the career paths of many S.E.C. lawyers. The last six S.E.C. enforcement chiefs have moved on to top corporate firms and big banks like JPMorgan Chase and Bank of America. Robert S. Khuzami, a former federal terrorism prosecutor who overhauled the agency’s enforcement program after the financial crisis, recently landed a lucrative partnership at Kirkland & Ellis.
In an interview, Mr. Khuzami noted that many of the S.E.C.’s rank and file were “career” government employees. The average tenure of departing S.E.C. employees has jumped in recent years to 13.5 years in the 2010 fiscal year from 8.3 years in the 2006 fiscal year, according to a recent Government Accountability Office study.
Of course, there is another school of thought contending that the revolving door makes government tougher on Wall Street. Anyone required to shine a light on the darkest corners of the financial industry, the theory goes, must know where to look.
When the S.E.C. missed signs of the financial crisis, the agency acknowledged that it lacked the private sector expertise necessary to ferret out wrongdoing. The argument echoes statements that President Franklin D. Roosevelt supposedly picked the financier Joseph P. Kennedy as the first S.E.C. chairman because Kennedy “knew where the bodies were buried.”
Mr. Khuzami, who was a senior lawyer at Deutsche Bank before joining the S.E.C., has adopted a similar philosophy. He says he understands concerns about the revolving door, but he disputes that it compromises investigations. Before the enforcement unit can file a case, it comes under review by S.E.C. commissioners, other agency divisions and dozens of investigators.
“At the S.E.C., no one person can inappropriately put their thumb on the scale,” Mr. Khuzami said.
Studies are split on the subject. S.E.C. officials point to a study last year by a group of accounting specialists that found that the revolving door toughened enforcement results. Contrary to popular belief, the study said, S.E.C. lawyers enforce a hard line at the agency partly to showcase their legal prowess to prospective employers.
The report also found “no evidence” that law firms with large contingents of S.E.C. alumni “are able to exercise influence over ongoing enforcement efforts.”
The Project on Government Oversight, however, asserted in a study this year that former S.E.C. officials had secured favorable results from the agency. To underscore its concerns, the study cited the S.E.C.’s scuttled money market regulations and instances when the agency softened the blow of enforcement actions against JPMorgan Chase and UBS.
One remedy, according to the project, is transparency. The group wants the S.E.C. to post a webcast of all meetings with lawyers and lobbyists. Alternatively, the group says, the agency should provide a detailed online summary of the gathering.
The group is also urging regulators to provide online access to ethics records. S.E.C. alumni must file paperwork when they appear before the agency within two years of departing, but those records are available only through a Freedom of Information Act request.
“If the S.E.C. is already going to the trouble of collecting these records, why not just post them online?” said Michael Smallberg, an investigator for the group. “Transparency is just a basic way to root out conflicts of interest.”
But it is not the only way. Mr. Smallberg and others suggest tightening rules that are prone to loopholes.
A one-year “cooling off” period that affects the S.E.C. as well as other agencies and Congress is a natural place to start. A 1989 law prevents some onetime congressional aides from lobbying their former employers within one year of working on the Hill. The S.E.C. and other federal agencies have adopted similar bans, and even toughened them.
But they typically apply only to senior officials, or those who earn more than $155,000 a year. The ban, watchdogs say, should apply to all government employees, not just senior ones. They are also calling for a ban of two years.
The White House has imposed restrictions of its own. On President Obama’s first day in office, he published an executive order barring all presidential appointees from lobbying his administration after leaving it, effectively imposing an eight-year ban on the leaders of the S.E.C., F.D.I.C. and other regulatory agencies. The appointees, for their first two years in office, must also recuse themselves from any matter “directly and substantially related” to any former client or employer.
While groups like Public Citizen cheered that order, they fear it will expire when Mr. Obama leaves office in January 2017. With about three years to go, Public Citizen is urging Congress to turn the order into law. “It’s had a phenomenal effect on the quality and integrity of the government,” said Craig Holman, a government affairs lobbyist for Public Citizen whose report “A Matter of Trust” laid the groundwork for the executive order.
Watchdog groups also contend that bigger government salaries might make the revolving door less appealing. Some suggest that the roughly $100,000 government salary should climb to half a million dollars. Ms. Bair said she supported most senior bank examiners’ making about $400,000.
Her other idea, a lifetime ban on former officials’ working for companies they once regulated, is perhaps even bolder. Such a plan is not without precedent, though, and has inspired comparisons to the Foreign Service program at the State Department, which deploys career diplomats.
The measure Ms. Bair floated could allay concerns that regulators are “all in the pocket” of the banks, she said. It also might remove the “upside down” incentive for regulators to keep Wall Street happy.
“You want them going into the banks with a clear head,” she said.