The Washington/Wall St. Revolving Door

Outside my office this week, Occupy protesters with banners and drums relayed an important and palpable message: “Listen to Me.”
While I may not agree with or understand the specifics demands of the
Occupy movement, I empathize with the sentiment of wanting to be heard.  Yet as protesters shout, who in the government is listening to their fears and worries?

According to the most recent quarterly ChicagoBooth/KelloggSchoolFinancialTrustIndex, only 23% of surveyed individuals trust the country’s financial systems, down two percentage points from June.[1]  With trust in the U.S. economy dropping, an unemployment rate just under 10%, it’s no surprise that the Occupy Wall St. movement is garnering so much attention and support.

While Americans worry about jobs, retirement, and keeping their homes, the financial industry is being bolstered by the $700 billion TARP
bailout and posting record profits.[2]  It’s no wonder that many Americans question whether anyone in the government is concerned about the
challenges facing the average person. Although federal employees are subject to so-called revolving door laws which impose conflict of interest restrictions on a public employee’s future private employment, there remains concerns that the revolving doors of Washington and Wall St. continue to rotate for the benefit of the financial industry.

Time and time again, important policy makers in the government come and go between public service and big financial corporations, compensated with salaries and bonuses unimaginable to the average person.  In the 1990s, Treasury Secretary Rubin championed policies that would eliminate limitations on commercial and investment banking mergers.  Shortly
after, he left public service to work for Citigroup — a merger impossible before the policies he championed were enacted — for a compensation of over $15 million.  Like Rubin, other important government actors first worked for large financial businesses like GoldmanSachs including bailout architect and former Treasury Secretary Paulson, Paulson’s bailout chief Kashkari, and Commodity Futures Trading Commission Chairman

The so-called revolving doors laws place only limited restrictions on private-sector employment following public service.  You can learn more about the
revolving doors laws in a report put out by the Congressional Research Service entitled PostEmployment, “RevolvingDoor,” LawsforFederalPersonnel which explains that “[u]nder
federal conflict of interest law, at 18 U.S.C. § 207, federal employees in the
executive branch of government are restricted in performing certain
post-employment ‘representational’ activities for private parties.”

The revolving door issue inspires theoretical debate. One one hand, a government for the people runs best when the individuals within the government are not operating for the benefit of themselves and the industry from which they come.  On the other hand, a government runs best when the individuals within it have the knowledge and expertise to make smart decisions about a particular industry.  In this way, revolving door laws attempt to balance the need for independent judgment with the need for expertise.  But do the revolving door laws in this country  manage to weigh that balance for the benefit of the average American citizen?

[1] Paola Sapienza & Luigi Zingales, Chicago Booth/Kellog School Financial Trust Index Week 12  (Oct. 2011), (measuring trust in four areas: banks, the stock market, mutual funds and large corporations).

[2] See Susanna Andrews, The Woman Who Knew Too Much, Vanity Fair
(Nov. 2011), available at (profiling Senate candidate Elizabeth Warren and her history of advocacy for consumer rights in the financial industry).