In July 2012, Andrew Williams, a former spokesman for U.S. Treasury Secretary Timothy Geithner, announced plans to head over to Goldman Sachs at the end of that month.[1] Williams was the second of the Secretary’s spokesmen to head to theWall Street bank. Such moves may reflect a standing policy at the bank to have a revolving door. The previous U.S. Treasury Secretary, Henry Paulson, had been the CEO at Goldman. This suggests that the revolving door was to include populating high offices in government, presumably not out of a sense of civic duty, but, rather, to see that Goldman's interests would be protected and even promoted through public policy. Hence President Obama was said to have had a Wall Street government with respect to positions bearing on Wall Street. I submit that deconstructing such a revolving door would be very difficult.
From the standpoint of a government official being hired by Goldman, the prospect of becoming wealthy is a large incentive to make the jump. Such an official would typically have scruples about using his contacts in government to pull strings for the bank. Mired in scandal following the financial crisis of 2008, Goldman’s leadership no doubt understood the value in hiring good PR men. Such hires could even put a good face on the cozy relationship between the bank and people still in government.
The “revolving door” dynamic is also difficult to break up because it contributes toward the capture of regulators by the regulated. This is known as regulatory capture. The regulated companies supply information that regulators need in order to devise regulations; the companies can use this reliance to their advantage even just in providing tainted, self-serving data. Moreover, the revolving door can make it easier for the managements of the regulated companies to get even high government officials to put political pressure on the regulatory agencies to go soft on regulating. In the case of Goldman Sachs, it is reasonable to expect that Henry Paulson would have bent to the bank's request for lax regulatory oversight from the SEC, which of course had no idea how many subprime-mortgage-derivative bonds Wall Street had been producing and selling up to the financial crisis of 2008.
The SEC can be soft on Wall Street and point to insufficient staffing as the reason, while the reality is far more sordid in terms of the relationship between the regulators and the powerful regulated.
Legislated restrictions on former government financial officials going to Wall Street banks could of course be circumvented, given the incentives described above, though prohibiting employment (or financial enrichment, such as by consulting) in the industries related to an official's area for many years seems possible. Even if Goldman Sachs could not hire away Treasury or SEC offiicals, the bank could still count on ex-Goldman folks who occupy key offices in the U.S. Government.
Generally speaking, the financial and related political power of such huge aggregations of wealth such as a Wall Street bank has (and is) naturally overpower weak governments, by which I mean governments that depend on or do not have the will to resist the allure of money (or threats) from entities subject to the government. A government whose elected officials must rely on large sums of donated money just to get reelected is ripe for succumbing to corporate offers with strings attached. A strong government is insulated, whether by law, will, or power generally from such strings. A government that has many points of access (of influence) is likely to be weak in not only rebuffing pressure to reduce taxes and spend more, but also standing up to large corporations. A government in a pro-business society is likely to be weak with respect to the power of business, other things equal. Even more significant than these variables, however, is the tenuous basis of representative democracy amid Wall Street bewindowed towers.
1. Bonnie Kavoussi, “Andrew Williams, Ex-Treasury Spokesman,Headed to Goldman Sachs,” The Huffington Post, July 12, 2012.
