When there’s little or no separation between financial regulators and Wall St., it’s no wonder that trust in the government is at an all time low. The latest evidence of the cozy relationship between the federal Securities and Exchange Commission (SEC) and the Wall St. firms it regulates came late last week, when Andrew “Buddy” Donohue, an executive with Goldman Sachs Group’s asset management unit, was appointed as the chief of staff to SEC Chair Mary Jo White.
There’s no doubt that experience working with the nation’s top market regulator yields rich dividends for staffers who move onto (or back to) private industry through the revolving door. The Project on Government Oversight (POGO), in a report entitled Dangerous Liaisons: Revolving Door at the SEC Creates Risk of Regulatory Capture, provides details about this co-dependent relationship.
Regulations require that former SEC employees (alumni) must notify the SEC when they plan to represent a client or employer on a matter during the first two years after leaving the agency. Between 2001-2010, which encompassed the real estate bubble, the financial crisis and the beginning of the recovery, 419 SEC alumni filed 1,949 disclosure statements. There’s no way to know how many alumni would were outside of the two-year window appeared and on how many matters.
Let’s be honest, these former employees aren’t appearing on behalf of you and me, their job is to represent their employers or themselves, in ways that likely run counter to the interests of the American people. As POGO eloquently states, their mission is to “try to influence SEC rule making, counter the agency’s investigations of suspected wrongdoing, soften the blow of SEC enforcement actions, block shareholder proposals and win exemptions from federal law.”
This latest appointment is quite discouraging because Donohue is likely to be the most influential staffer at the agency, as his job is to assist the SEC Chairman. In a statement about the appointment, Better Markets, a nonprofit dedicated to promoting the public interest in financial reform, noted, “The SEC’s hiring of a Goldman Sachs executive to be the SEC Chair’s very powerful, very influential Chief of Staff is an affront to the tens of millions of American families who suffered through the 2008 financial crash and are still struggling to recovery today.”
What’s even more interesting is that this isn’t Donohue’s first experience at the SEC. He’s a revolving door veteran, having previously served as — wait for it — head of investment management regulation from 2006 to 2010. No, I’m not quoting from an Onion article. It’s beyond ridiculous that a senior official who presided over one of the worst regulatory failures in recent memory is not only back with the federal government, but is in an extremely influential position. Wanna bet he’ll be back on Wall St., in an even more influential position, in a few years?
So what’s to be done? Here are a few thoughts, mainly focused on Congressional and SEC actions:
- Enact tougher standards on the revolving door, which currently bars staffers from lobbying the agency for a year after leaving SEC employment
- Beef up the SEC budget so that the staff, where merited, can earn higher salaries and have more resources to do their jobs
- Promote transparency by posting post-employment disclosures online