Washington’s revolving door prone to test loyalties

The “revolving door” – Washington-speak for individuals moving in and out of the private sector and government service – wasn’t seen as a bad thing when I started working in the Senate 40 years ago. Business experience was often useful if you were going to run a large government agency. Knowing how government worked helped in many private sector jobs.

In the years since, that revolving door has too often evolved into something a lot less innocent. Too many people revolve back and forth from a firm or industry into a government job in which they can aid that industry or firm. I remember years ago looking into why the government was having so much trouble implementing a seat-belt regulation. We finally traced the problem to a mid-level Transportation Department employee who had left Detroit, spent four years in Washington holding up any attempts to regulate the belts, and then went back to a better job in Detroit.

The financial meltdown of 2008-2009 brought the revolving door problem into sharp focus. Too many of the important government decision-makers who were from Wall Street turned a blind eye to the storm that was developing, and then returned to high paying jobs after the debacle.

Sadly, we don’t seem to have learned much from that experience. This was all brought home to me in the confirmation process of Jack Lew to be secretary at the Treasury Department. I don’t know Lew personally, but everyone I know who does thinks highly of him. In many ways he has been the shining example of the good revolving door. Since returning to the Obama administration from Wall Street he has served with distinction as deputy secretary of state, director of the Office of Management and Budget, and chief of staff to the president.

So what’s my problem? I just don’t think a Treasury secretary should come into office with the obvious conflict-of-interest baggage Lew would be carrying.

When he left government service in 2006, he went to work for Citigroup. His employment contract included the following clause: “Your guaranteed incentive and retention award will not be paid if, before the date of scheduled payment, you have voluntarily terminated your employment (other than “Good Reason” or, to the extent specified below, as a result of your acceptance of a full-time high level position with the United States government or regulatory body).

In plain English, the contract with Citigroup, definitely a profit-driven entity, leaves open the possibility that Lew might help the company as a government employee. Do I think Jack Lew will consciously do so? No. But the obvious conflict of interest is especially troubling given Citigroup’s past history.

Sandy Weill, the head of Citigroup back in the 1990s, was an ambitious man. He wanted to be the worldwide leader in financial services. But the Glass Steagall Act of 1933 stood in his way. First, he got the Federal Reserve to bless the merger of Traveler’s Insurance with Citibank, although Glass Steagall clearly should have prevented it. But he also wanted to add investment banking to the company’s portfolio.

Glass Steagall stood in the way. The lobbying was intense, and to many peoples’ surprise, the Bill Clinton’s Democratic administration led by Treasury Secretary Robert Rubin came out in support of repeal, which happened in 1999.

Rubin, a former chairman of Goldman Sachs, left the Treasury Department in 2000 and became vice chairman of Citigroup, where he is reported to have made over $100 million in the next few years.

Whenever the potential for conflict of interest comes up in Washington, the voices of those who worry about it seemed to be drowned out by cries of: “But he or she is an honorable person.” Sure, but appearances do matter. I believe Robert Rubin is an honorable man, but the questions about conflict of interest will haunt him forever. Worse, they unavoidably taint decisions he made that affected all of our lives. When there are other qualified candidates for an office, why choose someone whose motives are bound to be questioned?

Having Jack Lew as secretary of the Treasury will cast a cloud over every Obama administration decision affecting Wall Street. It’s time to take conflict of interest seriously and do a better job of separating the good revolving door appointments from that bad ones.

It’s just a sidebar to the main subject of this column, but I can’t resist quoting a chastened Weill in 2012, in support of re-enacting Glass Steagall: “What we should probably do is go and split up investment banking from banking, have banks be deposit takers, have banks make commercial loans and real estate loans, have banks do something that’s not going to risk the taxpayer dollars, that’s not too big to fail.”

Amen. But way too late.

Originally published 2 March 2013 on delawareonline.com