From Public Service to Lobbyist—The Revolving Door Is on Auto Pilot

From Public Service to Lobbyist—The Revolving Door Is on Auto Pilot


Our political debate between the two parties often boils down to whether citizens benefit from government actions. But one group of people always make out handsomely. In his book The Payoff, former lobbyist and Senate chief of staff Jeff Connaughton called them “The Blob,” the army of hangers-on and glad-handers who rotate between government and industry, getting rich off their past associations and trading on their influence and relationships, sometimes in particularly corrupt fashion.

This shadow sector of government has grown more bloated than ever, and if ever an issue existed where Democrats and Republicans could come together to eliminate administrative waste, this is it. Just take a look at some examples from the past couple weeks.

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As The Fiscal Times’ Rob Garver reported, Republican commissioner on the Commodity Futures and Trading Commission (CFTC) Scott O’Malia announced his departure to become the head of the International Swaps and Derivatives Association, the key trade group for the industry that the CFTC regulates. In fact, the group is in the midst of suing the CFTC over rules governing the trade of derivatives by U.S. companies that originate overseas.

Stymied from influencing the cross-border rules while in the minority on the commission, O’Malia may have a better shot shaping them as a lobbyist. And he’ll certainly be rewarded for his anti-regulatory posture while at CFTC, while being able to inform the derivatives industry of all sorts of inside information gleaned from his time in Washington.

We see this kind of “revolving door” activity all the time: the Federal Communication Commission chairman and chief cable industry lobbyist have basically switched places, for example. But there are more insidious examples. Look at Keith Alexander, who recently stepped down as head of the National Security Agency. He’s now consulting for the Securities Industry and Financial Markets Association, or Sifma, earning a tidy $600,000 a month.

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What’s the connection between government surveillance and the financial industry? Apparently, Sifma wants to merge the two giants to fight cyberattacks, creating a public-private “war council” of eight federal agencies allied with the biggest banks, to prevent the consequences of computer-based intrusions. As Marcy Wheeler notes, Alexander, with his knowledge of classified information, has apparently leaked enough of it to strike fear into the financial industry about debilitating attacks, so they’ll pay him a giant retainer to facilitate this cyber war council, designed to protect banks more than their customers.

For this project, Alexander brought in another ex-government moocher, Michael Chertoff, the former head of the Department of Homeland Security, who then started a company (The Chertoff Group) that sells all kinds of equipment to his old agency, including the TSA “Rapiscan” machines millions of travelers encounter in airport security lines every day. Chertoff’s post-DHS career has consisted mostly of profiting immensely off the fear of future terrorist attack; Alexander has clearly learned at his feet.

Then there are the associates whose main talent is their proximity to political figures. This week, Sylvia Matthews Burwell, the Secretary of Health and Human Services, appointed her old boss at Walmart, Leslie Dach, as her senior counselor. While in government, Dach will undoubtedly acquire skills to enhance his return back to the industry. That’s how it has worked for Howard Glaser. 

A phenomenal story at Pro Publica last week exposed Glaser’s profiting off his relationship with New York Governor Andrew Cuomo. When Cuomo served as state Attorney General, he hired Glaser as a consultant on mortgage industry investigations, which had heated up with the collapse of the housing bubble and the realization that Wall Street built their fortunes on a mountain of fraud. 

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At that time, Glaser also worked for the industry as a lobbyist. In fact, one of Glaser’s chief clients, Clayton Holdings – which had a wealth of information about the banks’ dirty dealings in putting together mortgage-backed securities – received immunity from Cuomo in exchange for information, which Cuomo ignored. Glaser even held conference calls with mortgage industry leaders, informing them about Cuomo’s investigations.

Glaser went on to become director of operations when Cuomo was elected governor, and this year he left to become – you guessed it – an executive at a company that lobbies officials in the state.

This is all separate, incidentally, from revelations this week about Cuomo’s abrupt closing of a commission dedicated to rooting out government corruption in New York, and in particular shutting down investigations of firms he did business with.

Others start the door revolving before walking through it. As former Florida Governor Jeb Bush tours the country, taking the temperature of the electorate and key donors for a potential Presidential campaign in 2016, he also created a private equity firm for the oil and gas industry called Britton Hill Holdings. So as he shakes hands with wealthy Republicans interested in his political future, he’s also raising funds for his investment company. 

Bush has ties to the failed investment bank Lehman Brothers and Barclays Bank, and sits on the board of Tenet Healthcare (the government/industry nexus on corporate boards is a whole other story). Those firms paid Bush as much for his potential to return to policymaking as anything else.

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Finally, I invite you to learn about Joseph A. Smith, the former banking regulator for North Carolina. Smith was nominated briefly in 2010 to run the Federal Housing Finance Agency, but never confirmed. However, he hit the jackpot when he was named as the oversight monitor for the National Mortgage Settlement, the $25 billion agreement between state and federal regulators and the five largest mortgage servicers to end investigations into misconduct. Smith has now spun this out into an entire business called Joseph A. Smith Monitoring, specializing in “overseeing complex financial services settlements,” per the website.

Given the Justice Department’s preference for settlements over criminal prosecutions, Smith should expect to be busy. He was already named the monitor for a settlement with JPMorgan Chase, which he revealed this week has led to a whopping 100 cases of consumer aid in its first nine months. He’ll probably earn the same title overseeing a similar settlement with Citigroup. So Smith Monitoring now has a thriving business, invented entirely from government activity. 

When conservatives rail against “crony capitalism,” this is what they’re talking about. Sadly, members of both sides of the political aisle practice this cash grab routinely. The divisions over inappropriate feeding at the government trough are not left versus right but insider versus outsider. But a little attention to just how unseemly it all looks may go some distance to putting an end to it. After all, we are occasionally still a representative democracy, and we don’t have to accept The Blob as an unfortunate by-product of how Washington works.

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