The Jon Corzine MF Global case looks pretty cut and dried. Corzine, who has resigned as chairman and CEO of the firm, presided over the company when they went bankrupt and as they used reportedly hundreds of millions in customer funds to make bets on their own account, in violation of federal statutes. He has liability over all this, and he has already lawyered up.
There’s one problem: one of the leading regulators looking into the situation at MF Global is one of his good friends, Gary Gensler:
Less than a year ago, federal markets regulator Gary Gensler could reflect fondly on his association with Wall Street mogul and former politician Jon S. Corzine.
The two had known each other for years, working together at Goldman Sachs and then in Congress, where Corzine was a senator and Gensler was a Senate aide. Invited by Corzine last November to speak at Princeton University about financial regulation, Gensler reminisced about their days crafting legislation and got in a friendly jab about Corzine’s upcoming wedding.
“Jon, your life has changed a lot since our days together on a trading floor if this is your idea of a bachelor party,” Gensler said.
Now, the relationship has taken on an entirely different cast. Gensler, as chief of the Commodity Futures Trading Commission (CFTC), is one of the key regulators probing the brokerage firm MF Global that Corzine led into bankruptcy.
Gensler has been a pleasant surprise at CFTC, and I’m not alleging any favoritism here. The problem lies in the appearance of impropriety. Goldman alums are littered throughout the government, and eventually they come into contact with each other. In Gensler’s case one of the series of firms that he has to regulate on a daily basis is Goldman’s commodities division. It’s part of the insidious revolving door that inevitably leads to a breakdown in accountability. Gensler could recuse himself, in this case, but for him and dozens of other regulators plucked out of the industries they are supposed to regulate, the lines are too fine and the conflicts of interest too apparent.
Another good example is Nancy Pelosi spokesman Brendan Daly joining up with an anti-health care PR effort:
Brendan Daly left his job as Pelosi’s communications director in December and took a job as executive vice president and national director for public affairs at Ogilvy Washington, where he’s now representing a group called the Essential Health Benefits Coalition.
Daly says he hasn’t switched sides. The Essential Health Benefits Coalition, he says, is simply trying to make the law more affordable — which is critical to making sure the law is a success.
But the group’s members include a veritable who’s who of reform-law opponents:
• The National Federation of Independent Businesses, a named plaintiff in one of the four challenges to the health care reform law pending before the Supreme Court
• America’s Health Insurance Plans, which spent more than $86 million to fight the overhaul in 2009
• And the U.S. Chamber of Commerce, which got the $86 million from the health insurers and used it to pay for ads and other activities to oppose the overhaul, according to a Bloomberg report.
At the heart of this is the fact that Congressional staffers and government regulators aren’t paid nearly as much as their private-sector counterparts. Conservatives don’t want to admit this, but it’s true. The federal pay gap is actually widening. So when a firm goes to a Congressional staffer and tells them they can make lots more money putting their contacts to work at a lobby shop or PR firm, it’s nearly impossible for them to say no. And the culture of corruption widens.