Why did the Revolving Door Project work with more than 30 other organizations in May to urge Senate Democrats to choose strong public interest-minded candidates for open leadership positions allocated to Democrats at key financial agencies, including the Securities and Exchange Commission (SEC) and the Federal Deposit Insurance Corporation (FDIC)?
Because we have learned that when reformers and progressives do not recognize that "personnel is policy" and work to identify appropriate senior leaders for Independent Agencies, the consequences can be catastrophic.
In 2005, intra-Democratic caucus maneuvering led Annette Nazareth1 to overcome the odds and secure a Democratic Commissioner slot expected to go to James Cox, a Duke University law professor widely respected by reformers. Nazareth had spent seventeen years working on and for Wall Street at Lehman Brothers, Salomon Smith Barney, and white shoe corporate law firm Davis Polk before her jobs at the SEC.
In Nazareth's time at the SEC, she drew "criticism for her role in creating what some considered to be lax oversight of the banking industry," having "had responsibility for investment bank oversight" in the period leading up to the Financial Crisis.
In one telling example, while "head of market regulation, Nazareth reassured the" SEC that new rules sought to free up the investment banks to behave in a riskier manner would be fine.
As most readers know, Nazareth's predictions about the behavior of her former colleagues and future clients would prove wildly optimistic and extremely wrong.
Unsurprisingly, when Nazareth left the SEC after a decade at, she went on to spend her next decade back at Davis Polk, where she became a critic of the prospect of a consumer financial protection bureau (what became the CFPB). Nazareth told a former colleague still working for the SEC that "the prospect of a consumer finance protection agency made her 'feel ill' and that she'd asked SIFMA, the Wall Street trade group, to 'trash' a proposal for an investor advocacy office at the SEC."
Nazareth is not the only SEC Democratic designee with a revolving door past who has proven to be both weak on Wall Street and a deep disappointment to progressives. Few people have better demonstrated how the revolving door corrodes the federal government than Mary Jo White.
A lifelong registered independent, Mary Jo White's career has been spent a career oscillating between cushy corporate defense work and being appointed by Democrats to senior law enforcement jobs where she disappoints advocates of financial regulation and white collar criminal law enforcement.
Predictably, White's 2013–17 stint as Chair of the SEC was disastrous, leading to coverage such a Bloomberg Businessweek article titled, "The Agency That Barely Moves: The SEC is paralyzed by politics and poor leadership, staffers say."
That article included this notably pungent metaphor:
"The pace of rulemaking has been so slow that some staff have labeled White's office the cheese cellar: It's where policy goes to age. The nickname has stuck as proposals and reports have piled up in her office, waiting for her careful, often line-by-line consideration. White's circumspection has slowed the progress of high-profile rules governing executive pay, broker obligations, and swaps, the financial products that helped fuel the financial crisis."
White's wholly ineffectual regime gave rise to a flurry of unusual negative attention on "Beleaguered SEC Chair Mary Jo White," ranging from wonky voices such as Senator Elizabeth Warren delivered by letter and CREDO activists by a mobile billboard (seriously). A CREDO Action petition generated 116,403 signatures in favor of the proposition that it was "Time for Mary Jo White to go." There were many calls for reform by White during her ethically questionable stint at the SEC.
As David Dayen noted in February 2017, after a "tenure as chair of the Securities and Exchange Commission under President Obama [which] bitterly disappointed those who hoped she would aggressively enforce banking laws," White returned to "the corporate defense team at Debevoise & Plimpton, marking her sixth trip through the revolving door between various government jobs and the white-collar defense law firm she calls home."
White left government service having gained additional influence, but also having seemingly burned many bridges. Critics of White's tenure seemed to have won the day within the Democratic Party. Politico noted in July of 2016 that the 2016 Democratic Party platform seemed to incorporate the critiques of Mary Jo White offered by Senators Sherrod Brown and Elizabeth Warren.
And in the wake of Trump's surprise win fueled by calls to "drain the swamp" of Washington corruption, leading Democrats have promulgated what they call a "Better Deal." That document offers the party's vision for the future and seemingly constitutes a rejection of the revolving door recently personified by Democratic SEC appointees Annette Nazareth and Mary Jo White.
The Better Deal in part states that, "We must end the revolving-door in Washington and rein in the influence of high-powered Washington insiders, lobbyists and big-money donors — and the special interests that are driving Washington's agenda." That call for change is consistent with the vision of the Revolving Door Project and its allies set forth in the letter to Senate Democrats last month:
"Americans require nominees to these positions who have proven track records of commitment to the public interest and reform of the financial system. Such a record must include a demonstrated willingness to stand up to Wall Street or banking interests when that is necessary to protect investors, consumers, or borrowers."
With the lessons of Nazareth and White so recent, is it not surprising that "Unions, civil rights organizations and so-called netroots political activists" joined longtime regulatory policy watchdogs like the Consumer Federation of America and Americans for Financial Reform in signing onto this letter.
As I told Bloomberg, "In the not too distant past, only a handful of organizations or activists to the left of Robert Rubin paid any attention to financial regulators like the SEC and FDIC. Times have changed and going forward, progressives expect the Democratic party will only put forth aggressive regulators."
With a Democratic SEC nominee now overdue, we should be able to see sooner rather than later whether the Democrats "Better Deal" is actually a real deal.
1. Jeff Bliss, Jeff and Robert Schmidt. "Schumer, Overshadowed in New York, Gains Stature in Washington," Bloomberg, August 5, 2005.↩