Hacker News Reader

"Regulators and public officlas who spent years earning little pay and doing public service also want to monetize their experience and finally get a good paycheck after leaving office."

Do you really think any company is going to hire an honest, competent ex-regulator who has made a career of fining and frustrating their top executives - and possibly referring them to prosecutors? Or do you think they're more likely to hire that regulator's "friendlier" colleague who spent the same amount of time defusing and deflecting warranted regulatory actions in hopes that he'd be rewarded with a plum gig once he left the government?

Assuming they did hire the softie, can you see how they'd want everyone still working for the government what cushy well-paid gig the guy ended up with? And isn't that exactly what happens?

"Lots of examples of this in the bitcoin space lately.. e.g. Arthur Leavitt.. it's not just happening at goldman sachs)"

Well, yes, my point exactly. "Lots of people doing it means it's okay" is one view. Others would call the same pattern "evidence of entrenched systemic corruption." Indeed, the very fact that this is so widespread that's so problematic as that's what signals to our shadier "regulator" in the previous example that he will, in fact, be suitably rewarded if he plays ball.

"In this article, it sounds like a foolish (and possibly illegal) decision by a 29 year old former Fed guy,"

No, not "possibly illegal". Flagrantly illegal. That's why he's got a criminal defense lawyer.

>Do you really think any company is going to hire an honest, competent ex-regulator who has made a career of fining and frustrating their top executives - and possibly referring them to prosecutors?

Yes, absolutely. I think it's ridiculous to suggest that competent and strict regulators are not in demand by the private sector. They clearly have valuable experience, advice, and skills. A timely example is Ben Lawsky, former head of the NY DFS, who is often referred to as one of the "most feared" regulators in banking. I have no doubt he will find himself in demand by the private sector. Another example is Mary Shapiro, former head of the SEC, who now works for Promontory Financial (along with dozens of former regulators) providing consulting services and regulatory advice for the private sector. [1]

>Well, yes, my point exactly. "Lots of people doing it means it's okay" is one view.

So after one does public service, they should not be allowed to work in the private sector? How is that not okay? I think that people should be free to work whereever they like, provided the do not break laws. There is nothing illegal about taking a profitable position after public service.

[1] http://www.promontory.com/Bios.aspx?id=2731

Shapiro's bio is hilarious.

"The Hon. Mary Schapiro was chairman of the U.S. Securities and Exchange Commission from 2009 to 2012, capping a distinguished career in government and private-sector regulation. Ms. Schapiro advises companies on corporate governance and compliance standards that meet regulatory and investor expectations."

Why is this so funny? Because she was running the SEC when Jed Rakoff, the judge overseeing its settlement with BoA, publicly castigated her agency on the grounds that the deal they brokered (token fine, no admission of wrongdoing) did not "comport with the most elementary notions of justice and morality". So much for "advising companies on corporate governance and compliance standards that meet regulatory and investor expectations."

And that was hardly the only bank-friendly failure on her watch. 2009-2012 is timeframe in which, famously, nobody responsible for the global-economy wrecking implosion of securities fraud on Wall St. went to jail. The DoJ said it was because the didn't have the evidence needed to bring anyone to trial. And whose job was it to gather that evidence? That's right, Mary Shapiro's.

Usually, when people talk about the toothlessness of "light-touch" regulation and the rank corruption the begets regulatory capture, they cite Shapiro as an example of everything that is wrong with the system. You are literally the first person I've ever encountered who has held her up as an example of something done right.

Seriously, this is like getting upset about unjust sentencing laws and using Charles Manson as a case in point.

Also, about your boy Ben Lawsky? All of his high profile enforcement actions were foreign banks (Paribas, for example, is French). Hometown banks (GS, JPM, etc.) went largely untouched. I'm sure he'll have no trouble landing a job, but not because he was tough. He was selectively tough. Big difference.

>"So after one does public service, they should not be allowed to work in the private sector? How is that not okay?"

Dude, spare me the bullshit straw man, okay? That's not even remotely close to what I - or anyone else who has a problem with regulatory capture - has ever said. What people who follow this stuff do say is that high-ranking officials responsible for setting policy or directing law enforcement should not be allowed to accept lucrative jobs from the specific companies or industries they oversaw. Why? Because those jobs are a thinly-veiled vector for outright bribery.

At minimum there needs to be a 5-7 year cooling down period before they can go to work for one of their former charges. Others say a decade, at least, if you're serious about maintaining trust in the government.

Let me share a little story that I find analogous.

In New York City, the Mafia runs the illegal gambling. I don't know if it still goes on, but some years ago I know for a fact that the bookies used to stay friendly with the cops by cashing their paychecks for them. (You see, if you bring your paycheck to the bank, your wife will know how much you make.)

One cop I was acquainted with became, when he retired, a small time bookie himself in a suburb of NYC. The small time bookies can't make it on their own, because you need someone to pass the big bets onto, when the action is a little too rich for your blood.

Now, do you think the retired-cop-turned-bookie was a ballbuster to the mobsters in New York, or one of the "friendlier" cops?

(I think I know what you think. My little story is really in support of your answer to the guy you're responding to. The way I see it, bankers and regulators aren't that much different from mobsters and cops.)

I know a tax lawyer who worked for the tax authorities and with specific interest in corporate tax avoidance. He loved the challenge of going after companies who were trying to avoid tax. He left to set up his own consulting company and now prints money, for those same companies.

I think a rational company would have no problem hiring a competent person who proved they know the business better than the people who currently work for them.

To the best of my knowledge, the IRS has avoided the specter of regulatory capture simply because there is no single industry big enough to take down an agency with such a broad mandate. Most of the industry-specific loopholes that the IRS does administer are not carved out by the IRS itself. Rather, those are the product of lawmakers making deals in Congress. And of course, the IRS isn't generally telling people what they can and can't do in the marketplace. They're just saying that, regardless of what you do, taxes must be paid.

In other words, I suspect your tax lawyer friend is not a very good example of the problem see with captured regulators in the financial industry, where the balance of power between the regulators and the "regulated" is practically inverted.

It makes sense to me that the most qualified regulators would be those who spent years in the private sector working at places like GS.

I can see how what you're saying could make sense, from a utilitarian perspective. But unfortunately lifetimes of empirical evidence suggest that we just can't trust any of these industries (oil/gas/mining, banking, pharma, telecom, etc) to self-regulate (which in effect is what the "revolving-door" culture leads to).

Not all of the people in these companies are bad (most are not). But enough of them are, and the temptation for malfeasance (both to maximize profit, or to simply save their asses when the inevitably run into hot water), along with the human tendency to rationalize away such malfeasance (if it serves a perceived higher end) are simply too great.

So are you then suggesting that it's preferable to have regulators who never had hands-on industry experience in their relevant sector?

I don't know, is it preferable to have cops who are ex-Mafia on the grounds that they "just know more about crime"?

"Regulation" is a polite word, so it's easy to lose track of what it really means. But what it really means is policing. Contrary to what the Republicans tell you, ours is not a planned economy in which government bureaucrats are making operational decisions. This isn't the Soviet Union, and they don't exist to govern the allocation of the shoe supply. Generally speaking, regulations is capitalist economies are about limiting the otherwise limitless appetite for profit by imposing extraordinarily high costs on harmful, reckless, and otherwise predatory behavior.

If regulators want to retain outside consultants from an industry that's one thing - especially if the people they're hiring are whistleblowers who can be relied on to have no further employment with the people they busted. It's when industry starts hiring ex-regulators that things get really sticky.

>"Regulation" is a polite word, so it's easy to lose track of what it really means. But what it really means is policing.

The FCC polices the tv/radio/satellite/cable industry, but it also writes regulations that affect the business.

It is preferable to have a head of FCC with industry knowledge. Having industry experience does not automatically make one corrupt or criminal, which seems to be your line of thinking.

>Contrary to what the Republicans tell you, ours is not a planned economy in which government bureaucrats are making operational decisions.

Ours is not a centrally planned economy, but regulators can still enact policies that positively or negatively affect how an industry functions.

There's this strange underlying strata in your argument, in that it seems to allude that people

1) Can't be effective regulators without having learned or interacted with private business

2) it is natural to expect people to head to private practice, and there aren't some people who enjoy serving the nation.

Finally - as an unrelated point to the above - relations between regs and private entities are dynamic systems. At the moment they are likely too cushy and they need to be further apart.

At other times or in other eras, the regulators are too far apart from business to understand best practices.

Given the evidence, and the fact that regulatory capture is occurring at multiple levels, it seems apparent an arms length approach is required.

As I said, generally speaking. Obviously, there are exceptions - like the FCC - that stand out for one unique reason or another (directly managing a publicly-held resource like the wireless spectrum, for instance, or the Dept. of the Interior, which issues oil and gas leases).

And I'm not saying that having industry experience by itself is a problem - although it can be with shadier lines of work. No, it becomes a problem when people can ping-pong back and forth between rule making and profit making roles in the same sector. The worst of it is seen not in people coming from the private sector, but from people going to the private sector - frequently to collect their rewards for having exercised a "light touch" when they were with the government.

That's the point at which a big salary for a cushy gig looks less like compensation for the job you're doing now, and more like a reward for the job you didn't do as a regulator.

Let's be real here. Banking isn't medicine or rocket science.

The IRS and State Tax departments seem to figure out how to author, enforce, audit and interpret complex regulation without the brilliant insight of investment bankers.

The IRS tax code is quite possibly the worst example to use, if you are trying to point to well written regulation. Almost 74,000 pages of tax code. [1]

Though I agree that investment banking advice would be irrelevant here.

[1] http://finance.townhall.com/columnists/politicalcalculations...

I think it's very apropos -- I never claimed it was good.

The point is that the tax authorities, despite not practicing in any of a thousand different business practices is somehow able to effective police tax collection. The notion that banking is somehow so magically complex that government employees can't figure it out is ridiculous.

Ideal might be a mix - some with industry experience and some explicitly without it. It's a toughy, though.

> (We see examples of bad legislation all the time from people who are clueless about tech, for example).

I'm not sure we have, except coincidentally. Most of the instances of "bad legislation" relating to tech that people point to aren't a result of either:

(1) People who don't know about tech drafting laws, or

(2) Laws that don't serve exactly the interest that their drafters and legislative sponsors intended them to serve.

Its true that people selling this kind of legislation to the public often use inaccurate, misleading, and even nonsensical statements about technology to sell them, but that's very different than the fundamental problem (insofar as the laws are considered bad) being ignorance of technology among lawmakers.

The worst tech-related legislation was SOPA/PIPA, and that had less to do with ignorance on the part of regulators and more to do with a full-court press by IP holders deliberately trying to break the internet to preserve their lock on content.

Maybe we should just have less regulation? Nip the problem at the source.

See "Beijing / air quality of" to understand why the little-to-no-regulation crowd finds so little traction with the general public.