Barry Ritholtz recently did a reader poll over at his popular financial blog The Big Picture on where current U.S. Treasury Secretary and Turbo Tax expert Timothy Geithner will end up after his term as the head of the government’s checkbook finally ends come 2013.Â For those who understand the insidious, revolving door nature of the federal government and Wall Street, the obvious choice is everyone’s favorite banking squid known as Goldman Sachs.Â Ritholtz concurs:
Big Bank (BAC/Merrill, Morgan Stanley)
Bond shop (PIMCO)
Big Hedge Fund
Private Equity/Venture Capital
Judging by Goldman’s PR problem as of 2008, an immediate jump to the firm doing “God’s work” may not be the smartest move for Geithner or the firm.Â Geithner already pumped a $30 billion interest free loan into Goldman during the financial crisis as head of the New York branch ofÂ the Federal Reserve. This is in addition to helping out all those “key” (read: friendly with the government) banks deemed too big to fail even as the American public was opposed to such a measure.Â Less he wants to give away the secret that the hinges to the door between Wall Street and Washington is lubed to the nines with campaign donations and the prospect of cashing out big after “serving the public,” Geithner should be reluctant to jump right into a TARP recipient after leaving the White House.
In The Road to Serfdom, Hayek taught that in totalitarian societies, the worst tend to rise to top positions of authority.Â As Washington D.C. confiscates more and more control over the private life of both American citizens and non-citizens worldwide, it becomes the perfect target for big money to purchase influence and back laws in its favor.Â The financial industry addicted to easy money and fractional reserve banking is no different.Â To get a good idea of how infused the government is with the financial industry, consider the following examples from the Obama administration alone:
-Obama announcing Daniel Gallagher, partner at WilmerHale which has served Goldman, JP Morgan, and Citigroup, as commissioner of the Security and Exchange Commission.
-Former White House Chief of Staff Rahm Emanuel, now Mayor of Chicago, was an investment banker with Wasserstein Perella.
-William Dudley, who replaced Geithner at the NY Fed, was the former chief economist at Goldman Sachs and also worked in the SEC.
-Gregory Craig, who acted as a council to the White House, joined the law firm Skadden, Arps, Slate, Meagher & Flom which served Goldman Sachs.
-Former White House budget director Peter Orszag joined Citibank after his stint with the administration.
-Diana Farrell who spent a few years at Goldman Sachs and the McKinsey Global Institute was part of Obama’s National Economic Council.
-Current head of the Office of Management and Budget Jacob Lew is an alumni of Citigroup.
-Former WH Chief of Staff William Daley was an executive at JP Morgan.
-Current head of the Commodity Futures Trading Commission Gary Gensler was an executive at Goldman.
-Current ambassador to Germany Philip Murphy spent 23 years at Goldman.
-Dick Berner, recently nominated to head the Office of Financial Research, was chief U.S. economist at Morgan Stanley, chief economist at Mellon Bank, and worked in different capacities within Federal Reserve banks.
Keep in mind the above are just a few examples of the incestual relationship Wall Street has within Washington.Â This phenomena isn’t a new development with the Obama administration however.Â The most egregious example of revolving door politics is the fact that TARP passed under the guidance of former Goldman Sachs CEO and Bush appointee, then-Treasury Secretary Hank Paulson.Â Talk about conflict of interest.
Since fractional reserve banking is functionally insolvent, the big banks, as Murray Rothbard puts it, “are always reaching for government aid and bailout.”Â This means influencing the money changers in government to ensure taxpayers are on the hook for any severe downturn.Â Meanwhile, further regulation is sought and adopted during times of financial panic such as the housing bubble burst or the Enron scandal.Â This regulation is of course a farce. Wall Street pretends to be regulated while paper pushing bureaucrats pretend to be self righteous night watchmen.Â The only thing being regulated are small start up competitors posing as a threat to the gargantuan status quo.
The revolving door serves only the financial elite and the government which it finances.Â Just ask yourself, if you were the head of a large investment bank, why wouldn’t you recruit those who know the regulatory regime and legislative loopholes best?
Though Geithner will likely be watched closely when he leaves the current administration, he is the perfect candidate for the Goldman crowd looking for another insider to game the system.Â Make no mistake about it, his path to Wall Street is apt to be paved already even if it is many years down the road.
While many Big Picture readers suspect Geithner will end up with a generous position at a large investment bank, in a just world, his next destination would be a long stay at the paradise below.