Is the White House Open for Hedge Fund Business?
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Is the Fox Guarding the Hen House?
We learned this week that President Obama will nominate James B. Comey, a former hedge fund attorney, to lead the FBI. Will Comey be vigilant in pursuit of hedge fund crimes? Will he provide full FBI support for Preet Bharara, the U.S attorney for the southern district of New York who has secured insider trading convictions or guilty pleas from over seventy hedge fund honchos?
The jury is out.
But we have some clues. It turns out that from January 2002 to December 2003, Comey had Preet Bharara's job in New York. During his time as the top Wall Street cop, he is best known for convicting Martha Stewart for trading on insider information. However, a cursory review of his prosecutorial record shows that he did not go after hedge funds, even though they were cheating their way to billions of dollars in illegal profits through insider trading and other scams.
The Wall Street-Washington Infection
Let's take a cold hard look at what we've become. As a result of a generation of deregulation, Wall Street barons earn as much in one hour as the average government official earns in 20 years. Just think for a moment the amount of contempt that super-rich hedge fund mogols must have for these lowly public servants. And think for a moment about how many of these public servants might like to cash in on Wall Street's riches. After all, they see the revolving door spinning away as elected officials and government operatives move effortlessly from high finance to government and back again—Robert Rubin, Larry Summers, Hank Paulson, Peter Ortzag, Tim Geithner... and on and on they go.
Of course, none of them would ever condone insider trading of any kind. But it's doubtful they would lose much sleep over it, or demand intense prosecution of financial crimes. After all, the group-think is powerfully clear: What's good for Wall Street is good for America...and vice versa. The idea of breaking up too-big-to-fail banks, or challenging them with a public state banks, or capping Wall Street incomes at reasonable levels, or instituting a financial transaction tax on Wall Street's casinos, or closing the special tax loopholes used by billionaire hedge fund managers—all of it is anathema to their hermetically sealed world view.
As a result, they are (mis)leading us into a downward spiral of trust and cheating as public support for government erodes. The more that insider government trading and job swapping spreads, the more the public will detest the ties between Wall Street and Washington. As the trust in government declines, public employee morale and self-respect will plummet, increasing the temptation to spill the beans to hedge funds. The net winners, of course, will be the rapacious hedge funds. The net losers? All the rest of us.
Where's Washington's Preet Bharara?
What we need right now is a Washington version of the NY federal attorney Preet Bharara who is rounding up the hedge fund cheaters by the dozen. We need a Justice Department/FBI task force to put a stop to hedge fund manipulation of government sources, and we need to insist that those government sources do the people's business, instead of their own.
Memo to President Obama: Please think again about the signal you send by appointing a former hedge fund lawyer to run the FBI.