The New Corrupt Elite That Is Running Our Economy
Social anthropologist Janine Wedel, author, most recently, of Unaccountable: How Elite Power Brokers Corrupt Our Finances, Freedom, and Security, has spent decades getting to the bottom of how powerful people wield influence. In her view, old ways of talking about formal systems of power and corruption don't begin to capture new realities. Truth and transparency, she warns, have devolved into performance art. The buck stops nowhere. Could women be particularly suited to disrupt the unaccountability structured into the DNA of many of today's financial, corporate and governmental organizations? Wedel weighs in. (Accountability is a key topic in a May 5-6 conference sponsored by the Institute for New Economic Thinking, " Finance and Society," which features Brooksley Born, Elizabeth Warren, and other influential women who have challenged corrupt systems of power.)
Lynn Parramore: You've discussed a fascinating new kind of power broker on the world stage—a nimble, opportunistic person who floats between private and public institutions. How has this figure operated in the financial arena? Are such players different from lobbyists and other traditional influence peddlers? Can you give some examples?
Janine Wedel: In the financial arena, a well-known duo is Robert Rubin and Larry Summers, both former treasury secretaries. Rubin reached the heights at Goldman Sachs. He then went to Treasury in the 1990s, then on to Citigroup. In the lead-up to the financial crash, both Goldman and Citigroup earned billions on the unregulated derivatives he and Summers (and others) championed while in public office.
Summers has been even more influential: Treasury in the '90s, then back to Harvard, where as president, he invested some of the endowment in derivatives — a disastrous move. He then went to Wall Street hedge fund work, and then back to Washington with a top perch advising the Obama White House.
Both Rubin and Summers have moved among advisory and corporate boards, think tanks and the like. Summers, especially, maintains an active media presence. Their worldview and life experiences are enmeshed with Wall Street. Neither are lobbyists. It's not that they are beholden to Wall Street in the manner of a traditional lobbyist, but that Wall Street and Washington have substantially merged. Goldman had an express policy of placing its alumni in Washington jobs, earning it the nickname of "Government Sachs."
This is not the old revolving door, which has only one exit point. Today's revolving door has four or five or more: a player exits to an academic role, a media role, a government role, a business role, a think tank role, and straddles two or more at the same time. Traditional financial lobbyists are still out there fighting for their Wall Street clients, but they have to register. The most elite players generally do not, and their hugely important influence activities are much harder to measure and trace.
LP: Back in 1998, when Bill Clinton was president, Commodity Futures Trading Commission head Brooksley Born took on a powerful clique led by Fed Chairman Alan Greenspan, Treasury Secretary Robert Rubin, his deputy Larry Summers, and SEC Chairman Arthur Levitt. They wanted to loosen the rules on derivatives; she didn't. Their victory helped set the stage for the financial catastrophe in 2007-'08, yet these men have gone on to play even more influential roles, often in financial firms that benefitted from unregulated derivatives. What does this say about who ends up with formal power today?
JW: I call what these players have done "failing up." They have made spectacular errors of judgment and are called upon to give advice on public policy. Part of the problem is that the lines between top Washington economic players and the industry they are supposed to regulate are effectively nonexistent. The know-how and inside information gleaned in "public service" are now worth huge amounts of money to financial firms looking for clout in dealing with Washington regulators.
It doesn't mean that these players were necessarily judging derivatives and looking ahead to a payday. It's more subtle. They believed that what was good for Wall Street was good for everyone. For them, private sector folks were the innovators, the wealth creators, the early adopters. The regulators, in their eyes, mostly just got in the way of all that good stuff. Now we know that the good stuff was just for Wall Street.
LP: In an article praising "difficult women" in finance, you point out that women can sometimes help disrupt corrupt systems that allow mostly male insiders to make the rules and profit from them. Why are women particularly well suited for disruption?
JW: Outsiders are well suited for disruption, and it just so happens that in the most powerful venues, women continue to remain outsiders. They may ruffle feathers not because they have a superior moral compass, but because, at least for now, they are dogged outsiders who've fought their whole lives to be with the big boys. Senator Elizabeth Warren, former FDIC chairperson Sheila Bair, and Commodity Futures Trading Commission head Brooksley Born have all acted as whistleblowers or disrupters in some part of the financial system. Their stories reveal something unusually relentless. Each has had a moment of being denied entry into elite quarters. A person like this is less likely to succumb to the groupthink that can normalize sketchy behavior.
Whistleblower Carmen Segarra is another case in point. In 2009, when the New York Fed was staring down reforms like Dodd Frank that would give it more supervisory power, NY Fed chief (and former Goldman partner) Bill Dudley commissioned what was supposed to be a confidential report by Columbia University finance professor David Beim on what went wrong at the bank that might have contributed to the crash.
Beim concluded that the culture of the NY Fed was too enmeshed in Wall Street to be a truly effective supervisor. He urged the bank to bring in disruptive outsider personalities who wouldn't be subject to regulatory capture, so they hired Segarra, who quickly became frustrated at what she saw as a too-accommodating approach by the Fed with Goldman Sachs. She was fired after refusing to tone down her report, so it's not a total win for accountability, not least for Segarra herself, but her secret recordings of what transpired as she and her colleagues discussed regulations at this hugely powerful institution have been illuminating, and resulted in congressional hearings.
Her outsider status meant she wasn't going to overly identify with the needs and wants of her peers. As she mentioned in the public radio program "This American Life," she was struck by the devastation the 2008 crash had on regular folks. This shows a strong affiliation with the world far outside Wall Street. That's an important element in disruption.
LP: You note that our legal and regulatory systems were set up to catch what you call "old-style corruption," like bribery and outright fraud, but they don't work for new, far more sophisticated and indirect styles of corruption. How can we bring more accountability?
JW: Fundamentally, ethics has become disconnected from accountability. Accountability has devolved into checklists and performances to appear accountable and satisfy the outside auditors. Anthropologists call this "audit culture." We perform for the auditor or the congressional committee or the risk compliance officer. But these checklists and performances have little to do with true accountability. We need to reunite ethics with the practice of accountability.
Also, we need to be hyper-alert to former government officials and legislators who might appear in the media or other public fora without disclosing their current roles. Why is former Congressman X on a Sunday morning chat show? He might be pushing a certain policy at the behest of a client, and yet is invariably identified by his public service role, even if it's a decade old.
Self-policing is not the answer. For example, academic economists who are also affiliated with financial firms should not be the ones to judge whether they need to disclose their corporate affiliations when they are speaking or writing about economic policy. The zeitgeist today is all about blurring boundaries, but that makes accountability difficult.
As citizens, we have to stay vigilant in terms of regulation even if it's a slog. Look at Dodd Frank; the president signed the law, but Wall Street then hired massive legal assistance to haggle over every comma and generally thwart implementation.
Reforms need to be thoughtfully considered and their actual results anticipated. The Honest Leadership and Open Government Act of 2007, aimed at strengthening disclosure requirements among lobbyists, caused a sharp decline in the number of registered lobbyists. But did they stop lobbying? No, many, if not most, simply don't register, creating a black hole of accountability. They were counting on weak enforcement because for decades we have devalued the role of regulatory enforcement.
LP: Looking at Europe, you describe how big Western banks like Goldman Sachs colluded with local leaders in ways that have been devastating to the economies of countries like Greece. Yet the president of the European Central Bank is a former Goldman Sachs managing director. How does this kind of situation impact public trust?
JW: It devastates trust. The situation in Greece is a dire one, and the Greeks are obviously railing against EU-imposed austerity measures by voting the left-wing party into power. Of course, the way Greece was operating was unsustainable. But let's just pretend for a moment that Mario Draghi did indeed have the right answer for Greece. How can you trust that he has the people's interest at heart when he is so closely associated with Wall Street people and mindsets?
LP: You've studied Eastern Europe and note that the kind of helplessness, fatalism and gallows humor common under communism is now starting to crop up here in the West, where public trust is under siege and ordinary people feel increasingly cynical about elected leaders and the democratic process. To many, the financial system is a game rigged against them, one in which they are permanent outsiders and losers. How can the outsiders regain influence?
JW: We have to support quality investigative journalism, which is dying by the day. Question what you are hearing from a powerful person and ask yourself why they are saying it. Insist on accountability legislation and support budgets for enforcement. And the next time you see a "hot" corruption case that involves a fancy watch or a stash of cash in a freezer, just ignore it and look for the bigger fish — the ones who'll never see a day in prison!