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How is this a revolving door? - Bernanke has never worked in private industry before - The Fed doesn't regulate hedge funds or HFT firms (Citadel has both) T

How is this a revolving door? - Bernanke has never worked in private industry before - The Fed doesn't regulate hedge funds or HFT firms (Citadel has both) They're hiring him because he's going to be amazing in front of new LPs when Griffin raises funds. How do you not give a global macro firm that employs Ben money? Not everything is a conspiracy.

crdb 11y ago
OK: "Hi Ben, what are your views on rates?" Still OK: "Hi Ben, John Smith is in your old seat, what do you think of him, what does it imply for our strategy?" Less OK (I think, still legal in FICC although not in equities): "Hi Ben, mind giving John a call before his morning press meet to check what he's going to say" [1] Really bad (if somewhat unlikely): "Hi Ben, John's going to be more bullish than expected, but we have a fairly large short on; mind having lunch with him this week before the next meeting and try change his mind?" The Carlyle Group (headquartered in Washington, unlike, at the time, most of the industry) is probably the most famous for hiring fresh-off-the-administration politicians [2], and being "lucky" with portfolio companies and defence contracts. Disclaimer: I'm of course not implying they are related in any way; could just be that their better insider knowledge allowed them to present a more appropriate offer in those cases. [1] http://www.theguardian.com/business/2012/jan/04/switzerland-central-bank-chief-insider-trading http://www.theguardian.com/business/2012/jan/04/switzerland-... [2] http://www.amazon.com/Iron-Triangle-Inside-Secret-Carlyle/dp/0471660620/ http://www.amazon.com/Iron-Triangle-Inside-Secret-Carlyle/dp... - although the book obviously has an agenda.
- jim_greco 11y ago
  Yellen has worked at the Fed forever and knows how to speak to private citizens. She's not going to leak her press conference material because her old boss called her up. Your two links are 1) Outright insider trading 2) An unrelated example where perhaps you do want to look at revolving door rules.
  - crdb 11y ago
    That's not what I meant (e.g. Bernanke influencing Yellen), I guess I was not clear enough or the subtleties were lost in translation. The examples are simple, obvious cases of the more subtle fears one could have about public officials moving to the private sector. Influence is not by phone calls asking for things (unless you are really stupid, as Rajaratnam's circle seemed to be) but by cautious alignment of interests and game theoretic considerations (a la House of Cards). You don't ask the CFO how his company is doing; you have someone in your team take him for frequent drinks and lunches and to clubs and get to know him well, and then wait for "mosaic" pieces when he's had too much to drink... As a more subtle example, some Austrian economists argue (and I can't remember the books off the top of my head) that Keynes' policies were influenced by what politicians and the academic elite of his era wanted to hear; this allegedly enabled Keynes to become the first "superstar" economist with significant personal advantages, in exchange for providing backing for policies that classical economists would not want to touch. (Others might argue that Keynes, as an all-but-by-name Fabian, was thus inclined in the first place and didn't need prompting.) This is the real risk: when the interests of people close to government start influencing government actions, not necessarily outright or implicitly, but with the same effect on the stakeholders (the governed). Without wanting to step into a hornet's nest, a more obvious recent example is the way the interests of Mr. Cheney aligned so nicely with the case for war in the Middle East a decade ago. Some argue that, even if the war was justified, the lack of any kind of open bidding process for contracting during the period would be concerning as regards the judicious use of taxpayer money. From my relatively few and junior years in the global macro space, I didn't get a feel that Bernanke would be a particularly egregious case of this; he struck me as an honest man and competent academic (even if I'm not a fan of his policies); as for what it's worth, seemed Trichet. But it's a discussion worth having because not every departing civil servant is motivated by academic immortality or policy legacy. Well, I never had a particularly brilliant P&L and eventually left the industry, so maybe my opinion is not worth much.
kbutler 11y ago
The Fed has in recent years done a lot (billions of dollars) of buying that helped hedge funds, beginning with the bailout of Long-Term Capital Management and continuing through the quantitative easing. This doesn't imply a conspiracy, but it is definitely a revolving door.
- jim_greco 11y ago
  LTCM was bailed out by the banks, not the Fed or anyone else in Government. LTCMs LPs got wiped out. The bailout was to contain systemic risks to the rest of Wall Street. QE is actually more like trillions of dollars. A revolving door is frowned upon when one party benefits directly to the deteriment of competitors. Citadel can't really get special favors from the Fed as there's little the Fed could even do if they wanted to benefit Citadel over other hedge funds

crdb 11y ago

OK: "Hi Ben, what are your views on rates?" Still OK: "Hi Ben, John Smith is in your old seat, what do you think of him, what does it imply for our strategy?" Less OK (I think, still legal in FICC although not in equities): "Hi Ben, mind giving John a call before his morning press meet to check what he's going to say" [1] Really bad (if somewhat unlikely): "Hi Ben, John's going to be more bullish than expected, but we have a fairly large short on; mind having lunch with him this week before the next meeting and try change his mind?" The Carlyle Group (headquartered in Washington, unlike, at the time, most of the industry) is probably the most famous for hiring fresh-off-the-administration politicians [2], and being "lucky" with portfolio companies and defence contracts. Disclaimer: I'm of course not implying they are related in any way; could just be that their better insider knowledge allowed them to present a more appropriate offer in those cases. [1] http://www.theguardian.com/business/2012/jan/04/switzerland-central-bank-chief-insider-trading http://www.theguardian.com/business/2012/jan/04/switzerland-... [2] http://www.amazon.com/Iron-Triangle-Inside-Secret-Carlyle/dp/0471660620/ http://www.amazon.com/Iron-Triangle-Inside-Secret-Carlyle/dp... - although the book obviously has an agenda.

jim_greco 11y ago
Yellen has worked at the Fed forever and knows how to speak to private citizens. She's not going to leak her press conference material because her old boss called her up. Your two links are 1) Outright insider trading 2) An unrelated example where perhaps you do want to look at revolving door rules.
- crdb 11y ago
  That's not what I meant (e.g. Bernanke influencing Yellen), I guess I was not clear enough or the subtleties were lost in translation. The examples are simple, obvious cases of the more subtle fears one could have about public officials moving to the private sector. Influence is not by phone calls asking for things (unless you are really stupid, as Rajaratnam's circle seemed to be) but by cautious alignment of interests and game theoretic considerations (a la House of Cards). You don't ask the CFO how his company is doing; you have someone in your team take him for frequent drinks and lunches and to clubs and get to know him well, and then wait for "mosaic" pieces when he's had too much to drink... As a more subtle example, some Austrian economists argue (and I can't remember the books off the top of my head) that Keynes' policies were influenced by what politicians and the academic elite of his era wanted to hear; this allegedly enabled Keynes to become the first "superstar" economist with significant personal advantages, in exchange for providing backing for policies that classical economists would not want to touch. (Others might argue that Keynes, as an all-but-by-name Fabian, was thus inclined in the first place and didn't need prompting.) This is the real risk: when the interests of people close to government start influencing government actions, not necessarily outright or implicitly, but with the same effect on the stakeholders (the governed). Without wanting to step into a hornet's nest, a more obvious recent example is the way the interests of Mr. Cheney aligned so nicely with the case for war in the Middle East a decade ago. Some argue that, even if the war was justified, the lack of any kind of open bidding process for contracting during the period would be concerning as regards the judicious use of taxpayer money. From my relatively few and junior years in the global macro space, I didn't get a feel that Bernanke would be a particularly egregious case of this; he struck me as an honest man and competent academic (even if I'm not a fan of his policies); as for what it's worth, seemed Trichet. But it's a discussion worth having because not every departing civil servant is motivated by academic immortality or policy legacy. Well, I never had a particularly brilliant P&L and eventually left the industry, so maybe my opinion is not worth much.

kbutler 11y ago

The Fed has in recent years done a lot (billions of dollars) of buying that helped hedge funds, beginning with the bailout of Long-Term Capital Management and continuing through the quantitative easing. This doesn't imply a conspiracy, but it is definitely a revolving door.

jim_greco 11y ago
LTCM was bailed out by the banks, not the Fed or anyone else in Government. LTCMs LPs got wiped out. The bailout was to contain systemic risks to the rest of Wall Street. QE is actually more like trillions of dollars. A revolving door is frowned upon when one party benefits directly to the deteriment of competitors. Citadel can't really get special favors from the Fed as there's little the Fed could even do if they wanted to benefit Citadel over other hedge funds