Thursday, April 16, 2015

On Bernanke and Citadel

Two weeks ago, I told the Washington Examiner that we don't need to worry about Ben Bernanke's blogging turning him into a "shadow chair." I must confess that I was taken aback this morning to learn that Bernanke will also become a senior adviser to Citadel, a large hedge fund. Let me explain how this announcement modifies some, but not all, of what I wrote in my last post about Bernanke's post-chairmanship role.

I wrote, "We want our top thinkers going into public service at the Fed and other government agencies. These top thinkers place a high value on having a public voice, and the blogosphere is increasingly the forum for that." I still agree with this at gut level. I think Bernanke is an intellectual with the public interest at heart and that he really intends the blog as a public service  Now I also know more about the personal financial interests he has at stake, which I will keep in mind when reading his blogging. (Which we really all should do with whatever we are reading.) I think most people are capable of acting against their best financial interests to maintain ideals and standards, but even the most upright are subject to subconscious suasion.

I also wrote that I hoped Bernanke's blog would increase Fed accountability and transparency. Maybe, but only very indirectly. I don't think Bernanke is personally violating any bounds either by blogging or by joining Citadel, but that his joining Citadel is symptomatic of larger boundary violations in the governance structure of the Fed system and its ties to Wall Street. Bernanke told the New York Times that he was "sensitive to the public's anxieties about the 'revolving door' between Wall Street and Washington and chose to go to Citadel, in part, because it 'is not regulated by the Federal Reserve and I won’t be doing lobbying of any sort.' He added that he had been recruited by banks but declined their offers. 'I wanted to avoid the appearance of a conflict of interest,' he said. 'I ruled out any firm that was regulated by the Federal Reserve.'"

I take him at his word while at the same time expecting and hoping that the public's anxieties about the revolving door will not be calmed by Bernanke's choice of which particular Wall Street firm to join. The public doesn't draw a clear line, nor should they, between Wall Street institutions regulated by the Fed and not regulated by the Fed, or between "lobbying of any sort" and "very public figure saying things to policymakers." Maybe he ruled out conflict of interest to some degree, but certainly not appearance of conflict of interest. So if this looks a little unseemly, I hope that is enough to catalyze change in Fed governance. Even if Bernanke's link to Wall Street is not inherently problematic, the overall role of Wall Street insiders in Fed governance is too large.

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