The revolving doors

As usual, I listened to NPR this morning while making my first coffee of the day and one of the stories was about a Congress hearing on the failures of financial regulators to act on information that might have exposed the Madoff ponzi scheme a long time ago. The Financial Services committee listened to Harry Markopolos who had informed the SEC 10 years ago that Madoff was cheating his investors, yet the SEC did nothing, despite repeated writeen submissions by Markopolos. This sounds awfully familiar to us Icelanders, where whistleblowers seem also to have been ignored by the bodies charged with regulating the financial sector. It seems like, in both countries the primary reason is that the regulatory bodies are simply too weak, staffed by inexperienced people and completely lacking any systematic way of dealing with information provided by whistleblowers. They seem to be both unable and afraid to take on the big banks and other powerful actors.

In Iceland I heard that it was not uncommon that staff from the financial regulating body were recruited by the banks which offered much better salaries. If that is true, then why would you go out of your way to investigate the very banks that may one day offer you the job you always dreamed of?

This reminds me of what has been called a revolving-door practice, as is seen for example with people who move freely between legislative bodies and government, lobbying firms and sitting on boards of big corporations, where the potential conflicts of interest are obvious. Concerns have also been raised about personnel moving between state minsitries, international financial institutions and multinational corporations.