Wall Street Hires Washington

By Ben White, Politico

09 May 13

EW YORK - The financial industry has long been a draw for former political operatives seeking a bigger paycheck and New York lifestyle. But with the big banks now under constant assault from reformers, regulators and some members of Congress, the flow of top talent from Washington to Wall Street has become a small flood.

Two of the biggest blue-chip firms in the industry, Goldman Sachs and Morgan Stanley, will soon have top-level executives with the ear of the CEOs who once occupied senior jobs in the White House and the U.S. Treasury. Other banks including Citigroup, Credit Suisse and JPMorgan Chase also have staffed up with former political and regulatory officials.

The current exodus to New York reflects something of a historic shift.

In the past, traffic mostly moved the other way. Washington drew from Wall Street to help politicians understand the impact of policy on financial markets. Now the flow has largely reversed as Wall Street increasingly needs to understand - and shape - the way Washington works. Critics call the trend potentially inappropriate influence peddling. Wall Street says it's just hiring the best talent out there for the way the world works now. Whatever the case, it's undeniably happening.

"It has really turned around, and it's now much more about Wall Street collecting political knowledge and influence," said Charles Geisst, a Wall Street historian at Manhattan College. "And no matter what people on Wall Street will tell you, they remember their 1930s and 1940s history very well, and they know they lost those battles and they are determined not to lose this one."

Geisst was referring to the post-1929 stock market crash laws that separated investment and traditional consumer banking and created the modern financial regulatory regime. That banking wall came down in the 1990s and now Wall Street wants to make sure it doesn't go up again, either through strict implementation of the final Dodd-Frank financial reform rules or new measures to curtail risk-taking and make banks hold much more capital.

The latest example of the D.C.-to-N.Y. transfer came last month as Morgan Stanley announced it had hired Michele Davis as a managing director and global head of corporate affairs.

Davis, who served as a chief adviser to Treasury Secretary Hank Paulson (a former Goldman CEO) during the height of the financial crisis, will report directly to Tom Nides, a Washington veteran and former top aide to Hillary Clinton at the State Department, and to Chief Executive James Gorman. In an internal memo announcing the hire, Nides and Gorman praised Davis - portrayed by Cynthia Nixon in the movie "Too Big to Fail" - for her successful career at the "nexus of political and financial media."

Davis will essentially be Morgan Stanley's version of Jake Siewert, managing director and head of corporate communications at Goldman Sachs.

Siewert, who served as counselor to Treasury Secretary Timothy Geithner and in multiple roles including press secretary under President Bill Clinton, has quietly helped revolutionize the way the famously secretive Goldman Sachs interacts with the public.

CEO Lloyd Blankfein is now a regular at events around Washington, including the recent Investment Company Institute gathering and a private meeting at the White House late last year. At the ICI event, Blankfein said he had "a lot of regret for not having a lot of dialogue with the public." The firm, which until fairly recently still operated like the private partnership it once was, now has a Twitter account.

Many other high-profile Wall Street firms are joining the hunt for political veterans from both Washington and New York.

A very short list of other top political operatives now working in and around Wall Street includes: Ed Skyler, former deputy New York City mayor for operations, who is now executive vice president for global public affairs at Citigroup; Calvin Mitchell, who ran press operations for Geithner at the New York Federal Reserve and is now global co-head of corporate communications at Credit Suisse; Jennifer Zuccarelli, formerly of the Paulson Treasury department and Mark Kornblau, a veteran of multiple Democratic presidential campaigns, who both now have senior roles at JPMorgan Chase. Andrew Williams, a former Geithner spokesman, now works for Siewert at Goldman.

And there are many more.

Regulatory reformers and some on Capitol Hill argue that banks have one thing in mind when making these hires: influencing the writing of Dodd-Frank rules and figuring out ways of beating back any new legislation, such as the recently introduced bill by Sens. David Vitter (R-La.) and Sherrod Brown (D-Ohio) to force banks to hold much more capital. The argument goes that while these former operatives are not registered lobbyists, they can nonetheless trade on prior relationships and inside knowledge to help banks stay ahead of policymakers.

"There is absolutely a value to banks hiring these people, and it is about connections and relationships and that opens the door to potentially inappropriate influence," said Rep. Jim Himes (D-Conn.), who worked as an investment banker at Goldman for more than a decade.

Himes cited the main reason former political types tend to gravitate to Wall Street: cash. "It's hard to ignore the compensation difference. They are making a little more money."

Staffers previously topping out between $100,000 and $200,000 at the highest levels in Washington can earn well into the mid-six figures on Wall Street with bonuses pushing the pay even higher. Managing directors at Goldman, for instance, typically earn at least $500,000 in base salary and significantly more in bonuses.

Critics say the banks are not spending that kind of money just because former political pros have good communications skills.

"They are paying them millions of dollars for direct access to the most senior policymakers that nobody else gets," said Dennis Kelleher, CEO of the financial reform group Better Markets.

Wall Street's response: nonsense.

Senior banking executives and those who have made the move from Washington to Wall Street say connections are not the point. They say Washington is a unique training ground for strategic thinking that translates well into banking or any other corporate arena.

"The Washington experience gives you an ability to think of all the external forces that could come into play. It allows you to see around corners," said John Rogers, executive vice president and chief of staff at Goldman Sachs.

Rogers, who first tried to hire Siewert while the former Clinton aide was at Alcoa and before he worked for Geithner, said it didn't make sense to try to add Washington talent just for previous relationships.

"Because 53 percent of the people who brought you Dodd-Frank are gone. You can't play to that kind of thinking. It's short-term oriented. What I look for is what a person's broad experience has been and how they have operated," Rogers said. "It's not a matter of relationships in government; it's how you handled yourself in those kinds of experiences. What were the judgments you rendered and what was the effect of those judgments, if they were listened to, in the outcomes achieved."

Then there is the simple matter of understanding and translating for Wall Street executives the way Washington regulators and politicians talk and think.

These functions could once be left to specialized lobbyists who could deal with Washington without ever having to explain things to the CEO or the public, because no one much cared.

Now everyone cares.

"With any of the highly regulated industries, it helps to have people who have experience on the other side of the desk and have a view on how issues will be interpreted," said Tony Fratto, a former treasury and White House official in the Bush administration who now advises banks and other clients at Hamilton Place Strategies.

Fratto added that banks now need high-level communicators who actually understand and can talk about seemingly arcane issues like derivatives regulations and the Basel-III bank capital requirements.

"These used to be things that no one really cared about. People thought Basel was a salad ingredient," he said. "Now they have risen in prominence and are very much in the public space, and you need people who understand that."