Ponzi Schemes and Revolving Doors

The conviction last week of hedge fund billionaire, Raj Rajaratnam, hasn't kept the stench of corruption on Wall Street from wafting all the way down to Washington.

Securities and Exchange Commission (SEC) officials told a Congressional oversight committee on Friday that the FBI is investigating one of their own, a former SEC enforcer named Spencer Barasch. Barasch blocked investigation of a $7 billion Ponzi scheme for years and then went to work for R. Allen Stanford, an alleged Texas swindler, who is facing federal fraud charges.

This is a little like the corrupt police chief in Casablanca, played by Claude Rains, who raids Rick's casino and says, “I'm shocked, shocked to find gambling is going on in here!” and then quickly pockets his winnings. (Barasch still works for the law firm Stanford hired to hide the true nature of his business.)

“The Congressional hearing once again brought to light problems the SEC, like many government agencies, faces with the 'revolving door' of people who go back and forth between government and the private sector,” wrote New York Times reporter Edward Wyatt.

One such agency is the Federal Communications Commission (FCC), which stunk up Washington, following a surprise announcement by one of its five commissioners last week that she is leaving government service to become NBC's chief lobbyist in Washington. Meredith Baker is jumping ship just four months after she voted for a merger of NBC and Comcast, against the advice of public interest advocates and other media companies, who fear the combined company will monopolize the entertainment, cable TV and Internet industries.

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“I have not participated or voted any item, not just those related to Comcast or NBC Universal, since entering discussions about an offer of employment,” Baker said in her defense.

Baker hasn't done anything illegal. She follows former FCC Chairman Kevin Martin, who left the FCC for K Street in 2009. There are rules to keep Baker on the straight and narrow once she makes the move from government regulator to industry lobbyist. She can never lobby anyone in the executive branch regarding the $30 billion Comcast/NBC merger deal. She cannot lobby any FCC commissioner for two years on any other matter either, and if Obama wins another term, she cannot lobby the FCC until 2016. With her new job so proscribed, one wonders why NBC hired her. Well, those restrictions don't mean much. She can lobby Congress right away and have legislators haul NBC's coal to Newcastle. And you can bet she will.

Baker is one of many who leave government for the industry they once regulated. According to the Center for Responsive Politics, more than 40 of the 120 Congressmen who left office in 2010 did not leave Washington. They became lobbyists. And that's the problem.

Baker and Barasch both went to bed with the industry they were supposed to be regulating. The only difference between the two is how and when they got paid. Lawyers will no doubt make legal argument out of the details, but those will be distinctions without much difference as far as the public interest is concerned.