One of the more disturbing issues highlighted by the recent documentary Inside Job is the revolving door between the financial industry, the agencies that are supposed to regulate it and the academic world where economists churn out theories used to justify that regulation -- or, more often, the lack thereof. It feels like a closed loop, with the same small, elite group perpetuating policies based on a severely limited array of perspectives.
So -- albeit a few days late -- I'd like to propose a New Year's resolution for both the government and Wall Street: Let's open up that closed loop. Let's bring people and perspectives into the system that until now haven't been part of that revolving door. Some fresh, diverse voices and ideas would be good for the government, good for the banks, and especially good for the public.
The film highlights a number of prominent players such as Henry Paulson, who became Secretary of the Treasury after a stint as CEO of Goldman Sachs and is now a fellow at the Johns Hopkins University School of Advanced International Studies. But this is not just a phenomenon limited to the past or to Republican administrations.
We saw another example late last year, when Peter Orszag, the Obama administration's first budget director, joined Citigroup's investment banking group as a vice chairman, causing the New York Times to note, "Wall Street has long stacked its ranks with Washington types." The move drew some criticism, but overall it got so little attention that one of the most vocal critics, The Atlantic's James Fallows commented that it was "the kind of thing that is notable precisely because no one even stops to remark on it any more."
I'm not saying that people from the financial industry have nothing to add to the oversight and regulatory process, or that there's something inherently immoral in people who've worked in government moving to the private sector. But the current revolving door seems limited to a very narrow group of people, producing a decision-making loop that is dominated by affluent, white, male insiders. As a result, important perspectives simply aren't in the room when decisions are made.
But independent research suggests that opening up that loop is good for business. For example, a study commissioned by the California Public Employees' Retirement System examined the diversity or lack thereof on the boards of Fortune 500 companies, reporting that diverse boards lead to "higher performance and financial metrics such as: return on equity, return on sales, and return on invested capital."
When The Greenlining Institute examined the diversity of bank boards in a November 2009 report, we found that, with a few exceptions, they aren't very diverse. There's no sign that much has changed since then.
If diversity is important to business, it's even more important to government. Agencies that watch over the financial system, charged with protecting the interests of ordinary folks, simply can't do that job if they don't include people who've seen the realities on the ground, who know what's going on in the hardest-hit communities -- communities that have often felt the worst of predatory lending and other dubious practices. If you grew up in a neighborhood with more payday lenders than banks, chances are you've seen things that the Beltway elites simply have never experienced, and those perspectives matter if our financial system is to work for all of us.
Fortunately, President Obama has a chance to expand the talent pool. The financial reform law passed last year establishes Offices of Women and Minority Inclusion in 20 federal financial agencies, creating both a need and an opportunity to recruit diverse candidates with smarts and experience in the financial field. The president should also enlist his Offices of Presidential Personnel and White House Personnel, his President's Economic Recovery Advisory Board, his White House Director of Social Innovation, and the Congressional Black, Hispanic and Asian Caucuses to develop a talent bank of at least 100 top-level candidates of color, men and women from a wide variety of backgrounds and experiences.
Community groups can also be a part of this effort. At Greenlining, we're looking to work with other national organizations to help make the connections between high-level federal public service opportunities and diverse talent, including graduates of historically African American and Latino institutions as well as advocacy experts working for economic fairness in diverse communities.
Instead of just griping about the revolving door, let's expand the talent pool and bring in the voices that have been shut out. Ultimately, everyone -- including the large financial institutions and the hundreds of millions of Americans who depend on them to operate safely and fairly -- will be better off.