Nomi Prins: Wall Street and Washington Revolving Door

In this recent interview Nomi Prins talks about the revolving door relationship between the big Wall Street banks and policy making in Washington, DC. She thinks that while the relationship has existed for many decades, the current banking system is less invested in preserving financial stability than in previous times. She thinks the system is still very unstable.  You can watch the full Yahoo Finance interview here.

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What are the consequences of regulators leaving government work to join the financial services industry, and vice versa?  Nomi Prins, a Senior Fellow at Dēmos, chronicles the problems of the revolving door between Washington and Wall Street in her latest book "All the Presidents' Bankers."

“The difference is that now people know each other less in their personal lives before they make those transitions," she says. "Now it's a little more like 'I know you from the industry of Wall Street and Washington' as opposed to 'We hung out and our dads smoked cigars together.'”

Prins notes that there was more personal accountability in the relationships between Wall Street and Washington during the mid-20th century. She points out that before the crash of 1929, the Morgan bank (predecessor of J.P. Morgan - JPM) had strong connections with Presidents Coolidge and Hoover. Yet, a shift in the relationships occurred during the Great Depression.

"There was this accountability moment where the bankers that ascended to run these banks, to run Chase, to run Citibank (C)…they wanted economic stability throughout the country," she says. "They actually thought [stability] was important for confidence in the banking system…people would actually keep their money there and trust that they had a future with this bank, so the relationships with individuals and corporations and countries all mattered."     . . . . . . . .

"The banks are so big right now [and] they have access to so much of a percentage of the deposits of individuals,” she says. “The leverage is so much higher on the back of those deposits, the bailouts that have happened for numerous reasons in the past 25 years have all been an indication that is okay to take more reckless bets."   . . . . . . . . . click here to read the rest