If the government were creating a new panel to advise on financial regulation, it would make sense to include a Nobel Laureate considered one of the most influential living economists. Yet Joseph Stiglitz has been barred from such a panel, telling Bloomberg he was out because “they may not have felt comfortable with somebody who was not in one way or another owned by the industry.”
The fight to keep Stiglitz off the panel is indicative of a much deeper problem — how the financial industry manipulates the regulatory system. The financial industry does not want Stiglitz on the panel for a simple reason: he has committed the crime of advocating for a modest financial transaction tax. Stiglitz argues that while financial markets normally serve the important function of capital intermediation, some forms of trading, like high-frequency trading, make markets less stable and amount to making money by moving money around. To reduce the incentives for such trading while raising revenue, he has put forward the possibility of a tax on some forms of short-term trading. Such a proposal has gained traction within academia and is already being implemented in Europe. (And it actually used to exist in various forms in the United States.)
Instead of preeminent financial reform experts like Stiglitz, many key regulatory and advisory positions are taken by those who loosen the leash on the financial industry. A perfect example is the recent nomination of Antonio Weiss to be the treasury undersecretary for domestic finance. Weiss has merger and acquisition experience, but as Simon Johnson notes, no domestic regulatory experience — illustrating in dramatic terms the revolving door between Wall Street and government. Research by Sophie Shive and Margaret Forster finds that this practice is pervasive and increasing. They write that, “the number of ex-regulators employed at financial firms increases by more than 55 percent” from 2001 to 2013. A 2010 CBS analysis finds more than four dozen former Goldman Sachs employees had high-level positions in government. This revolving door is part of what led us to the last financial crisis.