How can Americans trust President Barack Obama to reform financial regulation when he stacks the leading recovery agency with the very people who caused the crash?
Pick a folk metaphor about foxes guarding henhouses or lunatics running asylums, but some entrepreneurs whose hedge funds or consulting or research firms live and die by their own sword should have a voice in Office of Financial Stability.
Groups of like-minded people often make bad decisions. Sometimes they make disastrous decisions that impact millions of people outside of their clique, as in the case of certain Wall Street financiers and their government enablers.
Studies abound on why diversity of thought matters. One of Mr. Obama's top advisers, former University of Chicago law professor Cass Sunstein, wrote a book about the topic, "Why Societies Need Dissent." New Yorker columnist James Surowiecki wrote his best-selling "The Wisdom of Crowds" about why elites make worse decisions than large groups of average people.
Mr. Obama has publicly admired such reasoning. He promised not to let lobbyists run Washington. He filled his cabinet with fewer white men than previous administrations and nominated to the Supreme Court Sonia Sotomayor.
But when it comes to overseeing the $700 billion Troubled Asset Relief Program at the Office of Financial Stability within the U.S. Treasury, dissent and diversity seem less important than elitism to this president. It's an attitude that allows him to overlook failure.
According to resumes obtained through a Freedom of Information Act request, nine of the 13 officers at the highest pay grade at OFS attended Ivy League schools, four at Harvard graduate schools. All but two of the top group are lawyers or MBAs. All the major investment banks are well represented by current OFS employees, with Goldman Sachs — recipient of $10 billion in TARP funds — having 12 out of about 200, more than double the number from other investment banks.
Among Goldman alumni is David Miller, OFS director of investments. He also happens to be a Harvard Business School alumnus. Maybe his undergraduate minor in film studies at Dartmouth College lends an artistic perspective to high-level discussions about which banks are worthy of billions in taxpayer financing.
And then there are about 20 employees in OFS who worked for Fannie Mae or Freddie Mac, the huge government-sponsored enterprises responsible for accelerating if not creating the housing meltdown by backing low-quality loans from people who could never pay them back.
Some employees were technicians who held no responsibility for the debacle created by their organization. But others were key evangelists for disastrous policies. One high-level communications employee at OFS was a senior marketing communications manager at Freddie Mac starting in 2004. She boasts that she "developed, produced and promoted education and outreach initiatives [in English, Spanish, Korean and Vietnamese] which were used in major campaign to increase mortgage purchases. Overall purchases increased 68 percent, while purchases of target product increased 429 percent over previous year."
Then there are a few high-level regulatory compliance and ethics officers at the government-sponsored enterprises (Fannie Mae and Freddie Mac), and one who created a new department to oversee operational risk at Freddie Mac. They were extremely competent at complying with current regulations and enforcing allegedly "ethical" behavior that put taxpayers on the hook for $381 billion, according to an estimate from the Congressional Budget Office. They were not so good at questioning whether the regulations made sense or if their own top officers deserved tens of millions for driving the organizations into insolvency.
George Mason University economist Russ Roberts, who said TARP is a bad idea that should be unwound quickly, nonetheless said OFS workers must have the technical skills to understand the complex financial models created by Wall Street.
That makes sense. An excellent education and/or professional resume should not disqualify someone. But should the vast majority of top people hail from a common culture of tough rules for others — and too-big-to-fail for themselves?
Mr. Surowiecki wrote in "The Wisdom of Crowds," "Instead of fostering the free exchange of conflicting views, consensus-driven groups — especially when the members are familiar with each other — tend to trade in the familiar and squelch provocative debate."
Worse, an organization filled with people who think the same way can find ways to make bad practices or ideas even worse. Mr. Sunstein said in 2003, "The idea is that when like-minded people are sitting with one another, they end up thinking a more extreme version of what they thought before they started to talk."
As the American people found out, leadership at top banks and government organizations has a profound impact on household income and well-being. President Obama already has broken his pledge many times not to hire lobbyists. At the Office of Financial Stability, he did not even attempt to build a philosophically or experientially diverse team.
That gives him little credibility as a crusader for financial regulatory reform. He can't even overhaul his own house upon his own professed foundation.
Marta H. Mossburg is a senior fellow at the Maryland Public Policy Institute and a fellow at the Franklin Center for Government and Public Integrity. Her column appears regularly in The Baltimore Sun. Her e-mail is firstname.lastname@example.org.