Three years ago Wall Street employees flocked to Washington, attracted by the energising rhetoric of Barack Obama, the call of public service and the sudden dearth of jobs in the financial sector.
In the chaotic first days of the Obama administration, the best qualified were thrown into the Treasury department to deal with the financial crisis. Now many have left, returning to the private sector through the famous "revolving door" that separates prize jobs in government from those in business.
Last week alone, Lazard announced that Ron Bloom, one of its former bankers who later managed the government's rescue of the US car sector, was returning to the firm as a senior adviser; and it emerged that Goldman Sachs was close to hiring Jake Siewert, a former top aide to Tim Geithner, the Treasury secretary.
The Treasury says the churn is a natural result of measures taken to fight the crisis, with staff hired specifically to deal with the emergency of 2008 and 2009 departing once the worst was over. But some insiders and several of the departed officials say it leaves the administration short of qualified personnel at the agency that - perhaps more than any other - stands on the front line in maintaining the stability of the global financial system.
"Especially in a crisis situation, continuity's important," says Sheila Bair. The former chairman of the Federal Deposit Insurance Corporation, the government guarantor of US bank accounts, worked with - and sometimes clashed with - the Geithner Treasury, and is herself a former official of the department during George W. Bush's administration. "Some turnover is good: having the core of the career staff and some fresh perspective is a nice blend but I think you can carry that too far," she says.
Certainly, there has been a dizzying traffic of officials at Hamilton Place, the department's imposing headquarters next door to the White House, ever since Mr Geithner succeeded Hank Paulson as Treasury secretary in January 2009.
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Data obtained by the Financial Times under the US Freedom of Information act show that 774 people left the Treasury between the start of the Obama administration in 2009 and August last year. Some 1,227 arrived. The period does not include the "transition", when the bulk of ousted political appointments make way for the new president's team. The departures represent more than one in three of the entire department; arrivals, more than one in two.
"The data do not suggest an atypical amount of turnover for Treasury staff," says Neal Wolin, deputy Treasury secretary. "We hired a lot of staff in the midst of the financial crisis. Many came with term appointments. Their jobs were understood from the very beginning to be finite in tenure."
Notably the Consumer Financial Protection Bureau, intended to crack down on the misselling of financial products, was created within the Treasury and then spun off as a separate agency, swelling the numbers of both arrivals and departures.
But some close to the Treasury say the turnover has made it hard to create consistency, and that there are relatively few seasoned professionals dealing with an economy that is still shaky.
A congressional aide who deals with the department regularly said the depth of experience has declined: "It's absolutely stunning. You go over there and I feel old. There's not a lot of separate and independent intellectual thought."
One former senior official under Mr Geithner concurs: "My subjective experience was that there were large numbers of relatively young and not that experienced people - a lot of them refugees from Wall Street."
The Treasury was a problem from the start, with the administration failing to fill crucial positions, partly because Republicans in the Senate were holding up confirmations of Mr Obama's nominees. Paul Volcker, the former Federal Reserve chairman, went to Congress in February 2009 to call the gaps "shameful". He added that the Treasury had already been "weakened" in recent years. "It deserves some attention and rebuilding and new strength," he said. "You can't be the leading economic power in the world with all the problems we have and have a weak Treasury."
Following Mr Volcker's comments, the department did fill many of the gaps - only for new ones to emerge. But it has made concrete achievements: it produced aggressive programmes with the Fed that stemmed financial panic; it drew up sweeping reforms of Wall Street that became the Dodd-Frank act; and it audaciously bankrupted and rebuilt General Motors and Chrysler.
On the negative side of the ledger, its efforts to kick life into the housing market have fallen flat. There is also debate about the department's success in implementing those financial reforms, which have created new offices with sweeping power over the nation's financial institutions.
Some of the turnover is not unique to the current Treasury but rather a function of the US political system, which another of the leavers compares unfavourably with both the UK Treasury and the Fed. "There is a significant structural difference in the US and the UK - primarily, the US has a much larger layer of politicals," he says. "I think it's a flawed system, having seen the way things work at the Fed, which is much more like the HM Treasury in [the UK, with its much smaller] number of political appointees."
At its best, though, the US system brings advantages. In 2009, there was a host of talented individuals wanting to join the Treasury.
"It sounds sort of cheesy or melodramatic or whatever," says Brian Osias, who worked on the bail-out and restructuring of GM and Chrysler while at the department, "but to me it was exactly what I hoped. Private sector folks with experiences that could be useful to the government and are not permanent skills that the government needs . . . it was great way to deliver that and at the same time to have this public service opportunity." Mr Osias has left the Treasury and moved with two other former officials to Oskie Capital, a hedge fund.
Sadiq Malik, who made the same move, speaks for many when he says his Treasury stint was satisfying but gruelling. "We were trying to do a business plan for GM, which meant we'd spend two days a week in Detroit. The only sleep you'd get would be maybe a couple of hours on the plane. Then we would spend two days in DC, then two days in New York. You really had seven days a week covered in three different cities. I slept under my desk a couple of times because I just didn't have time to go home."
The Oskie group is one of a number of clusters of people who moved together from the public to the private sector. According to an analysis of the data obtained from the Treasury, one of the biggest of those groups is now at Ernst & Young. The accountancy firm has built its Washington tax practice around Michael Mundaca, formerly the most senior tax official in the Obama administration, and Eric Solomon, the most senior tax official in the Bush administration, along with at least four other senior officials.
Today, among the senior ranks, the revolving door between the Treasury and Ernst & Young is more frequently used than the one between the department and Goldman Sachs - the most famous relationship between finance and politics of recent years. Goldman gave the government Mr Paulson, its CEO, and another senior banker, Mark Patterson, who became Mr Geithner's chief of staff and now manages the bewildering array of departures and arrivals.
The connection with Goldman - which, through regulatory and congressional investigations, drew more unwanted attention after the crisis than any other - is not extinguished, however. Not only is the bank in discussions with Mr Siewer, the former Treasury official; the traffic runs both ways. In an appointment that largely escaped public attention, the Treasury last year hired Tim Bowler, a Goldman managing director, to work in its capital markets division on reforms such as the ban on proprietary trading, which is causing headaches at his old firm.
Other high-ranking lieutenants have also left, some for big private sector financial roles, raising questions about the ranks of talent that remain. "I look at the people who I thought were really smart and really accomplished during the time I was there - they are all gone," says another former official. "And I don't see them replaced by comparable people." Mr Wolin counters: "This current team is the strongest I've seen. Anybody who suggests otherwise simply doesn't know Treasury or the depth of our talent."
Jeffrey Goldstein, who was in charge of financial regulation, has returned to his old employer, Hellman & Friedman, the private equity firm. HSBC, the UK-based bank under investigation by US authorities for alleged money laundering offences, has hired as general counsel Stuart Levey, who until last year ran the Treasury's anti-terrorist finance division.
The Treasury notes that many senior officials, such as Mr Wolin, are still in place. But Mr Geithner's closest advisers often hold vague and flexible titles such as "counsellor" - and of these many have gone. Lew Alexander has joined Nomura, the Japanese bank; Lee Sachs has set up BancAlliance, a lending platform for community banks; Jim Millstein, a former Lazard banker who led the restructuring of American insurer AIG, has established his own firm, taking a cluster of Treasury colleagues.
Even if the revolving door still exists, the Treasury says it is less damaging than in the past. "This president and this administration have - more than anybody before - put in place rules to make sure that people who leave don't take advantage of their service in their future work," says Mr Wolin.
For all the departures, there is one constant: Mr Geithner himself. The Treasury secretary survived a barrage of calls for his head in the first two years, gradually closing the gap between the confident and laconic private persona and his initially lightweight public image.
However, he has stayed this long only at the urging of the president, according to people close to him. Even if Mr Obama wins a second term, his Treasury secretary is likely finally to join the exodus.
The firm that takes the US Treasury's brightest from public to private sector
Cypress Advisory opened its door for business in 2005 with one clear aim: to operate at the "revolving door" between bright US Treasury officials looking to move into the private sector and clients in the financial services industry looking to hire top talent.
"We are the only firm, I think in the world, that has people who worked directly for the last four Treasury Secretaries," says Damon Munchus, one of three members of Cypress' 13 strong team to have joined from the Obama-era Treasury. "We know where to go, and who to see."
The financial crisis and the resulting growth in regulation have provided fertile ground for Cypress' combination of contacts on Capitol Hill and economic analysis. The Washington-based company has doubled in size since 2008, according to Patrick Cave, a former assistant secretary for financial institutions who left the Treasury to work for a lobbying firm, before setting up Cypress.
A third of revenue now comes from hedge funds. Cypress provides investment managers with individual political research, which they use to make investment decisions.
"We make a point of not doing written research," Mr Cave says, "most of our research is communicated orally over the phone, or in discrete emails to select clients."
When Treasury was stress testing US banks in 2009, Cypress used its network of contacts, to gather intelligence on possible outcomes. Hedge fund clients increased exposure to financial stocks, after Cypress correctly advised that the stress test results would provide a kick to bank share prices.
"We never asked anyone at the Federal Reserve what the results would be, but having worked in government, we had a view that the stress tests could not prove, and would not prove that the banking sector was unsound," explains Mr Cave. "The view in the markets was that Fed would run stress tests, and let the chips fall where they may. We felt that was a fundamentally inaccurate view."
Hedge funds are now focused on developments at Fannie Mae and Freddie Mac, as the Treasury grapples with how the government-run housing agencies will dispose of the inventory of foreclosed homes they have accrued during the crisis. Cypress hedge fund clients are planning dedicated funds to invest in the properties once sales begin, according to Mr Cave. Private equity clients are eyeing up service companies that chase up payments on delinquent mortgages, in anticipation of a surge in business. Foreign central banks that hold Fannie and Freddie debt are also now paying for advice on developments in Congress.
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