Say It Ain’t So, Ben
Is it the money?
No.
Federal Reserve Chair Ben Bernanke, the man who saved the global economy, is becoming an adviser for Citadel, a hedge fund management company. Bernanke will provide advice to Citadel’s fund managers and will also meet with its clients (that is, the limited partners who invest in those funds).
It’s easy to see why Citadel wants Bernanke. He’s a smart man. He knows the inner workings of the world’s central banks as well as anyone. Although he won’t be a registered lobbyist, he can pick up the phone and get anyone in the world to answer, if he wants to. And, perhaps most importantly for the bottom line, the wow factor of having Bernanke meet with investors will help immeasurably with sales — bringing investments in the door.
The bigger question, as always, is why Bernanke wants Citadel. The first thought on many people’s minds will be money. The Times quotes Erik Gordon saying,
“It is inevitable, if you are a bright, knowledgeable, battle-trained regulator or top-level player. It takes a really unusual public servant to be able to decline the siren song of making a lot of money.”
I don’t buy it.
Ben Bernanke is not a particularly rich man by contemporary standards — probably in the top 5% but not the top 1% when he left public service in 2014. But he has many ways of making money. Bernanke is at the top of the academic profession. Based on a few data points of other academic superstars, my guess is that he could make something close to $1 million per year in base salary, particularly as a finance professor at a business school. As a fellow at Brookings, he probably makes several hundred thousand dollars for a job with no fixed responsibilities. But base salary is almost irrelevant. Bernanke earns hundreds of thousands of dollars every year in textbook royalties. We don’t know what his book advance was, but while it probably doesn’t equal Alan Greenspan’s $8.5 million, that’s the scale we’re talking about. Finally, if you’re a major public figure, all of the above might as well be loss leaders. The real money is in speaking fees, and Bernanke commands something like $200,000 per appearance.
Private sector salaries are certainly a major cause of the revolving door in financial regulation. The fact is that we don’t pay our top civil servants nearly as much as they could make working for banks or hedge funds, they spend all their time talking to people who are making more than ten times what they are, and many come to see industry compensation levels either as their birthright or as the only way to pay for their children’s private schools and colleges. The need to keep those job opportunities open is one completely legal mechanism through which regulators can be induced to take industry-friendly positions.
I doubt that this factor matters when you get to the Tim Geithner-Ben Bernanke level, however. People like that can amass a net worth of $5–10 million in just a few years once they leave public service. Sure, there are people like Rajat Gupta who will never be satisfied until they are billionaires, and probably not even then. But there’s nothing about either Geithner or Bernanke to make us think that they are interested in money for its own sake. Both spent decades making salaries that wouldn’t warrant a phone call from the lowliest assistant vice president in Goldman Sachs’s wealth management division.
Instead, I think what’s at work here is the Masters of the Universe phenomenon. For decades, people in finance — hedge funds in particular — have made more money than anyone else. Since sometime in the 1990s, however, our culture has started looking up to finance megastars not just as Really Rich, but also as Really Powerful, Really Important, and Really Good. Who remembers that Sherman McCoy, the original Wall Street Master of the Universe (in Tom Wolfe’s Bonfire of the Vanities), is an unsympathetic character who is bankrupted by just a $12 million judgment? In the 1960s, America looked up to astronauts. Now we look up — begrudgingly and critically, perhaps, but up — to bond traders and hedge fund managers.
Bernanke is clearly interested in influence and power. He was a Fed governor and then chair of the Council of Economic Advisers before becoming Fed chair, and you don’t get nominated (and renominated) without a healthy amount of both desire and political skills. When you’ve been at the helm of the global economy for eight years, where is there to go?
People like Bernanke go into finance for the same reason kids right out of Harvard go into finance: it’s the thing that everyone says is the center of the world, the place to be, where all the other smart kids are going.
It’s where you go to keep your opportunities open. And even when you have had trillions of dollars of electronic money at your disposal, it’s hard not to look up to someone like Kenneth Griffin who “only” manages tens of billions of dollars — yet has managed to extract several billions out of the flow for himself. In our culture, money commands respect. Why else would news sources fall over themselves covering Davos, a conference of rich people?
Ben Bernanke will do fine. And his going to Citadel doesn’t, in and of itself, make the world a better or worse place. The loser, if there is one, is the investors who will blindly turn their money over to Ken Griffin because they are star-struck by Ben Bernanke, and there’s no reason to feel sorry for them.
But it’s sad that we live in a world where even Ben Bernanke — once perhaps the second-most powerful man in the world — feels like the only thing worthy of their time is just another hedge fund.
James Kwak is, among other things, an associate professor at the University of Connecticut School of Law. Find more at Twitter, Medium, The Baseline Scenario,The Atlantic, or jameskwak.net.
