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If a CEO of a major investment banking firm becomes Treasury Secretary or if a lobbyist for said company becomes Chief of Staff of the Treasury Secretary, in what way can this result in conflicts of interest? It clearly seems wrong, but I have no idea what exactly can go wrong. Any concrete examples and explanation would be appreciated.

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  • In Japan, it's called "amakudari", literally "descent from heaven". I first heard about it after Fukushima daiichi. Jul 11 '13 at 10:28
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SecTreas (or even a low level regulator) can make decisions that severely impact a financial company, either on an absolute level; or by tilting the playing field relative to peer companies.

Random example of such decisions:

  • Bear Stearns was bailed out. AIG was bailed out. Lehman Brothers was NOT bailed out.

  • JPMorgan was effectively forced to buy WaMu (which IIRC neither side was in favor of)

  • Specific rules formulated for computing capital requirements (Basel II, Frank-Dodd, etc...). You can always tweak the rules so that IB#1 is impacted differently from IB#2.

  • Intensity of checks and prosecutions (witness how Bernie Madoff was more or less ignored. Or for a more egregious example, Jon Corzine).

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