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.
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).