Conflicts of Interest Could Cloud Otherwise Sunny Forecast
Newsletter 73: What Biden can do to safeguard public trust
Almost two months ago, news outlets reported that Michael Barr’s appointment as Comptroller of the Currency was imminent. Last week, after a protracted show of resistance from progressives, it was described as “nearly dead.” What’s more, progressives’ preferred pick, Mehrsa Baradaran, is the apparent frontrunner for the job.
This long-awaited news comes amid a week filled with encouraging announcements. Most recently, it was reported that the administration plans to nominate Lina Khan for the soon-to-be vacant seat on the Federal Trade Commission (FTC). If that turns out to be true, it will be a major win for antitrust reformers. And while that appointment remains unconfirmed, the administration made that of another prominent anti-monopolist, Tim Wu, official late last week. It seems the administration will also soon give advocates for a fairer tax system reason to celebrate: Janet Yellen is reportedly planning to name Lily Batchelder to be Assistant Treasury Secretary for Tax Policy.
Zoom out on the transition as a whole, as several news outlets did this week, and it becomes clear just how far progressive pressure has moved executive branch appointments from the reigning, Wall Street-dominated status quo. As Politico put it, “The Robert Rubin Citigroup clique is no longer at the cool kids table, after occupying it during the last two Democratic administrations.” That fact should give even the most cynical reason to cheer.
Transition:
Of course, even without the usual swarm of Wall Streeters, there are no shortage of figures who are likely to be representing corporate America’s interests within the Biden administration. Despite our calls, Biden did not adopt sweeping exclusions to keep revolving door figures out of the highest ranks of government. Now, his administration has to manage the inevitable conflicts of interest that arise from that choice.
With his ethics executive order, Biden took some initial steps towards that goal. But while that order earned praise (including from us) for going further than its predecessors, it still leaves many openings for serious conflicts of interest among executive branch appointees. Substantively, those leave room for individuals to enrich themselves, corporate America to get its way, and the public to lose out. Politically, they represent a liability for an administration that promised to clean up Trump’s ethical mess.
If this administration wants to avoid either set of risks, it will need to place additional requirements on those with conflicts of interest, whether they arise from past employment or family relationships. In a new letter, our Jeff Hauser calls for strict recusal requirements to supplement existing, porous ethics law and the better, but imperfect, executive order. The letter focuses on the threat those with ties to Big Tech may pose for the anti-monopoly movement; many prominent officials hail from Big Tech and the largest behemoth of them all, Amazon, has an unimpeded route to the President’s ear through their newly-hired lobbyist Jeff Ricchetti, brother to senior Biden adviser Steve Ricchetti. Conflicts of interest are not just a problem, however, when it comes to antitrust policy. The administration should seek to quell concerns in other policy areas as well by demanding and publicizing the use of recusals.
Managing some others’ conflicts is even more of a conundrum. Mark Gallogly, who we profiled on our blog this week, presents one illustrative example. Gallogly is a big money donor who made his money in private equity and hedge funds before retiring to focus on investing his family’s fortune late last year, with a focus on “climate solutions.” Last week, it was reported that he would be joining John Kerry’s State Department-based climate team, a position that will offer him myriad ways to turn a profit without ever breaking the law. Once installed, Gallogly will likely no longer be able to weigh in on his family’s investments, but with the knowledge he already has about the portfolio he will be well-positioned to put his thumb on the scale in favor of his preferred, most personally profitable solutions. And, after he leaves government, there is nothing stopping him from turning his new wealth of inside knowledge about federal and international climate policy into literal wealth.
How exactly do you manage such enormous conflicts? Recusal is a less than perfect fix. As currently conceived, recusal likely would not cover many of Gallogly’s conflicts. And interpreted more expansively, recusal could make it so that Gallogly simply couldn’t do the job. That’s why our preferred solution for such cases would be for the administration to look to different candidates. Barring that, however, divestment is likely the cleanest solution (although still not perfect as we detailed in last week’s newsletter). This would need to be accompanied by a post-government cooling off period wherein the official in question does not own equity in an investment relevant to their past employment -- for ease of implementation, they could be asked to hold treasury bonds or shares in mutual funds.
Speaking of, it would seem that Congress would also do better to demand divestment from single name stocks rather than rely on its current self-reporting and self-policing regime. This week, two new members indicated that they “forgot” to file transaction reports that revealed significant trading activity at the start of the pandemic. So far it seems that they will avoid the wave of negative media coverage that followed several similar reports last year, a fact that may only encourage similar evasions in the future.
Independent Agencies:
H.R. 1, a sweeping set of democracy and ethics reform measures, passed the House last week. Unfortunately, until the filibuster is gone, those much-needed reforms are unlikely to become law. In the meantime, however, Biden can effectively implement one key reform unilaterally: fixing the Federal Election Commission (FEC).
As it stands, the FEC is made up of six members, no more than three of whom can come from one political party. This setup, and the growing gulf between our two major political parties on election law (one believes in it and the other does not), has rendered the commission non-functional. HR1 solves this problem by reducing the FEC’s membership to five so that the three members from the President’s party constitute a majority.
Biden cannot singlehandedly reduce the FEC’s membership, but he can take steps to ensure that it has a functioning majority. Republican commissioner Sean Cooksey’s term will expire at the end of April, giving Biden the opportunity to fill that seat. Rather than nominating a Republican for the role, he should pick an Independent who favors the enforcement of election law. This is well within the bounds of the statute.
With this simple course of action, Biden can restore a functioning majority to the FEC. That, alone, is not enough, but until the filibuster falls and more permanent solutions can be passed, it is much better than nothing.
Governance:
A slew of senior Trump officials have left the federal government over the past few weeks. February 28th was the deadline for the vast majority of Trump-appointed U.S. Attorneys to step down. On Friday, Biden fired the General Counsel of the Equal Employment Opportunity Commission (EEOC), Sharon Gustafson, after she refused to resign. And, on that same day, the head of Federal Student Aid (FSA) Mark Brown, resigned amid mounting calls for newly-confirmed Education Secretary Miguel Cardona to fire him.
Still, even after this latest round of housecleaning, there are several powerful figures who need to be removed. Those include FBI Director Chris Wray, IRS Commissioner Charles Rettig, and Federal Housing Finance Agency (FHFA) Director Mark Calabria.
It also bears noting that removing the top brass is just the beginning when it comes to reorienting agencies and offices that have been taken off course. In an article for the American Prospect, for example, our Mariama Eversley details how figures loyal to Trump may still be calling the shots in key U.S. Attorneys offices. U.S. Attorneys will be one key avenue through which Biden can implement his promised criminal justice reform agenda, but to do so he will need to move quickly to nominate reform-minded replacements for the dozens of posts across the country.
Meanwhile, at FSA, both the acting replacement and a rumored permanent successor are raising alarm bells. Acting head, Robin Minor, has been no friend to student borrowers at the Education Department. For example, in the time that she led the Department’s Borrower Defense office, 94% of defrauded students who applied for loan forgiveness were denied. Meanwhile, one of the people under consideration to lead FSA permanently is Abigail Seldin, a max donor whose relevant experience consists of a stint at a disastrous for-profit college company (yes, even by exceptionally low industry standards). De-Trumpification means not only removing holdovers but choosing successors who won’t simply advance the same horrible agenda.
Want more? Check out some of the pieces that we have published or contributed research or thoughts to in the last week:
Trump Holdovers Still Dot US Attorneys Offices
Attn John Kerry: Mark Gallogly Is Loyal To Profit, Not Climate
Revolver Spotlight: Lisa Monaco
The State of Independent Agency Nominations - Update for March 2021
The addiction to Pentagon spending will damage our country's recovery
The Pentagon, First, Last, and Always
A Betsy DeVos Holdover Is Still In Charge Of America's Student Loans
Biden's Top Labor Advisor Helped Uber Gut Workers' Rights
Trump-Era Inertia Bogs Down Agencies as Biden Seeks Urgency
Trump-Era Inertia Bogs Down Agencies as Biden Seeks Urgency
Biden deputy budget nominee Young praised by Republicans, White House keeps door open
Biden Taps Ex-DOL Official Harris As WH's Top Labor Adviser
Through Vigilant Organizing, Progressives Secure Representation in the Biden Administration
Big Tech Antitrust: Will Biden Take on Facebook (FB) and Google (GOOGL)?
Warren Builds Clout With Biden Through Pipeline of Staff Picks
POLITICO Playbook: Is Biden’s next bid for bipartisanship dead already?
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