The Scholars Who Shill for Wall Street
Consumer advocates and independent analysts do their best to weigh in as well, but they are outgunned. Meanwhile, consulting firms dedicated to playing matchmaker between corporations and hired experts have flourished in the new regulatory environment. Director Charles Ferguson, whose film Inside Job highlighted the role of sponsored professors in supporting the deregulatory policies that led to the financial meltdown in 2008, says the business of economic consulting firms that work to “source” academics for expert testimony and regulatory filings “has been going on for quite a while, and it’s now quite a large industry.”
National Economic Research Associates, Oliver Wyman, Charles River Associates, Cornerstone Research and the Global Economics Group are just a few of the businesses devoted to helping Wall Street firms find academics. In the DC Circuit ruling against the proxy access rule, the court criticized regulators for failing to fully consider a study written by a Yale professor. The study was sponsored by National Economic Research Associates, which counts Barclays and Morgan Stanley among recent financial industry clients, and had never been peer-reviewed.
Another such firm, Charles River Associates, advertises its services to help clients with “sophisticated economic and statistical analyses…in ways that regulators can easily understand.” Charles River flips the scientific method, promising that its academic services will “make strong cases to support desired outcomes.” Its roster of consultants included academics from the University of California, Berkeley; Harvard University; the University of North Carolina, Chapel Hill; and the University of Chicago. The company notes that many have worked on financial regulatory reform, including Dodd-Frank.
In its annual report, Marsh & McLennan, the parent company of Oliver Wyman, touts the role of Dodd-Frank in bringing new business to its consulting subsidiaries. Similarly, the Global Economics Group boasts about its role in financial reform implementation, noting that its academics have submitted white papers and made presentations before regulators.
More than a few scholars have taken advantage of opportunities to supplement their academic salaries. Zywicki’s colleague at George Mason, J.W. Verret, has produced research for regulators. Last year, he testified before Congress on the costs of Dodd-Frank. In the past year, Verret billed lobbying firm Greenberg Traurig (which represented the US Chamber of Commerce and Nomura Holdings, among other firms) nearly $50,000 for his consulting work, a job he did not disclose on his academic profile page. When Verret appeared before the congressional panel, he identified himself only through his academic credentials.
Jim Overdahl, an economic consultant formerly with National Economic Research Associates, told The Nation that professors can fetch $5,000 per letter submitted to a regulator.
Darrell Duffie, a professor of finance at Stanford University, is paid more than $200,000 in cash and stock every year for his board membership at Moody’s, the rating agency. Moody’s has championed him as an asset given his contacts with regulators. “Dr. Duffie has significant expertise in a number of areas that are directly relevant to the Company’s core business operations…and his opinions regarding financial regulatory reform have been solicited by various arms of the US government,” noted Moody’s when it nominated him to its board, listing the Senate Banking Committee, the House Financial Services Committee, and the Federal Reserve as places where Duffie enjoys access.
Duffie, who has submitted comments in opposition to a number of Dodd-Frank regulations, is also a member of the Squam Lake Group, an association of economists who have offered regulatory reform ideas on issues that would affect credit rating agencies, including money market reform.
In this context, the implementation of Dodd-Frank has been a nearly impossible task. Even as regulators struggle to produce lengthy economic cost-benefit analysis reports to justify the new rules, congressional Republicans have cut the budgets of various regulatory agencies. What’s more, the new standard won by Eugene Scalia has emboldened opponents of Dodd-Frank to produce more sponsored studies that can be used in legal challenges. In court, opponents of the law continue to score victories using the precedent set by the 2011 proxy access case.
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