March 22, 2010
A Foreign Service for Financial Regulation?
Posted by David Zaring

Scott McClesky has an op-ed in the Times urging the financial regulatory agencies to devise a foreign service for financial regulators.  McClesky thinks that, where the rubber meets the road, the Foreign Service does two things well: good and early pensions, and lots of in-house training.  He thinks that the SEC, &c, should do the same. 

One can quibble with the details - much of that education in the Foreign Service is language education, and there is so much language taught in the Service - Icelandic, Lao, etc - that one wonders if it's worth the candle (or if foreign services officers really all can speak 8 languages, including Flemish) - but the Foreign Service is a jewel of the bureaucratic crown.  It is worth thinking about what about it is replicable.

Two things about it aren't replicable.  First, as we have noted earlier, there isn't an easy private sector cognate to Foreign Service work, especially the political and security diplomacy practiced in the high state affairs part of the service.  That slows the revolving door.  And second, the Service offers job and lifestyle advantages that are hard to duplicate: great apartments in Stockholm, a staff of seven should you be sent to Bangui, and a workaday where you often spend time talking to foreign muckety-mucks.  Not for everyone, but attractive to some, including many lawyers (the foreign service is chock full of biglaw refugees).

And one thing about it is controversial.  Rather than becoming country experts, foreign service officers are expected to serve all over the world; some find that to be difficult, others find it to be a waste of sweat equity (the FS does it so that its employees won't come to be "captured" by the country in which they live, representing its interests against the US more than the opposite).  Is that what financial regulators should do?  Move from the derivatives desk at the CFTC in Chicago to the NY Fed to that plum special assistantship with the director of enforcement at the SEC in DC?

It is worth considering - and not least because regulatory capture is thought to be the most difficult aspect of supervision of financial intermediaries.

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