In what is surely a conflict of interest, as shown by the fact his lawyers vetted and structured the arrangement, former Federal Reserve chairman Ben Bernanke is joining bond giant Pimco as a senior advisor.
The firm is seeking to generate a trading ‘edge’ to bolster its returns following the departure of cofounder Bill Gross.
The move is being questioned by competitors who had previously criticized the Fed during Bernanke’s reign for being too close to Pimco. The critics suggested the Newport Beach, California-based firm had an advantage in interpreting monetary policy.
The latest move is no doubt going to stoke those concerns.
The very same allegations have been leveled against high frequency trading firm Citadel, where Mr. Bernanke is also working as an adviser.
The fact Mr Bernanke joins two of the largest, most powerful firms on Wall St. show how problematic the revolving door is between government and industry. Both firms, more than others, rely on information from the Fed to make investment decisions.
The timing and back-story to what should be public information is critical to their success. The fact Mr Bernanke chose these two exposes both the Fed and each firm to allegations of favoritism, insider trading and otherwise rigging the deck.
Both Pimco, which oversees $1.59 trillion in assets as of March 31, and Bernanke declined to say how much he would be paid but did say he will be attending every Pimco quarterly meeting of top executives.
He is unlikely to come cheap, though, given he received as much as $250,000 for a single speaking engagement last year.
In late 2008, the Fed hired Pimco, along with three other big Wall Street firms, to implement enormous purchases of agency mortgage-backed securities to keep interest rates low and spur the US economy. Pimco also managed the commercial-paper assets for the Fed during that period.
Bernanke’s lawyers, Robert Barnett and Michael O’Connor of Williams & Connolly LLP, were the architects of the Pimco arrangement. Barnett and O’Connor are said to also have brokered Greenspan’s advisory deal with Pimco, the source added.
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