The NYT today reports that former Federal Reserve chairman Ben Bernanke will join the world’s most leveraged hedge fund, Citadel Advisors, as, well, an ‘advisor’.
Mr Bernanke will “offer his analysis of global economic and financial issues to Citadel’s investment committees. He will also meet with Citadel’s investors around the globe.”.
Citadel is best known for High Frequency Trading, a dubious tactic that earns the firm billions by stealing a small amount from each trade of average American investors. The firm was infamously profiled in Michael Lewis’ book ‘Flash Boys’ and has been under scrutiny from regulators and the general public ever since.
The move by Mr. Bernanke raises serious questions about the revolving door between government and industry. Former Treasury Secretary Hank Paulson faced similar concerns when he left Goldman Sachs for public service, as did Mark Carney, another Goldman alumni, who is now head of the Bank of England.
Mr. Bernanke’s choice of firm is also curious as Citadel has shot to prominence after the 2008-2009 bailouts of American banks. Calling the bank “not systemically important”, Mr Bernanke argued that it did not need regulatory oversight by the Federal Reserve and therefore would not be a conflict of interest with his previous employer.
The chart below shows the amount of leverage of the largest hedge funds. Does Citadel really look like an institution that is not systemically important?
