The return of William Donaldson

A short while ago Barack Obama signed an executive order creating an Economic Recovery Advisory Board, staffed by outside experts and headed by former Fed Chairman Paul Volcker. According to the White House, "The board will bring a diverse set of perspectives and voices from different parts of the country and different sectors of the economy to bear in the formulation and evaluation of economic policy":

The members will include former Securities and Exchange Commission Chairman William Donaldson, former Fed Vice Chairman Roger Ferguson, UBS Americas Chairman and Chief Executive Officer Robert Wolf, General Electric Co. Chief Executive Officer Jeffrey Immelt and Service Employees International Union Secretary-Treasurer Anna Burger, according to an administration official.

Of that group, Donaldson seems like the most surprising. Donaldson was the person who chaired the SEC's 2004 meeting that abolished the net capital rule, which limited the amount of debt that investment firms' brokerage units were allowed to take on. The change let the big investment banks vastly increase their leverage ratios -- from about 12:1 to 33:1 in the case of Bear Stearns -- which turned out to be not such a great idea. I would have thought that, at least for the Democrats, appointing to William Donaldson to an advisory board on economic recovery would be a bit like appointing Donald Rumsfeld to an advisory board on closing Guantanamo Bay.