Politicizing the Treasury Department

The online Dictionary.com website defines a political hack as a politician who belongs to a small clique that controls a political party for private rather than public ends. Whoever wrote that definition must have had Jack Lew in mind, Obama’s nominee to replace Tim Geithner as Treasury Secretary.

Lew is the fourth leg on Obama’s cabinet table joining John Kerry, now confirmed as Secretary of State; Chuck Hagel, confirmed last Tuesday for Defense Secretary; and John Brennan, CIA nominee. Their selection for key posts in the Obama second term speaks volumes – they are each second-stringers, less capable than the people they are replacing, but they are all liberal ideologues who are to the left of their predecessors … fit candidates for Obama to complete his transformation of America if he can only wrest control of the House of Representatives away from Republicans in 2014 and reinstall Pelosi as his missing team member.

Politics is in Lew’s blood. He was born and grew up in Queens, New York, where politics is airborne. At age 12 he campaigned for Eugene McCarthy’s failed 1968 attempt to win the Democrat presidential nomination. After getting his B.A. from Harvard and a law degree from Georgetown, Lew became a legislative assistant to US Representative Joe Moakley (D-MA) and afterward moved up to become a policy aide to House Speaker Tip O’Neill (D-MA) where he remained for eight years.

Shortly after Bill Clinton became President, Lew became his Special Assistant and, moving through several Clinton Administration appointments, became Director of the Office of Management and Budget (OMB). With the election of George Bush, Lew left the government and began a controversial tenure as the Executive VP of Operations for New York University followed by an equally controversial stint as a senior executive in the Citigroup operations. These two chummy and financially rewarding stops along his career path got some attention during his confirmation process but not nearly enough attention – essentially proving that cronyism extends to the clubby climes of the US Senate on both sides of the aisle.

While he was EVP of Operations at NYU between 2001 and 2006, Lew’s salary was $840,000 – more than the university president was paid. In addition, he received a $1.4 million “housing assistance” loan. And to make sure that Lew and his wife didn’t lose sleep worrying about repaying that loan, it was forgiven over a five-year period. Of course, Lew got to keep the house, which he bought for $1.3 million and has appreciated to $1.8 million. Wow! This guy was really a valuable asset to have around. I wonder why.

Well, investigative reporters at the Wall Street Journal have learned a few things that enhanced Lew’s attractiveness to NYU. While he was Executive VP at the university, Citibank (his next employer) became the school’s preferred lender. Moreover, Citibank paid NYU 0.25% on all student loans originated while he was there. In some circles, that’s called a kick-back.

Unlike Jack Lew, the poor student slugs didn’t have their loans forgiven, putting them in bondage for perhaps a decade after graduation – longer if they took low-paying jobs. Oddly, Obama the Populist harped on the banking industry’s exploitation of student loans to justify his proposed reforms in the run-up to the 2012 election. Yet Obama found no conflict in having a man run the Treasury Department who leveraged the student loan system to the hilt.

In due time Mr. Lew moved on from NYU, a career way station at best, to – none other than – Citigroup and another cushy, well-paying job with few responsibilities. While there, New York’s Attorney General, Andrew Cuomo, having his eye on the Governor’s Mansion at the time thought a nice hide to hang on his AG wall would be Citigroup’s. So, his minions began investigating Citigroup’s loan practices as the preferred lender to NYU students, discovering the university kickbacks (which were passed on to students in the loan costs.) Cuomo charged that the kick-backs hadn’t been disclosed to students (does anyone really disclose kick-backs?) and that the adulterous affair between the bank and university was a conflict of interest (really?) that violated state law (nawh!). Citigroup agreed to pay $2 million to settle the matter and NYU paid $1.4 million to reimburse students.

There was a time in years gone by that a scandal like this would have sunk a person’s chances for high office, but no more. Helped by a remarkably defective memory for so smart a man as he, Lew will escape any taint for past transgression. He simply says,

I do not recall having any conversations with Citigroup officials regarding Citigroup’s selection or actions as a preferred lender for NYU students. Also, I do not believe that I approved the selection of Citigroup as a preferred lender for NYU students.

What, then, does an EVP of Operations do? University presidents are fund-raisers. EVPs of Ops run the school.

Senator Charles Grassley (R-IA), the ranking Republican on the Finance Committee, has a reputation for shining daylight on transactions and relationships that aren’t publicly transparent but ought to be. Commenting at Lew’s confirmation hearings last week, Grassley said,

Mr. Lew’s track record of getting well paid by taxpayer-supported institutions raises questions about his regard for who pays the bills. The problem of colleges that always seem to find money for the executive suite even as they raise tuition is not unique to New York University. However, New York University is among the most expensive, has a well-funded endowment, and has high student debt loads. It should explain how its generous treatment of Mr. Lew and other executives is necessary to its educational mission.

And generous it was.

Many organizations have severance packages for key executives whose positions are terminated or whose separation is decided through no fault of their own. A few organizations may pay severance in recognition for past service to an employee who is fired. It is unheard of, however, to pay severance to someone who voluntarily quits for another job, advancing his career in the process. Not so with Jack Lew who has an uncanny knack for getting deals that most of us would never enjoy. When he left NYU, Lew received what he describes as “a one-time severance payment upon my departure.” Lew’s reward for leaving NYU? $685,000.

Lew’s brief Citigroup career began in 2006, ultimately rising to the chief operating officer of the bank’s “alternative investments” – a curious euphemism for Las Vegas-style bets that shorted the subprime mortgage market. During his watch, 113 Citigroup subsidiaries were launched in the Cayman Islands, a tax haven vilified by candidate Obama. Lew’s “alternative investments” portfolio blew up in 2008 along with most of Citigroup, which laid off a seventh of its workforce and applied for a $47 billion taxpayer-funded bailout.

But despite the financial wreckage others suffered, Jack Lew came out quite well – as he always does.

Presciently Lew’s employment agreement with Citigroup said his “guaranteed incentive and retention award” wouldn’t be paid if he quit his job unless he left Citigroup “as a result of your acceptance of a full-time high level position with the United States government or regulatory body.” Hmm. Unless he left for a government job where he could peddle influence favorable to Citigroup? Furthermore, if Lew left to accept a high level government position, he would also vest all outstanding equity awards, including restricted stock, immediately. Not bad.

The definition of “high level” position was left unstated in his employment contract, but it’s a safe bet that it didn’t include work for an elected official in the legislative branch. Wrong side of the fence. And by specifying a “government” position, that ruled out top positions in universities, American Cancer Society or the Red Cross. No influence can be peddled from those jobs.

Citigroup is a parallel universe for former high government retirees – i.e. it is joined at the hip to the executive branch of government by a revolving door. For example, while he was vaporizing the net worth of Citigroup shareholders, former Clinton Treasury Secretary Robert Rubin pocketed $115 million as a member of its Board. And then there is Obama’s former OMB Director, Peter Orszag, who also migrated to Citigroupland where today he is Vice Chairman of Global Banking – a cushy, well-paying job with lots of assistants to do the work.

As a major supplier of executives for influential government jobs, it was only a matter of time before Citigroup would find a way to put one of their own in the incoming Obama Administration shortly after the financial meltdown that Citigroup helped cause. And to send Lew on his way in his new government career, Citigroup packed his lunch box with a $940,000 bonus, $1.1 million in salary and discretionary cash compensation, and who knows what else.

At his confirmation hearing for Treasury Secretary last week, Senator Grassley asked Lew to "explain why it might be morally acceptable to take close to a million dollars out of a company that was functionally insolvent and about to receive billions of dollars of taxpayers' support."

Lew's explanation was pure Teflon. "I was an employee in the private sector compensated in a manner consistent with other people who did the kind of work that I did in the industry." he said.

Initially serving as Secretary of State Hillary Clinton’s deputy secretary for management and resources in 2009, Lew ultimately returned to his old seat as Director of OMB when Orszag left for Citigroup in 2010. Sorta’ like tag-team wrestling, isn’t it?  Then the upwardly mobile Lew became Obama’s Chief of Staff in early 2012 when Bill Daley was sent packing back to Chicago.

Chief of Staff doesn’t sound like much, but an unelected official can’t go up from there. It’s the top of the top and no one gets time with the Maximum Leader unless the Chief of Staff okays it. For all its power, however, Chief of Staff doesn’t get the newsprint that a senior cabinet position gets, and when Geithner said he’d had enough at Treasury after Obama’s reelection, Lew, who has absolutely no relevant experience for the Treasury job, was Obama’s man to take over. Lew is loyal and he’s ideologically left of Kerry, Brennan, and Hagel. But Obama could have thrown a rock in any direction and hit at least a half dozen better qualified people for Treasury than Lew.

During the 2012 presidential campaign, Obama excoriated Romney as the embodiment of everything that’s wrong with Wall Street. Romney had cast his lot with sinners, Obama alleged, because of the cupidity of Bain’s business model. Romney was a Judas because he had invested profits overseas, evidence of his moral depravity. Drawing a particular bead on Ugland House in the Cayman Islands – the address of record for over 18,000 global businesses – Obama called it "either the biggest building in the world or the biggest tax scam in the world." These turpitudinous moral flaws disqualified Romney from the White House, according to Obama.

Yet the man he chose for Treasury Secretary has a resume that is more ethically-challenged than Obama’s assessment of Romney’s. Unlike Romney, Lew made millions while Citigroup shareholders lost hundreds of millions. Unlike Romney, American taxpayers were dragooned into paying almost $50 billion to bail out Citigroup’s bad bets, including those under Lew’s stewardship. As mentioned above, during his tenure Lew presided over the creation of 113 Citigroup subsidiaries in the Caymans, the Gomorra of the financial world. Embarrassingly, it was revealed last week that Lew had an invested $65,000 of his personal money in an Ugland House venture, that den of iniquity according to Obama. And yet Lew claimed with a straight face during his confirmation that he didn’t know where Ugland House was or what went on there.

None other than Senator Max Baucus (D-MT), the chairman of the committee holding the hearing on Lew’s confirmation had investigated Ugland House several years previously, calling it a place that had "a lot to do with tax evasion." But Baucus and none of the Democrats on the committee were interested in learning about Lew’s Ugland investments or his bonuses and extraordinary compensation for the minimal work he did for Citigroup and NYU. As the criticism of Lew mounted, Obama responded saying he wasn’t interested in his past financial transactions. Yet he was sure interested in Romney’s. What disqualified Romney from higher service to his country seems to have qualified Lew.

All of this is moot, of course. Jack Lew’s confirmation was never in doubt. And after the Finance Committee hearing ended, Senator Grassley’s office issued this statement about Lew’s inability to recall anything about anything:

It was jaw-dropping to hear the Treasury secretary nominee say he’s still unfamiliar with Ugland House.  He had his own money there through Citigroup.  His boss, the President, has cited it numerous times at highly covered events.  It’s been featured in a Finance Committee hearing and speeches on the Senate floor from senior Democratic senators.  The Treasury secretary oversees the IRS.  Mr. Lew’s unfamiliarity with the most high-profile example of what the President calls “the largest tax scam” does not build confidence in his knowledge of the tax code, his ability to enforce it, or his ability to help shape the broad tax reform everyone agrees we need.  I’ll continue to reserve judgment on whether to support the nomination until Mr. Lew answers written questions for the record, and I weigh all other factors, but I have serious doubts about whether the President made the right choice.

The Secretary of the Treasury is essentially the Chief Financial Officer of the government. According to the Treasury Department website:

The Secretary of the Treasury is the principal economic advisor to the President and plays a critical role in policy-making by bringing an economic and government financial policy perspective to issues facing the government. The Secretary is responsible for formulating and recommending domestic and international financial, economic, and tax policy, participating in the formulation of broad fiscal policies that have general significance for the economy, and managing the public debt.

Looking at the links in the names of past Treasury Secretaries, you find men (yes, all men) with deep experience primarily in banking and industry that qualified them to hold the position. What has Jack Lew done that comes close to the achievements of these men before they were nominated to Treasury? Nothing.

How about his work as Director of OMB for Clinton and Obama? Yeah. How about it?

Jack Lew is on record for saying in early 2011:

Our budget will get us, over the next several years, to the point where we can look the American people in the eye and say we’re not adding to the debt anymore; we’re spending money that we have each year, and then we can work on bringing down our national debt.

In fact Lew’s budget, which can be found at the link above, would have done the opposite – using his own numbers it would have added to the debt! The actual yearly deficit of the Obama 2010 budget was $1.293 trillion, $1.645 trillion for 2011, and $1.101 trillion for 2012. Thus contradicting Lew’s assurances about looking the American people in the eye, the national debt continued to grow. In fact, the CBO said the last Lew budget would produce cumulative ten-year deficits of $6.4 trillion. That’s why senators voted against it 99-0. That’s why no Lew budget has made its way through the approval process.

The Senate confirmed Jack Lew 71-26 Wednesday. Nevertheless, he is a political hack, a Washington insider with no political aspirations for future elective office, so he will be off the leash in Treasury. He will do his time in the Treasury wheelhouse for four years and return to the private sector where the real money is made.

Obama and the Senate gave him the job because he is a party man through and through and an ideologue who is left of the Left. He has proven to be a tough negotiator with no inclination to compromise. He will keep the pressure on Congress for higher taxes, he will resist spending restraints, and he will spend little energy on entitlement reform because he is a true believer in the welfare state. That’s why Obama wants him in Treasury.

John Boehner had better keep a bottle of Pepto-Bismol nearby.