Whose Interests Will Jack Lew be Representing??

…as Secretary of the Treasury?

Prior to joining the Obama administration (initially as a Deputy Secretary of State, later as White House Chief of Staff), Mr Lew worked at Citigroup, where his employment agreement contained an interesting provision…specifically, a provision protecting his accrued bonus money in the event that he left the bank to take “a full-time high level position with the United States government or regulatory body.”

Suppose you were running a business, the XYZ Company, and were considering hiring for a key position a person who was working for one of your customers or suppliers..and you found out that he had an employment agreement providing special bonus protection in the event that he takes “a full-time high-level position at the XYZ Company.” Would you hire him? Might you be just a little bit concerned that your customer/supplier was trying to implant in your company an individual who would steer the business decisions in favor of that customer or supplier, rather than focusing resolutely on the interests of XYZ Company itself?


This New York Magazine article argues that we shouldn’t be overly concerned about this clause in Lew’s employment agreement, noting that the agreement also protects his bonus if he leaves after “a significant reduction in your title/function or responsibilities” or “a relocation of your principal place of employment to a location that is not within a commutable distance in the New York City area.” But these latter clauses are pretty standard in executive employment agreements…if the company makes your job much less desirable, then you can leave without forfeiting accrued compensation, which is pretty reasonable.

The New York Magazine article also argues that Citi had a vested interest in ensuring that Lew not leave and go to work for, say, Goldman Sachs, or “the hedge fund down the street,” while it had no such interest in ensuring that he not go to work for the government. But that could have been handled by the more typical language of forfeiting the bonus if he did go to work for a directly-competitive organization, as defined by a list of names and/or organizational attributes. (In any event, if the concern was competitive employment, why protect the bonus only if his new employment was with a high-level position?)

I’m not accusing Jack Lew of corruption. Most likely, he will honestly believe in whatever policies, however misguided, he pursues as Treasury Secretary. But Citi, like other major Wall Street firms, clearly believes it to be in its interests to have a friend at court. And the more dominant a factor government is in the financial markets, the stronger these interests will be.

What is especially disturbing is the ever-tightening nexus between high-level government employment and highly-profitable Wall Street employment. The WSJ article linked about notes that “Wall Street has become a get-rich-turnstile for Democratic political operatives,” and goes on to say:

Citi has been an especially nice landing spot for big-shot Democrats. Former White House budget director Peter Orszag is now a Citigroup vice chairman and somehow finds time to write a column for Bloomberg News. And there was former Treasury Secretary Robert Rubin, who was paid more than $115 million while encouraging the risk-taking that would have destroyed Citi if not for a taxpayer rescue.

The article also notes that “Mr. Rubin was Mr. Lew’s patron at the bank.”

It has not only been Democrats, of course, who profitably hop back and forth between Big Government and Big Finance, but the tendency seems particularly pronounced under this administration, despite any rhetorical hostility directed against “Wall Street.” And in any event, the unrelenting Democratic focus on “more regulation–more regulation–more regulation” makes every industry increasingly dependent on the goodwill of government officials and hence acts to make ever more profitable the back-and-forth dance between public and “private” sectors. With Obama’s new-found interest in manufacturing, we will probably soon see similar opportunities for people to jump back and forth between various subsidized manufacturing companies and various government czardoms.

Obama may project hostility toward “the rich,” but he’s not really against ALL the rich…only those who have obtained their wealth without employing the Four Cs. Which are:

credentials, in the form of “elite” college degrees
connections, with government officials and with powerful political families
compliance with the political worldview of the administration in power
conformity with current social trends: for example, being in a currently-fashionable industry

Hit the Four “C”s test, and Obama will be much less likely to object to your wealth.

Also, as I noted in a comment at this Ricochet post:

Note that there is not much concern (by Democrats) about power inequality. Barack Obama says there comes a point where you’ve made enough money, he never said there comes a point where you have enough power.

Yet power is always convertible into wealth. Sometimes this is an in-kind conversion, as with the dachas, cars, and special stores available to Soviet officials. Sometimes the conversion is in the form of money, as in the $200,000 per-event speaking fee that Hillary Clinton will reportedly be getting.

To a large extent, the issues being raised about economic inequality are a smokescreen for the attempts of certain elites to centralize and dominate political power and to enjoy the personal rewards thereof.

The increasingly tight connection between banking and government is harmful in several ways. It encourages excessive risk-taking by banks who believe (as do their investors) that their friends in government will always bail them out. It skews the market in favor of larger banks that can afford major lobbying efforts and can offer more profitable post-government employment to “public servants.” And it harms both fairness and economic efficiency by encouraging bank hiring based more on connections and less on talents.

See my related post Jousting with a Phantom. I also recommend the book Bull by the Horns by former FDIC head Sheila Bair, which I reviewed very briefly here.

16 thoughts on “Whose Interests Will Jack Lew be Representing??”

  1. Just read Angelo Codevilla’s The Ruling Class. It’s all there. Ask Bob Rubin who engineered the Mexican bailout under Clinton. Who got “bailed out “? Why Rubin’s previous employer, Goldman Sachs and friends.

  2. Marginal reforms may be politically achievable but it may be that only very substantial cuts in govt spending can significantly reduce this type of corruption.

  3. Corporate overlords. I know it must get boring seeing me say that, but there is no other phrase that conveys the truth of the matter so well.

  4. Anonymous must be PenGun. Instead of “corporate”, you could say crony companies or financial crony companies or even green energy companies and I would agree with you. The left misuses the term “corporate” so much I doubt they understand what a corporation is. There was a hilarious video several years ago of students “occupying” a cafeteria in a New York college. The College authorities offered to give the occupiers bottled water while they were “occupying” the cafeteria and you could hear the leader declining because it was “corporate water.”

  5. “Corporate overlords”…If the banks were socialized and run as direct agencies of the government, then you would find at least as much cronyism. The transformation of power into wealth would become less monetary and more in-kind: instead of Robert Rubin getting paid $115 million and having access to Citi’s private jets, he would have a government-funded mansion (as do many university presidents today), access to government aircraft, a government-provided chauffeured car, etc.

    The more direct the connection between the money economy and the political establishment, the more you are going to find out what an “overlord” REALLY is.

  6. “The more direct the connection between the money economy and the political establishment, the more you are going to find out what an “overlord” REALLY is.”

    My point!

    In America the people who have manipulated their way to vast wealth ‘almost’ literally own the people who run the government. For Obama to appoint Larry Summers to the position he did speaks volumes. He is really one of the principals who engineered and profited mightily from your recent collapse. A hen-house full of foxes.

    Mind blowing really.

  7. Pen, you’re really not understanding the dynamics.

    Hillary Clinton didn’t “manipulate her way to vast wealth” in the private sector. But now, with benefit of her government experience and connections, she can charge something like $200,000/speech, and a large number of profitable opportunities will no doubt come her way

    Jack Lew didn’t “manipulate his way to vast wealth” in the private sector. His career progression, via Wikipedia, has been as follows:

    “Lew received his A.B. from Harvard College and his J.D. from Georgetown University Law Center. Lew began his career as a legislative assistant to Representative Joe Moakley and as a senior policy adviser to former House Speaker Tip O’Neill. Lew then worked as an attorney in private practice before working as a deputy in Boston’s office of management and budget. In 1993, he began work for the Clinton Administration as Special Assistant to the President. In 1994 Lew served as Associate Director for Legislative Affairs and Deputy Director of the Office of Management and Budget, where he served as Director of that agency from 1998 to 2001 and from 2010 to 2012. After leaving the Clinton Administration, Lew worked as the Executive Vice President for Operations at New York University from 2001 to 2006, and as the COO at Citigroup from 2006 to 2008.”

    Note the sequence there? And it’s not over: once he leaves as Secretary of the Treasury, he will be much sought after by banks…not so much for his astute financial judgment, but for connections and his inside knoweldge of how government works.

  8. Great post, the nub of which is: “The increasingly tight connection between banking and government is harmful…”

    The mega-banks are all insolvent, they won’t go down like good capitalists, and have been getting bailed out with trillions ever since. The TARP bailout, predicated on lies, was the thin edge of a nasty wedge, namely, a $700 billion encroachment on God’s jurisdiction (picking winners and losers). All bets were off with that one.

    In short order, we saw the repeal of mark-to-market accounting in March 2009, and tens of trillions in interest-free loans that the Federal Reserve tried to conceal, not to mention subsidies from the FDIC (TLGP) and preferential tax changes, all of which tend toward the same purpose: concealing the financial rot (and worse) on Wall Street.

    Citigroup is the worst of the sick herd, which brings us back to Mr. Lew–he of the $1 million bonus paid from Citigroup’s $45 billion TARP check the same year Citi posted a loss of $27.7 billion. Aside from $45 billion from Treasury, Citi also took $2.5 TRILLION in 0-interest Fed loans AND had $306 billion in toxic assets ring-fenced by the gov’t.

    As Sheila Bair notes of her fellow Republican, Tim Geithner’s bailout machinations were all geared to prop up Citigroup. Now Lew, a Democrat, will do the same. Query whether traditional party labels might not be as relevant as they once were?

    In any event, the bailout cancer has metastasized. Its latest victim, according to Eric Holder, is the Rule of Law itself, which won’t be enforced against huge banks (read: primary dealers) like HSBC even when they are foreign and even when they admit to crimes like laundering money for drug dealers and terrorists.

    That’s the real harm here. When it comes to governance, only two fundamentally opposed choices are available: Rule of Law or Rule by Men. Holder rejected the former.

    This won’t end well. Cyprus is mere foreplay.

  9. You are right, I’m really off topic. The parade of ex-whatever speakers, who reap some amazing fees, is nothing at all new and both sides of the fence have taken advantage of it.

    It helps some of em’ after they leave the limelight to make a few $s for a while. It does go away as you become irrelevant.

    I dunno it’s hard for me to get upset about it. The market does determine what they can charge.

  10. It is interesting that the Left is recreating the conditions for permanent stagnation, both here and in the EU.

    Innovation, improvements, progress if you will, do not appear out of thin air. Certain specific conditions are required for them to come about. Human genius is a critical part of it [and no, government cannot substitute for that, if only because governments are biased to defend a status quo]; but there are other factors. There has to be a future orientation, and there has to be a deferred compensation, a husbanding of resources; to do the research, to create the prototype, to go into production, and to fight the market status quo. If it is not done by the creative class, it must be done by access to a pool of saved resources created by society. As in savings that can be invested.

    That presupposes a society and culture where saving is rewarded.

    In this country, the regime and its supporters have destroyed the ability of the private investor to save and gain from it. Less than one percent interest and real inflation of at least 8% a year induced by quantitive easing, combined with rising taxes means that saving is a lost cause.

    In Europe, the EU and IMF have explicitly claimed the right to confiscate savings.

    In a culture where accumulating any savings just sets it up for confiscation or loss; there will not be any savings. People do respond to cause and effect.

    Subotai Bahadur

  11. Excellent post.

    I think there is an important distinction between how things work today, with our “meritocratic” [sic] post-Vietnam Boomer elite and the socially much more more narrowly Anglo-American WASP Eastern Establishment elite that preceded them.

    Both elites profited from a connection between Wall St. and high positions in the Treasury, Defense (War and Navy, earlier) and the State Department. That said, the Eastern Establishment had ethics of stewardship that a) put(by today’s standards)stringent imits on excessive personal enrichment that would de-legitimize a policy, political figure or party, and b) tied that skim to advancing the national interest and welfare of American citizens. When Elihu Root or John hay went to South America in an official capacity hawking US cruisers for sale, or pimping for United Fruit or Firestone, they were advancing American economic interests, jobs and strategic interests at the same time. in retirement, grateful corporations would give them comfortable sinecures on corporate boards as they had no government pensions, unless they had served in the Army.

    Today, the elite is rewarded on a fantastic scale for policies that are actively and intentionally economically destructive to American GDP, that are rentier schemes to tax-farm American citizens, that destroy jobs here in order to aid foreign competitors, that allow massive surveillance of ordinary Americans in a way maximum security prisoners were only subject to, that weaken national security and defraud Americans of their property.

    It is less mere corruption than a culture of high treason, really.

  12. Cuts are the answer because man is fallen. Still, a culture with some humility about man’s desire for gain would help. Corruption’s part of who we are. But a culture of personal restraint would help. An appreciation of the temptation of power honors manly restraint. Debunking Washington is the point of Zinn history – seeing as heroic a man who relinquished his sword after the war offers subtle pressure that would make a leader hesitate to hire let alone honor those who used their power personally.

    So we lose pride in service, in a dignity not used for personal gain. Some admire naked self-indulgence, aggressive social power – on television and in Washington. How else could someone like Rangel or Frank get re-elected while shamelessly profiting, how else explain Fannie Mae and Freddie Mac’s administrative salaries? The Republicans aren’t perfect, but profiting as LBJ, the Clintons, Gore still seems to many Republicans distasteful. The left has the values of a banana republic – they get a vicarious pleasure from the Obama’s excesses and self-indulgence. This doesn’t end well.

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