CONFIRMATIONS FEBRUARY 28, 2013
While Washington was obsessing Wednesday over whether or not the oh-so-intimidating Gene Sperling had threatened Bob Woodward over his deeply misguided take on the budget sequester, another veteran Democratic number-cruncher skated by: The Senate confirmed Jack Lew to be secretary of the Treasury, by a vote of 71 to 26.
The result was hardly surprising. Republicans have had their differences with Lew over the past couple of years (as President Obama's budget director and then chief of staff, he has been at the forefront of the incessant fiscal fight), but they made clear in recent weeks that they were going to devote most of their energies of resistance to Obama's pick for the Pentagon, their turncoat ex-colleague Chuck Hagel. What's striking about Lew's smooth ascension, though, is how little protest it stirred on the left. His record from the past decade includes plenty of markings that should have given Democrats pause—and would have, surely, if the same markings had been on the resume of a Republican appointee. Among them:
1. After serving in the Clinton Administration, Lew went to work at New York University. During his tenure as executive vice president for operations, from 2001 to 2006, the university came under scrutiny for making Citigroup the "preferred lender" for students, in exchange for getting a cut of loan revenue. After then–New York Attorney General Andrew Cuomo started investigating these kickbacks, NYU returned $1.4 million to students and agreed to a $2 million settlement with the state. Lew gave an awfully opaque answer in response to Sen. Chuck Grassley's questions about the kickbacks: "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." Is that a no?
2. Lew's salary at NYU was more than $800,000—higher even than the university president's. It is no secret that one of the major drivers of soaring tuition—NYU is one of the most expensive colleges in the country—is high administrative pay. In addition to his salary, Lew received an unusual $1.5 million mortgage from the university on his 4,584-square foot house in the Riverdale section of the Bronx, $440,000 of which was forgiven by the university. He said he could not recall the interest rate he paid on the mortgage.
3. When Lew left NYU in 2006 to work for Citigroup—yes, the same bank with which NYU had the preferred lender arrangement—the university gave him a $685,000 severance payment. No, university administrators usually do not receive severance payments when they voluntarily leave for other jobs. The New York Times reports: "University officials defended the additional lump-sum payment, which was not required by his original employment contract, citing Mr. Lew's role in addressing some of the university's major problems at the time." OK.
4. By early 2008, Lew had become head of the Citigroup unit that, in the Washington Post's words, "housed many of the bank's riskiest operations, including its hedge funds and private equity investments. Massive losses in that unit helped drive Citigroup into the arms of the federal government, which bailed out the bank with $45 billion in taxpayer money that year." Lew has greatly downplayed his role at Citigroup, saying that he was working merely "as a manager, not as an investment adviser." But he was senior enough to make at least $1.1 million in that annus horribilis of 2008.
5. Lew had between $50,000 and $100,000 invested in an international venture capital fund for Citigroup employees, based in the Cayman Islands. It was, in the larger scheme of things, not that large a sum, and Lew reportedly sold it at a steep loss when he joined the Obama administration. But it's notable, given that Democrats have been known to ridicule Cayman accounts held by the other guys. In this case, barely a peep. Instead, it's been left to the Wall Street Journal editorial page, in an amusing turnabout, to chide Lew for practices that it usually sees little problem with.
6. Lew received a $944,578 bonus upon leaving Citigroup in early 2009, in accordance with a contract that decreed that he receive a bonus if he left the bank for a "high level position with the United States government or regulatory body." This sparked cries that Citigroup had shrewdly rewarded Lew for taking a lower-paying government job where he could, presumably, be of some value to the company. The reality is slightly less nefarious: The language was put in the contract at Lew's behest, to make sure he would get deferred compensation paid out to executives if he went back to work for the government as opposed to at a rival bank, in which case the deferred compensation would be at risk. Still, it is striking that Lew should have been in line for a big payout at all in the depths of the financial collapse. As National Review's Rich Lowry drolly noted, "That's Jack Lew—he gets paid when he stays, and he gets paid when he goes." Asked about his Citigroup pay, Lew said: "My compensation was in line with other management executives at the firm." Surely it was.
Jack Lew is hardly the first Democrat to milk the Washington/Wall Street/elite academia nexus for all it is worth. He can't come close to the granddaddy of them all, Robert Rubin, who came to Clinton's Treasury Department from Goldman Sachs and left it for Citigroup, where he has collected some $126 million over the past decade, a sum that has not kept him from pleading scant knowledge of the decisions that brought the bank to the brink of disaster in 2008. Rahm Emanuel turned a cool $16 million during his two years at an investment bank. Relations between Wall Street and Democrats in Washington cooled considerably following Obama's 2008 election, but have thawed somewhat since his reelection. The next one through the revolving door is Peter Orszag, Obama's first budget director, whom Citigroup announced this week as chairman of its "financial strategy and solutions group."
The usual rationalization for the revolving door—oft heard at either end of the New York-Washington corridor—is that experience in the trenches of capitalism can only help our leaders better understand the economy. But we've seen plenty of instances in the past decade or two when the opposite proved true—when those veterans of Wall Street decide, say, that it's best to quash new regulations on derivatives, with devastating consequences. It's too soon to say how Jack Lew's past decade raking in the dough in New York will inform his actions at Treasury—by many accounts, he's been a staunch defender of the liberal line on budget and taxes these past few years. It's pretty hard to believe, though, that one's values and priorities are not colored by one's turn at the trough. Why get too worked up about, say, income inequality, when the winner-take-all economy has worked such wonders for one's own bottom line? It was left to Senator Bernie Sanders to make this point in his conspicuously lonely protest against Lew's confirmation: "We need a secretary of the Treasury who does not come from Wall Street but is prepared to stand up to the enormous power of Wall Street." Many Democrats have no trouble seeing the inequities and ethical gaps of today's economy manifested in the Mitt Romneys of the world. It's unfortunate and, yes, not a little hypocritical that they aren't more willing to draw those same connections when it comes to their own.
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