Jack Lew and the Obama Administration’s Finance-Friendly Status Quo
Meet the new Treasury secretary, same as the old Treasury secretary. Lloyd Green on nominee Jack Lew.
Last year, the Obama campaign waged an all-out assault on Mitt Romney for his offshore investments—a “guy with a Swiss bank account,” with “millions in the Cayman Islands, who refused to release his tax returns,” as Joe Biden put it.
That was then. Now the Obama administration expects Jack Lew to be confirmed as Treasury secretary—despite his having invested $56,000 in a Cayman Islands–based private equity fund during the career political operative’s lucrative dip into the private sector.
The White House’s double standard for Democrats seeking to minimize their tax liability makes sense considering the experience of Tim Geithner, whom Lew would be replacing. While Lew only dabbled in foreign investments, Geithner outright failed to pay $34,000 in Social Security and Medicare taxes before joining Treasury and also took heat for hiring an inadequately documented immigrant housekeeper. Apparently, the White House’s reasoning goes like this: If Geithner’s belated tax payments and sloppy employment practices posed no barrier to being confirmed as Treasury secretary, why should a few thousand dollars stowed away in the Caribbean?
Like Geithner, Lew is a well-credentialed bureaucrat, adept at heeding his masters’ call. A 2009 report issued by Neil Barofsky, then the TARP inspector general, blasted Geithner’s efforts in bailing out AIG while heading the Federal Reserve Bank of New York. The report also criticized the lack of transparency surrounding the TARP. In response, Treasury anonymously accused Barofsky of having “been consistently wrong about a lot of big things.” Which is not exactly a refutation or a denial so much as a talking point aimed at giving political partisans something to say.
More recently, Barofsky wrote that Geithner “made the preservation of the largest banks, no matter the consequences, a top priority of the U.S. government,” blaming “perversion of the U.S. criminal justice system,” for the hands-off approach toward prosecution of financial crimes under Obama. Barofsky, I should note, is a former federal prosecutor, a Democrat, and a contributor to the Obama 2008 campaign.
Do not expect Lew to end the finance-friendly status quo at Treasury. At his confirmation hearing, Lew testified that he would not seek to return to the world of Glass-Steagall, when financial supermarkets were prohibited and brokerage and banking operations could not sit under the same corporate roof. In Lew’s eyes, Glass-Steagall was “anachronistic.”
A lifelong partisan political creature whose expertise lies in budgeting, Lew served as OMB director under Presidents Clinton and Obama and is the father of the looming sequester, according to Bob Woodward, who relates that it was Lew who sold sequestration to Senate Majority Leader Harry Reid in the summer of 2011.
Lew also holds the distinction of being a banker of questionable skills. Before joining the Obama administration, Lew worked at Citibank, and in 2007 he took over the bank’s Alternative Assets program—which lost most of its assets as it bet on the downfall of the housing market. In 2009 Lew left Citi to join the Obama administration after pocketing a $940,000 bonus, just as Citi was receiving a $45 billion bailout and Treasury Secretary Geithner was administering a stress test to the bank.
At the end of the day, Lew has no reason to alter Treasury’s entente with the financial industry. During the 2012 campaign, Obama hauled in over $20 million from the financial, insurance, and real estate industries. Lawyers and lobbyists donated another $27 million. For their part, Citigroup employees sent over $600,000 in contributions to Obama’s presidential campaigns.
Indeed, for all their teeth gnashing over Dodd-Frank, financial institutions came out all right. As Gretchen Morgenson documents, Dodd-Frank expanded the too-big-to-fail doctrine to cover clearinghouses, which are “are large, powerful institutions that clear or settle options, bond and derivatives trades.” Before the Finance Committee, Lew testified that Dodd-Frank had gone as far as was needed on the issue of too big to fail. Said more directly, taxpayers stand to remain of the hook for future financial follies.
To be clear, Lew’s foreign investment does not carry with it the stench of legal impropriety, nor was it treated as a political sin in prior presidential campaigns. In 1988 Massachusetts Gov. Mike Dukakis blasted his opponent over the growth of foreign investments in the United States. The Bush campaign pushed back by reminding newspaper editorial boards that Lloyd Bentsen, Dukakis’s running mate, held large positions in the Fidelity Overseas Fund. Indeed, the fund’s brochure had a Japanese flag on its cover for those investors otherwise unaware where their money was going. Ultimately Dukakis toned it down and lost, and Bentsen would later serve as Bill Clinton’s Treasury secretary. In 2004 conservative critics called out populist multimillionaire and Democratic vice-presidential nominee John Edwards for investing in international mutual funds, but the story had no legs, and as it turned out, Edwards had much bigger problems than where he was parking his cash.
And yes, unlike Romney, Lew laid bare his financials in graphic detail. As OMB director, he was required to make a comprehensive personal financial disclosure of his assets and income. Fortunately for both the president and Lew, his foray into offshore investing was a bust.
Still, Obama’s blistering critique of tax-haven investment should render Lew unfit to be this president’s Treasury secretary. But it has not. Hypocritical or not, Lew is Obama’s guy for the job. During the coming months, the White House and Congress will be at war with each other, and Lew knows the drill.
Asked in his confirmation testimony about his Cayman investment, Lew pleaded ignorance as to its motives (“I actually don’t know why it was organized. I was not involved in setting up the fund”), and poverty: “I lost money on the investment. So in fact, I lost money, which I didn’t have a great deal of income.” He’ll fit in just fine with the permanent campaign.