The incestuous relationship between the big investment banks and the US Treasury Department, nowhere more exemplified than by the revolving door between the two sectors, is one of the big scandals of our time. The pattern is for Secretaries of the Treasury to come from Wall Street firms or investment banks, do favors for their friends while in office, and then return there once they leave. The current secretary Jack Lew is a slight exception in that he had served only two years on Wall Street as COO of Citigroup. It will be interesting to see whether he will take a lucrative job on Wall Street once he leaves office.
His predecessor Timothy Geithner also seemed slightly different because he had never been on Wall Street prior to taking the Treasury post. He arrived at Treasury after being head of the highly important New York Federal Reserve where he was notoriously friendly to Wall Street.
When Geithner announced that he was stepping down from being Treasury Secretary in 2013, there was wide speculation that he would be rewarded for his services by being offered a lucrative Wall Street job. But he haughtily replied that the cynics were wrong and that had never been his intention and he took a job with the Council of Foreign Relations. I never believed his denials and felt that he was just avoiding the impression of a blatant quid pro quo. And sure enough, Geithner is becoming president of the private equity firm Warburg Pincus on March 1, 2014. He probably felt that one year was enough to be discreet before he cashed in his IOUs.
Lanny Breuer is someone similar. As Assistant Attorney General of the Justice Department from 2009 to 2013 at the height of the financial crisis, he found all manner of reasons to not pursue criminal prosecutions against Wall Street executives. I predicted then that he would cash in after he left and sure enough that is what happened in 2013. As Mark Karlin writes:
It’s official, and former Department of Justice (DOJ) Criminal Division Chef Lanny Breuer is bragging about it. He’ll return for the third to time the white collar (now expanding its clients internationally) legal defense firm of Covington & Burling, but this time at a whopping salary.
According to the New York Times: “Mr. Breuer is expected to earn about $4 million in his first year at Covington. In addition to representing clients, he will serve as an ambassador of sorts for the firm as it seeks to grow overseas.”
As BuzzFlash at Truthout has speculated before, one can argue (and the same holds true for Eric Holder, also a Covington & Burling alumni appointee), Breuer was building his value in the marketplace at the DOJ, while Wall Street executives who nearly destroyed the American economy went unprosecuted. And his future value to his old white collar defense firm was dependent, in large part, on him not angering the people who would be the clients of Covington & Burling when he left the Department of Justice. The result, one can contend: no prosecutions of banks “too big to fail” execs as publicly stated as a policy by both Breuer and Holder.
This isn’t just a revolving door; one can argue it’s a dereliction of legal responsibility by an employee of the people of the United States. One can proffer that it’s a cash-in career move by a resume climber who was careful not to bite the hands that will write the checks that will feed him on a lavish scale.
Meanwhile Neel Kashkari has announced that he is running for the Republican nomination for California governor. Who is Kashkari, you ask? He was a young executive from Goldman Sachs who was plucked out of relative obscurity and put in charge of disbursing the massive Troubled Asset Relief Program (TARP) set up by Congress and the administration in the wake of the near-collapse of the financial system.
In his book Bailout (see my detailed review here), Neil Barofsky who was the Special Inspector General appointed by Congress to oversee the program, fingered Kashkari, along with then Treasury Secretary Geithner and others, as Treasury Department people who seemed to be more interested in benefitting the banks than the taxpayers whose interests they were supposed to be protecting.
On hearing the news of Kashkari’s intentions to run for office in California, Matt Taibbi almost fell on the floor laughing.
If you don’t remember Kashkari’s name, you might be excused – he was actually better known, in his 15 minutes of fame five years ago, as “The 35 year-old dingbat from Goldman someone put in charge of handing out $700 billion bailout dollars.”
Now you remember. That guy! Neel Kashkari when he first entered the world of politics was a line item, usually the last entry in a list of ex-Goldman employees handed prominent government and/or regulatory positions, as in, “. . . and, lastly, Neel Kashkari, the heretofore unknown Goldman banker put in charge of the TARP bailout program . . .”
Kashkari was not just a former Goldman banker handed a high government post – he was a former Goldman banker handed a high government post by a former Goldman banker, in this case former Goldman CEO and then-Treasury Secretary Hank Paulson.
So Kashkari takes the job as bailout czar and starts hurling fistfuls of cash at the banks, in a fashion that turned out later to have been beyond haphazard. Critically, even though the Treasury promised only to give out TARP funds to institutions that were “healthy” and “viable,” Kashkari had no protocol in place to even decide whether a bailout recipient was solvent or not.
They forked over billions in cash to failing institutions and then failed to enforce crucial provisions, like for instance measures put in place to prevent executives from bailout-out companies from giving themselves huge bonuses.
I wonder if Wall Street will contribute to Kashkari’s candidacy in gratitude for the favors he did them. But even if he gets the Republican nomination to run for governor, I fully expect him to be trounced by incumbent Jerry Brown. Although the latter is 75 years old, he announced yesterday that he is running for re-election. Brown is a savvy politician and seems to have improved California’s economy and dealt with its long-standing budget woes and will be hard to beat.