The emerging details of prospective Treasury Secretary Jack Lew’s contract with Citibank raise fresh concerns about the persistent issue of the Obama administration’s revolving door with too big to fail banks.
During Lew’s confirmation hearing earlier this month, Sen. Orrin Hatch, R-Utah, questioned the president’s pick to run the Treasury Department about a provision in his employment contract with Citibank – where Lew landed after his previous tenure as a high-ranking official in the Clinton administration.
According to his Citibank contract, he would lose a hefty bonus worth nearly $1 million and other compensation if he left before he received it, except under two very specific circumstances – either he died or obtained a high-level job in the federal government.
If he became a lobbyist, he would lose the bonus. If he became a farmer or the governor of New York, no bonus. Only by getting one of the administration’s top jobs could he swim in that vast ocean of cash.
The unusual terms of the contract create a huge potential conflict of interest for Lew, who stood to gain enormous wealth if he landed a government job. Citibank is ensuring that Lew can comfortably move back into the public sector without financial sacrifice. What do the bankers expect for their money? On many tough issues which will require Lew to represent consumers, borrowers and taxpayers when big banks lobby authorities for weaker regulation, can we count on Lew to strongly represent us, even though we have no millions to dangle in front of him?
During his confirmation hearing, Sen. Hatch noted “your employment agreement included a clause stating that ‘your guaranteed incentive and retention award’ would not be paid upon exit from Citigroup but there was an exception that you would receive that compensation ‘as a result of your acceptance of a full time high level position with the United States Government or a regulatory body.’ Now is this exception consistent with President Obama’s efforts to ‘close the revolving door’ that carries special interest influence in and out of the government?”
Lew’s answer doesn’t pass the smell test. “I’m not familiar with records that were kept, so I don’t have access to things that I don’t know about,” Lew testified.
Is Lew, with a reputation as a serious numbers cruncher, policy wonk and savvy political negotiator, suggesting that when it came to the terms of his own bonus, he didn’t read the relevant documents?
Either his statement is false or he just disqualified himself from any government job, especially one overseeing the nation’s complicated finances.
Lew’s response begs for further inquiry. Hatch didn’t pursue it during the hearing. Neither did any of the major media in their coverage. The only initial coverage came from Pam Martens in her “Wall Street on Parade” blog. She referred to the “bombshell” Hatch dropped during the hearing. A week later, Bloomberg columnist Jonathan Weil covered the issue, writing that it appeared that Citibank paid Lew a “sort of bounty” to get a high-powered job in the administration. Lew has certainly earned that Citibank bonus with a series of powerful positions, first in the State Department, then as director of President Obama’s Office of Management and Budget and then as his chief of staff.
Lew and the Obama administration may have other problems aside from whether Lew’s Citibank bonus disqualifies him from a job overseeing it and other megabanks. Government watchdog Bart Naylor, an analyst with Public Citizen in D.C., said, after reviewing excepts of Lew’s contract, that the Justice Department should investigate for a possible criminal violation of USC 18 Section 209, which reads:
“Whoever receives any salary, or any contribution to or supplementation of salary, as compensation for his services as an officer or employee of the executive branch of the United States Government, of any independent agency of the United States, or of the District of Columbia, from any source other than the Government of the United States, except as may be contributed out of the treasury of any State, county, or municipality; or
Whoever, whether an individual, partnership, association, corporation, or other organization pays, makes any contribution to, or in any way supplements, the salary of any such officer or employee under circumstances which would make its receipt a violation of this subsection—?”
Naylor, said: “ The Department of Justice should answer whether the contract between Citi and Mr. Lew is in accord with federal ethics law. This law prevents a private company from making `any contribution’ to an employee `for his services’ to the executive branch of the government. Citi’s contract states that Mr. Lew would sacrifice any bonus he earned unless he landed a high level federal job. Authorities must answer whether the $1 million bonus Mr. Lew qualified for by taking a high level government job constituted a `contribution’ from Citi.”
Even if Lew’s Citibank bonus doesn’t constitute a criminal violation, it certainly violates the spirit of the law and gravely undermines the public’s confidence in him and in the administration’s ability to protect the public from the onslaught of Citibank lobbying and political contributions. If the Obama administration wishes to retain any shred of credibility in its ability to regulate too big to fail banks, it should immediately launch an investigation into the circumstances surrounding Lew’s contract – and the contracts of the many other former Citibank officials who have served in the administration.
Here’s a partial list:
•Former Citigroup chief economist Lewis Alexander, who joined Treasury in 2009 as a top adviser to former Treasury Secretary Tim Geithner. Alexander is probably best known for having incorrectly predicted, while still at Citi in 2007, that the U.S. would avoid a recession from the crash of the housing bubble. He left the Treasury Department in 2011.
•Former vice-chairman of Citigroup’s global markets Lewis Susman was named to the plum assignment of U.S. ambassador to Great Britain in 2009. He earned his job the old-fashioned way, as one of President Obama’s top contributors and bundlers during the 2008 campaign.
• Michael Froman, a veteran of the revolving door who served in the Clinton Treasury Department before his work as a chief financial officer at Citibank, is credited with introducing President Obama to Robert Rubin, the former Clinton Treasury secretary who oversaw the dismantling of the Glass-Steagall Act before becoming Citibank CEO during the financial crisis. Froman is a special assistant to the president and deputy national security adviser for international economic affairs. The New York Times reported that Froman received more than $7.4 million in compensation from Citibank between January 2008 and joining the White House in February, 2009 – including a $2.25 million bonus, which the White House claimed Froman donated to charity.
•David Lipton, another Clinton Treasury veteran who was paid huge Citibank bonuses ($1.275 million in 2008 and $762,000 in 2009) while serving as the bank’s head of country global risk management. President Obama appointed him special assistant to the National Economic Council and the National Security Council.
The administration should get a clue, withdraw Lew’s nomination, and find somebody to lead the Treasury who puts the interests of the public and taxpayers ahead of those of the big bankers.