Monday, February 25, 2013

The Citigroup Party



Contrary to popular perception, it is the Democrat, not the Republican, that is the Party of Wall Street. Witness President Obama's decision to tap Citigroup alum Jack Lew to be his new Treasury Secretary, replacing Timothy Geithner, another Wall Streeter.

Lew's story is quite interesting. While Obama trashed Romney during the campaign for having offshore accounts, he's obviously not concerned with Lew's. Also, Lew was a VP at Citi during the banking meltdown but didn't have a clue about any of the bad bets Citi made that nearly drove the company under, forcing it to accept a bailout. 

There are some other unanswered questions with Lew as well.
We wrote recently about the oddity of New York University paying severance to Mr. Lew in 2006 when he left there voluntarily to work at Citigroup. NYU hasn't explained why it would pay someone for quitting to take a job on Wall Street.

As for the Citi paycheck, the story is how Wall Street has become a get-rich-turnstile for Democratic political operatives. The terms of Mr. Lew's original employment contract with Citi included a bonus guarantee if he left the bank for a "high level position with the United States government or regulatory body."

Most companies include incentives for top employees not to leave, but in this case the contract was written to reward Mr. Lew for treating the bank like a revolving door. Citi says it likes to accommodate employees who do public service or work at nonprofits. But the Lew contract was specific about a senior job in the federal government. There would be no special payout if he left to run the Red Cross or the New York state budget office.
WSJ documents several other members of the Citi-Democrat Administration revolving door.

As Michael Barone puts it,
One inference you could draw is that Robert Rubin, the Clinton administration treasury secretary who has been exceedingly well paid at Citigroup even as it headed to bailout territory, wants to keep a Citigroup alumnus running Treasury.
It's this type of incestuous relationship between big business and big government that gives capitalism a bad name. Not coincidentally, it's also one of the most useful tools of anti-capitalists in big government.

It feeds the perception that big business runs the government for its own purposes while at the same time increasing government's control of the economy. It simultaneously increases the power of government and weakens the free market while it feeds public mistrust and animosity of the free market. It's a win-win for those who favor central planning over free markets, today's Democrats.

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