Revolving door - Represent Consumers

Revolve this

For many of the government officials cashing in, it seems that the more spectacular their failure to serve the public, the more valuable they are to the big Washington players that hire them.

Our government may be a dysfunctional mess, but for the public officials leaving their jobs, it’s been a banner couple of months. Unemployment may be above 9 percent in Washington, D.C., but our top government officials don’t have to spend too much time on the unemployment line.

Take for example, Mary Schapiro, who recently left her post as head of the Securities and Exchange Commission to go to work for a consulting firm named Promontory Financial, which is filled with former bank regulators making big bucks – working for banks!

You may recall Promontory as one of the “consulting” firms that banks got paid a total of $2 billion to do internal investigations of the banks’ foreclosures, in the wake of the robo-signing scandal. They were supposed to find out how widespread the robo-signing – using forged or otherwise fraudulent documents – was.

But the consultants’ investigations were shut down because the investigations themselves were such a mess. I wrote about it here. Basically $2 billion that could have gone to assist troubled homeowners and stabilize the housing market went instead to enrich a bunch of former bank regulators for shoddy work, while helping few of the many Americans who had victims of fraudulent foreclosures. A Senate subcommittee will holding hearing on the flawed foreclosure investigations beginning Thursday in Washington. Will Schapiro be working in the background, helping her new employer avoid accountability?

Schapiro’s tenure at the SEC is notable in the agency’s failure to go after a single high-ranking official at a too big to fail banks for the fraud and recklessness that led to the 2008 financial collapse. In academic circles, this is known by the polite name of “regulatory capture,” which is an overly nice way to describe the sinister legalized corruption that constitutes the status quo in Washington.

We don’t know how much Promontory is planning to pay Schapiro, or exactly what she’ll be doing. Curiously, the firm says she’ll be doing something called “risk management,” which is a strange job for Schapiro, since in her previous positions at the Commodities Futures Trading Commission and the Financial Industry Regulatory Authority, she never saw any risk in the malignant cancerous growth of derivatives investments that made bankers wealthy before they blew up the economy.

While her duties may be nebulous, her new employer was kind enough to leave her time for another part-time job, serving on the board of directors of General Electric, which pays no taxes but compensates its board members about $250,00 year.

Asked about the revolving door aspect of her departure, Schapiro told the Wall Street Journal, “In my case, there’s no revolving door, I’m not going back to government.”

Now don’t you feel better?

Schapiro should fit right in at Promontory, which was founded by Eugene Ludwig, right after his tenure as head of the Office of the Comptroller of the Currency.

As a federal regulator, Ludwig specialized in blocking states from enforcing their own predatory lending laws against big banks on grounds that they were preempted by the OCC. Meanwhile the OCC was way too cozy with the bankers and saw no problems as its charges. In 2000, he left government to found Promontory, which has consistently worked for the too big to fail banks Ludwig once was in charge of regulating.

Earlier this year, one of Ludwig’s remaining colleagues at OCC, Julie Williams, former deputy controller and chief counsel of the OCC, also joined her former boss at Promontory.

Also headed for the exit this month is Lanny Breuer, the head of the Justice Department’s Criminal Division; he co-chaired one of the Obama administration’s faux task forces that boldly promised to get to the bottom of who was responsible for the financial collapse before tiptoeing quietly off into the bureaucratic ether without any resources to do its work. Breuer resigned a day after he was the target of a devastating Frontline documentary that focused on the administration’s failures to hold the big bankers accountable.

Breuer went back to his previous employer, the white-shoe D.C. law firm, Covington & Burling, which represents, you guessed it, the very big banks Breuer and his task force supposed to be investigating. Breuer leaves behind another heavy hitting Covington & Burling alumni – the U.S. attorney general, Eric Holder.

Schapiro and Breuer’s moves are a stark reminder that the real action in Washington is not in the debate between the Republicans and Democrats that we see on television every day, it’s in the never-ending battle, mostly out of public view, by the members of the Money Party to protect their interests against the rest of us, who don’t belong.

Does Jack Lew's Citibank contract violate ethics laws?

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.

Citibank / Executive Pay / Lobbying / Martin Column / President Barack Obama / Revolving door / Too Big To Fail - 02/25/2013

Former bank regulator profits from foreclosure fiasco

While the foreclosure crisis has brought devastation to millions of Americans, for a few Washington insiders it’s proved quite lucrative.

One of the most recent to cash in is Eugene Ludwig, former comptroller of the currency in the administration of his one-time Yale Law School pal, former President Bill Clinton.

While it’s supposed to regulate banks, the comptroller of the currency’s office has consistently suffered from a reputation for being too compliant to those it is supposed to oversee.

Ludwig, after his government service, formed a private global financial consulting and lobbying firm named Promontory Financial, working directly for banks and other financial firms. The company’s roster is filled with a mix of veterans of financial regulatory agencies, top banks and the law firms that represent them.

Ludwig, to say the least, has done well serving the financial industry. According to Washingtonian magazine, Ludwig owns one of the most expensive homes in Washington, a 13,000 square foot, 5-bedroom stone and shingle estate just down the street from the Spanish ambassador’s residence.

Lately, Ludwig’s firm has found itself in the middle of the Obama administration’s latest botched attempt to sort out the foreclosure fraud scandal.

Announced with great fanfare in 2011, the review of bank foreclosures in the wake of robo-signing scandal was supposed to be led by the current Office of the Controller of the Currency and the Federal Reserve.

Because the government doesn’t have the resources to scrutinize the banks itself, under the terms of the investigation, the banks hired consultants including Ludwig’s Promontory and accounting giants PwC (formerly PriceWaterhouseCooper) and Deloitte to examine individual foreclosures to determine which ones contained fraud in the process.

The investigation was troubled from the start. Homeowners’ advocates questioned how consulting firms like Promontory, with close long-standing financial ties to the banks, could do any kind of objective analysis of their foreclosures.

But that was just the beginning. Not only were the consultants often relying on the banks’ own evaluations of their foreclosures to make determinations about the validity of foreclosures, outreach was inadequate, the investigations were poorly designed and overly cumbersome and took much longer than expected. Meanwhile the consultants’ fees skyrocketed.

“This was never a well thought out process,” the National Consumer Law Center's Diane Thompson told American Banker in November. “The [lack of] independence is just one aspect of its crappiness.”

Finally, in December, the authorities ditched the entire investigation and announced an $8.5 billion settlement with the banks, with $3.3 billion in direct payments spread around between homeowners who claimed to have been the victims of fraudulent foreclosures, and promises to complete more loan modifications.

Ludwig’s firm and the other consultants didn’t suffer financially, however. They walked away from the debacle splitting a whopping $2 billion in fees.

But the stink from the settlement has attracted some attention, prompting the New York Times to scrutinize Promontory and other financial consulting firms’ role in facilitating bank misbehavior, not just in the foreclosure scandal, but in other unsavory bank business, such as drug money laundering, as well.

Several congresspeople, including Elizabeth Warren, D-Mass., Carolyn Maloney, D-New York, and Rep. Maxine Waters, D-Los Angeles, top Democrat on the House Banking Committee, are now seeking investigations into the foreclosure review and the consultants role.

The foreclosure review highlights a sad fact: more than four years after the financial collapse should have taught us the fallacy of deregulation, we’re still relying on bankers, and their former colleagues on the other side of the revolving door, to crack down on themselves.

Foreclosures / Martin Column / Revolving door - 02/06/2013

To protect investors and taxpayers, go outside the club

Here’s who would be better than President Obama’s pick to head the Securities and Exchange Commission: Almost anybody.

Couldn’t this administration find somebody who has not been spending her time defending too-big-to-fail banks, acting as an apologist for them, and whose law firm was paid to advise the government on the bailout?

That’s a description of Mary Jo White, most recently of the elite Debevoise & Plimpton law firm, one-time U.S. attorney for the Eastern District of New York…. and now the President’s choice to head the SEC.

There’s a long list of qualified people Obama might have chosen if he wanted to go outside the government-financial complex whose members have dominated economic policy, people with credible experience who have honed a critical perspective on the financial industry.

That list would start with Neil Barofsky, the former prosecutor who served as a tough special inspector general of the Troubled Asset Relief Program, better known as the taxpayer-funded bailout. It would also include Bill Black,who helped expose congressional corruption as a fearless federal regulator during the savings and loan scandal of the 1980s, now a University of Kansas City-Missouri law professor and white-collar crime expert – and consistent critic of the Obama administration’s failure to hold bankers accountable. High on the list would be Eliot Spitzer, the one-time attorney general of New York and television commentator and a sharp thorn in the side of bankers and the politicians who protect them. Christy Romero who also be on the list. Like White, she worked as a lawyer at an elite firm, but as the current special inspector general for the bailout she has been a fierce advocate for taxpayers.

Mary Jo White, according to the president, is “tough as nails.” At one time White was a hell of a prosecutor. When she was U.S. Attorney for the Eastern District of New York, though she prosecuted no major bank executives, she won convictions of the New York Mob boss known as Dapper Dan, John Gotti, and the World Trade Center bombers.

That was before she followed the well-worn path from public prosecutor to elite lawyer, joining the white-shoe law firm of Debevoise & Plimpton, where the average partner makes $2.1 million a year.

That was before she got cozy with J.P. Dimon and J.P Morgan, representing them in the widely criticized settlement of foreclosure fraud charges in a case involving 49 state attorneys general, the Feds and the too big to fail banks.

That was before representing Bank of America’s Ken Lewis on fraud charges and Morgan Stanley’s John Mack in an SEC insider-trading investigation.

Once she got through the revolving door, she worked the system on behalf of her clients, becoming a consummate well-paid insider in the Wall Street-Washington power nexus. In the process of strenuously protecting Mack from an interview at the SEC, White got herself into the middle of a full-fledged scandal, using her clout to help get a whistleblower at the federal agency canned, according to Rolling Stone’s Matt Taibbi. In addition, White’s husband is another veteran of the revolving-door, working as a top SEC official as well under previous do-nothing SEC commissioner Christopher Cox, in between stints as a bankers’ lawyer.

One fact that tells you al you need to know about what’s wrong with White as a banking enforcer is that her former client, Jamie Dimon told Fox Business News that White was “perfect” for the SEC job.

White might have made a better candidate to protect investors at the SEC if, since the bailout, she had expressed one iota concern about bankers’ excess, fraud or recklessness that led to the financial collapse.

Instead, White has expressed concern about prosecutors unfairly targeting bankers to get scalps to feed the angry public’s thirst for justice. In a legal brief on Lewis’ behalf, White wrote: “Some have looked to assign blame for every aspect of the financial crisis...This case is a product of that dynamic and does not withstand legal or factual scrutiny.”

In remarks at a New York University Law School event last year, White said: “You should be aggressive where there is a crime,” but prosecutors shouldn’t “fail to distinguish what is actually criminal and what is just mistaken behavior, what is even reckless risk-taking, and not bow to the frenzy.”

Her law firm meanwhile was itself cashing in on the bailout, receiving a contract worth $159,175 as one of 16 law firms Treasury hired to work on the bailout, American Lawyer reported.

White obviously lives in a far different world from most Americans, who are still rankled that so few bankers have been held accountable for the financial collapse.

Maybe it’s understandable that in her role as defender of too-big-to-fail bankers, she didn’t express much empathy for investors who lost savings, for cities and towns ravaged by foreclosure or workers laid off in the worst economic downturn since the Great Depression.

And it probably wouldn’t have endeared her to her clients if she had expressed outrage at the bankers’ epic greed and recklessness that led them to wreck our economy.

In her new job, she will face many tough challenges; overseeing implementation of many of the Dodd-Frank financial reform’s unfinished regulations, and convincing a deficit-obsessed Congress and president to beef up staffing and salaries at her chronically underfunded agency so that it can compete with her former colleagues at the fancy law firms. It’s hard to imagine White rising to this challenge, especially since after her SEC tenure she’ll probably head back to a big Wall Street firm.

Don’t get me wrong, I don’t believe there’s anything wrong with representing bankers – or mob bosses. Our legal system works best when both sides have strong, aggressive advocates. White made her choice to leave the relatively poorly paid public sector to join a private firm and provide bankers a “tough as nails” defense lawyer. But does that really qualify her as the best person to lead the SEC, an agency already reeling from a lack of credibility for not pursuing fraud in the financial sector aggressively enough? Don’t investors and taxpayers deserve protection from somebody whose primary concerns since the bailout haven't been profiting from it and keeping bankers comfortable?

Financial Crisis / Martin Column / President Barack Obama / Revolving door / Securities and Exchange Commission (SEC) - 02/04/2013