When it comes to shaping the Obama administration’s economic policies, only those with tight connections to the nation’s too big to fail banks need apply.
The latest example is the new director of the Office of Management and Budget, Jacob Lew.
He spent most of his career working in government and academia, with one significant exception – a stint as chief operating officer of Citibank’s Alternative Investments Division, which manages about $7 billion in investments in developing countries. Lew was one of those banking executives whose huge post-bailout bonus enraged the public.
In Washington, the issue barely surfaced in Lew’s confirmation hearings. Lew suggested he was too busy running Citibank to notice that the place was drowning in toxic collateralized debt obligations that nobody even understood.
Meanwhile, the guy Lew replaced, Peter Orzag, is headed for a high-paying banking post of his own – at Citibank.
Lew and Orzag were among the large, bipartisan banking-friendly crowd who apparently failed to comprehend or question what was going on around and beneath them in the years immediately preceding the financial crisis.
During that time, one of the places where Orzag and Lew would gather was the Hamilton Project, a high-powered D.C.-based think tank within the Brookings Institute where Democratic Party politicians and bankers could get together to drink in the wisdom of the project’s founder, Robert Rubin, the treasury secretary under President Bill Clinton, a major proponent of banking deregulation, mentor to current top Obama financial advisers Tim Geithner and Larry Summers – and then, the president of Citibank.
The Hamilton Project has been described as a “bastion of the fiscally moderate wing of the Democratic Party.” But it would be more precisely described as the home of the increasingly influential too big to fail bank wing of the Democratic Party.
And who showed up to welcome the launch of the project in 2006?
None other than then-Sen. Barack Obama, who told the assembled crowd, “I would love just to sit here with these folks and listen because you have on this panel and in this room some of the most innovative, thoughtful policymakers, people who have both ideas but also ways of implementing them into action. Our country owes a great debt to a number of people who are in this room because they helped put us on a pathway of prosperity that we are still enjoying, despite the best efforts of some.” (Watch it here.)
This door swinging jovially back and forth between Wall Street and Washington is so common that it registers as a non-event, and makes a mockery of the Kabuki theater of the supposed hostility between Obama and the financial titans.
Ira Stoll at The Future of Capitalism reminds us, in case we forgot, of other members of the Obama economic team who cashed in on Wall Street before it melted down and they joined the administration, like top economic adviser Laurence Summers and $5.2 million a year, one day a week job at the D.E. Shaw hedge fund, and former chief of staff and Chicago mayoral candidate Rahm Emanuel, who got paid $16.2 million for working for a year and a half at the investment banking firm Wasserstein Perella.
As for Orzag, his departure for Citibank created a faint stir in the mainstream media, where Ezra Klein of the Washington Post notes that Orzag doesn’t appear to be in it for the money, since he’s “fairly wealthy” already, and “his lifetime of public service positions does not suggest a man particularly motivated by income.”
But at the Atlantic’s blog, James Fallow viewed Orzag’s move as an example of Washington’s structural corruption. His comments strike me as stating what is blindingly obvious to anyone who lives and works outside the opaque world of Washington. “The idea that someone would help plan, advocate, and carry out an economic policy that played such a crucial role in the survival of a financial institution – and then, less than two years after his administration took office, would take a job that (a) exemplifies the growing disparities the administration says it's trying to correct and (b) unavoidably will call on knowledge and contacts Orszag developed while in recent public service – this says something bad about what is taken for granted in American public life.
For Baseline Scenario’s James Kwak, it’s also more than a straightforward conflict of interest. Why does a young, highly educated energetic member of the elite, who presumably doesn’t need a Wall Street paycheck, want to work at Citibank?
“Orszag wanting to work at a megabank — instead of starting a new company, or joining a foundation, or joining an NGO, or becoming an executive at a struggling manufacturing company that makes things, or even being a consultant to countries with sovereign debt problems — is the same as an engineer from a top school going to Goldman instead of a real company. It’s not his fault, but it’s a symptom of something that’s bad for our country.”