The next Treasury secretary of the United States will be a long-time close confidante of President Obama, a man described as a “Washington insider” and veteran of the financial industry adept at cutting backroom deals, and an economic disciple of the men and ideologies that many blame for the deregulation of the nation;s financial markets and the subsequent meltdown in 2008.
Jack Lew, current White House chief of staff but perhaps best known outside D.C. for his bizarre signature (which will now be on your money), is the suspenseless choice by President Obama to replace outgoing Treasury secretary Timothy Geithner. Speculation had long centered on Lew as the likely successor to a man similarly linked, for better or worse, to the old guard of Wall Street.
At a ceremony announcing his nomination on Thursday, the president praised Lew’s judgment and background, which has included working in the White House since Obama’s initial election victory in 2008.
President Barack Obama nominated White House chief of staff Jack Lew to be secretary of the Treasury on Thursday, declaring his complete trust in an aide with three decades of Washington experience in economic policy and a penchant for shunning the limelight.
“He is a low-key guy who prefers to surround himself with policy experts rather than television cameras,” Obama said.
A year ago, almost to the day, Obama appointed Lew as his chief of staff, taking him from his perch as director of the Office of Management and Budget into the White House’s tight inner circle.
“I trust his judgment, I value his friendship,” Obama said. “Jack has my complete trust.”
In selecting Lew to replace Geithner, Obama is not only picking an insider steeped in budget matters but also a tough bargainer. Some Republicans complain that Lew has been unyielding in past fiscal negotiations.
Like the other high profile nominations for Obama’s second term cabinet, Lew is certain to face a vigorous grilling from Republicans in the Senate that have repeatedly promised to contest each of Obama’s nominees. Lew has been bashed by conservatives for his role in budget negotiations with Congress as White House chief of staff.
While conservative opposition was expected, Lew’s selection has proven to be a rallying cry for many progressives who see the Treasury nominee and former Citigroup investment banker as another apologist for Wall Street and advocate for “deficit-reduction” austerity on the backs of low income Americans that rely on government safety net programs like Social Security.
Bernie Sanders, the Independent senator from Vermont, has already come out publicly against Lew’s nomination, announcing in a statement laden with criticisms that he will vote against the president’s pick, for Treasury as a matter of conscience.
According to Sanders, Lew is “not the right person at the right time” to craft fiscal policy in the midst of a weak economic recovery. He also is “extremely concerned” that nearly all of the president’s top economic advisers have come from Wall Street or the banking sector.
“Jack Lew is clearly an extremely intelligent person and I applaud his many years of public service to our country. I believe that he will be confirmed by the Senate. Unfortunately, he will be confirmed without my vote. At a time when the middle class is collapsing and millions of workers are unemployed, I do not believe he is the right person at the right time to serve in this important position.
“As a supporter of the president, I remain extremely concerned that virtually all of his key economic advisers have come from Wall Street. In my view, we need a treasury secretary who is prepared to stand up to corporate America and their powerful lobbyists and fight for policies that protect the working families in our country. I do not believe Mr. Lew is that person.
“We don’t need a treasury secretary who thinks that Wall Street deregulation was not responsible for the financial crisis. We need a treasury secretary who will work hard to break up too-big-to-fail financial institutions so that Wall Street cannot cause another massive financial crisis.
Sen. Sanders is just one of many Lew critics that argue his background and on-the-record statements represent a sustained protection of the economic status quo that caused the 2008 financial crisis and has left many Americans in a quagmire of unemployment and fiscal uncertainty. Progressives argue that Obama has merely doubled down on the cozy relationship between the administration and Wall Street that marked the Geithner era by picking the similarly-minded Lew.
A “friend of Wall Street,” Lew’s economic agenda was forged by a close alliance with Clinton Treasury secretary and former Citigroup executive Robert Rubin. Charged by some as being the chief mastermind of the policies that led to 2008′s global financial panic, Rubin and his “Rubinite” disciples — which also include Tim Geithner — have largely taken over all top economic policy position in the Obama White House, a trend the new secretary will perpetuate.
The practice of “Rubinomics” was crafted to near perfection during Obama’s first term, when Geithner and the president’s former top economic advisor Larry Summers — and even the occasional appearance by Rubin himself — carefully managed fiscal policies that protected Wall Street through an embrace of the mantra of “too-big-to-fail” that favored sustaining the same structure and minimal regulatory interference that existed during and prior to the ’08 crash.
Largely keeping the president out of the loop, Geithner’s Treasury and the White House economic team operated with a relationship far closer to Wall Street than was publicly let on or that Obama himself had with business and financial leaders. This is one factor in how what the president calls his “biggest failure” of his first term — the collapse of the administration’s homeowner assistance program — came about; instead of protecting abused homeowners, Treasury held back in order to protect the bottom lines of big banks.
Progressives are convinced that little will change under Lew, the Citi veteran and Rubin admirer who displayed a startling willingness to deal on “entitlements” with Congress and whose minuscule record of public statements on fiscal policy is comprised mainly of railing against banking regulations.
Rubinomics: It’s the cult that never quits. Now the nation is faced with a potential new acolyte. Is Jacob Lew, who is expected to be named Thursday as the replacement for Geithner, yet another Rubinite who will largely follow the policies of his predecessor? Calm, brilliant, competent at everything he’s tried—from the Office of Management and Budget to deputy secretary of State to chief of staff—Lew has smoothly run the White House in the year since William Daley left. He has a reputation for unimpeachable integrity and total honesty, as well as a mastery of the budget that will be critical over the next four years of fiscal fights. But many critics fear that the picture is different when it comes to Wall Street. On financial reform, Lew is a virtual cipher who, in his few public pronouncements, has appeared to toe the Rubin-Geithner line of minimal interference with America’s giant banks.
It is trend that troubles and upsets many progressives. Obama has shown a penchant for making bold Cabinet choices in areas he is personally comfortable with or has a passion for—such as foreign policy—while taking the line of least interference (read: Rubinite) approach on the financial sector and delegating most decisions to Geithner. Exhibit A: In recent weeks, a huge debate erupted in Washington over whether Obama should pick a maverick Republican, Chuck Hagel, as his Defense secretary. Obama did. But if the president wanted a Republican in his Cabinet for the second term, then why not Bair, the tough and prescient head of the FDIC under Bush who irritated Geithner to no end by pushing for harsher reforms? Or Thomas Hoenig, who as a GOP-appointed Federal Reserve governor earned plaudits from the Right and Left for calling for a breakup of the biggest banks?
While Lew is generally known as a man of Washington and deeply rooted in the practice of political bargaining, the bulk of his qualifications for the job of Treasury secretary — a few years spent leading Citi’s leading investment arm — is itself at the heart of controversy.
Jack Lew worked at Citigroup between 2006 and 2008, predominantly in the sector of aggressive investments where much of the turmoil that created the ’08 financial crash was first sparked. Citigroup itself later needed a nearly $50 billion government bailout to survive.
The strategies that led to Citigroup’s near-disaster are historically linked to Robert Rubin, the most politically connected senior executive at the bank who championed high-risk investing while simultaneously proselytizing minimal regulations. But Jack Lew was the executive in charge of the unit that “housed many of the bank’s riskiest operations,” leaving before the crash in 2008 after only two years on the job.
Records of Lew’s time at Citigroup are almost certain to come up during confirmation hearings, but up to now almost nothing has been known about his record at the banking giant.
Treasury secretary nominee Jack Lew has spent most of his career in government, but during the financial crisis, he was embedded inside one of the country’s biggest banks as it nearly imploded.
From 2006 to 2008, he worked at Citigroup in two major roles, a notable line in his résumégiven that as Treasury secretary, he would be charged with implementing new rules regulating Wall Street.
But Lew did not have just any position at the bank.
In early 2008, he became a top executive in the Citigroup unit that housed many of the bank’s riskiest operations, including its hedge funds and private equity investments. Massive losses in that unit helped drive Citigroup into the arms of the federal government, which bailed out the bank with $45 billion in taxpayer money that year.
The group had been under pressure to compete with similar units at other big Wall Street firms and, some analysts say, took on too many risks as it played catch-up.
“The mismanagement of risk was comprehensive at that organization,” said Simon Johnson, an economist at the Massachusetts Institute of Technology.
Details about Lew’s exact responsibilities at Citigroup, where he worked from 2006 to 2008, are scant. He declined to comment for this article.
Whatever the nature of Lew’s time at Citi, the role played by the investment strategies he oversaw at the company has not shaken his Rubinesque devotion to minimal financial regulations and a supportive relationship between Wall Street and the federal government.
One of his rare public utterances on fiscal policy came in 2010 during hearings for his confirmation as chief of staff, where Lew shared his belief that “deregulation” of the banking industry was not the “proximate cause” of the global economic crisis.
As previous reports from The Huffington Post have noted, Lew declared at the 2010 Senate hearing that he didn’t think financial deregulation led to the financial crisis, saying the real problem was banks taking too many risks with bizarre derivatives.
“I don’t believe that deregulation was the proximate cause,” he said, adding, “I would defer to others who are more expert about the industry to try and parse it better than that.”
The use of the legalistic term “proximate cause” is a hedge, suggesting deregulation may have contributed to the crisis but was not the primary cause. But many argue that, without bank deregulation and lax regulation in the decades leading up to the crisis, banks would not nearly have been able to take the risks they took with those bizarre derivatives, nor would those risks have been large enough to nearly brought down the financial system.
As The Huffington Post detailed exhaustively in 2010, Lew’s position is at odds with the position of his own Democratic Party and many regulators.