Earlier this week, Bloomberg reported that former Treasury Secretary Timothy Geithner secured a line of credit from JPMorgan Chase, one of the too-big-to-fail recipients of bailout cash.
Geithner is looking to buy in to a new $12 billion fund at Warburg Pincus, the private equity firm where he now works. He reportedly stands to make a 20-30% return on the investment. Although he is not required to disclose the size or purpose of the credit line, a source told Bloomberg that Geithner was among several staff members to borrow money to invest in the fund.
So JPMorgan Chase, one of the banks Geithner bailed out, is about to help Geithner make loads of money.
As Huffington Post’s HuffPost Hill newsletter put it: “It’s almost like the entire Wall Street bailout was just one elaborate scheme to help him pay for heated bathroom tiles.”
We have previously noted that Geithner’s post-Treasury career has closely followed the path taken his mentor, Clinton-era Treasury Secretary Robert Rubin. Both had a brief cooling-off period at the Council on Foreign Relations, a think tank, before taking high-paying Wall Street jobs (optics be damned). For Rubin it was Citigroup. For Geither it is Warburg Pincus, one of the largest private equity firms in the country.
If you caught the news sometime this fall, you probably know the story of New York City’s changing of the guard. Populist de Blasio replaces billionaire Bloomberg as mayor. Wall St. already misses its buddy Mike. Economic inequality: watch out!
So why is de Blasio surrounding himself with a cast of characters that signal it’s business as usual in City Hall?
Back in December we pointed out that some of the members of de Blasio’s transition team are closely affiliated with REBNY and the Partnership for New York City, two business lobbying groups that enjoyed a fruitful relationship with Mayor Bloomberg. His time in office was called “a wonderful era” by REBNY president Steve Spinola. Partnership for New York City President Kathryn Wylde was appointed to the board of the NYC Economic Development Corporation by Bloomberg at the start of his first term. (Interestingly, the EDC by-laws adopted in 2012 also indicate that the board’s chairperson shall be appointed by the mayor in consultation with the Partnership.)
De Blasio continued the trend when he appointed his top development advisors. Alicia Glen left Goldman Sachs after more than a decade to become Deputy Mayor of Housing and Economic Development. She replaces Robert Steel, another former Goldman executive who was also CEO of Wachovia.
The cooling-off period is over for former Treasury Secretary Tim Geithner, who is joining the private equity firm Warburg Pincus as president and managing director. Geithner had initially joined the Council on Foreign Relations as a senior fellow after leaving the Treasury Department early this year. He had taken several plum speaking engagements at Wall Street firms (including a $100,000 gig at the Warburg Pincus annual meeting), but had not yet fully cashed in. Warburg Pincus, one of the largest private equity firms in the country, provides the perks of Wall Street without the baggage associated with bailout symbols like Citigroup and Goldman Sachs.
Geithner’s trajectory, from administration post to temporary think tank fellowship to Wall Street roost, is not uncommon for high-level officials. The waiting period blunts the negative media attention associated with moving directly to Wall Street while allowing some time to negotiate the best deal possible. Most reporters do not seem to understand this playbook, and so it works well for Geithner & co. CJR’s Ryan Chittum has taken the New York Times to task for treating the Geithner move like it was unexpected, and not preordained, and quotes an earlier piece he wrote describing the playbook:
It is quicklybecomingclear that JPMorgan’s tentative $13 billion settlement with the Department of Justice is not the massive, overly-punitive sanction that some press reports have made it out to be. The weaknesses in the deal may be explained in part by the fact that in arranging the settlement, JPMorgan was negotiating through the revolving door.
In the wake of a report from ProPublica that the New York Fed fired a senior bank examiner for challenging inadequacies in Goldman Sachs’ management of conflict of interests, I thought it would be interesting to take a look at the daily schedules of the New York Fed’s president, William Dudley, a Goldman alum.
Dudley spent two decades at Goldman Sachs before joining the New York Fed, so he was steeped in the ways of the bank, which apparently include a systematic, almost absurd disregard for conflict of interest monitoring and management. According to the ProPublica article, Goldman has no firm-wide conflict of interest policy. One Goldman unit instructs employees not to write down their conflicts. The bank’s conflict of interest unit is the same as its business selection unit, a bizarre structure that almost seems designed to encourage conflicts. The head of this unit does not see it as serving any compliance function. Carmen Segarra, the bank examiner who was fired, suggested that Goldman executives could not even demonstrate a basic understanding of what a conflict of interest is.
Was the New York Federal Reserve conflict of interest training enough to help Dudley overcome years of learning the Goldman way? Had he really avoided any awareness or involvement in the Segarra situation? These are hard questions to answer, and answers are unlikely to surface in any documents (the Goldman way: don’t write it down). A New York Fed spokesperson told ProPublica that Dudley was not involved in firing Segarra. But Dudley’s calendar might reveal that he had had meetings with Goldman executives during the whole saga, which would be interesting and would probably look bad for Dudley (though it would not be proof of his involvement).
A recent Buffalo News article about New York State Comptroller Thomas DiNapoli’s shareholder activism through the state’s pension fund mentions his interactions with the natural gas industry. According to the Buffalo News, DiNapoli “has been pressing natural gas companies involved in hydrofracturing to provide him with risks of their drilling practices, the kinds of chemicals used and to take into account community opposition to drilling plans.” DiNapoli told the News he would continue this activism “regardless of what may still come to pass” as Cuomo poises himself to lift the fracking moratorium.
While the State’s considerable investment in fracking companies puts the comptroller in a good position to “pull corporate strings” with these companies, these investments amount to New York State’s use of public pension money to bankroll the risky and unpopular practice. Fracking, which in its high-volume and horizontal form is under a moratorium in New York, presents a significant risk to air and water, and has been questioned as a speculative bubble by insiders and energy analysts. Further, as pointed out in the New York Times, the Supreme Court’s 2010 decision in Citizens United v. F.E.C., which guaranteed corporations’ right to make electoral expenditures with campaign treasuries (substantially financed by New York’s and other public pension funds), raises the concern that public employees are being forced to fund pro-fracking lobbying via mandatory contributions to the Common Retirement Fund deducted from their paychecks.
Today marks the tenth anniversary of President Clinton’s signing of the Commodity Futures Modernization Act (CFMA). At passage, the bill was said to establish “legal certainty” for derivatives. In other words, the bill assured bankers that they wouldn’t face any legal consequences in the United States when they manipulated, defrauded, and colluded their way to billions in profits using financial derivatives that no one understood.
The CFMA led to serious consequences for the rest of us, including the exacerbation of the housing bubble and the subsequent bank bailouts and foreclosure crisis; the California electricity crisis; periodic food and energy price spikes that have hit consumer pocketbooks hard; and, of course, the continued reign of an unaccountable shadow banking sector over the economy.
Tom Carper has proposed an amendment to the financial reform bill that would severely weaken consumer protections to the point where it is understood to be one of the more destructive changes to the bill. Yesterday, Zach Carter wrote an excellent piece analyzing its potential consequences for financial reform:
There are two consumer protection amendments getting serious attention on the Senate floor this week, one of them positive, one of them incredibly destructive. Both revolve around the concept of “preemption”—the ability of federal regulators to block states from enforcing laws aginst banks that operate within their borders. Over the past decade, state regulators tried to crack down on subprime outrages, but federal regulators stepped in to protect the megabanks. If we want to establish a fair financial system, we have to empower states to take action against abusive banks.
That’s what makes a new amendment from Sen. Tom Carper, D-Del., so dangerous.
At OpenLeft, Chris Bowers has called the amendment “the most dangerous to Wall Street reform.”
In 2008, economist Nouriel Roubini popularized the term “shadow banking system” to describe the non-bank financial institutions that eventually helped spur the collapse of the financial system: highly-leveraged hedge funds, investment banks, and the like. This shadow system fueled Wall Street profits for years before eventually necessitating massive bailouts of the financial sector.
These days, a “shadow bank lobby,” has played a prominent role in shaping the financial reform process, pushing amendments that will weaken consumer protections, water down regulation of the Wall Street casino, and increase the likelihood of continuing fraud and future bailouts. I discuss this “shadow bank lobby” in Big Bank Takeover, the report on the big banks’ army of lobbyists released yesterday by the Campaign for America’s Future.