"Failure of Epic Proportions": Treasury Nominee Jack Lew’s Pro-Bank, Austerity, Deregulation Legacy
Former bank regulator William Black and Rolling Stone’s Matt Taibbi join us to dissect the career of Jack Lew, President Obama’s pick to replace Treasury Secretary Timothy Geither. Currently Obama’s chief of staff, Lew was an executive at Citigroup from 2006 to 2008 at the time of the financial crisis. He backed financial deregulation efforts while he headed the Office of Management and Budget under President Bill Clinton. During that time, Clinton enacted two key laws to deregulate Wall Street: the Financial Services Modernization Act of 1999 and the Commodity Futures Modernization Act of 2000. Black, a white-collar criminologist and former senior financial regulator, is the author of "The Best Way to Rob a Bank Is to Own One." A contributing editor for Rolling Stone magazine, Taibbi is the author of "Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American History." [includes rush transcript]
JUAN GONZÁLEZ: President Obama is facing criticism for nominating another former Wall Street executive to become treasury secretary. On Thursday, Obama tapped his own chief of staff, Jack Lew, to replace Timothy Geithner. Lew was an executive at Citigroup from 2006 to 2008 at the time of the financial crisis. He served as chief operating officer of Citigroup’s Alternative Investments unit, a group that bet on the housing market to collapse.
Lew has also long pushed for the deregulation of Wall Street. From 1998 to January 2001, he headed the Office of Management and Budget under President Clinton. During that time, Clinton signed into law two key laws to deregulate Wall Street: the Financial Services Modernization Act of 1999 and the Commodity Futures Modernization Act of 2000.
On Thursday, independent Senator Bernie Sanders of Vermont criticized Lew’s nomination, saying, quote, "We don’t need a treasury secretary who thinks that Wall Street deregulation was not responsible for the financial crisis."
At a press conference at the White House Thursday, President Obama praised Jack Lew’s record.
PRESIDENT BARACK OBAMA: Jack has the distinction of having worked and succeeded in some of the toughest jobs in Washington and the private sector. As a congressional staffer in the 1980s, he helped negotiate the deal between President Reagan and Tip O’Neill to save Social Security. Under President Clinton, he presided over three budget surpluses in a row. So, for all the talk out there about deficit reduction, making sure our books are balanced, this is the guy who did it—three times. He helped oversee one of our nation’s finest universities and one of our largest investment banks. In my administration, he’s managed operations for the State Department and the budget for the entire executive branch. And over the past year, I’ve sought Jack’s advice on virtually every decision that I’ve made, from economic policy to foreign policy.
AMY GOODMAN: For more on the nomination of Jack Lew, as well as other news about Wall Street, we’re joined by two guest. William Black, author of The Best Way to Rob a Bank Is to Own One , he’s associate professor of economics and law at the University of Missouri-Kansas City, former senior financial regulator. His recent article for the Huffington Post is called "Jacob Lew: Another Brick in the Wall Street on the Potomac."
We’re also joined by Matt Taibbi, contributing editor for Rolling Stone magazine, his latest piece, "Secrets and Lies of the Bailout," which we’ll talk about in a bit, author of Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American History.
We welcome you both to Democracy Now! Professor Black, let’s start with you. Your assessment of Jack Lew?
WILLIAM BLACK: Well, on financial matters, Jack Lew has been a failure of pretty epic proportions, and he gets promoted precisely because he is willing to be a failure and is so useful to Wall Street interests. So, you’ve mentioned two of the things in terms of the most important and most destructive deregulation under President Clinton by statute. But he was also there for much of the deregulation by rule, and a strong proponent of it, and he was there for much of the cutting of staff. For example, the FDIC, the Federal Deposit Insurance Corporation, lost three-quarters of its staff, and that huge loss began under Clinton. And the whole reinventing government, Lew was a strong supporter of that. And, for example, we were taught—instructed by Washington that we were to refer to banks as our "clients" in our role as regulators and to think of them as clients.
He goes from there to Wall Street, where he was a complete failure. You noted that part of what Citicorp did was bet that housing would fall. That was actually one of their winning bets. But they actually made a bunch of losing bets, as well. And the unit that he was heading would have not been permissible but for the deregulation of getting rid of Glass-Steagall under President Clinton. And you saw, as an example of Citicorp, why we shouldn’t be doing this. Why would we create a federal subsidy where all of us, through the U.S. government, are on the hook for Citicorp’s gambling on financial derivatives for its own account, you know, running a casino operation? That makes absolutely no public policy sense.
Then he comes into the Obama administration, and he was disastrously wrong. He tried very hard to impose austerity on the United States back in 2011, which is—he wanted, you know, the European strategy, which has pushed the eurozone back into recession, and Spain, Greece and Italy into Great Depression levels of unemployment.
And this is the guy, after all of these failures, who also is intellectually dishonest. He will not own up to his role and deregulation’s role and de-supervision’s role in producing this crisis—and not just this crisis, but the Enron-era crisis and the savings-and-loan debacle.
JUAN GONZÁLEZ: Well, Matt Taibbi, your reaction to the nomination of Jack Lew by President Obama?
MATT TAIBBI: I think there’s a couple things. I agree with everything that Professor Black said. I think it’s—the symbolism of this choice is, I think, very important for people, just the mere fact of picking somebody from Citigroup and from that same Bob Rubin nexus that Timothy Geithner came from. And, you know, you heard Barack Obama, as he’s introducing Jack Lew, praising Tim Geithner as somebody who’s going to go down in history as one of the great treasury secretaries of all time. I think what this tells everybody is that Jack Lew is going to represent absolute continuity with the previous treasury secretary, who had a very specific agenda when it came to Wall Street. And I think we’re just going to expect more of the same, more of the same really being overt and covert support of these too-big-to-fail institutions that Lew worked for, Citigroup being the worst and most disastrous example of that kind of company. So I think it’s—the choice of somebody from that particular firm is fraught with pretty upsetting symbolism for the country, I think.
AMY GOODMAN: I want to go back to 2010, when Jack Lew appeared before the Senate Budget Committee for a confirmation hearing after he was nominated by President Obama to head the Office of Management and Budget. During the hearing, he was questioned by Senator Bernie Sanders.
SEN. BERNIE SANDERS: Do you believe that the deregulation of Wall Street, pushed by people like Alan Greenspan, Robert Rubin, contributed significantly to the disaster we saw on Wall Street several years ago?
JACK LEW: Senator, I—as when we discussed, I mentioned to you, I don’t consider myself an expert in some of these aspects of the financial industry. My experience in the financial industry has been as a manager, not as an investment adviser. My sense is, as someone who has, you know, generally been familiar with these trends, is that the problems in the financial industry preceded deregulation. There was an increasing emphasis on highly abstract leveraged derivative products that got us to the point that, in the period of time leading up to the financial crisis, risks were taken. They weren’t fully embraced. They weren’t well understood. I don’t personally know the extent to which deregulation drove it, but I don’t believe that deregulation was the, you know, proximate cause. I would defer to others who are more expert about the industry to try and parse it better than that.
AMY GOODMAN: That’s Jack Lew responding to Bernie Sanders, who, when President Obama announced his nomination of treasury secretary—to treasury secretary of Jack Lew, Senator Sanders said, "We don’t need a treasury secretary who thinks that Wall Street deregulation was not responsible for the financial crisis." Professor Black?
WILLIAM BLACK: Well, I mean, we can agree that he lacks expertise in the area, but he was supposed to have expertise. This was supposed to be his area of expertise, both in his role as OMB head under Clinton, and then, of course, as being in the industry and actually implementing the fruits of this deregulation.
So—and he has the history, in one sense, correct. He says the problem arose before deregulation. That’s true that derivatives were already a problem before deregulation. And so, Brooksley Born proposes to deal with the problem by having a regulation to deal with credit default swaps. And then the Clinton administration, in league with Greenspan, in league with Phil Gramm, and with one of the important architects of all of this being Jack Lew, squashes Brooksley Born to destroy the proposed regulation and to pass something, the Commodity Futures Modernization Act—talk about a dishonest phrase—that not only said, "You, Brooksley Born, cannot go forward with this particular regulation," the statute actually said, "We hereby withdraw all regulatory powers to protect the nation, period. From the federal government, from the state and local governments, we exempt you from the gambling laws. We exempt you from the boiler room laws to prevent fraudulent operations." It’s one of the most extraordinary abusive things in the world, heavily involved with AIG’s ability to produce not just the disaster at AIG, but the disaster of credit—of the CDOs that blew up a larger portion of the world. And those CDOs would not have been possible without these credit default swaps.
So, this is a guy who designed the disaster, participated in the disaster on Wall Street, was made rich by it. We haven’t talked about the fact that he got a huge bonus for destroying—helping to destroy the world at Citicorp. And he got it through the bailout of Citicorp by the U.S. government. So he produces disaster, profits from the disaster, we pay him bonuses for causing the disaster, and then we have the absurdity of the president of the United States saying that this is a man with a track record of unmitigated success. It is exactly the opposite, in terms of finance. He is a worthy successor to Tim Geithner, in that he has screwed up everything substantively he has ever touched.
JUAN GONZÁLEZ: William Black, I’d like to ask you about another aspect of Lew’s portfolio: his stance on austerity. You have raised questions in terms of his continued support of austerity measures, as opposed to efforts by the government to stimulate the economy. Could you talk about that?
WILLIAM BLACK: Yeah, and this is an irony, as well, in terms of the political aspects and Obama. So, under Lew, in his new incarnation a while back as OMB head of—for Obama, I have a piece that talks about how OMB under Obama sounds almost exactly like the tea party. So, it adopts all of their rubric about, you know, these terrible social programs, this terrible safety net and how it’s going to imperil our nation, and what we need to do is be balancing the budget—in other words, austerity.
Now, had Obama succeeded in following Lew’s recommendation in July 2011, when they were trying to negotiate the so-called "grand bargain," which is really the grand betrayal of the safety net—unemployment in July 2011 was 9.1 percent. Austerity in the United States would have done just what it did in Europe. Unemployment would have surged. So, all through 2012, the election year, unemployment would have been going up well above 10 percent, quite possibly into the 11 and 12 percent range, which is where it is in Europe. Obama would have been toast; would have been no chance. He would have been crushed in the election. The Democrats would have lost control of the Senate, and such. And these folks, even today, are claiming that the failure to achieve the grand betrayal and to cut the safety net is their great disappointment. So, they not only tried to destroy themselves and the country, they are continuing to do that, and indeed, but for Harry Reid literally throwing the Obama administration’s suggestion that they do cuts to the safety net in the fireplace and burning it up, they would have gotten it as part of this interim austerity deal that was just done about eight days ago.
AMY GOODMAN: We’re going to break, then come back to this discussion with William Black, professor at University of Missouri-Kansas City, and Matt Taibbi, Rolling Stone editor. "Secrets and Lies of the Bailout" [is] his latest piece. This is Democracy Now! Back in a minute.