By William K. Black
(Cross posted at Benzinga.com)
Remember nine months ago when Timothy Geithner assured us that it was “extremely unlikely” he would take a position on Wall Street?
The media meme when Geithner announced that he was stepping down as Treasury Secretary and taking a position as a “senior fellow” with the Council on Foreign Relations (CFR) was what a superior human he was for not taking a job with Wall Street. The “extremely unlikely” (to no one’s surprise) was announced nine months later. The private equity firm Warburg Pincus has hired Geithner as its President.
“The unusually low-key announcement — made with little fanfare on a Saturday morning — is Mr. Geithner’s first foray into the private sector in 25 years, after serving in the Treasury Department, the International Monetary Fund and the Federal Reserve Bank of New York.”
The IMF and the NY Fed are far more private than public and they both exist primarily to serve banks. They NY Fed is owned by the private banks it supposedly examines and supervises and the banks elect bankers to act as the NY Fed’s directors (including until very recently the supposed “public interest” directors). They are not subject to U.S. government caps on pay, and in the case of the IMF the employees have their pay increased to compensate for the U.S. taxes they are supposed to pay (which Geithner did not pay for many years). Geithner’s disastrous “public service” at the NY Fed and the IMF made him a multi-millionaire at great cost to the public.
The NYT is typical in acting as if Geithner first held a leadership position in 2008 (he was made head of the NY Fed in 2003).
“As president of the New York Fed in 2008, Mr. Geithner helped lead the federal government’s response to the financial crisis, including the sale of Bear Stearns and the bailout of the American International Group.”
The NY Fed, of course, was supposed to be the leading examiner and supervisor of many of the Nation’s largest banks and bank holding companies. Geithner was the top regional supervisor during the key years of the three epidemics of control fraud that drove the financial crisis and the NY Fed drew special criticism for its total failure as a supervisor during the crisis. Naturally, President Obama responded to his failures by promoting him. The NYT whitewashes Geithner’s role as the Fed’s top regional supervisor out of history. The fact that Geithner used AIG to secretly bail out some of the world’s largest banks (at the direct expense of the U.S. government) also disappears from the paper’s account.
Geithner’s new employer, however, seeks to outdo the NYT by preventing any account of what it cost to change Geithner’s “extremely unlikely” into “where do I sign” from ever becoming public. Neither the firm nor Geithner want the public to learn how lucratively the bankers reward the anti-regulators.
“His new employer, Warburg Pincus, is a 47-year-old private equity firm that oversees $35 billion in assets. [T]he firm has remained privately held and has kept a low profile.”
Because Warburg Pincus (WP) is privately held we may never know Geithner’s compensation. Even the NYT concedes that Geithner is an example of how Wall Street ensures that the revolving door makes wealthy its supporters in high government positions once they resign and that Geithner proves that this has nothing to do with the former official’s merits or fitness for the private sector position.
“Since leaving the Treasury, Mr. Geithner has joined the Council on Foreign Relations as a fellow and has taken paid speaking engagements.
Mr. Geithner follows in the path of past Treasury secretaries who, after leaving government, have accepted lucrative Wall Street posts. After leaving the Clinton administration, Robert E. Rubin joined Citigroup. And John W. Snow, a Treasury secretary in the George W. Bush administration, joined the private equity firm Cerberus.
While Mr. Geithner has been given the lofty title of president, several private equity executives questioned whether he would be much more than a prominent name who would help Warburg Pincus open doors on the fund-raising side, especially with foreign investors like sovereign wealth funds.
Unlike past Treasury Secretaries Henry M. Paulson Jr. and Mr. Rubin (both alumni of Goldman Sachs), Mr. Geithner has been a public servant for most of his career. He has never worked at a bank, and he has no experience making private equity deals.”
Geithner is not a financial expert, but that was no bar to making him the head of the NY Fed or Treasury. The bankers and their political allies put the Geithners of the world in positions of increasing power not despite their weaknesses and failures but because of their willingness to aid the bankers even when doing so will betray their office. Geithner “has been a public servant” as long as one recalls that in this world this means being made a millionaire to lead a mostly private bank (the NY Fed), owned and run by and for the big banks, into its worst supervisory failures in its history at the (massive) expense of the public – which the bankers and the NYT term as being a “servant” of the “public.” Ryan Grim has a nice piece emphasizing that Geithner, as Treasury Secretary, issued the insipid regulation that was weakened to the point that it would please the private equity industry.
Geithner was a Republican who switched to an independent as a fig leaf to ease Obama’s appointment of him as Treasury Secretary, but firms like Warburg Pincus care little about party. They largely backed Obama in 2008 and largely backed Mitt Romney in 2012. What they want from Geithner, as even the NYT admits, is someone who excites wealthy foreign investors about the prospect of using his political connections on their behalf.
But something else intrigued me as soon as I heard that Geithner was cashing in at Warburg Pincus – I remembered that I had debated a former leader of that firm about Geithner. (Details are here, here, here and here.) “Bo” Cutter was enraged that folks like me were criticizing Treasury Secretary Geithner and Obama’s decision to promote him.
Warburg Pincus has had Geithner’s back for at least four years. The revolving door is powered by reciprocity, and Geithner had Wall Street’s back for a decade. Transparency International decries corruption through crude bribes in developing nations, but the “perfectly legal” corruption of “advanced” nations like the U.S. differs largely in mode. Warburg Pincus was patient, but its leadership also recognized that it is never too early to begin sucking up to those in power, particularly if others are criticizing a senior government official for being too subservient to the elite bankers.
Bill Black is the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. He spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.
Bill writes a column for Benzinga every Monday. His other academic articles, congressional testimony, and musings about the financial crisis can be found at his Social Science Research Network author page and at the blog New Economic Perspectives.
Follow him on Twitter: @williamkblack
Transparency International decries corruption through crude bribes in developing nations, but the “perfectly legal” corruption of “advanced” nations like the U.S. differs largely in mode. Bill Black
Speaking of corruption, a government-backed credit cartel is the epitome of it. Stolen purchasing power, especially from the poor, is lent to the so-called credit worthy simply because they are likely to be able to repay it plus interest to the thieves.
Has the current system produced growth? Yes, but at enormous UNNECESSARY* social and environmental cost. What part of “Thou shall not steal”, even by subtle means such as unethical purchasing power creation, so eludes Progressives?
*Unnecessary because common stock is an ETHICAL form of endogenous private purchasing power creation that requires neither usury nor government privileges.
Time to throw the money-lenders out of the temple of democracy.
I suspect that all of us ‘sheeple’ have been psychologically conditioned in such a way that we cannot see or comprehend economic fraud and corruption at its higher, and highest levels. We can understand street crime, small scale scams and frauds. Central banking, money creation, economic theory, interest rates, hedge funds, complex ‘investment’ instruments, et al. . .these are beyond the comprehension level of most of us. Those who do understand, and have access and control; find the profit and power too rewarding to be forthright and transparent for the rest of us. All of the systems and mechanisms of power (including the government(s)) have come under the control of the ‘money’ people. Folks like Mr. Geithner, do what they do. We, sheeple, are largely unaware and have little or no means to resist. 🙁
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What could be more normal? Geithner’s position with Warburg Pincus will pay benefits to the company down the line but even more important it demonstrates to current and future “public servants” that there is indeed a pot of gold at the end of the rainbow, provided one follows the script.
The Obama team was put in place to preserve the status quo and to that extent, Geithner was successful.
Dear Dr. Black, I fear we are beating the wrong horse here – the revolving door. True enough, Geithner is displaying the ethical stature of a child molester here, but what seems even more galling to me is that a mouthpiece for the Roosevelt Institute bent over backward to defend the imp. Their website proclaims “The Roosevelt Institute is a nonprofit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt by developing progressive ideas and bold leadership in the service of restoring America’s promise of opportunity for all.” In defending Geithner, the institute is indicating that the man pursued Rooseveltian policies and is a true egalitarian. Absurd. The loss of integrity of our so-called progressive institutions is a larger cause of concern (to me) than how much Geithner is being paid for his past service to the elite. We need an internal revolt before we can pursue external victories. Bringing the Roosevelt Institute back into the fold would be a good start. Please pardon me for venturing off-topic, but this needed to be said.
Derivatives-war axis (featuring Geithner)
Ellen Brown riffs off Greg Palast expose: