We need to stop the revolving door from government to business and back (guest post)

It was announced yesterday that Tim Geithner, President Obama's first Treasury secretary, will become president of Warburg Pincus, a private-equity firm. Before joining the Obama administration, Geithner had been president of the New York Fed, and before that worked for Bob Rubin in the Clinton Treasury Department. (Rubin, co-chairman of Goldman Sachs before becoming Treasury secretary, advised Clinton to repeal Glass-Steagall and nixed the regulation of derivatives. After leaving the administration Rubin became chairman of Citigroup's executive committee, and was there when Wall Street nearly melted down in 2008; he is now a counselor at investment bank Centerview Partners LLC.) Geithner's move to Wall Street follows Peter Orszag, Obama's first director of the Office of Management and the Budget, also a Rubin protégée, who is now vice chairman of Citigroup's corporate and investment banking group.

I don't begrudge those public servants who, after leaving office, take high-paying jobs in the private sector. But when someone who has been in charge of bailing out Wall Street and then shepherding through Congress regulations designed to prevent another near collapse, one can't help but worry. The public is already so cynical about both government and Wall Street that even the mere possibility that Geithner knew where he'd be heading afterward, and therefore pulled his punches, can only deepen the cynicism.

Wall Street's political power is a direct result of both the money it pours into political campaigns and the revolving door between it and Washington. So far, Wall Street's biggest banks have fought back tighter regulation (eviscerating much of the Dodd-Frank Act). Private equity has proven even more potent: It has preserved the "carried interest" loophole that allows the pay of private-equity executives to be taxed at low capital-gains rates even though these executives don't risk their own capital. (They buy and sell companies with funds from investors and with debt, typically charging an annual management fee of 2 percent of the funds and keeping 20 percent of the profits as a "carried interest.") During his time at Treasury, Geithner argued for “eliminating the carried interest loophole that allows some to pay capital gains tax rates on what is essentially compensation for services," as he told the Senate budget committee in 2012. One wonders whether he will stand ready to say the same thing again.

--Robert Reich, American political economist, professor, author, and political commentator

Links:  

Robert Reich - Wikipedia

Robert Reich | Facebook

Business-Managed Democracy -- a blog

LL

Goldman Sachs: Getting away with grand larceny, lies and lying about it all

It's been widely reported now that Goldman Sachs is, indeed and in fact, getting away with theft--large scale theft, at that:

Goldman Sachs Won't Be Prosecuted In Fraud Probe

A Senate panel found last year that Goldman Sachs marketed four sets of complex mortgage securities to banks and other investors, but failed to tell clients the securities were very risky. The Justice Department said the "burden of proof to bring a criminal case" could not be met.

And while this should surprise no one, however much it dissappoints us, the following has to be acknowleded:

First, Goldman Sachs is in the White House and has been for some years. Timothy Geithner, the Treasury Secretary, comes from there as former CEO, no less, in one of the worst examples and there are plenty of others.

Second, it's an election year and this president--and all candidates for that office--want and need the big Wall Street firms on their side, if not also putting money in their campaign coffers. It seems clear nothing was going to happen here, no matter what the SEC found.

That said, perhaps the people examining this huge firm should go back and read even just some of writer Matt Taibbi's articles and columns over at Rolling Stone. It seems there's enough evidence in them alone to indict the company in general and specific employees of the firm. (See links below).

Forget that Goldman Sachs paid a $550 million fine (that's a little over one-half billion dollars, folks) to the SEC in 2010 for fraud in the subprime mortgage debacle. Forget that. That doesn't really mean they're guilty, right?

As if this all isn't enough to make you cynical, get this, from the New York Times: "News of the settlement sent Goldman’s shares 5 percent higher in after-hours trading, adding far more to the firm’s market value than the amount it will have to pay in the settlement."

So not only did Goldman steal millions of dollars from people and not only did they then also lie about it but when their fine of $550 million dollars was handed out, since it was such a small share of the $13.35 billion profits they made the previous year, their stock actually went up on that news.

They won.

They won big and they keep winning.

Why wouldn't you keep winning when, after all, you virtually--if not actually--own the government?

We have to also forget that the financial collapse that Goldman Sachs and Countrywide Mortgage and Citibank (or Sh*ttybank, as Bill Maher refers to them, rather appropriately) and others nearly brought the nation--and the world, actually--to very near total financial collapse back in 2008 with their lies and theft. Forget that.

The government says we don't have enough to prosecute.

Right.

Got it.

Links: http://www.npr.org/2012/08/10/158547458/business-news

http://en.wikipedia.org/wiki/Timothy_Geithner

http://www.rollingstone.com/politics/news/the-people-vs-goldman-sachs-20110511

http://www.nytimes.com/2010/07/16/business/16goldman.html

http://www.rollingstone.com/politics/news/the-great-american-bubble-machine-20100405

What should happen

Secretary of the Treasury Timothy Geithner is to go before Congress today, to say what the Administration would like to have happen for and to our financial system, so we can avoid the kinds of problems we have now, in the future.

Following is a short list of what he should be asking and pressing for, at minimum:

1) The outlawing of hedge funds since they just put bets upon bets and run up stock markets artificially;

2) The outlawing of short selling, for the same reasons as above;

3) The making illegal of "credit swaps" since they're a ridiculous lie of a term--a sham, really--meant to be a replacement for actual insurance and all their necessary financial supports;

4) The inability for corporations to buy too many competitors, so they don't become a threat to our country and financial system, the way AIG did and get to be "too big to fail". We knew this from the Great Depression but we let it happen anyway. Hey, what was Congress supposed to do, walk away from lobbyist's money and do the right thing for the country?

These are four easy, intelligent, simple things that should absolutely happen to both help clean up our current mess and to avoid similar problems to our current ones, now.

Sadly, again, ridiculously and even irresponsibly, it won't happen.

Congress hasn't the backbone to do any of this and lobbyists and corporations are too far into our representative's collective financial pockets to do these, right things. There will be huffing and puffing but in the end, what really needs to happen, won't.

Link to story on today's testimony:
http://news.yahoo.com/s/ap/20090326/ap_on_go_ca_st_pe/financial_regulation