Geithner does the Rubin Shuffle
By Kevin Connor • Nov 18, 2013 at 14:35 EST
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:
Last week I wrote about NY Governor Cuomo’s new hires to run StartUp NY, the new program creating tax-free zones around SUNY campuses for businesses willing to relocate, and their ties to Wall St. According to Cuomo’s press release, Leslie Whatley, StartUp NY’s new executive vice president, will be employed by the SUNY Research Foundation and Empire State Development will cover half of her annual salary.
It turns out Cuomo’s additions to these state agencies, Whatley and economic development advisor John Mack, won’t be the only ones among their new colleagues with roots on Wall Street.
It is quickly becoming clear 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.
Dudley’s daybook goes dark
By Kevin Connor • Oct 15, 2013 at 15:05 EST
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).
New York’s Fracking Investments
By Rob Galbraith • Aug 22, 2012 at 11:01 EST
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.”
Shining a Light on the Shadow Bank Lobby
By Kevin Connor • May 12, 2010 at 15:34 EST
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.
McCaskill’s Donor at the Fed
By Kevin Connor • May 05, 2010 at 12:40 EST
Claire McCaskill has suggested that she will oppose the Fed audit admendment. This represents a flip-flop, as the Senator from Missouri voted for the Fed audit back in April.
One possible explanation for the shift: one of McCaskill’s top donors is Steven H Lipstein, chair of the St Louis Federal Reserve. Lipstein has given McCaskill and her committees $16,000 since she first ran for the Senate in 2006, including $11,200 for that campaign, the sort of outrageous sum that illustrates the complete meaninglessness of campaign finance limits. In February 2010, he gave her $4800, maxing out to both her primary and general accounts. His wife, Susan Lipstein, donated $2100 to McCaskill during her 2006 campaign.
The Goldman fraud suit continues to dominate the media cycle. After the initial shock of the US government actually doing something to hold Wall Street accountable, the business press — led by Goldman Sachs and their lawyers at Sullivan and Cromwell — has turned to questions about the merits of the suit. Today, the New York Times gave A1 real estate to a piece headlined “A Difficult Path In Goldman Case.”
The article opens by saying that the SEC is “pursuing an unusual claim that could be difficult to prove in court” according to legal experts. But the article only quotes one legal expert clearly criticizing the substance of the case: Allen Ferrell, a professor at Harvard Law School. According to his CV, Ferrell has been engaged as an “expert for large financial institution involving subprime-related litigation (details confidential).”
This is clearly a potential conflict, but the entire article appears to be based around Ferrell’s lone, critical quote. This is irresponsible journalism, especially considering the landmark significance of the Goldman suit. So I wrote the following letter to the Times ombudsman to alert him to the conflict and request a proper correction/disclosure: