Jack Lew’s employment record between his time in the Clinton administration and his return to Obama’s illustrates a couple of problems. His $700,000-to-$800,000-a-year salary at New York University and his $685,000 severance, paid when he left to go to CitiGroup, provides an example of the excessive compensation for academic administrators that’s contributing to inflated tuition bills. At CitiGroup, Lew received yet another generous severance bonus, this one payable on the condition that his departure was for a “high level position with the United States government or regulatory agency.” In other words, he would get the bonus if he could be nice to CitiGroup in his next job.
Unfortunately, most of the stories about the revolving door, like the one about Jack Lew, get buried in the business section or other inside pages, so the New York Times deserves congratulations for putting two on its front page recently. “K Street is literally littered with former Baucus staffers,” a trade association executive recently told Eric Lipton, the author of the first Times article. Lipton discovered that at least twenty-eight people who had worked as aides to Senator Max Baucus since he became chairman of the Senate Finance Committee in 2001 “have subsequently lobbied on tax issues.” And their efforts have not been without effect. They have already “saved their clients millions—in some cases billions—of dollars after Mr. Baucus backed their requests to extend certain corporate tax perks.”
In return, the former aides contribute to Baucus’s campaign fund. Jeffrey Forbes, former staff director of the finance committee, has given at least $25,000 to the fund, and hundreds of thousands of dollars have come from his clients, including Verizon and Altria.
The senior Republican on the Finance Committee, Senator Chuck Grassley, has sixteen staff alumni who are now registered as tax lobbyists.
One more time around
The second revolving-door story to make the front page of the Times concerns the Promontory Financial Group and its founder, Eugene A. Ludwig, the former head of the Office of the Comptroller of the Currency. The OCC has long been known as one of the more indulgent of the bank regulators—and I can assure you that the competition for that distinction has often been keen.
“Nearly two-thirds of [Promontory’s] roughly 170 senior executives worked at agencies that oversee the finance industry,” report the articles’ authors, Ben Protess and Jessica Silver-Greenberg. A recent addition to the 170 is Mary Schapiro, the former chairman of the Securities and Exchange Commission. One new hire who did not add to the total is Julie Williams, the former chief counsel of the OCC, because she was replaced by Amy Friend, who is leaving Promontory to take—what else?—Williams’s still-warm seat as chief counsel of the OCC.
The most amazing thing about Promontory is that it makes money on giving advice not only to financial firms like Morgan Stanley, but also to the government agencies that regulate them. “Behind the scenes,” reports the Times, “the firm acts as an advocate for banks, helping draft letters that challenge crucial rules and discussing reforms with regulators.”
Because of its connections, the firm is able to charge its clients as much as $1,500 an hour, making DLA Piper look like a discount store. Such fees have enabled Ludwig to earn more than $30 million annually and “live on an $11.5 million estate, replete with a tennis court and a modern art collection,” where he entertains regulators and the regulated. He travels by private jet and, when in New York, he is a regular at the Four Seasons restaurant, “where he is known by name and salad order.”
I’m hearing more and more people talk about the need to rethink capitalism. How can they help having such thoughts when they read in a recent New York Times article that United Technologies, “even though its profits and revenues have never been higher” and the price of its stock has “soared past $90 dollars to a record high” in February, “confirmed it would eliminate an additional 3,000 workers this year on top of 4,000 let go in 2012”? Or when they saw in a recent Sunday Times business section a gallery of photographs of executives with excessive salaries, exactly twenty of whom were each making more than $20 million per year?
Capitalism doesn’t have to be this way. Our values have to change so that the ablest people want to get rich but not filthy rich, and, instead of flocking to Wall Street, want to start businesses that make useful products and create jobs paying decent wages.
This can happen because I saw it happen. American capitalism was far from perfect in the 1950s, but it did involve much more modest executive compensation in relation to the wages and benefits paid employees. Profits did not always have to be maximized, and it was a rare company that boasted of eliminating the jobs of its workers.
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