Fri, 30 Jan 2009 03:31:05 +0000 – "Geithner names ex-lobbyist as Treasury chief of staff"--that's the headline in Wednesday's USA Today, providing details about Mark Patterson, just hired as the top aide to Treasury Secretary Timothy Geithner. Patterson has been a lobbyist with the Wall Street megafirm, Goldman Sachs, which has a way of insinuating its top people--former Treasury Secretaries Robert Rubin and Hank Paulson among many others--into power jobs in Washington DC.
Yes, another lobbyist has landed in the administration. Patterson's appointment,as Politico notes, "marks the second time in President Barack Obama's first week in office that the administration has had to explain how it's complying with its own ethics rules as it hires a bevy of Washington insiders for administration jobs."
Obama campaigned of course, on a "no lobbyists" rule, but he has already waived that rule for two others, William Lynn and William Corr, slated to be, respectively, Deputy Secretary of Defense and Deputy Secretary of Health and Human Services And now this third waiver, for Patterson.
As Robert Schlesinger wrote in U.S. News,"No Lobbyist in the Obama Administration ... Except When There Is One."
But hold on a second. Let's get back to the Treasury Department, which is, after all, ground zero for the current bailout, officially known as the Troubled Asset Relief Program (TARP). That is to say, Treasury is the big-dollar enchilada these days, the place in Washington to be surrounded by Gucci Gulch lobbyists, like locusts on a cornfield. So ethics rules, strictly enforced, will be particularly vital; the staff at Treasury will be intimately involved in managing these bailouts, past, present, and future. And having Patterson, the ex-Goldmanite, right there on the inside, will be, well, troublesome--a man with a permanent and continuing conflict of interest.
The same USA Today story quoted Melanie Sloan, executive director of the Citizens for Responsibility and Ethics in Washington, as saying of the Obama administration: "It makes it appear that they are saying one thing and doing another." The paper further noted that 21 Obama appointees have, in years past, been registered as federal lobbyists.
But of all these appointments, Patterson, the Goldman alumni, is the most interesting, because his hiring fits into a larger pattern, which The New York Times late last year summed up in the pithy phrase, "Government Sachs."
On October 19, 2008 the Times ran an article that every American curious about the bailout should read, even now. It details how "Government Sachs"--the jokey new name for the Wall Street firm, according to the Times--has enjoyed disproportionate influence over the Wall Street bailout, which is now pushing a trillion dollars in costs. The piece noted the activities of no fewer than 13 past Goldman partners, employees, and board members, who honeycombed their way into power in George W. Bush's administration. This roster of Goldmanites included not only Secretary Paulson, but also the assistant secretary specifically charged with overseeing the bailout, Neel Kashkari, and Bush's White House Chief of Staff, Joshua Bolten. In all, the Times listed 20 powerful Goldman alumni, including two who work for the New York Federal Reserve, and two more well-wired outsiders left over from the Clinton administration, the best known being Robert Rubin, Clinton's Treasury Secretary.
As the Times explained in October,
Decisions that Mr. Paulson and other Goldman alumni make at Treasury directly affect the firm's own fortunes. They also question why Goldman, which with other firms may have helped fuel the financial crisis through the use of exotic securities, has such a strong hand in trying to resolve the problem. And they further wonder why, Mr. Paulson hasn't hired more individuals from other banks to limit the appearance that the Treasury Department has become a de facto Goldman division.
Let's note those last words: "the Treasury Department has become a de facto Goldman division."
And it's not just the Treasury Department in Washington that has been Goldmanized. The New York Federal Reserve Bank, which has jurisdiction over Wall Street, is seen, according to the Times, as another Goldman outpost. As has been widely reported, when Lehman Brothers was going under, it sought permission to redesignate itself as a bank holding company, which would have given it access to government bailout money. But the New York Fed said no, and so Lehman went bust in September. But just a week later, Goldman and another firm, Morgan Stanley, made the same request for a legal-status change, and it was granted. As the Times reported:
"That was our idea three months ago, and they wouldn't let us do it," said a former senior Lehman executive who requested anonymity because he was not authorized to comment publicly. "But when Goldman got in trouble, they did it right away. No one could believe it."
Now it just so happens that Lehman was a direct competitor to Goldman. But no more, of course. Coincidence? Not a matter of consequence? Perhaps, but surely the double standard that applied to Lehman, on the one hand, and Goldman and Morgan Stanley, on the other, is worth an investigation.
But there's more evidence that Goldman rigged the system in its favor. Earlier this year, the New York Fed, then run by now-Treasury Secretary Geithner, oversaw the bailing out of AIG, the insurance giant. And as reported in the Times on September 27,Goldman was intimately involved in that bailout decision--current Goldman CEO Lloyd Blankfein was in the room when the bailout decision was made--which has cost $122 billion so far. Interestingly, Goldman had a $20 billion position in AIG, which could have been wiped out if AIG had failed. A Goldman spokesman told the Times that its $20 billion exposure was "immaterial." OK, but was it also immaterial that Edward Liddy, a Goldman director, was chosen by Uncle Sam to head up the resuscitated AIG?
As the Times noted,
Some people say that all of these Goldman ties to the New York Fed are simply too close for comfort. "It's grotesque," said Christopher Whalen, a managing partner at Institutional Risk Analytics and a critic of the Fed. "And it's done without apology."
So let's get this straight: A rival to Goldman is allowed to go under, because the government refuses to extend a hand. And then, a week later, Goldman gets a helping hand. And a company that owes Goldman $20 billion is bailed out, as the Goldman chief sits in the room. And now, the man who oversaw that AIG/Goldman bailout, Geithner, is the Treasury Secretary, and he hires a Goldman lobbyist to be his chief of staff. Do those facts qualify as "grotesque"? Or worse?
Whatever the legalities--and Goldman has plenty of high-priced lawyers standing ready to attest to the legality of everything--it seems clear that these hundreds of billions being sloshed around are a huge upward wealth transfer, as all Americans are bailing out the rich and the foolish.
Americans have a right to wonder whether the nation's onetime rightful support for "free markets" and "limited government" has morphed into a self-dealing system that is now more akin to what happened in Russia in the 1990s, when well-connected oligarchs simply ripped off the country in the name of privatization. Well, now here in the U.S. we have just seen the "privatization" of nearly a trillion dollars.
That's a concentration of power--an axis between Washington and New York--that we haven't seen since the 19th century.
So what to do? Is there any recourse? How to break up this power-combine, while not jeopardizing the economy?
One new idea is an old idea: anti-trust.
The grand-daddy of all anti-trust statutes, The Sherman Act, passed in 1890, declares "conspiracy" in "restraint of trade" to be a felony.And in those many Goldman officials spinning through the DC-NYC revolving door, one might wonder if a conspiracy in restraint of trade has been taking place, right before our eyes.
OK, from a legal point of view, it's probably a stretch to say that government officials are "restraining trade," but as a practical matter, restraining trade is exactly what they are doing--ask Lehman.
Surely, what we are seeing in Washington and New York is an obvious case of ongoing cronyism, a concentration of power that can't possibly be in the public interest.
As noted, George W. Bush--with plenty of help from Congressional Democrats--presided over a terrible worsening of the problem.
But now it's Barack Obama's problem. After all, he voted for the bailout last year, and as we have seen, he seems happy using the "talents" of some of the same Wall Streeters who caused the problem--most obviously, Robert Rubin who went from Goldman to the Clinton Administration to Citigroup to the Obama campaign, until leaving Citi as it tailspun into near-insolvency.
So what should Republicans be thinking? Should Republicans continue to support policies, such as the bailout, which transfer money from the red-state heartland to New York City? Is that good policy, or good politics? Although many Republicans voted for the bailout last year, the Congressional wing of the GOP seems to have regained its footing--and its good sense.
But opposing further boondoggles isn't enough. If various banks and brokerages are "too big to fail," then maybe they are too big, period.
Hence, anti-trust. The Sherman Anti-Trust Act, it should be noted, was sponsored by a Republican Senator, enacted by a Republican Congress, and signed by a Republican President, Benjamin Harrison. No Republican who is not an anarchist should object to setting fair rules for commerce, as Sen. Sherman sought to do 119 years ago. And what we are seeing now is obviously not fair.
As we saw in last year's election, being the stooge for an incompetent, even corrupt, status quo doesn't seem to be working out too well for the Republicans. Now the Republicans will have to fight all the harder to reclaim their place as fiscal watchdogs and defenders of the right to succeed through hard work--and the concomitant right to fail.
Meanwhile, the biggest financial ripoff in history is hiding in plain sight, with no end in sight.
So Republicans should be looking for a new approach, attacking unjust concentrations of power wherever they are found, even in Washington. As we have seen in the last month, it's far from clear that these fatcats know what's good for the country, although it's supremely evident that they are closely attuned to their own self-interest.
What'll it be, GOP? Should the government be dominated by rich insiders who work together to increase their own wealth and power? "Yes!" is the answer that seems to be coming from Washington DC these days--after Goldman Sachs CEO-turned-Treasury Secretary Henry Paulson led a trillion-dollar bailout operation, leading to a new public-private hybrid, "Government Sachs," that seems to be continuing on in the Obama era.
If you weren't invited to be part of this new venture, well, you're not alone. All but a handful of Americans were excluded from the pork-and-gravy train. But precisely because 99 percent of Americans were left out--that's the beginning of a new counter-coalition.
James P. Pinkerton is a Fox News contributor. He is a former White House domestic policy adviser to Presidents Ronald Reagan and George H.W. Bush.