Courtesy of Pam Martens.
Jack Lew Nominated by President Obama for U.S. Treasury Secretary as Tim Geithner Looks On
There has been much ado by media and public interest groups about Jack Lew’s time spent at Citigroup and whether that renders him unfit to be President Obama’s nominee to head the U.S. Treasury Department.
Lew sat on Citigroup’s management committee and in his last position at the firm in 2008, he was Chief Operating Officer at Citi Alternative Investments (CAI), the unit that housed a trifecta of toxic speculation, including proprietary trading, hedge funds that were imploding, and the Structured Investment Vehicles (SIVs) that housed $50 billion in subprime debt – an amount that Citigroup understated in financial reports to the SEC and public by $39 billion. It was the SIVs in Lew’s division that toppled Citigroup into the arms of the U.S. taxpayer.
Lew only joined Citigroup in June of 2006. The company had set its course for disaster eight years earlier when, in defiance of existing law, Sanford (Sandy) Weill merged his insurance company, Travelers Group, which owned an investment bank (Solomon Brothers) and a retail stock brokerage firm (Smith Barney) with the commercial bank, Citicorp. This was the very combination outlawed under the Glass-Steagall Act of 1933 and the Bank Holding Company Act of 1956 to prevent banks holding FDIC insured deposits from merging with firms engaging in the much riskier securities or insurance underwriting.
The Glass-Steagall Act had been put in place to prevent the Wall Street abuses that led to the 1929 to 1932 Wall Street crash which saw a 90 percent decline in stock prices and led to the Great Depression. The Citigroup merger effectively forced the hand of Congress to repeal the legislation in 1999 under the rubric of “modernization” or force the breakup of a powerful and politically connected company.
The repeal of the Glass-Steagall Act occurred under the Clinton administration. The U.S. Treasury Secretary at the time, Robert Rubin, played a leading part in advocating for the repeal. Rubin went straight from public service to join Citigroup and collect $120 million in compensation over the next eight years for non-management work. According to the Washington Post, it was Rubin who recommended Lew for the post at Citigroup.
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