Britannia Radio

July 2, 2009

How Goldman Sachs and Citi Run the Show

The Wall Street White House

By ANDREW COCKBURN

Robert Hormats, Vice Chairman of Goldman Sachs, is to be installed as Under Secretary of Economics, Business, and  Agricultural Affairs. This  comes as one more, probably unnecessary reminder of the total control exercised by Wall Street  over the Obama administration’s economic and financial policy.  True, Hormats is “a talker rather than a decider” according to one former White House official, but he will find plenty of old friends used to making decisions, almost all of  them uniformly disastrous for the U.S. and global economy.

Among the familiar Wall Street faces that Hormats will encounter in his new post will that of Deputy Secretary of State Jacob Lew, lately Chief Financial Officer of Citigroup Alternative Investments Group which lost $509 million in the first quarter of 2008 alone.  On visits to the White House he is sure to bump into Michael Froman, who also tore a swath through the Citi balance sheet at the alternative investments shop (they specialized in “esoteric” investments such as private highways) but is now Obama’s Deputy National Security Adviser for International Economic Affairs.  If Froman is otherwise engaged, Hormats can interface with Froman’s deputy, David Lipton, who was until recently running Citi’s global country risk management effort. 

Citigroup is also well represented at Treasury, in the form of Lewis Alexander, formerly the bank’s chief economist and now Counselor to Treasury Secretary Timothy Geithner.  Given the role played by all of the above in bankrupting us all, Alexander’s 2007 verdict on the onset of the mortgage crash, “I think that’s not going to spill more broadly into the economy and so I think we’re going to have a normal kind of housing cycle though the middle of this year,” can only have been a recommendation in the eyes of his current employer. 

Alexander’s function at Citi may have been merely to endorse the financial depredations of colleagues with economic blather, rather than exercise loss-making functions personally.  Not so Deputy Treasury Secretary Neal Wolin, who has moved over to the number two job at the department from the Hartford Insurance Company, where he served as president and chief operating officer of the Property and Casualty Group.  Hartford was one of the insurance companies that got suckered by the banks into backing their ruinous investments in real estate and other esoterica, but Wolin’s Treasury has just handed Hartford $3.4 billion of our money in the form of TARP funds.

Hormats’ agricultural responsibilities will of necessity bring him into frequent contact with the Chairman of the Commodity Futures Trading Commission, Gary Gensler –  a former Goldman partner.   As Assistant Secretary of Treasury in the Clinton Adminsitration Gensler played a key role in greasing the skids for the notorious Commodity Futures Modernization Act of  2000, which set the stage for the great credit default swaps scam that underpinned the recent bubble and subsequent collapse.  News of the appointment did generate threats of obstruction in the Senate – any one of  the senators could have blocked the appointment had they really wished to do so – but such threats proved predictably hollow.  Had they been otherwise, Treasury Chief of Staff Mark Patterson could of course have lent the expertise he gained as Goldman’s lobbyist to overcome the obstacle.

For sheer gall it would be hard to equal the appointment of  Gensler, one of the engineers of this catastrophe, but the administration has managed it with the selection of Linda Robertson, formerly a key Enron lobbyist and intimately involved in pushing through the commodity futures act as chief flack  for the Federal Reserve.  Prior to joining the crooked energy-trading firm, Robertson was an important figure in the Clinton Treasury Department, latterly serving her friend Larry Summers and before him Robert Rubin during their terms as Treasury Secretaries. 

Such connection to the key enablers of our bankrupt casino helps explain many of the other hires listed above.  Michael Froman was Chief of Staff to Robert Rubin at Treasury before following Rubin to his reward at Citigroup.  Most significantly, it was Froman who first introduced Rubin to his Harvard classmate Barack Obama.  David Lipton also served in the Rubin Treasury, as deputy under secretary for international affairs.  Neal Wolin, on the other hand, appears to have more an acolyte of Summers, who cherished him as Treasury General Counsel from ’99 to ’01.  Summers and Robertson were similarly close, and certainly he raised no objection to her fatal submissions on behalf of her paymasters at Enron. 

Recent reports suggest that financial industry lobbying in Washington, at $104.7 million for the first three months of 2009, is 8% down on last year.  But that is to be expected – why should Wall Street continue paying  top dollar for a wholly owned subsidiary?

Andrew Cockburn writes about national security and related matters. His most recent book is  Rumsfeld: His Rise, Fall and Catastrophic Legacy. He is the co-producer of American Casino, the feature documentary on the ongoing financial collapse. He can be reached at amcockburn@gmail.com.