In Money-Changers We Trust

Two years into the Obama presidency and the economic data is still looking grim. Don't be fooled by the gyrations of the stock market, where optimism is mostly a reflection of the ability of financial corporations-thanks to massive government largesse-to survive the mess they created. The basics are dismal: Unemployment is unacceptably high, the December consumer confidence index is down and housing prices have fallen for four months in a row. The number of Americans living in poverty has never been higher, and a majority in a Washington Post poll said they were worried about making their next mortgage or rent payment.

In a parallel universe lives Peter Orszag, President Barack Obama's former budget director and key adviser, who even faster than his mentor, Robert Rubin, has passed through that revolving platinum door linking the White House with Wall Street. The goal is to use your government position to advance the interests of your future employer, and Orszag and Rubin's actions in the government and then at Citigroup provide stunning examples of the synergy between big government and high finance.

As Bill Clinton's treasury secretary, Rubin presided over the dismantling of Glass-Steagall, the New Deal legislation that would have prohibited the creation of the too-big-to-fail Citigroup. He was rewarded with a $15-million-a-year job at Citigroup, where he became a leader in the bank's aggressive move into high-risk ventures. An SEC report in September claimed that Rubin as Citigroup chairman was aware that the bank failed to disclose $40 billion it held in subprime mortgages before the collapse. 

During those years at Citigroup, Rubin financed the Brookings Institution's Hamilton Project, an economic policy program, and named Orszag, a Clinton economic adviser, as its director. The Hamilton Project continued to celebrate Rubin's deregulation philosophy up to the point of utter embarrassment. Clearly, Orszag is not easily embarrassed, for upon taking his new job recently he boasted "I am pleased to be joining Citi, with its unmatched global platform and dedication to providing clients with service and advice."

The most damning comment on this corrupt syndrome was offered by former Citigroup co-chief executive John Reed, who had worked with Rubin to get Glass-Steagall reversed and now is a sharp critic of the result. "We continue to listen to the same people whose errors in judgment were central to the problem," Reed told Bloomberg News. "I'm astounded because we basically dropped the world's biggest economy because of an error in bank management." Reed estimated that the financial deregulation proposals contained in the Dodd-Frank bill and other reforms of the Obama administration represent only 25 percent of the change needed.

The failure to provide serious regulation of the financial industry to avoid future downturns is documented in devastating detail in that Dec. 28 Bloomberg report, written by Christine Harper: "The U.S. government, promising to make the system safer, buckled under many of the financial industry's protests. Lawmakers spurned changes that would wall off deposit-taking banks from riskier trading. They declined to limit the size of lenders or ban any form of derivatives."

The reason for that failure is obvious from the president's choice of advisers featuring Rubin acolytes from the Clinton years. Harper writes: "While Obama vowed to change the system, he filled his economic team with people who helped create it," referring to, among others, Timothy F. Geithner, who had gone from the Clinton Treasury Department to head the New York Fed, where he presided over the salvaging of Citigroup and AIG. As Obama's treasury secretary he was quick to appoint a Goldman Sachs lobbyist as his chief of staff. Geithner's subservience to Wall Street was reinforced by White House top economic adviser Lawrence Summers, Rubin's deputy and then replacement in the Clinton administration who pushed through the repeal of Glass-Steagall and fought against the regulation of derivatives.

And with the decisive assistance from both a Republican and Democratic president, all has worked out just as planned for the banks. Harper reports: "The last two years have been the best ever for combined investment-banking and trading revenue at Bank of America Corp., JPMorgan Chase & Co., Citigroup, Goldman Sachs Group Inc., and Morgan Stanley, according to data compiled by Bloomberg."

It's all wonderfully bipartisan. Recently it was announced that Carlos Gutierrez, commerce secretary under George W. Bush, had been named to a high position at Citigroup. For President Obama, there's no cause for worry about the loss of indispensable talent from his administration. Orszag's replacement as head of the Office of Management and Budget, Jacob J. Lew, was both a member of Rubin's Hamilton Project and a former Citigroup executive-thus ensuring that government of the banks, by the banks, for the banks shall not perish from the Earth.