One of the more intriguing emails revealed of late doesn’t involve Hillary Clinton for once. It dates to October 6, 2009, a month before Barack Obama was elected president for the first time.
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The missive was from Michael Froman, then a Citigroup executive, to John Podesta, then the head of Obama’s 100-days team. Its subject was “Lists” and it had three attachments, one a small Excel spreadsheet.
The lists were Froman’s ideas for appointments should Obama win, including top positions such as secretary of state and secretary of the Treasury. Almost all the people named were appointed; Penny Pritzker was passed over during Obama’s first term but was later named commerce secretary.
The fact that Froman, an executive at one of America’s three biggest banks, sent the candidate his suggestions for top government appointments is no surprise. He and Obama were classmates at Harvard and Obama consults with him.
The timing is what’s interesting. Froman sent the email from his account at the bank at the most sensitive moment in the last 100 years of bank-government relations, as Citigroup trembled on the brink of bankruptcy. It was later rescued by Obama at a cost of tens of billions of dollars.
Any manager or politician may consult with friends on appointments. In Obama’s case, like previous presidents, his friends are leading bank executives. Many senior appointments at the White House and Treasury have been staffed by an elite coming and going through a revolving door between the banks and government.
The first journalist to report on the Froman-Podesta email and explain its context was David Dayen of The New Republic.
I asked him if anybody from government or Citigroup had denied its content. No, he said. The biggest U.S. papers ignored the story; connections between the banks and the White House are taken for granted. A few days later another paper published another email from Froman directly to Obama, making other appointment suggestions.
Who gained from these relations? One answer is the American people, as the bankers have unique knowledge that helps the government shape economic policy. The question is whether that knowledge comes with conflicts of interest and a worldview that serves the group the officials came from and to which they shall return.
A good person with whom to start the discussion is Robert Rubin, Froman’s boss at the time as Citigroup chairman. Rubin is a classic revolving-door man; he chaired Goldman Sachs and later advised Bill Clinton on economic policy and served as his Treasury secretary.
Among his decisions was to rescue Mexico in its debt debacle, a move that greatly served the interests of the big American banks. Goldman Sachs and Citigroup got back all their outstanding loans, $2.5 billion and $2.9 billion respectively, thanks to the mechanism Rubin set in place.
Later Rubin led similar rescues in Southeast Asia and again, the main beneficiaries in the packages the International Monetary Fund sewed up were the big American banks.
Moments before ending his term as Treasury secretary, he and Larry Summers spearheaded a move to abolish the Glass-Steagall Act, enacted in 1933 during the Depression to separate investment banks from commercial banks. The immediate beneficiary was Sandy Weill, chairman of Travelers Group, which declared a merger with Citicorp and created the giant Citigroup, expecting the Clinton administration to repeal Glass-Steagall, which it did.
Weill and Rubin didn’t wait long. Immediately after Rubin left the Clinton administration, he was named vice chairman of Citigroup. The job was especially intriguing because his responsibilities were never clear, yet he received $126 million during his years there.
Buoying the behemoths
The bailouts that benefited the banks and the plum job are not the only way Rubin demonstrated the meaning of the revolving door. In 2001, as Enron tottered, Michael Carpenter, Citigroup’s investment banking chief, asked Rubin (a Democrat) to use his connections in government to ask the Treasury (under the Republicans) to “advise” the rating agencies against downgrading Enron bonds. In other words, he was lobbying for Citigroup and Enron.
Can a former Treasury secretary lobby the department he headed on behalf of business behemoths? Yes, it became legal that year. One of Bill Clinton’s last decisions as president was to cancel the presidential order forbidding top people in government from lobbying at the offices where they had worked. Clinton, like Rubin and many others, figured that revolving doors were the only way to rule and preserve democracy.
Obama, who attacked Wall Street and lobbyists plenty in his first campaign, did nothing to constrain their influence and presence throughout the government. He filled his first administration with Wall Street people. The only economist advising Obama who wasn’t in the club was Paul Volcker, who had chaired the Federal Reserve in the 1970s and who was sharply critical of the bankers. Obama quickly replaced him with Jeffrey Immelt, General Electric’s chairman and CEO.
For Treasury secretary, Froman suggested his boss at Citigroup, Rubin, as well as Timothy Geithner, who was appointed in the end, would lead bank rescues and now works at private equity firm Warburg Pincus. He also suggested Summers, Rubin’s deputy in the Clinton administration. For attorney general, Froman tapped Eric Holder, who got the job; under him, there were no indictments of bankers involved in the financial crisis.
In 2013, Holder would tell the Senate that the Wall Street banks were too big to indict. When he left office in mid-2015, he returned to Covington and Burling, a law firm that represents big banks. Another suggestion was Ken Salazar, a politician who was finally named secretary of interior.
In 2013 the economists Daron Acemoglu, Simon Johnson, Amir Kermani, James Kwak and Todd Mitton published a fascinating study. They looked at the performance of shares in banks with which Geithner was connected when his Treasury appointment was announced. These stocks surged around 6% on the first trading day of trading and 12% in the next 12 days.
News that his appointment might be foiled (which didn’t happen) sent these bank stocks tumbling. The shares’ outperformance in both directions, economists wrote, could attest to Washington’s reliance on the advice of a small group of financiers – at a time when Washington had tremendous influence on banks.
The Clintons’ many millions
While Obama can say in his defense that he had to fill his government with ex-bankers because they knew the economic system best, the Clintons’ conduct in ties between big money and government are much harder to explain.
In the last decade, the Clintons set up a well-oiled machine, the philanthropic foundation and assembly line of lectures that siphoned hundreds of millions of dollars from giant corporations and governments lobbying Washington on economic matters.
The WikiLeaks documents revealed this month give a peek into the machine. The disclosures include emails indicating that the Clintons’ advisers were confident that taking money from banks and foreign governments would hurt her good name, but Hillary insisted that Bill continue to receive money, even though she was poised to start the most important campaign of her life.
Hillary’s campaign manager, Robby Mook, wrote to her aides recommending that she cancel a speech Bill was to give at a Morgan Stanley meeting in April 2015, mere days before declaring the campaign. Hillary insisted that the lecture take place unless Bill decided not to do it.
Many Clinton supporters dismiss the revelations of conflicts of interest and corruption by citing her pragmatism. But the evidence, the documents and the data don't paint her or her husband as pragmatists, but mainly as greedy. The huge sums the Clintons raised and received from governments and corporations weakened her badly in the presidential race and will continue to plague her.
When Hillary and Bill Clinton left the White House 15 years ago, they complained about their heavy debts incurred to pay private lawyers defending them against the many claims pursuing them while in office. Today, on the eve of reentering the White House, their personal wealth is estimated at between $150 million and $250 million, much of that from lobbying.
This type of entrepreneurship by the Clintons, putting them among the richest politicians the United States has known, reflects not only how American politics works but also how business works. The U.S. economy of 2016 is more concentrated than at any time in the last 100 years. The budgets the administration streams to the business giants are gargantuan. It’s only natural that many of the people growing rich in the United States are businesspeople and politicians brokering between government and the private sector.
Donald Trump’s tax record drives home the point about the system. A month ago The New York Times reported that Trump’s 1995 tax return presented a loss approaching a billion dollars. There’s a good chance he used the loss to avoid tax for 20 years.
Trump hasn’t denied the allegation and in the second debate even half-confirmed it, saying it made him “smart.” As he put it in on another occasion, “I’m working for you now, I’m not working for Trump.”
That sound bite sounds great at first and probably pleased Americans who think it takes an aggressive, manipulative businessman to heal the system and change America’s direction.
But Trump destroyed value for his shareholders and bondholders and probably his suppliers and employees too. He not only passed all his losses on to investors, he used the loss of other people’s money to avoid paying tax. All this is probably legal, but not all businesspeople operate this way. Some people build their fortunes while creating value for investors, suppliers and their employees.
Trump chose to make money this way. Maybe he knows no other way. But if he looked out only for himself, within the boundaries of the law, why at the White House would he look out for anyone but himself?
Clinton could be asked the same question: The conduct of you and your husband over the past 10 years has created many potential conflicts of interest that have helped make you rich. Why should we think you’ll behave otherwise back in the White House?
In many areas such as minorities, migrants and women, Clinton and Trump are miles apart. But the fact that these two are the choice that Americans face can only stir unease about America and the path many Western democracies have taken in the past decade.