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Jack Lew, an object lesson in plutocracy

The Wall Street Journal focuses attention on two questions regarding Jack Lew and the paychecks he received from private employers before returning to government. First, why did New York University pay severance to Lew in 2006 when he left there voluntarily to work at Citigroup? In my experience, employers don’t pay folks to quit their job. Severance pay is what you get when you are, in effect, sacked.

Second, why did the terms of Lew’s original employment contract with Citigroup include a bonus guarantee if he left the bank for a “high level position with the United States government or regulatory body?” As the Journal observes:

Most companies include incentives for top employees not to leave, but in this case the contract was written to reward Mr. Lew for treating the bank like a revolving door. Citi says it likes to accommodate employees who do public service or work at nonprofits. But the Lew contract was specific about a senior job in the federal government. There would be no special payout if he left to run the Red Cross or the New York state budget office.

Actually, there isn’t much of a mystery here:

Mr. Lew’s contract suggests that Citi knew from the start that Mr. Lew was headed back to a powerful job in Washington, and that it wanted him to remember the bank fondly when he left.

Is this a matter of concern? Yes, it is:

We have nothing against people making a living, but when they show up a few years later to do more “public service,” taxpayers have a right to know what their private employers were paying them to do. All of this matters in particular in a Dodd-Frank world when the biggest banks are public utilities. They have little choice but to do what a Treasury Secretary tells them to do. A too-big-to-fail bank must be pleased to know that in a little more than two years it made the sacrifice of government so much easier for America’s most powerful banking regulator.

Or, as Troy Senik at Ricochet puts it:

[The Lew arrangement] is nothing short of the contractual codification of regulatory capture. Make the federal government essential to the operation of the big banks and you make it essential for the big banks to infiltrate the federal government at every turn. Lew and Citi — operating on the basis of rational, if perverse, incentives — deserve a lot less of the blame here than a government that makes this calculation reasonable. It’s an exercise in plutocracy — from an administration that likes to posture about “fat cat bankers.”

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