Corruption Alert: Presumed Incoming Treasury Secretary Jack Lew's Deal With Citigroup
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Corruption has now become so routine in Washington that improprieties far worse than Turbo Timmie’s implausible failure to pay taxes on income from his days working as a consultant to the World Bank barely evoke a yawn from the media. Apparently the fourth estate is either so bedazzled by star turns, like Michelle Obama presenting at the Oscars (!!!) or so cowed by the prospect of being cut off from information that it dutifully falls in line.
Let’s look at the presumed incoming Treasury Secretary, Jack Lew. He’s a die hard neoliberal, played a role in financial deregulation as Clinton economics team member, and a backer of NAFTA. But what is surprising is the limited interest in his personal dealings, which have been examined critically by Pam Martens and Bloomberg’s Jonathan Weil. Recall that Lew is essentially a career elite technocrat, with his major stint out of government being during the Bush Administration, when he first served as the Executive Vice President for Operations at NYU (where his noteworthy accomplishment was busting the bargaining rights of grad students) and then became the chief operating officer for Citigroup’s alternative investment group.
Weill zeroed in one provision of Lew’s employment agreement at Citigroup, that if Lew left for a “high level position with the United States government or regulatory body” his 2006 and 2007 guaranteed incentive and retention awards. The 2008 rider to the letter provided that if Lew left for the same type of “high level position” his restricted stock would vest immediately. Frankly, I think Weil is more riled up about this provision than he ought to be. The bank was giving particularly generous guarantees for joining. There was no reason to pay out on those guarantee if Lew broke his contract, unless he went to do something that would be of comparable value to the bank. You may not like the logic, but this is pretty cold commercial logic at work. Weil seems to have misread the “guaranteed incentive and retention awards” to mean Lew’s annual bonus on an ongoing basis. It didn’t. It’s a defined term that refers only to special goodies he got in 2006 and 2007.
What I find more disturbing is if you read the totality of Lew’s agreement versus Citi’s performance and Lew’s 2008 pay.
Remember, Lewis came from a job at NYU where he already looks to have been considerably overpaid. He received over $840,000 for the academic year 2002-2003, which had him earning more than most university presidents, including NYU’s president. And on top of that, as Pam Martens ferreted out, he was apparently given a $1.3 million house. I’m not making that up, go read her piece. The mechanism was that NYU lent the $1.3 million to buy the house to Lew and then forgave it over five years. Oh, and they paid him the money to pay the interest too. We will assume that the forgiveness of debt was reported properly to the IRS.
Now the house deal (which is rather bizarre given that NYU owns lots of nice faculty housing) might be what made Lew’s pay deal so out of line relative to his job. But if the forgiveness of debt was not included in the total, it’s even more insane, the equivalent of $1.1 million a year.
But Citi was still happy to pay over the market. If you read t he Lew employment agreement, he got a $300,000 salary and a $1 million a year guaranteed incentive and retention award for each of 2006 and 2007. Oh, and he ALSO got a $700,000 signing bonus in restricted stock (or cash if the relevant committee did not approve the award!) that would vest 25% a year over the next four years. Oh, and the last goodies: he got his offer letter on June 26, 2006, and he joined in July. But his $1 million guaranteed incentive and retention award was NOT pro-rated for that year. And he got to take a $400,000 advance against it when he joined.