Another Citigroup alumni has been nominated to a key high-level position in the Obama administration. This time it's a lateral move: Marisa Lago, who has been serving in the Treasury Department as Assistant Secretary for International Markets and Development since 2010, is nominated for the position of deputy U.S. trade representative (USTR). Her duties at USTR will include trade relations with Africa and the Western Hemisphere, as well as labor and environment issues.
Ms. Lago was Global Head of Compliance for Citigroup's corporate and investment bank from 2003 to 2008. She also headed the Office of International Affairs at the Securities and Exchange Commission from 1997 to 2001.
Why This Matters
For better or worse, this nomination of yet another Citigroup alumna to an important position in our government comes at a time when the public has grown suspicious of Wall Street's influence on our government.
In her November 19 op-ed, "Enough Is Enough: The President's Latest Wall Street Nominee," Senator Elizabeth Warren took on the nomination of yet another Citigroup alumni, Antonio Weiss, to a high position in the Treasury Department. She wrote, "[T]here's the larger, more general issue of Wall Street executives dominating the Obama administration, as well as the Democratic Party's, overall economic policy-making apparatus."
In recent years, President Obama has repeatedly turned to nominees with close Wall Street ties for high-level economic positions. Jack Lew, who was a top Citigroup official, now serves as Treasury Secretary. The President's choice for Treasury's highest international position, Nathan Sheets, also comes from Citi. For the number two spot at the Federal Reserve, the President tapped Stanley Fischer, another former Citigroup executive. A Bank of America executive, Stefan Selig, was put in charge of international trade at the Commerce Department. The President's two recent picks for the Commodity Futures Trading Commission -- including his choice for Chairman -- are lawyers who have spent their careers representing big financial institutions.
There's plenty of financial expertise in this country. People with banking experience haven't all flocked to the biggest banks; community banks and regional banks, along with smaller trading houses and credit unions, have some very talented people. Nor must every government official come from the financial sector; executives from other business areas, lawyers who have practiced in a wide range of fields, academics, financial advisers, non-profit employees, think-tank researchers, and people with experience elsewhere in government have deep wells of knowledge -- and perspectives that sometimes differ from those who run Wall Street banks.
The over-representation of Wall Street banks in senior government positions sends a bad message. It tells people that one -- and only one -- point of view will dominate economic policy-making. It tells people that whatever goes wrong in this economy, the Wall Street banks will be protected first. That's yet another advantage that Wall Street just doesn't need.
In her Senate floor speech opposing the "Citibank Budget," Warren summed up why this matters, saying, "Many Wall Street institutions have exerted extraordinary influence in Washington’s corridors of power, but Citigroup has risen above the others," she said. "Its grip over economic policy-making in the executive branch is unprecedented."
...[I]n recent years, many Wall Street institutions have exerted extraordinary influence in Washington’s corridors of power, but Citigroup has risen above the others. Its grip over economic policy-making in the executive branch is unprecedented. Consider a few examples:
● Three of the last four Treasury Secretaries under Democratic presidents have had close Citigroup ties. The fourth was offered the CEO position at Citigroup, but turned it down.
● The Vice Chair of the Federal Reserve system is a Citigroup alum.
● The Undersecretary for International Affairs at Treasury is a Citigroup alum.
● The U.S. Trade Representative and the person nominated to be his deputy – who is currently an assistant secretary at Treasury – are Citigroup alums.
● A recent chairman of the National Economic Council at the White House was a Citigroup alum.
Another recent Chairman of the Office of Management and Budget went to Citigroup immediately after leaving the White House.
● Another recent Chairman of the Office of Management of Budget and Management is also a Citi alum -- but I’m double counting here because now he’s the Secretary of the Treasury.
That’s a lot of powerful people, all from one bank. But they aren’t Citigroup’s only source of power. Over the years, the company has spent millions of dollars on lobbying Congress and funding the political campaigns of its friends in the House and the Senate.
Ms. Lago is on that list, and this nomination would be a move over to USTR. While this is not an additional Citibank implant, the USTR is a key agency right now, negotiating the Trans-Pacific Partnership (TPP) and other key "trade' agreements. One criticism of TPP and other similar agreements is that they are being used as an end-run around US regulation of Wall Street, eliminating Dodd-Frank (and other) regulations that Wall Street can't get rid of by purchasing themselves a Congress.
The number of Citigroup and other Wall Street people in high positions of our government matters right now, because of the appearance (if not the reality) that parts of the government have been "captured" by Wall Street.
Regulatory capture is a term for the problem of regulators being unduly influenced by the companies and interest groups they are supposed to be regulating. There are many, many, many, many, many, many examples of our country's regulatory apparatus, and our Congress, at best appearing to be captured by the companies and interests they regulate and at worst actually being captured.
For example, the SEC delays and delays issuing rules mandated by the Dodd-Frank law requiring public companies to disclose the "pay ratio" between executives and employees. The SEC also won't require companies to disclose to their shareholders their political and political-related (think tanks, etc.) spending.
Just today (Friday) Bloomberg News reported that the banks were given "a great holiday present by the Fed" and regulators are delaying requiring them to follow the "Volker rule." (The Volker Rule bans banks from engaging in speculative trading that only benefits the bank itself, rather than its clients.)
The Justice Department will not criminally prosecute any individuals at the big banks for anything they do, under any circumstances, up to and including laundering money for terrorists and drug cartels.
The recent "CRomnibus" budget fight was over a Citibank-inserted provision that lets the biggest banks trade in risky derivatives using funds from depositors that are insured by the federal government. This changes the pricing equation for these derivatives, because buyers and sellers know the government has to step in if the bets go bad. This incentivises increased trading in risky derivatives because the price is lowered, it is very lucrative for the traders, and when things go bad the traders won't lose their money. Congress passed this, giving the public appearance of being captured.
The Revolving Door
Brilliant people with expertise and a willingness to take time away from making money in order to serve the public is a good thing. It is something we want people to do. It is to be commended. It is good for the country and good for the souls of those willing to do this work.
However, right now there is a problem of our government at best appearing to be under the influence of big money interests like, but not limited to, Wall Street -- and at worst actually being completely corrupted. There is the massive influence of the billionaires. There is the massive influence of the giant, multinational corporations. There is the massive influence of the oil and coal companies. There is the massive influence of military contractors. There is the influence of every other wealthy and powerful interest group with lots of money to spend on getting their way, on getting an edge over their competitors, on getting lucrative contracts, on getting tax breaks, on getting everything they can pocket before the country is bled dry.
One process companies use to gain influence is placing their people inside the government. This is known as the "revolving door" where people go from industry to government to industry to government. The government pays relatively little compared to what people can make in the private sector. When in government they steer things toward their company, when back in the private sector they "make some money" raking in a share the resulting big bucks. And then they do it again. They revolve through the door into government positions to help their companies, they revolve through the door back to the companies to collect their reward.
Ms. Lago, your resume is impressive, your public service is to be commended. But it is very bad timing for another nomination of another Citigroup alumni.