What does it mean when Timothy Geithner, Barack Obama’s bro-ish and apparently self-satisfied former Secretary of the Treasury, becomes president of a company that hoodwinks the victims of the financial system he helped rescue?
If you care about economic justice, or if you want the Democratic Party to win more elections, the answer is: more than you might think.
Monetizing the Poor
Geithner made some (presumably unwelcome) news last week when it was reported that Warburg Pincus, the financial firm he now helms, is in the words of one employee, “monetizing poor people” with exploitative practices and rates that meet the textbook definition of usury.
A Warburg subsidiary called Mariner Finance operates on a simple business model: It mails checks to financially struggling Americans, hides many of its potential charges in the fine print, and counts on them to cash the checks on impulse – or, more likely, out of a combination of impulse and desperation.
Here’s what most people don’t know when they cash a check from Mariner Finance, either because it is not disclosed or is hidden in that fine print: The company typically borrows money at 4 to 5 percent interest, but charges customers as much as 36 percent. It charges them an exorbitant amount for a flaky “insurance” policy, which is managed through an offshore company to evade U.S. regulations.
That’s grift, pure and simple.
Mariner Finance also uses extremely invasive collection tactics, including phone calls to friends, family, and employers. Customers can be charged an additional 20 percent for legal fees – and lawsuits are part of the company’s aggressive business model.
Last year the company filed 300 lawsuits in Baltimore alone, the Washington Post reports, and customers can be sued within five months of borrowing money.
It was a requirement to try and make your sales goals by offering sub-prime loans to people with somewhat bad credit scores. They pushed to try and up sell by getting a secured loan by have some form of collateral (car, boat, etc) There was (sic) a few times where you could actually help… Skip tracing the people that do not pay and constantly calling people for payments were the worst part of the job.
“Mariner Finance was a great place to work,” another ex-employee commented, but “I just wasn't very comfortable with the loan business.”
The Book of Timothy
Tim Geithner, as president of the private equity investing firm that owns and manages Mariner Finance, seems to feel no such discomfort when he profits from the poor.
The Warburg Pincus website says that the firm’s “unique, globally integrated partnership ensures that all of our resources are committed to the success of each portfolio company.” The website also boasts of the company’s “accountability, ethical business conduct and a sense of responsibility for the local communities in which we operate,” which proves you can’t believe everything you read.
Predatory financing isn’t the only kind of investment you’ll find in Warburg Pincus’s book of business. Its fossil-fuel investments, according to Bloomberg, include “oil and gas exploration and production, refining, upstream, midstream and oilfield services, (and) power generation and transmission,” with some alternative-energy investments thrown in for good measure.
Warburg Pincus also profits from our misshapen, profit-driven health economy. HEWlth investments include “biopharmaceuticals, healthcare services, consumer and digital health, medical devices, diagnostics, biotechnology, and specialty pharmaceuticals.”
Where the Money Is
Why did Geithner, who served as President Obama's Secretary of the Treasury, choose to parachute into a private equity firm, instead of one of the more obvious choices on Wall Street for White House alums, like Citigroup, JP Morgan Chase or Goldman Sachs?
CNBC reports that “a person familiar with (Geithner’s) thinking” – it could be Geithner himself, of course – “said… Geithner specifically did not want to work for a company that he either directly or indirectly regulated” because he was “concerned with worsening the perception of mistrust that many Americans feel toward government and Wall Street.”
That unnamed source, according to CNBC, said that he was therefore “looking for a job that would not bring him on a daily basis in contact with the people he did business with in the government.”
That all sounds very high-minded, unless you’ve read these words from The Economist magazine: “Private equity’s vitality has seen it replace investment banking as the most sought-after job in finance.”
By chance, it would seem, Geithner’s noble intentions happened to lead him to one of the most sought-after and lucrative positions in the financial world. Apparently it's true: Virtue is its own reward.
Rewarding the Underserving
Why does the grim story of Geithner's grift even matter? Because it demonstrates that even the supposed good guys and the party that claims to stand up for working people are deeply embedded in the corrupt and exploitative culture of American finance.
I once met Geithner, as part of a group of writers while he was Treasury Secretary. I asked him why he wasn’t willing to provide principal relief for American mortgage holders. He replied that it would “reward the undeserving.”
Geithner also famously said that foreclosing on struggling homeowners would help “foam the runway” for troubled banks. That’s an almost sociopathically callous way to view families who were losing their homes and, in many cases, their life savings: as raw material for Wall Street’s rescue.
This is the man Barack Obama chose to guide the American economy, during its gravest crisis since the Great Depression. That says volumes – about Obama, his party, and the milieu in which they both operate.
Easy Credit Terms
When the government, under Geithner's guidance, bailed out the insurance giant AIG in 2008 with a loan of more than $170 billion, it set strict lending terms. It replaced the firm’s leadership, and took an ownership position in the company.(Disclosure: I was a mid-level manager at AIG many years ago, as part of a non-financial subsidiary company.)
That was the right way to handle a mismanaged company.
Why didn’t the Obama Administration, and Geithner, do the same thing with the banks and other financial firms it rescued? Why did it help criminal, reckless bankers keep their ill-gotten gains with loans at virtually no cost?
Why did it bend the rules by retroactively declaring Goldman Sachs a bank, despite that firm’s well-documented misdeeds? Why did Geithner and Obama both declare that Wall Street bankers had committed no crimes, despite mountains of evidence to the contrary? Why did Geithner appear to let rate-rigging banks off the hook when he ran the New York Fed?
Perhaps it’s because those firms and the decision-makers in the administration had too much in common, culturally and socially. They traveled in the same circles, attended the same fundraisers, shared many of the same values. The insurance company operatives were outsiders, rogues, strangers. Executives like Chase’s Jamie Dimon and Goldman’s Lloyd Blankfein were… well, they were people the administration knew.
Payday Rolls Around
Geithner is not the only veteran of a Democratic administration to cash in. Cashing in is the rule, not the exception. As Zach Carter and Paul Blumenthal wrote recently, “many (Obama Administration alums) are lending the prestige of their White House resumés to scandal-fraught organizations in return for large sums of money. Some are even doing business with the Trump administration.”
Many Clinton administration officials, including Treasury Secretary Robert Rubin, who helmed Citigroup after leaving the White House, did the same thing.
Nor are presidents immune from the lure of post-political payouts from morally dubious sources. The Washington Post reports that Bill Clinton earned $104.9 million for giving 542 speeches to wealthy and powerful interests, most frequently from the financial industry, in his first 12 years after leaving office. Barack Obama accepted a $400,000 speaking fee from an investment firm less than three months after leaving the presidency.
These speeches aren’t just “bad optics,” to use the parlance of political operatives, although they certainly hurt the Democratic Party’s image. They also hint at a polite, if unstated, agreement: If these politicians and officials don’t make life too uncomfortable for Wall Street banks and other predatory interests, someday those interests will make them very, very comfortable indeed.
Fixing The Game
Donald Trump became president for many reasons – some known and some, perhaps, still to be revealed, but one of them is surely this: Some voters were willing to believe him when he stole Bernie Sanders’ rhetoric to say, accurately, that “the economic game was rigged” against working people by big banks.
Trump was lying when he said he’d fix the rigged game, of course. But, after years of disappointment, some people were prepared to believe him. They knew that their financial troubles were created by policies that ignored them and favored the powerful. They also saw that there were people in both parties who were willing to profit from their misery.
Unfortunately, they’re seeing the same thing today.
In a related development, a recent poll showed that most Democrats want this year’s Congressional candidates to be “more like Bernie Sanders.” Unfortunately, too many Democratic operatives would still rather be like Tim Geithner, even if their party – and the country – pays for it in the end.