By Simon Johnson
Antonio Weiss has been nominated to become Undersecretary for Domestic Finance at the Treasury Department. A growing number of people and organizations have expressed reservations about this potential appointment, which requires Senate confirmation – including Senator Dick Durbin (D., IL), Senator Jeanne Shaheen (D.,NH), Senator Joe Manchin (D., WV), the American Federation of Teachers (in a press release on December 17th), and other groups. And, from another part of the political spectrum, the Independent Community Bankers of America has also come out strongly against Mr. Weiss.
In a speech last week, Senator Elizabeth Warren detailed her concerns about Mr. Weiss’s background:
“He [Mr. Weiss] has focused on international corporate mergers and companies buying and selling each other. It may be interesting, challenging work, but it does not sufficiently qualify him to oversee consumer protection and domestic regulatory functions at the Treasury that are a critical part of the job.”
And Senator Warren made it clear that the Weiss nomination needs to be seen in this broader context:
“Time after time in government, the Wall Street view prevails, and time after time, conflicting views are crowded out.”
A line must be drawn and, as Senator Warren said on Friday evening, with regard to the Wall Street view that what is good for executives at big banks is good for the country,
“Enough is enough.”
The latest round of pushback from Weiss supporters against Senator Warren makes three points. First, this administration is not captured by the Wall Street view. Second, Mr. Weiss is not captured by the Wall Street view. And, third, that Mr. Weiss is so perfectly qualified for the job that all these broader issues are irrelevant or even illegitimate. None of these points has a substantive basis or can withstand scrutiny. The ICBA, AFT, and Senators Durbin, Machin, Shaheen, and Warren are right to continue opposing Mr. Weiss’s appointment.
On the extent of capture of this administration by the Wall Street view, the facts are straightforward. The Obama administration has continually refused to put forward any potential nominee for a senior position who has shown serious backbone with regard to financial reform. There appears to be a litmus test. If you want to be tough on reform – in the sense of confronting Too Big To Fail head-on or even just reducing the reckless risks that big banks take with derivatives – you cannot have a senior administration job.
A few reformers have, of course, managed to get through. Gary Gensler took financial reform seriously and implemented the Dodd-Frank law as chair at the Commodity Futures Trading Commission. The administration seems to have been surprised by how tough he was – and they did not reappoint him. Janet Yellen became chair of the Federal Reserve Board, but only because the White House could not get sufficient support for Larry Summers. And Tom Hoenig and Jeremiah Norton are strong voices for sensible policy at the Federal Deposit Insurance Corporation – but they were both put in office by the Republicans.
There is no balance of views at the top of the US Treasury. The Wall Street view – what’s good for the people who run big banks is good for the country – is fully in control. The most recent demonstration of this point came just last week, when House Republicans proposed to repeal Section 716 of Dodd-Frank – a direct attempt to help Citigroup and other megabanks by allowing them to run more dangerous derivatives out of their insured banks (and therefore create more downside risks for taxpayers and the broader economy). Treasury and the administration not only did not oppose this measure – they actively undermined House Democrats and Senator Warren in their attempts to stick up for Section 716. There is no backbone on financial reform at Treasury.
Regarding Mr. Weiss himself, the reasonable question is: to what extent does he believe in any version of the Wall Street view?
We know many things about Mr. Weiss but we don’t know everything. Therefore any reasonable observer faces a signal extraction problem – there is plenty of noise and distraction, but what are his real views? Here is what we have to work with:
- Weiss has no known competence on anything to do with financial regulation. There is no track record.
- Weiss has never communicated, in public or private, on financial reform issues with anyone who has worked hard against the Wall Street view over the past six years (or ever).
- Weiss’s employment has involved advising on international mergers and acquisitions for 20 years. Lazard, his firm, does deals involving big banks – and it hires plenty of people who previously worked at global megabanks such as Citigroup.
- Many people who live and work in this kind of milieu share some version of the Wall Street view. For example, some of the most vociferous defenders of Citigroup are people in smaller financial firms and in law firms (and in think tanks) who make their living from the Citi ecosystem (and the implicit government subsidies that keep this bizarre and dangerous structure going).
- Not everyone who has worked in finance believes in the Wall Street view (e.g., Gary Gensler). But at this point – six years after the crisis – most of the serious skeptics regarding the supposed advantages of megabanks have made their voices heard, at least in private.
- Weiss is associated with Robert Rubin, for example through a paper (on fiscal issues) they both signed that was produced by the Center for American Progress. Mr. Rubin has, while in office during the 1990s, while at Citigroup during the 2000s, and still today, consistently exhibited a strong version of the Wall Street view.
- Rubin has exerted great apparent influence on this administration, including by directly or indirectly encouraging the White House to hire people with minimal public track records on financial reform – who then prove to be profoundly disappointing by siding repeatedly with the big Wall Street players.
- More broadly, the attitude of the Obama administration on financial reform has been profoundly disappointing – including, now, not even going to bat for their own legislation.
- Everyone on the Board of Governors of the Federal Reserve System has at this point been appointed or re-appointed by the Obama administration. The only person on that Board who definitely does not share the Wall Street view is Janet Yellen.
- The administration has steadfastly refused to take seriously any potential appointees to the Fed Board of Governors who would be tough on the Wall Street view. There have long been two vacancies on the Board – and the administration will not advance a single person who worries about the profound risks created by big banks or any kind of proven willingness to implement the Dodd-Frank reforms.
In recent days, Mr. Weiss’s supporters have sought to rally support through two outside letters that stress Mr. Weiss’s supposed qualifications for the job. But both these letters further weaken the case for Mr. Weiss – seen in terms of the signal extraction problem, these interventions strengthen the likelihood that Mr. Weiss shares a disturbing version of the Wall Street view.
One letter, dated December 11, is from four former Undersecretaries for Domestic Finance. The authors concede that Mr. Weiss has no experience in managing the national debt so, by their own definition, the issue is whether Mr. Weiss is suited to a key position relative to financial regulation. Their argument comes down to this:
“Mr. Weiss has spent a quarter century operating in financial markets, including more than 20 years at Lazard, the last five of which as Global Head of Investment Banking. He has specific expertise advising companies how to grow, and how to finance that growth. Lazard is not a money center or lending bank and does not engage in sales and trading. Mr. Weiss has been deeply involved on behalf of large and small client companies in negotiating every type of financing, from debt and equity through more complex structures.”
All this says is: he worked on Wall Street, knows about corporate finance, and did not directly get bailed out in 2008-09. But there is no definite or specific information here that helps us understand or verify whether Mr. Weiss at all shares, or even deeply believes in, the Wall Street view – an important part of which now is “bailouts are fine” and “the government made money”; completely ignoring the costs of the financial crisis to the broader economy and to ordinary Americans.
The fact that Mr. Weiss’s strong supporters would send a letter devoid of relevant information on this point should itself be interpreted as a signal. If Mr. Weiss were at all skeptical of megabanks, now would be a good time to communicate that point – and we see nothing of the kind.
The second letter, dated December 12, is from the Partnership for New York City, which is an organization comprised primarily of leading New York-based companies – naturally heavily weighted towards finance. The membership of the Partnership includes all the Too Big To Fail banks, although most of them chose not to sign this letter (with the exception of Morgan Stanley).
Instead, the prominent names among those signing include top Wall Street lawyers, people at financial firms that do a lot of business with TBTF banks as partners or counterparties, and former executives from the largest global megabanks (including the former chairman of Citigroup). Many of these individuals have no material interest in seeing an end to the distortive government subsidies associated with any financial firm perceived as being Too Big To Fail. Indeed, the net worth, status, and professional opportunities for many on the Partnership’s letter are presumably closely tied to the fortunes of TBTF banks. These are smart, rational people with a good grip on how the world works – it does not seem unreasonable to think many of them wish to continue receiving, indirectly, the benefits of implicit taxpayer support provided to the likes of Citigroup.
Similar views to those of high-profile individuals in the Partnership for New York are not underrepresented in this administration and in this Treasury Department. Many of these people have access also to the very top of the White House.
And, as matter of routine, an influential subset of this group also appoints, oversees, and can actually remove from office one of our most important financial regulators, the president of the Federal Reserve Bank of New York. A major part of our modern difficulties can be traced back to the fact that the New York Fed has become completely captured by the Wall Street view. (Senator Jack Reed has a legislative proposal that would help deal with this problem by reducing the powers of the Board of the New York Fed, where the banking sector still holds the reins.)
It is hard to see the letter from the Partnership for New York as anything other than confirmation of the points made by opponents of Mr. Weiss. Camden R. Fine, president of the ICBA, put it this way:
“While Mr. Weiss has impressive credentials as a top Wall Street executive specializing in international mergers and acquisitions, Wall Street is already well represented at Treasury, and the narrow focus of Mr. Weiss’s professional experience is a serious concern for ICBA and community banks nationwide.”
“It’s all about the revolving door – that well-oiled mechanism that sends Wall Street executives to make policies in the government and that sends government policymakers straight to Wall Street. Weiss defenders are all in, loudly defending the revolving door and telling America how lucky we are that Wall Street is willing to run the economy and the government.”
As argued by his opponents and as confirmed by the public statements of his strongest supporters, Antonio Weiss does not have the right background, qualifications, or – as far as anyone can reasonably determine – views to become Undersecretary for Domestic Finance.