4 Modest Wishes for New Treasury Secretary Jack Lew
I happily joined the more than 200,000 people who’ve signed the “Paul Krugman for Treasury Secretary” progressive fantasy petition. It was a clever way to tell the administration to reject this nutty austerity craze.
Now, however, President Obama has made the far less exciting choice of his Chief of Staff, Jack Lew, for the job. And especially given the experience with Timothy Geithner over the past four years, it’s time to develop some more modest wishes for the new top dog at 1500 Pennsylvania Avenue.
1. If you were complicit in the 2008 crash, please fess up and make a convincing case that you’ve seen the light.
Lew was the chief operating officer of Citigroup's Alternative Investments unit from 2006 through the crash (he left in 2009) and he should reveal more about what he did there. This should also apply to other top Treasury leaders. Since Lew, a former head of the Office on Management and Budget, is considered more of a budget guy than a financial markets guy, there are rumors that President Obama is planning to install a Wall Street executive as his deputy.
When Geithner was up for confirmation in 2009, Senator Carl Levin asked him to respond in writing to 38 hard-hitting questions. Many of his answers were the evasive inanities you’d expect from someone trying to squeak through a polarized Senate (e.g., “I believe that we need more transparency to promote transparency…”). But the only questions he flat out refused to answer had to do with his role in the Clinton Treasury’s push to deregulate over-the-counter derivatives. The law that resulted, the Commodity Futures Modernization Act of 2000, gave rise to the explosion of credit default swaps that were a key factor in the crash.
We should’ve known then that Geithner was insufficiently reformed. In fact recently he was back at it, exempting foreign exchange derivatives from the new Dodd-Frank regulations over the objections of other regulators and consumer protection groups.
2. If you oppose a popular progressive reform, have the decency to explain your position.
The current deficit fixation could be turned into an opportunity for bold, creative thinking on how to use fiscal policy to shift our economy in ways that would make it more equitable, green, and secure. At the Institute for Policy Studies, we’ve compiled a long list of fair and environmentally friendly proposals that could generate hundreds of billions in additional money per year.
One of our favorites is the idea of a small financial transaction tax that could raise massive revenue while discouraging short-term financial speculation. Over the past four years, much of Obama’s core base – including major labor unions and environmental, anti-poverty, public health, and consumer organizations – have been pushing for such taxes. The International Monetary Fund has documented that they are administratively feasible and could be a significant revenue raiser. The European Commission has also produced reams of analysis on the potential benefits, prompting a dozen European governments to commit to implementing such taxes this year.
Here’s Geithner’s most substantive public statement on the issue: “I have not seen the version of that that I think works.” The Obama Treasury has never published a research paper on the topic. Never offered a thoughtful response to the IMF and European Commission analyses. Never engaged in a meaningful debate. Never even responded to the many civil society letters calling for such taxes.
So Mr. Lew, if you’re confirmed, please at least be open to a respectful dialogue over this and other bold progressive tax and financial reform ideas.
3. Please don’t help rich people and corporations hide their money in overseas tax havens.
In Geithner’s response to Senator Levin’s questions, he pledged to “treat the offshore tax abuse issue as a high priority.” Behind closed doors, he has reportedly advocated a shift to a “territorial” tax system that would exempt U.S. corporations’ foreign earnings, giving them even more incentive to disguise U.S. profits as income earned in tax havens. In his most recent book, Bob Woodward wrote that in negotiations with House Speaker John Boehner, Geithner said “The goal is territorial.” Boehner’s staff confirmed the accuracy of the quote.
As a Senator, Obama co-sponsored legislation with Levin to crack down on tax haven abuse – a practice that drains an estimated $100 billion per year from Uncle Sam’s coffers. Fixing the problem would also help level the playing field for small businesses that provide more than half of U.S. jobs – and don’t have accounts in the Caymans. Mr. Lew, you could help make this a legacy issue for Obama.
4. Don’t be a jerk to other governments
Lew doesn’t seem to have much international experience, but he wouldn’t have to do much to improve on the current Secretary’s record. Geithner has sparked animosity by attempting to impose his opposition to some fair taxation ideas on other countries. After receiving a lecture against financial transaction taxes from her U.S. counterpart, the Austrian finance minister commented dryly, “I found it peculiar that even though the Americans have significantly worse fundamental data than the euro zone that they tell us what we should do and when we make a suggestion ... that they say no straight away.”
Geithner has also been the main advocate of using U.S. trade agreements to limit other governments’ ability to control volatile financial flows. When more than 250 economists urged the administration to lift current trade restrictions on the use of capital controls, Geithner was dismissive. As a result, U.S. trade officials are pressuring the 10 countries negotiating a Trans-Pacific Partnership trade deal to give up this legitimate policy tool. By contrast, the International Monetary Fund’s new “institutional view” in support of capital controls makes them look like a beacon of enlightenment. Mr. Lew could make sure governments around the world have all the tools they need to prevent financial crisis.
This humble wish list doesn’t cover every important issue on the next Treasury Secretary’s plate. I haven’t even gotten into the core question of whether he or she will put the interests of ordinary homeowners and Main Street businesses above those of Wall Street. But it has allowed me to get some of my gripes about Geithner off my chest. And I can only hope that the incoming Secretary may learn a few lessons from his predecessor’s shortcomings.