U.S. Treasury secretary nominee Jack Lew faces questions about his work at Citigroup Inc. and an investment in a Cayman Islands fund from senators who will also ask him about ways to cut Medicare spending and the country’s debt.
Lew, picked by President Barack Obama last month to succeed Timothy F. Geithner, will testify before the Democratic-controlled Senate Finance Committee tomorrow.
“Republicans aren’t exactly thrilled with him, but, at the same time, they weren’t thrilled with Geithner either,” Mark Calabria, director of financial-regulation studies at the Cato Institute in Washington, said in an interview. “There’ll be a lot of pressure on ‘where is your expertise in the financial markets,’ and, you know, certainly the Citibank on the resume doesn’t help.”
Still, Calabria says he expects Lew to be confirmed. That would immediately propel him to the forefront of talks between Obama and Congress over the $1.2 trillion in spending reductions that are set to take effect March 1, and make him a key player in longer-term projects such as revising the federal tax code.
“We have a tremendous amount of work to do over the next couple months to get our fiscal house in order,” Finance Committee Chairman Max Baucus, a Democrat from Montana, said in an e-mailed statement on Feb. 6. “It is my hope that -- after a thorough vetting process -- Jack Lew will be quickly confirmed so he can help tackle our country’s pressing economic issues.”
Lew, 57, Obama’s former chief of staff and ex-director of the Office of Management and Budget, worked as a Citigroup executive from 2006 before joining the Obama administration at the State Department in 2009. His tenure at New York-based Citigroup overlapped with the U.S. government’s $45 billion bailout during the 2008 global crisis. Citigroup later repaid the government funds.
“We need a better understanding of his role at Citigroup, what his knowledge is of financial markets, whether he supports reforming our tax code,” Senator Orrin Hatch of Utah, the top Republican on the Finance Committee, said in a Feb. 6 statement. “I will not decide whether or not to support his nomination until those questions are answered.”
Some Republicans might see Lew’s Wall Street experience as an indication he would favor government help for failing financial institutions, said Calabria of the Cato Institute, who is a former aide to Republicans on the Senate Banking Committee.
Lew served as managing director and chief operating officer of Citi Global Wealth Management. In 2008 he moved to Citi Alternative Investments, which managed billions of dollars in private-equity and hedge-fund investments, some of which were under pressure as the financial crisis neared. A group of the unit’s municipal bond funds lost most of their value that year, placing the bank at the center of a regulatory probe and a wave of litigation from investors.
Lew will be questioned about his investment in a Cayman Islands fund located in a building known as a home for offshore tax havens that President Obama criticized during his 2008 campaign, Iowa Republican Senator Charles Grassley said Feb. 8. Lew had between $50,001 and $100,000 in the Citigroup fund based in Ugland House, according to a 2009 financial disclosure form.
White House spokesman Eric Schultz responded by saying that Lew’s investment in the Cayman Islands fund is “not news to the Senate.”
“Jack Lew paid all of his taxes and reported all of the income, gains and losses from the investment on his tax returns,” Schultz said in a statement. “He played no role in creating, managing or operating the fund and he sold his investment in 2010 at a net loss.”
During Lew’s earlier tenure as budget chief under President Bill Clinton, the U.S. ran a surplus for three consecutive years. Tomorrow Lew will probably face questions on how to limit entitlement programs.
“The big gorilla in our living room is Medicare, Social Security, Medicaid,” said Senator Johnny Isakson, a Republican from Georgia and a member of the Finance Committee. “I would hope he would begin by looking at ways to reduce the deficit and, over time, reduce the debt and get into reforming our tax code and reforming our entitlements.”
The annual cost of Medicare, the health insurance program for senior citizens, is likely to almost double to $1.08 trillion in 2023 from $551 billion in 2012, the Congressional Budget Office said on Feb. 5. Congress is still wrestling with the nation’s legally set $16.4 trillion debt limit, which was suspended through May 18 to give lawmakers time to act.
If he is confirmed by the full Senate, Lew would also help oversee the Dodd-Frank Act, which revises regulation of the financial system. Lew acknowledged regulation isn’t his strongest suit when asked by Senator Bernie Sanders, a Vermont independent, in 2010 whether deregulation of Wall Street contributed to the economic crisis.
“I would defer to others who are more expert about the industry to try and parse it better,” Lew replied. Sanders said he opposes Lew becoming Treasury secretary, because of his Wall Street connection.
“We need a Treasury secretary who will work hard to break up too-big-to-fail financial institutions so that Wall Street cannot cause another massive financial crisis,” Sanders said on Jan. 10.
As the head of the Treasury Department, Lew would lead the Financial Stability Oversight Council, created under the Dodd-Frank law. The body of regulators is currently pressing the Securities and Exchange Commission to revise regulation of money market mutual funds, and working to identify nonbank financial companies that could pose a threat to U.S. financial stability.
While Lew is recognized for his knowledge of domestic finance, Republicans at tomorrow’s hearing may ask him about international issues, seeking his weaker points, according to G. William Hoagland, senior vice president at the Washington-based Bipartisan Policy Center. Hoagland worked with Lew from 1997 to 1999.
“It’s fair game for particularly the Senate Finance Committee Republicans to be raising these questions about not just China, but Japanese, the yen and the euro,” he said.