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Treasury Secretary Tim Geithner stands at President Barack Obama's side along with White House Chief of Staff Jack Lew as President Obama nominates Lew to be his new Treasury Secretary.
“As a reward for a quarter-century of patiently fulfilling their duties, career bureaucrats may expect a second career as . . . an executive of a large firm or bank. Their delayed rewards as amakudari (“descent from heaven”) bureaucrats usually include at least a doubling of income and sometimes much influence and handsome fringe benefits.”

Karel van Wolferen
The Enigma of Japanese Power

A clinical dissection of the Soviet system, in which a group of managers and bureaucrats . . . are engaged in ceaseless political maneuvering among themselves while maintaining total power, as a privileged class, over all the others.

John C. Campbell
Review of Nomenklatura: The Soviet Ruling Class, by Michael Voslensky
Foreign Affairs
Winter 1984/85

(Continue reading below the fold.)

I made a dumb Twitter mistake the other day, but one that led me to an interesting look at the way our ruling elites operate here in America—especially those that, for one reason or another, identify themselves with the Democratic Party.

The mistake was this: After hearing President Obama was about to nominate White House Chief of Staff Jack Lew to be the next treasury secretary, replacing Tim Geithner (Wall Street’s $800 billion man), I tweeted:

POTUS unaware of law Treasury Sec must be Wall Street plutocrat. Wants experienced civil servant. GOP knows they're losers—like P. Volcker
The problem, as others have learned to their sorrow, is that it’s way too easy to pull the trigger on a tweet without first making sure that a.) you don’t sound like a complete idiot, and b.) you’re not being incredibly obnoxious.

Call it the Donald Trump Syndrome.

Fortunately, in my case I think I was only guilt of a.)—sounding like an complete idiot. I was only trying to poke some quick fun at the frantic attempts of Republican critics to think up plausible excuses (other than pure Obama Derangement Syndrome) for opposing Lew, while at the same time contrasting his nomination with the more recent custom of naming retired Wall Street gazillionaires (Robert Rubin, Hank Paulson, Nick Brady, Donald Regan) to be the federal government’s chief ambassador to Wall Street.

Which, when you think about it, is like asking a successful used car salesman to negotiate a car deal for you—with another salesman at the same dealer.

But, in my quest for instant Twitter gratification, I overlooked a couple of things. One is that the current treasury secretary is not, strictly speaking, a plutocrat. In fact Geithner’s career actually looks more like Volcker’s than any recent treasury secretary I can recall.

After working a few years at Kissinger & Associates (boo hiss), Geithner entered government (Treasury) as a civil servant, rose quickly under Clinton, then moved to the IMF. He became president of the New York Fed in 2003, making him a senior member of Time magazine’s “Committee to Save the World”—with special emphasis on that part of the world that trades financial assets in lower Manhattan.

These were all powerful, high-paying jobs, but not the kind that make you insanely rich, at least not right away. (Current salary of New York Fed president: $410,000—i.e., just barely inside Obama’s new top tax bracket).  So say what you will about Tim Geithner  (and from a progressive point of view, not much of it is good), at least he hasn’t been directly on the payroll of Greed Inc.—at least not yet.

My other mistake was thinking the same could be said of Jack Lew.

Filling the Tank at Citigroup

My initial perception, after a quick (way too quick) Wikipedia check, was that Lew had spent his entire career in government—first as a House staffer, then in Boston city government, and then the Clinton White House—before taking an admin/teaching post at NYU, then returning to government under Obama.    

What I didn’t notice in my haste is that along the way Lew made a quick stop at Citigroup Alternative Investments (CAI)—the hedge fund arm of the world’s ex-largest bank, which, as we now realize, was actually the financial equivalent of the Titanic, the Lusitania, and the Hindenburg, all folded into one exquisitely mismanaged holding company.

Lew was only at Citi for about a year and a half—but it was the year and half leading up to the 2008 financial crash, which also totaled CAI. When Lew walked away from the wreckage, he managed to take his $1.1 million salary and a $900,000 bonus with him—even as Citigroup was becoming a poster child for the Treasury’s new AFDC (Aid to Financially Dependent Corporations) program.

The gory details of how Lew earned his money at Citi (by shorting the housing market, in cahoots with a hedge fund manager who helped Goldman Sachs do the same at the expense of its long clients) have already been well reported, so I won’t reexamine the entrails here.

I’m more interested in what Lew’s brief stay at Citigroup has to say about the modern Democratic Party nomenklatura—the political technocrats who (when Democrat politicians are in power) staff the government, and who in many ways have become more powerful than the elected officials they theoretically work for.

The “Natural” Party of Government and Its Discontents

I’m focusing on the Democrats here mainly because they are the party in power, and also because President Obama seems to have a particular fondness for the permanent government types—even more than the Technocrat in Chief, Bill Clinton, once did.  

But it’s also true that the GOP equivalent has mutated so much in recent years as to become almost unrecognizable.

The old GOP mandarins who once moved easily between senior cabinet posts and corporate CEO jobs—people like Cap Weinberger, Paul O’Neill or even Dick Cheney—are all gone now, although Condi Rice (late of both the State Department and the Chevron board of directors) kind of keeps up the tradition.

The appointees who now staff Republican administrations are much more likely to rotate to and from Congress and the conservative think tanks, rather than the corporations. In any case, their role isn’t so much to run the government as to occupy it and, if possible, undermine it—as we learned during the reign of the “Mayberry Machiavellis” of the Bush II years. This makes them a poor fit for a permanent, technocratic ruling caste.

The modern Democrats, on the other hand, have emerged as the natural party of government  par excellence—policy wonks and pragmatic problem solvers, for whom “reform” means making the existing dysfunctional system somewhat less dysfunctional, rather than trying to overhaul it or tear it down completely.

As a result, Democratic political appointees now tend to blend fairly seamlessly into the career civil service, playing a detailed role not just in policy making but in policy implementation, and also allowing some of the careerists to rise to the highest ranks—as John Brennan, the real-life version of the torture bureaucrat played by Michael Palin in the movie Brazil, is about to demonstrate at the CIA.

Thus, the nomenklatura—the Soviet term for the cadre of trusted party figures from which top-level government officials were drawn.

Pie Below the Sky

Every country, not just communist ones, has its nomenklatura. But how those elites operate, and how they relate to other bureaucratic power centers—large corporate and financial ones in particular—varies considerably.

What’s most relevant at the moment are the variations in the way the nomenklature who run the government are cut a share of the financial pie by the elites in control of the commanding heights of the economy—which, in a modern capitalist state, means the major commercial and investment banks.

Perhaps the most famous example is in Japan, where the professional civil service reigns, if not quite supreme, then at least as first among equals in a power structure that often defies easy categorization or analysis (the “enigma” of van Wolferen’s title).

In Japan’s system, senior civil servants—especially the ones who run the hugely powerful Ministry of Finance—are expected to remain at their government posts until retirement age, at which point they “descend from heaven” and go to work in the corporate sector.

In some cases, these jobs are just short-term sinecures; not much more than the equivalent of the proverbial handshake and a gold watch, but paid for by private companies, not the taxpayers.

However, for the senior MOF guys (and they’re still almost always guys), the jobs can be both influential and lucrative. They become their bank’s ambassador to the MOF—or, more accurately, the MOF’s resident agent inside their bank.  By Japanese standards, if not U.S. ones, they can accumulate some serious wealth before retiring for good or re-ascending to heaven, this time the real one. (Assuming that’s where dead financial bureaucrats go).

The key point is that in Japan, the revolving door generally doesn’t revolve: It only works one way, and can be used only once. A MOF man who tried to bail on his job in mid-career to go cash in at a private firm probably wouldn’t be hired—or, if he was, would be viewed with contempt by his former colleagues, and almost certainly would never return to government—not even as a political appointee. He’d be blackballed by the bureaucrats.

How to Succeed in Investment Banking Without Really Trying

Lew’s interlude at Citigroup shows just how different the unwritten rules are here.  Senior federal officials move easily (and constantly) between Washington and Wall Street, basically using the banks as quick personal wealth pit stops before taking another lap around the bureaucratic track.

Or the political one. Rahm Emanuel is an example of an alternative career path now available to the nomenklatura, in which staff jobs (several of them involving fundraising from large financial companies) led to a job at one of those firms, which brought wealth, which eventually helped launch the wealth acquirer into elected office.

What these guys do to earn all that wealth is anyone’s guess. There’s certainly nothing in Jack Lew’s career that indicates any intimate familiarity with hedge funds before he joined Citigroup. Likewise, collecting campaign cash from Wasserstein Perella, as Rahm did, doesn’t seem like a particularly strong qualification for working there—especially for a guy whose previous private-sector experience consisted mainly of getting his middle finger caught in a meat slicer.

I'm sure there are more than a few retired Japanese bureaucrats who don't do much for their money either, except get old and die. But U.S. corporations aren’t generally known for paying people to do that. This naturally feeds the suspicion that our ex-officials are selling services to be rendered later, after the revolving door has turned them back into officials again.

It’s probably not quite that blatant (although who knows?) But, even being charitable, it’s a gangrenous conflict of interest, one which makes it pretty much impossible to believe that a Treasury Secretary Jack Lew would always have the best interests of the American people in mind when he picks up the phone and talks to the Wall Street people—his once and future employers.

American Exceptionalism in Action  

Why our system of institutionalized corruption is organized so differently than Japan’s probably has dozens of complex historical, cultural, political reasons—and, for all I know, dietary ones as well.

I’m sure part of it has to do with the weakness of the U.S. public service tradition (“mandarin” not being a term most Americans would see as a compliment) and the steady blurring of the line between the career civil service and the political appointees. No matter how public spirited, the latter group inevitably has to look ahead to next presidential election, which may also mean the next job.

That doesn’t mean they’re always bad people—far from it. Some of the ones I knew back in the day told me the hard part wasn’t slaving away in low-paying political jobs with crazy hours for four or eight years, it was being bored out of their skulls the rest of the time earning six- or seven-figure salaries in the private sector. They want to serve their country, they want to do something that isn’t just about making money.

But they also want, or maybe feel they deserve, those salaries—plus the bonuses, the stock options, the deferred comp, the paid directorships: all the generous goodies that corporate America, especially financial America, bestows on its favorite children.

So there’s the difference: In some countries, like Japan, being in the nomenklatura means you get a powerful job in the government, and, if you luck out and reach the very top, maybe a high-paying job at a bank as your retirement bonus. In America, you get both, and you get them quickly—one right after the other.

At least in Japan the line between serving the state and serving the corporation is still relatively clear (which is ironic, given all the jokes about “Japan Inc.”). It’s also clear which is viewed as the higher calling: Nobody “ascends” from the MOF to a corner suite at Sumitomo Bank.

Here, by contrast, the distinction between the permanent government and the permanent financial oligopoly has pretty much disappeared in the constant coming and going: Jack Lew goes from Citigroup to State, then to OMB to replace Peter Orszag, who goes to Citigroup, then to the White House to replace Chief of Staff Bill Dailey, who came from a vice chairmanship at J.P. Morgan Chase—and so on. And that so on goes on fairly deep into the bowels of the federal bureaucracy.

Fighting Corruption, One $20 Gift at a Time

This system has made a joke (a bad one) out of the various ethics rules that supposedly restrict executive branch officials from accepting income from outside interests, or acting on matters that affect their personal financial interests—their current interests.

When the payoff has already been made—and another one awaits at the end of your current tour of duty—such temporal distinctions become almost irrelevant: It’s just a matter of what discount rate to use in calculating the present value of your future bribes. Even a lawyer bureaucrat turned investment banker can do that—or hire an accountant to do it for them.

But, not to worry: The Obama Administration is on the case. It has reacted to the threat of revolving door corruption by closing the loophole that once allowed career employees to accept gifts from lobbyists worth up to $20—or $50 per calendar year. Also:

Federal employees would no longer be able to go to functions sponsored by lobbying groups even if they are widely attended gatherings. They also would no longer be able to accept social invitations from lobbyists or accept meals and entertainment provided overseas by lobbyists.
So there. Change you can believe in, baby.

Given the perennial focus on congressional corruption, it seems odd that the American financial nomenklatura now enjoys far greater career mobility (i.e. the ability to make multiple pit stops at the Wall Street money machine) than most elected politicians do.

Yes, ex-congressmen can hire themselves out as lobbyists—and maybe even make big money at it, although the market is awfully crowded. But how many do you know who have retired, cashed in, then come back for another try at elected office? None, at least that I know of, and for the obvious reason: The voters wouldn’t have it, or them.

But the financial nomenklatura rides above such petty considerations, unless, like Raum, they’ve decided to switch from the bureaucratic to the political track. For the political appointee, the right to rule—and feed—and rule—and feed again—rests on their alleged indispensability to the workings of the modern post-industrial state.  

A Liberal Interpretation of Motives

And maybe that’s the real problem: The arrogance and unconscious (or conscious) sense of entitlement that stems from being part of the “meritocracy”—elite products of elite schools, first in their class, the doctorates, key internships, clerkships, fellowships, etc.

When that’s your personal history, I guess (I’ll never know) it must be easy to feel you deserve to have it all, without guilt or even reflection. I suppose that’s even more true if your politics are liberal, and you can persuade yourself that just because you care about the poor, and want to help them, and want the government to help them, that doesn’t mean you have to be one of them—or even part of the dwindling middle class.

Or, as the radical folk singer Phil Ochs once put it:

[Liberals are] an outspoken group on many subjects—ten degrees to the left of center in good times, ten degrees to the right of center if it affects them personally. Here, then, is a lesson in safe logic.
Love me, love me, love me: I’m a liberal—a liberal bureaucrat turned banker turned bureaucrat.

The problem, of course, is that when your bread has been buttered by a particular knife (and will be buttered again by it soon) you have a strong incentive not to ask where the butter came from, or whether that same knife might also have been used to steal it.

Sure, this is a problem everywhere—not least in Japan, where generations of MOF bureaucrats have helped the big banks squeeze depositors and consumer borrowers in order to provide cheap financing to Japanese corporations. I’m sure that never hurt their personal financial prospects when the time came to descend from heaven.

But the American nomenklatura has taken ethical obliviousness to all-new heights—to the point where, when Jack Lew opined at his OMB confirmation hearings that he really didn’t think financial deregulation had anything to do with the financial crisis, he might even have believed it.

One can only wonder what Lew’s old college advisor, Paul Wellstone, would have thought about that one.

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