Will Jack Lew take on financial reform? Don't hold your breath

http://www.guardian.co.uk/commentisfree/2013/jan/10/jack-lew-financial-reform-heidi-moore

Version 0 of 1.

The nomination of budget wonk Jack Lew for Treasury Secretary is a sure sign that, in the eyes of the White House, the financial crisis has ended.

That's kind of sad, actually. And it puts financial reform activists in an odd position: Tim Geithner, their bête noire, their oft-disparaged adversary, won't be there to kick around any more – and they might have wished that he would be. As pugilistic as Geithner could get with those who criticized his efforts at bailouts and financial reform, at least he was listening. With his departure, financial reform will largely be pushed aside.

It's clear the White House is moving on, that financial reform is no longer a priority – and yet the financial system is really no more secure than it was when Tim Geithner took over in the dark days of 2009. It's not flailing and gasping for air, but that doesn't mean it's suddenly safe.

In the immortal words of Chicago mayor Rahm Emanuel, "You should never waste a good crisis." Unfortunately, it looks like America did.

A lot of the impetus towards financial reform and oversight have been replaced with the "who's sitting in the lunchroom next to whom" analysis of politics. The conflicts of Occupy Wall Street and the warning tomes published by former government officials like Sheila Bair and Neil Barofsky will go unheeded. The nation spent at least four months held hostage to ad nauseum analyses of the congressionally manufactured fiscal cliff crisis, and soon by the congressionally manufactured debt-ceiling crisis. The financial world has lost the spotlight. Aren't the banks shrinking? Are they profitable? No matter, the moment has passed.

President Obama's speech on Thursday seemed to put a neat bow on the past four years. On the near-failure of the financial system, he said: "We put in place rules to make sure it would never happen again;" on the possibility that another bank might fail, "we made sure taxpayers would not be on the hook."

Obama's remarks were so prettily made that one almost hesitates to point out that we didn't actually do those things. Financial reform, in the form of the Dodd-Frank act, does nothing to prevent another crisis. There is no law that prevents banks from making stupid loans or taking outsize risks with taxpayer money.If another big bank stumbles and threatens the economy, it's hard to picture Uncle Sam backing away with no taxpayer involvement.

Numerous "flash crashes" show that the infrastructure of the stock market is weak and needs regulatory attention. The one part of Dodd-Frank that is supposed to prevent banks from gambling is known as the Volcker Rule. There is apparently a doorstopper-sized draft of it somewhere, but for regulatory purposes it does not yet exist.

The era of Tim Geithner at Treasury, as tumultuous as it was, was a useful one. Geithner, a former head of the New York Federal Reserve, built an often shaky rope bridge between Wall Street and Washington. We got some legislation out of it, however flawed. Regular people became familiar with mortgage-backed securities and the sometimes crazy risks taken by Wall Street. This was Geithner's world; his knowledge resided in the economy and the markets, the fast, pragmatic world of fast-moving money and snap decision-making, where it's rare to predict what will happen in the next quarter.

Lew worked briefly on Wall Street, but he is unlikely to do favors for Wall Street. He's much more likely to entirely forget about Wall Street. It was clear from today's press conference that the financial markets are not a priority for Lew or the president.

That already worries some activists. Dennis Kelleher, the CEO of Better Markets, said today about Lew: "The one area of concern is whether or not he is sufficiently committed to quickly and thoroughly implementing financial reform and re-regulating Wall Street … This concern arises from Mr Lew's past statements suggesting a lack of knowledge about the financial crisis and its causes. He has appeared to minimize the undeniably critical role deregulation played in causing and accelerating the financial and economic crises."

Lew never speaks about himself, and you don't have to be to a graphologist to tell that his loopy, unintelligible signature indicates that he does not want to be known. Geithner, on the other hand, once gave an interview to Vogue that included references to him surfing and cooking barefoot.

Geithner was willing to make deals, to bend over backwards in some cases. He never seemed to think he had as much power as he really did. As Vogue tells one revealing anecdote that shows how Geithner never really thought he could throw his weight around: "On a recent business trip, Geithner and his entourage were trying to decide where to eat dinner. An aide suggested a popular restaurant, but Geithner nixed the idea, saying they'd never get a table. The aide laughs at the memory: 'I mean, he's the secretary of the Treasury! He could get a table.'"

Lew was clearly happy to get the treasury nomination. Geithner fought it, then spent four grudging years in treasury, two of them openly trying to escape the institution. If there was one movie moment that could describe the four-year career of Timothy Geithner as treasury secretary, it would be this despairing exclamation from The Godfather, Part III: "Just when I thought I was out, they keep pulling me back in!"

Geithner was an odd fit for Treasury, a fact Obama noted: "I couldn't blame Tim when he told me he wasn't the right guy for the job." A Spock-like economic wonk used to the civilized stone halls of the New York Federal Reserve bank, Geithner was dragged in 2009 into one of the most ill-starred tenures of any modern US treasury Secretary. From the financial crisis, to Tarp, to AIG, to not one but two immature congressional fights over lifting the US debt ceiling, he lived the exasperated query from Dorothy Parker: "What fresh hell is this?"

The White House kept thwarting him, but finally gave in. "I understand that Tim is ready for a break," President Obama said, in one of the great political understatements of our time. By August of 2009 – less than a year in the job – Geithner was caught in a screaming, profanity-laden rant in a meeting with Federal Reserve chairman Ben Bernanke and other regulators. He made quick enemies of Tarp inspector Neil Barofsky and Federal Deposit Insurance Corporation chair Sheila Bair, both of whom wrote books casting Geithner in a bad light.

Part of Geithner's problem in Washington is that it was easy to tell which button to push to drive him crazy: his legacy. The suggestion that he is cozy with Wall Street that seems to drive Geithner over the edge, even now. In an appearance on Charlie Rose's television show, Geithner responded to the charges that he is too cozy with Wall Street by saying, "You know, I'm deeply offended by that," Geithner said. "I find that deeply offensive." Bair dubbed him the "bailouter in chief."

Barofsky, who openly suggested Geithner was trying to thwart his oversight of Tarp, chronicled a Geithner rant: 'No one has ever made the banks disclose the type of shit that I made them disclose after the stress tests. No one! And now you're saying that I haven't been fucking transparent?' … Neil, I have been the most fucking transparent secretary of the treasury in this country's entire fucking history!" According to Barofsky, a press aide later whispered that he expected Geithner to throw a punch.

It's tempting for anyone – not just Geithner and Barofsky – to say "goodbye to all that." No one likes to be in a constant crisis mindset; it is the opposite of a civilized society if we are. But that crisis mindset could have been useful, if it had pushed financial reform a little harder. Geithner, to some extent, was willing to take the punches necessary to connect Washington and Wall Street.

That connection is essential. Jack Lew, because of his love of budgets and deficit planning, seems likely to let that tenuously built bridge between Wall Street and Washington decay. His strengths are in the molasses-speed world of government deficits and budget planning, where costs are calculated in increments of a year or a decade. He is largely uninterested in Wall Street, and unbendable in some cases.

Congressional Republicans have derided Lew as "an uncompromising know-it-all," in the words of a newspaper profile on him last month. Whereas Geithner spoke the language of Wall Street – including its tone, with yelling and profanity – Lew speaks the language of the political court. He reportedly yelled once, chastely, about Medicaid – and then felt immediately embarrassed after.

To the administration, Lew's storied history in budgets is only a plus. As President Obama nominated him, he made sure to mention that Lew had presided over three budget surpluses. And Lew played to his real audience, giving a shoutout to the staff of the Office of Management and Budget: "I am delighted to see so many of my friends from OMB here today." In 1999, he romanticized budgets: "Budgets aren't books of numbers. They're a tapestry, the fabric of what we believe. The numbers tell a story, a self-portrait of what we are as a country."

That is beautifully said, and also true. But inevitably, this means when the next financial crisis comes – and it will, because it always does – everyone will ask something along the lines of "why wasn't anyone paying attention?"

Here's the answer: because we did once, and then got bored before we finished the job.