Geithner’s Aides and Wall Street Pay

A Bloomberg story adds perspective to a WSJ report on record banker bonuses

I want to applaud some solid enterprise work at Bloomberg and the Journal and see if we can play one off the other to find a bigger point.

First, Bloomberg has an excellent story today pointing out that two of Treasury Secretary Tim Geithner’s “closest” aides, Gene Sperling and Lee Sachs, reaped millions from Wall Street in the years before they agreed to mere government salaries of $162,900 apiece.

And neither had to be confirmed by Congress. Why does this matter? See this great stuff, which Bloomberg does well to put up high, in the third and fourth paragraphs:

As part of Geithner’s kitchen cabinet, Sperling and Sachs wield influence behind the scenes at the Treasury Department, where they help oversee the $700 billion banking rescue and craft executive pay rules and the revamp of financial regulations. Yet they haven’t faced the public scrutiny given to Senate-confirmed appointees, nor are they compelled to testify in Congress to defend or explain the Treasury’s policies.

“These people are incredibly smart, they’re incredibly talented and they bring knowledge,” said Bill Brown, a visiting professor at Duke University School of Law and former managing director at Morgan Stanley. “The risk is they will further exacerbate the problem of our regulators identifying with Wall Street.”

Bloomberg raises another point here about whether Geithner intentionally skirted the confirmation process to sneak in advisers with Wall Street ties:

Most officials at the Treasury who have been approved by Congress come from academic, legal or non-Wall Street backgrounds.


Along with Sperling and Sachs, Geithner’s inner circle also includes counselor Lewis Alexander, the former chief economist at Citigroup; Chief of Staff Mark Patterson, who was a lobbyist at Goldman Sachs, and Matthew Kabaker, a deputy assistant secretary who worked at private equity firm Blackstone Group LP. Patterson’s and Kabaker’s jobs did not require confirmation.

And of course, we have here the ever-present revolving door. Gene Sperling, a Clinton Administration official, had parlayed that credential into some nice gigs paying more than $2 million last year, including $137,500 from Bloomberg News for twelve columns and an unknown number of TV appearances, plus $887,000 from Goldman Sachs for “advice on its charitable giving” (including, maybe, us. Goldman is one of the funders of The Audit. Nice work, Gene!).

Which, speaking of pay at Goldman, brings us to the second good enterprise story I want to look at, this one from the Journal, which reports that it’s not just the folks at 85 Broad that are in for record pay this year.

The Wall Street Journal calculates that pay for the top twenty-three financial firms will hit some $140 billion this year, well above 2007’s record $130 billion.

Hey, sky’s the limit, guys.

This is a nifty piece of analysis by the Journal. Reporters Aaron Lucchetti and Stephen Grocer went through the companies’ filings, using past quarters’ pay rates (as a percent of total revenue) along with analysts’ estimates for the second half to come to its full-year estimate.

Here’s the nut:

The growth in compensation reflects Wall Street firms’ rapid return to precrisis revenue levels. Even as the economy is sluggish and unemployment approaches 10%, these firms have been boosted by a stronger stock market, thawing credit market, a resurgence in deal making and the continuing effects of various government aid programs.

Of course, but for that last bit, the preceding ones wouldn’t be.

“Compensation played a role in the financial crisis, and yet nothing has changed,” says J. Robert Brown, a professor at University of Denver’s law school and an expert on corporate governance.

Your thought assignment for the day is to think about how Mr. Brown’s quote—and the WSJ story more broadly—relates to what Bloomberg reported above.

(h/t Ira Stoll, who also notes that Sperling, while apparently on the Goldman payroll, trashed Bush and the regulators in a Bloomberg column for the subprime mess in Massachusetts without noting he was being paid by Goldman, which was responsible for lots of subprime mess in Massachusetts and would go on to settle with the state to the tune of $60 million.)

ADDING: I changed the headline a few minutes after posting to make it clearer.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.