There were many failed promises during President Obama’s first term (think about the promise that stimulus spending would jump start the economy and avoid a jump in the unemployment rate to 8.8 percent, or that the deficit would be down to $581 billion in 2012). But one of the biggest failures of this administration is that the president never delivered on the promise to put an end to the unhealthy marriage between the private sector and the government, as well as the terrible incentives to pass bad laws and the corruption of public officials that are born from such a shameful union.
The Washington Examiner’s Tim Carney reminds us of the promise:
“We have to recognize that we face more than a deficit of dollars right now,” Obama told Congress in his first State of the Union address. “We face a deficit of trust — deep and corrosive doubts about how Washington works that have been growing for years.”
A few seconds later, speaking on this very theme, the president blatantly lied to Congress and the country.
“We’ve excluded lobbyists from policymaking jobs,” he said.
And some of the deception:
But sitting in the front row of the House chamber were four former lobbyists whom Obama had appointed as Cabinet secretaries. His Internal Revenue Service general counsel had lobbied for the Swiss Bankers Association. His Treasury Department chief of staff was fresh off a gig as a Goldman Sachs lobbyist.
As Obama spoke those words, more than 40 ex-lobbyists held policymaking jobs in his administration.
The moment embodied Obama’s greatest failures: his failure to play it straight with the American people, his failure to wrestle power from the lobbyists and his apparent failure to even try.
Peter Schweizer has a good piece in the Washington Times explaining how it worked. Here is a tidbit:
In his recent book “Bailout,” the former special inspector general for the Troubled Asset Relief Program, Neil Barofsky, points out that when it came to the bailout of GM, no one with auto-industry background was involved in the decision-making process. “Led by Steven Rattner, the head of a Wall Street private equity firm, and Ron Bloom, a former investment banker and head of collective bargaining for the United Steelworkers Union, the auto team had plenty of Wall Street firepower but did not include in its ranks anyone with experience in the automobile industry.” Likewise, when it debated the question of closing auto dealerships, the task force consulted “a bevy of Wall Street analysts.” Little surprise then that the winners are largely relegated to the world of Big Finance.
The GM bailout was handled by Evercore Partners, an investment firm in New York headed up by former Assistant Treasury Secretary Roger Altman. Before the bankruptcy, GM paid Evercore $46 million in advising fees to help GM find a buyer. Then, when the government came in and bailed out GM, Evercore turned around and asked for an additional $17.9 million “success fee.” Never mind that Evercore never found a purchaser or a funder — the company still called it a “Government Funded Sale Fee” in court documents.
Indeed, Evercore also took over the lucrative position of handling the General Motors Special Hourly-Rate Employees Pension Trust and the General Motors Special Salaried Employees Pension Trust. Those new pension funds were financed courtesy of more than 60 million shares of common stock, diluting the taxpayer stake in the company. The trustee for both of those new pension funds is Evercore Trust Co., a subsidiary of Evercore Partners.
Mr. Altman is also an Obama bundler, bringing in up to $500,000 so far. Evercore Partners CEO Ralph Schlosstein hosted a $38,500 per plate fundraiser at his home, raising a total of $2.1 million for President Obama and the Democratic National Committee.
The other big winners were the lawyers and government bureaucrats who handled the bailout.
Unfortunately, cronyism isn’t new. It is a bipartisan disease that is a direct result of the existence of government and Congress’s ability to spend money on special interests. It is a disease that will only end when the size and scope of government is dramatically reduced and severe limits are placed on Congress’s ability to deliver taxpayer dollars to the private sector. Also, bailouts are not the only form of cronyism that exists. For a complete list check out this paper.
The cost of cronyism isn’t just that it wastes taxpayers’ dollars. It is also that it corrupts both the government and capitalism. This is why ending cronyism should be on the next president’s to-do list. (My column on what that list should look like no matter who is elected is here.)