The Senate Finance Committee pummeled Treasury secretary nominee Jacob "Jack" Lew with questions Wednesday, but the outgoing White House chief of staff kept his cool, and there was little reason to think his confirmation will be in jeopardy.
Lew volleyed particularly tough questions on his track record as a senior executive of Citigroup at a time when the bank received federal bailouts and his investments in partnerships that were registered in the Cayman Islands. But he offered straightforward answers to even the more antagonistic grilling, and the overall tone of the hearing was one of mutual respect, even from Republican skeptics of Lew.
"Frankly, I think you’ve done well today," said Sen. Orrin Hatch (R-Utah), the ranking Republican on the committee.
Below are a few of the more interesting exchanges from the 3 1/2-hour hearing, in reverse chronological order.
Orrin Hatch, the ranking Republican, began his second round of questioning with fond words for Lew, praising his public service and his family and saying, “Frankly, I think you’ve done well today.” But he followed it up by asking Lew what he did for Citigroup in 2008 to deserve about $1 million in compensation, most of it in the form of a bonus, in a year that the firm received a government bailout.
“The work that I did in 2008 was running the business of the business,” Lew explained. “In a year when the financial products of that part of the firm were not doing very well, I think I performed quite well in running the business side of things, cutting real estate expenses and so on.”
As for the sum he received: “I do believe that it was comparable to compensation for people in positions like mine in the industry. It’s a broader discussion on compensation, but I don’t think there’s anything that has not been transparent about what I did and what I earned.”
Sen. Richard Burr (R-N.C.) makes a joke about being related to Aaron Burr, assuring Lew that his ancestor's antipathy to the first Treasury secretary didn't get passed down to the present-day Burr.
Aaron Burr, of course, killed Alexander Hamilton, the first Treasury secretary, in a duel in 1804.
In one of the predictable rituals that faces every Treasury secretary nominee, Lew was asked whether he supports a strong dollar, and he resorted to the Official Boilerplate That Must Be Used Lest The Markets Freak Out.
“Treasury has had a longstanding position that a strong dollar is in the best interest of promoting U.S. growth and competitiveness, and if confirmed I would not change that policy," Lew said in response to a question from Sen. Pat Toomey (R-Pa.). Had he said anything else, the currency markets would have been whipsawed.
If you’re counting, the dollar index has risen slightly since the hearing began at 10 a.m., and is down very slightly in the last 10 minutes or so since Lew's comments. But the changes are minuscule, no larger than one- or two-tenths of a percent.
Also, note that vigorous support of a strong dollar conflicts with Treasury’s other goal -- encouraging China and other nations to let their currencies rise against the dollar (which would mean the dollar would fall in relative terms).
Ohio Democrat Sherrod Brown was the first to broach currency policy, particularly the accusation that China manipulates currency markets to keep its renminbi undervalued and its exports more competitive. “Do you agree that currency manipulation is in fact an export susbsidy?” Brown asked Lew.
Lew avoided the language of “manipulation,” which is fraught with diplomatic implications. “We have pushed back very hard on China in a number of areas,” including in currency and trade, he said. “I believe we’ve made progress. There’s been a 15 percent improvement in the value of China’s currency, and I believe there is further to go.”
Asked how he would address currency policies that put American exporters at a disadvantage, Lew said, “I would put a lot of energy behind developing a relationship to push back on practices we think are unfair.”
The tone seems to signal continuity with the former secretary Timothy Geithner's approach to currency policy in which he tried to push other nations to intervene less in their currency by quietly building relationships rather than using loud threats.
For the first 90 minutes of the hearing, there were no substantive questions about Lew’s philosophy and intentions for regulating the financial system. Sen. Maria Cantwell (D-Wash.) changed that.
“Do you believe in the reimplementation of Glass-Steagall?” Cantwell asked, referring to the Depression-era legislation that separated banking from investment activities. The act was repealed in the late 1990s.
Lew replied: “Glass-Steagall had... over the years become something of an anachronism, and much of the activity in the financial world had gotten beyond it. I think the problems we had leading up to the financial crisis were evidence that our financial regulatory system did not keep pace with the complexity of the financial system.”
But Lew did not rule out further steps to regulate major banks and other financial institutions. He continued, “I think as we go forward we have to ask questions as we complete implementation of Dodd-Frank -- are more actions needed? They have to be actions that make sense in 2013." Adding that "while I’m a student of history and especially New Deal history,” Lew said that simply re-creating a 1930s statute is not the answer.
“I’ll take that as a no,” said Cantwell.
Sen. Charles Grassley (R-Iowa) opened a new front in the attack against Lew over tax-advantaged overseas investments, prodding Lew to explain New York University's endowment investment in Cayman Island-based funds. At the time, Lew was executive vice president for operations at the school.
"Senator, when I was at NYU I was not aware of the investments that you describe," Lew responded.
Retorted Grassley, "You were paid to know what was going on, and I'm surprised you didn't know what was going on."
Baucus pushed Lew about his investments in a partnership that was based in the Cayman Islands, aiming to ascertain if he received tax advantages through overseas investments.
Lew said that he did not know when he first invested in the fund, that the partnership was based in the Cayman Islands, and that he received no tax advantage because he lost money on the investment.
"I was aware it was an international fund investing in emerging markets. I didn’t know the address of the partnership," Lew said. "I divested in 2010 when I became OMB director . . . I’m not aware of any tax benefits I got from participating."
The complete text of Lew's prepared statement is here.
Lew may be an experienced public servant, but may not be the most colorful wonk. Pete Domenici, the former Republican senator from New Mexico, testified on Lew’s behalf, and relayed a story from former budget director Alice Rivlin. “The press keeps asking me for funny anecdotes about Jack,” Rivlin said, according to Domenici. “The truth is, Jack is not a funny anecdote kind of guy. He’s just an able, dedicated, straight-shooter.”
Sen. Orrin Hatch (R-Utah), the ranking Republican on the committee, noted that Lew has extensive experience with federal tax and budget policy, but less background in some of the key areas that the Treasury chief oversees, including financial regulation and international economic affairs. He raised the possibility of global "currency wars" and competitive devaluation. "The risk of international currency wars, it seems to me, is rising," said Hatch.
Hatch also was the first to raise Lew's past as an executive of Citigroup, saying that "we know very little about" the details of Lew's work at the giant bank. At Treasury, Hatch said, Lew would be in charge of implementing the "Volcker Rule" to separate risky trading activities from more traditional banking activities. Yet, Hatch said, "you were the COO of two units that the Volcker rule is meant to prevent," which "could lead to an awkward situation in which you would be saying to financial firms, do as I say, not as I did."
Sen. Max Baucus (D-Mont.), committee chairman, started with the hearing with a bit of a history lesson, noting that the large bronze statue standing before the Treasury building is not, as one might guess, of Alexander Hamilton, the nation’s first Treasury secretary. Rather, it is of Albert Gallatin, the longest-serving secretary on record, who financed the Louisiana Purchase and the War of 1812 during his run in the job from 1801 to 1814. There is, Gallatin said (according to Baucus) “no more laborious or responsible position.” The message to Lew: We have high expectations before we confirm you.
Baucus told Lew he should have three priorities if confirmed. First, "Focus like a laser on job creation. Do not get distracted." Second, "Help return stability and predictability to the nation's capital" by helping get the government off a roller coaster of crisis after crisis. Third, "We must simplify our tax code for individuals, for businesses." He urged Lew to take the lead in driving a thorough overhaul of the U.S. tax code.