Corporatism Run Riot

From today’s Wall Street Journal editorial on Treasury Secretary nominee Jack Lew’s Wall Street background:

… The terms of Mr. Lew’s original employment contract with Citi included a bonus guarantee if he left the bank for a “high level position with the United States government or regulatory body.”

Most companies include incentives for top employees not to leave, but in this case the contract was written to reward Mr. Lew for treating the bank like a revolving door. Citi says it likes to accommodate employees who do public service or work at nonprofits. But the Lew contract was specific about a senior job in the federal government. There would be no special payout if he left to run the Red Cross or the New York state budget office.

… All of this matters in particular in a Dodd-Frank world when the biggest banks are public utilities. They have little choice but to do what a Treasury Secretary tells them to do. A too-big-to-fail bank must be pleased to know that in a little more than two years it made the sacrifice of government so much easier for America’s most powerful banking regulator.

It’s nothing short of the contractual codification of regulatory capture. Make the federal government essential to the operation of the big banks and you make it essential for the big banks to infiltrate the federal government at every turn. Lew and Citi — operating on the basis of rational, if perverse, incentives — deserve a lot less of the blame here than a government that makes this calculation reasonable. It’s an exercise in plutocracy — from an administration that likes to posture about “fat cat bankers.”