Former White House Chief of Staff Jack Lew’s time as an executive at New York University –when the school was accused of steering students to pricey Citigroup loans –is triggering problems for his Treasury Secretary confirmation because he left the school to work for the bank.
Lew served as executive vice president for operations at NYU from 2001 to 2006, during which time the school was investigated for making Citigroup a preferred lender in exchange for “sweeteners,” cash and other incentives, according to the New York Attorney General’s office at the time.
NYU settled the probe by returning $1.4 million to students and did not admit or deny guilt. Lew left NYU for a job at Citigroup.
The university made Lew a personal loan in excess of $1 million during his time there, the final status of which is unclear, prompting an inquiry from Senate Finance Committee member Sen. Charles Grassley (R-Iowa).
“Please describe the terms of the loan including interest rate, minimum payment requirements, term, and the purpose of the loan,” Grassley wrote.
“Please describe how the loan was repaid and whether any portion of it was forgiven. If the loan interest rate was below market, or if the loan was forgiven, did you report appropriate amounts as income to the IRS?”
Lew mostly sailed through his confirmation hearing last week as he fended off questions about nearly $1 million in compensation he received as a top Citigroup executive in 2008, when the bank took a taxpayer bailout during the financial crisis. But now Sen. Grassley is demanding Lew answer questions about the student loan program.
Citigroup, as one of NYU’s “preferred lenders,” could have led students to believe it offered the lowest rate – but it didn’t, according to the attorney general’s office.
The inquiry could force Lew to disclose the existence of any emails on the topic, which could provide material for any further inquiry.
NYU, in a 2007 letter around the time of the settlement, said it put monies received from Citigroup into a scholarship fund.
Lew, 57, earned more than $900,000 a year while at NYU – more than its president.
A person familiar with Lew’s time at the university stated, “NYU provided housing assistance to Mr. Lew, as the university has done for other senior officials and faculty. NYU reported income related to the housing assistance on Mr. Lew’s W-2 forms, and he paid all taxes that were due.”
The attorney general heading the probe, Andrew Cuomo, now governor, went after schools for the practice, which he called an “unholy alliance” involving “deceptive practices” that may have violated consumer protection laws.
At Lew’s Finance Committee confirmation hearing, Grassley raised another issue: asking Lew to explain investments from NYU’s endowment in funds based in the Cayman Islands. Lew said he wasn’t aware of whether his own investment in a Cayman-based partnership provided any tax benefit.
In Lew of the Allegations…
Jack Lew is the son of working class parents from Queens, New York. The Orthodox Jew has a reputation as a tough negotiator with a keen understanding of the details of the immense economic budget. That reputation is likely to be tested in the coming months, as Congress and the White House battle over the federal budget and a rapidly expanding debt.
As mentioned above and in lieu of the allegations, president Barack Obama is expected to name Lew to be his new secretary of Treasury. However, there’s no telling where that nomination will go due to these recent allegations.
Still, the president plays a fair argument in his controversial nomination of Lew. Four years ago, when central bank official Timothy Geithner was sworn in as Treasury Secretary, unemployment was rising and the stock and housing markets were in danger of collapse.
Geithner helped both the Bush administration and Obama administrations use $700 billion dollars to prop up tottering financial firms in a bid to reassure investors, businesses and consumers.
Despite much criticism, economist Desmond Lachman of the American Enterprise Institute says the program worked.
“The country was facing a huge crisis, many people thought we could quite easily tip into a depression, he managed to stabilize that situation,” Lachman said.
But Lachman and other critics say Geithner did too little to improve the day-to-day growth of the economy.
“He favored Wall Street on far too many occasions at the expense of Main Street,” Lachman said.
The coming two months will be a test for Lew, as the battle over the budget deficit heats up in Congress.