Is Larry Summers’ Potential Successor Really a Wall Street Ally?

Some progressives are griping about Gene Sperling’s Big Finance ties, but this policy wonk is no Gordon Gekko.

Gene Sperling (pictured), an aide to Treasury Secretary Tim Geithner, is reportedly in the running to succeed Larry Summers as President Barack Obama's chief economic adviser. | Flickr/<a href="">CAP Action Fund</a>.

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Lawrence Summers, the imperious Democratic economic poohbah, has departed the Obama White House, leaving the job of National Economic Council (NEC) director open. Which means it’s time to rev up the inside-the-family debate about the Democratic party’s economic stance: do Democrats want to work with corporatists to better manage the globalizing economy, or do they want to confront the corporatists to even out the distribution of economic power? With the White House apparently favoring Gene Sperling, currently a counselor to Treasury Secretary Tim Geithner and an NEC director during the Clinton years, for the post, some progressives and Wall Street critics have expressed dismay or discouragement, as they point to Sperling’s supposed Wall Street ties. But how upset should they be? Sperling is hardly a Wall Street insider. In fact, he’s the rare economic power-player in Washington who didn’t fully cash in after leaving government service. He might be the wrong guy for this game of political/policy football.

Still, he’s come under criticism as a Wall Street pal. Referring to Sperling and another contender for the job, investment banker Roger Altman, Robert Borosage, co-director of the liberal Campaign for America’s Future, told the Washington Post, “It’s a big concern when there are these high-level advisers who have been marinated in the industry.” The Huffington Post observes, “By appointing Sperling, the president would be sending a message that his administration would continue to be sympathetic to big bank interests.” (The White House has indicated it will announce the new NEC director on Friday.)

Sperling, 52, draws the most criticism for having worked for Goldman Sachs in 2008, pulling in a whopping $887,727 in a single year, 2008. Yet he was not helping the investment firm earn money, but spend it—on a $100 million charitable project aimed at elevating the skill levels of poor women in developing nations. Sperling’s path toward this project is a decidedly non-Washington tale.

“He could have immediately gone to Wall Street and made a lot of money. That’s what most people in his situation do. But he didn’t. A lot of us who know him scratched our heads about that.”

After the Clinton administration ended in 2001, Sperling, according to a former Clinton administration aide, spoke to several “wise men” about what he should do next. As a former NEC director, he was in great spot to cash in. And he received the same career advice from all of these counselors: go to Wall Street for the next eight years, make millions, and then return to public service (when there might be a Democratic president). He didn’t follow this guidance. Instead, Sperling devoted most of his time to addressing the challenge of global poverty, particularly promoting the need for basic education in developing nations (with an emphasis on educating young girls). He created and led the Center for Universal Education at the Council on Foreign Relations. (The center is now based at the Brookings Institution.) He wrote papers and articles and convened seminars on how the world’s wealthy had to do more (and spend more) to redress poverty in developing nations, especially Africa, where he traveled frequently. He developed a program with Hollywood star Angelina Jolie to push for educating children in regions of conflict.

In 2000, the United Nations had devised the Millennium Development Goals, which included ensuring that every child on the planet could complete primary education by 2015. Sperling was doing what he could to hold wealthy nations to this target. “He fully embraced the idea that basic education was core to positive development overseas and tried to make that issue central to US deveopment thinking and strategy,” says Ray Offenheiser, president of Oxfam America. Tom Hart, senior director of government relations at ONE, a nonprofit focused on African development, notes that Sperling “was a leading outside-the-government advocate for basic education, and he used his considerable network built during the Clinton administration to work on this. He didn’t have to focus on this. He chose to.” A friend of Sperling adds, “After having been head of the NEC for Clinton, he could have immediately gone to Wall Street and made a lot of money. That’s what most people in his situation do. But he didn’t. A lot of us who know him scratched our heads about that.”

Sperling didn’t don a sack cloth and follow the example of Mother Teresa. Reuters financial blogger Felix Salmon complains that Sperling “signed up with the Harry Walker Agency and started giving speeches to anybody with cash, including not only Citigroup but even Allen Stanford. He also wrote a monthly 900-word column for Bloomberg for $137,500 a year.” But the Bloomberg fee also covered appearances on Bloomberg television and drafting strategy memos for the media company—which doesn’t make the compensation outlandish in political-media circles. Sperling also was a consultant to the television show The West Wing.

At some point, according to a source familiar with the episode, Goldman Sachs approached Sperling for advice on globalization. He took this opportunity to pitch the company an idea in sync with his nonprofit work: the firm ought to invest in social capital in poorer nations. He suggested it focus on business education in developing countries. Goldman Sachs asked for a proposal. He worked one up: devoting $100 million for business training for 10,000 women in these nations. Goldman Sachs, via a foundation it operates, went for the idea and eventually asked Sperling to implement it. On the advice of friends, he requested that he be paid what the investment firm might pay a top lawyer or dealmaker: $70,000 a month. And that’s what he earned for a year or so. He did no commercial work for the investment bank.

Progressive blogger Ezra Klein observes that Sperling’s Goldman Sachs haul was problematic: “You tend not to get paid that much for offering guidance to charitable endeavors. It is very hard to believe that Goldman Sachs wasn’t attempting to buy influence with a politically savvy economist who had good relations—and would later go to work for—the incoming Democratic administration.” Dean Baker, of the liberal Center for Economic and Policy Research, chimes in: “I don’t think it’s a question of outright corruption. It’s a question of orientation. Most people hear you got almost a million dollars for a part-time job, and they think there’s a problem there. But people on Wall Street say, a million bucks is chicken feed.” Democratic and Republican administrations—including Obama’s—do tend to be filled at the top with lawyers and corporate officials who have raked in millions of dollars annually for years in the private sector. Sperling is not on par with these folks. Due to his past service as NEC chief, he was able to pull in far more money than the average do-gooding Washington policy wonk. But he was no Gordon Gekko.

Sperling also stands accused by some progressives of being a Rubinite—meaning, a pro-corporate, free-trading Democrat perhaps more sympathetic to the needs of high finance than the plight of working Americans. The name comes from Robert Rubin, the Goldman Sachs veteran who served as Clinton’s Treasury secretary and, later, as a director of Citigroup. During the Clinton years, Sperling had been part of an economic team headed by Rubin and then by Summers that pushed for so-called free trade deals (such as NAFTA) and deregulation of the financial sector that helped set the stage for the crash to come. But a former Clinton administration official says Sperling was not involved in NAFTA; his focus was domestic economics. And in defending Sperling, Noam Scheiber of The New Republic reports that on the deregulation front Sperling was “a marginal player at best,” because Treasury was in charge of this misguided initiative. (Blame Rubin and Summers.)

Sperling associates point out that when he worked at the NEC for Clinton, he brokered agreements under which US corporations would not exploit child labor abroad; they also recall he was a strong advocate of the earned income tax credit, a big gain for low-income working Americans. He was a champion of increased spending for Head Start and other programs for children. In 1997, says Robert Greenstein, the executive director of the liberal Center on Budget and Policy Priorities, Sperling held up a budget deal the Clinton administration had negotiated with the Republicans in control of Congress because he believed child tax credits for low-income families in the package were not sufficiently strong—and he succeeded in beefing up that part of the legislation. He promoted debt relief and debt cancelation for poorer nations. (“He was one of the critical players on this in the Clinton administration,” says Hart.) Sperling successfully urged Clinton to dedicate budget surpluses to Social Security in order to prevent Republicans (and some Democrats) from raiding these funds for tax cuts for the wealthy. Sperling then came close to hammering out an accord with the Republicans that would tie the surpluses to Social Security (and include federally subsidized private retirement accounts as an add-on), according to a former Clinton administration aide, but the talks faltered during the GOP’s impeachment crusade. In a way, Sperling was the father of Al Gore’s “lockbox.” (Some progressives griped at the time about locking up the surpluses in this manner—instead of spending the money on needed investments. But Sperling’s argument was that with the Republicans in control of Congress, these funds would not be appropriated for progressive purposes.)

Sperling was not a Rubin clone. But in a 2005 book, The Pro-Growth Progressive, he took aim at a group of labor-oriented progressive economic policy advocates he dubbed the “Three Bobs”—former Labor Secretary Robert Reich (for whom Sperling once worked), columnist Robert Kuttner, and Borosage—for not caring sufficiently about budget deficits. So he positioned himself as a critic of the anti-Rubinites, and chided big-government progressive Democrats for not acknowledging the limits of their progressivism. At the same time, though, Sperling advocated policies with progressive goals: retraining workers years in advance of expected dislocations (due to globalization and trade compacts) and establishing a universal government-subsidized 401(K) plan that would augment Social Security, not replace it (and, yes, probably be good for Wall Street). He called for reinstating estate taxes on the rich to pay for this retirement plan. In other words, he favored redistributing the wealth.

In the Obama years, according to administration officials, Sperling in internal discussion has pushed for tax cut refundability—to make sure folks on the lower economic rungs would benefit from the tax cut compromise Obama struck with the Republicans. And, as Scheiber notes, Sperling persuaded Geithner to propose imposing a fee on financial firms to cover the cost of the Troubled Asset Relief Program (better known as TARP) to the US government—not a favor to Wall Street. (Salmon counters: this bank tax was never enacted.) When the administration was considering rescuing Chrysler, Sperling made a passionate case for government intervention at a critical White House meeting, according to a participant. He also argued within the Obama administration that it should move earlier to extend the expiring tax cuts for low- and middle-income Americans, in order to devise a strategy for preventing an extension of the Bush tax cut bonuses for the wealthy, according to Greenstein. (The White House and congressional Democrats didn’t heed that call.)

Sperling’s appointment—should it come—will not assuage those critics who fret the Obama administration is too deferential to Wall Street. But progressives don’t have a long list of alternatives. Asked for his ideal appointee, one prominent liberal economist could toss out only a few possibilities: Joseph Stiglitz, Elizabeth Warren, Paul Krugman, and former Rep. Dave Obey. But he notes, “The problem is that not enough progressives have had the Executive Branch experience.” He adds, “Sperling is not terrible.” That’s not much of an endorsement. Greenstein, though, says that progressives “critical of Gene are overreacting to the one Goldman Sachs payment. His track record is of a progressive who fights the hardest for issues related to low-income children, not of a Wall Street guy.”

Sperling is an odd-man-out in Washington. Fairly or not, he’s become associated with Wall Street but he never went Wall Street. He’s been more interested in making policy than in making mega-money. (He’s surely done okay.) Presumably, Big Finance would prefer Altman, who is truly one of its own, or perhaps even Richard Levin, the president of Yale and a director of American Express, who’s also a candidate for the position. But with Summers as the benchmark, a Sperling appointment, for progressives, would be a step in a better direction.


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