By Pam Martens: February 22, 2013

You know the President’s nominee for Treasury Secretary, Jack Lew, is in trouble when media from the left, right and center of the political spectrum are shredding the mild-mannered, bespectacled numbers cruncher. For good reason, I might add. 

Lew will now have more embarrassing details to explain (or not, as has become his custom). We’ve dug out the details of his head-spinning mortgage deals with his two former employers,  New York University and Citigroup. This comes on the heels of the bombshell dropped by Senator Orrin Hatch in the confirmation hearing regarding Lew’s cozy employment agreement with Citigroup that paid him a bonus of $940,000 if he could somehow manage to secure a “full time high level position with the United States Government or a regulatory body.” The insolvent bank had just been bailed out by the taxpayer, making the $940,000 bonus accepted by Lew in early 2009 a gift from the public purse. 

Yesterday, the uber conservative editorial page of the Wall Street Journal clicked off the problems it has with Lew: “Investor in Cayman Islands tax haven? Check. Recipient of a bonus and corporate jet rides underwritten by taxpayers at a bailed-out bank? Check. Executive at a university that accepted student-loan ‘kickbacks’ for steering kids toward a favored bank? Check. Excessive compensation with minimal disclosure? Check.” 

The kickbacks the editorial references were akin to what Bernie Madoff was doing in the “legitimate” stock trading side of his company. Madoff paid brokerage firms a penny or two a share to direct stock traffic to his brokerage business to steal trades away from the New York Stock Exchange. The practice was called “payment for order flow.”  

While Jack Lew was employed as a Vice President of Operations at New York University, his future employer, Citigroup, was named a “preferred lender.” NYU students were directed to Citigroup for student loans and the company reciprocated with the equivalent of “payment for loan flow,” kicking back to New York University .25 percent of the net loan value directed to it. The University said it used the funds, a whopping $1,394,563 between 2002 to 2007, as financial aid to other students.  

In 2007, New York State Attorney General, Andrew Cuomo, settled charges against the University, saying the practice constituted a conflict of interest and violated state law. The funds were returned to the student borrowers; NYU and Citigroup signed a Code of Ethics Agreement; and Citigroup chipped in $2 million to “educate” students about obtaining loans. (The investigation turned up broad based conflicts and payments between lenders and universities.) 

The excoriation of Lew by the conservative Wall Street Journal followed a much earlier smack down on January 11, 2013 by Rolling Stone’s Matt Taibbi and Professor William Black on the progressive television program, Democracy Now! Black, a former litigation director of the Federal Home Loan Bank Board, said this about Lew: 

“Well, on financial matters, Jack Lew has been a failure of pretty epic proportions, and he gets promoted precisely because he is willing to be a failure and is so useful to Wall Street interests. So, you’ve mentioned two of the things in terms of the most important and most destructive deregulation under President Clinton by statute. But he [Lew] was also there for much of the deregulation by rule, and a strong proponent of it, and he was there for much of the cutting of staff. For example, the FDIC, the Federal Deposit Insurance Corporation, lost three-quarters of its staff, and that huge loss began under Clinton. And the whole reinventing government, Lew was a strong supporter of that. And, for example, we were taught—instructed by Washington that we were to refer to banks as our ‘clients’ in our role as regulators and to think of them as clients.” 

Taibbi concurred with the remarks from Black and added the following: “…the symbolism of this choice is, I think, very important for people, just the mere fact of picking somebody from Citigroup and from that same Bob Rubin nexus that Timothy Geithner came from. And, you know, you heard Barack Obama, as he’s introducing Jack Lew, praising Tim Geithner as somebody who’s going to go down in history as one of the great treasury secretaries of all time. I think what this tells everybody is that Jack Lew is going to represent absolute continuity with the previous treasury secretary, who had a very specific agenda when it came to Wall Street. And I think we’re just going to expect more of the same, more of the same really being overt and covert support of these too-big-to-fail institutions that Lew worked for, Citigroup being the worst and most disastrous example of that kind of company.” 

Here at Wall Street on Parade, we have penned nine separate articles on President Obama’s wholesale sellout to Wall Street interests with the Lew nomination. 

On Wednesday, Senator Chuck Grassley who sits on the Senate Finance Committee which held the confirmation hearing of Lew, released Lew’s answers to the written followup questions the Senator had submitted, saying Lew had been evasive. One question pertained to a whopping $1.4 million loan given to Lew by New York University. 

“My understanding,” said Grassley, “is that according to Forms 990 filed by New York University from 2002 to 2005 you were provided a sizable loan as part of your employment. The amounts reported include $1.4 million in 2002, $748,000 in 2003, $698,000 in 2004, and $673,000 in 2005.”  

Grassley asked Lew to “describe the terms of the loan including interest rate, minimum payment requirements, term, and the purpose of the loan…how a reasonable rate of interest was determined… how the loan was repaid and whether any portion of it was forgiven…were any terms of the loan altered at any point? If so, please describe which terms were altered and when. Please provide the promissory note and any other documents related to the loan.” 

Lew responded as follows: 

“In short, the University provided a mortgage forgiven in equal installments over five years, and an additional shared appreciation mortgage. I do not recall the interest rate or other specific terms. According to my employment agreement, the interest on both loans was equal to the rate earned by the bond portion of NYU’s endowment in the quarter preceding the signing of the mortgage. NYU provided an annual payment equal to the interest paid on the first mortgage described above. NYU reported income related to housing assistance on my Forms W-2, and I paid all taxes that were due.” 

It’s difficult to imagine that a future Treasury Secretary of the United States would not recall the interest rate he paid on a staggering $1.4 million loan; especially a numbers cruncher like Lew. It’s even more astounding that the President’s nominee for Treasury Secretary does not know mortgages on residential real estate are publicly filed documents, accessible with a few clicks on the internet. If he wanted to be responsive to a Senate committee, he could have been quite easily. 

Those internet records show that when Grassley asked Lew “were any terms of the loan altered at any point,” Lew failed to provide a serious, material fact of the transaction; namely, Citigroup took over one of the NYU mortgage loans with a balance of $147,805 on January 15, 2004 while Lew was still with NYU and Citigroup was a preferred lender to NYU students. Citigroup extended an additional $352,195 loan to Lew in that transaction for a total of $500,000 at a rate of 5.5 percent on a 15-year mortgage on a heavily indebted piece of property.

On July 5, 2007, a year after Lew had joined Citigroup in an executive position, its mortgage division, CitiMortgage “consolidated” the original $1.3 million mortgage Lew held with the New York University School of Law Foundation that was entered into on August 22, 2001 and at that point had a remaining balance of $647,800. Why Lew’s statement that the loan was being forgiven in five equal installments does not correlate with this remaining balance is another question the Senate Finance Committee needs to clarify. The new consolidated 30-year mortgage received an interest rate of 5.875 percent for the first ten years, changing to an adjustable rate thereafter.

The mortgage was modified again in 2010 by Citigroup with a home equity loan also extended for $100,000. Lew was back working for the Federal government at that time. On January 14 of this year, just four days after Lew was nominated for Treasury Secretary, Citigroup again modified Lew’s loan, changing it to an interest rate of 3.625 percent for a 30-year mortgage of $610,000 and simultaneously providing a $200,000 home equity loan at an unstated amount of interest.

The mortgage documents filed publicly by NYU for the $1.3 million mortgage also fail to state a rate of interest. The 2003 NYU 990 tax filing shows that Lew owed the university a total of $1,448,208 at that point. That would appear to be the original $1.3 million mortgage on Lew’s home in the Riverdale section of the Bronx and the $148,208 balance of the additional $150,000 mortgage extended by the University. 

In addition to the $1.3 million forgivable loan from NYU that had its interest reimbursed annually, Lew received a whopping salary which even topped that of the President of the University at one point. According to the non-profit University’s publicly accessible 990 tax forms, Lew received compensation of over $800,000 with additional pension benefits averaging over $30,000 and an expense account that topped $19,000.

Senator Grassley’s statement on Wednesday reflected on President Obama’s concern about college affordability, saying “it’s important to know whether Mr. Lew enjoyed financial perks as a university executive even as students weathered tuition increases and debt. Universities are tax exempt to fulfill their mission of educating students, and executive compensation is part of the picture toward understanding how well universities fulfill their mission.” 

During Lew’s tenure at NYU, student tuition spiked 40 percent. Things are now so difficult for financially struggling students at NYU that 498 young women there have turned to prostitution to pay their room and board and student loans. In April of last year, Amanda Fairbanks of the Huffington Post, wrote an in-depth report on the growing phenomenon of co-eds at top universities turning to prostitution with wealthy sugar daddies in order to remain in school and pay their student loans in the face of an economy producing a dearth of jobs. According to the investigation, one of the primary companies providing matchmaker services said New York University topped its list with a total of 498 sugar babies; UCLA ranked number 8 with 253 sugar babies, with Harvard ranking number 9 with a total of 231.