Former Bailout Czar Signs On With Firm That Helped Run Bailout

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TalkingPointsMemo

Former Bailout Czar Signs On With Firm That Helped Run Bailout

by
Zachary Roth

Neel Kashkari during congressional testimony in this file photo. Investment behemoth PIMCO announced that it had hired Kashkari as a managing director and the head of new investment initiatives. (Newscom)

What a difference a day makes.

On Sunday, we learned from a florid Washington Post profile
that Neel Kashkari, the Treasury Department's one-time bailout czar, is
now Thoreau-ing it up in the Northern California woods. (Sample line:
"The moon hits his stubble, which is six days old.") But the very next
day, the investment behemoth PIMCO announced that it had hired Kashkari as a managing director and the head of new investment initiatives.

But that's not the only thing cause for raised eyebrows over the news. As one good-government group frames it,
Kashkari's ability to cash in on his short-lived but high-profile
tenure in public service seems likely to speed up the already
fast-moving revolving door between government and the financial sector.
And in southern California-based PIMCO, he could hardly have picked a
firm more enmeshed in the recovery effort he helped lead.

As Felix Salmon of Reuters notes,
the original bailout plan Kashkari worked on was created and promoted
by PIMCO. Bill Gross, the firm's energetic CEO, even offered to work on
the program for free. In working on this plan, Salmon writes, Kashari
"doubtless spent a great deal of time with very senior PIMCO officials
who were probably flattering him daily in an attempt to bring him round
to their way of thinking on the matter."

PIMCO's role in the bailout didn't end there. It was one of four
firms hired by the New York Fed to manage its $1.25 trillion
mortgage-backed securities purchase program. (PIMCO, like the other
firms, wouldn't tell us
how much it was paid for that). It was an asset manager for the New
York Fed's $130 billion Commercial Paper Funding Facility. And questions have been raised
about the strength of the internal firewalls PIMCO set up to separate
employees managing the government's investments from those managing
private investments.

To be sure, PIMCO withdrew from contention,
late in the game, to manage the Treasury's Public Private Investment
Program. Still, so close were PIMCO's ties to the Treasury Department
and the Fed earlier this year that one financial blogger dubbed the firm "the fourth branch of government."

Both Kashkari and PIMCO are already familiar with the revolving
door. Before he entered government in 2006, Kashkari was a vice
president at Goldman Sachs. It was former Goldman CEO Henry Paulson
who, as Treasury Secretary, in 2008 appointed Kashkari to run TARP.
Goldman then got billions from the government's rescue plan -- most controversially as one of the counter-parties made whole by the AIG bailout.

As for PIMCO, in 2007, it hired Alan Greenspan as a consultant. For all of our sakes, let's hope the next few years are kinder on Kashkari's reputation than the last few have been on Greenspan's.

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