More Obama Double Talk – Obama Appoints Additional Advisors Tied To Financial Crash

Obama advisers’ Citigroup ties raise questions

Administration taps two former executives for high-level positions

WASHINGTON – Senior executives at Citigroup’s Alternative Investment division ran up hundreds of millions of dollars in losses last year on their esoteric collection of investments, including real estate funds and private highway construction projects, even as they collected seven-figure salaries and bonuses.

Now the Obama administration has turned to that Citigroup division — twice — for high-level advisers.

Jacob J. Lew, who served until late last year as the chief financial officer of Citigroup Alternative Investments, has been named deputy secretary of state, the department’s No. 2 position.

Michael Froman, another former chief financial officer at the Citigroup division, has joined the White House staff as deputy assistant to the president and deputy national security adviser for international economic affairs.

Both Mr. Lew and Mr. Froman are well respected in Washington for their extensive government experience, which includes work in the Clinton administration on budget matters, in Congress and on international financial affairs.

But their shift to the Obama administration from Citigroup has raised questions about the potential for conflicts of interest, and about whether Mr. Obama’s own staff members benefited from the kinds of Wall Street excesses he has criticized.

“You sort of have to wonder why it is so smart to put them in charge now, if they helped create the mess that we are in,” said Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington. “They wouldn’t strike me as the natural choice.”

Senator Richard C. Shelby, Republican of Alabama, has questioned whether the Obama administration, like the Bush administration, is relying too much on former bank executives in shaping the bailout of the financial sector. Recent appointees include Mark A. Patterson, a former lobbyist at Goldman Sachs, who is now the chief of staff to the Treasury secretary.

“It seems to be an incestuous financial relationship situation here,” Mr. Shelby said at a Senate hearing last week, referring to senior Treasury executives, like Mr. Patterson, who once worked at investment banks. “And that’s very troubling not only to a lot of people on this committee but to the American people.”

Mr. Lew, through a State Department spokesman, declined to comment. Jennifer R. Psaki, a White House spokeswoman, said by e-mail that Mr. Froman’s past government experience in international financial affairs is just what is needed “given the global scope of the economic challenges we are facing.”

Citigroup paid Mr. Lew, 53, at least $1.1 million in salary and bonus last year, according to a financial disclosure form filed last month. The form noted that he might get an additional undisclosed bonus for his work in 2008 before he started his federal job.

As of last fall Citigroup Alternative Investments managed $49 billion worth of capital from individuals and institutions, investing in nontraditional ventures like a program that builds highways, runs airports and oversees other major public projects for governments.

In the first quarter of last year, the Alternative Investment division lost $509 million and for the whole year, it was part of a larger Citigroup division that lost $20 billion, according to Citigroup.

Mr. Lew’s job — overseeing financial matters at the State Department, with a focus on trying to increase the share of financing that goes to the diplomatic corps — will take him relatively far from this world.

Mr. Lew, who served as director of the Office of Management and Budget in the Clinton administration and was a longtime aide to Speaker Thomas P. O’Neill Jr., said at his confirmation hearing last month that he would recuse himself from State Department matters having a “particular impact” on Citigroup.

This article, “Advisers’ Citigroup Ties Raise Questions,” first appeared in The New York Times.

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