Timothy Geithner Heads To Private Equity Firm Warburg Pincus, Will Hold Titles Of President And Managing Director

Timothy Geithner heads to private equity firm Warburg Pincus (Politico, Nov 16, 2013):

Former Treasury Secretary Timothy Geithner, a trusted lieutenant to President Barack Obama who played a leading role in the government’s response to the financial crisis, will join private-equity firm Warburg Pincus LLC in March.

On Saturday, the firm, which is headquartered in New York, announced Geithner will hold the titles of president and managing director.

“Warburg Pincus has an excellent record of performance, a very compelling global strategy and an ethical reputation of the highest regard,” Geithner said in a statement. “I look forward to working with my new colleagues and to contributing to the firm’s continued growth and success.”

Private-equity firms’ role in the financial sector played a leading role in the 2012 presidential campaign, with Democrats criticizing Republican candidate Mitt Romney over deals involving his firm, Bain Capital, that led to layoffs at different companies.

For instance, in May 2012 the Obama campaign ran an ad concerning Bain’s role in the struggles of American Pad and Paper that featured former employees of the company criticizing Romney.Defenders of the industry argue it can help turn around struggling companies, but its critics, as the 2012 campaign showed, point to instances where these leveraged buyouts and the efforts to nurse a company back to financial health can often lead to large layoffs.

Following his departure from the Obama administration in January, Geithner has been giving paid speeches and working on a book but whether he would join a Wall Street firm remained a topic of interest in political and financial circles.

As both president of the New York Federal Reserve Bank between 2003 and 2009 and as Treasury secretary, Geithner was an architect of the response to the 2008 financial crisis, which led to taxpayer bailouts for big banks and insurer American International Group.

Geithner’s supporters credited him for pushing a practical approach that prevented a complete meltdown of the financial system, but he faced criticism from some liberals and conservatives for being too quick to buy into the banking industry’s concerns both during the crisis and later as the 2010 Dodd-Frank law was being drafted.

Private equity firms also find themselves involved in the ongoing debate over whether to overhaul the tax code.

Private equity executives, hedge-fund managers and others working on Wall Street pay a low tax rate on profits-based compensation known as carried interest. Instead of paying ordinary income taxes — which top out at almost 40 percent — carried interest is taxed as a capital gain, generally at a rate of 20 percent. Top earners started paying an additional 3.8 percent tax on their investment income, such as capital gains, this year.

Democrats have long argued for increasing the tax on carried interest.

“If you look at any tax reform proposal out there that has any patina of bipartisan support, they believe we have to rethink how we treat investment income and carried interest,” Geithner said in July 2012 at a conference hosted by CNBC, according to Bloomberg.“Obviously, carried interest doesn’t raise that much revenue,” Geithner said. “If you’re not going to do that, whose taxes are you going to raise?”

In an interview with the Wall Street Journal published Saturday, Geithner declined to discuss public policy issues.

“I made a judgment when I left Washington I was going to leave these questions to my successors, and I’m going to stay true to that,” he told the Journal.

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