Elaine Chao's financial disclosures hide de facto bribery
On Sunday, I linked to an article in The Intercept on Trump's pick for Transportation Secretary, Elaine Chao. The author, Lee Fang, did an overall great job with the article, but seems to not quite get the significance of the information in Chao's financial disclosures. Key quote (emphasis mine):
Upon confirmation, I will resign from my position with Wells Fargo & Company. I hold common stock and vested deferred stock compensation with Wells Fargo. I do not hold any stock options or restricted stock. Pursuant to the terms of the company’s Directors Stock Compensation and Deferral Plan – Stock Award Deferrals, I will receive a cash payout for my deferred stock compensation (all of which is fully vested at the time of grant) based on various elections I have made each year that I have served on the Board. The cash payout will be determined based on the closing price of the company’s common stock at the time payment is made, and I will continue to receive deferred stock compensation equivalents, which track dividends on the company’s common stock until I receive the cash payout. If I resign my position on the board after December 31, 2016, the approximate portion of my deferred stock compensation to be paid out is as follows: July 2017 – 48%; March 2018 – 29%; March 2019 – 15%; March 2020 – 4%; and March 2021 – 4%. Until I receive the final payment, I will not participate personally and substantially in any particular matter that to my knowledge has a direct and predictable effect on the financial interests of Wells Fargo, unless I first obtain a written waiver, pursuant to 18 U.S.C. § 208(b)(1), or qualify for a regulatory exemption, pursuant to 18 U.S.C. § 208(b)(2). For a period of one year after my resignation, I will not participate personally and substantially in any particular matter involving specific parties in which I know Wells Fargo is a party or represents a party, unless I am first authorized to participate, pursuant to 5 C.F.R. § 2635.502(d).
In other words, if confirmed Wells Fargo will pay her money based on the company's stock price in July 2017, March 2018, March 2019, and March 2020. That means she will have a direct financial stake in the company's stock price being as high as possible through March 2020. This is a clear conflict of interest, hence the sentence about not participating in certain decisions.
I highlight this because one of the sources for Fang's article describes the issue as Chao having a "a sense of indebtedness" to Wells Fargo, but it's clearly more than that. She'll have a direct financial incentive to help Wells Fargo. When another source quoted in the article, Kurt Walters of Demand Progress, described the payments as "a backdoor bribe", he clearly hits closer to the mark.
The reason I don't find Chao's promise to recuse herself from certain decisions reassuring is this: what about matters where Wells Fargo may be indirectly benefited? Given the, shall we say, adversarial relationship Trump has demonstrated with the truth after less than a week in office, we cannot trust them to be upfront about such things. And Fang gives a perfect example of a possible conflict that the administration could easily deny is a problem:
During her first day of hearings on Capitol Hill on Wednesday, Chao emphasized her interest in utilizing private sector solutions for infrastructure projects, saying she would use “innovative financing tools, such as public-private partnerships” to build the next generation of roads and bridges.
Such deals are attractive because they require limited taxpayer investment. But they are also controversial, as privatized toll roads, parking meters, water projects, and other infrastructure deals end up costing government entities more over the long term as costs balloon over time, and in many cases, private operators are awarded handsome profits by charging consumers increasingly inflated fees.
Wells Fargo, notably, has taken a close interest in such financing schemes. After the election last year, Wells Fargo published an article highlighting Trump’s promised $1 trillion infrastructure plan using private-public partnerships, noting that such deals are often financed through tax-exempt municipal bonds. These arrangements “may provide an investment opportunity for municipal bond investors,” the article declared.
As always, the number for the Capitol switchboard is (202) 224-3121.
Update: I should add that I called Senator Feinstein's office about appointments last week, and was told Chao was coming up for vote this week. Votes get delayed, but there may be more time pressure on this one than other appointees.