Lew defends Cayman investment

President Obama's nominee to lead the Treasury Department defended his $56,000 investment in a Cayman Islands fund at his confirmation hearing on Wednesday, saying he was unaware it was based in a nation famous for having offshore tax havens.

Jack Lew, who served as Obama's chief of staff until earlier this year, said he sold the fund for a loss when the president tapped him in 2010 to lead the Office of Management and Budget.

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"I always reported all income, I always paid all taxes," he said. "I was aware that it was an international fund investing in emerging markets ... I actually didn't know [its location] at the time."

By the end of the nearly three-and-a-half-hour hearing, Lew emerged looking like he will sail to confirmation in the full Senate.

"Frankly, I think you did really well," said Sen. Orrin Hatch (R-Utah), the ranking member of the Senate Finance Committee, at the close of the hearing.

Republicans had been expected to ask Lew tough questions about his investment, but it was Committee Chairman Max Baucus (D-Mont.) who raised the issue.

Lew also addressed a bonus of nearly $1 million he received as Citigroup was receiving billions in government support amid the financial crisis. Sen. Chuck Grassley (R-Iowa) questioned whether it was "morally acceptable" for Lew to accept a bonus at Citi briefly before the bank tapped the government for billions of dollars in bailout relief. Lew said his compensation was not out of the norm at the time, and that he disclosed everything as he should.

"I was compensated for my work," he said, adding that he was aware that Citi was about to receive a large federal guarantee when he received the bonus.

"I do believe it was comparable for people in positions like mine in the industry," he added. "I don't think there's anything that hasn't been fully transparent both in what I did and what I earned."

Hatch later criticized Lew for receiving that bonus, saying his defense amounted to, "Gee, Dad, everyone was doing it."

Hatch pressed Lew on what exact role he played at Citi, a major player in the financial crisis. As a chief operating officer, Lew said he had broad responsibilities, but that managing and monitoring investments directly were not among them.

"I went around to make sure our business was working on the ground," he said. "I was not in the business of making investment decisions ... I learned a great deal about financial products, but I wasn't designing them and I wasn't opining on them."

Grassley also questioned whether Lew was aware that New York University also had investments in the Caymans when he was an executive vice president there. When Lew said he was not, Grassley criticized him, saying it was a "poor reflection on your tenure there ... I'm surprised you didn't know what was going on."

Grassley said after the hearing that he had "serious doubts" about Lew's nomination, but was withholding a decision until Lew has answered all lingering questions.

Still, Lew did not appear to face much of a concerted effort by Republicans to derail his nomination, and some Democrats heaped praise on his government record, including two stints as budget director.

Much of the Lew hearing focused on policy matters, because the budget wonk would take the helm of the Treasury amid an ongoing push to remake the nation's tax code and bring its deficits under control.

In his opening remarks, Lew painted himself as man whose record shows his ability to navigate such tricky issues, touting his previous work helping to strike bipartisan deals as an adviser to former House Speaker Tip O'Neill (D-Mass.) and overseeing consecutive budget surpluses as budget director under former President Clinton.

"Forging bipartisan consensus is not an abstract idea for me," he said in his prepared testimony. "It is the fundamental thread that spans my professional life."

Sen. Richard Burr (R-N.C.) pressed Lew on his role in negotiations to raise the debt limit in the summer of 2011. That compromise laid the seeds for the automatic spending cuts, set to hit March 1, known as the "sequester."

When Lew opened his remarks by saying those across-the-board cuts are damaging and should be replaced, Burr sought to pin the blame for the idea on him.

Lew defended his "complicated" role in coming up with the drastic cuts, saying the goal was never to have the cuts take effect, but to serve as a threat to compel compromise.

"The demand for an enforcement mechanism was not something the administration was pushing at that moment. Our preferred outcome would have been to have something on taxes and something on spending," he said. "The only alternative that anyone could think of, that anyone would agree to, was sequestration, precisely because it's so objectionable."

Lew described himself as "optimistic by nature," but acknowledged the long road ahead for tax reform, noting both parties would have to battle "a lot of entrenched interests" in an effort to eliminate specific tax breaks in order to lower rates overall.

"If there were a lot of easy decisions, tax reform would have happened a long time ago," he said.

He also suggested that it would be best to tackle both the corporate and individual tax codes at the same time, but said it would "challenging" to get the corporate rate down to 25 percent, an oft-cited target.

Sen. John Cornyn (R-Texas) pressured Lew to admit that eliminating tax breaks for the oil-and-gas industry would mean a higher tax bill for those companies, and became frustrated with Lew's answers.

"I'm amazed at your unwillingness to answer a simple question," Cornyn said.

Well-known for his budgetary expertise, Lew also had to field questions on a host of complex financial issues that would mark new areas for him to address as Treasury secretary. He echoed his predecessor, Timothy Geithner, in shooting down criticism that "too big to fail" financial institutions still exist, and that the Dodd-Frank financial reform law addressed those issues.

He also threw cold water on a return of the Glass-Steagall Act, a repealed law separating traditional banking from investment banking whose return has gained some currency since the financial collapse. Lew called that firewall "an anachronism," and emphasized that new financial regulations need to reflect the modern marketplace.

But beyond echoing many existing administration stances on the matters, Lew offered little in terms of new perspective. Instead, he vowed to take an open mind on financial matters.

"Is there a need for any further consideration of financial regulations?" he said. "I come to the issue open-minded."