Was Obama Economic Advisor's Exit a Preemptive Strike?

March 8, 2010 — -- When the White House announced last week it would be losing the services of Lewis A. Sachs, one of the president's top economic advisers, the reason given for Sachs's departure was that his work was largely complete.

"He's leaving now that markets have stabilized and Secretary [Timothy] Geithner has had time to set up a permanent team," Treasury Department spokesman Andrew Williams said.

But Sachs's quiet exit, reported in a blog entry on the New York Times web site, comes without any apparent next move for the Wall Street veteran, except for what he told the Times was his desire for time to "catch up on some sleep."

Not factoring into the decision, Williams said, were recent reports suggesting Sachs's old employer could be the subject of a federal probe. A December Times report said federal officials were then in the early stages of an investigation into companies that sold a complex breed of securities known as synthetic collateralized debt obligations, or C.D.O.'s, and then made financial bets against them.

One firm that was selling C.D.O.'s before the housing bubble burst was Tricadia Inc. Sachs was a partner at Tricadia's parent company, Mariner Investment Group.

One Wall Street analyst interviewed by ABC News last week on the condition he not be identified, said he has been contacted recently by investigators about the controversial practice.

The Times report identified Tricadia as one of several firms involved in deals that some critics said had produced profits at the expense of the firms' own clients. (Tricadia responded that it has always put the interest of its clients first.) Authorities, the report said, were "looking at whether securities laws or rules of fair dealing were violated by the firms that created and sold these mortgage-linked debt instruments and then bet against the clients who purchased them."

Williams would neither confirm nor deny that Tricadia was being looked at. Asked if there was a connection between a possible probe and Sachs's exit, Williams replied, "absolutely not."