Thursday, April 09, 2009

Larry Summers, $800 million, and the bankers

Living Large and in Charge

By Robert Scheer
April 7, 2009, Truthdig

Not surprisingly, Lawrence Summers is convinced that he
deserved every penny of the $8 million that Wall Street firms
paid him last year. And why shouldn't he be cut in on the
loot from the loopholes in the toxic derivatives market that
he pushed into law when he was Bill Clinton's treasury
secretary? No one has been more persistently effective in
paving the way for the financial swindles that enriched the
titans of finance while impoverishing the rest of the world
than the man who is now the top economic adviser to President

It is especially disturbing that Summers got most of the $8
million from a major hedge fund at a time when such totally
unregulated rich-guys-only investment clubs stand to make the
most off the Obama administration's plan for saving the
banks. The scheme, as announced by Treasury Secretary Timothy
Geithner, a Summers protégé, is to clean up the toxic
holdings of the banks using taxpayer money and then turn them
over to hedge funds that will risk little of their own
capital. At least the banks are somewhat government-
regulated, which cannot be said of the hedge funds, thanks to

It was Summers, as much as anyone, who in the Clinton years
prevented the regulation of the hedge funds that are at the
center of the explosion of the derivatives bubble, and the
fact that D.E. Shaw, a leading hedge fund, paid the Obama
adviser $5.2 million last year does suggest a serious
conflict of interest. That sum is what Summers raked in for a
part-time gig, in addition to the $2.77 million he received
for 40 speaking engagements, largely before banks and
investment firms, and on top of the $587,000 he was paid as a
professor at Harvard.

Summers was a top adviser to the Democratic presidential
candidate last year, and that might have enhanced his
speaking fees, which seem to have a base rate of $67,500, the
amount he received on each of two occasions when he appeared
at Lehman Brothers before that company went bankrupt. Lehman
had purchased a 20 percent stake in D.E. Shaw while Summers
was employed by the hedge fund, and it would be interesting
to know if the subject of the overlapping business came up
during Summers' visit to Lehman.

Lehman was only one on an impressive list of top financial
firms that consulted Summers during a troubled period.
Goldman Sachs was so interested in his thoughts that it paid
him more than $200,000 for two talks, even though it soon
needed $12 billion in taxpayer bailout funds. Citigroup,
which has been going through hard times, managed only a
$54,000 fee for a Summers rap. Merrill Lynch could pony up
only a scant $45,000 for a Summers appearance last Nov. 12,
but that was at a point when Merrill was in deep trouble,
with the government arranging its sale. Summers, anticipating
an appointment in the administration of the newly elected
Obama and perhaps wanting to avoid any embarrassment the fee
might bring, decided to turn over the $45,000 to a charity.

Why was someone as compromised as Summers made the White
House's point man overseeing $2.86 trillion in bailout funds
to the financial moguls whom he had enabled in creating this
mess and many of whom had benefited him financially? Will no
congressional panel ever quiz Summers about his grand theory
that the derivatives market required no government
supervision because, as he testified to a Senate subcommittee
in July of 1998: 'The parties to these kinds of contracts are
largely sophisticated financial institutions that would
appear to be eminently capable of protecting themselves from
fraud and counterparty insolvencies. ...'

Think of the sophisticates at AIG when you read that
sentence, and then ask why Summers is once again at large in
the public sector. Or take White House spokesman Ben LaBolt's
word for it that 'Dr. Summers has been at the forefront of
this administration's work - to put in place a regulatory
framework that will strengthen the financial system and its
oversight-all in an effort to help the families across
America who have paid a very steep price for risky decisions
made by Wall Street executives.'

The very same executives that Summers had previously assured
us could be trusted without any regulation. Why should we now
trust Summers any more than we trust them? Couldn't Summers
just take his ill-gotten gains and go hide out in some
offshore tax haven? If this was happening in a Republican
administration, scores of Democrats in Congress would be all
over it, asking tough questions about what exactly did
Summers do to earn all that money from the D.E. Shaw hedge
fund. As it is, with their silence they are complicit in this
emerging scandal of the banking bailout. Summers

It was Lawrence Summers, as much as anyone, who in the
Clinton years prevented the regulation of the hedge funds
that are now at the center of the explosion of the
derivatives bubble.

Larry Summers, chief economic advisor to President Obama
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