Culture of Corruption: Obama and His Team of Tax Cheats, Crooks, and Cronies (29 page)

LARRY THE HEDGE FUND MANAGER

In the final weeks of the 2008 election season, the Man of the People met his match. Campaigning in Ohio, Barack Obama came upon Joe Wurzelbacher, who had been playing football with his son in his front yard. “Your new tax plan is going to tax me more, isn’t it?” the plumber asked the candidate. “It’s not that I want to punish your success,” Obama replied. “I just want to make sure that everybody who is behind you, that they’ve got a chance at success, too. My attitude is that if the economy’s good for folks from the bottom up, it’s gonna be good for everybody. If you’ve got a plumbing business, you’re gonna be better off if you’ve got a whole bunch of customers who can afford to hire you, and right now everybody’s so pinched that business is bad for everybody and I think when you spread the wealth around, it’s good for everybody.”
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The McCain campaign seized on Obama’s wealth redistribution gospel; the videotaped confrontation between Obama and Wurzelbacher went viral on YouTube and was invoked in a presidential debate. Obama lashed back. At a late October 2008 rally in Richmond, Virginia, Obama snarked:

I had a nice conversation the other day with Joe the plumber. Joe’s cool, I got no problems with Joe, all I want to do is give Joe a tax cut, but let’s be clear who Senator McCain’s fighting for.
He’s not fighting for Joe the Plumber; he’s fighting for Joe the Hedge Fund Manager. John McCain likes to talk about Joe the Plumber but he’s in cahoots with Joe the CEO
[emphasis added].
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A month later, Obama appointed Lawrence Summers—let’s call him Larry the Hedge Fund Manager—as director of the White House National Economic Council. Yes, Obama is “in cahoots” with a king of Wall Street. Summers, an academic economist turned Clinton Treasury official turned Harvard University president, gained notoriety in 2005 after feminists protested his remarks on how women might not have the same genetic ability as men in the sciences and engineering. He was drummed out of academia in a ridiculous hissy fit of political correctness. But the episode had a multi-million-dollar silver lining. Summers landed on his feet at New York City-based D. E. Shaw—one of the world’s largest hedge funds. Between late 2006 and late 2008, he worked there one day a week for two years providing private consultations and serving as a “sounding board” for Shaw’s traders. In 2008, he earned nearly $5.2 million working for the $30 billion hedge fund management company. One day a week. The
New York Times
provided a glimpse of his schmooze-filled work life:

In addition to his salary at Shaw, Mr. Summers enjoyed growing wealth through investments in the firm’s funds. Unlike most hedge funds, which lost money as the markets plunged in 2008, Shaw posted returns of about 7 percent in its so-called macro-economic fund.... When investors rushed en masse to withdraw their money from hedge funds last year, Shaw asserted its right to block redemptions from its fund. An exception was made for Mr. Summers, however, because the White House job he was taking required him to divest.

A spokesman for Shaw said Mr. Summers’s main job was not to act as a salesman. But in the fall of 2007, as the financial crisis simmered, Mr. Summers traveled to Dubai for a series of meetings with Shaw’s marketing staff and potential investors. Bankers from across the region flew in for the event. Mr. Summers spoke at several lavish dinners and met with local parties involved in Shaw’s real estate investments in the area, people briefed on his trip said.

Last September, Mr. Summers explained to Shaw traders what appeared to be an aberration in a key interest rate, the London interbank offered rate, or Libor, thus helping its traders avoid losses. He spoke at the firm’s 20th anniversary gathering for its investors and at a prominent hedge fund investor conference in Boston, weeks before the presidential election. In December, he attended the firm’s annual holiday party, held in the American Museum of Natural History in New York, beneath the giant model of a blue whale.
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Summers also remained on the faculty at Harvard University.

In Beltway business-as-usual form, the Obama White House minimized press attention by performing a late Friday afternoon document dump disclosure—of Summers’s financial assets forms. The records showed that in addition to his massive hedge fund salary and $590,000 in Harvard pay, Summers reaped nearly $2.8 million in speaking fees from many of the major financial institutions and government bailout recipients he now polices, including J.P. Morgan, Citigroup, Goldman Sachs, and Lehman Brothers.
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A single speech to Goldman Sachs in April 2008 brought in $135,000. A Nigerian media conglomerate, Leaders & Company Ltd., shelled out $225,000 to hear Summers speak at an October 2008 gig. A week after Election Day 2008, Summers spoke to Merrill Lynch for $45,000. A week and a half after that, Obama appointed Larry the Hedge Fund Manager to his top economic advisory post—circumventing the Senate confirmation vetting process. Summers donated the Merrill Lynch speaking fee to charity. But whatever highly sought after advice and counsel he gave the failing company was non-refundable. On the side, Summers made $34,000 in spare change writing a column for the
Financial Times
—weighing in weeks before Election Day on the $700 billion bailout that he was undoubtedly being paid to speak about to clients.
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Nice work if you can get it.

Summers has experience negotiating government-sponsored bailouts that benefit private concerns. In 1995, he spearheaded a $40 billion Mexican peso bailout that bypassed Congress. Summers personally leaned on the International Monetary Fund to provide nearly $18 billion for the package. His boss, then Secretary of the Treasury Robert Rubin, was former co-chairman of Wall Street giant Goldman Sachs—the Mexican government’s investment banking firm of choice. Rubin had personally lobbied former Mexican President Carlos Salinas de Gortari to allow Goldman to handle the privatization of Teléfonos de México, The
Multinational Monitor
financial newsletter reported. Rubin also shepherded the $2.3 billion global public offering of mega-media television company Grupo Televisa.
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Rubin acknowledged in his financial disclosure forms that he had

42 Goldman Sachs clients with whom he had had “significant contact,” including six powerful Mexican clients. The public sector clients were the Mexican government, Mexico’s finance ministry, and Mexico’s central bank. The private sector clients were Teléfonos de México, Cemex S.A., the largest cement firm in the Americas, and Desc, Sociedad de Fomento Industrial, Mexico’s seventh largest manufacturing conglomerate. Rubin reaped $25 million in compensation from Goldman, Sachs & Co. in 1992 alone .
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In 1997, the Clinton administration announced with great fanfare that Mexico had repaid $12.6 billion in loans. Clinton, Rubin, and Summers openly joked about how the Treasury Secretary had profited. The
New York Times
captured the jubilation:

The usually understated former investment banker was clearly reveling in the success of the bailout today.

In the Roosevelt Room at the White House, Mr. Clinton side-stepped a question about a recent decline in the value of the peso and deferred to Mr. Rubin, explaining “you’ve made so much more money than I have.”

“There is a point to that!” said Mr. Rubin, who usually makes no references—even in jest—to his huge fortune.

Back at the Treasury later in the day Mr. Rubin raised an eyebrow when his deputy, Lawrence H. Summers—who was the first to recognize the possible ripple effects of the crisis in emerging markets and who organized much of the loan effort—joked that he would settle for just 1 percent of the Treasury’s $580 million profit on the deal.

“Larry, anything you can negotiate, I’m happy to split with you,” Mr. Rubin shot back.
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Not everyone was so jovial and sanguine about the moral hazard the Summers-Rubin bailout created. GOP Congressman James Leach of Iowa, chairman of the House banking committee, warned that “great caution is going to have to be exercised in assuming that this is the only or best way to proceed.... [American taxpayers cannot be] placed disproportionately in jeopardy” as the world’s lender of last resort .
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More than a decade later, Summers was back in D.C. helping guide another Democrat administration down the road to bailout hell. Perhaps that explains why he was caught literally napping not once,
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but twice,
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at economic summits hosted by President Obama. At a “fiscal responsibility” summit in late February 2009 and at a meeting with credit card CEOs in mid-March 2009, photographers captured Summers slumbering while bureaucrats and businessmen collaborated on creating new taxpayer pipelines to prop up failing enterprises. Been there. Done that. Zzzzzz.

Some liberal journalists and bloggers did try and wake up the public to Summers’s role in helping engineer the current fiscal meltdown while he served as Clinton Treasury Secretary. “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,” Robert Scheer wrote in
The Nation
.
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The left-leaning ProPublica online investigative journalism website explained that in 1998, “an obscure federal agency, the Commodity Futures Trading Commission, raised the prospect of regulating the burgeoning market in complex financial instruments.” Who led the charge against such oversight? “The nation’s leading financial officials—[Securities and Exchange Commission chairman Arthur] Levitt, Federal Reserve Chairman Alan Greenspan, Secretary of the Treasury Robert Rubin, and his deputy Lawrence Summers—pummeled the proposal, saying it was dangerous to even discuss the idea.”
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Double standards, anyone? Scheer acknowledged them: “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.”
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Another epiphany hit
Washington Post
blogger Dan Froomkin: “It’s become increasingly clear over the last several months that despite the Obama administration’s generally progressive economic views and sporadic bouts of populist rhetoric, the White House has something of a soft spot for Wall Street.”
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You don’t say.

TIMMY THE TAX - CHEATING, BAILOUT - BUNGLING BUREAUCRAT

They called Tim Geithner an indispensable “whiz kid”
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and “wonder boy.”
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“They” are the bipartisan establishmentarians in Washington. Geithner’s mentor, President George W. Bush’s Treasury Secretary Hank Paulson, called him a “very unusually talented young man” who “understands government and understands markets.”
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Geithner’s longtime mentor and tennis camp partner Larry Summers affectionately calls him “young Tim.”
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GOP Senator Orrin Hatch declared him “a very competent guy.”
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Democrat Senator Harry Reid concurred: “Tim Geithner is exactly the man for the job.... From his time as the President of the Federal Reserve Bank of New York, and in leadership roles at the Treasury Department, IMF and the Council on Foreign Relations, Mr. Geithner knows . . . how to navigate the complex financial world.”
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Announcing Geithner’s nomination as Treasury Secretary on November 24, 2008, President Obama hailed the genius civil servant as uniquely qualified: “With stellar performances and outstanding results at every stage of his career, Tim has earned the confidence and respect of business, financial and community leaders; members of Congress; and political leaders around the world—and I know he will do so once again as America’s next Treasury Secretary, the chief economic spokesman for my Administration.”
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Golden Boy seemed to have it all. The Dartmouth and Johns Hopkins-educated president of the New York Federal Reserve Bank had studied Japanese and Chinese, and had lived in East Africa, India, Thailand, China, and Japan. His father ran the Ford Foundation’s Asian grants, and once crossed paths with Obama’s mother, who worked on developing Ford programs for Indonesia.
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Geithner’s maternal grandfather was an adviser to President Dwight D. Eisenhower. But all the public service pedigrees and Ivy League degrees in the world couldn’t save him from basic tax-cheating stupidity. In mid-January 2009, before his confirmation hearing, the Senate Finance Committee discovered that Geithner had failed to pay some $43,000 in federal self-employment taxes for four separate years—and only coughed up $26,000 of that debt when he was named Obama’s Treasury Secretary-designate in November 2008. Somehow, brilliant and meticulous Geithner didn’t catch the lapses.

Recall that Joe the Plumber, an average guy with no Ivy League degrees in business or finance, was crucified for his $1,200 Ohio tax lien (the state had sent a notification to a prior residence he had vacated).
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One might give a common man some leeway for making common mistakes. But Tim Geithner, as all his cheerleaders in Washington reminded us, is no “common” man. The Obama/Geithner defense—“$43,000 in unpaid taxes is a common occurrence”—simply is not a credible alibi. Nor was his sheepish admission during his Senate confirmation hearings that he used Turbo Tax to prepare his taxes.