Robert Scheer is the editor of Truthdig, where this article originally appeared. His latest book is The Pornography of Power: How Defense Hawks Hijacked 9/11 and Weakened America(Twelve).
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 Obama.
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 Summers.
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 forty 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 November 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.