Living Large and in Charge

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
protege, 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 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.