Summers Drew Millions from Shaw Group and Geithner's Investors Will Make Billions

Robert Reich reminds us today why we should have pursued that hedge fund job out of college (no, they weren't hiring when I got out of college - hence the humor) (emphasis marks added to increase the yuks):

. . . these are exactly the sort of investors Tim Geithner is trying to lure in to buy troubled assets from banks, with an extraordinary offer financed by you and me and other taxpayers. If it turns out the troubled assets are worth more than these guys pay for them, they could make a fortune. If if it turns out the assets are worth less, these guys won't lose a thing because we taxpayers will bail them out. Plus, they get to pick only the highest-rated of the big banks' bad assets and can review them carefully before buying. What a deal. Why can't you and I get in on this bonanza? Because we're too small. The government will designate only about five big investor funds - run or owned by the richest of the rich - as potential buyers. Hedge funds fit the bill perfectly. There's a beautiful symmetry here. The hedge fund managers who raked in billions last year wouldn't have done nearly as well had taxpayers not bailed out Wall Street to begin with. According to John Taylor, a hedge fund manager who tied for ninth on Alpha's list, many funds would have gone belly-up had the government not acted. "Thank god for the government, because if they hadn't intervened, we wouldn't have had anybody to trade with," he told the Times. So you and I and other taxpayers have kept these hedge-fund honchos flush enough to be able to reap the bonanza that Geithner now wants to bestow on them for cleaning up the mess they and others on Wall Street made - a bonanza to be financed by you and me and other taxpayers, who are taking on all the risk.

There were "25 hedge-fund managers" who "reaped a total of $11.6 billion during the same interval, according to Institutional Investor's Alpha Magazine - including $2.5 billion for James Simons of Renaissance Technologies and $2 billion for John Paulson. (To be included on the list, you had to take home more than $75 million.)" Their tax rate, you'll be pleased to note is only 15 percent because the Congress last year was strong-armed into passing the bill that continued to treat these as capital gains, so while you pay 28 percent or 33 percent or whatever you can work out with the tax man, their deal is already solid.

I read this morning that Larry Summers earned nearly $5.2 million in the last two years working one day a week for D.E. Shaw, one of the largest hedge funds of all. I can't help admire Larry for sacrificing all the money he could be making now had he not chosen to work for the government.

Professor Reich continues by asking if Tim Geithner could have really meant what he said on Sunday's Face the Nation (with insider-connected Bob Schieffer, who makes sure that the nation is never actually faced there) when he stated that he will decapitate (er, I meant "fire") the "heads of big banks that depend on financing from the federal government, just as it summarily deposed Rick Wagoner, the former CEO of General Motors - and before Wagoner, the heads of AIG, Fannie Mae, and Freddie Mac," and, if we take him at his word, what "criterion" would "he be using?"

If precipitous loss of shareholder value is enough to "require a change in management and the board," presumably every CEO and director of every big bank now being bailed out should be fired, starting with Ken Lewis of Bank of America. If the criterion is diversion of taxpayer money to uses other than Congress intended when it first authorized the $700 billion bailout, the list of soon-to-be-fired CEOs is a bit shorter but still large. Surely it includes all the bailed-out banks that continue to fly their executives around the world in company jets, award them extraordinary pay packages, and run junkets at fancy resorts. Citigroup's Vikram Pandit (who collected $38.2 million for his taxpayer-subsidized services in 2008) comes immediately to mind. Why stop there? Perhaps Geithner intends to fire executives and directors of any company that's dependent on taxpayers and is now losing money. Just think of the corporate house-cleaning this will mean. Hundreds of agribusiness executives are now at risk as are scores of military contractors. Hell, the whole pharmaceutical industry depends on taxpayer support (research subsidized by National Institutes of Health, sales subsidized through Medicare and Medicaid), and it's doing badly, so their executives and directors will be gone soon, too. All told, about one out of every five large American companies depends on government contracts, and a majority of these firms are losing money right now. So . . . off with their heads.

And, oh yes, the March unemployment numbers indicate that it is a Depression - Greater or otherwise.

The March employment numbers, out this morning, are bleak: 8.5 percent of Americans officially unemployed, 663,000 more jobs lost. But if you include people who are out of work and have given up trying to find a job, the real unemployment rate is 9 percent. And if you include people working part time who'd rather be working full time, it's now up to 15.6 percent. One in every six workers in America is now either unemployed or underemployed. Every lost job has a multiplier effect throughout the economy. For every person who no longer has a job and can't find another, or is trying to enter the job market and can't find one, there are at least three job holders who become more anxious that they may lose their job. Almost every American right now is within two degrees of separation of someone who is out of work. This broader anxiety expresses itself as less willingness to spend money on anything other than necessities. And this reluctance to spend further contracts the economy, leading to more job losses. Capital markets may or may not unfreeze under the combined heat of the Treasury and the Fed, but what happens to Wall Street is becoming less and less relevant to Main Street. Anxious Americans will not borrow even if credit is available to them. And ever fewer Americans are good credit risks anyway. All this means that the real economy will need a larger stimulus than the $787 billion already enacted. To be sure, only a small fraction of the $787 billion has been turned into new jobs so far. The money is still moving out the door. But today's bleak jobs report shows that the economy is so far below its productive capacity that much more money will be needed. . . . We should stop worrying about Wall Street. Worry about American workers. Use money to build up Main Street, and the future capacities of our workforce.

Can we get a plebiscite on this? Well? How about this?

Energy independence and a non-carbon economy should be the equivalent of a war mobilization. Hire Americans to weatherize and insulate homes across the land. Don't encourage General Motors or any other auto company to shrink. Use the auto makers' spare capacity to make busses, new wind turbines, and electric cars (why let the Chinese best us on this?). Enlarge public transit systems. Meanwhile, extend our educational infrastructure. So many young people are out of work that they should be using this time to improve their skills and capacities. Expand community colleges. Enlarge Pell Grants. Extend job-training opportunities to the unemployed, so they can learn new skills while they're collecting unemployment benefits. Finally, accelerate universal health care.

Hear! Hear! Suzan

. . . Obama's plan to limit itemized deductions for the richest 1.2 percent of taxpayers (including the top 1.9 percent of small business owners) to 28 percent, starting in 2011, is also in trouble on the Hill. Wealthy contributors and friends of congressional leaders involved in setting tax policy have balked. So Congress is telling the White House to look elsewhere for the $320 billion it needs over ten years to finance half of the tab for health care reform. Congressional leaders have also informed the White House that they don't have the votes to pass Obama's proposal for treating the earnings of hedge-fund and private-equity managers as income rather than capital gains. Angry populism thrives on stories about the rich and privileged who use their influence to get cushy deals for themselves at the expense of the rest of us. AIG's bonuses provide a perfect example. It's too bad the same populist outrage doesn't extend to issues involving far more money, affecting many more people, and entailing far more insidious abuses of power. Congress's potemkin populism over AIG's bonuses disguises business as usual when it comes to the really big stuff.

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