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Monday, April 6, 2009

Maybe the foxes are now in charge of the henhouse

At failed insurer AIG, the top individual bonus recipients got $3 million each, which was enough to get death threats and their own special piece of legislation from the United States House of Representatives.  Turns out, though, lots of other folks have been getting lots of money from failed financial institutions -- even folks who are responsible for helping to clean up the mess.

A According to the New York Times, the president’s Chief Economic Advisor, Lawrence Summers, earned a nifty $5.2 million from a major hedge fund last year, even though he was there only one day a week and is described really as "a student" asking "lots of questions" and getting "a valuable insight into the practical realities of Wall Street."  [Ed. note:  My students are wondering if there are more of those kinds of internships available.  I told them you have to go to Harvard.]  On his off-days, Summers, says the Times, "earned $2.7 million in speaking fees from Wall Street companies that received government bailout money," including Goldman Sachs, Citigroup, J.P. Morgan, and Lehman Brothers.

The same story notes that two members of the president's national security team, Michael Froman and Thomas E. Donilon, also made tidy sums out of the busted institutions.  Froman, the deputy national security advisor for international economic affairs, earned $7.4 million last year for his work at Citigroup, including a year-end bonus of $2.25 million that the president has called "shameful."  Like AIG executive Jake DeSantis, whom we mentioned here, Froman isn't returning the bonus, but is "working on" giving it to charity.  (DeSantis, who got $700,000 from AIG, was vilified in the reader comments on the Times story; no word on how they'll view Froman's $2.25 million).  Meanwhile, Donilon not only earned $3.9 million as a partner at O’Melveny & Myers, representing (among others) Citigroup, Goldman Sachs, and Apollo Management ("a private equity firm in New York that specializes in distressed assets and corporate restructuring"), but is also going to be getting a pension from Fannie Mae, where he worked for six years.

And the really big winner is . . .

Aaa . . . (surprise!) one of the leading business figures who campaigned for creation of the the Troubled Assets Relief Program and now serves a member of the president's economic team:  Warren Buffett.  The Sacramento Bee looked at public filings and concluded that the World's Wealthiest CEO might also be the biggest individual beneficiary of TARP funds.  Buffett's Berkshire Hathaway Co. (of which he owns about half) owns major stakes in several TARP-funded banks, including Wells Fargo, Goldman Sachs, US Bancorp, American Express, and Bank of America.  A whopping 30 percent of Berkshire’s publicly disclosed stock holdings are in TARP institutions—investments that might have become entirely worthless had the companies been allowed to go into bankruptcy rather than be bailed out.  Indeed, Buffett bet on enactment of TARP to actually add another few billion to his holdings in the troubled institutions while the program was being debated.

Perhaps coincidentally, the former CFO of General Re Corp., a Berkshire Hathaway subsidiary, was sentenced last week to eighteen months in prison for her role in the conspiracy between GenRe and AIG to manipulate AIG's balance sheets, a scam that cost AIG more than half a billion dollars.  AIG, as it happens, was GenRe's biggest client

[Frank Snyder]

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