Friday, April 03, 2009

Summers' Conflicts of Interest

The NYT has gone through the financial disclosures of various White House officials and has discovered that Lawrence Summers, the director of Obama's Council of Economic Advisors, "earned more than $5 million last year from the hedge fund D. E. Shaw and collected $2.7 million in speaking fees from Wall Street companies that received government bailout money."

Or this
The disclosure forms also shed further light on the compensation received by a top Obama aide who previously worked for Citigroup, one of the largest recipients of taxpayer bailout money. The aide, Michael Froman, deputy national security adviser for international economic affairs, received more than $7.4 million from the company from January 2008 to when he joined the White House this year.

That money included a year-end bonus of $2.25 million for work in 2008, which Citigroup paid him in January. Such bonuses have prompted political controversy in recent months, including sharp criticism from Mr. Obama, who in January branded them as “shameful.” . . .
Thomas E. Donilon, the deputy national security adviser, reported earning $3.9 million as a partner at the Washington law firm O’Melveny & Myers.
My favorite:
Millionaires work in a variety of positions across the administration, and they include DesirĂ©e Rogers, the White House social secretary. Ms. Rogers, a close Chicago friend of the Obama family, reported income of $2.3 million last year. She earned a salary of $1.8 million from People’s Gas & North Shore Gas
The mildest thing to say here is that the Obama White House is peopled by that upper-upper PMC (professional managerial class) whose "knowledge work" places them in their own private Idaho economy.

A second charitable thing to say is that only large established firms have this kind of money, and don't pay $135,000 for an hour speech (Goldman Sachs) to hear unorthodox or novel views. The Obama millionaires make that money by delivering conventional wisdom with a name brand (e.g. President of Harvard Emeritus). The scholarly literature does suggest that medical researchers among others are profoundly affected by such ties. Even if Obama's top economists aren't directly "bought off" through their financial relationships, all this pitching to chief executives kills original thinking. The bad news for us is that these Obama economic policymakers are unlikely to come up with ideas that a) hurts the hedge funds that have made millionaires of them, and b) are original and new.

Obama policy behavior is prima facie evidence that these effects are at work with Summers et al. They have given half if not all of the country's annual income to incompetent, insolvent banks, and followed a double standard in treating them much more kindly than they've treated Detroit. The banks have ruined us once. Summers, Geithner, et al are on the job as the banks ruin us for a second time.

The same pattern was evident at the G20 meetings. The French coverage emphasized the U.S. resistance to Franco-German calls for much stronger and fully international controls on banking, including crackdowns on offshore banking that pulls enormous amounts of money out of big countries and their public redevelopment projects (a half-trillion euros per year, 20 billion for France - OECD). The Obama administration stressed stimulus. I've criticized this pattern before: public money is shovelled in unheardof quantities towards the private sector, which retains economic decision rights, even though their decisions caused the disaster in the first place.

In the conflicts of interest, we have at least a partial explanation of Obama's willingness to take public money without insuring. public knowledge and authority. This is a kind of liberal Bushism. And because of the kind of banker decisions that will be made with the trillions of public money, it's not going to work.

Or think of it this way. Summers will have been paid a dollar for every job hedge funds have cost the economy.

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