At confession on Friday night

The Times reports today on extensive financial ties between financial industry players including Citigroup and D.E. Shaw and leading Obama economic advisers Lawrence Summers and Michael Froman. Some in the media, ranging from this blog to Times columnist Frank Rich, have been sounding alarm bells for months about the cozy relations between the White House, zombie banks like Citigroup and vampiric hedge funds like D.E. Shaw, which qualifies for massive subsidies under Geithner’s scheme to burden taxpayers with trillions in toxic asset liabilities. The don of this crony capitalist cabal is former Citigroup chairman Robert Rubin, who mentored Summers and Froman, served as an Obama campaign adviser and successfully moved most of the leadership of his Hamilton Project think-tank into the White House.

Today’s Times article is something of a Saturday weather balloon, designed to gauge whether coming clean about Summers’ $7 million in payments from D.E. Shaw, Citigroup, Goldman Sachs and other recipients of Federal largess will enable the White House to convince a gullible press corps that conflicts of interest are in the past.

The Times quotes White House spokesman Ben LaBolt as stating, “Of course, since joining the White House, [Summers] has complied with the strictest ethics rules ever required of appointees and will not work on specific matters to which D. E. Shaw is a party for two years.” Beside the reality that D.E. Shaw will be impacted by every position that Summers takes with respect to the financial sector bailout, there’s some evidence that the firm has been directly involved in shaping White House policy priorities over the last several months. As we highlighted several weeks ago, on March 13 the Wall Street Journal reported on a typical consultation with hedge funds regarding the parameters of TALF:

Some of the biggest hedge funds in the business have participated in calls and meetings with other hedge-fund managers, lawyers and regulators about the program. They include Harbinger Capital Management, Highbridge Capital Management, Elliott Management Corp., Paulson & Co., Perry Capital, Citadel Investment Group, Cerberus Capital Management and D.E. Shaw Group.

Which “regulators” were on these calls? Did Summers participate or was he aware of the calls? Will D.E. Shaw be included in the taxpayer-subsidized “auctions” which will shift toxic assets from the private to the public sectors? We look forward to hearing more from the White House about the parameters of Summers’ recusal from D.E. Shaw-related matters.

Summers $5 million payment from D. E. Shaw is one of many ties between the hedge fund and the White House economic team. As we reported in an earlier post:

  • Darcy Bradbury, D.E. Shaw Director of External Affairs, worked in the Clinton Treasury Department alongside Obama adviser Lawrence Summers and Treasury Secretary Timothy Geithner. Bradbury served as Assistant Secretary for Financial Markets.
  • In her role as Assistant Secretary, Bradbury was a close ally of Robert Rubin and Lawrence Summers in their effort to ward off regulation of the hedge fund industry. Bradbury fought off attempts by Congressman Edward Markey and General Accounting Office director James Bothwell to regulate derivatives markets in 1994. In a typical press statement in response to Congressman Markey’s call for regulation, Bradbury stated, “The Treasury has not concluded that other legislation concerning over-the-counter derivatives is necessary or appropriate at this time.” (Financial Times, 6/16/94)
  • D.E. Shaw donated $225,650 to the Democratic National Committee in 2008, making the company the 12th largest donor to the DNC, according to Open Secrets.
  • David E. Shaw, founder of D.E. Shaw, was among the largest donors to the Obama inauguration committee, with a $50,000 gift. Chandra Jessee, wife of D.E. Shaw partner Julius Gaudio, also donated $50,000 to the Obama inauguration committee.
  • D.E. Shaw executive Anne Dinning was one of the largest donors to Obama’s transition team, granting a total of $28,500 to the transition committee.
  • D.E. Shaw employees gave more than $75,000 to the Obama Presidential campaign, according to searches on Open Secrets. They gave $0 to McCain.

In releasing the documents, the White House is divulging the extent to which the Obama economic team is intertwined with the pillars of High Finance, as the former makes the latter the recipient of the largest transfer of public wealth in history. Will this Friday night confession spur public outrage and careful examination by the press, or will it fade away by the time the talking heads take their seats on Sunday morning?