Thursday, February 26, 2009

The Obama Hedge Fund Connection and the $200 Billion Payoff

It's pretty much common knowledge that billionaire hedge fund operator George Soros was a major supporter of Barack Obama during his presidential run, but the Obama hedge fund ties go much deeper than that.They start with chief-of-staff Rahm Emanuel and go right on up to the President.

In November, 2008, Joseph DiStefano wrote this:
Obama chief of staff-designate Rahm Emanuel, who's been an Illinois congressman, Democratic Party House leader,Wall Street investment banker (Wasserstein Perella), Clinton aide, and director of the failed mortgage-lending federal-bailout giant Freddie Mac, is also a loyal ally of the troubled, highly-paid hedge fund industry, and has worked to keep taxes on their fat fees low..."The appointment of Emanuel suggests that Obama's presumed hostility to the hedge fund industry may have been exaggerated and that the sector will get a fair hearing as the new administration begins the process of reforming US financial sector regulation. At a time when hedge fund managers feel particularly friendless, it cannot hurt to have someone who understands their business in the heart of the White House. Full story (it's not much longer) here.
Then we have this from FINalternatives:

Today’s inauguration of Barack Obama as the 44th president of the United States will be the most expensive in history. And despite their troubles, hedge fund managers and employees are helping to foot the bill.

The bill for Obama’s swearing-in may hit $150 million—more than $100 million of which is for security costs. And among those giving the maximum $50,000 per individual are Soros Fund Management’s George Soros and D.E. Shaw Group’s David Shaw, leading a large number of hedge fund industry professionals to pay for the inauguration.

The Presidential Inauguration Committee has raised more than $27 million, of which $7.1 million came from those involved in finance, according to the Centre for Responsive Politics. The Soros family alone gave $200,000. Other hedgies (or former hedgies) giving the max include Grosvenor Capital Management’s Stephen Malkin and Michael Sacks (and Sacks’ wife, Cari), Paloma Partners CEO Donald Sussman and Oaktree Capital Management Chairman Howard Marks.

Also giving $50,000 was CNBC personality Ron Insana, who recently shuttered his hedge fund, Insana Capital Partners, and Howard Kagan, late of activist shop Harbinger Capital Partners. Howard Gottlieb, a retired partner at Glenwood Financial Group, now owned by Man Group, gave $50,000, as did his wife, Anne. Marsha Laufer, the wife of Renaissance Technologies chief scientist Henry Laufer, also gave as much as she could, along with Naomi Aberly, the wife of HBK Capital Management’s Lawrence Lebowitz. Chess Capital Partners founder Shonda Warner, Fletcher Asset Management deputy CEO Denis Kiely, GEM Investors senior managing partner Barry Malkin, McGarr Capital’s Cappy McGarr, Seminole Capital Partners founder Michael Messner, Taconic Capital Advisors founder Frank Brosens, and Willow Creek Capital Management founder Aaron Braun each gave the maximum.
Get the picture? So what's the payoff?

How about a cool 20% on a TRILLION? That's $200 Billion. Here's Andrew Ross Sorkin at NYT's Dealbook with part of the details:
The Obama administration hopes to jump-start this crucial machinery [the securitization markets] by effectively subsidizing the profits of big private investment firms in the bond markets. The Treasury Department and the Federal Reserve plan to spend as much as $1 trillion to provide low-cost loans and guarantees to hedge funds and private equity firms that buy securities backed by consumer and business loans.
So with all the government guarantees, what will be the returns to hedge funds? NYT fills us in:
Simon Johnson, an economics professor at the Massachusetts Institute of Technology and a former chief economist at the International Monetary Fund, said many people might take a dim view of the TALF [Term Asset-Backed Securities Loan Facility] program because it provided government subsidies to investors like hedge funds. Investors who borrow from the Fed could enjoy annual returns of 20 percent or more.

"The TALF," he said, "raises a lot of questions."
And BTW, Talking Point Memo reports:

Hedge Funds Could Get a Pass on New Executive Pay Rules


  1. I think the explanation to all this is much simpler than people believe : Obama has heard that hedge-funds make a lot of money (Geithner told him so!) - he has also been told that through TALF - hedge funds can help alleviate the troubles with mortgage backed securities (Geithner heard something to this extent and told him so!) and consumer credit freezing up.

    Thus, Obama has decided that while he is cracking down on everyone "rich" (>$250.000 annually), he is going to keep the economy going by making hedge funds his special cronies. So, the only advice to give to an american citizen who wants to not be robbed - start a hedge fund in your back yard! Stop working, stop paying your mortgage, live on credit and start a hedge fund.

    The sad part is, they probably believe this is going to work. I think that if hedge funds become his cronies, when things turn bad enough, his cronies are going to short-sell the entire USA. Not that I blame them.

  2. @ hpx83

    You have the formula:

    "So, the only advice to give to an american citizen who wants to not be robbed - start a hedge fund in your back yard! Stop working, stop paying your mortgage, live on credit and start a hedge fund."