Monday, April 6, 2009

The Insiders Around Larry Summers

The release of Larry Summers' financial documents has prompted NYT to try and figure out just what exactly Summers did for the hedge fund D.E. Shaw, where he earned $5.2 million over a two year period, while working for Shaw just one day a week.

Although Shaw seemed to want to spin the story towards Summers hanging with the quants, NYT's Louse Story seems to get at the heart of the matter when she reports:

Mr. Summers and Shaw executives say his role there was to be a sounding board for Shaw’s traders. But interviews with friends and former colleagues suggest that Mr. Summers’s role at D. E. Shaw was wider and more complex.

Mr. Summers, these people say, was a marquee hire, a prized spokesman for Shaw. He routinely made himself available for private consultations with Shaw’s clients, an attractive perk for investing with the firm, as one client put it.

Mr. Summers, who taught economics and public policy at Harvard while advising Shaw, also met with investors in the United States, as well as in the cash-rich Middle East and Asia. He spoke at industry conferences, mixing with officials from public pension funds, endowments and other large institutions with many billions of dollars to invest.
Story also tells us:

At Harvard and at Shaw, Mr. Summers cultivated a small circle of financial professionals — particularly hedge fund managers — to serve as an informal brain trust. He consults with them on policy matters from his perch in the White House.

Among these insiders are Kenneth D. Brody and Frank P. Brosens, the founding partners of another hedge fund, Taconic Capital Advisors, for whom Mr. Summers did consulting work from 2004 to 2006.

Mr. Summers reached out to Mr. Brosens in December to discuss the Obama administration’s economic priorities. This year, he campaigned to have him run the federal office overseeing the $700 billion bailout program. Mr. Brosens withdrew his name from consideration last month.

Others in this inner circle include Nancy Zimmerman, a longtime friend and hedge fund manager in Boston; Laurence D. Fink, the chairman and chief executive of BlackRock, a large money management company that hopes to play a potentially lucrative role in the administration’s bank rescue plan; H. Rodgin Cohen, the chairman of the law firm Sullivan & Cromwell, who was briefly considered for a senior Treasury post; and three other top fund managers, Orin S. Kramer, Ralph L. Schlosstein and Eric M. Mindich.

So Summers follows in the footsteps of former Treasury Secretary Henry Paulson in "consulting on policy matters", while at the White House, with some of the men most focused in the world on making money. Thus, we see again the great danger in government regulation. The government and the top players are talking to each other, whicht inevitably results in regulation structured in ways that benieft the insiders.

Curiously, the NYT piece does not mention the fact, which I reported this weekend, that it appears that Summers' held an equity stake in Nouriel Roubini's economic consulting firm. Roubini, of course, is now telling us that the results of the stress test will result in some banks being nationalized. Hmm, I wonder where he got that idea?

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