Obamanomics And Hedge Funds
We’ve already posted on how Robert Rubin and Lawrence Summers, two of President-elect Obama’s key economic advisers, helped bring on the financial crisis as officials in the Clinton administration. And we’ve also written on Rubin’s disastrous stint as a top executive at Citigroup. Now comes word on Summers’s recent private-sector work. He helped operate a hedge fund called D.E. Shaw & Co. But just because he’s now a public official again, don’t expect him to reveal what he did for the business. From Politico:
… even as Summers takes the lead of economic policy thinking for the Obama White House, which has promised to be one of the most open and transparent in history, neither the Obama transition team nor D.E. Shaw would say exactly what Summers had done in his two years of work for the $36 billion hedge fund, or how much he has been paid.
Why doesn’t Summers plan on telling us what he did for the fund or even how much he made? Because he doesn’t have to. Thanks to loopholes and rank political cowardice in Washington, hedge funds are virtually unregulated. But we do know one thing about D.E. Shaw & Co. This isn’t just your garden variety shadowy, secretive, unregulated, anything-to-make-a-buck hedge fund. It is also deeply plugged into Washington and working the lobbying and pay-to-play circuit:
The hedge fund also has gotten much more involved in Washington policymaking in recent years, contributing to the Managed Funds Association, the trade group that has led the charge on resisting increased regulation and taxation of hedge funds in Washington.
What exactly has the MFA “led the charge” on? Well, for one, hedge fund workers like Summers pay a much lower tax rate than most workers in America. The government only takes 15 percent of their profits as opposed to the usual 30 percent or so for the rest of us, which once led Warren Buffett to quip that he paid a lower rate in taxes than his cleaning lady. Everyone knows this situation is grossly unfair. But thanks to the tireless lobbying, and the bottomless pockets, of groups like the Managed Funds Association, our political leaders have done nothing to change it. From the International Business Times:
A trade group representing hedge funds spent $660,000 in the first quarter to lobby against a proposal to hike takes on the industry and on other regulatory issues. The Managed Funds Association lobbied on congressional efforts to raise taxes on hedge funds, buyout firms and their managers … The association spent $1.9 million lobbying last year.
That’s not all the “association” did on behalf of funds like Mr. Summers’ firm:
The group also lobbied on bills to ban offshore tax shelters and require pension plans to disclose their hedge fund holdings.
Let’s not forget, hedge funds were one of the biggest players in subprime mortgage bonds, credit default swaps, and other risky derivatives. So not only were they skimping on their taxes, avoiding regulation, and paying off politicians, they were actively destabilizing our economy and working hard to bring on the recent collapse, to boot.
Obviously, the hedge fund industry needs better, stricter oversight. But with Mr. Summers back in the White House again, we probably shouldn’t hold our breaths for that particular “change we can believe in” to come anytime soon.
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