[R-G] [BillTottenWeblog] Is Larry Summers Taking Kickbacks ...

Thu Jul 16 03:20:59 MDT 2009

... from the Banks He's Bailing Out?

Why did Goldman Sachs, Citigroup and Morgan Stanley steer millions to a
company Larry Summers directed while he administered "stress tests" on
them?

by Mark Ames

AlterNet (May 29 2009)

Last month, a little-known company where Summers served on the board of
directors received a $42 million investment from a group of investors,
including three banks that Summers, Obama's effective "economy czar",
has been doling out billions in bailout money to: Goldman Sachs,
Citigroup, and Morgan Stanley. The banks invested into the small
startup company, Revolution Money, right at the time when Summers was
administering the "stress test" to these same banks.

A month after they invested in Summers' former company, all three banks
came out of the stress test much better than anyone expected - thanks
to the fact that the banks themselves were allowed to help decide how
bad their problems were (Citigroup "negotiated" down its financial hole
from $35 billion to $5.5 billion.)

The fact that the banks invested in the company just a few months after
Summers resigned suggests the appearance of corruption, because it
suggests to other firms that if you hire Larry Summers onto your board,
large banks will want to invest as a favor to a politically-connected
director.

Last month, it was revealed that Summers, whom President Obama
appointed to essentially run the economy from his perch in the National
Economic Council, earned nearly $8 million in 2008 from Wall Street
banks, some of which, like Goldman Sachs and Citigroup, were now
receiving tens of billions of taxpayer funds from the same Larry
Summers. It turns out now that those two banks have continued paying
into Summers-related businesses.

According to filings obtained for this story, Summers first joined the
board of directors of Revolution Money back in 2006 (when it was called
"GratisCard"), the same year that Summers was forced to resign as
president of Harvard after his disastrous tenure. Revolution
Money/GratisCard was a startup headed by former AOL chief Steve Case.
Revolution Money billed itself as the Next Big Thing in online payment,
"PayPal meets Mastercard", according to their own pitch.

In September 2007, Revolution Money announced that it had raised $50
million from a group of investors including Citigroup, Morgan Stanley
and Deutsche Bank. Some found the investment strange even then, because
normally big banks don't get involved in seeding small startups -
that's the domain of venture capitalists, not mega-banks. Especially
not in September, 2007, when these same megabanks were Chernobyling
their way into full-fledged balance-sheet meltdown.

What seems clear is that at least part of Revolution Money's success in
raising funds is due to their star-studded board of directors - which
included not only Larry Summers, but also the notorious Frank Raines,
the former Fannie Mae chief whom Time Magazine named to its "25 People
To Blame For The Financial Crisis" list. Raines is still a board member.

Over the next year and a half, Revolution Money didn't quite live up to
its promise of competing with PayPal or Visa/Mastercard. At least some
of this could be attributed to the difficulty of starting up an online
credit card company in the middle of a triple-cluster credit crunch,
banking crisis and recession. But there is also evidence that the
company wasn't run well. Another one of Steve Case's "Revolution" brand
startups, "Revolution Health", (which also features a star-studded
board of directors including Carly Fiorina, Colin Powell, and several
future-Obama Administration officials) essentially folded last autumn
when it was sold to Everyday Health last September and merged into that
company's operations.

In spite of all of this, on April 6 2009, Revolution Money announced
the happy news: it had just successfully raised $42 million dollars in
the most difficult market since the 1930s. The investors? Goldman
Sachs, Citigroup and Morgan Stanley - bankrupt institutions that Larry
Summers was transferring billions in bailout funds to.

At the very same time that these three megabanks were pouring millions
into Summers' former company, Obama's economic team, starring Larry
Summers, was subjecting these same banks to a "stress test" to decide
how deep in shit these same banks really were. The banks wanted the
government to fudge the results for obvious reasons - who wants the
world to know how deep of a hole you've dug for yourself?

When the stress test results were finally released, the banks all came
out with glowing reports that beat expectations and caused plenty of
skepticism.

In an interview for this article, William Black, a former bank
regulator who exposed the $160 billion Savings & Loan scandal and its
ties to powerful US Senators, remarked, "Summers wasn't hired [by
Revolution Money] for his expertise because he doesn't have relevant
expertise in this kind of credit card operation".

"He's not a techie. He doesn't have business expertise", Black said.
"So this is solely someone hired for the name and contacts because he's
politically active and politically connected. And that's made all the
more clear by the fact that Frank Raines was put on the board at a time
when he was pushed out in disgrace from Fannie Mae. Why? Because of his
political connections."

And it worked, as the recent investment shows.

"That's the pattern of this entity", said Black, "Which hasn't been
doing well financially and desperately needs to get money from others,
and has been able to get money from banks at a time when [these same
banks] largely stopped lending to productive enterprises. But with this
politically-connected entity [Revolution Money], they're happy to dump
money."

According to a company spokesperson, Summers resigned from the board of
directors at Revolution Money this January, just three months before
the banks invested. On one of Revolution Money's main websites,
Revolution Money Exchange, you could still see Summers' name still
listed as a director when this story was filed.

(Oddly, company filings obtained for this article show that Summers
wasn't even on Revolution Money's board of directors in 2007-8, even
though both he and Revolution Money repeatedly stated that he was on
the board, and only served on GratisCard's board in 2006, "c/o
Revolution GC Holdings LLC".)

Whatever the case, Summers was pushing Revolution Money as recently as
last September, in an interview with Portfolio magazine:

"I've enjoyed being involved with a number of smaller companies such as
the Revolution Money venture, which has a potentially very exciting
credit-card technology, using credit and debit technology, using the
internet that, in a sense, brings together bricks and clicks by
providing both a capacity for regular retail transactions and also for
online".

Whether or not Summers has a personal interest in the company, it still
stinks that a company where the head of the National Economic Council
served on the board of until just a few months ago subsequently
received millions in investment funds from banks Summers bailed out.
Taxpayer dollars went into these banks, and from the banks into the
Summers-connected firm, a firm he was hired onto precisely because his
connections could bring in this kind of money.

His involvement wasn't just incidental - if you look at the press
releases, Larry Summers' name is always touted as part of its selling
point - one press release in 2007 refers to Summers as "Legendary".

Moreover, Summers' longtime chief of staff, Marne Levine, who also
served as Summers' chief of staff when he was in Treasury under Clinton
and again at Harvard, joined Summers at Revolution Money, serving as
"Director of Product Management".

Black pointed out another sleazy aspect of Revolution Money's pitch: it
proudly boasted in late 2007 that it would make it easier than ever for
people with low credit ratings to find access to lines of credit. In
other words, Revolution Money billed itself as the ultimate ghetto loan
shark.

According to a 2007 press release, the same one boasting of "Legendary"
Larry Summers, "Unlike most bank credit card issuers who are limited to
a narrow scope of credit approval guidelines specific to their bank,
RevolutionCard seamlessly utilizes multiple partners to achieve
unparalleled consumer approval rates".

Nineteen months later, Larry Summers, now in control of the economy,
told Meet The Press, "We need to do things to stop the marketing of
credit in ways that addicts people to it and so that our households are
again savings, and families are again preparing to send their kids to
college, for their retirement and so forth".

So once again, Larry Summers creates a problem that the rich profit
from, then is put in charge of "fixing" it after vulnerable Americans
have been picked clean.

Whether or not the three bailed-out banks' investment in Revolution
Money last month represents some kind of bribe or kickback or even the
appearance of corruption is almost secondary, because the shameless
cronyism is the problem, and this is the reason why America is in the
horrible mess today.

"Polite society was supposed to impose social pressures to make sure
this wasn't tolerated", Black said. "Like the old phrase about hogs
being slaughtered. But now the hogs get even wealthier, even fatter."

Everything about Summers, from his horrible track record in the
developing world in the 1990s to the sleaze and plunder he's overseeing
in the White House should make us terrified. Hell, he even looks like
some old Batman villain: Summers, whose trademark bullfrog neck was
enough of a distraction before Obama brought him into the White House,
has seen his gelatinous layers of neck-fat swell up like an amphibian
guarding its eggs ever since he took control of the economy.

Get this monster out of the White House now, before he devours us all.

_____

Read more of Mark Ames at the Exiled: http://exiledonline.com/

He is the author of Going Postal: Rage, Murder, And Rebellion, From
Reagan's Workplaces To Clinton's Columbine And Beyond (2005).

http://www.alternet.org/story/140327/

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