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Was Larry Summers Selling CDOs To Asian Sovereign Wealth Funds After The Collapse Of The Bear Stearns Hedge Fund?
The man cited to be Ben Bernanke's replacement if and when the stock market (not the economy) takes a decided turn for the worse, Larry Summers, has been implicated in an act that may make his transitioning into his role of running monetary policy for the world's biggest economy slightly more complicated. A report that was issued several months ago by Asia Times' blog discloses that the man who has President Obama's attention on all matters financial was in fact selling the AAA-rated tranches of toxic CDOs held by his former employer, multi billion hedge fund D.E. Shaw after the collapse of the CDO-loaded Bear Stearns hedge fund.
White House economic advisor Larry Summers, a former Treasury Secretary and President of Harvard University, had brief career as a part-time pitchman for a hedge fund. His activities may bear on his ability to serve the country with maximum effectiveness. According to sources who attended meetings with him, Summers traveled to Asia during July 2007 with a pitchbook recommending the AAA-rated tranches of collateralized debt obligations to Asian sovereign funds and financial institutions, in his capacity as a Managing Director of the hedge fund D.E. Shaw.
In terms of how well an investment of this kind, by what are likely the same entities that gobble up U.S. Treasuries as if there is a limited supply in the latter, would have performed, can be gleaned by the following:
In July 2007 the AAA-rated tranches of mortgage-backed securities backed by subprime collateral were trading at around 90 cents on the dollar. Now they are trading at less than 40 cents on the dollar.
And here is where it may get a little hairy, especially as pertains to potential conflicts of interest between Larry, recent reincarnations of TALF programs geared to purchase exactly such CDO tranches, and a potentially very pregnant DE Shaw.
The AAA-rated tranches of CDO’s, of course, are the “toxic assets” that the US government now is proposing to buy from banks to unclog their balance sheets. D.E. Shaw, ranked fourth by size among hedge funds with about $30 billion in resources, owns an unspecified amount of such structured products. Late in 2008 it suspended some redemptions by investors seeking to cash out, and continues to “gate” redemptions. Although D.E. Shaw’s investments are proprietary, the perception of the investment community is that the firm is stuck with big positions in such “toxic assets” that it cannot sell. The overhang of hedge fund redemptions on the market artificially depresses the price of structured product, which in turn has forced massive writedowns on the part of banks.
According to my sources, Summers enthusiastically urged Asian investors including sovereign funds to purchase such instruments just weeks after the collapse of a Bear, Stearns hedge fund whose failure triggered the collapse of the whole structured market. I do not know precisely what was in Summers’ pitchbook, but if I were a member of a Congressional committee responsible for the oversight of economic policy, I would very much want to know what was in it.
Zero Hedge wholeheartedly agrees with David Goldman's conclusion on the matter:
[Larry] has a responsibility as a public official to account for any baggage he may have brought in with him. The right thing to do would be to make public his July 2007 D.E. Shaw pitchbook.
Perhaps at the next congressional hearing it might behoove politicians to request said pitchbook (and the request goes out to Zero Hedge readers): it would be very enlightening to read just how Mr. Summers justified a "credible upside thesis" for an investment in an asset class which, if he was at all reading contemporary literature, would have had to know was very precariously positioned at a time when Bear Stearns' CDO laden hedge fund had collapsed and many say was the direct precursor to the chain of events that culminated with Lehman's bankruptcy.
We recommend reading the full Asia Times Blog posting.
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wouldn't surprise me if he was selling machetes to Hutu's in Rwanda.
très drôle
oh So Ben Bernanke is tipping ZeroHedge now....hmm.
Apocalypse Now- Agreed.
He was a key ring leader in the repeal of the glass-steagall act, the beginning of the end:
When the two chambers could not agree on a joint version of the bill, the House voted on July 30th by a vote of 241-132 (R 58-131; D 182-1; Ind. 1–0) to instruct its negotiators to work for a law which ensured that consumers enjoyed medical and financial privacy as well as "robust competition and equal and non-discriminatory access to financial services and economic opportunities in their communities" (i.e., protection against exclusionary redlining)
Treasury Secretary Lawrence H. Summers rushed back from a trip to China to huddle with lobbyists representing Citigroup, Goldman Sachs, Merrill Lynch and other financial giants. The meeting was closed to the media and public, but one participant told the New York Times that Summers lectured the lobbyists on how to spin this bill so it appears to be in the public interest. "He said it would be very unfortunate if any financial institution were to suggest that they do not see the broad public purpose of this legislation," the lobbyist reported.
They should not reward him for structurally destabilizing the entire economy. Look at that last paragraph again, I will let you know that corporations (other than health care companies) actually want health care reform. Do you see how he tried to spin that bill as being in the public interest? One of the most expensive costs of corporations is health care, if they could get taxpayers to pay for it - corporations would suddenly be able to show a profit - ding! There is no growth anymore, the only way to show the appearance of growth is to cut corporate costs - we could keep the myth and illusion of increased profitability going for a few more years with these changes. Believe me, I know.
Are we sure that even health care insurance comps don't want this bill? They were the first at the table, why? And do we believe the congress people write the bills? We know they can't. I have started to wonder who actually rights laws of this country? If people are screaming "read the bill" at them we all know they don't, but who? Remember from Creature from Jackyll Island, it was the bankers who (not surprising knowing the business and modeled on Europe) wrote the bill.
Is it not possible that the insurance companies wrote this bill, they bribed the administration with a 80Bil gift, for the privilage. I have not read the bill, does it really hurt the insurance companies in anyway? Or just drives more customers through their doors, like you say paid by shifted cost from corporations to taxes? They were smart to fake opposition to the Fed Reserve act.... I don't know but, i suspect you are right. If you agree that socialism/welfare/war/cap & trade/imf asssist and now health care is nothing but an excuse to squize more interest payement on national deficit, it really does all start to make sense.
You may be correct as well on the large connected health insurance companies faking opposition. The small and mid sized companies in insurance, medical supplies, and care would be disadvantaged and would legitimately oppose it since the government would give the economies of scale to the bigs that funded their campaigns. The reality of this is control - everyone is entitled to health care translates into the truth = we want to track everyone and have access to their health records. This is about control, and by having everyone included it ensures everyone is on the system. Swine flu down the road will be a good excuse why they really need to coordinate this at a national level = problem, "public outrage" = response, and the solution will be spun as national health care.
Do you honestly think that if and when who ever running the show,wants him in that position,you can stop him from that?remeber what happen the day of Geithner confirmation when the issue of taxes came up? go back to that day and check the market.......
From what i can tell he is in charge. And he wants the position.
I fear unless ZH becomes required reading for literate Americans, i am not sure what stops his assent to the throm.
last word should read "throne"
fkn grammar nazi
that should be orthography or spelling but not grammar.
Geithner the turbo tax wizard?
2:30...
http://www.youtube.com/watch?v=eKVxGlkPRlo
Just makes him like all other Obama appointees; full of ethical issues. Par for the course!
asian wealth funds used the same strategy in 2004 buying AAA cdo paper cheap then riding it back up... not really that shocking or surprising. many japanese banks were looking to get exposure as late as the end of 2008. they'll probably do well anyway
Treasury Secretary Lawrence H. Summers rushed back from a trip to China to huddle with lobbyists representing Citigroup, Goldman Sachs,
asian wealth funds used the same strategy in 2004 buying AAA cdo paper cheap then riding it back up... not really that shocking or surprising. many japanese banks were looking to get exposure as late as the end of 2008. they'll probably do well anyway
But let us face it here. As long as he sells it to foreign soverign funds, why should we care?after all,it only means that they are taking a little discount on their xport to this country
I wonder if Obama has any clue what everyone else knows. Appointing Summers Fed chair will turn out to be political suicide.
the celebrity in chief does not even know what the fed is. probably could not explain what bernanke does if a teleprompter told him.
lol....so true and well said.
Summers is Obama's trial balloon. It is incumbent upon those who believe that the system will work if it is inhabited by persons of honor, to continue to bust this ballon in every venue it is mentioned. If Obama doesn't see it, Rahm does, and there are plenty of kemosabes out there.
There are 300 million people in America... I can't believe that they can only find and recycle the 'few chosen ones' over and over between the private financial industry and government service... it is incestuous... and the lack of new blood leads to a degredation of the whole financial system. However, if Summers is appointed I would assume there is no love lost between he and Asia... and I wonder if China would be more willing to pull the plug on the dollar sooner rather than later.
This is simply not true!!! Mary Schapiro brought many fresh ideas from her role in the SEC, CFTC, and NASD!
I just typed "Mary Shapiro" and "fresh ideas" into Bing and it didn't give me any of her fresh ideas... you want to know what did come up... "clueless" :)
You should have typed Mary Madoff Shapiro!! lol
Spot on my friend.
If someone was taking your mother's purse, you would probably have an opinion about it, and say something with emotion, not simply report on it poopscoop.
zapf... since we found out late last evening that you are the floating spammer of other useless website links... you should probably take your pooperscooper and move along...
If Summers becomes Fiat Czar I'm out. I'm serious. I'm gonna take my ball and find a new home. The corruption is just too much.
Your ball is becoming worth less and less with each passing day... so you better keep your eyes out for countries with a low cost of living.
Noted.
asian wealth funds used the same strategy in 2004 buying AAA cdo paper cheap then riding it back up... Until we have guys like Black back as regulators nothing will change. We just
good articles; my newest bookmarked finance site ..http://www..
hat tip: finance news & finance opinions
seriously. one can say many thing about ben bernanke but he is certainly not corrupt (that we know of yet).
Seriously?
is that you phil? did you forget to log in?
Can't Larry just institute a PPIP for our asian hedge fund friends? We're all one big happy world nowadays, aren't we?
I thought that's what the $1.25 trillion MBS purchase program was for.
svendthrift, then you should have been out long ago........
You are correct.
In addition to the disgusting corruption I don't want to pay the higher taxes that will result from this nonsense. I have 30 years of working life before I'd like to retire. I ought to minimize how much I spend on empire, corruption and the rest.
And I (and my friends) have only 10 left before we'd hoped to retire. Good luck competing with those of us who've seen their retirement savings decimated. And good luck to those of us who are going to fail.
Worrying about spending on empire, corruption and the rest is a luxury you won't be able to afford as you pay those higher taxes and try to eke out a living and put together some savings to send YOUR kids to college.
I thought WE were fucked, but you guys are totally fucked, UNLESS you become the wiser generation of your great-grandparents. This is one of the paths to your salvation, use it. Good luck.
duhhhh... and as an owner/partner (at the time) of RGEmonitor (Roubini's blog) he was well acquainted with the doomsday scenario
Summers was?
Summers was.(until last December)
here's the link
http://online.wsj.com/public/resources/documents/disclosure-LSummers0403...
That's an Aha moment...
Please explain... pulled up the link but it is sideways and can't read well... are you all saying that Summers was an owner in Roubini's website... if that is the case I am absolutely sick... even Roubini is contaminated?
scroll to page 33 (last page) where it states that Summers was on Roubini's board of advisors since 2006
scorll to page 3 - there are two entries on that page:
Roubini Global Economics (RGE) Summers divested his ownership stake in December 2008 for <$50k --
Summers also received a salary from Roubini's RGE to the tune of $147,000
NOTE: Roubini has never declared that relationship in articles he has written lauding Summers and friends
Thank you... that is just amazing... I am really stunned... absolutely stunned... is anything still free of contamination by the financial world... I used to love to read Roubini until he became a hyper-playboy and I lost confidence in his judgment for that reason. But to not disclose that very important piece of information that can influence what spin you may put on the information you disseminate is ethically challenged.
I'm not ready to draw any conclusions yet.
Beware: you're being played.
Although Anonymous's document is undoubtably real, it's not clear his conclusions are valid.
That Summers needs to go under the bus is a no brainer to me. That Noriel is compromised is less clear.
Clusterstock has been leading the Noriel as facile playboy smear campaign,and it does give me pause, but his writing has been lucid, on point, and till now apparently non partisan.
Let's see where this story goes before burning him at the stake. It may come to that, but not today.
Alright... can I at least hammer the stake in and get the firewood ready though :-)
I do understand what you are saying... and yes perhaps more facts are in order... it might be helpful if Noriel himself would address this... as I would if my credibility was questioned. He has the perfect forum... on his website... and then put the matter to rest.
Can it be put to rest? I'm outraged by this. Summers is evil.
Get the stakes ready, but give the hammer to a responsible adult 'till we can convince him (or her) to hand it over to us.
This is a shocking and dispiriting disclosure.
But,like the flash issue, it takes some time to determine whose interests are being served at the moment. Flash is morally repugnant, since it appears to give an unfair advantage.
On reflection though , it begs the question why now? If flash were available to all, would it be so evil, wouldn't it be arb'd away if all markets did it?
Which then begs the question, did ZH play us (fans) into the against argument because NYSE (their ally , hypothetically) wasn't doing it, was threatened by the competition, and used us (morally righteous citizens, and ZH fans (who had a compatible, but different agenda) ) to help make the case for a battle in which they (NYSE and ZH, and Shumer (god help us)) had a vested interest.
I may be a cynic, but if the sponsors of this site are as smart as I'd like to think they are, they are aware of the cynicsm and ruthlessnes of the organizations and people they're reporting on.
If that's that case 90% of the fans( judging from the comments) have no idea of the game their playing with the sponsor.
Well great. I've been reading RGE for the past couple years.
sort of explains the Great Professor's unabashed adoration for Summers, Geithner and Beranke, though I suspect his recent OP-ED supporting Bernanke was less than sincere eg. Roubini (as a former Clintonista) is well positioned to get inside the beltway once Benny is tossed and Sir Larry takes the helm at the fed -
That is why he has been so passive lately... almost like a Stepford Wife of the US Government...
YES. I've noticed that. He's completely mellowed out since Obama was elected. I was wondering why he's turned into a pussy.
And Krugman became another Stepford Wife of the USG after he was invited to dinner at the White House... kind of like a financial sci fi flick is taking place right before our eyes.
He was always a little bitch for the Dems. He wants a 2trillion "stimulus". Shit, they blew the first trillion on pork. Best to make it three.
It's also worth pointing out that Bernake was the dept chair in the Pinceton economics dept when Krugman was hired.
oh shit.
Tyler. Please post this at some point.. The Vampire Squid does not start and stop at Goldman's.. It is everywhere. Fuck. RGE?
I agree... that is the most interesting piece of information I have heard today.
As per the norm the rational side of my brain says this is going to be the smoking gun issue that keeps Summers from assuming the Chair position at the Fed. Unfortunately given what I've seen over the last year and change the cynic in me thinks this will be swept aside as a nothingburger and the market will be the only one assuming the position.... as usual.
Don't worry . this is only the opening salvo. He'll never be the Fed chair
Volker (thank god) will be the man in charge once Congress returns in the fall.
and being critical of Dr. Summers could be construed as "evil-mongering" if one were to extend Harry Reid's comments
http://briefingroom.thehill.com/2009/08/13/reid-protesters-are-evil-mong...
Town hall protesters are "evil-mongers," says Senate Majority Leader Harry Reid (D-Nev.)
Summers advocated (in writing) while at the World Bank that the developed world dump toxic waste on the developing world because they "have a lower GDP-per-capita".
I suppose this would be in keeping with that, so I'm not surprised.
Summers is in very deep at the key circles. He is one of the chosen few - the DE Shaw thing will just go away if it's decided that Ben will be replaced. He is responsible for much worse than the CDOs and the toxic dumping on developing countries memo (which was widely distributed and trashed before he was named Secretary of the Treasury).
Agreed, and he must be on the fast track b/c listening to him talk, he didn't strike me a s an intellectual wizard.
Just the type the real PTB like in a key role, ala Geithner. A yes man.
I thought Geithner's whole objective in giving the Fed all those extra powers was so that he could be appointed Fed Chief. By that time the Fed will be buying homes and he can unload his dog that he can't sell.
caveat emptor.
why would Ben be replaced? he's giving the administration and congress the only thing that they really care about, money. and he's giving wall street the best thing they could ever ask for, the "Heads they win, tails we lose" counterparty. us.
he wont be a scapegoat, either. that will be turbo.
no, Ben's good for another 3-4 terms.
no - the chinese want him gone.
no wonder 'O' man's ratings cliff diving
http://post.polls.yahoo.com/quiz/quizresults.php?poll_id=46067&wv=1
DE Shaw is the kindest, bravest, warmest, most wonderful human being I've ever known in my life.
Summers needs to be driven out on a rail. This is a project made for you. Do your worst.
It's kind of surprising but then again not really. These people are just plain evil.
Being that it is becoming increasingly obvious that the US is little more then a banana republic I doubt Larry has much to worry about.
God I love this.
People tend to date the onset of the crisis to around the fall of 07, so a lot of people are getting a pass for being late to the game, but anyone in finance who was a VP or above (I think Summers would qualify) knows that the pivotal moment was when HSBC announced they were throwing in the towel, in Q207, with the release of their 06 results. The game was up,the shit hit the fan, uproar ensued, and a summer of denial began.
That was the summer Summer was on this road trip.
It's impossible to make an argument that he was unaware he was pitching drek.
Unless the argument is that he was too stupid to see what was as plain as the nose on every bankers face. In which case he's too stupid to be head of the Fed.
Good riddance Larry
"In which case he's too stupid to be head of the Fed."
There is no such thing. Ever heard Pelosi speak? Want a sign the SYSTEM is coorupted and co-opted? Look at the people in places of high power. If they seem like half wits, there's your sign.
TPTB want lackeys running the show, running people who have original thoughts enter their mind. They are easier to control.
Thomas Jefferson would have a field day debating these morons.
Bernanke may be a lot of things, stupid he's not .
Same with Greenspan. (although in his case I truly believe "crazy" applies. (too much Ayn Rad, not enough Freud. or if not Freud not enough Andrea Mitchelll.)
The concensus (sp?) view is that all political appointees are stupid. As you point out Pelosi is exhibit one. I won't argue that, but we're talking about Geithner and his ilk, for specialist,(nominally) non political spots. They're certifiabley smart, (YALE, Princeton. Harvard, etc).
And we need certifiably smart people to run the non political side. The key is, we need to trust them. In order to trust them we need them to be honest with us.
Since, we're not certifiably smnart citizens, we need them to be exceedingly honest with us. They're not. And since they're not, and we're not too smart, we suspect all their motives.
Long live a free press!!
How can we make some noise that the dumb congress will be aware of this? It seems nothing can stop these guys from ruining this country
Summers, Geithner, Obama all working for Goldman Sucks. Matt Taibi is right.
When will Asia finally realize that America is one big Ponzi scheme, and that the POTUS works for Wall Street Banksters? Why on earth would anyone in the world TRUST an American banker or politician? Gotta be a special kind of stupid, I think.
Now this is what you do best! More of the reporting and less of the bias. In this article you let the reporting stand on its own merit. You don't beat down the reader with a bias they already know you possess. Good work!
This blog is an editorial, not a plain vanilla news source.
If someone was taking your mother's purse, you would probably have an opinion about it, and say something with emotion, not simply report on it poopscoop.
LOL Cheeky !
Larry ought to change is name to H G Blob (Huge Gelatinous Blob).
Always a new conspiracy on this website to rile the mob up.
As i heard MATT Taibbi say recently, 'people say I'm spouting a conspiracy theory. They are right. It is a conspiracy what's going on."
He is so right.
And this anons comment sounds like GS's rebuttal to MT's article. Don't comment on any of the facts, just spout more drivel.
Here are some real conspiracy theories. The s & P 500 is cheap and fairly valued. The economy has recovered. The consumer is strong. There are plenty of jobs, good jobs.
Who is the nutbar now?
OK -
Its over and done. ZH has the most diligent readers and posters anywhere. Period. All others may pack up and go home.
The Nouriel/Larry connection rocks my world.
Rock on... same here...
Ah, it has made me extremly angry. I've got file folders full of his corrupted ramblings that will be thrown out post haste. I can't believe it.
I went to Nouriel's wiki page and it says Summers is one of his intellectual "hero's"
quid pro quo... that is what makes the world go around today...
Rahmbo collected pay dirt at Wasserstien on one deal...look who is head of GM???
Obama: oh So Ben Bernanke is tipping ZeroHedge now....hmm...Time To Fire Him Now....
Thanks to ZH for bringing this to my attention.
This situation highlights something that we might not be perceiving correctly. Pushback from our foreign lenders is not even directed at the American people, it is directed at our oligarchs, yet the American people will be the ones who suffer the consequences. Who sold this crap to the Asian and ME SWF's? Joe Sixpack? Who benefitted and then cashed out in a timely manner before the crash? Joe Sixpack? Who's gonna get saddled with the bill by the taxman, and with a depreciating currency courtesy of the Fed, even as he is thrown out of the house he never should have bought?
Summers, Harvard and the looting of post-Soviet Russia.
http://lodel.ehess.fr/cemi/docannexe.php?id=1600
http://www.economicprincipals.com/issues/06.02.26.html
In an hour long interview with Judy Woodruff when asked why
he opposed Brooksley Borne's attempt to bring derivatives under CFTC regulation
Summers basically said that it was the other guys' fault, not his (Rubin, Greenspan, Levitt.)
Summers had come under some heat as fingers of blame were being pointed in his direction
for his role in the credit debacle. I suspect he granted that one-on-one hourlong interview
so as to comfortably provide his version of events with an interviewer who comes haplessly unarmed. A brief web check of what he said, did and wrote at the time is at variance with his statements.
Summers can skate across thin ice the width of Hudson Bay before you can think and be back in case you tried.
There were whiffs of smoke surrounding the Harvard's policy team involvement in the privatization of Soviet state assets and restructuring of the economy but no flames, fire or suspicion of arson detected. It wouldn't be anything new or unusual if inquiry were stymied at the behest of powerful and politically connected arsonists who made off with loot.
Safracide is painless, it brings on many changes (Marty Armstrong mashup.)
Save the Whales!
The big picture is continually clouded by the contraction of the attention span. CNBC's use of MCC in a tight red sweater, hold back that ticker under the screen, going to tick by tick charts filling the screen as if it meant anything more useful than the feed for T-O-S vs your print/ trigger pull, etcs all around even more revealing than the red sweater...
Think of a Hall of Fame rather than the only spotty attention the true heros of this financial debacle/adventure/cure.
Harry Markopolis
Brooksley Borne
Rick Santelli (clearing house focus)
There are way more that. If it were our ship with our babies on board, we'd want them vetting the operating crew at the gunwales.