The Case Against Obama's Economic Advisors
Business as usual or genuine "change"? Read on.
Let's look at Robert E. Rubin, former Treasury Secretary (Clinton Administration) and senior counsel, Citigroup. While head of Treasury, Rubin opposed regulating derivatives and blocked the Commodity Futures Trading Commission (CFTC) as it advocated for regulation. Unregulated derivatives helped get us in the financial mess we're in.
Then there's Citigroup ... the megabank coming back to the public teat after we learn it has "stashed away over $80 Billion of Byzantine securities off its balance sheet in secretive Cayman Islands vehicles with an impenetrable curtain around them."
Rubin has held senior leadership positions at Citigroup since 1999.
As Weil notes, Rubin was Citigroup Inc.'s Executive Committee chair when the bank was under Securities and Exchange Commission scrutiny (and fines) for (1) helping Enron falsify its books, (2) knowingly presenting fradulent "research" as recommendations and (3) cooking its own books. [GoogleFoo needed; much of Rubin's history with Citigroup seems available only as a Google cache. It seems Citigroup redid its website.]
Enron and Dynegy
From the SEC judgment: Citigroup helped two energy companies, Enron Corp. ("Enron") and Dynegy Inc. ("Dynegy"), artificially enhance the appearance of their financial performance through a series of complex structured transactions. These complex transactions allowed those companies to report proceeds of financings (otherwise known as loans) as though they were cash from operations. What a difference this makes on the appearance of cash flow!
Citigroup offered a settlement, of course. Here are the details:
- Enron-related conduct: a $48,500,000 penalty and $52,750,000 in disgorgement and prejudgment interest for a total of $101,250,000.
- Dynegy-related conduct: a $9,000,000 penalty and $9,750,000 in disgorgement and prejudgment interest for a total of $18,750,000.
Fraudulent Research Reports
From the SEC judgment:
In 1999, 2000, and 2001, Salomon Smith Barney Inc. ("SSB" or Citigroup Global Markets Inc.) issued research reports on two telecommunications companies that were fraudulent. SSB also issued research reports that violated NASD and NYSE rules regulating member communications with the public (the "Advertising Rules").
Due to the "spinning" practices, "executives of five telecom companies made approximately $40 million in profits from approximately 3.4 million IPO shares allocated from 1996-2001, and SSB earned over $404 million in investment banking fees from those companies during the same period." (emphasis added)
The settlements show that the SEC bark is worse than its bite. This second case settled for $150 million as disgorgement and $150 million in penalties. SSB also agreed to pay $75 million over a five-year period "to provide the firm's clients with independent research" as well as "$25 million to be used for investor education."
Context for these relative wrist slaps: Citigroup's assets today -- $2,050,131,000,000 -- and 2006 annual -- $1,884,318,000,000.
And Rubin is not the only Citigroup director on Obama's advisory team: he's joined by Xerox CEO Anne Mulcahy (since 2005?) and Time Warner Inc. Chair Richard Parsons (tenure uncertain).
Wait! There's More!
Weil points out that Rubin is intimately involved with another bailout beggar: Ford Motor Co. From 2000-2006, Rubin sat on the Ford board of directors. During that same period, Weil says that Ford also committed accounting fraud.
Three of the "transition" advisors were associated with Fannie Mae when it was breaking accounting rules (pdf): Mulcahy, Parsons and former Commerce Secretary William Daley. And White House chief of staff, Rahm Emanuel, was a director at Freddie Mac in 2000 and 2001, while it was committing accounting fraud.
Feeling sick yet?
Daley is a member of the executive committee at JPMorgan Chase & Co., which also has its hands in the Treasury bailout bucket. And Obama advisor Laura Tyson has been at JPMorgan for a decade.
Note: all corporations named so far have been fined recently by the SEC for accounting violations, not just Citigroup.
William H. Donaldson was chair of the SEC when it released Wall Street investment firms from capital reserves requirements, contributing to today's financial morass. See SEC Lifted Debt Limit For Brokerages In 2004.
I discovered the final bad penny when I was putting together the quick bios of the 17 advisors. Penny Pritzker, the Obama campaign national finance chair, was on the board of a thrift that went belly-up in 2001. (!) Her family (the Hyatt kingdom) owned 50 percent of the bank, Superior Bank FSB. She was the chair in 1991 and remained on the board after stepping down in 1994.
Change? Not.
- Obama Transition Team Advisers
- The Obama Cabinet (a work in progress)
- What Is The White House National Economic Council?
- The History of US Government Financial Bailouts (100 years of government bailouts)