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Featured / Investigative Report / May 30, 2009

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Is Larry Summers taking kickbacks from the banks he’s bailing out?

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.

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Summers shows contempt for Obama’s move to reign in the credit card company heads

17 Comments

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  • 1. wengler  |  May 30th, 2009 at 9:57 am

    We need a re-enactment of the death of Crassus to begin to get these self-appointed financial overlords into line.

  • 2. Marko  |  May 30th, 2009 at 2:58 pm

    Why is it that the only place I’m seeing real journalism from these days is Mark Ames? I mean, good work man…I’m just depressed that little known places like exiled (and a couple of others) are the only places to find actual honest to god journalism these days.

  • 3. rick  |  May 30th, 2009 at 3:55 pm

    This was on Alternet, too, sans the giant, sublime swine.

    Ames has spite to draw from!

    My take is reading patterns stay Sunday School and tribal. Just look at the talking-points culture of political debate. And then people have this subconscious belief they’re “bettering” themselves by reading. There’s such a pious tenor to most people’s conception of reading that it magnifies moral violations, makes people puff up their orthodoxy-detectors. Unless the content’s utterly trivial.

    What’s not untrivial: the swine picture. The old Bertrand Russell “liberal” misanthropy’s been barred from liberal critiques, implicitly, for a long time. Even though powerful people being corrupt, self-satisfied, self-interested, incompetent, ignorant scum was the best “liberal” critique available. But who the fuck knows what liberal or conservative mean anymore. The Daily Show and alterno-columnists are freely taking shots at Obama, now, even as Republican reptiles are being revealed as grotesquely ideologically-constrained hacks of the sort one always imagined they were.

  • 4. Bardamu  |  May 31st, 2009 at 3:57 am

    Yes, it’s a good article, and yes – Ames is unique in his ability to produce well argued and vital pieces which inform as they (often raucously) amuse. I can’t excuse the poor subbing, though.

    If you can’t afford to pay someone to do this, send your articles and straplines to me and I’ll do them for nothing.

    ‘Reign in’ indeed. It’s not the first, you know.

  • 5. Simple  |  May 31st, 2009 at 5:22 am

    Now that was a whole lot of $5.00 words…

  • 6. Matt  |  May 31st, 2009 at 11:36 am

    The reason why most journalists don’t even attempt these stories is because they’re so afraid of losing what little work they have: and when they do write them, editors kill them out of political considerations. So we get a lot of talking points, and some good, but bland, investigative NYT stories. Good job, Ames.

  • 7. yabadabadoo  |  May 31st, 2009 at 5:53 pm

    This is good, but I still miss Ames’ whore stories.

  • 8. xymph disciple  |  May 31st, 2009 at 8:58 pm

    The reason why most journalists don’t even attempt these stories is because they’re so afraid of losing what little work they have: and when they do write them, editors kill them out of political considerations.–Matt

    Damn straight. I have had no pity whatsoever whenever these nonsensically pious discussions about the demise of the newspaper come up. Newspapers could save themselves any time they felt like it by being newspapers and instead they are a maddening form of advertising which you must pay the advertised party for.
    People didn’t go to blogs just for an echo chamber, they went to get away from our detached and antidemocratic ruling caste’s echo chambers in the mass media. Newspapers have the resources to trump nearly any blog with investigative reporting and international offices and instead they choose to run Israeli propaganda so lazily thrown together it makes Jews throw up and human interest stories that might propaganda be from anti-human robots.
    The loss of the newspaper is tied to that phony Fearless-Nazi-Hunter pseudo-moral superficially-liberal culture, the kind that worships meaninglessly vague Twilight Zone episodes about “fascism” being “bad,” and clucks in a superior manner about how relevant that is today. This moralistic rather than moral mindset was in part behind all of the worst American crimes of the latter half of the twentieth century, from the health care scam to Vietnam to the war on drugs and the Reagan Revolution.
    Until AT&T kills the internet it must terrify our masters to think about the simple variety and depth of information available for free online.

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  • 10. Cri-cri  |  June 1st, 2009 at 1:12 am

    nice article

    Ames at his best finding bad people in our government and destroying their public images, ideologies, reputations (or what’s left of them). Hard work of a post-industrial information age warrior but somebody has to do it.

  • 11. 'Disastrous for America'  |  June 1st, 2009 at 1:39 am

    Would be interesting if Ames could temporarily use mr Brecher as a journalistic partner to investigate any Summers-aircraft carriers lobby connections.

  • 12. Armen  |  June 1st, 2009 at 1:57 am

    Jesus Christ, this is turning out to be worse than the Bush years. At least then I had the consolation that other people–way more stupid than I am–voted for him…

  • 13. Baked Dr. Luny  |  June 1st, 2009 at 2:27 pm

    Of course it’s worse than the Bush years. By the end of his term Bush was somewhat kept in check by the fact that everyone hated him, but with approval ratings in the 60% range Obama could eat out Osama bin Laden’s asshole and be praised in the media for being diplomatic. Keep in mind that Bush and Obama are both backed by pretty much the same people, some of the corporate slugs might be different, but they’re just as committed to fucking America in her collective ass.

  • 14. rick  |  June 1st, 2009 at 7:57 pm

    @ alien name guy

    I’ve had similar thoughts on newspapers. Brecher’s maybe the best columnist in the world, and his employment is just as mechanically unthinkable, by any “moral”ly imbecilic institution in our grotesque world. Ames is up there. His bits in the eXile book (and beyond) are probably the best autobiographical novel shit I’ve ever read. I’m pretty sure I’m the best novelist of the generation, but very uneven essayist. I’ve written for this fine publication, and nobody will publish what I’m actually good at. Let Them Die.

    http://www.youtube.com/watch?v=Swvf3w6hcY4

    But why are you bringing up Israel? WHAT THE FUCK DOES ANYTHING HAVE TO DO WITH VIETNAM?!?!? I mean what do you want? It’s a “moral” trainwreck, like this

    http://www.youtube.com/watch?v=tlaFJvW74Wc

    Israel and Palestine are worthy of Keyboard Cat, nothing more. Big moral narratives are grotesquely stupid.

  • 15. mark nuckols  |  June 5th, 2009 at 12:24 am

    I am a nuckolhead which is why I’m still trolling this site. Name is Mark Nuckols, by the way. Weird, ain’t it, how I’ve been stalking these guys for 10 years. Some day I should get a life.

  • 16. Mish  |  June 10th, 2009 at 7:01 am

    Hey Ames, there’s a new Bret Stephens editorial about Putin today in the WSJ – “Putinism’s Piranha Stage.” Check it out, you’re sure to get a few laughs at Bret’s expense.

  • 17. Janeliker  |  January 23rd, 2012 at 11:48 am

    Isn’t Larry Summers a reptile?! I had not even heard of him before let alone seen him, until he appeared as a possible head of the World Bank on Channel Four tonight, and was horrendously struck by how reptilian he looked and gestured and though I am open-minded about this reptilian agenda, I felt I had to come on the internet to see what I could find out about him and what others had said. Could anyone reply sensibly to this and with an open mind?


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