I don't like this story. Not a bit and it's making the rounds as a bombshell. Alternet is asking the question 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 start-up 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.)
Now I don't like Larry Summers. I think he is dead wrong on a host of national economic policy positions, I don't like his involvement in deregulation during the Clinton era, I think the China trade agreement was the biggest disaster since WWII, the entire TARP, TALF, Bail Out, AIG funnel to Goldman Sachs is outrageous, don't like what he said about women at Harvard and the list goes on and on.
That said, where is the smoking gun here? I don't think it's cool to write up a piece that would imply major corruption without having some pretty solid evidence.
Naked Capitalism covers the story and notes while there is no solid evidence revealed by Alternet, yet some fairly interesting coincidences by themselves are disturbing.
While Summers did terminate his relationship with the Revolution Money before the big players invested, fundraising and getting to closing documents is generally a lengthy process, so it is reasonable to surmise that Summers’ salesmanship and relationship with the company played a meaningful role in these banks’ decision to invest in a company with lousy performance, dubious prospects, and no obvious synergies. Amos notes the investees got off better in the stress tests than their brethren did. That may be happenstance, but it was reported that the stress tests were tougher on loans than on trading portfolios, and the investors in Revolution Money all had big capital markets operations.
The Ames piece is provocative, but it’s certain no explicit payoff was made. But the flip side is it is highly likely the banks invested to curry favor with Summers. Even if the only payoff was privileged access to him, that alone would be troubling,
Firstly, the Alternet story author is incorrect. Many large corporations have internal venture capital as part of their operations and they invest in stupid, silly, throw your money into the toilet, press flush and see what pops up, all of the time. Intel does it, Nokia does it and yes that evil, U.S. taxpayer sucking nightmare Citigroup does it.
Secondly, it is very common to see highly connected political friend of a friend public figures on boards of start-ups. It's quite the racket, but it's all about opening doors and making those initial deals and contracts. Yes, start-ups pay beyond absurdly handsomely for these name brands to be associated with their often ratty operation.
Third, the critical question is does Larry Summers still have stock options from Revolution Money?
If he cashed out of all of his options and has zero vested financial gain, in the future or otherwise, well, the associations stink to high heaven....but welcome to the world of startups and my buddy, my pal.
Should all of this be condemned? Yes. Should this great boys club of people getting stinking rich because they are somebody or know somebody be stopped? Absolutely. Should start-ups be evaluated on their actual ability to make a true financial killing and the actual skills of their management team? Sure would be nice, but dream on. Expect more soup can labels of only certain Academic degrees and work experience to continue.
So with that, is Alternet out of line for such a title? I think so and that's coming from someone who thinks Larry Summers is a glorified economic imbecile.
Which begs the question, why are certain people, regardless of how many times they have been dead wrong on predictions and policy prescriptions, still getting into the gates of power and are credible? I guess that question is left for another day.
Here's a little amusement. From the Revolution Money website, we are sold on this reason to use their paypal with no features service:
A dog’s life.
Never seem to have cash handy when it’s time to pay the dog walker? Simply login and send the exact amount—instantly--- to another MoneyExchange accountholder. Your dog will never miss a step. And neither will you. You can even personalize the payment with a quick note to say, “thank you.”