Category Archives: Finance

Trump’s Billionaire Club, Part 2: Stephen Schwarzman

Donald Trump’s vague campaign promises to take on the power structure – and some nervousness, from the power structure, about his erratic behavior and racist appeals – have given way to a remarkably close alliance between Trump and financial elites following his election.

The stock market has rallied to all-time highs. Trump has tapped billionaires and mega-millionaires for cabinet seats and key appointments. Hedge fund managers and corporate CEOs are cheering Trump on from the sidelines, eager to reap the spoils from his favored economic policies – deregulation, privatization, and tax cuts. In essence, a new club of financial elites is forming, with Trump at the center, and varying levels of access and benefits conferred upon members.

It will be important for journalists, organizers, and researchers to investigate and map these networks in the months and years ahead. Who belongs to this emergent club? What are their networks – political, business, investment, philanthropic, social? How are they benefiting – or poised to benefit – from Trump administration policies? This kind of research can lay the groundwork for challenges to the power structure that surrounds and enables Trump.

This is the second installment in our Trump’s Billionaire Club series. The first, on John Paulson, is here. If you are interested in contributing research to this project, sign up here.

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Trump’s Billionaire Club, Part 2: Stephen Schwarzman

By Gin Armstrong, Aaron Cantú, and Molly Gott

Stephen Schwarzman is the private equity billionaire in charge of Donald Trump’s Strategic and Policy Forum, a group of CEOs who will advise the president-elect on economic policy.

Schwarzman has known Trump for years, but did not publicly support him during the campaign. Now, however, the president-elect is leaning on him heavily for help in lining up the support of Wall Street and corporate America. The panel is very much Schwarzman’s: he is the chair of the panel and also picked all of its members. That selection process culminated with Trump exclaiming “What terrific people!” as detailed in this interview.

In this role, Schwarzman will have a direct line to the President and could have a heavy hand in influencing the administration’s policies. He is already very excited about the policy inclinations of the new administration; at a recent Goldman Sachs conference, he predicted a coming wave of deregulation and tax cuts that would change the “architecture of the world.”

These policies could also make Schwarzman even more wealthy. He is the CEO of the private equity firm Blackstone Group, a massive investment vehicle which generates profits in large part through the strategic avoidance of taxes and regulatory oversight (more about his investment empire is below). If Trump and Schwarzman have their way, this will get even easier, and even more profitable. Not that he needs the money – he made $811 million in compensation last year, and is worth $11.1 billion.

Schwarzman shares some key personality traits with the President-elect: unabashed lavishness, offensive analogies, and a taste for real estate. One Slate feature on Schwarzman – “The Golden Ass” – described him as a “titan of self indulgence” and detailed his love of $400 stone crabs and his strict no-squeaky-rubber-soled-shoes policy for his house staff. When he threw an infamously luxurious party for his 60th birthday party, Donald and Melania Trump were among the guests. The $3 million dollar affair treated guests to performances by Rod Stewart and Patti LaBelle and a large portrait of Schwarzman, which usually hangs in his living room, was on display.

Epitomizing the wisdom that money cannot buy class, Schwarzman equated the timing of a 2008 business deal to being a “noodle salesman in Nagasaki when the atomic bomb went off.” In 2010 he compared President Obama to Hitler over a potential tax increase on private equity firms like Blackstone. He eventually apologized for that one, calling it an “inappropriate analogy.”

As for real estate, Schwarzman told The New Yorker; “I love houses. I’m not sure why.” The billionaire has acquired over $100 million in personal property around the world including estates in East Hampton and Saint-Tropez, a beachfront villa in Jamaica, and a sprawling Park Avenue apartment that was once owned by John D. Rockefeller Jr., where his neighbors include Steven Mnuchin, Trump’s Treasury Secretary. He also has a 11,000 square foot mansion in Palm Beach, a favorite location among his finance industry colleagues, where he was busted for using 7.4 millions gallons of water during a record dry season in the region.

Continue reading Trump’s Billionaire Club, Part 2: Stephen Schwarzman

Trump’s Billionaire Club, Part 1: John Paulson

Donald Trump’s vague campaign promises to take on the power structure – and some nervousness, from the power structure, about his erratic behavior and racist appeals – have given way to a remarkably close alliance between Trump and financial elites following his election.

The stock market has rallied to all-time highs. Trump has tapped billionaires and mega-millionaires for cabinet seats and key appointments. Hedge fund managers and corporate CEOs are cheering Trump on from the sidelines, eager to reap the spoils from his favored economic policies – deregulation, privatization, and tax cuts. In essence, a new club of financial elites is forming, with Trump at the center, and varying levels of access and benefits conferred upon members.

It will be important for journalists, organizers, and researchers to investigate and map these networks in the months and years ahead. Who belongs to this emergent club? What are their networks – political, business, investment, philanthropic, social? How are they benefiting – or poised to benefit – from Trump administration policies? This kind of research can lay the groundwork for challenges to the power structure that surrounds and enables Trump.

This piece, on Trump donor John Paulson, is our first contribution to this effort. If you are interested in contributing research to this project, sign up here.

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Trump’s Billionaire Club, Part 1: John Paulson

By Gin Armstrong and Molly Gott

While Donald Trump was campaigning for president, many prominent Wall Street Republicans refused to publicly support him. One notable exception was John Paulson, the billionaire hedge fund manager famous for making $4 billion by betting that the housing market would collapse in 2007. Paulson is the founder of Paulson & Co., a New York City-based hedge fund that manages nearly $20 billion in assets. When Paulson aligned himself with Trump, he made perhaps the biggest bet of his career.

Now that bet is likely to pay off. Paulson is positioned to wield a great deal of influence over the Trump administration, and he has a wide range of business interests that could benefit from a Trump presidency.  He may also serve as a key bridge between the Trump administration and its Democratic opponents during upcoming legislative battles, since he is one of the top all-time donors to Chuck Schumer, the leader of the Senate Democrats.

For all these reasons, Paulson deserves a great deal of scrutiny in the months and years ahead.

Over the course of the last year, Paulson supported Trump in at least three key ways. Most tellingly, he joined Trump’s economic advisory team, positioning himself to most effectively influence economic policy in his favor. He also donated at least $330,000 combined to Trump’s presidential effort, the Republican National Committee and the National Republican Congressional Committee. And last June, he hosted a lavish campaign fundraiser at the chic La Cirque in Midtown Manhattan. The $50,000-a-head entry fee fell just short of the median annual income for a household in the United States. As a host Paulson paid $250,000.

Trump and Paulson have a long-standing relationship. The president-elect is an investor in three of Paulson’s funds, and kept $15 million there even as the hedge fund manager realized significant losses in recent years. According to his financial disclosures with the FEC, Trump made anywhere from $300,000 to $3,000,000 in profits from those funds.

Before joining Trump’s economic advisory team, Paulson was perhaps best known for making more than $4 billion in profits by betting against subprime mortgages during the 2007 housing market collapse. Much of this profit was the result of a rigged bet manufactured by a few well-connected players, including Goldman Sachs. Paulson and his staff worked with banks to create packages of subprime mortgage securities (known as Collateral Debt Obligations or CDOs) that were known to be bad and thus designed to fail. The banks then sold those bad CDOs to unsuspecting (i.e. less connected) investors so that Paulson could bet against them.

More recently, Paulson has set his sights on Puerto Rico. Paulson & Co. is one of dozens of “vulture funds” that bought up Puerto Rican debt with the hope of profiting off the island’s economic crisis, which has spurred massive cuts to healthcare and public transportation services, as well as the closure of 100 schools.  Paulson himself has been the most outspoken advocate of turning Puerto Rico into a luxurious tax haven for the 1%.

While Puerto Ricans are leaving their homes for the mainland at a historic rate because of worsening poverty and unemployment, Paulson is attempting to lure millionaires to the island. In 2014, he co-organized a conference aimed at convincing the ultra-wealthy to move to there. It emphasized not only Puerto Rico’s generous tax loopholes for the super-rich, but also its other amenities, including white-sand beaches, pleasant temperatures year round, luxury apartment buildings, and private international schools that send their students to Ivy League colleges. In his presentation, he predicted that Puerto Rico would become “the Singapore of the Caribbean,” referring to the infamous Asian tax-haven. Hoping to cash in on the influx of millionaires, Paulson has bought up several luxury hotels and condo developments on the island.

Now, Paulson is hoping his bet on Trump will pay off in the form of a newly-lucrative stake in Freddie Mac and Fannie Mae. The mortgage giants were bailed out by the government in 2008 at the ultimate cost of $187.5 billion. The Obama administration later changed the bailout terms so the government received most of the companies’ profits. For years, Paulson and other shareholders have lobbied for some of the profits that are currently going to the U.S. treasury to go to shareholders instead. Freddie Mac and Fannie Mae shares surged after Trump was elected amidst speculation that Trump would enact Paulson’s favored policy plans.

At this point Paulson has even more reason to feel optimistic. The very day Steven Mnuchin was named to head the Treasury Department he suggested that Freddie Mac and Fannie Mae should be privatized. Paulson and Mnuchin are business partners whose dealings go back to at least 2009 when they pooled resources with other wealthy elites to buy up IndyMac, a failing lender in California, and turned into foreclosure machine OneWest. OneWest foreclosed on at least 36,000 homes in California under Mnuchin’s watch.

See more details on Paulson, his network, investments, and investors below. More in-depth information is also available on the LittleSis pages linked below. Continue reading Trump’s Billionaire Club, Part 1: John Paulson

The financial industry gives Geithner some credit

Earlier this week, Bloomberg reported that former Treasury Secretary Timothy Geithner secured a line of credit from JPMorgan Chase, one of the too-big-to-fail recipients of bailout cash.

Geithner is looking to buy in to a new $12 billion fund at Warburg Pincus, the private equity firm where he now works. He reportedly stands to make a 20-30% return on the investment. Although he is not required to disclose the size or purpose of the credit line, a source told Bloomberg that Geithner was among several staff members to borrow money to invest in the fund.

So JPMorgan Chase, one of the banks Geithner bailed out, is about to help Geithner make loads of money.

As Huffington Post’s HuffPost Hill newsletter put it: “It’s almost like the entire Wall Street bailout was just one elaborate scheme to help him pay for heated bathroom tiles.”

We have previously noted that Geithner’s post-Treasury career has closely followed the path taken his mentor, Clinton-era Treasury Secretary Robert Rubin. Both had a brief cooling-off period at the Council on Foreign Relations, a think tank, before taking high-paying Wall Street jobs (optics be damned). For Rubin it was Citigroup. For Geither it is Warburg Pincus, one of the largest private equity firms in the country.

Follow Geithner’s path from regulator to Wall Streeter in this map (click through for a larger version):

De Blasio goes with the status quo in economic development appointments

Mayor De Blasio imitates his predecessor by choosing two former Goldman Sachs execs to lead NYC’s economic development efforts.

If you caught the news sometime this fall, you probably know the story of New York City’s changing of the guard.  Populist de Blasio replaces billionaire Bloomberg as mayor.  Wall St. already misses its buddy Mike.  Economic inequality: watch out!

So why is de Blasio surrounding himself with a cast of characters that signal it’s business as usual in City Hall?

Back in December we pointed out that some of the members of de Blasio’s transition team are closely affiliated with REBNY and the Partnership for New York City, two business lobbying groups that enjoyed a fruitful relationship with Mayor Bloomberg.  His time in office was called “a wonderful era” by REBNY president Steve Spinola.  Partnership for New York City President Kathryn Wylde was appointed to the board of the NYC Economic Development Corporation by Bloomberg at the start of his first term. (Interestingly, the EDC by-laws adopted in 2012 also indicate that the board’s chairperson shall be appointed by the mayor in consultation with the Partnership.)

De Blasio continued the trend when he appointed his top development advisors.  Alicia Glen left Goldman Sachs after more than a decade to become Deputy Mayor of Housing and Economic Development.   She replaces Robert Steel, another former Goldman executive who was also CEO of Wachovia.

Continue reading De Blasio goes with the status quo in economic development appointments

Geithner does the Rubin Shuffle

The cooling-off period is over for former Treasury Secretary Tim Geithner, who is joining the private equity firm Warburg Pincus as president and managing director. Geithner had initially joined the Council on Foreign Relations as a senior fellow after leaving the Treasury Department early this year. He had taken several plum speaking engagements at Wall Street firms (including a $100,000 gig at the Warburg Pincus annual meeting), but had not yet fully cashed in. Warburg Pincus, one of the largest private equity firms in the country, provides the perks of Wall Street without the baggage associated with bailout symbols like Citigroup and Goldman Sachs.

Geithner’s trajectory, from administration post to temporary think tank fellowship to Wall Street roost, is not uncommon for high-level officials. The waiting period blunts the negative media attention associated with moving directly to Wall Street while allowing some time to negotiate the best deal possible. Most reporters do not seem to understand this playbook, and so it works well for Geithner & co. CJR’s Ryan Chittum has taken the New York Times to task for treating the Geithner move like it was unexpected, and not preordained, and quotes an earlier piece he wrote describing the playbook:

Continue reading Geithner does the Rubin Shuffle

On the revolving door between Wall St. and the New York State government

Last week I wrote about NY Governor Cuomo’s new hires to run StartUp NY, the new program creating tax-free zones around SUNY campuses for businesses willing to relocate, and their ties to Wall St.  According to Cuomo’s press release, Leslie Whatley, StartUp NY’s new executive vice president, will be employed by the SUNY Research Foundation and Empire State Development will cover half of her annual salary.

It turns out Cuomo’s additions to these state agencies, Whatley and economic development advisor John Mack, won’t be the only ones among their new colleagues with roots on Wall Street.

Continue reading On the revolving door between Wall St. and the New York State government

JPMorgan negotiates through the revolving door

It is quickly becoming clear that JPMorgan’s tentative $13 billion settlement with the Department of Justice is not the massive, overly-punitive sanction that some press reports have made it out to be. The weaknesses in the deal may be explained in part by the fact that in arranging the settlement, JPMorgan was negotiating through the revolving door.

Continue reading JPMorgan negotiates through the revolving door

Dudley’s daybook goes dark

In the wake of a report from ProPublica that the New York Fed fired a senior bank examiner for challenging inadequacies in Goldman Sachs’ management of conflict of interests, I thought it would be interesting to take a look at the daily schedules of the New York Fed’s president, William Dudley, a Goldman alum.

Dudley spent two decades at Goldman Sachs before joining the New York Fed, so he was steeped in the ways of the bank, which apparently include a systematic, almost absurd disregard for conflict of interest monitoring and management. According to the ProPublica article, Goldman has no firm-wide conflict of interest policy. One Goldman unit instructs employees not to write down their conflicts. The bank’s conflict of interest unit is the same as its business selection unit, a bizarre structure that almost seems designed to encourage conflicts. The head of this unit does not see it as serving any compliance function. Carmen Segarra, the bank examiner who was fired, suggested that Goldman executives could not even demonstrate a basic understanding of what a conflict of interest is.

Was the New York Federal Reserve conflict of interest training enough to help Dudley overcome years of learning the Goldman way? Had he really avoided any awareness or involvement in the Segarra situation? These are hard questions to answer, and answers are unlikely to surface in any documents (the Goldman way: don’t write it down). A New York Fed spokesperson told ProPublica that Dudley was not involved in firing Segarra. But Dudley’s calendar might reveal that he had had meetings with Goldman executives during the whole saga, which would be interesting and would probably look bad for Dudley (though it would not be proof of his involvement).

Continue reading Dudley’s daybook goes dark

New York’s Fracking Investments

A recent Buffalo News article about New York State Comptroller Thomas DiNapoli’s shareholder activism through the state’s pension fund mentions his interactions with the natural gas industry. According to the Buffalo News, DiNapoli “has been pressing natural gas companies involved in hydrofracturing to provide him with risks of their drilling practices, the kinds of chemicals used and to take into account community opposition to drilling plans.” DiNapoli told the News he would continue this activism “regardless of what may still come to pass” as Cuomo poises himself to lift the fracking moratorium.

While the State’s considerable investment in fracking companies puts the comptroller in a good position to “pull corporate strings” with these companies, these investments amount to New York State’s use of public pension money to bankroll the risky and unpopular practice. Fracking, which in its high-volume and horizontal form is under a moratorium in New York, presents a significant risk to air and water, and has been questioned as a speculative bubble by insiders and energy analysts. Further, as pointed out in the New York Times, the Supreme Court’s 2010 decision in Citizens United v. F.E.C., which guaranteed corporations’ right to make electoral expenditures with campaign treasuries (substantially financed by New York’s and other public pension funds), raises the concern that public employees are being forced to fund pro-fracking lobbying via mandatory contributions to the Common Retirement Fund deducted from their paychecks.

Continue reading New York’s Fracking Investments

Celebrating Ten Years of Derivatives Deregulation

Today marks the tenth anniversary of President Clinton’s signing of the Commodity Futures Modernization Act (CFMA). At passage, the bill was said to establish “legal certainty” for derivatives. In other words, the bill assured bankers that they wouldn’t face any legal consequences in the United States when they manipulated, defrauded, and colluded their way to billions in profits using financial derivatives that no one understood.

The CFMA led to serious consequences for the rest of us, including the exacerbation of the housing bubble and the subsequent bank bailouts and foreclosure crisis; the California electricity crisis; periodic food and energy price spikes that have hit consumer pocketbooks hard; and, of course, the continued reign of an unaccountable shadow banking sector over the economy.

Continue reading Celebrating Ten Years of Derivatives Deregulation