Summers After Government Saw Wealth Surge to $7 MillionClea Benson
Lawrence Summers’s personal website includes two biographies and traces his career from Harvard University president to director of President Barack Obama’s National Economic Council. The site says he’s now teaching at Harvard and serving on corporate and nonprofit boards.
What’s not mentioned: Summers’s current and previous work as a paid consultant to financial firms including Citigroup Inc., Nasdaq OMX Group Inc. and hedge fund D.E. Shaw & Co.
Consulting work helped make Summers a wealthy man between the time he left government service in 2001 and when he returned in 2009. When President Bill Clinton nominated him to be Treasury Secretary, he listed assets of about $900,000 and debts, including a mortgage, of $500,000. When he returned to serve in the Obama administration, he reported a net worth of between $7 million and $31 million.
Summers’s finance industry ties are gaining new scrutiny now that he is among the leading candidates to succeed Federal Reserve Chairman Ben S. Bernanke. He could find himself overseeing his former colleagues while the Fed is at the center of efforts to rein in bank risk-taking.
“Summers is going to have a very sympathetic approach to Wall Street,” said Dean Baker, an economist with the Center for Economic and Policy Research in Washington, a nonpartisan organization that describes itself as politically progressive. “These are people he has a background with. I think it’s certainly a negative.”
At the same time, Summers’s Wall Street ties are typical for potential appointees to financial regulatory posts, said Richard W. Painter, who served as an ethics counsel in the White House during the George W. Bush presidency and vetted Bernanke when he was first up for the job in 2006. A background working in financial institutions is “the type of training that you want,” he said in a telephone interview.
Summers’ spokeswoman Kelly Friendly declined to comment.
He wouldn’t be the only Fed official who made a private fortune first. Governor Jerome Powell, a former private-equity executive, had financial assets in 2011 of at least $20 million, according to financial disclosures during the confirmation process. Dallas Fed President Richard Fisher, a former hedge fund manager, last year disclosed assets of more than $20 million.
The Fed has supervisory authority over bank holding companies. The 2010 Dodd-Frank Act gave the Fed authority over large non-bank financial institutions declared systemically risky by a council of regulators, giving the next Fed chairman sway over decisions on capital, liquidity and risk management that directly affects banks and shareholders.
Summers already was being criticized by some Democratic senators for his role in advocating deregulation during the Clinton administration. Obama on Capitol Hill this week defended Summers in response to a question from a lawmaker during a closed meeting, saying the criticism has been unfair.
Obama won’t make a choice for the Fed post until at least September, officials say. Speculation has centered on Summers, 58, and Fed Vice Chairman Janet Yellen, 66, who, if appointed, would be the first female Fed chairman. Obama also mentioned former Fed Vice Chairman Donald Kohn, 70, as a potential nominee in his meeting with House Democrats.
Bernanke, whose second term ends Jan. 31, hasn’t indicated whether he would seek or accept a third.
Much of Summers’s gain in wealth can be attributed to his work for Wall Street after he left the Clinton administration in 2001 and served as Harvard president until resigning in 2006. As a managing director at D.E. Shaw, he reported earning $5.2 million in the 16 months before his 2009 filing.
The job entailed coming into the office periodically and working on investment ideas based on mathematical models, according to Cathy O’Neil, a data scientist and former Shaw employee who worked on a couple of Summers’s projects.
“They gave him a cushy position and didn’t ask him to come in very often,” O’Neil said in a telephone interview.
O’Neil, who has been critical of Summers on her blog at mathbabe.org, said the work in her division often focused on finding market participants with transparent trading strategies and figuring out how to profit off of this so-called dumb money.
D.E. Shaw, through spokeswoman Amy Rosenberg, declined to comment on Summers’s tasks or O’Neil’s description.
Summers also collected more than $2.7 million in speaking fees, including from companies such as Citigroup and Goldman Sachs Group Inc. that later received taxpayer funds in the economic bailout, according to his disclosure forms.
Andrew Williams, a spokesman for Goldman Sachs, said the firm has no relationship with Summers.
Summers rejoined the government in 2009 to serve as NEC director. He left at the end of 2010, returned to the speaking circuit, and began working for Citigroup, Nasdaq, D.E. Shaw, and the Andreessen Horowitz LLC venture capital firm. Bloomberg LP, the parent company of Bloomberg News, is an investor in Andreessen Horowitz.
“It just shows this is an ongoing thing with him,” Baker said. “These are people he looks to on an ongoing basis.”
Danielle Romero-Apsilos, a spokeswoman for New York-based Citigroup, said in a statement that Summers speaks at internal meetings and meets with clients to provide “insight on a broad range of topics including the global and domestic economy.”
At Nasdaq, Summers has provided insight on macroeconomic conditions to customers for a number of years, said a person with direct knowledge of the matter who asked not to be identified. Nasdaq spokesman Joseph Christinat said he couldn’t comment.
Summers cited Citigroup, which took $45 billion in taxpayer funds in the midst of the financial crisis, as an example of the U.S. making a profit on the bailout, in footnotes to a 2011 speech titled “Prophecies of American decline will prove to be self-denying once again.”
“Taxpayers have now received essentially all the emergency funds extended to financial institutions backed, and in many cases have earned a substantial profit,” he told an audience at the Herzliya Conference in Israel.
Some Democratic senators, whose votes may be needed to confirm the next Fed chairman, have begun raising concerns about Summers’s efforts to block regulation of financial firms when he served during the Clinton administration. Oregon Democrat Jeff Merkley called Summers a “life-committed deregulator” in an interview this week.
More recently, as Obama’s adviser, Summers supported steps to correct the excesses that triggered the last crisis.
He told a White House meeting in October 2009 that it was time for a “fundamental change” in the way financial markets and firms were regulated because it was “important for the economy, for the sense of economic justice in our society and for millions of Americans.”
Painter said Summers would, if confirmed, have to cut corporate ties, divest any stock in financial firms, and recuse himself for a period of time from making decisions on the firms that paid him.
“I don’t see any serious problem here,” Painter said. “We’ve considered people for that job and quite a few governors of the Fed who’ve come directly out of financial institutions.”
Summers’s background contrasts with that of Yellen, also a millionaire. Yellen, an emeritus professor at the University of California at Berkeley, joined the Fed board of governors in 1994. She left the Fed for the Council of Economic Advisers from 1997 to 1999 before returning in 2004 to serve as president of the Federal Reserve Bank of San Francisco.
Yellen and her husband, fellow Berkeley professor and Nobel economics laureate George Akerlof, held assets between $3.4 million and $7.4 million, her 2012 public financial disclosure filing shows. The couple, who said they hold the bulk of their assets in a trust, listed stocks including Pfizer Inc., ConocoPhillips, OfficeMax Inc. and Raytheon Co.
Their largest reported individual holdings were invested in the Vanguard Tax-Managed Growth and Income Fund, valued between $1 million and $5 million.
Yellen and Akerlof also reported owning a stamp collection valued from $15,001 to $50,000.
Kohn retired from the Fed in 2010 after serving as a central bank employee since 1970. In a financial disclosure for 2010, he said he and his wife held assets of between $887,000 and $1.96 million. Their largest individual holding was invested in the T. Rowe Price Balanced Fund, valued between $500,000 and $1 million.
Kohn is currently a senior fellow at the Brookings Institution, an external member of the financial policy committee at the Bank of England and a consultant at Potomac Research Group, a Washington-based investment advisory firm.
Kohn is also on the paid speaking circuit, charging more than $40,000 for an appearance, according to the website of the Washington Speakers Bureau, which represents him. Harry Rhoads, chief executive officer of the Bureau, didn’t respond to a telephone call seeking comment.
Vetting federal appointees who come from universities is easier than vetting those who must sever complex financial ties, Painter said. Bernanke, a former Princeton University professor, reported assets valued between $1.07 million and $2.28 million in his 2012 disclosure.
“Ben Bernanke was not an issue at all because he was an academic,” Painter said. “Having him divest was not an issue.”