American Oligarchs

In Russia, state-owned assets shifted into a few private hands–inresponse to a credit crisis–when advisers urged that Moscow assumedebts it could not repay. As in Russia, both the advisers and the new owners (US) qualify forIsraeli citizenship. Sound familiar?

Is a multi-trillion dollar fraud being perpetrated on America byLawrence Summers and the same transnational network that defraudedRussia of $1 trillion?

The appointment of Lawrence Summers as Barack Obama’s top economicadviser may herald a U.S. version of the loans-for-shares fraud thatfinancially pillaged Russia, leaving in its wake a politically powerfuloligarchy.

Shielded by the credibility of a Harvard advisory team handpicked bySummers, Moscow saw a mid-1990s credit crisis used to shift theownership of state-owned assets to a handful of Russians. At the time,Summers was serving as Under Secretary for International Affairs, theU.S. Treasury’s senior financial diplomat.

When the government of Boris Yeltsin ran low on cash, advisers urgedthat funds be borrowed from oligarch-controlled banks. As collateral,Moscow pledged shares in state-owned oil companies, the crown jewels ofthe Russian economy.

When the loans defaulted, the shares were sold to those sameoligarchs in rigged auctions. Portrayed as “privatization” by Summersand Harvard’s accommodating advisers, Russians called it simply“mafia-ization.” Mikhail Gorbachev estimates that the oligarchsstripped $1 trillion from Russia’s struggling economy. With anAshkenazi population of less than two percent, eight of Russia’s ninerichest oligarchs qualified for Israeli citizenship.

Summers succeeded Robert Rubin as Treasury Secretary in 1999,marking their success in repealing Depression-era laws that banned themerger of banks, brokers, insurance firms and investment banks. Aformer co-chairman of Goldman Sachs, Rubin joined CEO Sanford Weill atCitigroup, the first financial institution to fully embrace theRubin-led repeal.

At Rubin’s urging, Citi thrived by bundling loans as securities(mortgages, credit card loans, auto loans, student loans, etc.) andselling them as collateralized debt obligations (”CDOs”). MeanwhileSummers championed the deregulation of financial derivatives, ensuringthe globalization of losses from those securities. With “assets” of $2trillion (largely troubled loans) and operations in 100 countries, Citiis now “too big to fail.”

Rubin protégés advised Obama that taxpayers should assumeresponsibility for $306 billion of Citi’s junk loans–$1,000 perAmerican. Treasury’s bailout funds will cover $5 billion and $10billion will be paid by the Federal Deposit Insurance Corporation(funded by banks). Additional losses will be paid by the FederalReserve printing money as needed–with all that implies for inflationand stagnation. Summers is the leading candidate to succeed Fedchairman Ben Bernanke in 2010.

Obama picked Tim Geithner as Treasury Secretary. A protégé of HenryKissinger and then of Rubin and Summers, Geithner and Summers oftenvacation together. Known to wilt in the presence of Summers’ notoriousarrogance, Geithner will oversee bank shares given the government inreturn for the bailout.

In this funds-for-shares program, what happens if, as in Russia, thefunds prove insufficient? If America’s debt-laden economy continues itsdecline, does government become the owner? If not, to whom will thoseshares be sold?

Look to private equity firms adept at acquiring companies withlittle cash and lots of debt. Is that the political role being playedby former Republican National Committee chairman Ken Mehlman? Mehlmanserves as chairman of public affairs for Kohlberg Kravis Roberts &Co., the nation’s leading leveraged buyout firm.

Americans have long shared a healthy aversion to concentrations offinancial power. Was Mehlman hired to facilitate the bank consolidationwe now see emerging? The Comptroller of the Currency announced inAugust that private equity firms could become banks–and acquire otherbanks. The bank bailout covers leveraged corporate loans, clearingtheir books to fund more leveraged buyouts.

If, as appears likely, today’s vast pyramids of debt continue tocollapse, into whose hands will control of the financial sector shift?With banking already consolidated in four major institutions–each toobig to fail–the American counterpart to the Russian oligarchs could bethe senior partners in private equity firms: Kohlberg, Kravis andRoberts plus Stephen Schwarzman at Blackstone Group, David Bonderman atTexas Pacific Group, David Rubenstein at Carlyle Group and Leon Blackat Apollo Group.

In Russia, state-owned assets shifted into a few private hands–inresponse to a credit crisis–when advisers urged that Moscow assumedebts it could not repay. Those assets were then sold for cents on thedollar. In America, banks may well migrate into the hands of a fewprivate equity firms, leaving in their wake a trail of socialized debtsas junk loans are upgraded to gilt-edged bonds backed by the full faithand credit of the U.S.–undermining the nation’s credit standingworldwide.

As in Russia, both the advisers and the new owners qualify forIsraeli citizenship. Summers had a hand in both bailouts. AsPresident-elect Obama scrambles to stabilize the financial system, willhis pledge of clarity and transparency include an account of how–and bywhom–he was advised to capitalize a transnational Ashkenazi oligarchy?

2009-08-06