George Soros - Crony Capitalist - Obama Insider
Perhaps the best investment a hedge fund can make these days is not in a financial wizard but a politician. Hedge funds and financiers are becoming more political than ever before. And political figures and government appointees with no background in finance (former Vice Presidents Dan Quayle and Al Gore, and former Secretary of State Madeleine Albright, for example) have launched their own investment funds.
“The former politician/investment guru fraternity appears to be growing,” noted one industry observer. And former politicians are finding a career that can be even more lucrative than lobbying: providing “political intelligence” to investment funds, based on private conversations with congressional staffers and sitting senators.
In the world of investment finance it is increasingly important to be well connected politically. These hedge funds, one’s that hired lobbyists and made campaign contributions, had a much better rate of return than those which were not. One study explained that “connected funds possess an informational advantage in trading politically sensitive stocks.” The study also found that when a given hedge fund switched from being apolitical to getting into the political game, it’s performance increased by an impressive average of 2% to 2.9% per month. Economists also discovered that the more hedge funds gave to political candidates and the more they hired lobbyists, the more they tended to invest in politically sensitive stocks that were influenced by government actions.
“Connected fund managers exhibit a bias towards politically sensitive stocks (both in terms of trading and holdings) and they outperform significantly in these political stocks.”
The simple fact is that politically connected hedge fund managers and billionaire financiers can make a lot of money based on information gleaned from politicians and government officials. And it is not illegal for a politician to share this information. If an official gets paid directly for it, however, he risks a bribery charge. Former Congressman Brian Baird warned that the financial states are so high, “the possibility of direct kickbacks [is] enormous.” So the payback must be subtle.
Elliott Portnoy, a lobbyist in Washington, says that the biggest field of growth for lobbyists is not in influencing legislation but in obtaining “political intelligence” for hedge funds and large investors.
“There are a lot of savvy investors who have realized that there is a lot of money to be made from what Congress does,” Portnoy said.
One congressional staffer was even more blunt when he told the Wall Street Journal,
“The amount of insider trading going on in these halls is incredible.”
Access to government information is critical. And being on good terms with the gatekeepers of that information – elected officials, political appointees, and bureaucrats – can make all the difference between getting rich and getting hammered in the market.
George Soros is perhaps the most visible investor in the world after Warren Buffett. He is famous for his currency trades as for his outspoken political views. And in a world where government actions and policies have such a huge effect on the world of finance, the two spheres are not so separate as one might think.
But as a review of the many ways in which he [Soros] made smart stimulus bets reveals, the lesson is clear: if you are a big investor, you are a sucker if you don’t play the Washington game. The symbiosis of politics and markets has become so blatant, the two realms have become so intertwined, that Washington is essentially putting its thumb on the scale of a massive portion of the American economy – and elite insiders are the ones who benefit most.
Source: Throw Them All Out 
Buy it, read it, then fight Congressional Insider Trading!
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I have always thought the relationship of Barack Obama and Warren Buffett was more like the odd couple than anything genuine and serious. How wrong I was. As time moved on we have discovered, from reading Throw Them All Out
As more and more has been exposed concerning “Crony Capitalism” and the bailouts of banks and financial institutions we begin to know the “inside” players of “legal” insider trading from outside to the inside surrounding the halls of the US Congress. It’s a sad and corrupt tale of the political forces and so-called financial geniuses who’ve gotten rich and richer over the years.
This is not me complaining about the wealthy, its certainly not class warfare on my part, but the cheating at the taxpayers expense and political decisions, not on promised job creation or saving the nation, merely when the political elite tell us things must be done for the sake of the country we really better start paying attention.
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Early on in the 2008 financial crisis, candidate and Senator Barack Obama had been cautious and lukewarm about a possible bailout. But in the days that followed Buffett’s multibillion-dollar play for Goldman Sachs, and with a mounting fear of economic collapse, Obama became a powerful champion of the government rescue. As a top Democrat in the country, he had an important vote. The New York Times reported that Senator Obama had “intensified” his efforts to “rally support for the $700 billion financial bailout package” after September 28, 2008. The plan was necessary said Obama, “to safeguard the economy.”
Publicly, Buffett struck a posture of political disinterest.
“I’m not brave enough to try to influence the Congress,” he told the New York Times.
But his actions directly contradicted his words. Days later, Buffett held a conference with House Speaker Nancy Pelosi and House Democrats during which he pushed them to pass the bill.
We faced “the biggest financial meltdown in American history,” he warned wavering Democrats.
The stakes were high for Buffett personally. If the bailout went through, it would be a windfall for Goldman. If it failed, it would be disastrous for Berkshire Hathaway. Buffett had large investment stakes in Wells Fargo and US Bancorp, banks that were suffering in the crisis.
The first vote failed, as Washington faced enormous heat from voters angry about the prospect of bailing out Wall Street. On the eve of the second TARP vote in the House, Buffett moved toward the fire again when he bought a $3 billion stake in corporate giant General Electric. Again, as with Goldman, he was able to negotiate advantageous terms, receiving a 10% dividend on his shares. He could also buy $3 billion in stock at discounted terms if he wanted. GE was in even worse shape than Goldman, thanks to its financial arm, GE Capital. Eventually it would need $140 billion in taxpayer capital to stay afloat.
Buffett is a genius at public relations. He said he had “confidence in Congress to do the right thing.” He appeared to be a savior of Goldman Sachs and GE. He gave members of Congress more reason to join by supporting such firms.
Robert Wilmers, the chairman and CEO of M&T Bank, said at the time:
“The pattern is clear, the bailout money and the perks are concentrated among the big banks, the ones who pay the lobbyists and make the campaign contributions, while the healthy banks pay the freight.”
Buffett needed the TARP bailout more than most. In all, Berkshire Hathaway firms received $95 billion in bailout cash from the Troubled Asset Relief Program. Berkshire held stock in Wells Fargo, Bank of America, American Express, and Goldman Sachs, which received not only TARP money but also $130 billion in FDIC backing for their debt. All told, TARP-assisted companies constituted a whopping 30% of his entire publicly disclosed stock portfolio. As one investigation by the House Chronicle put it, Buffett was “one of the top beneficiaries of the banking bailout.
Had the bailout not gone through, and had Goldman not been given such generous terms under TARP, things would have been very different for Buffett. As it stood, the arrangement with Goldman earned Berkshire about $500 million a year in dividends.
“We love the investment!” he exclaimed later to Berkshire investors.
His stake in General Electric was also profitable. As Rolfe Winkler of Reuters bluntly put it:
“Were it not for government bailouts, for which Buffett lobbied hard, many of his company’s stock holdings would have been wiped out.”
By April 2009, share prices for Goldman had more than doubled. By July 2009, it was reported that Buffett had already yielded a return of $2.5 billion for his investment.
After the bailout passed, Warren Buffett sat down and wrote Treasury Secretary Henry Paulson a four-page private letter proposing a larger solution to the financial crisis that would clean up the toxic assets that were plaguing so many financial institutions. He proposed that for every $10 billion put up by the private sector, the federal government would kick in $40 billion. As Paulson put it in his memoir:
“I knew, of course, that as an investor in financial institutions, including Wells Fargo, and Goldman Sachs, Warren had a vested interest in the idea.”
In the fall of 2010, Buffett wrote:
“Thank You, Uncle Sam,” in an op-ed in the New York Times in which he praised the role that government played in stabilizing the markets throughout the crisis. There was no disclaimer or disclosure of how he personally benefited from TARP or the Public-Private Investment Program. At the bottom of the article he was identified in a short biography:
“Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.”
With tongue sarcastically in cheek, journalist Ira Stoll, the former managing editor of the New York Sun, suggested the bio might have been more accurate with a bit of rewriting: (Emphasis LCs)
“Warren Buffett, the largest crony capitalist in the world, shareholder of GE, Goldman Sachs, Wells Fargo, US Bankcorp, M&T Bank, and American Express, as well as competitor of private equity and hedge fund firms that have been threatened with new taxes and regulations, and behind the scenes, insider adviser to most of the government officials mentioned above.”
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Warren Buffet, the so-called genius investor playing the the “legal” insider trading, lobbying to save his own skin and telling Congress to raise taxes on the wealthy and super-rich while he places the bulk of his money in private foundations to skirt the payment of his fair share of tax payments. Imagine that!
Warren Buffet or “Warren’s Buffet” dining at the public trough on our dime!
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Late last month I wrote about I wrote about Congressional Insider Trading and later I discovered some legislation to make this practice illegal. Of course they start the procedure with hearings but when the fox is guarding the hen house the result might end poorly for the chickens.
Not exactly front page news I happened upon a tiny blip on the news screen in the Wall Street Journal that one day after scheduling a vote on legislation banning insider trading in Congress Rep. Spencer Bachus (R- AL), chairman of the House Financial Services Committee, postponed the vote after meeting with senior House Republicans.
A recently published book by Peter Schweizer, Throw Them All Out
“A significant number of members of the committee on both sides of the aisle have indicated a desire for additional time to study this issue before the committee moves forward with the markup that was announced for Dec. 14,” Mr. Bachus said in a statement Wednesday evening.
If they need some help with the subject matter they only need to contact Mr. Schweizer who has volumes of substantiated evidence even naming names. That would be too easy. How about some public hearings to expose the inside traders and the practice as a whole?
So we have a Republican blowing the chance to do the right thing but pushing a bill down the road that was sponsored by an extremely liberal Rep. Louis Slaughter (D- NY), and had garnered the support of more than 180 lawmakers. Some lawmakers said the bill was too broad and others claimed it was too narrow. Maybe they can meet in the middle and expose themselves.
Another Republican, Rep. Judy Biggert of Illinois (the State soon to have 4 out of their last 5 governors in prison) said the legislation could lead to a “witch hunt” for lawmakers improperly trading stocks.
Rep. Sean Duffy (R-W)) said the bill should go further by requiring lawmakers to put all their investments in blind trusts. Many members of Congress already put their assets in so-called blind trusts, which aren’t necessarily so blind. These trusts aren’t above suspicion and don’t work either.
Senator Robert Toracelli (D-NJ) had a blind trust, and by picking a political acolyte and longtime friend as his trustee, Toracelli made a killing on illegally manipulated stocks. Senator Bill Frist (R-TN) had a blind trust where he held, among other things, shares of Hospital Corporation of America, a company started by his father. This didn’t prevent the trust from making some well-timed stock sales, which set off an eighteen-month SEC investigation.
Rules of a blind trust are simple. You must select a trustee (it cannot be a family member) to direct the trust and deal with the investments. You cannot have conversations with the trustee about the portfolio, and you cannot direct or suggest trades.
Of course, what a politician can do is share nonpublic information, the kind that hedge funds pay a substantial amount of money for, and then let the trustee make his own decision about how to react. As law professor Megan Ballard puts it:
The rules for these trusts do not include sufficient incentives to maintain blindness. Indeed, blind trusts can mislead the public into believing that policymakers are avoiding conflicts, when they may not be doing so.
Ballard points out, the first elected official to use a blind trust was Lyndon Johnson, who was notorious for using his position to benefit his businesses. LBJ named two business associates and a family friend as his trustees. And he continued as usual, with his trustees handling specific details.
Also, according to Senate rules, once you establish a blind trust you are no longer required to disclose your assets annually, so it creates less transparency than before.
In 1995 Senator Charles Grassley of Iowa said:
I hold the strong belief that we, in Congress, are merely representatives of the people. We are not better than the people we represent and we are not, by definition and determination, different from the people we represent. We are, as representative government intends, the people themselves.
Mr. Grassley’s comments are quite noble but we know better don’t we? The politicians simply have too much trouble following the same laws we simple represented mortals must abide by. The political class can’t bring itself to level the playing field, they continue to find and make excuses to clean up their mess.
It’s time for the Grassley argument to be applied to crony capitalism on both Capitol Hill and in the White House. The whispering going on in the halls of Congress is deafening. The elitists in the Beltway continue to hedge their bets that this problem will simply go away. It’s up to use to ensure it does not!
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