Thursday, March 26, 2009
Rahm Emanuel, "former investment (cough*scoundrel*cough) banker"
Hugh Hewitt points to a Chicago Tribune article which points out that Obama Chief of Staff Rahm Emanuel "made at least $320,000 for a 14-month stint [as a board member] at Freddie Mac that required little effort," and probably many tens of thousands more from stock sales. But it was another bit of that article which happened to catch my attention (emphasis mine):
Though just 49, Emanuel is a veteran Democratic strategist and fundraiser who served three terms in the U.S. House after helping elect Mayor Richard Daley and former President Bill Clinton. The Freddie Mac money was a small piece of the $16 million he made in a three-year interlude as an investment banker a decade ago.
Not an hour earlier, while catching up with the March 3 issue of The New Yorker, I'd read this Ryan Lizza puff piece on Emanuel, which reported (emphasis mine):
When Emanuel left the Clinton Administration, in 1998, he moved back to Chicago, took a job as an investment banker, and in less than three years earned nearly twenty million dollars.
So which numbers about Emanuel's income are correct?
The New York Times wrote last November that "[i]n his two-and-a-half-year stint as a[n investment] banker [at Wasserstein Perella (now Dresdner Kleinwort)], Mr. Emanuel ... made $16.2 million, according to Congressional disclosures." But Nina Easton, writing in Fortune back in September 2006, said that Emanuel's stint at Wasserstein Perella "netted him more than $18 million in just over two years."
Whether it was $16.2 million, "more than" $18 million, or "nearly" $20 million, and whether it was in three years or less, and whether the reports of his earnings do or don't include his salary, fees, stock options, and other compensation as a member of the board of Freddie Mac, I have a more fundamental question about Emanuel:
How does a former Arby's meat-cutter, who went to Sarah Lawrence College for its ballet dancing program and whose master's degree is in communications and fine arts — someone without a degree in business, much less an MBA or a track record in the business world, someone whose entire adult life had been spent as a famously sharp-knived political operative — suddenly transform himself into an "investment banker" who's capable of earning several millions of dollars each year? Since when did raising funds for a congressional election or trading pork-barrel votes to push a legislative proposal become any sort of qualification for structuring a convertible debenture indenture or running a hostile tender offer?
If you believe Emanuel earned that money based solely, or even mostly, on work accomplished through honest business talent, then you must also believe in unicorns — and we all understand why you're an Obama supporter.
One of Lizza's quotations of Emanuel is particularly chilling, then, precisely because I think it is accurate:
[Emanuel] explained his decision [to finally give in to Obama's requests that Emanuel become Obama's White House chief of staff] in pragmatic terms: “If you got into public life to affect policy, and to affect the direction of the country, where could you do that on the most immediate basis? Everybody knows: chief of staff.”
Just keep that in mind as you hear the torrents of anti-business demagoguery continue to pour from the White House and the Democratic Congressional leadership over the next weeks and months. And then ponder the invisible strings that must have been (and may still be) attached to an entry-level job which netted its recipient somewhere between $16 and $20 million in somewhere between two and three years.
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Tracked on Mar 27, 2009 5:34:47 AM
(1) Roy Lofquist made the following comment | Mar 27, 2009 6:15:16 AM | Permalink
Well, I certainly think he earned the money. He's extremely smart. And we have the example of another neophyte who made $100,000 in one week trading chickens so it's not unusual. In fact I think they know each other. Them geniuses seem to get together a lot.
B: I presume your asking how a former Arby's meat cutter gets to be an investment banker was tongue in cheek and not because you are belaboring under an impression that investment bankers should have some business sense, experience and training? Having said that, and keeping in mind that 'investment banking' is a rather generic and broad job description, investment banking needs people who can get meetings set up and phone calls returned from prospective clients and customers. All the skill in structuring a hostile takeover goes for naught if you can't get yourself hired by the would-be acquirer. In some cases, the rainmakers are old school friends, fellow members of the country club and yes, former Congressmen and other government officials.
Steve (#2), thanks (as always) for your thoughtful comment. And I meant no disrespect to Arby's or its meat cutters, it being an honorable business and that an honorable profession. (Nor did I mean to impugn ballet dancers, even nine-fingered ones.) Nor do I dispute that political skills could come in handy to an investment banker, in the same way that they could come in handy to a lawyer or a doctor or an architect.
But during the first dozen years of my own career, I worked on eight contested take-overs and many other lawsuits involving the sale of various sorts of investment products and/or the sorts of deals put together by investment bankers. During that time, looking at their efforts under the microscope of commercial litigation, I actually came to appreciate the particular knowledge and skill sets — shared in part with some of the top corporate finance lawyers who tend to most closely advise them — that investment bankers must possess in order to succeed. I saw the career progressions they go through, progressions that involve as much "scut work" as young doctors or lawyers do, before the investment bankers get client contact and major responsibility on cutting edge transactions. Investment banking is a profession poorly understood by the public, and indeed by most who aren't a part of it themselves (or who haven't employed them). But it is a real profession that involves a lot more than glad-handing; it's not something that you can pluck people off the street to do, or it wouldn't command the fees that it does.
There is indeed a market for talent in investment banking because that is a limited resource. Certainly the profession's pay scale would be sufficient to attract a supply of willing candidates in a large multiple — probably measured in the thousands — for every such job opening. Many of those thousands have sufficient talent to be able to "get meetings set up and phone calls returned from prospective clients and customers." That doesn't, however, make them fit to exercise the structured creativity which goes into the kinds of deals that investment bankers actually do to earn their enormous fees. Even the highly educated entry-level employees who do land those much-sought jobs don't make $5M+ per year, even though they work brutal hours at the expense of their personal and family lives.
To use a context familiar to us both: My old law firm, Baker Botts, could "hire" non-lawyer (but Harvard MBA) George W. Bush tomorrow, and he might turn into a rainmaker who'd get phone calls returned. But he'd never be able to do the firm's business — he'd never give a single client an ounce of legal advice — in sharp contrast to, for example, James A. Baker III, the former chief of staff, SecState, and SecTreas and the great-grandson of that firm's founding partner, who is a formidable lawyer in his own right (see, e.g., Bush v. Gore) in addition to having political clout.
If Emanuel lacked the training and experience required to actually structure and put deals together — if all he was selling was, as you suggest, "clout" — then my point stands: He's a scoundrel and a whore, because clients or customers of investment banks (and other participants in their endeavors, including, e.g., investment targets) genuinely do need their services. Those folks generally manage to find the investment bankers' phone numbers and get their meetings set up without having to be wheedled into doing so by well-connected political hacks.
If, by contrast, Emanuel had gone the more conventional lobbyist route — the model recently demonstrated by former Sen. Tom Daschle for example — then he'd have been in a job in which "clout" and "access" are indeed genuine job qualifications, probably the most important ones. But the same clients who hire investment banks to raise capital hire lobbyists to lobby, rather than hiring one to do the other's function. (And of course, we all know that the Obama Administration is too ethical and transformative to ever resort to staffing itself with lobbyists!)
No, my friend, you cannot convince me that Emanuel's position and pay were the products of arms' length transactions that fairly reflected the market's assessment of his professional contributions as an "investment banker" to his employer's efforts. He no more became a real $5M+/yr investment banker than Barack Obama will become a real member of the Professional Bowlers' Tour upon leaving the White House.
He was not, at that time, a former member of Congress, but a former second-tier member of the White House staff, employed not as a policy wonk but as a political operative, and famous (if at all) for being exceedingly nasty to the help. You wanna set up a meeting with that guy?
It was a scandal in 1988 or therabouts when it was revealed that James Watt, former Secretary of the Interior, received a fee of $300,000 or so for making eight telephone calls to the sitting Secretary of Housing and Urban Development to push a commercial project that could be advanced by the exercise of executive discretion. That, however, was during the 'decade of greed', not during the enlightened times that succeeded them.
It says something about the The New Republic, one-time scourge of the likes of Clark Clifford and Carla Hills for collecting 'legal fees' on the order of $30,000 or so for working the phones, that this fellow Emmanuel is thought worthy of a 'puff piece'. The President's Chief of Staff ain't the only whore.
Art Deco (#4): Good points, well made. It should also be said that he was a Clintonista and, more broadly, an obvious part of the Democratic Party's government in exile during the two Bush-43 terms whether she got the party's nod in 2008 or not. That makes it more likely that the huge salary was intended to create strings for favors to be rendered than favors already rendered, which of course is far more disturbing.
I see Ryan Lizza wrote this article for The New Yorker, not The New Republic.
"... you cannot convince me that Emanuel's position and pay were the products of arms' length transactions that fairly reflected his professional contributions to his employer's efforts".
Then why did WP pay him the big bucks? This is akin to the current AIG kerfuffle in that Emmanuel could no more write himself a check than AIG workers could write themselves a bonus check. Both required the acquiescence of their respective employers, which presumably were made on the basis of a cold evaluation of what the employee's contributions were worth to their employers... and just as I am reluctant to second guess AIG management's decision that paying those bonuses were in AIG's best interests, so too do I not want to second guess WP that Emmanuel - whatever he did - was worth the money they were paying him.
This doesn't mean I think Emmanuel is a honorable man, or that I don't think we'd be better off without folks like him, only that he 'earned' his pay.
And by the way, 'whore' doesn't quite apply to Emmanuel, he wasn't letting others screw him for money.
I think Wasserstein Perella paid him that money because its partners wanted to tie permanent strings to someone who would soon be in a position, as Emanuel very aptly put it, "to affect policy ... and to affect the direction of the country ... on the most immediate basis."
I think he's a whore because he took the money, not for letting Wasserstein Perella screw him (which they'd get no joy from doing), but because he intended to screw political enemies. (And he would consider that to include, for example, all conservatives and, with rare exceptions, all Republicans.) And he's now in the best position to do that. Emanuel is a political hit man, and he's been paid — probably mostly in advance — for doing political hits.
Did he incidentally contribute to some of the eight deals that he's reported to have worked on? Oh, sure. Did he contribute $2-3M+ in investment banking services to each of those deals? Oh, please.
(10) steve sturm made the following comment | Mar 27, 2009 2:39:00 PM | Permalink
Are you contradicting yourself by claiming on one hand that Emmanuel was being paid for the strings he could pull for WP once he went back to DC (if in fact he ever left) while also complaining that he didn't earn his money on the deals he worked with while at WP? Yeah, if WP was paying him to be an investment banker, they seemingly wouldn't have gotten their money's worth, but they weren't doing that, so it appears as if the only squabble is with what Emmanuel was describing as his job title.
And he's still not a whore. I doubt WP was paying him to screw his political enemies. Even if he was getting paid for screwing his political enemies, it doesn't count as that is something he would have done for free.
Mr. Sturm, it is just not credible that Rahm Emmanuel's business skills would merit that kind of compensation. He had no demonstrated business skills, and little or no employment history with commercial corporations of any kind. Very few people in the business world can garner that type of compensation. It is the compensation garnered by persons near the top of the heap of large corporations. It is the type of compensation that a small minority of corporate executives see and only see after two or three decades of being promoted within the ranks. What Rahm Emmanuel did have was connections within the sewer that is Chicago politics and a notable absence of gentlemanly scruple.
One of the baffling curios about public policy as it has been planned and persued during the last four months has been the refusal on the part of the Administration to consider implementing debt-for-equity swaps as a means of recapitalizing any of the ten troubled corporations which make up (by assets) about 40% of our financial sector, instead opting for public funds without end and Rube Goldberg partnership schemes. The President himself brings flat nothing to the table in a discussion of matters economic and financial. I do wonder if there is someone proximate to him tasked as a handler of sorts.
“If you got into public life to affect policy, and to affect the direction of the country, where could you do that on the most immediate basis? Everybody knows: chief of staff.”
I believe the job of the Chief of Staff has been to regulate the schedule of the President and the flow of memoranda to him. If I am not mistaken, in the formal hierarchy of the executive branch, the bureau chiefs of agencies appended to the Executive Office of the President do not report to the Chief of Staff; only the White House Staff reports to him. His is not supposed to be a policy-making position. I would refer you to the memoirs penned by Ron Nessen and John W. Dean on their employment in the White House. Discerning from them the views of H.R. Haldeman or Richard Cheney on any substantive question of public policy is difficult.
(13) MichaelnAdams made the following comment | Mar 30, 2009 12:42:57 AM | Permalink
I cannot recommend Systems of Survival, by the late Jane Jacobs, strongly enough. It is one of those books that is brilliant because it says what you have been saying for years, only better, more succinctly. She describes two ethical "syndromes" or collections of principles, one "commercial" and one for "guardians", a term she attributes to Plato. Guardians are not supposed to trade. Businessmen are not supposed to be dishonest. Guardians sometimes lie, as a matter of duty, e.g. the careful misdirection, in WWII, making the Nazis believe that the invasion was to occur many mile away from the actual, intended target.
The "mingling of syndromes " that we have here is the very essence of corruption. Reading "Systems" is an afternoon's work, and so much will make so much more sense, when you have done so. People who have done business, or worked for the government, or practiced law, will find that she has codified the obvious, connected so many dots, tied together so many things that we have observed so many times. Read it all, twice. The bookstores usually stock it under Sociology, but it has little relation to that pseudoscience. I turned a friend onto it several years ago, and she has made it required reading for her graduate business students. She gets a great deal of resistance, at first, until they begin to understand it. It revolutionizes their thinking about business and government.
Let's wait and see. If Emanuel makes more money than what he made as an investment banker while being in the White House, then let's all be all in the White House.
(15) stan made the following comment | Apr 1, 2009 10:22:23 AM | Permalink
Seems to be a little confusion here. Beldar isn't saying that WP won't get their money's worth from having paid Rahm. He is saying that WP appears to have paid what is in effect a bribe (although one which is impossible to prove in a court of law). They paid off Rahm so that he would pay off for them when he get back into power.
His lack of investment banking ability is the tip off. He can't justify the kind of money they paid by performing investment banking services. He CAN, however, sell them some government services when he returns to power.
He's a whore because he sold his integrity and virtue (of which he had little to begin with) in exchange for millions.
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