Matt Taibbi of Rolling Stone zeroes in on an interesting detail from the Federal Reserve’s bailouts: The Fed lent big bucks to an investment vehicle led by Morgan Stanley CEO John Mack’s wife and the widow of a Morgan Stanley executive—people Taibbi reports have no “serious” business experience:
But if you want to get a true sense of what the “shadow budget” is all about, all you have to do is look closely at the taxpayer money handed over to a single company that goes by a seemingly innocuous name: Waterfall TALF Opportunity. At first glance, Waterfall’s haul doesn’t seem all that huge — just nine loans totaling some $220 million, made through a Fed bailout program. That doesn’t seem like a whole lot, considering that Goldman Sachs alone received roughly $800 billion in loans from the Fed. But upon closer inspection, Waterfall TALF Opportunity boasts a couple of interesting names among its chief investors: Christy Mack and Susan Karches.
Christy is the wife of John Mack, the chairman of Morgan Stanley. Susan is the widow of Peter Karches, a close friend of the Macks who served as president of Morgan Stanley’s investment-banking division. Neither woman appears to have any serious history in business, apart from a few philanthropic experiences. Yet the Federal Reserve handed them both low-interest loans of nearly a quarter of a billion dollars through a complicated bailout program that virtually guaranteed them millions in risk-free income…
But with an upfront investment of $15 million, they quickly received $220 million in cash from the Fed, most of which they used to purchase student loans and commercial mortgages. The loans were set up so that Christy and Susan would keep 100 percent of any gains on the deals, while the Fed and the Treasury (read: the taxpayer) would eat 90 percent of the losses.
My question: Why did it take Taibbi and Rolling Stone to look into this story? Senator Bernie Sanders was asking questions about this in December. The press ovbiously knew about it. The Wall Street Journal covered Sanders’ inquiry online, but it didn’t even make the paper. Here’s all it wrote about Mack:
He also wants to know exactly how much money the Fed lent to millionaires and billionaires during the financial crisis. He specifically asked for information on loans given to businessman H. Wayne Huizenga, billionaire hedge-fund manager John Paulson, Dell Inc. founder Michael Dell and Christy Mack, the wife of former Morgan Stanley chief executive John Mack and dozens of other borrowers.
The only other coverage of Christy Mack’s loan I find in Factiva was a brief mention in The New York Times in December:
Among prominent investors in that program were the businessmen H. Wayne Huizenga and Julian Robertson; Kendrick R. Wilson III, a former Goldman executive who had been a top aide to Henry M. Paulson Jr., the Treasury secretary during the crisis; and Christy K. Mack, the wife of John J. Mack, the former chief executive of Morgan Stanley.
Taibbi reaches too far by implying that the Macks may have used the Fed’s TALF money to buy a mansion on the Upper East Side. The simplest explanation would be that they bought the $13 million property with the riches Mack had accumulated from decades on Wall Street. There’s no evidence, other than timing, that they funneled TALF money into the house.
n August 2009, John Mack, at the time still the CEO of Morgan Stanley, made an interesting life decision. Despite the fact that he was earning the comparatively low salary of just $800,000, and had refused to give himself a bonus in the midst of the financial crisis, Mack decided to buy himself a gorgeous piece of property — a 107-year-old limestone carriage house on the Upper BeerEast Side of New York, complete with an indoor 12-car garage, that had just been sold by the prestigious Mellon family for $13.5 million. Either Mack had plenty of cash on hand to close the deal, or he got some help from his wife, Christy, who apparently bought the house with him…
Ryan asks: "Why did Christy Mack and Susan Karches suddenly make huge, arcane vulture-capital gambles with taxpayer money when they had no apparent prior experience?"
Is the answer not that they couldn't miss? Taibbi writes that it was structured so the women get 100 percent of any gains and the taxpayers get 90 percent of any losses.
So there's your answer, right? It was free money--free for the taking, for anyone who could scrape together the $15m buy-in.
And student loans--not dischargeable in BK, right?
#1 Posted by edward ericson jr., CJR on Tue 12 Apr 2011 at 05:38 PM
Ryan -- though I think it's more of an inference on your part, would it really be overreaching to assume the Mack's would use at least some of the money from their TALF handout for their own material aggrandizement, such as mansions, etc.?
Is anything beyond the pale in light of this story?
#2 Posted by g. edward weitl, CJR on Wed 13 Apr 2011 at 04:03 AM
Millions? Billions? Even trillions in welfare for bankers and business men?
What is $220 million compared to the $10 billion Morgan Stanley borrowed from taxpayers in the same year CEO John Mack and his wife bought that lovely carriage house? (Look at the pictures: a 'fixer-upper,' a/c to the New York Observer
In both cases, the loans are bountiful gifts from the Fed to those who did not need it. Those same funds could have served the purpose of putting money into circulation and gone much farther by paying off the student loans and mortgages of those who needed it and will never be as well-off as banks and banking families. Instead we live in an era when bailed-out banks (and banker familes) are taking the homes of millions of people. We live in a time when young people are starting life as adults burdened with excessive educational loans they may never be able to pay. The decisions of Mr. Bush, Mr. Obama, Mr. Greenspan, Mr. Paulson and Mr. Bernanke may have saved capitalism but they did so by beggaring tens of millions of Americans.
#3 Posted by Bonnie Britt, CJR on Wed 13 Apr 2011 at 09:28 AM