Since the Obama administration leaked details of its toxic asset plan on Friday night, the reaction in the blogosphere has been swift and harshly critical: the zombie plans have won, writes Paul Krugman; it’s a Rube Goldberg device for shifting losses to the Treasury, writes James K Galbraith; really bad ideas, writes Atrios.
There has, however, been one prominent exception: Brad Delong, who defends the Geithner plan in this FAQ posted Saturday. Josh Marshall and Hilzoy have since pointed to DeLong’s stance as evidence that the Treasury plan has not been universally panned by the reality-based community. Krugman saw fit to argue back. Meanwhile, the Obama administration is making a push to build blogger support for the new bank bailout, and DeLong is their highest-profile ally.
But DeLong has a credibility issue. Here at LittleSis, we have a sneaking suspicion that his views have been shaped by family ties: Brad‘s brother Chris, a hedge fund manager linked closely to Robert Rubin, is poised to profit handsomely from the toxic asset plan.
Christopher Lord DeLong is a partner at Taconic Capital Advisors, a firm advised by Robert Rubin and co-founded by one of Rubin’s disciples from Goldman Sachs, Frank Brosens.
As such, he could reap a major taxpayer-funded windfall from the plan, which offers large subsidies to hedge fund participants and includes no compensation limits. Brad himself says that some investors “stand to make a fortune” if all goes well.
The firm’s close ties to Rubin are important. In previous posts, we have highlighted Rubin’s influence over Obama’s economic team; we have also documented his hedge fund network, which includes Brosens/Taconic. It is highly likely that Rubin played an important role in shaping the Treasury plan, and that a hedge fund that is so closely linked to him will have a serious competitive advantage when doing business with the Obama administration.
Taconic is also a sustaining member of the Managed Funds Association, the hedge funds’ chief lobbying group, which had been negotiating the plan’s terms with the Obama administration. The firm is also a major financial supporter of Democrats, and Chris tends to give money to a lot of the same folks as Rubin and Brosens (an Obama bundler), and his wife is also quite generous.
In explaining Wall Street compensation levels to a naive outsider, (Brad) DeLong once wrote the following about bankers who took home unjust levels of pay (ie, those who aren’t “smart” by Brad’s definition and don’t warrant the superhuman compensation levels of a Rubin or Brosens):
Part of the answer is that they are sitting at a nexus: a huge amount of money blows past Wall Street, and if you can sit in the right place with a large net, unbelievable quantities of money will be trapped by it.
Brad’s brother may be quite smart, but as it turns out he also fits very well into this second category of banker: he is standing in just the right place – very close to Rubin and Brosens – and as long as the hedge funds get their way on compensation limits, Congress will have no control over the size of his net.
Which is to say, Brad’s brother stands to make quite a bit of money off of this Treasury plan in its current form: millions, possibly tens of millions.
Considering all this, are we really supposed to believe that Brad DeLong is guided purely by logic, reason, and good economic sense in defending the Treasury plan? He is really quite bold to present himself as the sole defender of the plan in the liberal blogosphere, considering his brother’s ties.
But then again, who doesn’t have a brother at a Rubin-linked hedge fund that stands to reap mountains of cash from the toxic asset plan?