Tuesday, February 08, 2011

How Rahm Emanuel Made $18.5 Million In Investment Banking Without Any Experience

Before Rahm Emanuel left the Clinton White House and joined a Chicago investment banking firm in 1999, his work experience had been limited to politics, primarily as a fundraiser and strategizer. He had zero business experience or training. Yet after a 2 1/2-year stint as an investment banker, he made $18.5 million, putting him as one of the top earners in the industry. Emanuel's political opponents in the Chicago mayor's race believe there is something wrong with this picture. While admitting he had no experience in the business, Emanuel says he did so well because of what he calls "relationship banking." In other words, he tapped the big Clinton campaign donors who did well during the Clinton administration to work on their transactions. The Chicago Sun-Times' Abdon Pallasch explains:

Is there anything wrong with mayoral candidate Rahm Emanuel making $18.5 million dollars as an investment banker in the 2 ½ years after he got out of the Clinton White House – much of it from Clinton donors?

“I defy you to tell me anybody you know who jumped out of government into a business for which he had no credentials or background, made $18.5 million in two years and then jumped back into government,” said Gery Chico, Emanuel’s rival for the mayor’s office . . .

What credentials did Emanuel present to go to work in investment banking after a career raising campaign funds for Mayor Daley and President Clinton, then advising Clinton on policy issues?

“There is, in that culture, two types of bankers: a person who knows the numbers, industry specific; and a person who kind of also deals with relationships,” Emanuel told the Sun-Times editorial board. “I was what was considered, at that time, although I don’t think this is really interesting, relationship banking, and that’s what I did.”
Pallasch points to just two primary deals that Emanuel worked on as an investment banker that scored him the big bucks, plus the fact that the firm that hired him, Wasserstein Perella, was sold twice during the short time he worked for the company. Not surprisingly, both deals involved people with close ties to the Clinton administration who continue to do well with the Obama administration:

Experts said Emanuel’s earnings put him in the top 5 percent of investment bankers. But some who watched Emanuel rake in the bucks during his brief foray into investment banking say he played the same rules as everybody else and just did it better. He had the advantage of a “golden Rolodex” coming out of the Clinton White House.

“I worked in the private sector and was remunerated as a private sector [employee],” Emanuel said.

In 1998, As Emanuel prepared to leave his post in the Clinton White House, Bruce Wasserstein, a major donor to Clinton and other Democrats, sent the head of his Chicago office to interview Emanuel about coming to work for his firm.

Despite his lack of experience, Emanuel was made managing director of the Chicago office in 1999 and put together several big deals.

“One of them, a merger between the Chicago Unicom and Philadelphia Peco, that merger not only kept the corporate headquarters here and expanded it so Chicago has one of the leading energy companies here in the city of Chicago,” Emanuel said.

That $8.2 billion merger created Exelon, parent company of Commonwealth Edison. The Obama White House tapped Exelon CEO John Rowe to lobby lawmakers to support the administration’s greenhouse gas-reducing legislation. Obama senior adviser David Axelrod has worked for Exelon.

“John Rowe and I had known each other, and when I came out of the White House, he called me and said, ‘We’re looking at doing a merger, would you guys be willing to be our banker?’ Wasserstein, Perella, we had expertise in that area,” Emanuel said.

The newly merged utility ended up laying off 3,350 workers, or 10 percent of its work force.

Emanuel also oversaw GTCR Golder Rauner’s purchase of SecurityLink from SBC Ameritech, where Emanuel’s successor as White House chief of staff, William Daley, would later become firm president.

“GTCR private equity in Chicago bought from SBC their home security business,” Emanuel said. ”That turned out to be a great business deal for the investors as well as the company, which was eventually bought by Tyco [Intl. Ltd.]”

Wasserstein, Perella was sold twice during his tenure, and Emanuel profited handsomely each time, he said.
As you can see, Emanuel may have made off handsomely during his short stint as an investment banker, but he is also now officially owned by these people who stuffed his pockets full of money. Evan Bayh and his wife Susan have essentially played the same game during his political career to enrich himself. It's the reason I believe we have lost our government. Frankly, you can't trust hardly anyone in an elected position in government to represent the common good. Virtually all of them have been bought and paid for by powerful interests.

Gov. Mitch Daniels similarly had no business experience before he became a top executive at Eli Lilly after leaving the Reagan White House in 1988. He had worked for politicians his entire adult life. By the time he ran for governor in 2004, he had earned more than $50 million from Lilly and the corporate boards on which he served, including IPL, which was sold to AES in a move that screwed over the local utility's employees, as well as people who had invested in the company. While the top executives and board members of IPL, including Daniels, made millions off the sale, the stock price plummeted and wiped out the long-term investments of many people. Not surprisingly, the Indiana Utility Regulatory Commission run by Daniels appointees has a way too comfortable relationship with the utility companies. Former Indianapolis Mayor Bart Peterson is now making his tens of millions working in the same job Daniels once held after he gave tax breaks to the company worth several hundred million dollars as mayor.

The more I've come to know about business and the stock market in this country, the more convinced I am that the only people who make money are the people who trade on inside information. Insider trading as regulated by the SEC is suppose to be illegal, but as far as I can tell, it is rarely enforced. We've seen so many of Indianapolis' elites get rich quick off insider trading and nothing happens to them. The other form of insider trading, using inside information and contacts within government, has an equally corrupting impact. Some of the same people who make money in this town off insider stock trading are also some of the same people who made off like bandits when the City of Indianapolis awarded cable TV franchises back in the early 1980s and when the state of Indiana awarded riverboat gambling and pari-mutuel  horse racing licenses in the 1990s. Unless you lie, cheat and steal, your chances of getting ahead in this country in both business and politics are now slim to none.


M Theory said...

Well, Gary. They did go after Martha Stewart over $60k, didn't they? It was one of the greatest SEC witch hunts ever.

Gary R. Welsh said...

That was simply for window-dressing purposes only. Talk to whistle blowers. It's a complete waste of time to report insider trading to the SEC. If it's somebody important, they won't do a damn thing. Stewart was just a small peanuts case thrown out to appease the serfs so they would make us think the inside elites aren't gaming the system to amass large amounts of wealth. The days of investing in a stock and watching it grow are over. They've pretty much ended employee pension plans. They force the masses into plans that bilk the small-time investors to enrich the Wall Street investment bankers and their friends in politics. Money is no longer made based on actual sweat equity anymore. Workers' will retire with nothing in their 401(k) plans while these bastards live the life of royalty in their retirement.

TwoDomeTown said...

Just exactly how did Mitch make millions on the sale if IPL?

dcrutch said...

It's enough to make you want a Bat signal you can roll out, aim at the sky, and hope somebody responds. To place any faith in our public servants has become the real comic book. It takes a radio consumer advocate to call-out Chase by name for their foreclosure practices. Know any D.C. Senator or Representative that will do that? Not without a calculation on where they'll make up the lost donations.

Hope springs eternal. I'm hoping on Mourdock.

Gary R. Welsh said...

See this excerpt

"In an Oct. 6, 2000, letter sent to shareholders, IPALCO's leadership wrote that "your board of directors has carefully reviewed and considered the terms and conditions of the share exchange agreement, and has determined that it is fair and in the best interests of IPALCO and its shareholders for IPALCO to be acquired by AES pursuant to the terms of the share exchange agreement. Your board of directors has unanimously approved the share exchange agreement, and recommends a vote for approval of the share exchange agreement."

Despite the board's apparent enthusiasm, the acquisition didn't exactly receive an overwhelming stockholder endorsement: More than 45 percent voted against it. But it passed and, at the end of March 2001, the actual stock swap took place. Within days, the price of AES shares started falling. Six months later, it took a one-day plunge of 49 percent after the company announced that its 2001 results would be worse than expected. As of this writing, AES shares have lost more than 90 percent of their March 2001 value. Yet by the share-exchange date, virtually all of IPALCO's board members and officers had dumped their stock -- walking away, according to the lawsuit filings, with an estimated $43.6 million in profits and golden-parachute benefits . . .

The IPALCO revelations have certainly added interest to Indiana's upcoming elections. The top state post up for grabs this year is the office of secretary of state -- which, among other things, has oversight of securities. Democrat John Fernandez, the 41-year-old two-term mayor of Bloomington, has opened both barrels on his opponent, 32-year-old Todd Rokita, a deputy to Sue Ann Gilroy, the current Republican secretary of state. Both candidates are calling for increased regulatory vigilance and authority, and both support a recently begun investigation into the IPALCO affair by Gilroy's office. However, Rokita has not only avoided any direct criticism of IPALCO, he's hosted Mitch Daniels at a fundraiser, which drew his opponent's fire.

"Wherever I've been discussing this with people," Fernandez says, "I see a lot of eyes rolling. No one believes there can be a serious investigation when Mitch Daniels and the current secretary of state are headlining fundraisers for Rokita. Hell, after the fundraiser, the Indianapolis Star quoted 'members of Rokita's campaign' saying that 'Daniels did nothing wrong while on the board.' Do they know something about the investigation that we don't?"

In an August interview on an Indianapolis TV station, Daniels said that when he was on the IPALCO board, he asked management to hire a "separate financial counsel" for the board, and this consultant confirmed that the AES merger was "the best step for shareholders." Daniels also said he'd sold IPALCO stock in January 2001 "to comply with my ethics agreement at the time of my appointment" as OMB director. Price, Fernandez and others note, however, that the timing was awfully convenient. More importantly, they say, the continuing claims of diligence, by Daniels or anyone else on the board, are precisely what must be investigated.


Citizen Kane said...


You nailed it with your 4:08 blog post.

M Theory said...

Exactly, Gary!

I hated watching what they did to Martha while they completely ignored the real insiders.

She handled the whole thing marvelously and came back strong.

M Theory said...

I think it is worth it to cash out your investment accounts, take the 10% hit and put the money into silver.

Currently there is not enough silver mined to meet manufacturing demand, let alone the increasing investor demand.

Don't be surprised when silver is $50 an ounce (or more) at the end of 2011.

Also, everyone should read Katherine Austin Fitts (ass't housing sec'y to Bush and whistleblower) which exhaustively explains and footnotes in her 23 page report that explains how JP Morgan Chase is manipulating the silver market.

When I closed my Chase checking account I dropped the report off with the branch manager. He said they don't buy into "conspiracy theories". LOL!

I'm quite happy with my local, honest credit union.


M Theory said...

Gary? Why didn't the shareholders who voted against it, dump their shares too? Were they not allowed?

Remember how all the Enron employees were the ones left holding the bag. I don't believe they were allowed to ditch their stock before it was too late.