Helicopter Ben Invented Tax Evasion Vehicles for the Real Housewives of Wall Street

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Matt Taibbi is out with his take on the Fed’s bailout lending revealed last month. He focuses on how two rich housewives with no apparent business experience got almost a quarter of a billion dollars in the TALF program.

In 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.

The Macks make for an interesting couple. John, a Lebanese-American nicknamed “Mack the Knife” for his legendary passion for firing people, has one of the most recognizable faces on Wall Street, physically resembling a crumpled, half-burned baked potato with a pair of overturned furry horseshoes for eyebrows. Christy is thin, blond and rich — a sort of still-awake Sunny von Bulow with hobbies. Her major philanthropic passion is endowments for alternative medicine, and she has attained the level of master at Reiki, the Japanese practice of “palm healing.” The only other notable fact on her public résumé is that her sister was married to Charlie Rose.

It’s hard to imagine a pair of people you would less want to hand a giant welfare check to — yet that’s exactly what the Fed did. Just two months before the Macks bought their fancy carriage house in Manhattan, Christy and her pal Susan launched their investment initiative called Waterfall TALF. Neither seems to have any experience whatsoever in finance, beyond Susan’s penchant for dabbling in thoroughbred racehorses. 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. Given out as part of a bailout program ostensibly designed to help ordinary people by kick-starting consumer lending, the deals were a classic heads-I-win, tails-you-lose investment.

[snip]

In the case of Waterfall TALF Opportunity, here’s what we know: The company was founded in June 2009 with $14.87 million of investment capital, money that likely came from Christy Mack and Susan Karches. The two Wall Street wives then used the $220 million they got from the Fed to buy up a bunch of securities, including a large pool of commercial mortgages managed by Credit Suisse, a company John Mack once headed. Those securities were valued at $253.6 million, though the Fed refuses to explain how it arrived at that estimate. And here’s the kicker: Of the $220 million the two wives got from the Fed, roughly $150 million had not been paid back as of last fall — meaning that you and I are still on the hook for most of whatever the Wall Street spouses bought on their government-funded shopping spree.

But the kicker is that these two Real Housewives of Wall Street incorporated their little slush fund … in the Cayman Islands.

Perhaps the most irritating facet of all of these transactions is the fact that hundreds of millions of Fed dollars were given out to hedge funds and other investors with addresses in the Cayman Islands. Many of those addresses belong to companies with American affiliations — including prominent Wall Street names like Pimco, Blackstone and . . . Christy Mack. Yes, even Waterfall TALF Opportunity is an offshore company. It’s one thing for the federal government to look the other way when Wall Street hotshots evade U.S. taxes by registering their investment companies in the Cayman Islands. But subsidizing tax evasion? Giving it a federal bailout? What the fuck?

Back when we had a chance of shaming TurboTax Timmeh Geithner into withdrawing his nomination to be Treasury Secretary, we should have suspected he and his associates had a soft spot for tax havens.

But by that point, it was already too late. Timmeh and Helicopter Ben had been shoveling money into the pockets of rich housewives so they could hide it in the Cayman Islands.

Yet we have to cut aid to poor kids, because we’re broke.

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  1. earlofhuntingdon says:

    Setting up in the Caymans or the BVI is a no-brainer. Cheap to do, little operating cost, no local IRS to haunt your books, no inquisitors from the US IRS doing the same. Pass the “ownership” through an address there – lawyers, banks and accountants offer that as one of their principal services – and you’re home free. No real pressure to “know your client”, the pesky FSA rules in the UK that require info on the investor and where his or her money comes from.

    What are the odds that hubby set all this up, with a little aged insider information about the “assets” in his former company that “wifey” should buy with her borrowed money from Tim Geithner? It would be useful to know where wifey got her share of the $15 million and whether and how long it was cash really at risk in this deal.

    As for taxpayer funds going directly to an offshore investor – and at about 15:1 leverage – WTF? is the only credible question. I hope that the middle class soon gets tired of bending over and grabbing its ankles. Watching Young Frankenstein might not be the only kind of stress relief it came up with. Time to invest in a pitchfork distributorship.

  3. earlofhuntingdon says:

    A public example of the hyper-marketing of tax havens to the less sophisticated or more gullible wealthy can be found here. Sophisticates get that sort of advice from family retainers or their friends in private banking.

    The marketing, subtle or obvious, combines a realtor’s energy, a stockbroker’s relentless optimism, and a travel guide’s reassurance. Croatia vs. Montenegro for a wealthy retiree? Is it easier to live in Switzerland or the Bahamas, more advantageous to invest through the Caymans or the British Virgin Islands? We report, you decide. Less ecstatic kinds of services can be found here and here.

    There have been modest attempts to limit the utility of tax havens as means to avoid home country liability for taxes, such as here. Just how modest will be obvious after reading Treasure Islands – a “breathtaking and terrifying” book (the Irish Times).

      • earlofhuntingdon says:

        I hadn’t, but brilliant choice. You or Yves would be great hosts.

        It’s not just that middle income taxpayers are subsidizing this sort of nonsense. That’s bad enough in this economy, with globalization fundamentally lowering US-based employment opportunities and what they pay.

        It’s that the wealthy are becoming considerably more wealthy and intolerant of the working man – lab specimens to the scientist – and doing it in secret. Even their wealth stays or is accounted for offshore. Most importantly, these sorts of dodges are a considerable enabler of political corruption.

        It reminds of me of when the unfortunate Frenchman had to pay Monsieur le Guillotine for his services, as the woeful Chinese man must buy the 7.62mm that ends up in the back of his head.

  4. Stephen says:

    Maybe these fine ladies will be featured on Oprah’s new network highlighting enterprising housewives along with Michelle Obama’s collection of Kraft Dinner recipes for budget conscious families.

  6. earlofhuntingdon says:

    Mack the Knife is Bobby Darin’s number one hit and Grammy winner for best song in 1959, originally Bertolt Brecht, Kurt Weill and Marc Blitzstein’s 1928 comic song about a thief and serial knife murderer, itself an update on a medieval minstrel’s song, with traces of Jack the Ripper thrown in.

    A stanza describes today’s Wall Street, the GOP and not a few Democrats:

    Ya know when that shark bites, with his teeth, babe
    Scarlet billows start to spread
    Fancy gloves, though, wears old MacHeath, babe
    So there’s nevah, nevah a trace of red.

    The Sunday Times on John Mack:

    On his long slog to the top of Wall Street, he became known for rallying his staff to seize new business by shouting: “There’s blood in the water, let’s go kill.” He was notorious for holding shouting matches on trading floors and being obsessed with costs.

    The business press is careful not to let its blood drip in waters prowled by those it covers. For “aggressive leadership style” and “being obsessed with costs”, read job cutting.

    Mack sounds like the perpetually adolescent GOP vote counter, Rove oppo researcher, wannabe US Attorney and now Congressman, Tim Griffin, who borrowed his rallying cry from 2000’s Oscar winning best film, Gladiator: “Let’s unleash hell.”

    Not a lot of executives would be happy with a popular moniker that compared them to a serial knife murderer like Jack the Ripper, or attempted mass murderer Gen. Jack D. Ripper. Those who are charmed by it, like John Mack (seen here in an interview by brother-in-law Charlie Rose), are the ones Mr. Obama thinks will reasonably cooperate with him over shared goals. No wonder he is morbidly bad at the lawyer’s traditionally best service: negotiating. When you look round the room and don’t know who the sucker is, it’s you.

    As a song, though, it’s great. Here’s Bobby Darin, here’s Louis Armstrong, and here’s an elderly Old Blue Eyes performing a classic.

    • earlofhuntingdon says:

      For giggles and an update, here is Kevin Spacey doing a very creditable version of Mack the Knife in a biopic about the phenomenally popular Bobby Darin.

  7. tejanarusa says:

    I know it’s hopeless, but can’t we figure out some way to claw back some of these ridiculously obscene giveaways?

    I know, I know.

    I’m never gonna be able to give up anti-depressants. Well, until I have to go on Medicare and can’t afford’em anymore.

    • PJEvans says:

      I was thinking that pitchforks and torches at all their estate entrances would be a good start, if we can’t get the top tax brackets back to at least Kennedy-era levels. (Maybe we need more brackets. Indexed to inflation.)

  9. earlofhuntingdon says:

    From the Taibbi article about how the Feds came to give freebie money to unemployed spouses of Wall Street millionaires, and allowed them to invest it through tax haven jurisdictions in the Caribbean, assuring that a) if they lost money, the Feds would pay, and b) if they made money, they would keep it and pay no tax on their gains:

    [The bailouts] started out small, with the government throwing a few hundred billion in public money to prop up genuinely insolvent firms like Bear Stearns and AIG. Then came TARP and a few other programs that were designed to stave off bank failures and dispose of the toxic mortgage-backed securities that were a root cause of the financial crisis. But before long, the Fed began buying up every distressed investment on Wall Street, even those that were in no danger of widespread defaults: commercial real estate loans, credit- card loans, auto loans, student loans, even loans backed by the Small Business Administration. What started off as a targeted effort to stop the bleeding in a few specific trouble spots became a gigantic feeding frenzy. It was “free money for shit,” says Barry Ritholtz, author of Bailout Nation. “It turned into ‘Give us your crap that you can’t get rid of otherwise.’ ”

    The impetus for this sudden manic expansion of the bailouts was a masterful bluff by Wall Street executives. Once the money started flowing from the Federal Reserve, the executives began moaning to their buddies at the Fed, claiming that they were suddenly afraid of investing in anything — student loans, car notes, you name it — unless their profits were guaranteed by the state….”That’s what this is. If you have power and connections, they will give you a freebie deal — if you’re good at whining.”