Wall Street Is Corrupting Everything – Even University Commencements

By Pam Martens: May 15, 2015

John Paulson, Hedge Fund Manager, Is Praised in the 2010 Spring/Summer Issue of the Alumni Magazine of the Stern School of Business

John Paulson, Hedge Fund Manager, Is Praised in the 2010 Spring/Summer Issue of the Alumni Magazine of the Stern School of Business

On April 28, Martin Lipton, Chairman of NYU, and its President, John Sexton, announced that hedge fund billionaire John Paulson would receive the “Albert Gallatin Medal for Outstanding Contributions to Society” at NYU’s 183rd Commencement ceremony, slated for next Wednesday. Albert Gallatin was one of the founders of NYU and a former Treasury Secretary under Thomas Jefferson and James Madison. Gallatin is buried in Trinity churchyard at the corner of Wall Street and Broadway – and he’s likely rolling over in his grave at the idea of having his name appended to John Paulson.

John Paulson is the founder and head of Paulson & Co., infamously known on Wall Street as the firm that conspired with Goldman Sachs to create Abacus 2007-AC1 – an investment Paulson & Co. assisted in designing to collapse in value. On April 16, 2010, the SEC brought charges against Goldman Sachs and one of its young vice presidents, Fabrice Tourre, for “defrauding investors” in the sale and marketing of Abacus. Paulson & Co. slipped through the net because it didn’t sell or market the product – it simply shorted it based on its inside information that it was designed to fail.

According to the SEC’s lawsuit, Paulson paid Goldman Sachs approximately $15 million for structuring Abacus. The deal closed on April 26, 2007. Nine months later says the SEC, “99 percent of the portfolio had been downgraded.” The SEC adds: “As a result, investors in the ABACUS 2007-AC1 CDO lost over $1 billion. Paulson’s opposite CDS positions yielded a profit of approximately $1 billion for Paulson.”

In July 2010, Goldman Sachs settled with the SEC for a payment of $550 million. Fabrice Tourre was subjected to a jury trial and ordered to pay more than $825,000 in gains and penalties. John Paulson and his hedge fund skated and kept their profits.

This is when the power brokers at NYU seem to have taken their first interest in remarketing the villainous reputation of John Paulson into that of visionary businessman. The 2010 Spring/Summer issue of the Alumni Magazine of the Stern School of Business carried a glowing tribute to Paulson, noting that he had made a $20 million gift to the school. There is no mention of Abacus or shorting an investment designed to fail. Instead, the article tells alumni readers that “during the recent subprime mortgage crisis, Paulson developed a contrarian strategy that included shorting mortgage-backed securities. It turned into one of the greatest trades in Wall Street history.”

The article goes on to note that “the School has named the first floor lobby of Tisch Hall and the School’s auditorium” in Paulson’s honor.

To the rational human mind, what Paulson did in the Abacus deal was straight out cheating. Kip McDaniel wrote the following in a profile piece on Paulson in the December 2013 issue of CIO Magazine:

“Upon the revelation of Paulson’s historic year, everyone had an opinion, not all of them favorable. Paulson had grown rich on the backs of America’s poor; he was lucky, not skillful; he’d actually helped foster the bubble by getting Goldman Sachs and others to create structured products designed to fail: ‘It’s like being the Miami Heat and playing the Chicago Bulls—but being able to pick the Bulls’ starting lineup from the crowd,’ according to one investor.”

Paulson also sits on the Board of Trustees of NYU. The Board notes in its statement of goals that “trustees are the keepers of the mission of NYU…They must pay particularly close attention to the mission and the obligations to society that are unique to the academic enterprise.”

Two current Trustees on the NYU Board were previously involved with Lipton in the New York Stock Exchange compensation scandal: Laurence Fink, CEO of BlackRock, and Kenneth Langone. Fink and Langone served on the NYSE’s Compensation Committee while Lipton was simultaneously advising Richard Grasso, CEO of the Exchange, on his compensation package while also serving as counsel to the Exchange’s committee on governance and as Chairman of its Legal Advisory Committee.

The Compensation Committee awarded Grasso $130 million in compensation and benefits for the three-year period of 2000 through 2002, a sum that represented 99 percent of the Exchange’s net income according to then New York State Attorney General Eliot Spitzer.

Spitzer sued Grasso and Langone in 2004, charging Grasso with unreasonable compensation from a not-for-profit corporation and Langone for breach of his fiduciary duty for not informing the full board on the details of Grasso’s compensation. The case was eventually dismissed by the New York State Appellate Division on July 1, 2008 on the basis that the New York Stock Exchange had now become a for-profit entity.

Langone and Fink also currently co-chair the NYU Langone Medical Center Board, which is populated with Wall Street executives and hedge fund managers. While the NYSE scandal was swirling in the press in 2004, Langone made this erudite statement to Fortune Magazine’s Peter Elkind:

“They got the wrong fucking guy. I’m nuts, I’m rich, and boy, do I love a fight. I’m going to make them shit in their pants. When I get through with these fucking captains of industry, they’re going to wish they were in a Cuisinart — at high speed. If Grasso gives back a fucking nickel, I’ll never talk to him again.”

A group of approximately 400 faculty members at NYU think that NYU’s Chair and President, Lipton and Sexton, have lost touch with the moral, educational, and student needs of the university and are running NYU as a tyrannical slush fund for privileged interests. The group is known as the FASP, Faculty Against the Sexton Plan. In 2013, five schools at NYU gave Sexton a no-confidence vote: the School of Arts and Science, NYU’s largest school; the Gallatin School of Individualized Study; the Steinhardt School of Culture, Education, and Human Development; Tisch Asia and the Tisch School of the Arts faculty in New York.

Those votes were followed by a front page expose in the New York Times revealing that NYU was giving Sexton and others obscene perks, including below market rate and/or forgivable loans for vacation homes.

This past Monday, FASP released a stunning report of further abuses by NYU management titled, The Art of the Gouge. The report shows draconian hidden fees and tuition costs resulting in some students sleeping on park benches while the University buys lavish condos for an elite group of faculty. One condo was described as a $3.6 million “luxury condo at 845 West End Ave., for housing Law School faculty” which was described by the International Business Times as having four bedrooms with “ensuite baths with Calacatta gold marble, as well as radiant heat floors.”

NYU students, meanwhile, are spending over a quarter of a million dollars for tuition and housing over four years at NYU and financially struggling to stay in school. The situation is equally desperate for contract faculty. In 2013, after the vacation home scandal broke in the press, Michael Rectenwald, a Master Teacher at the Liberal Studies Program at NYU, posted the following on his blog:

“Reading these reports might lead one to believe that NYU is home to a coddled, handsomely rewarded faculty, a knot of wriggling leeches living lavishly on the future debts of its students. However, nothing could be further from the truth. The reports refer to a tiny minority, and utterly miss the conditions attendant upon the vast majority of the faculty at NYU.”

Rectenwald went on to explain that contract faculty, not tenured or tenure track faculty, make up 70 percent of the teaching faculty at NYU. According to Rectenwald, “the average starting salary for a full-time contract faculty member is an estimated $60,000 to $65,000 per year. The average per-course compensation for part-time contract faculty is roughly $5,000. A member of the latter group, if ‘lucky’ enough to be offered them, might teach eight courses a year and accrue around $40,000 a year.” Without discounted housing, that amounts to considerably less than a living wage in New York City, says Rectenwald.

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