Author Topic: Corruption, Sleaze, Skullduggery, the Swamp, and Treason  (Read 208333 times)

Crafty_Dog

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Corruption, Sleaze, Skullduggery, the Swamp, and Treason
« on: June 16, 2009, 06:40:55 AM »
Glenn Beck has done some good work bringing attention to this case:

http://www.washingtonexaminer.com/opinion/blogs/beltway-confidential/Whats-behind-Obamas-sudden-firing-of-the-AmeriCorps-inspector-general-47877797.html


Today the WSJ jumps in:

President Obama swept to office on the promise of a new kind of politics, but then how do you explain last week's dismissal of federal Inspector General Gerald Walpin for the crime of trying to protect taxpayer dollars? This is a case that smells of political favoritism and Chicago rules.

A George W. Bush appointee, Mr. Walpin has since 2007 been the inspector general for the Corporation for National and Community Service, the federal agency that oversees such subsidized volunteer programs as AmeriCorps. In April 2008 the Corporation asked Mr. Walpin to investigate reports of irregularities at St. HOPE, a California nonprofit run by former NBA star and Obama supporter Kevin Johnson. St. HOPE had received an $850,000 AmeriCorps grant, which was supposed to go for three purposes: tutoring for Sacramento-area students; the redevelopment of several buildings; and theater and art programs.

 
Associated Press
 
Gerald Walpin, Inspector General of the Corporation For National and Community Service, was fired by President Barack Obama.
Mr. Walpin's investigators discovered that the money had been used instead to pad staff salaries, meddle politically in a school-board election, and have AmeriCorps members perform personal services for Mr. Johnson, including washing his car.

At the end of May, Mr. Walpin's office recommended that Mr. Johnson, an assistant and St. HOPE itself be "suspended" from receiving federal funds. The Corporation's official charged with suspensions agreed, and in September the suspension letters went out. Mr. Walpin's office also sent a civil and/or criminal referral to the U.S. Attorney for the Eastern District of California.

So far, so normal. But that all changed last fall, when Mr. Johnson was elected mayor of Sacramento. News of the suspension had become public, and President Obama began to discuss his federal stimulus spending. A city-hired attorney pronounced in March that Sacramento might be barred from receiving stimulus funds because of Mr. Johnson's suspension.

The news caused a public uproar. The U.S. Attorney's office, which since January has been headed by Lawrence Brown -- a career prosecutor who took over when the Bush-appointed Attorney left -- had already decided not to pursue criminal charges. Media and political pressure then mounted for the office to settle the issue and lift Mr. Johnson's suspension. Mr. Walpin agreed Mr. Johnson should pay back money but objected to lifting the suspension. He noted that Mr. Johnson has never officially responded to the Corporation's findings and that the entire point of suspension is to keep federal funds from individuals shown to have misused them.

Mr. Brown's office responded by cutting off contact with Mr. Walpin's office and began working directly with the Corporation, the board of which is now chaired by one of Mr. Obama's top campaign fundraisers, Alan Solomont. A few days later, Mr. Brown's office produced a settlement draft that significantly watered down any financial repayment and cleared Mr. Johnson. Mr. Walpin told us that in all his time working with U.S. Attorneys on cases he'd referred, he'd never been cut out in such fashion.

Mr. Walpin brought his concerns to the Corporation's board, but some board members were angry over a separate Walpin investigation into the wrongful disbursement of $80 million to the City University of New York. Concerned about the St. HOPE mess, Mr. Walpin wrote a 29-page report, signed by two other senior members of his office, and submitted it in April to Congress. Last Wednesday, he got a phone call from a White House lawyer telling him to resign within an hour or be fired.

We've long disliked the position of inspectors general, on grounds that they are creatures of Congress designed to torment the executive. Yet this case appears to be one in which an IG was fired because he criticized a favorite Congressional and executive project (AmeriCorps), and refused to bend to political pressure to let the Sacramento mayor have his stimulus dollars.

There's also the question of how Mr. Walpin was terminated. He says the phone call came from Norman Eisen, the Special Counsel to the President for Ethics and Government Reform, who said the President felt it was time for Mr. Walpin to "move on," and that it was "pure coincidence" he was asked to leave during the St. HOPE controversy. Yet the Administration has already had to walk back that claim.

That's because last year Congress passed the Inspectors General Reform Act, which requires the President to give Congress 30 days notice, plus a reason, before firing an inspector general. A co-sponsor of that bill was none other than Senator Obama. Having failed to pressure Mr. Walpin into resigning (which in itself might violate the law), the Administration was forced to say he'd be terminated in 30 days, and to tell Congress its reasons.

White House Counsel Gregory Craig cited a complaint that had been lodged against Mr. Walpin by Mr. Brown, the U.S. Attorney, accusing Mr. Walpin of misconduct, and of not really having the goods on Mr. Johnson. But this is curious given that Mr. Brown himself settled with St. HOPE, Mr. Johnson and his assistant, an agreement that required St. HOPE (with a financial assist from Mr. Johnson) to repay approximately half of the grant, and also required Mr. Johnson to take an online course about bookkeeping.

Iowa Republican Chuck Grassley, a co-sponsor of the IG Reform Act, is now demanding that the Corporation hand over its communications on this mess. He also wants to see any contact with the office of First Lady Michelle Obama, who has taken a particular interest in AmeriCorps, and whose former chief of staff, Jackie Norris, recently arrived at the Corporation as a "senior adviser."

If this seems like small beer, keep in mind that Mr. Obama promised to carefully watch how every stimulus dollar is spent. In this case, the evidence suggests that his White House fired a public official who refused to roll over to protect a Presidential crony.
« Last Edit: June 01, 2018, 06:46:24 PM by Crafty_Dog »

ccp

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Re: Corruption
« Reply #1 on: June 16, 2009, 06:56:32 AM »
Krauthammer was right in noting that Fox news is a fantastic outlet that is the only major source of news that is not corrupted with the MSM bias.  A few city newspapers, and talk radio and that is it.
That God (or Murdoch) for Fox.  I don't know how I could stand watching all the propaganda from the other outlets.  CNN is at least reeanable but the rest are all NYT style propaganda.

Crafty_Dog

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WSJ: Delphi
« Reply #2 on: June 16, 2009, 10:50:03 AM »
The Obama Administration's fast-track sale of bankrupt auto-parts supplier Delphi hit a speed bump late last week when Judge Robert Drain ordered that Delphi conduct an open auction for its assets. That has a number of distressed-debt investors circling. It may also mean that the public will get some answers about the curiously structured sale that GM had quietly put forward the same day it filed for bankruptcy protection itself.

Under that deal, a bankrupt GM -- which is to say, taxpayers -- was set to provide most of the funding for Delphi's exit from bankruptcy, with private-equity firm Platinum Equity throwing in some cash and getting a sizable equity stake in return. The investors who have so far provided most of the debtor-in-possession (DIP) financing during Delphi's four-year bankruptcy case would have gotten as little as 20 cents on the dollar -- almost unheard-of in bankruptcy cases.

Those investors cried foul, pointing out that DIP financers generally have the right to take control of the company if they can't be paid in full. GM and the government at first threatened to play hardball, claiming that Platinum was the only buyer acceptable to GM and so its deal was the only one on the table. Judge Drain wasn't buying it, however. "I don't know what makes Platinum acceptable to GM and why Platinum is unique," he said. "Unless I hear more, there's something going on here that doesn't to me make sense."

That's putting it mildly. When the government arranged the Chrysler and GM bankruptcies, it noted with some justification that, as the DIP financer for the cases, it had wide latitude to determine the companies' fates and ownership structure. But when it comes to Delphi's private DIP lenders, it has taken a very different position, apparently in the interests of wrapping up Delphi's case as quickly as possible to speed GM's own exit from bankruptcy. Taxpayers and investors alike deserve to know more about what looks like a sweetheart deal for one favored group of investors, and Judge Drain deserves kudos for putting on the brakes.

Body-by-Guinness

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Americorp Dismissal
« Reply #3 on: June 16, 2009, 11:55:59 AM »
Will Democrats cover up the AmeriCorps mess?

By: Byron York
Chief Political Correspondent
06/16/09 12:13 AM EDT


Can Republicans in Congress get to the bottom of President Obama's sudden -- and suspicious -- decision to fire AmeriCorps inspector general Gerald Walpin? The answer is no -- unless some. Democrats show interest in what could possibly be the first scandal, or at least mini-scandal, of the Obama administration.

In dismissing Walpin, the president seemed to trample on the law -- a law he himself had co-sponsored as a senator -- that protects inspectors general from political influence and retribution. In addition, it appears that at least part of the reason Walpin was fired was for the tenacity he showed in investigating misuse of AmeriCorps money by a friend and supporter of the president, Kevin Johnson, the mayor of Sacramento, California. Walpin got the goods -- evidence of Johnson's serious misuse of federal dollars -- and the inspector general ended up getting fired for his troubles.

So the Walpin case is just the kind of thing the watchdogs of good government in the House and Senate might investigate. But Democrats enjoy solid majorities in both houses, and thus control what will be investigated, and how any investigation will proceed. As the minority party, Republicans have little power to do anything.

"We can't move something through a committee," says one Republican Senate aide. "We can't issue a subpoena. But we can write letters, and we can jump up and down."

That's pretty much what Republicans are reduced to doing now. They are asking the administration for information -- politely -- and are trying to get the message out through the press. That's all they can do.

They're not particularly optimistic about getting help from the other side. Would Majority Leader Harry Reid really have any interest in a tough probe of a Democratic White House, a Democratic AmeriCorps, and a Democratic mayor who just happens to be a friend of the president?

The committee that would normally be expected to look into the matter would be the Senate Health, Education, Labor and Pensions Committee, which oversees AmeriCorps. But the chairman is Sen. Edward Kennedy, who in April joined President Obama to celebrate the passage of the $5.7 billion Edward M. Kennedy Serve America Act, which will triple the size of AmeriCorps. Kennedy is highly unlikely to support an investigation that might tarnish his favorite program.

Inspectors general as a whole are watched over by the Homeland Security and Government Affairs Committee, headed by Sen. Joseph Lieberman. Some Republicans hope -- a little -- that Lieberman will lend a hand, but they're not holding their breath.

The one lawmaker who has shown real interest in investigating the AmeriCorps matter is Iowa Republican Sen. Charles Grassley. Throughout his career, Grassley has been something of a guardian angel for inspectors general, and he was on the Walpin case from the very beginning.

But Grassley is not just a Republican, he's also on the Senate Finance Committee, which really doesn't have much jurisdiction over this particular matter. So he did what Republicans can do -- he wrote a letter, to Alan Solomont, the former Democratic fundraiser who now heads AmeriCorps.

"It is vital that Congress obtain a full understanding of the role that you and your colleagues&hellipplayed in these matters," Grassley wrote. "Inspectors General have a statutory duty to report to Congress. Intimidation or retaliation against those who freely communicate their concerns to members of the House and Senate cannot be tolerated. This is especially true when such concerns are as legitimate and meritorious as Mr. Walpin’s appear to be."

Grassley asked AmeriCorps to hand over all records and e-mails and documents and other information about the Walpin firing. But if Grassley is the only one doing the asking, the administration doesn't really have to comply.

In 1993, just after Bill Clinton was elected and Democrats controlled both the House and Senate, a lone Republican congressman, Rep. Bill Clinger, wanted to investigate the suspicious firings of the White House Travel Office staff.

But majority Democrats had no inclination to pursue the matter. Clinger tried and tried, wrote letter after letter, and jumped up and down, but he didn't begin to get results until after November 1994, when Republicans took control of both Houses of Congress.

When it comes to investigating allegations of wrongdoing, Republicans today are right back where they were in 1993.


Byron York, The Examiner’s chief political correspondent, can be contacted at byork@washingtonexaminer.com. His column appears on Tuesday and Friday, and his stories and blog posts can be read daily at ExaminerPolitics.com.

 

 
 
Find this article at:
http://www.washingtonexaminer.com/politics/Will-Democrats-cover-up-the-AmeriCorps-mess-48112457.html
 

Body-by-Guinness

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Rotten to the Americorp
« Reply #4 on: June 24, 2009, 12:48:29 PM »
AmeriCorps feared bad press if IG investigation continued
By: BYRON YORK
Chief Political Correspondent
06/24/09 5:42 AM EDT
One of the mysteries surrounding President Obama's firing of AmeriCorps inspector general Gerald Walpin is what prompted the White House, supported by the board of directors of the Corporation for National and Community Service, which oversees AmeriCorps, to try to get rid of Walpin so quickly and quietly?

On the evening of Wednesday, June 10, an official of the White House counsel's office called Walpin to tell him he had one hour to resign or be fired.  The action flew in the face of a law (sponsored by Barack Obama when he was a senator) that requires the president to give Congress 30 days' notice, plus cause, when he intends to fire an IG.  In this case, the White House apparently wanted to dispatch Walpin quickly by pushing him to resign, which would not have required the president to go through the congressional notification process.  Instead, Walpin refused to quit, and only then did the White House tell Congress.

Why the rush?  Walpin had certainly displeased the board by his aggressive investigation into the misuse of AmeriCorps funds by Kevin Johnson, the former NBA star who is now mayor of Sacramento, California and a prominent supporter of President Obama.  Prior to his election as mayor, Johnson ran an educational organization called St. HOPE, which received $850,000 in AmeriCorps money.  Walpin discovered that Johnson and St. HOPE had failed to use the federal money for the purposes specified in the grant and had also used federally-funded AmeriCorps staff for, among other things, "driving [Johnson] to personal appointments, washing his car, and running personal errands."

Walpin recommended that Johnson be banned from ever receiving any more federal funds.  But after the passage of the $787 billion stimulus bill, amid worries that such a ban on the mayor would keep Sacramento from receiving its share of the stimulus cash, the board of the Corporation for National and Community Service reached an agreement with the acting U.S. attorney in Sacramento under which Johnson would repay some of the mis-spent money and also be eligible to receive new federal grants in the future.  Walpin strongly objected to the agreement.  (Knowing his opposition, the board excluded him from the negotiations.) 

Walpin's objections were the subject of a now-controversial May 20 meeting in which Walpin, to use his term, "lectured" the board on what he believed was its mistake in approving the Johnson settlement.  On the morning of the meeting, the Sacramento Bee reported that a man named Rick Maya, who worked with Kevin Johnson in the St. HOPE project, claimed that Johnson's emails had been deleted during the time of Walpin's investigation.  The Maya news suggested that there might have been obstruction of justice in the St. HOPE affair, and Walpin used it to drive home his point that the board should have let his investigation stand.

It appears the discussion of the St. HOPE matter was a turning point not only in the May 20 meeting but in Walpin's tenure at the Corporation.  In a recent interview, a Republican member of the Corporation board told me that Walpin told board members at the meeting that he wanted to issue some sort of public statement to the effect that there should be more investigation of the St. HOPE matter.  "He said, 'I feel so strongly about this that today I am going to issue a statement to the press calling for further investigation,'" the member said, recalling Walpin's words.  "The board members all caught that.  Several of us wrote down that he was going to be issuing a statement to the press that afternoon."

It was a distressing scenario for the board.  As a favorite program of Barack and Michelle Obama, AmeriCorps was enjoying a higher profile than ever before.  The Corporation also stood to receive vast amounts of new funding from the $5.7 billion Edward M. Kennedy Serve America Act, which would triple the size of AmeriCorps. And in the midst of that, here was the agency's inspector general saying he might re-open an investigation into an embarrassing episode involving hundreds of thousands of mis-spent dollars and a politically prominent supporter of the president.

"Right now, when there is such a great emphasis on service, we did not need any press out there on this St. HOPE matter, which was already settled," the board member told me.  "We thought he was going to use the press…He had an issue with the fact that a settlement was reached…and he was doing everything he could to continue to keep the issue at the forefront."

As it turned out, Walpin did not issue any statement, to the press or anyone else.  (He doesn't recall whether he said precisely what the board member recalls, although, he told me, "There wouldn't have been anything wrong if I had.")  Instead, Walpin contacted the FBI in Sacramento with word of the Maya allegations, and agents there are now investigating the matter.

Later in the meeting, members questioned Walpin about his intentions.  It was at that point that they say Walpin became confused and disoriented.  But whatever Walpin's demeanor, it appears that board members, of both parties, were worried about the possibility of embarrassing new revelations involving a sensational case they thought had been closed.  After the meeting, the board began an accelerated effort to remove Walpin, compiling an informal list of grievances against him -- he could be difficult, he telecommuted, he was somehow disabled -- that the White House would ultimately cite as cause for his firing.  But there is no doubt that, whatever the other reasons, the board feared that a revival of a scandal they thought was in the past would be embarrassing to the newly-prominent AmeriCorps.

For more background on the Walpin firing, see here and here and here and here.
-Byron York

http://www.washingtonexaminer.com/opinion/blogs/beltway-confidential/AmeriCorps-feared-bad-press-if-IG-investigation-continued-48998746.html

Body-by-Guinness

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Just Make the Numbers Up
« Reply #5 on: July 01, 2009, 08:02:13 AM »
States Given Leeway in Tallying New Jobs from Stimulus
By LOUISE RADNOFSKY

The White House is giving states a break when it comes to counting the number of jobs created or saved with the help of federal stimulus money.

President Barack Obama had promised that the stimulus plan would save or create 3.5 million jobs. Republicans have criticized the plan and the reliability of the administration's numbers.

The latest Wall Street Journal/NBC poll suggests growing public doubts, with 39% of those surveyed saying the stimulus is a "bad idea," up from 27% in January.

Meanwhile, some state officials worried about how they were supposed to count jobs credited to the stimulus. Now, the White House Office of Management and Budget has given states guidance calming these concerns.

"All we're asking them to do is a simple headcount; tell us how many people you hired," said Rob Nabors, the deputy director of the office, in an interview.

Recipients won't be asked to grapple with complicated estimates, he added. Instead, they may use their best guess whether a job would have been created or saved in the absence of a recovery plan, and to not count it if they are uncertain.

Philip Mattera, research director for the economic development research group Good Jobs First, said the method appeared to be "a bit impressionistic" and presented pitfalls. "One is the risk of unreasonable reporting; the other risk is how the whole system is perceived because of the possibility of unreasonable reporting," he said.

Craig Jennings, a senior policy analyst at the nonpartisan OMB Watch, also said the new guidance could allow state officials to use their own definition for the number of hours in a "full-time equivalent" job, thus making it possible to credit stimulus projects for more employment.

OMB officials said the method was the easiest and quickest way for recipients to give the required information, and that making the reports publicly available allowed anyone to question them.

The new counting guidance has come as a relief to officials in state capitols, said Chris Whatley, Washington director of the Council of State Governments, a nonpartisan network.

"The first guidance left it up to individual states to determine the methodology, and that caused confusion," he said. States had feared that they could be criticized either for being too optimistic, or too pessimistic, about the job numbers they reported.

Mr. Whatley said that states had plenty of data to support their job creation and retention estimates, and that "for the most part, it's a technocratic exercise."

Still, he said, "There are 50 different governors with 50 different personalities and they will expect different things from their staff."

Write to Louise Radnofsky at louise.radnofsky@dowjones.com

http://online.wsj.com/article/SB124580125603844651.html

Crafty_Dog

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Donors find a home
« Reply #6 on: July 03, 2009, 06:40:05 AM »
BO seems to be within normal ranges on this:
============

WSJ

By JONATHAN WEISMAN and YUKA HAYASHI

The U.S. Embassy in Tokyo has seen its share of luminaries in the ambassador's suite. Former Vice President Walter Mondale, former Senate Majority Leaders Mike Mansfield and Howard Baker and former House Speaker Tom Foley are among those who have brokered relations with a complex and critical ally in a region bristling with military and trade tensions.

 Obama Beholden to Campaign Donors?

WSJ's White House Correspondent Jonathan Weisman discusses President Obama's pick for the U.S. Ambassador post in Japan -- San Francisco Bay Area lawyer and Obama's chief Silicon Valley fundraiser John Roos, who has no diplomatic experience and no Japanese.
President Barack Obama's pick for the post is from a different mold: John Roos, a San Francisco Bay area lawyer, was the president's chief Silicon Valley fundraiser and contributions "bundler." He has no diplomatic experience.

Mr. Obama's choice of Mr. Roos, along with other political boosters -- from former investment banker Louis B. Susman, known as the "vacuum cleaner" for his fundraising prowess, to Pittsburgh Steelers owner Dan Rooney -- has raised eyebrows among some who thought the president would extend his mantra of change to the diplomatic corps.

"We're not only insulting nations [that] we're appointing these bundlers to, we're risking U.S. diplomatic efforts in these key countries," said Craig Holman, a government-affairs lobbyist at watchdog group Public Citizen.

This tension can be traced back to Mr. Obama's claim during last year's campaign that President George W. Bush engaged in an "extraordinary politicization of foreign policy." Mr. Obama said he instead would ensure that hires are based on merit, rather than party or ideology. The American Academy of Diplomacy, an association of former diplomats, seized on the comments in lobbying him to lower the portion of ambassadors drawn from outside the foreign-service establishment to as little as 10% from the 30% average since President John F. Kennedy's tenure. (Mr. Bush's score was 33%.)

Foto caption: Entertainment executive Charles Rivkin is among major fund-raisers tapped for top ambassadorial postings.

Of the Obama administration's 55 ambassadorial nominees so far, 33 -- or 60% -- have gone to people outside the foreign-service ranks, according to the Center for Responsive Politics.

That ratio is almost certain to tilt back toward career diplomats as dozens of the remaining posts are filled.

"The president said in January that he would nominate extremely qualified individuals like Mr. Roos, former Congressman Tim Roemer, and Miguel Diaz, who didn't necessarily come up through the ranks of the State Department, but want to serve their country in important diplomatic posts," said White House spokesman Tommy Vietor.

Mr. Obama has chosen some diplomatic heavy hitters. Diplomacy experts have praised the experience of Christopher Hill, ambassador to Iraq; Lt. Gen. Karl Eikenberry, ambassador to Afghanistan; and United Nations Ambassador Susan Rice.

Representatives of Mr. Roos and other ambassadorial nominees said they wouldn't comment before confirmation, a customary position for all nominees, White House aides said.

Ronald E. Neumann, president of the Academy and a retired Foreign Service officer, cautioned that it is far too early to tell how the Obama lineup will look. When administrations turn over, the first ambassadors to leave their posts often are the prior president's political appointees; those spots are first to be filled, in turn, with new political appointees. Mr. Roos's predecessor in Tokyo, in fact, was a former business partner of Mr. Bush, although he had served as ambassador to Australia before the Japan post.

The president's slate of nominees thus far, Mr. Neumann said, "tells you it's not change, but it doesn't yet tell you what it is."

Mr. Obama's ambassadorial nominees include Kentucky Internet executive Matthew Barzun, an Obama fundraiser, for Sweden; Colorado businessman Vinai Thummalapally, the president's roommate at Occidental College, for Belize; and Howard W. Gutman, who pulled together a half million dollars in Obama contributions, for Belgium.

The Court of St. James's in London would get Mr. Susman, the former investment banker, who bundled at least $100,000 from donors for Mr. Obama's presidential run and $300,000 for his inauguration celebration, according to Public Citizen. Mr. Rooney, tapped for Ireland, threw his weight behind Mr. Obama ahead of the Pennsylvania primary. And Charles H. Rivkin, who if confirmed will be heading for Paris, is chief executive of entertainment company W!LDBRAIN Inc. and former president of Jim Henson Co., creator of the Muppets.

White House officials say the term "political appointee" often undersells a nominee's qualifications. Mr. Diaz, a professor at St. John's University and the College of Saint Benedict in Minnesota, may not have diplomatic experience, but he would be the first theologian to be U.S. ambassador to the Vatican. Mr. Roemer, nominated as ambassador to India, also has no Foreign Service experience, but he was a prominent member of the 9/11 Commission.

Mr. Susman wasn't among the biggest fund-raisers for Mr. Obama, but he worked in Chicago at the epicenter of the Obama political apparatus. People familiar with his nomination attribute it to his role as an influential businessman and lawyer in the president's hometown.

Mr. Rivkin developed a connection with France and its language while his father was U.S. ambassador to Senegal and Luxembourg, both French-speaking countries, people familiar with the nomination say. Since 1968, the family has presented the annual Rivkin Award honoring constructive dissent in the Foreign Service. Mr. Gutman, a former Supreme Court clerk, served presidents of companies and countries for more than two decades at the Washington office of law firm Williams & Connolly.

The Swiss media aired some concerns about the choice of car-dealership magnate Don Beyer for the Geneva posting. The hope was for someone seasoned in financial issues, given White House pressure on Switzerland to make its banking system more transparent, according to Mr. Holman of Public Citizen.

Many in Japan, meanwhile, were surprised and even disappointed at the choice of Mr. Roos -- in part because it had been rumored in local media that the choice was to be Joseph Nye, a Harvard University professor of international relations and former assistant secretary of defense. Some commentators suggested the Roos nomination showed Mr. Obama's lack of interest in relations with Japan.

The Japanese now appear to be making the best of Mr. Roos's eventual arrival. The Nihon Keizai Shimbun business daily said the U.S.-Japan relationship has grown so mature that it doesn't require a big name as a go-between.

A White House official offered Tokyo some reassuring words: "John Roos is very close to the president, and having that can be very important."

Write to Jonathan Weisman at jonathan.weisman@wsj.com and Yuka Hayashi at yuka.hayashi@wsj.com


Body-by-Guinness

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. . . and Gross Overpayment
« Reply #7 on: July 09, 2009, 01:34:36 PM »
One Web Site: $18,000,000

Posted by Jim Harper

A company called Smartronix will get $18,000,000 to redesign Recovery.gov, the federal Web site intended to track where federal Recovery Act spending goes.

The government purchased technology for a similar site (with a somewhat smaller scope), USASpending.gov, from the non-profit group OMB Watch for only $600,000. A private company already provides information on Recovery Act spending to the public for free.

I wrote here enthusiastically about the plans of the Sunlight Foundation to go after this contract, saying “[T]he contract award will now be subject to public scrutiny. Value-for-dollar to the taxpayer will be easily discernible, and that will raise the political risks of awarding the contract based on cronyism or go-with-whatchya-knowism. Transparency in all things.”

Sunlight did not ultimately bid. Instead, it took some lessons about the government contracting business. The transparency I wrote about materialized, though, and we can take a lesson, too: The federal government will pay $18,000,000 for one freaking Web site.

http://www.cato-at-liberty.org/2009/07/09/one-web-site-18000000/

ccp

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Re: Corruption
« Reply #8 on: July 15, 2009, 08:45:25 AM »
I keep trying to post here the news of the revokation of the deployment of the soldier who refused to go to overseas because Bama was not born here and it will not post.

I don't know why it won't post (curiously) but I think it quite obvious why this issue keeps getting swept under the rug.

Why can't the public have all the evidence about this guy's birth place?

Any rational person could only come up with one conclusion here.  This guy was not born in the US.

Why cannot Judicial Watch or somebody else investigate this issue and get to the truth? 




 

Body-by-Guinness

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Pillage Programs
« Reply #9 on: July 15, 2009, 09:03:40 AM »
July 15, 2009, 4:00 a.m.

Bigger Than Madoff
Government health care is a target for massive fraud.

By Chris Edwards and Tad DeHaven

Every year, criminals and cheats pilfer over $100 billion — that’s $40 billion more than Bernie Madoff scammed off his investors — in federal benefits to which they are not legally entitled. Medicare, Medicaid, food stamps, refundable tax credits, and many other programs are targets for looting.

Government fraud has been in the news lately because analysts are expecting major abuses of the Obama administration’s $787 billion stimulus plan. One Deloitte expert argued that “swindlers, con men, and thieves could siphon off as much as $50 billion” of stimulus funds, which are vulnerable because policymakers are under pressure to shovel it out the door quickly.

Even more troubling is the potential for fraud and abuse created by President Obama’s other big spending proposals — particularly his giant health-care plan. Obama wants to inject hundreds of billions more tax dollars into federal health care instead of fundamentally reforming Medicare and Medicaid — broken programs that are already subject to Madoff-sized larceny. That is incredibly unfair to those of us paying the bills.

Take Medicare. The Government Accountability Office reports that the program makes about $17 billion in improper payments each year. And that doesn’t include problems in the new $60-billion-per-year prescription-drug plan, which is a juicy target for criminals. Harvard University’s Malcolm Sparrow, a specialist in health-care fraud, recently testified to Congress that official estimates are “lacking in rigor,” are “comfortingly low and quite misleading,” and exclude many kinds of fraud and abuse. He thinks that as much as 20 percent of the federal health-care budget is consumed by fraud, which would be $85 billion a year for Medicare.

Medicare makes a staggering 1.2 billion electronic payments each year, making it highly vulnerable to cheating by health-care providers and organized-crime rings. Criminals need only fill out the government forms carefully and the “claims will be paid in full and on time, without a hiccup, by a computer, and with no human involvement at all,” according to Sparrow. A perfect example is the recent case of a high-school dropout in Miami who was able to single-handedly bilk Medicare out of $105 million from her laptop by submitting 140,000 separate claims for equipment and services.

Medicaid is also a huge abuse target. The GAO puts Medicaid fraud at $33 billion — 11 percent of state and federal spending on the program. Again, that is likely a substantial underestimate. A former Medicaid investigator believes that up to 40 percent of New York State’s Medicaid budget is siphoned off in fraud and improper payments, but New York probably has a worse problem than elsewhere. Using Sparrow’s 20 percent estimate instead, Medicaid rip-offs top $60 billion a year nationwide.

How does all this fraud and abuse occur? In many ways, including billing for services and medical equipment not provided, misrepresenting the services provided, and double billing. That last one is common. In one recent case, the University of Medicine and Dentistry of New Jersey double-billed Medicaid repeatedly over the years by directly submitting claims for outpatient physician services, even as doctors working in the hospital’s outpatient centers were submitting their own claims for exactly the same procedures.

Another trouble spot is Medicaid’s nursing-home benefits, which are meant for people with low incomes and few financial assets. Since nursing homes are expensive, the program creates a big incentive for higher-income families to falsify their status and apply for the benefits. Indeed, a whole industry of financial consultants helps ineligible seniors hide their income and assets so that they qualify. The result is that the program loses about $10 billion a year to fraudulent claims.

The bottom line is that the enormous size and complexity of federal health programs results in a huge waste of taxpayer funds. The inspector general of the Department of Health and Human Services recently told Congress: “Although it is not possible to measure precisely the extent of fraud in Medicare and Medicaid, everywhere it looks the Office of Inspector General continues to find fraud against these programs.”

Medicare and Medicaid are the biggest fraud targets, but this problem plagues all government subsidy programs. Official loss estimates for other programs include: $12 billion for the Earned Income Tax Credit, $5 billion for Supplemental Security Income, and $14 billion for unemployment insurance. All in all, the cost to taxpayers is well over $100 billion a year, which translates into a theft of $1,000 or more from every household in America every year.

We think that there are good policy reasons to dramatically cut Medicare, Medicaid, and other benefit programs. But at the very least, the vast magnitude of graft in these programs should give every policymaker pause before pumping even more taxpayer money into the federal subsidy empire.

— Chris Edwards is the director of tax-policy studies at the Cato Institute and co-author of Global Tax Revolution: The Rise of Tax Competition and the Battle to Defend It. Tad DeHaven is a budget analyst at the Cato Institute.

National Review Online - http://article.nationalreview.com/?q=YTIyMTUxM2FkOTA4YmVkYzdlZGE3ODhkMzBiZDRkNDQ=

Body-by-Guinness

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The Cost of Dough
« Reply #10 on: July 17, 2009, 12:31:49 PM »
July 17, 2009
Vote For Dave

By Ken Russell
Dave McArthur owns a few bakeries in St Louis, Missouri; McArthur's Bakery.  His bakeries make treats of legendary appeal throughout the St Louis area and Dave is a local media personality as well.  Most of us think apple turnovers and politics aren't really compatible in the same sentence, but recently Dave's made them so.  He didn't want to.  He never intended to.  He was forced into a corner and for his own survival, he had to.  Here's why.

Dave has to make his cold mixed doughy goodness hot; really hot in order to turn the goo into heaven in your mouth.  Bakery, baker, bake, hot, heat, ovens -- don't touch!

In other words, Dave is a user of energy and he needs to use that energy efficiently to feed his family, pay his 88 employees, and pay his vendors.  But Dave, and the rest of the bakeries throughout the United States --  along with the glass blowers, hamburger stands, plastic injection molders, you name it --, have a new headache:  The American Clean Energy and Trade Act (ACES) or Cap and Trade.

You will have a new headache too, because as you'll see from this one American small business, things are going to change as promised and not in a hopeful way if this monstrosity becomes law. It already passed in the House of Representatives.

Dave asked -- no, I've seen him twice on Fox News and the Glenn Beck Show -- he begged his representative Russ Carnahan (D-MO) to tell him exactly how the cap and trade bill will affect him.  In fact Dave merely wants to know if there is a maximum amount he can see in natural gas and electricity prices as a result of the bill.  It's a yes or no answer.  Yes, there is a maximum amount or no there is no maximum amount.

Carnahan, who promised to meet with Dave privately to discuss the simple yes or no answer, stood him up for who knows what reason.  However, Dave did get a ridiculous, purposely difficult to understand, non-answer in the form of a letter from Carnahan's staff member.  And condescending?  Well, Russ wanted Dave to know that he "doesn't take comprehensive energy reform lightly" and made it impossible for Dave to figure out just how much more he will have to spend to heat up his donut dough. You see, at the time Dave asked Russ Carnahan the simple question, the good Congressman had not yet read the bill for which he voted.  Ain't that America?  It gets better.

Dave was informed that the University of Missouri could come and give Dave's bakeries an "energy assessment."  Since McArthur's Bakery spends more than $100,000.00 per year in energy costs (his cost is actually $158,000.00), he qualifies for a no cost to him (but a cost to taxpayers) "energy audit, detailing operating expenses, energy consumption and an action plan to help reduce your overall costs and energy consumption."

Isn't that great?  Who knows more about running a business than a bunch of university professors and students who have never run a business?  Yeah, they will show up to tell Dave what he intimately already knows.  It's like "giving" Dave a free, taxpayer funded firm-grasp-of-the-obvious.  No condescension there.

Oh but wait, I forgot. Guess how Dave and his partner and brother Randy, after calls, letters, and e-mails to Carnahan, were able to finally get Carnahan's attention?

At one of McArthur's bakeries there is a scrolling electronic sign.  You know, the kind that lets motorists know you can get 3 donuts for $1.49?  (and I'm telling you in my opinion they are one thousand times tastier than Krispy Kremes).  After weeks of frustration from being 100% ignored by the guy who is supposed to represent him, Dave ran "Russ Carnahan Voted to Close Us and Other Small Businesses" on the marquee.

Guess what?  Threats came from the über-Democratically controlled city to force Dave to take down the words.  Had Dave not claimed his Constitutional right to free speech, making his sign a local news story which forced the city to back down, do you think Carnahan would have immediately contacted Dave and Randy to discuss with them cap and trade?  Neither do I, because until the sign went up, Carnahan ignored McArthur.

The result?  A promised face-to-face meeting with Carnahan that was broken and in its place, a "political speak" letter answering none of Dave's questions; a sort of "Dave, I'm giving you permission to eat cake," response from King Russ Antoinette.

Where do I come in?  It's where you should come in.  Your government is methodically, purposefully, knowingly, forcefully and powerfully punishing hard work, free enterprise and the largest employment source, small business, out of existence or into subjection to its whims.  It's not at the "are they really doing this?" stage anymore.  It's very near the reality stage.  For a number of reasons including our dumbed down school system, our Fourth Estate, our overall national apathy toward anything not related to American Idol, Michael Jackson, or The Big Me and worse, a lie that says crippling businesses will "Save the Planet."

The fact that a roaring successful, well known and loved local business is crying out for help against an oppressive government, falling on deaf and condescending ears, ought to send a chill and not a leg tingle down all of our legs -- and spines.  Dave McArthur is but one small voice sounding a huge warning to expose the lie to us all and we better take action or it will be to our peril.  He hasn't been there.  He is there and he understands that we need to send this oppressive government back to where it actually represents freedom and the Constitution so that prosperity can survive and hard work can be rewarded.

I'm not motivated to get involved because Dave's dangerously good chocolate cake soon won't be available, nor because Dave's a friend of mine.  Dave McArthur doesn't know me from Adam.  I'm motivated because I know freedom is about to end in this nation at an afterburner speed by the very ones elected and sworn to protect and defend that freedom.  Dave is living proof of that.  Their aim is for pure power over you and I.  Mine is for freedom, free enterprise and glazed donuts.  Yours should be too.  My vote is for Dave.

Page Printed from: http://www.americanthinker.com/2009/07/vote_for_dave_1.html at July 17, 2009 - 03:27:36 PM EDT

Body-by-Guinness

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Swag @ 65 Million a Crack
« Reply #11 on: August 05, 2009, 08:15:22 PM »
Perhaps there's a better niche under which to file this, but in view of the current economic climate this demonstrates corrupt priorities if nothing else.

Flying Miss Nancy

By INVESTOR'S BUSINESS DAILY | Posted Wednesday, August 05, 2009 4:20 PM PT
Washington: The Democrat-controlled House wants to buy nearly $200 million worth of private jets so lawmakers and a few high-level bureaucrats can travel in style. We truly have an imperial Congress.

Just last week Washington announced it would cut $100 million from the federal administrative budgets and acted like that was some big achievement. Now this week we learn that about the same time those cuts were made public, the House OK'd the purchase of the private jets.

The taxpayer money the House plans to spend is to be used to buy three Gulfstream G550s at roughly $65 million each. These are long-range business jets with large, palatial interiors and three temperature zones. Company literature says the "impeccably equipped cabin" of a G550 offers "best-in-class comforts" and can be configured "with up to four living areas."

"At Gulfstream," the company says, "we have anticipated your every need."

Sounds like just the sort of plane the House speaker, Senate majority leader and their extended entourages could enjoy on a nonstop junket to Asia — or merely for a quick turnaround to visit constituents in San Francisco or Las Vegas.

The notion that some lawmakers feel it beneath their dignity to travel with the masses on commercial jets is nothing new. But news of the House plan does bring to mind three salient facts, all of which the Democratic leadership hopes the public does not think of in relation to the jet purchase.

Congress isn't short of hypocrisy. Most of the Democrats and their environmentalist allies are reflexively opposed to private jet travel because of its excessive carbon footprint. Or, at least, they are opposed to private jet travel for others.

Neither does it recognize irony. CEOs of the Big Three automakers were excoriated for traveling in their private jets last year to testify in Washington.

And some have an outsized sense of privilege. In 2007, just a month into the new Democratic majority, Speaker Nancy Pelosi asked that taxpayers provide a jet that could make a nonstop flight to her Bay Area district. She reportedly wanted a luxury, stateroom-outfitted version of Boeing's 757-200 like those the vice president, first lady and Cabinet officials fly on.

And there was a lot of foot-stamping when the Bush White House said no.

At least one of the three jets approved by the House will be sent to the Air Force's 201st Airlift Squadron, which, among other duties, shuttles members of Congress.

It seems Pelosi One might yet get off the ground.

http://www.ibdeditorials.com/IBDArticles.aspx?id=334363404866691

Crafty_Dog

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Re: Corruption
« Reply #12 on: August 07, 2009, 07:49:23 AM »
http://news.yahoo.com/s/nm/20090807/ts_nm/us_bankofamerica_lawmaker

Reuters) – A leading Democrat in the House of Representatives who has rebuffed Republican efforts to subpoena records of a mortgage program for favored borrowers at Countrywide Financial Corp got home loans from that lender, the Wall Street Journal reported on Friday.

Representative Edolphus Towns, chairman of the House Oversight and Government Reform Committee, obtained two loans from Countrywide, which was bought last year by Bank of America, the newspaper said, citing information from the lawmaker's mortgage documents.

Towns has turned down calls from the committee's ranking Republican, Darrell Issa, for the panel to subpoena mortgage records showing who received loans through Countrywide's VIP program, the journal said.

The program offered loans to politically influential figures and other favored borrowers at more attractive terms than were available to the general public.

The mortgage documents on the loans to Towns contain a Countrywide address and branch number that correspond to the VIP program, the Journal reported.

Towns told the paper through a spokeswoman that his decision not to subpoena the VIP records "has nothing to do with his mortgages" and that if the mortgages came through the VIP program "it was without his knowledge."

Towns was not immediately available for comment outside regular U.S. office hours.

In June, Issa wrote to Bank of America asking it to disclose any special mortgage terms the bank's Countrywide unit gave to politically influential customers over an eight-year period. Bank of America bought Countrywide last year after the mortgage lender collapsed under the weight of bad mortgages and defaults.

Countrywide's VIP program of preferential mortgage rates was also known as the "Friends of Angelo" program, after Countrywide founder Angelo Mozilo.

In February, Senate Banking Committee Chairman Chris Dodd, a Democrat, said he would refinance two mortgages that he took out in 2003 under Countrywide's VIP program. (Reporting by Santosh Nadgir in Bangalore, editing by Vicki Allen)

Body-by-Guinness

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Palin's Punishment
« Reply #13 on: August 07, 2009, 06:31:01 PM »
THE DESTRUCTION OF SARAH PALIN

Well, Sarah Palin has stepped down as Governor of Alaska. Fighting a seemingly endless string of harassment lawsuits has taken pretty much all of her time and $500,000 of her money. That’s real money to the Palins. That’s real money to me, and probably to you too.

At least fifteen ethics complaints had been leveled against Governor Palin, and all of them have been dismissed as baseless. But that’s beside the point, isn’t it? Decent people, like most of you out there, probably don’t appreciate just how easy it is to destroy someone of integrity if you have no integrity of your own.

Here’s how it works. Fifteen assorted bloggers and miscreants of various stripes launch unsubstantiated ethics complaints against the Governor of Alaska, who, because of Alaska state law, is not immune from having to fight them. Fifteen charges of corruption – no matter whether they are true or not – means that the public hears nothing but the words “Palin” and “Corruption” being solemnly reported by the press.  Even the phrase “cleared of corruption charges” makes that subconscious connection.

And that’s all it takes: false accusations. Consider this:

Bill Clinton spent every second of his Presidency – every second – knowing exactly what to say if the words “Paula Jones” or “Gennifer Flowers” or “Monica Lewinski” came up in conversation, or at a press conference, or even in the middle of deep sleep. If Hillary just whispered the words:

“Monica Lewinski”

…Bill would bolt upright in bed and sputter: “I did not have sex with that woman! Whichever one you mentioned!”

He’s ready for accusations because he knows he’s guilty. That’s what guilty people do all day: work on the explanation and the alibi. But an innocent person, when charged with corruption or lying or worse – well, it shakes them to the core, the same way it would shake you to your core if you were accused of some heinous act you did not commit. And if these false accusations came at you again and again and again, how many times would it take before you said, to hell with this. Who needs this? This is destroying my family. A guilty person has that factored going in; it’s part of their mental equation. But it’s enough to drive an innocent person out, and that was the goal.  Wasn’t it?

There’s a reason the word Satan means “the Accuser” in Hebrew, and why “Thou shalt not bear false witness against thy neighbor” is one of the Ten Commandments. A false accusation against an innocent person is often more effective than a real accusation is against a guilty one. 

Now to simply say that Democrats had to attack this Republican is to miss the savagery of the assault, a viciousness that was evidenced on the first day of her announcement as John McCain’s running mate and which continued unabated long after the election. The example of Sarah Palin, you see, is fatal to the liberal worldview.

For forty years now Liberals have defined feminism in a binary way. You simply could not be a feminist – and by implication you could not really demand the opportunities that modern feminism promised – unless you categorically came down on the side of “choice.” You could go out into a man’s world, dress like a man, act like a man, achieve all the wealth and power of a man, perhaps even have a boutique single child — or two, if you could afford a decent nanny.

But Sarah Palin’s decision to see her Down’s Syndrome child to term was an act of such blinding moral clarity that it tore down the drapes and flung open the windows of Miss Havisham’s fetid little parlor. To see Trig Palin being held in his sister’s arms reminded the entire country that this choice has consequences. And furthermore, it showed that you could be Mayor, or Governor, or potentially President of the United States, and still have a big family, dress and talk like a woman, and get there with a mate who was nothing more or less than a good man and loving husband and commercial fisherman, and not ride to power on the coattails of a billionaire businessman, or media mogul, or political superstar.

By choosing life – a flawed life, some would say – Sarah Palin effortlessly displayed what once was the universal maternal instinct… and that put her way, way off the reservation. To present such a clear example of competence, achievement and respect while at the same time running full in the face of the liberal feminist first (and only) commandment, Sarah Palin earned the kind of hatred from the left that is only well and truly reserved for those people who so effortlessly put the lie to their entire philosophy. This is the kind of hate reserved for black Americans like Thomas Sowell or my own friend Alfonzo Rachel, who become traitors to their race as Palin became a traitor to her sex, for having the audacity – the gall, the unmitigated nerve – to have their own thoughts, and make up their own minds, and free themselves from the rigid – and racist and sexist – roles that have been cut out for them by the liberal establishment that perpetually shrieks that it is only working in their best interest out of a rarefied moral superiority.

And there’s another side of the Democratic Party’s mythical image of itself that she stole from under their feet: the Palin’s are working people, the kind of people the Democratic Party once claimed proudly as their irreducible base before they became the Limousine Leftists we see today. She comes home and makes dinner for the family while Todd – the now-former First Dude – is out in the garage releasing some of the tensions of a hard day at work by tricking out his snow machine for racing season.

No wonder Democrats and Liberals feared her so. And now we get to the heart of the matter. Because it was not just Democrats and Liberals who so fervently wished to see her destroyed. Many Republicans felt the same way.  The LA Times reports:

“I am of the strong opinion that, at present day, she is not ready to be the leading voice of the GOP,” said Todd Harris, a party strategist who likened Palin to the hopelessly dated “Miami Vice” — something once cool that people regard years later with puzzlement and laughter.”  The Times then goes on to quote one Stuart K. Spencer, who has been advising GOP candidates for more than 40 years, who says, “I can’t tell you one thing she brought to the ticket.”

Mr. Harris and Mr. Spencer, I’m not a GOP strategist, so unfortunately I am not able to associate myself with the glory and success that people like you have led the Republican Party to in these last several election cycles.. Here’s what I can tell you, though: as a person of small reputation in little backwater pools on the internet, I spent months – months – defending John McCain as the Republican nominee. Not because he was my first choice, or my second choice, or my third choice… because he wasn’t.

I did it because I felt I had some idea of what this Obama tsunami was going to bring. And I saw, with my own eyes – pay attention now, professional GOP strategists — untold numbers of life-long conservatives saying they were going to sit this one out…just stay at home on Election Day.

Then Sarah Palin came along, and those same people – those exact same people! – wrote about sending in hundreds of dollars and asking for  lawn signs, because for the first time in years they felt there was someone who understood what their lives were like: someone who went hunting and fishing, someone who worked hard for a living, someone who had fought corruption where they found it, regardless of the personal cost, someone who had a son fighting in Iraq, someone who knew how to handle a gun and actually owned one! Someone who unabashedly loved America, someone who could be tough and decisive and still be feminine, someone who put family above politics and who was doing a job with quiet competence and who by most accounts did not spent every living day of her life maneuvering and plotting and kissing ass because she had some defective political gene that drove her to want to become President from the age of three.

Sarah Palin — clinging with an incandescent lack of bitterness to her guns and her religion — energized the base of this party in a way I have never witnessed before. Now, of course, I need to again remind you that I am not a GOP strategist. But just between me and actual Republican strategist Stuart K. Spencer, who does not know what she brought to the ticket, I’ll tell you right now. I’ll clue you in.

She brought just about every vote that the Republicans got.

Those people – those actual conservatives that went out and voted – don’t think Sarah Palin cost John McCain the election. They think John McCain cost Sarah Palin the election. It was John McCain’s elitist genius advisors that buried her for two weeks after her knockout GOP acceptance speech – the one that put the McCain / Palin ticket up 7-15 points in the very week after Barack Obama’s Temple Coronation – and then hid her in a basement trying to polish her up to midtown Manhattan standards of sophistication and erudition before they walked her into back-to-back ambush interviews. It was these elitist “campaign staffers” that decided to buy $150,000 of high-end clothes for a woman who always looks best when she is dressed as who she is: a regular working person. And, of course, those clothes went on to become another of the “corruption” and “Diva” charges they leaked against her to protect their own miserable, cowardly asses so that they can continue to advise future campaigns into the dustbin of history.   

Let’s wrap this up by getting to brass tacks here.

This isn’t a fight between Democrats and Republicans, or even between Liberals and Conservatives. This is a fight to the death between the populists and the elites.

Sarah Palin is the anti-Obama.  He is urban; she is rural. He preaches dependency on the government and she leads a life of independence. He consistently apologizes for the sins of the country he was elected to lead, and she is unabashedly proud of it. He opposes the war in Iraq; she has skin in the game. And on and on.

And that is why she had to be destroyed, by the Democratic Party, by the New York media elites, and by many of the inside-the-beltway voices of various and sundry GOP “strategists.”

She needs to be destroyed because the one thing that can never be allowed to happen is this: you cannot have a voice in this political debate. You know who I mean. You rubes, you hicks out there in flyover country. Your job is pay taxes, vote for who they have decided over cocktails makes them feel better about themselves, and occasionally provide your inbred idiot sons and daughters for the army or police force or whatever you people without Ivy League educations do with your tawdry little lives.

Meanwhile, the Harvard-educated elitist geniuses will run the country according to their infinitely brighter intellectual and moral lights.

And whatever happens, do not be distracted by inconvenient facts that you might stumble upon as you listen to Faux News, or your hate-filled talk radio, or right-wing nutjob blogs. Pay no attention to the fact that small banks, run by hayseeds like yourselves, were in no financial troubles at all lending money and writing mortgages to people who could afford to pay it back, but who are now are being forced to pay for the failure of genius-level Harvard Business School ideas like Collateralized Debt Obligations which essentially brought down the greatest economy the world has ever seen.

And remember, it’s just a coincidence that Harvard grads John F. Kennedy and Robert S McNamara not only got us into the Vietnam war, they also determined the genius-level rules of engagement that caused inbound Naval aviators to look down at, but not attack, the surface-to-air missiles being unloaded at Haiphong Harbor. They’d see those same missiles again in a few weeks when they were shot down and killed by them.

That’s genius-level, Harvard-quality thinking. Not like that simpering idiot, that commonplace dolt Ronald Reagan. I mean, the man went to Eureka College, for God’s sake! Who’s even heard of Eureka College? The fact that he defied forty years of Harvard-educated State Department officials and defeated the Soviet Union with plain speaking and common sense and some antiquated, embarrassing and– one might say tacky – belief in his country and its people… well, that’s surely coincidence as well.

Here’s a final, quick little thought for you.

Saul Alinski wrote a book called Rules for Radicals. Hillary Clinton wrote about it in her senior’s thesis. And if Hillary Clinton learned from it, Barack Obama taught from it: the term community organizer was coined by Alinski and was the centerpiece of his theory that the socialization of America could best be accomplished from within the system since Americans were alert to revolutions forced upon them from the outside.

One of the Rules for Radicals is Make the enemy live up to his/her own book of rules. Think about the genius of that. Just let that sink in. When a Republican has an ethics scandal, it’s “hypocrisy” and “double standards” and all the rest. But when a Clinton or a Pelosi or a Charley Rangel or a Chris Dodd or a Barney Frank or a William Jefferson has an ethics scandal, no one bats an eye. Why? Because of course they’re immoral! They’re Democrats.

Alinski could see that moral people have to be held to moral standards when immoral people do not. We’d better learn a lesson from this, right quick. Here’s an example of the kind of lesson good and decent people must learn about people like Saul Alinski and his followers:

The Battle of Guadalcanal was the first real test of the US Marine Corps in World War II. There was real anger toward the Japanese after Pearl Harbor and the atrocities they had committed in China and to American prisoners at Bataan, but the Marines had not yet dealt with them face to face and still reserved a professional soldier’s decency towards surrendering troops.

A Marine recon unit reported seeing Japanese troops flying a white flag on an isolated spit of land near Guadalcanal, and so A Marine named Frank Goettge asked for volunteers to help rescue these surrendering Japanese soldiers. 25 men stepped forward, and when they reached the beach the Marines warily went ashore to help the trapped Japanese. Once they were all within range, the Japanese opened fire with machine guns, and after hours of fighting only one Marine was able to escape. As he swam away he looked over his shoulder, and saw the flashing Samurai swords of the Japanese officers as they hacked at and beheaded the survivors. When reinforcements returned they found that their buddies had been mutilated and dismembered, and any Marine corps tattoos had been hacked off their arms and stuffed into their mouths.

The Marines never treated the Japense the same way after that.

Alinski and his followers want you to believe that if you fight dirty in response to people fighting dirty with you, then you have lost your morals and in fact your identity. But that’s a lie.

We are in a political fight to the death with people who will stop at nothing – and I’m not talking about your average decent Democrat, but rather these Alinski radicals. And if we don’t face the same realization as those Marines on Guadalcanal and give back as brutally as we have taken, then we will lose.

Which is what they want. And if we do lose to these kind of tactics, there will be no more decent people left in politics. As of today, we’re one short already.

http://pajamasmedia.com/ejectejecteject/2009/07/27/the-destruction-of-sarah-palin/

Body-by-Guinness

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Robbing Paul to Pay Perks
« Reply #14 on: August 08, 2009, 10:22:29 AM »
Pentagon Takes Aim at Jets for Congressional Travel
Appropriations for Weapons and Other Items Drain Resources Needed to Fight Wars, Says a Spokesman for Defense Secretary
By BRODY MULLINS and AUGUST COLE

WASHINGTON -- The House's bid to buy new executive jets on the Pentagon's budget has broadened a conflict between Congress and the administration over defense priorities.

"It forces us to take money from things we do need to fund and redirect it for things we don't need," Geoff Morrell, a spokesman for Defense Secretary Robert Gates, said Friday. "And in a time of war, we just can't afford that."

Lawmakers' move to upgrade the fleet of government jets -- used for travel by lawmakers and other senior government officials -- is just one of more than 1,000 spending projects lawmakers added to the Pentagon's budget for next year that weren't requested by President Barack Obama.

The request for additional executive jets, which pales next to the multibillion-dollar weapons systems targeted for cuts by Mr. Gates, comes at a time when the Obama administration is trying to shake up Pentagon budgeting and contracting.

"The bottom line is, for everything that they appropriate for us above and beyond what we've asked for, it will, at some point require us to find money from programs we do need," Mr. Morrell said.

Some lawmakers say they often know more about what the military needs than the executive branch does.

"The Pentagon is not the fountain of all knowledge," said Rep. Bill Young, a Florida Republican who was senior appropriator on the House floor last month when the Pentagon spending bill was approved. "They don't have all of the knowledge, and they don't have all of the wisdom. Neither does the administration, neither does the Congress. That's why we work together."

Congress says the extra jets are needed to replace an aging fleet of planes that are more expensive to operate and maintain. Congressional representatives say the planes are used 44% of the time by members of the military and 14.5% of the time by lawmakers. Administration and Pentagon officials say all the extra aircraft aren't needed.

The dispute over the jets is one element of a struggle between powerful members of Congress and the Obama administration over how to trim the federal budget in the face of ballooning deficits.

Overall, the House trimmed Mr. Obama's budget request for the Pentagon to $636.3 billion, down slightly from the $640.1 billion he sought. But in so doing, House appropriators also rearranged spending priorities, cutting programs Mr. Obama favored and replacing them with items he wanted cut.

In all, the House included more than 1,000 additional spending provisions totaling more than $2.8 billion, according to an analysis of the legislation by the nonpartisan Taxpayers for Common Sense.

Lawmakers set aside $485 million toward reviving a terminated Lockheed Martin Corp. contract to build new presidential helicopters, and added $674 million for three new C-17 Globemaster III cargo planes from Boeing Co. They also allocated $560 million to produce an additional engine design for the Lockheed-led F-35 Lightning II fighter jet after the Defense Department and White House said that one engine, made by United Technologies Corp.'s Pratt & Whitney unit, was sufficient. General Electric Co. and Rolls Royce PLC are producing the second engine.

The House's plan to spend $550 million to buy eight business-class passenger jets to ferry senior government and military officials around the globe represents more than double Mr. Obama's request for $220 million to buy a total of four passenger jets, including two that are currently being leased by the Air Force.

The House Appropriations Committee, which approved the order for additional passenger planes, has said the new planes were needed to replace aging ones.

Ellis Brachman, a spokesman for the House Appropriations Committee, the panel that approved the spending, declined Friday to discuss the planes.

The fight will continue when Congress returns from its recess. The administration persuaded lawmakers to kill plans to build more F-22 fighter jets. But a veto threat hangs over any added funding for the F-35's second engine, as well as for further money for new White House helicopters.

"We are very realistic, we know that you are only going to get a certain percentage of what you want," White House Office of Management and Budget spokesman Kenneth Baer said Friday. "Changing Washington isn't easy. You are not going to get 100% of the cuts that you propose."

—Jake Sherman contributed to this article.
Write to Brody Mullins at brody.mullins@wsj.com and August Cole at august.cole@dowjones.com

http://online.wsj.com/article/SB124969431303416161.html

ccp

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Re: Corruption
« Reply #15 on: September 08, 2009, 10:12:24 AM »
On the Huf post by Charles Rangel.  A few posters have called him on it.
I don't know what other thread to post this under other then *corruption*.

From the esteemed Congressman:

"The relevant provisions apply to wealthy individuals and corporations that engage in abusive tax shelter transactions, and they have nothing to do with taxpayers who err in good faith on their tax returns."

What a joke.

The post from him:



***The Huffington PostSeptember 8, 2009
   
Rep. Charles RangelPosted: September 8, 2009 11:14 AM BIO Become a Fan Get Email Alerts Bloggers' Index
August Was a Sideshow, September Is for Progress
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Read More: Charlie Rangel, Health Care Bill, Health Care Debate, Health Care Reform, Health Reform, Rangel Tax Break, Tax Provision Health Care Bill, Politics News
     
 Share Print CommentsThe August recess -- which was supposed to be all health care, all the time -- ended up being about anything and everything but health care. For a few tense days outside President Obama's town halls, it became about gun rights. Then abortion. For weeks, the focus was grandma and euthanasia. And now, Republicans are intent on making it about me.

The New York Post, with an assist from its ally Fox News Channel, reported last week that I had quietly snuck into the health care bill new provisions cracking down on taxpayers who make honest mistakes on their tax returns. That's quite an inflammatory scoop, even for the Post. It's also entirely made up.

The relevant provisions apply to wealthy individuals and corporations that engage in abusive tax shelter transactions, and they have nothing to do with taxpayers who err in good faith on their tax returns. They certainly aren't new. These provisions have passed both the House and Senate in the past, enjoyed bipartisan support, and were included in the president's budget. And they certainly weren't snuck in. These provisions were considered by the full Committee on Ways and Means during a public markup, and materials describing them have been public for months. Under this bill, the IRS will continue to waive penalties for taxpayers who err in good faith, and claims to the contrary are part of a continuing effort to undermine the health care bill by raising unrelated issues.

Our objective here is quite simple. We are attempting to provide health care for the millions of American families that cannot afford it, to end the discriminatory practice of denying coverage based on preexisting conditions, and to effectively lower costs by introducing competition and choice through a public option. This is not an attempt to fund abortions with taxpayer dollars or a secret attempt to hoist end-of-life decisions on America's elderly. This bill isn't a tax-penalty bill dressed up to look like a health insurance reform bill. It actually is a health insurance reform bill. That's it. The GOP would disingenuously have you think otherwise.

Republicans have decided the business of killing health care reform and upending a potential Obama victory is too important not to exploit anything that sticks, including an Ethics Committee investigation I myself initiated last fall. A spokesman for Minority Leader John Boehner echoed the Post's faulty reporting about tax penalties, knowing full well no such language exists in the bill. The partisan attacks have had no impact on my effectiveness as Chairman. I am proud that the Committee on Ways and Means was the first committee in Congress to report out a truly comprehensive health reform bill, one with a strong public option that most represents the principles set out by President Obama. We did this by bringing the members of the Committee together for over 80 hours of spirited and detailed debate over the direction of reform.

The spectacles we've watched over the month of August have diverted attention away from our work and onto various distractions. Opponents cannot sideline health care reform on the merits, particularly when they lack a plan of their own, so they have resorted to unrelated wedge issues that serve to fire up the base but do little to advance actual reform. Folks responded by showing up to town halls with loaded firearms, burning public officials in effigy, making Nazi comparisons, and shouting down those with opposing viewpoints. But they forgot to bring something far more helpful: Facts. Solutions. Truth.

We have had our fill of sideshows in August. In September, we get back to the real work of providing health care reform to Americans who need it.

More in Politics...
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All comments on this article are pre-moderated. This means that every comment submitted will be reviewed by a moderator before it is posted to the site. Unfortunately, depending on the volume of comments, it may take time- +  DickyTrik I'm a Fan of DickyTrik I'm a fan of this user permalink
Indeed! How can the country be worried about cracking down on honest mistakes done in good faith regarding tax returns when we have so much being done in BAD faith? Need I bring up those who oppose Ted Kennedy's healthcare initiatives or Van Jones' clean energy efforts?! What we need is to stop bothering our honest politicians so they can continue to work on overdue agendas!

    Reply    Favorite    Flag as abusive Posted 12:48 PM on 09/08/2009
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**********­**********­********** AN OPEN LETTER TO THE US CONGRESS **********­**********­**********

----------­----------­----------­--- Heed this or enjoy your last term in US Congress ----------­----------­----------­----

We, the people, DEMAND that a strong condition-free PUBLIC OPTION be included in whatever Health Care Reform legislation you enact. We will be watching your actions closely, so, keep the following in mind before casting your vote. Make it count for all Americans :-

Health Care Reform is MEANINGFULL only if:

1. There is a Public Option ( with a clear path to Single Payer, without Co-operatives or Triggers ).
2. Everybody is covered. (Without Exception)
3. Coverage can't be denied based on "Pre-existing" conditions.
4. It contains Patients' Rights.
5. Strict Regulations are imposed on insurance plans.
6. Affordability and costs to consumers, as well as providers, are addressed.
7. Accessibility, delivery and quality are maintained and/or improved.
8. There's oversight from medical, financial and nat.ional sec.urity persp.ectives.
9. Profit motive is REMOVED.
10. Innovation, Research guidelines and funding are addressed.

Health Care For Patients, NOT For Profit because Health Care For Profit is Health Care DENIED.

Under NO CIRCUMSTANCES should an insurance middleman come between a patient and his/her doctor - especially, if the insurance middleman stands to gain from it.

Insurers and Employers have no business being in Health Care. They contribute nothing towards it.

..........­..........­    Reply    Favorite    Flag as abusive Posted 12:39 PM on 09/08/2009
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Over the last eight years we have witnessed the most corrupt, unethical,and incompotent administration in U.S. History. The nerve of these republicans to try and distract attention from their failures and disdain for the poor by pointing to allegations lodged against Chairman Rangel; who I might add was an effective prosecutor and decorated veteran of the Korean conflict. Mr. Rangel, pass a health reform bill with a strong public action and ingnore these vipers, who have had 8 years to pass health care reform if they truly believed in it. Am I the only one who wishes the Democrats will just shut up and ram a bill down the throats of these ignorant, racist, intellectually challenged ingrates? Pass the bill, and these trailor park dwellers will thank you later.

    Reply    Favorite    Flag as abusive Posted 12:34 PM on 09/08/2009
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 "(They) reported last week that I had quietly snuck into the health care bill new provisions cracking down on taxpayers who make honest mistakes on their tax returns."

Mr. Rangel, How disingenous can you be? Do you really believe that the "attention" you've been getting recently has anything to do with language you've slipped into bills?

The fact is, people are OUTRAGED at the idea that a serial tax delinquent could be Chairman of the House Ways and Means Committee. Every few months we learn more about your slipshod self-reporting that leaves out huge chunks of your income and assets. When people ask you why you can occupy FOUR rent-controlled apartments in one building, in defiance of the law, you tell them its "none of their business."

Some have called on you to resign as Chairman of that most powerful of House Committees, but that does not go far enough. You should resign your HOUSE SEAT immediately, and you should expect to be PROSECUTED for tax evasion and CONVICTED of same.

    Reply    Favorite    Flag as abusive Posted 12:11 PM on 09/08/2009
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 Mr. Rangel, are you saying this line “Bar the IRS from waiving penalties against taxpayers who clearly erred in good faith" is not in the health care bill ? Does this also include someone that does it over and over, again and again?

    Reply    Favorite    Flag as abusive Posted 11:45 AM on 09/08/2009
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 Well, in spite of the press Baucus sure doesn't have a plan that'll work. I wonder how he thinks Medicaid can take up the slack when it's being cut continually?
Give US a public Plan, Mr. Rangel*******

Body-by-Guinness

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« Reply #16 on: September 10, 2009, 10:24:05 AM »
Rangel, Sign of the Times
This is why congressional approval ratings are at historic lows.

By Victor Davis Hanson

Rep. Charles Rangel (D., N.Y.), chairman of the powerful House Ways and Means Committee, is becoming a metaphor for almost all the sins of our age.

Let us count the ways.

How about corruption? Currently, Rangel is under investigation by two House subcommittees for illegally holding four rent-stabilized apartments in New York and not disclosing more than $75,000 in income from a rental villa he owns. He also took free Caribbean trips paid for by corporate cronies and used his congressional letterhead to press for money for the City College of New York’s new educational center, which bears his name.

Rangel also acknowledged that he improperly listed his assets, as required by law, and failed to report additional checking accounts valued between $250,000 and $500,000 — princely sums acquired on a congressional salary.

Try also hypocrisy. Rangel is the head of the Ways and Means Committee that writes the nation’s income tax policy. The politician, who for generations has urged higher taxes, has chronically schemed to avoid paying them. Don’t dare try that if you are a waitress or schoolteacher.

In this regard, Rangel is similar to other Obama cabinet nominees and secretaries like Tom Daschle and Timothy Geithner — advocates of higher taxes and bigger government — who themselves were in violation of the federal tax code. In this weird new moral landscape, good public intentions apparently offset private lapses.

After the Republican scandals involving lobbyist Jack Abramoff, Rep. Duke Cunningham (R., Calif.), Rep. Mark Foley (R., Fla.), and Sen. Larry Craig (R., Idaho), new House Speaker Nancy Pelosi promised to “drain the swamp,” to end the Republican “culture of corruption” and to create “the most ethical Congress ever.” Proclaiming ethical reform apparently means you have already enacted it.

In reality, by her tolerance for the ethically challenged like Rangel, John Murtha (D., Pa.), and others, Speaker Pelosi only reminds Americans that influence peddling and corruption are bipartisan sins: Those out of power allege them, those in power commit them.

Rangel’s situation also illustrates the problem of racial scapegoating by the nation’s elite, another example of rampant hypocrisy. During the health-care meltdown, overwhelmed by his own ethics problems, a frustrated Rangel lashed out at supposedly racist Americans: “Some Americans have not gotten over the fact that Obama is president of the United States. They go to sleep wondering, ‘How did this happen?’”

Actually, they may wonder how it happened that the more successful and powerful you become in America, the more proof there is that the country is racist. Rangel would have us believe that an African-American’s election to the presidency, made possible in large part by millions of white supporters, translates into racist opposition to health-care legislation — or into Charles Rangel being unfairly charged with tax dodging.

Some of the most privileged Americans in the country have lectured us on race. Attorney General Eric Holder, a Columbia Law School grad, accused the country of cowardice for its reluctance to speak about race on his terms. President and Harvard Law alum Barack Obama asserted that a Cambridge, Mass., police officer acted stupidly in taking his friend, Harvard professor Skip Gates, down to the station after his invective-riddled hissy fit. New York governor David Paterson blames his sinking poll numbers on white racism, more prominent than ever, he thinks, in the age of Obama.

Then there is the case of controversial environmental czar and Yale Law graduate Van Jones claimed a “vicious smear campaign” did him in. Jones, remember, resigned after comparing President Bush to a crack addict, and asserting that white people were polluting the ghetto, and that only white students commit mass murders in the public schools, and, most disturbingly, after signing a “truther” petition calling for an investigation of the Bush administration’s purported role in causing 9/11. There were indeed smears that were racist — but largely on the part of Jones himself.

In all these disturbing trends, one Rep. Charles Rangel seems to be on the cutting edge. And still these political truths remain self-evident: Congressional reform Democrats are as corrupt as Republican reformers. Those who craft tax policy routinely violate it without compunction. Rules don’t apply to those in Washington, who are generous with someone else’s money, but stingy with their own. The false charge of racism has devolved into a convenient defense when elites find themselves trapped in their own self-created legal and ethical messes, or things don’t go their way.

If we wish to understand why congressional approval ratings are at historic lows, why corruption seems to be more blatant than ever, and why the public is tiring of racial scapegoating by the well-off, then we need look no further than Charles Rangel, emblem of our times.

— Victor Davis Hanson is a senior fellow at the Hoover Institution and a recipient of the 2007 National Humanities Medal. © 2009 Tribune Media Services, Inc.

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ccp

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contrast Ted Stevens
« Reply #17 on: September 11, 2009, 06:59:59 AM »
Remember Alaskan Senator Ted Stevens???

Remember who the msm was all over his case?

Did you know his conviction and indictment were thrown out for prosecutorial misconduct?

The charges against him may have totally trumped up.   I didn't know that until I just read this on Wikepedia.  The msm has not publically exonerated him.  Even Eric Holder had to admit there was misconduct.

Yet narry a peep about Rangle in the msm.  If it wasn't for fox or drudge we probably wouldn't even know he is being investigated.

Controversies
In December 2003, the Los Angeles Times reported that Stevens had taken advantage of lax Senate rules to use his political influence to obtain a large amount of his personal wealth.[56] According to the article, while Stevens was already a millionaire "thanks to investments with businessmen who received government contracts or other benefits with his help," the lawmaker who is in charge of $800 billion a year, writes "preferences he wrote into law," from which he then benefits.[56]

Home remodeling and VECO
 
Stevens' home in Girdwood, AlaskaMay 29, 2007, the Anchorage Daily News reported that the FBI and a federal grand jury were investigating an extensive remodeling project at Stevens' home in Girdwood. Stevens' Alaska home was raided by the FBI and IRS on July 30, 2007.[57][58] The remodeling work doubled the size of the modest home. Public records show that the house was 2,471 square feet (230 m2) after the remodeling and that the property was valued at $271,300 in 2003, including a $5,000 increase in land value.[59] The remodel in 2000 was organized by Bill Allen, a founder of the VECO Corporation, an oil-field service company and has been estimated to have cost VECO and the various contractors $250,000 or more.[60] However, the residential contractor who finished the renovation for VECO, Augie Paone, "believes the [Stevens'] remodeling could have cost ― if all the work was done efficiently ― around $130,000 to $150,000, close to the figure Stevens cited last year."[61] The Stevens paid $160,000 for the renovations "and assumed that covered everything."[62]

In June, the Anchorage Daily News reported that a federal grand jury in Washington, D.C., heard evidence in May about the expansion of Stevens' Girdwood home and other matters connecting Stevens to VECO.[63] In mid-June, FBI agents questioned several aides who work for Stevens as part of the investigation.[64] In July, Washingtonian magazine reported that Stevens had hired "Washington’s most powerful and expensive lawyer", Brendan Sullivan Jr., in response to the investigation.[65] In 2006, during wiretapped conversations with Bill Allen, Stevens expressed worries over potential misunderstandings and legal complications arising from the sweeping federal investigations into Alaskan politics.[66][67] On the witness stand, "Allen testified that VECO staff who had worked on his own house had charged 'way too much,' leaving him uncertain how much to invoice Stevens for when he had his staff work on the senator's house ... that he would be embarrassed to bill Stevens for overpriced labor on the house, and said he concealed some of the expense."[68]


[edit] Former aide McCabe
The Justice Department is also examining whether federal funds that Stevens steered to the Alaska SeaLife Center may have enriched a former aide.[69] Currently the United States Department of Commerce and the Interior Department's inspector general are investigating "how millions of dollars that Stevens (R-Alaska) obtained for the nonprofit Alaska SeaLife Center were spent."[69] According to CNN, "Among the questions is how about $700,000 of nearly $4 million directed to the National Park Service wound up being paid to companies associated with Trevor McCabe, a former legislative director for Stevens."[69]


[edit] Bob Penney
In September 2007, The Hill reported that Stevens had "steered millions of federal dollars to a sportfishing industry group founded by Bob Penney, a longtime friend." In 1998, Stevens invested $15,000 in a Utah land deal managed by Penney; in 2004, Stevens sold his share of the property for $150,000.[70]


[edit] Trial and aftermath

[edit] Indictment
On July 29, 2008 Stevens was indicted by a federal grand jury on seven counts of failing to properly report gifts,[71][72] a felony,[1] and found guilty at trial three months later (October 27, 2008).[1] The charges relate to renovations to his home and alleged gifts from VECO Corporation, claimed to be worth more than $250,000.[73][74] The indictment followed a lengthy investigation by the Federal Bureau of Investigation (FBI) and the Internal Revenue Service (IRS) for possible corruption into Alaskan politicians and was based on his relationship with Bill Allen. Allen, then an oil service company executive, had earlier pleaded guilty, with sentencing suspended pending his cooperation in gathering evidence and giving testimony in other trials, to bribing several Alaskan state legislators, including a disputed claim about Stevens' son, former State Senator Ben Stevens. Stevens declared, "I'm innocent," and pleaded not guilty to the charges in a federal district court on July 31, 2008. Stevens asserted his right to a speedy trial so that he could have the opportunity to promptly clear his name and requested that the trial be held before the 2008 election.[75][76]

US District Court Judge in Washington DC Emmet G. Sullivan, on October 2, 2008 denied Stevens' chief counsel, Brendan Sullivan's mistrial petition due to allegations of withholding evidence by prosecutors. Thus, the latter were admonished, and would submit themselves for internal probe by the United States Department of Justice. Brady v. Maryland requires prosecutors to give a defendant all information for defense. Judge Sulllivan had earlier admonished the prosecution for sending home to Alaska a witness who might have helped the defense.[77][78]

The case was prosecuted by Principal Deputy Chief Brenda K. Morris, Trial Attorneys Nicholas A. Marsh and Edward P. Sullivan of the Criminal Division's Public Integrity Section, headed by Chief William M. Welch II, and Assistant U.S. Attorneys Joseph W. Bottini and James A. Goeke from the District of Alaska.


[edit] Guilty verdict and consequences
 Wikinews has related news: US Senator Ted Stevens convicted on 7 counts
On October 27, 2008, Stevens was found guilty of all seven counts of making false statements. Stevens is the fifth sitting senator ever to be convicted by a jury in U.S. history,[79] and the first since Senator Harrison A. Williams (D-NJ) in 1981[80] (although Senator David Durenberger (R-MN) pled guilty to a felony more recently, in 1995). Stevens faces a maximum penalty of five years per charge.[81] His sentencing hearing was originally scheduled February 25, but his attorneys told Judge Emmet Sullivan they would file motions to overturn the verdict by early December.[82] However, it was thought unlikely that he would have seen significant time in prison.[83]

Within a few days of his conviction, Stevens faced bipartisan calls for his resignation. Both parties' presidential candidates, Barack Obama and John McCain, were quick to call for Stevens to stand down. Obama said that Stevens needed to resign to help "put an end to the corruption and influence-peddling in Washington."[84] McCain said that Stevens "has broken his trust with the people" and needed to step down—a call echoed by his running mate, Sarah Palin, governor of Stevens' home state.[85] Senate Minority Leader Mitch McConnell, as well as fellow Republican Senators Norm Coleman, John Sununu and Gordon Smith also called for Stevens to resign. McConnell said there would be "zero tolerance" for a convicted felon serving in the Senate—strongly hinting that he would support Stevens' expulsion from the Senate unless Stevens resigned first.[86][87] Late on November 1, Senate Majority Leader Harry Reid confirmed that he would schedule a vote on Stevens' expulsion, saying that "a convicted felon is not going to be able to serve in the United States Senate."[88] Had Stevens been expelled after winning election, a special election would have been held to fill the seat through the remainder of the term, until 2014.[89] Some speculated Palin would have tried to run for the Senate via this special election.[90][91] No sitting Senator has been expelled since the Civil War.

Nonetheless, during a debate with his opponent Mark Begich days after his conviction, Stevens continued to claim innocence. "I have not been convicted. I have a case pending against me, and probably the worst case of prosecutorial misconduct by the prosecutors that is known." Stevens also cited plans to appeal.[92] Begich went on to defeat Stevens by 3,724 votes.[93]

On November 13, Senator Jim DeMint of South Carolina announced he would move to have Stevens expelled from the Senate Republican Conference (caucus) regardless of the results of the election. Losing his caucus membership would cost Stevens his committee assignments.[94] However, DeMint later decided to postpone offering his motion, saying that while there were enough votes to throw Stevens out, it would be a moot point if Stevens lost his reelection bid.[95] Stevens ended up losing the Senate race, and on November 20, 2008, gave his last speech to the Senate, which was met with a rare Senate standing ovation.[96]

In February 2009, FBI agent Chad Joy filed a whistleblower affidavit, alleging that prosecutors and FBI agents conspired to withhold and conceal evidence that could have resulted in a verdict of "not guilty."[97] In his affidavit, Joy alleged that prosecutors intentionally sent a key witness back to Alaska after the witness performed poorly during a mock cross examination. The witness, Rocky Williams, later notified the defense attorneys that his testimony would undercut the prosecution's claim that his company had spent its own money renovating Sen. Stevens' house. Joy further alleged that the prosecutors intentionally withheld Brady material including redacted prior statements of a witness, and a memo from Bill Allen stating that Sen. Stevens probably would have paid for the goods and services if asked. Joy further alleged that a female FBI agent had an inappropriate relationship with Allen, who also gave gifts to FBI agents and helped one agent's relative get a job.

As a result of Joy's affidavit and claims by the defense that prosecutorial misconduct caused an unfair trial, Judge Sullivan ordered a hearing to be held on February 13, 2009, to determine whether a new trial should be ordered. At the February 13 hearing the judge held the prosecutors in contempt for failing to deliver documents to Stevens' legal counsel.[98] Judge Sullivan called this conduct "outrageous."


[edit] Convictions voided and indictment dismissed
On April 1, 2009, NPR’s Nina Totenberg, citing sources close to the case, reported that Attorney General Eric Holder decided to drop the government’s opposition to the motion for a new trial. Totenberg also reported that Holder intended to dismiss the indictment with prejudice, meaning that he would not seek to retry the case. Since this occurred prior to sentencing, this would have the effect of vacating Stevens' conviction. Holder was reportedly very angry at the prosecutors’ apparent withholding of exculpatory evidence, and wanted to send a message that prosecutorial misconduct would not be tolerated under his watch. After the prosecutors had been held in contempt, Holder replaced the entire trial team, including top officials at the public integrity section. However, Totenberg reported, the misconduct, Stevens’ age, and the fact he was no longer in office prompted him to drop all charges against Stevens—effectively vacating the guilty verdict.[3] The Associated Press subsequently confirmed NPR’s report.[99]

The final straw for Holder, according to numerous reports, was the discovery of a previously undocumented interview with Bill Allen, the prosecution's star witness. Allen stated that the fair-market value of the repairs to Stevens' house was around $80,000—far less than the $250,000 he said it cost at trial. More seriously, Allen said in the interview that he didn't recall talking to Bob Persons, a friend of Stevens, regarding the repair bill for Stevens' House. This directly contradicted Allen's testimony at trial, in which he claimed Stevens asked him to give Persons a note Stevens sent him asking for a bill on the repair work. At trial, Allen said Persons had told him the note shouldn't be taken seriously because "Ted's just covering his ass." Even without the notes, Stevens' attorneys claimed that they thought Allen was lying about the conversation. [100]

Later that day, Stevens' attorney, Brendan Sullivan, said that Holder's decision was forced by "extraordinary evidence of government corruption." He also said that prosecutors not only withheld evidence, but "created false testimony that they gave us and actually presented false testimony in the courtroom"--two incidents that would have made it very likely that the convictions would have been overturned on appeal.[101]

On April 7, 2009, federal judge Emmet G. Sullivan formally accepted Holder's motion to set aside the verdict and throw out the indictment [102], based on what he called the worst case of prosecutorial misconduct he'd ever seen. He also initiated a criminal contempt investigation of six members of the prosecution. Although an internal probe by the Office of Professional Responsibility was already underway, Sullivan said he was not willing to trust it due to the "shocking and disturbing" nature of the misconduct. [103]


Crafty_Dog

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Good Billions after bad
« Reply #18 on: September 12, 2009, 07:41:16 AM »
BY DONALD L. BARLETT and JAMES B. STEELE


As the Bush administration waned, the Treasury shoveled more than a quarter of a trillion dollars in tarp funds into the financial system—without restrictions, accountability, or even common sense. The authors reveal how much of it ended up in the wrong hands, doing the opposite of what was needed.


Just inside the entrance to the U.S. Treasury, on the other side of a forbidding array of guard stations and scanners that control access to the Greek Revival building, lies one of the most beautiful interior spaces in all of Washington. Ornate bronze doors open inward to a two-story-high chamber. Chandeliers line the coffered ceiling, casting a soft glow on the marble walls and richly inlaid marble floor.


In this room, starting in 1869 and for many decades thereafter, the U.S. government conducted many of its financial transactions. Bags of gold, silver, and paper currency arrived here by horse-drawn vans and were carted upstairs to the vaults. On the busy trading floor, Treasury clerks supplied commercial banks with coins and currency, exchanged old bills for new, cashed checks, redeemed savings bonds, and took in government receipts. In those days, anyone could observe all this activity firsthand—could actually witness the government and the nation’s bankers doing business. The public space where this occurred became known as the Cash Room.

Today the Cash Room is used for press conferences, ceremonial functions, and departmental parties. And that’s too bad. If Treasury still used the room as it once did, then perhaps we’d have more of a clue about what happened to the billions of dollars that flew out of Treasury to selected American banks in the waning days of the Bush administration.

Last October, Congress passed the Emergency Economic Stabilization Act of 2008, putting $700 billion into the hands of the Treasury Department to bail out the nation’s banks at a moment of vanishing credit and peak financial panic. Over the next three months, Treasury poured nearly $239 billion into 296 of the nation’s 8,000 banks. The money went to big banks. It went to small banks. It went to banks that desperately wanted the money. It went to banks that didn’t want the money at all but had been ordered by Treasury to take it anyway. It went to banks that were quite happy to accept the windfall, and used the money simply to buy other banks. Some banks received as much as $45 billion, others as little as $1.5 million. Sixty-seven percent went to eight institutions; 33 percent went to the rest. And that was just the money that went to banks. Tens of billions more went to other companies, all before Barack Obama took office. It was the largest single financial intervention by Treasury into the banking system in U.S. history.

But once the money left the building, the government lost all track of it. The Treasury Department knew where it had sent the money, but nothing about what was done with it. Did the money aid the recovery? Was it spent for the purposes Congress intended? Did it save banks from collapse? Paulson’s Treasury Department had no idea, and didn’t seem to care. It never required the banks to explain what they did with this unprecedented infusion of capital.

Exactly one year has elapsed since the onset of the financial crisis and the passage of the bailout bill. Some measure of scrutiny and control has since been imposed by the Obama administration, but even today it’s hard to walk back the cat and trace the money. Up to a point, though, it’s possible to reconstruct some of what happened in the first chaotic and crucial three months of the bailout, when Treasury was still in the hands of Henry Paulson and most of the money was disbursed. Needless to say, there is no central clearinghouse for information about the tarp money. To get details of any kind means starting with the hundreds of individual recipients, then poring over S.E.C. filings, annual reports, and other documentation—in other words, performing the standard due diligence that the government itself failed to perform. In the report that follows, we have no more than dipped a toe into the morass, but one fact emerges clearly: a lot of the money wound up in the coffers of some very surprising institutions— institutions that should have been seen as “troubling” as much as “troubled.”

A Reverse Holdup
The intention of Congress when it passed the bailout bill could not have been more clear. The purpose was to buy up defective mortgage-backed securities and other “toxic assets” through the Troubled Asset Relief Program, better known as tarp. But the bill was in fact broad enough to give the Treasury secretary the authority to do whatever he deemed necessary to deal with the financial crisis. If tarp had been a credit card, it would have been called Carte Blanche. That authority was all Paulson needed to switch gears, within a matter of days, and change the entire thrust of the program from buying bad assets to buying stock in banks.

Why did this happen? Ostensibly, Treasury concluded that the task of buying up toxic assets would take too long to help the financial system and unlock the credit markets. So, theoretically, something more immediate was needed—hence the plan to inject billions into banks, whether or not they wanted or needed the money. To be sure, Citigroup and Bank of America were in precarious condition. So was the insurance giant A.I.G., which had already received an infusion from the Federal Reserve and ultimately would receive more tarp money—$70 billion—than any single bank. But rather than just aiding institutions in distress, Treasury set out to disburse money in a more freewheeling way, hoping it would pass rapidly into the financial system and somehow address the system-wide credit crunch. Even at this early stage, it was hard to escape the feeling that the real strategy was less than scientific—amounting to a hope that if a massive pile of money was simply thrown at the economy, some of it would surely do something useful.

On Sunday, October 12, between 6:30 and 7 p.m., Paulson made a series of calls to the C.E.O.’s of the biggest banks—the so-called Big 9—and asked them to come to Treasury the next afternoon for a meeting on the financial crisis. He was short on details, as he would be throughout the crisis. A series of e-mails obtained by Judicial Watch, a Washington public-interest group, offers a window on the moment. The C.E.O. of Citigroup, Vikram Pandit, had agreed to attend, but asked his staff to scope out the purpose. “Can you find out soon as possible what Paulson invite to VP [Vikram Pandit] for meeting at Treasury this afternoon is about?” a Citigroup executive in New York wrote the bank’s Washington office. When Citi’s high-powered lobbyist Nicholas Calio called Paulson’s office, he was told only that Pandit should attend.

Top Treasury staffers were likewise in the dark. Paulson’s chief of staff, James Wilkinson, sent out a 7:30 a.m. e-mail: “Can someone tell Michele Davis, [Kevin] Fromer and me who the ‘Big 9’ are?”

By midmorning, people finally had the names—Vikram Pandit, of Citigroup; Jamie Dimon, of J. P. Morgan Chase; Kenneth Lewis, of Bank of America; Richard Kovacevich, of Wells Fargo; John Thain, of Merrill Lynch; John Mack, of Morgan Stanley; Lloyd Blankfein, of Goldman Sachs; Robert Kelly, of the Bank of New York Mellon; and Ronald Logue, of State Street bank. Their destination was Room 3327, the Secretary’s Conference Room, on the third floor.

Paulson laid before them a one-page memo, “CEO Talking Points.” He wasn’t there to ask for their help, Paulson would say; he was there to tell them what he expected from them. To “arrest the stress in our financial system,” Treasury would unveil a $250 billion plan the next day to buy preferred stock in banks. Paulson’s memo told the bankers bluntly that “your nine firms will be the initial participants.” Paulson wasn’t calling for volunteers; he made it clear the banks had no choice but to allow Treasury to buy stock in their companies. It was basically a reverse holdup, with Paulson holding the gun and forcing the banks to take the money.

Some of the C.E.O.’s had misgivings, fearing that by accepting tarp money their banks would be perceived as shaky by investors and customers. Paulson explained that opting out wasn’t an option. “If a capital infusion is not appealing,” the memo continued, “you should be aware that your regulator will require it in any circumstance.” Paulson gave the bankers until 6:30 p.m. to clear everything with their boards and sign the papers.

Treasury had prepared a form with blank spaces for the name of the bank and the amount of tarp money requested. Each C.E.O. filled in the two blanks by hand—$10 billion, $15 billion, $25 billion, whatever—and then signed and dated the document. That was all it took.

“There Is No Problem Here”
But this was just the beginning. It’s one thing to call nine big banks into a room and give them what turned out to be a total of $125 billion. That required little more than a few hours. It’s quite a different matter to look out over the landscape of 8,000 other U.S. banks and decide which ones should get slices of the tarppie. Moreover, the guiding principle was never clear. Was it to give money to essentially sound banks, so that they could help inject more money into the credit markets? Was it to pull troubled banks into the clear? Was it both—and more?

Regardless, the mechanism to disburse all this money even more widely was an entity called the Office of Financial Stability. Unfortunately, it wasn’t a functioning office yet—it was just a name written into a piece of legislation. To lead it, Paulson picked Neel Kashkari, a 35-year-old former Goldman Sachs banker who had followed Paulson to Treasury when he became secretary, in July 2006. Kashkari was an odd choice to oversee a federal bailout of private companies. A free-market Republican, he had downplayed the gravity of the subprime-mortgage crisis only months before his appointment, reportedly sending the message to one gathering of bankers, “There is no problem here.”

Kashkari and other Paulson aides cobbled together the Office of Financial Stability under immense time pressure. They press-ganged people from elsewhere in Treasury and from far-flung government departments. By the end of the year, there were more “detailees” on loan from other offices (52) than there were permanent staff (38). They were spread out all over Treasury, from the ground floor to the third. Some occupied space in leased offices six blocks away. It was a strange agglomeration of people—stretching from Washington to San Francisco—who had never worked together before.

There were no internal controls to gauge success or failure. The goal was simply to dispense as much money as possible, as fast as possible. When Treasury began giving billions to the banks, the department had no policies in place to ensure that the banks were using the money in ways that met the purposes of the program, however defined. One main purpose, as noted, was to free up credit, but there was no incentive to lend and nothing to stop a bank from simply sitting on the money, bolstering its balance sheet and investing in Treasury bills. Indeed, Treasury’s plan was expressly not to ask the banks what they did with the money. As the Government Accountability Office later learned, “the standard agreement between Treasury and the participating institutions does not require that these institutions track or report how they plan to use, or do use, their capital investments.” When the G.A.O. asked Treasury if it intended to ask all tarp recipients to provide such an accounting, Treasury said it did not—and would not. “There’s not a bank in this country that would lend money under [these] terms,” Elizabeth Warren, the chair of a Congressional Oversight Panel that was eventually charged by Congress with overseeing tarp activities, would tell a Senate committee.

There wasn’t even anyone within the tarp office to keep track of the money as it was being disbursed. tarpgave that job—along with a $20 million fee—to a private contractor, Bank of New York Mellon, which also happened to be one of the Big 9. So here was a case of a beneficiary helping to oversee a process in which it was a direct participant. Most of the tarp contracts—for everything from legal services to accounting—were awarded under an expedited procedure that government watchdogs regard as “high-risk,” because it lacks a wide array of routine safeguards. In its first three months of operation, the Office of Financial Stability awarded 15 contracts worth tens of millions of dollars to law firms, fiscal agents, management consultants, and providers of various other services. There was enormous potential for conflicts of interest, and no procedure to deal with them. When the possibility of conflict of interest was raised, two of the contractors voiced vague promises to maintain an “open dialog” and “work in good faith” with Treasury, and left it at that.

When Henry Paulson unveiled the bank-rescue plan, he emphasized that it wasn’t a bailout. “This is an investment, not an expenditure, and there is no reason to expect this program will cost taxpayers anything,” he declared. For every $100 Treasury invested in the banks, he maintained, it would receive stock and warrants valued at $100. This claim proved optimistic. The Congressional Oversight Panel that later reviewed the 10 largest tarp transactions concluded that Treasury “paid substantially more for the assets it purchased under the tarp than their then-current market value.” For each $100 spent, Treasury received assets worth about $66.

Ask and You Shall Receive
In those first few weeks, money gushed out of Treasury and into the tarp pipeline at a torrential rate. After giving $125 billion to the big banks, Treasury moved on to the second round, wiring $33.6 billion to 21 other banks on November 14 in exchange for preferred stock. A week later it sent $2.9 billion to 23 more banks. As noted, by the time Barack Obama took office, the tarp tab totaled more than a quarter of a trillion dollars. In its first six months, the new administration disbursed an additional $125 billion to banks, mortgage companies, A.I.G., and the big auto manufacturers.

To the public, the bailout looked like a gold rush by banks competing for tarp money. It was indeed partly that, but the reality is more complex. While some banks lobbied aggressively for tarp money, many others that had no interest in the money were pressured to take it. Treasury’s explanation is that regulators knew which banks were strongest and wanted to get more capital into their hands in order to free up credit. But it’s also true that spreading the money around to a large number of small and medium-size banks helped create the impression that the bailout wasn’t just for a few big boys on Wall Street.

It’s impossible to overstate how casual the process was, or how little Treasury asked of the banks it targeted. Like most bankers, Ray Davis, the C.E.O. of Umpqua Bank, a solid, respectable local bank in Portland, Oregon, followed with great interest all the news out of Washington last fall. But he didn’t see that tarp had much relevance to his own bank. Umpqua was well run. It wasn’t bogged down by a portfolio of bad loans. It had healthy reserves.

Then he got a call from a Treasury Department representative asking if Umpqua would like to participate in the Treasury program and suggesting it would be a good thing for Umpqua to do. Davis listened politely, but the fact was, he says, that Umpqua “didn’t need the funds. Our capital resources were very high.”

The next day, Davis was in his office when another call came through from the same Treasury representative. “Basically what he said was that the secretary of the Treasury would like to have your application on his desk by five o’clock tomorrow afternoon,” Davis recalls.

The “application” was the paperwork for a capital infusion, and Davis was told it would be faxed over right away. By now he was sold on participating. “Here was somebody from the secretary of the Treasury calling,” Davis says, “and complimenting us on the strength of our company and saying you need to do this, to help the government, to be a good American citizen—all that stuff—and I’m saying, ‘That’s good. You’ve got me. I’m in.’”

The most urgent task was to complete the application and get it back to Treasury the next day, and this had Davis in a sweat: “I pictured this 200-page fax that would take me three weeks of work crammed into one evening.” Imagine Davis’s surprise when a staff member walked in soon afterward with the official “Application for tarp Capital Purchase Program.” It consisted of two pages, most of it white space.

If tarp accomplishes nothing else, it has struck a mighty blow for simplicity in government. The application was only 24 lines long, and asked such tough questions as the name and address of the bank, the name of the primary contact, the amount of its common and preferred stock, and how much money the bank wanted. Anyone who has filled out the voluminous federal forms required in order to be eligible for a college loan would die for such an application. Davis recalls that, when the two faxed pages were brought to him, all he could say was “Really?” As soon as Umpqua’s application was approved, Treasury wired $214 million to Umpqua’s account.

What happened in Portland happened elsewhere across the country. Peter Skillern, who heads the Community Reinvestment Association, a nonprofit group in North Carolina, describes a conference he attended where bankers explained that they had been “contacted by their regulators and told by them that they would be taking tarp.”

One policy that tarp did decide to adopt was to keep confidential the name of any bank that was deniedtarp funds—but it never had to invoke this rule. In those early months, with billions being wired all across the country, no financial institution that asked for tarp money was turned away.

Crafty_Dog

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Good billions 2
« Reply #19 on: September 12, 2009, 07:45:00 AM »
Small Bank, Sharp Teeth
With few restrictions or controls in place, bailout money found its way not only to banks that didn’t really need it but also to banks whose business practices left much to be desired. On November 21, $180 million in tarp money wound up in the affluent seaside community of Santa Barbara, California. The tarp dollars flowed mostly into the coffers of a beige, Spanish-style building on Carrillo Street, home to the Santa Barbara Bank & Trust.

This might appear to be just the kind of regional bank that Treasury had in mind as an ideal beneficiary oftarp. The bank has been a fixture in Santa Barbara for decades, serving small businesses as well as wealthy individuals. It sponsors Little League teams, funds scholarships to send local kids to college, and takes an active role in community groups. It plays up its “longstanding commitment to giving back to the communities we serve.”

How much tarp money made its way through S.B.B.&T. and into the local community is not known. But, as it happens, the bank also operates a little-known and controversial program far from the lush enclaves of Santa Barbara. Like an absentee landlord, the community bank with the “give back” philosophy in Santa Barbara turns out to be a big player in poor neighborhoods throughout the country. And not in a nice way. Outside Santa Barbara, S.B.B.&T. peddles what are known as refund-anticipation loans (rals)—high-interest loans to the poor that are among the most predatory around.

A ral is a short-term loan to taxpayers who have filed for a tax refund. Rather than waiting one or two weeks for their refund from the I.R.S., they take out a bank loan for an amount equal to their refund, minus interest, fees, and other charges. Banks operate in concert with tax preparers who complete the paperwork, and then the banks write the taxpayer a check. The loan is secured by the taxpayer’s expected refund. rals are theoretically available to everyone, but they are used overwhelmingly by the working poor. Ordinarily, the loans have a term of only a few weeks—the time it takes the I.R.S. to process the return and send out a check—but the interest charges and fees are so steep that borrowers can lose as much as 20 percent of the value of their tax refund. A recent study estimated that annual rates on somerals run as high as 700 percent.

Santa Barbara is one of three banks that dominate this obscure corner of the banking market—the other two being J. P. Morgan Chase and HSBC. But unlike the two big banks, for which rals are but one facet of a broad-based business, Santa Barbara has come to rely heavily for its financial well-being on these high-interest loans to poor people. Interest earned from rals accounted for 24 percent of the banking company’s interest earnings in 2008, second only to income generated by commercial-real-estate loans. Under pressure from consumer groups, some banks, including J. P. Morgan Chase, have lowered their ralfees. Not Santa Barbara. Chi Chi Wu, of the National Consumer Law Center, in Boston, calls Santa Barbara Bank & Trust “a small bank with sharp teeth.”

The U.S. Department of Justice and state authorities in California, New Jersey, and New York have taken action against tax preparers with whom S.B.B.&T. works, charging them with deceptive advertising and with preparing fraudulent returns. Santa Barbara later took a $22 million hit on its books because of unpaid refund-anticipation loans.

The bank insists that its tarp money didn’t go to finance ral. “The capital received by Santa Barbara Bank & Trust under the U.S. Treasury Department’s Capital Purchase Program was not intended nor is it being used to fund or provide liquidity for any Refund Anticipation Loans,” according to Deborah L. Whiteley, an executive vice president of Pacific Capital Bancorp, Santa Barbara’s parent company. Other banks that have received tarp money have made similar statements, contending that money received from Washington simply became part of their capital base and was not earmarked for any specific purpose. But in a conference call with analysts on November 21, Stephen Masterson, the chief financial officer of Pacific Capital Bancorp, admitted that tarp “obviously helps us .… We didn’t take the tarp money to increase our ral program or to build our ral program, but it certainly helps our capital ratios.”

Indeed, the infusion from Treasury may well have been a lifeline for Santa Barbara. The Community Reinvestment Association of North Carolina, which has been tracking S.B.B.&T.’s finances and its ralprogram for years, concluded in 2008 that S.B.B.&T. would be losing money if it weren’t putting the squeeze on poor people around the country.

Gouging Needy Students
KeyBank of Cleveland is another institution that was given the nod by Treasury officials—and another bank whose lending practices prompt the question: What were they thinking?

Last fall KeyBank received $2.5 billion in tarp money. Its parent company is KeyCorp, a major bank holding company headquartered in Cleveland. With 989 full-service branches spread across 14 states, KeyCorp describes itself as “one of the nation’s largest bank-based financial services companies,” with assets of $98 billion. It also ranks as the nation’s seventh-largest education lender. In the summer of 2008, as banks and Wall Street firms were unraveling faster than they could count up their losses, KeyCorp delivered a decidedly upbeat report on its condition to investors. “Our costs are well controlled,” the company stated. “Our fee revenue is strong.…Our reserves are strong.…We remain well capitalized.”

What the report did not mention was a host of other problems. KeyCorp was in the midst of negotiations with the I.R.S. over questionable tax-leasing deals, and had had to deposit $2 billion in escrow with the government—forcing it to raise emergency capital and slash dividends after 43 consecutive years of annual growth. Meanwhile, consumer advocates had KeyBank in their sights because of the way it conducted its student-loan business, which they described as nakedly predatory. The Salt Lake Tribunereported that “KeyBank not only funds unscrupulous schools, it seeks them out, strikes up lucrative partnerships, and, in the process, suckers students into thinking the schools are legitimate.”

Over the years, thousands of students have secured education loans from KeyBank to attend a broad range of career-training schools—schools offering instruction in how to use or repair computers, how to become an electronics technician or even a nurse. One of the schools was Silver State Helicopters, which was based in Las Vegas and operated flight schools in a half-dozen states. During high-pressure sales pitches, people looking to change careers were encouraged to simultaneously sign up for flight school and complete a loan application that would be forwarded to KeyBank. Once approved, KeyBank, in keeping with long-standing practice, would give all the tuition money up front directly to Silver State. If a student dropped out, Silver State kept the tuition and the student remained on the hook for the full amount of the loan, at a hefty interest rate.

The same rule applied if Silver State shut itself down, which it did without warning on February 3, 2008. “Because the monthly operating expenses, even at the recently streamlined levels, continue to exceed cash flow,” an e-mail to employees explained, “the board has elected to suspend all operations effective at 5 p.m. today.” More than 750 employees in 18 states were out of work. More than 2,500 students had their training (for which they had paid as much as $70,000) cut short.

Silver State Helicopters was a flight school, but it might more accurately be thought of as a Ponzi scheme, according to critics. As long as there was a continual source of loan money, keeping the scheme afloat, all was well. KeyBank bundled the loans into securities, just as the subprime-mortgage marketers had done, and sold them on Wall Street. But when Wall Street failed to buy at an adequate interest rate, the money supply evaporated. As KeyBank dryly put it, “In 2007, Key was unable to securitize its student loan portfolio at cost-effective rates.” Without the loans—in other words, without the cooperation of Wall Street—the school had no income.

In February 2009, Fitch Ratings service, which rates the ability of debt issuers to meet their commitments, placed 16 classes of KeyCorp student-loan transactions totaling $1.75 billion on “Ratings Watch Negative,” signaling the possibility of a future downgrade in their creditworthiness.

Predator to the Rescue
The credit-card behemoth Capital One, an institution that many Americans probably don’t even realize is a bank, maintains its headquarters in McLean, in northern Virginia. Over the years, Capital One’s phenomenally successful marketing strategy has made the company the fifth-largest credit-card issuer in the U.S., and it has used its profits to expand into retail banking, home-equity loans, and other kinds of lending.

Capital One never revealed what it planned to do with the $3.5 billion tarp check it received from the U.S. Treasury on November 14, 2008, but three weeks later, the company bought one of Washington’s premier financial institutions, Chevy Chase Bank. To Washingtonians, Chevy Chase was a model corporate citizen. But outside Washington, it had a different reputation. The company’s mortgage subsidiary had engaged in practices that were at the core of the nation’s mortgage meltdown—risky loans with teaser interest rates that later went bad. The bank’s portfolio of mortgages from around the country was stuffed with a high percentage of so-called option arm—adjustable-rate mortgages with many different payment options. One of the most common kept a homeowner’s monthly payment the same for years, but the interest rate rose almost immediately. When the interest exceeded the amount of the monthly payment, the excess was tacked onto the principal, pushing homeowners ever deeper into debt. Having been lured by what a federal judge would call the “siren call” of this kind of mortgage, many Chevy Chase mortgage holders were on the brink of foreclosure, or had already fallen over the edge. By mid-2008, Chevy Chase’s “nonperforming” assets had tripled to $490 million since the previous September.

With Chevy Chase rapidly deteriorating, along came Capital One. Flush with tarp money, Capital One became a bailout czar of its own. It bought Chevy Chase for $520 million and assumed $1.75 billion of its bad loans. The purchase price was a fraction of what Chevy Chase would have brought before it wandered off into the wilderness of exotic mortgages and risky lending.

Meanwhile, even as it was bailing out Chevy Chase, Capital One was putting the squeeze on many thousands of its own credit-card holders, sharply raising their interest rates and imposing other conditions that made credit far more expensive and difficult to obtain. For many cardholders, rates jumped overnight from 7.9 percent to as much as 22.9 percent. Rather than using its multi-billion-dollar government infusion to prime the credit pump, Capital One in fact began turning off the spigot.

Capital One’s actions enraged its customers, many of whom had been cardholders for decades. The bank was engulfed with complaints. “The last I checked you were given money from the government for the specific purpose of freeing up credit to stimulate spending and help move the economy out of recession,” wrote a woman in Holland, Michigan. This was “just the opposite of what you did.” But other credit-card companies that received federal bailout money, such as Bank of America, J. P. Morgan Chase, and Citibank, would take the same route as Capital One, sharply raising interest rates, cutting off credit to millions of people, and frustrating the stated rationale for Treasury’s bailout.


Crafty_Dog

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Good billions 3
« Reply #20 on: September 12, 2009, 07:46:30 AM »


After the Earthquake
Because all dollar bills are alike, and because follow-up tracking by the government has been so minimal, it’s often impossible to determine if any bank or other financial institution used tarp money for any particular, discernible purpose. Only A.I.G., Bank of America, and Citigroup were subject to any reporting requirements at all, and the reporting has been spotty. But what is possible to say is that tarpallowed many recipients to spend money in ways they would have been unable to do otherwise. It’s also the case that recipients of tarp money continued to behave as if a financial earthquake hadn’t just shaken the world economy.

The Riviera Country Club is about a mile from the Pacific Ocean, in a scenic canyon north of Los Angeles. Riviera is home to one of the most storied tournaments on the P.G.A. Tour. This year the tournament was sponsored by a tarp recipient, the Northern Trust Company of Chicago. Northern was founded more than a century ago to cater to wealthy Chicagoans, and not much about its clientele has changed since then, except that now the company caters to the wealthy not just in Chicago but everywhere. According to the bank, its wealth-management group caters to those “with assets typically exceeding $200 million.” The company manages $559 billion in assets—a sum nearly as great as what has so far been spent on the tarpprogram itself.

When Northern Trust received $1.6 billion in tarp funds, a spokesman for the bank said that it was “too soon to say specifically” how the money would be used. But the company’s president and C.E.O., Frederick Waddell, noted that “the program will provide us with additional capital to maximize growth opportunities.” Three months later, the bank sponsored the Northern Trust Open, flying in wealthy clients from around the country. To entertain them, the bank brought in Sheryl Crow, Chicago, and Earth, Wind & Fire. A Northern Trust spokesman declined to say how much all this cost, but explained that it was really just a business decision “to show appreciation for clients.”

Northern Trust was acting no differently from many other tarp recipients. One of the most blatant examples was Citigroup’s plan to buy a $50 million private jet to fly executives around the country. A public outcry forced Citigroup to abandon that scheme, but the bank quietly went ahead with a $10 million renovation of its executive offices on Park Avenue, in New York. Given that Citigroup had already gone to the government three times for tarp assistance totaling $45 billion, and was not a paragon of public trust, retrofitting the windows with “Safety Shield 800” blastproof window film may have just been common sense.

The excesses weren’t confined to big-city banks. A subsidiary of North Carolina–based B.B.&T., after accepting $3.1 billion in tarp money, sent dozens of employees to a training session at the Ritz-Carlton hotel in Sarasota, Florida. TCF Financial Corp., based in Wayzata, Minnesota, sent 40 “high-performing” managers, lenders, and other employees on a junket in February to Cancún, soon after receiving more than $360 million in tarp funds.

But let’s face it: episodes like these, infuriating as they may be, aren’t the real issue. The real issue is tarpitself, one of the most questionable ventures the U.S. government has ever pursued. Adopted as a plan to buy up toxic assets—one that was quickly deemed impractical even by those who first proposed it—it evolved into something more closely resembling an all-purpose slush fund flowing out to hundreds of institutions with their own interests and goals, and no incentive to deploy the money toward any clearly defined public purpose.


By and large, the cash that went to the Big 9 simply became part of their capital base, and most of the big banks declined to indicate where the money actually went. Because of the sheer size of these institutions, it’s simply impossible to trace. Bank of America no doubt used a portion of its $25 billion in tarp funds to help it absorb Merrill Lynch. Citigroup revealed in its first quarterly report after receiving $45 billion intarp funds that it had used $36.5 billion to buy up mortgages and to make new loans, including home loans.

A.I.G., the largest single tarp beneficiary, wasn’t even a bank. The insurance company used its $70 billion in tarp funds to pay off a previous government infusion from the Federal Reserve. The original bailout money had flowed through A.I.G. to Wall Street firms and foreign banks that had incurred big losses on credit-default swaps and other exotic obligations. These were basically the casino-style wagers made by A.I.G. and the counterparties—wagers they lost. The government justified the help by saying it was necessary to prevent disruption to the economy that would be caused by a “disorderly wind-down” of A.I.G. The collapse of Lehman Brothers had occurred just days before the Fed took action, and the shock waves on Wall Street from yet another implosion might have been catastrophic. Bankruptcy court, where troubled corporations routinely wind down their disorderly affairs, would have been another option, though that prospect might not have quickly enough addressed the gathering sense of urgency and doom. We’ll never know. Certainly bankruptcy court would not have allowed A.I.G.’s clients to get full value for their bad investments.

Instead, A.I.G. was able to pay off its counterparties 100 cents on the dollar. The largest payout—$12.9 billion—went to Goldman Sachs, the Wall Street investment house presided over by Paulson before he moved into his Treasury job. Merrill Lynch, the world’s largest brokerage—then in the process of being taken over by Bank of America—received $6.8 billion. Bank of America itself received $5.2 billion. Citigroup, the nation’s largest bank, received $2.3 billion. But it wasn’t just Wall Street that benefitted. A.I.G. also funneled tens of billions of tarp dollars to banks on the other side of the Atlantic.

Some banks receiving tarp funds bristle at the notion that the taxpayer-funded program is a bailout. They say it is an investment in banks by the federal government, one that requires them to pay interest and ultimately pay back the money or face a financial penalty. In fact, many banks are making their scheduled payments to Treasury, and others have paid off billions of dollars in tarp funds (as well as interest). Totarp supporters, this is evidence of a sound investment. But at this stage it isn’t clear that every institution will be able to make the interest payments and buy back the government’s holdings. As of this writing, some banks, including Pacific Capital Bancorp, the parent of Santa Barbara Bank & Trust, have not been able to make their scheduled payments. No one can predict how many banks will ultimately come up short. But in the meantime tarp has been a very good deal for banks, because it gave them, courtesy of the taxpayers, access to capital that would have cost them substantially more in the private market, while exacting nothing from the beneficiaries in the form of a quid pro quo.

Based on the reluctance of many banks to take the money in the first place, and the swiftness with which other banks have repaid tarp funds, the main conclusion to be drawn is that relatively few were actually endangered. Rather than targeting the weak for relief—or allowing them to fail, as the government allowed millions of ordinary Americans to fail—Paulson and Treasury pumped hundreds of billions of dollars into the financial system without prior design and without prospective accountability. What was this all about? A case of panic by Treasury and the Federal Reserve? A financial over-reaction of cosmic proportions? A smoke screen to take care of a small number of Wall Street institutions that received 100 cents on the dollar for some of the worst investments they ever made?

More than five months after the bulk of the bailout money had been distributed into bank coffers, Elizabeth Warren plaintively raised the central and as yet unanswered question: “What is the strategy that Treasury is pursuing?” And she basically threw up her hands. As far as she could see, Warren went on, Treasury’s strategy was essentially “Take the money and do what you want with it.”

Crafty_Dog

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Ethics Report leaked
« Reply #21 on: October 30, 2009, 10:04:27 AM »
Congressional ethics report leaked, reveals names
       http://news.yahoo.com/s/ap/20091030/ap_on_bi_ge/us_congress_leaked_ethics_report

By LARRY MARGASAK, Associated Press Writer Larry Margasak, Associated Press Writer – Fri Oct 30, 9:10 am ET
WASHINGTON – Internal investigations into the conduct of over two dozen House members have been exposed in an extraordinary, Internet-era breach of security involving the secretive process by which Congress polices lawmaker ethics.

Revelations of the mostly preliminary inquiries by the House Committee on Standards of Official Conduct — also known as the Ethics committee — and a panel that refers cases to it shook the chamber as lawmakers were immersed in a series of scheduled votes Thursday.

The panel announced that it was investigating two California Democrats — Reps. Maxine Waters and Laura Richardson — even as its embarrassed leaders took pains to explain that several other lawmakers also were identified in the leaked confidential committee memo but may have done nothing wrong.

The committee said it was investigating whether Waters used her influence to help a bank in which her husband owned stock, and whether the couple benefited as a result. Separately, the panel is looking into whether Richardson failed to disclose required information on her financial disclosure forms and received special treatment from a lender.

In the midst of a busy legislative day, ethics chairwoman Rep. Zoe Lofgren, D-Calif., went to the House floor to announce that a confidential weekly report of the committee from July had leaked out in a case of "cyber-hacking."

A committee statement said that its security was breached through "peer to peer file sharing software" by a junior employee who was working from home. The staff member was fired.

The July report contains a summary of the committee's work at the time, but Lofgren said no inferences should be made about anyone whose name is mentioned.

The committee typically makes a public announcement about its activities only when it begins an investigation of potential rule-breaking, which is conducted by an investigative subcommittee whose members also are made public.

However, the weekly reports include a summary of the committee's work at an earlier stage, when its members and staff scrutinize lawmakers to see whether an investigation is warranted.

The Washington Post reported in its online edition Thursday that the document was disclosed on a publicly accessible computer network and made available to the newspaper by a source familiar with such networks.

The Post reported that more than 30 lawmakers and a few staff members were under scrutiny, including nearly half the members of the House Appropriations defense subcommittee.

The previously disclosed inquiry involves lawmakers who steered appropriations to clients of a now-defunct lobbying firm and received campaign contributions from the firm and its clients.

The names included three lawmakers previously identified in the inquiry: the chairman of the defense subcommittee, Rep. John Murtha, D-Pa.; and Reps. Peter Visclosky, D-Ind., and James Moran, D-Va.

The Post said others whose names were in the report included Reps. Norm Dicks, D-Wash., Marcy Kaptur, D-Ohio, C.W. Bill Young, R-Fla., and Todd Tiahrt, R-Kan.

The committee, however, has not announced an investigation of any of these lawmakers.

Waters is the No. 3 Democrat on the House Financial Services Committee and chairwoman of its subcommittee on housing. She has been an influential voice in the committee's work to overhaul financial regulations.

Waters came under scrutiny after former Treasury Department officials said she helped arrange a meeting between regulators and executives at OneUnited Bank last year without mentioning her husband's financial ties to the institution.

Her husband, Sidney Williams, holds at least $250,000 in the bank's stock and previously had served on its board. Waters' spokesman, Michael Levin, said Williams was no longer on the board when the meeting was arranged.

Waters has said the National Bankers Association, a trade group, requested the meeting. She defended her role in assisting minority-owned banks in the midst of the nation's financial meltdown and dismissed suggestions she used her influence to steer government aid to the bank.

"I am confident that as the investigation moves forward the panel will discover that there are no facts to support allegations that I have acted improperly," Waters said in a statement.

The committee unanimously voted to establish an investigative subcommittee to gather evidence and determine whether Waters violated standards of conduct.

The committee said it would investigate "alleged communications and activities with, or on behalf of, the National Bankers Association or OneUnited Bank" and "the benefit, if any, Rep. Waters or her husband received as a result."

The committee also voted unanimously to investigate whether Richardson violated House rules, its Code of Conduct or the Ethics in Government Act by failing to disclose property, income and liabilities on her financial disclosure forms.

The investigation also will determine whether Richardson received an impermissible gift or preferential treatment from a lender, "relating to the foreclosure, recission of the foreclosure sale or loan modification agreement" for her Sacramento, Calif., property.

Richardson said she has been subjected to "premature judgments, speculation and baseless distractions that will finally be addressed in a fair, unbiased, bipartisan evaluation of the facts."

"Like 4.3 million Americans in the last year who faced financial problems because of a personal crisis like a divorce, death in the family, unexpected job and living changes and an erroneous property sale, all of which I have experienced in the span of slightly over a year, I have worked to resolve a personal financial situation," she said in a statement.

The committee ended an investigation of Rep. Sam Graves, R-Mo., and released a report finding no ethical violations. It investigated whether Graves used his position on the House Small Business Committee to invite a longtime friend and business partner of his wife to testify at a committee hearing on the federal regulation of biodiesel and ethanol production

Crafty_Dog

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Wonder what would be said if Bush did this?
« Reply #22 on: June 25, 2010, 02:02:27 PM »
WASHINGTON — There are no Secret Service agents posted next to the barista and no presidential seal on the ceiling, but the Caribou Coffee across the street from the White House has become a favorite meeting spot to conduct Obama administration business.

Here at the Caribou on Pennsylvania Avenue, and a few other nearby coffee shops, White House officials have met hundreds of times over the last 18 months with prominent K Street lobbyists — members of the same industry that President Obama has derided for what he calls its “outsized influence” in the capital.

On the agenda over espressos and lattes, according to more than a dozen lobbyists and political operatives who have taken part in the sessions, have been front-burner issues like Wall Street regulation, health care rules, federal stimulus money, energy policy and climate control — and their impact on the lobbyists’ corporate clients.

But because the discussions are not taking place at 1600 Pennsylvania Avenue, they are not subject to disclosure on the visitors’ log that the White House releases as part of its pledge to be the “most transparent presidential administration in history.”

The off-site meetings, lobbyists say, reveal a disconnect between the Obama administration’s public rhetoric — with Mr. Obama himself frequently thrashing big industries’ “battalions” of lobbyists as enemies of reform — and the administration’s continuing, private dealings with them.

Rich Gold, a prominent Democratic lobbyist who has taken part in a number of meetings at Caribou Coffee, said that White House staff members “want to follow the president’s guidance of reducing the influence of special interests, and yet they have to do their job and have the best information available to them to make decisions.”

Mr. Gold added that the administration’s policy of posting all White House visits, combined with pressure to not be seen as meeting too frequently with lobbyists, leave staff members “betwixt and between.”

White House officials said there was nothing improper about the off-site meetings.

“The Obama administration has taken unprecedented steps to increase the openness and transparency of the White House,” said Dan Pfeiffer, director of communications. “We expect that all White House employees adhere to their obligations under our very stringent ethics rules regardless of who they are meeting with or where they meet.”

Attempts to put distance between the White House and lobbyists are not limited to meetings. Some lobbyists say that they routinely get e-mail messages from White House staff members’ personal accounts rather than from their official White House accounts, which can become subject to public review. Administration officials said there were some permissible exceptions to a federal law requiring staff members to use their official accounts and retain the correspondence.

And while Mr. Obama has imposed restrictions on hiring lobbyists for government posts, the administration has used waivers and recusals more than two dozen times to appoint lobbyists to political positions. Two lobbyists also cited instances in which the White House had suggested that a job candidate be “deregistered” as a lobbyist in Senate records to avoid violating the administration’s hiring restrictions.

A senior White House official, speaking on the condition of anonymity, said that in “a small number of cases,” people might have been “wrongly” registered as lobbyists, based on federal standards. The official said that while the White House might have discussed such instances of possible “over-registration,” he was “quite confident that no lobbying shop has been instructed to deregister anyone.”

Many lobbyists still get in the front door at the White House — nearly 1,000 times, according to a New York Times examination of public White House visitors’ logs and lobbying registration records.

Those logs, though, present an incomplete picture. For instance, many of the entries do not reflect who actually took part in a meeting. The “visitee” often shows up not as the White House official who was the host, but as the administrative assistant who arranged the meeting.
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David Wenhold, president of the American League of Lobbyists, based in Washington, said the current “cold war” relationship between the White House and K Street lobbyists was one of mutual necessity, with the White House relying on lobbyists’ expertise and connections to help shape federal policies.

“You can’t close the door all the way because you still need to have these communications,” Mr. Wenhold said. “It makes a great sound bite for the White House to demonize us lobbyists, but at the end of the day, they’re still going to call us.”

Lobbyists say some White House officials will agree to an initial meeting with a lobbyist and his client at the White House, but then plan follow-up sessions at a site not subject to the visitors’ log.

One lobbyist recounted meeting with White House officials on a side lawn outside the building to introduce them to the chief executive of a major foreign corporation.

“I’ll call and say, ‘I want to talk to you about X,’ and they’ll say, ‘Sure, let’s talk at Starbucks,’ ” said another lobbyist who counted six or seven off-site meetings with White House officials on financial issues.

Rahm Emanuel, the president’s chief of staff, has shown up several times at a closed gathering of liberal political activists and lobbyists that is held weekly at the Capital Hilton. Other Obama aides — like Jim Messina, the deputy chief of staff, and Norm Eisen, the special assistant for ethics — and senior aides in the Office of Management and Budget, the energy czar’s office and elsewhere have also taken part in off-campus meetings, lobbyists said.

Employees at Caribou Coffee — which many lobbyists said appeared to be the favorite spot for off-site meetings, in part because of its proximity to the White House — welcome the increased traffic.

“They’re here all the time — all day,” Andre Williams, a manager at Caribou Coffee, said of his White House customers. (He can spot White House officials by the security badges around their necks, or the Secret Service agents lurking nearby.)

“A lot of them like lattes — that or a ‘depth charge,’ a coffee with a shot of espresso,” Mr. Williams said. “The caffeine rush — they need it.”

Some administration officials and lobbyists say that meeting away from the White House allows officials to get some air without making visitors go through the cumbersome White House security process. Others, however, acknowledge that one motivation is the desire to avoid lobbyists’ names showing up too often on the White House logs.

A senior White House official said, “We don’t believe there’s anything untoward about these meetings, and we don’t think that represents any special access for lobbyists.”

The official added that “folks are allowed to get a cup of coffee, and we’re not going to bar patronage at any of the area’s fine coffeehouses.”

Crafty_Dog

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Re: Corruption
« Reply #23 on: June 29, 2010, 11:24:18 AM »

Crafty_Dog

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Friends of Angelo
« Reply #24 on: July 28, 2010, 05:17:02 AM »
'Reform' missed 'friends of Angelo'

By STEPHEN B. MEISTER

Last Updated: 12:26 AM, July 27, 2010

Posted: 12:19 AM, July 27, 2010

Democrats claim their sweeping financial-sector reforms will guard against the kind of problems that triggered the recent economic meltdown. But if they really wanted to do that, they would've focused on how so many US officials were simply . . .bought. Fat chance.

Nonetheless, Rep. Darrell Issa (R-Calif.), ranking member of the House Committee on Oversight and Governmental Reform, is demanding just such a review -- and, for the sake of the nation, he should get one.

Last week, Issa wrote to Alfred Pollard, general counsel to the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, asking for a probe of "VIP" mortgage loans given to Fannie and Freddie executives by Countrywide Financial Corporation. He also disclosed that Senate staffers got 30 low-rate mortgages under the program.

Founder Angelo Mozilo built Countrywide into the nation's largest mortgage lender, with a portfolio at one point worth $1.4 trillion, by selling billions in mostly subprime loans to Fannie and Freddie. Clinton Attorney General Janet Reno, using the anti-redlining statute -- the Community Reinvestment Act -- relentlessly pressured banks to make loans to "the underserved." But the banks could not make enough subprime mortgage loans to satisfy our lawmakers unless the federal government bought the loans they originated. That's where Fannie and Freddie came in.

Eventually, Congress and the Department of Housing and Urban Development ordered Fannie to spend 50 cents of every dollar buying subprime loans. Today, Fannie and Freddie are wards of the state and own, or are responsible for, $5.5 trillion worth of mortgages.

Documents strongly suggest that, through a VIP loan program at Countrywide for "Friends of Angelo," Mozilo helped spur officials to keep up Fannie and Freddie's multitrillion-dollar mortgage-spending spree and, especially, buying Countrywide's junk mortgages. Special account executives were hired to administer the "FOA" loan program. Their business cards contained the designation "VIP Loan Program," so that the VIPs who received these discounted loans would know they were being given special treatment. Thousands of dollars were saved by each VIP borrower, and each had to have known it.

"Friends of Angelo" loans went to Sen. Chris Dodd (D-Conn.), the Senate Banking Committee chairman; Sen. Kent Conrad (D-N.D.), Budget Committee chairman and a Finance Committee member; Secretary of Housing and Urban Development Alphonso Jackson; Jim Johnson, a former Fannie CEO and adviser to candidate Barack Obama; Clinton Jones III, senior counsel to the House Financial Services Subcommittee on Housing, and Franklin Raines, since-disgraced Fannie CEO.

But the more than 44,000 documents subpoenaed by Issa showed that the corruption in the system ran even deeper. They show that a staggering 153 VIP loans were extended to the quasi-governmental employees who decided what loans Fannie would buy with the taxpayers' money. Another 20 VIP loans were made to Freddie Mac executives.

Mozilo's seemingly systematic efforts to sway lawmakers, a cabinet member, White House staff and the executives at Fannie and Freddie appear to have paid off. In 2007, Countrywide alone originated 23 percent of a massive volume of Fannie and Freddie's mortgage purchases. In that year alone, Mozilo made more than $140 million. VIP borrower and Fannie CEO Jim Johnson signed a strategic agreement with Countrywide granting Fannie exclusive access to Countrywide's junk loans. Mozilo, in effect, had managed to make the United States and Countrywide joint venturers in the most prodigious -- and dangerous -- subprime-mortgage operation in our country's history.

Mozilo also seems to have stifled numerous bills in Congress aimed at reform -- despite warnings by Republicans that a failure to rein in Fannie and Freddie posed grave dangers to taxpayers. When Sen. Richard Shelby (R-Ala.) pushed for a comprehensive fix, Dodd successfully threatened a filibuster.

Meanwhile, despite ethical codes governing Congress, the Executive Branch and Fannie and Freddie, which ban the acceptance of gifts or discounts, influential "Friends of Angelo" accepted their discounted loans.

If House Leader Nancy Pelosi really were interested in reform and in "draining the swamp," she'd have launched a probe long ago. She didn't. Even worse, two-time VIP loan recipient Dodd served as sponsor of the financial-reform law, which makes no effort to deal with Fannie and Freddie, even though to date they've received $145 billion in taxpayer bailouts -- with no end in sight.

President Obama and his fellow Democrats singled out Wall Street in their massive reform package. They should have looked in the mirror first.

Stephen B. Meister is a partner in Meister Seelig & Fein LLP.

ccp

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yeah right. It is all racial.
« Reply #25 on: August 02, 2010, 08:37:15 AM »
Is this not ridiculous?  Now people are trying to say that the Rangel, Waters thing is racial.  Of course.  What else is new?  Sharpton was on cable this weekend not explicitly saying this just stating one has to ask this question.  He still refuses to apologize for his lies with Twana Brawley.  He is on the cover of some mag supposedly with the title of reinventing himself.  To me he is still the same race baiting hustler he has always been.  I don't know why msm keeps giving him some sort of legitimacy.  I guess they still find his BS still fits their liberal agenda and incorporates him into the progressive strategy to get fight republicans.


Crafty_Dog

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Re: Corruption
« Reply #26 on: August 02, 2010, 08:49:22 AM »
Also worth noting that FOX (e.g. Hannity) uses Sharpton to provoke raitings , , , but lets take further discussion if any to the Race thread on SCH or the Media thread here on P&R.

DougMacG

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Maxine Waters on Corruption
« Reply #27 on: August 03, 2010, 10:02:49 PM »
We could all use a little talk about the evils of corruption.  Here is Maxine Waters 1995 giving an impassioned lecture about the (bogus) accusations against then Speaker Gingrich:

Compliments of CSPAN and pointed out by Drudge.

"The American public does not appreciate double standards."  "...[Gingrich] must account for any and all of the wrongdoing!" [and suffer the consequences]

[youtube]http://www.youtube.com/watch?v=HZegTfr5HRg[/youtube]

Crafty_Dog

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POTH: Surprise surprise (soda)
« Reply #28 on: December 15, 2010, 07:58:01 AM »
Over the last year, Save the Children emerged as a leader in the push to tax sweetened soft drinks as a way to combat childhood obesity. The nonprofit group supported soda tax campaigns in Mississippi, New Mexico, Washington State, Philadelphia and the District of Columbia.

At the same time, executives at Save the Children were seeking a major grant from Coca-Cola to help finance the health and education programs that the charity conducts here and abroad, including its work on childhood obesity.

The talks with Coke are still going on. But the soda tax work has been stopped. In October, Save the Children surprised activists around the country with an e-mail message announcing that it would no longer support efforts to tax soft drinks.

In interviews this month, Carolyn Miles, chief operating officer of Save the Children, said there was no connection between the group’s about-face on soda taxes and the discussions with Coke. A $5 million grant from PepsiCo also had no influence on the decision, she said. Both companies fiercely oppose soda taxes.

Ms. Miles said that after Save the Children took a prominent role in several soda tax campaigns, executives reviewed the issue and decided it was too controversial to continue.

“We looked at it and said, ‘Is this something we should be out there doing and does this fit with the way that Save the Children works?’ ” she said. “And the answer was no.”

Ms. Miles said the talks with Coke were continuing and the grant under discussion was significantly larger than past donations from the soft drink giant. Coke has given the group about $400,000 since 1991, according to a company spokeswoman.

Save the Children has received much more money from Pepsi through the PepsiCo Foundation, which it has designated as a “corporate partner” in recognition of the $5 million grant for work in India and Bangladesh. PepsiCo awarded the grant in early 2009, before the charity began its soda tax advocacy.

Representatives of both Coca-Cola and Pepsi said they had not asked the charity to alter its position on soda taxes.

But soda tax advocates say that soft drink makers are flexing their muscles in opposition to soda taxes. In Washington State, the American Beverage Association, a trade group that includes Coke and Pepsi, spent $16.5 million to win passage of a November ballot initiative that overturned a small tax on soft drinks enacted by the legislature to help plug a budget gap. The beverage association outspent supporters of the tax by more than 40 to 1, and the tax was repealed.

Jon Gould, deputy director of the Children’s Alliance, an advocacy group in Seattle, said Save the Children’s decision to abandon the issue was “a significant loss, especially at a time when the American Beverage Association has just shown that their resources are unlimited.” The alliance got $25,000 from Save the Children to help advocate for a soda tax.

Kelly D. Brownell, a soda tax advocate and director of the Rudd Center for Food Policy and Obesity at Yale University, said that many food and beverage companies made donations to nonprofit groups fighting hunger but it was less common for them to finance work to address obesity.

“It would be a shame if there were a quid pro quo and the groups felt pressure to oppose something like a soda tax,” Mr. Brownell said.

Public debate about soda taxes has intensified over the last year. Proponents say that if the tax were large enough, perhaps a penny an ounce or more, it could reduce consumption of sugary beverages, which are high in calories and can contribute to obesity. In addition, money raised by the tax could be spent on public health efforts to fight obesity.

The soda companies argue that it is unfair to blame their products for the obesity epidemic, which has complex causes. They say that policies should be focused instead on getting people to exercise more.

So far, tax proposals have gotten little traction. Last year, federal lawmakers considered a soft drink tax to help pay for health care reform, but that idea was dropped. Governors, state lawmakers and mayors have proposed taxes but made little headway.

Save the Children’s involvement in the issue began in late 2009, when it got a $3.5 million grant from the Robert Wood Johnson Foundation to fight childhood obesity through a program it called the Campaign for Healthy Kids. Save the Children initially financed the work of local groups, some of which focused on improving school lunches and requiring health education in schools. But local activists in Mississippi, New Mexico and Washington State used the grants to push for a soda tax.

When politicians in Philadelphia and Washington proposed soda taxes this year, the Campaign for Healthy Kids got more directly involved, paying for lobbyists and polling. “We really took the lead on those and were publicly identified with those,” said Andrew Hysell, an associate vice president for Save the Children and the director of the obesity campaign.

None of the soda tax measures supported by Save the Children passed, although in Washington, the city council removed a sales tax exemption for carbonated beverages.

Save the Children’s prominent role in Philadelphia and Washington led top executives of the charity to review the work. Ms. Miles said they concluded the advocacy was not part of the charity’s mission.

“We made a decision that it was an issue that was controversial among our constituents and really was not core to the work we’re doing in the U.S.,” Ms. Miles said. She said that while the charity’s constituents included corporate donors, concerns over fund-raising were not involved in the decision.

Mr. Hysell informed soda tax advocates of the change in October and the Campaign for Healthy Kids removed declarations of support for soda taxes from its Web site.

Officials of the Robert Wood Johnson Foundation, who had encouraged Save the Children to advocate for soda taxes, are disappointed.

“They were obviously some of the strongest out there working on the issue, and we had such high hopes,” said Dwayne Proctor, team director for childhood obesity at the foundation. He said the two groups would continue to work together on other aspects of the obesity fight.


prentice crawford

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Re: Corruption
« Reply #29 on: March 25, 2011, 12:58:33 PM »
Woof,
 It's good to have friends in high places....

           www.huffingtonpost.com/2011/01/21/jeffrey-immelt-council-on-jobs-and-competitiveness_n_812005.html

         [tr][td][/table]4474-8223-2949588e90f6&GT1=33002]http://money.msn.com/top-stocks/post.aspx?post=d715c70d-f0d0-
4474-8223-2949588e90f6&GT1=33002 [/url]

                   P.C.

prentice crawford

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The Mexicanization of American Law Enforcement.
« Reply #30 on: December 09, 2011, 08:24:49 PM »
Woof,

Judith Miller
The Mexicanization of American Law Enforcement
The drug cartels extend their corrupting influence northward.

Customs and Border Protection agents have been bought off by drug dealers.Beheadings and amputations. Iraqi-style brutality, bribery, extortion, kidnapping, and murder. More than 7,200 dead—almost double last year’s tally—in shoot-outs between federales and often better-armed drug cartels. This is modern Mexico, whose president, Felipe Calderón, has been struggling since 2006 to wrest his country from the grip of four powerful cartels and their estimated 100,000 foot soldiers.

But chillingly, there are signs that one of the worst features of Mexico’s war on drugs—law enforcement officials on the take from drug lords—is becoming an American problem as well. Most press accounts focus on the drug-related violence that has migrated north into the United States. Far less widely reported is the infiltration and corruption of American law enforcement, according to Robert Killebrew, a retired U.S. Army colonel and senior fellow at the Washington-based Center for a New American Security. “This is a national security problem that does not yet have a name,” he wrote last fall in The National Strategy Forum Review. The drug lords, he tells me, are seeking to “hollow out our institutions, just as they have in Mexico.”

Corruption indictments and convictions linked to drug-trafficking organizations, known in police parlance as DTOs, are popping up in FBI press releases with disturbing frequency. In April, for instance, the U.S. Attorney’s office in the Southern District of Texas announced that Sergio Lopez Hernandez, a 40-year-old Customs and Border Protection inspector, had been convicted of drug trafficking, alien smuggling, and bribery. Hernandez pleaded guilty to accepting over $150,000 in bribes and to conspiring to sell cocaine and bring illegal aliens into the country.

Or consider the case of border inspector Margarita Crispin—“precisely the kind of border corruption case that alarms us,” says William Abbott, an assistant special agent in charge of the FBI’s criminal branch in El Paso, Texas. In 2005, he says, a federal informant tipped off the Bureau that Crispin was deliberately ignoring traffickers who moved drugs and other contraband through her border post. Then, in the spring of 2006, a van that had just gone through Crispin’s lane sputtered out of gas. The driver abandoned the vehicle and fled back across the border into Mexico—and when other inspectors opened the van’s doors, they found nearly 6,000 pounds of marijuana in plain sight. Crispin couldn’t explain why she hadn’t noticed the stash when she had examined the vehicle, according to an FBI press release on the case and an official who worked on it.

Another year of surveillance uncovered evidence of Crispin’s drug-cartel connections. Though she lived simply in El Paso, she socialized with known drug traffickers in Mexico and had bought two expensive homes and several luxury vehicles there through straw purchasers. Crispin was then arrested. After pleading guilty in 2008 to conspiring to import drugs and abusing the public trust, she was sentenced to 20 years in prison and ordered to forfeit $5 million in assets she was estimated to have stolen.

Government investigators believe that Crispin had been working for the cartels for at least a year before she applied to become an inspector. In other words, federal screening failed to detect that, at the time she applied for her job, the cartels had already recruited her to facilitate their cross-border trafficking. At one point, federal investigators say, Crispin claimed to have wanted out of her arrangement with the cartels. “But we think she was kidnapped and forcibly taken back to Mexico to remind her of whom she was working for,” Abbott says. Having family in both Juárez and El Paso, cities within sight of each other across the border, Crispin found herself trapped.

Abbott says that the Crispin case is atypical. But the potential damage, he stresses, is huge. “You have the mule: an illegal immigrant who carries five pounds of marijuana in his backpack across the border through the desert. Compare that with the border inspector who waves through five completely loaded vans, as she did.”

Experts disagree about how deep this rot runs. Some try to downplay the phenomenon, dismissing the law enforcement officials who have succumbed to bribes or intimidation from the drug cartels as a few bad apples. Peter Nuñez, a former U.S. attorney who lectures at the University of San Diego, says he does not believe that there has been a noticeable surge of cartel-related corruption along the border, partly because the FBI, which has been historically less corrupt than its state and local counterparts, has significantly ratcheted up its presence there. “It’s harder to be as corrupt today as locals were in the 1970s, when there wasn’t a federal agent around for hundreds of miles,” he says.

But Jason Ackleson, an associate professor of government at New Mexico State University, disagrees. “U.S. Customs and Border Protection is very alert to the problem,” he tells me. “Their internal investigations caseload is going up, and there are other cases that are not being publicized.” While corruption is not widespread, “if you increase the overall number of law enforcement officers as dramatically as we have”—from 9,000 border agents and inspectors prior to 9/11 to a planned 20,000 by the end of 2009—“you increase the possibility of corruption due to the larger number of people exposed to it and tempted by it.” Note, too, that Drug Enforcement Agency data suggest that Mexican cartels are operating in at least 230 American cities.

Washington is taking no chances. In recent months, the FBI’s Criminal Division has created seven multiagency task forces and assigned 120 agents to investigate public corruption, drug-related and otherwise, in the Southwest border region, says Debbie Weierman of the FBI’s public-affairs office in Washington. Meanwhile, Customs and Border Protection, the largest U.S. law enforcement agency, has increased the number of its internal investigators over three years from five to 220.

And David Shirk, director of the San Diego–based Trans-Border Institute and a political scientist at the University of San Diego, says that recent years have seen an “alarming” increase in the number of Department of Homeland Security personnel being investigated for possible corruption. “The number of cases filed against DHS agents in recent years is in the hundreds,” says Shirk. “And that, obviously, is a potentially huge problem.” An August 2009 investigation by the Associated Press supports his assessment. Based on records obtained under the Freedom of Information Act, court records, and interviews with sentenced agents, the AP concluded that more than 80 federal, state, and local border-control officials had been convicted of corruption-related crimes since 2007, soon after President Calderón launched his war on the cartels. Over the previous ten months, the AP data showed, 20 Customs and Border Protection agents alone had been charged with a corruption-related crime. If that pace continued, the reporters concluded, “the organization will set a new record for in-house corruption.”

While the FBI task forces focus mainly on corruption along the border, cartel-related vice has spread much deeper into the American heartland. Consider New Mexico’s San Juan County, some 450 miles north of the border, where the U.S. Attorney’s office has recently prosecuted a startling corruption case that may be a portent of things to come.

Back in 1994, Ken Christesen was a detective in the Four Corners, the region where the borders of Colorado, Arizona, Utah, and New Mexico meet. That was the year that one Miguel Tarango was convicted of murdering a member of a rival drug gang in a territorial dispute. The conviction made Christesen realize that the Tarango family was “far more significant than we had initially thought” in the local drug trade, he tells me over coffee at Donna Kay’s, a popular café in Bloomfield, New Mexico.

Even in a county where 80 to 90 percent of all serious crimes are linked to drugs—an area where “you can’t swing a dead cat without hitting a drug dealer”—the Tarangos stood out. The family was locally based but had ties to Mexico’s Sinaloa and Juárez cartels, and it had big ideas about controlling the lucrative trade in methamphetamine and other illicit drugs in San Juan County. The clan’s rising star was Daniel Tarango, Jr., a short, slim, American-born hipster with a pencil-thin mustache, a fondness for black T-shirts, and no visible means of support. After his father and uncle were convicted of heavy-duty meth trafficking, sent to federal prison, and deported, Danny, known to local cops as “the Runt,” took charge of the family business.

By 2002, Christesen had become a lieutenant in the San Juan County sheriff’s office, where he participated in Operation Farmland, an effort run by a federal, state, and local alliance called the Region II Narcotics Task Force. The operation, which targeted meth sales in the Four Corners, ended in 2003 with 250 people charged, among them Mike Marshall, a former sheriff’s deputy sentenced to five years in federal prison for distributing drugs. Christesen happened to know that Marshall and Danny Tarango had often been seen together. If Tarango had befriended Marshall, Christesen reasoned, might he also be trying to get inside information from active cops about the task force itself?

The hero of Operation Farmland was Levi Countryman, then a San Juan County sheriff’s deputy who had gotten many of the tips and intelligence that led to the massive arrests. Despite Countryman’s ostensibly heroic role in Farmland, Christesen was suspicious. Farmland hadn’t fingered a single member of the Tarango clan, despite its growing prominence in the county drug trade. And despite Farmland’s apparent success, methamphetamine still flowed freely into Farmington, Bloomfield, Shiprock, Aztec, and other forlorn, trailer-strewn desert towns in the Four Corners.

Christesen concluded that Danny Tarango and Levi Countryman were working together—that “we made the arrests, Levi became a hero, and Danny got rich by eliminating his competition,” Christesen recalls. But he had no proof. Nevertheless, when he took over the Narcotics Task Force in October 2004, he quietly put Levi Countryman at the top of his target list.

Christesen’s suspicions about Countryman had been reinforced in the spring of 2004, when officers searching one of Danny Tarango’s many houses found an all-terrain vehicle registered in Countryman’s name. What was Countryman’s ATV doing in the Runt’s garage? Under intense scrutiny, Countryman resigned as deputy sheriff and told friends that he would enter the private sector as a stock trader.

But sensitive task-force information kept leaking out to the Tarangos, much to Christesen’s frustration. Every time Christesen got close to persuading someone to talk or testify in a drug-related case, the inquiry would fall apart. A parade of witnesses who had agreed to testify would suddenly change their minds. One potential witness in a drug case against Josh Tarango, Danny’s younger brother, refused to testify in 2006 after her daughter’s car was burned on her front lawn. “Every time we got close to tying Tarango to Countryman,” Christesen recalls, “an informant would be burned”—intimidated, that is. “I began to think that our own building was bugged. I even asked the FBI to do a sweep.” Tired of waiting for federal help, “we finally bought old equipment and did it ourselves.” The sweep turned up nothing. Meanwhile, violence in San Juan County kept escalating, much of it apparently tied to Danny Tarango.

In January 2007, the FBI finally responded to Christesen’s repeated appeals and quietly opened an investigation into whether the task force’s operations were being compromised from within. Because everyone on the task force was potentially a suspect, the FBI agents told no one in local law enforcement—not even Christesen—precisely what they were doing and whom they were targeting. But after wiretapping Danny Tarango’s cell-phone calls, they discovered that information about the task force was still being provided by Countryman. Christesen’s suspicions were all too true: Countryman was getting his information from a state police officer named Keith Salazar, one of the unit’s most trusted, experienced members. Countryman and Tarango even referred to Salazar by the code name “Candy” because the information he provided was so “sweet.”

In court, Salazar later argued that he had been forced to betray his fellow officers—that Countryman had threatened, if Salazar refused to cooperate, not only to expose the fact that he had skimmed funds from the task force’s kitty, but also to harm him and his family. But the cell-phone conversations that prosecutor Reeve Swainston played in court made a mockery of that claim. Calling each other several times a day, referring to each other as “bro,” joking and swearing like fraternity brothers staging college pranks, Salazar and Countryman were obviously close friends who enjoyed their dirty work. Salazar eagerly provided Countryman with the names of his fellow officers, even those serving undercover. He gave Countryman pictures he had taken of them, their home addresses, their birth dates and Social Security numbers, and detailed descriptions of their cars and license-plate numbers. He also disclosed the identity of confidential informants; the dates, times, and locations of impending search warrants; the nature of ongoing antidrug investigations in New Mexico and Colorado; and other material that Countryman requested. And he did all this for just $1,000 a month from Tarango.

For his part, Countryman was the perfect middleman. As soon as he got sensitive information from “Candy,” he would call Tarango and pass it along. As a result, Salazar never had to talk to Tarango or meet with him, insulating him from scrutiny. All three men used cell phones specifically dedicated to their double-dealing, creating what Swainston called in his indictment a “compartmentalized line of communication.” But Countryman was more than a go-between; he also distributed some of the methamphetamine he received from Tarango, street profits from which supplemented the $8,000 a month that Tarango routinely paid him.

Christesen suspected that Tarango had turned other law enforcement officers and local and state officials, and he hoped that the FBI’s investigation would uncover them. But the FBI had to cut short its investigation and move against the three men in December 2007, after agents overheard Tarango and Countryman discussing ways to intimidate and possibly harm a deputy sheriff. Among the tactics they discussed were following the deputy’s wife around town, taking photos of her and her children, leaving a photo of her on her car, throwing hypodermic needles on her lawn, delivering a box filled with dying rats to the family’s home, and leaving a pig’s head on the front porch. They agreed that this might send her a message that “her husband needs to back off,” a court document states, quoting part of an intercepted conversation between Tarango and Countryman. Further, the FBI overheard Tarango telling Countryman that he had watched the family’s home at various hours, and Countryman telling Tarango that this deputy’s “ass needed to be whacked.”

Tarango vetoed the proposal, but the FBI had heard enough. Arrest warrants for all three men were promptly issued. But before Tarango could be served, he escaped to Mexico. When the police arrested Countryman at a Denny’s restaurant in Farmington, the county seat, they found a handgun in his truck. In a safe at his home were 13 more firearms, $18,000 in cash, and almost eight pounds of marijuana.

In a sentencing memorandum, Countryman said that his heavy drinking had “clouded” his judgment and asked to be enrolled in a substance-abuse program. Countryman and Salazar pleaded guilty to conspiring to distribute drugs and were each sentenced to six years in prison. Their attorneys argued successfully in court for lighter sentences because of their post-arrest cooperation with law enforcement. And this past June, for reasons that remain murky, Danny Tarango returned from Mexico. His trial is expected to begin soon.

Christesen, who is now running for sheriff in San Juan County, still fears that Danny Tarango’s web of corruption may have been far broader than the public has been told. In the wake of the Countryman and Salazar arrests, the New Mexico state police’s narcotics division was quietly disbanded and reorganized. The fact that the state said so little about its actions leads Christesen and others to believe that the conspiracy may have involved other, still-unnamed, corrupt cops, border patrol agents, and public officials.

But “law enforcement and the communities they serve have been irreversibly damaged” merely by the information that Salazar and Countryman gave Tarango and his Mexican associates, Christesen wrote in a statement that he gave to prosecutor Swainston. In his own statement, Swainston asserted that nine separate law enforcement agencies in New Mexico and six in Colorado had been damaged by Salazar’s betrayal. “It is hard to imagine anything more frightening for a law enforcement officer than to find out after the fact that those upon whom you just executed a . . . search warrant knew you were coming because one of your own told them so,” Swainston wrote in an impassioned 47-page sentencing memorandum.

“Cops hate these cases, hate to investigate and prosecute them, because it shows we’re not perfect, that we’re vulnerable to corruption like other human beings,” Christesen says. “A Salazar looks bad for all of us. But how many other counties like ours are there in the Southwest? How can we be sure that our law enforcement system isn’t being Mexicanized? I’m worried that they’ll start with bribes, and end as they have in Mexico, with intimidation and murder.”

Michael Hayden, director of the Central Intelligence Agency under President George W. Bush, called the prospect of a narco-state in Mexico one of the gravest threats to American national security, second only to al-Qaida and on par with a nuclear-armed Iran. But the threat to American law enforcement is still often underestimated, say Christesen and other law enforcement officials.

Last year, FBI officials tell me, the Bureau worked on nearly 2,500 public corruption cases and convicted more than 700 dishonest public servants throughout the nation. Most of them were unrelated to the cartels, and Special Agent Abbott, of the FBI’s criminal branch in El Paso, says that only 15 to 30 of his region’s cases so far have involved drug-related corruption among law enforcement officials. “But given the damage that can be done by just one corrupt officer or inspector,” he adds, “this is an important vulnerability. We know it.”

Judith Miller is a contributing editor of City Journal, an adjunct fellow at the Manhattan Institute.

                                       P.C.

« Last Edit: December 09, 2011, 08:39:30 PM by Crafty_Dog »

Crafty_Dog

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Re: Corruption
« Reply #31 on: December 09, 2011, 08:41:16 PM »
This too is one of the costs of the War on Drugs. 

Seems to me that pot is not such a big deal and that there would be a lot less corruption because there would be a lot less profit if there were some sort of reasonable compromise worked out here in the US.

G M

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Re: Corruption
« Reply #32 on: December 09, 2011, 08:58:35 PM »
This too is one of the costs of the War on Drugs. 

Seems to me that pot is not such a big deal and that there would be a lot less corruption because there would be a lot less profit if there were some sort of reasonable compromise worked out here in the US.


http://www.csmonitor.com/2005/0816/p01s03-woam.html

Mexicans take over drug trade to US

 
With Colombian cartels in shambles, Mexican drug lords run the show.

.
 By Danna Harman, Staff writer of The Christian Science Monitor / August 16, 2005

CIUDAD JUÁREZ, MEXICO
The kingpins of this hemisphere's drug trade are no longer Colombians.

In the largest reorganization since the 1980s, senior US officials say, Mexican cartels have leveraged the profits from their delivery routes to wrest control from the Colombian producers. The shift is also because of the success authorities have had in cracking down on Colombia's kingpins.

As a result, Mexican drug lords are calling the shots in what the UN estimates is a $142 billion a year business in cocaine, heroin, marijuana, methamphetamine, and illicit drugs on US streets.
"Today, the Mexicans have taken over and are running the organized crime, and getting the bulk of the money," says John Walters, the White House drug czar, in a phone interview. "The Colombians have pulled back."

One consequence of the new dominance of Mexican cartels is a spike in violence, especially along the 2,000-mile US-Mexico border where rival cartels are warring not only against Mexican and US authorities, but also against one another for control of the lucrative transit corridors.

While the Colombian cartels still control most of the production of cocaine and heroin, explains Jorge Chabat, a drug expert at the Center for Economic Research and Teaching (CIDE), a university in Mexico City, the more profitable part of the trade - transport to the US, and distribution there - has come under control of various Mexican cartels. Those organizations include: Osiel Cárdenas' Gulf cartel, Joaquín "El Chapo" Guzmán's Sinaloa cartel, Arellano Felix's organization in Tijuana, and the Juárez cartel, said to be led by Vicente Carrillo.

"With the successful dismantling of some of the biggest cartels in Colombia, it was only natural that the Mexicans, who had for years had close contacts with the Colombians and knew the routes and the business, would take over," says Mr. Chabat. "...and now, they are fighting among themselves."

The drugs, says Ron Brooks, president of the US National Narcotics Officers Association in West Covina, Calif., are either flown from Colombia to Mexico in small planes, or, in the case of marijuana and methamphetamine, are produced locally. Then, the drugs are shipped into the US by boat, private vehicles, or in commercial trucks crossing the border. US Border Patrol statistics show that last year 48 million pedestrians, 90 million private vehicles and 4.4 million trucks crossed from Mexico into the United States.

According to the Bureau for International Narcotics and Law Enforcement Affairs, as much as 90 percent of the cocaine sold in the US in 2004 was smuggled through Mexican territory. Mexico is also the No. 2 supplier of heroin, the largest foreign source of marijuana, and the largest producer of methamphetamine. Moreover, Mexican criminal groups now dominate operations in the US, says the bureau's latest report, released in March, and control most of the 13 primary drug distribution centers in the US.

G M

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Re: Corruption
« Reply #33 on: December 09, 2011, 09:01:09 PM »

G M

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Legalize it?
« Reply #34 on: December 09, 2011, 09:05:07 PM »
Meth and the Brain •Meth releases a surge of dopamine, causing an intense rush of pleasure or prolonged sense of euphoria.
 •Over time, meth destroys dopamine receptors, making it impossible to feel pleasure.
•Although these pleasure centers can heal over time, research suggests that damage to users' cognitive abilities may be permanent.
•Chronic abuse can lead to psychotic behavior, including paranoia, insomnia, anxiety, extreme aggression, delusions and hallucinations, and even death.

 
"There [are] a whole variety of reasons to try methamphetamine," explains Dr. Richard Rawson, associate director of UCLA's Integrated Substance Abuse Programs. "[H]owever, once they take the drug … their reasons are pretty much the same: They like how it affects their brain." Meth users have described this feeling as a sudden rush of pleasure lasting for several minutes, followed by a euphoric high that lasts between six and 12 hours, and it is the result of drug causing the brain to release excessive amounts of the chemical dopamine, a neurotransmitter that controls pleasure. All drugs of abuse cause the release of dopamine, even alcohol and nicotine, explains Rawson, "[But] methamphetamine produces the mother of all dopamine releases."

For example, in lab experiments done on animals, sex causes dopamine levels to jump from 100 to 200 units, and cocaine causes them to spike to 350 units. "[With] methamphetamine you get a release from the base level to about 1,250 units, something that's about 12 times as much of a release of dopamine as you get from food and sex and other pleasurable activities," Rawson says. "This really doesn't occur from any normally rewarding activity. That's one of the reasons why people, when they take methamphetamine, report having this euphoric [feeling] that's unlike anything they've ever experienced." Then, when the drug wears off, users experience profound depression and feel the need to keep taking the drug to avoid the crash.
 

Brain scan images from Dr. Volkow's study. Image copyright Nora Volkow/American Journal of Psychiatry.
 
When addicts use meth over and over again, the drug actually changes their brain chemistry, destroying the wiring in the brain's pleasure centers and making it increasingly impossible to experience any pleasure at all. Although studies have shown that these tissues can regrow over time, the process can take years, and the repair may never be complete. A paper published by Dr. Nora Volkow, director of the National Institute on Drug Abuse, examines brain scans of several meth abusers who, after 14 months of abstinence from the drug, have regrown most of their damaged dopamine receptors; however, they showed no improvement in the cognitive abilities damaged by the drug. After more than a year's sobriety, these former meth users still showed severe impairment in memory, judgment and motor coordination, similar to symptoms seen in individuals suffering from Parkinson's Disease.

In addition to affecting cognitive abilities, these changes in brain chemistry can lead to disturbing, even violent behavior. Meth, like all stimulants, causes the brain to release high doses of adrenaline, the body's "fight or flight" mechanism, inducing anxiety, wakefulness and intensely focused attention, called "tweaking." When users are tweaking, they exhibit hyperactive and obsessive behavior, as journalist Thea Singer's sister Candy did on her meth binges. "When she was high, which was almost always, she had to be on the computer -- diddling with programs to make them run faster, ordering freebies on the Internet," writes Singer. "Then computers faded, and she was obsessed with diving into dumpsters -- rescuing audio equipment from behind Radio Shack, pens from behind Office Depot." Heavy, chronic usage can also prompt psychotic behavior, such as paranoia, aggression, hallucinations and delusions. Some users have been known to feel insects crawling beneath their skin. "He picks and picks and picks at himself, like there are bugs inside his face," the mother of one meth addict told The Spokesman-Review. "He tears his clothes off and ties them around his head." The same article told the story of another former addict, who, even after five years of sobriety, can't go to the bathroom without propping a space heater against the door, in case someone is after him.


Read more: http://www.pbs.org/wgbh/pages/frontline/meth/body/

prentice crawford

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Velvet Elvis
« Reply #35 on: December 09, 2011, 11:04:37 PM »
Woof,
 Legalizing all drugs would cause all kinds of problems, not just for the users but for employers and society at large. Problems that could have worse consequences than the prohibition. Hard drug use generally leads people to do nothing but use drugs. They can't make an honest living so they turn to crime or they become dependant on the state to take care of them. I think we should make that as rare as possible and besides our drunks don't need any competition. Legalizing Mary Jane on the other hand might not be such a bad trade off but we still shouldn't think that it won't cause any problems. It will, but as Guro Craftydog said it will take a lot of money out of cartel hands and hopefully our corrupt politicans won't spend it all on velvet paintings of Elvis and whores. I don't know, there's no doubt that the cartels would be better stewarts of the cash, :| if we could just get them to stop killing people. Maybe if our government stopped supplying them with guns? We live in interesting times, don't we.
                                 P.C.
                                                    
« Last Edit: December 09, 2011, 11:25:29 PM by prentice crawford »

Crafty_Dog

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Re: Corruption
« Reply #36 on: December 10, 2011, 04:41:37 AM »
GM:

Said with love, but please read for comprehension.  My comments were limited to marijuana and to the the subject of this thread-- corruption.  Not only that, but allow me to refresh your memory that I agree that drugs that bypass free will e.g. meth, present an entirely different question.

All:

Any further comments on War on Drugs issues should be posted in the War on Drugs thread.

G M

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Re: Corruption
« Reply #37 on: December 10, 2011, 11:11:49 AM »
Crafty,

Just pointing out that marijuana being totally legalized wouldn't do much to the Mexican cartels.

Crafty_Dog

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Re: Corruption
« Reply #38 on: December 10, 2011, 02:05:36 PM »
Ah-- I would have picked that up if you had said so  :lol:

Anyway, it would take away their profits from Marijuana and undermine the loyalty of the people whom they would no longer be employing.

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Re: Corruption
« Reply #39 on: December 10, 2011, 02:18:08 PM »
If the US legalized weed tomorrow, I doubt it would be much of a bump in the profit margins for the Mexican cartels. "Medical Marijuana" has to be cutting into their profits by cardholders who divert their "medicine" to their fellow stoners.

prentice crawford

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Re: Corruption
« Reply #40 on: December 10, 2011, 11:02:13 PM »
Woof,  1st post;
 Congress members can do things legally that others get put in jail for. Now is that fair?

 www.cbsnews.com/8301-18560_162-57323527/congress-trading-stock-on-inside-information/

   CBSNews.com|
Steve Kroft reports that members of Congress can legally trade stock based on non-public information from Capitol Hill.
Web Extras
Congress: Trading stock on inside information?What counts as "inside information"?Keeping Congress clean(CBS News)  Editor's Note: The report "Insiders" received quite a reaction the week after it aired. Democratic Congresswoman Nancy Pelosi's office called the report a "right-wing smear." While Republican Speaker John Boehner's office called his inclusion in the story "idiotic." But now, at least 93 members of Congress have signed on as cosponsors of the Stock Act, and for the first time the bill has been introduced in the Senate.



Washington, D.C. is a town that runs on inside information - but should our elected officials be able to use that information to pad their own pockets? As Steve Kroft reports, members of Congress and their aides have regular access to powerful political intelligence, and many have made well-timed stock market trades in the very industries they regulate. For now, the practice is perfectly legal, but some say it's time for the law to change.




--------------------------------------------------------------------------------


The following is a script of "Insiders" which aired on Nov. 13, 2011. Steve Kroft is correspondent, Ira Rosen and Gabrielle Schonder, producers.

The next national election is now less than a year away and congressmen and senators are expending much of their time and their energy raising the millions of dollars in campaign funds they'll need just to hold onto a job that pays $174,000 a year.


Few of them are doing it for the salary and all of them will say they are doing it to serve the public. But there are other benefits: Power, prestige, and the opportunity to become a Washington insider with access to information and connections that no one else has, in an environment of privilege where rules that govern the rest of the country, don't always apply to them.

Questioning Pelosi: Steve Kroft heads to D.C.
When Nancy Pelosi, John Boehner, and other lawmakers wouldn't answer Steve Kroft's questions, he headed to Washington to get some answers about their stock trades.

Most former congressmen and senators manage to leave Washington - if they ever leave Washington - with more money in their pockets than they had when they arrived, and as you are about to see, the biggest challenge is often avoiding temptation.


Peter Schweizer: This is a venture opportunity. This is an opportunity to leverage your position in public service and use that position to enrich yourself, your friends, and your family.


Peter Schweizer is a fellow at the Hoover Institution, a conservative think tank at Stanford University. A year ago he began working on a book about soft corruption in Washington with a team of eight student researchers, who reviewed financial disclosure records. It became a jumping off point for our own story, and we have independently verified the material we've used.


Schweizer says he wanted to know why some congressmen and senators managed to accumulate significant wealth beyond their salaries, and proved particularly adept at buying and selling stocks.


Schweizer: There are all sorts of forms of honest grafts that congressmen engage in that allow them to become very, very wealthy. So it's not illegal, but I think it's highly unethical, I think it's highly offensive, and wrong.


Steve Kroft: What do you mean honest graft?


Schweizer: For example insider trading on the stock market. If you are a member of Congress, those laws are deemed not to apply.


Kroft: So congressman get a pass on insider trading?


Schweizer: They do. The fact is, if you sit on a healthcare committee and you know that Medicare, for example, is-- is considering not reimbursing for a certain drug that's market moving information. And if you can trade stock on-- off of that information and do so legally, that's a great profit making opportunity. And that sort of behavior goes on.


Kroft: Why does Congress get a pass on this?


Schweizer: It's really the way the rules have been defined. And the people who make the rules are the political class in Washington. And they've conveniently written them in such a way that they don't apply to themselves.


The buying and selling of stock by corporate insiders who have access to non-public information that could affect the stock price can be a criminal offense, just ask hedge fund manager Raj Rajaratnam who recently got 11 years in prison for doing it. But, congressional lawmakers have no corporate responsibilities and have long been considered exempt from insider trading laws, even though they have daily access to non-public information and plenty of opportunities to trade on it.


Schweizer: We know that during the health care debate people were trading health care stocks. We know that during the financial crisis of 2008 they were getting out of the market before the rest of America really knew what was going on.


In mid September 2008 with the Dow Jones Industrial average still above ten thousand, Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke were holding closed door briefings with congressional leaders, and privately warning them that a global financial meltdown could occur within a few days. One of those attending was Alabama Representative Spencer Bachus, then the ranking Republican member on the House Financial Services Committee and now its chairman.


Schweizer: These meetings were so sensitive-- that they would actually confiscate cell phones and Blackberries going into those meetings. What we know is that those meetings were held one day and literally the next day Congressman Bachus would engage in buying stock options based on apocalyptic briefings he had the day before from the Fed chairman and treasury secretary. I mean, talk about a stock tip.


While Congressman Bachus was publicly trying to keep the economy from cratering, he was privately betting that it would, buying option funds that would go up in value if the market went down. He would make a variety of trades and profited at a time when most Americans were losing their shirts.


Congressman Bachus declined to talk to us, so we went to his office and ran into his Press Secretary Tim Johnson.

(CBS News)  
Kroft: Look we're not alleging that Congressman Bachus has violated any laws. All...the only thing we're interested in talking to him is about his trades.


Tim Johnson: Ok...Ok that's a fair enough request.


What we got was a statement from Congressman Bachus' office that he never trades on non-public information, or financial services stock. However, his financial disclosure forms seem to indicate otherwise. Bachus made money trading General Electric stock during the crisis, and a third of GE's business is in financial services.


During the healthcare debate of 2009, members of Congress were trading health care stocks, including House Minority Leader John Boehner, who led the opposition against the so-called public option, government funded insurance that would compete with private companies. Just days before the provision was finally killed off, Boehner bought health insurance stocks, all of which went up. Now speaker of the House, Congressman Boehner also declined to be interviewed, so we tracked him down at his weekly press conference.


Kroft: You made a number of trades going back to the health care debate. You bought some insurance stock. Did you make those trades based on non-public information?


John Boehner: I have not made any decisions on day-to-day trading activities in my account. And haven't for years. I don't-- I do not do it, haven't done it and wouldn't do it.


Later Boehner's spokesman told us that the health care trades were made by the speaker's financial adviser, who he only consults with about once a year.


[Peter Schweizer: We need to find out whether they're part of a blind trust or not.]


Peter Schweizer thinks the timing is suspicious, and believes congressional leaders should have their stock funds in blind trusts.


Schweizer: Whether it's uh-- $15,000 or $150,000, the principle in my mind is that it's simply wrong and it shouldn't take place.

But there is a long history of self-dealing in Washington. And it doesn't always involve stock trades.


Congressmen and senators also seem to have a special knack for land and real estate deals. When Illinois Congressman Dennis Hastert became speaker of the House in 1999, he was worth a few hundred thousand dollars. He left the job eight years later a multi-millionaire.


Jan Strasma: The road that Hastert wants to build will go through these farm fields right here.


In 2005, Speaker Hastert got a $207 million federal earmark to build the Prairie Parkway through these cornfields near his home. What Jan Strasma and his neighbors didn't know was that Hastert had also bought some land adjacent to where the highway is supposed to go.


Strasma: And five months after this earmark went through he sold that land and made a bundle of money.


Kroft: How much?


Strasma: Two million dollars.


Kroft: What do you think of it?


Strasma: It stinks.


We stopped by the former speaker's farm, to ask him about the land deal, but he was off in Washington where he now works as a lobbyist. His office told us that property values in the area began to appreciate even before the earmark and that the Hastert land was several miles from the nearest exit.


But the same good fortune befell former New Hampshire Senator Judd Gregg, who helped steer nearly $70 million dollars in government funds towards redeveloping this defunct Air Force base, which he and his brother both had a commercial interest in. Gregg has said that he violated no congressional rules.


It's but one more example of good things happening to powerful members of Congress. Another is the access to initial public stock offerings, the opportunity to buy a new stock at insider prices just as it goes on the market. They can be incredibly lucrative and hard to get.


(CBS News)  
Schweizer: If you were a senator, Steve, and I gave you $10,000 cash, one or both of us is probably gonna go to jail. But if I'm a corporate executive and you're a senator, and I give you IPO shares in stock and over the course of one day that stock nets you $100,000, that's completely legal.


And former House Speaker Nancy Pelosi and her husband have participated in at least eight IPOs. One of those came in 2008, from Visa, just as a troublesome piece of legislation that would have hurt credit card companies, began making its way through the House. Undisturbed by a potential conflict of interest the Pelosis purchased 5,000 shares of Visa at the initial price of $44 dollars. Two days later it was trading at $64. The credit card legislation never made it to the floor of the House.

Congresswoman Pelosi also declined our request for an interview, but agreed to call on us if we attended a news conference.


Kroft: Madam Leader, I wanted to ask you why you and your husband back in March of 2008 accepted and participated in a very large IPO deal from Visa at a time there was major legislation affecting the credit card companies making its way through the-- through the House.


Nancy Pelosi: But--


Kroft: And did you consider that to be a conflict of interest?


Pelosi: The-- y-- I-- I don't know what your point is of your question. Is there some point that you want to make with that?


Kroft: Well, I-- I-- I guess what I'm asking is do you think it's all right for a speaker to accept a very preferential, favorable stock deal?


Pelosi: Well, we didn't.


Kroft: You participated in the IPO. And at the time you were speaker of the House. You don't think it was a conflict of interest or had the appearance--


Pelosi: No, it was not--


Kroft: --of a conflict of interest?


Pelosi: --it doesn't-- it only has appearance if you decide that you're going to have-- elaborate on a false premise. But it-- it-- it's not true and that's that.


Kroft: I don't understand what part's not true.


Pelosi: Yes sir. That-- that I would act upon an investment.


Congresswoman Pelosi pointed out that the tough credit card legislation eventually passed, but it was two years later and was initiated in the Senate.


Pelosi: I will hold my record in terms of fighting the credit card companies as speaker of the House or as a member of Congress up against anyone.


Corporate executives, members of the executive branch and all federal judges are subject to strict conflict of interest rules. But not the people who write the laws.


Schweizer: If you are a member of Congress and you sit on the defense committee, you are free to trade defense stock as much as you want to if you're on the Senate banking committee you can trade bank stock as much as you want and that regularly goes on-- in-- in all these committees.


Brian Baird: There should only be one thing in your mind when you're drafting legislation, 'Is this good for the United States of America?' That's it. If you're starting to say to yourself 'how's this going to affect my investments,' you've got-- you've got a mixed agenda and a mixed purpose for being there.

(CBS News)  
Brian Baird is a former congressman from Washington state who served six terms in the house before retiring last year. He spent half of those 12 years trying to get his colleagues to prohibit insider trading in Congress and establish some rules governing conflicts of interest.


Baird: One line in a bill in Congress can be worth millions and millions of dollars. There was one night, we had a late, late night caucus and you could kind of tell how a vote was going to go the next day. I literally walked home and I thought, 'Man, if you-- if you went online and made-- some significant trades, you could make a lot of money on this.' You-- you could just see it. You could see the potential here.


So in 2004, Baird and Congresswoman Louise Slaughter introduced the Stock Act which would make it illegal for members of Congress to trade stocks on non-public information and require them to report their stock trades every 90 days instead of once a year.


Kroft: How far did you get with this?


Baird: We didn't get anywhere. Just flat died. Went nowhere.


Kroft: How many cosponsors did you get?


Baird: I think we got six.


Kroft: Six doesn't sound like a very big amount.


Baird: It's not, Steve. You-- you could have-- 'National Cherry Pie Week' and get 100 cosponsors.


When Baird finally managed to get a congressional hearing on the Stock Act, almost no one showed up. It's reintroduced every session, but is buried so deep in the Capitol we had trouble finding congressmen who had even heard of it.


Kroft: Have you ever heard of the Stock Act?


Steve Palazzo: The what?


Kroft: The Stock Act. Do you know anything about it?


Congressman: No.


Kroft: Congressman. Congressman. Congressman.


Congressman Quayle: I haven't heard about that one yet.


Kroft: Have you ever heard of something called the Stock Act?


Congressman Watt: No.


Male voice: I've heard about, but not. I can't say it's an issue I've spent a lot of time on.


Male voice: I would have no problem with that.


Kroft: Okay.


Male voice: But then again I am a big fan of, you know, instant disclosure on almost everything.


Kroft: They're looking for co-sponsors.

(Male voice) Yet I've never heard of it.


(CBS News)  
Baird: When you have a bill like this that makes so much sense and you can't get the co-sponsorships, you can't get the leadership to move it, it gets tremendously frustrating. Set aside that it's the right thing to do, it's good politics. People want their Congress to function well. It still baffles me.


But what baffles Baird even more is that the situation has gotten worse. In the past few years a whole new totally unregulated, $100 million dollar industry has grown up in Washington called political intelligence. It employs former congressmen and former staffers to scour the halls of the Capitol gathering valuable non-public information then selling it to hedge funds and traders on Wall Street who can trade on it.


Baird: Now if you're a political intel guy. And you get that information. Long before it's public. Long before somebody wakes up the next morning and reads or watches the television or whatever, you've got it. And you can make real-- real-time trades before anybody else.


Baird says its taken what would be a criminal enterprise anyplace else in the country and turned it into a profitable business model.


Baird: The town is all about people saying-- what do you know that I don't know. This is the currency of Washington, D.C. And it's that kind of informational currency that translates into real currency. Maybe it's over drinks maybe somebody picks up a phone. And says you know just to let you know it's in the bill. Trades happen. Can't trace 'em. If you can trace 'em, it's not illegal. It's a pretty great system. You feel like an idiot to not take advantage of it.

                                      P.C.

« Last Edit: December 11, 2011, 12:32:12 AM by prentice crawford »

prentice crawford

  • Guest
Re: Corruption
« Reply #41 on: December 10, 2011, 11:10:23 PM »
SECOND POST:

Woof,
 I bet it's just those evil Repub's doing this stuff!! Ha!


By Newsmax Wires

Former Speaker Nancy Pelosi bought stock in initial public offerings (IPOs) that earned hefty returns while she had access to insider information that would have been illegal for an average citizen to trade with – even though it’s perfectly legal for elected officials, CBS’s "60 Minutes" reported Sunday night.

In a piece relying on data collected from the conservative Hoover Institution, "60 Minutes" revealed that elected officials like Pelosi are exempt from insider trading laws – regulations that carry hefty prison sentences and fines for any other citizen who trades stocks with private information on companies that can affect their stock price.

In the case of elected officials – this secret information ranges from timely details on lucrative federal contracts to legislation that can cause companies’ stocks to rise and fall dramatically.

How do they get away with it? Lawmakers have exempted themselves from the laws that govern every other citizen.

Pelosi, D-Calif., and her husband have participated in at least eight IPOs while having access to information directly relating to the companies involved. One of those came in 2008, from Visa, just as a troublesome piece of legislation that would have hurt credit card companies, began making its way through the House.

“Undisturbed by a potential conflict of interest the Pelosis purchased 5,000 shares of Visa at the initial price of $44 dollars. Two days later it was trading at $64. The credit card legislation never made it to the floor of the House,” Steve Kroft of "60 Minutes" reported.

Kroft confronted Pelosi at a regular press conference after she declined an interview.

Kroft: Madam Leader, I wanted to ask you why you and your husband back in March of 2008 accepted and participated in a very large IPO deal from Visa at a time there was major legislation affecting the credit card companies making its way through the —through the House.

Nancy Pelosi: But —

Kroft: And did you consider that to be a conflict of interest?

Pelosi: The — y — I — I don't know what your point is of your question. Is there some point that you want to make with that?

Kroft: Well, I — I — I guess what I'm asking is do you think it's all right for a speaker to accept a very preferential, favorable stock deal?

Pelosi: Well, we didn't.

Kroft: You participated in the IPO. And at the time you were speaker of the House. You don't think it was a conflict of interest or had the appearance--

Pelosi: No, it was not —

Kroft: — of a conflict of interest?

Pelosi: —it doesn't — it only has appearance if you decide that you're going to have — elaborate on a false premise. But it — it —  it's not true and that's that.

Kroft: I don't understand what part's not true.

Pelosi: Yes sir. That — that I would act upon an investment.

The Hoover Institution’s Peter Schweizer stressed that what Pelosi did was completely legal.

“There are all sorts of forms of honest grafts that congressmen engage in that allow them to become very, very wealthy. So it's not illegal, but I think it's highly unethical, I think it's highly offensive, and wrong,” he told Kroft.

“… Insider trading on the stock market. If you are a member of Congress, those laws are deemed not to apply,” Schweizer added. “The fact is, if you sit on a healthcare committee and you know that Medicare, for example, is — is considering not reimbursing for a certain drug that's market moving information. And if you can trade stock on — off of that information and do so legally, that's a great profit making opportunity. And that sort of behavior goes on.”

Pelosi’s office issued a statement Sunday saying, “It is very troubling that ‘60 Minutes’ would base their reporting off of an already-discredited conservative author who has made a career out of attacking Democrats.”

Schweizer’s books include “Do as I Say (Not as I Do): Profiles in Liberal Hypocrisy,” and “Architects of Ruin,” according to Schweizer’s page on the Hoover Institution website.

                                                                    P.C.


prentice crawford

  • Guest
For The Record/Begin
« Reply #42 on: December 11, 2011, 12:29:43 AM »
Woof, 3rd Post;
 Yes, our government is corrupt, both Party's, top to bottom and they've got us pointing fingers at eachother while they screw all of us.

Sold Out
How Wall Street and Washington
Betrayed America
March 2009
Essential Information * Consumer Education Foundation
www.wallstreetwatch.org
2 SOLD OUT
SOLD OUT 3
Sold Out
How Wall Street and Washington
Betrayed America
March 2009
Essential Information * Consumer Education Foundation
www.wallstreetwatch.org
4 SOLD OUT
Primary authors of this report are Robert Weissman and James Donahue. Harvey Rosenfield,
Jennifer Wedekind, Marcia Carroll, Charlie Cray, Peter Maybarduk, Tom Bollier and Paulo
Barbone assisted with writing and research.
Essential Information
PO Box 19405
Washington, DC 20036
202.387.8030
info@essential.org
www.essential.org
Consumer Education Foundation
PO Box 1855
Studio City, CA 91604
cefus@mac.com
SOLD OUT 5
www.wallstreetwatch.org
Table of Contents
Introduction: A Call to Arms, by Harvey Rosenfield ..ccccc. 6
Executive Summary cccccccccccccccccc... 14
Part I: 12 Deregulatory Steps to Financial Meltdown ....................... 21
1. Repeal of the Glass-Steagall Act and the Rise of the Culture of cccc.. 22
Recklessness
2. Hiding Liabilities: Off-Balance Sheet Accounting cccccccccc 33
3. The Executive Branch Rejects Financial Derivative Regulation cccc.. 39
4. Congress Blocks Financial Derivative Regulation cccccccccc 47
5. The SECfs Voluntary Regulation Regime for Investment Banks cccc. 50
6. Bank Self-Regulation Goes Global: Preparing to Repeat the Meltdown? c 54
7. Failure to Prevent Predatory Lending ccccccccccccccc 58
8. Federal Preemption of State Consumer Protection Laws ccccccc.. 67
9. Escaping Accountability: Assignee Liability cccccccccccc 73
10. Fannie and Freddie Enter the Subprime Market ccccccccccc 80
11. Merger Mania cccccccccccccccccccccccc 87
12. Rampant Conflicts of Interest: Credit Ratings Firmsf Failure ccccc.. 93
Part II: Wall Streetfs Washington Investment ..cccccccc. 98
Conclusion and Recommendations:
Principles for a New Financial Regulatory Architecture ..cc... 109
Appendix: Leading Financial Firm Profiles of Campaign
Contributions and Lobbying Expenditures ...cccccccc 115
6 SOLD OUT
Introduction:
A Call to Arms
by Harvey Rosenfield*
Americafs economy is in tatters, and the
situation grows dire by the day. Nearly
600,000 Americans lost their jobs in January,
for a total of 1.8 million over the last
three months.
Millions more
will lose theirs
over the next
year no matter
what happens.
Students can no
longer pursue a college education. Families
cannot afford to see a doctor. Many Americans
owe more on their homes than they are
worth. Those lucky enough to have had
pensions or retirement funds have watched
helplessly as 25 percent of their value
evaporated in 2008.
What caused this catastrophe? As this
report chronicles in gruesome detail, over
the last decade, Wall Street showered Washington
with over $1.7 billion in what are
prettily described as gcampaign contributions.h
This money went into the political
coffers of everyone from the lowliest mem-
* President, Consumer Education Foundation
1 Source: Center for Responsive Politics,
<www.opensecrets.org>.
ber of Congress to the President of the
United States. The Money Industry spent
another $3.4 billion on lobbyists whose job
it was to press for deregulation . Wall
Streetfs license to steal from every American.
In return for the investment of more than
$5.1 billion, the Money Industry was able to
get rid of many of the reforms enacted after
the Great Depression and to operate, for
most of the last
ten years, without
any effective
rules or restraints
whatsoever.
The report,
prepared by
Essential Information and the Consumer
Education Foundation, details step-by-step
many of the events that led to the financial
debacle. Here are the ghighlightsh of our
economic downfall:
. Beginning in 1983 with the Reagan
Administration, the U.S. government
acquiesced in accounting rules
adopted by the financial industry
that allowed banks and other corporations
to take money-losing assets
off their balance sheets in order to
hide them from investors and the
public.
. Between 1998 and 2000, Congress
and the Clinton Administration repeatedly
blocked efforts to regulate
Industry1 $ to Politicians $ to Lobbyists
Securities $512 million $600 million
Commercial Banks $155 million $383 million
Insurance Cos. $221 million $1002 million
Accounting $81 million $122 million
SOLD OUT 7
gfinancial derivativesh . including
the mortgage-related credit default
swaps that became the basis of trillions
of dollars in speculation.
. In 1999, Congress repealed the Depression-
era law that barred banks
from offering investment and insurance
services, and vice versa, enabling
these firms to engage in speculation
by investing money from
checking and savings accounts into
financial gderivativesh and other
schemes understood by only a handful
of individuals.
. Taking advantage of historically low
interest rates in the early part of this
decade, shady mortgage brokers and
bankers began offering mortgages
on egregious terms to purchasers
who were not qualified. When these
predatory lending practices were
brought to the attention of federal
agencies, they refused to take serious
action. Worse, when states
stepped into the vacuum by passing
laws requiring protections against
dirty loans, the Bush Administration
went to court to invalidate those reforms,
on the ground that the inaction
of federal agencies superseded
state laws.
. The financial industryfs friends in
Congress made sure that those who
speculate in mortgages would not be
legally liable for fraud or other illegalities
that occurred when the
mortgage was made.
. Egged on by Wall Street, two government-
sponsored corporations,
Fannie Mae and Freddie Mac,
started buying large numbers of
subprime loans from private banks
as well as packages of mortgages
known as gmortgage-backed securities.h
. In 2004, the top cop on the Wall
Street beat in Washington . the
Securities and Exchange Commission
. now operating under the
radical deregulatory ideology of the
Bush Administration, authorized investment
banks to decide for themselves
how much money they were
required to set aside as rainy day reserves.
Some firms then entered into
$40 worth of speculative trading for
every $1 they held.
. With the compensation of CEOs increasingly
tied to the value of the
firmfs total assets, a tidal wave of
mergers and acquisitions in the financial
world . 11,500 between
1980 and 2005 . led to the predominance
of just a relative handful
banks in the U.S. financial system.
Successive administrations failed to
enforce antitrust laws to block these
mergers. The result: less competi8
SOLD OUT
tion, higher fees and charges for
consumers, and a financial system
vulnerable to collapse if any single
one of the banks ran into trouble.
. Investors and even government authorities
relied on private gcredit ratingh
firms to review corporate balance
sheets and proposed investments
and report to potential investors
about their quality and safety.
But the credit rating companies had
a grave conflict of interest: they are
paid by the financial firms to issue
the ratings. Not surprisingly, they
gave the highest ratings to the investments
issued by the firms that
paid them, even as it became clear
that the ratings were inflated and the
companies were in precarious condition.
The financial lobby made sure
that regulation of the credit ratings
firms would not solve these problems.
None of these milestones on the road to
economic ruin were kept secret. The dangers
posed by unregulated, greed-driven financial
speculation were readily apparent to any
astute observer of the financial system. But
few of those entrusted with the responsibility
to police the marketplace were willing to
do so. And as the report explains, those
officials in government who dared to propose
stronger protections for investors and
consumers consistently met with hostility
and defeat. The power of the Money Industry
overcame all opposition, on a bipartisan
basis.
Itfs not like our elected leaders in Washington
had no warning: The California
energy crisis in 2000, and the subsequent
collapse of Enron . at the time unprecedented
. was an early warning that the
nationfs system of laws and regulations was
inadequate to meet the conniving and trickery
of the financial industry. The California
crisis turned out to be a foreshock of the
financial catastrophe that our country is in
today. It began with the deregulation of
electricity prices by the state legislature.
Greased with millions in campaign contributions
from Wall Street and the energy industry,
the legislation was approved on a bipartisan
basis without a dissenting vote.
Once deregulation took effect, Wall
Street began trading electricity and the
private energy companies boosted prices
through the roof. Within a few weeks, the
utility companies . unable because of a
loophole in the law to pass through the
higher prices to consumers . simply
stopped paying for the power. Blackouts
ensued. At the time, Californians were
chastised for having caused the shortages
through gover-consumption.h But the energy
shortages were orchestrated by Wall Street
rating firms, investment banks and energy
companies, in order to force Californiafs
taxpayers to bail out the utility companies.
SOLD OUT 9
Californiafs political leadership and utility
regulators largely succumbed to the blackmail,
and $11 billion in public money was
used to pay for electricity at prices that
proved to be artificially manipulated by c
Wall Street traders. The state of California
was forced to increase utility rates and
borrow over $19 billion . through Wall
Street firms . to cover these debts.
Its electricity trading activities under investigation,
Enronfs vast accounting shenanigans,
including massive losses hidden in
off-balance sheet corporate entities, came to
light, and the company collapsed within a
matter of days. It looked at the time as
though the California deregulation disaster
and the Enron scandal would lead to
stronger regulation and corporate accountability.
But then 9/11 occurred. And for most of
the last decade, the American people have
been told that our greatest enemy lived in a
cave. The subsequent focus on external
threats, real and imagined, distracted attention
from deepening problems at home. As
Franklin Roosevelt observed seventy years
ago, gour enemies of today are the forces of
privilege and greed within our own borders.h
Today, the enemies of American
consumers, taxpayers and small investors
live in multimillion-dollar palaces and pull
down seven-, eight- or even nine-figure
annual paychecks. Their weapons of mass
destruction, as Warren Buffett famously put
it, were derivatives: pieces of paper that
were backed by other pieces of paper that
were backed by packages of mortgages,
student loans and credit card debt, the
complexity and value of which only a few
understood. Meanwhile, the lessons of
Enron were cast aside after a few insignificant
measures . the tougher reforms killed
by the Money Industry . and Wall Street
went back to business as usual.
Last fall, the house of cards finally collapsed.
For those who might have heard the
gblame the victimh propaganda emanating
from the free marketers whose philosophy
lies in a smoldering ruin alongside the
economy, the report sets the record straight:
consumers are not to blame for this debacle.
Not those of us who used credit in an attempt
to have a decent quality of life (as
opposed to the tiny fraction of people in our
country who truly got ahead over the last
decade). Nor can we blame the Americans
who were offered amazing terms for mortgages
but forgot to bring a Ph.D. and a
lawyer to their gclosing,h and later found out
that they had been misled and could not
afford the loan at the real interest rate buried
in the fine print.
Rather, Americafs economic system is
at or beyond the verge of depression today
because gambling became the financial
sectorfs principal preoccupation, and the pile
of chips grew so big that the Money Industry
displaced real businesses that provided real
10 SOLD OUT
goods, services and jobs. By that time, the
amount of financial derivatives in circulation
around the world . $683 trillion by
one estimate . was more than ten times the
actual value of all the goods and services
produced by the entire planet. When all the
speculators tried to cash out, starting in
2007, there really wasnft enough money to
cover all the bets.
If we Americans are to blame for anything,
itfs for allowing Wall Street to do
what it calls a gleveraged buy outh of our
political system by spending a relatively
small amount of capital in the Capitol in
order to seize control of our economy.
Of course, the moment the Money Industry
realized that the casino had closed, it
turned . as it always does . to Washington,
this time for the mother of all favors: a
$700 billion bailout of the biggest financial
speculators in the country. Thatfs correct:
the people who lost hundreds of billions of
dollars of investorsf money were given
hundreds of billions of dollars more. The
bailout was quickly extended to insurance
companies, credit card companies, auto
manufacturers and even car rental firms. In
addition to cash infusions, the government
has blown open the federal bank vaults to
offer the Money Industry a feast of discount
loans, loan guarantees and other taxpayer
subsidies. The total tally so far? At least $8
trillion.
Panicked by Wall Streetfs threat to pull
the plug on credit, Congress rebuffed efforts
to include safeguards on how taxpayer
money would be spent and accounted for.
Thatfs why many of the details of the bailout
remain a secret, hiding the fact that no one
really knows why certain companies were
given our money, or how it has been spent.
Bankers used it pay bonuses, to buy back
their own bank stock, or to build their empires
by purchasing other banks. But very
little of the money has been used for the
purpose it was ostensibly given: to make
loans. One thing is certain: this last Washington
giveaway . the Greatest Wall Street
Giveaway of all time . has not fixed the
economy.
Meanwhile, at this very moment of national
threat, the banks, hedge funds and
other parasite firms that crippled our economy
are pouring money into Washington to
preserve their privileges at the expense of
the rest of us. The only thing that has
changed is that many of these firms are
using taxpayer money . our money . to do
so.
Thatfs why you wonft hear anyone in
the Washington establishment suggest that
Americans be given a seat on the Board of
Directors of every company that receives
bailout money. Or that Americafs economic
security is intolerably jeopardized when
pushing paper around constitutes a quarter
or more of our economy. Or that credit
default swaps and other derivatives should
SOLD OUT 11
be prohibited, or limited just like slot machines,
roulette wheels and other forms of
gambling.
In most of the United States, you can go
to jail for stealing a loaf of bread. But if you
have paid off Washington, you can steal the
life-savings, livelihoods, homes and dreams
of an entire nation, and you will be allowed
to live in the fancy homes you own, drive
multiple cars, throw multi-million dollar
birthday parties. Punishment? You might not
be able to get your bonus this year or, worst
come to worst, if you are one of the very
unlucky few unable to take advantage of the
loopholes in the plan announced by the
Treasury Secretary Geithner, you may end
up having to live off your past riches because
you can only earn a measly $500,000
while you are on the dole. (More good news
for corporate thieves: this flea-bitten proposal
is not retroactive . it does not apply
to all the taxpayer money already handed
out).
Like their predecessors, Presidentelected
Obamafs key appointments to the
Treasury, the SEC and other agencies are
veterans of the Money Industry. They are
unlikely to challenge the narrow boundaries
of the debate that has characterized Washingtonfs
response to the crisis. So long as
the Money Industry remains in charge of the
federal agencies and keeps our elected
officials in its deep pockets, nothing will
change.
Here are seven basic principles that
Americans should insist upon.
Relief. Itfs been only five months since
Congress authorized $700 billion to bail out
the speculators. Congress was told that the
bailout would alleviate the gcredit crunchh
and encourage banks to lend money to
consumers and small businesses. But the
banks have hoarded the money, or misspent
it. If the banks arenft going to keep their end
of the bargain, the government should use its
power of eminent domain to take control of
the banks, or seize the money and let the
banks go bankrupt. On top of the $700
billion bailout, the Federal Reserve has been
loaning public money to Wall Street firms
money at as little as .25 percent. These
companies are then turning around and
charging Americans interest rates of 4
percent to 30 percent for mortgages and
credit cards. There should be a cap on what
banks and credit card companies can charge
us when we borrow our own money back
from them. Similarly, transfers of taxpayer
money should be conditioned on acceptance
of other terms that would help the public,
such as an agreement to waive late fees, and
an agreement not to lobby the government.
And, Americans should be appointed to sit
on the boards of directors of these firms in
order to have a say on what these companies
do with our money . to keep them from
wasting it and to make sure they repay it.
12 SOLD OUT
Restitution. Companies that get taxpayer
money must be required to repay it on terms
that are fair to taxpayers. When Warren
Buffett acquired preferred shares in Goldman
Sachs, he demanded that Goldman
Sachs pay 10 percent interest; taxpayers are
only getting back 5 percent. The Congressional
Oversight Panel estimates that taxpayers
received preferred shares worth about
two-thirds of what was given to the initial
bailout recipients. Even worse are the taxpayer
loan guarantees offered to Citigroup.
For a $20 billion cash injection plus taxpayer
guarantees on $306 billion in toxic
assets . likely to impose massive liabilities
on the public purse . the government
received $27 billion in preferred shares,
paying 8 percent interest. Now the Obama
administration has suggested that it might
offer a dramatically expanded guarantee
program for toxic assets, putting the taxpayer
on the hook for hundreds of billions
more.
Regulation. The grand experiment in letting
Wall Street regulate itself under the assumption
that free market forces will police the
marketplace has failed catastrophically.
Wall Street needs to operate under rules that
will contain their excessive greed. Derivatives
should be prohibited unless it can be
shown that they serve a useful purpose in
our economy; those that are authorized
should be traded on exchanges subject to
full disclosure. Further mergers of financial
industry titans should be barred under the
antitrust laws, and the current monopolistic
industry should be broken up once the
country has recovered.
Reform. It is clear that the original $700
billion bailout was a rush job so poorly
constructed that it has largely failed and
much of the money wasted. The federal
government should revise the last bailout
and establish new terms for oversight and
disclosure of which companies are getting
federal money and what they are doing with
it.
Responsibility. Americans are tired of
watching corporate criminals get off with a
slap on the wrist when they plunder and
loot. Accountability is necessary to maintain
not only the honesty of the marketplace but
the integrity of American democracy. Corporate
officials who acted recklessly with
stockholder and public money should be
prosecuted and sentenced to jail time under
the same rules applicable to street thugs.
State and local law enforcement agencies,
with the assistance of the federal government,
should join to build a national network
for the investigation and prosecution of the
corporate crooks.
Return . to a real economy. In 2007, more
than a quarter of all corporate profits came
SOLD OUT 13
from the Money Industry, largely based on
speculation by corporations operating in
international markets and whose actions call
into question their loyalty to the best interests
of America. To recover, America must
return to the principles that made it great .
hard work, creativity, and innovation . and
both government and business must serve
that end. The spectacle of so many large
corporations lining up for government
assistance puts to rest the argument made by
the corporate-funded think tanks and talking
heads over the last three decades that government
is gthe problem, not the solution.h
In fact, as this report shows, government has
been the solution for the Money Industry all
along.
Now Washington must serve America,
not Wall Street. Massive government intervention
is not only appropriate when it is
necessary to save banks and insurance
companies. For the $20 billion in taxpayer
money that the government gave Citigroup
in November, we could have bought the
company lock, stock and barrel, and then we
would have our own credit card, student
loan and mortgage company, run on careful
business principles but without the need to
turn an enormous profit. Think of the assistance
that that would offer to Main Street,
not to mention the competitive effect it
would have on the market. And massive
government intervention is whatfs really
needed in the health care system, which
private enterprise has plundered and then for
so many Americans abandoned.
Revolt. Things will not change so long as
Americans acquiesce to business as usual in
Washington. Itfs time for Americans to
make their voices heard.
  
14 SOLD OUT
Executive Summary
Blame Wall Street for the current financial
crisis. Investment banks, hedge funds and
commercial banks made reckless bets using
borrowed money. They created and trafficked
in exotic investment vehicles that
even top Wall Street executives . not to
mention firm directors . did not understand.
They hid risky investments in offbalance-
sheet vehicles or capitalized on their
legal status to cloak investments altogether.
They engaged in unconscionable predatory
lending that offered huge profits for a time,
but led to dire consequences when the loans
proved unpayable. And they created, maintained
and justified a housing bubble, the
bursting of which has thrown the United
States and the world into a deep recession,
resulted in a foreclosure epidemic ripping
apart communities across the country.
But while Wall Street is culpable for
the financial crisis and global recession,
others do share responsibility.2
For the last three decades, financial
regulators, Congress and the executive
branch have steadily eroded the regulatory
system that restrained the financial sector
from acting on its own worst tendencies.
The post-Depression regulatory system
2 This report uses the term gWall Streeth in the
colloquial sense of standing for the big players
in the financial sector, not just those located
in New Yorkfs financial district.
aimed to force disclosure of publicly relevant
financial information; established limits
on the use of leverage; drew bright lines
between different kinds of financial activity
and protected regulated commercial banking
from investment bank-style risk taking;
enforced meaningful limits on economic
concentration, especially in the banking
sector; provided meaningful consumer
protections (including restrictions on usurious
interest rates); and contained the financial
sector so that it remained subordinate to
the real economy. This hodge-podge regulatory
system was, of course, highly imperfect,
including because it too often failed to
deliver on its promises.
But it was not its imperfections that led
to the erosion and collapse of that regulatory
system. It was a concerted effort by Wall
Street, steadily gaining momentum until it
reached fever pitch in the late 1990s and
continued right through the first half of
2008. Even now, Wall Street continues to
defend many of its worst practices. Though
it bows to the political reality that new
regulation is coming, it aims to reduce the
scope and importance of that regulation and,
if possible, use the guise of regulation to
further remove public controls over its
operations.
This report has one overriding message:
financial deregulation led directly to the
financial meltdown.
It also has two other, top-tier messages.
SOLD OUT 15
First, the details matter. The report documents
a dozen specific deregulatory steps
(including failures to regulate and failures to
enforce existing regulations) that enabled
Wall Street to crash the financial system.
Second, Wall Street didnft obtain these
regulatory abeyances based on the force of
its arguments. At every step, critics warned
of the dangers of further deregulation. Their
evidence-based claims could not offset the
political and economic muscle of Wall
Street. The financial sector showered campaign
contributions on politicians from both
parties, invested heavily in a legion of
lobbyists, paid academics and think tanks to
justify their preferred policy positions, and
cultivated a pliant media . especially a
cheerleading business media complex.
Part I of this report presents 12 Deregulatory
Steps to Financial Meltdown. For
each deregulatory move, we aim to explain
the deregulatory action taken (or regulatory
move avoided), its consequence, and the
process by which big financial firms and
their political allies maneuvered to achieve
their deregulatory objective.
In Part II, we present data on financial
firmsf campaign contributions and disclosed
lobbying investments. The aggregate data
are startling: The financial sector invested
more than $5.1 billion in political influence
purchasing over the last decade.
The entire financial sector (finance, insurance,
real estate) drowned political
candidates in campaign contributions over
the past decade, spending more than $1.7
billion in federal elections from 1998-2008.
Primarily reflecting the balance of power
over the decade, about 55 percent went to
Republicans and 45 percent to Democrats.
Democrats took just more than half of the
financial sectorfs 2008 election cycle contributions.
The industry spent even more . topping
$3.4 billion . on officially registered
lobbying of federal officials during the same
period.
During the period 1998-2008:
. Accounting firms spent $81 million
on campaign contributions and $122
million on lobbying;
. Commercial banks spent more than
$155 million on campaign contributions,
while investing nearly $383
million in officially registered lobbying;
. Insurance companies donated more
than $220 million and spent more
than $1.1 billion on lobbying;
. Securities firms invested nearly
$513 million in campaign contributions,
and an additional $600 million
in lobbying.
All this money went to hire legions of
lobbyists. The financial sector employed
2,996 lobbyists in 2007. Financial firms
employed an extraordinary number of
former government officials as lobbyists.
16 SOLD OUT
This report finds 142 of the lobbyists employed
by the financial sector from 1998-
2008 were previously high-ranking officials
or employees in the Executive Branch or
Congress.
  
These are the 12 Deregulatory Steps to
Financial Meltdown:
1. Repeal of the Glass-Steagall Act and
the Rise of the Culture of Recklessness
The Financial Services Modernization Act
of 1999 formally repealed the Glass-Steagall
Act of 1933 (also known as the Banking Act
of 1933) and related laws, which prohibited
commercial banks from offering investment
banking and insurance services. In a form of
corporate civil disobedience, Citibank and
insurance giant Travelers Group merged in
1998 . a move that was illegal at the time,
but for which they were given a two-year
forbearance . on the assumption that they
would be able to force a change in the
relevant law at a future date. They did. The
1999 repeal of Glass-Steagall helped create
the conditions in which banks invested
monies from checking and savings accounts
into creative financial instruments such as
mortgage-backed securities and credit
default swaps, investment gambles that
rocked the financial markets in 2008.
2. Hiding Liabilities:
Off-Balance Sheet Accounting
Holding assets off the balance sheet generally
allows companies to exclude gtoxich or
money-losing assets from financial disclosures
to investors in order to make the
company appear more valuable than it is.
Banks used off-balance sheet operations .
special purpose entities (SPEs), or special
purpose vehicles (SPVs) . to hold securitized
mortgages. Because the securitized
mortgages were held by an off-balance sheet
entity, however, the banks did not have to
hold capital reserves as against the risk of
default . thus leaving them so vulnerable.
Off-balance sheet operations are permitted
by Financial Accounting Standards Board
rules installed at the urging of big banks.
The Securities Industry and Financial Markets
Association and the American Securitization
Forum are among the lobby interests
now blocking efforts to get this rule reformed.
3. The Executive Branch Rejects
Financial Derivative Regulation
Financial derivatives are unregulated. By all
accounts this has been a disaster, as Warren
Buffetfs warning that they represent gweapons
of mass financial destructionh has
proven prescient.3 Financial derivatives have
3 Warren Buffett, Chairman, Berkshire
Hathaway, Report to Shareholders, February
21, 2003. Available at:
<http://www.berkshirehathaway.com/letters/
SOLD OUT 17
amplified the financial crisis far beyond the
unavoidable troubles connected to the
popping of the housing bubble.
The Commodity Futures Trading Commission
(CFTC) has jurisdiction over futures,
options and other derivatives connected
to commodities. During the Clinton
administration, the CFTC sought to exert
regulatory control over financial derivatives.
The agency was quashed by opposition from
Treasury Secretary Robert Rubin and, above
all, Fed Chair Alan Greenspan. They challenged
the agencyfs jurisdictional authority;
and insisted that CFTC regulation might
imperil existing financial activity that was
already at considerable scale (though nowhere
near present levels). Then-Deputy
Treasury Secretary Lawrence Summers told
Congress that CFTC proposals gcas[t] a
shadow of regulatory uncertainty over an
otherwise thriving market.h
4. Congress Blocks Financial Derivative
Regulation
The deregulation . or non-regulation . of
financial derivatives was sealed in 2000,
with the Commodities Futures Modernization
Act (CFMA), passage of which was
engineered by then-Senator Phil Gramm, RTexas.
The Commodities Futures Modernization
Act exempts financial derivatives,
including credit default swaps, from regulation
and helped create the current financial
2002pdf.pdf>.
crisis.
5. The SECfs Voluntary Regulation
Regime for Investment Banks
In 1975, the SECfs trading and markets
division promulgated a rule requiring investment
banks to maintain a debt-to-netcapital
ratio of less than 12 to 1. It forbid
trading in securities if the ratio reached or
exceeded 12 to 1, so most companies maintained
a ratio far below it. In 2004, however,
the SEC succumbed to a push from the big
investment banks . led by Goldman Sachs,
and its then-chair, Henry Paulson . and
authorized investment banks to develop their
own net capital requirements in accordance
with standards published by the Basel
Committee on Banking Supervision. This
essentially involved complicated mathematical
formulas that imposed no real limits,
and was voluntarily administered. With this
new freedom, investment banks pushed
borrowing ratios to as high as 40 to 1, as in
the case of Merrill Lynch. This superleverage
not only made the investment
banks more vulnerable when the housing
bubble popped, it enabled the banks to
create a more tangled mess of derivative
investments . so that their individual
failures, or the potential of failure, became
systemic crises. Former SEC Chair Chris
Cox has acknowledged that the voluntary
regulation was a complete failure.
18 SOLD OUT
6. Bank Self-Regulation Goes Global:
Preparing to Repeat the Meltdown?
In 1988, global bank regulators adopted a set
of rules known as Basel I, to impose a
minimum global standard of capital adequacy
for banks. Complicated financial
maneuvering made it hard to determine
compliance, however, which led to negotiations
over a new set of regulations. Basel II,
heavily influenced by the banks themselves,
establishes varying capital reserve requirements,
based on subjective factors of agency
ratings and the banksf own internal riskassessment
models. The SEC experience
with Basel II principles illustrates their fatal
flaws. Commercial banks in the United
States are supposed to be compliant with
aspects of Basel II as of April 2008, but
complications and intra-industry disputes
have slowed implementation.
7. Failure to Prevent Predatory Lending
Even in a deregulated environment, the
banking regulators retained authority to
crack down on predatory lending abuses.
Such enforcement activity would have
protected homeowners, and lessened though
not prevented the current financial crisis.
But the regulators sat on their hands. The
Federal Reserve took three formal actions
against subprime lenders from 2002 to 2007.
The Office of Comptroller of the Currency,
which has authority over almost 1,800
banks, took three consumer-protection
enforcement actions from 2004 to 2006.
8. Federal Preemption of State Consumer
Protection Laws
When the states sought to fill the vacuum
created by federal nonenforcement of consumer
protection laws against predatory
lenders, the feds jumped to stop them. gIn
2003,h as Eliot Spitzer recounted, gduring
the height of the predatory lending crisis, the
Office of the Comptroller of the Currency
invoked a clause from the 1863 National
Bank Act to issue formal opinions preempting
all state predatory lending laws, thereby
rendering them inoperative. The OCC also
promulgated new rules that prevented states
from enforcing any of their own consumer
protection laws against national banks.h
9. Escaping Accountability:
Assignee Liability
Under existing federal law, with only limited
exceptions, only the original mortgage
lender is liable for any predatory and illegal
features of a mortgage . even if the mortgage
is transferred to another party. This
arrangement effectively immunized acquirers
of the mortgage (gassigneesh) for any
problems with the initial loan, and relieved
them of any duty to investigate the terms of
the loan. Wall Street interests could purchase,
bundle and securitize subprime loans
. including many with pernicious, predatory
terms . without fear of liability for
SOLD OUT 19
illegal loan terms. The arrangement left
victimized borrowers with no cause of
action against any but the original lender,
and typically with no defenses against being
foreclosed upon. Representative Bob Ney,
R-Ohio . a close friend of Wall Street who
subsequently went to prison in connection
with the Abramoff scandal . was the
leading opponent of a fair assignee liability
regime.
10. Fannie and Freddie Enter the
Subprime Market
At the peak of the housing boom, Fannie
Mae and Freddie Mac were dominant purchasers
in the subprime secondary market.
The Government-Sponsored Enterprises
were followers, not leaders, but they did end
up taking on substantial subprime assets .
at least $57 billion. The purchase of subprime
assets was a break from prior practice,
justified by theories of expanded access to
homeownership for low-income families and
rationalized by mathematical models allegedly
able to identify and assess risk to newer
levels of precision. In fact, the motivation
was the for-profit nature of the institutions
and their particular executive incentive
schemes. Massive lobbying . including
especially but not only of Democratic
friends of the institutions . enabled them to
divert from their traditional exclusive focus
on prime loans.
Fannie and Freddie are not responsible
for the financial crisis. They are responsible
for their own demise, and the resultant
massive taxpayer liability.
11. Merger Mania
The effective abandonment of antitrust and
related regulatory principles over the last
two decades has enabled a remarkable
concentration in the banking sector, even in
advance of recent moves to combine firms
as a means to preserve the functioning of the
financial system. The megabanks achieved
too-big-to-fail status. While this should have
meant they be treated as public utilities
requiring heightened regulation and risk
control, other deregulatory maneuvers
(including repeal of Glass-Steagall) enabled
these gigantic institutions to benefit from
explicit and implicit federal guarantees, even
as they pursued reckless high-risk investments.
12. Rampant Conflicts of Interest:
Credit Ratings Firmsf Failure
Credit ratings are a key link in the financial
crisis story. With Wall Street combining
mortgage loans into pools of securitized
assets and then slicing them up into
tranches, the resultant financial instruments
were attractive to many buyers because they
promised high returns. But pension funds
and other investors could only enter the
game if the securities were highly rated.
The credit rating firms enabled these
20 SOLD OUT
investors to enter the game, by attaching
high ratings to securities that actually were
high risk . as subsequent events have
revealed. The credit ratings firms have a bias
to offering favorable ratings to new instruments
because of their complex relationships
with issuers, and their desire to maintain
and obtain other business dealings with
issuers.
This institutional failure and conflict of
interest might and should have been forestalled
by the SEC, but the Credit Rating
Agencies Reform Act of 2006 gave the SEC
insufficient oversight authority. In fact, the
SEC must give an approval rating to credit
ratings agencies if they are adhering to their
own standards . even if the SEC knows
those standards to be flawed.
  
Wall Street is presently humbled, but not
prostrate. Despite siphoning trillions of
dollars from the public purse, Wall Street
executives continue to warn about the perils
of restricting gfinancial innovationh . even
though it was these very innovations that led
to the crisis. And they are scheming to use
the coming Congressional focus on financial
regulation to centralize authority with industry-
friendly agencies.
If we are to see the meaningful regulation
we need, Congress must adopt the view
that Wall Street has no legitimate seat at the
table. With Wall Street having destroyed the
system that enriched its high flyers, and
plunged the global economy into deep
recession, itfs time for Congress to tell Wall
Street that its political investments have also
gone bad. This time, legislating must be to
control Wall Street, not further Wall Streetfs
control.
This reportfs conclusion offers guiding
principles for a new financial regulatory
architecture.
  
SOLD OUT 21
Part I:
12 Deregulatory Steps to
Financial Meltdown
22 SOLD OUT
REPEAL OF THE GLASSSTEAGALL
ACT AND THE RISE OF
THE CULTURE OF RECKLESSNESS
Perhaps the signature deregulatory move of
the last quarter century was the repeal of the
1933 Glass-Steagall Act4 and related legislation.
5 The repeal removed the legal prohibi-
4 Glass-Steagall repealed at Pub. L. 106.102,
title I, ˜ 101(a), Nov. 12, 1999, 113 Stat.
1341.
5 See amendments to the Bank Holding Company
Act of 1956, 12 U.S.C. ˜˜ 1841-1850,
1994 & Supp. II 1997 (amended 1999).
tion on combinations between commercial
banks on the one hand, and investment
banks and other financial services companies
on the other. Glass-Steagallfs strict
rules originated in the U.S. Governmentfs
response to the Depression and reflected the
learned experience of the severe dangers to
consumers and the overall financial system
of permitting giant financial institutions to
combine commercial banking with other
financial operations.
Glass-Steagall and related laws advanced
the core public objectives of protecting
depositors and avoiding excessive risk
for the banking system by defining industry
structure: banks could not maintain investment
banking or insurance affiliates (nor
affiliates in non-financial commercial activity).
As banks eyed the higher profits in
higher risk activity, however, they began to
breach the regulatory walls between commercial
banking and other financial services.
Starting in the 1980s, responding to a steady
drumbeat of requests, regulators began to
weaken the strict prohibition on crossownership.
In 1999, after a long industry
campaign, Congress tore down the legal
walls altogether. The Gramm-Leach-Bliley
Act6 removed the remaining legal restrictions
on combined banking and financial
service firms, and ushered in the current
hyper-deregulated era.
6 Pub. L. No. 106-102.
1
IN THIS SECTION:
The Financial Services Modernization Act of
1999 formally repealed the Glass-Steagall
Act of 1933 (also known as the Banking Act
of 1933) and related laws, which prohibited
commercial banks from offering investment
banking and insurance services. In a form of
corporate civil disobedience, Citibank and
insurance giant Travelers Group merged in
1998 . a move that was illegal at the time,
but for which they were given a two-year
forbearance . on the assumption that they
would be able to force a change in the
relevant law at a future date. They did. The
1999 repeal of Glass-Steagall helped create
the conditions in which banks invested
monies from checking and savings accounts
into creative financial instruments such as
mortgage-backed securities and credit
default swaps, investment gambles that
rocked the financial markets in 2008.
SOLD OUT 23
The overwhelming direct damage inflicted
by Glass-Steagall repeal was the
infusion of investment banking culture into
the conservative culture of commercial
banking. After repeal, commercial banks
sought high returns in risky ventures and
exotic financial instruments, with disastrous
results.
Origins
Banking involves the collection of funds
from depositors with the promise that the
funds will be available when the depositor
wishes to withdraw them. Banks keep only a
specified fraction of deposits in their vaults.
They lend the rest out to borrowers or invest
the deposits to generate income. Depositors
depend on the bankfs stability, and communities
and businesses depend on banks to
provide credit on reasonable terms. The
difficulties faced by depositors in judging
the quality of bank assets has required
government regulation to protect the safety
of depositorsf money and the well being of
the banking system.
In the 19th and early 20th centuries, the
Supreme Court prohibited commercial banks
from engaging directly in securities activities,
7 but bank affiliates . subsidiaries of a
7 See California Bank v. Kennedy, 167 U.S. 362,
370-71 (1897) (holding that national bank
may neither purchase nor subscribe to stock
of another corporation); Logan County Natfl
Bank v. Townsend, 139 U.S. 67, 78 (1891)
(holding that national bank may be liable as
shareholder while in possession of bonds
holding company that also owns banks .
were not subject to the prohibition. As a
result, commercial bank affiliates regularly
traded customer deposits in the stock market,
often investing in highly speculative
activities and dubious companies and derivatives.
The Pecora Hearings
The economic collapse that began with the
1929 stock market crash hit Americans hard.
By the time the bottom arrived, in 1932, the
Dow Jones Industrial Average was down 89
percent from its 1929 peak.8 An estimated
15 million workers . almost 25 percent9 of
the workforce . were unemployed, real
output in the United States fell nearly 30
percent and prices fell at a rate of nearly 10
percent per year.10
obtained under contract made absent legal
authority); National Bank v. Case, 99 U.S.
628, 633 (1878) (holding that national bank
may be liable for stock held in another
bank).
8 Floyd Norris, gLooking Back at the Crash of
f29,h New York Times on the web, 1999,
available at:
<http://www.nytimes.com/library/financial/i
ndex-1929-crash.html>.
9 Remarks by Federal Reserve Board Chairman
Ben S. Bernanke, gMoney, Gold, and the
Great Depression,h March 2, 2004, available
at:
<http://www.federalreserve.gov/boarddocs/s
peeches/2004/200403022/default.htm>.
10 Remarks by Federal Reserve Board Chairman
Ben S. Bernanke, gMoney, Gold, and the
Great Depression,h March 2, 2004, available
at:
<http://www.federalreserve.gov/boarddocs/s
peeches/2004/200403022/default.htm>.
24 SOLD OUT
The 1932-34 Pecora Hearings,11 held
by the Senate Banking and Currency Committee
and named after its chief counsel
Ferdinand Pecora, investigated the causes of
the 1929 crash. The committee uncovered
blatant conflicts of interest
and self-dealing by commercial
banks and their
investment affiliates. For
example, commercial banks
had misrepresented to their
depositors the quality of
securities that their investment
banks were underwriting
and promoting, leading
the depositors to be overly
confident in commercial banksf stability.
First National City Bank (now Citigroup)
and its securities affiliate, the National City
Company, had 2,000 brokers selling securities.
12 Those brokers had repackaged the
bankfs Latin American loans and sold them
to investors as new securities (today, this is
known as gsecuritizationh) without disclosing
to customers the bankfs confidential
findings that the loans posed an adverse
11 The Pecora hearings, formally titled gStock
Exchange Practices: Hearings Before the
Senate Banking Committee,h were
authorized by S. Res. No. 84, 72d Cong., 1st
Session (1931). The hearings were convened
in the 72d and 73d Congresses (1932-1934).
12 Federal Deposit Insurance Corporation
website, gThe Roaring 20s,h Undated,
available at:
<http://www.fdic.gov/about/learn/learning/
when/1920s.html>.
risk.13 Peruvian government bonds were sold
even though the bankfs staff had internally
warned that gno further national loan can be
safely madeh to Peru. The Senate committee
found conflicts when commercial banks
were able to garner confidential
insider information
about their corporate
customersf deposits and
use it to benefit the bankfs
investment affiliates. In
addition, commercial
banks would routinely
purchase the stock of
firms that were customers
of the bank, as opposed to
firms that were most financially stable.
The Pecora hearings concluded that
common ownership of commercial banks
and investment banks created several distinct
problems, among them: 1) jeopardizing
depositors by investing their funds in the
stock market; 2) loss of the publicfs confidence
in the banks, which led to panic
withdrawals; 3) the making of unsound
loans; and 4) an inability to provide honest
investment advice to depositors because
banks were conflicted by their underwriting
relationship with companies.14
13 Federal Deposit Insurance Corporation
website, gThe Roaring 20s,h Undated,
available at:
<http://www.fdic.gov/about/learn/learning/
when/1920s.html>.
14 Joan M. LeGraw and Stacey L. Davidson,
gGlass-Steagall and the eSubtle Hazardsf of
The Pecora hearings
concluded that common
ownership of commercial
banks and investment banks
created several distinct
problems.
SOLD OUT 25
Congress Acts
The Glass-Steagall Act consisted of four
provisions to address the conflicts of interest
that the Congress concluded had helped
trigger the 1929 crash:
. Section 16 restricted commercial national
banks from engaging in most
investment banking activities;15
. Section 21 prohibited investment
banks from engaging in any commercial
banking activities;16
. Section 20 prohibited any Federal
Reserve-member bank from affiliating
with an investment bank or other
company gengaged principallyh in
securities trading;17 and
Judicial Activism,h 24 New Eng. L. Rev.
225, Fall 1989.
15 12 U.S.C. ˜ 24, Seventh (1933) (provided that
a national bank gshall not underwrite any
issue of securities or stockh ).
16 12 U.S.C. ˜ 378(a) (1933) (git shall be
unlawful - (1) For any person, firm,
corporation, association, business trust, or
other similar organization, engaged in the
business of issuing, underwriting, selling, or
distributing, at wholesale or retail, or
through syndicate participation, stocks,
bonds, debentures, notes, or other securities,
to engage at the same time to any extent
whatever in the business of [deposit
banking].h
17 12 U.S.C. ˜ 377 (1933) (prohibited affiliations
between banks that are members of the
Federal Reserve System and organizations
gengaged principally in the issue, flotation,
underwriting, public sale, or distribution at
wholesale or retail or through syndicate
participation of stocks, bonds, debentures,
notes, or other securities.....h). Federal
Reserve member banks include all national
banks and some state-chartered banks and
are subject to regulations of the Federal
Reserve System, often referred to as the
. Section 32 prohibited individuals
from serving simultaneously with a
commercial bank and an investment
bank as a director, officer, employee,
or principal.18
One exception in Section 20 permitted
securities activities by banks in limited
circumstances, such as the trading of municipal
general obligation bonds, U.S.
government bonds, and real estate bonds. It
also permitted banks to help private companies
issue gcommercial paperh for the purpose
of obtaining short-term loans. (Commercial
paper is a debt instrument or bond
equivalent to a short-term loan; companies
issue gcommercial paperh to fund daily (i.e.,
short-term) operations, including payments
Federal Reserve or simply gthe Fed.h The
Fed, created in 1913, is the central bank of
the United States comprised of a central,
governmental agency . the Board of
Governors . in Washington, D.C., and
twelve regional Federal Reserve Banks,
located in major cities throughout the nation.
The Fed supervises thousands of its member
banks and controls the total supply of money
in the economy by establishing the rate of
interest it charges banks to borrow. It is
considered an independent central bank
because its decisions do not have to be
ratified by the President and Congress.
Federal Reserve member banks must
comply with the Fed's minimum capital
requirements. (See gThe Structure of the
Federal Reserve System,h Federal Reserve,
available at:
<http://federalreserve.gov/pubs/frseries/frser
i.htm>.)
18 12 U.S.C. ˜ 78 (1933) (provided that no
officer, director, or employee of a bank in
the Federal Reserve System may serve at the
same time as officer, director, or employee
of an association primarily engaged in the
activity described in section 20).
26 SOLD OUT
to employees and financing inventories.
Most commercial paper has a maturity of 30
days or less. Companies issue commercial
paper as an alternative to taking out a loan
from a bank.)
Glass-Steagall was a
key element of the Roosevelt
administrationfs
response to the Depression
and considered
essential both to restoring
public confidence in a
financial system that had
failed and to protecting
the nation against another
profound economic
collapse.
While the financial
industry was cowed by
the Depression, it did not
fully embrace the New
Deal, and almost immediately sought to
maneuver around Glass-Steagall. A legal
construct known as a gbank holding companyh
was not subject to the Glass-Steagall
restrictions. Under the Federal Reserve
System, bank holding companies are gpaperh
or gshellh companies whose sole purpose
is to own two or more banks. Despite
the prohibitions in Glass-Steagall, a single
company could own both commercial and
investment banking interests if those interests
were held as separate subsidiaries by a
bank holding company. Bank holding companies
became a popular way for financial
institutions and other corporations to subvert
the Glass-Steagall wall separating commercial
and investment banking. In response,
Congress enacted the Bank Holding Company
Act of 1956 (BHCA)
to prohibit bank holding
companies from acquiring
gnon-banksh or engaging in
gactivities that are not
closely related to banking.h
Depository institutions were
considered gbanksh while
investment banks (e.g. those
that trade stock on Wall
Street) were deemed gnonbanksh
under the law. As
with Glass-Steagall, Congress
expressed its intent to
separate customer deposits
in banks from risky investments
in securities. Importantly, the BHCA
also mandated the separation of banking
from insurance and non-financial commercial
activities. The BHCA also required
bank holding companies to divest all their
holdings in non-banking assets and forbade
acquisition of banks across state lines.
But the BHCA contained a loophole
sought by the financial industry. It allowed
bank holding companies to acquire nonbanks
if the Fed determined that the nonbank
activities were gclosely related to
banking.h The Fed was given wide latitude
Glass-Steagall was a key
element of the Roosevelt
administrationfs response to
the Depression and considered
essential both to restoring
public confidence in
a financial system that had
failed and to protecting the
nation against another
profound economic collapse.
SOLD OUT 27
under the Bank Holding Company Act to
approve or deny such requests. In the decades
that followed passage of the BHCA, the
Federal Reserve frequently invoked its
broad authority to approve bank holding
company acquisitions of investment banking
firms, thereby weakening the wall separating
customer deposits from riskier trading
activities.
Deference to regulators
In furtherance of the Fedfs authority under
BHCA, the Supreme Court in 1971 ruled
that courts should defer to regulatory decisions
involving bank holding company
applications to acquire non-bank entities
under the BHCA loophole. As long as a
Federal Reserve Board interpretation of the
BHCA is greasonableh and gexpressly
articulated,h judges should not intervene, the
court concluded.19 The ruling was a victory
for opponents of Glass Steagall because it
increased the power of bank-friendly regulators.
It substantially freed bank regulators to
authorize bank holding companies to conduct
new non-banking activities without
judicial interference,20 rendering a significant
blow to Glass-Steagall. As a result,
banks whose primary business was managing
customer deposits and making loans
began using their bank holding companies to
19 Investment Company Inst. v. Camp, 401 U.S.
617 (1971).
20 Jonathan Zubrow Cohen, 8 Admin. L.J. Am.
U. 335, Summer 1994.
buy securities firms. For example, Bank-
America purchased stock brokerage firm
Charles Schwab in 1984.21 The Federal
Reserve had decided that Schwabfs service
of executing buy and sell stock orders for
retail investors was gclosely related to
bankingh and thus satisfied requirements of
the BHCA.
In December 1986, the Fed reinterpreted
the phrase gengaged principally,h in
Section 20 of the BHCA, which prohibited
banks from affiliating with companies
engaged principally in securities trading.
The Fed decided that up to 5 percent of a
bankfs gross revenues could come from
investment banking without running afoul of
the ban.22
Just a few months later, in the spring of
1987, the Fed entertained proposals from
Citicorp, J.P Morgan and Bankers Trust to
loosen Glass-Steagall regulations further by
allowing banks to become involved with
commercial paper, municipal revenue bonds
and mortgage-backed securities. The Federal
Reserve approved the proposals in a 3-2
vote.23 One of the dissenters, then-Chair
Paul Volcker, was soon replaced by Alan
21 Securities Industry Association v. Federal
Reserve System, 468 U.S. 207 (1984).
22 gThe Long Demise of Glass-Steagall,h PBS
Frontline, May 8, 2003, available at:
<http://www.pbs.org/wgbh/pages/frontline/s
hows/wallstreet/weill/demise.html>.
23 gThe Long Demise of Glass-Steagall,h PBS
Frontline, May 8, 2003, available at:
<http://www.pbs.org/wgbh/pages/frontline/s
hows/wallstreet/weill/demise.html>.
28 SOLD OUT
Greenspan, a strong proponent of deregulation.
In 1989, the Fed enlarged the BHCA
loophole again, at the request of J.P. Morgan,
Chase Manhattan, Bankers Trust and
Citicorp, permitting banks to generate up to
10 percent of their revenue from investment
banking activity.
In 1993, the Fed approved an acquisition
by a bank holding company, in this case
Mellon Bank, of TBC Advisors, an administrator
and advisor of stock mutual funds. By
acquiring TBC, Mellon Bank was authorized
to provide investment advisory services to
mutual funds.
By the early 1990s, the Fed had authorized
commercial bank holding companies to
own and operate full service brokerages and
offer investment advisory services. Glass
Steagall was withering at the hands of
industry-friendly regulators whose free
market ideology conflicted with the Depression-
era reforms.
The Financial Services Modernization Act
While the Fed had been progressively
undermining Glass-Steagall through deregulatory
interpretations of existing laws, the
financial industry was simultaneously
lobbying Congress to repeal Glass-Steagall
altogether. Members of Congress introduced
major deregulation legislation in 1982,
1988, 1991, 1995 and 1998.
Big banks, securities firms and insurance
companies24 spent lavishly in support
of the legislation in the late 1990s. During
the 1997-1998 Congress, the thre
« Last Edit: December 11, 2011, 03:01:32 AM by prentice crawford »

prentice crawford

  • Guest
Re: Corruption
« Reply #43 on: December 11, 2011, 12:42:34 AM »
Woof, 4th Post;

SOLD OUT 29
million,26 in considerable part to support
Glass-Steagall repeal, now marketed under a
new and deceptive name, “Financial Modernization.”
The Clinton administration
supported the push
for deregulation. Clinton’s
Treasury Secretary, Robert
Rubin, who had run Goldman
Sachs, enthusiastically
promoted the legislation. In
1995 testimony before the
House Banking Committee,
for example, Rubin had
argued that “the banking
industry is fundamentally different from
what it was two decades ago, let alone in
1933. … U.S. banks generally engage in a
broader range of securities activities abroad
than is permitted domestically. Even domestically,
the separation of investment banking
and commercial banking envisioned by
Glass-Steagall has eroded significantly.”
Remarkably, he claimed that Glass-Steagall
could “conceivably impede safety and
soundness by limiting revenue diversification.”
27 At times, the Clinton administration
even toyed with the idea of allowing a total
blurring of the lines between banking and
26 Data from the Center for Responsive Politics.
<www.opensecrets.org>.
27 “Rubin Calls for Modernization Through
Reform of Glass-Steagall Act,” Journal of
Accountancy, May 1, 1995, available at:
<http://www.allbusiness.com/government/b
usiness-regulations/500983-1.html>.
commerce (meaning non-financial businesses),
but was forced to back away from
such a radical move after criticism from
former Federal Reserve
Chair Paul Volcker and
key Members of Congress.
28 Rubin played a
key role in obtaining
approval of legislation to
repeal Glass-Steagall, as
both Treasury Secretary
and in his subsequent
private sector role.
A handful of other
personalities were instrumental
in the effort. Senator Phil Gramm, RTexas,
the truest of true believers in deregulation,
was chair of the Senate Banking
Committee, and drove the repeal legislation.
He was assisted by Federal Reserve Chair
Alan Greenspan, an avid proponent of
deregulation who was also eager to support
provisions of the proposed Financial Services
Modernization Act that gave the Fed
enhanced jurisdictional authority at the
expense of other federal banking regulatory
agencies. Notes Jake Lewis, formerly a
professional staff member of the House
Banking Committee, “When the legislation
became snagged on controversial provisions,
28 Jake Lewis, “Monster Banks: The Political and
Economic Costs of Banking and Financial
Consolidation,” Multinational Monitor,
January/February 2005, available at:
<http://www.multinationalmonitor.org/mm2
005/012005/lewis.html>.
The Clinton administration
was winding down, and the
finance industries were
becoming increasingly
nervous that the legislation
to repeal Glass-Steagall
would not pass.
30 SOLD OUT
Greenspan would invariably draft a letter or
present testimony supporting Gramm’s
position on the volatile points. It was a
classic back-scratching deal
that satisfied both players
— Greenspan got the dominant
regulatory role and
Gramm used Greenspan’s
wise words of support to
mute opposition and to help
assure a friendly press
would grease passage.”29
Also playing a central role were the
CEOs of Citicorp and Travelers Group. In
1998, the two companies announced they
were merging. Such a combination of banking
and insurance companies was illegal
under the Bank Holding Company Act, but
was excused due to a loophole in the BHCA
which provided a two-year review period of
proposed mergers. Travelers CEO Sandy
Weill met with Greenspan prior to the
announcement of the merger, and said
Greenspan had a “positive response” to the
audacious proposal.30
Citigroup’s co-chairs Sandy Weill and
John Reed, along with lead lobbyist Roger
Levy, led a swarm of industry executives
29 Jake Lewis, “Monster Banks: The Political and
Economic Costs of Banking and Financial
Consolidation,” Multinational Monitor,
January/February 2005, available at:
<http://www.multinationalmonitor.org/mm2
005/012005/lewis.html>.
30 Peter Pae, “Bank, Insurance Giants Set
Merger: Citicorp, Travelers in $82 Billion
Deal,” Washington Post, April 7, 1988.
and lobbyists who badgered the administration
and pounded the halls of Congress until
the final details of a deal were hammered
out. Top Citigroup officials
vetted drafts of the
legislation before they
were formally introduced.
31
As the deal-making
on the bill moved into its
final phase in Fall 1999
— and with fears running
high that the entire exercise would collapse
— Robert Rubin stepped into the breach.
Having recently resigned as Treasury Secretary,
Rubin was at the time negotiating the
terms of his next job as an executive at
Citigroup. But this was not public knowledge
at the time. Deploying the credibility
built up as part of what the media had labeled
“The Committee to Save the World”
(Rubin, Greenspan and then-Deputy Treasury
Secretary Lawrence Summers, so named
for their interventions in addressing the
Asian financial crisis in 1997), Rubin helped
broker the final deal.
The Financial Services Modernization
Act, also known as the Gramm-Leach-Bliley
Act of 1999, formally repealed Glass-
Steagall. The new law authorized banks,
31 Russell Mokhiber, “The 10 Worst Corporations
of 1999,” Multinational Monitor, December
1999, available at:
<http://www.multinationalmonitor.org/mm1
999/mm9912.05.html>.
The Depression-era conflicts
and consequences that
Glass-Steagall was intended
to prevent re-emerged once
the Act was repealed.
SOLD OUT 31
securities firms and insurance companies to
combine under one corporate umbrella. A
new clause was inserted into the Bank
Holding Company Act allowing one entity
to own a separate financial holding company
that can conduct a variety of financial activities,
regardless of the parent corporation’s
main functions. In the congressional debate
over the Financial Services Modernization
Act, Senator Gramm declared, “Glass-
Steagall, in the midst of the Great Depression,
thought government was the answer. In
this period of economic growth and prosperity,
we believe freedom is the answer.” The
chief economist of the Office of the Comptroller
of the Currency supported the legislation
because of “the increasingly persuasive
evidence from academic studies of the pre-
Glass-Steagall era.”32
Impact of Repeal
The gradual evisceration of Glass-Steagall
over 30 years, culminating in its repeal in
1999, opened the door for banks to enter the
highly lucrative practice of packaging
multiple home mortgage loans into securities
for trade on Wall Street. Repeal of
Glass-Steagall created a climate and culture
32 James R. Barth, R. Dan Brumbaugh Jr. and
James A. Wilcox, “The Repeal of Glass-
Steagall and the Advent of Broad Banking,”
Economic and Policy Analysis Working
Paper 2000-5, Office of the Comptroller of
the Currency, April 2000, available at:
<http://www.occ.treas.gov/ftp/workpaper/w
p2000-5.pdf>.
where aggressive deal-making became the
norm.
The practice of “securitization” had virtually
disappeared after it contributed to the
1929 crash, but had made a comeback in the
1970s as Glass-Steagall was being dismantled.
Economic analyst Robert Kuttner
testified in 2007 that trading loans on Wall
Street “was the core technique that made
possible the dangerous practices of the
1920s. Banks would originate and repackage
highly speculative loans, market them as
securities through their retail networks,
using the prestigious brand name of the bank
— e.g. Morgan or Chase — as a proxy for
the soundness of the security. It was this
practice, and the ensuing collapse when so
much of the paper went bad, that led Congress
to enact the Glass-Steagall Act”33 that
separated banks and securities trading.
Whereas bank deposits had been a centerpiece
of the 1929 crash, mortgage loans
— and the securities connected to them —
are at the center of the present financial
crisis. There is mounting evidence that the
repeal of Glass-Steagall contributed to a
high-flying culture that led to disaster. The
banks suspended careful scrutiny of loans
they originated because they knew that the
loans would be rapidly packaged into mort-
33 Testimony of Robert Kuttner before the
Committee on Financial Services, U.S.
House of Representatives, October 2, 2007,
available at:
<http://financialservices.house.gov/hearing1
10/testimony_-_kuttner.pdf>.
32 SOLD OUT
gage-backed securities and sold off to third
parties. Since the banks weren’t going to
hold the mortgages in their own portfolios,
they had little incentive to review the borrowers’
qualifications carefully.34
But the banks did not in fact escape exposure
to the mortgage market. It appears
that, as they packaged mortgages into securities
and then sold them off into “tranches,”
the banks often kept portions of the least
desirable tranches in their own portfolios, or
those of off-balance-sheet affiliates. They
also seemed to have maintained liability in
some cases where securitized mortgages
went bad. As banks lost billions on mortgage-
backed securities in 2008, they stopped
making new loans in order to conserve their
assets. Instead of issuing new loans with
hundreds of billions of dollars in taxpayerfooted
bailout money given for the purpose
of jump-starting frozen credit markets, the
banks used the money to offset losses on
their mortgage securities investments. Banks
and insurance companies were saddled with
billions more in losses from esoteric “credit
default swaps” created to insure against
34 See Liz Rappaport and Carrick Mollenkamp,
“Banks May Keep Skin in the Game,” Wall
Street Journal, February 9, 2009, available
at:
<http://sec.online.wsj.com/article/SB123422
980301065999.html>; “Before That, They
Made A Lot of Money: Steps to Financial
Collapse,” An Interview with Nomi Prins,
Multinational Monitor, November/
December 2008, available at:
<http://www.multinationalmonitor.org/mm2
008/112008/interview-prins.html>.
mortgage defaults and themselves traded on
Wall Street.
In short, the Depression-era conflicts
and consequences that Glass-Steagall was
intended to prevent re-emerged once the Act
was repealed. The once staid commercial
banking sector quickly evolved to emulate
the risk-taking attitude and practices of
investment banks, with disastrous results.
Notes economist Joseph Stiglitz, “The
most important consequence of the repeal of
Glass-Steagall was indirect — it lay in the
way repeal changed an entire culture. Commercial
banks are not supposed to be highrisk
ventures; they are supposed to manage
other people’s money very conservatively. It
is with this understanding that the government
agrees to pick up the tab should they
fail. Investment banks, on the other hand,
have traditionally managed rich people’s
money — people who can take bigger risks
in order to get bigger returns. When repeal
of Glass-Steagall brought investment and
commercial banks together, the investmentbank
culture came out on top. There was a
demand for the kind of high returns that
could be obtained only through high leverage
and big risk taking.”35
  
35 Joseph Stiglitz, “Capitalist Fools,” Vanity Fair,
January 2009, available at:
<http://www.vanityfair.com/magazine/2009/
01/stiglitz200901>.
SOLD OUT 33
HIDING LIABILITIES:
OFF-BALANCE SHEET
ACCOUNTING
A business’s balance sheet is supposed to
report honestly on a firm’s financial state by
listing its assets and liabilities. If a company
can move money-losing assets off of its
balance sheet, it will appear to be in greater
financial health. But if it is still incurring
losses from the asset taken off the balance
sheet, then the apparent improvement in
financial health is illusory.
Thanks to the exploitation of loopholes
in accounting rules, commercial banks were
able to undertake exactly this sort of
deceptive financial shuffling in recent years.
Even in good times, placing securitized
mortgage loans off balance sheet had
important advantages for banks, enabling
them to expand lending without setting aside
more reserve-loss capital (money set aside to
protect against loans that might not be
repaid).36 As they made and securitized
more loans shunted off into off-balance
sheet entities, the banks’ financial
vulnerability kept increasing — they had
increased lingering obligations related to
securitized loans, without commensurate
reserve-loss capital. Then, when bad times
hit, off-balance sheet accounting let banks
hide their losses from investors and
regulators. This allowed their condition to
grow still more acute, ultimately imposing
massive losses on investors and threatening
the viability of the financial system.
36 Wall Street recognized this immediately after
the adoption of the relevant accounting rule,
known as FASB 140 (see text below for
more explanation). “How the sponsors and
their lawyers and accountants address FASB
140 may have an impact on the continuing
viability of this market,” said Gail Sussman,
a managing director at Moody's. “If they
have to keep these bonds on their balance
sheet, they have to reserve against them. It
may eat into the profit of these products
[securitized loans].” Michael McDonald,
“Derivatives Hit the Wall - Sector Found
Wary Investors in 2001,” The Bond Buyer,
March 15, 2002.
2
IN THIS SECTION:
Holding assets off the balance sheet generally
allows companies to exclude “toxic” or
money-losing assets from financial disclosures
to investors in order to make the
company appear more valuable than it is.
Banks used off-balance sheet operations —
special purpose entities (SPEs), or special
purpose vehicles (SPVs) — to hold securitized
mortgages. Because the securitized
mortgages were held by an off-balance sheet
entity, however, the banks did not have to
hold capital reserves as against the risk of
default — thus leaving them so vulnerable.
Off-balance sheet operations are permitted
by Financial Accounting Standards Board
rules installed at the urging of big banks. The
Securities Industry and Financial Markets
Association and the American Securitization
Forum are among the lobby interests now
blocking efforts to get this rule reformed.
34 SOLD OUT
The scale of banks’ off-balance sheet
assets is enormous — 15.9 times the amount
on the balance sheets in 2007. This ratio
represents a massive surge over the last
decade and half: “During the period 1992-
2007, on-balance sheet assets grew by 200
percent, while off-balance sheet asset grew
by a whopping 1,518 [percent].”37
One Wall Street executive described
off-balance sheet accounting “as a bit of a
magic trick”38 because losses disappear from
the balance sheet, making lenders appear
more financially stable than they really are.
A former SEC official called it “nothing
more than just a scam.”39
The Securities and Exchange
Commission (SEC) has statutory authority
to establish financial accounting and
reporting standards, but it delegates this
37 Joseph Mason, “Off-balance Sheet Accounting
and Monetary Policy Ineffectiveness,” RGE
Monitor, December 17, 2008, available at:
<http://www.rgemonitor.com/financemarket
s-monitor/254797/offbalance_
sheet_accounting_and_monetary_p
olicy_ineffectiveness>.
38 Alan Katz and Ian Katz, “Greenspan Slept as
Off-Books Debt Escaped Scrutiny,”
Bloomberg.com, October 30, 2008,
available at:
<http://www.bloomberg.com/apps/news?pid
=20601170&refer=home&sid=aYJZOB_gZi
0I> (quoting Pauline Wallace, partner at
PriceWaterhouseCoopers LLP and team
leader in London for financial instruments).
39 “Plunge: How Banks Aim to Obscure Their
Losses,” An Interview with Lynn Turner,
former SEC chief accountant, Multinational
Monitor, November/December 2008,
available at:
<http://www.multinationalmonitor.org/mm2
008/112008/interview-turner.html>.
authority to the Financial Accounting
Standards Board (FASB). The FASB is an
independent, private sector organization
whose purpose is to establish financial
accounting standards, including the
standards that govern the preparation of
financial reports. FASB’s Statement 140
establishes rules relevant to securitization of
loans (packaging large numbers of loans
resold to other parties) and how securitized
loans may be moved off a company’s
balance sheet.
Pursuant to Statement 140, a lender
may sell blocks of its mortgages to separate
trusts or companies known as Qualified
Special Purpose Entities (QSPEs), or
“special investment vehicles” (SIVs),
created by the lender. As long as the
mortgages are sold to the QSPE, the lender
is authorized not to report the mortgages on
its balance sheet. The theory is that the
lender no longer has control or responsibility
for the mortgages. The Statement 140 test of
whether a lender has severed responsibility
for mortgages is to ask whether a “true sale”
has taken place.
But whether a true sale of the
mortgages has occurred is often unclear
because of the complexities of mortgage
securitization. Lenders often retain some
control over the mortgages even after their
sale to a QSPE. So, while the sale results in
moving mortgages off the balance sheet, the
lender may still be liable for mortgage
SOLD OUT 35
defaults. This retained liability is concealed
from the public by virtue of moving the
assets off the balance sheet.
Under Statement
140, a “sale” of mortgages
to a QSPE occurs when
the mortgages are put
“beyond the reach of the
transferor [i.e. the lender]
and its creditors.” This is
a “true sale” because the lender relinquishes
control of the mortgages to the QSPE. But
the current financial crisis has revealed that
while lenders claimed to have relinquished
control, and thus moved the mortgages off
the balance sheet, they had actually retained
control in violation of Statement 140. A
considerable portion of the banks’
mortgage-related losses remain off the
books, however, contributing to the
continuing uncertainty about the scale of the
banks’ losses.
The problems with QSPEs became
clear in 2007 when homeowners defaulted in
record numbers and lenders were forced to
renegotiate or modify mortgages held in the
QSPEs. The defaults revealed that the
mortgages were not actually put “beyond the
reach” of the lender after the QSPE bought
them. As such, they should have been included
on the lender’s balance sheet pursuant
to Statement 140.
The Securities and Exchange Commission
(SEC) was forced to clarify its rules on
the matter to allow lenders to renegotiate
loans without losing off-balance sheet status.
Former SEC Chair Christopher Cox announced
to Congress in
2007 that loan restructuring
or modification activities,
when default is reasonably
foreseeable, does not preclude
continued off-balance
sheet treatment under
Statement 140.40
The problems with off-balance sheet
accounting are a matter of common sense. If
there was any doubt, however, the
deleterious impact of off-balance sheet
accounting was vividly illustrated by the
notorious collapse of Enron in December
2001. Enron established off-balance sheet
partnerships whose purpose was to borrow
from banks to finance the company’s
growth. The partnerships, also known as
special purpose entities (SPEs), borrowed
heavily by using Enron stock as collateral.
The debt incurred by the SPEs was kept off
Enron’s balance sheet so that Wall Street
40 (Chairman Christopher Cox, in a letter to Rep.
Barney Frank, Chairman, Committee on Financial
Services, U.S. House of Representatives,
July 24, 2007, available at:
<http://www.house.gov/apps/list/press/finan
cialsvcs_dem/sec_response072507.pdf>.)
The SEC's Office of the Chief Accountant
agreed with Chairman Cox in a staff letter to
industry in 2008. (SEC Office of the Chief
Accountant, in a staff letter to Arnold
Hanish, Financial Executives International,
January 8, 2008, available at:
<http://www.sec.gov/info/accountants/staffl
etters/hanish010808.pdf>).
A former SEC official called
off-balance sheet accounting
“nothing more than just a
scam.”
36 SOLD OUT
and regulators were unaware of it. Credit
rating firms consistently gave Enron high
debt ratings as they were unaware of the
enormous off-balance sheet liabilities.
Investors pushing Enron’s stock price to
sky-high levels were
oblivious to the enormous
amount of debt incurred to
finance the company’s
growth. The skyrocketing
stock price allowed Enron
to borrow even more funds
while using its own stock
as collateral. At the time of
bankruptcy, the company’s
on-balance sheet debt was
$13.15 billion, but the
company had a roughly equal amount of offbalance
sheet liabilities.
In the fallout of the Enron scandal, the
FASB adopted a policy to address offbalance
sheet arrangements. Under its FIN
46R guidance, a company must include any
SPE on the balance sheet if the company is
entitled to the majority of the SPE’s risks or
rewards, regardless of whether a true sale
occurred. But the guidance has one caveat:
QSPEs holding securitized assets may still
be excluded from the balance sheet. The
caveat, known as the “scope exception,”
means that many financial institutions are
not subject to the heightened requirements
provided under FIN 46R. The lessons of
Enron were thus ignored for financial
institutions, setting the stage for the current
financial crisis.
The Enron fiasco got the attention of
Congress, which soon began considering
systemic accounting reforms. The Sarbanes-
Oxley Act, passed in 2002,
attempted to shine more
light on the murky
underworld of off-balance
sheet assets, but the final
measure was a watereddown
compromise; more
far-reaching demands were
defeated by the financial
lobby.
Sarbanes-Oxley requires
that companies make some
disclosures about their QSPEs, even if they
are not required to include them on the
balance sheet. Specifically, it requires
disclosure of the existence of off-balancesheet
arrangements, including QSPEs, if
they are reasonably likely to have a
“material” impact on the company’s
financial condition. But lenders have sole
discretion to determine whether a QSPE will
have a “material” impact. Moreover,
disclosures have often been made in such a
general way as to be meaningless. “After
Enron, with Sarbanes-Oxley, we tried
legislatively to make it clear that there has to
be some transparency with regard to offbalance
sheet entities,” Senator Jack Reed of
Rhode Island, the chair of the Securities,
The Sarbanes-Oxley Act,
passed in 2002, attempted
to shine more light on the
murky underworld of offbalance
sheet assets, but
the final measure was a
watered-down compromise.
SOLD OUT 37
Insurance and Investment subcommittee of
the Senate Banking Committee, said in early
2008 as the financial crisis was unfolding.41
“We thought that was already corrected and
the rules were clear and we would not be
discovering new things every day,” he said.
The FASB has recognized for years
that Statement 140 is flawed, concluding in
2006 that the rule was “irretrievably
broken.”42 The merits of the “true sale”
theory of Statement 140 notwithstanding, its
detailed and complicated rules created
sufficient loopholes and exceptions to
enable financial institutions to circumvent
its purported logic as a matter of course.43
FASB Chairman Robert Herz likened
off-balance sheet accounting to “spiking the
punch bowl.” “Unfortunately,” he said, “it
seems that some folks used [QSPEs] like a
punch bowl to get off-balance sheet
treatment while spiking the punch. That has
led us to conclude that now it’s time to take
away the punch bowl. And so we are
proposing eliminating the concept of a
41 Floyd Norris, “Off-the-balance-sheet
mysteries,” International Herald Tribune,
February. 28, 2008, available at:
<http://www.iht.com/articles/2008/02/28/bu
siness/norris29.php>.
42 FASB and International Accounting Standards
Board, “Information for Observers,” April
21, 2008, available at:
<www.iasplus.com/resource/0804j03obs.pdf
>.
43 See Thomas Selling, “FAS 140: Let’s Call the
Whole Thing Off,” August 11, 2008,
available at:
<http://accountingonion.typepad.com/theacc
ountingonion/2008/08/fas-140-letsca.
html>.
QSPE from the U.S. accounting literature.”44
It is not, however, a certainty that the
FASB will succeed in its effort. The Board
has repeatedly tried to rein in off-balance
sheet accounting, but failed in the face of
financial industry pressure.45 The
commercial banking industry and Wall
Street are waging a major effort to water
down the rule and delay adoption and
implementation.46 Ironically, the banking
44 FASB Chairman Bob Herz, “Lessons Learned,
Relearned, and Relearned Again from the
Credit Crisis — Accounting and Beyond,”
September 18, 2008, available at:
<http://www.fasb.org/articles&reports/12-
08-08_herz_speech.pdf>.
45 “Plunge: How Banks Aim to Obscure Their
Losses,” An Interview with Lynn Turner,
former SEC chief accountant, Multinational
Monitor, November/December 2008,
available at:
<http://www.multinationalmonitor.org/mm2
008/112008/interview-turner.html>.
46 See “FAS Amendments,” American
Securitization Forum, available at:
<http://www.americansecuritization.com/sto
ry.aspx?id=76>. (“Throughout this process
[consideration of revisions of Statement
140], representatives of the ASF have met
on numerous occasions with FASB board
members and staff, as well as accounting
staff of the SEC and the bank regulatory
agencies, to present industry views and
recommendations concerning these
proposed accounting standards and their
impact on securitization market activities.”);
George P. Miller, Executive Director,
American Securitization Forum, and Randy
Snook, Senior Managing Director, Securities
Industry and Financial Markets Association,
letter to Financial Accounting Standards
Board, July 16, 2008, available at:
<http://www.americansecuritization.com/sto
ry.aspx?id=2906>. (Arguing for delay of
new rules until 2010, and contending that “It
is also important to remember that too much
consolidation of SPEs can be just as
confusing to users of financial statements as
38 SOLD OUT
industry and Wall Street lobbyists argue that
disclosure of too much information will
confuse investors. These lobby efforts are
meeting with success,47 in part because of
the likelihood that forcing banks to
recognize their off-balance sheet losses will
reveal them to be insolvent.
  
too little.”); John A. Courson, Chief
Operating Officer, Mortgage Bankers
Association, letter to Financial Accounting
Standards Board, October 31, 2008,
available at:
<http://www.mbaa.org/files/Advocacy/Testi
monyandCommentLetters/MBACommentLe
tter-10-31-2008-
AmendmentstoFASBInterpretationNo.46R.p
df>. (“MBA believes the proposed
disclosures would result in providing readers
of financial statements with an unnecessary
volume of data that would obfuscate
important and meaningful information in the
financial statements.”)
47 Jody Shenn and Ian Katz, “FASB Postpones
Off-Balance-Sheet Rule for a Year,”
Bloomberg, July 30, 2008, available at:
<http://www.bloomberg.com/apps/news?pid
=20601009&sid=a4O4VjK.fX5Q&>. (“The
Financial Accounting Standards Board
postponed a measure, opposed by Citigroup
Inc. and the securities industry, forcing
banks to bring off-balance-sheet assets such
as mortgages and credit-card receivables
back onto their books. FASB, the Norwalk,
Connecticut-based panel that sets U.S.
accounting standards, voted 5-0 today to
delay the rule change until fiscal years
starting after
« Last Edit: December 11, 2011, 01:22:13 AM by prentice crawford »

prentice crawford

  • Guest
Re: Corruption
« Reply #44 on: December 11, 2011, 12:46:35 AM »
Woof, 5th Post;

SOLD OUT 39
THE EXECUTIVE BRANCH
REJECTS FINANCIAL
DERIVATIVE REGULATION
Over-the-counter financial derivatives are
unregulated. By all accounts, this has been a
disaster. As Warren Buffett warned in 2003,
financial derivatives represent “weapons of
mass financial destruction” because “[l]arge
amounts of risk, particularly credit risk, have
become concentrated in the hands of relatively
few derivatives dealers” so that “[t]he
troubles of one could quickly infect the
others” and “trigger serious systemic problems.”
48
A financial derivative is a financial instrument
whose value is determined by the
value of an underlying financial asset, such
as a mortgage contract, stock or bond, or by
financial conditions, such as interest rates or
currency values. The value of the contract is
determined by fluctuations in the price of
the underlying asset. Most derivatives are
characterized by high leverage, meaning
they are bought with enormous amounts of
borrowed money.
Derivatives are not a recent invention.
48 Warren Buffett, Chairman, Berkshire Hathaway,
Report to Shareholders, February 21,
2003. Wrote Buffet: “Another problem
about derivatives is that they can exacerbate
trouble that a corporation has run into for
completely unrelated reasons. This pile-on
effect occurs because many derivatives contracts
require that a company suffering a
credit downgrade immediately supply collateral
to counterparties. Imagine, then, that
a company is downgraded because of general
adversity and that its derivatives instantly
kick in with their requirement, imposing
an unexpected and enormous demand
for cash collateral on the company. The need
to meet this demand can then throw the
company into a liquidity crisis that may, in
some cases, trigger still more downgrades. It
all becomes a spiral that can lead to a corporate
meltdown.” Available at:
<http://www.berkshirehathaway.com/letters/
2002pdf.pdf>.
3
IN THIS SECTION:
Financial derivatives are unregulated. By all
accounts this has been a disaster, as Warren
Buffet’s warning that they represent “weapons
of mass financial destruction” has
proven prescient. Financial derivatives have
amplified the financial crisis far beyond the
unavoidable troubles connected to the
popping of the housing bubble.
The Commodity Futures Trading
Commission (CFTC) has jurisdiction over
futures, options and other derivatives connected
to commodities. During the Clinton
administration, the CFTC sought to exert
regulatory control over financial derivatives.
The agency was quashed by opposition from
Treasury Secretary Robert Rubin and, above
all, Fed Chair Alan Greenspan. They challenged
the agency’s jurisdictional authority;
and insisted that CFTC regulation might
imperil existing financial activity that was
already at considerable scale (though
nowhere near present levels). Then-Deputy
Treasury Secretary Lawrence Summers told
Congress that CFTC proposals “cas[t] a
shadow of regulatory uncertainty over an
otherwise thriving market.”
40 SOLD OUT
Traditional, non-financial derivatives include
futures contracts traded on exchanges
such as the Chicago Mercantile Exchange,
and regulated by the Commodity Futures
Trading Commission. A traditional futures
contract might include, for example, futures
on oranges, where buyers and sellers agree
to deliver or accept delivery of a specified
number of oranges at some point in the
future, at a price determined now, irrespective
of the price for oranges at that future
time. This kind of futures contract can help
farmers and others gain some price certainty
for commodities whose value fluctuates in
uncertain ways. Over-the-counter (OTC)
financial derivatives, by contrast, are negotiated
and traded privately (not on public
exchanges) and are not subjected to public
disclosure, government supervision or other
requirements applicable to those traded on
exchanges.
Derivatives and the current financial crisis
In the 1990s, the financial industry began to
develop increasingly esoteric types of derivatives.
One over-the-counter derivative
that has exacerbated the current financial
crisis is the credit default swap (CDS).
CDSs were invented by major banks in the
mid-1990s as a way to insure against possible
default by debtors (including mortgage
holders). Investment banks that hold mortgage
debt, including mortgage-backed
securities, can purchase a CDS from a seller,
such as an insurance company like AIG,
which agrees to become liable for all the
debt in the event of a default in the mortgage-
backed securities. Wall Street wunderkinds
with backgrounds in complex mathematics
and statistics developed algorithms
that they claimed allowed them to correctly
price the risk and the CDSs.49
Banks and hedge funds also began to
sell CDSs and even trade them on Wall
Street. Billions in these “insurance policies”
were traded every day, with traders essentially
betting on the likelihood of default on
mortgage-backed securities. CDS traders
with no financial interest in the underlying
mortgages received enormous profits from
buying and selling CDS contracts and thus
speculating on the likelihood of default.
The current financial crisis has exposed
how poorly the sellers and the buyers understood
the value of the derivatives they were
trading.
Once home values stopped rising in
2006 and mortgage default became more
commonplace, the value of the packages of
mortgages known as mortgage-backed
securities plunged. At that point, the CDS
agreements called for the sellers of the
CDSs to reimburse the purchasers for the
losses in the mortgage-backed securities.
49 Lewis Braham, “Credit Default Swaps: Is
Your Fund at Risk?” BusinessWeek, February
21, 2008, available at:
<http://www.businessweek.com/magazine/c
ontent/08_09/b4073074480603.htm>.
SOLD OUT 41
Firms that had sold CDS contracts, like
AIG, became responsible for posting billions
of dollars in collateral or paying the purchasers.
The global market
value of CDS contracts
(“notional value”) reached
over $60 trillion in 2007,
surpassing the gross
domestic product of every
country in the world
combined. The value of
the entire global derivatives
market reached $683 trillion by mid-
2008, more than 20 times the total value of
the U.S. stock market.50
The total dollars actively at risk from
CDSs is a staggering $3.1 trillion.51 The
amount at risk is far less than $60 trillion
because most investors were simultaneously
“on both sides” of the CDS trade. For example,
banks and hedge funds would buy CDS
protection on the one hand and then sell
CDS protection on the same security to
someone else at the same time.52 When a
mortgage-backed security defaulted, the
50 Bureau of International Settlements, Table 19:
Amounts Outstanding of Over-the-counter
Derivatives, available at:
<www.bis.org/statistics/derstats.htm>.
51 Bureau of International Settlements, Table 19:
Amounts Outstanding of Over-the-counter
Derivatives, available at:
<www.bis.org/statistics/derstats.htm>.
52 Adam Davidson, “How AIG fell apart,”
Reuters, September 18, 2008, available at:
<http://www.reuters.com/article/newsOne/id
USMAR85972720080918>.
banks might have to pay some money out,
but they would also be getting money back
in. So, while the total value of each CDS
buy and sell order equaled
$60 trillion in 2007, the
actual value at risk was a
fraction of that — but still
large enough to rock the
financial markets.
The insurance giant
AIG, however, did not buy
CDS contracts — it only
sold them. AIG issued $440
billion53 worth of such contracts, making it
liable for loan defaults, including billions in
mortgage-backed securities that went bad
after the housing bubble burst. In addition,
the company’s debt rating was downgraded
by credit rating firms, a move that triggered
a clause in its CDS contracts that required
AIG to put up more collateral to guarantee
its ability to pay. Eventually, AIG was unable
to provide enough collateral or pay its obligations
from the CDS contracts. Its stock price
tumbled, making it impossible for the firm to
attract investors. Many banks throughout the
world were at risk because they had bought
CDS contracts from AIG. The financial spiral
downward ultimately required a taxpayerfinanced
bailout by the Federal Reserve,
which committed $152.5 billion to the com-
53 Adam Davidson, “How AIG fell apart,”
Reuters, September 18, 2008, available at:
<http://www.reuters.com/article/newsOne/id
USMAR85972720080918>.
The value of the entire global
derivatives market reached
$683 trillion by mid-2008,
more than 20 times the total
value of the U.S. stock
market.
42 SOLD OUT
pany in 2008, in order to minimize “disruption
to the financial markets.”54
Federal Agencies Reject Regulation of
Financial Derivatives.
Some industry observers warned of the
dangers of over-the-counter derivatives. But
acceding to political pressure from the
powerful financial industry, the federal
agencies with the responsibility to safeguard
the integrity of the financial system refused
to permit regulation of financial derivatives,
55 especially the credit default swaps
that have exacerbated the current financial
meltdown.
In 1996, President Clinton appointed
Brooksley Born chair of the Commodity
Futures Trading Commission (CFTC).56 The
CFTC is an independent federal agency with
the mandate to regulate commodity futures
and option markets in the United States.
Born was outspoken and adamant about
the need to regulate the quickly growing but
largely opaque area of financial derivatives.
She found fierce opposition in SEC Chair
54 Erik Holm, “AIG Sells Mortgage-Backed
Securities to Fed Vehicle,” Bloomberg.com,
December 15, 2008.
55 Exchange-traded and agricultural derivatives
are generally regulated by the Commodity
Futures Trading Commission (CFTC). Overthe-
counter financial derivatives — not
traded on an exchange — were and are not
subject to CFTC jurisdiction. This report
primarily uses the shorthand term “financial
derivative” to reference over-the-counter financial
derivatives.
56 <http://www.cftc.gov/anr/anrcomm98.htm>
Arthur Levitt, Treasury Secretary Robert
Rubin and Federal Reserve Chair Alan
Greenspan, all of whom felt that the financial
industry was capable of regulating itself.
An April 1998 meeting of the President’s
Working Group on Financial Markets,
which consisted of Levitt, Greenspan, Rubin
and Born, turned into a standoff between the
three men and Born. The men were determined
to derail her efforts to regulate derivatives,
but left the meeting without any
assurances.57
Pressing back against her critics, Born
published a CFTC concept paper in 1998
describing how the derivatives sector might
be regulated. Born framed the CFTC’s
interest in mild terms: “The substantial
changes in the OTC derivatives market over
the past few years require the Commission
to review its regulations,” said Born. “The
Commission is not entering into this process
with preconceived results in mind. We are
reaching out to learn the views of the public,
the industry and our fellow regulators on the
appropriate regulatory approach to today’s
OTC derivatives marketplace.”58
57 Anthony Faiola, Ellen Nakashima and Jill
Drew, “The Crash: What Went Wrong,” The
Washington Post, October 15, 2008, available
at:
<http://www.washingtonpost.com/wpdyn/
content/story/2008/10/14/ST200810140
3344.html>.
58 CFTC Issues Concept Release Concerning
Over-the-Counter Derivatives Market, May
7, 1998, available at:
<http://www.cftc.gov/opa/press98/opa4142-
98.htm>.
SOLD OUT 43
The publication described the growth of
derivatives trading (“Use of OTC derivatives
has grown at very substantial rates over
the past few years,” to a notional value of
more than $28 trillion) and raised questions
about financial derivatives rather than
proposed specific regulatory initiatives.
But the concept paper was clear that the
CFTC view was that the unrestrained growth
of financial derivatives trading posed serious
risks to the financial system, and its probing
questions suggested a range of meaningful
regulatory measures — measures which, if
they had been adopted, likely would have
reduced the severity of the present crisis.
“While OTC derivatives serve important
economic functions, these products, like
any complex financial instrument, can
present significant risks if misused or misunderstood
by market participants,” the
CFTC noted.59 “The explosive growth in the
OTC market in recent years has been accompanied
by an increase in the number and
size of losses even among large and sophisticated
users which purport to be trying to
hedge price risk in the underlying cash
markets.”60
59 Commodity Futures Trading Commission,
Concept Release: Over-the-Counter Derivatives,
May 7, 1998, available at:
<http://www.cftc.gov/opa/press98/opamntn.
htm#issues_for_comment>.
60 Commodity Futures Trading Commission,
Concept Release: Over-the-Counter Derivatives,
May 7, 1998, available at:
<http://www.cftc.gov/opa/press98/opamntn.
htm#issues_for_comment>.
Among the proposals floated in the concept
paper were the following measures:61
• Narrow or eliminate exemptions for
financial derivatives from the regulations
that applied to exchangetraded
derivatives (such as for agricultural
commodities);
• Require financial derivatives to be
traded over a regulated exchange;
• Require registration of person or entities
trading financial derivatives;
• Impose capital requirements on
those engaging in financial derivatives
trading (so that they would be
required to set aside capital against
the risk of loss, and to avoid excessive
use of borrowed money); and
• Require issuers of derivatives to
disclose the risks accompanying
those instruments.
The uproar from the financial industry
was immediate. During the next two months,
industry lobbyists met with CFTC commissioners
at least 13 times.62 Meanwhile, Born
faced off against Greenspan and others in
61 Commodity Futures Trading Commission,
Concept Release: Over-the-Counter Derivatives,
May 7, 1998, available at:
<http://www.cftc.gov/opa/press98/opamntn.
htm#issues_for_comment>.
62 Sharona Coutts and Jake Bernstein, “Former
Clinton Official Says Democrats, Obama
Advisers Share Blame for Market Meltdown,”
ProPublica, October 9, 2008, available
at:
<http://www.propublica.org/feature/formerclinton-
official-says-democrats-obamaadvisers-
share-blame-for-marke/>.
44 SOLD OUT
numerous antagonistic congressional hearings.
Senator Richard Lugar, R-Indiana,
chair of the Senate Agricultural Committee,
stepped into the fray.
Lugar, who received
nearly $250,000 in campaign
contributions from
securities and investment
firms in 1998,63 extended
an ultimatum to Born:
cease the campaign or
Congress would pass a
Treasury-backed bill that
would put a moratorium
on any further CFTC action.64 The stalemate
continued.
The Treasury Department weighed in
with its view that derivatives should remain
unregulated. President Clinton’s then-Deputy
Treasury Secretary, Lawrence H. Summers
(now head of the Obama administration’s
National Economic Council), complained
that Born’s proposal “cast the shadow of
regulatory uncertainty over an otherwise
63 Center for Responsive Politics,
<http://www.opensecrets.org/politicians/ind
ustries.php?cycle=1998&cid=N00001764>.
64 Senator Richard Lugar, “Regulation of Over
the Counter (OTC) Derivatives and Derivatives
Markets,” Hearing of the Senate Agriculture,
Nutrition and Forestry Committee,
July 30, 1998 (“t is essential that the government
not create legal uncertainty for
swaps. I hope it will not be necessary, but
there are circumstances that could compel
Congress to act preemptively in the near
term.”) For a full account of the dispute, see:
<http://www.washingtonpost.com/wpdyn/
content/story/2008/10/14/ST200810140
3344.html>.
thriving market “65
Federal Reserve Chair Alan Greenspan
echoed the Treasury Department view, arguing
that regulation would be
both unnecessary and harmful.
“Regulation of derivatives
transactions that are
privately negotiated by
professionals is unnecessary.
Regulation that serves no
useful purpose hinders the
efficiency of markets to
enlarge standards of living.”
66
In September 1998, Long Term Capital
Management, a hedge fund heavily focused
on derivatives, informed the Fed it was on
the brink of collapse, and couldn’t cover $4
billion in losses.67 The New York Federal
Reserve quickly recruited 14 private banks
to bail out Long Term Capital by investing
$3.6 billion.68
65 Lawrence H. Summers, Testimony Before the
Senate Committee on Agriculture, Nutrition,
and Forestry, July 30, 1998, available at:
<http://www.ustreas.gov/press/releases/rr26
16.htm>.
66 Alan Greenspan, “Regulation of Over the
Counter (OTC) Derivatives and Derivatives
Markets,” Hearing of the Senate Agriculture,
Nutrition and Forestry Committee, July
30, 1998.
67 Anthony Faiola, Ellen Nakashima and Jill
Drew, “The Crash: What Went Wrong,” The
Washington Post, October 15, 2008, available
at:
<http://www.washingtonpost.com/wpdyn/
content/story/2008/10/14/ST200810140
3344.html>.
68 Sharona Coutts and Jake Bernstein, “Former
Lawrence Summers complained
that a proposal to
regulate derivatives “cast a
shadow of regulatory uncertainty
over an otherwise
thriving market.”
SOLD OUT 45
“This episode should serve as a wake-up
call about the unknown risks that the overthe-
counter derivatives market may pose to
the U.S. economy and to financial stability
around the world,” Born told the House
Banking Committee two days later. “It has
highlighted an immediate and pressing need
to address whether there are unacceptable
regulatory gaps relating to hedge funds and
other large OTC derivatives market participants.”
69 But what should have been a
moment of vindication for Born was swept
aside by her adversaries, and Congress
enacted a six-month moratorium on any
CFTC action regarding derivatives or the
swaps market.70 (Permanent congressional
action would soon follow, as the next section
details.) In May 1999, Born resigned in
frustration.
Born’s replacement, William Rainer,
went along with Greenspan, Summers
Clinton Official Says Democrats, Obama
Advisers Share Blame for Market Meltdown,”
ProPublica, October 9, 2008, available
at:
<http://www.propublica.org/feature/formerclinton-
official-says-democrats-obamaadvisers-
share-blame-for-marke/>.
69 Brooksley Born, CFTC Chair, Testimony
Before the House Committee on Banking
and Financial Services, October 1, 1998,
available at:
<http://financialservices.house.gov/banking/
10198bor.pdf>.
70 Anthony Faiola, Ellen Nakashima and Jill
Drew, “The Crash: What Went Wrong,” The
Washington Post, October 15, 2008, available
at:
<http://www.washingtonpost.com/wpdyn/
content/story/2008/10/14/ST200810140
3344.html>.
(whom Clinton had appointed Treasury
Secretary) and Levitt’s campaign to block
any CFTC regulation. In November 1999,
the inter-agency President’s Working Group
on Financial Markets released a new report
on derivatives recommending no regulation,
saying it would “perpetuate legal uncertainty
or impose unnecessary regulatory burdens
and constraints upon the development of
these markets in the United States.”71
Among other rationalizations for this nonregulatory
posture, the report argued, “the
sophisticated counterparties that use OTC
derivatives simply do not require the same
protections” as retail investors.72 The report
briefly touched upon, but did not take seriously,
the idea that financial derivatives
posed overall financial systemic risk. To the
extent that such risk exists, the report concluded,
it was well addressed by private
parties: “private counterparty discipline
currently is the primary mechanism relied
upon for achieving the public policy objective
of reducing systemic risk. Government
regulation should serve to supplement,
rather than substitute for, private market
71 The President’s Working Group on Financial
Markets, “Over-the-Counter Derivatives
Markets and the Commodity Exchange
Act,” November 1999, available at:
<http://www.treas.gov/press/releases/reports
/otcact.pdf>.
72 The President’s Working Group on Financial
Markets, “Over-the-Counter Derivatives
Markets and the Commodity Exchange
Act,” November 1999, available at:
<http://www.treas.gov/press/releases/reports
/otcact.pdf>.
46 SOLD OUT
discipline. In general, private counterparty
credit risk management has been employed
effectively by both regulated and unregulated
dealers of OTC derivatives, and the
tools required by federal regulators already
exist.”73
  
73 The President’s Working Group on Financial
Markets, “Over-the-Counter Derivatives
Markets and the Commodity Exchange
Act,” November 1999, available at:
<http://www.treas.gov/press/releases/reports
/otcact.pdf>.
SOLD OUT 47
CONGRESS BLOCKS
FINANCIAL DERIVATIVE
REGULATION
Long before financial derivatives became
the darlings of Wall Street, there were some
in Congress who believed that the federal
government should be given greater power
to regulate derivatives.
In 1994, Senator Donald Riegle, DMichigan,
and Representative Henry Gonzalez,
D-Texas, introduced separate bills
calling for derivatives regulation;74 both
went nowhere.75 Opposing regulation was a
74 The Derivatives Supervision Act of 1994, in
the Senate; the Derivatives Safety and
Soundness Supervision Act of 1994, in the
House.
75 Anthony Faiola, Ellen Nakashima and Jill
Drew, “The Crash: What Went Wrong,” The
Washington Post, October 15, 2008, available
at:
<http://www.washingtonpost.com/wpdyn/
content/story/2008/10/14/ST200810140
3344.html>.
bipartisan affair and inaction ruled the day.76
In 2000, a year after the outspoken
Brooksley Born left the Commodity Futures
Trading Commission (CFTC), Congress and
President Clinton codified regulatory inaction
with passage of the Commodity Futures
Modernization Act (CFMA).77 The legislation
included an “Enron loophole,” which
prohibited regulation of energy futures
contracts and thereby contributed to the
collapse of scandal-ridden Enron in 2001.
CFMA formally exempted financial derivatives,
including the now infamous credit
default swaps, from regulation and federal
government oversight. One Wall Street
analyst later noted that the CFMA “was
slipped into the [budget] bill in the dead of
night by our old friend Senator Phil Gramm
of Texas — now Vice Chairman of [Swiss
investment bank] UBS.”78 Gramm led the
congressional effort to block federal agencies
from regulating derivatives, complaining
that “anks are already heavily regulated
institutions.”79 Gramm predicted
76 The action that Congress did take — the sixmonth
moratorium on CFTC regulation described
in the previous section — cut against
the need for regulation.
77 Pub. L. No. 106-554, Appendix E, amending
the Commodity Exchange Act, 7 U.S.C. § 1
et. seq.
78 Dirk van Dijk, “Credit Default Swaps Explained,”
Zacks Investment Research, September
24, 2008, available at:
<http://www.zacks.com/stock/news/14884/
Credit+Default+Swaps+Explained>.
79 Sen. Phil Gramm, 106th Congress, 2nd Session,
146 Cong. Rec. S. 11867, December
15, 2000, available at:
4
IN THIS SECTION:
The deregulation — or non-regulation — of
financial derivatives was sealed in 2000,
with the Commodities Futures Modernization
Act (CFMA), passage of which was engineered
by then-Senator Phil Gramm, RTexas.
The Commodities Futures Modernization
Act exempts financial derivatives,
including credit default swaps, from regulation
and helped create the current financial
crisis.
48 SOLD OUT
CFMA “will be noted as a major achievement”
and “as a watershed, where we turned
away from the outmoded, Depression-era
approach to financial regulation.”80 He said
the legislation “protects financial institutions
from over-regulation, and provides legal
certainty for the $60 trillion market in
swaps”81 — in other words, it offered a
guarantee that they would not be regulated.
By 2008, Gramm’s UBS was reeling
from the global financial crisis he had
helped create. The firm declared nearly $50
billion in credit losses and write-downs,
prompting a $60 billion bailout by the Swiss
government.82
Senator Gramm remains defiant today,
telling the New York Times, “There is this
idea afloat that if you had more regulation
you would have fewer mistakes. I don’t see
any evidence in our history or anybody
<http://frwebgate.access.gpo.gov/cgibin/
getpage.cgi?position=all&page=S11867
&dbname=2000_record>.
80 Sen. Phil Gramm, 106th Congress, 2nd Session,
146 Cong. Rec. S. 11868, December
15, 2000, available at:
<http://frwebgate.access.gpo.gov/cgibin/
getpage.cgi?position=all&page=S11868
&dbname=2000_record>.
81 106th Congress, 2nd Session, 146 Cong. Rec.
S. 11866, Dec. 15, 2000, available at:
<http://frwebgate.access.gpo.gov/cgibin/
getpage.cgi?position=all&page=S11866
&dbname=2000_record>.
82 Eric Lipton and Stephen Labaton, “The
Reckoning: Deregulator Looks Back, Unswayed,”
New York Times, November 16,
2008, available at:
<http://www.nytimes.com/2008/11/17/busin
ess/economy/
17gramm.html?_r=1&pagewanted=1&
em>.
else’s to substantiate it. … The markets have
worked better than you might have
thought.”83
Others have a more reality-based view.
Former SEC Commissioner Harvey J.
Goldschmid, conceded that “in hindsight,
there’s no question that we would have been
better off if we had been regulating derivatives.”
84
While credit default swaps are not the
underlying cause of the financial crisis, they
dramatically exacerbated it. As mortgages
and mortgage-backed securities plummeted
in value from declining real estate values,
big financial firms were unable to meet their
insurance obligations under their credit
default swaps.
Another action by Congress must be
mentioned here. In 1995, bowing to the
financial lobby after years of lobbying,
Congress passed the Private Securities
Litigation Reform Act.85 The measure
greatly restricted the rights of investors to
sue Wall Street trading, accounting and
investment firms for securities fraud. The
author of the legislation was Representative
83 Eric Lipton and Stephen Labaton, “Deregulator
Looks Back, Unswayed,” New York
Times, November 16, 2008, available at:
<http://www.nytimes.com/2008/11/17/busin
ess/economy/17gramm.html?pagewanted=al
l>
84 “The Crash: What Went Wrong?” Washington
Post website, Undated, available at:
<http://www.washingtonpost.com/wpsrv/
business/risk/index.html?hpid=topnews>
.
85 15 U.S.C. § 78u-4.
SOLD OUT 49
Christopher Cox, R-California, who President
Bush later appointed Chair of the
Securities and Exchange Commission.
In the debate over the bill in the House
of Representatives, Representative Ed
Markey, D-Massachusetts, proposed an
amendment that would have exempted
financial derivatives from the Private Securities
Litigation Reform Act.86 Markey
anticipated many of the problems that would
explode a decade later: “All of these products
have now been sent out into the American
marketplace, in many instances with the
promise that they are quite safe for a municipality
to purchase. … The objective of
the Markey amendment out here is to ensure
that investors are protected when they are
misled into products of this nature, which by
their very personality cannot possibly be
understood by ordinary, unsophisticated
investors. By that, I mean the town treasurers,
the country treasurers, the ordinary
individual that thinks that they are sophisticated,
but they are not so sophisticated that
they can understand an algorithm that
stretches out for half a mile and was constructed
only inside of the mind of this 26-
or 28-year-old summa cum laude in mathematics
from Cal Tech or from MIT who
constructed it. No one else in the firm un-
86 Rep. Edward Markey, 104th Congress 1st
Session, 141 Cong. Rec. H. 2826, March 8,
1995, available at:
<http://frwebgate.access.gpo.gov/cgibin/
getpage.cgi?dbname=1995_record&pag
e=H2826&position=all>.
derstands it. The lesson that we are learning
is that the heads of these firms turn a blind
eye, because the profits are so great from
these products that, in fact, the CEOs of the
companies do not even want to know how it
happens until the crash.”
Representative Cox led the opposition
to the Markey amendment. He was able to
cite the opposition of Alan Greenspan, chair
of the Federal Reserve, and President Clinton’s
SEC Chair Arthur Levitt. He quoted
Greenspan saying that “singling out derivative
instruments for special regulatory
treatment” would be a “serious mistake.” He
also quoted Levitt, who warned, “It would
be a grave error to demonize derivatives.”87
The amendment was rejected. The
specter of litigation is a powerful deterrent
to wrongdoing. The Private Securities
Litigation Reform Act weakened that deterrent
— including for derivatives — and
today makes it more difficult for defrauded
investors to seek compensation for their
losses.
  
87 Rep. Christopher Cox, 104th Congress 1st
Session, 141 Cong. Rec. H. 2828, March 8,
1995, available at:
<http://frwebgate.access.gpo.gov/cgibin/
getpage.cgi?position=all&page=H2828
&dbname=1995_record>.
50 SOLD OUT
THE SEC’S VOLUNTARY
REGULATION REGIME FOR
INVESTMENT BANKS
Until the current financial crisis, investment
banks regularly borrowed funds to purchase
securities and debt instruments. A “highly
leveraged” financial institution is one that
owns financial assets that it acquired with
substantial amounts of borrowed money.
The Securities and Exchange Commission
(SEC) prohibited broker-dealers (i.e. stock
brokers and investment banks) from exceeding
established limits on the amount of
borrowed money used for buying securities.
Investment banks that accrued more than 12
dollars in debt for every dollar in bank
capital (their “net capital ratio”) were prohibited
from trading in the stock market.88
As a result, the five major Wall Street
investment banks maintained net capital
ratios far below the 12 to 1 limit. The rule
also required broker-dealers to maintain a
designated amount of set-aside capital based
on the riskiness of their investments; the
riskier the investment, the more they would
need to set aside. This limitation on accruing
debt was designed to protect the assets of
customers with funds held or managed by
the stock broker or investment bank, and to
ensure that the broker or investment bank
could meet its contractual obligations to
other firms.89 The rule was adopted by the
88 17 C.F.R. § 240, 15c3-1.
89 “Toxic Waste Build Up: How Regulatory
Changes Let Wall Street Make Bigger Risky
Bets,” An Interview with Lee Pickard, Multinational
Monitor, November/December
2008, available at:
<http://www.multinationalmonitor.org/mm2
5
IN THIS SECTION:
In 1975, the SEC’s trading and markets
division promulgated a rule requiring
investment banks to maintain a debt-to-netcapital
ratio of less than 12 to 1. It forbid
trading in securities if the ratio reached or
exceeded 12 to 1, so most companies maintained
a ratio far below it. In 2004, however,
the SEC succumbed to a push from the big
investment banks — led by Goldman Sachs,
and its then-chair, Henry Paulson — and
authorized investment banks to develop their
own net capital requirements in accordance
with standards published by the Basel
Committee on Banking Supervision. This
essentially involved complicated mathematical
formulas that imposed no real limits, and
was voluntarily administered. With this new
freedom, investment banks pushed borrowing
ratios to as high as 40 to 1, as in the case of
Merrill Lynch. This super-leverage not only
made the investment banks more vulnerable
when the housing bubble popped, it enabled
the banks to create a more tangled mess of
derivative investments — so that their
individual failures, or the potential of failure,
became systemic crises. Former SEC Chair
Chris Cox has acknowledged that the voluntary
regulation was a complete failure.
SOLD OUT 51
SEC under the general regulatory authority
granted by Congress when it established the
SEC to regulate the financial industry in
1934 as a key reform in
the aftermath of the 1929
crash.
In 2004, the SEC
abolished its 19-year old
“debt-to-net-capital rule”
in favor of a voluntary
system that allowed
investment banks to
formulate their own
“rule.”90 Under this new
scheme, large investment
banks would assess their
level of risk based on
their own risk management computer models.
The SEC acted at the urging of the big
investment banks led by Goldman Sachs,
which was then headed by Henry M. Paulson
Jr., who would become Treasury secretary
two years later, and was the architect of
the Bush administration’s response to the
current financial debacle: the unprecedented
taxpayer bailout of banks, investment firms,
insurers and others. After a 55-minute
discussion, the SEC voted unanimously to
abolish the rule.91
008/112008/interview-pickard.html>.
90 Final Rule: Alternative Net Capital Requirements
for Broker-Dealers that are Part of
Consolidated Entities, 17 C.F.R. §§ 200 and
240 (2004). Available at:
<www.sec.gov/rules/final/34.49830.htm>.
91 Stephen Labaton, “Agency’s ’04 Rule Let
The SEC’s new policy, foreseeably, enabled
investment banks to make much
greater use of borrowed funds. The top five
investment banks participated
in the SEC’s voluntary
program: Bear Steams,
Goldman Sachs, Morgan
Stanley, Merrill Lynch and
Lehman Brothers. By 2008,
these firms had borrowed
20, 30 and 40 dollars for
each dollar in capital, far
exceeding the standard 12 to
1 ratio. Much of the borrowed
funds were used to
purchase billions of dollars
in subprime-related and
other mortgage-backed securities (MBSs)
and their associated derivatives, including
credit default swaps. The securities were
purchased at a time when real estate values
were skyrocketing and few predicted an end
to the financial party. As late as the March
2008 collapse of Bear Stearns, SEC Chair
Christopher Cox continued to support the
voluntary program: “We have a good deal of
comfort about the capital cushions at these
firms at the moment,” he said.92
Banks Pile Up New Debt,” New York
Times, October 2, 2008, available at:
<http://www.nytimes.com/2008/10/03/busin
ess/03sec.html?_r=1>.
92 Stephen Labaton, “Agency’s ’04 Rule Let
Banks Pile Up New Debt,” New York
Times, October 2, 2008, available at:
<http://www.nytimes.com/2008/10/03/busin
The SEC’s Inspector General
concluded that “it is undisputable”
that the SEC “failed
to carry out its mission in
its oversight of Bear
Stearns,” which collapsed in
2008 under massive
mortgage-backed securities
losses.
52 SOLD OUT
The SEC had abolished the net capital
rule with the caveat that it would continue
monitoring the banks for financial or operational
weaknesses. But a 2008 investigation
by the SEC’s Inspector General (IG) found
that the agency had neglected its oversight
responsibilities. The IG concluded that “it is
undisputable” that the SEC “failed to carry
out its mission in its oversight of Bear
Stearns,” which collapsed in 2008 under
massive mortgage-backed securities losses,
leading the Federal Reserve to intervene
with taxpayer dollars “to prevent significant
harm to the broader financial system.” The
IG said the SEC “became aware of numerous
potential red flags prior to Bear Stearns’
collapse,” including its concentration of
mortgage securities and high leverage, “but
did not take actions to limit these risk factors.”
Moreover, concluded the IG, the SEC
“was aware ... that Bear Stearns’ concentration
of mortgage securities was increasing
for several years and was beyond its internal
limits.” Nevertheless, it “did not make any
efforts to limit Bear Stearns’ mortgage
securities concentration.” The IG said the
SEC was “aware that Bear Stearns’ leverage
was high;” but made no effort to require the
firm to reduce leverage “despite some
authoritative sources describing a linkage
between leverage and liquidity risk.” Furthermore,
the SEC “became aware that risk
management of mortgages at Bear Stearns
ess/03sec.html?_r=1>.
had numerous shortcomings, including lack
of expertise by risk managers in mortgagebacked
securities” and “persistent understaffing;
a proximity of risk managers to
traders suggesting a lack of independence;
turnover of key personnel during times of
crisis; and the inability or unwillingness to
update models to reflect changing circumstances.”
Notwithstanding this knowledge,
the SEC “missed opportunities to push Bear
Steams aggressively to address these identified
concerns.”
The much-lauded computer models and
risk management software that investment
banks used in recent years to calculate risk
and net capital ratios under the SEC’s voluntary
program had been overwhelmed by
human error, overly optimistic assumptions,
including that the housing bubble would not
burst, and a failure to contemplate systemwide
asset deflation. Similar computer
models failed to prevent the demise of
Long-Term Capital Management, a heavily
leveraged hedge fund that collapsed in 1998,
and the stock market crash of October
1987.93 The editors at Scientific American
magazine lambasted the SEC and the investment
banks for their “
  • verreliance on

financial software crafted by physics and
93 Stephen Labaton, “Agency’s ’04 Rule Let
Banks Pile Up New Debt,” New York
Times, October 2, 2008 (citing Leonard D.
Bole, software consultant), available at:
<http://www.nytimes.com/2008/10/03/busin
ess/03sec.html?_r=1>.
SOLD OUT 53
math Ph.D.s.”94
By the fall of 2008, the number of major
investment banks on Wall Street dropped
from five to zero. All five securities grants
either disappeared or became bank holding
companies in order to avail themselves of
taxpayer bailout money. JP Morgan bought
Bear Stearns, Lehman Brothers filed for
bankruptcy protection, Bank of America
announced its rescue of Merrill Lynch by
purchasing it, while Goldman Sachs and
Morgan Stanley became bank holding
companies with the Federal Reserve as their
new principal regulator.
On September 26, 2008, as the crisis
became a financial meltdown of epic proportions,
SEC Chair Cox, who spent his entire
public career as a deregulator, conceded “the
last six months have made it abundantly
clear that voluntary regulation does not
work.”95
  
94 The Editors, “After the Crash: How Software
Models Doomed the Markets,” Scientific
American, November 2008, available at:
<http://www.sciam.com/article.cfm?id=after
-the-crash>.
95 Anthony Faiola, Ellen Nakashima and Jill
Drew, “The Crash: What Went Wrong,” The
Washington Post, October 15, 2008, available
at:
<http://www.washingtonpost.com/wpdyn/
content/story/2008/10/14/ST200810140
3344.html>.
54 SOLD OUT
BANK SELF-REGULATION
GOES GLOBAL: PREPARING TO
REPEAT THE MELTDOWN?
Banks are inherently highly leveraged
institutions, meaning they hold large
amounts of debt compared to their net worth
(or equity). As a result, their debt-to-equity
(or debt-to-capital) ratios are generally
higher than for other types of corporations.
Regulators have therefore required banks to
maintain an adequate cushion of capital to
protect against unexpected losses, especially
losses generated on highly leveraged investments.
Generally, banks are required to
keep higher capital amounts in reserve in
order to hold assets with higher risks and,
inversely, lower capital for lower risk assets.
In other words, banks with riskier credit
exposures are required to retain more capital
to back the bank’s obligations.
In 1988, national bank regulators from
the largest industrial countries adopted a set
of international banking guidelines known
as the Basel Accords. The Basel Accords
determine how much capital a bank must
hold as a cushion. Ultimately, the purpose of
the Basel Accords is to prevent banks from
creating a “systemic risk,” or a risk to the
financial health of the entire banking system.
The idea of an international agreement
was to level the playing field for capital
regulation as among banks based in different
countries.
The first Basel Accords, known as
Basel I, did not well distinguish between
loans involving different levels of risk. This
gave rise to two sets of problems. Banks had
an incentive to make riskier (and potentially
higher return) loans, because the riskier
loans within a given category did not require
more set-aside capital. For example, Basel I
categorized all commercial loans into the 8
percent capital category — meaning 8
percent of a bank’s capital must be set aside
to hold commercial loans — even though
not all commercial loans are equivalently
risky. The Basel I rules also gave banks an
6
IN THIS SECTION:
In 1988, global bank regulators adopted a
set of rules known as Basel I, to impose a
minimum global standard of capital adequacy
for banks. Complicated financial
maneuvering made it hard to determine
compliance, however, which led to negotiations
over a new set of regulations. Basel II,
heavily influenced by the banks themselves,
establishes varying capital reserve requirements,
based on subjective factors of agency
ratings and the banks’ own internal riskassessment
models. The SEC experience with
Basel II principles illustrates their fatal
flaws. Commercial banks in the United States
are supposed to be compliant with aspects of
Basel II as of April 2008, but complications
and intra-industry disputes have slowed
implementation.
SOLD OUT 55
incentive to engage in “regulatory capital
arbitrage,” whereby a bank maneuvers the
accounting classification of a loan so that it
is classified under Basel I rules as requiring
less set-aside capital — even though the
bank’s overall risk has not diminished.
Securitization is the main method used by
banks to engage in regulatory capital arbitrage.
Securitized loans are listed on a
bank’s “trading account,” which requires
less set-aside capital than the “banking
book,” where loans are maintained.96
To address these problems, the Basel
Committee on Banking Supervision agreed
in 2004 to an updated bank capital accord
(Basel II), formally known as the “International
Convergence of Capital Measurement
and Capital Standards: a Revised Framework.”
The Committee’s members come
from Belgium, Canada, France, Germany,
Italy, Japan, Luxembourg, the Netherlands,
Spain, Sweden, Switzerland, the United
Kingdom and the United States; the United
States Federal Reserve serves as a participating
member.
Rather than dealing directly with the issue
of differentiated levels of risk within
categories and the problem of regulatory
96 David Jones and John Mingo, “Industry
Practices in Credit Risk Modeling and Internal
Capital Allocations: Implications for a
Models-Based Regulatory Capital Standard,”
4 FRBNY Econ. Pol’y Rev. 3, 53
(1998), available at:
<http://www.newyorkfed.org/research/epr/9
8v04n3/9810jone.pdf>.
arbitrage by establishing updated and more
granular capital standards, Basel II authorized
banks to use their own internal models
for assessing “risk.” Critics say that under
this system, banks will be able to employ
their internal risk models to transform highrisk
assets into “low risk.”
For example, where Basel I categorized
all commercial loans into the 8 percent
capital category, internal bank models would
have allowed for capital allocations on
commercial loans that vary from 1 percent
to 30 percent, depending on the loan’s
estimated risk. The revised framework under
Basel II gives banks the leeway to lump
commercial loans into these differing capital
adequacy requirements, depending on risk as
estimated by banks, not the regulators. Basel
II rules appear set to reduce the overall
capital requirements for banks.97
U.S. federal financial regulatory agencies
— the Federal Reserve, Office of the
Comptroller of the Currency, the Federal
Deposit Insurance Corporation, and the
Office of Thrift Supervision — have struggled
to find an operationally satisfactory
means to implement Basel II. It now appears
U.S. application will be limited to large
commercial banks only, with some Basel II
97 Testimony of Daniel K. Tarullo, “Hearing on
the Development of the New Basel Capital
Accords,” Committee on Banking, Housing
and Urban Affairs, United States Senate,
November, 10 2005, available at:
<http://banking.senate.gov/public/_files/taru
llo.pdf>.
56 SOLD OUT
requirements coming into effect via regulation
as of April 2008.98 The Securities and
Exchange Commission (SEC) imposed
parallel requirements on Wall Street investment
banks in 2004. According
to the Federal
Reserve, Basel II is supposed
to “improve the
consistency of capital
regulations internationally,
make regulatory capital
more risk sensitive, and
promote enhanced riskmanagement
practices among large, internationally
active banking organizations.”99
But the SEC’s experience with the
Basel II approach reveals a fundamental
flaw in allowing banks to make their own
risk assessments. Investment bank Bear
Stearns collapsed in 2008 even though its
own risk analysis showed it to be a sound
institution. SEC Chairman Christopher Cox
said “the rapid collapse of Bear Stearns ...
challenged the fundamental assumptions
behind the Basel standards and the other
program metrics. At the time of its nearfailure,
Bear Stearns had a capital cushion
98 Office of the Comptroller of the Currency,
“Basel II Advanced Approaches and Basel II
Standardized Approach,” undated, available
at:
<http://www.occ.treas.gov/law/basel.htm>.
99 Basel II Capital Accord, Basel I Initiatives,
and Other Basel-Related Matters, Federal
Reserve Board, August 28, 2008, available
at:
<http://www.federalreserve.gov/GeneralInfo
/basel2/>.
well above what is required to meet supervisory
standards calculated using the Basel
framework and the Federal Reserve’s ‘wellcapitalized’
standard for bank holding
companies.”100 In other
words, Bear Stearns had
been complying with the
relaxed Basel II framework
and it still failed.
Proponents of Basel II
argue that internal risk
assessments will not be
cause for abuse because
regulators will be heavily involved via
added oversight and disclosure. Five years
before the 2008 financial crisis, John D.
Hawke, Jr., then U.S. Comptroller of the
Currency, lauded the Basel II standards,
arguing that “some have viewed the new
Basel II approach as leaving it up to the
banks to determine their own minimum
capital — putting the fox in charge of the
chicken coop. This is categorically not the
case. While a bank’s internal models and
risk assessment systems will be the starting
point for the calculation of capital, bank
supervisors will be heavily involved at every
stage of the process.”101
100 Chairman Christopher Cox, Before the
Committee on Oversight and Government
Reform, U.S. House of Representatives, October
23, 2008, available at:
<http://oversight.house.gov/documents/2008
1023100525.pdf>.
101 John D. Hawke, Jr., Comptroller of the
Currency, Before the Committee on Bank-
The SEC’s experience with
the Basel II approach reveals
a fundamental flaw in allowing
banks to make their own
risk assessments.
SOLD OUT 57
But the Comptroller’s claim is not supported
by the SEC’s experience. The SEC’s
Inspector General (IG) found that regulators
were anything but “heavily involved” in
oversight of Bear Stearns in the years before
its collapse. As noted above (Part I.5), the
IG concluded that “it is undisputable” that
the SEC “failed to carry out its mission in its
oversight of Bear Stearns.”
The banks’ internal risk models performed
horribly in the housing bubble and
subsequent meltdown. It’s hard to see the
logic of a system that would embed those
models into regulatory requirements for setaside
capital.102
  
ing, Housing, and Urban Affairs, United
States Senate, June 18, 2003, available at:
<http://frwebgate.access.gpo.gov/cgibin/
getdoc.cgi?dbname=108_senate_hearing
s&docid=f:94514.pdf>.
102 Steven Sloan, “Another Reason to Disagree
Over Basel,” American Banker, January 6,
2009, available at:
<http://www.aba.com/aba/documents/ICAA
P_WG/Sloan_AB_090106.pdf>. (“‘I am
most concerned that any institution that
tends to underestimate its risk exposure —
as many recently have — will be just as
likely to underestimate its capital needs if allowed
to operate a risk-based capital standard,
such as Basel II,’ Mr. Hoenig [the
president and chief executive of the Federal
Reserve Bank of Kansas City] said. ‘Riskbased
capital standards may also encourage
institutions to lower their capital, instead of
build it up, in the prosperous times that typically
precede a crisis.’”)s
« Last Edit: December 11, 2011, 01:22:57 AM by prentice crawford »

prentice crawford

  • Guest
Re: Corruption
« Reply #45 on: December 11, 2011, 12:56:20 AM »
Woof 6th Post

58 SOLD OUT
FAILURE TO PREVENT
PREDATORY LENDING
Subprime loans are those made to persons
who ostensibly have a poor credit history.
Predatory loans are, to a significant extent, a
subset of subprime loans.103 A bank is
engaged in predatory lending when it
gtak[es] advantage of a borrowerfs lack of
sophistication to give them a loan whose
rates and terms may not be beneficial to the
borrower.h104 Common predatory terms
103 Non-prime mortgages known as Alt-A .
with riskier borrower profiles than prime
mortgages but less so than subprime . also
often contain predatory terms.
104 gThe Foreclosure Epidemic: The Costs to
Families and Communities of the Predictable
Mortgage Meltdown,h An interview
include high fees and charges associated
with the loan; low teaser interest rates,
which skyrocket after an initial grace period;
and negative amortization loans, which
require, for a time, monthly payments less
than the interest due. These are, typically,
unaffordable loans.
The real-world examples of predatory
lending are shocking. In one lawsuit, Albert
Zacholl, a 74-year-old man living in Southern
California, alleges that Countrywide and
a pair of mortgage brokers gcold-called and
aggressively baitedh him. They promised
him $30,000 cash, a mortgage that would
replace his previous mortgage (which was
leaving him owing more each month) and a
monthly payment that would not exceed
$1,700. Zacholl told the brokers that his
income consisted of a pension of $350 a
month and Social Security payments of
$958, and that with help from his son, he
could afford a mortgage up to $1,700.
According to the lawsuit, the broker falsified
his loan application by putting down an
income of $7,000 a month, and then arranged
for a high-interest mortgage that
required him to pay more than $3,000 a
month (and failed to deliver the $30,000
cash payment). The motivation for the scam,
according to the lawsuit, was to collect
with Allen Fishbein, Consumer Federation
of America, Multinational Monitor,
May/June 2007, available at:
<http://www.multinationalmonitor.org/mm2
007/052007/interview-fishbein.html>.
7
IN THIS SECTION:
Even in a deregulated environment, the
banking regulators retained authority to
crack down on predatory lending abuses.
Such enforcement activity would have
protected homeowners, and lessened though
not prevented the current financial crisis. But
the regulators sat on their hands. The Federal
Reserve took three formal actions
against subprime lenders from 2002 to 2007.
The Office of Comptroller of the Currency,
which has authority over almost 1,800 banks,
took three consumer-protection enforcement
actions from 2004 to 2006.
SOLD OUT 59
$13,000 in fees. In court papers, the Center
for Responsible Lending reports, Countrywide
responded that Zacholl gconsented to
the terms of the transactionh and that any
problems were the result of his own gnegligence
and carelessness.h105
Preventing predatory lending practices
would not have prevented the housing
bubble and the subsequent financial meltdown,
but it would have taken some air out
of the bubble and softened the economic
crisis . and it would have saved millions of
families and communities across the country
from economic ruin.
Unlike the housing bubble itself, predatory
lending was easily avoidable through
sound regulation.
But federal regulators were asleep at
the switch, lulled into somnolence by cozy
relationships with banks and Wall Street and
a haze-inducing deregulatory ideology.
Regulators were warned at the outset of
the housing bubble about the growth in
predatory lending, and public interest advocates
pleaded with them to take action. They
declined, refusing either to issue appropriate
regulatory rules or to take enforcement
actions against predatory lenders. (Congress
similarly failed to act in response to the
105 Center for Responsible Lending, gUnfair and
Unsafe: How Countrywidefs irresponsible
practices have harmed borrowers and shareholders,h
February 2008, available at:
<http://www.responsiblelending.org/issues/
mortgage/countrywide-watch/unfair-andunsafe.
html>.
alarm bells sounded by public interest
advocates.)
Reviewing the record of the past seven
years shows that:
1. Federal regulators . and Members
of Congress . were warned at the
outset of the housing bubble about
the growth in predatory lending, and
public interest advocates pleaded
with them to take action.
2. Federal regulators . and Congress
. refused to issue appropriate regulatory
rules to stem predatory lending.
3. Action at the state level showed that
predatory lending rules could limit
abusive loans.
4. Federal regulators failed to take enforcement
actions against predatory
lenders.
5. After the housing bubble had
popped, and the subprime lending
industry collapsed, federal regulators
in 2008 issued new rules to
limit predatory practices. While
highly imperfect, the new rules evidence
what might have been done in
2001 to prevent abuses.
Early Warnings on Predatory Lending
Yield No Regulatory Action
There are only limited federal substantive
statutory requirements regarding predatory
lending. These are established in the Home
60 SOLD OUT
Ownership and Equity Protection Act
(HOEPA), which was adopted in 1994.
HOEPA effectively put an end to certain
predatory practices, but
only for loans containing
upfront fees or charges of
more than 8 percent of the
loan amount, or interest
rates above a varying, but
very high threshold. Predatory
lenders easily devised
ways to work around these
limitations.
In 2000 and 2001, the Federal Deposit
Insurance Corporation (FDIC), the Federal
Reserve and the Office of Thrift Supervision,
among other federal agencies, adopted
or considered rules to further restrict predatory
lending. The adopted binding rules,
issued by the Federal Reserve pursuant to
HOEPA, however, focused very narrowly
on certain egregious practices.106 More
expansive statements on predatory lending
were issued only as non-binding guidelines.
The reliance on non-binding guidelines
continued through the decade.
As regulators were issuing non-binding
guidelines, public interest advocates were
praising their recognition of the problem .
but urging that more forceful action be
106 12 C.F.R. 226 (Regulation Z; Docket No. R-
1090), 66 Fed. Reg. 245, 65604-65622
(2001) (adjusting the price trigger for coverage
under HOEPA and prohibiting certain
acts).
taken.
gClearly, the FDIC recognizes that
there is a grave problem throughout the
U.S., particularly affecting
low income and minority
households and neighborhoods,h
wrote the National
Consumer Law Center and
the Consumer Federation
of America in January
2001 comments submitted
to the FDIC. gWhile many
regulators recognize the
gravity of the predatory lending problem,
the appropriate . and politically feasible .
method of addressing the problem still
appears elusive.h107
What was needed, the consumer groups
argued, was binding regulation. gAll agencies
should adopt a bold, comprehensive and
specific series of regulations to change the
mortgage marketplace,h the groups wrote, so
that gpredatory mortgage practices are either
specifically prohibited, or are so costly to
the mortgage lender that they are not economically
feasibleh while ensuring that
gnecessary credit is made available with
appropriate rates and terms to all Ameri-
107 National Consumer Law Center and the
Consumer Federation of America, gHow to
Avoid Purchasing or Investing in Predatory
Mortgage Loans,h January 31, 2001, available
at:
<http://www.nclc.org/issues/predatory_mort
gage/fdic.shtml>.
Unlike the housing bubble
itself, predatory lending
was easily avoidable
through sound regulation.
But federal regulators were
asleep at the switch.
SOLD OUT 61
cans.h108
Public interest groups would repeat this
advice again and again over the subsequent
years, pointing to growing abuses and
proposing specific remedies.
But federal agencies, operating under
the prevailing laissez-faire ideology of the
Bush Administration, declined to issue any
binding regulations in response to mushrooming
predatory lending. They did issue
additional guidance statements, but these
were non-binding and consistently behind
the curve of evolving lender abuses. Not
surprisingly, they failed to curtail predatory
lending practices.
A Failure to Enforce
Federal regulators also failed to enforce the
rules that were on the books.
From 2003 through the start of 2007,
the Federal Reserve, which has jurisdiction
over the entire banking industry, took a mere
three formal enforcement actions109 to stop
108 National Consumer Law Center and the
Consumer Federation of America, gHow to
Avoid Purchasing or Investing in Predatory
Mortgage Loans,h January 31, 2001, available
at:
<http://www.nclc.org/issues/predatory_mort
gage/fdic.shtml>.
109 gGenerally, the Federal Reserve takes formal
enforcement actions against [banks] for violations
of laws, rules, or regulations, unsafe
or unsound practices, breaches of fiduciary
duty, and violations of final orders. Formal
enforcement actions include cease and desist
orders, written agreements, removal and
prohibition orders, and orders assessing civil
money penalties.h The Federal Reserve
Board, gEnforcement Actions,h available at:
predatory lending.110 The Office of the
Comptroller of the Currency (OCC), which
has regulatory authority over roughly 1,800
nationally chartered banks, similarly took
three public enforcement actions from 2004
to 2006.111 These numbers reflect a startling
regulatory failure during the peak period of
abusive subprime lending. Subprime loans
made up between one-in-six and one-in-five
home mortgage loans in 2004, 2005 and
2006.112
Although Federal Reserve officials now
acknowledge that they should have done
more, the OCC says it took appropriate
action. Both agencies insist that they also
addressed abuses on an informal, bank-bybank
basis, ordering improved practices in
connection with the agencyfs routine examinations
of individual banks. The informal
and non-public nature of this approach
<http://www.federalreserve.gov/boarddocs/e
nforcement>.
110 James Tyson, Craig Torres and Alison Vekshin,
gFed Says It Could Have Acted Sooner
on Subprime Rout,h Bloomberg, March 22,
2007, available at:
<http://www.bloomberg.com/apps/news?pid
=20601087&sid=a1.KbcMbvIiA&refer=ho
me>.
111 Craig Torres and Alison Vekshin, gFed, OCC
Publicly Chastised Few Lenders During
Boom,h Bloomberg, March 14, 2007, available
at:
<http://www.bloomberg.com/apps/news?pid
=20601103&sid=a6WTZifUUH7g&refer=u
s>.
112 Chris Mayer and Karen Pence, gSubprime
Mortgages: What, Where and to Whom,h
Figure 1B, Federal Reserve, 2008, available
at:
<http://www.federalreserve.gov/pubs/feds/2
008/200829/200829pap.pdf>.
62 SOLD OUT
means that Fed and OCCfs claims cannot be
easily verified.
Even if there were extensive private enforcement
actions or
conversations, such
moves fail to perform
important public functions.
They do not signal
appropriate behavior and
clear rules to other lenders;
and they do not
provide information to
victimized borrowers,
thereby depriving them of
an opportunity to initiate follow-on litigation
to recover for harms perpetrated against
them.
State Action Shows What Could Have Been
Done
While federal regulators sat on their hands,
some states adopted meaningful antipredatory
lending laws and brought enforcement
actions against abusive lenders.
This report does not explore state regulatory
successes and failures, but the ability of
states to regulate and address abusive lender
behavior demonstrates what federal regulators
might have done.
A comprehensive review of subprime
loans conducted by the Center for Responsible
Lending found that aggressive state
regulatory action greatly reduced the number
of predatory loans, without affecting
borrowers access to subprime credit. gStates
with anti-predatory lending laws reduced the
proportion of loans with targeted [predatory]
terms by 30 percentage
points,h the study determined.
Even this number
masked the superior performance
of those with the
toughest laws. gStates with
the strongest laws . Massachusetts,
New Jersey,
New Mexico, New York,
North Carolina, and West
Virginia . are generally
associated with the largest declines in targeted
terms relative to states without significant
protections,h the study found.113
The Center for Responsible Lending
study also concluded that lending continued
at a constant rate in states with antipredatory
lending laws, and that gstate laws
have not increased interest rates and, in
some cases, borrowers actually paid lower
rates for subprime mortgages after their state
laws became effective compared to borrowers
in states without significant protections.h
In other words, eliminating abusive fees did
not translate into higher interest rates.114
113 Wei Li and Keith S. Ernst, gThe Best Value
in the Subprime Market: State Predatory
Lending Reforms,h Center for Responsible
Lending, February, 23, 2006, available at:
<http://www.responsiblelending.org/pdfs/rr0
10-State_Effects-0206.pdf>.
114 Wei Li and Keith S. Ernst, gThe Best Value
in the Subprime Market: State Predatory
Federal agencies, operating
under the prevailing laissezfaire
ideology of the Bush
Administration, declined to
issue any binding regulations
in response to mushrooming
predatory lending.
SOLD OUT 63
Partially Closing the Barn Door (after the
horses left and a foreclosure sign is posted)
After years of inaction, and confronted with
signs of the economic meltdown to come,
the Federal Reserve in January 2008 finally
proposed binding regulations that would
apply to all lenders, not just nationally
chartered banks.
The Federal Reserve proposal noted the
growth of subprime mortgages, claimed the
expansion of subprime credit meaningfully
contributed to increases in home ownership
rates (a gain quickly unraveling due to the
subprime-related foreclosure epidemic) and
modestly suggested that g[r]ecently, however,
some of this benefit has eroded. In the
last two years, delinquencies and foreclosure
starts have increased dramatically and
reached exceptionally high levels as house
price growth has slowed or prices have
declined in some areas.h115
With slight modification, the Fed
adopted these rules in July.116 The new
regulations establish a new category of
ghigher-priced mortgagesh intended to
include virtually all subprime loans. The
regulations prohibit a number of abusive
practices in connection with these newly
Lending Reforms,h Center for Responsible
Lending, February, 23, 2006, available at:
<http://www.responsiblelending.org/pdfs/rr0
10-State_Effects-0206.pdf>.
115 Federal Reserve System, Truth In Lending, 73
Fed. Reg. 6, 1673-74 (2008).
116 Federal Reserve System, 12 C.F.R. ˜ 226,
[Regulation Z; Docket No. R-1305], 73 Fed.
Reg. 147, 44521-614 (2008).
defined ghigher-priced mortgages.h117 They
also apply some measures . such as specified
deceptive advertising practices . for
all loans, regardless of whether they are
subprime.118
117 Key elements of these regulations:
. Prohibit a lender from engaging in a
pattern or practice of making loans
without considering the borrowersf ability
to repay the loans from sources other
than the homefs value.
. Prohibit a lender from making a loan by
relying on income or assets that it does
not verify.
. Restrict prepayment penalties only to
loans that meet certain conditions, including
the condition that the penalty
expire at least sixty days before any
possible increase in the loan payment.
. Require that the lender establish an escrow
account for the payment of property
taxes and homeownersf insurance.
The lender may only offer the borrower
the opportunity to opt out of the escrow
account after one year.
118 These regulatory provisions, applying to all
mortgages, regardless of whether they are
subprime:
. Prohibit certain servicing practices,
such as failing to credit a payment to a
consumerfs account when the servicer
receives it, failing to provide a payoff
statement within a reasonable period of
time, and gpyramidingh late fees.
. Prohibit a creditor or broker from coercing
or encouraging an appraiser to misrepresent
the value of a home.
. Prohibit seven misleading or deceptive
advertising practices for closed-end
loans; for example, using the term
gfixedh to describe a rate that is not
truly fixed. It would also require that all
applicable rates or payments be disclosed
in advertisements with equal
prominence as advertised introductory
or gteaserh rates.
. Require truth-in-lending disclosures to
borrowers early enough to use while
shopping for a mortgage. Lenders could
not charge fees until after the consumer
receives the disclosures, except a fee to
64 SOLD OUT
These measures are not inconsequential.
They show the kind of action the Federal
Reserve could have taken at the start of
this decade . moves that could have dramatically
altered the subsequent course of
events.
But the 2008 regulations remain inadequate,
as a coalition of consumer and housing
groups has specified in great detail,119
because they fail to break with longstanding
deregulatory nostrums. The Fed continues to
emphasize the importance of enabling
lenders to make credit available to minority
and lower-income communities . historically,
a deep-rooted concern . while failing
to acknowledge that the overriding problem
has become lenders willing to make credit
available, but on abusive terms.
gThe proposed regulations continue to
be most protective of the flawed concept
that access to credit should be the guiding
principle for credit regulation. These regulations
need to be significantly strengthened in
order for consumers to be adequately proobtain
a credit report.
119 National Consumer Law Center, Consumer
Action, Consumer Federation of America,
Consumers Union, Leadership Conference
on Civil Rights, National Association of
Consumer Advocates, National Fair Housing
Alliance, and the Empire Justice Center
(gNational Consumer Law Center et. al.h),
gComments to the Board of Governors of
the Federal Reserve System Regarding Proposed
Regulations Relating to Unfair Trade
Practices In Connection with Mortgage
Lending,h April 2008, available at:
<http://www.consumerfed.org/pdfs/HOEPA
_comments_NCLC_final.pdf>.
tected,h argue the consumer and housing
groups. They provide an extensive list of
needed revisions to the proposed regulations,
including that the regulations:
. Cover all loans, including prime
loans;
. Require an gability to repayh analysis
for each loan;
. Ban prepayment penalties;
. Address lender and originator incentives
for appraisal fraud; and
. Provide effective private litigation
remedies for victimized borrowers.
120
  
120 National Consumer Law Center, et. al.,
gComments to the Board of Governors of
the Federal Reserve System Regarding Proposed
Regulations Relating to Unfair Trade
Practices In Connection with Mortgage
Lending,h April 2008, available at:
<http://www.consumerfed.org/pdfs/HOEPA
_comments_NCLC_final.pdf>.
SOLD OUT 65
ORIGINS OF THE HOUSING BUBBLE
The housing bubble can be traced to
a series of inter-related developments in
the macro-economy, themselves due in
significant part to political choices.
First, the Federal Reserve lowered
interest rates to historically low levels in
response to the economic downturn that
followed the collapse of the stock market
bubble of the 1990s and the additional
economic slowdown after 9/11. Low
interest rates had beneficial effects in
spurring economic activity, but they also
created the conditions for the housing
bubble, as cheap credit made mortgage
financing an attractive proposition for
home buyers.
Cheap credit was not a result only of
Fed interest rate decisions. A second
contributing factor to the housing bubble
was the massive influx of capital into the
United States from China. Chinafs capital
surplus was the mirror image of the
U.S. trade deficit . U.S. corporations
were sending dollars to China in exchange
for goods sold to U.S. consumers.
China then reinvested much of that
surplus in the U.S. bond market, with the
effect of keeping U.S. interest rates low.
Cheap credit did not automatically
mean there would be a housing bubble.
Crucially, government officials failed to
intervene to pop the housing bubble. As
economists Dean Baker and Mark Weisbrot
of the Center for Economic and
Policy Research insisted at the time,
simply by identifying the bubble . and
adjusting public perception of the future
of the housing market . Federal Reserve
Chair Alan Greenspan could have
prevented or at least contained the bubble.
He declined, and even denied the
existence of a bubble.
There were reasons why Greenspan
and other top officials did not act to pop
the bubble. They advanced expanded
home ownership as an ideological goal.
While this objective is broadly shared
across the political spectrum, the Bush
administration and Greenspanfs ideological
commitment to the goal biased
them to embrace growing home buying
uncritically . without regard to whether
new buyers could afford the homes they
were buying, or the loans they were
getting. Perhaps more importantly, the
housing bubble was the engine of an
66 SOLD OUT
economy that otherwise was stalled.
Rising home prices contributed to the
huge growth of the construction industry;
Wall Street grew rich on mortgagerelated
securities and exotic financial
instruments; and people borrowed en
masse against the rising value of their
homes to spend more and keep the economy
functioning.
The toxic stew of financial deregulation
and the housing bubble created the
circumstances in which aggressive
lenders were nearly certain to abuse
vulnerable borrowers through predatory
lending terms. The terms of your loan
donft matter, they effectively purred to
borrowers, so long as the value of your
house is going up. They duped borrowers
into conditions they could not possibly
satisfy, making the current rash of
defaults and foreclosures on subprime
loans inevitable. Effective regulation of
lending practices could have prevented
the abusive loans.
  
SOLD OUT 67
FEDERAL PREEMPTION OF
STATE CONSUMER
PROTECTION LAWS
In 2003, the Comptroller of the Currency,
John D. Hawke, Jr., announced that he was
preempting state predatory lending laws.
This ruling meant that nationally chartered
banks . which include the largest U.S.
banks . would be subject to federal banking
standards, but not the more stringent
consumer protection rules adopted by many
states.
The Comptrollerfs decision was a direct
response to a request from the nationfs
biggest banks. It was prompted by a petition
from Cleveland-based National City Bank,
which challenged the application of the
Georgia Fair Lending Act to its operations
in Georgia.
The Comptroller agreed with National
Cityfs contention that the federal banking
laws, the history of federal regulation of
national banks and relevant legislative
history all supported the conclusion that
federal regulatory authority should supersede
and override any state regulation
regarding predatory lending.121
In its petition, National City argued that
the effect of the Georgia law gis to limit
National Cityfs ability to originate and to
establish the terms of credit on residential
real estate loans and lines of credit, including
loans or lines of credit submitted by a
third party mortgage broker. GFLA [the
Georgia Fair Lending Act] has significantly
impaired National Cityfs ability to originate
residential real estate loans in Georgia.h
It is instructive to identify the provisions
of the Georgia law, a path breaking
anti-predatory lending initiative, to which
National City objected. The Georgia law
included a wide range of consumer protections
that consumer groups applauded but
which National City complained would
interfere with its freedom to operate:
GFLA establishes specific and burdensome
limitations on mortgage.secured
loans and lines of credit that significantly
interfere with National Cityfs ability to
121 Office of the Comptroller of the Currency
[Docket No. 03-17] Preemption Determination
and Order, august 5, 2003, Federal Register,
Vol. 688. No. 150, 46264.)
8
IN THIS SECTION:
When the states sought to fill the vacuum
created by federal nonenforcement of consumer
protection laws against predatory
lenders, the feds jumped to stop them. gIn
2003,h as Eliot Spitzer recounted, gduring
the height of the predatory lending crisis, the
Office of the Comptroller of the Currency
invoked a clause from the 1863 National
Bank Act to issue formal opinions preempting
all state predatory lending laws, thereby
rendering them inoperative. The OCC also
promulgated new rules that prevented states
from enforcing any of their own consumer
protection laws against national banks.h
68 SOLD OUT
make these loans. All Home Loans are
subject to restrictions on the terms of
credit and certain loan related fees, including
the prohibition of financing of credit
insurance, debt cancellation and suspension
coverage, and limiting late charges
and prohibiting payoff and release fees. If
the loan or line of credit is a Covered
Home Loan which refinances a Home
Loan which was closed within the previous
five years, National City is restricted
from originating it unless the refinanced
transaction meets standards established by
GFLA. If the loan or line of credit is a
High Cost Home Loan, GFLA does not
permit National City to originate it unless
the borrower has received advance counseling
with respect to the advisability of
the transaction from a third party nonprofit
organization. GFLA regulates National
Cityfs ability to determine the borrowerfs
ability to repay the High Cost
Home Loan. GFLA restricts, and in some
cases prohibits, the imposition by National
City of certain credit terms or servicing
fees on High Cost Home Loans, including:
prepayment penalties, balloon
payments, advance loan payments, acceleration
in the lenderfs discretion, negative
amortization, post-default interest and fees
to modify, renew, amend or extend the
loan or defer a payment. Any High Cost
Home Loan must contain a specific disclosure
that it is subject to special rules,
including purchaser and assignee liability,
under GFLA. Finally, GFLA imposes preforeclosure
requirements. GFLA currently
creates strict assignee liability for all subsequent
holders of a home loan. GFLA
provides a private right of action for borrowers
against lenders, mortgage brokers,
assignees and servicers for injunctive and
declaratory relief as well as actual damages,
including incidental and consequential
damages, statutory damages equal to
forfeiture of all interest or twice the interest
paid, punitive damages, attorneysf fees
and costs. In addition, the Georgia Attorney
General, district attorneys, the Commissioner
of Banking and Finance and,
with respect to the insurance provisions,
the Commissioner of Insurance has the jurisdiction
to enforce GFLA through their
general state regulatory powers and civil
process. Criminal penalties are also available.
122
The Office of the Comptroller of the
Currency (OCC) 2003 preemption decision
was the latest in a long series of actions by
the agency to preempt state laws. Following
passage of the Garn-St. Germain Depository
Institutions Act of 1982, the OCC had by
regulation specifically preempted a number
of state law consumer protections, including
the minimum requirements for down
payments, loan repayment schedules and
minimum periods of time for loans. These
state rules afforded consumers greater
protection than federal statutes. The 2003
decision concluded that Georgiafs rules
transgressed some of these longstanding
regulatory preemptions, but then went
further and preempted the Georgia rules
entirely, as they applied to national banks.
In conjunction with the OCCfs announcement
on the Georgia case, it launched
a rulemaking on the general issue of federal
preemption of all state regulation of national
banks. In January 2004, it issued rules
preempting all state regulation of national
banks.123 The OCC also announced rules
122 Letter from Thomas Plant to Julie Williams
(National Cityfs Request for OCC preemption
of the Georgia Fair Lending Act), February
11, 2003, appendix to Office of the
Comptroller of the Currency, Docket No.
03-04, Notice of Request for preemption
Determination and Order.
123 Office of the Comptroller of the Currency, 12
CFR Parts 7 and 34, [Docket No. 04-xx],
RIN 1557-AC73.
SOLD OUT 69
prohibiting state regulators from exercising
gvisitorial powersh . meaning inspection,
supervision and oversight . of national
banks.124
The stated rationale
for these preemptive
moves was that differing
state standards subjected
national banks to extra
costs and reduced the
availability of credit.
gToday,h said Hawke in
announcing the new rules,
gas a result of technology
and our mobile society,
many aspects of the
financial services business
are unrelated to geography
or jurisdictional
boundaries, and efforts to
apply restrictions and
directives that differ based
on a geographic source
increase the costs of
offering products or result in a reduction in
their availability, or both. In this environment,
the ability of national banks to operate
under consistent, uniform national standards
administered by the OCC will be a crucial
factor in their business future.h125 Hawke
124 Office of the Comptroller of the Currency, 12
CFR Part 7, [Docket No. 04-xx], RIN 1557-
AC78.
125 Statement of Comptroller of the Currency
John Hawke, Jr., Regarding the Issuance of
argued that national banks were not engaged
in predatory lending on any scale of consequence;
that federal regulation was sufficient;
and that federal guidance on predatory
lending . issued in conjunction
with the preemptive
moves . provided
additional and satisfactory
guarantees for consumers.
Former New York
State Attorney General (and
former Governor) Eliot
Spitzer put these actions in
perspective in a February
2008 opinion column in the
Washington Post.126
gPredatory lending was
widely understood [earlier
in the decade] to present a
looming national crisis,h
Spitzer wrote. gThis threat
was so clear that as New
York attorney general, I
joined with colleagues in
the other 49 states in attempting to fill the
void left by the federal government. Indi-
Regulations Concerning Preemption and
Visitorial Powers, January 7, 2004, available
at: <http://occ.gov/newrules.htm>.
126 Eliot Spitzer, gPredatory Lendersf Partner in
Crime How the Bush Administration
Stopped the States From Stepping In to Help
Consumers,h Washington Post, February 14,
2008, available at:
<http://www.washingtonpost.com/wpdyn/
content/article/2008/02/13/AR20080213
02783.html>.
Referring to the OCCfs preemptive
measures, Spitzer
wrote, gNot only did the
Bush administration do
nothing to protect consumers,
it embarked on an
aggressive and unprecedented
campaign to prevent
states from protecting their
residents from the very
problems to which the federal
government was turning
a blind eye.h
70 SOLD OUT
vidually, and together, state attorneys general
of both parties brought litigation or
entered into settlements with many subprime
lenders that were engaged in predatory
lending practices. Several state legislatures,
including New Yorkfs, enacted laws aimed
at curbing such practices.h
Referring to the OCCfs preemptive
measures, Spitzer wrote, gNot only did the
Bush administration do nothing to protect
consumers, it embarked on an aggressive
and unprecedented campaign to prevent
states from protecting their residents from
the very problems to which the federal
government was turning a blind eye. c The
federal governmentfs actions were so egregious
and so unprecedented that all 50 state
attorneys general, and all 50 state banking
superintendents, actively fought the new
rules.h
gBut the unanimous opposition of the
50 states did not deter, or even slow, the
Bush administration in its goal of protecting
the banks,h Spitzer noted.
When state law enforcement agencies
tried to crack down on predatory lending in
their midst, the OCC intervened to stop
them. Wrote Spitzer, gIn fact, when my
office opened an investigation of possible
discrimination in mortgage lending by a
number of banks, the OCC filed a federal
lawsuit to stop the investigation.h
John Hawkefs successor as Comptroller
John Dugan, denies Spitzerfs assertions.
gThe OCC established strong protections
against predatory lending practices years
ago, and has applied those standards through
examinations of every national bank,h he
said. gAs a result, predatory mortgage
lenders have avoided national banks like the
plague. The abuses consumers have complained
about most . such as loan flipping
and equity stripping . are not tolerated in
the national banking system. And the looser
lending practices of the subprime market
simply have not gravitated to national banks:
They originated just 10 percent of subprime
loans in 2006, when underwriting standards
were weakest, and delinquency rates on
those loans are well below the national
average.h127
Even if it is true that federal banks
originated fewer abusive loans, they clearly
financed predatory subprime loans through
bank intermediaries, securitized predatory
subprime loans and held them in great
quantities. In any case, the scale of federal
bank financing of predatory loans was still
substantial. Alys Cohen of the National
Consumer Law Center notes that Wachovia
was a national bank that collapsed in significant
part because of the unaffordable mortgage
loans it originated.
127 John Dugan, gComptroller Dugan Responds
to Governor Spitzer,h news release, February
14, 2008, available at:
<http://www.occ.gov/ftp/release/2008-
16.htm>.
SOLD OUT 71
Cohen of the National Consumer Law
Center notes as well that the OCCfs preemptive
actions protected federal banks from
three distinct set of consumer
protections. First,
they were immunized
from state banking laws
that offered consumers
greater protection than the
OCCfs standards. Second,
the national banks were
protected from private
lawsuits brought under
state law to enforce
consumer rights. As noted
above, federal voluntary
standards made it difficult
for victimized borrowers to file suit. Third,
the OCC preempted the application of
general state consumer protection law (as
distinct from banking-specific rules) to
national banks. This includes even basic
contract and tort law.
Finally, Cohen emphasizes that the
OCC preemptive measures applied not just
to the national banks themselves, but to their
non-supervised affiliates and agents.
Meanwhile, the federal agency responsible
for regulating federally chartered
savings and loans, the Office of Thrift
Supervision (OTS), adopted parallel preemptive
actions.
In 2003, OTS announced its determination
that New York and Georgiafs antipredatory
lending laws did not apply to
federal thrifts. Like OCC, OTS took an
aggressive posture, arguing that it goccupied
the fieldh for regulation of
federally chartered institutions.
OTS was explicit that
it wanted to preserve
gmaximum flexibilityh for
thrifts to design loans. The
agency said its objective
was to genable federal
savings associations to
conduct their operations in
accordance with best practices
by efficiently delivering
low-cost credit to the
public free from undue regulatory duplication
and burden.h128
gFederal law authorizes OTS to provide
federal savings associations with a uniform
national regulatory environment for their
lending operations,h said OTS Director
James E. Gilleran in announcing the preemptive
decision. gThis enables and encourages
federal thrifts to provide low-cost credit
safely and soundly on a nationwide basis.
By requiring federal thrifts to treat custom-
128 Letter from Carolyn J. Buck, Chief Counsel,
Office of Thrift Supervision, January 30,
2003, available at:
<http://www.ots.gov/index.cfm?p=PressRel
eases&ContentRecord_id=f8613720-2c1d-
42f4-8608-
f6362c04b6e2&ContentType_id=4c12f337-
b5b6-4c87-b45c-
838958422bf3&YearDisplay=2003>.
Even if it is true that federal
banks originated fewer
abusive loans, they clearly
financed predatory subprime
loans through bank
intermediaries, securitized
predatory subprime loans
and held them in great
quantities.
72 SOLD OUT
ers in New York differently, the New York
law would impose increased costs and an
undue regulatory burden.h129
The federal governmentfs regulatory
approach ultimately boomeranged on the
regulated institutions. With the popping of
the housing bubble, predatory loans proved
a disaster not just for borrowers but for
lenders or those banks that purchased subprime
mortgage contracts. IndyMac and
Washington Mutual are two federal thrifts
that collapsed as a result of the bad subprime
mortgage loans that they administered.
  
129 gOTS Says New York Law Doesnft Apply To
Federal Thrifts,h news release, January 30,
2003, available at:
<http://www.ots.gov/index.cfm?p=PressRel
eases&ContentRecord_id=f8613720-2c1d-
42f4-8608-
f6362c04b6e2&ContentType_id=4c12f337-
b5b6-4c87-b45c-
838958422bf3&YearDisplay=2003>.
SOLD OUT 73
ESCAPING ACCOUNTABILITY:
ASSIGNEE LIABILITY
gAssignee liabilityh is the principle that
legal responsibility for wrongdoing in
issuing a loan extends to a third party that
acquires a loan. Thus, if a mortgage bank
issues a predatory loan and then sells the
loan to another bank, assignee liability
would hold the second bank liable for any
legal claims that the borrower might be able
to bring against the original lender.
Competing in the law with assignee liability
is the gholder-in-due-courseh doctrine,
which establishes that a third party
purchasing a debt instrument is not liable for
problems with the debt instrument, so long
as those problems are not apparent on the
face of the instrument. Under the holder-indue-
course-doctrine, a second bank acquiring
a predatory loan is not liable for claims
that may be brought by the borrower against
the original lender, so long as those potential
claims are not obvious.
The Home Ownership and Equity Protection
Act (HOEPA),130 the key federal
protection against predatory loans, attempted
to reconcile these conflicting principles.
Passed in 1994, HOEPA does establish
assignee liability, but it only applies to a
limited category of very high-cost loans
(i.e., loans with very high interest rates
and/or fees). For those loans, a borrower
may sue an assignee of a mortgage that
violates HOEPAfs anti-predatory lending
terms, seeking either damages or rescission
(meaning all fees and interest payments will
be applied to pay down the principle of the
loan, after which the borrower could refinance
with a non-predatory loan). For all
130 The Home Ownership and Equity Protection
Act of 1994 amended the Truth-in-Lending
Act by adding Section 129 of the Act, 15
U.S.C. ˜ 1639. It is implemented by Sections
226.31 and 226.32 of Regulation Z, 12
C.F.R. ˜˜ 226.31 and 226.32.
9
IN THIS SECTION:
Under existing federal law, only the original
mortgage lender is liable for any predatory
and illegal features of a mortgage . even if
the mortgage is transferred to another party.
This arrangement effectively immunized
acquirers of the mortgage (gassigneesh) for
any problems with the initial loan, and
relieved them of any duty to investigate the
terms of the loan. Wall Street interests could
purchase, bundle and securitize subprime
loans . including many with pernicious,
predatory terms . without fear of liability
for illegal loan terms. The arrangement left
victimized borrowers with no cause of action
against any but the original lender, and
typically with no defenses against being
foreclosed upon. Representative Bob Ney, ROhio
. a close friend of Wall Street who
subsequently went to prison in connection
with the Abramoff scandal . was the leading
opponent of a fair assignee liability regime.
74 SOLD OUT
other mortgage loans, federal law applies the
holder in due course doctrine.131
The rapid and extensive transfer of
subprime loans, including abusive predatory
loans, among varying parties was central to
the rapid proliferation of subprime lending.
Commonly, mortgage brokers worked out
deals with borrowers, who then obtained a
mortgage from an initial mortgage lender
(often a non-bank lender, such as Countrywide,
with which the broker worked). The
mortgage lender would then sell the loan to
a larger bank with which it maintained
relations. Ultimately, such mortgages were
pooled with others into a mortgage-backed
security, sold by a large commercial bank or
investment bank.
Under existing federal law, none but
the original mortgage lender is liable for any
predatory and illegal features of the mortgage
(so long as it is not a high-cost loan
covered by HOEPA). This arrangement
relieved acquirers of the mortgage of any
duty to investigate the terms of the loan and
effectively immunized them from liability
for the initial loan.132 It also left the borrow-
131 Lisa Keyfetz, gThe Home Ownership and
Equity Protection Act of 1994: Extending
Liability for Predatory Subprime Loans to
Secondary Mortgage Market Participants,h
18 Loy. Consumer L. Rev. 2, 151 (2005).
132 See Eric Nalder, gPoliticians, lobbyists
shielded financiers: Lack of liability laws
fueled firms' avarice,h Seattle Post-
Intelligencer, October 10, 2008, available at:
<http://seattlepi.nwsource.com/business/382
707_mortgagecrisis09.html>. (gA principle
known as assignee liability would have alers
with no cause of action against any but
the original lender. In many cases, this
lender no longer exists as a legal entity.
And, even where the initial lender still
exists, while it can pay damages, it no longer
has the ability to cure problems with the
mortgage itself; only the current holder of
the mortgage can modify it. Thus, a borrower
could not exercise a potential rescission
remedy, or take other action during the
course of litigation to prevent the holder of
his or her mortgage from foreclosing upon
him or her or demanding unfair payments. A
hypothetical recovery of damages from the
original lender long after the home is foreclosed
upon is of little solace to the homeowner.
The severe consequences of not applying
assignee liability in the mortgage context
have long been recognized. Consumer
advocates highlighted the problem early in
the 2000fs boom in predatory lending.
Margot Saunders of the National Consumer
Law Center explained the problem in
testimony to the House of Representativesf
Financial Services Committee in 2003.
lowed borrowers to sue anyone holding paper
on their loan, from the originators who
sold it to them to the Wall Street investment
bankers who ultimately funded it. Without
the measure in place, Wall Street increased
by eightfold its financing of subprime and
nontraditional loans between 2001 and 2006,
including mortgages in which borrowers
with no proof of income, jobs or assets were
encouraged by brokers to take out loans, according
to statistics provided by mortgage
trackers.h)
SOLD OUT 75
gTake, for example, the situation where
homeowners sign a loan and mortgage for
home improvements secured by their home.
The documents do not
include the required FTC
Notice of Preservation of
Claims and Defenses, and
the contact information
provided by the home
improvement contractor is
useless. The home improvement
work turns out
to be shoddy and useless,
but the assignee of the
loan claims to have no
knowledge of the status of
the work, instead claiming
it is an innocent third
party assignee that merely wants its monthly
payments. When the homeowners refuse to
pay, the assignee claims the rights of a
holder in due course and begins foreclosure
proceedings.h
The absence of assignee liability enabled
Wall Street interests to bundle subprime
loans . including many with pernicious,
predatory terms . and securitize
them, without fear of facing liability for
unconscionable terms in the loans. Had a
regime of assignee liability been in place,
securitizers and others up the lending chain
would have been impelled to impose better
systems of control on brokers and initial
mortgage lenders, because otherwise they
would have faced liability themselves.
For community development and consumer
advocates, the case for expanded
assignee liability has long
been clear. Argued Saunders
in her 2003 testimony,
gMost importantly consider
the question of who should
bear the risk in a faulty
transaction. Assume 1) an
innocent consumer (victim
of an illegal loan), 2) an
originator guilty of violating
the law and profiting from
the making of an illegal
loan, and 3) an innocent
holder of the illegal note.
As between the two innocent
parties . the consumer and the holder
. who is best able to protect against the
risk of loss associated with the making of an
illegal loan? It is clear that the innocent
party who is best able to protect itself from
loss resulting from the illegality of another
is not the consumer, but the corporate assignee.h
133
133 Margot Saunders, Testimony Before the
Subcommittee on Housing and Community
Opportunity & Subcommittee on Financial
Institutions and Consumer Credit of the Financial
Services Committee, U.S. House of
Representatives, gProtecting Homeowners:
Preventing Abusive Lending While Preserving
Access to Credit,h November 5, 2003,
available at:
<http://financialservices.house.gov/media/p
df/110503ms.pdf>.
Had a regime of assignee
liability been in place, securitizers
and others up the
lending chain would have
been impelled to impose
better systems of control
on brokers and initial mortgage
lenders, because otherwise
they would have
faced liability themselves.
76 SOLD OUT
Making the case even more clear, players
in the secondary market . the acquirers
of mortgages . were not innocent parties.
They were often directly involved in enabling
predatory lending by mortgage brokers,
and were well aware of the widespread
abuses in the subprime market. Explain
reporters Paul Muolo and Mathew Padilla,
authors of Chain of Blame: How Wall Street
Caused the Mortgage and Credit Crisis,
gBrokers wouldnft even exist without
wholesalers, and wholesalers wouldnft be
able to fund loans unless Wall Street was
buying. It wasnft the loan brokersf job to
approve the customerfs application and
check all the financial information; that was
the wholesalerfs job, or at least it was supposed
to be. Brokers didnft design the loans,
either. The wholesalers and Wall Street did
that. If Wall Street wouldnft buy, then there
would be no loan to fund.h134
The securitizers had a counterargument
against calls for assignee liability.
They claimed that assignee liability would
impose unrealistic monitoring duties on
purchasers of mortgage loans, and would
therefore freeze up markets for securitized
loans. The result, they said, would be less
credit for homebuyers, especially those with
imperfect credit histories.
Lenders and securitizers opposed pro-
134 Paul Muolo and Mathew Padilla, Chain of
Blame: How Wall Street Caused the Mortgage
and Credit Crisis, New York: Wiley,
2008. 295.
posals to require subsequent purchasers of
mortgage debt to bear legal responsibility.
gLegislators must be extremely cautious in
making changes that upset secondary market
dynamics,h warned Steve Nadon, chair of
the industry group the Coalition for Fair and
Affordable Lending (CFAL) and Chief
Operating Officer of Option One Mortgage,
an H&R Block subsidiary, in 2003 congressional
testimony, gbecause unfettered access
to the capital markets is largely responsible
for having dramatically increased nonprime
credit availability and for lowering costs for
millions of Americans. Lenders and secondary
market purchasers believe that it is very
unfair to impose liability when there is no
reasonable way that the loan or securities
holder could have known of the violation. In
any case, we feel that liability generally
should apply only if the assignee by reasonable
due diligence knew or should have
known of a violation of the law based on
what is evident on the face of the loan
documents.h135
gPredatory lending is harmful and
135 Testimony of Steve Nadon, chair of the
Coalition for Fair and Affordable Lending
(CFAL) and chief operating officer of Option
One Mortgage on gProtecting Homeowners:
Preventing Abusive Lending While
Preserving Access to Credith before the
Subcommittees on Housing and Community
Opportunity & Financial Institutions and
Consumer Credit of the Financial Services
Committee, U.S. House of Representatives,
November 5, 2003, available at:
<http://financialservices.house.gov/media/p
df/110503sn.pdf>.
SOLD OUT 77
needs to be stopped. Imposing open-ended
liability on secondary market participants
for the actions of lenders, however, will
ultimately have the effect of limiting credit
for those who need it most,h
echoed Micah Green, president
of The Bond Market
Association, two years
later.136 (Proponents of
assignee liability emphasize
they have sought not openended
liability, but the kind
of measurable liability that
applies under HOEPA.)
Securitizers not only defended the default
federal application of the holder in due
course doctrine for non-HOEPA loans, they
supported legislation introduced by Representative
Bob Ney, R-Ohio . who subsequently
went to prison in connection with
the Jack Abramoff corruption scandal137 .
that would have preempted state rules
applying assignee liability.138 gUsing any-
136 gThe Bond Market Association and the
American Securitization Forum Applaud
Responsible Lending Act,h news release,
March 15, 2005, available at:
<http://www.americansecuritization.com/sto
ry.aspx?id=264>.
137 Philip Shenon, gNey Is Sentenced to 2 1.2
Years in Abramoff Case,h New York Times,
January 20, 2007, available at:
<http://www.nytimes.com/2007/01/20/washi
ngton/20ney.html?_r=>.
138 Diana B. Henriques with Jonathan Fuerbringer,
gBankers Opposing New State
Curbs on Unfair Loans,h New York Times,
February 14, 2003, available at:
<http://query.nytimes.com/gst/fullpage.html
?res=9405E2D7153AF937A25751C0A9659
thing but a single set of objective and readily
detectable standards to determine whether
an assignee has liability is a regulatory
approach that threatens to undermine many
of the benefits of the
secondary market,h Green
testified before the House
Financial Services Committee
in 2005. gFaced
with this type of environment,
secondary
market participants may
find it less attractive to
purchase and repackage
subprime loans.h139
In a 2004 statement submitted to the
House Financial Services Committee, the
Housing Policy Council, made up of 17 of
the largest U.S. mortgage finance companies,
argued that diverse state standards
relating to assignee liability were unfairly
impinging on lenders and undermining
access to credit among poor communities.
gIn the absence of a national law, lenders
face growing problems: (1) a number of
states, and even cities and counties, pass
C8B63&sec=&spon=&pagewanted=all>.
139 Testimony of Micah Green, president, The
Bond Market Association, on gLegislative
Solution to Abusive Market Lending Practices,h
before the Financial Services Committee,
Subcommittee on Housing and
Community Opportunity and Subcommittee
on Financial Institutions and Consumer
Credit, U.S. House of Representatives, May
24, 2005, available at:
<http://financialservices.house.gov/media/p
df/052405msg.pdf>.
Securitizers continue to
defend their position on
assignee liability, even
though it encourages the
practices that helped fuel
the subprime mess.
78 SOLD OUT
widely different legislation that causes a
variety of administrative and legal problems.
What is permitted in some locales is not in
others, sometimes even within the same
state; (2) states and subdivisions begin
competing to devise new restrictions; (3)
because of the lack of uniformity and great
variety of differences between jurisdictions
the chances of honest mistakes are compounded
and the possibility of litigation is
magnified; (4) litigation adversely impacts
the reputations of lenders, and (5) lenders
decide that making loans in states and
municipalities with broad and vague statutes
is no longer worth the risk to their reputations,
and assignees decide that buying or
lending against these loans is also not worth
the risk for them. The end result is actually
less credit for borrowers.h140
Further, the Housing Policy Council asserted,
under a national standard, assignee
liability should only apply where an assignee
had actual knowledge that a loan was
flawed, or intentionally failed to use due
diligence (itself a weak standard). 141
140 Statement of the Housing Policy Council of
the Financial Services Roundtable, before
the Subcommittee on Financial Institutions
and Consumer Credit and the Subcommittee
on Housing and Community Opportunity,
gPromoting Homeownership by Ensuring
Liquidity in the Subprime Mortgage Market,h
June 23, 2004, available at:
<http://financialservices.house.gov/media/p
df/062304hpc.pdf>.
141 Statement of the Housing Policy Council of
the Financial Services Roundtable, Before
the Subcommittee on Financial Institutions
Neyfs preemptive legislation regarding
assignee liability never became law, but it
helped frame the debate so that the mortgage
lenders, banks and Wall Street were on the
offensive . demanding even reduced
standards of assignee liability, rather than a
legal standard that would place responsibility
on securitizers (the banks and investment
banks that bundled loans into mortgagebacked
securities) for predatory loans and
give predatory loan victims a timely opportunity
in court to prevent foreclosure.
Securitizers continue to defend their
position on assignee liability, even though it
encourages the practices that helped fuel the
subprime mess.
In a June 2007 paper, the American Securitization
Forum (ASF) argued that, gIn
addition to being largely unnecessary, any
federal legislation that would expose secondary
market participants to assignee liability
that is very high or unquantifiable would
have severe repercussions.h The ASF repeats
the arguments of yesterday: that
securitization has increased capital available
and Consumer Credit and the Subcommittee
on Housing and Community Opportunity,
gPromoting Homeownership by Ensuring
Liquidity in the Subprime Mortgage Market,h
June 23, 2004, available at:
<http://financialservices.house.gov/media/p
df/062304hpc.pdf>. gActions and defenses,h
asserted the Housing Policy Council, gmust
be limited to those that are based on actual
knowledge of the assignee of the existence
of the violations in the loans assigned to
them, or intentional failure to use appropriate
due diligence in reviewing the loans assigned.h
SOLD OUT 79
to subprime markets and helped expand
homeownership; that assignees have an
economic incentive to ensure acquired loans
that are unlikely to default; that it is unreasonable
to ask assignees to investigate all
securitized loans; and that assignee liability
would dry up the secondary loan market
with dire consequences.142
Asserted the ASF, gThe imposition of
overly burdensome and potentially unquantifiable
liability on the secondary market .
for abusive origination practices of which
assignees have no knowledge and which
were committed by parties over whom they
have no control . would therefore severely
affect the willingness of investors and other
entities to extend the capital necessary to
fund subprime mortgage lending. As a
result, at precisely the time when increased
liquidity is essential to ensuring the financial
health of the housing market, schemes
imposing overly burdensome assignee
liability threaten to cause a contraction and
deleterious repricing of mortgage credit.h143
142 American Securitization Forum, gAssignee
Liability in the Secondary Mortgage Market:
Position Paper of the American Securitization
Forum,h June 2007, available at:
<http://www.americansecuritization.com/upl
oaded-
Files/Assignee%20Liability%20Final%20V
ersion_060507.pdf>.
143 American Securitization Forum, gAssignee
Liability in the Secondary Mortgage Market:
Position Paper of the American Securitization
Forum,h June 2007, available at:
<http://www.americansecuritization.com/upl
oaded-
Files/Assignee%20Liability%20Final%20V
That these arguments are overblown
and misplaced was clear at the start of the
subprime boom. They are now utterly implausible.
As a fairness matter, assignees
will often be the only party able to offer
relief to victims of predatory loans, and
victims often need to be able to bring claims
against assignees in order to prevent unjust
foreclosures; the hypothetical incentives for
assignees to avoid loans that could not be
paid off proved illusory; assignees have
ample capacity to police the loans they
acquire, including by hiring third-party
investigators or by contractual arrangement
with mortgage originators; and the overarching
problem for lower-income families and
communities since 2001 has not been too
little credit, but too much poor quality
credit.
  
ersion_060507.pdf>.
« Last Edit: December 11, 2011, 01:23:47 AM by prentice crawford »

prentice crawford

  • Guest
Re: Corruption
« Reply #46 on: December 11, 2011, 01:01:33 AM »
Woof, 7th Post;

80 SOLD OUT
FANNIE AND FREDDIE
ENTER THE SUBPRIME
MARKET
The Federal National Mortgage Association
was created in 1938, during Franklin D.
Roosevelt’s administration, as a federal
government agency to address the lack of a
consistent supply of mortgage funds. Fannie
Mae, as it is popularly known, became a
private, shareholder-owned corporation in
1968.144 As a “government sponsored enterprise”
(GSE) chartered by Congress, Fannie
Mae’s purpose is to purchase mortgages
from private bankers and other lenders so
that they have additional funds to continue
originating new mortgages. Fannie Mae
does not issue or originate new loans, but
private lenders seek to sell their loans to
Fannie, which maintains specific dollar
value ceilings for the repurchasing of single
and multi-family loans and does not purchase
high-end loans (i.e., loans for expensive
homes). Because many private lenders
hope to sell their mortgages to Fannie, its
loan purchasing criteria have a substantial
influence on the prudence of the mortgages
that lenders issue.
The Federal Home Loan Mortgage
Corporation, or Freddie Mac,145 was established
by Congress in 1970 as a private
shareholder-owned corporation to take on
the same role as Fannie Mae and prevent
Fannie from exercising a monopoly. As with
Fannie Mae, Freddie Mac does not issue or
originate new loans. Instead, Freddie buys
loans from private lenders in order to provide
added liquidity to fund America’s
housing needs.146
144 12 U.S.C. § 1716b et seq. (1968).
145 Emergency Home Finance Act, 12 U.S.C. §
1401 (1970).
146 Federal Home Loan Mortgage Corporation
10
IN THIS SECTION:
At the peak of the housing boom, Fannie Mae
and Freddie Mac were dominant purchasers
in the subprime secondary market. The
Government-Sponsored Enterprises were
followers, not leaders, but they did end up
taking on substantial subprime assets — at
least $57 billion. The purchase of subprime
assets was a break from prior practice,
justified by theories of expanded access to
homeownership for low-income families and
rationalized by mathematical models allegedly
able to identify and assess risk to newer
levels of precision. In fact, the motivation
was the for-profit nature of the institutions
and their particular executive incentive
schemes. Massive lobbying — including
especially but not only of Democratic friends
of the institutions — enabled them to divert
from their traditional exclusive focus on
prime loans.
Fannie and Freddie are not responsible
for the financial crisis. They are responsible
for their own demise, and the resultant
massive taxpayer liability.
SOLD OUT 81
Fannie Mae began converting mortgages
it acquired into mortgage-backed
securities (MBSs) in 1970.147 An MBS is
created by pooling thousands of purchased
mortgages into a single security for trade on
Wall Street. By selling MBSs to investors,
Fannie obtains additional funds to buy
increasing numbers of mortgages from
private lenders who, in turn, use the added
liquidity (cash) to originate new home loans.
By purchasing mortgages from private
lenders, however, Fannie Mae incurs all the
risk of default by borrowers, providing an
incentive for lenders to make risky loans,148
and making it vital that Fannie exercise care
in determining which loans it acquires.
Traditionally, Fannie only purchased high
quality loans that conform to relatively
stringent standards, including that the borrower
provided a 20 percent down payment.
Even after it sells MBSs, Fannie guarantees
payment to buyers of the MBSs — effectively
providing insurance on the securities.
The laws establishing Fannie Mae and
website, “Frequently Asked Questions
About Freddie Mac,” undated, available at:
<http://www.freddiemac.com/corporate/com
pany_profile/faqs/index.html>.
147 Federal National Mortgage Association
website, “About Fannie Mae,” October 7,
2008, available at:
<http://www.fanniemae.com/aboutfm/index.
jhtml;jsessionid=XUMTTVZMCQYSHJ2F
QSISFGA?p=About+Fannie+Mae>.
148 Ivo Welch, “Corporate Finance: An
Introduction,” Prentice-Hall, 2008, available
at:
<http://welch.econ.brown.edu/oped/finsyste
m.html>.
Freddie Mac provide no explicit guarantee
of their debt obligations. Nonetheless,
investors throughout the world assumed that
because the entities are so intertwined with
the U.S. government and so central to U.S.
housing policy, the federal government
would never to allow Fannie or Freddie to
default on its debt. Because they were
considered quasi-governmental, Fannie and
Freddie enjoyed the highest-graded rating
(Triple-A) from independent ratings firms,
despite holding little capital in reserve as
against the scale of their outstanding
loans.149
In 1992, Congress passed and President
George H.W. Bush signed into law the
Federal Housing Enterprises Financial
Safety and Soundness Act. This law established
“risk-based and minimum capital
standards”150 for the two GSEs and also
established the Office of Federal Housing
Enterprise Oversight (OFHEO) to oversee
and regulate the activities of Fannie and
Freddie. OFHEO, however, had limited
authority. The legislation also required
Fannie and Freddie to devote a minimum
percentage of their lending to support affordable
housing.
149 Ivo Welch, “Corporate Finance: An
Introduction,” Prentice-Hall, 2008, available
at:
<http://welch.econ.brown.edu/oped/finsyste
m.html>.
150 “About Fannie Mae: Our Charter,” Fannie
Mae website, October 29, 2008, available at:
<http://www.fanniemae.com/aboutfm/charte
r.jhtml>.
82 SOLD OUT
In 1999, Fannie Mae softened the standards
it required of loans that it purchased.
The move came in response to pressure from
the banking and thrift
industries, which wanted to
extend subprime lending
(and wanted Fannie Mae to
agree to purchase subprime
loans), and from federal
officials who wanted Fannie
and Freddie to buy more
private industry mortgages
made to low and moderateincome
families.151
As the housing bubble
inflated starting in 2001,
banks and especially non-bank lenders made
an increasing number of subprime loans,
peaking in the years 2004-2006. Fannie and
Freddie were major players in the “secondary
market,” buying up bundles of subprime
loans that were traded on Wall Street.
They purchased 44 percent of subprime
securities on the secondary market in 2004,
33 percent in 2005 and 20 percent in
2006.152
151 Steven A. Holmes, “Fannie Mae Eases Credit
to Aid Mortgage Lending,” New York
Times, September 30, 1999, available at:
<http://query.nytimes.com/gst/fullpage.html
?res=9c0de7db153ef933a0575ac0a96f95826
0&sec=&spon=&pagewanted=all>.
152 Carol D. Leonnig, “How HUD Mortgage
Policy Fed the Crisis,” Washington Post,
June 10, 2008, available at:
<http://www.washingtonpost.com/wpdyn/
content/article/2008/06/09/AR20080609
02626_pf.html>.
But Fannie and Freddie were not buying
subprime mortgages directly in significant
quantities, in part because the most
predatory subprime loans
did not meet their lending
standards. The two firms
purchased just 3 percent
of all subprime loans
issued from 2004 through
2007, most of that in 2007
alone.153 Subprime loans
represented 2 percent of
Fannie Mae’s singlefamily
mortgage credit
book of business at the
end of 2006, and 3 percent
at the end of 2005.154
Fannie and Freddie’s large-scale purchases
of subprime mortgage-back securities
on the secondary market may have facilitated
greater subprime lending than otherwise
would have occurred, but to a considerable
extent the companies were victims
rather than perpetrators of the subprime
crisis. That is, they were not driving the
market, so much as getting stuck with bad
products already placed on the market.
153 Ronald Campbell, “Most Subprime Lenders
Weren’t Subject to Federal Lending Law,”
Orange County Register, November 16,
2008, available at:
<http://www.ocregister.com/articles/loanssubprime-
banks-2228728-law-lenders>.
154 Fannie Mae form 10-K, for the fiscal year
ending December 31, 2006, pF-78.
Fannie and Freddie’s largescale
purchases of subprime
mortgage-back securities on
the secondary market may
have facilitated greater
subprime lending than
otherwise would have
occurred.
SOLD OUT 83
The two companies also trailed the
market, entering into the subprime arena
because they felt at a competitive disadvantage
as against other
housing market players.
Internal Fannie memos
obtained by the House
Oversight Committee
show the company was
very concerned that it was
rapidly losing market
share to Wall Street
securitizers. “Our pricing
is uncompetitive. According
to our models, market
participants today are not
pricing legitimately for
risks,” noted a top-level memo.155 The same
memo noted the risks of pursuing more
aggressive strategies — noting that Fannie
had a “lack of knowledge of the credit
risks”156 — and urged that the company
“stay the course.” Numerous other internal
sources echoed this recommendation.157 Yet
155 “Single Family Guaranty Business: Facing
Strategic Crossroads,” June 27, 2005, p. 18,
available at:
<http://oversight.house.gov/documents/2008
1209103003.pdf>.
156 “Single Family Guaranty Business: Facing
Strategic Crossroads,” June 27, 2205, p. 9,
available at:
<http://oversight.house.gov/documents/2008
1209103003.pdf>.
157 See Opening Statement of Rep. Henry A.
Waxman, Committee on Oversight and
Government Reform, “The Role of Fannie
Mae and Freddie Mac in the Financial Crisis,”
December 9, 2008, available at:
Fannie increased its direct investment in
riskier loans despite these cautionary warnings
— and even as the housing bubble was
coming to an end.
Today, Freddie and
Fannie own or guarantee
more than $5 trillion in
mortgages158 and regularly
issue MBSs. Fannie itself is
the largest issuer and guarantor
of MBSs. Both agencies
were purchasing risky
subprime loans on the
secondary market from
2004 to 2007, but they were
not required to report mortgage
losses on the balance
sheet. As a result, both investors and regulators
were unaware of the extent of their
growing mortgage problems. The companies’
significant investments in the riskiest
elements of the market would bring their
demise in Fall 2008, when the federal government
placed them in conservatorship to
prevent them from collapsing altogether.159
The federal government has infused
<http://oversight.house.gov/story.asp?ID=22
52>.
158 “Freddie Mac lobbied against regulation bill,”
Associated Press, October 19, 2008, available
at:
<http://www.msnbc.msn.com/id/27266607/
>.
159 See statement by Treasury Secretary Henry
Paulson, September 7, 2008, and related materials,
available at:
<http://www.ustreas.gov/press/releases/hp11
29.htm>.
Perceived as quasigovernmental
agencies,
Fannie and Freddie were in
fact subjected to government
regulation — but the
regulators’ hands were tied
by a Congress heavily
lobbied by Fannie and
Freddie.
84 SOLD OUT
$200 billion into Fannie and Freddie, and
more will follow. Even if Fannie and
Freddie did not create the financial crisis,
their reckless decisions are now forcing a
mammoth drain of taxpayer resources.
Perceived as quasi-governmental agencies,
Fannie and Freddie were in fact subjected
to government regulation — but the
regulators’ hands were tied by a Congress
lobbied by Fannie and Freddie. The companies
lobbied heavily to avoid requirements
for larger capital reserves, stronger government
oversight, or to limit their acquisition
of packages of risky loans. In general,
Democrats were far more protective of
Fannie and Freddie than Republicans, many
of whom were hostile to the GSEs’ government
ties. Many Democrats sought to protect
Fannie and Freddie from stringent
regulatory oversight and capital reserve
requirements, but Republicans were heavily
lobbied as well.
In 2005, for example, Freddie Mac paid
$2 million to Republican lobbying firm DCI
Inc. to defeat legislation sponsored by
Senator Chuck Hagel, R-Nebraska, that
would have imposed tougher regulations on
Freddie’s loan repurchase activities.160 The
legislation languished in the Senate Banking,
Housing and Urban Affairs Committee
160 “Freddie Mac Lobbied Against Regulation
Bill,” Associated Press, October 19, 2008,
available at:
<http://www.msnbc.msn.com/id/27266607/
>.
with all Republican committee members
supporting it and all Democratic members
opposed. Hagel and 25 other Republican
senators pleaded unsuccessfully with Senate
Majority Leader Bill Frist, R-Tennessee, to
allow a vote on the bill.
“If effective regulatory reform legislation
... is not enacted this year, American
taxpayers will continue to be exposed to the
enormous risk that Fannie Mae and Freddie
Mac pose to the housing market, the overall
financial system and the economy as a
whole,” the senators wrote in a letter.161
The Associated Press reported, “In the
end, there was not enough Republican
support for Hagel’s bill to warrant bringing
it up for a vote because Democrats also
opposed it and the votes of some would be
needed for passage.”162 The former chair of
the House Financial Services Committee,
Michael Oxley, R-Ohio, complained that
efforts to regulate Fannie and Freddie were
blocked by the Bush administration, the
Treasury Department and the Federal Reserve.
“What did we get from the White
House? We got a one-finger salute,” Oxley
161 “Freddie Mac Lobbied Against Regulation
Bill,” Associated Press, October 19, 2008,
available at:
<http://www.msnbc.msn.com/id/27266607/
>.
162 “Freddie Mac Lobbied Against Regulation
Bill,” Associated Press, October 19, 2008,
available at:
<http://www.msnbc.msn.com/id/27266607/
>.
SOLD OUT 85
would recall in 2008.163
Democrats believed in Fannie and
Freddie as ways to expand credit to low- and
middle-income communities, but they were
also responsive to massive lobbying efforts.
From 1998 to 2008, Fannie Mae spent
$80.53 million on federally registered
lobbyists. During the same period, Freddie
Mac spent $96.16 million on lobbyists.164
  
163 Greg Farrell, “Oxley Hits Back at Ideologues,”
Financial Times, September 9,
2008.
<http://thinkprogress.org/2008/09/15/barney
-frank-mccain-reform/>.
164 Totals compiled from annual data available
from the Center for Responsive Politics,
<www.opensecrets.org>.
86 SOLD OUT
Community Reinvestment Act: Not Guilty
Congress passed and President Jimmy
Carter signed the Community Reinvestment
Act (CRA) into law in 1977. The purpose of
this law was to encourage banks to increase
their very limited lending in low- and moderate-
income and minority neighborhoods
and more generally to low- and moderateincome
and minority borrowers.165
Congress passed this law in large part because
too many lenders were discriminating
against minority and low- and moderateincome
neighborhoods. “Redlining” was the
name given to the practice by banks of literally
drawing a red line around minority areas and
then proceeding to deny loans to people within
the red border even if they were otherwise
qualified. The CRA has been in place for 30
years, but some corporate-backed and libertarian
think tanks and policy groups, as well as
some Republican members of Congress, now
claim CRA is responsible for the current
financial disaster. Nothing in the CRA requires
banks to make risky loans.166
Leading regulators agree that CRA was
not responsible for predatory lending, let
165 Federal Financial Institutions Examination
Council website, “Community Reinvestment
Act: Background & Purpose,” Undated,
available at:
<http://www.ffiec.gov/cra/history.htm>.
166 Federal Reserve Board website, “Community
Reinvestment Act,” Undated, available at:
<http://www.federalreserve.gov/dcca/cra/>.
alone the broader financial crisis.
John Dugan, Comptroller of the Currency
said, “CRA is not the culprit behind the subprime
mortgage lending abuses, or the broader
credit quality issues in the marketplace.”167
Federal Reserve Board Governor Randall
S. Kroszner said he has not seen any evidence
that “CRA has contributed to the erosion of
safe and sound lending practices.”168
FDIC Chairman Sheila Bair said, “I
think we can agree that a complex interplay
of risky behaviors by lenders, borrowers,
and investors led to the current financial
storm. To be sure, there’s plenty of blame to
go around. However, I want to give you my
verdict on CRA: NOT guilty.”169
Most predatory loans were issued by
non-bank lenders that were not subject to
CRA requirements.
167 Reuters, “U.S. financial system in better
shape-OCC’s Dugan,” November 19, 2008,
available at:
<http://www.reuters.com/article/regulatoryN
ewsFinancialServicesAndRealEstate/
idUSN1946588420081119>.
168 Remarks of Randall S. Kroszner, Governor of
the Board of Governors of the Federal Reserve
System, “Confronting Concentrated
Poverty Policy Forum,” December 3, 2008,
available at:
<http://www.federalreserve.gov/newsevents/s
peech/kroszner20081203a.htm>.
169 Remarks by Sheila Bair, Chairperson of the
FDIC, Before the New America Foundation,
December 17, 2008, available at:
<http://www.fdic.gov/news/news/speeches/ar
chives/2008/chairman/spdec1708.html>.
SOLD OUT 87
MERGER MANIA
Merger mania in the financial industry has
been all the rage for more than 25 years.
“Bigger is indeed better,” proclaimed the
CEO of Bank of America in announcing its
merger with NationsBank in 1998.170
In the United States, about 11,500 bank
mergers took place from 1980 through 2005,
170 Dean Foust, “BofA: A Megabank in the
Making,” BusinessWeek, September 13,
1999, available at:
<http://www.businessweek.com/archives/19
99/b3646163.arc.htm>.
an average of about 440 mergers per year.171
The size of the mergers has increased to
phenomenal levels in recent years: In 2003,
Bank of America became a $1.4 trillion
financial behemoth after it bought FleetBoston,
making it the second-largest U.S. bank
holding company in terms of assets.172 In
2004, JPMorgan Chase agreed to buy Bank
One, creating a $1.1 trillion bank holding
company.173
From 1975 to 1985, the number of
commercial banks was relatively stable at
about 14,000. By 2005 that number stood at
7,500, a nearly 50 percent decline.174
171 Loretta J. Mester, Senior Vice President and
Director of Research at the Federal Reserve
Bank of Philadelphia, “Some Thoughts on
the Evolution of the Banking System and the
Process of Financial Intermediation,” Economic
Review, First & Second Quarters,
2007, available at:
<http://www.frbatlanta.org/filelegacydocs/er
q107_Mester.pdf >.
172 Loretta J. Mester, Senior Vice President and
Director of Research at the Federal Reserve
Bank of Philadelphia, “Some Thoughts on
the Evolution of the Banking System and the
Process of Financial Intermediation,” Economic
Review, First & Second Quarters,
2007, available at:
<http://www.frbatlanta.org/filelegacydocs/er
q107_Mester.pdf >.
173 Loretta J. Mester, Senior Vice President and
Director of Research at the Federal Reserve
Bank of Philadelphia, “Some Thoughts on
the Evolution of the Banking System and the
Process of Financial Intermediation,” Economic
Review, First & Second Quarters,
2007, available at:
<http://www.frbatlanta.org/filelegacydocs/er
q107_Mester.pdf >.
174 Loretta J. Mester, Senior Vice President and
Director of Research at the Federal Reserve
Bank of Philadelphia, “Some Thoughts on
the Evolution of the Banking System and the
Process of Financial Intermediation,” Eco-
11
IN THIS SECTION:
The effective abandonment of antitrust and
related regulatory principles over the last
two decades has enabled a remarkable
concentration in the banking sector, even in
advance of recent moves to combine firms as
a means to preserve the functioning of the
financial system. The megabanks achieved
too-big-to-fail status. While this should have
meant they be treated as public utilities
requiring heightened regulation and risk
control, other deregulatory maneuvers
(including repeal of Glass-Steagall) enabled
these gigantic institutions to benefit from
explicit and implicit federal guarantees, even
as they pursued reckless high-risk investments.
88 SOLD OUT
By mid-2008 — before a rash of mergers
consummated amidst the financial crash
— the top 5 banks held more than half the
assets controlled by the top 150.175
Regulators rarely challenged bank
mergers and acquisitions as stock prices
skyrocketed and the financial party on Wall
Street drowned out the critics. But many
argued that “bigger is not better” because it
raised the specter that any one individual
bank could become “too big to fail” (TBTF)
or at least “too big to discipline adequately”
by regulators. The current financial crisis
has confirmed these fears.
In the modern era, “TBTF” reared its
head in 1984, when the federal government
contributed $1 billion to save Continental
Illinois Bank from default. As the seventh
largest bank in the United States, Continental
held large amounts of deposits from
hundreds of smaller banks throughout the
Midwest. The failure of such a large institution
could have forced many smaller banks
into default. As a result, the U.S. Comptroller
of the Currency orchestrated an unprecedented
rescue of the bank, including its
shareholders. During congressional hearings
on the matter, Representative Stewart B.
McKinney, R-Connecticut, pointedly observed,
“We have a new kind of bank. It is
nomic Review, First & Second Quarters,
2007, available at:
<http://www.frbatlanta.org/filelegacydocs/er
q107_Mester.pdf >.
175 Based on data from American Banker.
called too big to fail, TBTF, and it is a
wonderful bank.”176 The Comptroller of the
Currency agreed that the eleven largest U.S.
banks were “too big to fail,” implying they
would be rescued regardless of how much
risk they took on.
Seven years later, U.S. banking law
recognized TBTF with passage of the Federal
Deposit Insurance Corporation Improvement
Act of 1991 (FDICIA). The Act
authorizes federal regulators to rescue
uninsured depositors in large failing banks if
such action is needed to prevent “serious
adverse effects on economic conditions or
financial stability.” FDICIA effectively
implies that any bank whose failure poses a
serious risk to the stability of the U.S.
banking system (i.e. “systemic risk”) is
exempt from going bankrupt and thus qualifies
for a taxpayer-financed rescue. It constitutes
a significant exception to the FDICIA’s
general rule prohibiting the rescue of uninsured
depositors.
The FDICIA also acts as an implicit insurance
program for large financial institutions
and an incentive for banks to gain
TBTF status by growing larger through
merger and acquisition. In 1999, economists
within the Federal Reserve System warned
that “some institutions may try to increase
the value of their access to the government’s
financial safety net (including deposit insur-
176 Hearings before the Subcommittee on Financial
Institutions, 1984.
SOLD OUT 89
ance, discount window access, payments
system guarantees) through consolidation. If
financial market participants perceive very
large organizations to be ‘too big to fail’ —
i.e., that explicit or implicit government
guarantees will protect debtholders or shareholders
of these organizations — there may
be incentives to increase size through consolidation....”
177
International comparisons over a 100-
year period show that changes in the structure
and strength of safety net guarantees
may incentivize additional financial institution
risk-taking, and by extension, the
motive to consolidate to increase the value
of access to the safety net.178
Studies have shown that compared to
smaller banks, large banks take on greater
risk in the form of lower capital ratios (i.e.
177 Allen N. Berger, Board of Governors of the
Federal Reserve System, and Rebecca S.
Demsetz and Philip E. Strahan of the Federal
Reserve Bank of New York, “The Consolidation
of the Financial Services Industry:
Causes, Consequences, and Implications for
the Future,” J. Banking & Finance, Vol. 23,
1999, available at:
<http://www.federalreserve.gov/pubs/feds/1
998/199846/199846pap.pdf>.
178 Allen N. Berger, Board of Governors of the
Federal Reserve System, and Rebecca S.
Demsetz and Philip E. Strahan of the Federal
Reserve Bank of New York, “The Consolidation
of the Financial Services Industry:
Causes, Consequences, and Implications for
the Future,” J. Banking & Finance, Vol. 23,
1999, available at:
<http://www.federalreserve.gov/pubs/feds/1
998/199846/199846pap.pdf> (citing A.
Saunders and B.K. Wilson, “Bank capital
and bank structure: A comparative analysis
of the U.S., U.K., and Canada,” J. Banking
& Finance, 1999).
increased leverage),179 more investments in
derivatives,180 higher percentages of uninsured
deposits, lower levels of core deposits,
181 higher percentages of loans,182 and
lower levels of cash and marketable securities.
TBTF policy effectively operates as a
government subsidy — and worse, an incentive
— for this kind of risk-taking, thereby
increasing the vulnerability of the entire
banking system and the likelihood of massive
taxpayer-funded bailouts. Federal
Reserve economists found that the banking
crisis of the late 1980s occurred because
“large banks adopted a riskier stance, be-
179 Rebecca S. Demsetz and Philip E. Strahan,
Federal Reserve Bank of New York, Research
Paper 9506, April 1995, available at:
<http://www.newyorkfed.org/research/staff_
reports/research_papers/9506.pdf>. See also
Arnold Danielson, “Getting Ready for the
21st Century: A Look at Recent Banking
Trends,” Banking Pol'y Rep., March 15,
1999. (Banks larger than $50 billion had an
average capital ratio of seven percent while
banks between $100 million to $2 billion in
size had an average capital ratio of just over
nine percent).
180 Rebecca S. Demsetz and Philip E. Strahan,
Federal Reserve Bank of New York, Research
Paper 9506, April 1995, available at:
<http://www.newyorkfed.org/research/staff_
reports/research_papers/9506.pdf>.
181 Ron J. Feldman and Jason Schmidt, Federal
Reserve Bank of Minneapolis, “Increased
use of uninsured deposits: Implications for
market discipline,” March 2001. Available
at:
<http://www.minneapolisfed.org/publication
s_papers/pub_display.cfm?id=2178>.
182 Ron J. Feldman and Jason Schmidt, Federal
Reserve Bank of Minneapolis, “Increased
use of uninsured deposits: Implications for
market discipline,” March 2001. Available
at:
<http://www.minneapolisfed.org/publication
s_papers/pub_display.cfm?id=2178>.
90 SOLD OUT
yond what could sensibly be explained by
scale economies.”183
Supporters of bank consolidation argue
that bigger banks create greater efficiencies
because of their larger economies of scale.
But several studies have shown that large
bank mergers during the 1980s and 1990s
failed to improve overall efficiency or
profitability.184 Indeed, most studies found
that post-merger cost increases and revenue
losses offset any savings that the resulting
banks accrued from cutting staff or closing
branches.185
183 John H. Boyd and Mark Gertler, “The Role of
Large Banks in the Recent U.S. Banking
Crisis,” 18 Fed. Res. Bank of Minneapolis
Q. Rev. 1, Winter 1994, available at:
<http://www.minneapolisfed.org/research/Q
R/QR1811.pdf>.
184 Allen N. Berger and David B. Humphrey,
“The Dominance of Inefficiencies Over
Scale and Product Mix Economies in Banking,”
J. Monetary Econ., 117-48, August 28,
1991; Allen N. Berger & David B. Humphrey,
“Megamergers in Banking and the
Use of Cost Efficiency as an Antitrust Defense,”
37 Antitrust Bull. 541, 554-65
(1992); Simon Kwan & Robert A. Eisenbeis,
“Mergers of Publicly Traded Banking Organizations
Revisited,” Fed. Res. Bank of
Atlanta, Econ. Rev., 4th Qtr. 1999; Jane C.
Linder & Dwight B. Crane, “Bank Mergers:
Integration and Profitability,” 7 J. Fin.
Servs. Res. 35, 40-52 (1992); Stavros Peristiani,
“Do Mergers Improve the XEfficiency
and Scale Efficiency of U.S.
Banks? Evidence from the 1980s,” 29 J.
Money, Credit & Banking 326, 329-33, 336-
37 (1997); Steven J. Pilloff, “Performance
Changes and Shareholder Wealth Creation
Associated with Mergers of Publicly Traded
Banking Institutions,” 28 J. Money, Credit
& Banking 294, 297-98, 301, 308-09 (1996).
185 Arthur E. Wilmarth, Jr., “The Transformation
of the U.S. Financial Services Industry,
1975-2000: Competition, Consolidation and
Evidence indicates executive compensation
plays a central role in the quest for
larger banks. This “empire-building,” as
Federal Reserve economists put it, occurs
because compensation tends to increase with
firm size, “so managers may hope to achieve
personal financial gains by engaging in
[mergers and acquisitions].”186 George
Washington University banking law professor
Arthur E. Wilmarth, Jr. agrees. “Not
surprisingly,” he said, “studies have shown
that managerial self-interest plays a major
role in determining the frequency of mergers
among both corporations and banks.”187
In words that appear prescient today,
Professor Wilmarth aptly observed in 2002
that “the quest by big banks for TBTF status
— like their pursuit of market power —
should be viewed as a dangerous flight from
discipline that will likely produce inefficient
growth and greater risk.” Reliance on finan-
Increased Risks” 2002 U. Ill. L. Rev. 2 215
(2002), available at:
<http://papers.ssrn.com/sol3/papers.cfm?abs
tract_id=315345>.
186 Allen N. Berger, Board of Governors of the
Federal Reserve System, and Rebecca S.
Demsetz and Philip E. Strahan of the Federal
Reserve Bank of New York, “The Consolidation
of the Financial Services Industry:
Causes, Consequences, and Implications for
the Future,” Journal of Banking and Finance,
Vol. 23, 1999, available at:
<http://www.federalreserve.gov/pubs/feds/1
998/199846/199846pap.pdf>.
187 Arthur E. Wilmarth, Jr., “The Transformation
of the U.S. Financial Services Industry,
1975-2000: Competition, Consolidation and
Increased Risks” 2002 U. Ill. L. Rev. 2 215
(2002), available at:
<http://papers.ssrn.com/sol3/papers.cfm?abs
tract_id=315345>.
SOLD OUT 91
cial derivatives, for example, is extremely
concentrated among the largest commercial
banks (the five largest commercial banks
own 97 percent of the
total amount of notional
derivatives), and limited
almost entirely to the
biggest 25.188 All of these
banks are of a size — and
most the product of
mergers — that regulators
and antitrust enforcers
would not have tolerated a
quarter century ago.
Taxpayers are now
footing the bill for the
financial industry’s investment
in risky, overleveraged
and poorly understood financial
schemes. By the end of 2008, the federal
government pledged $8.5 trillion in economic
assistance for financial institutions,189
primarily large commercial banks, that the
federal government says were TBTF. 190
188 Comptroller of the Currency, “OCC's Quarterly
Report on Bank Trading and Derivatives
Activities, Second Quarter 2008,”
available at:
<http://www.occ.treas.gov/ftp/release/2008-
115a.pdf>.
189 Kathleen Pender, “Government bailout hits
$8.5 trillion,” San Francisco Chronicle, November
26, 2008, available at:
<http://www.sfgate.com/cgibin/
article.cgi?file=/c/a/2008/11/26/MNVN1
4C8QR.DTL>.
190 U.S. Department of the Treasury, Troubled
Asset Relief Program Transaction Report,
December 9, 2008, available at:
Although the early consolidation of
banks, including related to the authorization
of interstate banking, had some support
among public interest
advocates as a means to
create competition in very
localized markets,191 the
intensive consolidation of
the last 25 years goes far
beyond whatever might
have been needed to enhance
competition. Yet
regulators averted their eyes
from the well-known risks
of banking consolidation.192
As banking regulators
fell under the spell of
industry lobbyists and
propagandists who alleged that bigger banks
would be more efficient, so too did antitrust
enforcement agencies fail to act to slow
banking consolidation.
As with the erosion of effective banking
regulation, the corrosion of antitrust
enforcement traces back more than three
<http://www.treasury.gov/initiatives/eesa/tra
nsactions.shtml>.
191 See “The Centralization of Financial Power:
Unintended Consequences of Government-
Assisted Bank Mergers, “An Interview with
Bert Foer,” Multinational Monitor, November/
December 2008, available at:
<www.multinationalmonitor.org/mm2008/1
12008/interview-foer.html>.
192 Jake Lewis, “The Making of the Banking
Behemoths,” Multinational Monitor, June
1996, available at:
<http://www.multinationalmonitor.org/hype
r/mm0696.04.html>.
As banking regulators fell
under the spell of industry
lobbyists and propagandists
who alleged that bigger
banks would be more
efficient, so too did antitrust
enforcement agencies
fail to act to slow banking
consolidation.
92 SOLD OUT
decades, the victim of industry lobbies and
laissez-faire ideology. In the case of antitrust,
a conservative, corporate-backed
campaign began in the 1970s to overturn
many common-sense insights on the costs of
mergers. The “law-and-economics” movement
came to dominate law schools, scholarly
writing and, eventually, the thinking of
the federal judiciary. Its principles became
the guiding doctrine for the Reagan-Bush
Justice Department and Federal Trade
Commission, the two U.S. agencies charged
with enforcing the nation's antitrust laws.
Based on a theoretical understanding of
market efficiency, law-and-economics holds
that many outlawed or undesirable anticompetitive
practices are irrational, and therefore
should never occur, or are possible only in
extreme and unlikely situations.
Antitrust enforcers operating under
these premises confined themselves to
addressing extreme abuses, like overt pricefixing
and hard-core cartels. Although the
Clinton administration moved away from a
hard-line law-and-economics approach, it
watched over a period of industry consolidation
that had seen no parallel since the
merger wave at the start of the 20th century.
193
The great banking mergers of the last
193 See Walter Adams and James Brock, “The
Bigness Complex: Industry, Labor, and
Government in the American Economy,”
Palo Alto: Stanford Economics and Finance,
2004.
quarter century were generally permitted
with little quarrel from the Department of
Justice, which typically mandated only the
sell-off of a few overlapping banking
branches.194
  
194 See James Brock, “Merger Mania and Its
Discontents: The Price of Corporate Consolidation,”
Multinational Monitor,
July/August 2005, available at:
<http://www.multinationalmonitor.org/mm2
005/072005/brock.html>. (In a brief review
of mergers through 2005, Brock writes,
“Banking and finance has witnessed the
same scene of cumulative consolidation:
Through two decades of ever-larger acquisitions,
NationsBank became one of the country’s
largest commercial banking concerns,
absorbing C&S/Sovran (itself a merged entity),
Boatmen’s Bancshares ($9.7 billion
deal), BankSouth and Barnett Bank ($14.8
billion acquisition). Then, in 1998, Nations-
Bank struck a spectacular $60 billion merger
with the huge Bank of America, which itself
had been busily acquiring other major
banks. The merger between NationsBank
and B of A created a financial colossus controlling
nearly $600 billion in assets, with
5,000 branch offices and nearly 15,000
ATMs. Bank of America then proceeded to
acquire Fleet Boston — which had just
completed its own multi-billion dollar acquisitions
of Bank Boston, Bay Bank, Fleet
Financial, Shawmut, Summit Bancorp and
NatWest. Giants Banc One and First Chicago
NBD — their size the product of numerous
serial acquisitions — merged, and
the combined entity was subsequently absorbed
by J.P. Morgan which, in turn, had
just acquired Chase, after the latter had
merged with Manufacturers Hanover and
Chemical Bank in the financial business of
underwriting stocks and bonds. Other megamergers
include the $73 billion combination
of Citicorp and Travelers Group in 1998, as
well as the acquisition of leading brokerage
firms by big banks, including Morgan
Stanley’s ill-fated acquisition of Dean Witter.”)
SOLD OUT 93
RAMPANT CONFLICTS OF
INTEREST: CREDIT
RATINGS FIRMS’ FAILURE
The stability and safety of mortgage-related
assets are ostensibly monitored by private
credit rating companies — overwhelmingly
the three top firms, Moody’s Investors
Service, Standard & Poor’s and Fitch Ratings
Ltd.195 Each is supposed to issue independent,
objective analysis on the financial
soundness of mortgages and other debt
traded on Wall Street. Millions of investors
rely on the analyses in deciding whether to
buy debt instruments like mortgage-backed
securities (MBSs). As home prices skyrocketed
from 2004 to 2007, each agency issued
the highest quality ratings on billions of
dollars in what is now unambiguously
recognized as low-quality debt, including
subprime-related mortgage-backed securities.
196 As a result, millions of investors lost
billions of dollars after purchasing (directly
or through investment funds) highly rated
MBSs that were, in reality, low quality, high
risk and prone to default.
The phenomenal losses had many wondering
how the credit rating firms could
have gotten it so wrong. The answer lies in
the cozy relationship between the rating
companies and the financial institutions
whose mortgage assets they rate. Specifi-
195 Often labeled “credit ratings agencies,” these
are private, for-profit corporations.
196 Edmund L. Andrews, “U.S. Treasury Secretary
Calls for Stronger Regulation on Housing
Finance,” International Herald Tribune,
March 13, 2008, available at:
<http://www.iht.com/articles/2008/03/13/bu
siness/credit.php>.
12
IN THIS SECTION:
Credit ratings are a key link in the financial
crisis story. With Wall Street combining
mortgage loans into pools of securitized
assets and then slicing them up into tranches,
the resultant financial instruments were
attractive to many buyers because they
promised high returns. But pension funds
and other investors could only enter the
game if the securities were highly rated.
The credit rating firms enabled these
investors to enter the game, by attaching
high ratings to securities that actually were
high risk — as subsequent events have
revealed. The credit ratings firms have a bias
to offering favorable ratings to new instruments
because of their complex relationships
with issuers, and their desire to maintain and
obtain other business dealings with issuers.
This institutional failure and conflict of
interest might and should have been forestalled
by the SEC, but the Credit Rating
Agencies Reform Act of 2006 gave the SEC
insufficient oversight authority. In fact, the
SEC must give an approval rating to credit
ratings agencies if they are adhering to their
own standards — even if the SEC knows
those standards to be flawed.
94 SOLD OUT
cally, financial institutions that issue mortgage
and other debt had been paying the
three firms for credit ratings. In effect, the
“referees” were being paid by the “players.”
One rating analyst observed, “This egregious
conflict of interest may be the single
greatest cause of the present global economic
crisis ... . With enormous fees at
stake, it is not hard to see how these [credit
rating] companies may have been induced,
at the very least, to gloss over the possibilities
of default or, at the worst, knowingly
provide inflated ratings.”197 A Moody’s
employee stated in a private company e-mail
that “we had blinders on and never questioned
the information we were given [by
the institutions Moody was rating].”
The CEO of Moody’s reported in a
confidential presentation that his company is
“continually ‘pitched’ by bankers” for the
purpose of receiving high credit ratings and
that sometimes “we ‘drink the kool-aid.’”198
A former managing director of credit policy
at Moody’s testified before Congress that,
197 Testimony of Sean J. Eagan, before the
Committee on Oversight and Government
Reform, U.S. House of Representatives, October
22, 2008, available at:
<http://oversight.house.gov/documents/2008
1022102906.pdf>.
198 Opening Statement of Rep. Henry Waxman,
Chairman, Committee on Oversight and
Government Reform, U.S. House of Representatives,
October 22, 2008, available at:
<http://oversight.house.gov/documents/2008
1022102221.pdf> (quoting a confidential
presentation made by Moody’s CEO Ray
McDaniel to the board of directors in October
2007).
“Originators of structured securities [e.g.
banks] typically chose the agency with the
lowest standards,”199 allowing banks to
engage in “rating shopping” until a desired
credit rating was achieved. The agencies
made millions on MBS ratings and, as one
Member of Congress said, “sold their independence
to the highest bidder.”200 Banks
paid large sums to the ratings companies for
advice on how to achieve the maximum,
highest quality rating. “Let’s hope we are all
wealthy and retired by the time this house of
cards falters,” a Standard & Poor’s employee
candidly revealed in an internal email
obtained by congressional investigators.
201
Other evidence shows that the firms adjusted
ratings out of fear of losing customers.
For example, an internal e-mail between
senior business managers at one of the three
ratings companies calls for a “meeting” to
199Testimony of Jerome S. Fons, Former Managing
Director of Credit Policy, Moody’s, Before
the Committee on Oversight and Government
Reform, U.S. House of Representatives,
October 22, 2008, available at:
<http://oversight.house.gov/documents/2008
1022102726.pdf>.
200 Rep. Christopher Shays, Before the Committee
on Oversight and Government Reform,
U.S. House of Representatives, October 22,
2008, available at:
<http://oversight.house.gov/documents/2008
1023162631.pdf>.
201 Opening Statement of Rep. Henry Waxman,
Chairman, Committee on Oversight and
Government Reform, U.S. House of Representatives,
October 22, 2008, available at:
<http://oversight.house.gov/documents/2008
1022102221.pdf> (quoting a confidential email
from an S&P employee).
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“discuss adjusting criteria for rating CDOs
[collateralized debt obligations] of real
estate assets this week because of the ongoing
threat of losing
deals.”202 In another e-mail,
following a discussion of a
competitor’s share of the
ratings market, an employee
of the same firm states that
aspects of the firm’s ratings
methodology would have to
be revisited in order to
recapture market share from
the competing firm.203
The credit rating business
was spectacularly
profitable, as the firms
increasingly focused in the
first part of this decade on structured finance
and new complex debt products, particularly
credit derivatives (complicated instruments
providing a kind of insurance on mortgages
and other loans). Moody’s had the highest
profit margin of any company in the S&P
500 for five years in a row.204 Its ratings on
202 “Summary Report of Issues Identified in the
Commission Staff’s Examinations of Select
Credit Rating Agencies,” Securities and Exchange
Commission, July 2008, available at:
<http://www.sec.gov/news/studies/2008/cra
examination070808.pdf>.
203 “Summary Report of Issues Identified in the
Commission Staff’s Examinations of Select
Credit Rating Agencies,” Securities and Exchange
Commission, July 2008, available at:
<http://www.sec.gov/news/studies/2008/cra
examination070808.pdf>.
204Opening Statement of Rep. Henry A. Wax-
MBSs and CDOs — heavily weighted with
toxic subprime mortgages — contributed to
more than half of the company’s ratings
revenue by 2006.205
Although the ratings
firms are for-profit companies,
they perform a
quasi-public function.
Their failure alone could
be considered a regulatory
failure. But the credit
rating failure has a much
more direct public connection.
Government
agencies explicitly relied
on private credit rating
firms to regulate all kinds
of public and private
activities. And, following the failure of the
credit ratings firms in the Enron and related
scandals, Congress passed legislation giving
the SEC regulatory power, of a sort, over the
firms. However, the 2006 legislation prohibited
the SEC from actually regulating the
credit ratings process.
The Securities and Exchange Commission
was the first government agency to
man, Before the Committee on Oversight
and Government Reform, October 22, 2008,
available at:
<http://oversight.house.gov/documents/2008
1022102221.pdf>.
205 Rep. Jackie Speier, Before the Committee on
Oversight and Government Reform, U.S.
House of Representatives, October 22, 2008,
available at:
<http://oversight.house.gov/documents/2008
1023162631.pdf>.
“With enormous fees at
stake, it is not hard to see
how these [credit rating]
companies may have been
induced, at the very least, to
gloss over the possibilities
of default or, at the worst,
knowingly provide inflated
ratings.”
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incorporate credit rating requirements
directly into its regulations. In response to
the credit crisis of the early 1970s, the SEC
promulgated Rule 15c3-1 (the net capital
rule) which formally approved the use of
credit rating firms as National Recognized
Statistical Ratings Organizations
(NRSROs).206 Rule 15c3-1 requires investment
banks to set aside certain amounts of
capital whenever they purchase a bond from
a corporation or government. By requiring
“capital set asides,” a financial “cushion” is
created on which investment banks can fall
in the event of bond default. The amount of
capital required to be set aside depends on
the risk assessment of each bond by the
credit rating firms. Purchasing bonds that
have a high risk of default, as determined by
one of the credit rating companies, requires
a larger capital set asides than bonds that are
assessed to present a low risk of default. The
“risk” or probability of default is determined
for each bond by a credit rating company
hired by the issuer of the bond.
Since the SEC’s adoption of the net
capital rule, credit ratings have been incorporated
into hundreds of government regulations
in areas including securities, pensions,
banking, real estate, and insurance.
For example, Moody’s Investor Service
206 Arthur R. Pinto, “Section III: Commercial and
Labor Law: Control and Responsibility of
Credit Rating Agencies in the United
States,” American Journal of Comparative
Law, 54 Am. J. Comp. L. 341, Supplement,
Fall 2006.
gives a rank of “C” for the lowest rated (i.e.
high risk) bonds and a rank of “Aaa” —
“triple A” — for bonds that are low risk and
earn its highest rating. Examples of highly
rated bonds include those issued by wellcapitalized
corporations, while bonds issued
by corporations with a history of financial
problems earn a low rating.
If a bank begins experiencing financial
problems, Moody’s may downgrade the
bank’s bonds. It might downgrade from a
high grade of “Aaa” to a medium grade of
“Baa” or even the dreaded “C,” depending
on the severity of the bank’s financial problems.
Downgrading bonds can trigger a
requirement imposed by regulations or
private contracts that require the corporation
to immediately raise capital to protect its
business. Banks might be forced to raise
capital by selling securities or even the real
estate it owns.
Evidence of falling home values began
emerging in late 2006, but there were no
downgrades of subprime mortgage-related
securities by credit rating agencies until June
2007.207 Indeed, the credit ratings firms had
207 Testimony of Jerome S. Fons, Former Managing
Director of Credit Policy, Moody's, Before
the Committee on Oversight and Government
Reform, U.S. House of Representatives,
October 22, 2008, available at:
<http://oversight.house.gov/documents/2008
1022102726.pdf> (citing Gary Gorton,
2008, “The Panic of 2007,” NBER working
paper #14358); but see Gretchen Moregenson,
“Investors in mortgage-backed securities
fail to react to market plunge,” International
Herald Tribune, February 18,
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failed to recognize the housing bubble, and
the inevitability that when the enormous
bubble burst, it would lead to massive
mortgage defaults and the severe depreciation
in value of mortgage-backed securities.
The firms also failed to consider that many
mortgage-backed securities were based on
dubious subprime and exploitative predatory
loans that could not conceivably be repaid.
The current financial crisis is not the
first time credit rating companies dropped
the ball. During the dot-com bubble of the
late 1990s, they were the “last ones to react,
in every case” and “downgraded companies
only after all the bad news was in, frequently
just days before a bankruptcy filing.”
208 In addition, the firms were criticized
in 2003 for failing to alert investors to the
impending collapse of Enron and World-
Com. As a result, Congress passed the
Credit Rating Agency Reform Act of
2006209 which requires disclosure to the
SEC of a general description of each firm’s
procedures and methodologies for determining
credit ratings, including historical downgrade
and default rates within each of its
credit rating categories. It also grants the
2007, available at:
<http://www.iht.com/articles/2007/02/18/yo
urmoney/morgenson.php>. (Moody’s
“downgraded only 277 subprime home equity
loan tranches [in 2006], just 2 percent
of the home equity securities rated by the
agency.”)
208 Frank Partnoy, Infectious Greed: How Deceit
and Risk Corrupted the Financial Markets
352, New York: Times Books (2003).
209 15 U.S.C. § 78o-7.
SEC broad authority to examine all books
and records of the companies. However,
intense lobbying by the rating firms blocked
further reforms, and the law expressly states
that the SEC has no authority to regulate the
“substance of the credit ratings or the procedures
and methodologies” by which any
firm determines credit ratings. In 2007, SEC
Chair Christopher Cox said, “it is not our
role to second-guess the quality of the rating
agencies’ ratings.”210
In the highly deregulated financial
markets of the last few decades, the credit
rating firms were supposed to be the independent
watchdogs that carefully scrutinized
corporations and the financial products that
they offered to investors. Like the federal
agencies and Congress, the credit rating
companies failed to protect the public.
  
210 Testimony of SEC Chairman Christopher
Cox, Before the U.S. Senate Committee on
Banking, Housing and Urban Affairs, September
26, 2007, available at:
<http://www.sec.gov/news/testimony/2007/t
s092607cc.htm>.³   
« Last Edit: December 11, 2011, 01:24:31 AM by prentice crawford »

prentice crawford

  • Guest
Re: Corruption
« Reply #47 on: December 11, 2011, 01:04:08 AM »
Woof, 8th Post

98 SOLD OUT
Part II:
Wall Street’s
Washington Investment
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Wall Street’s Campaign
Contributions and
Lobbyist Expenditures
The financial sector invested more than $5
billion in political influence purchasing in
the United States over the last decade.
The entire financial sector (finance, insurance,
real estate) drowned political
candidates in campaign contributions,
spending more than $1.738 billion in federal
elections from 1998-2008. Primarily reflecting
the balance of power over the decade,
about 55 percent went to Republicans and
45 percent to Democrats. Democrats took
just more than half of the financial sector’s
2008 election cycle contributions.
The industry spent even more — topping
$3.3 billion — on officially registered
lobbyists during the same period. This total
certainly underestimates by a considerable
amount what the industry spent to influence
policymaking. U.S. reporting rules require
that lobby firms and individual lobbyists
disclose how much they have been paid for
lobbying activity, but lobbying activity is
defined to include direct contacts with key
government officials, or work in preparation
for meeting with key government officials.
Public relations efforts and various kinds of
indirect lobbying are not covered by the
reporting rules.
During the decade-long period:
• Commercial banks spent more than
$154 million on campaign contributions,
while investing $383 million
in officially registered lobbying;
• Accounting firms spent $81 million
on campaign contributions and $122
million on lobbying;
• Insurance companies donated more
than $220 million and spent more
than $1.1 billion on lobbying; and
• Securities firms invested more than
$512 million in campaign contributions,
and an additional nearly $600
million in lobbying. Hedge funds, a
subcategory of the securities industry,
spent $34 million on campaign
contributions (about half in the 2008
election cycle); and $20 million on
lobbying. Private equity firms, a
subcategory of the securities industry,
contributed $58 million to federal
candidates and spent $43 million
on lobbying.
Individual firms spent tens of millions
of dollars each. During the decade-long
period:
• Goldman Sachs spent more than $46
million on political influence buying;
• Merrill Lynch spent more than $68
million;
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• Citigroup spent more than $108 million;
• Bank of America devoted more than
$39 million;
• JPMorgan Chase invested more than
$65 million; and
• Accounting giants Deloitte &
Touche, Ernst & Young, KPMG and
Pricewaterhouse spent, respectively,
$32 million, $37 million, $27 million
and $55 million.
The number of people working to advance
the financial sector’s political objectives
is startling. In 2007,211 the financial
sector employed a staggering 2,996 separate
lobbyists to influence federal policy making,
more than five for each Member of Congress.
This figure only counts officially
registered lobbyists. That means it does not
count those who offered “strategic advice”
or helped mount policy-related PR campaigns
for financial sector companies. The
figure counts those lobbying at the federal
level; it does not take into account lobbyists
at state houses across the country. To be
clear, the 2,996 figure represents the number
of separate individuals employed by the
financial sector as lobbyists in 2007. We do
not double count individuals who lobby for
more than one company; the total number of
financial sector lobby hires in 2007 was a
211 We chose 2007 as the most recent year for
which full data was available at the time we
conducted our research.
whopping 6,738.
Within the financial sector, industry
groups deployed legions of lobbyists. In
2007:212
• Accounting firms employed 178
lobbyists;
• Insurance companies had 1,219 lobbyists
working for them;
• Real estate interests hired 1,142
lobbyists;
• Finance and credit companies employed
415 lobbyists;
• Credit unions maintained 96 lobbyists;
• Commercial banks employed 421
lobbyists;
• Securities and investment firms
maintained 1,023 lobbyists; and
• Miscellaneous other financial companies
employed 134 lobbyists.
A great many of those lobbyists entered
and exited through the revolving door
connecting the lobbying world with government.
Surveying only 20 leading firms in
the financial sector (none from the insurance
industry or real estate), we found that 142
212 These figures do not double count within the
industry group, but total more than the figure
for the entire financial sector because we
did not eliminate overlaps between industry
sectors. Thus, for these totals, if John Smith
works as a lobbyist for two accounting
firms, he counts as only one lobbyist for the
accounting industry. If he works as a lobbyist
for an accounting firm and an insurance
company, he counts as one for the accounting
industry and one for the insurance industry.
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industry lobbyists during the period 1998-
2008 had formerly worked as “covered
officials” in the government. “Covered
officials” are top officials in the executive
branch (most political appointees, from
members of the cabinet to directors of
bureaus embedded in agencies), Members of
Congress, and congressional staff.
Nothing evidences the revolving door —
or Wall Street’s direct influence over policymaking
— more than the stream of Goldman
Sachs expatriates who left the Wall
Street goliath, spun through the revolving
door, and emerged to hold top regulatory
positions. Topping the list, of course, are
former Treasury Secretaries Robert Rubin
and Henry Paulson, both of whom had
served as chair of Goldman Sachs before
entering government.
In the charts that follow in this part, we
detail campaign contributions and lobby
expenditures from 1998-2008 for the overall
financial sector and for the industry components
of the sector. We also provide aggregated
information on number of industry
lobbyists and number of industry lobbyists
circling through the revolving door. In the
appendix to this report, we provide extensive
information on the campaign contributions
and lobbyists of 20 leading companies
in the financial sector — five each from
commercial banking, securities, accounting
and hedge fund industries. For each profiled
company, we identify the top 20 recipients
of their campaign contributions for each
election cycle over the last decade; the lobby
firms they employed each year, and the
amount paid to those firms; and covered
official lobbyists they employed (i.e., lobbyists
formerly employed as top officials in the
executive branch, or as former Members of
Congress or congressional staff).
  
Methodological Note
Our information on campaign contributions
and lobby expenditures comes from mandated
public filings, and the enormously
helpful data provided by the Center for
Responsive Politics.
Our figures on total and annual sector,
industry and firm campaign contributions
and lobby expenditures are drawn from the
Center for Responsive Politics.
Our campaign contribution data is organized
by biannual Congressional election
cycles. Thus the total for 1998 also includes
contributions made in 1997.
Our data on total number of official
lobbyists is compiled from data prepared by
the Center for Responsive Politics. The
Center for Responsive Politics lobbyist
database lists all individual lobbyists reporting
to the Senate Office of Public Records.
We tallied up totals from that database.
Our data on number of covered official
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lobbyists is drawn from the original disclosure
statements filed with the Senate Office
of Public Records.
Our listing of the top 20 biannual recipients
of campaign contributions from our
20 profiled firms uses data compiled from
the Center for Responsive Politics where
possible. In four cases where the Center had
not compiled the data, we compiled the
information using the Center’s raw data on
individual campaign contributors and information
on the company’s political action
committee (PAC) contributions. That is, we
tracked donations from every person with,
for example, Lehman Brothers as an employer,
213 compiled them into a database;
added in the Lehman Brothers PAC contributions;
and then list the top 20 recipients.
We compiled donations for Lehman Brothers,
Wachovia, Wells Fargo and KPMG.
  
213 Our compilation is based only on the top
1,000 largest contributors affiliated with
each company.
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Financial Sector
Campaign Contributions and Lobbying Expenditures
Finance, Insurance, Real Estate
$5,178,835,253
Decade-long campaign contribution total (1998-2008): $1,738,284,032
Decade-long lobbying expenditure total (1998-2008): $3,440,551,221
Campaign Contributions
2008 $442,535,157
2006 $259,023,355
2004 $339,840,847
2002 $233,156,722
2000 $308,638,091
1998 $155,089,860
Lobbying Expenditures
2008 $454,879,133
2007 $417,401,740
2006 $374,698,174
2005 $371,576,173
2004 $338,173,874
2003 $324,865,802
2002 $268,886,799
2001 $235,129,868
2000 $231,218,026
1999 $213,921,725
1998 $209,799,907
Source: Center for Responsive Politics, <www.opensecrets.org>.
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Financial Sector
Official Lobbyists
Finance, Insurance, Real Estate
2007 total official lobbyists for financial sector: 2,996
Covered official lobbyists for 20 profiled firms,
Decade-long total (1998-2008): 142
Source: Center for Responsive Politics, <www.opensecrets.org>.
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Securities Firms
Decade-long campaign contribution industry total (1998-2008):
$512,816,632
Decade-long lobbying expenditure industry total (1998-2008):
$599,955,649
Campaign Contributions for 5 Leading Firms
Bear Stearns $6,355,737
Goldman Sachs $25,445,983
Lehman Brothers $6,704,574
Merrill Lynch $9,977,724
Morgan Stanley $14,367,857
Lobbying Expenditures for 5 Leading Firms
Bear Stearns $9,550,000
Goldman Sachs $21,637,530
Lehman Brothers $8,660,000
Merrill Lynch $59,076,760
Morgan Stanley $20,835,000
Source: Center for Responsive Politics, <www.opensecrets.org>.
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Commercial Banks
Decade-long campaign contribution industry total (1998-2008):
$154,868,392
Decade-long lobbying expenditure industry total (1998-2008):
$382,943,342
Campaign Contributions for 5 Leading Firms
Bank of America $11,629,260
Citigroup $19,778,382
JP Morgan Chase & Co $15,714,953
Wachovia Corp. $3,946,727
Wells Fargo $5,330,022
Lobbying Expenditures for 5 Leading Firms
Bank of America $28,635,440
Citigroup $88,460,000
JP Morgan Chase & Co $49,372,915
Wachovia Corp. $11,996,752
Wells Fargo $16,637,740
Source: Center for Responsive Politics, <www.opensecrets.org>.
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Hedge Funds*
Decade-long campaign contribution industry total (1998-2008):
$33,742,815
Decade-long lobbying expenditure industry total (1998-2008):
$20,252,000
Campaign Contributions for 5 Leading Firms
Bridgewater Associates $274,650
DE Shaw Group $3,100,255
Farallon Capital Management $1,058,953
Och-Ziff Capital Management $338,552
Renaissance Technologies $1,560,895
Lobbying Expenditures for 5 Leading Firms
Bridgewater Associates $855,000
DE Shaw Group $680,000
Farallon Capital Management $1,005,000
Och-Ziff Capital Management $200,000
Renaissance Technologies $740,000
* Hedge fund contributions are included in the overall securities campaign contributions and lobbying
expenditure totals.
Source: Center for Responsive Politics, <www.opensecrets.org>.
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Accounting Firms
Decade-long campaign contribution industry total (1998-2008):
$81,469,000
Decade-long lobbying expenditure industry total (1998-2008):
$121,658,156
Campaign Contributions for 5 Leading Firms
Arthur Andersen $3,324,175
Deloitte & Touche $12,120,340
Ernst & Young $12,482,407
KPMG LLP $8,486,392
Pricewaterhouse $10,800,772
Lobbying Expenditures for 5 Leading Firms
Arthur Andersen $1,900,000
Deloitte & Touche $19,606,455
Ernst & Young $25,108,536
KPMG LLP $19,103,000
Pricewaterhouse $44,291,084
Source: Center for Responsive Politics, <www.opensecrets.org>.
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Conclusion and
Recommendations:
Principles for a New
Financial Regulatory
Architecture
For more than 25 years, regulatory control
over the financial sector has steadily eroded.
This deregulatory trend accelerated in the
last decade: In 1999, Congress, with the
support of the Clinton White House passed
the Gramm-Leach-Bliley Act of 1999,
removing the firewalls between commercial
banking on the one hand and investment
banking and insurance on the other; federal
agencies declined to regulate financial
derivatives and Congress then enshrined this
head-in-the-sand policy as law; federal
regulators rationalized the subprime lending
boom as good housing policy rather than the
ticking time bomb that it self-evidently was;
and federal officials collaborated with Wall
Street to permit extraordinary increases in
the amount of money firms could lend or
borrow for every dollar of their own capital.
All of these deregulatory moves created
the conditions for the current financial
implosion.
The dangers inherent in these policies
were evident to any careful observer. Consumer
groups, some investor advocates,
independent economists and analysts, and
some regulators all sounded the alarm as
each of the actions chronicled in this report
were first proposed.
Those warnings were ignored, however.
They were drowned out by the cacophony
of well-paid lobbyists and the
jingle of cash registers opening and closing
as Wall Street handed out hundreds of
millions in political contributions.
Now, after the trillions of dollars in
taxpayer money has been spent, there is
widespread agreement that deregulation
went too far, and that new regulatory initiatives
are required. But as with each of the
twelve steps on the road to financial ruin,
the financial industry is resisting meaningful
reforms.
The repeal of Glass-Steagall and the
bank mergers already authorized cannot
easily be undone, but both those issues
require very careful scrutiny. The leading
independent investment banks have all
merged into commercial banks or converted
themselves into bank holding companies;
the very severe risk is that the investment
bank culture will again influence traditional
banking operations, and encourage dangerous
and unsustainable risk-taking. The bank
merger trend is actually escalating as a
consequence of the financial crisis, as fed110
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eral regulators bless shot-gun marriages in
order to avoid committing still more taxpayer
money to making depositors whole.
But much more care should taken in authorizing
additional mergers. Also, as Bert Foer
of the American Antitrust Institute points
out, many of the recently consummated
mergers are almost certain to fail. Policymakers
need to take a comprehensive assessment
of banking concentration; for if the
existing high levels of concentration are to
be permitted, regulatory review must be
much more intensive, and controls on big
bank activity much more extensive.
Beyond undoing the deregulatory maneuvers
documented in this report, an affirmative
regulatory agenda must establish a
new framework for financial sector regulation.
It should aim to reduce the size of the
financial sector, reduce reliance on overly
complicated financial instruments, and
provide robust and multi-faceted protections
for consumers. We, and many others, will be
proposing specific regulatory reforms over
the course of the next year. Here, we concluded
with overarching premises that
should guide the new financial regulatory
architecture.
1. The financial sector should serve and
be subordinate to the real economy.
From 2004-2007, financial sector profits
amounted to more than a third of overall
corporate profits. This is — and should have
been treated as — conclusive evidence of a
financial system out of control, one that was
beginning to devour rather than serve the
real economy. There should be no deference
shown to Wall Street interests complaining
that a new regulatory regime will hurt their
profitability. The Wall Street operators have
destroyed their own institutions, and their
earlier profits are now revealed to be only
the froth from a bubble economy and financial
sleight-of-hand. In any case, the American
economy cannot be based on finance
and the trading of paper. Looking back, we
see that the financial economy did not
increase America’s true wealth, but just the
opposite: Wall Street siphoned profits from
the real economy, and from the checking
accounts of consumers, workers and investors,
until the system collapsed, and consumer,
workers and investors were asked to
foot the bill.
2. Hedge funds and financial derivatives
must be regulated.
What is a hedge fund? As a legal matter, the
term references investment funds that escape
Securities and Exchange Commission
regulatory authority on the grounds that they
serve sophisticated investors. But the evidence
is once again overwhelming that
sophisticated investors cannot be trusted to
protect their own interests (see Bernard
Madoff). But more important, these nonregulated
entities pose systemic risks to the
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financial sector, not just to the wealthy.
Cities, states, colleges, non-profit organizations,
and every American turned out to be
at risk from the machinations of the socalled
sophisticated financial sector. All
investment vehicles must be subjected to the
same regulatory requirements — and those
standards must be elevated dramatically.
Finally, not all financial derivatives should
be permitted to continue to trade. But those
for which a legitimate purpose can be shown
must be brought into the regulatory system,
with guarantees of transparency, restrictions
on leverage and requirements for “skin in
the game.”
3. Enhanced standards of transparency.
Hedge funds, investment banks, insurance
companies and commercial banks have
engaged in such complicated and intertwined
transactions that no one could track
who owes what, to whom. AIG apparently
didn't even know who it had insured, and on
what terms, through the credit default swaps
it participated in. Moreover, the packaging
and re-packaging of mortgages into various
esoteric securities undermined the ability of
the financial markets to correctly value these
financial instruments. Baseline transparency
requirements must include an end to off-thebooks
transactions, detailed reporting of
holdings by all investment funds, and selling
and trading of all permitted financial derivatives
on regulated and public exchanges.
Other mechanisms will enhance transparency
and simplify some overly complicated
financial instruments: these include “skin in
the game” requirements and prohibitions on
certain practices (for example, tranching of
securities214) that add complexity and confusion,
but no social value.
4. Prohibit certain financial instruments.
Wall Street has proved Warren Buffett right
in labeling financial derivatives “weapons of
financial destruction.” Synthetic collateralized
debt obligations — a kind of credit
default swap215 — are among the worst
abuses of the current system, enabling
legalized, large-scale betting by entities not
party to the underlying transaction. Whatever
hypothetical benefit such instruments
have for establishing a market price for
credit default swaps is vastly outweighed by
the actual and demonstrable damage they
have done to the real economy. They should
214 For further discussion of the case for
prohibiting tranching, see Robert Kuttner,
“Financial Regulation: After the Fall,”
Demos, January 2009, available at:
<http://www.demos.org/publication.cfm?cur
rentpublicationID=B8B65B84%2D3FF4%2
D6C82%2D5F3F750B53E44E1B>.
215 See also this helpful discussion explaining
synthetic CDOs from Portfolio’s Felix
Salmon, available at:
<http://www.portfolio.com/views/blogs/mar
ket-movers/2008/11/28/understandingsynthetics>.
Essential, synthetic CDOs
involve the creation of insurance on a bond
(someone pays for the insurance, and
someone agrees to insure against failure of
the bond), with one important condition:
neither party actually holds the bond.
112 SOLD OUT
be prohibited.
5. Adopt the precautionary principle216
for exotic financial instruments.
The burden should be placed on those
urging the creation or trade of exotic financial
instruments — existing and those yet to
be invented — to show why they should be
permitted. They should be required to show
the affirmative, social benefit of the new
instrument, and prove why these benefits
outweigh risks. They should be specifically
required to explain why the instrument does
not worsen financial systemic risk, taking
into account recent experience where purported
diversification of risk led to its spread
and exponential increase. Regulators should
maintain a strong bias against complicated
new instruments, recognizing that complexity
both introduces inherent uncertainty and
is often used to obscure dangers, risks and
bad investments.217
216 The precautionary principle is a term most
frequently used in the environmental
context. It suggests that, for example, before
a chemical can be introduced on the market,
it must be shown to be safe. This approach
stands against the notion that a new
chemical is presumed safe and permitted on
the market, until regulators can prove that it
is not.
217 See “Plunge: How Banks Aim to Obscure
Their Losses,” An Interview with Lynn
Turner, Multinational Monitor,
November/December 2008, available at:
<http://www.multinationalmonitor.org/mm2
008/112008/interview-turner.html> (“Wall
Street typically designs these things so that
they hide something from the public or their
investors. So when you have the CDOs
6. Limit leverage.
High flyers like leveraged investments
because they offer the possibility of very
high returns. But, as we have seen, they also
enable extremely risky investments that can
vastly exceed an investor's actual assets.
This degree of leverage turns the financial
system into a game of musical chairs —
those left standing when the music stops are
wiped out. The entire financial system is
presently at risk because the amount of
leverage far exceeded the assets needed to
back it up once investors sought to convert
their holdings to cash. There should be
stringent restrictions on the use of leverage
by all players in the financial system. These
include enhanced capital requirements for
banks and investment banks (and especially
the build-up of capital in good times); and
increased margin requirements, so that
parties buying securities, futures or options
must put up more collateral.
7. Impose a financial transactions tax.
A small tax on each financial transaction218
[collateralized debt obligations] built on top
of the other CDOs, they hide what the
underlying assets are really like, or what the
underlying mortgages are really like. In
some of the off-balance sheet special
purpose entities, like with Enron, it was to
hide their financing.”)
218 Pollin, Baker and Schaberg suggest a .5
percent tax on stock trades, and comparable
burdens on other transactions (for example,
this works out to .01 percent for each
remaining year of maturity on a bond.) See
Robert Pollin, Dean Baker, and Marc
SOLD OUT 113
would discourage speculation, curb the
turbulence in the markets, and, generally,
slow things down. It would give realeconomy
businesses more space to operate
without worrying about how today's decisions
will affect their stock price tomorrow,
or the next hour. And it would be a steeply
progressive tax that could raise substantial
sums for useful public purposes.
8. Crack down on excessive pay and the
Wall Street bonus culture.
Wall Street salaries and bonuses are out of
control. The first and most simple demand is
to ensure no bonus payments for firms
receiving governmental bailout funds. If
they had to be bailed out, why does anyone
in the firm deserve a bonus? Even more
importantly, bonus payments with taxpayer
money is an outrageous misuse of public
funds.
Beyond the bailouts, however, there is
a need to address the Wall Street bonus
culture. Paid on a yearly basis, Wall Street
bonuses can be 10 or 20 times base salary,
and commonly represent as much as four
fifths of employees' pay. In this context, it
makes sense to take huge risks. The payoffs
from benefiting from risky investments or a
bubble are dramatic, and there’s no reward
Schaberg, “Financial Transactions Taxes for
the U.S. Economy,” 2002, Political
Economy Research Institute, available at:
<http://www.peri.umass.edu/236/hash/aef97
d8d65/publication/172>.
for staying out. Wall Street compensation
should be lowered overall, but most important
is imposing legal requirements that
compensation be tied to long-term performance.
If employees had to live with the longterm
consequences of their investment
decisions, they would employ very different
strategies.
9. Adopt a financial consumer protection
agenda.
Commercial banks and Wall Street backers
have, to a considerable extent, built their
business model around abusive lending
practices. Predatory mortgage lenders, credit
card companies, student loan corporations
— all pushed unsustainable levels of credit,
on onerous terms frequently indecipherable
to borrowers, and with outrageous hidden
fees and charges. A new financial consumer
protection agency should be established;
interest rates, fees and charges should all be
capped (especially now that Americans who
are in effect borrowing their own money
from banks and credit card companies who
received bailout funds). Impediments to
legal accountability for fraud and other
unlawful conduct, such as the holder in due
course rule, preemption of state laws, and
the Private Securities Litigation Reform Act
should be withdrawn or repealed.
114 SOLD OUT
10. Give consumers the tools to organize
themselves.
Federal law should empower consumers to
organize into independent financial consumers
associations. Lenders should be required
to facilitate such organization by their
borrowers (through mailings to borrowers,
on behalf of independent consumer organizations),
as should corporations to their
shareholders. With independent organizations
funded by small voluntary fees, consumers
could hire their own independent
representatives to review financial players’
activities, scour their books, and advocate
for appropriate public policies.
  
Is this agenda politically feasible? It has the
advantage of being necessary: Recent years'
experience shows beyond any reasonable
argument that a deregulated and unrestrained
financial sector will destroy itself
— and threaten the U.S. and global economies
in the process.
The deregulatory decisions profiled in
this report were not made on their merits. At
almost every step, public interest advocates
and independent-minded regulators and
Members of Congress cautioned about the
hazards that lay ahead — and they were
proven wrong only in underestimating how
severe would be the consequences of deregulation.
Good arguments could not
compete with the combination of political
influence and a reckless and fanatical zeal
for deregulation. $5 billion buys a lot of
friends. In one sense, this report can be
considered a case study in the need for the
elimination of special interest money from
American politics, but Congress will address
financial re-regulation this year, and reform
of our political process does not appear on
the horizon. The emergent consensus on the
imperative to re-regulate the financial sector
demonstrates that, in the wake of the financial
meltdown, the prevailing regulatory
paradigm has shifted. Whether the forces
that brought America’s economy to the
precipice can be forced to accede to that
shift — whether the public interest will
prevail — remains to be seen.
  
Appendix 115
Appendix: Leading Financial Firm Profiles of Campaign
Contributions and Lobbying Expenditures
Securities Firms .……………………………………………………. 115
1. Bear Stearns ………………………………………………...…...………….. 115
2. Goldman Sachs ……………………………………………………………… 121
3. Lehman Brothers …......................................................................................... 129
4. Merrill Lynch ….............................................................................................. 135
5. Morgan Stanley …………………………………………………...……….... 142
Commercial Banks …………………………………………………. 148
1. Bank of America ...…….…………………………………...…...…………... 148
2. Citigroup ........………….…………………………………………………… 155
3. JP Morgan Chase & Co................................................................................... 164
4. Wachovia Corp. .............................................................................................. 171
5. Wells Fargo .....…………………………………………………...……….... 177
Hedge Funds …………………………………………….......……… 183
1. Bridgewater Associates ..…………………………………...…...…………... 183
2. DE Shaw Group ..…………………………………………………………… 185
3. Farallon Capital Management ......................................................................... 189
4. Och-Ziff Capital Management ........................................................................ 193
5. Renaissance Technologies ...……………………………………...……….... 196
Accounting Firms …………………………………………………… 199
1. Arthur Andersen .…………………………………………...…...…………... 199
2. Deloitte & Touche ...……………………………………………………….... 203
3. Ernst & Young ...…......................................................................................... 210
4. KPMG LLG ..….............................................................................................. 217
5. Pricewaterhouse ……...…………………………………………...……….... 224
« Last Edit: December 11, 2011, 01:25:11 AM by prentice crawford »

prentice crawford

  • Guest
Re: Corruption
« Reply #48 on: December 11, 2011, 01:07:40 AM »
Woof, 9th Post;

116
Investment Banks: Bear Stearns
Decade-long campaign contribution total (1998-2008): $6,355,737
Decade-long lobbying expenditure total (1998-2008): $9,550,000
Bear Stearns Campaign Contributions:219
2008 Top Recipients
TOTAL: $1,241,290
1. Rudy Giuliani (R) $130,091
2. Hillary Clinton (D) $127,460
3. John McCain $98,200
4. Barack Obama (D) $60,503
5. Christopher Dodd (D) $48,700
6. Mitt Romney (R) $31,550
7. Nita Lowey (D) $12,200
8. Frank Lautenberg (D) $11,600
9. Paul Kanjorski (D) $7,500
9. Elizabeth Dole (R) $7,500
11. Charles Rangel (D) $7,300
12. John Edwards (D) $6,850
13. Kirsten Gillibrand (D) $6,600
14. Dick Durbin (D) $6,400
15. Steny Hoyer (D) $6,000
16. Bill Richardson (D) $5,250
17. Tim Johnson (D) $5,000
17. Spencer Bachus (R) $5,000
17. Barney Frank (D) $5,000
20.
Christopher Shays
(R) $4,800
219 Source: Center for Responsive Politics.
Campaign contribution totals accessed February
2009. Individual recipient numbers do
not include the 4th Quarter of 2008.
2006 Top Recipients
TOTAL: $938,619
1. Chris Dodd (D) $67,850
2. Joe Lieberman (I) $49,610
3. Martha Rainville (R) $14,800
4. Hillary Clinton (D) $13,575
5. Deborah Pryce (R) $13,000
6. Spencer Bachus (R) $10,000
7. Rick Santorum (R) $8,700
8. Richard Baker (R) $7,500
8. Jim McCrery (R) $7,500
10. Paul Kanjorski (D) $6,500
11. Rudy Giuliani (R) $6,300
12.
Christopher Shays
(R) $6,165
13. Barney Frank (D) $5,500
13. Pete Sessions (R) $5,500
15. Evan Bayh (D) $5,000
15. Mike Crapo (RD) $5,000
15. Michael Oxley (R) $5,000
15. Bill Thomas (R) $5,000
15. Patrick Tiberi (R) $5,000
20. Mike Ferguson (R) $4,600
Appendix 117
2004 Top Recipients220
TOTAL: $1,458,005
1. George W Bush (R) $198,200
2. John Kerry (D) $65,400
3. Wesley Clark (D) $41,000
4. Rick Santorum (R) $20,500
5. Charles Schumer (D) $18,000
6. Richard Gephardt (D) $13,500
7. John Peterson (R) $12,000
8.
Charles Wieder Dent
(R) $11,080
9. Pete Sessions (R) $10,580
10. Lowey, Nita M (D) $10,000
11. Erskine Bowles (D) $8,080
12. Tom Daschle (D) $8,000
12. James DeMint (R) $8,000
12. John Thun, (R) $8,000
12. David Vitter (R) $8,000
16. Rahm Emanuel (D) $7,000
16. Luis Fortuno (3) $7,000
18. John Edwards (D) $6,250
19.
Charles Boustany Jr
(R) $6,080
20. Timothy Bishop (D) $5,500
2002 Top Recipients
TOTAL: $661,838
1. Charles Schumer (D) $94,900
2. Christopher Dodd (D) $92,900
3. Chuck Grassley (R) $16,000
4. Jack reed (R) $13,000
5. Nita Lowey (D) $11,250
6. Jack Conway (D) $7,750
220 Based on highest 1,000 contributions and
PAC money.
7. John Kerry (D) $7,000
8. Ron Kirk (D) $6,990
9. Tim Johnson (D) $6,000
9. Pete Domenici (R) $6,000
9. Michael Oxley (R) $6,000
9. Charles Rangel (D) $6,000
13. Artur Davis (D) $5,400
14. Denise Majette (D) $5,250
15. Paul Kanjorski (D) $5,000
16. Max Baucus (D) $4,500
16. Pat Toomey (R) $4,000
16. Bill Thomas (R) $4,000
19. Deborah Pryce (R) $3,500
20. Joe Biden (D) $3,250
2000 Top Recipients
TOTAL: $1,243,379
1. Rick Lazio (R) $40,000
2. Jon Corzine (D) $23,250
3. Spencer Abraham (R) $18,500
4. Hillary Clinton (D) $15,500
5. Vito Fossella (R) $11,000
6. Al Gore (D) $10,000
7. Charles Schumer (D) $9,500
8. George W Bush $7,000
9. Charles Rangel (D) $5,811
10. Orrin Hatch (R) $5,500
10.
David Lawther Johnson
(D) $5,500
12. Edolphus Towns (D) $5,000
13. Tom Harkin (D) $3,000
13. Marge Roukema (R) $3,000
13. Howard Berman (D) $3,000
13. George Allen (R) $3,000
17. Richard Neal (D) $2,500
Appendix
118
18. Steve Forbes (R) $2,250
18. John McCain (R) $2,250
20. William Roth (R) $2,000
20. Trent Lott (R) $2,000
20. Rod Grams (R) $2,000
20. Robert Torricelli (D) $2,000
20. Richard Lugar (R) $2,000
20. Phil Gramm (R) $2,000
20. Phil Crane (R) $2,000
20. Paul Sarbanes (D) $2,000
20. Kent Conrad (D) $2,000
20. John Kerry (D) $2,000
20. Jim Maloney (D) $2,000
20. E Clay Shaw (R) $2,000
20. Deborah Pryce (R) $2,000
20. Dan Quayle (R) $2,000
20. Christopher Dodd (D) $2,000
20. Bill McCollum (R) $2,000
20. Amo Houghton (R) $2,000
1998 Top Recipients
TOTAL: $812,606
1. Alfonse D'Amato (R) $38,950
2. Charles Rangel (D) $7,050
3.
Blanche Lambert
Lincoln (D) $7,000
3. John Edwards (D) $7,000
5. Tom Daschle (D) $6,250
6. Scotty Baesler (D) $6,000
7. Rick Lazio (R) $5,800
8. Evan Bayh (D) $5,000
9. John Breaux (D) $4,000
10.
Carol Moseley-Braun
(D) $3,000
10. John Kerry (D) $3,000
10. Newt Gingrich (R) $3,000
13. Rick White (R) $2,550
14. Jerry Weller (R) $2,500
15. Billy Tauzin (R) $2,050
15. Thomas Manton (D) $2,050
17. Amo Houghton (R) $2,000
17. Bob Graham (D) $2,000
17. Charles Grassley (R) $2,000
17. Christopher Bond (R) $2,000
17. Fritz Hollings (D) $2,000
17. Jerry Kleczka (D) $2,000
17. John Ensign (R) $2,000
17. John LaFalce (D) $2,000
17. Robert Bennett (R) $2,000
Appendix 119
Bear Stearns Lobbying Expenditures221:
2008
TOTAL: $460,000
Bear Stearns $420,000
Steptoe & Johnson $40,000
Venable LLP > $10,000*
2007
TOTAL: $1,120,000
Bear Stearns $900,000
Steptoe & Johnson $200,000
Venable LLP $20,000
2006
TOTAL: $1,200,000
Bear Stearns $780,000
Venable LLP $220,000
Steptoe & Johnson $160,000
Angus & Nickerson $40,000
2005
TOTAL: $820,000
Bear Stearns $540,000
Steptoe & Johnson $180,000
Venable LLP $60,000
Angus & Nickerson $40,000
221 Source: Center for Responsive Politics.
Lobbying amounts accessed February 2009.
* Not included in totals
2004
TOTAL: $900,000
Bear Stearns $680,000
Steptoe & Johnson $220,000
Venable LLP > $10,000*
2003
TOTAL: $920,000
Bear Stearns $620,000
Steptoe & Johnson $240,000
Venable LLP $60,000
2002
TOTAL: $800,000
Bear Stearns $520,000
Steptoe & Johnson $200,000
Venable LLP $80,000
2001
TOTAL: $960,000
Bear Stearns $640,000
Steptoe & Johnson $200,000
Venable LLP $80,000
O'Connor & Hannan $40,000
2000
TOTAL: $750,000
Bear Stearns $440,000
Steptoe & Johnson $190,000
O'Connor & Hannan $120,000
Appendix
120
1999
TOTAL: $760,000
Bear Stearns $500,000
Steptoe & Johnson $140,000
O'Connor & Hannan $120,000
1998
TOTAL: $860,000
Bear Stearns $560,000
Steptoe & Johnson $160,000
O'Connor & Hannan $140,000
Appendix 121
Bear Stearns Covered Official Lobbyists:222
Firm / Name of Lobbyist Covered Official Position Year(s)
Bear Stearns
Dombo III, Fred
Counsel, Office of Congressman Michael
Forbes 1999-2000
Venable LLP
Olchyk, Sam Joint Committee on Taxation Staff 2004-2008
Beeman, E. Ray
Legislative Counsel, Joint Committee on
Taxation Staff 2006-2008
222 Source: Senate Office of Public Records <http://soprweb.senate.gov/>. Accessed January 2009.
Appendix
122
Investment Banks: Goldman Sachs
Decade-long campaign contribution total (1998-2008): $25,445,983
Decade-long lobbying expenditure total (1998-2008): $21,637,530
Goldman Sachs Campaign Contributions223
2008 Top Recipients
TOTAL: $5,635,501
1. Barack Obama (D) $884,907
2. Hillary Clinton (D) $405,475
3. John McCain (R) $229,695
4. Mitt Romney (R) $229,675
5. Jim Himes (D) $140,448
6. Chris Dodd (D) $110,000
7. Rudy Giuliani (R) $109,450
8. John Edwards (D) $66,450
9. Arlen Specter (R) $47,600
10. Rahm Emanuel (D) $35,250
11. John Sununu (R) $31,400
12. Jack Reed (D) $30,100
13. Max Baucus (D) $26,000
14. Tom Harkin (D) $24,580
15. Frank Lautenberg (D) $24,100
16.
Michael Peter Skelly
(D) $23,364
17. Susan M Collins (R) $21,900
18. Mark Warner (D) $21,800
19. Mary L Landrieu (D) $20,700
20. Norm Coleman (R) $19,200
223 Source: Center for Responsive Politics.
Campaign contribution totals accessed February
2009. Individual recipient numbers do
not include the 4th Quarter of 2008.
2006 Top Recipients
TOTAL: $3,502,866
1. Hillary Clinton (D) $138,570
2. Robert Menendez (D) $80,500
3. Harold E Ford Jr (D) $80,497
4. Evan Bayh (D) $52,750
5. Sherrod Brown (D) $42,600
6. Maria Cantwell (D) $39,800
7. Joe Lieberman (I) $33,950
8. Ben Cardin (D) $33,150
9. Kent Conrad (D) $30,600
10. Thomas H Kean Jr (R) $29,500
11. Rick Santorum (R) $27,000
12. Bill Nelson (D) $25,400
13.
Sheldon Whitehouse
(D) $24,600
14. Mike DeWine (R) $23,500
15. Eric Cantor (R) $23,300
16.
Kay Bailey Hutchison
(R) $22,500
17. Richard Baker (R) $22,400
18. Max Baucus (D) $21,900
19. Rahm Emanuel (D) $18,800
20. George Allen (R) $17,800
Appendix 123
2004 Top Recipients
TOTAL: $6,426,438
1. George W Bush (R) $390,600
2. John Kerry (D) $303,250
3. Jack Ryan (R) $218,161
4. Tom Daschle (D) $143,500
5. John Edwards (D) $102,300
6. Evan Bayh (D) $72,000
7. Charles Schumer (D) $58,040
8. Chris Dodd (D) $58,000
8. Barack Obama (D) $58,000
10. Hillary Clinton (D) $55,000
11. Arlen Specter (R) $51,000
12. Erskine Bowles (D) $37,250
13. Tony Knowles (D) $34,050
14. Joe Lieberman (D) $34,000
15. Dylan C Glenn (R) $33,000
16. Wesley Clark (D) $32,500
17. Howard Dean (D) $30,500
18. Robert Menendez (D) $30,000
19. Richard Burr (R) $29,496
20. John McCain (R) $29,000
2002 Top Recipients
TOTAL: $3,510,035
1. Charles Schumer (D) $124,550
2. Jon Corzine (D) $47,970
3. John Edwards (D) $41,000
4. Robert Torricelli (D) $34,750
5. Tom Strickland (D) $34,000
6. Arlen Specter (R) $30,000
7. Tim Johnson (D) $28,980
8. Erskine Bowles (D) $28,000
9. Max Baucus (D) $26,000
10. Tom Harkin (D) $21,355
11. Lamar Alexander (R) $20,500
12. John E Sununu (R) $20,250
13. Robert Menendez (D) $18,500
14. Jean Carnahan (D) $18,355
15. Max Cleland (D) $18,230
16. John Cornyn (R) $18,000
16. John Kerry (D) $18,000
18. Norm Coleman (R) $15,500
19. Saxby Chambliss (R) $15,250
20. Maria Cantwell (D) $14,250
2000 Top Recipients
TOTAL: $4,432,977
1. Jon S Corzine (D) $554,900
2. Bill Bradley (D) $271,200
3. Rick A Lazio (R) $175,300
4. George W Bush (R) $137,499
5. Charles Schumer (D) $99,500
6. Al Gore (D) $95,050
7. Hillary Clinton (D) $88,170
8. John McCain (R) $67,320
9. Dick Zimmer (R) $53,200
10. Rudolph Giuliani (R) $40,000
11. Phil Gramm (R) $29,000
12. Rush Holt (D) $26,000
13. Frank Pallone Jr (D) $19,000
14. Nita M Lowey (D) $18,000
15.
Brian David
Schweitzer (D) $16,250
16. Dylan C Glenn (R) $15,500
17.
Kay Bailey Hutchison
(R) $15,000
17. Bill McCollum (R) $15,000
19. Eliot L Engel (D) $14,000
Appendix
124
19. Edolphus Towns (D) $14,000
1998 Top Recipients
TOTAL: $1,938,166
1. Charles Schumer (D) $107,550
2. Alfonse D'Amato (R) $70,050
3. Evan Bayh (D) $33,500
4. Chris Dodd (D) $21,000
5. Bob Kerrey (D) $17,495
6. Shawn D Terry (R) $15,000
7. Rick A Lazio (R) $14,500
8. John Breaux (D) $14,158
9.
Kay Bailey Hutchison
(R) $14,000
10. Geraldine Ferraro (D) $11,750
11. Amo Houghton (R) $11,500
12. Check Hagel (R) $11,000
13. John McCain (R) $10,400
14.
Daniel Patrick
Moynihan (R) $10,000
15. Jay R Pritzker (D) $9,200
16. Arlen Specter (R) $9,000
17. Nita M Lowey (D) $8,500
18. Paul Coverdell (R) $8,375
19. Lauch Faircloth (R) $8,000
19. Bob Graham (D) $8,000
Appendix 125
Goldman Sachs Lobbying Expenditures224:
2008
TOTAL: $5,210,000
Goldman Sachs $3,280,000
Duberstein Group $400,000
ML Strategies $280,000
Baptista Group $270,000
Capitol Tax Partners $240,000
Williams & Jensen $160,000
Rich Feuer Group $130,000
Angus & Nickerson $120,000
RR&G $80,000
Bingham McCutchen LLP $50,000
Law Offices of John T
O’Rourke $60,000
Sullivan & Cromwell $30,000
Vinson & Elkins $40,000
Mattox Woolfolk LLC > $10,000*
Gephardt Group $70,000
2007
TOTAL: $4,610,000
Goldman Sachs $2,720,000
Baptista Group $280,000
Duberstein Group $260,000
Vinson & Elkins $160,000
ML Strategies $140,000
DLA Piper $140,000
Angus & Nickerson $120,000
Bigham McCutchen LLP $120,000
Rich Feuer Group $120,000
224 Source: Center for Responsive Politics.
Lobbying amounts accessed February 2009.
* Not included in totals
Sullivan & Cromwell $120,000
RR&G $90,000
Williams & Jensen $80,000
Law Offices of John T
O'Rourke $80,000
Maddox Strategies $60,000
Capitol Tax Partners $60,000
Clark & Weinstock $60,000
2006
TOTAL: $3,651,250
Goldman Sachs $2,620,000
Baptista Group $200,000
DLA Piper $160,000
Rich Feuer Group $120,000
Angus & Nickerson $120,000
RR&G $110,000
Duberstein Group $100,000
Law Offices of John T
O'Rourke $81,250
Vinson & Elkins $80,000
Williams & Jensen $60,000
Clark & Assoc > $10,000*
2005
TOTAL: $1,712,000
Goldman Sachs $600,000
Clark Consulting Federal
Policy Group $140,000
Vinson & Elkins $140,000
Thelen, Reid & Priest $120,000
Law Offices of John T
O'Rourke $102,000
Rich Feuer Group $100,000
* Not included in totals
Appendix
126
DCI Group $100,000
Mattox Woolfolk LLC $90,000
Duberstein Group $80,000
Angus & Nickerson $80,000
Clark & Assoc $80,000
Williams & Jensen $80,000
2004
TOTAL: $1,230,000
Clark & Assoc $60,000
Clark Consulting Federal
Policy Group $260,000
DCI Group $100,000
Duberstein Group $40,000
Law Offices of John T
O'Rourke $200,000
Mattox Woolfolk LLC $90,000
Rich Feuer Group $60,000
Thelen, Reid & Priest $240,000
Vinson & Elkins $160,000
Williams & Jensen $20,000
2003
TOTAL: $1,030,000
Clark & Assoc $100,000
Clark Consulting Federal
Policy Group $240,000
Duberstein Group $80,000
Law Offices of John T
O'Rourke $80,000
Mattox Woolfolk LLC $70,000
Thelen, Reid & Priest $240,000
Vinson & Elkins $100,000
Williams & Jensen $40,000
Wilmer, Culter & Pickering $60,000
Winning Strategies Wash. $20,000
2002
TOTAL: $910,000
Clark & Assoc. > $10,000*
Clark Consulting Federal
Policy Group $200,000
Duberstein Group $220,000
Johnson, Madigan et al $120,000
Law Offices of John T
O'Rourke $110,000
PriceWaterhouseCoopers $40,000
Sullivan & Cromwell > $10,000*
Verner, Liipfert et al $40,000
Vinson & Elkins $120,000
Williams & Jensen $20,000
Winning Strategies Washington
$40,000
2001
TOTAL: $810,000
Duberstein Group $100,000
Johnson, Madigan et al $80,000
Law Offices of John T
O'Rourke $30,000
PriceWaterhouseCoopers $240,000
Verner, Liipfert et al $260,000
Vinson & Elkins $100,000
2000
TOTAL: $500,000
Duberstein Group $80,000
Law Offices of John T
O'Rourke $40,000
Morgan, Lewis & Bockius $20,000
PriceWaterhouseCoopers $240,000
Verner, Liipfert et al $40,000
* Not included in totals
Appendix
127
Vinson & Elkins $80,000
1999
TOTAL: $1,264,000
Duberstein Group $140,000
Law Offices of John T
O'Rourke $32,000
Morgan, Lewis & Bockius > $10,000*
PriceWaterhouseCoopers $240,000
Sullivan & Cromwell > $10,000*
Verner, Liipfert et al $60,000
Vinson & Elkins $160,000
1998
TOTAL: $710,280
Duberstein Group $140,000
Law Offices of John T
O'Rourke $115,000
PriceWaterhouseCoopers > $10,000*
Sullivan & Cromwell > $10,000*
Verner, Liipfert et al $80,000
Vinson & Elkins $120,000
Washington Counsel $40,000
* Not included in totals
Appendix
128
Goldman Sachs Covered Official Lobbyists:225
Firm / Name of Lobbyist Covered Official Position Year(s)
PriceWaterhouseCoopers
Angus, Barbara
Business Tax Counsel, Committee on Taxation
1999- 2000
Kies, Kenneth Chief of Staff, Committee on Taxation 1999- 2000
Hanford, Tim Tax Counsel, Counsel on Ways and Means 2001
Verner, Liipfert et al
Hawley, Noelle M. Legislative Director, Rep. Bill Archer 1999
Jones, Brian C.
Investigator, Perm. Subcommittee on Investigations
2002
Madigan, Johnson et al
English, James
Staff Director, Senate Appropriations, Min
Staff 2001- 2002
Griffin, Patrick J. Director of Legal Affairs, White House 2001- 2002
Winning Strategies Washington
Mullins, Donna Chief of Staff, Rep. Frelinghuysen 2002-2003
Angus & Nickerson
Angus, Barbara
Tax Counsel, Committee on Ways and
Means 2005-2008,
Nickerson, Gregory International Tax Counsel, Dept. of Treasury 2005- 2008
Capitol Tax Partners LLP
Talisman, Johnathan Assistant Treasury Secretary for Tax Policy 2008
Grafmeyer, Richard Deputy Chief of Staff, JCT 2008
Mikrut, Joseph Tax Legislative Counsel - US Treasury 2008
McKenney, William
Staff Director, Ways and Means Over Subcommittee
2008
225 Source: Senate Office of Public Records <http://soprweb.senate.gov/>. Accessed January 2009.
Appendix
129
Wilcox, Lawrence
Staff Director, Senate Republican Policy
Committee 2008
Dennis, James
Tax Counsel, Sen. Robb - Counsel, Sen
Bingaman 2008
Javens, Christopher
Tax Counsel, Sen. Grassley, Senate Finance
Committee 2008
The Goldman Sachs Group. Inc
Connolly, Ken
S.A. Director of Office of Environmental
Policy; LD, 2008
Sen. Jeffords; LD, CEPW
Shirzad, Faryar
Dept. Nat’l Security Adv. For Int’l Econ.
Affairs 2008
Appendix
130
Investment Banks: Lehman Brothers
Decade-long campaign contribution total (1998-2008): $6,704,574
Decade-long lobbying expenditure total (1998-2008): $8,660,000
Lehman Campaign Contributions:226
2008 Top Recipients227
TOTAL: $2,211,761
1. Barack Obama (D) $288,538
2. Hillary Clinton (D) $227,150
3. Rudy Giuliani (R) $140,000
4. John McCain (R) $116,907
5. Mitt Romney (R) $96,200
6. Chris Dodd (D) $31,400
7. Rahm Emanuel (D) $23,000
8. Jack Reed (D) $21,600
9. Joseph Biden Jr (D) $21,100
10. John Edwards (D) $20,400
11. Bill Richardson (D) $13,800
12. Charles Rangel (D) $11,900
13. Steny Hoyer (D) $9,300
14. Jim Himes (D) $8,100
15. Mark Warner (D) $7,600
16. Lee Terry (R) $7,100
17. Steve Israel (D) $6,600
18. Jerrold Nadler (D) $5,600
19. Norm Coleman (R) $5,300
226 Source: Center for Responsive Politics.
Campaign contribution totals accessed February
2009. Individual recipient numbers do
not include the 4th Quarter of 2008.
227 Based on highest 1,000 contributions plus
PAC money.
19. Arlen Specter (R) $5,300
2006 Top Recipients
TOTAL: $917,414
1. Joe Lieberman (I) $82,900
2. Hillary Clinton (D) $54,190
3. Pete Ricketts (R) $13,600
4. Rick Santorum (R) $10,500
5. Harold Ford Jr (D) $9,600
6. Frank Lautenberg (D) $9,000
7. Robert Menendez (D) $8,900
8. Bill Nelson (D) $7,300
9. Ron Klein (D) $6,800
10. Rudy Giuliani (R) $6,300
11. Mike Crapo (R) $5,300
12. Dianne Feinstein (D) $5,100
13. Michael Oxley (R) $5,000
13. Orrin Hatch (R) $5,000
13. Dennis Hastert (R) $5,000
13. Barney Frank (D) $5,000
13. Vito Fossella (R-NY) $5,000
18. Claire McCaskill (D) $4,500
18. Jon Kyl (R) $4,500
18. Richard Baker (R) $4,500
Appendix
131
2004 Top Recipients
TOTAL: $1,985,718
1. George Bush (R) $237,650
2. John Kerry (D) $92,312
3. Chris Dodd (D) $55,000
4. Joe Lieberman (D) $35,950
5. Charles Schumer (D) $35,250
6. Wesley Clark (D) $28,500
7. Richard Gephardt (D) $19,500
8. John Edwards (D) $18,650
9. Tom Daschle (D) $16,970
10. Erskine Bowles (D) $10,000
10. Nancy Pelosi (D) $10,000
12. Barack Obama (D) $9,062
13. John Spratt Jr (D) $9,000
14. Arlen Specter (R) $8,812
15. Mel Martinez (R) $8,500
16. Alcee Hastings (D) $7,500
17. Richard Baker (R) $7,000
17. James Stork (D) $7,000
19.
Joseph Edward Driscoll
(D) $6,500
20. Judd Gregg (R) $6,000
2002 Top Recipients
TOTAL: $231,970228
1. Charles Schumer (D) $14,500
2. Robert Torricelli (D) $14,250
3. Max Baucus (D) $11,000
4. Michael Castle (R) $10,000
4. Michael Oxley (R) $10,000
6. Tom Strickland (D) $8,000
7. Max Cleland (D) $7,000
8. Dan Wofford (D) $5,550
228 Based only on campaign contributions
9. Richard Baker (R) $5,000
9. Billy Tauzin (R) $5,000
11. Lamar Alexander (R) $4,000
11. Erskine Bowles (D) $4,000
11. Nita Lowey (D) $4,000
14. Timothy Carden (D) $3,250
14. Ron Kirk (D) $3,250
16. Rick Boucher (D) $3,000
16. Chris Dodd (D) $3,000
16. Vito Fossella (R) $3,000
16. Tom Harkin (D) $3,000
16. Dennis Hastert (R) $3,000
16. Amo Houghton (R) $3,000
16. Tim Johnson (D) $3,000
16. Mary Landrieu (D) $3,000
16. Carolyn Maloney (D) $3,000
16. Jay Rockefeller (D) $3,000
16. John Spratt Jr (D) $3,000
2000 Top Recipients
TOTAL: $929,780
1. Bill Bradley (D) $51,800
2.
Brendan Thomas
Byrne Jr (D) $31,300
3. Jon Corzine (D) $20,200
4. Rick Lazio (R) $19,750
5. George W Bush (R) $11,000
6. Hillary Clinton (D) $10,550
7. Dianne Feinstein (D) $10,500
8. Charles Schumer (D) $10,000
9. Michael Oxley (R) $9,250
10. William Roth Jr (R) $9,000
11. Michael Castle (R) $8,000
11. Chris Dodd (D) $8,000
13. Spencer Abraham (R) $6,000
Appendix
132
13. Bob Kerrey (D) $6,000
15. Dennis Hastert (R) $5,500
16. Charles Rangel (D) $4,500
16. Edolphus Towns (D) $4,500
18. Richard Lugar (R) $4,000
19. Rick Boucher (D) $3,500
19. Rod Grams (R) $3,500
19. Joe Lieberman (D) $3,500
1998 Top Recipients
TOTAL: $427,931
1. Charles Schumer (D) $10,200
2. Chris Dodd (D) $9,500
3. Tom Daschle (D) $7,500
4. Alfonse D'Amato (R) $7,400
5. Rick Lazio (R) $6,000
6. Charles Rangel (D) $5,500
7.
Brendan Thomas
Byrne Jr (D) $5,000
8. John Breaux (D) $4,000
9. Bob Kerrey (D) $3,500
10. Christopher Bond (R) $3,000
11. Rick White (R) $2,550
11. Jerry Weller (R) $2,500
13. Thomas Manton (D) $2,050
13. Billy Tauzin (R) $2,050
15. Robert Bennett (R) $2,000
15. John Ensign (R) $2,000
15. Newt Gingrich (R) $2,000
15. Bob Graham (D) $2,000
15. Fritz Hollings (D) $2,000
15. Amo Houghton (R) $2,000
15. Jerry Kleczka (D) $2,000
15. John LaFalce (D) $2,000
Appendix
133
Lehman Lobbying Expenditures:229
2008
TOTAL: $720,000
Lehman Brothers $590,000
O'Neill, Athy & Casey $60,000
DLA Piper $70,000
2007
TOTAL: $840,000
Lehman Brothers $720,000
O'Neill, Athy & Casey $80,000
DLA Piper $40,000
2006
TOTAL: $1,140,000
Lehman Brothers $920,000
American Continental
Group $100,000
O'Neill, Athy & Casey $80,000
DLA Piper $40,000
2005
TOTAL: $1,080,000
Lehman Brothers $820,000
American Continental
Group $140,000
O'Neill, Athy & Casey $80,000
DLA Piper $40,000
229 Source: Center for Responsive Politics.
Lobbying amounts accessed February 2009.
2004
TOTAL: $740,000
Lehman Brothers $620,000
O'Neill, Athy & Casey $80,000
Piper Rudnick LLP $40,000
2003
TOTAL: $660,000
Lehman Brothers $540,000
O'Neill, Athy & Casey $80,000
Piper Rudnick LLP $40,000
2002
TOTAL: $660,000
Lehman Brothers $540,000
O'Neill, Athy & Casey $80,000
Verner, Liipfert et al $40,000
Piper Rudnick LLP > $10,000*
2001
TOTAL: $600,000
Lehman Brothers $320,000
Verner, Liipfert et al $200,000
O'Neill, Athy & Casey $80,000
2000
TOTAL: $560,000
Lehman Brothers $280,000
Verner, Liipfert et al $200,000
O'Neill, Athy & Casey $80,000
* Not included in totals
Appendix
134
1999
TOTAL: $860,000
Lehman Brothers $580,000
Verner, Liipfert et al $200,000
O'Neill, Athy & Casey $80,000
1998
TOTAL: $800,000
Lehman Brothers $560,000
Verner, Liipfert et al $140,000
O'Neill, Athy & Casey $80,000
Palmetto Group $20,000
Appendix
135
Lehman Covered Official Lobbyists:230
Firm / Name of Lobbyist Covered Official Position Year(s)
Verner, Liipfert et al
Hawley, Noelle M. Legislative Director, Rep. Bill Archer 1999-2001
Krasow, Cristina L.
Sr. Cloakroom Asst., Sen. Dem. Cloakroom
1999-2000
230 Source: Senate Office of Public Records <http://soprweb.senate.gov/>. Accessed January 2009.
Appendix
136
Investment Banks: Merrill Lynch
Decade-long campaign contribution total (1998-2008): $9,977,724
Decade-long lobbying expenditure total (1998-2008): $59,076,760
Merrill Lynch Campaign Contributions:231
2008 Top Recipients
TOTAL: $2,780,347
1. John McCain (R) $360,620
2. Barack Obama (D) $264,720
3. Rudy Giuliani (R) $210,275
4. Hillary Clinton (D) $202,568
5. Mitt Romney (R) $172,025
6. Chris Dodd (D) $67,300
7. Mitch McConnell (R) $31,600
8. Mark Pryor (D) $23,900
9. Debbie Stabenow (D) $23,850
10. Rahm Emanuel (D) $20,800
11. John Edwards (D) $19,075
12. Max Baucus (D) $17,800
13. Joseph Biden (D) $15,900
14.
Christopher Shays
(R) $14,675
15. Jack Reed (D) $10,500
16. Linda Ketner (D) $10,200
17. Chuck Hagel (R) $10,000
18. Gregory Meeks (D) $9,600
19. Tim Ryan (D) $9,200
20. Ron Paul (R) $9,001
231 Source: Center for Responsive Politics.
Campaign contribution totals accessed February
2009. Individual recipient numbers do
not include the 4th Quarter of 2008.
2006 Top Recipients
TOTAL: $1,153,733
1. Chris Dodd (D) $61,650
2. Harold E Ford Jr (D) $50,450
3. Hillary Clinton (D) $49,510
4. Bob Corker (R) $33,900
5. Mike DeWine (R) $30,000
6. Robert Menendez $28,450
7. Ben Nelson (D) $18,200
8. Chuck Hagel (R) $17,300
9. Rick Santorum (R) $16,800
10. George Allen (R) $14,050
11. Mike Ferguson (R) $12,400
12. Jim Matheson (D) $11,500
13. Christopher Shays (R) $10,450
14. Joe Lieberman (/I) $10,400
15. Sheldon Whitehouse (D) $10,200
16. Thomas Kean Jr (R) $10,150
17. Michael McGavick (R) $9,900
18. Ed Royce (R) $9,000
19. Geoff Davis (R) $8,700
20. David Dreier (R) $8,300
Appendix
137
2004 Top Recipients
TOTAL: $2,187,763
1. George W Bush (R) $580,004
2. David M Beasley (R) $118,500
3. John Kerry (D) $111,526
4. Charles Schumer (D) $50,250
5. Scott Paterno (R) $41,000
6. Arlen Specter (R) $29,600
7. Joe Lieberman (D) $27,900
8. Barack Obama (D) $21,000
9. Rick Santorum (R) $17,500
10. Tom Daschle (D) $13,000
11. Wesley Clark (D) $11,750
12. Richard C Shelby (R) $11,000
13. Howard Dean (D) $10,400
14.
Christopher s 'Kit'
Bond (R) $9,000
15.
Christopher Shays
(R) $8,200
16. Jay Helvey (R) $8,150
17. Christopher Cox (R) $7,675
18. Jim Bunning (R) $7,500
19. Lamar Alexander (R) $7,000
20. Michael R Turner (R) $6,750
2002 Top Recipients
TOTAL: $955,306
1. Charles Schumer (D) $76,750
2. Robert Torricelli (D) $13,500
3. Erskine Bowles (D) $12,000
4. Arlen Specter (R) $10,700
5. Lamar Alexander (R) $9,750
6. Elizabeth Dole (R) $9,200
7.
Christopher Shays
(R) $9,000
8. John Kerry (D) $7,250
9. Douglas Forrester (R) $6,750
10. Chellie Pingree (D) $6,250
11. Wayne Allard (R) $6,000
11. Hillary Clinton (D) $6,000
13. Rob Simmons (R) $5,500
14. Suzanne Terrell (R) $5,000
15. James M Talent (R) $4,700
16.
David Howard Fink
(D) $4,500
17. Jim Marshall (D) $4,250
17. Tom Strickland (D) $4,250
19. Max Baucus (D) $4,200
19. Norm Coleman (R) $4,200
2000 Top Recipients
TOTAL: $1,873,044
1. George W Bush (R) $132,425
2. Bill Bradley (D) $87,780
3. John McCain (R) $69,400
4. Rick A Lazio (R) $63,550
5. Al Gore (D) $28,500
6. Jon S Corzine (D) $24,250
7. Hillary Clinton (D) $22,925
8. Charles Schumer (D) $20,000
9. Spencer Abraham (R) $19,000
10. Phil Gramm (R) $17,000
11. Rudy Giuliani (R) $15,350
12. Dick Zimmer (R) $14,000
13. George Allen (R) $10,242
14. Orrin Hatch (R) $8,750
15. William Gormley (R) $8,500
16. Kent Conrad (D) $8,000
17. William Roth Jr (R) $7,250
18. Joe Lieberman (D) $7,000
18. Paul S Sarbanes (D) $7,000
Appendix
138
18. Robert Torricelli (D) $7,000
1998 Top Recipients
TOTAL: $1,027,531
1. Alfonse D'Amato (R) $53,200
2. Charles Schumer (D) $31,150
3.
Carol Moseley Braun
(D) $17,750
4. Bob Kerrey (D) $16,000
5. Chris Dodd (D) $14,250
6. Geraldine Ferraro (D) $10,500
7. Lauch Faircloth (R) $10,400
8. Evan Bayh (D) $10,300
9.
Daniel Patrick
Moynihan (R) $10,000
10. James M Casso (D) $9,000
10. Paul Coverdell (R) $9,000
12. Tom Daschle (D) $7,450
13. Gary A Franks (R) $6,750
13.
Christopher Shays
(R) $6,750
15. Spencer Abraham (R) $6,500
15. Michael Coles (D) $6,500
17.
Ben Nighthorse
Campbell (R) $6,000
18. David Wu (D) $5,750
19. Matt Fong (R) $5,500
19. Ellen Tauscher (D) $5,500
Appendix
139
Merrill Lynch Lobbying Expenditures:232
2008
TOTAL: $6,174,000
Merrill Lynch $4,700,000
Ernst & Young $604,000
Johnson, Madigan et al $240,000
Mayer, Brown et al $150,000
DLA Piper $210,000
Brownstein, Hyatt et al $120,000
Davis & Harman $80,000
Baptista Group $60,000
John Kelly Consulting $10,000
2007
TOTAL: $6,000,000
Merrill Lynch $4,420,000
Ernst & Young $600,000
DLA Piper $340,000
Mayer, Brown et al $160,000
Brownstein, Hyatt et al $120,000
Davis & Harman $120,000
Baptista Group $80,000
James E Boland Jr $80,000
John Kelly Consulting $80,000
2006
TOTAL: $6,397,760
Merrill Lynch $3,952,760
Mayer, Brown et al $1,100,000
Ernst & Young $605,000
DLA Piper $300,000
Davis & Harman $140,000
232 Source: Center for Responsive Politics.
Lobbying amounts accessed February 2009.
Brownstein, Hyatt et al $120,000
James E Boland Jr $80,000
John Kelly Consulting $80,000
Baptista Group $20,000
2005
TOTAL: $5,480,000
Merrill Lynch $4,160,000
Ernst & Young $600,000
DLA Piper $200,000
Brownstein, Hyatt et al $140,000
Davis & Harman $140,000
Deloitte Tax $120,000
James E Boland Jr $80,000
John Kelly Consulting $40,000
Seward & Kissel > $10,000*
2004
TOTAL: $5,770,000
Merrill Lynch $4,210,000
Ernst & Young $600,000
Piper Rudnick LLP $380,000
Deloitte Tax $240,000
Brownstein, Hyatt et al $140,000
Davis & Harman $120,000
James E Boland Jr $80,000
Seward & Kissel > $10,000*
2003
TOTAL: $4,825,000
Merrill Lynch $3,300,000
Ernst & Young $600,000
* Not included in totals
Appendix
140
Piper Rudnick LLP $460,000
Deloitte Tax $240,000
Davis & Harman $140,000
James E Boland Jr $65,000
Brownstein, Hyatt et al $20,000
Seward & Kissel > $10,000*
2002
TOTAL: $4,960,000
Merrill Lynch $3,100,000
Ernst & Young $600,000
Verner, Liipfert et al $580,000
Piper Rudnick LLP $320,000
Davis & Harman $160,000
James E Boland Jr $80,000
Seward & Kissel $60,000
Deloitte & Touche $40,000
Capitol Tax Partners $20,000
2001
TOTAL: $4,160,000
Merrill Lynch $2,940,000
Ernst & Young $620,000
Verner, Liipfert et al $300,000
Davis & Harman $140,000
OB-C Group $80,000
James E Boland Jr $60,000
Seward & Kissel $20,000
2000
TOTAL: $4,400,000
Merrill Lynch $3,660,000
* Not included in totals
Verner, Liipfert et al $240,000
Davis & Harman $200,000
OB-C Group $160,000
Ernst & Young $140,000
Swidler, Berlin et al > $10,000*
Wilmer, Culter & Pickering > $10,000*
1999
TOTAL: $5,400,000
Merrill Lynch $3,580,000
Ernst & Young $600,000
Swidler, Berlin et al $460,000
Verner, Liipfert et al $300,000
Davis & Harman $200,000
Rhoads Group $180,000
Seward & Kissel $40,000
George C Tagg $40,000
OB-C Group > $10,000*
1998
TOTAL: $5,510,000
Merrill Lynch $3,800,000
Washington Counsel $480,000
Swidler, Berlin et al $300,000
Verner, Liipfert et al $260,000
Rhoads Group $200,000
OB-C Group $160,000
Davis & Harman $160,000
Seward & Kissell $100,000
George C Tagg $50,000
* Not included in totals
Appendix
141
Merrill Lynch Covered Official Lobbyists:233
Firm / Name of Lobbyist Covered Official Position Year(s)
Ernst & Young
Badger, Doug Chief of Staff, Senate Majority Whip 12/98 1999-2002
Giordano, Nick
Minority Chief, Tax Counsel, Senate Committee
on Finance
1999-2000
2003-2008
Conklin, Brian Special Assistant to the President 2004
Merrill Lynch & Co, Inc
Thompson Jr, Bruce E.
Vice President, Director of Government
Relations 1999-2008
Kelly, John F. Vice President, Government Relations 1999-2005
Costantino Jr, Louis A. Director, Government Relations 2003-2008
Goldstein, Lon N. Director, Government Relations 2008
Micali, Mark A. Director, Government Relations 2008
Thibau, Janelle C. M. Director, Government Relations 2007-2008
Berry, Steven K. Managing Director, Government Relations 2008
Verner, Liipfert et al
Krasow, Cristina L.
Sr. Cloakroom Assistant, Sen. Dem. Cloakroom
1999
Hyland, James E. Legislative Director, Senator Kay Bailey 2003
Hutchison
OB-C Group
Calio, Nicholas E. Assistant to the President 2000-2005
Capitol Tax Partners, LLP
Fant, William
Dep. Asst. Secretary for Legislative Affairs
- Treasury 2002
Mikrut, Joseph Tax Legislative Counsel - US Treasury 2002
Talisman, Johnathan Asst. Treasury Secretary for Tax Policy 2002
233 Source: Senate Office of Public Records <http://soprweb.senate.gov/>. Accessed January 2009.
Appendix
142
Piper Rudnick, LLP
Hyland, James E. Legislative Director, Senator Hutchison 2002-2004
Brownstein Hyatt & Farber, P.C.
Mottur, Alfred
Sr. Telecommunications Counsel - Commerce
Committee 2003-2008
Chube, Ellen
Sr. Legislative Asst. - Cong. Harold Ford,
Jr.
Whonder, Carmencita
Staff Director - Subcommittee on House
Transport and 2008
Commercial Development; Min Stf Dir -
Subcomm on Econ.
Policy; Legislative Corresp. - Office of
Sen. Charles Schumer
Johnson, Madigan et al
Murphy, Sheila LD, Senator Klobuchar 2008
« Last Edit: December 11, 2011, 01:26:01 AM by prentice crawford »

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Re: Corruption
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Woof, 10th Post;

Appendix
143
Investment Banks: Morgan Stanley
Decade-long campaign contribution total (1998-2008): $14,367,857
Decade-long lobbying expenditure total (1998-2008): $20,835,000
Morgan Stanley Campaign
Contributions:234
2008 Top Recipients
TOTAL: $3,573,627
1. Barack Obama (D) $425,502
2. Hillary Clinton (D) $376,980
3. John McCain (R) $258,677
4. Mitt Romney (R) $165,750
5. Rudy Giuliani (R) $133,750
6. Chris Dodd (D) $69,400
7. Fred Thompson (R) $42,800
8. Max Baucus (D) $30,500
9. Mark Kirk (R) $23,850
10. Jack Reed (D) $21,350
11. Mark Warner (D) $19,450
12. Michael N Castle (R) $17,850
13. Niki Tsongas (D) $17,100
14. Rahm Emanuel (D) $16,200
15. Susan M Collins (R) $15,933
16. Bill Richardson (D) $14,900
17. John Boehner (R) $14,300
17. Al Franken (D) $14,300
19. Jim Himes (D) $13,200
19. Scott Kleeb (D) $13,200
234 Source: Center for Responsive Politics.
Campaign contribution totals accessed February
2009. Individual recipient numbers do
not include the 4th Quarter of 2008.
2006 Top Recipients
TOTAL: $1,943,033
1. Hillary Clinton (D) $116,060
2. Harold Ford Jr (D) $43,650
3. Chris Dodd (D) $42,200
4. Joe Lieberman (I) $24,700
5. Rick Santorum (R) $19,250
6. Orrin G Hatch (R) $19,000
7. Jon Kyl (R) $17,100
8. Michael N Castle (R) $16,100
9. Mike DeWine (R) $15,600
10. Dennis Hastert (R) $14,100
11.
Kathleen Troia
McFarland (R) $14,000
12. Mark Kirk (R) $13,900
13. Thomas Kean Jr (R) $12,550
14.
Christopher Shays
(R) $12,350
15. Bob Corker (R) $12,200
16. Robert Menendez (D) $12,150
17. Tom Carper (D) $11,880
18. Ned Lamont (D) $11,850
19. Conrad Burns (R) $11,100
20. Scott Kleeb (D) $11,050
Appendix
144
2004 Top Recipients
TOTAL: $3,286,484
1. George W Bush (R) $600,480
2. John Kerry (D) $180,979
3. Charles Schumer (D) $57,000
4. Chris Dodd (D) $46,000
5. Robert Bennett (R) $38,000
6. Dennis Hastert (R) $34,750
7. John Edwards (D) $33,050
8. Erskine Bowles (D) $32,750
9. Howard Dean (D) $29,350
10. Arlen Specter (R) $27,750
11. James DeMint (R) $20,750
12. Barack Obama (D) $20,250
13. Wesley Clark (D) $19,550
14. Tom Daschle (D) $18,000
15. Michael N Castle (R) $17,000
15.
Andrew McKenna
(R) $17,000
17. Richard Burr (R) $16,549
18.
Christopher S 'Kit'
Bond (R) $15,400
19. Evan Bayh (D) $15,000
19. Mel Martinez (R) $15,000
2002 Top Recipients
TOTAL: $1,899,242
1. Charles Schumer (D) $52,500
2. Erskine Bowles (D) $27,000
3. Elizabeth Dole (R) $23,750
4. Rob Portman (R) $19,000
5. Frank Lautenberg (D) $18,150
6. Saxby Chambliss (R) $16,000
7. Max Baucus (D) $15,500
8. Norm Coleman (R) $15,450
9. Michael N Castle (R) $14,800
10. Evan Bayh (D) $14,450
11. Richard Baker (R) $14,000
11. Lindsey Graham (R) $14,000
13. James M Talent (R) $13,000
14. Mike Ferguson (R) $12,250
15. Billy Tauzin (R) $12,000
16. Roy Blunt (R) $11,000
17. Arlen Specter (R) $10,250
18. Mark Foley (R) $10,200
19. Wayne Allard (R) $10,000
19. Spencer Bachus (R) $10,000
2000 Top Recipients
TOTAL: $2,656,627
1. George W Bush (R) $148,050
2. Rick A Lazio (R) $139,450
3. Charles Schumer (D) $126,000
4. Bill Bradley (D) $97,850
5. Al Gore (D) $52,300
6. Phil Gramm (R) $41,500
7. John McCain (R) $38,050
8. Hillary Clinton (D) $30,400
9. Tom Campbell (R) $24,500
10. Charles S Robb (D) $23,000
11. Bill McCollum (R) $18,700
12. Spencer Abraham (R) $16,050
13. Rudy Giuliani (R) $15,800
14. William Roth Jr (R) $14,700
15. John J LaFalce (D) $14,000
16. Kent Conrad (D) $13,000
17. Mark Kirk (R) $12,150
17. Carolyn Maloney (D) $12,000
19. Jon S Corzine (D) $11,500
Appendix
145
20. Bob Franks (R) $11,250
1998 Top Recipients
TOTAL: $1,008,844
1. Lauch Faircloth (R) $48,100
2. Evan Bayh (D) $31,750
3. Charles Schumer (D) $31,500
4. Alfonse D'Amato (R) $30,500
5. Barbara Mikulski (D) $7,500
6. Robert Bennett (R) $7,000
7. Tom Daschle (D) $6,500
8. Jon D Fox (R) $6,250
8. Arlen Specter (R) $6,250
10. Michael N Castle (R) $5,750
11. Chris Dodd (D) $5,225
12. Phil Crane (R) $5,000
12. Edward Kennedy (D) $5,000
12. Rick A Lazio (R) $5,000
12. Trent Lott (R) $5,000
12. Michael G Oxley (R) $5,000
12. Larry Schneider (D) $5,000
12. Billy Tauzin (R) $5,000
19. Rick White (R) $4,800
20. John J LaFalce (D) $4,750
Appendix
146
Morgan Stanley Lobbying Expenditures235:
2008
TOTAL: $3,005,000
Morgan Stanley $2,500,000
Capitol Tax Partners $240,000
Eris Group $120,000
American Capitol Group $45,000
Baptista Group $60,000
Kate Moss Co $40,000
DCI Group > $10,000*
2007
TOTAL: $3,040,000
Morgan Stanley $2,360,000
Capitol Tax Partners $240,000
Eris Group $120,000
American Capitol Group $80,000
Baptista Group $80,000
James E Boland Jr $80,000
Kate Moss Co $40,000
Alston & Bird $40,000
DCI Group > $10,000*
2006
TOTAL: $3,360,000
Morgan Stanley $2,720,000
Capitol Tax Partners $240,000
James E Boland Jr $120,000
Bartlett & Bendall $60,000
Alston & Bird $60,000
Eris Group $60,000
235 Source: Center for Responsive Politics.
Lobbying amounts accessed February 2009.
* Not included in totals
Kate Moss Co $40,000
American Capitol Group $40,000
Baptista Group $20,000
DCI Group > $10,000*
2005
TOTAL: $2,840,000
Morgan Stanley $2,280,000
Capitol Tax Partners $240,000
Bartlett & Bendall $120,000
James E Boland Jr $120,000
Kate Moss Co $40,000
Alston & Bird $40,000
2004
TOTAL: $2,750,000
Morgan Stanley $2,180,000
Capitol Tax Partners $240,000
Bartlett & Bendall $120,000
James E Boland Jr $120,000
Kate Moss Co $50,000
Alston & Bird $40,000
2003
TOTAL: $2,580,000
Morgan Stanley $2,000,000
Capitol Tax Partners $200,000
Bartlett & Bendall $120,000
James E Boland Jr $100,000
Alston & Bird $100,000
Kate Moss Co $60,000
* Not included in totals
Appendix
147
2002
TOTAL: $1,960,000
Morgan Stanley $1,540,000
Capitol Tax Partners $200,000
Alston & Bird $80,000
James E Boland Jr $80,000
Kate Moss Co $60,000
2001
TOTAL: $1,300,000
Morgan Stanley $920,000
James E Boland Jr $80,000
Capitol Tax Partners $80,000
Kate Moss Co $80,000
Alston & Bird $70,000
Palmetto Group $40,000
George C Tagg $30,000
1998-2000
N/A
Appendix
148
Morgan Stanley Covered Official Lobbyists:236
Firm / Name of Lobbyist Covered Official Position Year (s)
Capitol Tax Partners
Fant, William
Deputy Asst Sec. (treasury) for legislative
affairs 2001-2004
Mikrut, Joseph Tax Legislative Counsel - US Treasury 2001-2008
Talisman, Jonathan Assistant Treasury Secretary for Tax Policy 2001-2008
Wilcox, Lawrence
Staff Director, Senate Republican Policy
Committee 2006-2008
McKenny, William Chief of Staff, Rep. Amo Hougton 2004-2008
Grafmeyer, Richard Deputy Chief of Staff - JCT 2003-2008
Dennis, James
Tax Counsel, Sen. Robb - Counsel, Sen.
Bingaman 2008
Javens, Christopher
Tax Counsel, Sen. Grassley, Sen. Finance
Committee 2008
Bartlett & Bendall
Amy D. Smith Deputy Assistant Secretary, US Treasury 2003
Gill, Shane Legislative Director, Rep. Spencer Bachus
2004-2005
2007
Alston & Bird
Martino, Paul G Tax Counsel, Senate Finance Committee 2006
Eris Group
Kadesh, Mark Chief of Staff, Sen. Feinstein 2006-2007
236 Source: Senate Office of Public Records <http://soprweb.senate.gov/>. Accessed January 2009.
Appendix 149
Commercial Banks: Bank of America
Decade-long campaign contribution total (1998-2008): $11,292,260
Decade-long lobbying expenditure total (1998-2008): $28,635,440
BOA Campaign Contributions:237
2008 Top Recipients
TOTAL: $2,212,369
1. Barack Obama (D) $230,552
2. John McCain (R) $126,175
3. Hillary Clinton (D) $106,071
4. Rudy Giuliani (R) $69,050
5. Chris Dodd (D) $63,100
6. Mitt Romney (R) $52,550
7. Joseph R. Biden Jr. (D) $44,000
8. Michael N. Castle (R) $25,250
9.
Dutch Ruppersberger
(D) $17,200
10. Melissa Bean (D) $16,000
10. Rahm Emanuel (D) $16,000
12. Dick Durbin (D) $13,600
13. Melvin L. Watt (D) $13,500
14. Mark Warner (D) $12,800
15. Barney Frank (D) $12,750
16. Kay R. Hagen (D) $12,600
17. Peter Roskam (R) $11,500
18. Jack Reed (D) $11,321
19. James E. Clyburn (D) $11,000
20. John E. Sununu (R) $10,950
237 Source: Center for Responsive Politics.
Campaign contribution totals accessed February
2009. Individual recipient numbers do
not include the 4th Quarter of 2008.
2006 Top Recipients
TOTAL: $2,098,533
1. John M. Spratt Jr. (D) $64,500
2. Hillary Clinton (D) $53,085
3. David McSweeney (R) $33,800
4. Harold E. Ford Jr. (D) $32,400
5. Michael N. Castle (R) $31,250
6. Rick Santorum (R) $21,250
7. Tom Carper (D) $20,130
8. Spencer Bachus (R) $18,500
9. Jack Reed (D) $17,828
10. Pete Sessions (R) $17,700
11. Patrick McHenry (R) $16,999
12.
Dutch Ruppersberger
(D) $16,450
13. Robert Menendez (D) $16,000
14. Melissa Bean (D) $15,130
15.
Michael Fitzpatrick
(R) $15,000
16. Sue Myrick (R) $14,900
17. John E. Sununu (R) $14,607
18. Olympia J. Snowe (R) $14,600
19. Joe Lieberman (I) $14,549
20. James M. Talent (R) $14,500
Appendix
150
2004 Top Recipients
TOTAL: $2,360,786
1. George W. Bush (R) $195,761
2. John Kerry (D) $126,202
3. John M. Spratt Jr. (D) $50,700
4. Richard Burr (R) $44,100
5. Erskine B. Bowles (D) $43,800
6. Barack Obama (D) $28,500
7. Elizabeth Dole (R) $20,750
8. John Edwards (D) $18,050
9. Melvin L. Watt (D) $17,500
10. Richard Gephardt (D) $17,450
11. Sue Myrick (R) $16,500
12. Harold E. Ford Jr. (D) $16,000
13. Jay Helvey (R) $15,250
14. Michael G. Oxley (R) $15,000
15. Dennis Hastert (D) $14,500
16. Mike Ferguson (R) $13,000
17. David Vitter (R) $12,800
18. Pete Sessions (R) $11,065
19. Tim J. Michels (R) $10,950
20. Johnny Isakson (R) $10,700
2002 Top Recipients
TOTAL: $1,193,660
1. Charles Schumer (D) $57,500
2. Erskine B. Bowles (D) $37,600
3. Elizabeth Dole (R) $22,150
4. John M. Spratt Jr. (D) $20,750
5. Max Baucus (D) $18,450
6. John Cornyn (R) $11,000
7. Spencer Bachus (R) $10,000
7. Martin Frost (D) $10,000
9. Sue Myrick (R) $9,250
10. David Dreier (R) $9,000
11. Michael G. Oxley (R) $8,500
12. Charlie Gonzalez (D) $8,000
12. Tim Johnson (D) $8,000
14. Lindsey Graham (R) $7,750
14. Richard Baker (R) $7,500
16. Richard Gephardt (D) $7,000
16. Robin Hayes (R) $7,000
16. John Linder (R) $7,000
19. Jerry Weller (R) $6,888
20. Ken Bentsen (D) $6,500
2000 Top Recipients
TOTAL: $1,649,522
1. George W. Bush (R) $113,500
2. Bill Bradley (D) $56,450
3. John M. Spratt Jr. (D) $26,500
4. Phil Gramm (R) $25,500
5. Dianne Feinstein (D) $18,139
6. Sue Myrick (R) $16,850
7. Al Gore (D) $16,750
8. Martin Frost (D) $15,000
9. Rick A. Lazio (R) $13,550
10. Bill Nelson (D) $13,000
11. John McCain (R) $12,450
12. Bill McCollum (R) $11,500
13. Zell Miller (D) $11,000
14. David Dreier (R) $10,000
14. Richard Gephardt (D) $10,000
16. John Edwards (D) $9,750
17. Mel Carnahan (D) $8,150
18. Elizabeth Dole (R) $7,750
18. Charles S. Robb (D) $7,750
18. Ellen Tauscher (D) $7,750
Appendix 151
1998 Top Recipients
TOTAL: $2,114,390
1. Lauch Faircloth (R) $56,000
2.
Christopher S. 'Kit'
Bond $21,900
3. Bill McCollum (R) $18,500
4. Bob Graham (D) $17,950
5. John McCain (R) $17,550
6. John M. Spratt Jr. (D) $17,500
7. Richard Baker (R) $17,000
8.
Carol Moseley Braun
(D) $16,050
9. Robert F. Bennett (R) $16,000
9. Tom Daschle (D) $16,000
11. John Linder (R) $15,000
12. Evan Bayh (D) $14,000
12. Martin Frost (D) $14,000
14. Matt Fong (R) $13,000
15. Paul Coverdell (R) $12,500
15. Alfonse D'Amato (R) $12,500
15. Richard Gephardt (D) $12,500
15. Rick A. Lazio (R) $12,500
19. Ellen Tauscher (D) $12,300
20. Dick Armey (R) $12,000
Appendix
152
BOA Lobbying Expenditures:238
2008
TOTAL: $5,755,000
Bank of America $4,090,000
King & Spalding $480,000
Quinn, Gillespie & Assoc $360,000
Smith-Free Group $250,000
Bryan Cave Strategies $160,000
Public Strategies $165,000
Clark Consulting Federal
Policy group $100,000
Quadripoint Strategies $90,000
American Capitol Group $60,000
Covington & Burling > $10,000*
2007
TOTAL: $4,946,400
Bank of America $3,220,000
Quinn, Gillespie & Assoc $360,000
Kilpatrick Stockton $300,000
Clark Consulting Federal
Policy group $300,000
Smith-Free Group $280,000
King & Spalding $180,000
Covington & Burling $100,000
Bryan Cave Strategies $100,000
Quadripoint Strategies $76,400
Public Strategies $30,000
238 Source: Center for Responsive Politics.
Lobbying amounts accessed February 2009.
* Not included in totals
2006
TOTAL: $3,486,014
Bank of America $1,986,014
Kilpatrick Stockton $400,000
Quinn, Gillespie & Assoc $360,000
Clark Consulting Federal
Policy group $300,000
Smith-Free Group $240,000
Covington & Burling $120,000
Angus & Nickerson $40,000
Cypress Advocacy $20,000
Kate Moss Co $20,000
2005
TOTAL: $1,900,000
Bank of America $1,000,000
Clark Consulting Federal
Policy group $300,000
Quinn, Gillespie & Assoc $240,000
Smith & Assoc $240,000
Kilpatrick Stockton $60,000
Angus & Nickerson $20,000
Covington & Burling $20,000
Kate Moss Co $20,000
Winston & Strawn > $10,000*
* Not included in totals
Appendix 153
2004
TOTAL: $1,020,000
Bank of America $660,000
Clark Consulting Federal
Policy group $300,000
Kate Moss Co $40,000
Perkins, Smith & Cohen $20,000
Reed Smith LLP > $10,000*
Covington & Burling > $10,000*
2003
TOTAL: $1,196,141
Bank of America $656,141
Clark Consulting Federal
Policy group $300,000
Perkins, Smith & Cohen $160,000
Covington & Burling $40,000
Kate Moss Co $40,000
Reed Smith LLP > $10,000*
2002
TOTAL: $1,179,350
Bank of America $679,350
Clark Consulting Federal
Policy group $200,000
PriceWaterhouseCoopers $140,000
O'Connor & Hannan $120,000
Kate Moss Co $40,000
2001
TOTAL: $1,932,204
Bank of America $1,552,204
PriceWaterhouseCoopers $240,000
O'Connor & Hannan $100,000
Kate Moss Co $40,000
Holmes, Weddle & Barcott > $10,000*
2000
TOTAL: $1,947,331
Bank of America $1,567,331
PriceWaterhouseCoopers $240,000
Beck, Edward A III $40,000
Kate Moss Co $40,000
O'Connor & Hannan $40,000
Hyjek & Fix $20,000
Winston & Strawn > $10,000*
1999
TOTAL: $340,000
Beck, Edward A III $20,000
Covington & Burling > $10,000*
Hyjek & Fix $20,000
Kate Moss Co $40,000
PriceWaterhouseCoopers $260,000
Winston & Strawn > $10,000*
1998
TOTAL: $4,933,000
Bank of America $3,960,000
NationsBank $620,000
Bergner, Bockorny et al $140,000
Kate Moss Co $73,000
PriceWaterhouseCoopers $60,000
Beck, Edward A III $60,000
Covington & Burling > $10,000*
Covington & Burling $20,000
* Not included in totals
Appendix
154
BOA Covered Official Lobbyists:239
Firm / Name of Lobbyist Covered Official Position Year(s)
American Capitol Group
Nate Gatten Prof. Staff, Senate Banking Comm. 2008
Leg. Asst, Sen. Bennett
Staff, Sen. Budget Comm.
Brian Cave Strategies LLC
Waldo McMillan Intern, Rep. Chaka Fattah 2008
Floor Asst, Counsel for Bus. Affairs, Sen.
Harry Reid
Federal Policy Group (Clark & Wamberg)
Ken Kies Chief of Staff, Joint Comm on Taxation 2008
Matt Dolan Counsel, Sen. David Durenberger 2008
Pat Raffaniello Chief of Staff, Cong. Bill Brewster 2008
King & Spalding
William Clarkson Legislative Asst, Sen. Susan Collins 2007-2008
Archibald Galloway III
Sr. Defense Policy Advisor, Sen. Jeff Sessions
2008
Quinn Gillespie & Associates
Jack Quinn
Counsel, Pres. Clinton; Chief of Staff, VP
Gore 2008
Dave Hoppe
Staff Dir/CoS, Sen Lott; CoS Rep. Kemp and
Coats 2008
Jeff Connaughton Special Asst to chair of Sen. Judiciary Comm 2008
Special Asst to White House Counsel
Allison Giles Chief of Staff, Ways & Means Comm 2007-2008
Legislative Asst, Rep. Thomas
Elizabeth Hogan Special Asst, Dept of Commerce 2005-2008
Assoc. Dir, EOP; Intern, Rep. McCrery
Bonnie Hogue Duffy Staff, Sen. Comm on Aging 2008
239 Source: Senate Office of Public Records <http://soprweb.senate.gov/>. Accessed January 2009.
Appendix 155
Legislative Asst, Sen. Reed
Harriet James Melvin Prof. Staff, Rep Charles Hatcher 2008
Kevin Kayes Chief Counsel, Sen. Reid 2006-2008
Marc Lampkin Policy Dir, Sen Coverdell 2008
Nick Maduros Cloakroom assistant; Intern, Sen Lehman 2008
Christopher McCannell Chief of Staff, Cong. Crowley 2007-2008
Amy Jensen Cunniffee Special Asst to the Pres for Legal Affairs 2005-2006
Mike Hacker Comm Dir, Rep. Dingell 2005
Covington & Burling
Holly Fechner Policy Dir, Sen. Edward Kennedy 2007
Angus & Nickerson
Barbara Angus Int’l Tax Counsel, Dept of Treausry 2006
Gregory Nickerson Tax Counsel, Ways and Means Comm 2006
Cypress Advocacy
Patrick Cave Asst Sec, Dept of Treasury 2006
Kilpatrick Stockton
Armand Dekeyser Chief of Staff, Sen. Jeff Sessions 2005-2006
The Smith-Free Group
Jon Deuser Chief of Staff, Sen. Bunning 2006
PricewaterhouseCoopers
Tim Hanford Tax Counsel, Ways and Means Comm. 2001-2002
Kenneth Kies Chief of Staff, Joint Comm. on Taxation 2000-2001
Barbara Angus
Business Tax Counsel, Joint Comm. on
Taxation 2000-2001
Appendix
156
Commercial Banks: Citigroup
Decade-long campaign contribution total (1998-2008): $19,778,382
Decade-long lobbying expenditure total (1998-2008): $88,460,000
Citigroup Campaign Contributions:240
2008 Top Recipients
TOTAL: $4,270,678
1. Barack Obama (D) $543,430
2. Hillary Clinton (D) $423,417
3. John McCain (R) $301,301
4. Mitt Romney (R) $168,550
5. Chris Dodd (D) $157,244
6. Rudy Giuliani (R) $151,100
7. Charles B. Rangel (D) $61,450
8. John Edwards (D) $44,600
9. Saxby Chambliss (R) $40,350
10. Dick Durbin (D) $40,250
11. Spencer Bachus (R) $35,450
12. David Landrum (R) $30,450
13. Rahm Emanuel (D) $28,000
14. John E. Sununu (R) $26,850
15.
Shelley Moore Capito
(R) $25,700
16. Richard C. Shelby (R) $25,200
17. Max Baucus (D) $24,500
18. Chuck Hagel (R) $24,100
19. Joe Biden Jr. (D) $23,950
20. Jim Marshall (D) $23,050
240 Source: Center for Responsive Politics.
Campaign contribution totals accessed February
2009. Individual recipient numbers do
not include the 4th Quarter of 2008.
2006 Top Recipients
TOTAL: $2,576,066
1. Hillary Clinton (D) $134,610
2. Christopher J. Dodd (D) $107,800
3. Joe Lieberman (I) $59,450
4. Tom Carper (D) $55,300
5. Kent Conrad (D) $36,000
6. John E. Sununu (R) $35,250
7. Jim McCrery (R) $34,300
8. Mitch McConnell (R) $33,700
9. Jon Kyl (R) $33,400
10. Rick Santorum (R) $29,850
11. Christopher Shays (R) $23,000
12. Mike DeWine (R) $21,850
13. Thomas H. Kean Jr. (R) $21,550
14. Harold E. Ford Jr. (D) $19,800
15. Robert Menendez (D) $19,550
16. Ben Nelson (D) $18,200
17. Doris O. Matsui (D) $18,050
18. Bob Corker (R) $17,250
19. David Yassky (D) $16,050
20. James M. Talent (R) $15,900
Appendix 157
2004 Top Recipients
TOTAL: $3,003,758
1. George W. Bush (R) $315,820
2. John Kerry (D) $280,881
3. Hillary Clinton (D) $91,250
4. Charles Schumer (D) $80,800
5. Richard Shelby (R) $65,000
6. Tom Daschle (D) $56,700
7. Chris Dodd (D) $50,200
8. Michael G. Oxley (R) $40,550
9. Mike Crapo (R) $34,450
10. Harry Reid (D) $32,250
11. Wesley Clark (D) $30,650
12. Rob Portman (R) $30,000
13. Joe Lieberman (D) $29,000
14. Howard Dean (D) $26,886
15. Erskine B. Bowles (D) $25,550
16. Barack Obama (D) $21,350
17. Mel Martinez (R) $20,600
18. Evan Bayh (D) $17,543
19. Arlen Specter (R) $17,500
20. James W. DeMint (R) $17,250
2002 Top Recipients
TOTAL: $3,021,725
1. Tim Johnson (D) $54,560
2. Chris Dodd (D) $41,550
3. Charles B. Rangel (D) $40,500
4. Jean Carnahan (D) $39,750
5. Charles Schumer (D) $30,750
6.
Shelley Moore Capito
(R) $17,448
7. Amo Houghton (R) $17,050
8. Max Baucus (D) $16,250
9. John E. Sununu (R) $15,750
10. Nancy L. Johnson (R) $15,250
10. Ron Kirk (D) $15,250
12. Max Cleland (D) $14,950
13. Rahm Emanuel (D) $14,250
14. Norm Coleman (R) $12,000
14. Elizabeth Dole (R) $12,000
16. Bill Janklow (R) $11,000
16. Jim Maloney (D) $11,000
16. Billy Tauzin (R) $11,000
19. Nita M. Lowey (D) $10,500
19. Carolyn Maloney (D) $10,500
2000
TOTAL: $4,157,926
1. Charles Schumer (D) $135,550
2. Bill Bradley (D) $127,500
3. Rick A. Lazio (R) $127,390
4. George W. Bush (R) $115,700
5. Al Gore (D) $115,500
6. Hillary Clinton (D) $99,650
7. Joe Lieberman (D) $55,296
8. John McCain (R) $42,700
9. Rudy. Giuliani (R) $37,015
10. Spencer Abraham (R) $29,750
11. Bob Franks (R) $28,208
12. Carolyn Maloney (D) $22,000
13. William Roth Jr. (R) $20,650
14. Charles S. Robb (D) $19,250
15. Tim Johnson (D) $18,500
16. Nita M. Lowey (D) $18,000
17. John J. LaFalce (D) $15,250
18. Bill Nelson (D) $14,750
19. Nancy L. Johnson (R) $14,050
20. Phil Gramm (R) $13,500
Appendix
158
1998 Top Recipients
TOTAL: $2,748,229
1. Alfonse D'Amato (R) $105,914
2. Charles Schumer (D) $99,116
3. Chris Dodd (D) $40,250
4. Tom Daschle (D) $39,000
5. Nancy L. Johnson (D) $26,975
6. Geraldine Ferraro (D) $25,724
7. Charles B. Rangel (D) $25,500
8. Paul Coverdell (R) $19,964
9. Bob Graham (D) $19,857
10. Rick A. Lazio (R) $19,500
10. Nita M. Lowey (D) $19,500
12. Richard Gephardt (D) $18,000
13. Bob Kerrey (D) $16,500
14. Newt Gingrich (R) $16,000
15. Lauch Faircloth (R) $15,775
16.
Carol Moseley Braun
(D) $15,450
17.
Daniel Patrick Moynihan
(D) $14,949
18. Richard Baker (R) $14,000
19. Evan Bayh (D) $13,750
20. Tom Delay (R) $12,000
Appendix 159
Citigroup Lobbying Expenditures:241
2008
TOTAL: $7,875,000
Citigroup Management
Corp $5,520,000
Avenue Solutions $100,000
Barnett, Sivon & Natter $260,000
Capitol Hill Strategies $240,000
Capitol Tax Partners $200,000
Cypress Advocacy $200,000
Ernst & Young $320,000
Ogilvy Government Relations
$320,000
Elmendorf Strategies $140,000
BGR Holding $110,000
Roberti Assoc $225,000
Timmons & Co $240,000
2007
TOTAL: $10,640,000
Citigroup Inc $8,180,000
Ernst & Young $320,000
Barnett, Sivon & Natter $320,000
Ogilvy Government Relations
$320,000
Kilpatrick Stockton $300,000
Capitol Hill Strategies $240,000
Avenue Solutions $240,000
Capitol Tax Partners $200,000
Cypress Advocacy $120,000
Dewey Square Group $40,000
Angus & Nickerson $40,000
King & Spalding $20,000
241 Source: Center for Responsive Politics.
Lobbying amounts accessed February 2009.
Timmons & Co $300,000
2006
TOTAL: $9,100,000
Citigroup Inc $6,760,000
Kilpatrick Stockton $400,000
Ernst & Young $340,000
Barnett, Sivon & Natter $340,000
Federalist Group $320,000
Avenue Solutions $170,000
O'Melveny & Myers $160,000
Capitol Hill Strategies $120,000
Cypress Advocacy $120,000
Capitol Tax Partners $110,000
Angus & Nickerson $60,000
Timmons & Co. $200,000
2005
TOTAL: $5,140,000
Citigroup Inc $3,600,000
Barnett, Sivon & Natter $360,000
Ogilvy Government Relations
$240,000
Avenue Solutions $180,000
Ernst & Young $160,000
Cypress Advocacy $120,000
Capitol Hill Strategies $120,000
Capitol Tax Partners $120,000
Angus & Nickerson $80,000
Kilpatrick Stockton $60,000
Cleary, Gottlieb et al $100,000
Appendix
160
2004
TOTAL: $8,520,000
Citigroup Inc $7,200,000
Barnett, Sivon & Natter $360,000
Ernst & Young $280,000
Federalist Group $240,000
Avenue Solutions $180,000
Capitol Hill Strategies $120,000
Capitol Tax Partners $120,000
Walker, Lynda K > $10,000*
Skadden, Arps et al $20,000
2003
TOTAL: $10,400,000
Citigroup Inc $7,800,000
Akin, Gump et al $960,000
Barnett, Sivon & Natter $360,000
Quinn, Gillespie & Assoc $240,000
Ernst & Young $200,000
Van Scoyoc Assoc $180,000
Barbour, Griffith & Rogers $160,000
Federalist Group $120,000
Avenue Solutions $90,000
Tonio Burgos & Assoc $50,000
Campbell-Crane & Assoc $40,000
Franzel, Brent S $40,000
Mayer, Brown et al $40,000
Capitol Tax Partners $120,000
2002
TOTAL: $7,730,000
Citigroup Inc $5,400,000
Akin, Gump et al $620,000
* Not included in totals
Barnett, Sivon & Natter $400,000
Ernst & Young $240,000
Verner, Liipfert et al $220,000
Avenue Solutions $150,000
Barbour, Griffith & Rogers $120,000
Mayer, Brown et al $80,000
Baker & Hostetler $80,000
Campbell-Crane & Assoc $80,000
Franzel, Brent S $80,000
Thaxton, Richard R $70,000
Tonio Burgos & Assoc $50,000
Van Scoyoc Assoc $40,000
Venn Strategies $40,000
Hogan & Hartson $20,000
Heidepriem & Mager > $10,000*
Capitol Tax Partners $40,000
2001
TOTAL: $5,930,000
Citigroup Inc $4,100,000
Barnett, Sivon & Natter $440,000
Verner, Liipfert et al $380,000
Baker & Hostetler $260,000
Ernst & Young $240,000
Mayer, Brown et al $100,000
PodestaMattoon $100,000
Campbell-Crane & Assoc $80,000
Thaxton, Richard R $60,000
Hogan & Hartson $40,000
Franzel, Brent S $40,000
Tonio Burgos & Assoc $30,000
Heidepriem & Mager $20,000
Rhoads Group $40,000
* Not included in totals
Appendix 161
2000
TOTAL: $6,420,000
Citigroup Inc $4,120,000
Associates First Capital $300,000
Verner, Liipfert et al $560,000
Barnett, Sivon & Natter $480,000
Akin, Gump et al $120,000
Ernst & Young $120,000
Baker & Hostetler $120,000
Thaxton, Richard R $90,000
Mayer, Brown et al $80,000
Campbell-Crane & Assoc $80,000
Franzel, Brent S $60,000
Barrett, Michael F Jr $60,000
Walker, Lynda K $50,000
Arter & Hadden $40,000
Heidepriem & Mager > $10,000*
Rhoads Group $120,000
Wilmer, Cutler &
Pickering $20,000
1999
TOTAL: $7,570,000
Citigroup Inc $5,080,000
Associates First Capital $300,000
Barnett, Sivon & Natter $500,000
Verner, Liipfert et al $480,000
Baker & Hostetler $240,000
Walker, Lynda K $180,000
Akin, Gump et al $160,000
Arter & Hadden $140,000
Franzel, Brent S $100,000
Wilmer, Cutler &
Pickering $80,000
* Not included in totals
Campbell-Crane & Assoc $60,000
Silbey, Franklin R $40,000
Thaxton, Richard R $40,000
Barrett, Michael F Jr $30,000
Heidepriem & Mager $20,000
Rhoads Group $120,000
Cleary, Gottlieb et al > $10,000*
1998
TOTAL: $9,135,000
Citigroup Inc $7,290,000
Verner, Liipfert et al $420,000
Barnett, Sivon & Natter $320,000
Arter & Hadden $260,000
Baker & Hostetler $260,000
Akin, Gump et al $180,000
Walker, Lynda K $80,000
Campbell-Crane & Assoc $60,000
Franzel, Brent S $40,000
Callister, Nebeker &
McCullough $40,000
Thaxton, Richard R $35,000
Silbey, Fanklin R $20,000
Ely & Co $20,000
Barrett, Michael F Jr $20,000
Davis & Harman > $10,000*
Heidepriem & Mager > $10,000*
Biklen, Stephen C > $10,000*
Alston & Bird $30,000
Cleary, Gottlieb et al $60,000
* Not included in totals
Appendix
162
Citigroup Covered Official Lobbyists:242
Firm / Name of Lobbyist Covered Official Position Year(s)
Angus & Nickerson
Angus, Barbara
Tax Counsel, Committee on Ways and
Means 2005-2007
Nickerson, Gregory International Tax Counsel, Dept. of Treasury 2005-2007
Avenue Solutions
Tejral, Amy Legislative Director, Senator Ben Nelson 2007
Baker & Hostetler
Kennelly, Barbara
Assoc. Commissioner - Social Securty
Admin. 2001
Barnett, Sivon & Natter
Barnett, Robert E. President (Attorney) 1999
Sivon, James C. VP/ Secretary (Attorney) 1999
Rivas, Jose S. Legislative/Regulatory Specialist 1999
Capitol Tax Partners
Fant, William
Deputy Asst. Secr (Treasury) for Legislative
Afrs 2002-2008
Mikrut, Joseph Tax Legislative Counsel - US Treasury 2002-2008
Talisman, Johnathan Assistant Treasury Secretary for Tax Policy 2002-2008
Grafmeyer, Rick Deputy Chief of Staff - JCT 2002-2008
McKenney, William Chief of Staff - Rep. Amo Houghton 2002-2008
Willcox, Lawrence G.
Staff Director, Senate Republican Policy
Committee 2006-2008
Dennis, James
Tax Counsel, Sen. Robb - Counsel, Sen.
Bingaman 2008
Javens, Christopher
Tax Counsel, Sen. Grassley, Sen. Finance
Committee 2008
Cypress Advocacy
Cave, J. Patrick Deputy Asst. Sec./Acting Asst. Sec, Treasury 2005-2007
242 Source: Senate Office of Public Records <http://soprweb.senate.gov/>. Accessed January 2009.
Appendix 163
Ernst & Young
Badger, Doug Chief of Staff, Office of Senator Nickles 2000-2002
Conklin, Brian Special Assistant to the President 2004
Federalist Group LLC
Cave, J. Patrick
Deputy Asst. Sec./ Acting Asst. Sec., Treasury
2003-2004
Dammann, Julie Chief of Staff, Senator Christopher S. Bond 2006
Sternhall, Alexander Deputy Staff Director, Sen. Banking Comm. 2008
Hogan & Hartson
Kyle, Robert D. Associate Director, OMB 2001
Kilpatrick Stockton
Dekeyser, Armand C/S Senator Jeff Sessions 2005-2006
King & Spalding LLP
Clarkson, William Legislative Assistant, Sen. Susan Collins 2007-2008
Ogilvy Government Relations
Dammann, Julie Chief of Staff, Senator Christopher S. Bond 2007-2008
PodestaMattoon
Clark, Bill
Executive Office of POTUS - Office of
Personnel 2001
Tornquist, David Office of Management and Budget 2001
PriceWaterhouseCoopers
Angus, Barbara Business Tax Counsel, JCT 1999-2000
Kies, Kenneth J. Chief of Staff, JCT 1999, 2000
Timmons & Co
Shapiro, Daniel Deputy Cos - Office of Sen. Bill Nelson 2007-2008
Paone, Martin Secretary for the Majority, US Senate 2008
Appendix
164
Van Scoyoc Assoc
Porterfield, Lendell Maj. Econ. US Committee on Banking 2002
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