Original Link: http://www.rollingstone.com/politics/story/31234647/obamas_big_sellout/
By MATT TAIBBI
The president has packed his economic team with Wall Street insiders intent on turning the bailout into an all-out giveaway
Barack Obama ran for president as a man of the people, standing up to Wall Street as the global economy melted down in that fateful fall of 2008. He pushed a tax plan to soak the rich, ripped NAFTA for hurting the middle class and tore into John McCain for supporting a bankruptcy bill that sided with wealthy bankers "at the expense of hardworking Americans." Obama may not have run to the left of Samuel Gompers or Cesar Chavez, but it's not like you saw him on the campaign trail flanked by bankers from Citigroup and Goldman Sachs. What inspired supporters who pushed him to his historic win was the sense that a genuine outsider was finally breaking into an exclusive club, that walls were being torn down, that things were, for lack of a better or more specific term, changing.
Then he got elected.
What's taken place in the year since Obama won the presidency has turned out to be one of the most dramatic political about-faces in our history. Elected in the midst of a crushing economic crisis brought on by a decade of orgiastic deregulation and unchecked greed, Obama had a clear mandate to rein in Wall Street and remake the entire structure of the American economy. What he did instead was ship even his most marginally progressive campaign advisers off to various bureaucratic Siberias, while packing the key economic positions in his White House with the very people who caused the crisis in the first place. This new team of bubble-fattened ex-bankers and laissez-faire intellectuals then proceeded to sell us all out, instituting a massive, trickle-up bailout and systematically gutting regulatory reform from the inside.
How could Obama let this happen? Is he just a rookie in the political big leagues, hoodwinked by Beltway old-timers? Or is the vacillating, ineffectual servant of banking interests we've been seeing on TV this fall who Obama really is?
Whatever the president's real motives are, the extensive series of loophole-rich financial "reforms" that the Democrats are currently pushing may ultimately do more harm than good. In fact, some parts of the new reforms border on insanity, threatening to vastly amplify Wall Street's political power by institutionalizing the taxpayer's role as a welfare provider for the financial-services industry. At one point in the debate, Obama's top economic advisers demanded the power to award future bailouts without even going to Congress for approval — and without providing taxpayers a single dime in equity on the deals.
How did we get here? It started just moments after the election — and almost nobody noticed.
'Just look at the timeline of the Citigroup deal," says one leading Democratic consultant. "Just look at it. It's fucking amazing. Amazing! And nobody said a thing about it."
Barack Obama was still just the president-elect when it happened, but the revolting and inexcusable $306 billion bailout that Citigroup received was the first major act of his presidency. In order to grasp the full horror of what took place, however, one needs to go back a few weeks before the actual bailout — to November 5th, 2008, the day after Obama's election.
That was the day the jubilant Obama campaign announced its transition team. Though many of the names were familiar — former Bill Clinton chief of staff John Podesta, long-time Obama confidante Valerie Jarrett — the list was most notable for who was not on it, especially on the economic side. Austan Goolsbee, a University of Chicago economist who had served as one of Obama's chief advisers during the campaign, didn't make the cut. Neither did Karen Kornbluh, who had served as Obama's policy director and was instrumental in crafting the Democratic Party's platform. Both had emphasized populist themes during the campaign: Kornbluh was known for pushing Democrats to focus on the plight of the poor and middle class, while Goolsbee was an aggressive critic of Wall Street, declaring that AIG executives should receive "a Nobel Prize — for evil."
But come November 5th, both were banished from Obama's inner circle — and replaced with a group of Wall Street bankers. Leading the search for the president's new economic team was his close friend and Harvard Law classmate Michael Froman, a high-ranking executive at Citigroup. During the campaign, Froman had emerged as one of Obama's biggest fundraisers, bundling $200,000 in contributions and introducing the candidate to a host of heavy hitters — chief among them his mentor Bob Rubin, the former co-chairman of Goldman Sachs who served as Treasury secretary under Bill Clinton. Froman had served as chief of staff to Rubin at Treasury, and had followed his boss when Rubin left the Clinton administration to serve as a senior counselor to Citigroup (a massive new financial conglomerate created by deregulatory moves pushed through by Rubin himself).
Incredibly, Froman did not resign from the bank when he went to work for Obama: He remained in the employ of Citigroup for two more months, even as he helped appoint the very people who would shape the future of his own firm. And to help him pick Obama's economic team, Froman brought in none other than Jamie Rubin who happens to be Bob Rubin's son. At the time, Jamie's dad was still earning roughly $15 million a year working for Citigroup, which was in the midst of a collapse brought on in part because Rubin had pushed the bank to invest heavily in mortgage-backed CDOs and other risky instruments.
Now here's where it gets really interesting. It's three weeks after the election. You have a lame-duck president in George W. Bush — still nominally in charge, but in reality already halfway to the golf-and-O'Doul's portion of his career and more than happy to vacate the scene. Left to deal with the still-reeling economy are lame-duck Treasury Secretary Henry Paulson, a former head of Goldman Sachs, and New York Fed chief Timothy Geithner, who served under Bob Rubin in the Clinton White House. Running Obama's economic team are a still-employed Citigroup executive and the son of another Citigroup executive, who himself joined Obama's transition team that same month.
So on November 23rd, 2008, a deal is announced in which the government will bail out Rubin's messes at Citigroup with a massive buffet of taxpayer-funded cash and guarantees. It is a terrible deal for the government, almost universally panned by all serious economists, an outrage to anyone who pays taxes. Under the deal, the bank gets $20 billion in cash, on top of the $25 billion it had already received just weeks before as part of the Troubled Asset Relief Program. But that's just the appetizer. The government also agrees to charge taxpayers for up to $277 billion in losses on troubled Citi assets, many of them those toxic CDOs that Rubin had pushed Citi to invest in. No Citi executives are replaced, and few restrictions are placed on their compensation. It's the sweetheart deal of the century, putting generations of working-stiff taxpayers on the hook to pay off Bob Rubin's fuck-up-rich tenure at Citi. "If you had any doubts at all about the primacy of Wall Street over Main Street," former labor secretary Robert Reich declares when the bailout is announced, "your doubts should be laid to rest."
It is bad enough that one of Bob Rubin's former protégés from the Clinton years, the New York Fed chief Geithner, is intimately involved in the negotiations, which unsurprisingly leave the Federal Reserve massively exposed to future Citi losses. But the real stunner comes only hours after the bailout deal is struck, when the Obama transition team makes a cheerful announcement: Timothy Geithner is going to be Barack Obama's Treasury secretary!
Geithner, in other words, is hired to head the U.S. Treasury by an executive from Citigroup — Michael Froman — before the ink is even dry on a massive government giveaway to Citigroup that Geithner himself was instrumental in delivering. In the annals of brazen political swindles, this one has to go in the all-time Fuck-the-Optics Hall of Fame.
Wall Street loved the Citi bailout and the Geithner nomination so much that the Dow immediately posted its biggest two-day jump since 1987, rising 11.8 percent. Citi shares jumped 58 percent in a single day, and JP Morgan Chase, Merrill Lynch and Morgan Stanley soared more than 20 percent, as Wall Street embraced the news that the government's bailout generosity would not die with George W. Bush and Hank Paulson. "Geithner assures a smooth transition between the Bush administration and that of Obama, because he's already co-managing what's happening now," observed Stephen Leeb, president of Leeb Capital Management.
Left unnoticed, however, was the fact that Geithner had been hired by a sitting Citigroup executive who still had a big bonus coming despite his proximity to Obama. In January 2009, just over a month after the bailout, Citigroup paid Froman a year-end bonus of $2.25 million. But as outrageous as it was, that payoff would prove to be chump change for the banker crowd, who were about to get everything they wanted — and more — from the new president.
The irony of Bob Rubin: He's an unapologetic arch-capitalist demagogue whose very career is proof that a free-market meritocracy is a myth. Much like Alan Greenspan, a staggeringly incompetent economic forecaster who was worshipped by four decades of politicians because he once dated Barbara Walters, Rubin has been held in awe by the American political elite for nearly 20 years despite having fucked up virtually every project he ever got his hands on. He went from running Goldman Sachs (1990-1992) to the Clinton White House (1993-1999) to Citigroup (1999-2009), leaving behind a trail of historic gaffes that somehow boosted his stature every step of the way.
As Treasury secretary under Clinton, Rubin was the driving force behind two monstrous deregulatory actions that would be primary causes of last year's financial crisis: the repeal of the Glass-Steagall Act (passed specifically to legalize the Citigroup megamerger) and the deregulation of the derivatives market. Having set that time bomb, Rubin left government to join Citi, which promptly expressed its gratitude by giving him $126 million in compensation over the next eight years (they don't call it bribery in this country when they give you the money post factum). After urging management to amp up its risky investments in toxic vehicles, a strategy that very nearly destroyed the company, Rubin blamed Citi's board for his screw-ups and complained that he had been underpaid to boot. "I bet there's not a single year where I couldn't have gone somewhere else and made more," he said.
Despite being perhaps more responsible for last year's crash than any other single living person — his colossally stupid decisions at both the highest levels of government and the management of a private financial superpower make him unique — Rubin was the man Barack Obama chose to build his White House around.
There are four main ways to be connected to Bob Rubin: through Goldman Sachs, the Clinton administration, Citigroup and, finally, the Hamilton Project, a think tank Rubin spearheaded under the auspices of the Brookings Institute to promote his philosophy of balanced budgets, free trade and financial deregulation. The team Obama put in place to run his economic policy after his inauguration was dominated by people who boasted connections to at least one of these four institutions — so much so that the White House now looks like a backstage party for an episode of Bob Rubin, This Is Your Life!
At Treasury, there is Geithner, who worked under Rubin in the Clinton years. Serving as Geithner's "counselor" — a made-up post not subject to Senate confirmation — is Lewis Alexander, the former chief economist of Citigroup, who advised Citi back in 2007 that the upcoming housing crash was nothing to worry about. Two other top Geithner "counselors" — Gene Sperling and Lael Brainard — worked under Rubin at the National Economic Council, the key group that coordinates all economic policymaking for the White House.
As director of the NEC, meanwhile, Obama installed economic czar Larry Summers, who had served as Rubin's protégé at Treasury. Just below Summers is Jason Furman, who worked for Rubin in the Clinton White House and was one of the first directors of Rubin's Hamilton Project. The appointment of Furman — a persistent advocate of free-trade agreements like NAFTA and the author of droolingly pro-globalization reports with titles like "Walmart: A Progressive Success Story" — provided one of the first clues that Obama had only been posturing when he promised crowds of struggling Midwesterners during the campaign that he would renegotiate NAFTA, which facilitated the flight of blue-collar jobs to other countries. "NAFTA's shortcomings were evident when signed, and we must now amend the agreement to fix them," Obama declared. A few months after hiring Furman to help shape its economic policy, however, the White House quietly quashed any talk of renegotiating the trade deal. "The president has said we will look at all of our options, but I think they can be addressed without having to reopen the agreement," U.S. Trade Representative Ronald Kirk told reporters in a little-publicized conference call last April.
The announcement was not so surprising, given who Obama hired to serve alongside Furman at the NEC: management consultant Diana Farrell, who worked under Rubin at Goldman Sachs. In 2003, Farrell was the author of an infamous paper in which she argued that sending American jobs overseas might be "as beneficial to the U.S. as to the destination country, probably more so."
Joining Summers, Furman and Farrell at the NEC is Froman, who by then had been formally appointed to a unique position: He is not only Obama's international finance adviser at the National Economic Council, he simultaneously serves as deputy national security adviser at the National Security Council. The twin posts give Froman a direct line to the president, putting him in a position to coordinate Obama's international economic policy during a crisis. He'll have help from David Lipton, another joint appointee to the economics and security councils who worked with Rubin at Treasury and Citigroup, and from Jacob Lew, a former Citi colleague of Rubin's whom Obama named as deputy director at the State Department to focus on international finance.
Over at the Commodity Futures Trading Commission, which is supposed to regulate derivatives trading, Obama appointed Gary Gensler, a former Goldman banker who worked under Rubin in the Clinton White House. Gensler had been instrumental in helping to pass the infamous Commodity Futures Modernization Act of 2000, which prevented regulation of derivative instruments like CDOs and credit-default swaps that played such a big role in cratering the economy last year. And as head of the powerful Office of Management and Budget, Obama named Peter Orszag, who served as the first director of Rubin's Hamilton Project. Orszag once succinctly summed up the project's ideology as a sort of liberal spin on trickle-down Reaganomics: "Market competition and globalization generate significant economic benefits."
Taken together, the rash of appointments with ties to Bob Rubin may well represent the most sweeping influence by a single Wall Street insider in the history of government. "Rather than having a team of rivals, they've got a team of Rubins," says Steven Clemons, director of the American Strategy Program at the New America Foundation. "You see that in policy choices that have resuscitated — but not reformed — Wall Street."
While Rubin's allies and acolytes got all the important jobs in the Obama administration, the academics and progressives got banished to semi-meaningless, even comical roles. Kornbluh was rewarded for being the chief policy architect of Obama's meteoric rise by being outfitted with a pith helmet and booted across the ocean to Paris, where she now serves as America's never-again-to-be-seen-on-TV ambassador to the Organization for Economic Cooperation and Development. Goolsbee, meanwhile, was appointed as staff director of the President's Economic Recovery Advisory Board, a kind of dumping ground for Wall Street critics who had assisted Obama during the campaign; one top Democrat calls the panel "Siberia."
Joining Goolsbee as chairman of the PERAB gulag is former Fed chief Paul Volcker, who back in March 2008 helped candidate Obama write a speech declaring that the deregulatory efforts of the Eighties and Nineties had "excused and even embraced an ethic of greed, corner-cutting, insider dealing, things that have always threatened the long-term stability of our economic system." That speech met with rapturous applause, but the commission Obama gave Volcker to manage is so toothless that it didn't even meet for the first time until last May. The lone progressive in the White House, economist Jared Bernstein, holds the impressive-sounding title of chief economist and national policy adviser — except that the man he is advising is Joe Biden, who seems more interested in foreign policy than financial reform.
The significance of all of these appointments isn't that the Wall Street types are now in a position to provide direct favors to their former employers. It's that, with one or two exceptions, they collectively offer a microcosm of what the Democratic Party has come to stand for in the 21st century. Virtually all of the Rubinites brought in to manage the economy under Obama share the same fundamental political philosophy carefully articulated for years by the Hamilton Project: Expand the safety net to protect the poor, but let Wall Street do whatever it wants. "Bob Rubin, these guys, they're classic limousine liberals," says David Sirota, a former Democratic strategist. "These are basically people who have made shitloads of money in the speculative economy, but they want to call themselves good Democrats because they're willing to give a little more to the poor. That's the model for this Democratic Party: Let the rich do their thing, but give a fraction more to everyone else."
Even the members of Obama's economic team who have spent most of their lives in public office have managed to make small fortunes on Wall Street. The president's economic czar, Larry Summers, was paid more than $5.2 million in 2008 alone as a managing director of the hedge fund D.E. Shaw, and pocketed an additional $2.7 million in speaking fees from a smorgasbord of future bailout recipients, including Goldman Sachs and Citigroup. At Treasury, Geithner's aide Gene Sperling earned a staggering $887,727 from Goldman Sachs last year for performing the punch-line-worthy service of "advice on charitable giving." Sperling's fellow Treasury appointee, Mark Patterson, received $637,492 as a full-time lobbyist for Goldman Sachs, and another top Geithner aide, Lee Sachs, made more than $3 million working for a New York hedge fund called Mariner Investment Group. The list goes on and on. Even Obama's chief of staff, Rahm Emanuel, who has been out of government for only 30 months of his adult life, managed to collect $18 million during his private-sector stint with a Wall Street firm called Wasserstein-Perella.
The point is that an economic team made up exclusively of callous millionaire-assholes has absolutely zero interest in reforming the gamed system that made them rich in the first place. "You can't expect these people to do anything other than protect Wall Street," says Rep. Cliff Stearns, a Republican from Florida. That thinking was clear from Obama's first address to Congress, when he stressed the importance of getting Americans to borrow like crazy again. "Credit is the lifeblood of the economy," he declared, pledging "the full force of the federal government to ensure that the major banks that Americans depend on have enough confidence and enough money." A president elected on a platform of change was announcing, in so many words, that he planned to change nothing fundamental when it came to the economy. Rather than doing what FDR had done during the Great Depression and institute stringent new rules to curb financial abuses, Obama planned to institutionalize the policy, firmly established during the Bush years, of keeping a few megafirms rich at the expense of everyone else.
Obama hasn't always toed the Rubin line when it comes to economic policy. Despite being surrounded by a team that is powerfully opposed to deficit spending — balanced budgets and deficit reduction have always been central to the Rubin way of thinking — Obama came out of the gate with a huge stimulus plan designed to kick-start the economy and address the job losses brought on by the 2008 crisis. "You have to give him credit there," says Sen. Bernie Sanders, an advocate of using government resources to address unemployment. "It's a very significant piece of legislation, and $787 billion is a lot of money."
But whatever jobs the stimulus has created or preserved so far — 640,329, according to an absurdly precise and already debunked calculation by the White House — the aid that Obama has provided to real people has been dwarfed in size and scope by the taxpayer money that has been handed over to America's financial giants. "They spent $75 billion on mortgage relief, but come on — look at how much they gave Wall Street," says a leading Democratic strategist. Neil Barofsky, the inspector general charged with overseeing TARP, estimates that the total cost of the Wall Street bailouts could eventually reach $23.7 trillion. And while the government continues to dole out big money to big banks, Obama and his team of Rubinites have done almost nothing to reform the warped financial system responsible for imploding the global economy in the first place.
The push for reform seemed to get off to a promising start. In the House, the charge was led by Rep. Barney Frank, the outspoken chair of the House Financial Services Committee, who emerged during last year's Bush bailouts as a sharp-tongued critic of Wall Street. Back when Obama was still a senator, he and Frank even worked together to introduce a populist bill targeting executive compensation. Last spring, with the economy shattered, Frank began to hold hearings on a host of reforms, crafted with significant input from the White House, that initially contained some very good elements. There were measures to curb abusive credit-card lending, prevent banks from charging excessive fees, force publicly traded firms to conduct meaningful risk assessment and allow shareholders to vote on executive compensation. There were even measures to crack down on risky derivatives and to bar firms like AIG from picking their own regulators.
Then the committee went to work — and the loopholes started to appear.
The most notable of these came in the proposal to regulate derivatives like credit-default swaps. Even Gary Gensler, the former Goldmanite whom Obama put in charge of commodities regulation, was pushing to make these normally obscure investments more transparent, enabling regulators and investors to identify speculative bubbles sooner. But in August, a month after Gensler came out in favor of reform, Geithner slapped him down by issuing a 115-page paper called "Improvements to Regulation of Over-the-Counter Derivatives Markets" that called for a series of exemptions for "end users" — i.e., almost all of the clients who buy derivatives from banks like Goldman Sachs and Morgan Stanley. Even more stunning, Frank's bill included a blanket exception to the rules for currency swaps traded on foreign exchanges — the very instruments that had triggered the Long-Term Capital Management meltdown in the late 1990s.
Given that derivatives were at the heart of the financial meltdown last year, the decision to gut derivatives reform sent some legislators howling with disgust. Sen. Maria Cantwell of Washington, who estimates that as much as 90 percent of all derivatives could remain unregulated under the new rules, went so far as to say the new laws would make things worse. "Current law with its loopholes might actually be better than these loopholes," she said.
An even bigger loophole could do far worse damage to the economy. Under the original bill, the Securities and Exchange Commission and the Commodity Futures Trading Commission were granted the power to ban any credit swaps deemed to be "detrimental to the stability of a financial market or of participants in a financial market." By the time Frank's committee was done with the bill, however, the SEC and the CFTC were left with no authority to do anything about abusive derivatives other than to send a report to Congress. The move, in effect, would leave the kind of credit-default swaps that brought down AIG largely unregulated.
Why would leading congressional Democrats, working closely with the Obama administration, agree to leave one of the riskiest of all financial instruments unregulated, even before the issue could be debated by the House? "There was concern that a broad grant to ban abusive swaps would be unsettling," Frank explained.
Unsettling to whom? Certainly not to you and me — but then again, actual people are not really part of the calculus when it comes to finance reform. According to those close to the markup process, Frank's committee inserted loopholes under pressure from "constituents" — by which they mean anyone "who can afford a lobbyist," says Michael Greenberger, the former head of trading at the CFTC under Clinton.
This pattern would repeat itself over and over again throughout the fall. Take the centerpiece of Obama's reform proposal: the much-ballyhooed creation of a Consumer Finance Protection Agency to protect the little guy from abusive bank practices. Like the derivatives bill, the debate over the CFPA ended up being dominated by horse-trading for loopholes. In the end, Frank not only agreed to exempt some 8,000 of the nation's 8,200 banks from oversight by the castrated-in-advance agency, leaving most consumers unprotected, he allowed the committee to pass the exemption by voice vote, meaning that congressmen could side with the banks without actually attaching their name to their "Aye."
To win the support of conservative Democrats, Frank also backed down on another issue that seemed like a slam-dunk: a requirement that all banks offer so-called "plain vanilla" products, such as no-frills mortgages, to give consumers an alternative to deceptive, "fully loaded" deals like adjustable-rate loans. Frank's last-minute reversal — made in consultation with Geithner — was such a transparent giveaway to the banks that even an economics writer for Reuters, hardly a far-left source, called it "the beginning of the end of meaningful regulatory reform."
But the real kicker came when Frank's committee took up what is known as "resolution authority" — government-speak for "Who the hell is in charge the next time somebody at AIG or Lehman Brothers decides to vaporize the economy?" What the committee initially introduced bore a striking resemblance to a proposal written by Geithner earlier in the summer. A masterpiece of legislative chicanery, the measure would have given the White House permanent and unlimited authority to execute future bailouts of megaconglomerates like Citigroup and Bear Stearns.
Democrats pushed the move as politically uncontroversial, claiming that the bill will force Wall Street to pay for any future bailouts and "doesn't use taxpayer money." In reality, that was complete bullshit. The way the bill was written, the FDIC would basically borrow money from the Treasury — i.e., from ordinary taxpayers — to bail out any of the nation's two dozen or so largest financial companies that the president deems in need of government assistance. After the bailout is executed, the president would then levy a tax on financial firms with assets of more than $10 billion to repay the Treasury within 60 months — unless, that is, the president decides he doesn't want to! "They can wait indefinitely to repay," says Rep. Brad Sherman of California, who dubbed the early version of the bill "TARP on steroids."
The new bailout authority also mandated that future bailouts would not include an exchange of equity "in any form" — meaning that taxpayers would get nothing in return for underwriting Wall Street's mistakes. Even more outrageous, it specifically prohibited Congress from rejecting tax giveaways to Wall Street, as it did last year, by removing all congressional oversight of future bailouts. In fact, the resolution authority proposed by Frank was such a slurpingly obvious blow job of Wall Street that it provoked a revolt among his own committee members, with junior Democrats waging a spirited fight that restored congressional oversight to future bailouts, requires equity for taxpayer money and caps assistance to troubled firms at $150 billion. Another amendment to force companies with more than $50 billion in assets to pay into a rainy-day fund for bailouts passed by a resounding vote of 52 to 17 — with the "Nays" all coming from Frank and other senior Democrats loyal to the administration.
Even as amended, however, resolution authority still has the potential to be truly revolutionary legislation. The Senate version still grants the president unlimited power over equity-free bailouts, and the amended House bill still institutionalizes a system of taxpayer support for the 20 to 25 biggest banks in the country. It would essentially grant economic immortality to those top few megafirms, who will continually gobble up greater and greater slices of market share as money becomes cheaper and cheaper for them to borrow (after all, who wouldn't lend to a company permanently backstopped by the federal government?). It would also formalize the government's role in the global economy and turn the presidential-appointment process into an important part of every big firm's business strategy. "If this passes, the very first thing these companies are going to do in the future is ask themselves, 'How do we make sure that one of our executives becomes assistant Treasury secretary?'" says Sherman.
On the Senate side, finance reform has yet to make it through the markup process, but there's every reason to believe that its final bill will be as watered down as the House version by the time it comes to a vote. The original measure, drafted by chairman Christopher Dodd of the Senate Banking Committee, is surprisingly tough on Wall Street — a fact that almost everyone in town chalks up to Dodd's desperation to shake the bad publicity he incurred by accepting a sweetheart mortgage from the notorious lender Countrywide. "He's got to do the shake-his-fist-at-Wall Street thing because of his, you know, problems," says a Democratic Senate aide. "So that's why the bill is starting out kind of tough."
The aide pauses. "The question is, though, what will it end up looking like?"
He's right — that is the question. Because the way it works is that all of these great-sounding reforms get whittled down bit by bit as they move through the committee markup process, until finally there's nothing left but the exceptions. In one example, a measure that would have forced financial companies to be more accountable to shareholders by holding elections for their entire boards every year has already been watered down to preserve the current system of staggered votes. In other cases, this being the Senate, loopholes were inserted before the debate even began: The Dodd bill included the exemption for foreign-currency swaps — a gift to Wall Street that only appeared in the Frank bill during the course of hearings — from the very outset.
The White House's refusal to push for real reform stands in stark contrast to what it should be doing. It was left to Rep. Paul Kanjorski in the House and Bernie Sanders in the Senate to propose bills to break up the so-called "too big to fail" banks. Both measures would give Congress the power to dismantle those pseudomonopolies controlling almost the entire derivatives market (Goldman, Citi, Chase, Morgan Stanley and Bank of America control 95 percent of the $290 trillion over-the-counter market) and the consumer-lending market (Citi, Chase, Bank of America and Wells Fargo issue one of every two mortgages, and two of every three credit cards). On November 18th, in a move that demonstrates just how nervous Democrats are getting about the growing outrage over taxpayer giveaways, Barney Frank's committee actually passed Kanjorski's measure. "It's a beginning," Kanjorski says hopefully. "We're on our way." But even if the Senate follows suit, big banks could well survive — depending on whom the president appoints to sit on the new regulatory board mandated by the measure. An oversight body filled with executives of the type Obama has favored to date from Citi and Goldman Sachs hardly seems like a strong bet to start taking an ax to concentrated wealth. And given the new bailout provisions that provide these megafirms a market advantage over smaller banks (those Paul Volcker calls "too small to save"), the failure to break them up qualifies as a major policy decision with potentially disastrous consequences.
"They should be doing what Teddy Roosevelt did," says Sanders. "They should be busting the trusts."
That probably won't happen anytime soon. But at a minimum, Obama should start on the road back to sanity by making a long-overdue move: firing Geithner. Not only are the mop-headed weenie of a Treasury secretary's fingerprints on virtually all the gross giveaways in the new reform legislation, he's a living symbol of the Rubinite gangrene crawling up the leg of this administration. Putting Geithner against the wall and replacing him with an actual human being not recently employed by a Wall Street megabank would do a lot to prove that Obama was listening this past Election Day. And while there are some who think Geithner is about to go — "he almost has to," says one Democratic strategist — at the moment, the president is still letting Wall Street do his talking.
Morning, the National Mall, November 5th. A year to the day after Obama named Michael Froman to his transition team, his political "opposition" has descended upon the city. Republican teabaggers from all 50 states have showed up, a vast horde of frowning, pissed-off middle-aged white people with their idiot placards in hand, ready to do cultural battle. They are here to protest Obama's "socialist" health care bill — you know, the one that even a bloodsucking capitalist interest group like Big Pharma spent $150 million to get passed.
These teabaggers don't know that, however. All they know is that a big government program might end up using tax dollars to pay the medical bills of rapidly breeding Dominican immigrants. So they hate it. They're also in a groove, knowing that at the polls a few days earlier, people like themselves had a big hand in ousting several Obama-allied Democrats, including a governor of New Jersey who just happened to be the former CEO of Goldman Sachs. A sign held up by New Jersey protesters bears the warning, "If You Vote For Obamacare, We Will Corzine You."
I approach a woman named Pat Defillipis from Toms River, New Jersey, and ask her why she's here. "To protest health care," she answers. "And then amnesty. You know, immigration amnesty."
I ask her if she's aware that there's a big hearing going on in the House today, where Barney Frank's committee is marking up a bill to reform the financial regulatory system. She recognizes Frank's name, wincing, but the rest of my question leaves her staring at me like I'm an alien.
"Do you care at all about economic regulation?" I ask. "There was sort of a big economic collapse last year. Do you have any ideas about how that whole deal should be fixed?"
"We got to slow down on spending," she says. "We can't afford it."
"But what do we do about the rules governing Wall Street . . ."
She walks away. She doesn't give a fuck. People like Pat aren't aware of it, but they're the best friends Obama has. They hate him, sure, but they don't hate him for any reasons that make sense. When it comes down to it, most of them hate the president for all the usual reasons they hate "liberals" — because he uses big words, doesn't believe in hell and doesn't flip out at the sight of gay people holding hands. Additionally, of course, he's black, and wasn't born in America, and is married to a woman who secretly hates our country.
These are the kinds of voters whom Obama's gang of Wall Street advisers is counting on: idiots. People whose votes depend not on whether the party in power delivers them jobs or protects them from economic villains, but on what cultural markers the candidate flashes on TV. Finance reform has become to Obama what Iraq War coffins were to Bush: something to be tucked safely out of sight.
Around the same time that finance reform was being watered down in Congress at the behest of his Treasury secretary, Obama was making a pit stop to raise money from Wall Street. On October 20th, the president went to the Mandarin Oriental Hotel in New York and addressed some 200 financiers and business moguls, each of whom paid the maximum allowable contribution of $30,400 to the Democratic Party. But an organizer of the event, Daniel Fass, announced in advance that support for the president might be lighter than expected — bailed-out firms like JP Morgan Chase and Goldman Sachs were expected to contribute a meager $91,000 to the event — because bankers were tired of being lectured about their misdeeds.
"The investment community feels very put-upon," Fass explained. "They feel there is no reason why they shouldn't earn $1 million to $200 million a year, and they don't want to be held responsible for the global financial meltdown."
Which makes sense. Shit, who could blame the investment community for the meltdown? What kind of assholes are we to put any of this on them?
This is the kind of person who is working for the Obama administration, which makes it unsurprising that we're getting no real reform of the finance industry. There's no other way to say it: Barack Obama, a once-in-a-generation political talent whose graceful conquest of America's racial dragons en route to the White House inspired the entire world, has for some reason allowed his presidency to be hijacked by sniveling, low-rent shitheads. Instead of reining in Wall Street, Obama has allowed himself to be seduced by it, leaving even his erstwhile campaign adviser, ex-Fed chief Paul Volcker, concerned about a "moral hazard" creeping over his administration.
"The obvious danger is that with the passage of time, risk-taking will be encouraged and efforts at prudential restraint will be resisted," Volcker told Congress in September, expressing concerns about all the regulatory loopholes in Frank's bill. "Ultimately, the possibility of further crises — even greater crises — will increase."
What's most troubling is that we don't know if Obama has changed, or if the influence of Wall Street is simply a fundamental and ineradicable element of our electoral system. What we do know is that Barack Obama pulled a bait-and-switch on us. If it were any other politician, we wouldn't be surprised. Maybe it's our fault, for thinking he was different.
Sunday, December 13, 2009
Friday, December 11, 2009
Supreme Court's Ruling Would Allow Bin Laden to Donate to Sarah Palin's Presidential Campaign
Original Link: http://www.alternet.org/rights/144502/supreme_court's_ruling_would_allow_bin_laden_to_donate_to_sarah_palin's_presidential_campaign?page=entire
By Greg Palast
I'm biting my nails waiting for the Supreme Court's ruling in 'Citizens United v. Federal Election Commission' -- here's why you should be too.
I thought that headline would get your attention. And it's true.
I'm biting my nails waiting for the Supreme Court's ruling in Citizens United v. Federal Election Commission, which could come down as early as Tuesday. At issue: whether corporations, as "unnatural persons," can make contributions to political campaigns.
The outcome is foregone: the five GOP appointees to the court are expected to use the case to junk federal laws that now bar corporations from stuffing campaign coffers.
Technically, there's a narrower matter before the court in this case: whether the McCain-Feingold Act may prohibit corporations from funding "independent" campaign advertisements such as the "Swift Boat" ads that smeared John Kerry. However, campaign finance reformers are steeling themselves for the court's right wing to go much further, knocking down all longstanding rules against donations by corporate treasuries.
Allowing company campaign spending will not, as progressives fear, cause an avalanche of corporate cash into politics. Sadly, that's already happened: we have been snowed under by tens of millions of dollars given through corporate PACs and "bundling" of individual contributions from corporate pay-rollers.
The court's expected decision is far, far more dangerous to U.S. democracy. Think: Manchurian candidates.
I'm losing sleep over the millions -- or billions -- of dollars that could flood into our elections from ARAMCO, the Saudi Oil corporation's U.S. unit; or from the maker of "New Order" fashions, the Chinese People's Liberation Army. Or from Bin Laden Construction corporation. Or Bin Laden Destruction Corporation.
Right now, corporations can give loads of loot through PACs. While this money stinks (Barack Obama took none of it), anyone can go through a PAC's federal disclosure filing and see the name of every individual who put money into it. And every contributor must be a citizen of the USA.
But, if the Supreme Court rules that corporations can support candidates without limit, there is nothing that stops, say, a Delaware-incorporated handmaiden of the Burmese junta from picking a Congressman or two with a cache of loot masked by a corporate alias.
Candidate Barack Obama was one sharp speaker, but he would not have been heard, and certainly would not have won, without the astonishing outpouring of donations from two million Americans. It was an unprecedented uprising-by-PayPal, overwhelming the old fat-cat sources of funding.
Well, kiss that small-donor revolution goodbye. If the Supreme Court votes as expected, progressive list serves won't stand a chance against the resources of new "citizens" such as CNOOC, the China National Offshore Oil Corporation. Maybe UBS (United Bank of Switzerland), which faces U.S. criminal prosecution and a billion-dollar fine for fraud, might be tempted to invest in a few Senate seats. As would XYZ Corporation, whose owners remain hidden by "street names."
George Bush's former Solicitor General Ted Olson argued the case to the court on behalf of Citizens United, a corporate front that funded an attack on Hillary Clinton during the 2008 primary. Olson's wife died on September 11, 2001 on the hijacked airliner that hit the Pentagon. Maybe it was a bit crude of me, but I contacted Olson's office to ask how much "Al Qaeda, Inc." should be allowed to donate to support the election of his local congressman.
Olson has not responded.
The danger of foreign loot loading into U.S. campaigns, not much noted in the media chat about the Citizens case, was the first concern raised by Justice Ruth Bader Ginsburg, who asked about opening the door to "mega-corporations" owned by foreign governments. Olson offered Ginsburg a fudge, that Congress might be able to prohibit foreign corporations from making donations, though Olson made clear he thought any such restriction a bad idea.
Tara Malloy, attorney with the Campaign Legal Center of Washington D.C., is biting her nails awaiting the decision. If Olson gets his way, she told me, corporations will have more rights than people. Only United States citizens may donate or influence campaigns, but a foreign government can, veiled behind a corporate treasury, dump money into ballot battles.
Malloy also noted that under the law today, human-people, as opposed to corporate-people, may only give $2,300 to a presidential campaign. But hedge fund billionaires, for example, who typically operate through dozens of corporate vessels, could, should Olson prevail, give unlimited sums through each of these "unnatural" creatures.
And once the Taliban incorporates in Delaware, they could ante up for the best democracy money can buy.
In July, the Chinese government, in preparation for President Obama's visit, held diplomatic discussions in which they skirted issues of human rights and Tibet. Notably, the Chinese, who hold a $2 trillion mortgage on our Treasury, raised concerns about the cost of Obama's health care reform bill. Would our nervous Chinese landlords have an interest in buying the White House for an opponent of government spending such as Gov. Palin? Ya betcha!
The potential for foreign infiltration of what remains of our democracy is an adjunct of the fact that the source and control money from corporate treasuries (unlike registered PACs), is necessarily hidden. Who the heck are the real stockholders? Or as Butch asked Sundance, "Who are these guys?" We'll never know.
Hidden money funding, whether foreign or domestic, is the new venom that the court could inject into the system by an expansive decision in Citizens United.
We've been there. The 1994 election brought Newt Gingrich to power in a GOP takeover of the Congress funded by a very strange source. Congressional investigators found that in crucial swing races, Democrats had fallen victim to a flood of last-minute attack ads funded by a group called, "Coalition for Our Children's Future." The $25 million that paid for those ads came, not from concerned parents, but from a corporation called "Triad Inc."
Evidence suggests Triad Inc. was the front for the ultra-right-wing billionaire Koch Brothers and their private petroleum company, Koch Industries. Had the corporate connection been proven, the Kochs and their corporation could have faced indictment under federal election law. If the Supreme Court now decides in favor of unlimited corporate electioneering, then such money-poisoned politicking would become legit.
So it's not just un-Americans we need to fear but the Polluter-Americans, Pharma-mericans, Bank-Americans and Hedge-Americans that could manipulate campaigns while hidden behind corporate veils.
And if so, our future elections, while nominally a contest between Republicans and Democrats, may in fact come down to a three-way battle between China, Saudi Arabia and Goldman Sachs.
By Greg Palast
I'm biting my nails waiting for the Supreme Court's ruling in 'Citizens United v. Federal Election Commission' -- here's why you should be too.
I thought that headline would get your attention. And it's true.
I'm biting my nails waiting for the Supreme Court's ruling in Citizens United v. Federal Election Commission, which could come down as early as Tuesday. At issue: whether corporations, as "unnatural persons," can make contributions to political campaigns.
The outcome is foregone: the five GOP appointees to the court are expected to use the case to junk federal laws that now bar corporations from stuffing campaign coffers.
Technically, there's a narrower matter before the court in this case: whether the McCain-Feingold Act may prohibit corporations from funding "independent" campaign advertisements such as the "Swift Boat" ads that smeared John Kerry. However, campaign finance reformers are steeling themselves for the court's right wing to go much further, knocking down all longstanding rules against donations by corporate treasuries.
Allowing company campaign spending will not, as progressives fear, cause an avalanche of corporate cash into politics. Sadly, that's already happened: we have been snowed under by tens of millions of dollars given through corporate PACs and "bundling" of individual contributions from corporate pay-rollers.
The court's expected decision is far, far more dangerous to U.S. democracy. Think: Manchurian candidates.
I'm losing sleep over the millions -- or billions -- of dollars that could flood into our elections from ARAMCO, the Saudi Oil corporation's U.S. unit; or from the maker of "New Order" fashions, the Chinese People's Liberation Army. Or from Bin Laden Construction corporation. Or Bin Laden Destruction Corporation.
Right now, corporations can give loads of loot through PACs. While this money stinks (Barack Obama took none of it), anyone can go through a PAC's federal disclosure filing and see the name of every individual who put money into it. And every contributor must be a citizen of the USA.
But, if the Supreme Court rules that corporations can support candidates without limit, there is nothing that stops, say, a Delaware-incorporated handmaiden of the Burmese junta from picking a Congressman or two with a cache of loot masked by a corporate alias.
Candidate Barack Obama was one sharp speaker, but he would not have been heard, and certainly would not have won, without the astonishing outpouring of donations from two million Americans. It was an unprecedented uprising-by-PayPal, overwhelming the old fat-cat sources of funding.
Well, kiss that small-donor revolution goodbye. If the Supreme Court votes as expected, progressive list serves won't stand a chance against the resources of new "citizens" such as CNOOC, the China National Offshore Oil Corporation. Maybe UBS (United Bank of Switzerland), which faces U.S. criminal prosecution and a billion-dollar fine for fraud, might be tempted to invest in a few Senate seats. As would XYZ Corporation, whose owners remain hidden by "street names."
George Bush's former Solicitor General Ted Olson argued the case to the court on behalf of Citizens United, a corporate front that funded an attack on Hillary Clinton during the 2008 primary. Olson's wife died on September 11, 2001 on the hijacked airliner that hit the Pentagon. Maybe it was a bit crude of me, but I contacted Olson's office to ask how much "Al Qaeda, Inc." should be allowed to donate to support the election of his local congressman.
Olson has not responded.
The danger of foreign loot loading into U.S. campaigns, not much noted in the media chat about the Citizens case, was the first concern raised by Justice Ruth Bader Ginsburg, who asked about opening the door to "mega-corporations" owned by foreign governments. Olson offered Ginsburg a fudge, that Congress might be able to prohibit foreign corporations from making donations, though Olson made clear he thought any such restriction a bad idea.
Tara Malloy, attorney with the Campaign Legal Center of Washington D.C., is biting her nails awaiting the decision. If Olson gets his way, she told me, corporations will have more rights than people. Only United States citizens may donate or influence campaigns, but a foreign government can, veiled behind a corporate treasury, dump money into ballot battles.
Malloy also noted that under the law today, human-people, as opposed to corporate-people, may only give $2,300 to a presidential campaign. But hedge fund billionaires, for example, who typically operate through dozens of corporate vessels, could, should Olson prevail, give unlimited sums through each of these "unnatural" creatures.
And once the Taliban incorporates in Delaware, they could ante up for the best democracy money can buy.
In July, the Chinese government, in preparation for President Obama's visit, held diplomatic discussions in which they skirted issues of human rights and Tibet. Notably, the Chinese, who hold a $2 trillion mortgage on our Treasury, raised concerns about the cost of Obama's health care reform bill. Would our nervous Chinese landlords have an interest in buying the White House for an opponent of government spending such as Gov. Palin? Ya betcha!
The potential for foreign infiltration of what remains of our democracy is an adjunct of the fact that the source and control money from corporate treasuries (unlike registered PACs), is necessarily hidden. Who the heck are the real stockholders? Or as Butch asked Sundance, "Who are these guys?" We'll never know.
Hidden money funding, whether foreign or domestic, is the new venom that the court could inject into the system by an expansive decision in Citizens United.
We've been there. The 1994 election brought Newt Gingrich to power in a GOP takeover of the Congress funded by a very strange source. Congressional investigators found that in crucial swing races, Democrats had fallen victim to a flood of last-minute attack ads funded by a group called, "Coalition for Our Children's Future." The $25 million that paid for those ads came, not from concerned parents, but from a corporation called "Triad Inc."
Evidence suggests Triad Inc. was the front for the ultra-right-wing billionaire Koch Brothers and their private petroleum company, Koch Industries. Had the corporate connection been proven, the Kochs and their corporation could have faced indictment under federal election law. If the Supreme Court now decides in favor of unlimited corporate electioneering, then such money-poisoned politicking would become legit.
So it's not just un-Americans we need to fear but the Polluter-Americans, Pharma-mericans, Bank-Americans and Hedge-Americans that could manipulate campaigns while hidden behind corporate veils.
And if so, our future elections, while nominally a contest between Republicans and Democrats, may in fact come down to a three-way battle between China, Saudi Arabia and Goldman Sachs.
Thursday, December 10, 2009
The Banks Are Not All Right
Original Link: http://www.nytimes.com/2009/10/19/opinion/19krugman.html
By PAUL KRUGMAN
It was the best of times, it was the worst of times. O.K., maybe not literally the worst, but definitely bad. And the contrast between the immense good fortune of a few and the continuing suffering of all too many boded ill for the future.
I’m talking, of course, about the state of the banks.
The lucky few garnered most of the headlines, as many reacted with fury to the spectacle of Goldman Sachs making record profits and paying huge bonuses even as the rest of America, the victim of a slump made on Wall Street, continues to bleed jobs.
But it’s not a simple case of flourishing banks versus ailing workers: banks that are actually in the business of lending, as opposed to trading, are still in trouble. Most notably, Citigroup and Bank of America, which silenced talk of nationalization earlier this year by claiming that they had returned to profitability, are now — you guessed it — back to reporting losses.
Ask the people at Goldman, and they’ll tell you that it’s nobody’s business but their own how much they earn. But as one critic recently put it: “There is no financial institution that exists today that is not the direct or indirect beneficiary of trillions of dollars of taxpayer support for the financial system.” Indeed: Goldman has made a lot of money in its trading operations, but it was only able to stay in that game thanks to policies that put vast amounts of public money at risk, from the bailout of A.I.G. to the guarantees extended to many of Goldman’s bonds.
So who was this thundering bank critic? None other than Lawrence Summers, the Obama administration’s chief economist — and one of the architects of the administration’s bank policy, which up until now has been to go easy on financial institutions and hope that they mend themselves.
Why the change in tone? Administration officials are furious at the way the financial industry, just months after receiving a gigantic taxpayer bailout, is lobbying fiercely against serious reform. But you have to wonder what they expected to happen. They followed a softly, softly policy, providing aid with few strings, back when all of Wall Street was on the ropes; this left them with very little leverage over firms like Goldman that are now, once again, making a lot of money.
But there’s an even bigger problem: while the wheeler-dealer side of the financial industry, a k a trading operations, is highly profitable again, the part of banking that really matters — lending, which fuels investment and job creation — is not. Key banks remain financially weak, and their weakness is hurting the economy as a whole.
You may recall that earlier this year there was a big debate about how to get the banks lending again. Some analysts, myself included, argued that at least some major banks needed a large injection of capital from taxpayers, and that the only way to do this was to temporarily nationalize the most troubled banks. The debate faded out, however, after Citigroup and Bank of America, the banking system’s weakest links, announced surprise profits. All was well, we were told, now that the banks were profitable again.
But a funny thing happened on the way back to a sound banking system: last week both Citi and BofA announced losses in the third quarter. What happened?
Part of the answer is that those earlier profits were in part a figment of the accountants’ imaginations. More broadly, however, we’re looking at payback from the real economy. In the first phase of the crisis, Main Street was punished for Wall Street’s misdeeds; now broad economic distress, especially persistent high unemployment, is leading to big losses on mortgage loans and credit cards.
And here’s the thing: The continuing weakness of many banks is helping to perpetuate that economic distress. Banks remain reluctant to lend, and tight credit, especially for small businesses, stands in the way of the strong recovery we need.
So now what? Mr. Summers still insists that the administration did the right thing: more government provision of capital, he says, would not “have been an availing strategy for solving problems.” Whatever. In any case, as a political matter the moment for radical action on banks has clearly passed.
The main thing for the time being is probably to do as much as possible to support job growth. With luck, this will produce a virtuous circle in which an improving economy strengthens the banks, which then become more willing to lend.
Beyond that, we desperately need to pass effective financial reform. For if we don’t, bankers will soon be taking even bigger risks than they did in the run-up to this crisis. After all, the lesson from the last few months has been very clear: When bankers gamble with other people’s money, it’s heads they win, tails the rest of us lose.
By PAUL KRUGMAN
It was the best of times, it was the worst of times. O.K., maybe not literally the worst, but definitely bad. And the contrast between the immense good fortune of a few and the continuing suffering of all too many boded ill for the future.
I’m talking, of course, about the state of the banks.
The lucky few garnered most of the headlines, as many reacted with fury to the spectacle of Goldman Sachs making record profits and paying huge bonuses even as the rest of America, the victim of a slump made on Wall Street, continues to bleed jobs.
But it’s not a simple case of flourishing banks versus ailing workers: banks that are actually in the business of lending, as opposed to trading, are still in trouble. Most notably, Citigroup and Bank of America, which silenced talk of nationalization earlier this year by claiming that they had returned to profitability, are now — you guessed it — back to reporting losses.
Ask the people at Goldman, and they’ll tell you that it’s nobody’s business but their own how much they earn. But as one critic recently put it: “There is no financial institution that exists today that is not the direct or indirect beneficiary of trillions of dollars of taxpayer support for the financial system.” Indeed: Goldman has made a lot of money in its trading operations, but it was only able to stay in that game thanks to policies that put vast amounts of public money at risk, from the bailout of A.I.G. to the guarantees extended to many of Goldman’s bonds.
So who was this thundering bank critic? None other than Lawrence Summers, the Obama administration’s chief economist — and one of the architects of the administration’s bank policy, which up until now has been to go easy on financial institutions and hope that they mend themselves.
Why the change in tone? Administration officials are furious at the way the financial industry, just months after receiving a gigantic taxpayer bailout, is lobbying fiercely against serious reform. But you have to wonder what they expected to happen. They followed a softly, softly policy, providing aid with few strings, back when all of Wall Street was on the ropes; this left them with very little leverage over firms like Goldman that are now, once again, making a lot of money.
But there’s an even bigger problem: while the wheeler-dealer side of the financial industry, a k a trading operations, is highly profitable again, the part of banking that really matters — lending, which fuels investment and job creation — is not. Key banks remain financially weak, and their weakness is hurting the economy as a whole.
You may recall that earlier this year there was a big debate about how to get the banks lending again. Some analysts, myself included, argued that at least some major banks needed a large injection of capital from taxpayers, and that the only way to do this was to temporarily nationalize the most troubled banks. The debate faded out, however, after Citigroup and Bank of America, the banking system’s weakest links, announced surprise profits. All was well, we were told, now that the banks were profitable again.
But a funny thing happened on the way back to a sound banking system: last week both Citi and BofA announced losses in the third quarter. What happened?
Part of the answer is that those earlier profits were in part a figment of the accountants’ imaginations. More broadly, however, we’re looking at payback from the real economy. In the first phase of the crisis, Main Street was punished for Wall Street’s misdeeds; now broad economic distress, especially persistent high unemployment, is leading to big losses on mortgage loans and credit cards.
And here’s the thing: The continuing weakness of many banks is helping to perpetuate that economic distress. Banks remain reluctant to lend, and tight credit, especially for small businesses, stands in the way of the strong recovery we need.
So now what? Mr. Summers still insists that the administration did the right thing: more government provision of capital, he says, would not “have been an availing strategy for solving problems.” Whatever. In any case, as a political matter the moment for radical action on banks has clearly passed.
The main thing for the time being is probably to do as much as possible to support job growth. With luck, this will produce a virtuous circle in which an improving economy strengthens the banks, which then become more willing to lend.
Beyond that, we desperately need to pass effective financial reform. For if we don’t, bankers will soon be taking even bigger risks than they did in the run-up to this crisis. After all, the lesson from the last few months has been very clear: When bankers gamble with other people’s money, it’s heads they win, tails the rest of us lose.
How The Right-Wing Noise Machine Manufactured ‘Climategate’
Original Link: http://wonkroom.thinkprogress.org/2009/12/09/climate-gate-timeline/
By Lee Fang
In mid-November, thousands of emails from the University of East Anglia Climatic Research Unit webmail server — a top climate research center in the United Kingdom — were hacked and dumped on a Russian web server. Polluter-funded climate skeptics, along with their allies in conservative media and the Republican Party, sifted through the e-mails, and quickly cherry picked quotes to falsely accuse climate scientists of concocting climate change science out of whole cloth. The skeptics also propelled the story, dubbed “Climategate,” to the cover of the New York Times and newspapers across the globe. According to a Nexis news search, the Climategate story has been reported at least 325 times in the American press alone.
While the hacked e-mails may reveal that scientists might not have nice things to say about climate change deniers at times, they do nothing to change the scientific consensus that carbon dioxide emissions from fossil fuel use are raising temperatures and making oceans more acidic. As the right attempts to use the Climategate story to derail the Copenhagen Climate Change Conference this week, arctic sea ice is still at historically low levels, Australia is still on fire, the northern United Kingdom is still underwater, the world’s glaciers are still disappearing and today NOAA confirmed that not only is it the hottest decade in history, but 2009 was one of the hottest years in history. But how did the right-wing noise machine hijack the debate?
The methods for the right-wing political hit machine were honed during the Clinton years. Columnist and language-guru William Safire, a former aide to actual Watergate crook President Nixon, attached “-gate” to any minor post-Nixon incident as a “rhetorical legerdemain” intended “to establish moral equivalence.” (See phony manufactured scandals “Travelgate,” “Whitewatergate,” etc.) A right-wing echo chamber — including the Rev. Moon-funded Washington Times, the Wall Street Journal editorial page, talk radio, and the constellation of various conservative front groups and think tanks — would then blare the scandal incessantly, regardless of the truth. But the more troubling aspect of this gimmick is the increasing willingness for traditional media outlets, from the Evening News to the Washington Post, to largely reprint unfounded right-wing smears without context or critical reporting.
One of the most successful coups for right-wing hit men was the “SwiftBoat” campaign, a well financed effort orchestrated by lobbyists and Bush allies to smear Sen. John Kerry’s (D-MA) war record. But “Climategate” is no different, with many of the same conservatives actors playing their respective roles:
(Click MORE to read the Wonk Room’s timeline of Climategate)
Nov. 17:
– RealClimate blogger Gavin Schmidt realized that someone was hacking his computer and downloading 160MB of files from a Turkish IP address. About an hour after the intrusion, a mysterious commenter at the climate skeptic blog Climate Audit posted a link to the hacked files with a note reading: “A miracle just happened.” Schmidt noted that, “four downloads occurred from that link while the file was still there (it no longer is).”
Nov. 19:
– Hackers then used a computer in Saudi Arabia to post the stolen e-mails, stored on a Russian server, on the climate skeptic website Air Vent.
– Skeptic blog “Watts Up With That” curiously is among the first blogs to posts the hacked e-mails.
– Chris Horner, an operative of the Koch Industries/ExxonMobil-funded Competitive Enterprise Institute, blogged giddily at National Review that although he had not been “able to fully digest this at present,” “the blue dress moment may have arrived” on climate science.
– Sarah Palin appears on Fox News’ O’Reilly Factor to discuss her new book. Palin and O’Reilly compare a young man who briefly hacked into her e-mail account in 2008, calling the incident “extremely disconcerting and disruptive” and “Watergate-lite.” O’Reilly and Plain do not discussed the hacked climate e-mails.
Nov. 20:
– In a front page article, the New York Times’ Andy Revkin reports that the e-mails “might lend themselves to being interpreted as sinister.”
– Myron Ebell, of the Koch Industries/ExxonMobil-funded Competitive Enterprise Institute, releases a statement pointing to the stolen e-mails to conclude that global warming science is “phony.”
– Reading reports on right-wing blogs on air, Rush Limbaugh dedicates a segment to the hacked e-mails, claiming they vindicate his belief that global warming does not exist.
– Conservative Ed Morrissey concluded the e-mails prove global warming is “not science; it’s religious belief.”
– Right-wing blogger Michelle Malkin cheers “the global warming scandal of the century,” adding: “The Chicago Way is the Global Warming Mob Way.”
– ExxonMobil-funded front group FreedomWorks blasts out an e-mail asking “Has the Global Warming Lie and Conspiracy Been Truly Exposed?”
– Marc Morano, a former Sen. Jim Inhofe (R-OK) staffer who helps to distribute climate change denying propaganda to a network of news outlets and conservative organizations, broadcasts Climategate to talk radio.
— The Wall Street Journal’s environmental blog publicizes the conservative blogosphere’s furor: “this should get interesting … Maybe this will spice things up.”
Nov. 22:
– Sen. David Vitter’s (R-LA) staff distributes a letter claiming the stolen e-mails reveal what “could well be the greatest act of scientific fraud in history.”
Nov. 23:
– Heralding the stolen e-mails, infamous climate science skeptic Sen. Jim Inhofe (R-OK) and Rep. Darrell Issa (R-CA) call for congressional investigations against climate scientists.
– Fox News’ Fox Nation headlines the e-mails: “Global Warming’s Waterloo”
– Glenn Beck devotes both his radio and Fox News program to covering Climategate, claims the e-mails show a “brand new reality” on climate science.
– Investors’ Business Daily editorializes that the e-mails show that global warming is “junk science.”
– The ExxonMobil-funded Heritage Foundation publicizes the stolen e-mails.
– Right-wing activist Viscount Monckton says climate scientists are “criminals.”
Nov. 24:
– Fox News’ Stu Varney begins his daily coverage of Climategate. He continues to attack global warming science, using the e-mails, on both the Fox News and Fox Business network.
– Washington Times editorial board, Drudge Report, both chime in to claim hacked e-mails show global warming is not real.
Nov. 29:
– Fox News regular Andrew Breitbart calls for climate scientists to be killed over Climategate.
Nov. 30:
– Rep. Candace Miller (R-MI) issues a statement to demand for an investigation of Climategate, and begins speaking about it on the floor of the House. In the following week, Reps Jim Sensenbrenner (R-WI), Darrell Issa (R-CA), John Linder (R-GA), Bill Shuster (R-PA), Joe Barton (R-TX), Blaine Luetkemeyer (R-MO), Dana Rohrbacher (R-CA), Mike Rogers (R-MI), Dan Burton (R-IN), Steve Scalise (R-LA), Greg Walden (R-OR) and Charlie Dent (R-PA) begin blasting press releases on the subject.
Dec. 1:
– Newt Gingrich, who only 2 years ago said America must act “urgently” to address climate change, seizes on the stolen e-mails to spread skepticism of global warming science. Gingrich’s political attack group, ASWF, is heavily funded by coal interests.
Dec. 2:
– Right-wing billionaire David Koch, of the oil empire Koch Industries, sends his front group Americans for Prosperity to attend the Copenhagen conference to attempt to hijack the debate. AFP intends to “expose” the science using the stolen e-mails.
Dec. 3:
– Canada’s National Post reports that burglars and hackers have been attacking the Canadian Center for Climate Modeling and Analysis at the University of Victoria in British Columbia. In the lead up to the Copenhagen conference, Andrew Weaver — a University of Victoria scientist and key contributor to the Nobel prize-winning work of the Intergovernmental Panel on Climate Change — noted that his campus office was broken into twice and that a dead computer was stolen and papers were rummaged through.
– Saudi Arabian climate negotiators for the Copenhagen summit endorse Climategate, charging that the e-mail show “there is no relationship whatsoever between human activities and climate change.”
– Fox News’ Brian Kilmeade says “damning” e-mails show scientists who “think … Antartica is becoming like the Bahamas.”
Dec. 4:
– NBC’s Nightly News with Brian Williams adopts right-wing Climategate smear: “Have the books been cooked on climate change?”
Dec. 7:
– ExxonMobil-funded think tanks the Heartland Institute and the National Center for Policy Analysis publicize the e-mails to “discredit” global warming science.
Dec. 8:
– The Wall Street Journal accuses climate scientists of being Stalinists.
– Fox News devotes a segment to a right-wing Rasmussen poll with a graphic that claims 120 percent of the public believes scientists falsified global warming data.
Dec. 9:
– Sarah Palin, who only weeks earlier decried the hacking of e-mails, writes in an op-ed that the Climategate e-mails are proof that anthropogenic global warming does not exist. The Washington Post publishes Palin’s op-ed, despite the fact it is riddled with errors and outright falsehoods.
By Lee Fang
In mid-November, thousands of emails from the University of East Anglia Climatic Research Unit webmail server — a top climate research center in the United Kingdom — were hacked and dumped on a Russian web server. Polluter-funded climate skeptics, along with their allies in conservative media and the Republican Party, sifted through the e-mails, and quickly cherry picked quotes to falsely accuse climate scientists of concocting climate change science out of whole cloth. The skeptics also propelled the story, dubbed “Climategate,” to the cover of the New York Times and newspapers across the globe. According to a Nexis news search, the Climategate story has been reported at least 325 times in the American press alone.
While the hacked e-mails may reveal that scientists might not have nice things to say about climate change deniers at times, they do nothing to change the scientific consensus that carbon dioxide emissions from fossil fuel use are raising temperatures and making oceans more acidic. As the right attempts to use the Climategate story to derail the Copenhagen Climate Change Conference this week, arctic sea ice is still at historically low levels, Australia is still on fire, the northern United Kingdom is still underwater, the world’s glaciers are still disappearing and today NOAA confirmed that not only is it the hottest decade in history, but 2009 was one of the hottest years in history. But how did the right-wing noise machine hijack the debate?
The methods for the right-wing political hit machine were honed during the Clinton years. Columnist and language-guru William Safire, a former aide to actual Watergate crook President Nixon, attached “-gate” to any minor post-Nixon incident as a “rhetorical legerdemain” intended “to establish moral equivalence.” (See phony manufactured scandals “Travelgate,” “Whitewatergate,” etc.) A right-wing echo chamber — including the Rev. Moon-funded Washington Times, the Wall Street Journal editorial page, talk radio, and the constellation of various conservative front groups and think tanks — would then blare the scandal incessantly, regardless of the truth. But the more troubling aspect of this gimmick is the increasing willingness for traditional media outlets, from the Evening News to the Washington Post, to largely reprint unfounded right-wing smears without context or critical reporting.
One of the most successful coups for right-wing hit men was the “SwiftBoat” campaign, a well financed effort orchestrated by lobbyists and Bush allies to smear Sen. John Kerry’s (D-MA) war record. But “Climategate” is no different, with many of the same conservatives actors playing their respective roles:
(Click MORE to read the Wonk Room’s timeline of Climategate)
Nov. 17:
– RealClimate blogger Gavin Schmidt realized that someone was hacking his computer and downloading 160MB of files from a Turkish IP address. About an hour after the intrusion, a mysterious commenter at the climate skeptic blog Climate Audit posted a link to the hacked files with a note reading: “A miracle just happened.” Schmidt noted that, “four downloads occurred from that link while the file was still there (it no longer is).”
Nov. 19:
– Hackers then used a computer in Saudi Arabia to post the stolen e-mails, stored on a Russian server, on the climate skeptic website Air Vent.
– Skeptic blog “Watts Up With That” curiously is among the first blogs to posts the hacked e-mails.
– Chris Horner, an operative of the Koch Industries/ExxonMobil-funded Competitive Enterprise Institute, blogged giddily at National Review that although he had not been “able to fully digest this at present,” “the blue dress moment may have arrived” on climate science.
– Sarah Palin appears on Fox News’ O’Reilly Factor to discuss her new book. Palin and O’Reilly compare a young man who briefly hacked into her e-mail account in 2008, calling the incident “extremely disconcerting and disruptive” and “Watergate-lite.” O’Reilly and Plain do not discussed the hacked climate e-mails.
Nov. 20:
– In a front page article, the New York Times’ Andy Revkin reports that the e-mails “might lend themselves to being interpreted as sinister.”
– Myron Ebell, of the Koch Industries/ExxonMobil-funded Competitive Enterprise Institute, releases a statement pointing to the stolen e-mails to conclude that global warming science is “phony.”
– Reading reports on right-wing blogs on air, Rush Limbaugh dedicates a segment to the hacked e-mails, claiming they vindicate his belief that global warming does not exist.
– Conservative Ed Morrissey concluded the e-mails prove global warming is “not science; it’s religious belief.”
– Right-wing blogger Michelle Malkin cheers “the global warming scandal of the century,” adding: “The Chicago Way is the Global Warming Mob Way.”
– ExxonMobil-funded front group FreedomWorks blasts out an e-mail asking “Has the Global Warming Lie and Conspiracy Been Truly Exposed?”
– Marc Morano, a former Sen. Jim Inhofe (R-OK) staffer who helps to distribute climate change denying propaganda to a network of news outlets and conservative organizations, broadcasts Climategate to talk radio.
— The Wall Street Journal’s environmental blog publicizes the conservative blogosphere’s furor: “this should get interesting … Maybe this will spice things up.”
Nov. 22:
– Sen. David Vitter’s (R-LA) staff distributes a letter claiming the stolen e-mails reveal what “could well be the greatest act of scientific fraud in history.”
Nov. 23:
– Heralding the stolen e-mails, infamous climate science skeptic Sen. Jim Inhofe (R-OK) and Rep. Darrell Issa (R-CA) call for congressional investigations against climate scientists.
– Fox News’ Fox Nation headlines the e-mails: “Global Warming’s Waterloo”
– Glenn Beck devotes both his radio and Fox News program to covering Climategate, claims the e-mails show a “brand new reality” on climate science.
– Investors’ Business Daily editorializes that the e-mails show that global warming is “junk science.”
– The ExxonMobil-funded Heritage Foundation publicizes the stolen e-mails.
– Right-wing activist Viscount Monckton says climate scientists are “criminals.”
Nov. 24:
– Fox News’ Stu Varney begins his daily coverage of Climategate. He continues to attack global warming science, using the e-mails, on both the Fox News and Fox Business network.
– Washington Times editorial board, Drudge Report, both chime in to claim hacked e-mails show global warming is not real.
Nov. 29:
– Fox News regular Andrew Breitbart calls for climate scientists to be killed over Climategate.
Nov. 30:
– Rep. Candace Miller (R-MI) issues a statement to demand for an investigation of Climategate, and begins speaking about it on the floor of the House. In the following week, Reps Jim Sensenbrenner (R-WI), Darrell Issa (R-CA), John Linder (R-GA), Bill Shuster (R-PA), Joe Barton (R-TX), Blaine Luetkemeyer (R-MO), Dana Rohrbacher (R-CA), Mike Rogers (R-MI), Dan Burton (R-IN), Steve Scalise (R-LA), Greg Walden (R-OR) and Charlie Dent (R-PA) begin blasting press releases on the subject.
Dec. 1:
– Newt Gingrich, who only 2 years ago said America must act “urgently” to address climate change, seizes on the stolen e-mails to spread skepticism of global warming science. Gingrich’s political attack group, ASWF, is heavily funded by coal interests.
Dec. 2:
– Right-wing billionaire David Koch, of the oil empire Koch Industries, sends his front group Americans for Prosperity to attend the Copenhagen conference to attempt to hijack the debate. AFP intends to “expose” the science using the stolen e-mails.
Dec. 3:
– Canada’s National Post reports that burglars and hackers have been attacking the Canadian Center for Climate Modeling and Analysis at the University of Victoria in British Columbia. In the lead up to the Copenhagen conference, Andrew Weaver — a University of Victoria scientist and key contributor to the Nobel prize-winning work of the Intergovernmental Panel on Climate Change — noted that his campus office was broken into twice and that a dead computer was stolen and papers were rummaged through.
– Saudi Arabian climate negotiators for the Copenhagen summit endorse Climategate, charging that the e-mail show “there is no relationship whatsoever between human activities and climate change.”
– Fox News’ Brian Kilmeade says “damning” e-mails show scientists who “think … Antartica is becoming like the Bahamas.”
Dec. 4:
– NBC’s Nightly News with Brian Williams adopts right-wing Climategate smear: “Have the books been cooked on climate change?”
Dec. 7:
– ExxonMobil-funded think tanks the Heartland Institute and the National Center for Policy Analysis publicize the e-mails to “discredit” global warming science.
Dec. 8:
– The Wall Street Journal accuses climate scientists of being Stalinists.
– Fox News devotes a segment to a right-wing Rasmussen poll with a graphic that claims 120 percent of the public believes scientists falsified global warming data.
Dec. 9:
– Sarah Palin, who only weeks earlier decried the hacking of e-mails, writes in an op-ed that the Climategate e-mails are proof that anthropogenic global warming does not exist. The Washington Post publishes Palin’s op-ed, despite the fact it is riddled with errors and outright falsehoods.
Sunday, December 6, 2009
Worse Than Enron?
Original Link: http://www.thedailybeast.com/blogs-and-stories/2009-12-01/worse-than-enron/full/
by Nomi Prins
Wall Street’s big banks are playing dangerous new accounting games—and this time taxpayers are on the hook for hundreds of billions. Nomi Prins uncovers a scandal in the making.
Enron was the financial scandal that kicked off the decade: a giant energy trading company that appeared to be doing brilliantly—until we finally noticed that it wasn’t. It’s largely been forgotten given the wreckage that followed, and that’s too bad: we may be repeating those mistakes, on a far larger scale.
Specifically, as the largest Wall Street banks return to profitability—in some cases, breaking records—they say everything is rosy. They’re lining up to pay back their TARP money and asking Washington to back off. But why are they doing so well? Remember that Enron got away with their illegalities so long because their financials were so complicated that not even the analysts paid to monitor the Houston-based trading giant could cogently explain how they were making so much money.
The nation’s biggest banks, plumped up on government capital and risk-infused trading profits, have been moving stuff around their balance sheets like a multi-billion dollar musical chairs game.
After two weeks sifting through over one thousand pages of SEC filings for the largest banks, I have the same concerns. While Washington ponders what to do, or not do, about reforming Wall Street, the nation’s biggest banks, plumped up on government capital and risk-infused trading profits, have been moving stuff around their balance sheets like a multi-billion dollar musical chairs game.
I was trying to answer the simple question that you'd think regulators should want to know: how much of each bank’s revenue is derived from trading (taking risk) vs. other businesses? And how can you compare it across the industry—so you can contain all that systemic risk? Only, there's no uniformity across books. And, given the complexity of these mega-merged firms, those questions aren’t easy to answer.
Goldman Sachs and Morgan Stanley, for example, altered their year-end reporting dates, orphaning the month of December, thus making comparison to past quarterly statements more difficult. In the cases of Bank of America, Citigroup and Wells Fargo, the preferred tactic is re-classification and opaqueness. These moves make it virtually impossible to get an accurate, or consistent picture of banks ‘real money’ (from commercial or customer services) vs. their ‘play money’ (used for trading purposes, and most risky to the overall financial system, particularly since much of the required trading capital was federally subsidized).
Trading profitability, albeit inconsistent and volatile, is the quickest way back to the illusion of financial health, as these banks continue to take hits from their consumer-oriented businesses. But, appearance doesn’t equal stability, or necessarily, reality. Here’s how BofA, Citi and Wells Fargo play the game:
Bank of America: The firm reclassified its filing categories upon acquiring Merrill Lynch, but it doesn't break down the trading vs. investment banking revenues of Merrill. This either means the firm doesn’t truly know what's going on inside its new problem child, or doesn’t want to tell. (No wonder no one’s jumping for the upcoming CEO vacancy.) That said, despite the obvious information clouding, new acquisitions generally don’t have their activities broken out, which makes it a lot harder for regulators, shareholders, or we, taxpaying subsidizers, to know whether the merger was a success or not.
According to Scott Silvestri, Bank of America’s spokesman, “On our second quarter's earnings release, there was a note explaining why we changed reporting structure. But, with every quarter that passes, it's harder to unscramble the egg. It's been a merged entity since January 1, 2009.”
He added that “we have an earnings supplement. Every quarter, we put out a standalone Merrill 10-Q that shows its profitability.” True, but what’s the point of issuing a separate Merrill report, without delineating Merrill’s contribution in its main books so that you can clearly see how specific parts of Merrill’s business impact similar ones in the merged entity? Furthermore, we can’t even figure this out ourselves—the Merrill results in the 10-Q don’t map directly to those of BofA’s books. This all just creates more complexities for a bank that still floats on $63.1 billion in various government subsidies.
When it wants to, it appears that BofA can merge and then break out Merrill’s numbers. Under the "Global Wealth & Investment Management ” classification, we discover that Merrill contributed three-quarters of the $12 billion BofA took in over the first nine months of 2009. According to Silvestri, “The numbers of the old Merrill are there because the brand name was kept, vestiges of the old Merrill Lynch exist.”
Talk about semantics. Why not also break out the area where revenues tripled and trading account profits jumped significantly (from a $6 billion loss in 2008 to an almost $14 billion gain in 2009)? Something is clearly going on there: the best measure of trading risk, VaR (“value at risk” or a firm’s daily trading variation) doubled between 2008 and 2009. If I was the CEO, I’d want to see this critical comparison on my merged company filing.
Elsewhere, the sum of Bank of America’s quarterly figures doesn’t quite add up to the nine months totals. (A few hundred million of discrepancies between friends.) Another item "all other" is off by nearly a quarter of a billion dollars. And so on. The firm also declared, that it “may periodically reclassify business segment results based on modifications to its management reporting methodologies and changes in organizational alignment." In other words, whenever it feels like it. Comforting, isn’t it?
Citigroup: Another balance-sheet renovation, this time because of a sale (Smith Barney, which it offloaded to Morgan Stanley) rather than a purchase, and another trading miracle. Citigroup’s main trading arm, housed in what it calls the Institutional Clients Group (ICG), made $31.5 billion in net revenue for 2009, compared with a $7.8 billion loss in 2008. Its average daily value at risk jumped too, though “only” by 15 percent or so.
That’s a huge and extremely fast trading rebound for the main recipient of government subsidies (at $373.7 billion). But, there is no overall breakdown present in the summaries of Citigroup’s latest filings. And the sum of the trading totals doesn’t equal the parts, because the firm also noted that certain numbers deemed an “integral part of profitability” weren’t included in those computations, without giving any apparent reason. (After adding the missing number, it still didn’t add up.)
Again, it’s “just” a couple billion of discrepancies, but with books this massive at banks this big and risky, accuracy matters. Plus, such nuances make it extremely difficult to understand its books for regulators or the public.
Citigroup's Danielle Romero-Apsilos said that they periodically change reporting. "ICG existed, but after Smith Barney's joint venture with Morgan Stanley, we moved the private bank into the securities and banking reporting line in the ICG."
That describes the chain of events, but doesn’t get closer to determining trading related revenue. Romero-Apsilos said, “We don’t break up the financials specifically for those businesses. Over the years, we may have broken out different things."
Wells Fargo: Yet more innovative accounting maneuvers. For example, the innocuous sounding category, “wholesale banking” which provides traditional lending, finance and asset management services, was expanded (following the Wachovia acquisition that completed on December 31, 2008) to include more speculative activities like fixed-income and equity trading. But, those activities aren’t broken down in the firm’s SEC filing, making it difficult to determine which portion comes from trading vs. commercial or investment banking.
Wells Fargo spokesperson, Mary Eshet (who still has a Wachovia email address) confirmed there is no separate Wachovia 10-Q (like there is for Merrill Lynch), but that it wasn't the case that "Wells Fargo broke out trading related revenue previously either."
In fact, Wells just provides totals for their four main business segments, each of which increased sharply. Community banking rose from $33 billion in 2008 to an annualized $59 billion in 2009. Wholesale banking shot up from $8.2 billion in 2008 to $20 billion in annualized 2009. And, wealth, brokerage and retirement quadrupled from $2.7 billion in 2008 to $11.6 annualized for 2009. (The fourth segment is called ‘other.’) Yet, all these rosy numbers come with no specific breakdowns for their various trading business areas.
Separately, Wells states in its filing that its management accounting process is “dynamic” and, not “necessarily comparable with similar information for other financial services companies.” This statement should give lawmakers pause: if banks are so complex as to constantly fluctuate their own reporting, deciphering figures just before a crisis won’t exactly be a walk in the park.
With taxpayers now on the hook, we need an objective, consistent evaluation of bank balance sheets complete with probing questions about trading and speculative revenues, allowing for comparisons across the banking industry. This lack of transparency leaves room to misrepresent risk and trading revenue.
The long-term solution is bringing back Glass-Steagall. Being big doesn’t just risk bringing down a financial system—it means you can also more easily hide things. Remember the lesson from the Enron saga: when things look too good to be true, they usually are.
by Nomi Prins
Wall Street’s big banks are playing dangerous new accounting games—and this time taxpayers are on the hook for hundreds of billions. Nomi Prins uncovers a scandal in the making.
Enron was the financial scandal that kicked off the decade: a giant energy trading company that appeared to be doing brilliantly—until we finally noticed that it wasn’t. It’s largely been forgotten given the wreckage that followed, and that’s too bad: we may be repeating those mistakes, on a far larger scale.
Specifically, as the largest Wall Street banks return to profitability—in some cases, breaking records—they say everything is rosy. They’re lining up to pay back their TARP money and asking Washington to back off. But why are they doing so well? Remember that Enron got away with their illegalities so long because their financials were so complicated that not even the analysts paid to monitor the Houston-based trading giant could cogently explain how they were making so much money.
The nation’s biggest banks, plumped up on government capital and risk-infused trading profits, have been moving stuff around their balance sheets like a multi-billion dollar musical chairs game.
After two weeks sifting through over one thousand pages of SEC filings for the largest banks, I have the same concerns. While Washington ponders what to do, or not do, about reforming Wall Street, the nation’s biggest banks, plumped up on government capital and risk-infused trading profits, have been moving stuff around their balance sheets like a multi-billion dollar musical chairs game.
I was trying to answer the simple question that you'd think regulators should want to know: how much of each bank’s revenue is derived from trading (taking risk) vs. other businesses? And how can you compare it across the industry—so you can contain all that systemic risk? Only, there's no uniformity across books. And, given the complexity of these mega-merged firms, those questions aren’t easy to answer.
Goldman Sachs and Morgan Stanley, for example, altered their year-end reporting dates, orphaning the month of December, thus making comparison to past quarterly statements more difficult. In the cases of Bank of America, Citigroup and Wells Fargo, the preferred tactic is re-classification and opaqueness. These moves make it virtually impossible to get an accurate, or consistent picture of banks ‘real money’ (from commercial or customer services) vs. their ‘play money’ (used for trading purposes, and most risky to the overall financial system, particularly since much of the required trading capital was federally subsidized).
Trading profitability, albeit inconsistent and volatile, is the quickest way back to the illusion of financial health, as these banks continue to take hits from their consumer-oriented businesses. But, appearance doesn’t equal stability, or necessarily, reality. Here’s how BofA, Citi and Wells Fargo play the game:
Bank of America: The firm reclassified its filing categories upon acquiring Merrill Lynch, but it doesn't break down the trading vs. investment banking revenues of Merrill. This either means the firm doesn’t truly know what's going on inside its new problem child, or doesn’t want to tell. (No wonder no one’s jumping for the upcoming CEO vacancy.) That said, despite the obvious information clouding, new acquisitions generally don’t have their activities broken out, which makes it a lot harder for regulators, shareholders, or we, taxpaying subsidizers, to know whether the merger was a success or not.
According to Scott Silvestri, Bank of America’s spokesman, “On our second quarter's earnings release, there was a note explaining why we changed reporting structure. But, with every quarter that passes, it's harder to unscramble the egg. It's been a merged entity since January 1, 2009.”
He added that “we have an earnings supplement. Every quarter, we put out a standalone Merrill 10-Q that shows its profitability.” True, but what’s the point of issuing a separate Merrill report, without delineating Merrill’s contribution in its main books so that you can clearly see how specific parts of Merrill’s business impact similar ones in the merged entity? Furthermore, we can’t even figure this out ourselves—the Merrill results in the 10-Q don’t map directly to those of BofA’s books. This all just creates more complexities for a bank that still floats on $63.1 billion in various government subsidies.
When it wants to, it appears that BofA can merge and then break out Merrill’s numbers. Under the "Global Wealth & Investment Management ” classification, we discover that Merrill contributed three-quarters of the $12 billion BofA took in over the first nine months of 2009. According to Silvestri, “The numbers of the old Merrill are there because the brand name was kept, vestiges of the old Merrill Lynch exist.”
Talk about semantics. Why not also break out the area where revenues tripled and trading account profits jumped significantly (from a $6 billion loss in 2008 to an almost $14 billion gain in 2009)? Something is clearly going on there: the best measure of trading risk, VaR (“value at risk” or a firm’s daily trading variation) doubled between 2008 and 2009. If I was the CEO, I’d want to see this critical comparison on my merged company filing.
Elsewhere, the sum of Bank of America’s quarterly figures doesn’t quite add up to the nine months totals. (A few hundred million of discrepancies between friends.) Another item "all other" is off by nearly a quarter of a billion dollars. And so on. The firm also declared, that it “may periodically reclassify business segment results based on modifications to its management reporting methodologies and changes in organizational alignment." In other words, whenever it feels like it. Comforting, isn’t it?
Citigroup: Another balance-sheet renovation, this time because of a sale (Smith Barney, which it offloaded to Morgan Stanley) rather than a purchase, and another trading miracle. Citigroup’s main trading arm, housed in what it calls the Institutional Clients Group (ICG), made $31.5 billion in net revenue for 2009, compared with a $7.8 billion loss in 2008. Its average daily value at risk jumped too, though “only” by 15 percent or so.
That’s a huge and extremely fast trading rebound for the main recipient of government subsidies (at $373.7 billion). But, there is no overall breakdown present in the summaries of Citigroup’s latest filings. And the sum of the trading totals doesn’t equal the parts, because the firm also noted that certain numbers deemed an “integral part of profitability” weren’t included in those computations, without giving any apparent reason. (After adding the missing number, it still didn’t add up.)
Again, it’s “just” a couple billion of discrepancies, but with books this massive at banks this big and risky, accuracy matters. Plus, such nuances make it extremely difficult to understand its books for regulators or the public.
Citigroup's Danielle Romero-Apsilos said that they periodically change reporting. "ICG existed, but after Smith Barney's joint venture with Morgan Stanley, we moved the private bank into the securities and banking reporting line in the ICG."
That describes the chain of events, but doesn’t get closer to determining trading related revenue. Romero-Apsilos said, “We don’t break up the financials specifically for those businesses. Over the years, we may have broken out different things."
Wells Fargo: Yet more innovative accounting maneuvers. For example, the innocuous sounding category, “wholesale banking” which provides traditional lending, finance and asset management services, was expanded (following the Wachovia acquisition that completed on December 31, 2008) to include more speculative activities like fixed-income and equity trading. But, those activities aren’t broken down in the firm’s SEC filing, making it difficult to determine which portion comes from trading vs. commercial or investment banking.
Wells Fargo spokesperson, Mary Eshet (who still has a Wachovia email address) confirmed there is no separate Wachovia 10-Q (like there is for Merrill Lynch), but that it wasn't the case that "Wells Fargo broke out trading related revenue previously either."
In fact, Wells just provides totals for their four main business segments, each of which increased sharply. Community banking rose from $33 billion in 2008 to an annualized $59 billion in 2009. Wholesale banking shot up from $8.2 billion in 2008 to $20 billion in annualized 2009. And, wealth, brokerage and retirement quadrupled from $2.7 billion in 2008 to $11.6 annualized for 2009. (The fourth segment is called ‘other.’) Yet, all these rosy numbers come with no specific breakdowns for their various trading business areas.
Separately, Wells states in its filing that its management accounting process is “dynamic” and, not “necessarily comparable with similar information for other financial services companies.” This statement should give lawmakers pause: if banks are so complex as to constantly fluctuate their own reporting, deciphering figures just before a crisis won’t exactly be a walk in the park.
With taxpayers now on the hook, we need an objective, consistent evaluation of bank balance sheets complete with probing questions about trading and speculative revenues, allowing for comparisons across the banking industry. This lack of transparency leaves room to misrepresent risk and trading revenue.
The long-term solution is bringing back Glass-Steagall. Being big doesn’t just risk bringing down a financial system—it means you can also more easily hide things. Remember the lesson from the Enron saga: when things look too good to be true, they usually are.
Aetna prepares for loss of 600,000 members as it raises 2010 prices
Original Link: http://pnhp.org/blog/2009/11/30/aetna-to-dump-600000-members/
By Emily Berry
Back when it was the largest private health plan in the country, Aetna downsized its membership by millions but boosted profits during an overhaul of its business several years ago.
Now it looks to be making a similar — but smaller — move with a planned price increase for many of its customers in 2010.
The company figures it will lose between 600,000 and 650,000 members next year because of the price hikes.
In a conference call with investment analysts to discuss the company’s third-quarter earnings, Chair and CEO Ron Williams told analysts, “The pricing we put in place for 2009 turned out to not really be what we needed to achieve the results and margins that we had historically been delivering.”
Aetna President Mark Bertolini laid out how the company planned to raise prices to improve the company’s profit margin. He said the firm had “implemented a combination of underwriting enhancements, pricing actions and plan design changes, intended to ensure that each customer is priced to an appropriate margin.”
Laying out specific expected membership losses is “pretty candid,” said David Gibbs, a retired health insurance industry consultant from San Luis Obispo, Calif. He worked for and consulted with health insurers, including Aetna, for 25 years.
He said Aetna’s decision comes from a system that encourages insurers to drive away sicker members — a strategy not unique to one insurer. “They’re running a business, and their obligation is a very singular one: to increase shareholder profits.”
Gibbs said simply raising prices probably would not get Aetna what it wants. That actually tends to result in sick people who are more “desperate” for coverage to keep it, and healthier groups to drop it. Instead, Aetna might change benefit designs, scaling back prescription drug coverage, for example, which sicker populations tend to value but healthier ones don’t notice as much.
http://www.ama-assn.org/amednews/2009/11/30/bisb1130.htm
This act by Aetna indicates the level of sincerity the insurance industry has in its alleged new effort to cooperate in ensuring that everyone has the health care coverage that they need. Aetna is redesigning and repricing its products in order to dump over 600,000 of its less profitable members. They need to be sure that “each customer is priced to an appropriate margin.” And, above all, they owe it to their shareholders “to drive away sicker members.”
But that’s one of the ways that markets work – improve profits by cutting losses. We keep hearing that markets improve quality while reducing costs, yet in a bit of irony, for those healthier populations that remain with the Aetna, the insurer is reducing quality through product redesign, and increasing costs through higher premiums.
Once Aetna dumps these members, what private insurer is going to jump in to capture this higher cost population? None you say? And under reform? The higher cost individuals buy into the weak public option driving premiums up through adverse selection to even more unaffordable levels?
Try to imagine Medicare dumping over 600,000 patients because they need more medical care. That is unthinkable and would be reprehensible in a public social insurance program such as Medicare. Yet for the private insurance industry, it’s business as usual. And President Obama and Congress want to keep these marketeers in charge? Talk about reprehensible!
By Emily Berry
Back when it was the largest private health plan in the country, Aetna downsized its membership by millions but boosted profits during an overhaul of its business several years ago.
Now it looks to be making a similar — but smaller — move with a planned price increase for many of its customers in 2010.
The company figures it will lose between 600,000 and 650,000 members next year because of the price hikes.
In a conference call with investment analysts to discuss the company’s third-quarter earnings, Chair and CEO Ron Williams told analysts, “The pricing we put in place for 2009 turned out to not really be what we needed to achieve the results and margins that we had historically been delivering.”
Aetna President Mark Bertolini laid out how the company planned to raise prices to improve the company’s profit margin. He said the firm had “implemented a combination of underwriting enhancements, pricing actions and plan design changes, intended to ensure that each customer is priced to an appropriate margin.”
Laying out specific expected membership losses is “pretty candid,” said David Gibbs, a retired health insurance industry consultant from San Luis Obispo, Calif. He worked for and consulted with health insurers, including Aetna, for 25 years.
He said Aetna’s decision comes from a system that encourages insurers to drive away sicker members — a strategy not unique to one insurer. “They’re running a business, and their obligation is a very singular one: to increase shareholder profits.”
Gibbs said simply raising prices probably would not get Aetna what it wants. That actually tends to result in sick people who are more “desperate” for coverage to keep it, and healthier groups to drop it. Instead, Aetna might change benefit designs, scaling back prescription drug coverage, for example, which sicker populations tend to value but healthier ones don’t notice as much.
http://www.ama-assn.org/amednews/2009/11/30/bisb1130.htm
This act by Aetna indicates the level of sincerity the insurance industry has in its alleged new effort to cooperate in ensuring that everyone has the health care coverage that they need. Aetna is redesigning and repricing its products in order to dump over 600,000 of its less profitable members. They need to be sure that “each customer is priced to an appropriate margin.” And, above all, they owe it to their shareholders “to drive away sicker members.”
But that’s one of the ways that markets work – improve profits by cutting losses. We keep hearing that markets improve quality while reducing costs, yet in a bit of irony, for those healthier populations that remain with the Aetna, the insurer is reducing quality through product redesign, and increasing costs through higher premiums.
Once Aetna dumps these members, what private insurer is going to jump in to capture this higher cost population? None you say? And under reform? The higher cost individuals buy into the weak public option driving premiums up through adverse selection to even more unaffordable levels?
Try to imagine Medicare dumping over 600,000 patients because they need more medical care. That is unthinkable and would be reprehensible in a public social insurance program such as Medicare. Yet for the private insurance industry, it’s business as usual. And President Obama and Congress want to keep these marketeers in charge? Talk about reprehensible!
The other right-wing media mogul you should worry about
Original Lin: http://mediamatters.org/columns/200911250046
By Jamison Foser
If you like what Rupert Murdoch, the right-wing billionaire behind Fox News and the New York Post, has done for the national discourse, you'll love what Philip Anschutz is trying to do in your hometown.
Anschutz built his fortune -- his $8 billion net worth is good for 36th place on the Forbes 400, ahead of better-known Murdoch and Steve Jobs -- in the oil and gas industry, augmented with railroad and telecommunications holdings, as well as Regal Cinemas and the production company behind The Chronicles of Narnia films.
The far-right American Spectator describes Anschutz as "a committed conservative" who "gives lots of money to the Republican National Committee and to GOP candidates" and is "friendly with fellow oilman George W. Bush."
In 2005, Media Matters detailed Anschutz's history of conservative activism:
Anschutz has a history of supporting socially conservative causes. According to a recent Post article, Anschutz's family foundation gave James Dobson, the founder of the conservative Christian organization Focus on the Family, an award for his "contributions to the American Family." The Post noted that according to the foundation's website, Focus on the Family works to "counter the media-saturating message that homosexuality is inborn and unchangeable" and that one of the group's policy experts referred to abortion as an example of when "Satan temporarily succeeds in destroying God's creation." Further, as the Post mentioned, Anschutz contributed $10,000 in 1992 to Colorado Family Values in support of the group's efforts to pass a state constitutional amendment to invalidate state and local laws that prohibited discrimination based on sexual orientation. (The referendum passed, but the United States Supreme Court struck it down as unconstitutional.) According to the Post, "Anschutz's money helped pay for an ad campaign that said such anti-bias laws gave gays and lesbians 'special rights.'"
In May 2003, the Orange County Weekly reported that other Anschutz Foundation beneficiaries include the Institute for American Values, which according to the Weekly "campaigns against single parenting," and Enough is Enough, which "promotes Internet censorship." The San Francisco Chronicle noted on February 20, 2004, that Anschutz also funds Morality in Media. As Media Matters previously noted, the Institute for American Values also receives funding from the conservative Bradley and Scaife foundations, as well as grants from the John M. Olin Foundation, another major financer of conservative organizations. Enough is Enough and Morality in Media have also received funding from the conservative Castle Rock Foundation.
In recent years, Anschutz has turned his attention to his media holdings, including his movie production company. And he is building a news-media empire, as well: he bought the San Francisco Examiner in 2004 and launched the Washington Examiner the next year, while trademarking the "Examiner" name in more than 60 cities. And earlier this year, Anschutz purchased The Weekly Standard from Murdoch.
Anschutz and the people in his employ are quick to counter suggestions that his right-wing politics drive editorial decisions at his newspapers. A 2007 profile of Anschutz in American Journalism Review included a Washington Examiner editor stressing that Anshutz had told him "All I want to do is put out quality newspapers." A 2004 Washington Post article quoted another Anschutz employee stressing that Anschutz had "taken no hand in the operations, nor in demanding any particular editorial policy."
But Anschutz's publications certainly do reflect his conservative views.
Earlier this year, Media Matters' Terry Krepel detailed the right-wing tilt to the Washington Examiner's staff, including alums of the National Review, The Washington Times, NewsBusters, Robert Novak's newsletter, the American Enterprise Institute, and the Heritage Foundation.
And those kinds of staffing decisions lead to headlines like these, all featured on the front of the Washington Examiner's web page Wednesday afternoon:
Are Democrats exiting the sinking ship?
Inside the numbers: How Obama has fallen
Global warming industry becomes too big to fail
Youngest voters spurn Obamacare
Damn the deficit: Full speed ahead on health care
Then there's the Opinion section, which features such gems as:
Gene Healy: Obamacare is unconstitutional
Grace-Marie Turner: Ten reasons public won't buy Senate health care plan
Dr. David Gratzer: Medicine isn't perfect, Obamacare is even less perfect
Ken Blackwell: Obama's indecision is hurting foreign alliances
If Anschutz's right-wing politics were shaping only the Washington Examiner, it might not matter much. Washington has plenty of conservative media; how much damage can one more do -- particularly given that The Washington Times (another newspaper controlled by a right-wing billionaire) is in danger of imploding?
But remember: Anschutz trademarked the "Examiner" name in more than 60 other cities. And he is making a push into the "hyper-local" news market with his Examiner.com sites.
Anschutz launched Examiner.com about a year and a half ago as an Internet-only local news portal; it currently reaches 129 markets and its traffic ranks 21st among U.S. news sites -- with the fastest traffic growth of any site from August of 2008 to August of 2009. And just a few weeks ago, Examiner.com bought NowPublic, a Canadian citizen-journalism site with reporters in more than 140 countries. The New York Times reported at the time:
With the sale, Examiner.com, a unit of Mr. Anschutz's Clarity Digital Group, became the latest company to show interest in a lively corner of the Web: the tools that let people read and share the news around them, sometimes down to neighborhood blocks.
[...]
Rick Blair, the chief executive of Examiner.com, said in an interview that his company's expansion into more than 100 markets indicated that hyperlocal information could be a scalable and sustainable business. Whether it can be profitable is still to be determined. "We're trying many ways to determine the advertiser interest," he said.
Given the newspaper industry's struggles, it isn't inconceivable that Examiner.com could quickly become a key source of news and information for many Americans. At which point, based on Anschutz's history, it'll be like having a local version of Fox News Channel in every city in America.
By Jamison Foser
If you like what Rupert Murdoch, the right-wing billionaire behind Fox News and the New York Post, has done for the national discourse, you'll love what Philip Anschutz is trying to do in your hometown.
Anschutz built his fortune -- his $8 billion net worth is good for 36th place on the Forbes 400, ahead of better-known Murdoch and Steve Jobs -- in the oil and gas industry, augmented with railroad and telecommunications holdings, as well as Regal Cinemas and the production company behind The Chronicles of Narnia films.
The far-right American Spectator describes Anschutz as "a committed conservative" who "gives lots of money to the Republican National Committee and to GOP candidates" and is "friendly with fellow oilman George W. Bush."
In 2005, Media Matters detailed Anschutz's history of conservative activism:
Anschutz has a history of supporting socially conservative causes. According to a recent Post article, Anschutz's family foundation gave James Dobson, the founder of the conservative Christian organization Focus on the Family, an award for his "contributions to the American Family." The Post noted that according to the foundation's website, Focus on the Family works to "counter the media-saturating message that homosexuality is inborn and unchangeable" and that one of the group's policy experts referred to abortion as an example of when "Satan temporarily succeeds in destroying God's creation." Further, as the Post mentioned, Anschutz contributed $10,000 in 1992 to Colorado Family Values in support of the group's efforts to pass a state constitutional amendment to invalidate state and local laws that prohibited discrimination based on sexual orientation. (The referendum passed, but the United States Supreme Court struck it down as unconstitutional.) According to the Post, "Anschutz's money helped pay for an ad campaign that said such anti-bias laws gave gays and lesbians 'special rights.'"
In May 2003, the Orange County Weekly reported that other Anschutz Foundation beneficiaries include the Institute for American Values, which according to the Weekly "campaigns against single parenting," and Enough is Enough, which "promotes Internet censorship." The San Francisco Chronicle noted on February 20, 2004, that Anschutz also funds Morality in Media. As Media Matters previously noted, the Institute for American Values also receives funding from the conservative Bradley and Scaife foundations, as well as grants from the John M. Olin Foundation, another major financer of conservative organizations. Enough is Enough and Morality in Media have also received funding from the conservative Castle Rock Foundation.
In recent years, Anschutz has turned his attention to his media holdings, including his movie production company. And he is building a news-media empire, as well: he bought the San Francisco Examiner in 2004 and launched the Washington Examiner the next year, while trademarking the "Examiner" name in more than 60 cities. And earlier this year, Anschutz purchased The Weekly Standard from Murdoch.
Anschutz and the people in his employ are quick to counter suggestions that his right-wing politics drive editorial decisions at his newspapers. A 2007 profile of Anschutz in American Journalism Review included a Washington Examiner editor stressing that Anshutz had told him "All I want to do is put out quality newspapers." A 2004 Washington Post article quoted another Anschutz employee stressing that Anschutz had "taken no hand in the operations, nor in demanding any particular editorial policy."
But Anschutz's publications certainly do reflect his conservative views.
Earlier this year, Media Matters' Terry Krepel detailed the right-wing tilt to the Washington Examiner's staff, including alums of the National Review, The Washington Times, NewsBusters, Robert Novak's newsletter, the American Enterprise Institute, and the Heritage Foundation.
And those kinds of staffing decisions lead to headlines like these, all featured on the front of the Washington Examiner's web page Wednesday afternoon:
Are Democrats exiting the sinking ship?
Inside the numbers: How Obama has fallen
Global warming industry becomes too big to fail
Youngest voters spurn Obamacare
Damn the deficit: Full speed ahead on health care
Then there's the Opinion section, which features such gems as:
Gene Healy: Obamacare is unconstitutional
Grace-Marie Turner: Ten reasons public won't buy Senate health care plan
Dr. David Gratzer: Medicine isn't perfect, Obamacare is even less perfect
Ken Blackwell: Obama's indecision is hurting foreign alliances
If Anschutz's right-wing politics were shaping only the Washington Examiner, it might not matter much. Washington has plenty of conservative media; how much damage can one more do -- particularly given that The Washington Times (another newspaper controlled by a right-wing billionaire) is in danger of imploding?
But remember: Anschutz trademarked the "Examiner" name in more than 60 other cities. And he is making a push into the "hyper-local" news market with his Examiner.com sites.
Anschutz launched Examiner.com about a year and a half ago as an Internet-only local news portal; it currently reaches 129 markets and its traffic ranks 21st among U.S. news sites -- with the fastest traffic growth of any site from August of 2008 to August of 2009. And just a few weeks ago, Examiner.com bought NowPublic, a Canadian citizen-journalism site with reporters in more than 140 countries. The New York Times reported at the time:
With the sale, Examiner.com, a unit of Mr. Anschutz's Clarity Digital Group, became the latest company to show interest in a lively corner of the Web: the tools that let people read and share the news around them, sometimes down to neighborhood blocks.
[...]
Rick Blair, the chief executive of Examiner.com, said in an interview that his company's expansion into more than 100 markets indicated that hyperlocal information could be a scalable and sustainable business. Whether it can be profitable is still to be determined. "We're trying many ways to determine the advertiser interest," he said.
Given the newspaper industry's struggles, it isn't inconceivable that Examiner.com could quickly become a key source of news and information for many Americans. At which point, based on Anschutz's history, it'll be like having a local version of Fox News Channel in every city in America.
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