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Friday, January 30, 2009

Rumors of our death are greatly exaggerated

Well, we did it, so what else is there to say?

Actually, that was merely the necessary but insufficient condition for reversing 28 years of nutty right-wing political theories in action. Time for re-grouping. We'll be baaaaack!

Sunday, January 18, 2009

Correction: Bush's 43

We cited in error The Progressive as the source of The 43 Who Helped Make Bush The Worst Ever The correct source is Progress Report.

The 43 Who Helped Make Bush The Worst Ever

From: The Progressive
January 16, 2009 by Faiz Shakir, Amanda Terkel, Satyam Khanna, Matt Corley, Benjamin Armbruster, Ali Frick, Ryan Powers, Pat Garofalo, Igor Volsky, Matt Duss, Brad Johnson, and Matt Yglesias

Next week, "change is coming to America," as President George W. Bush wraps up his tenure as one of the worst American presidents ever. He wasn't able to accomplish such an ignominious feat all by himself, however; he had a great deal of help along the way. The Progress Report heralds the conclusion of the Bush 43 presidency by bringing you our list of the top 43 worst Bush appointees.

1. Dick Cheney -- The worst Dick since Nixon. The man who shot his friend while in office. The "most powerful and controversial vice president." Until he got the job, people used to actually think it was a bad thing that the vice presidency has historically been a do-nothing position. Asked by PBS's Jim Lehrer about why people hate him, Cheney rejected the premise, saying, "I don't buy that." His top placement in our survey says otherwise.

2. Karl Rove -- There wasn't a scandal in the Bush administration that Rove didn't have his fingerprints all over -- see Plame, Iraq war deception, Gov. Don Siegelman, U.S. Attorney firings, missing e-mails, and more. As senior political adviser and later as deputy chief of staff, "The Architect" was responsible for politicizing nearly every agency of the federal government.

3. Alberto Gonzales -- Fundamentally dishonest and woefully incompetent, Gonzales was involved in a series of scandals, first as White House counsel and then as Attorney General. Some of the most notable: pressuring a "feeble" and "barely articulate" Attorney General Ashcroft at his hospital bedside to sign off on Bush's illegal wiretapping program; approving waterboarding and other torture techniques to be used against detainees; and leading the firing of U.S. Attorneys deemed not sufficiently loyal to Bush.

4. Donald Rumsfeld -- After winning praise for leading the U.S. effort in ousting the Taliban from Afghanistan in 2001, the former Defense Secretary strongly advocated for the invasion of Iraq and then grossly misjudged and mishandled its aftermath. Rumsfeld is also responsible for authorizing the use of torture against terror detainees in U.S. custody; according to a bipartisan Senate report, Rumsfeld "conveyed the message that physical pressures and degradation were appropriate treatment for detainees."

5. Michael Brown -- This former commissioner of the International Arabian Horse Association was appointed by Bush to head FEMA in 2003. After Katrina made landfall as a Category 4 hurricane, Brownie promptly did a "heck of a job" bungling the government's relief efforts, and was sent back to Washington a few days later. He was forced to resign shortly thereafter.

6. Paul Wolfowitz -- As Deputy Secretary of Defense from 2001 to 2005, Wolfowitz was one of the primary architects of the Iraq war, arguing for the invasion as early as Sept. 15, 2001. Testifying before Congress in February 2003, Wolfowitz said that it was "hard to conceive that it would take more forces to provide stability in post-Saddam Iraq than it would take to conduct the war itself." Wolfowitz eventually admitted that "for bureaucratic reasons, we settled on one issue, weapons of mass destruction," as a justification for war, "because it was the one reason everyone [in the administration] could agree on."

7. David Addington -- "Cheney's Cheney" was the "most powerful man you've never heard of." As the leader of Bush's legal team and Cheney's chief of staff, Addington was the biggest proponent of some of Bush's most notorious legal abuses, such as torture and warrantless surveillance, and is a loyal follower of the so-called unitary executive theory.

8. Stephen Johnson -- The "Alberto Gonzales of the environment," EPA Administrator Johnson subverted the agency's mission at the behest of the White House and corporate interests, suppressing staff recommendations on pesticides, mercury, lead paint, smog, and global warming.

9. Douglas Feith -- Undersecretary of Defense for Policy from 2001-2005, Feith headed up the notorious Office of Special Plans, an in-house Pentagon intelligence shop devised by Rumsfeld and Paul Wolfowitz to produce intelligence to justify the invasion of Iraq. A subsequent investigation by the Pentagon's Inspector General found the OSP's work produced "conclusions that were not fully supported by the available intelligence."

10. John Bolton -- As Undersecretary of State, Bolton offered a strong voice in favor of invading Iraq and pushed for the U.S. to disengage from the International Criminal Court and key international arms control agreements. A recess appointment landed Bolton the job of U.S. ambassador to the United Nations, despite his stringent animosity toward the world body. Today, he spends his time calling for war with Iran.

11. John Yoo -- As a lawyer for the Justice Department's Office of Legal Counsel, Yoo authored a series of legal memos giving military interrogators authority to use torture and coercive techniques when interviewing terrorist suspects. Yoo said that only those techniques that inflict pain equivalent to "death, organ failure or permanent damage resulting in a loss of significant body functions" constitute torture. Last year, he refused to answer whether or not the president could order a detainee to be buried alive.

12. Ari Fleischer -- Bush's first press secretary helped redefine the role as that of liar-in-chief rather than informer of the public, earning a reputation as "the world's most dishonest flack." Whereas his successors sometimes looked uncomfortable lying, Fleischer was having fun, spinning a cowed and gullible press corps through two massive tax cuts and the initiation of a war undertaken on false pretenses.

13. John Ashcroft -- In 2003, as Bush's first Attorney General, Ashcroft approved waterboarding and other torture techniques on detainees. Ashcroft's nomination was controversial, as he had a history of opposing school desegregation. The chief architect of the invasive Patriot Act, Ashcroft maintains to this day that Bush is "among the most respectful of all leaders ever" of civil liberties.

14. Henry Paulson -- Even as the financial system was crashing down around him, Treasury Secretary Paulson insisted for months that the banking system was "safe and sound." Once he decided that the economy needed saving, Paulson requested nearly unfettered authority to send billions of taxpayer dollars to banks with no oversight.

15. L. Paul Bremer -- This Presidential Medal of Freedom winner took over the Coalition Provisional Authority in May 2003. Under his mismanagement, the insurgency exploded in Iraq. Bremer claimed he had all the troops he needed to secure the country, overestimated the strength of the new U.S.-trained Iraqi army, disbanded the Iraqi army leaving thousands of Iraqi soldiers with no income and no occupation, and enacted a de-Baathification law that barred many experienced Iraqis from government positions.

16. Bradley Schlozman -- As a recent DOJ Inspector General report demonstrates, Schlozman was a central figure in Bush's politicization of the Justice Department. Violating civil service laws, Schlozman used political and ideological considerations to ensure that only "right-thinking Americans" received jobs. He eventually lied to Congress about his efforts.

17. J. Steven Griles -- A former energy lobbyist and no. 2 official in the Interior Department, Griles went to jail for lying to Congress about illegal favors he did for corrupt lobbyist Jack Abramoff. Griles also abused his position "to unlock nearly every legal barrier to exploitation" of our nation's oil and mineral reserves. Before his conviction, Griles left the White House to become a lobbyist for ConocoPhillips.

18. Condoleezza Rice -- As Bush's national security adviser, Rice was another strong advocate for invading Iraq, once famously warning that the U.S. should attack Iraq and not wait for solid proof of its WMD because "we don't want the smoking gun to be a mushroom cloud." Rice also ignored an urgent warning from the CIA before the Sept. 11, 2001, terrorist attacks that a strike inside the U.S. was imminent.

19. Scooter Libby -- Cheney's former chief of staff was a key player in the outing of CIA operative Valerie Plame as part of the Bush administration's quest to punish Plame's husband, former ambassador Joseph Wilson, for publishing an op-ed debunking one of the White House's main justifications for invading Iraq. Libby was ultimately convicted of perjury and obstructing justice in a federal investigation into Plame's outing but later had his 30-month prison sentence commuted by Bush.

20. Monica Goodling -- Goodling was the most notorious graduate of Pat Robertson's Regent University during her tenure in the Justice Department. As the White House liaison at the DOJ, she based the department's hiring of candidates on their sexual preference, GOP loyalty, and adherence to conservative ideology.

21. Alphonso Jackson -- As Housing and Urban Development Secretary, Jackson let the U.S. housing market crumble while he was busy giving lucrative contracts to his golfing buddies, retaliating against Bush critics, and erecting giant photo homages to himself.

22. Michael Hayden -- As director of the National Security Agency, Hayden ran Bush's warrantless wiretapping program and misled Congress about the program's legality. After moving to the CIA, he dismissed the destruction of evidence implicating the CIA in torture as "in line with the law."

23. Lurita Doan -- The former head of the General Services Administration (GSA)who doled out a no-bid contract to a friend, Doan famously hosted a meeting of White House political operatives where she asked how GSA employees could "help 'our candidates' in the next election." After the Office of Special Counsel called for her firing, she was forced to resign at the request of the White House.

24. Gale Norton -- A former industry lobbyist and Bush's first Secretary of the Interior, Norton pushed a radical ideological agenda "through regulatory rollbacks, suppression of science, preferential treatment, and collusion with industry" -- including doctoring scientific findings on the impacts of oil drilling on caribou. After resigning under the cloud of ties to Jack Abramoff, she joined Shell Oil.

25. Lester Crawford -- After promising to act on the morning-after contraceptive pill during his confirmation hearings, the former FDA Commissioner "indefinitely postponed nonprescription sales of emergency contraception over the objections of staff scientists who had declared the pill safe." Crawford resigned after just two months on the job and later pleaded guilty "to charges that he hid his ownership of stock in food and drug companies that his agency regulated."

26. Harriet Miers -- Well-known for being Bush's failed Supreme Court nominee, Miers also thought it was "important" to her as White House Counsel that Rove protege Tim Griffin was installed as a U.S. Attorney, making her a central figure in the U.S. Attorney scandal. She is said to have called Bush "the most brilliant man she had ever met."

27. Hans Von Spakovsky -- Originally a political appointee in the Civil Rights Division of the Justice Department, Spakovsky "injected partisan political factors into decision-making" and used every opportunity "to make it difficult for voters -- poor, minority and Democratic -- to go to the polls." In 2008, Spakovsky withdrew his name from consideration for the FEC, following months of opposition from lawmakers and civil rights groups.

28. Tommy Franks -- As head of U.S. Central Command from 2000 to 2003, Franks oversaw Osama bin Laden's great escape from Afghanistan, gave orders for the stabilization of Iraq via PowerPoint, assumed that the U.S. would draw down to 25,000 troops by the end of 2004, and had American soldiers stand idly by as chaos and lawlessness took hold after the invasion.

29. Thomas Scully -- As chief administrator for the Center for Medicare and Medicaid Services, Scully was the White House's head negotiator on the Medicare prescription drug bill. Scully threatened to fire chief actuary Richard Foster if he revealed that Bush's Medicare Part D legislation "would cost 25% to 50% more than the Bush administration's public estimates."

30. Julie MacDonald -- A top Interior Department appointee, MacDonald "interjected herself personally and profoundly" and "tainted nearly every decision made on the protection of endangered species" over a five-year period, intimidating the staff with "abrupt and abrasive, if not abusive" tactics. MacDonald also leaked government documents to a young acquaintance whom she met while playing "internet role-playing games."

31. William Haynes -- As the former general counsel at the Defense Department, he was part of a five-person team of high-level administration lawyers, dubbed the "War Council," that tossed the Geneva Conventions aside and hatched out the legal framework for torture in secret meetings.

32. David Safavian -- Safavian was (twice) tried and convicted for his role in the jack Abramoff scandal. Safavian was found guilty of "lying and obstructing justice" in an attempt to cover-up "his many efforts to assist Abramoff in acquiring two properties controlled by the GSA."

33. James Connaughton -- As chairman of the White House Council of Environmental Quality, Connaughton wrote EPA press releases downplaying the danger of the air quality in lower Manhattan following 9/11. "A former lobbyist for utilities, mining, chemical, and other industrial polluters," Connaughton insisted "there's a lot of disagreement" about humans' impact on global warming, and he touted a bogus study purporting to show that the 20th century was not unusually warm.

34. William Luti -- A former Navy officer and Cheney aide, Luti was dispatched to the Pentagon in 2001 to work underneath Feith to find "evidence" to support his boss's belief in conspiracy theories linking Saddam to al Qaeda. Luti was an integral component of Cheney's campaign to pressure intelligence professionals to conform their judgments to administration policy rather than reality.

35. Susan Orr -- As Assistant Deputy Secretary for Population Affairs, this former Family Research Council official oversaw funding for the only federal program that provided contraceptive services to low-income Americans. Orr cheered Bush's anti-contraception record, saying, "Fertility is not a disease. It's not a medical necessity that you have [contraception]."

36. Christopher Cox -- Under Chairman Cox, the Securities and Exchange Commission censored internal reports showing that it ignored critical signs pointing to Wall Street's meltdown. Cox's SEC also failed to detect Bernie Madoff's $50 billion Ponzi scheme, despite a decade of warnings.

37. Elliott Abrams -- An Iran-Contra convict pardoned by Bush 41, Abrams was named by Bush 43 as the Special Assistant to the President and Senior Director for Democracy, Human Rights, and International Operations. As a founding Project for a New American Century signatory and a staunchly pro-Israel neoconservative, Abrams supported expanding Israel's 2006 bombing of Lebanon into Syria and advocated a Fatah coup after Hamas won the February 2006 Palestinian elections.

38. Philip Cooney -- A former oil lobbyist who served as chief of staff of the White House Council on Environmental Quality, Cooney doctored climate reports to "soften" words and phrases linking greenhouse gas emissions to global warming. After his political interference was revealed, Cooney left the White House to become a lobbyist for Exxon.

39. Colin Powell -- Though Bush called him "an American hero" when he appointed him to be the first African-American Secretary of State, Powell placed an ugly "blot" on his record when he pushed the Bush administration's faulty case for the Iraq war in a speech to the U.N. on Feb.5, 2003, using inaccurate information. Liberal hawks and the media rallied around Powell's false case, calling it the "winning hand" for war.

40. Elaine Chao -- The Labor Secretary made it through all eight years of the Bush administration, driving morale at the Labor Department so low that staffers threw a "good-riddance party" to cheer her departure. She leaves behind a "deeply troubled department" that "spent eight years attacking workers' rights, strong workplace health and safety rules, and unions while they carried the water for Big Business."

41. Julie Myers -- After being hired as head of Immigration and Customs Enforcement based on little more than her personal connections, Myers made herself famous by awarding "Most Original Costume" to an employee who dressed up in blackface and a prison costume for Halloween. She was also heavily criticized for conducting politically-motivated immigration raids.

42. Wade Horn -- As Assistant Secretary for Community Initiatives at the Department of Health and Human Services, Horn funneled millions of tax-payer dollars into right-wing abstinence-only programs. Shortly before he resigned, it was revealed that he had given nearly $1 million "to the National Fatherhood Initiative (NFI), where he was the president for at least three years until joining the Bush administration in 2001."

43. George Deutsch -- As a young, inexperienced press officer for NASA, Deutsch "told public affairs workers to limit reporters' access to a top climate scientist and told a Web designer to add the word 'theory' at every mention of the Big Bang." He resigned in 2006 after it was discovered he had lied on his resume, falsely claiming that he had a journalism degree from Texas A&M

The Growing Foreclosure Crisis

By Dina ElBoghdady and Sarah Cohen
Washington Post Staff Writers
Saturday, January 17, 2009; A01

One oft-repeated assertion no longer holds true. Those in trouble are not, primarily, lower-income borrowers. The foreclosure crisis has become a wave, afflicting neighborhoods of every stripe -- but particularly communities created by the boom itself.

Before Robin Bohnen and her husband, Shane, bought a $1.16 million Mediterranean-style house in an upscale Southern California suburb two years ago, they were not cash-strapped, debt-ridden or credit-impaired.

Now they are all of the above. Soon they also may qualify for one more distressing category: home lost to foreclosure.

"Wake me up, can this really be happening?" the 42-year-old Bohnen says. As she tries to describe how it feels to have the nation's financial crisis land in her living room, the phone rings. She ignores it. "It's probably the bank -- again," she says.

Bohnen once owed her comfortable lifestyle to the dizzying growth that transformed Southern California over the past decade, creating a boom that led many to believe their home values would keep climbing. As the owner of a furniture store born during the housing boom, she provided bean bag chairs and bedroom sets for the brand-new communities that easy credit built.

Now, she and husband just owe. They cannot afford their $6,400 monthly payment, and in this plummeting market, they wouldn't make enough on a sale to pay off their mortgage or recoup the 20 percent they put down to buy their Riverside County home.

They're "underwater," industry parlance for borrowers who owe more on their mortgage than their houses are worth. They have joined the growing line of homeowners seeking a break from their lenders.

Both the departing and incoming administrations in Washington have promised help on the foreclosure front, but providing help requires federal regulators to get their collective arms around the size and shape of the crisis. That isn't easy. No one agency collects information on every loan, every borrower and every delinquency.

But interviews and a Washington Post analysis of available data show that the foreclosure crisis knows no class or income boundaries. Many borrowers ensnared in the evolving mortgage mess do not fit neatly into the stereotypes that surfaced by early 2007 when delinquency rates shot up. They don't have subprime loans, the lending industry's jargon for the higher-rate mortgages made to borrowers with shaky credit or without enough cash for a down payment.

The wave of subprime delinquencies appears to have crested. But in October, for the first time, the number of prime mortgages in delinquency exceeded the subprime loans in danger of default, according to The Post's analysis.

This trend shows up most acutely in California and other high-growth regions, such as Arizona, Nevada, Florida and pockets of the Washington region, most notably in Prince William and Prince George's counties.

The recession has made it tougher for people to pay their mortgages, and crashing home prices have left many borrowers underwater, unable to sell or refinance their way out of trouble. One of every five mortgage holders now has a home worth less than the mortgage on it, according to First American CoreLogic, a firm that tracks mortgages and provided data for The Post's analysis.

Of the 20 Zip codes with the highest share of underwater loans, seven are in California and four are in Riverside County, the vast exurb southeast of Los Angeles where the Bohnens live. Riverside's unemployment rate has zoomed to 10 percent, well above the national average of 7.2 percent. About 94,200 people in the county are looking for work, many of them formerly employed in the real estate, banking and construction industries, according to the county's economic development agency.

The foreclosure crisis hasn't played itself out. The next wave looms in the form of a new batch of adjustable-rate mortgages scheduled to reset over the next two years. Unless the market comes back with a roar, which is unlikely, more borrowers will struggle to hang on to their homes.

Southern California was the epicenter of the housing bubble, in many ways. Four of the largest lenders had offices there, and Riverside County became a showcase for how communities can create wealth through real estate. Now the county is a case study of what can happen when the only industry in town is growth itself.

To be continued

Judgment of Bush presidency will only grow harsher

By Robyn Blumner
The St. Petersburg Times
Salt Lake Tribune
Updated:01/16/2009 11:22:51 PM MST

As President Bush takes a valedictory lap, touting asserted victories and barely acknowledging things done wrong, he leaves office deluded into thinking that history will vindicate him.

As destructive as the Bush presidency has been in the short term, its true catastrophic impact won't be realized for years and perhaps decades. Just like the gray and wrinkled president himself, the Bush presidency will not age well.

Bush claims that his greatest achievement as president was in keeping our nation safe from another terrorist attack. But Bush leaves office having allowed his Iraq folly to distract him from the al-Qaida threat.

Since 9/11, terror attacks in Britain and Spain, and American deaths in Iraq and Afghanistan at the hand of al-Qaida, demonstrate that the group remained viable throughout his presidency. Bush's invasion of Iraq gave al-Qaida an opportunity to infiltrate that country -- where it had not been before -- attracting angry Muslim men to its cause from around the world.

Then, by putting the Iraq war on a credit card and diverting troops and materiel from Afghanistan, Bush created an intractable mess. Barack Obama will have to address a resurgent al-Qaida and Taliban in Afghanistan and now Pakistan with a broken American military and a multitrillion-dollar bill for the Iraq war that will eventually come due.

All of which makes us less safe.

For all his boasting, Bush's strategy didn't dispatch the key al-Qaida terrorists -- Osama bin Laden and Ayman al-Zawahiri are very much alive. Instead, Bush created more enemies for us. The administration's torture and detention policies were the best recruitment tool since Uncle Sam. For every prisoner we waterboarded, stripped naked, sexually humiliated and nearly froze into hypothermia, we inspired dozens to join the other side.

Of course, the real beneficiary of Bush's Iraq adventurism is our nemesis Iran, which had its Sunni mortal enemy Saddam Hussein eliminated and now has a copacetic Shiite-dominated Iraq government next door.

Bush's geopolitics were a disaster, but what we may never fully know is how destructive the culmination of his anti-intellectual, anti-worker and anti-science policies will prove to be.

We have lost eight precious years that we should have been devoting to reducing our dependency on fossil fuels, addressing global climate change and investing in American human capital. The future belongs to those who invent. But the only enthusiasm the Bush administration demonstrated in the realm of science was in subverting it.

Bush's lack of interest in pushing America toward innovation has made us feel like a country in suspended animation run by a guy who likes his gas guzzler and Uncle Miltie.

Bush's vision for America was to keep us as the world's consumers: indulgent, wasteful and gluttonous, living on borrowed money like a wastrel. Could it be something in his upbringing that made him comfortable with that condition?

Bush was unconcerned that America was losing millions of manufacturing jobs and had stopped exporting much of anything beyond exotic securities. He didn't care that the national debt ballooned, our personal savings rate fell to zero and our trade deficit hit record after record.

His priorities were in protecting tax cuts for the rich and expanding global trade policies that moved capital and jobs overseas. That, and making sure no newly created embryos the size of a pinpoint would be used to advance medical cures for diseases afflicting millions of people.

So when House Speaker Nancy Pelosi tells NPR that the coming economic stimulus plan can be described in four words -- "science, science, science and science" -- she is expressing a great, pent-up demand for America to start being smart again and energetic and start fixing problems rather than creating them, with government as a partner.

Bush is trying to leave the Oval Office with a smattering of polite applause and claims of some future redemption. But history will not be kind to Bush. His fingerprints will be on the ruins of too much. America has survived Bush -- but just barely.

Wednesday, January 14, 2009

The Money-Changers

By Harold Meyerson, Washington Post
Wednesday, January 14, 2009; A17

As Barack Obama looks back to Franklin Roosevelt's first inaugural address -- the only other such address that came smack in the middle of an economic meltdown -- I hope he pays special heed to Roosevelt's words on America's bankers, who then as now had plunged the nation into an economic abyss.

"The money-changers have fled from their high seats in the temple of our civilization," Roosevelt proclaimed. "We may now restore that temple to ancient truths."

The quote, of course, is an allusion to Matthew's story of Jesus driving the money-changers from the temple. But "money-changing" is also a pretty fair description of what Wall Street has been about for the past several decades. As the real income of Americans stagnated and their debt mounted, the wizards of Wall Street grew rich by collecting commissions on derivatives of derivatives of derivatives. By 2007, when Wall Street's profits amounted to an astonishing 40 percent of all American profits, the business of American finance was no longer American business -- providing loans for domestic production, technological innovation, that sort of thing -- but swapping bets and hedges on bets and hedges, all for hefty commissions.

Save for devising more ways for Americans to go into debt, Wall Street had basically decoupled itself from the economy in which Americans live and work. While the nattering nitwits of CNBC hailed the stock market increases of the first seven years of George W. Bush's presidency as evidence that the U.S. economy had never done better, every other economic index made clear that the economy was in dismal shape. As Neil Irwin and Dan Eggen documented in Monday's Post, the rate of job creation and GDP growth during Bush's tenure is the lowest of any president of the post-World War II period. Somehow, our financial geniuses managed to miss this and built a vast financial edifice on the backs of consumers who eventually could consume no more.

Yet even after their recklessness propelled their nation into an economic crisis, America's bankers remain the coddled children of Bush-Paulson economic policy and might just remain so under the Obama administration. Last Friday, the panel that Congress appointed to oversee the Treasury's Troubled Assets Relief Program (TARP), which administers the $350 billion bailout to banks, reported that the Treasury has not monitored what the banks have done with the funds they received and that despite the language in the bailout legislation "to maximize assistance for homeowners" none of the bailout has been put to that purpose.

Indeed, if the Treasury had set out to design a system to demonstrate once and for all that trickle-down economics doesn't work, it could not have done better than TARP. Treasury Secretary Henry Paulson has thrown money at the banks, which resolutely refuse to lend it to businesses and homeowners, no matter how creditworthy they may be.

That's why a bill that Barney Frank is promoting in the House, which would direct banks that choose to take bailout funds to start lending to creditworthy borrowers and designate no less than $40 billion for mortgage relief, is necessary if Congress is to authorize the Treasury to spend another $350 billion on TARP. Over in the Senate, the Democrats seem inclined to think that the need for such legislation is obviated by President-elect Obama's promise to administer the TARP in the ways that Frank's bill would mandate.

If Obama's appointees inspired sufficient trust that they would be willing to take on the banks, such legislation would be unnecessary. Unfortunately, they don't.

Obama's appointee to head the Securities and Exchange Commission, Mary Schapiro, led the finance industry's own regulatory body, which, unsurprisingly, did nothing to rein in Wall Street's speculative orgy. Obama's appointee to head the Commodity Futures Trading Commission, Gary Gensler, drafted the legislation in 2000 that exempted derivatives, including credit-default swaps, from regulation.

These appointments are notable in the ways they deviate from Obama's other appointments. The people he appointed, say, to environmental positions have clear records of championing the environment. His CIA pick, Leon Panetta, has spoken forcefully against the agency's use of torture. But to regulate banks, Obama has chosen people who have sided with banks against the public interest. They may be exemplary public servants once in office, but for now, they need to be viewed with the same wariness we'd extend to environmental appointees who voted against stricter fuel-economy standards or intelligence appointees who championed torture. That's why Frank's bill must be enacted.

"The rulers of the exchange of mankind's goods," FDR said in his inaugural address, "have failed, through their own stubbornness and their own incompetence, have admitted their failure and abdicated." Today, those rulers' failures are no less obvious, but far from abdicating, they're receiving our tax dollars and doing nothing with them. It's time, Mr. President-elect, to hurl them from the temple.

Tuesday, January 13, 2009

Bailout or Not; Avoid Muni Bonds!

Tuesday, January 13, 2008 From the A-Letter, Vol. 11, No. 1

With yields as high on municipal debt as they've been in years and the President-elect's office all abuzz with news of stimulus for state and municipal governments, the cunning investor is paying attention. The bailout of the financial system is already leading to some serious opportunities in commercial debt, so should you get ahead of the curve and dive into municipal debt?

In a word; no. At least not yet.

After all, big government curing our economic woes with "stimulus" projects is almost like a drug dealer curing withdrawal symptoms with more just can't help but wonder whether his medicine is exactly what got you there in the first place. Regardless, we'll indulge popular thinking and acknowledge the fact that the government is now prepared to throw piles of free money at this sector of the economy.

But hold on just a second...what's that percolating in D.C.? US$1trillion won't do the trick, they say. Everyone from Bernanke to Riksbank-prize-winning economist Paul Krugman say that we'll need more...possibly US$2trillion, or even more than that. And Obama has certainly indicated that he'd be open to that kind of discussion.

Now, let's glaze over the fact that I could personally put another man on the moon - and probably Jupiter - with that kind of loot. And while we're at it, we'll glaze over the potential US$3trillion in government spending in 2009 (more than any government has spent in a single year since humans started governing).

No, let's be professional about this, and in the words of Ricky Roma from Glengarry Glen Ross, "You never open your mouth until you know what the shot is." So let's figure out the shot...

Bloated State & Local Governments...
In the period between 1960 and 2000, the Federal Government went from two million total employees to three million. This difference didn't even track the total growth in population over that period. But in that same period, state and municipal governments went from six million total employees all the way up to 20 million.

And since then, the situation hasn't really improved. When the "War on Terror" terrified us into giving up a greater portion of our personal liberties for the promise of "security," these payrolls ballooned again.

Think about it in practical terms; when was the last time you went to the DMV or the county courthouse? There were at least a handful of TSA-style security guards to frisk and scan you...since everyone's a terrorist until proven innocent these days...who do you suppose pays their bills?

Why you do! And you also pay for another 20 million more state & local employees who rely on over US$74 billion in your annual taxes to keep a roof over their heads. But you have to remember; these outfits aren't run with the trademark efficiency of business titans like IBM or Microsoft.

Instead - as you can see from the chart at the right - they constantly waffle back and forth from periods of excess savings to periods of excess debt (note that the Census data for this chart ended in 2007...when our crisis was just beginning and state & local governments held a collective savings rate of -10%!)

Sovereign Society Investment Director Eric Roseman chimes in, "The growing funding concerns facing municipalities has already spread to several states, including California, which requires cash to finance a massive budget gap in 2009. California, with a long string of budget deficits has declared a State of Emergency in December as the state runs out of cash. California is the largest issuer of muni debt."

"What's truly alarming about December's scrapped Port Authority offering was the short duration of the fixed-income term of only three years. Investors would typically embrace a short-term note that pays a tax-free yield. But these are not normal times."

"The rating agencies have also confused investors since the market has lost confidence in their ability to accurately rate and rank credit offerings."

"As the U.S. economic recession deepens into 2009 it would be advisable to avoid tax-exempt municipal bonds, despite their attractive yields. The risk is too high. You've got to believe that many more cities, towns and states will suffer from a credit squeeze coupled by a lack of buyers as revenues continue to decline in a deteriorating economy. Avoid muni bonds."

Sunday, January 11, 2009

Nationwide Inquiry on Bids for Municipal Bonds

January 9, 2009

The federal investigation that prompted Gov. Bill Richardson of New Mexico to withdraw his nomination as commerce secretary offers a rare glimpse into a long-simmering investigation of possible bid-rigging, tax evasion and other wrongdoing throughout the municipal bond business.

Three federal agencies and a loose consortium of state attorneys general have for several years been gathering evidence of what appears to be collusion among the banks and other companies that have helped state and local governments take approximately $400 billion worth of municipal notes and bonds to market each year.

E-mail messages, taped phone conversations and other court documents suggest that companies did not engage in open competition for this lucrative business, but secretly divided it among themselves, imposing layers of excess cost on local governments, violating the federal rules for tax-exempt bonds and making questionable payments and campaign contributions to local officials who could steer them business. In some cases, they created exotic financial structures that blew up.

People with knowledge of the evidence say investigators are not just looking at a few bad apples, but also at the way an entire market has operated for years.

"It's rare to sell a Senate seat, but it's not rare to sell a bond deal," said Charles Anderson, who retired as manager of tax-exempt bond field operations for the Internal Revenue Service in 2007. "Pay-to-play in the municipal bond market is epidemic."

Michael D. Hausfeld, an antitrust lawyer in Washington, who is representing some of the cities, counties and states entangled in the federal dragnet, called it "one of the longest-running, most economically pervasive antitrust conspiracies ever to be uncovered in the U.S." Many of these municipalities say they did nothing wrong and were duped by financial firms, which they are suing.

The possibility of a vast web of collusion would be sobering in any case, but the issue is of particular concern now, as Congress and the incoming Obama administration prepare a big fiscal stimulus package that may spawn infrastructure projects carried out and financed at the state and local level. States and cities issue bonds to raise money to pay for things like schools and road construction, and are supposed to follow strict rules on how the proceeds are handled for investors to receive a tax exemption on the interest.

Mr. Anderson estimated that as much as $4 billion a year was vanishing into the system, based on the volume of problems he saw before retirement.

Christopher Cox, the chairman of the Securities and Exchange Commission, has said oversight of the municipal bond markets is inadequate, and has urged Congress to take steps to protect both investors and taxpayers. Congress has not taken up the initiative.

The S.E.C. and the Justice Department declined to discuss the details or status of their investigations, including in New Mexico, where work on municipal bonds is part of a federal grand jury investigation. Officials at the I.R.S. said they were giving the matter high priority and had challenged the tax-exempt status of municipal bonds in a number of places but declined to describe individual cases.

Christopher Taylor, who retired in 2007 as executive director of the Municipal Securities Rulemaking Board, said the evidence amassed so far included tape-recorded phone calls, in which the independent specialists who are supposed to help local governments pick their bankers could be heard telling bankers: "We want you to bid on this deal, but you're not going to get it — you're going to get the next one. We want you to submit a sloppy bid."

Unsuspecting governments then accepted the recommended bids, and paid too much, he said. Mr. Taylor also cited evidence of banks being paid in cities where they did no work at all, apparently to reward them for throwing the business to their rivals.

The business is lightly regulated, with rules governing the conduct of companies set by the municipal securities board. Municipal bond underwriters are prohibited from making campaign contributions to "buy" the business of bringing bonds to market. But no such rules govern the conduct of a type of professional who appeared in the industry about a decade ago — specialists who work with financial derivatives, like swaps and options.

In the last few years, the use of such derivatives in combination with municipal bonds has grown rapidly, market participants say. And so, it appears, has the interest of federal agents.

The federal inquiry appears to have started at the I.R.S., which was concerned that the rules for tax-exempt bonds were being trampled.

"We saw this coming and went to the Department of Justice and said, 'Hey look! It looks as if there's been price-fixing and bid-rigging on a major scale here,' " said Mr. Anderson, the retired I.R.S. manager.

The efforts have broadened into what investigators and lawyers described as a coordinated effort among the federal agencies broken down by jurisdiction.

The S.E.C. polices fraud in the municipal bond markets and is looking into whether municipal bonds are routinely certified for tax-exempt treatment, by people who perhaps know or should know they do not qualify.

The Justice Department's criminal antitrust division has authority over bid-rigging, and that part of the investigation is being led by federal prosecutors in Manhattan. At the same time, various regional U.S. attorneys' offices around the country are looking at whether campaign contributions and other gifts to state and local politicians were used improperly to "buy" bond-related business.

More than 30 financial services companies have been subpoenaed, including JPMorgan Chase, Merrill Lynch and the American International Group, which have recently received government assistance and in the case of A.I.G., an outright federal bailout. Several have disclosed in corporate filings that their employees have been called to testify before grand juries or have received "Wells notices" from the S.E.C. warning that an enforcement action is looming.

The disclosures follow raids by the F.B.I., in 2006, of the offices of three specialized firms that bring together local officials and the banks and other companies that seek business working on municipal bond sales.

One of the three, CDR Financial Products, of Beverly Hills, Calif., is at the heart of the federal investigation in New Mexico. Investigators there are looking at how CDR Financial came to be selected as the "swap adviser" for a $1.5 billion program — called Governor Richardson's Investment Program, or GRIP — to raise money for road and rail construction in New Mexico.

CDR Financial and its founder, David Rubin, gave $100,000 to two of Governor Richardson's political action committees in 2003 and 2004, and the company earned $1.5 million for advising GRIP in 2004. A Colorado political consultant, Michael Stratton, lobbied on behalf of CDR Financial, and was paid $269,000 by JPMorgan Chase during the same period, according to regulatory filings. JPMorgan was the lead underwriter on about $1.1 billion of bond sales for GRIP.

Mr. Stratton did not respond to messages requesting comment, and a JPMorgan spokesman said the bank would have no comment.

Allan Ripp, a spokesman for CDR Financial, said that Mr. Rubin had made the contributions because he supported Governor Richardson's efforts to register people likely to vote Democratic in the presidential election. He said CDR Financial had competed fairly for the bond business and won its assignment on the merits.

Governor Richardson has said that he and his aides acted correctly at all times, and that he withdrew his nomination as commerce secretary only out of concern that the investigation might cause a long and distracting confirmation battle.

CDR Financial and the other two firms raided by the F.B.I. — Investment Management Advisory Group, known as Image, of Pottstown., Pa., and Sound Capital Management of Eden Prairie, Minn. — had attracted unfavorable attention even before the F.B.I. raids, in some cases because of campaign contributions.

In Philadelphia, Image and CDR Financial were described as "Company No. 1" and "Company No. 2" in the indictments of the former city treasurer, Corey Kemp, and other officials in 2004. CDR Financial had made political contributions and earned $415,000 for helping Philadelphia link a type of derivative called a "swaption" to its bonds. Image squired the city treasurer around by limo, and was in the running to participate in a school bond sale, but the deal fell apart when a local newspaper, The Daily News, questioned Image's involvement.

Mr. Kemp is serving a 10-year prison sentence for accepting illegal payments in exchange for steering city bond business and other contracts to selected companies. Neither CDR Financial nor Image was formally accused of wrongdoing.

The use of derivatives in connection with municipal bonds has grown rapidly in the last five years. The packages are presented as money-savers to the municipalities, which may want to protect themselves against interest rate changes. But over the last year, as turmoil spread through the credit markets, some of the derivatives have blown up, leaving local governments stuck with unexpected costs.

That happened in Alabama, where Jefferson County linked an extraordinary number of derivatives, called interest-rate swaps, to its bonds, in some cases with the help of CDR Financial. Despite publicized concerns about whether improper payments to certain officials were behind the swaps, the county insisted the swaps were saving money. Last year, the derivatives failed, leaving the county with vast bills. Jefferson County is now at risk of declaring what would be the biggest governmental bankruptcy in United States history.

Even in places where the bonds and derivatives are performing as expected, irate government officials are finding they may have overpaid for various services and have inadvertently broken federal tax rules. Again and again, proceeds from tax-exempt bonds appear to have improperly generated investment income for banks and insurers.

Among the governments that have sued these financial firms are the cities of Chicago and Baltimore; Oakland and Fresno, Calif.; the state of Mississippi; and a number of counties, school districts and at least one water and sewer district. The lawsuits were consolidated in November, in Federal District Court for the Southern District of New York. Chicago has since abandoned that litigation.

Tuesday, January 06, 2009


Like Josh Marshall, if Rockefeller and Feinstein are against it, I tend to be for it, so I'm inclined to think the Panetta pick is a good one. But, really, is Obama trying to pick a fight with Feinstein? It does seem very strange that the junior members of the Senate Intel committee were kept in the loop while the senior members were snubbed. I don't really get it, unless Obama feared Feinsten et al would try to kill the appointment through premature leaks. Strange. Perhaps we'll never know the full story.

Exterminate a population

Yesterday, while driving across country after attending a funeral, I heard a person who was apparently an Israeli spokesperson speaking on NPR. He essentially said that there were no innocent civilians in Gaza because the population there elected Hamas. Therefore, his conclusion was that Israel was perfectly free to kill and maim women, children, the aged, farmers, doctors, lawyers, and anyone else living there. Indeed, it seemed as though he thought Israel should simply exterminate the entire population of the area. And we thought the Nazis were the bad guys!