John Thain

Merrill Approved Dividend Payment To Stockholders Last November

Zachary Roth | January 23, 2009, 5:05PM

It turns out the billions in dollars in bonuses paid out by Merrill Lynch even as its new owner, Bank of America, was lobbying for more bailout money weren't the only questionable payments the firm made late last year.

BusinessWeek reports:

On Nov. 13, just three weeks before Merrill shareholders voted to approve the merger with BofA, Merrill's former board approved the payment of 35 cent-a-share dividend to all common stockholders. The payout drained another $565 million from Merrill's coffers at a time when the firm should have been building up cash, instead of spreading it around.

Now sure, one could argue that if Merrill had slashed the dividend to the bone, the brokerage's stockholders may not have voted for the merger with BofA. But Merrill's dividend payout came just weeks after Bofa announced on Oct. 6 it was slashing its dividend in half to 32 cents-a-share--a move the bank said would save it some $1.4 billion in cash each quarter. (The bank has since cut the dividend to a penny-a-share).

The magazine also offers an important, if obvious-when-you-think-about-it corrective to the fast-emerging narrative that Bank of America knew nothing about Merrill's huge fourth quarter losses until mid December (and had no reason to know any sooner.)

Says Bizweek:

Anyone with inside knowledge of Merrill's investment portfolio could have seen that the brokerage's investments in corporate loans and commercial real estate-related securities would all take a hit in the fourth-quarter. And that includes Thain & Co., as well as Lewis' team at BofA, which was conducting its due diligence on Merrill at the time.

No one comes out of this looking good.

Wall Street

The Thundering Herd Laid Low: A Merrill Lynch Timeline

Chris Black | January 23, 2009, 3:18PM

Key moments in the Merrill Lynch saga over the last year:

December 1, 2007 - John Thain begins his tenure as Merrill Lynch CEO, replacing Stanley O'Neal who had resigned after the company announced billion-dollar losses stemming form its mortgage investments.

September 15, 2008 - A deal is announced for Bank of America to buy Merrill, which, for the previous four quarters, has posted losses totaling $17 billion. The deal comes amid a broader financial crisis connected to the mortgage meltdown: that same day, Lehman Brothers declares the largest bankruptcy in American history, and the following day, American International Group is essentially nationalized.

October 14, 2008 - Bank of America gets $25 billion in bailout funds.

December 5, 2008 - Merrill and Bank of America shareholders vote to approve the takeover.

December 8, 2008 - Merrill's compensation committee approves payouts to staff totaling $3-4 billion, at least a month ahead of schedule. Some at B of A complain that the accelerated schedule was an effort to ensure that B of A could not cut the payments when it took over January 1.

Days later - Bank of America learns that Merrill's fourth-quarter losses were greater than expected. B of A begins lobbying the federal government for more TARP money to ease the takeover.

December 29, 2008 - Merrill bonuses paid, in the nick of time (sub. req.).

January 1, 2009 - Bank of America officially takes control of Merrill. It will later rename its brokerage division Merrill Lynch Wealth Management.

January 16, 2009 - Treasury announces it will give Bank of America another $20 billion in TARP money, to help it absorb the larger-than-expected Merrill losses.

January 16, 2009 - Bank of America reports a fourth quarter loss of $1.79 billion, including a $15.3 billion loss (sub. req.) posted by Merrill Lynch for the same quarter.

John Thain

John Thain's Top Ten Greatest Moments

Zachary Roth | January 23, 2009, 2:55PM

If there's one corporate honcho who's emerging as the poster boy for all the varied Wall Street sins that the financial crisis has exposed -- not just greed, but callousness, obliviousness and general incompetence -- its Merrill Lynch's former CEO John Thain.

Over the last few days, the revelations about Thain's mismanagement of Merrill have been coming thick and fast -- culminating with his ouster yesterday as an executive at Bank of America, which bought Merrill at the height of the financial crisis last September.

Thain, a top John McCain backer who was tipped as a candidate for a White House post had the Arizona senator won the presidency -- has amassed quite a record in his short time at Merrill. Lavish personal spending, absentee leadership, bonuses for billions in losses -- it's almost been too much to keep track of.

So we've created a handy rundown of Thain's top 10 greatest moments over the last turbulent year. (You might also want to check out our Merrill Lynch timeline to brush up on how Thain's missteps fit in with the larger story of his firm's collapse.)

In rough chronological order, here are John Thain's top 10 greatest moments:

1. The Great Redecoration

Thain pays $1.2 million last year -- well after Merrill's huge losses on mortgage assets are known -- to refurbish his office suite. That includes $800,000 to interior designer Michael S. Smith, who's also redecorating the White House for the Obama family. (More Smith clients: Steven Spielberg, Michelle Pfieffer, and Cindy Crawford.)

Other expenses from the big redecorating project, all signed off on by Thain personally:

Area Rug: $87,784
Mahogany Pedestal Table: $25,713
19th Century Credenza: $68,179
Pendant Light Furniture: $19,751
4 Pairs of Curtains: $28,091
Pair of Guest Chairs: $87,784
George IV Chair: $18,468
6 Wall Sconces: $2,741
Parchment Waste Can: $1,405
Roman Shade Fabric: $10,967
Roman Shades: $7,315
Coffee Table: $5,852
Commode on Legs: $35,115

At this time, reports CNBC's Charlie Gasparino on The Daily Beast, Thain is "preaching the virtues of cost control, telling employees to reduce expenses including car services, entertainment and travel".

2. The Unfortunate Chair Incident

During a summer 2008 meeting with his top financial officer, Thain, angry about Merrill's huge mortgage-asset-related losses, hurls a chair against the wall, shattering a nearby glass panel.

3. Just Can't Quit Those Mortgage Assets

Even after Thain has been forced to beg Bank of America to save his desperate firm, his traders, thinking the market has "bottomed out", keep trading risky mortgage securities. Those, of course, are the very assets that had helped bring on the massive losses, mostly incurred before Thain's tenure, that made the Bank of America deal necessary.

4. The Bonus Fiasco

In October, Thain suggests he should receive a $30-$40 million bonus. By December, he compromises: $10 million. After a blizzard of public criticism, including from New York Attorney General Andrew Cuomo and Senate Majority Leader Harry Reid, he drops his request for any bonus. Later, he denies having asked for one at all.

5. The In-Retrospect-Ill-Advised Ski Trip

In mid December, Bank of America CEO Kenneth Lewis learns that Merrill's fourth quarter losses will be much larger than expected. Lewis gets the bad news not from Thain himself, but from the transition team handling the merger -- perhaps because, after the losses surface, Thain takes off for his ski house in Vail. (A "person familiar with the matter" tells the Journal, hilariously, that Thain was "working and available" while in Vail.)

6. The Failure To Impress The New Boss

Asked by Lewis about the new losses, which will officially come to $15.3 billion, Thain "didn't really have a good grasp of what was going on,", one source tells the Wall Street Journal. Ultimately, the federal government will in January give Bank of American $20 billion -- on top of the bailout funds it had already gotten -- to help it absorb the Merrill losses.

7. The Troubling Lack Of Candor

Under Thain, Merrill appears not have been as forthcoming as it might have been with its new owner about the state of its books. A Bank of America spokesman tells the Journal today: "Their fourth quarter was way beyond anything they said would happen." Even worse, Thain may also have been less than straight with Merrill itself. He doesn't fully inform his own board that, thanks to Merrill's losses, the federal government might need to step in to ensure the B of A deal goes through, according to complaints from board members.

8. The Other Bonus Fiasco

Merrill, with Thain still in charge, accelerates its yearly bonus payments, doling out an estimated $3-4 billion in bonuses before January 1, 2009, when Bank of America will take control. Some at B of A believe the expedited schedule is designed to avoid giving B of A a chance to cut those payments. New York AG Cuomo is now reportedly investigating.

9. The In-Retrospect-Ill-Advised Planned Trip to Davos

Thain plans a trip to Davos to attend the World Economic Forum next week -- even though Bank of America has discouraged the idea.

10. The Final Act

Thain pays $483,320 for 84,600 shares of Bank of America. The following day, he's fired.

Well, at least now he can make it to Davos.

Joseph Bruno

Former NY Senate Leader Bruno Indicted

Zachary Roth | January 23, 2009, 12:59PM

Joseph Bruno, the Republican former Majority Leader of the New York State Senate, was indicted by a federal grand jury today on eight counts of public corruption, reports the Times Union of Albany.

Bruno, who as the Senate leader had been a crucial and high-profile figure in New York politics for well over a decade, had been the subject of a three-year FBI investigation focused both on his personal and professional dealings.

The paper provides the details:

The investigation had dogged Bruno during the last two years of his political career as information surfaced publicly about the FBI's deep foray into his real-estate dealings, investments, political decisions and his ownership and breeding of thoroughbred horses. Bruno's ties to labor unions, and his secretive work as a private business consultant for an unknown number of private clients, including a Connecticut investment firm, were at the heart of the probe.

...

The investigation began three years ago, when FBI agents from a white-collar crime unit in Albany began examining a series of private jet flights provided to Bruno by people with whom he did business both politically and privately, a source close to the case said.

The chartered jet flights, in some cases worth thousands of dollars per hour, ferried Bruno to private vacations in South Florida, political fundraisers, government functions and at least once to Kentucky horse country.

Bruno will go before a judge at 1:30, and the US Attorney in the case, Andrew Baxter, has scheduled a press conference for 2:30.

Late Update: The Justice Department has put out a press release announcng the indictment. Here is its key passage:

The charges arise from Bruno's alleged receipt of almost $3.2 million from five groups of individuals and related entities, either directly or through so-called consulting companies, between 1993 and 2006. While New York state legislators are part-time officials permitted to pursue other employment or business activities, the indictment alleges that Bruno improperly exploited his official position and concealed conflicts of interest, contrary to state ethics and reporting laws, with respect to his private "consulting" business.

According to the indictment, Bruno received approximately $2 million from two financial services firms. These payments were essentially fees relating to labor union benefit funds that invested or conducted brokerage transactions with the firms, ostensibly as a result of referrals by Bruno. The unions, whose benefit funds were solicited by Bruno, had frequent business before the New York State legislature and other state agencies, and Bruno took discretionary official actions benefitting the unions. The union officials solicited by Bruno were responsive to his "business" proposals because of his official position and his perceived ability to influence legislative or other state actions on behalf of their unions. In required financial disclosure statements, and in other contexts, Bruno concealed the fact that he enriched himself by exploiting relationships with unions that benefitted from his official actions. For example, rather than reporting that he was paid for soliciting union benefit funds, Bruno misleadingly reported most of his income as fees for "consulting."

Bruno was also paid approximately $1.2 million in "consulting" fees by three individuals and a myriad of related entities. Some of those entities had interests before the New York State legislature and other state agencies, and several benefitted from official acts of Bruno. According to the indictment, Bruno did not perform legitimate work commensurate with these substantial "consulting fees", which were, in essence, gifts from these individuals or related entities. Bruno failed to report these payments as gifts, as required under state ethics and reporting laws. Bruno also misrepresented to two of these "consulting" clients that he had received clearance from the Legislative Ethics Committee to receive payments from them when, in fact, Bruno had never sought ethics opinions relating to these particular outside activities.

Barack Obama

Clinton Lawyer: Obama's Order Designed To Pry Loose Key Bush Docs

Zachary Roth | January 23, 2009, 11:25AM

Already, a consensus of experts has formed to tell TPMmuckraker and others that President Obama's executive order on presidential records, issued Wednesday, could impact efforts to pry loose key documents from the Bush White House.

And the man who served as President Clinton's lead attorney for executive privilege issues yesterday went further, suggesting that that was exactly Obama's goal.

Neil Eggleston, a White House counsel under Clinton, told TPMmuckraker that in his view, the Obama White House issued the order with specific ongoing cases in mind -- that is, with the goal of bolstering those efforts to obtain Bush's records.

Congress and good-government groups are currently fighting to get access to key Bush White House documents that might shed light on a range of subjects, from the level of White House involvement in the US Attorney firings, to the Valerie Plame leak probe, to the decision to invade Iraq. "This is absolutely about all those issues," said Eggleston.

At its heart, said Eggleston, Obama's order is about "who gets to assert executive privilege." It says that former presidents can claim such privilege, but they have no automatic ability to prevent the release of their records if the current administration deems it to be in the national interest. That echoes the view of other experts who have examined the order, including the conservative legal scholar Doug Kmiec, who spoke to TPMmuckraker yesterday.

In a sense, said Eggleston, it's a directive to the National Archivist. "It says: 'Archivist -- if Bush calls up and says don't release certain papers, don't listen to what he says, listen to what I say.'"

Eggleston, now a partner at Debevoise and Plimpton's Washington office, cautioned that if a decision were made to release certain Bush records, and the former president chose to go to court to stop it, it's not absolutely certain that he would lose -- since no executive order can alter the constitution's executive privilege guarantee. But he said that the order would at the very least be likely to sway a court towards openness.

So if we do eventually learn the full story of the Bushies' involvement in the US Attorney firings, and get access to information about their record on a range of other issues, it looks like we may have the new president to thank.

The Daily Muck

The Daily Muck

Chris Black | January 23, 2009, 10:22AM

Inauguration officials have admitted that the music played by a quartet including Yo-Yo Ma and Itzhak Perlman was in fact taped. Carole Florman, a spokeswoman for the Joint Congressional Committee on Inaugural Ceremonies acknowledged on Thursday that the cold temperatures on Tuesday morning made a live performance impossible. The taped sounds were recorded by the quartet two days earlier. (New York Times)

Lawyers for embattled Illinois governor Rod Blagojevich are considering a lawsuit to halt an impeachment trial they describe as "completely unfair." Blagojevich himself has said that he has no intention to mount a defense unless the trial's rules are changed by the Illinois Supreme Court so that he may call witnesses and subpoena documents. (Associated Press)

An upcoming report by the Government Accountability Office focusing on the Veterans Affairs Department is expected to highlight the Bush administration's inability to properly plan for the treatment of veterans. The report, to be released Friday, finds the budget for the VA to be seriously flawed, understating by millions of dollars the costs for treating thousands of patients. (Associated Press)

Read more »

AIG

Merrill Traders To Mortgage Assets: I Wish I Knew How To Quit You

Zachary Roth | January 23, 2009, 10:10AM

Yesterday we told you about how Merrill Lynch paid out billions in bonuses to staff even as its new owner, Bank of America, was begging the government for another bailout to help it digest Merrill's massive losses on mortgage assets.

And today, buried in a New York Times story about the downfall of former Merrill CEO John Thain -- whose ouster as a Bank of America exec was announced yesterday -- is an intriguing nugget that suggests just how attached Merrill was to those toxic assets.

Reports the Times:

At a news conference announcing the merger, Mr. Lewis praised Mr. Thain. Mr. Lewis said Mr. Thain's new role had not been decided, adding: "That's a credit to John. It usually does not happen that way. And it was never about him, it was always about the deal."

But after Merrill appeared to be safely in Bank of America's arms, Merrill's traders began buying risky mortgage assets, thinking that the market had bottomed out, according to two people familiar with the firm's trading. Merrill also began to run up losses on equity derivatives and other instruments, they said.

That news conference to announce the "merger" took place September 15th.

So Merrill traders resumed buying mortgage assets after the crisis in the housing market was already abundantly clear. After the government had taken over the mortgage lenders Fannie and Freddie. After Lehman Brothers had announced it was filing for bankruptcy. After the US government had effectively taken over AIG. Above all, after Merrill itself had been bought by Bank of America, with help from $25 billion of government money.

And all those developments triggered by hundreds of billions of dollars in losses thanks to investments in bad mortgage assets.

And here's the larger point: Merrill's massive fourth quarter losses, which prompted B of A to seek a second government bailout, weren't caused only by investments made before the collapse of the mortgage market, and the extent of the financial crisis, became apparent. Rather, they were in part the result of continuing to buy bad mortgage assets into the fall.

No one would trust me to invest so much as the contents of their piggy bank. But I'd like to think that, by mid-September, even I'd have known that mortgage assets might not be the best bet.

Greedy and dumb. That's a toxic combination.

John Murtha

FBI Raids Defense Contractor Linked To Murtha

Zachary Roth | January 22, 2009, 6:34PM

Local media in western Pennsylvania is reporting that FBI agents have raided the offices of a defense contractor in the area, which has received millions of dollars in earmarks at the request of earmark king Rep. John Murtha (D-PA).

According to The Hill, picking up on the local reports, Murtha engineered $8.2 million in federal defense earmarks last year on behalf of the company, Kuchera Industries and Kuchera Defense Systems.

A local TV station adds that the IRS was also involved in the raid, and that Bill Kuchera's home and "game preserve," a 161,00 acre property, were raided as well.

The report also notes, intriguingly, that signs on the property call it a "U.S. government test facility."

In recent years the politically active company has given Murtha more than $56,000 in contributions, according to The Hill. And CEO Bill Kuchera served on the board of a non-profit founded by a former Murtha aide.

The paper adds:

Kuchera has several Pentagon contracts that could be worth more than $100 million over a decade, including parts used in air-to-air and surface-to-air missiles, and robots used in dangerous war zones to patrol vehicles for booby traps and bombs.

Murtha's career was nearly derailed in the 1980's after he was caught on tape telling an undercover FBI agent he might want money for his district in exchange for legislative favors -- and he regularly appears on good-government groups' lists of the most corrupt members of Congress.

Bailout

Bailout Overseer To Ask Banks To Track Funds

Zachary Roth | January 22, 2009, 5:51PM

Could we finally be headed for a whole new level of transparency and oversight over the bailout funds?

Neal Barofsky, the inspector general for the TARP program, today sent a letter to Sen. Charles Grassley, the ranking Republican on the Finance committee, announcing his intention to ask that banks that have received TARP funds report back to his office within 30 days on what they've done with that money.

Barofsky is addressing what's been the most glaring example of the lack of oversight that has characterized TARP so far -- and a problem that Elizabeth Warren's Congressional Oversight Panel has lamented on several occasions.

In the letter, Barofsky wrote, dryly, that the effort "will improve general transparency of the [TARP], and increase the ability of [the inspector general] and Congress to assess the effectiveness of TARP programs over time.

In explaining the need for the move, Barofsky added:

Even a basic examination of whether various TARP programs are successfully furthering the goals of EESA is made difficult if we do not know what was done with the money in the first instance.

It's not clear what authority Barofsky would have to compel the banks to disclose information, if they resisted. But it sounds like things are slowly getting on track.

Still, mightn't it have been smart to have started this effort last fall when bailout funds were first handed over, instead of waiting till now?

Bailout

Merrill Paid Billions In Bonuses, As New Owner Sought More Bailout Dollars

Zachary Roth | January 22, 2009, 4:40PM

It's got stiff competition, but Merrill Lynch may have just wrapped up the prize for the investment bank that best exemplifies Gordon Gekko's famed articulation of the Wall Street creed: "Greed is good."

The Financial Times reports (sub. req.) today that in early December, Merrill, which months earlier had agreed to be bought -- rescued, really -- by Bank of America, decided to pay out $3-4 billions in bonuses.

The bonuses were handed out on an accelerated schedule -- at least a month earlier than in previous years. And they were agreed to just days before Bank of America, realizing how much in toxic assets Merrill had on its books, went to the federal government asking for more taxpayer money to help it digest Merrill -- money that was eventually forthcoming.

One equity analyst told MarketWatch that the move, apparently initiated by then-Merrill CEO John Thain, was "simply outrageous and one of the more extreme examples of poor corporate governance we can think of."

You also might remember that Thain -- who today resigned as a Bank of America exec, amid criticism -- had originally asked the firm's compensation committee for a $10 million bonus for himself, as part of that round of payouts, though the committee at least had the good sense to decline the request.

And the Wall Street Journal now reports that New York Attorney General Andrew Cuomo is investigating the payouts -- part of a broader probe of executive compensation among Wall Street firms.

Just to get a clear sense of how this all went down, and what a boondoggle this looks to have been for Merrill, it's worth looking at a timeline of events:

- 9/14/08: Bank of America buys Merrill. Over the previous four quarters, Merrill had posted losses of more than $17 billion.

- 10/14/08: Bank of America gets $25 billion in bailout funds, largely in order to help it take on Merrill's losses.

- Fall 08: A proposal is made to Merrill's compensation committee that Thain receive a $10 million bonus.

- 12/05/08 - Merrill and Bank of America shareholders vote to approve the takeover.

- 12/08/08 - Merrill's compensation committee declines to approve the proposal on Thain's bonus, but nonetheless approves payouts to staff totaling $3-4 billion.

- Days later: Bank of America learns that Merrill's fourth-quarter losses were greater than expected. B of A begins lobbying the federal government for more TARP money to ease the takeover.

- 12/29/08 - Merrill pays bonuses paid, at least a month ahead of the usual schedule.

- 1/16/09 Treasury says it will give Bank of America another $20 billion in TARP money, to help it absorb the larger-than-expected Merrill losses.

- 1/16/09: Merrill reports a $15.3 billion fourth quarter loss.

The payouts are made even more shocking by the fact that, as a TPM reader pointed out this afternoon, in the current climate, staffers hardly require massive incentives to stay on -- which is usually the justification given for lavish bonuses. After all, it's not as if they're fighting off job offers from other thriving competitors.

Something Tim Geithner and co. might want to keep in mind the next time a failing bank comes begging for more taxpayer money.

Securities and Exchange Commission

No More Madoffs: Schumer, Shelby Want Beefed Up Efforts to Combat Financial Fraud

Zachary Roth | January 22, 2009, 2:24PM

The wages of Madoff continue to grow...

A new bill being introduced by Senators Chuck Schumer and Richard Shelby would aim to crack down on financial fraud by adding hundreds of new prosecutors and investigators to the Department of Justice -- including the FBI -- and the Securities and Exchange Commission, at a cost of $110 million.

A press release explains:

In recent months, amid the financial crisis that has roiled the U.S. economy, a rising number of securities and accounting fraud cases have surfaced, accounting for billions of dollars in losses for investors. But the agencies on the front lines of policing the Wall Street's top financial institutions and investment managers have been hamstrung by a lack of resources.

And it quotes Schumer:

Our white collar crime divisions are under-staffed, under-funded, and overwhelmed," Schumer said. "When a wave of violent crime sweeps through a city, the immediate response is to beef up the police forces, putting more cops on the beat, extending overtime, and making sure the city returns to safety. Our reaction to the financial crisis and the massive and complex financial fraud investigations that loom should be no different.

In recent weeks, there has been talk of re-structuring the financial regulatory system, of which the SEC is a major pillar, in response to the current financial crisis. So we'll see how this new effort fits in.

Read more »

Barbara Boxer

Experts: Obama Order Could Let Us See US Attorneys Docs

Zachary Roth | January 22, 2009, 12:04PM

The experts' verdicts on the potential impact of President Obama's executive order on presidential records are starting to come in. And they're bolstering our initial take that Obama's move could significantly boost efforts to release crucial records that the Bush administration has fought to keep secret.

Doug Kmiec, a constitutional law professor at Pepperdine law school and expert on executive privilege, told TPMmuckraker that the order makes it harder for former presidents to block the release of their documents.

And, crucially, he said it could impact current high-profile struggles over Bush's records, "whether it be the dismissal of US Attorneys, whether it be other assertions of executive privilege dealing with White House emails and the like."

Congress and the Bush White House have been struggling over a key memo that details the level of White House involvement in the US Attorney firings of 2006. And open-government groups have sued the Bush administration to gain access to White House emails on a range of subjects, including the Valerie Plame leak probe and the decision to invade Iraq.

Kmiec, a noted conservative legal scholar who nonetheless supported Obama's campaign, said he had done some work with the Obama transition team, and had offered his assistance to the new administration.

Kmiec said the order appears to shift power from former presidents to the current administration, and to the National Archivist. Under an order issued by President Bush, former presidents and vice presidents could compel the Archivist to keep documents secret. Under the new order, former presidents can still ask the Archives to do so. But the burden of proof is squarely on the former president to prove that secrecy is in the nation's interest, and the Obama administration can decline the request if it's not convinced. That approach reorients things toward the original intention of the Presidential Records Act, passed in the wake of Watergate.

"If the Archivist were to make a determination that those materials would be made public," explained Kimiec, "then holding it back would take something extraordinary," in terms of an argument from the former president.

Kmiec's view is supported by open-government advocates. Scott Nelson of Public Citizen believes, in the words of the Associated Press, that "researchers should find it easier to gain access to records under the new order."

And yesterday, Anne Weissman of CREW, which unsuccessfully brought a lawsuit against Dick Cheney's office to compel him to hand over records to the Archives, told TPMmuckraker that the order "does have the potential to impact ongoing litigation," including over the US Attorney documents.

So when might we see those documents? If the Archivist and the Obama administration agree to it (in practice, the Archivist would likely defer to the administration), they could be made public as soon as the Archivist has prepared them for public display. Of course, President Bush could sue to stop the move -- but it looks like he'd face an uphill climb in convincing a court that there's a pressing need to keep them secret.

It really is a new day.

Barack Obama

Obama Signs Order To Close Gitmo

Zachary Roth | January 22, 2009, 11:30AM

President Obama moments ago signed an executive order closing the Guantanamo detention facility within a year.

The move makes good on a key Obama campaign promise.

Obama also signed two other orders, reviewing military trials of terror suspects, and banning the harshest interrogation methods.

After signing, Obama said:

The message we are sending around the world is that the US intends to prosecute the ongoing struggle against violence and terrorism and we are going to do so vigilantly, we are going to do so effectively, and we are going to do so in a manner that is consistent with our values and our ideals ... We intend to win this fight, and we intend to win it on our terms.

Here's the video:

The order to close Guantanamo can be found here.

The order to review detention policies can be found here.

The order revising interrogation policies can be found here.

And the order for a review of al Marri's detention can be found here.

The Daily Muck

The Daily Muck

Chris Black | January 22, 2009, 10:00AM

President Obama issued an executive order yesterday limiting the ability of former presidents to keep certain records private. Under the order, former presidents, former vice presidents, and relatives of former presidents will have less control over the release of their records. The president and the National Archives will have ultimate control over release decisions. (Associated Press)

Another executive order drafted by President Obama, expected to be issued today, would close the Guantanamo Bay facility within a year. He is also expected to ban abusive interrogation practices and order a review of detention policies for captured militants. (Reuters)

A former employee of Florida's Department of Children and Families pleaded guilty to one charge of producing child pornography after he was caught taking nude photos of two teenage boys, one of whom was identified as a foster child of the agency. The crime carries a mandatory minimum sentence of 15 years. (Associated Press)

Read more »

Barack Obama

Could Obama's Executive Order Help Pry Loose Bush Records?

Zachary Roth | January 21, 2009, 5:57PM

Over at TPM, Josh and David have been mulling the significance of the executive order, issued today by President Obama, concerning the Presidential Records Act. Could it apply retroactively to previous administrations, making it easier to pry loose records that the Bush White House has fought to keep secret?

According to Anne Weismann, a lawyer for Citizens for Responsibility and Ethics in Washington, the tentative answer is yes.

As David notes, the order says:

Going forward, anytime the American people want to know something that I or a former President wants to withhold, we will have to consult with the Attorney General and the White House Counsel, whose business it is to ensure compliance with the rule of law.

As a result, Weismann told TPMmuckraker, the order could affect any case in which the White House has claimed executive privilege over presidential (or, to be clear, vice presidential) records. Most important, it would subject those claims to review by the Justice Department. "It does have the potential to impact ongoing litigation," she said.

Weismann specifically cited the ongoing legal fight between the House Judiciary committee and the Bush White House, over documents relating to the US Attorney firings. Among other documents, Congress has been seeking a key memo written by a White House counsel, which might shed light on White House involvement in the firings.

Weismann told TPMmuckraker that that the order likely would not affect a lawsuit she had been working on, on behalf of CREW, which sought to compel Dick Cheney's office to hand over all his records to the National Archives. On Monday a judge declined to order Cheney to do so. Weismann said that case turned on an interpretation of the Presidential Records Act itself, rather than on a claim of executive privilege.

Still, it certainly seems possible that on his first full day in office, the new president has dealt significant a blow to the Bush administration's efforts to permanently keep information from the public. But a lot more questions than answers remain, and we've got calls out to some experts in executive privilege who might be able to shed further light on what Obama's order does and doesn't do.

Arlen Specter

GOPers, Worried About Torture Prosecutions, Delay Holder Vote

Zachary Roth | January 21, 2009, 4:20PM

Republicans on the Senate Judiciary committee are delaying for up to a week a vote on Eric Holder's nomination to be Attorney General, with some saying they want more time to consider his record on torture.

John Cornyn, Republican of Texas, told Politico:

Part of my concern relates to his statements at the hearing with regard to torture and what his intentions are toward our intelligence personnel who were operating in good faith based on their understanding of what the law was.

Holder declared last week at the hearing that "water-boarding is torture."

It seems plausible that Cornyn's and other GOPers' concern might relate not just to intel personnel who carried out torture, but also to high-ranking Bush administration officials who ordered or approved it.

In a statement, committee chair Pat Leahy expressed his displeasure:

I am extremely disappointed, but they have that right, and this historic - historic - nomination is held over.

David Iglesias

Iglesias' New Gig Came Through Military, Not Bush Administration

Zachary Roth | January 21, 2009, 3:39PM

When we learned that David Iglesias -- one of the US Attorneys purged by the Bush administration for political reasons -- is going to be prosecuting Guantanamo detainees as a member of the Navy JAG corps, it struck us that he appeared to have been on the job for a little while. That would suggest he was tapped for the assignment by the Bushies -- which would be ironic given his past.

Turns out that's not exactly the case. Iglesias told TPMmuckraker that he had responded to an email sent out by the Navy JAG corps, looking for prosecutors for the assignment. His application was eventually approved, he said, by that office and by the Office of Military Commissions, which is run by Susan Crawford -- the retired general who last week told the Washington Post unequivocally that we tortured Mohammed al- Qahtani, a Gitmo detainee.

In other words, it appears that it was the uniformed military, rather than the civilian DOD, that brought Iglesias on board.

As for the value of his new work, Iglesias said: "It's important for people to have confidence in what's going on, in light of all the problems the office has had over the years" -- which have included allegations of rigged prosecutions.

And he called the new leadership under Defense Secretary Bob Gates "fantastic," adding "they get it."

David Addington

Cheney Aide's Testimony In Records Case "A Triumph Of Obfuscation"

Zachary Roth | January 21, 2009, 12:58PM

Dick Cheney may be in a wheel-chair -- but did he get away with pulling a fast one as he left office?

Yesterday we noted that a court had declined to compel Cheney's office to hand over all of its records to the National Archives -- instead taking the word of a low-ranking vice-presidential aide that she would do so.

As we said, the plaintiffs -- a group of historical and non-profit organizations -- are still concerned that key documents are missing. And after speaking to them, it's easy to see why.

"There's all kinds of wiggle room" within the pledge by Cheney's aide, Claire O'Donnell, that might have allowed the veep to withhold key material, Stanley Kutler, a historian and a professor at the University of Wisconsin, and one of the plaintiffs in the case, told TPMmuckraker.

He added: "Why is [Cheney] fighting so much if he didn't have the intention of absconding with the stuff?"

Kutler called O'Donnell's deposition in the case "a triumph of obfuscation." But the bigger issue may be that O'Donnell, as an aide in charge of record-keeping, was almost certainly out of the loop for many of the key decisions Cheney made. So even if she were to make good on her pledge to turn over all the records in her possession, it's doubtful, say the plaintiffs, that that would cover everything of interest to historians and the public.

According to Anne Weismann, a lawyer for CREW, another plaintiff, O'Donnell admitted in her deposition that she had no firsthand knowledge of what the veep did. "She absolutely didn't have access to all the records," said Weismann.

Kutler said he expects that when the National Archives are opened, likely in 12 years as the law states, we'll find that we've got only "perfunctory stuff" from Cheney's office.

The plaintiffs explained that the judge had limited their ability to conduct discovery to just two witnesses -- O'Donnell and a staffer at the National Archives. They were denied the ability to depose David Addington, the lawyer in Cheney's office who formulated many of the opinions which the vice president used as justification for his efforts to expand the power of his office. Without Addington's testimony, the plaintiffs were unable to offer positive evidence of the existence of further records, beyond what O'Donnell handles, that might be withheld. But it still appears more than likely that such material exists.

The good news is this approach to transparency looks like it's on the way out. At a ceremony for the new White House staff today, President Obama declared: "There's been too much secrecy in this city."

Referring to the Freedom of Information Act, he added:

The mere fact that you have the legal power to keep something secret does not mean you should always use it. I expect members of this administration not simply to live up to the letter, but also the spirit, of this law.

Unfortunately, that change of attitude may come too late to help us get a look at the full range of Cheney's records.

Late Update: In fact, the new administration is already acting to avoid a future repeat of Cheney's effort to claim expansive power. Among several executive orders issued by President Obama today dealing with transparency and secrecy issues, was the following:

Finally the Executive Order on Presidential Records brings those principles [of openness and transparency] to presidential records by giving the American people greater access to these historic documents. This order ends the practice of having others besides the President assert executive privilege for records after an administration ends. Now, only the President will have that power, limiting its potential for abuse. And the order also requires the Attorney General and the White House Counsel to review claims of executive privilege about covered records to make sure those claims are fully warranted by the Constitution.

So in other words, the vice president can no longer claim executive privilege to keep records from the public. It really is a new day.

John Yoo

Impressive New Team Taking Shape For DOJ

Zachary Roth | January 21, 2009, 12:36PM

It's good to see that the grownups are back in charge at the Justice Department.

Even before the Senate has voted on Eric Holder's nomination to be Attorney General, the department is filling up with respected legal figures whose records suggest an intention to use DOJ as America's law firm, not the president's.

Neal Katyal, the Georgetown Law professor who successfully challenged the military trials in Guantanamo while representing Osama bin Laden's driver, will be deputy solicitor general. He'll join Elena Kagan, the dean of Harvard Law School, who has been nominated to be Solicitor General.

Meanwhile, Katyal's Georgetown colleague Marty Lederman -- known to the blogosphere from his writing at the legal blog Balkanization -- will return to the Office of Legal Counsel as deputy assistant Attorney General. With his record of opposition to warrantless wiretapping and torture, Lederman figures to represent quite a change -- for the better -- from another recent OLC lawyer, torture-memo author John Yoo.

Lederman will work with Dawn Johnsen, an Indiana University law professor and vocal critic of Bush terror policies, who's been nominated to head the OLC, as well as David Barron, who will serve as the principal deputy. Both Johnsen and Barron served at OLC during the Clinton administration.

Add to that the news that fired US Attorney David Iglesias will be prosecuting Guantanamo cases as a military prosecutor, and you get the impression that on issues of justice, many of the wrongs of the Bush years are in the process of being righted.

David Iglesias

Fired US Attorney To Prosecute Gitmo Cases

Zachary Roth | January 21, 2009, 11:25AM

David Iglesias -- the former US Attorney who was fired in 2006 for failing to prosecute politically motivated cases as aggressively as the Bush administration and its allies wanted -- has a new job.

Iglesias, a member of the US Naval Reserve JAG corps, has been reactivated as part of a special prosecution team for Guantanamo detainees, he told a New Mexico news station this morning.

"One hundred percent of what I'm doing is prosecuting terrorist cases out of Guantanamo," he said.

Igleisas explained that he had already begun the work, having travelled to the facility once, and expecting to go back.

"It's the most significant set of orders I've had in my 24 years of navy service," he added. "The level of detail that I'm looking into some of these terrorist groups, it just takes my breath away."

And he signaled what seemed to be a change in tone from the Bush years. "We want to make sure that those terrorists that did commit acts will be brought to justice -- and those that did not will be released."

Asked about the unlikelihood of being named to a frontline job in the war on terror, after being fired as a US Attorney for alienating the Bush administration, Iglesias allowed: "It's been very ironic."

Here's the video:

We've got our own call in to Iglesias...

The Daily Muck

The Daily Muck

Chris Black | January 21, 2009, 9:32AM

The Obama administration has instructed military prosecutors at Guantanamo Bay to seek a 120-day suspension of legal proceedings. One of the first cases to go on hold was that of Omar Khadr, a Canadian citizen accused of killing an American soldier in Afghanistan when Khadr was 15. It is unclear whether any other ongoing trials will be postponed, as three of five defendants are representing themselves and not certain to agree to Obama's request. (Washington Post)

In another one of his first actions as the new president, Barack Obama issued an order to all federal agencies to stop the enactment of any new regulations until the administration can review them. It will take much longer to undo regulations put in place by the Bush administration before Obama was sworn in. In its final months, the Bush administration issued numerous orders weakening environmental protections and workplace safeguards among other things.(Associated Press)

Embattled Illinois governor Rod Blagojevich missed a second deadline Tuesday to file a response to impeachment charges. The Senate will assume a plea of "not guilty" and proceed with impeachment hearings. The tardiness of Blagojevich's response may be related to the resignation from the impeachment case of his defense team, one member of which referred to the impeachment as a "lynching" and the outcome as a "forgone conclusion." (Associated Press)

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Dick Cheney

Judge Takes Cheney's Word That He'll Hand Over Records

Zachary Roth | January 20, 2009, 3:09PM

Dick Cheney may now be the former vice president, but a court ruling handed down yesterday, his last full day in office, could make it less likely that we'll ever get a full account of his role in crucial Bush administration decisions.

The Washington Post reports that a federal judge decided that a pledge from Cheney's office that it will turn over key records to the National Archives, as required by law, is good enough. A coalition of historical and nonprofit groups, alleging that Cheney planned to discard or destroy the records, had sued to require that they be preserved.

Claire O'Donnell, a Cheney aide who handles record-keeping, had said in a sworn deposition that the material would be preserved, and Judge Colleen Kollar-Kotelly said she expects that the VP's office "will, in good faith, comply with" that pledge.

But the plaintiffs are concerned that it won't. Stanley Kutler, an emeritus professor of history and law at the University of Wisconsin Law School, and the author of two books on Watergate, told the Post he's afraid that "when the Archives goes to open Cheney's papers, they are going to find empty boxes."

Kutler added that Cheney "spent most of his time making sure he left no footprints. Why did he fight this order so much if he did not have the intent to leave with these papers? I'm guessing that a lot of it will not be there."

Still, on most of the more far-reaching issues in play, the government lost. The court rejected the government's arguments that the plaintiffs lacked standing, and that no court could review the administration's compliance with the Presidential Records Act, under which the case was brought. It also rejected the strange-sounding claim that that act gave the vice president complete discretion to decide how to comply with it. Judge Kollar-Kotelly rapped DOJ for making "constantly shifting arguments."

But on the immediate -- and crucial -- question of the how much of the ex-veep's records are made available to those writing the history of the Bush administration, we may have to trust Dick Cheney. And that hasn't tended to work out too well in the past.

Bernard Madoff

Did SEC Fail To Follow A Path To Madoff In 1992?

Zachary Roth | January 20, 2009, 1:31PM

In recent weeks, the evidence that Bernard Madoff's alleged fraud goes back longer, and implicates more people, than we at first knew, has seemed to grow. And over the weekend, the New York Times added to that impression, with a lengthy takeout on a 1992 SEC investigation into Frank Avellino, an accountant tied to Madoff, who has admitted to not keeping conventional records.

Despite several red flags, the probe ended with Avellino paying only a small fine, and it never appears to have questioned Madoff's own operation.

Here's what seems to have happened:

Avellino and Madoff had had ties going back to the late 1950's, when Avellino worked as an accountant at a firm run by Madoff's father-in-law. Madoff even briefly ran his securities business from Avellino's office.

As the years passed, Avellino gradually shifted the focus of his business from accounting to raising money for Madoff's investment business. Then in 1992, the SEC received marketing materials showing that Avellino and his partner, Michael Bienes, had promised investors returns of up to 20 percent a year. Suspecting a Ponzi scheme, the government launched an investigation.

Avellino's explanation was simply that Madoff -- by then one of Wall Street's biggest stock traders -- was managing the money. Avellino said that if Madoff ever fell short of achieving a 13-20 percent return for investors, then Avellino and Bienes would make up the difference.

And that seems to have satisfied the SEC. As the Times puts it:

No one at the securities commission seems to have questioned why Mr. Avellino and Mr. Bienes offered clients a double-digit guaranteed return on money that they did not even control. Nor do the records offer any hint that the commission considered whether Mr. Madoff, rather than Avellino & Bienes, might be operating a Ponzi scheme.

Avellino returned money to investors, paid a fine, and shut down his business.

But when an audit was conducted by Price Waterhouse, it was discovered that Avellino didn't keep proper records. When Price Waterhouse asked Avellino to do so for 1992, he refused, writing:

"My experience has taught me to not commit any figures to scrutiny when, as in this case, it can be construed as 'bible' and subject to criticism. In this present instance, quite severely. I explained how the profit and loss can be computed from the records you now hold in your possession that Bernard L. Madoff and I supplied."

Still the SEC did nothing, and by the end of January 1993, the audit, too, was over.

Madoff and Avellino appear to still have ties. Madoff's current lawyer, Ira Sorkin, represented Avellino during the 1992 investigation. There's also this:

.In 2003, the Avellinos bought a $4.5 million house in Palm Beach less than five blocks from Mr. Madoff's house there. Their Manhattan apartment is similarly close to Mr. Madoff's apartment.

And Avellino may have been wired into Madoff's alleged fraud right up until the end. the Times reports:

A lawsuit claims that Mr. Avellino warned his housekeeper, who had invested with him, that her money was lost 10 days before Mr. Madoff's fraud became public.

There have been no indications that Avellino is a target of the SEC's current Madoff investigation. But at the least, he's a figure worth keeping an eye on.

Bailout

Congress: We'll Lose A Quarter Of TARP Funds Spent So Far

Zachary Roth | January 20, 2009, 11:18AM

Since we spilled a lot of pixels late last week on the question of whether taxpayers might get back the money the Treasury spent on the financial bailout, it's worth noting that, according to Congress's in-house accountant, we certainly haven't yet.

The Congressional Budget Office released a report Friday afternoon which found, as summarized in a post on the CBO website: "We expect the government to recover about three quarters of its initial investment" of $247 billion. In other words, according to CBO projections, we'll likely make back around $183 billion, but will still be down around $64 billion.

Of course, that's only one small data point in an enormous sea of complexity. It covers only the first third of the $700 billion allocated by Congress -- a figure that could still grow even further. More importantly, the major factor in determining what we get back will be the ongoing solvency of the banks we "invested" in -- something not even the CBO can predict.

But it at least gives us a preliminary measure. If, when all is said and done, we'd made back three quarters of the money we put in, and avoided a complete financial collapse, a lot of people would see that as an acceptable result. But we're a long way from that point right now.

"The Congressional Budget Office estimated Friday that taxpayers could lose $64 billion
on investments made with the first third of the $700 billion Troubled
Asset Relief Program, despite assurances by U.S. officials that the
rescue could make money for the U.S. government."

The Daily Muck

The Daily Muck

Chris Black | January 20, 2009, 9:54AM

A federal judge ruled Monday that Vice President Dick Cheney will have broad say over which of his office's records get preserved under the Presidential Records Act. The ruling could complicate investigators' efforts to piece together the Vice President's involvement in certain Bush-era scandals such as the handling of Guantanamo detainees and the exposure of Valerie Plame's secret identity. (Associated Press)

The latest in a financial fraud story reminiscent of James Bond: regulators were warned about Marcus Schrenker --- the investment manager who attempted to fake his death in an airplane crash by parachuting out mid-flight --- in at least three states where he did business. Although the earliest complaint was filed in 2002, investigators failed to act until suspected losses reached into the millions of dollars. (Associated Press)

And in another case of a fugitive money manager, Arthur Nadel vanished the same day his six hedge funds were expected to deliver a $50 million payout to investors. The only thing investors received were very real doubts about the existence of their savings. (Associated Press)

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The Daily Muck

The Daily Muck

Chris Black | January 19, 2009, 10:17AM

A Florida hedge fund manager has gone missing after being accused of defrauding investors of millions. While it is too soon to know the exact value of the alleged fraud, Arthur Nadel managed a fund that may have been worth as much as $350 million, most of which has been lost. (Associated Press)

Another "oops" at Gitmo, where Haji Bismullah became the latest detainee to be released after being deemed no longer an "enemy combatant." Bismullah was released after a military panel seemed to acknowledge a mistake of grand proportions. (New York Times)

The Government Accountability Office released a report finding that 83 of the nation's 100 largest corporations maintain subsidiaries in offshore tax havens. Among these 83 companies were several, including General Motors and AIG, currently receiving bailout money. (Associated Press)

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