Allen Stanford

Cricketers' Wives And Failed Health Clubs: The Allen Stanford Story

Zachary Roth | February 13, 2009, 6:31PM

We told you earlier today about "Sir" Allen Stanford, the Texas billionaire (he got himself knighted in Antigua) who runs a private investment firm that's being probed by the Feds after consistently issuing deposits that pay interest rates at twice the national average.

Although we linked this morning to today's New York Times report, the news that Stanford was being investigated by the federal government was originally broken by Business Week in this excellent rundown from Wednesday.

The magazine includes a great detail on Stanford's comically desperate effort to claim that he's descended from Leland Stanford, who founded Stanford University. It reports that despite those claims -- here, for instance ....

[S]chool officials say there is no familial link to the financier. In October the university sued Stanford Financial in federal court in San Francisco, claiming it had infringed on the school's trademark by using "confusingly similar imitations" of its logo at sporting events and other activities sponsored by Stanford Financial. Denying any wrongdoing, the firm filed a motion to dismiss the case in early February.

And we told you before about Stanford's impressive record of political contributions to lawmakers of both parties. But he's not just a big-time donor -- Stanford appears to be pretty well-connected, with both major parties.

In 2007, the Inter-American Economic Council (IAEC) gave Stanford its "Excellence in Leadership" Award -- at an event co-chaired by President and Laura Bush.

And according to this 2008 report from a St. Croix newspaper, when Stanford held a party to celebrate the opening of his firm's new "global management complex" on the island, President Bush sent a note, reading: "I send greetings to those gathered in St. Croix, Virgin Islands to celebrate the expansion of Stanford Financial Group." Keeping things bipartisan, Nancy Pelosi sent her own good wishes.

And check out this video, which the Stanford Financial Group made to tout its sponsorship of an event, held at the 2008 Democratic National Convention, for the National Democratic Institute, a non-profit group associated with the Democratic Party that works to spread democracy abroad. Bill Clinton, Madeleine Albright, Howard Dean, and Pelosi all spoke at the event. Clinton personally thanked Stanford Financial.

Here's another funny detail. We told you before about Stanford's love of cricket. But last year, he sponsored a series between England and the West Indies that, according to the BBC, one English cricket official described as "a pantomime" and "obscene." The England players complained about the state of the pitch, the lighting, and the crassness of playing for money while representing their country.

As for Stanford himself, it looks like it's more than just the silly-mid-offs and leg-before-wickets that he gets out of the game. Business Week reports that during that ill-fated series:

Stanford sparked a scandal in England after a photographer snapped a shot of him with the wives of several professional British cricket players sitting on his lap. A father of six, who is separated from his wife, Stanford later issued an apology over the incident.

Oh, I say!

It hasn't always been notes from the president and cricketers' wives in his lap, though. Today, Business Week adds some information about one of Stanford's early, considerably less successful ventures: a Waco, Texas, health club called Total Fitness of Temple Inc.

Court documents reveal that in 1983, Allen Stanford was slapped with a default judgment for failing to pay back rent on the lease for the health club. The judge in the case signed an order permitting the landlord, Allied Development Co., to collect some $31,800 in unpaid rent plus interest from the man who reportedly now has $2.2 billion in wealth.

You've come a long way, baby!

Defense Contractors

Blackwater Is Dead! Long Live ... Xe?

Zachary Roth | February 13, 2009, 5:06PM

This should do the trick.

Blackwater Worldwide, the contractor that emerged over the last few years as Exhibit A for ugly Americans in Iraq, has decided that the best response is to ... change its name.

And check out the name they picked: "Xe." (Apparently it's pronounced like the letter 'Z.' Raising the question: Why not just call it "Z"?)

They've also renamed Blackwater Lodge & Training Center, the subsidiary that does much of their controversial overseas operations. It's now the "U.S. Training Center Inc." (Which doesn't exactly mesh with "Xe," but whatever.)

According to the Associated Press, Blackwater (or should we say "Xe"?) president Gary Jackson said in a memo to employees, announcing the changes, that they reflect a shift in the company's focus away from private security and toward operating training facilities around the world.

You can see how "Xe" would be the obvious name to reflect such a shift.

It's not hard to guess why Blackwater (or wait, Xe) wants to get out of the private security business. In 2007, Blackwater guards opened fire in a Baghdad square, killing 17 Iraqis. Five ex-Blackwater guards were charged with voluntary manslaughter and are awaiting trial.

And recently, thanks largely to that incident and other cases where Blackwater has been accused of using excessive force, the Iraqi government declined to renew the company's contract to operate in the country. Soon after, the State Department announced that, in any case, it wouldn't renew Blackwater's contract to operate in Iraq.

No word yet on whether Iraq and State will reconsider now that that the company is called "Xe."

Justice Department

Judge To Stevens Prosecutors: "Isn't The Department of Justice Taking Court Orders Seriously These Days?"

Zachary Roth | February 13, 2009, 4:42PM

This just gets worse and worse...

Last week, as we told you, defense lawyers for Ted Stevens formally asked the judge in his case to hold the prosecution in contempt, after a string of incidents in which the government was found to have withheld information from the defense.

And now Judge Emmet Sullivan has done so, reports the Associated Press.

Last month, Sullivan ordered prosecutors to turn over FBI documents concerning a whistleblower complaint against the agent leading the investigation into the former Alaska senator.

But they didn't, provoking the wrath of Judge Sullivan:

"That was a court order," he bellowed. "That wasn't a request. I didn't ask for them out of the kindness of your hearts. ... Isn't the Department of Justice taking court orders seriously these days?"

He said he didn't want to get "sidetracked" by deciding a sanction immediately and would deal with their punishment later. But he ordered them to produce the material by the end of the day.

"That's outrageous for the Department of Justice -- the largest law firm on the planet," he said. "That is not acceptable in this court."

This is just the latest embarrassment for the Justice Department in the case. In late January, the head of the department's Public Integrity Section admitted in writing to Judge Sullivan that he erred when he said that a group of government employees, who were cited in the FBI agent's publicly-filed complaint wanted their story to be made public. Some didn't, it turned out.

Stevens, the former Alaska GOP senator, was convicted last fall of filing false disclosure reports to hide gifts from an oil-services contractor. He is appealing the conviction.

FBI

"The Majority's Waterloo On Ethics"? Taking Stock Of the PMA Lobbying Probe

Zachary Roth | February 13, 2009, 2:56PM

Earlier this week, Keith Ashdown of the watchdog group Taxpayers for Common Sense, told The Hill that one troubled lobbying firm with ties to some Democratic lawmakers, "will become the majority's Waterloo on ethics."

Ashdown added: "If they do not tackle this example head-on they will look as bad as the Republicans on ethics in government."

Sounds serious! So it's worth taking a broad look at what Ashdown's talking about.

The firm under scrutiny here is the PMA Group, which was founded back in 1989 by Paul Magliocchetti, a former top aide to Rep. John Murtha.

It hasn't been a good week for the firm. On Monday, ABC News reported that, back in November, the FBI had raided the firm's northern Virginia office. The following day, the New York Times revealed that investigators were probing the possibility that Magliocchetti had funneled campaign contributions to Murtha and other lawmakers, in a quid pro quo arrangement. And the same day, The Hill added that the firm was "disintegrating," with several senior lobbyists leaving after being unable to strike a buyout deal with Magliocchetti.

PMA specializes in representing defense firms looking for federal money. And its employees are prodigious political contributors. Over the last three election cycles, they've given a total of more than $1 million to political campaigns, according to the nonpartisan Center for Responsive Politics

And at the top of its list of recipients over the last two decades are two Democratic lawmakers who sit on the Defense Appropriations subcommittee: Murtha of Pennsylania, Rep. Pete Visclosky of Indiana.

Murtha appears to be most closely implicated. Aside from Magliocchetti, at least one other former Murtha aide, Julie Giardina, also works at PMA. And Dan Cunningham, another PMA staffer, is a former Hill aide who has a close relationship with Murtha, according to The Hill.

Roll Call found earlier this week that, over the last three election cycles, Murtha had received around $1.75 million from PMA and its clients. Last fall, when Murtha faced an unexpected re-election challenge after calling his constituents racist, PMA and its clients came to his aid, contributing $110,000 to Murtha's last-minute fundraising effort.

What did PMA get from Murtha? Roll Call also found that in the last two years, Murtha has steered earmarks totaling around $93 million to PMA clients.

It's also worth noting that a second company linked to Murtha, defense contractor Kuchera Indstries, was raided by the FBI in January. Over the years, Murtha has funneled over $100 million in earmarks to the firm and a related company.

It's not hard to see why Ashdown told Roll Call: "This investigation is moving in the direction of Jack Murtha."

As for Murtha's friend Visclosky, he too has personal ties to PMA. Rich Kaelin, a PMA lobbyist, was Visclosky's chief of staff in 2003.

Visclosky has raked in $196,950 from donors with ties to the firm. PMA has been Visclosky's top donor every year since 2004. And the Post-Tribune of Lake County, Indiana has found that in 2008, the congressman secured more than $20 million in earmarks for the firm's clients -- a quarter of the total earmarks he got.

So that's what we've got. So far, there's no evidence that either Murtha or Visclosky are themselves are focuses of the investigation. What this amounts to, at the moment, is a firm contributing alot of money to certain lawmakers with authority over the sphere it works in -- as well as hiring some of their former aides -- and getting earmarks from those lawmakers.

That's not evidence of a quid pro quo. But it doesn't look good, especially given the president's call for a new kind of politics. And something tells us we haven't heard the last of it.

Alberto Gonzales

Conyers: No More Delays For Rove On US Attorneys Testimony

Zachary Roth | February 13, 2009, 12:22PM

Another development in the ongoing saga of Karl Rove's long-sought testimony on the US Attorney firings.

House Judiciary chair John Conyers has sent a letter to Rove's lawyer, Robert Luskin, enclosing a subpoena for Rove to appear before the committee February 23. That date had already been agreed to in a prior exchange of letters late last month.

But things are getting slippery again. Rove had originally been scheduled to appear February 2, but the two sides agreed to a delay, in part thanks to a scheduling conflict on Rove's part.

But apparently, Luskin, in the intervening time, had asked for a second delay. In addition, Rove had announced in a recent speech in California that he didn't intend to appear, citing an executive privilege claimed by President Bush.

In today's letter issuing the subpoena, Conyers informs Luskin that he won't agree to the requested second delay. Conyers writes:

Given Mr. Rove's public statements that he does not intend to comply with the subpoena, I am puzzled as to why Mr. Rove needs a mutually convenient date to fail to appear.

Conyers also writes that he can't accept Luskin's request to have Rove's testimony be limited to the matter of the Don Siegelman case, meaning he would stay mum on the US Attorneys firings.

Next week, the Obama White House is scheduled to formally weigh in on the contempt proceedings currently being brought by Conyers' committee against two other former Bush aides, Harriet Miers and Josh Bolten, for their testimony on the firings. The position the White House takes could well determine whether Rove will ultimately be required to testify by a court -- which is where things seem to be heading.

Allen Stanford

Meet Texas Billionaire (And Mini-Madoff?) "Sir" Allen Stanford

Zachary Roth | February 13, 2009, 11:49AM

We may have found our favorite mini- (or maybe not so mini-!) Madoff yet...

The FBI, SEC, and IRS are all looking into the business activities of the Stanford Financial Group, a Houston-based private investment group run by the "flamboyant Texas billionaire" Allen Stanford, reports the New York Times.

Like Madoff, Stanford's returns may have been too good to be true. A bank he owns, based in Antigua, has been issuing certificates of deposit that pay interest rates at more than twice the national average, says the paper.

Last summer, two former employees alleged in a lawsuit that the firm misled potential investors by overstating the asset value of individuals; failed to file mandatory forms disclosing its clients' offshore accounts; and removed information from its computers in response to an S.E.C. investigation.

The size of the alleged scam is unclear, but a spokesman for Stanford Financial told the Times that it "holds about $8 billion in deposits at its bank and has about $50 billion in assets in its wealth management affiliate."

The firm has denied the allegations.

But what really piqued our interest here was Allen Stanford himself. Here's some of the color the Times offers on the guy:

[A] decade ago, Mr. Stanford told The Associated Press that he had flown a Roman Catholic priest displaying signs of "stigmata," or bleeding wounds on his wrists and ankles, from the tiny Caribbean island of Antigua to New York City on his jet.

And:

Mr. Stanford, who his firm said was unavailable for comment, ranked 205th last year on the Forbes annual list of the richest people in the United States, with an estimated net worth of $2.2 billion. On Antigua, he is akin to royalty, being knighted by the former prime minister, referring to himself as "Sir Allen Stanford" on the company's Web site.

And maybe most interestingly:

Mr. Stanford has claimed ties to Leland Stanford, the former governor of California who started Stanford University in the 1800s. The university, however, has said there is no genealogical relationship between the two.

Indeed, on that one, Stanford put his money where his mouth is. In 2001, he gave $2.5 million to help rehabilitate the Leland Stanford Mansion State Historic Park in downtown Sacramento. A press release sent out by the office of then-California governor Gray Davis noted: "Stanford traces his family heritage to the family of Leland Stanford."

The Times also notes that Stanford and his firm have "emerged in recent years as major contributors to various lawmakers, appearing to focus particularly on legislators considering bills that would change offshore banking rules."

So we took a quick look at online campaign finance records compiled by the Center for Responsive Politics -- and it's fair to say the paper wasn't exaggerating.

Over the last decade or so, Stanford or the Stanford Financial Group have given $128,500 to the RNC, $238,500 to the NRCC, over $80,000 to the NRSC, and $180,000 to the DCCC. They have also given smaller amounts to current or former members of Congress with leadership positions, or positions with oversight over the banking and financial systems. That lists includes Tom DeLay, Phil Gramm, Chuck Schumer, Richard Shelby, Charlie Rangel, Max Baucus, Bob Torricelli, and Paul Sarbanes.

We're guessing this won't be the last post we do on Allen Stanford.

Late Update: It looks like, despite being from Texas, Stanford is a cricket fan. Check out this story from the cricket website cricinfo.com, reporting that today's match between England and the West Indies in Antigua has been suspended because of a waterlogged pitch. Discussing alternative locations, the site adds:

Another option, as yet unvoiced, would be to shift the match to Sir Allen Stanford's private ground near the airport, the venue of the 20/20 for 20 in November.

He is a knight, after all.

Thanks to reader M.G. for the tip.

The Daily Muck

The Daily Muck

Chris Black | February 13, 2009, 10:11AM

Two Pennsylvania judges pleaded guilty yesterday to charges of taking kickbacks in exchange for sending juvenile offenders to private detention facilities. Mark Ciavarella and Michael Conahan allegedly took $2.6 million in bribes and may have tainted the convictions of thousands of juvenile offenders. One 17-year-old girl who faced Ciavarella was given three months in a center for making a mock website that made fun of an assistant principal at her school. (Associated Press, New York Times)

On Monday prominent Mississippi attorney Richard Scruggs pleaded guilty to charges of bribery. In the same cause, the Mississippi county circuit judge who was the target of Scruggs' bribery pleaded not guilty to bribery yesterday, saying that his decisions were not influenced by a promise that former Sen. Trent Lott (R-MS) would help him get appointed to the federal bench. Judge Bobby DeLaughter had presided over a case argued by Scruggs over the awarding of millions of dollars in fees from asbestos litigation. (law.com)

Foundations that invested with Bernard Madoff may face tax fines for exercising poor judgment in handling their money. The fines could be assessed under an obscure law designed by the IRS to penalize foundations for not vetting managers properly, not diversifying prudently, or taking on too much risk that could threaten their survival. The fine would likely apply only to those foundations which invested exclusively with Madoff. (New York Times)

Read more »

Bailout

Deutsche Bank Analyst: Overpay For Our Assets, Or You'll Regret It

Zachary Roth | February 12, 2009, 3:49PM

For a while now, it's seemed like Wall Street's message to government has been: We screwed up. But if you don't rescue us on our terms, you're all gonna be in trouble.

But you don't usually see that expressed quite as clearly as it was in a research memo sent out yesterday by a senior Deutsche Bank analyst, and obtained by TPMmuckraker.

In the memo -- one of Deutsche's daily "Economic Notes" sent out to the firm's clients, and to some members of the press -- Joseph LaVorgna, the bank's chief US economist, essentially, appears to warn that if the government doesn't pay high prices for the toxic assets on the books of Deutsche and other big firms, there will be massive consequences for the US economy.

Writes LaVorgna:

One main stumbling block to the purchasing of troubled assets has been pricing, specifically how does the government price a diverse set of assets in a way that does not put the taxpayer on the hook. However, this should not be the standard by which we judge the efficacy of the plan, because a more prolonged deterioration in the
economy will result in a higher terminal unemployment rate and a greater deterioration of the tax base. As such, the decline in tax revenues will crimp many of the essential services provided by the government. Ultimately, the taxpayer will pay one way or another, either through greatly diminished job prospects and/or significantly higher taxes down the line to pay for the massive debt issuance required to fund current and prospective fiscal spending initiatives.

We think the government should do the following: estimate the highest price it can pay for the various toxic assets residing on financial institution balance sheets which would still return the principal to taxpayers.

One leading economist described the memo to TPMmuckraker as a "ransom note" to the US government. And David Kotok of Cumberland Advisors, who writes such research memos for his own clients, acknowledged that the memo, like all such communications, could be interpreted as an attempt to influence policy-makers.

Still, seeing the memo as a threat to the government to drive the softest of bargains wouldn't be entirely fair. Kotok that cautioned that the effects of a single analyst's memo are limited: "Joe LaVorgna doesn't have enough clout to hold the US government hostage."

LaVorgna himself was blunt: "I don't write editorials," he told TPMmuckraker.

At the very least, the memo can be seen as a frank statement of position from the chief economist of a major bank: if the government doesn't cave and buy up all the banks' toxic assets at inflated prices, the country will suffer.

Nice fix we've got ourselves into.

Lobbyists

Lobbying Firm In Gear To Help Clients Get A Piece Of The Stimulus Action

Zachary Roth | February 12, 2009, 2:46PM

One sector that looks set to be stimulated by the $789 billion bill Congress has in the works: the lobbying industry.

Foley Hoag, the K-Street- and Boston-based law and lobbying firm, announced today that it has put together a "new cross-discipline stimulus response team," designed to go after state and federal dollars allocated for new projects on behalf of clients.

According to a press release:

The firm is bringing together attorneys and policy specialists from a mix of practices certain to be at the center of new project-based financing, including Energy Technology & Renewables; Environment; Infrastructure & Privatization; Life Sciences, and Government Srategies (sic).

(Ed note: Lobbyists, it appears, have now been re-branded as "policy specialists". Kind of like how in Hollywood, agents are now known as "representation.")

The group will advise clients nationally and regionally as they pursue various aspects of stimulus-related work across a spectrum of business segments.

Doug McGarrah, who's running the new team, adds:

Our group has a sophisticated understanding of the steps involved in permitting, procurement and project delivery. We recognize this is an extraordinary opportunity to help advance the interests of our clients.

He goes on:

[M]any businesses and municipalities in our state will benefit from an infusion of federal funds. We are launching this integrated team with an eye toward helping clients react swiftly to, and capitalize on, this fast-moving Stimulus Package.

In other words: this stimulus bill is going to be a gold-mine, and we can help you get in on it.

We've put in a call to Foley Hoag to find out what exactly they plan to do for their clients, and will update with any details. And, needless to say, it seems unlikely that Foley Hoag is the only K Street firm able to spot an opportunity like this.

It's good to know that, even a $789 billion package designed to rescue the US economy hasn't put a damper on the spirit of self-interest.

Bailout

Morgan Stanley's Spin On Bonuses

Zachary Roth | February 12, 2009, 11:10AM

It's worth taking a second to knock down a piece of rapidly emerging spin about those "very generous" "retention payments" that Morgan Stanley announced for its financial advisers last week, (as well as those of Smith Barney, with which its soon to merge) according to audio obtained by the Huffington Post.

The New York Times reports:

James Wiggins, a Morgan Stanley spokesman, said that such payments were necessary and would come out of operating revenue, not government bailout funds.

Wiggins gave Huffington Post the same line yesterday.

But Dean Baker, of the Center for Economic and Policy Research dispenses with this quickly, writing on his blog at the American Prospect:

Since money is fungible, this comment doesn't make any sense.

Incidentally, a Morgan Stanley spokeswoman gave us the same line about operating expenses when we called about the payments yesterday. But, given that, as Baker says, money is fungible, it didn't seem worth reporting.

The Daily Muck

The Daily Muck

Chris Black | February 12, 2009, 10:01AM

Former Illinois governor Rod Blagojevich now has nothing to lose, at least politically, and may be making the most of it. In recent days Blagojevich has been lashing out at those who ousted him, referring to Illinois state lawmakers as drunkards and adulterers who don't know how to do their jobs. While most lawmakers are brushing off his comments as gossip, some fear that Blagojevich may be able to reduce his sentence by informing on others. As a former congressman and twice-elected governor, he likely knows where a lot of bodies are buried.. (Associated Press)

Yesterday, in a letter to the House Financial Services committee, New York state Attorney General Andrew Cuomo gave details on how Merrill Lynch distributed its 2008 bonus pool, revealing that 696 employees received $1 million or more in bonuses--only a very small fraction of the company's 39,000 employees. A reminder: Merrill lost $27 billion last year. (New York Times)

It seems that the staff at Los Alamos National Laboratory is having trouble keeping track of its computers. A recent memo shows that currently 67 computers are missing and that 13 of them are confirmed lost or stolen in the past year alone. Furthermore, officials at the laboratory may have erred when they decided to treat the lost computers as a property management issue and not a potential lapse in cyber security. Among the losses is a laboratory BlackBerry that went missing in a "sensitive foreign country." (Project on Government Oversight)

Read more »

Justice Department

Domenici Subpoenaed In US Attorneys Probe

Zachary Roth | February 12, 2009, 9:02AM

Last week, TPMmuckraker reported that the investigation by prosecutor Nora Dannehy into the US Attorney firings was focusing on Pete Domenici.

And today, the Washington Post reports that Dannehy has issued a subpoena to the former New Mexico Republican senator.

The Post adds that Dannehy will interview Scott Jennings, who was a top White House deputy to Karl Rove, as early as today. Jennings' lawyer told the paper he will "cooperate to the best of his ability" and is not a target in the case.

A report by the Justice Department's inspector general found that Domenici several times complained to Bush administration officials about David Iglesias, then the US Attorney for New Mexico. Domenici wanted Iglesias to quicken the pace of prosecutions against Democratic office-holders in the state. The report concluded that Iglesias had been fired for political reasons*.

The report also recommended appointing a prosecutor to look into possible crimes in connection with the firings, and the Justice Department named Dannehy for that role.

* This paragraph has been corrected from an earlier version.

Susan Collins

Source: Collins Strips Stim Bill Of Whistleblower Protections

Zachary Roth | February 11, 2009, 6:57PM

Another great coup for the centrists!

Sen. Susan Collins, the Maine GOP dealmaker who's been in the limelight this week for helping to pass a watered down stimulus, has been talking a good game about the need to avoid wasting taxpayer money. But it looks like Collins also worked today to strip from the final bill a measure that's crucial to exposing that waste.

Here's what happened:

The House stimulus bill contained a provision designed to protect federal whistleblowers. Currently, those protections are shockingly weak. According to the Project On Government Oversight, whistleblowers who are fired or demoted can file a complaint with a government board -- but over the last eight years, that board has ruled in favor of whistleblowers only twice in 55 cases.

More to the point, the protections were designed to encourage federal workers to point out cases where taxpayer money is subject to waste, fraud, or abuse -- a legitimate concern when Congress spends $800 billion, and one that centrists and Republicans have been particularly exercised about.

Yesterday, 20 members of the House, from both parties, sent a letter to House negotiators urging them to ensure that the protections remained.

But, according to a person following the bill closely, Collins used today's conference committee to drastically water down the measure, citing national security concerns as the reason for her opposition. In the end, the protections were so weakened that House negotiators balked, and the result was that the entire amendment was removed.

According to the person following the bill, Collins was the "central roadblock" to passing the protections.

To make matter worse, Collins is the ranking Republican on the Senate Homeland Security and Government Affairs commitee, which, as an oversight committee, might be expected to see its role as protecting whistleblowers. She also sits on the Senate appropriations committee, giving her a strong position from which to wield influence during today's negotiations.

Though Senate leader Harry Reid supported the protections, said the source, he wasn't willing to strong-arm Collins on the issue, given her central role in negotiations over the stimulus bill as a whole.

So when, in the coming months, conservatives start jumping up and down over the fact that money from the stimulus bill is being wasted, as they surely will, it's worth remember that a key measure designed to help expose that waste was removed from the bill -- and by a senator said to be a champion of fiscal discipline.

Senator Collins's press secretary did not immediately respond to a request for comment.

Bailout

Capuano To CEOs: "America Doesn't Trust You."

Zachary Roth | February 11, 2009, 4:17PM

Here's a great tirade from Massachusetts Democratic congressman Michael Capuano, form today's hearings with eight banks CEOs...

Some highlights:

America doesn't trust you anymore.

and:

Who was the brilliant person who came and said: Let's do credit default swaps? Find 'em. Fire 'em. Tell me you fired them.

But maybe the best part is when Capuano addresses the common refrain heard form banks that the money they gave out in bonuses was different from the bailout money they got.

Says Capuano:

Don't say: Oh, well we're not using that money for bonuses. C'mon! Money is all of a sudden not fungible in your entity. It's fungible everywhere else, but not in your entities.

Watch:

Jack Abramoff

Cochran Aide To Abramoff Crony: Why No Hebrew National Hotdogs?

Zachary Roth | February 11, 2009, 3:41PM

We've told you about Ann Copland, the former aide to Mississippi GOP senator Thad Cochran, who, according to court documents, accepted tickets to ball-games, concerts, and other events from Abramoff crony Todd Boulanger, in return for getting Cochran to take actions benefiting Abramoff's clients.

Well today the Associated Press offers some more great details about how things worked between Copland and Boulanger.

In June 2003, Copland emailed Boulanger from a suite a luxury suite at Baltimore's Camden Yards, where she had taken a group to watch an Orioles game:

"Ackkk. Only beer and no Hebrew National hot dogs," complained Copland.

Ackkk indeed.

That email was included in Boulanger's plea agreement last week, when he pleaded guilty to bribing several Hill aides.

Here's another good exchange. Reports the AP:

Copland apparently grew so comfortable accepting gifts that she sounded angry in one e-mail from the firm's box suite at a Washington ice-skating event after no food had arrived for her party of 14 people.

"I'm freaking out here," she wrote Boulanger.

He responded that she would be reimbursed if she had to buy food herself.

What was Copland giving in return? The AP explains:

For example, when Copland asked Boulanger for the suite at the Orioles game in 2003, he responded in part by asking whether a Choctaw provision the firm no longer wanted had been removed from an appropriations bill.

Copland assured him it had, and the final version of the bill contained an explicit statement that the provision "is no longer necessary."

Boulanger once wrote to Abramoff, of Copland:

She's more valuable to us than a rank and file house member.

Bailout

McGraw Hill Spikes Book That Slammed Credit Ratings Agency It Owns

Zachary Roth | February 11, 2009, 3:04PM

Did McGraw Hill pull out of a book deal with a top financial blogger because it looked like the book would be critical of Standard & Poor's, the credit ratings agency owned by McGraw?

Portfolio reports that the publisher has dropped Barry Ritholtz's Bailout Nation. And Ritholtz -- a TPM friend and investment expert who runs an institutional research firm -- claims it's because he ripped S&P.

The major credit ratings agencies, S&P perhaps foremost among them, have been widely criticized (by TPMmuckraker, no less) for helping to enable the financial crisis, by sticking grade A ratings on toxic mortgage assets -- a move which pleased the investment banks, who are the ratings agencies' customers.

Ritholtz wrote in his original manuscript that the ratings agencies "conducted a form of 'payola.' "

He continued:

These three rating agencies were the key enablers in the housing crisis and the subprime debacle. They were the pimps to the fixed-income fund managers' johns. The investment banks whored out junk paper, and the ratings agencies were extremely well compensated for their role in helping to create the entire subprime fiasco. But for their imprimatur of triple-A respectability on garbage paper, it could not have danced its way onto the laps of so many drooling buyers.

When McGraw Hill complained, the writer agreed to take out that passage. But, according to Ritholtz, the publisher still wasn't happy, saying it couldn't verify his assertions -- a rationale Ritholtz, speaking to Portfolio, rejects as a manufactured excuse. The book's general take remained critical of the ratings agencies.

In a post on the blog The Big Picture, Ritholtz offers more details about the sequence of events, and claims that the contract he signed with McGraw gave him final edit rights.

He also adds that over the summer, a McGraw Hill publisher told him that the section on the ratings agencies would have to be handled "delicately and diplomatically."

In any case, the deal ultimately fell apart -- and the notion that it was because McGraw Hill couldn't stomach Ritholtz's frank criticism of S&P is tough to shake.

Portfolio adds the publisher's side:

McGraw Hill spokesman Steven Weiss this afternoon said the publisher dropped the book because of a conflict with Ritholtz over editing, not because of his criticism of S&P. "The material needed extensive corroboration across a range of topics. We could not agree on unified approach with the author for resolving the issues," Weiss said. He denied that the publisher dropped the book because of what Ritholtz had written about S&P. "It is simply not true," Weiss said. "We have a range of editorial entities that often report critically about the company and we support and encourage their independent voices."

Ritholtz told Portfolio that other publishers are interested in Bailout Nation. So we may even get to see the full unedited version of the book.

Bailout

Lewis: Yes We Raised Interest Rate On Credit Cards -- After Taking Bailout Money

Zachary Roth | February 11, 2009, 2:12PM

Here's another good exchange, this one between Rep. Maxine Waters and
Bank of America's Ken Lewis .

In one moment, Waters -- a longtime foe of rapacious lending practices, asks the CEOs whether, after receiving taxpayer money, they increased the interest rate on the credit card holders.

Lewis admits his firm did....

Bailout

JP Morgan CEO: OK, We Didn't Use Bailout Money For Lending

Zachary Roth | February 11, 2009, 1:38PM

Here's an important moment:

Rep. Gary Ackerman gets JP Morgan CEO Jamie Dimon to admit that the $25 billion his firm got from the bailout did not trigger any new lending.

Watch the vid -- it's around 3:25 mark.

Bernard Madoff

Report: Mrs. Madoff Withdrew $15 Million Days Before Bernie's Arrest

Zachary Roth | February 11, 2009, 12:07PM

Reuters reports:

Massachusetts' top securities regulator said on Wednesday that the wife of accused financial swindler Bernard Madoff took out roughly $15 million from an account managed by Cohmad Securities days before her husband was arrested and charged with securities fraud.

More as we get it...

Late Update: The Wall Street Journal has more. The information about Ruth Madoff comes from a complaint filed by the office of Massachusetts Secretary of State William Galvin, which is probing the role of Cohmad Securities, a company co-owned by Bernie Madoff.

The complaint says Ruth Madoff withdrew the money from Cohmad.

Reports the Journal:

The complaint seeks to revoke the registration of Cohmad, a New York-based firm that has an office in Boston. The complaint says Cohmad has refused to provide information regarding its activities in Massachusetts, its relationship with Bernard L. Madoff Investment Securities and "Cohmad's apparent role in the transfer of moneys from Madoff Investments to Cohmad personnel."

Bailout

Frank Stumps CEO: What's The Point Of Bonuses?

Zachary Roth | February 11, 2009, 11:33AM

A nice moment from the hearings...

Barney Frank declares, re: bonuses:

This notion that you need some special incentive to do the right thing troubles me.

Then he asks: What is it you'd do differently if you didn't get a bonus?

It's a question Frank had been previewing all week. He throws it open to any of the CEOs.

Morgan Stanley's John Mack is the only one brave enough to hazard an answer. But all he brief historical digression about how the bonus system became established at investment banks.

But Mack acknowledges:

Without question, given the risks we take today, and the size of our bonuses ... all that has to be looked at again.

Frank's conclusion:

So if there were no bonuses, we'd still get our money's worth.

Sounds about right.

Bailout

Morgan Stanley Exec Announced "Very Generous" Retention Award Last Week

Zachary Roth | February 11, 2009, 11:00AM

The Huffington Post has obtained audio of a conference call last week on which the co-president of Morgan Stanley, James Gorman, tells financial advisers at his firm and Citigroup's Smith Barney that they will be receiving "very generous" retention payments, and urging them not to call them bonuses.

The two firms are about to merge.

Gorman tells the advisers:

There will be a retention award. Please do not call it a bonus. It is not a bonus. It is an award. And it recognizes the importance of keeping our team in place as we go through this integration.

Gorman continues:

I think I can hear you clapping from here in New York," Gorman joked during the call, after announcing that the payments would be linked to '08 performance. "You should be clapping because frankly that is a very generous and thoughtful decision that we have made. We spent a lot of time kicking this around. We could easily have done it from the point of closing, which is obviously going to be somewhere in the latter half of this year or around the middle of the year. But we just decided... that it was right thing to do, to give you that certainty that it would be based off '08. '09 is a very difficult year... So that degree of anxiety, which many, many of you have emailed me about... is now off the table.

Huffington Post adds:
The payments, Gorman said, will be calculated based on performance numbers from 2008 instead of 2009, when the merger is expected to be completed. That decision virtually guarantees an increase in the size of the awards. While 2008 was challenging for the firms -- Morgan Stanley's client assets in fee-based accounts dropped 25 percent in the fourth quarter, and a round of lay-offs is expected -- 2009 is expected to be substantially weaker.

As I type this, I can hear Morgan Stanley's CEO John Mack bragging to Congress about the measures his firm has taken to rein in excessive compensation.

Bank of America

Your Help Needed!

Zachary Roth | February 11, 2009, 10:16AM

As we said, Barney Frank's committee has posted the CEOs' prepared statements on its website.

We're watching the hearings, which just began, but feel free to look through what the prepared remarks and send us anything good...

The Daily Muck

The Daily Muck

Chris Black | February 11, 2009, 10:09AM

Supreme Court Chief Justice John Roberts may recuse himself from an upcoming ruling. Pharmaceuticals giant Wyeth was charged with negligence in a tort case related to the loss of a patient's arm that was argued before the court last November, and is also the acquisition target of Pfizer, a company in which Chief Justice Roberts owns stock. The court decision would likely affect the value of Wyeth and therefore Pfizer's value as well. Justice Roberts' decision will likely set the precedent for these types of conflicts of interest. (law.com)

In a federal corruption trial yesterday, former Pennsylvania state Sen. Vincent Fumo (D) defended a secret $17 million gift from a utility company to a charity run by his aides, arguing that it benefitted consumers. The charity's main operations involve street cleaning and economic development work in Fumo's district. Prosecutors allege that Fumo embezzled more than $1 million from the charity using its vehicles and credit cards. (Associated Press)

A well-known anti-tobacco attorney pleaded guilty yesterday to mail fraud in a case that involved the attempted bribery of a judge. Richard Scruggs, the brother-in-law of former Sen. Trent Lott (R-MS), tried to get a county circuit judge to rule in his favor by telling him he could get him appointed to the federal bench with Lott's help. Lott himself has not been accused of any wrongdoing in the matter. (Associated Press)

Read more »

Bank of America

B of A's Lewis Defends Compensation

Zachary Roth | February 11, 2009, 10:00AM

The CEOs of the eight banks that received the most bailout money are about to testify before the House Financial Services committee, starting any minute. But the committee has already posted the CEOs' prepared statements on its website.

Here are some highlights:

Bank of America's Ken Lewis will say that executive pay and bonuses are intended "to grow our business, enhance profitability and generate returns for investors." That includes "the investors that are the focus of this hearing: U.S. taxpayers."

Citigroup's Vikram Pandit will say that he "removed the people responsible for Citi's financial distress."

JP Morgan Chase's Jamie Dimon will advocate a new bank regulatory system, which would include a "systemic risk regulator."

On compensation, Dimon will say:

Our employees worked harder than ever and performed admirably for the company and for clients under enormously challenging conditions in 2008. I believe the compensation we paid them was appropriate.

We'll be blogging the hearings as they happen, so stay tuned...

Barack Obama

Obama Advisory Board Member Is Senior Exec With Firm Under Federal Investigation For Tax Scam

Zachary Roth | February 10, 2009, 7:30PM

Last week, President Obama announced the members of his new Economic Recovery Advisory Board.

And one of the names piqued our interest:

Robert Wolf, Chairman & CEO, UBS Group Americas

That's because UBS isn't exactly the kind of company you'd expect Obama might want to associate with just at the moment. It's the subject of a widening federal investigation, being conducted by both DOJ and the IRS, into its offshore private banking services, focused on allegations that it helped an estimated 19,000 wealthy clients evade billions in taxes.

Last fall, Raoul Weil, who ran the firm's global wealth management and business banking division, was indicted in connection with the alleged scheme.

A few months earlier, a former UBS exec, Bradley Birkenfeld, pleaded guilty to helping a client evade millions of dollars in federal income taxes while with the firm.

Of course, there's no indication that Wolf had any connection to the alleged scheme. But it's worth noting that he and Weil did serve together on UBS's Group Executive Board. So it's not like they don't know each other, it appears. (Weil stepped down from the board temporarily after his indictment.)

You'd think President Obama could have rounded out his advisory board with someone from a firm that's not under federal investigation for helping rich people cheat on their taxes -- especially given the current financial climate. Guess not.

Bailout

Obama: Nationalization "Wouldn't Make Sense"

Zachary Roth | February 10, 2009, 6:57PM

In the wake of Tim Geithner's speech this morning, laying out the Treasury's plan, such as it is, for Bailout 3.0, most smart observers have concluded that the Obama administration has at least left the door open for a possible nationalization of failed banks at some point, if it decides circumstances warrant that step.

But in an interview with ABC News' Nighline, set to air tonight, the president seemed to all but rule out that idea. He told ABC:

[Sweden"] took over the banks, nationalized them, got rid of the bad assets, resold the banks and a couple years later, they were going again. So you'd think looking at it, Sweden looks like a good model. Here's the problem -- Sweden had like five banks," he said, laughing. "We've got thousands of banks. You know, the scale of the U.S. economy and the capital markets are so vast and the, the problems in terms of managing and overseeing anything of that scale, I think, would -- our assessment was that it wouldn't make sense. And we also have different traditions in this country.

True, Obama, like Geithner, has always seemed skeptical of nationalization. But his answer to ABC would appear to go further than he yet has in declaring that he'll avoid adopting any version of that approach.

Of course, things might look different once we get done with these "stress tests," and find out how many major banks are truly insolvent. But as of now, the president seems dead set against even short term nationalization.

Pat Fitzgerald

Report: Fitzgerald To Stay On

Zachary Roth | February 10, 2009, 6:30PM

When a new president comes in, he usually replaces all 93 US attorneys with his own nominees. But, in what could be bad news for Rod Blagojevich, at least one high-profile US Attorney won't be asked to step down, it looks like.

NBC News reports that Patrick Fitzgerald, the no-nonsense U.S. attorney for Chicago, will stay on under President Obama, despite being a Bush appointee.

Fitzgerald is preparing an indictment against the former Illinois governor. He also served as the special prosecutor in the Valerie Plame leak case, in which Scooter Libby was convicted of perjury.

The new administration has asked all the US the current Republican-appointed U.S. attorneys to stay on in the short term, while it decides which to retain. But it has already made a decision on Fitzgerald, it appears.

The suggestion to keep Fitz, who has been in the job since 2001, was made by Sen. Dick Durbin, who's close to Obama. Durbin's suggestion was "positively received," according to DOJ officials, as well as aides to Durbin.

The decision is not unexpected, since replacing Fitzgerald while he's in the midst of a high-profile and long-running probe of his state's former governor, would likely have generated an outcry.

Alaska

AK Lawmaker On Trooper-Gate AG's Resignation: "The Chickens Have Come Home To Roost"

Zachary Roth | February 10, 2009, 3:56PM

We just talked to an Alaska state legislator to get a handle on the news that Attorney General Talis Colberg, a key Sarah Palin ally during Trooper-Gate is resigning.

"The weight of Trooper-Gate finally got to him," said the lawmaker, a Democrat, who made clear that they weren't speaking from direct knowledge of Colberg's decision, but rather on the basis of involvement in the issue as a legislator.

The lawmaker said that Colberg's decision, during Trooper-Gate, to sue to quash subpoenas issued by the legislature to key Palin administration witnesses was now widely viewed as "a bad call." That move helped delay the witnesses' testimony, and limit its scope, meaning that the legislature's report on Trooper-Gate, released just before the election, remained incomplete.

"The advice he gave to members of the Palin administration not to appear was very bad advice," said the lawmaker. "He's gotten a lot of bad press over that, and so has the governor."

"You can't ignore a legislative subpoena," the lawmaker went on. "By doing so they had some short term gain ... now, the elections over and the chickens have come home to roost on that issue."

The lawmaker, who stressed that they wished Colberg well, and bore no ill will toward him, continued: "Everyone was caught up in the moment of the presidential election, and there were some political decisions that were made that people are ultimately regretting today."

The lawmaker said that after the nine witnesses, including Todd Palin, were found in contempt last week, many in the legislature publicly expressed the view that Colberg needed to answer more questions. Colberg had appeared before a contentious House committee, but might well have been forced to appear before the Senate as well.

"He's hoping that by stepping down, he'll be able to put the whole issue behind him," concluded the lawmaker.

Trooper-Gate

Palin's AG, A Key Trooper-Gate Ally, Resigns

Zachary Roth | February 10, 2009, 3:17PM

Talis Colberg, who was plucked from the obscurity of a small-town Alaska law practice by Sarah Palin to become the state's Attorney General, has resigned, reports the Anchorage Daily News.

Colberg, who had been a GOP assemblyman and Palin backer, was criticized during the Trooper-Gate scandal last fall for often appearing to represent the interests of his patron, the governor, rather than the Alaskan people. Although he himself had led an internal investigation designed to help Palin get out in front of Trooper-Gate, Colberg ultimately dismissed calls to recuse himself from any involvement in the matter. He then helped Palin stifle the probe into the matter by trying to block subpoenas, issued by the legislature, to state officials.

It's unclear as yet what prompted Colberg's move. He said in a statement:

I determined that it was in the best interest of the state of Alaska to move on and pursue other opportunities.

Something tells us there's more to this story...

Alberto Gonzales

Lying To Congress: OK For DOJ Officials, Not So Much For Ballplayers

Zachary Roth | February 10, 2009, 2:48PM

So Miguel Tejada, the shortstop for the Houston Astros, has been charged with lying to Congressional investigators about the use of steroids in baseball.

That news put us in mind of someone two other people who are suspected of lying to Congress, but so far, unlike Tejada, have escaped legal jeopardy. We refer, of course, to Alberto Gonzales and Bradley Schlozman.

A report released last July by the Justice Department's inspector general indicated that Gonzales may have lied to Congress about politicization at the department. And there have also been credible suggestions, including from Senate Judiciary chair Pat Leahy, that Gonzales perjured himself during his testimony on the US Attorneys firings scandal. A special prosecutor, Nora Dannehy, has been appointed to look into whether crimes were committed in connection with the firings, and the issue of Gonzales' possible perjury appears to be at the center of her probe. But as yet, Gonzales hasn't been charged (though he's certainly not in the clear).

As for Schlozman, a former top DOJ voting-rights official, another report by the department's IG, this one released last month, found that Schlozman lied to a Senate committee about his own role in politicizing hiring at the department. But the US Attorney's office for the District of Columbia declined to bring charges against Schlozman (a decision that Attorney General Eric Holder has said he will review.)

Meanwhile, Tejada is set to go before a DC judge tomorrow. And Roger Clemens is also under investigation for lying to Congress about steroids.

And consider this: Tejada isn't accused of lying about this own possible steroid use. Rather, prosecutors say he lied when he told Congressional investigators, during an interview in a Baltimore hotel room, that he didn't know about any other players using steroids. Gonzales and Schlozman, by contrast, are suspected of lying to conceal their own involvement in politicizing DOJ.

It's hard not to conclude that if federal investigators went after former DOJ officials as hard as they went after ball players, the world would be a better place.

Fred Barnes

Barnes' Source For Global Warming Denialism?

Zachary Roth | February 10, 2009, 1:31PM

Yesterday, we told you about how Fred Barnes has learned that global warming isn't man made -- but won't tell us where he got this startling information.

But luckily, it looks like Dave Roberts of the environmental news site Grist knows the answer. Roberts writes:

Barnes gets his information on climate change the same place everyone in the right-wing media world gets it: from Marc Morano, the in-house blogger/agitator for Sen. James Inhofe (R-Okla.).

Apparently, Morano is the point man for the fringe movement of global warming deniers.

Morano's entire job is to aggregate every misleading factoid, every attack on climate science or scientists, every crank skeptical statement from anyone in the world and send it all out periodically in email blasts that get echoed throughout the right-wing blog world and eventually find their way into places like Fox News and the Weekly Standard. From there they go, via columnists like George Will and Charles Krauthammer, into mainstream outlets like Newsweek and the Washington Post.

That's where Barnes gets it. That's where Glenn Beck gets it, and Lou Dobbs, and Will, and Krauthammer, and all the rest of them.

We've written about Morano -- a former producer for the Rush Limbaugh show -- before. In November 2006, he attended a UN conference on global warming on Inhofe's behalf, prompting the senator to label the confab a "brain-washing session."

Thank God we've found Barnes' source! With any luck, Morano will be able to pass his findings on to policy-makers in time to make sure they don't do anything to address global warming, since it turns out to be all a big mistake. That was close though!

Barack Obama

Ex-IMFer On Geithner's Speech: "This Is Not A Plan"

Zachary Roth | February 10, 2009, 12:30PM

Timothy Geithner's speech laying out the Treasury's plan for bailout 3.0 struck us as devoid of key details that might have settled some of the uncertainty and confusion surrounding the Obama administration's approach.

That's how it struck Simon Johnson, the former chief economist for the IMF, too.

Johnson told TPMmuckraker that the Treasury Secretary's speech laid out some important principles, especially in regard to the need for transparency and accountability. And he said that Geithner's willingness, in contrast to his predecessor, Henry Paulson, to criticize bankers and policy-makers -- implicitly himself -- was also welcome.

But then, said Johnson, the speech went into "Paulson-land," as Geithner said he would take input from the public on the public-private investment fund the Treasury is considering creating.

That lack of specificity, said Johnson, isn't helping restore confidence, pointing to a sharp drop in the market today, especially in the financial sector. "The market is responding to vagueness," said Johnson. "This is not a plan. In the annals of plan-announcing, this is very vague."

The "stress test" that Geithner discussed today, said Johnson, is a promising idea, but again wasn't fully enough fleshed out to know whether it'll be effective. The proposal, used effectively by Sweden in the early 90s, would require banks to lay their cards on the table, allowing the government to make a rough -- and conservative -- valuation of their assets. That would then allow the government to take over those banks that are truly insolvent, rather than continue to try to prop up failing institutions and suffer a "death by a thousand paper cuts."

Johnson had harsh words for the administration's plan, announced late last week, to modestly limit executive compensation. He called it "a joke," and said Geithner had lost credibility because of it. "No one in the markets is buying those [limits] as meaningful."

Geithner will testify before Senate committees this afternoon and tomorrow morning. So we'll see how many more details we get then. But it looks like this is all still a work in progress.

John Murtha

Report: Feds Raided a Second Murtha-Linked Company

Zachary Roth | February 10, 2009, 10:53AM

Could the Feds be closing in on Jack Murtha?

Late last month, federal agents raided the offices of a Pennsylvania defense contractor with close ties to the longtime Democratic congressman.

And now, ABC News has reported that, back in November, the FBI raided the Virginia headquarters of a lobbying firm founded by a former Murtha aide.

The firm, known as the PMA Group, specializes in winning earmarks for its clients.
ABC reports that last year, "it brought in $13.8 million in revenue representing dozens of defense companies and contractors, many of which have donated heavily to Murtha." Murtha has helped the firm win millions in earmarks, according to ABC. And much of PMA's business comes from small defense contractors based in Murtha's district.

The former Murtha aide who founded the firm, Paul Magliochetti, has reportedly been talking to his colleagues about an arrangement that would see him leave. Reports ABC:

Asked whether these discussions were related to the raid, [a PMA spokesman] declined to comment.

And another former Murtha aide, Julie Giardina, also works at PMA.

Last month, the FBI and IRS raided the offices of Kuchera Industries and Kuchera Defense Systems. Murtha has reportedly channeled $100 million in earmarks to those companies.

A spokesman for Murtha denied that his boss had been contacted by the FBI, and said the congressman did not believe he was a target of the investigation.

Still, something tells us we haven't heard the last of this.

Late Update: The Hill reports that PMA is "disintegrating", with several of its top lobbyists telling colleages and associates they plan to leave and start a new firm.

And it looks like the issue of PMA founder and former Murtha aide Paul Magliocchetti's continuing presence at PMA is at the center of the move:

The lobbyists resigned from PMA last Friday after they were unable to strike a buyout deal with Paul Magliocchetti, the founder of PMA Group, who indicated earlier this year he wanted to retire.

The new group is called Flagship Government Relations and is being billed as a business development and lobbying firm, The Hill has learned.

The paper adds:

Among those who are starting the new consultancy are Kaylene Green, a former Senate Armed Services Committee staffer and congressional Navy liaison; Sean Fogarty, a former Senate Navy liaison; Rich Efford, a longtime appropriations staffer who worked for former Rep. Ernest Istook (R-Okla.); and Dan Cunningham, who served as the director for the Army's congressional liaison team and has a close relationship with Murtha, according to multiple K Street sources.

The Daily Muck

The Daily Muck

Chris Black | February 10, 2009, 10:29AM

Angering civil libertarians and others on the left Monday, lawyers for the Obama administration went along with a Bush administration policy designed to keep the details of controversial anti-terror policies secret. In a case filed by five detainees against Boeing and its subsidiaries for their involvement in extraordinary rendition flights, lawyers for the administration made the same state-secrets argument--that details of certain cases are too sensitive to national security to even be discussed in court--that was so controversial during the Bush years. Simultaneously, the administration announced that Attorney General Eric Holder has ordered a review of all claims of state secrets, "to ensure that it is being invoked only in legally appropriate situations." The controversial state secrets privilege was famously invoked by the Bush administration to fend off legal challenges to its warrantless wiretapping program. (New York Times, Associated Press)

In another piece of fallout from the Bush administration's war on terror tactics, Sen. Patrick Leahy (D-VT) has proposed a "truth panel" to investigate Bush anti-terror programs. The panel would be designed to probe misdeeds by former officials relating to issues like torture and the use of intelligence in the lead-up to the Iraq war. At his press conference last night, President Obama appeared lukewarm to the idea, saying that he would rather "get it right moving forward." (Associated Press)

Jackson, Mississippi mayor Frank Melton may have his bond revoked for trying to personally serve a subpoena to a witness in his case. The mayor has pleaded not guilty to three felony charges that he violated civil rights during an incident in which he destroyed a suspected crack house with a sledgehammer. Melton said that he was simply keeping a campaign promise to root out crime in the city. (Associated Press)

Read more »

Fred Barnes

Barnes: Global Warming Isn't Man Made -- But I Won't Tell You How I Know That

Zachary Roth | February 9, 2009, 4:33PM

Paging Obama's new environmental team: Fred Barnes has some crucial new information about global warming -- it's not man-made, apparently!

Problem is, Barnes won't tell us how he knows that -- but maybe he'll tell you.

Check out this passage from Barnes' latest column for the Weekly Standard:

Democrats couldn't hide their self-consciousness about the excesses of their own bill. Supporters made few TV appearances to defend it and rarely talked about specific spending items. Obama sounded like Al Gore on global warming. The more the case for man-made warming falls apart, the more hysterical Gore gets about an imminent catastrophe. The more public support his bill loses, the more Obama embraces fear-mongering. (our itals.)

We hadn't heard anything lately about the case for man-made global warming falling apart. In fact, just the opposite. So we called Barnes and asked him what he was referring to.

At first, he cited the fact that it's been cold lately.

Perhaps sensing this was less than convincing, Barnes then asserted that there had been a "cooling spell" in recent years. "Haven't you noticed?" he asked.

Asked for firmer evidence of such cooling, Barnes demurred, telling TPMmuckraker he was too busy to track it down.

We pressed Barnes again: surely he could tell us where he had found this vital new information, which could upend the current debate over how to address global warming.

In response, Barnes said only that he knew where he had found it, but would not tell us, apparently as a matter of principle. "I'm not going to do your research for you," he eventually said, before hurriedly ending the call.

So we came up empty. Let's hope the Obama policy-makers have more luck getting this out of Barnes -- after all, our future could depend on it.

Bernard Madoff

Thomsen Out At SEC, As New Chair Fills Out Team

Zachary Roth | February 9, 2009, 2:11PM

The changes at the SEC continuing apace.

Days after the agency was excoriated by whistleblower Harry Markopolos, and by lawmakers, for failing to catch Bernie Madoff's alleged $50 billion Ponzi scheme, CNBC reports that enforcement director Linda Thomsen -- whose department came in for perhaps the most criticism over Madoff, will likely announce her departure today.

And several outlets have reported, starting over the weekend, that Thomsen's replacement will be Robert Khuzami, a former federal prosecutor who's now Deutsche Bank's top lawyer.

During Thomsen's tenure, the SEC has, by many accounts, devoted fewer resources to enforcement, and made it more difficult for investigators to obtain subpoenas -- changes led in large part by former chair Chris Cox.

As for Khuzami, he's a Republican who spoke at the 2004 GOP Convention in support of the Patriot Act and President Bush's policies in the war on terror. But as a prosecutor, he successfully oversaw some high-profile cases. He was part of the team that got convictions of a blind Egyptian cleric and nine others for a failed plot to blow up New York City landmarks. And, crucially, he led the team that won a conviction on the largest previous known Ponzi scheme, in which Patrick Bennett bilked investors out of $700 million. In 1997, the Clinton Justice Department gave Khuzami its highest citation, the Attorney General's Award for Exceptional Service.

In addition, on Friday the new SEC chair, Mary Schapiro, named David Becker, a partner at Cleary Gottlieb, as the agency's top lawyer. Becker held the same position from 2000 to 2002.

So the names on the doors of senior officials are certainly changing. Whether that improves the agency's regulatory performance, of course, remains to be seen. But the old crew was hardly inspiring confidence.

Republican National Committee

Steele Trap? Taking Stock Of The Claims Against The New RNC Chief

Zachary Roth | February 9, 2009, 12:47PM

So what to make of the allegation against newly elected GOP chairman Michael Steele, that his 2006 Senate campaign made payments to a company run by his sister, for work that was never performed?

It's not yet clear. The claim comes from a court filing made last March by Alan Fabian -- Steele's finance chair during that campaign -- who was facing unrelated fraud charges and hoped, in vain, to get credit for cooperation. In the end, Fabian was sentenced to nine years in jail for swindling millions from businesses and banks.

So there's reason to be skeptical.

But there isn't reason to dismiss the claim out of hand. For one thing, the Feds appear to be taking it seriously: Agents have spoken to Steele's sister about the issue, according to a Steele spokesman.

Steele told ABC's This Week that the FBI is "winding this thing down" but didn't explain how he knew that. And although Steele added that the payments were for legitimate work, the explanations from his camp don't yet add up.

At issue is a February 2007 payment of more than $37,000 made by Steele's unsuccessful Senate campaign to Brown Sugar Unlimited, a company run by Monica Turner, Steele's sister (and also the former Mrs. Mike Tyson, incidentally).

According to campaign finance records, reports the Post, the payments were for "catering/web services." But a Steele spokesman told the paper that Turner "did a lot of media stuff" for the campaign. The spokesman then showed the paper an invoice for catering services for two events. But the invoice was dated December 2006, although the events occurred in October 2006 and July 2007. The spokesman attributed this to a typo.

So, was it media, web services, or catering? How many companies do all three?

There's also the fact that, as the Post reports, "Turner filed papers to dissolve the company 11 months before the payment was received". (Steele told ABC yesterday that Turner believed the company was still in existence when the payments were made.)

The payments to Turner aren't the only allegations Fabian is making against Steele. There are three additional -- and apparently less serious -- claims.

One is that Steele, who at the time was Maryland's lieutenant-governor, used his state campaign to pay bills invoiced to his 2006 Senate campaign for printing services, totaling around $38,000 -- which would violate campaign finance law. Steele's spokesman says the printing was related to Steele's lieutenant governor's office.

Another claim is that Steele paid $75,000 from the state campaign to the law firm of Baker Hostetler, for work that was never performed. The payment was listed in campaign finance records as an in-kind contribution to the state GOP. And a lawyer for Baker Hostetler -- who was also chief counsel for the RNC -- told the Post that the payment was for legal work on challenging Maryland's 2002 legislative redistricting.

Finally, Fabian claims that Steele or an aide transferred more than $500,000 in campaign cash from one bank to another without appropriate authorization. The bank transfer appears to have angered aides to former Maryland governor Bob Ehrlich, who had hoped to use the money for other states races, including Ehrlich's. But there doesn't appear to be evidence that it was illegal.

There's also no evidence that the Feds are looking into any of these latter three claims.
So it's those payments to Steele's sister's company that appear to be where the action is. And until we get a fuller explanation of what those payments were really for, this story will probably linger.

That can't be a prospect that will please a Republican Party that just made Steele its major national spokesman.

Bailout

Thain: "I Don't Know How These People Can Run This Company Without Me"

Zachary Roth | February 9, 2009, 11:33AM

We're getting way past flogging a dead horse territory here, but yesterday, in a rich and lengthy rundown on the troubled Merrill-Bank of America marriage, the New York Times had some great new details about John Thain's narcissism and self-delusion (a subject close to our hearts). Still, as entertaining as those are, this is definitely a story in which no one comes out looking good.

As for Thain, the former Merrill CEO, we learn that he believed he was entitled to that $40 million bonus he initially requested, on account of his "deal-making heroics", in the Times' words, in putting together the agreement with B of A.

His actual record, of course, was less heroic. The Times reports that Thain put a lot of effort into self-promotion, bringing in Margaret Tutwiler, with whom he had worked at the New York Stock Exchange, to run communications for the firm. Tutwiler -- a veteran of Republican Washington, who was George H. W. Bush's press secretary and in 2003 ran the State Department's unsuccessful effort to boost America's image abroad -- "largely spent her time cultivating Mr. Thain's image." (Thain, of course, was a major John McCain backer, who was mentioned as a possible Treasury Secretary in a McCain administration.)

For instance:

Ms. Tutwiler quickly scheduled a series of interviews for Mr. Thain from Merrill's trading floor. As the cameras flashed, he shook hands with the troops. When the cameras left, so did Mr. Thain.

But in terms of substance, the Times makes clear there were numerous missteps. Before the B of A takeover, Thain might have made moves to mitigate the damage done to Merrill by the toxic assets on its books, but didn't.

First:

For months, there were inquiries from hedge funds and other buyers about a range of mortgage assets and securities, but Merrill's mortgage desk was blocked from distributing price lists because Merrill's management refused to agree on market estimates, according to Merrill insiders.

And:

Despite the fact that Mr. Thain inherited these assets, Merrill insiders say they could have been hedged -- moves well within Mr. Thain's purview as head of risk management at the firm. Yet he never did so, according to three people who worked closely with him. An individual familiar with Mr. Thain's thinking said that Mr. Thain didn't believe hedges would have been effective.

Losses in those so-called legacy assets would reach $10 billion in the quarter.

Unsurprisingly, Thain wasn't too popular with B of A rank and file. When news broke of his firing last month, reports the paper, "[s]pontaneous applause broke out across the trading floor and bets were placed on which one of Mr. Thain's highly paid lieutenants would be next."

But at least he kept believing in himself. After his ouster, the Times reports, Mr. Thain paced the halls of Merrill, venting his frustration to at least two people. "I don't know how these people can run this company without me," he told them.

Not that Bank of America and its CEO, Ken Lewis, come out looking much better. Since last month, Merrill and B of A have been squabbling over what the latter firm knew, and when, about Merrill's massive fourth-quarter losses, and its decision to award bonuses -- subjects being probed by the New York and North Carolina attorneys general (B of A has provided "reams of documents" to the NY investigators, says the Times). And the evidence is mounting that Bank of America knew, or should have known, just about everything.

The Times reports:

Although Mr. Lewis contends that he was surprised by the magnitude of Merrill's losses, his financial team on the ground in New York had daily access to Merrill's trading books, which would have allowed them to detect the mounting exposures.

To be specific:

A Bank of America executive was sent to New York from Charlotte to act as an interim chief financial officer and had daily access to Merrill's profit-and-loss statements.

Likewise, Bank of America was well aware of the $3.2 billion in bonuses that Merrill paid to its rank and file in late December. The two companies had agreed in September that Merrill might pay up to $5.8 billion, according to a private agreement reviewed by The New York Times.

That "Bank of America executive," by the way, appears to be J. Steele Alphin, B of A's chief administrative officer and a close confidant of Lewis, who Thain has claimed knew about the bonuses, and who has been subpoenaed by the New York investigators.

And according to one Times source, at a December 9 B of A board meeting, Lewis did not question Thain about Merrill's losses, even though 60 percent of those losses were already visible. Nor did Lewis tell his shareholders, who two days earlier had voted to approve the merger, about the Merrill losses.

Indeed, Lewis may have been kept as much important information from Thain as vice versa. We knew that, after seeing the losses, Lewis had gone to the government during the last two weeks of December, requesting bailout money to help digest Merrill. What we didn't know is that, according to one source, Lewis didn't tell Thain about his talks with the Feds till January 5.

Like we said, there aren't many heroes here.

The Daily Muck

The Daily Muck

Chris Black | February 9, 2009, 9:51AM

A scandal may be brewing at the Federal Emergency Management Agency, as a debate grows over whether the agency was correct to deny 650,000 applications for housing after Hurricane Ike. FEMA claims that 90 percent of claimants don't understand the organization's mission and the limited scope of the help it can provide. Critics allege that FEMA inspectors are unqualified, poorly trained, and motivated by a flat payment for each inspection they make, giving them an incentive to work quickly. Inspectors are responsible for surveying damage to houses caused by Ike; quick inspections are sometimes unable to properly assess damages. (Associated Press)

Pennsylvania governor Ed Rendell (D) will testify Monday in the trial of state Sen. Vincent Fumo (D) who allegedly defrauded the state Senate and two non-profits out of $3.5 million. Rendell, the star witness for the defense in the trial, is expected to vouch for Fumo's work ethic and the long hours he put in as a state lawmaker, according to defense lawyers. (Associated Press)

Prosecutors filed new charges against former Illinois governor Rod Blagojevich's chief fundraiser. Prosecutors allege in the new indictment that Christopher Kelly used $1.1 million in fraudulently obtained proceeds to pay personal debt expenses, including $383,000 in gambling debts. Kelly is already facing 11 counts of mail fraud and six counts of money laundering related to a bid-rigging scheme for an $8.5 million dollar contract at Chicago's O'Hare International Airport. (Associated Press)

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