John Sununu

Sununu Sits On TARP Oversight Panel, And On Board Of Firm Owned By Bank That Administers TARP

Zachary Roth | February 28, 2009, 12:00PM

John Sununu, who serves on the Congressional Oversight Panel monitoring the government's bailout program, has joined the board of a subsidiary to Bank of New York Mellon -- a firm that, in addition to receiving bailout funds, has been hired by the Treasury Department to administer the program.

Given that the Congressional Oversight Panel (COP) is charged broadly with assessing how the TARP program is working, in order to help Congress determine whether to continue injecting capital into the financial sector, the arrangement would appear to create a significant conflict of interest for the former New Hampshire GOP senator.

On Wednesday, the investment firm BNY ConvergEx Group announced that Sununu had joined its board of governors. "His experience as a thoughtful leader and champion of innovation makes him an ideal match for ConvergEx's entrepreneurial spirit," said company chairman Joseph Velli of Sununu.

According to its press release, the company is an affiliate of Bank of New York Mellon (BONY). Founded by Alexander Hamilton in 1784, BONY received $3 billion in TARP funds back in October -- less than some Wall Street firms, but not chump change.

Just as significantly, it was also picked to be the master custodian for the bailout funds. According to reports, that means it's charged with handling accounting and record-keeping for the program, and even with tracking limits on executive pay at banks that got TARP money.

Sununu was appointed to the COP by GOP Senate leader Mitch McConnell in December -- a little over a month after he was defeated by Democrat Jeanne Shaheen in his bid for reelection to the Senate.

Sununu's conflict, then, appears clear. As a member of the COP, he's in part responsible for evaluating whether taxpayers got a good deal through TARP, and for assessing whether Treasury and the banks are doing enough to track the bailout money, as well as whether banks are using the money to make loans, as they were supposed to. On the broadest level, COP's job is to help Congress figure out whether the TARP program is working as it should, and how to adjust it going forward. It's not hard to see how that responsibility could conflict with his activities as a member of the board of a company that both administers the TARP program, has received funds from it, and could potentially be in line for more.

In his work on the panel so far, Sununu has hardly been an advocate for taking a hard line on the banks. Earlier this month, the COP, which is chaired by Harvard Law professor Elizabeth Warren, released a report detailing the kinds of far-reaching reforms to bolster the financial regulatory system that the crisis has pointed up the need for. But Sununu and the panel's other Republican, Rep. Jeb Hensarling didn't sign on. Instead, they attached their own alternative report, that recommended an approach to financial regulation that was more friendly to Wall Street, and emphasized the need to rein in Fannie Mae and Freddie Mac, the government-backed mortgage firms.

No one answered a listed number for Sen. John E. Sununu in Portsmouth, New Hampshire.

We've also contacted COP to ask whether Sununu discussed his ties to Bank of New York Mellon with panel staff. And we're hearing there's more to this story ... so we'll keep you posted.

Bank of America

Lewis Staying Mum on Merrill Bonuses

Zachary Roth | February 27, 2009, 3:49PM

Looks like Ken Lewis isn't so eager to reveal what he knows about those controversial Merrill bonuses.

ABC News reports that that the Bank of America CEO -- subpoenaed recently by investigators for New York Attorney General Andrew Cuomo -- refused to provide the AG's office with a list of which company execs got bonuses, and how much they were worth. (For good measure, ABC adds that Lewis traveled to New York for his testimony in a $50 million corporate jet. You can see video of Lewis' arrival here.)

In response, Cuomo's office issued a subpoena to B of A to turn over that information.

The session with Lewis was "ugly and combative," in ABC's paraphrase of New York officials.

Merrill CEO John Thain earlier refused to divulge similar details about the bonuses during his own sitdown with Cuomo's investigators -- claiming B of A had told him not to. But after the AG's office obtained a court order, he was more forthcoming.

We'll see whether the same thing happens with B of A. But for now, it looks like the Bush White House's approach to subpoenas -- that they're optional -- is becoming more widespread.

Bank of America

On Merrill Bonuses B of A's Statements Don't Match Reality

Zachary Roth | February 26, 2009, 6:29PM

As New York Attorney General Andrew Cuomo's investigation continues, it's becoming increasingly clear that Bank of America, and its CEO Ken Lewis, haven't been straight on the subject of what they knew about those outlandish Merrill bonuses.

ABC News yesterday revealed details of the agreement signed by the two banks back in September, when they agreed that B of A would take over Merrill starting January 1. According to it sources, the agreement says that bonuses "shall be determined by the company (Merrill) in consultation with the parent (Bank of America)."

The network added that the two firms at first agreed that Merrill could hand out up to $5.8 billion. That figure was then added to "under $4 billion" after a conversation between Merrill CEO John Thain and a top B of A exec Steele Alphin, who's a close Lewis confidant.

In other words, Bank of America had a clear role in working with Merrill to determine the amount of the bonuses awarded.

But that's not at all how B of A has represented things.

When the Financial Times first broke (sub. req.) the bonus story last month, B of A told the paper:

Merrill Lynch was an independent company until January 1 2009. John Thain (Merrill's chief executive) decided to pay year-end incentives in December as opposed to their normal date in January. B of A was informed of his decision.

And in his testimony before Congress earlier this month, Lewis said:

They were a public company until the first of the year, they had a separate board, separate compensation committee and we had no authority to tell them what to do, just urged them what to do.

It's not clear whether that that outright contradicts the language of the agreement, as ABC has reported it. But whether or not the agreement gave B of A formal "authority" to set Merrill's bonus levels, it certainly gave them an explicit role in the process (assuming ABC's sources are rendering the wording of the agreement accurately). Which is a lot more than B of A's few carefully crafted public statements on the subject have implied.

Thain, Lewis, and Alphin have all been subpoenaed by Cuomo (Thain has now "told all, says ABC), so you've got to think we'll be getting to the bottom of this soon. And it doesn't seem like it'll look good for the increasingly embattled Lewis when we do.

Bailout

Dems Tell Northern Trust To Repay Taxpayers For LA Spending Spree

Zachary Roth | February 24, 2009, 4:00PM

In what could be the first instance of a congressional committee citing reporting by TMZ (or maybe not!), Democrats on the House Financial Services committee, led by Rep. Barney Frank, have sent a letter to the CEO of Northern Trust bank, demanding that the bank re-pay taxpayers for a lavish spending spree -- featuring a Sheryl Crow concert and gifts of Tiffany's trinkets -- surrounding a recent golf tournament it sponsored for clients.

The splurge, which took $1.5 billion in bailout money last fall, was first reported earlier today by TMZ.com, the entertainment site.

TMZ offered a rundown of the trip's highlights:

- Wednesday, Northern Trust hosted a fancy dinner at the Ritz followed by a performance by the group Chicago.

- Thursday, Northern Trust rented a private hangar at the Santa Monica Airport for dinner, followed by a performance by Earth, Wind & Fire.

- Saturday, Northern Trust had the entire House of Blues in West Hollywood shut down for its private party. We got the menu -- guests dined on seared salmon and petite Angus filet. Dinner was followed by a performance by none other than Sheryl Crow.

There was also a fabulous cocktail party at the Loews. And how's this for a nice touch: Female guests at the Chicago concert all got trinkets from ... TIFFANY AND CO.

In the letter, Frank and his colleagues wrote that the spending "demonstrates extraordinary levels of irresponsibility and arrogance," and called on Northern Trust CEO Frederick Waddell to return the money to taxpayers.

In response to the TMZ report, a spokesman for the Chicago-based bank told the Chicago Tribune that the bank had committed to sponsor the golf tournament over a year before it got bailout money. He continued: "The reason Northern Trust sponsors the Open is it's an integral part of its marketing program. It's about client relationships and showing appreciation for clients."

The full letter from the Financial Services committee Democrats follows after the jump ...

Read more »

John Thain

Thain Must Dish On Bonuses, Rules Court

Zachary Roth | February 23, 2009, 6:34PM

That was quick!

John Thain has been ordered by a New York court to testify about those controversial Merrill Lynch bonuses, reports CNBC.

Earlier today, it was reported that New York Attorney General Andrew Cuomo, who is investigating the bonuses, filed a motion to compel Thain to testify, after the disgraced former Merrill CEO refused to answer questions about the issue, claiming that Bank of America had ordered him to stay mum.

Cuomo had subpoenaed Thain for testimony. He has also subpoenaed B of A CEO Ken Lewis, and another B of A exec, but does not appear to have taken their testimony yet.

Cuomo's probe is seeking to determine what Bank of America knew, and when, about Merrill's decision to award the bonuses, and about the massive losses that Merrill absorbed in the fourth quarter of last year, before it was formally taken over by B of A, but after the takeover had been announced.

Bank of America

Cuomo: B of A "Obstructing And Interfering" With Merrill Bonus Probe; Thain Staying Mum

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

John Thain is staying mum about the billion-dollar bonuses he approved just weeks before Merrill Lynch came under the control of Bank of America.

New York Attorney General Andrew Cuomo, who is investigating the controversial Merrill bonuses, has filed a motion in court, seeking to compel Thain to talk about the subject, reports Reuters. Cuomo's office says that during his sit-down with investigators last week, Thain refused to do so, claiming that Bank of America has told him to keep quiet.

Cuomo's office is alleging that B of A is "obstructing and interfering" with his investigation.

That probe is seeking to determine what Bank of America knew, and when, about Merrill's decision to award the bonuses, and about the massive losses that Merrill absorbed in the fourth quarter of last year, before it was formally taken over by B of A, but after the takeover had been announced.

B of A CEO Ken Lewis was subpoenaed last week, and another company exec was subpoenaed, along with Thain, before that.

Late Update: A spokesman for Thain told the Associated Press that Thain "would answer questions about individual bonuses if compelled by the court order."

Bank of America

B of A's Lewis Subpoenaed In Merrill Bonus Probe

Zachary Roth | February 20, 2009, 1:24PM

Ken Lewis, Bank of America's embattled CEO, was subpoenaed last week in New York Attorney General Andrew Cuomo's investigation into the billion dollar bonuses awarded late last year by Merrill Lynch, reports the Wall Street Journal.

The paper adds that former Merrill CEO John Thain, who had previously been subpoenaed, talked to Cuomo's team "all day" Thursday.

Bank of America announced in September that it would acquire Merrill. In December, according to reports, Thain and the Merrill board approved billions in bonuses on an expedited schedule before the firm came under the control of B of A January 1, and despite massive fourth quarter losses.

Accounts of when Lewis and B of A learned of the bonus awards, and of the losses, have been conflicting.

Thain was ousted by Lewis last month as a senior B of A exec.

The Journal adds some more detail on what Cuomo's investigators are after:

In particular, they wanted to know why the September merger agreement contained a nonpublic attachment that outlined the maximum Merrill could pay. A Thain spokesman declined to comment.

The person close to the matter said regulators are turning their attention to Mr. Lewis and are looking at his testimony to Congress earlier this month when he said he had "no authority" over bonuses given they were detailed in the merger agreement and part of the bonuses were paid in Bank of America stock.

Mr. Cuomo's investigators are exploring how Merrill could have set and then informed employees about the bonuses before the quarter closed, according to a person familiar with the matter. They are probing whether trading losses were adequately disclosed to shareholders and boards of each company and what the top executives approving the bonuses knew about the losses.

Wall Street

UBS To Pay Fine, Give Up List Of Clients On Whose Behalf It Schemed

Zachary Roth | February 18, 2009, 6:27PM

The New York Times reports:

Tearing a hole in the veil of secrecy surrounding Swiss banking, UBS agreed on Wednesday to pay $780 million to settle federal claims that it helped wealthy Americans evade taxes and to disclose the names of up to 19,000 clients.

...

Under the agreement, UBS admitted to conspiracy to defraud the Internal Revenue Service.

It's that agreement to give up the names of its wealthy clients that's the big deal here. The bank had been refusing to disclose the names, but appeared to cave with the threat of indictments hanging over its head.

Prosecutors allege that UBS helped clients evade $300 million a year in taxes.

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

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.

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.

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:

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...

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.

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.

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.

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.

Bailout

Another AG Probing Merrill Bonuses

Zachary Roth | February 6, 2009, 1:38PM

It looks like New York Attorney General Andrew Cuomo and Neil Barofsky, the inspector general for the bailout, aren't the only people interested in looking into those bonuses Merrill gave senior execs just before the company came under the control of Bank of America.

North Carolina Attorney General Roy Cooper has issued an "investigative demand" to B of A for documents related to the bonus awards, reports the News and Observer of Charlotte. Cooper, it seems, wants to know what B of A knew about the controversial December bonuses, and when it knew it.

Bank of America, which is based in Charlotte, is required to respond by March 4.

Despite Merrill's massive fourth-quarter losses and generally dire position, the firm's then-CEO John Thain, and the company's board, approved paying the bonuses on an accelerated schedule, apparently in an effort to get them paid before B of A took contol Jan 1.

Since the bonuses came to light, Thain and B of A have given conflicting accounts as to when B of A knew about them, and about Merrill's losses.

The paper adds some detail on the legal tools that might be available to Cooper:

Under N.C. General Statutes, the state Justice Department has the power to investigate the affairs of all corporations and persons doing business in the state. Typically, this authority is used to probe businesses accused of defrauding consumers. In this case, the attorney general has multiple avenues to pursue, depending on what the documents show, a person familiar with the matter said.

The payment of the bonuses could violate the uniform fraudulent transfer act, which restricts the transfer of assets outside of normal business practices, the person said. Typically, this act is applied to debtors in bankruptcy cases who owe creditors, but it could be extended to aggrieved shareholders. Cuomo has used this law in his investigation of insurer AIG, which agreed to freeze more than $600 million it planned to pay out in bonuses.

Cuomo has reportedly issued subpoenas to Thain and B of A's chief administrative officer as part of a probe into the bonuses, which is itself part of a broader investigation announced last fall, of executive pay on Wall Street.

Cuomo is working with Neil Barofsky, the bailout inspector general.

Bernard Madoff

Was SECer Now Running Madoff Case Involved in Failed Earlier Inquiry?

Zachary Roth | February 5, 2009, 4:36PM

The SEC is deep in the midst of beating itself up over its failure over many years to catch Bernard Madoff's alleged $50 billion Ponzi scheme. Just yesterday, agency chair Mary Schapiro told Congress in a letter that "there needs to be a full accounting, both of Mr. Madoff's activities and why we did not detect the fraud, which we regret."

But is it in danger of making the same mistakes the second time around as the first?

The SEC's civil case against Madoff, hurriedly filed in December 2008 after Madoff allegedly confessed to his lawyer, is being conducted out of the agency's New York regional office, where Madoff's business was based. But it was the New York office that conducted the 2006 inquiry into Madoff that famously came up dry. That inquiry, which found only a few technical violations and recommended that Madoff register as an investment adviser, is now itself one focus of the investigation by the SEC's inspector general into how the agency failed to catch Madoff.

According to one former SEC enforcement veteran, in other cases where the agency opened a second investigation after a regional office was found to have slipped up the first time around, the second probe has sometimes been run out of the Washington headquarters, to ensure that it retains public confidence. That wasn't done here.

Asked about the matter by TPMmuckraker, an SEC spokesman declined to comment.

But there may be even less distance between the two Madoff investigations.

The current case is being led by Andrew Calamari, the Associate Regional Director for the New York office, who last month publicly called the Madoff case "a stunning fraud that appears to be of epic proportions." Calamari's name is listed prominently on the agency's civil complaint.

But Calamari appears tied to the ill-fated 2006 effort. Doria Bachenheimer, an Assistant Regional Director in the New York office "reviewed and approved" the decision to close that inquiry, according to a "Case Closing Recommendation" document obtained by the Wall Street Journal.

And an organizational chart produced by the agency in 2006, and obtained by TPMmuckraker, indicates that Calamari is Bachenheimer's supervisor. That reading of the chart was confirmed to TPMmucraker by the ex-SECer.

It's not clear that Calamari played any active role in the failed 2006 inquiry. But at the very least, the fact that he supervised the staffer who wrongly approved closing it -- and the fact that there's no evidence he raised red flags about her work -- might suggest he's not the ideal person to handle the followup, especially given the high public profile the case has taken on.

Calamari referred an inquiry from TPMmuckraker to the SEC's press office, which again declined to comment.

Securities and Exchange Commission

SEC Chair To Lawmaker: Madoff Hearing "Cannot Have Been Satisfactory For You"

Zachary Roth | February 5, 2009, 12:50PM

Remember that weird moment during yesterday's Madoff hearings, when the SEC's top lawyer, Andy Vollmer, declined to answer questions, and kinda sorta implied he was asserting executive privilege, before backing off that claim when pressed by lawmakers? The moment that provoked Rep. Gary Ackerman's blunt assessment: "We thought the enemy was Mr. Madoff. I think it's you"?

One staffer described the Vollmer moment to TPMmuckraker as a "bombshell" within the agency's headquarters.

And it looks like the SEC is a little embarrassed about it -- and about the general evasiveness of other agency brass in their testimony yesterday.

Check out this letter, which the SEC's new chair, Mary Schapiro, sent to the committee last night.

Schapiro tells lawmakers that the hearing "cannot have been satisfactory for you." She admits that there needs to be a full accounting of what went wrong, and offers to meet with the lawmakers, at their earliest convenience, to "determine a course forward that will meet all of our interests."

As for the Vollmer issue itself, an agency spokesman confirmed that he wasn't claiming the privilege, but couldn't offer any further explanation, saying he'd get back to us.

Barney Frank

Committee: Don't Worry, CEOs Will Testify

Zachary Roth | February 5, 2009, 12:21PM

Remember that saying about catching more flies with honey than with vinegar?

Yesterday we wrote that the House Financial Services committee, chaired by Rep. Barney Frank, had invited the CEOs of eight big banks -- including Bank of America, Goldman Sachs, Citi, and JP Morgan -- to testify. But, we noted, the committee wouldn't say whether any of the CEOs had accepted the invitation -- leaving the possibility that they might just say no. Any thought given to issuing subpoenas, we wondered.

It looks like that won't be necessary. Steve Adamske, a spokesman for the committee, confirmed to TPMmuckraker that all eight CEOs would indeed testify. Adamske said that subpoenas weren't necessary, since the political optics of not showing up would be too harmful for the banks. He said committee staff is working with the banks to schedule the CEOs' appearances.

So it looks like we'll get to hear straight from the horses' mouths about what the banks have been doing with the bailout funds. Sometimes asking nicely gets results.

Ben Bernanke

Report: Bernanke Threatened B Of A Over Merrill Deal

Zachary Roth | February 5, 2009, 11:45AM

We already knew, that, after it got wind of Merrill Lynch's massive fourth-quarter losses back in December, Bank of America had thought about pulling out of its deal to buy the troubled investment bank -- before being talked into it by the federal government.

But today, the Wall Street Journal adds some fascinating detail (sub. req.) about the level of hardball that the government played in making sure the deal went through.

Bush Treasury Secretary Henry Paulson and Fed chief Ben Bernanke reportedly warned B of A CEO Ken Lewis that if his firm pulled out, Merrill would collapse. They added that such a move, in the Journal's words "could undercut confidence in Bank of America, both in the markets and among government officials."

But that was just the start. Two days later, on a conference call, Bernanke told B of A that if it abandoned the Merrill deal, and came back to the Feds in the future seeking more bailout money, the government would consider removing the firm's executives and directors.

The threats, of course, seem to have worked, since Bank of America went ahead with the deal -- getting an additional $20 billion in bailout money to help digest Merrill.

Bernanke and Paulson may have been right to take such a hard line. But the episode suggests the level of control of day-to-day control that the government has had over the financial sector, since stepping in to rescue it last fall. Nationalizing the banks is still seen, in the mainstream debate as an extreme solution. But if the Feds are essentially making major operational decisions for the big banks, some would say they've been nationalized already -- it's just that no one wants to it.

Bailout

What, No Subpoena? Frank Invites Bailed Out CEOs To Testify

Zachary Roth | February 4, 2009, 5:38PM

Barney Frank, the chair of the House Financial Services committee, has invited the heads of the first eight banks that received bailout funds to testify at a hearing next Wednesday on the bailout, reports CNNMoney.com.

Those CEOs are:

Ken Lewis of Bank of America; Jamie Dimon of JPMorgan Chase; Vikram Pandit of Citi; Ronald Logue of State Street; Robert Kelly of Bank of New York; John Stumpf of Wells Fargo; John Mack of Morgan Stanley; and Lloyd Blankfein of Goldman Sachs.

But notice that word "invite." It appears that the corporate titans are free to choose not to attend -- even though Frank is seeking crucial information about what their firms did with the hundreds of billions in taxpayer money we gave them.

Indeed, CNNMoney.com adds:

A press secretary declined to comment on whether any of the CEOs have accepted the invitation.

So it sounds like a real possibility that at least some of those CEOs might just go ahead and decline Frank's polite invitation.

We've contacted the committee's press office to ask whether subpoenaing the CEOs was considered, or might still be in the future. We'll let you know what we hear.

Bernard Madoff

Top SECer Recused Herself From Madoff Probe, After Going To His Niece's Wedding

Zachary Roth | February 4, 2009, 2:36PM

Another interesting moment from the House committee hearings on the Bernard Madoff case.

Lori Richards, the director of the agency's Office of Compliance, Inspections, and Examinations, told the committee she recused herself from the Madoff probe because a former employee she supervised had married Madoff's niece, and Richards was at the wedding.

She was referring to Eric Swanson, an SEC lawyer who married Shana Madoff in 2006. Shana Madoff had worked for her uncle's firm as a compliance lawyer.

The admission that Richards -- the top SEC official overseeing examinations of brokers -- recused herself, points up the way in which Madoff's cozy ties to regulators helped his scheme go undetected.

Bernard Madoff

Markopolos To Mobsters: "I'm the Good Guy Here."

Zachary Roth | February 4, 2009, 1:03PM

Harry Markopolos, the Bernard Madoff whistleblower, ended his testimony about an hour ago. But before he did, he fleshed out his thoughts about Madoff's ties to organized crime.

In a remarkable moment, Markopolos even addressed the mobsters directly, arguing -- in an apparent effort to convince them not to go after him -- that he was protecting them Madoff's scheme.

Here's the exchange with Rep. Gary Ackerman:

ACKERMAN: I'm talking about, when you talk about the Russian mob and organized crime, these are people who invested through European investors or European feeder funds?

MARKOPOLOS: Correct. And I didn't fear of them, and I didn't think they were going to come after me, I want to make this perfectly clear to all those Russian mobsters and Latin American drug cartels out there...

ACKERMAN: You're talking directly to them.

MARKOPOLOS: I was acting on your behalf trying to stop him from zeroing out your accounts. I'm the good guy here. Just like to make that clear.

ACKERMAN: Uh, yeah I think we registered that.

Here's the video:

Bernard Madoff

Markopolos: SEC Couldn't Find First Base In Fenway Park

Zachary Roth | February 4, 2009, 12:16PM

Throughout his testimony, Harry Markopolos seemed to be refining his effort to express, in one crisp sound byte, his low opinion of the SEC's investigative powers.

And right at the end, he seemed to hit on it. He told the committee (the exact wording may be a little off here, we're going from memory):

If you flew the entire SEC staff to Boston, and sat them in Fenway Park, they wouldn't be able to find first base.

Might be hard to top that.

Bernard Madoff

Congresswoman To Markopolos: You're A "Modern-Day Greek Hero"

Zachary Roth | February 4, 2009, 11:31AM

The open worship of whistleblower Harry Markopolos by members of the House committee, which had already emerged at times this morning, has reached its apotheosis.

Rep. Jackie Speier just told him:

I would like to say for the record that I see you as a modern-day Greek hero.

Bernard Madoff

Markopolos Wanted To Go Under Cover, Wear A Disguise, To Catch Madoff

Zachary Roth | February 4, 2009, 11:23AM

Harry Markopolos, the whistle-blower on the Berrnard Madoff case, just offered a remarkable cloak-and-dagger tidbit in his testimony before a House committee, demonstrating his commitment to bringing Madoff to justice.

He said he offered to go under cover, "as I was trained to in the army," -- and wearing a disguise -- in order to catch Madoff.

Here's the full quote:

In fact, I made an offer to the SEC in my October 2001 submission, if you look closely, you'll see, I offered to go undercover for the SEC, under their command and control, and have no one know where I was, except my wife, and have no contact with my family, during this time. And I would have assumed a disguise, as I was trained to in the army, and gone under cover and led that team to a successful result very quickly. I don't know what more I could do to put it on the line.

We don't either. Though the wife exception makes it seem like maybe he wasn't really committed enough.

Late Update:
And here's the video:

Barack Obama

White House Announces Exec Pay Limits

Zachary Roth | February 4, 2009, 11:14AM

As expected, the White House has just announced new restrictions on executive pay to be issued by the Treasury Department, in response to public outrage over cases of CEOs of bailed out firms raking in millions.

The limits set a limit of $500,000 on executive pay, for those firms receiving "exceptional financial recovery assistance" -- that is, firms that negotiated "bank-specific" deal with Treasury, including Bank of America, AIG, and Citi. Any pay beyond that must be made in restricted stock that can only be paid once the government has been paid back.

The restrictions also would give shareholders more say on executives' pay, and would make it easier for the government to "claw back" the pay of executives who had engaged in deceptive practices, among other provisions.

Last week, President Obama called the billions paid out in Wall Street bonuses last year "outrageous."

The White House's press release, with a detailed description of the new rules, follows after the jump ...

Read more »

Bernard Madoff

Markopolos Plans To Turn In A Mini-Madoff Tomorrow

Zachary Roth | February 4, 2009, 10:48AM

Harry Markopolos just warned that he's got another alleged fraudster in his sights.

"I plan to turn in a $1 billion mini-Madoff to the SEC's inspector general tomorrow," he said.

That may have put a scare into some on Wall Street.

Bernard Madoff

Markopolos: SEC "Couldn't Be Bothered"

Zachary Roth | February 4, 2009, 10:15AM

"I gift wrapped and delivered the largest Ponzi scheme in history to them and somehow they couldn't be bothered to conduct a thorough and proper investigation," he just told Congress, referring to the SEC's performance on the Madoff case.

Bernard Madoff

Markopolos On SEC Staff:

Zachary Roth | February 4, 2009, 10:06AM

"They haven't earned their paycheck, and they need to be replaced."

The whistleblower on the Madoff case, Harry Markopolos, just gave his oral testimony, in which he ripped the SEC in unusually direct language. More to come.

Bernard Madoff

Whistleblower Slams SEC's "Ineptitude and Financial Illiteracy"

Zachary Roth | February 4, 2009, 8:57AM

Harry Markopolos, the fraud investigator who blew the whistle as early as a decade ago on Bernard Madoff, if only the SEC had had ears to listen, slammed the agency in written testimony made public last night.

Markopolos, who will answer questions in person before a House committee this morning, decried the SEC's inadequate efforts to detect financial fraud in response to detailed written complaints he submitted on Madoff's operation.

"There was an abject failure by the regulatory agencies we entrust as our watchdog," he wrote. According to (sub req.) the Wall Street Journal, Markopolos added that the agency's enforcement staff "made little effort to understand the derivative instruments Mr. Madoff said he was using."

Markopolos continued:

[T]he SEC securities' lawyers if only through their ineptitude and financial illiteracy colluded to maintain large frauds such as the one to which Madoff later confessed.

He even confessed that he and his team had submitted some documents anonymously -- because they feared for their safety in going after Madoff, given their target's powerful status on Wall Street.

Last month, we documented the SEC's shift away from enforcement here at TPMmuckraker.

We'll bring you more form Markopolos' live testimony after it starts this morning.

Bill Richardson

Dem Gov Assoc Mum On Possible Subpoena In Richardson-Linked Probe

Zachary Roth | February 3, 2009, 12:53PM

The Democratic Governors Association is refusing to say whether it has been subpoenaed in connection to the federal probe of pay-to-play allegations in New Mexico which derailed Bill Richardson's bid to be Commerce Secretary.

Asked whether the DGA had received a subpoena, spokesman Brian Namey responded in an email:

The DGA fully cooperates with any state or federal agency that makes legitimate requests for information. The DGA does not make statements concerning any particular investigation.

Four investment firms contributed to the DGA in 2004, around the same time those firms won lucrative contracts to manage the state's bonds, according to a report in the Albuquerque Journal today. Richardson at the time served as vice chair of the DGA, and would become chair the following year.

Last month, Bloomberg reported that investigators had subpoenaed Richardson's office for its correspondence with the DGA, in connection with the probe*.

The DGA, which has served as a key stepping-stone to national prominence for some Democrats, is currently chaired by Montana governor Brian Schweitzer. His office did not immediately respond to a request for comment.

Richardson's office has largely declined to comment on the investigation. According to reports, a former aide to Richardson, as well as a Richardson political adviser, have received subpoenas in connection with the probe.

* This sentence has been edited from an earlier version.

CDR

Richardson-Linked Probe Eyeing Governors Association

Zachary Roth | February 3, 2009, 10:42AM

Could the federal investigation of possible pay-to-play in New Mexico be turning its focus to a crucial Democratic political organization?

The probe, which derailed Bill Richardson's bid to be Commerce Secretary, has largely focused on one investment firm, CDR Financial Products. That company won a contract from Governor Richardson's administration to help manage the state's bonds, around the same time that it contributed to two Richardson political committees, as well as to the Democratic Governors Association (DGA), of which Richardson was vice chair at the time. (He would become chair in 2005).

And now the Albuquerque Journal reports that three other firms that won contracts to manage the state's bonds also contributed to the DGA, giving almost $500,000 around the time the transportation financing plan was being developed and finalized. Those firms are J.P. Morgan Securities, UBS Bank and RBC Dain Rauscher.

The paper adds:

Some of the donations were in cash, others were "in kind" services, such as catering.

The DGA describes itself on its website as a "political organization organized to support the candidacies of Democratic gubernatorial nominees and incumbents across the nation" and as "the united voice for America's Democratic governors." It has been a key stepping-stone to national prominence for some Dems, and its current chair, Governor Brian Schweitzer of Montana, is seen as a rising star in the party.

Bloomberg recently reported that federal investigators, in addition to subpoenaing aides to Richardson and a banker with JP Morgan Chase, also asked for DGA correspondence records in connection with the probe.

The bond contract program, known as GRIP, appears to have quarterbacked by David Harris, the led the state's financing authority at the time and had previously served as Richardson's deputy chief of staff.

Reports the paper:

Harris organized the team of GRIP bond underwriters and advisers after the Legislature approved GRIP at a special session in November 2003, according to NMFA board meeting minutes.

Harris also helped plan the financing for GRIP and shepherded the transportation package through the Legislature.

Harris, who left the NMFA after the GRIP financing details were approved to become a University of New Mexico vice president, has declined comment. His lawyer says his client denies any wrongdoing.

Something tells us we haven't heard the last of this.

Bailout

Obama Planning Bailout Board

Zachary Roth | February 2, 2009, 11:41AM

In an interview with NBC's Matt Lauer that aired this morning, President Obama offered a concrete proposal intended to help his administration ensure that bailout money is spent more wisely than it has been until now.

Obama referred to "an independent board ... that actually looks at these programs, and the money, before it goes out the door."

Watch the clip:

Of course, how effective such a board will be is still entirely to be determined. But at least nominally this adds to the evidence that the new Congress and administration appear to understand the need to exert much tighter control over the bailout money than we saw initially.