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Another Slap On the Wrists

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In case you might be wondering whether the miscreants responsible for causing the financial crisis might ever be prosecuted by Attorney General Eric Hold-harmless – don’t hold your breath.  At the close of 2010, I expressed my disappointment and skepticism that the culprits responsible for having caused the financial crisis would ever be brought to justice.  I found it hard to understand why neither the Securities and Exchange Commission nor the Justice Department would be willing to investigate malefaction, which I described in the following terms:

We often hear the expression “crime of the century” to describe some sensational act of blood lust.  Nevertheless, keep in mind that the financial crisis resulted from a massive fraud scheme, involving the packaging and “securitization” of mortgages known to be “liars’ loans”, which were then sold to unsuspecting investors by the creators of those products – who happened to be betting against the value of those items.  In consideration of the fact that the credit crisis resulting from this scam caused fifteen million people to lose their jobs as well as an expected 8 – 12 million foreclosures by 2012, one may easily conclude that this fraud scheme should be considered the crime of both the last century as well as the current century.

During that same week, former New York Mayor Ed Koch wrote an article which began with the grim observation that no criminal charges have been brought against any of the malefactors responsible for causing the financial crisis:

Looking back on 2010 and the Great Recession, I continue to be enraged by the lack of accountability for those who wrecked our economy and brought the U.S. to its knees.  The shocking truth is that those who did the damage are still in charge.  Many who ran Wall Street before and during the debacle are either still there making millions, if not billions, of dollars, or are in charge of our country’s economic policies which led to the debacle.

“Accountability” is a relative term.  If you believe that the imposition of fines – resulting from civil actions by the Justice Department – could provide accountability for the crimes which led to the financial crisis, then you might have reason to feel enthusiastic.  On the other hand if you agree with Matt Taibbi’s contention that some of those characters deserve to be in prison – then get ready for another disappointment.

Last week, Reuters described plans by the Justice Department to make use of President Obama’s Financial Fraud Task Force (which I discussed last January) by relying on a statute (FIRREA- the Financial Institutions Reform, Recovery, and Enforcement Act) which was passed in the wake of the 1980s Savings & Loan crisis:

FIRREA allows the government to bring civil charges if prosecutors believe defendants violated certain criminal laws but have only enough information to meet a threshold that proves a claim based on the “preponderance of the evidence.”

Adam Lurie, a lawyer at Cadwalader, Wickersham & Taft who worked in the Justice Department’s criminal division until last month, said that although criminal cases based on problematic e-mails without a cooperating witness could be difficult to prove, the same evidence could meet a “preponderance” standard.

On the other hand, William K. Black, who was responsible for many of the reforms which followed the Savings & Loan Crisis, has frequently emphasized that – unlike the 2008 financial crisis – the S&L Crisis actually resulted in criminal prosecutions against those whose wrongdoing was responsible for the crisis.  On December 28, Black characterized the failure to prosecute those crimes which led to the financial crisis as “de facto decriminalization of elite financial fraud”:

The FBI and the DOJ remain unlikely to prosecute the elite bank officers that ran the enormous “accounting control frauds” that drove the financial crisis.  While over 1000 elites were convicted of felonies arising from the savings and loan (S&L) debacle, there are no convictions of controlling officers of the large nonprime lenders.  The only indictment of controlling officers of a far smaller nonprime lender arose not from an investigation of the nonprime loans but rather from the lender’s alleged efforts to defraud the federal government’s TARP bailout program.

What has gone so catastrophically wrong with DOJ, and why has it continued so long?  The fundamental flaw is that DOJ’s senior leadership cannot conceive of elite bankers as criminals.

This isn’t (just) about revenge.  Bruce Judson of the Roosevelt Institute recently wrote an essay entitled “For Capitalism to Survive, Crime Must Not Pay”:

In effect, equal enforcement of the law is not simply important for democracy or to ensure that economic activity takes place, it is fundamental to ensuring that capitalism works.  Without equal enforcement of the law, the economy operates with participants who are competitively advantaged and disadvantaged.  The rogue firms are in effect receiving a giant government subsidy:  the freedom to engage in profitable activities that are prohibited to lesser entities.  This becomes a self-reinforcing cycle (like the growth of WorldCom from a regional phone carrier to a national giant that included MCI), so that inequality becomes ever greater.  Ultimately, we all lose as our entire economy is distorted, valuable entities are crushed or never get off the ground because they can’t compete on a playing field that is not level, and most likely wealth is destroyed.

Does the Justice Department really believe that it is going to impress us with FIRREA lawsuits?  We’ve already had enough theatre – during the Financial Crisis Inquiry Commission hearings and the April 2010 Senate Permanent Subcommittee on Investigations hearing, wherein Goldman’s “Fab Four” testified about selling their customers the Abacus CDO and that “shitty” Timberwolf deal.  It’s time for some “perp walks”.


 

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Occupy Movement Gets Some Respect

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Much has changed since the inception of the Occupy Wall Street movement.   When the occupation of Zuccotti Park began on September 17, the initial response from mainstream news outlets was to simply ignore it – with no mention of the event whatsoever.  When that didn’t work, the next tactic involved using the “giggle factor” to characterize the protesters as “hippies” or twenty-something “hippie wanna-bes”, attempting to mimic the protests in which their parents participated during the late-1960s.  When that mischaracterization failed to get any traction, the presstitutes’ condemnation of the occupation events – which had expanded from nationwide to worldwide – became more desperate:  The participants were called everything from “socialists” to “anti-Semites”.  Obviously, some of this prattle continues to emanate from unimaginative bloviators.  Nevertheless, it didn’t take long for respectable news sources to give serious consideration to the OWS effort.

One month after the occupation of Zuccotti Park began, The Economist explained why the movement had so much appeal to a broad spectrum of the population:

So the big banks’ apologies for their role in messing up the world economy have been grudging and late, and Joe Taxpayer has yet to hear a heartfelt “thank you” for bailing them out.  Summoned before Congress, Wall Street bosses have made lawyerised statements that make them sound arrogant, greedy and unrepentant.  A grand gesture or two – such as slashing bonuses or giving away a tonne of money – might have gone some way towards restoring public faith in the industry.  But we will never know because it didn’t happen.

Reports eventually began to surface, revealing that many “Wall Street insiders” actually supported the occupiers.  Writing for the DealBook blog at The New York Times, Jesse Eisinger provided us with the laments of a few Wall Street insiders, whose attitudes have been aligned with those of the OWS movement.

By late December, it became obvious that the counter-insurgency effort had expanded.   At The eXiled blog, Yasha Levine discussed the targeting of journalists by police, hell-bent on squelching coverage of the Occupy movement.  In January, New York Mayor Michael Bloomberg lashed out against the OWS protesters by parroting what has become The Big Lie of our time.  In response to a question about Occupy Wall Street, Mayor Bloomberg said this:

“It was not the banks that created the mortgage crisis.  It was, plain and simple, Congress who forced everybody to go and give mortgages to people who were on the cusp.”

The counterpunch to Mayor Bloomberg’s remark was swift and effective.  Barry Ritholtz wrote a piece for The Washington Post entitled “What caused the financial crisis?  The Big Lie goes viral”.  After The Washington Post published the Ritholtz piece, a good deal of supportive commentary emerged – as observed by Ritholtz himself:

Since then, both Bloomberg.com and Reuters each have picked up the Big Lie theme. (Columbia Journalism Review as well).  In today’s NYT, Joe Nocera does too, once again calling out those who are pushing the false narrative for political or ideological reasons in a column simply called “The Big Lie“.

Once the new year began, the Occupy Oakland situation quickly deteriorated.  Chris Hedges of Truthdig took a hard look at the faction responsible for the “feral” behavior, raising the question of whether provocateurs could have been inciting the ugly antics:

The presence of Black Bloc anarchists – so named because they dress in black, obscure their faces, move as a unified mass, seek physical confrontations with police and destroy property – is a gift from heaven to the security and surveillance state.

Chris Hedges gave further consideration to the involvement of provocateurs in the Black Bloc faction on February 13:

Occupy’s most powerful asset is that it articulates this truth.  And this truth is understood by the mainstream, the 99 percent.  If the movement is severed from the mainstream, which I expect is the primary goal of the Department of Homeland Security and the FBI, it will be crippled and easily contained.  Other, more militant groups may rise and even flourish, but if the Occupy movement is to retain the majority it will have to fight within self-imposed limitations of nonviolence.

Despite the negative publicity generated by the puerile pranks of the Black Bloc, the Occupy movement turned a corner on February 13, when Occupy the SEC released its 325-page comment letter concerning the Securities and Exchange Commission’s draft “Volcker Rule”.  (The Volcker Rule contains the provisions in the Dodd-Frank financial reform act which restrict the ability of banks to make risky bets with their own money).  Occupy the SEC took advantage of the “open comment period” which is notoriously exploited by lobbyists and industry groups whenever an administrative agency introduces a new rule.  The K Street payola artists usually see this as their last chance to “un-write” regulations.

The most enthusiastic response to Occupy the SEC’s comment letter came from Felix Salmon of Reuters:

Occupy the SEC is the wonky finreg arm of Occupy Wall Street, and its main authors are worth naming and celebrating:  Akshat Tewary, Alexis Goldstein, Corley Miller, George Bailey, Caitlin Kline, Elizabeth Friedrich, and Eric Taylor.  If you can’t read the whole thing, at least read the introductory comments, on pages 3-6, both for their substance and for the panache of their delivery.  A taster:

During the legislative process, the Volcker Rule was woefully enfeebled by the addition of numerous loopholes and exceptions.  The banking lobby exerted inordinate influence on Congress and succeeded in diluting the statute, despite the catastrophic failures that bank policies have produced and continue to produce…

The Proposed Rule also evinces a remarkable solicitude for the interests of banking corporations over those of investors, consumers, taxpayers and other human beings. 

*   *   *

There’s lots more where that comes from, including the indelible vision of how “the Volcker Rule simply removes the government’s all-too-visible hand from underneath the pampered haunches of banking conglomerates”.  But the real substance is in the following hundreds of pages, where the authors go through the Volcker Rule line by line, explaining where it’s useless and where it can and should be improved.

John Knefel of Salon emphasized how this comment letter exploded the myth that the Occupy movement is simply a group of cynical hippies:

The working group’s detailed policy position gives lie to the common claim that the Occupy Wall Street movement is “well intentioned but misinformed.”  It shows there’s room in the movement both for policy wonks and those chanting “anti-capitalista.”

Even Mayor Bloomberg’s BusinessWeek spoke highly of Occupy the SEC’s efforts.  Karen Weise interviewed Occupy’s Alexis Goldstein, who had previously worked at such Wall Street institutions as Deutsche Bank, where she built IT systems for traders:

Like Goldstein, several members have experience in finance.  Kline says she used to be a derivatives trader.  Tewary is a lawyer who worked on securitization cases at the firm Kaye Scholer, according to his bio on the website of his current firm, Kamlesh Tewary.  Mother Jones, which reported on the group in December, says O’Neil is a former Wall Street quant.

There are parts of the rule that Occupy the SEC would like to see toughened.  For example, Goldstein sees a “big loophole” in the proposed rule that allows banks to make proprietary trades using so-called repurchase agreements, by which one party sells securities to another with the promise to buy back the securities later.  The group wants to make sure other parts aren’t eroded.

Chris Sturr of Dollars & Sense provided this reaction:

From the perspective of someone who’s spent a lot of time in working groups of Occupy Boston, what I love about this story is that it’s early evidence of what Occupy can and will do, beyond “changing the discourse,” which is the best that sympathetic people who haven’t been involved seem to be able to say about Occupy, or just going away and dying off, which is what non-sympathizers think has happened to Occupy.  Many of us have been quietly working away over the winter, and the results will start to be seen in the coming months.

If Chris Sturr’s expectation ultimately proves correct, it will be nice to watch the pro-Wall Street, teevee pundits get challenged by some worthy opponents.


 

Latest Obama Cave-in Is Likely To Further Erode His Base

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Well, he did it again.  Despite the fact that President Obama had vowed to veto the 2012 National Defense Authorization Act (NDAA), which allows for indefinite detention of American citizens without trial, the White House announced that the President will breach yet another promise and sign the controversial bill.

Jeremy Herb at The Hill reported on the administration’s concern that if Obama were to veto the bill, there might not have been enough votes in Congress to prevent an override of that veto.  In other words:  Obama was afraid of being embarrassed.  The report noted the defensive language contained in the official White House spin, to the effect that some minor changes in wording were made to satisfy the President:

The White House backed down from its veto threat of the defense authorization bill Wednesday, saying that the bill’s updated language would not constrain the Obama administration’s counterterrorism efforts.

*   *   *

The administration won some changes in conference committee, which wrapped up Monday, including the addition of a clause stating that FBI and local law enforcement counterterrorism activities would not be altered by the law.

Big deal.  Let the outrage begin!  At the Huffington Post, Michael McAuliff noted that the President had already decided to back down on his veto threat before the House of Representatives passed the bill:

The switch came just before the House voted 283-136 to pass the National Defense Authorization Act despite impassioned opposition that crossed party lines, with Democrats splitting on the bill and more than 40 Republicans opposing it.  Numerous national security experts and civil liberties advocates had argued that the indefinite detention measure enshrines recent, questionable investigative practices that are contrary to fundamental American rights.

At the Human Rights Watch website, no punches were pulled in their criticism of Obama’s latest betrayal of those very principles his supporters expected him to advance:

The Obama administration had threatened to veto the bill, the 2012 National Defense Authorization Act (NDAA), over detainee provisions, but on December 14, 2011, issued a statement indicating the president would likely sign the legislation.

“By signing this defense spending bill, President Obama will go down in history as the president who enshrined indefinite detention without trial in US law,” said Kenneth Roth, executive director of Human Rights Watch.  “In the past, Obama has lauded the importance of being on the right side of history, but today he is definitely on the wrong side.”

*   *   *

The far-reaching detainee provisions would codify indefinite detention without trial into US law for the first time since the McCarthy era when Congress in 1950 overrode the veto of then-President Harry Truman and passed the Internal Security Act.

*   *   *

“It is a sad moment when a president who has prided himself on his knowledge of and belief in constitutional principles succumbs to the politics of the moment to sign a bill that poses so great a threat to basic constitutional rights,” Roth said.

Many people might not know that quantitative equity research analyst and former hedge fund manager, Barry Ritholtz (author of Bailout Nation) is an alumnus of the Benjamin N. Cardozo School of Law in New York, where he served on the Law Review, and graduated Cum Laude with a 3.56 GPA.  Here are some of the recent comments made by Mr. Ritholtz concerning the National Defense Authorization Act:

While this is shocking, it is not occurring in a vacuum.  Indeed, it is part of a 30 year-long process of militarization inside our borders and a destruction of the American concepts of limited government and separation of powers.

*   *   *

Other Encroachments On Civil Rights Under Obama

As bad as Bush was, the truth is that, in many ways, freedom and constitutional rights are under attack even more than during the Bush years.

For example:

Obama has presided over the most draconian crackdown on leaks in our history – even more so than Nixon.

*   *   *

Furthermore – as hard as it is for Democrats to believe – the disinformation and propaganda campaigns launched by Bush have only increased under Obama.  See this and this.

And as I pointed out last year:

According to Department of Defense training manuals, protest is considered “low-level terrorism”.  And see this, this and this.

An FBI memo also labels peace protesters as “terrorists”.

At his blog, The Big Picture, Ritholtz made these points in a December 3 argument against the passage of this bill:

You might assume – in a vacuum – that this might be okay (even though it trashes the Constitution, the separation of military and police actions, and the division between internal and external affairs).

But it is dangerous in a climate where you can be labeled as or suspected of being a terrorist simply for questioning war, protesting anything, asking questions about pollution or about Wall Street shenanigans, supporting Ron Paul, being a libertarian, holding gold, or stocking up on more than 7 days of food.  And see this.

Once again, President Obama has breached a promise to his supporters out of fear that he could be embarrassed in a showdown with Congress.  Worse yet, Obama has acted to subvert the Constitutional right of Due Process simply because he wants to avoid the shame of a veto override.  As many commentators have observed, George W. Bush was not plagued by any such weakness and he went on to push a good number of controversial initiatives through Congress – most notably the Iraq War Resolution.  I find it surprising that so many of President Obama’s important decisions have been motivated by a fear of embarrassment, while at the same time he has exhibited no concern about exposing such timidity to both his allies and his opponents – wherever they may be.


 

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More Dirty Laundry

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Will an Independent candidate please step into the 2012 Presidential campaign?

On November 6, 2012 a good number of citizens who voted for Barack Obama in 2008 will realize that they are faced with the choice of voting for either Black Romney or White Romney.  As a result, those former Obama supporters won’t bother to vote at all.  Barack Obama won’t be seen as a significantly dissimilar alternative to Romney.  The indiscernible difference between those candidates would not justify the effort of standing in line at the polls.

Voter disappointment with the President is now being overshadowed by the rising pile of dirty laundry he has accumulated during his tenure in the White House.  The burgeoning Solyndra scandal is being mishandled by the President himself.  You would think he had learned a lesson from Weinergate, to the effect that fallacious denials about scandal allegations can create more trouble for a politician than the scandal itself.  FactCheck.org recently caught Obama in a lie about the loan guarantee program exploited by Solyndra:

Obama referred to Solyndra’s loan at an Oct. 6 press conference as “a loan guarantee program that predates me.”  That’s not accurate. It’s true that the Energy Policy Act of 2005 created a loan guarantee program for clean-energy companies developing “innovative technologies.”  But Solyndra’s loan guarantee came under another program created by the president’s 2009 stimulus for companies developing “commercially available technologies.”

*   *   *

In a March 2009 press release announcing a $535 million loan guarantee for Solyndra, the Energy Department said:  “This loan guarantee will be supported through the President’s American Recovery and Reinvestment Act, which provides tens of billions of dollars in loan guarantee authority to build a new green energy economy.”  Damien LaVera, an Energy Department spokesman, confirmed that Solyndra’s funding came solely from section 1705.

That revelation is simply the first layer of frosting on a cake with some noxious ingredients baked into the recipe.  ABC News provided this report:

An elite Obama fundraiser hired to help oversee the administration’s energy loan program pushed and prodded career Department of Energy officials to move faster in approving a loan guarantee for Solyndra, even as his wife’s law firm was representing the California solar company, according to internal emails made public late Friday.

“How hard is this? What is he waiting for?” wrote Steven J. Spinner, a high-tech consultant and energy investor who raised at least $500,000 for the candidate before being appointed to a key job helping oversee the energy loan guarantee program.  “I have OVP [the Office of the Vice President] and WH [the White House] breathing down my neck on this.”

Many of the emails were written just days after Spinner accepted a three-page ethics agreement in which he pledged he would “not participate in any discussion regarding any application involving [his wife’s law firm] Wilson [Sonsini Goodrich & Rosati].”

*   *   *

Recovery Act records show Allison Spinner’s law firm, Wilson Sonsini, received $2.4 million in federal funds for legal fees related to the $535 million Energy Department loan guarantee to Solyndra.  That ethics agreement said his wife would forgo pay “earned as a result of its representation of applicants in programs within your official duties.”

Although many Obama apologists have characterized the Solyndra scandal a nothing more than a “Republican smear campaign”, Ryan Reilly of the non-Republican Talking Points Memo offered this analysis of the allegations:

Solyndra was raided by the FBI earlier this month.  The Government Accountability Office had raised concerns that the Energy Department agreed to back five companies — including Solyndra — with loans without properly assessing their risk of failure.  All this from a company that Obama described as a company with a “true engine of economic growth.”

And the details that are emerging from the investigators at the Republican-controlled House Energy and Commerce Committee are making things look worse for the administration.

Nine days before the administration formally announced the loan, a White House budget analyst wrote an email calling the deal “NOT ready for prime time,” according to documents given to ABC News by the House Energy and Commerce Committee investigators.

Despite the ongoing Occupy Wall Street protest, President Obama has seen fit to launch an assault on the Sarbanes-Oxley Act, which was created after the Enron scandal.  Sarbanes-Oxley most notably assigned responsibility to corporate officers for the accuracy and validity of corporate financial reports and established criminal penalties for destruction or alteration of financial records, interference with investigations, as well as providing protection for whistle-blowers.  The Business Insider reports that President Obama is advancing the recommendations of his jobs council which call for attenuating the Sarbanes-Oxley regulations, in order to make it easier for small companies to go public, by way of initial public offerings (IPOs):

The jobs council, headed by GE CEO Jeff Immelt and including Sheryl Sandberg and Steve Case, found that the Sarbanes-Oxley was a key factor in reducing the number of IPOs smaller than $50 million from 80 percent of all IPOs in the 1990s to 20 percent in the 2000s.

Obama also said the “Spitzer Decree,” which bans investment banks from using banking revenues to pay for research and expert analysis of publicly-traded companies, deserves reconsideration as well.  The council said the rule shares the blame for the decline in IPOs among small companies.

Yves Smith of Naked Capitalism reacted to the news with this remark:

This is ridiculous.  Do you know what happens with small stocks?  Pump and dump (and I’ve seen this at closer range than I would like.  I had a former client get involved by having his private company merged into a public company controlled by small stock low lifes.  They ran it from $1 to about $12 twice, and then it went back to under $2 and stayed there).

We were reminded of Obama’s hypocrisy on the subject of financial reform by a fantastic article written by Suzanna Andrews for Vanity Fair, which detailed how Elizabeth Warren was thrown under the bus by Obama, who shocked his supporters with his refusal to nominate Warren as chair of the Consumer Financial Protection Bureau (which she created).

Another disillusioned 2008 Obama supporter, Bill McKibben, wrote an essay for Tom’s Dispatch about how the President has sold out to Big Oil:

Here’s an example:  by year’s end the president has said he will make a decision on the Keystone XL pipeline, which would carry crude oil from the tar sands of northern Alberta to the Gulf of Mexico.  The nation’s top climate scientists sent the administration a letter indicating that such a development would be disastrous for the climate.  NASA’s James Hansen, the government’s top climate researcher, said heavily tapping tar-sands oil, a particularly “dirty” form of fossil fuel, would mean “game over for the climate.” Ten of the president’s fellow recent Nobel Peace Prize laureates pointed out in a letter that blocking the prospective pipeline would offer him a real leadership moment, a “tremendous opportunity to begin transition away from our dependence on oil, coal, and gas.”

But every indication from this administration suggests that it is prepared to grant the necessary permission for a project that has the enthusiastic backing of the Chamber of Commerce, and in which the Koch Brothers have a “direct and substantial interest.”  And not just backing.  To use the words of a recent New York Times story, they are willing to “flout the intent of federal law” to get it done.  Check this out as well:  the State Department, at the recommendation of Keystone XL pipeline builder TransCanada, hired a second company to carry out the environmental review.  That company already considered itself a “major client” of TransCanada.  This is simply corrupt, potentially the biggest scandal of the Obama years.  And here’s the thing:  it’s a crime still in progress.  Watching the president do nothing to stop it is endlessly depressing.

We shouldn’t be too surprised to learn that Obama’s dirty laundry has a few oil stains.  The BIG surprise would be Obama’s reelection.


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2010 Jackass Of The Year Award

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Once again, the moment has arrived for TheCenterLane.com to present its Jackass of The Year Award.  Our 2010 recipient is Alaska’s Senatorial candidate, Joe Miller.

Joe Miller’s campaign to defeat Senator Lisa Murkowski in Alaska’s 2010 Republican Primary got a big boost when Governor Sarah Palin decided to leave office to become a full-time celebrity.  Palin’s decision was immediately criticized by Senator Murkowski.  Palin responded to the criticism by endorsing Murkowski’s opponent in the Republican Primary:  Joe Miller.  Miller then won the support of the Tea Party Express, who – according to The Washington Post – spent more than $150,000 on pro-Miller television and radio ads during the week before the primary.  In addition to the mobilization of the Tea Party activists, Miller benefited from an initiative on the Alaska Republican Primary ballot requiring parental consent before a girl aged 17 or younger could receive an abortion.  Alaska’s most conservative voters were out in force on Primary Day.  The Washington Post article highlighted some of Miller’s positions that helped him curry favor with Alaska’s “hard right” voters:

He has called for phasing out Medicare and Social Security, as well as eliminating the Education Department because it is not mandated in the Constitution.

Never mind the fact that neither the FBI nor the Department of Homeland Security has been mandated by the Constitution.  The “lack of a Constitutional mandate” litmus test is only applied to those bureaucracies considered repugnant to Joe Miller.

Because the deadline for filing as an “Independent” candidate on Alaska’s November (general election) ballot had already expired by the August 24 primary, it was necessary for Lisa Murkowski to run as a “write-in” candidate in order to retain her Senate seat.

During the course of the ensuing campaign, Miller’s foolishness provided the news media with plenty of entertainment.  Despite Miller’s rhetoric, which called for limited government and fiscal restraint, Anne Applebaum of Slate recalled that Miller’s background became an issue in the campaign, since it was so inconsistent with that of a Tea Party hero:

During the course of the campaign, it also emerged that he had once collected farm subsidies; that his wife had once collected unemployment benefits; and that his family had received state health benefits.

Upon hearing that Murkowski would not abandon her quest to retain her Senate seat after her Republican Primary defeat, Mr. Miller immediately made a foolish statement, which he attempted to blame on an unidentified staffer.  Jim Carlton of the Washington Wire blog provided this quote of the now-infamous message sent out from Joe Miller’s Twitter account:

“What’s the difference between selling out your party’s values and the world’s oldest profession?” said the message under Mr. Miller’s Twitter address early Friday.

Mr. Miller said the tweet was sent by a staffer who was temporarily manning his account.  He added that the remark was aimed not at the senator herself, but at suggestions that Alaska’s Libertarian Party might allow Ms. Murkowski to run under its banner in November if she ends up losing to him in a final count of absentee ballots.

He blamed the tweet on “poor judgment” by the unidentified staffer, who he “relieved of his duties.”  He said he quickly removed the message from his Twitter feed.

If  Miller had not already done enough to alienate female voters — his Halloween-themed campaign ad, likening Lisa Murkowski to a witch, immediately drew the ire of the New Agenda website, which embedded a YouTube feed of the ad in this posting.

The most infamous event of Miller’s campaign occurred on October 17, when Tony Hopfinger, editor of the Alaska Dispatch website was handcuffed by Miller’s private security guards, when he attempted to interview the candidate at the conclusion of a “town hall” meeting at the Central Middle School in Anchorage.  The incident caused Miller to become the butt of many jokes on national television.

Hopfinger was attempting to question Miller about an incident that had become the subject of an e-mail that had originated a few days earlier from Mike Rostad, a Republican activist in Kodiak, Alaska, based on a discussion between Rostad and Miller’s father, Rex Miller.  The Anchorage Daily News provided this report:

Joe Miller was a part-time Fairbanks North Star Borough attorney in 2008 when he led an attempt to oust state Republican Party chief Randy Ruedrich.  Rostad wrote in the email that Rex Miller told him there was a poll being conducted during that effort against Ruedrich.  Rostad wrote that Rex Miller told him what happened:

“One noon hour, on his own time at the borough, Joe participated in an online poll voting against Randy.  He used four office computers in the office to do it, thinking this was his chance to boost numbers to get rid of Randy.  He emptied the cache files on the computers so the users wouldn’t know what he had done.  When the users asked what had happened to their caches, (Miller) admitted to what he did.  He was reprimanded and docked in pay for several days, but was not suspended or fired.

Miller’s improper computer use as a part-time attorney for the Fairbanks North Star Borough has been an ongoing controversy, which was the subject of this December 31 article from the Anchorage Daily News.

The handcuffing of Tony Hopfinger was not the only misstep by Joe Miller’s campaign on October 17.  Shira Toplitz of Politico reported on October 29 that the Murkowski campaign was running an ad, critical of two October 17 blunders:

The same night as the incident with the journalist, Miller told an audience that if “East Germany could, we could” secure the borders of the country — a controversial statement that Murkowski also uses in the new spot.

“Joe Miller’s answer to illegal immigration:  Use East Germany as an example,” continues the narrator.  “Exactly what kind of America does Joe Miller live in?  . . .”

Miller had nobody else to blame for his stupid remark exalting East Germany as a model for border security.

Once it became obvious that Lisa Murkowski made history as the first write-in candidate to win a Senate election since Strom Thurmond in 1954, Joe Miller took his battle to the courts.  He initially filed an action in Federal Court, although U.S. District Judge Ralph Beistline stayed proceedings pending resolution of the dispute in the State court, where the action should have been brought.  Once the case was filed in the State Court, Judge William Carey dismissed the suit and it was appealed directly to the Alaska Supreme Court.  U.S. News reported that when the ballots were still being counted, the Miller camp was determined to turn the election into a spelling bee:

Shortly after the second day of write-in ballot counting began on Thursday, a Miller observer challenged a vote for Murkowski that appeared to have her name spelled and printed correctly, though the “L” in “Lisa” was in cursive handwriting.  Later, at least 10 ballots in which Murkowski’s name appeared readable were challenged, including one in which the vote read:  “Lisa Murkowski Republican.”

Miller’s campaign said observers are simply challenging votes that don’t meet the strict letter of the law — including those with minor misspellings of Murkowski’s name or those with legibility or penmanship issues.

In addition to the “spelling bee” demand, Miller also attempted to pursue a claim of misconduct by election officials amounting to election fraud.  The Christian Science Monitor provided this report on Judge Carey’s dismissal of that count:

“Nowhere does Miller provide facts showing a genuine issue of fraud or election official misfeasance,” Carey wrote.  “Instead, the majority of the problematic statements included in the affidavits are inadmissible hearsay, speculation, and occasional complaints of sarcasm expressed by [elections] workers.  Nothing rises to the level showing genuine material facts of fraud.”

The stupidity of Miller’s “spelling bee” requirement became more apparent once the Alaska Supreme Court was asked to reverse the dismissal of that claim.  During oral arguments, Justice Dana Fabe directed a Why are you here? question to Miller’s attorneys.  Here’s how that moment was described by KTUU News:

With unofficial results showing Miller behind Murkowski by 10,328 votes, or 2,169 when ballots challenged by Miller observers are excluded, Justice Dana Fabe asked Miller’s legal team what — if any — impact the court’s decision would have on the outcome of the election.

“Even if you win on this argument and every one of the challenged ballots is set aside, it makes no difference in this count, and it makes no difference in the outcome of this election unless you win on one of your other counts — isn’t that correct?” Fabe said.

In other words:  even if the contested ballots were not counted in accordance with the guidelines advanced by Miller’s legal team – Miller still would have lost by over two thousand votes!

So seriously:  What was the point of filing suit?  Was Miller hoping to get some sort of deal from the Republican Party for conceding defeat?  His lawsuit was as idiotic as his entire campaign had been.  As late as December 27, Miller was vowing to continue his battle in the Federal Court to contest the election result.  Nevertheless, as Miller should have learned at Yale Law School, the pursuit of such a specious claim in a Federal Court, would likely result in rather expensive sanctions against Miller and his attorneys under Rule 11 of the Federal Rules of Civil Procedure, once his case was inevitably dismissed.  If that concern had not been enough to motivate Miller to abandon his Federal suit, it should have been enough to convince Miller’s attorneys that the game was finally over.  Miller ultimately conceded his defeat in the election on December 30, although he never made a concession call to Lisa Murkowski.  He explained that he had not made the call because he did not have Murkowski’s phone number.

Joe Miller may not have won the election to the United States Senate —  but he did win the 2010 Jackass of The Year Award from TheCenterLane.com.  Congratulations, Jackass!



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Justice Denied

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A recent article written by former New York Mayor Ed Koch began with the grim observation that no criminal charges have been brought against any of the malefactors responsible for causing the financial crisis:

Looking back on 2010 and the Great Recession, I continue to be enraged by the lack of accountability for those who wrecked our economy and brought the U.S. to its knees.  The shocking truth is that those who did the damage are still in charge.  Many who ran Wall Street before and during the debacle are either still there making millions, if not billions, of dollars, or are in charge of our country’s economic policies which led to the debacle.

Most of us assumed that the Enron scandal had set a precedent for the prosecution of corporate financial crime.  A few Enron executives received prison sentences and the CEO, Ken Lay, died while serving time.  Enron’s auditor, Arthur Andersen & Company, was forced out of business.  In the wake of the Savings and Loan Crisis of the late 1980s, Charles Keating and a few of his associates were indicted by the State of California.  Keating eventually received a ten-year prison sentence for fraud, racketeering and conspiracy.  Keating’s prosecution resulted from pressure brought by William Black, former litigation director for the Federal Home Loan Bank Board.  At one point during Black’s investigation, Keating issued a written memo to one of his minions, with this directive:  “If you can’t get Wright and Congress to get Black . . .  Kill him dead.”

These days, William Black has been doing quite a bit of speaking and writing about the need to initiate criminal proceedings against the culprits responsible for causing the financial crisis.  On December 28, Black characterized the failure to prosecute those crimes as “de facto decriminalization of elite financial fraud”:

The FBI and the DOJ remain unlikely to prosecute the elite bank officers that ran the enormous “accounting control frauds” that drove the financial crisis.  While over 1000 elites were convicted of felonies arising from the savings and loan (S&L) debacle, there are no convictions of controlling officers of the large nonprime lenders.  The only indictment of controlling officers of a far smaller nonprime lender arose not from an investigation of the nonprime loans but rather from the lender’s alleged efforts to defraud the federal government’s TARP bailout program.

What has gone so catastrophically wrong with DOJ, and why has it continued so long?  The fundamental flaw is that DOJ’s senior leadership cannot conceive of elite bankers as criminals.

*   *   *

Our best bet is to continue to win the scholarly disputes and to continue to push media representatives to take fraud seriously. If the media demands for prosecution of the elite banking frauds expand there is a chance to create a bipartisan coalition in Congress and the administration supporting prosecutions.  In the S&L debacle, Representative Annunzio was one of the leading opponents of reregulation and leading supporters of Charles Keating.  After we brought several hundred successful prosecutions he began wearing a huge button:  “Jail the S&L Crooks!”  Bringing many hundreds of enforcement actions, civil suits, and prosecutions causes huge changes in the way a crisis is perceived.  It makes tens of thousands of documents detailing the frauds public.  It generates thousands of national and local news stories discussing the nature of the frauds and how wealthy the senior officers became through the frauds.  All of this increases the saliency of fraud and increases demands for serious reforms, adequate resources for the regulators and criminal justice bodies, and makes clear that elite fraud poses a severe danger.  Collectively, this creates the political space for real reform, vigorous regulators, and real prosecutors.

Hedge fund manager, David Einhorn (author of  Fooling Some of the People All of the Time) was recently interviewed by Charlie Rose.  At one point during the interview, Charlie Rose asked Einhorn to address the argument that regulators lacked the tools necessary for preventing the financial crisis.  Mr. Einhorn gave this response:

I would actually disagree with that.  I think that the problem was that the laws were not enforced.  After Enron you had Sarbanes Oxley.  And there have been hardly any prosecutions under Sarbanes Oxley.  You put in a tough anti-fraud law.  The CEO has to sign there is no fraud.

The CFO has to sign that the financial statements are correct.  If it’s not, there are going to be criminal consequences to all of this.  And the result was that effectively you passed a law but then they didn’t enforce the law.

And once the bad guys figured out that the law wasn’t being enforced, it effectively provided cover because everybody said, look we have the tough antifraud law.  The fraud must have gone away.

We often hear the expression “crime of the century” to describe some sensational act of blood lust.  Nevertheless, keep in mind that the financial crisis resulted from a massive fraud scheme, involving the packaging and “securitization” of mortgages known to be “liars’ loans”, which were then sold to unsuspecting investors by the creators of those products — who happened to be betting against the value of those items.  In consideration of the fact that the credit crisis resulting from this scam caused fifteen million people to lose their jobs as well as an expected 8 – 12 million foreclosures by 2012, one may easily conclude that this fraud scheme should be considered the crime of both the last century as well as the current century.

While many people have been getting excited about the “insider trading” investigation currently underway, I have been sitting here, wearing my tinfoil hat, viewing the entire episode as a diversionary tactic to direct public attention away from the crimes that caused the financial crisis.  Fortunately, I am not the only cynic with such an outlook.  Jesse Eisenger recently wrote a piece for the DealBook blog at The New York Times entitled, “The Feds Stage a Sideshow While the Big Tent Sits Empty”.  Here is some of what Eisenger had to say about the “insider trading” investigation:

In fact, plenty of people on Wall Street are happy about the investigation.  The ones with clean consciences like the idea that the world of special access to favorable tips is being cleaned up.

But others are pleased for a different reason:  They realize the investigation is a sideshow.

All the hype carries an air of defensiveness.  Everyone is wondering:  Where are the investigations related to the financial crisis?

John Hueston, a former lead Enron prosecutor, wonders, “Have they committed the resources in the right place?  Do these scandals warrant apparent national priority status?”

Nobody from Lehman, Merrill Lynch or Citigroup has been charged criminally with anything.  No top executives at Bear Stearns have been indicted.  All former American International Group executives are running free.  No big mortgage company executive has had to face the law.

There’s an old saying:  “Justice delayed is justice denied.”  The government has demonstrated that it is in no hurry to bring any significant criminal charges against the perpetrators of the crimes that caused the financial crisis.  With the passing of time, it becomes increasingly obvious that those crimes will go unpunished.  The cause of justice is simply no match for the ability of certain individuals to operate “above the law”.  In fact, it never has been.


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In Pursuit Of The TARP Thieves

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February 12, 2009

On Wednesday, February 11, the Senate Judiciary Committee held a hearing on a subject of concern to many taxpayers: “The Need for Increased Fraud Enforcement in the Wake of the Economic Downturn”.  With trillions of dollars being expended in bailouts while the corporate beneficiaries of this government largesse allow their executives to line their pockets with those very dollars, the outrage felt by the working (or unemployed) public has found its way to Capitol Hill.  What we learned from this hearing is that there is plenty of fraud taking place while the FBI and other branches of law enforcement are understaffed to cope with the immense rise in reported fraud cases.

The Committee heard testimony from John Pistole, Deputy Director of the FBI.  Pistole explained how the current economic crisis resulted in numerous areas of FBI scrutiny, only one of which is the overwhelming subject of mortgage fraud:

For example, current market conditions have helped reveal numerous mortgage fraud, Ponzi schemes and investment frauds, such as the Bernard Madoff alleged scam. These schemes highlight the need for law enforcement and regulatory agencies to be ever vigilant of White Collar Crime both in boom and bust years.

The FBI has experienced and continues to experience an exponential rise in mortgage fraud investigations. The number of open FBI mortgage fraud investigations has risen from 881 in fiscal year 2006 to more than 1,600 in fiscal year 2008. In addition, the FBI has more than 530 open corporate fraud investigations, including 38 corporate fraud and financial institution matters directly related to the current financial crisis. These corporate and financial institution failure investigations involve financial statement manipulation, accounting fraud and insider trading. The increasing mortgage, corporate fraud, and financial institution failure case inventory is straining the FBI’s limited White Collar Crime resources.

The most disgusting activity covered during this hearing concerned fraud related to the ongoing $700 billion TARP bailout.  Neil Barofsky, Special Inspector General for the Troubled Asset Relief Program (SIGTARP) provided testimony concerning his plans to establish a mechanism for bringing TARP thieves to justice:

The SIGTARP Hotline is operational and can be accessed through the SIGTARP website at www.SIGTARP.gov by telephone at (877) SIG-2009, as well as through email. Plans are being formulated to develop a “fraud awareness program” with the objective of informing potential whistleblowers of the many ways available to them to provide key information to SIGTARP on fraud, waste and abuse involving TARP operations and funds, and explaining how they will be protected.

Mr. Barofsky’s testimony was largely a plea for passage of the Fraud Enforcement and Recovery Act, sponsored by Senators Patrick Leahy (D., Vt.) and Senator Chuck Grassley (R., Iowa) as well as the SAFE Markets Act, sponsored by Senators Charles Schumer (D., N.Y.) and Richard Shelby (R., Ala.).  The latter bill would authorize hiring of the following personnel to investigate and prosecute “fraud relating to the financial markets”:  500 FBI agents, 50 Assistant United States Attorneys and 100 additional Securities and Exchange Commission enforcement staff members.  Mr. Barofsky’s explanation of the need for this legislation was an illustration of using “experience as our guide”:

Now, with $700 billion going out the door under TARP, additional hundreds of billions (if not trillions) of credit being provided through the Federal Reserve, and additional hundreds of billions through the proposed stimulus bill, we stand on the precipice of the largest infusion of Government funds over the shortest period of time in our Nation’s history.  Unfortunately, history teaches us that an outlay of so much money in such a short period of time will inevitably draw those seeking to profit criminally.  One need not look further than the recent outlay for Hurricane relief, Iraq reconstruction, or the not-so-distant efforts of the RTC as important lessons.

The Fraud Enforcement and Recovery Act (S 386) addresses TARP fraud, fraud related to economic stimulus funds, mortgage fraud and fraudulent activities in the commodities markets.  The measure will:

  • Amend the definition of “financial institution” to extend federal fraud laws to mortgage lending business not directly regulated or insured by the Federal government.
  • Amend the major fraud statute to protect funds expended under the Troubled Asset Relief Program (TARP) and the economic stimulus package.
  • Authorize funding to hire fraud prosecutors and investigators at the Department of Justice, the FBI, and other law enforcement agencies, and authorize funding for U.S. Attorneys’ Offices to help staff FBI mortgage fraud task forces.
  • Amend the federal securities statute to cover fraud schemes involving commodities futures and options.
  • Amend the criminal money laundering statute to make clear that the proceeds of specified unlawful activity include the gross receipts of the illegal activity, and not just the profits of the activity.
  • Improve the False Claims Act to clarify that the Act was intended to extend to any false or fraudulent claim for government money or property, whether or not the claim is presented to a government official or employee, whether or not the government has physical custody of the money, and whether or not the defendant specifically intended to defraud the government.

Once these new measures are implemented, I would love to see the Feds bust those miscreants whom I (and others) suspect were manipulating the equities markets with TARP money in the month after Thanksgiving.  During that time, we saw an almost-daily spate of “late day rallies” when stock prices would be run up during the last fifteen minutes of the trading day, before those numbers could have a chance to settle back down to the level where the market would normally have them. The inflated “closing prices” for the day were then perceived as the market value of the stocks.  This process was taking place despite the constant flow of dire news reports, which would normally have sent stock prices tumbling.  News services covering the action on Wall Street were using the same three words to start each day’s headline:  “Stocks rally despite …”  This pattern ceased as legislators and commentators demanded to know what was being done with the first $360 billion of TARP money.  Hmmm . . .

At this point, we can only speculate as to who has been pilfering TARP money and what could have been done with a few billion here and a few billion there.  Perhaps in the not-too-distant future, we will be watching movies about the sleazoids who stole money intended to save the world economic system from ruin.

Home Improvement With Norm And Ted

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December 15, 2008

The battle for Norm Coleman’s Senate seat, representing Minnesota, continues to drag on toward the new year.  Democratic candidate Al Franken inched closer to victory when the state Canvassing Board ruled that more than 1,600 absentee ballots were improperly rejected by local officials.  As Curt Brown reported in the December 14 Minneapolis Star Tribune:

The recount has revealed numerous missteps, some involving enough ballots to tip the balance.

There are a couple of similarities between the Senatorial election in Minnesota and the Senatorial election in Alaska.  When Alaska Senator Ted Stevens lost his bid for re-election in the 2008 Senate race, it was the count of absentee and questioned ballots that determined the outcome of that event, as reported in the November 20 Seattle Times.  More importantly, the crucial factor motivating voters in the Alaska election was also discussed in that article:

A week before the election, a jury convicted Stevens of seven felonies for lying on his financial-disclosure forms about more than $250,000 in gifts, including renovations of his Girdwood, Alaska, home.

Prior to the resolution of that race, there was a good deal of discussion concerning the likelihood that the Senate would not tolerate the membership of a convicted felon in their exclusive organization.

Meanwhile, Senator Norm Coleman is facing questions from reporters over his own home improvement scandal.  Although he is not presently facing criminal charges for any wrongdoing in this matter, the FBI has begun an investigation into the money trail left by $75,000 in campaign contributions.  On Thursday, December 11, Fox 9 of St. Paul provided this:

The FBI is now reportedly investigating the allegations that Nasser Kazeminy tried to funnel $75,000 in campaign contributions through the Senator’s wife.

*      *     *

Norm Coleman’s home in St. Paul’s Crocus Hill neighborhood is not lavish — but it’s a lot nicer than it used to be, thanks in part to contractor Jim Taylors, who helped remodel the home two years ago.

“Put in a second floor master bedroom/bathroom, the bedroom was there, we just added a bathroom and closet and a kitchen remodel, actually turned into half the house remodel by the time we painted and refinished floors and did some landscape work,” says Taylors.

The remodeled kitchen was the backdrop for some of the Senator’s campaign commercials.  FOX 9 learned the woman in charge of the project was Shari Wilsey, an interior designer.  Wilsey, along with her husband Roger, are longtime friends of the Coleman’s and financial contributors to the Senator’s campaigns.

*     *     *

Two lawsuits allege that in spring of 2007, Edina businessman Nasser Kazeminy began a series of $25,000 payments to Coleman from Deep Marine Technology, a company he controlled in Texas, to Hays Companies, the Minnesota Insurance company where Laurie Coleman works.

*     *     *

While Coleman didn’t agree to sit down for a interview, his campaign did agree to share billing records of the remodeling project.  Original projections in 2006 estimated a cost of $328,000, but four months later, the construction cost was estimated at $414,000, over-budget by $86,000.

During that time is when, the lawsuit alleges, Kazeminy was trying to get money to Coleman.

According to the lawsuits, in March of 2007, Kazeminy said that “U.S. Senators don’t make s—” and he was going to try to find a way to get money to Coleman.

“On the one level it could just be a coincidence, on the other level this could be one of the reasons he’s getting that money from elsewhere, to try to make up for his, to be able to pay off a loan, pay off a line of credit,” says Schultz.

Records provided by the campaign show that Coleman paid Wilsey in full for the renovation — $414,000.  In part, by refinancing his home in March 2007, for $775,000.

The Senator acknowledges, that like a lot of people in America, he now owes more on his home than it’s actually worth.

What we know is this: the Senator had costly and over-budget renovations to his home at the same time a contributor was allegedly trying to funnel him money.  But he’s still criticized for walking away from reporters, while the questions aren’t going away.

It’s nice to know that we can count on a Fox news outlet for a good scandal, and if we’re lucky, it might even involve a Republican.  Although Coleman was not named as a defendant in either lawsuit, the FBI investigation into the campaign contributions could eventually give Coleman some more serious headaches.  At this point, it seems as though Coleman could document that he paid for the remodeling project by refinancing his home.  However, did the refinancing cover the entire $414,000 cost?  Even if Coleman is re-elected, could we eventually get to the point where the Senate, itself, has to consider giving him the boot?  Stay tuned.