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Congressional Sleaze In The Spotlight

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Last February, I wrote a piece entitled, “License To Steal”, concerning a certain legal loophole which allows members of Congress to trade stocks using “insider information”:

On January 26, 2009, Congressman Brian Baird introduced H.R.682, the “Stop Trading on Congressional Knowledge Act” (STOCK Act).  The bill was intended to resolve the situation concerning one of the more sleazy “perks” of serving in Congress.  As it presently stands, the law prohibiting “insider trading” (e.g. acting on confidential corporate information when making a transaction involving that company’s publicly-traded stock) does not apply to members of Congress.  Remember how Martha Stewart went to prison?  Well, if she had been representing Connecticut in Congress, she might have been able to interpose the defense that she was inspired to sell her ImClone stock based on information she acquired in the exercise of her official duties.  In that scenario, Ms. Stewart’s sale of the ImClone stock would have been entirely legal.  That’s because the laws which apply to you and I do not apply to those in Congress.  Needless to say, within six months of its introduction, H.R.682 was referred to the Subcommittee on the Constitution, Civil Rights, and Civil Liberties where it died of neglect.  Since that time, there have been no further efforts to propose similar legislation.

At a time when the public is finally beginning to understand how our elected officials are benefiting from a system of “legalized graft” in the form of campaign contributions, more attention is being focused on how the “real money” is made in Congress.  A new book by Peter Schweizer – Throw Them All Out – deals with this very subject.  The book’s subtitle is reminiscent of the point I tried to make in my February posting:  “How politicians and their friends get rich off insider stock tips, land deals and cronyism that would send the rest of us to prison”.

Peter J. Boyer wrote an article for Newsweek, explaining how Peter Schweizer came about writing this book.  Schweizer is the William J. Casey research fellow at the Hoover Institution and as Boyer pointed out, Schweizer is considered by liberal critics as a “right wing hit man”.  It’s nice to see someone from the right provide us with an important treatise on crony capitalism.  The book exposes insider trading by both Democrats and Republicans – hell-bent on profiteering from the laws they enact.  Boyer’s essay provided us with some examples of the sleazy trades made by Congress-cretins, as described in Throw Them All Out.  Here are a few examples:

Indeed, Schweizer reports that, during the debate over Obama’s health-care reform package, John Boehner, then the House minority leader, was investing “tens of thousands of dollars” in health-insurance-company stocks, which made sizable gains when the proposed public option in the reform deal was killed.

*   *   *

One of the more dramatic episodes in the book recounts the trading activity of Republican Rep. Spencer Bachus, of Alabama, who, as the ranking member of the House Financial Services Committee, was privy to sensitive high-level meetings during the 2008 financial crisis and proceeded to make a series of profitable stock-option trades.

Bachus was known in the House as a guy who liked to play the market, and in fact he was pretty good at it; one year, he reported a capital gain in excess of $150,000 from his trading activities. More striking is that Bachus boldly carried forth his trading in the teeth of the impending financial collapse, the nightmarish dimensions of which he had learned about first-hand in confidential briefings from Treasury Secretary Henry Paulson and Fed chairman Ben Bernanke.  On Sept. 19, 2008, after attending two such briefings, Bachus bought options in an index fund (ProShares UltraShort QQQ) that effectively amounted to a bet that the market would fall.  That is indeed what happened, and, on Sept. 23, Bachus sold his “short” options, purchased for $7,846, for more than $13,000—nearly doubling his investment in four days.

Around the time Congress and the Bush administration worked out a TARP bailout, Bachus made another options buy and again nearly doubled his money.

*   *   *

After the first briefing from Bernanke and Paulson, brokers for Democratic Congressman Jim Moran, of Virginia, and his wife sold their shares in 90 companies, dodging the losses that others who stayed in the market would soon face. Republican Rep. Shelley Capito, of West Virginia, sold between $100,000 and $250,000 of Citigroup stock the day after the first meeting, recording capital gains on Citigroup transactions in that rocky period.

Peter Schweizer’s analysis of the bipartisan culture of corruption on Capitol Hill reinforces one of my favorite criticisms of American government:  Our Sham Two-Party System.  The Republi-Cratic Corporatist Party owes its allegiance to no population, no principle, no cause – other than pocketing as much money as possible.  Just as there have been some recent “pushback” efforts by outraged citizens, Schweizer is now advocating a “Throw Them All Out” campaign.  This could have a potentially significant impact on Congress, because the term of office in the House of Representatives lasts for only two years.  Consider Schweizer’s thought at the close of the Newsweek piece:

“I was troubled,” he says, “by the fact that the political elite gets to play by a different set of rules than the rest of us.  In the process of researching this book, I came to the conclusion that political party and political philosophy matter a lot less than we think.  Washington is a company town, and politics is a business. People wonder why we don’t get more change in Washington, and the reason is that the permanent political class is very comfortable.  Business is good.”

I concluded my February 28 posting with this point:

“Inside information” empowers the party in possession of that knowledge with something known as “information asymmetry”, allowing that person to take advantage of (or steal from) the less-informed person on the other side of the trade.  Because membership in Congress includes a license to steal, can we ever expect those same individuals to surrender those licenses?  Well, if they were honest  .   .   .

A successful “Throw Them All Out” campaign would obviate the necessity of attempting to convince this Congress to pass the “Stop Trading on Congressional Knowledge Act” (STOCK Act).  If the next Congress knows that its political survival is depending on its passage of the STOCK Act, we might see it become law.


 

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The Second Stimulus

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July 9, 2009

It’s a subject that many people are talking about, but not many politicians want to discuss.  It appears as though a second economic stimulus package will be necessary to save our sinking economy and get people back to work.  Because of the huge deficits already incurred in responding to the financial meltdown, along with the $787 billion price tag for the first stimulus package and because of the President’s promise to get healthcare reform enacted, there aren’t many in Congress who are willing to touch this subject right now, although some are.  A July 7 report by Shamim Adam for Bloomberg News quoted Laura Tyson, an economic advisor to President Obama, as stating that last February’s $787 billion economic stimulus package was “a bit too small”.  Ms. Tyson gave this explanation:

“The economy is worse than we forecast on which the stimulus program was based,” Tyson, who is a member of Obama’s Economic Recovery Advisory board, told the Nomura Equity Forum.  “We probably have already 2.5 million more job losses than anticipated.”

As Victoria McGrane reported for Politico, other Democrats are a bit uncomfortable with this subject:

Democrats are all over the map on the stimulus and the possibility of a sequel, and it’s not hard to see why:  When it comes to a second stimulus, they may be damned if they do and damned if they don’t.

Kevin Hall and David Lightman reported for the McLatchy Newspapers that at least one high-ranking Democrat was keeping an open mind about the subject:

“I think we need to be open to whether we need additional action,” House Majority Leader Steny Hoyer, D-Md., said Tuesday.  “We need to continue to focus on bringing the economy back to a place where we’re not losing jobs.”

An informative article by Theo Francis and Elise Craig, in the July 7 issue of Business Week, explained the real-world difficulties in putting the original stimulus to work:

Dispensing billions of dollars, it turns out, simply takes time, particularly given government contracting rules and the fact that much of federal spending is funneled through the states. Moreover, some spending was intentionally spread out over several years, and other projects are fundamentally more long-term in nature.  “There are real constraints — physical, legal, and then just the process of how fast you can commit funds,” says George Guess, co-director of the Center for Public Finance Research at American University’s School of Public Affairs.  “It’s the way it works in a decentralized democracy, and that’s what we’re stuck with.”

Nevertheless, from the very beginning, when the stimulus was first proposed and through last spring, many economists and other commentators voiced their criticism that the $787 billion stimulus package was simply inadequate to deal with the disaster it was meant to address.  Back on December 28, Nobel laureate Paul Krugman explained on Face The Nation, that a stimulus package in the $675-775 billion range would fall short:

So you do the math and you say, you know, even these enormous numbers we’re hearing about are probably enough to mitigate but by no means to reverse the slump we’re heading into.

On July 5, Professor Krugman emphasized the need for a second stimulus:

The problem, in other words, is not that the stimulus is working more slowly than expected; it was never expected to do very much this soon.  The problem, instead, is that the hole the stimulus needs to fill is much bigger than predicted.  That — coupled with the fact that yes, stimulus takes time to work — is the reason for a second round, ASAP.

Another Nobel laureate, Joseph Stiglitz, pointed out for Bloomberg TV back on January 8, that the President-elect’s proposed stimulus would be inadequate to heal the ailing economy:

“It will boost it,” Stiglitz said.  “The real question is — is it large enough and is it designed to address all the problems.  The answer is almost surely it is not enough, particularly as he’s had to compromise with the Republicans.”

On February 26, Economics Professor James Galbarith pointed out in an interview that the stimulus plan was inadequate.

On January 19, financier George Soros contended that even an $850 billion stimulus would not be enough:

“The economies of the world are falling off a cliff.  This is a situation that is comparable to the 1930s. And once you recognize it, you have to recognize the size of the problem is much bigger,” he said.

Despite all these warnings, as well as a Bloomberg survey conducted in early February, revealing the opinions of economists that the stimulus would be inadequate to avert a two-percent economic contraction in 2009, the President stuck with the $787 billion plan.  He is now in the uncomfortable position of figuring out how and when he can roll out a second stimulus proposal.

President Obama should have done it right the first time.  His penchant for compromise — simply for the sake of compromise itself — is bound to bite him in the ass on this issue, as it surely will on health care reform — should he abandon the “public option”.  The new President made the mistake of assuming that if he established a reputation for being flexible, his opposition would be flexible in return.  The voting public will perceive this as weak leadership.  As a result, President Obama will need to re-invent this aspect of his public image before he can even consider presenting a second economic stimulus proposal.

A Page From The Jimmy Carter Playbook

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March 30, 2009

When Barack Obama began his Presidential campaign, I was initially skeptical.  Here was another guy from “out of the blue” pursuing a bid for the White House.  I was reminded of Jimmy Carter:  a man who had served a term as Governor of Georgia, who began his Presidential campaign with little name recognition.  Carter’s Presidency was marked by rampant inflation and an ill-advised decision to allow Iran’s ailing, deposed Shah into the United States (from exile in Mexico) to die here.  That move resulted in the attack on the U.S. Embassy in Iran, and the holding of 52 American diplomats as hostages until the end of Carter’s term in office.  Teddy Kennedy unsuccessfully challenged Carter for the Democratic nomination in 1980, knowing that Carter had little chance of re-election.   After serving only one term as President, Carter was voted out of office.

At the outset, Carter’s Presidential campaign got a lot of traction from the widespread belief among young voters that Carter would do something to change our nation’s marijuana laws.  Not only did Carter lack the political courage to take such a stand once he became President, he did the opposite.  Carter authorized the use of an herbicide called Paraquat, to be sprayed on marijuana fields in Colombia and Mexico.  Upon realizing that their crops were sprayed with this substance, the sleazy pot farmers quickly harvested the contaminated weed and sent it to market in the United States.  As a result, many Americans developed permanent respiratory problems.

Now that the Obama Administration has taken a “States’ rights” position on medical marijuana laws (by refusing to continue the Bush administration’s tactic of prosecuting medical marijuana facilities) proponents for repeal of pot prohibition, have stepped up their campaign.  Given the current economic crisis, now might be the time for the government to consider legalizing marijuana and taxing it, as is done with the more dangerous ethyl alcohol.

On Thursday, March 26, President Obama held a “town hall” meeting in the East Room of the White House.  Although there were only 100 audience members in the East Room, viewers were invited to submit questions over the Internet.  Nearly 100,000 questions were submitted on-line in response to this invitation.  As John Ward Anderson reported for Politico:

In this moment of national economic crisis, the top four questions under the heading of “Financial security” concerned marijuana; on the budget, people voted up questions about marijuana to positions 1-4; marijuana was in the first and third positions under “jobs”; people boosted a plug for legalizing marijuana to No. 2 under “health care reform.”  And questions about decriminalizing pot occupied spots 1 and 2 under “green jobs and energy.”

After taking questions lower on the list, Obama addressed the pot issue head-on, noting the huge number of questions about marijuana legalization and remarking with a chuckle, “I don’t know what that says about the online audience.”

“The answer is no, I don’t think that is a good strategy to grow our economy,” he said, as the audience in the room applauded and joined him in a laugh.

Although the enthusiastic sycophants in the audience shared a chuckle with the President, many commentators took a dim view of Obama’s discourteous response.  Conservative pundit Andrew Sullivan was particularly incensed by the President’s affront to “the online audience”:

The chuckle suggests a man of his generation.  The dismissiveness toward the question of ending Prohibition as both a good in itself and a form of tax revenue is, however, depressing.  His answer was a non-answer.  I’m tired of having the Prohibition issue treated as if it’s trivial or a joke.  It is neither.  It is about freedom and it’s deadly serious.  As for your online audience, Mr president, have you forgotten who got you elected?

On his blog at Salon.com, Pete Guither took stock of reactions to the President’s superciliousness from across the blogosphere.  Many of the rejoinders he quoted came from people at The Huffington Post.  I will include some of them here.

Jim Gilliam said:

Pot saved my life. It’s a miracle drug, even the crappy non-organic kind made in a lab.

The President will be asked this question again, and maybe next time he won’t laugh at us.

Sam Stein’s retort included the reaction of a law enforcement professional:

Jack Cole, executive director of Law Enforcement Against Prohibition (LEAP), said in response:

“Despite the president’s flippant comments today, the grievous harms of marijuana prohibition are no laughing matter. Certainly, the 800,000 people arrested last year on marijuana charges find nothing funny about it, nor do the millions of Americans struggling in this sluggish economy.  It would be an enormous economic stimulus if we stopped wasting so much money arresting and locking people up for nonviolent drug offenses and instead brought in new tax revenue from legal sales, just as we did when ended alcohol prohibition 75 years ago during the Great Depression.”

Dan Sweeney had this to say:

According to Arizona Attorney General Terry Goddard fully 75 percent of Mexican drug cartels’ cash comes from the sale of marijuana.  Legalizing marijuana would, of course, take away that massive source of income for the cartels, just as ending prohibition cut bootlegging as a source of revenue for La Cosa Nostra.

Combining all of the above effects, the legalization of marijuana means billions of dollars saved or made, the creation of jobs and the curbing of violence along the Mexican border, which in turn means saving thousands of lives.

Barack Obama can certainly be against legalization, but he owes it to nonviolent drug offenders caught in the horror show that is the U.S. prison system, the families of innocent victims of the Mexican drug wars and economically bloodied U.S. taxpayers to explain why. Ganja may cause the giggles, but legalization shouldn’t be a laughing matter.  And it certainly shouldn’t be treated as cavalierly as it has by the current administration, especially when it has been proven to be a popular issue every time Obama has tried to go straight to the people.

President Obama’s expressed position on the marijuana issue demonstrates the same political cowardice America witnessed in Jimmy Carter.  If you want to read an uplifting story about political courage, Constitutional law and civil rights attorney, Glenn Greenwald, wrote an excellent piece concerning Virginia Senator Jim Webb’s political courage for Salon.com.  Not surprisingly, the example Mr. Greenwald chose to contrast with Jim Webb’s political bravery was President Obama’s “adolescent, condescending snickering when asked about marijuana legalization”.  The marijuana controversy presents our new President with the opportunity to demonstrate the same degree of political courage exhibited by Jim Webb.  He ought to give it a try.

Another Crisis On Obama’s Crowded Front Burner

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December 29, 2008

Barack Obama’s first day as President is still three weeks away.  Nevertheless, on that first day in the Oval Office, he will be expected to focus his attention on a number of crisis situations.  How many are there now?  First, we have the economic crisis and all of its subplots:  infrastructure spending and job creation, stopping the foreclosures, oversight of the TARP giveaway (which should include bringing the TARP thieves to justice), a new economic stimulus package, getting the Securities and Exchange Commission to start doing its job, responding to cries of help from state governments and deciding on what to do about the American automakers.  As if those economic emergencies weren’t enough, the new President will need to multitask his crisis management skills to take on a number of other issues.  These include health care reform, undoing all of Bush’s “midnight” Executive Orders, winding down the Iraq war, building up troop strength in the neglected Afghanistan war and, speaking of neglect, the age-old Israeli-Palestinian conflict, which has again reared its ugly head.

Jeremy Ben-Ami is the Executive Director of J Street, which he describes as “the political arm of the pro-Israel, pro-peace movement”.  On December 27, Mr. Ben-Ami issued the following plea to the Obama administration from the J Street website:

The need for diplomatic engagement goes beyond a short-term ceasefire.  Eight years of American neglect and ineffective diplomacy have led us directly to a moment when the prospects of a two-state solution to the Israeli-Palestinian conflict hang in the balance and with them the prospects for Israel’s long-term survival as a Jewish, democratic state.

We urge the incoming Obama administration to lead an early and serious effort to achieve a comprehensive diplomatic resolution to the Israeli-Palestinian and Arab-Israeli conflicts.

This is a fundamental American interest as we too stand to suffer as the situation spirals, rage in the region is directed at the United States, and our regional allies are further undermined.  Our goals must be a Middle East that moves beyond bloody conflicts, an Israel that is secure and accepted in the region, and an America secured by reducing extremism and enhancing stability.  None of these goals are achieved by further escalation.

The December 27 Israeli air strike on the Gaza Strip was code-named:  “Operation Cast Lead”.  Reaction to the strike from the Israeli media ran the spectrum from support to outrage.  On December 28, The Jerusalem Post ran a favorable editorial approving the attack:

The IDF’s mission is not to bring down the Hamas regime, but to bring quiet to the South.  In a sense we are asking Hamas to stop being Hamas. The Islamists need to decide whether they want to go down in flames or are prepared to take on the responsibilities that come with control over the Strip. T hey may give Israel no choice but to topple their administration.

On the other hand, Gideon Levy wrote a scathing commentary on the incident for the December 29 edition of Haaretz:

Once again the commentators sat in television studios yesterday and hailed the combat jets that bombed police stations, where officers responsible for maintaining order on the streets work.  Once again, they urged against letting up and in favor of continuing the assault.  Once again, the journalists described the pictures of the damaged house in Netivot as “a difficult scene.”  Once again, we had the nerve to complain about how the world was transmitting images from Gaza.  And once again we need to wait a few more days until an alternative voice finally rises from the darkness, the voice of wisdom and morality.

On December 28, Barak Ravid of Haaretz provided an excellent, objective “back-story” on the planning and execution of this air strike.  The article explained that prior to the offensive, Israeli Foreign Minister, Tzipi Livni, went to Cairo to inform Egypt’s president, Hosni Mubarak, of Israel’s decision to strike at Hamas.  Ms. Livni is the candidate from the centrist Kadima party who will oppose Likud party stalwart, Benjamin Netanyahu, in the February 10 election for the office of Prime Minister.  Netanyahu had been ahead in the polls, prior to the execution of Operation Cast Lead.  If Israel can avoid a ground war in Gaza, she may win the support of the more hawkish voters who would have voted for Netanyahu.  A televised broadcast by Haaretz in conjunction with Channel 10 News, reported that   “Palestinians said 180 of those killed were Hamas officials, the rest — civilians.”  As of the present time, the total death toll from the assault is believed to be 280.  If 180 of those individuals really were “Hamas officials”, this could work to Livni’s advantage in the upcoming election.

The Obama administration’s diplomatic initiative on this conflict will redefine America’s role in the Middle East.  A December 28 editorial in The Washington Post concluded that the Gaza incident could prove to be a costly distraction from the effort to curb Iran’s nuclear ambitions.  Nevertheless, if Hillary Clinton were to dispatch an envoy to Syria to engage the al-Assad regime in getting control over Hamas’ activities in Gaza:  Could this undermine Iranian hegemony in the area?  Ultimately, everyone in the world is hoping that the Obama administration will provide the aggressive diplomacy that has been lacking in the Middle East for the past eight years.  The pressure for immediate results will be just one more headache waiting for him on Day One.