Pool Boy’s Third Way Propaganda

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David Sirota pointed to this absolutely disgusting quote in a Pool Boy/Mike Allen Politico article suggesting the White House retains confidence in banksters but not in auto execs.

[A Democratic official close to the White House said] "They have more confidence in the leadership on the banking side – that there are people in place who understand what went wrong and the steps necessary to deal with this disaster. They have no sense of confidence that the auto industry has the capacity or plans to structure a workout."

Now, Sirota is right to be appalled. And I have no doubt that many of the bankster enablers close to Obama, and maybe Obama himself, believe this.

But it pays to look at how Pool Boy (aka Jim VandeHei) and Allen make their argument. Here’s their claim:

Critics of President Obama’s do-or-die plan for General Motors and Chrysler are making this a fight over fairness: Why do banks get carrots and the autos get the heavy stick?

It’s a fair question, and one likely to resonate with those who feel Obama has gone light on insurance giant AIG and bailed-out banks like Citigroup. But, based on conversations with White House officials and advisers, the president has a much more jaundiced view of the automakers – and sees limited upside for bailing them out.

How to find a source that says what you want

First, take a look at who the White House officials and advisers behind this story are–and precisely what each one is saying.

Obama:

We’ve reached the end of that road. And we, as a nation, cannot afford to shirk responsibility any longer. Now is the time to confront our problems head-on and do what’s necessary to solve them. 

(The complete context of that quote blame a failure of leadership in Detroit and DC.)

A Democratic official close to the White House:

"The likelihood of failure here is too high to invest any more political or financial capital at the moment," said a Democratic official close to the White House. "For all the negative aspects of structured bankruptcy [a likely outcome for GM], it doesn’t necessarily collapse the domestic auto industry for all of time. It will continue to exist in some form."  

[snip]

"They have more confidence in the leadership on the banking side – that there are people in place who understand what went wrong and the steps necessary to deal with this disaster. They have no sense of confidence that the auto industry has the capacity or plans to structure a workout."

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PBGC Scam: In the Summer, They Still Believed They Could Win

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I have just one thing to add to the great discussion on the report that the Pension Benefit Guarantee Corporation’s decision last summer to move the pension fund out of bonds and into stocks.

Just months before the start of last year’s stock market collapse, the federal agency that insures the retirement funds of 44 million Americans departed from its conservative investment strategy and decided to put much of its $64 billion insurance fund into stocks.

Switching from a heavy reliance on bonds, the Pension Benefit Guaranty Corporation decided to pour billions of dollars into speculative investments such as stocks in emerging foreign markets, real estate, and private equity funds.

The agency refused to say how much of the new investment strategy has been implemented or how the fund has fared during the downturn. The agency would only say that its fund was down 6.5 percent – and all of its stock-related investments were down 23 percent – as of last Sept. 30, the end of its fiscal year. But that was before most of the recent stock market decline and just before the investment switch was scheduled to begin in earnest.

First, we know from the fear-mongering about voter fraud and the plans to use foreclosure lists to vote-cage that the Republicans still believed they had a shot of winning New Mexico, Nevada, Ohio, and Michigan. Last summer, at the time this decision was made but before the switch was enacted (according to the vague dates in the story), Republicans still believed they had a shot at winning the Presidency.

Second, we know that the Bush Administration used federal resources for political ends. 

Third, the market was already beginning to tank when they made this decision.  And Karl Rove knows you don’t win elections if the economy isn’t "strong."

Call me crazy. But it sure looks like some Bush flunkie put the potential retirement of a bunch of Americans up in smoke so a guy who married a $100 million sugar momma would have a shot at being President. 

Update: Prof Foland and drational say I’m wrong, and that the scandal is likely cronyism and not electoral politics.

Prof Foland:

Yves Smith has the allocation percentages before and after. To me at least, they don’t seem to suggest that this was done to rescue the US stock market. Actually, the US stock market investment percentage went down as a result of the change, from 25% to Read more →

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They’re Not Tax Havens … They’re Secrecy Havens

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Citing a GAO report I linked to in January, Joe Conason had a much noted article on "tax shelters" this week. He argues we should focus on finding all the unpaid taxes in the tax shelters these companies are using, rather than focusing on AIG’s measly bonuses.

In the article, Conason asks "what other reason" businesses would have for using the tax shelters, concluding that it must be the taxes.

According to the Government Accountability Office, nearly all of America’s top 100 corporations maintain subsidiaries in countries identified as tax havens. As the GAO notes, there could be reasons other than avoiding the IRS to set up branches in places such as Singapore, Luxembourg and Switzerland, where taxes are light or nonexistent and keeping clients’ illicit secrets is considered a matter of national pride.

But what reason other than evasion could there be for Goldman Sachs Group to set up three subsidiaries in Bermuda, five in Mauritius, and 15 in the Cayman Islands? Why did Countrywide Financial need two subsidiaries in Guernsey? Why did Wachovia need 18 subsidiaries in Bermuda, three in the British Virgin Islands, and 16 in the Caymans? Why did Lehman Brothers need 31 subsidiaries in the Caymans? What do Bank of America’s 59 subsidiaries in the Caymans actually do? Why does Citigroup need 427 separate subsidiaries in tax havens, including 12 in the Channel Islands, 21 in Jersey, 91 in Luxembourg, 19 in Bermuda and 90 in the Caymans? What exactly is going on at Morgan Stanley’s 19 subs in Jersey, 29 subs in Luxembourg, 14 subs in the Marshall Islands, and its amazing 158 subs in the Caymans? And speaking of AIG, why does it have 18 subs in tax-haven countries? (Don’t expect to find out from Fox News Channel or the New York Post, because News Corp. has its own constellation of strange subsidiaries, including 33 in the Caymans alone.)

I pointed out in my January post the other point of these tax havens:

What Levin didn’t say, of course, is that these tax havens allow them to avoid financial oversight, too.

And wrote another post giving a scary example of what those other reasons might include.

Masaccio pointed me to these two passages in AIG’s 10K, which sound like they may describe what Gober is talking about:

Various AIG profit centers, including DBG, AIU, AIG Reinsurance Advisors, Inc. and AIG Risk Finance, as well as certain Foreign Life subsidiaries, Read more →

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Citi and AIG Didn’t Still Don’t Get It

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Fox Business News has an article describing what it got in response to a FOIA request for Treasury documents on the bailout. While most of the interesting details were redacted because of attorney-client privilege, the documents do reveal the extent to which Citi and AIG were as arrogant when Treasury was negotiating this stuff as they have been in recent weeks.

While the documents lack many specifics, the broad tone conveys a sense of urgency. For instance, though the details of what specifically held up an agreement with Citigroup at the end of last year are muddy, it’s clear from the documents it dealt with compensation. What’s also clear is that government officials were amazed that, even at the eleventh hour, Citi officials still didn’t seem to understand that they would have to make concessions.

“Unbelievable,” wrote Stephen Albrecht, the counselor to the general counsel at Treasury, summing up the situation.

There was also obvious tension between AIG and the government — at least from Treasury’s standpoint. For example, an outside counsel, Marshall Huebner, an attorney at Davis Polk representing the government, was trying to clarify a meeting time for a conference call on Nov. 9. But AIG “rudely never replied to last night’s timing question,” the lawyer wrote. Another lawyer that same day said “I agree and I note that some of them do not have a sense of timeline.”

AIG’s tone appeared to be casual, even cavalier. Anastasia Kelly, executive vice president and general counsel at AIG, responding on behalf of herself and Paula Reynolds, AIG’s chief restructuring officer, told Huebner later that day: “Paula and I love you (in the most appropriate way).”

The volume of emails that cover compensation issues shows that from the very beginning, Treasury wanted to clamp down on executive pay and bonuses for workers at AIG and Citigroup. But in the end, Treasury bent (one email shows officials saying they are “trying to leave open as much flexibility as possible”), a decision that ultimately seems to have led to last week’s controversy over bonuses paid to AIG executive. [my empahsis]

Meanwhile, Obama’s still trying to get the bankers to get it. 

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Lobbyists Wailing about Delicious Hell for Lobbyists

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Remember how last Friday I was jumping up and down with glee at the delicious hell that Obama had set up to prevent lobbyists from gaming stimulus funds?

With this memo.

Sec. 3. Ensuring Transparency of Registered Lobbyist Communications.

(a) An executive department or agency official shall not consider the view of a lobbyist registered under the Lobbying Disclosure Act of 1995, 2 U.S.C. 1601 et seq., concerning particular projects, applications, or applicants for funding under the Recovery Act unless such views are in writing.

(b) Upon the scheduling of, and again at the outset of, any oral communication (in-person or telephonic) with any person or entity concerning particular projects, applications, or applicants for funding under the Recovery Act, an executive department or agency official shall inquire whether any of the individuals or parties appearing or communicating concerning such particular project, application, or applicant is a lobbyist registered under the Lobbying Disclosure Act of 1995. If so, the lobbyist may not attend or participate in the telephonic or in-person contact, but may submit a communication in writing.

(c) All written communications from a registered lobbyist concerning the commitment, obligation, or expenditure of funds under the Recovery Act for particular projects, applications, or applicants shall be posted publicly by the receiving agency or governmental entity on its recovery website within 3 business days after receipt of such communication. [my emphasis]

Remember how I predicted big money would be finding ways to have employees avoid registering as lobbyists?

I like it (though I expect big money is already inventing a new way around registering as lobbyists).

Big money is so damned predictable.

The restrictions, which began taking effect unevenly this week, have angered lobbyists already upset with Obama’s repeated shots at them for wielding too much influence. Critics charge it may be unconstitutional to bar certain people — registered lobbyists — from speaking to government officials.

"What disqualifies lobbyists from exercising their First Amendment rights?" said J. Keith Kennedy, a top lobbyist for the Washington firm Baker Donelson.

William Luneburg and Thomas Susman, co-authors of the American Bar Association’s manual on lobbying laws, said they knew of no previous administrations curtailing lobbyists’ conversations with government officials.

[snip]

Since the prohibition applies to registered lobbyists, some firms are thinking about having some of their lobbyists rescind their registrations, which could let them pitch stimulus projects to government officials. Read more →

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Deferred Prosecution Agreements and AIG

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Remember the flap in the last few years about deferred prosecution agreements? The flap started when it was reported that John Ashcroft’s firm had gotten a $52 million deal from his former colleague, NJ US Attorney Chris Christie, to monitor an out-of-court settlement with medical device company Zimmer Holdings. Bush’s DOJ loved the deferred prosecution agreements because they provided a way to "crack down" on corporate crime without dismantling the company. But there were problems with the agreements. Cronies were secretly getting the deals to serve as monitors. And–as Eric Lichtblau reported last year–people wondered whether the agreements served as "get out of jail free" cards for big corporations to elude punishment for accounting fraud.

Deferred prosecutions have become a favorite tool of the Bush administration. But some legal experts now wonder if the policy shift has led companies, in particular financial institutions now under investigation for their roles in the subprime mortgage debacle, to test the limits of corporate anti-fraud laws.

Firms have readily agreed to the deferred prosecutions, said Vikramaditya S. Khanna, a law professor at the University of Michigan who has studied their use, because “clearly it avoids a bigger headache for them.”

Some lawyers suggest that companies may be willing to take more risks because they know that, if they are caught, the chances of getting a deferred prosecution are good. “Some companies may bear the risk” of legally questionable business practices if they believe they can cut a deal to defer their prosecution indefinitely, Mr. Khanna said.

Legal experts say the tactic may have sent the wrong signal to corporations — the promise, in effect, of a get-out-of-jail-free card. The growing use of deferred prosecutions also suggests one road map the Justice Department might follow in the subprime mortgage investigations.

Well, as the WSJ reminds us today, AIG entered two deferred prosecution agreements in the last several years and there was a monitor actively involved as AIG engaged in the practices that brought down our financial system.

AIG has paid lawyer James Cole and his firm, Bryan Cave LLP, about $20 million to oversee business practices at the insurer, according to people familiar with the matter. His reports on the company’s progress, periodically delivered to federal regulators since 2005, aren’t public.

Mr. Cole was installed inside AIG as a monitor, or independent consultant, as part of a $126 million settlement struck in November 2004 between AIG and the Justice Department and Securities and Exchange Commission.

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What If Big Media Became a Systemic Risk?

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During today’s hearing, in the context of asking why the Administration was somewhat urgently pressing its proposal for systemic wind-down authority first, John Campbell (R-CA) asked Tim Geithner whether there were other non-banks that constituted systemic risks that might fail.

TG: In context of proposals for more accountability. They need to be viewed together. We’ll work with committee on best legislative vehicle. Understand can’t do this piecemeal. 

Campbell: Why move on this separately. Are you expecting additional non-bank failures.

TG: [Again no real answer]  It would be in the interest of the country to make sure we’ve got broader rules. Less costly for the taxpayer.

Geithner pretty pointedly didn’t answer that question, which doesn’t reassure me that there’s not another AIG out there.

Which is why I find it interesting that Ed Royce (R-CA) brought up one of the other entities that–like AIG–chose to be regulated by the Office of Thrift Supervision rather than a stricter European regulator: GE.

GE held a panicked investor meeting last week to lay out the status of GE Capital, and has failed to meet a number of recent promises.

Shortly before announcing first-quarter earnings in 2008, [Jeff] Immelt—who was not at the Mar. 19 session—said the quarter’s results were "in the bag," only to miss the quarter’s number significantly.

Then last fall, Immelt said the company would not need to raise new capital—not long before it sold $3 billion in preferred stock to Warren Buffett and announced plans to offer at least $12 billion in stock to the public. More recently, GE slashed its dividend 68% for the second half of 2009, following months of stating that it would maintain its dividend for the year.

And, as happened to AIG last year, ratings agencies have been cutting GE’s credit rating.

Oh, and there’s that bit about GE’s media employees being asked to put off raises for a while.

Now, at least some observers are advising not to be too concerned about GE–so I will assume that Royce was presenting a scary hypothetical rather than predicting the demise of GE. And I will take it as Royce presented it–a big what if?

What if the world’s largest non-bank finance company attached to the arms and lightbulb manufacturer attached to one of the biggest media companies in the US were considered a risk to our finance system? What if FDIC and Treasury and the Fed grew worried that NBC’s parent company was sinking under the weight of GE Capital’s defaulting loans and started thinking about "resolving" it? Read more →

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Yet More House Finance Hearing Geithner Liveblog, Part Two

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First liveblog thread here. 

Castle: I want to address what you didn’t address. Collins, stability management council. Unanimous agreement we need to do something. Fed has certain authority now, I worry about conflicts there. I would hope that careful thought is given to being inclusive. To have some of the entities being regulated at table. I don’t want iron fisted hand making all these decisions.

[Can we put labor at the table, Mr. Castle??]

TG: Three different issues. Division of labor. Checks and balances. As is now case under FDIC. Can’t vest authority within one entity. Another set of issues, cooperation across regulator authorities. Much more integration. Not vested in one place. Third, who should be responsible. We have to make sure the people who are responsible are competent to regulate. Not Treasury. In a fire, the fire station needs to understand the neighborhood, don’t want to convene committee. Pragmatic case, authority for crisis management matched with systemic risk.

[Again, why did you send someone–Steven Rattner–who knows nothing about the auto industry to resolve it??]

Grayson: How difficult the decisions we make today. Balance sheet earlier this month. AIG had an exposure to the yield curve of $500B, five times greater than it ever had in equity. Why didn’t anyone stop from accumulating that risk.

TG: AIG was allowed to build up through complex structures huge amounts of risk. No competent authority. No choice but to come in and unwind.

Grayson: Last 10Q. Fannie Mae accumulated over $250B in derivatives.

TG: Not something I could respond to as carefully. Fannie and Freddie, large set of risks they have to hedge. More powerful supervisor. Not infer from looking at one piece of 10K.

Grayson: It’s all exposure, in June over 1.5 trillion. If that contributed to failure, what point should have someone said enough is enough.

TG: You can’t measure risk and exposure by looking at that.

Grayson: Substantive rules to prevent this kind of risk.

TG: Capital capital capital.  Greater cushion. Best solution these things. Not something market’s gonna provide on its own.

Grayson: If AIG subject to margin calls, never have gotten here.

TG: Margin regime, AIG hold more capital in regards to risk. Derivatives, much more conservative.

Grayson: Rules you see being put in place.

TG:  If an entity were to rise to a level, it could pose systemic risk. Brought within framework similar to large regulated institutions. 

Grayson: Someone will say enough is enough.

TG: constrain risks. 

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Did Chuck Todd Ask about Sacrifice because He’s Been Asked to Sacrifice?

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This might explain why Chuck Todd was so hot to call for sacrifice the other night:

NBC News has instituted an across-the-board freeze on raises for its executives and talent, even those with contracts guaranteeing them salary bumps.

A tipster tells us that NBC News—and probably all of NBC Universal, though we’re not sure—is discreetly calling around and asking its on-air and off-air employees to take one for the team and voluntarily delay any contractually obligated salary increases for six months.

Is it possible that a crack journalist like Chuck Todd doesn’t know that Main Street has been facing what amount to be pay cuts for some time? Since about 1972?

It’s all about Chuck Todd, you know. 

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Yet More House Finance Hearing Geithner Liveblog

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If I understand the rules Barney Frank laid down on Tuesday, the members who waited patiently but never got a chance to ask questions on Tuesday (people like Alan Grayson) get to go first.

You can follow along at CSPAN3 or the committee stream.

Here is Geithner’s statement.

Frank: When Geithner and Bernanke here on Tuesday, these members were here when they had to leave: After myself and Sub Chair. (Reads a list of name, including Grayson), they will be the first ones to ask. Systemic risk. Long had ability to wind down banks. Do we need authority to regulate excessive leverage? Innovations that have no value die of their own weight. But innovations that have values, thrive. By definition there are no rules. Securitization a set of innovations on par with earlier set. Greatly magnifies value of money. Problems when there are no rules. 

Bachus: I have been informed AIG trying to force creditors to accept 70% reduction. Foreign bank paid dollar for dollar in bailout. Essential that any new regime not rely on taxpayer funding. What was released yesterday relies on taxpayer funding. This is unacceptable and will perpetrate moral hazard.

Kanjorski:  We need to do this before these entities are close to death. Need to do this to prevent unknown calamities down the road. We must include regulation in the resolution authority. And we must regulate insurance–which is only regulated at state level. Particularly reinsurance. 

Garrett: In light of Chinese and Russian calls for reserve currency, you might want to clarify your remarks [not sure if this was directed to Barney or Tim]. What are roles of current regulators. Federal reserve created to avoid asset bubbles, but they do. Forgive me if I’m still a skeptic if you say systemic regulator will prevent this from ever happening again. We will only be encouraging that it will happen again. 

Geithner: [Note, this is NOT precisely what was in his statement] Here’s the list he just gave:

  • First, we need to establish a single entity with responsibility for systemic stability over the major institutions and critical payment and settlement systems and activities.
  • Second, we need to establish and enforce substantially more conservative capital requirements for institutions that pose potential risk to the stability of the financial system, that are designed to dampen rather than amplify financial cycles.
  • Read more →
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