“DO NOT CONGRATULATE:” Putin Does a Victory Lap — Over Rex Tillerson

As the WaPo reported, when Donald Trump called Vladimir Putin yesterday, he ignored his aides’ instructions not to congratulate Putin for winning reelection. He also ignored their instructions to condemn Putin for trying to kill Sergei Skripal.

Trump also chose not to heed talking points from aides instructing him to condemn Putin about the recent poisoning of a former Russian spy in the United Kingdom with a powerful nerve agent, a case that both the British and U.S. governments have blamed on Moscow.

That story is all the more interesting given the circumstances surrounding the call. The US readout of the call, posted only after Russia revealed it took place, doesn’t say that the White House initiated the call. The call … just happened.

President Donald J. Trump spoke today with President Vladimir Putin of Russia. The two leaders discussed the state of bilateral relations and resolved to continue dialogue about mutual national security priorities and challenges. President Trump congratulated President Putin on his March 18 re-election, and emphasized the importance of denuclearizing the Korean Peninsula. The two leaders confirmed the need for the United States and Russia to continue our shared efforts on strategic stability.

But if you’re going to call someone — anyone — after they’ve just won an election, you’re going to congratulate them. Trump even called Turkish president Erdogan last April after he won a referendum to make authoritarian changes to the Turkish Constitution.

And, as the Kremlin readout makes clear, it was the White House’s idea to make the call. It’s right there in the title, and the first words emphasize the congratulations Trump offered Putin (unless I’m mistaken, the readouts of other leader calls don’t emphasize that the counterparty initiated the call).

Vladimir Putin had a telephone conversation with President of the United States Donald Trump at the latter’s initiative.

Donald Trump congratulated Vladimir Putin on his victory in the presidential election. [my emphasis]

Given all that — given that Russia lorded over the way Trump simpered up to Putin — I’m particularly interested in this paragraph of the Russian readout (the second-to-last). [Update: Clarifying that I meant to refer to the Turkish, South Ossetian, and Jordanian congratulatory calls provided in Russian.]

It was agreed to develop further bilateral contacts in light of the changes in leadership at the US Department of State. The possibility of organising a top-level meeting received special attention.

Russia basically says that “it was agreed” (an interesting use of the passive voice) that the US and Russia could start cozying up together now that Rex Tillerson is out of the way!!! It’s as if this call was not just Trump bowing to Putin, but Trump checking in after firing Tillerson just one day after Tillerson — in his last speech save his farewell remarks — condemned Russia for attempting to assassinate Sergei Skripal. Here’s what Tillerson said right before he got fired:

The United States was in touch with our Allies in the United Kingdom ahead of today’s announcement, including in a call between Secretary Tillerson and Foreign Secretary Johnson this morning. We have full confidence in the UK’s investigation and its assessment that Russia was likely responsible for the nerve agent attack that took place in Salisbury last week.

There is never a justification for this type of attack – the attempted murder of a private citizen on the soil of a sovereign nation – and we are outraged that Russia appears to have again engaged in such behavior. From Ukraine to Syria – and now the UK – Russia continues to be an irresponsible force of instability in the world, acting with open disregard for the sovereignty of other states and the life of their citizens.

We agree that those responsible – both those who committed the crime and those who ordered it – must face appropriately serious consequences. We stand in solidarity with our Allies in the United Kingdom and will continue to coordinate closely our responses.

I’m actually not all that surprised Trump congratulated Putin; it’s consistent with his past behavior. The more alarming victory lap in this phone call pertains to Putin’s victory lap over Rex Tillerson.


I’m including this exchange from yesterday’s Trump presser, as another example of how much Putin has Trump cowed. Note Trump’s emphasis on some purported arms race. Yes, Putin is waggling his new nukes around. But the more interesting arms race involves cyber.

Q How was your call with President Putin?

PRESIDENT TRUMP: I had a call with President Putin and congratulated him on the victory — his electoral victory.

The call had to do, also, with the fact that we will probably get together in the not-too-distant future so that we can discuss arms, we can discuss the arms race. As you know, he made a statement that being in an arms race is not a great thing. That was right after the election — one of the first statements he made.

And we are spending $700 billion this year on our military, and a lot of it is that we are going to remain stronger than any other nation in the world by far.

We had a very good call, and I suspect that we’ll probably be meeting in the not-too-distant future to discuss the arms race, which is getting out of control, but we will never allow anybody to have anything even close to what we have. And also to discuss Ukraine and Syria and North Korea and various other things.

So I think, probably, we’ll be seeing President Putin in the not-too-distant future.

Update: CNN reports that Trump is furious that it leaked that he had ignored his aides’ instructions. But I don’t rule out Trump leaking it himself. It’d give him a good excuse to fire HR McMaster (so Putin could receive another simpering call from Trump and lord over that Trump is firing the people he doesn’t like).

Trump’s Legal Team: “If the Law and the Facts Are Against You, Pound the Table and Yell Like Hell”

Folks in the White House keep telling Maggie Haberman and Mike Schmidt about imminent changes to his legal team.

March 10: Emmet Flood

On March 10, it was that the superb Emmet Flood — who among other things, kept Dick Cheney out of the pokey — would join his team. The possibility was based on a meeting (now over 10 days ago) described as “an overture.”

The lawyer, Emmet T. Flood, met with Mr. Trump in the Oval Office this past week to discuss the possibility, according to the people. No final decision has been made, according to two of the people.

Should Mr. Flood come on board, the two people said, his main duties would be a day-to-day role helping the president navigate his dealings with the Justice Department.

Two people close to the president said that the overture to Mr. Flood did not indicate any new concerns about the inquiry. Still, it appears, at the least, to be an acknowledgment that the investigation is unlikely to end anytime soon.

The story admitted that Flood had said no to a similar offer last summer, at such time when Flood might have set the legal strategy and established ground rules for his client.

As recently as the summer, Mr. Flood, who currently works at the law firm Williams & Connolly, turned down an opportunity to represent Mr. Trump. It is not clear what has changed since then.

It also claimed that Flood was the only lawyer the White House had approached.

Mr. Flood had been on the wish list of some of the president’s advisers to join his legal team last year, and he is the only person the White House has been in contact with about such a leading role.

It also included the bizarre notion that Ty Cobb’s job was meant to end as soon as the White House had turned over all the documents Robert Mueller wanted.

Mr. Cobb has told friends for weeks that he views his position as temporary and does not expect to remain in the job for much longer.

Mr. Cobb’s primary task — producing documents for Mr. Mueller and arranging for White House aides to meet with prosecutors — is largely complete.

March 19: Joseph Di Genova

Then, on Monday, Maggie and Mike reported that Joseph Di Genova would join the team. The former US Attorney wouldn’t actually be lawyering so much as pounding the table and inventing conspiracy theories (best as I can tell, pounding tables is supposed to be Trump’s current lawyer, Jay Sekulow’s job, but he seems to have taken to hiding under the bed of late).

Mr. diGenova, a former United States attorney, is not expected to take a lead role. But he will serve as an outspoken player for the president as Mr. Trump has increased his attacks on the special counsel, Robert S. Mueller III. Mr. Trump broke over the weekend from the longstanding advice of some of his lawyers that he refrain from directly criticizing Mr. Mueller, a sign of his growing unease with the investigation.

It’s just as well that Di Genova wouldn’t be doing any lawyering given that in 1997, he argued that sitting presidents could be indicted, a view that would make it easier for Mueller to charge his supposed client.

Somehow, this story didn’t explain a big puzzle about the hiring: how Di Genova could represent the president when his wife, Victoria Toensing, has represented three other people in the investigation, at least one of whom gave apparently damning testimony to Mueller’s investigators.

Mr. diGenova is law partners with his wife, Victoria Toensing. Ms. Toensing has also represented Sam Clovis, the former Trump campaign co-chairman, and Erik Prince, the founder of the security contractor Blackwater and an informal adviser to Mr. Trump. Mr. Prince attended a meeting in January 2017 with a Russian investor in the Seychelles that the special counsel is investigating.

Ms. Toensing also represents Mark Corallo, the former spokesman for the Trump legal team who has accused one of the president’s advisers of potentially planning to obstruct justice with a statement related to a 2016 meeting between Donald Trump Jr. and a Russian lawyer who supposedly had damaging information on Hillary Clinton.

While it’s certainly possible Di Genova could clear up the conflict with Clovis and Prince, Corallo reportedly testified that Hope Hicks, having met one-on-one with Trump, suggested that emails regarding the June 9, 2016 meeting could be buried.

March 20: Ted Olson

Then, today, multiple outlets claimed that Ted Olson was under consideration. That’d be weird, given that Trump wants to claim that Robert Mueller has conflicts on account of his association with Jim Comey, yet Olson was as integrally involved in the most famous Comey-Mueller event — the hospital hero challenge to Stellar Wind in 2004 — as Mueller was. Plus, Olson’s name is on the Supreme Court precedent that deemed even the more expansive special prosecutor statute constitutional.

Which is to say that Olson may be the best active Republican lawyer with the possible exception of his former deputy, Paul Clement (hey, why isn’t Clement being floated?), but it’s not clear he would help Trump much, even if he could get Trump to follow instructions.

Yet the pushback from Olson’s firm suggests he was never really considering this offer (which raises questions about whether Flood, who like Olson also considered and rejected the position last year, is taking this offer any more seriously). It seems Trump wants to create the appearance, at least, that serious lawyers will still consider representing him.

Trump’s existing lawyers prepare to bolt

As it turns out, Trump didn’t tell his existing lawyers about a number of these conversations. And even aside from the shit shingle they’re facing, particularly as it becomes clear to Trump they were lying to him all last year about how long this inquiry would be and how serious Trump’s jeopardy is, they’re all getting tired babysitting the president.

The hiring of diGenova on Monday, first reported by the New York Times, infuriated Dowd, who responded angrily to the development, according to people familiar with his reaction, who spoke on the condition of anonymity to share internal details. Dowd views diGenova as pushing him to be the second chair rather than top dog on Trump’s legal team, these people said. But Dowd said in an email to a Post reporter that he’s perfectly happy with the new addition: “Love Joe.”

Dowd, however, has lost the confidence of many in the president’s orbit, both inside and outside the White House. In December, after Trump tweeted that he had fired his former national security adviser Michael Flynn because Flynn had lied to both the vice president and the FBI, Dowd later claimed that he was the one who had drafted the missive.

One outside adviser described Dowd as “the weakest link” in the team.

McGahn and Cobb have also had their share of tension. While Cobb has urged the president to cooperate with Mueller and hand over documents to his investigators, McGahn has pushed a more aggressive approach, according to people familiar with his work.

McGahn has said the legal team should make the special counsel subpoena every document, explain every interview and fight for every piece of information, one person said. A second White House aide said McGahn has questioned the constitutional status of the special counsel position.

But McGahn and Trump have also clashed repeatedly since entering the White House, and one former administration official said the president mused at least three times that perhaps he should hire a new counsel.

McGahn has told associates that he is exhausted and frustrated at times in the job, but that he has been able to make a historic impact on appointing judges and reducing regulations and that he would like to be around for a second Supreme Court opening, one friend said. McGahn also has a strong relationship with Kelly.

So Trump’s lawyers (with the possible exception of Don McGahn, who’ll stay so long as he can pack the courts with unqualified ideologues) want out, and none of the real lawyers he’s approaching want to have anything to do with him.

When Rick Gates ran his defense team like this, he had a way out: to flip on Paul Manafort and Trump himself.

But who will Trump flip on? Vladimir Putin?

This is the most remarkable thing to behold. The most powerful man in the world is having difficulties getting anyone but a washed out table-pounder to represent him in the most high profile investigation in recent years.

Cambridge Analytica Uncovered and More to Come

A little recap of events overnight while we wait for Channel 4’s next video. Channel 4 had already posted a video on March 17 which you can see here:

Very much worth watching — listen carefully to whistleblower Chris Wylie explain what data was used and how it was used. I can’t emphasize enough the problem of non-consensual use; if you didn’t explicitly consent but a friend did, they still swept up your data

David Carroll of Parsons School of Design (@profcarroll) offered a short and sweet synopsis last evening of the fallout after UK’s Channel 4 aired the first video of Cambridge Analytica Uncovered.

Facebook CTO Alex Stamos had a disagreement with management about the company’s handling of crisis; first reports said he had resigned. Stamos tweeted later, explaining:

“Despite the rumors, I’m still fully engaged with my work at Facebook. It’s true that my role did change. I’m currently spending more time exploring emerging security risks and working on election security.”

Other reports say Stamos is leaving in August. Both could be true: his job has changed and he’s eventually leaving.

I’m betting we will hear from him before Congress soon, whatever the truth.

Speaking of Congress, Sen. Ron Wyden has asked Mark Zuckerberg to provide a lot of information pronto to staffer Chris Sogohian. This ought to be a lot of fun.

A Facebook whistleblower has now come forward; Sandy Parkilas said covert harvesting of users’ data happened frequently, and Facebook could have done something about it.

Perhaps we ought to talk about nationalization of a citizens’ database?

“What Did the President Do and What Do His Lawyers Claim He Was Thinking?”

Ever since Richard Nixon, the big question one asks of presidential involvement in scandals is about the cover-up: “what did the president know and when did he know it?” Not so Trump in the investigation into his campaign’s conspiracy with Russia.

Robert Mueller’s prosecutors are already asking about the president’s actions: “What did the president do and what was he thinking when he did it?” WaPo describes the Trump team’s effort to dodge such questions by offering a summary of what his lawyers claim he did and was thinking.

The written materials provided to Mueller’s office include summaries of internal White House memos and contemporaneous correspondence about events Mueller is investigating, including the ousters of national security adviser Michael Flynn and FBI Director James B. Comey. The documents describe the White House players involved and the president’s actions.

Special counsel investigators have told Trump’s lawyers that their main questions about the president fall into two simple categories, the two people said: “What did he do?” and “What was he thinking when he did it?”

Trump’s lawyers expect Mueller’s team to ask whether Trump knew about Flynn’s communications with Russian Ambassador Sergey Kislyak during the presidential transition, for example, and what instructions, if any, the president gave Flynn about the contact, according to two advisers.

Trump said in February that he fired Flynn because he had misled Vice President Pence about his contact with Kislyak. He said he fired Comey because he had mishandled an investigation of Democratic presidential candidate Hillary Clinton.

CNN’s version of the same story seems to suggest such a summary is something they’ve already done, that what was new about last week was a sit-down with Watergate lawyer James Quarles.

As President Donald Trump’s reaction to special counsel Robert Mueller grows more irate by the day, attorneys on both sides sat down last week in a rare face-to-face discussion about the topics investigators could inquire of the President. It was the first in-person meeting after several weeks of informal discussions between the two sides, according to two sources familiar with the talks.

Mueller’s team added granularity to the topics it originally discussed with the defense team months ago, like the firing of FBI Director James Comey, according to one of the sources.

[snip]

The President’s attorneys sent the special counsel a summary of evidence they had turned over to prosecutors already, a practice they’ve followed multiple times throughout the investigation. Mueller himself didn’t attend the meeting. But prosecutors including former Watergate prosecutor James Quarles III gave Trump’s lawyers enough detail that the President’s team wrote a memo with possible questions they expect to be asked of him.

In addition to Trump’s involvement in directing Mike Flynn to ask Sergey Kislyak to defer any response to the new sanctions imposed in December 2016, CNN says that Jeff Sessions’ involvement in firing Comey is also on the list of questions they have for the president.

This time around, for instance, the prosecutors said they would ask about Attorney General Jeff Sessions’ involvement in the Comey dismissal and what Trump knew about national security adviser Michael Flynn’s phone calls with then-Russian Ambassador Sergey Kislyak in late December 2016.

[snip]

CNN reported in January that Mueller’s team had given the President’s lawyers general topics for an interview, such as Trump’s request that Comey drop the investigation into Flynn, his reaction to Comey’s May 2017 testimony on Capitol Hill, and Trump’s contact with intelligence officials about the Russia investigation.

A source familiar with the talks said more recent discussions about Trump’s interview also touched on Sessions and Flynn. Sessions previously spoke to Mueller’s team while investigators looked into possible obstruction of justice. And during the transition, Flynn had spoken to Kisklyak about sanctions and the United Nations, then lied to investigators about the calls before Trump fired him. Flynn pleaded guilty to lying to investigators and agreed to cooperate with Mueller in December.

The questions about Sessions and Flynn are both interesting because of recent events.

First, CNN’s story reporting an interest in Sessions’ role in Comey’s firing came out after the report that Sessions and the president traveled separately yesterday to the opioid event they appeared at together. I found that odd at first — Trump should be happy that Sessions fired Andy McCabe for him last Friday. Perhaps Trump is mad that by firing McCabe, Sessions and Rod Rosenstein have taken one excuse he could use to fire both of them off the table. Or perhaps Sessions has realized that he needs to avoid talking to Trump about his own conversations with prosecutors. But if Sessions has become a witness against Trump and the discussions last week made that clear, then it puts the president in a particularly exquisite bind, because the Senate would not take kindly if Trump fired one of their own after he went to such lengths to fire McCabe.

The separate flight is all the more interesting given the news that three witnesses have testified that Sessions was actually more supportive of Trump’s outreach to Russia than he himself (and JD Gordon) has claimed.

And given Mueller’s apparent efforts to confirm what has long been obvious — that KT McFarland was relaying Trump’s orders to Flynn on what to say to Kislyak back in December 2016, consider Mike Flynn’s odd campaign appearance last Friday. Amid stories that he’s beginning to rebuild his life, Flynn started a campaign speech for a right wing nut job attempting to unseat Maxine Waters by alluding to his unfair treatment in an unfair process.

“I’m not here to complain about who has done me wrong or how unfair I’ve been treated or how unfair the entire process has been,” Flynn said to a small audience, which laughed at his remark, though Flynn did not.

Flynn then went on to reflect his role in getting Trump elected.

“All of us are imperfect,” he said. “Heck, I used to introduce … Trump during our various campaign stops as an imperfect candidate. I mean, clearly, he’s not a traditional politician. But his ‘Make America Great Again’ philosophy energized the country enough to get him overwhelmingly elected.”

“Whether we like it or not, that’s what happened,” Flynn added.

Particularly given the others who’ve endorsed Omar Navarro, like Roger Stone and Alex Jones, you’d think this was all a dig at Mueller, and it may well be. Except that Jared Kushner had an opportunity to exonerate Flynn last fall; his failure to do so is what led Flynn to flip, leading to these questions about whether Trump ordered Flynn to ask the Russians to delay their response to sanctions.

Now, any confirmation that the president ordered Flynn to ask Kislyak to delay his response on one level makes Flynn’s effort less damning: it’s one thing for an incoming National Security Advisor to freelance in trying to undermine the incumbent’s policies. It’s another thing for the incoming president to do so.

But contrary to the obstruction narrative that every fool has been repeating, Mueller is not just interested in how and why Jim Comey got fired. He’s also interested in why Trump fired Flynn. That question becomes more pressing if the president ordered Flynn to chat up Kislyak, and if the president ordered Flynn to lie to hide what he had done (leading to his lie to the FBI). Why not just admit that that was incoming policy? Why not just admit to the FBI that Flynn was acting on Trump’s orders? Instead of doing that, Flynn lied and Trump tried instead to thwart the investigation into Flynn, up to and including firing Comey.

Why fire Comey just before the meeting with the Russians and then brag about it to them?

For months, credulous journalists have been distinguishing between the president’s presumed obstruction and the substantive conspiracy others were being accused of, as if no Trump flunkies were involved in the cover-up and Trump was walled off from the conspiracy. But that distinction has never held up, especially not given the interest in why Trump fired Flynn.

“What did the president do and what the fuck was he thinking when he did it?” are questions not about the cover-up, but about the substantive crime.

And that’s the question Mueller’s Watergate prosecutor has now posed to the president’s lawyers.

Duty of Candor: The Timing of the Sessions News

Since Jeff Sessions fired Andy McCabe Friday night and Trump started ratcheting up his attacks on Robert Mueller, few Republicans have vocally supported Mueller (Jeff Flake, Trey Gowdy, and John McCain are exceptions; all are retiring).

There was, however, this story, reporting that three sources say Jeff Sessions was not as dismissive of George Papadopoulos’ plan to reach out to Russians as JD Gordon has claimed.

Three people who attended the March campaign meeting told Reuters they gave their version of events to FBI agents or congressional investigators probing Russian interference in the 2016 election. Although the accounts they provided to Reuters differed in certain respects, all three, who declined to be identified, said Sessions had expressed no objections to Papadopoulos’ idea.

One person said Sessions was courteous to Papadopoulos and said something to the effect of “okay, interesting.”

The other two recalled a similar response.

“It was almost like, ‘Well, thank you and let’s move on to the next person,’” one said.

As the story notes, this conflicts with Jeff Sessions’ November 14 sworn testimony to the House Judiciary Committee.

So in the wake of the Attorney General firing McCabe for violating his duty of candor, three current or former Trump associates leaked that he lied to the House.

The thing is, there can’t be that many people who these sources could be. I’m not sure the annotations from Seth Abramson (above) are all correct, but here’s what it looks like.

Sessions and Gordon are on the record stating Sessions pushed back. Trump hasn’t testified yet.

One may well be Papadopoulos.

That leaves, starting with Abramson’s guesses (here’s a later list of Trump’s national security advisors, which should round out Abramson’s):

  • Joseph Schmitz, who left his job as DOD IG amid some scandal
  • Bert Mizusawa, who is running for VA Senate and presumably wants some national help, but he is himself a lawyer
  • Jim Hoskins, who’s career military (including a lot of time working in intelligence)
  • Walid Phares, appears to still be pitching Trump’s foreign policy adventurism
  • Gary Harrell, who is career special operations
  • Charles Kubic, who even contemporaneously was raising legal concerns about such outreach (and who would be a likely candidate to have been interviewed by Mueller since he showed up in email chains raising such concerns)
  • James Carafano may be the balding man in the foreground (though he’s not in Trump’s list of advisors) — he’s still running interference for Trump’s crazy foreign policy
  • Sam Clovis, who is not identifiable in the picture, raised concerns about legal issues and NATO concerns, but elsewhere was clearly involved in the effort to reach out to Russia, even per Carter Page; he’s in the news because of the potential conflict Joe Di Genova’s reported representation of Trump poses
  • Keith Kellogg is another possible candidate; he remains part of Trump’s foreign policy team and has been interviewed
  • James Woolsey is another candidate — we know he has spoken with Mueller and has been critical of the tension between the White House, Congress, and FBI of late
  • Stephen Miller was at the meeting and interviewed with Mueller last year; I would think he would be a Sessions loyalist, though

I raise all this because, while Republicans in Congress are largely dodging the issue of protecting Mueller from Trump, some people closer to the investigation are calling Sessions on his hypocrisy. That might be far more dangerous to the Trump administration in the near term.

Another Shoe Dropped: Cambridge Analytica Used Its Own Kompromat

I confess, I did NOT see this coming, a perfect example of blindness based in preconceived notions about technology companies.

UK’s Channel 4 just aired a report in which Cambridge Analytica executives were secretly filmed discussing the creation and use of compromising material in campaigns. Some of the acts described violate UK Bribery Act and the US Foreign Corrupt Practices Act.

Watch:

Last evening there had been teasers revealing Cambridge Analytica had used actual Facebook users’ account information while demonstrating their psychographic profiling product, without masking the users’ personal information. This is ugly on its own, violating users’ privacy without permission.

But the creation and use of kompromat…wow.

This is an open thread. Have at it.

Two Other Trump Tweet Innovations: “Fraudulent Activities” and “Conflicts of Interest”

Much was made over the weekend of Trump, for the first time (though he once RTed this Tweet mentioning the special counsel), invoking Robert Mueller’s name in his Twitter rants. (As a reminder, this searchable archive of his Tweets is genius.)

But I want to look at another innovation in the Tweet. This is also the first time Trump has claimed the investigation itself is based on “fraudulent activities.” During the campaign, he once used the term “fraudulent activity” to accuse Hillary of “fraudulent activity.” And he’s a fan of the word “fraudulent,” having used it 17 times — to describe the Steele dossier, Ted Cruz’s IA victory, Obama’s claims about ObamaCare, and Liberian Ebola patient Thomas Duncan. He most often uses it to describe critical reporting or other claims (such as in advertisements) made about himself.

Then, this morning, Trump for the first time accused the Mueller investigation (this time without using Bobby Three Sticks’ name) of having “conflicts of interest,” a term Trump has actually only used in two other Tweets (one, two), both describing Hillary.

While it’s always fraught to try to understand Trump’s feverish little brain, it is fairly clear his Tweets serve as a mirror of things he’s seeing, most often, but by no means exclusively, Fox and Friends.

So I want to consider what these two innovations in his attacks on the Mueller investigation might suggest.

It may be nothing: just a reflection of his defensiveness.

It might mean his rat-fucking buddies are planning some new conspiracy theory they plan to use to try to undermine the Mueller inquiry; Roger Stone has been working the press this weekend. Or maybe it’s an old one: last summer Trump’s considered challenging Mueller’s appointment because his past history with Jim Comey amounted to a conflict.

But there’s another possibility.

In NYT’s first coverage of Trump and John Dowd’s increasing aggressiveness against Mueller, they tied it to two related events: the ongoing negotiations over a Mueller interview of Trump (which Axios claims  still focuses on the Comey and Flynn firings).

Mueller is said to have sent questions to Mr. Trump’s legal team as part of negotiations over an interview with the president. Mr. Mueller is seeking the interview, according to two people close to the White House, in order to ask follow-up questions, but put forward the list as a start.

They also tie it to (their own report) that Mueller subpoenaed the Trump Organization, which they in turn tie to increased unease among Trump’s legal team.

To keep the president at bay, the lawyers — led by the White House lawyer Ty Cobb — told him that Mr. Mueller’s investigation would be over by last December and that they would ask Mr. Mueller to put out a statement saying the president was not a target of the investigation.

But instead, Mr. Trump was livid anew this week over the Times report that Mr. Mueller had subpoenaed his corporate records, including those related to Russia, according to one person close to the White House.

The president’s lawyers appear to be feeling increasingly uneasy about where they stand. This month, Mr. Trump met with a veteran Washington lawyer, Emmet T. Flood, to discuss coming on board to take over the president’s dealings with Mr. Mueller’s office and possibly replacing Donald F. McGahn II as White House counsel. The president’s personal lawyers, Mr. Dowd and Jay Sekulow, did not know about the meeting, prompting concerns that they could be pushed aside, and potentially making them less resistant to Mr. Trump’s whims about handling the inquiry.

While the other possibilities are admittedly more likely (that is, that these two innovations reflect nothing more than Trump’s natural projection), imagine what would happen if Mueller asked Trump to account for his own conflicts and fraudulent activities, both key to his business model.

Yes, accusing Robert Mueller (or his predecessors) of committing fraudulent activities and having conflicts of interest is an attack squarely within the norm for Trump, those terms are also the perfect mirror for the President’s own business.

Facebook Cuts Off Cambridge Analytica, Promises Further Investigation

As I noted in my post on Andrew McCabe’s firing, the far more important news of the weekend is that Facebook has suspended Cambridge Analytica’s access to its data.

As Facebook explained, back in 2015, Cambridge researcher Aleksandr Kogan harvested data on millions of Americans by getting them to willingly use his research app. When Facebook found out that he had handed the data off to two downstream companies (this detail is important), it made them delete the data based on developer user agreements.

In 2015, we learned that a psychology professor at the University of Cambridge named Dr. Aleksandr Kogan lied to us and violated our Platform Policies by passing data from an app that was using Facebook Login to SCL/Cambridge Analytica, a firm that does political, government and military work around the globe. He also passed that data to Christopher Wylie of Eunoia Technologies, Inc.

Like all app developers, Kogan requested and gained access to information from people after they chose to download his app. His app, “thisisyourdigitallife,” offered a personality prediction, and billed itself on Facebook as “a research app used by psychologists.” Approximately 270,000 people downloaded the app. In so doing, they gave their consent for Kogan to access information such as the city they set on their profile, or content they had liked, as well as more limited information about friends who had their privacy settings set to allow it.

Although Kogan gained access to this information in a legitimate way and through the proper channels that governed all developers on Facebook at that time, he did not subsequently abide by our rules. By passing information on to a third party, including SCL/Cambridge Analytica and Christopher Wylie of Eunoia Technologies, he violated our platform policies. When we learned of this violation in 2015, we removed his app from Facebook and demanded certifications from Kogan and all parties he had given data to that the information had been destroyed. Cambridge Analytica, Kogan and Wylie all certified to us that they destroyed the data.

They now claim to have new information that CA didn’t delete the data (I have firsthand knowledge that Facebook knew of this at least a year ago, and these pieces argue Facebook knew even earlier).

Several days ago, we received reports that, contrary to the certifications we were given, not all data was deleted. We are moving aggressively to determine the accuracy of these claims. If true, this is another unacceptable violation of trust and the commitments they made. We are suspending SCL/Cambridge Analytica, Wylie and Kogan from Facebook, pending further information.

We are committed to vigorously enforcing our policies to protect people’s information. We will take whatever steps are required to see that this happens. We will take legal action if necessary to hold them responsible and accountable for any unlawful behavior.

What changed is that the guy who operationalized all this data, Christopher Wylie, just came forward publicly. Here’s how Carole Cadwalladr, the Guardian reporter who has owned this story, describes Wylie.

Or, as Wylie describes it, he was the gay Canadian vegan who somehow ended up creating “Steve Bannon’s psychological warfare mindfuck tool”.

In 2014, Steve Bannon – then executive chairman of the “alt-right” news network Breitbart – was Wylie’s boss. And Robert Mercer, the secretive US hedge-fund billionaire and Republican donor, was Cambridge Analytica’s investor. And the idea they bought into was to bring big data and social media to an established military methodology – “information operations” – then turn it on the US electorate.

Wylie describes how he profiled Americans so they could tailor political ads.

[W]hile studying for a PhD in fashion trend forecasting, he came up with a plan to harvest the Facebook profiles of millions of people in the US, and to use their private and personal information to create sophisticated psychological and political profiles. And then target them with political ads designed to work on their particular psychological makeup.

“We ‘broke’ Facebook,” he says.

And he did it on behalf of his new boss, Steve Bannon.

Wylie is going on the record (and providing the records) to back this description of how, contrary to repeated claims made in parliamentary testimony, Alexsandr Kogan harvested data in the guise of doing research.

Kogan then set up GSR to do the work, and proposed to Wylie they use the data to set up an interdisciplinary institute working across the social sciences. “What happened to that idea,” I ask Wylie. “It never happened. I don’t know why. That’s one of the things that upsets me the most.”

It was Bannon’s interest in culture as war that ignited Wylie’s intellectual concept. But it was Robert Mercer’s millions that created a firestorm. Kogan was able to throw money at the hard problem of acquiring personal data: he advertised for people who were willing to be paid to take a personality quiz on Amazon’s Mechanical Turk and Qualtrics. At the end of which Kogan’s app, called thisismydigitallife, gave him permission to access their Facebook profiles. And not just theirs, but their friends’ too. On average, each “seeder” – the people who had taken the personality test, around 320,000 in total – unwittingly gave access to at least 160 other people’s profiles, none of whom would have known or had reason to suspect.

What the email correspondence between Cambridge Analytica employees and Kogan shows is that Kogan had collected millions of profiles in a matter of weeks. But neither Wylie nor anyone else at Cambridge Analytica had checked that it was legal. It certainly wasn’t authorised. Kogan did have permission to pull Facebook data, but for academic purposes only. What’s more, under British data protection laws, it’s illegal for personal data to be sold to a third party without consent.

“Facebook could see it was happening,” says Wylie. “Their security protocols were triggered because Kogan’s apps were pulling this enormous amount of data, but apparently Kogan told them it was for academic use. So they were like, ‘Fine’.” [my emphasis]

Here’s where the violation(s) come in. While participants in Kogan’s harvesting project willingly participated in the project (and in the process made their friends’ Facebook data accessible to Kogan as well), he told Facebook it was for research, and in spite of the fact that the harvesting was done in the UK, he didn’t get consent before he sold the data to CA.

Both Cadwalladr and NYT’s story are calling this a “breach” which in my opinion is counterproductive for a lot of reasons, not least that consumer recourse for “breaches” in the US is virtually nothing — as the recent experience of those exposed in Equifax’ breach has made clear.

Whereas the kinds of TOS violations that Kogan committed in the UK do provide consumers recourse, not just to demand transparency about what happened, but also financial fines. Facebook, in the EU, is similarly exposed (full disclosure: I believe I have a still running challenge in Ireland for my CA-related FB data).

Just as this story was breaking, David Carroll, who has been a key activist on this issue, filed a claim against CA in the UK.

In other words, with Wylie’s testimony, there are sticks to use in Europe to first gain transparency about what happened, and possibly fine the parties. Which is probably why Facebook finally suspended CA’s access to Facebook, without which it is far less dangerous.

There are other aspects of this story: shell companies, a pitch to Lukoil, and questions about the citizenship of those who worked for CA in the 2014 and 2016 elections, potentially raising questions about the involvement of foreign (British) actors in our elections. But here’s the detail in the NYT story I’m most interested in.

While the substance of Mr. Mueller’s interest is a closely guarded secret, documents viewed by The Times indicate that the firm’s British affiliate claims to have worked in Russia and Ukraine.

The Ukrainian side of Paul Manafort’s involvement in the Party of Regions — the American lobbying side of which is what got him charged with conspiracy to defraud the US — pertains to bringing American style politics to Ukraine.

He also directed Yanukovych’s party to harp on a single theme each week—say, the sorry condition of pensioners. These were not the most-sophisticated techniques, but they had never been deployed in Ukraine. Yanukovych was proud of his American turn. After he hired Manafort, he invited U.S. Ambassador John Herbst to his office, placed a binder containing Manafort’s strategy in front of him, and announced, “I’m going with Washington.”

Manafort often justified his work in Ukraine by arguing that he hoped to guide the country toward Europe and the West. But his polling data suggested that Yanukovych should accentuate cultural divisions in the country, playing to the sense of victimization felt by Russian speakers in eastern Ukraine. And sure enough, his clients railed against nato expansion. When a U.S. diplomat discovered a rabidly anti-American speech on the Party of Regions’ website, Manafort told him, “But it isn’t on the English version.”

Yanukovych’s party succeeded in the parliamentary elections beyond all expectations, and the oligarchs who’d funded it came to regard Manafort with immense respect.

There are Americans doing this overseas more and more of late, and Manafort’s efforts for Yanukovych precede the foundation of CA (and Manafort’s involvement in the Trump campaign largely precedes Bannon and Cambridge Analytica’s). But that’s the basis for his relationships in the region.

There’s a lot of implications of the Wylie testimony, assuming law enforcement, parliament, and Congress find his underlying documents as compelling as the journalists have. For starters, this significantly limits what CA (and its intelligence contractor SCL) will be able to do, which neutralizes a powerful tool Bannon and the Mercers have been holding. I believe that both CA and FB are both already at significant legal exposure. I suspect this will finally force FB to get a lot more attentive to what app developers do with FB user data. I’ve been saying for a while that at some point US tech companies may want to harmonize with Europe’s General Data Protection Regulation (GDPR), which starts being enforced in May. Certainly, it would provide a solution to some of the political problems they’re already facing and harmonization would make compliance easier. That would provide even more teeth to prevent this illicit kind of downstream data usage.

But there also may be aspects of this story that expose CA and their clients, including the Trump campaign, to legal concerns that piggy back on any conspiracy with Russia.

On McCabe’s Firing

Update: 8/28/19: I just re-read this amid discussion that Andrew McCabe may be fired. Much of this I stand by. I was right about the import of Mike Flynn already pleading guilty, I stand by my comments about Michael Horowitz and think the IG Report is damning, though in his lawsuit, McCabe credibly argues it was no developed in the normal fashion. I was right that McCabe would not be a big witness in any obstruction investigation; I was wrong that Comey wouldn’t be. But I want to admit that obstruction did end up being what Mueller effectively issued an impeachment referral for. That said, there was obstruction in both the Stone and Manafort threads of any interactions with Russia. 

I’m going to refrain from making any conclusions about Andy McCabe’s firing until we have the Inspector General Report that underlies it. For now (update: I’ve now cleaned this up post-Yoga class), keep the following details in mind:

Michael Horowitz is a very good Inspector General

The allegations that McCabe lacked candor in discussions about his communications with Devlin Barrett all arise out of an investigation Democrats demanded in response to FBI’s treatment of the investigation into Hillary Clinton. It is being led by DOJ’s Inspector General, Michael Horowitz. Horowitz was nominated by Barack Obama and confirmed while Democrats still had the majority, in 2012.

I’ve never seen anything in Horowitz’ work that suggests he is influenced by politics, though he has shown an ability to protect his own department’s authority, in part by cultivating Congress. Of significant note, he fought with FBI to get the information his investigators needed to do the job, but was thwarted, extending into Jim Comey’s tenure (as I laid out in a fucking prescient post written on November 3, 2016).

As I’ve long covered, in 2010, the FBI started balking at the Inspector General’s proper investigative demands. Among other things, the FBI refused to provide information on grand jury investigations unless some top official in FBI said that it would help the FBI if the IG obtained it. In addition, the FBI (and DEA) have responded to requests very selectively, pulling investigations they don’t want to be reviewed. In 2014, the IG asked OLC for a memo on whether it should be able to get the information it needs to do its job. Last year, OLC basically responded, Nope, can’t have the stuff you need to exercise proper oversight of the FBI.

DOJ’s Inspector General, Michael Horowitz, has been trying for some time to get Congress to affirmatively authorize his office (and IGs generally, because the problem exists at other agencies) to receive the information he needs to do his job. But thus far — probably because Jim Comey used to be known as the world’s biggest Boy Scout — Congress has failed to do so.

I care about how FBI’s misconduct affects the election (thus far, polling suggests it hasn’t done so, though polls are getting closer as Republican Gary Johnson supporters move back to supporting the GOP nominee, as almost always happens with third party candidates). But I care even more about how fucked up the FBI is. Even if Comey is ousted, I can’t think of a likely candidate that could actually fix the problems at FBI. One of the few entities that I think might be able to do something about the stench at FBI is the IG.

Except the FBI has spent 6 years making sure the IG can’t fully review its conduct.

So while I don’t think he’d be motivated by politics, he has had a running fight with top FBI officials about their willingness to subject FBI to scrutiny for the entirety of the Comey tenure.

McCabe has suggested that the investigation into him was “accelerated” only after he testified to the House Intelligence Committee that he would corroborate Jim Comey’s version of his firing.

I am being singled out and treated this way because of the role I played, the actions I took, and the events I witnessed in the aftermath of the firing of James Comey. The release of this report was accelerated only after my testimony to the House Intelligence Committee revealed that I would corroborate former Director Comey’s accounts of his discussions with the President. The OIG’s focus on me and this report became a part of an unprecedented effort by the Administration, driven by the President himself, to remove me from my position, destroy my reputation, and possibly strip me of a pension that I worked 21 years to earn. The accelerated release of the report, and the punitive actions taken in response, make sense only when viewed through this lens.

I’m not sure this timeline bears out (the investigation was supposed to be done last year, but actually got extended into this year). The statement stops short of saying that he was targeted because his testimony — presumably already delivered to Robert Mueller by the time of his HPSCI testimony — corroborated Comey’s.

What we’ve seen of the other personnel moves as a result of this investigation — the reassignment of Peter Strzok and Lisa Page for texts that really did raise conflict issues (to say nothing of operational security problems), and the reassignment of James Baker — seem reasonable. McCabe’s firing was reviewed by a whole bunch of people who have been around DOJ a long time.

So it’s possible the underlying claim has merit. It’s also possible that McCabe is getting the same punishment that a line agent would get if he did not answer the IG honestly.

Trump’s comments matter

Obviously, all that cannot be taken out of context of Trump’s own statements and Jeff Sessions’ efforts to keep his job.

We will get these details in upcoming days, and almost all the details will come from people who’ve got a big stake in the process.

Michael Bromwich — McCabe’s lawyer — says they didn’t get a review of the allegations against McCabe until very recently, and were still trying to contest the firing two days ago (as was publicly reported). I find his claim that this was “cleaved off” from the larger investigation unconvincing: so were Strzok and Page, but that was done to preserve the integrity of the Mueller investigation, and Chris Wray had said publicly that he wanted to act on problems as they found them. Bromwich curiously is not saying that McCabe’s firing violates any agreement McCabe made when he took leave to await retirement.

Undoubtedly, Jeff Sessions did this in the most cowardly way possible. While I think it’s likely, I’m not 100% convinced that the timing was anything other than trying to make a real decision rather than let the retirement make it.

There’s no evidence, yet, that McCabe will lose all his pension

It has been said for over a month that McCabe was just waiting out his birthday so he could “get” his pension. That was so he could start drawing on it immediately. Josh Gerstein laid out the best thing I’ve seen on the implications (as well as what limited legal recourse McCabe has).

The financial stakes for McCabe could be significant. If he had made it to his 50th birthday on Sunday while still in federal service, he would have been eligible to begin drawing a full pension immediately under provisions that apply to federal law enforcement officers, said Kimberly Berry, a lawyer in Arlington, Virginia, who specializes in federal retirement issues.

Berry disputed reports, however, that McCabe would lose his pension altogether.

“He doesn’t lose his retirement,” she said. “It’s not all thrown out in the garbage.“

Even after his dismissal, McCabe will probably be eligible to begin collecting his pension at about age 57, although he would likely lose access to federal health coverage and would probably get a smaller pension than if he stayed on the federal payroll, experts said.

There have been claims McCabe could get hired by a member of Congress for a week so he can start drawing on it. But I’ve heard the finances aren’t even the issue, it’s the principle, which if you want to be a martyr, being fired works better.

This will have a far smaller impact on the Mueller probe than Comey-McCabe loyalists and John Dowd lay out

McCabe and others have suggested that there has been a successful effort to retaliate against Comey’s three corroborating witnesses, though that is least convincing with regards to Jim Rybicki, who was replaced as happens as a matter of course every time a new FBI Director comes in.

But the Comey-McCabe loyalists make far too much of their role in the Mueller probe, making themselves the central actors in the drama. Yes, if their credibility is hurt it does do some damage to any obstruction charges against Trump, which, as I keep repeating, will not be the primary thrust of any charges against Trump. Mueller is investigating Trump for a conspiracy with Russians; the obstruction is just the act that led to his appointment as Special Counsel and with that, a much more thorough investigation. Contrary to what you’re hearing, little we’ve seen thus far is fruit of the decisions Comey and his people made. While all were involved in the decision to charge Mike Flynn, he has already pled guilty and started spilling his guts to Mueller. There’s no reason to believe McCabe or Comey are direct witnesses in the conspiracy charges that will be filed against people close to Trump, if not against Trump himself.

For all those reasons, John Dowd’s claim that McCabe’s firing should end the investigation is equally unavailing.

I pray that Acting Attorney General Rosenstein will follow the brilliant and courageous example of the FBI Office of Professional Responsibility and Attorney General Jeff Sessions and bring an end to alleged Russia Collusion investigation manufactured by McCabe’s boss James Comey based upon a fraudulent and corrupt Dossier.

I mean, if this really is Dowd’s impression of why his client is being investigated, I almost feel sorry for Trump.

But the truth is the dossier has always been a distraction. The obstruction charge was probably used to distract Trump (and his NYT stenographers) while Mueller’s team collected the far more serious evidence on the conspiracy charges, though events of this week may well add to the conspiracy charges. And Comey didn’t manufacture any investigation; if anything, his people were not aggressive enough in the months he oversaw the investigation, particularly as it pertains to George Papadopoulos.

So if Dowd thinks McCabe’s firing will affect the core of the evidence Mueller has already developed (and, I suspect, started hanging on a sealed magnet indictment), he is likely to be very disappointed.

Regardless of the merits of the McCabe firing, it (and the related shit storm) may give Rosenstein and Mueller more time to work. It’s not clear they need that much more time to put together the conspiracy charges that are sitting right beneath the surface.

Finally — and I’m about to do a post on this — the far more important news from yesterday is that Facebook is cutting off Cambridge Analytica for violating its agreements about data use. That may well lead to some far more important changes, changes that Trump has less ability to politicize.

10 Years Out: What’s with the Bear in the Middle?

[NB: Check the byline — it’s me, Rayne. I am not a registered financial representative or a lawyer; this post is based on my own observations and opinions. As always, your mileage may vary.]

On a chilly March evening ten years ago tonight, I was yelling at loved ones: Sell. For gods’ sake, SELL.

My own household had moved its investments from a number of mutual funds to guaranteed income. Every fund in the portfolio to that point contained a chunk of an investment bank and was therefore exposed to what I felt was sure to come.

It was obvious to anyone who was really paying attention that something was really off. Trying to buy a house in 2004 was almost impossible where I live, in spite of the ongoing migration of manufacturing jobs offshore. In the target price range for a 2000-square foot house, there were only a handful of homes listed and they all needed more than $50K in improvements. The nearby farmers’ fields were full of a new crop: single-family homes, mostly 3-bedroom and up, had eaten acres and acres in less than a year. It was insanity — there was no way this pace could be maintained, not with my state’s problematic over-reliance on the automobile industry.

Instead of buying an existing home, I built a new one. It didn’t make sense to spend $50K on improvements requiring a lot of construction if I couldn’t guarantee I could hire a contractor when new construction was so hot. I didn’t build in the top end neighborhood, either. I left myself some room in case I had to leave the area quickly for a new job; I also left room for the market to improve.

Except it didn’t. The last landscaping contractor must have pulled away from my new home in 2005 just as the bubble began to deflate. There were signs it was going to get worse, too, what with fuel prices skyrocketing. Banks increasingly offered crazy terms on mortgages just so they could something, anything, not taking the hint the market was saturated. Given the number of people relying too heavily on adjustable rate mortgages with ridiculously low entry rates, the increased gasoline price costing the average family more than $1000 a year was certain to cause credit card defaults and foreclosures.

Something ugly was coming.

~ ~ ~

In March 2008 — almost exactly a month after the Washington Post published an op-ed by New York’s then-Governor Eliot Spitzer exhorting action on subprime mortgages — 85-year-old  American investment bank Bear Stearns crashed and burned.

After urgent, fancy foot work by the Federal Reserve Bank, J.P. Morgan and other key investors, settlements were made with bail out money and remnants of the firm were ultimately snapped up by J.P. Morgan for what amounted to the cost of Bear Stearn’s headquarters building, about $2 per share. By St. Patrick’s Day, Bear Stearns was no more, completely subsumed.

It would be another six months before the next large investment bank crashed — Lehman Brothers — taking the global economy with it.

~ ~ ~

At the time the crash was blamed on lax controls on lending to home buyers, encouraging an excess of subprime mortgages, combined with investment banks’ more recent taste for collateralized debt obligations bundling mortgages into tranches for slicing up and trading.

But not all of the trash loans were residential mortgages stuffed into tranches. Some of the loans were to developers and contractors who were building commercial facilities and multi-family buildings. Some of these loans were packaged into funds which were more like offshore corporations.

The two funds triggering Bear Stearns’ meltdown were just that: offshore funds incorporated in the Cayman Islands in 2003, holding various assets including tranches of poorly-collateralized mortgages, managed by Bear Stearns Asset Management (BSAM). What mortgages were in these two funds the public doesn’t really know; were they single-family residential mortgages or commercial facilities mortgages, or some combination? The information is out there somewhere but it’s not at the public’s fingertips.

The financial media still paints a messy picture even a decade later, blaming Bear Stearns management but not its own persistent failure to provide a more comprehensive and accessible picture of the financial industry’s health.

These two funds collapsed because too many mortgages within their CDOs failed; the effect on the bank was like pulling out two critical load-bearing pieces in a game of Jenga. The cascading demand for cash to resolve the failures may have pushed other investment banks’ equally sketchy funds to fail as well, crashing the entire heap nearly a decade ago.

~ ~ ~

It was a surprise blast from the unpleasant past to see Bear Stearns’ name pop up in the middle of recent testimony before the House Permanent Subcommittee on Intelligence. Fusion GPS’ Glenn Simpson cited the investment bank as a source of financing for Donald Trump and some sketchy condominium development.

[SIMPSON]… There’s the Trump vodka business that was earlier. And then ultimately, you know, what we came to realize was that the money was actually coming out of Russia and going into his properties in Florida and New York and Panama and Toronto and these other places.

And what we, you know, gradually begun to understand, which, you know, I suppose I should kick myself for not figuring out earlier, but I don’t know that much about the real estate business, which is I alluded to this earlier, so, you know, by 2003, 2004, Donald Trump was not able to get bank credit for — and if you’re a real estate developer and you can’t get bank loans, you know, you’ve got a problem.

And all these guys, they used leverage like, you know, — so there’s alternative systems of financing, and sometimes it’s — well, there’s a variety of alternative systems of financing. But in any case, you need alternative financing.

One of the things that we now know about how the condo projects were financed is that you have to — you can get credit if you can show that you’ve sold a certain number of units.

So it turns out that, you know, one of the most important things to look at is — this is especially true of the early overseas developments, like Toronto and Panama — you can get credit if you can show that you sold a certain percentage of your units.

And so the real trick is to get people who say they’ve bought those units, and that’s where the Russians are to be found, is in some of those pre-sales, is what they’re called. And that’s how, for instance, in Panama they got the credit of — they got a — Bear Stearns to issue a bond by telling Bear Stearns that they’d sold a bunch of units to a bunch of Russian gangsters.

And, of course, they didn’t put that in the underwriting information, they just said, we’ve sold a bunch of units and here’s who bought them, and that’s how they got the credit. So that’s sort of an example of the alternative financing. … [bold mine, excerpt pages 95-96]

The timing mentioned, 2003-2004, is very close to the time that Bear Stearns launched the two Cayman-based funds which failed first. Is it possible Trump’s financing provided by Bear Stearns ended up in the funds’ CDOs? Probably not — Simpson refers to bonds. But let’s look at a financial statement from one of the subject funds:

It’s difficult to tell what’s in any of the CDOs listed in this summary. Who knows what mortgages are in them or from where they originated without access to more details?

Note the bonds at the bottom — again, what’s in them? What percentage of these bonds consisted of dicey or outright fraudulent financing for construction related to money laundering? Again, we can’t tell without access to more granular details. We don’t know whether bond(s) offered to Trump developments were in Bear Stearns’ first two failed funds or if they helped cause the eventual financial pyroclastic flow toward Bear Stearns’ end.

~ ~ ~

Another thing sticks in my craw — a bit from Michael Lewis’ The Big Short:

The bond market, because it consisted mainly of big institutional investors, experienced no similarly populist political pressure. Even as it came to dwarf the stock market, the bond market eluded serious regulation. Bond salesmen could say and do anything without fear that they’d be reported to some authority. Bond traders could explore inside information without worrying that they would be caught. Bond technicians could dream up ever more complicated securities without worrying too much about government regulation — one reason why so many derivatives had been derived, one way or another, from bonds. … [bold mine]

In other words, nobody would look askance at all at bonds sold to finance a condominium development with rather thin commitment to payment. Nobody looked askance at the ratio of CDOs to bonds, either, though Bear Stearns would try to offset the CDOs’ losses by liquidating bonds. This fund as an example couldn’t manage this offset based on the ratio alone; it would have been catastrophically worse if the collateral beneath the bonds was as fraudulent as many subprime adjustable rate mortgages in CDOs were at the time.

The root cause of the 2008 crash remains the collapse of poorly collateralized as well as fraudulent mortgages. But I have to wonder:

— With so much attention on CDOs and mortgage defaults combined with a lack of bond market adequate monitoring, how much did crappy bonds, based on fraudulent representations of collateral, contribute to the crash?

— If there was so little regulation and oversight of the bond market, how much sketchy or fraudulent project financing was in bonds on the banks’ books — including projects like Trump’s, based on promises to pay made by offshore vehicles or non-U.S. citizens?

— With so little regulation and oversight, would it have been possible for one or more nation-states using offshore finance vehicles to “weaponize” banks’ books? How many of the crappy bonds contributing to the 2008 crash were based on poorly collateralized pre-sales to Russian oligarchs and gangsters?

— What assurances do we have today — especially with Mick Mulvaney defunding the Consumer Finance Protection Bureau and knocking off an opportunity to look more deeply into credit reporting by killing off the Equifax investigation — that investment banks have changed their practices and ensured legitimate projects are financed?

—What assurances do we have that our legislators see the slippery slip when they approve legislation like S. 2155 just this week, weakening Dodd-Frank reforms?

~ ~ ~

Recall the state of the economy between Bear Stearns’ and Lehman Brothers’ crashes. Oil prices rose to over $150/barrel, resulting in $4/gallon gasoline. Other commodity prices rose in tandem with fuel prices. The home buyers who could least afford any change in their household expenses were the same ones targeted for subprime mortgages with shady terms; it came down to paying for gas to get to work and feeding the family, or making the mortgage payment.

The price of oil at the time had been driven up by excess speculation. Legislation passed in June 2008 requiring all commodity futures trading to require a minimum of 30% margin upfront rather than 10%. Oil prices dropped drastically and reduced in volatility almost overnight, but it was already too late. Too many home buyers could no longer afford their payments and mortgage defaults began to snowball.

Which brings me to yet another question: if the bond market could have been “weaponized” at that time, could a volatile commodities market likewise have been used as a trigger?

Are there any other weak points in our market which could be “weaponized,” for that matter?

~ ~ ~

On this tenth anniversary after the crash began with Bear Stearns’ collapse, I feel more secure about my retirement portfolio. There were no frantic phone calls to family members exhorting moves to safety this evening. My exposure to the remaining weaknesses of investment banking have been minimized as much as possible, though I remain vulnerable because I have a mortgage. Real estate isn’t the sure return it once was. Only uber-wealthy investors buying into certain urban markets come out on top. But wealthy real estate investors can still cause self-inflicted damage.

Atlanta, Georgia’s market has turned around since the crash — but it was home to another failed Trump real estate project, a 363-unit Trump Tower which went into foreclosure with pre-sales of only 100 units. (In January 2017, Trump ranted about Atlanta as Rep. John Lewis’ district, calling it “falling apart” and “crime infested.” One wonders what crime he meant…)

Hollywood, Florida had a brush with a failed Trump project:

In 2006, he and billionaire condo king Jorge Perez began selling a 23-story apartment building near Mar-a-Lago, but the project was abandoned a year later because of slow sales. Another Perez-Trump deal, the 200-unit Hollywood oceanfront tower, was foreclosed in 2010 after selling less than 15% of its units. (The building eventually opened, still Trump-branded, but without Perez.)

So did the Miami, Florida area:

Trump Sunny Isles, a three-tower residential complex outside Miami, has also struggled. Trump partnered with Perez again and another developer named Gil Dezer to build the project, which targeted wealthy Latin Americans. . . .

Unfortunately, the last two towers of the development opened in the middle of the financial crisis, and Perez bailed on them. . . .

And Puerto Rico, too, was home to a Trump-branded golf course which failed in 2015.

Though with so many failures followed by continued attempts, it’s worth asking if this is a business model. How does Trump continue to benefit from so much failure? How do the backers he has benefit from staking Trump money or title?

Trump’s business alone wasn’t the cause of the 2008 crash. There were far more players involved — millions, if we want to blame residential homeowners who were misled by banks to believe they could safely contract a mortgage in spite of either inadequate collateral or income and ultimately forced into foreclosure. But at least one of Trump’s business projects was in the mix if Fusion’s Simpson’s testimony is truthful; what would keep Trump or real estate investors like Trump from contributing to (if not causing) another crash today?

We must ask when we see that Trump’s former campaign manager Paul Manafort and his former son-in-law Jeffrey Yohai were engaged in sketchy real estate development projects the community/regional Banc of California may have deterred by forcibly shutting their accounts.

And ask again when we see a community bank like The Federal Savings Bank of Chicago involved in another of Manafort’s bank frauds.

The damage could be even worse, in the case of Trump’s son-in-law Jared Kushner, who is over his head in debt on 666 Fifth Avenue and whose family business is distressed, possibly causing geopolitical turmoil to shakedown new financing.

How many of these flimsy real estate deals and junky mortgages, loans, and bonds are there in the system when we can now see these affiliated with the president and his campaign advisers? How many of them will it take to cause another crash if legislators continue to pick away at safeguards?

Let’s hope I’m not writing another financial postmortem like this one in March 2028.

image_print