From the 1/11/10 New York Times:
"On Wednesday, the first hearing of the Financial Crisis Inquiry Commission — what many are calling this century’s equivalent of a Pecora-style investigation that scrutinized the market crash of 1929 — will take place in Washington.
Wall Street’s top brass are planning to be there (and yes, they are flying down the night before so they don’t miss it): Lloyd C. Blankfein of Goldman Sachs, Jamie Dimon of JPMorgan Chase, John J. Mack of Morgan Stanley and Brian T. Moynihan of Bank of America.
The hearing, of course, will partly be political theater. There will be finger-pointing. But if the committee uses its inquiry for its stated purpose — “hearing testimony on the causes and current state of the crisis” — it may help direct the national conversation and steer the current reform efforts.
In the spirit of trying to help start some lively discussions, here are some questions they might consider asking:
Mr. Blankfein, your firm, and others, created and sold bundles of mortgages known as collateralized debt obligations that it simultaneously sold short, or bet against. These C.D.O.’s turned out to be bad investments for the people who bought them, but your short bets paid off for Goldman Sachs.
In the process of selling them to institutional investors, however, your firm lobbied ratings agencies to assign them high ratings as solid bets — even as your firm planned on shorting them.
Could you explain how Goldman bet against these C.D.O.’s while simultaneously trying to persuade ratings agencies and investors that they were good investments? Were they designed from the outset to be shorted by Goldman and possibly select clients? And were those clients involved in helping design these transactions? What explicit disclosures did you make to Standard & Poor’s and Moody’s about your plans to short these instruments? And should we continue to allow transactions in which you’re betting against what you’re also selling?
Mr. Dimon, during the final week before Lehman Brothers collapsed, your firm asked Lehman to post billions of dollars in collateral and threatened to stop clearing Lehman’s trades if it didn’t do so. That demand had the effect of depleting Lehman’s capital base, just when it desperately needed that capital to return funds to investors who were asking for their money back.
JPMorgan clearly was trying to protect itself. But could you explain what impact you believe that “collateral call” had on Lehman’s failure and the ensuing market crisis?
This one is for the entire group. All of your firms are involved in some form of proprietary trading, or using your own capital to make financial bets, not unlike hedge funds and other private investors. As the recent crisis has shown, these bets can go catastrophically wrong and endanger the global financial system.
Given that the government sent a clear signal in the crisis that it would not let the biggest firms fail, why should taxpayers guarantee this sort of trading? Why should the government backstop what amounts to giant hedge funds inside the walls of your firms? How is such trading helpful to the broader financial system?
A question for all the executives about bonuses: We keep hearing that you plan to pay out billions in bonuses this year. Given that they come out of profits that, to a large degree, seem to be the result of government programs to prop up and stimulate the banking sector, do you think they are deserved, even if they are in stock? And, while we’re on the topic, given the market crisis of 2008, were you all overpaid in 2007?
Again, for the group: Over the last year, your firms have actively used the Federal Reserve’s discount window to exchange various investments (including C.D.O.’s) for cash. You probably have a better idea than most about what those assets now sitting on the Fed’s balance sheet are worth.
Given the growing calls for regular audits of the Fed (an idea being resisted by the likes of the chairman, Ben Bernanke), do you think the demands for such audits are warranted?
This question is for Mr. Mack. In November, in a surprisingly candid moment, you publicly declared, “Regulators have to be much more involved.” You then added, “We cannot control ourselves.” Can you elaborate on those comments? Is Wall Street inherently incapable of policing itself — a view contrary to what most of your peers have argued?
Mr. Blankfein. Your firm, like other banks on this panel, was paid in full by the American International Group on various financial contracts, thanks to the government’s bailout. You can understand how this has whipped up no small amount of fury and questions over why A.I.G. and the government did not try to renegotiate those contracts.
Because your firm was the largest beneficiary of the government’s decision, did you or any of your employees lobby the Fed, Treasury or any other government agency for this “100 cents on a dollar” payout? If so, enlighten us about those conversations.
This is for Mr. Moynihan. Please explain — and no jargon, please — why your firm believed it didn’t have to disclose mounting losses at Merrill Lynch ahead of a shareholder vote in December 2008. After all, investigations into the matter suggest company executives knew of the $4.5 billion loss Merrill suffered in October before that vote.
And why, just a week or so after you became general counsel, did Bank of America decide to tell the government about those same losses that it chose not to tell shareholders about?
To Mr. Dimon and Mr. Moynihan: Your industry has vigorously opposed creating a consumer protection agency. But it’s clear that your millions of retail customers weren’t adequately protected, leading to hardship and heartbreak across the nation. Because you oppose creating such a regulator, what should be done to ensure these problems don’t happen again?"
Tuesday, January 12, 2010
You're Doing a Heckuva Job, Uncle Sam!
After spending billions (if not trillions) of dollars on homeland security gadgets and employees, it seems the federal government still does not have the capacity to merge basic information or even spell correctly. I'm quite sure these new protocols and additional dollars will not fix the problems.
Fixing errors after the Christmas Day near-bombing
By Walter Pincus
Washington Post Staff Writer
Tuesday, January 12, 2010; A15
Philip J. Crowley, assistant secretary of state for public affairs, acknowledged last week at a news conference that State Department officials made two key errors in the initial reporting about Umar Farouk Abdulmutallab.
They misspelled his name -- "a one-letter difference," an intelligence official said -- in filing their first report Nov. 20, the day after Umau Mutallab, a Nigerian banker, described his concerns about his son.
And they didn't officially look for Abdulmutallab in a department database of U.S. visa-holders.
State Department officials wrote a Visa Viper cable Nov. 20 saying that Mutallab thought his son had become attached to "extremists" and might be in Yemen, and that the father wanted help in trying to locate him to reestablish family relations. The Visa Viper terrorist-reporting program calls for each Foreign Affairs post abroad to identify "potential terrorists and to develop information on those individuals," according to the State Department's Foreign Affairs Manual.
But before the Christmas Day bombing attempt aboard a Detroit-bound airliner, developing such information for a Visa Viper report apparently did not involve searching for the name of a "potential terrorist" in the State Department's database of people with visas to enter the United States. It is now.
That was the first reform announced almost immediately by Secretary of State Hillary Rodham Clinton and later by President Obama.
Back in November, it was a day or two after the initial Visa Viper report was received at the National Counterterrorism Center (NCTC) before analysts there realized the correct spelling of Abdulmutallab's name, based on data from other agencies. With the error corrected, he was listed, along with about 400,000 others, on the Terrorist Identities Datamark Environment (TIDE). That is a list of people, along with relevant information about them, who are suspected of, or known to be associated with, terrorist activities outside the United States.
At that time, NCTC analysts who worked on TIDE entries processed only nominations from the State Department, the CIA and other collection agencies. They checked the TIDE list to see if a name was on it, but they did not search other databases for more information. The NCTC also determined what further action, if any, was necessary, such as moving a person's name to the next level, the FBI's Terrorist Screening Center.
Meanwhile, back at the U.S. Embassy in Nigeria, State Department officials -- "out of curiosity" -- did check to see whether Abdulmutallab had a visa for entry into the United States, according to a department official who spoke on the condition of anonymity because the matter is under investigation. But because the misspelled name was used, the fact that Abdulmutallab had a multi-entrance, two-year tourist visa obtained in June 2008 was not sent to the NCTC or to other intelligence agencies.
As Crowley put it last week, "The initial search to determine if there was a visa did not -- one did not show, expressly because of this misspelling."
"This is a critical lesson learned," Crowley said. "The steps that we've put in the process beginning immediately after December 25 will, in fact, make sure that future reports do have visa information in them, so that this is . . . inserted into the process right from the outset."
Lack of information about Abdulmutallab's open visa affected the NCTC's determination of the threat he presented and thus the list he was put on. Apparently no other agency checked State's database of visa-holders, though they all have access to it. The assumption, one intelligence official said, was that State would have done that.
One of the major findings of the ongoing inquiry into Abdulmutallab's case deals with reviewing the names of those with outstanding visas to enter the United States. The State Department has withdrawn an unknown number of visas since Dec. 25, but Crowley refused to discuss any except Abdulmutallab's.
One of Obama's new directives requires the FBI to "conduct a thorough review of Terrorist Screening Database holdings" -- about 440,000 names -- "and ascertain current visa status of all 'known and suspected terrorists,' beginning with the no fly list" -- 4,000 names. One wonders if such a check has been done before.
And the NCTC, under the president's new directive, has been given responsibility to do more than just bring together data collected by others. It is to "establish a dedicated capability responsible for enhancing record information on possible terrorists" on the TIDE list.
In addition, it is to pursue "thoroughly and exhaustively terrorism threat threads" with a new group so it can pass on information for "followup action by the intelligence, law enforcement, and homeland security communities." For that, according to NCTC officials, they will need more personnel and equipment.
Fixing errors after the Christmas Day near-bombing
By Walter Pincus
Washington Post Staff Writer
Tuesday, January 12, 2010; A15
Philip J. Crowley, assistant secretary of state for public affairs, acknowledged last week at a news conference that State Department officials made two key errors in the initial reporting about Umar Farouk Abdulmutallab.
They misspelled his name -- "a one-letter difference," an intelligence official said -- in filing their first report Nov. 20, the day after Umau Mutallab, a Nigerian banker, described his concerns about his son.
And they didn't officially look for Abdulmutallab in a department database of U.S. visa-holders.
State Department officials wrote a Visa Viper cable Nov. 20 saying that Mutallab thought his son had become attached to "extremists" and might be in Yemen, and that the father wanted help in trying to locate him to reestablish family relations. The Visa Viper terrorist-reporting program calls for each Foreign Affairs post abroad to identify "potential terrorists and to develop information on those individuals," according to the State Department's Foreign Affairs Manual.
But before the Christmas Day bombing attempt aboard a Detroit-bound airliner, developing such information for a Visa Viper report apparently did not involve searching for the name of a "potential terrorist" in the State Department's database of people with visas to enter the United States. It is now.
That was the first reform announced almost immediately by Secretary of State Hillary Rodham Clinton and later by President Obama.
Back in November, it was a day or two after the initial Visa Viper report was received at the National Counterterrorism Center (NCTC) before analysts there realized the correct spelling of Abdulmutallab's name, based on data from other agencies. With the error corrected, he was listed, along with about 400,000 others, on the Terrorist Identities Datamark Environment (TIDE). That is a list of people, along with relevant information about them, who are suspected of, or known to be associated with, terrorist activities outside the United States.
At that time, NCTC analysts who worked on TIDE entries processed only nominations from the State Department, the CIA and other collection agencies. They checked the TIDE list to see if a name was on it, but they did not search other databases for more information. The NCTC also determined what further action, if any, was necessary, such as moving a person's name to the next level, the FBI's Terrorist Screening Center.
Meanwhile, back at the U.S. Embassy in Nigeria, State Department officials -- "out of curiosity" -- did check to see whether Abdulmutallab had a visa for entry into the United States, according to a department official who spoke on the condition of anonymity because the matter is under investigation. But because the misspelled name was used, the fact that Abdulmutallab had a multi-entrance, two-year tourist visa obtained in June 2008 was not sent to the NCTC or to other intelligence agencies.
As Crowley put it last week, "The initial search to determine if there was a visa did not -- one did not show, expressly because of this misspelling."
"This is a critical lesson learned," Crowley said. "The steps that we've put in the process beginning immediately after December 25 will, in fact, make sure that future reports do have visa information in them, so that this is . . . inserted into the process right from the outset."
Lack of information about Abdulmutallab's open visa affected the NCTC's determination of the threat he presented and thus the list he was put on. Apparently no other agency checked State's database of visa-holders, though they all have access to it. The assumption, one intelligence official said, was that State would have done that.
One of the major findings of the ongoing inquiry into Abdulmutallab's case deals with reviewing the names of those with outstanding visas to enter the United States. The State Department has withdrawn an unknown number of visas since Dec. 25, but Crowley refused to discuss any except Abdulmutallab's.
One of Obama's new directives requires the FBI to "conduct a thorough review of Terrorist Screening Database holdings" -- about 440,000 names -- "and ascertain current visa status of all 'known and suspected terrorists,' beginning with the no fly list" -- 4,000 names. One wonders if such a check has been done before.
And the NCTC, under the president's new directive, has been given responsibility to do more than just bring together data collected by others. It is to "establish a dedicated capability responsible for enhancing record information on possible terrorists" on the TIDE list.
In addition, it is to pursue "thoroughly and exhaustively terrorism threat threads" with a new group so it can pass on information for "followup action by the intelligence, law enforcement, and homeland security communities." For that, according to NCTC officials, they will need more personnel and equipment.
Musings on the Power of the Federal Government
Excellent and brief article below from the WaPo. As for Levy's call to action on binding government, I wonder how such binding can be accomplished when the very same institutions that are to be bound are the ones who would decide/enforce those boundaries? Does anyone expect Congress to voluntarily surrender its accumulated powers? That outcome seems about as likely as Congress eliminating influence-peddlers and PAC money from the political process. The only actor that could bind the federal government is the general electorate, which just happens to be hopelessly split into ineffectual factions, endlessly warring with the others primarily over matters which are not the province of government (sexuality, abortion, etc.). Leave your comments below.
Has the Supreme Court eroded freedom?
By: Robert Levy
The power of our highest court occupies center stage in "The Dirty Dozen: How Twelve Supreme Court Cases Radically Expanded Government and Eroded Freedom" by Robert A. Levy and William Mellor, now out in paperback. Levy, chairman of the Cato Institute, and Mellor, president and general counsel of the Institute for Justice, worry that the Supreme Court has led the country away from a vision of the Constitution established by the Founding Fathers.
How did we get from the Founders' Constitution, which established strictly limited government, to our contemporary Constitution, which has expanded government and curtailed individual rights? Much of the damage can be traced to a handful of post-New Deal Supreme Court cases that changed the course of American history, with adverse effect on many of today's key policy debates.
Here are just a few of the issues:
Mandatory Health Insurance A 1942 case, Wickard v. Filburn, paved the way for the noxious notion that Congress, under the guise of regulating interstate commerce, can punish the failure to purchase a product -- health insurance -- for which there is no legal interstate market. Of course, if Congress can mandate the purchase of health insurance, why not the purchase of exercise equipment or a new fuel-efficient car? The individual mandate would extend the dominion of the federal government to virtually all manner of human conduct -- including non-conduct -- by establishing a police power that is nowhere authorized in the Constitution.
Home Foreclosures
"No State shall ... pass any ... Law impairing the Obligation of Contracts," states the Constitution. Clear enough? Not in Home Building & Loan Association v. Blaisdell (1934). The Supreme Court upheld a Minnesota statute that -- see if this sounds familiar -- postponed mortgage payments for financially troubled homeowners. Never mind the contract. We're now seeing a replay as creditors are forced to waive foreclosure on sub-prime mortgages, even if there was no fraud in the bargaining process.
Bailouts
In a series of cases culminating with Whitman v. American Trucking Associations (2001), the Court ignored the Constitution's very first sentence after the preamble: "All legislative Powers ... shall be vested in a Congress." For decades, Congress has delegated more and more lawmaking power to unelected bureaucrats in 300-plus executive departments and administrative agencies. That is how Treasury Secretaries Henry Paulson and Timothy Geithner were able to bailout banks, automobile companies, and insurance companies -- making up the rules as they went along, without input from Congress or recourse by the voters.
Eminent Domain
The infamous 2005 ruling in Kelo v. City of New London allowed private homes to be condemned by government so the property could be transferred to other private parties for economic development. The justification was not highways or traditional public uses, but rather the illusory promise of a higher tax base and more jobs. Nobody's home is safe from the government bulldozer when local planners can run roughshod over the most isolated and vulnerable members of society.
The list could go on. Whether it's political speech, economic liberties, property rights, or racial preferences, the Supreme Court has behaved in a manner that would have mystified and outraged our Founding Fathers. The federal government is now immersed in matters ranging from public schools, to welfare, retirement, medical care, family planning, and even aid to the arts -- none of which can be found among Congress's enumerated powers. It's time for the Court to bind the legislative and executive branches with the chains of the Constitution.
Has the Supreme Court eroded freedom?
By: Robert Levy
The power of our highest court occupies center stage in "The Dirty Dozen: How Twelve Supreme Court Cases Radically Expanded Government and Eroded Freedom" by Robert A. Levy and William Mellor, now out in paperback. Levy, chairman of the Cato Institute, and Mellor, president and general counsel of the Institute for Justice, worry that the Supreme Court has led the country away from a vision of the Constitution established by the Founding Fathers.
How did we get from the Founders' Constitution, which established strictly limited government, to our contemporary Constitution, which has expanded government and curtailed individual rights? Much of the damage can be traced to a handful of post-New Deal Supreme Court cases that changed the course of American history, with adverse effect on many of today's key policy debates.
Here are just a few of the issues:
Mandatory Health Insurance A 1942 case, Wickard v. Filburn, paved the way for the noxious notion that Congress, under the guise of regulating interstate commerce, can punish the failure to purchase a product -- health insurance -- for which there is no legal interstate market. Of course, if Congress can mandate the purchase of health insurance, why not the purchase of exercise equipment or a new fuel-efficient car? The individual mandate would extend the dominion of the federal government to virtually all manner of human conduct -- including non-conduct -- by establishing a police power that is nowhere authorized in the Constitution.
Home Foreclosures
"No State shall ... pass any ... Law impairing the Obligation of Contracts," states the Constitution. Clear enough? Not in Home Building & Loan Association v. Blaisdell (1934). The Supreme Court upheld a Minnesota statute that -- see if this sounds familiar -- postponed mortgage payments for financially troubled homeowners. Never mind the contract. We're now seeing a replay as creditors are forced to waive foreclosure on sub-prime mortgages, even if there was no fraud in the bargaining process.
Bailouts
In a series of cases culminating with Whitman v. American Trucking Associations (2001), the Court ignored the Constitution's very first sentence after the preamble: "All legislative Powers ... shall be vested in a Congress." For decades, Congress has delegated more and more lawmaking power to unelected bureaucrats in 300-plus executive departments and administrative agencies. That is how Treasury Secretaries Henry Paulson and Timothy Geithner were able to bailout banks, automobile companies, and insurance companies -- making up the rules as they went along, without input from Congress or recourse by the voters.
Eminent Domain
The infamous 2005 ruling in Kelo v. City of New London allowed private homes to be condemned by government so the property could be transferred to other private parties for economic development. The justification was not highways or traditional public uses, but rather the illusory promise of a higher tax base and more jobs. Nobody's home is safe from the government bulldozer when local planners can run roughshod over the most isolated and vulnerable members of society.
The list could go on. Whether it's political speech, economic liberties, property rights, or racial preferences, the Supreme Court has behaved in a manner that would have mystified and outraged our Founding Fathers. The federal government is now immersed in matters ranging from public schools, to welfare, retirement, medical care, family planning, and even aid to the arts -- none of which can be found among Congress's enumerated powers. It's time for the Court to bind the legislative and executive branches with the chains of the Constitution.
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