2009 - %3, April

Fraud? On Wall Street?

| Tue Apr. 21, 2009 1:03 PM EDT

When it comes to lobbying and campaign finance, the old saw is that the real scandal is what's legal.  That's pretty much the way I feel about Wall Street too these days.  Still, there's also the good old-fashioned illegal stuff:

In the first major disclosure of corruption in the $750-billion financial bailout program, federal investigators said Monday they have opened 20 criminal probes into possible securities fraud, tax violations, insider trading and other crimes.

....The report said little about who is under investigation and how the fraudulent schemes work, but investigators are already on alert for a long list of potential scams. Such schemes could include obtaining bailout money under false pretenses, bilking the government with phony mortgage modifications, and cheating on taxes with fraudulent filings.

Neil Barofsky, the special inspector general overseeing the bailout program, says fraud is likely to get even worse in the newest stage of the bailout since it allows investors to get in on the action with only a small bit of their own money at trisk.  The Treasury, in response to Barofsky's report, said his recommendations would be "considered."  How heartening.

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Lily Allen, Lumberjacks, and the Lottery: What's New in Book, Film and Music Reviews

| Tue Apr. 21, 2009 12:59 PM EDT

Looking for a distraction? Here's a quick guide to what we read, watched, and listened to in our March/April 2009 issue:

In this age of Google maps (Street View, Earth, et al), it's easy to think that we live in a transparent world. Not quite: In Blank Spots on the Map: The Dark Geography of the Pentagon's Secret World, geographer Trevor Paglen exposes the secret airstrips, extralegal prisons, and bases that the government claims don't exist. Moving from the world of stuff the government doesn't want you to see to stuff you don't want to see, there's the documentary Food, Inc., an eye-opening tour of all the myriad gross things that could happen to your meat—from farm (chickens with breasts so big their legs can't support them) to slaughterhouse (sick cows being tortured before slaughter) to meatpacking plant (a variety of stomach-churning germs)—before it gets to your plate.

Once you've learned about the backstory of your food, check out Brush Cat: On Trees, the Wood Economy, and the Most Dangerous Job in America for the inside scoop on the dying breed of lumberjacks who bring you your furniture, books, Starbucks cup, and even your McDonald's milkshake (for reals).


Mutual Fund Madness

| Tue Apr. 21, 2009 12:42 PM EDT

Ezra Klein points to the latest year-end report on mutual funds from Standard & Poors.  The highlight is pretty much the same as it is every year:

Over the five year market cycle from 2004 to 2008, S&P 500 outperformed 71.9% of actively managed large cap funds, S&P MidCap 400 outperformed 79.1% of mid cap funds and S&P SmallCap 600 outperformed 85.5% of small cap funds. These results are similar to that of the previous five year cycle from 1999 to 2003.

The belief that bear markets favor active management is a myth. A majority of active funds in eight of the nine domestic equity style boxes were outperformed by indices in the negative markets of 2008. The bear market of 2000 to 2002 showed similar outcomes.

And don't forget fees!  Not only do actively managed funds do worse than index funds, they charge you for the privilege of doing worse than index funds.

Hedge funds are no better, by the way.  Research is hazier here because hedge funds are more secretive, but as near as I can tell from the published data, their average return is no better than the broad market either.  The main difference is that instead of simply charging fees for helping you do worse than an index fund, they charge you gargantuan fees for helping you do worse than an index fund.

Isn't Wall Street grand?

Ragging on the Times

| Tue Apr. 21, 2009 11:55 AM EDT

The LA Times, that is.  Here is Doyle McManus today:

If it seems arbitrary — even unfair — to take the measure of a new president after just 100 days in office, you can blame Franklin D. Roosevelt.

No!  A thousand times no.  It's the fault of lazy journalists who insist on hauling out this tired trope every few years no matter how inane it is.  McManus even admits a few paragraphs later that "for most leaders since FDR, the first three months have been an unreliable guide to the years that followed."  That's true!  So why perpetuate this nonsense?

Elsewhere, the Times brings its readership up to speed on the news that Rep. Jane Harman was overheard in an NSA wiretap agreeing to intervene in the espionage case of two pro-Israel lobbyists.  This story has been reported in detail by both Congressional Quarterly and the New York Times.  It's been all over the blogosphere and cable news.  Harman's district is in Los Angeles county.  It's maybe 20 miles from the LAT's main office.  So what do LA readers get?  About ten bland column inches buried at the very bottom of A11.  With her name misspelled in the headline.  Jesus.

On the bright side, the Times won a Pulitzer yesterday for a multipart special on wildfires. Congrats to Julie Cart and Bettina Boxall.

Why Won't Gonzales Deny He Killed Harman-AIPAC Probe?

| Tue Apr. 21, 2009 11:45 AM EDT

If you had been falsely accused of doing something outrageous, wouldn't you declare you had done no such thing?

Everyone is entitled to a presumption of innocence--at least in a courtroom--but it is certainly suspicious that former Attorney General Alberto Gonzales has not denied the most recent allegations against him. My CQ colleague Jeff Stein reported late Sunday night that Gonzales had blocked a preliminary FBI investigation into Democratic Representative Jane Harman, who had been captured by NSA eavesdroppers telling a suspected Israeli agent that she would try to use her clout to lessen espionage-related charges filed against two AIPAC officials. In return for her assistance, the suspected Israeli agent reportedly offered to help Harman become chair of the House intelligence committee. On Tuesday, The New York Times confirmed much of the story--including the piece about Gonzales: that the then-AG killed the inquiry because Harman, then the ranking Democrat on the intelligence committee, could help the Bush administration defend its use of warrantless wiretaps.

So there are two lines of inquiry that official investigators ought to follow. First, whether Harman broke the law by offering to lean on the criminal investigation of AIPAC for help in advancing her career. (The Times reports that the suspected Israeli agent promised that media mogul Haim Saban would threaten to hold back donations to Rep. Nancy Pelosi if she did not award Harman the top slot on the intelligence committee; Saban's spokesperson did not respond to the Times' request for comment.) Second, whether Gonzales stopped a criminal investigation because the target (Harman) could help the Bush administration. Harman has put out a very carefully-worded denial that's full of holes. Gonzales, though, hasn't said anything. That's not very reassuring. Shouldn't a former attorney general be able to declare that he never halted an investigation as a favor to a lawmaker who was doing the administration a favor? If not, there's a problem--and a problem (no matter Barack Obama's penchant for leaving the past behind) deserving a thorough examination by someone with subpoena power.

These are both major scandals--and, alas, they are linked. Democrats on the Hill might welcome another opportunity to pursue Gonzales, but they are not going to be eager to chase after Harman, even though she is not the most popular among House Democrats. Hill Republicans who would love to see a Democrat caught in an ethics investigation may not be eager to give Dems more reason to investigate Gonzales and the Bushies. And FOIs--friends of Israel--on both sides of the aisle will not be enthusiastic about any probe that could depict a lawmaker as a tool of AIPAC and Israel. (On Monday, Pelosi said nothing about the Harman-AIPAC-Gonzales story.)

Justice Department internal investigators certainly have the standing to probe what happened with Gonzales and the Harman investigation. They may not care that much about Harman, but an investigation of Gonzales cannot get too far without a determination of what Harman said (to the suspected Israeli agent) and did (regarding the AIPAC prosecution). Meanwhile, congressional sources tell me that Hill people are wondering how many other members of Congress have held conversations that have been collected by the NSA.

With the Times picking up Stein's story, the whole thing has gone mainstream. (Not that CQ isn't mainstream.) As I noted yesterday, Citizens for Responsibility and Ethics in Washington quickly sent requests to the Office of Congressional Ethics and the Justice Department for investigations. But someone is going to have to raise a fuss on Capitol Hill or within the executive branch for anything to happen. This double quid-pro-quo tale is truly a bipartisan embarrassment--and that's the best protection Harman and Gonzales could have.

This was first posted at CQPolitics.com.

TARP Overseer Initiates 20 Criminal Probes

| Tue Apr. 21, 2009 11:36 AM EDT

The bad news: 20 criminal investigations into people who have tried to rip off the TARP program have been initiated by federal prosecutors, with more investigations likely. The good news: at least we're going after these people in a timely fashion.

If you agree the bailout is necessary, you have to accept some amount of this -- any pile of money that big is going attract people seeking to filch some of it, and the best we can do is try to stop them before they are successful and catch them afterward if they are, which appears to be what the Obama administration is doing. I am officially not outraged.

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Clean Coal's $45m Lobbying/PR Spree

| Tue Apr. 21, 2009 11:09 AM EDT

The Center for Public Integrity analyzes the coal industry's strategy to keep coal-fired power plants burning long in to the future:

As Butch Cassidy might say, “Who are those guys?”

They’re the American Coalition for Clean Coal Electricity, a collection of 48 mining, rail, manufacturing, and power-generating companies with an annual budget of more than $45 million — almost three times larger than the coal industry’s old lobbying and public relations groups combined.

CPI reports ACCCE spent nearly a quarter of that budget last year lobbying the Senate. That's more than Citigroup spent lobbying altogether last year, and double what Bank of America spent. The rest went to advertising and political donations—all in the name of convincing the public clean coal exists.

The coal industry is actually lobbying to receive support for technology that captures carbon dioxide emissions from coal-burning power plants. That technology doesn't make coal any cleaner, and Energy Secretary Steven Chu says carbon-capturing technology will take ten years to prove itself. But the coal industry's lobbying and PR efforts have already reaped one huge benefit: The new draft (PDF) of Henry Waxman and Ed Markey's climate change legislation—about which the House energy committee is holding hearings all week—includes a provision what would allow new coal-burning power plants as long as they capture a large part of their carbon output. This is a major shift on Waxman and Markey's part: Only a year ago they backed a moratorium on all new coal-fired power plants.


Low Stakes Testing

| Tue Apr. 21, 2009 11:08 AM EDT

Do you know as much about economics as a bright high school senior?  Find out here!  I missed question #11, so anyone who wants to show that they're smarter than me is welcome to explain the allegedly correct answer in comments.

Senators Push to Close The Gun Show Loophole

| Tue Apr. 21, 2009 10:40 AM EDT

Omar Samaha's sister Reema was among those gunned down at Virginia Tech in April 2007 when Seng-Hui Cho rampaged through classrooms with two semi-automatic pistols. In the shootings' aftermath, many were shocked to learn that Cho, with a long history of psychiatric problems, was able to obtain his weapons legally. Although Cho purchased his guns from licensed dealers, the Virginia Tech killings brought new scrutiny to Virginia's gun-show loophole: unlike larger, licensed dealers that sell in large quantities, small, unlicensed dealers are free to sell weapons at gun shows without completing background checks. And whereas many small dealers will do background checks anyway, many don't, creating an obvious opporunity for buyers who might not otherwise qualify to own weapons.

Omar Samaha recently drove this home when, accompanied by a film crew from ABC News, he purchased ten firearms at a Virginia gun show in under an hour without undergoing any background checks. Last year, in a similar exercise, I attempted to purchase an assault rifle at gun show in Fishersville, Virginia, but was unable to do so based on my DC residency. But had I lied about my residency or produced a fake license, I might just as easily have walked out with one.

With a new administration in Washington, some Senate Democrats are making a new push to close the gun show loophole. Joined by Omar Samaha, several others affected by the Virginia Tech shootings, and the Brady Campaign's Paul Helmke, New Jersey's Frank Lautenberg, Rhode Island's Jack Reed, and California's Diane Feinstein announced Tuesday that they plan to introduce legislation to make background checks mandatory for every gun purchase, whether from licensed dealers or not.

From a press release announcing the move:

The bill would help keep guns out of the hands of criminals, terrorists, the mentally ill and gun traffickers by requiring background checks on all sales at gun shows. In 1993, the Brady Law was passed requiring prospective purchasers of guns sold by federal firearms licensees, like gun shops and pawn shops, to go through a background check.  However, a loophole in current law allows people to purchase guns from unlicensed sellers at “gun shows” without going through any background check.

In 1999, Sen. Lautenberg introduced the first bill in Congress to close the gun show loophole.  Later that year, in the wake of the Columbine tragedy, the Senate passed Sen. Lautenberg’s legislation to close the gun show loophole as an amendment to a juvenile justice bill.  The legislation passed by one vote, with Vice Al President Gore casting the tiebreaking vote.  However, the gun lobby killed the legislation in House-Senate conference. 


MN Senate Race Goes to MN Supreme Court

| Tue Apr. 21, 2009 10:26 AM EDT

Norm Coleman will rage, rage against the dying of the light. CQ Politics:

Republican Norm Coleman filed the promised notice of appeal Monday challenging a trial court’s ruling that Democrat Al Franken is the winner of Minnesota’s 2008 Senate race.

The appeal to the state Supreme Court will be based on the same arguments Coleman's legal team made unsuccessfully during the seven-week election trial, though with a focus on what his attorneys say are constitutional violations made during the initial count and six-week recount.

Huh. That doesn't sound like it will be very successful.

The Coleman campaign said it expected the state Supreme Court to take the case on an expedited basis, with attorney Jim Langdon estimating oral arguments could take place "anywhere from two weeks to two months from now."