Andy Kroll

Andy Kroll

Senior Reporter

Andy Kroll is Mother Jones' Dark Money reporter. He is based in the DC bureau. His work has also appeared at the Wall Street Journal, the Guardian, Men's Journal, the American Prospect, and, where he's an associate editor. Email him at akroll (at) motherjones (dot) com. He tweets at @AndyKroll.

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JPMorgan Gets an “F” on Mining

| Thu May 13, 2010 12:50 PM EDT

In late March, I wrote about how Wall Street powerhouse JPMorgan Chase continues to fund coal companies that engage in mountaintop removal mining (MTR), a dangerous, environmentally devastating type of strip mining in which the peaks of mountains are literally blown off, exposing the seams of coal that run underneath. Problem is, the rubble and waste from MTR mining usually ends up in nearby rivers and water sources, contaminating them, killing local wildife, and often violating federal laws like the Clean Water Act. As I reported, "over the past 17 years, JPMorgan Chase has helped to underwrite nearly 20 bond or loan deals, worth a combined $8.5 trillion, for some of the biggest players in the MTR mining business, according to data from Bloomberg."

Today, Rainforest Action Network, a leading environmental group pressuring banks to end MTR financing, released a new report card, in conjunction with the Sierra Club and Banktrack, grading the world's big banks on their MTR policies. JPMorgan, which has yet to cut its MTR ties (and repeatedly refused to tell Mother Jones why), received an "F"; so, too, did PNC, the world’s largest MTR financier, and UBS, which finances one-third of the Appalachian region's MTR mining.

Credit Suisse ranked highest among the world’s biggest banks with an "A-," a grade it received for its policy—first reported by Mother Jones—of refusing to finance any coal mined using MTR.

The report card's authors say they showed the banks their grades before releasing the report, in an effort to get the banks to change their policies. In one case, Morgan Stanley issued a public statement on its MTR policy after learning of its failing grade from RAN and the Sierra Club; that grade was bumped up to a "C" after the public announcement.

The full report is available here.

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Fake Divorces and Housing Bubbles

| Thu May 13, 2010 10:52 AM EDT

The latest sign that China is in the midst of a raging housing bubble: Chinese couples are intentionally divorcing each other to dodge the country's strict second-home ownership rules and save some yuan in the process. China's autocratic government, China Daily reports, has sought to curb rampant property speculation (sound familiar?) by hiking the down payment costs and interest rates for married couples looking to buy a second house—in April, the government raised the minimum down payment for families to 50 percent of the home's value (up from 40 percent) and made mortgage interest rates for married couples at least 1.1 percent of the standard rate.

To avoid those new rules, perfectly happy husbands and wives are now entering into "fake" divorces in order to boost their property portfolios. "After we get divorced, my wife will claim our house, so that I can apply for a mortgage as a first-home buyer since I don't have a house under my name," 41-year-old Li Guoliang said. "And we will remarry after that."

Here's more from the story:

Li and his wife are among many couples planning on getting a divorce to circumvent the government's restrictions on second-home purchases.

"Such a 'fake' divorce may save the second-home buyer hundreds of thousands of yuan. So, why not do it?" said Chen Ping, a real estate agent in Changsha.

Chen said he had helped many couples apply for the preferential mortgage for the first-home buyer through a "fake divorce," which was "legitimate and viable, just like reasonable tax avoidance."

"In the two weeks after the new rules were introduced, I received 16 clients hoping to get a favorable loan by getting a divorce," said Li Yi, a lawyer with Tenghui Law Office in Chongqing Municipality.

In China, though, divorce for economics' sake contradicts the traditional Chinese view of marriage, and a poll by Chongqing Evening News in early May suggests the idea isn't that popular: 78 percent of people polled said they didn't support "fake" marriages to cash in on cheap housing rules. Still, consider fake divorces alongside the other signs of excess and speculation characteristic of a housing bubble. When you look at the small but telling details—the luxurious Shanghai condos with bronze doors inlaid with Swarovski crystals, the crocodile skin-wrapped bed posts—and the big picture statistics, too—an 80 percent spike in real estate sales between 2008 and 2009, an investor buying 54 apartments in a single day—China starts to like the next US circa 2004, except on a far, far larger scale.

Chamber Cheers Derivatives Loophole

| Wed May 12, 2010 10:38 AM EDT

As the battle over financial regulatory reform continues on Capitol Hill, the US Chamber of Commerce is rallying behind an amendment to the Senate's bill—one of more than 125 proposed amendments—that would exempt a large chunk of companies who use derivatives, the complex financial products used to hedge risk but also to recklessly gamble on fluctuations in, say, the housing market. Yesterday, the Chamber sent a letter, cosigned by trade groups from the oil, manufacturing, financial services, and real estate industries, backing an amendment offered by Sen. Saxby Chambliss (R-Ga.) exempting from regulation "end-users" of derivatives—the utilities, farmers, oil titans (like BP), airlines, and other companies who use derivatives to hedge risk. The letter claims that between 100,000 and 120,000 jobs could be lost because, as the bill looks now, it would require these end-users to set aside cash and other collateral for trading through the more transparent, safer derivatives clearinghouse proposed by Senate lawmakers.

That end-user exemption is opposed by the Senate's architect of financial reform, Sen Blanche Lincoln (D-Ark.), by many Senate Democrats, and by top administration officials like Gary Gensler, chairman of the Commodity Futures Trading Commission, who says (pdf) there should be no exemptions in derivatives regulation. Supporters of complete derivatives transparency cite reports like this one (pdf), from the Congressional Research Service, which says that a broad end-user exemption could essentially gut new regulations altogether. CRS found that nearly two-thirds of derivatives trades involve an end-user, and "[i]f all end users are exempted from the requirement that OTC swaps be cleared, the market structure problems raised by AIG still remain." In other words, it would be the loophole that ate the rule.

The job losses figure cited by the Chamber is undoubtedly cause for concern; no one wants to proactively cut jobs, especially with the 9.9 percent unemployment rate we have now. (An aside: I'm trying to track down the actual report on job losses used by the Chamber to make sure it's been cited accurately—and not twisted to fit an agenda. I haven't found it yet, but rest assured I am digging into this.) Then again, the out of control over-the-counter derivatives market played a huge role in the financial crisis—a meltdown that's caused millions of Americans to lose their jobs and their homes. A record 6.72 million workers who want to work have been unemployed for 26 weeks or more, the highest since the government started counting this figure in 1948; that number began its vertiginous climb in—you guessed it—the fall of 2008, when Wall Street crumbled.

Even if the Chamber is right to say tough derivatives regulation will result in the loss of jobs, you have to look at the bigger picture and broader gains here. 100,000 jobs is tough to swallow. But tougher still is not fixing the derivatives markets and setting the stage for the next meltdown—and the millions of job losses that come with it.

Fed Audit Scores Resounding Victory

| Tue May 11, 2010 1:44 PM EDT

An amendment mandating an audit this year of the Federal Reserve and its multitrillion-dollar bailout resoundingly passed the Senate today, in a 96-0 vote. The audit, to be conducted by the Government Accountability Office (GAO), the non-partisan investigatory arm of Congress, will dig into the Fed's decision-making and actions since the onset of the financial crisis in 2007. To date, the Fed has spent nearly $3.5 trillion trying to backstop teetering megabanks, housing giants Fannie Mae and Freddie Mac, and the secondary mortgage markets as a whole. Nearly all of these actions have taken place in almost complete secrecy, with little disclosure of who's received the Fed's extraordinary support and why.

The Fed audit approved today, authored by Sen. Bernie Sanders (I-Vt.), would require that the GAO post online a report by December 1 of this year outlining all of the Fed's rescue measures. The GAO, Sanders has said, would also shed light on meetings between Fed officials and Wall Street CEOs which took place with alarming frequency in late 2008 and 2009. Those meetings posed serious conflict of interest issues when Fed officials like Stephen Friedman, head of the New York Fed, met with top brass from Goldman Sachs about converting the firm into a bank holding company; Friedman happens to be a Goldman Sachs board member as well. "This amendment begins the process of lifting the veil of secrecy at perhaps the most powerful federal agency there is," Sanders told reporters today. 

Originally, Sanders' amendment called for periodic audits of the Fed by the GAO. But after facing considerable pressure from Senate Democratic leaders, like Chris Dodd (D-Conn.), and the White House, Sanders agreed to limit the amendment to one audit of the Fed's bailouts, beginning in 2007. Asked whether he felt his amendment had been fundamentally weakened by limiting the number of audits, Sanders said he was optimistic that a successful initial investigation could spur the public to demand new audits. Sanders said, "They're going to say, 'You know what? We want more. We want more transparency.'"

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