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 Detroit News, the Guardian, the American Prospect, and TomDispatch.com, where he's an associate editor. Email him at akroll (at) motherjones (dot) com. He tweets at @AndrewKroll.

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Warren Buffett Safer Than Obama?

| Mon Mar. 22, 2010 7:32 AM PDT

Bloomberg News reports today that, according to the bond market, you're safer investing in Warren Buffett than in what used to be the safest of all bets—the US government. The yield on bonds offered by Buffett's storied Berkshire Hathaway last month had a yield that was 3.5 basis points, or 0.035 percent, lower than the US government's Treasury bonds—essentially American debt. Joining Buffett in the safer-than-US-debt category as well were bonds for household names like Proctor and Gamble, Johnson and Johnson, and Lowe's, the home improvement store. "It's a slap upside the head of the government," one financial officer told Bloomberg.

So what's it mean? For one, that the US is selling massive amounts of Treasury bonds—$2.59 trillion since the start of 2009—to borrow money to finance its projects like the stimulus package, bailout, wars in Iraq and Afghanistan, and Obama's other projects. So much money, in fact, that the US will pay 7 percent of revenues to service its debt this year, according to Moody's rating service. According to the Congressional Budget Office, the federal budget proposed by Obama will create record deficits of more than $1 trillion this year and next, and the total deficit between 2011 and 2020 would reach $9.8 trillion, or 5.2 percent of GDP. The US' looming debt crisis is getting so bad and threatening to swallow so much money that Moody's said earlier this month that the US was "substantially" closer to losing its AAA debt rating, the gold standard of bond rating.

From a strictly financial standpoint, the Buffett-Obama comparison highlights just how grim the US' fiscal situation is. It's one thing to borrow deeply to try to create jobs, backstop an ailing housing market, and restart the American economy. But on the morning after the passage of a historic health care bill, the Bloomberg story nonetheless offers a rude awakening as to how deep in debt this country really is.

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Wall St. Bill Faces 400 Changes

| Sun Mar. 21, 2010 1:59 PM PDT

More than 400 amendments will likely be proposed beginning this week to change the Senate's financial reform bill, many of them in an effort to whittle down the relatively strong Wall Street overhaul offered by Sen. Chris Dodd (D-Conn.), chair of the banking committee. 110 of those amendments, according to a Senate document describing the amendments obtained by Huffington Post, come from Sen. Richard Shelby (R-Ala.), the top GOPer on the banking committee, who failed to reach a bipartisan agreement with Dodd last month. Almost a hundred more come from Sen. Bob Corker (R-Tenn.), whose talks with Dodd broke down earlier month despite reaching the "five-yard line," according to Corker.

The amendments range in scope and ambition. Some would bulk up Dodd's bill, like Sen. Jack Reed's amendment to make a new consumer protection agency independent and standalone (Dodd's version makes it independent, but houses it within the Federal Reserve). Others would weaken or radically alter what Dodd offered. Shelby, for instance, submitted an amendment calling for the merger of the Securities and Exchange Commission with the Commodity Futures Trading Commission. Another of Shelby's would strip a new Council of Regulators, designed to spot and tackle too-big-to-fail institutions, of the power to implement tougher rules for non-banks and bank holding companies, like Goldman Sachs and Morgan Stanley. One of Corker's would ban securitizing subprime mortgages altogether.

Further amendments push for "accountability and transparency reforms at the Federal Reserve" from Sen. Jim Bunning (R-Ky.), a demand that President Obama report to Congress on potential reforms of housing corporations Fannie Mae and Freddie Mac from Sen. David Vitter (R-La.), and giving a new consumer protection agency primary authority over non-bank companies, like payday lenders, from Sen. Charles Schumer (D-NY). One amendment offered by Dodd directing the Government Accountability Office to review "Repo 105" accounting gimmicks—the kind used by Lehman Brothers to cook its books—is a clear reaction to the recent report on Lehman's demise by its bankruptcy examiner.

As the Senate banking committee heads into mark-up this week, all of these amendments will come into play. While some of them would bolster the bill, many amount to death by a thousand cuts for Dodd's Wall Street crackdown. Check back here throughout the week for the latest on the maneuvering and potential gutting of the Senate's financial reform efforts.

 

Obama, Lehman, and Blown Chances

| Fri Mar. 19, 2010 8:17 AM PDT

When insurance company WellPoint announced an average 25-percent rate hike last month, President Obama and his allies wasted little time seizing the insurer's move as yet more evidence of the evil of health insurers and the need to pass major health care reform. "This rate increase underscores the urgency of passing real health insurance reform," said Kathleen Sebelius, secretary of the Health and Human Services Department. 

Earlier this month, a comparable bomb dropped on Wall Street, courtesy of voluminous and exhaustive report on the downfall of Lehman Brothers. The report, thousands of pages long and numbering nine volumes, was prepared by Lehman's bankruptcy examiner. He found scores of damning evidence on the firm's legal but utterly dangerous accounting maneuvers, how it shifted losses and risk off its books to look healthier and stronger, how it deceived regulators, and how Lehman's leader, Dick Fuld, was "at least grossly negligent" in the handling of it all. The Financial Times reported this week that JPMorgan Chase, that mainstay of Wall Street, has used the "Repo 105" accounting gimmick, too. These findings are, in short, all the ammunition Obama, Sen. Chris Dodd (D-Conn.), and those clamoring for financial reform need to press for a major overhaul of how Wall Street does business. They couldn't have wished for a better opportunity.

Instead, there's been silence. Nothing from Obama, from top economic adviser Larry Summers, from Treasury Secretary Tim Geithner (more on him in a minute), from anyone, really. The SEC more or less acknowledged the report's existence, saying it would be "helpful." But that's about it. Here's Obama's big opening to highlight the worst of Wall Street's excesses and obfuscation, 2,200 pages of cold, crisp facts to back him up...and he lets the opportunity slip past. Why?

Does it prove he's too close to Wall Street? That he won't take off the kid gloves when it comes to confidantes like Jamie Dimon, CEO of JPMorgan Chase? It's worth nothing that the Lehman report does implicate one of Obama's top financial figures, Tim Geithner. Geithner, the report says, was told directly about the "Repo 105" accounting gimmick, and how Lehman used it to move toxic assets of its book to look healthier (yet never reported Repo 105 on its regulatory filings); Geithner, when interviewed by the examiner, said he didn't remember being told about Repo 105. Yves Smith at Naked Capitalism put it best: "the NY Fed, and thus Timothy Geithner, were at a minimum massively derelict in the performance of their duties, and may well be culpable in aiding and abetting Lehman in accounting fraud and [Sarbanes-Oxley] violations." Maybe Obama doesn't want to burn one of his own so he's mostly ignoring the Lehman report.

Still, that's no excuse. Obama could easily draw on the Lehman report without dragging Geithner into the fray. So why the silence, Mr. President? The only explanations that came to mind are: (1) Obama's too wrapped up in health care vote-wrangling to bother with the Lehman report and the financial reform debate, or (2) he doesn't want to battle Wall Street. It's probably both. Nevertheless, it's sad to see top GOPers foretelling their stall tactics on financial reform and blasting "punk staffers" on financial reform while Obama—and many top Dems, for that matter—let the perfect opportunity to fight back pass them by.

CBO: Homeowner Rescue a Big Bust

| Fri Mar. 19, 2010 7:09 AM PDT

For all the plaudits and praise heaped on Treasury Secretary Tim Geithner lately (profiles, for instance, in the New Yorker and the Atlantic), consistently omitted is the abysmal failure of the Treasury's homeowner relief initiative, the Making Home Affordable program. The core of that program is the Home Affordable Modification Program (HAMP), a multibillion-dollar effort that's done next to nothing to alleviate the ongoing foreclosure crisis. (Read this and this for more.) A year into HAMP, only 170,000 people have received permanent reductions in their monthly mortgage payments. (By contrast, foreclosures last year set a new record, with 2.8 million.)

Now comes the news, via the nonpartisan Congressional Budget Office, that HAMP, which was initially projected to spend $50 billion helping homeowners, will only spend 40 percent of that, or $20 billion. What that means for beleaguered homeowners is that far less help is on the way from an already wounded program. Which shouldn't come as a surprise. Whereas Obama himself said in February 2009 that the Making Home Affordable program "will help between 7 and 9 million families restructure or refinance their mortgages," the Treasury Department's goal, in the case of HAMP, has always been to "offer" 3 to 4 million modifications to homeowners—with no guarantee for help.

The revision for HAMP as well is no surprise given criticism from watchdogs like the Congressional Oversight Panel. Last October, the COP said in its monthly report that "[i]t increasingly appears that HAMP is targeted at the housing crisis as it existed six months ago, rather than as it exists right now." In other words, the program was outdated a mere six months after it began. And the CBO's recent findings only confirm what others, like the COP, have stated: that Geithner and Obama's tepid homeowner rescue has fallen far short of providing the kind of relief to lift the country out of its housing and economic slump.

Debunking the Chamber on Consumer Protection

| Thu Mar. 18, 2010 11:55 AM PDT

As our own reporters have shown many times, the US Chamber of Commerce, a lobbying behemoth that's only gaining power by the day, tends to run fast and loose with statistics, facts, even reality. On the financial reform front, the Chamber's latest assault on a new consumer protection agency—proposed by the House and Senate—fits their M.O.

At a press conference this week, Andy Pincus, counsel for the Chamber, laid out for reporters the core of the Chamber's opposition to a consumer protection agency. Essentially, Pincus said creating an agency like the one proposed by the House and Senate would layer on burdensome new regulation and bureaucracy, and moreover would choke off credit to small businesses. As a result, he said, those businesses won't have the funds to hire new employees, pay existing ones, and will ultimately fail, he said:

"Small businesses rely on credit vehicles that are often consumer credit because the small business is just a person…So the question is: How heavily are those kinds of credit vehicles going to be regulated? Are they going to cost more? Or are some of the regulations going to ban those forms of credit entirely on the grounds that they're abusive, whatever that means?"

In one sense, Pincus is right: Most small businesses are average consumers who get off the ground using the same kind of credit you and I have—namely, their credit cards. The Chamber's logic stops there, however. A consumer protection agency, if anything, would crack down on predatory credit card practices, not unlike the Credit CARD Act already in place. The consumer agency in the House bill would not only rein in on predatory practices sure to be harmful to small business owners, but would exempt retailers and other merchants who extend credit and layaway plans to consumers from oversight. (The Senate bill, while in its early stages, would do much of the same.) In short, these kinds of changes would  help small business owners, not hurt them or cut off their access to credit. 

Pincus also claimed that a new consumer agency might ban forms of credit used by small businesses. Perhaps if a small business owner had taken out a toxic subprime mortgage with a floating interest rate for her business, then yes, that owner might have to look for a new mortgage. One with better terms. Not much of a loss there.

In reality, the Chamber's position that a new consumer agency will choke off credit to small businesses just doesn't make sense. "There's no basis for it," says Tim Duncan, chairman of the organization Business Leaders for Financial Reform. "It's so detached from reality. There's nothing to indicate that that's true." And numerous business organizations actually support the consumer agency, including the US Women's Chamber of Commerce, the US Hispanic Chamber of Commerce, and the American Made Alliance. "For the most part, this is a real positive for business owners because they have to personally finance their own businesses," Duncan says. As for the US Chamber, Duncan adds, "I don’t think people are taking seriously the quality of their argument. The more they say this stuff, the more they dig their hole deeper in the ground."

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