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 TomDispatch.com, where he's an associate editor. Email him at akroll (at) motherjones (dot) com. He tweets at @AndyKroll.

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Ben Nelson Opposes Finance Debate

| Mon Apr. 26, 2010 4:31 PM EDT

Sen. Ben Nelson (D-Neb.), a centrist Democrat who'd been wavering on financial reform, just cast a "No" on the Senate's cloture vote to start debating a bill that would rewrite the rules of our financial markets. Nelson's vote is likely to kill Senate Democrats' attempts to immediately begin haggling over the bill, largely crafted by Sen. Chris Dodd (D-Conn.) in the banking committee. The Democrats, who lack a supermajority, needed at least one of 41 Senate Republicans to vote "Yes" in order to begin discussions on the Senate floor. Dodd alluded to some disagreement among Senate Democrats last week, as did Sen. Richard Shelby (R-Ala.) today in remarks with reporters. Mother Jones previously reported that Nelson could be among the Democratic hold-outs, given his centrist stance and the fact that he was on a shortlist of lawmakers visited by Treasury Secretary Tim Geithner last week, who has recently met personally with lawmakers on the fence on financial reform.

Nelson's opposition is sure to give Democrats headaches. This winter, the Nebraska senator made headlines for holding up health care reform talks and for trying to secure a provision in the bill benefiting his home state. On financial reform, Nelson had lately backed a provision in the finance bill that exempted companies who've previously traded derivatives from retroactively posting collateral on their existing derivatives trades, the Wall Street Journal reported. The exemption was supported by Warren Buffett, the billionaire Nebraska business guru who feared that without it, his company, Berkshire Hathaway, would lose a substantial amount of money. However, the exemption was killed earlier today, the Journal reported, signaling a major setback for Nelson and Buffett. The removal of that small provision could have prompted Nelson to vote against cloture this evening.

The votes are still being tallied on the Senate floor for the cloture vote, but without agreement on the Democratic side, the effort is likely to fail.

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Corker: "Very Good Chance" on Wall St. Bill

| Mon Apr. 26, 2010 3:20 PM EDT

Sen. Bob Corker (R-Tenn.), a top GOP negotiator on the Senate's financial reform bill, says the odds for a bipartisan bill are "still very, very good." In remarks to reporters today, Corker, who spent weeks this winter as the top GOP negotiator alongside Sen. Chris Dodd (D-Conn.), added that while no agreement between the two parties had been reached—and that differences remained within the parties as well—he was still optimistic about passing a financial reform bill with bipartisan support.

Asked about reports of an alternative GOP financial reform bill, Corker seemed to scoff at the idea, saying he was "not sure about that" and hadn't seen the bill yet. The day's financial-related happenings will come to a head around 5 pm, when the full Senate has a cloture vote (a vote to begin debate on the bill). Democrats and Republicans have spent much of the day in closed-door negotiations trying to resolve differences on the bill. Those disagreements concern parts of the bill on unwinding too-big-to-fail banks and regulating derivatives, the complex financial products that amplified the housing meltdown and spread losses throughout the global economy. But there haven't been any breakthroughs reported yet, setting the stage for a party line vote this evening in which 59 Democrats are anticipated to vote for beginning debate and 41 Republicans will block that debate.

Finance Reform: Inches or Miles Away?

| Mon Apr. 26, 2010 1:16 PM EDT

A key vote on the fate of financial reform legislation looms today, when the Senate holds its cloture vote (a vote, that is, to begin debate on the bill) at around 5 this evening. Right now, it seems that all 41 Republicans are united against the bill, while most, if not all, Democrats are onboard. Top senators like Chris Dodd (D-Conn.) and Richard Shelby (R-Ala.) continued closed-door negotiations on the bill over the weekend, but it's pretty apparent that they gained little ground, and that the two parties still have a ways to go before reaching a compromise. While Shelby suggested an agreement wasn't far off during a Sunday appearance on Meet the Press, he added, "inches are sometimes miles."

Over the weekend, Dodd, the architect of the current version of financial reform, agreed to beef up his bill's crackdown on derivatives, the opaque products whose value is derived from an underlying source (anything from the cost of wheat to a mortgage's price). The derivatives agreement—which would force them to be traded on a transparent exchange, cleared through a central clearinghouse, and would spin off derivatives trading desks from their larger firms—was partly a move to win over two GOP senators, Chuck Grassley (R-Ia.) and Olympia Snowe (R-Me.), who are both staunch proponents of reining in derivatives. The derivatives changes in Dodd's bill mostly incorporate ideas from a separate derivatives overhaul passed last week by the Senate agriculture committee, a bill Grassley supported. (He was the only Republican on the committee to vote for it.)  Whether Dodd won over Grassley, Snowe, or any other Republicans with the derivatives tweaks remains to be seen.

The real crunch time will come this evening, when the full Senate votes on whether to move ahead with the debate or not. Until then, senators will be making brief statements on the floor for and against the bill (C-SPAN 2, if you're interested). If they pass it, you'll see a feverish battle on the floor by Democrats to win over a Republican or two and pass the bill. If not, the behind-closed-doors debate will stretch on.

 

The Question Goldman Won't Answer

| Mon Apr. 26, 2010 9:24 AM EDT

Goldman Sachs, the besieged Wall Street baron, fired back at a Senate subcommittee this weekend by releasing a report of its own on the bank's role in the subprime mortgage markets leading up to the crash of 2008. The report (pdf) is a clear attempt by Goldman to counter claims that it intentionally "shorted," or bet against, the housing market, even as it peddled the kinds of mortgage-related products its traders were wagering would fail. Its loss of $1.7 billion in residential mortgage-related products in the 2008 fiscal year, and its small market share in the mortgage industry, are evidence that the firm was hardly the subprime bogeyman it's been made out to be, Goldman claims. "Goldman Sachs did not take a large directional 'bet' against the US housing market, and the firm was not consistently or significantly net 'short the market' in residential mortgage-related products in 2007 and 2008," the company says.

Of course, the story is far murkier than that. As McClatchy reported last year (and as Goldman neglects to mention), in 2006 and 2007 Goldman marketed some $39 billion in securities backed by toxic home loans to clients but neglected to mention that Goldman was betting against that same market. McClatchy also reported that Goldman, which had decided to start buying insurance against (i.e., betting against) the housing market in late 2006, used "offshore tax havens to shuffle its mortgage-backed securities to institutions worldwide, including European and Asian banks, often in secret deals run through the Cayman Islands, a British territory in the Caribbean that companies use to bypass U.S. disclosure requirements."

But there's one looming question that neither Goldman nor the press has answered: How much exactly did Goldman make from its big-time bets against the housing market? Goldman spokesman Lucas van Praag said in a statement on Saturday that the report released by the firm "demonstrates conclusively that we did not make a significant amount of money in the mortgage market"; however, in the set of emails released by the Senate investigations subcommittee, Goldman CEO Lloyd Blankfein writes in an email that "Of course we didn't dodge the mortgage mess. We lost money, then made more than we lost because of shorts." In a different email released by the subcommittee, Goldman CFO David Viniar reacts to news of losses in the mortgage markets, and of Goldman's subsequent gains, by writing, "Tells you what might be happening to people who don't have the big short."

How much Goldman made—whether it's negligible as company purports it to be, or more significant than that—remains to be seen. Did the firm merely try to counterbalance its long bets on the housing market with the shorts? Or did it reap a massive payday? This week's hearings in the investigation subcommittee, which bring to Washington top Goldman executives like Blankfein, could finally shed some light on this mystery.

Inside Goldman Sachs' "Big Short"

| Sat Apr. 24, 2010 9:27 AM EDT

A newly released set of internal Goldman Sachs emails offers further evidence of how the investment firm knowingly bet big against the housing market—what one top executive called its "big short"—and even wagered against mortgage-tied products of its own creation. The documents, released this morning by a Senate committee investigating Goldman and other investment firms, will fuel charges that Goldman positioned itself against the interests of its clients and most Americans. And while not as severe as the Securities and Exchange Commission's ongoing suit against Goldman, the emails are sure to heap more pressure on the under-fire Wall Street titan.

In one October 2007 email exchange, a member of Goldman's fixed income, currency, and commodities desk, Michael Swenson, discusses the now-infamous mass downgrades of $32 billion of mortgage bonds by the rating agency Moody's that month. Those downgrades all but killed the subprime mortgage market, resulted in huge losses on Wall Street, and woke banks and traders up to the realization that the housing bubble was about to burst. For Goldman, though, that was good news, the emails show. In that same exchange, Swenson says Goldman's asset-backed securities desk "will be up between 30 and 35 [million]" on news of the downgrades. Another Goldman staffer responds, "Sounds like we will make some serious money."

A May 2007 exchange inside Goldman includes information on the "wipeout" of a mortgage security from Long Beach Mortgage Company, a former subsidiary of the failed bank Washington Mutual. The security also happened to be underwritten and sold by Goldman. One Goldman staffer says this is bad news, because it'll cost the firm $2.5 million; however, the same staffer adds that because Goldman had bet against that very same security, it netted $5 million, easily covering its losses.

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