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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Alan Grayson vs. the Whigs?

| Thu Apr. 8, 2010 11:15 AM EDT

Like Disneyworld and a Tallahassee flea market, Rep. Alan Grayson (D-FL) has quite the knack for attracting nutty characters. I'm specifically talking about Grayson's campaign for re-election this fall, and the latest challenger to emerge out of the woodwork: a Ocala, Florida, resident named Steve Gerritzen who's running as the lone candidate for (drumroll) the Whig Party. Yes, those Whigs, the ones who haven't had much clout in American politics since the 1850s. Apparently, Gerritzen, fed up with Democrats and Republicans, "wants to remake the American education system in the model of that of Iceland, which emphasizes high rates of literacy, early childhood education, and taxpayer-funded collegiate studies," the Ocala Star-Banner reports.

By day, Gerritzen, 39, is an electronics assembler, and struck a populist tone in what's presumably his coming-out interview with the Star-Banner. "A lot of people are talking about a revolution, but I'm calling for a revolution through the ballot box," Gerritzen told the newspaper. "Seventy percent of the people make less than $50,000 a year, and that's who I want to represent. I care about the people because I am the people. I am the working class."

In addition to the Whig resurrection, Grayson faces a challenge from the Tea Party's Peg Dunmire, whom Grayson called one of Sarah Palin's "undead minions." So rhetorically gifted is Dunmire, Grayson said, that she deserved a spot in the Guinness Book of World Records for "Most Consecutive Cliches." Dunmire's website says she want to eliminate most payroll taxes, repeal the Sarbanes-Oxley Act of 2002 (a landmark reform of financial accounting principles), and ramp up offshore drilling off Florida's coasts.

Florida's a bizarre enough state as it is, an off-kilter peninsular republic complete with hanging chads, Katherine Harris, Elian Gonzalez, and on and on. Thanks to Grayson and his cadre of challengers, it's only getting stranger.

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Citi's Fallen Gurus Repent

| Thu Apr. 8, 2010 9:28 AM EDT

Citigroup's bygone masters of the universe—Charles Prince, former CEO and chairman, and Robert Rubin, the former chair of Citi's board (and Treasury Secretary under Bill Clinton)—have come to Washington to tell us all something: They were wrong. And they're sorry.

That was among the opening highlights of Prince and Rubin's appearance today before the Financial Crisis Inquiry Commission (FCIC), the Congressionally-mandated panel investigating the root causes of the recent financial meltdown. "I can only say that I am deeply sorry that our management—starting with me—was not more prescient and that we did not foresee that lay before us," said Prince, who led Citigroup from October 2003 to November 2007, resigning on the same day Citi announced $8 to $11 billion in writedowns in the early stages of the crisis. (Prince, you'll remember, is famous for comparing the global financial markets to musical chairs: "When the music stops, in terms of liquidity, things will get complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing.")

Prince and Rubin are before the FCIC today as the commission investigates Citi's role in the subprime mortgage collapse and the broader economic meltdown. The U.S. supermarket bank, for one, was a heavyweight in the market for collateralized debt obligations (CDO), a type of security backed by pools of mortgage loans with varying degrees of risk. Citi, as Prince described in his testimony, held billions in so-called "super-senior" CDOs, which Citi officials felt had little chance of turning sour. (It didn't help that the hapless credit rating agencies imprinted these products with AAA ratings, the gold standard. But that's a whole different issue.) Quite the contrary: Citi ended up losing $30 billion over six quarters on these products. Today's hearings with Prince and Rubin, as well as several hearings held yesterday with Citi officials, are an attempt to understand how such a powerful and sprawling bank could so grossly underestimate the toxicity of these CDOs.

Rubin, who said he only learned of Citi's massive positions with these CDOs in the fall of 2007, accepted his share of blame, too, for underestimating how dangerous these products could be. "Almost all of us involved in the financial system...missed the powerful combination of forces at work and the serious possibility of a massive crisis," Rubin said in his testimony. "We all bear responsibility for not recognizing this, and I deeply regret that."

The Oracle Rewrites History

| Wed Apr. 7, 2010 3:46 PM EDT

Alan Greenspan, the economic sage and former chair of the Federal Reserve, has been on a mission to set the record straight on the financial crisis—not least his own role in it. In March, the Brookings Institution published a detailed, 66-page paper (pdf) he authored on the crisis’ origins. Most recently, he used a three-hour hearing on Wednesday by the congressionally-chartered Financial Crisis Inquiry Commission (FCIC) to discuss how subprime mortgages and securitization fueled the meltdown. Except Greenspan hasn't been describing recent history so much as rewriting it.

Greenspan, who chaired the Fed from 1987 to 2006, has received plenty of blame and opprobrium for the central bank's role in the subprime meltdown and broader economic crisis. The Fed, critics say, failed to rein in abusive practices by subprime lenders by choosing not to flex its regulatory muscle. For a time, it let credit card companies off the hook with a 2004 ruling that overdraft fees weren’t loans, and thus not subject to fair lending law. Consumer advocates also say Greenspan’s policy of keeping interest rates low during the 2000s paved the way for the housing bubble.

But reading Greenspan's testimony before the FCIC, you'd think the Fed was the Lone Ranger of regulators, a vigilant crusader on behalf of homeowners raising red flags about toxic mortgage products and the looming housing bubble. He touted the Fed's actions under a 1994 law called the Homeownership Equity Protection Act (HOEPA) that gave the Fed the power to prohibit "unfair," "abusive," and "deceptive" mortgage lending practices. "My colleagues at the Federal Reserve were aware of their responsibilities under HOEPA," Greenspan said, "and took significant steps to ensure that its consumer protections were faithfully implemented."

Greenspan: Ideology Meant Nothing

| Wed Apr. 7, 2010 10:52 AM EDT

During his near 20-year reign at the helm of the Federal Reserve, Alan Greenspan was among the world's leading proponents of the free market ideology—that governments and regulators shouldn't meddle in the markets, and instead let the financial industry regulate and run itself. You know, Adam Smith's invisible hand, Milton Friedman and the Chicago school, all that. Observers point to a slew of Greenspan's decisions during his tenure at the Fed—his backing of massive financial deregulation, like the Gramm-Leach-Bliley Act in 1999, and belief that financial institutions could oversee themselves—as evidence of his free market beliefs impacting his work at the Fed.

In the wake of the crisis, Greenspan admitted that he'd found a "flaw" in his free market worldview. Big banks, investment houses, non-bank institutions, and so on couldn't control themselves, Greenspan said; enhanced regulation was needed. It was presumed, at the time of Greenspan's concession, that he was repudiating the ideology that guided his leadership at the Fed.

Today, however, Greenspan rejected altogether the notion that his free market mentality at all inflected tenure at the Fed. When asked by Brooksley Born, the former chair of the Commodity Futures Trading Commission, whether his ideology led to the Fed's laissez faire approach to regulation and failure to stop the housing bubble, Greenspan replied, "It didn't look that way from my point of view." Greenspan countered that he was only doing what Congress told him to do, and enforcing the laws already in place. "I ran my office as required by law, and there's an awful lot of laws that I wouldn't have constructed in the way they were constructed, but I enforced them nonetheless because that was my job," he said.

Sure, in one sense, Greenspan essentially played the hand he was dealt. However, no one can forget how influential he was the apogee of his Fed tenure. His support for bills like Gramm-Leach-Bliley no doubt impacted their passage. Thus his claim today is one that many of Greenspan's critics will surely take issue with. What's more, for the growing chorus of critics who say that Greenspan, in recent months, has launched a campaign to whitewash his and the Fed's record, this latest pushback is sure to give those critics even more ammunition.

Greenspan: Dummy-proof Wall St. Reform

| Wed Apr. 7, 2010 8:56 AM EDT

Alan Greenspan, the dour former chairman of the Federal Reserve, joined the growing ranks of financial experts saying we can't rely on "fallible" human regulators to rein in Wall Street under the re-drawn lines of new financial regulation. (That is, if we get new financial regulations.) Greenspan's remarks came as part of his testimony today before the Financial Crisis Inquiry Commission, a Congressionally-mandated panel investigating the root causes of the financial crisis.

A former regulator himself, Greenspan told the FCIC, led by former California state treasurer Phil Angelides, that new financial safeguards should require higher capital cushions to absorb losses and force banks to have more skin in the game on their trades. "Concretely, I argue that the primary imperatives going forward have to be on increased risk-based capital and liquidity requirements and significant increases in collateral requirements irrespective of the financial institutions making the trades," Greenspan said. "Sufficient capital eliminates the need to know in advance which financial products or innovations will succeed in assisting in effectively directing a nation's savings to productive physical investments and which will fail. He added, "In a sense, [capital requirements] solve every problem." Asked about what kind of capital requirements are needed, Greenspan didn't offer any specific figures but said only they needed to be "adequate."

Greenspan's views on financial regulation come, in part, as the former Fed chairman defends his record, despite widespread criticisms that he missed the housing bubble's genesis and failed to crack down on subprime lending. In his written testimony, Greenspan countered by saying he warned of the "housing boom" as early as 2002, and that the Fed took significant steps to crack down on a subprime market that, in the 2000s, spiraled out of control. However, Greenspan stressed, as he has before, that he himself, as well as any regulator, can never fully predict the next crisis, and that cold, hard capital restrictions are the key to preventing the next meltdown. 

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