Erika Eichelberger

Reporting Fellow

Erika Eichelberger is a reporting fellow in Mother Jones' Washington bureau. She has also written for The Nation, The Brooklyn Rail, and TomDispatch. Email her at eeichelberger [at] motherjones [dot] com.

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Paul Ryan's Budget Won't Balance the Budget in Ten Years

—By Erika Eichelberger

| Wed Mar. 20, 2013 8:31 AM PDT

Rep. Paul Ryan's (D-Wisc.) "new" budget slashes government spending levels to their lowest since 1948, with $4.6 trillion in cuts to things like Medicare, Medicaid and other programs for the poor. It reduces tax rates for the rich and corporations without saying how it will pay for them. It repeals Obamacare. But wait, there's more. According to a new analysis by the Center on Budget and Policy Priorities, the budget also contains billions in phantom defense savings. That means Ryan's budget doesn't achieve the whole point of his budget: cutting the deficit to zero in ten years.

How does this work? Well, writes Richard Kogan, a senior fellow at CBPP, the defense savings in Ryan's budget are "flatly inconsistent" with the defense spending in his budget. Huh? According to calculations by the Congressional Budget Office, the spending levels that would be caused by Ryan's funding levels don't match up. CBO says Ryan's funding levels would cause $100 billion more in spending than he accounts for in his budget. The budget achieves some savings by not extending the Defense Department funding for Hurricane Sandy relief. But CBPP has searched through the 91 pages, and can't find any way to explain where the rest comes from.

The Ryan budget reverses defense sequestration, which is the 9 percent haircut the Pentagon had to take because Congress couldn't come up with a better plan. If he kept those cuts in place, he could make up $25 billion of the missing savings. But still, "his budget contains about $75 billion in spending reductions that do not come from funding reductions," Kogan writes, "which means they will not happen and are phantom savings."

When he rolled out his plan last week, Ryan called it a "responsible, reasonable balanced plan."

No, Kogan says. "The budget's heavy reliance on massive, unspecified savings, along with its understatement of defense spending, suggest that it wouldn’t work as advertised in achieving major deficit reduction, let alone in reaching budget balance," he writes.

Bad math aside, CBPP and lots of other economists say cutting the deficit to zero shouldn't be the goal in the first place:

To be sure, we do not consider a zero deficit to be a meaningful target. Instead, policymakers’ goals should be: for the short term, to assist the recovery by not imposing too much austerity too soon, a test that the Ryan budget fails to meet; over the mid-term, to stabilize the debt as a percent of gross domestic product; and ultimately, to reduce the debt ratio.

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"I Can't Keep This Going": How JPMorgan Chase Changed Its Own Risk Rules and Lost $6 Billion

—By Erika Eichelberger

| Fri Mar. 15, 2013 2:46 PM PDT

JPMorgan Chase CEO Jamie Dimon Zhang Jun/Xinhua/ZUMAPress

Last May, JPMorgan Chase, the biggest bank in America, lost $6 billion on a risky bet placed by its London office. So far, the bank has been punished with a slap on the wrist, but this week the Senate released a major report and held a Friday hearing on the debacle. The report shows that in the run up to the massive loss, JPMorgan Chase ignored its own risk controls, used fancy math to reduce estimates of losses, and blocked the flow of information to regulators. Regulators, meanwhile, first fell asleep on the job and then tried to downplay the incident.

The bank and its regulators should have seen problems coming. The risks JPMorgan Chase was taking on were so obvious that Bruno Iskil, the trader who made the giant bet, told a colleague last year that the way the bank was cooking its books was "getting idiotic," and said, "I can't keep this going," according to the report. One way the bank "kept this going" was by ignoring its own rules. In the first four months of last year alone, the London office broke its risk regulations 330 times. In order to avoid those pesky rules, JPMorgan Chase simply changed how it measured risk, with approval for those changes going all the way up to CEO Jamie Dimon himself.

JPMorgan Chase managers also "pressured" its traders to lowball losses by some $660 million over several months by changing how they calculated them, the report says.

The bank did send its regulator, the Office of the Comptroller of the Currency, reports revealing it was breaking its risk rules by the hundreds, but the OCC officials at Friday's Senate hearing said that they were more focused on what they considered "riskier" parts of the bank.

Sen. Carl Levin (D-Mich.), chair of the Permanent Subcommittee on Investigations, which held the hearing, asked one OCC official if the bank's fancy new risk measurements should have been a "red flag." The OCC official said yes.

JPMorgan Chase didn't just ignore its own rules—it ignored the government's rules, too. For several weeks last year, the bank simply stopped giving profit and loss reports to the OCC because Dimon said "it was too much information to provide." Dimon, who is accused of withholding information about the daily losses, allegedly raised "his voice in anger" at a deputy who later turned over the info, the report says.

"This is something we should have been all over from Day One."

The bank "failed to send regular reports in…the same months [the trade] tripled size," Levin said. "Why…did OCC examiners that oversaw [the London office] not ask the bank for the missing reports until mid-April after the media storm?"

"This is something we should have been all over from Day One," admitted Scott Waterhouse, the main OCC official in charge of overseeing JPMorgan Chase.

And what about "If the OCC had required [the London office] to document its investment decisions[?]…Would it have learned of [the trade] earlier?" Levin asked. Yes, OCC officials said. "There were red flags we failed to notice and act upon," Tom Curry, the comptroller of the currency, admitted.

"The skepticism and demand for hard evidence that might be expected of bank regulators were absent," the Senate report concluded.

Maybe that's why regulators tried to play down the crisis after the fact. The day after JPMorgan Chase announced its loss, the head of the OCC's Large Bank Supervision division, Michael Brosnan, told Curry the trades were not that big a deal, calling it an "embarrassment issue," and adding that "at end of day, they are good at financial risk [management]. But they are human and will make mistakes."

Elizabeth Warren Slams Federal Regulators Over Bank Money Laundering

—By Erika Eichelberger

| Thu Mar. 7, 2013 1:56 PM PST

On Thursday, the Senate held a hearing to ask federal regulators why they are not stopping banks from allowing money laundering. Sen. Elizabeth Warren (D-Mass.) was the highlight of the show, slamming a Treasury official who refused to weigh in on whether the banks should face more severe penalties.

In December, the giant international bank HSBC was fined $1.9 billion for illegally allowing millions in Mexican drug trafficking money to be laundered through its accounts. But it's not just HSBC—this is a systemic problem. Ten banks have been penalized in recent years for failure to comply with anti-money laundering rules. The Senate banking committee held the hearing in order to interrogate regulators at the Federal Reserve, Treasury Department, and the Office of the Comptroller of the Currency about why they are not doing more to stop these kinds of shenanigans.

All of the regulators said they were working on improving regulations and enforcement and protested that it was up to the Department of Justice—not them—to decide whether prosecution was appropriate. (The Justice Department did not have a witness at the hearing.) They were reluctant to weigh in on whether they thought HSBC should have faced trial, even though they consult closely with the DOJ on bank activities. That infuriated Warren:

The US government takes money laundering very seriously for a good reason. And it puts strong penalties in place… It's possible to shut down a bank... Individuals can be banned from ever participating in financial services again. And people can be sent to prison. in December, HSBC admitted to... laundering $881 million that we know of... They didn't do it just one time... They did it over and over and over again… They were caught doing it, warned not to do it, and kept right on doing it. And evidently made profits doing it. Now, HSBC paid a fine, but no individual went to trial. No individual was banned from banking and there was no hearing to consider shutting down HSBC's actives in the US.... You're the experts on money laundering. I'd like your opinion. What does it take? How many billions of dollars do you have to launder for drug lords and how many sanctions do you have to violate before someone will consider shutting down a financial institution like this?

David Cohen, the undersecretary for terrorism and financial intelligence at Treasury, responded that his department had imposed on HSBC "the largest penalties we've imposed on any financial institution."

Warren got annoyed. "I'm asking: what does it take to get you to move towards even a hearing to consider shutting down operations for money laundering?" she said.

Cohen kept evading and Warren got more annoyed. "I'm not hearing your opinion on this," she said. "What does it take even to say, 'here's where the line is'? Draw a line, and if you cross that line you're at risk for having the bank closed."

Cohen said he had views, but couldn't get into it.

"It's somewhere beyond $881 million in drug money," Warren concluded on her own, and went on to spell out the injustice of it all. "If you're caught with an ounce of cocaine, you're going to go to jail... But if you launder nearly a billion dollars for international cartels and violate sanctions you pay a fine and you go home and sleep in your own bed a night."

"How would you explain this to your neighbor?" Sen. Jeff Merkley (D-Ore.) asked, noting that the fine slapped on HSBC amounted to about one percent of its profits over 10 years. "Does that really send a message?"

The regulators reiterated they were working on improving oversight and such, but admitted that they were not doing enough. Jerome Powell, who is on the board of governors at the Federal Reserve, conceded that big banks may not only be too big to to fail, but also too big to prosecute. "Until we finish [writing the rules implementing Dodd-Frank financial reform law] I couldn't look [my neighbor] in the eye… I don't think it's fair."

Known and Suspected Terrorists Can Buy Guns in America

—By Erika Eichelberger

| Thu Mar. 7, 2013 10:42 AM PST

Under current federal law, being a known or suspected terrorist doesn't disqualify you from buying guns and explosives. A Democratic Senator has introduced a bill that would close what he calls the "Terror Gap."

On Tuesday, Sen. Frank Lautenberg (D-NJ), reintroduced the bill—it's called the Denying Firearms and Explosives to Dangerous Terrorists Act—saying in a statement, "our gun laws have gaping holes that allow known and suspected terrorists to walk into a gun store and leave with legally purchased deadly weapons."

Right now, people on terrorism watch lists often aren't allowed to get on planes, but the federal government is has no way to stop them from buying weapons unless a background check shows they are prohibited for another reason, like if they are mentally ill, or an undocumented immigrant, or have a criminal record. Lautenberg's bill would give the Attorney General the authority to stop the sale of guns or bombs when a background check shows that the purchaser is a known or suspected terrorist, and the AG "reasonably believes" that the person may use the weapon in connection with a plot against Americans. (One problem: many people on terror watch lists are not in fact terrorists.)

According to the Government Accountability Office, people on the terror watch lists were cleared to proceed with a weapons purchase ninety-one percent of the time, a total of 1,321 times, between February 2004 and December 2010. Nidal Malik Hasan, the accused Fort Hood shooter, for example, had ties with Yemen-based cleric Anwar al-Awlaki.

"This is common-sense legislation that does not infringe on a gun-owner’s rights, and will protect our troops and our nation," the veterans group Vet Voice Foundation said in a press release in February.

Not shockingly, the bill has broad bi-partisan support in both chambers. The Bush administration endorsed the legislation. The NRA, however, opposes the measure. In 2011, the gun rights group said the bill was "aimed primarily at law-abiding American gun owners." The no-guns-for-terrorists bill has been reintroduced for years and has gone nowhere.

Lautenberg says he hopes the proposal will be included in the package of gun measures now being considered in Congress. "From attacks on Ft. Hood to Mumbai, terror plots carried out using guns and readily available explosives are more and more common," Lautenberg said, "and we must act to stop terrorists from getting these weapons and killing Americans."

The Government Still Doesn't Want You to Know What Caused the Financial Crisis

—By Erika Eichelberger

| Wed Mar. 6, 2013 10:19 AM PST

In the aftermath of the 2008 financial meltdown, the US government launched a vast investigation, but it still doesn't want you to know the details of what it found.

In January 2011, the Financial Crisis Inquiry Commission (FCIC) created by Congress put out its final report. But it only released a portion of all the source documents it scoured, so last year the government accountability group Cause of Action filed a lawsuit seeking the release of those documents, including emails, memoranda, and draft reports. Last week, the DC district court announced it was dismissing the case. But it's not over yet: COA vowed on Tuesday that it will appeal the decision. In a statement, the group said the judge's ruling that the documents were not subject to the Freedom of Information Act was "a misapplication of the law," and said that "COA will continue to fight to shed light on the workings of our government."

The FCIC was created in 2009 and given an $8 million budget and a lot of power to subpoena witnesses and documents, and give whistleblower protections to those who would come forward with information. The commission was also plagued by partisan division. Its final report in 2011 faulted failures in financial regulation, excessive borrowing, a lack of transparency, and risky investments, among other causes—but Republicans on the committee put out their own conflicting report. Meanwhile, the commission said it could not release all related documents but vowed that they "will eventually be made public through the National Archives and Records Administration." (Which has yet to happen.)

As Jay Rosen, a journalism professor at New York University, told my colleague Nick Baumann at the time:

The [final] report, as I understand it, says [the financial crisis] was a preventable thing and preventable by lots of different measures. The Republican dissent is that this was caused by Fannie Mae and Freddie Mac. That's one of those disputes where it's not just two interpretations of common facts diverging from one another. Those are two different narratives coming out of the same commission, which lead in two different policy directions and really tell two different stories.

There are powerful incentives in certain institutions to just leave it at that. The most obvious one is the "he said/she said" journalism, where you say, "This is what the commission Republicans said, this is what the Democrats said, and really—who can tell." The release of documents provides a way for people to provide a check on that tendency.

As Baumann reported, FCIC chairman Phil Angelides worried at the time that "there's going to be a very conscious, deliberate effort to rewrite [the] history [of the crisis], to wave this away like it was a bump in the road." Keeping the primary source documents hidden from the public makes that easier, of course.

COA suggested that another financial meltdown could loom if the public can't hold the government accountable for exactly what happened in the lead up to the 2008 crisis. "The President has signed into law regulations, like [the] Dodd-Frank [financial reform bill], without the American people fully understanding what caused our economic meltdown or what went into the creation of the FCIC's report," the group said, adding that it's not even clear if the taxpayer-funded FCIC conducted a full investigation.

As Michael Perino, a law professor at St. John's University in New York who has written about the investigation of the causes of the Great Depression, told Baumann in 2011: "Opening up all those materials would allow independent investigators to pore through them and reach their own conclusions."