Mojo - April 2010

Blackwater Ex-President Indicted

| Fri Apr. 16, 2010 2:13 PM PDT

Gary Jackson, the ex-President of private security contractor Blackwater (now known as Xe), has been indicted on federal weapons charges, the Associated Press reports. Four other Blackwater officials will also face prosecution. As Mother Jones noted last month, this news wasn't entirely a surprise. Daniel Schulman (who normally covers these issues for us) explained at the time:

The potential charges are connected to a June 2008 raid on the company's North Carolina compound by federal agents, who seized nearly two dozen automatic weapons from Blackwater's armory. The guns, which included 17 Romanian AK-47s, had been purchased by Blackwater but were technically owned by the local sheriff's office, which had inked an agreement with the company to store the weapons....

Reports of weapons-related improprieties have dogged Blackwater for years. In the past, federal investigators have probed whether the company had illegally smuggled guns (and silencers) into Iraq that wound up in the hands of a Kurdish group designated by the US as a terrorist organization. In court documents, two former Blackwater employees also alleged that the company had smuggled contraband weapons, sometimes hiding them in bags of dog food. Last month, a Senate committee revealed that personnel working for a Blackwater-subsidiary in Afghanistan had aquired hundreds of AK-47s and other weapons they were unauthorized to have from an armory that's meant to equip the Afghan National Police. In one case, a Blackwater contractor signed for a trove of guns using the alias Eric Cartman, an apparent reference to the South Park character.

The South Park guys have hinted that an episode about the Blackwater/Cartman incident could be forthcoming this season. Anyway, the full AP report on the gun charges is here.

Advertise on MotherJones.com

Obama Stands Tall On Derivatives

| Fri Apr. 16, 2010 11:36 AM PDT

President Obama struck a tough stance on overhauling Wall Street today, saying he won't accept a financial reform bill if it doesn't include new derivatives regulations, the opaque products that allow certain users to hedge risk but others to gamble on swings in the market. Any new bill needs to bring derivatives trading "under control," the president was quoted as saying by Reuters.

Right now, derivatives, which derive their value from underlying sources like the cost of wheat or interest rates, are mostly traded over the counter, which means there's little public information about trading prices, the structure of the derivatives, and who's trading with whom. The opacity of the OTC derivatives market, worth around $450 trillion, played a major role in the collapse of the global economy. Because Wall Street and other financial heavyweights used derivatives to dangerously bet on the financial markets, and did so without sharing information on the cost and nature of those deals, when those bets went sour in 2008 and 2009, there was no safety net or cushion across the industry to absorb those losses. The result was the crippling of firms like AIG.

New derivatives regulations proposed by the House and Senate would require greater transparency in derivatives trading and would also require that many of the firms buying and selling these products would together bear the brunt of the next crisis, thus preventing a handful of firms from getting pummelled. These are crucial reforms needed to bolster how corporations, utility companies, farmers, and many others use derivatives, and Obama appears ready to make sure those reforms happen.

SEC Charges Goldman Sachs With Fraud

| Fri Apr. 16, 2010 10:17 AM PDT

The Securities and Exchange Commission has charged Goldman Sachs with fraud. The SEC press release is available here. The complaint (PDF) alleges that Goldman marketed a toxic "bundle" of mortgages without disclosing that the bundle was put together with input from John Paulson, a hedge fund manager who had bet against those very same mortgages. Kevin calls the news an "unusually pleasant way to start my morning" but hopes that "this is just the first SEC suit of many." Tom Matzzie, the chairman of Accountable America, says that one SEC suit doesn't amount to real accountability:

While this action by the SEC is encouraging, the pace and volume of civil and criminal actions related to the financial crisis is woefully inadequate. During the S&L crisis, a series of strike forces based in 27 cities were staffed with 1,000 FBI agents, analysts and dozens of federal prosecutors. The result was no less than 1,852 S&L officials were prosecuted and 1,072 were jailed. More than 500 of these were top officers. Where are those task forces today? Where are those prosecutors? Where are those investigations? The SEC, the Department of Justice and other agencies need to do more and do it now.

The man offering the useful context is right! There should be more and better investigations of fraud and abuse in the mortgage market. But let's not go too far in downplaying the significance of these charges. Felix Salmon has it right:

Goldman Sachs has lost more than $10 billion in market capitalization today, in the wake of these revelations. Good. It can go long markets and it can go short markets. But it can’t lie to its clients. That’s well beyond the pale.

You shouldn't lie to your clients. How quaint (and right!)

Breastfeeding "Non-Compliance" Costs US $13 Billion A Year

| Fri Apr. 16, 2010 9:38 AM PDT

A study released last week from the journal Pediatrics points to subpar breastfeeding rates in the US when it comes to first six months of a baby's life. The consequence is a rash of health problems; the list is long and frightening: necrotizing enterocolitis (tissue death), otitis media (ear infections), gastroenteritis (stomach pain), hospitalization for lower respiratory tract infections, atopic dermatitis, sudden infant death syndrome, childhood asthma, childhood leukemia, type 1 diabetes, and childhood obesity.

Jimminey Christmas, that's a lot of sick. And more than 900 babies die a year as a result of these, and the health care delivery system is beset with $13 billion in cost overruns thanks to formula-feeding. All this because, while three-quarters of new mothers start breastfeeding at birth, only 12% of infants are breastfed exclusively for six months, a far, far cry from the recommended 90%. Rates in countries like Sweden and Kenya are much better.

The problem often is, mothers operate on such slim margins (of time, energy, resources, sanity) and breastfeeding can be a casualty of that balancing act. So formula is on one side of an unfortunate Sophie's Choice: sanity or breastfeeding. Which would you choose?

Can We Rely On Regulators?

| Fri Apr. 16, 2010 8:59 AM PDT

That's a question looming large over the debate in Congress on how best to rewrite the rules of our financial system. Given the failures of regulators like the Securities and Exchange Commission (Bernie Madoff), the Federal Reserve (subprime lending), and plenty more, you'd think lawmakers and government technocrats would want to dummy-proof financial regulation as much as possible. Yet as the bill looks now, it keeps a tremendous amount of power with the same cast of characters who missed the meltdown in the first place. Case in point: the proposed Financial Stability Oversight Council, intended to prevent too-big- or too-interconnected-to-fail banks from collapsing, which would be staffed by, well, the Fed, Treasury, SEC, Office of the Comptroller of the Currency, and all the familiar faces.

If politicians needed any more proof that shuffling existing regulators won't fix the fundamental problems, then this week's autopsy of Washington Mutual, the largest bank failure in US history, should suffice. Over several hearings and press briefings this week, the Senate investigations subcommittee, led by Carl Levin (D-MI) and Tom Coburn (R-Okla.), has dissected how WaMu and its former subprime subsidiary, Long Beach Mortgage, created a "mortgage time bomb" and fed the voracious mortgage securitization machine on Wall Street. Moreover, Levin and Coburn's teams examined how WaMu's principal regulator, the Office of Thrift Supervision, utterly failed in every single one of its duties: OTS failed to crack down on the bank's abysmal lending practices; allowed WaMu to churn out bogus option ARM mortgages worth hundreds of billions of dollars; and treated WaMu like a buddy and not a bank to be reined in. Not only that, OTS even blocked another regulator, the FDIC, from trying to get a peek at WaMu's toxic holdings.

The Senate's investigation reads like an exercise in folly. In emails, examiner reports, and other communications, OTS repeatedly spotlighted the bank's pitiful standards and practices. Yet for years the regulator failed to do anything. No enforcement actions, fines, required board resolutions. Nothing. OTS was supposed to be a firefighter, ready to rush into action at the first sign of trouble, Levin told reporters yesterday. Instead, "it stood and watched idly while the incendiary threat grew wider and wider."

Underpinning the OTS' hands-off approach was the bank's cozy relationship with WaMu. As Levin explained, OTS derives its funding from fees it assesses on the banks it regulates; WaMu, it turns out, was a huge source of revenue for OTS, posing a blatant conflict of interest for the regulator. This led to a relationship, emails and reports cited in Levin and Coburn's report show, in which the OTS viewed WaMu not as someone to be scrutinized but as a "constituent" and a customer. "Regulations only work if regulators stay at arm's length from people they regulate," Levin said. OTS, on the other hand, worked "arm in arm" with WaMu.

The evidence dug up by the Senate subcommittee is damning, and it painfully illustrates a classic case of regulatory capture. If anything, it's proof that new financial rules crafted by Congress and the White House need to be regulator-proof; that means limits on risk levels, mandatory amounts of cash to absorb losses, and outright bans on tricky products, among others. Anything else, the Senate's findings suggest, will lead to plenty more OTS-WaMu debacles in the future.

We're Still at War: Photo of the Day for April 16, 2010

Fri Apr. 16, 2010 5:35 AM PDT

 

US Army Cpl. Mark Woodyard teaches Afghan kids how to do push-ups at the Sanayee High School in the Ghazni province, Afghanistan, on April 8, 2010. Photo via the US Air Force by Tech. Sgt. J.T. May III.

Advertise on MotherJones.com

Afghan Police Training: "An Unbelievably Incompetent Story"

| Fri Apr. 16, 2010 2:00 AM PDT

Handing out Sen. Claire McCaskill's prepared remarks Thursday afternoon as a hearing of her subcommittee on contracting oversight was about to get underway, the Missouri Democrat's press secretary warned reporters that her boss might go "off the cuff." Sure enough, after striding into the room and calling the session to order, McCaskill didn't bother consulting her notes. She stared straight ahead at the witnesses before her and launched into a freestyle assault on police training efforts in Afghanistan. "It is an unbelievably incompetent story of contracting," she said. "For 8 years we have been supposedly training the police in Afghanistan. And here's what we've done. We've flushed six billion dollars. Six billion dollars!"

If only she were exaggerating. Lt. Gen. William Caldwell, who has been in charge of training Afghanistan's security forces since November, informed Obama recently just how dire the situation is, according to a recent story co-published by Newsweek and ProPublica. "It's inconceivable, but in fact for eight years we weren't training the police," he told the president. "We just never trained them before. All we did was give them a uniform." 

Gordon Heddell, the Pentagon's Inspector General, delivered a similar assessment to McCaskill's committee. "Just about everything that could go wrong here has gone wrong," he said, adding, "we have to start at the very beginning."

One Of These Tea Partiers Is Not Like The Other...

| Thu Apr. 15, 2010 3:03 PM PDT

Riled by recent reports of Tea Party crashers who are trying to sabotage the movement, the anti-government activists who gathered in downtown DC for a tax day rally were keeping a suspicious eye out for possible impostors in their ranks. "There are people trying to infiltrate there," said Dona Karas, a 54-year-old housewife from Pittsburgh, who attended a protest at Washington’s Freedom Plaza organized by the GOP-backed Tea Party Express. "There is a group trying to discredit this anyway they can."

Karas was referring to recent news that pranksters were planning to participate in Tea Party's tax day events in an effort to make the movement look intolerant and moronic. She saw this as proof that the racist, homophobic attacks on Democratic lawmakers during the health care vote weren't the work of conservative activists but outside plants. "I have to believe it may have been somebody there trying to disrupt and discredit the good work that we’re really trying to do," Karas said. To emphasize this point, she carried a sign that said, “I am not racist, crazy, homophobic or bigoted.” Other Tea Partiers wielded signs belying a similar concern about possible intruders: "Tea Party Imposters Go Home" and "Stop Obama’s brown shirt infiltrators and his domestic enemies of the constitution."

Karas and other activists claimed that outsiders had been working to sabotage the very rally underway around them. "There was a man here antagonizing other people, looking at the signs, screaming—he was wearing medals, but I don’t think they were medals that he earned," said a middle-aged woman at the rally, suggesting that the man was trying to provoke an incident. Karas added: “It was a black man, so I think he may take this as personal.”

Paranoia about infiltrators has led some activists to become wary of fellow protesters who don’t fit the profile of a typical Tea Partier. At the rally, I met two heavily pierced and tattooed young activists, dressed head-to-toe in Goth-style clothes and carrying a black version of the ubiquitous "Don’t Tread on Me" sign. "Due to the way that many in the Tea Party have been wrongfully stereotyped, they don't think that I fit that mold," said Mario Jones, 27, vice president of a Tea Party group in West Virginia's Marion County. His 20-year-old companion agreed. "A lot of people are like, you don't look like you belong here. This is my freedom—this is how I dress every day," said Amanda Chatham, an unemployed mother from Philadelphia. She noted that she'd been spurred to protest by concerns about "getting [monitoring] chips put into our hands" as part of health care reform.

Tea Party supporters across the country warned activists to be on the watch for suspicious outsiders. In California, Tea Party-backed Senate candidate Chuck DeVore called for "vigilance" and "extra security to keep the peace" in advance of today's rallies. "Groups such as Crashtheteaparty.org plan to disrupt the tea parties," DeVore's press statement said, cautioning Tea Partiers against "engag[ing] those who want to disrupt or attack."

In DC, some protesters jokingly applauded the Tea Party's anomalous Goth contingent. "Freedom comes in all flavors!" shouted one passerby. But others, heeding the warnings, were more skeptical. "They aren’t representative of the movement," one woman informed me as I was trying to snap a photo of the pair. "No, I talked to them, they’re for real," another man responded. "I'm not sure," she replied, walking away as the rally dispersed.

Mexico's Twitter Crackdown and Cell Phone Craziness

| Thu Apr. 15, 2010 1:11 PM PDT

New information says violent drug cartel shoot-outs in Mexico have killed nearly 23,000 people since 2006, and tourism is tanking. The government's response? It's thinking of banning Twitter and Facebook, because criminals are using it to communicate and avoid military raids. In the government's defense, the cartels are using Twitter not only for communication with each other, but for intimidating the public. As Time reports: 

Recently in the bloody border town of Reynosa, people associated with one cartel used tweets to terrorize Reynosa by posting messages that created panic among residents and halted normal activities as the threats circulated online. One such message read, "The largest scheduled shootout in the history of Reynosa will be tomorrow or Sunday, send this message to people you trust that tomorrow a convoy of 60 trucks full of cartel hitmen from the Michoacan Family together with members of the Gulf Cartel are coming to take the city and take everyone out alive or dead!" Schools and shops closed that day.

To complicate matters further, in an attempt to stop cartel members from using cell phones for illegal business, the Mexican government has required all of its 83.5 million cell phone users to register their accounts or face losing service. Only 71% of the accounts were registered when the deadline passed earlier this week, but the government said it would extend the deadline further so as not to disconnect users. While the government's concern with cartel communication is understandable, Twitter and cell phones are survival tools for civilians. In Reynosa, just across the border from McAllen, Texas, locals used Twitter (especially hashtags) to tell fellow residents which streets were currently most dangerous or ask for safety advice. "We use Twitter to protect ourselves as citizens," a 17-year-old Reynosa resident, who asked to remain anonymous, told CNN. "The governor tells us it's our psychosis, but at night the city is empty. The authorities here practically don't exist."

Is Wall St. Reform Health Care 2.0?

| Thu Apr. 15, 2010 12:54 PM PDT

Are the Democrats poised to ram through a new financial reform bill and recreate last month's bruising, rancorous, controversial health care battle? If Senate Majority Leader Harry Reid stands by his remarks made today, then the answer to that question could be Yes. In a press briefing today, Reid said, "We have talked about this enough. We have negotiated this enough," while suggesting that a bill overhauling Wall Street and possibly creating a new consumer protection agency could land on the Senate floor as early as next week, Huffington Post's Ryan Grim reports. And while Republicans say they want to be able to make changes to the bill before it hits the floor, the Obama administration doesn't want the GOP to have the chance to whittle away at the legislation and bog down negotiations on the bill.

If the Democrats do indeed go it alone, they're potentially setting the stage for another health-care-esque bruiser in the Senate. Already, the bill, which should theoretically garner plenty of bipartisan support (everyone wants to end too-big-to-fail, predatory lending, and dangerous financial products, right?), has divided the Senate. Since returning from recess, the debate over new financial reforms has rapidly disintegrated into a partisan shout-fest complete with old-school takedowns ("poppycock"? Really Chris Dodd?), Charlie Brown football folly references, heated floor speeches, and plenty of jabs and upper cuts thrown by each party.