Archive | Dirty Rotten Scoundrels

Dominos

They’re starting to fall:

Goldman Sachs has been drawn into a fresh controversy as lawyers demand to know whether it was partly responsible for triggering Lehman Brothers’ downfall by shorting its rival’s shares.

The Wall Street behemoth is already being investigated by a number of financial regulators around the world in addition to the US Securities and Exchange Commission’s fraud charges over derivatives mis-selling. It has now been named in a court filing seeking information about short-selling Lehman shares.

Goldman has been subpoenaed to hand over documents to Lehman’s Bryan Marsal, the man responsible for winding up the bank’s affairs and repaying creditors. Goldman was named in the court filing along with four other firms, including hedge funds SAC Capital and Citadel. Goldman declined to comment on the Lehman case.

And here are a few more…

Collateral Damage

I think decent people should shun Bob Rubin, since he apparently lacks a conscience of his own:

As Treasury Secretary in the Clinton administration, Rubin was a key proponent of the extreme financial deregulation that eventually brought the economy to its knees; after leaving government, he proceeded to enrich himself to the tune of $126 million while driving Citigroup to the edge of bankruptcy.

But Rubin is leaping back into the Washington policy-making scene next week, with a splashy relaunch of his pet think-tank, the Hamilton Project, housed at the Brookings Institution. As founder of the project, he will deliver the opening remarks and speak on one of the two panels

And the Democratic Party, rather than keep Rubin at an extreme distance, is apparently welcoming him back with open arms. The event’s keynote speaker is none other than Vice President Joe Biden.

Rubin, even in exile, has continued to be an influential behind-the-scenes player, speaking regularly to proteges (many of them alums of the Hamilton Project) who occupy top economic-policy positions in the Obama administration — they include Treasury Secretary Tim Geithner, White House budget chief Peter Orszag, and key White House advisers Jason Furman and Michael Froman, just for starters.

And the Rubinites, amazingly enough, are riding high these days. They feel like they saved the financial world — at what they consider a relatively low cost. The millions of lost jobs and homes are considered unfortunate collateral damage.

[…] As for Rubin himself, what is the man who’s been almost exactly 180 degrees wrong on the major economic issues of his time thinking these days? Well, in an essay published by Newsweek late last year, Rubin worried about too much spending on job-creation, opposed forcing the riskiest derivative contracts onto public exchanges, resisted an accounting reform that would require financial institutions to assess their assets based on actual market prices rather than just making things up, and warned against what he calls impractical proposals to break up “too big to fail” banks. His most pressing concern was the federal deficit.

All in all: A decidedly Wall Street rather than Main Street agenda.

Who Will Watch Big Pharma

Now that Bart Stupak’s leaving? I wonder if the netroots have only strengthened the more conservative elements in the Democratic party by pushing him out. Except for abortion rights (big exception, I know), Bart was still a progressive vote on most issues. Now, if we lose the seat to another wingnut, what exactly have we accomplished?

The answer is unclear, although no doubt many pharma execs and FDA officials won’t miss Bart Stupak, a Michigan Democrat who is retiring from Congress after a nasty brawl over health care reform and, in particular, abortion coverage (background here).

As chairman of the House Energy and Commerce Committee’s Oversight and Investigations Subcommittee, Stupak regularly took on safety issues. Along with John Dingell, who formerly headed the House committee, Stupak investigted Merck and Schering-Plough for allegedly delaying the release of unfavorable clinical trial data for their Vytorin cholesterol med (see here and here). He also subpoenaed FDA investigators for approving the Ketek antibiotic, despite knowing a key safety study was fraught with problems; Sanofi-Aventis execs were also grilled at a hearing (look here).

Other claims to fame include probing the FDA’s handling of Baxter’s Heparin, the blood thinner linked to hundreds of patient reactions and four deaths; TV ads for Pfizer’s Lipitor; and Roche’s Accutane, which was a very personal issue for Stupak. In 2000, his 17-year-old son, who was using the acne med, committed suicide. Stupak personally investigated whether the drug could be tied to psychiatric side effects, and went to FDA headquarters to sift through documents. During one hearing, he held up the packaging from his son’s prescription.

So who might succeed Stupak? The Pink Sheet speculates the possibilities include Elliot Engel of New York, Gene Green of Texas and Diana DeGette of Colorado, who have seniority on the full committee.

Elizabeth Warren

It’s a little weird, isn’t it, that Rolling Stone is the publication doing the most relevant coverage of the financial crisis, much as a certain late-night comedy show is doing the best news coverage?

Today, says Warren, the fortunes of Wall Street and the fortunes of Main Street have become disastrously oppositional. Despite profiting from taxpayer bailouts, Wall Street has only made life more miserable for those scraping by in what she calls the “real economy.” Banks are refusing to modify mortgages for the hard-strapped homeowners they deceived, and now they’re even bilking credit-worthy borrowers with arbitrary interest-rate hikes. Worse, Warren says, bankers like Jamie Dimon of JP Morgan Chase have testified before Congress that we should expect cycles of boom and bust to recur every five to seven years. “What pisses me off – I didn’t say that – what makes me so angry is that the financial collapse was not a natural phenomenon like a hurricane or a drought,” she says. “It was the consequence of a series of deliberate regulatory choices. That Jamie Dimon has figured out how to make a profit off of that may make him willing to tolerate booms and busts – but for the rest of us, the consequences are catastrophic.”

Even with Warren’s plainspokenness, the battle over financial reform involves a host of complex and confusing options. Should Congress break up big banks? Regulate toxic deals like credit-default swaps? Expand the power of the Federal Reserve? Warren is well aware that politicians from both parties, whatever their differences, are eager to vote for a bill that they can tout as having reined in Wall Street. “They’re going to call this reform, no matter what,” she says. The question is: Will it do any good?

To make sense of what needs to happen, Warren distilled for Rolling Stone the three-part litmus test she uses to determine whether a proposed reform will actually protect consumers and ensure that we’re rebuilding the economy on a solid foundation rather than erecting another house of cards. Think of them as Warren’s Rules for Reform:

RULE ONE
Give the Little Guy a Fighting Chance

For Warren, a strong, independent consumer-protection agency is at the heart of any meaningful financial reform. If a cholesterol medicine carried a one-in-five risk of causing a heart attack, it would never get approval from the FDA. But a subprime mortgage that carries the same risk of ending in foreclosure, she points out, can be sold without any warning label. Such predatory products – running the gamut from payday loans to reverse mortgages – juice corporate profits by exploiting consumers who play by the rules, only to discover that the bank can change their interest rate without warning.

Warren’s relentless focus on consumer protection has earned her honest criticism on Capitol Hill, even from her admirers. Sen. Ted Kaufman, a Democrat from Delaware, worries that the contentious debate over the CFPA will distract Congress from the larger question of how to rein in big banks. “If we don’t do something about too-big-to-fail and we go through a crisis like this again,” he says, “the cost to consumers is going to be extraordinary – even if we have a consumer-protection agency.”

But Warren believes such criticism misses the point: Creating a safe and transparent marketplace for borrowers will ultimately protect Wall Street and the entire economy. The agency would have the power to police the kind of predatory lending – subprime mortgages being the key example – that not only drove individual borrowers into ruin, but became “toxic assets” as they were sliced, diced and securitized by banks looking for lucrative new instruments. “This whole economy failed one bad mortgage at a time,” Warren says. “The raw material that fed into the crisis was bad consumer financial products. If nobody can sell mortgage-backed securities based on trillions of dollars of unpayable instruments, there’s a lot less risk in the overall system.”

Go read the rest.

Clinton: Shouldn’t Have Listened To Rubin, Summers

In an interview on This Week with Jake Tapper, President Bill Clinton said he made a mistake listening to Bob Rubin and Larry Summers on derivatives, and said he should have tried to regulate them, despite Republican opposition:

TAPPER: One of the things that President Obama is pushing for is regulation of derivatives, and also with a thing called the Volcker rule, he’s trying to separate commercial banking interests from investment banking interests.These were things that were the opposite policies of Treasury Security Rubin and Summers at that time, do you think in retrospect they gave you bad advice on these issues?

CLINTON: Well, I think on the derivatives – before the Glass-Steagall Act was repealed, it had been breached. There was already a total merger practically of commercial and investment banking, and really the main thing that the Glass-Steagall Act did was to give us some power to regulate it – the repeal. And also to give old fashion traditional banks in all over America the right to take an investment interest if they wanted to forestall bankruptcy. Sadly none of them did that. Mostly it was just the continued blurring of the lines, but only about a third of all the money loaned today is loaned through traditional banking channels and that was well underway before that legislation was signed. So I don’t feel the same way about that.

I think what happened was the SEC and the whole regulatory apparatus after I left office was just let go. I think if Arthur Levitt had been on the job at the SEC, my last SEC commissioner, an enormous percentage of what we’ve been through in the last eight or nine years would not have happened. I feel very strongly about it. I think it’s important to have vigorous oversight.

Now, on derivatives, yeah I think they were wrong and I think I was wrong to take it because the argument on derivatives was that these things are expensive and sophisticated and only a handful of investors will buy them and they don’t need any extra protection, and any extra transparency. The money they’re putting up guarantees them transparency. And the flaw in that argument was that first of all sometimes people with a lot of money make stupid decisions and make it without transparency.

And secondly, the most important flaw was even if less than 1 percent of the total investment community is involved in derivative exchanges, so much money was involved that if they went bad, they could affect a 100 percent of the investments, and indeed a 100 percent of the citizens in countries, not investors, and I was wrong about that. I’ve said that all along. Now, I think if I had tried to regulate them because the Republicans were the majority in the Congress, they would have stopped it. But I wish I should have been caught trying. I mean, that was a mistake I made.

Rerun

I’m really glad we invaded Iraq and saved them from a ruthless dictator who tortured and killed his own people — oops, I’m sorry, is this a rerun? (The video is from last year.) Via the L.A. Times:

Hundreds of Sunni men disappeared for months into a secret Baghdad prison under the jurisdiction of Prime Minister Nouri Maliki’s military office, where many were routinely tortured until the country’s Human Rights Ministry gained access to the facility, Iraqi officials say.

The men were detained by the Iraqi army in October in sweeps targeting Sunni groups in Nineveh province, a stronghold of Al Qaeda in Iraq other militant groups in northern Iraq. The provincial governor alleged at the time that ordinary citizens had been detained as well, often without a warrant.

Worried that courts would order the detainees’ release, security forces obtained a court order and transferred them to Baghdad where they were held in isolation. Human rights officials learned of the facility in March from family members searching for missing relatives.

Revelation of the secret prison could worsen tensions at a highly sensitive moment in Iraq. As U.S. troops are withdrawing, Maliki, a Shiite, and other political officials are negotiating over the formation of a new government. Including minority Sunni Arabs is considered by many to be a key to preventing a return of widespread sectarian violence. Already there has been an increase in attacks by Al Qaeda in Iraq, a Sunni extremist group. The alleged brutal treatment of prisoners at the facility raised concerns that the country could drift back to its authoritarian past.

Commanders initially resisted efforts to inspect the prison, but relented and allowed visits by two teams of inspectors, including Human Rights Minister Wijdan Salim. Inspectors said they found that the 431 prisoners had been subjected to appalling conditions and quoted prisoners as saying that one of them, a former colonel in Saddam Hussein’s army, had died in January as a result of torture.

“More than 100 were tortured. There were a lot of marks on their bodies,” said an Iraqi official familiar with the inspections. “They beat people, they used electricity. They suffocated them with plastic bags, and different methods.”

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