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Pope meets with victims of priests in Malta

Tue, 04/20/2010 - 02:30
It's better than nothing though the Vatican needs to start responding with much more action instead of words.The meeting, announced only after it had finished, was Benedict's first such gesture since a new wave of sexual abuse scandals swept over Roman Catholicism in recent months. He had previously met victims in the United States and Australia.

"He prayed with them and assured them that the Church is doing, and will continue to do, all in its power to investigate allegations, to bring to justice those responsible for abuse and to implement effective measures designed to safeguard young people in the future," a Vatican statement on the meeting said.

It was one of the clearest statements yet from the Vatican that it wants local bishops to cooperate with civil authorities in prosecuting priests who abused children.

Admiral, You Fire Him for Dereliction of Duty

Tue, 04/20/2010 - 02:29

Postcard, interior of a West Virginia coal mine (photo: mod as hell via Flickr)

As I was doing my morning news surfing, I came across this article from the Austin American Statesman from Sunday. It seems that retired Admiral Bobby Ray Inman, a member of the Massey Energy Board of Directors, sees no reason for firing Don Blankenship from his position as the Chairman and CEO of Massey. From the article:

Inman, 79, who teaches national security issues at the LBJ School of Public Affairs, where he has served as dean, has rejected calls for the dismissal of the CEO.

“Of course not at this point,” Inman said Friday. He has huddled, sometimes by phone, with board members daily since the mine explosion, he said. “We’re in the middle of a crisis. Everything depends on the cause of the explosion.”

Uh, Admiral? Maybe you spent too much time hanging around the folks in the so-called “Intelligence Community” instead of actual line officers in the Navy to remember this but there’s a thing called Dereliction of Duty (Article 92 of the UCMJ). In this case

(c) Derelict. A person is derelict in the performance of duties when that person willfully or negligently fails to perform that person’s duties or when that person performs them in a culpably inefficient manner. “Willfully” means intentionally. I t refers to the doing of an act knowingly and purposely, specifically intending the natural and probable consequences of the act. “Negligently” means an act or omission of a person who is under a duty to use due care which exhibits a lack of that degree of care which a reasonably prudent person would have exercised under the same or similar circumstances. “Culpable inefficiency” is inefficiency for which there is no reasonable or just excuse.

Now, as we all know, I am not a lawyer but it sure seems to me that having a mine disaster such as the Upper Big Branch explosion occur on his watch sure would be a cause for concern. Then you add in the reports of Blankenship proclaiming that safety regulators are “as silly as global warming” and the reports of Massey contesting two-thirds of the fines imposed for safety violations sure seems to be evidence of a pattern of willful neglect and dereliction. And I would wager that your former military comrades would agree. After all, a quick check of der Google finds:

Navy Captain Is Relieved of Duty
US Navy boots Captain after fire on carrier
Running a ship aground
Abu Ghraib

And that was just a cursory look. I can recall situations from my own active duty days where commanders at various levels were removed for this reason. Admittedly, a couple of times, the commander in question was given a face saving transfer and allowed to retire but the removal for cause was just as prevalent as the face saving gesture.

Admiral, the bottomline is, you would not have tolerated these actions from any of your subordinates so why do you tolerate it now? Using the excuse that it is a crisis is just not acceptable when the person who helped precipitate the crisis is the person you are protecting. In fact, if an admiral commanding the fleet allowed a commander to stay at his/her post after a similar situation, the admiral himself (or herself) would be open to the same charges of dereliction of duty.

In the interest of full disclosure, when I worked at Papa Booz, the partner I worked for was a retired navy captain and former aide to Admiral Inman.

And because I can:

Deaths of Senior Al Qaeda Leaders in Iraq Praised as a “Turn the Corner” Moment

Tue, 04/20/2010 - 02:04

source: CIA World Fact Book

Today, two senior Al Qaeda in Iraq leaders, Abu Ayyub al-Masri and Abu Omar al-Baghdadi, were killed in a raid on their compound in Salaheddin Province. US intelligence and military forces assisted in the operation.

Vice President Biden appeared at a White House press conference to call the deaths “a “potentially devastating blow” to the insurgency there. The commander of US forces in Iraq, Ray Odierno, reinforced that.

But is the threat of the insurgency the greatest looming problem facing Iraq? It doesn’t seem so. This iteration of Al Qaeda in Iraq hasn’t been much of the factor in the country in years. What does threaten stability in Iraq is the depredations of the ruling party, creating secret prisons for torturing Sunnis and trying to overturn election results voted on by the people. Al Qaeda in Iraq is really a second-order problem at this point, in my opinion.

This development allows Biden and the White House to justify leaving Iraq before that sectarian situation resolves itself. We’ve decided that we’ve won in Iraq, and the death of the two Al Qaeda leaders represents a good data point in that decision. So while Iraqi security forces may have proved themselves somewhat worthy in tracking down and killing these insurgents, the real value of the raid is to let the US military extricate itself from the country. This is desired by the government in Iraq as well, so they’re happy to see this highlighted.

As we have little control over the subsequent events in post-election Iraq, I welcome it as well. But let’s not pretend that this incident has much meaning.

UPDATE: Biden’s full statement.

DADT protesters repeatedly interrupt Obama speech at Boxer fundraiser

Tue, 04/20/2010 - 01:46
Protesters with GetEqual repeatedly interrupted President Obama's speech at a fundraiser for Senator Barbara Boxer in Los Angeles, moments ago. The protesters were demanding the President take action on Don't Ask, Don't Tell. These are the same folks who worked with Lt Dan Choi when he handcuffed himself to the White House gates a month ago. Looks like they're serious about holding the President's feet to the fire. More on AMERICAblog Gay.

Paying Taxes Is Just Like Being Raped

Tue, 04/20/2010 - 01:16

Oh, goody. This game again:

New Hampshire republican gubernatorial candidate Jack Kimball - a survivalist who calls Glenn Beck an "American hero" - compared paying taxes to being raped at a recent Tea Party rally.

[Kimball] drew cheers with an anti-tax message. He decried the state's taxation of business while criticizing its relatively low level of services.

"I don't mind paying my fair share, folks," he said. "I don't think any of us do. But I do mind when I'm raped. It's awful."

It's amazing the way some people love to compare just about anything to rape. Remember when Rep. Steve King (KS-Asshole) compared rape to auto theft?

It's only fair to ask what Mr. Kimball was wearing when he paid his taxes. And just how many times he's paid taxes before. And exactly when did he say no to paying taxes? And should we really believe that he even paid his taxes at all? This could be just another he said/the government said sort of situation. And really? I bet he secretly wanted to pay his taxes. Just look at him. You know he wanted it.

Well, Mr. Kimball, maybe you should just take the sound advice of college basketball coach and all around piece of work Bobby Knight:

"I think that if rape paying taxes is inevitable, relax and enjoy it."

GOP Senator Corker contradicts McConnell, says Wall Street Reform bill is not 'a bailout'

Tue, 04/20/2010 - 01:09
From ThinkProgress:

Just me, or does Corker sound a lot like Dana Carvey doing George Bush?

SCOTUS Hears Argument On Texting Privacy

Tue, 04/20/2010 - 00:32

When a government employee sends text messages on his government-issued pager, does he have a reasonable expectation of privacy that his messages will not be reviewed by the government?

That's the question which was argued before the Supreme Court of the United States today in City of Ontario (CA) v. Quon, involving a SWAT team member who was using his pager to send an excessive number of texts to his wife and his, um, girlfriend.  [There was a limit of 25,000 characters/month under the plan.]  The Department reviewed his messages to determine how many of them were work-related and how many were personal so they could charge him for the cost of the excess.  Officer Quon, his now ex-wife and his girlfriend (also a colleague) in turn sued the City and his wireless provider in federal court, claiming violations of their Fourth Amendment and California Constitution rights of privacy, as well as violations of the federal Stored Communications Act by his wireless provider for disclosing the content of the text messages without his consent.  The case before the Supreme Court concerns the federal right of privacy only.

The City argued that it had a reasonable need to monitor texts to confine the pager to work-related purposes and had asserted a no-privacy policy in advance; Quon argued that the department had told him it wasn't going to violate privacy, and that it had less intrusive means for determining whether his usage was appropriate.  A coalition of news organizationa argued for the City, claiming that the public's right to know what government employees were doing with government resources meant such communications should be public records, while the ACLU, EFF, CDT and Public Citizen argued that whatever's decided here should be limited to the context of government-as-employer, and that the Court should be hesitant about making a lot of new law with all these new technologies (while, ultimately, supporting Officer Quon).  

And, finally, the United States argued (via the SG's Office) that because the City's official policy announced there was no expectation of privacy, that therefore there was no right to privacy and the search was fine:

Because the City obtained all of the messages at issue through a valid search of the pager account assigned to Quon, the senders of those messages— Jerilyn Quon, Florio, and Trujillo—have no valid Fourth Amendment claim. Once their messages to Quon were delivered to his City-issued pager, they had no further cognizable interest under the Fourth Amendment in what happened to those messages. A valid search of a person’s papers frequently extends to papers sent by another person, such as an already-delivered letter. The original letter-writer has no right to object. So too here: the City had a constitutionally valid basis for searching Quon’s text messages, and that basis extends to all of the messages, irrespective of who sent them.

At oral argument today (PDF), the Chief Justice seemed sympathetic to Quon's argument:

CHIEF JUSTICE ROBERTS: We are not going to audit them. Right? That's what he said. He has to pay for them. Right? Now, most people will say, well, if you're paying for them, they are yours. And it particularly covered messages off-duty.

Now, can't you sort of put all those together and say that it would be reasonable for him to assume that private messages were his business? They said he can do it. They said, you have got to pay for it. He used it off-duty. They said they are not going to audit it.

So, too, did Justice Sotomayor:

JUSTICE SOTOMAYOR: Counsel, let's assume that in this police department, everyone knew, the supervisors and everyone else, that the police department people spoke to their girlfriends at night.

MR. RICHLAND: Yes, Justice Sotomayor.

JUSTICE SOTOMAYOR: And one of the chiefs, out of salacious interest, decides: I'm going to just go in and get those texts, those messages, because I just have a prurient interest. Does that officer have any expectation of privacy that his boss won't just listen in out of prurient interest?

MR. RICHLAND: Justice Sotomayor, as to the first aspect, the question of reasonable expectation of privacy, the motive should have no impact. The motive of looking should have no impact. The question of reasonable expectation of privacy must be analyzed according to the relationship between the officer and his -- and his employer.

JUSTICE SOTOMAYOR: But if in fact -- and whether we agree with this conclusion or not, we accept the lower court's views that there was an expectation that the chiefs were not going to read these things, some expectation of privacy --


JUSTICE SOTOMAYOR: The limits of it have to be limited for all of the reasons you said. Doesn't this case begin and end on whether or not what the jury found is reasonable grounds for what the city did?

MR. RICHLAND: I think that what this case begins and ends with, if we assume that there was a reasonable expectation of privacy, is under the plurality opinion in O'Connor: Whether the search itself was reasonable. And the jury did, of course, make a determination as to the purpose of the search.

MR. RICHLAND: I think that what this case begins and ends with, if we assume that there was a reasonable expectation of privacy, is under the plurality opinion in O'Connor: Whether the search itself was reasonable. And the jury did, of course, make a determination as to the purpose of the search.

JUSTICE SCALIA: I guess we don't decide our -- our Fourth Amendment privacy cases on the basis of whether there -- there was an absolute guarantee of privacy from everybody. I think -- I think those cases say that if you think it can be made public by anybody, you don't -- you don't really have a right of privacy.

So when the -- when the filthy-minded police chief listens in, it's a very bad thing, but it's not offending your right of privacy. You expected somebody else could listen in, if not him.

MR. RICHLAND: I think that's correct, Justice Scalia.

JUSTICE SCALIA: I think it is.

When Neal Katyal argued for the United States, the Chief Justice piped up again, and really sounds like he's trying to understand the technology and defend privacy here:

CHIEF JUSTICE ROBERTS: Your point that you made just a moment ago that we don't want to freeze into place the constitutional requirements with respect to new technology, I wonder if it cuts the other way. We are dealing with an amendment that looks to whether something is reasonable. And I think it might be the better course to say that the Constitution applies, but we are going to be more flexible in determining what is reasonable because we are dealing with evolving technology.

MR. KATYAL: Well, I think that the -- the best way -- I think the most -- the easiest way for the Court to resolve this is to simply say that when we are dealing with what is reasonable, we look to the policy. And here there is a policy by the employer, it says that computer-associated and computer-related equipment and others, there is no expectation of privacy. You have a person who is told that repeatedly.

CHIEF JUSTICE ROBERTS: But that puts a lot of weight -- I mean, there are some things where we don't bind them. You know, you get the usual parking garage thing that has got all this small print on the back. We -- we don't say that you are bound by that because nobody reads it.  

But in here, I just don't know. I just don't know how you tell what is reasonable. I suspect it might change with how old people are and how comfortable they are with the technology when you have all these different -- different factors.  You know, they are told you can use it for private, you got to pay for it. I think if I pay for it, it's mine and not the employer's.

MR. KATYAL: Well, I think the clearest way, Mr. Chief Justice, to decide what is reasonable and what isn't is actually the terms of the policy. And it seems to me very little is more unreasonable than expecting the right to privacy after you have been told in a policy you have no privacy....

CHIEF JUSTICE ROBERTS: So, your -- your position would require people basically to have two of these things with them, two of whatever they are, the text messager or the BlackBerries or whatever, right? Because assuming they are going to get personal things, you know, some emergency at home, they are also going to get work things?

MR. KATYAL: To the -- under this policy, yes. You might have an employer that sets a different policy and allows for some de minimis use and a zone of privacy in that use. You can have a variety of different things. But what I think would be dangerous is to have a blanket rule that constitutionalizes and says you always have reasonable expectations of privacy in this technology. The result may be, Mr. Chief Justice, that employers then won't give that technology at all to their employees, and -- and eliminate even that de minimis use.

Meanwhile, you know who was skeptical about the officer's claims?  Justice Breyer.  For reals:

JUSTICE BREYER: [M]y question was, I don't see anything, quite honestly, unreasonable about that, where you are the employer, where it's a SWAT team, where where - where you are paying for this in the first place. So the reason I ask it, is I would like you clearly to explain what's unreasonable about it?

MR. DAMMEIER: The scope of the search was unreasonable.

JUSTICE BREYER: That's the conclusion, now what's your reason?

MR. DAMMEIER: Under -- under -- looking at O'Connor, you have to -- you have to look to make sure that the search is not excessively intrusive. Here, what they did was they took all the messages and started reading them. Given the purpose, the limited purpose that was found by the jury for the search, they didn't need to do that.

JUSTICE BREYER: Well, explain that one to me.


JUSTICE BREYER: Being naive about this, if I had a -- like, 20, 30,000 characters in 1,800 messages and I wanted to know which are personal and which are work-related, a good way to get at least a good first cut would be to read them.


JUSTICE BREYER: Okay? So I start off thinking that seems to be reasonable to me. That's what I would do.

MR. DAMMEIER: Well, that's certainly one -

JUSTICE BREYER: So all right. Now you tell me why that isn't reasonable.

MR. DAMMEIER: That's one of the ways they could have done it. They could have got -- they could have got consent from the officers first to do it. They could have had the officers themselves count the messages. After all, the officers were the ones that were paying for the -

JUSTICE BREYER: All right. But your officers might say I don't want to read these messages because they happen to be about the sexual activity of some of my coworkers and their wives and me, which happened to be the case here.


JUSTICE BREYER: So I guess if you had asked for consent, the officer would have said no. Now he says, I still want to know. I will be repeating it. All right. So what -- that didn't sound very practical. What's the other way?

MR. DAMMEIER: Well, they could have -- they could have had the officers themselves count the messages.

JUSTICE BREYER: Well, the officer is going to say hey, these are all big -- work-related. I will tell you that. I only had two.



JUSTICE BREYER: Okay. What's a third way?

MR. DAMMEIER: Okay. They -- the lieutenant could have said, hey, we're going to stop this practice that I started, and from this month forward make sure all you do is business-related. No more -

JUSTICE BREYER: That would have been rough on them. Because you want to let them have a few; you need pizza when you are on duty. You want to -- there are -


JUSTICE BREYER: So far I listened to four things and I'm just being naive about it; I will read it more closely, but I don't see why these four things are so obviously more reasonable than what they did.

And, um, Justice Stevens:

JUSTICE STEVENS: I ask you this question about the basic background of a reasonable expectation of privacy. This is a SWAT team. Supposing it was the officer answering 911 calls or things like that. Isn't there sort of a background expectation that sooner or later, somebody might have to look at communications for this particular kind of law enforcement officer?

MR. DAMMEIER: Well, certainly -- certainly that could happen in any number of -

JUSTICE STEVENS: I mean, wouldn't you just assume that that whole universe of conversations by SWAT officers who were on duty 24/7 might well have to be reviewed by some member of the public or some of their superiors?

Expect a ruling by the end of the Court's term in June. Just don't ask me what ruling.  Lyle Denniston, Orin Kerr have more.

FDL Movie Night: The Weather Underground

Tue, 04/20/2010 - 00:00

Sam Green’s Oscar nominated film The Weather Underground is an in depth look at the radical group which grew out of the Students for a Democratic Society and turned into a domestic terrorist organization opposed to racism, the war in Viet Nam and the oppression of people in the United States and around the world.

Anger at the United States government policies at home and abroad propelled this group forward. They were young, white middle class, intelligent, articulate and driven by what they saw was wrong with United States policies at home and abroad.  To that end the group took to bombing government buildings, alerting the occupants in order to minimize casualties. Three members were killed while building a bomb, but no other live were lost, though millions of dollar worth of damage occurred, and a sense of fear was instilled in the American public. The group bombed the Capitol building and the Pentagon, broke Timothy Leary out of prison, and evaded one of the largest FBI manhunts in history.

Green’s documentary allows the Weathermen to speak for themselves, though not all their secrets are revealed; while members hint at additional actions and crimes including bank robberies they committed, they stick to the list of crimes with which they were charged.

Many of the charges against the Weathermen were dropped because the FBI acted illegally, and FBI Associate Director W. Mark Fell, Edward Miller and FBI acting Director Patrick Grey were charged with conspiracy to violate the constitutional rights of American citizens by searching their homes without warrants. Fell and Miller were eventually found guilty, and were then pardoned by Ronald Reagan.  The trial of Fell and Miller and the end of COINTELPRO, the outrage over the FBI spying on citizens were  radical and unanticipated outcomes of the Weather Underground’s actions.

When the Viet Nam War ended, it looked the Weather Underground had in some ways become unnecessary. With the charges dropped, many members re-emerged into society over the next five years and integrated themselves back into an above ground existence.

Today’s domestic terrorists also oppose the United States government and its policies: The Unabomber, Timothy McVeigh and Terry Nichols, Scott Roeder, unknown mailers of white powder; these are pretty solo acts, rather than organized groups.  Domestic leftist terrorism and violent actions opposed to the current wars seem non-existent; though underground right wing militias with their potential for violent action are now on the radar.

Director Green – whose most recent documentary, Utopia in Four Movements, explores the idea of the utopian impulse (though our future looks pretty bleak) – has complied a thought provoking, honest and not entirely sympathetic look at these young revolutionaries who sought to create what they felt was an ideal society based in communist ideology, using bombing as their means to work towards that goal.

The Pat Robertson of Persia blames immodest, promiscuous women for earthquakes

Mon, 04/19/2010 - 23:59
AP via Jack and Jill Politics:BEIRUT – A senior Iranian cleric says women who wear immodest clothing and behave promiscuously are to blame for earthquakes.

Iran is one of the world’s most earthquake-prone countries, and the cleric’s unusual explanation for why the earth shakes follows a prediction by President Mahmoud Ahmadinejad that a quake is certain to hit Tehran and that many of its 12 million inhabitants should relocate.

“Many women who do not dress modestly … lead young men astray, corrupt their chastity and spread adultery in society, which (consequently) increases earthquakes,” Hojatoleslam Kazem Sedighi was quoted as saying by Iranian media. Sedighi is Tehran’s acting Friday prayer leader.

Late afternoon/early evening open thread

Mon, 04/19/2010 - 23:48

What you missed on Sunday Kos ....

  • In What Conservatives Mean When They Say Libertarian, Devilstower took a long, hard look backwards at the libertarian-extolled "golden age" of the 1880's, when lives more often than not were nasty, brutish and short.
  • In What's the Matter With Doctors?, DemFromCT explored the reasons (mostly money) why some physicians (mostly surgeons and other high-priced specialists) are so adamantly opposed to health care reform.
  • In The Blueprint, Adam B reviewed this recent release, which focuses on how Democrats made so much recent electoral headway in Colorado. An author interview is also included.
  • In Ceci n'est pas une Maverick, Hunter eviscerated the Republicans' most famous self-proclaimed—and then disavowed—"maverick."
  • In Won't someone think of the children?, Dante Atkins urged the Democratic Party to formulate a more integrated, organized approach to reaching out to one of the party's most important demographics.
  • In Explaining the Cold War, Page van der Linden continued her superb coverage of nuclear politics and development, with a look at the work of recent Pulitizer Prize-winner David Hoffman, whose book, The Dead Hand, examined the policy decisions of the past 50 years to see where landed us today.

More Problems Coming For Goldman?

Mon, 04/19/2010 - 23:41

Sen. Carl Levin (D-Mich.) / photo: Matt Hampel via Flickr

Carl Levin (D-MI), whose Permanent Subcommittee on Investigations last week revealed major mortgage fraud at Washington Mutual, apparently has more up his sleeve for Goldman Sachs. In addition to hearings next week on the financial giant:

Levin’s staff has uncovered new documents “that link certain actions to specific people” at Goldman, according to a senior legislative official who spoke on condition of anonymity. The official would not divulge the nature of the allegation but said that Levin believes it amounts to “another big shoe to drop on Goldman.” Spokespeople for Levin said they were not prepared to discuss the nature of the probe, but his committee has been conducting several weeks of hearings and one is planned for April 27 on “the role of the investment banks.” “We expect to have some information tomorrow,” spokesman Bryan Thomas said Monday.

Levin, as mentioned, has been pretty strong on these kinds of investigations, so he’s probably not just talking here. Certainly he has been adamant about the need to end the racket on Wall Street, and seeing the effects of their practices on his home state of Michigan, that’s probably a deep-seeded feeling.

Paul Krugman today called Goldman Sachs, in the shrillest possible voice, looters. The law may adjudicate them acccordingly, if Levin has his way. There’s not a ton of meat on this charge, but we’ll know more tomorrow.

P.S.: Maybe Levin can give a call over to Alan Greenspan and his boss John Paulson. I also find it fitting that the judge in the Goldman civil fraud case put together by the SEC used to prosecute the Mafia.

Shoes, Sues, and Sachs of Sh*t

Mon, 04/19/2010 - 23:00

Sen. Carl Levin says there's another big shoe to drop on the Goldman Sachs case, but seeing as how a whole load of tennies, hip waders and muck-lucks are already bouncing around the room, it's hard to imagine what else is still to be revealed.

Business Week has an article up on how Goldman and hedge fund managers may escape an SEC smack down by skating around the idea of what "selected" means.

While Magnetar avoided ordering managers to buy specific securities, it often pushed them to select ones with higher yields, according to a person who participated in some of the transactions and declined to be identified because the deals were private. The firm told banks and asset managers what its strategy was, the people said.

You got that? If the hedge funds were pointing out specific crappy loans and saying "buy that," they could be in trouble. But if they merely set "targets" for the quality of the loans in their CDOs, then they may skip merrily away. However, if the bankers, such as Goldmans, knew what the hedge funds were doing and still pressed these instruments on their clients as worthwhile investments, they won't get away so easily. That Goldman, Merrill, and the rest knew they were peddling the worst crap imaginable is beyond doubt. How they peddled it will require a careful review of every prospectus, email, meeting, and phone call involved.

It may even be that the banks played "fair." They may have put together a prospectus full of numbers, shoved them out there, whistled tunelessly, looked away, and waited for Real Smart People to rush in figuring they had a bargain. After all, with famous hedge fund managers snapping up the risky core of these things, the rest of the investment (the safer part) must have seemed pretty tasty.

Of course, there's also the little matter of whether the banks knew that the hedge funds were not just engaged in classic hedging by protecting their investments, but betting against the entire CDO. And since the banks were also peddling the credit default swaps (and the instruments created by bundling the credit default swaps, God help us), there's no doubt they knew what was happening. Now, is that illegal? We'll find out.

In the meantime, the SEC voted today to sue Goldman. And here's the really fun part.

The U.S. Securities and Exchange Commission split 3-2 along party lines to approve an enforcement case against Goldman Sachs Group Inc., according to two people with knowledge of the vote. ... Republican commissioners Kathleen Casey and Troy Paredes voted against suing, the person said.

Republicans voted not to sue over a little thing like purposely contriving to create instruments designed to fail, and peddling these intentionally faulty wares to customers. You have to ask, what would it take for a Republican to actually stand against Wall Street?

Now we start to dig for the details. There will be a prospectus on each of these CDOs, and it's very likely that numerically these babies are going to be correct. What it's going to come down to is the language of the prospectus and the discussions (verbal and email) that were held with clients.

Complicating things is that the "synthetic" CDOs at the heart of the Goldman / Paulson end of this deal where not regular CDOs built by bundling together loans. Complicated as those are, these were a couple of steps removed. These synthetic CDOs were composed from bundles made up of swaps, in this case the pay-out side of default swaps on other CDOs.

Here's how something like this might work (and I may well have missed a step, or even a whole waltz. After all, they've built this thing with the intention of tripping people up, so it's not surprising that it's hard to follow along.)

The Magnetar view

  1. Magnetar (or some other hedge fund) declares that they are interested in the equity "tranche" of a CDO.  They set targets for what they want the in the tranche (really bad stuff).
  1. They then wait for the additional layers of the CDO to be formed and for the instrument to be sold to clients.
  1. Magnetar now takes a CDS against the larger tranches -- which may be 10x to 100x their initial environment.
  1. A. If the CDO actually makes targets, Magnetar takes a nice payout because they owned the riskiest bit. Probably around what it cost them to support the credit default swap on the larger instrument. So Magnetar breaks even.
  1. B. If the CDO unravels, Magnetar makes an even bigger payout by collecting on the default swaps. The little equity tranche investment is lost, but that loss is swapped by the CDS payout. Magnetar wins big.

The Paulson view

  1. Paulson (or another hedge fund) declares that they are interested in synthetic CDOs containing bundles of CDS obligations. They set targets for what they want in the lower tranche (really bad stuff).
  1. They wait while a synthetic CDO is formed around CDS swaps that include coverage for crap like that at the core of the Magnetar CDOs.
  1. Paulson then takes a secondary swap (it's not clear if these were always against the original CDO, or whether they also bet against the synthetic CDO).
  1. A. If the original CDOs hold and the synthetic CDO survives, Paulson pockets the payments for the original swap, which it uses to pay off the secondary swap (though probably at a loss). Paulson losses small.
  1. B. If the original CDO fails and the synthetic CDO fails because the CDS are forced to pay, Paulson's secondary CDO pays off at a much higher level of investment -- Paulson wins big.

The Goldman Sachs view

  1. Original CDO is formed.
  1. Original CDO sold to clients. Goldman takes a cut. Goldman wins.
  1. Synthetic CDS is formed.
  1. Synthetic CDS sold to clients. Goldman takes a cut. Goldman wins.

From this, it might appear that Goldman can't help but win no matter what happens. But there's one more piece:

Individual banker working at Goldman view

  1. Original CDO is formed, no matter how bad.
  1. Original CDO sold to clients, no matter how much BS is required or even if Goldman itself is client. Banker takes immediate cut. Banker wins.
  1. Synthetic CDO is formed, no matter how bad.
  1. Synthetic CDO sold to clients, no matter how much BS is required or even if Goldman itself is client. Banker takes immediate cut. Banker wins.
  1. A. Everything works out and clients and Goldman make money. Banker doesn't care. He got his money already.
  1. B. Everything falls apart and clients and Goldman lose money. Banker doesn't care. He got his money already.

Which makes it appear that the individual bankers went home with big bucks no mater what, except that... no wait. They did. And Republicans just voted not to disturb these guys while they're sunning on their yachts.

What looks to make all this possible is a drastic undervaluing of the cost of default swaps which in turn was made possible by an over-valuing of the intelligence and moral judgment of the people involved in the market. In short, there was an intrinsic expectation that people won't purposely buy crap, because most people didn't think it through to the "how to leave another guy holding the bag" stage. Which is exactly the weakness that Magnetar and other hedge funds spotted after spending months studying the market and talking to the people who sold these instruments.

Philip D. Murphy: Ambassador to Germany from the US or GS?

Mon, 04/19/2010 - 22:55

Amb. Philip D. Murphy

Everyone is talking about Goldman Sachs and the SEC investigation today (see David Dayen’s take on it earlier this morning), but there is one little wrinkle that could complicate matters for the Obama administration very quickly, and his name is Philip D. Murphy.

Over in Europe, Goldman Sachs has been a pariah in many official circles ever since their role in a 2002 scheme to help Greece hide its true debt picture came to light. Back in February, the Financial Times tried to track down the path of the deal between Greece and Goldman, and found this:

The deal was put together by Antigone Loudiadis, herself of Greek origin, who was Goldman’s head of sales at the time for its European fixed-income and currencies unit. Goldman is said to have taken about €1bn of credit risk, which it hedged with a German bank, while Greece’s debt management agency paid an unprecedented €200m in fees and charges. Goldman transferred the swap in 2005 to National Bank of Greece, the country’s biggest commercial lender. NBG set up a special-purpose vehicle called Titlos and transformed the swap into a 20-year securitisation bond, which stayed on its books — thus giving the government a further breathing space.

Since this story broke, the euro plunged, and in Germany, talk of aiding Greece (so as to keep the euro from sliding off a cliff) is tempered with rising anger over a potential massive bailout.

Sound familiar?

So now, hard on the heels of this anger over Goldman’s work to help Greece deceive the EU finance ministers comes the SEC’s announcement last Friday. European regulators have wasted no time in opening their own investigations. Says the Washington Post,

London’s Financial Services Authority and Germany’s BaFin regulatory agency said they were coordinating with the U.S. Securities and Exchange Commission’s investigation of Goldman’s sale of an investment that, the SEC charges, was structured to fail.

With a major international investigation like this, it is important for each country to have solid ambassadors in place. And who is the US ambassador in Berlin? Philip D. Murphy:

Born in 1957, Ambassador Murphy is a native of the Boston, Massachusetts area. He graduated from Harvard University in 1979 with an A.B. in Economics and received an M.B.A. in 1983 from The Wharton School of the University of Pennsylvania. He and his wife have four children.

From 1993-1997, Ambassador Murphy headed Goldman Sachs’ Frankfurt office, where he had oversight responsibility for activities in Germany, Switzerland and Austria, as well as in the then-emerging nations of Central Europe. From 1997-1999, Ambassador Murphy served as the President of Goldman Sachs (Asia). In all, he spent 23 years at Goldman Sachs and held a variety of top-level positions before becoming a Senior Director of the firm in 2003, a position he held until his retirement in 2006.

After leaving Goldman Sachs, Ambassador Murphy served from 2006-2009 as the National Finance Chair of the Democratic National Committee.

Missing from that official State Department bio is his final job at Goldman Sachs, before his retirement in 2006. Thankfully, the White House announcement of Murphy’s nomination filled in that little gap: he was a Senior Director and Co-Head of Goldman Sachs’s Investment Management Division.

What does IMD do? I’m glad you asked:

Investment Management works with clients, from individual investors to large financial institutions, to develop advanced portfolio management strategies to help them achieve specific goals for their own or their institution’s financial future.

Investment Management teams:

  • Develop and manage customized investment portfolios and discretionary funds for institutions, corporations, pension funds, governments, foundations and individuals in countries around the world
  • Design and manage families of mutual funds
  • Build and maintain lasting relationships with institutional and high-net-worth individual investors and their consultants
  • Manage relationships with investors and provide a full range of reporting and accounting services
  • Work closely with professionals in other divisions of Goldman Sachs to develop new client relationships and to create new products

If the Financial Times is right about Loudiadis’ role in the scheme to hide Greek debt, that last bullet point in IMD’s description of its work looks really, really interesting. The FT story paints Loudiadis as the person who made the deal happen, but I doubt that a deal involving the National Bank of Greece (and the Greek government) like this would have been done without consulting — perhaps heavily — with the folks at IMD in the main Goldman offices.

Which brings us back to Germany and Ambassador Murphy.

Given that the Germans are likely on the hook for a big chuck of the EU’s Greek bailout deal, the pressure within Germany to look into this scheme further is enormous. If I were a German investigator, I’d be mighty intrigued by Murphy’s list of jobs while at Goldman and the description IMD gives of their work. In fact, I’d even say that he’d be someone I’d want to have a talk with. Under oath.

And that’s when this becomes a problem not just for Goldman, but for the State Department and the White House.

How will they instruct Murphy to respond when German investigators roll up to the US embassy, ask to speak with him, and say “Yes, we’re investigating your former company about actions taken about the time you were there and since your departure. Would you mind coming down to our offices to answer a few questions?”

They may want to start thinking about the answer to that question pretty soon, if they haven’t already done so.

The South and the GOP will rise again

Mon, 04/19/2010 - 22:46
Ben Smith notes a disturbing reference from Michigan Rep. Thaddeus McCotter. Why the incessant need by Republicans to pander to racism in the south?

Poll: Americans Distrust Government, but Distrust Wall Street More

Mon, 04/19/2010 - 22:16

McClatchy reports on new Pew polling that shows just how volatile the national mood is right now.

"By almost every conceivable measure, Americans are less positive and more critical of government these days," said the report from the non-partisan Pew Research Center.

The center said its new survey found "a perfect storm of conditions associated with distrust of government - a dismal economy, an unhappy public, bitter partisan-based backlash and epic discontent with Congress and elected officials."

A key finding: Americans oppose greater government control over the economy by a margin of 51-40 percent.

With the bruising health insurance reform debate and continued high unemployment and sluggish economy, those results aren't too suprising. But there is a major exception to that general distrust of and contempt for government--Wall Street.

A solid majority, 61 percent, do want greater government regulation of the financial industry, something that Obama and the Democratic majorities in Congress are pushing now.

Obama and Congressional Dems need to push that advantage, hard, and not react to Republican stonewalling by watering down the bill. This, of all fights, is the fight to take the Republicans and to Wall Street.

Real Regulation for Credit Default Swaps is Necessary

Mon, 04/19/2010 - 22:10

photo: Captainspears23 via Flickr

It is now official, credit default swaps made the Great Crash worse than it needed to be. From a New York Times column by Joe Nocera:

Oh, and one other thing is starting to become clear: synthetic C.D.O.’s made the crisis worse than it would otherwise have been.

Synthetic CDOs, which hold credit default swaps instead of debt securities, could be created infinite varieties, even as the underlying subprime mortgage market dried up. That made it possible for the ignorant to continue betting, and made it possible for the savvy to take their money. Paulson & Co., Inc. (PCI) wanted to short the housing market, and sought the help of several Wall Street firms. Goldman Sachs agreed and formed ABACUS 2007-ACI, the subject of the recent SEC lawsuit. Here’s what the SEC complaint (.pdf) says:

17. A Paulson employee explained the investment opportunity as of January 2007 as follows:

“It is true that the market is not pricing the subprime RMBS wipeout scenario. In my opinion this situation is due to the fact that rating agencies, CDO managers and underwriters have all the incentives to keep the game going, while ‘real money’ investors have neither the analytical tools nor the institutional framework to take action before the losses that one could anticipate based [on] the ‘news’ available everywhere are actually realized.”

In other words, PCI figured it could make piles of money shorting because most purchasers willing to bet on the long position were ignorant of the reality of the housing market.

Blanche Lincoln has a proposal to regulate derivatives. From the section by section analysis (pdf):

Section 106. Prohibition against Federal Government Bailouts of Swaps Entities

This section prohibits federal assistance (including federal deposit insurance, and access to the Federal Reserve discount window) to swaps entities in connection with their trading in swaps or securities based swaps.

I have some quibbles about the language of § 106 and its interaction with the rest of the bill, (large .pdf), but let’s assume it works as intended. It would require all banks to separate their investment banking activities completely from their commercial and retail banking business. I assume that would bar any transactions in which the banking side in any way transferred money to the investment banking side. This seems like a very good idea, much stronger than the current language in the Senate bill.

This language would not require bank holding companies to sell their investment company arms, but it would come close to doing so. What would that mean? Let’s look at JPMorgan Chase. In its first quarter 2010 earnings release, JPM says it earned $2.47 billion in its investment banking business. Retail financial services lost $131 million, and credit cards lost $303 million. Total net income was $3.33 billion, so 74% of profits came from investment banking.

All banks report their swap positions to the Office of the Comptroller of the Currency every quarter. The OCC report (.pdf) for the fourth quarter of 2010 says that JPM was a party to swaps with a notional value of $78 trillion. According to that report, JPM was a party to $6 trillion in credit derivatives, almost all of which was CDSs. The total exposure from all swaps is $362 billion. If the swaps business were segregated, it would require capital to be segregated from the banking business. That could be an expensive proposition, and might impact the balance sheet of the retail banking side.

According to the JPM 10-K, p.174,, at 12/31/09, JPM had written protection credit default swaps with a notional amount of $2.95 trillion, and a fair value of a negative $107 billion. Of that, a total of $1.23 billion was written on non-investment grade securities. We don’t see the reference entities in these figures. It’s fair to ask if any of these relate to transactions like those in the SEC complaint where a synthetic CDO was formed to enable a Wall Streeter to short the housing market.

What other dominos are out there?

Photos of the Eyjafjallajökull (Iceland) Volcano

Mon, 04/19/2010 - 21:39
It may be causing severe travel disruptions, but the photos are fantastic. The brief update here is that despite previous reports, Charles de Gaulle is closed again today. Our friend was due to fly on Saturday but today discovered his ticket was canceled. He now flies out to the US on Saturday 24 April if all goes well.

Perry: Only a "rank political hack" would criticize Bush

Mon, 04/19/2010 - 21:30

Texas Governor Rick Perry is a rank political hack:

PERRY: At the end of the day, when the history books are written, I think George W. Bush will go down as a very, very good President. Approaching great? I don’t know yet because I don’t know if we’ve seen the –

A year and a half since he’s been out of office, this may be a little bit early to write George’s history. But here’s why he was an incredibly good President: because this man kept America safe. […]

Anyone who is not a rank political hack, who has an agenda, and looks at this President’s efforts — I mean, there are two things that I think people judge Presidents on: their safety and the economy.

The top 3 safety accomplishments of the Bush Administration?

  1. Although Bush toadies like Rick Perry would like to forget this fact, 9/11 happened while George W. Bush was president. Thousands died.
  1. In response to 9/11, Bush failed to capture or kill Osama bin Laden and   failed to replace the Taliban with a stable government in Afghanistan. He did manage to apprehend Saddam Hussein, but Hussein was the leader of Iraq, and Iraq had nothing to do with 9/11. Again, thousands died.
  1. And then there's Hurricane Katrina, during which thousands of Americans died on American soil as the Bush administration stood idly by.

Its preposterous to argue that Bush kept us safe. Time after time, thousands and thousands of Americans died under Bush's watch. Truth is, only a rank political hack like Perry (who even Rasmussen says is in a very close race for re-election) would argue that Bush was anything other than the most disastrous president in our nation's history.

To be fair and balanced, Bush didn't merely preside over the deaths of many thousands of innocent Americans. He also did his best to wreck our nation's economy.

Bush failed to protect life and property. And yet these people who so proudly idolized this amazingly bad president who did so much harm to this nation of ours, these people now have the temerity to suggest that President Obama hates America?

By any objective measure, they've got it upside down and inside out.

Diane Wood’s Similar Case Record to Stevens Makes Her Ineligible to Replace Him

Mon, 04/19/2010 - 21:20

photo: alan(ator) via Flickr

The theocratic right is busily defining Diane Wood as a radical extremist hell-bent on aborting every child in America, because they actually have rulings where she has ruled in abortion cases.

If President Obama nominates U.S. Circuit Judge Diane P. Wood to replace retiring Supreme Court Justice John Paul Stevens, social conservatives say they intend to make her rulings on abortion rights the primary point of contention.

“That’s her Achilles’ heel,” said Curt Levey, executive director of the Committee for Justice, which opposes Wood’s rulings on abortion. “It tells you that she’s probably not going to be selected, because Obama doesn’t have the stomach for this to be about an abortion debate.”

I don’t think Levey’s entirely wrong about that, but let’s look at what he’s really talking about. Wood, who counts among her supporters and friends right-wing judges Frank Easterbrook and Richard Posner, has over her career issued opinions opposing a ban on late-term abortions, opposing a waiting period for women who wanted abortions and favoring laws that would help stop violence at abortion clinics. Far from putting her outside the judicial mainstream, this puts her firmly within it – and almost identical to the positions Justice John Paul Stevens has taken on the federal bench. The final case did get overturned by the high court, but turned on applications of RICO laws and not the legality or illegality of violence at abortion clincs per se.

The far right has pretty expertly defined the terms of the debate on the Supreme Court. Judges who rule with the actual settled law in abortion cases are outside the mainstream, radical, crazy. Judges who rule to overturn the settled law are wise and judicious. None of this has changed. Diane Wood is “unacceptable” only because she had the misfortune to rule on abortion cases, unlike her rivals for the appointment who have not. Her rulings actually show the kind of judge she would be, and they remark favorably on her, but in this day and age, having a record is about the worst way to get on the Supreme Court. It’s a shame, because she’s clearly the most qualified potential nominee currently under discussion.

NH-Gov: Jack Kimball Admits He Was Raped

Mon, 04/19/2010 - 20:48

In a stunning revelation, New Hampshire republican gubernatorial candidate Jack Kimball revealed that he has been the victim of rape, apparently on multiple occasions.

Kimball did not offer any details of the assaults, only saying that they were, "awful," leaving voters to speculate whether it was date rape or if he was the victim of random street violence.

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