Category: Corruption

Why Ignoring the Marine Insurance Act of 1746 is a Bad Idea, Part MCMXXVII

For those who don’t remember, the Marine Insurance Act of 1746 required, “Anyone seeking to collect on an insurance contract to have an interest in the continued existence of the insured property.” (Link)

Basically, it means that you cannot purchase insurance on your neighbors home, and collect when you burn it down.

The act was passed because around that time, there was a war between Britain and France, and some people were purchasing insurance on ships, and then send the itinerary and manifest to accomplices in France, who would relay this information to the French navy, who would seize the ship, and the insurance fraudster and his accomplish would divide the spoils.

In 1999, it was decided that the form of insurance known as a Credit Default Swap wasn’t insurance, because, well ……… because.

As a result, we have seen an explosion in speculators who insure things, and then blow them up.

Well it now appears that the Vulture funds who pushed Argentina into default may have engaged in this strategy:

So for Elliott an unseemly legal victory may not mean cold cash. Fear of default and/or eagerness to please Argentina may prompt some in the financial community to buy them out at a good price, but a sure thing that is not. Whatever American courts say, for all the reasons above, Argentina will probably not settle. Those bonds bought cheap (according to sources, Elliott spent close to $50 million purchasing about $220 million of old Argentinian bonds in 2008) may have looked to an informed observer beforehand quite unlikely to produce a decent return.

So why bother with an exorbitant legal fight? Well, the CDS route would be one reason. The likelihood of CDS triggering (failure to pay on foreign exchange bonds) would have appeared as very high precisely for all the reasons that make the likelihood of a settlement so low.

This scenario may have seemed plausible, at least more so than expecting Argentina to pay holdouts in full or something close to it. Elliott may have known payment is a long shot, but being a bondholder at least lets it try for a legal solution that could lead to default. That pari passu had been breached would have been a no brainer, for “all” you needed was to show that the country had legally subordinated you versus other creditors, and Argentina did that in 2005 by passing the so-called Lock Law prohibiting itself from making good on the holdouts (this was a key argument to have the courts declare a breach of pari passu; apparently, this kind of explicit de jure discrimination-subordination of creditors is very unusual).

Obtaining ratable payment as a remedy is unusual, though not unprecedented, but may have seemed like good odds in this case given the specific wording of the pari passu clause in question (which seemed to call for equal payments and not just equal rank) and the uniquely uncooperative character of the debtor; from reading the courts´ statements, one can sense that discomfort with the country´s attitude forced the judges´ hands towards a solution that in any other case may have seemed too harsh. Argentina´s behavior presented a unique opportunity to persuade a court to impose ratable payments; discipline for an unruly country.

With hindsight, Argentina was the perfect collaborator to have the CDS trigger: the Lock Law, tirades against holdouts, and contempt for court rulings on the way to its final refusal to settle guarantee that a failure to pay event materialised. For all the Kirchner government rage against speculators, in what would be a delicious paradox, it may have made the vultures rich by triggering the CDS.

This is actually a higher percentage strategy than getting 100¢ on the dollar from Argentina.

They make money, and in the process, they inflict enormous pain on the people of Argentina, and does damage to the US as a venue for sovereign debt.

I’m with Paul Volker when he said only the worthwhile innovation of this generation was the ATM.

A Fact of Ferguson that is Finally Getting Mainstream Notice

The fact that more than 20% of the budget of the town of Ferguson comes from tickets and warrants issued by police shows that the police are not there to protect the populace, they are there to extract tribute from them:

Scratch any social crisis, and you’re likely to find economics not far below the surface. Via ArchCity Defenders, a St. Louis legal-aid nonprofit, we can see how this has worked to create the dismaying spectacle of the breakdown of justice in Ferguson. (H/t Alex Tabarrok, via Kevin Drum.)

According to the group’s recent report on the municipal court system in St. Louis County, the Ferguson court is a “chronic offender” in legal and economic harassment of its residents. There’s not much of a secret why: the municipality collects some $2.6 million a year in fines and court fees, typically from small-scale infractions like traffic violations. This is the second-largest source of income for that small, fiscally-strapped municipality.

………

For a low-income community–and for a black community subjected to the racial profiling, as the report documents–these fines can gather force like a boulder rolling downhill. 

Tabarrok points to the report’s observation that the Ferguson court processed the equivalent of three warrants and $312 in fines per household in 2013.

“You don’t get $321 in fines and fees and 3 warrants per household from an about-average crime rate,” he notes. “You get numbers like this from [B.S.] arrests for jaywalking” and what the report calls “low level harassment involving traffic stops, court appearances, high fines, and the threat of jail for failure to pay without a meaningful inquiry into whether an individual has the means to pay.”

The reason that the minorities in Ferguson do not see the police as their defenders and their protectors, it’s because they aren’t.

This arrangement, where peace officers have as their primary function tax collections, is fundamentally pathological and corrupt, and it needs to stop.

The Twinkie Defense, The Chewbacca Defense, and now the Bitches be Crazy Defense

Dan White got away with murdering George Moscone and Harvey Milk through the Twinkie Defense, Chef got put sentenced to jail, and sprung from jail with the Chewbacca defense, and in the Bob McDonnell bribery case, the defense has become even more ludicrous with the “Bitches be Crazy” defense.

That’s right, the former governor of Virginia’s defense team has become even more absurd than the minds of Tray Parker and Matt Stone.

His defense is that he didn’t take any bribes, it was all his wife, a technically private citizen is unbalanced, and had a crush on the man who bribed the governor, and that he had nothing to do with it. I guess the loan of a Ferrari, and the golf outing worth something in excess of $10,000.00, and thousands of dollars of loans from tobacco based “medicine” mogul Jonnie Williams, were just ……… “stuff”

As Eugene Robinson notes, the technical term for this is “throwing his his wife under the bus.”

How far would you go to stay out of jail? Would you publicly humiliate your wife of 38 years, portraying her as some kind of shrieking harridan? Would you put the innermost secrets of your marriage on display, inviting voyeurs to rummage at will?

For Robert McDonnell, the former Virginia governor on trial for alleged corruption, the answers appear to be: “As far as necessary,” “Hey, why not?” and “Sounds like a plan.”

McDonnell’s testimony this week in a federal courtroom in Richmond about his wife’s psychological turmoil has been both cringe-worthy and compelling. It has been clear for some time that McDonnell’s strategy for winning acquittal amounted to what could be called the “crazy wife” defense. But only when he took the stand did it become apparent how thoroughly he intended to humiliate the “soul mate” he still claims to love.

McDonnell disclosed Thursday that he moved out of the family’s home shortly before the trial began. “I knew there was no way I could go home after a day in court and have to rehash the day’s events with my wife,” he testified.

I guess not. Anyone who said such things in public about his or her spouse would be advised to clear out.

McDonnell testified that Maureen McDonnell was so volatile that the entire staff at the governor’s mansion signed a petition threatening to quit if her behavior didn’t improve. “She would yell at me,” he told the court. “She would tell me I was taking staff’s side, that I didn’t know what was really going on over there.”

He said he believed his wife needed professional counseling, though it was unclear whether he tried very hard to convince her to seek it. He spoke of the family’s severe financial problems, which included large credit card bills, and said that “it just seemed like there was too much stuff that she was buying.” Prior testimony has indicated, however, that unwise real estate investments caused most of the problem — and that Robert McDonnell, not Maureen, ran the family finances.

There are also tens of thousands of dollars of loans from the snake oil salesman, but hizonner the governor thought that nothing war wrong with that:

Testifying for the third day in his public corruption trial, former Gov. Bob McDonnell said today he saw nothing inappropriate about $70,000 in loans he negotiated with businessman Jonnie Williams in 2012.

The loans were extended by the diet supplement maker to a real estate company the governor operated with his sister to manage rental properties they owned in the Sandbridge area of Virginia Beach. Rents on the properties were falling short of covering expenses, and the McDonnells needed to make up the deficit.

McDonnell said he saw nothing wrong with the loans because Williams hadn’t asked him to do anything on his behalf and his administration hadn’t done the businessman any favors.

Williams testified earlier that he and the governor agreed the loans would be granted on a handshake and kept just between the two of them.

McDonnell today denied that claim. “There was no such discussion with Mr. Williams,” he said.

He said he tried to get the terms of the loans in writing, but that never occurred.

He said he did not disclose the Williams loans on his annual financial disclosure statement because they were corporate loans for which he had no personal liability.

Yeah. Nothing shady here.

Seriously, I half expect the jury to take a page from the original version of the Mel Brooks film The Producers, and announce that, “We find the defendants incredibly guilty.”

Dude, you are going to jail.  The decision that you made is to go without a shred of dignity.

This is a Big Deal

Standard Charter bank has just agreed to pay a $300 million fine for money laundering, which really is pocket change, but they have also had their dollar clearing rights suspended which is a very big deal:

British banking giant Standard Chartered is a repeat offender, at least in the eyes of New York’s top financial regulator, which fined the bank $300 million and suspended its ability to convert currency for violating a money laundering settlement.

On Tuesday, the New York Department of Financial Service said Standard Chartered had not flagged a series of wire transfers from clients and locales at high risk for money laundering, running afoul of a 2012 agreement the bank inked with the regulator. Back then, the bank shelled out a total of $667 million to state and federal authorities for allegedly processing $250 billion in transactions for Iranian banks in violation of U.S. sanctions.

The suspension of dollar clearing privileges means that they can no longer transfer dollars into and out of the United States on their own, but have to use an intermediary who still has dollar clearing privileges, which adds cost and complexity, which serves to blow a huge hole in their business, since most transaction settle in dollars.

Benjamin Lawsky, head of the NY Department of Financial Service is arguably the most aggressive, and most effective, financial regulator in the US right now.

Yves Smith at Naked Capitalism believe that these actions have the potential to uncover the systemic rot in our banking system, but I am not as optimistic as she it.
In any case, more of this.

This is Beyond Repulsive

It appears that some courts have made the conscious decision to imprison poor people for just being poor:

In a recent letter to the United States Sentencing Commission, Attorney General Eric H. Holder Jr. sharply criticized the growing trend of evidence-based sentencing, in which courts use data-driven predictions of defendants’ future crime risk to shape sentences. Mr. Holder is swimming against a powerful current. At least 20 states have implemented this practice, including some that require risk scores to be considered in every sentencing decision. Many more are considering it, as is Congress, in pending sentencing-reform bills.

Risk-assessment advocates say it’s a no-brainer: Who could oppose “smarter” sentencing? But Mr. Holder is right to pick this fight. As currently used, the practice is deeply unfair, and almost certainly unconstitutional. It contravenes the principle that punishment should depend on what a defendant did, not on who he is or how much money he has.

The basic problem is that the risk scores are not based on the defendant’s crime. They are primarily or wholly based on prior characteristics: criminal history (a legitimate criterion), but also factors unrelated to conduct. Specifics vary across states, but common factors include unemployment, marital status, age, education, finances, neighborhood, and family background, including family members’ criminal history.

Such factors are usually considered inappropriate for sentencing; if anything, some might be mitigating circumstances. But in the new, profiling-based sentencing regimen, markers of socioeconomic disadvantage increase a defendant’s risk score, and most likely his sentence.

So, you live in the bad part of town (high crime area), you go to jail longer.

You grew up poor, you go to jail longer.

Broken family, you go to jail longer.

Unemployed, you go to jail longer.

From a single parent household, you go to jail longer.

As Hamilton Nolan observes:

Design an economic and political system that requires a great many people to be poor. Pass laws that are far more likely to be broken by poor people. Use a computer to dispassionately predict that poor people will probably break the law more in the future. Then sentence poor people to longer prison terms.

This is a f%$#ing abomination.

We Learned Nothing from the California Energy Crisis

It’s Enron all over again, as energy traders loot the ratepayers through the magic of the market:

By 10 a.m. the heat was closing in on the North Shore of Long Island. But 300 miles down the seaboard, at an obscure investment company near Washington, the forecast pointed to something else: profit.

As the temperatures climbed toward the 90s here and air-conditioners turned on, the electric grid struggled to meet the demand. By midafternoon, the wholesale price of electricity had jumped nearly 550 percent.

What no one here knew that day, May 30, 2013, was that the investment company, DC Energy, was reaping rewards from the swelter. Within 48 hours the firm, based in Vienna, Va., had made more than $1.5 million by cashing in on so-called congestion contracts, complex financial instruments that gain value when the grid becomes overburdened, according to an analysis of trading data by The New York Times.

Those profits are a small fraction of the fortune that traders at DC Energy and elsewhere have pocketed because of maneuvers involving the nation’s congested grid. Over the last decade, DC Energy has made about $180 million in New York State alone, The Times found.

………

The contracts were intended to protect the electricity producers, utilities and industries that need to buy power. The thinking was that the contracts would help them hedge against sharp price swings caused by competition as well as the weather, plant failures or equipment problems. Those lower costs could reduce consumers’ bills.

But Wall Street banks and other investors have stepped in, siphoning off much of the money. In New York, DC Energy accounted for more than a quarter of the total $639 million in profits in the congestion markets between 2003 and 2013, The Times found. Some of DC Energy’s biggest paydays involved Port Jefferson, a village 60 miles east of Manhattan. Because of the geography of the grid, moving power from one point to another means demand often briefly outstrips supply here.

“Why aren’t we getting that money?” said Margot Garant, mayor of Port Jefferson. City officials, including the mayor, had not heard of DC Energy before they were told about it by The Times.

DC Energy — and its profits — are an unexpected result of the deregulation of the nation’s electric grid. The idea behind deregulation was to eliminate old monopolies and create robust, competitive markets that would encourage investment and ultimately lower costs for consumers. But in most places, electricity bills have been rising, not falling. While fuel prices, taxes and fees have added directly to the costs, Wall Street-style traders have contributed in subtle ways by turning new markets, like the trading of congestion contracts, to their advantage, The Times analysis found.

The contracts have attracted big money: More than $2 billion has been invested nationwide in the monthly auctions for contracts since 2011, according to Platts, a trade publication.

This is ALWAYS what happens when the decision is made to use the magic of the market instead of regulators.

The banksters figure out a way do rape us like a bunch of passed out sorority girls.

This sort of inherently parasitic behavior is what gave Timothy Geithner an erection when he waxes nostalgic about the increasing financialization of our economy.

Yes, James Risen Has a Legitimate Beef with Barack Obama

What has been done to him is so egregious that Maureen Dowd actually wrote a decent column, albeit it one that still contains gratuitous fashion references and a junior high school sensibility:

Over lunch near the White House on Friday, Risen, dressed in his Men’s Wearhouse shirt and khakis and his brown Ecco walking shoes, talked about having the sword of Damocles over his head, as the reluctant star of a searing media-government showdown that could end with him behind bars.

(See what I mean about the fashion bullsh%$?)

Risen said he’s not afraid that F.B.I. agents will show up one day at the suburban Maryland home he shares with his wife, Penny. (His three sons are grown, and one is a reporter.) But he has exhausted all his legal challenges, including at the Supreme Court, against the Obama administration.

“I was nervous for a long time, but they’ve been after me for six years so now I try to ignore it,” he said, musing that he’s already decided what he’ll take to prison: Civil War books and World War II histories.

The Justice Department is trying to scuttle the reporters’ privilege — ignoring the chilling effect that is having on truth emerging in a jittery post-9/11 world prone to egregious government excesses.

Attorney General Eric Holder wants to force Risen to testify and reveal the identity of his confidential source on a story he had in his 2006 book concerning a bungled C.I.A. operation during the Clinton administration in which agents might have inadvertently helped Iran develop its nuclear weapon program. The tale made the C.I.A. look silly, which may have been more of a sore point than a threat to national security.

But Bush officials, no doubt still smarting from Risen’s revelation of their illegal wiretapping, zeroed in on a disillusioned former C.I.A. agent named Jeffrey Sterling as the source of the Iran story.

The subpoena forcing Risen’s testimony expired in 2009, and to the surprise of just about everybody, the constitutional law professor’s administration renewed it — kicking off its strange and awful aggression against reporters and whistle-blowers.

Holder said in May that “no reporter who is doing his job is going to go to jail,” trying to show some leg and signal that his intention is benign, merely to put pressure on Sterling so that he will plead guilty before his trial.

I can think of no more contemptible reason to go after a reporter then to save a bit of effort by prosecutors.

This is the sort of crap that killed Aaron Swartz.

How can he use the Espionage Act to throw reporters and whistle-blowers in jail even as he defends the intelligence operatives who “tortured some folks,” and coddles his C.I.A. chief, John Brennan, who spied on the Senate and then lied to the senators he spied on about it?

“It’s hypocritical,” Risen said. “A lot of people still think this is some kind of game or signal or spin. They don’t want to believe that Obama wants to crack down on the press and whistle-blowers. But he does. He’s the greatest enemy to press freedom in a generation.”

I tend to agree.

The Obama administration has been implacably hostile to reporting on the US state security apparatus, to a degree that would make Richard Nixon go, “What the f%$#?”

Our security apparatus runs Barack Obama, not the other way around.

A Correction That I am Happy to Make

In yesterday’s post about the indictment against Rick Perry, I suggested that the indictment for abuse of official power against Rick Perry, I supported the outcome, but was dubious on the actual law.

Well, I was wrong. Both the facts and the law support this indictment.

First, in addition to his public pronouncements, Governor Goodhair called the Travis County DA to threaten the veto:

When Lehmberg refused to resign, Perry threatened to veto funding of her Public Integrity Unit—which investigates corruption of local, state, and federal public officials. Sources close to the investigation told me that Perry’s threat happened as the unit’s prosecutors were investigating whether Perry’s political backers and campaign contributors had received preferential and improper treatment in receiving grants from an anti-cancer state agency, the Cancer Prevention and Research Institute of Texas.

……… (Run of the mill Texas corruption snipped)

When Lehmberg refused to resign, Perry threatened to veto funding of her Public Integrity Unit—which investigates corruption of local, state, and federal public officials. Sources close to the investigation told me that Perry’s threat happened as the unit’s prosecutors were investigating whether Perry’s political backers and campaign contributors had received preferential and improper treatment in receiving grants from an anti-cancer state agency, the Cancer Prevention and Research Institute of Texas.

Making public statements and publicly threatening a veto is one thing, but the behind the scenes machinations and contacts by his evil minions appear to be a direct threat against the office that is investigating him.

And then there is the legal precedent:

The closest precedent dates back to 1917, when Gov. James Ferguson, who wanted the University of Texas to fire some faculty and staff of which he disapproved, was indicted based on his veto of funding to the university. Ferguson resigned before he was convicted. “There’s not really any legal or political precedent for this. You’ve got to go back nearly a century,” Jillson said.

I think that the case is far stronger than is made out in Politico.

The case against Perry is a lot stronger than against Ferguson, because those college professors were not investigating him and his, and DA Lehmberg is investigating him and his.

I still think that it is a tough case to prove unless the DA turns one of Perry’s evil minions, but I do think that it is a winnable case.

I Have Mixed Emotions About This………

I think that Texas Governor Rick Perry is a truly evil person, he has presided over the dubious executions, as well as the obstruction of the investigations of these questionable executions.

Additionally, I think that his handling of Texas retirement funds have been clearly corrupt.

I also get the fact that they got Al Capone for tax evasion.

But I have mixed emotions about the abuse of power allegations against Rick Perry:

Texas Gov. Rick Perry (R) was indicted on felony charges Friday by a grand jury in Austin for allegedly abusing his veto power to force the resignation of a Democratic prosecutor.

The grand jury indicted the 2016 presidential hopeful on two felony counts – coercion of public official and abuse of official capacity, according to The Associated Press

Perry, 64, must turn himself in to the Travis County Jail, where he will be booked, fingerprinted and have his mug shot taken, according to KVUE-TV.

The charges stem from an ethics complaint filed last year by Texans for Public Justice, a left-leaning government watchdog group, claimed that Perry abused his official powers by threatening to veto money for public corruption prosecutors in the state in order to pressure a local district attorney to resign.

The public integrity unit is housed in the Travis County district attorney’s office. Perry called for the resignation of District Attorney Rosemary Lehmberg after she was arrested and pled guilty in April 2013 to drunken driving.

Lehmberg, a Democrat, did not resign. Perry eventually made his veto threat a reality. The special prosecutor on the case worked to show evidence that Perry’s threat to veto $7.5 million over two years was unlawful.

I do not think that Governor Goodhair is on the side of the angels. 

Travis County is both one of the few strongly Democratic counties in Texas, and because the capitol, Austin, is located in Travis County, it also runs the state public integrity division.

Were Lehmberg to resign, it is clear that Perry would replace her with a political crony who would do their level best to ignore the ethical cesspool that is Texas politics.

On the political or social merits, it is clearly a good thing that Rick Perry is looking at some time in the hoosegow, but I am a bit dubious as to the underlying legal theory:  It seems to me that a governor’s veto should be accorded a wide amount of respect, even if the governor in question should not be accorded any respect.

StudentsFrist Rhee-Boots

Or more accurately, it boots the doyenne of educational grifters, Michelle Rhee:

Michelle Rhee had big ambitions when she went on Oprah four years ago to launch her new advocacy group, StudentsFirst, with a promise to raise $1 billion to transform education policy nationwide.

But as she prepares to step down as CEO, she leaves a trail of disappointment and disillusionment. Reform activists who shared her vision say she never built an effective national organization and never found a way to use her celebrity status to drive real change.

StudentsFirst was hobbled by a high staff turnover rate, embarrassing PR blunders and a lack of focus. But several leading education reformers say Rhee’s biggest weakness was her failure to build coalitions; instead, she alienated activists who should have been her natural allies with tactics they perceived as imperious, inflexible and often illogical. Several said her biggest contribution to the cause was drawing fire away from them as she positioned herself as the face of the national education reform movement.

“There was a growing consensus in the education reform community that she didn’t play well in the sandbox,” one reform leader said.

That last bit is pretty much the story of her career:  Walk into a room, kiss up, kick down, and do everything possible to ensure that her name is in the lights.

I do wonder what her next con-job will be, though.

I Sure Picked the Wrong Week to Stop Sniffing Glue, Constitutional Right to Bribe Edition

Yes, once again, the ‘Phants are looking at a 1st amendment challenge to anti-pay to play regulations:

Wall Street is one of the biggest sources of funding for presidential campaigns, and many of the Republican Party’s potential 2016 contenders are governors, from Chris Christie of New Jersey and Rick Perry of Texas to Bobby Jindal of Louisiana and Scott Walker of Wisconsin. And so, last week, the GOP filed a federal lawsuit aimed at overturning the pay-to-play law that bars those governors from raising campaign money from Wall Street executives who manage their states’ pension funds.

………

With the $3 trillion public pension system controlled by elected officials now generating billions of dollars worth of annual management fees for Wall Street, Securities and Exchange Commission regulators originally passed the rule to make sure retirees’ money wasn’t being handed out based on politicians’ desire to pay back their campaign donors.

………

In the complaint aiming to overturn that rule, the GOP plaintiffs argue that the SEC does not have the campaign finance expertise to properly enforce the rule. The complaint further argues that the rule itself creates an “impermissible choice” between “exercising a First Amendment right and retaining the ability to engage in professional activities.” The existing rule could limit governors’ ability to raise money from Wall Street in any presidential race.

In an interview with Bloomberg Businessweek, a spokesman for one of the Republican plaintiffs suggested that in order to compete for campaign resources, his party’s elected officials need to be able to raise money from the Wall Street managers who receive contracts from those officials.

“We see (the current SEC rule) as something that has been a great detriment to our ability to help out candidates,” said Jason Weingarten of the Republican Party of New York — the state whose pay-to-play pension scandal in 2010 originally prompted the SEC rule.

Because bribery is protected speech, I guess.

No, this is not The Onion, but I wish it were.

The Most Transparent Coverup Ever

So, the Ferguson police department, aka the gang that cannot shoot straight, but will do so with fully automatic weapons mounted on top of an MRAP, decided to both release the shooting officer’s name and begin a policy of character assassination against Michael Brown:

Police on Friday said that Darren Wilson, the officer who shot and killed Michael Brown last weekend, confronted Brown after the teenager was identified as the main suspect in a convenience store robbery that occurred Saturday morning.

However, hours later, authorities said that the robbery was not the reason for the encounter that ended with Brown shot to death on a suburban St. Louis street, suggesting that it was unrelated to the confrontation.

As Ezra Klein notes, “The police are the issue in Ferguson, not Michael Brown’s character.”

I am tempted to go all Samuel L. Jackson in Pulp fiction, and asking if Ferguson Police Chief Thomas Jackson thinks that we look like a bitch, because he is certainly trying to f%$# us like one.

If there are not multiple of indictments of the police involved in this, both for the town of Ferguson and for St. Louis county, I will be suggest that it will be because of collusion between the police and the prosecutors.

This is F%$#ed Up and SH%$

Private equity companies are worried about regulations on insane levels of leverage, so they are lobbying organizations that don’t even regulate them:

The private equity industry’s lobbying group met officials from the Office of the Comptroller of the Currency and the Federal Reserve last week to address concerns over a crackdown on junk-rated loans, people familiar with the matter said on Monday.

The private meeting – the first between the Private Equity Growth Capital Council (PEGCC) and the U.S. regulators over the issue – underscores many buyout firms’ reliance on leveraged loans for outsized returns in their debt-fueled acquisitions of companies.

It also highlights the willingness of the OCC and the Fed to engage with parties they do not regulate. Private equity firms are typically regulated by the U.S. Securities and Exchange Commission.

Seriously. What has got them worried? Has the SEC, the Stay Puft Marshmallow Man, been too hard on them?

I get it. You are pillaging barbarians, and your weapon is other people’s money.

You need insane levels of leverage so that you can make your money by shutting down factories, moving production overseas, charging excessive fees to “manage” your acquisitions, etc.

Clearly, you need assurances that no one will ever prevent you from doing this, because anything that might get in the way of your f%$#ing the rest of us would be an affront to  the gods of the market.

Not enough bullets.

And Now the Banksters Want Our Drinking Water

Seriously, these guys are a bigger threat to our way of life than Osama bin Laden ever was.

Yes, if they just turn Wall Street’s full potential on the supply of water, everything will be great, because ……… magic sparkle pony fairy dust:

The problem of water scarcity is growing at an alarming rate. By 2050, experts forecast a 55% increase in the amount of water required to meet demand from rising populations, food production and industry. Failure to meet that demand will have devastating consequences: water shortages will become chronic, leading to the proliferation of water riots and water wars. According to UN estimates, $1.8 trillion in new investments will be needed over the next 20 years to avoid such a calamity. The question is:

Whence Will That Money Come?

According to the wise masters of big capital and finance, there can only be one source: the ever-knowing, ever-perfect financial markets. Writing in the Daily Telegraph, Andrew Critchlow argued the case for financializing water:

Markets can play an important role in providing future water security (DQ: Note the use of the term “water security,” not “water independence” or “water sustainability”). The City can help to fund vital water infrastructure and the creation of a futures market to trade water would help to create a baseline pricing mechanism against which regional water tariffs could be fairly set

“Water will become something that is traded, there will be a market for it and this could happen in the next decade,” said Usha Rao-Monari, chief executive officer of Global Water Development Partners – an affiliate of New York-based investment giant Blackstone, the world’s largest private equity firm with a reported $280bn under management

The reasoning is clear: in order to create more efficient distribution of the world’s most vital resource, we need to create myriad new layers of middlemen and financiers and have them trading billions (if not trillions) of dollars in derivatives of that scarce resource on global commodity exchanges. It will be the Enron-ization of water, as the exact same people who almost destroyed the global economy with mortgage-backed securities and credit default swaps and who have corrupted the basic pricing mechanism of just about every commodity market on the planet will be entrusted to determine the price of the water we consume.

“It’s intuitively appealing to talk about water as a traded asset,” said Deane Dray, a Citigroup analyst who heads up global water-sector research. “If you look at projections over the next 25 years, you’ll see that global water supply and demand imbalances are on track to get worse.”

What will this mean for the rest of us?

Well it ain’t anything good:

As a result of this huge influx of Wall Street money, the food commodity markets are now 80% speculation, with the volume of financial transactions between 20 and 30 times as large as the real transactions. As Kaufman told Wired magazine, the direct consequence has been volatility two standard deviations above the 1990’s norm:

We’ve seen the price of food become more expensive than ever three times in five years [DQ: sparking food riots and revolutions throughout the developing world]. Normally we’d see three price spikes in a century. And part of the reason is this new kind of commodity speculation in food markets.

If you aren’t worried about what Wall Street will do if it gets control of safe supplies of drinking water, you are either catatonic, deluded, or a follower of Ayn Rand. (But I repeat myself.)

Remember, the most recent WTO talks broke down because the US, and Wall Street, wanted to shut down poorer nations’ ability to stockpile staple foods to avoid being held hostage by speculators.

Be very, very afraid.

Edward Snowden Still has a Lot to Say

He gave a rather expansive interviewed with Wired. Here are the most recent revelations:

  • He left “bread crumbs” which should have let shown the NSA what he took. He ascribes the fact that they continue to be surprised to incompetence, but I am not buying it.  I think that acknowledging what was taken would put our state security apparatus in the position of validating some programs that have not yet come out:
  • Snowden speculates that the government fears that the documents contain material that’s deeply damaging—secrets the custodians have yet to find. “I think they think there’s a smoking gun in there that would be the death of them all politically,” Snowden says. “The fact that the government’s investigation failed—that they don’t know what was taken and that they keep throwing out these ridiculous huge numbers—implies to me that somewhere in their damage assessment they must have seen something that was like, ‘Holy sh%$.’ And they think it’s still out there.”

  • Some of the leaks appear not to have come from Snowden, which points to a 2nd whistle blower.
  • The CIA’s IT infrastructure is archaic.
  • Syria did not shut down its internet at the beginning of their civil war, it was an NSA cock-up:
  • ………One day an intelligence officer told him that TAO—a division of NSA hackers—had attempted in 2012 to remotely install an exploit in one of the core routers at a major Internet service provider in Syria, which was in the midst of a prolonged civil war. This would have given the NSA access to email and other Internet traffic from much of the country. But something went wrong, and the router was bricked instead—rendered totally inoperable. The failure of this router caused Syria to suddenly lose all connection to the Internet—although the public didn’t know that the US government was responsible. (This is the first time the claim has been revealed.)

  • The NSA has setup  a program called Monstermind, which would have it launching cyber-attacks against other nations without human intervention.
  • The final straw for him was when James clapper flat out lied to congress about spying on Americans.  (I liked his use of the phrase, “Banality of Evil,” to describe this, though I didn’t like his use of the boiling frog metaphor, which is scientifically inaccurate)

There are more revelations to come.

It is really worth the read.

I am Actually Familiar With the Turkish Cleric and His Charter Schools

One of his charter schools is Chesapeake Science Point Public Charter School, which holds a Rubik’s cube competition, and so I’ve been down there a couple of times, and it seemed a bit different, so I Googled it, and discovered that it was a part of the Gülen movement schools, which is led by Fethullah Gülen, a Turkish preacher living in self-imposed exile in the United States.

To be clear, Chesapeake Science Point is not a religious schools in any way shape or form, it’s more of an international school.

One of the interesting things that I discovered about this is that Fethullah Gülen is an ally turned opponent of Islamist PM (now President) of Turkey, Recep Tayyip Erdoğan, despite his residing in Pennsylvania.

So, I found it rather interesting when The Atlantic found the movement, and looked at the schools. The initial discussion is measured and anodyne:

It reads like something out of a John Le Carre novel: The charismatic Sunni imam Fethullah Gülen, leader of a politically powerful Turkish religious movement likened by The Guardian to an “Islamic Opus Dei,” occasionally webcasts sermons from self-imposed exile in the Poconos while his organization quickly grows to head the largest chain of charter schools in America. It might sound quite foreboding—and it should, but not for the reasons you might think.

You can be excused if you’ve never heard of Fethullah Gülen or his eponymous movement. He isn’t known for his openness, despite the size of his organization, which is rumored to have between 1 and 8 million adherents. It’s difficult to estimate the depth of its bench, however, without an official roster of membership. Known informally in Turkey as Hizmet, or “the service”, the Gülen movement prides itself on being a pacifist, internationalist, modern, and moderate alternative to more extreme derivations of Sunni Islam. The group does emphasize the importance of interfaith dialogue, education, and a kind of cosmopolitanism. One prominent sociologist described it as “the world’s most global movement.”

Much of the praise for the Gülen movement comes from its emphasis on providing education to children worldwide. In countries like Pakistan, its schools often serve as an alternative to more fundamentalist madrassas. Gülen schools enroll an estimated two million students around the globe, usually with English as the language of instruction, and the tuition is often paid in full by the institution. In Islamic countries, where the Gülen schools aren’t entirely secular: The New York Times reported that in many of the Pakistani schools, “…teachers encourage Islam in their dormitories, where teachers set the example in lifestyle and prayers.” But the focus is still largely on academics. Fethullah Gülen put it in one of his sermons, “Studying physics, mathematics, and chemistry is worshipping Allah.”

In Western countries such as the United States, Germany, and France, there isn’t any evidence whatsoever that the nearly 120 Gülen charter schools in America include Islamic indoctrination in their curriculum. The schools are so secular that singling out the Gülen schools as particularly nefarious, simply for being run predominantly by Muslims, smacks of xenophobia.

He appears to be running modernist schools, some secular, and some Islamic (not Islamist).

The next part is interesting to me because, once it gets into the nitty gritty of charter schools, as in pretty much every case where I have looked into charter schools, the finances become disturbing:

However, these schools might be suspect for reasons that are completely unrelated to Islamic doctrine. One of their most troubling characteristics is that they don’t have a great track record when it comes to financial and legal transparency. ……… Furthermore, as the Deseret News reported, the school’s administrators seemed to be reserving coveted jobs for their own countrymen and women: “In a time of teacher layoffs, Beehive has recruited a high percentage of teachers from overseas, mainly Turkey.”

………

There are similar stories from other states. In Texas, where 33 Gülen charter schools receive close to $100 million a year in taxpayer funds, the New York Times reported in 2011 that two schools had given $50 million to Gülen-connected contractors, including the month-old Atlas Texas Construction and Training, even though other contractors had offered lower bids. It was the same thing in Georgia, where Fulton County audited three Gülen schools after allegations that they’d skipped the bidding process altogether and paid nearly half a million dollars to organizations associated with the Gülen movement.

………

There are similar stories from other states. In Texas, where 33 Gülen charter schools receive close to $100 million a year in taxpayer funds, the New York Times reported in 2011 that two schools had given $50 million to Gülen-connected contractors, including the month-old Atlas Texas Construction and Training, even though other contractors had offered lower bids. It was the same thing in Georgia, where Fulton County audited three Gülen schools after allegations that they’d skipped the bidding process altogether and paid nearly half a million dollars to organizations associated with the Gülen movement.

Let’s be clear here: This is actually typical behavior within the Charter school movement, as Diane Ravich notes when contacted by The Atlantic:

………Diane Ravitch, education professor at New York University and Assistant Secretary of Education under George H.W. Bush, writes about this larger transparency issue in her latest book, Reign of Error, explaining, “In 2009, New York Charter School Association successfully sued to prevent the state comptroller from auditing the finances of charter schools, even though they receive public funding. The association contended that charter school’s are not government agencies but ‘non-profit educational corporations carrying out a public purpose.’” The New York State Court of Appeals agreed with the organization in a 7 to 0 vote. It took an act of legislation from the state—specifically designed to allow the comptroller to audit charter schools—for this to change.

Ravitch also writes of a similar instance in North Carolina in which the state, urged on by lobbying giant ALEC (American Legislative Exchange Council), proposed the creation of a special commission, composed entirely of charter school advocates, as a way for charter schools to bypass the oversight of the State Board of Education or the local school boards. Ravitch writes, “The charters would not be required to hire certified teachers. Charter school staff would not be required to pass criminal background checks. The proposed law would not require any checks for conflicts of interest—not for commission members or for the charter schools.” In other words, it isn’t the Gülen movement that makes Gülen charter schools so secretive. It’s the charter school movement itself.

It turns out that the Gülen schools got raided by the FBI for steering money from the E-Rate program to favored contractors: (One wonders if the FBI, who has employed nut-job Islamophobic consultants, would have bother to investigated if the target wasn’t Islamic)

This comes across in the latest news story related to the Gülen schools: an FBI raid last month on the headquarters of over 19 Gülen-operated Horizon Science Academies in Midwest. According to search warrants obtained by the Chicago Sun-Times, federal authorities were interested in gathering general financial documents and records of communication. The warrant specifically mentions something called the E-rate program—a federal program that, according to the Sun-Times, “pays for schools to expand telecommunications and Internet access.” A handful of the Gülen-affiliated contractors assisting the schools were receiving money from this federal fund. It’s difficult speculate what this could all mean, as all documents pertaining to the investigation, save the warrants themselves, have been sealed from the public.

And then there is Ohio:

I contacted Matthew Blair, and he told me that the problems with the Gülen schools were merely symptomatic of a larger problem within the state’s education system. “The charter school system in Ohio is broken beyond repair,” he wrote in an email. “As it is, charter schools operate in a lawless frontier. Regulations are few and far between. Those that exist are consistently and consciously overlooked.”

The Gülen schools, he wrote, “are an excellent example” of this problem: “A Gülen organization controls the real estate companies that own their schools. They charge rent to their own schools and tax-payers foot the bill. They refuse to answer public records requests, falsify attendance records, and cheat on standardized tests. Yet, Ohio continues to grant them charters to operate.” He added, “It doesn’t hurt that the Gülen organization is politically active and treats state politicians to lavish trips abroad.” But overall, he said, “this Wild West atmosphere of few regulations creates incestuous relationships among politicians, vendors, and schools. Charter schools like Gülen’s give generously. In return, they are allowed to keep their saloons open and serve whatever they want. The only way to save the charter school system is to start over again by using the model of effective public schools.”

Let me reiterate: This is not a problem specific to the Gülen Schools. This is the standard way that charter schools do business.

I have already wrote about how Rocketship Schools loots taxpayer fund by paying exorbitant prices for software from a for-profit firm whose owners constitute a bulk of the board of directors of the nominally non profit schools, and the real-estate shenanigans are pretty much standard fare.

Charter schools as they are implemented in the United States are a remarkably criminogenic manner.

Man Who Works Sucking the Marrow out of the Economy Is Hired to Suck the Marrow out of the LA Times

At least, there is symmetry.

That sound that you hear is the legendary publisher Otis Chandler spinning in his grave:

The Los Angeles Times has named Austin Beutner, a former deputy mayor of Los Angeles and Wall Street banker, as its new chief executive and publisher.

The appointment, announced on Monday, comes a week after The Times’s parent, the Tribune Company, spun off its newspapers into a separate publicly traded company called Tribune Publishing.

Mr. Beutner, 54, a former partner at the private equity firm Blackstone Group and a co-founder of the investment bank Evercore Partners, most recently worked as Los Angeles’s deputy mayor of economic development. He also explored a run for mayor and was once reported to be a possible buyer of The Los Angeles Times alongside the billionaire Eli Broad.

Jack Griffin, Tribune Publishing’s new chief executive, noted in a statement how these experiences would help Mr. Beutner in his new role.

………

Mr. Beutner is taking over The Los Angeles Times at a major transitional point for its parent company, Tribune. After Tribune braved years of bankruptcy proceedings and threats of takeover by eager buyers, The Los Angeles Times, along with its fellow Tribune-owned papers like The Chicago Tribune, split from Tribune’s television stations into a separate company. But print institutions like The Los Angeles Times now face a brutal time for newspapers as more readers consume the news online.

And this guy won’t be helping.

He is there is to exsanguinate the LA Times, much like any vampire squid in finance.

Think what Mitt Rmoney did at Bain.

Pass the Popcorn

The judge reviewing the collusion among Silicon Valley firms to suppress high tech wages has just ruled the settlement to be inadequate:

The judge overseeing the landmark Silicon Valley wage theft antitrust lawsuit has struck down the $324 million settlement reached between most of the class action plaintiffs and the defendants — Apple, Google, Intel and Adobe.

In her 32-page order striking down the settlement terms, issued just moments ago, US District Judge Lucy Koch writes:

“This Court has lived with this case for nearly three years, and during that time, the Court has reviewed a significant number of documents in adjudicating not only the substantive motions, but also the voluminous sealing requests. Having done so, the Court cannot conclude that the instant settlement falls within the range of reasonableness. As this Court stated in its summary judgment order, there is ample evidence of an overarching conspiracy between the seven Defendants…”

This is stunning news, and it means that we still may get a trial after all, and learn more about the Techtopus wage theft conspiracy.

Judge Koh bases her rejection by comparing the $324 million sum to the earlier settlement in 2013 with three other defendants in the wage-theft lawsuit: Intuit, LucasFilm and Pixar. Judging by that metric, Judge Koh argues that the settlement figure should have been at least $380 million. She also cites the “strength” of the plaintiffs’ case against the Big Tech defendants, and rejects the plaintiffs’ attorneys’ argument about the difficulties in winning an antitrust wage theft lawsuit of this scope.

This should get interesting for a number of reasons:

  • The documents make it pretty clear that the plaintiffs’ claims are airtight. (They also prove that Steve Jobs was a sociopathic @sshole, but that has been common knowledge for decades within the tech sector)
  • If the case proceeds, discovery should create even more damning information.
  • The blatant illegality of the behavior is such that the insurance carriers for the tech firms may end up suing them, claiming that the behavior is covered under the “deliberate acts” exclusions that almost all liability insurance policies contain.

This should be entertaining.

This is a Classic Case of Regulatory Capture

After the public outrage over the NYPD choking a man to death for allegedly selling single cigarettes, the Civilian Complaint Review Board wants to have fewer investigations:

With New York in an uproar over the death of Eric Garner after police put him in a chokehold, the new chairman of the group that handles public grievances about the NYPD floated the idea yesterday that his agency should stop listening to people who complain about police stops.

“I’m not sure stop-and-frisk is still appropriate for this agency,” Richard Emery, the head of the Civilian Complaint Review Board said at his first board meeting. “So many other people are working on it.”
NYCLU Associate Legal Director Chris Dunn—who last month accused the board, then in its sixth month without a chairman, of being “on life support”—strongly disagreed.

“There’s no way this agency can walk away from stop-and-frisk,” Dunn said. “There are more interactions around stop-and-frisk than any other interaction in the police department….I’m just telling you: When you as the incoming chair of the CCRB say something like ‘We should get out of the business of stop-and-frisk,’ that is sending the wrong signal.

This isn’t the first time the CCRB has appeared to try to back away from stop-and-frisk issues. In May, Dunn confronted board members about a leaked memo that seemed to suggest that frisks conducted when cops issue a summons can’t be subject to review by the board.

Any civilian police review board must have not just an adversarial role with the police department, but it must have an adversarial mindset, because no organization can be trusted to police itself.

If the Police do not hate a civilian review board, then that civilian review board is simply not doing its job.

The sentiments expressed by Richard Emery are literally those of a petty bureaucrat in a police state.