Apr 24

Criminal Charges Finally Filed Against BP Employee

Today the Department of Justice filed the first criminal charges in a Louisiana court related to the devastating oil spill in 2010 involving BP’s Macondo well off the Gulf of Mexico. The named defendant in the case, Kurt Mix, was an engineer employed by BP working on efforts to measure the amount of oil leaking into the Gulf as a result of the spill, as well as on efforts to contain the leakage. Mix is charged with two counts of Obstruction of  Justice. The affidavit and the complaint include contentions that Mix deleted several email and text message exchanges he had with contractors and his superiors at BP. The text messages and email communications contained estimates of oil leakage that far exceeding the amounts provided to the public. Moreover, the messages contained candid discussions regarding the likelihood of success of efforts to cap the well which were overstated in public comments by BP and communications with government officials.

As discussed in detail below, MIX deleted numerous electronic records relating to the Horizon disaster response, including records concerning the amount of oil potentially flowing from the well, after being repeatedly informed of his obligation to maintain such records and after it became apparent that his electronic records were to be collected by an outside vendor retained by BP’s counsel to collect electronic documents….

From the Department of Justice’s statement:

On or about Oct. 4, 2010, after Mix learned that his electronic files were to be collected by a vendor working for BP’s lawyers, Mix allegedly deleted on his iPhone a text string containing more than 200 text messages with a BP supervisor.  The deleted texts, some of which were recovered forensically, included sensitive internal BP information collected in real-time as the Top Kill operation was occurring, which indicated that Top Kill was failing.  Court documents allege that, among other things, Mix deleted a text he had sent on the evening of May 26, 2010, at the end of the first day of Top Kill.  In the text, Mix stated, among other things, “Too much flow rate – over 15,000.”  Before Top Kill commenced, Mix and other engineers had concluded internally that Top Kill was unlikely to succeed if the flow rate was greater than 15,000 barrels of oil per day (BOPD).  At the time, BP’s public estimate of the flow rate was 5,000 BOPD – three times lower than the minimum flow rate indicated in Mix’s text.

In addition, on or about Aug. 19, 2011, after learning that his iPhone was about to be imaged by a vendor working for BP’s outside counsel, Mix allegedly deleted a text string containing more than 100 text messages with a BP contractor with whom Mix had worked on various issues concerning how much oil was flowing from the Macondo well after the blowout.  By the time Mix deleted those texts, he had received numerous legal hold notices requiring him to preserve such data and had been communicating with a criminal defense lawyer in connection with the pending grand jury investigation of the Deepwater Horizon disaster.

While I am heartened by Eric Holder’s decision to prosecute someone with ties to any of the various criminal conspiracies that have occurred or continued to occur on his watch, I hope this does not close the book on the BP oil spill prosecutions. Mr. Holder has indicated that this complaint represents only the initial charge in an ongoing investigation. I will have to take him at his word. More importantly however, the charge is not related any criminal behavior that may or may not have caused the spill itself, rather it represents elements of the cover-up after the fact. It is an open question as to whether anyone will be charged criminally for any of the decisions that were made that led to the spill, or whether Mr. Mix was acting on instructions from supervisors higher up the chain of command at BP or other entities. It hardly makes sense that Mr. Mix would put his career in jeopardy by deleting electronic communications in which it appears that he is being forthright concerning the spillage amounts and likelihood of success of capping the well during “top kill” efforts in 2010.

Apr 23

Petty Settlement Reached by CFTC with Oil Price Manipulator

The CFTC settled a case late Thursday with a multinational liquidity provider for alleged oil and gasoline futures manipulation. While this settlement comes nearly five years too late, it may mark a turning point in the Obama administration’s general reluctance to take on Wall Street.

Late Thursday, the CFTC announced the $14 million settlement with Optiver over oil and gasoline futures manipulation in March 2007. The CFTC said that traders in Optiver’s Chicago office engaged in a trading scheme where they accumulated large positions in Trading at Settlement contracts in NYMEX light sweet crude, heating oil or gasoline contracts and then offset those positions by trading futures contracts shortly before and during the closing period for those contracts, a scheme known as “banging” or “marking” the close, according to the CFTC.

It has been no secret that the administration has been under significant pressure from the left and the right alike to initiate investigations into what many experts have been reporting are inconsistencies between the market price for oil and gasoline and market forces. Political instability in the Middle East, primarily surrounding Iran, has long been the straw man used by the mainstream media and those with ties to Wall Street to distract the public from oil speculators and their effect on oil prices.

While the $14 million cash portion of the settlement is a relatively insignificant sum to a firm the size of Optiver, the settlement also includes a provision forbidding current and former members of the firm from commodities trading for as long as four years, a substantial penalty. The trading ban almost assuredly is intended to send a message to individual traders and managers to watch their step.

The settlement prohibits van Kempen from trading commodities for two years, Randal Meijer, who was then Optiver’s head of trading, for four years and Christopher Dowson, Optiver’s head trader, for eight years. Dowson is the only defendant that Optiver still employs, according to the CFTC.

The investigation has been ongoing for more than three years. The CFTC claimed in response to questions from the media that the announcement of the settlement was timed to coincide with a speech by President Obama in which he called for investigations into oil speculation and more funding for investigators and staff. I am inclined to believe the administration in this regard. Investigations of this sort, once initiated, tend to take on a life of their own, and settlements are generally reached when both sides have sufficiently vetted each other and are satisfied that the agreement fairly represents either’s chances of success or failure on the merits.

Optiver may not be a household name, but it is well known in Chicago and Amsterdam.

According to the CFTC, Optiver reaped a $1 million profit in 2007 by “banging the close” in crude, gasoline and heating oil markets with a rapid-fire trading program nicknamed “the hammer.”

Optiver is a household name in Chicago’s and Amsterdam’s electronic trading communities, where it is known for high-speed market making and arbitrage strategies in options and other derivatives using super-fast computer algorithms.

Evidence in the CFTC case includes emails and phone recordings showing efforts by traders at Optiver’s Chicago branch to “move,” “whack” and “bully” oil prices in 2007.

High-frequency trading has come under scrutiny in commodity markets in 2011 following a series of violent and seemingly inexplicable price moves that many traders have blamed on its growth.

While I am far from satisfied that the CFTC and the Department of Justice–which has apparently been on sebatical since 2008–has done enough to protect world consumers from predatory commodities trading practices, this settlement and accompanying trading ban is certainly a step in the right direction. It didn’t include any of the usual cast of unscrupulous equity sucking characters as Goldman Sachs or Morgan Stanley, but perhaps further investigations are underway. I wouldn’t hold out hope in that regard, but perhaps this settlement will encourage the big boys to tread lightly.

As far as Optiver is concerned, I believe a recent company job announcement says it all:

For our Trading department we are looking for final-year students or recent graduates from a an analytically related field of study such as Finance, Economics, Econometrics, Financial Engineering, Engineering, Mathematics, Computer Science or Physics. A flair for numbers, a passion for finance and the markets, and a hugely competitive streak are also a must.  (emphasis added).

“A flair for numbers.” Well, that’s rich, but refreshingly honest.

Apr 20

Olympia Snowe has it all Wrong

Before the ink was dry on the press release alerting the media and her colleagues that she was retiring after three terms in the United States Senate, journalists and bloggers were busily penning posts and pieces lamenting her loss as more evidence that bipartisan Washington was dead. With all due respect to the retiring Senator, she has it all wrong. Senator Snowe has reasoned that because the “sensible center” has disappeared from the legislative branch, specifically the Senate, that there is no longer “political reward for consensus building.” As such, she has chosen to retire rather than to fight. The fact of the matter is that consensus building and compromise can not exist in an environment where one side refuses to negotiate. Moreover, when that same side becomes entrenched in support of ideas and policies that are objectively ridiculous, there is no middle ground on which to stand.

Ms. Snowe also misplaces the blame for the current state of affairs at the feet of both parties. While I do not generally believe that either party can legitimately represent the interests of the people in the current money-driven system we entertain as effective today, the road to the complete loss of consensus building has hardly been paved with equal bricks from each party. Take for example Ms. Snowe’s insistence that she pleaded with President Obama to reach across the aisle in 2009 while the $800 billion stimulus package was being drafted and negotiated. At the time, the Democrats had an overwhelming majority in the Senate and a sizable majority in the House, yet the President had to adjure support from three Republicans in the Senate to pass a measure already stripped down of large chunks of spending that the vast majority of sapient economists believed would actually create or save jobs. The bill included nearly as much in tax cuts as it did in “spending,” yet not a single member of the House Republican Caucus voted to support it. Where exactly was Mr. Obama supposed to look to build this mystical “consensus” Ms. Snowe refers to? Would it have taken 100% tax cuts and a measure to exempt all corporations from assessments for a decade to secure a few Republican votes? The fact of the matter is that the Republican Party had made conscious decision following the 2008 election to oppose any measure that would stimulate the economy, unless forced into support by overwhelming public consensus.

Ms. Snowe also opined that the Affordable Care Act was in essence jammed down her throat with little explanation of certain provisions. As such, she had no choice but to oppose the measure. This is simply not the case. The entire piece of legislation was stalled for an extraordinary period of time while the President and Democrats in the Senate frustratingly attempted to win the support of Ms. Snowe, and her fellow Republican Senator from Maine, Susan Collins. Moreover, Ms. Snowe’s reticence is underscored by the fact that it has been widely reported that the bulk of what was contained in the legislation itself originated from Republican think-tanks and Republican legislators and intellectuals. Again, who does Ms. Snowe speculate that Mr. Obama was to meet in the “sensible middle?” The truth is that the President spent the bulk of his time negotiating with Democrats like Ben Nelson and others, who wanted give-backs for their own states. Ultimately, not a single Republican Senator voted  for the act. Quite frankly, I don’t believe there was any offer of compromise short of imploding the effectiveness of the legislation that would have attracted Ms. Snowe’s vote. Where is the middle ground when the compromise offered, most of which benefited the corporations that Republicans generally support, was not able to rustle-up a single vote? If anything, Ms. Snowe is simply soured by the fact that at some point the President simply gave up and walked away from her, leaving her out of the debate entirely.

The retiring Senator also believes that Mr. Obama dropped the ball on deficit reduction by refusing to bring the findings of the Bowles-Simpson commission up for debate. She claims that the President rejected the findings out of hand. Again, she is mistaken. First, the President publicly acknowledged much of what the commission recommended. However, it became clear that in order to negotiate on any of the sensible recommendations, Medicare and Social Security would have to be on the table for Republicans to take a seat. Moreover, the Republicans remained steadfastly opposed to any new taxes or any new revenue generating fees in order to lessen the blow. This placed the President in the position of having to some degree not only compromise his integrity, but also programs that millions of Americans depend upon. Most economists agree that the reason for the failure of the United States economy to recover more quickly following this recession as compared to recessions past, is that the government has been unwilling to raise revenues and borrow significant sums in order to replace the demand gap left by deleveraging and unemployment. The Republicans were and are opposed to both, and refused to even negotiate if the President placed either up for debate.

The cold hard reality is that Ms. Snowe is correct, the sensible middle is gone from the United States Senate. However, blame is not properly paced equally at the feet of the Democratic and Republican parties. While the Democratic Party is certainly not without blame, it has bent over backwards in the recent past to befriend Wall Street and major corporations generally, while remained somewhat firm on social issues and so-called entitlements. The problem in the United States Senate is Ms. Snowe’s own party. There is simply no way to find a sensible point of compromise when one side refuses to negotiate. Claims that the Democrats refuse to meet her in the middle are simply false and disingenuous. Take for example the JOBS Act that recently passed with overwhelming Democratic and Republican support. A piece of legislation that runs counter to the economic ideology of the Democratic Party. The act is almost certain to result in fraud, most of which will come at the expense of small investors. Moreover, the act provides incentives to companies with revenues of $1 billion, hardly a core Democratic constituency. The recently passed  National Defense Authorization Act is also replete with provisions anathema to traditional Democratic Party values, as is the amended Patriot Act, and numerous other pieces of legislation passed with Democratic Support over just the past decade.

We need not hearken back to yesteryear to extirpate Ms. Snowe’s theory. President Bush was able to convince twelve Democrats to support the sweeping and irresponsible tax cuts passed in 2001. President Bush was also able to rally Democrats to support several other pieces of controversial legislation. For example, President Bush was able to negotiate the support of ten Democrats to cross party-lines and support his Medicare Part D proposal. Moreover, due to several Republican defections on the legislation, the bill would not have passed without Democratic support. The Democrats in the Senate also stood with the President on a cloture vote of  61-39, with Democrat Ron Wyden riding in to rescue the President at the final hour. Just three years later the Republicans uniformly refused to work with Democrats in an effort to limit the hundreds of billions of dollars the prescription drug benefit would add to the long-term deficit. Furthermore, following the September 11, 2001 terrorist attacks, Democrats rallied around President Bush and Republican measures to inhibit civil liberties, the bulk of which was opposed by a majority of the Democratic Base.

Democrats also worked closely with Republicans during the Clinton Administration. Democratic Senators worked with Republicans to bring an end to the consumer protections of the Glass-Steagall Act with the Gramm–Leach–Bliley Act. Democrats offered an olive branch of compromise when negotiating welfare reform. Bill Clinton worked closely with Newt Gingrich and Trent Lott in fashioning welfare reform legislation, that although more conservative that the Democratic base found acceptable, passed with Republican support. Democrats likewise worked closely with Republicans in dismantling commodities futures and derivatives trading regulation with the Commodity Futures Modernization Act of 2000. Democrats also worked closely with President George H.W. Bush in passing civil rights legislation to protect the disabled and increased funding for education.

This has not been the case between President Obama and the Republicans in the Senate, who have all but remained a united front in opposition to almost anything that he proposes, even if  such proposal is based upon ideas first championed by the Republican Party. If Ms. Snow truly wishes to convey her forthrightness concerning the legislative mood of the United States Senate, she would be well served to speak truthfully to the American People. The current caustic relationship between Democrats and Republicans in the chamber is primarily a function of the radicalization of the Republican Party, and it is irresponsible of Ms. Snowe to confuse the public with her assertion that each side shares equal responsibility. Ms. Snowe could preserve her self-conveyed legacy of “peacemaker” she clearly covets by simply calling out her own party in a mature and dignified fashion.

Apr 19

EPA Announces New Fracking Regulations

FrackingWell, apparently today’s theme is going to be the environment, and the real differences in policy preferences between the two major political parties in the United States. Yesterday, the Democrats and the Obama administration’s EPA took a-something-is-better-than-nothing approach to hydraulic fracturing pollutant regulation.

The Obama administration took a heavy swing in the ongoing battle over fracking today by imposing new rules that would, for the first time, restrict the release of smog-causing pollutants from natural gas wells. But the law turns a blind eye to greenhouse gases released by fracking; the EPA admits fracking accounts for 40 percent of the nation’s overall methane (an even stronger greenhouse gas than carbon dioxide) emissions.

By 2015, all fracked wells will be required to implement “green completion” equipment, which catches toxic gases like benzene on its way out of the earth and into the atmosphere. But the rule does not directly limit emissions of greenhouse gases.

While the new rules will prevent toxic pollutants like Benzine from leaking into the air, reports, like the one above, say it will do little to prevent the largest and most dangerous pollutant from leaking into the atmosphere, methane. While other reports claim that the new regulations could reduce methane leakage by up to 25%.

The new rules seek foremost to cut down on cancer-causing chemicals released during hydraulic fracturing, or “fracking.” But the new regulations will have another benefit: They’ll reduce by 25 percent the amount of methane gas that escapes during fracking operations. This is critical, because methane is at the center of a growing debate whether natural gas really is a “cleaner” source of energy than coal.

The official EPA final rule, fact sheets, additional information, and summary can be found here and here. From the EPA press release:

“The president has been clear that he wants to continue to expand production of important domestic resources like natural gas, and today’s standard supports that goal while making sure these fuels are produced without threatening the health of the American people,” said EPA Administrator Lisa P. Jackson. “By ensuring the capture of gases that were previously released to pollute our air and threaten our climate, these updated standards will not only protect our health, but also lead to more product for fuel suppliers to bring to market. They’re an important step toward tapping future energy supplies without exposing American families and children to dangerous health threats in the air they breathe.”

When natural gas is produced, some of the gas escapes the well and may not be captured by the producing company. These gases can pollute the air and as a result threaten public health. Consistent with states that have already put in place similar requirements, the updated EPA standards released today include the first federal air rules for natural gas wells that are hydraulically fractured, specifically requiring operators of new fractured natural gas wells to use cost-effective technologies and practices to capture natural gas that might otherwise escape the well, which can subsequently be sold. EPA’s analysis of the final rules shows that they are highly cost-effective, relying on widely available technologies and practices already deployed at approximately half of all fractured wells, and consistent with steps industry is already taking in many cases to capture additional natural gas for sale, offsetting the cost of compliance. Together these rules will result in $11 to $19 million in savings for industry each year. In addition to cutting pollution at the wellhead, EPA’s final standards also address emissions from storage tanks and other equipment.

While dangers to drinking water continue, and the relationship between earthquakes and fracking continues to be explored, the new regulations are certainly a step in the right direction. We will need to further restrict the emission of methane from well sites and prevent the contamination of groundwater supplies in the future. Several scientists are describing the new regulations as a floor rather than anything truly meaningful, but it is more than we could expect from a Republican administration.

“It sets a floor for what the industry needs to do,” said attorney Erik Schlenker-Goodrich of the Western Environmental Law Center. “The reality is we can do far better.”

Over the past few years, more information has come out about fracking’s potential harms to the environment and human health, particularly relating to the risk of groundwater contamination. In addition to the many potentially toxic components of the highly pressurized fluid injected into the ground during the natural gas drilling process, fracking can also release cancer-causing chemicals like benzene and greenhouse gases like methane into the air. The federal government has made moves to tighten regulations, and we’ve chronicled the history of those regulations.

The EPA’s new rules don’t cover most of those issues. Instead, they address a single problem with natural gas: air pollution.

Unfortunately, the only legitimate means of preventing contamination of drinking water and the emission of greenhouse gasses is to outlaw the practice altogether. While I am generally loathed to approach an issue of human health and environmental destruction pragmatically, I am nonetheless somewhat heartened by what appears to be a thoughtful analysis by the EPA. It is important that activists and members of the public continue to protest peacefully and write and call their representatives so that we can ultimately restrict this behavior, which will ultimately exacerbate climate change, inconvenience millions, and certainly lead to the deaths of thousands. Many of those affected continue to be in rural areas of little influence. The economic despair and dearth of good paying jobs wrought by the financial collapse has made it less troublesome for oil and gas companies to convince residents as well as state and local governments to permit fracking in their jurisdictions. It is also important that we work diligently to provide alternative employment in these areas.

Apr 19

Energy Differences

While there isn’t a lick of difference between the Democrats and the Republicans when it comes to dealing with Wall Street, on energy policy, to the Democrats credit, they have carved out real and distinct differences. In a recent piece published at Think Progress by Rebecca Leber, that stark contrast is laid out clearly.

For example, on perhaps the primary issue that drives all other energy issues, climate change, Romney is stuck in the dark ages:

Obama:

  • “I know that there are those who disagree with the overwhelming scientific evidence on climate change. But here’s the thing — even if you doubt the evidence, providing incentives for energy-efficiency and clean energy are the right thing to do for our future -– because the nation that leads the clean energy economy will be the nation that leads the global economy.” [White House, 1/27/10]
  • State Department is leading a group of countries in a program that cuts global warming pollutants like soot, methane and hydrofluorocarbons. [NYT, 2/16/2012]
  • Issued the first ever carbon pollution rules for power plants, affecting new coal-fired power plants. [NPR, 3/27/12]

Romney:

  • Doesn’t believe carbon pollution is a threat, reversing his stance as governor: “I don’t think carbon is a pollutant in the sense of harming our bodies.” [Politico, 7/18/11]
  • My view is that we don’t know what’s causing climate change on this planet. And the idea of spending trillions and trillions of dollars to try to reduce CO2 emissions is not the right course for us.” [CBS, 10/28/2011]
  • Says the Clean Air Act doesn’t apply to carbon emissions: “My view is that the EPA in getting into carbon and regulating carbon has gone beyond the original intent of that legislation, and I would not take it there,” [Politico, 7/18/11]

Romney also vows to fight to roll-back energy efficiency standards on everything from automobiles to light-bulbs. He plans to continue oil subsidies, increase drilling, cut green technology grants and subsidies, expand drilling and exploration on public lands, expand coal mining, and eliminate any incentive to create “green jobs.” While the Democrats and Republicans stand together on the vast majority of economic issues, they could not be further apart on environmental issues, and Obama would be smart to hammer this point home through November. Romney doesn’t believe most of the crap he spews on this subject, but he is terrified of alienating his base by speaking rationally. He won’t be able to back off these positions during the campaign, and the left should hit him again and again and again with his ridiculous positions.

Apr 18

Congress Nearly Fails in its Efforts to Prevent Oil Spills

So, with all the talk of the need for compromise and conciliation in the Congress when it comes to keeping the American people safe, we certainly must have new effective regulations concerning oil drilling safety and cleanup in place nearly two years after the Deep Water Horizon Disaster, right? Not so much. According to a recent report issued by a presidential panel, Congress ranks below big oil in its responsiveness to the explosion and subsequent environmental disaster left by the BP rig.

The report cited significant progress by the Obama administration and the oil industry, giving them a B and a C+ grade, respectively, for their efforts to bolster safety, spill response and resources. Congress, however, got a D grade for its inability to “enact any legislation responding to the explosion and spill.”

The report by members of the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling complained that Congress had failed to pass legislation requiring the offshore oil and gas industry to bear the costs of federal oversight through fees on leasing and permitting reviews. The presidential panel had also recommended that the $75-million liability cap for offshore oil spills be increased substantially.

It is inconceivable that the two parties that control every piece of federal legislation that leaves the Congress en route to the President have not passed a single bill addressing oil rig safety and cleanup response. At least three oil rigs around the world have caused significant environmental damage in just the past ten months. This isn’t Medicare reform or the defense budget. This is simple straightforward legislation that will protect American businesses, homes, jobs, and the environment. Moreover, Congress is awash in bipartisan studies and recommendations concerning what should be done to ensure that disasters like the one that befell the Deep water Horizon are few and far between, and that when it does occur, that response is swift, adequate, and based on sound science. This development should infuriate the American people.

Sens. Mary L. Landrieu(D-La.) and Lisa Murkowski (R-Alaska) said in a statement that they shared the commission’s frustrations and blamed other colleagues for the gridlock on legislation.

“A bipartisan majority in the Energy Committee and the full Senate would be happy to pass common-sense legislation addressing new production, safety and a fair share of revenue for the affected states,” they said. “Unfortunately, a small number of senators are opposed to engaging in a debate that includes revenue sharing.”

To be fair, the Gulf state and Alaskan Senators are in effect crushing any effort to get this done over more demands from them that coastal states share in more revenue from off-shore oil leases and oil-producing efforts, an idea that runs in conflict with the Obama administration’s reasonable request to pass a clean bill. Gulf of Mexico states previously were granted oil and gas revenue sharing in a 2006 law, ensuring a 37.5 percent cut from specific leases, but much of the revenue does not begin to ooze until 2016.  Other committee members are sure to offer up amendments, but the revenue sharing provision which Landrieu seems to be pushing on the hardest is ultimately what is stalling the legislation. Even so,if a “small number” of “mostly Republican” Senators are holding up this legislation, let’s call them out and publicly humiliate these enemies of sound judgment. The folks over at The Hill have published some great coverage of the issue (click the links in the article to read more detailed coverage) and they also describe how it has been a bipartisan effort to ensure that increased safety measures and stepped-up environmental preparedness do not come to pass.

Apr 17

AIG Illustrates Further Treasury Department Incompetence

Timothy GeithnerEvidence of further incompetence from Timothy Geithner and friends over at the Treasury Department surfaced recently in a report that uncovered a disturbing tax deal flowing from the 2008 $182 billion bailout of AIG and other companies. A tax loophole that under normal circumstances serves the important function of providing a corporation with a mechanism to reduce its tax burden following periods of significant loss was not closed to AIG following negotiations with the Treasury Department in 2008. In fact, the loophole was expanded through a special exemption. The tax mechanism referred to as a tax loss carryforward is part of the tax code at section 382 and it allows a corporation to essentially offset future profits with past net operating losses for a period of seven years in order to reduce its tax liability. Normally corporations that acquire other entities, or are acquired as in AIG’s case, are forbidden from claiming the tax loss carryfroward in order to disincentivise purchases or sales executed for the sole purpose of claiming another companies’ losses.

However, during the turbulent period following the bursting of the housing bubble, sub-prime mortgage debacle, and derivatives crash, Timmy Geithner hatched a plan to allow companies being asked, or asking, to take over troubled or failing companies an exception to an IRS rule amended in 1986 to specifically address the issue in controversy here. In AIG’s case, the exemption served to nullify the ownership change that took place when the United States government purchased a significant stake in the company. As such, AIG, which showed a near $20 billion profit in 2011, but will offset nearly 90% of its tax liability by writing down $17.7 billion.

“It’s an arcane and hard-to-follow way of disguising billion of dollars paid to firms that, for whatever reason, are politically favored,” says J. Mark Ramseyer, a Harvard law professor who wrote a paper on a similar tax treatment given to General Motors when it was taken over. “It’s one thing to announce through TARP that you’re going to give a firm a billion dollars. But if you issue a letter saying that the company can use a net operating loss that they would otherwise lose, that’s harder for people to follow,” he says, referring to the Troubled Asset Relief Program enacted in 2008 by the U.S. government to buy assets and equity from financial institutions to strengthen them. Besides AIG and GM, Citigroup, Fannie Mae, and Freddie Mac got tax breaks as part of their bailouts.

The Treasury Department argues that following nearly $200 billion in bailout cash, that AIG couldn’t make ends meet or attract capital, notwithstanding the obvious message that Treasury was sending to investors through the bailout: That AIG would not be permitted to fail. It is the height of arrogance to ask the American people to believe that attracting private capital would be difficult for a company guaranteed to remain viable by the United States Treasury Department. Yet Treasury continues its sell its pyramid scheme based primarily on the false idea that the entire world would have been eaten by dinosaurs if it did not funnel trillions of dollars to corporations.

“Allowing those companies to keep their NOLs made them stronger businesses, helped attract private capital and further stabilized the overall financial system,” Emily McMahon, the acting assistant secretary for tax policy, wrote in a Treasury blog post March 1. “It would have been counterproductive — and perhaps irresponsible to undermine the stability of those same institutions, at the height of the financial crisis, by imposing a tax code provision that was never intended to apply in this context,” she wrote.

Elizabeth Warren, architect of the Consumer Financial Protection Bureau (CFTC)–an agency many have high hopes will offer significant financial protections to the public–has called the AIG loophole a stealth bailout. It represents much more than that however. It represents more evidence that the Obama administration and the Treasury Department had and has in place a policy of providing any and every resource to corporations that caused the collapse of the world economy, while doing next to nothing to provide assistance to the public. Whether the efforts were conspiratorial in nature is irrelevant, as the ultimate effect is the same: The public retained its debts and losses, while the corporations were provided cash and loans to service their debts and a mechanism to further limit future liability through tax provisions not extended to the American people.

Perhaps lost in all of this is that as a result of this disturbing decisions at Treasury, that executives at AIG and other companies bailed out by the American taxpayer will receive larger bonuses, as their bonuses are tied to overall profitability. Less tax liability equals greater profits. While the Obama administration is fond of pointing out that many of the companies that were bailed our during the crisis have “paid the government back and have returned to profitability,” the bailout of AIG will ultimately cost the American people at least $22 billion. The President failed to remove Timothy Geithner after reports surfaced that he unabashedly failed to follow his directive to break up Citi. We have now learned that he cut private tax deals with AIG and other companies to guarantee limited tax liability for nearly a decade. President Obama’s retention of perhaps the most incompetent Treasury Secretary serving during my lifetime leads me to only one conclusion: That the President either tacitly or directly approved of his decisions.

Apr 16

You Love the Bailouts, Didn’t You Hear it on the News?

In an unsurprising yet detestable act of hubris, the Obama administration and its Treasury Department recently held yet another invitation only press briefing for select journalists. Apparently, the marching orders for the press this time around are to communicate to the public that the Bush and Obama reactions to the 2008 financial crisis, when compared to other industrialized nations, averted the cataclysmic disaster suffered by those with far less bold leadership. Assuming the standard is whether or not the United States did a better job of dealing with the financial crisis than say, Spain, then yes, we did a bang up job. If the standard is how we responded to the disaster when compared to say Canada, or Australia, two of the nations most economically and socially similar to the United States, then we butchered the response miserably.

Several journalists in attendance at the briefing were less than convinced that the Obama administration was offering anything new:

On Friday, the Treasury Department convened one of its semi-regular, invitation-only background press briefings for journalists. Senior Treasury officials spoke to us, answered our questions, and showed us a “deck,” which is annoying industry jargon for a Powerpoint presentation. “I just know this is going to be a fucking waste of time—another dog-and-pony show,” another journalist told me on our way into the meeting. The central message of the dog-and-pony show was that the US response to the 2008 financial collapse was pretty effective, especially when compared to how other countries reacted to different crises. The Powerpoint presentation used terms like “bank investment programs,” but what the Treasury gang was talking about was the highly unpopular financial bailouts (as opposed to the auto bailouts, which the Obama team views as a political winner).

This is more of the same old song and dance that the American People have been forced to choke down since 2008. The fable goes something like this: If Citibank or Bank of America were allowed to fail, and trillions of dollars were not directly given and loaned to large financial institutions and foreign investors, the United States economy would have been thrown into an apocalyptic tailspin that would have destroyed the world. The narrative included scare tactics that conflated a failure to funnel funds to the financial sector with the the problems facing Greece and Europe. Moreover, if interest rates were not kept at historically low levels–punishing savers, the elderly, and the middle class–banks would not lend and small businesses would fold in the hundreds of thousands. First, there is not one bit of evidence to back up these claims. Second, even if the claims have some merit, it does not excuse the wholesale disregarding of those most directly affected by the crisis: the people. Certainly something had to be done to stabilize the banking sector and the markets to avert further job losses. However, the contention that Europe suffered more significantly than the United States because it lacked bold leaders taking decisive action is specious at best. The reason Europe suffered to a greater degree was due to its centralized monetary policymaking which lacks a mechanism to tailor monetary policy for each individual member state. It had nothing to do with Timothy Geithner’s brilliance.

Politics is politics, so it would be naive to believe that the Obama administration is not playing to win the game. As such, these press spectacles are business as usual. It is also likely to bear fruit, as major media news outlets long for the “administration official” to agree to appear on its faux news programs, and bucking the administration’s talking points does not serve that end. However, unlike television news, we learned as schoolchildren that a hypothesis must be tested rather than assumed based upon conjecture. There is no evidence to support the notion that the the Bush and Obama administrations acted in such a way that averted the Four Horsemen’s arrival. Nor is there evidence to support the claim that the chosen course was the only means of stabilizing the economy.

Even assuming that the policy choices pursued by the current and past administrations averted a greater recession, it does not excuse the paralysis on jobs and housing. Germany for example has bolstered its recovery by pursuing practical jobs policies. Iceland has implemented a program under which it has forgiven household debt and mortgage debt acquired as part of the fraudulent run-up in housing prices. In the United States, the debts owed and employment problem are no different. Homeowners took on mortgages based upon what they believed to be the fair market value of the home. The value was fraudulent inflated, and therefore much different than a loan in which both parties act fairly and ethically. Politically, debt forgiveness is a win win. In the United States it would stimulate growth and job creation, as greater resources would be thrust into the economy as consumers are freed from the devastation of servicing mortgages, credit cards, and student loans currently absorbing the bulk of earned and Social Security income.

Sadly, debt forgiveness in nowhere on the radar in the United States. The ridiculously unique American belief that that contracts must be honored, even if based on fraud, places some blame for inaction at our own feet. However, the notion has not even be raised seriously by the President. Instead we continue to trudge along on a perfunctory path of half-measures and hope that the large banks will right their wrongs willingly. It is time for sound economic policy that forgives fraudulent debt and incentivises hiring. It is time for creative job training efforts between federal, state, and local colleges, vocational training centers, and employers. It is time for the banks to write-down mortgage debt and deal with customers fairly in return the gargantuan assistance provided by taxpayers. In short, it is time for as change.

Apr 12

No Hope for Hardest Hit Homeowners

A little known housing program ironically named The Hardest Hit Fund was initially established in 2010 in order to assist homeowners in areas hardest hit by the decline in home values and struggling with higher than average unemployment. Accoring to the government website:

In 2010, the Obama Administration launched the Hardest Hit Fund to help homeowners avoid foreclosure in the areas hardest hit by steep home price declines and unemployment. Through the program, participating housing finance agencies (HFAs) in 18 states and the District of Columbia are implementing a variety of different initiatives to help homeowners struggling with their mortgage payments. All participating HFAs are now operating programs widely and offering assistance to homeowners.

The program is administered under TARP by the Treasury Department in conjunction with agencies in the states covered by the fund. The fund initially claimed that it would offer assistance to nearly 500,000 struggling homeowners and was allocated a budget of over $7 billion. However, as of the end of 2011, the Hardest Hit Fund had helped only slightly more than 30,000 individuals and families and spent $217.4 million of its $7.6 billion budget, or 3%. The program is intended to reach homeowners who are unemployed, or living in areas with high unemployment rates or steeply falling home values, but a recent report by a Special Inspector General lambastes the program’s misadventures.

One major flaw in the program noted by an Special Inspector General Christy Romero–separate and apart from administration’s overall disinterest in offering meaningful relief to underwater and struggling homeowners–is that Fannie Mae and Freddie Mac have been slow to cooperate or provide guidance to lenders.

The program was hindered from the start by Treasury’s failure to gain support from the government-controlled mortgage giants Fannie Mae and Freddie Mac, the report says. Many big, private mortgage companies initially refused to participate because they wanted guidance from Fannie and Freddie, it says. The companies, called mortgage servicers, collect people’s monthly payments and foreclose when they fall behind.
“Without large servicers, the (state programs) could not reach a large portion of struggling homeowners,” the report says.

The Treasury Department’s response to the Special Inspector General’s report has been defiance. The department argues that each of the recommendations is unworkable and blames delays at the state level for much of the failure to actually provide assistance. Treasury also notes that the program extends out to 2017 so you know, homeowners will get some help when the department damn well pleases.

Much of the funding that has been spent thus far has also gone to bail-out state unemployment programs and to assist unemployed homeowners. Very little assistance has reached underwater homeowners. Rather, the bulk of the funds have been allocated to the unemployed.

The money was supposed to give state housing officials incentives to come up with new and different ways to address the housing crisis in their states. But most states just used the money for programs that pay the mortgages, insurance and property taxes of the unemployed.

So far, the hardest hit program has kept up with mortgage payments for some 26,100 unemployed homeowners. These programs don’t hit mortgage servicers or banks’ bottom lines, Romero said.

When it comes to relieving housing woes, so far, only 436 homeowners in the program got the principal owed on their mortgage reduced. Another 170 homeowners got their second lien reduced.

A close reading of each of the news accounts shines a light on the continuing and underlying problem of the Obama administration’s homeowner relief programs: a failure to force the banks and Fannie Mae and Freddie Mac to act. A direct consequence of the administration’s failure to take a hard line with the large banks and governmental entities has hindered progress at every turn. The HARP and HAMP programs have suffered from similar ineffectiveness under stifling efforts and inaction from the banking and mortgage sector. President Obama is fond of downplaying struggles to reach perfection in legislation, often reiterating the necessity of compromise in a democracy. In this case however, the programs are administered by his own Treasury Department, and failures are not the result of compromise with Republicans, but a profound unwillingness to force the banks to offer help to homeowners–even in cases where the bank stands to profit–in return for the trillions of tax dollars given to them in the form of direct bailouts and low-interest loans.

It is simply unacceptable for the Treasury Department to push back at the Special Inspector General and offer up disingenuous excuses for inaction. While the department claims that the program sets up long-lasting foreclosure prevention capabilities, that is of little consolation to the thousands who have lost their homes while the administration fetters.

Apr 11

Wells Fargo in Lockup

When corporate profits, conservative tea party values, and corporate political influence intersect, the result is one of the scariest human rights developments within the borders of the United States. Charles Davis, guest blogger at Salon.com recently authored a downright Orwellian piece detailing Wells Fargo’s involvement in the Private Prison Industrial Complex. Wells Fargo, fresh from receiving tens of billions in taxpayer funds has increased its stake in private “private correctional and detention management” behemoth GEO Group. The Florida company, which according to reports filed with the SEC that I uncovered, administers and owns 65 prisons in 34 states across the United States.

As recently as 2011 the company was found to have negligently caused the death of at least one inmate. On June 22, 2011, a jury verdict for $6.5 million was returned against GEO in a wrongful death action brought by the Personal Representative of the Estate of Ronald Sites, a former inmate at GEO’s Lawton Oklahoma Correctional Facility. On August 22, 2011, the court entered judgment against GEO in the amount of $8.4 million. GEO has routinely been accused of using excessive force against inmates, subjecting inmates to substandard health care or refusing care altogether, and creating an environment of indifference to sexual abuse.

Due to recent state budget shortfalls, private prisons have become an attractive and cheap alternative to state run prisons staffed with union employees and the accompanying pensions and health care costs. Preceding the recession, GEO had aggressively lobbied state and federal representatives in an effort to grow its business. GEO and other private detention facilities operate in states with Democratic majorities as well as Republican majorities, and have been awarded lucrative federal contracts from the Bureau of Prisons under both Democratic and Republican administrations. This is not a partisan issue, but rather an issue of money and influence.

Prisons in the United States are often forgotten places where the general public would just as soon not know what takes place or how inmates are treated. The cold hard fact remains that we as a society have taken upon ourselves the responsibility of administering criminal laws and determining when a human being shall have his or her freedom taken away by the government. No matter how terrible or innocuous an individual crime may be, we must together ensure that punishment and rehabilitation be administered in such a way as to remain consistent with our underlying principles. We lost our way in extraordinary fashion following the attacks of September 11, 2001, legalizing torture and privatizing some of the most important functions of government, but we must not allow the mistakes of the military, the FBI and CIA to become the norm within our domestic prisons. We can not contract away our responsibility to safeguard human rights. As such we bear the responsibility of requiring that prison facilities function as professional facilities under an agreed upon set of rules. We must ensure proper access to the courts should the rules be violated. Corporate lobbying power must not overcome the responsibility of state and federal legislators to ensure that our prisons are free from lawless chaos and penny-pinching, whether it be inmate on inmate crime, officer on inmate crime, or institutionalized corporate crime. Saving a dollar is not worth losing our collective soul.

Apr 11

Tax Day 2012

The good folks over at the National Priorities Project have published their 2011 report detailing where your tax dollars were spent last year. The federal government had in the past issued its own report each year to the public in which in included the identical information. However, George W. Bush determined in 2002 that the people did not need to know where their tax dollars went.

As you can see from a quick view of the report, our tax dollars are clearly not being allocated in such a way as to reflect the priorities of the majority of Americans. For example, nearly 32% of each tax dollar funds the military and military benefits, while 1% funds science, and 2.5% funds education. The so-called “bloated” government of Republicans and the recently scared-straight Democrats sucks up an earth shattering 4.5% of each tax dollar.

The site is well designed and includes a host of interactive and educational features, including an application that allows anyone to see precisely where their tax dollars were spent based on individual taxes paid. It includes an interesting application in which you can design your own budget. The organization also maintains staggering amounts of data that you can search through and customize. There are also several articles on the subject of taxes, revenues, and our national priorities. I recommend that you check it out.

On April 10, 2012 Ian Masters talked to Mattea Kramer, a senior research analyst at the National Priorities Project. His interview is below.

Audio clip: Adobe Flash Player (version 9 or above) is required to play this audio clip. Download the latest version here. You also need to have JavaScript enabled in your browser.

Apr 11

Obama Hits a High Note

Every once in while President Obama reminds us all why we were so hopeful in late 2008. While regularly according lip service to the middle class and castigating bankers immediately prior to retreating into conference rooms to cut deals that aggrieve the middle class and reward bankers, he occasionally makes a point so eloquently that it is worth publishing. In a recent speech in support of the Buffet Rule–a change in the tax code requiring the wealthy to pay a minimum income tax rate of 30%–he succinctly made the case for investments in the middle class.

If we’re going to keep giving somebody like me, or some of the people in this room, tax breaks that we don’t need and can’t afford, then one of two things happens. Either you’ve got to borrow more money to pay down a deeper deficit, or you’ve got to demand deeper sacrifices from the middle class, and you’ve got to cut investments that help us grow as an economy.

You’ve got to tell seniors to pay a little more for their Medicare. You’ve got to tell the college student, `We’re gonna have to charge higher interest rates on your student loan, or you’re going to get smaller student loans.’ You’re going to have to tell that working family that’s scraping by that they’re going to have to do more because the wealthiest of Americans are doing less. And that’s not right. The middle class has seen enough of its security erode over the last few decades. And we shouldn’t let that happen.

We’re not going to stop investing in the things that create real and lasting growth in this country, just so folks like me can get an additional tax cut. We’re not going to stop building first class schools and making sure that they’ve got science labs in them. We’re not going to fail to make investments in basic science and research that could cure diseases that harm people or create the new technology that ends up creating entire industries that we haven’t seen before.

With each passing day the argument that tax inequality and wage unfairness moves closer and closer to playing a substantive and important role in the November election and beyond. It is quite possible that the occupy movement, the 99% Spring movement, and other collateral progressive grassroots movements across the country will  make it untenable for even the most duplicitous of politician to ignore the importance of economic fairness. I certainly hope so. It would certainly be refreshing to live in a time in  American politics when the middle class conclusively annihilates the practice of voting against its own interest.

Ironically, if the Republican Party somehow manages to retake the United States Senate and maintains a controlling position in the House of Representatives, they could find themselves governing during a period of extreme unrest concerning the economic path of the country. Economic injustice generally, real wage stagnation, retirement insecurity, tax inequality, Social Security, Medicare, unemployment insurance, health benefits, increased demands on worker productivity could each become primary issues in 2013  and beyond. Republicans would be forced to either repudiate their ever shrinking ultra-conservative base or face the prospect of defeat. Democrats would be forced to return to the progressive policies they have so long ignored.

The Buffet rule is polling well, but it will not alone carry Obama to reelection. The true test is whether or not the American people will ultimately abandon the failed economic policies of both parties and fight back, sending each politician packing who fails to understand that we will not be bullied by corporations, Wall Street and special interests any longer.

Apr 11

Oil Speculation

I have written on the subject of oil speculation before, here, and here. Kendaleth C. VanLue, a guest blogger over at Think Progress published a piece today in which he lays out each of the recent indicators that oil speculation on Wall Street in indeed driving up the price of oil, affecting gasoline prices and heating oil dramatically.  Shippers, parcel delivery companies, and airlines among other trade groups have repeatedly called on the administration to crack down on the practice, or at the very least open investigations. Experts have offered testimony to Senate and House leadership. However, other than veiled threats in recent stump speeches from President Obama, there has been no action from the Department of Justice or the CFTC.

The article lays out a sample of recent indicators of rampant oil speculation:

Think Progress has links to the data to back up each of the indicators.

Apr 10

More Compromise at Your Expense this Fall

Most experts are predicting that the House of Representatives and the Senate are unlikely to change hands this November. Rather both houses are predicted to be even more closely divided than they are today. The vast majority of Americans falsely believe that in electing a President and a Congress controlled by opposing parties, that the ensuing compromise will assure that extreme policies are not pursued. While it is true that a divided Congress and Presidency drives compromise, as the two parties become more and more beholden to special interests, the compromise ultimately helps neither rank and file Democrats or Republicans.

The most glaring example is the recently passed, and signed, JOBS Act, which in effect decriminalizes and deregulates pump and dump schemes and incentivizes false advertising claims with regard to “emerging” businesses seeking to go public. The ultimate effect will be to hurt the very small businesses it seeks to assist by engendering skepticism of legitimate offerings. The recent past is replete with examples of dangerous comrpomise, from the deregulation of derivatives markets, the dismantling of the barrier between banks and investment houses, the Patriot Act, to more recently the automatic deficit reducing measures or “sequester” negotiated as part of 2011′s debt ceiling negotiations. None of these measures is in the interests of every day Americans. In fact each works directly against our common interests. Ironically each was passed with much fanfare and propaganda lauded as great bipartisan successes.

If the predictions surrounding this November’s election hold true, and I have no reason to believe otherwise, the American public should expect more of the same. Without a third-party or non-partisan movement pushing one or both of the parties to consider the interests of the public, nothing will change. If such a movement held a small block of seats in the Congress, our position would have to be resolved before legislation could be passed and sent on to the President. If incumbents feared defeat due to our refusal to vote predictably, we would have real power. While it is certainly true that we are likely to see much more wrongheaded myopic policies under a Republican President and Congress than under a divided government or a government controlled by Democrats, the policies would not be as far to the right as one might expect. It is no difficult task to propose nonsensical policies appealing to your base when you have no chance of ever actually enacting the policies. Once in power, reelection becomes job number one, and dismantling Medicare and Social Security would soon be off the table.

 

Apr 09

Conservatism is Easy

Keep RightFresh on the heels of a recent study from Brock University in Ontario, Canada that found that conservative beliefs and racism tend to occur in individuals with lower intelligence and cognitive ability, a research abstract released on March 16, 2012 by Scott Eidelman and his research team at the University of Arkansas found that low effort thinking leads to conservative beliefs. The British Psychological Society summarized the findings, which included among other things, that the less time or mental effort a person puts into thinking about an issue, the more likely they are to espouse a politically conservative perspective.

Across four studies, the researchers examined the effects on political attitudes of four different ways of reducing mental effort. This included: surveying drinkers at varying degrees of intoxication at a local bar; allocating some participants to a dual-task condition where they had to keep track of auditory tones at the same time as registering their political attitudes; allocating some participants to a time-pressured situation, in which they had to rate their agreement with different political statements at fast as possible; and finally, giving some participants the simple instruction to respond to political statements without thinking too hard.

The results were consistent across the studies – being more drunk, being distracted by a secondary task, answering under time pressure and answering without thinking, all led participants to agree more strongly with politically conservative beliefs, such as “A first consideration of any society is the protection of property rights” and “Production and trade should be free of government interference.” Agreement with liberal beliefs were either reduced or unaffected by the measures. The researchers checked and the effects they observed were not due to differences in the complexity of the statements used to measure political conservatism and liberalism, nor were they due to changes in mood or frustration associated with the interventions.

The finding that reduced mental effort encourages more conservative beliefs fits with prior research suggesting that attributions of personal responsibility (versus recognising the influence of situational factors), acceptance of hierarchy and preference for the status quo – all of which may be considered hallmarks of conservative belief – come naturally and automatically to most people, at least in western societies.

“Our findings suggest that conservative ways of thinking are basic, normal, and perhaps natural,” the researchers concluded. “Motivational factors are crucial determinants of ideology, aiding or correcting initial responses depending on one’s goals, beliefs, and values. Our perspective suggests that these initial and uncorrected responses lean conservative.”

Follow-up research will apparently include a study to determine the best way for Mr.Eidelman and his team to escape Arkansas safely once word of the research findings is made public.