Later On

Steve Benen:

Republican leaders, taking their cues from a pollster’s strategy memo, began trying to characterize the Wall Street reform as a "bailout" bill. It’s obvious the argument was a lie. It was equally obvious the GOP didn’t care.

As I noted the day after Mitch McConnell started pushing it, the lie doesn’t have to make sense; it doesn’t have to withstand scrutiny; it doesn’t even have to be persuasive. It just has to be repeated enough to muddle the debate.

With that in mind, consider the remarks made this morning by Rep. Mike Pence (R-Ind.), chairman of the House Republican Conference. See if you can pick up on the theme.

"The American people are tired of runaway federal spending, borrowing and bailouts. The legislation being considered by the Senate, which passed the House, is nothing but a permanent bailout and House Republicans are determined to oppose it. Last week, some Democrats said there wasn’t a permanent bailout in this bill. Other Democrats, by the end of the week, said there was a permanent bailout fund in the bill. This may be one of those instances where the left hand doesn’t know what the left hand is doing.

"The truth is, the American people are not deceived here. They see that what’s being passed under the cloak of financial services reform is nothing more than making permanent the Wall Street bailouts that passed, a year and a half ago, in the form of the TARP. House Republicans are determined to bring about financial services reform that begins with ending the era of bailouts."

The transparency of the lie is arguably the most galling aspect. Pence, like McConnell, is lying. But what’s almost impressive about it is the shamelessness — everyone, including Pence, already knows the claim is demonstrably wrong, but he’s decided this is no time for pesky details like facts. There’s an argument to win. Pence is no doubt aware that fact-check pieces will expose his argument as ridiculous, but he’s willing to take that risk. His base won’t mind, and the media probably won’t call him on it anyway.

Before Republicans had even seen the bill, Luntz picked the lie, and urged GOP officials to repeat it, even if it didn’t make any sense. Mike Pence is making clear that Republicans found this advice compelling.

What’s more, Matt Yglesias thinks it’s a strategy that will likely prove to be effective.

The overwhelming evidence is that the media gets bored with these fact checks very quickly and that if you just put your head down and charge forward, you come out a couple of weeks later back into "he said, she said" territory. The only real test for whether or not lying works is whether or not you can bring your ideological fellow-travelers along. Will Rush Limbaugh and Sean Hannity and Glenn Beck echo your line? Will the Weekly Standard and National Review? Will the bulk of your legislative caucus? The answers are yes, yes, and yes.

Which, in a nutshell, is why our political discourse can be so mind-numbing — Republicans believe they have an incentive to lie with impunity.

And, of course, they’re lying so that Wall Street can pull more lucrative swindles, and they’re lying because Wall Street gave them a great deal of money. One despairs.

From the Center for American Progress in an email:

"We cannot let the narrow interests of a few come before the interests of all of us," President Obama said last year in a call for "an overhaul of U.S. financial regulations." Buoyed by success in the long battle to pass comprehensive health care reform behind them, Congress has set its sights on reining in Wall Street’s recklessness and providing new protections for consumers, reducing risk, and increasing transparency. The bill introduced by Senate Banking Committee chair Chris Dodd (D-CT) "would create a new consumer protection bureau within the Federal Reserve to guard against lending abuses," "create oversight of the enormous derivatives market,"and "give the government authority to wind down large, troubled financial institutions in an orderly way." If institutions that are "too big to fail" repeat the kind of disastrous behavior that sent the global economy into a tailspin in 2008, "the Senate bill gives the government the authority to wind down the firm with no exposure to the taxpayer," Treasury Secretary Timothy Geithner described. "No more bailouts. Instead, we will have a bankruptcy-like regime where equityholders will be wiped out and the assets will be sold." The legislation’s wind-down provisions are similar to the insurance fund and resolution authority that the FDIC has to safely shut down smaller banks, and the fund is paid for by big banks, not taxpayers. Since September, Dodd has tried to work with committee Republicans Richard Shelby (AL) and Bob Corker (TN) to find bipartisan consensus. However, as a vote grows near, Republicans have been on the attack. Last week, Senate Minority Leader Mitch McConnell (R-KY) declared his opposition to the financial reform bill, claiming that it "institutionalizes…taxpayer-funded bailouts of Wall Street banks" and would give the Federal Reserve "enhanced emergency lending authority that is far too open to abuse."

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Joe Conason in Salon:

With Senate approval of crucial banking reform legislation increasingly in doubt, it is all too clear that the felonies and blunders of the world’s financiers have done nothing to reduce their political domination. Even UBS, the Swiss banking giant that pleaded guilty last year to abetting tax evasion and paid a $780 million fine, can still put in the fix, according to Bradley Birkenfeld, the former UBS banker who helped to expose the tax-avoidance scheme. In recent interviews with the New York Daily News and Reuters, Birkenfeld claimed that U.S. political figures are among secret UBS clients whose names were supposed to be turned over to IRS and Justice authorities in a settlement of federal charges against the bank last year. He says that’s why he is the only UBS employee currently doing time in an American prison, although he has assisted the U.S. government in recovering billions of dollars from crooked UBS clients –  of whom thousands came forward last year under an IRS amnesty program.

With considerable justification, Birkenfeld has complained bitterly about his treatment by the government for many months and tried to have his sentence reduced last winter. Now seeking clemency from President Obama, Birkenfeld insists that UBS friends in high places are still using their clout to protect the bank and its clients from the full consequences of its covert war against the Treasury. The ex-banker told Reuters that is why only he, among dozens of UBS bankers and clients implicated in the enormous scheme, is currently incarcerated at a federal facility:

"Where are all the people that are politically connected in Washington that had accounts at UBS?" Birkenfeld asked. "I’m telling you this is a political cover-up. Why is it that the whistleblower is the only guy in jail? I mean, this is insanity," he said.

Stephen Kohn, the executive director of the National Whistleblowers Center who is serving as one of Birkenfeld’s attorneys, described the political power of UBS as "massive," because the bank has "purposely put in high place politicians or former politicians." Of course, the most notorious politician associated with UBS is former Texas Sen. Phil Gramm, the firm’s vice chairman, who became a severe embarrassment to his old pal and Republican presidential nominee John McCain in 2008.

Many observers have wondered why Gramm, whose wife, Wendy, was once an ornament to the board of Enron Corp., continues to be employed by the Swiss. But perhaps he is there to remind the senators and representatives he left behind on Capitol Hill how rewarding retirement can be for politicians who take care of the banks.

Amplifying Birkenfeld’s accusations are the millions of dollars that UBS distributes regularly from Basel and Lugano to Capitol Hill. Amazingly,many politicians who claim to represent the public interest take this money. Ken Silverstein, who has diligently followed the economic and political depredations of UBS for years, asked the most pertinent question long ago: Why would any decent elected official in this country still accept a dime from this outfit?

Nick McKenzie and Rafael Epstein in The Age, in Victoria, Australia:

Police has called for sweeping changes to the way Melbourne’s Catholic Church deals with sex crime allegations, as The Age reveals that only one priest has been defrocked for abuse in the past 14 years.

Nearly 300 allegations of sexual abuse have been substantiated by church investigations since 1996, when the ”Melbourne Response” was set up to deal with complaints. It is believed the abuses were perpetrated by approximately 100 priests, a figure the church will not confirm. Just one priest has been defrocked as a result. Some other priests lost their role serving a parish full-time.

Church sources say police are pushing for change because they do not want accused priests told about covert criminal investigations. Last year detectives feared the church’s independent commissioner, Peter O’Callaghan, QC, may have compromised two covert investigations when he told two priests, through their lawyers, that they were being investigated. He did this without the consent of detectives, who had not yet interviewed the priests. Mr O’Callaghan’s investigation is suspended when police begin theirs – and he argues that priests have a right to know.

Police – and some within the church – also want more direct support for abuse victims.

Police intervened after five victims last year told The Age they had concerns about the church’s handling of their complaints.

The Age can now reveal that in August last year Mr O’Callaghan told an alleged victim that his alleged groping by a priest was unlikely to constitute a crime. In a letter he said: ”Without seeking to dissuade you from reporting the matter to police if you so desire, I must say that the conduct you described is unlikely to be held by a court as criminal conduct.”

Weeks later, police immediately assessed the same complaint as a potential sexual assault. They began an investigation and if the claim is proved it will constitute serious criminal conduct. When asked by The Age about that letter, Mr O’Callaghan refused to comment, citing ”potential court proceedings”.

Mr O’Callaghan is paid by the church to inquire into allegations of clerical abuse, interview victims and the accused priests, and make findings on abuse claims. The findings are used by the church to gauge financial aid for victims…

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Interesting review by Meredith Hindley of a new book on Napoleon’s Russian campaign:

"Brave descendents of courageous Slavs! You always smashed the teeth of the lions and tigers who sought to attack you. Let everyone unite: with the Cross in your hearts and weapons in your hands no human force will defeat you." With these words, Tsar Alexander I appealed to the Russian people to join the fight against Napoleon’s Grande Armée, which began pouring into Russia at the end of June 1812.

Much has been written about how and why Napoleon came to lose more than a half-million men in the Russian invasion. Hitler and his generals even studied the ill-fated campaign hoping to avoid making similar mistakes. But missing from Western scholarship on the Napoleonic Wars is a full-fledged account of how Russia came to smash Napoleon. With Russia Against Napoleon: The True Story of the Campaigns of War and Peace, Dominic Lieven, one of the preeminent scholars of 19th-century Russia, aims to fill the void, tackling not only the French invasion of 1812, but also the battles of 1813-1814. What sets Lieven’s book apart from the handful of other accounts is his prolific use of Russian sources, particularly regimental histories available to Western researchers only since 1991.

After Napoleon destroyed the Russian army at Austerlitz in 1805 and drove the Russians out of Poland, it was only a matter of time before another showdown occurred between the two powers. Russia was unhappy about losing Poland and being compelled to adhere to the Continental System, which circumscribed Russia’s ability to trade, to the detriment of its economy. Faced with economic collapse, Tsar Alexander I decided to ignore France’s blockade against Britain. Napoleon, who abhorred disloyalty, vowed to make Russia see the error of its ways.

Intelligence collected by Russian agents working in Paris in 1810, as well as military intelligence gathered in 1811, suggested that Napoleon wanted a quick, decisive victory. Alexander and Minister of War Mikhail Barclay de Tolly refused to give Napoleon the war he wanted. Instead, they made plans for a long defensive war — one that would last at least two years or more. Initially avoiding a big battle, the Russian army would systematically retreat further into Russia, drawing out and weakening French supply lines. As Alexander explained to Prussia’s Frederick William III: "This system is one which has brought victory to Wellington in wearing down the French armies, and it is the one which I have resolved to follow." Adopting this strategy also meant forsaking Austrian and Prussian support. Russia would have to go it alone.

The Grande Armée began crossing the Neman River into Russia in late June 1812, but it would take Napoleon more than two months to force engagement with the retreating Russians. At the Battle of Borodino on Sept. 7, …

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John Cook at Skeptical Science:

A common skeptic argument is that climate has changed naturally in the past therefore humans aren’t causing global warming now. Interestingly, the peer-reviewed research into past climate change comes to the opposite conclusion. When I try to explain why to people, I usually get blank, confused stares. I gave a presentation to a roomful of engineers this week and after explaining the significance of past climate change, complete with slides of climate sensitivity PDFs and examples of positive feedbacks, the result was a long, silent pause. I asked if anyone understood what I’d just talked about. A few asked some follow-up questions which made it clear they didn’t. So I’m reworking my whole explanation of past climate change in an attempt to make it as clear and simple as possible. Comments, particularly on anything confusing or unclear, are welcome!

In the past, climate has changed, sometimes very dramatically. This has gone on long before SUVs and coal fired power plants. If climate can change on its own, couldn’t current global warming be natural as well? To answer this, first you have to ask why climate has changed in the past. It doesn’t happen by magic. Climate changes when it’s forced to change. When our planet suffers an energy imbalance and gains or loses heat, global temperature changes.

This can happen in a number of ways. When the sun gets brighter, the planet receives more energy and warms. When volcanoes erupt, all the particles suspended in the atmosphere reflect sunlight and the planet cools. These effects are referred to as external forcings because by changing the planet’s energy balance, they force climate to change.

Looking at the past gives us insight into how our climate responds to external forcings. Using ice cores, we can work out past temperature change, the level of solar activity plus the amount of greenhouse gases and volcanic dust in the atmosphere. From this, we can determine how temperature has changed due to past energy imbalances. What we have found, looking at many different periods in Earth’s history, is that when the Earth gains heat, positive feedbacks amplify the warming. This is why we’ve experienced such dramatic changes in temperature in the past. Our climate is highly sensitive to changes in heat.

What does that mean for today? Rising CO2 levels are an external forcing. They’re causing an energy imbalance and the planet is building up heat. From Earth’s history, we know that positive feedbacks will amplify the CO2 warming. So past climate change doesn’t tell us that humans can’t influence climate. On the contrary, the past tells us that climate is highly sensitive to the CO2 warming we’re now causing.

Via Andrew Sullivan:

Irisch Moos produced the usual excellent lather, today with the Simpson Persian Jar 2 Super. The Pils, holding a new Gillette 7 O’Clock SharpEdge blade, did a superb job. It is top-heavy, but that turns out to work well: putting the razor mass right behind the cutting edge of the blade. Extremely smooth shaving action, and the result is also quite smooth. I wondered a bit about the blade angle, but it works just fine. Great little razor, thank God (in view of the price).

A splash of New York, and I’m good to go.

I’m now watching Season 1, and I have saved Season 2 (the final season). Season 1 is available on DVD or as Watch Instantly.

Marian Wang at ProPublica:

In a conference call this morning, Goldman Sachs’ co-general counsel Greg Palm said the firm was “somewhat surprised” by the SEC’s civil suit last week, since “no one had told us in advance.” Typically, when the SEC files a lawsuit, it gives companies advance notice, so they can either settle the case quickly or brace themselves for a PR hit. In this case, the SEC didn’t give Goldman the courtesy.

But far from being completely blindsided, the firm has known about the potential for civil charges since July 2009, when the SEC first gave the bank a warning known as a Wells notice. While the investment bank felt the Wells notice warranted a 49-page defense and then 20 more pages of supplemental documents that it submitted to the SEC, Goldman Sachs made no mention to shareholders of the possibility of legal action against the firm.

Why not? Once again, it goes back to the concept of “materiality.” Was an investigation into possible fraud “material” information for shareholders making investment decisions?

Apparently not in Goldman’s view. Bloomberg News reports that in Goldman’s 2009 annual report filed last month, the company recycled language “used in the previous year’s report to describe regulatory probes involving securities linked to subprime mortgages.” That language makes no mention of the Wells notice, makes no mention of the meeting that Goldman had with the SEC following the Wells notice, makes no mention of the almost 70 pages of documents Goldman’s lawyers sent the SEC to defend the bank on the very issue it’s now being sued over. Here’s what the company disclosed in its 2009 annual report, unchanged from the year before:

“GS&Co. and certain of its affiliates, together with other financial services firms, have received requests for information from various governmental agencies and self-regulatory organizations relating to subprime mortgages, and securitizations, collateralized debt obligations and synthetic products related to subprime mortgages. GS&Co. and its affiliates are cooperating with the requests.”

As we’ve pointed out, materiality is a cloudy subject, and the SEC doesn’t spell out that a Wells notice must be disclosed.

But what Goldman felt wasn’t “material” was judged to be material by many other companies. Michelle Leder at Footnoted.org, a business blog run by the research company Morningstar, points out that many of Goldman’s peers in the investment banking world had felt Wells notices were material, and had disclosed when they received them: …

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Martin Wolf in Financial Times:

Can we afford our financial system? The answer is no. Understanding why this is so is a necessary condition for evaluating ideas for reform. The more aware of the risks one is, the more obvious it becomes that radicalism is the safer option.

People pay too much attention to the direct cost of bail-outs. As Andrew Haldane of the Bank of England, author of several brilliant papers on the crisis, has noted, these costs may be around 1 per cent of gross domestic product in the US and UK. The costs that matter, however, are those of the recession and the huge jump in public debt. If only a quarter of the world’s loss of output during the recession were to prove permanent, the present value of these losses could be as much as 90 cent of annual world product.

How did this happen? Quite simply, the financial sector has become bigger and riskier. The UK case is dramatic, with banking assets jumping from 50 per cent of GDP to more than 550 per cent over the past four decades. Capital ratios have fallen sharply, while returns on equity have become higher and more volatile. As Mr Haldane notes in another paper, leverage is the chief determinant of returns on equity and increased leverage also explains the level and volatility of banking returns. Finally, the banking sector has also become substantially more concentrated. (See charts.)

Mr Haldane bemoans “a progressive rise in banking risk and an accompanying widening and deepening of the state safety net”. This is a “Red Queen’s race”: the system is running to stand still with governments racing to make finance safer and bankers creating more risk. The route was via liquidity, deposit and capital insurance. Mr Haldane notes that rating agencies value government support for banks. Government support must surely provide a part of the explanation for the low yields on bonds issued by these massively leveraged businesses (see chart).

The combination of state insurance (which protects creditors) with limited liability (which protects shareholders) creates a financial doomsday machine. What happens is best thought of as “rational carelessness”. Its most dangerous effect comes via the extremes of the credit cycle. Most perilous of all is the compulsion upon the authorities to blow another set of credit bubbles, to forestall the devastating impact of the implosion of the last ones. In the end, what happens to finance is not what matters most but what finance does to the wider economy.

Does today’s engorged financial system produce gains that justify these costs? In a recent speech, Adair Turner, chairman of the UK’s Financial Services Authority,argues it does not. Financial systems are important servants of the economy, but poor masters. A large part of the activity of the financial sector seems to be a machine to transfer income and wealth from outsiders to insiders, while increasing the fragility of the economy as a whole. Given the extent of the government-induced distortions in the system, even the fiercest free marketeer should accept this. It is hard to see any substantial benefit from the massive leveraging up of the economy and, above all, the real estate sector, that we saw recently. This just created illusory gains on the way up and real pain on the way down.

As Mr Turner notes, the promise of securitisation has turned out to be partly illusory. Arguments used in its favour – “market completion” and the ability to extend credit more widely – look highly questionable. Particularly striking was the failure of the credit default swap market to give any forewarning of the financial crisis (see chart). At bottom, the invention of complex securities hugely exacerbated the information and incentive problems inherent in complex financial systems. Even the frequently heard argument that more market liquidity is better than less is far from unimpeachable: it exacerbates rational carelessness…

Continue reading. Graphs at the link.

From Discover:

It’s been two months since we last heard from the court case engulfing Lower Merion School District in Pennsylvania, but the circumstances there keep getting stranger.

Back in February, the family of sophomore Blake Robbins filed suit against the school, charging that administrators had remotely accessed the webcams on Apple laptops loaned out to students to take pictures of students in their homes. Now, after two months of investigation, the family’s lawyers have expanded the case by claiming the school actually took thousands of photos. Some of the images included pictures of youths at home, in bed or even “partially dressed,” according to a Thursday filing in the case [Wired.com].

School board president David Ebby called the motion “a vehicle to attack the District,” but he also acknowledged “mistakes and misguided actions that have led us to this situation.” Ebby conceded that the school-issued laptops had taken a “substantial number of webcam photos,” and said it had proposed to Judge DuBois that families of students who appear in those photographs be notified and given the chance to view the images [Computer World]. To that end, DuBois on Wednesday ordered people involved in the case to stop any further dissemination of the photos or screen shots until the parents whose children had been photographed are notified. Ebby promised to begin the process shortly.

In the Robbins’ newest motion, their attorney Mark Haltzman took aim in particular at Carol Cafiero, the school district’s technology coordinator, calling her a possible “voyeur” and asking for access to her personal computers to hunt for further evidence. To support the charge, he cited her response to an e-mail from a colleague who said viewing the webcam pictures was like watching “a little LMSD soap opera.” “I know, I love it!” Cafiero allegedly replied [PC World]. Cafiero’s representatives maintain that she  turned on the remote access to student laptops only when ordered by school administrators. However, Haltzman says that Cafiero invoked the Fifth Amendment in response to every question in her deposition.

The Lower Merion saga started when school administrators tried to discipline Blake Robbins on accusations of undisclosed bad behavior. That “behavior” turned out to be pill popping. The family said their son was eating Mike and Ike candy [Wired.com]. A few days later the school admitted to activating the webcams 42 times, but only in response to possibly lost or stolen computers. This new motion alleges that the school’s secret surveillance went far beyond that.

Kevin Drum at Mother Jones:

Over at the Climate Desk, Clive Thompson writes that although politicians can posture and bleat about climate change denialism without fear of paying a price, the business community doesn’t have the same luxury:

This makes capitalism a curiously bracing mechanism for cutting through ideological haze and manufactured doubt. Politicians or pundits can distort or cherry-pick climate science any way they want to try and gain temporary influence with the public. But any serious industrialist who’s facing "climate exposure" — as it’s now called by money managers — cannot afford to engage in that sort of self-delusion…. Consider, as one colorful example, the skiing industry. Beginning 10 years ago, the Aspen Skiing Company began noticing that European ski lodges were being slowly destroyed by warmer weather. Europe’s ski resorts tend to be located on lower mountains — about 6,000-8,000 feet high, compared to American peaks up around 11,000 feet — so they’re vulnerable to even extremely tiny increases in global temperature. The 2 percent temperature rise in the 20th century was enough "to put a lot of them out of business," says Auden Schendler, executive director of sustainability for Aspen Skiing, which operates two resorts spread across four mountains.

But now Aspen’s own season is getting shorter: "More balmy Novembers, more rainy Marches," Schendler says. "That’s what we’re seeing, and that’s what the science suggests would happen. If you graph frost-free days, there are more and more in the last 30 years." Climate-change models also predict warmer nights. Aspen Skiing has noticed that happening too, and the problem here is that nighttime is when ski lodges use their water-spraying technology to make snow — "and if you make it when it’s warmer it’s exponentially more expensive." The increasing volatility of weather overall — another prediction of climate change — poses a particular danger for ski resorts, because they operate in the red most of the year, making up their deficit during the busy spring break in March. So if the weather is terrific for the entire winter but suddenly balmy during March break, that can ruin the whole fiscal year.

So what is this "Climate Desk" thing, anyway? It’s a new collaboration between the Atlantic, the Center for Investigative Reporting, Grist, Mother Jones, Slate, Wired, and the new PBS current affairs show "Need to Know." And it’s dedicated to reporting on climate change. But you probably already figured out that part. It’s kicking off with a two-week series of pieces about how businesses are adapting to climate change that includes both Thompson’s article and a piece by Felix Salmon explaining why business adaptation isn’t even more widespread.

The main site is here. The RSS feed is here.  Or you can follow us on Twitter at theclimatedesk.

Steve Benen:

Sounds like a good message to me.

Senate Majority Leader Harry Reid released a statement today accusing Sens. Mitch McConnell and John Cornyn of holding a "secret, closed-door meeting with Wall Street executives" this month.

"Senators McConnell and Cornyn should immediately reveal what they discussed earlier this month during secret, closed-door meeting with Wall Street executives in New York City. Years of greed and excess on Wall Street cost 8 million jobs and trillions in wealth for middle-class families and small businesses. Since Republicans appear to be conducting backroom negotiations with these same people who took our economy to the brink of collapse, the public deserves to know what secret deals and carve-outs Republicans are offering Wall Street executives in exchange for their support."

The Senate Minority Leader clearly didn’t want to talk about his closed-door meeting with hedge fund managers, bankers, and Wall Street elites when he appeared on CNN yesterday, so it makes sense that Reid would keep pressing this point.

For its part, the White House is on the same page. It’s latest talking points hammer the point home:

As is the case with most major reforms, the special interests and lobbyists that stand to profit from the status quo, as well as their allies in Washington, are fighting to block or weaken this bill. We’ve seen Republican leadership meet with Wall Street executives to discuss ways to block progress on this important issue. And the Senate Republican Leader has taken to using talking points drafted by a pollster with Wall Street clients to say that these reforms will enable future bailouts.

In related news this afternoon, Maine Sen. Susan Collins (R) announced that she will refuse to allow the Senate to even begin a debate on Wall Street reform. Collins met with Treasury Secretary Tim Geithner about the bill, but told reporters after the meeting that unless the bill is "bipartisan," she will reject an effort to begin consideration of the legislation on the Senate floor. What kind of substantive changes does Collins have in mind that would convince her to let the Senate at least start debating the bill? She hasn’t said.

Remember, Susan Collins is one of the "moderates" in the Republican Party. In other words, she’s ostensibly someone Dems can work with in good faith. So much for that idea.

Mary Bottari at PRWatch.org:

One of the most salient analogies of the financial meltdown was offered by Financial Crisis Inquiry Commission chair Phil Angelides when he grilled Goldman Sachs CEO, Lloyd Blankfein, over the firm’s unsavory proprietary trading. Angelides was questioning Goldman’s practice of minting toxic, mortgage-backed securities and badgering credit-rating companies for the highest rating for those securities, while betting in the market that those securities would later fail.

Angelides likened this business practice to “selling someone a car with faulty brakes and then taking out an insurance policy on the driver.” With Friday’s Securities and Exchange Commission (SEC) filing of civil fraud charges against Goldman Sachs, we learned more about those faulty vehicles. We learned that Goldman had cut the brakes.

How the Scam Worked

The SEC charged on Friday that officers of Goldman had allowed notorious hedge fund manager John Paulson, of Paulson & Co, to deliberately select a cluster of mortgage bonds that he thought would fail. These bonds were then bundled into a “synthetic collateralized debt obligation” (CDO) which was sold to investors. (For the best explanation of this see Joe Nocera, who is back on the beat at the New York Times.) Paulson did not work for Goldman, but was apparently acting as a client (or co-conspirator), paying Goldman $15 million for the opportunity to hand-pick a toxic investment vehicle.

Synthetic CDOs are among the oddest investment vehicles yet devised. Apparently they were created solely for the purpose of giving people like Paulson a way to bet that the housing market would fail. This all may have been well and good in Lloyd Blankfein’s toxic little world, except that before someone could bet against the performance of the CDO, Goldman first had to find some dupes who thought it was gold.

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Dean Baker in the Guardian:

In the past few months we have learned a number of things about Goldman Sachs.

In February, we found out that it played a central role in helping Greece to hide its government budget deficit from the European Union, the financial markets, and the public at large. Goldman sold complex swaps to Greece in which it paid the Greek government for future revenue streams on items like airport landing fees. This was in effect a loan, but the swap allowed the Greek government to avoid entering the borrowed money on its books as a loan, which would have raised its budget deficit above the euro zone limits. Today of course Greece’s financial meltdown is threatening the stability of the euro.

Then, just last month, Goldman was sued for sex discrimination by a former vice-president who claims that she was put on the “mommy track” after taking a maternity leave. She was fired as she was about to start a second leave. (In fairness to Goldman, Wall Street is still for the most part an all-boys club.)
But the big news is Goldman’s indictment for putting together a collaterised debt obligation (CDO) from mortgage-backed securities that were expected to fail and then marketing it to its clients as a good investment. The central allegation is that in early 2007, hedge fund manager John Paulson recognised that the housing bubble was starting to collapse.

This meant that many mortgages would go bad. The subprime mortgages, in which homeowners had little or no real collateral, and were facing resets to higher interest rates, were especially vulnerable. Paulson worked out a deal with Goldman in which he would pick the mortgage-backed securities that were put into the CDO. Paulson would then bet that the CDO would go bad, by taking out credit default swaps (CDS) on the CDO. A credit default swap is effectively an insurance policy where the issuer makes up a loss if an asset goes bad.

Goldman was left with the other side of Paulson’s deal, finding suckers to buy this huge piece of junk. It would have been hard to find buyers for this CDO if investors knew that Paulson had deliberately constructed it as a piece of junk to short. Therefore, according to the SEC charges, Goldman concealed Paulson’s role in constructing the CDO. Goldman allegedly told investors that the CDO was constructed by neutral parties, rather than letting them know that the assets were picked by a hedge fund manager who was taking a short position.

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Ed Brayton:

The Obama administration and Congress just pushed through a bill forbidding insurance companies from rejecting people based on preexisting conditions. But as the Nation reports, it’s time for the government to apply that rule to the Pentagon, where wounded soldiers are being diagnosed with a "personality disorder" to prevent disability benefits for treatment of the effects of war.

For three years The Nation has been reporting on military doctors’ fraudulent use of personality disorder to discharge wounded soldiers [see Kors, "How Specialist Town Lost His Benefits," April 9, 2007]. PD is a severe mental illness that emerges during childhood and is listed in military regulations as a pre-existing condition, not a result of combat. Thus those who are discharged with PD are denied a lifetime of disability benefits, which the military is required to provide to soldiers wounded during service. Soldiers discharged with PD are also denied long-term medical care. And they have to give back a slice of their re-enlistment bonus. That amount is often larger than the soldier’s final paycheck. As a result, on the day of their discharge, many injured vets learn that they owe the Army several thousand dollars.

According to figures from the Pentagon and a Harvard University study, the military is saving billions by discharging soldiers from Iraq and Afghanistan with personality disorder.

President Obama actually submitted a bill while he was a senator to prohibit the use of PD diagnoses by the military, but it did not pass. And since taking office, he’s done nothing to fix the problem — which he could probably do with an executive order.

"This should have been resolved during the Bush administration. And it should have been stopped now by the Obama administration," says Paul Sullivan, executive director of Veterans for Common Sense. "The fact that it hasn’t is a national disgrace."

On Capitol Hill, the fight is not over. In October four senators wrote a letter to President Obama to underline their continuing concern over PD discharges. The president, almost three years after presenting his personality disorder bill, says he remains concerned as well.

I think Obama should issue an executive order as commander in chief forbidding the practice. The only way that gets changed is if Congress passes a law to overturn it, which he could veto. And Congress wouldn’t dare do so anyway because they’d be perceived as being anti-soldier.

The way America treats soldiers after they go to war is incredibly shameful. There are 200,000 vets who are homeless now, many of them because they’re so screwed up from what they went through that they’ve virtually lost their minds. How about we stop starting wars all the time and spending some of that money on taking care of those whose lives we have destroyed instead.

After taking a break from oversight for 8 years (during the Bush administration), Joe Lieberman is on the job again. What a jerk. Steve Benen:

Wouldn’t you know it, Sen. Joe Lieberman (I-Conn.) has suddenly found he takes administration oversight and subpoena power seriously again. All it took was a Democratic president.

Top senators on the Homeland Security panel subpoenaed the Obama administration for information they said they need for their investigation into last year’s Fort Hood shooting.

Senators Joseph Lieberman, the chairman of the committee, and Susan Collins, its ranking Republican, had said last week they would serve the Pentagon and the Justice Department if they did not receive access to certain witnesses and documents by Monday.

Maj. Nidal Malik Hasan is accused of killing 13 people at the Texas’ Fort Hood last November. Mr. Lieberman, a Connecticut independent, and Ms. Collins, a Maine Republican, say they have been seeking important information — such as Maj. Hasan’s personnel file — from the administration for months.

As far as the administration is concerned, publicly releasing materials related to the Hasan case may jeopardize Hasan’s trial, and officials are more concerned with prosecuting the mass murderer than satisfying Joe Lieberman’s curiosity.

Maybe that’s a compelling explanation, maybe it’s not. But stepping back, I can’t help but notice that Lieberman, as chairman of the Senate Committee on Homeland Security and Governmental Affairs, didn’t start taking his responsibilities seriously until President Obama — the one who helped Lieberman keep his gavel in the first place — took office.

In 2007 and 2008, Lieberman was in the same position, and refused to engage in oversight of the Bush/Cheney administration. Questions arose, for example, into internal White House deliberations from the aftermath of Hurricane Katrina, and senators were prepared to subpoena the administration. Lieberman rejected the effort. When his House counterpart, Henry Waxman, delved into the Pentagon’s propaganda operation, Blackwater’s activities in Iraq, and the controversy surrounding missing emails from the Bush White House, Lieberman chose not to do any oversight at all.

For the entire year of 2007, Lieberman’s first as committee chairman, the Connecticut Independent didn’t launch any proactive inquiries into administration controversies at all. No subpoenas, no hearings, nothing.

But now Lieberman has discovered he wants the White House to give him answers. What a coincidence.

Yesterday’s subpoena requests the documents be made available by next Monday. The administration is expected to ignore the request.

Lots of details. Among them:

What’s new

• Front-facing video chat camera
• Improved regular back-camera (the lens is quite noticeably larger than the iPhone 3GS)
• Camera flash
• Micro-SIM instead of standard SIM (like the iPad)
• Improved display. It’s unclear if it’s the 960×640 display thrown around before—it certainly looks like it, with the "Connect to iTunes" screen displaying much higher resolution than on a 3GS.
• What looks to be a secondary mic for noise cancellation, at the top, next to the headphone jack
• Split buttons for volume
• Power, mute, and volume buttons are all metallic

Read the whole post.

And, of all states, it’s happened in Maryland, the first colony to offer freedom of religion (though, admittedly, only to Trinitarian Christians). Zaid Jilani at ThinkProgress:

Contemporary Family Services, a Maryland-based private foster agency that is “authorized by the state to place foster children with families,” has rejected the application of Tashima Crudup, a former foster child herself, to foster a child.

A social worker who visited Crudup reported that she was “accepting of religious practices other than their own” and was willing “to make arrangements to have a child attend the church of his or her own choice if so requested.” Nevertheless, Crudup’s application was rejected. Why? The agency expressed concern that Crudup does not keep pork in her house due to her Muslim faith:

Almost two decades ago, Tashima Crudup left her grandmother’s home and entered the city’s foster care system, where she learned firsthand what makes a good mother. As she shuffled from family to family beginning at age 8, Crudup encountered some attentive and loving foster parents, while others were unsupportive and constraining. “I always wanted to be a foster parent,” said the 26-year-old mother.

In July, Crudup — a practicing Muslim — contacted Contemporary Family Services, a private company authorized by the state to place foster children with families. She cleared an initial screening process and completed 50 hours of training classes for prospective parents. But after a home visit, her application was denied. The main reason: She doesn’t allow pork in her house.

In a letter addressed to Crudup, the company says that, although it respects her “personal/religious views and practices,” it also wants to “ensure that the religious, cultural and personal rights of each foster child” they place are upheld.

In an editorial, the Baltimore Sun responds, “There are thousands of kids across the state who desperately need stable homes and loving caretakers; that’s what foster care and adoption officials should be focusing on, not on which meat dish gets put on the table every night.”

The ACLU of Maryland, which has taken up Crudup’s case, is suing Contemporary Family Services and alleging anti-Muslim bias. “I have a hard time believing [the company] denies every vegetarian or Orthodox Jewish person a foster care license,” said Ajmel Quereshi, an attorney with the ACLU. The state’s Department of Human Resources (DHR), which gave the foster agency its contract to administer fostering services, has suggested that the company is violating the law. “The law does not permit the agency to make a determination solely on the type of food served in a home,” said DHR spokeswoman Nancy Lineman. (HT: Angry Mouse at DailyKos)

What’s particularly weird is that Baltimore, for example, has a large Jewish population (no pork in the house). I wonder at this agency.