Later On

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Archive for the ‘Obama administration’ Category

SEC ignored whistleblower on Madoff, now ignoring two more whistleblowers

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One problem is that Obama decided that the best person to be in charge of the SEC is a Wall Street defense lawyer whose livelihood is protecting Wall Street firms, a position to which she will undoubtedly return once her term as SEC chair is over, much as Eric Holder returned to his Wall Street law firm once his term as Attorney General was over, a term that included zero indictments of Wall Street criminals. (These are examples of how the game is rigged, in this instance with Obama’s cooperation.)

Pam Martens and Russ Martens report in Wall Street on Parade:

Last night ABC began its two-part series on the Bernie Madoff fraud. Viewers will be reminded about how investment expert, Harry Markopolos, wrote detailed letters to the SEC for years, raising red flags that Bernie Madoff was running a Ponzi scheme – only to be ignored by the SEC as Madoff fleeced more and more victims out of their life savings.

Today, there are two equally erudite scribes who have jointly been flooding the SEC with explosive evidence that some Exchange Traded Funds (ETFs) that trade on U.S. stock exchanges and are sold to a gullible public, may be little more than toxic waste dumped there by Wall Street firms eager to rid themselves of illiquid securities.

The two anonymous authors have one thing going for them that Markopolos did not. They are represented by a former SEC attorney, Peter Chepucavage, who was also previously a managing director in charge of Nomura Securities’ legal, compliance and audit functions. We spoke to Chepucavage by phone yesterday.  He confirmed that two of his clients authored the series of letters. Chepucavage said further that these clients have significant experience in trading ETFs and data collection involving ETFs.

Throughout their letters, the whistleblowers use the phrase ETP, for Exchange Traded Product, which includes both ETFs and ETNs, Exchange Traded Notes. In a letter that was logged in at the SEC on January 13, 2016, the whistleblowers compared some of these investments to the subprime mortgage products that fueled the 2008 crash, noting that regulators and economists were mostly blind to that escalating danger as well. The authors wrote:

“The vast majority of ETPs have very low levels of assets under management and illiquid trading volumes. Many of these have illiquid underlying assets and a large group of ETPs are based on derivatives that are not backed by physical assets such as stocks, bonds or commodities, but rather swaps or other types of complex contracts. Many of these products may have been designed to take what were originally illiquid assets from the books of operators, bundle them into an ETP to make them appear liquid and sell them off to unsuspecting investors. The data suggests this is evidenced by ETPs that are formed, have enough volume in the early stage of their existence to sell shares, but then barely trade again while still remaining listed for sale. This is reminiscent of the mortgage-backed securities bundles sold previous to the last financial crisis in 2008.”

The authors also note in this same letter that they have been presenting their evidence of “significant red flags” and “fundamental flaws” to the SEC since March 2015 and that the industry has not disputed the evidence. However, disclosures of these risks in the product offerings has not been forthcoming either.

To underscore to the regulators just how serious they are about cleaning up the ETP market, in a cover letter dated March 24, 2015, Chepucavage copied every member of the Financial Stability Oversight Council (F-SOC), the body created under the Dodd-Frank financial reform legislation to monitor financial stability in the U.S., including Federal Reserve Chair Janet Yellen, U.S. Treasury Secretary Jack Lew, and SEC Chair Mary Jo White.

The detailed March 24, 2015 letter from the whistleblowers pointed out that the very act of allowing some of these illiquid product offerings to be listed on U.S. stock exchanges is lending an air of legitimacy to them since stock exchanges in the U.S. are also mandated to police their own markets. The whistleblowers wrote:

“Whether it is realized or not, authorizations to trade exchange traded products by exchanges/self-regulatory organizations (‘SROs’) suggests legitimacy of the product to investors, which is evidenced by the growing interest in ETFs (supplemented through the massive ETF advertising campaigns to investors…)”

Another letter raised the issue that Wall Street On Parade wrote about on December 15, 2015 — the role of “Authorized Participants,” which are mainly the big Wall Street banks.

The whistleblowers noted:

“The market trading discussed herein… is being executed between investors and counterparties mostly consisting of Authorized Participants, market makers or clearing firms (which may be the same firms), which in many cases is not causing a net creation of shares (purchasing underlying assets) for certain important ETFs.  In some ETPs, there is a conflict of interest between the investor and the contra parties in the secondary market.

“Anyone that has been critical of ETPs has been immediately attacked by the industry, without any factual data from the industry to support their positions. The strategy has simply been ‘attack the messenger,’ which does not address the underlying problems within ETPs.”

The most recent letter from the whistleblowers to the SEC came just nine days ago in advance of the SEC holding a February 2 meeting of its Equity Market Structure Advisory Committee to discuss the bizarre collapse in market prices in the opening minutes of stock market trading on August 24, 2015. In their latest letter, the whistleblowers detailed the role of Exchange Traded Products on that day, writing: . . .

Continue reading.

Written by LeisureGuy

4 February 2016 at 10:38 am

How to prosecute corporate criminals

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In The Intercept David Dayen points out one good resource:

Say you’re the newly elected president of the United States, and you want to make prosecuting corporate crime a top priority.

Where do you start? Here would be good.

A new group called Bank Whistleblowers United have just pushed out a comprehensive plan they think would put the executive branch back in the business of enthusiastically identifying, indicting, and convicting financial fraudsters — restoring accountability while protecting the public.

The cumulative credibility of the group’s four founders is extremely strong. Richard Bowen is the Citigroup whistleblower who unsuccessfully warned top management about the rotten condition of loans inside mortgage-backed securities. Michael Winston spoke out about similarly corrupt practices at non-bank mortgage originator Countrywide. Gary Aguirre, a Securities and Exchange Commission attorney, was fired for refusing to let a Wall Street banker out of an insider trading investigation.

And their ringleader is William Black, an outspoken fraud-fighter and longtime white-collar criminologist who was a two-fisted bank regulator during the savings and loan crisis and now teaches at the University of Missouri–Kansas City (UMKC).

“The common theme,” Black said with characteristic bluntness, “is the unbelievably pathetic job of the Department of Justice and the FBI.”

One of the first steps the group proposes – echoing the recommendations Senator Elizabeth Warren made last week – involves appointing aggressive leadership at federal agencies with no conflicts of interest with the entities they regulate, and hiring enough staff trained in criminology and financial fraud to attack the problem.

“You don’t have to reinvent the wheel,” said Black. “The Justice Department forgot there was a wheel.”

The template for the plan is the saving and loan crisis of the late 1980s, when just one federal agency, the now-defunct Office of Thrift Supervision (OTS) issued over 30,000 criminal referrals and over 1,000 major bank executives went to prison.

By comparison, in the 2008 financial crisis, OTS and their bank regulator counterparts made zero outside criminal referrals on financial crimes. And more recently, the rate of corporate prosecutions has been pathetic.

The whistleblowers would restore a job position from that earlier era: Criminal referral coordinators at every federal agency to meet with their counterparts in law enforcement to press for prosecutions and continually improve the process. They would also issue monthly referral reports to make the process more transparent. George W. Bush eliminated criminal referral coordinators in his first term.

Federal agencies would also be required to create a “Top 100” list of elite fraud schemes in their jurisdiction, borrowing another successful technique from the S&L crisis. These top 100 schemes would hold priority over small fry prosecutions that look good on a tally of convictions but don’t attack the most damaging fraud.

“When we created the Top 100 project,” said Bill Black, “the assistant U.S. attorney had to report every month to someone who got on your ass if the cases weren’t progressing.”

Black says the Top 100 list led to prosecuting 300 savings and loans and 600 officials. “And despite the banks having the best lawyers in the world, we still got a 90 percent conviction rate.”

The proposal would end the emphasis on deferred prosecution agreements that let corporations and individuals get away with paying a fine or agreeing to independent monitoring instead of facing a criminal conviction.

It would end prosecutions of mortgage fraud “mice” – cases against people who defraud banks – and transfer the resources to financial fraud “lions” – when banks defraud people.

It would end an existing partnership with the Mortgage Bankers Association trade group. “In essence,” the Bank Whistleblowers Group writes, “DoJ has made itself the collection agency for the worst criminal enterprises in the nation.”

The whistleblowers even believe that quick action could lead to immediate indictments. For instance, they call for the public release of the still-secret reports from Clayton Holdings, a third-party due diligence firm that tested mortgage loans from practically every major bank during the housing bubble, and told the banks that 1 in 3 were improperly made. Financial Crisis Inquiry Commission chair Phil Angelides this week identified the Clayton reports as the key to a “last chance for justice.” The statute of limitations on the final securitizations doesn’t end until 2017.

“It’s already baked in that this will be the biggest strategic failure of DOJ in history,” said Black. “But they could still indict the top ten frauds.”

Another novel technique would be . . .

Continue reading.

Written by LeisureGuy

4 February 2016 at 10:21 am

11 Million Pages of CIA Files May Soon Be Shared By This Kickstarter

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This is a wonderful project for those interested in finding out what the US government has been doing. American citizens are likely to be especially interested to find out, especially since of the actions the government has done (e.g., overthrowing the democratically elected government of Iran) turn out to have been extremely bad ideas, as were the overthrowing of democratically elected governments in Central and South American (e.g., Chile), installing right-wing dictators, and training the dictators’ enforcers in how to torture. Those are things that, on the whole, I think the citizens of the US would repudiate.

The problem is, as Joseph Cox points out at Motherboard, that even when information is declassified and made public, the CIA for some reason or other makes it extremely difficult to access the information:

Millions of pages of CIA documents are stored in Room 3000. The CIA Records Search Tool (CREST), the agency’s database of declassified intelligence files, is only accessible via four computers in the National Archives Building in College Park, MD, and contains everything from Cold War intelligence, research and development files, to images.

Now one activist is aiming to get those documents more readily available to anyone who is interested in them, by methodically printing, scanning, and then archiving them on the internet.

“It boils down to freeing information and getting as much of it as possible into the hands of the public, not to mention journalists, researchers and historians,” Michael Best, analyst and freedom of information activist told Motherboard in an online chat.

Best is trying to raise $10,000 on Kickstarter in order to purchase the high speed scanner necessary for such a project, a laptop, office supplies, and to cover some other costs. If he raises more than the main goal, he might be able to take on the archiving task full-time, as well as pay for FOIAs to remove redactions from some of the files in the database. As a reward, backers will help to choose what gets archived first, according to the Kickstarter page.

“Once those “priority” documents are done, I’ll start going through the digital folders more linearly and upload files by section,” Best said. The files will be hosted on the Internet Archive, which converts documents into other formats too, such as for Kindle devices, and sometimes text-to-speech for e-books. The whole thing has echoes of Cryptome—the freedom of information duo John Young and Deborah Natsios, whostarted off scanning documents for the infamous cypherpunk mailing list in the 1990s.

In all, the project will likely take years, and also depends on how frequently the archive workers can replace the paper and ink of the printers.

“If I’m able to make it my full-time focus and keep the scanner going at 15,000 pages a day, like it’s rated, then it would take between two and three years,” Best said. . .

Continue reading.

I’ve made a Kickstarter pledge. I think public information should actually be made available to the pubic, though obviously the CIA does not agree.

Written by LeisureGuy

1 February 2016 at 10:57 am

The deep state is very thin-skinned and very aggressive in response.

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Much like Donald Trump, in fact, but with real power. Take a look at this report by Kari Paul in Motherboard:

Barely a month after his appointment, security reseasrcher and former FTC chief technologist Ashkan Soltani is leaving his post as a White House senior advisor, apparently unable to get security clearance from the US government.

Government officials have not commented on the nature of Soltani’s departure, or why he was not cleared—a White House spokesperson merely told The Guardian’sDanny Yardon that “his detail has ended”—but many have speculated it is due to his work reporting on documents leaked by former NSA intelligence contractor Edward Snowden. . .

Continue reading. And do read it: it quite clearly demonstrates what mindset now has power in the US. Indeed, the candidacies can be viewed as meme-matrices competing directly.

Written by LeisureGuy

30 January 2016 at 1:49 pm

The Clinton System explained

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Simon Head writes in the NY Review of Books:

On January 17, in the final Democratic debate before the primary season begins, Bernie Sanders attacked Hillary Clinton for her close financial ties to Wall Street, something he had avoided in his campaigning up to that moment: “I don’t take money from big banks….You’ve received over $600,000 in speaking fees from Goldman Sachs in one year,” he said. Sanders’s criticisms coincided with recent reports that the FBI might be expanding its inquiry into Hillary Clinton’s emails to include her ties to big donors while serving as secretary of state. But a larger question concerns how Hillary and Bill Clinton have built their powerful donor machine, and what its existence might mean for Hillary Clinton’s future conduct as American president. The following investigation, drawing on many different sources, is intended to give a full sense of the facts about Clinton and not to endorse a particular candidate in the coming election.

It’s an axiom of Washington politics in the age of Citizens United and Super PACs that corporations and the very rich can channel almost unlimited amounts of money to candidates for high office to pave the way for later favors. According to the public service website Open Secrets, in the 2016 campaign, as of October, in addition to direct campaign contributions, Jeb Bush had at his disposal $103 million in “outside money”—groups such as PACs and Super PACs and so called “dark money” organizations that work on behalf of a particular candidate. Ted Cruz had $38 million in such funds, Marco Rubio $17 million, and Chris Christie $14 million.

Yet few have been as adept at exploiting this big-money politics as Bill and Hillary Clinton. In the 2016 campaign, as of October, Hillary Clinton had raised $20 million in “outside” money, on top of $77 million in direct campaign contributions—the highest in direct contributions of any candidate at the time. But she and her husband have other links to big donors, and they go back much further than the current election cycle. What stands out about what I will call the Clinton System is the scale and complexity of the connections involved, the length of time they have been in operation, the presence of former president Bill Clinton alongside Hillary as an equal partner in the enterprise, and the sheer magnitude of the funds involved.

Scale and complexity arise from the multiple channels that link Clinton donors to the Clintons: there is the stream of six-figure lecture fees paid to Bill and Hillary Clinton, mostly from large corporations and banks, which have earned them more than $125 million in the fifteen years since Bill Clinton left office in 2001. There are the direct payments to Hillary Clinton’s political campaigns, including for the Senate in 2000 and for the presidency in 2008 and now in 2016, which had reached a total of $712.4 million as of September 30, 2015, the most recent figures compiled by Open Secrets. Four of the top five sources of these funds are major banks: Citigroup Inc, Goldman Sachs, JPMorgan Chase & Co, and Morgan Stanley. The Clinton campaign meanwhile has set a goal of raising $1 billion for her Super PAC for the 2016 election.

Finally there is the nearly $2 billion that donors have contributed to the Clinton Foundation and its satellite organizations since Bill Clinton left office. It may seem odd to include donations to the foundation among the chief ways that corporations and the super-rich can gain access to the Clintons, earn their goodwill, and hope for future favors in return. The foundation’s funds are mostly spent on unequivocally good causes—everything from promoting forestation in Africa and helping small farmers in the Caribbean to working with local governments and businesses in the US to promote wellness and physical fitness.

Moreover, . . .

Continue reading.

He doesn’t pull his punches, does he? And certainly we’ve seen in the Obama administration just how very gently an administration can treat Wall Street: no criminal convictions, fines and fees inflated for headlines but in fact much lower—and no criminal convictions and sometimes Wall Street or big corporations are explicitly given blanket immunity in civil suits for any past wrongdoing (GM doesn’t have to pay for the many deaths caused by its ignition switch, for example). Of course, admittedly you see the same thing on the criminal side: innocent prisoners who have been locked up for four or five decades, living out their prime years in prison, are more or less forced to sign an Alford plea, which disallows any subsequent lawsuits for what was done to them. Innocent foreigners get shorter shrift yet: those innocent men who were abducted and tortured by the US, as is well known and recognized, cannot even get a court hearing: “state secrets.” Yeah, it’s a big secret that they kidnapped and tortured these guys. Not.

That may be why I find myself supporting Bernie Sanders. We tried Bill Clinton, we tried Barack Obama. Some things got better, but the looting of America continued unabated (and in the Obama administration the government went on a kind of information lockdown, slow-walking FOIA responses, classifying everything, keeping as much secret as possible (TPP negotiations, anyone?), viciously persecuting whistleblowers who pointed out government waste (the billions NSA blew away for nothing: Thomas Drake) or government lawbreaking (the illegal wiretaps of GWB: the Department of “Justice,” as it’s quaintly called, is right now going after a DOJ employee who released that to the public. The charge is, I suppose, failure to cover up illegal acts.). The US government overtly becomes more authoritarian as we watch it. And we read many stories about, for example, how the Chicago PD on the whole breaks their dash cams and/or do not turn them on—and Chicago is not alone: it’s a national problem. Police departments really do think that outsiders should just accept what they do, and civilian review panels are treated with contempt in some cities.

So I think people are sort of fed up and do not want, “Steady as it goes.” I think a lot of people think that, if the game is rigged, as it truly is (see the Michael Lewis book (and now movie) The Big Short), then for the love of Pete, let’s change the game.

Bernie is talking about changing the game. Hillary thinks she can give us a slide edge on the house, maybe. But see article above: Hillary is not going to be able to disrupt that rigged game: it is that on which the Clinton System depends.

So Bernie for me.

UPDATE: See also this Salon post by Curtis White.

Written by LeisureGuy

30 January 2016 at 1:07 pm

Clinton’s “top secret” emails said the US is responsible for drone strikes—wow! That is secret!

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Kevin Drum at Mother Jones:

Via the AP, here’s the latest on Hillary Clinton’s email woes:

The Obama administration confirmed for the first time Friday that Hillary Clinton’s unsecured home server contained some of the U.S. government’s most closely guarded secrets, censoring 22 emails with material demanding one of the highest levels of classification….The 37 pages include messages recently described by a key intelligence official as concerning so-called “special access programs” — a highly restricted subset of classified material that could point to confidential sources or clandestine programs likedrone strikes or government eavesdropping.

Special access programs are the most secret of all secrets, so this sounds bad. But wait. What’s this business about drone strikes? That’s not much of a secret, is it? Maybe you need a refresher on all this, so let’s rewind the Wayback Machine to last August, when we first heard about top secret emails on Clinton’s server that turned out to be about drone strikes:

The drone exchange, the officials said, begins with a copy of a news article about the CIA drone program that targets terrorists in Pakistan and elsewhere. While that program is technically top secret, it is well-known and often reported on….The copy makes reference to classified information, and a Clinton adviser follows up by dancing around a top secret in a way that could possibly be inferred as confirmation, the officials said.

Hmmm. A news article? Here’s a Politico piece from a couple of weeks ago, when we heard that the inspector general’s office was concerned about some of Clinton’s emails. Politico’s source is a “US official”:

The official, who spoke on condition of anonymity, said some or all of the emails deemed to implicate “special access programs” related to U.S. drone strikes….The information in the emails “was not obtained through a classified product, but is considered ‘per se’ classified” because it pertains to drones, the official added….The source noted that the intelligence community considers information about classified operations to be classified even if it appears in news reports or is apparent to eyewitnesses on the ground.

OK then: the emails in question discuss a news article containing information that’s widely-known but nonetheless top secret because…um, why not? Here’s more from the Ken Dilanian, formerly of the AP and now with NBC News:

The classified material included in the latest batch of Hillary Clinton emails flagged by an internal watchdog involved discussions of CIA drone strikes, which are among the worst kept secrets in Washington, senior U.S. officials briefed on the matter tell NBC News. The officials say the emails included relatively “innocuous” conversations by State Department officialsabout the CIA drone program.

So what do you suppose the “closely guarded secrets” in the latest batch of 22 emails are? Drones? That’s a pretty good guess. Most likely, this all started with someone sending around a news article about the drone program in Pakistan or Yemen, and then several other people chiming in. It wasn’t classified at the time, and most likely contains nothing even remotely sensitive—but the CIA now insists on classifying it retroactively. That’s why Clinton’s spokesperson calls this“classification run amok” and says, once again, that they’ll seek to have all these emails released to the public. . .

Continue reading.

Written by LeisureGuy

29 January 2016 at 5:14 pm

Elizabeth Warren: One Way to Rebuild Our Institutions

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Sen. Elizabeth Warren writes in the NY Times:

While presidential candidates from both parties feverishly pitch their legislative agendas, voters should also consider what presidents can do without Congress. Agency rules, executive actions and decisions about how vigorously to enforce certain laws will have an impact on every American, without a single new bill introduced in Congress.

The Obama administration has a substantial track record on agency rules and executive actions. It has used these tools to protect retirement savings, expand overtime pay, prohibit discrimination against L.G.B.T. employees who work for the government and federal contractors, and rein in carbon pollution. These accomplishments matter.

Whether the next president will build on them, or reverse them, is a central issue in the 2016 election. But the administration’s record on enforcement falls short — and federal enforcement of laws that already exist has received far too little attention on the campaign trail.

I just released a report examining 20 of the worst federal enforcement failures in 2015. Its conclusion: “Corporate criminals routinely escape meaningful prosecution for their misconduct.”

In a single year, in case after case, across many sectors of the economy, federal agencies caught big companies breaking the law — defrauding taxpayers, covering up deadly safety problems, even precipitating the financial collapse in 2008 — and let them off the hook with barely a slap on the wrist. Often, companies paid meager fines, which some will try to write off as a tax deduction.

The failure to adequately punish big corporations or their executives when they break the law undermines the foundations of this great country. Justice cannot mean a prison sentence for a teenager who steals a car, but nothing more than a sideways glance at a C.E.O. who quietly engineers the theft of billions of dollars.

These enforcement failures demean our principles. They also represent missed opportunities to address some of the nation’s most pressing challenges. Consider just two areas — college affordability and health care — where robust enforcement of current law could help millions of people.

When the Education Management Corporation, the nation’s second-largest for-profit college, signed up tens of thousands of students by lying about its programs, it saddled them with fraudulent degrees and huge debts. Those debts wrecked lives. Under the law, the government can bar such institutions from receiving more federal student loans. But EDMC just paid a fine and kept right on raking in federal loan money.

When Novartis, a major drug company that was already effectively on federal probation for misconduct, paid kickbacks to pharmacies to push certain drugs, it cost taxpayers hundreds of millions of dollars and undermined patient health. Under the law, the government can boot companies that defraud Medicare and Medicaid out of those programs, but when Novartis got caught, it just paid a penalty — one so laughably small that its C.E.O. said afterward that it “remains to be seen” whether his company would actually consider changing its behavior.

Enforcement isn’t about big government or small government. It’s about whether government works and who it works for. Last year, five of the world’s biggest banks, including JPMorgan Chase, pleaded guilty to criminal charges that they rigged the price of billions of dollars worth of foreign currencies. No corporation can break the law unless people in that corporation also broke the law, but no one from any of those banks has been charged. While thousands of Americans were rotting in prison for nonviolent drug convictions, JPMorgan Chase was so chastened by pleading guilty to a crime that it awarded Jamie Dimon, its C.E.O., a 35 percent raise. . .

Continue reading.

Obama has done a very poor job of enforcing the law when the lawbreakers are corporations: when misconduct is found, the corporations get a slap on the wrist or even are protected against claims (as in the case of General Motors, whose admitted concealment of the ignition switch defect result in dozens of deaths, but which does not have to pay a dime in settlements, thanks in large measure to the Obama administration, which bailed out the company from its self-inflicted failures and then stiffed the victims of GM’s misconduct).

As Sen. Warren writes later in her column:

. . . in many instances, weak enforcement by federal agencies is about the people at the top. Presidents don’t control most day-to-day enforcement decisions, but they do nominate the heads of all the agencies, and these choices make all the difference. Strong leaders at the Environmental Protection Agency, the Consumer Financial Protection Bureau and the Labor Department have pushed those agencies to forge ahead with powerful initiatives to protect the environment, consumers and workers. The Special Inspector General for the Troubled Asset Relief Program, a tiny office charged with oversight of the post-crash bank bailout, has aggressive leaders — and a far better record of holding banks and executives accountable than its bigger counterparts.

Meanwhile, the Securities and Exchange Commission, suffering under weak leadership, is far behind on issuing congressionally mandated rules to avoid the next financial crisis. It has repeatedly granted waivers so that lawbreaking companies can continue to enjoy special privileges, while the Justice Department has dodged one opportunity after another to impose meaningful accountability on big corporations and their executives.

Each of these government divisions is headed by someone nominated by the president and confirmed by the Senate. The lesson is clear: Personnel is policy. . .

Obama has done a good job in several areas, but has failed badly in others, such as in failing to enforce the law when the lawbreakers were large donors to his campaign.

Written by LeisureGuy

29 January 2016 at 12:44 pm

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