Rackets and Racketeers

The latest on the Goldman Sachs scandal:

Paul Krugman writes in “Looters in Loafers” that the financial reforms being promoted by the Obama Administration would have gone a long way toward restraining Goldman Sachs from defrauding its clients. However, he also suggests adding language to the bill to specifically prohibit “Producers”-type scams.

He notes also that Republicans continue to talk about “bailouts” as if that were the only issue at hand:

The main moral you should draw from the charges against Goldman, though, doesn’t involve the fine print of reform; it involves the urgent need to change Wall Street. Listening to financial-industry lobbyists and the Republican politicians who have been huddling with them, you’d think that everything will be fine as long as the federal government promises not to do any more bailouts. But that’s totally wrong — and not just because no such promise would be credible.

For the fact is that much of the financial industry has become a racket — a game in which a handful of people are lavishly paid to mislead and exploit consumers and investors. And if we don’t lower the boom on these practices, the racket will just go on.

See Vicky Ward, “Senior Goldman Exec Is Married to Former Head of ACA.” ACA would be ACA Capital, the selection-manager-of-record of the infamous Abacus Fund. ACA asked John Paulson to choose the bonds included in the fund, allegedly without realizing John Paulson would be enriched if the Fund failed. The president of ACA is the husband of the managing director and deputy general counsel of Goldman Sachs.

And the New York Times is reporting that senior executives at Goldman Sachs were playing an “active role” in the mortgage unit as the mortgage market began to go south.

Next Up: Financial Reform

I haven’t had time to write as much about the pre-skirmish on financial reform as I’d like, but much of what I’d like to say is summed up in “Why’s Sen. McConnell trashing Wall Street regulation bill?” by David Lightman and Halimah Abdullah of McClatchy Newspapers. See also “Whose Side Are They On?” in today’s New York Times.

Paul Krugman calls the Goldman Sachs/ The Producers failed securities scam “looting.” See also libertarianism exposed.

SEC Accuses Goldman Sachs of Fraud

This is juicy — the New York Times just reported

Goldman Sachs, which emerged relatively unscathed from the financial crisis, was accused of securities fraud in a civil suit filed Friday by the Securities and Exchange Commission, which claims the bank created and sold a mortgage investment that was secretly devised to fail.

The move marks the first time that regulators have taken action against a Wall Street deal that helped investors capitalize on the collapse of the housing market. Goldman itself profited by betting against the very mortgage investments that it sold to its customers.

Goldman investors lost billions, the article says, but Goldman ended up making money on the “investment instrument.”

The “instrument,” called Abacus 2007-AC1, was packed with mortgage bonds chosen by John A. Paulson, a hedge fund manager widely praised for correctly predicting the bursting of the housing bubble. The SEC says Paulson chose bonds he believed would default. Marketing materials for Abacus claimed the bonds were being chosen by an independent third party, when in fact they were chosen by someone intended to make a lot of money from the deception.

I’m not entirely clear how one might “bet against” a fund, but as I understand it Paulson and Goldman Sachs took a ton of insurance (mostly from AIG) on the fund so that they would clean up when it went bust.

I hope this signals the Obama Administration is getting tougher on the Golden Parachute crowd.

Update: Andrew Leonard at Salon clarifies things a bit:

According to the SEC complaint, in early 2007, at the request of John Paulson, a prominent hedge fund trader, Goldman Sachs created a security — called Abacus 2007 AC-1 — built from underlying mortgage-backed securities that Paulson had cherry-picked as most likely to blow up. While Goldman Sachs then turned around and sold the security to its own clients, Paulson and Goldman bought credit default insurance on the underlying mortgage bonds. Paulson and Goldman cashed in, while Goldman’s clients lost millions. At no time did Goldman divulge Paulson’s involvement to its clients.

Update: Paul Krugman’s column was written before this news came out, obviously, but it sorta kinda relates.

Update:

Michael Hirsch:

The case shows how pathological the markets had become. The cart was beginning to drive the horse: rather than packaging mortgage-backed securities together and selling them around the world in order to spread risk, such products were being created for the sole reason to permit traders to short them and make money on their almost certain failure. As blogger Yves Smith pointed out in her withering review of Michael Lewis’s new book, The Big Short, such short sellers kept the subprime market going long after it should have died a natural death by creating products that fooled investors into thinking the market was healthier than it really was.

Even as I keyboard, someone at Reason must be frantically writing a “Hit & Run” blog post that blames government regulation.

Update: The libertarians at Reason so far haven’t commented on the Goldman Sachs situation. So far the only pushback I’ve seen from the Right is that Goldman Sachs was Barack Obama’s biggest Wall Street contributor during the 2008 elections. In other words, it’s the old McCarthyite guilt-by-association trick.

Goldman Sachs was a major contributor to both the Obama and McCain campaigns, according to OpenSecrets.com, although it’s true Goldman Sachs gave more money to Obama. But then, so did just about everybody.

McCain’s top five contributors (individual contributions bundled together by industry):

Merrill Lynch $373,595
Citigroup Inc $322,051
Morgan Stanley $273,452
Goldman Sachs $230,095
JPMorgan Chase & Co $228,107

Looky there — they’re all from the financial sector.

Barack Obama’s top five contributors:

University of California $1,591,395
Goldman Sachs $994,795
Harvard University $854,747
Microsoft Corp $833,617
Google Inc $803,436

A little more variety, there.

Update:
Reason, the Cato Institute blog and the Lew Rockwell site still haven’t posted anything about the Goldman Sachs issue as of 5:30 pm. I guess they’re still struggling to find a way to blame government regulation.

Stuff to Read

The New York Times asked a number of political analysts and historians to give their impressions of the Tea Party movement. With the exception of The Usual Corporate-Sponsored Hackery (TUCSH?) dished up by Steven Hayward of the American Enterprise Institute and Amity Shlaes of the Council on Foreign Relations, the responses provide some good insight.

Alan Wolfe acknowledges that the Tea Party movement vindicates Richard Hofstadter.

Michael Lind wrote,

Pitchfork-wielding populists like William Jennings Bryan they are not. They are more like the affluent members of the Liberty League who vilified President Roosevelt in the 1930s — a sullen, defensive mobilization of the Have-Somes who dread the Have-Nots. The Tea Partiers put the “petty” in petty bourgeoisie. They are disgruntled conservative Fox Republicans.

Alan Brinkley:

This is a profile that matches other highly motivated protests over many decades — the supporters of Joseph McCarthy, for example, in the 1950s. Today, the target is not communism, which is no longer a major issue for the right (although “socialism” appears to have taken its place). But what seems to motivate them the most is a fear of a reduction in their own status — economically and socially.

See also comments from Rick Perlstein, Paul Butler, Lorenzo Morris, and Bob Moser.

Happy Tax Day

Having spent the bulk of the past two days finally facing up to taxes (3 hours preparing tax forms, 29 hours stewing about preparing tax forms), I am now ready for the annual walk to the post office to get it over with. So how’s it going with you?

I’m way behind with a lot of other work, so for now I’m just going to briefly note a couple of things:

A blog post titled Do women today have more libertarian freedom than in 1880? caught my attention, but for the life of me I can’t figure out what anything in the post has to do with the “libertarian freedom of women.” It appears to be a discussion among a bunch of men having to do with some abstract notions of government coercion that have no connection to the genuine concerns of women.

Abortion, for example. A remarkable percentage of libertarians I have seen are anti-choice, which suggests that they are not at all opposed to government coercion as long as it’s someone else being coerced. Nebraska just passed a law that would ban elective abortions and many non-elective abortions after 20 weeks’ gestation. Exceptions are made for a woman’s imminent death or “substantial and irreversible physical impairment of a major bodily function.” However, if a woman discovers at 20 weeks’ gestation that her baby will be born with anencephaly, too bad. She has to carry the doomed infant to term.

Seems to me this law is a direct challenge to Roe v. Wade, which permits states to ban elective abortions after 23 weeks’ gestation (time of earliest possible viability), but gives doctors more discretion to decide which abortions are medically indicated.

Another provision that was just signed into law in Nebraska requires that all women seeking abortion get a physical and mental health evaluation. This law hasn’t gotten nearly as much attention as the other one, but seems to me it will impact a lot more women, making all abortions in Nebraska more costly and burdensome. It also reeks of Big Government Patriarchy, especially the mental health part. Just don’t hold your breath waiting for libertarians to care.

Also: The Great Minds of the Nation continue to evaluate the Tea Party movement. I swear no one has ever gone to such lengths to plumb the depths of the American Left, even in the glory days of the New Left counterculture, ca. 1969. Anyway, the New York Times published an article about another new poll:

The 18 percent of Americans who identify themselves as Tea Party supporters tend to be Republican, white, male, married and older than 45.

They could have saved their polling money and just asked me. I would have told them that.

Steve M has looked at the data more closely than I have, and notes that the Tea Partiers on the whole seem to be content with being Republicans. This contradicts their own rhetoric, but they are less likely than the general population to want a third party. They also deeply dislike Congress except for their own congress critters, who are all exceptions to the rule.

Digby notes that they buy into Republican Party propaganda about who’s to blame for the economic downturn:

Here’s an interesting factoid that tracks with my intuition about these people: they blame George W. Bush and Wall Street far less for the economic situation than the rest of the country does. They hold Obama and congress mostly responsible. But then, if you listen to wingnut gasbags and FOX news crazies all day, that’s what you would think.

Any illusions that these people are angry at Wall Street or big business needs to be dispensed with ASAP. They don’t blame the money people at all.

So, they tend to be Republican, white, male, married, older than 45, and ignorant as bread mold. I could have told them that, too.

Escalating the Hysteria

Shawn Millerick of Now! Hampshire quotes an anonymous source (naturally) to claim that state Democrats are recruiting “liberal activists willing to attend so-called tea parties on Thursday and carry signs expressing racist or fringe sentiments.” Similar “crash the party” efforts are taking place around the country, Millerick says.

Talk about inoculation! From now on whenever some wingnut carries a wingnut sign at a wingnut rally, the other wingnuts can claim it’s all the work of “liberal activists.”

If true, it’s a stupid thing to do, for the simple reasons that (1) it does provide inoculation, and (2) when your opponents already are making themselves look ridiculous, it’s really bad tactics to get in the way.

However, unless the wingnuts can come up with some more solid evidence than “anonymous sources,” this story bears all the marks of a clever fabrication.

Update: I partly take the last comment back. According to Evan McMorris-Santoro at Talking Points Memo, some flaming idiot named Jason Levin has organized a Crash the Tea Party effort in Oregon to infiltrate the Party and push it further Right. Stupid, stupid, stupid.

Um, How Is This Not Sedition?

Oklahoma may raise a new state militia to defend itself against the federal government. I assume there are enough sane legislators in Oklahoma to prevent this from going forward, but it’s being talked about.

Frustrated by recent political setbacks, tea party leaders and some conservative members of the Oklahoma Legislature say they would like to create a new volunteer militia to help defend against what they believe are improper federal infringements on state sovereignty.

Assuming such infringements are real, haven’t these people ever heard of “courts”?

Thus far, the discussions have been exploratory. Even the proponents say they don’t know how an armed force would be organized nor how a state-based militia could block federal mandates.

This is easy. Guns are magic. All people have to do is wave their mighty guns, and all problems are solved. Never mind that the feds have guns, and tanks, and an air force, and missiles, and even nukes.

State Sen. Randy Brogdon, R-Owasso, a Republican candidate for governor who has appealed for tea party support, said supporters of a state militia have talked to him, and that he believes the citizen unit would be authorized under the Second Amendment to the Constitution.

The catch here is that “the militia” in the body of the Constitution (Article I, Section 8, paragraphs 15 and 16) is also partly under the authority of the U.S. Congress.

[The Congress shall have Power] To provide for calling forth the Militia to execute the Laws of the Union, suppress Insurrections and repel Invasions;

To provide for organizing, arming, and disciplining, the Militia, and for governing such Part of them as may be employed in the Service of the United States, reserving to the States respectively, the Appointment of the Officers, and the Authority of training the Militia according to the discipline prescribed by Congress;

And, of course, the Second Amendment says,

A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.

I suspect most constitutional scholars would argue that the “well regulated Militia” mentioned in the Second Amendment is the same Militia provided for in Article I Section 8. And then there’s the matter of federalizing the Militia, which immediately puts it under the authority of the President (Article II, Section 2, 1st paragraph).

So, in theory, any militia that takes its authority to exist from any part of the U.S. Constitution could be federalized at any time, which would kind of neutralize them, I would think. (If you trace the history of the original state militias, you see that they eventually became the National Guard.)

That said, I don’t believe there is any constitutional provision that says a state may not create its own militia separate from the Militia provided for in Article I Section 8 and mentioned in the Second Amendment. I don’t know that it’s ever been done (except by the states in rebellion during the Civil War), but I don’t think there’s a barrier to it.

However, I am reasonably certain that organizing an armed force, whether by state authority or not, for the purpose of resisting federal authority is an act of sedition. And if this seditious little crew actually takes action against federal officials or employees, that is insurrection. And then constitutionally the feds could federalize all the National Guard troops it wants and send them marching into Oklahoma. Maybe they could even parachute into Oklahoma. Cool.

Tea party leader J.W. Berry of the Tulsa-based OKforTea began soliciting interest in a state militia through his newsletter under the subject “Buy more guns, more bullets.”

“It’s not a far-right crazy plan or anything like that,” Berry said. “This would be done with the full cooperation of the state Legislature.”

Not a far-right crazy plan at all. At least, not from a far-right perspective.

Update: Data show tea partiers more bigoted than general U.S. population.

Haley Barbour’s Priorities

It says something about today’s Republican Party that one of its most powerful members is the governor of the poorest state in the country. Mississippi has been the poorest state in the country for a long time, and after six years with Haley Barbour in the governor’s mansion it’s still the poorest state in the country.

Yet Haley Barbour is considered a great success as governor. This is mostly because of Karl Rove’s political exploitation of Hurricane Katrina — the White House made sure the Democratic governor of Louisiana looked like a failure after Katrina, while the Republican governor of Mississippi smelled like a rose But let’s go on.

Barbour strongly opposes reproductive rights and has put a lot of time and energy into enforcing every restriction on abortion the courts will allow, and probably a few the courts wouldn’t allow if the law were challenged. Yet for years Mississippi has been at the top or near the top in state rankings for infant mortality, a a fact that eludes Barbour’s attention.

As bad as it was when Barbour took office in 2004, under his tenure the infant mortality rates in Mississippi got worse.

Mississippi citizens enjoy the worst health care system in the nation, according to the Commonwealth Fund. It comes in at number 51, behind every other state and the District of Columbia. Mississippians are more likely to die for lack of medical care than are the residents of any other state (plus the District of Columbia), the Commonwealth Fund says.

But according to Gov. Barbour’s website, there was a health care crisis when Barbour took office, but Barbour fixed it. He did this by jamming through legislation that provides doctors and hospitals substantial protection from lawsuits and also by finding ways to kick thousands of people off of Medicaid (in the poorest state in the country, mind you). There — problem solved. Mississippians are more likely to die preventable deaths than residents of any other state, but that is not a problem to Gov. Barbour.

Recently Barbour defended Virginia’s Confederate History Month, in particular the original proclamation that left out the little issue of slavery. If the governor doesn’t think slavery was an important issue to Mississippi when the state chose to secede from the Union in 1861, he should read the “declaration of causes” document drawn up by the state’s secession convention.

In short, Barbour is the quintessential Republican; a Republican’s Republican, if you will. He exists entirely to protect the rich and oppress the poor, and he calls that “governing.”

The Elite Make Out Like Bandits

A political movement fueled by resentment of “elites” is elitism’s best friend. Bob Herbert writes,

One of the reasons so many conservative Republican absurdities became actual U.S. policy was the intellectual veneer slapped upon them by right-wing think tanks and commentators. The grossest nonsense was made to seem plausible to a lot of people — people who wanted to believe in a free lunch. When Mr. Reagan told the country that “government is the problem,” the intellectual handmaidens of the corporate and financial elite were right there to explain in exhaustive detail why that was so.

The result, in addition to the terrible consequences of Iraq and Afghanistan and the damage to America’s standing in the world, was the tremendous (and tremendously debilitating) transfer of wealth from working people in the U.S. to the folks already in the upper echelons of wealth and income. The elite made out like bandits — often literally.

But, hey, at least we’re not those squishy socialist Europeans, right? See also Frank Rich.

Update: Via Ron Beasley, See Thom Hartmann’s “Two Santa Clauses or How The Republican Party Has Conned America for Thirty Years.”

But Wanniski had been doing his homework on how to sell supply-side economics. In 1976, he rolled out to the hard-right insiders in the Republican Party his “Two Santa Clauses” theory, which would enable the Republicans to take power in America for the next thirty years.

Democrats, he said, had been able to be “Santa Clauses” by giving people things from the largesse of the federal government. Republicans could do that, too – spending could actually increase. Plus, Republicans could be double Santa Clauses by cutting people’s taxes! For working people it would only be a small token – a few hundred dollars a year on average – but would be heavily marketed. And for the rich it would amount to hundreds of billions of dollars in tax cuts. The rich, in turn, would use that money to import or build more stuff to market, thus increasing supply and stimulating the economy. And that growth in the economy would mean that the people still paying taxes would pay more because they were earning more.

There was no way, Wanniski said, that the Democrats could ever win again. They’d have to be anti-Santas by raising taxes, or anti-Santas by cutting spending. Either one would lose them elections.

Be sure to read the whole thing.