The Obfuscation Report

The Joy of Sachs

By PAUL KRUGMAN

The American economy remains in dire straits, with one worker in six unemployed or underemployed. Yet Goldman Sachs just reported record quarterly profits — and it’s preparing to hand out huge bonuses, comparable to what it was paying before the crisis. What does this contrast tell us?

First, it tells us that Goldman is very good at what it does. Unfortunately, what it does is bad for America.

Second, it shows that Wall Street’s bad habits — above all, the system of compensation that helped cause the financial crisis — have not gone away.

Third, it shows that by rescuing the financial system without reforming it, Washington has done nothing to protect us from a new crisis, and, in fact, has made another crisis more likely.

Let’s start by talking about how Goldman makes money.

Over the past generation — ever since the banking deregulation of the Reagan years — the U.S. economy has been “financialized.” The business of moving money around, of slicing, dicing and repackaging financial claims, has soared in importance compared with the actual production of useful stuff. The sector officially labeled “securities, commodity contracts and investments” has grown especially fast, from only 0.3 percent of G.D.P. in the late 1970s to 1.7 percent of G.D.P. in 2007.

Such growth would be fine if financialization really delivered on its promises — if financial firms made money by directing capital to its most productive uses, by developing innovative ways to spread and reduce risk. But can anyone, at this point, make those claims with a straight face? Financial firms, we now know, directed vast quantities of capital into the construction of unsellable houses and empty shopping malls. They increased risk rather than reducing it, and concentrated risk rather than spreading it. In effect, the industry was selling dangerous patent medicine to gullible consumers.

Goldman’s role in the financialization of America was similar to that of other players, except for one thing: Goldman didn’t believe its own hype. Other banks invested heavily in the same toxic waste they were selling to the public at large. Goldman, famously, made a lot of money selling securities backed by subprime mortgages — then made a lot more money by selling mortgage-backed securities short, just before their value crashed. All of this was perfectly legal, but the net effect was that Goldman made profits by playing the rest of us for suckers.

And Wall Streeters have every incentive to keep playing that kind of game.

The huge bonuses Goldman will soon hand out show that financial-industry highfliers are still operating under a system of heads they win, tails other people lose. If you’re a banker, and you generate big short-term profits, you get lavishly rewarded — and you don’t have to give the money back if and when those profits turn out to have been a mirage. You have every reason, then, to steer investors into taking risks they don’t understand.

And the events of the past year have skewed those incentives even more, by putting taxpayers as well as investors on the hook if things go wrong.

I won’t try to parse the competing claims about how much direct benefit Goldman received from recent financial bailouts, especially the government’s assumption of A.I.G.’s liabilities. What’s clear is that Wall Street in general, Goldman very much included, benefited hugely from the government’s provision of a financial backstop — an assurance that it will rescue major financial players whenever things go wrong.

You can argue that such rescues are necessary if we’re to avoid a replay of the Great Depression. In fact, I agree. But the result is that the financial system’s liabilities are now backed by an implicit government guarantee.

Now the last time there was a comparable expansion of the financial safety net, the creation of federal deposit insurance in the 1930s, it was accompanied by much tighter regulation, to ensure that banks didn’t abuse their privileges. This time, new regulations are still in the drawing-board stage — and the finance lobby is already fighting against even the most basic protections for consumers.

If these lobbying efforts succeed, we’ll have set the stage for an even bigger financial disaster a few years down the road. The next crisis could look something like the savings-and-loan mess of the 1980s, in which deregulated banks gambled with, or in some cases stole, taxpayers’ money — except that it would involve the financial industry as a whole.

The bottom line is that Goldman’s blowout quarter is good news for Goldman and the people who work there. It’s good news for financial superstars in general, whose paychecks are rapidly climbing back to precrisis levels. But it’s bad news for almost everyone else.

Exclusive: Conservative group offers to sell endorsement for $2M
By: Mike Allen
July 17, 2009 05:07 AM EST

The American Conservative Union asked FedEx for a check for $2 million to $3 million in return for the group’s endorsement in a bitter legislative dispute, then flipped and sided with UPS after FedEx refused to pay.

For the $2 million plus, ACU offered a range of services that included: “Producing op-eds and articles written by ACU’s Chairman David Keene and/or other members of the ACU’s board of directors. (Note that Mr. Keene writes a weekly column that appears in The Hill.)”

The conservative group’s remarkable demand — black-and-white proof of the longtime Washington practice known as “pay for play” — was contained in a private letter to FedEx , which was provided to POLITICO.

The letter exposes the practice by some political interest groups of taking stands not for reasons of pure principle, as their members and supporters might assume, but also in part because a sponsor is paying big money.

In the three-page letter asking for money on June 30, the conservative group backed FedEx. After FedEx says it rejected the offer, Keene signed onto a two-page July 15 letter backing UPS. Keene did not return a message left on his cell phone.

Maury Lane, FedEx’s director of corporate communications, said: “Clearly, the ACU shopped their beliefs and UPS bought.”

ACU's executive vice president, Dennis Whitfield, said that neither the group nor David Keene, the chairman, took any money from UPS. Whitfield said the group has never received a response to its original proposal to FedEx. He said Keene endorsed the second letter as an individual, even though the letter bore the logo of ACU.

"Our position hasn't changed," said Whitfield, who was a deputy secretary of labor in the Reagan administration. "It won't change. I am fundamentally, philosophically opposed to doing what the Obama administration wants to do [to FedEx], and so is our organization."

FedEx and UPS, fierce competitors in the package delivery business, are at war over a provision under consideration in Congress that would expand union power at FedEx.

FedEx currently has one U.S. union contract for its entire express business. Under a change passed by the House and awaiting action in the Senate, FedEx — like UPS — would have to negotiate union contracts for individual locations, which FedEx claims would make it much more difficult to promise worldwide regularity for deliveries.

The American Conservative Union, which calls itself “the nation's oldest and largest grass-roots conservative lobbying organization,” took UPS’s side on Wednesday as part of a conservative consortium that accused FedEx of “misleading the public and legislators.” ACU's logo is at the top of the letter, along with those of six other conservative groups.

Just two weeks earlier, ACU had offered its endorsement to FedEx, saying in a letter to the company: “We stand with FedEx in opposition to this legislation.”

But there was a catch — an expensive one. ACU asked FedEx to pay as much as $3.4 million for e-mail and other services for “an aggressive grass-roots campaign to stop the legislation in the Senate.”

“For the activist contact portion of the plan, we will contact over 150,000 people per state multiple times at a cost of $1.39 per name or $2,147,550 to implement the entire program,” the letter says. “If we incorporate the targeted, senator-personalized radio effort into the plan, you can figure an additional $125,000 on average, per state” for an estimated 10 states. The total would be $3,397,550.”

The letter shows one reason why activists get so much junk mail, both on paper and electronically: Some groups that send it charge handsomely for the service.

Under the grass-roots program ACU proposed, “Each person will be contacted a total of seven times totaling nearly 11 million contacts total in the 10 targeted states.” “Within 72 hours of an agreement on the whole plan, we can have the data sets delivered and the first round of e-mail ready for delivery,” the offer states. “Within seven days, the mail can be in the USPS system and the phone call delivered.”

Lane, the FedEx official, said the offer was refused. "The proposal didn’t fit with our strategy of taking a straightforward approach to discussing the issue,” he said.

After the rebuff, American Conservative Union changed sides. ACU Chairman David A. Keene was one of eight conservative leaders who signed a letter to FedEx Chairman Frederick W. Smith, a champion of capitalism who in the past has been a favorite of conservatives.

The letter accuses FedEx of “falsely and disingenuously” labeling the rules change a “bailout” for UPS, since FedEx would become subject to the same arduous union structure.

The letter is also signed by Grover Norquist, president of Americans for Tax Reform, who is also on ACU’s board. FedEx is pushing its case with a website called www.BrownBailout.com.

The letter signed by the conservative leaders concludes: “To paraphrase the words of Ronald Reagan, ‘Mr. Smith, tear down this website.’”

Among the services ACU had offered to provide for the $2 million-plus price tag:

—Acquiring data of known conservatives in the targeted states (to be determined by FedEx), matching that data to an e-mail database and then incorporating those e-mail addresses with the current ACU e-mail database to create one targeted database of all potential activists.

—Sending a piece of targeted direct mail to these potential activists to ensure that they are well-educated prior to their contact with their senators.

—E-mailing the identified voter activists, in five rounds, in order to educate them on the issue(s) and to urge them to call their senators based on key dates. The ACU would include the phone number of their personal senators directly in the correspondence.

—Conducting targeted phone call campaign that will contact all voter activists to urge them to make a personal call to their senators. Each state would have a specialized message just for that state.

—Encouraging activists who live within 30 miles of a senator’s district office to consider making a personal visit to register their concerns at the office. ACU has proved that we can turn out well-informed, quality voters who present a good image to represent our concerns.

—As the vote for the legislation nears, distributing ACTION ALERT e-mails, and after the vote has taken place, distributing MegaVote e-mails to ACU’s members letting them know how their senators vote.

Chip Pickering's Wife Claims He Had An Affair

JACKSON, Miss. — The estranged wife of former U.S. Rep. Chip Pickering claims in a lawsuit that the Mississippi Republican had an affair that ruined their marriage and derailed his political career.

Leisha Pickering said in the lawsuit filed this week that her husband and the woman dated in college, reconnected and began having an affair while he was in Congress and living in a building where several Christian lawmakers reside on C Street near the U.S. Capitol. Chip Pickering is the third Republican with ties to the building at 133 C Street SE to find his personal life making headlines in recent weeks, after Nevada U.S. Sen. John Ensign and South Carolina Gov. Mark Sanford.

Leisha Pickering is seeking unspecified damages in the alienation of affection lawsuit she filed this week against Elizabeth Creekmore Byrd of Jackson. The Pickerings filed for divorce in June 2008, but it is not complete.

Chip Pickering, 45, was elected to Congress in 1996, retired in January and is now a lobbyist in Washington for Cellular South, the company Creekmore Byrd's family owns. The lawsuit does not say when the affair started.

He said in a statement Thursday that his marriage is irreparably damaged.

"I still believe it is in the best interest of our five boys if our differences are resolved privately and before the appropriate court and not in the media," Pickering said.

He cast himself as a defender of decency, particularly on television and the Internet, and was among House members urging then-President George W. Bush to declare 2008 "the National Year of the Bible."

Another lawmaker who lived at the C Street house, Ensign, a member of the Christian ministry Promise Keepers, stepped down from the Senate Republican leadership in June after admitting he had an affair for much of last year with a woman on his campaign staff.

Just days after the story broke, South Carolina Republican Gov. Mark Sanford admitted an affair with a woman in Argentina. He apparently never lived in the house, but has said he turned to "C Street" for counsel and solace while having the affair.

The building, registered in tax records as a religious and commercial building, is affiliated with a Christian group that sponsors the annual National Prayer Breakfast attended by the president, members of Congress and other dignitaries. Both Democratic and Republican members of Congress live there.

Leisha Pickering's lawsuit also says that when Republican Trent Lott resigned from the U.S. Senate in December 2007, Mississippi Gov. Haley Barbour offered the seat to Chip Pickering, who declined. Barbour spokesman Laura Hipp said Thursday that the governor only offered the Senate seat to U.S. Rep. Roger Wicker, who accepted it.

The lawsuit contends that Creekmore Byrd gave Pickering an ultimatum, saying their relationship could not continue if he became a senator because he would have to stay married.

"Ultimately, Creekmore Byrd gave Pickering the option to remain a public servant or become a private citizen and continue relations with her," the lawsuit says.

The voice mail box at Creekmore Byrd's home was full Thursday and messages left for her divorce attorney were not immediately returned.

The 45-year-old is a member of Mississippi's wealthy Creekmore family, founders of the Cellular South phone company.

She and several relatives and Cellular South executives donated to Pickering while he was in Congress, and he had kind words for the company at a 2007 subcommittee hearing where invited speakers included Cellular South president Victor Meena.

He announced in August 2007 that he wouldn't seek another term. After leaving office in January, he joined the lobbying firm Capitol Resources LLC, in which one of Barbour's nephews is a partner. The firm, which counts Cellular South among its clients, lists Pickering as a member of its Washington and Mississippi teams.

In the House, Pickering specialized in telecommunications issues, including one dear to Cellular South: making sure Congress took into account the interests of cellular companies serving rural areas.

Creekmore Byrd and her husband, Dr. Douglas Byrd, were married in 1990 but stopped living together in June 2006. They were granted a divorce in 2007 on the grounds of irreconcilable differences.

____

Associated Press writer Sharon Theimer in Washington contributed to this report.

GOP pushing hidden health care tax on all Americans, not reform.

by Rep. George Miller (Democrat California)

Republicans and right wing commentators who oppose health care reform hope to turn our effort at lowering costs and expanding access into a debate about whether or not to tax small businesses. In opposing our reform they would instead continue the hidden health care tax on all Americans that exceeds the surcharge on the highest income taxpayers that is included in the House bill.

Before you adopt their rhetoric, remember that nearly half of the cost of the House Democrats' health plan would be paid by tight cost controls and forcing down the expense of the health care system. That's a top priority. And as for who will pay higher taxes and who won't under our plan, here are the cold facts.

Only the highest earning 1.2 percent of American households will pay a surcharge for health care reform. That leaves 98.8 percent of American households who will not pay any surcharge at all.

As for small businesses, according to the non-partisan Joint Committee on Taxation, only 4.1 percent of all small business owners will be affected by the health care surcharge. The remaining 95.9 percent of small business owners will be completely unaffected by the surcharge.

Under our bill, a family making up to $350,000 in adjusted gross income (AGI) will not owe any surcharge at all, as President Obama has promised. A family making $500,000 in AGI will contribute $1,500 to help reduce costs and provide access to affordable health care for all Americans -- 0.3 percent of their annual income. And a family making $1 million in AGI will contribute $9,000, or 0.9 percent of their annual income.

Who are the highest earning 1.2 percent of all households? They are the same households who over the past 20 years have seen a massive shift in wealth in their favor and who over the last 8 years received the lion's share of President Bush's tax cuts.

Between 2001 and 2010, the richest one percent of taxpayers alone will have received approximately $700 billion from the Bush tax cuts, according to Citizens for Tax Justice. Those tax cuts for the wealthy one percent have been the biggest contributor to the record deficits wrung up during the Bush Administration -- deficits that were passed along to President Obama in January.

The Washington Post put it another way. They pointed out that over the past 20 years, the highest earning Americans have seen their tax burden go down and their share of national wealth rise. The share of adjusted gross income claimed by the highest earning Americans doubled, from 11 percent to 22 percent.

Meanwhile, average American working families have seen their wages stagnate, their health care costs spiral out of control, and their share of national wealth reduced.

Many Republicans and right wing commentators would do nothing to reform health care and would instead leave in place the hidden $1,800 a year tax on all Americans in the form of rapidly rising health insurance premiums caused by uncontrolled health care spending and the shared cost of covering the uninsured.

Congress faces a clear choice. Our plan cuts more than $500 billion in health care spending and asks the richest 1.2 percent of all households to make a modest contribution of their income toward the remaining cost of our health care reform effort to reduce costs and strengthen our economy. The main Republican plan -- Just Do Nothing -- maintains the hidden tax on every business, large and small, and every American suffering under today's broken health care system.

George Miller (D-CA) is chairman of the House Education and Labor Committee and one of the three principal authors of the "America's Affordable Health Choices Act" introduced this week.

Sen. Jon Kyl gave a lengthy speech (R-Ariz.) during his question and answer session with Sonia Sotomayor that was undoubtedly the type of red-meat inquiry for which conservatives pined.

The Arizona Republican accused the Obama Court nominee of "embracing" the different jurisprudence that women and Hispanics could bring to the court, of championing the idea of judges having personal interpretation of law, and of "relativism run amok."

In what was far more a lecture than a back-and-forth (Kyl went on for nearly ten minutes before allowing Sotomayor to answer) the senator did not reference a single case decided during the judge's career. Rather, he honed in on the infamous "wise Latina" remarks delivered on several occasions during her public speeches.

"You seem to be celebrating [the superiority of being a minority judge]," Kyl said at one point. "You understand it will make a difference," he added at another point. "And not only are you not saying anything negative about that. But you are embracing [it]."

Finally, after waiting her turn, a somewhat exasperated Sotomayor chimed in, noting that there was little of substance in Kyl's critique.

"I have a record for 17 years, decision after decision," she replied. "It is very clear that I don't base my judgments on my personal experiences or my feelings or my biases. All of my decisions show my respect for the rule of law."

Sheldon Whitehouse: Roberts Court Already Activist

by Sam Stein at HuffPo

For the most part, Monday's hearing for Judge Sonia Sotomayor avoided political debate. But when it came time for Sen. Sheldon Whitehouse (D-R.I.) to begin his opening statement, he didn't shy away from discussing what was on everyone's mind.

The two selections by a Republican president have resulted in a more conservative Supreme Court, Whitehouse noted.

As long as Whitehouse has broached the subject, perhaps it is time to take a look at the old canard of activist judges only being liberals.

Whitehouse explained:

The "umpire" analogy is belied by Chief Justice Roberts, though he cast himself as an "umpire" during his confirmation hearings. Jeffrey Toobin, a well-respected legal commentator, has recently reported that "[i]n every major case since he became the nation's seventeenth Chief Justice, Roberts has sided with the prosecution over the defendant, the state over the condemned, the executive branch over the legislative, and the corporate defendant over the individual plaintiff." Some umpire. And is it a coincidence that this pattern, to continue Toobin's quote, "has served the interests, and reflected the values of the contemporary Republican party"? Some coincidence.

For all the talk of "modesty" and "restraint," the right wing Justices of the Court have a striking record of ignoring precedent, overturning congressional statutes, limiting constitutional protections, and discovering new constitutional rights: the infamous Ledbetter decision, for instance; the Louisville and Seattle integration cases; the first limitation on Roe v. Wade that outright disregards the woman's health and safety; and the DC Heller decision, discovering a constitutional right to own guns that the Court had not previously noticed in 220 years. Some "balls and strikes." Over and over, news reporting discusses "fundamental changes in the law" wrought by the Roberts Court's right wing flank. The Roberts Court has not kept the promises of modesty or humility made when President Bush nominated Justices Roberts and Alito.

So, Judge Sotomayor, I'd like to avoid codewords, and look for a simple pledge from you during these hearings: that you will respect the role of Congress as representatives of the American people.

Whitehouse wasn't the only senator on the committee to use Roberts as a benchmark by which to evaluate Sotomayor. And while he may have been blunter than his fellow members, he certainly wasn't the only one to address the political subtext of the Supreme Court confirmation candidly. As a Democratic operative pointed out, Sen. Lindsey Graham (R-S.C.) also left subtlety at the door in his opening statement.

"The Hispanic element of this hearing is important, but I do not want it to be lost," Graham said. "This is mostly about liberal and conservative politics more than anything else."