Archive for September, 2008

Lobbyists: Who is buying who???

Posted in Activism on September 22, 2008 by poyers

Every so often, check out who is donating to whom in politics.  While Democrats like to brand the Republican party as the party of Wall Street, it is actually the Democrats who get most of Wall Street’s political donations.  They also get a lot of money from an industry I plan to start calling “Big Mouth”: lawyers, actors, entertainers, advertisers, consultants, etc..  These Big Mouth industries far out-give Big Oil and other industries that produce tangible goods.  I used OpenSecrets  to find the latest data.

Only two of the top 20 corporate donors in the 2008 election cycle lean Republican .  Of the top 100, only 15 lean Republican.  As we go through a housing and banking crisis, note the following top donors and how much they gave to Democrats (listed by rank).

2.  Goldman Sachs, 72%

 

3.  Citigroup Inc, 61%

 

4.  JP Morgan Chase & Co, 59%

 

5.  Morgan Stanley, 57%

 

8.  National Association of Realtors, 59%

 

12. Lehman Brothers, 64%

 

20. Bank of America, 56%

None of the top 15 industry sectors leans Republican .  Only three of the top 20 do.  We knew that Democrats draw money from Lawyers (ranked #2, 75% to Democrats), Education (ranked #9, 79%) and TV/Movies/Music (ranked #10, 75%).  But did you know that Securities/Investment firms ranked #3 and gave 56% to Democrats?  Business Services (advertising, public relations, consulting) ranked # 7 and gave 61% to Democrats.

Who gave to Republicans?  Oil & Gas (#16, 74%), General Contractors (#17, 65%) and Miscellaneous Manufacturing and Distribution (#19, 57%).

I notice a couple of things here.  One is that the industries that produce or build real things (that you could, say, weigh or bump your head on) give to Republicans.  Democrats, on the other hand, receive their money from people who make money with their mouths: lawyers, actors, advertisers, etc.

The other thing to notice is the ranking.  Teachers, those poor, underpaid souls, give more than the dreaded “Big Oil” industry.  As does the entertainment industry.  And lawyers give more than almost anyone (coming in second only to “retired”, listed as “on the fence” in political donations).  Lawyers give more than seven times as much as Big Oil.  Securities and Investment firms give over five times as much.

All in all, the money raised by politicians at the national level in 2008 came in as follows.

 

                        Democrats:                   Republicans:

 

House:              $377,710,329              $312,026,381

 

Senate:             $152,830,271              $140,374,312

 

President:         $770,624,902              $271,193,166

 

Total:                $1.3 B                          $0.7 B

As you can see, Democrats have raised a lot more money than Republicans in this election cycle.

It should be obvious that the “branding” of the parties is exactly backwards.  The GOP is branded as the party of Wall Street and big money.  In fact, it is the Democrats who get most of Wall Street’s money and who raise more money, especially from the biggest special interest groups.

Oh, I forgot.  Campaign Finance Reform got money out of politics.

Bush and the Mae & Mac problem

Posted in Activism on September 19, 2008 by poyers

Bush was actually way ahead of everybody, asking a reform of Freddie Mac and Fannie Mae back in 2003.  But as usual, the Democrats, led by Barney Frank, said that this was a political move and that there were no problems at all here.  Just as a reminder, Mac & Mae gave the most campaign contributions to: Chris Dodd, John Kerry, Barack Obama, and Hillary Clinton in that order.  The candidate of hope and change!

From the Investors Business Daily (http://www.ibdeditorials.com/IBDArticles.aspx?id=306632135350949):

President Bush in 2003 tried desperately to stop Fannie Mae and Freddie Mac from metastasizing into the problem they have since become.

Here’s the lead of a New York Times story on Sept. 11, 2003: “The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.”

Bush tried to act. Who stopped him? Congress, especially Democrats with their deep financial and patronage ties to the two government-sponsored enterprises, Fannie and Freddie.

“These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Rep. Barney Frank, then ranking Democrat on the Financial Services Committee. “The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

It’s pretty clear who was on the right side of that debate.

As for presidential contender John McCain, just two years after Bush’s plan, McCain also called for badly needed reforms to prevent a crisis like the one we’re now in.

“If Congress does not act,” McCain said in 2005, “American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole.”

Sounds like McCain was spot on.

But his warnings, too, were ignored by Congress.

To hear today’s Democrats, you’d think all this started in the last couple years. But the crisis began much earlier. The Carter-era Community Reinvestment Act forced banks to lend to uncreditworthy borrowers, mostly in minority areas.

Age-old standards of banking prudence got thrown out the window. In their place came harsh new regulations requiring banks not only to lend to uncreditworthy borrowers, but to do so on the basis of race.

These well-intended rules were supercharged in the early 1990s by President Clinton. Despite warnings from GOP members of Congress in 1992, Clinton pushed extensive changes to the rules requiring lenders to make questionable loans.

Lenders who refused would find themselves castigated publicly as racists. As noted this week in an IBD editorial, no fewer than four federal bank regulators scrutinized financial firms’ books to make sure they were in compliance.

Failure to comply meant your bank might not be allowed to expand lending, add new branches or merge with other companies. Banks were given a so-called “CRA rating” that graded how diverse their lending portfolio was.

It was economic hardball.

“We have to use every means at our disposal to end discrimination and to end it as quickly as possible,” Clinton’s comptroller of the currency, Eugene Ludwig, told the Senate Banking Committee in 1993.

And they meant it.

In the name of diversity, banks began making huge numbers of loans that they previously would not have. They opened branches in poor areas to lift their CRA ratings.

Meanwhile, Congress gave Fannie and Freddie the go-ahead to finance it all by buying loans from banks, then repackaging and securitizing them for resale on the open market.

That’s how the contagion began.

With those changes, the subprime market took off. From a mere $35 billion in loans in 1994, it soared to $1 trillion by 2008.

Wall Street eagerly sold the new mortgage-backed securities. Not only were they pooled investments, mixing good and bad, but they were backed with the implicit guarantee of government.

Fannie Mae and Freddie Mac grew to become monsters, accounting for nearly half of all U.S. mortgage loans. At the time of their bailouts this month, they held $5.4 trillion in loans on their books. About $1.4 trillion of those were subprime.

As they grew, Fannie and Freddie grew heavily involved in “community development,” giving money to local housing rights groups and “empowering” the groups, such as ACORN, for whom Barack Obama once worked in Chicago.

Warning signals were everywhere. Yet at every turn, Democrats in Congress halted attempts to stop the madness. It happened in 1992, again in 2000, in 2003 and in 2005. It may happen this year, too.

Since 1989, Fannie and Freddie have spent an estimated $140 million on lobbying Washington. They contributed millions to politicians, mostly Democrats, including Senator Chris Dodd (No. 1 recipient) and Barack Obama (No. 3 recipient, despite only three years in office).

The Clinton White House used Fannie and Freddie as a patronage job bank. Former executives and board members read like a who’s who of the Clinton-era Democratic Party, including Franklin Raines, Jamie Gorelick, Jim Johnson and current Rep. Rahm Emanuel.

Collectively, they and others made well more than $100 million from Fannie and Freddie, whose books were cooked Enron-style during the late 1990s and early 2000s to ensure executives got their massive bonuses.

They got the bonuses. You get the bill.

Taxes and Patriotism: Biden says low taxes are unpatriotic

Posted in Activism on September 18, 2008 by poyers

Insanity!!!!

While Barack Obama tries to call John McCain a “liar” for saying Obama will raise taxes on a wide swath of Americans, Joe Biden tells America that paying higher taxes is … patriotic (http://ap.google.com/article/ALeqM5ijhWY4xbOaT6L788T-6b9FgI2dKAD9393ULG3)?  The Democratic VP told Good Morning America today that “it’s time to be patriotic” and start allowing Uncle Sam to take even more of your paycheck:

Democratic vice presidential candidate Joe Biden says that paying higher taxes is the patriotic thing to do for wealthier Americans. …

Biden told ABC’s “Good Morning America” on Thursday that, in his words, “it’s time to be patriotic … time to jump in, time to be part of the deal, time to help get America out of the rut.”

America’s economic woes have nothing to do with taxes.  Biden offered a non-sequitur yesterday when asked about the need to bail out AIG, Fannie Mae, Freddie Mac, and Bear Stearns.  He blamed the problems on tax cuts (http://blogs.abcnews.com/politicalpunch/2008/09/does-obama-supp.html), which makes no sense at all:

We should try to correct the problems that caused this.  And what’s caused this? The profligate tax cuts to the very, very wealthy that John wants to continue.  What’s caused this is the failure to have regulation so that, in fact — John talks about these CEOs getting these big bailout packages.

That’s akin to blaming your doctor’s Mercedes for the broken arm you got playing soccer.  Tax policy had nothing to do with the credit crisis.  They are two completely separate issues.  The government did not underregulate the credit industry from a lack of necessary funding, and in any case, the tax cuts produced higher revenues for Washington, not lower revenues.  The credit crisis came from bad lending decisions pushed by government mandates, and a lack of oversight driven by lobbyist-fed laziness.

Who were two of the CEOs who got big bailout packages from the Fannie/Freddie GSEs?  Jim Johnson and Franklin Raines.  Which candidate has them as advisers to his campaign?  Barack Obama.

Now Biden wants to tell us that paying higher taxes is patriotic.  You know what would be patriotic?  Congressmen like Barack Obama and Joe Biden attacking government spending, not trying to beef up government revenues (and doing so in the most destructive way, by attacking capital needed for investment).  Biden could be patriotic by revealing his pork-barrel record, something he has consistently failed to do.  Who gets Biden’s earmarks?  Why can’t Biden be patriotic and forego earmarks?

Most Americans look at their tax bite and figure they’re patriotic enough.  They’d prefer electing people who start acting responsibly with their money, rather than demand even more from them to prove their patriotism.

Lead up to the Mae & Mac problem

Posted in Activism on September 17, 2008 by poyers

The credit crisis and the lack of oversight over government-subsidized lenders like Fannie Mae and Freddie Mac occurred on the watch of George Bush, and many blame his economic team for their lack of oversight in the collapse.  Barack Obama has made this point one of his major campaign themes, arguing that John McCain would provide more of the same failures that Bush did.  However, what many do not recall is that Bush wanted to tighten oversight with a new regulatory board for Fannie Mae, Freddie Mac, and other government recipients for the express purpose of addressing bad loan practices — and Democrats blocked it.

The New York Times reported this five years ago:

The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac — which together have issued more than $1.5 trillion in outstanding debt — is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

This should have been a no-brainer, right?  With hindsight, we can see that the Bush administration had accurately diagnosed the problem in the lending market and had a plan to address it.  Fannie Mae and Freddie Mac reluctantly supported the plan.  However, Democrats objected (emphases mine):

Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

Representative Melvin L. Watt, Democrat of North Carolina, agreed.

”I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,” Mr. Watt said.

Sounds a little like the Democratic denial of problems in Social Security, doesn’t it?  Nothing to see here, no crisis on the horizonEverybody just move along, now.  The Democrats had forced lenders to assume more risk at lower interest rates in the 1990s, as IBD points out today, and they didn’t want to countenance an end to their populist policies:

But it was the Clinton administration, obsessed with multiculturalism, that dictated where mortgage lenders could lend, and originally helped create the market for the high-risk subprime loans now infecting like a retrovirus the balance sheets of many of Wall Street’s most revered institutions.

Tough new regulations forced lenders into high-risk areas where they had no choice but to lower lending standards to make the loans that sound business practices had previously guarded against making. It was either that or face stiff government penalties.

The untold story in this whole national crisis is that President Clinton put on steroids the Community Redevelopment Act, a well-intended Carter-era law designed to encourage minority homeownership. And in so doing, he helped create the market for the risky subprime loans that he and Democrats now decry as not only greedy but “predatory.”

Yes, the market was fueled by greed and overleveraging in the secondary market for subprimes, vis-a-vis mortgaged-backed securities traded on Wall Street. But the seed was planted in the ’90s by Clinton and his social engineers. They were the political catalyst behind this slow-motion financial train wreck.

And it was the Clinton administration that mismanaged the quasi-governmental agencies that over the decades have come to manage the real estate market in America.

It was the Bush administration that wanted to rein in the madness in the credit markets, and the Democrats who wanted to extend the Clinton policies that created the crisis we have now.  After the fit hit the shan, as Michelle says, these same Democrats want to shift blame back to the administration that wanted to increase oversight and curtail risk in lending practices while reducing patronage at the giant GSEs.

The Bush administration isn’t blameless in letting this get out of hand, but clearly the origins of the disaster and the efforts to keep bad policies in place fall on the Democrats in this case.

It Stopped: Paulson says no to Lehman bailout

Posted in Activism on September 15, 2008 by poyers

Good for Hank Paulson finally saying no to a government bailout.  We will see how long the politicians will stay quiet.

From the Wall Street Journal (http://online.wsj.com/article/SB122144484890334903.html?mod=opinion_main_review_and_outlooks):

The only thing anyone knows for certain is that today will be tumultuous for financial markets, after a historic Sunday that has remade Wall Street. With Lehman Brothers probably on the road to liquidation, and Merrill Lynch to be acquired by Bank of America, we are getting a Category 5 test of our financial levees.

In the event of a Lehman bankruptcy, we will also get a test of whether a major broker-dealer can fail without triggering a systemic crisis. As of last evening, the Federal Reserve and Treasury had refused to offer the same taxpayer guarantees to Lehman paper that it had for Bear Stearns last March. That was enough to cause Barclays and other potential Lehman acquirers to walk away.

The result will be a very rough Monday, but the government had to draw a line somewhere or it would have become the financier of first resort for every company hoping to buy a troubled firm. Especially with the Fed discount window now wide open to many more financial institutions, and to many kinds of collateral, Treasury Secretary Hank Paulson’s refusal to blink won’t get any second guessing from us. If Lehman is able to liquidate without a panic, and especially if its derivative contracts can be safely undone, the benefits would include the reassertion of “moral hazard” on Wall Street. The Merrill acquisition before it faces a Lehman-like run should also reduce the risk of contagion.

In the days ahead, Treasury will have to take more aggressive steps to protect the banking system — including, perhaps, another Resolution Trust Corp. that can acquire real-estate and mortgage assets when there are no other buyers, provide some floor under prices, and liquidate or sell them in more orderly fashion. Whatever happens today, we’d rather not repeat the exercise.

When does it stop

Posted in Activism on September 15, 2008 by poyers

Lehman Brothers Holdings Inc., the 158-year-old financial services firm, has announced that it intends to file for Chapter 11 bankruptcy after the investment bank’s attempts to find a buyer fell flat.

Lehman said it intends to file the petition with the United States Bankruptcy Court for the Southern District of New York, in order to protect its assets and maximize value, according to a statement by the firm.

The company noted that none of its broker-dealer subsidiaries or other units will be included in the filing and all of the broker-dealers will continue to operate.

Additionally, customers of Lehman, including customers of its wholly owned Neuberger Berman Holdings LLC wealth management unit, may continue to trade or take other actions with respect to their accounts.

The company is also exploring the sale of its broker-dealer operations and is in “advanced discussions” with a number of potential purchasers to sell its investment management division, according to the firm.

In conjunction with the filing, the company intends to file a several motions that will allow it to continue to manage operations, make salary payments and continue to provide benefits to its employees.

Shares of the New York-based investment bank plummeted 63 cents, or 15%, to $3.59 per share in Friday trading and dropped 78% last week.

Since the beginning of 2008, the value of the company’s stock has fallen 94%.

Over the weekend, Barclays PLC of London and Bank of America Corp. of Charlotte, N.C. broke off negotiations to purchase Lehman, apparently because both companies did not receive government guarantees to protect them from losses in Lehman’s mortgage portfolio, according to Crain’s New York Business.

On Wednesday, Lehman released its preliminary third-quarter results, posting a loss of $3.9 billion, or $5.92 per share attributed to “weak sales and write-downs of commercial real estate assets and a slower real estate environment,” according to Lehman chairman and chief executive Richard Fuld Jr.

The company posted a mark-to-market write-down of $7.8 billion.

Lehman is the second major U.S. investment bank to collapse in the past six months.

In March, The Bear Stearns Cos. Inc. of New York, the fifth-largest U.S. investment bank at the time, was bought by JP Morgan Chase & Co. and received a bail-out package from the government.

If we bail out all of these banks and mortgage lenders (not to mention the airlines), when does it stop?  Why not bail out Ford, Chrysler, and GM?  Why not offer all corporations the same government money in order to maintain their balance books?  For all of the animosity our politicians show to these large companies, these types of crises (I call it market fluctuations) expose them of being dependent on these big company money and show them not willing to stand up to anybody.

Tax problems: Charlie Rangel

Posted in Activism on September 15, 2008 by poyers

If those who write the tax code in this country have difficulty abiding by the rules that they set, what are the rest of us supposed to do?

From today’s Wall Street Journal (http://online.wsj.com/article/SB122143394599834065.html?mod=opinion_main_review_and_outlooks):

House Ways and Means Chairman Charles Rangel of New York admitted last week that in recent years he has underpaid his taxes by about $10,000. Republicans are demanding that he step down as chairman pending an Ethics Committee investigation, but we’re more sympathetic. Charlie is a victim of the tax code he helped to write.

[Charles Rangel]

His lawyer says Mr. Rangel flubbed his tax return by failing to record some $75,000 of rental income he received from a beach house he owns at a posh Dominican Republic resort. Mr. Rangel professes to have made an honest mistake, and says “I personally feel that I have done nothing morally wrong.” He explained that he didn’t know how much income he received from the property because his Dominican business partners would “start speaking Spanish.”

Plenty of Americans know how he feels since the IRS tax form might as well be in Spanish. The tax code now runs to some 67,000 pages, and Mr. Rangel has probably written a few thousand himself in his 38 years on Capitol Hill. If even the nation’s top tax writer can’t figure out what to declare as income, and what not to declare, how can the rest of us be expected to get it right?

Not that the IRS will show Joe Taxpayer any mercy. In most disputes over even honest mistakes, the tax collectors presume guilt. Mr. Rangel is also one of those who like to denounce corporations that shield income overseas. He’d better hope both the IRS and his House colleagues treat him with more forbearance than he and they treat private citizens or businesses. Who knows, maybe Mr. Rangel will even take this embarrassment as new motivation to work with the next President on tax reform. How do you say “flat tax” in Spanish?