February 21, 2008
Then & Now
Way back in 1988 my co-authors and I were putting the final touches to our book, Inside Job: The Looting of America's Savings and Loans when someone slipped us a plain brown envelop. Inside was a transcript of a meeting between thrift regulators and five US senators who had interceded on behalf of Arizona S&L owner Charles Keating. At the time the regulators were warning that Keating's thrift, Lincoln Savings and Loan, was dangerously insolvent and that Keating and his cohorts -- including then junk bond king, Mike Milken, were robbing the federally-insured thrift blind -- or, more precisely, robbing the US taxpayers blind.
Keating had been generous in sharing his new-found wealth with the five senators, particularly his two Arizona senators, John McCain and Dennis DeConcini. They became known as "The Keating Five."
Alarmed by such high-powered political arm twisting, FHLBB attorney, William Black, decided to document the meeting. He claims to this day that he did not secretly record the five senators. But over the years I've read countless transcripts and I remain certain that the following is a transcription taken off an actual recording.
Of course, once authenticating the transcript we wasted no time including it in the appendix of our book. The disclosure of the meeting and verbatim remarks by each senator caused them no end of misery. One would have thought McCain especially had learned his lesson about messing with the work of federal regulators. And it appeared he had. But then comes the revelation that he once again chummed up to an industry group -- this time telecom -- and inserted himself into the regulatory process in ways that look distressingly similar to the Keating affair.
The Keating affair was about money and influence, not sex. This new revelation may or may not have sex in it -- but fankly, I couldn't care less. I don't lay awake at night worrying if my senator is getting laid by the wrong people, I worry if they are getting paid by the wrong people.
In the case of Charles Keating that money and influence, and the delays caused by political pimping by people like McCain, cost American small shareholders and taxpayers dearly:
Much has been made of the $2 billion that it will cost taxpayers to bail out Charles H. Keating Jr.'s Lincoln Savings and Loan Association. But for the people who were persuaded to invest their life savings in now-worthless securities, the cost is emotional as well as financial. (NYT- 1989)
Anyway, how often have you wished you could be a fly on the wall at one of these closed-door sit downs? Well, here's a rare glimpse at one, up close and personal.
"This meeting is very unusual... to discuss a particular company."
(Chairman, James Cirona, Federal Home Loan Bank, San Francisco, 1987)
From: William Black, Esq.
To: Chairman, FHLBB, Edwin Gray
April 9, 1987
Meeting of FHLB-SF Personnel with:
Senators Cranston, DeConcini,
Glenn, McCain and Riegle
At your request I am providing you this memorandum, which reflects the substance of yesterday’s meeting with Senators Cranston, DeConcini, Glenn, McCain and Riegle. The Federal Home Loan Bank of San Francisco (FHLB-SF) personnel who attended the meeting were James Cirona (President and Principal Supervisory Agent), Michael Patriarca (Director of Agency Functions), myself (general counsel) and Richard Sanchez (the Supervisory Agent for Lincoln Savings Assoc. of Irvine, Calif.).
The meeting commenced at 6:00 P.M. and ended at approximately 8:15 a.m., with two breaks of approximately 15 and 10 minutes during which time the Senators voted. Senator Cranston was present only very briefly, because of his responsibilities on the Senate floor. The other Senators were present for substantially the entire meeting.
This meeting was the product of an earlier meeting among yourself and Senators Cranston, DeConcini, Glenn and McCain. At that meeting, as related by you (and by these same Senators in yesterday’s meeting) each of the Senators raised their concerns regarding the examination of Lincoln by the FHLB-SF and you noted your unfamiliarity with any specifics of the examination, your confidence in the FHLB-SF and your suggestion that the Senators hear from the FHLB-SF our supervisory concerns regarding Lincoln.
I was the only one at the April 9 meeting who took notes. While not verbatim, my notes are very extensive. At your request, I called you last night and read these notes to you. I have attached a copy of those notes to this memorandum. I have used these notes and my independent recall of the meeting to prepare this memorandum and provide the fullest possible record of the discussions at yesterday’s meeting.
I have circulated this memorandum to Messrs. Cirona, Patriarca and Sanchez for their review to ensure the accuracy of this memorandum. I believe that his memorandum is an accurate and complete record of the substance of yesterday’s meeting.
CIRONA: I am Jim Cirona. I am president of the Federal Home Loan Bank of San Francisco. I have held that position for four years. I am here in my capacity as principal supervisory agent. We have jurisdiction over California, Arizona and Nevada savings and loans. Before becoming president I was in the industry for 20 years.
CIRONA: In New York.
DECONCINI: Did you know Bud Bavasi?
CIRONA: Yes. Bud is a good guy.
DECONCINI: Yes. He’s great.
CIRONA: With me is Mike Patriarca, head of our agency function. Mike has joined us recently from the Comptroller of the Currency, where he was in charge of multi-national banks. Before that he was a lawyer for seven years.
McCAIN: We won’t hold that against you.
CIRONA: You were a litigator.
PATRIARCA: No, I was in enforcement seven years.
CIRONA: Also with me is Bill Black, our general counsel. Bill was formerly director of litigation for the Bank Board for three years. Next to bill is Richard Sanchez. He’s been with the San Francisco bank for years. Before that he was an auditor for a commercial bank and before that he was in school.
DECONCINI: Thank you for coming. We wanted to meet with you because we have determined that potential actions of yours could injure a constituent. This is a particular concern to us because Lincoln is willing to take substantial actions to deal with what we understand to be your concerns. Lincoln is prepared to go into a major home loan program – up to 55% of assets. We understand that that’s what the Bank Board wants S&Ls to do. It’s prepared to limit its high risk bond holdings and real estate investments. It’s even willing to phase out of the insurance process if you wish. They need to deal with, one, the effect of your reg... Lincoln is a viable organization. It made $49 million last year, even more the year before. They fear falling below 3 percent (net worth) and becoming subject to your regulatory control of the operations of their association. They have two major disagreements with you. First, with regard to direct investments. Second, on your reappraisal. They’re suing against your direct investment regulation. I can’t make a judgment on the grandfathering issue. We suggest that the lawsuit be accelerated and that you grant them forbearance while the suit is pending. I know something about the appraisal values [Senator Glenn joins the meeting at this point] of the Federal Home Loan Bank Board. They appear to be grossly unfair. I know the particular property here. My family is in real estate. Lincoln is prepared to reach a compromise value with you.
CRANSTON: [He arrives at this point] I’m sorry I can’t join you but I have to be on the floor to deal with the bill. I just want to say that I share the concerns of the other Senators on this subject. [Cranston leaves.]
DECONCINI: I’m not on the Banking Committee and I’m not familiar with how all this works. I asked Don Riegle to explain to me how the Federal Home Loan system works because he’s on Senate Banking. He explained it to me and that’s why he’s here.
McCAlN: Thank you for coming. One of our jobs as elected officials is to help constituents in a proper fashion. ACC is a big employer and important to the local economy. I wouldn’t want any special favors for them. It’s like the Apache helicopter program that Dennis and I are active on. The Army wants to cut back the program. Arizona contractors make major components of the Apache helicopter. We believe that the Apache is important to our national defense. That’s why we met with General Dynamics and tried to keep the program alive.
I don’t want any part of our conversation to be improper. We asked chairman Gray about that and he said it wasn’t improper to discuss Lincoln. I’d like to mention the appraisal issue. It seems to me, from talking to many folks in Arizona, that there’s a problem. Arizona is the second fastest growing state. Land values are skyrocketing. That has to be taken account of in appraisals.
(Sen.John Glenn joins the meeting late,)
GLENN: I apologize for being late. Lincoln is an Ohio chartered corporation, and...
CIRONA: Excuse me. Lincoln is a California chartered S&L.
GLENN: Well, Lincoln is wholly owned by ACC. (Keating's American Continental Corp.)
DECONCINI: You said Lincoln was Ohio chartered. It’s California.
GLENN: Well, in any event, ACC is an Ohio chartered corporation. I’ve known them for a long time but it wouldn’t matter if I didn’t. Ordinary exams take maybe up to 6 months. Even the accounting firm says you’ve taken an unusually adversary view toward Lincoln. To be blunt, you should charge them or get off their backs. If things are bad there, get to them. Their view is that they took a failing business and put it back on its feet. It’s now viable and profitable. They took it off the endangered species list. Why has the exam dragged on and on? I asked Gray about his. Lincoln has been told numerous times that the exam is being directed to continue by Washington. Gray said this wasn’t true.
RIEGLE: I wasn’t present at the earlier meeting. There are things happening that may indicate a pattern that do raise questions [sic]. There is broad concern on the Banking Committee about the American Banker article on the FADA and FSLIC feud. Gray has great confidence in you as a team. He says you are some of the finest people in the system. The appearance from a distance is that this thing is out of control and has become a struggle between Keating and Gray, two people I gather who have never even met. The appearance is that it’s a fight to a death. This discredits everyone if it becomes the perception. If there are fundamental problems at Lincoln, OK. I’ve had a lot of people come through the door feeling that they’ve been put through a meat grinder. I want professionalism, and your backgrounds attest to that professionalism. But I want not just professionalism, but fairness and the appearance of fairness. So I’m very glad to have this opportunity to hear your side of the story.
GLENN: I’m not trying to get anyone off. If there is wrongdoing I’m on your side. But I don’t want any unfairness against a viable entity.
CIRONA : How long do we have to speak to you? A half-hour, an hour?
DECONCINI: As quickly as possible. We have a vote coming up soon.
CIRONA: First, if there’s any fault to be had concerning the length of the examination, it’s on my shoulders. We determine how examinations are conducted. Gray never gave me instructions on how to conduct this exam or any other exam. At this meeting you’ll hear things that Gray doesn’t know.
DECONCINI: Did Gray ever talk to you about the examination of Lincoln?
CIRONA: Gray talked to me when that article ran in the Washington Post. We received no instructions from Gray about the exam of Lincoln. We decide how to do the exam.
CIRONA: This meeting is very unusual... to discuss a particular company.
DECONCINI: It’s very unusual for us to have a company that could be put out of business by its regulators. Richard, you’re on; you have 10-12 minutes.
SANCHEZ: An appraisal is an important part of underwriting. It is very important. If you don’t do it right you expose yourself to loss. Our 1984 exam showed significant appraisal deficiencies. Mr. Keating promised to correct the problem. Our 1986 exam showed that the problems had not been corrected – that there were huge appraisal problems. There was no meaningful underwriting on most loans. We have independent appraisals. Merrill Lynch appraised the Phoenician [Hotel]. It shows a significant loss. Other loans had similar losses.
DECONCINI: Why not get an independent appraisal?
SANCHEZ: We did.
DECONCINI: No, you hired them. Why not get a truly independent one or use arbitration – if you’re trying to bend over backwards to be fair. There’s no appeal from your reappraisal. Whatever it is you take it.
SANCHEZ: If it meets our appraisal standards.
CIRONA : The Phoenician reappraisal process is not complete. We have received Lincoln’s rebuttal and forwarded it to our independent appraisers.
[At this point the senators left to vote. We resumed when Senators DeConcini and Riegle returned.]
SANCHEZ: Lincoln had underwriting problems with all of their investments, equity securities, debt securities, land loans and direct real estate investments. It had no loan underwriting policy manual in elect when we began our 1986 exam. When the examiners requested such a manual they were informed that it was being printed. The examiners looked at 32 real estate loans that Lincoln had made since the 1984 exam. There were no credit reports on the borrowers in all 52 of the loan Files.
DECONCINI: I have trouble with this discussion. Are you saying that their underwriting practices were illegal or just not the best practice?
CIRONA: These underwriting practices violate our regulatory guidelines.
BLACK: They are also an unsafe and unsound practice.
DECONCINI: Those are two very different things.
SANCHEZ: You need credit reports for proper underwriting.
[Senator Glenn returns at this point.]
RIEGLE: To recap what’s been said for Senator Glenn: 52 of the 52 loans they looked at had no credit information. Do we have a history of loans to folks with inadequate credit?
SANCHEZ: $47 million in loans were classified. by examiners due to lack of adequate credit to assure repayment of the loans.
PATRIARCA: They’re flying blind on all of their different loans and investments. That’s what you do when you don’t underwrite.
GLENN: How long had these loans been on the books?
SANCHEZ: A fairly long time.
GLENN: How many loans have gone belly-up?
SANCHEZ: We don’t know at this point how many of the 52 have defaulted. These loans generally have interest reserves.
GLENN: Well, the interest reserves should run out on many of these.
CIRONA: These are longer term investments.
BLACK: I know that Lincoln has refinanced some of these loans.
GLENN: Some people don’t do the kind of underwriting you want. Is their judgment good?
PATRIARCA: That approach might be okay if they were doing it with their own money. They aren’t; they’re using federally insured deposits.
RIEGLE: Where’s the smoking gun? Where are the losses?
DECONCINI: What’s wrong with this if they’re willing to clean up their act?
CIRONA: This is a ticking time bomb.
SANCHEZ: I had another case which reported strong earnings in 198%. It was insolvent in 1985.
RIEGLE: These people saved a failing thrift. ACC is reputed to be highly competent.
BLACK: Lincoln was not a failing thrift when ACC acquired it. It met its net worth requirement. It had returned to profitability before it was acquired. It had one of the lowest rations of scheduled assets in the 11th District, the area under our jurisdiction. Its losses were caused by an interest spread problem from high interest rates. It, as with most other California thrifts, would have become profitable as interest rates fall.
DECONCINI: I don’t know how you can’t consider it a success story. It lost $24 million in 1982 and 1983. After it was acquired by ACC it made $49 million in one year.
McCAIN: I haven’t gotten an answer to my question about why the exam took so long.
SANCHEZ: It was an extremely complex exam because of their various investments. The examiners were actually in the institution from March to October – 8 months. The asset classification procedure is very time consuming.
McCAIN: What’s the longest exam you ever had before?
CIRONA: Some have technically never ended, where we had severe problems with a shop.
McCAIN: Why would Arthur Young say these things about the exam – that it was inordinately long and bordered on harassment?
GLENN: And Arthur Anderson said they withdrew as Lincoln’s prior auditor because of your harassment.
RIEGLE: Have you seen the Arthur Young letter?
RIEGLE: I d like you to see the letter. It’s been sent all over the Senate. [Hands Cirona the letter.]
PATRIARCA: I’m relatively new to the savings and loan industry but I’ve never seen any bank or S&L that’s anything like this. This isn’t even close. You can ask any banker and you know about these practices. They violate the law and regulations and common sense.
GLENN: What violates the law?
PATRIARCA: Their direct investments violate the regulation. Then there’s the file stuffing. They took undated documents purporting to show under writing efforts and put them into the files sometimes more than a year after they made the investment.
GLENN: Have you done anything about these violations of law?
PATRIARCA: We’re sending a criminal referral to the Department of Justice. Not maybe; we’re sending one. This is an extraordinarily serious matter. It involves a whole range of imprudent actions. I can’t tell you strongly enough how serious this is. This is not a profitable institution. Prior year adjustments will reduce that reported $49 million profit. They didn’t earn $49 million. Let me give you one example. Lincoln sold a loan with recourse and booked a $12 million profit. The purchaser rescinded the sale, but Lincoln left the $12 million profit on its books. Now, I don’t care how many accountants they get to say that’s right. It’s wrong. The only thing we have as regulators is our credibility. We have to preserve it.
DECONCINI: Why would Arthur Young say these things? They have to guard their credibility too. They put the firm’s neck out with this letter.
PATRIARCA: They have a client. The $12 million in earnings was not unwound.
DECONCINI: You believe they’d prostitute themselves for a client?
PATRIARCA: Absolutely. It happens all the time.
[The senators left at this point for another vote.]
[We resumed when Senators DeConcini, McCain, and Riegle returned.]
CIRONA I also wanted to note that the Bank Board has had a lot of problems with Arthur Young, and is thinking of taking disciplinary action against it.
BLACK: Not for its actions here. Primarily because of its Texas office, which has never met a direct investment. They think everything is a loan. This has quite an effect on the income you can claim.
PATRIARCA: By regulation we have adopted a regulatory capital standard.
DECONCINI: And you’ll take control of them if they fail your net worth standard – you’ll take operational control of them.
CIRONA: That’s speculative. We’d take steps to reduce their risk exposure.
RIEGLE: What would require them to sell?
CIRONA: We’d probably have them decrease their growth. Time and again we’ve found rapid growth associated with loss. Lincoln has grown rapidly.
BLACK: Are you sure you want to talk about this? We haven’t made any recommendation to the Bank Board yet. The Bank Board decides what action to take. These are very confidential matters.
DECONCINI: No, then we don’t want to go into it. We were just asking very hypothetically and that’s how you [indicating Mr. Cirona] were responding.
CIRONA: That’s right.
DECONCINI: Can we do something other than liquidate them?
CIRONA: I hesitate to tell an association what to do. We’re not in control of Lincoln, and won’t be. We want to work the problem out.
McCAIN: Have they tried to work it out?
CIRONA: We’ve met with them numerous times. I’ve never seen such cantankerous behavior. At one point they said our examiners couldn’t get any association documents unless they made the request through Lincoln’s New York litigation counsel.
RIEGLE: Well, that does disturb me – when you have to go through New York litigation counsel. What could they do? Is it too late?
CIRONA: It’s never too late.
McCAIN: What’s the best approach? Voluntary guidelines instead of a compulsory order?
DECONCINI: How long will it take you to finish the exam?
PATRIARCA: Ten days.
GLENN: Have they been told what you’ve told us?
PATRIARCA: We provided them with our views and gave them every opportunity to have us hear what they had to say. We gave them our classification of asset materials and went through them loan by loan. This is one of the reasons the exam has taken so long.
SANCHEZ: We gave them our classification materials on January . On March 9 we received 52 exhibits, amounting to a stack of paper this high [indicating approximately two feet of material] responding to that. We went through every page of that response.
PATRIARCA: We didn’t use in-house appraisers. We sent the appraisals out to independent appraisers. We sent the reappraisals to Lincoln. We got rebuttals from Lincoln and sent them to the independent appraisers. I don’t think there was any case that Lincoln agreed with the re-appraisal.
SANCHEZ: None where the reappraisal indicated insufficient collateral.
PATRIARCA: In every case, after reviewing the rebuttal, the independent ap-
praiser has stood by his conclusion.
DECONCINI: Of course. They had to.
PATRIARCA: No. The rebuttals claim specific problems with the independent appraisers’ reappraisals: “You didn’t consider this feature or you used the wrong rental rate or approach to value.” The independent appraiser has come back to us and answered those specific claims by saying: “Yes, I did consider that, and here’s why I used the right rate and approach.”
DECONCINI: I’d question those reappraisals. If you want to bend over back-wards to be fair I’d arbitrate the differences. The criminality surprises me. We’re not interested in discussing those issues. Our premise was that we had a viable institution concerned that it was being over-regulated.
GLENN: What can we say to Lincoln?
BLACK: Nothing with regard to the criminal referral. They haven’t, and won’t be told by us that we’re making one.
GLENN: You haven’t told them?
BLACK: No. Justice would skin us alive if we did. Those referrals are very confidential. We can’t prosecute anyone ourselves. All we can do is refer it to Justice.
DECONCINI: They make their own decision whether to prosecute?
BLACK: Yes. I also want to mention that we are already investigating Arthur Anderson because of their role in the file stuffing. We don’t know whether they knew the purpose for which they were preparing the materials. I don’t want to get harassed... no, that’s not the right word; I don’t want to get criticized if we Find out that Arthur Anderson was involved criminally and we have to make a referral on them. We don’t want them to claim retaliation. We’re in a tough spot. With regard to what you can say to Lincoln, you might want to simply have them call us. If you really want to talk to them you can say that it will take us 7 to 10 days to Finish the exam.
RIEGLE: Is this institution so far gone that it can’t be salvaged?
PATRIARCA: I don’t know. They’ve got enough risky assets on their books that a little bad luck could nail them. You can’t remove the risk of what they already have. You can reduce what new risks they would otherwise add on.
BLACK: They have huge holdings in Tucson and Phoenix. The. market there can’t absorb them for many years. You said earlier that ACC was extremely good but ACC has gotten out of its former primary activity, homebuilding. I’m not saying they’re bad businessmen but they had to get out of one homebuilding market after another. They had to get out of Colorado when they had bad models and soil problems. They also had to get out of their second leading activity, mortgage banking. They’re now down to Arizona. That’s not a bad market but no one knows how well it will do over the many years that it would take to absorb such huge holdings in Tucson and Phoenix.
DECONCINI: So you don’t know what you’d do with the property even if you took them over?
BLACK: Bill Black doesn’t. Bill Black is a lawyer. We hire experts to do this work. Our study of their Arizona holdings was done by top experts. Our study of below investment grade corporate debt securities – what folks usually call junk bonds, but I avoid it because I don’t know where you stand on such bonds – was done by top outside experts. I see in this Arthur Young letter that they criticize us for having an accountant with “only” eight years of experience. Well, I think... I don’t see how you can claim eight years as inexperienced. But we didn’t simply rely on him. We had... wasn’t it Kenneth...
SANCHEZ: Yes. Kenneth Laventhol.
BLACK: We had Kenneth Laventhol, outside accountants, work on this. These are also some of the reasons the exam took time.
PATRIARCA: I think my colleague Mr. Black put it right when he said that it’s like these guys put it all on 16-black in roulette. Maybe, they’ll win, but I can guarantee you that if an institution continues such behavior it will eventually go bankrupt.
RIEGLE: Well, I guess that’s pretty definitive.
DECONCINI: I’m sorry, but I really do have to leave now.
[The meeting broke up at this point, approximately at 8:20 P.M.]
( Editor's note: Now with the sub-prime, credit crunch, foreclosure crisis gutting both consumer and investment banking one can wonder how many meetings like this are going on today. I don't know. No one has sent me a transcript -- yet. )
February 20, 2008
What do Mike Huckabee and Hillary Clinton have in common?
Neither seems to have heard the old Kenney Rogers tune, the refrain of which goes:
"You got to know when to hold em, know when to fold em,
Know when to walk away and know when to run."
Last night's results from Wisconsin were stunning, and telling. But even more telling was what was going on behind the scenes. Taken together with the poll results, if Hillary Clinton took Kenney Rogers' advice above she wouldn't just walk away, she'd sprint for the nearest exit.
In case you missed it, here's what happened after the polls closed in Wisconsin.
Once it was clear to both campaigns that Obama had definitively won Wisconsin, the Obama folks let the Clinton folks know Obama would wait before he spoke to let Hillary speak first. Their assumption being that she'd concede the Wisconsin race and congratulate Obama for the win.
How little the Barackistas still understand the Clintons. Like Lucy in the Peanuts cartoon, she pulls the football away just as Charlie Brown goes for the kick. And so it came to pass, again -- Hillary, speaking before a crowd in Texas, launched right into a campaign attack speech.
Furious they'd been had again, the Obama campaign "big footed" Hillary by having Barack begin his speech right there and then. They knew that, as the winner last night, all the networks would switch from Hillary's speech to his -- and that's just what happened. Hillary was blacked out -- right in the middle of her pitch.
But it wasn't "ouch" for those of us watching on TV --- it was deal closer. We were instantly transported from Hillary's sing-song, robotic, entirely predictable remarks, to a soaring address by Obama. (Watch it here)
As I listened to Obama I turned to my wife and said, "it's over."
It was so clear... stunningly clear. The Obama folks may have cut into Hillary's speech in a moment of anger, but in so doing they created a contrast so startling in it's starkness that only the most lobotomized Clinton Moonies could have resisted it. The contrast was so immediate and so stunning it hit me like a truck.
The contrast forced the question on me, and I suspect millions of others who saw and heard it. It reduced all the noise and posturing of this campaign down to a very simple choice:
Did I want four years of more of the same -- the same poll-tested nostrums, the same all-talk, process-pablum that has, for the past couple of decades masked a failure of either party to govern -- the failure to solve real problems rather than use them as brickbats against "the other side?"
Was that what I wanted?
Or did I want the candidate who was giving this hard-boiled, as-cynical-as-they-come, crusty old reporter goosebumps every time he opened his mouth? Did I want the candidate that included me in his equation, the candidate who didn't just ask for my vote, but my help, should he win. Did I want the candidate that didn't tell me he/she was prepared to do it all FOR me "on day one," but rather that he could not do any of it for me, only WITH me.
It was no contest. None. Hillary offered same-old,same-old, on steroids. The same old talking points, same old "vast conspiracies" that she'd use to explain her failure to deliver and, of course, the same old loose canon, Bill, rolling fore and aft on our national -- and emotional -- decks.
Of course, there's no way for me -- or you -- to know, with any degree of certainty, if Obama can deliver on any of the high-minded promises he makes. But then he doesn't claim he can. He only claims "we can."
How surprising is this? Following so many years of hopelessness, when hope returned it arrived in a plain brown wrapper.
So it is that, after two decades of helplessly watching my country slide backwards -- backwards in education, backwards in healthcare, backwards in human rights, backwards in open government, backwards in protecting the environment, backwards in economic equity, backwards in freedom itself -- I am pushing all my chips in for the candidate who clearly believes we can reverse this decline.
Obama has convinced me, we can. Yes, we can.
Hillary, do yourself, us and the nation a favor -- fold-em.
Yes, you can.
February 15, 2008
Shame or Disgrace?
I'm not going to take a lot of your time this morning. Not because I couldn't go on and on about this, I could. But it's not necessary. It's simple. Let's start with this:
If you should run into Hillary or Barack on the campaign trail ask them the following question:
If you become President of the United States of America, making your running mate the constitutional president of the US Senate, will you demand that the current Senate Majority Leader, Harry Reid, be replaced immediately?
It's a critical question. Harry Reid is, to put it mildly, the worst, most ineffective, mealy-mouth, wimp to lead the US Senate in my adult life time. And he proved that again this week when he allowed the administration's bill granting immunity to the telecoms to pass the Senate.
In effect what Reid did by allowing that legislation to pass is to ratify Richard Nixon's stated belief that, "if the President does it it's not illegal."
Fortunately the House, under Nancy Pelosi's leadership, showed more backbone than Reid and his Senate colleagues by refusing to ratify the Senate's version giving the telecom's a get-out-jail free card for aiding and abetting the administration's illegal wiretapping. Instead the House shelved the matter allowing the current authority to lapse this Saturday and took two weeks off.
This morning President Bush was on TV whining that refusing to grant the telecoms immunity will mean "it will be harder for us to get companies to cooperate with us in protecting you."
The statement is correct, though worded incorrectly. The correct way to put it is that, failing to provide telecoms protection from lawsuits will, "make it harder for us to get companies cooperate with us to protect you by illegally spying on you."
To which I say, good. It should make it harder, just as the threat of lawsuits make it's harder for companies to screw consumers, which many companies would be delighted to do if they figured they could get away with it. But also, and more importantly, the threat of lawsuits will force the telecoms to do a basic cost/benefit analysis before they pull a stunt like this again. That analysis would go something like this:
- By helping the government spy on Americans the govenment owes us one the next time we want something from the government, be it legislation or regulatory favors.
- But, without immunity if the courts later find we broke the law it could cost of billions of dollars in damages, more than wiping out any gains we might garner by cooperating.
(Do notice that the top three recipients of telecom money are also the top three candidates for President -- Here)
What Harry Reid did last week was to assure that the telecoms would only see upside and no downside when faced with any similar requests from this or any other administration in the future.
The reason this is so important is that the nexus of big government and big business must always be viewed with the greatest attention and suspicion. If history has taught us anything it's that it is at that nexus where seeds of corporate fascism geminate, and if allowed to grow, thrive.
Those seeds took root in a startlingly aggressive way under this administration. Not only did major telecom companies comply with the administration's request for assistance in its illegal warrantless wiretapping, but they did so with frightening gusto, efficiency and enthusiasm.
AT&T built warrantless wiretap rooms for the NSA
AT&T has asked a court to suppress documents leaked to the Electronic Frontier Foundation by an ex-employee detailing how the company indiscriminately diverted domestic and international traffic to the National Security Agency for warrantless wiretapping:
AT&T built a secret room in its San Francisco switching station that funnels internet traffic data from AT&T Worldnet dialup customers and traffic from AT&T's massive internet backbone to the NSA, according to a statement from Klein.
Klein's duties included connecting new fiber-optic circuits to that room, which housed data-mining equipment built by a company called Narus, according to his statement.
Narus' promotional materials boast that its equipment can scan billions of bits of internet traffic per second, including analyzing the contents of e-mails and e-mail attachments and even allowing playback of internet phone calls.
Eventually Klein blew the whistle saying that, "We all remember Big Brother, and suddenly there I was hooking everyone up to the Big Brother Machine."
Harry Reid failed us and he violated his oath of office, the oath he took to "preserve and protect the Constitution of the United States of America from enemies foreign or domestic."
So, ask the two Democratic candidates if they would push to replace Reid immediately upon taking their oath of office.
That's all. Have a great weekend.
Your Daily Sigh
February 13, 2008
Hoisted With Their Own Petards
After decades of reporting on white collar crooks I learned something interesting. I learned that the best way to catch such otherwise respectable appearing evil-doers is to let them catch themselves. The other thing I learned is that hubris almost always guaranteed they would eventually do just that.
And so it came to pass yesterday when the Bush administration shot of an unclassified cable to it's diplomats around the world. The cable was devised to coach diplomats in how to respond to criticism of the administration's announcement last week that it would seek the death penalty against three al Qaida terrorists accused of planning and/or aiding the 9/11 attacks.
Diplomats advised to compare 9/11 cases to Nazi war crime trials sixty years ago in Nuremberg, Germany:
WASHINGTON (CNN) -- Anticipating international criticism over plans to seek the death penalty for accused September 11, 2001, terrorists, the State Department is advising U.S. diplomats to point out that Nazis were executed after their war crime trials. The memo says U.S. diplomats should draw from the points in the memo "in responding to foreign government and media requests."
One portion of the memo reads:
Q: "Doesn't the application of the death penalty to these defendants violate international law?"
A: "No. International humanitarian law contemplates the use of the death penalty for serious violations of the laws of war. The most serious war criminals sentenced at Nuremberg were executed for their actions" at the end of World War II. (Full Story)
Ironic, isn't it? Here's an administration that has stubbornly, and largely successfully, hidden, withheld and even destroyed, documents that could implicate it in crimes from conspiracy and collusion with energy companies to fabricating evidence to justify an illegal war against Iraq to torture.
Then what do they do? They issue an unclassified cable to diplomats containing all the reasoning and justifications for it's own future in the dock of international justice.
Their effort to justify the death penalty for three al Qaida terrorists, may become the closing argument some future prosecutor will use against defendants Bush, Cheney, Rumsfeld, Rice, et al. (Heretofore referred to as "The Gang of Four.")
Now, do I believe I will some day see the Gang of Four in the dock facing death sentences? No. Real life doesn't work that way. These days only defeated, weak, third-world tyrants face such ultimate justice. And even then, they rarely face a hangman's noose. At best modern tyrants simply get long prison terms -- and even that's rare.
Also these days the number of "civilized" nations that still employ the death penalty has been whittled down pretty much down to the US, China and Iran. Great company, huh?
Nevertheless, in raising Nuremberg as precedent for its desire to snuff three terrorists, they have reminded the world that, just sixty years ago, public officials guilty of war crimes were held accountable. They were put on public trial, forced to face their surviving victims, forced to listen to the suffering they caused and the millions that died because of their orders and misdeeds.
Much of the evidence presented against those Nuremberg defendants were captured documents. They were faced with their own documents, containing their own words, their own orders, all over their own signatures.
The lessons that should have been learned from Nuremberg was that liability for wrong-doing accrued to all wrong-doers, no matter how high or low they ranked on the organizational chart.
So, fast forwarding sixty years, what will become of those who followed the illegal orders of our leaders -- the CIA, the FBI, telecom companies and others? Nuremberg clearly and unequivocally established that "following orders" was no defense for committing crimes.
That should mean that more than the Gang of Four need to worry about future judicial accountability. And worried they are. That's why the CIA destroyed those torture tapes, and why the White House erased over 5 million emails. And it's why telecommunication companies are begging the White House for immunity for complying with the administration's illegal warrantless wiretapping.
If some future tribunal finds the Gang of Four and their accomplices guilty, prosecutors will only need to present yesterday's cable to US diplomats during the punishment phase of their trial.
February 7, 2008
Chicago 1968 -- Denver 2008
On August 25 Democrats will gather in Denver for their nominating convention. Ironically it comes precisely 40 years since the party opened it's 1968 convention in Chicago. The 1968 convention was the most significant in my lifetime - until now.
The Democratic Party and the nation paid a horrible price for what transpired at that convention, a price we may be about to pay again.
The Democratic convention this August faces many of the same issues as Democrats face in 1968. Change vs. same-old, same-old. Machine politics vs. people politics. The will of the people vs. the will of party insiders. They are all in play again.
I only mention this because the players are already setting up their plays for the August show down in Denver. Hillary Clinton has made it clear that, if Obama wins enough delegates to match her, she and her party surrogates will demand that delegates from Florida and Michigan be seated, even though she had agreed with the party's decision months ago to ban them if they moved their primaries up. They did anyway and their delegates were decertified. Now that she won Florida she wants to change the rules.
If that fight breaks out on the convention floor this August, get ready for trouble. What kind of trouble? Big trouble. That's what kind of trouble.
A brief history is required. Bear with me. Because, it's that important.
Choosing a Presidential nominee in 1968 was particularly difficult for the Democrats. As today a profoundly unpopular war raged (in Vietnam.) President Lyndon B. Johnson, who had repeatedly escalated US involvement in Vietnam, had come under so much pressure from anti-war Democrats that he decided not to seek re-election.
Robert Kennedy was a controversial upstart, anti-war candidate hated by Johnson and unpopular with party leaders who saw him as too ambitious and too young. But Robert Kennedy was assassinated in June, nearly three months before the convention.
Senator Eugene McCarthy, D-MN, stepped up his aggressive anti-war campaign, calling for the immediate withdrawal from the region. Kennedy's former supporters flocked to McCarthy.
On the other side was the Democratic Party bosses' choice, Vice President Hubert Humphrey. Thanks to the oddities of Democratic primary rules back then, Humphrey did not participate in any primaries but still controlled enough delegates to secure the nomination if he wanted it. Unfortunately Humphrey had been an early supporter of the war and currently mirrored Johnson's strategy of continuing the war while trying to convince North Vietnam to negotiate a settlement. Anti-war Democrats had heard enough of such, "I'll-pay-you-Tuesday-for-a-hamburger-today, nonsense. They weren't buying.
McCarthy's announcement re-ignited the hopes of a new generation of voters and political activists. A former academic and Washington outsider, McCarthy's nickname became "Clean for Gene," leading many students to cut their hair off and shave their beards and mustaches.
McCarthy's principled stand on the war faced it's first, the New Hampshire primary. Hundreds of students rushed to New Hampshire and campaigned door-to-door for McCarthy. McCarthy won a startling 42% of the vote, something that greatly upset and stunned party loyalists.
Meanwhile behind the scenes Vice-president Hubert H. Humphrey had been negotiating for delegates in non-primary states. The fix had been put in already by party bosses. Humphrey "won" the nomination in Chicago on August 25-29, 1968. Three-thousand anti-war demonstrators stood outside the convention hall in shocked rage. To add insult to injury the delegates to the Democratic convention voted down a Vietnam peace plan by a 1500-1000 vote. (You see, even 40 years ago, Democrats lived in fear of being painted as "weak on national defense," by their Republican opponents. If a few thousand more US soldiers had to die for Democrats to look tough, so be it.)
So, despite strong showings in the primaries, McCarthy was able to gather only 23 percent of the delegates -- thanks to the control over the delegates wielded by state party organizations. While Humphrey, was not clearly an anti-war candidate, some anti-war Democrats backed Humphrey hoping he might succeed where Johnson had failed in extricating the United States from Vietnam -- just as today some Democrats hope that Hillary, who was for the war before she was against it -- might just figure out how to extricate us from Iraq.
Young McCarthy supporters quickly figured out that Democratic party insiders had fixed the contest and vented their disappointment and anger through the streets of Chicago. The party's most experienced and notorious machine Democrat -- Chicago Mayor, Richard Daley -- was not about to allow his party's will to be thwarted by a bunch of "hippies." He turned the police and National Guard loose on the protesters. (Watch it here)
I remember watching the carnage on my black and white TV. It wasn't a hippe/yippee riot, it was a police riot. As young people were clubbed to the ground the crowd chanted, "The whole world is watching. The whole world is watching."
Those scenes radicalized me then and there, and millions more were as well. We've never entirely trusted the Democratic Party since then -- and for good and abundantly obvious reasons.
(Chronology of the 1968 Chicago convention protests here)
Party insiders "won" in 1968. The party nominated it's choice, Hubert Humphrey, as it had always intended to once Johnson decided not to run. Humphrey went on to lose the subsequent election to Richard M. Nixon by 500,000 votes. (Because of that, an additional 20,000 US soldiers would die before the war was finally brought to an end after Nixon was chased from office in 1974.)
Which brings me back to this coming August, in Denver. The similarities between 1968 and 2008 are startling:
In 1968 support for the Vietnam war had hit new lows. (Chart)
In 2008 support for the war in Iraq has reached new lows. (Chart)
In 1968 the Democratic Party insider candidate, Humphrey, had supported the war and, while public option was increasingly for withdrawal, he preached against a mandated withdrawal from Vietnam, deeming such a withdrawal as reckless and potentially dangerous to US security.
In 2008 the Democratic Party insider candidate, Hillary Clinton, who was for the war until she was against it, now argues against a rapid withdrawal or setting a hard timeline for withdrawal.
In 1968 an unconventional, anti-war candidate -- Senator Gene McCarthy, captured the imagination and rekindled the hopes of a new generation of voters, even bridging racial divides garnering support from civil rights groups including the Black Panthers.
In 2008 an unconventional, anti-war candidate -- Senator Barack Obama, has captured the imagination and rekindled the hopes of a new generation of voters, again bridging historical racial divides.
In 1968 Democratic Party insiders viewed newcomer McCarthy as an outsider and a threat to the party's pecking order. It was Hubert Humphrey's "turn" to be President, and besides, who was this rebel rousing outsider McCathy and his young hairy supporters anyway?
In 2008 the Democratic Party apparatus view Obama as an outsider and a threat to the party's insider pecking order. It's been an article of faith since Bill left office that the next time was Hillary's turn. Besides, who is this rebel rousing outsider Barack Obama and his children crusaders anyway?
In 1968 Democratic Party insiders brushed aside the hopes and aspirations for change from a new generation of voters. Instead they rammed through the nomination of the party's choice, Hubert Humphrey. How they did it is instructive -- they used their control over Democratic party state officials to swing their delegates to Humphrey.
In 2008 much the same dynamic will be in play. Already party chairman, Howard Dean (once an outsider himself) has indicated he's open to a deal that would avoid a convention-floor fight for the nomination. Welcome back to the smoke-filled rooms of 1968.
Should neither Clinton or Obama arrive in Denver with enough delegates to clinch the nomination, the dealing will begin. First there are the large number of so-called "Super Delegates," made up largely of old party hacks and those who follow orders. Super Delegates are not bound by how their states voted during the primaries. Instead many, if not most, will vote as the party leaders instruct them to vote.
If that fails to swing the nomination to Clinton party insiders hold a trump card -- a trump card that would put the party's designated hitter, Hillary Clinton, in and outsider Obama out: they will re-certify all or some of Florida and Michigan's now-banned delegates.
A redo for Mich., Fla.?
LANSING, Mich. — The Democratic National Committee is pressuring Michigan and Florida to hold presidential caucuses so the delegates they lost for holding January primaries could be seated at the national convention, a top Michigan Democrat said Wednesday. (Full Story)
Should they pull that stunt it will tear the Democratic Party apart as it did in 1968. It will also set the stage for McCain victory next November, and with it more war, more dead US GI's and more dead Iraqis.
How do I know? Because history teaches me so.
More Proof History Repeats on us: Guess who threw his hat into the GOP presidential ring in November 1967 -- Michigan Governor George Romney -- father of Mitt. Like father, like son. George Romney withdrew from the race in February 1968. Son Mitt Romney dropped out of the race today, Feb. 7, 2008. Now you know.... the rest of the story.
If Hillary wins fair and square, fine. I won't like it, but I'll learn to live with it.
But, if the party pulls a 1968, and rams Hillary Clinton down our throats, then the gloves are off. We need to let Howard Dean, et al, know that if they play that card all hell will break loose. Like my generation 40 years ago, a new generation has been energized ... energized by endless war, by growing economic inequities and by heavy-handed government intrusions into their private lives. They are smart. They are connected. And they will not go quietly.
My generation lost its fight, largely because we had virtually no access to mass communications or the mass media. When you told someone 40 years ago that your were "networking," it meant was that you owned phone and a phone book. All we could do to get our message on the evening news was to demonstrate, raise hell and shout insults at the police.
But this generation is all about networking and mass communication.
Sticks and stones didn't get it done for us in 68, but I suspect the tech-savvy, hyper-connected YouTube generation will make Democratic Party hacks long for those "good old days," if they cross them.
It's too soon to put out the call: "Denver. August 25-28. Be there, or be square." But be assured, we're watching.
"There is absolutely no greater high than challenging the power stucture as a nobody, giving it your all, and winning." --Abbie Hoffman