Sanford Case a New Dose of Bad News for Republicans

June 25, 2009

By JIM RUTENBERG

WASHINGTON — Republicans were just starting to breathe a little easier.

The news that Senator John Ensign had had an affair with a former aide who was married to another former aide was fading. Polls showed some voter impatience with President Obama’s policies, if not with the president himself. And the Politico, the insidery Web site that is widely read in the capital’s political precincts, even featured an article exploring the possibility of a Republican Party comeback.

Then Gov. Mark Sanford of South Carolina, a fiscal conservative seen by many Republicans as an attractive standard-bearer for the next presidential campaign, went missing. Worse, he returned.

His confession on Wednesday that he had been in Argentina with a woman not his wife — and not hiking the Appalachian Trail as his staff had said Monday — was another jolt of bad news for a party that has struggled to get off the ropes all year.

That it was the second such confession in little more than a week from a potential Republican presidential contender — Mr. Ensign had been exploring a run in 2012 as well — left party leaders dazed. They spent Wednesday alternating between gallows humor and yet another round of conversations about what the party stands for and who will give it its best shot to retake the White House.

“Personal circumstances over the course of the last week have managed to shrink the front line of the 2012 possible-contender list by 30 percent,” said Phil Musser, a former executive director of the Republican Governors Association.

Speaking of Mr. Sanford’s confession, Mr. Musser said, “The concern here is that this continues a broader narrative that is completely unhelpful to the Republican Party’s rebuilding — that’s life, but it’s a personal tragedy that fairly or unfairly compounds a series of problems.”

That series of problems has become so chronic that even the party’s most pragmatic members could be forgiven for wondering whether being named “possible 2012 contender” is like winning the movie role of Superman, long believed by some to carry a curse for those actors who don his blue tights.

One by one, those who have been publicly discussed as possible Republican candidates in 2012 have stumbled.

Gov. Bobby Jindal of Louisiana suffered a political setback after even his fellow conservatives harshly critiqued his televised response to Mr. Obama’s prime-time address to Congress in February. The speech, which was supposed to provide a moment to shine in front of a national audience, instead became fodder for late-night comedy.

Gov. Sarah Palin of Alaska, the former Republican vice-presidential nominee who was eviscerated by some of her own political aides at the end of last year’s presidential race, continued to get national attention, but hardly the kind likely to help convince voters that she would be a substantive candidate. The father of her unwed teenage daughter’s baby feuded openly with the Palin family, and the governor exasperated some Republicans in Washington with her off-again, on-again plans for headlining a fund-raiser there.

After basking in glowing reviews among political pundits this year, Newt Gingrich, the former House speaker, had to apologize for a post on Twitter in which he called Mr. Obama’s Supreme Court nominee, Sonia Sotomayor, “racist” for saying that she hoped Latinas would be generally better equipped to make judicial decisions than their white male counterparts.

Another possible Republican presidential candidate in 2012, Gov. Jon M. Huntsman Jr. of Utah, fell out of contention when he accepted Mr. Obama’s offer to become ambassador to China, robbing the party of a rising star.

All of their troubles have served to improve the prospects of other contenders who have generally stayed out of the spotlight this year, or have ventured into it only gingerly, like former Gov. Mitt Romney of Massachusetts, Gov. Tim Pawlenty of Minnesota and Gov. Haley Barbour of Mississippi.

Some prominent party members argued that criticism in the mainstream news media of Ms. Palin, Mr. Gingrich and Mr. Jindal did not reflect their standing among the conservative voters who decide primaries and caucuses — and that the confessions of Mr. Ensign and Mr. Sanford would be viewed in isolation.

“I disagree with the idea that this shows problems for the modern Republican Party,” said Grover Norquist, the president of Americans for Tax Reform, a group that applauded Mr. Sanford’s attempt to refuse some federal stimulus funds earlier this year. In reference to the fiscally conservative philosophies of Mr. Ensign and Mr. Sanford, he joked, “I think instead it shows that sexual attractiveness of limited-government conservatism.”

As television pundits noted on Wednesday, confessions by former Gov. Eliot Spitzer of New York that he had been involved with a prostitute and by former Gov. Jim McGreevey of New Jersey that he had been unfaithful to his wife with a gay lover did not hurt Democrats nationally, although both men resigned.

But other senior Republican strategists and leaders said they were concerned that their party’s large segment of evangelical voters makes the party more vulnerable to political damage from scandal, especially when it involves politicians like Mr. Sanford and Mr. Ensign, who had both been harshly critical of the infidelities of former President Bill Clinton and others.

“When we do these kinds of things like what happened with Ensign and now with Sanford it hurts our credibility as a party of good governing and of values,” said Ron Kaufman, a Republican lobbyist who is close to Mr. Romney. Mr. Kaufman is among those in his party who believe that the news that former Representative Mark Foley of Florida had sent sexually explicit e-mail messages to male Congressional pages cost the party in 2006 and 2008.

“I think there is somewhat of an identity crisis in the Republican Party,” said Tony Perkins, president of the Family Research Council, an evangelical group in Washington. “Are they going to be a party that attracts values voters, and are they going to be the party that lives by those values?”

Obama’s 48-Hour Makeover

Obama’s 48-Hour Makeover

Posted By Jason Ditz On May 15, 2009 @ 5:15 pm In Uncategorized | 1 Comment

President Obama’s tenuous claim to the antiwar community was already unraveling long before he formally took office. Shortly after the election his national security team’s extremely hawkish makeup was drawing concern. Two days after his inauguration, he had backed off his campaign promise to have all US troops out of Iraq in 16 months. Still, his supporters could find some measure of solace in his halting of the military tribunals at Guantanamo Bay and his promises of a more transparent administration.

Or at least they used to be able to. In the past 48 hours the administration has backed off of the few scraps of significant policy revisions thrown to an electorate hungry for his campaign’s mantra of change. First, he overruled the Pentagon’s decision that undisclosed photos of detainee abuse could be released. Perplexingly, he insisted that the photos did not contain anything “particularly sensational,” before cautioning that making them public would imperil the troops and inflame anti-American opinion.

It was less than 48 hours later that the president confirmed that he was going to resume the military tribunals against detainees at Guantanamo Bay. He had previously ordered such tribunals halted when pledging to close the facility. Now instead of the rule of law, the administration is offering a modest selection of new “rights” detainees will enjoy, none of them particularly earth-shattering.

Even the pledge to close the detention center has become something of a hollow victory, amid reports that the administration is floating to Congress the idea of holding many of the detainees on American soil indefinitely and without trial. This legal sleight of hand would be accomplished through the creation of National Security Courts, which would be empowered to try detainees without the legal rights enjoyed in US criminal courts. The new courts would also provide an aegis for holding the detainees without trial while still appearing to have some measure of legal oversight on their captivity.

At the end of the day the only group really satisfied with President Obama’s new policies are the hawkish wing of the Republican Party. And why shouldn’t they? After all they supported them when President Bush introduced the notion of keeping people imprisoned without charging them with a crime, and was the architect of much of the secrecy-obsessed culture President Obama was so quick to dismiss on taking office, and is now so quick to embrace. For human rights groups, antiwar factions and even much of his own party’s base, the disappointment is becoming palpable.

Related Stories

• May 14, 2009 -- Obama Mulls ‘Indefinite Detention’ Without Trial for Detainees
• May 14, 2009 -- Obama to Revive Terror Tribunals
• May 4, 2009 -- Dems Pull Funding to Close Gitmo

Obama Considers Detaining Terror Suspects Indefinitely

By EVAN PEREZ

WASHINGTON -- The Obama administration is weighing plans to detain some terror suspects on U.S. soil -- indefinitely and without trial -- as part of a plan to retool military commission trials that were conducted for prisoners held in Guantanamo Bay, Cuba.

The proposal being floated with members of Congress is another indication of President Barack Obama's struggles to establish his counter-terrorism policies, balancing security concerns against attempts to alter Bush-administration practices he has harshly criticized.

Obama Administration Manages Detainee Policy

2:05

WSJ's Justice Department reporter Evan Perez discusses the Obama administration's efforts to create a detainee policy in line with both national security concerns and the critiques Obama raised during his campaign.

• Video: Obama Reverses Decision on Abuse Photos

On Wednesday, the president reversed a recent administration decision to release photos showing purported abuse of prisoners at U.S. military facilities in Iraq and Afghanistan. Mr. Obama cited concern that releasing the pictures could endanger U.S. troops. Mr. Obama ordered government lawyers to pull back an earlier court filing promising to release hundreds of photos by month's end as part a lawsuit brought by the American Civil Liberties Union.

The decision to block the detainee photos contrasts with the administration's release last month of Bush-era Justice Department memorandums outlining the interrogation tactics used on prisoners by the Central Intelligence Agency. The release of the memos set off a heated political fight, with supporters of the Bush administration accusing the Obama White House of endangering the country and some of the current president's supporters calling for criminal probes of those responsible for the interrogation policies.

Question of the Day

Should the U.S. release the photos showing alleged detainee abuse?

The administration's internal deliberations on how to deal with Guantanamo detainees are continuing, as the White House wrestles with how to fulfill the president's promise to shutter the controversial prison. But some elements of the plans are emerging as the administration consults with key members of Congress, as well as with military officials, about what to do with Guantanamo detainees.

Sen. Lindsey Graham (R., S.C.), who met this week with White House Counsel Greg Craig to discuss the administration's plans, said among the proposals being studied is seeking authority for indefinite detentions, with the imprimatur of some type of national-security court.

Sen. Graham said he wants to work with the administration to pass legislation to increase judicial oversight of military commissions, but noted the legal difficulties that would arise.

View Full Image

Getty Images

U.S. President Barack Obama makes a statement at the White House on Wednesday.

"This is a difficult question. How do you hold someone in prison without a trial indefinitely?" Sen. Graham said.

The White House had no comment Wednesday about its detainee deliberations.

The idea of a new national security court has been discussed widely in legal circles, including by Bush administration Attorney General Michael Mukasey and Neal Katyal, a former Georgetown law professor and now Obama Justice Department official.

Defense Secretary Robert Gates, at a hearing last month, hinted at the administration's deliberations, saying that there were "50 to 100 [detainees] probably in that ballpark who we cannot release and cannot trust, either in Article 3 [civilian] courts or military commissions."

The administration's move to block the release of military detainee photos was welcomed by Republicans in Congress and by some military family groups but condemned by the ACLU and others.

Mr. Gates, Gen. David Petraeus and Adm. Mike Mullen, the chairman of the Joint Chiefs of Staff, had all raised concerns with the White House about releasing the detainee photos. Mr. Gates and the commanders worried that the pictures would spur new anti-American violence in Iraq and Afghanistan.

—Yochi J. Dreazen contributed to this article.

Just Gotta Laugh

In reversal, Obama seeks to block abuse photos

By JENNIFER LOVEN – 27 minutes ago

WASHINGTON (AP) — President Barack Obama declared Wednesday he would try to block the court-ordered release of photos showing U.S. troops abusing prisoners, abruptly reversing his position out of concern the pictures would "further inflame anti-American opinion" and endanger U.S. forces in Iraq and Afghanistan.

The White House had said last month it would not oppose the release of dozens of photos from military investigations of alleged misconduct. But American commanders in the war zones have expressed deep concern about fresh damage the photos might do, especially as the U.S. tries to wind down the Iraq war and step up operations against the Taliban and al-Qaida in Afghanistan.

Obama, realizing how high emotions run on detainee treatment during the Bush administration and now, made it a point to personally explain his change of heart, stopping to address TV cameras late in the day as he left the White House for a flight to Arizona.

He said the photos had already served their purpose in investigations of "a small number of individuals." Those cases were all concluded by 2004, and the president said "the individuals who were involved have been identified, and appropriate actions have been taken."

When photos emerged in 2004 from the infamous U.S.-run Abu Ghraib prison in Iraq, showing grinning American soldiers posing with detainees — some of the prisoners naked, some being held on leashes — the pictures caused a huge anti-American backlash around the globe, particularly in the Muslim world.

The Pentagon conducted 200 investigations into alleged abuse connected with the photos that are now in question. The administration did not provide an immediate accounting of how they turned out.

"This is not a situation in which the Pentagon has concealed or sought to justify inappropriate action," Obama said of the photos. "In fact, the most direct consequence of releasing them, I believe, would be to further inflame anti-American opinion and to put our troops in greater danger."

The Justice Department filed a notice of its new position on the release, including that it was considering an appeal with the Supreme Court. The government has until June 9 to do so.

Spokesman Robert Gibbs said release of the new batch of photos from the Pentagon cases would merely "provide, in some ways, a sensationalistic portion of that investigation."

Obama said later, "I want to emphasize that these photos that were requested in this case are not particularly sensational, especially when compared to the painful images that we remember from Abu Ghraib."

Still, he said he had made it newly clear: "Any abuse of detainees is unacceptable. It is against our values. It endangers our security. It will not be tolerated."

The effort to keep the photos from becoming public represented a sharp reversal from Obama's repeated pledges for open government, and in particular from his promise to be forthcoming with information that courts have ruled should be publicly available.

As such, it invited criticism from the more liberal segments of the Democratic Party, which want a full accounting — and even redress — for what they see as the misdeeds of the Bush administration.

"The decision to not release the photographs makes a mockery of President Obama's promise of transparency and accountability," said ACLU attorney Amrit Singh, who had argued and won the case in question before the 2nd U.S. Circuit Court of Appeals in New York. "It is essential that these photographs be released so that the public can examine for itself the full scale and scope of prisoner abuse that was conducted in its name."

Human Rights Watch called the decision a blow to transparency and accountability.

On Capitol Hill, Republicans welcomed the change, however. A military group also said it was relieved.

"These photos represent isolated incidents where the offending servicemen and women have already been prosecuted," said Brian Wise, executive director of Military Families United.

The reactions were a reverse of what happened after Obama's decision last month to voluntarily release documents that detailed brutal interrogation techniques used by the CIA against terror suspects. Those also came out in response to an ACLU lawsuit, and his decision then brought harsh and still-continuing criticism from Republicans.

This time he's kicking the decision back into court, where his administration still may be forced into releasing the photos.

Indeed, there is some evidence that the administration has little case left.

Gibbs said the president instructed administration lawyers to challenge the photos' release based on national security implications. He said the argument was not used before.

But the Bush administration already argued against the release on national security grounds — and lost.

"It is plainly insufficient to claim that releasing documents could reasonably be expected to endanger some unspecified member of a group so vast as to encompass all United States troops, coalition forces, and civilians in Iraq and Afghanistan," the three-judge appeals panel wrote in September 2008.

The Justice Department had concluded that further appeal would probably be fruitless, and last month, Gibbs said the president had concurred with that conclusion, though without commenting on whether Obama would support the release if not pressed by a court case.

Thus, the administration assured a federal judge that it would turn over the material by May 28, including one batch of 21 photos and another of 23 images. The government also told the judge it was "processing for release a substantial number of other images," for a total expected to be in the hundreds.

The lower court also has already rejected another argument the president and his spokesman made, that the photos add little of value to the public's understanding of the issue. "This contention disregards FOIA's central purpose of furthering governmental accountability," the appeals court panel concluded in the same decision.

Obama's own Jan. 21 memorandum on honoring the Freedom of Information Act also takes a different line. "The government should not keep information confidential merely because public officials might be embarrassed by disclosure, because errors and failures might be revealed, or because of speculative or abstract fears," it said.

The president informed Gen. Ray Odierno, commander of U.S. troops in Iraq, of his decision during a White House meeting on Tuesday.

Gen. David Petraeus, the senior commander for both wars, had also weighed in against the release, as had Gen. David McKiernan, the outgoing top general in Afghanistan.

Military commanders' concerns were most intense with respect to Afghanistan. The release would coincide with the spring thaw that usually heralds the year's toughest fighting there — and as thousands of new U.S. troops head into Afghanistan's volatile south.

Defense Secretary Robert Gates said he had once held the view that it might be best to "go through the pain once" and release a large batch of images now, since so many are at issue in multiple lawsuits. But he — and the president — changed their minds when Odierno and McKiernan expressed "very great worry that release of these photographs will cost American lives," Gates said before the House Armed Services Committee.

"That's all it took for me," Gates said.

Specter leaves a shrinking GOP tent

Analysis: Specter leaves a shrinking GOP tent

By CHARLES BABINGTON – 2 hours ago

WASHINGTON (AP) — With Sen. Arlen Specter's switch to the Democrats, the Republican Party is increasingly at risk of being viewed as a mostly Southern and solidly conservative party, an identity that might take years to overcome.

Specter's move, which rocked Congress and the political world Tuesday, is the latest blow to Republicans, especially in the Northeast, once a GOP stronghold. The region's Republicans now have been reduced to a scant presence in the House and a dwindling influence in the Senate.

But Specter's defection has symbolic and immediate ramifications for the GOP nationwide. It makes it easier for Democrats, fairly or not, to paint the party as ideologically rigid and alien to large swaths of the country.

Olympia Snowe of Maine, one of the Senate's few remaining moderate Republicans, called Specter's decision another sign that her party must move toward the center.

"Ultimately, we're heading to having the smallest political tent in history," Snowe said. "If the Republican Party fully intends to become a majority party in the future, it must move from the far right back toward the middle."

But Senate Republican leader Mitch McConnell of Kentucky was defiant.

"I do not accept that we are going to be a regional party," he said. "We're working very hard to compete throughout the country."

Specter's departure follows recent Republican losses in once-reliable states. While Barack Obama was cruising to the White House last fall, Republicans were losing long-held Senate seats in Alaska, Colorado, New Mexico, North Carolina and Virginia. A moderate Republican lost his seat in Oregon, and the same seems likely to happen when Minnesota's long recount is settled.

In the House, Republicans have suffered deep losses in the last two elections, especially in the Northeast. Last week, Democrat Scott Murphy won a special election in a heavily Republican congressional district in upstate New York. Murphy will be sworn in Wednesday, giving Democrats' 256 House seats to 178 for Republicans with one vacancy.

The congressional Republicans' base is shrinking, leaving them with strongholds only in the South and parts of the mountain West.

With the departure of each centrist, including Pennsylvania's Specter, the party also appears more firmly right-of-center. Polls show most Americans nearer the political center, and Democratic leaders were happy Tuesday to promote the GOP's image as narrow-minded.

"This is now officially a Republican Party where moderates need not apply," said Sen. John Kerry, D-Mass.

Specter made similar remarks. "The Republican Party has moved farther and farther to the right," he said, adding to the trend with his switch.

Specter accused party leaders of abandoning moderate Republicans in tough races, saying, "there ought to be an uprising."

In the 1970s, '80s and early '90s, the nation's political realignment favored the GOP. Voters in many of the 11 former Confederate states ousted Democrats by the dozens, no longer accepting the old odd-bedfellows alliance of Southern conservatives and more dominant Northern liberals.

With the Northeast still home to many "Rockefeller Republicans" — centrists in the mold of former New York Gov. Nelson Rockefeller — the realignment pinched Democrats hard.

In recent years, however, the tide has reversed. Moderate-to-liberal voters in the Northeast and Pacific West felt increasingly at odds with the national Republican Party, and they began electing more Democrats to local and federal posts. Obama won surprising victories in Virginia, North Carolina and Indiana, though it's far from clear that Democrats can hold those states.

The result is a shrinking and increasingly right-leaning GOP, throughout the nation and in Congress. There, moderate Republicans are almost an endangered species. While lonely, they may play pivotal roles in brokering legislative deals, especially in the Senate.

Snowe and her Republican colleague from Maine, Susan M. Collins, now are the Senate's most prominent GOP moderates.

Collins said she was "very, very disappointed and surprised" by Specter's defection. "It's something I would never do," she said, but she called on her party to be more inclusive.

"The Republican Party has been most successful when it has adopted the big tent approach that was favored by Ronald Reagan, by Gerald Ford" and others, Collins said.

Obama hailed Specter's switch, but its blessing may prove mixed. The president vowed a more bipartisan era in Washington, and the loss of another GOP centrist will make Congress more partisan than before.

Republican leaders, meanwhile, faced an uphill battle in next year's Pennsylvania Senate race even before Specter made the switch. In that sense, they probably have lost little. Besides, only 15 years ago some pundits predicted permanent minority status for Democrats, following their huge losses in the 1994 elections.

Political fortunes can change rapidly, and unexpectedly. But for now, Republicans hold distinct minority status in the House and Senate, where Democrats and independents hold 59 seats to 40 for the GOP. They confront a popular Democratic president, and they face numerous ill-timed retirements in next year's Senate races.

Tuesday was another bad day in a political season that some Republicans must feel cannot possibly get worse.

You by-God don't fuck with Ted Stevens!

A federal judge this morning tossed out the conviction of former senator Ted Stevens and assigned an outside lawyer to investigate allegations of misconduct by the prosecutors who tried him on public corruption charges.

In throwing out the October conviction, U.S. District Judge Emmet G. Sullivan called accusations that prosecutors mishandled evidence and witnesses "shocking and disturbing." In his 25 years on the bench, the judge said he had "never seen anything approaching the mishandling and misconduct in this case." He then urged Attorney General Eric H. Holder to better train prosecutors about the requirements for turning over evidence to defense lawyers that may help their case.

Stevens, 85, who narrowly lost reelection eight days after being found guilty of seven counts of lying on financial disclosure forms, said the actions of prosecutors had "nearly destroyed" his faith in the criminal justice system. But he thanked the judge and a new team of Justice Department lawyers for pressing to uncover the truth.

One of those Justice Department lawyers, Paul O'Brien, told Sullivan that "we deeply, deeply regret that this occurred."

Last week, the Justice Department asked Sullivan to throw out the conviction after officials discovered prosecutors' notes of an April 2008 interview that contradicted testimony of a key witness. It was the latest of several revelations of potential misconduct by prosecutors with the Justice Department's Public Integrity Unit in connection with this trial. Sullivan chastised them several times during the trial for how they handled witnesses and evidence.

At least twice, the judge instructed the jury to ignore evidence introduced by the prosecution. After the trial, the problems didn't end. A witness complained about being lied to by federal authorities about an immunity deal. And an FBI agent filed a report that accused prosecutors and fellow agents of misconduct.

In February, Sullivan held three prosecutors -- William Welch II, Brenda Morris and Patricia Stemler -- in contempt for failing to comply with a court order. Welch is the head of the public corruption unit, and Morris was the lead prosecutor. Six members of the prosecution team eventually withdrew from the case.

Much of the hearing today focused on what transpired during an April 15, 2008, interview with the key witness, Bill Allen. During that interview, according to notes taken by two of the prosecutors, Allen said he did not recall talking to a friend of Stevens's about sending the senator a bill for work on his home, according to Sullivan.

Under oath at trial, however, Allen testified that he was told by the friend to ignore a note Stevens sent seeking a bill for the remodeling work.

"Bill, don't worry about getting a bill" for Stevens, Allen said the friend told him. "Ted is just covering his [expletive]."

It was an explosive moment at the trial and buttressed prosecutors' arguments that Stevens knew he was receiving gifts and was trying to create a paper trial as a cover story if anyone ever asked about them. But defense attorneys have argued that Allen lied on the stand. They have noted in court papers that Allen did not mention that conversation during at least 20 interviews with agents and prosecutors.

Prosecutors who took the notes and participated in the interview have not been identified. Stevens's attorney, Brendan Sullivan, said that Brenda Morris, the lead prosecutor on the case, did not take part in the interview, which was conducted in Alaska. Two prosecutors participated from Washington by telephone, Brendan Sullivan said.

During the two-hour hearing, the judge said he couldn't trust the Justice Department to conduct an internal probe into the actions of prosecutors. So, the judge said, he was taking the rare step of starting criminal contempt proceedings and appointed an outside attorney, Henry F. Schuelke III, to investigate the misconduct allegations. After gathering evidence, Schuelke will submit a report to the judge with a recommendation on whether to hold the prosecutors in contempt for violating court rules.

The judge can then hold a trial to examine the allegations and decide what sanctions to impose. He can fine them or send them to jail. Those being investigated are Welch, Morris, Joseph Bottini, Nicholas Marsh, Edward Sullivan and James Goeke. Morris has declined to comment in the past. Other prosecutors could not be reached or did not return phone calls seeking comment.

After a month-long trial, Stevens was convicted of not reporting on Senate disclosure forms that he accepted about $250,000 in gifts and free renovations to his home in Girdwood, Alaska. Most of the gifts and free remodeling work were supplied by Bill Allen, chief executive of Veco, a now-defunct oil services company. Stevens testified in his own defense, but jurors said he came off as evasive, arrogant and combative. His testimony also did not jibe with the evidence, they have said.

His legal team said the result would have been different if they knew about the results of prosecutors' interview with Allen. "It is clear from the evidence that the government engaged in intentional misconduct," Brendan Sullivan told the judge.

Pressure on Daschle reaches tipping point

• Story Highlights
• NEW: Political climate tripped up Daschle, says CNN's Ed Henry
  
• Source says Daschle was worried about what his confirmation would do to Obama
  
• Senators say they did not see the withdrawal coming
  
• Daschle's nomination questioned due to tax problems, work in recent years
  

(CNN) -- The White House insists that it was entirely former Sen. Tom Daschle's decision to withdraw his nomination, but some observers say he didn't have a choice.

Despite the controversy over his tax records and his work in a field that some consider lobbying, Daschle was expected to be confirmed.

His withdrawal shocked Capitol Hill, and Democratic colleagues expressed regret over his decision.

"I think one of the major factors had to be that the political climate has changed radically just in the last couple of weeks," CNN Senior White House Correspondent Ed Henry said.

President Obama ripped Wall Street executives last week for their "shameful" decision to hand out $18 billion in bonuses in 2008 while accepting federal bailout money.

The next day, news broke that Daschle hadn't paid his taxes in full. Daschle said Monday that he was "deeply embarrassed" for a series of errors that included failing to report $15,000 in charitable donations, unreported car service and more than $80,000 in unreported income from consulting.

Daschle recently filed amended tax returns and paid more than $140,000 in back taxes and interest for 2005-07.

"That, in this political climate, really tripped up Tom Daschle because it looked awful politically for this White House," Henry said.

At a news conference Tuesday afternoon, press secretary Robert Gibbs insisted that the White House did not pressure Daschle to step down. Watch Gibbs answer questions about Daschle's move »

Pressed on whether Daschle was given any sort of signal to resign, Gibbs said, "I don't know how much more clear I could be. The decision was Sen. Daschle's."

A Daschle ally familiar with his thinking said Tuesday that he was not aware of any White House pressure on the former Senate majority leader to withdraw his nomination.

Asked whether Daschle was pushed, the source said, "things don't work that cleanly."

The issue was not whether Daschle could "survive"; it was what that process "would do to Obama" and his health care reform and economic agenda. It's a question of the "price of that confirmation," he said.

The source said Daschle read the Tuesday New York Times editorial urging him to withdraw from consideration but would not say whether that might have played a part in his decision.

"Tom has been a politician for a very long time," the source said. "He understands this town. He made a mistake; he apologized, but timing matters. There was a critical mass building."

Obama senior adviser David Axelrod said he thought Daschle made the decision Tuesday morning.

"I have to believe that Sen. Daschle having spent as many years as he has up here had a clear picture that there was going to be a delay, and I think he didn't want to contribute to that.

In announcing his withdrawal, Daschle said it was an honor to be chosen to lead the reform of America's health care system.

"But if 30 years of exposure to the challenges inherent in our system has taught me anything, it has taught me that this work will require a leader who can operate with the full faith of Congress and the American people, and without distraction," he said in a statement.

"Right now, I am not that leader and will not be a distraction."

Mark Preston, CNN's political editor, pointed out that Daschle has a "history of making 11th-hour decisions."

Six years ago, Daschle made a last-minute decision not to run for president after he had been all set to go.

"I think that the Tom Daschle we saw yesterday was all set to go, and then the pressure started mounting ... and then he decided to pull out," Preston said.

Although he was expected to be confirmed, it was also expected that he'd have to undergo a bruising confirmation hearing that could have led to negative headlines for Obama.

As news broke of the withdrawal, some senators said they were sad to see Daschle step aside, but others said it was the right thing to do.

"I'm in shock. I didn't know that. I don't know what happened," said Sen. Dianne Feinstein, D-California. "I talked to him ... the night before last, and he showed no signs of withdrawing."

Feinstein praised Daschle as rare person who could get something like health care through the Senate and said she wishes he had not withdrawn. "I have great faith in him."

Sen. John Cornyn, R-Texas, said Daschle "did a service to President Obama" by stepping aside.

"I think it really would have looked bad for the Senate to close ranks around a fellow member and sort of reinforce the idea that they were going to protect a member as part of the good ol' boys club," he said.

Daschle has a lengthy history with members of Congress. He represented South Dakota in the House of Representatives for four terms, and he served in the Senate for three terms. He was the Senate majority leader from June 2001 to January 2003 and served as the minority leader before losing his re-election bid in 2005.

Sen. John Ensign, R-Nevada, said Daschle "saved the president from being embarrassed" by withdrawing.Watch Republicans weigh in on the move »

Sen. Max Baucus, chairman of the Senate Finance Committee, said he was "a little stunned" by Daschle's decision.

"I thought he was going to get confirmed. I thought -- he's a good man, and I thought he'd be confirmed. I'm surprised," said Baucus, D-Montana.

Sen. John Kerry, D-Massachusetts, insisted that Daschle had owned up to his mistakes.

"He's made his decision, I respect his decision, and we go on from there," Kerry said.

Daschle's resignation came hours after Nancy Killefer's withdrawal as Obama's chief performance officer, a new post in the administration. Officials said privately the reason for Killefer's withdrawal was unspecified tax issues. The much-touted post was designed to scrub the federal budget.

CNN's Lisa Desjardins, Candy Crowley and Kristi Keck contributed to this report.

All AboutThomas Daschle • Barack Obama

Obama's Lobbyist Ban Meets a Loophole: William Lynn

Tuesday, Jan. 27, 2009

By Mark Thompson / Washington

Last year the Pentagon paid the Raytheon Corp., its fifth largest contractor, a cool $10 billion for its missiles, missile shields and a constellation of electronics. This year President Barack Obama is putting Raytheon's recently departed top lobbyist in charge of the Pentagon's day-to-day management.

In Washington that almost qualifies as business as usual, except for a small detail: on the campaign trail, Obama vowed to stop the revolving door that lets onetime lobbyists go to work for the Federal Government and oversee contracts that could harm — or help — their former employer. And one of the first things the new President did in office was seemingly make good on that promise, signing an Executive Order barring former lobbyists from joining his Administration to work at agencies they recently lobbied. (See pictures of Obama's Inauguration.)

Not surprisingly, Obama's good-government backers were less than pleased to see the President, only a few days after signing the blanket ban, issue a waiver permitting William Lynn to serve as Deputy Secretary of Defense. The lobbying loophole was allowed, Administration officials explain, because Lynn is "uniquely qualified" for the job. Realists at the Pentagon and elsewhere put it slightly differently, saying the President was simply acknowledging that people who know how to run the Pentagon generally have been involved in the process.

The episode is a painful lesson for Obama. Even though his team asserts that it has put into place the toughest rules ever against lobbyists going to work for the Federal Government, the only thing most folks will remember is that Obama made an exception to that rule for one of his top officials. (See who's who in Obama's White House.)

As with most Federal Government arcana, there are arguments on both sides of Obama's leaky lobbyist ban. Lynn, Obama's choice to serve as the Pentagon's No. 2 civilian, got high marks for struggling to bring some accountability to Pentagon spending when he served as its top money manager from 1997 to 2001. By one account, he reduced the amount of undocumented Pentagon spending from $2.3 trillion to $1.3 trillion (before the federal banking bailout, only at the Pentagon could $1.3 trillion in undocumented spending be deemed progress).

But the idea that Lynn is "uniquely qualified" — the White House's language — for the post is simply bogus. The phrase doesn't mean merely good or talented; it means that Lynn, of all the possible candidates for the position, is the only person who could fill it.

"While Lynn may be well qualified, it is absurd to argue that he is uniquely qualified," says Danielle Brian, head of the nonprofit Project on Government Oversight, a watchdog group in Washington. "There are plenty of people with far greater business-management experience than that of a lobbyist." Nonetheless, Lynn, who during his confirmation hearing on Jan. 15 pledged to "maintain the highest ethical standards," appears headed for Senate confirmation. To ease some Senators' concerns, he has promised to sell all his Raytheon stock and have his dealings at the Pentagon for the first year subject to an ethics review.

Defense Secretary Robert Gates told reporters on Jan. 22 that he pushed for Lynn's hiring and the waiver it required. "I asked that an exception be made because I felt that he could play the role of the deputy in a better manner than anybody else that I saw," Gates said. The next day, Obama spokesman Robert Gibbs said Lynn would be getting one of a "very limited number of waivers" so he could assume the Pentagon post despite being a registered lobbyist for Raytheon from 2003 to mid-2008.

Lynn's defenders say it's wrong to paint all lobbyists as evil. He has "precisely the kinds of skills required," says William Cohen, who served as Lynn's boss when Cohen ran the Pentagon during President Clinton's second term. "The fact that he lobbied for a defense contractor should not lead anyone to conclude that he is now rendered incapable of exercising his duties with complete fidelity to Secretary Gates or President Obama."

John Hamre, who was Cohen's deputy at the Pentagon, says Lynn "didn't do lobbying on a day-to-day basis" and is being unfairly lumped in with "bottom feeders" who have given lobbying a bad reputation. "Representing the interests of American citizens in Washington is a necessary attribute of our democracy," Hamre adds. "People are conflating 'lobbying' with unethical behavior, and that is unfair." Of course, when one of those people is the President, the argument tends to carry more weight.

---

December 17, 2008

Obama Team Has Forged Another Link With Clintons

By PETER BAKER

WASHINGTON — It’s official. The old Clinton gang really is back together again. Answering the phones these days for the co-chairman of President-elect Barack Obama’s transition, John D. Podesta, is none other than Betty Currie.

Emerging from retirement in southern Maryland to volunteer at Obama headquarters, Ms. Currie was the personal secretary to President Bill Clinton, who became caught up in an independent counsel investigation into his trysts with the White House intern Monica Lewinsky. Since leaving the White House, Ms. Currie, 69, has shied from publicity and kept a low profile in Hollywood, Md., where she lives with her husband, Bob, and Socks, the presidential cat, which she took with her after Mr. Clinton left office.

Ms. Currie, who works with local nonprofit organizations and serves on the Alcohol Beverage Board of St. Mary’s County, declined to discuss her work for Mr. Obama or her recent life, citing a transition office policy against volunteers giving interviews.

Compelled to testify to a grand jury five times about Mr. Clinton’s relationship with Ms. Lewinsky, Ms. Currie is widely admired in Clinton circles for her loyalty and effectiveness.

Mr. Podesta, who was Mr. Clinton’s last White House chief of staff, said it was natural for him to call Ms. Currie back to service.

“Of course I asked her because in the 30 years we have worked together, I have never known anyone with more grace, dedication and public spirit than Betty,” he said. “And she has one mean Rolodex.”

Ms. Currie is the latest familiar face from the Clinton era to assist Mr. Obama’s team. In addition to Mr. Podesta, Mr. Obama’s chief of staff, his White House counsel and his economics, energy and environmental advisers all served in the Clinton administration. So did most of the cabinet officers he has chosen and many of the transition aides conducting agency reviews. And the newly designated secretary of state is Hillary Rodham Clinton.

A longtime secretary in agencies like the Peace Corps, Ms. Currie left government to work for Democratic presidential campaigns in 1984 and 1988 before joining Mr. Clinton in 1992. She then served in Mr. Clinton’s transition until he picked her to be his secretary. She stayed through all eight years, calmly managing the intersection of power and policy.

Other Obama aides said they expected Ms. Currie to help out through the transition but not to return to the White House after the inauguration.

Ms. Currie has kept in touch with the Clintons and donated $750 to Mrs. Clinton’s campaign for the Democratic presidential nomination this year. When she ran into Mrs. Clinton last spring, she told a writer from Southern Maryland Newspapers, Mrs. Clinton asked about Socks.

U.S. News & World Report has reported that Socks, now 19, has cancer.

Home

• World
• U.S.
• N.Y. / Region
• Business
• Technology
• Science
• Health
• Sports
• Opinion
• Arts
• Style
• Travel
• Jobs
• Real Estate
• Automobiles
• Back to Top

Copyright 2008 The New York Times Company

• Privacy Policy
• Search
• Corrections
• RSS
• First Look
• Help
• Contact Us
• Work for Us
• Site Map

NY Fed hires former Bear Stearns chief risk officer

Tue Nov 4, 2008 9:29am EST

NEW YORK, Nov 4 (Reuters) - The Federal Reserve Bank of New York has hired the former chief risk officer of Bear Stearns Cos, Michael Alix, to advise on bank supervision, according to a release in the Fed's Web site.

Alix will serve as a senior advisor to William Rutledge in the Bank Supervision Group and his appointment is effective Nov. 3, according to the release dated Oct. 31

At Bear Stearns, an investment bank that collapsed in March and has become hallmark of the global credit crisis, Alix served as chief risk officer from 2006 to 2008 and global head of credit risk management from 1996 to 2006.

Morgan Stanley's Bonuses Get Saved By You and Me: Jonathan Weil

Commentary by Jonathan Weil

Oct. 21 (Bloomberg) -- Wall Street had it wrong: An investment bank's most precious asset isn't the army of employees who head down the elevators each day. It's the paychecks they take with them out the door.

You can imagine the devilish grins on the faces of Morgan Stanley employees last week, after the Treasury Department said it would pump $10 billion into the bank. Not only did we, the taxpayers, save their company, with the help of a Japanese bank named Mitsubishi UFJ Financial Group Inc. More importantly, we funded their 2008 bonus pool.

Morgan Stanley has accrued $10.7 billion of employee- compensation expense this year, almost twice as much as its pretax earnings. The vast majority of this remuneration hasn't been paid yet. Now it probably will be, assuming the firm survives through next month. Meantime, Morgan Stanley's stock- market value has dropped $34.7 billion, to $21 billion, since the company's fiscal year began.

The rescue of Morgan Stanley's bonus pool is an unpleasant downside of Treasury Secretary Hank Paulson's decision to inject $250 billion of cash into U.S. banks in exchange for preferred stock. It is one thing for a company to pay much more to employees than it earns for its shareholders. It's quite another to keep doing it while receiving taxpayer bailout bucks.

Before securities firms were public companies, a brokerage in need of capital would have called on its partners to pony up. That's how it still works at private partnerships, such as law firms. The reason they don't get taxpayer rescues is they can't credibly threaten to take down the world's financial system.

Global Threats

Morgan Stanley can. So can Paulson's old firm, Goldman Sachs Group Inc., which also is getting a $10 billion infusion from Treasury. Year-to-date, Goldman has reported $11.4 billion of compensation expense, almost twice its $5.9 billion of pretax earnings. During the same span, its market capitalization has fallen $41.7 billion, to $57.7 billion.

Morgan Stanley needed Treasury's cash. Goldman didn't, but got it anyway. As long as Paulson can't think of any better ideas, the government will keep throwing money at an industry that pays too many people more than they're worth, to perform services the world has too much of already. The bright side is we avoid a global meltdown, for now.

Here's all you really need to know to see who lost and who benefited most at the Five Families of Wall Street, otherwise known as Goldman, Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns. From the start of their 2004 fiscal years through yesterday, the big standalone investment banks lost about $83 billion of stock-market value. During the same period, they reported about $239 billion of employee-compensation expense.

Lined Pockets

So, for every dollar of shareholder value destroyed, the employees got paid almost three. Only a sliver of that money went to chief executives such as Goldman's Lloyd Blankfein, who got a $70.3 million package last year, and Lehman's Richard Fuld, who made $34.4 million. Morgan Stanley's John Mack, by the way, received $1.6 million for 2007.

The Five Families -- now down to just Goldman and Morgan Stanley -- weren't alone. Citigroup Inc., which is getting a $25 billion injection from Treasury, has reported $139.3 billion of compensation expense since the start of 2004, more than double its $62.8 billion of pretax earnings. Its market cap, by comparison, has declined by about $168 billion, to $82 billion.

For all the complaints about outrageous executive pay and how little Paulson is doing to curb it, a big reason why these firms have been scrounging for capital is they keep blowing huge wads of it on their rank-and-file, too. The Paulson plan will do nothing to change that.

In the interim, we continue propping up an industry that's bloated with overcapacity, because we're all too scared to let the market fix it. That's good for the people getting bonus checks at Morgan Stanley and Goldman Sachs. It's not so great for the rest of us.

Goldman partners’ reduced

By Greg Farrell in New York

Published: October 29 2008 20:37 | Last updated: October 29 2008 20:37

Goldman Sachs unveiled its new class of 94 partners, proving that even in the most tumultuous times on Wall Street, the company’s biannual ritual of bringing up-and-comers to its innermost circle would continue.

The class will join Goldman’s elite at a time when a partnership at the firm is no longer a guarantee of a multi-million payday. By the end of this year, the bank’s 349 partners stand to divvy up the smallest bonus pool that Goldman has produced, on a per capita basis, since going public in 1999.

While Goldman was willing to confirm the announcement of the partners, it would not comment on the other biannual tradition that goes hand-in-hand with the process: the “de-partnering” of a comparable number of its partner-managing directors.

The bank tries to keep the number of partners at about 1 per cent of employees.

At the end of the third quarter, the firm had 349 partners and 32,600 employees worldwide. With plans to lay off some 10 per cent of its workforce, Goldman will probably try to hold its number of partners at its current level, or shrink it slightly.

That means that with the addition of 94 names in December, the new total of 443 partners will have to be reduced, through attrition and the removal of the designation of “partner” from close to 100 members of the inner circle.

Charles Ellis, author of The Partnership, The Making of Goldman Sachs, likens the culling process to a Darwinian exercise. “It’s entirely rational, ruthless and unemotional,” he says. “There’s no softness and no sentiment to it. The firm just gets the best people and empowers them. Some people react badly to that, but it’s survival of the fittest.”

In many ways, Ellis says, Goldman’s focus on recruiting the best people, promoting them and pushing them ever harder, is what separates it from its rivals. “At most places, once you become a partner, you have tenure,” he says. “You’re a superstar. At Goldman Sachs, that’s not it. You’re expected to accelerate.”

For the first three quarters of 2008, Goldman has reported profits of $4.4bn, down by almost half from last year’s sum. According to SEC filings, it has set aside $11.4bn for pay and benefits, (from the bailout money) a decline of 32 per cent over 2007. Barring a big change in the firm’s performance, the current partners can expect bonuses, on the average, of $1m or less, according to people familiar with the matter.

Goldman Sachs ready to hand out £7bn salary and bonus package... after its £6bn bail-out

By Simon Duke
Last updated at 8:55 AM on 30th October 2008

U.S. investment bank Goldman Sachs HQ which has set aside £7bn for bonuses and salaries this year

Goldman Sachs is on course to pay its top City bankers multimillion-pound bonuses - despite asking the U.S. government for an emergency bail-out.

The struggling Wall Street bank has set aside £7billion for salaries and 2008 year-end bonuses, it emerged yesterday.

Each of the firm's 443 partners is on course to pocket an average Christmas bonus of more than £3million.

The size of the pay pool comfortably dwarfs the £6.1billion lifeline which the U.S. government is throwing to Goldman as part of its £430billion bail-out.

As Washington pours money into the bank, the cash will immediately be channelled to Goldman's already well-heeled employees.

News of the firm's largesse will revive the anger over the 'rewards for failure' culture endemic in the world of high finance.

The same bankers who have brought the global economy to its knees seem to pocketing the same kind of rewards they got during the boom years.

Gordon Brown has vowed to crack down on the culture of greed in the City as part of his £500billion bail-out of the UK banking industry.

But that won't affect the estimated 100 London partners working at Goldman Sachs's London headquarters.

The firm - known as Golden Sacks for the bumper bonuses it pay its top bankers - is expected to cut the payouts by a third this year. However, profits are

falling much faster. Earnings have plunged 47 per cent so far this year amid the worst financial crisis since the Great Depression.

This has wiped more than 50 per cent off the company's market value.

More...

• Two million savers face poorer retirements after Standard Life slashes customer payouts
• Cuts and tax rises to follow recession ... but only after election, hints Darling
• FTSE closes 8.1% up in third best day of trading ever
• Volkswagen shares halve after Porsche's '£12.6bn sting' costs bungling hedge funds billions
• World's biggest airline created after Delta buys Northwest for £1.6bn

The news comes after it was revealed that even bankers working for collapsed Wall Street giant, Lehman Brothers, could receive huge payouts.

Its 10,000 U.S. staff are expected to share a £1.5billion bonus pool. The payouts were agreed as part of the rescue takeover of Lehman's American arm by Barclays last month.

The blockbuster handouts caused consternation among London employees of the firm, many of whom have now lost their jobs.

Even workers at the nationalised Northern Rock will scoop bonuses worth up to £50million over the next three years.

The extraordinary handouts include more than £400,000 for Rock's boss, Gary Hoffman, who is likely to become Britain's best-paid public sector worker.

The majority of Northern Rock's 4,000 workers will receive four separate bonus payments - the first of

which will be made next March. Staff will get an extra 10 per cent on top of their basic salary.

Lloyds TSB also intends to pay its employees bonuses despite taking a £5.5 billion emergency cash injection from the taxpayer.

News of Goldman's bonus plan came as the firm promoted 92 of its bankers to partner level. A quarter are based in Fleet Street, London.

Partnership is the holy grail of the investment banking world as the exclusive club shares around a fifth of the firm's total bonus pool.

New York Attorney General Andrew Cuomo last night warned that Wall Street firms taking government-money risk breaking the law if they hand the cash straight back to employees.

Cash-strapped workers are being penalised by pay rises which are far below the soaring cost of living, research reveals today.

Despite inflation soaring to a 16-year-high of 5.2 per cent, the average worker got a pay rise of just 3.8 per cent in September.

The research, from the pay specialists Incomes Data Services, highlights the financial problems facing millions of workers.

Most of their household bills, particularly food and fuel, are rocketing by up to 35 per cent. However, their meagre pay rise does not begin to cover the extra cost.

The majority of the 50 pay settlements investigated by IDS were in the private sector covering around 1.1million employees.

They range from just 2 per cent for workers at the BBC to 5.3 per cent for workers at a firm of dockyard workers.

Incomes Data Services warned pay rises are likely to fall even further over the coming year as inflation is expected to drop sharply.

Economists predict inflation will fall below the Government's 2 per cent target next year.

Effectiveness of AIG's $143 Billion Rescue Questioned

By Carol D. Leonnig

Washington Post Staff Writer
Monday, November 3, 2008; A18

A number of financial experts now fear that the federal government's $143 billion attempt to rescue troubled insurance giant American International Group may not work, and some argue that company shareholders and taxpayers would have been better served by a bankruptcy filing.

The Treasury Department leapt to keep AIG from going bankrupt on Sept. 16, and in the past seven weeks, AIG has drawn down $90 billion in federal bailout loans. But some key AIG players argue that bankruptcy would have offered more structure and greater protections during a time of intense market volatility.

AIG declined to comment on the matter.

Echoing some other experts, Ann Rutledge, a credit derivatives expert and founding principal of R&R Consulting, said she is not sure how badly the financial system would have been rocked if the government had let AIG file for bankruptcy protection. But she fears that the government is papering over the problem with a quick fix that was not well planned.

"What we see now are a lot of games by the government to keep these institutions going with a lot of cash," she said. "This is to fill holes in companies' balance sheets, and they're trying to hold at bay the charges that our financial system is insolvent."

The deal that the Treasury and the Federal Reserve Bank of New York pressed upon AIG was intended to stop any domino effect of financial institutions falling because of their business ties to AIG. The rescue allowed AIG to provide cash to huge banks and other players who had invested in rapidly souring mortgages insured by the company.

Early this year, investors had begun privately demanding that AIG pay off its billion-dollar guarantees. But in mid-September, when the demands for cash reached a public crescendo, AIG had to admit that it didn't have enough cash on hand to meet the obligations.

In the first weeks of its federal rescue, AIG has used the loan money to post collateral demanded by these firms, sources close to those deals say.

"No one else benefits," former AIG chief executive and major shareholder Maurice R. "Hank" Greenberg wrote to AIG's current chief executive on Thursday. "Unless there is immediate change to the structure of the Federal loan, the American taxpayer will likely suffer a significant financial loss."

Another concern is that in this depressed market, AIG, and the taxpayers that now own 80 percent of the company, will lose coming and going.

The company may be forced to borrow additional federal funds for rising payouts to counterparties. Neither the government nor AIG is releasing information about the specific amounts paid to individual firms, but numerous credit experts say that the value of those mortgage assets is probably declining every week. That means AIG has to pay a higher price as part of its guarantees.

The company also may be forced to sell many more assets at low, fire-sale prices. As part of its loan deal, AIG was to sell some assets -- valued at $1 trillion before the crisis -- to raise cash to pay off the loan.

AIG's Financial Products division is the primary villain in the company's free-fall. It made tens of billions of disastrously bad bets on mortgage investments but may not have carefully hedged those bets or properly estimated its risk. The company's rapid burn of $90 billion also suggests that it grossly undervalued its obligations to counterparties in a worst-case scenario.

In February, internal notes show, board members discussed a growing dispute between AIG Financial Products and Goldman Sachs about the value of those assets when Goldman called for AIG to post collateral. AIG's chief financial officer warned of "Goldman's acknowledged desire to obtain as much cash as possible." But AIG's external accountants warned that it was they who alerted management to the dispute, not AIG Financial Products, and that the division was not properly considering the market in its pricing.

Rutledge warns that because there has been no public disclosure of AIG's payments to counterparties, it is impossible to know whether the pricing it is using now is proper.

The Federal Reserve and its advisers have acknowledged privately that things are not going according to plan.

As AIG has rapidly eaten through the loan money, the Fed has twice expanded its original $85 billion bailout -- which itself was the largest government bailout of a private company in U.S. history. Earlier last month, the Fed reluctantly gave AIG $38 billion more in credit for securities lending to try to keep the firm from drawing down its first Fed loan too quickly.

Then on Thursday, the Fed agreed to let AIG borrow $20 billion from a larger commercial paper bailout fund it had set up days earlier for all institutions that lend money to each other.

If the company had filed for Chapter 11 bankruptcy protection, AIG could have frozen the crippling collateral calls, and shareholders would have had a chance at recovering some value from the company's 80 percent drop in stock price from earlier this year, said Lee Wolosky, a lawyer for AIG's largest shareholder, Starr International.

"AIG is nothing more than a pass-through being charged 14 percent interest," Wolosky said. "Company assets are eroding on a daily basis; asset sales have not begun and can only be at fire-sale prices in the current market. "

But David Schiff of Schiff's Insurance Observer said he could not see how bankruptcy would have been a better solution.

"The point isn't to save AIG; it's to save the U.S. financial system. I think they were afraid to find out who else goes under if you let AIG fail," he said. "But right now, no one knows if this is going to work."

The Bush gang's parting gift: a final, frantic looting of public wealth

The US bail-out amounts to a strings-free, public-funded windfall for big business. Welcome to no-risk capitalism

Comments ()

In the final days of the election many Republicans seem to have given up the fight for power. But don't be fooled: that doesn't mean they are relaxing. If you want to see real Republican elbow grease, check out the energy going into chucking great chunks of the $700bn bail-out out the door. At a recent Senate banking committee hearing, the Republican Bob Corker was fixated on this task, and with a clear deadline in mind: inauguration. "How much of it do you think may be actually spent by January 20 or so?" Corker asked Neel Kashkari, the 35-year-old former banker in charge of the bail-out.

When European colonialists realised that they had no choice but to hand over power to the indigenous citizens, they would often turn their attention to stripping the local treasury of its gold and grabbing valuable livestock. If they were really nasty, like the Portuguese in Mozambique in the mid-1970s, they poured concrete down the elevator shafts.

Nothing so barbaric for the Bush gang. Rather than open plunder, it prefers bureaucratic instruments, such as "distressed asset" auctions and the "equity purchase program". But make no mistake: the goal is the same as it was for the defeated Portuguese - a final, frantic looting of the public wealth before they hand over the keys to the safe.

How else to make sense of the bizarre decisions that have governed the allocation of the bail-out money? When the Bush administration announced it would be injecting $250bn into US banks in exchange for equity, the plan was widely referred to as "partial nationalisation" - a radical measure required to get banks lending again. Henry Paulson, the treasury secretary, had seen the light, we were told, and was following the lead of Gordon Brown.

In fact, there has been no nationalisation, partial or otherwise. American taxpayers have gained no meaningful control over the banks, which is why the banks are free to spend the new money as they wish. At Morgan Stanley, it looks as if much of the windfall will cover this year's bonuses. Citigroup has been hinting it will use its $25bn buying other banks, while John Thain, the chief executive of Merrill Lynch, told analysts: "At least for the next quarter, it's just going to be a cushion." The US government, meanwhile, is reduced to pleading with the banks that they at least spend a portion of the taxpayer windfall for loans - officially, the reason for the entire programme.

What, then, is the real purpose of the bail-out? My fear is this rush of dealmaking is something much more ambitious than a one-off gift to big business: that the Bush version of "partial nationalisation" is rigged to turn the US treasury into a bottomless cash machine for the banks for years to come. Remember, the main concern among the big market players, particularly banks, is not the lack of credit but their battered share prices. Investors have lost confidence in the honesty of the big financial players, and with good reason.

This is where the treasury's equity pays off big time. By purchasing stakes in these financial institutions, the treasury is sending a signal to the market that they are a safe bet. Why safe? Not because their level of risk has been accurately assessed at last. Not because they have renounced the kind of exotic instruments and outrageous leverage rates that created the crisis. But because the market will now be banking on the fact that the US government won't let these particular companies fail. If they get themselves into trouble, investors will now assume that the government will keep finding more cash to bail them out, since allowing them to go down would mean losing the initial equity investments, many of them in the billions. (Just look at the insurance giant AIG, which has already gone back to taxpayers for a top-up, and seems likely to ask for a third.)

This tethering of the public interest to private companies is the real purpose of the bail-out plan: Paulson is handing all the companies admitted to the programme - a number potentially in the thousands - an implicit treasury department guarantee. To skittish investors looking for safe places to park their money, these equity deals will be even more comforting than a triple-A from Moody's rating agency.

Insurance like that is priceless. But for the banks, the best part is that the government is paying them to accept its seal of approval. For taxpayers, on the other hand, this entire plan is extremely risky, and may well cost significantly more than Paulson's original idea of buying up $700bn in toxic debts. Now taxpayers aren't just on the hook for the debts but, arguably, for the fate of every corporation that sells them equity.

Interestingly, mortgage fund giants Fannie Mae and Freddie Mac both enjoyed this kind of unspoken guarantee before they were nationalised at the start of this crisis. For decades the market understood that, since these private players were enmeshed with the government, Uncle Sam could be counted on to always save the day. It was, as many have pointed out, the worst of all worlds. Not only were profits privatised while risks were socialised, but the implicit government backing created powerful incentives for reckless business practices.

With the new equity purchase programme Paulson has taken the discredited Fannie and Freddie model and applied it to a huge swath of the private banking industry. Again, there is no reason to shy away from risky bets, especially since the treasury has made no such demands of the banks (apparently it doesn't want to "micromanage".)

To further boost market confidence, the federal government has also unveiled unlimited public guarantees for many bank deposit accounts. Oh, and as if this were not enough, the treasury has been encouraging the banks to merge, ensuring that the only institutions left will be "too big to fail", thereby guaranteed a bail-out. In three ways, the market is being told loud and clear that Washington will not allow the financial institutions to bear the consequences of their behaviour. This may be Bush's most creative innovation: no-risk capitalism.

There is a glimmer of hope. In answer to Senator Corker's question, the treasury is indeed having trouble dispersing the bail-out funds. So far it has requested about $350bn of the $700bn, but most of this hasn't yet made it out the door. Meanwhile, every day it becomes clearer that the bail-out was sold to the public on false pretences. Clearly, it was never really about getting loans flowing. It was always about doing what it is doing: turning the state into a giant insurance agency for Wall Street, a safety net for the people who need it least, subsidised by the people who will most need state protections in the economic storms ahead.

This duplicity is a political opportunity. Whoever wins on November 4 will have enormous moral authority. It should be used to call for a freeze on the dispersal of bail-out funds, not after the inauguration but right away. All deals should be renegotiated, this time with the public getting the guarantees.

It is risky, of course, to interrupt the bail-out process. Nothing could be riskier, however, than allowing the Bush gang their parting gift to big business - the gift that will keep on taking.

Who Runs the show?

War, as the liberal intellectual Randolph Bourne famously explained, is the health of the state. That is, it benefits state officials and their dependents, clients, and assorted sycophants at the expense of the rest of us. Many are impoverished by our policies, but a few are enriched. The beneficiaries are the growing administrative, corporate, and military bureaucracies that oversee our ever expanding global presence, in effect a colonial class. This class pursues and secures its economic and social interests by means of directly influencing government policy, operating as an organized force on behalf of the policy of imperialism, so far with remarkable success.

When John McCain sneered at Mitt Romney's business experience as lacking in honor and the spirit of self-sacrifice, he was expressing the "noble" and highly stagy sentiments of this rising class. Forget the free market fervor of the Reagan era, when entrepreneurs were valorized. The new Republican hero is the swaggering caesar.

Is the Iraq war good for the economy?

Well, whose economy? Who benefits from this war, and who loses? Once the American people realize that they're among this war's biggest losers – aside from the Iraqi people, and perhaps the Iranians, too – they'll turn on the beneficiaries with a vengeance. As their savings are eaten up by inflation, and the equity they labored to preserve and increase evaporates into thin air, ordinary Americans are likely to be quite interested in the question: who's responsible?

As the Federal Reserve pumps more funny money into circulation, in a desperate and vain attempt to postpone the crisis of the Warfare State, the single biggest winners are the banks, the most government-protected industry of all, who are the first to be bailed out of any crisis. Oh, perhaps a few will be allowed to go under, but the big ones will be too big to fall, like Bear Stearns. The economic elite will golden parachute its way out of the crisis.

The main beneficiaries of the present system – what Murray Rothbard, the late libertarian theorist and polemicist, called the Welfare-Warfare State – are the new plutocrats. Think of what Ayn Rand referred to as "the aristocracy of pull," the principal villains of her famous novel Atlas Shrugged, i.e., corrupt businessmen who succeeded on account of their political connections rather than their entrepreneurial skill.

Today's aristocracy of pull is the militarized sector of the economy, which is completely dependent on government contracts. Their political Praetorian Guard is represented in Washington by both parties, and, what's more, their partisans dominate think-tanks of the ostensible Left as well as the Right.

The task of those who oppose the new colonialism, which masquerades as global altruism of one sort or another, is to unmask the real motives and connections of a self-interested colonial class, which, in spite of its claim to the mantle of honor and duty to country, is supremely successful at promoting its own interests over and above those of the nation.

~ Justin Raimondo