Obvious Bank Problems?

"The coroner's report left no doubt as to the cause of death: toxic loans. ... In what sounds like an episode of 'CSI: Wall Street,' dozens of government investigators--the coroners of the financial crisis--are conducting post-mortems on failed lenders across the nation. Their findings paint a striking portrait of management missteps and regulatory lapses. At bank after bank, the examiners are discovering that state and federal regulators knew lenders were engaging in hazardous business practices but failed to act until it was too late. ... Current and former banking regulators acknowledge that they should have been more vigilant. ... As another wave of bank failures looms, policy makers are considering a variety of measures that would generally strenghten banks' finances and limit their ability to lend money aggressively in risky areas like construction. Bankers contend that such steps would not only hurt their businesses but also the broader economy, because they would throttle the flow of credit just as growth is resuming. ... Of the nation's 8,100 banks, about 2,200--ranging from community lenders in the Rust Belt to midsize regional players--far exceed the risk thresholds that would ordinarily call for greater scrutiny from management and regulators, according to Foresight Analytics, a banking research firm. ... They also conceed that they were reluctant to act when troubles surfaced, for fear of unsettling the housing market and the economy. ... 'Hindsight is a wonderful thing,' said Timothy W. Long, the chief bank examiner fior the Office of the Comptroller of the Currency [OCC]. 'At the height of the economic boom, to take an aggressive supervisory approach and tell people to stop lending is hard to do.' ... Regulators have begun to act on some of the lessons learned", my emphasis, Eric Dash at the NYT, 19 November 2009, link: http://www.nytimes.com/2009/11/19/business/19risk.html.

I doubt the regulators learned any more from our current crisis than they did from 1979-1986's S&L crisis. They will not act to stifle a boom because it is politically inexpedient to do so. The OCC still did not close Citigroup, closing small banks. The OCC is a joke. Where were the CPAs? Do you remember 1986's Keating Five? Only bank stock short-sellers have an incentive to expose bad banking practices. Didn't the bank CPAs follow the AICPA's 498-page Assessing, my 30 November 2008 post: http://skepticaltexascpa.blogspot.com/2008/11/more-good-news.html.

More Bad Bank Accounting

"Federal bank regulators issued guidelines allowing banks to keep loans on their books as 'performing' even if the value of the underlying properties have fallen below the loan amount. ... Regulators said that the rules were designed to encourage banks to restructure mortgages with borrowers rather than foreclose on them. But the move has prompted criticism that regulators are simply prolonging the financial crisis by not forcing borrowers and lenders to confront, rather than delay, inevitable problems. The guidelines, released on Friday by agencies including the [FDIC], the [Fed] and the Office of the Comptroller of the Currency, provide guidance for bank examiners and financial institutions working with commercial property owners who are 'experiencing diminished operating cash flows, or prolonged delays in selling or renting commercial properties.' Restructurings are often in the best interest of both lenders and borrowers, the guidelines point out", Lingling Wei at the WSJ, 31 October 2009, link: http://online.wsj.com/article/SB125694507086819833.html.

More crap from Uncle Sam. If a restructuring makes sense, no matter what the accounting, do it. See my 17 July 2008 post: http://skepticaltexascpa.blogspot.com/2008/07/schwartzman-and-mcteer-on-accounting.html. This is an accounting issue. Well PCAOB, SEC, Big 87654? Where are you on this?

Wrong-Way OCC

"Federal regulators approved watered-down guidelines for private-equity firms seeling to snap up failed US banks, in a bid to tap a new and controversial source of capital for financial institutions. ... The five-member board of the FDIC voted 4-1 in favor it rules that would require buyout firms to hold on to failed banks they purcahse for at least three years. Investors would also be required to mantain larger amounts of high-quality capital at their acquired banks. In both cases, the rules are substantially tougher than those for regular banks competing for the same spoils. ... Acknowledging that regulators need to find new sources of capital, Comptroller of the Currency John Dugan said investors need to be deemed appropriate. ... 'Requiring us to have effectively twice as much capital as another bidder puts us at a competitive disadvantage,' says longtime bank investor Gerald Ford, a general partner at private-equity firm Flexpoint Ford. ... The proposal approved Wednesday would require private-equity firms to maintain high-quality capital--known as Tier 1 common equity--equivalent to 10% of the bank's overall assets. That is lower than the 15% Tier 1 leverage-rate proposed in July but higher than the 5% requirement for traditional banks", my emphasis, Michael Crittenden and Peter Lattman at the WSJ, 27 August 2009, link: http://online.wsj.com/article/SB125131789672261583.html.

I agree with Ford. Dugan, you blew it. Raise the Tier 1 capital requirement for traditional banks to 10%. Or higher. See my 21 June 2009 post: http://skepticaltexascpa.blogspot.com/2009/06/old-school-banker.html.

Zimbabwe Ben-Trotskyite

"Bank of America Corp. is operating under a secret regulatory sanction that requires it to overhaul its board and address perceived problems with risk and liquidity management, according to people familar with the situation. Rarely disclosed publicly, the so-called memorandum of understanding gives banks a chance to work out their problems without the glare of outside attention. Financial institutions that fail to address deficiencies can be slapped with harsher penalties that include a publicly announced cease and desist order. ... The MOU is the most serious procedural action taken against [BofA] by federal regulators since the financial crisis erupted. Citigroup has been operating since last year under a similar order with the Office of the Comptroller of the Currency, according to people familiar with the matter. ... These people say the pact with the FDIC, which relates to the company's plans to shed assets and improve its corporate governance, among other things, essentially reinforces a strategy already underway at the financial giant. ... In late January, the [Fed] and the [OCC] downgraded their overall ratings of the bank to 'fair' from 'satisfactory,' according to people familar with the matter", Dan Fitzpatrick at the WSJ, 16 July 2009, link: http://online.wsj.com/article/SB124771415436449393.html.

January, isn't that after the recent Henry Paulson-Zimbabwe Ben (ZB) Ken Lewis "armtwist"? What's going on here? This article was titled, "US Regulators to BofA: Obey or Else". ZB now reveals himself to be a Trotskyite, Leon said, "The old principle he who does not work shall not eat, has been replaced with a new one: who does not obey shall not eat". Does this apply to Goldman too? Perhaps the ZB-POTUS Obama combine is really Leninist, "The best way to destroy the capitalist system is to debauch the currency" and "The way to crush the bourgeoise is to grind them between the millstones of taxation and inflation". Thank you Lenin. What about proposal POTUS Obama's healthcare proposal? See also my 20 October 2008 post: http://skepticaltexascpa.blogspot.com/2008/10/agents-of-influence.html. Well Eric Holder, do you believe it inappropriate for a publicly-held company to fail to disclose a MOU? Will indictments follow? See also my 18 June 2008 post: http://skepticaltexascpa.blogspot.com/2008/06/occ-vs-sec.html.

Better Regulation? Hahahahaha!

"In its main analysis of what went wrong and in its prescriptions, the [Obama adminstration] proposal also remains true to the current Washington consensus that the bankers caused the whole mess. They did so, we are told, by cleverly running around and through Washington's already vast regulatory army of the [Fed], the [OCC], the OTS, the FDIC, the NCUA ..., the SEC, the CFTC, and who could vforget, the FHFA. ... Who'd have thought these massed legions were little more than a Maginot Line against the banker blitzkreig? ... There's not a word in the 85 pages about the Fed's years of negative real interest rates, and the only mention of Fannie Mae and Freddie Mac is a placeholder paragraph noting that reform of those housing giants weill come later. ... Treasury is of course a political body subject to political pressure. One reason 'emerging risks' are often overlooked is that regulators have to brave enough, and independent enough, to stop the music in the middle of the party. ... The danger is that once the market understands these banks are too big to fail, the banks themselves and their lenders will begin to consider them to be like Fannie and Freddie. Their cost of funds would become cheaper than those of smaller competitors", Editorial at the WSJ, 18 June 2009, link: http://online.wsj.com/article/SB124528087493225237.html.

"The notion that a regulator will be able to anticipate the next crisis and correctly prescribe the proper cure flies in the face of our recent experience. ... Not a single central banker in the last episode noticed the crisis before it was already manifest. Indeed, many commentators believe it was the Fed itself that set this crisis in motion with easy credit. ... This brings us to the second problem with the scheme--the false positive. Nobody has considered the cost of a misdiagnosis by the systmatic risk regulator", my emphasis, Thomas Dempsey (TD) letter to the FT, 23 June 2009.

I agree with the WSJ. There is nothing of substance in this proposal.

Well said, TD. Uncle Miltie used this type of reasoning over 40 years ago to argue for fixed monetary rules.

The OCC and the Banks

"On Tuesday, the US Supreme Court will hear New York's appeal. If the state wins, it would make a break with decades of precedent that mostly favors the powers of the federal government and open a new era for 50 state regulators to play a bigger roles. Under both Democratic and Republican administrations, the Treasury regulator, the Office of the Comptroller of the Currency [OCC], has allied with banks it supervises to set aside state laws ranging from disclosure requirements on loans to limits on surcharges at automated teller machines. ... The Supreme Court almost always has agreed. Just two years ago, the justices blocked states from supervising state-chartered mortgage subsidiaries owned by national banks. ... The financial crisis many blame on a mortgage industry rife with abuse could undercut the argument that the National Bank Act was intended to shield national banks from state law-enforcement measures. ... The [OCC] and the banks it oversees assert that even when state laws do apply to national banks, the comptroller alone--and not state authorities--holds power to enforce them. ... 'Exclusivity of supervisory authority is critical,' the former comptrollers argued, so that 'consumers are offered maximum protection against unfair treatment in their access to and enjoyment of the products and services of national banks.' ... If the court finds for the comptroller's office, some federal lawmakers say they will act to nullify the ruling", my emphasis, Jess Bravin at the WSJ, 27 April 2009.

The OCC has protected large banks for decades. Its idea of consumer protection is my idea of Newspeak. The OCC is terrified state regulators may expose its perfidy. Obama seems to be following Bush and is siding with the banks. Think about this, "the National Bank Act was intended to shield national banks from state law-enforcement measures". Really?

Nothing New Here

"Tim Geithner didn't use the words 'regulatory forbearance' yesterday in his banking bailout presentation. In fact, no one in Washington uses those words, which are seriously out of fashion. Yet regulatory forbearance is the most important item in the government toolkit. ... Is mark-to-market the best of all possible disclosure regimes for investors? Maybe so, but that's no reason for regulators to tie their own hands when flexibility about bank solvency would better serve the public interest. That's regulatory forbearance. Let's not kid ourselves, either, that banks haven't already received a few nods to avoid accounting write-downs that would endanger their capital adequacy. ... Banks 'too big to fail' already are effectively backed by government and don't need trillion-dollar capital injections or taxpayer-financed toxic asset relief. .. Instead, Mr. Geither offered that Washingon now would 'stress test' banks to find out their true condition, Huh? Aren't our multiple regulatory agencies already doing this? ... Dropping mark-to-market is no miracle cure, but it would reduce the pressure on banks and regulators to make irrational choices about the disposition of questionable assets. ... Regulatory forbearance doesn't make this moral hazard worse; at this point, it simply represents the least-cost approach to finishing the job the government has of holding the banking system's hand while it steps back from the abyss", Holman Jenkins (HJ) at the WSJ, 11 February 2009.

"The Treasury Secretary seems stuck on keeping the banks we have in place. But we don't need zombie banks overstuffed with nonperforming loans--ask the Japanese. Mr. Geithner wants to 'stress test' banks to see which are worth saving. The market already has. Despite over a trillion in assets, Citigroup is with a meager $18 billion, Bank of America only $28 billion. The market has already put that the banks and their accountants haven't fessed up to bad loans and that their shareholders are toast. ... The $45 billion to Citi and the Bank of America wasn't nearly enough. Instead $306 billion and $118 billion loan guarantees were extended to cover the bad debt, which unfortunately, the market believes still weighs down the banks' balance sheets", Andy Kessler at the WSJ, 11 February 2009.

"Bank-stock investors have every reason to stress out over the Treasury's stress test. As part of Treasury Secretary Timothy Geithner's Financial Stability Plan, many banks will be subject to tests aimed at gauging whether they have sufficient capital to support lending and absorb losses under a severe economic outlook. Existing bank regulators, including the Treasury's own Office of the Comptroller of the Currency [OCC], already test banks' strength. So the new assessments will have an added rigor, or the announcement was pure theater. If the administration really does have the stomach to get tough with the banks, they could be forced to recognize credit losses more quickly. ... Incredibly, as the credit crunch has deepened, banks' loan-loss reserves have so far fallen as a percentage of non-performing loans", my emphasis, Peter Eavis at the WSJ, 13 February 2009.

Is HJ kidding? Regulatory forbearance, in part got us here. How does HJ know what serves the public interest? He sounds like a bank lobbyist Thomas Jefferson warned us about banks. I say kill these monsters, now. To think accounting entries change regulators' decisions shows banks books are cooked and HJ wants the taxpayers cost of bank bailouts disguised. HJ makes similar arguments to Citigroup's Bob Traficanti, my 17 July 2008 post: http://skepticaltexascpa.blogspot.com/2008/07/schwartzman-and-mcteer-on-accounting.html.

I agree with Kessler.

The OCC is another joke. See what it did at NCC, my 18 June 2008 post, link: http://skepticaltexascpa.blogspot.com/2008/06/occ-vs-sec.html.

OCC vs. SEC

"National City Corp.'s banking unit [made] a confidential agreement with the [OCC] ... over the past month or so. ... Under such agreements, which are entered into privately and aren't publicly disclosed, banks are given an opportunity to work with federal regulators to address serious financial problems without triggering alarm among depositors. ... National City was believed to be out of the woods with regulators since it raised $7 billion in capital from outside investors led by buyout firm Corsair Capital. ... A spokeswoman for National City declined to comment, citing company policy of not commenting on rumor or speculation. The OCC is a division of the Treasury Department that regulates national banks. ... [M]emorandums of understanding [MOUs] are considered serious and are fairly rare, though it is even less common for a bank to face a public enforcement action", WSJ, 6 June 2008.

National City's parent is publicly-held National City Corp., NCC-NYSE. Chris Cox (CC), are you listening? I reviewed recent NCC 8-K filings at the SEC's website, http://www.sec.gov/ and found four: 21 April, 8 and 12 May and 10 June 2008. The instructions to Item 1.01 of Form 8-K govern disclosure of a "Material Definitive Agreement". Instruction B says the Form 8-K should be filed "within four business days after the occurrence of the event".

The 10 June Form 8-K attachment reads, "someone has breached the confidential relationship between National City and our regulators. Given the potential concerns and misunderstandings that this breach could cause for many of our stakeholders, we can confirm that National City entered into [MOUs] with the [OCC] and the Federal Reserve Bank of Cleveland on May 5 and April 29, 2008 respectively". Well, CC, will you look into this? Is this legal? Should you encourage the DOJ to bring criminal charges against the OCC and Fed employees responsible for this, if not legal? Will you do anything? The 10 June filing followed the 6 June WSJ article and was after the four-day filing period ended. To ensure you can't claim ignorance of the situation, I will mail you a letter bringing it to your attention.

The MSM Begins to Understand

"Vandals regularly comb the neighborhood, sometimes setting fires. ... This was once the sort of 'product' that dazzled Wall Street, feeding the subprime-mortgage bubble. ... Now, hundreds of lenders, securitizers and brokers like Kellogg are being investigated by the FBI, IRS, state attorneys general and county authorities nationwide for their respective roles in this global confidence game, which authorities are just beginning to piece together. ... But Cuyahoga County prosecutor Bill Mason tells Newsweek that Kellogg, who is still licensed as a loan officer in Cleveland, is a 'target' of a state task force on alleged mortgage fraud that is expected to return numerous indictments in the next few months. ... But by 2006, 44.7 percent of all securitized mortgages in the county were stated income or no-document loans, according to Patrick Madigan, an Iowa assistant attorney general. ... Now the investigations are going all the way up the pipeline--to Wall Street. ... Among the targets are 'major subprime lenders' and investment banks, [FBI spokesman Bill] Carter says. 'We're going after people right at the top,' says another FBI spokeman, Steve Kodak. ... An astonishing 80 percent to 85 percent of the Cleveland loans bought up by Wall Street from 2003 to 2007 went into foreclosure. ... 'We asked them to step up and take action,' the county treasurer [Jim Rokakis] recalls in his office in downtown Cleveland. 'But here's what I learned about the Fed. They do wonderul lunches. But the Federal Reserve Bank is not there to protect us. It's there to protect the banks'. ... But within a year, the state, heavily lobbied by Ohio banks like National City, stepped in to void the local law, saying authority lay with the governor and legislature in Columbus. Then the U.S. [OCC] issued a preemption order saying the states did not have the authority to enforce laws against national banks. ... Rokakis says, ... 'in the old days, people robbed banks. Now the banks were robbing the people'," my emphasis, Michael Hirsh at Newsweek, 2 June 2008.

Ah, the federal supremacy doctrine. It's time a way was found to incarcerate OCC clowns who protect banks. Are they bank co-conspirators? Rokakis, find a way to embarass the Bushites into throwing some OCC guys under the train with the doctrine you can't use sovereign immunity to perpetrate a crime. Either the OCC guys knew what was going on, in which care they're criminals, or else they were fools and should be fired. With enough publicity, you might be able to force the issue. Sovereign immunity, end it. The WSJ wants to extend sovereign immunity to drug companies based on FDA actions. Crazy. Will the FBI take down senior executives at say: Citibank, JPMorgan, Goldman Sachs, etc., as well as the banks themselves? Don't hold your breath.

On Eliot Spitzer and John Ashcroft

"Michael Bachner, a former prosecutor in the Manhattan [DA's] office said: 'The Mann Act [MA] was designed more towards those who get someone to travel against their will. ... If Spitzer gets indicted, it would seem to me he would be indicted based on who he is rather than what he's done'," WSJ, 11 March 2008.

"When [NY] Governor Eliot Spitzer was implicated Monday as a customer of a multistate prostitution ring, journalists rushed to brush up their knowledge of a 1910 federal law known as the [MA]. The law, once known as the 'white slavery' law, forbids the transportation of women across state lines for 'immoral purposes,' including prostitution. ... Meanwhile the [MA] has been used repeatedly throughout the years in prostitution cases, although normally it was the purveyors of prostitutes, and not their procurers who were charged under it. Perhaps the most famous use of the [MA] was the 1959 case against Chuck Berry, who served three years for transporting a 14-year-old Indian girl across state lines", Editorial at the WSJ, 12 March 2008.

"The investigation into the prostitution ring that Mr. Spitzer is alleged to have patronized is being carried out by a team of public corruption prosecutors in [the SDNY], a unit that U.S. Attorney Michael Garcia has beefed up since his arrival in 2005", WSJ, 12 March 2008.

"Former Attorney General John Ashcroft on Tuesday denied receiving 'a backroom sweetheart deal' after getting a multimilllion-dollar contract aided by the Justice Department. 'There is not a conflict of interest; there is not an appearance of a conflict of interest,' Ashcroft insisted as a hearing on Capitol Hill. ... Rep. Chris Cannon, R-Utah, said the attack on the former attorney general was 'appalling.' He called Ashcroft 'a man with a distinguished history and unquestioned ethics.' ... David Nahmais, a U.S. attorney in Georgia, testified that deferred prosecution was a 'middle ground' that allows corporate wrongdoers to pay fines and penalties but preserves 'financial viability'," Houston Chronicle, 12 March 2008.

"The federal criminal investigation that has led to Eliot Spitzer's resignation as governor of [NY] illustrates the great dangers all Americans face from vague and open-ended sex and money-transaction statutes. Federal law, if read broadly, criminalizes virtually all sexual encounters for which something of value has been given. ... But the very existence of these selectively enforced statutes poses grave dangers of abuse. ... There is no hard evidence that Eliot Spitzer was targeted for investigation, but the story of how he was caught does not entirely ring true to more experienced former prosecutors and current criminal lawyers. The [NYT] reported that the revelations began with a routine tax inquiry by revenue agents. ... We are talking about thousands, not millions of dollars. ... The idea that federal investigators would focus on a few transactions to corporations--that were not themselves under investigation--raises as many questions as answers. ... Money laundering, structuring and related financial crimes are designed to ferret out organized crime, drug dealers, terrorism, and large-scale financial manipulation. They were not enacted to give the federal government the power to inquire into the sexual or financial activities of men who move money in order to hide payments to prostitutes. ... In this case, they intercepted 5,000 phone conversations, intercepted 6,000 emails, used surveillance and undercover tactics that are more appropriate for trapping terrorists than entrapping johns. ... As the [WSJ] has reported: 'It isn't clear why the FBI sought the wiretap warrant. Federal prostitution probes are exceedingly rare, lawyers say, except in cases involving organized crime leaders or child abuse. Federal wiretaps are seldom used to make these cases'," my emphasis, Alan Dershowitz (AD) at the WSJ, 13 March 2008.

"Michael Garcia, Republican hatchet man and U.S. attorney for the [SDNY], is at it again. This time Garcia is after a Democratic governor. ... I, for one, pray Garcia's political career is as short-lived as former U.S. Attorney General Alberto Gonzalez", (PS) Patrick Sweeney letter to the Houston Chronicle, 13 March 2008.

"Something has been overlooked in the Gov. Eliot Spitzer hubbub: A few weeks ago, Spitzer wrote an op-ed piece for the [NYT] that was reprinted in the Houston Chronicle (Please see 'Predatory Lenders had a partner in crime at OCC/Federal agency, made it all worse for unwary borrowers.' Outlook, Feb. 15). ... Now a few weeks later, by quirk of fate, Spitzer is exposed for his sexual shortfalls. And by luck alone, the high powers of the federal government were being used to investigate a prostitution ring! In this era of scant resources and a mountain of mortgage fraud, perpetrated by bankers, the feds have time to investigate some New York sleazebags for what is generally considers a misdemeanor. What an amazing coincidence, indeed!," Gene Hayes (GH) letter to the Houston Chronicle, 13 March 2008.

"For those who have been on Mars the past few days, Governor Spitzer was caught in an FBI wiretap probe. ... The sting that caught him involved a banking institution alerting federal authorities ... to 'suspicious' financial transactions between Spitzer and the call girl service. ... That said, there is a nagging question in the back of my mind. Why did the hammer fall on Governor Spitzer now? ... So, why was Governor Spitzer 'caught?'. ... I do not have the answer to that question, but mark it down, somebody in Washington, D.C. has the answer. There is an old saying inside the Beltway, 'When it comes to politics, there are no accidents or coincidences. How is it that in this elaborate FBI 'sting,' only Governor Eliot Spitzer was 'caught'? ... All this talk about a war on terrorism is a bunch of hooey. What is really happening is a war on freedom", Chuck Baldwin (CB) at http://www.chuckbaldwinlive.com/, 14 March 2008.

"Spitzer's lynching and the bankers' enriching are intimately tied. ... Spitzer not only took on Countrywide, he took on their predatory enablers in the investment banking community. ... Do I believe the banks called Justice and said, 'Take him down today!' Naw, that's not how the system works. .... Headlines in the financial press--one was 'Wall Street Declares War on Spitzer'--made it clear to Bush's enforcers at Justice who their number one target should be. And it wasn't Bin Laden. ... Back in the day when I was an investigator of racketeers for the government, the federal prosecutor I was assisting was deciding whether to launch a case based on his negotiations for airtime with 60 Minutes. I'm not allowed to tell you the prosecutor's name, but I want to mention he was recently seen shouting, 'Florida is Rudi country! Florida is Rudi country!' ... Naming and shaming and ruining Spitzer--rarely done in these cases--was made at the 'discretion' of Bush's Justice Department. Or maybe we should say, 'indiscretion'," Greg Palast (GP) at http://www.globalresearch.ca/, 14 March 2008.

"In another one of those nice coincidences that seem to happen whenever Wall Street is down and out, the unpopular governor of [NY] was found consorting with prostitutes through a Federal investigation that has all the hallmarks of a 'hit job' ordered from the very top. Spitzer was deeply unpopular in the corridors of power, and especially with the current Treasury Secretary Hank Paulson, for daring to take various Wall Street firms down a few notches earlier this decade. ... It is almost too convenient that the disclosures of his extracurricular activities came this week. ... The sorry story of the governor and his extramarital affair though helped to achieve something more important, namely to hide a brewing problem in the securities industry. ... As with the Sherlock Holmes dictum of 'who benefits from the crime', it is clear that this week's moves were intended to help beleaguered brokers", Chan Akya at http://www.atimes.com/, 15 March 2008.

"The press has almost solely focused on the salacious aspects of the affair, not least the hefty fee Spitzer apparently paid. Why the scandal breaks now is the more interesting question. ... Spitzer had become increasingly public in blaming the Bush administration for the nation's current financial and economic disaster. ... On February 14, Spitzer published a signed article in the influential Washington Post. ... With that article, Spitzer may well have signed his own political death warrant", William Engdahl at http://www.atimes.com/, 19 March 2008.

The Spitzer case looks like another "triumph" for America's worst prosecutor, since Mike Nifong of "Duke Three" fame went to his appropriate professional reward. I nominate Mike Garcia (MG), SDNY US Attorney for my first annual Nifong. I haven't designed the Nifong yet, but it won't look like an Oscar. Why did MG beef up his public corruption unit? How is Spitzer's paying $80,000 evidence of public corruption? I figure MG's almost unprecendented example of prosecutorial overkill merits MG more than a $3.5 million a year large NY law firm partnership. Say, an eight figure slot at: KKR, Blackstone, or dare I think it, Goldman Sachs. Or wherever he will be offered the best deal.

Really Mr. Nahmais? Or does it give AUSAs opportunities to do very well when leaving the DOJ? Further, it gives current AUSAs a basis to avoid trying cases to conceal whatever they wish to conceal. "Deferred prosecution" agreements avoid trials which might expose information useful to the plaintiffs' bar. Should drug distribution gangs "financial viability" be preserved? If not, why not? It seems to have deterrent capability, you don't want to preserve a corporation's financial viability. Or is Nahmais lining up a job with Exxon's or BP's attorneys as soon as 21 January 2009 rolls around?

AD misses this: the lack of "hard evidence" is a defense usually raised in criminal conspiracy cases. It is no element of a prosecution's case in chief. Why do I raise this? Because criminal convictions can be built on circumstantial evidence. AD could look forever for the proverbial "smoking gun" email or memo within the (In)Justice Department that would "prove" Spitzer "was targeted for investigation". How many millions did the FBI and MG spend to "make" this case and why? Some people made the "connections" quickly. The first was at http://www.angrybear.blogspot.com/ on 10 March. I remember thinking it absurd for the Feds to spend $9 million to prosecute Martha Stewart (MS) over $53,000 of avoided losses. That isn't even 1% of my Blankfein test amount. Remember, MS was a big time criminal, she was a Democrat!

PS, insha Allah.

GH, you built a circumstantial evidence case against MG. Go guy! As I wrote Bill Pickering on 11 March 2008, I've seen criminal convictions sustained on three pieces of circumstantal evidence. I think GH has this knocked. The Bush administration is unsubtly telling anyone opposed to its Wall Street bailout, "We're coming for you". Andrey Vishinsky, Stalin's chief procurator would have been proud to have made MG's Spitzer case. I cited Spitzer's piece on 20 February 2008. The NYT article about the prostitution ring appeared on 7 March, 21 days after Spitzer's piece. Coincidence, I doubt it. As attorneys who pursue wrongful termination cases know, proximity in time between the "protected act" and the "adverse employment decison" is a fact a jury may consider in its deliberations. But there is no "hard evidence" say the corporate defendants when appealing a lost employment case. So?

Some history. The MA is currently codified at 18 USC 2421. It reads, "Whoever knowingly transports any individual in interstate or foreign commerce, ... with intent that such individual engage in prostitution, or in any sexual activity for which any person can be charged with a criminal offense, or attempts to do so, shall be fined under this title or imprisoned not more than 10 years, or both". The MA was made "gender neutral" years ago. WSJ, wake up. What does the MA mean Nifong, excuse me, Garcia? That a 17-year old New York boy, taking his 15-year old girl friend to New Jersey to "do it", can be charged under the MA for doing the "Act". Another MA application: a pornographer drives an actor and actress from Los Angeles to Las Vegas to shoot a film. It appears he could be charged under the MA. I believe the 1910 legislative intent that such "crimes" not be punished under the (appropriately named, I love it) Mann Act as it was then called the "white slave trafficking act". A $4,300 an hour hooker is a "white slave"? Puhleeze. That's about four times the highest rate any NY law firm charges for partner time. Suppose a Debevoise and Plimpton attorney, our old friend Mary Joe White's firm, takes the Washington Bridge to New Jersey with a honey in tow, he could be charged under the MA too. Who knows, if we construe the MA broadly (ugh) enough, MG could be charged under it too if he crossed state lines with the requisite intent. Suppose he takes a "friend" to Mississippi, which has a fornication law. MG and his "friend" could both be charged under the MA. Crazy. The Spitzer case is one of the worst cases of selective prosecution I've seen in years. MG, I salute you. As opposed to spending time with what must be multi-billion dollar Wall Street frauds, you insult the American public with this? You should be ashamed of yourself. Bachner's understanding of the MA is the same as mine.

We should not ignore the "wag the dog" aspects of Spitzer's undoing as Helicopter Ben just bought $200 billion of toxic waste from Wall Street this week as Akya notes.

I remember once seeing Telly Savalas (TS) as Kojak investigating a murder. One witness was a streetwalker. She was unwilling to testify. So what does TS say? This is a paraphrase, "I'm a real cop. A homicide dick. Not one of those vice idiots. If any of those vice idiots gives you any trouble just tell me and I'll take care of them. Now talk". And she did. Has the NY FBI anything important to do?

CB's question is unusual as he is a Baptist pastor from Pensacola, Florida who opposes adultery and fornication among other things. He's asking why?

What more need be said, MG? Who do you think you're fooling? This nonsense will end when the various state police agencies make it a regular practice to investigate US attorneys. After a few of them are sent to state prisons, the remainder will concern themselves with real crimes as opposed to supporting Bush administration policies.

Why We Need Federalism-6

"Several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders. ... Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers. ... [T]he Bush administration ... embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye. ... For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers. ... The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules. ... [W]hen the dust settles, the administration will be judged as a willing accomplice to the lenders ... [s]o willing, in fact, that it used the power of the federal government in an unprecedented assault on state legislatures, as well as state attorneys general and anyone else on the side of consumers", my emphasis, Elliot Spitzer at the Houston Chronicle, 15 February 2008.

Imagine, the Republican party is supposed to be the party of federalism. Hahahaha would the Mogambu Guru say. It's the party, "Of the banks, by the banks and for the banks". Now that the idiot bankers are in trouble, the Fed and Treasury will steal hundreds of billions from savers to prop them up. What a system.