Transparency on The Huffington Post

House Travel Spending Is All Over The Map

2009-12-04T15:25:21Z

The amount of money that members of the House of Representatives spend on all manner of office necessities -- especially travel -- vary widely.

Representatives spent a total of $6.8 million on travel from July through September, averaging about $15,800 per office. Some members, particularly those from faraway or rural districts, spent more than twice that amount. But, in a few cases, even members from neighboring districts of similar size spent vastly different sums on travel.

One big travel spender says the expenses reflect the lawmaker's heavy emphasis on working in the home district.

"We put a higher priority on traveling to the district and traveling within the district," said Jessica Gleason, chief of staff for Rep. Doc Hastings (R-Wash.). Hastings' office spent $38,411 on travel in the summer months.

Neighboring Rep. Cathy McMorris Rodgers, whose district is similar in size to that of Hastings, spent $22,415. A McMorris Rodgers spokesman said, "We try to go back every week."

Hastings's priority on traveling in the district is evident in the total expenditures for the quarter. Though Hastings spent more than any other Washington representative on travel, his third quarter total for all expenses came to $326,448, the second-smallest sum spent by all nine Washington representatives.

There are similar differences within other state delegations.

Rep. Steve King (R-Iowa) spent $43,466 on travel, more than any of his colleagues in the contiguous United States. His neighbor, Rep. Tom Latham (R), spent only $13,821. The two districts are roughly the same size -- why the difference in travel costs? There's probably a simple answer, but King's office did not respond to a request for comment. A Latham spokesman said he'd let the number speak for itself.

Summer travel for the office of New Mexico's Harry Teague (D) totaled $40,274. His neighbor, Rep. Ben Lujan (D), disbursed just $20,697. Neither office responded to requests for comment.

In other states, differences in travel spending simply reflect size of the districts and their distance from Washington.

Republican Jerry Moran spent $41,999 traveling his district, the largest in Kansas. Neighbor Lynn Jenkins (R), of the much-smaller 2nd district, spent $14,800 traveling in the third quarter. A Moran spokesperson noted that Moran's district is "roughly the size of Illinois" and that the congressman holds 69 town hall meetings a year.

Local Virginia Congressman Jim Moran (D-Va.) spent the least money traveling in the third quarter, reporting a modest $208 in travel costs, and only $240 for the year to date. His biggest expenditure was a $45 car rental in September.

Rep. Tom Perriello (D-Va.) spent almost 100 times what his fellow Virginian spent in the same three months, totaling $19,522.

"Congressman Perriello's district is larger than the state of New Jersey," said Periello spokeswoman Jessica Barba. "It's a huge state to cover, and he is out all the time, every single weekend, meeting with people and staying in touch with his constituents."

Barba also said that Perriello's staff is particularly active in his district and that they held 21 town hall meetings in August.

Unsurprisingly, Rep. Don Young (R-Alaska) spent the most on travel, totaling $70,829. Young spokeswoman Meredith Kenny explained:

"We do like to send staff back [to Alaska] because it's not feasible for them to come to us. They travel the state mostly in August to hold meetings, although some staff travel throughout the year, but prices are much higher in August because of tourist season," Kenny said.

"Alaska has a horrible road system, so you have to fly everywhere, which is unique to our state. Congressman Young has some payments to security aviation and other private plane companies because when he travels to villages, he has to hire private planes."

Kenny also mentioned that food is more expensive up in Alaska. The cheapest meal in America might be in Tennessee -- the statement of disbursements shows that the office of Rep. Lincoln Davis (D-Tenn.) spent five cents on a meal on Aug. 17. (Davis's office did not bother responding to a request for comment.)

The data is not very precise -- Phil Singer of Congress.org noted that when the House posted the data online for the first time this week, administrators "erased a vast array of details on the expenditures of House Members, making it impossible to determine what much of the money was actually spent on." Many expenditures are listed simply as "Commercial Transportation" or "Travel Reimbursement."

With additional reporting by Laura Bassett

The Sunlight Foundation put the data in a searchable database. See any interesting patterns? Email arthur@huffingtonpost.com.

No Easy Jumpstart To Get Small Business Hiring Again

2009-12-03T10:00:00Z

As 130 business, labor and thought leaders converge on the White House today to discuss ways to create more jobs, the nation's main engine for job creation -- small businesses -- is stalled out.

Suffering from a lack of available credit, low demand for goods and an uncertain economic environment, small businesses are hurting even more so than larger firms.

A variety of proposals to help small business are floating around Washington. They include funneling unspent TARP funds into banks on condition they lend the money to small businesses; pushing the Small Business Administration, a federal agency, to increase its lending and guarantee more loans; and using other TARP money to provide cheap financing for investors to buy securitized small business loans.

One proposal championed by Sen. Mark Warner (D-Va.) and endorsed by 32 other senators calls for up to $40 billion in unspent TARP funds to be channeled into smaller banks, only to be used for small business loans -- a "use it or lose it" source of funds. The Obama administration supports elements of the plan, which doesn't require congressional action, but hasn't made any public steps toward actually implementing it.

But pushing banks to lend more in an uncertain economy to perhaps non-credit-worthy borrowers may not really solve the problem.

"Community banks aren't lending more not because they don't have the money; they're not lending more because they don't see good lending prospects out there," said Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C. "I don't think the issue here is one of bank lending. You have a falloff in lending as you always have during a downturn because there aren't any good lending opportunities."

He says the reason behind the lack of available credit is due to plummeting real estate values in the commercial and residential markets, as well as significantly decreased consumption. Simply put, consumers aren't spending as much so businesses don't have much reason to grow.

"I really think the lending [issue] is sort of barking up the wrong tree," Baker said. "I don't know what force-feeding banks money is going to do. As much as we might want to give more money to them I don't think they'll have anything to do with it if we did."

The two leading small-business advocacy organizations - the National Federation of Independent Business (NFIB) and the National Small Business Association (NSBA) - have differing views. The NSBA points to the lack of credit as one of its top priorities. But in a report released last month based on survey data, the NFIB noted that while its members were having difficulty getting loans, it was far from a top priority. "Too many [business] owners have no reason to borrow," the authors wrote. "The biggest problem was a dearth of customers."

Some small businesses are clamoring for more credit, but others are reluctant to take on more debt, particularly considering the uncertainty of the economy. As Mark Zandi, chief economist with Moody's Economy.com, put it Wednesday in a meeting with lawmakers on Capitol Hill: "The odds that the economy will backtrack into recession remain uncomfortably high."

Tim Duy, a former Treasury Department economist now at the University of Oregon who runs a popular blog chronicling the Federal Reserve, says that banks have plenty of cash to lend.

"I would start with this question: are banks really having that much trouble getting cash right now? Deposits are up, so it's not as if there's no cash for banks to lend. And it's not as if the cost of funds is very high right now," Duy said.

Indeed, domestic deposits at banks are up $331 billion since last year, an increase of about five percent. And the federal funds rate -- the Federal Reserve's interest-rate target for overnight loans between banks -- is at record lows, averaging 0.12 percent in October. The lower the rate, theoretically the more incentive exists for banks to borrow and invest (like in loans to small businesses). Two years ago the rate was 4.76 percent.

In addition, as of October banks were holding nearly $1 trillion in excess reserves, according to the most recent federal banking data. That figure is in excess of what's mandated by government regulators. By contrast, in the decade before the financial crisis blew up in September 2008, the nation's banks held an average of $1.7 billion in excess reserves.

Nevertheless, lending continues to decrease. Commercial and industrial loans have dropped 16 percent since last year, according to the Federal Reserve. Loans through credit cards -- which many small businesses use to finance their operations -- have fallen nearly five percent since last year, according to the Federal Deposit Insurance Corporation. And unused lines of credit, such as a credit card line or loans secured by commercial real estate -- two other popular forms of financing for small businesses -- are down a whopping 22 percent since this time last year.

Economists Baker and Duy say the demand for loans isn't really there. Survey data from the Federal Reserve backs them up. In the third quarter, nine percent of banks reported "moderately stronger" demand for commercial and industrial loans from smaller firms (defined as having less than $50 million in annual sales) compared to the second quarter. But nearly 45 percent of banks reported "moderately weaker" demand.

In the previous quarter, three out of five banks reported weaker demand from smaller firms for these loans; in the year's first quarter, two-thirds of banks reported lower demand.

"It's hard to force banks to make loans they don't want to make," said Allen N. Berger, a former senior economist at the Federal Reserve, now at the University of South Carolina. Berger has published several research papers on bank lending, credit availability and small businesses. "Business conditions are riskier...not a lot of small businesses are in good enough shape to get loans. It makes sense for banks to be rejecting loan applications," he said.

The Independent Community Bankers of America (ICBA), the country's leading small-bank advocacy group, supports increasing loans to small businesses, says Paul Merski, the group's senior vice president and chief economist. "Small businesses don't do well if community banks aren't doing well, and vice-versa," he says.

But Merski traces much of the problem to the broader economic conditions. After all, when unemployment is at 10 percent and consumption and income are down, the viability of many small businesses comes into question.

Merski adds that bank lending is based on collateral and with about 45 percent of all small business loans backed up by real estate collateral -- and with real estate prices down by roughly a third from their peak -- smaller firms have been disproportionately affected.

Bank regulators are forcing banks to reduce the risks to their balance sheets, he said. "Unless you have bank regulators ratchet back the pressure they're putting on banks, it's not going to be easy to make those loans."

Zandi said federal money instead should be used to bolster the securitization market for small business loans, partly because it's not clear that the banks would want the TARP money if there are too many strings attached. That would reduce the risk posed by individual loans.

Christina Romer, chairwoman of the White House Council of Economic Advisers, remains hopeful, writing in an opinion piece regarding job creation in Wednesday's Wall Street Journal that "a moderate and targeted investment by the government" in the form of "measures to restore the flow of credit for small businesses and targeted tax cuts... might be leveraged into significant employment gains and purchasing power by small businesses."

But thus far, none of the major proposals to boost small business lending calls for more than $50 billion. Merski says they would only make an impact "at the margin." James K. Galbraith, an economist at the University of Texas at Austin who's called for a second stimulus package, agrees.

"Although I would give all of these efforts points for trying, I would say that they're at best functional as part of a much larger effort to turn the macroeconomic environment around. The situation calls for something much larger."

White House Told 'Multiple Times' Fannie, Freddie Had No Watchdog

2009-12-02T17:02:17Z

Whose fault is it that the federal agency that oversees five trillion dollars in mortgages hasn't had an independent inspector general for months? Not ours, say Federal Housing Finance Agency officials, insisting that they notified Congress about the problem and pressed the Obama administration "multiple times" to appoint someone to the position tasked with rooting out wrongdoing at Fannie Mae, Freddie Mac and the Federal Home Loan Bank.

In a letter to Rep. Darrell Issa (Calif.), the top Republican on the House Oversight and Government Reform Committee, Alfred Pollard, the FHFA's top lawyer, writes that two of the agency's heads - former Director James Lockhart and acting director Edward DeMarco -- had alerted Congress to the absence of an inspector general. (Read the letter here.)

But the IG in question, Ed Kelley, was removed only after Lockhart challenged Kelley's legal authority to operate. At the time Kelley told Congress that there was no IG -- on June 3, 2009 -- Kelley was, in fact, locked in a battle with Lockhart and was still serving as acting IG with legal authority that stemmed from a previous legal opinion.

It's highly unusual for an agency head to challenge the legal authority of his own IG, as it undermines the watchdog's independence.

More than a month later, Kelley met Lockhart, the deputy director and Pollard to discuss the feud. At the meeting, Lockhart suggested allowing the Department of Justice's Office of Legal Counsel settle the dispute. Kelley, in a separate letter to Issa, writes that he agreed -- assuming that the DOJ would agree with him.

He was wrong. On Sept. 8, the OLC offered the opinion that Kelley did not have authority to act as the IG. The back story is here, but, in short, the agency and the OLC claimed that because Congress didn't specifically say that the law turning the Federal Housing Finance Board (FHFB) into the FHFA mentioned an acting IG, then there wasn't an IG until the president appointed a new one. He has yet to do so.

The chairmen of the House and Senate banking committees, Rep. Barney Frank (D-Mass.) and Sen. Chris Dodd (D-Conn.), both told HuffPost that Congress had no intention whatsoever of revoking Kelley's authority to operate as an IG. Rep. Dennis Moore (D-Kan.), who chairs the oversight subcommittee with responsibility for FHFA, plans to introduce legislation to make that clear.

The current acting-director of the FHFA inherited the current situation and told the Senate Banking Committee in October that there was no IG and that the agency desperately needed one. "As the acting director of FHFA, I'd like to be very clear I want an inspector general. I would like it, and I would like it now, because I, in fact, believe, Senator, that inspector generals can be very important elements of the functioning of a federal regulatory agency," DeMarco said in response to a question from Sen. Jim Bunning (R-Ky.) about the lack of an IG.

"But, Senator, the answer to your question why we don't have one is that there is a requirement in the statute that the inspector general be presidentially appointed and Senate confirmed. So this position is awaiting a presidential nomination for the IG."
Bunning pushed back. "Well, I understand that, but you as the acting head of the -- you could at least make suggestion to the administration that this is a critical position that needs to be filled."

DeMarco said that he had. "Senator, I've had that communication with the administration multiple times," he said.

Kelley's office had been working with SIGTARP Neil Barofsky, the Special Inspector General overseeing the bank bailout -- the Temporary Asset Relief Program -- when the agency head challenged his authority to operate and asked the FHFA General Counsel's office to look into it.

In his letter to Issa, Kelley says that the agency's successful assault on his authority required him to pull out of such cooperative investigations.

"It's a serious gap in oversight," Barofsky told HuffPost. "It does impact what we do. Ed was a member of our TARP IG council and a partner in our investigative work." Barofsky said he still investigates areas of FHFA, but his mandate only covers "a sliver of what they do."

Issa isn't buying FHFA's rationale. "A federal entity that is at the epicenter of the nation's subprime mortgage meltdown is currently operating without an Inspector General and independent oversight," he said in a statement to HuffPost. "At a time when the federal government now owns more than half of all the mortgages in the United States, for reasons beyond comprehension, the Obama Administration and the Democratic Congress have left Fannie and Freddie without any oversight. There is no way that Congress intended for there to be no IG for the FHFA and the Administration should nominate a permanent Inspector General immediately."

Dean Baker: Fed Transparency Should Precede Bernanke Confirmation

2009-12-02T12:59:34Z

The following is a joint piece by Dean Baker, the co-director of the progressive Center for Economic and Policy Research, and Mark Calabria, the director of financial regulations studies at the libertarian Cato Institute.

Congress will soon consider whether Ben Bernanke merits another term as Chairman of the Federal Reserve. It is fair to say that no single individual played a larger role in responding to the recent financial crisis. The Fed has directly lent more than $2 trillion to financial and non-financial institutions in the last two years. It has guaranteed trillions more. It is also fair to say that few individuals and institutions played as large a role in the economy leading up to the crisis than Ben Bernanke and the Federal Reserve.

However, at the moment Congress lacks the independent and objective analysis needed to fully assess Bernanke's performance and therefore to make an informed judgment as to whether he deserves re-appointment. For this reason, Congress should put off a vote on Bernanke's nomination until there has been a full audit of the Fed's actions preceding and during the crisis.

Before considering Bernanke's role in containing the financial crisis, Congress should, via the Government Accountability Office (GAO), investigate the role of Fed policy in allowing the housing bubble to grow. This is not just an effort at playing the blame game; an objective assessment of this policy will also be helpful in avoiding future bubbles.

It is often noted that Mr. Bernanke's research on the Great Depression makes him well prepared to run the Fed in this period of crisis. Unfortunately, Mr. Bernanke's research apparently did not tell him the obvious: that allowing an $8 trillion housing bubble to grow unchecked would lead to an economic disaster like what we are now experiencing. He and his colleagues at the Federal Reserve Board either could not see, or did not care about, this huge bubble. As a result, Ben Bernanke has been running around for much of the last year and a half telling us about his knowledge of the Great Depression.

It is worth quickly explaining why a collapsed housing bubble leads to a recession, since the policy people responsible for this disaster have done so much to try to obscure the obvious. In the years prior to its collapse, the bubble was driving the economy. Bubble-inflated house prices created an unprecedented housing boom. Residential construction peaked at more than 6.0 percentage points of GDP in 2005.

The $8 trillion in bubble housing wealth led to a consumption boom also. This is the well known housing wealth effect that holds that one dollar of additional bubble wealth will cause annual consumption to increase by 5-7 cents. The implication was that an $8 trillion bubble would push annual consumption up by between $400 billion and $560 billion.

When the bubble collapsed, residential construction fell through the floor as builders suddenly realized that we had an enormous housing glut. The drop in annual construction was more than 3 percentage points of GDP, or more than $500 billion. At the same time, when the bubble driven housing wealth disappeared, we lost close to $500 billion in annual consumption.

Further losses in demand associated with the bursting of a bubble in non-residential real estate, added to the problem pushing the total drop in annual demand to more than $1 trillion. This was an entirely predictable outcome of the collapse of a housing bubble.

The simple reality is that there is nothing in the Fed's bag of tricks that allows it to easily replace over $1 trillion in annual demand. In short, the bubble guaranteed the economic disaster that we are now experiencing: end of story.

Those who are opposed to a full audit of the Fed's conduct often contend that this sort of audit counters an international consensus towards central banks that are independent of legislatures. While the extent of this consensus is questionable, it worth noting that Iceland was often held up as a model by those who shared in this consensus because of its independent central bank and its strong record on inflation targeting.

Examining the Fed's decision-making during the crisis can also inform Congress, and the public, not only on the appropriateness of Bernanke's actions, but also on the Fed's framework for distinguishing between liquidity and solvency problems. The public has been given the impression that such institutions as Citibank and Bank of America are worth more as on-going concerns than if they were liquidated as insolvent banks. To better understand the nature of financial crises, GAO should analyze the Fed's framework for evaluating market liquidity and bank insolvency.

Bernanke has argued that an audit of Federal Reserve activities would undermine the independence of the Fed and unhinge inflation expectations. Nothing could be further from the truth. Subjecting the Fed's decision-making on monetary policy to objective and independent analysis could improve inflationary expectations by increasing the public's understanding of the conduct of monetary policy.

Congress and the White House already have ample opportunity, both in regular hearings and in private meetings, to influence the Federal Reserve as to monetary policy. It would not be unfair to characterize Bernanke as an active member of both the Obama and the Bush Administrations. A GAO audit will, if anything, reduce political pressures by exposing such pressures to the light of day, as well as the influence of the financial industry on Fed policy.

As Bernanke can continue to serve indefinitely as Chairman after his term expires in January 2010, there is no urgency in his nomination. Congress has ample time to consider an audit of the Fed before weighing the merits of his confirmation.

No Recession Special On The D.C. Power Lunch Menu

2009-11-30T11:13:50Z

There's no recession special on the menu at D.C.'s hottest power lunch spots. At a time of double-digit unemployment, when one in eight Americans is on food stamps, the bistros and steakhouses that serve the Capitol crowd seem to to be doing fine -- with no reduction in business and no fewer fawning media profiles.

In September, the Washington Post offered a peek at the rich and famous powerbrokers who dine at Ristorante Tosca. On Monday, CNN visited the Palm, the Capital Grille, the Monocle, and Charlie Palmer Steak, where the executive chef boasts that every member of the House and Senate has dined at some point.

"You're going to be seen, you're going to see who else is there, and to sort of hobnob and be part of the club," said Washingtonian editor-at-large Garrett Graff. "The private rooms, the private dining is an important thing if you're holding a fundraiser or you're trying to bring together a group to try to have a private conversation."

But is it really elevated hobnobbing that brings the big spenders to these restaurants? Or is that they are the favored places for moneyed interests to quietly exchange favors among themselves and our elected representatives?

At least in part, it's the cold-hearted and nonstop quest for cash. The nonpartisan Sunlight Foundation obtains invitations to fundraisers happening at places like Charlie Palmer and the Monocle almost every single day -- and Sunlight doubts that the invites it receives constitute the majority of fundraisers happening at any given time.

Here's a sampler of upcoming fundraisers: On Tuesday, Rep. Elijah Cummings (D-Md.) is having lunch at Bistro Bis. On Thursday, Sen. Chuck Grassley (R-Iowa) will have breakfast at the Monocle and Sen. Kirsten Gillibrand (D-N.Y.) will dine at Charlie Palmer Steak. Rep. John Shimkus (R-Ill.) will be at Capital Grille for a "financial services dinner" later this month.

Lawmakers need so much money to fund winning campaigns that more than 40 such events can take place on a single day, regardless of whether the event interferes with a hearing. The venues are already expensive, but the price of admission for a fundraiser is typically a campaign contribution ranging from $1,000 to $5,000. That's one powerful lunch!

What happens if you show up at Bistro Bis and tell the host you're there to see the senator? The host looks at a schedule and asks, "Which one?"

Tips? Email arthur@huffingtonpost.com.

How Tom Daschle Lobbies In Secret: Influence Laundering

2009-11-25T07:20:20Z

Former Senate Majority Leader Tom Daschle will soon move from one big lobbying firm to another even bigger lobbying firm. It's a career boost for a first-rate K Street powerbroker -- just don't call him a lobbyist.

Lobbyists, after all, are required to register with Congress and file quarterly reports disclosing their actions on behalf of clients. The South Dakota Democrat, like a growing number of people in his line of work, has made sure he doesn't have to do that.

"I've not made a call nor made a visit since I left the Senate on behalf of a client. And I don't have any expectation that I'll do that in the future," Daschle told the New York Times recently.

By claiming that he never picks up the phone on his clients' behalf, Daschle is not legally obliged to declare himself a lobbyist, even if all his work for those clients falls under the general definition of "lobbying activity." That means he can keep his clients' identities and how much they pay him entirely secret.

At the Huffington Post, we've coined a new phrase for this tactic: influence laundering.

In December, Daschle starts his new job as a "senior policy advisor" at DLA Piper, a massive law and lobbying firm that represents a range of corporate and foreign government clients. He has said he plans to focus less on health care, his main issue since losing his 2004 re-election bid, and more on international issues.

Even if Daschle refrains from directly contacting former colleagues on his clients' behalf, however, that doesn't mean DLA's lobbying clients won't receive the full benefit of his contacts and expertise, and that those assets can't be used to influence legislation.

For instance: clients of Alston & Bird, the firm Daschle joined in 2005, said this summer that Daschle sometimes advised them "indirectly" through the firm's registered lobbyists. So whatever news Daschle picked up on his many visits to the Hill or to the White House he could pass on to a client by telling one of his colleagues at Alston.

And one might well say Daschle indirectly lobbied his former colleagues when he promoted home health care during a panel on Capitol Hill in July. The National Association for Home Care and Hospice, an Alston client since 2003, has paid the firm $230,000 so far this year.

"We can provide low-cost good quality access in part through home healthcare. Home health is by far the most effective way to start producing wellness promotion and primary care," Daschle said during a roundtable discussion hosted by the American Association for Homecare, for which he earned a speaking fee. The association was an Alston client that paid the firm $280,000 from 2004 to 2006, according to disclosure forms filed with Congress.

A spokesman from the American Association for Homecare told HuffPost that since it terminated its lobbying relationship with Alston, the group has had no relationship with the firm or with Daschle except for the July event.

The benefits of Daschle's association with the Alston probably spilled over into the lobbying arena. Alston's lobbying revenue, much of it from health-industry clients, nearly tripled the year Daschle joined the firm.

And behind closed doors, who knows what happens? The Government Accountability Office audited lobbying firms last year to check the accuracy of their disclosures. The GAO found that while most firms could back up income statements, only 35 percent could provide written documentation of who acted as a lobbyist for a particular client.

In August, Daschle faced a wave of criticism after Business Week detailed his work for UnitedHealth Group, one of the largest insurers in the country.

Reporters Chad Terhune and Keith Epstein wrote that Daschle "advised UnitedHealth in 2007 and 2008 and resumed that role this year. Daschle personally advocates a government-run competitor to private insurers. But he sells his expertise to UnitedHealth, which opposes any such public insurance plan. Among the services Daschle offers are tips on the personalities and policy proclivities of members of Congress he has known for decades."

Daschle told the magazine that the folks at UnitedHealth "just want a description of the lay of the land, an assessment of circumstances as they appear to be as health reform unfolds."

Congressional disclosure forms contain no information about Daschle's relationship with UnitedHealth. The company is not a lobbying client of Alston & Bird's.

Other former politicians have found their way to non-lobbyist gigs at DLA Piper, including senators like Mel Martinez and George Mitchell, who, like Daschle, is a former Senate majority leader. In January, the Obama administration appointed Mitchell as special envoy to the Middle East.

At the beginning of the Obama presidency, Daschle, too, seemed destined to be the top health-reform adviser in the White House -- and secretary of Health and Human Service to boot. But his nomination crashed and burned when it came out that he hadn't paid more than $140,000 in taxes over three years on a luxury car and driver. But many observers were even more unsettled by how blatantly Daschle cashed in after leaving office, earning $5 million in just four years, much of it from the health industry.

Neverthless, Daschle remains one of Obama's mentors, visiting the White House 11 times in the first six months of this year, according to recently-released visitor logs.

Another unregistered lobbyist who spent a significant amount of time at the White House has been accused of breaking the rules. This month, conservative groups asked the Justice Department to investigate whether labor boss Andy Stern, who visited the White House 22 times and Tweeted about fundraising activities, was acting as a lobbyist. But a spokeswoman told the Wall Street Journal that Stern spent less than 20 percent of his time contacting government officials -- below the legal threshold for whether a person must register.

Daschle's work fits squarely within the legal definition of "lobbying activity," which includes "preparation and planning activities, research and other background work that is intended, at the time it is performed, for use in contacts, and coordination with the lobbying activities of others."

But a person must register as a lobbyist only if he spends more than 20 percent of his time for a client on lobbying activity and makes more than one "lobbying contact" seeking to influence legislation, rulemaking, grant-awarding, or a nomination on behalf of the client.

Craig Holman, a lobbyist with Public Citizen, tells HuffPost that while Daschle may not be violating the letter of the law, he's certainly violating its spirit.

"He gets paid a fortune, he spends more than 20 percent of his time on lobbying activities and he's regularly meeting with covered government officials," Holman told the Huffington Post. "That guy is just flouting the law."

Julian Hattem contributed to this report.

Correction: This article originally reported that the American Association for Homecare remained an Alston & Bird client after the firm reported the relationship terminated in 2007. The group has not been an Alston client since then.

In Crazy New Landscape For Banks, Taxpayers Are The Big Losers

2009-11-24T13:30:47Z

This story has been updated

Fifty banks collapsed during the third quarter of 2009, while more than one in 15 are on the verge of failure -- the highest rate since 1992 -- according to a new report from the Federal Deposit Insurance Corporation that depicts a crazy new landscape for banking in which taxpayers are the consistent losers.

Because of all the failure and near failures, the fund that guarantees deposits hit the red for the first time since 1992.

Meanwhile, some banks are making money hand over fist, with the sector as a whole posting $2.8 billion in profits -- up from a $4.3 billion loss in the second quarter.

They're doing so in part by borrowing cheap federal money -- subsidized by the American taxpayer -- even while massively cutting back on lending. The plunge in lending since last quarter is the largest recorded since federal regulators began keeping track in 1984.

The whole point of the taxpayer-funded bailout and the cheap money for banks was to recapitalize them in hopes of stimulating lending, but the banks are holding back -- which is seriously slowing the economic recovery.

"We need to see banks making more loans to their business customers," Federal Deposit Insurance Corporation Chairman Sheila Bair said Tuesday in a statement. "This is especially true for small businesses that rely on FDIC-insured institutions to provide over 60 percent of the credit they use."

In March, the Obama administration announced a $15 billion plan to jump-start government lending to small businesses. But construction and industrial loan balances at banks dropped 6.5 percent in the third quarter; overall loan balances dropped 2.8 percent.

"I will not rest until businesses are investing again and businesses are hiring again and people have work again," President Barack Obama said Monday.

Financial firms -- banks included -- recorded $80 billion in profits, a 36 percent increase from the previous quarter and a 21 percent increase from the same period last year, according to third-quarter numbers released Tuesday by the Commerce Department. The annual rate that represents -- $320 billion -- is the highest it's been since the first quarter of 2008, when the unemployment rate was less than half of what it is now.

But the gulf between the haves and have-nots in the banking industry is widening, imperiling the very institutions whose lending is supposed to fuel the recovery.

• The nation's 7,408 smallest banks overall broke about even during the quarter.
• The 579 mid-sized banks, loosely defined as holding assets between $1 billion and $10 billion, recorded an average loss of about $3 million during the quarter.
• The biggest 112 banks, those with more than $10 billion in assets, recorded an average profit of nearly $42 million, according to the FDIC's latest figures.

Only three new banks were formed in the three-month-period ending in September, the smallest quarterly total since World War II.

Christopher Whalen, a noted bank analyst at Institutional Risk Analytics, told HuffPost
the situation in the banking industry is "pretty gruesome." His firm tracks the overall level of stress in the sector via an index -- and Whalen said U.S. banks haven't seen today's levels of stress since the 1930s. It's "much worse" today than during the savings-and-loan crisis of the early 1990s, he said.

He cautioned that the fourth quarter, which ends Dec. 31, is going to be even worse. While economists and the administration point to economic indicators that suggest the economy is slowly improving, Whalen said that banks always trail behind the rest of the economy.

"We're going to have a bloodbath," he said. Banks were under pressure during the third quarter to cut costs and increase revenue because of the federal government's "stress tests" in the spring -- exams that gauged the health of the country's 19 biggest banks. Federal regulators were trying to determine which banks needed to raise more money. Revenue was a key component of the formula.

So banks tried to outperform in order to avoid being forced to raise more money, Whalen said. Indeed, expenses across the industry fell and profit increased. But next quarter, banks on solid footing will aggressively write off their bad loans -- driving up losses -- and those in a more precarious position will simply continue to "muddle along," Whalen said. Either way, he predicted, lending will continue to fall.

"That's the problem for the economy. We've got probably a third of the industry that's contracting," Whalen said. "They're not making new loans, they're basically in a defensive posture, and that's not going to change."

READ the report below:

Quarterly Banking Profile -

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Damien Hoffman: Congressman Grayson: SIGTARP Report Illustrates Danger of Secret Bailouts

2009-11-23T00:20:45Z

On Monday night we posted Tyler Durden's breakdown of the SIGTARP audit of the AIG bailout. Will this report resurrect the Fed Audit movement now that Ron Paul's End the Fedbook release PR has died down?

I contacted Congressman Alan Grayson to see how some of our representatives view the jaw-dropping report:

"This audit report is a vivid illustration of the danger of secret bailouts that transfer public resources to private banks. When all else fails, Wall Street can still stick it to the taxpayer."

Congressman Grayson and I discussed Fed Transparency back in December. Since then, H.R. 1207 (the Federal Reserve Transparency Act) has been floating in the water. After reading the AIG Audit Report, if you don't believe the Fed needs more transparency, your retirement account may continue floating in the water too.

How Retired Military Officers Make Bank As Pentagon 'Mentors'

2009-11-18T12:10:08Z

The revolving door is spinning rapidly for retired admirals and generals, more than 125 of whom have been re-hired by the Pentagon to serve as "senior mentors" despite financial ties to companies seeking contracts from the Defense Department, according to an investigation by USA Today.

Participants in mentorship programs for various defense agencies are hired as independent contractors, thereby dodging ethics and disclosure requirements that apply to government employees:

Cowboys And Redskins: This Week In Political Fundraisers

2009-11-16T13:00:49Z

Tickets to this Sunday's grudge match between the NFL's Washington Redskins and Dallas Cowboys can be had on Craigslist for less than $200. But for $2,000, you can enjoy the game while whispering in the ear of Rep. Joe Barton (R-Tex) in a Cowboy Stadium suite.

Rep. John Salazar (D-Colo.) charged even more for sports-fan donors who joined him at yesterday's Redskins home game at Fed Ex Field. Admission to that fundraiser, which benefited the Congressional Hispanic Caucus' Political Action Committee, cost $2,500, according to the invitation obtained by the Sunlight Foundation. (Dan Snyder would be proud.)

There's no home team advantage at the townhouse owned by law and lobbying powerhouse firm Williams & Jensen: the Sunlight Foundation notices that this venue is hosting fundraisers for opposing candidates on consecutive days. GOP Senate hopeful Jane Norton is having lunch there on Monday; on Tuesday, her likely opponent, Sen. Michael Bennet (D), will be there for an evening reception.

Also this week: On Wednesday, Rep. Loretta Sanchez (D-Calif.) has planned a lunch fundraiser at a Capitol Hill bistro, which might conflict with a 10 a.m. Armed Services Committee hearing on Defense Budget trends. Cost of attendance: up to $5,000. For the current election cycle, Sanchez has accepted $34,000 from defense electronics and aerospace corporations, according to the Center for Responsive Politics.

On Thursday, Rep. Glenn Thompson (R-Penn.) has scheduled a lunch fundraiser with the National Automobile Dealers Association. Will Thompson also make it to part of the 11 a.m. hearing of the Agriculture Subcommittee on Rural Development, Biotechnology, Specialty Crops, and Foreign Agriculture, or the 10 a.m. Small Business Committee hearing on the oversight of the Small Business Administration?

Rep. Mike Conaway (R-Texas), ranking member of the same agriculture subcommittee, will be a "special guest" at Thompson's lunch.

Rich Buying Again, But Middle Class Still Hurting

2009-11-13T16:58:15Z

American shoppers are splitting again: The affluent are finally starting to buy, picking up designer clothes at places like Nordstrom, while those on the lower economic rungs are still scrimping by, heading to Walmart for the basics.

Recent earnings reports from major retailers suggest that the wealthy, who pulled back their spending the hardest during the financial meltdown last fall, are once again being enticed to open their wallets and going back to higher-end outlets.

Dodd's Finacial Reform Bill Strips The Federal Reserve Of Too Much Power, Say Critics

2009-11-13T15:36:26Z

WASHINGTON -- Senate Banking Committee Chairman Christopher Dodd's sweeping new financial overhaul legislation, which proposes to strip the Federal Reserve of its authority to regulate banks, threatens the central bank's time-honored independence and its premier international standing, experts warn.

Wall Street Conspiracy Theories: Which Are The Most Plausible?

2009-11-13T15:04:54Z

So here's a field guide to the five most prevalent Wall Street conspiracy theories, with each one graded on scope, durability, crowd appeal, and plausibility and each graded on a sliding scale from 1 to 5, with 1 being "fugetaboutit" and 5 being "damn right."

Financial Crisis Commission Chair: 'The Investigative Work Is Underway'

2009-11-13T13:44:41Z

The federal commission created to investigate the roots of the financial crisis has begun its review of documents and will announce next week a series of senior staff appointments, its chief said Friday.

Phil Angelides, head of the bipartisan Financial Crisis Inquiry Commission, emphasized the importance of establishing accountability, noting that "in 1929 on Wall Street, people were throwing themselves out of windows. This year, they're lining up for bonuses."

The commission, created earlier this year, is styled after the 9/11 Commission and the Pecora Commission, which exposed in riveting detail the role played by the titans of Wall Street in the 1929 stock market crash.

"The investigative work is underway," said Angelides, a former California State Treasurer. His investigators have been reviewing regulatory filings, he noted, though he didn't get into specifics.

In a speech to a gathering of progressive economists in Washington, D.C., Angelides noted that the commission's ultimate contribution will be a "historical accounting" of the crisis.

"It's critically important," the Democrat said. "True reform does not come with the sweep of new regulation alone. True reform is about cultures and values."

He noted that there's "a hunger to hold people accountable...a hunger to find out what happened...and a hunger (for the responsible) to take responsibility."

"We haven't had that robust dialogue" about what we want the financial system to be, he said.

Angelides added that the commission will be holding a series of public hearings throughout next year.

The commission has the power to compel testimony through subpoenas, and has the authority to refer wrongdoers for criminal prosecution though he emphasized that he is more interested in gathering information: "If we find 30 perps and line them against the wall, we will have undersized the problem. The most important thing we can do is shed light, not heat."

White House Official Feels 'Nervousness' About Dodd's Regulatory Plan

2009-11-13T11:37:04Z

(Updated with response from Dodd's office; see below.)

One of the president's top economic advisers expressed concerns Friday that financial regulatory reforms proposed by Sen. Chris Dodd (D-Conn.) would take too long to become operational and would in some respects be ineffective.

Austan Goolsbee, who sits on the White House's Council of Economic Advisers, said he felt some "nervousness" about Dodd's proposal to create a committee independent of the Federal Reserve to oversee risks in the financial system and police potential threats to the economy.

"The administration's view is that systemic institutions ought to be governed by the Fed," Goolsbee said. A different group could be charged with looking at problems on the horizon, "The Dodd version is 'let's combine both of those and create some new agency,'" he said. "I am a little worried that to create that new agency would take a long time and by the time you got to that we are back into this world."

Speaking at Bloomberg News's Washington Summit, Goolsbee compared Dodd's blueprint for financial regulation to the type of system seen in England, then noted that "they have a lot of problems in the U.K. as well." The chief concern, Goolsbee stressed, was to have strong coordination within a regulatory body. Splitting up functions -- as the Dodd bill proposes -- could, he predicted, lead to missed warning signs or bureaucratic mishaps.

"There has always been an issue that in a moment of crisis, where the Fed is out there trying to figure out what to do, if they are not integrally involved with the actual regulation and oversight of the institutions, you can, if you do it wrong, get into a left hand doesn't know what the right hand is doing crisis," Goolsbee said.

Dodd, who chairs the Senate Banking Committee, has put forward what is regarded as the most aggressive of the three official proposals for re-regulating the markets. The senator has called for overhauling the existing regulatory establishment -- in part by removing powers from the Fed and the Federal Deposit Insurance Corp. and creating three new agencies to oversee the financial system, protect consumers, and anticipate future crises. Dodd's proposals have, however, come under attack from industry groups, and House leaders have, as The Washington Post put it, found parts of the proposal "untenable." One of the concerns from the administration is that the Dodd plan is simply too sweeping and ambitious to make it through Congress.

UPDATE:

Kirstin Brost, a spokesman for Dodd on the Senate Banking Committee, emailed the Huffington Post taking umbrage with various of Goolsbee's assertions.

Where Goolsbee suggested that regulatory functions would best be housed under one roof -- the Federal Reserve's -- Brost notes that, "giving the Federal Reserve too many responsibilities led to missed warning signs" in the first place.

In regards to his comparison of the regulatory framework under Dodd's plan to that in the U.K., Brost writes: "The last thing we would want would be to set up a UK style regulator. The FSA in the UK merges regulations for banks, securities, insurance, and consumer protections into one agency. Dodd's proposal does the opposite. The crisis taught us that when an agency has too many responsibilities it won't do any of them well. Dodd's bill creates a single bank regulator, a consumer financial protection agency, and a systemic risk regulator and also preserves the SEC, FDIC, CFTC, NCUA, 50 state bank regulators, and 50 state insurance commissioners."

Finally, Brost pushes back on Goolsbee's suggestion that if you remove responsibilities from the Fed, you could create a system where information is not shared between agencies and crises are missed.

"We keep the Federal Reserve integrally involved with a seat on the boards of the FDIC, the single prudential bank regulator, and the systemic risk regulator," she writes. "Dodd's proposal will ensure that the Fed has the ability to get whatever information they need from banks and other regulators in order to do their job on monetary policy and as lender of last resort.

"Dodd wants to focus and strengthen the Federal Reserve's ability to do their core functions - monetary policy, lender of last resort, and payment systems supervision."

Derivatives Reform: 'Tricky Exceptions' Leave Market Unchecked: The Nation

2009-11-13T10:18:48Z

The Obama administration promised to reform the financial system and make it safe for the rest of us, but recent Congressional action is more likely to reset the fuse for another explosive calamity. The time bomb in this case is that arcane financial instrument known as derivatives--the hedging devices that the big banks sell to investors, corporations and other banks to reduce risk or evade the requirements to hold adequate capital on their books.

Another Afghan War: Media Leaks Spark Administration Fight

2009-11-13T08:26:47Z

The Obama administration's internal debate over Afghan policy has escalated into a battle of media leaks that's straining relations between officials who're seeking a major troop increase and those who want a more limited approach and a greater focus on domestic priorities.

The feud also has poisoned ties between the top U.S. military commander in Afghanistan and the U.S. ambassador in Kabul, and left the administration struggling for leverage to press Afghan President Hamid Karzai to appoint untainted officials to his new government, attack corruption and share power with the parliament and provincial officials.

Few Earmarks For Bridge Repairs After Minnesota Collapse

2009-11-12T14:45:42Z

Amid the national hand-wringing after the Minnesota bridge collapse of 2007, members of Congress earmarked 10 times more money for new transportation projects than for bridge repair, according to a new report by the U.S. Public Interest Research Group.

In the transportation appropriations bill for fiscal 2008, approved just months after the I-35 bridge collapse killed 13 people, members of Congress included more than 700 earmarks worth $574 million in Federal Highway Administration spending. Seventy-four of those earmarks sent just under $60 million to bridge repair -- even though one out of every four bridges in the United States needs work, according to a 2009 report by the American Society of Civil Engineers.

The total amount earmarked for the federal highway program "could have been used to bring approximately 20 structurally deficient bridges per state or two bridges per Congressional district into a state of good repair," says PIRG's report. The good-government group attributes the lack of earmark funds for deficient bridges entirely to elected representatives' insatiable hunger for campaign cash.

"In a political system in which elected officials must raise huge sums of campaign contributions from major donors to win reelection, spending may be skewed toward road widening and new highway projects favored by developers, road builders and other interests," says the report, co-authored by PIRG's Lisa Gilbert and John Krieger.

"Deferring maintenance to build new capacity may seem senseless -- much like a family with a leaky roof who instead builds a new addition -- but it makes sense in Congress if money and politics favor those choices."

Using data from the Center for Responsive Politics, PIRG reports that "highway interests from the construction and transportation industry" contributed $80 million to federal campaigns during the 2008 election cycle.

Sen. Charles Schumer (D-N.Y.) is one senator who doesn't seem to have put his money where his mouth was after the I-35 collapse, at least according to a review of earmarks in the transportation bill by the Huffington Post.

''For too long, the federal government has focused on building new bridges at the expense of fixing old ones, and now we are living with the consequences,'' Schumer said in August 2007, according to the New York Times. ''Robbing Peter to pay Paul is no way to keep America's drivers safe.''

Schumer's name appears on a dozen earmarks worth $10 million for various transportation projects in New York, only one of which involved fixing up an old bridge. His office did not immediately respond to a request for comment from the Huffington Post.

State legislators in Albany joined a rally on Tuesday to draw attention to the state's aging bridges after the Crown Point Bridge was deemed unsafe and shut down. The New York Department of Transportation has estimated that 1,526 bridges will be deficient within the next five years.

Schumer's remark about the federal government's spending priorities did not refer to earmarks, but U.S. PIRG's report calls them a "clear demonstration of the influence and prioritization of members of Congress, because their project requests circumvent agency review."

"Earmarking is kind of the one place where members of Congress actually choose" where money goes, said transportation policy expert Mark Stout in an interview with HuffPost. Stout, who lent his expertise to the report, spent 25 years working for the New Jersey Department of Transportation. "I've spent a lot of time in the weeds and in the mechanics of the funding of the industry."

In their report, U.S. PIRG did not call out any specific members of Congress but they did have some sharp words for the entire Mississippi delegation, one of several to designate zero earmarks to old bridges:

"The delegation from Mississippi," the report says, "secured funding for 19 earmarked projects at a cost of $29,414,000, and despite having a backlog of over 3,000 structurally-deficient bridges in the state, none of their earmarks went to bridge repair."

U.S. PIRG's report, titled "Greasing the Wheels," is available here.

Loral Langemeier: Would You Invest in a Zebra?

2009-11-12T13:02:25Z

In medicine, they say: "When you hear hoof beats, think horse, not zebra." According to the doctors in my Live Out Loud community, that translates to: "Don't go to the obscure and unlikely when you're dealing with the ordinary."

I believe there are two ways to invest: horses and zebras. Horses are obvious. Zebras are obscure. To my amazement, many investors choose to invest in zebras. Not me. I am in favor of horses.

Horses are simple, direct assets. Horses can be found in every asset class and sector, such as private equity, real estate and commodities. They include clear cut businesses, land and buildings, gold mines and oil wells -- the actual mines and wells, not the publicly traded stocks representing them. I'm also in favor of alternative investments like buying an actual bank or purchasing undervalued currencies, but again, only if these are horses, not zebras.

How do you identify these types of investments?

Horses are:

transparent and simple

not intertwined with other products

not lost in the haze of murky markets

things that have few layers between investor and asset

what they are and ain't what they ain't.

Zebras, on the other hoof, are exotic, extraordinary and often confusing. They may appear to be one thing, e.g. a fund that promises high-reward, low-risk value investing. But then turn out to be another, e.g. a fund that is not well-supported by a firm's best management, research or trades. Those unlikely zebras are like zero calorie fudge -- too good to be true.

I think anyone who invests in zebras is nuts. Yet, it's done all the time by the smartest and most experienced investors.

Take, for example, the zebra of collateralized debt obligations. To those who invested in CDOs they seemed to be excellent packages of diversification designed to manage risk. But, alas, no. In reality, they were mysterious mixes of mortgages more malicious than moderate. And the well-secured assets in the mix were no match for the insidious junk that spread to infect the whole deal.

The most interesting part of this, though, was that few people understood what exactly was in the CDOs. And this includes some of those people who sold them. (Yikes!) Yet, these were the hot ticket investment product of the last few years. And not only did these zebras of confusion and obscurity mess up investors, but they helped mess up the economy.

And this is just one example. Consider if you would ever buy into the following advertisement: "Accumulate great wealth by putting a lot of money into our newest derivative product assembled by the top Quant jocks on Wall Street using such sophisticated mathematical models that even they don't understand them." Absurd, right? But in the past decade many investors bought into exactly that.

People seem so eager to trust the experts that they are willing to put their hard-earned money into investment vehicles that make no sense to them. And you know what? I think people do this precisely because they make no sense. In some skewed alignment of logic and laziness, I believe people suffer through the tangled transitive traffic jam of:

complexity = sophistication = success, and thus, complexity = success.

But hey, guess what? If something is over your head, it's not necessarily a smart thing.

When investing, it's good to think like Jinbei Yamada, founder of Arrow Bicycles. The sign above his Tokyo shop reads: "simple is best." In the high tech world of gadgets and add-ons, he's been able to survive for over 35 years by keeping his simple machine simple. And I agree with him -- simple is the best way to invest.

Consider these 5 TIPS FOR INVESTING IN THE OBVIOUS VS. THE OBSCURE:
1. Sensible. Make sure the investment actually makes sense. If there's a logical gap, (a water park in the desert? Wow!), don't let it go.
2. See-through. Don't hope for transparency, require it. And this means access to operations, as well as financials.
3. Stand alone. Assets that rely on too many other moving parts in order to be successful can create complications.
4. Stable A good climate and foundation are key. Investors must understand all of the environmental and internal issues that can affect returns.
5. Simple. ('Nuff said)

A responsible and diligent investor does not complicate. Building wealth can be simple when you invest in horses. You can learn more here.

I'd like to hear your thoughts. Call in to the Loral Langemeier Show at 877-777-7713, Monday through Friday, 7 a.m. Pacific, 8 a.m. Mountain, 9:00 a.m. Central, 10:00 a.m. Eastern. Or listen to the podcasts.

State Regulators: Dodd's Bank Bill Creates Another 'Too Big To Fail' Problem

2009-11-11T15:32:52Z

State bank regulators are warning that Senate Banking Committee Chairman Christopher Dodd's proposal to create one monolithic federal bank regulator would increase risks to the system and would favor precisely the gigantic banks whose conduct most needs to be reined in.

"The unintended consequences of such a proposal will likely create a too-big-to-fail regulatory agency that reinforces a too-big-to-fail industry," Neil Milner, president and C.E.O. of the Conference of State Bank Supervisors, said in a statement.

"The federal government policies and actions of the past 18 months have already produced a more consolidated industry -- with a handful of 'haves' benefiting from explicit and implicit federal backing and with the rest of the banking industry relegated to 'have not' status," the group wrote in a Monday letter to Dodd obtained by the Huffington Post. "Excessive regulatory consolidation will only perpetuate this dichotomy by subjecting the nation's over 8,000 banks...to a regulatory regime designed to accommodate the needs and business priorities of handful of the nation's largest and most politically prominent institutions."

Dodd argues, in a summary of his 1,136-page bill, that having a single agency "eliminates the convoluted system of multiple federal bank regulators to increase accountability and end unnecessary overlap, conflicting regulation, and 'charter shopping,'" which refers to banks shopping around for the most lenient regulator.

But the state regulators insist: "It would be dangerous to place all regulatory authority under one agency, which would remove critical layers of financial supervision. A single federal regulator, contrary to improving regulatory accountability, would increase the likelihood of regulatory capture by eliminating checks and balances."

"Regulatory capture" refers to instances in which agencies created to serve the public interest through regulation instead end up working for the benefit of those they're supposed to be overseeing.

"It is no coincidence that the nation's largest banks support regulatory consolidation, while the community and regional banks oppose your proposal. The mega-banks support the creation of a monolithic regulator because they fully expect to enjoy greater access and greater influence if such an agency is created," the regulators wrote.

They also argued that the creation of such an agency would punish small banks, which did not cause the crisis.

"Smaller institutions, the very banks that prevented a complete collapse of our economy, would be further disadvantaged, to the point where we would eventually be left with an industry consisting of nothing more than a handful of mega banks," the regulators wrote. Small banks "kept credit flowing in our economy and throughout the country, even as our largest institutions all but ceased lending to preserve the capital necessary to survive the collapse of the capital markets."

Indeed, a Huffington Post review of banking data shows that banks with more than $10 billion in assets have cut the amount of loans they carry on their balance sheets by a combined $343 billion, or six percent, since last year. Given the recession, a downturn in lending was expected. But smaller banks only cut their loans by one percent.

"To reward the legions of community and regional banks that kept our economy afloat in our darkest days with a regulatory regime that would at best ignore their needs, and at worst, seek to merge them out of existence altogether, would...unjustly punish those very institutions that sustained our nation," the state regulators wrote.

Banks can currently pick their own federal regulator, and can choose whether to have a state charter or a federal one. Under Dodd's proposal, banks could still choose between the one federal regulator or a combination of state and federal regulation.

The state regulators fear, however, that the plan could have the practical effect of killing the dual system down the line as banks find it more attractive to simply have one regulator.

READ the letter BELOW

CSBS Letter to Dodd -

Wall Street Banks Tricking Little Guys Into Lobbying for Them

2009-11-11T12:40:43Z

Wall Street titans, recognizing that they have something of a credibility problem when it comes to opposing regulatory reform, are enlisting more sympathetic, everyday folks to lobby on their behalf on Capitol Hill.

Bankers, brokers and swaps dealers have been browbeating their clients -- farmers, fuel companies, airlines, municipal power companies -- who are the "end users" of financial derivatives: Lobby Congress against reform of the derivatives market, the bankers say, or the cost of your derivative deals will skyrocket.

"There are many end users who just don't understand the issue, so they're heavily influenced by anybody who does," said Jim Collura of the New England Fuel Institute.

"Many of these guys are influenced by one or both of the following: It's either someone from the financial community whom they've known or respected. It may be their broker, their financial adviser, their swap dealer, whoever. Or they're a member of a trade group and they're getting hammered constantly with: 'You're going to be put out of business; you're not going to be able to hedge; you're not going to be competitive anymore' -- including some of my members," Collura said.

Senate Banking Committee Chairman Chris Dodd (D-Conn.) said he sees evidence of the bankers' influence when end users lobby him. "The end users have been basically used by the major investment banks," he told HuffPost Tuesday.

Dodd explains to them that, contrary to what they may have been told, one purpose of regulating derivatives is to protect people like them against predatory bankers. "When you tell them how they benefit from this, they say, 'Well, no one told us this part.'"

The question being debated: Should derivatives - oil or corn futures, or foreign-currency or interest-rate swaps, for instance - be traded in the light of day on a regulated exchange? Or should this multi-trillion dollar market that was a major cause of the last financial crisis continue to just swash around in the dark?

So far, the forces of darkness are prevailing with the end users. Early last month, the International Swaps and Derivatives Association (ISDA) pulled together a coalition of end users who drafted a letter to Congress repeating the precise fears that brokers have been instilling in them. "[S]ome reform proposals would place an extraordinary burden on end-users of derivatives in every sector of the economy--including manufacturers, energy companies, utilities, healthcare companies and commercial real estate owners and developers. Specifically, proposals that would require all OTC derivatives used by business end-users to be centrally cleared, executed on exchanges or cash collateralized or subject end-users to capital charges, would inhibit companies from using these important risk management tools in the course of everyday business operations. These proposals, which would increase business risk and raise costs, are at cross purposes with the goals of lowering systemic risk and promoting economic recovery," reads a letter signed by several pages worth of end users and provided by ISDA.

[UPDATE: A spokesperson for the ISDA insists that the group did not "put together the end users coalition" nor initiated or wrote the letter. Our sources said, however, that ISDA was among those encouraging members to join the effort.]

Such arguments worked wonders in the House. The reform legislation in the lower chamber contains gaping carve-outs for end users, which could effectively undermine any effort to bring light to the dark pools of capital that the system nearly drowned in last fall.

Dodd's bill, unveiled Tuesday, contains no such loophole. "I don't have any [carve-outs]," he said. "I mean, you start down that road, it's endless."

Wall Street traders, however, are very keen on taking Congress down that endless road, which is why they've encouraged each individual user to lobby for a specific exemption.

"Some of our heating oil dealers have heard directly from their investment companies and their traders that they work with," said Sherri Cabrera of the Petroleum Marketers Association of America. Those traders, she said, have pushed the companies to lobby their representatives for an exemption from the regulated derivatives exchange for heating-oil companies.

Sean Cota is the president of Cota & Cota, Inc. a small fuel company in Bellow Falls, Vermont - just the kind of firm that has influence and credibility with home-state lawmakers.

"We had a consensus amongst everybody that this was all a great thing," he said of reform efforts, "until ISDA, the International Swaps and Derivates Association, with the big players and the money in the over-the-counter market, said 'You've got to figure out who your biggest accounts are and start telling them that it's going to get really expensive to do these hedging programs for you folks in the physical market. So you need to make sure that financial reform doesn't happen,'" said Cota.

There's nothing intrinsically wrong with derivatives. Lots of companies rely on them to hedge against risk. A farmer or oil producer may want to lock in a future price to avoid the fluctuations of the market and enable financial planning and budgeting. Manufacturers concerned about interest-rate fluctuations or the rise or fall of the dollar can minimize risk by using currency or interest-rate swaps.

But major investors who don't care at all about the price of corn can also game the system by overwhelming a market and driving the price in one direction. Remember $4 gas? Right now, finding out who is doing what in the over-the-counter derivatives market is as hard as determining who's controlling the drug trade.

Financial players in the derivatives market are hugely leveraged, sometimes as much as 400 times -- meaning they have very little of their own money actually in the game. Hundreds of trillions of dollars are traded in the derivatives market -- many times the size of the global GDP.

Having such massive amounts of money floating in the dark can lead to a system-wide seizure if investors' confidence in the scheme suddenly wanes. Reformers are pushing to have all derivatives put on exchanges similar to the New York Stock Exchange.

Such a reform would mean smaller profits for banks and would deprive them of a market that's remarkably easy to manipulate with enough money. But it wouldn't require much, if any, sacrifice from end users.

But that's not what they're being told by people they trust. "First we heard it with the large natural gas users, particularly the municipal systems. That was the first one. And then we've heard it from a number of other large players in the market, saying, 'You know, we're all for this reform. It's going to be good for everybody - but except for me.'"

Cota and others say the persuasion goes on under the radar -- from a trusted adviser to a longtime client.

"It's been targeted. Nothing in writing. Just personal calls. I've had to answer a few folks to explain what the scenario was and that it's going to cost them less because these derivatives have their credit built into them right now. They understand it once I explain it to them," he said. "So we have to defend ourselves against them within our own board of governors...My suspicion is it's happening all over."

Sen. Jon Tester (D-Mont.) said he's been lobbied by end users and has gotten the sense that Wall Street is behind what they're saying.

"They're going to use anybody they can to try to influence us," he told HuffPost, saying that he's in the unusual position of reverse lobbying. "I think, as with anything, it's going to be an education process."

In order to get a handle on the derivatives market, there have to be consequences for betting billions or trillion and losing, said Tester. But banks can use those potential consequences to frighten companies into opposing reform.

"It's clear we have to do some things to add more transparency and have some people get some skin in the game in this thing. And I'm sure that's exactly what they're going to tell their farmers and their businesspeople, that, 'You know, you're going to have to put money up front.' But the truth is, there has to be skin in the game on this or otherwise we're going to be in the same boat. And we don't want to have another situation like we had a year ago."

And yet, while banks tell their clients that reform means they'll have to put money down up front, what they don't often tell them is that same amount of money - sometimes more - is baked into the fees and costs they already pay brokers.

Sen. Maria Cantwell (D-Wash.), whose background in the business sector gives her an advantage in discussions with colleagues, is pushing to make sure there are no loopholes and that all derivatives are traded through an exchange.

Right now, she's working to educate the lobbyists themselves that reform is in their best interests. "There are people who have been around for a long time who saw how damaging a dark market can be to the price of their business. And while some people have made a lot of money off of it, others have suffered greatly.

"I think these individual users [being] used as a façade to push more loopholes instead of properly regulating this market is a mistake," she told HuffPost. "So we hope to bring some of them out to talk about why it's so important to actually have transparency."

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Fannie and Freddie Fire Their Own Inspector General

2009-11-10T18:19:02Z

There is no independent auditor overseeing the federal agency responsible for some $6 trillion in home mortgages, because the Department of Justice's Office of Legal Counsel ruled that the agency's inspector general didn't have authority to operate, according to internal memos obtained by the Huffington Post.

The ruling came in response to a request from the Federal Housing Finance Agency itself -- which means that a federal agency essentially succeeded in getting rid of its own inspector general.

The FHFA is home to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, which are jointly responsible for purchasing or guaranteeing more than 80 percent of new mortgages issued since the middle of 2008, according to FHFA numbers.

In September, the Department of Justice ruled that FHFA Inspector General Ed Kelley did not have authority to investigate wrongdoing or other abuses related to the agency, according to an internal DOJ Office of Legal Counsel memo signed by Deputy Assistant Attorney General Daniel Koffsky.

The ruling was made on complicated technical grounds. The current agency was created by a 2008 act that abolished the Federal Housing Finance Board and replaced it with the FHFA. FHFB employees automatically became FHFA employees and retained their "same status, tenure, grade, and pay."

The IG for the new agency, according to the law, needed to be appointed by the president and confirmed by the Senate, but Kelley argued that the purpose of keeping the employees in the same positions was to make sure the agency could continue to operate and that therefore the law applied to him, too.

Kelley still works for the FHFA, but in a non-independent "internal auditor" position in which he must report to the agency head. A message left with FHFA wasn't returned.

On Monday, HuffPost called the main number listed on the FHFA website for people who want to report "a violation of any law, rule or regulation, gross mismanagement, a gross waste of funds, an abuse of authority, or substantial and specific danger to public safety or complaints regarding the programs and operations of the agency."

The phone rang.

"Ed Kelley," said the voice on the other end of the line.

Kelley now heads the Office of Internal Audit and he said he has two employees: an office administrator and a person who oversees the contractors who review financial records. He estimated his budget for contractors was between $100,000 and $150,000.

As IG, he ran into trouble the way most independent investigators do -- by investigating things people didn't want investigated.

Kelley's office had been working with SIGTARP Neil Barofsky, the Special Inspector General overseeing the bank bailout -- the Temporary Asset Relief Program -- when the agency head challenged his authority to operate and asked the FHFA General Counsel's office to look into it.

"I hate to use the word challenge, because the question they raised was whether the statute was clearly established at the Office of the Inspector General," said Kelley.

He declined to get into the specifics of investigations that were cut short. "I don't really want to get into some of these, but obviously there are some programs out here. There's the TARP IGs that are heavily involved in looking at criminal activity surrounding the Make Home Affordable program and different other aspects in the programs they've rolled out [to address] foreclosures and so forth," said Kelley.

"Many of those are projects that would be worth jointly investigating between the TARP office and the IG's office here at FHFA." Kelley's office was starting to do just that when "the question of whether or not we were legally the IG's office came up, and we had to withdraw," he said.

In late February, Barofsky warned that the mortgage modification plan was vulnerable to already existing fraudulent foreclosure rescue schemes. On April 6, he announced that progress was being made as part of a multiagency crackdown.

A month later -- less than four months after Obama's inauguration -- the FHFA started questioning Kelley's legal status. An internal memo -- which HuffPost did not get from Kelley, originally dated May 12, 2009 and updated on June 23, provided the FHFA's opinion that Kelley had no authority to conduct such investigations.

"It's a serious gap in oversight," Barofsky told HuffPost of Ed Kelley's loss. "It does impact what we do. Ed was a member of our TARP IG council and a partner in our investigative work." Barofsky said he still investigates areas of FHFA, but his mandate only covers "a sliver of what they do."

"Fannie and Freddie are awfully big," Barofsky said. "The idea that the agency responsible for conservatorship of Fannie Mae and Freddie Mac doesn't have an inspector general should be a serious cause of concern."

The agency put the blame on the law as written. "Congress did not intend for FHFA to have an Acting or interim IG pending the confirmation of a [presidentially-appointed] IG," writes Janice Kullman, assistant general counsel, in the memo, which was approved by Isabella Sammons, deputy general counsel, and forwarded to General Counsel Alfred M. Pollard.

It's been 16 months since the law took effect.

Obama has yet to nominate a new IG. Kelley said he'd heard that a few candidates were being vetted and wouldn't comment on whether he was one. He guessed there might be a nomination within the next month.

"Given the uncertainty at FHFA, it did not become clear until mid-September that the Inspector General's office required a new nominee," said a White House spokesman. "We are currently working actively to nominate an individual to the position as soon as possible. The process of announcing nominees does take some time given the rigor of the process to ensure that important positions like this one are filled by the highest quality people."

But if that's the case, the White House has been vetting candidates without consulting Sen. Chris Dodd (D-Conn.), the chairman of the Banking, Housing and Urban Affairs Committee. Dodd told HuffPost Monday night that he was unaware that FHFA had no IG and promised to look into the matter.

In the meantime, Kelley has essentially put a halt to investigations.

"We're in an internal audit office, versus an office of the inspector general, and there's a big difference between the two," he said. "An internal audit office operates at the pleasure of the head of the agency... At the end of the day, no matter how independent I am in conducting myself, we have an organizational independence problem, which anybody who looked at it, if people have problems with what we said, we would probably be viewed as not being independent, and probably not being very reliable."

In practice so far, Kelley said, no one has interfered with him as an internal auditor -- but he knows that could change at any moment. "Now, in terms in actuality of whether I'm independent, I feel like I can do what I need to do. I don't feel the discomfort, but that's until the first time you have a disagreement with the head of the agency. And over the years, I've certainly had my share of those. So at this point, there's nothing at the internal audit office I would want to do, that I feel like I can't do. But there are some things I wouldn't attempt at the internal audit office," he said.

The mortgage industry is one of the most susceptible to fraud, yet one of the areas Kelley said he doesn't get into is criminal investigation.

"We don't have the authority to do criminal investigations," he said. "It's the very reason why they set up IG offices themselves, [as opposed to] internal audit offices."

Fannie and Freddie are burning through cash at a staggering rate. Fannie reported a loss of $18.9 billion in the third quarter of 2009, four billion more than it lost the second quarter.

FHFA requested $15 billion from Treasury to plug the hole.

What's it spending money on?

"The company continued to concentrate on preventing foreclosures and providing liquidity to the mortgage market during the third quarter of 2009, with much of our effort focused on the Making Home Affordable Program," boasts the press release accompanying the announcement of the massive loss. "As of September 30, 2009, approximately 189,000 Fannie Mae loans were in a trial period or a completed modification under the Home Affordable Modification Program."

Those are the precise programs that Kelley was looking into when his own agency shut him down.

JPMorgan Chase Says New Credit Card Law To Cost Firm At Least Half A Billion Dollars A Year

2009-11-09T17:57:56Z

The nation's second-largest bank said a new law that limits unfair rate hikes and hidden fees will cost it as much as $750 million a year.

JPMorgan Chase revealed the estimate Monday in a regulatory filing:

In addition, as a result of the recently-enacted credit card legislation, management estimates, which are preliminary and subject to change, are that Card Services' annual net income may be adversely affected by approximately $500 million to $750 million. As a result of all these factors, management currently expects Card Services to have a net loss for the full year 2010.

The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 bans or limits deceptive and unfair practices, including retroactive rate increases, late fee traps like weekend deadlines and "universal default," or raising rates because of a borrower's delinquency with another lender.

The law gives the industry until February 2010 to comply with most of the rules, but since many banks started to jack up interest rates in advance of enactment, Congress is now considering moving up the date to December. The Federal Reserve cautioned Congress against it.

Tony Podesta: Turning Change Into Dollars

2009-11-09T15:10:25Z

Tony and Heather Podesta basked in the praise when they donated the iconic, five-foot tall "Hope" portrait of Barack Obama to the National Portrait Gallery just before Inauguration Day. But to those who hoped Obama would reduce the influence of lobbyists in Washington, there was also something uniquely depressing about the gift -- because the Podestas are exactly the sort of K Street powerbrokers candidate Obama railed against.

And while Obama's presidency so far has in many ways failed to live up to his campaign poster, it's been a cash cow for the Podestas, who have been able to leverage their insider status into a slew of new high-paying clients. The husband-and-wife lobbyist couple have become icons themselves -- of the lobbying industry's imperviousness to Obama's change agenda.

In just the first nine months of the year, the couple's separate lobby shops have already made more money than in all of 2008, according to disclosure forms filed with Congress. Heather Podesta's firm, Heather Podesta + Partners, surpassed last year's total of $4.7 million with $5.1 million in lobbying income.

Tony Podesta's firm, the Podesta Group, has already reported nearly $19 million from more than 130 clients -- blowing last year's full-year-total, a record high of $16 million, out of the water. He's registered 50 new clients -- way up from the average clip of 20 new clients a year for previous decade.

Tony Podesta declined interview requests from the Huffington Post. But in March, he told Legal Times what parts of his business he expected would prosper under the Obama change regime:

"The president has signaled defense acquisition reforms, defense budget cuts...The Hill will take up those issues, so there's a lot of work in that field," he said. "We're doing a lot more work in financial services than we had done previously, and also doing more health care work and more energy work."

The Podesta Group's biggest boost appears to have come from the health industry. The firm reported lobbying on health issues for 32 clients that have paid $5.1 million for lobbying so far this year, up from $3.8 million from 18 clients in all of 2008.

Twenty-three clients focused on defense issues -- including seven new ones -- paid the Podesta Group $3.2 million, a 60 percent increase from 2008.

The firm took in $2.2 million this year from clients concerned with energy issues, compared to $1.8 million from seven clients in 2008. And when it came to financial issues, the Podesta Group reported billing 17 clients $2.1 million this year, up from $1.3 million from seven clients last year.

(The numbers may be somewhat imprecise as the firm often lobbies for any given client on more than one issue. And it only accounts for direct lobbying of the federal government, not for public relations work.)

For their money, those clients get a small army of former congressional staffers and Obama campaign officials who can tell them what's happening behind the scenes on the Hill, and can plead their case with former colleagues. From the Podesta Group's website:

"Podesta Group professionals have experience in every aspect of the legislative process as well as expertise in public relations...We understand the politics and publicity that determine our clients' fate in Washington, and we have a track record to prove it."

What the website doesn't mention, because it doesn't have to, is that Podesta's brother, former Clinton administration honcho John Podesta, chaired Obama's transition and remains a top adviser.

Tony Podesta has said that he'd never use the family connection to win favors for clients. But from a business standpoint, it doesn't really matter. Craig Holman, a lobbyist with Public Citizen, told the Huffington Post that the appearance is the payoff. "This is the sort of close family tie that inevitably provides very, very handsome profits for the lobbying firm," he said.

Heather Podesta took the Podesta name six months into the marriage, she told the Washington Post -- after she learned firsthand how much it could impress folks on the Hill.

"I'm the third husband, but this is the first time she's changed her name," Tony Podesta told the Post. "That should tell you something."

One of the Podesta Group's biggest new financial-industry clients this year is Sallie Mae, which hired the firm at a rate of about $30,000 a month. The student loan giant needs help because the Obama administration has proposed bypassing government-backed lenders like Sallie Mae and lending directly to students, which the Congressional Budget Office estimated would save $94 billion over the next ten years, and which would pretty much put Sallie Mae out of business. The lender has long devoted significant resources to lobbying, but this year expanded its roster of outside firms.

The Podesta principals handling Sallie Mae are former Department of Education staffer Lauren Maddox and Israel Klein, a former staffer for Senator Chuck Schumer (D-N.Y.)

The measure passed the House in September, despite opposition from four Democrats -- one of whom, Rep. Paul Kanjorski (D-Pa.), was the beneficiary of a fundraising dinner thrown by the Podestas in July.

New clients on the energy front include Duke Energy, a utility company somewhat sympathetic to the Obama climate change agenda, and the American Coalition for Clean Coal Electricity, which is much less so.

The ACCCE achieved notoriety this year after reports that that one of its subcontractors sent forged letters opposing climate change legislation to members of Congress. The House launched an inquiry that culminated in lawmakers scolding ACCCE president Steve Miller in a hearing.

Podesta's new defense clients this year joined the ranks of longer-standing clients Northrop Grumman, Boeing, Raytheon, and other stalwarts of the military-industrial complex that reap enormous amounts of money through the congressional appropriations process. It's another group for whom change is not a good thing.

The president threatened to veto a defense spending bill unless lawmakers stripped $1.75 billion in funding for unneeded F-22 fighter jets. In July, the Senate voted 58 to 40 to kill the funding after an intense industry lobbying effort.

Despite the veto threat, fourteen Democrats voted to keep funding the F-22. In the springtime, the Podestas set up fundraisers for three of them: Patty Murray (Wash.), Dianne Feinstein (Calif.), and Daniel Inouye (Hawaii). The Feinstein fundraiser was canceled, however, after the invitation listing Feinstein's committees as the different courses of a meal was made public. (Guests who made contributions between $1,000 and $2,500 could order up Feintstein's "Select Committee on Intelligence for the first course" and "your choice of Appropriations, Judiciary or Rules committees" for other courses.)

Most of the Podesta Group's health industry clients are drugmakers and biotech firms. Podesta clients Amgen, Amylin Pharmaceuticals, Genzyme Corporation, and new signup Eisai are among the Big Pharma members that stand to benefit from current health care reform proposals -- particularly after the White House cut an $80 million deal with the industry. For them, change is good.

Tony and Heather Podesta visited the White House eight times in just the first six months of the year, according to the White House's recently-released visitor logs -- with John Podesta visiting an additional 17 times during that period -- as good an advertisement for their firms in the change era as they could possibly ask for.

UPDATE: The final paragraph of this story has been modified to distinguish between White House visit by Tony and Heather Podesta, on the one hand, and John Podesta on the other.

Julian Hattem contributed to this article.

Strict Abortion Provision Included In House Health Care Bill

2009-11-08T11:16:35Z

WASHINGTON — A bipartisan House coalition voted Saturday to prohibit coverage of abortions in a new government-run health care plan that Democrats would establish to compete with private insurers.

The 240-194 vote on an amendment by Rep. Bart Stupak, D-Mich., was a blow to liberals, who would have allowed the Obama administration and its successors to decide whether abortions would be covered by the government plan. Sixty-four Democrats joined 176 Republicans in favor of the prohibition.