Politics Plus

When you’re not allowed to regulate or investigate you have a lot of free time.

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Let me tell you a story about a story that isn’t a story but became a story because it was broadcast from major news sources with an air of breathless indignation, laced with a tiny bit of naughtiness intended to disguise the true story because the Republicans aren’t thrilled with the SEC right now.

Here’s the juicy tidbit:

Senior staffers at the Securities and Exchange Commission spent hours surfing pornographic websites on government-issued computers while they were being paid to police the financial system, an agency watchdog says.

Rep. Darrell Issa (R-CA) is shocked — SHOCKED — that such a thing would happen while the market is in meltdown mode.

Rep. Darrell Issa (R-Calif.), ranking Republican on the House Oversight and Government Reform Committee, said it was “nothing short of disturbing that high-ranking officials within the SEC were spending more time looking at pornography than taking action to help stave off the events that brought our nation’s economy to the brink of collapse."

"This stunning report should make everyone question the wisdom of moving forward with plans to give regulators like the SEC even more widespread authority," Issa said in a subtle jab at ongoing financial reform efforts.

In the clip at the top of this post, Rep. Barney Frank patiently explains the "culture of the SEC" in response to Andrea Mitchell’s question about whether the Madoff scandal might have been caught sooner if SEC officials weren’t surfing porn instead of doing their jobs. He walks Mrs. Greenspan through the fallacies of her husband’s philosophy of "let markets be king" and resulting underregulation that led to rampant fraud in the system.

Everything old is new again

The only problem with all this fuss? This story is all about a story already reported in November, 2008. ProPublica gave us the full scoop on it in November, 2008. November, 2008. That would be when the SEC was run by a Republican administration with George Dubya Bush as its leader, wouldn’t it?

You can read the entire Inspector General’s 94-page report for yourself, right here. The pornography allegations are only a very small part of a much more disturbing picture, actually. It’s interesting to me to see the fuss around pornography when other, more serious and chilling allegations are contained within it. Here are a few of the interesting ones:

• Investigation of Conflict of Interest, Improper Solicitation and
  Receipt of Gifts from a Prohibited Source, and Misuse of Official Position
• Follow-up Investigation of Disruptive and Intimidating Behavior by a Senior Manager
• Investigation of Failure to Maintain Active Bar Status

The report also has details about the investigation into reasons for Bear Stearns’ collapse. The conclusions there are far more interesting than anything to do with SEC employees accessing pornography.

On a weekend where negotiations are moving ahead to get to a vote on financial regulation Monday, Issa’s latest effort to manufacture scandal is just a cynical ploy to manipulate public opinion… [emphasis original]

Inserted from <Crooks and Liars>

The main GOP talking point here is that the SEC, under Obama, cannot be trusted.  Now I cannot guarantee that the practice has cot continued.  However, everyone seems to have forgotten to mention that all the porn viewing contained in the report occurred during the Bush/GOP regime.  It’s a shame it was not more widespread.  Otherwise, it might have distracted them from invading Iraq, torture, and trashing our constitutional rights.

One area that the Finance Reform bill does not yet cover is the fraudulent rating of securities.

The chairman and chief executive of Moody’s Corp. said Friday that he didn’t know that his company continued to give investment-grade ratings to complex financial instruments backed by shaky subprime mortgages even after it downgraded billions of dollars worth of such deals in the summer of 2007.

His admission came during a daylong hearing by the Senate Permanent Subcommittee on Investigations, which is looking into the origins of the nation’s worst financial crisis since the Great Depression.

Moody’s chief Ray McDaniel, under questioning, said that he didn’t think his company had continued to rate complex deals backed by U.S. mortgages after it and competitor Standard & Poor’s jolted the markets in July 2007 with massive downgrades of earlier deals.

"I apologize, I do not recall that," McDaniel said.

The panel’s chairman, Sen. Carl Levin, D-Mich., then presented him with documentation that both Moody’s and S&P gave investment-grade ratings to a Citigroup deal in December 2007, worth almost $400 million, backed by shaky subprime loans that by then clearly were toxic.

The point Levin was making — and made repeatedly — is that credit-rating agencies did whatever was needed to get lucrative fees, some as high as $1.4 million, for rating complex deals.

Later, McDaniel stressed that preserving market share "is not as important as ratings quality."

While other Wall Street executives have expressed contrition when they appeared before Congress, McDaniel and former S&P President Kathleen Corbet were unapologetic on Friday.

Throughout the day in earlier testimony and in e-mails released by Levin, however, former Moody’s and S&P officials told how they were pushed out or quit in frustration because managers badgered them to "massage" complex deals until they could land the business.

A McClatchy investigation in October documented how top managers from the structured finance division, which rated the complex deals, were moved into the top executive suites at Moody’s and effectively took over the company.

McDaniel and Corbet said they were unaware that their analysts felt pressured to sacrifice the quality of investment-grade ratings to maintain market share and earn the huge accompanying fees.

Investment-grade ratings gave investors the illusion of safe bets, allowing big Wall Street firms such as Goldman Sachs to peddle the securities across the globe. Moody’s and its chief competitors were key players in the prelude to a near meltdown of global finance in September 2008.

Called to appear before the panel, Richard Michalek, a former Moody’s vice president and senior credit officer, described the ratings process for deals that could bring more than $1 million in fees as a "must say yes" atmosphere.

Frank Raiter, a former managing director at S&P and the head of the group that rated pools of residential mortgages, told the panel that analysts routinely sought direction from top management about the shaky deals they were being asked to rate.

"The guidance was not forthcoming from the top," he said, later adding, "I retired because I got tired of the frustration."

Levin read e-mail after e-mail from inside the ratings agencies about deals that never should have been rated, much less received investment-grade ratings.

"These e-mails are just devastating to the kind of culture that is going on here," he said.

Most striking was testimony from Eric Kolchinsky, a Moody’s managing director who in 2007 was in charge of the division that rated the complex deals called collateralized debt obligations. CDOs are securities backed by pools of U.S. mortgages that have been packaged together into bonds and sold to investors.

Kolchinsky recounted how in the first two quarters of 2007, his group generated more than $200 million in revenue for Moody’s by giving complex deals investment-grade ratings _ which told investors that they were safe bets. In the late summer of 2007, however, Kolchinsky was informed by superiors that bonds issued a year earlier were about to be severely downgraded.

That should have required a new methodology for ratings on deals that were still pending, but when he tried to do that, he was told not to. It amounted to securities fraud, in his opinion.

"My manager declined to do anything about the potential fraud, so I raised the issue to a more senior manager," he testified. He said that the complaint resulted in a change to methodology. "I believe this action saved Moody’s from committing securities fraud. Because of the culture, I knew what I did would possibly jeopardize my role at Moody’s."

He was right. A month later, he was sent a nasty e-mail asking why his market share slipped from 98 percent to 94 percent in the third quarter. The e-mail came, he said, just days after Moody’s had downgraded more than $33 billion in bonds backed by subprime mortgage loans. Less than two months after challenging the integrity of the ratings, Kolchinsky was removed from his post and given a lower-paying job elsewhere in the company with far less responsibility. He eventually left…

Inserted from <McClatchy DC>

As you know, I’m a Broncos fan.  As such, I propose the following.  The Denver Broncos will get to hire the officials for all their games.  Any time they lose a game, they will get to fire the officials for the rest of the season, hire new officials, and replay the game.  Sound absurd?  Those are the exact rules under which Banksters get to play.

Is it any wonder that instruments designed to fail were rated just as safe as T-Bills?

The passage of health care reform is a step in the right direction, but the job is clearly not done.

Shortly after they were diagnosed with breast cancer, each of the women learned that her health insurance had been canceled. There was Yenny Hsu, who lived and worked in Los Angeles. And there was Patricia Reilling, a successful art gallery owner and interior designer from Louisville, Kentucky.

Neither of these women knew about the other. But besides their similar narratives, they had something else in common: Their health insurance carriers were subsidiaries of WellPoint, which has 33.7 million policyholders — more than any other health insurance company in the United States.

The women paid their premiums on time. Before they fell ill, neither had any problems with their insurance. Initially, they believed their policies had been canceled by mistake.

They had no idea that WellPoint was using a computer algorithm that automatically targeted them and every other policyholder recently diagnosed with breast cancer. The software triggered an immediate fraud investigation, as the company searched for some pretext to drop their policies, according to government regulators and investigators.

Once the women were singled out, they say, the insurer then canceled their policies based on either erroneous or flimsy information. WellPoint declined to comment on the women’s specific cases without a signed waiver from them, citing privacy laws.

That tens of thousands of Americans lost their health insurance shortly after being diagnosed with life-threatening, expensive medical conditions has been well documented by law enforcement agencies, state regulators and a congressional committee. Insurance companies have used the practice, known as "rescission," for years. And a congressional committee last year said WellPoint was one of the worst offenders.

But WellPoint also has specifically targeted women with breast cancer for aggressive investigation with the intent to cancel their policies, federal investigators told Reuters. The revelation is especially striking for a company whose CEO and president, Angela Braly, has earned plaudits for how her company improved the medical care and treatment of other policyholders with breast cancer.

The disclosures come to light after a recent investigation by Reuters showed that another health insurance company, Assurant Health, similarly targeted HIV-positive policyholders for rescission. That company was ordered by courts to pay millions of dollars in settlements.

In his push for the health care bill, President Barack Obama said the legislation would end such industry practices.

But many critics worry the new law will not lead to an end of these practices. Some state and federal regulators — as well as investigators, congressional staffers and academic experts — say the health care legislation lacks teeth, at least in terms of enforcement or regulatory powers to either stop or even substantially reduce rescission.

"People have this idea that someone is going to flip a switch and rescission and other bad insurance practices are going to end," says Peter Harbage, a former health care adviser to the Clinton administration. "Insurers will find ways to undermine the protections in the new law, just as they did with the old law. Enforcement is the key."… [emphasis added]

Inserted from <Reuters>

Here’s the problem.  HCR makes rescission illegal.  However the minimum fine is $100 per patient per day.  $100 per day is so much less expensive than the cost of treating a cancer patient, that you know that Big Insurance Profit Pigs will jump in line to pay the fines.  HCR is still being interpreted from the law to the specific regulations through which the law will be implemented.  Obama can put teeth into those regulations by executive order.

But even that is only a stop gap measure.  Just one Republican in the White House puts Big Insurance in the driver’s seat again.  Under Bush, the GOP simply refused to enforce any existing laws that interfered with corporate greed.  That cannot be allowed to happen.  The solution is single payer health care., because your health is too important to leave the decisions to corporations who care nothing for healt and everything for profit.

Like so many Bush/GOP regime goose steppers, Scott Bloch was doing the exact opposite of what his post required.

Former U.S. Special Counsel Scott Bloch was charged today with criminal contempt of Congress in connection with his notorious use of Geeks On Call to scrub his computer while under investigation for misusing his office, according to a court filing in federal court in Washington.

The "information" filed today alleges that, responding to a request from the House oversight committee, Bloch failed to "state fully and completely the nature and extent of his instructions that Geeks On Call perform ‘seven level wipes’ on his [Office of Special Counsel]-issued computers" and the computers of two other appointees in the office. That was in late 2006.

From 2004 through 2008, Bloch led the Office of Special Counsel, which is charged with protecting federal whistleblowers and making sure that federal employees do not engage in partisan political activity.

He was under investigation for allegedly retaliating against employees and dismissing legitimate whistleblower cases when the Geeks on Call incident occurred. The FBI raided his home and office in 2008.

Bloch has maintained he called the tech service to try to kill a computer virus. He did not immediately respond to a request for comment.

Jenny Thalheimer Rosenberg, a spokeswoman for the House Oversight and Government Reform Committee, said: "The Committee vigorously defends its constitutional role to conduct investigations. We applaud the Justice Department for pursuing this case."… [emphasis added]

Inserted from <TPM>

For those of you who may be technically challenged, a seven level wipe does absolutely nothing to cure a computer virus as this GOP criminal claims.  It has one function only: to destroy the traces of data on a hard drive so thoroughly that even the NSA can’t recover it.

My only beef here is that DOJ is going after such a low-level lawbreaker, when the GOP has so many more in desperate need of justice.