All Blog Posts from Coop's Corner

Watching the unfolding horror show taking place in the Gulf of Mexico, what can one say that hasn't already been said?

The pandering politicians and greedy industrialists justly deserve our fury and disgust. Their crocodile tears and bogus platitudes inspire contempt and then boredom. We've heard it all before.

Remember this? Yeah, that was a good call. One small blessing: With the exception of her latest musings on Facebook - "accidents still happen" - Palin and the rest of the "Drill, Baby, Drill" contingent have largely stayed out of the limelight while the clean-up crews attempt to deal with this mess. Can't say the same about Rush Limbaugh.

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Could it get any better than this for the Democrats? With a procession of fat cats from Goldman Sachs just begging to get carved up, this wasn't supposed to be a fair fight. (Does the name "Custer" ring a bell?)

The only surprise during Tuesday's day-long hearing to probe the cause of the financial crisis was Sen. Carl Levin's potty mouth - who knew?

But as therapeutic as it might have been to watch smug bankers get gob smacked in public, it wasn't really all that illuminating. Not when you consider that the structural roots of the Great Recession - which almost became another Great Depression - are complicated and point blame in many directions. Not that you'd know it from the gleeful reaction of Democrats, who viewed the spectacle as a way to put the Republicans on the defensive. "Republicans will have more opportunities to show whose side they are truly on," said Senate Majority Leader Harry Reid, Democrat of Nevada,.

Fair enough, but if Goldman was carrying on like a morally-compromised Vegas bookie, let's also remind ourselves how all this came to be. Wall Street got out of control but its reckless behavior didn't take place in a vacuum. The investment banks were only taking advantage of the rules regulators had put in place. And nowhere in the day's narrative did any of the Democrats want to revisit decisions they took a decade ago - decisions which would contribute to the ensuing economic crisis. Specifically, the repeal of the Glass-Steagall Act by Bill Clinton in 1999.

Special Section: Wall Street Under Fire

Democrats are now pushing the so-called Volcker Rule to erect a wall between commercial banking interests and investment banking interests. The irony is that Clinton's top economic advisors back then - Robert Rubin and Lawrence Summers - convinced the former president to do away with that separation by burying Glass-Steagall. (Here's what Summers, then Treasury Secretary, said at the time: "Today, Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century...This historic legislation will better enable American companies to compete in the new economy." Looking back, Clinton now acknowledges that he got bad advice. (His mea culpa comes at the end of the quote below.)

Clinton: I feel very strongly about it. I think it's important to have vigorous oversight. Now, on derivatives, yeah I think they were wrong and I think I was wrong to take it, because the argument on derivatives was that these things are expensive and sophisticated and only a handful of investors will buy them. And they don't need any extra protection, and any extra transparency. The money they're putting up guarantees them transparency. And the flaw in that argument was that first of all sometimes people with a lot of money make stupid decisions and make it without transparency.

And secondly, the most important flaw was even if less than 1 percent of the total investment community is involved in derivative exchanges. So much money was involved that if they went bad, they could affect a 100 percent of the investments, and indeed a 100 percent of the citizens in countries not investors, and I was wrong about that. I've said that all along. Now, I think if I had tried to regulate them because the Republicans were the majority in the Congress, they would have stopped it. But I wish I should have been caught trying. I mean, that was a mistake I made.

" So a priest, a minister and a rabbi - and a general - walk into a bar..."

Another week, another crisis in the latest installment of "Perennially Pissed Off Nation, 2010."

This time the sensitive souls expressing outrage went ballistic over the warm-up joke that the president's National Security adviser made during a presentation to a pro-Israel Washington think tank last week.

Here's a link to the offending clip of General James Jones, trying to do shtick. (OK, I can understand some of the ire; the routine does need a little work.)

In order to set the stage for my remarks I'd just like to tell you a story that I think is true. It happened recently in southern Afghanistan. A member of the Taliban was separated from his fighting party and wandered around for a few days in the desert, lost, out of food, no water. And he looked on the horizon and he saw what looked like a little shack and he walked towards that shack. And as he got to it, it turned out it was a little store own by a Jewish merchant. And the Taliban warrior went up to him and said, 'I need water, give me some water.' And the merchant said, 'I'm sorry, I don't have any water but would you like a tie. We have a nice sale of ties today.'"

"Whereupon the Taliban erupted into a stream of language that I can't repeat, about Israel, about Jewish people, about the man himself, about his family, and just said, 'I need water, you try to sell me ties, you people don't get it.' The merchant stood there until the Taliban was through with his diatribe and said, 'Well I'm sorry I don't have water for you and I forgive you for all of the insults you've levied against me, my family, my country. But I will help you out. If you go over that hill and walk about two miles there is a restaurant there and they will have all the water you need.' And the Taliban, instead of saying thanks, still muttering under his breath, disappears over the hill, only to come back an hour later, and walking up to the merchant says, 'You're brother tells me a I need a tie to get into the restaurant.'"

That's it? OK, Henny Youngman, he's not. But we're not talking about the second coming of Haman, either. After reading the reactions to Jones' joke, though, you would have thought that the beleaguered soldier-diplomat had shook up the crowd with a few gratuitous references to Shylock, the Elders of the Protocol of Zion - or, at the very least, a disparaging comment about  my personal hero, Sandy Koufax. Still, more than a few critics projected onto Jones - and by extension, the Obama White House - positions that one normally associates with your garden-variety anti-Semite.

 The most interesting takeaway from this eminently forgettable affair was the reaction from the familiar roster on the right. Turns out that this crew, which can be depended upon to issue scarifying denunciations of political correctness was, well, as priggishly politically correct as their left-wing counterparts. A representative sample:

• Atlas Shrugged: led with the headline "Obama NSA Adviser's Vile Anti-Semetic (sic) Jokes To DC Audience" before going on to blast Obama for his "weakness and partiality to antisemitism."

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Are Democrats and Republicans nearing a deal to overhaul the nation's financial regulationsy?

That didn't seem in the realm earlier ithis week with both sides appearing resigned to yet another stalemate - maybe not as bitter as the fight they waged over health care, but clearly, it was not shaping up to be a love-fest. Republicans had mocked the Democrats' $50 billion wind-down fund as a "permanent bailout." Democrats returned the favor with Harry Reid coming close to describing the Republican Senate Leadership in a letter - co-signed by Banking Chairman Chris Dodd - as corrupt.

"With 1,500 Wall Street lobbyists trying to water down our bipartisan efforts to hold Wall Street accountable, it is past time for (Minority Leader) Senator McConnell to come clean regarding the nature of his closed-door meetings with Wall Street executives," the letter said. "It's been 12 days since he and Senator Cornyn met secretly with two dozen Wall Street executives to scheme about killing reform. The public deserves to know who attended this meeting and what promises were made by Republicans to big banks."

But verbal pyrotechnics notwithstanding, the respective leaderships seem to be standing down. Indeed, McConnell said he thought that an agreement may be within reach. Speaking Tuesday on the Senate floor, McConnell described himself as "heartened to hear that bipartisan talks have resumed in earnest." At a meeting later with reporters, he said that despite some remaining flaws in the proposed legislation, "I'm convinced now there is a new element of seriousness attached to this, rather than just trying to score political points. . . . I think that's a good sign."

Meanwhile, Dodd and Richard Shelby, the respective leaders of their parties in the Senate banking committee, also reported progress in the latest round of negotiations. Shelby came out to describe the session as "the best environment since December...I think we're going to get there," Shelby said. "I'm optimistic because I think we've got a few days to negotiate, and the spirit is good."

So what changed? Treasury Secretary Tim Geithner has been working the phone lines and it may be bearing fruit.  After meeting with Geithner, Sen. Mike Johanns (R-Neb.) offered praise for the work done on the bill. Are the Democrats ready to trade the $50 billion fund, which was supposed to be funded by the financial services industry, in return for GOP support? If so, they probably can afford to negotiate that one away. Right now they're in a better bargaining position than they were during the healthcare debate. A poll commissioned by the White House and Senate Democrats found overwhelming public support for tougher financial regulations. (And now two Republican senators, Maine's Olympia Snowe and Tennessee's Bob Corker, may be ready to vote for passage. As Democratic pollster Geoff Garin told the Los Angeles Times. when it comes to this issue, "the only people who see benefit in maintaining the status quo are the higher-ups on Wall Street."

We've seen this script before: Hoping to win Republican support for a controversial piece of legislation, Democrats assiduously woo Maine's swing Senators - only to get stiffed at the proverbial 11th hour.

But after meeting with Treasury Secretary Tim Geithner Monday afternoon, one half of the Maine option apparently is back in play.

While Susan Collins appears to be out - at least for now - Olympia  Snowe said she was optimistic that Democrats would modify their current bill to make it more palatable to moderate Republicans. She added that there wasn't "that much of a gap" between the sides.

"I encouraged [Geithner] on the issue of bipartisanship and he was optimistic on that issue. I don't think it will be impossible, but as I urged the Secretary today, it is vital we ensure that the broad strokes of a bipartisan agreement are reached prior to debate on the Senate floor. We need to address the proposed consumer protection bureau and the best way to avoid another taxpayer-funded bailout, among other things. I also shared my deep concern that we push the vast derivative trading market onto transparent exchanges and we eliminate any chance that taxpayers money will be used to support misplaced bets.

Snowe also repeated the standard Democratic line about the need to take "drastic steps to rein in reckless Wall Street practices" to prevent a repeat situation where financial institutions again wind up at the brink.

A bi-partisan charade or an expression of serious intent to cross party lines? Left wing Dems still nurse bruised feelings incurred during the health care reform battle. That's when Democrats thought they had won Snowe's support and they remain convinced she played them.  But considering Wall Street's plunging public popularity, it might be easier for Snowe to trade her vote in return for winning a compromise that Democrats can still live with.

That's assuming, of course, she can hold out against Mitch McConnell and his posse. Deja vu all over again, as the immortal Yogi Berra was reputed to have put it? We'll see.

Turns out that the difference between getting nailed by a sucker punch and a free pass comes down to a single vote.

Or so it seems, according to a report on Bloomberg that the U.S. Securities and Exchange Commission split along party lines and only voted 3-2 to serve Goldman Sachs with a civil lawsuit.

EC Chairman Mary Schapiro sided with Democrats Luis Aguilar and Elisse Walter to approve the case, said the people, who declined to be identified because the vote wasn't public. Republican commissioners Kathleen Casey and Troy Paredes voted against suing, the person said....

The decision shows Schapiro, a political independent, moved forward in accusing New York-based Goldman Sachs of fraud in the face of resistance from not only the company but her fellow commissioners. It's the second time this year Schapiro has cast the deciding vote on a high-profile case without Republican support as she sided with Democrats to approve a $150 million settlement with Bank of America Corp. tied to its takeover of Merrill Lynch & Co.

Whether this suggests anything about the government's case is too early to say. Speaking for the Wall Street community, the Wall Street Journal's op-ed page (predictably) mocked the SEC lawsuit in an editorial this morning. Still, the piece marshals the available evidence to present a strong conservative argument, leading up to its haymaker conclusion: that it's all about politics. Here's the key paragraph:

The SEC charges conveniently arrive on the brink of the Senate debate over financial reform, and its supporters are already using the case to grease the bill's passage. "I'm pleased that the Obama Administration is using all of the tools in its arsenal to bring accountability to Wall Street and standing up for homeowners and small businesses across America," said Senate Majority Leader Harry Reid on Friday about the SEC case. "This is also why we need to pass strong Wall Street reform this year." Of course, this case matters to homeowners not at all.

If the SEC indeed voted along party lines, Goldman's proverbial goose may not be so cooked (assuming, of course, that no new blockbuster evidence subsequently comes to light)

Juan Cole has a long and typically insightful post deconstructing the latest rumblings in Washington about the impact of tightening sanctions on Iran. Assuming, that is, the president can convince Brazil, Russia, India and China to go along - a big assumption - what then? As Cole notes, few commodities are more fungible than crude.

"Very few sanctions regimes have actually produced regime change or altered regime behavior. The US could not even accomplish this goal with regard to a small island 90 miles off its shores, Cuba. That an oil giant half way around the world with a population of 70 million that is as big as Spain, France and Germany can be effectively bludgeoned with sanctions is not very likely."

"The US needs to engage in comprehensive security talks with Iran, in hopes of striking a grand bargain. Because as Admiral Mullen rightly says, there are no good military options here."

That doesn't mean the U.S. won't still press ahead with sanction plans. But arm-twisting other nations and firms not to buy Iranian petroleum and gas may be a lot harder than it seemed only a few months earlier. For comparison purposes, check out the conclusions of this earlier GAO report measuring the effectiveness of the ban on U.S. trade and investment with Iran between 2003 and 2007.

This wasn't the first time he was asked - surely, it won't be the last - but Mitt Romney had an uncomfortable moment explaining the difference between Romneycare and the President Obama's recently-passed health care reform legislation to a reporter from Newsweek.

There are obvious similarities between Obamacare and what you did in Massachusetts. Do you acknowledge that what you did in Massachusetts has become a model for nation under Obama, whether you wanted it to or not?

I can't speak for what the president has done. I don't know what he looks at... If what was done at the state level, they applied at the federal level, they made a mistake. It was not designed for the nation.

Jonathan Gruber advised both you and Obama on health care. He told me that you are "the one person who deserves the most credit for the national plan we ended up with." Is that a title you're willing to accept?

[Laughs.] I think you've already heard my answer on that.

Do you think the Republicans in Congress made a mistake by using Obama's desire for Republican votes as leverage to align the plan more closely with conservative views? For political reasons, he was almost desperate at first to get bipartisan support for the bill.

I think what President Obama wanted was Republicans to vote for an extremely ideologically big-government plan. And Republicans weren't going to do that....

But he was elected president, right? Wasn't there room within those negotiations for Republicans to push his plan to the right if they chose to play ball?

Republicans put forward several pieces of legislation to reform health care, and those were rejected by the president in favor of the Pelosi-Reid plan.

Former Bush speechwriter David Frum wrote the following: "We do know that the gap between [Obama's plan] and traditional Republican ideas is not very big. The Obama plan has a broad family resemblance to Mitt Romney's Massachusetts plan. It builds on ideas developed at the Heritage Foundation in the early 1990s that formed the basis for Republican counter-proposals to Clintoncare in 1993-1994." Is it fair to say that the new national plan has conservative roots, even if you disagree with it being imposed on a national level?

Let's see, I can't think of a great metaphor. Maybe Dr. Jekyll and Mr. Hyde: they both have two arms and two legs, but they're very different creatures...there's simply an enormous difference when you have one plan that imposes massive tax hikes and another that does not. [There's] a huge difference with a plan that dramatically cuts Medicare Advantage and one that does not impose a new burden on senior citizens.

Those are real differences, but aren't they measures designed to control costs and pay for the plan? The president's plan has cost controls that the Massachusetts plan didn't need--tax increases on people earning over $200,000 a year, reductions in wasteful Medicare spending. In Massachusetts, you could just repurpose hundreds of millions of dollars in federal funds to pay for it. But that doesn't work on the national level. So it seems a little disingenuous to call the Democrats fiscally irresponsible, then criticize the parts of the plan that are designed to make it fiscally responsible.

But you see, we go back to the initial premise. I reject the idea of a federal mandate imposed on states and individuals. If you open the door to the federal government, then it leads to all sorts of unattractive elements, such as raising taxes and cutting Medicare. If instead one said at the federal level, "We're going to give resource flexibility to states to use money they're already receiving as a way to help the poor buy insurance," that says, "All right, we're using funds that have already been allocated, we're letting states create their own plans, and we'll see how that works. And we'll learn from the experience." That's the idea of states as the laboratories of democracy. What we've gotten into by opening the door to a federally imposed plan is the creation of the Mr. Hyde monster.

Obviously concerned how this might play with GOP audiences when the presidential primary season rolls around, Romney stuck to the PR script and struck a stoic pose:

Many political pundits believe that the passage of Obama's health-care plan and the related animosity among Republicans toward what you did in Massachusetts has greatly diminished your chances of winning the Republican nomination if you run for president in 2012.

I stand for the things I believe in. I don't know what the politics are of it.

And there you have it: the primaries may be more than two years away but he's already in prime talking point form.

The New York Times has a story out Sunday night asserting that senior executives at Goldman Sachs played "pivotal" roles in overseeing the mortgage unit that's at the heart of the civil fraud lawsuit filed against the company by the Securities and Exchange Commission.

How far up the ranks did this go? So far, only company vice-president Fabrice Tourre has beenv named in the complaint, but the Times article suggests that the affair goes right to the top of the company org chart. According to the piece, it include:

...executives up to and including Lloyd C. Blankfein, the chairman and chief executive, took an active role in overseeing the mortgage unit as the tremors in the housing market began to reverberate through the nation's economy. It was Goldman's top leadership, these people say, that finally ended the dispute on the mortgage desk by siding with those who, like Mr. Tourre and Mr. Egol, believed home prices would decline. (Egol refers to Jonathan M. Egol, whom the Times describes as "the mastermind behind the controversial mortgage deals known as the Abacus investments.")

By early 2007, the Times says that Goldman's mortgage unit "had captured the attention of senior management" including Blankfein, Gary D. Cohn, the company's president, and David A. Viniar, the chief financial officer, who reported visited the mortgage unit often.

Such high-level involvement was unusual elsewhere on Wall Street, where many executives spent little time learning the workings of their mortgage businesses or how those businesses might endanger their companies. The decision to get rid of positive bets on mortgages turned out to be prescient. Unlike most other Wall Street banks, Goldman profited from its mortgage business as the housing bubble was inflating and then again when the bubble burst.

Separately, Vanity Fair contributing editor Vicky Ward came up with a related news nugget to add to the Goldman file: Apparently, the former head of asset manager ACA Capital, one of the key players in the SEC's Goldman chronology, shared a house purchased with the investment bank's deputy general counsel. The question Ward raises is whether the relationship was disclosed to any third parties. Is that an important fact or just a curiosity? Beats me, though the SEC claims that ACA was involved in selecting the securities which went into the CDO known as Abacus 2007- AC1 - along with hedge fund manager John Paulson, who decided what investments should go into the offering. As has been chronicled elsewhere, Paulson went on to make a small fortune by shorting the trade.

If more stories like this come to light, a heretofore little-known Goldman vice-president will not be the only company exec facing the fire.

The immediate reaction to a leaked Robert Gates memo on Iran followed the usual lef-right lines with liberals arguing that there is nothing the U.S. can do to stop Iran from getting a nuclear weapon and right-wingers slamming the White House as ineffectual and guilty of endangering U.S. national security.

However, the New York Times report of the contents of the memo also suggests that the U.S. Secretary of Defense is not fully convinced that Iran wants to acquire nuclear weapons. Instead, he appears to believe that Tehran is more interested in acquiring the capability to go nuclear as a deterrent against a future land invasion. That nuance has been overlooked in the cacophony. According to the Times' piece, Gates laid out several concerns:

...including the absence of an effective strategy should Iran choose the course that many government and outside analysts consider likely: Iran could assemble all the major parts it needs for a nuclear weapon - fuel, designs and detonators - but stop just short of assembling a fully operational weapon.

In that case, Iran could still remain a signatory of the Nuclear Nonproliferation Treaty while becoming what strategists call a "virtual" nuclear weapons state."

Hawks don't buy that argument and believe that time is running out. (John Bolton's Feb. piece in the Wall Street Journal is representative of this line of thinking.). Are the Iranians lying? The country's 's Supreme Leader, Ali Khamenei, has been saying for years that nuclear bombs are un-Islamic. He issued a fatwa to that effect in 2005. and repeated the theme on Saturday, when he told a nuclear conference in Tehran that nuclear bombs and other weapons of mass destruction were "haram (religiously forbidden.

In Washington, the bureaucratic politics involved in formulating a policy response continue. So far, there's no unanimity about the effectiveness of the military option, according to the Times' piece:

Mr. Gates's memo appears to reflect concerns in the Pentagon and the military that the White House did not have a well prepared series of alternatives in place in case all the diplomatic steps finally failed. Separately, Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, wrote a "chairman's guidance" to his staff in December conveying a sense of urgency about contingency planning. <i>He cautioned that a military attack would have "limited results,</i>" but he did not convey any warnings about policy shortcomings (emphasis added).

Where does that leave the U.S.? As Tufts' professor Daniel Drezner noted, "all policy options on Iran stink" and Gates isn't thrilled with any the alternatives that his underlings have come up with.