Obama and Geithner: Government, Enron-Style

By Matt Taibbi, Rolling Stone

21 December 11

trongly recommend this piece at the Huffington Post by Jeff Connaughton, a former aide to Senator Ted Kaufman. Jeff has long been one of the smartest guys on the Hill and is particularly strong on issues surrounding Wall Street and the regulatory system. In this piece, he takes apart the oft-stated mantra that what Wall Street firms did during and after the crisis was maybe unethical, but not illegal. He takes particular aim at Barack Obama, who tossed that line out on 60 Minutes in what I thought was one of the real low moments of his presidency. Here's Jeff's take:

Speaking in Kansas on December 6, [Obama] said, "Too often, we've seen Wall Street firms violating major anti-fraud laws because the penalties are too weak and there's no price for being a repeat offender." Just five days later on 60 Minutes, he said, "Some of the least ethical behavior on Wall Street wasn't illegal." Which is it? Have there been no prosecutions because Wall Street acted legally (albeit unethically)? Or did Wall Street repeatedly violate major anti-fraud laws (and should thus find itself in the dock)?

The President is confusing "legal" with "difficult to prosecute successfully."

The notion that what Wall Street firms did was merely unethical and not illegal is not just mistaken but preposterous: most everyone who works in the financial services industry understands that fraud right now is not just pervasive but epidemic, with many of the biggest banks committing entire departments to the routine commission of fraud and perjury - every single one of the major banks, for instance, devotes significant manpower to robosigning affidavits for foreclosures and credit card judgments, acts which are openly and inarguably criminal. Banks and hedge funds routinely withhold derogatory information about the instruments they sell, they routinely trade on insider information or ahead of their own clients' orders, and corrupt accounting is so rampant now that industry analysts have begun to figure in estimated levels of fraud in their examinations of the public disclosures of major financial companies.

Beyond that, as Jeff points out, Obama is simply not telling the truth about the insufficient penalties available to regulators. Employing the famous "mistakes were made" use of the passive tense, Obama copped out in his December 6 speech by saying that "penalties are too weak." As Jeff points out, what Obama should have said is that "the penalties my own regulators chose to dish out were too weak":

Moreover, the President is misleading us when he says that Wall Street firms violate anti-fraud law because the penalties are too weak. Repeat financial fraudsters don't pay relatively paltry - and therefore painless - penalties because of statutory caps on such penalties. Rather, regulatory officials, appointed by Obama, negotiated these comparatively trifling fines. This week, the F.D.I.C. settled a suit against Washington Mutual officials for just $64 million, an amount that will be covered mostly by insurance policies WaMu took out on behalf of executives, who themselves will pay just $400,000. And recently a federal judge rejected the S.E.C.'s latest settlement with Citigroup, an action even the Wall Street Journal called "a rebuke of the cozy relationship between regulators and the regulated that too often leaves justice as an orphan."

What makes Obama's statements so dangerous is that they suggest an ongoing strategy of covering up the Wall Street crimewave. There is ample evidence out there that the Obama administration has eased up on prosecutions of Wall Street as part of a conscious strategy to prevent a collapse of confidence in our financial system, with the expected 50-state foreclosure settlement being the landmark effort in the cover-up, intended mainly to bury a generation of fraud. Here's how Jeff puts it:

In Ron Suskind's book, Confidence Men, he quotes Treasury Secretary Timothy Geithner as saying, "The confidence in the system is so fragile still... a disclosure of a fraud... could result in a run, just like Lehman." The Obama Administration is pushing hard for a 50-state settlement with the major banks for their fraudulent foreclosure practices, even though several state attorneys general have rejected this approach because, in their view, it would shield too much wrongdoing. Regrettably, Obama's top officials and lawyers seem more eager to restore the financial sector to health than establish criminal accountability among the executives who were in charge.

In other words, Geithner and Obama are behaving like Lehman executives before the crash of Lehman, not disclosing the full extent of the internal problem in order to keep investors from fleeing and creditors from calling in their chits. It's worth noting that this kind of behavior - knowingly hiding the derogatory truth from the outside world in order to prevent a run on the bank - is, itself, fraud! This is exactly the mindset that led Lehman to the abuses of the "Repo 105" accounting trick, in which loans were disguised as revenues in order to prevent the outside world from knowing the dire state of the bank's balance sheet.

Now Obama and Geithner are engaged in the same sort of activity, only they're trying to prevent a run not on an individual bank, but the entire American financial services sector. Geithner seems really to believe that if fraud were aggressively policed, and the world was made aware of the incredible extent of the illegality in our markets, that international confidence in the American financial sector would plummet and our economy would suffer - and suffer, incidentally, on Barack Obama's watch. Better, apparently, the Band-Aid the problem now, and let the real mess happen later on, on someone else's watch, or at least in a second term, when there's no need to worry about re-election.

Of course, this is exactly the wrong way to go about things. If Geithner and Obama really wanted to convince the world that America's markets weren't broken, they would effectively police fraud, and by extension prove to everybody that at the very least, our regulatory system is not broken. By taking a dive on fraud, and orchestrating mass cover-ups like the coming foreclosure settlement fiasco, what they're doing instead is signaling to the world that not only are our financial markets corrupt, but our government is broken as well.

The problem with companies like Lehman and Enron is that their executives always think they can paper over illegalities by committing more crimes, when in fact all they're usually doing is snowballing the problem so completely out of control that there's no longer any chance of fixing things, thereby killing the only chance for survival they ever had.

This is exactly what Obama and Geithner are doing now. By continually lying about the extent of the country's corruption problems, they're adding fraud to fraud and raising such a great bonfire of lies that they won't ever be able to fix the underlying mess. If they looked at the world like public servants, and not like corporate executives, they'd understand that the only way out is to come clean. That they don't look at things that way should tell people quite a lot.

PolitiFact Is Bad for You

By Jim Newell, Gawker

21 December 11

he lefty blogosphere is all hot and bothered at famous fact-checking website Politifact for naming Democrats' claim that the Paul Ryan "Path to Prosperity" would "end Medicare" its 2011 Lie of the Year. And yes, there's a solid argument to be made that Politifact is completely wrong. The bigger problem here, though, is why does anyone care what this gimmicky website has to say, ever?

Politifact took flak for this same judgment earlier in the year, when it labeled the claim "PANTS ON FIRE." That is the cutesy term they use when they consider something a most terrible lie. You know, like "Liar, liar, pants on fire," that thing that people say. As opposed to "four Pinocchios," which the Washington Post fact-checker guy uses. Fact-checkers enjoy using lines from children's taunts and stories, to market themselves.

Politifact considers "end Medicare" a lie because Paul Ryan's plan would keep a program called "Medicare" as the public policy solution to the problem of financing health care for old people. But the "Medicare" program, as long as it's been around, has been a single-payer, fee-for-service model. That's what it is, and that's why it's popular. Ryan's plan (at least that version of it) would eliminate that system and deal with the problem of financing health care for old people with a program of "premium support" - distributing coupons for beneficiaries to purchase a health insurance plan in a managed private market. The coupons would not be indexed to soaring medical inflation, though, giving them depleting value over time. Paul Ryan thinks that managed competition would eventually align the growth in medical inflation with regular ol' topline inflation. People who actually work in health care policy do not. Can you say that a program that keeps the name Medicare, but is in fact a totally different program, "ends Medicare"? Sure.

Politifact's condemnations are flooding in today! Here's Paul Krugman:

The answer is, of course, obvious: the people at Politifact are terrified of being considered partisan if they acknowledge the clear fact that there's a lot more lying on one side of the political divide than on the other. So they've bent over backwards to appear "balanced" - and in the process made themselves useless and irrelevant.

And Washington Monthly's Steve Benen:

When an outlet puts "fact" in its name, the standards for accuracy are especially high. When its selecting a Lie of the Year, standards dictate that the falsehood should be overwhelmingly obvious and offensive.

Today, PolitiFact, which relies exclusively on its credibility to affect the political discourse, ought to be ashamed of itself.

But Krugman, Benen and others are only this furious because they've already bought into the gimmick from which Politifact derives all of its power. What Politifact is, really, is just a blog written by some people at the St. Petersburg Times. But since it calls itself Politifact and assigns ratings that you can just glance over, it undeservedly becomes a irresistible cudgel to use against your political opponents. Politifact! It's a portmanteau of "politics" and "facts," so it can't be wrong. And it just labeled your top party message "PANTS ON FIRE," the worst rating imaginable! Too many writers, editors and cable news producers love these easily digestible judgments that they can use, cheaply, when pretending to inform their audiences. And I'd bet top dollar that when Krugman or Benen see Politifact label the next major right wing myth "PANTS ON FIRE," they'll forget all about today's unforgivable crime and tell their readers, Look what Politifact said - PANTS ON FIRE!

This is why I stopped citing Politifact altogether this year, even on the numerous occasions when I think they're right. Why should St. Petersburg Times bloggers' opinions - no offense to them! - carry authoritative power to make final judgments? They're imperfect humans who fact-check political claims, just like every other asshole on the Internet. But people have bought into their branding gimmick, their ratings.

More than anything else, Politifact reminds me of the credit rating agencies. They are just companies that employ credit risk analysts. But since they devised a similarly easily digestible alphanumeric code - AAA, BBB, AA+, whatever - and people have bought into this, they wield immense centralized power over the entire world. But that doesn't mean they won't screw up.

Politifact is dangerous. Stop reading it. Stop reading the "four Pinocchios" guy too. Stop using some huckster company's stupid little phrases or codes or number systems when it's convenient, and read the actual arguments instead. You're building a monster.