The case addressing this question, Standard Chartered v FINRA, has been appealed to the highest court in our land. As such, one might think that most Americans would care to learn if our nation’s top financial regulator did, in fact, engage in a fraud which had a monetary value of between $175-$350 MILLION plus. Not exactly chicken feed.

Why hasn’t this case received more attention? 

For the very simple reason that our major financial media have spent little to no time focused on it. If you don’t think our media is controlled in this country, then you may want to ask why this case has not received more meaningful coverage.

I first addressed this case in the fall of 2009. I personally believe it belongs on the front page of every business section in our country. Why? This case addresses the core of what I have long defined as the Wall Street-Washington incest. The $175-350 million which FINRA retained — rather than having appropriately distributed to its member firms — allowed the major firms on Wall Street and selected FINRA executives to benefit at the expense of smaller broker-dealers. Sound a little incestuous perhaps? You think?

More importantly, this case addresses the fact that Ms. Schapiro and her fellow FINRA colleagues signed a proxy statement used for the merger of the NASD with the regulatory arm of the NYSE to form FINRA that included misinformation. If utilizing a proxy statement which includes misinformation is not an abuse of capitalism and a fraud, I do not know what is.

My link above references several angles in this case and other FINRA and assorted partners’ ‘incestuous’ follies. I strongly recommend you review this wealth of material. You will be busy, but you certainly will not be bored.

Are you sufficiently intrigued to learn a little more about this situation? Let’s navigate and review a recent commentary written by Dan Jamieson of Investment News. Dan writes, B-D Wants Supreme Court to Rule on FINRA Suit:

The high court this month is expected to decide whether to take up a lawsuit brought against NASD by Standard Investment Chartered Inc. over the self-regulator’s 2007 merger with the regulatory unit of the New York Stock Exchange.

Standard, an investment banking boutique, insists that the proxy used by the NASD in soliciting member approval for the merger was fraudulent.

NASD since has been renamed the Financial Industry Regulatory Authority Inc.

Government entities, including private organizations with government-delegated authority, generally enjoy absolute legal immunity in performing official duties. Court cases have granted protection specifically to securities self-regulatory organizations.

Absolute immunity covering a financial transaction? Sniff, sniff. Do you smell something? Me, too.

Standard argues that the merger was not a legally protected regulatory function of Finra.

The brokerage firm wants the Supreme Court justices to hear that case because it claims that lower courts have issued conflicting opinions on immunity for SROs and other state actors.

The Standard suit has already been thrown out twice by courts — in 2010 by a New York U.S. District Court judge and then again last year by the 2nd U.S. Circuit Court of Appeals.

But the Supreme Court could take a different view. In June 2010, it ruled that the Public Company Accounting Oversight Board, a private oversight body set up under the Sarbanes-Oxley law, was unconstitutional because its members were not sufficiently overseen by the executive branch.

The Standard appeal has attracted an unlikely assortment of allies among business and consumer groups.

“The case presents a situation where a quasi-governmental entity is abusing its power,” said Ilya Shapiro, a constitutional lawyer at the libertarian Cato Institute, which joined with the Competitive Enterprise Institute in filing an amicus brief on behalf of Standard.

“Our legal interest is really to make government accountable,” he said.

There’s a larger principle at stake: to what extent state actors can be held accountable, said William Anderson, one of Standard’s lawyers at Cuneo Gilbert & LaDuca LLP. “That’s why the various groups have weighed in” with amicus briefs, he said.

“We’re concerned about the court’s overextension of immunity” to private organizations, said Scott Michelman, a staff attorney at the Public Citizen Litigation Group, which, together with Consumer Action, The Project On Government Oversight and the U.S. Public Interest Research Group, also is urging the Supreme Court to take the case.

“In this case, immunity has been extended to private corporate actors … in a way that could prevent corporate accountability,” he said.

Standard and its supporters dispute the earlier court findings that NASD’s proxy and merger were “incident to” its regulatory activities and thus protected.

The Cato Institute argues that such a standard “would be the equivalent of shielding a judge who ran down a pedestrian on his way to the courthouse simply because his travel there eventually will lead to his exercising judicial power.”

Courts first gave SROs legal protection in 1985, and the breadth of that immunity has expanded ever since, according to Standard’s supporters.

“It seems to me that what [Finra was] doing was acting as a business entity rather than as a regulator,” Mr. Shapiro said.

Jack Norberg, chairman of Standard, did not return a call seeking comment.

For its part, Finra insists that there is no issue with immunity for SROs.

“Every court of appeals to consider the issue has agreed that SROs are absolutely immune from private lawsuits for money damages attacking conduct that falls within the scope of their regulatory functions,” Finra said in a filing with the Supreme Court.

While FINRA’s lawyers have continually embraced their position on immunity, NOT ONCE have I ever heard or seen these lawyers or Ms. Schapiro address and categorically deny the premise of a fraudulent proxy. What say you, Mary? Did you and your colleagues willingly and intentionally misrepresent, that is LIE, in regard to the facts presented in that proxy?

Finra spokeswoman Michelle Ong declined to comment.

No surprise there. No transparency there, either.

The 2007 merger required NASD members to approve bylaw changes that significantly reduced their voting power in the new organization.

NASD was able to get the changes approved with the help of a one-time $35,000 payment. Standard claims that NASD lied in its proxy and other communications when it claimed that $35,000 was the most it could pay under IRS rules.

An IRS opinion letter laying out permissible amounts that could be paid to broker-dealers to approve the merger has been subject to a court-ordered seal, but in a 2009 hearing, one of Standard’s attorneys said the letter indicated that member firms could have received an additional $35,000 to $76,000.

An additional $35-76k multiplied by 5100 member firms equates to a cool additional $175-350 MILLION plus!!

If the Supreme Court takes the case and rules for Standard, the dispute could go back to lower courts for rehearing, and member firms could possibly get a larger payout, Mr. Anderson said.

One would think a ruling for Standard would also expose Ms. Schapiro and the other defendants in this case for having perpetrated a fraud. What are the ramifications of that? Or is that potential too explosive and unseemly for our nation in its current state? Are we that weak and pathetic?

Where are America’s collective balls? Come on. How about we create some public pressure? Share this commentary as wide and far as possible. Our founding fathers would thank you.

But some doubt that the Supreme Court will let that happen.

“SROs are immune — that’s the law,” said Jonathan Kord Lagemann, a veteran industry defense attorney and founder of the Lagemann Law Offices.

“Whether it should be that way is another story.”

Of course it SHOULD NOT be that way. Providing the cover of absolute immunity for misrepresentations within proxy statements by senior financial regulators is no way to run a country.

Remember, absolute immunity without total transparency is a license to steal . . . perhaps even as much as $175 million.

Larry Doyle

As state attorneys general prepare to pursue these Wall Street banks for the activity of forging these documents, I would raise the question whether this coordinated forging activity rose to the level of racketeering. Did these Wall Street banks violate the Racketeer Influenced and Corrupt Organizations Act? Let’s navigate.

Before I delve into the questions surrounding the potential violation of the RICO Act, I STRONGLY encourage you to take the 5 minutes to review this summary video of the 60 Minutes’ piece:

For the overachievers in the crowd who care to watch the entire outstanding 14 minute piece, I am happy to provide the link here.

I have long believed that a significant segment of the mortgage origination, securitization, and now foreclosure process was knowingly and actively engaged in a concerted fraud. The fraud encompassed not only those issuing and securitizing the mortgages but also those taking out the mortgages. While regulators and legal authorities have shown little willingness to pursue the obvious fraudulent activity, the blatant fraud involved in the forging of foreclosure documents is the ultimate insult to the indescribable injury.

I ask the following very simple question. Did this activity violate the RICO Act? In what manner might the the RICO Act have been violated? Try the following on for size:
1. Mail and wire fraud.
2. Extortionate credit transactions.
3. Obstruction of justice.
4. Interference of commerce.
5. Laundering of monetary instruments.
6. Monetary transactions in property derived from specified unlawful activities.
7. Relating to trafficking in goods and services bearing counterfeit marks.
8. Fraud in the sale of securities.

Who within these Wall Street banks was aware of the fraudulent robo-signing of the mortgage documents? Who authorized the robo-signing? We need names!!

If Wall Street was so brazen to undertake such a blatantly obvious fraud in this robo-signing activity, where else did these banks engage in fraud? Remember, you never find just one rodent.

I am no lawyer but I am not so sure you need to be in order to connect the dots involved in this ongoing housing nightmare. On behalf of every citizen and taxpayer in our nation, I call upon each and every attorney general in our nation to ask the question at the head of this commentary.

For those who truly love capitalism and the never ending pursuit of truth, transparency, and integrity our nation deserves nothing less than a full and total exposition of the obvious fraud involved in this entire mortgage travesty.

Who amongst our attorneys general have got the balls and the character to raise the question as to whether Wall Street did violate the Racketeering Act?

Thank you again to the reader who prompted me regarding last evening’s episode of 60 Minutes.

Larry Doyle

I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

The Wall Street-Washington incest MUST end.

This coming Tuesday, America has a chance to ring that bell, expose that incest, cleanse the system, and deliver the message loud and clear. The peal of that bell must emanate from the 4th District in the state of Massachusetts.

You do not need to read Sense on Cents to appreciate that many politicians from both sides of the aisle have badly forsaken our nation’s future with misguided and ill-advised policies over the last few decades. Many of these politicians now look to save their skins– if not their souls– by professing a newly found religion with an anti-Wall Street mantel. America, and the residents of the 4th District in Massachusetts, should not be so easily hoodwinked. These politicians, especially Barney Frank, must be held accountable and sent home.

I implore the voters of the 4th District to think long and hard and appreciate that their longstanding elected representative Barney Frank embraced the people and the policies which continue to crush our nation. Which people? What policies? Those which were centered in America’s great financial sinkhole known as Fannie Mae then led by its former CEO Franklin Raines. During my own career on Wall Street, I witnessed Barney’s bear hug of Fannie and Franklin from up close. Do not forget Barney’s desire to ‘roll the dice’ with sub-prime mortgage financing.

Many media outlets will look the other way in holding Barney accountable; I have no interest in that.

In my strong opinion, Fannie Mae was nothing more than a Washington sponsored “Enron on steroids.” Who led the charge on Capitol Hill for the ‘private profit, social loss’ housing monster? Many Democrat and Republican politicos gladly stuck their hands in the Fannie Mae gift bag, but no politician more stridently promoted the programs of Fannie Mae than Barney Frank. Recalling Barney’s work on behalf of Fannie over the years, it was readily apparent to me that he had no understanding of the risks of mispricing capital. For those involved in the private sector and focused on properly pricing risk, the reality of a career politician not appreciating the proper price of capital is not difficult to understand. Regrettably, all of America now pays the price for Barney’s shortcoming and that of so many of his colleagues. While we pay that price, we do not need to and must not suffer from that shortcoming any longer.

I am not endorsing Sean Bielat simply because Barney ran interference for Fannie Mae and its failed socialized housing program for the last few decades. No, my interest in seeing the voters of the 4th District in Massachusetts “retire Barney” is also predicated on events of the last twelve months as well. How so? Where else did Barney fail us? Let’s continue to navigate.

Barney Frank is the chair of the House Financial Services Committee. In that role, he led the charge to supposedly re-regulate Wall Street via the Dodd-Frank Financial Regulatory Reform legislation. Say what you want about that legislation, but let me remind all of America that our pal Barney did not venture close to ‘ground zero’ during this process. Really? How so? As I wrote last March 22nd in my commentary, The BIG Hole in Financial Regulatory Reform:

Why am I so skeptical that Senator Chris Dodd’s proposed Financial Regulatory Reform (for overachievers in the audience, the link connects to the 89-page proposal) will truly change behaviors on Wall Street? For the very simple reason that I have seen no highlighting of the Financial Industry Regulatory Authority within the proposed Financial Regulatory Reform. Strike you as a little odd? It strikes me that the Wall Street lobby is hard at work keeping its self-regulator, that being FINRA, right where they want it.

The fact that FINRA is not singled out by name in Dodd’s report is a HUGE red flag. Over and above that, Dodd’s proposal is nothing more than a review of the SEC’s oversight of FINRA. Why only once every three years? A review of the reviewer? That’s accountability? That’s transparency? Not in my book. In my opinion, that’s both a joke and a confirmation that the Wall Street lobby was hard at work to keep the wolves at bay!!

While my commentary last March focused specifically on Chris Dodd, the simple fact is Barney Frank walked very much in lock step with Dodd on this reform. The ultimate 2000-plus page Dodd-Frank Financial Regulatory Reform legislation barely makes mention of the Financial Industry Regulatory Authority (FINRA). Strike you as a little odd? Yes, me too. Very odd!!

Regrettably, America has come to understand that most political and financial reform is ultimately that in name only.

Neither Dodd nor Frank can say that they were not FULLY apprised of ALL the issues within FINRA. I shared all of my concerns regarding FINRA with the Project on Government Oversight early this year. POGO itself was also looking hard at the structural and practical failings of FINRA. Regular readers of Sense on Cents are well aware of my calls for increased transparency for FINRA. Those calls were echoed by POGO but they fell upon deaf ears in Washington. I wrote in my March commentary:

Perhaps Senator Dodd and his colleagues may want to review the Project on Government Oversight’s thoughts on FINRA in which they call the very concept of self-regulation for Wall Street into question. POGO’s letter to four separate Congressional sub-committees can be found here.

Neither Dodd, Frank, nor anybody else on Capitol Hill ever addressed POGO’s letter and grave concerns. That fact should be the final nail in Barney Frank’s political coffin.

Chris Dodd’s political career is over.

I implore the citizens of the 4th District in Massachusetts to do our nation an enormous service and end Barney Frank’s political career this coming Tuesday.

Sense on Cents strongly endorses Sean Bielat!!

Larry Doyle

P.S. I typically shun from this type of commentary. That said,  given the historic nature of this election and this specific race, I believe it is my civic responsibility to share my feelings and a link to my March commentary. Comments, questions, and constructive criticisms are encouraged and appreciated.

Please subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook.

I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

1. Can we now declare the HAMP (Making Home Affordable) program to be totally futile? How is it that everybody on Wall Street and in Washington is now promoting that the economy will be harmed if we forestall the mortgage foreclosure process? What the hell have the wizards in Washington been doing via HAMP and through Freddie and Fannie for the last 18 months? The simple fact is our policy makers have done everything in their power to inhibit the markets from working. Now, all of a sudden, they become proponents of free market principles? Were we born yesterday? Not here at NoQuarter.

I have continually harangued our Washington politicos for not allowing the housing market to clear, and highlighted how forestalling that process would only prolong our economic pain. We’re feeling that pain now and will be for the foreseeable future.

2. Where are we going with this moratorium?

Do the banks, mortgage servicers, and originators run significant  litigation risks for improperly foreclosing on selected mortgages? Perhaps, BUT I personally believe the smokescreen created by this process is a precursor to having Uncle Sam impose mortgage principal forgiveness as the price for settling the potential legal fiasco of improper mortgage foreclosures. Am I being overly cynical, if not outright conspiratorial, in my line of reasoning? The fact is I believe the White House has always wanted to write down mortgage principal as the mechanism to support housing. Does crafting principal forgiveness as the ‘settlement’ for alleged improprieties by the aforementioned mortgage originators become a convenient way to subvert the courts on the issue of contract law? I am not an attorney, but my gut instincts tell me we are headed in this direction. Who gets hurt under this scenario? Mortgage investors who hold the mortgages which will have some form of principal forgiven. On that note, let’s navigate further.

3. The imposition of principal forgiveness may actually be less expensive for banks and servicers than addressing the real root problem behind many mortgages. What is that problem? The fact that a lot of mortgages in our nation today were fraudulently underwritten from point of origination and were then fraudulently conveyed via mortgage securitizations. A handful of investors (including some FHLBS and Freddie/Fannie) have pursued legal actions to have these frauds unearthed and adjudicated in their favor. How would that work? The banks and originators would have to purchase the fraudulently underwritten mortgages back at par. That cost would be enormous. Forgiving principal on an original fraud will not necessarily cure the problem, BUT it does become a means of buying time or ‘kicking the can down the road.’ That, my friends, is all we have been doing for the last few years anyway, so why stop now?

In less polite terms, Wall Street and Washington have been and continue to be hard at work to continue to disguise the massive Ponzi scheme that was our nation’s economy. The moratorium on foreclosures may seem like the principals are trying to be good citizens. I view it in a decidedly different light. The principals on Wall Street and their cronies in Washington are looking for a means to write off the stranglehold of massive mortgage debt that continues to cripple our economy. These developments are merely the next leg in the great financial experiment playing out on our national stage and economic landscape.

Navigate accordingly.

Larry Doyle

I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

Politics is clearly a contact sport. No doubt not all of the punches are above the belt.

I first referenced the Obama White House use of intimidation in the case of Tom Lauria, then lawyer for a group of Chrysler creditors. I wrote in early May 2009, Is Barack Obama Going Tony Soprano? How uncanny that the same reference is utilized today in an article centered on the impact of ObamaCare and the pending sale of three Scranton-area Catholic hospitals. American Spectator writes in regard to ObamaCare:

….the White House is confronted with a rapidly accelerating set of unintended consequences spreading across the country. As listed by theWall Street Journal, those unintended consequences included 2011 premium increases shooting up as high as 9%; “multibillion-dollar corporate writedowns by Verizon, AT&T, Caterpillar and others”; the disruption of insurance markets, a show-down with McDonald’s, the imposition of price controls on premiums, insurers withdrawing from Medicare Advantage.

In what appears to have become a pattern, the response from the Obama Administration has been repeatedly swift and harsh –compared by one critic as an episode straight out of the Sopranos, the famous HBO mobster series.

While the reference to intimidation tactics by the White House in a commentary may grab attention, the simple ‘sense on cents’ embodied in this story has to do with the implication of lessened revenues for hospitals as a result of Obamacare leading to their sale. That reality is absolutely referenced as a primary reason for the sale of three Mercy County, PA hospitals by CEO Kevin Cook.

While the attached story is lengthy, I strongly encourage people to read it because it has major implications for your health care going forward. It also shines a light into the rough and tumble world of national politics. I have no problem with playing hard. I have major problems with those who may look to stifle freedom of speech. This commentary may take ten minutes. Might a version soon be coming to a hospital near you? Read on as American Spectator writes, The President’s Nun: Obamacare Scranton Scandal Explodes:

Can you say “October Surprise”?

A mushrooming political battle over ObamaCare involving the White House, two incumbent Pennsylvania congressmen, three Catholic hospitals and a nun has just exploded in, of all places, Scranton, Pennsylvania. Charges from the Scranton medical community of intimidation by the Obama White House and its allies are filling the air.

All of this just as Vice President Joe Biden arrives in Scranton today to raise money for one of the participants.

There are two issues at the core of the controversy.

1. ObamaCare and the sale of three Scranton-area Catholic hospitals.

2. The re-election prospects of the two House members, Democrats Paul Kanjorski and Chris Carney, both of whom cast key votes to pass ObamaCare.

Here’s the list of players — major and minor — so far.
• The President of the United States.
• The Vice President of the United States.
• Three Scranton-area Catholic hospitals suddenly for sale.
• The CEO of the three Scranton-area Catholic hospitals for sale.
• ObamaCare, otherwise known as “health care reform” or the “Affordable Care Act.”
• A Catholic nun.
• Michigan Congressman Bart Stupak.
• A pen.
• Victoria Reggie Kennedy, widow of the late Senator Ted Kennedy.
• Time magazine.
• The Scranton Times
• The two Scranton-area House members Kanjorski and Carney, both losing in the polls.
• U.S. Senator Bob Casey, Jr., a native and resident of Scranton.
• Congressman Joe Sestak, the Democrats’ nominee for the Pennsylvania U.S. Senate seat.

Where to start? That would be….

March 22, 2010: President Obama signs the Affordable Care Act (aka “ObamaCare”) into law in front of live television cameras and a packed East Room of the White House. According to news accounts, the President uses 21 different pens to sign his name, the highly prized souvenirs of the historic moment given to Vice President Joe Biden, Senate Majority Leader Harry Reid, House Speaker Nancy Pelosi and Victoria Reggie Kennedy, the wife of the late Senator Ted Kennedy along with a very select handful of others.

The President, after being introduced by an exuberant Vice President Biden (who whispers “this is a big f…g deal” into the President’s ear and is picked up by a live microphone) says:

“I heard one of the Republican leaders say this was going to be Armageddon. Well, two months from now, six months from now, you can check it out. We’ll look around and we’ll see.”

Almost immediately — it didn’t take two months much less six — the White House is confronted with a rapidly accelerating set of unintended consequences spreading across the country. As listed by theWall Street Journal, those unintended consequences included 2011 premium increases shooting up as high as 9%; “multibillion-dollar corporate writedowns by Verizon, AT&T, Caterpillar and others”; the disruption of insurance markets, a show-down with McDonald’s, the imposition of price controls on premiums, insurers withdrawing from Medicare Advantage.

In what appears to have become a pattern, the response from the Obama Administration has been repeatedly swift and harsh –compared by one critic as an episode straight out of the Sopranos, the famous HBO mobster series.

The corporate writedowns — done in compliance with federal law — resulted in angry phone calls from then-Obama White House chief of staff Rahm Emanuel and colleague Valerie Jarrett to corporate CEO’s and the heads of the Washington corporate offices of those involved. Congressman Henry Waxman threatened a congressional investigation into those companies whose obedience to the law put them at odds with the actual results of ObamaCare. Notification by insurers that rates were being forced up by ObamaCare resulted in a threatening letter from Health and Human Services Secretary Kathleen Sebelius to insurers warning that such candor would not be tolerated — at risk of not being allowed to participate in a future government-run health care exchange for insurers.

Then, suddenly, on October 6 — five days ago — the fuse to what is becoming a huge political explosion was lit.

In the unlikely location of Scranton, Pennsylvania.

IN THE MIDDLE OF THESE two hotly contested re-election races for a pair of Pennsylvania Democratic congressmen, the controversy first erupted over the suddenly announced sale of three Catholic Hospitals spread out between Paul Kanjorski’s and Chris Carney’s two adjoining congressional districts.

The initial announcement was made by Mercy Health Partners CEO Kevin Cook.

Cook is based in Scranton, while Mercy Partners and the three hospitals up for sale are in fact a subsidiary of the larger Catholic Healthcare Partners (CHP) based in Cincinnati, Ohio.

The three Catholic hospitals involved are: Mercy Hospital in Scranton; Mercy Special Care Hospital in Nanticoke, both in Kanjorski’s 11th District. And the Mercy Tyler Hospital in Tunkhannock, located in Carney’s adjacent 10th District.

The Cook announcement was big news in Northeastern Pennsylvania. The Sisters of Mercy had opened Mercy Hospital in Scranton, a major facility for the city, in 1917 — 93 years earlier. Inevitably it drew media attention. Which is where the plot thickens.

WNEP TV (Channel 16) reporter Jon Meyer filed a story about the sale at 4:40 pm. that afternoon. WNEP TV anchor Paula Giangiacomo led the story on the air by saying that “one big” reason for the sale “is the health care reform bill signed into law this year.” Mercy Health Partners CEO Cook was interviewed on camera along with Sister Marie Parker. When Meyer asked Cook if ObamaCare had anything at all to do with the sale, the CEO replied:

“Health care reform is absolutely playing a role. Was it the precipitating factor in this decision? No, but was it a factor in our planning over the next five years? Absolutely.”

Notice the use — twice — of the word “absolutely” by Cook, leaving no doubt with viewers that while ObamaCare wasn’t the “precipitating factor” it was “absolutely playing a role…Absolutely” in the decision by Mercy Health Care Partners to put the three hospitals up for sale.

Then, on Friday October 8, only 48 hours after the story hit the local news on WNEP, the executive changed his story. Sort of. A second statement came out over Mr. Cook’s name as CEO. Headlined on the PR Newswire-US Newswire services, the statement was headed: “Mercy Reiterates Rationale for Sale Exploration.”

Gone was any reference to the subject discussed in the WNEP-TV story. ObamaCare playing a role in the sale of the three hospitals? Where would an idea like that ever come from? Not from this second statement. There is not a word of Cook’s videotaped certainty that ObamaCare is responsible in some measure for this proposed sale. Yet curiously, there is no out-and-out retraction of Cook’s comments to WNEP either. The subject of ObamaCare bearing responsibility for this sale in any fashion is disappeared. Completely missing. The second statement just has Mr. Cook saying that sale discussions were being conducted “long before the passage of the Affordable Care Act. The decision was due to many factors.”

But there appears to have been something else at work here behind the scenes that necessitated this second statement from Cook.

Mysteriously, the very same day, came this statement, also released on the PR Newswire services. Out of the blue, suddenly released by Sr. Carol Keehan, DC, president and chief executive officer of the Catholic Health Association (CHA), the headline was sharp and pointed. The headline?

Alarmist News Reports About Catholic Hospitals Are False; CHA Supports Difficult Decision by Mercy Health Partners.

In a fury that fairly leaps from the page, Sister Carol says immediately that “false motives” have been assigned to the proposed sale of the three Mercy hospitals. Says the good Sister: “Reports that health reform is the primary motive behind the sale are completely false, misleading and politically motivated. Deliberations to sell the facilities began well before the Affordable Care Act became law and did not hinge on enactment of the legislation.”

In other words, Mr. Cook — he the CEO of the hospitals who said flatly that ObamaCare was in fact “absolutely” and yet again “absolutely” playing a role in the sale of the three hospitals — was, in the polite language of a Catholic nun, in essence being called a liar.

By Sunday, there was a third Cook statement, this one posted on the website of Mercy Health Partners. Cook statement # 3 was no longer as benign as statement # 2. The third Cook statement used some of the original language from statement #2, but its lead paragraph was now saying something else entirely. I have marked the change in bold print:

Mercy Health Partners recently announced our intention to explore the sale of our facilities in Northeastern Pennsylvania.The rationale for our initiative has been mischaracterized by certain politicized media outlets and severely distorted by some special interest groups.

In other words, Cook statement #3 has picked up a flavor of the statement from Sister Carol. Now saying without saying it that Cook’s original WNEP answer about the role ObamaCare “absolutely…absolutely” played in the decision to sell the hospitals has been “severely distorted.”

Curious, no? Very.

WHY IN THE WORLD would a Catholic nun be so revved up as to denounce in such strong language what Mr. Cook insisted was a fact — that ObamaCare was “absolutely” and yet again “absolutely” playing a role in the hospital sale? Why the hair-trigger fire-breathing response. From a simple Catholic nun named Sister Carol?

And why in the world would Mr. Cook feel compelled to issue not one but two re-statements of the rationale behind the sale of the three Mercy hospitals?

One doctor in Scranton — who was deeply disturbed by the announcement — is certain he knows the answer. That answer? Mr. Cook was absolutely right the very first time he spoke to WNEP on camera. Hospitals, said this doctor — frequently run a debt. “What’s different? Why now?” he said in terms of the rationale for selling the Mercy hospitals. The reason is exactly as CEO Cook originally said it was. ObamaCare cuts in Medicare reimbursement have changed the rules so drastically for hospitals “you [Mercy Health Partners] are in an untenable situation,” said this physician. Most hospitals have accumulating debt because of capital investments, says the doctor. But they can’t deal with that debt if in fact their ability to earn money is cut off or drastically reduced over time.

Alarmingly, the doctor, with a lifetime of practice in hand, says that “hospitals close in clusters where there is decreased income in terms of relatively low Medicare reimbursement…because they are the most vulnerable.” He adds that what is happening in Scranton, Nanticoke, and Tunkhannock with the Mercy hospitals “is just the beginning. It will happen everywhere because reimbursements will be reduced” under ObamaCare. Particularly, he adds, in areas where you have a high elderly population.

If the doctor is right, and he is not alone in saying this, the proposed sale of the three Mercy hospitals becomes a harbinger of what will happen nationally as a result of ObamaCare slowly tightening its government tentacles over the private health care system. Which means the sale of the three Mercy hospitals has added Scranton to what the Wall Street Journal has already called ObamaCare’s “trail of destruction.”

Ahhhh. But who is Sister Carol Keehan? What’s the big deal here with her? Why would a statement from simple Catholic nun appear to cause so much consternation with Mercy Health Partner CEO Kevin Cook in Scranton, Pennsylvania?

LET’S GO BACK to that presidential signing of the health care reform law. There were 21 very powerful people in that little group who received signing pens from the President. As mentioned that included the Vice President, Harry Reid, Nancy Pelosi, Ted Kennedy’s widow Victoria Reggie Kennedy. And someone else.

That would be Sister Carol Keehan.

Impressive, no? The Catholic News Agency thought so, and prominently noted the story here. It also noted that Sister Carol was receiving her presidential pen from the President himself because she had been “supporting health care despite bishops’ objections.” The story even pictured the pen itself alongside the presidential seal on the box in which it came, with “Barack Obama” clearly visible scrawled along the side. Meaning, Sister Carol had enough clout to take on the Catholic Bishops on the President’s behalf — and win.

Does the name Bart Stupak ring a bell? The much ballyhooed pro-life Democrat Congressman from Michigan? The Catholic Congressman Bart Stupak who was said to be such a sturdy obstacle to passage of ObamaCare because it would allow abortions? In the aftermath of the ObamaCare passage, Slate came forward to note that a letter signed by “representatives” of Catholic nuns finally swayed Stupak to break his staunch anti-abortion pledge and sign on for ObamaCare with a simple promise of an executive order on abortion, executive orders being overturned by successor presidents with the rapidity of rabbits doing the breeding thing. Wait! Stupak was persuaded by Catholic nuns? Isn’t Sister Carol a …nun? How about that? What a coincidence? Yes indeed, the letter in question was signed — solo — by Sister Carol.

In other words, Sister Carol is not just some kindly nun who reminds you of the nun whacking your knuckles in grade school for this or that offense. No, in the world of Washington Sister Carol is a powerhouse lobbyist — make that a liberal social justice lobbyist — with a clear set of political skills and a very, very high-powered set of very elite friends. She is quite decidedly not just the neighborhood nun. Sister Carol is the Washington voice of the Catholic Health Association, once called the Catholic Hospital Association, which means her clout with Catholic hospitals around America — like the Mercy Hospital in Scranton and its siblings in Nanticoke and Tunkhannock, all run by CEO Cook — is considerable. Not to mention her clout with the parent company located in Cincinnati — and not to mention with Congressman Bart Stupak.

Selected as one of Time magazine’s “2010 Time 100″ most influential people, Sister Carol’s social justice passions were written up glowingly for Time by one of the other Obama 21 pen-receivers at the health care signing: Victoria Reggie Kennedy. AKA, Mrs. Ted Kennedy. Sister Carol, as demonstrated by her status as the receiver of a presidential signing pen, is clearly the President’s favorite nun.

Thus her abilities to whack Mercy CEO Kevin Cook’s knuckles for speaking out of turn on what in fact he “absolutely” and “absolutely” saw a mere two days earlier as the impact of ObamaCare on his hospitals were considerable. And when the Cook statement #2 didn’t pass muster, he apparently was whacked again. After reining in a sitting Congressman Stupak and getting him to, in the yes of many pro-lifers, abandon his anti-abortion stance and pass ObamaCare, what’s a mere hospital executive like Kevin Cook to Sister Carol? It is safe to say that there are doctors in Scranton, furious at what they are seeing as happening to the local health care system, who believe Sister Carol — or someone else connected to the Obama White House if not the someone inside the White House itself — was behind the knuckle rapping of Kevin Cook.

With the White House already on record for having senior staff making angry phone calls to CEO’s over corporate writedowns, having the Secretary of HHS send threatening Soprano-style letters to insurers not to blame ObamaCare for premium increases — the question in Scranton is why wouldn’t the same White House enlist the President’s favorite nun to intimidate Mr. Cook and the company he represents?

Protecting ObamaCare turns out to be but one reason — albeit that alone is a big one with national consequences for this White House.

THE OTHER REVOLVES around the struggling campaigns of Representatives Kanjorski and Carney. And the larger political picture in Pennsylvania. U.S. Senator Robert P. Casey Jr. is a Scranton resident. Indeed, one Scranton source pointed out that the Casey home is within walking distance of Mercy Hospital in Scranton. Casey and his father before him have succeeded in part by creating the image of the old-fashioned FDR-JFK working class Democrat whose values are revered in Scranton. This is the city that is the hometown of Vice President Biden. For Scrantonians and their fellow Pennsylvanians in neighboring communities to suddenly see a Catholic hospital that has been a mainstay for 93 years suddenly slip away has caused considerable upset.

And notably, in a town that is heavily Catholic, the realization that three hospitals that did not perform abortions could be sold to owners who would allow the procedure is infuriating.

Both Kanjorski and Carney have been under fire for their ObamaCare votes from GOP opponents Lou Barletta and Tom Marino respectively. The startling news of the Mercy sale was barely 24 hours old when State Republican Chairman Robert P. Gleason picked up on it, issuing statements tying the ObamaCare votes of the pair to the prospective loss of Mercy.

And at that, Sister Carol, presumably not having the comings and goings of Pennsylvania politics on her mind, suddenly launched herself into the Scranton hospital debacle, presumably finally forcing a tougher stance from Mercy’s CEO Cook in statement #3.

The explosion, all recent with its implications of White House pressure and lost Catholic hospitals, is about to bring in media ads from CatholicVote.org. Says Communications Director Joshua Mercer: “Paul Kanjorski and Chris Carney are Catholic and they both voted for ObamaCare.” Citing the sale of the three Mercy hospitals, Mercer says that the pro-ObamaCare votes of the two “has had a real impact on the community.” Mercer added a sentiment voiced as well by the Scranton doctor: “There are a lot of Kevin Cooks across the country…the CEO’s of small Catholic hospitals are all facing the same realities of more [ObamaCare] mandates and regulations.”

Interestingly, a Scranton medical source notes the lack of coverage of the growing Mercy hospital sales controversy in the local Scranton Times. “It’s a Democratic paper,” the source said, mentioning that he listens to talk radio to get a better picture of the news. “I listen to Rush, to Sean, Fox News and local talk radio. But with a Democratic paper you have to listen to national talk radio to get another perspective.”

Today, Vice President Biden arrives in Scranton to campaign for Congressman Carney.

A Capitol Hill aide to a Republican U.S. Senator says of the Scranton controversy the Obama White House is terrified the Mercy Hospital sales story will “get legs” as a national story — further intensifying the anti-Obama vote pollsters are recording in potentially record numbers. And leading to the defeat of not only Kanjorski and Carney but another Pennsylvania Democratic Congressman who voted for ObamaCare: U.S. Senate nominee Joe Sestak. Sestak is trailing his own opponent, conservative anti-ObamaCare GOP nominee Pat Toomey.

With less than a month to go until election day, one thing is certain.

The story of the President’s nun and charges of possible intimidation of a hospital executive over ObamaCare will ensure the Scranton hospital sale isn’t going away anytime soon.

Growing up in an Irish Catholic household and attending a local Catholic school, I am very familiar with getting knuckles rapped. A few of my brothers were even more familiar with that reality than I. That said, we probably deserved it. In fact, we definitely deserved it. Speaking your mind and freedom of speech in America is a prized virtue. That freedom is critically important for the pursuit of real truth, total transparency, and unbridled integrity. I say we absolutely stand up for it. Who’s absolutely with me?

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

July 30, 2010 – Inside the New GDP Numbers:

On July 30th the Bureau of Economic Analysis (‘BEA’) released its “advance” estimate of the annualized growth rate of the U.S. Gross Domestic Product (‘GDP’) during the 2nd quarter of 2010. Per their report, the GDP grew during the quarter at an annualized rate of 2.4%, down from 3.7% in the 1st quarter of 2010. Several points from the report merit comment:

► Readers familiar with prior GDP reports will be more surprised by the reported 1st quarter growth as by the new 2nd quarter number (which had been leaked by Mr. Bernanke last week), since only last month the Q1 of 2010 was supposedly growing at a 2.7% rate. Why did the Q1 number suddenly get altered upward by 1%? The BEA quietly revised the 1st quarter inventory adjustment up to a level that represents a 2.64% component within the revised 3.7% figure, with 1st quarter “real final sales of domestic product” now reported to be growing at a modestly improved 1.06% annualized clip, compared to the 0.9% number reported last month. In short, factories were piling on inventory at a substantially higher rate than previously thought, while the “real final sales” remained anemic.

► The 2.4% figure will garner all of the headlines, but the more important “real final sales of domestic product” continues to be weak, growing at a reported 1.3% annualized rate. The real cause for concern is that the reported inventory adjustments dropped from a 2.64% component in the revised 1st quarter to a 1.05% component during the 2nd quarter. If factories have begun to realize that end user demand remains anemic, the inventory adjustments could well go negative soon, pulling the reported total GDP down with it.

► The BEA revised much more than the first quarter of 2010. They revised down 2009, 2008 and 2007 as well. Apparently the “Great Recession” has been worse than our government has previously reported. And the recovery’s brightest moment, Q4 2009, has been revised down from 5.6% to 5.0%. Similarly Q3 2009 dropped from 2.2% to 1.6%. And so on. The bottom of the recession was shifted back one quarter, with Q4 2008 now reported to have contracted at a -6.8% rate, revised down from the previously reported -5.4% rate. Most quarters of 2007, 2008 and 2009 have been revised down substantially, shifting the recession shown in the chart above back in time.

► The new GDP report shows that the current gap between the consumer demand that we measure and the BEA’s reported number continues to grow as factories build their inventories in anticipation of a strong recovery. If factories curb their enthusiasm during the third quarter, the BEA’s “advance” estimate for Q3 2010 might be brutal, just 4 days before the U.S. mid-term election.

► We understand that economists want to ultimately get the numbers right, even if it is three years after the fact. We applaud the BEA for their efforts. But we also understand people who are concerned about quiet governmental revisions to history.

Back to the real world: our Daily Growth Index has dropped to new recent lows, and it is now contracting at a -3.4% rate.

This contraction rate puts the trailing ‘quarter’ nearly into the 5th percentile among all quarters since 1947, meaning that only about 1 in 20 quarters officially recorded by the BEA since then has been worse. Our “Contraction Watch” places this movement into the perspective of the 2006 and 2008 contractions:

The 2010 contraction is now clearly worse than the “Great Recession” was at the same point in their respective time lines. And we don’t see a bottom forming yet.

LD

I love that line. I first heard it on the trading desk at Bear Stearns in the early ’90s. For the last twenty years, I have used the line often to counter those who would bemoan an outcome with the standard, “If only . . .” My response typically generates a healthy chuckle and we then move on.

At this point, I feel comfortable amending the line from above to “If my aunt had balls, she’d be Mary Schapiro.” Too harsh, you say? I think not. How so?

Let’s review a recent Wall Street Journal article, Madoff’s Ghost Still Haunts SEC:

Financial executives aren’t the only folks lawmakers are pursuing. They also want to see more heads roll at the Securities and Exchange Commission.

Nearly 18 months after Bernie Madoff’s multibillion-dollar Ponzi scheme was exposed and almost a year after the SEC’s inspector general issued a blistering report, lawmakers are still questioning how the SEC staffers who reviewed the Madoff firm and investigated fraud allegations were being punished.

SEC Chairman Mary Schapiro told Congress during an oversight hearing that 15 of 20 enforcement attorneys and 19 of 36 examination staffers that dealt with the Madoff matter had left the agency. The SEC was still conducting a disciplinary process, she said, but it should be concluded soon.

Republican Rep. Bill Posey of Florida –- home to many Madoff victims -– said he wants to know if those SEC employees ended up at other regulatory agencies, working for companies they were supposed to regulate, or retired with government pensions.

“There’s a necessity to know where they went,” said Posey. “It’s like letting a pedophile slink out the door or change neighborhoods. We’re dealing with the same type of problem here.”

Wow!! Representative Posey is being aggressive here, but I commend him because the nation still deserves answers to so many Madoff questions that have been swept under the SEC’s and FINRA’s rugs. The WSJ continues:

Schapiro strongly disagreed. “These aren’t bad people. In some cases they were people who were very junior and not adequately trained or supervised.” In other cases, she said, they were pulled from one project to another.

‘Junior people’ logically implies that in other cases there were senior people. In fact, the people calling the shots on the Madoff investigation were certainly not junior.

Why were the investigators pulled from the Madoff case? Were some of them getting too close for comfort? Were they asking too many questions? Were they being frozen out by the SEC’s inner circle? I do not ask these questions in a rhetorical fashion. I ask them because those were the clear cut impressions left by an SEC attorney well trained in the school of options trading who was making real progress in deciphering the Madoff scam. To whom do I refer? Longtime readers of Sense on Cents and listeners to No Quarter Radio’s Sense on Cents with Larry Doyle may recall my interview in October 2009 with Genevievette Walker-Lightfoot, a former SEC attorney who investigated Madoff. Genevievette was not bashful in excoriating the senior laden ‘inner circle’ at the SEC. Perhaps Mary may want to listen to the interview or call on Ms. Walker-Lightfoot. Maybe she’ll learn something.

What does Mary Schapiro have to say now about the impact Mr. Madoff has made on current work at the SEC?

During examinations, Schapiro said, “We don’t rely on the word of somebody like Madoff.”

Wow!!!!

Mary has some set of cojones!! Industry insiders have shared with me that Mary kept close company with Mr. Madoff at industry conferences. Now she has the balls to let America know that SEC investigators do not currently rely on the word of somebody like Madoff.

You can’t make this stuff up.

Sense on cents compels me to inquire, “Mary, how would you even know? If you were not able to detect the likes of a scam artist such as Madoff for decades, what makes you think America believes you might be able to detect another scam artist now?”

Yes indeed. If my aunt truly did have balls, she would be Mary Schapiro.

LD

A quick review:

1. The overall unemployment rate declined from 9.7% to 9.5% while the consensus expectation was for an increase to 9.8%. The underemployment rate declined from 16.6% to 16.5%. Are these positive developments? Nope. Why? The rates dropped as more people, in this case 652k workers, have given up looking for work and have exited the labor force.

2. Non-farm payrolls declined by 125k jobs versus an expected decline of 130k jobs. In line overall and driven primarily by a decline of 225k census workers, but disappointing from the standpoint that private payrolls only grew by 83k jobs versus an expectation of an increase of 110k. If the economy were truly recovering, it would be experiencing significantly greater private payroll job growth at this stage.

3. The worst part of today’s report is centered in average hourly earnings and average workweek. Average hourly earnings declined by .1% and the average workweek also declined by .1%. These numbers typically do not get sufficient coverage, but they are very telling. What are they saying? No wage pressures whatsoever. In fact, the case for further disinflation is supported by the decline in wages. Additionally, the decline in both the hours worked and wages is a strong indication that future consumer spending will also decline. This reality is consistent with the work I highlighted earlier this week by Rick Davis at Consumer Metrics Institute.

Add it all up and the economy is struggling or, as I would define it, the economy has ‘walking pneumonia.’ Market reactions are muted with most trading desks half staffed and many market participants having already made an early getaway for the holiday weekend.

LD

Can you imagine college students knowing the answers to their final exam before other students have even registered for the class? A doctor successfully making the diagnosis, while other doctors are waiting for the patient to arrive at the hospital? How about a weatherman pinpointing forecasts literally months in advance? Well, in my opinion, the work produced by Rick Davis of Consumer Metrics Institute is the economic equivalent of these seemingly miraculous calls.

I have written about Rick’s work previously and interviewed him twice on No Quarter Radio’s Sense on Cents with Larry Doyle (March 28, 2010 and May 2, 2010). Rick and his work are true gems. Why am I revisiting Rick and CMI?

Last Friday morning as I drove to a college visit with my son, I was listening to Bloomberg Radio and heard that BEA 1st quarter 2010 GDP was revised for a second time to a final level of 2.7%. Wow! I thought back to my interview with Rick in late March in which he shared that his call for 1st quarter GDP was 2.6%, BUT he had projected that result on November 30, 2009. Be mindful that the 4th quarter 2009 GDP ultimately registered a reading of 5.6% and initial estimates of 1st quarter GDP ranged from 3.5% to over 4%.

Rick offers the following analysis of the 1st quarter report:

On June 25th, the BEA (Bureau of Economic Analysis) quietly revised its measurement of the GDP growth for the first quarter of 2010 down for the second time, this time to 2.7%. The Consumer Metrics Institute’s original projection for the first quarter was based on our November 30th, 2009 ‘Daily Growth Index’, which was 2.62%. It is also important to note that the newly revised GDP captured a time when measurements of consumer demand were dropping at a rate of about .08% per day, meaning that the difference between the revised GDP and our original projection represents only one day of economic change.

We often wryly observe that we’ve given up trying to guess what ‘wild & crazy’ numbers the BEA will cook up next. In fact, we freely admit that the uncertainties caused by factory inventory adjustments (and non-consumer/stimulus spending) overwhelms the accuracy of our insanely consistent 17-18 week lead-time over the GDP. But we genuinely believe that the real economy lives where consumers are (figuratively and/or literally) clicking ‘Add to Shopping Cart’, not where the factories slavishly follow the consumer’s lead. And since there are no reliable ways to predict factory over-correction whims, analysts are generally better off ignoring the BEA and sticking to purer (and more timely) measurements of consumer demand.

Think Rick and team at CMI just got lucky with this 1st quarter call? Let’s look back at his analysis from prior quarters and see how far in advance he was projecting the ultimate BEA GDP report (click on table for larger image):

What about 2nd and 3rd quarter GDP? Is our economy going to suffer a double dip and revert into a recession? Rick writes:

If factories were unwittingly growing inventories during the first quarter in the face of what was really slackening consumer demand, the official GDP numbers for both the second quarter and the third quarter (to be released 4 days before the U.S. mid-term elections) could be interesting, since factories could very well over-correct again — but in the opposite direction.

What are Rick’s projections for 2nd and 3rd quarter 2010 GDP? -1.5% and -2.0% respectively!!

What does a double dip look like? See for yourself (click on chart for larger image):

Thoughts and comments encouraged and appreciated.

LD

P.S. I have no affiliation with Rick Davis and CMI. That said, I strongly encourage readers to subscribe to Rick’s “Members Only” commentary. The nominal fee is well worth it. Having been inundated with all sorts of promos about stockpicking and market commentary, the one and only independent analysis I feel comfortable recommending people pay to receive the premium product is Rick Davis’ work at CMI. He is genuine. He is professional. He is beyond cutting edge and way ahead of the curve in his work. He provides amazing sense on cents.

With the details provided in this story, Gary Aguirre clearly shows himself to be a great American and as such earns immediate induction into the Sense on Cents Hall of Fame. The General Accountability Project reports SEC Settles with Aguirre:

In what may be the largest settlement of its kind, the Securities and Exchange Commission (SEC) has agreed to pay $755,000 to settle the wrongful termination claim of Gary J. Aguirre, the attorney who headed the SEC’s insider trading investigation of Pequot Capital Management until his firing in September 2005.

A judge with the Merit Systems Protection Board (MSPB), the federal agency with jurisdiction over Aguirre’s termination claim, issued an order today finalizing the settlement. The settlement sum equals Aguirre’s pay for four years and ten months (the elapsed period since his September 2005 discharge), plus his attorneys’ fees. Aguirre agreed to dismiss two related cases against the SEC.

Government Accountability Project Legal Director Tom Devine stated “Unfortunately, this large settlement is the exception that proves the rule. Until Congress provides real protections for financial regulatory employees such as Aguirre, existing law will remain the best excuse for government regulators to turn a blind eye.”

The SEC’s settlement with Aguirre comes one month after the SEC filed insider trading charges against Pequot, its founder, Arthur Samberg, and David Zilkha, a former Pequot employee, based on facts uncovered by Aguirre. Pequot and Samberg paid the SEC $28 million to settle the charges against them. The case against Zilkha continues.

In August 2007, two Senate committees published a scathing 108-page report criticizing the SEC’s decision to fire Aguirre and close the Pequot investigation, which included Pequot’s suspected insider trading in securities of 20 publics companies.

The Senate report chronicles Aguirre’s promising career at the SEC, including management’s decision to give him a two-step pay raise at the end of his first year for “consistently [going] the extra mile, and then some.”

But the praise vanished when Aguirre tried to subpoena an elite Wall Street banker, John Mack. His supervisors blocked the subpoena, telling Aguirre that Mack had “juice” and “political clout.”

Spell that “Wall Street-Washington incest” at its finest!!

Aguirre’s July 27, 2005, email to his supervisors explained why the Mack subpoena was essential and expressed concern that “treating Mack differently is [not] consistent with the Commission’s mission.” The Senate Report tells what happened next: “Just days after Aguirre sent an e-mail to Associate Director Paul Berger detailing his allegations, his supervisors prepared a negative re-evaluation outside the SEC’s ordinary performance appraisal process.”

One month later, the SEC fired him without warning. The Senate report concluded that Aguirre’s “termination appears to be merely the culmination of the process of reprisal that began with the August 1 re-evaluation.”

Approximately one year after the Senate report, SEC Inspector General H. David Kotz delivered his own report on Aguirre’s firing to then-SEC Chairman Christopher Cox. Kotz recommended that Aguirre’s supervisors be disciplined. To date, neither the current SEC Chairman, Mary Schapiro, nor Cox, has done so.

Why not? The smell of incest continues to reign. Where is the real leadership necessary at the head of the SEC?

The Pequot investigation appeared to have run its course when the SEC released its “Case Closing Report” in December 2006, explaining its decision to close the entire investigation, including Pequot’s trading in Microsoft options, without filing charges.

But Aguirre did not stop his Pequot investigation. He continued to collect and piece together the evidence that Samberg had used illegal tips to trade options on Microsoft stock. In April 2008, Aguirre obtained a court order forcing the SEC, over its objection, to turn over to him key records of its Pequot investigation.

Aguirre clearly embodies the drive and determination possessed by truly great Americans. I commend him.

In late 2008, Aguirre uncovered the last pieces of evidence necessary to prove an insider trading charge against Pequot, Samberg, and Zilkha. On January 2, 2009, Aguirre sent a letter to SEC Chairman Cox enclosing the new evidence.

Aguirre’s 16-page letter explained how this new evidence, when combined with the evidence uncovered by him in 2005, proved that Samberg had used illegal tips in directing trades in Microsoft options, generating $14.2 million in profits to Pequot hedge funds under his management. But still the SEC would not file a case.

On May 26, 2010, Aguirre filed papers in his FOIA case seeking an order directing the SEC to release additional Pequot records to him. He argued the SEC had to turn over the records under FOIA, because it had filed no case against Pequot or anyone else. Early the next morning, the SEC filed charges against Pequot, Samberg, and Zilkha. The allegations closely track the facts stated in Aguirre’s January 2, 2009 letter.

Asked how he feels about the settlement, Aguirre replied, “I think it’s fair to the public that the SEC pays for my work over the past four years and ten months, since it generated $28 million to the U.S. Treasury. But it’s a shame the team I worked with at the SEC did not get to complete the Pequot investigation. The filing of the case in 2005 or 2006, before the financial crisis, would have been exactly what Wall Street elite needed to hear at the perfect moment: the SEC goes after big fish too.”

Gary Aguirre, a great American!!

Mary Schapiro? Chris Cox? Washington establishment? John Mack? Art Samberg? ….gutless!!

LD

On that note, let’s look westward. I wrote in May 2009, “As California’s Economy Goes, So Goes the Country.” Along the same line, today we read from Bloomberg, States of Crisis for 46 Governments Facing Greek-Style Deficits:

Californians don’t see much evidence that the worst economic contraction since the Great Depression is coming to an end.

Unemployment was 12.4 percent in May, 2.7 percentage points higher than the national rate. Lawmakers gridlocked over how to close a $19 billion budget gap are weighing the termination of the main welfare program for 1.3 million poor families or borrowing more than $9 billion in the bond market. California, tied with Illinois for the lowest credit rating of any state, is diverting a rising portion of tax revenue to service debt, Bloomberg Markets magazine reports in its August issue.

Far from rebounding, the Golden State, with a $1.8 trillion economy that’s larger than Russia’s, is sinking deeper into its financial funk. And it’s not alone.

Even as the U.S. appears to be on the mend — gross domestic product has climbed three straight quarters — finances in Arizona, Illinois, New Jersey, New York and other states show few signs of improvement. Forty-six states face budget shortfalls that add up to $112 billion for the fiscal year ending next June, according to the Center on Budget and Policy Priorities, a Washington research institution. State spending is 12 percent of U.S. GDP.

“States are going to have to cut back spending and raise taxes the same way Greece and Spain are,” says Dean Baker, co- director of the Center for Economic and Policy Research in Washington. “That runs counter to stimulating the economy and will put a big damper on the recovery in the latter half of this year.”

But clearly this crisis will pass and economic health will return later this year or worst case early 2011, correct? Do not be so sure. The debt burdens within municipal finances (pensions and healthcare especially) are enormous. How long might it take to properly address and rectify this situation? Bloomberg continues:

Lawmakers need to overhaul tax policy, underfunded public pensions and entitlement spending programs such as Medicaid if they want to establish long-term plans that will foster growth, says former New Jersey Governor Christine Todd Whitman.

If they fail to act, state fiscal positions will steadily erode and hurt the U.S. economy through 2060, according to a March 2010 report prepared for Congress by the U.S. Government Accountability Office.

What? Did I read that right? 2060? Let’s go to the source. Sure enough, the U.S. Government Accountability Office released a State and Local Governments’ Fiscal Outlook: March 2010 Update:

The state and local government sector continues to face near- and long-term fiscal challenges which grow over time. Although the sector’s near-term operating balance remains negative, increases in federal grants-in-aid–largely from the Recovery Act–alleviated some near-term pressure. The March 2010 operating balance measure (including 2009 Recovery Act funds) shows an improvement compared to the January 2009 simulation. In the near-term, the sector’s fiscal position can be attributed to several factors, including steep revenue declines. GAO projects that the sector’s long-term fiscal position will steadily decline through 2060 absent any policy changes.

I did read it right.

Do our political leaders have the will and determination to make the necessary policy changes? What are the costs and impacts of those policy changes? Will we witness social strife here in America similar to that seen in select European countries as the belt tightening begins?

We got ourselves into this mess. Can we get ourselves out?

2060?

Some legacy!!

LD

As I watched a replay of President Obama’s speech last evening (Red Sox and Celtics games took priority until both those games were effectively decided), I was struck by one segment of Obama’s speech and the stark similarity in the disasters centered on Wall Street and the Gulf. Which segment and which similarity?

The manner in which these industries are regulated, that is self-regulation.

Let’s review Obama’s speech. Please allow me to offer parallel assessments and comments in regard to appropriate financial initiatives and financial regulatory bodies as appropriate. From the White House website, Remarks by the President to the Nation on the BP Oil Spill:

The American people deserve to know why. The families I met with last week who lost their loved ones in the explosion — these families deserve to know why.

Those who invested in auction-rate securities also deserve to know why. Why can’t these investors access their $150 billion which was fraudulently taken from them? (I make this comment with all due respect to the families who lost loved ones in the BP disaster. I extend my sympathy to them and do not mean to equate personal losses with financial losses, but I also respect the anguish felt by so many families impacted by the ARS fiasco.)

And so I’ve established a National Commission to understand the causes of this disaster and offer recommendations on what additional safety and environmental standards we need to put in place.

This National Commission would seem to be designed along the lines of the Financial Crisis Inquiry Commission, which to date has produced no real meaningful results. In fact, the FCIC strikes me as a government ploy to buy time and pander to the American public. Time will tell if we get real results, but to date America has learned NOTHING!!

One place we’ve already begun to take action is at the agency in charge of regulating drilling and issuing permits, known as the Minerals Management Service. Over the last decade, this agency has become emblematic of a failed philosophy that views all regulation with hostility — a philosophy that says corporations should be allowed to play by their own rules and police themselves.

Can you say SEC and FINRA in place of the Minerals Management Service? Wall Street’s cop FINRA is a self-regulatory agency funded by the Wall Street banks themselves. Evidence is rampant that FINRA has been aligned with the industry. None other than Harry Markopolos said FINRA was “in bed with the industry.” I have never once heard President Obama reference FINRA’s name. Would he even know who FINRA is and how they operate?

At this agency, industry insiders were put in charge of industry oversight. Oil companies showered regulators with gifts and favors, and were essentially allowed to conduct their own safety inspections and write their own regulations.

Industry insiders? Who is a bigger insider than current SEC Chair Mary Schapiro?

Gifts? Favors? My commentary just yesterday (SEC Senior Staff/Inmates Are Running the Asylum) highlights the fact that much more egregious transgressions and shortcomings occurred numerous times at the SEC with no disciplinary action taken despite the recommendations of the SEC’s Office of Inspector General.

President Obama, are you listening? This is your SEC!! These are your people!! These are your failures!! The buck stops at your desk!!

When Ken Salazar became my Secretary of the Interior, one of his very first acts was to clean up the worst of the corruption at this agency. But it’s now clear that the problem there ran much deeper, and the pace of reform was just too slow. And so Secretary Salazar and I are bringing in new leadership at the agency — Michael Bromwich, who was a tough federal prosecutor and Inspector General. And his charge over the next few months is to build an organization that acts as the oil industry’s watchdog — not its partner.

When will the same occur both at the SEC and FINRA? Allegations of insider trading, front running, conflicts of interest, lying in proxy statements, and more at these financial regulators are screaming for exposure and action. The court of public opinion knows that the financial industry can not and should not be self-regulated. The Project on Government Oversight has made that very recommendation (Is FINRA’s Future in Doubt?) to Congressional sub-committees.

The Gulf of Mexico may be a long way from Wall Street, but for all the citizens of this great nation the foundations of these two disasters lie in the same bed known as self-regulation.

LD

Our friends at the Project on Government Oversight (POGO) released a report just yesterday highlighting the pathetic disciplinary measures and massive double standard at the SEC in responding to recommendations from its own Office of Inspector General (OIG). POGO reports:

….this is not the first time the SEC has refused to follow an OIG recommendation for disciplinary action. A report recently released by House Oversight and Government Reform Committee Ranking Member Darrell Issa (R-CA) made note of the fact that the SEC has repeatedly failed to implement reforms or hold wrongdoers accountable. The report mentioned an investigation by POGO which revealed that the SEC has failed to act on hundreds of recommendations made by the OIG in recent years.

Following up on that investigation, we’ve prepared a new document summarizing the agency’s response to reports in which the OIG specifically recommended disciplinary action. This information mostly comes from the OIG’s semiannual reports to Congress and documents obtained through the Freedom of Information Act (FOIA). As you can see, the SEC has taken little to no action on many of these recommendations, especially when the individual cited is a senior official.

By failing to take disciplinary action against the two senior officers named in the OIG’s FWRO (Fort Worth Regional Office) report, the SEC continues to broadcast the message that senior management will not be held personally accountable for misconduct, no matter how egregious.

Just how egregious are some of the findings made by the OIG? Let’s navigate and review the report from POGO highlighting 18 separate instances in which the OIG recommended disciplinary action and in which ‘no action’ was taken. I found the following six to be the most outrageous. The OIG’s findings include (I recommend you take a deep breath first!!):

1. Disclosure of non-public information
2. Inappropriate conduct
3. Misuse of official position
4. Misuse of government computer resources to assist Ponzi scheme and violations of standards of ethical conduct. (Are you kidding me? This is not a major front page story? A Supervisor in the SEC’s Office of Administrative Services is found by the OIG to have engaged in these behaviors and is allowed to retire without disciplinary action being taken?? What a joke!!)
5. Suspicions of insider trading and appearances of impropriety in financial transactions. (In light of this reality, we should certainly not expect the SEC’s OCIE to pursue the insider trading and front running at FINRA in its liquidation of auction-rate securities in 2007!!)
6. Conflict of interest and improper solicitation of gifts.

For those interested in viewing the POGO report in its entirety, please click on the image:

Yes, boys and girls, that is your government and your tax dollars at work. Accountability? Transparency? Integrity? A ‘new’ SEC? Talk is cheap. This report is strong evidence that the senior inmates are running the asylum at the SEC.

In light of this report, is there truly any surprise how and why Wall Street has run roughshod over Main Street?

What happened to our country?

LD

P.S. Hats off to POGO for great work!!

While Franklin Raines, Leland Brendsel, Daniel Mudd, and other Fannie and Freddie execs walked out the door with tens of millions of dollars, our nation is left with a financial sinkhole that will serve as a drag on our economy for years if not generations. How and why did this happen?

Shallow, weak, and financially illiterate legislators from both sides of the aisle were bought off by their crony counterparts at Fannie and Freddie. The costs of those ‘payoffs’ are currently unknown, but will be felt for a long time.

Bloomberg addresses the reality of what will likely be the escalating costs embedded in Fannie and Freddie by writing, Fannie-Freddie Fix at $160 Billion with $1 Trillion Worst Case:

The cost of fixing Fannie Mae and Freddie Mac, the mortgage companies that last year bought or guaranteed three-quarters of all U.S. home loans, will be at least $160 billion and could grow to as much as $1 trillion after the biggest bailout in American history.

Fannie and Freddie, now 80 percent owned by U.S. taxpayers, already have drawn $145 billion from an unlimited line of government credit granted to ensure that home buyers can get loans while the private housing-finance industry is moribund. That surpasses the amount spent on rescues of American International Group Inc., General Motors Co. or Citigroup Inc., which have begun repaying their debts.

“It is the mother of all bailouts,” said Edward Pinto, a former chief credit officer at Fannie Mae, who is now a consultant to the mortgage-finance industry.

While the losses at Fannie and Freddie continue to mount, do not forget that these losses are not reflected on Uncle Sam’s balance sheet (Fannie and Freddie are in receivership). The fact is Washington at large and the Obama administration specifically do not now have, nor have they ever had, the political will and courage to face the reality of the financial charades created within these organizations. What is the key to measuring the depth of theses sinkholes? Expected losses resulting from future delinquencies, defaults, and foreclosures on mortgages held by Fannie and Freddie. What are the prospects on this front?

The composition of the $5.5 trillion of loans guaranteed by Fannie and Freddie suggests that the surge in delinquencies may continue. About $1.98 trillion of the loans were made in states with the nation’s highest foreclosure rates — California, Florida, Nevada and Arizona — and $1.13 trillion were issued in 2006 and 2007, when real estate values peaked. Mortgages on which borrowers owe more than 90 percent of a property’s value total $402 billion.

Fannie and Freddie may suffer additional losses as a result of the Treasury’s effort to prevent foreclosures. Under the program, banks with mortgages owned or guaranteed by the companies must rewrite loan terms to make them easier for borrowers to pay.

How long might this entire mess take to unwind and what are the impacts on our nation’s housing market? The Obama administration’s programs  to modify mortgages are ultimately a stalling tactic to stem the foreclosure process. What does that mean for the future of our housing market? Let’s visit housing and mortgage expert Mark Hanson who recently wrote that at the current pace of foreclosures, it will take 101 months (that’s right, over 8 years!!) to clear the number of loans in the distressed pipeline.

Add it all up, and we are talking potentially a trillion dollar loss and almost a decade for our nation to reconcile the housing mess driven by Fannie and Freddie, facilitated by their Washington cronies.

Nice legacy.

LD

In order to determine the answers to these critical questions, investigators need to have real transparency and integrity in their pursuit of information. To this end, I welcome adding a link to my Watchdog category (right sidebar at Sense on Cents) for the The Center for Public Integrity.

In the pursuit of transparency and integrity to understand what really happened in the BP oil disaster in the Gulf of Mexico, the Center reviewed logs from the Coast Guard. What did they learn? The Center recently released a story highlighting the fact that the White House knew very early on that this disaster had the potential to be larger than the Exxon Valdez. The Center wrote, Coast Guard Logs Reveal Early Spill Estimate of 8,000 Barrels a Day:

Coast Guard officials grasped the potential threat of a catastrophic spill within hours of the explosion on board the Deepwater Horizon drilling rig, estimating that 8,000 barrels a day of crude oil could possibly gush out of the well in the event of a complete blowout, according to Coast Guard logs.

Over the first three days of the crisis — long before the public heard of a leak — the minimum estimate for a total well blowout ballooned eight-fold and the president was warned by his top aides that a major spill larger than the 1989 Exxon Valdez might be coming, according to the documents and interviews. (LD’s emphasis)

The logs, obtained by the Center for Public Integrity, provide the most detailed account of the early days of the BP disaster, and identify key events and notifications that were omitted from the White House’s official timeline of the crisis.

The estimate of the potential leak on April 21, the day after the rig exploded, reveals that first responders almost immediately understood the environmental threat to the Gulf of Mexico when Coast Guard officials detected the first signs of oil appearing on the Gulf waters.

“Potential environmental threat is 700,000 gallons of diesel on board the Deepwater Horizon and estimated potential of 8,000 barrels per day of crude oil, if the well were to completely blowout,” the Coast Guard reported on April 21, less than 24 hours after the accident was first reported.

Officials also learned within the first day of the disaster that the blowout preventer — an oil rig safety device that is supposed to cut off a well in case of an accident — was not functioning and could not be manually repaired by remote underwater robots.

“The second attempt of the ROV to shut-in the well has failed,” an entry at 11 a.m. CDT on April 21 read.

By April 23, the Coast Guard logs include a new estimate that a full blowout could result in a spill of 64,000 to 110,000 barrels per day, the logs show.

The leak estimates revealing an early awareness of a potential catastrophe are missing from the White House’s official timeline of the crisis. (LD’s emphasis)

That timeline first mentions a leak on April 24, four days after the explosion, when undersea robots discovered a plume of oil coming from the riser on the sea floor.

The White House has repeatedly rejected criticisms from both sides of the political aisle that it did not act quickly or decisively enough in the early days of the BP disaster, noting that the president on April 22 issued a public statement urging the federal government to make the accident its “No. 1 priority” and asserting that officials were worried about the environmental impact from the start.

White House spokesman Nick Shapiro did not respond to a questions from the Center submitted Tuesday about the logs. However, Shapiro told The New York Times that the White House timeline included a disclaimer at the bottom saying it was not meant to be comprehensive.

Shapiro also confirmed that in an April 22 meeting, Coast Guard Admiral Thad Allen told President Barack Obama that as soon as he saw the Deepwater Horizon oil rig on fire, he knew oil was likely to start gushing into the Gulf of Mexico. At that same meeting, Shapiro said, Interior Secretary Ken Salazar told the President this event could eclipse the amount of oil spilled during the Exxon Valdez.

The logs were provided to the Center by Rep. Darrell Issa of California, the senior Republican on the House Oversight and Government Reform Committee. The Center shared them with The New York Times.

“Less than 48 hours after the explosion, multiple attempts to activate the blowout preventer had already failed and the Coast Guard knew 8,000 barrels of crude oil spilling into gulf waters each day was a real possibility,” Issa told the Center.

“Americans have a right to be outraged by this spill, by top government officials caught off-guard, and by the facts the White House omitted in explaining what it knew and when it knew it,” he said.

The logs show that Coast Guard officials comprehended the possible scope of the spill nearly a week before an estimate was released measuring the leak at 5,000 barrels a day. That estimate led to an escalated response by the government.

Coast Guard officials declined to comment about the logs. Officials from the Homeland Security Department did not respond to phone calls and email messages.

The logs detail the failed attempts to repair the blowout preventer on the sea floor, which was spewing oil that also fueled the fire on the rig. The logs also show that, as an extensive and wide-ranging search and rescue mission unfolded, the size of the oil slick was growing daily on the ocean’s surface, though Coast Guard officials believed that the oil was mainly being burnt off in the fire.

“There was a reported sheen while the MODU (mobile drilling unit) was afloat. However, the majority of the pollution was being mitigated by the fire,” read a Coast Guard entry dated 1:26 pm CDT on April 22. By that time, estimates of a visible oil sheen measured 16 square nautical miles.

A day earlier, a smaller sheen was detected.

“Sheen size is as follows: 2 miles by ½ mile, with 50 percent coverage with color ranging from dark to barely visible. The amount is estimated to be 30 gallons,” states a Coast Guard log entry dated 11:15 a.m. CDT on April 21. It said the sheen was first spotted at 10:10 a.m. that morning.

Additionally on April 22, a Coast Guard craft returning from a rescue mission spotted signs of a possible natural gas leak after the rig sank, further evidence that hydrocarbons might be leaking. “On return to home base, discovered what appeared to be a large area of bubbles in water, possible natural gas leak,” says a log entry dated the evening of April 22.

By early the morning of April 23, the Coast Guard had already flown five sorties and applied 1,500 gallons of dispersant to locations where sheens were reported, according to the logs, though officials that same day said the well appeared to be not leaking.

The White House timeline doesn’t mention any of the earlier sheens but does note on April 22 that 100,000 gallons of dispersant were “prepositioned” for use in the Gulf and “preapproved” by regulators “despite a lack of apparent leak.”

The logs, however, show the pre-positioning of the dispersant occurred after the oil sheens had already been discovered, the blow-out preventer was determined to be broken, and the first sorties launched to apply dispersant. The first dispersant flight departed at 2:43 p.m. CDT on April 22, according to an internal timeline kept by the Coast Guard.

The first mention on the White House timeline of any oil sheens occurs April 23 — two days after the first slicks were detected — when the timeline notes “an oil sheen was reported with approximately 8,400 gallons estimated on the water and there was no apparent leak.”

In contrast, the Coast Guard logs talk openly on the first day about a free flow of oil and about efforts by the rig’s owner, Transocean, to use a remote vehicle to stop the flow.

“Transocean is developing a plan to stop the flow/fire using an ROV” the logs note on April 21.

Conflicting reports seemed to complicate what appeared to be a simple chain of events: the rig continued to gush up until the moment it sank, making a leak seemingly inevitable.

On the morning of April 23, an undersea robotic vehicle reported that the valve on the blowout preventer had closed, sealing off the well, though that report was found to be false several hours later, the logs show.

The confusion in these reports may explain why the Coast Guard stated publicly that day that there appeared to be no leak.

Despite that report, BP began to establish an incident command post on April 23 “to prepare for potential release,” estimating that a release of 64,000 to 110,000 barrels a day could occur “if the well were to completely blowout.”

Coast Guard officials have repeatedly stated that they were preparing for a worst case scenario, and initially ordered a variety of oil response vessels to come to the scene, including a team that is assigned to respond to oil spills.

Oil skimming began and continued during the efforts to find the 11 workers who were initially missing and later presumed dead — efforts that were also complicated by what appears to be misinformation and false leads.

On the morning of April 22, members of the unified command held a phone conference to discuss the potential spill if the rig sank, which it did less than two hours later.

Around mid-day, aircraft flying over the spill reported a sheen of sixteen square miles, but added that “it wasn’t as bad as they imagined,” the logs state.

At a press conference that afternoon, Rear Admiral Mary Landry said that the oil on the surface appeared to be residual from the fire, though she raised the possibility that the gallons of diesel fuel on board might have begun leaking after the rig sank.

The next day, as the search for the missing 11 workers came to a close, Admiral Landry, possibly misled by the erroneous early report, said that it appeared that the blowout preventer had worked.

“It is not a guarantee,” she said at a news conference, “but right now we continue to see no oil emanating from the well.”

The understanding that oil was not leaking at the wellhead is corroborated by the logs, though at the time, a survey of the entire riser, which was still attached to the blowout preventer, had not been completed.

Coast Guard officials did caution that there was still uncertainty surrounding the status of the blowout preventer, but continued to view the 180,000 barrels of oil and water mix on the surface as residual from the days the rig was on fire.

On the morning of Saturday, April 24, an undersea robot noticed “a small quantity of unknown material” emanating from the drill pipe, which is encased in the riser.

After surveying the leak, it was determined that 1,000 barrels a day were pouring from the riser.

If the Coast Guard logs are to be believed, and the White House knew within the first three days of this crisis that the oil spill could likely be larger than the Exxon Valdez, what does that say about the White House response? Was the White House ‘playing politics’ when it should have been in emergency mode to protect the Gulf? Did the White House display sense on cents and protect our national interests?

Who knew what and when did they know it? The Coast Guard logs would indicate the White House knew a lot, very early on.

Thank you to the Center for Public Integrity for doing such fabulous investigative work.

LD