“When are consumers going to stop getting the short end in this bailout?

Credit card firms back in hot seatBy VICTORIA MCGRANE & LISA LERER | 3/4/09 4:13 AM EST

Longtime supporters of credit card reform have a new weapon in their rhetorical arsenal: the $700 billion Wall Street bailout.

“The big banks got billions of our tax dollars to rescue them from their own financial mess. Now they turn around and hit us with higher interest rates and fees on our credit cards,” read a recent alert from the Consumers Union, the publisher of Consumer Reports.

Indeed, a coalition of consumer advocates believes the time is right for cracking down on high credit card fees, abusive practices and loose regulations in the credit card industry.

“When are consumers going to stop getting the short end in this bailout? Chase, Citibank, HSBC, Capitol One and others recently hiked interest rates, with the average card rate now about 14 percent. Meanwhile, the banks are paying as little as 0 percent for overnight loans. Unbelievable,” the alert declared before prompting the reader to tell Congress to pass credit card legislation.

Consumer advocates and some Democrats have pushed for tighter credit card regulations for more than a decade, but they could not overcome resistance from card issuers, banks and financial services firms. Last year, a credit card bill sponsored by Rep. Carolyn Maloney (D-N.Y.) passed the House but died in the Senate. And in a January 2007 hearing, Senate Banking Committee Chairman Chris Dodd (D-Conn.) put the industry “on notice,” warning card issuers to halt abusive practices.

Now, in the wake of the financial crisis, advocates believe a major credit card bill has become almost inevitable.

“Critical mass for credit card reform is definitely at its highest level ever,” said Travis Plunkett, legislative director of the Consumer Federation of America. Credit card legislation has been introduced in both the House and the Senate already this year.

Credit card defaults have risen over the past year as strapped consumers struggle to make their payments. Some lawmakers see a parallel between abusive credit card fees and the predatory mortgage lending that contributed to the subprime crisis. Now, public and congressional anger at Wall Street is clearly coloring lawmakers’ attitudes toward credit card lenders as well.

A co-sponsor of the House bill, Rep. Maxine Waters (D-Calif.) assailed CEOs of major banks for raising interest rates on consumers after accepting billions in taxpayer-funded bailouts during a Feb. 12 hearing.

Addressing the eight Wall Street CEOs as “captains of the universe,” she demanded to know which of them had notified credit cardholders of increased rates. Bank of America CEO Ken Lewis said his company has raised rates on 9 percent of its customers. Two other CEOs also raised their hands in the affirmative, including the head of embattled Citigroup, which recently reached a new deal with Treasury to give the federal government control of about 36 percent of the company.

Dodd did not make this specific criticism when he introduced his own credit card legislation the same day as the CEO hearing in the House, but he believes the timing is right for credit card reform.

“Families in Connecticut and across the country are struggling to make ends meet as layoffs continue, home values plunge and lines of credit are cut or canceled,” Dodd said. “The last thing they need is further financial hardship brought on by abusive credit card practices. These practices are wrong, they’re unfair, and they must end.”

“At a time when Americans are becoming increasingly reliant on credit cards, credit card companies are being more aggressive about finding ways to charge their customers,” he said.

In the House, Maloney reintroduced The Credit Cardholders’ Bill of Rights. Her bill is sponsored in the Senate by Democrats Charles Schumer of New York and Mark Udall of Colorado. Lobbyists and advocates are also closely watching Dodd’s bill. Both bills would prohibit arbitrary interest rate increases and excessive fees.

There’s been action on the regulatory side as well. In December, the Federal Reserve passed the strongest credit card rules in decades, banning certain practices that rapidly increase penalties. The new rules also forced credit card companies to be clearer about their billing practices.

The Fed rules won’t take effect until mid-2010. That’s far too late for struggling cardholders facing default now, say consumer advocates arguing for even stricter legislation.

Banks say they are currently working to implement the new Federal Reserve rules, which they believe address most if not all of lawmakers’ concerns about credit card practices.

The lenders also warn that tougher action by Congress might backfire and force lenders to tighten credit just when consumers need it most.

“There is a serious risk that such actions could end up hurting the very people they’re trying to help because it limits the ability of card companies to lend to consumers and small businesses at the very time they can least afford it,” said Ken Clayton, managing director of credit card policy for the American Bankers Association. The trade association is leading the industry’s efforts on the credit card issue.

The bad economic environment has driven up the cost of credit card lending, despite what the Federal Reserve has done, Clayton argues.

Rising delinquencies and unemployment rates mean that fewer people are paying their bills. Moreover, investors are shying away from the secondary market for asset-backed securities — which funds 50 percent of credit card lending, he said. Lenders have been forced to turn to more expensive sources to fund lending, further driving up the cost of that credit.

The Treasury’s program to address this dynamic for credit cards, known as the Term Asset-Backed Securities Loan Facility, was just announced Tuesday. The program’s goal is to help lower the cost of credit for consumers by providing investors with financing to help them purchase certain asset-backed securities.

Lawmakers should allow the program time to work, Clayton said.

“They have to be worried that if they do something that spooks investors, it will just perpetuate the problem that they and the Federal Reserve and the Treasury Department are trying to get at.”

Cal Thomas' Poll for Chrisitans

Poll: Is it time for Christians to redirect their efforts from politics mainly to the greater power inherent in the Kingdom of God?
total: 10286
YES (82 %)
N0 (18 %)

Panama Is Removed From Russian Financial Black List

Panama Is Removed From Russian Financial Black List
February 10th, 2009 • Related • Filed Under
Filed Under: DGC Announce
Tags: e-gold • GoldMoney • Panama • russian banking
From My Panama Lawyer
Until recently the government of Russia had imposed a series of restrictions on financial transactions involving Panama, because mobsters and tax evaders in the former country were known to hide their assets here. But as part of Russia joining the World Trade Organization, a bilateral accord between Russia and Panama that deals with many of these concerns has been signed and Russia has removed this country from its financial transactions blacklist. The agreement also contains a merchant marine clause that eliminates special surcharges and coast guard inspections for Panamanian-flag ship calling at Russian ports, which were imposed because of concerns about unseaworthy vessels registered in this country posing hazards in Russia’s waters.

Source: Panama News Volume 12, Number 7 April 9 - 22, 2006
http://www.thepanamanews.com/pn/v_12/issue_07/business_briefs.html


--------------------------------------------------------------------------------

Panama has been removed from the blacklist of the Russian Central Bank. The list, first published in the second half of the 90s, contained those jurisdictions whose financial transactions were deemed by the Central Bank to be worthy of special attention from the Russian banking sector.

The removal from the list comes as a result, at least in part, of the bilateral arrangements and agreements concluded between Panama and Russia. Samuel Lewis Navarro, Panama’s foreign minister, achieved similar results in his meetings in France, with Panama also being removed from the blacklist drawn up by the French tax authorities. This gesture by the French was aimed at helping French enterprises operating in Panama, particularly in regard to the expansion of the Panama Canal.

But what exactly are these blacklists really? As the name suggests, certain state organisations or national bodies draw up lists of offshore jurisdictions whose legislation and legal practices they consider harmful to their own country or region. The main objection raised against the offshore jurisdictions is that they siphon off capital, or rather taxation income, from countries which typically have very high rates of taxation. To defend against this, the aim of the lists is to create a kind of discrimination, or “deterrent”. Public opinion can generally be swayed by the notoriety of the lists, leading clients to think seriously about whether it is worth establishing a company in a blacklisted jurisdiction, or rather avoiding such complications.

The most serious sanction, however, is when the country using the list introduces concrete financial steps. For example, they may not allow, or may impose conditions on, certain bank transfers. The other important area of sanctions is where local companies who, say, pay invoices from blacklisted jurisdictions, may be subjected to more stringent inspections. If, for example, a German company includes in its accounts an invoice for consultancy services from a company in Liechtenstein, this may be enough for the authorities to instigate a full tax inspection of the German company for the last 5 years.

Americans — “the most over-extended consumer in world history”

Op-Ed Columnist
China to the Rescue? Not!
By THOMAS L. FRIEDMAN
Published: December 20, 2008

I had no idea that many of those oil paintings that hang in hotel rooms and starter homes across America are actually produced by just one Chinese village, Dafen, north of Hong Kong. And I had no idea that Dafen’s artist colony — the world’s leading center for mass-produced artwork and knockoffs of masterpieces — had been devastated by the bursting of the U.S. housing bubble. I should have, though.

“American property owners and hotels were usually the biggest consumers of Dafen’s works,” Zhou Xiaohong, deputy head of the Art Industry Association of Dafen, told Hong Kong’s Sunday Morning Post. “The more houses built in the United States, the more walls that needed our paintings. Now our business has frozen following the crash of the Western property market.”

Dafen is just one of a million Chinese and American enterprises that constitute the most important economic engine in the world today — what historian Niall Ferguson calls “Chimerica,” the de facto partnership between Chinese savers and producers and U.S. spenders and borrowers. That 30-year-old partnership is about to undergo a radical restructuring as a result of the current economic crisis, and the global economy will be highly impacted by the outcome.

After all, it was China’s willingness to hold the dollars and Treasury bills it had earned from exporting to America that helped keep U.S. interest rates low, giving Americans the money they needed to keep buying shoes, flat-screen TVs and paintings from China, as well as homes in America. Americans then borrowed against those homes to consume even more — one reason we enjoyed rising wealth without rising incomes.

This division of labor not only nourished our respective economies, but also shaped our politics. It enabled China’s ruling Communist Party to say to its people: “We will guarantee you ever-higher standards of living and in return you will stay out of politics and let us rule.” So China’s leaders could enjoy double-digit growth without political reform. And it enabled successive U.S. administrations, particularly the current one, to tell Americans: “You can have guns and butter — subprime mortgages with nothing down and nothing to pay for two years, ever-higher consumption and two wars, without tax increases!”

It all worked — until it didn’t.

With unemployment now soaring across the U.S., said Stephen Roach, the chairman of Morgan Stanley Asia, Americans — “the most over-extended consumer in world history” —can no longer buy so many Chinese exports. We need to save more, invest more, consume less and throw out most of our credit cards to bail ourselves out of this crisis.

But as that happens, we need China to take our discarded credit cards and distribute them to its own people so they can buy more of what China produces and more imports from the rest of the world. That’s the only way Beijing can sustain the minimum 8 percent growth it needs to maintain the political bargain between China’s leaders and led — not to mention pick up some of the slack in the global economy from America’s slowdown.

However, if I’ve learned one thing here, it’s just how hard doing that will be. China’s whole system and culture nourish saving, not spending, and changing that will require a huge “cultural and structural” shift, said Fred Hu, chairman for Greater China for Goldman Sachs.

In China, for instance, to buy a home you have to put at least 20 percent down, and the average is 40 percent. If you try to walk away from the mortgage, the bank will come after your personal assets. Moreover, China can’t just shift production from the U.S. market to its own consumers. Not many Chinese villagers want to buy $400 tennis shoes or Christmas tree ornaments.

Also, China has no real Social Security, health insurance or unemployment insurance. Without that social safety net, it’s hard to see how Chinese don’t end up saving most of their stimulus. “You open up the newspaper every day and you hear about this factory shutting down or that supplier going belly up,” said Willie Fung, whose company, Top Form International, is the world’s leading bra maker. “You can never be too careful in this financial climate.”

As such, “the world should not have a false hope that China can cushion the global downturn,” by stimulating its domestic demand in a big way, said Frank Gong, head of China research for JPMorgan Chase. “The best thing China can do is keep its own economy stable.”

It’s good advice. China is not going to rescue us or the world economy. We’re going to have to get out of this crisis the old-fashioned way: by digging inside ourselves and getting back to basics — improving U.S. productivity, saving more, studying harder and inventing more stuff to export. The days of phony prosperity — I borrow cheap money from China to build a house and then borrow on that house to buy cheap paintings from China to decorate my walls and everybody is a winner — are over.

Are you kidding me? Extend Cobra? Outrageous!!

How does this help with the cost of a Cobra plan? Are you kidding?

'...Rep. Pete Stark (D-Calif.), chairman of the House Ways and Means health subcommittee, is lobbying to expand COBRA insurance and provide subsidies to people who cannot afford the premiums. Currently, unemployed people can purchase health coverage through their previous employer, but it expires after 18 months and the individual must pay the full price plus an administrative fee. "When people lose their jobs, they lose their health insurance," he said. "Not having health care is right up there with food and shelter." ...'




Obama, Lawmakers Expanding Health Measures in Stimulus Plan
By Ceci Connolly
Washington Post Staff Writer
Friday, December 12, 2008; 12:03 AM

President-elect Barack Obama and Democratic leaders in Congress are devising plans to significantly expand the health provisions in next month's economic recovery legislation, arguing that pouring billions of dollars into an array of health programs will not only boost the economy but also make a down payment on promises of broader health-care reform.

In a stimulus bill that could exceed $500 billion, Obama has already pledged to increase federal Medicaid spending -- perhaps by more than $40 billion over two years -- and to make a large investment in health information technology. Talks are underway about also adding money to retrain medical workers, extending the State Children's Health Insurance Program, and expanding the law that allows unemployed people to purchase health insurance through a previous employer's plan, known as COBRA.

At a Chicago news conference yesterday to introduce Thomas A. Daschle as his choice for health and human services secretary, Obama said major reform of the health-care system "has to be intimately woven into our overall economic recovery plan."

"It's not something that we can sort of put off because we're in an emergency," he said. "This is part of the emergency."

Daschle, a former Senate majority leader, said that "addressing our health-care challenges" offers the best hope for reducing personal bankruptcies, improving American competitiveness and helping "pull our economy out of its current tailspin."

Their comments came just hours after the government announced that the number of Americans filing for unemployment benefits for the week ending Dec. 6 was 570,000, the highest in 26 years.

"It's hard to overstate the urgency of this work," Obama said.

Part of the political rationale for adding more health-care projects to the recovery package is to "get a running start" on the larger goal of broad health reform, said Nancy LeaMond, an executive vice president at the seniors' lobby AARP. "This builds momentum."

Additionally, including health-care reform measures in the context of the economic recovery bill would keep Congress from having to deal with those debates and expenditures in the later, larger discussion, said Senate Finance Committee Chairman Max Baucus (D-Mont.).

"We're going to be very busy here in Congress," he said in an interview. Baucus aims to begin marking up a stimulus bill the first week of January in hopes that it can be ready by Inauguration Day. He is pressing to include provisions that would steer money into health technology, such as adoption of electronic medical records, and reauthorization of the SCHIP program for two to three years.

"It's very important that health IT be part of the economic recovery," he said. "It represents the beginning of health-care reform."

During the campaign, Obama spoke of spending $50 billion on modernizing the health-care system by helping doctors and hospitals install and use computers. Sources involved in preparing the stimulus package said it might include $10 billion of that as a down payment.

"Investing in the health of the American people is a crucial part of the nation's economic recovery," said Sen. Edward M. Kennedy (D-Mass.), chairman of the Health, Education, Labor and Pensions Committee. "Modernizing our health-care system through better use of information technology is the key to easing the heavy burden of health-care costs."

Physicians have consistently complained that moving to electronic medical records or electronic prescribing involves spending money to purchase equipment and train workers. Several Democrats yesterday said the money could help defray the cost of those capital expenditures, pay for training programs or fund ongoing research on developing standards.

Rep. Pete Stark (D-Calif.), chairman of the House Ways and Means health subcommittee, is lobbying to expand COBRA insurance and provide subsidies to people who cannot afford the premiums. Currently, unemployed people can purchase health coverage through their previous employer, but it expires after 18 months and the individual must pay the full price plus an administrative fee. "When people lose their jobs, they lose their health insurance," he said. "Not having health care is right up there with food and shelter."

In addition to his Cabinet post, Daschle will be head of the new White House Office of Health Reform. His deputy will be Jeanne Lambrew, a veteran of the Clinton administration who co-wrote a book with Daschle on health-care reform.

In making the announcement, Obama described his friend Daschle as "the original no-drama guy."

Our Disinformed Electorate

Our Disinformed Electorate

December 12, 2008

by Kathleen Hall Jamieson and Brooks Jackson


We saw more aggressive fact-checking by journalists in this election than ever before. Unfortunately, as a post-election Annenberg Public Policy Center poll confirms, millions of voters were bamboozled anyway.

More than half of U.S. adults (52 percent) said the claim that Sen. Barack Obama’s tax plan would raise taxes on most small businesses is truthful, when in fact only a small percentage would see any increase.
More than two in five (42.3 percent) found truth in the claim that Sen. John McCain planned to "cut more than 800 billion dollars in Medicare payments and cut benefits," even though McCain made clear he had no intent to cut benefits.
The first falsehood was peddled to voters by McCain throughout his campaign, and the second was made in a pair of ads run heavily in the final weeks of the campaign by Obama.

These aren’t isolated examples. One in four (25.6 percent) of those who earned too little to have seen any tax increase under Obama's plan nevertheless believed that he intended to "increase your own federal income taxes," accepting McCain's repeated claims that "painful" tax hikes were being proposed on "families." Nearly two in five (39.8 percent) thought McCain had said he would keep troops in combat in Iraq for up to 100 years, though he’d actually spoken of a peacetime presence such as that in Japan or South Korea. Close to one in three (31 percent) believed widely disseminated claims that Obama would give Social Security or health care benefits to illegal immigrants, when in fact he would do neither.

We’re not surprised. As we wrote in "unSpun: finding facts in a world of disinformation," the same thing happened in 2004 when majorities of voters believed untrue things that had been fed to them by the Bush and Kerry campaigns.

One reason is obvious: Political ads run thousands of times and reach far more people than articles on FactCheck.org. On our best day, we were read by 462,678 visitors. By contrast, the Obama campaign aired two ads claiming that McCain planned to cut Medicare benefits a total of 17,614 times at a cost estimated to be more than $7 million – which is several times more than FactCheck.org's entire annual budget.

There are deeper reasons as well. We humans all have a basic disposition to embrace our side's arguments and reject or ignore those offered by an opponent. Our polling reflects that. After taking differences in age, race, gender and education into account, Republicans were still 4.4 times more likely than Democrats to believe that Obama would raise taxes on most small businesses, and Democrats were 3.2 times more likely than Republicans to believe that McCain would cut Medicare benefits. Simply put, partisanship trumps evidence.

This also helps explain why so many people accept the most preposterous claims circulated by chain e-mail messages and ignorant or irresponsible bloggers. Our poll found nearly one in five (19 percent) falsely think Obama is a Muslim, and even more (22 percent) find truth in the claim that he’s nearly half Arab. Republicans were 2.8 times more likely than Democrats to buy the Muslim claim, and just over twice as likely to swallow the half-Arab notion.

This is "group think" in action. We humans tend to marry, date, befriend and talk with people who already agree with us, and hence are less likely to say, "Wait a minute – that’s just not true."

Consultants also dupe us by exploiting our partisan preconceptions. People tend to believe Democrats are more likely than Republicans to raise taxes, so McCain was pushing on an open door when he repeatedly claimed Obama would raise taxes on ordinary voters, and not just the most affluent. By the same token, Obama found it easy to sell his bogus claim that McCain planned to cut Medicare benefits by 22 percent, because Republicans have a reputation as opponents of social programs.

Voters aren’t highly knowledgeable about government to begin with. Our poll shows that nearly one in three (31 percent) think Congress or the president, not the Supreme Court, have the final call on whether laws are constitutional. Nearly one in 10 (9.9 percent) think Republicans still control the House of Representatives, even though they’ve had two years to catch up on results of the 2006 elections.

And voters, once deceived, tend to stay that way despite all evidence. Nearly half in our poll (46 percent) agreed that Saddam Hussein played a role in the attacks of September 11, even though no solid evidence has ever emerged to support this notion.

None of this bodes well for the future, in our view. Spending hundreds of millions of dollars on campaigns that systematically disinform the public can only make the task of governing harder for the eventual winner. But are we discouraged that our efforts didn’t prevent this? Not at all. If we hadn’t tried, it might have been worse.

Kathleen Hall Jamieson is director of the University of Pennsylvania’s Annenberg Public Policy Center. Brooks Jackson is director of the APPC project FactCheck.org. They are co-authors of "unSpun, finding facts in a world of disinformation."

The Annenberg post-election poll was conducted by Princeton Survey Research Associates International, which interviewed 3,008 adults in the continental United States by telephone from Nov. 5 through Nov. 18, 2008. The margin of sampling error for the complete set of weighted data is ±2.3 percent.

Fortune magazine ranked Mozilo as the 13th-highest-paid male executive in 2006,

Big Payday Awaits Chairman After Countrywide Sale
By Frank Ahrens
Washington Post Staff Writer
Saturday, January 12, 2008; Page D01

Angelo R. Mozilo has pocketed $410 million in salary, bonuses and stock-option gains since he became executive chairman of mortgage lender Countrywide Financial in 1999, according to the executive compensation company Equilar.

Now, the man at the center of the national mortgage crisis stands to collect an additional $112 million in severance when Bank of America buys the company he helped found.
Equilar's numbers are based on Countrywide's most recent proxy statement, which is a year old. According to the statement, if Countrywide is acquired and Mozilo leaves, he is entitled to a cash severance of $88 million. He would also receive a retirement package worth $24 million.

Equilar said that most of Mozilo's compensation since becoming chairman -- $285 million -- has come from stock options. Mozilo has been criticized for selling pieces of his stake in Countrywide, cashing in tens of millions of dollars in options as the housing market dropped.

Mozilo, 69, is a native New Yorker and son of a butcher. He graduated from Fordham University in the Bronx in 1960. While in high school, he took a job at a mortgage company and learned the trade as a messenger and file clerk.

Mozilo went to work full time in the mortgage industry right out of college. His first success came during the population boom at Cape Canaveral, Fla., in the 1960s after President John F. Kennedy's announced goal of putting a man on the moon. He wrote loans for aerospace engineers who descended on the cape to work for NASA, and eventually underwrote home loans across Florida.

In 1969, Mozilo launched Countrywide in Calabasas, Calif., with David Loeb, a former boss and mentor. They had a novel storefront business plan that tried to simplify the mortgage process and replace salesmen with bank-like customer service.

Mozilo said that every American who wanted to buy a home ought to be able to buy one -- a sentiment that led to millions of borrowers in recent years getting mortgages they could not afford.

Fortune magazine ranked Mozilo as the 13th-highest-paid male executive in 2006, with a total compensation of $43 million. He does not crack Forbes's list of the 400 richest Americans, however, meaning that his net worth is less than $1.3 billion.

His contract as chairman of Countrywide runs through the end of next year, and he is expected to continue as a non-employee chairman of the board until the end of 2011. During that time, he will receive a director's salary, plus $200,000 a year, office space and the use of the corporate jet for business trips. His country-club dues will also be paid.

Even if Mozilo is fired as chairman, he would receive $400,000 a year to consult until the end of 2011.

Mozilo can expect pressure from shareholders and members of Congress to part with some of his compensation.

In a written statement yesterday, House Financial Services Committee Chairman Barney Frank (D-Mass.) said Mozilo, "who will be profiting from this transaction personally," should "donate a substantial portion of the $150 million he has collected over the last several years to nonprofits and other institutions that are helping us deal with the problem he helped to create."

Countrywide's stock price has fallen 79 percent in the past year, and the Securities and Exchange Commission has been looking at Mozilo's stock sales during the decline. He has said he did nothing wrong.

Mozilo holds an honorary doctorate from Pepperdine University, has been on the board of Home Depot and is a member of the board of trustees of Gonzaga University.

Staff researcher Richard Drezen contributed to this report.

When will John McCain learn his lesson?

McCain explained what had given him confidence in Keating's operations, citing written assurances from some of the financial world's sacred cows, including Alan Greenspan -- ...And while the speech skirted over an issue of earlier letters McCain wrote to the Reagan White House in support of Keating's efforts to reduce federal restrictions impeding his investment plans, his implicit message was clear: Even the sharpies had been fooled by Keating -- there was plenty of fault to go around.

"...reduce federal restrictions..."?
When will John McCain learn his lesson?



MOMENTS OF TRUTH | McCain and the Keating Five
Senator's Image as Reformer Born in Crisis
Career Eventually Thrived in Aftermath

By Michael Leahy
Washington Post Staff Writer
Thursday, October 23, 2008; Page A01

Facing the biggest crisis of his political career in late 1989, John McCain telephoned Jay Smith, an old friend and strategist, and asked him to come to a damage-control session in McCain's Washington office.

McCain was under investigation for his connection to a pushy savings-and-loan operator named Charles H. Keating Jr., and Smith worried that the senator had created an appearance of impropriety because of his uncharacteristically guarded response to the accusations and his stubborn refusal to talk to reporters about them. The solution, he told McCain and his aides, was to hold a news conference. Take every question, Smith said. Say nothing is off limits. Let McCain be McCain.

Others in the room remember press secretary Victoria Clarke arguing against Smith's recommendation. "I don't think he can pull it off," she said of McCain, and then, with the senator just a few feet away, she raised a disastrous possibility: "I think he will lose his temper."

"I don't think that's true, " Smith said, turning in his chair toward McCain. "What do you think?"

"I can do it," McCain said.

Smith wasn't surprised -- he knew he had been appealing to McCain's instinct to get on the offensive. As much as he loathed the media now for what he regarded as their unfairness, McCain liked the idea of walking into the lions' den and taking on the enemy.

Some of his advisers thought his vacillation over what to do about the Keating controversy reflected an internal conflict of their boss -- between his philosophical preference for public openness and his private fury anytime he felt his dignity trampled, an anger that sometimes revealed itself in his walling himself off from anyone who crossed him. But as the Keating crisis played out, they concluded that to frame the shifting tides of his nature this way was to miss the real point about McCain: that, at his best and worst, he was driven mostly by defiance in the face of pressure.

"If people tell him he can't do something, John's instinct often is to do it and prove them wrong," Smith says.

If anything at all was slowly changing in McCain, it was the new priority he assigned to pragmatism, accommodation and self-preservation, a trio of concepts that his once-rebellious father had tried to instill in him during McCain's Naval Academy days, and that the son had scorned. Under the stress of his political nightmare now, he exhibited the first signs of a self-reevaluation.

The means and manner of McCain's political resuscitation during the weeks that followed provided a window to his emerging style amid controversy -- his zest for the big gamble, the aggressive push-back while his similarly beleaguered Keating Five colleagues took refuge behind closed doors, his deftness in recasting himself as a chastened reformer and his skill in turning a potentially disastrous setback to his advantage.

Oddly, the crisis some thought would destroy him proved to be fortuitous. While the Keating episode was the most searing moment of his career, his response to it launched him into the national spotlight. Ever since, he has been on the long, if bumpy, ascension that led him to the Republican presidential nomination.

Later those same instincts helped make his recovery possible in the wake of his crushing loss to George W. Bush for the 2000 presidential nomination. In both crises, he proved himself to be a resilient and resourceful fighter, a dangerous politician to underestimate.


No other blow in McCain's life had stung him as much as the Keating bludgeoning. "At least the North Vietnamese didn't question my integrity," he famously snapped at two Arizona reporters when asked how the fallout from the scandal compared with the torment he suffered as a prisoner of war in Hanoi.

When it came to Keating, McCain had a unique public relations mess that had little to do with the $112,000 in contributions he had received from the magnate during his first three campaigns. "Of the five senators before you, then-Representative McCain had the closest personal friendship with Charles Keating," Robert Bennett, chief counsel of the Senate ethics committee, informed panel members. Bennett, who would later represent the presidential nominee in his battles with the New York Times, added that McCain had been given gifts from Keating that the other senators hadn't: "Senator McCain was also the only one to receive personal as well as political benefits from Charles Keating."

During his early years as a congressman in the 1980s, McCain had vacationed, along with his wife, Cindy, young daughter Meghan and a babysitter, on Keating's estate at Cat Cay in the Bahamas. On several occasions, Keating flew the family down to the vacation site aboard the aircraft of his corporation, American Continental, after which McCain seemingly violated congressional rules in not promptly reimbursing the corporation.

In 1989, McCain finally paid about $13,000 to American Continental to cover the expense of his family's previously unreimbursed airfare to the island, later saying that the delay resulted merely from an oversight. But, politically speaking, the timing could hardly have been worse. By then, federal regulators had seized the savings and loan under Keating's control and news had broken of a Justice Department investigation of the S&L.

Aware of the fallout that might come from the news that he had run afoul of congressional rules in not swiftly paying his friend's company, McCain turned to his wife, who generally handled the family's household bills, in hopes that she might find canceled checks proving that the McCains had reimbursed American Continental for some, if not all, of the flights at issue.

Complicating McCain's public relations problems, stories surfaced that Cindy and her father, Jim Hensley, the owner of a successful Anheuser-Busch beer distributorship in Phoenix, had invested in a real estate deal with Keating. While McCain had played no role in their investment in an Arizona shopping center built by a subsidiary of American Continental, the deal triggered questions among reporters and Senate investigators about his motives and possible conflicts of interest.

It was a dark period. "John was deeply down," Maine senator and future defense secretary William S. Cohen remembers. "He was upset a lot of the time with himself. . . . He'd made a mistake, obviously -- mistakes of 'appearance,' as he said, in going to the meetings [with federal regulators]. . . . But something like riding on a plane with Keating: He'd never given that a second thought -- his father-in-law knew Keating, after all. He had this sense of outrage over what some people were saying about him. . . . He felt more wounded by that whole experience than anything else that had ever happened in his life. He said to me one day, 'They've inflicted more pain on me than the North Vietnamese did' -- that was the essence of it. . . . [Virginia Sen. John W.] Warner and I tried pumping him up and saying, 'You'll get through this okay; it'll be okay.' But it was hard."

During the last half of 1989, McCain turned for advice to former Arizona senator Barry Goldwater, his predecessor, with whom his relationship had experienced ups and downs. McCain sent Goldwater a private note, asking whether the legend could recommend a way to handle the Keating controversy.

Goldwater, who had been reluctant to issue a public defense of McCain, was characteristically blunt, offering a bit of encouragement but little else. "I've been wracking my brain to come up with some advice to give you, but frankly, I can't find any," he wrote in a letter to McCain, a copy of which is in the Goldwater Papers collection at the Arizona Historical Foundation. "My suggestion is, sort of lay off it, you've explained it to everyone who would listen, and now I think your job is to get a hell of a lot of work done for Arizona that will stand out more predominantly, than what has happened to you with Mr. Keating. That's about it, John. Work your ass off. . . . I think you can do it."

By then, Keating's Lincoln Savings and Loan had collapsed under crushing debt, to be taken over by the federal government, which covered Lincoln's losses at a cost of about $3 billion to American taxpayers. More than 20,000 bondholders had lost more than $200 million in savings. The outspoken critics of Keating's five senatorial friends had grown to include some of the regulators from the Federal Home Loan Bank Board whose initial concerns about Keating had gone unheeded.

Before the ethics committee hearings even began in late 1989, the regulators leveled accusations of improper conduct against the five senators, who had accepted a total of more than $1.3 million in campaign money from Keating. At the start of the hearings, the senators sat dourly alongside one another in a long row, a visual suggestive of co-defendants in a rogues' docket.

That image and the words "taxpayers' billions" had a damning effect: Although some of the targeted senators had yet to see it, three of them -- Democrats Dennis DeConcini of Arizona, Alan Cranston of California and Donald W. Riegle Jr. of Michigan -- were already effectively finished in electoral politics, never again to run for public office. The committee determined in 1991 that the three had improperly interfered with the bank board's investigation of Lincoln, with Cranston receiving a sharply worded reprimand. The committee exonerated the fourth Democratic senator involved, Ohio's John Glenn, a revered former astronaut who had taken $200,000 in contributions from Keating. But while Glenn would win reelection once more, his career was never quite the same, the committee concluding that he had exercised "poor judgment" in meeting with regulators at Keating's behest.


It was the same decision that the panel reached about McCain. But, though the committee treated McCain and Glenn identically, their political fates could scarcely have been more different. Among the five senators, only McCain's career genuinely recovered -- and eventually thrived -- in the wake of the crisis.

'I Freely Admit My Errors'


Two days after the strategy meeting in his Washington office, McCain appeared at the Phoenix Sheraton Hotel before a thicket of cameras and Arizona reporters. Victoria Clarke planted herself a few feet away, and McCain told her to rub her nose if he sounded like he was on the verge of losing his temper.

McCain read from a prepared text that Jay Smith had helped to draft. "I will stand here and take your questions for as long as you have them," he told the media. "Anything you want to ask me."

A disarming speech followed, which included a swift admission: "I am not going to stand here and tell you -- or have the attitude -- that everything I have done is above reproach and without fault. Was I sufficiently sensitive to the appearance some of my actions were creating? Maybe not.

"I freely admit my errors. . . . I committed an error by not reimbursing American Continental for my travel on their corporate aircraft at the time of the travel, which members of Congress are required to do. This was wrong. I can honestly tell you that I did not do this intentionally. I had assumed all along that payment for the trips had been made. . . . John McCain may have made some poor judgments. But I have never used my office to aid any individual improperly."

McCain explained what had given him confidence in Keating's operations, citing written assurances from some of the financial world's sacred cows, including Alan Greenspan -- who in the years before becoming the Federal Reserve Board chairman, had served as a consultant to Keating -- and what was then known as Arthur Young & Co., one of the Big Eight accounting firms. And while the speech skirted over an issue of earlier letters McCain wrote to the Reagan White House in support of Keating's efforts to reduce federal restrictions impeding his investment plans, his implicit message was clear: Even the sharpies had been fooled by Keating -- there was plenty of fault to go around.

He quoted a Greenspan testimonial about Lincoln Savings and Loan's operations during the Fed chairman's days as a Keating adviser: " 'I believe that Lincoln . . . has demonstrated that it has the adequate capitalization, sound business plans, managerial expertise and the proper diversification to which the Board refers.' "

After the speech, McCain calmly answered questions until there were no more.

It was, even in the judgment of critics, a bravura performance. The Arizona Republic newspaper, which had earlier viewed McCain's Keating-related comments as defensive and unseemly, signaled its approval: "He freely owned up to error and carelessness, refused to blame his staff, and left the news conference with his reputation intact." The Republic's sister paper, the Phoenix Gazette, noted that he had checked his fury at the door.

The McCain team's public relations onslaught had just begun. Over the next six weeks, the senator became ubiquitous on TV news shows and in major publications, granting interviews to 21 media giants that included the three major networks' evening news shows, The Washington Post, the New York Times, Time magazine, PBS's "The MacNeil-Lehrer Newshour," and ABC's "Nightline" and "This Week With David Brinkley."

"It wouldn't be successful if he was seen as ducking somebody . . . so he talked to virtually everybody," Smith remembers. It worked. Commentators and even some of the Federal Home Loan Bank Board regulators praised McCain for talking openly about his mistakes. By then, the subject of his apologies had grown to include his simple presence at the Keating Five meetings. In a November 1989 interview with PBS's Roger Mudd, he declared: "The appearance of five senators meeting with one regulator is clearly . . . wrong. . . . I made mistakes, and serious ones. But I did not abuse the power of my office."

In denying having done anything unethical while repeatedly emphasizing his regret about the "appearance" of having made a mistake, McCain was gambling that voters would discern a distinction. Seeing the risk in the strategy, Mudd observed that it was a "roll of the dice." McCain, he said, "has fully thrown himself on the mercy of public opinion."

McCain acknowledged he had troubles, observing that he was caught in the "crisis of my political life."

"Think you'll survive it?" Mudd asked.

"I hope so," McCain said.

Toward the end of the PBS report, in what became a pattern during his television appearances, McCain received a favorable nod from the commentator. "John McCain has been the only one talking," Mudd told viewers. "The other four senators who are involved . . . all have been following a policy of stonewalling the press."

The flattering contrast emerged as a familiar media refrain in the days ahead, politically deadly to the four silent senators but a boost to McCain's political resurrection. When John Glenn finally began speaking publicly about the controversy, he avoided expressing any McCain-like regrets, steadfastly insisting upon his forthrightness, though sounding defensive in the process: "I never acted in a more ethical, moral and legal way in my life," he said.

By then, after weeks of interviews, McCain had changed from being a once little-known junior senator from Arizona to a national media favorite, appreciated for his admissions and unpredictable candor about the Keating mess. Even Edwin J. Gray, the chairman of the Federal Home Loan Bank Board, who had felt unduly pressured by the five senators at the first meeting about Keating, singled out the senator who kept issuing the same qualified mea culpa. "In the case of Senator McCain, he is the one who has apologized -- he said [that five senators meeting with the regulators] was wrong, basically," Gray said. "And I think he deserves a lot of credit for that."

Back in Washington, DeConcini, who would later decide against seeking election in 1994, took note of McCain's rise from the dead.

"John did some smart political things, in retrospect," DeConcini says. "He went back to Arizona, admitted to some mistakes of judgment; that was shrewd. . . . He didn't take an aggressive position like I did, and like Riegle and Cranston did in fighting. . . . Maybe I should have admitted to some mistakes in judgment in some way. . . . And perhaps I should have called Greenspan and spoken out about Greenspan's support [of Keating] like McCain did [in his press conference]. But my staff talked me out of it. . . . John benefited from doing some smart things."

Birth of Campaign Reform for McCain


In response to questions from television anchormen, the chastened McCain seized the mantle of a new cause. "I am all for campaign finance reform," he said in late 1989 on "Nightline." "I think it will come over time. I think it will take impetus."

"That was the birth of campaign reform for McCain," Jay Smith later observed.

No one close to McCain could remember him ever talking about the subject before. But with the fallout from the Keating scandal receding, and his priorities changing, the great reception he was receiving from pundits and television interviewers emboldened him. Over the next year, he linked the ills of campaign finance scandals to excessive government spending, arguing that one led to the other. He began excoriating pork-barrel spending and earmarks. It was all part of a package of reforms being pushed by a new brand of Republican crusader.

"He'd never really talked about earmarks either before Keating," Smith recalls. "His new message was, number one: The status quo is unacceptable. . . . He'd known he was going to be exonerated [by the Senate ethics committee], but he also knew that . . . there was still this appearance of impropriety out there for some people. . . . . He'd had no real reason until then to pay attention to issues like campaign finance. . . . I first heard him talk at length about reform during his 1992 reelection campaign."

For the senator once regarded as a reliable party man, the moment marked the beginning of his subtle shift away from the orthodoxy of his party's establishment, his first steps toward staking out a reformist agenda that would at once begin to distance him from Keating while inexorably creating a rift between him and powerful Republicans who resented the casting of the issue as a moral litmus test. Sens. Mitch McConnell and Trent Lott maneuvered to derail a series of McCain attempts to change campaign financing rules, and for the first time, some Republicans and conservative pundits openly talked of the irritant that McCain was becoming.

But an ever more defiant McCain, having hitched his star to his reformer image, had made campaign finance a cause by then. After several failures to overcome Republican opposition, McCain and Democratic Sen. Russell Feingold of Wisconsin managed to win congressional approval of their campaign finance reform legislation in 2002. Best known as McCain-Feingold, the bill's most important provision banned unlimited and unregulated "soft money" contributions from individuals, corporations and labor unions to federal candidates and national political parties.

Its passage served to remind admirers and foes alike of McCain's outsider status. Some Republicans approved of it only grudgingly. President Bush expressed discomfort with parts of McCain-Feingold, but he signed it into law, which the Supreme Court upheld a year later.

Long before then, the specter of Keating and the scandal that threatened his career had been flipped to McCain's advantage, setting in motion a political climb that cast him as reformer, a maverick, a national figure and, eventually, a presidential contender in 2000. His campaign bus, the Straight Talk Express, would become the rolling symbol of his new identity.

"There was no doubt that campaign finance and being a maverick was a direct result of all that had happened to him," Cohen observes. "John wanted to see some changes, and people were suddenly listening to him, though not every Republican was always pleased with what they heard. John was not always a party guy, but I liked it. Many people liked it."

Costly Clashes


The Keating episode, and his crusade for campaign finance reform, set in motion a decade-long odyssey for McCain -- it saw him beset by seemingly crushing setbacks even as he steadily built for himself a winning image as a fierce and recalcitrant rebel. It propelled him as a national force even as it stiffened the opposition to him among conservatives.

That he had no definable political ideology made it easier to acquire the image of a reformer and iconoclast; he was answerable to nothing and no one in the largest sense. Unbound by a philosophy and so largely immune to charges of inconsistency, McCain's political outlook could afford to be thoroughly malleable, guided only by his instincts.

His acolytes touted him as a renegade who placed country above party and special interests -- just the right leader to reclaim the White House for Republicans, they argued. But, during the 1990s, his maverick image increasingly complicated his presidential ambitions. For every party leader who admired his independence, there was another prominent Republican voicing disdain for his go-it-alone style. Congressional Republicans who had done battle with him on campaign-finance and other issues made no secret of their opposition to him as a possible presidential candidate, and back home in Arizona, several key Republicans chafed against what they regarded as his attempts to dictate their political moves.

Even people who had stood by him since his earliest political days began abandoning him, sometimes not because of his reformist impulses but simply because his demanding nature so hurt or alienated them. He would expect fealty and they would say no. The crusader still sometimes exhibited his old prodigious temper, losing his cool behind closed doors with Republicans reluctant to do what he wanted, especially in Arizona. Their ranks included several of his longtime allies and key friends, whose estrangement he couldn't politically afford. In time, the widespread disaffection would spark the second crisis of his career, though he couldn't see the trouble brewing in the late 1990s, so busily was he preparing for his 2000 presidential run.

He had already suffered a falling out with his former top congressional aide in Arizona, Grant Woods, long viewed as his alter ego, a man who had begun to stake out his own promising future in Republican politics. Seen by many Arizonan observers as a reformer in the McCain image, Woods had risen to become Arizona's attorney general, a position from which, in the 1990s, he began investigating the state's Republican governor, Fife Symington, who would eventually be driven from office because of allegations of a financial scandal. As Woods recounts, a livid McCain asked him, "What the hell are you doing?"

"I've gotta do what I've gotta do," Woods remembers responding.

McCain made it clear that he didn't want him investigating a fellow Republican, Woods recalls. When Woods persisted, and defied McCain on a series of other issues, their relationship ended, with Woods shut out of McCain's inner circle. "It was kind of a military thing to him, a chain-of-command thing," Woods says. "I didn't follow the commands. He's a military guy, and you're supposed to salute the guy ahead of you on the command chart, and I wasn't saluting."

Perhaps the most costly clash for McCain came with Republican Jane Hull, who succeeded Symington as governor. As Woods and Smith remember, McCain never had forgiven Hull for supporting one of his Republican primary rivals during his first congressional race in 1982. "Dumb as a tree," he privately said of Hull, who, according to associates close to her, heard about McCain's insults from others and argued vociferously with him on occasions when she felt that his demands infringed on her prerogatives as governor.

McCain's grudge against Hull had long baffled Woods, who years earlier had urged his old boss to bury his contempt. "I would say to him, 'Why do you even care, John?' " Woods remembers. " 'You're talking about something that happened back in '82.' But John cared. I thought it was pretty petty and ludicrous. . . . He didn't show her the proper respect at times. I told him, 'If you don't stop doing this, you're going to have the same amount of supporters 20 years from now as you do today -- you won't add anybody.' " Woods warned McCain of the danger of alienating any prominent Arizona Republican. "It made absolutely no sense for him to keep doing it to somebody like Jane Hull. She was a strong personality herself, and she was a fellow governor of George W. Bush. And we saw what happened with that."

What happened was that, one afternoon in 1999, without warning McCain, Hull stunned the Republican political establishment by announcing her support of Bush for the 2000 presidential nomination. The moment marked the start of a new crisis. A series of other notable Arizona party operatives whom McCain had offended over the years followed Hull's lead.

Then, former congressman John Rhodes, a onetime House Republican leader whose seat McCain had captured in his first political race after Rhodes retired, issued his own endorsement of Bush, trying to soften the rejection for McCain by declaring he would support his fellow Arizonan for any office except the presidency.

Word of Arizona's disaffection toward its not-so-favorite son had spread. After he upset Bush in the New Hampshire primary, the nomination battle for McCain hinged on winning the South Carolina primary. Both the Bush and McCain forces waged fierce campaigns, with McCain irate over an anonymous smear effort alleging, among other things, that he had fathered a mixed-race child.

McCain questioned Bush's integrity and intellect. But nothing he did could stop his sliding fortunes, a trend that grew worse amid a push against him by leading Christian conservatives enamored of Bush and skeptical of McCain's commitment to their social causes. After losing South Carolina, McCain bitterly lashed out at them, referring to ministers Pat Robertson and Jerry Falwell, a co-founder of the Moral Majority, as "agents of intolerance." It was an act of political self-immolation. His campaign was finished.

The Downside of Ferocity


The Keating nightmare had infused McCain with tenacity and moral indignation. But it had taught him little, if anything, about patience and reconciliation. His old anger still competed with his new reformist politics for the attention of the public, the media and his colleagues.

The quandary had been a lifelong problem. More than 40 years earlier, his father, Jack McCain, had sought to lecture him, over lunch near the Naval Academy, on the importance of staying calm and not self-destructing when dealing with foes, especially those in superior military positions. The young rebel was fuming that afternoon again about a company commander whom he had come to regard as a mean-spirited, vindictive disgrace. His father, once a young renegade himself at the academy, but now a politically astute officer on his way to becoming a four-star admiral, warned him against taking on authority, preaching the merits of patience. McCain kept arguing the point with his father, refusing to back down. His war with Capt. R.G. Hunt, and half a century of more Hunts, would continue.

McCain's steel and ferocity had served him well at different points in his life -- in hostile schoolyards, in tough bars and in the Senate, when he was caught in the Keating fires and later in pushing campaign-finance reform. But all along, the ferocity had its downside, too, and five decades after his father's warnings, aware that he had no other choice if he ever wanted to capture the White House, the rebel at last embraced accommodation.

Although tensions between his office and the Bush White House remained, the newly accommodating McCain frequently lent the president his high-profile support and painstakingly emphasized, before conservative audiences, that he voted with him on the vast majority of issues. He gave full-throated support to the controversial Bush tax cuts, after first calling them unfair. He hugged the president at White House photo ops when Bush's poll numbers were falling and the administration was in need of all the political cover it could get.

By 2006, McCain had publicly set aside another longstanding grudge, delivering a commencement address at Liberty University and receiving a hug from another old antagonist, the university's co-founder Jerry Falwell, who died last year. His disinterest in ideology, his trust in his instincts and his comfort with the improvisational style of his own politics was proving successful in helping him make friends of former foes.

On his way to the 2008 nomination, McCain adroitly built a new coalition of Republican conservatives and moderates. As the general campaign has worn on, his nimbleness has not come without occasional costs, as some Republicans have joined Democrats in arguing that he has embraced new positions with an alarming alacrity, such as during the Wall Street bailout crisis, when his stances evolved almost daily, incorporating elements of both well-worn conservative and liberal dogmas.

But he might never have been here in the first place, so close to his dream, without having realized the benefits of all his accommodations, large and small, over the past eight years. "My father kind of gave McCain an unofficial endorsement when they finally got together," remembers Falwell's elder son, Jerry Falwell Jr. "He thought McCain would be the nominee in 2008. I think both of them discovered that they had some real personal chemistry, some real things in common. They were both mavericks, after all."

The moment represented just one more in a long line of conciliatory gestures from McCain, who was anxiously reaching out, sometimes with the help of surrogates, to soothe old enemies. Jane Hull was aboard the campaign now. And Grant Woods. And most of John Rhodes's longtime allies, too. In reaching for command, his father's way had become his own.

"...the greatest destruction of wealth in our history..."

I just have a question with this analysis: Where is FRAUD mentioned?
Everyone is haunted by the fear our financial crisis might unwind into something like the Great Depression. The world of finance is undergoing a hundred-year storm. It has inflicted the greatest destruction of wealth in our history. It swept away giant blue-chip financial firms, in a few months, even in a few days of fear, panic, and mistrust, that had made it through the Great Depression. It's turned out worse than the most pessimistic of us imagined.

Most critically, the financial world is seized by a collapse of confidence. The uncertainty over the value of the securities they hold has led to an enormous risk aversion. Customers, creditors, and shareholders of the major financial firms wonder whether they might survive. Once confidence collapses, there is no telling when the selling will stop. It all brings to mind the story of the economist who walked past a hundred dollar bill and didn't pick it up. When asked why, he responded, "It can't be a hundred dollar bill for, if it were, somebody else would have picked it up by now."

All of this has produced an unprecedented credit squeeze in which banks are refusing to lend to other banks, much less to businesses and individuals. This squeeze has had a particular impact on the newly unregulated emergent shadow banking system made up of mortgage lenders, investment banks, broker-dealers, hedge funds, private equity funds, money market funds, structured investment vehicles and conduits. Many of these names we have never heard of before but cumulatively, they now provide a majority of America's financing. They are not banks but they act and seem like banks. They borrow short and invest long, mostly in illiquid securities; they have more debt in relation to equity than banks but have lacked, until recently, both deposit insurance and the support of the Federal Reserve as the "lender of last resort." They do not have deposits but have relied on roll-over, short-term funding obtained through borrowing in the money markets that has left these firms vulnerable to disruptions in the money markets. To the extent that they have bundled these investments into securities that were sold to the markets, they were are also vulnerable to mark to market losses when these markets, or their securities, start falling.

This quickly wiped out the banks' capital base and ended their roll-over funding. The functioning of the credit markets was brought to a virtual halt. Even worse, there is a quiet run on hedge funds and private equity funds ongoing that threatens to bring the shadow banking system to its knees. Now the question is whether this will produce an economic contraction on Main Street comparable to the Great Depression.

The inescapable bad news is that a serious recession is inevitable given the damage to the financial sector, as well as in the degree to which business and the general public has been traumatized by collapsing stock prices and the daily headlines. But this does not mean we are bound to have a spiraling recessionary dynamic comparable to the thirties. The unprecedented debt American families and businesses have assumed will continue to constrain the easing of the credit crunch. But we have avoided some of the mistakes of 1929.

Take monetary policy. This time the Treasury and the Federal Reserve moved quickly and positively. They understood that when banks lose money they have to shrink their balance sheets and since bank assets are its loans, this would mean a drastic reduction in credit and worsening business conditions. The Fed has sought to ease the credit crunch by injecting over $1.5 trillion into the financial system and, most recently, added another $250 billion directly into the banks to re-liquefy them, plus increasing deposit insurance, extending it to money market funds, aggressively lowering interest rates and, importantly, doing that in concert with the other major economic powers.

In the early 1930s, the Fed refused credit to bankers and forced more and more of them to sell assets in a frantic dash for liquidity. Some 10,000 commercial banks, or 40%, failed between 1929 and 1933 compared to only 20 this time. Many people back then stopped using checks and conducted transactions in cash. The money supply declined by more than a third, creating a major contraction of credit.

The contrast in fiscal policy is equally dramatic. A generation of economists inspired by John Maynard Keynes in the 1930s taught us that the government should not try to run a balanced budget in a crisis of demand, as both Hoover and Roosevelt did. This time the government is running a $500 billion deficit to stimulate demand, and next year it will exceed $1 trillion. Orthodox adherence to the gold standard in the thirties didn't help, compared to a free floating US dollar today that has declined by 16% on a trade weighted basis. Another critical fiscal difference is that the federal government today has more sway. It makes up 21% of GDP compared to just 3% in 1929. On top of this a large component of GDP is devoted to health and education that is substantially decoupled from the problems of the private sector, not to mention that the Social Security program adopted in 1935 today provides unemployment benefits. All these contribute to maintaining the real economy.

Finally, we haven't repeated the great blunder of Hoover's 1930 Smoot-Hawley Tariff Act. It raised duties on some 20,000 foreign goods, causing many other countries to retaliate, reducing world trade by two-thirds. Now growing exports have been a major plus for our economy - something the protectionists in the Democratic Party need to remember.

Since virtually none of the necessary programs to counter the decline were implemented between 1929 and 1933. By the time FDR took over, the economic entrenchment had begun to feed on itself and turned a serious recession into the decade of the Great Depression. The reaction this time was virtually instantaneous.

All to the good, but there's also an "all to the bad" element in our present predicament. Americans are incredibly indebted. Household debt rose from about 50% of a $3 trillion GDP in 1980 to over 100% of a $13 trillion GDP today. The debts of the financial world, which amounted to 21% of GDP in 1980, soared to 120% of GDP by 2007. The financial world's unprecedented accumulation of debt in relation to equity sometimes with over $30 of debt for every $1 of equity means that small variations in their asset values, which once produced profits, have now brought them huge losses.

Much of this debt takes the form of securities and derivatives that remain on their balance sheets. In fact, another systemic risk and one that cannot be measured is based on the opacity and complexity of these exotic securities, mainly credit default swaps and derivatives that remain mainly on unknown financial balance sheets in amounts that exceed $50 trillion. The financial risk and exposure to loss is misunderstood and underestimated even by the credit agencies so the ensuing financial damage could be of a magnitude that could threaten the financial system.

AIG is a classic example of the inability to estimate the exposure. Management first estimated they would need $40 billion to get past their financial crisis; the government increased this to $85 billion; and within thirty days the cost had soared to $121 billion. Lehman is another example. When it went bankrupt, they had to unwind the credit insurance on Lehman, at a cost that has just been revealed to exceed $360 billion, an amount unrecognized by the Treasury when Lehman went under. These kinds of staggering losses could be multiplied many times over by defaults in cascading derivatives.

Then there is the housing bust. The current crisis in housing has an important history. When the Fed tried to respond to the dot.com bust in the year 2000 and 2001, that is when the Internet bubble burst, littering the country with bankruptcies and layoffs -- not to speak of investor losses of more than $1 trillion -- the Fed rapidly increased the money supply to offset these losses and slashed short-term interest rates to 1%, the lowest in 45 years. The result was the greatest housing boom this country had ever encountered. From 2002 to 2006 housing values appreciated at the astonishing rate of 16% per year compared to only 3% for the 55 years between 1945 and the year 2000. We finally came to the point where it was impossible for the typical American family to buy an average priced house using a conventional 30-year mortgage.

The response to this was an explosion of new mortgage products that enticed home buyers into supporting escalating housing prices while reducing their financial requirements. The need for the traditional 20% down payment was eliminated. Then we had interest only loans, low- or no-doc "liar loans," piggyback home-equity loans, as the mortgage and banking industries made it possible for anyone, even without a credit score, to purchase a home. These mortgages were packaged into complex financial products and sold on to other investors, many of whom had no idea what they were buying or the associated risks.

Then the housing bubble burst. Housing prices have dropped roughly 20% and the decline is continuing. Plummeting house prices mean more foreclosures, more homes on the glutted marketplace and a further house-price slump. There are 12 million homes today with negative equity where the mortgage exceeds the home's value and it may rise to 15 million over the next few months. As many as half of them have mortgages that now exceed the value of the homes by over 20%. If half these people drop the keys in a box and walk away, the losses will be in the trillions and may well destroy the equity in our banking system. That is why it is critical to find ways to keep foreclosures to a minimum. The entire attempt to re-liquefy the financial system could be undermined by this collapse in housing prices.

These are substantial threats and for all the measures (belatedly taken) distrust remains. American policymakers have seemed to be responding at an ad hoc, unfocused fashion, not fully taking into account the looming insolvency issues and the frightening complexity of the bundles of exotic securities. It is fair to acknowledge that they've been dealing with a crisis on a scale not seen before, and one that unfolded with terrifying speed. But the fact remains that by the time they acted, measures that might have re-stabilized the markets were ineffective. Robert Brusca of FAO Economics, captured it well when he said, "There is sense that if policymakers were surfers, they would have missed every wave."

Lehman's bankruptcy is a case study in government ineptitude. It was the $785 million of losses on Lehman's securities that pushed the value of the assets of a major money market firm below their $1 per share paid value, described as "breaking the buck." This caused $400 billion to be taken out of money market funds in a matter of days, while the rest of the funds were frozen in anticipation of further withdrawals. Banks were relying heavily on these funds for their commercial paper and the result was a spiral of illiquidity. The Lehman decision prompted the following from the French Minister of Finance, "Horrendous!" an assessment echoed by many others.

It remains puzzling that our Treasury officials did not foresee that the Lehman failure would not be just another failure, but a catastrophic failure undermining faith in the system. After Lehman, all remaining trust vanished in the financial world. Money market and interbank lending froze virtually completely. The spread on credit default swaps rose to levels that caused fear and speculation.

This mistake was followed by the Treasury scheme to buy toxic mortgage-backed securities. It was a flawed approach from day one. If the government bought them at a price above market and thus provided a huge bailout of Wall Street, it would have caused a political upheaval for it would have been seen to rescue them from the consequences of their misjudgment and greed. But if the government bought at current market prices financial firms would take enormous write-offs. In turn that would dramatically damage their balance sheets and force them to freeze their lending, the exact opposite of the purpose of this program.

Alas, the necessary defeat in Congress of Bailout Mark 1 was followed by Bailout Mark 2, purchased from politicians at the cost of a wholly unjustified $120 billion in additional pork barrel tax benefits.

The wiser approach, now adopted by the Treasury, but long advocated by economists and privately favored by Fed Chief Bernanke, according to the New York Times, has been for the government to invest in preferred stock in banks. This stock, convertible into common stocks if the companies later do well, is a much better deal for the taxpayer and assigns the sifting of the toxic assets to the system that created them.

What next?

Here are some proposals:

1. We must have a quick and efficient way to sustain more banks with capital injections, not just the major banks, using appropriate information gathered by bank supervisors.

2. We need to expand the definition of banks to extend appropriate regulatory regimes to the shadow banking system.

3. We will have to oblige the newly defined banking system to build up equity capital when their lending is expanding, for financial busts too often follow credit booms.

4. We must establish a standard for risk management and risk assessment covering mortgages, derivatives, debt, and even equity and especially on new financial instruments.

5. The Fed will have to continue to guarantee interbank borrowing by banks eligible for recapitalization to reactivate the interbank lending market and reduce abnormally high rates of interest on loans that float above the LIBOR interbank rate.

6. If there is to be a fiscal stimulus program, it should be primarily in infrastructure and not on tax cuts: these tend to be saved and not spent (and Obama's are more of a new entitlement program to people who don't pay any tax at all)

The danger is that politicians, who have little understanding of the financial world, may draw the wrong conclusions from Wall Street follies and make the wrong decisions, as they try to revive our financial system.

We must get this right. The new administration must draft the best of our national talent into shaping and administering these new policies. Otherwise the recession will not be U-shaped and relatively short. It will be L-shaped and extend for many unnecessary years.

Financial World Crisis! This is a great beginning to understanding this SCAM!

The Iceland Syndrome
By Anne Applebaum
Tuesday, October 21, 2008; Page A17

Imagine this scenario: In a medium-size European country -- call it Country X -- the bank regulators hold an ordinary meeting. These being extraordinary times, the regulators discuss the health of various banks, including the country's largest -- call it Bank Y -- which is owned by an even larger Italian financial group. Last spring, Bank Y, which is perfectly healthy, transferred a large sum to its now somewhat-less-healthy Italian parent; since this is nothing unusual, the regulators drop the subject and move on.

The following day, the matter is reported in a marginal, far-right newspaper in somewhat different terms: "A billion dollars transferred to Italy! Country X's hard-earned money going abroad!" Within hours, as if on cue, everyone starts selling shares in Bank Y, whose stock price plunges. So does the rest of Country X's smallish stock market. So does Country X's currency. Within a few more hours, Country X is calling for an international bailout, the IMF is on the phone and the government is wobbling.

Except for that final sentence -- there was no international bailout or call to the International Monetary Fund, and the government is fine -- that is a brief description of something that happened last week to one of Poland's largest banks. A real meeting, followed by an unsubstantiated rumor in a dodgy newspaper, and a bunch of nervous investors started selling. Shares in the bank collapsed by the largest margin in its history; for one ugly day, they dragged down the rest of the Polish stock market and currency as well.

As I say, the story ended there. But it could have gone further, and, indeed, in several other countries it has. A month ago, in the first round of this crisis, panicky rumors brought down banks. Now, with trillions of nervous dollars sloshing around the international markets, panicky rumors are bringing down countries.

The case of Iceland, which in recent weeks has nationalized its three major banks, shut its stock exchange and halted trading in its currency, is by now well known. Less well known is the speed with which the Icelandic disease is spreading. Consider Hungary, once the destination of choice for investors who wanted an Eastern European head office with a 19th-century facade and a pastry shop next door: The currency is in free fall and so is the stock market, flummoxing those previously well-fed investors. (One of them told a Hungarian financial Web site: "I haven't got a clue as to when and how this would end, I'm just staring into empty space.") Or Ukraine, whose central bank governor declared his banking system "normal and reliable" on Monday of last week. By Tuesday of last week, Ukraine had desperately requested " systemic support" from the IMF.

So far, most of these crises have been explained away: The banks of Iceland had debts larger than Iceland's gross domestic product, Hungary's finances were long mismanaged, and Ukraine, whose president just called for the third election in as many years, is badly governed. But the speed with which some of these defaults are happening, coupled with the paranoia inherent in the political culture of small countries, has led many to suspect political manipulation as well.

To put it another way: If you wanted to destabilize a country, wouldn't this be an excellent time to do it? If Country X's stock market can crash after the publication of a single article in an obscure newspaper, think what might happen if someone conducted a systematic campaign against Country X. And if you can imagine this, so can others.

All governments have enemies, internal and external, or at least are faced with elements that do not wish them well: the political opposition, the country next door, the former imperial power. For someone, there will always be the temptation to bring down the government, destabilize the country and thus create political chaos.

Even when there hasn't been political meddling, someone else will suspect that it has occurred, anyway. Here, then, is a prediction: Political instability will follow economic instability like night follows day. Iceland is not alone. Serbia, the Baltic states, Kazakhstan, Indonesia, South Korea and Argentina are all in financial trouble; so, too, are Russia and Brazil.

And here's a final, unpleasant thought: Pakistan. This is a country with 25 percent inflation and a currency in free fall; a country with a jihadist insurgency on its border with Afghanistan, permanent hostility on its border with India, nuclear weapons and a tradition of street demonstrations in response to suspect newspaper articles. Dozens of people, with all kinds of agendas, have an interest in using financial markets to destabilize Pakistan, and Afghanistan along with it. Eventually, one of them will.

applebaumletters@washpost.com

Republicans are pushing the irrational theory ...and the IGNORANT Americans will suck it up!

Republicans are pushing the irrational theory that Democrats are "cheating" their way to the White House because for them, the real reason for a possible Republican defeat would be irrational.


"We could lose, I suppose, if they cheat us out of it" and Other Tales of Republican Delusion
by georgia10
Sun Oct 12, 2008 at 06:31:13 AM PDT
The black guy can't win. The black guy with the middle name "Hussein" can't win. The black guy with the middle name "Hussein" who has "most liberal voting record" in the Senate just can't win. So if and when the terrorist-loving, radical ideology-embracing, "he doesn't see America like you and I see America" skinny black guy from Chicago wins the presidency, the only logical explanation is that he stole it.

So goes the perverted "logic" of the panicked right these days, as the entire right-wing noise machine roars up into another faux frenzy this week regarding alleged "voter fraud."

As McCain's numbers having nose-dived in the last week, some Republicans have dived head-first into the realm of conspiracy theories in order to sow the seeds of speculation that Democrats are going to "steal" this election. This week has provided some news items which they are using as kinder for their tinfoil bonfire.

ACORN (the Association of Community Organizations for Reform Now), is an organization which has been registering voters in low-income areas. Volunteers at some chapters (who are paid per registration) have been found guilty of submitting to ACORN fake voter registrations. That, obviously, is a crime.

ACORN is obligated by law to turn over all voter registration forms, even the fake ones, but it flags those it believes are suspicious (Mickey Mouse, John Q. Public, etc.) While the why of the situation remains unclear, ACORN's Nevada office was raided this week in connection with a voter registration fraud probe.

Ben Smith at Politico, like many others across the blogosphere, puts the ACORN story into perspective:

The key distinction here is between voter fraud and voter registration fraud, one of which is truly dangerous, the other a petty crime.

The former would be, say, voting the cemeteries or stuffing the ballot boxes. This has happened occasionally in American history, though I can think of recent instances only in rare local races. Practically speaking, this can most easily be done by whoever is actually administering the election, which is why partisan observers carefully oversee the vote-counting process.

The latter is putting the names of fake voters on the rolls, something that happens primarily when organizations, like Acorn, pay contractors for new voter registrations. That can be a crime, and it messes up the voter files, but there's virtually no evidence these imaginary people then vote in November. The current stories about Acorn don't even allege a plan to affect the November vote.
In other words, what is occurring (and what isn't unique to this election) is isolated incidents of voter registration fraud. Fraud is also being committed on ACORN, an organization that is being tricked into paying volunteers for these fake registrations (clarification: ACORN pays its volunteers by the hour, not per registration). Voter fraud has not occurred. Mickey Mouse isn't show up to vote, even if he did "fill out" a registration form. And if someone registered more than once? They can only vote once at the polling booth once their name is checked off.

But pesky facts like that mean little to certain Republicans who see McCain's plunging numbers and who are looking for any reason--other than the failure of conservatism--to blame for a possible crushing electoral defeat.

FOX "News" has graced the nation with almost wall-to-wall coverage of ACORN's "voter fraud", even dragging out former Ohio Secretary of State Kenneth Blackwell (yes, that Kenneth Blackwell, of Ohio voter suppression fame) to cast the outcome of the Ohio election into doubt. Republicans have released ads linking Obama to ACORN's alleged misconduct. And even John McCain's top surrogate has entered the fray, proclaiming that if Obama wins Indiana, the only explanation for such a victory would be cheating:

WASHINGTON - The only way Barack Obama can win in Indiana is to cheat, one of John McCain's stand-ins said Thursday.

He said votes have already been cast by "people who don't exist" and that a national voter-registration effort is "trying to steal the election in Indiana."

In an interview before headlining the Indiana Republican Party's fund-raising dinner in Indianapolis Thursday night, Sen. Lindsey Graham, R-S.C., said Hoosiers are too smart to vote for Obama.

Democrats, he said, "can't win fairly out here."

Asked if Democrats could win without cheating, Graham said, "No. They can't win fairly out here 'cause their agenda is so far removed from the average Hoosier.

"We could lose, I suppose, if they cheat us out of it," Graham said of Indiana's 11 electoral votes. "I think the only way we lose a state like North Carolina or Indiana is to get cheated out of it."
When the reporter calls him out on the distinction between "voter registration fraud" and "voter fraud," Graham palinizes his response:

Asked to identify non-existent people who have voted in the presidential election, Graham said: "Have you been following the ACORN investigation out there? They're registering people who don't exist." He said there are multiple registrations going on. "One lady registered 11 times. I'm saying that the dynamic out here of voter fraud is something we're concerned about."
News Hounds brings us the Missouri Senator Claire McCaskill's rational take on the matter:

"There has been no fraudulent voting...The people who claim this is a huge problem can never produce any instances where anyone voted fraudulently. They have registered fraudulently.

"Anyone who is registering someone who is not a real person should be prosecuted to the fullest extent of the law," McCaskill said, but she did not accept the accusation that the apparently bogus registrations were "clogging" the system.
Meanwhile, in the real world, the New York Times reports that thousands of voters are being cheated out of their votes because of bureaucratic bungling:

Tens of thousands of eligible voters in at least six swing states have been removed from the rolls or have been blocked from registering in ways that appear to violate federal law, according to a review of state records and Social Security data by The New York Times.

The actions do not seem to be coordinated by one party or the other, nor do they appear to be the result of election officials intentionally breaking rules, but are apparently the result of mistakes in the handling of the registrations and voter files as the states tried to comply with a 2002 federal law, intended to overhaul the way elections are run.

Still, because Democrats have been more aggressive at registering new voters this year, according to state election officials, any heightened screening of new applications may affect their party’s supporters disproportionately.

Republicans are pushing the irrational theory that Democrats are "cheating" their way to the White House because for them, the real reason for a possible Republican defeat would be irrational.
This was, after all, supposed to be the age of the "permanent Republican majority." America is a "conservative country" we've been told. Indeed, as this screencap from John McCain's "Strategy Briefing" demonstrates, the entire McCain campaign was premised on the idea that voters do not think Obama is "one of them":

But that screencap is from many months ago, before the full brunt of the failure of conservative policies has come to the foreground with the resounding "thud" of a stock market collapse. In this atmosphere, maybe having a "liberal" president who favors reasonable regulation and stringent oversight isn't a bad thing after all. And maybe, when voters are worried about how to pay for health care, voting for the Republican who touts the ability of the "market" to deal with the problem doesn't seem that appealing anymore.

The middle class is being cheated. And they know--as much as Republicans would like for them to forget--which party has been in power for the last eight years. And as they flock to a candidate who promises them change from failed Republican policies, panicked Republicans flock to conspiracy theories.

Blaming a possible Democratic victory on "voter fraud" is much easier than acknowledging that a resounding Democratic victory would be a wholesale rejection of Republican governance. And it's easier than admitting that voters--yes, Senator Graham, maybe even voters in Indiana and North Carolia--like what the liberal black guy from Chicago is saying about the middle class.

So let them wrap themselves in tin foil. Let them revel in nuttery now. They can use that tin foil to wipe their eyes if and when--as the polls suggest--they will be wallowing in defeat in November.

::

Accounting Fraud...Really? look at all thePublicCompnaies that dumped their losers into private NCFE...BIGGER THAN ENRON!!

The push to credit 'mortgage-back securities' as the causal effect of our financial crisis is very troubling and misleading.
Yes,the home mortgage crisis is a huge contribution, however do you honestly believe Iceland, a Country, has gone bankrupt because of 'low income'or 'mortgage backed securitues'?

We cannot continue to allow the false rhetoric to soar and the truth to be buried. If we continue to blame 'mortgage-backed securites" as the root of the problem, justice will never be ceased.

We need to get to the root of this Global Financial Crisis, whatever the outcome.

Remember, Corporate Bankruptcy,Debtor in Possession Financing,(Darla Moore's invention-Richard Rainwater's wife), Healthcare Fraud and REIT's would be a great start.

I believe we should go back to 1997. The year Healthcare Reform was passed.

In 1997, the largest healthcare company in the nation was the "Frist Family" and friends' Hospital Corporation of America , HCA, or any one of their affiliates...There are many players here so try to keep up!

FOR IMMEDIATE RELEASE
THURSDAY, JUNE 26, 2003
WWW.USDOJ.GOV
LARGEST HEALTH CARE FRAUD CASE IN U.S. HISTORY SETTLED
HCA INVESTIGATION NETS RECORD TOTAL OF $1.7 BILLION

WASHINGTON, D.C. - HCA Inc. (formerly known as Columbia/HCA and HCA - The Healthcare Company) has agreed to pay the United States $631 million in civil penalties and damages arising from false claims the government alleged it submitted to Medicare and other federal health programs, the Justice Department announced today.

One must wonder about the mortgage-related securities JPMorgan is taking onto its books. The following are not the only questionable liabilities JPMorgan has taken on that Richard Rainwater was directly involved with and I am not referring to oil.

JPMorgan is taking on about $176 billion of WaMu home loans, and marking down almost $31 billion of that right off the bat.

Just before the Real Estate crash in 2007, JPMorgan Chase financed Richard Rainwater’s REIT, Crescent (CEI) sale. (Many investors wondered about this move)

Jul 28, 2003
2003-87
SEC Settles Enforcement Proceedings against J.P. Morgan Chase and Citigroup
FOR IMMEDIATE RELEASE
J.P. Morgan Chase Agrees to Pay $135 Million to Settle SEC Allegations that It Helped Enron Commit Fraud
Citigroup Agrees to Pay $120 Million to Settle SEC Allegations that It Helped Enron and Dynegy Commit Fraud

The following is an excerpt from a 10-K SEC Filing, filed by J P MORGAN CHASE & CO on 3/9/2006: Enron litigation. JPMorgan Chase and certain of its officers and directors are involved in a number of lawsuits arising out of its banking relationships with Enron Corp.

The three current or former Firm employees are sued in their roles as former
members of NCFE's board of directors
National Century Financial Enterprises litigation. JPMorgan Chase, JPMorgan
Chase Bank, JPMorgan Partners, Beacon Group, LLC and three current or former
Firm employees have been named as defendants in more than a dozen actions filed in or transferred to the United States District Court for the Southern District of Ohio (the "MDL Litigation"). In the majority of these actions, Bank One, Bank One, N.A., and Banc One Capital Markets, Inc. are also named as defendants.
JPMorgan Chase Bank and Bank One, N.A. are also defendants in an action brought by The Unencumbered Assets Trust ("UAT"), a trust created for the benefit of the creditors of National Century Financial Enterprises, Inc. ("NCFE") as a result
of NCFE's Plan of Liquidation in bankruptcy.

"...the Order finds that JPMorgan Chase was a cause of NCFE's violations of Section 17(a)(3) of the Securities Act, requires JPMorgan Chase to cease and desist from committing or causing any violations and any future violations of Section 17(a)(3) of the Securities Act, and orders JPMorgan Chase to pay disgorgement of $1,286,808.82 and prejudgment interest of $711,335.76. JPMorgan Chase consented to the issuance of the Order without admitting or denying any of the findings therein."

JP Morgan Settles SEC Proceeding Relating to Activities as Trustee to National Century Financial Enterprises

The SEC settled administrative proceedings against JPMorgan Chase & Co relating to its activities as an asset-backed indenture trustee for certain special-purpose subsidiary programs (programs) of National Century Financial Enterprises, Inc. (NCFE), formerly a Dublin, Ohio healthcare financing company, during the approximate period 1999-2002. According to the SEC's Order, JPMorgan Chase and Bank One Corporation, which merged into JPMorgan Chase in 2004, at the instruction of NCFE, made transfers between reserve accounts in the programs that contradicted NCFE's representations to investors about how the reserve accounts would be used and contravened the requirements of the indentures governing the programs. In addition, the Order finds that pursuant to NCFE's instructions, JPMorgan Chase and Bank One made month-end transfers of huge amounts of reserve account funds and that these transfers helped NCFE mask substantial and growing reserve account shortfalls. Based on the above, the Order finds that JPMorgan Chase was a cause of NCFE's violations of Section 17(a)(3) of the Securities Act, requires JPMorgan Chase to cease and desist from committing or causing any violations and any future violations of Section 17(a)(3) of the Securities Act, and orders JPMorgan Chase to pay disgorgement of $1,286,808.82 and prejudgment interest of $711,335.76. JPMorgan Chase consented to the issuance of the Order without admitting or denying any of the findings therein. In the Matter of JPMorgan Chase & Co.

A little history of National Century Financial Enterprises (NCFE):

Prior to bankruptcy, NCFE provided financing to various healthcare providers through wholly-owned special-purpose vehicles,including NPF VI and NPF XII, which purchased discounted accounts receivable to be paid under third-party insurance programs. NPF VI and NPF XII financed the purchases of such receivables, primarily through private placements of notes.

TUESDAY, JULY 10, 2007
FOR IMMEDIATE RELEASE
http://www.usdoj.gov/usao/ohsn
SUPERSEDING INDICTMENT CHARGES FORMER EXECUTIVES OF HEALTH CARE FINANCING COMPANY WITH CONSPIRACY, FRAUD, MONEY LAUNDERING

COLUMBUS – A federal grand jury here today returned a superseding indictment charging eight former executives of National Century Financial Enterprises (NCFE) with conspiring to defraud investors by diverting millions of dollars in investors’ funds, fabricating data in investor reports, and moving money back and forth between accounts in order to conceal investor fund shortfalls. NCFE, based in Dublin, Ohio, was one of the largest healthcare finance companies in the United States until it filed for bankruptcy in November, 2002.

All defendants, except for James K Happ, were initially indicted in May, 2006. United States District Judge Algenon L. Marbley will preside over the case which is scheduled for trial on November 5, 2007.

“All defendants, except for Happ...”
Who is James K Happ?

James K Happ has an interesting employment history.

SEPTEMBER 9, 2003
Source: ANNUAL MEETING OF STOCKHOLDERS-SEPTEMBER 9, 2003-Med Diversified Inc.
JAMES K. HAPP has served as chief executive officer of our subsidiary,
Tender Loving Care Health Care Services, Inc., since October 2002.
Previously, Mr. Happ served for three years as executive vice president of NCFE,
during which time he restructured the servicer department to improve operational
Performance and accelerated the utilization of technology to increase operational
efficiency. Mr. Happ also served as chief financial officer of the
Dallas-based Columbia Homecare Group, Inc., a home care company with more than 500 locations nationwide and more than $1 billion in revenue in 1997.

In this role, he directed the company through the challenging reimbursement climate, known as the interim payment system, and participated in the divestiture of all of Columbia/HCA's home care operations. (All of which are in the Bankruptcy case in Tennessee) Who owned Columbia Homecare Group, Inc.?