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George Zornick | The Nation

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George Zornick

George Zornick

Action and dysfunction in the Beltway swamp. E-mail tips to george@thenation.com

NFIB, a Mainstream GOP Group, Backs Akin

Major outside GOP money groups foreswore support of Representative Todd Akin in his bid to unseat Senator Claire McCaskill after he made disturbing comments about “legitimate rape,” and so far they’ve stood by their word—until now. One major, mainstream GOP group has started spending on the Missouri race, and it’s entirely possible it is funneling money from other groups who swore they would never back Akin.

The National Federation of Independent Business, a major lobbying group and that purports to represent American small-business owners, recently created a 501(c)(4) spin-off, the NFIB Voice of Free Enterprise Inc.

Yesterday, NFIB Voice of Free Enterprise Inc. notified the FEC that it spent $10,453 in the Missouri Senate race, for mailings that opposed McCaskill. The group did not make any public statements or other indications that it was now backing Akin, but told The Nation the mailer would go to 16,000 small-business owners in the state, and in eight other states where there’s a Senate race.

The mailer, which NFIB shared with The Nation, implores recipients in large block letters to “VOTE AGAINST CLAIRE MCCASKILL” and ticks off her positions on the Affordable Care Act, cap-and-trade laws and the Bush tax breaks for top earners.

NFIB officials said they don’t expect the mailing to be controversial. “What we really care about is our members, and we don’t expect an uproar from them, because from them the issues that are important are the ones that affect their business,” said Jean Card, vice president of media and communications at NFIB. “Akin does have a very good voting record with us. He’s what we call a guardian of small business.”

This giving is significant in itself—NFIB Voice of Free Enterprise Inc. is the first mainstream Republican group to get involved in the race after the “legitimate rape” controversy. Until now, only hard-right conservative groups ponied up for Akin, like Senator Jim DeMint’s Senate Conservatives Fund, and Freedom’s Defense Fund, a wacky group run by conspiracy theorist Jerome Corsi.

But NFIB is a different animal. It’s research on the supposed harm done to small businesses by letting the Bush tax rates on top earners has been cited by Mitt Romney, in the recent presidential debate, and repeatedly by Scott Brown in his debates with Elizabeth Warren. The NFIB itself has launched multimillion-dollar efforts to get Republicans—and almost exclusively Republicans—elected to Congress, and this (c)(4) that it has created, now backing Akin, has spent $383,405 (through October 9) exclusively supporting Republicans or opposing Democrats.

When the National Republican Senatorial Committee flirted with supporting Akin last month (something it never followed through on), Democrats immediately began tying every other Republican backed by the NRSC to Akin. Now, you might expect the same thing to happen with Republican candidates also backed by NFIB Voice of Free Enterprise Inc.—they include Senate candidates Connie Mack (FL), Tommy Thompson (WI), George Allen (VA), Josh Mandel (OH), Pete Hoekstra (MI), Linda McMahon (CT), Denny Rehberg (MT), and Rick Berg (ND), along with a wide range of House candidates, like Tea Party star Representative Sean Duffy (WI).

But there’s also a much more interesting possibility here. What if NFIB Voice of Free Enterprise Inc. is serving as a conduit for money from other outside groups and donors who swore they’d never support Akin?

It’s a possibility worth considering, given the NFIB’s history.

Despite the fact that NFIB claimed to be the voice of small business, funded by membership fees from small business owners, it has advocated a strident conservative agenda. A recent poll found that 47 percent of small-business owners plan to vote for Obama, versus 39 percent for Romney. But 98 percent of NFIB's 2012 campaign contributions went to Republicans—and in recent years, it has taken aggressive lobbying stances in the interest of big business. NFIB was the lead plantiff in federal court against the Affordable Care Act, which it spent almost $3 million litigating. It has fought ferociously on tax policy to protect top Bush rates for the wealthy, despite the fact those affect at most three percent of small businesses.

Other small-business groups began criticizing the NFIB for “selling out small business owners to benefit the rich and powerful,” as Mother Jones wrote this summer.

But why would it do this? As always, following the money gave the answer. The Center for Media and Democracy this year revealed that NFIB was taking money from a wide array of corporate-backed, GOP-aligned heavyweights. NFIB accepted a $3.7 million “gift” from Crossroads GPS as it was fighting the Affordable Care Act. It also received $1.15 million from Donors Trust, a major contributor to the Koch Brothers’ Americans for Prosperity Foundation, along with substantial funding from the Lynne and Harry Bradley Foundation, a major donor to the American Exchange Legislative Council (ALEC).

This sparked a Congressional inquiry this summer from lawmakers who saw the big donations and said it “call[ed] into question the NFIB's role in speaking for small business interests.”

Interestingly, earlier this year NFIB created NFIB Voice of Free Enterprise Inc., which seems to have the purpose of resolving this conflict. Anybody can donate to NFIB Voice of Free Enterprise Inc.—NFIB officials said in February that the new initiative would allow non–small business owners to support the NFIB agenda, something the group “had a need for it for a long time.” Since, again, it’s a 501(c)(4), we’ll never know who is funding the effort.

“What the (c)(4) gives them is a way to channel donations from CEOs or CEOs of global corporations or CEOs of privately held corporations or others that are not technically members of NFIB, that don’t meet the test for being a small business,” said Lisa Graves, the director of the Center for Media and Democracy, which exposed the past donations to NFIB from big outside groups. “This provides a vehicle for them to receive donations from an unlimited variety of sources that don’t qualify as small businesses.”

Graves would not speculate as to whether NFIB Voice of Free Enterprise Inc. was taking money from Crossroads GPS and others again, but did state the obvious: “There seems to be a lot of money sloshing around between these groups.”

Back in August, in the wake of the “legitimate rape” controversy, Crossroads GPS said that “Neither American Crossroads nor Crossroads GPS will spend in Missouri as long as Todd Akin is the Republican candidate.” That’s a tough statement to retreat from publicly—but is it still backing NFIB’s efforts via Voice of Free Enterprise Inc.? We’ll never know because of the vagaries of campaign finance, but it’s certainly possible. (If Crossroads gave a grant to NFIB Voice of Free Enterprise Inc. that would eventually have to be reported—but not until well after the election. It could also conceal the money by marking the expenditure differently, or simply directing Crossroads donors to give instead to NFIB Voice of Free Enterprise Inc.)

Again, we don't know who is bankrolling NFIB Voice of Free Enterprise Inc.—but if Crossroads GPS and other big GOP donors wanted to back Akin without taking heat for it, this is just how they would do it.

Schumer Calls Out Dems on Regressive Tax Reform

As the election season barrels towards the end—we’re only twenty-eight days away—key players in Washington are already maneuvering to deal with the so-called “fiscal cliff” that awaits on the other side of November 6. Tuesday, Senator Chuck Schumer delivered one of the most crucial speeches to date.

There’s an important caveat at the end, but most of the speech ought to make progressives awful happy, as Schumer is boldly trying to pull Democrats away from flirtation with dangerously regressive tax policy.

Here’s why: the dirty little secret of President Obama’s re-election is that, despite campaigning extensively on a pledge to end the Bush tax cuts for wealthy Americans, it has seemed fairly likely that Obama would be inclined to sign a fiscal cliff deal, or a deficit reduction deal later in his term, that did the exact opposite—one that lowered rates across the board.

Recall that during the debt ceiling negotiations, according to all available reporting, Obama was prepared to accept a tax code overhaul that would lower all income tax rates in exchange for $800 billion in new tax revenue gained by closing loopholes and exemptions. This is basically what the Simpson-Bowles plan does: it calls for the top income rate to be no higher than 29 percent (and as low as 23 percent), offset by raising the capital gains tax and closing exemptions and loopholes.

And although his campaign contains many paeans to tax fairness, at the same time Obama has also said that he is “eager to reach an agreement based on the principles of my bipartisan debt commission.” (That’s a quote from his acceptance speech in Charlotte—not exactly an insignificant address). Meanwhile, key Democrats in Congress—Senator Dick Durbin and Representative Chris Van Hollen—have explicitly called Bowles-Simpson a “template” for a debt deal in recent weeks.

Today at the National Press Club, Schumer kicked out the stool from beneath supporters of any such plan—a speech his press office billed as one in which the New York Senator calls for “scrapping the Reagan-style tax reform model used by Simpson-Bowles.”

“It is an alluring prospect to cut taxes on the wealthiest people and somehow still reduce the deficit, but you can’t have your cake and eat it, too,” Mr. Schumer said. “The reality is, any path forward on tax reform that promised to cut rates will end up either failing to reduce the deficit or failing to protect the middle class from a net tax increase.”…

“If upfront rate cuts are the starting point for negotiations on tax reform, it will box us in on what else we can achieve. Certain conservatives will pocket the rate reductions and never follow through on finding enough revenue elsewhere in the code to reduce the deficit. Or, if they do, it will almost certainly come out of the pockets of middle-income earners,” he said.

Schumer is right on every policy point here. If Congress does actually agree to remove a whole bunch of major tax deductions and exemptions—an enormous “if”—in order to make the math add up, those lost deductions would have to include many important to the middle class, like exemptions for retirement savings and college tuition. Afterwards, opportunistic members of Congress would almost certainly build the deductions back into the tax code—that’s what happened after the tax code overhaul of 1986. So you’d return to a similar tax code, just one with much lower rates.

Most importantly, across-the-board rate deductions are just terrible public policy that’s bound to increase inequality. They disproportionately benefit top earners, as this chart from CBPP shows:

In the speech, Schumer finishes with a call to preserve the Clinton-era rates on top earners while also raising capital gains rates and eliminating some deductions not harmful to the middle class, like the carried-interest loophole.

Schumer is the leader on messaging and policy in the Senate, and his speech today marks an important shift in the fiscal cliff debate. He’s openly demanding that his party not enter into negotiations with a pre-compromised position on tax policy.

There is one major caveat, however—acknowledging that this approach will be fiercely opposed by Republicans, he proposes “serious entitlement reform” as an enticement to the bargaining table. Given that the approaches to the safety net attractive to Republicans involve privatization, deep cuts, raising eligibility ages or some combination thereof, this is a dangerous offer.

But consider a few things: Schumer said today that privatization is off the table, meaning that whatever “serious entitlement reform” he’s talking about is likely along the lines of what’s already been offered. So it’s not clear what he is substantively proposing to offer the GOP here.

Moreover, as David Dayen theorizes, in the end this makes a “grand bargain” on the deficit less likely. (Remember, we don’t need a grand bargain on the debt. All that happens on December 31 is that all the Bush tax cuts expire—something that would in itself go a long way towards reducing the national debt.) The only thing that even got John Boehner to the bargaining table during the debt ceiling debacle was that the tax reform didn’t raise rates. (The increased revenue still ended up being too much to handle for his party.) But if Democrats adopt Schumer’s line, it’s extremely difficult to see the GOP agreeing to any grand bargain deal. So these “serious entitlement reforms” would never happen anyhow.

Republicans, Here's How to Complain About the Jobs Report Without Conspiracy Theories

Today’s jobs report is good news for the economy, and of course by extension, the president’s re-election campaign. The unemployment rate dropped to 7.8 percent, bringing it under 8 percent for the first time since January 2009. That was fueled by the 114,000 jobs added to the economy in September, and an upward revision of August’s number from 96,000 to 142,000. (This wasn’t one of those drops in the unemployment rate because more people stopped looking for work—in fact, the rate went down despite 418,000 more Americans joining the labor force).

While the September spike may be a statistical fluke—that has happened before—the unemployment rate is almost certainly moving down, if not as fast as today’s report might indicate, says Dean Baker.

Within the data there are several promising individual indicators. The real estate sector added 7,100 jobs in September, a sign of an improving housing market. The restaurant and retail sectors continued to add jobs, as they have for the past year, as did the healthcare, transportation, and financial services sectors. The public sector posted somewhat rare gains—adding 10,000 jobs in September. (These gains are due in large part to a rise in state government education, which added 13,600 jobs. Recent upward revisions are due to robust hiring in local education, which added 79,000 jobs in the past three months).

The number of average hours worked went up to thirty-four and a half hours, and average hourly earnings increased seven cents to $19.81. The number of discouraged workers fell sharply, 1,032,000 to 802,000.

So things are getting better. And it’s possible—though not yet certain—that this is part of a sustained upswing. Public perceptions about the economy have been rising for the past couple of months, which many analysts attributed to people listening to Obama’s re-election campaign and simply believing the rhetoric about an improving economy. But this report, and recent upward revisions in BLS data, may paint a different (or complementary) picture, as Josh Marshall notes—maybe the strong September numbers, plus the July and August upward revisions, plus the upward BLS revision of the first half of the year’s numbers by 386,000 announced this week, means that people were noticing a real recovery that was underway before the economic indicators picked up on it.

This good news for the economy was naturally unwelcome in conservative circles.The jobs report prompted a round of conspiracy theorizing from right-wingers who believe BLS is cooking the books for Obama—this has been floated by everyone from media types like Joe Scarborough and Laura Ingraham, to elected officials like Representative Allen West.

This can easily be debunked (see here and here), but let’s be clear—a real recovery remains quite elusive. An unemployment rate of 7.8 percent is by no means desirable, nor is monthly job growth of under 150,000.

Ironically, there are plenty of things to complain about in today’s jobs report. Republicans didn’t need to immediately dive off the deep end and start talking about Alinsky-ite tactics at BLS. So, some free advice for sane Republicans—talk about this instead if you want to score points:

• At the rate of job growth shown in the September report, it will take more than a decade to reach full employment.

• The duration measures for unemployment all increased in September, meaning people are staying jobless longer.

• The number of people involuntarily working part-time rose 581,000.

• Obama has been touting his plans to revive the manufacturing sector, promising in ads to add 1 million jobs there. He hasn’t done a great job of that recently, though—manufacturing employment shed 16,000 jobs last month after dropping 22,000 in August. (The unemployment rate in that sector is “only” 6.7 percent, though).

• Blacks, Hispanics, and teenagers reaped virtually no benefit from the recent upswing in employment.

For more on the conspiracy theorizing surrounding the latest jobs report, check out Greg Mitchell’s latest.

Romney's Obscene Posturing As A Wall Street Critic

Among the many obfuscations of Mitt Romney last night, this was perhaps the biggest laugher of them all:

ROMNEY: Dodd-Frank was passed, and it includes within it a number of provisions that I think have some unintended consequences that are harmful to the economy. One is it designates a number of banks as too big to fail, and they’re effectively guaranteed by the federal government. This is the biggest kiss that’s been given to—to New York banks I’ve ever seen. This is an enormous boon for them. There’s been—22 community and small banks have closed since Dodd-Frank. So there’s one example I wouldn’t designate five banks as too big to fail and give them a blank check. That’s one of the unintended consequences of Dodd-Frank. It wasn’t thought through properly.

Romney—the private equity veteran running a presidential campaign funded by Wall Street, on a platform that contains a full repeal of every financial regulation over the past four years—positioning himself as an opponent of those big “New York banks” was a historic moment in presidential debate cravenness. (And a real missed opportunity for Obama to wallop his opponent).

So what exactly was Romney talking about? It’s a complicated answer, but understanding it reveals the true perversity of Romney’s posturing.

Dodd-Frank has two provisions regarding too-big-to-fail that Romney is talking about here. The first is the ability of the Financial Stability Oversight Council, created by the legislation, to name financial institutions “systemically significant.” This means they are so big that their failure could threaten the health of the financial sector, and that designation subjects them to heightened regulation and higher capital requirements.

The big banks hate this requirement, for obvious reasons—they come under increased scrutiny and restrictions. So Republicans have been dutifully attacking it. (Romney’s running mate, Representative Paul Ryan, repeatedly blasted it before joining the ticket). The GOP argument, as you heard Romney deliver it, is that by giving them the “systemically significant label, the government is officially “designating” banks as too-big-to-fail—a very bad-sounding thing indeed!

But this is nonsense—these firms are too big to fail. The FSOC designation doesn’t make them so, and is in no way a “kiss” to the big banks—again, it subjects them to higher regulation. Romney and his party would prefer to repeal this provision, full stop, and thus effectively stick their heads in the sand about too-big-to-fail institutions. It’s like saying a doctor who diagnoses someone with cancer has given it to him.

Interestingly, a key feature of this provision is that FSOC can name non-banks as systemically significant, and just this week news broke that AIG is on the verge of receiving this label. Republicans on the House Financial Services Committee have been trying to amend Dodd-Frank to protect AIG from that designation, which to me raises an interesting question about Romney’s timing here.

In any case, when Romney spoke about “guaranteeing” a bailout, and of “blank checks,” he’s echoing another GOP complaint about the resolution authority provision of Dodd-Frank. That gives the federal government the power to wind-down big banks in the event of a failure. The idea is to dissolve the bank, without taxpayer money, not save it—Rep. Barney Frank has called this a “death panel” for big banks. (Pat Garofalo wrote on this issue for us here).

Banks also hate this provision, preferring instead the inevitable ad hoc, blank-check bailout that we saw in 2008. So Republicans have been going after resolution authority—the 2012 Ryan Budget would repeal it—by arguing that the provision somehow guarantees bailouts. This is the same flim-flam as before: the bailout is going to happen either way if the firm is too big to fail, and by repealing resolution authority, you take away the increased power of the government under Dodd-Frank to deal the problem. (Former Treasury Secretary Hank Paulson said he “would have loved to have had” resolution authority in 2008 instead if issuing straight-up bailouts).

Many progressive critics have legitimate complaints about the failure of Dodd-Frank to be tougher in dealing with too-big-to-fail firms, but to be absolutely clear, that’s not what Romney and the Republicans are trying to do. They’re trying to get rid of the limited reforms that have been made. To do it while preening as tough-on-Wall-Street politicians is deeply, deeply cynical.

For more on Romney’s posturing last night, read John Nichols on the Republican candidate’s debate with… himself. 

There Is No Debate: Mitt Romney Would Raise Taxes

The mainstream media, to their credit, have latched onto the fact that Mitt Romney won’t describe roughly half of his tax plan—something sure to come up in tonight’s debate. Romney pledges to reduce taxes by $5 trillion through well-detailed cuts, but since Republicans are deeply concerned about the deficit (ahem, cough) Romney claims he would also eliminate or reduce tax breaks to make up for the lost revenue and make the plan deficit-neutral. He just won’t say which ones.

There’s a reason for that—independent analyses show Romney would have to cut popular deductions used by the middle class in order to truly offset the lost revenue. He denies this, of course, but it’s hard to believe Romney if he won’t actually explain the details. (This week his campaign floated a plan to cap deductions at $17,000, which still won’t make the math work).

This rather shocking lack of specificity lead even Fox News’s Chris Wallace to go after Paul Ryan this weekend in a quest for details, an indignity Romney has repeatedly suffered as well. The Obama campaign has relentlessly hammered the Romney/Ryan ticket on this point, and openly told reporters this week that since “Romney won’t name which deductions he’ll eliminate,” Obama will press him to do so during tonight’s debate.

But frequently lost in this conversation is the fact that Romney has, in fact, named three (and only three) specific deductions that he would reduce. Not surprisingly, they mainly affect low-income families. I’ll pull from the Center for American Progress’s lengthy examination of Romney’s economic policies earlier this year for the details:

Eliminate President Obama’s American Opportunity Tax Credit for families paying for college

Under the current American Opportunity Tax Credit, families are eligible for a tax credit of up to $2,500 for four years of college (partially refundable for families with no income tax liability). Under Gov. Romney’s plan, credits would be limited to a nonrefundable credit of about $1,800, available only for two years of college.

Reduce the Earned Income Tax Credit for larger families

The Earned Income Tax Credit supplements the earnings of low-income families, rewarding work while offsetting payroll and other taxes. Prior to 2009, families with three or more children received the same tax benefit from the Earned Income Tax Credit as families with two children, despite a higher cost of living. A provision enacted in 2009 made such families eligible for an additional benefit, but Gov. Romney’s plan would let that provision, along with another improvement to the credit signed in 2009, expire. A two-parent family raising three children on $30,000 of earnings would lose $1,076 a year.

Lower the Child Tax Credit for low-income families

The Child Tax Credit also rewards work while defraying child rearing expenses. Only families with earned income can benefit. The credit is generally $1,000 per child, but families at low-income levels can often claim only a partial credit. President Obama’s 2009 reforms allowed low-income families to claim more of the credit. Gov. Romney’s tax plan would repeal those reforms, resulting in a smaller credit or no credit for the families of 15.8 million children.

All told, CAP calculates that by letting these three reforms expire—which, again, Romney has explicitly asserted he will do—18 million households would see higher taxes, including 13 million families with children. (Which, by the way, is 27 percent of all families with children). These are all tax provisions Obama has pledged to extend.

So if Romney says tonight that he won’t raise taxes on the middle class (as he said at the RNC) that is not true—it can be debunked without even getting to the hairy debate about unnamed exemptions and deduction caps. And if Romney gets hammered for refusing to name what deductions he would reduce, that is not really true either—he’s named these three, which would hurt exclusively low- and middle-income families.

That’s perhaps a good a hint as any about what other deductions President Romney would end up targeting.

For more on Romney’s seeming inability to talk about specifics in his plan, watch Katrina vanden Heuvel’s appearance on Now With Alex Wagner.

Mortgage Fraud Task Force Takes On JPMorgan Chase


New York Attorney General Eric Schneiderman speaks during a news conference at the Justice Department in Washington, Tuesday, Oct. 2, 2012, in Washington. The federal government on Tuesday threw its support behind a lawsuit against JPMorgan Chase accusing Bear Stearns, the investment bank JPMorgan bought in 2008, of engaging in massive fraud in deals involving billions in residential mortgage-backed securities. (AP Photo/Carolyn Kaster)

The Residential Mortgage-Backed Securities working group—a joint federal-state task force announced by President Obama at this year’s State of the Union address—filed its first case yesterday, targeting big-six bank JPMorgan Chase for widespread fraud leading up to the financial collapse of 2008.

The civil case, filed in New York State Supreme Court by New York Attorney General Eric Schneiderman, a co-chair of the RMBS task force, targets the practices of the former Bear Stearns, which was acquired by JPMorgan Chase in 2008.

Bear Stearns, according to the suit—and several similar suits and shareholder actions over the years—was consistently practicing the type of fraud at the center of the Wall Street collapse four years ago: bundling up shaky (at best) mortgages into securitization products, and then selling these products to investors while deceiving them about the due diligence done to ensure the health of the underlying mortgages. (You can read the entire thirty-one-page filing here.)

Between 2005 and 2007, the suit describes how Bear Stearns was hooked up to a firehouse of mortgages that it must have known weren’t being thoroughly evaluated before being packaged them into MBS’s (mortgage-backed securities). One Bear Stearns employee cited in the filing said he evaluated 1,594 loans in a five-day period—a truly impossible task, and one that people at Bear must have known wasn’t adequate. The suit also describes how the bank had an internal quality-control unit that it knew was in “crisis,” but neglected to change any protocols.

Of course, all the while Bear Stearns was telling investors that it carefully investigated all of the loans, and assured them the MBS’s were top-notch investment products. When it did send them for a (limited) review by Clayton Holdings, a third-party evaluator of mortgages, it ignored the warnings furnished by Clayton. (E-mails and other documents from Clayton Holdings to officials at Bear are included in the filing).

This is a fairly amazing chain of fraud being alleged—but that’s not it. The suit also describes how Bear Stearns executives were indulged in a shameful double-dipping scheme.

When loans inevitably started to go bad, some within a month, the bank was required to take them out of the securitization products and seek restitution from the mortgage originators. Bear Stearns executives would go to the originators and sell them back the bad loans for a fraction of the original cost, according to the suit, and then leave the mortgages in the MBS’s—all while pocketing the money they got from the originators.

(Think of this like an auto dealer putting a faulty part in your car, and upon discovering the parts didn’t work, going back to the manufacturer for a discount—but keeping that money and then failing to even fix your vehicle.)

Schneiderman filed the suit in New York under the Martin Act, a unique law in that state which gives prosecutors more leeway in filing cases because they don’t have to prove an actual intent to defraud. (This can be a difficult burden to meet, as defendants can simply claim incompetence and lax oversight.) It doesn’t ask for specific damages, but notes that investors lost $22.5 billion in these deals and says that the defendants should disgorge their profits.

Though this was all conduct by Bear Stearns, JPMorgan Chase became legally liable when it acquired the bank in 2008 (with $29 billion in help from federal taxpayers). And JPMorgan Chase isn’t guilt-free in an of itself—it’s been profiting off the fraud initiated by Bear Stearns, and maneuvering to keep it away of the public and legal eyes so as to avoid having to lose money.

The case is significant for several reasons. When the task force was announced in January, Schneiderman said it would go after “the stuff that blew up the economy,” and going after the fraudulent bundling of MBS’s is certainly a stab at that.

The suit also alleges a broad, systematic pattern of conduct—platform-wide fraud that goes beyond a specific deal. While the SEC could have filed similar charges, not only would there not be the lessened burden of intent under the Martin Act, it would relate only to specific deals—this case is attempting to charge a broader pattern of conduct.

Building a case against a pervasive culture of MBS fraud could extend beyond Bear Stearns as well—the public record already suggests broad swaths of Wall Street were engaged in similar practices. (Clayton Holdings, the third-party firm helping to blow the whistle here, was employed by many other big banks as well, as described in the Financial Crisis Inquiry Commission report.)

And in fact, a person briefed on the investigations told me that “we intend to follow up with similar actions against other sponsors and underwriters of RMBS.” So other big banks might soon find themselves the target of similar Martin Act cases.

The suit has some obvious drawbacks for those seeking tougher action on Wall Street, of course. For one, it’s not a criminal case—no jail time can be associated with any of the charges. There’s a lower burden of proof under the Martin Act for civil cases, which is likely why Schneiderman and the task force are pursuing the lower-hanging fruit. (Two Bear hedge fund managers were already acquitted of federal securities fraud charges in 2009, in which the jury didn’t believe the two had provably, knowingly engaged in fraud.)

If inclined, Schneiderman could bring criminal charges under the Martin Act as well at some point down the road—while the act has a higher burden for criminal than civil charges, it’s still lower than most federal law—a fact that terrified some on Wall Street when former New York Attorney General Eliot Spitzer threatened criminal Martin Act prosecutions. But the RMBS task force is giving no indication it plans to do so.

Another drawback is that homeowners can’t benefit from any settlement reached here: since investors were defrauded, any restitution would go to them. Broader action against Wall Street laying out a pattern of fraud could at some point lead to homeowner relief, but this case will not.

Also, some critics have noted that there aren’t really any new legal theories or evidence in this case—private investors and banks have been suing Bear Stearns for the same essential fraud for years.

That’s true, and if anyone was hoping for a brand-new avenue into prosecuting Wall Street fraud pre-crash they would be disappointed. Lawyers for those private investors, at least, told The New York Times they were pleased with the case, as they see it as a validation of their claims—which are achieving (slow) progress in the court system. Last week JPMorgan Chase lost a legal battle in trying to get similar claims by a Belgian-French bank dismissed. It’s also useful to note that the new filing broadens the case to where the investing public can be eligible for restitution, not just the individuals currently filing suit.

Ultimately, activists that have been pushing the task force to act were optimistic but cautious in reacting to yesterday’s filing. “We hope that this case lays the groundwork for suing other big banks that left millions of American families foreclosed upon, jobless or saddled with underwater mortgages,” said Brian Kettenring, director of Campaign for a Fair Settlement (CFS). “We believe this filing could be a landmark case if replicated in similar actions against other abusive mortgage lenders and underwriters of RMBS. We need to build on this important legal step as the foundation for further actions that will bring full accountability to Wall Street.”

So Allen West Wants to Talk About His Military Record...

Tea Party superstar Representative Allen West released one of the toughest attack ads of the campaign season on Friday, contrasting his military career with his Democratic opponent’s arrest as a teenager following a drunken bar night—complete with a mug shot:

Transcript:

Feb. 16, 2003, Fort Hood, Texas. Lt. Col. Allen West had just received deployment orders, and prepares his men to go to war. That night, South Beach, Miami: Patrick Murphy is thrown out of a club for fighting, covered in alcohol, and unable to stand. Murphy then confronts and verbally assaults a police officer. Patrick Murphy was arrested and taken to jail. Two men, a country in crisis—you decide.

To make the point even more bluntly, the West campaign put out a press release along with the ad saying that Murphy is a “spoiled brat who knows nothing of duty, honor or service.”

The voters of Florida’s 18th District will have to decide if they want to hold Murphy’s run-in with the law against him. But it’s odd that West trumpets “duty, honor and service” in comparison to the transgression, while touting his military career—because his record there is, by almost any measure, more ignominious than an arrest for drunk and disorderly conduct.

West resigned from the military in 2004, following an incident involving his unit’s treatment of an Iraqi man. West himself was charged with two violations of the Uniform Code of Military Justice, including one against assault, and agreed to retire after an Article 15 hearing in order to avoid a court martial.

According to a 2004 account in The New York Times, West let the soldiers under his command beat the Iraqi man, whom West believed was involved in an attempt on his life. (No evidence was ever found implicating the man). Then, he staged a mock execution:

Soon, the soldiers began striking and shoving Mr. Hamoodi. They were not instructed to do so by Colonel West but they were not stopped, either, they said. ‘I didn’t know it was wrong to hit a detainee,” a 20-year-old soldier from Daytona Beach said at the hearing. Colonel West testified that he would have stopped the beating ”had it become too excessive.”

Eventually, the colonel and his soldiers moved Mr. Hamoodi outside, and threatened him with death. Colonel West said he fired a warning shot in the air and began counting down from five. He asked his soldiers to put Mr. Hamoodi’s head in a sand-filled barrel usually used for clearing weapons. At the end of his count, Colonel West fired a shot into the barrel, angling his gun away from the Iraqi’s head, he testified.

Far from being a scab on his political career, this episode actually helped propel West’s fortunes on the right. He initially became a minor cause célèbre among right-wing bloggers who felt West was being persecuted by those insisting on “political correctness” in a combat zone. West exploited this status as he was running for Congress, appearing on right-wing outlets to denounce the Army’s rules of engagement, which he believed were handcuffing American troops in their battle against the “Islamic enemy.”

West’s campaign was, in fact, a mini-crusade against Islam. On the trail, he declared that “Islam is a totalitarian theocratic political ideology, it is not a religion. It has not been a religion since 622 AD.” He also informed supporters at one town hall that jihad “is not a perversion” of the Koran—“they’re doing exactly what this book says.” Once he arrived in Congress, he singled out Representative Keith Ellison—one of two Muslim colleagues—as someone that “really does represent the antithesis of the principles upon which this country was established.”

But West has rarely returned to the topic of the incident in Iraq that ended his military career since being elected to office. For the same reason his campaign now believes an arrest will hurt Murphy, it’s not going to be helpful to remind voters in the general election that he was charged with assault by the US Army and nearly court-martialed.

But Friday’s ad may have opened the door to that topic. Murphy’s campaign immediately responded by pointing out the episode and that West’s military career wasn’t so “honorable” after all. That’s an attack that could get more play in the weeks ahead—but either way, there’s no doubt this is becoming one of the ugliest and most brutal congressional races in the country.

UPDATE (10/2): Indeed, West's military career is now a full-fledged campaign issue. The Murphy campaign hit the airwaves today with this spot, which focuses entirely on the incident in Iraq:

For more nasty politics, read George Zornick on the Massachusetts senate race.

GOP Candidates Feeling Pressure From NRSC's Flirtation With Akin

Yesterday, the National Republican Senatorial Committee announced in a statement that it might yet fund the candidacy of Representative Todd Akin as he tries to unseat Senator Claire McCaskill in Missouri. “As with every Republican Senate candidate, we hope Todd Akin wins in November and we will continue to monitor this race closely in the days ahead,” said NRSC executive director Rob Jesner. (In August, the NRSC claimed that “if [Akin] continues with this misguided campaign, it will be without the support and resources of the NRSC.”)

Will the NRSC actually go through with this, and thus likely bring American Crossroads and other big-money outside groups into the fray? I reasoned yesterday that this won’t happen, because (1) Akin probably can’t win, so this would be a waste of resources, and (2) it would tar other Republican candidates also funded by these groups.

The NRSC’s flip may indicate it has some data showing Akin can actually prevail, a worrying thought indeed. But make no mistake—if the NRSC does jump in behind Akin again, it will create enormous pressure on several Republicans running for Senate, particularly incumbents.

As soon as the NRSC statement went out yesterday afternoon, Democrats began the inevitable guilt-by-association campaign. “All Republican candidates across the country are now going to have to answer for their party’s support of Akin,” said Senator Patty Murray, chair of the Democratic Senatorial Campaign Committee. “In case you were wondering whether the Republican party was anti-woman, now you know…they are,” tweeted Matt Canter, the group’s communications director.

Today, the DSCC found an ingenious and more direct way to implicate some incumbent Republican Senatorial candidates in the Akin fiasco, particularly Senator Scott Brown. It’s common for high-profile senators to raise money for the NRSC, in part so that it may help fund the candidacies of lower-profile challengers. (Like, say, Akin). The DSCC noted today that Brown has helped raise a whopping $3.7 million for the NRSC this cycle.

Since Brown previously called Akin’s comments “outrageous, inappropriate, and wrong,” and asked him to withdraw from the Senate race, the DSCC is calling on Brown to get his money back from the NRSC and denounce Akin once again:

“There should be no doubt that a vote for Scott Brown is also a vote for an anti-woman party that supports extremists like Todd Akin,” said Guy Cecil, Executive Director for the Democratic Senatorial Campaign Committee. “Todd Akin’s views represent the official position of the Republican Party, and a vote for Brown is a vote to inflict that anti-woman agenda on the entire country. Brown’s silence speaks volumes. Brown should immediately demand his money back and renounce the party’s decision to embrace Todd Akin.”

Renouncing Akin again might be easy for Brown—though he hasn’t yet done it—but asking for that large chunk of money back won’t be. And if Brown doesn’t, Elizabeth Warren can now fairly say Brown helped fund Akin’s candidacy. This is an incredibly tough position for Brown, and it’s a squeeze likely to be put on other candidates in the days ahead if the NRSC actually pulls the trigger. (The DSCC is similarly targeting Nevada Senator Dean Heller, too, as he’s locked in a tight re-election battle and also raised money for the NRSC).

The NRSC might still back Akin, but the polls will have to look awful, awful good—because it’s making life a lot more difficult for a number of other candidates who still have a chance to win.

Read more of George Zornick’s analysis of the Missouri senate election.

GOP Unlikely to Help Akin—Will It Matter?

It’s official—at 5 pm yesterday, Representative Todd Akin’s name was cemented on the ballot in Missouri for this fall’s Senate race. During a defiant press conference Tuesday afternoon in which he compared himself to Harry Truman, Akin said he would abide by the Republican primary results. “The decision was made by the voters of the state of Missouri,” he said.

Now that Akin is the GOP’s only chance to pick up a crucial Senate seat in Missouri, will the party and it’s major outside groups—Crossroads GPS, the Club for Growth, the US Chamber of Commerce and others—return to Akin’s side, as many cynics predicted a month ago?

Each of those groups reaffirmed yesterday that they will not back Akin, and I believe them, for several reasons. The first is a matter of branding. The national party and the major outside organizations are going to be spending heavily in many crucial races across the country. Democrats are already eager to tie Akin to other congressional candidates and the GOP presidential ticket, and a reversal by the NRSC and the outside players would provide a common denominator between Akin and other candidates. GOP Senate hopefuls like Josh Mandel and Connie Mack surely don’t want their opponents saying that the same groups attacking them are also trying to get Todd Akin into the Senate.

The second is a matter of strategy—Akin probably can’t win. Some polls show a tied contest, but McCaskill and her allies have barely laid a glove on Akin over his “legitimate rape” remark and other extreme positions on the premise that burying Akin right away might chase him from the race while he could still get off the ballot.

Now, with the deadline passed, the knives are out: literally within an hour of the withdrawal deadline, McCaskill released a television ad blasting Akin for the rape comments and asking “What will he say next?” National Democrats immediately unleashed an oppo-dump of crazy Akin comments, like when he insisted the National Defense Authorization Act legalized bestiality.

Republican officials told reporters this week point-blank they did not believe the polls would hold after McCaskill and her allies released the post–September 25 barrage of attacks, and they’re probably right. Whether the NRSC and Karl Rove would back Akin if they believed he had a chance to win is an interesting question—but a largely academic one.

But just because Akin won’t be getting their support, it doesn’t mean he’s totally on his own—he's working hard to cobble together a hard-right, grassroots coalition of funders to support his campaign.

The powerful Senate Conservatives Fund, run by Senator Jim DeMint, announced today it will raise money for Akin, and Rick Santorum will be helping that effort. SCF was instrumental in getting Tea Party Senators Marco Rubio, Rand Paul, Ron Johnson, Mike Lee and Pat Toomey elected in 2010—though, notably, it also helped cost the GOP seats in Alaska, Delaware, and Nevada by juicing up candidates that were too extreme.

Other hard-right outside groups are pitching in too. Freedom’s Defense Fund, run by noted conspiracy crank Jerome Corsi (one of the leaders of the birther movement in 2008, who has more recently taken to alleging that Obama is gay) announced Tuesday it will be buying $250,000 in advertisements for Akin. The group spent $3 million in 2010, and has a history of running inflammatory ads—like the one against Obama in 2008 accusing him of having “campaigned” for a “communist” Kenyan leader who “spread fundamental Islamic law” while “the Christian majority is under attack.” (Note, however, the group appears to be cash-strapped right now, to say the least).

Akin’s campaign is also launching on a small-dollar grassroots fundraising drive, targeting his base of anti-abortion activists and Christian conservatives. That has already raised $600,000. And at least some Republicans will help him raise money—Newt Gingrich is already doing it, and aside from Santorum and DeMint, J.C. Watts and Rand Paul are reportedly going to pitch in, too.

His home-state allies are coming around, too. Senator Roy Blunt announced his support Tuesday, as did the state Republican Party and the Missouri Farm Bureau, which never actually abandoned Akin—it was the only outside group to run ads for Akin since the “legitimate rape” comments, according to FEC records.

The question is whether this will be enough. Outside groups were expected to spend $15 million on the Republican candidate in Missouri, and it’s extremely hard to envision Akin making up for that loss—meaning Missouri will likely be the only contested Senate race in the country where outside spending runs in favor of the Democrat.

There’s another pitfall, too. By leaning harder on right-wing backers for money, he’s only appearing more extreme. (Akin already had to reverse his pro-earmark position to appease DeMint). This is exactly how McCaskill wants voters to see him.

UPDATE: Well, shame on me for giving the NRSC too much credit. Their executive director just released a statement saying: “There is no question that for Missourians who believe we need to stop the reckless Washington spending, rein-in the role of government in people’s lives, and finally focus on growing jobs in this country that Todd Akin is a far more preferable candidate than liberal Senator Claire McCaskill. As with every Republican Senate candidate, we hope Todd Akin wins in November and we will continue to monitor this race closely in the days ahead.” So they may be getting in this thing after all.

As I said earlier, though—this makes it even easier for Democratic Senate candidates to point out that their opponent is being propped up by the same outfit trying to put Todd Akin in the Senate. 

For more on Missouri's high-profile senate race, read George Zornick's on the Akin-McCaskill debate last week.

Mitt Romney Embraces Campaign Finance Reform

Today at the Education Nation forum, Mitt Romney finally admitted that money distorts our democracy by improperly influencing politicians, and causing them to ignore their constituents in favor of powerful donors. He even called for action to end this problem, saying it’s “the wrong way for us to go.”

Alas, the “powerful donors” that distressed Romney were teachers. His remarks, via Raw Story:

“We simply can’t have a setup where the teachers unions can contribute tens of millions of dollars to the campaigns of politicians and then those politicians, when elected, stand across from them at the bargaining table, supposedly to represent the interests of the kids. I think it’s a mistake. I think we’ve got to get the money out of the teachers unions going into campaigns. It’s the wrong way for us to go. We’ve got to separate that.”

By saying massive donations can skew political priorities, and saying “we’ve got to get the money out,” Romney is essentially endorsing the intellectual framework of opposition to Citizens United, which allowed corporations to spend unlimited amounts influencing elections.

Strange, because he has called Citizens United the “correct decision,” and even thinks corporations should be able to write unlimited checks to his campaign instead of bothering with outside groups.

Apparently, it’s just the pernicious influence of educators Romney is worried about—not corporations. (Note that the AFT and NEA engage in relatively paltry outside spending, and also disclose their donors).

For more on Mitt Romney’s disingenuity, read Ben Adler’s check on the candidate’s miserly donations to charity.

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