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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

Meltdown at the Nuclear Regulatory Commission

Tensions at the Nuclear Regulatory Commission, the nation’s chief overseer of civilian nuclear materials, finally boiled over into public finger-pointing and accusations of malfeasance late Friday—creating what one lawmaker called “a regulatory meltdown.” It’s a messy conflict, but one thing is clear: the nuclear industry has many friends on the NRC.

On Friday, Representative Darrell Issa released a letter written in October by four of the commission’s five members. It accused the fifth member, Gregory Jaczko—who is also the NRC Chairman—of “causing serious damage” to the agency with “increasingly problematic and erratic behavior.” The commissioners feel Jaczko limited their role and bullied them in an emergency review of the nation’s nuclear facilities following the Fukushima meltdown in March.

The four commissioners’ complaints stem from when Jaczko invoked some emergency powers right after the Fukushima catastrophe. These powers transfer more authority to the chairman, in the name of streamlining NRC function when something crucial is happening. Jaczko created of a task force to study the Fukushima meltdown and issue recommendations about how to protect civilian nuclear facilities here from a similar fate, and the four commissioners claim not to have been notified of the new emergency powers and not to have been adequately consulted on the task force’s recommendations, which were released this summer.

But also on Friday, Representative Ed Markey of Massachusetts released a detailed report directly challenging those four commissioners. His report concludes that they “have attempted a coup on the Chairman” and have “caused a regulatory meltdown that has left America's nuclear fleet and the general public at risk.”

Markey’s report paints a different picture than what the four commissioners claim—and reveals them to be primarily interested in protecting the nuclear industry.

His staff obtained thousands of pages of e-mails, correspondence, meeting minutes and other materials, and uncovered clear evidence that the four commissioners were largely kept in the loop about the new emergency mode. And in several e-mails, the commissioners pettily gripe amongst each other about Jaczko’s leadership; after one conference call with Jaczko, they e-mail back and forth with comments such as “what a bunch of shit,” “I detected a significant amount of ass-kissing” and “that was a bunch of Barbra Streisand.”

But this isn’t about bureaucratic backbiting. The Markey report demonstrates that at many different decision points the four commissioners were opposed not just to Jaczko’s leadership but what he was doing—namely, trying to toughen regulations on the nuclear industry. At several key points, the rebellious commissioners try to slow down or halt post-Fukushima disaster measures.

Key among Markey’s findings:

1. Four NRC commissioners attempted to delay and otherwise impede the creation of the NRC Near-Term Task Force on Fukushima.

2. Four NRC commissioners conspired, with each other and with senior NRC staff, to delay the release of and alter the NRC Near-Term Task Force report on Fukushima.

3. The other NRC Commissioners attempted to slow down or otherwise impede the adoption of the safety recommendations made by the NRC Near-Term Task Force on Fukushima.

4. NRC Chairman Greg Jaczko kept the other four NRC Commissioners fully informed regarding the Japanese emergency, despite claims to the contrary made by these commissioners.

5. A review of e-mails and other documents indicates high levels of suspicion and hostility directed at the chairman.

When President Obama was campaigning in 2008, he called the NRC “a moribund agency…captive of the industry that it regulates.” The Nation’s Christian Parenti has also detailed the influence the nuclear lobby has on the NRC. What’s happening now seems to be another symptom of that problem.

In the e-mails, the four commissioners mount an attempt “review” the Fukushima’s Task Force findings before they were released to the public. Jaczko is quoted second-hand as being concerned this review process “may create the impression the commission will sanitize the reports,” which appears to be exactly what was happening.

To give one example: as the Task Force report was being finalized, and the four commissioners had been unable to delay it, they had a senior NRC staff member attach a memo to the report. This memo basically tried to put the brakes on the reforms the Task Force was advocating: specifically, it said “before deciding on the path forward and the specific recommendations in the Task Force’s report, the Commission may wish to solicit external stakeholder input” and that there would be a benefit “to developing alignment on the objectives, approaches and schedules [with that of external stakeholders] for implementing safety improvements.”

To those not familiar with Washington speak, when regulators talk aligning objectives to those of “external stakeholders,” they mean: make sure the industry approves these regulations. Jaczko had this memo removed from the report before it was released.

Markey’s report takes pains to detail the times when the four commissioners voted against safety regulations, and where the only holdout was Jaczko. Some examples:

In June 2010, the commission voted 4-1, with Jaczko the lone “no” vote, to reduce limitations on the number of work hours for employees who perform quality control at nuclear facilities.

In December 2010, the commission voted 4-1, with Jaczko again the lone opposition vote, not to require specific NRC licenses for radioactive materials that could be used to create small nuclear devices, also known as “dirty bombs.”

In March 2011, the commission voted 4-1, with Jaczko again the lone opposition vote, to ignore a recommendation from the NRC’s own Advisory Committee on Reactor Safeguards about increased safety measures to prevent meltdowns in the event of fire or earthquake. This happened only four days after an earthquake struck the Fukushima Daiichi plant in Japan.

The four commissioners are now enjoying support from many Republicans on Capitol Hill, who not incidentally also oppose tougher regulation. Issa has been hitting the airwaves today in support of the four commissioners, and bashing Jaczko. Senator Lisa Murkowski, the top Republican on the Senate Energy Committee, basically called for Obama to remove Jaczko on Saturday—she said Jaczko’s alleged supposed actions are “a serious breach of the public’s trust” and that “such behavior is unacceptable at every level of government and a response from the president is long overdue.”

Democrats, meanwhile, are defending the chairman. “It is sad to see those who would place the interests of a single industry over the safety of the American people to wage a politically-motivated witch hunt against a man with a proven track record,” said Senate majority leader Harry Reid in a statement. (Jaczko used to work for Reid’s Senate office as a policy adviser).

All of this is a backdrop for what will surely be combative hearings on Capitol Hill this week. All five commissioners will testify before Issa’s House Committee on Government Oversight on Wednesday, and then before the Senate Environment and Public Works Committee on Thursday. I’ll be at both hearings and will continue to provide updates.

GOP Blocks Cordray's Nomination to Head the CFPB

The US Senate blocked the nomination of Richard Cordray to head the new Consumer Financial Protection Bureau this morning by a 53-45 vote, with one senator voting “present.” The failure to appoint a head to the CFPB will certainly be a hot topic in the 2012 presidential and Congressional elections, since Democrats seems increasingly willing to paint Republicans as protectors of Wall Street and the one percent.

Though Cordray received a majority of the votes cast, seven more were needed to pass the sixty-vote threshold to break a filibuster. Some Democrats like Senator Claire McCaskill and Senator Bill Nelson sent signals this week that they might not vote to move forward with Cordray’s nomination, but every Democrat did end up voting in the affirmative (except Senator John Kerry, who did not vote).

Two Republicans, however, wavered. Senator Scott Brown voted for Corday’s nomination to move forward, provoking immediate pushback from some right-wingers. This is a clear indication of the Elizabeth Warren effect on Brown: he presumably could not risk having blocked a crucial nomination to the popular CFPB when he’s running against the woman who started it. Another New England Republican up for re-election in 2012, Senator Olympia Snowe of Maine, voted “present.” That seems like an odd over-calculation, since neither side will give credit for the vote, but she’s clearly concerned about opposing consumer protection as well.

Forty-five Republicans sent the White House a letter in May asserting they would not approve any director to head the CFPB unless certain “reforms” were made, chief among them being the elimination of the position of director. Instead, Republicans want a bipartisan, five-person board to head the CFPB—and they also want yearly Congressional approval of the CFPB’s budget, along with more oversight from existing industry-friendly regulators.

These “reforms” are nakedly transparent attempts to weaken the CFPB’s power, and the Senators who signed the letter have received over $125 million from the financial sector during their careers. (For more on the industry’s war on the CFPB, see Ari Berman’s piece from June).

But Republicans are attempting to paint the agency as out-of-control and in need of serious checks. “We don’t need any more unelected, unaccountable czars in Washington,” Senate Minority Leader Mitch McConnell said on the floor Tuesday. Senator Richard Shelby, the ranking Republican on the Senate Banking Committee, ludicrously urged Democrats today to “stop obstructing reform.”

With the nomination effectively dead, there’s only one thing left to do—President Obama can recess-appoint Cordray to the CFPB. Though Republicans have been maneuvering this year to prevent recess appointments, it is possible for Obama to do so at the end of this year. At a press briefing immediately following the Cordray vote, Obama said he "will not take any options off the table" when it comes to installing Cordray at the CFPB. 

Obama Will 'Reject' Attempt to Restart Keystone XL

Last week, we flagged an attempt by Representative Lee Terry of Nebraska to get the Keystone XL pipeline approved within weeks—something the Obama administration has delayed until at least 2013, if the project even survives that long. Terry is crafting a measure that would take the power to approve Keystone XL away from the Obama administration and give it to the Federal Energy Regulatory Commission, an independent agency. His bill would also require FERC to approve the pipeline within thirty days.

Terry plans to attach this bill to a big year-end package that would extend a payroll tax cut and unemployment benefits. But when asked about Terry’s plan by a reporter yesterday during an appearance at the White House with Canadian Prime Minister Stephen Harper, Obama said he would reject any package that contains provisions on Keystone XL:

Q: Thank you, Mr. President. I have Keystone questions for both of you. Mr. President, we’ve got some House Republicans who are saying they won’t approve any extension of the payroll tax cut unless you move up this oil pipeline project. Is that a deal you would consider? […]

PRESIDENT OBAMA: First of all, any effort to try to tie Keystone to the payroll tax cut I will reject. So everybody should be on notice.

And the reason is because the payroll tax cut is something that House Republicans, as well as Senate Republicans, should want to do regardless of any other issues. The question is going to be, are they willing to vote against a proposal that ensures that Americans, at a time when the recovery is still fragile, don’t see their taxes go up by $1,000. So it shouldn’t be held hostage for any other issues that they may be concerned about.

Obama’s  threat is quite significant, because the political mechanics had suddenly became dangerous for pipeline opponents. Democrats and the White House are extremely eager to get a payroll tax cut and extended unemployment insurance passed, and Republicans have been pushing hard on Keystone XL in recent weeks—so there was real concern that, in the final horse-trading over the desperately sought economic measures, Democrats might let the Keystone XL provision survive. Obama didn’t explicitly say the word “veto,” but he has no doubt served at least a warning to Congressional leaders not to allow the Keystone provision through.

Occupy Storms K Street

“Take Back the Capitol” protesters join local Occupy Encampments on K Street in Washington, DC. Photo courtesy SEIU

The second day of action for “Take Back the Capitol” focused on K Street lobbying Wednesday—and offered a chance for the labor-heavy, electorally focused “Take Back” protesters to mesh with the Occupy movements camping out in Washington, DC.

Around noon, the “Take Back the Capitol” groups, which have been camping off the National Mall, headed towards K Street, where long-running Washington Occupy encampments joined them. They targeted in particular the Podesta Group, founded in 1988 by John and Tony Podesta. (John, of course, would later become Bill Clinton’s chief of staff and then head of the Center for American Progress). The goal quickly became to shut down the entire street, and there were between fifty and seventy arrests for blocking a public highway, according to the Washington Post.

Nation intern Cal Colgan shot this video at the protests:

Tomorrow, “Take Back the Capitol” is marching on the White House, Congress and the Supreme Court, and there will be a prayer vigil for the unemployed on the National Mall. (You can see our recap of yesterday’s action inside Congressional offices here).  

Peter King Hearing Probes Definition of Terrorism

If you’re not a fan of right-wing media, you may have missed the conservative consternation over President Obama’s handling of the shooting at an Army Recruiting Center in Little Rock, Arkansas, in 2009.

Carlos Bledsoe, a Memphis man who later became Abdulhakim Mujahid Muhammad after convincing himself he was a warrior in Al Qaeda’s war on America, shot two soldiers outside that recruiting station, killing one of them, 28-year-old Pvt. William Long.

Two days after the shooting, Obama released a statement condemning the “senseless act of violence” against two soldiers. Muhammad was charged with capital murder by the state of Arkansas, to which he ultimately pled guilty after his lawyers unsuccessfully tried to argue he was delusional. In exchange for his plea, Muhammad did not receive the death penalty.

Right-wingers were upset for two overlapping reasons: first, that Obama did not forthrightly condemn Muhammad as a jihadist but rather decried simple “senseless violence.” Second, that the federal government didn’t treat the shootings as an act of terrorism and either bring Muhammad up on federal terrorism charges or have the military capture him and treat him as an enemy combatant.

“’Senseless?’ It made perfectly good sense to a vengeful Muslim convert jihadi,” sneered right-wing blogger Michelle Malkin. In an editorial titled “Arkansas Jihadi,” the Washington Times charged that “perhaps the White House thinks that if it turns a blind eye toward domestic Islamic terrorism, it won’t really exist.”

Today on Capitol Hill, Representative Peter King held the latest of his high-profile hearings into perceived Muslim radicalization problems inside the United States—specifically, the problem of terrorists targeting US military personnel on American soil. “Military communities in the US have recently become the most sought-after targets of violent Islamist extremists seeking to kill Americans in their homeland,” said King in his opening remarks. “We cannot stand idly by while our heroes in uniform are struck down in the place they feel safest.”

As you might expect, the Little Rock incident played a central role in the hearing. King called William Long’s father, Daris, to testify.

Daris Long didn’t hold back, and strongly asserted the popular right-wing arguments: “Abdulhakim Muhammad’s jihad in America has been downplayed by the federal government and the mainstream media, causing irreparable change to the families involved as well as flat-out lying to the American people,” he said. “I am convinced the government’s position is to deny Little Rock was a terrorist attack. By not being open and transparent, despite promises to do so, to this administration’s shame two soldiers have been abandoned on a battlefield in the advancement of a political agenda.”

Those were strong words, and Daris Long coupled them with wrenching minute-by-minute accounting of his son’s murder, including gruesome details about William Long’s mother watching his legs flail in the air as he was given fruitless CPR.

Republican members of the committee seized the moment, and attacked the Obama administration for not sufficiently combative when it comes to “radical Islam,” in the verbal or actionable sense. The best distillation of that clash came when Representative Dan Lungren confronted Paul Stockton, an assistant Secretary of Defense who was also called to testify.

Lungren wanted Stockton to admit that the United States was at war with Islamic extremism, something that Stockton repeatedly declined to do. I’d recommend watching this brief exchange because it distills the clash well (but also because Lungren’s increasing contempt for Stockton gets hilarious fast):

Previous hearings of this sort by King received megawatt attention, but this one isn’t getting much play in Washington, especially as Occupy protesters were shutting down K Street at the very same time. But this issue won’t go away—Mitt Romney was sure to mention in his major foreign policy speech that the United States faces a threat of “Islamic fundamentalism with which we have been at war since September 11, 2001.” Expect to hear this debate again and again in 2012.  

Occupying Senator Scott Brown's Office

“Take Back the Capitol” protesters wait outside Sen. Scott Brown’s office in the Dirksen Senate Office Building on December 6, 2001. Photo credit: Massuniting

This week, “Take Back the Capitol” brought hundreds of self-proclaimed 99 percenters to Washington in hopes of impacting key legislative battles that will take place between now and the end of the year. Thousands are sleeping either in pitched tents near the national mall, or in church basements, union halls and community groups throughout the city—and participating in mass action during the day.

While clearly akin to the Occupy movement—many of the people I spoke with today came from Occupy encampments across the country—there is also heavy labor involvement in this push, with several union groups, most notably SEIU, lending organizing muscle. And unlike the deliberately non-electoral Occupy movement, “Take Back the Capitol” came directly to lawmakers’ offices with specific goals: primarily extending unemployment insurance, passing a jobs bill, taxing the wealthy and not cutting too deeply into domestic spending.

Tuesday’s action involved splitting into state-by-state delegations and visiting Congressional offices to push for these specific requests. Some members, like Representative Chris van Hollen of Maryland, spoke to the protesters, while many others did not.

I spent the day with the Massachusetts delegation, one of the largest of the state groups. About half of them—more than 100 people—marched to the office of Senator Scott Brown and arrived a little before noon. They massed inside and nearby his office, and requested to speak with the senator. A staffer told the group Brown was “not available,” but offered to take two or three demonstrators to speak with Brown’s chief of staff, provided the conversation was not recorded.

The demonstrators rejected that offer and announced their intention to wait for the senator. They promptly made themselves comfortable on the couches, chairs and floor inside Brown’s office. Dozens more demonstrators lined the hallway outside—this completely prevented Brown from coming into his office unseen, since the only doors were in that hallway.

Despite being in Washington and voting on the Senate floor today, Brown somewhat mysteriously never returned to his office after the protesters arrived. We waited for six hours, until the office closed, but Brown never showed up. His press staff would not confirm his schedule for me, nor say where he was.

While we waited, I spoke with many of the participants. All of them were either unemployed or underemployed, doing part-time work or jobs that paid much less than they were accustomed to getting. They had a variety of very specific concerns: Medicaid cuts, the expiration of unemployment benefits, the failure of Congress to pass infrastructure bills or more general job bills.

I filmed intermittently throughout the day—you can see a brief compilation here:

There was one arrest reported today, for unlawful entry, at the office of Missouri Representative Vicki Hartzler. Otherwise, the protesters that I saw were quiet and respectful of the rules.

Tomorrow, “Take Back the Capitol” heads to K Street, where they plan action at the city’s powerful lobbying firms. We’ll be following the movement throughout the week, so check back for updates. 

Jackson Browne Caps a Busy Weekend at Occupy DC

Members of Occupy DC waving from the interior and rooftop of an uncompleted, modular wooden structure that they had assembled overnight in McPherson Square. Image courtesy of flickr user Bullneck.

Early this afternoon, famed singer/songwriter Jackson Browne stopped by Freedom Plaza in Washington, DC, where many Occupiers have set up shop. (There are actually two encampments in Washington—one at Freedom Plaza near the White House, which started as an anti-war protest but has since taken the Occupy mantle, and one at McPherson Square downtown, which sometimes also calls itself Occupy K Street.)

Browne performed in front of the Occupy Christmas tree, which is made out of 100 percent post-consumer recycled plastic. (It will be lit at a ceremony tomorrow at 4 pm.). He sang, among other songs, “Lives in the Balance”:

It was a busy weekend for the Occupiers in Washington. Sunday morning, the protesters at McPherson square began erecting a large, prefabricated wooden structure in the middle of the park. The idea was to use it as a meeting space during the winter months, as cold winds pick up in Washington. The structure basically resembled a small house or barn.

As one might imagine, the federal park police, who have jurisdiction over McPherson Square, were not pleased about downtown Washington’s newest building. Though relations between the park police and the protesters have been calm until now, officers notified the Occupiers at 11 am yesterday that the structure had to come down. The Occupiers say they were meeting to decide a course of action when the police surrounded the structure and began making arrests; thirty-one people were ultimately arrested for either crossing a police line or disobeying a lawful order.

One Occupier, Robert Stephens, later said:

“In a culture and city with chronic homelessness and foreclosures, this structure is a symbol of what people working together under principles of mutual aid can accomplish with limited time and resources. The police response demonstrates that our system is not committed to building up–they’re only concerned with tearing down.”

Meanwhile, “Take Back the Capitol” events are planned for this week across the city. This is a separate endeavor from what’s happening at Freedom Plaza and McPherson Square—it’s a collection of labor, faith, community and other groups that wants to draw attention to the plight of the 99 percent. Unlike the Occupy movement, “Take Back the Capitol” has direct political goals: they plan to occupy Senate Minority Leader Mitch McConnell’s office, swarm K Street lobbying firms and camp out near the national mall. “For far too long, Congress has been catering to the 1% instead of representing the 99%… Now more than ever, Congress needs to see us and hear us,” their website says.

We’ll have coverage of these events as they unfold throughout the week.  

Why Hasn't the Government Gone After Mortgage Fraud?

One of the most important questions to arise out of Washington over the past three years, and one that Democrats and defenders of the administration often dance around, is why big financial institutions haven’t been punished for their role in the mortgage crisis: for pushing bad loans beforehand and for engaging in shady foreclosure practices afterward. There has not been a single prosecution of a high-ranking executive nor Wall Street firm for playing a part in the meltdown.

Much of the analysis about the administration’s response to the global financial crisis focuses on the Dodd-Frank reforms, but that was a process in which the administration didn’t have total control—the legislation was subject to massive lobbying campaigns and horse-trading between members of Congress.

But the administration could have acted unilaterally to punish the big financial firms who helped create the crisis and push people out of their homes afterwards—and in large part, it hasn’t. We’ve noted before the pressure that the administration is placing on New York Attorney General Eric Schneiderman to join a wide-ranging settlement with major banks over dubious foreclosure practices—one that would ask the banks to pay the meager sum of $20 billion to homeowners and investors, while granting them immunity from further prosecution. (Schneiderman has not yet relented).

On 60 Minutes last night, Steve Kroft had an outstanding two-part piece that questioned why the Department of Justice has not pursued cases against big banks for pushing bad mortgages onto people in the run-up to the crisis, and lying to investors about the strength of those loans.

Lest the Department of Justice claim that it is doing its best and that there isn’t overwhelming proof of wrongdoing—which is actually just what Lanny Breuer, head of the Department’s criminal division, said during the piece last night—Kroft presented some awful damning evidence.

First he spoke with Eileen Foster, a senior executive at Countrywide Financial, the largest mortgage lender in the country. Foster was in charge of monitoring fraud at Countrywide—and found a whole ton of it:

Kroft: How much fraud was there at Countrywide?

Foster: From what I saw, the types of things I saw, it was—it appeared systemic. It, it wasn't just one individual or two or three individuals, it was branches of individuals, it was regions of individuals.

Kroft: What you seem to be saying was it was just a way of doing business?

Foster: Yes.

In 2007, Foster sent a team to the Boston area to search several branch offices of Countrywide's subprime division—the division that lent to borrowers with poor credit. The investigators rummaged through the office's recycling bins and found evidence that Countrywide loan officers were forging and manipulating borrowers' income and asset statements to help them get loans they weren't qualified for and couldn't afford.

Foster: All of the—the recycle bins, whenever we looked through those they were full of, you know, signatures that had been cut off of one document and put onto another and then photocopied, you know, or faxed and then the—you know, the creation thrown—thrown in the recycle bin.

Kroft: And the incentive for the people at Countrywide to do that was what?

Foster: The loan officers received bonuses, commissions. They were compensated regardless of the quality of the loan. There's no incentive for quality. The incentive was to fund the loan. And that's—that's gonna drive that type of behavior.

Kroft: They were committing a crime?

Foster: Yes.

After Foster's investigation, Countrywide closed six of its eight branches in the Boston region and forty-four out of sixty employees were fired or quit.

Kroft: Do you think that this was just the Boston office?

Foster: No. No, I know it wasn't just the Boston office. What was going on in Boston was also going on in Chicago, and Miami, and Detroit, and Las Vegas and, you know—Phoenix and in all of the big markets all over Florida.

As she began to raise flags, Foster says higher-ups began short-circuiting her office to conceal evidence of even more fraud. She was eventually fired after a merger with Bank of America—and after she asked to speak with federal regulators.

But nobody from the federal government ever came to talk to Foster—even though she was the highest executive in charge of monitoring fraud at Countrywide. She never appeared before a grand jury, nor was she even interviewed by federal investigators.

Countrywide CEO Angelo Mozillo later settled a civil suit brought by the Securities in Exchange Commission, in which he agreed never to head a publicly traded company again, and paid a $22 million fine—less than 5 percent of the compensation he received between 2000 and 2008. Shortly thereafter, federal prosecutors dropped a case against Countrywide and Mozillo.

Kroft then told the story of a former Citigroup executive, Richard Bowen. He was a senior vice president and chief underwriter in the consumer lending division of Citigroup. It was his job to make sure the mortgages Citigroup was buying from Countrywide and other firms were sound and, well, not fraudulent. He found that 60 percent of them were—and let everybody know about it.

Kroft: Were you surprised at the 60 percent figure?

Bowen: Yes. I was absolutely blown away. This—this cannot be happening. But it was.

Kroft: And you thought that it was important that the people above you in management knew this?

Bowen: Yes. I did.

Kroft: You told people.

Bowen: I did everything I could, from the way—in the way of e-mail, weekly reports, meetings, presentations, individual conversations, yes.

Bowen became increasingly desperate to alert higher-ups at the bank: Citigroup was exposed to massive losses in the mortgage division, and it was also putting itself in legal jeopardy by not informing investors about the weakness of these mortgage-backed securities. Finally, Bowen sent a strongly worded missive to Robert Rubin, chairman of Citigroup’s executive committee, and then-CEO Charles Prince detailing the problems.

The very next day, Prince signed a Sarbanes Oxley certification that did not acknowledge any problems with the bank’s mortgage finances. And the very same day, Bowen was relieved of many of his day-to-day duties.

This appears to be a clear violation of the Sarbanes-Oxley Act, which requires CEOs and CFOs to be honest with investors and the public about the health of their institutions and the products it sells. A similarly obvious violation occurred at Citigroup three months later, when the office of the comptroller of the currency sent a letter to Citigroup questioning the bank’s mortgage securities valuations and internal controls. Yet eight days later current CEO Vikram Pandit signed a Sarbanes-Oxley letter saying everything at Citigroup was fine.

Kroft pressed Breuer, the Justice official, about why the Department wasn’t interested in talking to Bowen either—despite the face he testified publicly to the Financial Crisis Inquiry Commission about what he knew. Breuer basically dodged the questions:

Lanny Breuer: When you talk about Sarbanes Oxley we have to know that you intended—had the specific intent to make a false statement.

Kroft: They knew there was a problem. Not only had they been told that there was a problem by one of their chief underwriters, that the loans that they were buying were not what they claimed, and that the federal government, that the comptroller of the currency didn't think their internal controls were adequate either.

Breuer: If a company is intentionally misrepresenting on its financial statements what it understands to be the financial condition of its company and makes very real representations that are false, we want to know about it. And we're gonna prosecute it.

Kroft: Do you have cases now that you think that will result in prosecution against major Wall Street banks?

Breuer: We have investigations going on. I won't predict how they're gonna turn out.

If past history is any guide, the investigations will turn out to be largely harmless to big financial institutions. Why?

You can watch the whole piece here: 

Part 1: 

Part 2:

 

Keystone XL Isn't Dead Yet

This week, Republicans in Congress have launched two different attempts to resurrect the delayed, and possibly dead, Keystone XL pipeline. One was clearly a public relations stunt, but the other could present a much more serious problem for pipeline opponents.

Early in the week, leading Republicans gathered to promote a bill by Indiana Senator Richard Lugar that would direct President Obama to act within sixty days on Keystone XL. The administration’s current policy is to push back action until early 2013 as alternate routes are studied, but the Republicans called for an immediate decision: “If the administration would simply get out of the way and let it go forward, it would create jobs almost immediately. Lots of jobs,” said Senate minority leader Mitch McConnell. (This is not true, unless you have a very low bar for defining “lots.”)

Lugar’s bill has thirty-seven Republican co-sponsors, but isn’t really that dangerous—it won’t find enough Democratic support to pass the Senate. It’s really just a way to publicly whack Obama for delaying the project, not a viable attempt to get it going again.

But Representative Lee Terry, a Republican of Nebraska, has a much more serious plan. He announced today that he’s crafting a bill that would take the Keystone decision away from Obama’s State Department, and award it to the independent Federal Energy Regulatory Commission. The bill would also require FERC to issue a permit for the project within 30 days from receiving an application from TransCanada.

Terry’s bill wouldn’t pass the Senate either—that’s why he plans to attach it to the big payroll tax cut and unemployment extension bill that Congress is likely to pass at the end of this year. If Terry is successful, the House version of that crucial bill will contain a poison pill on Keystone XL.

This would be much more difficult for pipeline opponents to dislodge, though not impossible. But it’s also much more cavalier than Lugar’s bill, which would just force the State Department to act. Terry's plan to hand Keystone XL approval to FERC is a fundamental slap in the face to the regulatory process.

For one thing, requiring a federal regulator to approve a project undercuts the whole point of having regulators . Beyond that, FERC doesn’t even handle oil pipelines like Keystone XL but rather interstate natural gas pipelines and other energy transmission projects. FERC has not been involved in the Keystone process whatsoever—but Terry’s bill would require them to evaluate the project and issue a permit within thirty days.

I spoke with Mary O’Driscoll, FERC’s director of media relations, who would not comment on Terry’s bill specifically. But she did affirm that her agency has no experience handling projects like Keystone XL. “We don’t handle pipeline safety,” O’Driscoll said. “We have no jurisdiction.”

Anthony Swift, an attorney at the National Resources Defense Council, told me that Terry’s bill is “setting FERC up to fail when it comes to this process.” But the real goal, of course, is to get the project approved—and soon. Adherence to the appropriate regulatory structure is an afterthought, at best. 

The GOP's Interesting Payroll Tax Cut Proposal

This week, Republicans made a noticeable retreat on payroll tax cuts: after spending much of 2011 opposing any extension of the payroll tax cut that will expire this month, Senate minority leader Mitch McConnell switched positions Tuesday and said his caucus would consider it. This came after relentless attacks from Democrats, who accused Republicans of blocking help for struggling Americans. “Even those [Republicans] who question its value come to the conclusion that voting against it is a political loser,” one Washington analyst told Bloomberg yesterday. (I detailed the Republican retreat yesterday here).

I think there’s a compelling reason to believe that Republicans were reacting to a new national conversation by retreating: one that's more focused on income inequality and less on austerity. For most of the summer, Republicans dismissed further payroll tax cuts and cited the deficit. The August debt ceiling deal forbid any extension. Now, they’ve changed their mind and think that’s not politically viable.

The Republican counter-proposal on payroll tax cuts, released yesterday, might further support this theory.

Democrats want to cut the payroll tax from the current 4.2 percent—which is already down from 6.2 percent—to an even lower 3.1 percent, which they say will save families an average of $1,500 per year. They would help pay for this relief with a surtax on incomes over $1 million. This has a clear populist theme: help out working families, and make the rich pay for it.

Republicans now say they want to preserve the payroll tax cut at 4.2 percent, and they would pay for it by continuing a federal payroll freeze until 2015, laying off 200,000 federal workers, and interestingly, by preventing millionaires and billionaires from getting federal benefits like food stamps and unemployment compensation.

The federal layoffs are awful public policy, and Democrats have rightly dismissed the proposal about taking unemployment checks away from millionaires as “not serious,” since no millionaires actually collect them. But it’s important to note that Republican messaging has switched—they are now proposing their own ideas for making millionaires and billionaires contribute, even if it’s in McConnell’s impish and empty way. David Hawkings, who covers Congress for CQ, writes today that the Republican proposals targeting top earners “are mostly symbolic ideas, to be sure, but they are a crystal-clear signal to the Democrats that their populist rhetoric is starting to have an effect, not only on the electorate but also on Republicans worried about their fortunes next fall.”

There are still plenty of important caveats here—getting Republicans to agree to a tax cut isn’t exactly a screaming progressive victory. The payroll tax cut, while helpful, is not an ideal method of stimulating the economy, since it generates less economic activity than extending unemployment, increasing food stamps, or aiding struggling states. It also can present long-term problems for the viability of Social Security.

But in ceding ground to Democrats on an idea for helping the economy, and proposing their own (twisted) way to punish top earners, Republicans are engaging in a new conversation that wouldn’t have happened over the summer. For once, Republicans have come to fight on Democratic turf. They’re still fighting, to be sure, but the conversation has changed. I’m not trying to be too Pollyannaish about the effect of both the Occupy movement and Democrats becoming much more aggressive, but I do think it’s creating some changes in Washington. Reports also indicate Republicans are now open to extending unemployment benefits, which would be even more helpful than extending payroll tax cuts.

McConnell’s maneuvers track with the advice of Republican messaging whiz Frank Luntz, who is counseling conservatives not to attack the 99 percent protesters and not to directly defend capitalism. In other words: they think the movement’s a little too strong right now, and they are disinclined to battle it outright.

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