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Tom Daschle's WashingtonExcerpt from The Wall Street Journal - 2009-02-04; Page A12
His riches illustrate the expanding power of the political class.
Just as Tom Daschle's Senate pals were preparing to grant absolution for his six-figure tax-free limousine -- could've happened to anyone -- the former Majority Leader yesterday withdrew his nomination to be Secretary of Health and Human Services. Give Mr. Daschle credit for making the honorable choice, and sparing President Obama from a bipartisan populist revolt.
Before this episode vanishes into Beltway lore, however, it's worth drawing a few lessons. Especially because the political left seems to want to make this a morality play about Mr. Daschle's $5.2 million post-Senate windfall as lobbyist and speaking-circuit regular, notably in front of the health-care industry. Apparently these people expected Mr. Daschle to return to Sioux Falls after his 2004 re-election defeat and eke out a hardscrabble existence as a farmer.
But Mr. Daschle's embarrassment of riches is a typical story, and in fact is the result of the liberal ideology his critics have been advocating for decades. The main story of the Obama Presidency so far isn't the contradiction between Mr. Obama's campaign promises and the messier reality of his nominees. That was always inevitable. The real story is the massive transfer of power and wealth now underway from the private sector to the political class. Mr. Daschle could make so much money and achieve such prominence because he was expected to be a central broker in that wealth transfer.
Alston & Bird, the white-shoe law firm that took in Mr. Daschle, is a lobbying shop. Any normal person would therefore consider Mr. Daschle, who does not have a law degree, to be a lobbyist. But he was not technically a lobbyist under Beltway rules, and while it is still unclear exactly what services he performed as "Special Public Policy Advisor" to pile up $2.1 million, we do know he consulted for the insurance conglomerate UnitedHealth Group.
Mr. Daschle cashed in to the tune of nearly a quarter million dollars from various health-care businesses. The Health Industry Distributors Association paid $14,000 to hear him speak in March 2008 about "the impact an Obama administration will have on the industry." America's Health Insurance Plans, the insurers' lobby, gave $20,000 for another speech, as did health-care consulting firms, hospital systems and pharmacy boards.
Mr. Daschle's critics say he breached some fanciful code of honor separating corporate America and government. Please. Business groups spend to get intelligence and minimize political risk. In the case of Mr. Daschle, he was trading less on his career in "public service" than his proximity to and early support for Mr. Obama. While he was the recipient of industry generosity, the going wager was that he'd be White House Chief of Staff.
What Mr. Daschle's lucrative career as influence peddler really illustrates is how much Washington is now expanding its reach over the economy. Politicians and their staffers can make or break fortunes by slipping a rider into a "must pass" bill or dispensing billions of dollars in subsidies to favored constituencies. Naturally businesses are going to protect their interests and hire lobbyists to get the decisions to come out their way.
Had Mr. Daschle been confirmed, he would have been the most important man in a health-care industry expected to be worth $2.5 trillion in 2009, which is larger than the economy of France. With merely a torque to this or that regulation -- to say nothing of the "reform" he was to oversee as White House "health czar" -- he would have channeled all this wealth in one direction or the other. Just another day at the office.
This is all part of the same entitlement mentality that caused Mr. Daschle's former colleagues to barely raise an eyebrow over his "disappointing mistakes" on taxes, as Senate Finance Chairman Max Baucus put it. West Virginia Democrat Jay Rockefeller said Mr. Daschle's tax oversights had to be weighed against the value he brings "in terms of the moral necessity of getting universal health care." So tax avoidance is justifiable as long as you're saving mankind.
We have come a long way from liberal outrage over the "K Street Project," Tom DeLay's effort to strong-arm lobbyists into hiring more Republicans. True, when the DeLay GOP settled into incumbency, it dumped the spending restraint and reform that might have limited the ecosystem that allows the Daschles of the world to proliferate. Still, it's amusing to see liberals, who run as the party of government, get momentarily indignant when one of their own cashes in on the spoils of their system.
As for Mr. Obama, as recently as Monday night the President was saying he "absolutely" stood by his nominee before reluctantly accepting his withdrawal. So much for promising to vanquish the lobbyists before banishing the special interests. This was always an implausible bill of goods, considering that the major special interest in Washington is Washington itself.
Mad MenExcerpt from The Wall Street Journal - 2009-01-07; Page A11
Feeder funds appear to explain the Ponzi longevity of money manager Bernie Madoff. To pay off early investors, mostly family and business connections in New York, he stuck his siphon into the moneyed worlds of Western Europe, Palm Beach and Hollywood.
The biggest of these feeder funds appears to be the now famous Fairfield Greenwich Group, operated by Walter Noel with help from Colombian toff Andres Piedrahita, who prospected among the watering holes of London and Madrid. Another was Access International, run by an unfortunate Frenchman who killed himself.
That their proprietors weren't aware they were servicing a Ponzi scheme is plausible -- because they had money invested with Mr. Madoff too. Yet this may be a conclusion too far. A Ponzi scheme can be profitable for its "investors," and having their own money hostage would have been a fitting incentive for the feeder's role of pulling in new funds to keep the scheme going.
Inasmuch as they were essentially extracting fees simply for placing their clients' money with Mr. Madoff, who extracted no fees, they'd have every reason to puzzle out exactly what it was Mr. Madoff was allowing them to be paid so handsomely to do.
But here is the most interesting question. Mr. Madoff gained access to billions through the feeder funds, allowing two possibilities: A pile of money exists somewhere, and Mr. Madoff knows where, as do others. His spontaneous confession to his sons, and their prompt move to inform authorities, along with the pretense that Mr. Madoff acted alone, may have been one giant theatrical confection.
Or -- the other, more likely, possibility -- the many billions raised by feeder funds were paid out as fat profits to investors, such that hundreds of Madoff clients lived very well off the Madoff scam for decades.
Under the law, you can enter a Ponzi scheme through lack of diligence, but you can't exit through proper diligence. If you leave because you smell a rat, you are complicit. Mr. Madoff may have gone on for 40 years, and one suspects a certain folk knowledge existed among many participants that something was not quite right (which is not the same as deciding not to participate).
Indeed, a continuum of complicity will likely be found, extending from the truly duped to the not-so-duped. A place to start applying the screws would be Frank Avellino and Michael Bienes, the two accountants hauled before the SEC in 1992 for illegally raising $440 million for Mr. Madoff. In the most eye-popping of its missed opportunities, the agency never ventured to look directly at Mr. Madoff's books after he somehow coughed up cash to pay back Messrs. Avellino and Bienes's clients.
That said, Mr. Madoff was not running a public company or a Fidelity mutual fund or an FDIC-insured bank. His rarefied customers chose not to afford themselves the checks and balances of institutionalized finance that, while no guarantee against loss or fraud, engage and incentivize many watchful eyes.
Journalism follows its own well-trod folkways, of course, and some now insist on trying to make Mr. Madoff symbolic of all that's wrong with our financial system. Yes, the SEC could have done a better job, but policing side deals that rich investors make with money managers arguably is not central to its mission of ensuring fair and orderly markets. And the law is already well-equipped to clean up after fraud. Bankruptcy judges are versed in the peculiar justice of "fraudulent conveyance" that allows them to claw back Ponzi profits from some clients for the benefit of others. And tort lawyers and prosecutors will likely find it shooting fish in a barrel to hold various "advisers" liable for steering clients into the Madoff scam.
In no book of wise investing, however, is it written: "Entrust all your money to a magical figure who claims to produce uncannily consistent profits by means he refuses to explain."
Nor is it written: "Pay princely commissions to any perfumed popinjay who can open the door to this mystical kingdom."
Barney Frank didn't help by fibrillating on Monday that investors everywhere would be afraid to invest after Mr. Madoff. Mr. Frank would have done better to emphasize the many ways a recognized mutual fund, and even most hedge funds, are different from a Madoff scam, beginning with an independent custodian of the underlying assets.
Better yet, Washington might spend its time profitably examining its own role in the recent housing blowout, which has destroyed more wealth than a hundred Madoffs, and about which Mr. Frank himself is an expert.
Waiting for DoddExcerpt from The Wall Street Journal - 2009-01-07; Page A12
With the opening of the 111th Congress yesterday, all of Washington is tingling with the allure of a fresh start. Not so fast. We've got some leftover business from the 110th Congress -- namely, Chris Dodd's July 2008 promise to release the details of his sweetheart loans from Countrywide Financial.
The Connecticut Senator got favored treatment from the subprime mortgage purveyor, even as he was a power broker on the Banking Committee that regulates the industry. When the news broke, the Senator first denied that he sought or expected preferential treatment. He later admitted that he knew he was considered a VIP at the firm but claimed he thought it was "more of a courtesy." He also promised the Connecticut press that he'd come clean with the documents and details of the loans. But six months later -- nada, zip, nothing.
The rest of the press corps may have moved on, but we'd still like to know. All the more so because former Countrywide Financial loan officer Robert Feinberg told us last fall that Mr. Dodd knowingly saved thousands of dollars on his refinancing of two properties in 2003 as part of a special program for the influential. Mr. Feinberg also reported that he has internal company documents that prove Mr. Dodd knew he was getting preferential treatment as a friend of Angelo Mozilo, Countrywide's then-CEO, and Mr. Feinberg has offered to provide those documents to investigators.
Just before Mr. Dodd made his promise, Bank of America closed its acquisition of Countrywide and Mr. Dodd has continued to oversee BofA and the rest of the mortgage industry as Chairman of Senate Banking. He will now play a lead role in drafting legislation affecting the very business that gave him preferential treatment, yet he still refuses to release the mortgage documents that would illuminate this treatment. As the Senate Ethics Committee examines this case, Mr. Dodd's office reports that he is cooperating with the investigation and that he still intends to make good on his six-month-old pledge. But nothing in the Senate ethics process prevents Mr. Dodd from coming clean with the public whenever he wishes.
We suspect there's at least one habit of the 110th Congress that won't change in the 111th: The Members think they can get away with anything -- and usually do.