Wednesday, August 21, 2013

Congressional Travel Junkets or The Perks of Being A Legislator

“Before a Cat will condescend
To treat you as a trusted friend,
Some little token of esteem
Is needed, like a dish of cream…”
                                          -T.S. Eliot

Let’s take a moment to discuss the time honored tradition of the Congressional travel junket. For those of you not fully aware of what a travel junket is exactly let me answer it three ways:

If you’re a Senator or Congress member pressed by the (always uncomfortable) question, you’d answer that a travel junket is a useful venture in which a Senator or Congress member must travel to a location on a fact finding mission to better represent their constituents and country as a whole.

If you’re a tax payer or a constituent, a travel junket is a trip taken by an elected official (and often their spouse or other family member) for the ostensible purpose of hands on education regarding some pending legislation. At times you foot the bill. At others, some private entity does. Either way, in most cases you get nothing of value.

If you’re a lobbyist or corporation or special interest of any sort, a travel junket is a useful tool in which, by covering the flight and other associated costs for what amounts to a vacation, you are given extended access to and many would argue, considerable influence over a particular lawmaker. The investment can be expensive, but the return is generally well worth the expenditure.

The travel junket became a point of discomfort for many voters in 2006-2007 following the discovery of disgraced lobbyist Jack Abramoff’s frequent use of junkets to lord influence over a number of elected officials. These fact finding missions included hard hitting research such as rounds of golf at Scotland’s famed golf course, St. Andrews, and trips to the Fiesta Bowl and Super Bowl. In actuality, those are just some quick highlights. The list of absurd Abramoff coordinated trips is fairly lengthy. Of course, following the public revelation and the eventual indictment and conviction of Abramoff, all of these trips were deemed either demonstrably illegal or, at the very least, gross misappropriations of an official’s time. Congress passed a bill reigning in gifts, meals and travel packages from lobbyists and the number of congressional junkets fell off a cliff—dropping from an all time high of nearly 5,000 trips in 2005 (at a cost of nearly $10 Million) to 1,846 trips the following year. The bill limited trip length on foreign travel to seven days and domestic travel to four days but also allowed for—wait for it—some exceptions. These exceptions included the allowance of educational and charitable groups to finance trips for elected officials.

In completely unsurprising fashion, it didn’t take long for lobbyists and lawmakers to figure out the best way to utilize the exceptions to their full extent. As an article in the Columbia Journalism Review explained recently:

The arrangement works like this: a congressional caucus—an official group of lawmakers (there are many) with common characteristics or interests, such as the Congressional Black Caucus or Blue Dog Democrats or the Congressional Marcellus Shale Caucus—sets up a charitable organization. That organization, in turn, seeks donations, which do not have to be disclosed. In addition to its good works, the charitable entity then organizes events, such as conferences or retreats, in which the caucus members rub shoulders with contributors. The nonprofit can invite special interests—corporations, unions, and others—to fork over large donations to sponsor and participate in these events.

So, not only have lawmakers figured out a way around travel junket reform, they’ve also figured out a way to turn their vacations into a fundraising tool. Nice.

Perhaps the most ostentatious abuse of this new “charitable” junket system came in the summer of 2011, when Eric Cantor arranged for eighty—eighty!—House members and their families to visit Israel through a charity affiliated with the pro-Israeli lobbying group American Israel Public Affairs Committee. This massive “fact finding mission” was capped off quite embarrassingly, with a (quite possibly drunk) Kansas Representative Kevin Yoder taking a late night skinny dip in the Sea of Galilee.

So a Congressman quite possibly got drunk, most definitely got naked and then went for a swim in the body of water Jesus supposedly walked on. It’s embarrassing and completely unprofessional for sure but not much else, right? Well, the real problem with Mr. Yoder’s naked dip into biblical waters stems from the way in which it was discovered. Undoubtedly, Congressman Yoder’s transgressions would likely have gone undiscovered by the press and general public had it not been for its documentation in an FBI probe into the trip over misrepresentation of expenses by some people on the trip.

As it turns out, nothing provably criminal came from the FBI probe but that is more likely due to the fact that there is a fine line between illegal and unethical and many of these travel junkets seem to exist comfortably in that narrowest of spaces. I won’t bother offering up conjecture on the absurd or unethical activities of the AIPAC junket. Instead, let’s look at Doug Thompson’s recollections of the travel junkets he attended as a staffer for the House Committee on Science and Technology back in the late 80’s:

…On such “official” trips funded by taxpayer dollars, I saw members of Congress get drunk and pass out, escort young women to their hotel rooms for the night, lose their “per diem” payments and more at casinos and engage in other antics that wouldn’t set well with folks back in their home districts.  One member bragged about getting a bl*w job from a female employee of the American Embassy in Paris.  Another claimed to have bedded a young lady who worked for the Embassy in London.
Of course, all of these junkets were called “fact-finding” missions but they were, in reality, taxpayer-funded vacations where Congressional wives shopped at the American Embassy stores, paying wholesale prices for French perfume, Italian leather goods or duty-free booze.  I still own a gold Heuer watch that I bought at one Embassy store for about 40 percent of what it would have cost in a jewelry store.
On the flight home from the Paris Air Show in 1985, the largesse from shopping sprees overflowed the cargo holds of the Air Force KC-135 that provided air transportation so some of it was packed into the restrooms of the plane, leaving just one for use on the long flight…

Of course this was more than twenty years ago but, aside from the increase in privately funded junkets, I doubt much has changed. The travel junket is just one of the perks of being an elected official and that is unlikely to change any time in the near future. Since 2000, the legislature has taken over 36,000 privately funded trips at a cost of approximately $83 million. (They’ve taken plenty of tax funded trips as well, though that is a cost more difficult to pin down.) And while the structure of privately funded travel junkets may have changed since 2006, the purpose is still the same. The travel junket is merely a means of lobbying and influence peddling for special interests outside of Washington—the proverbial dish of cream, if you will.   

Tuesday, August 6, 2013

Did "Fabulous Fab" Take A Dive For His Bosses?

Note: Normally, I focus on corruption on the government side of the equation, but this recent verdict I think points out the systemic corruption that is occurring in the United States' financial industry. I felt it was important enough to cover it, even if it seems slightly off topic for this blog.

The US Securities and Exchange Commission gave themselves a big pat on the back over last week’s conviction of “Fabulous Fab” Fabrice Tourre on securities fraud. Tourre was the only individual found guilty in the convoluted, high-dollar ABACUS scandal—a case in which the investors Tourre sold the investment vehicle to were told it was financially sound and intentionally made unaware of the toxic subprime mortgage securities being bundled into its portfolio; all the while the party responsible for the ABACUS 2007 AC-1 creation was betting against it.

Following the verdict, Matthew Martens, the SEC’s overseeing attorney on this case, said, “If this doesn’t convince people we can win these cases, I don’t know what would”. I'm not sure it's that simple though.

Yes, the SEC should be happy that it walked away with this conviction, but it seems much more likely that Fabulous Fab, while certainly guilty, was essentially a sacrificial lamb—a mid-level asset that was jettisoned as soon as it became advantageous for folks higher up the food chain. After all, what happened to the person who gained the most from the ABACUS Scandal, John Paulson; the man who commissioned the creation of ABACUS and who played a significant role in the portfolio’s content selection?

Let’s take a quick look at how the scandal actually broke down:

In the mid-2000's John Paulson approaches Goldman Sachs with $15 million to develop a CDO—an investment product based on collateral assets bundled together, most commonly property mortgages. We now know that Paulson, who was already famously bearish on the housing market at that point, wanted this investment product created specifically to be a failure. So, during the portfolio selection, Paulson loads it to the brim with sub-prime mortgages. In fact, his selections were so bad that less than one year following the introduction of ABACUS, 99% of the residential mortgages in the portfolio had been downgraded.

After Goldman created the CDO and let Paulson fill it with ridiculously bad paper, they sold it to investors without accurately disclosing its actual contents. According to the SEC filing:

Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO.

Goldman made it appear as if they would have an objective third party (ACA Management LLC) in charge of portfolio assignment and management, but that simply wasn’t the case.

GS&Co marketing materials for ABACUS 2007-AC1 – including the term sheet, flip book and offering memorandum for the CDO – all represented that the reference portfolio of RMBS underlying the CDO was selected by ACA Management LLC (“ACA”), a third-party with experience analyzing credit risk in RMBS. Undisclosed in the marketing materials and unbeknownst to investors, a large hedge fund, Paulson & Co. Inc. (“Paulson”), with economic interests directly adverse to investors in the ABACUS 2007-AC1 CDO, played a significant role in the portfolio selection process.

It’s so important to remember: having investors pour their money into the CDO with the intent of it being profitable is the only way that Paulson had the opportunity to make a fortune shorting the fund.

Goldman then sold the fund to IKB Deutsche Industriebank AG and this is where the SEC was able to scoop up its first victory. Goldman eventually had to concede that there had been omissions of fact and that IKB had not been made adequately aware of Paulson’s position in the portfolio selection. Goldman of course argued that, regardless of their inherent fiduciary responsibility, researching the details of the fund purchase ultimately fell on IKB. That argument fell flat and Goldman had to pay a $550 Million penalty.

So IKB gets burned, investors get burned, Goldman gets caught red handed and pays a fine that allowed them to avoid any admission of guilt or criminality (pretty much standard operating procedure in big financial cases), Fabrice Tourre is indicted and found guilty, and John Paulson walks away unscathed with a claim of plausible deniability and a billion—billion with a B—dollars added to his ledger. Something isn’t quite right here.

Look, I don’t think that anyone with any knowledge of the case is going to say that Fabrice Tourre was innocent. He wasn’t. He knowingly misled investors. But my question is this: at the behest of whom?

John Paulson wanted that CDO to fail. He specifically created it and loaded it with toxic mortgages to do just that. But he also knew that he had to have enough investors thinking that it was a wise investment in order to sell it short and reap a windfall. It takes quite a leap of logic to believe that Paulson had no influence in the matter in which it was marketed or, in the very least damning interpretation of events, that he was completely unaware that Goldman was marketing it dishonestly.

Unfortunately, the SEC never attempted to flesh out the obvious assumption: that Paulson and Goldman (via Tourre) were effectively co-conspirators in what amounts to a massive swindle. I don’t know exactly why they didn’t pursue Paulson but I feel comfortable in speculating that he and executives at Goldman, either directly or indirectly (with a calculated level of cooperation with the SEC), offered up Tourre as a sort of sacrifice to a regulatory body that a disgruntled American public has largely deemed a failure in its prosecution of high level financial criminals following the 2008 financial crisis.

What is equally perplexing is the alacrity with which financial booby traps like ABACUS are constructed. Don’t get me wrong, I’m not necessarily against behavior like stock shorting. It makes sense for an investor to be able to look at a failing company and say, “I’m willing to place my money on the fact that this company is failing worse than people realize”, but ABACUS was a completely different animal. ABACUS was a trap for unwitting investors, intentionally created to fail while allowing those in the know to bet on its imminent failure. How the creation of a financial investment product meant to intentionally fail doesn’t fall into the category of fraud is beyond me. It should be and anyone involved should be held accountable.

His name is John Paulson. His name is John Paulson. His name is John Paulson...

Sunday, August 4, 2013

Goldman Sachs and JP Morgan Manipulate Commodity Prices While the SEC Cheers Them On.

This week, I contributed an article to The Capital Press. You can read it here.

Here's a quick excerpt:

It’s not exactly controversial to say that the integrity of the SEC—the institution which holds primary responsibility for enforcing securities laws and regulating the financial industry; the country’s front line of defense against financial wrongdoing—has been compromised by revolving door politics. Just like many politicians and staffers on Capitol Hill have been influenced by the promise of cushy positions in lobbying or law firms following their exit from public life, many financial regulators have also been rendered ineffective under the mantle of personal financial security promised to them by the same institutions they are charged with overseeing.

Wednesday, July 24, 2013

McCain and Warren Team Up In Quixotic Effort To Bring Back Glass-Steagall

Since the financial crisis in 2008 a desperate cry has been made by many economic and public policy experts: Bring back the Glass-Steagall Act! The demand has graced the pages of hallowed financial publications like the Wall Street Journal and Forbes.  Groups of average Americans have formed Facebook groups to push the Act’s revival. It was name checked in the arguably amorphous list of demands by Occupy Wall Street movement of two years ago. Multiple Nobel Prize Winning Economists have lamented its repeal.

So, a lot of people were likely delighted by the recent news that two unlikely allies, Senator John McCain (R-AZ) and Senator Elizabeth Warren (D-MA) have mounted an attempt to bring back many of the features of Glass-Steagall.  These same people will also be equally disappointed when the bill is slaughtered before it even gets a vote.

Why am I so confident (or cynical might be the right word) that the bill won’t see the light of day? For a couple of reasons really, but let’s first back up and look at what Glass-Steagall was.

Following the Stock Market Crash of 1929 and the ensuing economic devastation, Congress pulled together and passed the Banking Act of 1933. This bill established the Federal Deposit Insurance Corporation (FDIC) and set new regulations on speculation and banking. Included in the bill were provisions set forth by Senator Carter Glass (D-VA) and Henry Steagall (D-AL) that created a hard wall between depository and investment banks—that is, under this provision a low-risk commercial bank that took customer deposits, issued receipts and lent money would not be able to make the high risk financial maneuvers that banks specializing in securities and investments could. This was to avoid the potential loss of said deposits in failed investment strategies since those deposits were never explicitly made by customers for the purpose of speculation.

Blocking the unnecessary exposure of commercial deposits to the wild valuation swings of speculative investment activities should be common sense considering the aforementioned FDIC program and its responsibility to insure commercial bank deposits. As Nobel Prize Winner in Economic Sciences Joseph Stiglitz pointed out in 2009:

“Commercial banks are not supposed to be high-risk ventures; they are supposed to manage other people’s money very conservatively. It is with this understanding that the government agrees to pick up the tab should they fail. Investment banks, on the other hand, have traditionally managed rich people’s money—people who can take bigger risks in order to get bigger returns.” 

But common sense and profitability don’t always overlap and the financial industry tends to be more interested in the latter. They weren’t concerned about the FDIC being on the hook if things went sour. They simply wanted the ability to merge investment and depository banks to tap into those commercial balance sheets for further investment leverage.

And more often than not, it seems, what the financial industry wants the financial industry gets. So, in late 1999 lobbying expenditures of roughly $300 million and years of working the back channels of Washington culminated in the financial industry getting what it wanted: a silver bullet bill—the Gramm Leach Bliley Act— that definitively erased Glass Steagall from the regulatory tool kit. Immediately, mergers between commercial and investment banks began en masse.

So, the first reason that the McCain-Warren effort to bring about a return of Glass-Steagall-styled banking regulation is largely an exercise in futility is that the financial industry simply doesn’t want it to happen. And they spread enough money around Capitol Hill and K-Street to be heard loud and clear. Just last year’s combined Commercial and Financial Banking lobbying expenditures totaled over $159 million which put it third highest on the list of total industry lobbying expenditures. That’s an undoubtedly hefty investment, but it has paid off time and time again. It worked to repeal numerous banking regulations throughout the 80’s and 90’s, it worked to finally kill Glass-Steagall in ’99 and it’s working again as the industry has largely been successful in emasculating the Dodd-Frank Act; the first attempt at wrangling in the excesses of Wall Street following the 2008 financial implosion. Let’s take a closer look at how the financial industry reacts to legislation that it doesn’t care for:

Following passage of Dodd Frank in 2010—no small miracle in itself, even with the American people considerably outraged at that point—the financial industry went into overdrive on the Hill. Their strategy was a multi-pronged approach. First, they sent in a veritable army of lobbyist to persuade Congress members to defund the regulatory agencies necessary for enforcement of the bill. In a long, fairly underreported fight, bank lobbyists outnumbered the bill’s advocates 20 to 1. They outspent the bill’s advocates by an even larger margin. They also got more face time with representatives by a margin of nearly 9 to 1. This fire-hose approach proved rather effective. In addition to cutting off significant funding, they also successfully pushed to have all of the rules and legal language of the bill written by the individual regulatory agencies themselves.

The second part of the assault was a wave of regulatory attorneys. If a regulator were to somehow successfully publish a rule, the banks would immediately take that regulator to court and, at the very least, effectively gum up the rule’s implementation for years; sometimes only over minor technicalities. One such litigator, Supreme Court Justice Antonin Scalia’s son Eugene has already filed seven of these types of suits. Long story short: Less than half of the rules that had been outlined in Dodd-Frank have been finalized. It’s basically a zombie bill; there in appearance and name but effectively dead. And the American people still have no real protections against the same economic dangers they faced from the financial industry in the fall of 2008, even as many Americans seem to be unaware or, in some cases, willfully ignorant of them.

This brings me to the next inevitable roadblock to any attempt to bring back the most important elements of Glass-Steagall. There is, in today’s Congress, an active ideological barrier to necessary and responsible financial regulation. There is a school of thought among many of the conservative members of Congress—particularly those swept in by the Tea Party Movement of the 2010 elections—that government regulation of any kind is an inherently bad thing. Regulation, they have stated time and again, places an impediment on free market capitalism which, they posit, is entirely unnecessary due to the self-correcting nature of the economic system. Of course, this assertion is absurd. After all, many of the most fervent of free market advocates were forced to recalibrate their ideology in the face of the economic destruction of ‘08, including former Federal Reserve Chairman Alan Greenspan who conceded in a House Committee hearing that there was a …flaw in the model that I perceived is a critical functioning structure that defines how the world works, so to speak”. But those that still buy into the myth of the innate perfection of absolute free market economics will not be dissuaded regardless of these documented concessions or ample evidence to the contrary of their position.

One of the most important things that Dodd-Frank attempted to do was to impose some regulation on the real monster of the financial meltdown: financial derivatives like credit default swaps. While the housing bubble bust was the catalyst for the crisis, it was the near implosion of nearly $700 Trillion in outstanding, unregulated derivatives—ten times the GDP of all the world’s countries combined—that very nearly killed the global economy. Basically, financial institutions had made massive unofficial side bets that they simply didn’t have the capital to cover. When the bets went bad they set off a chain reaction of more bets going bad and as the reality of the situation became apparent the trust so necessary to have a functioning economy nearly disappeared overnight. Credit markets froze. People panicked. Stock Markets tumbled. Ultimately, the government had to “inject liquidity” on a never-before-seen scale to restore confidence. Considering this, some oversight of the derivatives market and the amounts of capital that financial institutions would be allowed to place in it would seem to be, once again, common sense. Think again.

A number of bills that push for the return of deregulation of derivatives have now made their way out onto the floor of the House of Representatives. A co-sponsor of one of these bills, Rep. Scott Garrett, explained his support of the bill, "Our job creators -- millions being crushed by overly burdensome Washington rules and regulations -- deserve to be on a fair, level playing field with the international community" It’s breathtaking to behold.

Not even five years after the world teetered on financial ruin and potential civil unrest and many members of Congress are once again ideologically and financially motivated to load another bullet in the chamber for round two of Global Economic Russian Roulette. Very few stand in the way and those that do are undeniably outgunned and outspent. It won’t be any different for this attempt to reinstate Glass-Steagall. What McCain and Warren (as well as Senators Angus King and Maria Cantwell) are attempting to do is undoubtedly noble but equally impossible. 

Saturday, July 20, 2013

Virginia's Lax Ethics Laws

Want to see blatant corruption in action? The type of corruption that isn't even questionable as unethical? Check out Dahlia Lithwick's post over on Slate about Virginia's lax ethic laws.

Lithwick gets right down to brass tacks:
"Embattled Gov. Bob McDonnell has probably just cratered a once-promising political career over $145,000 in undisclosed gifts—each worthy of its own episode of Real Housewives of Richmond—including a $6,500 Rolex, a New York shopping spree for his wife, limo rides, catering for his daughter’s wedding, and a ride in a Ferrari. Is it shocking that McDonnell and his wife twisted themselves into pretzels to shill for the donor company’s weird tobacco-based nutritional supplements?"
She also discusses Virginia's Attorney General Ken Cuccinelli's unbelievable clearance of a recent ethics probe pointing out the only reason that Cuccinelli was cleared was because of the ridiculously hollow nature of Virginia's ethics laws. Highlighting Jessica Tillipman's work on the FCPA blog:
“Per the State Integrity Investigation, [Virginia] is one of only nine states without a statewide ethics commission and one of four states without campaign finance limits. Moreover, according to the National Conference of State Legislators, Virginia is one of just ten states in the country that, as noted above, does not limit the value of personal gifts provided to elected officials.”
There is a reason that the American people are so cynical about the people they send to their respective capitols to represent them.  Even with stringent ethics laws there tends to be a number of politicians willing to test the boundaries of the system. When there is almost no ethical infrastructure at all, when there are little to no tangible consequences for blatant ethics violations, what could anyone expect the outcome to be?

Monday, July 15, 2013

Putting A Face On Revolving Door Politics (Part 1)

Where does a Congress member or Senator go when they leave the Hill; be it a calculated exit or otherwise? It’s true they have opulent post-employment compensation plans but even with a sturdy safety net many aren’t necessarily ready to trade in their careers or ambitions for leisurely weekday afternoons on the golf course, senior’s cruises and early bird dinners. Like many Americans, this transition usually means they either have another gig lined up if it was a planned departure or they are scrambling to find one if it came unexpectedly.

For many former politicians their new endeavor usually means they end up with a very familiar work commute—right back to Capitol Hill. Equally comforting and advantageous for both the new employee and their employer it usually means a lot of time spent speaking with old, familiar faces—though now it’s from the opposite side of the desk. It certainly doesn’t hurt that the pay also tends to be much more lucrative. And though they’ll likely still be referred to by the honorary title of Senator or Congressman or Congresswoman in mixed company, their new professional title would be lobbyist or consultant.

This transition from elected public servant to well paid influence peddler is commonly referred to as “Revolving Door Politics” and its ubiquity and acceptance in the contemporary mechanics of Washington is often cited as one of the major contributing factors to political/corporate cronyism and the bastardization of our representative government.  

Current participants in revolving door politics would likely argue that there is nothing inherently unethical about their new careers; they’re merely earning a living using their experience and expertise to navigate within the confines of a complicated system. And it certainly isn’t illegal in any way, they might add. There is one gentleman who has been extremely successful in the post-Congressional lobby occupation that would likely be the first to offer up this particular defense of the practice.

Meet former Louisiana Congressman Billy Tauzin:

Congressman Tauzin, “the Cajun in the Capitol”, began his formal political career way back in 1972 when he won a seat in the Louisiana State House of Representatives. He served there until 1980 when a series of fortuitous events catapulted him to a seat in the US House of Representatives. Eventually, in 2001Tauzin landed the chairman position of the House Energy and Commerce Committee. This powerful committee has an exceptionally broad jurisdiction, but one particular area of oversight it’s charged with is the pharmaceutical industry. The pharmaceutical industry also happened to be a big campaign contributor to Congressman Tauzin—contributing over $200,000 throughout his 20+ year congressional career though $91,500 of it came in 2002, just shortly after he landed the chairmanship.

While chairing this committee, Congressman Tauzin co-sponsored and steered a rather large bill through the House titled the Medicare Prescription Drug, Improvement, and Modernization Act. With Tauzin’s help, the bill eventually passed through the House (by a razor thin margin) and the Senate and was signed into law. The bill radically altered Medicare, turning much of the business of caring for America’s seniors and disabled people to private insurance companies. Part of the bill, known as Medicare Part D, mandated that the Federal government cover a significant portion of prescription drug costs for beneficiaries under Medicare. It simultaneously dictated that the Federal Government could not negotiate in any way for lower costs of prescription drugs for the program as it had been allowed to in other programs like the Veterans Health Administration. It also restricted the Medicare system from purchasing cheaper, imported drugs from other countries like Canada and Mexico.

So, plainly stated for anyone not fully understanding the implications, this bill provided the pharmaceutical industry with an absolutely massive expansion in its customer base—with the deepest pockets in the world picking up a large portion of the tab—while at the same time guaranteeing they got to dictate, without protest or the slightest hint of competition, what the prices would be for these new customers. Calling it a sweetheart of a deal would be a serious understatement. Whether they said so or not, the heads of the pharmaceutical industry must have been greatly appreciative of Tauzin’s effort to steer the bill through to completion.

Two months after the Medicare Modernization Act was signed into law by President George W. Bush, Tauzin resigned his chairmanship of the Energy and Commerce Committee and announced that he would not seek reelection for his House seat. Tauzin had a new gig. Citing a successful battle with cancer and his new found appreciation for the pharmaceutical industry, it seems that Congressman Tauzin was called to do even greater work as the head of the Pharmaceutical Research and Manufacturers of America (PhRMA), the largest lobbying entity for the pharmaceutical industry in Washington. The new position came with a modest salary increase of course. As a congressman, Tauzin had a base salary of $154,700 in 2003. His starting salary at PhRMA was $2,000,000. Phenomenal timing on his part since he probably needed a more reliable way to pay for the lavish 1.1 million dollar Texas ranch he had just purchased months prior.

Tauzin would go on to head PhRMA until 2010, ultimately amassing a total of $19,359,927 in pay— $11.6 Million of which he received in his last year with the organization. (There are varying explanations as to why Tauzin left, but it’s largely irrelevant here.)  Following his departure from PhRMA, Tauzin once again decided against retirement. Perhaps closing out his winter years languidly on his Texas ranch, hunting deer and comparing ATM receipts with old colleagues seemed a bit unfair to all those poor souls who needed him and his expertise the most. So instead, in addition to heading his own lobbying firm, Tauzin lathered up in elbow grease and found more work with the lobbying firm Alston & Bird where he parlayed what could have been a new found respect for fossil fuels into crusading on the Hill for companies like ConocoPhillips.

Nobody on Capitol Hill or K Street so much as batted an eye during any of this. Why should they? Tauzin is just another name in a long list of lawmakers who have behaved similarly. I’ll take a second to note here that there is a somewhat analogous profession where this behavior would not be tolerated.

The Model Code of Judicial Conduct dictates that, “[a] judge shall avoid impropriety and the appearance of impropriety in all of the judge’s activities”. There is a very important reason that the court system wants to avoid even the appearance of impropriety: It reflects the serious and warranted concern that, “…some conduct which is in fact ethical may appear to the layman as unethical and thereby could erode public confidence in the judicial system or the legal profession”.  

The conduct of Congressman Tauzin following his departure from his congressional seat doesn’t necessarily constitute an unquestionable impropriety—there is some chance that it was all completely above board—but it would be a difficult to argue that it doesn’t, at the very least, bear some appearance of impropriety. It’s incredible that these types of immediate and questionable employment and pay-grade transitions are not only common but generally accepted as business as usual in Washington. Congressman Tauzin’s brand of Revolving door politics is a major contributing factor in the American People’s eroded confidence in the Congress. The legislative branch should have the same concern about maintaining public confidence in their institution as the court system does.

Sunday, July 7, 2013

Why They Can't Trust Us

As most are well aware by now, Egypt’s President Mohamed Morsi was overthrown last week in what some are calling a military coup. There are now legitimate concerns about the possibility of a civil war erupting. Whether it does or not, it’s obvious at this point that Egypt will remain in some state of turmoil for the foreseeable future. It’s heartbreaking for all of the Egyptians that have simply been looking for a better government and way of life. It all seemed within reach just two years ago.

The years since have been a roller coaster ride, starting with the Egyptian people banding together and orchestrating a successful and relatively peaceful overthrow of Hosni Mubarak’s government. Shortly thereafter they elected a president, drafted a constitution and then, rather quickly devolved back into chaos.  While the future for this ancient nation is uncertain, one thing is a pretty safe bet:

The Egyptian People do not trust the US Government and won’t likely be looking to it for guidance in reestablishing and stabilizing their shaky government.

In the now constant flux of the Middle Eastern political landscape, the United States’ long history of financial and political support for tyrannical (many now toppled) regimes has not allowed it much real influence in the way the region is now being restructured. Egypt, for example, has a number of legitimate grievances against the US Government and is a prime example of the United States’ new found diplomatic impotency in the region.

Why am I discussing the United States role in the region? Well, at the risk of sounding solipsistic (after all, this is an Egyptian story, not an American one), I think it’s impossible to ignore the peripheral role the United States played in the oppression of the Egyptian People by the Mubarak government that eventually sparked the revolution and led to the current turmoil. Let’s take a look:

The Mubarak Regime-- which ruled for its entire duration under an emergency law which gave the executive (the Interior Ministry) extensive powers including the ability to detain citizens indefinitely without charge or trial (sound familiar?)-- was notorious for torture and other flagrant violations of human rights. In one example listed in a report by Human Rights Watch released in the early days of the Egyptian Uprising, a young Cairo University law student protesting the US invasion of Iraq in 2003 was detained and brutally tortured:

“He stayed a long time upstairs, up to four hours at a time. He was tortured by electricity as well as beatings—he told us. He didn’t even have to tell us though, you could tell by his condition. We saw the burn marks from the electrocution. He was nearly comatose when they carried him [into the cell]. His face was extremely swollen and bruised. He was shaking. There were burn marks on his hand and elbows, and the feet and toes.”

There is little argument now that it was this type of torture and police abuse which can generally be credited with sparking the revolt in January 2011. As the protest, international exposure and political pressure grew and Mubarak’s fate became increasingly apparent, the Obama Administration rolled out its official position via Secretary of State Clinton who came out publicly for “an orderly, peaceful transition to real democracy”.

 What was not included in this Sunday Morning News Show discussion—at least not by Hillary Clinton—was any mention of the long, dark history of cooperation with the Mubarak government. Indeed, up until that point, Egypt was not only touted as a major ally but was also a major recipient of US Foreign Aid—only second to Israel in total dollars received, though it’s discussed much less than Israeli aid.

There are a number of reasons that Egypt was privy to over $50 Billion dollars in aid since 1975. It’s strategically important to have access to Egypt’s Suez Canal.  It was one of the only Middle Eastern states relatively friendly with Israel, following its controversial entry into the Egypt-Israel Peace Treaty of 1979. Later on, shortly after the 9/11 attacks, Mubarak would prove his loyalty to the US during the “War on Terror” by participating in the infamous extraordinary rendition program which allowed the CIA to send detainees to other countries like Egypt for torture—they were, after all, well practiced with torturing detainees as I previously mentioned—and interrogation. Just a little trade-off: they torture our detainees to extract information and we don’t say anything about them torturing theirs. All in all, it could and most likely would be argued by any State Department official that Egypt got our political and financial support because, in a tumultuous and unfriendly region, it was the devil we knew.

But there’s another reason, rarely acknowledged in political circles, that Mubarak’s government got the amount of aid money and political support that it did. They asked for it the Washington way. They lobbied for it. Right up until the very end.

Even as the truths about torture and oppression became increasingly articulated, even as the Egyptian people began rallying to overthrow the government that had committed such atrocities for three decades, even as the civilized world began to turn its back on the dictator, an influential number of former congressmen turned powerful lobbyists worked the back channels of Capitol Hill to protect Mubarak’s government from potential embarrassment—for just a minor fee, of course.

Podesta Livingston Moffett.jpg

Over the course of the last six months of 2010, the PLM Group—a joint venture between the lobbying groups of former congressman Toby Moffett, former congressman Bob Livingston and K-Street superstar Tony Podesta—pulled in roughly $400,000 from the Egyptian government to stop a Senate Resolution that called on Mubarak to support “free, fair, transparent and credible” elections as well as bring an end to the Emergency Law that allowed authorities to “harass, intimidate, arbitrarily detain, and engage in violence against peaceful demonstrators, journalists, human rights activists and bloggers.” In the end, their efforts were undeniably successful and the resolution was killed thanks in large part to the bi-partisan efforts of Senators Diane Feinstein of California and (Bob Livingston’s close friend) Roger Wicker of Mississippi.

A little over a month after the resolution died, the people of Egypt made Mubarak’s lobbying effort irrelevant and exposed the US Government on the wrong side of its supposed anchor value of freedom for all. The Egyptian People won't soon forget.