- many of them in oil, real estate, health care and other companies owned by Rainwater
Senior White House aide as 'bringing the business special interests into politics
so they can take over the regulatory bodies of government and regulate
themselves'.
'There's been a sigh of relief,' said Larry Smith, an analyst with
Sutro in New York. Bush's proclaimed victory was greeted by a sudden
leap in the share value of big pharmaceutical companies, big insurers
of health care, and the big oil and tobacco companies.
While Rove was masterminding Bush's gubernatorial victory of 1994 in
Texas, he himself had another job with one of these companies: a paid
political intelligence operative for the Philip Morris cigarette
company, reporting to another Bush aide, Jack Dillard, ubiquitous
tobacco lobbyist.
Unlike that of Clinton, Bush's record on tobacco does not displease
the industry; he decreed it impossible for the civil lawsuit against
tobacco companies to proceed in Texas. 'The prospect of Bill Clinton
gone and a Bush presidency makes the tobacco industry almost giddy,'
says Martin Feldman, an analyst of the industry for the consultants
Salomon Smith and Barney.
Corporate delight at the prospect of a Bush team heading for
Washington stems from the core political philosophy Bush brings from
Texas to Washington, which is also Rove's principal achievement. In
Texas legalese it was called 'tort reform'; in Washington it
translates as grand-scale deregulation of business, services and
industry.
It was described to The Observer this last week by a senior White
House aide as 'bringing the business special interests into politics
so they can take over the regulatory bodies of government and regulate
themselves'. For example: the Environmental Protection Agency, the
fair trade agencies, the health, safety and 'human resources'
executives, the regulation of industry, education, guns, medicine and
land use.
No industry has a higher stake in 'tort reform' than the drillers of
black gold, and few look forward to a deregulating Bush administration
more than the executives of the oil industry, which has already been
promised almost unfettered exploration and drilling rights.
But there are other interests too, and two of them - urban development
and health care - combine with oil in another mighty figure in the
background of a Bush administration. If he must thank his father for
his name, Bush must thank Richard Rainwater for his money.
Last year, 1999, as he prepared to run for President, Bush liquidated a blind trust he created to hold his assets - many of them in oil, real
estate, health care and other companies owned by Rainwater, a
contributor to Bush's campaigns and with whose money Bush aquired his
windfall stake in the Texas Rangers baseball team.
Rainwater is a billionaire buying into beleaguered companies at
discount prices and reselling when everyone wants in. But he is also
involved in companies, including oil firms, that are heavily regulated
with hundreds of millions in government contracts.
One, a hospital chain called Columbia/HCA, is the subject of a federal
investigation into Medicare fraud. Another, Charter Behavioural Health
Systems (in which Bush held investments), is subject to regulatory
scrutiny, while another - Crescent Real Estate, which operates mental
hospitals - has its multi-million-dollar government input under
federal investigation. Rainwater is not himself accused of any
misdemeanour, but in each case, the prospect of Bush's promise to
privatise and deregulate the health system is a tempting one.
Rainwater is most famous for investing the oil wealth of the third
point of Bush's business Iron Triangle - the Bass Brothers, builders
of the metropolis Fort Worth. He turned the $50 million they invested
with him in 1970 to $5 billion in 1986, mainly through timely
investing in Texaco oil and Disney.
This is how the wheels go round in Texas: in 1997, Governor Bush
supported a tax reform Bill aimed to cut, among other things, school
property taxes. The reform saved Rainwater's Crescent Real Estate
$2.5m.
In 1999, Bush rushed through an emergency tax relief package to help
independent oil producers as prices slumped. According to state
records, the biggest beneficiary was the Pioneer Natural Resources oil
company, with a $1m tax break. Filings with the Security Exchange
Commission show Rainwater to own 55m shares in Pioneer.
The scale model for this entwinement of political and commercial
interests was the inclusion of the oil companies in drawing up Texas's
clean air regulations last year. The rules were devised by Bush's
office in collaboration with Marathon Oil and Exxon, and left
companies to set their own standards voluntarily.
But while the governor was waiting to sign the new 'self-regulatory'
Bill into law, the town of Odessa, Texas, was covered by a pall of
black smoke so thick that drivers had to switch on their lights during
daylight.
Odessa, said Dr David Karman of the Texas Natural Resources
Commission, 'was like having an open incinerator in your backyard.
Only this incinerator is burning a very large soup of toxic
chemicals'.
In bringing the politics of Texan non-government into national
government, Bush is in perfect harmony with two of his most powerful
lieutenants in Congress: Dick Armey, leader of the House, and Tom
Delay, the Republicans' feared chief whip.
Delay, who led the impeachment of President Clinton and whose office
mobilised the baying crowds bussed around Florida last month, is seen
as the coming man and leader of the extreme Right, with which Bush
must deal. Delay has called the Environmental Protection Agency the
'Gestapo' of government.
Armey has likewise attacked what he calls 'government shackles on
enterprise'; both men have sworn absolute loyalty to Bush.
And as it happens, both men, like George W. Bush, come from Texas.
Another Iron Triangle.
Tuesday, September 30, 2008
Monday, September 29, 2008
McCain’s bill died, largely because Indian gambling interests fought back...
McCain’s bill died, largely because Indian gambling interests fought back. But the Department of Interior picked up where Mr. McCain left off, effectively doing through regulations what he had hoped to accomplish legislatively. Carl Artman, who served as the Interior Department’s assistant secretary of Indian Affairs until May, said Mr. McCain pushed him to rewrite the off-reservation rules. “It became one of my top priorities because Senator McCain made it clear it was one of his top priorities,” he said.
September 28, 2008
By JO BECKER and DON VAN NATTA Jr.
Senator John McCain was on a roll. In a room reserved for high-stakes gamblers at the Foxwoods Resort Casino in Connecticut, he tossed $100 chips around a hot craps table. When the marathon session ended around 2:30 a.m., the Arizona senator and his entourage emerged with thousands of dollars in winnings.
A lifelong gambler, Mr. McCain takes risks, both on and off the craps table. He was throwing dice that night not long after his failed 2000 presidential bid, in which he was skewered by the Republican Party’s evangelical base, opponents of gambling. Mr. McCain was betting at a casino he oversaw as a member of the Senate Indian Affairs Committee, and he was doing so with the lobbyist who represents that casino, according to three associates of Mr. McCain.
The visit had been arranged by the lobbyist, Scott Reed, who works for the Mashantucket Pequot, a tribe that has contributed heavily to Mr. McCain’s campaigns and built Foxwoods into the world’s second-largest casino. Joining them was Rick Davis, Mr. McCain’s current campaign manager. Their night of good fortune epitomized not just Mr. McCain’s affection for gambling, but also the close relationship he has built with the gambling industry and its lobbyists during his 25-year career in Congress.
As a two-time chairman of the Indian Affairs Committee, Mr. McCain has done more than any other member of Congress to shape the laws governing America’s casinos, helping to transform the once-sleepy Indian gambling business into a $26-billion-a-year behemoth with 423 casinos across the country. He has won praise as a champion of economic development and self-governance on reservations.
“One of the founding fathers of Indian gaming” is what Steven Light, a University of North Dakota professor and a leading Indian gambling expert, called Mr. McCain.
As factions of the ferociously competitive gambling industry have vied for an edge, they have found it advantageous to cultivate a relationship with Mr. McCain or hire someone who has one, according to an examination based on more than 70 interviews and thousands of pages of documents.
Mr. McCain portrays himself as a Washington maverick unswayed by special interests, referring recently to lobbyists as “birds of prey.” Yet in his current campaign, more than 40 fund-raisers and top advisers have lobbied or worked for an array of gambling interests — including tribal and Las Vegas casinos, lottery companies and online poker purveyors.
When rules being considered by Congress threatened a California tribe’s planned casino in 2005, Mr. McCain helped spare the tribe. Its lobbyist, who had no prior experience in the gambling industry, had a nearly 20-year friendship with Mr. McCain.
In Connecticut that year, when a tribe was looking to open the state’s third casino, staff members on the Indian Affairs Committee provided guidance to lobbyists representing those fighting the casino, e-mail messages and interviews show. The proposed casino, which would have cut into the Pequots’ market share, was opposed by Mr. McCain’s colleagues in Connecticut.
Mr. McCain declined to be interviewed. In written answers to questions, his campaign staff said he was “justifiably proud” of his record on regulating Indian gambling. “Senator McCain has taken positions on policy issues because he believed they are in the public interest,” the campaign said.
Mr. McCain’s spokesman, Tucker Bounds, would not discuss the senator’s night of gambling at Foxwoods, saying: “Your paper has repeatedly attempted to insinuate impropriety on the part of Senator McCain where none exists — and it reveals that your publication is desperately willing to gamble away what little credibility it still has.”
Over his career, Mr. McCain has taken on special interests, like big tobacco, and angered the capital’s powerbrokers by promoting campaign finance reform and pushing to limit gifts that lobbyists can shower on lawmakers. On occasion, he has crossed the gambling industry on issues like regulating slot machines.
Perhaps no episode burnished Mr. McCain’s image as a reformer more than his stewardship three years ago of the Congressional investigation into Jack Abramoff, the disgraced Republican Indian gambling lobbyist who became a national symbol of the pay-to-play culture in Washington. The senator’s leadership during the scandal set the stage for the most sweeping overhaul of lobbying laws since Watergate.
“I’ve fought lobbyists who stole from Indian tribes,” the senator said in his speech accepting the Republican presidential nomination this month.
But interviews and records show that lobbyists and political operatives in Mr. McCain’s inner circle played a behind-the-scenes role in bringing Mr. Abramoff’s misdeeds to Mr. McCain’s attention — and then cashed in on the resulting investigation. The senator’s longtime chief political strategist, for example, was paid $100,000 over four months as a consultant to one tribe caught up in the inquiry, records show.
Mr. McCain’s campaign said the senator acted solely to protect American Indians, even though the inquiry posed “grave risk to his political interests.”
As public opposition to tribal casinos has grown in recent years, Mr. McCain has distanced himself from Indian gambling, Congressional and American Indian officials said.
But he has rarely wavered in his loyalty to Las Vegas, where he counts casino executives among his close friends and most prolific fund-raisers. “Beyond just his support for gaming, Nevada supports John McCain because he’s one of us, a Westerner at heart,” said Sig Rogich, a Nevada Republican kingmaker who raised nearly $2 million for Mr. McCain at an event at his home in June.
Only six members of Congress have received more money from the gambling industry than Mr. McCain, and five hail from the casino hubs of Nevada and New Jersey, according to data from the Center for Responsive Politics dating back to 1989. In the presidential race, Senator Barack Obama has also received money from the industry; Mr. McCain has raised almost twice as much.
In May 2007, as Mr. McCain’s presidential bid was floundering, he spent a weekend at the MGM Grand on the Las Vegas strip. A fund-raiser hosted by J. Terrence Lanni, the casino’s top executive and a longtime friend of the senator, raised $400,000 for his campaign. Afterward, Mr. McCain attended a boxing match and hit the craps tables.
For much of his adult life, Mr. McCain has gambled as often as once a month, friends and associates said, traveling to Las Vegas for weekend betting marathons. Former senior campaign officials said they worried about Mr. McCain’s patronage of casinos, given the power he wields over the industry. The officials, like others interviewed for this article, spoke on condition of anonymity.
“We were always concerned about appearances,” one former official said. “If you go around saying that appearances matter, then they matter.”
The former official said he would tell Mr. McCain: “Do we really have to go to a casino? I don’t think it’s a good idea. The base doesn’t like it. It doesn’t look good. And good things don’t happen in casinos at midnight.”
“You worry too much,” Mr. McCain would respond, the official said.
A Record of Support
In one of their last conversations, Representative Morris K. Udall, Arizona’s powerful Democrat, whose devotion to American Indian causes was legendary, implored his friend Mr. McCain to carry on his legacy.
“Don’t forget the Indians,” Mr. Udall, who died in 1998, told Mr. McCain in a directive that the senator has recounted to others.
More than a decade earlier, Mr. Udall had persuaded Mr. McCain to join the Senate Indian Affairs Committee. Mr. McCain, whose home state has the third-highest Indian population, eloquently decried the “grinding poverty” that gripped many reservations.
The two men helped write the Indian Gaming Regulatory Act of 1988 after the Supreme Court found that states had virtually no right to control wagering on reservations. The legislation provided a framework for the oversight and growth of Indian casinos: In 1988, Indian gambling represented less than 1 percent of the nation’s gambling revenues; today it captures more than one third.
On the Senate floor after the bill’s passage, Mr. McCain said he personally opposed Indian gambling, but when impoverished communities “are faced with only one option for economic development, and that is to set up gambling on their reservations, then I cannot disapprove.”
In 1994, Mr. McCain pushed an amendment that enabled dozens of additional tribes to win federal recognition and open casinos. And in 1998, Mr. McCain fought a Senate effort to rein in the boom.
He also voted twice in the last decade to give casinos tax breaks estimated to cost the government more than $326 million over a dozen years.
The first tax break benefited the industry in Las Vegas, one of a number of ways Mr. McCain has helped nontribal casinos. Mr. Lanni, the MGM Mirage chief executive, said that an unsuccessful bid by the senator to ban wagering on college sports in Nevada was the only time he could recall Mr. McCain opposing Las Vegas. “I can’t think of any other issue,” Mr. Lanni said.
The second tax break helped tribal casinos like Foxwoods and was pushed by Scott Reed, the Pequots’ lobbyist.
Mr. McCain had gotten to know Mr. Reed during Senator Bob Dole’s 1996 presidential campaign, which Mr. Reed managed. Four years later, when Mr. McCain ran for president, Mr. Reed recommended he hire his close friend and protégé, Rick Davis, to manage that campaign.
During his 2000 primary race against George W. Bush, Mr. McCain promoted his record of helping Indian Country, telling reporters on a campaign swing that he had provided critical support to “the Pequot, now the proud owners of the largest casino in the world.”
But Mr. McCain’s record on Indian gambling was fast becoming a difficult issue for him in the primary. Bush supporters like Gov. John Engler of Michigan lambasted Mr. McCain for his “close ties to Indian gambling.”
A decade after Mr. McCain co-authored the Indian gambling act, the political tides had turned. Tribal casinos, which were growing at a blazing pace, had become increasingly unpopular around the country for reasons as varied as morality and traffic.
Then came the biggest lobbying scandal to shake Washington.
Behind an Inquiry
At a September 2004 hearing of the Indian Affairs Committee, Mr. McCain described Jack Abramoff as one of the most brazen in a long line of crooks to cheat American Indians. “It began with the sale of Manhattan, and has continued ever since,” he said. “What sets this tale apart, what makes it truly extraordinary, is the extent and degree of the apparent exploitation and deceit.”
Over the next two years, Mr. McCain helped uncover a breathtaking lobbying scandal — Mr. Abramoff and a partner bilked six tribes of $66 million — that showcased the senator’s willingness to risk the wrath of his own party to expose wrongdoing. But interviews and documents show that Mr. McCain and a circle of allies — lobbyists, lawyers and senior strategists — also seized on the case for its opportunities.
For McCain-connected lobbyists who were rivals of Mr. Abramoff, the scandal presented a chance to crush a competitor. For senior McCain advisers, the inquiry allowed them to collect fees from the very Indians that Mr. Abramoff had ripped off. And the investigation enabled Mr. McCain to confront political enemies who helped defeat him in his 2000 presidential run while polishing his maverick image.
The Abramoff saga started in early 2003 when members of two tribes began questioning Mr. Abramoff’s astronomical fees. Over the next year, they leaked information to local newspapers, but it took the hiring of lobbyists who were competitors of Mr. Abramoff to get the attention of Mr. McCain’s committee.
Bernie Sprague, who led the effort by one of the tribes, the Saginaw Chippewas in Michigan, hired a Democratic lobbyist who recommended that the tribe retain Scott Reed, the Republican lobbyist, to push for an investigation.
Mr. Reed had boasted to other lobbyists of his access to Mr. McCain, three close associates said. Mr. Reed “pretty much had open access to John from 2000 to at least the end of 2006,” one aide said.
Lobbyist disclosure forms show that Mr. Reed went to work for the Saginaw Chippewa on Feb. 15, 2004, charging the tribe $56,000 over a year. Mr. Abramoff had tried to steal the Pequots and another tribal client from Mr. Reed, and taking down Mr. Abramoff would eliminate a competitor.
Mr. Reed became the chief conduit to Mr. McCain’s committee for billing documents and other information Mr. Sprague was digging up on Mr. Abramoff, Mr. Sprague said, who said Mr. Reed “did a great to service to me.”
“He had contacts I did not,” Mr. Sprague said. “Initially, I think that the senator’s office was doing Reed a favor by listening to me.”
A few weeks after hiring Mr. Reed, Mr. Sprague received a letter from the senator. “We have met with Scott Reed, who was very helpful on the issue,” Mr. McCain wrote.
Information about Mr. Abramoff was also flowing to Mr. McCain’s committee from another tribe, the Coushatta of Louisiana. The source was a consultant named Roy Fletcher, who had been Mr. McCain’s deputy campaign manager in 2000, running his war room in South Carolina.
It was in that primary race that two of Mr. Abramoff’s closest associates, Grover Norquist, who runs the nonprofit Americans for Tax Reform, and Ralph Reed, the former director of the Christian Coalition, ran a blistering campaign questioning Mr. McCain’s conservative credentials. The senator and his advisers blamed that attack for Mr. McCain’s loss to Mr. Bush in South Carolina, creating tensions that would resurface in the Abramoff matter.
“I was interested in busting” Mr. Abramoff, said Mr. Fletcher, who was eventually hired to represent the tribe. “That was my job. But I was also filled with righteous indignation, I got to tell you.”
Mr. Fletcher said he began passing information to John Weaver, Mr. McCain’s chief political strategist, and other staff members in late 2003 or January 2004. Mr. Weaver confirmed the timing.
Mr. McCain announced his investigation on Feb. 26, 2004, citing an article on Mr. Abramoff in The Washington Post. He did not mention the action by lobbyists and tribes in the preceding weeks. His campaign said no one in his “innermost circle” brought information to Mr. McCain that prompted the investigation.
The senator declared he would not investigate members of Congress, whom Mr. Abramoff had lavished with tribal donations and golf outings to Scotland. But in the course of the investigation, the committee exposed Mr. Abramoff’s dealings with the two men who had helped defeat Mr. McCain in the 2000 primary.
The investigation showed that Mr. Norquist’s foundation was used by Mr. Abramoff to launder lobbying fees from tribes. Ralph Reed was found to have accepted $4 million to run bogus antigambling campaigns. And the investigation also highlighted Mr. Abramoff’s efforts to curry favor with the House majority leader at the time, Tom DeLay, Republican of Texas, a longtime political foe who had opposed many of Mr. McCain’s legislative priorities.
Mr. McCain’s campaign said the senator did not “single out” Ralph Reed or Mr. Norquist, neither of whom were ever charged, and that both men fell within the “scope of the investigation.” The inquiry, which led to guilty pleas by over a dozen individuals, was motivated by a desire to help aggrieved tribes, the campaign said.
Inside the investigation, the sense of schadenfreude was palpable, according to several people close to the senator. “It was like hitting pay dirt,” said one associate of Mr. McCain’s who had consulted with the senator’s office on the investigation. “And face it — McCain and Weaver were maniacal about Ralph Reed and Norquist. They were sticking little pins in dolls because those guys had cost him South Carolina.”
Down on the Coushattas reservation, bills related to the investigation kept coming. After firing Mr. Abramoff, the tribe hired Kent Hance, a lawyer and former Texas congressman who said he had been friends with Mr. McCain since the 1980s.
David Sickey, the tribe’s vice chairman, said he was “dumbfounded” over the bills submitted by Mr. Hance’s firm, Hance Scarborough, which had been hired by Mr. Sickey’s predecessors.
“The very thing we were fighting seemed to be happening all over again — these absurd amounts of money being paid,” Mr. Sickey said.
Mr. Hance’s firm billed the tribe nearly $1.3 million over 11 months in legal and political consulting fees, records show. But Mr. Sickey said that the billing statements offered only vague explanations for services and that he could not point to any tangible results. Two consultants, for instance, were paid to fight the expansion of gambling in Texas — even though it was unlikely given that the governor there opposed any such prospect, Mr. Sickey said.
Mr. Hance and Jay B. Stewart, the firm’s managing partner, defended their team’s work, saying they successfully steered the tribe through a difficult period. “We did an outstanding job for them,” Mr. Hance said. “When we told them our bill was going to be $100,000 a month, they thought we were cheap. Mr. Abramoff had charged them $1 million a month.”
The firm’s fees covered the services of Mr. Fletcher, who served as the tribe’s spokesman. Records also show that Mr. Hance had Mr. Weaver — who was serving as Mr. McCain’s chief strategist — put on the tribe’s payroll from February to May 2005.
It is not precisely clear what role Mr. Weaver played for his $100,000 fee.
Mr. Stewart said Mr. Weaver was hired because “he had a lot of experience with the Senate, especially the new chairman, John McCain.” The Hance firm told the tribe in a letter that Mr. Weaver was hired to provide “representation for the tribe before the U.S. Senate.”
But Mr. Weaver never registered to lobby on the issue, and he has another explanation for his work.
“The Hance law firm retained me to assist them and their client in developing an aggressive crisis management and communications strategy,” Mr. Weaver said. “At no point was I asked by Kent Hance or anyone associated with him to set up meetings with anyone in or outside of government to discuss this, and if asked I would have summarily declined to do so.”
In June 2005, the tribe informed Mr. Hance that his services were no longer needed.
Change in Tone
After the Abramoff scandal, Mr. McCain stopped taking campaign donations from tribes. Some American Indians were offended, especially since Mr. McCain continued to accept money from the tribes’ lobbyists.
Resentment in Indian Country mounted as Mr. McCain, who was preparing for another White House run, singled out the growth in tribal gambling as one of three national issues that were “out of control.” (The others were federal spending and illegal immigration.)
Franklin Ducheneaux, an aide to Morris Udall who helped draft the 1988 Indian gambling law, said that position ran contrary to Mr. McCain’s record. “What did he think? That Congress intended for the tribes to be only somewhat successful?” Mr. Ducheneaux said.
Mr. McCain began taking a broad look at whether the laws were sufficient to oversee the growing industry. His campaign said that the growth had put “considerable stress” on regulators and Mr. McCain held hearings on whether the federal government needed more oversight power.
An opportunity to restrain the industry came in the spring of 2005, when a small tribe in Connecticut set off a political battle. The group, the Schaghticoke Tribal Nation, had won federal recognition in 2004 after producing voluminous documentation tracing its roots.
The tribe wanted to build Connecticut’s third casino, which would compete with Foxwoods and another, the Mohegan Sun. Facing public opposition on the proposed casino, members of the Connecticut political establishment — many of whom had received large Pequot and Mohegan campaign donations — swung into action.
Connecticut officials claimed that a genealogical review by the Bureau of Indian Affairs was flawed, and that the Schaghticoke was not a tribe.
The tribe’s opponents, led by the Washington lobbying firm Barbour Griffith & Rogers, turned to Mr. McCain’s committee. It was a full-circle moment for the senator, who had helped the Pequots gain tribal recognition in the 1980s despite concerns about their legitimacy.
Now, Mr. McCain was doing a favor for allies in the Connecticut delegation, including Senator Joseph I. Lieberman, a close friend, according to two former Congressional aides. “It was one of those collegial deals,” said one of the aides, who worked for Mr. McCain.
Barbour Griffith & Rogers wanted Mr. McCain to hold a hearing that would show that the Bureau of Indian Affairs was “broken,” said Bradley A. Blakeman, who was a lobbyist for the firm at the time.
“It was our hope that the hearing would shed light on the fact that the bureau had not followed their rules and had improperly granted recognition to the Schaghticoke,” Mr. Blakeman said. “And that the bureau would revisit the issue and follow their rules.”
Mr. McCain’s staff helped that effort by offering strategic advice.
His staff told a lobbyist for the firm that the Indian Affairs Committee “would love to receive a letter” from the Connecticut governor requesting a hearing, according to an e-mail exchange, and offered “guidance on what the most effective tone and approach” would be in the letter.
On May 11, 2005, Mr. McCain held a hearing billed as a general “oversight hearing on federal recognition of Indian tribes.” But nearly all the witnesses were Schaghticoke opponents who portrayed the tribe as imposters.
Mr. McCain set the tone: “The role that gaming and its nontribal backers have played in the recognition process has increased perceptions that it is unfair, if not corrupt.”
Chief Richard F. Velky of the Schaghticokes found himself facing off against the governor and most of the state’s congressional delegation. “The deck was stacked against us,” Mr. Velky said. “They were given lots of time. I was given five minutes.”
He had always believed Mr. McCain “to be an honest and fair man,” Mr. Velky said, “but this didn’t make me feel that good.”
Mr. Velky said he felt worse when the e-mail messages between the tribe’s opponents and Mr. McCain’s staff surfaced in a federal lawsuit. “Is there a letter telling me how to address the senator to give me the best shot?” Mr. Velky asked. “No, there is not.”
After the hearing, Pablo E. Carrillo, who was Mr. McCain’s chief Abramoff investigator at the time, wrote to a Barbour Griffith & Rogers lobbyist, Brant Imperatore. “Your client’s side definitely got a good hearing record,” Mr. Carillo wrote, adding “you probably have a good sense” on where Mr. McCain “is headed on this.”
“Well done!” he added.
Cynthia Shaw, a Republican counsel to the committee from 2005 to 2007, said Mr. McCain made decisions based on merit, not special interests. “Everybody got a meeting who asked for one,” Ms. Shaw said, “whether you were represented by counsel or by a lobbyist — or regardless of which lobbyist.”
Mr. McCain’s campaign defended the senator’s handling of the Schaghticoke case, saying no staff member acted improperly. The campaign said the session was part of normal committee business and the notion that Mr. McCain was intending to help Congressional colleagues defeat the tribe was “absolutely false.”
It added that the senator’s commitment to Indian sovereignty “remains as strong as ever.”
Within months of the May 2005 hearing, the Bureau of Indian Affairs took the rare step of rescinding the Schaghticokes’ recognition. A federal court recently rejected the tribe’s claim that the reversal was politically motivated.
Making an Exception
That spring of 2005, as the Schaghticokes went down to defeat in the East, another tribe in the West squared off against Mr. McCain with its bid to construct a gambling emporium in California. The stakes were similar, but the outcome would be far different.
The tribe’s plan to build a casino on a former Navy base just outside San Francisco represented a trend rippling across the country: American Indians seeking to build casinos near population centers, far from their reservations.
The practice, known as “off-reservation shopping,” stemmed from the 1988 Indian gambling law, which included exceptions allowing some casinos to be built outside tribal lands. When Mr. McCain began his second stint as chairman of the Indian Affairs Committee three years ago, Las Vegas pressed him to revisit the exceptions he had helped create, according to Sig Rogich, the Republican fund-raiser from Nevada.
“We told him this off-reservation shopping had to stop,” Mr. Rogich said. “It was no secret that the gaming industry, as well as many potentially affected communities in other states, voiced opposition to the practice.”
In the spring of 2005, Mr. McCain announced he was planning a sweeping overhaul of Indian gambling laws, including limiting off-reservation casinos. His campaign said Las Vegas had nothing to do with it. In a 2005 interview with The Oregonian, Mr. McCain said that if Congress did not act, “soon every Indian tribe is going to have a casino in downtown, metropolitan areas.”
Prospects for the proposed California project did not look promising. Then the tribe, the Guidiville Band of Pomo Indians, hired a lobbyist based in Phoenix named Wes Gullett.
Mr. Gullett, who had never represented tribes before Congress, had known Mr. McCain since the early 1980s. Mr. Gullett met his wife while they were working in Mr. McCain’s Washington office. He subsequently managed Mr. McCain’s 1992 Senate campaign and served as a top aide to his 2000 presidential campaign. Their friendship went beyond politics. When Mr. McCain’s wife, Cindy, brought two infants in need of medical treatment back to Arizona from Bangladesh, the Gulletts adopted one baby and the McCains the other. The two men also liked to take weekend trips to Las Vegas.
Another of Mr. McCain’s close friends, former Defense Secretary William S. Cohen, was a major investor in the Guidivilles’ proposed casino. Mr. Cohen, who did not return calls, was best man at Mr. McCain’s 1980 wedding.
Scott Crowell, lawyer for the Guidivilles, said Mr. Gullett was hired to ensure that Mr. McCain’s overhaul of the Indian gambling laws did not harm the tribe.
Mr. Gullett said he never talked to Mr. McCain about the legislation. “If you are hired directly to lobby John McCain, you are not going to be effective,” he said. Mr. Gullett said he only helped prepare the testimony of the tribe’s administrator, Walter Gray, who was invited to plead his case before Mr. McCain’s committee in July 2005. Mr. Gullett said he advised Mr. Gray in a series of conference calls.
On disclosure forms filed with the Senate, however, Mr. Gullett stated that he was not hired until November, long after Mr. Gray’s testimony. Mr. Gullett said the late filing might have been “a mistake, but it was inadvertent.” Steve Hart, a former lawyer for the Guidivilles, backed up Mr. Gullett’s contention that he had guided Mr. Gray on his July testimony.
When asked whether Mr. Gullett had helped him, Mr. Gray responded, “I’ve never met the man and couldn’t tell you anything about him.”
On Nov. 18, 2005, when Mr. McCain introduced his promised legislation overhauling the Indian gambling law, he left largely intact a provision that the Guidivilles needed for their casino. Mr. McCain’s campaign declined to answer whether the senator spoke with Mr. Gullett or Mr. Cohen about the project. In the end, Mr. McCain’s bill died, largely because Indian gambling interests fought back. But the Department of Interior picked up where Mr. McCain left off, effectively doing through regulations what he had hoped to accomplish legislatively. Carl Artman, who served as the Interior Department’s assistant secretary of Indian Affairs until May, said Mr. McCain pushed him to rewrite the off-reservation rules. “It became one of my top priorities because Senator McCain made it clear it was one of his top priorities,” he said.The new guidelines were issued on Jan. 4. As a result, the casino applications of 11 tribes were rejected. The Guidivilles were not among them.
Kitty Bennett and Griff Palmer contributed to reporting.
September 28, 2008
By JO BECKER and DON VAN NATTA Jr.
Senator John McCain was on a roll. In a room reserved for high-stakes gamblers at the Foxwoods Resort Casino in Connecticut, he tossed $100 chips around a hot craps table. When the marathon session ended around 2:30 a.m., the Arizona senator and his entourage emerged with thousands of dollars in winnings.
A lifelong gambler, Mr. McCain takes risks, both on and off the craps table. He was throwing dice that night not long after his failed 2000 presidential bid, in which he was skewered by the Republican Party’s evangelical base, opponents of gambling. Mr. McCain was betting at a casino he oversaw as a member of the Senate Indian Affairs Committee, and he was doing so with the lobbyist who represents that casino, according to three associates of Mr. McCain.
The visit had been arranged by the lobbyist, Scott Reed, who works for the Mashantucket Pequot, a tribe that has contributed heavily to Mr. McCain’s campaigns and built Foxwoods into the world’s second-largest casino. Joining them was Rick Davis, Mr. McCain’s current campaign manager. Their night of good fortune epitomized not just Mr. McCain’s affection for gambling, but also the close relationship he has built with the gambling industry and its lobbyists during his 25-year career in Congress.
As a two-time chairman of the Indian Affairs Committee, Mr. McCain has done more than any other member of Congress to shape the laws governing America’s casinos, helping to transform the once-sleepy Indian gambling business into a $26-billion-a-year behemoth with 423 casinos across the country. He has won praise as a champion of economic development and self-governance on reservations.
“One of the founding fathers of Indian gaming” is what Steven Light, a University of North Dakota professor and a leading Indian gambling expert, called Mr. McCain.
As factions of the ferociously competitive gambling industry have vied for an edge, they have found it advantageous to cultivate a relationship with Mr. McCain or hire someone who has one, according to an examination based on more than 70 interviews and thousands of pages of documents.
Mr. McCain portrays himself as a Washington maverick unswayed by special interests, referring recently to lobbyists as “birds of prey.” Yet in his current campaign, more than 40 fund-raisers and top advisers have lobbied or worked for an array of gambling interests — including tribal and Las Vegas casinos, lottery companies and online poker purveyors.
When rules being considered by Congress threatened a California tribe’s planned casino in 2005, Mr. McCain helped spare the tribe. Its lobbyist, who had no prior experience in the gambling industry, had a nearly 20-year friendship with Mr. McCain.
In Connecticut that year, when a tribe was looking to open the state’s third casino, staff members on the Indian Affairs Committee provided guidance to lobbyists representing those fighting the casino, e-mail messages and interviews show. The proposed casino, which would have cut into the Pequots’ market share, was opposed by Mr. McCain’s colleagues in Connecticut.
Mr. McCain declined to be interviewed. In written answers to questions, his campaign staff said he was “justifiably proud” of his record on regulating Indian gambling. “Senator McCain has taken positions on policy issues because he believed they are in the public interest,” the campaign said.
Mr. McCain’s spokesman, Tucker Bounds, would not discuss the senator’s night of gambling at Foxwoods, saying: “Your paper has repeatedly attempted to insinuate impropriety on the part of Senator McCain where none exists — and it reveals that your publication is desperately willing to gamble away what little credibility it still has.”
Over his career, Mr. McCain has taken on special interests, like big tobacco, and angered the capital’s powerbrokers by promoting campaign finance reform and pushing to limit gifts that lobbyists can shower on lawmakers. On occasion, he has crossed the gambling industry on issues like regulating slot machines.
Perhaps no episode burnished Mr. McCain’s image as a reformer more than his stewardship three years ago of the Congressional investigation into Jack Abramoff, the disgraced Republican Indian gambling lobbyist who became a national symbol of the pay-to-play culture in Washington. The senator’s leadership during the scandal set the stage for the most sweeping overhaul of lobbying laws since Watergate.
“I’ve fought lobbyists who stole from Indian tribes,” the senator said in his speech accepting the Republican presidential nomination this month.
But interviews and records show that lobbyists and political operatives in Mr. McCain’s inner circle played a behind-the-scenes role in bringing Mr. Abramoff’s misdeeds to Mr. McCain’s attention — and then cashed in on the resulting investigation. The senator’s longtime chief political strategist, for example, was paid $100,000 over four months as a consultant to one tribe caught up in the inquiry, records show.
Mr. McCain’s campaign said the senator acted solely to protect American Indians, even though the inquiry posed “grave risk to his political interests.”
As public opposition to tribal casinos has grown in recent years, Mr. McCain has distanced himself from Indian gambling, Congressional and American Indian officials said.
But he has rarely wavered in his loyalty to Las Vegas, where he counts casino executives among his close friends and most prolific fund-raisers. “Beyond just his support for gaming, Nevada supports John McCain because he’s one of us, a Westerner at heart,” said Sig Rogich, a Nevada Republican kingmaker who raised nearly $2 million for Mr. McCain at an event at his home in June.
Only six members of Congress have received more money from the gambling industry than Mr. McCain, and five hail from the casino hubs of Nevada and New Jersey, according to data from the Center for Responsive Politics dating back to 1989. In the presidential race, Senator Barack Obama has also received money from the industry; Mr. McCain has raised almost twice as much.
In May 2007, as Mr. McCain’s presidential bid was floundering, he spent a weekend at the MGM Grand on the Las Vegas strip. A fund-raiser hosted by J. Terrence Lanni, the casino’s top executive and a longtime friend of the senator, raised $400,000 for his campaign. Afterward, Mr. McCain attended a boxing match and hit the craps tables.
For much of his adult life, Mr. McCain has gambled as often as once a month, friends and associates said, traveling to Las Vegas for weekend betting marathons. Former senior campaign officials said they worried about Mr. McCain’s patronage of casinos, given the power he wields over the industry. The officials, like others interviewed for this article, spoke on condition of anonymity.
“We were always concerned about appearances,” one former official said. “If you go around saying that appearances matter, then they matter.”
The former official said he would tell Mr. McCain: “Do we really have to go to a casino? I don’t think it’s a good idea. The base doesn’t like it. It doesn’t look good. And good things don’t happen in casinos at midnight.”
“You worry too much,” Mr. McCain would respond, the official said.
A Record of Support
In one of their last conversations, Representative Morris K. Udall, Arizona’s powerful Democrat, whose devotion to American Indian causes was legendary, implored his friend Mr. McCain to carry on his legacy.
“Don’t forget the Indians,” Mr. Udall, who died in 1998, told Mr. McCain in a directive that the senator has recounted to others.
More than a decade earlier, Mr. Udall had persuaded Mr. McCain to join the Senate Indian Affairs Committee. Mr. McCain, whose home state has the third-highest Indian population, eloquently decried the “grinding poverty” that gripped many reservations.
The two men helped write the Indian Gaming Regulatory Act of 1988 after the Supreme Court found that states had virtually no right to control wagering on reservations. The legislation provided a framework for the oversight and growth of Indian casinos: In 1988, Indian gambling represented less than 1 percent of the nation’s gambling revenues; today it captures more than one third.
On the Senate floor after the bill’s passage, Mr. McCain said he personally opposed Indian gambling, but when impoverished communities “are faced with only one option for economic development, and that is to set up gambling on their reservations, then I cannot disapprove.”
In 1994, Mr. McCain pushed an amendment that enabled dozens of additional tribes to win federal recognition and open casinos. And in 1998, Mr. McCain fought a Senate effort to rein in the boom.
He also voted twice in the last decade to give casinos tax breaks estimated to cost the government more than $326 million over a dozen years.
The first tax break benefited the industry in Las Vegas, one of a number of ways Mr. McCain has helped nontribal casinos. Mr. Lanni, the MGM Mirage chief executive, said that an unsuccessful bid by the senator to ban wagering on college sports in Nevada was the only time he could recall Mr. McCain opposing Las Vegas. “I can’t think of any other issue,” Mr. Lanni said.
The second tax break helped tribal casinos like Foxwoods and was pushed by Scott Reed, the Pequots’ lobbyist.
Mr. McCain had gotten to know Mr. Reed during Senator Bob Dole’s 1996 presidential campaign, which Mr. Reed managed. Four years later, when Mr. McCain ran for president, Mr. Reed recommended he hire his close friend and protégé, Rick Davis, to manage that campaign.
During his 2000 primary race against George W. Bush, Mr. McCain promoted his record of helping Indian Country, telling reporters on a campaign swing that he had provided critical support to “the Pequot, now the proud owners of the largest casino in the world.”
But Mr. McCain’s record on Indian gambling was fast becoming a difficult issue for him in the primary. Bush supporters like Gov. John Engler of Michigan lambasted Mr. McCain for his “close ties to Indian gambling.”
A decade after Mr. McCain co-authored the Indian gambling act, the political tides had turned. Tribal casinos, which were growing at a blazing pace, had become increasingly unpopular around the country for reasons as varied as morality and traffic.
Then came the biggest lobbying scandal to shake Washington.
Behind an Inquiry
At a September 2004 hearing of the Indian Affairs Committee, Mr. McCain described Jack Abramoff as one of the most brazen in a long line of crooks to cheat American Indians. “It began with the sale of Manhattan, and has continued ever since,” he said. “What sets this tale apart, what makes it truly extraordinary, is the extent and degree of the apparent exploitation and deceit.”
Over the next two years, Mr. McCain helped uncover a breathtaking lobbying scandal — Mr. Abramoff and a partner bilked six tribes of $66 million — that showcased the senator’s willingness to risk the wrath of his own party to expose wrongdoing. But interviews and documents show that Mr. McCain and a circle of allies — lobbyists, lawyers and senior strategists — also seized on the case for its opportunities.
For McCain-connected lobbyists who were rivals of Mr. Abramoff, the scandal presented a chance to crush a competitor. For senior McCain advisers, the inquiry allowed them to collect fees from the very Indians that Mr. Abramoff had ripped off. And the investigation enabled Mr. McCain to confront political enemies who helped defeat him in his 2000 presidential run while polishing his maverick image.
The Abramoff saga started in early 2003 when members of two tribes began questioning Mr. Abramoff’s astronomical fees. Over the next year, they leaked information to local newspapers, but it took the hiring of lobbyists who were competitors of Mr. Abramoff to get the attention of Mr. McCain’s committee.
Bernie Sprague, who led the effort by one of the tribes, the Saginaw Chippewas in Michigan, hired a Democratic lobbyist who recommended that the tribe retain Scott Reed, the Republican lobbyist, to push for an investigation.
Mr. Reed had boasted to other lobbyists of his access to Mr. McCain, three close associates said. Mr. Reed “pretty much had open access to John from 2000 to at least the end of 2006,” one aide said.
Lobbyist disclosure forms show that Mr. Reed went to work for the Saginaw Chippewa on Feb. 15, 2004, charging the tribe $56,000 over a year. Mr. Abramoff had tried to steal the Pequots and another tribal client from Mr. Reed, and taking down Mr. Abramoff would eliminate a competitor.
Mr. Reed became the chief conduit to Mr. McCain’s committee for billing documents and other information Mr. Sprague was digging up on Mr. Abramoff, Mr. Sprague said, who said Mr. Reed “did a great to service to me.”
“He had contacts I did not,” Mr. Sprague said. “Initially, I think that the senator’s office was doing Reed a favor by listening to me.”
A few weeks after hiring Mr. Reed, Mr. Sprague received a letter from the senator. “We have met with Scott Reed, who was very helpful on the issue,” Mr. McCain wrote.
Information about Mr. Abramoff was also flowing to Mr. McCain’s committee from another tribe, the Coushatta of Louisiana. The source was a consultant named Roy Fletcher, who had been Mr. McCain’s deputy campaign manager in 2000, running his war room in South Carolina.
It was in that primary race that two of Mr. Abramoff’s closest associates, Grover Norquist, who runs the nonprofit Americans for Tax Reform, and Ralph Reed, the former director of the Christian Coalition, ran a blistering campaign questioning Mr. McCain’s conservative credentials. The senator and his advisers blamed that attack for Mr. McCain’s loss to Mr. Bush in South Carolina, creating tensions that would resurface in the Abramoff matter.
“I was interested in busting” Mr. Abramoff, said Mr. Fletcher, who was eventually hired to represent the tribe. “That was my job. But I was also filled with righteous indignation, I got to tell you.”
Mr. Fletcher said he began passing information to John Weaver, Mr. McCain’s chief political strategist, and other staff members in late 2003 or January 2004. Mr. Weaver confirmed the timing.
Mr. McCain announced his investigation on Feb. 26, 2004, citing an article on Mr. Abramoff in The Washington Post. He did not mention the action by lobbyists and tribes in the preceding weeks. His campaign said no one in his “innermost circle” brought information to Mr. McCain that prompted the investigation.
The senator declared he would not investigate members of Congress, whom Mr. Abramoff had lavished with tribal donations and golf outings to Scotland. But in the course of the investigation, the committee exposed Mr. Abramoff’s dealings with the two men who had helped defeat Mr. McCain in the 2000 primary.
The investigation showed that Mr. Norquist’s foundation was used by Mr. Abramoff to launder lobbying fees from tribes. Ralph Reed was found to have accepted $4 million to run bogus antigambling campaigns. And the investigation also highlighted Mr. Abramoff’s efforts to curry favor with the House majority leader at the time, Tom DeLay, Republican of Texas, a longtime political foe who had opposed many of Mr. McCain’s legislative priorities.
Mr. McCain’s campaign said the senator did not “single out” Ralph Reed or Mr. Norquist, neither of whom were ever charged, and that both men fell within the “scope of the investigation.” The inquiry, which led to guilty pleas by over a dozen individuals, was motivated by a desire to help aggrieved tribes, the campaign said.
Inside the investigation, the sense of schadenfreude was palpable, according to several people close to the senator. “It was like hitting pay dirt,” said one associate of Mr. McCain’s who had consulted with the senator’s office on the investigation. “And face it — McCain and Weaver were maniacal about Ralph Reed and Norquist. They were sticking little pins in dolls because those guys had cost him South Carolina.”
Down on the Coushattas reservation, bills related to the investigation kept coming. After firing Mr. Abramoff, the tribe hired Kent Hance, a lawyer and former Texas congressman who said he had been friends with Mr. McCain since the 1980s.
David Sickey, the tribe’s vice chairman, said he was “dumbfounded” over the bills submitted by Mr. Hance’s firm, Hance Scarborough, which had been hired by Mr. Sickey’s predecessors.
“The very thing we were fighting seemed to be happening all over again — these absurd amounts of money being paid,” Mr. Sickey said.
Mr. Hance’s firm billed the tribe nearly $1.3 million over 11 months in legal and political consulting fees, records show. But Mr. Sickey said that the billing statements offered only vague explanations for services and that he could not point to any tangible results. Two consultants, for instance, were paid to fight the expansion of gambling in Texas — even though it was unlikely given that the governor there opposed any such prospect, Mr. Sickey said.
Mr. Hance and Jay B. Stewart, the firm’s managing partner, defended their team’s work, saying they successfully steered the tribe through a difficult period. “We did an outstanding job for them,” Mr. Hance said. “When we told them our bill was going to be $100,000 a month, they thought we were cheap. Mr. Abramoff had charged them $1 million a month.”
The firm’s fees covered the services of Mr. Fletcher, who served as the tribe’s spokesman. Records also show that Mr. Hance had Mr. Weaver — who was serving as Mr. McCain’s chief strategist — put on the tribe’s payroll from February to May 2005.
It is not precisely clear what role Mr. Weaver played for his $100,000 fee.
Mr. Stewart said Mr. Weaver was hired because “he had a lot of experience with the Senate, especially the new chairman, John McCain.” The Hance firm told the tribe in a letter that Mr. Weaver was hired to provide “representation for the tribe before the U.S. Senate.”
But Mr. Weaver never registered to lobby on the issue, and he has another explanation for his work.
“The Hance law firm retained me to assist them and their client in developing an aggressive crisis management and communications strategy,” Mr. Weaver said. “At no point was I asked by Kent Hance or anyone associated with him to set up meetings with anyone in or outside of government to discuss this, and if asked I would have summarily declined to do so.”
In June 2005, the tribe informed Mr. Hance that his services were no longer needed.
Change in Tone
After the Abramoff scandal, Mr. McCain stopped taking campaign donations from tribes. Some American Indians were offended, especially since Mr. McCain continued to accept money from the tribes’ lobbyists.
Resentment in Indian Country mounted as Mr. McCain, who was preparing for another White House run, singled out the growth in tribal gambling as one of three national issues that were “out of control.” (The others were federal spending and illegal immigration.)
Franklin Ducheneaux, an aide to Morris Udall who helped draft the 1988 Indian gambling law, said that position ran contrary to Mr. McCain’s record. “What did he think? That Congress intended for the tribes to be only somewhat successful?” Mr. Ducheneaux said.
Mr. McCain began taking a broad look at whether the laws were sufficient to oversee the growing industry. His campaign said that the growth had put “considerable stress” on regulators and Mr. McCain held hearings on whether the federal government needed more oversight power.
An opportunity to restrain the industry came in the spring of 2005, when a small tribe in Connecticut set off a political battle. The group, the Schaghticoke Tribal Nation, had won federal recognition in 2004 after producing voluminous documentation tracing its roots.
The tribe wanted to build Connecticut’s third casino, which would compete with Foxwoods and another, the Mohegan Sun. Facing public opposition on the proposed casino, members of the Connecticut political establishment — many of whom had received large Pequot and Mohegan campaign donations — swung into action.
Connecticut officials claimed that a genealogical review by the Bureau of Indian Affairs was flawed, and that the Schaghticoke was not a tribe.
The tribe’s opponents, led by the Washington lobbying firm Barbour Griffith & Rogers, turned to Mr. McCain’s committee. It was a full-circle moment for the senator, who had helped the Pequots gain tribal recognition in the 1980s despite concerns about their legitimacy.
Now, Mr. McCain was doing a favor for allies in the Connecticut delegation, including Senator Joseph I. Lieberman, a close friend, according to two former Congressional aides. “It was one of those collegial deals,” said one of the aides, who worked for Mr. McCain.
Barbour Griffith & Rogers wanted Mr. McCain to hold a hearing that would show that the Bureau of Indian Affairs was “broken,” said Bradley A. Blakeman, who was a lobbyist for the firm at the time.
“It was our hope that the hearing would shed light on the fact that the bureau had not followed their rules and had improperly granted recognition to the Schaghticoke,” Mr. Blakeman said. “And that the bureau would revisit the issue and follow their rules.”
Mr. McCain’s staff helped that effort by offering strategic advice.
His staff told a lobbyist for the firm that the Indian Affairs Committee “would love to receive a letter” from the Connecticut governor requesting a hearing, according to an e-mail exchange, and offered “guidance on what the most effective tone and approach” would be in the letter.
On May 11, 2005, Mr. McCain held a hearing billed as a general “oversight hearing on federal recognition of Indian tribes.” But nearly all the witnesses were Schaghticoke opponents who portrayed the tribe as imposters.
Mr. McCain set the tone: “The role that gaming and its nontribal backers have played in the recognition process has increased perceptions that it is unfair, if not corrupt.”
Chief Richard F. Velky of the Schaghticokes found himself facing off against the governor and most of the state’s congressional delegation. “The deck was stacked against us,” Mr. Velky said. “They were given lots of time. I was given five minutes.”
He had always believed Mr. McCain “to be an honest and fair man,” Mr. Velky said, “but this didn’t make me feel that good.”
Mr. Velky said he felt worse when the e-mail messages between the tribe’s opponents and Mr. McCain’s staff surfaced in a federal lawsuit. “Is there a letter telling me how to address the senator to give me the best shot?” Mr. Velky asked. “No, there is not.”
After the hearing, Pablo E. Carrillo, who was Mr. McCain’s chief Abramoff investigator at the time, wrote to a Barbour Griffith & Rogers lobbyist, Brant Imperatore. “Your client’s side definitely got a good hearing record,” Mr. Carillo wrote, adding “you probably have a good sense” on where Mr. McCain “is headed on this.”
“Well done!” he added.
Cynthia Shaw, a Republican counsel to the committee from 2005 to 2007, said Mr. McCain made decisions based on merit, not special interests. “Everybody got a meeting who asked for one,” Ms. Shaw said, “whether you were represented by counsel or by a lobbyist — or regardless of which lobbyist.”
Mr. McCain’s campaign defended the senator’s handling of the Schaghticoke case, saying no staff member acted improperly. The campaign said the session was part of normal committee business and the notion that Mr. McCain was intending to help Congressional colleagues defeat the tribe was “absolutely false.”
It added that the senator’s commitment to Indian sovereignty “remains as strong as ever.”
Within months of the May 2005 hearing, the Bureau of Indian Affairs took the rare step of rescinding the Schaghticokes’ recognition. A federal court recently rejected the tribe’s claim that the reversal was politically motivated.
Making an Exception
That spring of 2005, as the Schaghticokes went down to defeat in the East, another tribe in the West squared off against Mr. McCain with its bid to construct a gambling emporium in California. The stakes were similar, but the outcome would be far different.
The tribe’s plan to build a casino on a former Navy base just outside San Francisco represented a trend rippling across the country: American Indians seeking to build casinos near population centers, far from their reservations.
The practice, known as “off-reservation shopping,” stemmed from the 1988 Indian gambling law, which included exceptions allowing some casinos to be built outside tribal lands. When Mr. McCain began his second stint as chairman of the Indian Affairs Committee three years ago, Las Vegas pressed him to revisit the exceptions he had helped create, according to Sig Rogich, the Republican fund-raiser from Nevada.
“We told him this off-reservation shopping had to stop,” Mr. Rogich said. “It was no secret that the gaming industry, as well as many potentially affected communities in other states, voiced opposition to the practice.”
In the spring of 2005, Mr. McCain announced he was planning a sweeping overhaul of Indian gambling laws, including limiting off-reservation casinos. His campaign said Las Vegas had nothing to do with it. In a 2005 interview with The Oregonian, Mr. McCain said that if Congress did not act, “soon every Indian tribe is going to have a casino in downtown, metropolitan areas.”
Prospects for the proposed California project did not look promising. Then the tribe, the Guidiville Band of Pomo Indians, hired a lobbyist based in Phoenix named Wes Gullett.
Mr. Gullett, who had never represented tribes before Congress, had known Mr. McCain since the early 1980s. Mr. Gullett met his wife while they were working in Mr. McCain’s Washington office. He subsequently managed Mr. McCain’s 1992 Senate campaign and served as a top aide to his 2000 presidential campaign. Their friendship went beyond politics. When Mr. McCain’s wife, Cindy, brought two infants in need of medical treatment back to Arizona from Bangladesh, the Gulletts adopted one baby and the McCains the other. The two men also liked to take weekend trips to Las Vegas.
Another of Mr. McCain’s close friends, former Defense Secretary William S. Cohen, was a major investor in the Guidivilles’ proposed casino. Mr. Cohen, who did not return calls, was best man at Mr. McCain’s 1980 wedding.
Scott Crowell, lawyer for the Guidivilles, said Mr. Gullett was hired to ensure that Mr. McCain’s overhaul of the Indian gambling laws did not harm the tribe.
Mr. Gullett said he never talked to Mr. McCain about the legislation. “If you are hired directly to lobby John McCain, you are not going to be effective,” he said. Mr. Gullett said he only helped prepare the testimony of the tribe’s administrator, Walter Gray, who was invited to plead his case before Mr. McCain’s committee in July 2005. Mr. Gullett said he advised Mr. Gray in a series of conference calls.
On disclosure forms filed with the Senate, however, Mr. Gullett stated that he was not hired until November, long after Mr. Gray’s testimony. Mr. Gullett said the late filing might have been “a mistake, but it was inadvertent.” Steve Hart, a former lawyer for the Guidivilles, backed up Mr. Gullett’s contention that he had guided Mr. Gray on his July testimony.
When asked whether Mr. Gullett had helped him, Mr. Gray responded, “I’ve never met the man and couldn’t tell you anything about him.”
On Nov. 18, 2005, when Mr. McCain introduced his promised legislation overhauling the Indian gambling law, he left largely intact a provision that the Guidivilles needed for their casino. Mr. McCain’s campaign declined to answer whether the senator spoke with Mr. Gullett or Mr. Cohen about the project. In the end, Mr. McCain’s bill died, largely because Indian gambling interests fought back. But the Department of Interior picked up where Mr. McCain left off, effectively doing through regulations what he had hoped to accomplish legislatively. Carl Artman, who served as the Interior Department’s assistant secretary of Indian Affairs until May, said Mr. McCain pushed him to rewrite the off-reservation rules. “It became one of my top priorities because Senator McCain made it clear it was one of his top priorities,” he said.The new guidelines were issued on Jan. 4. As a result, the casino applications of 11 tribes were rejected. The Guidivilles were not among them.
Kitty Bennett and Griff Palmer contributed to reporting.
Background of the Banks’ Role in the Enron Debacle
Although three banks (and others) have settled with the victims for $7.2 billion, several huge banks still named in this suit have not paid a penny to the victims of the fraud.
As the Court’s dissenting Judge summarized, the ruling “immunizes a broad array of undeniably fraudulent conduct from civil liability . . . effectively giving secondary actors license to scheme with impunity, as long as they keep quiet.”
"...testified that many of the banks’ transactions were contrived, deceptive deals done solely to create the false appearance of profits and cash flow. "
Merrill Lynch purchased Nigerian barges from Enron on the last day of 1999 only because Enron secretly promised to buy the barges back within six months, guaranteeing Merrill Lynch a profit of more than 20%. As a result of this fraud, Merrill Lynch ultimately paid $80 million to settle with the SEC.
Where did that $80million go?
Barclays entered into several sham transactions with Enron,
Credit Suisse First Boston engaged in “pre-pay” transactions with Enron
Background on the Enron Victims' Lawsuit to Recover Damages from Wall Street Banks that Orchestrated the Enron Fraud
Background of the Banks’ Role in the Enron Debacle
As a result of the massive fraud at Enron, shareholders lost tens of billions of dollars. Many Enron executives, Enron’s accounting firm and certain bank officials were indicted.
Andrew Fastow, Enron’s now-imprisoned former finance chief, testified that many of the banks’ transactions were contrived, deceptive deals done solely to create the false appearance of profits and cash flow. Internal Enron documents and testimony of bank employees detailed how the banks engineered sham transactions to keep billions of dollars of debt off Enron’s balance sheet and create the illusion of increasing earnings and operating cash flow. For example:
Merrill Lynch purchased Nigerian barges from Enron on the last day of 1999 only because Enron secretly promised to buy the barges back within six months, guaranteeing Merrill Lynch a profit of more than 20%. As a result of this fraud, Merrill Lynch ultimately paid $80 million to settle with the SEC.
Barclays entered into several sham transactions with Enron, including creating a “special purpose entity” called Colonnade, a shell company to hide Enron’s debt, named after the street in London where the bank is headquartered.
Credit Suisse First Boston engaged in “pre-pay” transactions with Enron, including serving as one of the stop-offs for a series of round-trip, risk-free commodities deals in which commodities were never actually transferred or delivered.
Although three banks (and others) have settled with the victims for $7.2 billion, several huge banks still named in this suit have not paid a penny to the victims of the fraud.
The Fifth Circuit’s Decision
After years of preparation and just a few weeks before trial, the Fifth Circuit Court of Appeals vacated the class certification order.
Although the 2-to-1 decision of the Fifth Circuit acknowledged that the banks’ conduct was “hardly praiseworthy,” it ruled that because the banks themselves did not make any false “statements” about their conduct, they could not be liable to the victims even if they knowingly participated in the scheme to defraud Enron’s shareholders.
As the Court’s dissenting Judge summarized, the ruling “immunizes a broad array of undeniably fraudulent conduct from civil liability . . . effectively giving secondary actors license to scheme with impunity, as long as they keep quiet.” In an extraordinary admission, the Court’s two-member majority acknowledged that their ruling runs afoul of “justice and fair play” (“We recognize, however, that our ruling . . . may not coincide, particularly in the minds of aggrieved former Enron shareholders who have lost billions of dollars in a fraud they allege was aided and abetted by the defendants at bar, with notions of justice and fair play.”)
For more background on the Enron lawsuit: www.universityofcalifornia.edu/news/enro
As the Court’s dissenting Judge summarized, the ruling “immunizes a broad array of undeniably fraudulent conduct from civil liability . . . effectively giving secondary actors license to scheme with impunity, as long as they keep quiet.”
"...testified that many of the banks’ transactions were contrived, deceptive deals done solely to create the false appearance of profits and cash flow. "
Merrill Lynch purchased Nigerian barges from Enron on the last day of 1999 only because Enron secretly promised to buy the barges back within six months, guaranteeing Merrill Lynch a profit of more than 20%. As a result of this fraud, Merrill Lynch ultimately paid $80 million to settle with the SEC.
Where did that $80million go?
Barclays entered into several sham transactions with Enron,
Credit Suisse First Boston engaged in “pre-pay” transactions with Enron
Background on the Enron Victims' Lawsuit to Recover Damages from Wall Street Banks that Orchestrated the Enron Fraud
Background of the Banks’ Role in the Enron Debacle
As a result of the massive fraud at Enron, shareholders lost tens of billions of dollars. Many Enron executives, Enron’s accounting firm and certain bank officials were indicted.
Andrew Fastow, Enron’s now-imprisoned former finance chief, testified that many of the banks’ transactions were contrived, deceptive deals done solely to create the false appearance of profits and cash flow. Internal Enron documents and testimony of bank employees detailed how the banks engineered sham transactions to keep billions of dollars of debt off Enron’s balance sheet and create the illusion of increasing earnings and operating cash flow. For example:
Merrill Lynch purchased Nigerian barges from Enron on the last day of 1999 only because Enron secretly promised to buy the barges back within six months, guaranteeing Merrill Lynch a profit of more than 20%. As a result of this fraud, Merrill Lynch ultimately paid $80 million to settle with the SEC.
Barclays entered into several sham transactions with Enron, including creating a “special purpose entity” called Colonnade, a shell company to hide Enron’s debt, named after the street in London where the bank is headquartered.
Credit Suisse First Boston engaged in “pre-pay” transactions with Enron, including serving as one of the stop-offs for a series of round-trip, risk-free commodities deals in which commodities were never actually transferred or delivered.
Although three banks (and others) have settled with the victims for $7.2 billion, several huge banks still named in this suit have not paid a penny to the victims of the fraud.
The Fifth Circuit’s Decision
After years of preparation and just a few weeks before trial, the Fifth Circuit Court of Appeals vacated the class certification order.
Although the 2-to-1 decision of the Fifth Circuit acknowledged that the banks’ conduct was “hardly praiseworthy,” it ruled that because the banks themselves did not make any false “statements” about their conduct, they could not be liable to the victims even if they knowingly participated in the scheme to defraud Enron’s shareholders.
As the Court’s dissenting Judge summarized, the ruling “immunizes a broad array of undeniably fraudulent conduct from civil liability . . . effectively giving secondary actors license to scheme with impunity, as long as they keep quiet.” In an extraordinary admission, the Court’s two-member majority acknowledged that their ruling runs afoul of “justice and fair play” (“We recognize, however, that our ruling . . . may not coincide, particularly in the minds of aggrieved former Enron shareholders who have lost billions of dollars in a fraud they allege was aided and abetted by the defendants at bar, with notions of justice and fair play.”)
For more background on the Enron lawsuit: www.universityofcalifornia.edu/news/enro
Sunday, September 28, 2008
Either way we will have bank failures anyway...Whatever happens, we need to get on with it
What would ultimately be the best thing to do is what Wachovia (WB Quote - Cramer on WB - Stock Picks) wants: Split into good and bad banks and have the government buy stakes in the bad banks.
Whatever happens, we need to get on with it. We cannot get bogged down, because the issue is the fire, and it must be put out before unemployment skyrockets and banks fail nationwide.
I am hoping that Warren Buffett, who totally gets the plan, is going to be listened to by Congress. I hope they listen to how important he knows it is and how we will revert to last Thursday's obliteration and destruction, which I believe could wipe out probably a fifth of the S&P 500.
Some underwriters were so bogus and some buyers so speculative that you have to wonder how in the heck we should buy those mortgages. The negative amortization, pick-and-pay type of loans, I think should not be bought until the very end. Those could be worthless. The banks that lent them are going to have to take a severe hit.
Other than those, though, I see no reason why an easy scale can't be made and the disposals be made orderly.
We should first be buying the mortgages that are 30-year-fixed where there are foreclosures, and we should buy them by the most hard-hit geographies where the pull down is endless -- Florida and California. We have to keep those people in their homes. Then I would do the teaser-type loans. And only then would I do pick-and-pay exotics.
FDIC plan to blanket money funds can keep that money flowing to the commercial paper market; that will stop the contagion from leaping to industry. The bailouts so far will keep the housing market from collapsing and will keep the nuclear option of derivatives gone haywire -- the ones insured by AIG (AIG Quote - Cramer on AIG - Stock Picks) -- from exploding. The people who are trying to wrest AIG from the government can only do it with the bridge loan from the government, so that should not be allowed to happen, as the company has always been undercapitalized and can't possibly pay for its obligations, so buying that security could be a big mistake.
But the biggest need is to find a way to get rid of these mortgages in a comprehensive fashion that frees up capital that is tied up financing this junk.
The plan is vital, and if it fails, we will have a string of bank failures. House price depreciation continues to crush the value of both the whole loans and the collection of home loans that are bundled into collateralized debt obligations.
Speaking of Warren Buffett, he is making it very clear that we are still on the precipice and will be right back to it if we do not approve the Paulson plan. That's the takeaway from his comments about the plan in print and on his excellent interview on CNBC this morning, which is a total must-view.
Originally published on Monday, Sept. 22, at 10:55 a.m. EDT
It's a fire. Not just a fire, it's a chemical fire. We have to throw everything at it. We need to throw a stimulus package at it to get people to spend, we need to fund the mortgage trust to buy mortgages -- more in a moment about the best ways to do it -- and we need rate cuts.
After the 1929 market crash, the government did everything wrong: rate increases, tripling of tax rates, money supply shrunk. We got bank closings galore and 30% unemployment. FDR came in and gave us the FDIC, Social Security, a big bank bailout through the Reconstruction Finance Corp. to buy stakes in banks.
It wasn't enough. The depression lingered. There are studies galore about whether the depression didn't end until the war. But the catastrophic employment/bank failures ended, and that kept us from facing a revolution or permanent depression or a Japan-style deflation that has wrecked their economy for years.
Now we are faced with the need to do everything. The FDIC plan to blanket money funds can keep that money flowing to the commercial paper market; that will stop the contagion from leaping to industry. The bailouts so far will keep the housing market from collapsing and will keep the nuclear option of derivatives gone haywire -- the ones insured by AIG (AIG Quote - Cramer on AIG - Stock Picks) -- from exploding. The people who are trying to wrest AIG from the government can only do it with the bridge loan from the government, so that should not be allowed to happen, as the company has always been undercapitalized and can't possibly pay for its obligations, so buying that security could be a big mistake.
But the biggest need is to find a way to get rid of these mortgages in a comprehensive fashion that frees up capital that is tied up financing this junk.
The plan is vital, and if it fails, we will have a string of bank failures. House price depreciation continues to crush the value of both the whole loans and the collection of home loans that are bundled into collateralized debt obligations. The CDOs are almost impossible to unwind, that's what we have learned from this last year. But there are plenty of whole loans that can be sold to the government. Everyone is worried about the hit to capital the banks will have to take -- and the hits that other banks that have not written down the loans to date will have to take.
There are three ways to approach this:
1. Put out a bid list of mortgages and make it so it is high enough to not wipe out the banks but low enough to make money for the government. You might want to bid 50 cents for 2006 vintage for some ZIP codes with good loan to value, or 60 cents for 2005 vintage with excellent loan to value. But regardless, that's detail we should not get lost in.
2. The government can take equity stakes in the banks or just pay them outright for the money. I am indifferent, but the equity stakes allow the government to profit from the automatic increase in value the banks should have if they have already written down the portfolios. Banks that haven't taken the hit will have to, because the banks with similar assets will have to mark them down unless we suspend the ridiculous mark-to-market stranglehold and we allow losses to be taken over time. That's why we need a rate cut, because the banks will be able to rebuild capital against the losses very quickly through the net interest margin increases.
Either way we will have bank failures anyway, and we can then have a formula where the feds just seize the bad loans, dump them into the program to get them off the market and sell the deposits to the Wells Fargos (WFC Quote - Cramer on WFC - Stock Picks) or the Goldmans (GS Quote - Cramer on GS - Stock Picks) of the world.
The problem is that these details must not be allowed to derail the plan, because the depression is what we are trying to stop. If the regulators simply look the other way for now, house price depreciation can subside and many banks won't have to do anything at all.
3. Further, we are in a position where if the government sets a floor and we have different prices for different geographies, vintages, FICO scores and the like, then the private sector might want to buy them.
What would ultimately be the best thing to do is what Wachovia (WB Quote - Cramer on WB - Stock Picks) wants: Split into good and bad banks and have the government buy stakes in the bad banks.
Whatever happens, we need to get on with it. We cannot get bogged down, because the issue is the fire, and it must be put out before unemployment skyrockets and banks fail nationwide.
At the time of publication, Cramer was long Goldman Sachs
--------------------------------------------------------------------------------
Ignorant Resistance to the Plan Is Baffling
Originally published on Wednesday, Sept. 24, at 9:27 a.m. EDT
Speaking of Warren Buffett, he is making it very clear that we are still on the precipice and will be right back to it if we do not approve the Paulson plan. That's the takeaway from his comments about the plan in print and on his excellent interview on CNBC this morning, which is a total must-view.
The resistance to this plan is amazing to me. It is a testament to how hard it is to explain that people are up in arms about it and the money that could be
What people do not understand is that the number of firms that could have gone under last week pretty much included everything but the food and drug stocks.
The world revolves on credit and confidence. Both disappeared last week, and the reason behind that is simple: foreclosures.
Let's go over the nexus again. Banks can't lend and are fearful to lend. Why? So much money is tied up in failing mortgages throughout the system that the banks don't have the capital even if they want to lend.
I have said for two years now -- two years! -- that we need a market for this stuff, by ZIP code, by vintage, by loan-to-value, by geography. The SEC refused to insist on this, the bank examiner won't give it to us, so Treasury has to give it to us.
The presumption is that these mortgages are worthless. Chris Matthews said the same thing last night.
That's just not true. If you wrote even the worst mortgages down, if you were to value them at, say, 50%, think of it. You buy a house for 100% loan-to-value for $300,000, roughly the average price of a home in California in 2006. The average house price has fallen 25% from when that house was built. Let's say that it is 33%, factoring in the last month and the skyrocketing foreclosures. Now the house is worth $200,000. The mortgage is for $300,000. You bid 50% for that mortgage, $150,000, then you have a mortgage that's realistic.
You want to get that mortgage current, so you renegotiate the terms. I don't like principal adjustments, but I do like interest rate adjustments. Let's say for the next year, we say, "You are forgiven" for a year, maybe even two, and then you go low-interest for the next five years. That keeps the person in the house. That means that a foreclosure is averted, one less home on the market You multiply that over and over again -- and keep in mind that a 100% loan-to-value California house is about the worst other than the piggyback loans that were made with home equity that went to 120%, but I believe in the last two years those people have already been foreclosed -- and you get a firmer market. A firmer market means house price depreciation ends. If house price depreciation ends, then if the home is sold, the mortgage gets paid back and then some. That's where the profit comes in for the government.
Now, you don't have to write these down to 50% to make this work, as you see from the math. You could do it higher.
The thing you need to know is that banks holding these mortgages are either valuing them much lower -- as in Merrill's (MER Quote - Cramer on MER - Stock Picks) pricing to Lone Star, or the writedowns that Bank of America (BAC Quote - Cramer on BAC - Stock Picks) has taken and that Wells Fargo (WFC Quote - Cramer on WFC - Stock Picks) is taking -- or too high, a la Washington Mutual (WM Quote - Cramer on WM - Stock Picks). Either way you could either price these so it is in the interest of an acquirer to buy WM and write the mortgages down and then sell them to the government, or have Bank of America sell them and write them up to build earnings.
Either way, the banks can loan more and get the economy's oil flowing again. They can't unless they have a market for these mortgages.
That's why this is so important.
Now, there are certainly issues. How do you keep BAC from making so much money off you and me? We can craft some sort of equity stake that the taxpayer can take. The executives' benefit? We tax it or regulate it. We need to worry about the winners later; let's worry about the loser now, which is the U.S. economy.
Oh, and let's not forget what else goes right if the plan is approved. We get a real boost to the damaged portfolios of Fannie (FNM Quote - Cramer on FNM - Stock Picks) and Freddie (FRE Quote - Cramer on FRE - Stock Picks), which we own now. The values could go up big, the foreclosures on those properties go down, and these two go profitable off their guarantee fees, which are gigantic.
Or how about the bank owners of CDOs, impossible-to-value instruments that have to be worth more if housing simply stops depreciating or even starts increasing. That takes the pressure off all of the insurance that AIG (AIG Quote - Cramer on AIG - Stock Picks) wrote on these, which gives the U.S. government still one more windfall. All of these occur if this plan succeeds.
I am hoping that Warren Buffett, who totally gets the plan, is going to be listened to by Congress. I hope they listen to how important he knows it is and how we will revert to last Thursday's obliteration and destruction, which I believe could wipe out probably a fifth of the S&P 500.
The math is pretty simple. The fact that there will be some winners who shouldn't win is a price we have to pay. Until this plan, everything that Ben Bernanke tried was piecemeal and designed to avoid any scrutiny. Until this plan, the government has simply been reactive to the damage, damage done in part because of a philosophy that pervades this administration, that a market unregulated is a market that is perfect.
This is the first plan that might cost us nothing and solves the problem, and yet this is the plan that gets the most resistance.
If this plan fails, I want nothing to do with this market except for the foodbank stocks. Sounds like Warren Buffett doesn't, either.
I am worried about the plan. It cannot be nickel and dimed. We cannot let Washington Mutual, the next Lehman, fail. We see what happens -- the unintended consequences of Lehman are still roiling us. We cannot have the largest savings and loan go down.
We also cannot have the commercial paper market go away, which is what the major industrial companies live by. All of these will happen in this country if the plan fails.
I have become convinced that we have been hurtling toward Great Depression Two without a resolution of the mortgage crisis.
This is the best way to stop that Great Depression. It would be shocking to me if we went into a Great Depression with foreclosures spiking, home prices plummeting, deflation rampant and unemployment doubling or even tripling, all because we worried about what institutions will make money. The ones who make money are the good ones, as I demonstrated with the math. The bad ones get swallowed up and management booted. What more can you ask for?
At the time of publication, Cramer had no positions in the stocks mentioned.
--------------------------------------------------------------------------------
The Plan Isn't So Hard
Originally published on Thursday, Sept. 25, at 11:07 a.m. EDT
We will make money on the plan. It is almost impossible not to, if the pricing is right. From the very beginning, we have lacked a ladder, a scale, that tells us what kind of mortgages are worth what. From the very beginning, the absolutely outrageous SEC demanded no disclosure of mortgage vintage, geography, FICO score and loan-to-value.
There simply aren't that many other variables. You can produce models. You can figure out what this stuff is worth.
The only real variable is which loans should not be bought no matter what. Some underwriters were so bogus and some buyers so speculative that you have to wonder how in the heck we should buy those mortgages. The negative amortization, pick-and-pay type of loans, I think should not be bought until the very end. Those could be worthless. The banks that lent them are going to have to take a severe hit.
Other than those, though, I see no reason why an easy scale can't be made and the disposals be made orderly.
I know the CDOs are complicated. But I think the feds should be able to break them up by loan. They should not buy them whole, because without unwinding them, the government is going to get killed.
We should first be buying the mortgages that are 30-year-fixed where there are foreclosures, and we should buy them by the most hard-hit geographies where the pull down is endless -- Florida and California. We have to keep those people in their homes. Then I would do the teaser-type loans. And only then would I do pick-and-pay exotics.
I would put more effort into getting certain ZIP codes to bottom so that we can stop the reeling in major metropolitan areas. That's where the issue is, because 60% of these loans are in just a couple of places.
Why do I think this deal will make us money? Because those areas represent great value already, but we can't bring the values out as long as the foreclosures never end.
There are only certain kinds of mortgages and certain kinds of vintages and certain ZIP codes and certain geographies. The notion that this is "too difficult" to do, too hard to value, and too confusing is nonsense. But the feds must be able to bust the CDOs and unwind the tranches, or they will be scalded. NO HELOC!
Random musings: The Fannie (FNM Quote - Cramer on FNM - Stock Picks) and Freddie (FRE Quote - Cramer on FRE - Stock Picks) trade continues as a way to play the improvement of the portfolios of the two of them.
At the time of publication, Cramer had no positions in the stocks mentioned.
Whatever happens, we need to get on with it. We cannot get bogged down, because the issue is the fire, and it must be put out before unemployment skyrockets and banks fail nationwide.
I am hoping that Warren Buffett, who totally gets the plan, is going to be listened to by Congress. I hope they listen to how important he knows it is and how we will revert to last Thursday's obliteration and destruction, which I believe could wipe out probably a fifth of the S&P 500.
Some underwriters were so bogus and some buyers so speculative that you have to wonder how in the heck we should buy those mortgages. The negative amortization, pick-and-pay type of loans, I think should not be bought until the very end. Those could be worthless. The banks that lent them are going to have to take a severe hit.
Other than those, though, I see no reason why an easy scale can't be made and the disposals be made orderly.
We should first be buying the mortgages that are 30-year-fixed where there are foreclosures, and we should buy them by the most hard-hit geographies where the pull down is endless -- Florida and California. We have to keep those people in their homes. Then I would do the teaser-type loans. And only then would I do pick-and-pay exotics.
FDIC plan to blanket money funds can keep that money flowing to the commercial paper market; that will stop the contagion from leaping to industry. The bailouts so far will keep the housing market from collapsing and will keep the nuclear option of derivatives gone haywire -- the ones insured by AIG (AIG Quote - Cramer on AIG - Stock Picks) -- from exploding. The people who are trying to wrest AIG from the government can only do it with the bridge loan from the government, so that should not be allowed to happen, as the company has always been undercapitalized and can't possibly pay for its obligations, so buying that security could be a big mistake.
But the biggest need is to find a way to get rid of these mortgages in a comprehensive fashion that frees up capital that is tied up financing this junk.
The plan is vital, and if it fails, we will have a string of bank failures. House price depreciation continues to crush the value of both the whole loans and the collection of home loans that are bundled into collateralized debt obligations.
Speaking of Warren Buffett, he is making it very clear that we are still on the precipice and will be right back to it if we do not approve the Paulson plan. That's the takeaway from his comments about the plan in print and on his excellent interview on CNBC this morning, which is a total must-view.
Originally published on Monday, Sept. 22, at 10:55 a.m. EDT
It's a fire. Not just a fire, it's a chemical fire. We have to throw everything at it. We need to throw a stimulus package at it to get people to spend, we need to fund the mortgage trust to buy mortgages -- more in a moment about the best ways to do it -- and we need rate cuts.
After the 1929 market crash, the government did everything wrong: rate increases, tripling of tax rates, money supply shrunk. We got bank closings galore and 30% unemployment. FDR came in and gave us the FDIC, Social Security, a big bank bailout through the Reconstruction Finance Corp. to buy stakes in banks.
It wasn't enough. The depression lingered. There are studies galore about whether the depression didn't end until the war. But the catastrophic employment/bank failures ended, and that kept us from facing a revolution or permanent depression or a Japan-style deflation that has wrecked their economy for years.
Now we are faced with the need to do everything. The FDIC plan to blanket money funds can keep that money flowing to the commercial paper market; that will stop the contagion from leaping to industry. The bailouts so far will keep the housing market from collapsing and will keep the nuclear option of derivatives gone haywire -- the ones insured by AIG (AIG Quote - Cramer on AIG - Stock Picks) -- from exploding. The people who are trying to wrest AIG from the government can only do it with the bridge loan from the government, so that should not be allowed to happen, as the company has always been undercapitalized and can't possibly pay for its obligations, so buying that security could be a big mistake.
But the biggest need is to find a way to get rid of these mortgages in a comprehensive fashion that frees up capital that is tied up financing this junk.
The plan is vital, and if it fails, we will have a string of bank failures. House price depreciation continues to crush the value of both the whole loans and the collection of home loans that are bundled into collateralized debt obligations. The CDOs are almost impossible to unwind, that's what we have learned from this last year. But there are plenty of whole loans that can be sold to the government. Everyone is worried about the hit to capital the banks will have to take -- and the hits that other banks that have not written down the loans to date will have to take.
There are three ways to approach this:
1. Put out a bid list of mortgages and make it so it is high enough to not wipe out the banks but low enough to make money for the government. You might want to bid 50 cents for 2006 vintage for some ZIP codes with good loan to value, or 60 cents for 2005 vintage with excellent loan to value. But regardless, that's detail we should not get lost in.
2. The government can take equity stakes in the banks or just pay them outright for the money. I am indifferent, but the equity stakes allow the government to profit from the automatic increase in value the banks should have if they have already written down the portfolios. Banks that haven't taken the hit will have to, because the banks with similar assets will have to mark them down unless we suspend the ridiculous mark-to-market stranglehold and we allow losses to be taken over time. That's why we need a rate cut, because the banks will be able to rebuild capital against the losses very quickly through the net interest margin increases.
Either way we will have bank failures anyway, and we can then have a formula where the feds just seize the bad loans, dump them into the program to get them off the market and sell the deposits to the Wells Fargos (WFC Quote - Cramer on WFC - Stock Picks) or the Goldmans (GS Quote - Cramer on GS - Stock Picks) of the world.
The problem is that these details must not be allowed to derail the plan, because the depression is what we are trying to stop. If the regulators simply look the other way for now, house price depreciation can subside and many banks won't have to do anything at all.
3. Further, we are in a position where if the government sets a floor and we have different prices for different geographies, vintages, FICO scores and the like, then the private sector might want to buy them.
What would ultimately be the best thing to do is what Wachovia (WB Quote - Cramer on WB - Stock Picks) wants: Split into good and bad banks and have the government buy stakes in the bad banks.
Whatever happens, we need to get on with it. We cannot get bogged down, because the issue is the fire, and it must be put out before unemployment skyrockets and banks fail nationwide.
At the time of publication, Cramer was long Goldman Sachs
--------------------------------------------------------------------------------
Ignorant Resistance to the Plan Is Baffling
Originally published on Wednesday, Sept. 24, at 9:27 a.m. EDT
Speaking of Warren Buffett, he is making it very clear that we are still on the precipice and will be right back to it if we do not approve the Paulson plan. That's the takeaway from his comments about the plan in print and on his excellent interview on CNBC this morning, which is a total must-view.
The resistance to this plan is amazing to me. It is a testament to how hard it is to explain that people are up in arms about it and the money that could be
What people do not understand is that the number of firms that could have gone under last week pretty much included everything but the food and drug stocks.
The world revolves on credit and confidence. Both disappeared last week, and the reason behind that is simple: foreclosures.
Let's go over the nexus again. Banks can't lend and are fearful to lend. Why? So much money is tied up in failing mortgages throughout the system that the banks don't have the capital even if they want to lend.
I have said for two years now -- two years! -- that we need a market for this stuff, by ZIP code, by vintage, by loan-to-value, by geography. The SEC refused to insist on this, the bank examiner won't give it to us, so Treasury has to give it to us.
The presumption is that these mortgages are worthless. Chris Matthews said the same thing last night.
That's just not true. If you wrote even the worst mortgages down, if you were to value them at, say, 50%, think of it. You buy a house for 100% loan-to-value for $300,000, roughly the average price of a home in California in 2006. The average house price has fallen 25% from when that house was built. Let's say that it is 33%, factoring in the last month and the skyrocketing foreclosures. Now the house is worth $200,000. The mortgage is for $300,000. You bid 50% for that mortgage, $150,000, then you have a mortgage that's realistic.
You want to get that mortgage current, so you renegotiate the terms. I don't like principal adjustments, but I do like interest rate adjustments. Let's say for the next year, we say, "You are forgiven" for a year, maybe even two, and then you go low-interest for the next five years. That keeps the person in the house. That means that a foreclosure is averted, one less home on the market You multiply that over and over again -- and keep in mind that a 100% loan-to-value California house is about the worst other than the piggyback loans that were made with home equity that went to 120%, but I believe in the last two years those people have already been foreclosed -- and you get a firmer market. A firmer market means house price depreciation ends. If house price depreciation ends, then if the home is sold, the mortgage gets paid back and then some. That's where the profit comes in for the government.
Now, you don't have to write these down to 50% to make this work, as you see from the math. You could do it higher.
The thing you need to know is that banks holding these mortgages are either valuing them much lower -- as in Merrill's (MER Quote - Cramer on MER - Stock Picks) pricing to Lone Star, or the writedowns that Bank of America (BAC Quote - Cramer on BAC - Stock Picks) has taken and that Wells Fargo (WFC Quote - Cramer on WFC - Stock Picks) is taking -- or too high, a la Washington Mutual (WM Quote - Cramer on WM - Stock Picks). Either way you could either price these so it is in the interest of an acquirer to buy WM and write the mortgages down and then sell them to the government, or have Bank of America sell them and write them up to build earnings.
Either way, the banks can loan more and get the economy's oil flowing again. They can't unless they have a market for these mortgages.
That's why this is so important.
Now, there are certainly issues. How do you keep BAC from making so much money off you and me? We can craft some sort of equity stake that the taxpayer can take. The executives' benefit? We tax it or regulate it. We need to worry about the winners later; let's worry about the loser now, which is the U.S. economy.
Oh, and let's not forget what else goes right if the plan is approved. We get a real boost to the damaged portfolios of Fannie (FNM Quote - Cramer on FNM - Stock Picks) and Freddie (FRE Quote - Cramer on FRE - Stock Picks), which we own now. The values could go up big, the foreclosures on those properties go down, and these two go profitable off their guarantee fees, which are gigantic.
Or how about the bank owners of CDOs, impossible-to-value instruments that have to be worth more if housing simply stops depreciating or even starts increasing. That takes the pressure off all of the insurance that AIG (AIG Quote - Cramer on AIG - Stock Picks) wrote on these, which gives the U.S. government still one more windfall. All of these occur if this plan succeeds.
I am hoping that Warren Buffett, who totally gets the plan, is going to be listened to by Congress. I hope they listen to how important he knows it is and how we will revert to last Thursday's obliteration and destruction, which I believe could wipe out probably a fifth of the S&P 500.
The math is pretty simple. The fact that there will be some winners who shouldn't win is a price we have to pay. Until this plan, everything that Ben Bernanke tried was piecemeal and designed to avoid any scrutiny. Until this plan, the government has simply been reactive to the damage, damage done in part because of a philosophy that pervades this administration, that a market unregulated is a market that is perfect.
This is the first plan that might cost us nothing and solves the problem, and yet this is the plan that gets the most resistance.
If this plan fails, I want nothing to do with this market except for the foodbank stocks. Sounds like Warren Buffett doesn't, either.
I am worried about the plan. It cannot be nickel and dimed. We cannot let Washington Mutual, the next Lehman, fail. We see what happens -- the unintended consequences of Lehman are still roiling us. We cannot have the largest savings and loan go down.
We also cannot have the commercial paper market go away, which is what the major industrial companies live by. All of these will happen in this country if the plan fails.
I have become convinced that we have been hurtling toward Great Depression Two without a resolution of the mortgage crisis.
This is the best way to stop that Great Depression. It would be shocking to me if we went into a Great Depression with foreclosures spiking, home prices plummeting, deflation rampant and unemployment doubling or even tripling, all because we worried about what institutions will make money. The ones who make money are the good ones, as I demonstrated with the math. The bad ones get swallowed up and management booted. What more can you ask for?
At the time of publication, Cramer had no positions in the stocks mentioned.
--------------------------------------------------------------------------------
The Plan Isn't So Hard
Originally published on Thursday, Sept. 25, at 11:07 a.m. EDT
We will make money on the plan. It is almost impossible not to, if the pricing is right. From the very beginning, we have lacked a ladder, a scale, that tells us what kind of mortgages are worth what. From the very beginning, the absolutely outrageous SEC demanded no disclosure of mortgage vintage, geography, FICO score and loan-to-value.
There simply aren't that many other variables. You can produce models. You can figure out what this stuff is worth.
The only real variable is which loans should not be bought no matter what. Some underwriters were so bogus and some buyers so speculative that you have to wonder how in the heck we should buy those mortgages. The negative amortization, pick-and-pay type of loans, I think should not be bought until the very end. Those could be worthless. The banks that lent them are going to have to take a severe hit.
Other than those, though, I see no reason why an easy scale can't be made and the disposals be made orderly.
I know the CDOs are complicated. But I think the feds should be able to break them up by loan. They should not buy them whole, because without unwinding them, the government is going to get killed.
We should first be buying the mortgages that are 30-year-fixed where there are foreclosures, and we should buy them by the most hard-hit geographies where the pull down is endless -- Florida and California. We have to keep those people in their homes. Then I would do the teaser-type loans. And only then would I do pick-and-pay exotics.
I would put more effort into getting certain ZIP codes to bottom so that we can stop the reeling in major metropolitan areas. That's where the issue is, because 60% of these loans are in just a couple of places.
Why do I think this deal will make us money? Because those areas represent great value already, but we can't bring the values out as long as the foreclosures never end.
There are only certain kinds of mortgages and certain kinds of vintages and certain ZIP codes and certain geographies. The notion that this is "too difficult" to do, too hard to value, and too confusing is nonsense. But the feds must be able to bust the CDOs and unwind the tranches, or they will be scalded. NO HELOC!
Random musings: The Fannie (FNM Quote - Cramer on FNM - Stock Picks) and Freddie (FRE Quote - Cramer on FRE - Stock Picks) trade continues as a way to play the improvement of the portfolios of the two of them.
At the time of publication, Cramer had no positions in the stocks mentioned.
Friday, September 26, 2008
NCFE: Death-Dealing Side of the Bubble
NCFE, National Century Financial Enterprises, Inc., was a private Healthcare FINANCIAL company, the largest 'private' bankruptcy and dubbed by Federal Prosecutors in Columbus Ohio 'larger than Enron'.
NCFE: Death-Dealing Side of the Bubbleby John Hoefle
As a private company not required to make public filings with the Securities and Exchange Commission, much about NCFE remains shrouded in secrecy. But one can tell a lot by looking at its board, which consisted of four of the company's founders and two executives of J.P. Morgan Chase, which controls 16% of the company through its Beacon Group III private equity fund. In addition, Morgan Chase and Bank One are trustees for NCFE's bond trusts. The bonds themselves were underwritten by Crédit Suisse First Boston, the investment-banking arm of Switzerland's Crédit Suisse banking/insurance giant. The top purchasers of the bonds included PIMCO, the world's largest bond fund and a subsidiary of insurer Allianz, the world's third-largest financial institution; Alliance Capital Management, an arm of French insurance giant Axa; and ING, the Dutch insurance/banking conglomerate.
It is this combination of monetary policy, deregulation and financial asset-grabbing which created the dot.com bubble, the related telecom bubble, and the Enron/energy pirates' Wall Street bubble; all of which have subsequently exploded and are now revealed to be what LaRouche had said they were—scams. Now, with the bankruptcy of NCFE, another aspect of this post-1998 looting comes out of the shadows and into the light.
The Asset-Backed Securities Danger
NCFE was basically a financial "factor," advancing cash to hospitals, physicians, and other health-care facilities in exchange for their receivables—the delayed payments made by insurance companies and government agencies for patients' treatment. NCFE would place these receivables into pools, then issue derivative securities—known as asset-backed securities—backed by the expected insurance payments.
All in all, NCFE appears to fit the profile of a looting operation, whose existence served mainly to divert a portion of the health-care income stream into the pockets of some of the biggest financial institutions in the world. Now it has collapsed, leaving a bankruptcy wave which is now spreading among medical providers, with disastrous consequences for the health-care system and its patients.
NCFE serves about 100 healthcare providers nationwide, including hospitals, nursing homes, home healthcare agencies, specialty clinic physician groups, durable medical equipment providers, laboratories and other disciplines within the healthcare
industry. NCFE buys medical providers' bills at a discount (reportedly up to 20% after various fees), securitize those receivables and sell bonds to institutional and other investors.
Collections and insurance reimbursements, in turn, pay down the
bonds. The excess of collections over what it pays to buy the
receivables is NCFE's income. Healthcare providers, when NCFE
pays, receive the benefit of immediate cash to fund their
operations without having to wait for reimbursement.
All of the Debtors' outstanding bonds at this time consist of:
Amount Issuer Indenture Trustee
------ ------ -----------------
$924,995,000 NPF VI, Inc. JP Morgan Chase & Co.
$2,047,500,000 NPF XII, Inc. Bank One, N.A.
In papers filed with the Bankruptcy Court this week, the Company
reports that, as of September 30, 2002, its books and records
reflected approximately $3.8 billion in assets and approximately
$3.6 billion in liabilities.
An Investor Report dated October 23, 2002, and delivered to Bank
One reports that:
(a) NCFE held $851,993 in a Seller Credit Reserve Account as
of October 1, 2002, when there was supposed to be around
$145 million in that account on Oct. 1;
(b) NCFE held $498,321 in an Offset Reserve Account on
Oct. 1, when $44 million should have been on deposit; and
(c) an Equity Reserve Account, supposed to have a $217
million deposit on Oct. 1, only had $10 million on
deposit.
When those facts bubbled to the surface, Bank One ran to the
state and federal courts in Ohio seeking appointment of a
Receiver and prompted agents from the Federal Bureau of
Investigation to descend on NCFE's corporate offices.
Lance Poulsen, the Company's founder, has resigned as chairman
and chief executive. The Company's workforce has fallen from 325
to 103 this week. The Company's main office is located in
Dublin, Ohio, and maintains three regional offices in Scottsdale,
Arizona; Durham, North Carolina; and Port Charlotte, Florida.
NATIONAL CENTURY DEBTORS' CHAPTER 11 DATABASE
-----------------------------------------------------------------
Debtor entites filing separate chapter 11 petitions:
Entity Case No.
------ --------
National Century Financial Enterprises Inc. 02-65235
NPF XII Inc. 02-65236
National Premier Financial Services Inc. 02-65237
NPF VI Inc. 02-65238
Memorial Drive Office Complex LLC 02-65239
National Physicians Funding II Inc. 02-65240
Anesthesia Solutions Inc. 02-65241
NPF-CSL Inc. 02-65242
NPF-LL Inc. 02-65243
NPF-SPL Inc. 02-65244
NPF X Inc. 02-65245
NPF Capital Partners Inc. 02-65246
NPF Capital Inc. 02-65247
NCFE.com Inc. 02-65248
Chapter 11 Petition Date: November 18, 2002
Bankruptcy Court: United States Bankruptcy Court
Southern District of Ohio
Eastern Division
170 North High Street
Columbus, Ohio 43215
(614) 469-6638
Judge: Donald E. Calhoun, Jr.
LIST THE DEBTORS' 40-LARGEST UNSECURED CREDITORS
-----------------------------------------------------------------
Entity Nature Of Claim Claim Amount
------ --------------- ------------
Bank One Trust Company Indenture Trustee $2,047,500,000
N.A. for secured notes
Darlington Cummings issued by NPF
Corporate Trust XII, Inc.
Account Adm.
OH1-0380
255 West Shrock Road
Westerville, OH 43081
Tel: 614-244-9356
Fax: 614-248-1123
J.P. Morgan Chase Bank Indenture Trustee $924,995,000
Structured Finance for secured notes
450 W. 33rd Street issued by NPF
14th Floor VI, Inc.
New York, NY 1001
Tel: 212-946-8600
Fax: 212-946-8302
Pacific Investment NPF XII, Inc. $283,300,000
Management Company Notes (unsecured
Mohan Phansalkar deficiency claim)
840 Newport Center Dr
Suite 300
Newport, CA 92660
Tel: 949-717-7022
Fax: 949-720-4590
Credit Suisse First NPF XII, Inc. $283,000,000
Boston Corp. Notes (unsecured
Michael Criscito deficiency claim)
New York Branch
11 Madison Avenue
New York, NY 10010
Tel: 646-935-0299
Fax: 212-325-8232
Alliance Capital NPF XII, Inc. $188,500,000
Management Corp. Notes (unsecured
Katalin E. Kutasi deficiency claim)
1345 Avenue of
Americas
38th Floor
New York, NY 10105
Tel: 212-969-1000
Fax: 212-969-6820
III Finance, Ltd. NPF XII, Inc. $180,000,000
Julio Maceira Notes (unsecured
c/o AVM, L.P. deficiency claim)
250 S. Australian Ave.
6th Floor
West Palm Beach
FL 33401
Metropolitan Life NPF XII, Inc. $102,600,000
Insurance Notes (unsecured
Charles Scully deficiency claim)
10 Park Avenue
Morristown, NJ 07962
Tel: 866-226-5638
Tax: 973-254-3052
Ambac Insurance Corp NPF XII, Inc. $54,000,000
Joe Ramos Notes (unsecured
One State Street Plaza deficiency claim)
New York, NY 1004
Tel: 212-607-2200
Fax: 212-797-5272
Lincoln Capital NPF XII, Inc. $49,500,000
Management Co. Notes (unsecured
Rick Schneider deficiency claim)
200 S. Wacker Drive
Suite 2100
Chicago, IL 60606
Tel: 3125592880
Howery, Simon, Arnold $2,147,888
& White, LLP
Gary Hall
1299 Pennsylvania Ave.
NW, Washington, DC
20004-2402
Tel: 202-383-7169
Fax: 202-383-6610
Purcell & Scott, LLP $470,801
Cary Purcell
6035 Memorial Drive
Dublin, OH 43017
Tel: 614-761-9990
Fax: 614-761-9474
Gerbig Snell/Weisheimer $413,566
& Associates
Bill O'Dell
500 Olde Worthington Rd.
Westerville, OH 43082
Tel: 614-643-6471
Fax: 614-848-3477
Westcott Strategic $127,273
Management
Novell, Inc. Trade Debt $121,350
Bricker & Eckler Trade Debt $114,290
Peabody & Arnold LLP Trade Debt $98,225
First Merit Bank Trade Debt $90,676
ISHI Systems Inc. Trade Debt $88,049
Crown Partners Trade Debt $87,991
Expert Technical Trade Debt $67,200
Consultants
Object Ovation, Inc. Trade Debt $61,420
Perlman & Assoc Trade Debt $60,646
Freeman & Mills, Inc. Trade Debt $54,354
CNA Insurance Trade Debt $41,450
SARK Trade Debt $39,842
Norman Reitman Company Trade Debt $36,944
Krivcher Magids PLC Trade Debt $34,917
Leitess, Leitess & Trade Debt $32,294
Friedberg
Insight Trade Debt $30,012
Solutions for Manage- Trade Debt $28,998
ment, Inc.
PricewaterhouseCoopers Trade Debt $27,648
LLP
Deloitte & Touche LLP Trade Debt $25,000
Jeanne Cabral Trade Debt $23,566
Architects
Dell Marketing, Inc. Trade Debt $20,209
Biomar Technologies Trade Debt $20,000
IOS Capital Trade Debt $19,627
Abby Lane Temps, Inc. Trade Debt $17,147
Rockey & Wahl, LLP Trade Debt $15,809
Great Lakes REIT Trade Debt $15,679
Results International Trade Debt $14,500
Systems
The Debtors name these known Sellers as Defendants in this
Adversary Proceeding:
Sellers to NPF XII
------------------
* Lincoln Hospital Medical Center, Inc.
* OrthoRehab, Inc.
* RX Medical Services Corp.
* CHC Clintwood Clinics, Inc.
* CareServices of the Heartland, LLC
* CareServices of South Florida, LLC
* CareServices of the Treasure Coast, LLC
* Mobile Medical Industries, Inc.
* Innovative Services, Inc.
* Emergystate, Inc.
* Med Express LLC
* Emergystat of Sulligent
* Extended Emergency Medical Services, Inc.
* ACCI/Allcare of Pennsylvania, Inc.
* BGI of Brandywine, Inc.
* BGI of St. Tammany, Inc.
* BGI of Pensacola, Inc.
* BGI of South Dakota, Inc.
* Comprehensive of Addiction Programs, Inc.
* Glalax Treatment Center, Inc.
* Stonehenge Convalescent Center, Inc.
* Wilmington Treatment Center, Inc.
* Greater Southeast Community Hospital Corporation I
* Pacifica of the Valley Corporation
* Garland Physicians' Hospital, Ltd.
* Thera-Kinetics, Inc.
* International Philanthropic Hospital Foundation
d/b/a/ Granada Hills Community Hospital
* Korman, LLC
* Living Hope Southwest Medical Services LLC
* Locumtenens Acquisition LLC
* Oak Park, Inc.
* Prime Med Pharmacy Services, Inc.
* Quantum Health
* Rock Glen Healthcare, Inc.
* SCCI Hospitals of America, Inc.
* SCCI Hospital Ventures, Inc.
* SIS Acquisition, LLC
* Safecare Ambulance Services, Inc.
* Braintree Manor Nursing, LLC
* Fall River Nursing LLC
* Hollingsworth Nursing LLC
* South Boston Nursing LLC
* Stoughton Nursing LLC
* PriMed Medical Corporation
* Pain Net Northern California Management Corporation
* National Psychiatric Services, Inc.
* Infusion Management Systems, Inc.
* Aurora Home Care, Inc.
Sellers to NPF VI
-----------------
* Chartwell Pennsylvania, LLC
* Chartwell Diversified Services, Inc.
* Chartwell Southern New England, LLC
* Chartwell Midwest Wisconsin
* Chartwell Home Therapies Limited Partnership
* Chartwell Midwest Indiana, LLC
* Chartwell UC Davis, LLC
* Chartwell Michigan, LLC
* Chartwell Mountain Regional Services
* Chartwell Ohio
* Chartwell Care Givers, Inc.
* Chartwell Care Givers of New York, Inc.
* Atlis Health Services, Inc.
* Hunt Country Home Health, Inc.
* Hunt Country Nursing Services, Inc.
* National Nurses Service, Inc.
* Oak Springs Nursing Home, LP
* ACCI/AllCare, Inc.
* ACCI/AllCare of Massachusetts, Inc.
* Brea Community Hospital
* Michael Reese Medical Center Corporation
* Pacin Healthcare-Hadley Memorial Hospital Corporation
* Highland Behavioral Health Services, Inc.
* Highland Hospital Association
* Lifecare Solutions East, Inc.
* Lifecare Solutions, West, Inc.
* New England Home Therapies, Inc.
* P.N.A.
* Pain Net of Arizona, Inc.
* Pain Net, Inc.
* Rovertown Surgery Center, LLC
* PhyAmerica Correctional Healthcare, Inc.
* Texas NPI, Inc.
* Home Medical of America, Inc.
* Nations Healthcare of California, Inc.
* Nations Healthcare of Florida, Inc.
* Nations Healthcare of Greenville, Inc.
* Nations Healthcare of Northern California, Inc.
Other Sellers
-------------
* Advance Home Medical, Inc.
* AllMed Services, Inc.
* Bay Cities Pharmaceutical Services
* Bayer Restorative Center, Inc.
* Care Home and Healthcare Services, Inc.
* Care Medical Group, Inc.
* Care Nursing Associates
* Consolidated Health Corp. of Pittsburgh, Inc.
* Consolidated Health Corporation Management, Inc.
* Continuecare, Inc.
* Florida Health Plan Management, Inc.
* Habitat Healthcare, Inc. dba Procare Home Health
* Health Care Funding Corp.
* Health Management Southeast, Inc.
* Healthplan Southeast, Inc.
* Interstate Environmental Medical Group, P.S.
* Louisiana Helping Hands, Inc.
* Managed Patient Care
* Med Four, LLC
* Medical Management Consulting Group
* Medimanager, Inc.
* Miami Valley Respiratory Care, Inc.
* National Corrections and Rehabilitation Corporation
* National Rehab of Florida, Inc.
* Nations Healthcare of Tampa Bay, Inc.
* Needham/Hamilton House Convalescent Center, Inc.
* Northern Indiana Interim Healthcare Company, LLC
* Orlando Interim Acquisition Company, LLC
* Pain Control Consultants, Inc.
* Pine Grove Hospital Corporation
* Procare of Tennessee, Inc.
* Quality Health Initiatives, Inc.
* Quality Health Systems, Inc.
* Quality Lifestyles, Inc., dba Quality Lifecare, Inc.
* Quest Staffing Solutions, Inc.
* Robertson Interim Acquisition Company LLC
* Schillinger Emergency Physicians Medical Group, P.C.
* Spectrum Medical Care
* Strongin Health Services Corporation
* Sunrise Regional Medical Center, Ltd.
* Superior Home Health Care of Livingston, Inc.
* Tailored Care, Inc.
* Tampa Interim Acquisition Company, LLC
* Tennessee Homecare, Inc.
* The Nurses Station of America, Inc.
* Triad Health Management of Georgia, LLC
and name the five Lockbox Custodians as Defendants in their
lawsuit:
* Huntington National Bank
* Wachovia Bank, NA
* PNC Bank
* Bank of America
* Bank One, NA
Without this injunctive relief, Judge Calhoun sees, the Debtors
face an immediate and substantial threat to the preservation of
their estates' going-concern value and an unwarranted and
irreversible dissipation of their estates. Accordingly, Judge
Calhoun issued a Temporary Restraining Order at a hearing
yesterday in Columbus. The Court directs each Defendant to file
an Answer to the Debtors' Complaint by December 18, 2002, and
will convene a hearing thereafter to consider entry of a
permanent injunction.
*** End of Issue No. 1 ***
NCFE: Death-Dealing Side of the Bubbleby John Hoefle
As a private company not required to make public filings with the Securities and Exchange Commission, much about NCFE remains shrouded in secrecy. But one can tell a lot by looking at its board, which consisted of four of the company's founders and two executives of J.P. Morgan Chase, which controls 16% of the company through its Beacon Group III private equity fund. In addition, Morgan Chase and Bank One are trustees for NCFE's bond trusts. The bonds themselves were underwritten by Crédit Suisse First Boston, the investment-banking arm of Switzerland's Crédit Suisse banking/insurance giant. The top purchasers of the bonds included PIMCO, the world's largest bond fund and a subsidiary of insurer Allianz, the world's third-largest financial institution; Alliance Capital Management, an arm of French insurance giant Axa; and ING, the Dutch insurance/banking conglomerate.
It is this combination of monetary policy, deregulation and financial asset-grabbing which created the dot.com bubble, the related telecom bubble, and the Enron/energy pirates' Wall Street bubble; all of which have subsequently exploded and are now revealed to be what LaRouche had said they were—scams. Now, with the bankruptcy of NCFE, another aspect of this post-1998 looting comes out of the shadows and into the light.
The Asset-Backed Securities Danger
NCFE was basically a financial "factor," advancing cash to hospitals, physicians, and other health-care facilities in exchange for their receivables—the delayed payments made by insurance companies and government agencies for patients' treatment. NCFE would place these receivables into pools, then issue derivative securities—known as asset-backed securities—backed by the expected insurance payments.
All in all, NCFE appears to fit the profile of a looting operation, whose existence served mainly to divert a portion of the health-care income stream into the pockets of some of the biggest financial institutions in the world. Now it has collapsed, leaving a bankruptcy wave which is now spreading among medical providers, with disastrous consequences for the health-care system and its patients.
NCFE serves about 100 healthcare providers nationwide, including hospitals, nursing homes, home healthcare agencies, specialty clinic physician groups, durable medical equipment providers, laboratories and other disciplines within the healthcare
industry. NCFE buys medical providers' bills at a discount (reportedly up to 20% after various fees), securitize those receivables and sell bonds to institutional and other investors.
Collections and insurance reimbursements, in turn, pay down the
bonds. The excess of collections over what it pays to buy the
receivables is NCFE's income. Healthcare providers, when NCFE
pays, receive the benefit of immediate cash to fund their
operations without having to wait for reimbursement.
All of the Debtors' outstanding bonds at this time consist of:
Amount Issuer Indenture Trustee
------ ------ -----------------
$924,995,000 NPF VI, Inc. JP Morgan Chase & Co.
$2,047,500,000 NPF XII, Inc. Bank One, N.A.
In papers filed with the Bankruptcy Court this week, the Company
reports that, as of September 30, 2002, its books and records
reflected approximately $3.8 billion in assets and approximately
$3.6 billion in liabilities.
An Investor Report dated October 23, 2002, and delivered to Bank
One reports that:
(a) NCFE held $851,993 in a Seller Credit Reserve Account as
of October 1, 2002, when there was supposed to be around
$145 million in that account on Oct. 1;
(b) NCFE held $498,321 in an Offset Reserve Account on
Oct. 1, when $44 million should have been on deposit; and
(c) an Equity Reserve Account, supposed to have a $217
million deposit on Oct. 1, only had $10 million on
deposit.
When those facts bubbled to the surface, Bank One ran to the
state and federal courts in Ohio seeking appointment of a
Receiver and prompted agents from the Federal Bureau of
Investigation to descend on NCFE's corporate offices.
Lance Poulsen, the Company's founder, has resigned as chairman
and chief executive. The Company's workforce has fallen from 325
to 103 this week. The Company's main office is located in
Dublin, Ohio, and maintains three regional offices in Scottsdale,
Arizona; Durham, North Carolina; and Port Charlotte, Florida.
NATIONAL CENTURY DEBTORS' CHAPTER 11 DATABASE
-----------------------------------------------------------------
Debtor entites filing separate chapter 11 petitions:
Entity Case No.
------ --------
National Century Financial Enterprises Inc. 02-65235
NPF XII Inc. 02-65236
National Premier Financial Services Inc. 02-65237
NPF VI Inc. 02-65238
Memorial Drive Office Complex LLC 02-65239
National Physicians Funding II Inc. 02-65240
Anesthesia Solutions Inc. 02-65241
NPF-CSL Inc. 02-65242
NPF-LL Inc. 02-65243
NPF-SPL Inc. 02-65244
NPF X Inc. 02-65245
NPF Capital Partners Inc. 02-65246
NPF Capital Inc. 02-65247
NCFE.com Inc. 02-65248
Chapter 11 Petition Date: November 18, 2002
Bankruptcy Court: United States Bankruptcy Court
Southern District of Ohio
Eastern Division
170 North High Street
Columbus, Ohio 43215
(614) 469-6638
Judge: Donald E. Calhoun, Jr.
LIST THE DEBTORS' 40-LARGEST UNSECURED CREDITORS
-----------------------------------------------------------------
Entity Nature Of Claim Claim Amount
------ --------------- ------------
Bank One Trust Company Indenture Trustee $2,047,500,000
N.A. for secured notes
Darlington Cummings issued by NPF
Corporate Trust XII, Inc.
Account Adm.
OH1-0380
255 West Shrock Road
Westerville, OH 43081
Tel: 614-244-9356
Fax: 614-248-1123
J.P. Morgan Chase Bank Indenture Trustee $924,995,000
Structured Finance for secured notes
450 W. 33rd Street issued by NPF
14th Floor VI, Inc.
New York, NY 1001
Tel: 212-946-8600
Fax: 212-946-8302
Pacific Investment NPF XII, Inc. $283,300,000
Management Company Notes (unsecured
Mohan Phansalkar deficiency claim)
840 Newport Center Dr
Suite 300
Newport, CA 92660
Tel: 949-717-7022
Fax: 949-720-4590
Credit Suisse First NPF XII, Inc. $283,000,000
Boston Corp. Notes (unsecured
Michael Criscito deficiency claim)
New York Branch
11 Madison Avenue
New York, NY 10010
Tel: 646-935-0299
Fax: 212-325-8232
Alliance Capital NPF XII, Inc. $188,500,000
Management Corp. Notes (unsecured
Katalin E. Kutasi deficiency claim)
1345 Avenue of
Americas
38th Floor
New York, NY 10105
Tel: 212-969-1000
Fax: 212-969-6820
III Finance, Ltd. NPF XII, Inc. $180,000,000
Julio Maceira Notes (unsecured
c/o AVM, L.P. deficiency claim)
250 S. Australian Ave.
6th Floor
West Palm Beach
FL 33401
Metropolitan Life NPF XII, Inc. $102,600,000
Insurance Notes (unsecured
Charles Scully deficiency claim)
10 Park Avenue
Morristown, NJ 07962
Tel: 866-226-5638
Tax: 973-254-3052
Ambac Insurance Corp NPF XII, Inc. $54,000,000
Joe Ramos Notes (unsecured
One State Street Plaza deficiency claim)
New York, NY 1004
Tel: 212-607-2200
Fax: 212-797-5272
Lincoln Capital NPF XII, Inc. $49,500,000
Management Co. Notes (unsecured
Rick Schneider deficiency claim)
200 S. Wacker Drive
Suite 2100
Chicago, IL 60606
Tel: 3125592880
Howery, Simon, Arnold $2,147,888
& White, LLP
Gary Hall
1299 Pennsylvania Ave.
NW, Washington, DC
20004-2402
Tel: 202-383-7169
Fax: 202-383-6610
Purcell & Scott, LLP $470,801
Cary Purcell
6035 Memorial Drive
Dublin, OH 43017
Tel: 614-761-9990
Fax: 614-761-9474
Gerbig Snell/Weisheimer $413,566
& Associates
Bill O'Dell
500 Olde Worthington Rd.
Westerville, OH 43082
Tel: 614-643-6471
Fax: 614-848-3477
Westcott Strategic $127,273
Management
Novell, Inc. Trade Debt $121,350
Bricker & Eckler Trade Debt $114,290
Peabody & Arnold LLP Trade Debt $98,225
First Merit Bank Trade Debt $90,676
ISHI Systems Inc. Trade Debt $88,049
Crown Partners Trade Debt $87,991
Expert Technical Trade Debt $67,200
Consultants
Object Ovation, Inc. Trade Debt $61,420
Perlman & Assoc Trade Debt $60,646
Freeman & Mills, Inc. Trade Debt $54,354
CNA Insurance Trade Debt $41,450
SARK Trade Debt $39,842
Norman Reitman Company Trade Debt $36,944
Krivcher Magids PLC Trade Debt $34,917
Leitess, Leitess & Trade Debt $32,294
Friedberg
Insight Trade Debt $30,012
Solutions for Manage- Trade Debt $28,998
ment, Inc.
PricewaterhouseCoopers Trade Debt $27,648
LLP
Deloitte & Touche LLP Trade Debt $25,000
Jeanne Cabral Trade Debt $23,566
Architects
Dell Marketing, Inc. Trade Debt $20,209
Biomar Technologies Trade Debt $20,000
IOS Capital Trade Debt $19,627
Abby Lane Temps, Inc. Trade Debt $17,147
Rockey & Wahl, LLP Trade Debt $15,809
Great Lakes REIT Trade Debt $15,679
Results International Trade Debt $14,500
Systems
The Debtors name these known Sellers as Defendants in this
Adversary Proceeding:
Sellers to NPF XII
------------------
* Lincoln Hospital Medical Center, Inc.
* OrthoRehab, Inc.
* RX Medical Services Corp.
* CHC Clintwood Clinics, Inc.
* CareServices of the Heartland, LLC
* CareServices of South Florida, LLC
* CareServices of the Treasure Coast, LLC
* Mobile Medical Industries, Inc.
* Innovative Services, Inc.
* Emergystate, Inc.
* Med Express LLC
* Emergystat of Sulligent
* Extended Emergency Medical Services, Inc.
* ACCI/Allcare of Pennsylvania, Inc.
* BGI of Brandywine, Inc.
* BGI of St. Tammany, Inc.
* BGI of Pensacola, Inc.
* BGI of South Dakota, Inc.
* Comprehensive of Addiction Programs, Inc.
* Glalax Treatment Center, Inc.
* Stonehenge Convalescent Center, Inc.
* Wilmington Treatment Center, Inc.
* Greater Southeast Community Hospital Corporation I
* Pacifica of the Valley Corporation
* Garland Physicians' Hospital, Ltd.
* Thera-Kinetics, Inc.
* International Philanthropic Hospital Foundation
d/b/a/ Granada Hills Community Hospital
* Korman, LLC
* Living Hope Southwest Medical Services LLC
* Locumtenens Acquisition LLC
* Oak Park, Inc.
* Prime Med Pharmacy Services, Inc.
* Quantum Health
* Rock Glen Healthcare, Inc.
* SCCI Hospitals of America, Inc.
* SCCI Hospital Ventures, Inc.
* SIS Acquisition, LLC
* Safecare Ambulance Services, Inc.
* Braintree Manor Nursing, LLC
* Fall River Nursing LLC
* Hollingsworth Nursing LLC
* South Boston Nursing LLC
* Stoughton Nursing LLC
* PriMed Medical Corporation
* Pain Net Northern California Management Corporation
* National Psychiatric Services, Inc.
* Infusion Management Systems, Inc.
* Aurora Home Care, Inc.
Sellers to NPF VI
-----------------
* Chartwell Pennsylvania, LLC
* Chartwell Diversified Services, Inc.
* Chartwell Southern New England, LLC
* Chartwell Midwest Wisconsin
* Chartwell Home Therapies Limited Partnership
* Chartwell Midwest Indiana, LLC
* Chartwell UC Davis, LLC
* Chartwell Michigan, LLC
* Chartwell Mountain Regional Services
* Chartwell Ohio
* Chartwell Care Givers, Inc.
* Chartwell Care Givers of New York, Inc.
* Atlis Health Services, Inc.
* Hunt Country Home Health, Inc.
* Hunt Country Nursing Services, Inc.
* National Nurses Service, Inc.
* Oak Springs Nursing Home, LP
* ACCI/AllCare, Inc.
* ACCI/AllCare of Massachusetts, Inc.
* Brea Community Hospital
* Michael Reese Medical Center Corporation
* Pacin Healthcare-Hadley Memorial Hospital Corporation
* Highland Behavioral Health Services, Inc.
* Highland Hospital Association
* Lifecare Solutions East, Inc.
* Lifecare Solutions, West, Inc.
* New England Home Therapies, Inc.
* P.N.A.
* Pain Net of Arizona, Inc.
* Pain Net, Inc.
* Rovertown Surgery Center, LLC
* PhyAmerica Correctional Healthcare, Inc.
* Texas NPI, Inc.
* Home Medical of America, Inc.
* Nations Healthcare of California, Inc.
* Nations Healthcare of Florida, Inc.
* Nations Healthcare of Greenville, Inc.
* Nations Healthcare of Northern California, Inc.
Other Sellers
-------------
* Advance Home Medical, Inc.
* AllMed Services, Inc.
* Bay Cities Pharmaceutical Services
* Bayer Restorative Center, Inc.
* Care Home and Healthcare Services, Inc.
* Care Medical Group, Inc.
* Care Nursing Associates
* Consolidated Health Corp. of Pittsburgh, Inc.
* Consolidated Health Corporation Management, Inc.
* Continuecare, Inc.
* Florida Health Plan Management, Inc.
* Habitat Healthcare, Inc. dba Procare Home Health
* Health Care Funding Corp.
* Health Management Southeast, Inc.
* Healthplan Southeast, Inc.
* Interstate Environmental Medical Group, P.S.
* Louisiana Helping Hands, Inc.
* Managed Patient Care
* Med Four, LLC
* Medical Management Consulting Group
* Medimanager, Inc.
* Miami Valley Respiratory Care, Inc.
* National Corrections and Rehabilitation Corporation
* National Rehab of Florida, Inc.
* Nations Healthcare of Tampa Bay, Inc.
* Needham/Hamilton House Convalescent Center, Inc.
* Northern Indiana Interim Healthcare Company, LLC
* Orlando Interim Acquisition Company, LLC
* Pain Control Consultants, Inc.
* Pine Grove Hospital Corporation
* Procare of Tennessee, Inc.
* Quality Health Initiatives, Inc.
* Quality Health Systems, Inc.
* Quality Lifestyles, Inc., dba Quality Lifecare, Inc.
* Quest Staffing Solutions, Inc.
* Robertson Interim Acquisition Company LLC
* Schillinger Emergency Physicians Medical Group, P.C.
* Spectrum Medical Care
* Strongin Health Services Corporation
* Sunrise Regional Medical Center, Ltd.
* Superior Home Health Care of Livingston, Inc.
* Tailored Care, Inc.
* Tampa Interim Acquisition Company, LLC
* Tennessee Homecare, Inc.
* The Nurses Station of America, Inc.
* Triad Health Management of Georgia, LLC
and name the five Lockbox Custodians as Defendants in their
lawsuit:
* Huntington National Bank
* Wachovia Bank, NA
* PNC Bank
* Bank of America
* Bank One, NA
Without this injunctive relief, Judge Calhoun sees, the Debtors
face an immediate and substantial threat to the preservation of
their estates' going-concern value and an unwarranted and
irreversible dissipation of their estates. Accordingly, Judge
Calhoun issued a Temporary Restraining Order at a hearing
yesterday in Columbus. The Court directs each Defendant to file
an Answer to the Debtors' Complaint by December 18, 2002, and
will convene a hearing thereafter to consider entry of a
permanent injunction.
*** End of Issue No. 1 ***
National Century Financial Enterprises, Inc., J.P. Morgan Chase, Morgan Chase and Bank One
"...two executives of J.P. Morgan Chase, which controls 16% of the company through its Beacon Group III private equity fund. In addition, Morgan Chase and Bank One are trustees for NCFE's bond trusts."
NCFE: Death-Dealing Side of the Bubble
by John Hoefle
As a private company not required to make public filings with the Securities and Exchange Commission, much about NCFE remains shrouded in secrecy. But one can tell a lot by looking at its board, which consisted of four of the company's founders and two executives of J.P. Morgan Chase, which controls 16% of the company through its Beacon Group III private equity fund. In addition, Morgan Chase and Bank One are trustees for NCFE's bond trusts. All in all, NCFE appears to fit the profile of a looting operation, whose existence served mainly to divert a portion of the health-care income stream into the pockets of some of the biggest financial
I believe someone needs to address the' PONZI Scheme' that was created with Health care finance.
NCFE, National Century Financial Enterprises, Inc., was a private Healthcare FINANCIAL company, the largest 'private' bankruptcy and dubbed by Federal Prosecutors in Columbus Ohio 'larger than Enron'.
NCFE: Death-Dealing Side of the Bubble
by John Hoefle
As a private company not required to make public filings with the Securities and Exchange Commission, much about NCFE remains shrouded in secrecy. But one can tell a lot by looking at its board, which consisted of four of the company's founders and two executives of J.P. Morgan Chase, which controls 16% of the company through its Beacon Group III private equity fund. In addition, Morgan Chase and Bank One are trustees for NCFE's bond trusts.
NCFE: Death-Dealing Side of the Bubble
by John Hoefle
As a private company not required to make public filings with the Securities and Exchange Commission, much about NCFE remains shrouded in secrecy. But one can tell a lot by looking at its board, which consisted of four of the company's founders and two executives of J.P. Morgan Chase, which controls 16% of the company through its Beacon Group III private equity fund. In addition, Morgan Chase and Bank One are trustees for NCFE's bond trusts. All in all, NCFE appears to fit the profile of a looting operation, whose existence served mainly to divert a portion of the health-care income stream into the pockets of some of the biggest financial
I believe someone needs to address the' PONZI Scheme' that was created with Health care finance.
NCFE, National Century Financial Enterprises, Inc., was a private Healthcare FINANCIAL company, the largest 'private' bankruptcy and dubbed by Federal Prosecutors in Columbus Ohio 'larger than Enron'.
NCFE: Death-Dealing Side of the Bubble
by John Hoefle
As a private company not required to make public filings with the Securities and Exchange Commission, much about NCFE remains shrouded in secrecy. But one can tell a lot by looking at its board, which consisted of four of the company's founders and two executives of J.P. Morgan Chase, which controls 16% of the company through its Beacon Group III private equity fund. In addition, Morgan Chase and Bank One are trustees for NCFE's bond trusts.
Thursday, September 25, 2008
FRAUD ...Connect this to the BAILOUT.
Between January 2006 and May 2008 ....wow this one moved quick.
Five months,and all done. Just investigate the trial that has yet to have the CEO and ex-HEALTHCARE Executive , James K Happgoon trial after eight years?
Another SILENT BAILOUT....The feds statement implies closure. What are they hiding?
Medical Equipment Company Owner Convicted In Motorized Wheelchair Fraud
September 24, 2008 in Health Fraud by Dave Westheimer
Yet another example of the blatant Medicare fraud that’s been going on in public for years: a federal jury in Los Angeles on Monday convicted the owner of durable medical equipment supplier Pacific City Group in connection with a scheme to get Medicare to pay for motorized wheelchairs that weren’t needed. Leonard Nwafor was convicted on 11 counts including health care fraud and conspiracy. Between January 2006 and May 2008 his company billed Medicare over $1.1 million and was paid $526,000 for the wheelchairs, which sell for as much as $7,000 each. Evidence at the trial allegedly showed that prescriptions for the motorized wheelchairs purporting to be from several LA-area doctors were forged. A “beneficiary” testified that a company representative posing as a Medicare official threatened her with loss of benefits if she and her husband didn’t accept two wheelchairs they didn’t need.
Nwafor faces a statutory maximum of 110 years in prison. His sentencing is scheduled for December 1 before US District Judge John Walter. He also faces federal mail fraud charges in a separate case (DOJ).
http://letterofapology.com/2008/09/24/medical-equipment-company-owner-convicted-in-motorized-wheelchair-fraud/
Five months,and all done. Just investigate the trial that has yet to have the CEO and ex-HEALTHCARE Executive , James K Happgoon trial after eight years?
Another SILENT BAILOUT....The feds statement implies closure. What are they hiding?
Medical Equipment Company Owner Convicted In Motorized Wheelchair Fraud
September 24, 2008 in Health Fraud by Dave Westheimer
Yet another example of the blatant Medicare fraud that’s been going on in public for years: a federal jury in Los Angeles on Monday convicted the owner of durable medical equipment supplier Pacific City Group in connection with a scheme to get Medicare to pay for motorized wheelchairs that weren’t needed. Leonard Nwafor was convicted on 11 counts including health care fraud and conspiracy. Between January 2006 and May 2008 his company billed Medicare over $1.1 million and was paid $526,000 for the wheelchairs, which sell for as much as $7,000 each. Evidence at the trial allegedly showed that prescriptions for the motorized wheelchairs purporting to be from several LA-area doctors were forged. A “beneficiary” testified that a company representative posing as a Medicare official threatened her with loss of benefits if she and her husband didn’t accept two wheelchairs they didn’t need.
Nwafor faces a statutory maximum of 110 years in prison. His sentencing is scheduled for December 1 before US District Judge John Walter. He also faces federal mail fraud charges in a separate case (DOJ).
http://letterofapology.com/2008/09/24/medical-equipment-company-owner-convicted-in-motorized-wheelchair-fraud/
Is the HEALTHCARE FRAUD, included in the Bailout?
Billions recouped in medical fraud
WASHINGTON — Whistle- blowers helped authorities recover at least $9.3 billion from health care providers accused of defrauding states and the federal government, according to an analysis of Justice Department records.
The department ramped up efforts in the 1990s to combat health care fraud by using private citizens with inside knowledge of wrongdoing. They now initiate more than 90 percent of the department's lawsuits focusing on health care fraud.
Whistle-blowers start cases by filing a sealed complaint in federal court. The department investigates the allegation and can intervene, assuming the lead role in the lawsuit. Whistle-blowers then get between 15 percent and 25 percent of the amount recovered.
Of the $9.3 billion recovered between 1996 and 2005, whistle-blowers got more than $1 billion, say analysts, writing for the Annals of Internal Medicine.
The analysts' findings are conservative. Information was available for only about three-quarters of the 379 cases reviewed. Also, some of the largest recoveries have taken place after the period reviewed.
For example, the study doesn't include the single largest settlement, worth $920 million, which came against Tenet Healthcare Corp., one of the nation's largest hospital chains, in 2006.
Still, the study highlights some important trends in health care fraud.
While the number of claims pursued has dropped in recent years, recovery amounts have soared because of a late addition to the cast of defendants — pharmaceutical manufacturers. Recoveries jumped from about $10 million a case in 2002 to $50 million by 2005.
Drugmakers are required to sell products to state Medicaid programs at the "best price" offered in the private marketplace, but the companies might artificially inflate the price, according to the report.
Another common scheme is to market drugs for uses not approved by the Food and Drug Administration.
The report's authors, Aaron S. Kesselheim of Brigham and Women's Hospital in Boston and David M. Studdert of the University of Melbourne in Australia, said data on hundreds of whistle-blower lawsuits should be researched to identify what types of allegations turn out to be legitimate and lead to recoveries so that the department can fast-track such cases.
By Kevin Freking
The Associated Press
WASHINGTON — Whistle- blowers helped authorities recover at least $9.3 billion from health care providers accused of defrauding states and the federal government, according to an analysis of Justice Department records.
The department ramped up efforts in the 1990s to combat health care fraud by using private citizens with inside knowledge of wrongdoing. They now initiate more than 90 percent of the department's lawsuits focusing on health care fraud.
Whistle-blowers start cases by filing a sealed complaint in federal court. The department investigates the allegation and can intervene, assuming the lead role in the lawsuit. Whistle-blowers then get between 15 percent and 25 percent of the amount recovered.
Of the $9.3 billion recovered between 1996 and 2005, whistle-blowers got more than $1 billion, say analysts, writing for the Annals of Internal Medicine.
The analysts' findings are conservative. Information was available for only about three-quarters of the 379 cases reviewed. Also, some of the largest recoveries have taken place after the period reviewed.
For example, the study doesn't include the single largest settlement, worth $920 million, which came against Tenet Healthcare Corp., one of the nation's largest hospital chains, in 2006.
Still, the study highlights some important trends in health care fraud.
While the number of claims pursued has dropped in recent years, recovery amounts have soared because of a late addition to the cast of defendants — pharmaceutical manufacturers. Recoveries jumped from about $10 million a case in 2002 to $50 million by 2005.
Drugmakers are required to sell products to state Medicaid programs at the "best price" offered in the private marketplace, but the companies might artificially inflate the price, according to the report.
Another common scheme is to market drugs for uses not approved by the Food and Drug Administration.
The report's authors, Aaron S. Kesselheim of Brigham and Women's Hospital in Boston and David M. Studdert of the University of Melbourne in Australia, said data on hundreds of whistle-blower lawsuits should be researched to identify what types of allegations turn out to be legitimate and lead to recoveries so that the department can fast-track such cases.
By Kevin Freking
The Associated Press
Where will the 700 BILLION Dollar Bailout go?
HEALTHCARE?
Sun Healthcare Group Inc INSIDER TRADING
Last 10 Insider Actions for Sun Healthcare Group Inc
Date Name Shares Stock Transaction
08/25/2008 CHAUNCEY J HUNKER
Chief Compliance Officer 22,500 SUNH Exercise of Stock Options
at cost of $173,475.00
08/22/2008 RICHARD L PERANTON
President 4,934 SUNH Exercise of Stock Options
at cost of $40,508.13
08/22/2008 RICHARD L PERANTON
President 2,478 SUNH Exercise of Stock Options
at cost of $19,452.29
08/22/2008 RICHARD L PERANTON
President 84 SUNH Exercise of Stock Options
at cost of $647.63
08/22/2008 RICHARD L PERANTON
President 300 SUNH Open Market Sale
proceeds of $5,088.00
08/22/2008 RICHARD L PERANTON
President 1,703 SUNH Open Market Sale
proceeds of $28,865.84
08/22/2008 RICHARD L PERANTON
President 800 SUNH Open Market Sale
proceeds of $13,536.00
08/22/2008 RICHARD L PERANTON
President 2,800 SUNH Open Market Sale
proceeds of $47,348.00
08/22/2008 RICHARD L PERANTON
President 1,600 SUNH Open Market Sale
proceeds of $27,040.00
08/22/2008 RICHARD L PERANTON
President 2,797 SUNH Open Market Sale
proceeds of $46,989.59
Next Transactions
Copyright © 2006 FactSet Research Systems Inc. All rights reserved.
Sun Healthcare Group Inc INSIDER TRADING
Last 10 Insider Actions for Sun Healthcare Group Inc
Date Name Shares Stock Transaction
08/25/2008 CHAUNCEY J HUNKER
Chief Compliance Officer 22,500 SUNH Exercise of Stock Options
at cost of $173,475.00
08/22/2008 RICHARD L PERANTON
President 4,934 SUNH Exercise of Stock Options
at cost of $40,508.13
08/22/2008 RICHARD L PERANTON
President 2,478 SUNH Exercise of Stock Options
at cost of $19,452.29
08/22/2008 RICHARD L PERANTON
President 84 SUNH Exercise of Stock Options
at cost of $647.63
08/22/2008 RICHARD L PERANTON
President 300 SUNH Open Market Sale
proceeds of $5,088.00
08/22/2008 RICHARD L PERANTON
President 1,703 SUNH Open Market Sale
proceeds of $28,865.84
08/22/2008 RICHARD L PERANTON
President 800 SUNH Open Market Sale
proceeds of $13,536.00
08/22/2008 RICHARD L PERANTON
President 2,800 SUNH Open Market Sale
proceeds of $47,348.00
08/22/2008 RICHARD L PERANTON
President 1,600 SUNH Open Market Sale
proceeds of $27,040.00
08/22/2008 RICHARD L PERANTON
President 2,797 SUNH Open Market Sale
proceeds of $46,989.59
Next Transactions
Copyright © 2006 FactSet Research Systems Inc. All rights reserved.
rightchange.com Just how ignorant do you think Americans are?
Before you look at the websites list for'Obamanamics' , let us look at President Bush's 'Proclamation' on June 13,2003.
Yes, 2003!
For Immediate Release
Office of the Press Secretary
June 13, 2003
National Homeownership Month, 2003
By the President of the United States of America
A Proclamation
Homeownership is more than just a symbol of the American Dream; it is an important part of our way of life. Core American values of individuality, thrift, responsibility, and self-reliance are embodied in homeownership. I am committed to helping more families know the security and sense of pride that comes with owning a home.
The Department of Housing and Urban Development is leading an Administration-wide effort to bring new tools and resources to would-be homeowners. We are providing financial assistance to qualified families through the American Dream Downpayment Fund, funding educational programs that stress financial literacy, and offering a compassionate hand to those who dream of moving from subsidized housing into homeownership. And through the Self-Help Homeownership Opportunity Program, my Administration partners with nonprofit organizations that offer homeownership oppor-tunities to families willing to contribute their skills and labor to help build a home of their own. We are also proposing ways to make it easier to shop for a mortgage and to make mortgages available to more families through the Federal Housing Administration.
Today, the United States is fortunate in that our homeownership rate is at an all-time high, and low interest rates continue to encourage millions of Americans to become first-time homeowners. Although a record number of Americans own their own homes, we continue to see a gap between the homeowner-ship rates of minorities and nonminorities. By a significant margin, minority families are less likely to own their own homes. Therefore, I have called upon the entire housing industry to join with my Administration to expand minority homeownership across the Nation. Our goal is to help at least 5.5 million minority families become homeowners by the end of this decade, and our Blueprint for the American Dream Partnership is taking bold steps to make this a reality.
Below is on this so-called non-profit disguise of REPUBLICANS.
10 Things You Need to Know About Senator Obama’s Tax Proposals
Under the tax plans of Barack Obama and his Democratic friends in Congress, American families will only be left with… the change in their pockets.
In 2009, Barack Obama and the Democratic Congress have an idea for a bill. Well, really, it’s a lot of bills that will be paid for by nearly every American in the form of higher taxes and higher costs for food, energy and other products.
So if you have a retirement account, work in or shop at a small business, are close or in retirement, or even flip on a light switch, then there are a few things that you should consider.
Under that plan:
Small main street businesses would be forced to pay tax rates as high as 62.3% under Senator Obama’s tax proposals.1
Senator Obama’s tax plan would tax small businesses at a higher rate than large corporations!2
Taxes on retirement income and savings could increase by at least 33%, hitting millions of seniors when they need these resources the most.3
4 million workers over the age of 50 – those eagerly looking forward to retirement – would be hit with increased tax bills. 4
Millions of Americans would only keep 38 cents of every dollar that they earn.5
Senator Obama’s tax plan would reduce the after tax wages of millions of workers by 17.7%.6
It will take 227 days per year, nearly 8 months, just to pay your tax bill!7
97,065 carpenters, 110,908 police officers, 254,992 nurses, 208,562 postsecondary teachers and 237,000 dentists would see tax increases, if the earnings cap was successfully eliminated.8
10.3 million workers would see an average of $5,650 taken from their paycheck and given to government programs.9
Even YOU might be considered “Rich.”
But don’t just take our word for it.
Be a geek. Click Here. Learn More.
Citations
Yes, 2003!
For Immediate Release
Office of the Press Secretary
June 13, 2003
National Homeownership Month, 2003
By the President of the United States of America
A Proclamation
Homeownership is more than just a symbol of the American Dream; it is an important part of our way of life. Core American values of individuality, thrift, responsibility, and self-reliance are embodied in homeownership. I am committed to helping more families know the security and sense of pride that comes with owning a home.
The Department of Housing and Urban Development is leading an Administration-wide effort to bring new tools and resources to would-be homeowners. We are providing financial assistance to qualified families through the American Dream Downpayment Fund, funding educational programs that stress financial literacy, and offering a compassionate hand to those who dream of moving from subsidized housing into homeownership. And through the Self-Help Homeownership Opportunity Program, my Administration partners with nonprofit organizations that offer homeownership oppor-tunities to families willing to contribute their skills and labor to help build a home of their own. We are also proposing ways to make it easier to shop for a mortgage and to make mortgages available to more families through the Federal Housing Administration.
Today, the United States is fortunate in that our homeownership rate is at an all-time high, and low interest rates continue to encourage millions of Americans to become first-time homeowners. Although a record number of Americans own their own homes, we continue to see a gap between the homeowner-ship rates of minorities and nonminorities. By a significant margin, minority families are less likely to own their own homes. Therefore, I have called upon the entire housing industry to join with my Administration to expand minority homeownership across the Nation. Our goal is to help at least 5.5 million minority families become homeowners by the end of this decade, and our Blueprint for the American Dream Partnership is taking bold steps to make this a reality.
Below is on this so-called non-profit disguise of REPUBLICANS.
10 Things You Need to Know About Senator Obama’s Tax Proposals
Under the tax plans of Barack Obama and his Democratic friends in Congress, American families will only be left with… the change in their pockets.
In 2009, Barack Obama and the Democratic Congress have an idea for a bill. Well, really, it’s a lot of bills that will be paid for by nearly every American in the form of higher taxes and higher costs for food, energy and other products.
So if you have a retirement account, work in or shop at a small business, are close or in retirement, or even flip on a light switch, then there are a few things that you should consider.
Under that plan:
Small main street businesses would be forced to pay tax rates as high as 62.3% under Senator Obama’s tax proposals.1
Senator Obama’s tax plan would tax small businesses at a higher rate than large corporations!2
Taxes on retirement income and savings could increase by at least 33%, hitting millions of seniors when they need these resources the most.3
4 million workers over the age of 50 – those eagerly looking forward to retirement – would be hit with increased tax bills. 4
Millions of Americans would only keep 38 cents of every dollar that they earn.5
Senator Obama’s tax plan would reduce the after tax wages of millions of workers by 17.7%.6
It will take 227 days per year, nearly 8 months, just to pay your tax bill!7
97,065 carpenters, 110,908 police officers, 254,992 nurses, 208,562 postsecondary teachers and 237,000 dentists would see tax increases, if the earnings cap was successfully eliminated.8
10.3 million workers would see an average of $5,650 taken from their paycheck and given to government programs.9
Even YOU might be considered “Rich.”
But don’t just take our word for it.
Be a geek. Click Here. Learn More.
Citations
Wednesday, September 24, 2008
Federal Prosecutors in Columbus Ohio 'larger than Enron'
I oppose the proposed bailout plan because we have not even addressed the root of this problem. We hear deregulation but that is not good enough.
I believe someone needs to address the' PONZI Scheme' that was created all the way back to 1999, during the Republican Congress.
The largest 'private' bankruptcy, dubbed by Federal Prosecutors in Columbus Ohio 'larger than Enron' with National Century Financial Enterprises, Inc.(NCFE). The CEO and VP Executive, who by chance was an ex-employee of HCA/TN and Richard Rainwater, GW Bush's ex-partner. This was a healthcare dumping ground for those entities affected by Welfare Reform.
Where is the 700 Billion going? To JP Morgan? It was in 2007, after all, when JPMorgan Chase financed Richard Rainwater’s REIT,Crescent (CEI) sale, just before the Real Estate bust; which all experts thought was a loser.
Then, in 2003, who or what was involved in the " Administration-wide effort to bring new tools and resources to would-be homeowners.” ?
In 2003? NewTools? New Resources?
For Immediate Release
Office of the Press Secretary
June 13, 2003
National Homeownership Month, 2003
By the President of the United States of America
A Proclamation
Homeownership is more than just a symbol of the American Dream; it is an important part of our way of life. Core American values of individuality, thrift, responsibility, and self-reliance are embodied in homeownership. I am committed to helping more families know the security and sense of pride that comes with owning a home.
The Department of Housing and Urban Development is leading an Administration-wide effort to bring new tools and resources to would-be homeowners. We are providing financial assistance to qualified families through the American Dream Downpayment Fund, funding educational programs that stress financial literacy, and offering a compassionate hand to those who dream of moving from subsidized housing into homeownership. And through the Self-Help Homeownership Opportunity Program, my Administration partners with nonprofit organizations that offer homeownership oppor-tunities to families willing to contribute their skills and labor to help build a home of their own. We are also proposing ways to make it easier to shop for a mortgage and to make mortgages available to more families through the Federal Housing Administration.
Today, the United States is fortunate in that our homeownership rate is at an all-time high, and low interest rates continue to encourage millions of Americans to become first-time homeowners. Although a record number of Americans own their own homes, we continue to see a gap between the homeowner-ship rates of minorities and nonminorities. By a significant margin, minority families are less likely to own their own homes. Therefore, I have called upon the entire housing industry to join with my Administration to expand minority homeownership across the Nation. Our goal is to help at least 5.5 million minority families become homeowners by the end of this decade, and our Blueprint for the American Dream Partnership is taking bold steps to make this a reality.
I believe someone needs to address the' PONZI Scheme' that was created all the way back to 1999, during the Republican Congress.
The largest 'private' bankruptcy, dubbed by Federal Prosecutors in Columbus Ohio 'larger than Enron' with National Century Financial Enterprises, Inc.(NCFE). The CEO and VP Executive, who by chance was an ex-employee of HCA/TN and Richard Rainwater, GW Bush's ex-partner. This was a healthcare dumping ground for those entities affected by Welfare Reform.
Where is the 700 Billion going? To JP Morgan? It was in 2007, after all, when JPMorgan Chase financed Richard Rainwater’s REIT,Crescent (CEI) sale, just before the Real Estate bust; which all experts thought was a loser.
Then, in 2003, who or what was involved in the " Administration-wide effort to bring new tools and resources to would-be homeowners.” ?
In 2003? NewTools? New Resources?
For Immediate Release
Office of the Press Secretary
June 13, 2003
National Homeownership Month, 2003
By the President of the United States of America
A Proclamation
Homeownership is more than just a symbol of the American Dream; it is an important part of our way of life. Core American values of individuality, thrift, responsibility, and self-reliance are embodied in homeownership. I am committed to helping more families know the security and sense of pride that comes with owning a home.
The Department of Housing and Urban Development is leading an Administration-wide effort to bring new tools and resources to would-be homeowners. We are providing financial assistance to qualified families through the American Dream Downpayment Fund, funding educational programs that stress financial literacy, and offering a compassionate hand to those who dream of moving from subsidized housing into homeownership. And through the Self-Help Homeownership Opportunity Program, my Administration partners with nonprofit organizations that offer homeownership oppor-tunities to families willing to contribute their skills and labor to help build a home of their own. We are also proposing ways to make it easier to shop for a mortgage and to make mortgages available to more families through the Federal Housing Administration.
Today, the United States is fortunate in that our homeownership rate is at an all-time high, and low interest rates continue to encourage millions of Americans to become first-time homeowners. Although a record number of Americans own their own homes, we continue to see a gap between the homeowner-ship rates of minorities and nonminorities. By a significant margin, minority families are less likely to own their own homes. Therefore, I have called upon the entire housing industry to join with my Administration to expand minority homeownership across the Nation. Our goal is to help at least 5.5 million minority families become homeowners by the end of this decade, and our Blueprint for the American Dream Partnership is taking bold steps to make this a reality.
Tuesday, September 23, 2008
Paulsen, "...protecting the global financial network "
Transcript
A Conversation with Henry Paulson [Rush Transcript; Federal News Service]
Speaker: Henry M. Paulson, U.S. Secretary of The Treasury
Presider: Peter Ackerman, Managing Director, Rockport Capital, Inc.
October 24, 2007
Council on Foreign Relations
Council on Foreign Relations
Washington, DC
Audio
Oct 2007, Henry M. Paulson, U.S. Secretary of The Treasury
"...we need to get some market access in areas where we're already open and market access in services and financial services and non-agriculture and which is where the biggest part of the global economy is. "
"...head of investment banking in 1990.." at Goldman Sachs
"...Both India and the United States recognize that an integrated world economy requires protecting the global financial network against those who want to harm our people and our free economic systems by financing terrorism, weapons proliferation or other dangerous illicit activity. "
--------------------------------------------------------------------------------
PETER ACKERMAN: Good afternoon. My name is Peter Ackerman. I'm a member of the Council's board, and I want to welcome you today to this meeting, which I think is going to be quite exciting to participate in.
Please turn off all your electronic equipment that can go beep. And I'd like to remind everyone here that -- (laughs) -- I'd like to remind everybody here that this meeting will be on the record.
I'm going to introduce the secretary. And then, because his time is a little constrained, I'm going to forgo my rights as presider and he's going to actually select people for Q&A from the group.
Henry M. Paulson Jr., on June 19th, 2006 was nominated by President Bush to be the 74th secretary of the Treasury. A mere nine days later, he was unanimously ratified by the Senate and then sworn into office on July 10th, 2006 by Supreme Court Chief Justice John Roberts.
As Treasury secretary, as you know, Secretary Paulson is the president's leading policy advisor on a broad range of domestic and international economic issues. Secretary Paulson also had an extraordinary career at Goldman Sachs, which he joined in 1974 and became a partner in 1982, then head of investment banking in 1990, then president and chief operating officer four years after that. And then when the public offering occurred, he became the chairman and CEO.
He also had a stint in government, so prior to Goldman Sachs he was on the White House domestic staff serving as the staff assistant to the president from 1972 to '73, and just before that as a staff assistant to the assistant secretary of Defense from 1970 to '72.
The secretary is a graduate from Dartmouth and Harvard Business School. And what impresses me the most, besides being a Phi Beta Kappa, he was all-East, honorable mention all-American football player.
So with no more introduction, I'd like to welcome the secretary. (Applause.)
SECRETARY HENRY PAULSON: Thank you very much, Peter. And it's very good to be with the Council here in Washington today. I appreciate the opportunity to talk with you about the economic power and the promise of India.
Earlier this year, Prime Minister Singh referred to India's history as an open house -- an open society, open to the free flow of ideas and scholarship. I will travel to India next week. I look forward to being a guest in India's house.
My objective is to pay tribute to the strong, growing partnership between India and the United States. I hope to help the Indian government advance their economic reform agenda, which will benefit India's citizens and the world.
India is a vibrant nation whose strength lies in its commitment to equal rights and to speech, religious and economic freedoms that enrich the lives of all citizens. India is not only the world's largest democracy; it is also a secular, pluralistic society committed to inclusive growth.
Through President Bush and Prime Minister Singh's leadership, political, economic and cultural ties between the United States and India have never been stronger. These ties enjoy bipartisan support in both countries. In the last few years we have launched major initiatives in areas including counterterrorism cooperation, space research, clean energy, agriculture, education and economic development.
The historic agreement on civilian nuclear cooperation is an important part of the U.S.-India relationship, and it is beneficial to both countries. India is one of the world's largest and most peaceful states with advanced nuclear technologies and has been isolated from the rest of the world on nuclear issues.
This agreement will bring India into the nuclear nonproliferation mainstream, providing access to the technology which can help it reach its economic and environmental objectives. The United States remains committed to this agreement.
The ties of our governments are, in some sense, catching up to the long history of personal and professional friendship among Indians and Americans. For decades, Indians have immigrated to the United States, joined our communities, and raised their families while maintaining their cultural heritage.
Indian-Americans are physicians, engineers, CEOs, professors, teachers, entrepreneurs. They are a vital part of the United States' economic and social fabric. Because of this long history, the bonds among our people and our cultures will remain strong.
Prime Minister Singh is to be commended for beginning the process of transforming India into a global economic power by initiating economic liberalization in the early 1990s. These economic reforms have continued at varying speed through the past 15 years, regardless of the party in power.
Observers do not question whether India's reforms will continue. They ask only about the pace. The great Indian poet, Tagore, wrote that he had become his own version of an optimist. He said, "If I can't make it through one door, I'll go through another door or I'll make a door." The revolution in Indian economic thinking is making doors and invigorating the Indian economy.
India is a young country with a young population that will be looking for stable, well-paying jobs to support their families. These reforms will help provide the jobs they will need.
Through dramatic increases in mutual trade and foreign direct investment, the United States has been a partner in India's economic emergence. In the last few years, Indian exports to the United States have more than doubled to $21 billion, while the U.S. exports to India have doubled to $10 billion.
Similarly, investment flows have increased dramatically. Last year Indian firms invested $2 billion in the United States and U.S. companies invested about $2 billion in India.
As the Indian government has embraced greater economic openness, the creativity and expertise of the Indian workforce has been unleashed onto the world economic stage. We share Indian policymakers' belief that market-based policies and programs will spread opportunities to all levels of society, reaching ahm adni (ph) -- the common man.
The success of India's software industry is often told, and the story bears repeating here. Through the combination of expertise aimed at the Indian -- excuse me -- gained at the Indian Institute of Technology and through innovative thinking, Indian industry has demonstrated that it can, as the CEO of an Indian software company recently said, take the work from any part of the world and do it in any part of the world.
India's GDP grew nearly 10 percent in 2006 compared to the world average of five and a half percent. India's economic reforms have taken root. And by accelerating them, the government can help ensure that India's growth rate will be, as projected, at least 8 percent for the foreseeable future. I am optimistic about India's economic prospects.
In pursuing economic growth, India and the United States share similar values and similar challenges. We understand that the global economy is here to stay. To keep growing and leading the world in innovation and opportunity, the United States and India must trade freely, openly, and according to the principles of the global marketplace.
Trade also brings a wider variety of lower-priced goods, and this especially benefits lower-income citizens. I look forward to talking with the Indian government about making progress in the Doha Development Round.
Working together to successfully conclude the Doha agreement will be the single most effective thing we can do to help raise living standards in India and around the world. A Doha agreement is within reach, and the potential is so great that we must not let it slip through our grasp.
We also understand how rapidly changing economies can lead to uncertainty, causing many to doubt that trade brings greater benefits than costs. Together, India and the United States must resist this protectionist sentiment.
I'm committed to working to maintain an open trade and investment climate in the United States. Both India and the United States recognize that an integrated world economy requires protecting the global financial network against those who want to harm our people and our free economic systems by financing terrorism, weapons proliferation or other dangerous illicit activity. We will continue implementing financial systems safeguards to help ensure our countries and our citizen's security.
The U.S. and India also share the challenge of ensuring secure and clean energy supplies. We understand that economic growth and environmental responsibility are necessary, compatible goals. Moving forward with the civilian nuclear agreement is one part of that solution. Working together in a post-2012 framework, the U.N. climate change process is another.
It is in the best interests of India, the United States and the world for India to continue and even accelerate the pace of economic reform and openness. As with any democratic transformative effort, India faces political challenges -- something the United States also knows well. The government is to be applauded for what it has already accomplished, and encouraged to move forward. We stand with them as a partner as they do so. Other countries are also developing financial sophistication and global integration. If India slows its pace now, it risks losing the ground it's already worked so hard to gain.
Now, let me talk about two areas where the United States, and particularly the Department of Treasury, want to be partners with India in advancing reform and inclusive economic growth. First, by assisting the government's plan to finance physical infrastructure improvements, which will benefit Indian families' daily lives and fuel the economy. Second, by supporting steps to strengthen and expand India's financial system by building an international financial center -- a so-called IFC in Mumbai. Achieving these two goals will require a firm commitment to adopt international standards and to move forward aggressively with reforms, despite political risks.
The Indian government estimates that to further transform its economy it needs to spend close to $500 billion over the next five years to build physical infrastructure that will deliver power to cities and villages and transport people and goods to market. Given India's fiscal constraints, it is looking to the private sector to fund up to one-third of this needed investment. The United States wants to support this effort to attract private financing. During my trip, I will participate in the India Infrastructure Financial Conference in Mumbai. At that conference and afterwards, we will highlight the opportunity of India's infrastructure initiatives to U.S. businesses.
This infrastructure investment is important to helping India achieve its second green revolution, which is what Prime Minister Singh has called for. Our private sectors must take an active role in developing sophisticated agricultural markets in India where farmers can tap modern supply chains and processing technologies to improve their productivity and to improve the lives of their families. The government can do more to encourage this private investment by establishing more hospital investment, regulatory and financial regimes. Capital limitations, combined with ongoing uncertainty about contract enforcement and regulatory consistency will make infrastructure investment more difficult to obtain.
Let me now turn to the expansion of India's financial sector, especially establishing a financial center in Mumbai. In 2006, Prime Minister Singh said that it is possible for Mumbai to emerge as a new financial capital of Asia and be the bridge between Asia and the West in the world of finance. Properly regulated, a well-functioning financial markets are critical for a balanced development and strong, inclusive growth. This is an area of enormous opportunity for India. Officiate markets link capital with ideas and ambition. They are the economic lifeblood through which people find the means to rise out of poverty. This is true in India, in the United States and around the world.
Today Indian firms in Bangalore play a key role in the back office operations of multinational firms. In this, India has revolutionized forever the way the world does business. The next step is for India to develop front offices in Mumbai and provide financial services to companies and investors in and across the region. By establishing an IFC in Mumbai, India will build a financial system that will help large and small businesses. Shopkeepers, farmers and craftsmen need access to credit, financial and insurance products, as much as the large industrial manufacturers need this access. The Indian government has recognized this need and commissioned a report from a high-powered expert committee. The committee's report outlined a requirement and a timetable for developing an IFC in Mumbai. The report is bold, thorough and ambitious. I believe it is the right path.
A financial footprint in Mumbai makes a door through which the world can invest in India and India can invest in the world. Equally importantly, it gives India an important stake in the rapidly growing global financial services industry. The report identifies the needed changes to fiscal and monetary policy and to financial regulation. It also outlines that Mumbai's own urban infrastructure must be improved. This demonstrates the wisdom of the Indian government's emphasis on physical and financial infrastructure improvements. Both goals must be met in order to achieve the transition that will provide inclusive growth.
India has already made significant accomplishments in developing its financial sector and the economy has responded positively. India's stock and commodities exchanges are thriving. Since deregulation, the asset management industry has grown and now manages over $100 billion in assets. By reducing constraints on financial firms, India's government can foster a more efficient allocation of financial resources. This will help free capital to finance infrastructure investment, develop new innovations in other industries and extend financial services to a larger portion of the population. India's large and growing middle class stands to benefit from new financial products that will help them to achieve home ownership and to invest in the best possible education for their children.
Many of the world's leading financial firms have already opened offices in Mumbai. They're eager to do their part in building an international financial center. I urge my Indian colleagues to move forward quickly on the recommendations of their expert committee report. The United States will continue as a partner with India in its economic transformation.
Treasury and the Finance Ministry have led an ongoing dialogue for several years among U.S. and Indian regulators to share experiences and best practices. We will kick off another session to help advance the Indian government's economic reform agenda. When I am in New Delhi next week, Mumbai's development into an IFC is an important element of that agenda. U.S. experience can help the Indian government and industry as they work to develop an IFC in Mumbai. And the private sector stands ready to share their experiences in dealing with the development of domestic bond markets and other elements that create the backbone of a financial center.
We understand that the Indian officials are concerned that the greater capital flows associated with a financial center can add to inflationary pressures, destabilize the domestic financial sector or add to exchange rate volatility. For the most part, India's on the right path to reduce these risks. India has allowed greater flexibility in the exchange rate in recent months and the appreciation of the rupee has helped to reduce inflationary pressures. India has also taken administrative steps to adjust the pace of capital outflows and inflows.
As recent experience in the region has shown, administrative restrictions of capital flows are blunt instruments and can have unintended consequences. They tend to inhibit efficiency and lose their effectiveness over time. I encourage India to continue liberalizing such restrictions. Steps abroad to deepen the domestic financial sector will also help to mitigate the risk posed by greater capital flows.
India's development plans will require additional capital, innovative financial instruments, and a commitment to financial openness. Recent growth in India's savings base and in the number of global firms setting up shop in India suggest that all of this is possible, that India can be a significant exporter of financial flows and investment in the years ahead. The development of Mumbai as a financial center will take some years to come to fruition. Nonetheless, it is a path worth taking, a path that will yield benefits all along the way for India and for the global economy.
The remarkable growth brought about by India's economic reforms has proven the wisdom of those reforms and their promise for the future. As Prime Minister Singh said, "India is an open house. It can become more open, more integrated into the global economy." This will bring the inclusive growth, which is India's aim: an economy in which small -- the small farmer, the craftsman and the next Indian entrepreneur with a dream makes the door and fulfills that dream. India and the United States have made a very good start on delivering on our new partnership, and we can do more to reach our full strategic and economic potential. I look forward to learning from my Indian colleagues during my visit and to working with them on these and future initiatives.
Thank you, and I welcome your questions. Thanks. (Applause.)
ACKERMAN: Do you want to stay up there and answer from the podium, or --
PAULSON: Yeah. Yeah, sounds good to me.
ACKERMAN: Okay.
PAULSON: So you'll pick --
ACKERMAN: Okay, we'll take time, so -- yes.
QUESTIONER: Mr. Secretary, I'm Teresita Schaffer. I'm retired Foreign Service India and I now run the South Asia Program at CSIS.
I was very interested in -- (off mike) -- you said that you wanted to concentrate on. And I wonder if you could say a bit more about what you see as the vehicle for infrastructure improvements. I know there's been some sense that there was a need to find ways of insulating those who would invest in infrastructure from the vagaries of politics and -- (off mike). Have you found -- (off mike) -- our Indian friends found ways of doing this?
PAULSON: Okay. Well, let me say you obviously know your topic well, and the -- I think the biggest concern on the part of foreign investors are sanctity of contracts, the way the regulatory system works, and so on. I think this government is doing a good job of working through a number of the outstanding commercial disputes and issues out there, and we don't have -- I don't have anything that overnight will solve this problem. But what we're going to be doing -- and this trip is built around a very big conference on infrastructure finance where you're going to -- it's going to be heavily attended by the private sector and by the government.
And given the size of India's needs and how key this infrastructure development is for the kind of inclusive economic growth this country is going to need, I look at it -- I think -- and a fund that has been -- I think there's been some good work that's already been done. And one of the things that I've -- you know, that I've been a small part of in attending the meetings has been this CEO forum with the CEOs of both countries. And I think it's pretty unique the way this works because you get -- you know, you get the key government leaders in there also and, again, working on tangible steps -- sometimes very small steps. And so we've have a number of banks come together with an infrastructure fund, again focusing on taking small and important steps.
So I think what we -- what you're going to see is you're going to see some positives come out of this and you'll see more private-sector investment, and we just have to keep building on success. But ultimately, the question you've raised is the big question hanging over the capital markets and the investment there.
Okay, let me -- we've got plenty of time. Let me go right to the woman right in front of me and then we'll go to this side and --
QUESTIONER: Thank you very much. I'm Paula Stern, former chairwoman of U.S. International Trade Commission.
And I would like to ask you to go back and discuss the flexibility of the exchange rates in India, the value of the rupee and what they have done, and invite you to contrast what the U.S. diplomacy has been there with regard to India and compare it with that of China. And see if you can help us understand what the magic formula was that's been successful in India.
PAULSON: Well, let me say this is about India, not about China. I'll talk about China later.
But I would say we have -- we have, in India, a -- we've seen real exchange-rate flexibility. And you know, when an exchange rate is in a competitive marketplace, it makes the difference. And India has a system that allows for that and, you know, there's a fair mount of pushback and concern in India among some that are concerned with the policy there. But you do see that the rupee has -- based upon the underlying strength and underlying economic fundamentals, it's appreciated. That has not slowed India's growth. And we -- and inflation seems to be -- seems to be under control, and so that's a very good thing.
And now there's been some movement to say, "Well, we need to be concerned about capital flows and so on." And again, I'm a big believer in market-driven means.
Now, again, as I said, China is in a different stage of development and no one has argued -- I have not argued that China is ready to have a totally market-determined exchange right now. But they need to get the part -- point where they can have one, and -- because it's of a -- of -- as I said, an unnatural act to be as integrated as they are into the global economic system and to goods and services and not when you look at financial markets. So what we're encouraging them to do is to move more quickly to appreciate in the short term so that you can have a currency that's more reflective of the market and send the proper market signals through their economy and around the world, and then make the kinds of changes in their capital markets they're going to need to make to get to the point where they could have a market-determined currency.
But I tend to -- I think what's happened in India here has been -- it's been good news in terms of what they've done with the exchange rate, and I'll just be encouraging them to stay the course and not backslide.
Thank you.
Yes, we'll go -- I don't want you to think I'm only -- I am right-handed, but I'll -- but I will --
QUESTIONER: Thank you. Mr. Secretary. Paul Marino (ph), EIR News.
I wanted to ask you about M-LEC, Congress and protectionism. It seems in light of the discussion around the Master-Liquidity Enhancement Conduit that Congress is considering many bills which are of more of a protectionist nature, maybe to freeze the mortgage sector or reconstitute our chartered banks. So Mr. Secretary, wouldn't prudence demand that we further this dialogue and offer our policies to India of a more protectionist nature for industrial development?
PAULSON: Well, let me just say that we have protectionist sentiment everywhere in the world today, and it is -- I would say if you had to say what's sort of the number one issue that I deal with and I'm concerned about in this country and in virtually every other part in the world, it is that the lessons for the last 30 years have been those countries that have liberalized, gone to market-based reforms, opened up investment and finance have benefited. Other have been left behind. But we -- there is great concern today in many places that somehow or other, in country after country, they can't compete or that foreign investment will be bad or harmful somehow or that the trade will be a negative. And of course, I believe we need to do absolutely the opposite.
And so it's just -- it's clear, and I think we need to do a better job. And I think policymakers need to do a better job explaining the benefits because the dislocations and the problems are very visible to everyone, and many of them have got nothing to do with trade. They have to do with automation and technology. And people are never saying, "Well, we think we should turn off the Internet or turn technology back." So a lot of it trade gets blamed and a lot of this is about skills and really getting, you know, the skills that people need to compete and do well in today's world. Yes?
QUESTIONER: Mr. Secretary -- I don't know if this is on -- my name is Clay Swisher. I'm a new term member. I'm with the Middle East Institute. Thanks for your remarks today. It helps put into perspective an article that was in "Foreign Affairs", this latest edition by Nick Burns over at State regarding I guess the warming of U.S.-India relations, and I'm wondering if you can explain given in India's neighborhood with Pakistan the internal crisis that's happening there as well as the unresolved issue of Kashmir, what's Pakistan going to have to say about all this? How are they going to interpret these moves?
PAULSON: Well, again, I think what I'm -- all I can say is, you know, there's been some positive developments in a number of areas and I tend to be a glass half full rather than half empty person and so I think the fact that India and Pakistan have a constructive dialogue and that they're working together and sharing information in the counterterrorism area -- that they're talking about difficult sensitive issues like Kashmir is all to the positive, and our only position on this is that it be resolved in a constructive way and taking into account the interests of the people in Kashmir. Okay, let me -- there.
QUESTIONER: Secretary -- (off mike) -- you mentioned that the -- India's growth rate for the foreseeable future was growing at about 8 percent annually -- (inaudible). What's the quid pro quo on this for the United States in terms of our growth rate here? Do you see something there you could translate -- (inaudible)?
PAULSON: To the -- I can't equate the -- their growth rate directly to ours but what I can say is something I see quite strongly, and I'm glad you asked the question because many people, you know, and it's part of the -- it's -- of a protectionist sentiment -- they're not understanding global economics and so there is a tendency for some people to think because India is doing well this will be bad for the U.S. and that somehow or other, you know, we're competing with them in a way in which the faster they grow the worse it will be for us, and it's exactly the opposite -- exactly the opposite.
Right now, one of the biggest things we've got going for us we have a very -- we have a healthy economy in the U.S. but we have exceptionally strong growth outside of the U.S. and a big part of that growth is in developing countries around the world. Developing countries are growing twice the fast -- twice as fast the major developing countries as to developed countries are and three times as fast as they did in the 1990s. And this is helping all of us and the thing that we should be -- if people want to be concerned about something it wouldn't be that India would continue to do well -- it would be if India wouldn't do as well or some of the other major developing countries didn't do as well that would not help us.
So again, this is a situation where for a number of years we were the engine of growth around the world. We are very important to global growth given the size and importance of our economy but it's nice right now. We're going through a period where our exports are growing much faster than our imports and growth we're seeing around the world is very much helping the U.S. economy today. Yes?
QUESTIONER: Mr. Secretary, my name is Sidney Weintraub. I'm with the Center for Strategic and International Studies.
You emphasize the importance of trade and the Doha Round. My understanding is that India together with Brazil recently has been reluctant to open its market, particularly to manufactured goods. How are you going to deal with that issue when you get there?
PAULSON: I tell you, this is an informed audience. I will say that, and you're asking the right questions and we -- obviously Sue Schwab, you know, our trade representative, is leading that effort. I talk with her regularly. I had an opportunity to talk with her again this morning about it. You are right that -- well, first of all let me say that Doha has never been more important given the protectionist sentiment around the world and given some of the issues that are going on in the capital markets, and Doha is still very much within reach. It's not easy but it is very much in reach, and the key to Doha is going to be market access in some of the major developing countries. You mentioned two of them -- Brazil and India -- some of the major developing countries that have been pushing the developed countries to further open their markets, which are already quite open, and have been resisting opening theirs.
And so we need real access and, you know, with India we're not -- there's all the conversation about agriculture and subsistence farmers and everybody understands that issue but it is -- we need more movement in the non-agriculture -- in the manufacturing tariffs and in services. And I think a very interesting lesson for India is in areas where they've either been liberalized or they never were very regulated to begin with India does great. Look at the whole IT software area. Look at airlines -- certain areas of the manufacturing.
So I think part of it is for them and it's -- we have these issues at every country for them to have the confidence that they will benefit and grow as they open up markets and as they liberalize. But you're right -- that is, seeing movement from India and Brazil and giving some market access and again, some of the countries that have had the most to gain from the global trading system and have benefited the most from it need now to be willing to buy into the system and be prepared to provide more access into their markets. Okay. Yes, in the front, and then I've got time after this for one more question so this'll be the last -- this one and then one more.
QUESTIONER: Jeff Pryce, Steptoe & Johnson. Thank you, Mr. Secretary.
I wonder if you could talk about the benefits that a bilateral investment agreement such as India has with other capital exporting countries would have for encouraging American investment in India and particularly addressing the regulatory environment issues that were mentioned and what the prospects are for negotiation of such an agreement.
PAULSON: Well, I think -- again, a very good question. It's one I've thought about a lot and I've had some preliminary conversations with the Indians on this and, again, to complete a deal and I think these deals have got great value because it provides -- it -- they provide protections and comfort for investors and normally countries -- but both sides have got to want to pursue an agreement like this, and normally our counterparties who are willing to sign these agreements usually do so because they either have a strong need to attract foreign investment or they are using them to help them bring about reforms -- one or the other.
And we have -- I think the Indian government and the finance minister and others when I've talked about it they're quite willing to talk about investment and the importance of investment. I think it is a tougher issue, some of the things that we normally ask for -- protections, intellectual property, other things that go along with these investments.
So the way I tend to think about investment is there's no country I go to -- well, maybe there's -- I can't think of any where we don't talk about investment and what we need to do. We're open for investment in the U.S., encouraging investment, talk about some of the issues and concerns some countries have around the CFIUS process or what have you and then we talk about -- I'm all the time talking about opening up for U.S. investment and for competition and investment because it's been a key to our development and to our growth, and it's one of the big keys to our success. And so we talk about it and we talk about it in tangible steps, but to conclude a formal bet is a major undertaking and many of our trading partners aren't ready to do such a thing. Okay. One more -- I'm going to go way to the back.
QUESTIONER: Secretary Paulson, Jim Moody, Merrill Lynch.
You talked about the Doha Round -- the importance of that and, of course, we all agree. One of the strong inhibitions to raising countries out of poverty people -- countries like India and Pakistan and those areas -- is American subsidies to our agriculture that makes their agriculture less competitive. I know that's not your direct portfolio -- agricultural subsidies -- but are you -- do you weighed (sic) or your people weighed in on those -- that topic? Europe, of course, is much worse than we but we have a major problem vis-a-vis countries that export agriculture.
PAULSON: Well, I would just simply say this. People point to that all the time because there are few other areas that -- in the U.S. that -- where they can point to issues like the subsidy, and what I say and I'm -- you know, I've learned a lot about that since coming to Washington and I deal with that very directly with my counterparts because I say the U.S. has moved in showing a willingness to move. We are quite comfortable negotiating with the tax, okay? If we don't complete an agreement this will not have to do with the U.S. and ag subsidies and supports. It will not.
It will be we -- we're negotiating with them to -- in the tax and we can do what we need to do. The key thing is going to be what I pointed to and this is not -- I'm not one for pointing fingers -- I'm never going to point a finger at one particular country but it really is -- we need to get some market access in areas where we're already open and market access in services and financial services and non-agriculture and which is where the biggest part of the global economy is. That's where the economic growth is going to come from and that's going to benefit the countries that provide that much more than it does all the rest of us because that will help them develop strong economies that are competitive, first-rate financial services, and so on. So anyway that's why it's not hard to get me going on that topic. (Laughter.) Thank you all.
ACKERMAN: Thank you, Secretary. (Applause.) Thanks so much. Good job.
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THIS IS A RUSH TRANSCRIPT.
A Conversation with Henry Paulson [Rush Transcript; Federal News Service]
Speaker: Henry M. Paulson, U.S. Secretary of The Treasury
Presider: Peter Ackerman, Managing Director, Rockport Capital, Inc.
October 24, 2007
Council on Foreign Relations
Council on Foreign Relations
Washington, DC
Audio
Oct 2007, Henry M. Paulson, U.S. Secretary of The Treasury
"...we need to get some market access in areas where we're already open and market access in services and financial services and non-agriculture and which is where the biggest part of the global economy is. "
"...head of investment banking in 1990.." at Goldman Sachs
"...Both India and the United States recognize that an integrated world economy requires protecting the global financial network against those who want to harm our people and our free economic systems by financing terrorism, weapons proliferation or other dangerous illicit activity. "
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PETER ACKERMAN: Good afternoon. My name is Peter Ackerman. I'm a member of the Council's board, and I want to welcome you today to this meeting, which I think is going to be quite exciting to participate in.
Please turn off all your electronic equipment that can go beep. And I'd like to remind everyone here that -- (laughs) -- I'd like to remind everybody here that this meeting will be on the record.
I'm going to introduce the secretary. And then, because his time is a little constrained, I'm going to forgo my rights as presider and he's going to actually select people for Q&A from the group.
Henry M. Paulson Jr., on June 19th, 2006 was nominated by President Bush to be the 74th secretary of the Treasury. A mere nine days later, he was unanimously ratified by the Senate and then sworn into office on July 10th, 2006 by Supreme Court Chief Justice John Roberts.
As Treasury secretary, as you know, Secretary Paulson is the president's leading policy advisor on a broad range of domestic and international economic issues. Secretary Paulson also had an extraordinary career at Goldman Sachs, which he joined in 1974 and became a partner in 1982, then head of investment banking in 1990, then president and chief operating officer four years after that. And then when the public offering occurred, he became the chairman and CEO.
He also had a stint in government, so prior to Goldman Sachs he was on the White House domestic staff serving as the staff assistant to the president from 1972 to '73, and just before that as a staff assistant to the assistant secretary of Defense from 1970 to '72.
The secretary is a graduate from Dartmouth and Harvard Business School. And what impresses me the most, besides being a Phi Beta Kappa, he was all-East, honorable mention all-American football player.
So with no more introduction, I'd like to welcome the secretary. (Applause.)
SECRETARY HENRY PAULSON: Thank you very much, Peter. And it's very good to be with the Council here in Washington today. I appreciate the opportunity to talk with you about the economic power and the promise of India.
Earlier this year, Prime Minister Singh referred to India's history as an open house -- an open society, open to the free flow of ideas and scholarship. I will travel to India next week. I look forward to being a guest in India's house.
My objective is to pay tribute to the strong, growing partnership between India and the United States. I hope to help the Indian government advance their economic reform agenda, which will benefit India's citizens and the world.
India is a vibrant nation whose strength lies in its commitment to equal rights and to speech, religious and economic freedoms that enrich the lives of all citizens. India is not only the world's largest democracy; it is also a secular, pluralistic society committed to inclusive growth.
Through President Bush and Prime Minister Singh's leadership, political, economic and cultural ties between the United States and India have never been stronger. These ties enjoy bipartisan support in both countries. In the last few years we have launched major initiatives in areas including counterterrorism cooperation, space research, clean energy, agriculture, education and economic development.
The historic agreement on civilian nuclear cooperation is an important part of the U.S.-India relationship, and it is beneficial to both countries. India is one of the world's largest and most peaceful states with advanced nuclear technologies and has been isolated from the rest of the world on nuclear issues.
This agreement will bring India into the nuclear nonproliferation mainstream, providing access to the technology which can help it reach its economic and environmental objectives. The United States remains committed to this agreement.
The ties of our governments are, in some sense, catching up to the long history of personal and professional friendship among Indians and Americans. For decades, Indians have immigrated to the United States, joined our communities, and raised their families while maintaining their cultural heritage.
Indian-Americans are physicians, engineers, CEOs, professors, teachers, entrepreneurs. They are a vital part of the United States' economic and social fabric. Because of this long history, the bonds among our people and our cultures will remain strong.
Prime Minister Singh is to be commended for beginning the process of transforming India into a global economic power by initiating economic liberalization in the early 1990s. These economic reforms have continued at varying speed through the past 15 years, regardless of the party in power.
Observers do not question whether India's reforms will continue. They ask only about the pace. The great Indian poet, Tagore, wrote that he had become his own version of an optimist. He said, "If I can't make it through one door, I'll go through another door or I'll make a door." The revolution in Indian economic thinking is making doors and invigorating the Indian economy.
India is a young country with a young population that will be looking for stable, well-paying jobs to support their families. These reforms will help provide the jobs they will need.
Through dramatic increases in mutual trade and foreign direct investment, the United States has been a partner in India's economic emergence. In the last few years, Indian exports to the United States have more than doubled to $21 billion, while the U.S. exports to India have doubled to $10 billion.
Similarly, investment flows have increased dramatically. Last year Indian firms invested $2 billion in the United States and U.S. companies invested about $2 billion in India.
As the Indian government has embraced greater economic openness, the creativity and expertise of the Indian workforce has been unleashed onto the world economic stage. We share Indian policymakers' belief that market-based policies and programs will spread opportunities to all levels of society, reaching ahm adni (ph) -- the common man.
The success of India's software industry is often told, and the story bears repeating here. Through the combination of expertise aimed at the Indian -- excuse me -- gained at the Indian Institute of Technology and through innovative thinking, Indian industry has demonstrated that it can, as the CEO of an Indian software company recently said, take the work from any part of the world and do it in any part of the world.
India's GDP grew nearly 10 percent in 2006 compared to the world average of five and a half percent. India's economic reforms have taken root. And by accelerating them, the government can help ensure that India's growth rate will be, as projected, at least 8 percent for the foreseeable future. I am optimistic about India's economic prospects.
In pursuing economic growth, India and the United States share similar values and similar challenges. We understand that the global economy is here to stay. To keep growing and leading the world in innovation and opportunity, the United States and India must trade freely, openly, and according to the principles of the global marketplace.
Trade also brings a wider variety of lower-priced goods, and this especially benefits lower-income citizens. I look forward to talking with the Indian government about making progress in the Doha Development Round.
Working together to successfully conclude the Doha agreement will be the single most effective thing we can do to help raise living standards in India and around the world. A Doha agreement is within reach, and the potential is so great that we must not let it slip through our grasp.
We also understand how rapidly changing economies can lead to uncertainty, causing many to doubt that trade brings greater benefits than costs. Together, India and the United States must resist this protectionist sentiment.
I'm committed to working to maintain an open trade and investment climate in the United States. Both India and the United States recognize that an integrated world economy requires protecting the global financial network against those who want to harm our people and our free economic systems by financing terrorism, weapons proliferation or other dangerous illicit activity. We will continue implementing financial systems safeguards to help ensure our countries and our citizen's security.
The U.S. and India also share the challenge of ensuring secure and clean energy supplies. We understand that economic growth and environmental responsibility are necessary, compatible goals. Moving forward with the civilian nuclear agreement is one part of that solution. Working together in a post-2012 framework, the U.N. climate change process is another.
It is in the best interests of India, the United States and the world for India to continue and even accelerate the pace of economic reform and openness. As with any democratic transformative effort, India faces political challenges -- something the United States also knows well. The government is to be applauded for what it has already accomplished, and encouraged to move forward. We stand with them as a partner as they do so. Other countries are also developing financial sophistication and global integration. If India slows its pace now, it risks losing the ground it's already worked so hard to gain.
Now, let me talk about two areas where the United States, and particularly the Department of Treasury, want to be partners with India in advancing reform and inclusive economic growth. First, by assisting the government's plan to finance physical infrastructure improvements, which will benefit Indian families' daily lives and fuel the economy. Second, by supporting steps to strengthen and expand India's financial system by building an international financial center -- a so-called IFC in Mumbai. Achieving these two goals will require a firm commitment to adopt international standards and to move forward aggressively with reforms, despite political risks.
The Indian government estimates that to further transform its economy it needs to spend close to $500 billion over the next five years to build physical infrastructure that will deliver power to cities and villages and transport people and goods to market. Given India's fiscal constraints, it is looking to the private sector to fund up to one-third of this needed investment. The United States wants to support this effort to attract private financing. During my trip, I will participate in the India Infrastructure Financial Conference in Mumbai. At that conference and afterwards, we will highlight the opportunity of India's infrastructure initiatives to U.S. businesses.
This infrastructure investment is important to helping India achieve its second green revolution, which is what Prime Minister Singh has called for. Our private sectors must take an active role in developing sophisticated agricultural markets in India where farmers can tap modern supply chains and processing technologies to improve their productivity and to improve the lives of their families. The government can do more to encourage this private investment by establishing more hospital investment, regulatory and financial regimes. Capital limitations, combined with ongoing uncertainty about contract enforcement and regulatory consistency will make infrastructure investment more difficult to obtain.
Let me now turn to the expansion of India's financial sector, especially establishing a financial center in Mumbai. In 2006, Prime Minister Singh said that it is possible for Mumbai to emerge as a new financial capital of Asia and be the bridge between Asia and the West in the world of finance. Properly regulated, a well-functioning financial markets are critical for a balanced development and strong, inclusive growth. This is an area of enormous opportunity for India. Officiate markets link capital with ideas and ambition. They are the economic lifeblood through which people find the means to rise out of poverty. This is true in India, in the United States and around the world.
Today Indian firms in Bangalore play a key role in the back office operations of multinational firms. In this, India has revolutionized forever the way the world does business. The next step is for India to develop front offices in Mumbai and provide financial services to companies and investors in and across the region. By establishing an IFC in Mumbai, India will build a financial system that will help large and small businesses. Shopkeepers, farmers and craftsmen need access to credit, financial and insurance products, as much as the large industrial manufacturers need this access. The Indian government has recognized this need and commissioned a report from a high-powered expert committee. The committee's report outlined a requirement and a timetable for developing an IFC in Mumbai. The report is bold, thorough and ambitious. I believe it is the right path.
A financial footprint in Mumbai makes a door through which the world can invest in India and India can invest in the world. Equally importantly, it gives India an important stake in the rapidly growing global financial services industry. The report identifies the needed changes to fiscal and monetary policy and to financial regulation. It also outlines that Mumbai's own urban infrastructure must be improved. This demonstrates the wisdom of the Indian government's emphasis on physical and financial infrastructure improvements. Both goals must be met in order to achieve the transition that will provide inclusive growth.
India has already made significant accomplishments in developing its financial sector and the economy has responded positively. India's stock and commodities exchanges are thriving. Since deregulation, the asset management industry has grown and now manages over $100 billion in assets. By reducing constraints on financial firms, India's government can foster a more efficient allocation of financial resources. This will help free capital to finance infrastructure investment, develop new innovations in other industries and extend financial services to a larger portion of the population. India's large and growing middle class stands to benefit from new financial products that will help them to achieve home ownership and to invest in the best possible education for their children.
Many of the world's leading financial firms have already opened offices in Mumbai. They're eager to do their part in building an international financial center. I urge my Indian colleagues to move forward quickly on the recommendations of their expert committee report. The United States will continue as a partner with India in its economic transformation.
Treasury and the Finance Ministry have led an ongoing dialogue for several years among U.S. and Indian regulators to share experiences and best practices. We will kick off another session to help advance the Indian government's economic reform agenda. When I am in New Delhi next week, Mumbai's development into an IFC is an important element of that agenda. U.S. experience can help the Indian government and industry as they work to develop an IFC in Mumbai. And the private sector stands ready to share their experiences in dealing with the development of domestic bond markets and other elements that create the backbone of a financial center.
We understand that the Indian officials are concerned that the greater capital flows associated with a financial center can add to inflationary pressures, destabilize the domestic financial sector or add to exchange rate volatility. For the most part, India's on the right path to reduce these risks. India has allowed greater flexibility in the exchange rate in recent months and the appreciation of the rupee has helped to reduce inflationary pressures. India has also taken administrative steps to adjust the pace of capital outflows and inflows.
As recent experience in the region has shown, administrative restrictions of capital flows are blunt instruments and can have unintended consequences. They tend to inhibit efficiency and lose their effectiveness over time. I encourage India to continue liberalizing such restrictions. Steps abroad to deepen the domestic financial sector will also help to mitigate the risk posed by greater capital flows.
India's development plans will require additional capital, innovative financial instruments, and a commitment to financial openness. Recent growth in India's savings base and in the number of global firms setting up shop in India suggest that all of this is possible, that India can be a significant exporter of financial flows and investment in the years ahead. The development of Mumbai as a financial center will take some years to come to fruition. Nonetheless, it is a path worth taking, a path that will yield benefits all along the way for India and for the global economy.
The remarkable growth brought about by India's economic reforms has proven the wisdom of those reforms and their promise for the future. As Prime Minister Singh said, "India is an open house. It can become more open, more integrated into the global economy." This will bring the inclusive growth, which is India's aim: an economy in which small -- the small farmer, the craftsman and the next Indian entrepreneur with a dream makes the door and fulfills that dream. India and the United States have made a very good start on delivering on our new partnership, and we can do more to reach our full strategic and economic potential. I look forward to learning from my Indian colleagues during my visit and to working with them on these and future initiatives.
Thank you, and I welcome your questions. Thanks. (Applause.)
ACKERMAN: Do you want to stay up there and answer from the podium, or --
PAULSON: Yeah. Yeah, sounds good to me.
ACKERMAN: Okay.
PAULSON: So you'll pick --
ACKERMAN: Okay, we'll take time, so -- yes.
QUESTIONER: Mr. Secretary, I'm Teresita Schaffer. I'm retired Foreign Service India and I now run the South Asia Program at CSIS.
I was very interested in -- (off mike) -- you said that you wanted to concentrate on. And I wonder if you could say a bit more about what you see as the vehicle for infrastructure improvements. I know there's been some sense that there was a need to find ways of insulating those who would invest in infrastructure from the vagaries of politics and -- (off mike). Have you found -- (off mike) -- our Indian friends found ways of doing this?
PAULSON: Okay. Well, let me say you obviously know your topic well, and the -- I think the biggest concern on the part of foreign investors are sanctity of contracts, the way the regulatory system works, and so on. I think this government is doing a good job of working through a number of the outstanding commercial disputes and issues out there, and we don't have -- I don't have anything that overnight will solve this problem. But what we're going to be doing -- and this trip is built around a very big conference on infrastructure finance where you're going to -- it's going to be heavily attended by the private sector and by the government.
And given the size of India's needs and how key this infrastructure development is for the kind of inclusive economic growth this country is going to need, I look at it -- I think -- and a fund that has been -- I think there's been some good work that's already been done. And one of the things that I've -- you know, that I've been a small part of in attending the meetings has been this CEO forum with the CEOs of both countries. And I think it's pretty unique the way this works because you get -- you know, you get the key government leaders in there also and, again, working on tangible steps -- sometimes very small steps. And so we've have a number of banks come together with an infrastructure fund, again focusing on taking small and important steps.
So I think what we -- what you're going to see is you're going to see some positives come out of this and you'll see more private-sector investment, and we just have to keep building on success. But ultimately, the question you've raised is the big question hanging over the capital markets and the investment there.
Okay, let me -- we've got plenty of time. Let me go right to the woman right in front of me and then we'll go to this side and --
QUESTIONER: Thank you very much. I'm Paula Stern, former chairwoman of U.S. International Trade Commission.
And I would like to ask you to go back and discuss the flexibility of the exchange rates in India, the value of the rupee and what they have done, and invite you to contrast what the U.S. diplomacy has been there with regard to India and compare it with that of China. And see if you can help us understand what the magic formula was that's been successful in India.
PAULSON: Well, let me say this is about India, not about China. I'll talk about China later.
But I would say we have -- we have, in India, a -- we've seen real exchange-rate flexibility. And you know, when an exchange rate is in a competitive marketplace, it makes the difference. And India has a system that allows for that and, you know, there's a fair mount of pushback and concern in India among some that are concerned with the policy there. But you do see that the rupee has -- based upon the underlying strength and underlying economic fundamentals, it's appreciated. That has not slowed India's growth. And we -- and inflation seems to be -- seems to be under control, and so that's a very good thing.
And now there's been some movement to say, "Well, we need to be concerned about capital flows and so on." And again, I'm a big believer in market-driven means.
Now, again, as I said, China is in a different stage of development and no one has argued -- I have not argued that China is ready to have a totally market-determined exchange right now. But they need to get the part -- point where they can have one, and -- because it's of a -- of -- as I said, an unnatural act to be as integrated as they are into the global economic system and to goods and services and not when you look at financial markets. So what we're encouraging them to do is to move more quickly to appreciate in the short term so that you can have a currency that's more reflective of the market and send the proper market signals through their economy and around the world, and then make the kinds of changes in their capital markets they're going to need to make to get to the point where they could have a market-determined currency.
But I tend to -- I think what's happened in India here has been -- it's been good news in terms of what they've done with the exchange rate, and I'll just be encouraging them to stay the course and not backslide.
Thank you.
Yes, we'll go -- I don't want you to think I'm only -- I am right-handed, but I'll -- but I will --
QUESTIONER: Thank you. Mr. Secretary. Paul Marino (ph), EIR News.
I wanted to ask you about M-LEC, Congress and protectionism. It seems in light of the discussion around the Master-Liquidity Enhancement Conduit that Congress is considering many bills which are of more of a protectionist nature, maybe to freeze the mortgage sector or reconstitute our chartered banks. So Mr. Secretary, wouldn't prudence demand that we further this dialogue and offer our policies to India of a more protectionist nature for industrial development?
PAULSON: Well, let me just say that we have protectionist sentiment everywhere in the world today, and it is -- I would say if you had to say what's sort of the number one issue that I deal with and I'm concerned about in this country and in virtually every other part in the world, it is that the lessons for the last 30 years have been those countries that have liberalized, gone to market-based reforms, opened up investment and finance have benefited. Other have been left behind. But we -- there is great concern today in many places that somehow or other, in country after country, they can't compete or that foreign investment will be bad or harmful somehow or that the trade will be a negative. And of course, I believe we need to do absolutely the opposite.
And so it's just -- it's clear, and I think we need to do a better job. And I think policymakers need to do a better job explaining the benefits because the dislocations and the problems are very visible to everyone, and many of them have got nothing to do with trade. They have to do with automation and technology. And people are never saying, "Well, we think we should turn off the Internet or turn technology back." So a lot of it trade gets blamed and a lot of this is about skills and really getting, you know, the skills that people need to compete and do well in today's world. Yes?
QUESTIONER: Mr. Secretary -- I don't know if this is on -- my name is Clay Swisher. I'm a new term member. I'm with the Middle East Institute. Thanks for your remarks today. It helps put into perspective an article that was in "Foreign Affairs", this latest edition by Nick Burns over at State regarding I guess the warming of U.S.-India relations, and I'm wondering if you can explain given in India's neighborhood with Pakistan the internal crisis that's happening there as well as the unresolved issue of Kashmir, what's Pakistan going to have to say about all this? How are they going to interpret these moves?
PAULSON: Well, again, I think what I'm -- all I can say is, you know, there's been some positive developments in a number of areas and I tend to be a glass half full rather than half empty person and so I think the fact that India and Pakistan have a constructive dialogue and that they're working together and sharing information in the counterterrorism area -- that they're talking about difficult sensitive issues like Kashmir is all to the positive, and our only position on this is that it be resolved in a constructive way and taking into account the interests of the people in Kashmir. Okay, let me -- there.
QUESTIONER: Secretary -- (off mike) -- you mentioned that the -- India's growth rate for the foreseeable future was growing at about 8 percent annually -- (inaudible). What's the quid pro quo on this for the United States in terms of our growth rate here? Do you see something there you could translate -- (inaudible)?
PAULSON: To the -- I can't equate the -- their growth rate directly to ours but what I can say is something I see quite strongly, and I'm glad you asked the question because many people, you know, and it's part of the -- it's -- of a protectionist sentiment -- they're not understanding global economics and so there is a tendency for some people to think because India is doing well this will be bad for the U.S. and that somehow or other, you know, we're competing with them in a way in which the faster they grow the worse it will be for us, and it's exactly the opposite -- exactly the opposite.
Right now, one of the biggest things we've got going for us we have a very -- we have a healthy economy in the U.S. but we have exceptionally strong growth outside of the U.S. and a big part of that growth is in developing countries around the world. Developing countries are growing twice the fast -- twice as fast the major developing countries as to developed countries are and three times as fast as they did in the 1990s. And this is helping all of us and the thing that we should be -- if people want to be concerned about something it wouldn't be that India would continue to do well -- it would be if India wouldn't do as well or some of the other major developing countries didn't do as well that would not help us.
So again, this is a situation where for a number of years we were the engine of growth around the world. We are very important to global growth given the size and importance of our economy but it's nice right now. We're going through a period where our exports are growing much faster than our imports and growth we're seeing around the world is very much helping the U.S. economy today. Yes?
QUESTIONER: Mr. Secretary, my name is Sidney Weintraub. I'm with the Center for Strategic and International Studies.
You emphasize the importance of trade and the Doha Round. My understanding is that India together with Brazil recently has been reluctant to open its market, particularly to manufactured goods. How are you going to deal with that issue when you get there?
PAULSON: I tell you, this is an informed audience. I will say that, and you're asking the right questions and we -- obviously Sue Schwab, you know, our trade representative, is leading that effort. I talk with her regularly. I had an opportunity to talk with her again this morning about it. You are right that -- well, first of all let me say that Doha has never been more important given the protectionist sentiment around the world and given some of the issues that are going on in the capital markets, and Doha is still very much within reach. It's not easy but it is very much in reach, and the key to Doha is going to be market access in some of the major developing countries. You mentioned two of them -- Brazil and India -- some of the major developing countries that have been pushing the developed countries to further open their markets, which are already quite open, and have been resisting opening theirs.
And so we need real access and, you know, with India we're not -- there's all the conversation about agriculture and subsistence farmers and everybody understands that issue but it is -- we need more movement in the non-agriculture -- in the manufacturing tariffs and in services. And I think a very interesting lesson for India is in areas where they've either been liberalized or they never were very regulated to begin with India does great. Look at the whole IT software area. Look at airlines -- certain areas of the manufacturing.
So I think part of it is for them and it's -- we have these issues at every country for them to have the confidence that they will benefit and grow as they open up markets and as they liberalize. But you're right -- that is, seeing movement from India and Brazil and giving some market access and again, some of the countries that have had the most to gain from the global trading system and have benefited the most from it need now to be willing to buy into the system and be prepared to provide more access into their markets. Okay. Yes, in the front, and then I've got time after this for one more question so this'll be the last -- this one and then one more.
QUESTIONER: Jeff Pryce, Steptoe & Johnson. Thank you, Mr. Secretary.
I wonder if you could talk about the benefits that a bilateral investment agreement such as India has with other capital exporting countries would have for encouraging American investment in India and particularly addressing the regulatory environment issues that were mentioned and what the prospects are for negotiation of such an agreement.
PAULSON: Well, I think -- again, a very good question. It's one I've thought about a lot and I've had some preliminary conversations with the Indians on this and, again, to complete a deal and I think these deals have got great value because it provides -- it -- they provide protections and comfort for investors and normally countries -- but both sides have got to want to pursue an agreement like this, and normally our counterparties who are willing to sign these agreements usually do so because they either have a strong need to attract foreign investment or they are using them to help them bring about reforms -- one or the other.
And we have -- I think the Indian government and the finance minister and others when I've talked about it they're quite willing to talk about investment and the importance of investment. I think it is a tougher issue, some of the things that we normally ask for -- protections, intellectual property, other things that go along with these investments.
So the way I tend to think about investment is there's no country I go to -- well, maybe there's -- I can't think of any where we don't talk about investment and what we need to do. We're open for investment in the U.S., encouraging investment, talk about some of the issues and concerns some countries have around the CFIUS process or what have you and then we talk about -- I'm all the time talking about opening up for U.S. investment and for competition and investment because it's been a key to our development and to our growth, and it's one of the big keys to our success. And so we talk about it and we talk about it in tangible steps, but to conclude a formal bet is a major undertaking and many of our trading partners aren't ready to do such a thing. Okay. One more -- I'm going to go way to the back.
QUESTIONER: Secretary Paulson, Jim Moody, Merrill Lynch.
You talked about the Doha Round -- the importance of that and, of course, we all agree. One of the strong inhibitions to raising countries out of poverty people -- countries like India and Pakistan and those areas -- is American subsidies to our agriculture that makes their agriculture less competitive. I know that's not your direct portfolio -- agricultural subsidies -- but are you -- do you weighed (sic) or your people weighed in on those -- that topic? Europe, of course, is much worse than we but we have a major problem vis-a-vis countries that export agriculture.
PAULSON: Well, I would just simply say this. People point to that all the time because there are few other areas that -- in the U.S. that -- where they can point to issues like the subsidy, and what I say and I'm -- you know, I've learned a lot about that since coming to Washington and I deal with that very directly with my counterparts because I say the U.S. has moved in showing a willingness to move. We are quite comfortable negotiating with the tax, okay? If we don't complete an agreement this will not have to do with the U.S. and ag subsidies and supports. It will not.
It will be we -- we're negotiating with them to -- in the tax and we can do what we need to do. The key thing is going to be what I pointed to and this is not -- I'm not one for pointing fingers -- I'm never going to point a finger at one particular country but it really is -- we need to get some market access in areas where we're already open and market access in services and financial services and non-agriculture and which is where the biggest part of the global economy is. That's where the economic growth is going to come from and that's going to benefit the countries that provide that much more than it does all the rest of us because that will help them develop strong economies that are competitive, first-rate financial services, and so on. So anyway that's why it's not hard to get me going on that topic. (Laughter.) Thank you all.
ACKERMAN: Thank you, Secretary. (Applause.) Thanks so much. Good job.
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