chief counsel of the new Office of Congressional Ethics.

The Dispatch Washington Bureau
DispatchPolitics
DispatchPolitics.com

The Justice Department attorney who successfully prosecuted National Century Financial Enterprises founder Lance K. Poulsen for fraud has been tapped to be the staff director and chief counsel of the new Office of Congressional Ethics.

Leo J. Wise "will bring his exceptional experience and good judgment in the conduct of high-profile and sensitive investigations," said David E. Skaggs, chairman of the office's board, in a release.

The House created the office as an independent, nonpartisan entity to review alleged ethics violations and refer charges to the House ethics committee.

NCFE Proposes Medshares Sale Bidding Procedures

NATIONAL CENTURY: Proposes Medshares Sale Bidding Procedures
------------------------------------------------------------
To ensure that the Debtors' estates realize the maximum sale
price for the Medshares Claim, National Century Financial
Enterprises, Inc., and its debtor-affiliates ask the Court to
approve competitive bidding procedures in connection with the
sale of the Medshares Claim.

The proposed Competitive Bidding Procedures are:

(a) Only pre-qualified bidders will be entitled to submit a bid
to purchase the Medshares Claim for at least the Minimum Bid
and otherwise on the terms and conditions set forth in the
Transfer Agreement at the Auction Sale;

To be a Qualified Bidder, an entity must, on or before 12:00
noon, Eastern Time two business days prior to the date of
the Auction Sale, provide:

(1) a deposit in the form of a cashier's or certified check
or a letter of credit equal to 10% the Cash Portion -- a
Bidder Deposit;

(2) a fully executed purchase agreement, which will
substantially conform to the Transfer Agreement, except
as to price; and

(3) a detailed description of the sources and relevant
amounts of equity or debt financing. If financing will
be provided by external sources, a bidder must include
copies of relevant commitment letters and identify the
individuals at the financing institutions so that the
Debtors may contact them.

(b) Nothing in these procedures will impair the right of any
creditor whose claim is secured by a lien against the
Medshares Claim to bid at the Auction Sale. In accordance
with Section 363(k) of the Bankruptcy Code, if the creditor
purchases the Medshares Claim, the creditor may offset its
claim against the purchase price;

(c) Copies of all written offers received by the Debtors, in
care of David Coles, the Debtors' acting CEO, from a
Qualified Bidder will be promptly provided to counsel to the
Creditors' Committee and counsel to the Subcommittees;

(d) The Auction Sale will take place by open bidding and will be
presided over by the Debtors. Bidding at the Auction Sale
will be limited to Qualified Bidders. Commencing with the
highest bid submitted by a Qualified Bidder to purchase the
Medshares Claim, competitive bidding among the two or more
Qualified Bidders for the Medshares Claim will proceed in
accordance with the Bidding Increment established;

(e) The Auction Sale of the Medshares Claim will be on an "as
is" and "where is" basis and will be without representation
or warranties of any kind or nature whatsoever, except as
set forth in the Transfer Agreement;

(f) All bids for the Medshares Claim must be on a cash basis.
Further, the bid of any Qualified Bidder will not be subject
to any contingency whatsoever, except for Court approval and
as may be contained in the Transfer Agreement;

(g) Any offer must state that:

(1) it constitutes a binding offer and that it will remain
in effect through the date of closing of the sale of the
Medshares Claim; and

(2) the bidder is prepared to consummate the transaction one
business day after the entry of the sale order.

(h) At the conclusion of the Auction Sale, the Debtors will
determine the highest and best offer for the Medshares
Claim;

(i) The Bidder Deposit submitted by a Qualified Bidder that is
not the Successful Bidder will be returned to the Qualified
Bidder within two business days after the closing of the
sale of the Medshares Claim to the successful Bidder.

The Bidder Deposit submitted by a Qualified Bidder that is
the Successful Bidder will be retained by the Debtors as a
credit against the winning bid;

(j) In the event the Successful Bidder, as approved by the
Court, fails to close its purchase of the Medshares Claim
pursuant to the Transfer Agreement and the Sale Order, the
Qualified Bidder who submitted the second highest competing
bid at the Auction Sale, as approved by the Debtors, will be
deemed to be the Successful Bidder and will be obligated to
close its proposed purchase of the Medshares Claim on the
terms and conditions of its last bid; and

(k) The closing of the sale to the Successful Bidder will take
place on the first business day after entry of the Sale
Order or as soon thereafter as practicable, provided all
terms and conditions of the Transfer Agreement are
satisfied.

Mr. Oellermann explains that the sale of the Medshares Claim to
the highest and best bidder will permit the Debtors to monetize
promptly this estate asset.

The Debtors also seek Court approval of the manner of notice of
the Competitive Bidding Procedures and the proposed sale. No
later than five business days after the Court enters its order
approving the Competitive Bidding Procedures, the Debtors will
file and serve a notice of the proposed sale of the Medshares
Claim and a scheduled auction with respect to the claim.

The Sale Notice will describe:

-- the Medshares Claim,

-- the minimum acceptable competing bid for the Medshares
Claim,

-- the minimum bidding increment for the Auction Sale,

-- the Purchaser's and other parties rights to participate
in the Auction Sale and to make higher and better offers,
and

-- a description of the Competing Bidding Procedures.

The Notice will be served to:

-- the U.S. Trustee,

-- the Creditors' Committee counsel,

-- the Debtors' prepetition bank lenders' counsel,

-- the counsel of the indenture trustees for the prepetition
notes,

-- the NPF VI Subcommittee's proposed counsel,

-- the NPF XII Subcommittee's counsel,

-- Uniscribe,

-- Todd J. Garamella and his counsel,

-- all parties that have asserted a security interest in the
Medshares Claim, and

-- parties that have filed requests for notice in these
cases.

Moreover, the Debtors will publish the Sale Notice in an
appropriate industry-based periodical or website.

"The proposed notice of the sale of the Medshares Claim is
adequate and reasonable," Mr. Oellermann maintains. The Debtors
believe that the Purchase Price that will be obtained through
the Competitive Bidding Procedures for the Medshares Claim will
be fair and reasonable under the circumstances. (National
Century Bankruptcy News, Issue No. 16; Bankruptcy Creditors'
Service, Inc., 609/392-0900)

Brokaw, Friedman and company also didn’t recognize the obvious danger to the United States that Bush represented in 2000

Predictable Disaster of George W. Bush

By Robert Parry
November 16, 2008


In his trademark goofy way, George W. Bush explained why he supported a bailout of the U.S. financial markets, saying he was “a free-market person, until you're told that if you don't take decisive measures then it's conceivable that our country could go into a depression greater than the Great Depression.”

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So, with a smirk on his face, President Bush explained the predicament that the United States and the world face after eight years of his incompetence and mismanagement – teetering on the edge of a catastrophe “greater than the Great Depression.”

Yet what is remarkable about American news coverage of this extraordinary moment – and Bush’s strangely light-hearted comment at the end of the Nov. 15 global economic summit – is how little blame is being laid specifically at Bush’s door.

In a pattern typical of the preceding eight years, major U.S. journalists are focusing on almost everything else – from Sarah Palin’s political future to what President-elect Barack Obama should do after he’s inaugurated in two months – not the lessons that should be learned from Bush’s disastrous presidency.

An example was Tom Brokaw’s “Meet the Press” on Sunday, which addressed the financial and energy crises with nary a negative word spoken about Bush.

It was as if everyone else was responsible for the nation’s troubles, from unions and auto executives to Congress and Obama (for not providing immediate answers). Just not the person who is still in charge and who was chiefly responsible for taking the United States from an era of peace, prosperity and budget surpluses to the precipice of endless war, economic devastation and national bankruptcy.

Part of that may be that Brokaw and some of his fellow pundits, such as New York Times columnist Thomas Friedman, were major enablers of Bush’s most harmful decisions. Brokaw and Friedman were among the leading journalists in 2002-03 who didn’t ask tough questions about the Iraq invasion and indeed cheered the war on.

Brokaw, Friedman and company also didn’t recognize the obvious danger to the United States that Bush represented in 2000 when he and his Republican allies ran a down-and-dirty campaign against Al Gore and then blocked the counting of Florida’s votes so Bush could slip into the White House.

The big-name pundits almost all bought into the myth that Bush’s strange ascension to the White House -- as the first popular-vote loser in more than a century -- was a good idea, pushing out Bill Clinton’s crowd and putting “the adults back in charge.”

Beyond the affront that Bush’s “election” represented to American democracy, there also was the troubling fact that Bush had a long history of messing up whatever he touched and then “failing upward,” pulled out of trouble by his father’s rich friends.

However, when this well-born wastrel was elevated to the highest office on earth, there was really no way that daddy or daddy’s friends could either control him or save him from himself. It may be that not even all the central banks in all the world can undo the damage that George W. Bush has done.

That big-name American journalists failed to recognize this danger back in Campaign 2000 represented another example of their professional limitations and moral deficiencies. At the time, it was easier to go with the flow.

But the inadequacies of George W. Bush were well-known during Campaign 2000, although readers often had to search out the facts on the Internet or in a few small-circulation liberal magazines. Bush’s ominous history of business failures -- his reverse Midas touch -- drew far less attention than the bogus stories about “Lyin’ Al” Gore and his “exaggerations.”

Warning the Electorate

At Consortiumnews.com, we were among those small outlets that tried to warn the American electorate about these risks. We also recounted this reality in our book, Neck Deep, an excerpt of which follows:

At times grudgingly, George W. Bush traced virtually every early step his father took. Like his father, George W. went to both Phillips Andover Academy and Yale and joined the secretive Yale fraternity Skull and Bones.

Like his father – when starting out on his own career – George W. exploited both wealthy family connections and the nexus between oil and politics. Like his father, too, George W. joined the armed forces during war time.

But George W.’s early record had the look of a child shuffling around in his father’s oversized shoes. In school, George W. was a C student, while his father graduated Phi Beta Kappa. In sports, George the father was captain of the Yale baseball team while George the son was captain of the cheerleading squad.

George Sr. served under fire as a naval aviator in the Pacific theater of World War II, while George Jr. slipped past other better qualified candidates into the Texas Air National Guard where he would avoid service in Vietnam and leave behind long-term questions about his duty records and premature departure.

Bush’s checkered history with the National Guard coincided with a period of his life when he drank heavily and apparently abused cocaine, although he never exactly admitted to that last fact. During his presidential run in 2000, Bush acknowledged the drinking problem – in the context of saying he had licked the bottle with the help of his Christian faith – but he slid away from the cocaine question.

When pressed, he didn’t confirm or deny that he abused cocaine but asserted that he could have met his father’s White House personnel requirement that set time limits on how far back an applicant would have to admit illegal drug use.

Despite this implicit confirmation of drug abuse, most of the major news outlets, such as The New York Times, took Bush’s side and reported that there was no evidence Bush had ever used illegal drugs.

But what he may have lacked in early accomplishments, he made up for in ambition and charm, two traits that served him well in both business and politics. In 1978, his ambition led George W. Bush to embrace his father’s two career paths, oil and politics.

With almost no political experience, George W. launched an uphill campaign for the U.S. Congress in 1978. He lost badly to the Democratic incumbent. That same year, he incorporated his own oil-drilling venture, Arbusto (Spanish for bush) Energy.

George W. Bush’s oil business venture seemed promising at first. Just as his father had done nearly 30 years prior, George W. sought financial assistance from an uncle, this time, Jonathan Bush, a Wall Street financier. Jonathan Bush pulled together two dozen investors to raise $3 million to help launch Arbusto.

James Bath, one of George W.’s friends from the National Guard, also invested $50,000 for a five percent stake. At the time, Bath was the sole U.S. business representative for Salem bin Laden, scion of the wealthy Saudi bin Laden family and half-brother of Osama bin Laden, who in the 1980s would be heading to Afghanistan to help Islamic fundamentalists resist the Soviet invasion.

Though responsible for investments for Salem bin Laden, Bath insisted that the $50,000 for Arbusto came from his own personal funds. (Salem bin Laden could not be questioned about the investment. He died in a 1988 plane crash in Texas.)

A History of Bailouts

In his subsequent business career, George W. was the beneficiary of three major bailouts.

The first occurred in 1982 when, despite the millions already pumped into Arbusto, the company faced a cash crunch. George W.’s balance sheet showed $48,000 in the bank and $400,000 owed to banks and other creditors.

George W. realized that he had to raise additional cash and decided to take Arbusto public. With the company so deeply in debt, however, George W. would need a new infusion of money to clear the books.

In stepped Philip Uzielli, a New York investor and friend of Bush Family lawyer James Baker III from their days at Princeton University. Uzielli worked out a deal with George W. to purchase a 10 percent stake in Arbusto for $1 million, though the entire company was valued at less than $400,000.

In a 1991 interview, Uzielli recalled the investment as a major money loser. “Things were terrible,” he said.

As bad as Uzielli’s investment turned out to be, George W. now had enough money to seek public investors. But first he decided to make one other change. In April 1982, perhaps realizing the negative connotation of “bust” in Arbusto, George W. changed the name of his company to Bush Exploration. The name change also made better use of Bush’s primary asset, his family name.

In June 1982, George W. issued a prospectus, seeking $6 million in the initial public offering. But he managed to raise only $1.14 million. The shortfall was due in large part to the waning interest in the oil industry among investors. The price for a barrel of oil was falling and special tax breaks for losses incurred in oil investments had been slashed.

Within two years, it was clear that Bush Exploration was in trouble again. Michael Conaway, George W.’s chief financial officer, told the Washington Post, “We didn’t find much oil and gas. We weren’t raising any money.” Something had to be done.

In walked bailout number two in the persons of Cincinnati investors, William DeWitt Jr. and Mercer Reynolds III. Heading up an oil exploration company called Spectrum 7, DeWitt and Mercer contacted George W. about a merger with Bush Exploration. For Bush and his struggling company, the decision wasn’t hard to make.

In February 1984, George W. agreed to a merger with Spectrum 7 in which Dewitt and Reynolds would each control 20.1 percent and George W. would own 16.3 percent. George W. was named chairman and chief executive officer of Spectrum 7, which brought him an annual salary of $75,000.

Even though the merged companies still failed to make any money, the pieces were finally starting to fall into place for George W. Bush.

Spectrum 7 president Paul Rea remembers Bush’s name as a definite “drawing card” for investors. With oil prices collapsing in the mid-1980s, however, it became clear that George W.’s name alone would not save the company.

In a six-month period in 1986, Spectrum 7 lost $400,000 and owed more than $3 million with no hope of paying those debts off. Once more, the situation was growing desperate.

In September 1986, George W. was tossed his third lifeline, this time by Harken Energy Corporation, a medium-sized, diversified company that was purchased in 1983 by a New York lawyer, Alan Quasha.

Quasha seemed interested in acquiring not just an oil company, but a relationship with the son of the then-Vice President, George H.W. Bush. Harken agreed to acquire Spectrum 7 in a deal that handed over one share of publicly traded stock for five shares of Spectrum, which at the time were practically worthless.

After the acquisition in 1986, George W. got a seat on the Harken board of directors, landed a $120,000-a-year job as a consultant and received $600,000 worth of Harken stock options. By any account, this wasn’t a bad deal for an oilman who had never made any money in the oil business and, indeed, had lost lots of money for his investors.

A Political Bonus

But Harken found that its investment at least in George W. appreciated. Though the company had acquired the son of the Vice President, it ended up in 1989 with the son of the President. Harken moved to exploit that upgrade by expanding its operations into the Middle East, where business and family connections are of legendary importance.

In 1989, the government of Bahrain was in the middle of negotiations with Amoco for an agreement to drill for offshore oil. Negotiations were progressing until the Bahrainis suddenly changed direction.

Michael Ameen, who was serving as a State Department consultant assigned to brief Charles Hostler, the newly confirmed U.S. ambassador to Bahrain, put the Bahraini government in touch with Harken Energy.

In January 1990, in a decision that shocked oil-industry analysts, Bahrain granted exclusive oil drilling rights to Harken, a company that had never before drilled outside Texas, Louisiana and Oklahoma – and that had never before drilled offshore.

Nearly two years later, when The Wall Street Journal examined the curious Bahrain transaction, Bush declined to be interviewed but did agree to answer some questions in writing. Some of his responses were snippy, such as his answer to a question about whether his involvement in Dallas-based Harken lent it extra credibility in the Arab world.

“Ask the Bahranis,” Bush shot back.

Nevertheless, the January 1990 deal added to Harken’s stock value, with its shares rising more than 22 percent from $4.50 to $5.50. The run-up in Harken’s stock marked one of George W. Bush’s first successes in the oil business.

That limited success opened the door to Bush’s next step up the ladder, as a popular young owner of the Texas Rangers baseball team.

The beginning of that deal traced back to an idea of George W.’s Spectrum 7 partner, Bill DeWitt, whose father had owned the St. Louis Browns baseball team and later the Cincinnati Reds. DeWitt wanted to pull together a group of investors to buy the Texas Rangers.

To do so, DeWitt understood that he needed a native Texan in his group of investors. George W. fit the bill. The group of investors was missing only one thing – money. To address that need, George W. tapped a Yale fraternity brother, Roland Betts, who brought with him a partner from a film-investment firm, Tom Bernstein, both from New York.

The New York connection became a problem when Major League Baseball Commissioner Peter Ueberroth insisted on more financial backing from Texas-based investors. But Ueberroth was eager to put together a deal for the son of the President, so the commissioner brought in a second investment group headed by Richard Rainwater, who had built a $4 billion empire while working with the Bass family of Fort Worth.

Rainwater agreed to join Betts, Bernstein and George W. in the $86 million deal, but Rainwater imposed a strict limit on George W.’s active participation in the team.

Bush got to be called a “managing partner.” But – under Rainwater’s conditions – George W. would only be the handsome front man for the team; he would have no actual say in how it was run.

Selling Stock

To finance his part of the purchase price, Bush decided to sell two-thirds of his holdings in Harken. He pressed ahead with this decision though he knew that Harken was struggling financially and was planning to sell shares in two subsidiaries to avert bankruptcy.

Outside lawyers from the Haynes and Boone law firm advised Harken officers and directors on June 15, 1990, that if they possessed any negative information about the company’s outlook, a stock sale might be viewed as illegal trading. Bush, who had attended a meeting four days earlier on the plan to sell off the two subsidiaries, went ahead anyway.

On June 22, 1990, Bush sold 212,140 shares to a still-unidentified buyer who spared Bush the trouble of selling on the open market, which likely would have tanked Harken’s lightly traded stock and meant less money for Bush.

The sale also preceded Harken’s disclosure in August 1990 of more than $23 million in losses for the second quarter, which caused the stock to fall 20 percent before recovering for a time. To make matters worse, Bush missed deadlines by up to eight months for disclosing four stock sales to the Securities and Exchange Commission.

After the missed deadlines were noted in published reports in 1991, the SEC opened an insider-trading investigation. At the time, Bush’s father was President and the person responsible for appointing the SEC chairman.

George W. Bush denied any wrongdoing in the Harken stock sales. He insisted that he had sold into the “good news” of Harken landing offshore drilling rights in Bahrain. Bush’s lawyers also argued that he had cleared the stock sale with the Haynes and Boone lawyers, a claim that proved to be important in the SEC’s decision to close the investigation on August 21, 1991, without ever interviewing Bush.

But what the SEC didn’t know at the time was that the Haynes and Boone lawyers had sent Bush and other Harken officials that letter warning against selling shares if they knew about the company’s financial troubles. One day after the investigation was closed, Bush’s lawyer Robert W. Jordan delivered a copy of the warning letter to the SEC.

Asked years later about the letter, SEC investigators said they had no memory of reading it.

“The SEC investigation apparently never examined a key issue raised in the memo: whether Bush’s insider knowledge of a plan to rescue the company from financial collapse by spinning off two troubled units was a factor in his decision to sell,” the Boston Globe reported in October 2002, almost two years after Bush gained the presidency.

Bush also was less than forthcoming about why he missed the deadlines for reporting the June 1990 stock sale and three others. For years, he claimed publicly that he had sent the reports in on time and the SEC had lost them, a sort of the bureaucrats-ate-my-stock-sale-reports argument.

The issue resurfaced in 2002 after Enron and other major companies collapsed in accounting scandals. Bush was positioning himself as a friend of embattled shareholders and demanding that corporate officers reveal their stock sales almost immediately.

Asked why he had not lived up to his own admonition, Bush shifted the blame to Harken’s lawyers for the late filings. He then changed his story again to say that he simply didn’t know what had happened. He never apologized for claiming falsely for years that it had been the SEC’s fault.

Nevertheless, on June 22, 1990, Bush made $848,560 on his Harken stock sale. He used $606,000 of his profits to buy a 1.8 percent stake in the Texas Rangers baseball team. Then, after helping engineer public financing for a new baseball stadium in Arlington, Texas, he sold his interest in the Rangers for $14.9 million, more than 20 times his original investment.

The success of his Texas Rangers investment was even more dramatic when compared with what happened to the Harken stock that Bush sold for $4 a share to that unidentified buyer. A dozen years later, each of those shares would have been worth two cents.

George W.’s time with Harken and his part ownership of the Rangers made him a millionaire and a well-known personality in Texas. That measure of success had derived almost entirely from the family’s triangle of oil-political-financial connections, from Texas to Washington to Wall Street.

Though most of Bush’s sordid business history was known during Campaign 2000, it attracted little attention in the mainstream press, especially compared to the news media’s obsession with dissecting every comment by Al Gore for signs of exaggeration.

Even today, as George W. Bush’s crony capitalism, aversion to regulation, and his trillion-dollar war in Iraq have driven the U.S. – and the world’s – economy off the road and into financial quicksand, big-time journalists continue with their Bush deference. They won’t put too much blame on the person who arguably should top the list of those responsible.

While the Brokaws and Friedmans might justify their behavior as a resistance to “piling on” a lame-duck President, they also are contributing to a distorted history – one that fails to identify Bush and his political/media enablers as largely to blame for this global catastrophe.

By averting their eyes from Bush and focusing so much on Obama now, the mainstream U.S. news media also clears space for right-wing media voices like Rush Limbaugh to begin writing another false narrative, blaming the financial collapse on the incoming President not on the one who has held the office the past eight years.

That narrative, in turn, could restrict what an Obama administration can do once in office. That, in turn, could open the way for a possible Republican comeback in 2010, much as the GOP rebounded from Bill Clinton’s victory in 1992 to win both houses of Congress in 1994.

Though the U.S. press corps is loath to examine history, especially when it reflects badly on the Bush Family, the present – and the future – might hinge on the American people finally understanding how George W. Bush and his reverse-Midas touch managed to turn a relatively golden U.S. economy to dross in just eight years.

It was all predictable.

Thomas Jefferson, 3rd president of US

Thomas Jefferson,
Letter to the Secretary of the Treasury Albert Gallatin (1802)
3rd president of US (1743 - 1826)

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.

Glass-Steagall: How About Housing?

Just as Congress was repealing Glass-Steagall in 1999, the tech stock bubble was inflating beyond sustainability. It would soon be pricked, ushering in a brief recession during which investors began the hunt for the next big thing.

Glass-Steagall: How About Housing?

The mess that resulted from letting investment and commercial banking join together after the repeal of Glass-Steagall...

In 1999, they got their way with the enactment of the Financial Services Modernization Act. The door was opened to consolidation in the banking industry.

Glass-Steagall: the Banking Act of 1933

Glass-Steagall created the Federal Deposit Insurance Corporation (FDIC) to protect...

The Glass-Steagall Act remained in force for six-and-a-half decades, ...

Glass-Steagall had prevented them from selling debt-backed securities for which they were the underwriters...

Glass-Steagall: Bubble, Bubble...

Glass-Steagall Act: Capital & the Capitol

Banking Act of 1933, usually referred to as the Glass-Steagall Act.

In 1999, they got their way with the enactment of the Financial Services Modernization Act. The door was opened to consolidation in the banking industry.

The biggest factor here was the removal of Glass-Steagall prohibitions, but there were two other important tweakings. The Commodities Futures Modernization Act of 2000, for example, transformed the new mortgage-backed securities (MBS) into a commodity, enabling them to be traded on futures exchanges with little oversight by any federal or state regulatory body.



Glass-Steagall Act: Riding Roughshod Across the Division of Banks

Glass-Steagall: How About Housing?


CURRENTLY we find ourselves in a mess that many are calling the most serious economic crisis since the Great Depression – if not worse, writes Doug Hornig, editor of Big Gold for Casey Research.

A mile-high mountain of paper profits has been set ablaze and reduced to ashes, choking investors who put their faith in houses, stocks, or commodities, or just about anything else you care to name.

The bad news is that no one completely understands what's going on; the good news is that, yes, a measure of sense can be made of the madness. Being armed with that bit of understanding should enable us to survive the tsunami...even prosper.

Glass-Steagall: the Banking Act of 1933

Until recently, average Americans were only dimly aware that there were two types of banks – the commercial banks nearby and the major investment banks located in faraway New York. Understanding the bank where they conducted business, with people they knew, was enough. The big, impersonal Wall Street banks – which dealt in higher-risk investments with potentially higher rewards – were for companies and the very rich only.

But while ordinary citizens thought very little about this distinction among the banks, the government did. Seventy-five years ago, as the Depression deepened, lawmakers were desperately trying to determine the causes of the crisis (read, looking for scapegoats). Some of the things they found were conflicts of interest and opportunities for fraud, all linked to the mixing of commercial and investment banking. So Congress decided to erect a "wall" between commercial and investment banking, and so passed the Banking Act of 1933, usually referred to as the Glass-Steagall Act.
Glass-Steagall created the Federal Deposit Insurance Corporation (FDIC) to protect depositors in commercial banks, and it also forbade commercial banks from underwriting securities or acting as stockbrokers or dealers.

The Glass-Steagall Act remained in force for six-and-a-half decades, although various deregulatory measures and changes in exchange rules chipped away at it. Notably, in 1970 a rule excluding public companies from membership in the New York Stock Exchange was dropped. The last major private institution, Goldman Sachs, went public in 1999. This allowed investment banks to sell stock to any potential investor and greatly expand their capital base.

Over the last two decades of the 20th century, the financial industry lobbied vigorously for the repeal of the Glass-Steagall Banking Act. In 1999, they got their way with the enactment of the Financial Services Modernization Act. The door was opened to consolidation in the banking industry.With one stroke of a pen, commercial bankers could begin turning their loans into investment products. (Glass-Steagall had prevented them from selling debt-backed securities for which they were the underwriters.) So Wall Street investment banks were suddenly in the mortgage business. It would prove to be a marriage made somewhere significantly south of heaven.

Glass-Steagall: Bubble, Bubble...

We're not fans of government regulation, but a deregulated marketplace carries with it certain imperatives. Because it will only function as it should do in the absence of both criminal and boneheaded behavior. We can erect oversights meant to prevent the former and laws to punish it after the fact. But all the regulation in the world won't do much about the latter – the bone-headed behavior of some investors – since both market traders and the regulation itself may be boneheaded.

The biggest factor here was the removal of Glass-Steagall prohibitions, but there were two other important tweakings. The Commodities Futures Modernization Act of 2000, for example, transformed the new mortgage-backed securities (MBS) into a commodity, enabling them to be traded on futures exchanges with little oversight by any federal or state regulatory body.
Completing the trifecta, the Securities and Exchange Commission in 2004 waived its leverage rules. Previously, broker/dealer net-capital rules limited firms to a maximum debt-to-net-capital ratio of 12 to 1. But under the new regulations, five companies – Goldman Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns, and Morgan Stanley – were granted an exemption, which they promptly used to lever up 20, 30, even 40 to 1.

That means $1 of equity underpinned up to $40 of investment risk. So a 2.5% drop in asset prices would wipe out the actual cash underlying a position...leaving only debt and losses.

Just as Congress was repealing Glass-Steagall in 1999, the tech stock bubble was inflating beyond sustainability. It would soon be pricked, ushering in a brief recession during which investors began the hunt for the next big thing.

Glass-Steagall: How About Housing?

Back in 1977, Congress had passed the Community Reinvestment Act, which had the goal of extending homeownership to the largest possible pool of Americans. Over the next 25 years, legislative supplements, a robust housing market, and aggressive government enforcement of "fairness in lending" combined to weaken bank standards regarding who did – or didn't – qualify for a loan.

But that was just the beginning. In an effort to end that recession in the new century's first years, the Greenspan Fed reduced interest rates to near zero and poured liquidity into the financial markets. At the same time, capital that had fled the stock market was looking for action. It found it in housing.

The commercial banks – and independent mortgagors like Countrywide Credit – were awash in cash. They started lending it, and every borrower's credentials were deemed excellent, even those with low income, bad credit, and no money for a down payment.

The perfect storm was building. But at first, boy! Did things ever look so rosy? The country's homeownership rate – 62.1% in 1960, rising to only 64.1% in 1994 – shot up to 68.9% by 2006.

As homeowner mania seized hold of the public imagination, people began treating their homes as ATMs. If they needed cash, they borrowed against their growing equity. Real estate speculators flipped houses like crazy. And why not, when there was no risk? Housing prices only head in one direction – up, Up, UP! Right?

It sure looked that way. The yearly average median price of an existing home went from $23,000 in 1970, to $62,200 in 1980, to $97,300 in 1990, to $147,300 in 2000 and crested at $221,900 in 2006. Astonishingly, and despite recessions in the early '80s and early '00s, there wasn't a single down year for US housing as a national average in all of that time.

However, in 2007 housing became the latest bubble to burst, pricked by unrealistic prices, overbuilding, and the retreat from ultra-low interest rates. Concurrently, as house prices finally began to drop, a whole bunch of those no- or low-interest loans began to reset.

Glass-Steagall: Why Do Rational People Act So Stupid?

Despite the well-earned reputation of some Wall Street high rollers, bankers tend not to be a reckless lot, nor financial dunces. In general, they would rather deploy a large amount of capital into a safe, low-yield investment than put a small amount of capital into something with very high risk.

With the new environment, however, the game changed. Commercial bankers found themselves making loans to shakier and shakier recipients, while at the same time, the investment banks and their clients were clamoring for new investment products.

So bankers did what any conservative person would do. They hedged their bets. They bundled up their loans and sold the packages to the investment banks. The outcome was essentially the mortgage business being uprooted from the commercial banks and transplanted into the investment houses, which have far less restrictive requirements about reserve capital, far fewer limits on the buying and selling of securities, and far less regulatory oversight.

The investment banks did not set out, of course, to become landlords. They just wanted to sell some product for which there was a ready market. As capitalist ingenuity collided with profit motive, they found there was no shortage of products that could be created.

The mortgage bundles were sliced, diced, and repackaged into a bewildering array of securities, such as structured investment vehicles (SIVs), collateralized debt obligations (CDOs), mortgage-backed securities (MBSs), and on and on.

The extent of the slicing and dicing into what financial chefs refer to as tranches was such that the original mortgage might be tossed from buyer to buyer, or even itself split into parts. Each time a package was put together and sold, the seller stretched to get top dollar for each tranche, requiring the underlying assets to be risk-rated and then assigned real-world value. In the end, rating services had little idea what they were rating (we're being charitable here), and buyers had no idea what their purchase was really worth.

And always lurking in the background was the possibility that defaults on the mortgages supporting the entire process could have a profound ripple effect, given that these products became increasingly leveraged. Knowing this, traders invented credit default swaps (CDSs), those gnarly little creatures that morphed into Godzilla after 2004.

CDSs are an insurance policy, a way of dealing with fear, and a device for attenuating the risk inherent in trading products one may not fully understand. Those buying the protection pay an upfront amount and yearly premiums to the protection sellers, who agree in return to cover any loss to the face value of the security. The result is a private, two-party contract, devoid of regulatory oversight.

There are a bunch of nasty horseflies in this particular ointment. For one, the holder of that security (who is now "protected" by a CDS) might turn around and sell it to a third party, who might himself insure and resell it, and so on, creating an impossibly complex chain of ownership and obligation. Additionally, the CDS itself can be traded over the counter. Furthermore, any of the underlying assets might also get partitioned into different tranches, adding to the confusion. And finally, short sellers can work on just about any joint in the structure.

And here's the really big rub. Suppose the party providing the initial insurance protection – having already collected its upfront payment and premiums – doesn't have the money to pay the insured buyer when a default occurs. Or suppose the "insurer" goes bankrupt. In either instance, the buyer who thought he was protected finds himself left naked and alone.

However, that possibility seems not to have been considered as the financial world created an interlocking system of derivatives that not even a Cray supercomputer could sort out. The only certainty: it was an arrangement that depended on a robust economy and rising house prices.

Except, of course, things didn't work out that way.

When the housing slump hit, defaults in the relatively small subprime sector (less than 20% of mortgages) started a chain reaction that raced through the derivatives market, the effects compounding geometrically, until finally the world financial structure was facing collapse.

Glass-Steagall Act: Capital & the Capitol

When capital is allocated in a free market, it moves toward the productive, and the economy tends to prosper. By the same token, when it is misallocated, an economy can hit the skids.

We've had decades of misallocated capital in the United States. Instead of saving, we've been spending...and spending way beyond our means. Rather than investing in something productive, we've been gambling, taking on ever greater risks in the hope of the big payoff. Instead of creating the clean balance sheets that support stability – at all levels, personal, corporate, and governmental – we've piled up mountains of unsustainable debt.

The tragedy is that the prudent will suffer right along with the reckless. Misallocations of capital must be unwound, one way or another, before the economy can get back on its feet. It will be no simple task, and it's made even more difficult by those who put themselves in charge of the clean-up: certain residents of Washington, D.C.

At the center of the storm are two men who propose to save the nation, and they could hardly be more different.

Secretary of the Treasury Henry Paulson is the Street's guy. The former CEO of Goldman Sachs, the most powerful and successful investment bank, he brings a Wall Street insider's perspective to the table. However committed to public service he may be, he cannot be expected to act against the interests of his friends in the banking community.

And then there's Fed chairman Ben Bernanke, a pure academician. For better or worse, Bernanke's specialty is America's Great Depression, and he considers himself an expert on the subject. Above all else, he wants to be remembered as the guy who understood how to steer the country away from the shoals of a Second Great Depression.

But there is no question that Big Ben and Hammerin' Hank are trying to navigate in unfamiliar waters. Today's economy hardly mirrors that of a decade ago, much less the conditions of the 1930s. For one thing, the Glass-Steagall Act separating commercial from investment banks has been...and gone.

Back in the spring of 2007, as the initial cracks in the current structure began to appear, few were expecting the broken-levee crisis that has since unfolded. A handful of savants saw it coming and said so, but no one in the mainstream was listening. What was actually happening was that the first dominoes – subprime borrowers who should never have been approved – had begun to fall.

In and of themselves, they would have been little more than straws in the wind. But because of the multiplier effect of the derivatives market, their influence reached far beyond a few blown mortgages. As more and more debtors were unable to pay, mortgage-backed securities lost value. And then the securities based on the MBSs lost value. And then the CDS written and sold against them.

Here's where CDSs were in fact supposed to ride to the rescue. They didn't, for the simple reason that they had long since strayed far from their original insurance intent, and become primarily an instrument that gave derivatives market players access to an asset class (mortgages) without having to actually own the asset.

As MBS values were hammered by defaults on the underlying loans, buyers of CDS protection began trying to collect. That hit CDS sellers, who were being drained of cash. Further out, derivatives speculators who had bet the wrong way defaulted or went bankrupt, sending shockwaves back down the line. Slowly at first, and then with increasing speed, the capital necessary to keep the system alive started drying up.

Glass-Steagall Act: Riding Roughshod Across the Division of BanksEveryone is familiar by now with the institutions that have collapsed or been bought out or taken over by the government. The list of names is stunning: Bear Stearns, Countrywide Credit, MBIA, Fannie Mae, Freddie Mac, AIG, Lehman Brothers, Washington Mutual, Merrill Lynch, Wachovia. Wall Street has undergone a transformation unimaginable a year ago. The big investment banks are gone – bankrupted or swallowed up by someone else. Even the two that remain standing, Goldman and J.P.Morgan, have had to reinvent themselves as bank holding companies to save their own hides, riding still further across the division of commercial and investment banking which Glass-Steagall set up.

The movement of capital among financial institutions is based not only on integrity but on confidence. Right now, that confidence has evaporated. Banks are carrying so much paper of indeterminate value that it's impossible to price in the risk of making a loan. So they aren't lending to each other, out of fear that they'll never get their money back. The credit market, upon which our economy depends, has seized up. When the government finally got around to admitting that there was a problem, it was already too late for any simple fix. So Washington had only two options: stand back and let the market sort things out...or take drastic, emergency action.

No one knows quite what to make of Washington's response to the credit crisis. Some are howling that it's socialism, others that it's fascism or, at best, corporatism, an unholy alliance of private enterprise and the state.

Whatever the name, there is no question that the government is boldly going where none has gone before, helping to bail out some financial institutions and seizing control of others.

The Treasury Department now has $700 billion – albeit with some strings attached – with which it can buy up toxic waste paper through the Troubled Asset Relief Program (TARP). Taking this direction, instead of making direct loans, allows the "assets" they buy to be resold somewhere down the road. And perhaps, the plan's defenders say, even at a profit. Like that's gonna happen!

Proceeding in ways never before tried, in early October the Fed announced it was opening the Commercial Paper Funding Facility. For the first time, it will buy unsecured paper debt. To facilitate this and to cover potential losses, the Treasury will deposit an unspecified amount at the Fed. This is in addition to the Treasury's own buying spree, and the Fannie Freddie conservatorship, and the expansion of the FDIC to cover deposits up to $250,000, a move likely to send that agency back to the Treasury for another fill-up.

So far, however, all the government's actions to date have accomplished precious little. For the time being, credit remains frozen. Banks are still making overnight loans to other banks, but only very selectively. The stock market, despite coming off its lows, is extremely volatile after enduring its worst crash ever. Commodities have sold off. States and municipalities are facing severe budget cuts and, in some cases, bankruptcy. Money markets are in trouble. Pensions and retirement funds are at risk. And recession, or worse, looms increasingly large on the horizon.

Nor is the crisis purely an American problem. Much of the US bad paper was sold to gullible Europeans, and world economies and markets are so interconnected that if one sneezes, someone else catches a cold. Already there have been big bailouts in Germany and the United Kingdom. The Irish government recently announced it was guaranteeing all bank deposits, which attracted a flood of money from elsewhere in the European Union, enraged other members of the EU and raising questions of how long that shaky confederation can endure as each country charts its own path through the economic minefield.

This is a once-in-a-lifetime event, a train to nowhere, and it will cause no end of suffering. Since we can't stop it, we'll do the next best thing, which is to protect ourselves. That means assessing the likely fallout from the government's meddling in the market, and developing guidelines for the best way to ride out the hurricane.

Some consequences are already baked in the cake. Casey Research Chief Economist Bud Conrad has been studying the unfolding crisis for years. Based on his work, this is what we foresee:

More financial institutions will collapse. So will many hedge funds. Money market funds are also shaky; although the government will do all it can to keep them solvent, those that invest in anything but Treasury bills are at risk.
The economy will fall into recession. By most lights, it's already here. It won't be brief, and there is even a chance that despite all the Fed's pump priming, we could drop into a depression. For however long credit remains tight, business will be unable to function normally, and the consumer-driven economy will grind to a halt.
The whole structured finance model under which we've been operating is broken. The packaging of mortgages and other forms of consumer debt is impossible when no one will buy the packages. The trillions of dollars of outstanding mortgage derivatives will have to be unwound somehow.
Without debt leverage, private equity financing is dead. Raising money for business start-ups or expansion will be extremely challenging. IPOs will be few and far between. Leveraged buyouts are gone. Mergers and acquisitions will mostly be limited to distress sales.
At best, the government will succeed at what it's trying to do, i.e., stave off a depression, by sacrificing the dollar and allowing a fairly high level of inflation. If we're lucky, it won't turn into hyperinflation.
Interest rates are going up. On the day of the coordinated, worldwide rate cut, the Fed lowered its discount rate by 50 basis points, yet the yield on the 10-year Treasuries rose from 3.5 to 3.7%. The Fed's credibility is about shot, in other words, as it has debased its own balance sheet by swapping good debt for bad. With more than half of its reserves gone, it could itself become the subject of a Treasury Department bailout.
It is highly likely that the era of US economic dominance, when the almighty Dollar served as the reserve currency of the world, is drawing to a close.
But on the bright side...well, there is no bright side. The hole that we've dug for ourselves will take a while to climb out of, and it won't be easy. But at least you can protect yourself.

Protecting your assets is not just a buzzword anymore, it's mandatory if you want to keep yourself and your family financially safe in these tough times...which will only get tougher in the near future.
Doug Casey, 10 Nov '08

$183 million of her company’s money disappeared

National Century investor describes final days
Business First of Columbus - by Kevin Kemper

Not realizing National Century Financial Enterprises Inc. was sinking until it was too late, an investor testified in the fraud trial against the company’s former CEO that $183 million of her company’s money disappeared when Dublin-based National Century went under.

Amy Boothe, a former executive at AllianceBernstein Holding LP, told a 16-member jury assembled in U.S. District Court in Columbus on Thursday that just before National Century collapsed, Lance Poulsen attempted to downplay his company’s problems using technical jargon.

Boothe, the government’s final witness against Poulsen, said her company first purchased National Century bonds in 2000. National Century, once the largest financier of health-care providers, purchased accounts receivable from doctors’ offices and hospitals at a discount in exchange for quick cash the providers could use to pay their bills. National Century would then securitize those accounts receivable into bonds that it sold on the open market to investors like Alliance.

Boothe said Alliance purchased National Century’s AAA-rated bonds because the company’s executives reassured her and others that the bonds were safe investments and that the company operated efficiently. By late May 2002, Alliance had been experiencing good returns on its National Century investments, but became concerned when the rating agency Fitch Inc. placed National Century bonds on watch for potential downgrade.

After learning of Fitch’s warning, Boothe and other investors went to National Century’s offices in June 2002 to meet with Poulsen. Boothe said Poulsen reassured them about the company’s health so Alliance continued to hold National Century bonds.

In late October, however, Boothe said Poulsen informed her in a voice mail that National Century’s NPF XII bond fund was experiencing a “technical default.” Boothe said she became worried because she understood that the bond funds were designed so that something like a “technical default” would not happen. A fax sent to Boothe from National Century explained the default as a business decision to extend unsecured credit to clients so they could stay in business.

“We thought it was a willful violation of the (governing) documents,” Boothe said.

So does the government. Prosecutors have alleged that decision was actually part of a nearly decade-long pyramid scheme in which National Century was sending millions of dollars to companies owned by Poulsen without purchasing the accounts receivable. Poulsen is standing trial in Columbus, accused of orchestrating the alleged fraud. The government has charged him with conspiracy, securities fraud and wire fraud. He has pleaded not guilty to all charges

As investors became more concerned, Boothe said they held conference calls with Poulsen and other National Century executives about their investments. In an Oct. 25, 2002 call, Boothe said she asked if National Century was considering a sale of itself to remain viable. She wrote in her notes that Poulsen replied that although National Century had always kept that option open, a sale wasn’t necessary because it was profitable and healthy.

Just two weeks later, National Century would file for Chapter 11 bankruptcy protection.

After the conference calls, a group of investors put together a committee to go visit National Century on Oct. 27. After some brief talks, Boothe said Poulsen kicked the group out. The next day, the group went back to National Century for a presentation by Poulsen on how National Century planned to right itself.

Poulsen talked about “future receivables” in the presentation, Boothe said, which was a term none of the investors had ever heard. The government has alleged that “future receivables” were nothing more than illegal unfunded advances National Century was making to Poulsen-owned companies.

“We at Alliance concluded that most of what (Poulsen) had been telling us wasn’t true,” Boothe said.

Attempting to show that Alliance’s large loss was due more to a lack of due diligence than anything that happened at National Century, Poulsen attorney Peter Anderson quizzed Boothe on the finer points of finance. First Anderson attempted to get Boothe to admit that health care securitization is complicated. Boothe disagreed, arguing that health care securitization is no more complicated than other types of financing, just different.

Anderson then asked Boothe about some of the technical aspects of National Century’s business. He asked if Boothe had ever read the annual audits of National Century by Deloitte & Touche. Boothe said that she had not. He then asked who the bank trustees were for National Century’s bond funds and in what governing documents those responsibilities were laid out.

“I don’t know exactly what they did,” Boothe said of the trustees.

Boothe had a similar answer when Anderson asked her what information and methods ratings agencies used to determine the investment grade of National Century’s bonds. He also cited a passage from the offering memoranda of National Century’s bonds that essentially told investors to rely on National Century’s governing documents to understand how the company worked. Boothe responded that investors should have been able to rely on statements from National Century’s executives when they made a decision to buy the bonds.

Anderson also asked Boothe about some lawsuits that might have been filed against Alliance due to its investment in National Century, and a $258 million fine levied by the SEC against the firm. Before Boothe could get far into her answer, U.S. District Court Judge Algenon L. Marbley called a sidebar meeting of the attorneys. When the meeting concluded, Marbley instructed the jurors that those questions were irrelevant and would be stricken from the record.

Anderson concluded by asking Boothe more questions about her due diligence.

“If you had questions, you could have dug deeper to find certain facts. Is that right?” Anderson asked. “... You just relied on information provided by others?”

His last question was if Boothe was in court to settle a score.

“I was subpoenaed,” she said.

Prosecution rests....

Prosecution rests in National Century case
Thursday, October 23, 2008 9:42 PM
By Jodi Andes

THE COLUMBUS DISPATCH

Federal prosecutors rested their case today against National Century Chief Executive Lance K. Poulsen, accused of masterminding the country 's largest case of private fraud.

But before resting their case, prosecutors dismissed a money-laundering charge that was one of 13 counts Poulsen faced.

Poulsen is being tried in U.S. District Court in Columbus on fraud charges tied to the company's 2002 collapse. Private investors, including pension funds, lost billions, with $2billion yet to be recovered.

In the first 12 days of the trial, federal prosecutors called nine witnesses: four former National Century employees, an FBI agent, a CEO of an investment company, and two health-care officials, before concluding yesterday with a financial analyst.

Prosecutor Leo Wise said the money-laundering charge was dropped after a review of the case.

Initially, prosecutors had planned to prosecute Poulsen with other National Century executives. But with Poulsen being prosecuted alone, Wise said that particular money-laundering charge might be confusing for jurors.

Poulsen's attorneys didn't object.

"If they want to dismiss other counts, they can feel free to do so as well," defense attorney Peter Anderson said.

Poulsen, 65, still faces charges of conspiracy to defraud, wire fraud, money laundering conspiracy, three other counts of money laundering, and six counts of securities fraud.

The government's prosecution team is handled by local Assistant U.S. Attorney Doug Squires; FBI special agent Ingrid Schmidt, who is a lawyer; and two U.S. Department of Justice trial attorneys, Kathleen McGovern and Wise, who prosecuted employee fraud at Enron.

Amy Boothe, an analyst for Alliance Capital, was the prosecution's last witness today. She testified that she began purchasing National Century notes for investors in May 2000, after believing the company bought only highly secure accounts receivable from health-care providers.

Poulsen's defense attorneys are expected to begin presenting their case Monday, calling FBI Special Agent Matt Daly, who was the case's primary investigator.

It should take about three days to present the defense, Poulsen's attorneys told federal Judge Algenon L. Marbley.

jandes@dispatch.com

One person contributed to this 'MASSIVE ' Cover up? Really?

"This case is about lies and cover-ups," Squires said. "This case is about Lance Poulsen and how Lance Poulsen promised one thing and did another, and how Lance Poulsen orchestrated a cover-up, a massive cover-up."


Prosecutor: Former CEO in Ohio lied to investors
By JULIE CARR SMYTH 10.02.08, 12:54 PM ET

COLUMBUS, Ohio - The former chief executive of a failed health care financing company fabricated company data, kept two sets of books and lied to investors, a federal prosecutor said Thursday during opening statements of a $1.9 billion corporate fraud trial.

Lance Poulsen, founder of National Century Financial (other-otc: CYFL.PK - news - people ) Enterprises, misused investors' money and broke promises, said Assistant U.S. Attorney Doug Squires. Authorities have likened the case to a privately held-company version of the Enron or WorldCom scandals.

"This case is about lies and cover-ups," Squires said. "This case is about Lance Poulsen and how Lance Poulsen promised one thing and did another, and how Lance Poulsen orchestrated a cover-up, a massive cover-up."Poulsen, 65, has pleaded not guilty. He's characterized himself as a rags-to-riches success story whose legitimate business was destroyed by the government.

A jury in March convicted five of Poulsen's co-defendants of multiple charges of fraud and money laundering.

Defense attorney William Terpening told jurors a lot of the case against Poulsen boils down to a misunderstanding.

He said major auditing firms, law firms, banks and rating agencies were involved in monitoring the company.

"We do want to point out that if anything was wrong at National Century Financial Enterprises in terms of actual fraud, wouldn't someone have raised their hands?" Terpening said.

The government will show evidence that Poulsen kept two sets of books and signed off on falsified reports, Squires said. Investors also planned to testify against Poulsen.

Terpening said every government witness has a vested interest in providing testimony.

"When things fell apart, everyone wanted something to blame," he said.

Poulsen was convicted in March of conspiracy, witness tampering and obstruction of justice for trying to bribe a former employee expected to testify against him. He was sentenced in August to 10 years in prison.

Poulsen founded National Century Financial Enterprises in Dublin, Ohio, in the early 1990s.

The business offered financing to small hospitals, nursing homes and other health care providers by purchasing their accounts receivable, usually for 80 or 90 cents on the dollar, so they wouldn't have to wait for insurance payments. National Century then collected the full amount of the payments.

The company raised the money to fund its business by selling bonds to investors. It declared bankruptcy in 2002 after the FBI raided its offices.


Copyright 2008 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed

Citigroup Agrees to Pay $120 Million to Settle SEC Allegations

The perception is that the financial crisis is to be credited to 'low-income housing'? Referencing the proclamation from President Bush in 2003, what was involved in the "Administration-wide effort to bring new tools and resources to would-be homeowners."?



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 opportunities 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.





The idea of "re-regulate the industry along the lines of Glass-Steagall" may help; however we should understand what happened shortly after this de-regulation? We need to get to the root of this problem!



Corporate Bankruptcy, DIP (Debtor in Possession) Financing (Darla Moore's invention) and Healthcare fraud would be a great start. To credit 'mortgage-back securities' as the problem I believe is leading us down the wrong path to the root of our financial meltdown. If anyone can follow this, I believe it is you Mr. Kucinich.

Darla Moore, wife of Richard Rainwater, "All of a sudden, this product I had created was the 'product du jour.' ((DIP) financing) Nobody in the country had any kind of infrastructure or knowledge that could address this, other than what I had developed over a several-year period. I was the only person with the expertise, and our area was the only one making any money. It had become a powerful profit center within the bank." (Chemical Bank, then Chase, Now J P MorganChase)



One must wonder about the mortgage-related securities JPMorgan is taking onto its books. JPMorgan is taking on about $176 billion of WaMu home loans, and marking down almost $31 billion of that right off the bat. Just before the Real Estate crash in 2007, JPMorgan Chase financed Richard Rainwater's REIT, Crescent (CEI) sale. These are not the only questionable liabilities JPMorgan has taken on.

Jul 28, 2003

2003-87
SEC Settles Enforcement Proceedings against J.P. Morgan Chase and Citigroup
FOR IMMEDIATE RELEASE
J.P. Morgan Chase Agrees to Pay $135 Million to Settle SEC Allegations that It Helped Enron Commit Fraud
Citigroup Agrees to Pay $120 Million to Settle SEC Allegations that It Helped Enron and Dynegy Commit Fraud

Who is James K Happ? Columbia Homecare Group! Richard Rainwater

Who is James K Happ, perhaps the most important criminal of all? If only reporters would follow the money with this ex-CFO of Columbia Homecare Group, Inc., NCFE and Med Diversified Inc. (Can you follow the money?)

In 1998, a time when no one wanted homecare companies, stated in SEC records, James K Happ assisted with the divestiture of the losing homecare group within HCA/TN Inc.: Columbia Homecare Group Inc. And who is related to that group? Richard Rainwater and Richard Scott. Who is Richard Rainwater? G W Bush's ex-partner)
Who financed this divestiture of Columbia Homecare Group, Inc.? NCFE, National Century Financial Enterprises Inc.

Sorce : http://bankrupt.com/TCR_Public/040922.mbx

"...After the sale transaction between HCA and Medshares,
Medshares continued to receive periodic interim payments
from Medicare under HCA's provider number..."

How was it a 'sale' if Medshares collected payments from HCA's provider number?

JPMorgan Chase, Citigroup, James K Happ, Columbia Homecare Group, Richard Rainwater, aka HCA

"Ponzi scheme that raised $60 million from investors across the country"


The push to credit 'mortgage-back securities' as the causal effect of our financial crisis is very troubling and misleading.

Yes,the home mortgage crisis is a huge contribution, however do you honestly believe Iceland, a Country, has gone bankrupt because of 'low income'or 'mortgage backed securitues'?
We cannot continue to allow the false rhetoric to soar and the truth to be buried. If we continue to blame 'mortgage-backed securites" as the root of the problem, justice will never be ceased.

We need to get to the root of this Global Financial Crisis, whatever the outcome.

Remember, Corporate Bankruptcy,Debtor in Possession Financing,(Darla Moore's invention-Richard Rainwater's wife), Healthcare Fraud and REIT's would be a great start.

I believe we should go back to 1997. The year Healthcare Reform was passed.

In 1997, the largest healthcare company in the nation was the "Frist Family" and friends' Hospital Corporation of America , HCA, or any one of their affiliates...There are many players here so try to keep up!

FOR IMMEDIATE RELEASE
THURSDAY, JUNE 26, 2003
WWW.USDOJ.GOV
LARGEST HEALTH CARE FRAUD CASE IN U.S. HISTORY SETTLED
HCA INVESTIGATION NETS RECORD TOTAL OF $1.7 BILLION

WASHINGTON, D.C. - HCA Inc. (formerly known as Columbia/HCA and HCA - The Healthcare Company) has agreed to pay the United States $631 million in civil penalties and damages arising from false claims the government alleged it submitted to Medicare and other federal health programs, the Justice Department announced today.

One must wonder about the mortgage-related securities JPMorgan is taking onto its books. The following are not the only questionable liabilities JPMorgan has taken on that Richard Rainwater was directly involved with and I am not referring to oil.

JPMorgan is taking on about $176 billion of WaMu home loans, and marking down almost $31 billion of that right off the bat.

Just before the Real Estate crash in 2007, JPMorgan Chase financed Richard Rainwater's REIT, Crescent (CEI) sale. (Many investors wondered about this move)

Jul 28, 2003
2003-87
SEC Settles Enforcement Proceedings against J.P. Morgan Chase and Citigroup
FOR IMMEDIATE RELEASE
J.P. Morgan Chase Agrees to Pay $135 Million to Settle SEC Allegations that It Helped Enron Commit Fraud
Citigroup Agrees to Pay $120 Million to Settle SEC Allegations that It Helped Enron and Dynegy Commit Fraud

The following is an excerpt from a 10-K SEC Filing, filed by J P MORGAN CHASE & CO on 3/9/2006: Enron litigation. JPMorgan Chase and certain of its officers and directors are involved in a number of lawsuits arising out of its banking relationships with Enron Corp.

The three current or former Firm employees are sued in their roles as former members of NCFE's board of directors
National Century Financial Enterprises litigation. JPMorgan Chase, JPMorgan Chase Bank, JPMorgan Partners, Beacon Group, LLC and three current or former Firm employees have been named as defendants in more than a dozen actions filed in or transferred to the United States District Court for the Southern District of Ohio (the "MDL Litigation"). In the majority of these actions, Bank One, Bank One, N.A., and Banc One Capital Markets, Inc. are also named as defendants.

JPMorgan Chase Bank and Bank One, N.A. are also defendants in an action brought by The Unencumbered Assets Trust ("UAT"), a trust created for the benefit of the creditors of National Century Financial Enterprises, Inc. ("NCFE") as a result of NCFE's Plan of Liquidation in bankruptcy.
"...the Order finds that JPMorgan Chase was a cause of NCFE's violations of Section 17(a)(3) of the Securities Act, requires JPMorgan Chase to cease and desist from committing or causing any violations and any future violations of Section 17(a)(3) of the Securities Act, and orders JPMorgan Chase to pay disgorgement of $1,286,808.82 and prejudgment interest of $711,335.76. JPMorgan Chase consented to the issuance of the Order without admitting or denying any of the findings therein."

JP Morgan Settles SEC Proceeding Relating to Activities as Trustee to National Century Financial Enterprises

The SEC settled administrative proceedings against JPMorgan Chase & Co relating to its activities as an asset-backed indenture trustee for certain special-purpose subsidiary programs (programs) of National Century Financial Enterprises, Inc. (NCFE), formerly a Dublin, Ohio healthcare financing company, during the approximate period 1999-2002. According to the SEC's Order, JPMorgan Chase and Bank One Corporation, which merged into JPMorgan Chase in 2004, at the instruction of NCFE, made transfers between reserve accounts in the programs that contradicted NCFE's representations to investors about how the reserve accounts would be used and contravened the requirements of the indentures governing the programs. In addition, the Order finds that pursuant to NCFE's instructions, JPMorgan Chase and Bank One made month-end transfers of huge amounts of reserve account funds and that these transfers helped NCFE mask substantial and growing reserve account shortfalls. Based on the above, the Order finds that JPMorgan Chase was a cause of NCFE's violations of Section 17(a)(3) of the Securities Act, requires JPMorgan Chase to cease and desist from committing or causing any violations and any future violations of Section 17(a)(3) of the Securities Act, and orders JPMorgan Chase to pay disgorgement of $1,286,808.82 and prejudgment interest of $711,335.76. JPMorgan Chase consented to the issuance of the Order without admitting or denying any of the findings therein. In the Matter of JPMorgan Chase & Co.

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 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

A little history of National Century Financial Enterprises (NCFE):
Prior to bankruptcy, NCFE provided financing to various healthcare providers through wholly-owned special-purpose vehicles,including NPF VI and NPF XII, which purchased discounted accounts receivable to be paid under third-party insurance programs. NPF VI and NPF XII financed the purchases of such receivables, primarily through private placements of notes.

National Century defendants to be sentenced in July
Monday, June 30, 2008 9:03 AM
By Jodi Andes

THE COLUMBUS DISPATCH
Five National Century defendants will soon find out the price they will pay for their roles in the nation's largest case of private-sector fraud.

And all this came from Lance Poulsen? He stated "These experiences prepared me well to begin my own insurance business in Columbus in 1986 called the Poulsen Group. And, as a result of that venture, NCFE became a reality in 1991."

TUESDAY, JULY 10, 2007
FOR IMMEDIATE RELEASE
http://www.usdoj.gov/usao/ohsn
SUPERSEDING INDICTMENT CHARGES FORMER EXECUTIVES OF HEALTH CARE FINANCING COMPANY WITH CONSPIRACY, FRAUD, MONEY LAUNDERING

COLUMBUS – A federal grand jury here today returned a superseding indictment charging eight former executives of National Century Financial Enterprises (NCFE) with conspiring to defraud investors by diverting millions of dollars in investors' funds, fabricating data in investor reports, and moving money back and forth between accounts in order to conceal investor fund shortfalls. NCFE, based in Dublin, Ohio, was one of the largest healthcare finance companies in the United States until it filed for bankruptcy in November, 2002.
All defendants, except for James K Happ, were initially indicted in May, 2006. United States District Judge Algenon L. Marbley will preside over the case which is scheduled for trial on November 5, 2007.

"All defendants, except for Happ..."
Who is James K Happ?

James K Happ has an interesting employment history.

SEPTEMBER 9, 2003
Source: ANNUAL MEETING OF STOCKHOLDERS-SEPTEMBER 9, 2003-Med Diversified Inc.
JAMES K. HAPP has served as chief executive officer of our subsidiary,
Tender Loving Care Health Care Services, Inc., since October 2002.
Previously, Mr. Happ served for three years as executive vice president of NCFE,
during which time he restructured the servicer department to improve operational
Performance and accelerated the utilization of technology to increase operational
efficiency. Mr. Happ also served as chief financial officer of the
Dallas-based Columbia Homecare Group, Inc., a home care company with more than 500 locations nationwide and more than $1 billion in revenue in 1997.

In this role, he directed the company through the challenging reimbursement climate, known as the interim payment system, and participated in the divestiture of all of Columbia/HCA's home care operations. (All of which are in the Bankruptcy case in Tennessee) Who owned Columbia Homecare Group, Inc.?

What about the missing executive who has yet to go on trial? James K Happ , the ex-CFO of Columbia Homecare Group?

Lance Poulsen of National Century Financial Enterprises convicted
A federal jury finds the former chief executive guilty of defrauding investors of $2.9 billion before his healthcare financing company collapsed in 2002.
November 1, 2008


Lance Poulsen, former chief executive of National Century Financial Enterprises Inc., was convicted Friday of defrauding investors of $2.9 billion before his healthcare financing company collapsed in 2002.

A federal jury in Columbus, Ohio, found Poulsen guilty of fraud, conspiracy and money laundering. Poulsen, 65, cheated investors who bought National Century bonds to back the purchase of unpaid insurance bills from medical providers that needed cash, prosecutors said. The company advanced $2.2 billion to six companies in which Poulsen owned stakes, they said.
National Century's collapse hastened the bankruptcies of 275 hospitals and other healthcare providers, authorities say. The victims included Pacific Investment Management Co., the world's largest bond fund manager. Newport Beach-based Pimco lost $283 million and Credit Suisse Group lost $257 million, prosecutors said.

Poulsen, who founded the Ohio firm, faces 30 years to life in prison. He already is serving 10 years after being convicted in March of trying to bribe the main witness against him. Six National Century executives have been convicted, as well as four who pleaded guilty.

one count of conspiracy, one count of wire fraud and money laundering conspiracy, four counts of concealment of money laundering and six counts of securities fraud in connection with the company’s 2002 collapse which cost investors about $1.9 billion.


Lance Poulsen Convicted On All Counts
November 1, 2008 in Health Fraud, Securities Fraud by Dave Westheimer | No comments

After only about four hours of deliberation, a jury in US District Court in Columbus has convicted former National Century Financial Enterprises CEO and co-founder Lance Poulsen on one count of conspiracy, one count of wire fraud and money laundering conspiracy, four counts of concealment of money laundering and six counts of securities fraud in connection with the company’s 2002 collapse which cost investors about $1.9 billion. The testimony of the government’s star witness, former executive VP for compliance Sherry Gibson, was central to the prosecution’s case. Gibson’s testimony was critical in the trial which resulted in the March convictions of five other former National Century executives. In addition, jurors heard Gibson testify about the attempt of Poulsen and his associate Karl Demmler to bribe her to change her story; Poulsen was convicted in that case and sentenced to 10 years in prison in August. US District Judge Algenon Marbley did not immediately set a sentencing date in this case (Columbus Dispatch, Columbus Bizjournal).

Where is the ex-CFO of Columbia Homecare Group? James K Happ?

Guilty on all 12 counts
Former chief executive could get life in prison for defrauding investors
Saturday, November 1, 2008 3:25 AM
By Jodi Andes

THE COLUMBUS DISPATCH
Lance K. Poulsen stood motionless to hear the verdict -- guilty on all 12 counts in a fraud that cost investors more than $2 billion and could cost Poulsen the rest of his life in prison.

When U.S. District Judge Algenon L. Marbley allowed him to be seated, the 65-year-old Poulsen paused, then grabbed both sides of his chair as if to steady himself.

Minutes later, he turned to his wife, Barbara, seated in the courtroom gallery, and mouthed the words, "I am so sorry."

Lance Poulsen was one of the founders and the chief executive officer of National Century Financial Enterprises, which began in 1991 to offer financing to small hospitals, clinics, nursing homes and other health-care providers. Using investors' funds, the Dublin company bought the providers' debt and gave them cash to cover expenses. It kept a fee or percentage of what was collected.

Prosecutors said National Century officials misused investors' money, often to enrich themselves, and made unsecured loans to providers, in some cases companies that the officials owned or had an interest in. Prosecutors referred to photographs of Poulsen on his 60-foot yacht.

When National Century went under in November 2002, at least 275 health-care companies collapsed in its wake.

Defense attorneys had argued that National Century had used acceptable business practices in its dealings with companies and investors. Some even invested millions of their own money in the company.

But even a consultant who said the company's business dealings were sound in August 2002 wrote Poulsen a few months later that the practices prompted "pause and concern," prosecutors countered.

Five former National Century executives were convicted on fraud charges in March. Four pleaded guilty. Authorities were still seeking the fifth, Rebecca S. Parrett, who failed to show for a court date in Arizona.

During their four hours of deliberations yesterday, jurors went through the counts one by one, reviewing evidence. They were surprised when they realized they had convicted Poulsen of all the charges, the jury foreman, who wanted to be identified only as Bill, said after the session in the federal courthouse in Columbus.

Defense attorneys William Terpening and Peter Anderson said they would appeal the verdict.

They had objected during the trial to jurors hearing details about the witness-tampering and obstruction-of-justice charges on which Poulsen was convicted earlier this year. Prosecutors said he had tried to get a government witness to fake amnesia; he was sentenced to 10 years in prison in August.

Terpening also said the defense was concerned about the complexity and volume of materials jurors were asked to digest. However, the foreman said prosecutors had broken down the evidence so it was concise and understandable, and had presented only nine witnesses.

A pre-sentence investigation must be conducted on Poulsen before he is sentenced.

Also, prosecutors said that a 13th count, in which they will try to recoup some of the losses from Poulsen, will be argued later. jandes@dispatch.com