"Tea Baggers" take note- Bigger than Enron

TruthDig
By Robert Scheer
April 15, 2009

Robert Scheer is the editor of Truthdig, where this article originally appeared. His latest book is The Pornography of Power: How Defense Hawks Hijacked 9/11 and Weakened

One wonders if Phil Gramm has been made just a tad nervous by the news on Tuesday that one of UBS's super-wealthy private clients has pleaded guilty to tax evasion. That's the second case in two weeks involving the bank at which the former senator is a vice chairman, and 100 other clients are under investigation for possible bank-assisted tax fraud.

Gramm, the Republican former chair of the Senate Finance Committee, where he authored much of the deregulatory legislation at the heart of the current banking meltdown, has for the six years since he left office helped lead a foreign-owned bank specializing in tax dodges for the wealthy. These schemes by the Swiss-based UBS not only force the rest of us taxpayers to pay more to make up the government revenue shortfall but are blatantly illegal. In February, UBS admitted to having committed fraud and conspiracy and agreed to pay a fine of $780 million. Republican "Tea Baggers" take note: Offshore tax havens do not equal populist revolt.

In the UBS "deferred prosecution agreement" with the Justice Department, the bank agreed to turn over the names of its secret account holders to avoid a criminal indictment. The complicity of top executives in this far-ranging scheme to use foreign tax havens to cheat the US treasury of billions in uncollected taxes was noted at the time in a Justice Department statement: "Swiss bankers routinely traveled to the United States to market Swiss bank secrecy to United States clients interested in attempting to evade United States income taxes."

What did Gramm think all of those Swiss bankers from his firm were doing over here? Was he totally clueless? The Justice Department statement suggests otherwise: "UBS executives knew that UBS's cross-border business violated the law. They refused to stop this activity, however, and in fact instructed their bankers to grow the business. The reason was money--the business was too profitable to give up. This was not a mere compliance oversight, but rather a knowing crime motivated by greed and disrespect of the law."

Is it conceivable that this "knowing crime," so widespread within the UBS enterprise, was unknown to Vice Chairman Gramm--even though it primarily involved US tax evasion, and he had been hired by the company because of his expertise in American law, some of which he helped to write? As Gramm said when he was hired in 2002 by UBS, the position "will provide me with the opportunity to practice what I have always preached. I have been involved in every major financial debate since I've been in the Congress."

How could Gramm, who prides himself on expertise in these matters, have been unaware of the damage that the Swiss bankers who worked for him were doing to American taxpayers saddled with making up the shortfall in government revenue? As the Justice Department said: "In 2004 alone, Swiss bankers allegedly traveled to the United States approximately 3,800 times to discuss their clients' Swiss bank accounts.

The information further alleges that UBS managers and employees used encrypted laptops and other counter-surveillance techniques to help prevent the detection of their marketing efforts and the identities and offshore assets of their U.S. clients."

But then again, if you are Phil Gramm or his wife, Wendy, you might expect to get away with a great deal in the way of financial machinations. After all, neither has ever been held legally responsible for the Enron debacle, in which the Gramms played a major part.

As a top government regulator, Wendy Gramm changed the rules to make Enron's chicanery possible, and as the chairman of the Senate Finance Committee, Phil codified those rule changes into federal law. While Enron execs like Chairman Ken Lay (a major Gramm campaign contributor) were indicted, the charmed couple that created the loopholes Lay and others jumped through escaped legal responsibility.

After leaving the government, Wendy Gramm joined Enron's board, where she headed the audit committee that managed to avoid auditing the company's disgraceful accounting procedures--just as her husband has apparently looked the other way during his stint in the private sector with UBS.

Sure, Phil Gramm lost his position as the co-chairman of John McCain's presidential campaign when he blamed the recession not on the banking deregulation he championed but rather the people of the United States, which he described as a "nation of whiners." But that was a sideshow compared with the serious charges now swirling around UBS, charges that may finally prove to be Gramm's undoing.
http://www.thenation.com/doc/20090427/scheer?rel=emailNation

Leo J. Wise, Staff Director & Chief Counsel

OFFICE OF CONGRESSIONAL ETHICS
UNITED STATES HOUSE OF REPRESENTATIVES
WASHINGTON, D. C. 20515
FOR IMMEDIATE RELEASE Contact: Leo Wise
April 15, 2009 oce@mail.house.gov

PRESS ADVISORY:
OFFICE OF CONGRESSIONAL ETHICS RELEASES FIRST QUARTER REPORT
The Office of Congressional Ethics, established by the House of Representatives, is an independent, non-partisan entity charged with receiving and reviewing allegations of misconduct concerning House Members and staff and, when appropriate, referring matters to the Committee on Standards of Official Conduct (commonly referred to as the Ethics Committee).
Consistent with the desire of the House for more transparency in these matters, the OCE released today a report of its activities for the first quarter, January to March, of 2009.

# # #

Leo J. Wise, Staff Director & Chief Counsel
1017 Longworth House Office Building
(202) 225-9739
(202) 226-0997 fax

David Skaggs, Chair Porter Goss, Co-Chair
Yvonne Burke Jay Eagen
Karan English William Frenzel
Allison Hayward Abner Mikva

In 1997, as part of Richard Scott's severance package from Columbia he was paid $5.13 million and given a five year consulting contract at $950,000 per year

1997 + 5 = 2002

Remember- 1997 Columbia just decided to sell its home health-care business.

In 2002 FBI raided the offices of National Century Financial Enterprises in Dublin, Ohio

“This case is one of the largest corporate fraud investigations involving a privately held company headquartered in small town America,” said Assistant Director Kenneth W. Kaiser of the FBI Criminal Investigative Division.

Guess where those home health care units were found?

Yes- "...largest corporate fraud investigations involving a privately held company headquartered in small town America,”

Why the need for ‘healthcare financial service’ i.e. (NCFE) National Century Financial Enterprises?

Home health - which was struggling under the Balanced Budget Act of 1997; about 1,400 agencies closed nationwide in 1998.


On Sept 8, 1998 Standard and Poors downgraded the bonds of Charter/HCA to negative bases on
poor earnings. Looks like Rainwater and his Crescent Cos' have finally stumbled. One source within the company said it would be a long while before any new high-ticket acquisitions would take place. A previous deal with Prudential is in danger of being jettisoned.


Part Four- Richard (aka Rick) Scott/Conservatives for Patients' Rights

A 2009 article from - The Wall Street Journal reported that Richard Scott, "the former chief executive of HCA Inc," had formed the non-profit organization Conservatives for Patients' Rights as part of a "lobbying campaign to derail or modify" President Obama's health care proposals, but failed to note that Scott resigned from HCA in 1997 amid a federal investigation into the company's Medicare billing, physician recruiting, and home-care practices. HCA eventually pleaded guilty to fraud charges and paid approximately $1.7 billion in fines and penalties.


THURSDAY, JUNE 26, 2003; WWW.USDOJ.GOV;
WASHINGTON, D.C.

HCA Inc. (formerly known as Columbia/HCA and HCA - The Healthcare Company)

LARGEST HEALTH CARE FRAUD CASE IN U.S. HISTORY SETTLED; HCA INVESTIGATION NETS RECORD TOTAL OF $1.7 BILLION

Note: Hospital Corporation of America (HCA) was acquired by Columbia in 1994.

Enron and National Century Financial Enterprises, one of the largest corporate fraud investigations involving a privately held company headquartered in small town America.

On 3-9-2006 10-K SEC Filing, filed by J P MORGAN CHASE & CO: 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

Friday, March 14, 2008 3:16 AM
Guilty, guilty, guilty, guilty...

5 National Century executives face prison time for fraud

BY JODI ANDES AND KEVIN MAYHOOD
THE COLUMBUS DISPATCH

It seemed the jury had little doubt about the guilt of the former National Century executives accused of the nation's biggest private fraud.

After a day and a half of deliberation, the jury of eight women and four men came back with a determination of "guilty" for every one of the 40 charges against two of the Dublin company's founders and three of its former executives.

March 26, 2008; By Jodi Andes; THE COLUMBUS DISPATCH

Nine other executives have been convicted or pleaded guilty in National Century's collapse.

Only Poulsen and executive James Happ still await trial.

FOR IMMEDIATE RELEASE--Friday, October 31, 2008--WWW.USDOJ.GOV

Former National Century Financial Enterprises CEO Convicted of Conspiracy, Fraud and Money Laundering

Fraud Cost Investors More Than $2 Billion

November 2008 - Only executive James Happ still await trial.

December 18, 2008 - The ONE AND ONLY acquittal; James K Happ!

By Jodi Andes THE COLUMBUS DISPATCH

Prosecutors' case fell short; juror says National Century fraud case produces 1st acquittal

The "not guilty" verdicts that came in federal court yesterday were not so much a vindication of the last National Century Financial Enterprises executive to stand trial, a juror said.

Instead, they were more a belief that:

‘federal prosecutors had not done their job ‘

the juror said after he and his fellow jurors acquitted James K. Happ of five counts after 12 hours of deliberation.

"He very well may have been guilty. A lot of us thought he was," said the juror

December 18, 2008 - the ONE AND ONLY acquittal- James K Happ

Who is James K Happ?

SEC Form September 9, 2003 Annual Meeting of Stockholders, Med Diversified Inc.:

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.,

CFO of Dallas-based Columbia Homecare Group, Inc.?

James K Happ … 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

Richard Rainwater and Darla Moore in 1997, as part of Richard Scott's severance package from Columbia was paid $5.13 million and given a five year consulting contract at $950,000 per year

The Pickens Profile You Haven't Read

An exerpt posted in this week's Newsweek : http://www.newsweek.com/id/151727/page/2

Pickens likes to portray his years as a corporate buccaneer during the 1980s as "shareholder activism." When Mesa fell into a cash crisis in the mid '90s after the price of natural gas collapsed, there was no mercy for him on Wall Street. Pickens called in Texas financier Richard Rainwater, and his wife and business partner, Darla Moore, to help raise capital. (Rainwater helped another oilman, George W. Bush, escape his money problems by making him co-owner of the Texas Rangers, a deal that eventually made Bush a multimillionaire.)


Moore, a leveraged-buyout specialist dubbed "the Toughest Babe in the Business" by Fortune, tried to raise $1 billion on Wall Street for Mesa. "I found out there wasn't a bank in the country that would touch the deal if Boone was CEO," Moore told NEWSWEEK. "I tried to soften the message [but] he was really surprised. 'But I get along with all those guys,' is what he said." The Rainwaters worked out a deal for Pickens to retire as CEO, and bought him out, a deal that still rankles the billionaire. Moore whooped with surprise when told by a NEWSWEEK reporter that Pickens had compared her in his book to a "wolverine that pisses on everything it doesn't eat." Moore responds, "I think what people don't know about Boone is that deep down he is actually—I hate to say this—a nice man. And he knows more about energy than anybody in the world."

Just a little insight to Darla Moore;
Darla Moore In 1981, at Chemical Bank in New York, Moore and Conway were focused on a new idea: loaning money to corporations teetering on the brink of bankruptcy,
Soon after, she met and married Rainwater, who made her president of his investment company. They now had $500 million to put wherever they wanted.That's when she pushed T. Boone Pickens out . . . and then to a hard look at Rick Scott.

Scott was Rainwater's good friend. They had bought two hospitals in Texas and shared a vision: a nationwide chain of hospitals using cost controls.

By 1997, Scott's company, Columbia/HCA, was the nation's largest managed care provider.

But Moore said Scott was unwise to ignore subordinates who questioned his practices and foolish to dismiss a federal investigation of how Columbia billed Medicare.


According to the SEC Form :
Med Diversified Inc.
Annual Meeting Of Stockholders
September 9, 2003


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. (1999-2002 by deduction of SEC statement)

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 (At least1997 until 1999)

Participated in the "DIVESTITURE"...Where did this divestiture 'divest' to?
Look at SEC form 10-K for HCA Inc./TN Filing Date: 4-1-1996.

WANTED By the US Marshals....

Mr. James K Happ
I wonder if there were people involved in her disappearance deeper than what was exposed in the court. I guess they couldn’t find her dead in bed like they did Ken Lay, remember him, Mr. Enron!

Good thing she disappeared prior to the one and only executive to be acquitted in the last trial of this six year case, Mr. James K Happ. Prior to the arrival at National Century Financial Enterprises (NCFE), the ex-CFO of Columbia Homecare Group, Inc. was the only acquittal and the last executive to stand trial, December 2008. Mr. James K Happ

National Century figure is featured fugitive
Thursday, January 8, 2009 10:06 PM
BY TIM DOULIN
THE COLUMBUS DISPATCH

WANTED By the US Marshals
http://www.rebeccaparrett.com/
Case Synopsis:
From 1995 to 2002, PARRETT and eight others participated in a large-scale fraud involving investments in accounts receivables owed to healthcare providers. PARRETT and her co-conspirators owned and operated National Century Financial Enterprises (NCFE), which purchased accounts receivable or money owed to healthcare providers by government and private insurance companies. This allowed the healthcare providers cash up-front in lieu of waiting for payments from the insurance companies. NCFE raised the funds to provide to the healthcare providers by selling asset-backed bonds or notes to investors, such as financial institutions, pension funds, and investment firms. These notes were offered through NCFE's subsidiaries, including NPF VI, Inc. and NPF XII, Inc. Investors were promised that these high-quality accounts receivables were actually purchased and owned by NPF VI, Inc. and NPF XII, Inc. and served as collateral. Instead of using investors’ money as promised to purchase accounts receivable from its healthcare provider clients, and for other authorized expenses, PARRETT and others, defrauded investors and enriched themselves. PARRETT provided money to certain healthcare providers far in excess of the value of their accounts receivable, thus providing unsecured loans to less than creditworthy borrowers, many of whom were entities in which PARRETT directly or indirectly maintained an ownership interest. As a result, these healthcare provider clients owed NCFE tens, and even hundreds, of millions of dollars, which created growing shortfalls in NPF VI and NPF XII. PARRETT concealed from investors these unsecured advances and the resulting shortfalls by making false statements to investors, fabricating financial data provided to investors, double counting funds in NPF VI and NPF XII by transferring money between the two programs on different days, and loading false data onto the accounts receivable system. In November 2002, unable to continue this fraud, NCFE filed for bankruptcy protection, while NPF VI and NPF XII owed bondholders approximately $840 million and $2 billion, respectively, amounts far outweighing the value of the accounts receivable and all other collateral held by NCFE or their healthcare provider clients. The total amount of proceeds earned from the fraud is approximately USD 1.772 billion, of which, USD 7.6 million went directly to PARRETT. On 13 March 2008, in the District Court, Southern District of Ohio, PARRETT was found guilty by a jury of conspiracy to commit fraud, six counts of securities fraud, wire fraud, and money laundering conspiracy, but fled before she could be sentenced, resulting in the issuance of a warrant for her arrest on 28 March 2008.

Before ENRON, before the Mortgage Fraud, what about the Healthcare Finance Fraud?

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
"...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 ..." before FBI raided the office in Dublin, Oh.

“This case is one of the largest corporate fraud investigations involving a privately held company headquartered in small town America,” said Assistant Director Kenneth W. Kaiser of the FBI Criminal Investigative Division.

JPMORGAN CHASE and CITI PAID GOVERNMENT SETTLED AGREEMENTS FOR FRAUD in National Century Financial Enterprises, Inc. (NCFE), the “LARGEST ‘PRIVATE’ FINANACIAL FRAUD CASE “in our nation's history

February 3, 2008- THE COLUMBUS DISPATCH
By the numbers
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. National Century Financial Enterprises (NCFE)

Friday, February 8, 2008- Business First of Columbus - Business First
Poulsen isn't the only National Century executive scheduled for a trial apart from the five now in court. James Happ is scheduled for trial in October because "he wasn't charged in connection with the company's failure until last May."

"All defendants, except for Happ...?"

At trial, the government presented evidence that the defendants engaged in a scheme to deceive investors and rating agencies about the financial health of NCFE and how investor monies would be used between May 1998 and May 2001.
Note: May 1998 James K Happ was the chief financial officer of the Dallas-based Columbia Homecare Group, Inc. and used NCFE to finance his divestiture of Columbia Homecare Group’s losing assets, homecare. . , "All defendants, except for Happ...?"

Mr. Happ, 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 directed the company through the challenging reimbursement climate, … and participated in the divestiture of all of Columbia/HCA's home care operations.

1998-1999 Who financed this divestiture? NCFE- National Century Financial Enterprises.
Where did James K Happ divest the losing assets of Columbia Homecare Group, Inc? One man owned company, Medshares, Inc. in Memphis, TN. A ‘private’ company financed by a ‘private’ financial institution, NCFE.

In July 1999, Medshares, Inc. filed the LARGEST Bankruptcy case in the history of Western Tennessee's bankruptcy court held all of the Dallas-based Columbia Homecare Group, Inc.’s home care units . All entities filed with the court were financed by NCFE. In this courtroom, documents reveal the uproar from scores of lawyers crying fraud in the bankruptcy court and the BANKRUPTCY JUDGE scolded the attorneys and forbade the ‘F’ word in her court. (NO FRAUD)

February 21, 2008 - Associated Press
COLUMBUS, Ohio (AP) - A guilty executive told jurors she told investors "absolutely nothing" about National Century's practices of advancing cash to Memphis, Tenn.-based Medshares, a home-health care provider.

DECEMBER 2008- National Century fraud case produces 1st acquittal
Thursday, December 18, 2008 3:29 AM Prosecutors' case fell short, juror says
By Jodi Andes THE COLUMBUS DISPATCH
The "not guilty" verdicts that came in federal court yesterday were not so much a vindication of the last National Century Financial Enterprises executive to stand trial, a juror said.
Instead, they were more a belief that federal prosecutors had not done their job, the juror said after he
and his fellow jurors acquitted James K. Happ of five counts after 12 hours of deliberation. "He very well may have been guilty. A lot of us thought he was," said the juror who wouldn't give his name. "But if he was, you gotta have the evidence."

James K Happ was the chief financial officer of the Dallas-based Columbia Homecare Group, Inc. prior to arriving at NCFE and the ONLY executive of NCFE ACQUITTED.

2002, 'GW Bush : Plan for the Economy'

Articles in this series are exploring the causes of the financial crisis.

THE BLUEPRINTS In June 2002, President Bush spoke in Atlanta to unveil a plan to increase minority homeownership.

By JO BECKER, SHERYL GAY STOLBERG and STEPHEN LABATON
Published: December 20, 2008

The ReckoningWhite House Philosophy Stoked Mortgage Bonfire

“We can put light where there’s darkness, and hope where there’s despondency in this country. And part of it is working together as a nation to encourage folks to own their own home.” — President Bush, Oct. 15, 2002

WASHINGTON — The global financial system was teetering on the edge of collapse when President Bush and his economics team huddled in the Roosevelt Room of the White House for a briefing that, in the words of one participant, “scared the hell out of everybody.”

It was Sept. 18. Lehman Brothers had just gone belly-up, overwhelmed by toxic mortgages. Bank of America had swallowed Merrill Lynch in a hastily arranged sale. Two days earlier, Mr. Bush had agreed to pump $85 billion into the failing insurance giant American International Group.

The president listened as Ben S. Bernanke, chairman of the Federal Reserve, laid out the latest terrifying news: The credit markets, gripped by panic, had frozen overnight, and banks were refusing to lend money.

Then his Treasury secretary, Henry M. Paulson Jr., told him that to stave off disaster, he would have to sign off on the biggest government bailout in history.

Mr. Bush, according to several people in the room, paused for a single, stunned moment to take it all in.

“How,” he wondered aloud, “did we get here?”

Eight years after arriving in Washington vowing to spread the dream of homeownership, Mr. Bush is leaving office, as he himself said recently, “faced with the prospect of a global meltdown” with roots in the housing sector he so ardently championed.

There are plenty of culprits, like lenders who peddled easy credit, consumers who took on mortgages they could not afford and Wall Street chieftains who loaded up on mortgage-backed securities without regard to the risk.

But the story of how we got here is partly one of Mr. Bush’s own making, according to a review of his tenure that included interviews with dozens of current and former administration officials.

From his earliest days in office, Mr. Bush paired his belief that Americans do best when they own their own home with his conviction that markets do best when let alone.

He pushed hard to expand homeownership, especially among minorities, an initiative that dovetailed with his ambition to expand the Republican tent — and with the business interests of some of his biggest donors. But his housing policies and hands-off approach to regulation encouraged lax lending standards.

Mr. Bush did foresee the danger posed by Fannie Mae and Freddie Mac, the government-sponsored mortgage finance giants. The president spent years pushing a recalcitrant Congress to toughen regulation of the companies, but was unwilling to compromise when his former Treasury secretary wanted to cut a deal. And the regulator Mr. Bush chose to oversee them — an old prep school buddy — pronounced the companies sound even as they headed toward insolvency.

As early as 2006, top advisers to Mr. Bush dismissed warnings from people inside and outside the White House that housing prices were inflated and that a foreclosure crisis was looming. And when the economy deteriorated, Mr. Bush and his team misdiagnosed the reasons and scope of the downturn; as recently as February, for example, Mr. Bush was still calling it a “rough patch.”

The result was a series of piecemeal policy prescriptions that lagged behind the escalating crisis.

“There is no question we did not recognize the severity of the problems,” said Al Hubbard, Mr. Bush’s former chief economics adviser, who left the White House in December 2007. “Had we, we would have attacked them.”

Looking back, Keith B. Hennessey, Mr. Bush’s current chief economics adviser, says he and his colleagues did the best they could “with the information we had at the time.” But Mr. Hennessey did say he regretted that the administration did not pay more heed to the dangers of easy lending practices. And both Mr. Paulson and his predecessor, John W. Snow, say the housing push went too far.

“The Bush administration took a lot of pride that homeownership had reached historic highs,” Mr. Snow said in an interview. “But what we forgot in the process was that it has to be done in the context of people being able to afford their house. We now realize there was a high cost.”

For much of the Bush presidency, the White House was preoccupied by terrorism and war; on the economic front, its pressing concerns were cutting taxes and privatizing Social Security. The housing market was a bright spot: ever-rising home values kept the economy humming, as owners drew down on their equity to buy consumer goods and pack their children off to college.

Lawrence B. Lindsay, Mr. Bush’s first chief economics adviser, said there was little impetus to raise alarms about the proliferation of easy credit that was helping Mr. Bush meet housing goals.

“No one wanted to stop that bubble,” Mr. Lindsay said. “It would have conflicted with the president’s own policies.”

(Page 2 of 6)



Today, millions of Americans are facing foreclosure, homeownership rates are virtually no higher than when Mr. Bush took office, Fannie and Freddie are in a government conservatorship, and the bailout cost to taxpayers could run in the trillions.

As the economy has shed jobs — 533,000 last month alone — and his party has been punished by irate voters, the weakened president has granted his Treasury secretary extraordinary leeway in managing the crisis.

Never once, Mr. Paulson said in a recent interview, has Mr. Bush overruled him. “I’ve got a boss,” he explained, who “understands that when you’re dealing with something as unprecedented and fast-moving as this we need to have a different operating style.”

Mr. Paulson and other senior advisers to Mr. Bush say the administration has responded well to the turmoil, demonstrating flexibility under difficult circumstances. “There is not any playbook,” Mr. Paulson said.

The president declined to be interviewed for this article. But in recent weeks Mr. Bush has shared his views of how the nation came to the brink of economic disaster. He cites corporate greed and market excesses fueled by a flood of foreign cash — “Wall Street got drunk,” he has said — and the policies of past administrations. He blames Congress for failing to reform Fannie and Freddie. Last week, Fox News asked Mr. Bush if he was worried about being the Herbert Hoover of the 21st century.

“No,” Mr. Bush replied. “I will be known as somebody who saw a problem and put the chips on the table to prevent the economy from collapsing.”

But in private moments, aides say, the president is looking inward. During a recent ride aboard Marine One, the presidential helicopter, Mr. Bush sounded a reflective note.

“We absolutely wanted to increase homeownership,” Tony Fratto, his deputy press secretary, recalled him saying. “But we never wanted lenders to make bad decisions.”

A Policy Gone Awry

Darrin West could not believe it. The president of the United States was standing in his living room.

It was June 17, 2002, a day Mr. West recalls as “the highlight of my life.” Mr. Bush, in Atlanta to unveil a plan to increase the number of minority homeowners by 5.5 million, was touring Park Place South, a development of starter homes in a neighborhood once marked by blight and crime.

Mr. West had patrolled there as a police officer, and now he was the proud owner of a $130,000 town house, bought with an adjustable-rate mortgage and a $20,000 government loan as his down payment — just the sort of creative public-private financing Mr. Bush was promoting.

“Part of economic security,” Mr. Bush declared that day, “is owning your own home.”

A lot has changed since then. Mr. West, beset by personal problems, left Atlanta. Unable to sell his home for what he owed, he said, he gave it back to the bank last year. Like other communities across America, Park Place South has been hit with a foreclosure crisis affecting at least 10 percent of its 232 homes, according to Masharn Wilson, a developer who led Mr. Bush’s tour.

“I just don’t think what he envisioned was actually carried out,” she said.

Park Place South is, in microcosm, the story of a well-intentioned policy gone awry. Advocating homeownership is hardly novel; the Clinton administration did it, too. For Mr. Bush, it was part of his vision of an “ownership society,” in which Americans would rely less on the government for health care, retirement and shelter. It was also good politics, a way to court black and Hispanic voters.

But for much of Mr. Bush’s tenure, government statistics show, incomes for most families remained relatively stagnant while housing prices skyrocketed. That put homeownership increasingly out of reach for first-time buyers like Mr. West.

So Mr. Bush had to, in his words, “use the mighty muscle of the federal government” to meet his goal. He proposed affordable housing tax incentives. He insisted that Fannie Mae and Freddie Mac meet ambitious new goals for low-income lending.

Concerned that down payments were a barrier, Mr. Bush persuaded Congress to spend up to $200 million a year to help first-time buyers with down payments and closing co(Page 3 of 6)



And he pushed to allow first-time buyers to qualify for federally insured mortgages with no money down. Republican Congressional leaders and some housing advocates balked, arguing that homeowners with no stake in their investments would be more prone to walk away, as Mr. West did. Many economic experts, including some in the White House, now share that view.

The president also leaned on mortgage brokers and lenders to devise their own innovations. “Corporate America,” he said, “has a responsibility to work to make America a compassionate place.”

And corporate America, eyeing a lucrative market, delivered in ways Mr. Bush might not have expected, with a proliferation of too-good-to-be-true teaser rates and interest-only loans that were sold to investors in a loosely regulated environment.

“This administration made decisions that allowed the free market to operate as a barroom brawl instead of a prize fight,” said L. William Seidman, who advised Republican presidents and led the savings and loan bailout in the 1990s. “To make the market work well, you have to have a lot of rules.”

But Mr. Bush populated the financial system’s alphabet soup of oversight agencies with people who, like him, wanted fewer rules, not more.

Like Minds on Laissez-Faire

The president’s first chairman of the Securities and Exchange Commission promised a “kinder, gentler” agency. The second was pushed out amid industry complaints that he was too aggressive. Under its current leader, the agency failed to police the catastrophic decisions that toppled the investment bank Bear Stearns and contributed to the current crisis, according to a recent inspector general’s report.

As for Mr. Bush’s banking regulators, they once brandished a chain saw over a 9,000-page pile of regulations as they promised to ease burdens on the industry. When states tried to use consumer protection laws to crack down on predatory lending, the comptroller of the currency blocked the effort, asserting that states had no authority over national banks.

The administration won that fight at the Supreme Court. But Roy Cooper, North Carolina’s attorney general, said, “They took 50 sheriffs off the beat at a time when lending was becoming the Wild West.”

The president did push rules aimed at forcing lenders to more clearly explain loan terms. But the White House shelved them in 2004, after industry-friendly members of Congress threatened to block confirmation of his new housing secretary.

In the 2004 election cycle, mortgage bankers and brokers poured nearly $847,000 into Mr. Bush’s re-election campaign, more than triple their contributions in 2000, according to the nonpartisan Center for Responsive Politics. The administration did not finalize the new rules until last month.

Among the Republican Party’s top 10 donors in 2004 was Roland Arnall. He founded Ameriquest, then the nation’s largest lender in the subprime market, which focuses on less creditworthy borrowers. In July 2005, the company agreed to set aside $325 million to settle allegations in 30 states that it had preyed on borrowers with hidden fees and ballooning payments. It was an early signal that deceptive lending practices, which would later set off a wave of foreclosures, were widespread.

Andrew H. Card Jr., Mr. Bush’s former chief of staff, said White House aides discussed Ameriquest’s troubles, though not what they might portend for the economy. Mr. Bush had just nominated Mr. Arnall as his ambassador to the Netherlands, and the White House was primarily concerned with making sure he would be confirmed.

“Maybe I was asleep at the switch,” Mr. Card said in an interview.

Brian Montgomery, the Federal Housing Administration commissioner, understood the significance. His agency insures home loans, traditionally for the same low-income minority borrowers Mr. Bush wanted to help. When he arrived in June 2005, he was shocked to find those customers had been lured away by the “fool’s gold” of subprime loans. The Ameriquest settlement, he said, reinforced his concern that the industry was exploiting borrowers.

In December 2005, Mr. Montgomery drafted a memo and brought it to the White House. “I don’t think this is what the president had in mind here,” he recalled telling Ryan Streeter, then the president’s chief housing policy analyst.

It was an opportunity to address the risky subprime lending practices head on. But that was never seriously discussed. More senior aides, like Karl Rove, Mr. Bush’s chief political strategist, were wary of overly regulating an industry that, Mr. Rove said in an interview, provided “a valuable service to people who could not otherwise get credit.” While he had some concerns about the industry’s practices, he said, “it did provide an opportunity for people, a lot of whom are still in their houses today.”

(Page 4 of 6)



The White House pursued a narrower plan offered by Mr. Montgomery that would have allowed the F.H.A. to loosen standards so it could lure back subprime borrowers by insuring similar, but safer, loans. It passed the House but died in the Senate, where Republican senators feared that the agency would merely be mimicking the private sector’s risky practices — a view Mr. Rove said he shared.

Looking back at the episode, Mr. Montgomery broke down in tears. While he acknowledged that the bill did not get to the root of the problem, he said he would “go to my grave believing” that at least some homeowners might have been spared foreclosure.

Today, administration officials say it is fair to ask whether Mr. Bush’s ownership push backfired. Mr. Paulson said the administration, like others before it, “over-incented housing.” Mr. Hennessey put it this way: “I would not say too much emphasis on expanding homeownership. I would say not enough early focus on easy lending practices.”

‘We Told You So’

Armando Falcon Jr. was preparing to take on a couple of giants.

A soft-spoken Texan, Mr. Falcon ran the Office of Federal Housing Enterprise Oversight, a tiny government agency that oversaw Fannie Mae and Freddie Mac, two pillars of the American housing industry. In February 2003, he was finishing a blockbuster report that warned the pillars could crumble.

Created by Congress, Fannie and Freddie — called G.S.E.’s, for government-sponsored entities — bought trillions of dollars’ worth of mortgages to hold or sell to investors as guaranteed securities. The companies were also Washington powerhouses, stuffing lawmakers’ campaign coffers and hiring bare-knuckled lobbyists.

Mr. Falcon’s report outlined a worst-case situation in which Fannie and Freddie could default on debt, setting off “contagious illiquidity in the market” — in other words, a financial meltdown. He also raised red flags about the companies’ soaring use of derivatives, the complex financial instruments that economic experts now blame for spreading the housing collapse.

Today, the White House cites that report — and its subsequent effort to better regulate Fannie and Freddie — as evidence that it foresaw the crisis and tried to avert it. Bush officials recently wrote up a talking points memo headlined “G.S.E.’s — We Told You So.”

But the back story is more complicated. To begin with, on the day Mr. Falcon issued his report, the White House tried to fire him.

At the time, Fannie and Freddie were allies in the president’s quest to drive up homeownership rates; Franklin D. Raines, then Fannie’s chief executive, has fond memories of visiting Mr. Bush in the Oval Office and flying aboard Air Force One to a housing event. “They loved us,” he said.

So when Mr. Falcon refused to deep-six his report, Mr. Raines took his complaints to top Treasury officials and the White House. “I’m going to do what I need to do to defend my company and my position,” Mr. Raines told Mr. Falcon.

Days later, as Mr. Falcon was in New York preparing to deliver a speech about his findings, his cellphone rang. It was the White House personnel office, he said, telling him he was about to be unemployed.

His warnings were buried in the next day’s news coverage, trumped by the White House announcement that Mr. Bush would replace Mr. Falcon, a Democrat appointed by Bill Clinton, with Mark C. Brickell, a leader in the derivatives industry that Mr. Falcon’s report had flagged.

It was not until 2003, when Freddie became embroiled in an accounting scandal, that the White House took on the companies in earnest. Mr. Bush decided to quit the long-standing practice of rewarding supporters with high-paying appointments to the companies’ boards — “political plums,” in Mr. Rove’s words. He also withdrew Mr. Brickell’s nomination and threw his support behind Mr. Falcon, beginning an intense effort to give his little regulatory agency more power.

Mr. Falcon lacked explicit authority to limit the size of the companies’ mammoth investment portfolios, or tell them how much capital they needed to guard against losses. White House officials wanted that to change. They also wanted the power to put the companies into receivership, hoping that would end what Mr. Card, the former chief of staff, called “the myth of government backing,” which gave the companies a competitive edge because investors assumed the government would not let them fail.

By the spring of 2005 a deal with Congress seemed within reach, Mr. Snow, the former Treasury secretary, said in an interview.

(Page 5 of 6)



Michael G. Oxley, an Ohio Republican and then-chairman of the House Financial Services Committee, had produced what Mr. Snow viewed as “a pretty darned good bill,” a watered-down version of what the president sought. But at the urging of Mr. Card and the White House economics team, the president decided to hold out for a tougher bill in the Senate.

Mr. Card said he feared that Mr. Snow was “more interested in the deal than the result.” When the bill passed the House, the president issued a statement opposing it, effectively killing any chance of compromise. Mr. Oxley was furious.

“The problem with those guys at the White House, they had all the answers and they didn’t think they had to listen to anyone, including the Treasury secretary,” Mr. Oxley said in a recent interview. “They were driving the ideological train. He was in the caboose, and they were in the engine room.”

Mr. Card and Mr. Hennessey said they had no regrets. They are convinced, Mr. Hennessey said, that the Oxley bill would have produced “the worst of all possible outcomes,” the illusion of reform without the substance.

Still, some former White House and Treasury officials continue to debate whether Mr. Bush’s all-or-nothing approach scuttled a measure that, while imperfect, might have given an aggressive regulator enough power to keep the companies from failing.

Mr. Snow, for one, calls Mr. Oxley “a hero,” adding, “He saw the need to move. It didn’t get done. And it’s too bad, because I think if it had, I think we could well have avoided a big contributor to the current crisis.”

Unheeded Warnings

Jason Thomas had a nagging feeling.

The New Century Financial Corporation, a huge subprime lender whose mortgages were bundled into securities sold around the world, was headed for bankruptcy in March 2007. Mr. Thomas, an economic analyst for President Bush, was responsible for determining whether it was a hint of things to come.

At 29, Mr. Thomas had followed a fast-track career path that took him from a Buffalo meatpacking plant, where he worked as a statistician, to the White House. He was seen as a whiz kid, “a brilliant guy,” his former boss, Mr. Hubbard, says.

As Mr. Thomas began digging into New Century’s failure that spring, he became fixated on a particular statistic, the rent-to-own ratio.

Typically, as home prices increase, rental costs rise proportionally. But Mr. Thomas sent charts to top White House and Treasury officials showing that the monthly cost of owning far outpaced the cost to rent. To Mr. Thomas, it was a sign that housing prices were wildly inflated and bound to plunge, a condition that could set off a foreclosure crisis as conventional and subprime borrowers with little equity found they owed more than their houses were worth.

It was not the Bush team’s first warning. The previous year, Mr. Lindsay, the former chief economics adviser, returned to the White House to tell his old colleagues that housing prices were headed for a crash. But housing values are hard to evaluate, and Mr. Lindsay had a reputation as a market pessimist, said Mr. Hubbard, adding, “I thought, ‘He’s always a bear.’ ”

In retrospect, Mr. Hubbard said, Mr. Lindsay was “absolutely right,” and Mr. Thomas’s charts “should have been a signal.”

Instead, the prevailing view at the White House was that the problems in the housing market were limited to subprime borrowers unable to make their payments as their adjustable mortgages reset to higher rates. That belief was shared by Mr. Bush’s new Treasury secretary, Mr. Paulson.

Mr. Paulson, a former chairman of the Wall Street firm Goldman Sachs, had been given unusual power; he had accepted the job only after the president guaranteed him that Treasury, not the White House, would have the dominant role in shaping economic policy. That shift merely continued an imbalance of power that stifled robust policy debate, several former Bush aides say.

(Page 6 of 6)



Throughout the spring of 2007, Mr. Paulson declared that “the housing market is at or near the bottom,” with the problem “largely contained.” That position underscored nearly every action the Bush administration took in the ensuing months as it offered one limited response after another.

By that August, the problems had spread beyond New Century. Credit was tightening, amid questions about how heavily banks were invested in securities linked to mortgages. Still, Mr. Bush predicted that the turmoil would resolve itself with a “soft landing.”

The plan Mr. Bush announced on Aug. 31 reflected that belief. Called “F.H.A. Secure,” it aimed to help about 80,000 homeowners refinance their loans. Mr. Montgomery, the housing commissioner, said that he knew the modest program was not enough — the White House later expanded the agency’s rescue role — and that he would be “flying the plane and fixing it at the same time.”

That fall, Representative Rahm Emanuel, a leading Democrat, former investment banker and now the incoming chief of staff to President-elect Barack Obama, warned the White House it was not doing enough. He said he told Joshua B. Bolten, Mr. Bush’s chief of staff, and Mr. Paulson in a series of phone calls that the credit crisis would get “deep and serious” and that the only answer was big, internationally coordinated government intervention.

“You got to strangle this thing and suffocate it,” he recalled saying.

Instead, Mr. Bush developed Hope Now, a voluntary public-private partnership to help struggling homeowners refinance loans. And he worked with Congress to pass a stimulus package that sent taxpayers $150 billion in tax rebates.

In a speech to the Economic Club of New York in March 2008, he cautioned against Washington’s temptation “to say that anything short of a massive government intervention in the housing market amounts to inaction,” adding that government action could make it harder for the markets to recover.

Dominoes Start to Fall

Within days, Bear Sterns collapsed, prompting the Federal Reserve to engineer a hasty sale. Some economic experts, including Timothy F. Geithner, the president of the New York Federal Reserve Bank (and Mr. Obama’s choice for Treasury secretary) feared that Fannie Mae and Freddie Mac could be the next to fall.

Mr. Bush was still leaning on Congress to revamp the tiny agency that oversaw the two companies, and had acceded to Mr. Paulson’s request for the negotiating room that he had denied Mr. Snow. Still, there was no deal.

Over the previous two years, the White House had effectively set the agency adrift. Mr. Falcon left in 2005 and was replaced by a temporary director, who was in turn replaced by James B. Lockhart, a friend of Mr. Bush from their days at Andover, and a former deputy commissioner of the Social Security Administration who had once run a software company.

On Mr. Lockhart’s watch, both Freddie and Fannie had plunged into the riskiest part of the market, gobbling up more than $400 billion in subprime and other alternative mortgages. With the companies on precarious footing, Mr. Geithner had been advocating that the administration seize them or take other steps to reassure the market that the government would back their debt, according to two people with direct knowledge of his views.

In an Oval Office meeting on March 17, however, Mr. Paulson barely mentioned the idea, according to several people present. He wanted to use the troubled companies to unlock the frozen credit market by allowing Fannie and Freddie to buy more mortgage-backed securities from overburdened banks. To that end, Mr. Lockhart’s office planned to lift restraints on the companies’ huge portfolios — a decision derided by former White House and Treasury officials who had worked so hard to limit them.

But Mr. Paulson told Mr. Bush the companies would shore themselves up later by raising more capital.

“Can they?” Mr. Bush asked.

“We’re hoping so,” the Treasury secretary replied.

That turned out to be incorrect, and did not surprise Mr. Thomas, the Bush economic adviser. Throughout that spring and summer, he warned the White House and Treasury that, in the stark words of one e-mail message, “Freddie Mac is in trouble.” And Mr. Lockhart, he charged, was allowing the company to cover up its insolvency with dubious accounting maneuvers.

But Mr. Lockhart continued to offer reassurances. In a July appearance on CNBC, he declared that the companies were well managed and “worsts were not coming to worst.” An infuriated Mr. Thomas sent a fresh round of e-mail messages accusing Mr. Lockhart of “pimping for the stock prices of the undercapitalized firms he regulates.”

Mr. Lockhart defended himself, insisting in an interview that he was aware of the companies’ vulnerabilities, but did not want to rattle markets.

“A regulator,” he said, “does not air dirty laundry in public.”

Soon afterward, the companies’ stocks lost half their value in a single day, prompting Congress to quickly give Mr. Paulson the power to spend $200 billion to prop them up and to finally pass Mr. Bush’s long-sought reform bill, but it was too late. In September, the government seized control of Freddie Mac and Fannie Mae.

In an interview, Mr. Paulson said the administration had no justification to take over the companies any sooner. But Mr. Falcon disagreed: “They absolutely could have if they had thought there was a real danger.”

By Sept. 18, when Mr. Bush and his team had their fateful meeting in the Roosevelt Room after the failure of Lehman Brothers and the emergency rescue of A.I.G., Mr. Paulson was warning of an economic calamity greater than the Great Depression. Suddenly, historic government intervention seemed the only option. When Mr. Paulson spelled out what would become a $700 billion plan to rescue the nation’s banking system, the president did not hesitate.

“Is that enough?” Mr. Bush asked.

“It’s a lot,” the Treasury secretary recalled replying. “It will make a difference.” And in any event, he told Mr. Bush, “I don’t think we can get more.”

As the meeting wrapped up, a handful of aides retreated to the White House Situation Room to call Vice President Dick Cheney in Florida, where he was attending a fund-raiser. Mr. Cheney had long played a leading role in economic policy, though housing was not a primary interest, and like Mr. Bush he had a deep aversion to government intervention in the market. Nonetheless, he backed the bailout, convinced that too many Americans would suffer if Washington did nothing.

Mr. Bush typically darts out of such meetings quickly. But this time, he lingered, patting people on the back and trying to soothe his downcast staff. “During times of adversity, he bucks everybody up,” Mr. Paulson said.

It was not the end of the failures or government interventions; the administration has since stepped in to rescue Citigroup and, just last week, the Detroit automakers. With 31 days left in office, Mr. Bush says he will leave it to historians to analyze “what went right and what went wrong,” as he put it in a speech last week to the American Enterprise Institute.

Mr. Bush said he was too focused on the present to do much looking back.

“It turns out,” he said, “this isn’t one of the presidencies where you ride off into the sunset, you know, kind of waving goodbye.”

JPMorgan Chase , Citigroup, Goldman Sachs, & Friends

Wednesday, October 29, 2008
Prosecutors try to paint Poulsen as liarBusiness First of Columbus - by Kevin Kemper
Given the chance to cross-examine the former CEO of National Century Financial Enterprises Inc., prosecutors wasted little time in attempting to portray him as a liar with a history of perjury.

Justice Department Attorney Leo Wise began his cross of Lance Poulsen Wednesday afternoon by reminding the 65-year-old former executive, and the jury who will decide Poulsen’s fate, of the oath Poulsen took to tell the truth. Wise and Poulsen then entered into a sometimes contentious back-and-forth over what Poulsen had testified to earlier.

Wise began by asking about testimony Poulsen gave on Tuesday in which he told the jury he had been living in Ross County Jail in Chillicothe for the last year because he had been convicted of obstruction. Wise asked Poulsen if he hadn’t also been convicted of witness tampering. Poulsen replied that he couldn’t remember the specific charges.

“It’s your testimony that (prison) has had a profound effect on your life and you don’t remember the charges?” Wise asked.

Poulsen answered that he remembered it was obstruction and related charges, but couldn’t remember what those related charges were.

Wise then asked Poulsen about a mid-November bond hearing in which U.S. District Judge Algenon Marbley revoked Poulsen’s bond. Poulsen, the founder of National Century, was originally scheduled to stand trial on fraud and money laundering charges late last year. That trial was postponed, however, when the government detained Poulsen on charges that he attempted to bribe a government witness. A separate jury found Poulsen guilty of the charge in March and he was sentenced to 10 years imprisonment.

When Marbley was considering revoking Poulsen’s bond in November because of the witness tampering charges, Poulsen told the court he was employed by a firm called MTL Enterprises. Wise asked Poulsen if it was true that the government discovered a day after the bond hearing that Poulsen hadn’t worked at MTL for over a month. Poulsen said that was correct.

Wise also asked about testimony Poulsen gave on Wednesday in which he said he was not aware of anyone altering books at the company. After Poulsen said he remembered giving that testimony, Wise asked Poulsen if it was his “OK” that was written next to notations on company investor reports that said arbitrary numbers had been plugged in to make the reports compliant.

“It could be my ‘OK,’ I don’t know,” Poulsen said. “The location (on the document) is typically where I put an ‘OK.’ ”

Poulsen, standing trial in U.S. District Court in Columbus on charges that he orchestrated a fraud at National Century that resulted in $2.84 billion of investor money disappearing, will take the stand again Thursday morning. After that, attorneys are expected to make their closing statements to the jury.

$2.84 billion of investor money disappearing, hmmm

Given the chance to cross-examine the former CEO of National Century Financial Enterprises Inc., prosecutors wasted little time in attempting to portray him as a liar with a history of perjury.

Justice Department Attorney Leo Wise began his cross of Lance Poulsen Wednesday afternoon by reminding the 65-year-old former executive, and the jury who will decide Poulsen’s fate, of the oath Poulsen took to tell the truth. Wise and Poulsen then entered into a sometimes contentious back-and-forth over what Poulsen had testified to earlier.

Wise began by asking about testimony Poulsen gave on Tuesday in which he told the jury he had been living in Ross County Jail in Chillicothe for the last year because he had been convicted of obstruction. Wise asked Poulsen if he hadn’t also been convicted of witness tampering. Poulsen replied that he couldn’t remember the specific charges.

“It’s your testimony that (prison) has had a profound effect on your life and you don’t remember the charges?” Wise asked.

Poulsen answered that he remembered it was obstruction and related charges, but couldn’t remember what those related charges were.

Wise then asked Poulsen about a mid-November bond hearing in which U.S. District Judge Algenon Marbley revoked Poulsen’s bond. Poulsen, the founder of National Century, was originally scheduled to stand trial on fraud and money laundering charges late last year. That trial was postponed, however, when the government detained Poulsen on charges that he attempted to bribe a government witness. A separate jury found Poulsen guilty of the charge in March and he was sentenced to 10 years imprisonment.

When Marbley was considering revoking Poulsen’s bond in November because of the witness tampering charges, Poulsen told the court he was employed by a firm called MTL Enterprises. Wise asked Poulsen if it was true that the government discovered a day after the bond hearing that Poulsen hadn’t worked at MTL for over a month. Poulsen said that was correct.

Wise also asked about testimony Poulsen gave on Wednesday in which he said he was not aware of anyone altering books at the company. After Poulsen said he remembered giving that testimony, Wise asked Poulsen if it was his “OK” that was written next to notations on company investor reports that said arbitrary numbers had been plugged in to make the reports compliant.

“It could be my ‘OK,’ I don’t know,” Poulsen said. “The location (on the document) is typically where I put an ‘OK.’ ”

Poulsen, standing trial in U.S. District Court in Columbus on charges that he orchestrated a fraud at National Century that resulted in $2.84 billion of investor money disappearing, will take the stand again Thursday morning. After that, attorneys are expected to make their closing statements to the jury.

$2.84 billion of investor money disappearing, ...

Wednesday, October 29, 2008
Prosecutors try to paint Poulsen as liarBusiness First of Columbus - by Kevin Kemper
Given the chance to cross-examine the former CEO of National Century Financial Enterprises Inc., prosecutors wasted little time in attempting to portray him as a liar with a history of perjury.

Justice Department Attorney Leo Wise began his cross of Lance Poulsen Wednesday afternoon by reminding the 65-year-old former executive, and the jury who will decide Poulsen’s fate, of the oath Poulsen took to tell the truth. Wise and Poulsen then entered into a sometimes contentious back-and-forth over what Poulsen had testified to earlier.

Wise began by asking about testimony Poulsen gave on Tuesday in which he told the jury he had been living in Ross County Jail in Chillicothe for the last year because he had been convicted of obstruction. Wise asked Poulsen if he hadn’t also been convicted of witness tampering. Poulsen replied that he couldn’t remember the specific charges.

“It’s your testimony that (prison) has had a profound effect on your life and you don’t remember the charges?” Wise asked.

Poulsen answered that he remembered it was obstruction and related charges, but couldn’t remember what those related charges were.

Wise then asked Poulsen about a mid-November bond hearing in which U.S. District Judge Algenon Marbley revoked Poulsen’s bond. Poulsen, the founder of National Century, was originally scheduled to stand trial on fraud and money laundering charges late last year. That trial was postponed, however, when the government detained Poulsen on charges that he attempted to bribe a government witness. A separate jury found Poulsen guilty of the charge in March and he was sentenced to 10 years imprisonment.

When Marbley was considering revoking Poulsen’s bond in November because of the witness tampering charges, Poulsen told the court he was employed by a firm called MTL Enterprises. Wise asked Poulsen if it was true that the government discovered a day after the bond hearing that Poulsen hadn’t worked at MTL for over a month. Poulsen said that was correct.

Wise also asked about testimony Poulsen gave on Wednesday in which he said he was not aware of anyone altering books at the company. After Poulsen said he remembered giving that testimony, Wise asked Poulsen if it was his “OK” that was written next to notations on company investor reports that said arbitrary numbers had been plugged in to make the reports compliant.

“It could be my ‘OK,’ I don’t know,” Poulsen said. “The location (on the document) is typically where I put an ‘OK.’ ”

Poulsen, standing trial in U.S. District Court in Columbus on charges that he orchestrated a fraud at National Century that resulted in $2.84 billion of investor money disappearing, will take the stand again Thursday morning. After that, attorneys are expected to make their closing statements to the jury.

JPMorgan Chase & Co., the largest U.S. bank by market value

JPMorgan Chase & Co., the largest U.S. bank by market value, agreed to pay $425 million in 2006 to settle claims by Arizona noteholders. The noteholders said JPMorgan and other banks underwrote or were trustees of the notes used to defraud investors.




Thursday, November 06, 2008
National Century Financial Enterprises CEO Convicted

Last week, multiple news stories described convictions in the case of a remarkable health care fraud, affecting the now bankrupt National Century Financial Enterprises. Let me begin with a description of what the company did, from an article in the Columbus Dispatch:



National Century Financial Enterprises ... 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.



Or, as Columbus Business First put it,


A financier for health-care providers like doctors’ offices and hospitals, National Century’s bread and butter was buying accounts receivable from care providers at a discount, then securitizing the receivables into AAA-rated bonds for sale to investors.

At its peak, the company employed more than 350 workers at its office campus in Dublin while recording annual revenue of more than $250 million.



However, prosecutors charged that it was all a huge fraud, per an earlier story in the Columbus Dispatch:



A Dublin-based health-care lender with a good business model was left in ruins -- and owing billions of dollars -- as a result of greed and a shell game played unknowingly by investors.

It's a game that ended only after greed consumed company reserves and investor money dried up. That's the history of National Century Financial Enterprises, federal prosecutor Leo Wise told jurors in closing arguments yesterday in the trial of Lance K. Poulsen, 65, the company's founder and chief executive.

Poulsen has been on trial since Oct. 1 on 13 counts of fraud tied to the company's collapse. Jury deliberations are expected to begin today.

'Ladies and gentlemen, this is a case of staggering fraud,' Wise said. 'It is one of the largest frauds the FBI has ever investigated. The total is over $2 billion.'



Poulsen, again the company's founder and CEO, was convicted, per Columbus Business First,


A federal court jury has found National Century Financial Enterprises’ co-founder Lance Poulsen guilty of directing what the government called the biggest corporate fraud to surface at a privately held U.S. business.

The 65-year-old Poulsen was found guilty on all of the charges facing him – one count each of conspiracy to commit securities fraud, wire fraud and conspiracy to commit money laundering, as well as three counts of money laundering and six counts of securities fraud.



Poulsen was not the only leader of National Century Financial Enterprises who was convicted or pleaded guilty, again per Columbus Business First,



It also was the second time a federal jury found National Century executives guilty of crimes. Five of Poulsen’s co-executives were convicted in March of multiple fraud-related charges. Donald Ayers, Rebecca Parrett, Roger Faulkenberry, Randolph Speer and James Dierker are serving prison terms. Parrett, a co-founder of National Century, disappeared in March before she was scheduled for a court appearance and remains at large.



This was actually not Poulsen's criminal conviction on charges related to the collapse of National Century Financial Enterprises, again from Columbus Business First,



Poulsen heard a guilty verdict earlier this year on a related case. He and associate Karl Demmler were convicted in the witness tampering trial in March after trying to bribe government witness Sherry Gibson into changing her planned testimony. Poulsen was given 10 years in prison and ordered to pay a $17,500 fine on the bribery conviction, but Demmler has yet to be sentenced.



In a foreshadowing of the current worldwide financial crisis, it appears that other, and more widely respected financial institutions got caught up in this mess, per Bloomberg News,



JPMorgan Chase & Co., the largest U.S. bank by market value, agreed to pay $425 million in 2006 to settle claims by Arizona noteholders. The noteholders said JPMorgan and other banks underwrote or were trustees of the notes used to defraud investors.

The National Century Financial Enterprises collapse affected not only investors, but health care providers, again per Bloomberg,



National Century's collapse hastened the bankruptcies of 275 hospitals, clinics, nursing homes and other health-care providers, according to prosecutors and regulators.



So add Lance Poulsen to our rogue's gallery of health care leaders convicted of fraud, corruption, or other white-collar crimes related to their health care leadership roles.

This is yet another case suggesting that something has gone very wrong with the leadership of important health care organizations. That the activities that doomed National Century Financial Enterprises went on for so long, and involved so many of its top leaders, suggest a disastrously unethical corporate culture that seemingly was effectively concealed from both investors and the health care providers with whom the company did business.

Again, this case argues why we need more transparency, accountability, and commitment to ethical principles in the governance of health care organizations. More specifically, and as I have argued before, this case suggests the need for developing a licensure process for leaders of health care organizations. Licensing doctors and health professionals has been going on for a long time. But now leaders of health care organizations, from hospitals to drug companies, have as much if not more influence over health care, and hence the health and safety of patients as do doctors. Yet there are no requirements that leaders of health care organizations have any particular educational background, knowledge, commitment to health care values, or, for that matter, that they have not committed crimes. Given the scope of bad leadership discussed on Health Care Renewal, maybe a licensing process for health care executives would at least ensure that they have not served time in the brig for theft.

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

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 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).

Once again, JPMorgan, and all the BIG BANKS get a walk!

This is questionable: "...hastened the bankruptcies of 275 hospitals, clinics, nursing homes and other health-care providers, ..."

Fraud Case Against National Century's Poulsen Goes to Ohio Jury

By Denise Trowbridge and David Voreacos

Oct. 31 (Bloomberg) -- Jurors began deliberating fraud charges against Lance Poulsen, the National Century Financial Enterprises Inc. founder accused of leading a $2.9 billion fraud before the company's bankruptcy in 2002.

Poulsen, 65, is accused of cheating investors who bought National Century bonds and believed they backed the purchase of unpaid insurance bills from medical providers that needed cash. Prosecutors said Dublin, Ohio-based National Century advanced $2.2 billion to six companies in which Poulsen owned a stake.

Federal jurors in Columbus, Ohio, began weighing fraud, conspiracy, and money-laundering charges this morning after U.S. District Judge Algenon Marbley instructed them on the law last night. Poulsen faces between 30 years and life in prison if convicted. He is already serving 10 years in prison for tampering with a witness against him.

Poulsen testified in his own defense at the trial, which began Oct. 2. He said he never intended to defraud investors, and that all of his actions were permitted by indentures, private-placement memos and other legal documents.

National Century's collapse hastened the bankruptcies of 275 hospitals, clinics, nursing homes and other health-care providers, according to prosecutors and regulators. Victims included investment firms and pension funds such as Pacific Investment Management Co., the world's largest bond fund.

Pimco lost $283 million and Credit Suisse Group AG lost $257 million, Justice Department Trial Attorney Leo Wise told jurors yesterday in closing arguments.

JPMorgan Chase & Co., the largest U.S. bank by market value, agreed to pay $425 million in 2006 to settle claims by Arizona noteholders. The noteholders said JPMorgan and other banks underwrote or were trustees of the notes used to defraud investors.

The case is U.S. v. Poulsen, 06-129, U.S. District Court, Southern District of Ohio (Columbus).

To contact the reporters on this story: David Voreacos in Newark, New Jersey, at dvoreacos@bloomberg.net; Denise Trowbridge in Columbus, Ohiot .

Last Updated: October 31, 2008 10:00 EDT