Open Thread: The Vampire Squid Pwns Its (Supposed) Regulators

Well, I joked first thing this morning about a Friday doc-dump, and (as commentor Cat pointed out) then this happened, per Annie Lowrey at NYMag:

ProPublica and “This American Life” are out with a blockbuster story, so blockbuster they got none other than Michael Lewis to tease it. It is the tale of one Carmen Segarra, a former regulator for the Federal Reserve Bank of New York. A compliance specialist, Segarra was embedded in Goldman Sachs to ensure that the megabank followed the rules.

For instance, in an incident that seems to have contributed to Segarra’s firing less than a year after she started on the job, she questioned whether Goldman had an adequate conflict-of-interest policy, ultimately determining that it did not. Her superiors pressured her to change her finding. Soon after, they canned her.

Of course, Goldman strongly disputes Segarra’s version of events, as does the New York Fed. And of course, Segarra is not an impartial observer — she’s a disgruntled former employee. But the brilliant thing is that we do not have to take her word for any of it. Shocked by what she saw, Segarra snuck a recording device into work. There are two days’ worth of tape supporting her version of events…

There will, I hope, be a lot more discussion about this over the weekend and into next week…
Apart from confirming all our worst fears about the new Gilded Age, what’s on the agenda for the start of the weekend?

Bill Clinton Joins Boo-Hoo Billionaire’s Club

Not as a member, as an apologist. Via TPM, an excerpt from an interview of former Treasury Secretary Tim Geithner:

[Geithner] cheerfully relayed a story that also appears in his book about the time he sought advice from Bill Clinton on how to pursue a more populist strategy: “You could take Lloyd Blankfein into a dark alley,” Clinton said, “and slit his throat, and it would satisfy them for about two days. Then the blood lust would rise again.”

What a steaming load of horseshit. Most of us would actually like to avoid blood in the streets. Punishing malefactors for their crimes with a prison sentence where warranted would be a good goddamned start. But we can’t have that. Oh yeah, there’s this:


Fucking asshole.

Show your hand


I saw that Cuccinelli in Virginia released his education plan (pdf) so I thought I’d compare his work to model bills churned out by ALEC, the corporate-owned state law factory.


Review and reform teaching requirements and establish paths to teacher licensure external to education institutions.

Model Law that corporations wrote:

Offer teaching credentials to individuals with subject-matter experience but no education background with the Alternative Certification Act, introduced in seven states.


Create and expand Virtual Classrooms. Provide legislation that will eliminate barriers to successful implementation of a virtual school curriculum such as seat-time, pupil-teacher ratios and high school course hour requirements.

Model law that corporations wrote:

Send taxpayer dollars to unaccountable online school providers through the “Virtual Schools Act,” introduced in three states, where a single teacher remotely teaches a “class” of hundreds of isolated students working from home. The low overhead for virtual schools certainly raises company profits, but it is a model few educators think is appropriate for young children.

Ohio was the poster child of online for-profit K-12 scams for years, but now I think Pennsylvania has us beat. Here’s great reporting out of Maine with details on all the sleaze. As usual, there’s a Bush brother involved.


Enact Parent Empowerment And Choice Act Legislation For Parents In Failing Schools.

Model law that corporations wrote:

Create opportunities to privatize public schools or fire teachers and principals via referendum with the controversial Parent Trigger Act (glorified in the flop film “Won’t Back Down”), introduced in twelve states.

Here’s an inspiring story about how parents in Florida banded together and beat Michelle Rhee’s lobby shop when they parachuted into that state to sell Parent Trigger. I’m waiting for a movie about how grass roots public school parents beat Michelle Rhee and Jeb Bush but I’m not holding my breath. That’s a movie that will never be made.

For the second straight year, significant parent opposition to “parent trigger” legislation in Florida has led to defeat in the legislature despite powerful supporters, including former governor Jeb Bush. The parent trigger campaign in Florida has recently been marked some unusual episodes, including the gathering of signatures on a pro-parent trigger petition by StudentsFirst, Michelle Rhee’s advocacy group, that includes names of people who didn’t sign it. Tampa Bay Times columnist John Romano said in this piece that the petition backfired: The petition was supposed to prove this pro-charter school legislation had grass roots support among parents, but instead it highlighted what critics have been saying all along: This law is about pushing Jeb Bush’s education agenda, and little else.

Read more

What “working for public schools” looks like

Wanted to return to school reform industry insider Tony Bennett because as you know I am a student of school reform industry studies.
The Miami Herald, with an outraged editorial:

Tony Bennett slunk away from his job as Florida commissioner of education, leaving us with an ever-deepening distrust of a school-reform movement dominated by for-profit education conglomerates and big-money political donors. He was undone by a grade-fixing scandal of his own making back when he was Indiana superintendent of education (until unhappy voters tossed him out of office in November). But Florida citizens had another reason to doubt Bennett’s objectivity when it comes to charter schools. The Indianapolis Star reported last week that his wife, Tina Bennett, was hired in June by Fort Lauderdale-based Charter Schools USA. It was another of those sweet, moneyed coincidences in Bennett public service. In 2011, he had awarded this very same company nice fat contracts to take over two failing high schools and a middle school in Indianapolis. (One of those schools, T.C. Howe High School, happened to be one of those two schools that had requested but were refused the same kind of waiver granted Christel House last September. Such a small world.) And Charter Schools USA has become one of the big players in the Florida rush to charters.

“During the past 15 years, Florida has embarked on a dramatic shift in public education, steering billions in taxpayer dollars from traditional school districts to independently run charter schools. What started as an educational movement has turned into one of the region’s fastest-growing industries, backed by real-estate developers and promoted by politicians.

Well, obviously, and it’s not just Florida, but what struck me about Bennett’s emails as the parent of a public schooler was not so much that he cooked the scores to benefit the “choice” schools he favors but that in those emails there is no mention, at all, of Indiana public schools. They were changing the scoring. Public schools in Indiana were closed and privatized when they did poorly on Bennett’s grading system. No reformer in state government cared. Public schools aren’t even mentioned. The entire 5 day reformer work week revolved around charter schools. This is a problem because 95% of US public students attend traditional public schools. If you’re not working for public schools (and no one on Bennett’s team was, apparently) you’ve abandoned the vast majority of kids. That’s the deeply unethical part to me of all this, besides all the sleaze. They’re working not for all those kids but for only a select few.

To show you the difference I see between a person actually working for all public schools and Tony Bennett, I’ll go to Fort Wayne Indiana, and show you a letter from school board member. The letter is written in response to this editorial, where a person who supports Bennett-style “reforms” tells us school reform can’t fail it can only be failed. Here’s the school board member’s response:

Thanks for the article posted above. I appreciate your statement in the article that you view the DaHaan charter school as, “stellar” and “amazing” despite its “C” grade. That has been my and others’ point all along. It may very well be stellar, amazing, etc. and still get a C. In fact, it may be all those things even had it receive a “D” or an “F”. The point Tony just could not grasp is that these grades mean so darn little. The school should be evaluated based in part on the standardized assessments but there must be recognition of the challenges faced by the school, the quality of parental involvement, the demographic of the school, the extent of the language barrier in the school, the leadership in the building, the extra-curricular programs, and the willingness and ability of the staff to coordinate the learning experience to bring out the student’s best.
This story leaves me amused, frustrated and angry all at the same time. Amused for obvious reasons – how could anyone with a Ph.D think these really dumb statements would stay secret. Frustrated because I know that the money in the system will continue to influence legislators that the A-F system improves education. But most of all I am angry. South Side High School missed a “C” by one lousy point on this phony grading scale. Many other of our FWCS schools are in the same boat. South Side is not a “D” High School; it is stellar, amazing and deserving of praise. It never received that praise because Tony and the gutless wonders who worked for him (and who should have stood up to him) fixed the system.
I will announce soon that our Board will no longer recognize our schools on the basis of the letter grade assigned by the State. I will apologize for not having taken a stand against the letter grades when we were awarded an “A” (which fell to a “C” as part of the DaHaan grade inflation). We will do what we should have done a long time ago. We will develop our own metrics and award those stellar, amazing schools that work miracles in the lives of our students, regardless of the pay to play designation awarded by the State.
I will continue to take issue with your use of the word “reform” to describe the Bennett policies. Reform connotes improvement that has been proven. The policies initiated by Tony have not reformed anything yet. They have made a lot of people a lot of money. There may come a time when the results of these policies warrant the use of that term, but that day has yet to arrive. Until then, the policies are merely experiments. And if they fail, there will be a lot of young people who will have paid a dear price for Tony’s bluster.

Again, thanks for the article.
Mark E. GiaQuinta, Esq.
444 East Main Street
Fort Wayne, Indiana

Bankster, Bankster, That’s What They’re Yellin!

I’m changing my name to the First Bank of John Cole so I can rob people on vacation, have the charges dropped, and then tell the victim to fuck right off:

Katie Barnett, a resident of MacArthur, OH, claims that a bank she doesn’t belong to broke into her house while she was on vacation and either took or destroyed most of her possessions. First National Bank in Wellston had meant to foreclose and repossess a house across the street and blames its GPS for the mix-up.

Barnett says she has since presented the president of the bank with an $18,000 estimate to compensate her for the loss, but he has refused to pay her. “He got very firm with me and said, ‘We’re not paying you retail here, that’s just the way it is,’” she told 10TV News. The bank president told 10TV that it is trying to come to terms with Barnett. The bank did not respond to ThinkProgress’s request for comment.

Barnett called the police after the incident, but the police told her the case was closed just weeks later.

I wish I could say this was unbelievable. Oh, also too, this.

America, Fuck Yeah!

*** Update ***

Video removed because for some reason it is autoplaying and I have better things to do than deal with whiny emails all night. It didn’t autoplay in Firefox or Chrome, but apparently some of you wankers still use IE.

Another Victory for the Banksters

Well, today’s announcement that DoJ won’t bring charges against Goldman is depressing, though I think not unexpected:

“The department and investigative agencies ultimately concluded that the burden of proof to bring a criminal case could not be met based on the law and facts as they exist at this time,” the department said.

I’m not a lawyer, so I’m not going to comment on the issue of criminal liability, though what always concerns me in these sorts of situations is how quickly “there is no provable criminal liability” gets spun as “they did nothing wrong.”

But there is a bigger issue here, I think.  What Goldman was doing was dicey, at best. They were creating and selling securities to people that they themselves considered “junk” and “crap.” What I find interesting is that most of the outrage about this comes from individuals (and some politicians), but not from the institutional investors who got screwed directly (the rest of us got screwed indirectly if our mutual fund managers were foolish enough to invest in those products — not to mention the broader, more severe, but even more indirect, costs of the financial crisis generally).

The reason I raise this point is that I can’t help but think there is some sort of exploitable cleavage here. The right is really, really adept at exploiting every seam. But for whatever reason, the “business” community largely sticks together, largely supports conservatives, even though in many, many cases the people more directly screwed over by things like financial sector borderline-criminal conduct are precisely businesses and other large financial institutions.

Thinking back a century ago, it wasn’t ordinary citizens alone who finally managed to push for regulation (particularly of monopolistic practices), it was also business interests that faced what they considered unfair practices.

The majority of the members of the Chamber of Commerce are getting screwed left and right by lack of transparency, price fixing, and a variety of dicey if not unlawful other practices. And yet, they, as a matter of tribal loyalty always seem to end up siding with their “Wall Street brothers.”

I don’t really know what to do about it, but American business votes against their own interests at least as much as the good people of Kansas about whom so much has been written.


Broadening the Bain Focus

In addition to the political benefits for Obama, another interesting dynamic is that attention to Romney’s career in the financial sector is, I think, prompting some additional attention to dubious practices in that sector. John posted on Bain’s interactions with Dade International, and mistermix posted on the NYT story about how Goldman screwed Dragon Systems. But there is an even bigger issue here that I want to raise.

Let me use Ezra Klein as a foil. He writes about the founding of Bain Capital:

Bill Bain’s idea was simple. His firm, Bain & Co., was making lots of money by advising companies in exchange for fees. The fact that it was making money was proof that its staff understood what it took to make struggling companies successful. So why not eliminate the middleman? Rather than advising companies for a fee only to watch the current management reap the big profits, Bain Capital would take over troubled companies, manage them to profitability and reap the rewards itself.

That is an curious spin, and one that Romney himself might offer. According to this model, corporate raiders like Romney are just turnaround specialists. They take over “troubled” companies, and right them.

And yes, this does happen. But this is only part of the story.

“Troubled” companies have a particular meaning on Wall Street. Sure, sometimes they refer to companies that are just muddled, have over-expanded, and are badly managed. But more often, what they are talking about is companies that do not seem to providing a large enough return to shareholders — a stagnating stock price in particular. But that does not mean a company is “troubled.” It can be quite profitable, have productive and loyal employees, have satisfied customers, and cash on hand.

What players like Bain do is enforce a Wall Street preference. There is a bias against companies that seek a “quiet life.” They are shunned by institutional investors, which depresses stock prices and makes these companies “troubled” in the first place. It isn’t that they are not profitable, but rather than institutional investors don’t like them, and as a result they trade at dramatically lower P/E ratios. Indeed, it isn’t even clear that takeover targets do have weaker stock performance if you look at total returns, including dividends.

Once a company goes public, it is essentially subject to “disciplinary” takeovers if it fails to act in accordance with financial sector preferences. This is often phrased as “poorly performing managers,” but what does that really mean? That is really just about enforcing a certain conventional wisdom about what a company ought to do. But these preferences are socially problematic. Consider some of the things that seem to contribute to being a takeover target: slow growth, stable revenues, cash on hand rather than debt, generous employee compensation, conservatively-funded pension or insurance plans. (Again caveats abound. There is no simply model of predicting takeover targets.)

So, in a sense, Bain, and other buyout specialists, serve to enforce a particular type of corporate behavior that focus on expansion at the expense of predictability, risk acceptance in terms of contractual obligations to employees, and a ruthless focus on cost controls at the expense of employee loyalty and stability.

As a practical matter, it is not clear that this sort of approach is conducive to more rapid economic growth. Certainly the rise of this consensus and expansion of “disciplinary” takeovers since the 1980s has not resulted in any noticeable improvement in U.S. macroeconomic performance. And furthermore, the evidence on whether takeover targets overperform or underperform after being bought is mixed.

But what has happened is that as firms accept these practices, they become more dependent on the financial sector. They borrow more, become more active in raising money through equity sales, they run leaner by hedging through derivatives, and so on. In each case, they pay a cut to financial firms. The result has been that the financial sector’s share of corporate profits has risen dramatically since the 1980s.

Some of these companies will now be more successful, but many that move toward debt-fueled expansion will crash and burn. The financial sector wins either way. But it isn’t clear to me that corporate America in general win, and certainly workers whose pensions gets looted, and unions busted, and ride the boom and bust cycles of overtime and layoff do quite poorly.