Chemicals Meant To Break Up BP Oil Spill Present New Environmental Concerns

by Abrahm Lustgarten, ProPublica

The chemicals BP is now relying on to break up the steady flow of leaking oil from deep below the Gulf of Mexico could create a new set of environmental problems.

Even if the materials, called dispersants, are effective, BP has already bought up more than a third of the world’s supply. If the leak from 5,000 feet beneath the surface continues for weeks, or months, that stockpile could run out.

On Thursday BP began using the chemical compounds to dissolve the crude oil, both on the surface and deep below, deploying an estimated 100,000 gallons. Dispersing the oil is considered one of the best ways to protect birds and keep the slick from making landfall. But the dispersants contain harmful toxins of their own and can concentrate leftover oil toxins in the water, where they can kill fish and migrate great distances.

The exact makeup of the dispersants is kept secret under competitive trade laws, but a worker safety sheet for one product, called Corexit, says it includes 2-butoxyethanol, a compound associated with headaches, vomiting and reproductive problems at high doses.

“There is a chemical toxicity to the dispersant compound that in many ways is worse than oil,” said Richard Charter, a foremost expert on marine biology and oil spills who is a senior policy advisor for Marine Programs for Defenders of Wildlife and is chairman of the Gulf of the Farallones National Marine Sanctuary Advisory Council. “It’s a trade off – you’re damned if you do damned if you don’t -- of trying to minimize the damage coming to shore, but in so doing you may be more seriously damaging the ecosystem offshore.”

BP did not respond to requests for comment for this article.

Dispersants are mixtures of solvents, surfactants and other additives that break up the surface tension of an oil slick and make oil more soluble in water, according to a paper published by the National Academy of Sciences. They are spread over or in the water in very low concentration – a single gallon may cover several acres.

Once they are dispersed, the tiny droplets of oil are more likely to sink or remain suspended in deep water rather than floating to the surface and collecting in a continuous slick. Dispersed oil can spread quickly in three directions instead of two and is more easily dissipated by waves and turbulence that break it up further and help many of its most toxic hydrocarbons evaporate.

But the dispersed oil can also collect on the seabed, where it becomes food for microscopic organisms at the bottom of the food chain and eventually winds up in shellfish and other organisms. The evaporation process can also concentrate the toxic compounds left behind, particularly oil-derived compounds called polycyclic aromatic hydrocarbons, or PAHs.

According to a 2005 National Academy of Sciences report, the dispersants and the oil they leave behind can kill fish eggs. A study of oil dispersal in Coos Bay, Ore. found that PAH accumulated in mussels, the Academy’s paper noted. Another study examining fish health after the Exxon Valdez spill in Alaska in 1989 found that PAHs affected the developing hearts of Pacific herring and pink salmon embryos. The research suggests the dispersal of the oil that’s leaking in the Gulf could affect the seafood industry there.

“One of the most difficult decisions that oil spill responders and natural resource managers face during a spill is evaluating the trade-offs associated with dispersant use,” said the Academy report, titled Oil Spill Dispersants, Efficacy and Effects. “There is insufficient understanding of the fate of dispersed oil in aquatic ecosystems.”

A version of Corexit was widely used after the 1989 Exxon Valdez spill and, according to a literature review performed by the group the Alaska Community Action on Toxics, was later linked with health impacts in people including respiratory, nervous system, liver, kidney and blood disorders. But the Academy report makes clear that the dispersants used today are less toxic than those used a decade ago.

“There is a certain amount of toxicity,” said Robin Rorick, director of marine and security operations at the American Petroleum Institute. “We view dispersant use as a tool in a toolbox. It’s a function of conducting a net environmental benefit analysis and determining the best bang for your buck.”

Charter, the marine expert, cautioned the dispersants should be carefully considered for the right reasons.

“Right now there is a headlong rush to get this oil out of sight out of mind,” Charter said. “You can throw every resource we have at this spill. You can call out the Marine Corps and the National Guard. This is so big that it is unlikely that any amount of response is going to make much of a dent in the impacts. It’s going to be mostly watching it happen.”

Ryan Knutson contributed to this report.

Write to Abrahm Lustgarten at Abrahm.Lustgarten@propublica.org..

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Democratic Allies Leave President Obama As Adrift As The Gulf Oil Slick Over Spill

Many Democrats are offering President Obama tepid support at best over the future of offshore oil drilling after the ongoing environmental disaster unfolding in the Gulf of Mexico.

Even Senate Majority Leader Harry Reid, a usually staunch Obama ally, is noncommittal over the future of at-sea oil extraction in the face of a massive oil slick caused by the explosion of a BP oil rig.

The oil spill, which threatened to come ashore Friday, further angered Democrats who just a month ago expressed their displeasure at Obama's decision to open new offshore areas to oil and natural gas drilling.

Obama announced Friday that policy was on hold pending an investigation into the BP accident, but that wasn't enough for some Democrats who say a temporary hold isn't good enough, including several New Jersey lawmakers.

"I continue to believe that domestic oil production is an important part of our overall strategy for energy security, but I've always said it must be done responsibly, for the safety of our workers and our environment," the president says. "The local economies and livelihoods of the people of the Gulf Coast as well as the ecology of the region are at stake."

Obama repeated Friday that he had sent a number high-level Cabinet officials to the scene of the spill, while the Attorney General Eric Holder announced that he was dispatching a team of federal lawyers to the Gulf to meet with the U.S. Attorney and response teams and to monitor the oil spill.

"The British Petroleum oil spill has already cost lives and created a major environmental incident," Holder says. "The Justice Department stands ready to make available every resource at our disposal to vigorously enforce the laws that protect the people who work and reside near the Gulf, the wildlife, the environment and the American taxpayers."

The damage to wildlife, and the wetlands of the Gulf environment, reportedly could be immense even by comparisons to the 1989 Exxon Valdez oil spill in Alaska. Bird species around the Gulf, particularly, could be especially harmed. One environmentalist has been quoted as calling the BP spill a "mega-disaster."

Key Garden State Democrats called on Obama to reverse his plan eventually to open up the East Coast of the United States to oil drilling. Under the administration’s plan, drilling along the coast of Virginia could occur within 100 miles of the Jersey Shore and, eventually, drilling along the coast of Delaware could occur within 10 miles of New Jersey, the New Jersey senators and congressman note.

“In the wake of the tragic accident, loss of life, and pollution in the Gulf of Mexico from the Deepwater Horizon oil rig, we are even more steadfastly opposed to any offshore drilling that could imperil the environment or economy of coastal New Jersey,” the lawmakers write in a letter to the president. “While we appreciate the White House’s announcement that no additional offshore drilling will be authorized until a full investigation of the accident is complete, we urge you to go further and reverse your decision on proposed new offshore oil and gas drilling for the outer continental shelf.”

The top Senate Democrat, Reid released a statement Friday expressing condolences on the loss of life from the rig explosion, adding that he is "alarmed by the environmental impact of this incident and its potential to get even worse in the coming days."

While commending the president for his administration's immediate response to the spill, Reid offered no such support for Obama's long-term oil-drilling policies.

“This terrible event will, undoubtedly, require us to re-examine how we extract our nation's offshore energy resources and will have to be taken into consideration with any legislation that proposes to open new areas to development," the Nevada Democrat says. "I am pleased that the Obama administration has swiftly deployed significant federal resources to help minimize and contain this incident. We will continue to follow the developments in the Gulf of Mexico closely.”

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Geithner Talks Tough About Banks’ Loan Mod Efforts, But More Bark Than Bite

by Paul Kiel, ProPublica

For nearly a year now, we at ProPublica have been reporting on the problems homeowners have encountered when seeking a mortgage modification under the administration’s program.

Yesterday, Treasury Secretary Tim Geithner for the first time acknowledged the depths of the problems, but didn’t offer any new solutions. He committed to release more detailed data on how banks and other servicers are faring—a promise Treasury first made six months ago.

“We are concerned by the wide variation in performance we see across servicers and by the countless frustrated phone calls we receive from borrowers,” Geithner testified yesterday before Congress. He added that the Treasury was “troubled” by “reports that servicers have foreclosed on potentially eligible homeowners” and frequent complaints from homeowners that servicers lose their documents. He said servicers are “not doing enough to help homeowners” and that it was not “acceptable.”

This isn’t the first time Treasury Department officials have directed some tough talk at servicers, including vague threats of penalties. But it remains to be seen whether, as Geithner says, the Treasury will follow through and punish servicers that break the program’s rules. Under the program, which involves paying incentives to servicers, investors and homeowners to encourage modifications, the Treasury has the power to punish servicers by withholding those payments. But Treasury has never issued any such penalties. Nor has the government outlined how much such penalties might be.

Geithner did promise to publish within a month or two more detailed information about each servicer’s performance, data that could give a much clearer picture of how servicers are treating homeowners. Treasury officials have actually been promising to release this sort of data since last year. In December, Herb Allison, the official in charge of the TARP, said it would be released in January. Like everything else with the government’s loan mod program, it’s taken several months longer than it was supposed to.

The new, more detailed data will show how long it takes each servicer to answer calls from homeowners, how long they take to process applications, and the number of customer complaints each receives. A Treasury spokeswoman also said the reports will provide some sort of breakdown of how many people have been denied mods for which reasons, but it’s not clear yet if that data will be made available by servicer.

Up until now, the Treasury has only been releasing basic information for each of the largest servicers. And each month, we’ve transformed that data into an easy-to-digest breakdown.

One major problem, the data show, has been the large volume of homeowners in limbo (376,000 as of March). A trial period under the program is supposed to last three months, but for those homeowners, it’s stretched longer, sometimes as long as ten months. In total, 1.2 million homeowners have started trials since the program launched a year ago, but only 231,000 have made it to a permanent modification.

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BP Had Other Problems in Years Leading to Gulf Spill

by Abrahm Lustgarten, ProPublica

BP, the global oil giant responsible for the fast-spreading spill in the Gulf of Mexico that will soon make landfall, is no stranger to major accidents.

In fact, the company has found itself at the center of several of the nation's worst oil and gas–related disasters in the last five years.

In March 2005, a massive explosion ripped through a tower at BP's refinery in Texas City, Texas, killing 15 workers and injuring 170 others. Investigators later determined that the company had ignored its own protocols on operating the tower, which was filled with gasoline, and that a warning system had been disabled.

The company pleaded guilty to federal felony charges and was fined more than $50 million by the U.S. Environmental Protection Agency.

Almost a year after the refinery explosion, technicians discovered that some 4,800 barrels of oil had spread into the Alaskan snow through a tiny hole in the company's pipeline in Prudhoe Bay. BP had been warned to check the pipeline in 2002, but hadn't, according to a report in Fortune. When it did inspect it, four years later, it found that a six-mile length of pipeline was corroded. The company temporarily shut down its operations in Prudhoe Bay, causing one of the largest disruptions in U.S. oil supply in recent history.

BP faced $12 million in fines for a misdemeanor violation of the federal Water Pollution Control Act. A congressional committee determined that BP had ignored opportunities to prevent the spill and that "draconian" cost-saving measures had led to shortcuts in its operation.

Other problems followed. There were more spills in Alaska. And BP was charged with manipulating the market price of propane. In that case, it settled with the U.S. Department of Justice and agreed to pay more than $300 million in fines.

At each step along the way, the company's executives were contrite.

"This was a preventable incident. ... It should be seen as a process failure, a cultural failure and a management failure," John Mogford, then BP's senior group vice president for safety and operations, said in an April 2006 speech about the lessons learned in Texas City. "It's not an easy story to tell. BP doesn't come out of it well."

In a 2006 interview with this reporter after the Prudhoe Bay spill, published in Fortune, BP's chief executive of American operations, Robert Malone, said, "There is no doubt in my mind, what happened may not have broken the law, but it broke our values."

Malone insisted at the time that there was no pattern of mismanagement that increased environmental risk.

"I cannot draw a systemic problem in BP America," he said. "What I've seen is refineries and facilities and plants that are operating to the highest level of safety and integrity standards."

Nonetheless, Malone, who spent three decades at BP and was promoted to the CEO of BP America shortly after the Texas refinery blast, promised to increase scrutiny over BP's operations and invest in environmental and safety measures.

He told Congress that it was imperative BP management learn from its mistakes.

"The public's faith has been tested recently," he said. "We have fallen short of the high standards we hold for ourselves and the expectations that others have for us."

Time will tell whether the accident that killed 11 workers and sent the Transocean Deepwater Horizon drilling rig -- a $500 million platform as wide as a football field -- floating to the bottom of the Gulf of Mexico was simply an accident or something else.

Malone, who retired last year, declined to comment for this article. A spokesman for BP was not available for comment.

Families of workers who died in the accident have already filed lawsuits accusing BP of negligence. Congress, as well as the Minerals and Management Service, the federal agency that regulates drilling in the Gulf, were already separately investigating allegations that BP has failed to keep proper documents about how to perform an emergency shutdown of the Atlantis, another Gulf oil platform and one of the largest in the world.

There are also indications that BP and Transocean, the owner of the Deepwater Horizon rig that burned and sank, could have used backup safety gear -- a remote acoustic switch that would stanch the flow of oil from a leaking well 5,000 feet underwater -- to prevent the massive spill now floating like a slow-motion train wreck toward the Mississippi and Louisiana coastline. The switch isn't required under U.S. law, but is well-known in the industry and mandated in other parts of the world where BP operates.

In the year before the accident, BP once again aggressively cut costs. A reorganization stripped 5,000 jobs from its payroll, saving BP more than $4 billion in operating costs, according to a report sent to ProPublica by Fadel Gheit, an investment analyst for Oppenheimer.

On April 27, as the U.S. Coast Guard worked with BP engineers to guide remote control submarines nearly a mile underwater in a futile effort to close a shut-off valve, BP told investors that its quarterly earnings were up more than 100 percent over the last year, beating expectations by a large margin. After underperforming its competition throughout the last decade, Gheit wrote, BP was the only major oil company to perform better than the S&P 500 last year.

Write to Abrahm Lustgarten at Abrahm.Lustgarten@propublica.org..

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Democrats' Senate Measure Would Put Teeth Into State Credit Card Rate Caps

A proposed amendment to the Senate financial reform bill would enable states to enforce credit card interest limits on lenders based in other states, according to a group of Democrats who have introduced the measure.

Sen. Sheldon Whitehouse (D-R.I.) filed the amendment, which is modeled after his Empowering States' Right to Protect Consumers Act (S. 255) introduced last year.

For more than 200 years, each state had the ability enforce usury laws against any lender doing business with its citizens. Then, in 1978, a Supreme Court case opened up a loophole through which big national banks have been able to avoid state law interest rate caps. The Whitehouse amendment would change the law to make clear that credit card companies and other lenders – no matter there in the country they are located – must abide by the interest rate limits of the states in which their customers reside, according to supporters of the measure.

“We need to correct the historical anomaly that has allowed credit card companies to escape state law interest rate limits,” says Whitehouse. “Rhode Island and other states deserve the right to enforce interest rate limits and say enough to sky-high interest rates.”

The amendment is cosponsored by Sens. Jeff Merkley (D-Ore.), Dick Durbin (D-Ill.), Bernie Sanders (I-Vt.), and Carl Levin (D-Mich.), and if approved, would become part of the overall financial reform package under debate in the Senate.

“Creating a strong, level playing field in consumer protection rules is a key part of Wall Street reform,” Merkley says. “It’s absurd that credit card interest rates in one state can be set by a different state on the other side of the country. Community banks and credit unions are key to small businesses’ growth and economic development and the major credit card companies should be able to play by the same rules and rate limits as our local lenders.”

After sustaining a filibuster for three days this week, GOP senators relented, and allowed the reform package to proceed. The main bill was authored by Sen. Chris Dodd (D-Conn.), and would be the most sweeping overhaul of the rules governing the financial industry since the Great Depression. Wall Street executives bitterly oppose the Dodd legislation.

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World Gov'ts Fail on Biodiversity Target

World leaders have failed to deliver on commitments made in 2002 to reduce the global rate of biodiversity loss by 2010, and have instead overseen alarming biodiversity declines. These findings are the result of a new paper published in the leading journal Science and represent the first assessment of how the targets made through the 2002 Convention on Biological Diversity (CBD) have not been met.

The CBD is an international treaty designed to maintain a diversity of life on Earth. The United States signed the treaty, but the U.S. Senate never ratified it which means the U.S. is not a party to the treaty. The United Nations declared 2010 to be the International Year of Biodiversity.

Compiling over 30 indicators -- measures of different aspects of biodiversity, including changes in species' populations and risk of extinction, habitat extent and community composition -- the study found no evidence for a significant reduction in the rate of decline of biodiversity, and that the pressures facing biodiversity continue to increase. The synthesis provides overwhelming evidence that the 2010 target has not been achieved.

"Our analysis shows that governments have failed to deliver on the commitments they made in 2002: biodiversity is still being lost as fast as ever, and we have made little headway in reducing the pressures on species, habitats and ecosystems," says Stuart Butchart of the U. N. Environment Programme World Conservation Monitoring Centre, BirdLife International and the paper's lead author.

"Our data show that 2010 will not be the year that biodiversity loss was halted, but it needs to be the year in which we start taking the issue seriously and substantially increase our efforts to take care of what is left of our planet."

The indicators included in the study were developed and synthesized through the 2010 Biodiversity Indicators Partnership -- a collaboration of over 40 international organizations and agencies developing global biodiversity indicators and the leading source of information on trends in global biodiversity.

Among these indicators was the Ecological Footprint, which measures the aggregate demand that human activities, through consumption of resources and emission of carbon dioxide, place on ecosystems and species.

"A better understanding of the connections between the Ecological Footprint and biodiversity loss is fundamental to slowing, halting and reversing the ongoing declines in these ecosystems and in populations of wild species," says Alessandro Galli, senior scientist for Global Footprint Network and co-author of the study.

Among the drivers of threats to biodiversity are human demands for food, water, energy and materials, according to Galli. Such threats include climate change, pollution, habitat loss, as well as over-exploitation of resources and species.

"Since 1970, we have reduced animal populations by 30 percent, the area of mangroves and sea grasses by 20 percent and the coverage of living corals by 40 percent," says U.N. Environment Programme Chief Scientist Prof Joseph Alcamo. "These losses are clearly unsustainable, since biodiversity makes a key contribution to human well-being and sustainable development, as recognized by the UN Millennium Development Goals."

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Campaign Spending Bill Pleases Watchdogs

Democrats won applause Thursday from a variety of public interest groups for a bill they brought forward designed to counter the effects of corporate spending in elections.

As expected, Sen. Charles Schumer (D-N.Y.) and Reps. Chris Van Hollen (D-Md.) and Mike Castle (R-Del.), introduced their legislation, called the DISCLOSE Act, would create a new disclosure system that would let the public -- including corporate shareowners -- learn which corporations are promoting or attacking which candidates, even when corporate money is laundered through front groups like the U.S. Chamber of Commerce.

The Chamber, an influential-but-shadowy ardently anti-regulation lobby, has strongly opposed the transparency the new legislation would provide. The Chamber reportedly plans to spend $50 million in a campaign this year directed at defeating Democrats and their reform agenda.

The legislation was prompted by a controversial Supreme Court ruling earlier this year, referred to as Citizens United, which struck down decades of regulation that limited the ability of corporations to influence U.S. elections. The ruling was decided on a 5-4 vote dominated by the court's conservative bloc. President Obama took the unusual step of criticizing the decision during his January State of the Union address.

"The legislation provides Congress with the opportunity to mitigate the destructive impact of the Citizens United decision which has opened the door for corporations, labor unions and other organizations to flood federal elections and buy influence over government decisions with massive campaign expenditures," says Fred Wertheimer, president of Democracy 21, and a long-time public interest advocate.

Wertheimer praised the DISCLOSE Act as fair and equitable, and not partisan, in its impact.

"The bill applies alike to corporations, labor unions, trade associations and non-profit advocacy organizations," he says. "It is also fair to donors. Under the legislation, any donor to any organization can restrict the donated funds from being used for campaign-related expenditures and the donor will not be subject to any disclosure requirements. Thus, whether a donor is disclosed or not is fully within the control of the donor. Congress must act quickly to enact the legislation introduced today and make it effective in time for the 2010 congressional elections."

Another public-interest advocate applauded the DISCLOSE Act, but adds that more must be done to effectively counter the Citizens United decision.

“These are vital interim steps to mitigate the damage from the Supreme Court’s decision in Citizens United. They would lift the veil of secrecy from corporate political spending and prevent some of the most corrupting forms of corporate political expenditures,” says Robert Weissman, president of Public Citizen. “But we need stronger measures to counter the flood of corporate money that Citizens United unleashes.”

Public Citizen says in a statement that it advocates a series of short-, medium- and long-term measures to remedy the court’s decision. These additional measures include:

• the Shareholder Protection Act (H.R. 4790), which would require a majority of all shareholders to approve annually political expenditures desired by the management of publicly held corporations;
• the Fair Elections Now Act (H.R. 1826 and S. 751), which would provide public financing to qualified candidates to enable them to respond to the expected corporate onslaught; and
• a constitutional amendment to clarify that the First Amendment does not let corporations drown out citizens’ voices in U.S. elections.

“Congress immediately should enact comprehensive public financing of elections and give shareholders control over how CEOs spend their money,” says David Arkush, director of Public Citizen’s Congress Watch division. “We shouldn’t shy away from giving shareholders control over corporate political spending in their name -- or from pursuing fundamental changes to the way
elections are financed. The American public is fed up with corporate interests dominating Washington. It’s time to pursue every serious fix available.”

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Capitol Idea: Here's A Thought For Filibuster Reform: Make Them Actually Filibuster Something

By Scott Nance

Senate Republicans apparently plan to drop their objection and allow a vote on long-hoped-for financial reform legislation — but not before they blocked the bill for a third straight day.

This is not the first time the GOP's pulled such a stunt. You might recall how its senators twice in recent months blocked the Senate from even voting on emergency extensions of unemployment and healthcare benefits for millions of out-of-work Americans.

Once a rarely used parliamentary maneuver, Republicans have elevated the filibuster to routine business in the modern Senate. Anything more than the most routine business requires 60 senators — not just a simply majority of 51 — to overcome a filibuster.

From 1971 through 1993, an average of just 19.1 motions to end filibusters were filed annually. That figure rose to 36 motions a year between 1993 and 2007, which doubled again just since 2007, to 68.7.

With nearly anything Senate Democrats have brought forward, Republicans have tried mightily to stand in the way. Democrats, in turn, are so frustrated that they have begun talking of implementing some form of "filibuster reform."

You might think that all of this is of no more consequence than some petty political gamesmanship, but you'd be wrong.

Scott Lilly, a senior fellow at the Center for American Progress and a former congressional staffer with 31 years of service, found that the filibuster escalation is causing actual harm to the regular business Congress must complete.

Titled From Deliberation to Dysfunction, Lilly prepared an excellent study of the filibuster issue.

“Increasingly, the Senate has been forced to rely on legislative shortcuts that severely undermine the philosophy of full and careful consideration of all matters before the body...Even so, the chamber fails to complete much of the work for which it is responsible and falls so far behind schedule in completing the work it does do as to seriously undermine the capacity of the entire federal government to respond in an effective and efficient way to the problems facing our country.”

He also offered several recommendations to help get the legislative process back on track without sacrificing the prerogatives of the Senate.

Lilly is a seasoned and savvy legislative technician, and his proposed solutions were thoughtful and well-intentioned — but they ultimately miss the mark.

The word filibuster conjures images of plucky, defiant orators holding forth for a cause in which he or she believes, in a chamber rife with history.

Lilly notes that while most people think of the Jimmy Stewart classic, Mr. Smith Goes to Washington, the truth today is very different. It's been decades since a senator actually went to the Senate floor to engage in the extended oration that most people associate with a filibuster.

Instead, as Lilly explains, a senator merely must give notice of an intention to filibuster, for that filibuster to take effect.

I think, though, we would begin to see far, far fewer filibusters if only the obstructing party had to actually filibuster something.

What I mean is: Make the Republicans sit there, on the Senate floor, hour after hour, in order for a filibuster to be sustained.

Yes, yes, I know, there would be much hand-wringing, and shaking of conservative fists at Senate Majority Leader Harry Reid for the injustice and indignity of it all. Republicans would follow gamely, even defiantly, with unending speechifying.

But it wouldn't last. Have you seen a U.S. senator lately?

Even the ones who don't appear to be in their early hundreds aren't terribly tough and robust. They say politics is show business for ugly people, and that's certainly true at least to extent that our current crop of politicians do appear to as pampered as most Hollywood celebs.

Let's see just how grand the Grand Old Party remains after a series of all-nighters. Then keep the senators in town, and at work, over the weekend.

Worst of all: keep the Senate in session long enough to miss a few of their high-priced fundraisers in an election year. Now that might have the ability to concentrate their minds a wee bit.

Some might call my proposal overly aggressive, and say it threatens the comity of the Senate. Given that such comity is nearly nonexistent at the moment, I say, what do you have to lose, except maybe some sleep?

The publisher of On The Hill, Scott Nance has covered government and Washington for more than a decade. Capitol Idea is his regular column from Washington. The article was first published on Blogcritics.org.

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New Tricks for Those Republican ‘Census’ Mailers

by Ryan Knutson, ProPublica

The last few days, an increasing number of people have been sending us complaints about those pesky "census" mailers we wrote about – the ones that the Republican National Committee had been sending out.

We were under the impression that the Prevent Deceptive Census Look Alike Mailings Act took care of that issue when it passed both houses of Congress unanimously last month. Apparently not. That law, sponsored by Rep. Carolyn Maloney, D-N.Y., requires that any mailer that uses the word "census" on the envelope also include the sender’s name and address along with a disclaimer that says the survey is "not affiliated with the federal government."

But the RNC got around the new law by removing the word "census" from the envelope itself, and instead putting it on a document inside the envelope that could still be seen through the envelope’s clear plastic window, according to TPMmuckraker.

This brought a backlash from a number of lawmakers, including Republicans. Rep. Maloney and Rep. Lacy Clay, D-Mo., sent a letter to the postmaster general urging him to investigate the RNC mailer. Rep. Jason Chaffetz, R-Utah, wrote a letter to Michael Steele, the RNC chairman, asking him to "seriously reconsider the use of such deceptive and misleading tactics."

But Rep. Darrell Issa, R-Calif, went one step further: He drafted a new piece of legislation to close the loophole.

"We thought we had ended this," Issa said on the floor of the House as the bill was being discussed this morning. "We are making it clear here today that we will plug any perceived loopholes … whether it’s the Republican National Committee or the Democratic National Committee or [anybody else], don’t use the census. Don’t even thinking about using the census, because it’s wrong."

The bill expands the prior law to mandate the disclosure requirement for any mailer where the word "census" is visible from the outside. It unanimously passed the House this morning, and is now on to the Senate.

Correction: The original post mistakenly said a letter sent to Republican National Committee Chairman Michael Steele was authored by Rep. Darrell Issa (R-Calif.). The letter was actually written by Rep. Jason Chaffetz (R-Utah).

Write to Ryan Knutson at Ryan.Knutson@propublica.org.

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Dems Turn Bank Reform Into 2010 Tool

Stymied from actually passing financial reform legislation in the Senate, Democrats have decided to turn the issue into a fundraising and campaign tool for the 2010 elections.

Unified Republicans blocked further consideration of the regulatory overhaul bill for a second time Tuesday, throwing into doubt the future of what would have been the largest overhaul of rules governing the financial industry since the Great Depression.

Democrats, including President Obama, have wanted to pass the legislation to offer consumers greater protection, and to prevent another economic meltdown, such as occurred in 2008.

The House approved its version of financial reform last year, but with Wall Street executives strongly opposed to new regulation, Senate Republicans have mustered a filibuster to prevent the bill from reaching Obama's desk.

Democrats apparently think, however, that bank reform can be a winner for them, whether or not it becomes law.

Seizing on a poll this week that finds most Americans support new regulation for banks and other financial institutions, the Democratic National Committee rushed out an email fundraising appeal after the GOP blocked the legislation Tuesday.

"Frankly, this is a game-changer, just as we kick off our Vote 2010 campaign. New polls shows that nearly two-thirds of Americans support Wall Street reform, but the GOP is transparently standing with the big banks," says the email, signed by DNC Executive Director Jen O'Malley Dillon. "We're whipping up a series of ads, aimed at highlighting how Republicans have locked arms with big banks in the name of killing Wall Street reform. But we need your help to get them on the air right away."

Although it is the GOP who is standing in the way of advancing reform, the DNC email cites a "Democrats side with Wall Street" press release issued by the Republican National Committee, meant "to muddy the issue."

"If we can tell this story clearly and forcefully, we'll put huge pressure on the GOP to back down and support Wall Street reform -- and make sure voters remember this moment when they head to the polls in November," the DNC email says.

The DNC email suggests Democrats could craft highly negative TV ads in the 2010 campaign that paint Republicans in a dark light for siding with bankers in blocking reform.

The Washington Post-ABC News poll says a majority, 52 percent, of all Americans trust Obama over the GOP on the financial-reform issue, while 35 percent favor the Republicans in Congress. Among sought-after independents, these voters prefer Obama 47 to 35 percent, the poll finds.

An earlier Gallup poll found even higher support for Wall Street reform.

Democrats are looking to protect their three-year-old congressional majority in the 2010 midterm elections. They are looking for any and every tool that will help them do so. The current political environment that indicates just middling job approval ratings for Obama, and the strongest anti-incumbent mood lawmakers have faced since the 1994 midterms that proved so disastrous for Democrats. That was the year Republicans took control of both chambers of Congress for the first time in 40 years.

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House Moves Toward Justice Reform

Following the Senate's lead, a bipartisan group of lawmakers have introduced legislation to create a commission to complete a comprehensive review of the U.S. justice system, and make recommendations for reform.

Reps. Bill Delahunt (D-Mass.), Darrell Issa (R-Calif.), Marcia Fudge (D-Ohio), and Tom Rooney (R-Fla.) on Tuesday announced the introduction of the National Criminal Justice Commission Act of 2010.

The bill tracks a similar measure introduced earlier in the Senate by Sen. Jim Webb (D-Va.), and was approved by the Senate Judiciary Committee in January. The Senate legislation awaits action by the full Senate.

The legislation would create a blue-ribbon bipartisan commission charged with undertaking an 18-month study of the nation’s criminal justice system, according to a statement released by Delahunt. The commission would study all areas of the criminal justice system, including federal, state, local and tribal governments’ criminal justice costs, practices, and policies. After conducting its review, the panel would make recommendations for changes in, or continuation of oversight, policies, practices, and laws designed to prevent, deter, and reduce crime and violence, improve cost-effectiveness, and ensure the interests of justice, the statement adds. The bill has been endorsed by approximately 100 organizations.

The American Civil Liberties Union (ACLU) is among those groups who support the legislation, and the review that it would enact.

“Our current criminal justice system is both unfair and unsustainable. America's minorities have been suffering under our unbalanced criminal justice system due to unfair statutes, including our disparate crack powder sentencing guidelines. Judges are forced to use mandatory minimums as a one-size-fits-all solution to complex cases, forcing too many Americans to spend too much time behind bars,” says Laura Murphy, director of the ACLU Washington Legislative Office. “There is clear evidence that criminal justice reform is needed and a comprehensive review will likely achieve bipartisan support. The ACLU looks forward to continuing to work with both the House and Senate in pushing for meaningful criminal justice reform.”

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Capitol Idea: Scott Brown Hides Behind Discredited Talking Points As He Sells Massachusetts Out To Big Banks

By Scott Nance

Scott Brown joined every other Republican senator Monday to block financial reform legislation from even coming up from a vote.

And, like every other Senate Republican who sold out their constituents while protecting big-bank greed, Brown did so while hiding behind discredited talking points cooked up by a longtime GOP hack.

It was another attack of a mental condition that has often seemed to plague the freshman senator since he came to Congress, in which Brown mistakenly thinks that he's the junior senator from South Carolina, or perhaps this time, he thought he represented the good folks back in Mississippi.

Brown apparently forgot that he's no Red State good ol' boy. Rather, he's the first Republican to represent that bluest of blue states, Massachusetts. Moreover, Brown owes his Senate seat to a January special election, and has to face the Bay State voters again in just two years.

The problem is that Brown just threw those voters under a financial bus by blocking a vote on new common-sense financial regulation.

Of course, the senator can't actually admit to knuckling under to Wall Street fatcats who want to block this legislation at all costs. So instead he blames "loopholes" in the legislation that could leave the taxpayers on the hook for future bank bailouts.

One could forgive Sen. Brown, since so many Republicans have been repeating the same talking point which Frank Luntz, a tired GOP strategist cooked up recently.

Except that it's not true. Like Yeti, Bigfoot and healthcare "death panels," the claim that the financial reform bill contains bailout "loopholes" have been thoroughly debunked. The well-known non-partisan factcheck website PolitiFact calls the accusation plainly false, and goes on to accuse Republicans who wield it of "using seriously overheated rhetoric."

Conservative-leaning voters in a Red State might otherwise be willing to swallow such bunk, but not those who go to the polls to pull a lever for their new senator in 2012.

Despite all the hype surrounding Brown's upset victory, it has become plain that his election has not created any substantial realignment in Massachusetts politics.

Even in the days immediately following his Jan. 19 special election, a poll indicated that most Bay State voters want Brown to work with Democrats to advance their agenda, not block it. That includes 60 percent of Brown voters who feel strongly that Brown should work with Democrats.

Those aren't exactly the sentiments of the tea party types.

Another poll that may prove nettlesome for Sen. Brown: most Americans actually support tougher regulations on banks, including specific provisions of the bill he just tried to sink.

In blocking financial reform, Brown got caught between his fatcat Republican friends, and the hardworking folks back in Massachusetts who sent him to Washington in the first place. He decided to kick those good folks in the teeth.

He's also now caught in something else: a lie. Democrats, labor, and every other progressive political group back in the Bay State now could, and should, force Brown to spend potentially millions to defend the indefensible. Make Brown defend the lie he just told everyone in Massachusetts, every day from now until November 2012 if necessary.

If PolitiFact could unwrap the Republican falsehood, so will the voters of the Commonwealth of Massachusetts. They may have been ready to embrace this young new senator. I doubt they will be pleased that he lied to them so soon.

The publisher of On The Hill, Scott Nance has covered government and Washington for more than a decade. Capitol Idea is his regular column from Washington.

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In Defeat, Financial Reform Supporters Offer Angry Words -- But Little Else

Supporters of the Senate financial reform legislation lashed out at Republicans late Monday, as GOP senators held together to block further action on the bill.

But other than urging the 41 Senate Republicans to "reconsider" their filibuster, advocates offered little else to suggest Democrats and their allies might overcome GOP obstruction of what would be the largest overhaul of regulation of the financial industry since the Great Depression.

In a late afternoon vote Monday, the Senate GOP, along with conservative Democratic Sen. Ben Nelson of Nebraska, blocked further consideration of financial reform after more than a week of harshly criticizing those proposed rules.

“The American people also demand that their leaders discuss these details and improve on these ideas,” Senate Majority Leader Harry Reid says in remarks Tuesday from the Senate floor. “They have two simple requests: One, that their leaders look out for their economic security; and two, that their legislators legislate. In other words, they want us to look out for their jobs and they want us to do our own.

“Right now, Senate Republicans are refusing to do either,” Reid adds. “Yesterday they stood together, en bloc, to block us from moving this bill to the floor. They didn’t even want the Senate to talk about legislation as part of the normal legislative process.”

The Senate financial reform bill is based on a package authored mainly by Sen. Chris Dodd (D-Conn.), chairman of the Senate Banking Committee. Dodd attempted to craft bipartisan legislation with key GOP senators, but those Republicans each in turn dropped out from the talks. The House approved its version of financial reform last year.

Wall Street lobbyists have for weeks been working to derail the Senate legislation, reportedly teaming with GOP senators to do so.

Sen. Bernie Sanders, the left-leaning independent from Vermont and a staunch supporter of tough new financial regulation, also registered disappointment in the Republican filibuster.

“I am disappointed but not surprised that not a single Senate Republican voted to allow us to proceed to consideration of Wall Street reform,” Sanders says. “I hope they reconsider. To my mind, it is absolutely imperative that we end the greed, recklessness and illegal behavior on Wall Street which has led to the loss of millions of jobs and the worst recession in modern history.”

A key supporter of reform outside of the Senate echoed Sanders' remarks.

Ed Mierzwinski, consumer program director of the Washington advocacy organization U.S. Public Interest Research Group (U.S. PIRG), called the GOP-led filibuster "pathetic political gamesmanship."

Republicans cobbled together "just enough [votes] to obstruct" financial reform, Mierzwinski notes.

“Each vote is a slap in the face to American families on Main Street who've lost jobs and home values, and whose retirement accounts read like Stephen King novels,” Mierzwinski says. “More delay and more secret negotiations serve Wall Street titans well, they but they hurt Main Street families. We urge opponents to reconsider their votes, stand up to Wall Street, and vote for reforms that will protect consumers, open shadow markets and end, once and for all, ‘to big to fail.’”

Other than their rhetoric, however, reform backers are offering little clue as how to overcome the GOP filibuster despite a poll that indicates most Americans side with Democrats on this issue.

Reid suggested the potential for further talks to get Republicans to drop the filibuster, but vowed not to compromise away the reforms.

“Senate Democrats are committed to holding Wall Street accountable and putting consumers back in control,” he says. “We expect to have more votes this week in order to move our bill to the floor. We remain open to working with our Republican colleagues, but we will not tolerate efforts to slow-walk this process or water down this reform because it is too important to middle-class families in Nevada and across America.”

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Senators Try To Solve 'Too Big To Fail' As Part Of Dems' Financial Reform Bill

Monday afternoon's showdown over financial reform will be missing at least one key ingredient, according to one of the Senate's staunchest supporters of vigorous regulation.

Sen. Bernie Sanders (I-Vt.) says that breaking up big banks is critical to meaningful reform.

“One of the major components of any serious Wall Street reform has got to be breaking up the largest financial institutions in the country. The time has come to do exactly what Teddy Roosevelt did back in the trust-busting days and break up these huge financial institutions,” Sanders says.

Senate Democrats will hold a preliminary vote late Monday, to see if they can move their package of financial reforms past GOP opposition. Although the reform legislation would be the most sweeping overhaul of financial industry regulation since the Great Depression, it apparently will be missing Sanders' “Too Big To Fail; Too Big To Exist” Act.

Sanders first introduced his bill last November, which would require Treasury Secretary Timothy Geithner to compile, within 90 days, a list of commercial banks, investment banks, hedge funds and insurance companies that he deems too big to fail.

Within one year after the legislation becoming law, the Treasury Department would be required to break up those banks, insurance companies and other financial institutions identified by the secretary.

The financial sector has received nearly $4.6 trillion in taxpayer support since the Wall Street meltdown of 2007-08. That figure represents at least four times what has been spent in the wars in Iraq and Afghanistan since 2001.

However, the Senate Budget Committee last week narrowly defeated a Sanders amendment on breaking up big banks, by a 12 to 10 vote. Sanders led an ultimately unsuccessful campaign in the Senate to deny Federal Reserve Chairman Ben Bernanke a second term.

Sanders also says that is also co-sponsoring an amendment to the reform measure with Sens. Sherrod Brown (D-Ohio) and Ted Kaufman (D-Del.), to the financial reform bill that would break-up the six largest financial institutions in the country.

The Brown/Kaufman legislation, known as the SAFE Banking Act of 2010, would cap the size of the nation’s behemoth financial institutions. It also would require that banks have the resources to cover their losses.

“We can either limit the size and leverage of 'too big to fail' financial institutions now, or we will suffer the economic consequences of their potential failure later. Breaking apart too-big-to-fail banks is the necessary first step in preventing another cycle of boom-bust-and-bailout. This debate is a test of whether the power of that idea can spread and gain support," says Kaufman.

"Though it is clearly the safest way to avoid another financial crisis, this idea must overcome tremendous resistance from Wall Street banks and their politically powerful campaigns against structural financial reform,” Kaufman continued. “Moreover, the idea must overcome the inertia and caution in a Congress drawn to easier ideas that may work. But how much should we gamble that they will work? Limiting size and leverage are redundant fail-safe provisions to prevent a dangerous outcome. Senator Brown and I are proposing a complementary idea, not a substitute.”

Components of the SAFE Banking Act -– particularly size caps -– are supported by an ideologically diverse group of economists, Kaufman notes in a statement. The idea of size caps is supported by Thomas Hoenig, president of the Kansas City Fed; Paul Volcker, former chairman of the Federal Reserve; Mervyn King, governor of the Bank of England; Richard Fisher, president of the Dallas Fed; Robert Reich, secretary of labor under President Bill Clinton; and commentator Arnold Kling of the National Review.

Sanders says the giant financial institutions must be dismantled not only to protect taxpayers from future bailouts, but because the concentration of ownership in the financial sector is leading to fewer choices, higher bank fees, and higher credit card interest rates.

Sanders says three out of the four biggest American banks -– Wells Fargo, JPMorgan Chase and Bank of America –- are larger today than they were before taxpayers bailed them out as the economy collapsed in 2008. Combined with Citigroup, the four largest U.S. banks now write half of the mortgages, issue two-thirds of the credit cards, and hold $7.4 trillion in assets, more than half the nation’s economic output, according to a statement from Sanders' office.

Simon Johnson, former chief economist of the International Monetary Fund and currently an economics professor at MIT, has tracked the big banks’ growing concentration.

“As a result of the crisis and various government rescue efforts, the largest six banks in our economy now have total assets in excess of 63 percent of GDP (based on the latest available data),” Johnson says. “This is a significant increase from even 2006, when the same banks’ assets were around 55 percent of GDP, and a complete transformation compared with the situation in the United States just 15 years ago, when the six largest banks had combined assets of only around 17 percent of GDP.”

In addition to breaking up big banks, Sanders says that financial reform legislation should cap credit card interest rates, end Federal Reserve lending secrecy, separate financial institutions’ gambles on derivatives so any losses would not be covered by federal banking insurance, and reform Wall Street to support job-creating small and medium-size businesses that need affordable credit.

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Monday It Will Be Dems Vs. The 'Swarm'

Much will be riding on a Senate vote scheduled for late Monday afternoon.

That one vote will demonstrate whether Democrats can advance the largest overhaul of financial regulation since the Great Depression over the strenuous objections of Republican leadership and strong opposition by deep-pocketed Wall Street executives.

But some close to President Obama say there will be even more weight on that one roll call by saying its not only about "fixing Wall Street. It's also about fixing Washington."

Democrats have spent all week pushing back at Senate Republican Mitch McConnell of Kentucky, who repeatedly denounced the financial reform package on the Senate floor, hoping to unify GOP opposition to the legislation in a manner similar to the earlier united Republican opposition to healthcare reform bill.

The financial industry, too, has been vigorous in trying to derail the new regulations, including what would be some of the first rules on the $600 trillion derivatives market, which is one of the most shadowy and least-regulated parts of Wall Street. Sen. Blanche Lincoln (D-Ark.) has moved a bill to create new derivatives regulation, with the hope that her bill will become part of the larger financial reform legislation to be voted on next week.

About 25 high-priced executives came to Capitol Hill Tuesday to lobby against the new rules.

“Over the last week, U.S. Public Interest Research Group and state PIRGs contacted over 65 Senate offices and members not to meet with what the New York Times called a ‘swarm’ of derivatives reform opponents," says Ed Mierzwinski, consumer director of U.S. PIRG, a Washington-based group advocating for strong new financial regulations. "PIRG staff also urged them to oppose any and all proposals to weaken the tough new regulations proposed by Senate Agriculture Committee Chair Blanche Lincoln (AR)."

Lincoln's bill would open the derivatives market to new transparency, making easier for regulators to spot fraud. The legislation also would prohibit the Federal Reserve and Federal Deposit Insurance Corporation (FDIC) from providing any federal funds to bail out Wall Street firms who engage in risky derivative deals.

Mierzwinski is calling on the Senate to reject the efforts of the anti-reform executives.

“Congress won’t be able to rein in Wall Street unless it insists on comprehensive regulation of the shadow derivatives markets, tough provisions that end taxpayer bailouts, and establishment of a strong and independent Consumer Financial protection Agency to protect consumers,” he adds.

While President Obama strongly supports financial reform, Democrats close to him are going even further by saying that the fate of the regulatory overhaul also will determine whether special interests, such as the bankers, can continue to hold sway in Washington.

"For too long, it's been a place where special interests have set the rules and petty partisanship has stood in the way of progress. As the President said Thursday, 'We can and must put this kind of cynical politics aside,'" Mitch Stewart, director of Organizing for America (OFA), says in an email to supporters. An organization within the Democratic National Committee, OFA was built out of Obama's 2008 campaign operation.

"Thanks to strong leadership from the President and Democrats in Congress, the gridlock is starting to crack, and Republicans are slowly giving signs that they'll come on board. The Senate has even scheduled a preliminary vote for Monday at 5:15 p.m," Stewart adds.

Stewart asks supporters to sign letters in support of reform online at barackobama.com.

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For Democrats, Pushing Financial Reform Is All About Biting The Hand That Feeds

Democrats all week have been railing against "secret," "back-room," and "closed door" meetings between Republicans who want to collect campaign cash, and Wall Street executives eager to derail financial reform legislation.

Senate Majority Leader Harry Reid's spokesman, in particular, has been calling regular attention to the newly close friendship between the GOP and financial executives. It's been part of an effort to push the Senate toward passage of the largest overhaul of the financial sector since the Great Depression in the face of hostile Republican rhetoric that the fact-check website PolitiFact says is “false” and “seriously overheated rhetoric.”

Democrats, in fact, have turned their outrage over these illicit gatherings -- apparently held for the purpose of swapping cash for political obstruction -- into fundraising tools. The Democratic National Committee and the Democratic Senatorial Campaign Committee (DSCC) sent supporters separate email appeals that attacked Republicans for their meetings with financial bigwigs.

"While they put on a populist front for the tea partiers, Republicans are locking arms with the same big banks that drove the economy into recession," the DNC says. "In a private meeting last week, McConnell even huddled with Wall Street executives about how to kill reform -- and cynically brought along one of the GOP's chief fundraisers. Debate over reform is about to begin, so we're going up with ads to expose the lies and hypocrisy."

The DSCC, meanwhile, complains: "Republican leaders go into a closed-door meeting with Wall Street executives and come out against common-sense reforms."

What these appeals neglect to mention is that -- up until now, at least -- those banker types were usually about as likely to mail their campaign check to a Democrat, as they were to a Republican.

Indeed, by pushing so hard to enact financial reform over strenuous objection from the financial industry, Democrats really appear to be biting a hand that has fed them reliably, election after election.

Although commercial banks frequently contribute more to Republicans than Democrats, they still contribute substantially to Democrats, according to data from the Center for Responsive Politics. Industry giving reached near parity in 2008, as banks gave $18 million to Democrats, compared to about $20 million for Republicans.

Hedge funds however -- a sector within the financial industry that's come under some of the heaviest scrutiny -- traditionally donate overwhelmingly to Democrats, a trend that began in the 2000 election cycle, analysis of Center for Responsive Politics data finds. In 2008, campaign contributions to Democrats from individuals and political action committees associated with hedge funds came to 11.2 million, or 65 percent of their donations overall, according to the data.

Political giving by Goldman Sachs, the storied investment firm that now finds itself the target of an enforcement lawsuit filed by the Securities and Exchange Commission, also is dominated by Democrats. The percentage of its donations going to Democrats has steadily climbed since 1998 -- reaching a high-water mark of 75 percent in 2008.

If any doubt remains about just how connected Democrats have been to the financial industry, consider that Reid, House Speaker Nancy Pelosi, Senate Majority Whip Dick Durbin of Illinois, House Majority Whip James Clyburn of South Carolina, and Caucus Chairman John Larson of Connecticut, all count the financial or securities industries among the top five industries that donated to their re-election campaigns in 2009-2010, according to the Center for Responsive Politics.

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Merrill Lynch Did a Deal ‘Precisely’ Like Goldman’s, Suit Asserts

by Ryan Knutson, ProPublica

As we've been reporting, other banks did deals similar to the one at the center of the SEC's lawsuit against Goldman Sachs.

We're not the only ones who've noticed that. In the past several days, a legal back and forth has emerged between Merrill Lynch and the Dutch bank known as Rabobank, which is accusing Merrill of essentially doing the same kind of deal Goldman is being sued for (i.e., failing to disclose to investors that a hedge fund was involved in the creation of a risky CDO that the hedge fund intended to bet against).

Rabobank sued Merrill Lynch in state court in Manhattan last year over a deal called Norma, a $1.5 billion CDO that went bust within a year of its creation in 2007. Norma -- which we wrote about in our original story -- was one of among 30 CDOs Magnetar helped create in cooperation with at least nine banks between 2006 and 2007. As with Norma, the deals were packed with risky assets, which Magnetar was then able to bet against. (Magnetar denies these assertions and says it never took a position on the market.)

Hours after the SEC's suit was announced last Friday, the lawyer representing Rabobank sent a letter to Judge Bernard Fried, noting similarities to what Goldman allegedly did:

"The SEC charges bear directly on the sufficiency of Rabobank's complaint as Rabobank has alleged that Merrill Lynch engaged in precisely the same type of fraudulent conduct in the structuring and marketing of Norma through having failed to disclose that Norma's collateral pool had been selected to benefit short positions taken by Magnetar Capital LLC ('Magnetar'), the equity investor in Norma."

That drew a quick response from Merrill's attorneys. In a letter submitted to the court, they said Rabobank's attempt to portray the lawsuit as similar to the SEC's complaint against Goldman is irrelevant because it involves an "entirely different transaction."

Merrill also says it would have no incentive to build a CDO that it believed was likely to fail because "Merrill Lynch, as holder of $975 million in A-1 Notes (or 65% of the total $1.5 billion issuance), was the investor in Norma that had the most incentive for the transaction to succeed and the most to lose if Norma failed."

This, of course, drew a response to the response. On Tuesday, Rabobank's attorney sent another letter to the judge. After clearing up a spat about whether Rabobank had been sending information to the press, he wrote:

"Even if Merrill Lynch is correct that it suffered a loss on Norma (which is not supported by the pleadings), losing money is not a defense to fraud. Indeed, the SEC charged Goldman with fraud notwithstanding that it reportedly lost nearly $100 million on the ABACUS transaction."

Write to Ryan Knutson at Ryan.Knutson@propublica.org

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Study Finds That Fossil-Fuel Subsidies Are Hurting Global Environment, Energy Security

A comprehensive assessment of global fossil-fuel subsidies has found that governments are spending $500 billion annually on policies that undermine energy security and worsen the environment.

The study, titled "The Politics of Fossil-Fuel Subsidies" by David Victor, a professor of political science with the University of California-San Diego's School of International Relations and Pacific Studies (IR/PS), was one of five released Thursday by the Global Subsidies Initiative (GSI) of the International Institute for Sustainable Development (IISD).

GSI's goal is to reform, reduce and ultimately eliminate fossil-fuel subsidies, which are highest in Iran, Russia, China, Saudi Arabia, India and Venezuela. The reform effort received a boost September 2009 when President Obama and other world leaders met in Pittsburgh, Pa., for the Group of 20 Summit. They agreed in a non-binding resolution to phase out fossil-fuel subsidies, but the measure didn't attempt to resolve difficult political issues such as how governments would actually achieve a phaseout. Victor's study addresses the political challenges.

The United States was one of the governments pressing for subsidy reform at the G20 Summit in September. Such policy reforms are a relatively easy way to improve energy security for all nations and reduce growth in emissions of gases that cause global warming.

"Fossil fuels are often the most cost-effective way to provide useful energy, especially in poor households living on already stretched budgets," says Victor, director of IR/PS's Laboratory on International Law and Regulation. "But the pervasive role of fossil fuels in countries' economies makes them attractive for politicians to subsidize, which leads to over-consumption. Virtually every analysis of fossil-fuel subsidies has shown that most are a complete waste of money, or worse, because money spent on subsidies isn't available for other purposes that yield much greater social benefits, such as education and rural agriculture."

Victor's assessment found that as of November 2008, Venezuela had the lowest gasoline prices of any country, prices maintained at their low levels by subsidies. While Iran's fuel prices are nearly as low, the financial burden on that nation is much higher because its fuel consumption is greater. "Iran's fuel subsidy totals about $55 billion (U.S.) a year, or roughly one-tenth of global energy subsidies," says Victor.

He says the largest subsidies are usually found in oil-producing democracies: fuel prices often are a major campaign issue, and politicians who face contested elections would most likely lose if they attempted to reform subsidies. "When leaders don't feel secure in power, as in Iran or Venezuela, they find it particularly difficult to roll back massive subsidy programs," Victor says. "As a result, consumers in those countries are not only using more fossil fuels, but also are demanding more subsidies, which are plunging those countries into an economic death spiral."

The pressure for subsidies extends to many other countries as well. India spends a conservatively estimated $15 billion (U.S.) to subsidize fossil fuels as part of its official policy to make energy services more affordable to the country's poorest citizens. Victor says that the subsidies help provide power and irrigation services to farmers at low regulated prices. However, his assessment and others have found that many of India's fossil-fuel subsidies don't actually help poor households, but instead benefit those who can already afford to own vehicles and electrical appliances.

Beyond reducing subsidies, Victor's report suggests that governments also need to look more closely at raising fuel taxes. Among the advanced industrialized countries, major fossil-fuel subsidies are rare, but fuel-tax rates vary widely. As a percent of its total economic output, the U.S. has low fossil-fuel subsidies; however, only 20 countries had lower retail gasoline prices than the U.S., according to the 2008 International Fuel Prices report. That report says 152 countries had retail gasoline prices higher than those in the United States, primarily due to higher gasoline taxes and other country-specific duties and taxes.

"The U.S. does not tax fossil fuels to the level needed to offset the costs of burning them," Victor says. "The more that consumers in every country in the world pay the full price for fuels—a price that reflects the true costs of fuel combustion on the economy and environment—the easier it will be for market forces to encourage more secure and cleaner energy supplies."

Although most fossil-fuel subsidies are harmful, Victor says some are beneficial. Notably, subsidies for research on new energy technologies are essential since companies and universities are unlikely to perform such research otherwise. Victor's study shows that political forces in favor of these good subsidies are usually much less powerful than the forces that promote pernicious subsidies.

The five-part research series, "Untold Billions," produced by the IISD's Global Subsidies Initiative was supported by the governments of Denmark, the Netherlands, New Zealand, Sweden, the United States and the William and Flora Hewlett Foundation.

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As Gitmo Detainees’ Legal Victories Mount, Obama Administration Resists Orders to Release

by Chisun Lee, ProPublica

The government is failing in more and more cases to produce evidence that the men it has imprisoned at Guantanamo belong there, according to ProPublica's latest look at the lawsuits that some 100 captives have filed in federal court to seek their freedom. But the Obama administration continues to challenge the courts' authority to make it release the prisoners.

In 34 out of the 47 cases that have been decided so far -- over 70 percent -- detainees have won judgments that the United States is subjecting them to indefinite detention as al-Qaida or Taliban enemies without proof and that they must be released. Federal judges have been reviewing classified intelligence and interrogation reports since June 2008, when the Supreme Court recognized the detainees' right to sue. The remaining prisoners have been held seven years or longer.

Even with the sensitive information blacked out the judges' opinions offer reams of detail about what the detainees were doing when they were captured, how the U.S. took custody of and interrogated them and why the courts have rejected specific pieces of evidence as unreliable or even completely unbelievable in the vast majority of the cases. These opinions are summarized and also available in full in ProPublica's updated database.

In ordinary criminal cases, a court order of release because of unjustified detention results in ... release. But in the terrorism detention cases it promises no more than the "possibility" of release, according to U.S. Attorney General Eric Holder in testimony before the Senate Judiciary Committee last week. Asked if the executive branch could take 10 years to release a detainee against whom there is no good evidence, he said only, "You would hope not."

The administration is expected to elaborate on its position that the courts can't make it release unlawfully imprisoned captives at an appeals court argument this Thursday. The dispute holds implications beyond Guantanamo, because at its core it questions the meaning of the constitutional doctrine of habeas corpus -- a fundamental American guarantee against unjust imprisonment -- in the potentially expanding context of terrorism detention.

Despite denying its duty to do so in court, the administration has quietly been releasing many of the detainees who've won their lawsuits, known as habeas petitions. Twenty of the men have been transferred to other countries, while 14 remain at Guantanamo as the government appeals the judges' decisions.

Write to Chisun Lee at Chisun.Lee@propublica.org.

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Equal Pay Day: An 'Embarrassing' Fight

Democrats used the observance of Equal Pay Day on Tuesday to prod Senate action on stalled legislation designed to update the nearly-50-year-old Equal Pay Act.

Although the Equal Pay Act was to provide wage parity, women continue to earn, on average, just 78 cents for every dollar made by men. The observance of Equal Pay Day symbolizes how far into 2010 women must work to earn what men earned in 2009.

"Frankly, it’s a little embarrassing that the fight for equal pay continues in the year 2010. It’s hard to find anyone who will say, on the record, that women don’t deserve to earn the same as men," Sen. Chris Dodd (D-Conn.) says in a blog post to observe the occasion.

Although Democrats noted that the first law President Obama signed after his inauguration last year was a law to make it easier for women to sue for wage discrimination, they also urge the Senate to approve the the Paycheck Fairness Act (PFA), which supporters describe as the first comprehensive update of the Equal Pay Act by closing loopholes in the earlier legislation, creating stronger incentives for employers to follow the law and strengthening federal enforcement efforts.

Dodd is among the proponents of the PFA, which last year passed the House and still awaits action in the Senate. The Senate Health, Education, Labor and Pensions (HELP) Committee held a hearing on the measure in March.

"I’ve co-sponsored the PFA for the last seven Congresses, and although I’m retiring this year, there are plenty of Senators ready to keep the fight going," Dodd says. "But we shouldn’t have to. It’s 2010 already, for pete’s sake. We should get this done."

Sen. Barbara Mikulski (D-Md.) also urged Senate action on the PFA by saying, "This legislation will give more women jobs and more women equal pay for the jobs they have."

Dodd and other backers of the bill say the need for enactment of the PFA is not simply a matter of fairness toward women, but an economic imperative. "In America today, women now make up half of the workforce, and two-thirds of women are either the sole breadwinner or co-breadwinner in their family," says Dodd's home-state colleague, Democratic Rep. Rosa DeLauro.

DeLauro testified in favor of the PFA at that March HELP Committee hearing, where she called the PFA "a modest, commonsense reform that closes numerous longstanding loopholes in the Equal Pay Act."

She says that women of color are even worse off – African American women make 68 cents on the dollar compared to the highest earners, while Hispanic women make only 57 cents. And unmarried women have an average household salary that is almost $12,000 lower than unmarried men, DeLauro says.

DeLauro adds that it "is no coincidence that 70 percent of older adults living in poverty are women."

Labor Secretary Hilda Solis also called for enactment of the PFA.

"As women hold nearly half of this nation's jobs, their earnings have become even more central to families' economic well-being," Solis says. "Pay equity is not simply a question of fairness; it is an economic imperative with serious implications not just for women, but for communities and the nation's economic recovery. My vision of 'good jobs for everyone' includes increasing incomes, eliminating wage and income inequality, and helping workers who are in low-wage jobs find a path into the middle class."

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Senators: New Legislation Needed To Fix 'Gaping Hole' In Healthcare Reform

Less than a month after President Obama signed healthcare reform, lawmakers emphasized the need for additional legislation to prevent insurers from arbitrarily raising premiums until provisions of the new law take effect in 2014.

At issue are the steep increases in the rates consumers are forced to pay for health coverage, such as a 39-percent jump that Anthem Blue Cross proposed to inflict on 800,000 Californians.

Even as Anthem proposed to jack up rates on its customers, its parent company, WellPoint, recorded a $4.7 billion profit in 2009, and WellPoint's CEO received $13.1 million in compensation, or a 51 percent increase.

"Imagine the typical family, or individual, trying to find the money to pay another 39 percent for health care coverage -- especially during these difficult economic times, with so much uncertainty," says Sen. Dianne Feinstein (D-Calif.), whose measure to prevent such increases was not included in healthcare reform due to procedural reasons.

Obama signed sweeping a sweeping new healthcare reform package last month at the White House. However, it finally was considered in Congress under a procedure known as reconciliation, to prevent a GOP filibuster. Reconciliation, however, limited what lawmakers were able to include in the final legislation.

The Anthem/WellPoint case isn't unique, Feinstein notes.

Blue Cross/ Blue Shield of Michigan requested a 56 percent increase in individual market plans last year, while Regency Blue Cross Blue Shield of Oregon requested a 20 percent premium increase. Three insurance plans in Rhode Island requested increases ranging from 13 percent to 16 percent, and Anthem requested a 24 percent increase for plans in the individual market in Connecticut. Regulators approved only a 16.5 percent increase.

Feinstein says premium increases will continue until 2014, when newly created healthcare exchanges will give customers new tools to compare plans, and force companies to be more competitive.

The solution is new legislation to give the secretary of health and human services authority to block premium or other rate increases deemed to be unreasonable.

"In many states, insurance commissioners already have this authority," Feinstein says. "In some states, commissioners have this authority for some insurance markets and not others. And in about 20 states, including California, companies are not required to receive approval for rate increases before they take effect."

Feinstein's bill was the subject of a hearing Tuesday in front of the Senate Health, Education, Labor and Pensions (HELP) Committee.

Feinstein says her bill would create "a federal fallback," allowing the HHS secretary to conduct reviews of potentially unreasonable rates in states where an insurance commissioner does not already have the authority or capability to do so.

"The secretary would review potentially unreasonable premium increases and take corrective action. This could include blocking an increase, or providing rebates to consumers," she says.

Some 22 states in the individual market, and 27 states in the small group market, do not require a review of premiums before they go into effect, says Sen. Tom Harkin (D-Iowa), chairman of the HELP panel.

“This is a gaping hole in our regulatory system, and it is unacceptable," he says. " All consumers and small businesses are entitled to a rigorous and objective review of premiums to ensure that they are reasonable. And if that review determines that premiums are unjustified – that insurance companies are just trying to run up profits – corrective action must be taken."

Not surprisingly, the main insurance lobby in Washington, America’s Health Insurance Plans (AHIP), has come out against the Feinstein bill, characterizing its effect as "setting arbitrary caps," according to AHIP President Karen Ignagni.

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