C-J
Although the following exchange appears to be fictitious, it is based on many conversations beginning in September 2005 when informed and honest appraisers noticed that the statistics and raw data were unequivocally showing rising MLS inventories, decreased MLS sales and the lowest quality people and properties were being financed.
Everything goes right back to the beginning of the process; Because the law only works for the rich, powerful and well connected. The honest person is left with nothing and is victimized by the crooks at every level. The following is a typical exchange between a lender/AMC and the appraiser;
Loan Company Agent or AMC: Ring a ding ding “Hi Appraiser We have a complaint from Loan Production staff they want you to use their hand picked comparable sales!! They are going to do this loan and you have to hit the value”
Appraiser: “I’m not going to get involved, what you are demanding is against the law and ethics regulating my industry”
Loan Company Agent or AMC silently says to himself/herself:"So what, you are going to do it anyway or your payments will be delayed and furthermore if you don’t do it, it will affect your profile”.
Appraiser repeats to himself/herself: “These people are crooks, I won’t do it”
Loan Company Agent or AMC silently says to himself/herself: “I’m also going to have all your appraisal reports sent to the appraisal review department and given our best grinder reviews” and I’m sure we can find some issue that will result in you being suspended or benched!!
Appraiser silently says to himself/herself: “Do your worst, which I’m sure you will!!”
Both hang up after saying “Thank you and have a wonderful day.”
C-J
By Greg Gordon | McClatchy Newspapers
IRVINE, Calif. — Goldman Sachs was one of the last Wall Street giants to enter the subprime lending world, but when it did, it quickly climbed into bed with profligate, highflying firms — companies such as New Century Financial Corp.
In at least nine deals from 2002 to 2007, Goldman sold bonds backed by more than $5 billion of New Century's mortgages, one even after the California lender's underwriting criteria all but disintegrated and a cash squeeze paralyzed its operation. Goldman also marketed at least three secret offshore deals bearing New Century's name.
Goldman has yet to explain why it risked its blue-chip reputation and financial health to buy and repackage at least $135 billion in loans mostly originated by companies that have since gone bust.
Goldman spokesman Michael DuVally stressed, however, that the firm "was not the largest purchaser of loans from any of these mortgage originators, and in some cases was actually quite a small purchaser."
A glimpse inside New Century's operations sheds light on how one of Wall Street's proudest and most prestigious firms helped create a market for junk mortgages, contributing to the economic morass that's cost millions of Americans their jobs and their homes.
Perhaps no mortgage lender was more emblematic of the go-go atmosphere in the sprouting industry that was seizing an outsize share of the home loan market.
Traversing the country in private jets and zipping around Southern California in Mercedes Benzes, Porsches and even a Lamborghini, New Century executives reveled as the firm's annual residential mortgage sales rocketed from $357 million in 1996 to nearly $60 billion a decade later.
To be a subprime lender at the industry's height was to join in a dash for cash, and New Century was an Olympic-caliber sprinter.
Its top five officers, who received nearly $40 million in salaries and bonuses from 2002 to 2005, could peer out the 10th-floor windows of their gleaming onyx headquarters in Irvine and see the offices of more than a dozen rivals.
"A friend of mine said you couldn't fire a .22-caliber rifle and not hit a subprime lender in Orange County," recalled a former manager of a company that reviewed subprime loan files before Goldman and other Wall Street firms bought the mortgages.
For $100 million in mortgages, New Century could command fees from Wall Street of $4 million to $11 million, ex-employees told McClatchy. The goal was to close loans fast, bundle them into pools and sell them to generate money for the next round.
Inside the mortgage company, the former employees said, pressure was intense to increase the firm's share of an exploding market for mortgages that depended almost entirely on Wall Street's seemingly unlimited hunger for bigger, faster returns.
Michael Missal, a federal bankruptcy examiner who investigated New Century's operations after it sought Chapter 11 protection on April 2, 2007, reported last year that the firm's lax lending and accounting standards "created a ticking time bomb" as it pushed for ever-higher loan production.
The incentives for high-risk behavior reached all the way to Manhattan.
Goldman and other investment banks could put $20 million in the till by taking a 1 percent fee for assembling, securitizing and selling a $2 billion pool of mostly triple-A rated bonds backed by subprime loans — and that was just stage one.
Goldman entities earned millions of dollars more by servicing many of the loans and arranging sophisticated interest-rate swaps to guard against inflation.
As profits poured in, Wall Street firms extended lines of credit to New Century — known as "warehouse loans" — totaling billions of dollars to finance the issuance of more home loans to other marginal borrowers. Goldman Sachs' mortgage subsidiary gave the firm a $450 million credit line.
As the economy slowed, the mortgage industry couldn't keep up with Wall Street's loan demands, but that actually generated leverage.
Kevin Cloyd, the New Century executive vice president who dealt with Wall Street and in 2006 also oversaw loan production, told examiner Missal that a tacit understanding developed with Wall Street firms that were trying to edge out each other for loans, said a person familiar with Missal's inquiry.
Cloyd revealed that investment banks willing to scale back their scrutiny of mortgage applications got to buy more loans, said this individual, who declined to be identified because the material is confidential.
Reached at his Los Angeles home, Cloyd declined to comment.
The former project manager who oversaw the review of tens of thousands of subprime mortgages for Goldman and other Wall Street firms said that in 2005 and 2006, subprime lenders gradually got investment banks to reduce the percentage of loans that were reviewed before deals closed.
"It went from 100 percent in the late '90s to probably less than 10 percent in 2006," said the ex-manager, who declined to be identified for fear that it would hurt his career.
By pitting firms such as Lehman Brothers, Bear Stearns, Credit Suisse and Goldman against each other for a shrinking supply of loans, mortgage bankers were able to sell loans in which borrowers' ratios of debt to income inched up to 50 percent, to 55 percent and even into the 60s, this person said. That didn't include what they owed in taxes, meaning that some borrowers could be left to live on 20 percent of their paychecks.
Mortgage lenders also extracted promises from Wall Street firms not to "kick out" as unacceptable more than 5 percent of the loans in a pool.
Goldman spokesman Michael DuVally denied that the firm felt pressure from mortgage lenders to relax its loan quality standards to win bids on pools of mortgages. He said that Goldman's standards were at least as tough in 2006 as they were in 2002, but he declined to describe them.
Goldman Sachs Mortgage, however, published guidelines in early 2007 indicating that it would accept a "stated income, stated asset" loan for a person with a subpar credit score of 600 who was borrowing 90 percent of his or her home's value. The designation meant that although the borrower had poor credit, his or her claimed income and financial background would go unchecked.
Deep in a Feb. 13, 2007, Goldman prospectus offering bonds backed by 9,800 New Century mortgages were these disclosures:
3,422 of the borrowers had credit scores below 600, levels that experts say could include applicants with past bankruptcies.
3,688 of the borrowers were required only to state their incomes, not to document them — mortgages that became known as "liars' loans."
More than a quarter of the borrowers had combined first and second mortgage balances that equaled or exceeded 90 percent of their homes' values at the time.
As was typical, 34 percent of the loans in the 2007 deal were in California, and 9 percent were in Florida, markets where home prices were rising so fast that all the players shrugged off the risk that borrowers might default. If a loan soured, they thought, they could seize and easily resell the house without a loss.
With that philosophy, from 2004 to 2006 New Century executives relaxed their lending criteria to levels previously unimagined. The shift would have huge consequences: The looser the credit, the greater would be a torrent of loan foreclosures that would sink the housing market and force downgrades in supposedly safe subprime mortgage securities.
To make matters worse, the incentives inside New Century seemed to invite trouble.
For example, account executives, whose job was persuading mortgage brokers to steer clients to them, were paid largely in sales commissions. The more loans they secured, the more money they made.
To garner more loans, some female executives sauntered into mortgage brokers' offices wearing "short skirts, cleavage showing, looking like hotties," said Christine Fidler, a former company vice president.
Roxanne Bones, a former senior underwriter at New Century, said she was told that the women "spent a lot of time schmoozing with brokers at their offices, doing stuff with them on the weekends and getting drunk at night."
Some New Century sales executives passed monthly kickbacks of $1,000 or more to company loan processers responsible for closing the loans, Bones said. It was a small tip to pay for salespeople who could earn as much as $1 million a year if their loans went to closing, she said.
The company also rewarded sales and underwriting staffs with lavish junkets. In 2004, Fidler said, as many as 300 New Century employees spent a week at the five-star Arts Hotel in Barcelona, Spain, where rooms today run from $400 to $16,000 a night.
Others scuba dived, golfed, took catamaran rides and sipped cocktails at Marriott's Ihilani Resort and Spa in Hawaii, shared a Caribbean cruise, made a summertime sojourn to Banff in the Canadian Rockies or were handed fistfuls of company cash before hitting the gaming tables during a conference at the MGM Grand in Las Vegas.
When the sales teams weren't frolicking, they were finding it easy to write loans.
New Century tossed out a requirement that every homebuyer make a down payment and began lending up to 80 percent of a property's value for a first mortgage and up to 20 percent for a second. It also lowered borrowers' minimum required credit scores into the 500s, although 700 or better is typically considered a good credit score. The nationwide average is 693, according to the consumer credit rating agency Experian.
By 2005 and 2006, ex-employees say, it got crazy.
Tim Lee, a former New Century underwriter in the Chicago suburb of Schaumburg, said his bosses relented and killed a $275,000 loan sought by a third-year kindergarten teacher who claimed a $180,000 salary. In most other cases, however, his objections led to a scene in a manager's office like this one:
Manager: "We're going to go ahead and do this loan."
Lee: "So you do it."
Manager: "No, you're gonna do it."
Lee: "I'm not going to."
Manager: "Then I'm going to write you up."
Lee said that his office processed 2,000 to 2,500 loans each month, and he could recall few that weren't approved with an "exception" waiving a key financial issue that otherwise might've torpedoed the deal.
Missal's examiner's report estimated that 40 percent of the company's mortgages were "liars' loans" because any income claim on an application was accepted as truthful. A SIVA meant "some income, verified assets," but it went downhill to the NINA — no income, no assets.
Lee said he nicknamed it "the no-doc, drug-dealer loan," because even "a street pharmacist" could qualify by listing his income but not his employer.
Top New Century officials, including the late Vice Chairman Edward Gottschall, told skeptical underwriters not to worry because "volume outpaces bad debt all day long," Lee recalled.
The loans laid out financial terms that protected investors but punished homebuyers. They offered above-market interest rates, typically starting at 8 percent, with provisions that Lee said were "rigged" to guarantee the maximum 3 percent rise in interest rates after two years and almost assuredly another 3 percent increase through ensuing, twice-yearly adjustments.
Loan prospects with higher credit scores but otherwise dicey credentials were given options such as "pick-a-payment loans" that allowed them to choose during an introductory period whether to pay the usual interest and principal, interest only or a minimum amount.
"Everybody would pick the minimum," Lee said.
When the introductory period ended and interest rate adjustments kicked in, he said, someone who borrowed $750,000 could owe $850,000 and see his monthly payment shoot from $1,000 to $7,000.
If the noose around borrowers wasn't tight enough, those seeking to refinance on safer terms faced stiff prepayment penalties.
New Century, like other mortgage lenders, would soon face its own cash squeeze, however.
Wall Street firms required lenders to buy back a loan if the borrower defaulted on his first payment or there was a major defect in the mortgage.
Missal's report said that New Century was faced with an "alarming" wave of payment defaults beginning in mid 2004 — a wave that later turned into a multibillion-dollar tsunami of loans being rejected by Wall Street. New Century desperately needed cash to buy back thousands of deficient loans it had made.
In late 2006, however, Goldman Sachs and other Wall Street firms cut off the lender's credit lines. The cash squeeze, as well as admitted misstatements on its 2006 year-end financial statement that had turned a loss into a profit, halted New Century's operations and sent it careering into bankruptcy.
The lender's demise, however, didn't stop Goldman, which unloaded a $1.7 billion pool of bonds tied to New Century loans in February 2007. In May, weeks after New Century's bankruptcy filing, Goldman started selling securities backed by New Century mortgages in a secret deal based in the Cayman Islands, a tax haven for U.S. companies.
Months after the February offering, Goldman's lawyers filed additional disclosure documents with the SEC advising investors who'd bought its subprime bonds of disturbing patterns: rising defaults on subprime mortgages and declining home prices.
New Century, Goldman disclosed, not only was bankrupt, but also had received notices to cease and desist operations in multiple states. Furthermore, Goldman said, the mortgage banker was facing Justice Department and SEC inquiries — inquiries that apparently are still ongoing.
"In response to the deterioration in the performance of subprime mortgage loans," Goldman advised, "the rating agencies have recently lowered ratings on a large number of subprime mortgage securitizations.
"... You should consider ... the risk that your investment in the offered certificates may perform worse than you anticipate."
(Tish Wells also contributed to this article.)
Wednesday, November 4, 2009
Tuesday, November 3, 2009
God's Middle Finger, Into the Lawless Heart of the Sierra Madre
God's Middle Finger
Into the Lawless Heart of the Sierra Madre By Richard Grant
Synopsis
Twenty miles south of the Arizona-Mexico border, the rugged, beautiful Sierra Madre mountains begin their dramatic ascent. Almost 900 miles long, the range climbs to nearly 11,000 feet and boasts several canyons deeper than the Grand Canyon. The rules of law and society have never taken hold in the Sierra Madre, which is home to bandits, drug smugglers, Mormons, cave-dwelling Tarahumara Indians, opium farmers, cowboys, and other assorted outcasts. Outsiders are not welcome; drugs are the primary source of income; murder is all but a regional pastime. The Mexican army occasionally goes in to burn marijuana and opium crops — the modern treasure of the Sierra Madre — but otherwise the government stays away. In its stead are the drug lords, who have made it one of the biggest drug-producing areas in the world.
Fifteen years ago, journalist Richard Grant developed what he calls "an unfortunate fascination" with this lawless place. Locals warned that he would meet his death there, but he didn't believe them — until his last trip. During his travels Grant visited a folk healer for his insomnia and was prescribed rattlesnake pills, attended bizarre religious rituals, consorted with cocaine-snorting policemen, taught English to Guarijio Indians, and dug for buried treasure. On his last visit, his reckless adventure spiraled into his own personal heart of darkness when cocaine-fueled Mexican hillbillies hunted him through the woods all night, bent on killing him for sport.
With gorgeous detail, fascinating insight, and an undercurrent of dark humor, God's Middle Finger brings to vivid life a truly unique and uncharted world.
The Washington Post - Bill Gifford
This intriguing and ultimately terrifying Mexican walkabout belongs to that subgenre of travel writing that can generally be summed up in four words: Should have stayed home…That [Grant] navigates this dangerous land safely (for the most part) is a testament to his drinking abilities—and his thoroughgoing command of Mexican curses. ("Sons of obscene perpetrations!" is how he translates a standard Sierra Madre toast.) In one fascinating scene after another, he meets peasant marijuana farmers, very many drunks and a few Mormons and Mennonites, who fled south for various political and religious reasons. He spends time with the indigenous Tarahumara and memorably attends an Easter festival in a Tarahumara town that descends into total madness, fueled by the local corn-brewed beer, tesguino. (The local statue depicting God is missing all but one of its fingers; hence the book's title.)
More Reviews and Recommendations
Biography
Richard Grant is an award-winning travel writer who has published his work in Men's Journal, Esquire, and Details, among others. He is also the author of American Nomads. Grant currently lives in Tucson, Arizona.
Into the Lawless Heart of the Sierra Madre By Richard Grant
Synopsis
Twenty miles south of the Arizona-Mexico border, the rugged, beautiful Sierra Madre mountains begin their dramatic ascent. Almost 900 miles long, the range climbs to nearly 11,000 feet and boasts several canyons deeper than the Grand Canyon. The rules of law and society have never taken hold in the Sierra Madre, which is home to bandits, drug smugglers, Mormons, cave-dwelling Tarahumara Indians, opium farmers, cowboys, and other assorted outcasts. Outsiders are not welcome; drugs are the primary source of income; murder is all but a regional pastime. The Mexican army occasionally goes in to burn marijuana and opium crops — the modern treasure of the Sierra Madre — but otherwise the government stays away. In its stead are the drug lords, who have made it one of the biggest drug-producing areas in the world.
Fifteen years ago, journalist Richard Grant developed what he calls "an unfortunate fascination" with this lawless place. Locals warned that he would meet his death there, but he didn't believe them — until his last trip. During his travels Grant visited a folk healer for his insomnia and was prescribed rattlesnake pills, attended bizarre religious rituals, consorted with cocaine-snorting policemen, taught English to Guarijio Indians, and dug for buried treasure. On his last visit, his reckless adventure spiraled into his own personal heart of darkness when cocaine-fueled Mexican hillbillies hunted him through the woods all night, bent on killing him for sport.
With gorgeous detail, fascinating insight, and an undercurrent of dark humor, God's Middle Finger brings to vivid life a truly unique and uncharted world.
The Washington Post - Bill Gifford
This intriguing and ultimately terrifying Mexican walkabout belongs to that subgenre of travel writing that can generally be summed up in four words: Should have stayed home…That [Grant] navigates this dangerous land safely (for the most part) is a testament to his drinking abilities—and his thoroughgoing command of Mexican curses. ("Sons of obscene perpetrations!" is how he translates a standard Sierra Madre toast.) In one fascinating scene after another, he meets peasant marijuana farmers, very many drunks and a few Mormons and Mennonites, who fled south for various political and religious reasons. He spends time with the indigenous Tarahumara and memorably attends an Easter festival in a Tarahumara town that descends into total madness, fueled by the local corn-brewed beer, tesguino. (The local statue depicting God is missing all but one of its fingers; hence the book's title.)
More Reviews and Recommendations
Biography
Richard Grant is an award-winning travel writer who has published his work in Men's Journal, Esquire, and Details, among others. He is also the author of American Nomads. Grant currently lives in Tucson, Arizona.
Jon Krakauer talks about his new Pat Tillman book
by Chris Nashawaty
Entertainment Weekly
In the frenzy-filled final days leading up to the Sept. 15 release of Dan Brown’s The Lost Symbol, you might think that there are no other blockbuster titles being published this month. You’d be wrong. On the same day Brown’s novel hits stores, Doubleday will also release best-selling author Jon Krakauer’s Where Men Win Glory: The Odyssey of Pat Tillman. For those who don’t remember, Tillman was the NFL star who gave up a $3.6 million contract to volunteer to serve with the U.S. Army in Afghanistan shortly after the terrorist attacks of 9/11. Then, in 2004, he was killed by friendly fire. His life (and the cover-up surrounding his death) is the subject of Krakauer’s tear-jerking follow-up to his Mormon exposé Under the Banner of Heaven, the Everest tragedy Into Thin Air, and Into the Wild, his nonfiction blockbuster which was adapted into a movie starring Emile Hirsch and directed by Sean Penn.
We spoke with Krakauer for a Q&A in this week’s issue of EW. Here are some of the outtakes from that interview.
EW: Tillman’s family told you that your book Eiger Dreams was found in his backpack when he was killed in Afghanistan in 2004. That’s pretty eerie.
Krakauer: It’s very eerie. I didn’t put that in the book because it seemed self-serving and didn’t really add anything. But I was pretty blown away by it. Tillman really liked Under the Banner of Heaven apparently and gave it to a Mormon cousin. Pat’s wife is very private and circumspect and she thought it over before deciding to work with me. I got lucky that Tillman knew my work.
EW: You’ve been working on this for years and you said it was the hardest book you’ve ever written. Why?
Krakauer: Dealing with the Army, trying to make sense of thousands of pages of redacted documents, it was…as you probably know, I canceled the book at one point. It came out a year late, but it was time really well spent. I needed more time. When I first told my editor that I was canceling it, I’m not your basic neurotic author, I don’t have to have my hand held. I deliver on time, I don’t freak out. But I freaked out! And they told me to calm down and take a deep breath. I didn’t want the pressure, I just wanted to stop. I had this bad feeling that if I didn’t stop, it was going to come out in a form I wasn’t happy with.
EW: I was surprised at how much the book takes on — not just about Tillman, but the war on terror as well.
Krakauer: When I start any book, I have no idea what I’m going to do. I went to Afghanistan not really knowing. And when I started Under the Banner of Heaven, it started out as something quite different, too. I go with what the material gives me. I don’t try to impose a narrative on it. With Under the Banner of Heaven, I took a lot of s— from people who just wanted a true crime story. I didn’t give them that. And it’s like, that’s fine. I’m sorry that people got the wrong impression, but the reason I don’t write for magazines any more is I love focusing on one thing for years and being able to tell this story as completely as I think it needs to be told, including all of these digressions. I’m sure the book would be more marketable and more popular if it was more straightforward, but that’s not what I do. Heaven, for me, is one focused project — it’s like a weird form of autism. And if it pans out, you get the royalties and you get to write the next one. And if it doesn’t, you don’t. I’ve had a lot of crappy jobs, but on of my favorites was working as a commercial fisherman in Alaska. What I loved about it was, you got paid for what you caught.
EW: What surprised you in your reporting about Tillman?
Krakauer: Having spent all of these months embedded with the Army, man, it is not an easy f—ing job to be a soldier! I was thinking after he came back from Iraq and his agent said to him that the NFL could get him out of his Army commitment and he could have gone back to football, I wouldn’t have thought twice! I would have been out of there so fast! And he hated the Army! He hated what he was doing to his wife! He was miserable. But he wouldn’t even consider it. Because if you’re Pat Tillman, you do what you say you’re going to do!
EW: In talking to American soldiers over there, how did they feel about Tillman?
Krakauer: There is an intense respect and admiration.
EW: After Into Thin Air, you were criticized pretty strongly for profiting off of a tragedy. How do you escape that criticism this time around?
Krakauer: I’ve taken so much s— over the past 12 years with Into Thin Air that I have pretty thick skin. More than that, I have armor. And now, perversely, I enjoy criticism. I write these books and people don’t have to buy them. It’s not like I get $10 million advances. I basically make money off the royalties. So if people buy the book, then I make money. And if they don’t, I don’t. I’m grateful because I didn’t have money for years. I don’t suffer from too much guilt or angst any more. I certainly did for Into Thin Air. I was blindsided by the success of that book and all the attendant backlash. I wasn’t ready for it. But I went into this book knowing it would be controversial for all kinds of reasons.
EW: I’m sure you were scared when you were over in Afghanistan, but as a climber, did you ever stop and think, I would love to come back here and climb when the war’s over?
Krakauer: Oh, all the time! We’d go up to 11,000 feet and it’s like Nepal. You could see the Hindu Kush. You’re not that far from these 19,000-foot peaks. And I was just salivating. It’s a beautiful country, but such a tragic place.
EW: I have to ask because Under the Banner of Heaven dealt so much with polygamy, do you watch Big Love?
Krakauer: I don’t get HBO. But I was at a family reunion last summer and my family are big fans of the show. So I saw a few episodes. It’s probably a really good show, but it bothered me because I think those fundamentalists are really evil. The show presents it as Polygamy-Lite, which makes people think it’s not as dangerous as it is. It’s not funny or entertaining. It’s not cute.
EW: Do you already know what you’ll be working on next?
Krakauer: It’s way premature. I am just so f—ing fried and burned out. It’s always this way. I could have the best idea in the world land on my desk right now and I’d just crumble it up and throw it out because I couldn’t bear the thought of it. I need to decompress. It’s not like I have a compulsion to write, so who knows, there may not be another book. This book was really hard. I don’t necessarily need to do this again. Writing, to me, is really f—ing hard. It sucks. I’m embarrassed to say it, but that’s how I feel.
McChrystal is currently being sold as the most brilliant military mind -
oh how quickly Petreaus has been forgotten - mostly because he embraces the right wing narrative that a surge will end the US's problems in Afghanistan.
However, as Jon Krakauer points out here, McChrystal was involved in the cover up surrounding the friendly fire incident which killed pat Tillman, and Krakauer also goes on the describe his explanation of how this happened to be "preposterous".
MR. KRAKAUER: After Tillman died, the most important thing to know is that within--instantly, within 24 hours certainly, everybody on the ground, everyone intimately involved knew it was friendly fire. There's never any doubt it was friendly fire. McChrystal was told within 24 hours it was friendly fire. Also, immediately they started this paperwork to give Tillman a Silver Star. And the Silver Star ended up being at the center of the cover-up. So McChrystal--Tillman faced this devastating fire from his own guys, and he tried to protect a young private by exposing himself to this, this fire. That's why he was killed and the private wasn't. Without friendly fire there's no valor, there's no Silver Star. There was no enemy fire, yet McChrystal authored, he closely supervised over a number of days this fraudulent medal recommendation that talked about devastating enemy fire.
GREGORY: And that's the important piece of it. And, and he actually testified earlier this year before the Senate, and this is what he said about it.
(Videotape, June 2, 2009)
LT. GEN. STANLEY MCCHRYSTAL: Now, what happens, in retrospect, is--and I would do this differently if I had the chance again--in retrospect they look contradictory, because we sent a Silver Star that was not well-written. And although I went through the process, I will tell you now I didn't review the citation well enough to capture--or I didn't catch that if you read it you could imply that it was not friendly fire.
(End videotape)
GREGORY: Even those who were critical of him and the Army say they don't think he willfully deceived anyone.
MR. KRAKAUER: That's correct. He, he just said now he didn't read this hugely important document about the most famous soldier in the military. He didn't read it carefully enough to notice that it talked about enemy fire instead of friendly fire? That's preposterous. That, that's not believable.
Pat Tillman, Anti-War Heroby John Douglas Marshall
After his death, the NFL star was portrayed as a warrior jock. But a new biography by Into the Wild author Jon Krakauer depicts a liberal who vehemently disagreed with his mission.
That Pat Tillman’s biographer would turn out to be Jon Krakauer now seems inevitable. Who else to chronicle the short, tragic life of the late NFL star turned U.S. Army Ranger than the bestselling writer who told the tale of Chris McCandless, the idealistic sojourner in Into the Wild? Or the accomplished mountain climber who offered his anguished personal witness to the 1996 catastrophe atop Mount Everest in Into Thin Air?
But Krakauer’s journey with Tillman’s story almost ran aground. It would prove to be his hardest book yet, with singular challenges, including two separate embeds with troops in the Afghanistan combat zone where Tillman was killed in 2004 by friendly fire from one of his fellow Rangers. The writing proved so daunting that the frustrated Krakauer fell far behind his deadline and got so “freaked out” that he withdrew the Tillman book from possible publication at one point. But part of what kept him going was the powerful voice of Tillman, who never publicly discussed his decision to leave the Arizona Cardinals for the Army in the aftermath of 9/11. Tillman’s widow gave Krakauer access to Tillman’s personal journals, and what emerged was a portrait of a complex, smart, sensitive, eloquent, and questing figure far different than the stereotypical hardass football jock portrayed in so much coverage of his life and death.
“He even had a copy of my book, Eiger Dreams, in his backpack when he was killed.”
Krakauer’s Where Men Win Glory: The Odyssey of Pat Tillman (Doubleday 416 pages $27.95) is a riveting examination of another American idealist’s startling path and haunting death, as well as a trenchant recounting of this country’s troubled course amid terrorism and war. Krakauer considers the dual narratives to be a risky approach, but says it reflects how he “wanted not just to write about Tillman, but put him in the context of his day and age.” In one of his few interviews discussing the book, the 55-year-old author spoke to The Daily Beast from his Colorado home.
Where Men Win Glory: The Odyssey of Pat Tillman. By Jon Krakauer. Doubleday. 416 pages. $27.95 What interested you in Pat Tillman as a book subject?
Tillman has always been on my radar as a PAC-10 sports fan who grew up in Corvallis, Oregon. I remember the Rose Bowl where he played for Arizona State. And like everyone else, when Pat Tillman was killed, I was blown away. I also thought, wow, there might be a book in this someday, but it was too soon after my Mormon book (Under the Banner of Heaven) for me to consider it. But Tillman kept coming back to me. I was sure somebody else must have a contract to write about him, but one afternoon, I thought, what the hell. I sent off copies of my books to the Tillman family and got an encouraging response even from his mother, Mary “Dannie” Tillman (who later wrote a memoir of Pat Tillman entitled Boots on the Ground by Dusk).
What was the biggest challenge in writing this book?
There were so many. This was definitely the hardest book to research and write for me. It was challenging to get Tillman’s platoon-mates to talk to me. It was really challenging to be embedded with troops in Afghanistan for five months—that was an education for me, really hard. And the book turned into a big sprawling thing and I didn’t think that would happen.
Pat Tillman’s widow, Marie Ugenti Tillman, cooperated with you. How did that come about?
I first contacted Pat’s mother and she urged me to write to Marie, since she is his literary heir. She had his journals and letters and I would need her permission to quote them. But Marie is a very private, very wary person. I got a huge break when it turned out that Tillman liked my writing. He even had a copy of my book, Eiger Dreams, in his backpack when he was killed. He also liked Under the Banner of Heaven. That got my foot in the door with Marie.
Entertainment Weekly
In the frenzy-filled final days leading up to the Sept. 15 release of Dan Brown’s The Lost Symbol, you might think that there are no other blockbuster titles being published this month. You’d be wrong. On the same day Brown’s novel hits stores, Doubleday will also release best-selling author Jon Krakauer’s Where Men Win Glory: The Odyssey of Pat Tillman. For those who don’t remember, Tillman was the NFL star who gave up a $3.6 million contract to volunteer to serve with the U.S. Army in Afghanistan shortly after the terrorist attacks of 9/11. Then, in 2004, he was killed by friendly fire. His life (and the cover-up surrounding his death) is the subject of Krakauer’s tear-jerking follow-up to his Mormon exposé Under the Banner of Heaven, the Everest tragedy Into Thin Air, and Into the Wild, his nonfiction blockbuster which was adapted into a movie starring Emile Hirsch and directed by Sean Penn.
We spoke with Krakauer for a Q&A in this week’s issue of EW. Here are some of the outtakes from that interview.
EW: Tillman’s family told you that your book Eiger Dreams was found in his backpack when he was killed in Afghanistan in 2004. That’s pretty eerie.
Krakauer: It’s very eerie. I didn’t put that in the book because it seemed self-serving and didn’t really add anything. But I was pretty blown away by it. Tillman really liked Under the Banner of Heaven apparently and gave it to a Mormon cousin. Pat’s wife is very private and circumspect and she thought it over before deciding to work with me. I got lucky that Tillman knew my work.
EW: You’ve been working on this for years and you said it was the hardest book you’ve ever written. Why?
Krakauer: Dealing with the Army, trying to make sense of thousands of pages of redacted documents, it was…as you probably know, I canceled the book at one point. It came out a year late, but it was time really well spent. I needed more time. When I first told my editor that I was canceling it, I’m not your basic neurotic author, I don’t have to have my hand held. I deliver on time, I don’t freak out. But I freaked out! And they told me to calm down and take a deep breath. I didn’t want the pressure, I just wanted to stop. I had this bad feeling that if I didn’t stop, it was going to come out in a form I wasn’t happy with.
EW: I was surprised at how much the book takes on — not just about Tillman, but the war on terror as well.
Krakauer: When I start any book, I have no idea what I’m going to do. I went to Afghanistan not really knowing. And when I started Under the Banner of Heaven, it started out as something quite different, too. I go with what the material gives me. I don’t try to impose a narrative on it. With Under the Banner of Heaven, I took a lot of s— from people who just wanted a true crime story. I didn’t give them that. And it’s like, that’s fine. I’m sorry that people got the wrong impression, but the reason I don’t write for magazines any more is I love focusing on one thing for years and being able to tell this story as completely as I think it needs to be told, including all of these digressions. I’m sure the book would be more marketable and more popular if it was more straightforward, but that’s not what I do. Heaven, for me, is one focused project — it’s like a weird form of autism. And if it pans out, you get the royalties and you get to write the next one. And if it doesn’t, you don’t. I’ve had a lot of crappy jobs, but on of my favorites was working as a commercial fisherman in Alaska. What I loved about it was, you got paid for what you caught.
EW: What surprised you in your reporting about Tillman?
Krakauer: Having spent all of these months embedded with the Army, man, it is not an easy f—ing job to be a soldier! I was thinking after he came back from Iraq and his agent said to him that the NFL could get him out of his Army commitment and he could have gone back to football, I wouldn’t have thought twice! I would have been out of there so fast! And he hated the Army! He hated what he was doing to his wife! He was miserable. But he wouldn’t even consider it. Because if you’re Pat Tillman, you do what you say you’re going to do!
EW: In talking to American soldiers over there, how did they feel about Tillman?
Krakauer: There is an intense respect and admiration.
EW: After Into Thin Air, you were criticized pretty strongly for profiting off of a tragedy. How do you escape that criticism this time around?
Krakauer: I’ve taken so much s— over the past 12 years with Into Thin Air that I have pretty thick skin. More than that, I have armor. And now, perversely, I enjoy criticism. I write these books and people don’t have to buy them. It’s not like I get $10 million advances. I basically make money off the royalties. So if people buy the book, then I make money. And if they don’t, I don’t. I’m grateful because I didn’t have money for years. I don’t suffer from too much guilt or angst any more. I certainly did for Into Thin Air. I was blindsided by the success of that book and all the attendant backlash. I wasn’t ready for it. But I went into this book knowing it would be controversial for all kinds of reasons.
EW: I’m sure you were scared when you were over in Afghanistan, but as a climber, did you ever stop and think, I would love to come back here and climb when the war’s over?
Krakauer: Oh, all the time! We’d go up to 11,000 feet and it’s like Nepal. You could see the Hindu Kush. You’re not that far from these 19,000-foot peaks. And I was just salivating. It’s a beautiful country, but such a tragic place.
EW: I have to ask because Under the Banner of Heaven dealt so much with polygamy, do you watch Big Love?
Krakauer: I don’t get HBO. But I was at a family reunion last summer and my family are big fans of the show. So I saw a few episodes. It’s probably a really good show, but it bothered me because I think those fundamentalists are really evil. The show presents it as Polygamy-Lite, which makes people think it’s not as dangerous as it is. It’s not funny or entertaining. It’s not cute.
EW: Do you already know what you’ll be working on next?
Krakauer: It’s way premature. I am just so f—ing fried and burned out. It’s always this way. I could have the best idea in the world land on my desk right now and I’d just crumble it up and throw it out because I couldn’t bear the thought of it. I need to decompress. It’s not like I have a compulsion to write, so who knows, there may not be another book. This book was really hard. I don’t necessarily need to do this again. Writing, to me, is really f—ing hard. It sucks. I’m embarrassed to say it, but that’s how I feel.
McChrystal is currently being sold as the most brilliant military mind -
oh how quickly Petreaus has been forgotten - mostly because he embraces the right wing narrative that a surge will end the US's problems in Afghanistan.
However, as Jon Krakauer points out here, McChrystal was involved in the cover up surrounding the friendly fire incident which killed pat Tillman, and Krakauer also goes on the describe his explanation of how this happened to be "preposterous".
MR. KRAKAUER: After Tillman died, the most important thing to know is that within--instantly, within 24 hours certainly, everybody on the ground, everyone intimately involved knew it was friendly fire. There's never any doubt it was friendly fire. McChrystal was told within 24 hours it was friendly fire. Also, immediately they started this paperwork to give Tillman a Silver Star. And the Silver Star ended up being at the center of the cover-up. So McChrystal--Tillman faced this devastating fire from his own guys, and he tried to protect a young private by exposing himself to this, this fire. That's why he was killed and the private wasn't. Without friendly fire there's no valor, there's no Silver Star. There was no enemy fire, yet McChrystal authored, he closely supervised over a number of days this fraudulent medal recommendation that talked about devastating enemy fire.
GREGORY: And that's the important piece of it. And, and he actually testified earlier this year before the Senate, and this is what he said about it.
(Videotape, June 2, 2009)
LT. GEN. STANLEY MCCHRYSTAL: Now, what happens, in retrospect, is--and I would do this differently if I had the chance again--in retrospect they look contradictory, because we sent a Silver Star that was not well-written. And although I went through the process, I will tell you now I didn't review the citation well enough to capture--or I didn't catch that if you read it you could imply that it was not friendly fire.
(End videotape)
GREGORY: Even those who were critical of him and the Army say they don't think he willfully deceived anyone.
MR. KRAKAUER: That's correct. He, he just said now he didn't read this hugely important document about the most famous soldier in the military. He didn't read it carefully enough to notice that it talked about enemy fire instead of friendly fire? That's preposterous. That, that's not believable.
Pat Tillman, Anti-War Heroby John Douglas Marshall
After his death, the NFL star was portrayed as a warrior jock. But a new biography by Into the Wild author Jon Krakauer depicts a liberal who vehemently disagreed with his mission.
That Pat Tillman’s biographer would turn out to be Jon Krakauer now seems inevitable. Who else to chronicle the short, tragic life of the late NFL star turned U.S. Army Ranger than the bestselling writer who told the tale of Chris McCandless, the idealistic sojourner in Into the Wild? Or the accomplished mountain climber who offered his anguished personal witness to the 1996 catastrophe atop Mount Everest in Into Thin Air?
But Krakauer’s journey with Tillman’s story almost ran aground. It would prove to be his hardest book yet, with singular challenges, including two separate embeds with troops in the Afghanistan combat zone where Tillman was killed in 2004 by friendly fire from one of his fellow Rangers. The writing proved so daunting that the frustrated Krakauer fell far behind his deadline and got so “freaked out” that he withdrew the Tillman book from possible publication at one point. But part of what kept him going was the powerful voice of Tillman, who never publicly discussed his decision to leave the Arizona Cardinals for the Army in the aftermath of 9/11. Tillman’s widow gave Krakauer access to Tillman’s personal journals, and what emerged was a portrait of a complex, smart, sensitive, eloquent, and questing figure far different than the stereotypical hardass football jock portrayed in so much coverage of his life and death.
“He even had a copy of my book, Eiger Dreams, in his backpack when he was killed.”
Krakauer’s Where Men Win Glory: The Odyssey of Pat Tillman (Doubleday 416 pages $27.95) is a riveting examination of another American idealist’s startling path and haunting death, as well as a trenchant recounting of this country’s troubled course amid terrorism and war. Krakauer considers the dual narratives to be a risky approach, but says it reflects how he “wanted not just to write about Tillman, but put him in the context of his day and age.” In one of his few interviews discussing the book, the 55-year-old author spoke to The Daily Beast from his Colorado home.
Where Men Win Glory: The Odyssey of Pat Tillman. By Jon Krakauer. Doubleday. 416 pages. $27.95 What interested you in Pat Tillman as a book subject?
Tillman has always been on my radar as a PAC-10 sports fan who grew up in Corvallis, Oregon. I remember the Rose Bowl where he played for Arizona State. And like everyone else, when Pat Tillman was killed, I was blown away. I also thought, wow, there might be a book in this someday, but it was too soon after my Mormon book (Under the Banner of Heaven) for me to consider it. But Tillman kept coming back to me. I was sure somebody else must have a contract to write about him, but one afternoon, I thought, what the hell. I sent off copies of my books to the Tillman family and got an encouraging response even from his mother, Mary “Dannie” Tillman (who later wrote a memoir of Pat Tillman entitled Boots on the Ground by Dusk).
What was the biggest challenge in writing this book?
There were so many. This was definitely the hardest book to research and write for me. It was challenging to get Tillman’s platoon-mates to talk to me. It was really challenging to be embedded with troops in Afghanistan for five months—that was an education for me, really hard. And the book turned into a big sprawling thing and I didn’t think that would happen.
Pat Tillman’s widow, Marie Ugenti Tillman, cooperated with you. How did that come about?
I first contacted Pat’s mother and she urged me to write to Marie, since she is his literary heir. She had his journals and letters and I would need her permission to quote them. But Marie is a very private, very wary person. I got a huge break when it turned out that Tillman liked my writing. He even had a copy of my book, Eiger Dreams, in his backpack when he was killed. He also liked Under the Banner of Heaven. That got my foot in the door with Marie.
Twenty reasons why vitamin D is better than a swine flu vaccine
Twenty reasons why vitamin D is better than a swine flu vaccine
Mike Adams
NaturalNews
Tuesday, Nov 3rd, 2009
The news is out: Vitamin D is better than the swine flu vaccine at halting H1N1 infections. In fact, without vitamin D, chances are that a vaccine won’t generate much of an immune response in the first place.
That’s because vitamin D is essential for healthy, active immune function. That’s just one of the reasons smart people are choosing vitamin D instead of the swine flu vaccine. Here are nineteen more reasons:
#1 Vitamin D activates your immune system to respond to any viral exposure (not just one virus).
#2 Vitamin D naturally belongs in your body.
#3 Vitamin D has been functioning as medicine in the human body since the beginning of the human species.
#4 Vitamin D is available right now and there’s no shortage of it.
#5 Vitamin D won’t cause your brain to swell and put you into a coma.
#6 Vitamin D doesn’t require an injection with a scary needle.
#7 Vitamin D is found naturally in many foods such as sardines or salmon.
#8 Vitamin D has a perfect safety record. No one ever died from consuming it.
#9 Vitamin D is affordable. You can even get it for free (from sunlight).
#10 Vitamin D doesn’t contain viral fragments from diseased animals (like vaccines often do).
#11 Vitamin D doesn’t contain thimerosal or other chemical preservatives.
#12 Vitamin D doesn’t need a warning sheet describing possible side effects.
#13 Vitamin D doesn’t hurt your arm when you take it.
#14 Vitamin D also improves sugar metabolism, bone density and healthy moods.
#15 Vitamin D is safe for the environment.
#16 Vitamin D doesn’t contain squalene or other inflammatory adjuvant chemicals.
#17 Vitamin D works on everyone and is safe for everyone, including infants and children.
#18 Vitamin D is made in nature, not a laboratory.
#19 Vitamin D is found naturally in breast milk.
#20 You can walk, and chew gum, and generate vitamin D from sunshine all at the same time!
Skip the vaccine. Get more Vitamin D!
And here’s a little limerick I wrote about the swine flu vaccine that you might enjoy:
The swine flu vaccine was a hoax
All the “science” turned out to be jokes
One quick vaccination
Caused genetic mutation
Turning friendly young girls into blokes
Mike Adams
NaturalNews
Tuesday, Nov 3rd, 2009
The news is out: Vitamin D is better than the swine flu vaccine at halting H1N1 infections. In fact, without vitamin D, chances are that a vaccine won’t generate much of an immune response in the first place.
That’s because vitamin D is essential for healthy, active immune function. That’s just one of the reasons smart people are choosing vitamin D instead of the swine flu vaccine. Here are nineteen more reasons:
#1 Vitamin D activates your immune system to respond to any viral exposure (not just one virus).
#2 Vitamin D naturally belongs in your body.
#3 Vitamin D has been functioning as medicine in the human body since the beginning of the human species.
#4 Vitamin D is available right now and there’s no shortage of it.
#5 Vitamin D won’t cause your brain to swell and put you into a coma.
#6 Vitamin D doesn’t require an injection with a scary needle.
#7 Vitamin D is found naturally in many foods such as sardines or salmon.
#8 Vitamin D has a perfect safety record. No one ever died from consuming it.
#9 Vitamin D is affordable. You can even get it for free (from sunlight).
#10 Vitamin D doesn’t contain viral fragments from diseased animals (like vaccines often do).
#11 Vitamin D doesn’t contain thimerosal or other chemical preservatives.
#12 Vitamin D doesn’t need a warning sheet describing possible side effects.
#13 Vitamin D doesn’t hurt your arm when you take it.
#14 Vitamin D also improves sugar metabolism, bone density and healthy moods.
#15 Vitamin D is safe for the environment.
#16 Vitamin D doesn’t contain squalene or other inflammatory adjuvant chemicals.
#17 Vitamin D works on everyone and is safe for everyone, including infants and children.
#18 Vitamin D is made in nature, not a laboratory.
#19 Vitamin D is found naturally in breast milk.
#20 You can walk, and chew gum, and generate vitamin D from sunshine all at the same time!
Skip the vaccine. Get more Vitamin D!
And here’s a little limerick I wrote about the swine flu vaccine that you might enjoy:
The swine flu vaccine was a hoax
All the “science” turned out to be jokes
One quick vaccination
Caused genetic mutation
Turning friendly young girls into blokes
Cheney Failed to Answer 72 FBI Questions
C-J
Cheney Failed to Answer 72 FBI Questions. Finally the "Lame Stream Media" is starting to unearth the traitorous acts of the former Vice President Dick Cheney. He lied to Congress, the Citizens and the FBI, he should be in Guantanamo. He also allowed an airplane to hit the Pentagon on 9/11. This was an act of a traitor. Hang the sneering creep, after a fair trial of course.
C-J
Former Vice President Dick Cheney said he had no idea who released Plame's identity as a CIA agent. (AP)
Interactive
The Leak
People and events surrounding the leak of a CIA officer's name.
Stories
FBI Ordered to Release Cheney Interview
Cheney Said He Didn't Know Plame Leaker
(AP) Federal prosecutor Patrick Fitzgerald famously declared in the Valerie Plame affair that "there is a cloud over the vice president." Last week's release of an FBI interview summary of Dick Cheney's answers in the criminal investigation underscores why Fitzgerald felt that way.
On 72 occasions, according to the 28-page FBI summary, Cheney equivocated to the FBI during his lengthy May 2004 interview, saying he could not be certain in his answers to questions about matters large and small in the Plame controversy.
The Cheney interview reflects a team of prosecutors and FBI agents trying to find out whether the leaks of Plame's CIA identity were orchestrated at the highest level of the White House and carried out by, among others, I. Lewis "Scooter" Libby, Cheney's chief of staff.
Among the most basic questions for Cheney in the Plame probe: How did Libby find out that the wife of Bush administration war critic Joseph Wilson worked at the CIA?
Libby's own handwritten notes suggest Libby found out from Cheney. When Libby discovered Cheney's reference to Plame and the CIA in his notes - notes that Libby knew he would soon have to turn over to the FBI - the chief of staff went to the vice president, probably in late September or early October 2003.
Sharing the information with Cheney was in itself an unusual step at the outset of a criminal investigation in which potential White House witnesses were being ordered by their superiors not to talk to each other about the Plame matter.
"It turns out that I have a note that I had heard about" Plame's CIA identity "from you," Libby says he told the vice president.
And what did Cheney say in response? Fitzgerald asked Libby in front of a federal grand jury six months later.
"He didn't say much," Libby replied. "You know, he said something about 'From me?' something like that, and tilted his head, something he does commonly, and that was that."
Cheney's version of the conversation, as related in the FBI interview summary?
Cheney "cannot recall Scooter Libby telling him how he first heard of Valerie Wilson. It is possible Libby may have learned about Valerie Wilson's employment from the vice president ... but the vice president has no specific recollection of such a conversation."
On another basic point, Cheney simply refused to answer.
Fitzgerald had gathered evidence that Cheney apparently persuaded President George W. Bush to hurriedly declassify portions of a prewar National Intelligence Estimate on weapons of mass destruction in Iraq. The declassification was followed by Libby providing the information to a New York Times reporter while simultaneously talking to reporters about Plame's CIA identity.
As Fitzgerald pressed the issue in the FBI interview, Cheney refused to confirm any discussion with Bush, saying that he must refrain from commenting about any private or privileged conversations he may have had with the president.
It was an instance of Libby, who had testified two months earlier to a federal grand jury, being more forthcoming than Cheney.
Prosecutors obtained information about the leaking of the declassified NIE from Cheney's chief of staff, who testified that he had talked to New York Times reporter Judith Miller about the National Intelligence Estimate following the "president's approval relayed to me through the vice president."
Cheney's FBI interview is a study in contrasts.
Expressing uncertainty on many areas he was being questioned about and refusing to discuss another area altogether, Cheney was emphatic on at least one basic point.
According to the FBI summary, Cheney said there was no discussion of using Plame's employment with the CIA to counter her husband's criticism that the Bush administration had manipulated prewar intelligence to exaggerate the Iraqi threat. There was no discussion, Cheney insisted, of "pushing back" on Joseph Wilson's credibility by raising the issue of nepotism, the fact that Wilson's wife worked for the CIA, the same agency that dispatched him to the African nation of Niger to run down the report of an agreement to supply uranium "yellowcake" to Iraq.
It was one example of Cheney being categorical and Libby seeming uncertain.
"In a prior FBI interview, you indicated it was possible that you may have talked to the Vice President on Air Force Two ... about whether you should share the information with the press about Wilson's wife?" the prosecutor asked Libby in his grand jury testimony.
"It's possible that would have been one of the times I could have talked to him about what I had learned," Libby replied.
"As you sit here today, do you recall whether you had such a conversation with the vice president on Air Force Two?" the prosecutor asked.
"No, sir. My, my best recollection of that conversation was what I had on my note card which we have produced which doesn't reflect anything about that," Libby replied.
Libby was indicted, tried and convicted for perjury, obstruction and lying to the FBI. The president commuted his 30-month prison sentence, but rejected Cheney's pleas in the last days of the administration to pardon the vice president's former chief of staff.
The Cheney interview summary was released Friday to the watchdog group Citizens for Responsibility and Ethics in Washington, which sued to get the material under the Freedom of Information Act.
Cheney Failed to Answer 72 FBI Questions. Finally the "Lame Stream Media" is starting to unearth the traitorous acts of the former Vice President Dick Cheney. He lied to Congress, the Citizens and the FBI, he should be in Guantanamo. He also allowed an airplane to hit the Pentagon on 9/11. This was an act of a traitor. Hang the sneering creep, after a fair trial of course.
C-J
Former Vice President Dick Cheney said he had no idea who released Plame's identity as a CIA agent. (AP)
Interactive
The Leak
People and events surrounding the leak of a CIA officer's name.
Stories
FBI Ordered to Release Cheney Interview
Cheney Said He Didn't Know Plame Leaker
(AP) Federal prosecutor Patrick Fitzgerald famously declared in the Valerie Plame affair that "there is a cloud over the vice president." Last week's release of an FBI interview summary of Dick Cheney's answers in the criminal investigation underscores why Fitzgerald felt that way.
On 72 occasions, according to the 28-page FBI summary, Cheney equivocated to the FBI during his lengthy May 2004 interview, saying he could not be certain in his answers to questions about matters large and small in the Plame controversy.
The Cheney interview reflects a team of prosecutors and FBI agents trying to find out whether the leaks of Plame's CIA identity were orchestrated at the highest level of the White House and carried out by, among others, I. Lewis "Scooter" Libby, Cheney's chief of staff.
Among the most basic questions for Cheney in the Plame probe: How did Libby find out that the wife of Bush administration war critic Joseph Wilson worked at the CIA?
Libby's own handwritten notes suggest Libby found out from Cheney. When Libby discovered Cheney's reference to Plame and the CIA in his notes - notes that Libby knew he would soon have to turn over to the FBI - the chief of staff went to the vice president, probably in late September or early October 2003.
Sharing the information with Cheney was in itself an unusual step at the outset of a criminal investigation in which potential White House witnesses were being ordered by their superiors not to talk to each other about the Plame matter.
"It turns out that I have a note that I had heard about" Plame's CIA identity "from you," Libby says he told the vice president.
And what did Cheney say in response? Fitzgerald asked Libby in front of a federal grand jury six months later.
"He didn't say much," Libby replied. "You know, he said something about 'From me?' something like that, and tilted his head, something he does commonly, and that was that."
Cheney's version of the conversation, as related in the FBI interview summary?
Cheney "cannot recall Scooter Libby telling him how he first heard of Valerie Wilson. It is possible Libby may have learned about Valerie Wilson's employment from the vice president ... but the vice president has no specific recollection of such a conversation."
On another basic point, Cheney simply refused to answer.
Fitzgerald had gathered evidence that Cheney apparently persuaded President George W. Bush to hurriedly declassify portions of a prewar National Intelligence Estimate on weapons of mass destruction in Iraq. The declassification was followed by Libby providing the information to a New York Times reporter while simultaneously talking to reporters about Plame's CIA identity.
As Fitzgerald pressed the issue in the FBI interview, Cheney refused to confirm any discussion with Bush, saying that he must refrain from commenting about any private or privileged conversations he may have had with the president.
It was an instance of Libby, who had testified two months earlier to a federal grand jury, being more forthcoming than Cheney.
Prosecutors obtained information about the leaking of the declassified NIE from Cheney's chief of staff, who testified that he had talked to New York Times reporter Judith Miller about the National Intelligence Estimate following the "president's approval relayed to me through the vice president."
Cheney's FBI interview is a study in contrasts.
Expressing uncertainty on many areas he was being questioned about and refusing to discuss another area altogether, Cheney was emphatic on at least one basic point.
According to the FBI summary, Cheney said there was no discussion of using Plame's employment with the CIA to counter her husband's criticism that the Bush administration had manipulated prewar intelligence to exaggerate the Iraqi threat. There was no discussion, Cheney insisted, of "pushing back" on Joseph Wilson's credibility by raising the issue of nepotism, the fact that Wilson's wife worked for the CIA, the same agency that dispatched him to the African nation of Niger to run down the report of an agreement to supply uranium "yellowcake" to Iraq.
It was one example of Cheney being categorical and Libby seeming uncertain.
"In a prior FBI interview, you indicated it was possible that you may have talked to the Vice President on Air Force Two ... about whether you should share the information with the press about Wilson's wife?" the prosecutor asked Libby in his grand jury testimony.
"It's possible that would have been one of the times I could have talked to him about what I had learned," Libby replied.
"As you sit here today, do you recall whether you had such a conversation with the vice president on Air Force Two?" the prosecutor asked.
"No, sir. My, my best recollection of that conversation was what I had on my note card which we have produced which doesn't reflect anything about that," Libby replied.
Libby was indicted, tried and convicted for perjury, obstruction and lying to the FBI. The president commuted his 30-month prison sentence, but rejected Cheney's pleas in the last days of the administration to pardon the vice president's former chief of staff.
The Cheney interview summary was released Friday to the watchdog group Citizens for Responsibility and Ethics in Washington, which sued to get the material under the Freedom of Information Act.
Monday, November 2, 2009
U.S. Tops in Energy Resources
C-J
Wow this really is good news. I always thought the reason Dick Cheney was bombing the crap out of Iraq and Afghanistan was because we needed their oil and pipeline agreements. Guess I was wrong!!
C-J
The United States has largest energy reserves on Earth, according to a report from the Congressional Research Service.
The U.S. has 1,321 billion barrels of oil (or barrels of oil equivalent for other sources of energy) when combining its recoverable natural gas, oil and coal reserves.
While Russia is a close second with 1,248 billion barrels, other energy producing nations are far behind. No. 3 is Saudi Arabia (543 billion barrels), followed by China (494 billion barrels), Iran (426 billion barrels) and Canada (221 billion barrels.)
"Our overwhelming coal, natural gas, and oil resources represent tens of trillions of dollars in wealth and millions of American jobs,” said Sen. James Inhofe (R.-Ok.), who, along with Sen. Lisa Murkowski (R.-Alaska), released the report last week. “Whether through decree or purposeful inaction, government policies that unnecessarily restrict or prevent our ability to responsibly produce these domestic resources are threatening, and could eventually undermine, our nation's economic and national security. We should pursue an all-of-the-above strategy that advances new energy technologies but also prioritizes developing the resources we have today."
The report also noted that the United States has 28% of all the world’s coal reserves, with Russia again coming in second with 19%.
In addition, the report stated that the United States has tapped into only 13% or 21 billion barrels of its oil reserves, with the other 87% still untouched.
Wow this really is good news. I always thought the reason Dick Cheney was bombing the crap out of Iraq and Afghanistan was because we needed their oil and pipeline agreements. Guess I was wrong!!
C-J
The United States has largest energy reserves on Earth, according to a report from the Congressional Research Service.
The U.S. has 1,321 billion barrels of oil (or barrels of oil equivalent for other sources of energy) when combining its recoverable natural gas, oil and coal reserves.
While Russia is a close second with 1,248 billion barrels, other energy producing nations are far behind. No. 3 is Saudi Arabia (543 billion barrels), followed by China (494 billion barrels), Iran (426 billion barrels) and Canada (221 billion barrels.)
"Our overwhelming coal, natural gas, and oil resources represent tens of trillions of dollars in wealth and millions of American jobs,” said Sen. James Inhofe (R.-Ok.), who, along with Sen. Lisa Murkowski (R.-Alaska), released the report last week. “Whether through decree or purposeful inaction, government policies that unnecessarily restrict or prevent our ability to responsibly produce these domestic resources are threatening, and could eventually undermine, our nation's economic and national security. We should pursue an all-of-the-above strategy that advances new energy technologies but also prioritizes developing the resources we have today."
The report also noted that the United States has 28% of all the world’s coal reserves, with Russia again coming in second with 19%.
In addition, the report stated that the United States has tapped into only 13% or 21 billion barrels of its oil reserves, with the other 87% still untouched.
Sunday, November 1, 2009
How Goldman secretly bet on the U.S. housing crash
C-J
The mainstream media finally reports something that is about 1 year old and many of us knew since 2005
C-J
By Greg Gordon | McClatchy Newspapers
WASHINGTON — In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.
Goldman's sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation's premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies.
Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk.
Now, pension funds, insurance companies, labor unions and foreign financial institutions that bought those dicey mortgage securities are facing large losses, and a five-month McClatchy investigation has found that Goldman's failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws.
"The Securities and Exchange Commission should be very interested in any financial company that secretly decides a financial product is a loser and then goes out and actively markets that product or very similar products to unsuspecting customers without disclosing its true opinion," said Laurence Kotlikoff, a Boston University economics professor who's proposed a massive overhaul of the nation's banks. "This is fraud and should be prosecuted."
John Coffee, a Columbia University law professor who served on an advisory committee to the New York Stock Exchange, said that investment banks have wide latitude to manage their assets, and so the legality of Goldman's maneuvers depends on what its executives knew at the time.
"It would look much more damaging," Coffee said, "if it appeared that the firm was dumping these investments because it saw them as toxic waste and virtually worthless."
Lloyd Blankfein, Goldman's chairman and chief executive, declined to be interviewed for this article.
A Goldman spokesman, Michael DuVally, said that the firm decided in December 2006 to reduce its mortgage risks and did so by selling off subprime-related securities and making myriad insurance-like bets, called credit-default swaps, to "hedge" against a housing downturn.
DuVally told McClatchy that Goldman "had no obligation to disclose how it was managing its risk, nor would investors have expected us to do so ... other market participants had access to the same information we did."
For the past year, Goldman has been on the defensive over its Washington connections and the billions in federal bailout funds it received. Scant attention has been paid, however, to how it became the only major Wall Street player to extricate itself from the subprime securities market before the housing bubble burst.
Goldman remains, along with Morgan Stanley, one of two venerable Wall Street investment banks still standing. Their grievously wounded peers Bear Stearns and Merrill Lynch fell into the arms of retail banks, while another, Lehman Brothers, folded.
To piece together Goldman's role in the subprime meltdown, McClatchy reviewed hundreds of documents, SEC filings, copies of secret investment circulars, lawsuits and interviewed numerous people familiar with the firm's activities.
McClatchy's inquiry found that Goldman Sachs:
Bought and converted into high-yield bonds tens of thousands of mortgages from subprime lenders that became the subjects of FBI investigations into whether they'd misled borrowers or exaggerated applicants' incomes to justify making hefty loans.
Used offshore tax havens to shuffle its mortgage-backed securities to institutions worldwide, including European and Asian banks, often in secret deals run through the Cayman Islands, a British territory in the Caribbean that companies use to bypass U.S. disclosure requirements.
Has dispatched lawyers across the country to repossess homes from bankrupt or financially struggling individuals, many of whom lacked sufficient credit or income but got subprime mortgages anyway because Wall Street made it easy for them to qualify.
Was buoyed last fall by key federal bailout decisions, at least two of which involved then-Treasury Secretary Henry Paulson, a former Goldman chief executive whose staff at Treasury included several other Goldman alumni.
The firm benefited when Paulson elected not to save rival Lehman Brothers from collapse, and when he organized a massive rescue of tottering global insurer American International Group while in constant telephone contact with Goldman chief Blankfein. With the Federal Reserve Board's blessing, AIG later used $12.9 billion in taxpayers' dollars to pay off every penny it owed Goldman.
These decisions preserved billions of dollars in value for Goldman's executives and shareholders. For example, Blankfein held 1.6 million shares in the company in September 2008, and he could have lost more than $150 million if his firm had gone bankrupt.
With the help of more than $23 billion in direct and indirect federal aid, Goldman appears to have emerged intact from the economic implosion, limiting its subprime losses to $1.5 billion. By repaying $10 billion in direct federal bailout money — a 23 percent taxpayer return that exceeded federal officials' demand — the firm has escaped tough federal limits on 2009 bonuses to executives of firms that received bailout money.
Goldman announced record earnings in July, and the firm is on course to surpass $50 billion in revenue in 2009 and to pay its employees more than $20 billion in year-end bonuses.
THE BLUEST OF THE BLUE CHIPS
For decades, Goldman, a bastion of Ivy League graduates that was founded in 1869, has cultivated an elite reputation as home to the best and brightest and a tradition of urging its executives to take turns at public service.
As a result, Goldman has operated a virtual jobs conveyor belt to and from Washington: Paulson, as Treasury secretary, sent tens of billions of taxpayers' dollars to rescue Wall Street in 2008, and former Goldman employees populate some of the most demanding and powerful posts in Washington. Savvy federal regulators have migrated from their Washington jobs to Goldman.
On Oct. 16, a Goldman vice president, Adam Storch, was named managing executive of the SEC's enforcement division.
Goldman's financial panache made its sales pitches irresistible to policymakers and investors alike, and may help explain why so few of them questioned the risky securities that Goldman sold off in a 14-month period that ended in February 2007.
Since the collapse of the economy, however, some of those investors have changed their opinions of Goldman.
Several pension funds, including Mississippi's Public Employees' Retirement System, have filed suits, seeking class-action status, alleging that Goldman and other Wall Street firms negligently made "false and misleading" representations of the bonds' true risks.
Mississippi Attorney General Jim Hood, whose state has lost $5 million of the $6 million it invested in Goldman's subprime mortgage-backed bonds in 2006, said the state's funds are likely to lose "hundreds of millions of dollars" on those and similar bonds.
Hood assailed the investment banks "who packaged this junk and sold it to unwary investors."
California's huge public employees' retirement system, known as CALPERS, purchased $64.4 million in subprime mortgage-backed bonds from Goldman on March 1, 2007. While that represented a tiny percentage of the fund's holdings, in July CALPERS listed the bonds' value at $16.6 million, a drop of nearly 75 percent, according to documents obtained through a state public records request.
In May, without admitting wrongdoing, Goldman became the first firm to settle with the Massachusetts attorney general's office as it investigated Wall Street's subprime dealings. The firm agreed to pay $60 million to the state, most of it to reduce mortgage balances for 714 aggrieved homeowners.
Attorney General Martha Coakley, now a candidate to succeed Edward Kennedy in the U.S. Senate, cited the blight from foreclosed homes in Boston and other Massachusetts cities. She said her office focused on investment banks because they provided a market for loans that mortgage lenders "knew or should have known were destined for failure."
New Orleans' public employees' retirement system, an electrical workers union and the New Jersey carpenters union also are suing Goldman and other Wall Street firms over their losses.
The full extent of the losses from Goldman's mortgage securities isn't known, but data obtained by McClatchy show that insurance companies, whose annuities provide income for many retirees, collectively paid $2 billion for Goldman's risky high-yield bonds.
Among the bigger buyers: Ambac Assurance purchased $923 million of Goldman's bonds; the Teachers Insurance and Annuities Association, $141.5 million; New York Life, $96 million; Prudential, $70 million; and Allstate, $40.5 million, according to the data from the National Association of Insurance Commissioners.
In 2007, as early signs of trouble rippled through the housing market, Goldman paid a discounted price of $8.8 million to repurchase subprime mortgage bonds that Prudential had bought for $12 million.
Nearly all the insurers' purchases were made in 2006 and 2007, after mortgage lenders had lifted most traditional lending criteria in favor of loans that required little or no documentation of borrowers' incomes or assets.
While Goldman was far from the biggest player in the risky mortgage securitization business, neither was it small.
From 2001 to 2007, Goldman hawked at least $135 billion in bonds keyed to risky home loans, according to analyses by McClatchy and the industry newsletter Inside Mortgage Finance.
In addition to selling about $39 billion of its own risky mortgage securities in 2006 and 2007, Goldman marketed at least $17 billion more for others.
It also was the lead firm in marketing about $83 billion in complex securities, many of them backed by subprime mortgages, via the Caymans and other offshore sites, according to an analysis of unpublished industry data by Gary Kopff, a securitization expert.
In at least one of these offshore deals, Goldman exaggerated the quality of more than $75 million of risky securities, describing the underlying mortgages as "prime" or "midprime," although in the U.S. they were marketed with lower grades.
Goldman spokesman DuVally said that Moody's, the bond rating firm, gave them higher grades because the borrowers had high credit scores.
Goldman's securities came in two varieties: those tied to subprime mortgages and those backed by a slightly higher grade of loans known as Alt-A's.
Over time, both types of mortgages required homeowners to pay rapidly rising interest rates. Defaults on subprime loans were responsible for last year's housing meltdown. Interest rates on Alt-A loans, which began to rocket upward this year, are causing a new round of defaults.
Goldman has taken multiple steps to put its subprime dealings behind it, including publicly saying that Wall Street firms regret their mistakes. Last winter, the company cancelled a Las Vegas conference, avoiding any images of employees flashing wads of bonus cash at casinos.
More recently, the firm has launched a public relations campaign to answer the criticism of its huge bonuses, Washington connections and federal bailout. In late October, Blankfein argued that Goldman's activities serve "an important social purpose" by channeling pools of money held by pension funds and others to companies and governments around the world.
KNOWING WHEN TO FOLD THEM
For investment banks such as Goldman, the trick was knowing when to exit the high-stakes subprime game before getting burned.
New York hedge fund manager John Paulson was one of the first to anticipate disaster. He told Congress that his researchers discovered by early 2006 that many subprime loans covered the homes' entire value, with no down payments, and so he figured that the bonds "would become worthless."
He soon began placing exotic bets — credit-default swaps — against the housing market. His firm, Paulson & Co., booked a $3.7 billion profit when home prices tanked and subprime defaults soared in 2007 and 2008. (He isn't related to Henry Paulson.)
At least as early as 2005, Goldman similarly began using swaps to limit its exposure to risky mortgages, the first of multiple strategies it would employ to reduce its subprime risk.
The company has closely guarded the details of most of its swaps trades, except for $20 billion in widely publicized contracts it purchased from AIG in 2005 and 2006 to cover mortgage defaults or ratings downgrades on subprime-related securities it offered offshore.
In December 2006, after "10 straight days of losses" in Goldman's mortgage business, Chief Financial Officer David Viniar called a meeting of mortgage traders and other key personnel, Goldman spokesman DuVally said.
Shortly after the meeting, he said, it was decided to reduce the firm's mortgage risk by selling off its inventory of bonds and betting against those classes of securities in secretive swaps markets.
DuVally said that at the time, Goldman executives "had no way of knowing how difficult housing or financial market conditions would become."
In early 2007, the firm's mortgage traders also bet heavily against the housing market on a year-old subprime index on a private London swap exchange, said several Wall Street figures familiar with those dealings, who declined to be identified because the transactions were confidential.
The swaps contracts would pay off big, especially those with AIG. When Goldman's securities lost value in 2007 and early 2008, the firm demanded $10 billion, of which AIG reluctantly posted $7.5 billion, Viniar disclosed last spring.
As Goldman's and others' collateral demands grew, AIG suffered an enormous cash squeeze in September 2008, leading to the taxpayer bailout to prevent worldwide losses. Goldman's payout from AIG included more than $8 billion to settle swaps contracts.
DuVally said Goldman has made other bets with hundreds of unidentified counterparties to insure its own subprime risks and to take positions against the housing market for its clients. Until the end of 2006, he said, Goldman was still betting on a strong housing market.
However, Goldman sold off nearly $28 billion of risky mortgage securities it had issued in the U.S. in 2006, including $10 billion on Oct. 6, 2006. The firm unloaded another $11 billion in February 2007, after it had intensified its contrary bets. Goldman also stopped buying risky home mortgages after the December meeting, though DuVally declined to say when.
I'VE GOT A SECRET
Despite updating its numerous disclosures to investors in 2007, Goldman never revealed its secret wagers.
Asked whether Goldman's bond sellers knew about the contrary bets, spokesman DuVally said the company's mortgage business "has extensive barriers designed to keep information within its proper confines."
However, Viniar, the Goldman finance chief, approved the securities sales and the simultaneous bets on a housing downturn. Dan Sparks, a Texan who oversaw the firm's mortgage-related swaps trading, also served as the head of Goldman Sachs Mortgage from late 2006 to April 2008, when he abruptly resigned for personal reasons.
The Securities Act of 1933 imposes a special disclosure burden on principal underwriters of securities, which was Goldman's role when it sold about $39 billion of its own risky mortgage-backed securities from March 2006 to February 2007.
The firm maintains that the requirement doesn't apply in this case.
DuVally said the firm sold virtually all its subprime-related securities to Qualified Institutional Buyers, a class of sophisticated investors that are afforded fewer protections than small investors are under federal securities laws. He said Goldman made all the required disclosures about risks.
Whether companies are obliged to inform investors about such contrary trades, or "hedges," is "a very hot issue" in cases winding through the courts, said Frank Partnoy, a University of San Diego law professor who specializes in securities. One issue is how specific companies must be in disclosing potential risks to investors, he said.
Coffee, the Columbia University law professor, said that any potential violations of securities laws would depend on what Goldman executives knew about the risks ahead.
"The critical moment when Goldman would have the highest liability and disclosure obligations is when they are serving as an underwriter on a registered public offering," he said. "If they are at the same time desperately seeking to get out of the field, that kind of bailout does look far more dubious than just trading activities."
Another question is whether, by keeping the trades secret, the company withheld material information that would enable investors to assess Goldman's motives for selling the bonds, said James Cox, a Duke University law professor who also has served on the NYSE advisory panel.
If Goldman had disclosed the contrary bets, he said, "One would have to believe that a rational investor would not only consider Goldman's conduct material, but likely compelling a decision to take a pass on the recommendation to purchase."
Cox said that existing laws, however, don't require sufficient disclosures about trading, and that the government would do well to plug that hole.
In marketing disclosures filed with the SEC regarding each pool of subprime bonds from 2001 to 2007, Goldman listed an array of risk factors that grew over time. Among them was the possibility of a pullback in overheated real estate markets, especially in California and Florida, where the most subprime loans had been made.
Suits filed by the pension funds, however, allege that Goldman made materially false or misleading statements in its public offerings, failing to disclose that many loans were based on inflated appraisals and were bought from firms with poor lending practices.
DuVally said that investors were fully informed of all known risks.
"What's going to happen in the next few years," said San Diego's Partnoy, "is there's going to be a lot of lawsuits and judges will have to decide, should Goldman have disclosed more or not?"
(Tish Wells contributed to this article.)
(This article is part of an occasional series on the problems in mortgage finance.)
COMING TOMORROW
Since the economic collapse that swept millions of Americans out of their jobs and homes, Goldman Sachs has moved aggressively to recover its losses. The firm is pursuing marginally qualified borrowers into state courts federal and bankruptcy across the country and seeking to seize their homes. McClatchy examines one couple's multi-year attempt to get Goldman to admit that it had purchased their mortgage.
MORE FROM MCCLATCHY
How Moody's sold its ratings — and sold out investors
Firms are getting billions, but homeowners still in trouble
Watchdog: Obama's mortgage relief efforts aren't good enough
Where did that bank bailout go? Watchdogs aren't sure
Worse than subprime? Other mortgages imploding slowly
Banks fight to kill proposed consumer protection agency
Why haven't any Wall Street tycoons been sent to the slammer?
The mainstream media finally reports something that is about 1 year old and many of us knew since 2005
C-J
By Greg Gordon | McClatchy Newspapers
WASHINGTON — In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.
Goldman's sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation's premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies.
Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk.
Now, pension funds, insurance companies, labor unions and foreign financial institutions that bought those dicey mortgage securities are facing large losses, and a five-month McClatchy investigation has found that Goldman's failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws.
"The Securities and Exchange Commission should be very interested in any financial company that secretly decides a financial product is a loser and then goes out and actively markets that product or very similar products to unsuspecting customers without disclosing its true opinion," said Laurence Kotlikoff, a Boston University economics professor who's proposed a massive overhaul of the nation's banks. "This is fraud and should be prosecuted."
John Coffee, a Columbia University law professor who served on an advisory committee to the New York Stock Exchange, said that investment banks have wide latitude to manage their assets, and so the legality of Goldman's maneuvers depends on what its executives knew at the time.
"It would look much more damaging," Coffee said, "if it appeared that the firm was dumping these investments because it saw them as toxic waste and virtually worthless."
Lloyd Blankfein, Goldman's chairman and chief executive, declined to be interviewed for this article.
A Goldman spokesman, Michael DuVally, said that the firm decided in December 2006 to reduce its mortgage risks and did so by selling off subprime-related securities and making myriad insurance-like bets, called credit-default swaps, to "hedge" against a housing downturn.
DuVally told McClatchy that Goldman "had no obligation to disclose how it was managing its risk, nor would investors have expected us to do so ... other market participants had access to the same information we did."
For the past year, Goldman has been on the defensive over its Washington connections and the billions in federal bailout funds it received. Scant attention has been paid, however, to how it became the only major Wall Street player to extricate itself from the subprime securities market before the housing bubble burst.
Goldman remains, along with Morgan Stanley, one of two venerable Wall Street investment banks still standing. Their grievously wounded peers Bear Stearns and Merrill Lynch fell into the arms of retail banks, while another, Lehman Brothers, folded.
To piece together Goldman's role in the subprime meltdown, McClatchy reviewed hundreds of documents, SEC filings, copies of secret investment circulars, lawsuits and interviewed numerous people familiar with the firm's activities.
McClatchy's inquiry found that Goldman Sachs:
Bought and converted into high-yield bonds tens of thousands of mortgages from subprime lenders that became the subjects of FBI investigations into whether they'd misled borrowers or exaggerated applicants' incomes to justify making hefty loans.
Used offshore tax havens to shuffle its mortgage-backed securities to institutions worldwide, including European and Asian banks, often in secret deals run through the Cayman Islands, a British territory in the Caribbean that companies use to bypass U.S. disclosure requirements.
Has dispatched lawyers across the country to repossess homes from bankrupt or financially struggling individuals, many of whom lacked sufficient credit or income but got subprime mortgages anyway because Wall Street made it easy for them to qualify.
Was buoyed last fall by key federal bailout decisions, at least two of which involved then-Treasury Secretary Henry Paulson, a former Goldman chief executive whose staff at Treasury included several other Goldman alumni.
The firm benefited when Paulson elected not to save rival Lehman Brothers from collapse, and when he organized a massive rescue of tottering global insurer American International Group while in constant telephone contact with Goldman chief Blankfein. With the Federal Reserve Board's blessing, AIG later used $12.9 billion in taxpayers' dollars to pay off every penny it owed Goldman.
These decisions preserved billions of dollars in value for Goldman's executives and shareholders. For example, Blankfein held 1.6 million shares in the company in September 2008, and he could have lost more than $150 million if his firm had gone bankrupt.
With the help of more than $23 billion in direct and indirect federal aid, Goldman appears to have emerged intact from the economic implosion, limiting its subprime losses to $1.5 billion. By repaying $10 billion in direct federal bailout money — a 23 percent taxpayer return that exceeded federal officials' demand — the firm has escaped tough federal limits on 2009 bonuses to executives of firms that received bailout money.
Goldman announced record earnings in July, and the firm is on course to surpass $50 billion in revenue in 2009 and to pay its employees more than $20 billion in year-end bonuses.
THE BLUEST OF THE BLUE CHIPS
For decades, Goldman, a bastion of Ivy League graduates that was founded in 1869, has cultivated an elite reputation as home to the best and brightest and a tradition of urging its executives to take turns at public service.
As a result, Goldman has operated a virtual jobs conveyor belt to and from Washington: Paulson, as Treasury secretary, sent tens of billions of taxpayers' dollars to rescue Wall Street in 2008, and former Goldman employees populate some of the most demanding and powerful posts in Washington. Savvy federal regulators have migrated from their Washington jobs to Goldman.
On Oct. 16, a Goldman vice president, Adam Storch, was named managing executive of the SEC's enforcement division.
Goldman's financial panache made its sales pitches irresistible to policymakers and investors alike, and may help explain why so few of them questioned the risky securities that Goldman sold off in a 14-month period that ended in February 2007.
Since the collapse of the economy, however, some of those investors have changed their opinions of Goldman.
Several pension funds, including Mississippi's Public Employees' Retirement System, have filed suits, seeking class-action status, alleging that Goldman and other Wall Street firms negligently made "false and misleading" representations of the bonds' true risks.
Mississippi Attorney General Jim Hood, whose state has lost $5 million of the $6 million it invested in Goldman's subprime mortgage-backed bonds in 2006, said the state's funds are likely to lose "hundreds of millions of dollars" on those and similar bonds.
Hood assailed the investment banks "who packaged this junk and sold it to unwary investors."
California's huge public employees' retirement system, known as CALPERS, purchased $64.4 million in subprime mortgage-backed bonds from Goldman on March 1, 2007. While that represented a tiny percentage of the fund's holdings, in July CALPERS listed the bonds' value at $16.6 million, a drop of nearly 75 percent, according to documents obtained through a state public records request.
In May, without admitting wrongdoing, Goldman became the first firm to settle with the Massachusetts attorney general's office as it investigated Wall Street's subprime dealings. The firm agreed to pay $60 million to the state, most of it to reduce mortgage balances for 714 aggrieved homeowners.
Attorney General Martha Coakley, now a candidate to succeed Edward Kennedy in the U.S. Senate, cited the blight from foreclosed homes in Boston and other Massachusetts cities. She said her office focused on investment banks because they provided a market for loans that mortgage lenders "knew or should have known were destined for failure."
New Orleans' public employees' retirement system, an electrical workers union and the New Jersey carpenters union also are suing Goldman and other Wall Street firms over their losses.
The full extent of the losses from Goldman's mortgage securities isn't known, but data obtained by McClatchy show that insurance companies, whose annuities provide income for many retirees, collectively paid $2 billion for Goldman's risky high-yield bonds.
Among the bigger buyers: Ambac Assurance purchased $923 million of Goldman's bonds; the Teachers Insurance and Annuities Association, $141.5 million; New York Life, $96 million; Prudential, $70 million; and Allstate, $40.5 million, according to the data from the National Association of Insurance Commissioners.
In 2007, as early signs of trouble rippled through the housing market, Goldman paid a discounted price of $8.8 million to repurchase subprime mortgage bonds that Prudential had bought for $12 million.
Nearly all the insurers' purchases were made in 2006 and 2007, after mortgage lenders had lifted most traditional lending criteria in favor of loans that required little or no documentation of borrowers' incomes or assets.
While Goldman was far from the biggest player in the risky mortgage securitization business, neither was it small.
From 2001 to 2007, Goldman hawked at least $135 billion in bonds keyed to risky home loans, according to analyses by McClatchy and the industry newsletter Inside Mortgage Finance.
In addition to selling about $39 billion of its own risky mortgage securities in 2006 and 2007, Goldman marketed at least $17 billion more for others.
It also was the lead firm in marketing about $83 billion in complex securities, many of them backed by subprime mortgages, via the Caymans and other offshore sites, according to an analysis of unpublished industry data by Gary Kopff, a securitization expert.
In at least one of these offshore deals, Goldman exaggerated the quality of more than $75 million of risky securities, describing the underlying mortgages as "prime" or "midprime," although in the U.S. they were marketed with lower grades.
Goldman spokesman DuVally said that Moody's, the bond rating firm, gave them higher grades because the borrowers had high credit scores.
Goldman's securities came in two varieties: those tied to subprime mortgages and those backed by a slightly higher grade of loans known as Alt-A's.
Over time, both types of mortgages required homeowners to pay rapidly rising interest rates. Defaults on subprime loans were responsible for last year's housing meltdown. Interest rates on Alt-A loans, which began to rocket upward this year, are causing a new round of defaults.
Goldman has taken multiple steps to put its subprime dealings behind it, including publicly saying that Wall Street firms regret their mistakes. Last winter, the company cancelled a Las Vegas conference, avoiding any images of employees flashing wads of bonus cash at casinos.
More recently, the firm has launched a public relations campaign to answer the criticism of its huge bonuses, Washington connections and federal bailout. In late October, Blankfein argued that Goldman's activities serve "an important social purpose" by channeling pools of money held by pension funds and others to companies and governments around the world.
KNOWING WHEN TO FOLD THEM
For investment banks such as Goldman, the trick was knowing when to exit the high-stakes subprime game before getting burned.
New York hedge fund manager John Paulson was one of the first to anticipate disaster. He told Congress that his researchers discovered by early 2006 that many subprime loans covered the homes' entire value, with no down payments, and so he figured that the bonds "would become worthless."
He soon began placing exotic bets — credit-default swaps — against the housing market. His firm, Paulson & Co., booked a $3.7 billion profit when home prices tanked and subprime defaults soared in 2007 and 2008. (He isn't related to Henry Paulson.)
At least as early as 2005, Goldman similarly began using swaps to limit its exposure to risky mortgages, the first of multiple strategies it would employ to reduce its subprime risk.
The company has closely guarded the details of most of its swaps trades, except for $20 billion in widely publicized contracts it purchased from AIG in 2005 and 2006 to cover mortgage defaults or ratings downgrades on subprime-related securities it offered offshore.
In December 2006, after "10 straight days of losses" in Goldman's mortgage business, Chief Financial Officer David Viniar called a meeting of mortgage traders and other key personnel, Goldman spokesman DuVally said.
Shortly after the meeting, he said, it was decided to reduce the firm's mortgage risk by selling off its inventory of bonds and betting against those classes of securities in secretive swaps markets.
DuVally said that at the time, Goldman executives "had no way of knowing how difficult housing or financial market conditions would become."
In early 2007, the firm's mortgage traders also bet heavily against the housing market on a year-old subprime index on a private London swap exchange, said several Wall Street figures familiar with those dealings, who declined to be identified because the transactions were confidential.
The swaps contracts would pay off big, especially those with AIG. When Goldman's securities lost value in 2007 and early 2008, the firm demanded $10 billion, of which AIG reluctantly posted $7.5 billion, Viniar disclosed last spring.
As Goldman's and others' collateral demands grew, AIG suffered an enormous cash squeeze in September 2008, leading to the taxpayer bailout to prevent worldwide losses. Goldman's payout from AIG included more than $8 billion to settle swaps contracts.
DuVally said Goldman has made other bets with hundreds of unidentified counterparties to insure its own subprime risks and to take positions against the housing market for its clients. Until the end of 2006, he said, Goldman was still betting on a strong housing market.
However, Goldman sold off nearly $28 billion of risky mortgage securities it had issued in the U.S. in 2006, including $10 billion on Oct. 6, 2006. The firm unloaded another $11 billion in February 2007, after it had intensified its contrary bets. Goldman also stopped buying risky home mortgages after the December meeting, though DuVally declined to say when.
I'VE GOT A SECRET
Despite updating its numerous disclosures to investors in 2007, Goldman never revealed its secret wagers.
Asked whether Goldman's bond sellers knew about the contrary bets, spokesman DuVally said the company's mortgage business "has extensive barriers designed to keep information within its proper confines."
However, Viniar, the Goldman finance chief, approved the securities sales and the simultaneous bets on a housing downturn. Dan Sparks, a Texan who oversaw the firm's mortgage-related swaps trading, also served as the head of Goldman Sachs Mortgage from late 2006 to April 2008, when he abruptly resigned for personal reasons.
The Securities Act of 1933 imposes a special disclosure burden on principal underwriters of securities, which was Goldman's role when it sold about $39 billion of its own risky mortgage-backed securities from March 2006 to February 2007.
The firm maintains that the requirement doesn't apply in this case.
DuVally said the firm sold virtually all its subprime-related securities to Qualified Institutional Buyers, a class of sophisticated investors that are afforded fewer protections than small investors are under federal securities laws. He said Goldman made all the required disclosures about risks.
Whether companies are obliged to inform investors about such contrary trades, or "hedges," is "a very hot issue" in cases winding through the courts, said Frank Partnoy, a University of San Diego law professor who specializes in securities. One issue is how specific companies must be in disclosing potential risks to investors, he said.
Coffee, the Columbia University law professor, said that any potential violations of securities laws would depend on what Goldman executives knew about the risks ahead.
"The critical moment when Goldman would have the highest liability and disclosure obligations is when they are serving as an underwriter on a registered public offering," he said. "If they are at the same time desperately seeking to get out of the field, that kind of bailout does look far more dubious than just trading activities."
Another question is whether, by keeping the trades secret, the company withheld material information that would enable investors to assess Goldman's motives for selling the bonds, said James Cox, a Duke University law professor who also has served on the NYSE advisory panel.
If Goldman had disclosed the contrary bets, he said, "One would have to believe that a rational investor would not only consider Goldman's conduct material, but likely compelling a decision to take a pass on the recommendation to purchase."
Cox said that existing laws, however, don't require sufficient disclosures about trading, and that the government would do well to plug that hole.
In marketing disclosures filed with the SEC regarding each pool of subprime bonds from 2001 to 2007, Goldman listed an array of risk factors that grew over time. Among them was the possibility of a pullback in overheated real estate markets, especially in California and Florida, where the most subprime loans had been made.
Suits filed by the pension funds, however, allege that Goldman made materially false or misleading statements in its public offerings, failing to disclose that many loans were based on inflated appraisals and were bought from firms with poor lending practices.
DuVally said that investors were fully informed of all known risks.
"What's going to happen in the next few years," said San Diego's Partnoy, "is there's going to be a lot of lawsuits and judges will have to decide, should Goldman have disclosed more or not?"
(Tish Wells contributed to this article.)
(This article is part of an occasional series on the problems in mortgage finance.)
COMING TOMORROW
Since the economic collapse that swept millions of Americans out of their jobs and homes, Goldman Sachs has moved aggressively to recover its losses. The firm is pursuing marginally qualified borrowers into state courts federal and bankruptcy across the country and seeking to seize their homes. McClatchy examines one couple's multi-year attempt to get Goldman to admit that it had purchased their mortgage.
MORE FROM MCCLATCHY
How Moody's sold its ratings — and sold out investors
Firms are getting billions, but homeowners still in trouble
Watchdog: Obama's mortgage relief efforts aren't good enough
Where did that bank bailout go? Watchdogs aren't sure
Worse than subprime? Other mortgages imploding slowly
Banks fight to kill proposed consumer protection agency
Why haven't any Wall Street tycoons been sent to the slammer?
Subscribe to:
Posts (Atom)
