Annals of Privatization - Chapter XXVIII

UPDATED BELOW

From Florida's Annals of Privatization-No-Matter-What:

The headline:

"State Investment Chief Considers
Privatizing Investment Pool"

The lede:

"As an audit committee attempts to unravel how Florida became so heavily invested in subprime-tainted securities, the state's new investment chief is considering leaving such future decisions to professionals."

The story:

"Bob Milligan, interim director for the State Board of Administration, told Cabinet members Tuesday he believes all of Florida's short-term investments -- from hurricane insurance to operating cash for the state's prepaid college program -- might be better handled by private managers."

The context: Privately owned Wall Street investment bank Lehman Brothers on its own buys billions of dollars of high-risk mortgage derivatives, expecting to make a killing. So do JP Morgan Chase and Bear Stearns, among other Wall Street gurus.

When these investment geniuses at the privately owned Wall Street firms finally figure out they've made a whopper of a mistake -- so huge, in fact, they might lose everything -- what do they do? They hire recently-become private investment consultant Jeb Bush to help them palm off all that bad paper on the Florida Local Government Investment pool so it will take the loss, not them.

Even after the crap privately-owned Lehman Brothers palmed off on Florida was headed firmly south, the Wall Street firm had the temerity, or greed, to try sinking their hands deeper into the state's pockets. "It suggested that Florida could buy more structured finance commercial paper from Lehman Brothers for the state pension fund, " Bloomberg reports.

But not all Florida local governments were fooled. Salaried money managers who work for local governments like Orange County and Pompano Beach saw what was happening and promptly withdrew their money from the state fund.

The conclusion: Florida's new governor and his minions say, 'To avoid debacles like this in the future, let's turn over all of our money to Wall Street gurus like Lehman Brothers and JP Morgan.'

What's the thinking here? To avoid burglaries, hire a thief?

Nonsense. Hire those bureaucrats in Orange County and Pompano Beach. They know how to protect public money.

UPDATE
12-20 am

A correspondent asks how our own local governments did during the run on the state fund.

The answer is better than those investment geniuses at Bear Stearns, Morgan-Stanley, and Merrill Lynch & Co. And, a lot better than the state of Florida. As Michael Stewart reported late last month --

Escambia and Santa Rosa counties and the Escambia School Board are among scores of local government agencies statewide that have withdrawn more than $16 billion from Florida's Local Government Investment Pool over the past three weeks because of qualms about its stake in mortgage-backed investments.
* * *
The Escambia School District had $165 million invested in the fund and withdrew $30 million last week and another $100 million on Wednesday — the maximum amount allowed.

As for the City of Pensacola and Pensacola Junior College, not so much:

The City of Pensacola and Pensacola Junior College are among the entities whose investments were frozen after Thursday's action. The city has more than $3.9 million invested in the fund, and PJC's stake tops $5 million.

On the other hand, Lehman Bros. did pretty well, too. The old fashioned way: by screwing their customers.

Lehman, the fourth-biggest U.S. securities firm by market value, boosted 2007 revenue by limiting losses from subprime mortgage-related securities and lifting income from fund management, equities and investment banking. The firm said earlier this week that Richard Fuld, Lehman's chairman and chief executive officer, was granted a $35 million stock bonus for 2007, up 4 percent from last year.

If there was any justice, Patty Sheldon and Ernie Magaha also would have gotten a $35 million bonus.

The Bad Bush Brother

Neil Bush has always been considered the "bad" Bush brother. Now it looks like he wasn't the only one.

Even Forbes Magazine, hardly a Bush-bashing fish-wrapper, wants to know "Where Was Jeb?"

Jeb Bush Shagged Florida

Atrios has what looks very much like the goods on Jeb Bush, courtesy of Bloomberg News:

What Stipanovich, 58, hadn't told his boss, Florida Chief Financial Officer Alex Sink, was that Lehman Brothers was the same firm that had sold the state fund $842 million of mortgage- backed debt in July and August. Those securities defaulted within four months, and totaled more failing debt than any other bank sold the state, Florida records show. "At the time, I never knew it was Lehman Brothers that actually sold us these investments,'' Sink says.

Sink also was unaware that former Florida Governor Jeb Bush, who incorporated Jeb Bush & Associates in February 2007, a month after completing his second term, had been hired as a consultant to Lehman Brothers in June. Bush is the brother of President George W. Bush.
* * *
"Lehman and the other big players in the market decided they didn't like this stuff in their own accounts,'' Sink says. "Where did they drop it and who did they dump it to? It looks questionable to me.''

Joseph Mason, a former U.S. Treasury official and now a finance professor at Drexel University in Philadelphia, says Wall Street had few takers for its subprime-tainted debt. "When they couldn't sell it to more-sophisticated investors, they found less-sophisticated investors like local government investment pools,'' he says.

More from the Bloomberg article:

Stipanovich, who ran the State Board of Administration which manages $184 billion, was hired in 2000. Two of his three personal references came from then-Governor Bush's top aides.

"An outstanding individual capable of significant contributions to the board,'' Sally Bradshaw, Bush's chief of staff, wrote about Stipanovich.
* * *
On June 14, Bear Stearns announced it would liquidate two of its hedge funds, holding more than $4 billion in assets, because their subprime holdings were collapsing. * * *

At about the same time, Bush and his new company won a consulting contract from Lehman Brothers, according to Lehman spokesman Randall Whitestone, who declined to say how much Bush is being paid.
* * *
On July 2, Lehman Brothers sold Lombardi $250 million of one-month commercial paper from a structured finance company called KKR Atlantic Funding Trust yielding 5.37 percent, state records show. KKR Atlantic was rated A-1+ by Standard & Poor's and Prime-1 by Moody's.

It matured, and on Aug. 2, Lehman Brothers sold Lombardi $200 million of one-month KKR Atlantic paper yielding 5.53 percent. It was downgraded to default by Fitch Ratings on Oct. 8, and Not Prime, or junk, by Moody's on Oct. 29.

From July 3 to July 9, Lehman Brothers sold the pool $153 million of commercial paper from another structured finance company called Ottimo Funding yielding 5.36-5.38 percent.

Lehman Brothers spokeswoman Cohen says there's no link between Bush and Lehman's sale of debt to Florida. "Bush is a member of the Lehman Brothers private equity advisory board and his company has been retained by the firm for consulting and advisory services,'' she says. The former governor declined to comment.
* * *
Craig Holman, of Washington-based nonprofit public interest group Public Citizen, disputes Lehman Brothers' view. "That defies credibility,'' says Holman, who lobbies for ethics in government. "It's a clear conflict of interest. Bush is a consultant to the company selling bad investments to the same agency on which he served as a trustee until January.''

It's past time for Mr. Jeb Bush to disclose the details of his contract with Lehman Brothers.

DEPT. OF AMPLIFICATION

Reform Begins Right Behind You, John MCain
9-15-08

September Song

Joe Scarborough says no to running for U.S. Senate. The interesting question is -- to whom did he say it? According to the Associated Press, "The National Republican Senatorial Committee, led by Sen. Elizabeth Dole of North Carolina, tried to talk Scarborough into challenging Harris."

It's impossible to believe Dole was trying to recruit Scarborough without the explicit encouragement of the White House. After all that she did for George Bush in 2000, Harris has to be furious -- and frightened, too.

There's no reason to suppose the White House or Senator Dole will stop wooing another candidate to oppose her. Indeed, Scarborough himself thinks so. As the Pensacola News Journal reports, "Scarborough anticipates that as the Senate race draws nearer, efforts to field another Republican candidate will intensify." {emphasis added]

May 12, 2006 is the last day for other candidates to qualify to run in the primary. The primary election itself is still over a year away.

That's a very long time in politics.

Oh, it's a long, long while from May now to December.
But the days grow short when you reach September.
When the autumn weather turns the leaves to flame
One hasn't got time for the waiting game

Oh, the days dwindle down to a precious few
September, November
And these few precious days I'll spend with you
These precious days I'll spend with you

.

Here, There, and About

Joe Scarborough admits he's thinking about running for the seat currently held by U.S. Senator Bill Nelson (D-Fla.), according to Leslie Conn of the News Journal.

More than that, a national AP dispatch reports that Scarborough "has already talked with Sen. Elizabeth Dole, who heads the National Republican Senatorial Committee, and plans to meet with Republican National Committee Chairman Ken Mehlman and White House officials next week about whether to get into the race to unseat Democrat Bill Nelson."

Doesn't it seem unlikely Scarborough would be calling on the three most important power brokers for the 2006 Republican primary election cycle just to discuss his cable TV contract?

* * *
Some blog calling itself Betty the Crow News has the early lead for funniest line about the Florida Senate race:

BTC News has no preference for either Harris or Scarborough, but we would greatly enjoy watching their primary battle and so we will encourage Scarborough to run. Run, Joe, run.

Suggested campaign ad for Harris: "Katherine Harris has proven she’ll do anything to win. Joe Scarborough has proven he’ll quit even if he does win."

* * *
Even before the final totals are known, Hurricane Ivan has settled in as the third most expensive natural disaster in U.S. history, according to the National Flood Insurance Program. Only Hurricane Andrew ($21.1 billion) and the World Series earthquake of 1994 ($15.9) exceed Ivan's costs. For now, however, the exact final total for Ivan remains unknown:

Claire Wilkinson, vice president of global affairs for the Insurance Information Institute in New York, said Ivan's total destruction likely comes with a price tag closer to $12 billion to $14 billion.

"We usually figure that about 50 to 60 percent of damages are insured," she said.

What she might have added, locals are probably saying to themselves, is that of all the insured damages, too many insurance companies routinely offer to pay only half.

* * *
Speaking of storm recovery efforts, wet-dry ballots are being mailed to Santa Rosa County voters today. They should be returned by mail or in person by 5 p.m. September 6.

This is the first time Northwest Florida voters have been offered the chance to vote by mail -- one of the only benefits from Hurricane Ivan. Chuck Pohlmann, who spearheaded the petition to put the issue to a mail-in vote, argued successfully that a mail-in ballot was needed because so many voters have been displaced by Ivan and now use mail boxes.

We'll toast to that -- and hope mail-in voting becomes routine, as it now is in Oregon.

Scarborough Clownery

"[T]his is the problem with punditry, that an uninformed opinion has exactly the same power as evidence."

-- Eric Alterman, U.S. Comedy Arts Festival 2005 ("Industry Seminar: Wag The Debate – What’s the Future of The Pundity?") Feb. 12, 2005 (p. 41)(pdf format).

An Associated Press report rounding the nation is that Republicans are asking former Pensacola congressman and current cable TV pundit Joe Scarborough to run next year against U.S. Senator Bill Nelson. The White House and party poobahs, as the Washington Post has reported, are worried that the only announced G.O.P. candidate for the GOP nomination, Katherine Harris, has negatives that top off all Florida politicians' leaderboards.

Local reporter Lesley Conn ferrets out one small fact in the Pensacola News Journal that no one else seems to have noticed:

"Another issue to resolve: 'Scarborough Country,' the 2½-year-old MSNBC talk show that Scarborough hosts from Pensacola. His contract ends in March ... ."

If he were to run, Scarborough undoubtedly would have the full-throated, rich-fisted backing of the White House and GOP campaign donors. The mere possibility will persuade a lot of Harris' potential campaign contributors to sit on their wallets for awhile.

Meanwhile, Scarborough also can parlay all the political talk into a hefty increase in his renewed MSNBC contract -- if he wants to do so. Struggling against its farther-to-the-right competitor, MSNBC can hardly afford right now to lose a popular show like "Scarborough Country."

Two other elements may be at work. For one thing, Harris greatly embarrassed herself the other night on one of Fox Cable News' screaming heads programs by adopting -- let's be discrete, here -- a grotesquely unnatural and openly flirtatious posture for Sean Hannity and and fake-liberal Alan Colmes. The episode was so bizarre that state Republicans must be wondering what kind of a mental midget they've sent to Washington and why in the world they would want to keep her there.

News Hounds ("We watch Fox so you don't have to") headlined the story 'Katherine Harris Shakes Her Boobies'. You can see the video yourself on Crooks and Liars.

Jon Stewart of The Daily Show drew huge guffaws from the audience just by showing the clip, raising a single eyebrow, and mentioning that Harris and "her two running mates" were interviewed. Even the gossipy Wonkette -- who is no enemy of D.C. Republicans -- had something snarky to say.

For a second thing, there are some faint signs that Scarborough may be feeling a little soiled after working the Cable TV circuit the past few years. Last February, he chaired a panel discussion for American Progress.org. To be sure, the conference was titled "The U.S. Comedy Arts Festival" and the inspiration was the Peabody award-winning Daily Show. But the panel debate was a fairly serious one.

The panel was discussing "What's The Future of the Pundity"? A transcript is available here.

Maybe it was the Aspen air, maybe it was all the Democrats he had to sit with at the table, but reading between the lines it's obvious that Scarborough was weighted with misgivings about the value of what he presently does for a living. Here are just a few suggestive lines that pop out on first reading:

• "When MSNBC first hired me, [my wife] said, “Don’t be a clown, I want you to be Tim Russert.” (p. 9)


• "What a lot of pundits always ask themselves is, is anybody listening, is anybody watching." (p. 11)


• "I don’t think progressives watch cable news as much as – you know, I had somebody from Fox News tell me one time when I started my show – they said, 'We really don’t care what happens east of the Hudson or west of Las Vegas. We’re going for red state America, and that’s how we’re going to build this into the top show.' And I’ll be darned if, four years later, that formula didn’t work. So I think again that’s what the focus has been. And maybe some of the more progressive pundits wouldn’t play as well with the people that turn on cable news as much. I don’t think they’re watching O’Reilly on the Upper West Side, as much as they are in Kansas City." (p. 33)


• "[P]eople watch Fox News, but then when the tsunami hits, CNN’s numbers go through the roof. On the State of the Union, a lot of people turn to Matthews. I mean, people are smart enough to figure out what they’re going to get when they go to Fox News." (pp. 32-33)


• "I think... if I say something stupid – it used to be a couple years ago, if I said something stupid, which is every night, my wife would meet me at the back door and just shake her head and go to bed." (p. 33)


• "[I]s nuance going to move to the cable audience? Because we’re talking about the cable audience. Forgetting about what’s happening on PBS, forgetting about what’s happening in the New York Times. Are you talking about is that sort of nuanced debate going to take over cable news or move to talk radio?(p. 34)

At times, one supposes, everyone must be assailed by doubts about the worth of what he or she is doing. Nearly everyone, too, at least considers a career change from time to time. Joe Scarborough certainly has. He's been a musician, a lawyer, a congressman, and a Cable TV pundit, among other things.

The question of the day now is, do you think he's sick enough about what he has been doing to reenter the political arena? Or, would a fat new contract with MSNBC keep him happy as a clown?