Tuesday, July 24, 2007

Daily Headliners--Gonzo testifies, Justice Dept. drops fraud case, Romney's sign screw-up, Stocks fall

Here is today's Daily Headliners.

Gonzales Stonewalls on President Involvement in Hospital Visit: I found this off TPM Muckraker, and brings up some interesting questions here regarding President Bush's involvement in the illegal NSA domestic spying program. According to TPM Muckraker, Attorney General Alberto Gonzales refuses to answer Senator Chuck Shumer's (D-NY) question of whether President Bush sent then-White House counsel Gonzales and chief of staff Andrew Card to visit then-Attorney General John Aschroft in the hospital to approve the warrantless wiretapping program. Gonzales is refusing to answer Schumer's question. Here is the YouTube exchange;

This makes me wonder if President Bush ordered Gonzales to make the visit to Ashcroft's hospital room in order to have Ashcroft sign off the program. If that is the case, then Gonzales is stonewalling in order to protect Bush's own involvement in the scandal. So this is certainly interesting to follow up on.

Justice Dept. drops massive fraud case: McClatchy is reporting a story on the Justice Department dropping a massive fraud case against a Virginia insurer Reciprocal of America, where Reciprocal "concocting a series of secret deals to hide its losses from regulators." What is even more astounding is that the investigation into Reciprocal of America shows some linkage with Berkshire Hathaway's subsidiary, General Reinsurance. Berkshire Hathaway is the giant investment empire that is overseen by billionaire Warren Buffett. But two years into the investigation, the Justice Department dropped the case. According to McClatchy:

Internal documents that McClatchy Newspapers obtained show that Justice Department lawyers in Washington had become locked in an intense debate with [federal prosecutor David] Maguire over the case until he was removed from it.

The documents, together with court records and interviews, provide a rare look inside a corporate fraud case and the Justice Department's deliberations on whether to pursue an indictment.

Five years after Enron collapsed and tough measures aimed at white-collar crime were enacted, federal officials struggled with questions of corporate accountability:

Who should be held responsible when fraud leads to a company's demise? How far should federal prosecutors go in pursuing corporate suspects?

In the Reciprocal of America case, the fallout was clear. More than 80,000 lawyers, doctors and hospitals in 30 states lost their malpractice coverage. As they couldn't expect new insurers to cover them for past cases, some who were sued have claimed losses of hundreds of millions of dollars.

As doctors and lawyers faced bankruptcy, the victims of malpractice feared they'd never get their due.

Even so, prosecutors had to be certain that their evidence of wider wrongdoing justified the financial damage that an indictment could cause to General Reinsurance.

After the Enron scandal provoked an aggressive Justice Department crackdown on corporate fraud, federal courts made it clear that the department had overstepped its authority in several high-profile cases. The pendulum appeared to be swinging back in favor of corporations.

The big question I would have to ask here is whether or not the Bush administration actually pressured the Justice Department into dropping this fraud investigation into this Reciprocal of America case? I would have to wonder if lobbyists from either General Reinsurance of Berkshire Hathaway contacted top Bush administration officials, asking them to drop the case. Of course, I don't have any proof, but this case certainly stinks of politics here.

Mitt Catches S**t Over Hillary-Bashing Sign: Republican presidential candidate Mitt Romney is really screwing up here. First we have Romney's example of crisis management by sticking the family dog in a cage on the roof of his car, and then calmly washing off the poop after the dog has been sitting up in that cage for hours. Then we've got Romney getting into a catfight with Democratic presidential candidate Senator Barack Obama over kindergarten sex. Now Romney has gone beyond the level of outrageousness here. According to TMZ.com, Romney was photographed with a supporter, holding the supporter's homemade sign which said, "No to Obama, Osama and Chelsea's Moma." You can see the sign right here;

Well, this is bringing up even more controversy against the Romney campaign. According to Raw Story, the Romney campaign is trying to spin this controversy as a non-event. Romney campaign spokesman Kevin Madden told TPM Cafe, "The governor stopped briefly for a picture with a supporter who just happened to be holding their own sign with an alliterative play on words," Madden said to TPM Cafe, via e-mail. "I don’t think it was equating or comparing anyone." Even Mitt Romney tried to downplay the sign, telling Buckeye State Blogger Jerid to "Lighten up" at a townhall meeting in Exeter, NH. You can view Romney's spin here via YouTube;

Now Mitt Romney may not be responsible for the signs that supporters bring to his campaign rallies, but he is responsible for allowing his picture taken with a supporter holding that sign, and he is responsible himself for holding that sign up to photographers. He could have passed the supporter by. He could have shaken hands with the supporter. If the supporter wanted a photo taken of her with Romney, Romney could have asked that the sign not be included in the picture--all it would have taken is to move the sign to the side of the supporter, and away from the picture. When you look at this picture, Romney is standing next to the supporter, with the sign prominently placed at the front. Mitt Romney completely screwed up here, and he is trying to dismiss it as a joke.

Keith Olbermann has a great analysis of this latest Romney screw-up on signs here on YouTube;

Stocks tumble amid mortgage, earnings worries: The stock market fell sharply today, with Dow Jones Industrial Average dropping by 200 points. According to MSNBC News;

According to preliminary calculations, the Dow gave up 226.47, or 1.62 percent, to 13,716.95. The drop was the average’s biggest since March 13, when the Dow tumbled 242 points, also amid concerns that the subprime woes could infect the broader lending landscape.

Other major stock indicators also suffered steep declines. The Standard & Poor’s 500 index shed 30.53, or 1.98 percent, to 1,511.04. The Nasdaq composite index lost 50.72, or 1.89 percent,closing at 2,639.86.

Declining issues outnumbered advancers by nearly 10 to 1 on the New York Stock Exchange, where volume came to almost 2 billion shares, compared with 1.52 billion on Monday.

What could be an underreported reason for this market tumble is a disappointing earnings report from Countrywide Financial Corporation;

NEW YORK - Countrywide Financial Corp, the largest U.S. mortgage lender, on Tuesday reported a 33 percent decline in second-quarter profit and slashed its full-year earnings forecast, citing a difficult housing market.

Net income for the Calabasas, California-based company fell to $485.1 million, or 81 cents per share, from $722.2 million, or $1.15, a year earlier. Revenue fell 15 percent to $2.55 billion.

Analysts on average expected profit of 93 cents per share on revenue of $2.9 billion, according to Reuters Estimates.

Countrywide also cuts its full-year earnings forecast to a range of $2.70 to $3.30 per share from the $3.50 to $4.30 per share it had forecast in April, and the $3.80 to $4.80 it had forecast in January. Analysts on average expected $3.65. Profit was $4.30 per share in 2006.

“Softening home prices continued to affect many areas of the country and delinquencies and defaults continued to rise across all mortgage product categories,” Chief Executive Angelo Mozilo said in a statement. “Due to these adverse conditions, the company incurred increased credit-related costs in the quarter, primarily related to its investments in prime home equity loans.”

Mozilo added that for the second half of the year, “we expect difficult housing and mortgage market conditions to persist.”

We've got a situation where the collapse of the subprime lending market is now starting to affect the profits of these mortgage lending companies. Defaults on subprime home loans have been rising, which has forced Countrywide to "set aside $292.9 million in preparation for borrowers missing payments on loans, with some $181 million of that amount for prime home equity loan losses. The reserve is more than four times the size of the reserve established in the second quarter of last year." Even worst, "Countrywide said 4.56 percent of its prime home-equity loans were delinquent at the end of the quarter, up from 1.77 percent in the year-ago period. Some 23.71 percent of its subprime loans were delinquent, up from 15.33 percent." In one sense, the crash of the U.S. housing market is starting to ripple through the U.S. economy and through company earnings reports. The MSNBC story on the stock market reports on the major losses by individual companies, but it fails to connect a potential relationship between the rise in defaults on American mortgages, and the inability of these companies to American consumers who do not have the money to purchase such products. Consumer spending is starting to slow now. I'm now wondering if the U.S. will slip into a recession in 2008.

No comments: