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Tuesday, January 27, 2009

AP IMPACT: US bets execs can save banks, this time

By MATT APUZZO and DANIEL WAGNER, Associated Press Writers

In this April 3, 2008, file photo, JP Morgan Chairman and Chief Executive AP – In this April 3, 2008, file photo, JP Morgan Chairman and Chief Executive Officer Jamie Dimon testifies …

WASHINGTON – It's one of the ironies of the U.S. financial bailout: The banking executives now managing billions in taxpayer money are the same ones who oversaw the industry's near collapse.

At banks receiving federal bailout money, nearly nine of every 10 of the most senior executives from 2006 are still on the job, according to an Associated Press analysis of regulatory and company documents.

Even top executives whose banks made such risky loans they imperiled the economy have been largely spared any threat to their jobs. Less fortunate are more than 100,000 bank employees laid off during a two-year stretch when industry unemployment nearly tripled, bank stocks plummeted and credit dried up.

"The same people at the top are still there, the same people who made the decisions causing a lot of our financial crisis," said Rebecca Trevino of Louisville, Ky., a mother of three who was laid off from her job as a Bank of America training coordinator in October. "But that's what tends to happen in leadership. The people at the top, there's always some other place to lay blame."

It's hardly a surprise that workers and managers experience a recession differently. What's new is that taxpayers are now shareholders in the nation's bailed-out banks, yet they lack the usual shareholder power to question management decisions or demand house-cleaning in the executive suites.

Wells Fargo & Co., for example, once was among the top lenders for subprime mortgages, loans to buyers with low credit scores. The company received $25 billion in bailout money and plans layoffs in the coming months. But longtime CEO Richard Kovacevich remains the company's chairman, and the board recently waived its mandatory retirement age for him.

"Our senior leadership team of our CEO and his direct reports have an average tenure of almost a quarter-century with our company," Wells Fargo spokeswoman Julia Tunis Bernard said in a statement that also highlighted the company's "unchanging vision."

Under the government's bailout plan, taxpayers must take it on faith that bank executives will make better decisions this time around, said Jamie Court, president of the California-based group Consumer Watchdog.

"When you deal with the same dogs, you're going to end up with the same fleas," said Court.

The bailout list includes banks ranging from Wall Street giants to community banks. Some led the rush into subprime mortgages. Others followed.

Many executives on the list are small-town executives who earn a fraction of Wall Street salaries and who lately have suffered alongside their communities. The trouble with the bailout is that nobody ever stopped to figure out who caused the avalanche and who simply got buried, said University of Maryland business professor Peter Morici.

"If they got involved in questionable loans and contributed to the speculative bubble, they should be out," Morici said. "These people should be removed and banned from banking, unless we wanted to make them all janitors. But the question then is, Can they be trusted wandering around the offices at night?"

The president of the American Bankers Association, Ed Yingling, said he understands people are frustrated. But most banks had nothing to do with the subprime crisis, he said. As for whether taxpayers should demand management changes, he said that was never a condition of the bailout plan the government crafted.

"Are we going to have the American people saying, 'We're invested in you, so now we should look at your margins, look at every loan you make, look at your lending policies?' No. That was never discussed," Yingling said. "You can't micromanage banks."

In some cases, the market held executives accountable for the mortgage crisis. When Washington Mutual, Merrill Lynch and Lehman Brothers were bought up, many executives lost their jobs. When the government took over mortgage giants Fannie Mae and Freddie Mac, executives were fired.

But the financial bailout has forced no such consequences. AP's review of the more than 200 publicly traded banks that received bailout money found that about 87 percent of the top three executives in 2006 — typically the chief executive, operating and financial officers — are still on the job.

And that number is deceptively low, since those few executives who left their jobs often did so because they retired — or died. Several stayed on as directors or in consulting positions.

Even banks that were involved in risky lending saw little turnover:

_JPMorgan Chase & Co., which invested billions in subprime mortgages, has the same leadership team, led by CEO James Dimon. Dimon made about $28 million in 2007. The company is shedding about 10 percent of its investment bank staff.

_Cleveland-based KeyCorp, which ran subprime lending subsidiary Champion Mortgage until late 2006, received $2.5 billion in bailout money. Its chairman and CEO, Henry Meyer, has been in charge since 2001. Jeffrey Weeden, the company's chief financial officer, and Thomas Stevens, the administrative officer who oversaw the risk review group, have been on the job for years.

KeyCorp has been cutting jobs, including 200 announced this month at a Tacoma, Wash., call center. A company spokesman said the bank was too busy preparing its earnings report to answer questions about whether taxpayers should have confidence in the company's management.

"The on-the-record comment I would make is that we declined to comment even though we'd like to, because we don't have time," spokesman Bill Murschel said.

_Capital One Financial Corp., one of the nation's biggest credit-card providers, dove into the risky mortgage business when it bought GreenPoint Mortgage in 2006. GreenPoint made loans to borrowers without verifying income or credit scores, then sold those loans to investors.

A year later, Capital One shuttered GreenPoint, cutting 1,900 jobs. Capital One CEO Richard Fairbank and his top executives were not among them. The company received about $3.5 billion in bailout money.

In Louisville, Trevino and her family are living mostly off credit cards and savings while she interviews for jobs. Her husband is in commercial real estate, which has slowed significantly. After what she described as a bare-bones Christmas, she said she reviewed her finances and realized they might lose their home.

"That's when I was just, 'Lord, I know you have a plan. Can you just show me? I'd really like to know,'" she said.

Trevino isn't angry that her old boss, Bank of America CEO Ken Lewis, remains on the job. And she agrees the government needed to rescue banks. But some bank executives did contribute to the crisis, she said, and there should have been some oversight.

"It is surprising that leadership can make decisions that lead to financial ruin for so many," she said, "and then get bailed out for it."

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UN official: Enough evidence to prosecute Rumsfeld for war crimes

David Edwards and Stephen C. Webster

Monday, the United Nations Special Rapporteur on Torture Manfred Nowak told CNN's Rick Sanchez that the US has an "obligation" to investigate whether Bush administration officials ordered torture, adding that he believes that there is already enough evidence to prosecute former Secretary of Defense Donald Rumsfeld.

"We have clear evidence," he said. "In our report that we sent to the United Nations, we made it clear that former Defense Secretary Donald Rumsfeld clearly authorized torture methods and he was told at that time by Alberto Mora, the legal council of the Navy, 'Mr. Secretary, what you are actual ordering here amounts to torture.' So, there we have the clear evidence that Mr. Rumsfeld knew what he was doing but, nevertheless, he ordered torture."
Asked during an interview with Germany's ZDF television on Jan. 20, Nowak said: "I think the evidence is on the table."

At issue, however, is whether "American law will recognize these forms of torture."

A bipartisan Senate report released last month found Rumsfeld and other top administration officials responsible for abuse of Guantanamo detainees in US custody.

It said Rumsfeld authorized harsh interrogation techniques on December 2, 2002 at the Guantanamo prison, although he ruled them out a month later.

The coercive measures were based on a document signed by Bush in February, 2002.

This video is from CNN's Newsroom, broadcast Jan. 26, 2009.




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NSA Whistleblower: Grill the CEOs on Illegal Spying

By Kim Zetter

Tice Former National Security Agency analyst Russell Tice shed new light on the Bush administration's warrantless domestic spying last week when he told MSNBC that the NSA blended credit card transaction records with wiretap data to keep tabs on thousands of Americans.

But Tice didn't say where the credit card information, and other financial data, came from. Did the agency scoop it in as part of its surveillance of U.S. communications backbones, or did financial companies give up your records in bulk to the NSA?

The distinction is significant. Telecommunication companies, such as AT&T and Verizon, are embroiled in lawsuits over their alleged cooperation with the government's warrantless surveillance. If credit card companies and banks also provided information without a warrant, it's conceivable they could face a courtroom challenge as well.

I spoke with Tice extensively in the spring of 2006. With Bush still in power, the whistleblower was considerably more taciturn than on television last week. But looking back through the transcript of my interviews now, in the context of his new revelations, it seems clear that Tice was saying that credit card companies and banks gave the same kind of cooperation to the government that phone companies did.

"To get at what's really going on here, the CEOs of these telecom companies, and also of the banking and credit card companies, and any other company where you have big databases, those are the people you have to haul in to Congress and tell them you better tell the truth," he said at the time. "Because anyone in the government is going to claim executive privilege."

The New York Times broke the story in 2006 that the NSA obtained access to financial records in the international SWIFT database. But that database mostly involves wire transfers of money in and out of the U.S., not domestic transactions. Tice's comments reveal that the agency may have obtained bulk data on domestic credit card transactions as well from U.S. financial institutions -- all without a warrant.

I spoke with Tice for a story about a secret room at an AT&T facility in Bridgeton, Missouri that had the earmarks of an NSA data mining operation.

Shortly after Mark Klein, a retired AT&T employee in San Francisco, came forward with information about a secret room in a San Francisco building that appeared to be providing the NSA with a real-time data feed, two sources who once worked for the company told me about a similar room in the company's Bridgeton facility that appeared to be doing the same kind of data mining at a much greater level. Bridgeton is the network operations center for AT&Ts broadband services.

I turned to Tice for more details. Tice had already publicly identified himself as one of the sources the New York Times had used for its 2005 story on the government's warrantless wiretapping. Tice warned me at the start of our conversation that he believed our phone call was being monitored by the FBI and that there were a lot of things he wouldn't be able to discuss, on the advice of his lawyer.

Tice had been in the intelligence community since 1985. He entered the Air Force after finishing college, and went to work in signals intelligence. After leaving the military, he worked as an intelligence contractor, then was employed by the Defense Intelligence Agency before taking a job with the NSA.

His unclassified resume hides all of this history. "[It says] I deal with space systems. Space communications, all kinds of space weenie stuff. If it deals with outer space I'm your man," he said.

Do you have any connection to outer space stuff? I asked.

"I watch Buck Rogers."

What follows are excerpts from my interviews with Tice, beginning with his explanation of one way the NSA's data mining could operate.

Tice: Say you're pretty sure you're looking for terrorists, and you're pretty sure that the percentage of women terrorists as opposed to men is pretty [small]. So you just filter out all female voices. And there's a way to determine whether the signature of the voice is male or female. So, boom, you get rid of 50 percent of your information just by filtering there. Then from your intelligence work you realize that most terrorists never talk more than two minutes. So any conversation more than two minutes, you immediately filter that out. You start winnowing down what you're looking for.

Q: Without really knowing what it is you're looking for?

Tice: Right. And if you can develop a machine to look for the needle in the haystack and what you come out with from having the machine sift through the haystack is a box of straw, where maybe the needle's in there and maybe a few bonus needles, then that's a whole lot better than having humans try to sift through a haystack.

Secretroom1_f_2 Q: Presuming that the NSA is collecting data in San Francisco or data mining, what happens to the data after it's collected? If they find actionable material in the data does the NSA pass it on to the FBI?

Tice: The NSA avoids sending anything to the FBI if they can help it. If there is a criminal element or activity in the data it has to be determined whether it's passed to the FBI, or Homeland Security, as it happens to be these days. When I was in the business, we all knew that the FBI leaked like a sieve. So we were very hesitant to take advantage of the FBI on anything because you were liable to see it on the news the next day. The FBI will compromise anything to get a conviction. But in the intelligence community you don't think that way. We're more than willing to let a criminal go to protect classified information. . . .

Q: But would the info be passed to the FBI if it involved terrorists and national security?

Tice: Yes, they would. And if it's some big mob thing, they would also give it to the FBI, but tell them to come up with some other way as to how they got the information.

Q: Why would the agency need to be so secretive about the AT&T rooms?

Tice: The big reason why they would put the San Francisco operation at such a high classification level is to hide the fact that they're breaking the law and to hide the fact that they're breaking the NSA's own policy. It should be [the sort of project] that any NSA analyst should be able to walk in and have access to. But to cloister it away where only a few people know about it means that it's something they don't want anyone to know about. ...

Say we're doing that same sort of deal overseas against a foreigner. ... More than likely anyone in NSA could potentially have access to that information. It wouldn't be compartmentalized. So if we set up that same scenario, even covertly in some frame room in Bucharest or something, anyone at NSA with a TS/SCI clearance could potentially look at intelligence reports from information garnered from that particular collection point. So all of a sudden that same thing is being used here in the states and it's being put into a special SAP program -- Special Access Program. ... They're extremely closely held programs that are super-duper clearance nonsense. It's what I specialized for the last eleven years or whatever.

Q: So you're saying that San Francisco and this other room [in Bridgeton] reek of "super-duper" secrecy?

Tice: Yes, it reeks of SAP. Potentially. For NSA to do what they did ... it means that they knew that it was illegal and the reason they put this super high clearance on it was because they were protecting their own hides to keep anyone within NSA from finding out that it was going on. ...

Let me tell you, the biggest sweat that happened at NSA happened when John Kerry almost got elected president [in 2004], because they were concerned they were all going to be thrown in jail. They were all wiping sweat off their forehead when he lost. That's the scuttlebutt.

Q: Is it correct to say that, if the NSA is doing what Mark Klein says they are doing, that this would be a departure from the NSAs mission? Meaning that this would be the first time since 1978 or so when FISA was passed that it was engaging in this kind of activity?

Tice: That's correct. This would be an entirely new business for them, especially since FISA.

If you look at USSID 18, the NSA's bible on how it operates, the number one commandment of the NSAs ten commandments is You Shall Not Spy on Americans. So when this was brought up, I assume by [former NSA Director Michael] Hayden, he knew that what he was proposing was a violation of the fourth amendment and of USSID 18. And everyone at NSA knows this, too, because it's drilled into our heads over and over again.

To get at what's really going on here, the CEOs of these telecom companies, and also of the banking and credit card companies and any other company where you have big databases, those are the people you have to haul in to Congress and tell them you better tell the truth. Because anyone in the government is going to claim executive privilege.

...

I just hope in the long run that ... at some point that the American people wake up and that this stuff is dealt with. Right now ... do you know the adage about the frog in the water? That's what we're dealing with here. The American people are the frog in the tepid water, and the temperature is slowly being turned up. And we're about to become frog soup, and the American people don't know what's happening.

Aristotle said that the biggest danger to democracy is not insurgency, it's apathy. And I think that's what we're seeing right now. To a large extent it's politicians doing CYA and doing everything they can to make sure that people don't know what's going on. But to another extent, it's the populace who is more concerned about Janet Jackson's breast jumping out of her dress at the Super Bowl as opposed to what's really important in this world. Who cares about Britney Spears having her baby on her lap or all that nonsense that you see on TV?

I've done my constitutional duty. I've done what I had to do. That's all I'll say. Let the chips fall where they may. I'm out of the game. I've fallen on my sword.

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Guantanamo Case Files in Disarray

Washington Post Staff Writers

President Obama's plans to expeditiously determine the fates of about 245 terrorism suspects held at Guantanamo Bay, Cuba, and quickly close the military prison there were set back last week when incoming legal and national security officials -- barred until the inauguration from examining classified material on the detainees -- discovered that there were no comprehensive case files on many of them.
Instead, they found that information on individual prisoners is "scattered throughout the executive branch," a senior administration official said. The executive order Obama signed Thursday orders the prison closed within one year, and a Cabinet-level panel named to review each case separately will have to spend its initial weeks and perhaps months scouring the corners of the federal government in search of relevant material.

Several former Bush administration officials agreed that the files are incomplete and that no single government entity was charged with pulling together all the facts and the range of options for each prisoner. They said that the CIA and other intelligence agencies were reluctant to share information, and that the Bush administration's focus on detention and interrogation made preparation of viable prosecutions a far lower priority.

But other former officials took issue with the criticism and suggested that the new team has begun to appreciate the complexity and dangers of the issue and is looking for excuses.

After promising quick solutions, one former senior official said, the Obama administration is now "backpedaling and trying to buy time" by blaming its predecessor. Unless political appointees decide to overrule the recommendations of the career bureaucrats handling the issue under both administrations, he predicted, the new review will reach the same conclusion as the last: that most of the detainees can be neither released nor easily tried in this country.

"All but about 60 who have been approved for release," assuming countries can be found to accept them, "are either high-level al-Qaeda people responsible for 9/11 or bombings, or were high-level Taliban or al-Qaeda facilitators or money people," said the former official who, like others, insisted on anonymity because they were not authorized to talk to reporters about such matters. He acknowledged that he relied on Pentagon assurances that the files were comprehensive and in order rather than reading them himself.

Obama officials said they want to make their own judgments.

"The consensus among almost everyone is that the current system is not in our national interest and not sustainable," another senior official said. But "it's clear that we can't clear up this issue overnight" partly because the files "are not comprehensive."

Charles D. "Cully" Stimson, who served as deputy assistant defense secretary for detainee affairs in 2006-2007, said he had persistent problems in attempts to assemble all information on individual cases. Threats to recommend the release or transfer of a detainee were often required, he said, to persuade the CIA to "cough up a sentence or two."

A second former Pentagon official said most individual files are heavily summarized dossiers that do not contain the kind of background and investigative work that would be put together by a federal prosecution team. He described "regular food fights" among different parts of the government over information-sharing on the detainees.

A CIA spokesman denied that the agency had not been "forthcoming" with detainee information, saying that such suggestions were "simply wrong" and that "we have worked very closely with other agencies to share what we know" about the prisoners. While denying there had been problems, one intelligence official said the Defense Department was far more likely to be responsible for any information lapses, since it had initially detained and interrogated most of the prisoners and had been in charge of them at the prison.

Pentagon spokesman Geoff Morrell said that the Defense Department would cooperate fully in the review.

"Fundamentally, we believe that the individual files on each detainee are comprehensive and sufficiently organized," Morrell said. He added that "in many cases, there will be thousands of pages of documents . . . which makes a comprehensive assessment a time-consuming endeavor."

"Not all the documents are physically located in one place," Morrell said, but most are available through a database.

"The main point here is that there are lots of records, and we are prepared to make them available to anybody who needs to see them as part of this review."

There have been indications from within and outside the government for some time, however, that evidence and other materials on the Guantanamo prisoners were in disarray, even though most of the detainees have been held for years.

Justice Department lawyers responding in federal courts to defense challenges over the past six months have said repeatedly that the government was overwhelmed by the sudden need to assemble material after Supreme Court rulings giving detainees habeas corpus and other rights.

In one federal filing, the Justice Department said that "the record . . . is not simply a collection of papers sitting in a box at the Defense Department. It is a massive undertaking just to produce the record in this one case." In another filing, the department said that "defending these cases requires an intense, inter-agency coordination of efforts. None of the relevant agencies, however, was prepared to handle this volume of habeas cases on an expedited basis."

Evidence gathered for military commission trials is in disarray, according to some former officials, who said military lawyers lacked the trial experience to prosecute complex international terrorism cases.

In a court filing this month, Darrel Vandeveld, a former military prosecutor at Guantanamo who asked to be relieved of his duties, said evidence was "strewn throughout the prosecution offices in desk drawers, bookcases packed with vaguely-labeled plastic containers, or even simply piled on the tops of desks."

He said he once accidentally found "crucial physical evidence" that "had been tossed in a locker located at Guantanamo and promptly forgotten."

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