BEWARE...THIS BULL IS FOR THE BIRDS!
Sightings from The Catbird Seat
~ o ~
April 17, 2009
Fannie Mae CEO to Run Bank Bailout
By JIM KUHNHENN, AP
WASHINGTON (April 17) - The White House turned to an experienced former
investment banker Friday to run the federal government's $700 billion bank rescue
effort, selecting the head of mortgage giant Fannie Mae as an assistant Treasury
Herbert Allison Jr., Fannie Mae's president and CEO, will replace Neel Kashkari, a
holdover from the Bush administration.
Allison, who must be confirmed by the Senate, would bear the title of assistant Treasury
secretary for financial stability and counselor to Treasury Secretary Timothy Geithner.
He would be in charge of the Troubled Asset Relief Program, the fund that has injected
billions of dollars into banks in hopes of unclogging credit. He would inherit a program
that has been sharply criticized in Congress and which banks have come to view warily
because of the restrictions attached to receipt of its funds.
President Barack Obama's administration has been slowly filling Treasury positions,
hindered by candidates who have either withdrawn from consideration or been caught
up in the vetting process.
Fannie Mae, seized by federal regulators in September, is closely overseen by federal
regulators, making the chief executive's job tough to fill in the private sector. The
company, therefore, appears likely to turn to an insider as Allison's replacement.
The Wall Street Journal reported on Friday that Fannie Mae was expected to name
Michael J. Williams, the company's chief operating officer and a longtime executive as
Allison's replacement. Fannie Mae declined to comment.
Allison's selection presents the administration with yet another challenge. If Allison is
confirmed, both Fannie Mae and Freddie Mac would be without chief executives. David
Moffett, formerly Freddie Mac's CEO, resigned in March.
In Allison, the White House selected a former Merrill Lynch investment banker who
became chairman of the retirement fund manager TIAA-CREF. Allison served as
finance chief for John McCain's 2000 campaign for the Republican presidential
nomination. But politically, Allison has shown himself to be bipartisan in his allegiances,
contributing to both Democrats and Republicans, according to Federal Election
Since taking over in September at Fannie Mae, where he took no salary, Allison, the
son of an FBI agent, developed a reputation for open-mindedness with consumer
advocates, even those who have had an a contentious relationship with the giant
"Mr. Allison is well-positioned to lead the TARP," said Scott Talbott, chief lobbyist for
the Financial Services Roundtable, an industry group. "He has a wealth of experience
with buying, selling, protecting, and managing assets to protect the taxpayer investment
and strengthen the economy."
Some industry officials said that by pulling Allison away from Fannie Mae, the White
House was signaling that TARP would remain a viable component of the government's
stabilization efforts for the financial industry, even in the face of hostile lawmakers and
Bert Ely, a banking industry consultant, said Allison has the advantages of being a
known quantity to the Obama administration who is "much more of a financial
heavyweight" than Kashkari.
Plus, he said, the new job would likely be more of a challenge than running Fannie and
Freddie, which have been operating under tight government oversight since last
September. "In this new situation, he's going to be much more of a policy maker," Ely
said. "I can understand why he would want to take it."
March 18, 2009
Judge rules against Merrill on keeping
Tags: Bank of America Commerce, Merrill Lynch, Wall Street
by Rudy Sutherland
(NEW YORK) A New York state judge ruled Wednesday afternoon that New York’s
attorney general could disclose the names of Merrill Lynch executives who received
2008 bonuses as part of his investigation of the firm.
“The record does not support the intervenors’ claim that the employee compensation
information is a trade secret,” Justice Bernard J. Fried of New York State Supreme
Court wrote, referring to Merrill and its corporate parent, Bank of America.
Attorney General Andrew M. Cuomo has been demanding the names of Merrill’s 200
most highly paid employees, as part of an investigation into Bank of America’s
acquisition of the firm, which was completed at the beginning of the year. The names
could be released as early as Thursday.
Lawyers for Merrill and Bank of America argued last Friday that the names should not
be disclosed publicly, since they were as much a trade secret as the recipe for Carvel
“I conclude there is no legal basis for the proposed petitions to quash, fix
conditions or modify subpoena and for a protective order,” Judge Fried said in his
“Today’s decision in the Bank of America case is a victory for taxpayers,” Mr.
Cuomo said in a statement. “Let the sun shine in. Justice Fried’s decision will now
lift the shroud of secrecy surrounding the $3.6 billion in premature bonuses
Merrill Lynch rushed out in early December. Taxpayers demand and deserve
transparency and now they will finally get it.”
Merrill employees were collectively given billions of dollars in bonuses shortly before
its sale to Bank of America closed. Around the same time, Bank of America learned
that Merrill’s fourth-quarter loss would be much larger than expected, and the shortfall
forced Bank of America’s to go to the government to seek more financial aid.
Among other things, Mr. Cuomo has alleged that Merrill misled Congress about the
timing of the bonuses.
As part of his investigation, Mr. Cuomo’s office has interviewed Kenneth D. Lewis, Bank
of America’s chief executive; John Finnegan, the chief executive of Chubb, who
headed Merrill’s compensation committee; and John A. Thain, Merrill’s former chief
Bank of America has tried to prevent the names from being made public, arguing that it
would cause the company “grave harm,” making it easier for rivals to poach employees
and invading workers’ privacy.
March 16, 2009
AIG Outs Counterparties
Maurna Desmond, Forbes
AIG's collapse caused a lot of pain, but its bailout package offered sweet relief for
After months of stonewalling, government-controlled American International Group
finally revealed the names of the counterparties that were funneled $108 billion in
taxpayer funds. The largest recipients of AIG bailout funds were European banks,
Wall Street firms and, to a lesser degree, municipal governments.
While some of the payments disclosed were run of the mill obligations for an insurance
company, the $52 billion that was used to satisfy or exit credit default swaps, insurance
contracts on securities, are at the center of a growing storm of controversy. Last week,
Federal Reserve Chairman Ben Bernanke was grilled on Capitol Hill over AIG's refusal
to divulge details about these transactions.
The fundamental concern is that favored firms may have been overpaid for assets
using a large chunk of AIG's $170 billion bailout package. Though it is now known who
the counterparties are, AIG refused to itemize what exactly it each of them brought to
the table. As a result, it's impossible to know if some firms got better deals than others,
or if taxpayers got a raw deal all together.
During the fourth quarter, AIG spent $27.1 billion of its bailout money trying to entice
counterparties to exit their positions. European banks lead the list with Societe
Generale receiving $6.9 billion; Deutsche Bank, $2.8 billion; and UBS, $2.5 billion.
Meanwhile, stateside, Goldman Sachs and Merrill Lynch received $5.6 billion and
$3.1 billion, respectively.
Per existing swap agreements, AIG had to post $22.4 billion in collateral where the
underlying investments were downgraded. Societe General received $4.1 billion;
Deutsche Bank, $2.6 billion; Goldman, $2.5 billion; and Merrill, $1.8 billion.
AIG also had to post $43.7 billion during the quarter to unwind its securities lending
business (See "AIG's Play For Time") and $12.1 billion to different municipalities that
had guaranteed investment policies. California and Virginia received $1 billion each.
AIG's main businesses involved insurance, but it got into trouble when it started
guaranteeing risky financial instruments through credit default swaps. This was hugely
profitable until AIG's swaps, many of which were written against mortgage-backed
securities, turned into colossal losing bets amid the collapse of the mortgage market,
and regulators had to pull it onto the federal balance sheet to save it from collapse.
(See "Fed Rescues AIG")
In November, the New York Federal Reserve Bank used taxpayer funds to finance a
special investment vehicle dubbed Maiden Lane III that would be used to buy up the
underlying assets on these types of swaps, thereby canceling the contract. (See "AIG.
CDO. CDS. It's A Mess.")
Since its September rescue, AIG's initial $85 billion bailout package has been
restructured and sweetened several times. After losing $61 billion in its fourth quarter,
Treasury pumped it up with an additional $30 billion on top of its existing $150 billion
As AIG comes clean about some of its murkier dealings, it also needs to come up with
a new game plan. The original strategy for the insurer to sell some of its best parts to
pay back its taxpayer borrowings is proving more difficult than anticipated due to a
worsening market. (See "Blowing Up AIG")
December 22, 2008
Where'd the bailout money go?
Shhhh, it's a secret
By MATT APUZZO, Associated Press Writer Matt Apuzzo
WASHINGTON – It's something any bank would demand to know before handing out a
loan: Where's the money going?
But after receiving billions in aid from U.S. taxpayers, the nation's largest banks say
they can't track exactly how they're spending the money or they simply refuse to
"We've lent some of it. We've not lent some of it. We've not given any accounting of,
'Here's how we're doing it,'" said Thomas Kelly, a spokesman for JPMorgan Chase,
which received $25 billion in emergency bailout money. "We have not disclosed that
to the public. We're declining to."
The Associated Press contacted 21 banks that received at least $1 billion in
government money and asked four questions: How much has been spent? What was it
spent on? How much is being held in savings, and what's the plan for the rest?
None of the banks provided specific answers.
"We're not providing dollar-in, dollar-out tracking," said Barry Koling, a spokesman for
Atlanta, Ga.-based SunTrust Banks Inc., which got $3.5 billion in taxpayer dollars.
Some banks said they simply didn't know where the money was going.
"We manage our capital in its aggregate," said Regions Financial Corp. spokesman Tim
Deighton, who said the Birmingham, Ala.-based company is not tracking how it is
spending the $3.5 billion it received as part of the financial bailout.
The answers highlight the secrecy surrounding the Troubled Assets Relief Program,
which earmarked $700 billion — about the size of the Netherlands' economy — to help
rescue the financial industry. The Treasury Department has been using the money to
buy stock in U.S. banks, hoping that the sudden inflow of cash will get banks to start
There has been no accounting of how banks spend that money. Lawmakers summoned
bank executives to Capitol Hill last month and implored them to lend the money — not
to hoard it or spend it on corporate bonuses, junkets or to buy other banks. But there is
no process in place to make sure that's happening and there are no
consequences for banks who don't comply.
"It is entirely appropriate for the American people to know how their taxpayer
dollars are being spent in private industry," said Elizabeth Warren, the top
congressional watchdog overseeing the financial bailout.
But, at least for now, there's no way for taxpayers to find that out.
Pressured by the Bush administration to approve the money quickly, Congress attached
nearly no strings on the $700 billion bailout in October. And the Treasury
Department, which doles out the money, never asked banks how it would be spent.
"Those are legitimate questions that should have been asked on Day One," said Rep.
Scott Garrett, R-N.J., a House Financial Services Committee member who opposed the
bailout as it was rushed through Congress. "Where is the money going to go to? How is
it going to be spent? When are we going to get a record on it?"
Nearly every bank AP questioned — including Citibank and Bank of America, two of
the largest recipients of bailout money — responded with generic public relations
statements explaining that the money was being used to strengthen balance sheets
and continue making loans to ease the credit crisis.
A few banks described company-specific programs, such as JPMorgan Chase's plan to
lend $5 billion to nonprofit and health care companies next year. Richard Becker, senior
vice president of Wisconsin-based Marshall & Ilsley Corp., said the $1.75 billion in
bailout money allowed the bank to temporarily stop foreclosing on homes.
But no bank provided even the most basic accounting for the federal money.
"We're choosing not to disclose that," said Kevin Heine, spokesman for Bank of New
York Mellon, which received about $3 billion.
Others said the money couldn't be tracked. Bob Denham, a spokesman for North
Carolina-based BB&T Corp., said the bailout money "doesn't have its own bucket." But
he said taxpayer money wasn't used in the bank's recent purchase of a Florida
insurance company. Asked how he could be sure, since the money wasn't being
tracked, Denham said the bank would have made that deal regardless.
Others, such as Morgan Stanley spokeswoman Carissa Ramirez, offered to discuss the
matter with reporters on condition of anonymity. When AP refused, Ramirez sent an e-mail saying: "We are going to decline to comment on your story."
Most banks wouldn't say why they were keeping the details secret.
"We're not sharing any other details. We're just not at this time," said Wendy Walker, a
spokeswoman for Dallas-based Comerica Inc., which received $2.25 billion from the
Heine, the New York Mellon Corp. spokesman who said he wouldn't share spending
specifics, added: "I just would prefer if you wouldn't say that we're not going to discuss
The banks which came closest to answering the questions were those, such as U.S.
Bancorp and Huntington Bancshares Inc., that only recently received the money and
have yet to spend it. But neither provided anything more than a generic summary of
how the money would be spent.
Lawmakers say they want to tighten restrictions on the remaining, yet-to-be-released
$350 billion block of bailout money before more cash is handed out. Treasury
Secretary Henry Paulson said the department is trying to step up its monitoring of
"What we've been doing here is moving, I think, with lightning speed to put necessary
programs in place, to develop them, implement them, and then we need to monitor
them while we're doing this," Paulson said at a recent forum in New York. "So we're
building this organization as we're going."
Warren, the congressional watchdog appointed by Democrats, said her oversight panel
will try to force the banks to say where they've spent the money.
"It would take a lot of nerve not to give answers," she said.
But Warren said she's surprised she even has to ask.
"If the appropriate restrictions were put on the money to begin with, if the
appropriate transparency was in place, then we wouldn't be in a position where
you're trying to call every recipient and get the basic information that should
already be in public documents," she said.
Garrett, the New Jersey congressman, said the nation might never get a clear answer
on where hundreds of billions of dollars went.
"A year or two ago, when we talked about spending $100 million for a bridge to
nowhere, that was considered a scandal," he said.
December 21, 2008
AP study finds $1.6B went to
bailed-out bank execs
By FRANK BASS and RITA BEAMISH, Associated Press
Banks that are getting taxpayer bailouts awarded their top executives nearly $1.6
billion in salaries, bonuses, and other benefits last year, an Associated Press analysis
The rewards came even at banks where poor results last year foretold the economic
crisis that sent them to Washington for a government rescue. Some trimmed their
executive compensation due to lagging bank performance, but still forked over
multimillion-dollar executive pay packages.
Benefits included cash bonuses, stock options, personal use of company jets and
chauffeurs, home security, country club memberships and professional money
management, the AP review of federal securities documents found.
The total amount given to nearly 600 executives would cover bailout costs for many of
the 116 banks that have so far accepted tax dollars to boost their bottom lines.
Rep. Barney Frank, chairman of the House Financial Services committee and a long-standing critic of executive largesse, said the bonuses tallied by the AP review amount
to a bribe "to get them to do the jobs for which they are well paid in the first place....
The AP compiled total compensation based on annual reports that the banks file with
the Securities and Exchange Commission. The 116 banks have so far received $188
billion in taxpayer help. Among the findings:
_The average paid to each of the banks' top executives was $2.6 million in salary,
bonuses and benefits.
_Lloyd Blankfein, president and chief executive officer of Goldman Sachs, took home
nearly $54 million in compensation last year. The company's top five executives
received a total of $242 million.
This year, Goldman will forgo cash and stock bonuses for its seven top-paid executives.
They will work for their base salaries of $600,000, the company said. Facing increasing
concern by its own shareholders on executive payments, the company described its
pay plan last spring as essential to retain and motivate executives "whose efforts and
judgments are vital to our continued success, by setting their compensation at
appropriate and competitive levels." Goldman spokesman Ed Canaday declined to
comment beyond that written report.
The New York-based company on Dec. 16 reported its first quarterly loss since it went
public in 1999. It received $10 billion in taxpayer money on Oct. 28.
_Even where banks cut back on pay, some executives were left with seven- or eight-figure compensation that most people can only dream about. Richard D. Fairbank, the
chairman of Capital One Financial Corp., took a $1 million hit in compensation after
his company had a disappointing year, but still got $17 million in stock options. The
McLean, Va.-based company received $3.56 billion in bailout money on Nov. 14.
_John A. Thain, chief executive officer of Merrill Lynch, topped all corporate bank
bosses with $83 million in earnings last year. Thain, a former chief operating officer for
Goldman Sachs, took the reins of the company in December 2007, avoiding the blame
for a year in which Merrill lost $7.8 billion. Since he began work late in the year, he
earned $57,692 in salary, a $15 million signing bonus and an additional $68 million in
Like Goldman, Merrill got $10 billion from taxpayers on Oct. 28.
The AP review comes amid sharp questions about the banks' commitment to the goals
of the Troubled Assets Relief Program (TARP), a law designed to buy bad mortgages
and other troubled assets. Last month, the Bush administration changed the program's
goals, instructing the Treasury Department to pump tax dollars directly into banks in a
bid to prevent wholesale economic collapse.
The program set restrictions on some executive compensation for participating banks,
but did not limit salaries and bonuses unless they had the effect of encouraging
excessive risk to the institution. Banks were barred from giving golden parachutes to
departing executives and deducting some executive pay for tax purposes.
Banks that got bailout funds also paid out millions for home security systems, private
chauffeured cars, and club dues. Some banks even paid for financial advisers. Wells
Fargo of San Francisco, which took $25 billion in taxpayer bailout money, gave its top
executives up to $20,000 each to pay personal financial planners.
At Bank of New York Mellon Corp., chief executive Robert P. Kelly's stipend for
financial planning services came to $66,748, on top of his $975,000 salary and $7.5
million bonus. His car and driver cost $178,879. Kelly also received $846,000 in
relocation expenses, including help selling his home in Pittsburgh and purchasing one
in Manhattan, the company said.
Goldman Sachs' tab for leased cars and drivers ran as high as $233,000 per
executive. The firm told its shareholders this year that financial counseling and
chauffeurs are important in giving executives more time to focus on their jobs.
JPMorgan Chase chairman James Dimon ran up a $211,182 private jet travel tab last
year when his family lived in Chicago and he was commuting to New York. The
company got $25 billion in bailout funds.
Banks cite security to justify personal use of company aircraft for some executives. But
Rep. Brad Sherman, D-Calif., questioned that rationale, saying executives visit many
locations more vulnerable than the nation's security-conscious commercial air terminals.
Sherman, a member of the House Financial Services Committee, said pay excesses
undermine development of good bank economic policies and promote an escalating
pay spiral among competing financial institutions — something particularly hard to take
when banks then ask for rescue money.
He wants them to come before Congress, like the automakers did, and spell out their
spending plans for bailout funds.
"The tougher we are on the executives that come to Washington, the fewer will come
for a bailout," he said.
On the Net:
SEC Filings & Forms: http://www.sec.gov
Emergency Economic Stabilization Act: http://www.treas.gov/initiatives/eesa/
July 17, 2008
Merrill Lynch gets dunked again by
By Walter Hamilton, Los Angeles Times
Merrill Lynch & Co. just threw cold water on the idea that the housing crisis was letting
up on Wall Street.
Better-than-expected second-quarter earnings from Wells Fargo & Co. on Wednesday
and JPMorgan Chase & Co. this morning had boosted hopes that major banks and
brokerages could sidestep more worst-case profit hits from the housing collapse.
Earnings dropped at both Wells and JPMorgan, but far less than analysts had feared.
Wells even raised the dividend on its stock.
But Merrill late today reminded investors that the end isn't close for companies that
played in the deep end of the pool during the housing boom.
The New York-based brokerage giant reported after the end of regular trading that it
lost $4.7 billion in the latest quarter, or $4.97 a share, including almost $10 billion in
write-offs tied largely to the faltering mortgage-securities market. The numbers were
significantly worse than even the most pessimistic analysts had expected.
The news drove Merrill's shares down $1.97 to $28.76 in after-hours trading. The stock
had jumped $2.73 to $30.73 in the regular session amid another big rally in financial
The upshot, it seems, is that "the companies that have been steady sources of bad
news will continue to be sources of bad news," said John Bollinger, head of Bollinger
Capital Management in Manhattan Beach.
Merrill's latest write-offs included $3.5 billion for those exotic -- and toxic -- mortgage
securities known as collateralized debt obligations, and $1.3 billion for residential-mortgage "exposures."
On the company's earnings conference call today, one analyst asked Merrill CEO John
Thain a technical question about the CDOs "you guys" created.
Thain shot back: "First of all, I take exception to the 'you guys' comment. I did not
create any of these CDOs."
Thain, 53, took the brokerage's helm in December after Stanley O'Neal got the boot.
Like others, Merrill has been scrambling to get bad assets off its books. It slashed its
U.S. asset-backed CDO exposure to $4.5 billion as of June 30 from $6.7 billion at the
end of the first quarter. It whittled its U.S. subprime exposure 29% to $1 billion, primarily
because of $544 million in write-offs.
But Merrill and other investment banks are on the proverbial treadmill. As quickly as
they're taking mortgage write-offs, the value of the underlying assets is deteriorating
The result is that the firms still have significant exposure to the most troubled areas of
the mortgage-securities arena. And it's doubtful that Merrill and others can stop the
bleeding -- or even accurately calculate how much bleeding they have left to do -- until
the housing market stabilizes.
And we all know that hasn't happened yet.
January 17, 2008
Merrill posts worst quarter
in its history
By Tim McLaughlin
NEW YORK (Reuters) - Merrill Lynch & Co Inc (NYSE:MER - News) reported about $16
billion in mortgage-related write-downs and adjustments on Thursday in the worst
quarter of the company's history.
Shares of the world's largest brokerage fell more than 8 percent as investors worried
about more write-downs and exposure to capital-strapped bond insurers.
The stock's 48 percent decline over the past year has slashed nearly $42 billion from
Merrill's peak market capitalization of $84.7 billion in late January 2007.
The start of a booming year for investment banking fees and big bets on subprime
mortgages ended in dismal fashion. Merrill's fourth-quarter net loss was $9.8 billion, or
$12.01 a share, compared with year-earlier profit of $2.3 billion, or $2.41 a share....
For 2007, Merrill lost about $8 billion on second-half write-downs and adjustments of
about $24 billion. Lax risk management led to the ouster of Stan O'Neal as chief
executive in late October.
Recently named CEO John Thain said in a conference call that Merrill would ease risk-taking, but has enough capital to move forward after $12.8 billion in infusions from U.S.
and foreign investors....
But Thain, who called the fourth-quarter results "unacceptable," said he could not
promise that the company will avoid further write-downs on subprime mortgage-related
There will be no dramatic job cuts, he said, and the company is not interested in selling
its stakes in Bloomberg LP and asset manager BlackRock Inc (Note: (NYSE:BLK -
Merrill shares were down $4.62, or 8.4 percent, at $50.47 in afternoon New York Stock
< < < FLASHBACK < < <
From Blowback: The Costs and Consequences of American Empire, by Chalmers
Johnson, © 2000:
... For any empire, including an unacknowledged one, there is a kind of balance sheet
that builds up over time. Military crimes, accidents, and atrocities make up only one
category on the debit side of the balance sheet that the United States has been
accumulating, especially since the Cold War ended.
To take an example of quite a different kind of debit, consider South Korea, a longtime
ally. On Christmas Eve 1997, it declared itself financially bankrupt and put itits
economy under the guidance of the International Monetary Fund, which is basically
an institutional surrogate of the United States government.
Most Americans were surprised by the economic disaster that overtook Thailand,
South Korea, Malaysia, and Indonesia in 1997 and that then spread around the world,
crippling the Russian and Brazilian economies. They could hardly imagine that the U.S.
government might have had a hand in causing them, even though various American
pundits and economists expressed open delight in these disasters, which threw millions
of people, who had previously had hopes of achieving economic prosperity and
security, into the most abysmal poverty.
At worst, Americans took the economic meltdown of places like Indonesia and Brazil
to mean that beneficial American-supported policies of “globalization” were working –
that we were effectively helping restructure various economies around the world so that
they would look and work more like ours....
As the global crisis deepened, the thing our government most seemed to fear was that
contracts to buy our weapons might now not be honored. That winter, Secretary of
Defense William Cohen made special trips to Jakarta, Bangkok, and Seoul to cajole
the governments of those countries to use increasingly scarce foreign exchange funds
to pay of the American fighter jets, missiles, warships, and other hardware the
Pentagon had sold them before the economic collapse.
He also stopped in Tokyo to urge on a worried Japanese government a big sale not yet
agreed to. He wanted Japan to invest in the theatre missile defense system, or TMD,
anti-missile missiles that the Pentagon has been trying to get the Japanese to by for a
decade. No one knew then or knows now whether the TMD will even work – in fifteen
years of intercept attempts only a few missiles in essentially doctored tests have hit
their targets – but it is unquestionably expensive, and arms sales, both domestic and
foreign, have become one of the Pentagon’s most important missions.
I believe the profligate waste of our resources on irrelevant weapons systems and the
Asian economic meltdown, as well as the continuous trail of military “accidents” and of
terrorist attacks on American installations and embassies, are all portents of a twenty-first-century crisis in America’s informal empire, an empire base on the projection of
military power to every corner of the world and on the use of American capital and
markets to force global economic integration on our terms, at whatever costs to
Each year approximately ten thousand American troops descend on Thailand for a joint
military exercise, called Cobra Gold. The military part of these visits is largely make-work for the American and Thai staffs, but the troops love Cobra Gold because of the
According to the newspaper Pacific Stars and Stripes, some three thousand prostitutes
wait for the sailors and marines at the South Pattaya waterfront, close to Utapao air
base. An equal number of young Thai girls from the country-side, many of whom have
been raped and then impressed into the “sex industry,” are available downtown in
Bangkok’s Patpang district. They are virtually all infected with AIDS, but the condom-equipped American forces seem not to worry.
At the time of the 1997 war games, just before the economic crisis broke, sex with a
Thai prostitute cost around fifteen hundred Thai baht, or sixty dollars at its then pegged
rate of twenty-five baht to one U.S. dollar. By the time of the next year’s Cobra Gold
the price had been more than halved. This is just one of many market benefits
Americans gained through their rollback operation against the “Asian model” of
Th global economic crisis that began in Thailand in July 1997 had two causes. First,
the built-in contradictions of the American satellite system in East Asia had heightened
to such a degree that the system itself unexpectedly began to splinter and threatened to
blow apart. Second, the United States, relieved of the prudence imposed on it by the
Cold War ... launched a campaign to force the rest of the world to adopt its form of
capitalism. This effort went under the rubric of “globalization.”...
... Indonesia is the world’s fourth most populous country and the world’s largest Islamic
nation. During its early years, after fighting for its independence from the Netherlands,
when its founder and leader was President Sukarno (like many Indonesians, including
General Suharto, he has only one name), it was a champion of neutralism and a thorn
in the side of American foreign policy. Many CIA covert operations were mounted
against Indonesia in that period, including during the revolution of 1965, when Suharto
came to power, ousted Sukarno, and in a bloody program eliminated leftist forces
throughout the islands. Suharto and the army ruled with a strong authoritarian hand
until May 1998.
During this period and with considerable American and Japanese support, Suharto
overcame starvation on the main island of Java and led the country into sustained
economic growth. However, Indonesia was clobbered by the 1997 financial crisis
that depressed its stock and currency values to as much as 80 percent below
Because of the misguided policies by the United States and the International
Monetary Fund ... the number of people in Indonesia living below the poverty line grew
in a matter of months from twenty-seven million to over a hundred million (half of the
population), and thirty years of economic gains were wiped out. Hundreds of thousands
of workers lost their jobs. The country remains destitute and threatened with possible
disintegration, even though its political life has been invigorated by the return of
democracy after thirty-two years of one-man rule.
Thus far, the blowback from American policies in Indonesia has affected primarily
Indonesians and, in particular, the Chinese minority in the country, which is also the
entrepreneurial elite. Americans have not been affected, but this is unlikely to last as
Indonesia emerges from its present trauma and starts to assess what happened to it
and who was responsible.
The bloody ouster of General Suharto as president of Indonesia and as one of
America’s favorite dictators in East Asia is a case study in the dangers of JCET
programs. Between May 13 and May 15, 1998, nearly 1,200 people were killed in
Jakarta in rioting that led to the resignation of General Suharto. It was subsequently
revealed that during this “rioting” at least 168 women and girls, most of them of Chinese
ancestry, had been raped by “organized groups of up to a dozen men” and that 20 had
died during or after the assaults....
The Indonesian armed forces, known as ABRI, have long been the chosen instrument
of American foreign policy in the area, bolstering Suharto’s stoutly andi-Communist
regime. In 1965, when General Suharto was in the process of coming to power, the
United States provided ABRI with lists of suspected Communists, over half a million of
whom were slaughtered. It also publicly endorsed ABRI’s 1975 invasion of East
Timor and the subsequent elimination of two hundred thousand East Timorese
through what the State Department in its 1996 Human Rights Report calls “extrajudicial
When the 1997 financial crisis spread to Indonesia and it became apparent that the
International Monetary Fund’s bailout policies wer likely to end the seventy-six-year-old
Suharto’s further usefulness to the United States, American policy remained focused on
maintaining control inside Indonesia through its backing of the 465,000-man-strong
ABRI. Indonesia totally lacks external enemies. Its armed forces are therefore devoted
almost entirely to maintaining “internal security.”
During most of the Suharto years, the United States actively trained ABRI special forces
in a variety of what the New York Times calls “specialized acts of warfare and
counterinsurgency.” The CIA and the Defense Intelligence Agency have long
maintained close ties with ABRI, which has often been implicated in cases of torture,
kidnapping, and assassination....
After November 12, 1991, when Indonesian troops killed 271 people allegedly
demonstration for independence in Dili, the capital of East Timor, Congress cut off
financial support for further training, although it did not end arms sales to Indonesia.
The Pentagon has nonetheless expanded its ABRI training programs under cover of
JCET. At least forty-one exercises involving fully armed U.S. combat troops – including
Green Berets, Air Force commandos, and marines – transported to Indonesia from
Okinawa have taken place since 1995. The American 1st Special Forces Group is
permanently deployed at Torii, Okinawa.
The primary Indonesian beneficiary of this effort was evidently intended to be forty-seven-year-old Lieutenant General Prabowo, Suharto’s son-in-law and business
paratner. Prabowo’s wife, who is Suharto’s second daughter, owned a sizable piece of
Merrill Lynch, Indonesia.
Prabowo, a graduate of elite military training courses at Fort Bening, Georgia, and Fort
Bragg, North Carolina, spent ten years fighting guerrillas in East Timor, where he
earned a reputation for cruelty and ruthlessness. In 1995, donning the red beret of
Kopassus, he managed to enlarge the special forces corps from 3,500 to 6,000 troops.
He worked closely with his American supporters; of the forty-one JCET training
exercises conducted since Congress ordered all training stopped, at least twenty-four
wer with Kopassus. According to the Nation magazine’s Indonesian correspondent
Allan Naim, one Kopassus unit received twenty-six days of American instruction in
“military operations in urban terrain” after the economic crisis began....
There were good reasons why the United States would want to keep General Suharto
in power. In the early years of his rule, Suharto contributed greatly to regional stability,
while bringing at lease a modicum of prosperity and optimism to the Indonesian
Like the government of another American-supported autocrat, Ferdinand Marcos of
the Philippines, Suharto’s government developed over time into a kleptocracy – firms
still controlled by members of his family are said to be worth many billions of dollars; but
unlike Marcos his achievements were formidable... Th current decline of Indonesian
economic and, possibly, political power certainly means that China is more likely to
assert its political primacy in the region.
The U.S. government was aware of these dangers, and therefore when, in 1997,
international financiers began to exploit the Indonesian currency and foreclose on their
short-term loans, leading American officials loudly proclaimed their backing of Suharto,
signaling their lack of desire to see him overthrown. This position was, however,
undercut by a politically uncoordinated agent of American power, the International
Monetary Fund (IMF), which agreed to lend huge amounts of money to Indonesia to
help meet its debts, but only if it imposed economics-textbook prescriptions for
reordering its economy.
The IMF, it must be noted, is staffed primarily with holders of PH.D.s in economics from
American universities, who are both illiterate about and contemptuous of cultures that
do not conform to what they call the “American way of life.” They offer only “one size
(or, rather, one capitalism) fits all” remedies for ailing economic institutions. The IMF
has applied these over the years to countries in Latin America, Russia, and East Asia
without ever achieving a single notable success. ... They ignored the fact that Suharto,
while enriching members of his own extended family and firms that cultivated their good
graces, also granted ordinary Indonesians food and fuel subsidies. On May 4, 2998,
the IMF ordered these subsidies stopped. This alone made political instability
On May 8, the United States ordered JCET activities suspended in Indonesia after the
Nation’s Allan Nairn, at this potentially embarrassing moment, exposed the nature of
the Pentagon’s covert assistance program for Kopassus. My mid-May 1998, U.S.
officials had started to signal changes in their position and begun to leak to the press
statements not for attribution indicating that the IMF’s reform program would not
work unless Suharto were replaced. Senators like John Kerry of Massachusetts
and Paul Wellstone of Minnesota echoed this demand on Capitol Hill....
Amid growing turbulence in Jakarta, President Suharto left Indonesia for a state visit to
Egypt, and the country’s top military officer, General Wiranto, left the capital on May 14
and flew to eastern Java for a divisional parade. In this context, Indonesia erupted....
~ ~ ~
It may seem that what happened in Indonesia was another successful American-choreographed replacement of a regime that had become “unacceptable” – especially
since the army in which the United States had invested so much came out in an even
more powerful position in the new, soon-to-be “democratic” Indonesia.... But the truth of
the matter was that the IMF and the U.S. Department of Defense, having helped
reverse a quarter century of economic progress, had probably made it impossible for
any Indonesian government to recover from the disaster...
– Chalmers Johnson, 2000
For more, GO TO > > > BLOWBACK!; Buzzards in the Bank of Honolulu; Sukamto Sia:
The Indonesian Connection
November 27, 2007
Wall Street leads surge in
corporate political giving
By Kevin Drawbaugh
Big business is shoveling more money than ever into U.S. political campaigns, with Wall
Street donations way up, a watchdog group said on Tuesday.
The securities and investment industry -- which includes brokerages, hedge funds and
private equity firms -- registered the sharpest increase in giving since 2004 among all
industry sectors studied by the Center for Responsive Politics.
Record-breaking contributions from the nation's biggest political givers are the result of
a wide-open race for the White House and last year's power shift in Congress, said
Sheila Krumholz, the nonpartisan center's executive director.
"There is an intensity to the fund raising for 2008 that we've never seen before, which
means the candidates and parties will be all the more beholden" to big donors, she
The nonprofit center analyzes campaign finance and lobbying records at the Federal
Election Commission (FEC), a government agency that enforces U.S. campaign finance
The analysis includes contributions to federal candidates and parties from individuals
working in an industry and from associated political action committees.
In both presidential and congressional contests, Democrats are benefiting more than
Republicans from the surge in business donations, with 57 percent of giving from typical
big donors going to Democrats versus 43 percent in 2006 and 2004.
More money is coming in from lawyers than from any other sector, as usual. But the
biggest increase in giving since 2004 is coming from financiers, whose donations are up
Steep increases are also coming from the real estate industry, Hollywood, healthcare
professionals and insurers....
Wall Street's favorite presidential candidate, based on the latest FEC disclosures from
October 29, was Democratic New York Sen. Hillary Clinton. Close behind her in
donations from financiers were Republican former New York Mayor Rudolph Giuliani
and Democratic Illinois Sen. Barack Obama.
Next were Republican former Massachusetts Gov. Mitt Romney, Democratic Sen.
Christopher Dodd of Connecticut, Republican Sen. John McCain from Arizona,
Democratic former North Carolina Sen. John Edwards and Democratic New Mexico
Gov. Bill Richardson.
The biggest donors in the securities and investment sector, as of October 29, were the
brokerage firms Goldman Sachs, Morgan Stanley, UBS, Merrill Lynch, Lehman
Brothers and Credit Suisse.
Also among the sector's top contributors were hedge funds and private equity firms
Bain Capital, SAC Capital Advisers, Fortress Investment Group and Blackstone
"There's no question that hedge funds and private equity firms have ramped up their
political giving in the last couple of years as Congress looks seriously at raising their
taxes," said Massie Ritsch, spokesman for the Center for Responsive Politics.
Lawmakers are considering proposals to more than double the tax rate on the "carried
interest" gains of senior partners at private equity firms that buy and sell businesses.
February 21, 2003
Merrill Lynch ready to pay
$80 million in Enron case
Dow Jones Newswires
NEW YORK - Without admitting or denying wrongdoing, Merrill Lynch & Co. has
reached an agreement in principle with the Securities and Exchange Commission to
resolve the agency’s investigation into two transactions it made with Enron Corp. in
The brokerage firm said yesterday that it would pay $80 million in payouts, penalties
and interest under the settlement.
Merrill Lynch would record the cost in its 2002 fourth-quarter financial results and
would consent to an injunction barring the company from violations of federal securities
laws. The SEC still must approve the agreement.
Merrill Lynch said the settlement would conclude the SEC’s investigation into the
company’s Enron-related matters...
One item that has received scrutiny from congressional investigators was the 1999 sale
of a Nigerian barge operation by Enron to Merrill Lynch. Lawmakers suggested that
the deal may have been designed to wrongly inflate Enron’s profits.
In a congressional hearing in July, it was disclosed that Merrill agreed to the
questionable deal even after a senior Merrill banker warned top executives that the sale
appeared to be an improper ploy to boost profits.
In September, Merrill Lynch fired Thomas W. Davis, on of two vice chairmen, for his
refusal to testify in an investigation by the Justice Department and the SEC. The firm
also fired investment banker Schuyler Tilney, who headed its Houston energy group
and worked closely with Enron.
Davis and Tilney were among nearly 100 Merrill executives who invested a total of more
than $16 million of their own money in a partnership Merrill sold for Enron, The Wall
Street Journal reported in September.
At the time, Merrill Lynch said it didn’t find any wrongdoing by any of its employees in
their dealings with Enron....
August 13, 2002
Orange County bans
business with Merrill
By Thor Valdmanis, USA TODAY
NEW YORK — Still smarting in the aftermath of the biggest municipal bankruptcy
reorganization in the nation's history, Orange County voted on Tuesday to effectively
ban doing business with Merrill Lynch.
The affluent California county's Board of Supervisors, citing memories of Merrill's role in
its 1994 collapse, voted unanimously to prevent Merrill from handling any of its $4
billion in investment funds or advising on other transactions without a public hearing
and board approval.
Legal scholars said it was the first time in memory a jurisdiction the size of Orange
County singled out a leading public company for such harsh treatment.
"Merrill Lynch has got to clean up its act," says supervisor Todd Spitzer, who
pushed for the unprecedented measure. "It continues to carry out all sorts of
shenanigans, whether it be related to Enron or Martha Stewart. I don't want them
doing business here."
While stressing the move would have no financial impact, senior Merrill executives
concede that it comes at an awkward time as the nation's largest brokerage firm
struggles to maintain investor confidence despite a series of damaging scandals.
Both federal and state investigators have launched probes into Merrill's role in a series
of questionable energy deals with Enron. They are also examining Merrill's actions in
the ImClone inside-trading scandal involving Stewart.
In May, the Wall Street firm agreed to pay $100 million to settle charges that its
research analysts hyped Internet stocks, triggering dozens of class-action lawsuits from
The public relations mess has helped cut Merrill's market value by a third this year,
while the rest of the industry, also tainted by scandal, is off 25%.
"Orange County's decision certainly suggests that the wounds run deep," says
Columbia University corporate law professor John Coffee.
Merrill had hoped to mend fences four years after paying $400 million to settle
allegations over investments that led to the Orange County bankruptcy filing. Risky
investments by former county treasurer Robert Citron produced $1.7 billion in losses,
prompting the county's bankruptcy filing.
Orange County still carries $930 million in debt that costs an estimated $93 million a
year in principle and interest payments. "We'll be carrying the scars left by Merrill
for another 30 years," Spitzer says.
But Harvard Business School finance professor Samuel Hayes says the county runs the
risk of further impairing its balance sheet by lashing out at Merrill.
"That kind of pique can be expensive if it denies Orange County the best counsel on its
investments," Hayes says. "(Merrill) may have been tarnished by the events of the last
few months. But Merrill remains a reputable firm with a lot of market savvy."
Orange County Treasurer John Moorlach, in a memorandum to the board, said he
favored letting Merrill Lynch bid for county investments because it would help save
money on some purchases.
"The Orange County board's decision relates directly to the bankruptcy," Merrill
spokesman Bill Halldin says. "We are interested in doing business with the county
sometime in the future."
For more, GO TO > > > The Bankruptcy Buzzards of Orange County
August 8, 2002
Ex-officials call Enron’s
Merrill deal phony
The New York Times
HOUSTON – Desperate to meet a year-end profit target, Enron Corp. struck a sham
energy deal with Merrill Lynch that let Enron book a $60 million profit in December
1999, according to former Enron executives involved in the transaction.
The executives said that the energy deal, a complex set of gas and power trades, was
intended to inflate Enron’s profits and drive up its stock price. Enron and Merrill Lynch,
they said, agreed that the deal would be canceled after Enron booked the profits; it
By allowing the company to meet its internal profit targets, the power deal unleashed
the payment of millions of dollars in bonuses and restricted stock to high-ranking
executives, including Kenneth L. Lay, then the chief executive, and Jeffrey K. Skilling,
then Enron’s president, former executives said.
“This was absolutely a sham transaction, and it was an 11th hour deal,” said one former
Enron executive who was briefed on the deal. “We did this deal to get 1999
Merrill Lynch officials said there was nothing improper about the power deal and no
prearrangement to cancel it...
April 9, 2002
Merrill Lynch Told
to Reform Practices
Company is accused of deceiving clients for its own benefit
NEW YORK – Merrill Lynch & Co., Inc., one of the nation’s largest investment firms,
was ordered yesterday to reform its business practices after being accused of giving
advice that hurt clients but enriched the company.
New York Attorney General Eliot Spitzer said he got a court order after a 10-month
investigation showed that Merrill Lynch’s employees lied to clients and recommended
stocks that they knew were probably bad investments.
“This was a shocking betrayal of trust by one of Wall Street’s most trusted names,”
“This case must be a catalyst for reform throughout the entire industry.”
Merrill Lynch said in a statement that there is “no basis for the allegations made
today by the New York attorney general.”
“His conclusions are just plain wrong,” the statement said. “We believe these
allegations are baseless, and we will defend ourselves vigorously.”
Spitzer said he did not know how much money customers lost as a result of the 112-year-old firm’s alleged practices, but he said he believes the clients “number in the
hundreds of thousands, if not millions.”
Merrill Lynch’s Web site says it has 900 offices in 43 countries and controls more than
$1.5 trillion in customer assets. It says it manages the assets of 3 percent of American
Merrill Lynch pushed certain companies’ stock, even after it got poor ratings from
its own research analysts, because the firm wanted to keep the companies’
lucrative contracts for investment banking services, Spitzer said.
Spitzer said investigators obtained many memos and e-mails that showed that analysts,
whose research was supposed to be independent and objective, were in effect acting
as salesmen for client companies.
They were doing so because the pay for analysts was based in large part on their
contributions to bringing in investment banking business, the attorney general
said. He said this was contrary to Merrill Lynch’s own written policy.
Merrill Lynch said in its statement by spokesman Timothy Cobb, that it was “confident
that a fair review of the facts will show that Merrill Lynch has conducted its
research with independence and integrity.”...
April 11, 2002
Wall Street's 'Big Lie'
The Washington Post
ONE OF the Enron scandal's many tentacles is wrapped around stock analysts, who
recommended buying the firm's shares until shortly before it went bust.
Anybody familiar with the internal workings of big investment banks could guess the
cause of this mad boosterism: Stock analysts tend toward optimism because they get
paid more that way. Though their formal job is to advise investors on which shares to
buy, analysts also advise companies selling shares -- and those companies will be
more inclined to hire them if they've boosted their stocks. Analysts at big banks stand to
get half or more of their compensation from advising sellers rather than buyers.
Naturally, they want to keep that.
Naturally, they rate most stocks "buy" or "accumulate" and almost none "sell."
The full extent of Wall Street's corruption is newly apparent in this week's extraordinary
revelations about Merrill Lynch. Eliot Spitzer, the New York state attorney general, has
publicized e-mail messages that circulated among Merrill's stock analysts, suggesting
that the analysts privately doubted the stocks they publicly recommended to clients.
Stocks that Merrill rated as "buys" were described internally as "a piece of junk" and
"a piece of crap."
One analyst, Kirsten Campbell, wrote to a colleague that the pressure to bring in
investment-banking fees was distorting stock ratings. "We are losing people money,
and I don't like it," she said. "The whole idea that we are independent from banking is a
The big lie is further suggested by Mr. Spitzer's evidence on the compensation of Henry
Blodget, Merrill's star Internet analyst. In the fall of 2000, Merrill asked its analysts what
they had done to help with investment banking deals. Mr. Blodget and his group replied
that they had been involved in 52 deals that generated $115 million in fees.
The fact that the firm even solicited this information suggests that the "Chinese wall"
separating analysts from banking is porous. The fact that Mr. Blodget's compensation
subsequently jumped from $3 million in 1999 to $12 million in 2001 underlines the
huge incentive that analysts have to deceive investors.
Stock exchange regulators and lawmakers have proposed some remedies to this
problem, such as a ban on direct payments to analysts from their supposedly separate
banking colleagues and limits on recommending stocks that banking colleagues are
selling. But investors need to ask themselves tough questions. Given that Wall Street
analysts are housed in the same firms that tout new share offerings, they are always
likely to be conflicted.
Why pay for their services? Why not seek advice instead from research firms with no
investment banking links?
April 24, 2002
Research probe could cost
Merrill $2 billion-analyst
NEW YORK, April 24 (Reuters) - Merrill Lynch & Co. Inc. (MER), under fire for allegedly
biased stock research, could wind up with a tab of $2 billion in a worst-case scenario
outcome of a regulatory investigation, a Prudential Securities analyst said on
"We estimate that the (New York) State Attorney General investigation could ultimately
cost Merrill Lynch as much as $2 billion," analyst Dave Trone said in a research note.
"A caveat is that our estimates for three of the four consequences are 'worst case'."
New York State Attorney General Eliot Spitzer earlier this month accused Merrill of
tailoring its research to woo investment banking business, after he dug up e-mails
passed around by former star analyst Henry Blodget's Internet group, showing that
analysts privately disparaged stocks they publicly touted.
Merrill agreed to disclose potential conflicts of interest on its stock reports, but it is still
negotiating with Spitzer on the size of a possible settlement payment and changes it will
make in the operation of its research department.
Following New York's lead, other investigative bodies became involved in the Wall
Street research probe on Tuesday.
Securities regulators from several states said they formed a multi-state task force to
investigate Wall Street firms for possible securities law violations in issuing misleading
stock research. Spitzer is co-chair of the national task force, along with the New Jersey
and California state attorneys general.
Merrill has enlisted former New York City Mayor Rudy Giuliani, who initially gained
public attention through his investigations of securities traders and racketeering, to help
deal with Spitzer's charges.
"Merrill Lynch has hired Giuliani Partners to advise on all aspects of a resolution," a
Merrill spokesman said. "The issues presented in this matter are complex and require a
complex understanding of the market system."
Spitzer has also subpoenaed most of Wall Street's biggest firms, including Morgan
Stanley (MWD) and reportedly Goldman Sachs Group Inc. (GS) and Credit Suisse
First Boston, which have declined to comment on the matter.
FOUR POTENTIAL CONSEQUENCES
There are four potential consequences of Spitzer's 10-month probe, Trone said. These
include a nationwide financial settlement, which, he said, could cost as much as $1
billion. The Changes to Merrill's research procedures, which Trone said could cost $30
million, and $500 million in lost profits from client defections are two other
consequences in addition to the settlement costs.
Civil lawsuits that result from the regulatory findings could cost $420 million, Trone said,
calculating there is a 1 percent chance Merrill would lose such a case and multiplying
that percentage by Merrill's total market value.
"We believe Merrill has virtually no chance of losing to plaintiff suits in court," Trone
said. It will be too hard for plaintiffs to prove they relied solely on Merrill's research to
make the investment decisions that lost them money, he said.
A total of $2 billion is steep, but Trone noted that Merrill lost $4.4 billion in market
value in the 10 trading days after April 8, when Spitzer announced the charges.
Despite the potential costs, Trone maintains his market rating of buy on Merrill shares.
"We believe the overall risk-reward ratio is quite favorable, and this current problem
may well serve as another great buying opportunity," Trone said.
Merrill shares were off $1.23 cents, or 2.6 percent, at $45.91 in morning trading on the
New York Stock Exchange.
© 2002 Reuters
For more on Prudential Securities, and why they may be maintaining their “BUY”
rating, GO TO: A Nest on Shaky Ground
For more on Goldman Sachs, GO TO > > > Dirty Gold in Goldman Sachs?
For more on Morgan Stanley, GO TO > > > Nests Along Wall Street
January 9, 2002
Merrill Lynch Sheds 9,000 Jobs
Brokerage House Plans To Cut Costs By $1.4B A Year
(CBS MarketWatch) Merrill Lynch, the nation's largest brokerage house, said it has
eliminated 9,000 jobs. The company also announced a fourth quarter pre-tax charge of
Merrill said the total includes some fresh layoffs, but mostly job cuts made throughout
the year. On Nov. 16 for example, Merrill said about 2,900 of its almost 66,000 workers
had accepted a voluntary buyout package.
As the financial giant continues to feel the bite of the recession, it's moving to produce
annual cost savings of $1.4 billion. A Merrill spokesman said more jobs cuts may take
place in the first quarter, but "most of them are behind us."
Merrill said it is eyeballing fourth quarter earnings of 48 to 50 cents per share, excluding
the charge. That's in line with the current forecast for earnings of 48 cents per share in
a survey of analysts by Thomson Financial/First Cal
The financial services specialist said it plans to channel the cost savings into its bottom
line. A portion will be reinvested in "priority growth initiatives."
CEO David Komansky said the cost cutting moves come after a "detailed review of all
our businesses over the past three months, and our current market outlook."
Merrill will spend $500 million of the total $2.2 billion charge to close offices around the
globe, plus $300 million on technology, including write-downs of tech assets. About
$200 million of the charge comes from "business rationalization costs."
Merrill said fourth quarter net revenue will drop 8 percent below third-quarter levels
amid lower debt trading revenue and reduced investment banking activity.
The brokerage giant also cited business disruption in the aftermath of the Sept. 11
terrorist attack. The company has moved back into its headquarters at World Financial
Center in downtown Manhattan.
©MMII, CBS Worldwide Inc. All Rights Reserved.
May 31, 2000
Ex-Merrill Lynch Executive
Defrauded Clients Out of $5.5M Through Risky Trading
BOSTON (AP) -- A former vice president of Merrill Lynch who bilked clients out of more
than $5.5 million has been sentenced to two years in prison without parole and
ordered to repay the money.
Donald J. Martineau, 56, of Tewksbury, Mass., who also served as senior financial
consultant for Merrill Lynch in Boston, pleaded guilty to five counts of wire fraud and
one count of mail fraud in February.
U.S. District Judge Douglas P. Woodlock on Tuesday ordered Martineau to repay
$5,521,045. Martineau's prison term will be followed by three years of supervised
release. He has already agreed to be barred for life from work as a stockbroker.
Martineau could have been sentenced to five years in prison and a $250,000 fine for
Brothers-in-law were victims
From November 1989 to August 1998, federal prosecutors said, Martineau defrauded
clients, including two brothers-in-law.
Prosecutors said Martineau convinced clients to invest funds through him, diverted the
money, then lost nearly all of it through risky trading of stocks and options. Merrill Lynch
fired Martineau in August 1998.
Merrill Lynch has said the transactions were never disclosed to the company and did
not appear in the company's accounts.
In January, the Securities and Exchange Commission announced the filing of civil fraud
charges against Martineau.
January 7, 2000
Merrill Lynch Probes
$40 Million Theft
Former Employee Suspected in Transfer of Funds
By Carol Huang, APBnews.com
NEW YORK -- Merrill Lynch is investigating a $40 million theft it believes was
committed by a former employee stealing from one of its elite, private banking clients by
using the name of a dead person.
Merrill Lynch identified the former employee today as Ashraf Raffa, a 12-year veteran
who worked as a financial consultant in its private banking division. The company said
Raffa was arrested in Egypt Dec. 9 and remains in custody in connection with the theft.
The company also said it has been investigating the incident since this fall and has fully
reimbursed its client, Arab International Bank (AIB).
"Merrill Lynch has paid its client for losses incurred as a result of an apparent
misappropriation of securities by one former employee. ... We are pursuing both
criminal and civil cases against the individual with a view to recovering these securities,"
the company said in a statement.
Allegedly made six money transfers
Merrill, a global banking powerhouse which claims $1.5 trillion in client accounts
worldwide, believes Raffa used the name of a deceased AIB employee to transfer $40
million in securities out of AIB's account into a Swiss bank account through six
transactions between 1996 and 1998.
A source familiar with the situation said Raffa introduced AIB to Merrill Lynch as a client
and managed the AIB account. "My understanding is that he brought the account to
Merrill Lynch," he said.
A Merrill Lynch spokesman said he did not know how much was left in the account but
said the assets, which were deposited into a UBS AG bank branch in Geneva, "had
UBS declined to reveal the name of the account where the deposits were made, citing
Swiss banking secrecy laws. "We are aware of the case, and we will certainly cooperate
with the authorities," said Ted Meyer, a spokesman for UBS in New York.
Merrill declined to provide the name of the deceased AIB employee whose name was
used, nor would it say whether other employees at either AIB or Merrill had been fired
or censured in connection with the theft.
Robbed client issues statement
AIB, which the Arab.Net describes as the 36th-largest bank in Egypt, issued a
statement saying it was satisfied with Merrill Lynch's response. Further attempts to
reach company officials were hampered by the end of the Ramadan holiday, a religious
celebration among Muslims.
Britain's Financial Services Authority, an industry-funded regulatory agency that
oversees all financial activity including fraud, said it was notified about the case, but
declined to comment on the investigation.
Merrill, recognized by its trademark bull, has $130 billion in client assets in its
International Private Client Group, which caters to clients with a high net worth. The
account for AIB was opened to provide private client services, including investments in
equity and fixed income products.
Company believes suspect acted alone
The firm tried to downplay reports of an internal investigation into the adequacy of its
account oversight and supervision.
"We have full confidence in our controls. Unfortunately, in this case there was a clear
abuse of trust by an employee who went to great lengths to conceal his activities. The
fact that his misconduct was discovered shows that it's not possible to get away with
such activity," a company statement said.
Robert Corrigan, a spokesman for the company's London office, said Merrill Lynch
officials "believe very strongly [Raffa] acted alone." He said the company expected to
pursue Raffa's case in Egypt.
He said a large part of the investigation is being led by the company's legal
division, which will determine how to pursue the case and recover the stolen securities.
Linklaters, an international law firm based in London, also is advising the company, he
October 21, 1999
Top Politicians Linked To
Pension Fund Deals
State Treasurer Denise Nappier shone the light Wednesday on seldom-seen
machinations that have put millions into the pockets of well-connected “finders” in state
pension investment deals— and some of the state’s best-known politicians were caught
in the glare....
Paul Silvester has told the authorities, in a secret statement still under court seal, that
former state Senate leader William DiBella introduced him to Joseph Grano, an old
DiBella friend from Hartford’s South End who is president of Paine Webber.
After Silvester agreed to invest $200 million with Paine Webber last year, DiBella told
Silvester that the company had refused to pay him a fee.
When Grano asked Silvester if there was another way to help DiBella, Silvester said,
Silvester turned to Frederic V. Malek, the chairman of Thayer Capital Partners, which
received a $75 million state investment commitment last October.
Malek allegedly told Silvester that Thayer used Merrill Lynch as an exclusive
placement agent, and that the only possibility to compensate DiBella would be if Merrill
Lynch would forgo some of its fee.
In its disclosure to Nappier this week, Thayer reported that it did, in fact, agree to pay a
$374,500 fee to a firm called North Cove Ventures, which Nappier’s office identified as
“William DiBella” when it released its compilation of the disclosures...
Thayer also paid a $1.1 million placement fee to Merrill Lynch, according to the
For more, GO TO > > > A Connecticut Yankee in King Kamehameha’s Court
May 4, 1999
Turkish coffee is good.
But not that good.
Cheated in Istanbul, snubbed by Visa
In every major tourist city around the world, there are numerous traps waiting for the
innocent tourists to fall into. That is partly the cost of world travel. However, when major
financial institutions such as Merrill Lynch and Visa International, knowingly
participate in the fraud, the issue is a cause for alarm.
I have been a loyal customer of Merrill Lynch Cash Management Account for the
past 20 years. I have never contested a single visa charge. But on March 1, 1999, I was
defrauded of about $4000 for the price of a beer and a cup of coffee in Istanbul. I had
no choice but to contest this outrage.
After two months of haggling with Merrill Lynch over the visa charges, despite previous
assurances, Merrill Lynch and Visa International have refused to challenge the
international fraud in which they are participating with the deceitful and extortionist
establishments involved in this case.
I arrived in Istanbul on the late evening of February 28. Because of jet lag, I could not
sleep. I decided to take a stroll in front of my hotel, the Marmara, in the early hours of
March 1. A smiling young man by the alleged name of Hassan Kivan, who introduced
himself as a tourist guide, befriended me and asked to have a drink with him at a
nearby bar. With his broken English, he seemed earnest and sincere.
He took me to two places that night at which I had a beer and a cup of coffee for which I
paid in cash. However, the managers claimed that the cash is not enough and asked
for a credit card. Assuming that I could always put a stop payment on it, I gave them my
Merrill Lynch Visa card. They soon came back with a small slip that I could not read in
the dark and, under duress, had to sign. I left Hassan completely exhausted and
dejected. But I asked him to write his name and phone number on the back of one of
the visa charges.
The next morning when I woke up, I wanted to know how much the two establishments
have charged me. Since Turkish Lira is a highly inflated currency and the rate of
exchange is about 360,000 TL to one U. S. dollar, I was thoroughly confused as to how
much I was paying. Besides, the salons were dark and the men threatening. To my
astonishment, I discovered that the first establishment had charged $1803 for a beer,
and the second one had charged $1995 for a cup of coffee.
I immediately called up Mr. Phillip Knorr, my Merrill Lynch executive accountant in
Honolulu, to let him know of the fraud and to request a stop payment on the visa
charges. He was sympathetic, told me stories of his own bad experiences in Istanbul,
and assured me that the case would be easily resolved. He also asked me to report the
incident to the Visa Dispute Section of Merrill Lynch and request a STOP PAYMENT.
The memo was faxed on March 1, the same day, with a copy to Mr. Knorr.
I also took the memo to the hotel managers and my tourist guide, Mr. Katsumi Makishi
of Magister Tours, Istanbul. The hotel managers, Mr. Cem Gundes and Ms. Sima
Molho, expressed sympathy and told me that this is a frequent occurrence in Istanbul.
They also sent me along with a hotel staff member to the nearest police department.
From the careless attitude of the police, however, I soon realized that there is no use in
a police complaint. The police are perhaps working hands in glove with the network of
tourist traps. Mr. Makishi suggested taking me to another police station where his
organization had some influence. We spent half a day waiting for the officer in charge.
When he arrived, all he did was to stamp my report without recording the complaint.
Discouraged by the police indifference, on March 4, I wrote a letter to the Turkish
Minister of Tourism, Mr. Ahmed Tan, and requested investigation. To this day, I have
not received a reply.
I also pursued the matter by long-distance phone calls to the Visa Dispute Section of
Ms. Merrie Michaels of that office told me that I should wait until the charges are
cleared. She also explained that sometimes, the fraudulent merchants decide not to
submit the charges out of the fear of being prosecuted. Upon return to home in
Honolulu on or about March 12, I called up Mr. Knorr again to see what has happened.
He again assured me that similar cases have been easily resolved. However, he also
urged me to call up the Visa Dispute Section directly because "they would listen better
to a customer."
In my conversation with Ms. Sherry Alston at the Visa Dispute Section, however, I was
told that since I had signed the visa charges on my debit card, there is nothing they can
do for me. I brought back the bad news to Mr. Knorr who by now was ignoring my
phone calls. On or about April 5, however, Mr. Scott Furukawa of the Merrill Lynch
office in Honolulu called me up and asked to be updated on the case. He was
courteous and sympathetic while repeating several times that he would have been
equally outraged under the circumstances. He promised to call back in a few days to let
me know of the results of his negotiations with the Visa Dispute Section.
On April 8, Mr. Furukawa called me up to say regretfully that his efforts on my behalf
have failed. We ended the conversation by my telling him that Merrill Lynch and Visa
Corporation were knowingly participating in an international fraud without attempting to
severe their ties with the deceitful merchants. I informed him that I would therefore
withdraw my account and publicize the case.
A few days letter, I received the followed letter from Mr. Furukawa:
"In reference to our telephone conversation today (March 8, 1999), Merrill Lynch will not
be able to reimburse you for the March 2, 1999 visa charges in the amounts of
$1,995.05 and $1,803.27 you made while visiting Istanbul. While we sympathize with
your claim of being victimized by the local establishments in Istanbul, you, nevertheless,
signed your name to these transactions."
There are lessons to be learned from this experience. First, undoubtedly, Merrill Lynch
and Visa Corporation profit from international tourist business. That is legitimate.
However, when they knowingly refuse to break off their relations with deceitful and
extortionist establishments, they are actively participating in international fraudulent
Second, credit card payments are convenient, particularly when travelling abroad, but
they open you up to a whole variety of fraudulent operations. This includes adding a
few digits in front or back of your actual charges.
Third, travelers must be extra-careful in their dealings with strangers. My case clearly
If it happened to me, it can happen to you.
From The Cheating of America, by Charles Lewis and Bill Allison:
In late 1987 or early 1988, Macauley Taylor, who oversaw the Structured Derivative
Financing Group at Merrill Lynch, began arranging installment sales of foreign
currency for cash or LIBOR notes for Merrill’s corporate clients. (LIBOR stands for
London Interbank Offering Rate; the notes are a financial instrument traded
internationally to offset the effects of interest rate changes.)
Multinational companies that do business in dozens of countries will, naturally enough,
earn money in dozens of different currencies–German marks, British Pounds, or
Japanese yen. They also borrow in all these currencies, all of which have their own
interest rates. Since the values of these currencies and the interest rates charged by
the central banks that manage them all fluctuate, multinationals hedge their bets by
exchanging some of that foreign currency for international bonds.
One of the things that Taylor noticed while arranging such hedges is that the
transactions also provided a tax benefit for the corporations using them.
In 1988, Taylor hired James R. Fields, who had worked for the IRS from 1984 to 1986
as an attorney adviser and later as a principal technical assistant to then chief counsel
Fred T. Goldberg Jr.
Taylor wanted Fields to work with his Structured Derivative Financing Group because of
his tax expertise; the two of them were the architects of the tax shelter that Merrill Lynch
would earn millions selling. Taylor had the initial idea; Fields fleshed out the concept,
and together they came up with a scheme in which a corporation would form a
partnership with a foreign entity in an offshore location.
The foreign entity–called “the tax neutral” partner since it would owe no U.S. income
taxes on any profits it made–would drop out of the partnership after a certain amount of
time, appearing to receive the lion’s share of the income that the partnership produced.
The corporation, conversely, would appear to be left holding the bag–with only the
costs, or the losses, of the partnership on its books.
Taylor and Fields drew up a schematic with various boxes representing the partners;
they played around with the figures to fine-tune the deal. In 1989, they were ready to
go, and began looking for companies that had large capital gains they might want to
offset. Fields proved to have more talents than devising tax shelters; he was also adept
at selling the scheme.
“I would say this is about an investment partnership where you combine with a
sophisticated partner,” Fields testified in Tax Court on Feb 14, 1996, recalling the sales
pitch he made to potential clients. “The nature of the buying and selling transactions
that that partnership can do as part of its investment activities can produce a significant
tax advantage.” Fields went on to describe the specific IRS regulations that the
partnership would take advantage of to produce the huge loss...
In 1988 and 1989, Taylor and Fields and others from Merrill Lynch sold the shelter to
one company after another. E.S.P. Das, the firm’s managing director or investment
banking, who had relationships with many of the companies, approached them initially.
He broached the subject of the shelter with top managers at Dun & Bradstreet
Corporation, the 160-year-old provider of global business and financial information
services, and with Schering-Plough, AlliedSignal, Brunswick Corporation,
American Home Products Corporation, and Borden, Incorporated.
Robert Luciano, Schering-Plough’s chairman and chief executive officer, made his
company an early participant. He served as a director on Merrill’s board; his son
Richard worked for Merrill Lynch in Das’s investment banking department. The elder
Luciano, an attorney who had specialized in taxes, also served on AlliedSignal’s board
of directors. He was so enthusiastic about the shelter, he recommended it to that
company as well.
Judith P. Zelisko, an attorney and the assistant vice president, director of taxes, for
Brunswick Corporation, attended a Merrill Lynch sales pitch on Dec 8, 1989. At the
time, Brunswick was in the process of selling its 36% stake in Nireco Corp, a Japanese
company that makes precision instruments. “Set forth below is a bullet point summary
of a transaction proposed by Merrill Lynch to Brunswick Corporation,” she wrote in a
Jan. 26, 1990, memo to her superiors, the controller and the vice president of finance,
“to generate sufficient capital losses to offset the capital gain which will be generated on
the sale of the Nireco shares. The specific dollar amounts can be adjusted to increase
or decrease the capital loss required.” . . .
In all, the profits that Merrill offered to shelter from tax are staggering.
In 1990, American Home Products sold off its household and depilatory divisions for a
pre-tax profit of $1 billion. The same year, Schering sold its Maybelline cosmetics
business and a pair of European cosmetic companies for a pre-tax profit of $220
In 1988, Dun & Bradstreet sold its Official Airline Guides subsidiary for a pre-tax profit
of $752 million. Two years later, it sold three other subsidiaries for a pre-tax gain of
approximately $84 million.
In May 1988, Brunswick sold its filtration technology business for $42 million pre-tax
gain. Two years later, it sold two more divisions for an $84 million pre-tax gain.
In Oct, 1989, Paramount sold Associates First Capital Corp, its consumer and
commercial finance business, for a gain of approximately $1.2 billion.
Those pre-tax profits amount to $3.4 billion; taxes on them would have totaled as
much as $1.1 billion.
The shelter that Taylor and Fields had devised would keep all that money away
from the federal treasury and in corporate treasuries instead.
Zelisko, Brunswick’s director of taxes, noted the price for turning the trick: “Merrill
Lynch’s fee is 5-10 percent of the tax savings. Assuming a capital loss of $82 million,
the tax savings would be around $28 million and a 10% fee on such savings results in a
fee of $2.8 million. This 10% fee is negotiable.”
“Five percent of $1.1 billion is the tidy sum of $55 million. And, as the Treasury
Department made clear in its report on corporate shelters, all of that money comes
out of the pockets of other taxpayers, like you, who have to pay more because
corporations pay less....
For the Colgate shelter, Fields turned to Mark A. Kuller, at the time a partner in the
Washington office of King & Spaulding. The two had served together at the Internal
Revenue Service in the chief counsel’s office. Kuller ended up writing four separate
opinion letters, concluding in each, after detailed recitations of prior precedents and
congressional intent in writing tax law, while the shelter might be successfully
challenged by the IRS, in his opinion it would probably survive such scrutiny.
With the favorable legal opinion in hand, all that remained to do was to find the foreign
partner. In the summer of 1989, Taylor contacted Johannes Willern den Baas, a
financial engineer with Algemene Bank Nederland N.V., a Dutch bank that at the time
had $85 billion in assets, with roughly 29,000 employees in some 950 offices in 43
The Dutch banker, eager to develop relationships with some of America’s wealthiest
corporations, agreed to participate. So he referred Taylor to Peter de Beer, a trust
officer and the head of the legal department of one of the bank’s many subsidiaries,
ABN Trust Co., Curacao N.V., located in the Netherlands Antilles, an established tax
De Beer’s four-lawyer staff helped corporate clients set up and manage Netherlands
Antilles companies to participate in offshore transactions.... “My understanding was that
the partnership would enter into transactions that would take part in the gain or the
loss,” he said. “So by having us being the majority partner at the start, we would take
the majority of the gain, while in a later stage one of the other partners would take the
ABN became the foreign partner of choice for Merrill Lynch; in late 1989, a plethora of
offshore partnerships sprung up between subsidiaries of ABN and the corporations
who’d bought into Merrill Lynch’s shelter.
There was ACM Partnership, formed with Colgate, Nietuw Willemstad Partnership with
Dun & Bradstreet, Kralendijk Partnership with Schering-Plough, Saba Partnership
with Brunswick, Maarten Investerings Partnership with Paramount, and ASA
Investerings Partnership with AlliedSignal, to name a few. All were formed from late
September 1989 to late June 1990.
Taylor was a busy man. He attended many of the offshore partnership meetings to
update his clients on the progress of the transactions Merrill made on their behalf. For
Colgate, he made six trips to the Netherlands Antilles and Bermuda in a 10-month
period between Oct 1989 and Aug 1990....
Beyond he beaches, tennis courts, and golf courses, there was a more important
reason that the partnership meetings for the various shelters Merrill arranged were held
offshore. “We wanted to keep the transaction out of the United States as much as
possible,” de Beer, ABN’s man in Curacao, explained. “It was our preference also not
to discuss or do anything with regard to this deal in the United States.
De Beer spoke from experience: “Well, working in Curacao for a number of years, we
did a lot of transactions with United States corporations, and we know how sensitive
that can be, and that’s to avoid any risk in that respect. Better safe than sorry.”
The risk was taxation. “Tax risk, yeah. To avoid any risk there, to have all meetings
and filings and all the documentation outside the United States.”...
Of course, Taylor’s life wasn’t all just travel for meetings in exotic Caribbean locales to
avoid tax risks. He oversaw a series of mind-numbingly complex transactions involving
the foreign partnerships. Taylor and the members of his Structured Derivative
Financing Group at Merrill Lynch purchased–and then sold–the financial instruments for
the offshore partnerships. He was the point man who interacted with Merrill’s brokers to
arrange all the sales, which took place in the span of a year.
The amounts of money invested were staggering – Kralendijk, the Schering-Plough shelter, purchased $1 billion of private placement notes on Jan 18, 19, and 25,
1990, all of which it sold, on March 12 and 16, 1990. On Feb 28, 1990, Saba
Partnership, AlliedSignal’s shelter, purchased $850 million in floating-rate private
placement certificates of deposit on Apr 25, 1990; on May 17 and 24, 1990, it dumped
the CDs. When Merrill was unable to find a buyer for the private placements for the
Nieuw Willemstad partnership, Dun & Bradstreet’s shelter, the brokerage firm issued
the LIBOR note itself and paid $42.5 million in cash. Taylor was involved in each
In the end, the offshore partnerships and hedged transactions, all worked perfectly.
Neither market fluctuations in interest rates nor falling or rising values of foreign
currencies had any effect of the performance of the partnerships. ABN earned profits,
and, on paper, the American corporations all ended up with losses. It was too good to
be true. So good, in fact, that the IRS began to challenge every Merrill Lynch shelter it
On March 12, 1993, the IRS denied the losses that Colgate, Merrill’s corporate client in
the deal, had claimed to offset its capital gain. On April 13, 1995, the IRS denied the
losses Borden claimed. On Sept 27, 1996, the IRS denied the losses AlliedSignal
claimed. One by one, as the Service discovered on audit that corporations had made
use of Merrill’s shelter, it denied the tax losses.
But the companies themselves weren’t ready to surrender their paper losses without a
fight. Colgate’s case, ACM Partnership, Southampton-Hamilton Company, Tax Matters
Partner v. Commissioner of Internal Revenue (aka US taxpayers), was the first to go to
trial, on Feb 12, 1996, nearly seven years after Merrill Lynch first approached Colgate
with its shelter proposal....
Thirty witnesses testified, and some 1,200 documents were entered into evidence,
ranging from the original charts that Taylor and Fields had drawn up when planning the
shelter to the minutes of the final meeting of the partnership.
In its final brief in the case, ACM’s lawyers argued that “The ACM transactions had
practical economic effects apart from the creation of tax benefits. ... Each transaction
engaged in by ACM had a reasonable prospect for profit or loss. Each transaction had
economic substance.” They cited Colgate’s desire to reduce its debt as the legitimate
business purpose for the company’s participation in ACM.
In the end, however, it was all for naught. On Mar 5, 1997, Tax Court Judge David
Laro ruled that the ACM partnership had engaged in a sham transaction.
“We do not suggest that a taxpayer refrain from using the tax laws to the taxpayer’s
advantage,” he wrote in his opinion. “In this case, however, the taxpayer desired to
take advantage of a loss that was not economically inherent in the object of the sale,
but which the taxpayer created artificially through the manipulation and abuse of the tax
laws. A taxpayer is not entitled to recognize a phantom loss from a transaction that
lacks economic substance.”
Colgate would have to pay its taxes on its capital gains after all....
~ ~ ~
On Aug 20, 1998, Tax Court Judge Maurice B. Foley ruled that AlliedSignal and ABN
were not partners at all, but a debtor and creditor, and that AlliedSignal was not entitled
to any of the losses that its shelter, ASA Investerings, had generated. That ruling was
upheld on appeal; U.S. Circuit Judge Stephen F. Williams wrote that “AlliedSignal’s
interest in any potential gain from the partnership’s investments was in its view at all
times dwarfed by its interest in the tax benefit.”
On Oct 27, 1999, Tax Court Judge Arthur L. Nims III ruled against Brunswick and the
Saba Partnership. “At the end of the day, Brunswick’s involvement in the [contingent
installment] transactions, with their attendant intricate investments in the [private
placement notes], CDs, LIBOR notes, money market accouonts, hedges, swaps, etc.,
all carefully masterminded by Merrill Lynch, did not meaningfully change Brunswick’s
economic position, and it therefore lacked the requisite economic substance necessary
to validate Brunswick’s targeted capital losses.”
~ ~ ~
The shelters he sold collapsed, but Macauley Taylor didn’t. He’s still at Merrill Lynch,
arranging complex derivative transactions for corporate clients, solving their various
accounting, financial, and tax problems.
James Fields left Merrill in 1992; he went to work for the Treasury Department as
deputy tax legislative counsel in the Office of Tax Policy....
While working for the Office of Tax Policy, Fields wrote a number of letters on tax
policy that were made public, on topics ranging from the marriage penalty to Section
936 of the Internal Revenue Code, which gives U.S. corporations a tax break if they
locate factories in Puerto Rico.
Fields also wrote about transition rules (often called “rifle shots,” because they’re
aimed at giving preferential treatment to a single taxpayer), the taxation of
international shipping, and the rules on foreign income earned by U.S. corporations.
He left Treasury in Sept 1993, around the time that the IRS began investigating the
various players in the Merrill Lynch shelter, and went on to be a vice president at
As the various Merrill Lynch partnerships wended their way through Tax Court and
appellate courts, Congress and the Treasury Department grappled with the issue of
corporate shelters. Bill Bradley, the former senator from New Jersey, made shutting
them down the centerpiece of his tax reforms when he sought the Democratic
nomination for president in 2000.
Periodically, Treasury makes headlines announcing new initiatives to crack down on
them. Congress has considered legislation that would force corporations to reveal on
their tax returns any shelter they had participated in. Considering the lengths to which
corporations go to secure legal opinions that the tax avoidance strategies they engage
in are not tax avoidance strategies at all, that seems to be an impractical approach to
Kenneth J. Kies, the former chief of staff of the Joint Committee on Taxation –
Congress’s in-house policy think tank of tax matters – has testified several times before
the Senate Finance Committee and the House Ways and Means Committee arguing
that there is no corporate tax shelter problem. Kies is now a managing partner in
PricewaterhouseCoopers’ Washington office, the same firm that promoted the BOSS
Kies’s view carried some weight with Republican members of the House. Dick Armey,
the House majority leader, reacted angrily to any suggestion that shelters deserve
legislative attention. On Feb 15, 2000, at his weekly press briefing, he declared,
“Since tax is a very large part of [a corporation’s] costs, anything they can do to
minimize that share of their costs would be a legitimate thing. ... The fact of the matter
is that we write the tax code, and any corporation ought to do what they can to
minimize that cost [to] their shareholders.”
Indeed. There’s no doubt that corporations do so every day....
# # #
FOR MORE BIRDS OF A FEATHER, GO TO
THE EAGLE HOODED: THE 9-11 COVERUP
PART I - PART II - PART III
~ ~ ~
A CONNECTICUT YANKEE IN KING KAMEHAMEHA’S COURT
ALLIED WORLD ASSURANCE
AIG: THE UN-AMERICAN INSURANCE GROUP
ALOHA, HARKEN ENERGY!
APCOA: VULTURES IN THE PARKING LOG
BAILING OUT WALL STREET!
THE BANKRUPTCY BUZZARDS OF ORANGE COUNTY
BIRDS IN THE LOBBY
CONFESSIONS OF A WHISTLEBLOWER
CONSECO: BIRDS IN THE TRAILER PARK
THE CARLYLE GROUP: BIRDS THAT DRINK FROM CESSPOOLS
THE CHUBB GROUP
CITIGROUP: VAMPIRES IN THE CITY
~ ~ ~
DIRTY MONEY, DIRTY POLITICS & BISHOP ESTATE
Part I - Part II - Part III - Part IV - Part V - Part VI - Part VII
~ ~ ~
FIRST HAWAIIAN BANK
THE DISSECTION OF ‘FRISTY’
DYING FOR DYNCORP
HALLIBURTON FROM HELL
I SING THE HAWAIIAN ELECTRIC
HOW TO COOK A GOLDEN GOOSE
MARSH & McLENNAN: THE MARSH BIRDS
THE NESTS OF OSAMA BIN LADEN
NESTS IN THE PENTAGON
NO BAILOUT FOR BILLIONAIRES!
OF DAISIES & VAMPIRES
OFFICE OF U.S. TRUSTEE vs. HARMON
THE FIRING OF EVAN DOBELLE
THE NESTS OF CB RICHARD ELLIS
SPOTTING THE SEC
THE NATURE CONSERVANCY
THE PEREGRINE FUND
THE PIMPS TO POWER
TINKERING WITH ETOYS
RICO IN PARADISE
THE SECRET NESTS
THE STEPHEN FRIEDMAN FLOCK
THE KISSINGER OF DEATH
THE TORCH OF ERIC SHINE
THE TURNSTONE BIRDS
THE BANKRUPTCY BUZZARDS OF ORANGE COUNTY
THE VULTURES IN WCI COMMUNITIES
YAKUZA DOODLE DANDIES
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