MERRILL LYNCH
BEWARE...THIS BULL IS FOR THE BIRDS!
Sightings from The Catbird Seat
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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 secretary.
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Barack Obama's administration has been slowly filling Treasury positions, hindered by candidates who have either withdrawn from consideration or been caught up in the vetting process.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 Commission records.
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 company.
"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 wary bankers.
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."
http://money.aol.com/article/fannie-mae-ceo-new-bailout-chief/433738
March 18, 2009
Judge rules against Merrill on keeping bonuses secret
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 ice cream.
“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 ruling.
“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 executive.
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 some.
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 bailout package.
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 discuss it.
"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 lending money.
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 government.
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 those details."
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 bank spending.
"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.
http://news.yahoo.com/s/ap/20081222/ap_on_bi_ge/meltdown_secrets
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 reveals.
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 stock options.
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 mortgage write-offs
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 shares.
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 further.
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 positions.
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 - News)....
Merrill shares were down $4.62, or 8.4 percent, at $50.47 in afternoon New York Stock Exchange trade.
http://biz.yahoo.com/rb/080117/merrilllynch.html?.v=1
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BLOWBACK!
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 others....
MELTDOWN
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 sex.
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 capitalism.
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.”...
STEALTH IMPERIALISM
... 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 precrisis levels.
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 killings.”...
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 people...
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 inevitable.
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 said.
The nonprofit center analyzes campaign finance and lobbying records at the Federal Election Commission (FEC), a government agency that enforces U.S. campaign finance law.
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 91 percent.
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 Group.
"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 1999.
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 investors.
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 later was.
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 earnings.”...
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
Associated Press
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,” Spitzer said.
“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 households.
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 big lie."
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 Wednesday.
"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 $2.2 billion.
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.
Ex-Merrill Lynch Executive Pleads Guilty
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 each conviction.
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.
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 been frozen."
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 said.
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 disclosure...
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
The Iranian
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 Merrill Lynch.
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 schemes.
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 demonstrates this.
If it happened to me, it can happen to you.
From The Cheating of America, by Charles Lewis and Bill Allison:
GIMME SHELTER!
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 million.
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 countries....
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 haven.
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 loss.”...
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 transaction.
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 discovered.
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 Citibank.
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 the problem.
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 shelter.
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
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