Author: Megan Carpentier

The top eight spenders in the financial industry alone spent nearly $30 million to lobby Capitol Hill last year, according to Nathaniel Popper of the Los Angeles Times — a 13 percent overall increase from 2008. That overall increase was fueled by a 12 percent increase — to 6.2 million — at J.P. Morgan Chase alone, with Well Fargo increasing its lobbying expenditures 27 percent and Morgan Stanley spending 16 percent more than last year. All three banks received TARP money from the federal government.

Overall, lobbying expenses across Washington increased less than 5 percent in 2009 — higher than the rate of inflation, certainly, but nearly half of the average yearly increase in spending seen during the last several years.

The financial sector’s increased commitment to Washington lobbying in 2009 was driven by multi-million dollar budget hikes in the commercial banking, credit union, credit card and venture capital sectors. Meanwhile, securities and investment firms posted a slight decline in their lobbying expenditures, as did private equity companies.

Those companies would undoubtedly insist — in compliance with the Byrd Amendment, which prohibits companies from spending money received from the federal government on lobbying — that there was a strict demarcation between corporate money and federal TARP funds. But when those TARP funds were used to keep the corporation afloat, it’s a paper-thin wall at best.

Nick Baumann of Mother Jones reports that the latest vehicle to try to soak American investors — after Citi’s plans to develop derivatives (a type of insurance product) to allow investors to make money betting on future financial crises — is a movie derivatives market developed by the financial firm Cantor Fitzgerald.

Cantor’s product would allow movie makers and theaters to offset their risks on a project by buying or selling legal bets on a given movie’s take during the first four weeks it is in box offices. Like investors in credit default swaps — who bet that Americans with subprime mortgages would default — movie derivative investors could bet on the success or failure of a given movie. And unlike with credit default swaps, some of the people making bets on movies could be the very people with the decision-making power to help or hurt a given movie’s chance of success.

Economists say that derivatives aren’t supposed to be just legalized gambling, and that Cantor’s movie derivatives are little better than the average sports book.

In that context, Cantor’s plan could be “incredibly dangerous,” [UCLA professor Lynn] Stout says. “Until we fix this legal problem that you can make purely speculative derivative bets, we have to worry that any newly created form of derivative can add risk to the system.”

But with companies like Cantor Fitzgerald lining up to oppose financial sector reforms and the creation of a consumer protection agency for financial services products, we may have to keep worrying.

Amid fears that Switzerland might come to an agreement with the United States on banking privacy and tax evasion disclosures, Credit Suisse issued a report identifying those countries it determined to have the highest risks of default on their sovereign debts. Number 16 on the list was the United States, based primarily on its 2009 budget deficits and government debt.

Countries ranked less likely to default include corruptocracy Kazakhstan, less-than-reform-minded Indonesia, the debt-ridden Philippines and violence-ridden Colombia. By comparison, U.S. Treasuries prices are up today despite a new issuance this week.

When President Obama traveled to Denmark to try to seal the deal to host the 2016 Olympics in Chicago, his trip was decried by conservatives and his failure to win the Games bemoaned by Democrats. But the Greek financial crisis might give everyone a reason to celebrate his failure.

Victor Matheson of the Sports Economist notes that the price tag for hosting the Olympics — €9 billion, or 5 percent of Greece’s annual GDP — was yet another reason for the Greeks to borrow more than the Maastricht Treaty technically allowed. By 2004, the government deficit was at 7.5 percent, and the big returns expected by its supporters — and, in all likelihood, the government, which needed those returns to pay down the debts they incurred — never materialized. By 2005, when the Greeks enlisted the help of Goldman Sachs to hide some of their debt, Greece’s GDP was at a decade low.

Reports indicate that in the wake of the failure of the Chicago bid, the U.S. Olympic Committee is focusing on bids for the 2022 Winter Games, applications for which will be due in 2013 — less than a year after the next presidential election. Perhaps, if Obama is still president then, he’ll have reason to tell them he won’t be pushing quite as hard for them this time around.

Paul Volcker, former Fed chair and current Economic Recovery Advisory Board chair, says that it’s time for Goldman Sachs to make a choice: Either it’s a bank or it’s not.

In the midst of the financial crisis, Goldman Sachs and Morgan Stanley sought licenses to become bank holding companies in order to gain access to the Fed’s emergency lending capacity. Despite the increased regulation and capital requirements, they’ve stayed “banks” while continuing to use their cash reserves in proprietary trades (i.e., investing their own money in the stock and other markets). Volcker’s proposed banking rules would end that practice, as it has the potential to drain banks reserves — and then the Fed’s reserves and, in the case of failure, the FDIC’s coffers as well.

Upon hearing that Goldman Sachs had no intention of giving up its banking license, Volcker said:

“The implications for Goldman Sachs or any other institution is, do you want to be a bank?” Volcker, a former chairman of the Federal Reserve, told the Financial Times. “If you don’t want to follow those (banking) rules, you want to go out and do a lot of proprietary stuff, fine, but don’t do it with a banking license.”

Goldman, as likely comes as no surprise, wants to go out and take risks with its money and use the Fed (and taxpayer dollars) to limit the risk that its bets are faulty. The problem is that Volcker knows full well that the last time Goldman had an absolute hedge against loss was when it convinced AIG to insure investments that were destined to go bad in order to profit off the insurance payout. He doesn’t think they should be able to do the same thing to the Federal Reserve.

If today’s economy wasn’t already bad enough and the need to bail out entire countries rather than just banks didn’t strike enough fear into your heart, Congressional Oversight Panel chair Elizabeth Warren has some news for you: It’s about to get worse.

The home mortgage crisis might be more or less “over” — unless you’ve already lost your home or, like the vast majority of applicants, been denied entry into Obama’s vaunted mortgage modification program — but Warren’s panel says there’s a new one about to begin. There are $1.4 trillion in commercial real estate loans that need to be refinanced between 2011 and 2014 and, like many homeowners before them, commercial property owners took out mortgages on expensive property, only to watch prices drop.

If, like too many homeowners before them, the commercial real estate owners default on their loans, Warren thinks the whole, nasty financial crisis cycle could well start up again.

When commercial properties fail, it creates a downward spiral of economic contraction: job losses; deteriorating store fronts, office buildings and apartments; and the failure of the banks serving those communities.

Unlike the home mortgage crisis, however, the banks serving those communities aren’t large, out-of-state Wall Street giants: they’re quite often local community banks. Those banks are a cornerstone of Obama’s strategy to ease credit restrictions to allow businesses to hire more people and to help individuals stay in their homes. They are also the cornerstone of Arianna Huffington’s “Move Your Money” campaign to encourage people and state and local governments to transfer their money to smaller, local banks in an effort to benefit local economies.

Warren suggests that, despite the political improbability of another round of bailouts, some banks might need to be bailed out or will simply fail. No wonder Sheila Bair and the FDIC made sure their books were back in the black before the start of 2010.

It’s a rare day in America that the government, economists and members of the media establishment will come together and tell Americans that, actually, they’re all screwed. But since today is one of those days, let’s count the ways this recession has permanently altered the American economy for the worse.

1. The poor are far more unemployed than the rich.
It’s not enough that they make more money anymore — despite everything that economics might normally predict, those with higher incomes are less likely to be unemployed during this recession. A new study from Northeastern University shows that among the top 20 percent of households — those making more than $100,000 — the unemployment rate is about 3.5 percent. In the poorest 10 percent of American households — those making under $12,800 a year — the unemployment rate is 30.8 percent. No wonder all those AIG bankers were threatening to leave their jobs in the midst of the recession: For them, there never was one.

2. The jobs that used to exist aren’t coming back.
Economists predict that at least 25 percent of the 8.4 million jobs that have disappeared thus far won’t be coming back no matter how good the economy gets. In fact, with job creation expected to be, at best, 133,000 new jobs per month over the next year — and 100,000 new people entering the work force every month — it will take more than 20 years at this rate to replace all the jobs that were lost in the last two years.

3. Corporations now know exactly how much money they save by firing workers.
And although the employment figures show that the rich stayed employed and the lowest-wage workers — who do most of the productive work in the economy — did not, companies laid off so many lower-paid workers that they are more flush with cash than Scrooge McDuck — to the tune of $1.19 trillion. But since people who kept their jobs have been busting their humps to keep them, productivity rates went up during the recession — which means your corporate overlords know exactly how hard they can work you for how little pay without reducing output. Get used to busting that hump.

4. Job growth is already not meeting economists’ predictions anyway.
Despite economists’ already-less-than-rosy predictions about job growth, only 95,000 jobs were created last month. So, we’re already 38,000 jobs — or more than a month — behind the growth we’d need to make back the 8.4 million lost jobs in 20 years.

5. Even Republicans don’t pretend that living wages exist for many Americans.
Nearly one in eight Americans currently depends on food stamps, and many of those people are working Americans (including some members of the military). Half of the families enrolled in food stamps are working, though fully 90 percent of those receiving benefits are below the federal poverty line. Everyone from Sen. Richard Lugar (R-Ind.) to George W. Bush and his food stamp administrator Eric Bost to former Wisconsin governor and presidential candidate Tommy Thompson is a food stamp booster for the working poor — the people who make minimum wage but can’t make ends meet. But you can have a job in this country and still go hungry — and some people who acknowledge that think the best solution is just to give companies more tax breaks.

Yesterday, everyone got worked up over President Obama’s comments to Business Week that he didn’t begrudge Chase CEO Jamie Dimon or Goldman Sach CEO Lloyd Blankfein their bonuses — despite the many reasons those bonuses aren’t as out-of-line as the headlines would have Americans believe. But are they the only financial-sector CEOs getting bonuses this year? Hardly, and there are plenty less deserving, according to The New York Times. Eric Dash notes that, as long as the CEO in question doesn’t appear near the top of a who’s who list on Wall Street, his bonus tends to fly under the media radar.

Case in point: Wells Fargo CEO John Stumpf. His compensation for 2009 — if you count the bonus he got mid-year — will be around $24 million. Well Fargo’s profit for 2009, however, was $7.99 billion, far shy of Chase’s $11.7 billion or Goldman’s $13 billion profit last year. Unlike Chase and Goldman, Wells Fargo didn’t pay off its TARP money until the very end of 2009, just in time to free Stumpf from the strictures of executive compensation limits. And while Dimon and Blankfein didn’t get bonuses in 2008, Stumpf took home a cool $13.8 million on Wells Fargo’s $2.66 billion profit in that year, which was less than half of the profit seen under Dimon’s leadership at Chase in the same year.

Dash notes other executives that seem to be getting paid even as their companies continue to founder: Morgan Stanley CEO James Gorman is set to get $11 to 13 million for 2009, even though his company posted an annual loss. Bank of America’s highest-paid executive this year is Gregory Curl, who got $9.2 million in stock even as his employer was coming to a deal to avoid prosecution over the acquisition of Merrill Lynch that he led. And Visa’s now-former president, Hans Morris, took home $24 million just for retiring in 2009.

Obviously, there’s only so much begrudging one President can do.

Majors General Zhu Chenghu and Luo Yuan and Colonel Ke Chungqio of the Chinese People’s Liberation Army were quoted in an official Chinese publication calling for the Chinese government to retaliate against the United States economically for the recent decision to sell $6.4 billion of arms to Taiwan. China has already announced unspecified sanctions against U.S. companies that participate in the sale.

Luo, also a researcher at the Chinese Academy of Military Sciences, doesn’t think those sanctions go far enough. He told China’s Outlook Weekly:

“We should go in for a strategic mix of retaliation across politics, military matters, diplomacy and economics… For example, we could sanction them using economic means, such as by dumping some US government bonds.”

China has quite the history of threatening to dump its U.S. Treasury bond holdings in retaliation for unspecified U.S. actions or to achieve specific economic ends. Reuters notes that China is currently the largest holder of U.S. Treasuries, and has actually doubled its holdings since 2007.

Some economists think it’s all just posturing, particularly as the military has little influence over economic regulators in China. India’s Daily News & Analysis reports that most analysts recognize that if China dumps its Treasuries, it will do as much damage to its own economy as to the United States’:

[Patrick Chovanec, associate professor at Tsinghua University in Beijing said] “The Chinese economy continues to depend on exporting products for dollars – and accumulating even more dollars,” noted Chovanac. Chinese exports, GDP growth employment — all of it depended on China’s continued ability to sell product for dollars.

In other words, selling Treasuries would devalue the dollar, causing China to hurt its own ability to export to the United States — which is still the engine of its economy. Furthermore, Chovanec added that if China simply wanted to devalue the dollar, it could stop artificially devaluing its currency against the dollar, which is what the United States wants and China has resisted for years.

Dumping U.S. Treasuries en masse would be the economic equivalent of China cutting off its nose to spite its face, and the people in charge of China’s economy recognize that (for now). That there are some there who value the One-China policy above all else is little surprise; that they’re not in charge of China’s economy should come as little, too.

The Greek debt crisis — which is threatening to spread to Spain, Portugal, Italy and Ireland and force the Germans to bail out the Greek government with German taxpayer dollars — is all the rage right now, with people trying to figure out how to stop the contagion and halt the default that might well trigger the next nadir in the nascent world economic recovery. Der Spiegel now reports that Goldman Sachs’ tricky derivatives trades may have masked the Greek debt just long enough to screw us all over yet again.

Under Eurozone rules, countries are required to keep total government debt to 60 percent of GDP and government budget deficits to 3 percent, in order to maintain the value of the euro, Eurozone-wide interest rates and general stability. Greece, it turns out, was always fudging its budget deficit numbers by “mistakenly” leaving things out — meaning that its budget deficits were inevitably above 3 percent and, in 2009, closer to 12 percent.

But even those figures aren’t accurate, because the Greeks used complex financial transactions, designed by Goldman Sachs, to kick the debt can down the road even further. Goldman had the Greeks issue bonds, valued in dollars, in yen in exchange for bonds that paid out in euros. But rather than receiving the euro-denominated bonds at market prices, Goldman made up an exchange rate that allowed the Greeks to look as though they were only engaging in a currency swap when, in effect, they were getting more than a billion more than they should have from the trades in credit. The credit wasn’t counted against their debt or deficit limits — though it will be, when the bonds they began issuing in 2002 begin maturing in 2012 and 2017.

It’s likely that Goldman made a killing on the commissions for the swaps, and then sold the swaps to a Greek bank for even higher profits.

The swaps, and the non-disclosure of them, are both perfectly acceptable within the Eurozone reporting rules. But what’s legal, as the United States already found out, isn’t the same as what is good for the economy. The Greek debt — which Goldman not only enabled but expanded — may throw Greece, if not the Eurozone, into a financial tailspin if the crisis isn’t resolved. That crisis is expected to trickle back to the United States, where our economy has only barely started down the road to recovery. And Goldman, with its $13 billion profit in 2009, will still be sitting pretty.

Although the federal government is closed due to snow, Fed Chairman Ben Bernanke decided not to wait for today’s congressional hearing to be rescheduled to release his statement. In it, he pointed out something exceedingly obvious: The Fed’s actions to keep short-term interest rates at zero are going to have to end at some point.

“Although at present the U.S. economy continues to require the support of highly accommodative monetary policies, at some point the Federal Reserve will need to tighten financial conditions by raising short-term interest rates and reducing the quantity of bank reserves outstanding,” he wrote.

Markets reacted as though the news that interest rates won’t stay at nearly zero forever was shocking — and as though “at some point” might come tomorrow. The Dow dropped 40 points in the 90 minutes after Bernanke’s 10-page statement was released. The best explanation of why everyone freaked out came from someone who himself swore he wasn’t freaking out.

“Saying it will raise rates ‘before long,’ obviously there’s no specifics but it does put potential rate increases back on investors’ minds,” said Alan Lancz, president of Alan B. Lancz & Associates. “Before, it was considered not in the foreseeable future.”

In other words, the people to whom Americans with 401k’s, Roth IRAs and other retirement accounts are entrusting their non-foreseeable futures were unable to conceive of a point in the near term at which the Fed would return interest rates to something approaching historical norms, and have been investing your money as though the crisis would last forever.

No wonder Chase CEO Jamie Dimon expects a financial crisis every five to seven years.

The Swiss bank UBS — last seen by The New York Times supposedly donating to Republicans to avoid regulation — is doing something more in line with President Obama’s calls to limit executive bonuses when companies fare poorly. UBS, which posted a $2.56 billion loss in 2009, is taking back the $282 in deferred bonuses it gave senior executives after its $19.9 billion loss in 2008.

The Swiss government bailed UBS out with a $5.6 billion investment, since recouped with a profit, but UBS failed to regain profitability in 2009. It did manage to post its first profit in more than a year in the first quarter of its fiscal year, due to a tax credit from the government.

In contrast to all the whining in the States among bankers subject to executive compensation caps because they’re still running off American taxpayers’ largesse, UBS doesn’t expect its bankers to write editorials threatening to quit because their failure to turn a profit doesn’t net them bonus pay.

In an interview with Business Week, Obama said that he didn’t “begrudge” J.P. Morgan Chase CEO Jamie Dimon or Goldman Sachs CEO Lloyd Blankfein their bonuses for 2009, which amounted to $17 million and $9 million in stocks. While this has spurred outrage and unfavorable comparisons to last year’s remarks blasting the $121 million in bonuses at AIG, there are a few good reasons why lavish bonuses might be more justifiable this time around.

• Goldman Sachs made $13 billion in 2009, after losing $780 million (after taxes) in 2008.
• Chase doubled its 2008 profits to $11.7 billion in 2009.
• Chase repaid its TARP money in full by July 2009.
• Goldman repaid its TARP money with a 23 percent profit by July 2009.
• Neither Dimon nor Blankfein took a bonus for 2008.
• For 2007, Dimon received a $28 million bonus that was not restricted to stock.
• For 2007, Blankfein received a $67.9 million bonus, including $26.8 million in cash and $41.1 million in restricted stock and stock options.
• J.P. Morgan Chase made a profit every quarter during and despite the financial crisis.
• Goldman’s stock doubled in value last year and its profits were at a record high.

So, what did the president say?

“I know both those guys; they are very savvy businessmen,” Obama said in the interview yesterday in the Oval Office with Bloomberg BusinessWeek, which will appear on newsstands Friday. “I, like most of the American people, don’t begrudge people success or wealth. That is part of the free-market system.”

He does, however, view the amounts as shocking.

But who would have guessed! Our president doesn’t begrudge CEOs bonuses that are smaller than they were before the crisis, when their companies were hugely profitable and their TARP money had been repaid? What kind of socialist is he, anyway?

In 2007, under the stewardship of Republican Gov. Linda Lingle, Hawaii reduced the unemployment tax rate on employers under the guise of encouraging job growth — despite the fact that, at the time, Hawaii’s unemployment rate was 3.1 percent.

Now that the unemployment rate is 6.9 percent, and people are applying for unemployment benefits at a record pace, Hawaii has a problem: a state law that triggers an automatic tax increase to cover shortfalls in the unemployment system. And whatever money Hawaii’s employers saved during the boom employment times, they’re about to have to repay in spades. The per-employee tax to fund unemployment benefits will go from $90 to $1,070 per worker this year — absent legislative intervention — to cover systemic shortfalls.

Lingle is now calling for lawmakers to limit the per-employee tax increase to 60 percent, a $54-per-employee increase. Does anyone think that employers saved enough on the tax cut from 2007 to 2009 to make up for the current need for a massive increase?

But don’t hold your breathe waiting for Republicans to start screaming about how massive tax reductions led to larger deficits in the end. These days, only spending can lead to deficits.

If you read the stories in The Wall Street Journal last week or The New York Times this week about campaign contributions from financial companies, you might have the impression that financial PACs and executives are shifting their money from Democrats to Republicans en masse over bonus restrictions, new regulations and the proposed big bank tax. That’s exactly the impression that Wall Street and the Republican Party want you to have — but it turns out it’s not true.

House Minority Leader John Boehner (R-Ohio) got the ball rolling last week when he leaked to the Journal that he’d met with J.P. Morgan Chase CEO and Chairman (and big Democratic donor) Jamie Dimon about donating to Republicans; Dimon refused to comment. The Times picked up the gauntlet this week, quoting the BB&T CEO Kelly King — a board member of the Financial Services Roundtable:

“If the president doesn’t become a little more balanced and centrist in his approach, then he will likely lose that support [of financial companies].”

Interestingly, according to campaign finance records, King has donated exclusively to Republican candidates, and BB&T’s PAC has historically weighted its contributions in favor of Republican candidates regardless of the party in control. It sounds like a guy who doesn’t even donate to Democrats is trying to shake them down for concessions on financial market reforms based on their desire for campaign contributions — and reporters are lapping it up.

But is it true that financial companies are switching their campaign contribution allegiance to Republicans in 2010? The first (and only) concrete example offered of a company doing this is Bank of America, according to the Journal.

Through the first nine months of 2009, about 54% of donations from Bank of America Corp.’s political action committee and employees went to Republicans, according to campaign-finance data compiled by the nonpartisan Center for Responsive Politics. That was a switch from the 2008 campaign, when 56% of the company’s donations went to Democrats.

That’s true, but it’s only half of the picture. Bank of America actually operates two PACs: one out of Washington, and one out of Delaware. In 2008, the D.C.-based PAC gave 55 percent of its congressional race donations to Democrats, but 54 percent of its Senate donations to Republicans; the Delaware-based PAC split its donations to candidates down the middle, but gave 58 percent of its PAC-to-PAC expenditures to Republican causes. Overall, the $50,000 extra that the D.C.-based PAC gave to Democratic Congressional candidates was outweighed by the $87,000 extra the Delaware-based PAC gave to Republican causes.

In the 2010 cycle so far, the D.C. PAC has given 53 percent of its Congressional contributions to Republicans and 91 percent of its Senate contributions to Republicans, and the Delaware PAC gave just over two-thirds of its contributions to Republicans PACs. It’s a movement away from Democrats, but the cycle is far from over — in fact, given that it’s still primary season for contributions, it’s barely begun — and the numbers show that the Bank of America was hardly some great supporter of Democrats during the best of times. Like many other companies, what loyalty it showed to Democrats in 2008 was solely loyalty to House Democrats, not to the party overall.

The story holds true for many other major banks: Supposedly staunchly Democratic firm J.P. Morgan has a similar dual-PAC structure, and the majority of its contributions went to Republican candidates in 2008, and weren’t outweighed by the minor advantage held by Democrats in its PAC-to-PAC contributions in 2008 — nor were its second PAC’s small contributions to candidates strongly in favor of Democrats. While its PAC-to-PAC contributions in 2010 are heavily in favor of Republicans so far, its contributions to candidates are running fairly even — and the PACs have allocated less than a quarter of the 2008 cycle contributions despite strong fundraising. Dimon himself has yet to donate to a single Republican candidate in 2010.

Goldman Sachs, everyone’s favorite punching bag, hasn’t donated to a single Republican senator for 2010, and its contributions to Democratic House candidates far outpace those to Republicans. The Times says that UBS’s PAC is donating mostly to Republican candidates because of its strong support for Senate Republicans; but UBS’s donations to Democratic House members are besting those to Republicans, which is the very reason why its 2008 donations favored Democrats in the first place. The embattled AIG is one of the few companies whose donations to Democratic senators outpaced those to Republicans in 2008; that continues in 2010.

In fact, according to the Center for Responsive Politics, the PAC donations by finance, insurance and real estate companies have turned in favor of Democrats in 2010 as compared to 2008, spurred by a reversal of fortune for Republicans among commercial banks and insurance companies as well as gains for Democrats among savings and loan companies and security and investment companies. It seems a lot like the real story is that Republicans are trying to claw back a trend away from donating to Republicans in 2010, rather than spurring any movement away from the Democrats. But that would take some number crunching to figure out, rather than relying on whispers from Boehner’s office or statements from Republican bankers.

When Congress passed rules to reign in the most usurious of credit card practices, many Americans cheered. When Congress moved up the deadline for companies to comply with the rules because credit card issuers began raising rates in an effort to squeeze as much cash out of strapped Americans before the government started regulating their greed, Americans breathed a collective sigh of relief.

But just as if given enough monkeys, typewriters and time, one will get Shakespeare, give the credit card companies enough lawyers, money and contempt for their customers, and they’ll find a way to avoid regulation.

At the forefront, as James Kwak reports, is Citi. Since they will soon no longer be allowed to raise interest rates immediately, permanently or for no reason, Citi is raising its rates for all customers to its bad-creditor rate of nearly 30 percent. Customers who had been paying lower rates will be made eligible for a “program” that lowers the standard interest rate back down to the rate they were paying, but if they miss a payment, the rate shoots up immediately and retroactively — one of the very things the new credit card regulations were designed to prevent. In Citi’s case, since it’s a “program” rather than a rate, they think it’s legal, and that it will allow them to continue their current interest rate games despite regulations designed to stop them.

Oh, and Citi’s clear about one other thing: As a customer, your only two options are to play along or to pay off your balance, cancel the card and try your luck elsewhere (not that you’re likely to have any). It’s kind of a twofer: Citi can show its contempt for the law and its customers, all in one fell swoop.

Sen. Robert Menendez (D-N.J.), who chairs the Democratic Senatorial Campaign Committee, is under fire in The Wall Street Journal today for a poorly written letter drafted by a legislative assistant and likely signed by the office auto-pen.

In his letter to the Fed July 21, Mr. Menendez said there was a strong likelihood that First BankAmericano, of Elizabeth, N.J., would fail in three days, which would “send yet another negative message to consumers and investors and further impact our fragile economy.” The one-page letter, obtained by The Wall Street Journal under the Freedom of Information Act, urged Fed Chairman Ben Bernanke to approve a sale of the bank to JJR Bank Holding Co. of Brick, N.J.

The Journal would like you to know that the two of the First BankAmericano executives are “major” Menendez donors: former Chairman Joseph Ginarte and vice chairman Raymond Lesniak, who gave $30,000 to Menendez and his PAC since 1999 and “generously,” respectively. The Journal’s definition of “generously” is, at least when it comes to Democrats, $5,250 since 1990. By way of comparison, Menendez has raised almost $30 million for his campaigns since starting his federal political career in 1989 and $2.5 million for his PAC since starting it in 2000, making Ginarte’s donations less than .1 percent of Menendez’s total contributions in that period, and Lesniak’s even less.

Buried further in the piece than the fact that a New Jersey banker and a New Jersey Democratic politician were donors to one of the state’s Democratic senators is this tidbit, which the editorial staff of the Journal found less important than Menendez’s donors: If the Fed had acted upon Menendez’s request and allowed the sale of First BankAmericano — which it didn’t — both Ginarte and Lesniak would have taken huge financial hits.

Better yet, neither Ginarte nor Lesniak actually contacted Menendez or his office: The letter was written after a request for assistance was received from First BankAmericano’s consulting firm, FinPro Inc. None of the principals of FinPro have ever donated to Menendez, though, so that’s probably not as interesting if you’re trying to paint a senator as beholden to his donors.

Finally, at the very, very bottom of the story, there’s this tiny piece of information that would normally seem pretty important, unless the article is framed around making Menendez look … beholden to his donors.

In a twist, after the bank failed and the Federal Deposit Insurance Corp. auctioned it off, it was bought by a subsidiary of JJR—the same firm to which it would have been sold if the Fed had approved the acquisition. The failure cost the FDIC $15 million.

In other words, had the Fed bothered to act in a timely fashion on a bank sale already approved by the state of New Jersey — which was the reason that FinPro asked Menendez to weigh in — the government would have saved itself $15 million. But the deficit hawks at the Journal are, in this case, less concerned with the Treasury’s balance sheets than with those of Sen. Menendez’s campaign coffers.

Bankrupt lender CIT Group announced today that it hired former Merrill Lynch Chairman and CEO John Thain to take over the top slot at the company and, hopefully, lead it out of bankruptcy. A bit of background on CIT Group: The company accepted $2.3 billion from the TARP in December 2008, only to file for bankruptcy in November 2009 — thus wiping out the government’s investment.

Since Thain oversaw a loss of $1.79 billion in his last quarter at Merrill, he can hardly do worse at a company that has already gone bankrupt.

In an amusing twist, Bank of America — which forced him out post-merger with Merrill after he finagled billions of dollars in bonuses ahead of the shotgun marriage — will be paying taxes to recoup the government’s losses on CIT and others if Obama’s big bank tax makes it through Congress. Better yet for Thain, the man that forced him into unemployment, former BofA Chairman Ken Lewis, is now unemployed himself.

Despite his high-flying corporate career, Thain is likely to be best remembered as the man who, in the midst of massive losses at Merrill Lynch in January 2008, spent $1.2 million of the company’s money to renovate his private offices. Some of those expenses included an $87,000 area rug, a $13,000 chandelier for his private dining room, and $35,000 for a “commode on legs.” While similar devices can be had for less than $200, one assumes Thain didn’t want to touch anything but the finest of craftsmanship.

The person with the, ahem, crap job of removing the commode from Thain’s office after his resignation probably wouldn’t have noticed the difference.

Gretchen Morgenson and Louise Story’s New York Times piece yesterday was a thorough explanation of Goldman Sachs’ machinations that contributed to the collapse of AIG and the government’s perceived need to jump in and pay for everything without negotiating prices.

But unless you’re well-versed in the modern minutiae of the financial market, it probably didn’t help explain anything about why Treasury Secretary Tim Geithner is facing an investigation into his role in the affair.To recap Morgenson and Story:

• The people at Goldman Sachs invested in mortgage-backed securities they expected to decline in value in order to make money off the insurance claims.
• Due to a long-standing relationship, they went to AIG for a kind of insurance — credit default swaps — which were not regulated.
• They then used other companies, including Société Générale, to purchase more of the unregulated insurance that AIG might not have otherwise underwritten in order to manage its own risk.
• When Goldman’s investments declined, they submitted insurance claims for the losses, but insisted on determining the amount of their damages on their own, without any input from AIG, any auditor or the market.
• After Goldman got as much money out of AIG as they thought they could, their stock analysts issued a report about how AIG was bleeding cash and their creditors wouldn’t negotiate, without mentioning that AIG was bleeding cash because of them and that Goldman was the creditor that wouldn’t negotiate. AIG’s stock tanked.
• The government stepped in, took an 80 percent share in AIG and then paid Goldman and the other creditors all the money they’d asked AIG for at the start of the negotiations in 2007, without using their power to force AIG’s creditors to negotiate.

When the federal government, including then-Treasury Secretary Hank Paulson (who once served as chairman and CEO of Goldman Sachs), directed AIG to pay Goldman exactly what it wanted, it overrode significant and long-standing misgivings by AIG’s lawyers and accountants that Goldman’s estimates of its losses were correct. Morgenson and Story note that the prices on the very securities for which Goldman demanded insurance payments have since rebounded — but under the terms of the deal struck by the federal government, Goldman doesn’t have to pay a cent of its insurance settlement back to either AIG or the taxpayers. That’s quite the sweetheart deal for Goldman Sachs, if not taxpayers.

Now-Treasury Secretary Tim Geithner’s role in the November payouts is under investigation; his spokesperson said last month that then-New York Fed Chair Geithner officially recused himself from participating in the AIG bailout after Nov. 24, 2008 — the date of his nomination to Treasury — and had begun to insulate himself from such decisions “weeks earlier in anticipation of his nomination.” The Presidential election was held Nov. 4, 2008, and the plan to give Goldman everything it wanted was made official 6 days later, on Nov. 10. Either Geithner was insulating himself from his own job weeks before the election, or he was as involved in the negotiations as his detractors have charged.

Documents have recently emerged showing that the N.Y. Fed, starting as early as Geithner’s Treasury nomination announcement, worked with AIG to prevent full disclosure of how the bailout money it received in November went straight to companies like Goldman Sachs, Société Générale and Deutsche Bank, among others. The order to AIG from the government not to negotiate with its creditors may have cost U.S. taxpayers $13 billion; it was only under pressure from the SEC that AIG made public in March 2009 (after Geithner’s confirmation) the banks to which it had transferred its bailout funds.

As the N.Y. Fed staffers — who, despite his recusal, still worked for Geithner — were pressuring AIG to refrain from disclosing the government’s demands on behalf of Goldman and the secondhand amount Goldman received from the bailout, Geithner was amending his tax returns and paying back taxes in order to survive his confirmation process. Revelations that he’d also used his position at the N.Y. Fed to preserve the financial interests of Goldman Sachs over taxpayers or the company in which the government had taken a majority stake might have scuttled his nomination entirely. These days, many Democrats seemingly think that perhaps it should have.

The co-CEO of the Pacific Investment Management Company, which currently employs former TARP head Neel Kashkari — whose job it was to rescue the U.S. economy — is no longer as in love with the Treasury as he once was. Today, and despite the deepening concerns about a Europe-wide financial crisis spurred by the Greek debt crisis, Mohammad El-Erian announced that he’s far more interested in acquiring German Treasury bonds than U.S. ones. He said:

As we stand today, we prefer to take interest rate risk like government bonds in Germany which has much better conditions than in the United States. … When it comes to currency risk, we like to take it in places which have the strongest fundamentals. What we are focusing now on is to see where the strongest fundamentals.

As the Business Insider’s Joe Wiesenthal noted last year, PIMCO was a major secondary beneficiary of the financial market bailout, because they held a great deal of bank debt in addition to being, as Sitka Pacific’s Mike Shedlock noted, way over-invested in mortgage-backed securities — and underinvested in Treasury bonds.

But now Wall Street likes Republicans more than Democrats, Obama seemingly intends to focus on bailing out the people — mortgage holders — hurt by all the mucking around in mortgage-backed securities that PIMCO and the banks did, and the U.S. government is issuing more debt to finish fixing the financial crisis caused by the collapse in the housing market. In Germany, on the other hand, taxpayers may soon bail out a couple of countries, rather than just the banks. It’s no surprise, then, that PIMCO is getting out and heading to Germany; after all, there’s probably more money to be made in the bailout of an entire government than in just one economic sector.