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Thursday, October 29, 2009
Wednesday, October 28, 2009
Animal Testing
Pro's for Animal Testing
The major pro for animal testing is that it aids researchers in finding drugs and treatments to improve health and medicine. Many medical treatments have been made possible by animal testing, including cancer and HIV drugs, insulin, antibiotics, vaccines and many more. It is for this reason that animal testing is considered vital for improving human health and it is also why the scientific community and many members of the public support its use. In fact, there are also individuals who are against animal testing for cosmetics but still support animal testing for medicine and the development of new drugs for disease.
Another important aspect to note is that animal testing helps to ensure the safety of drugs and many other substances humans use or are exposed to regularly. Drugs in particular can carry significant dangers with their use but animal testing allows researchers to initially gauge the safety of drugs prior to commencing trials on humans. This means that human harm is reduced and human lives are saved - not simply from avoidance of the dangers of drugs but because the drugs themselves save lives as well as improve the quality of human life.
Scientists typically use animals for testing purposes because they are considered similar to humans. As such, researchers do recognise the limitations and differences but the testing is done on animals because they are thought to be the closest match and best one with regards to applying this data to humans.
Con's Against Animal Testing
In animal testing, countless animals are experimented on and then killed after their use. Others are injured and will still live the remainder of their lives in captivity. The unfortunate aspect is that many of these animals received tests for substances that will never actually see approval or public consumption and use. It is this aspect of animal testing that many view as a major negative against the practice. This aspect seems to show the idea that the animal died in vain because no direct benefit to humans occurred from the animal testing.
Another con on the issue of animal testing is the sheer cost. Animal testing generally costs an enormous amount of money. Animals must be fed, housed, cared for and treated with drugs or a similar experimental substance. The controlled environment is important but it comes with a high cost. On top of that, animal testing may occur more than once and over the course of months, which means that additional costs are incurred. The price of animals themselves must also be factored into the equation. There are companies who breed animals specifically for testing and animals can be purchased through them.
There is also the argument that the reaction of a drug in an animal's body is quite different from the reaction in a human. The main criticism here is that some believe animal testing is unreliable. Following on that criticism is the premise that because animals are in an unnatural environment, they will be under stress. Therefore, they won't react to the drugs in the same way compared to their potential reaction in a natural environment. This argument further weakens the validity of animal experimentation.
Personal Choice
While there are numerous pro's and con's of animal testing, the ethical aspect overshadows both of them, which means that emotion may be the ultimate determining factor in whether a person believes the benefits of animal testing outweigh the problems associated with the practice.
The major pro for animal testing is that it aids researchers in finding drugs and treatments to improve health and medicine. Many medical treatments have been made possible by animal testing, including cancer and HIV drugs, insulin, antibiotics, vaccines and many more. It is for this reason that animal testing is considered vital for improving human health and it is also why the scientific community and many members of the public support its use. In fact, there are also individuals who are against animal testing for cosmetics but still support animal testing for medicine and the development of new drugs for disease.
Another important aspect to note is that animal testing helps to ensure the safety of drugs and many other substances humans use or are exposed to regularly. Drugs in particular can carry significant dangers with their use but animal testing allows researchers to initially gauge the safety of drugs prior to commencing trials on humans. This means that human harm is reduced and human lives are saved - not simply from avoidance of the dangers of drugs but because the drugs themselves save lives as well as improve the quality of human life.
Scientists typically use animals for testing purposes because they are considered similar to humans. As such, researchers do recognise the limitations and differences but the testing is done on animals because they are thought to be the closest match and best one with regards to applying this data to humans.
Con's Against Animal Testing
In animal testing, countless animals are experimented on and then killed after their use. Others are injured and will still live the remainder of their lives in captivity. The unfortunate aspect is that many of these animals received tests for substances that will never actually see approval or public consumption and use. It is this aspect of animal testing that many view as a major negative against the practice. This aspect seems to show the idea that the animal died in vain because no direct benefit to humans occurred from the animal testing.
Another con on the issue of animal testing is the sheer cost. Animal testing generally costs an enormous amount of money. Animals must be fed, housed, cared for and treated with drugs or a similar experimental substance. The controlled environment is important but it comes with a high cost. On top of that, animal testing may occur more than once and over the course of months, which means that additional costs are incurred. The price of animals themselves must also be factored into the equation. There are companies who breed animals specifically for testing and animals can be purchased through them.
There is also the argument that the reaction of a drug in an animal's body is quite different from the reaction in a human. The main criticism here is that some believe animal testing is unreliable. Following on that criticism is the premise that because animals are in an unnatural environment, they will be under stress. Therefore, they won't react to the drugs in the same way compared to their potential reaction in a natural environment. This argument further weakens the validity of animal experimentation.
Personal Choice
While there are numerous pro's and con's of animal testing, the ethical aspect overshadows both of them, which means that emotion may be the ultimate determining factor in whether a person believes the benefits of animal testing outweigh the problems associated with the practice.
Tuesday, October 27, 2009
Monday, October 26, 2009
Freedom’s Destruction through Constitutional Deconstruction
Timothy Baldwin
Tenth Amendment Center
October 26, 2009
During the Constitutional Convention, from May to September 1787, delegates from the colonies were to gather together for the express purpose of amending the Articles of Confederation to form a “more perfect union” (NOT a completely different union!). The men that met in Philadelphia, Pennsylvania, were under direct and limited orders from their states to attend the Federal Convention explicitly to preserve the federation and State rights and to correct the errors of the existing federal government for the limited purposes of handling foreign affairs, commerce among the states and common defense.
Yet, during that private and secret convention, there were men who proposed that a national system be established in place of their current federal system, destroying State sovereignty in direct contradiction to their orders. (Jonathan Elliot, The Debates in the Several State Conventions on the Adoption of the Federal Constitution as Recommended by the General Convention at Philadelphia in 1787, vol. 1, 2nd ed., [Philadelphia, PA, JB Lippincott, 1891], 121) Of course, the public was not aware of this fact until years after the ratification of the Constitution, when the notes taken in the convention were printed and released to the public.
Indeed, those who proposed such a national system of government (e.g., Alexander Hamilton, John Dickinson and James Madison) would not have the people of the states aware of this proposal for fear of outright rejection of the Constitution and for fear that they would remove their delegates from the convention altogether, giving no chance of success for the ratification of a new Constitution. It was hush-hush for good reason. In fact, Alexander Hamilton was so tactful on the subject that he did not even present his nationalistic notions as a constitutional proposal, but only as his ideas of what America should be. (Ibid., 123) Despite these proposals, in the end, it was a federalist system that prevailed–a union of states and not a union of people, whereby the states retained complete and absolute sovereignty over all matters not delegated to the federal government. The states were indeed co-equal with the federal government. So, what was it about the national system that was rejected during the convention?
The most notable proposal reveals the underlying foundation for all national principles: that is, the national government possesses superior sovereignty to force the states to submit to the laws made by the national government and to negate any State law it deems repugnant to the articles of union. This supreme power was proposed (but rejected) as follows during the Federal Convention: the to-be national government should possess the power to “negative all laws passed by the several states contravening, in the opinion of the national legislature, the articles of union, or any treaties subsisting under the authority of the Union.” (Ibid., 207) Hamilton, and his like, would have loved it had this national principle of supreme sovereignty been accepted by the delegates. Thankfully, it was not accepted. In fact, as the convention progressed, what became apparent to those who advocated for this national form of government is that their ideas would never be accepted and ratified.
History proves with absolute certainty that a national government and its assuming principles were rejected, not only by the framers of the US Constitution, but also by those who sent delegates to the Federal Convention and who ratified the US Constitution at their State conventions. More important than the limited powers of the federal government, the people of the states rejected the nationalist doctrine that the federal government had the power to negate State laws that it deemed contrary to the Constitution. (John Taylor, New Views of the Constitution of the United States, [Washington DC, 1823], 15).
So, how is it that while the people of the states expressly forbade the federal government from interfering with the internal affairs of the states the federal government can now control nearly every facet of life within the states and the states supposedly can do absolutely nothing about it? Most attorneys who think they know so much about America’s history and the US Constitution would say, “The United States Supreme Court is given the power to say what the Constitution means and that over the years, they have interpreted Congress’ power to reach the internal affairs of a State.” It is the “living Constitution” idea, simultaneously coupled with nationalistic doctrine, which proclaims that the actual meaning of the Constitution can change over time, and that such change is constitutional and does not deny the people their freedom protected under the compact of the Constitution.
Interestingly, the “living Constitution” idea is only used when it promotes a constitutional “construction” that expands and empowers the federal government and neuters the State governments. The “living Constitution” idea (advanced by the British Parliament) in fact is the very notion that caused America’s War for Independence. (Claude Halstead Van Tyne, The Causes of the War of Independence, Volume 1, [Boston, MA: Houghton Mifflin Company, 1922], 235, 237)
The ludicrous proposition of a “living Constitution” begs numerous critical questions involving the very foundation of a free society, not the least of which is this: If the meaning of the Constitution can change over time, why did the Constitution’s framers spend nearly five months debating which words should be placed in the Constitution? More than that, why would the framers be so emotionally, mentally, intellectually and intensely involved in the question of what form of government we will have: national or federal?
How can it be that the judiciary branch of the federal government, which is not even politically responsible to the people or the states whatsoever (and only ever so slightly to the other federal branches), has the sole and complete power to say that the states have no power to interpret and comport to the US Constitution as they deem constitutional, when that same power was expressly rejected to the national government during the convention? After all, Hamilton and Madison both admit throughout the federalist papers that the states have complete and absolute sovereignty regarding the powers retained by them and granted to them by the people of each State, just as any foreign nation would. Both Hamilton and Madison admit that the only check on power is another independent power and thus, the only real power that could check federal power was State power. They even expected that the states would use their sovereign and independent power to the point of being the voice and, if necessary, the “ARM” of the people to implement a common defense against the federal government.
Both Hamilton and Madison admit that the federal government can never force the states out of existence and can never strip them of their rights and powers possessed prior to the ratification of the US Constitution, except as delegated to the federal government. They even refer to the states’ right of self-defense in this regard to resist federal tyranny. Was this mere “bait and switch” rhetoric to get the people of the states to ratify what they thought was a pure federal system? How can the states possess the absolute sovereign power to check federal tyranny when they are bound to submit to the federal government’s interpretation of the Constitution? The two positions are necessarily incompatible with each other. To say that you have power, so long as I say you have power is to deny your power altogether.
Quite obviously, in no place does the Constitution grant to the federal government (in any branch) superior sovereignty over the states. Instead, the Constitution requires ALL parties to it (State and federal) to comply with the Constitution, as it is the supreme law of the land. All the framers agreed that federal government and federal law do not equal the “supreme law of the land.” Both the federal government and the federal laws are bound by the terms to which all must comply. Thus, all parties must be watching each other to ensure each is complying with the compact. And as was admitted by even the most ardent nationalist (i.e., Daniel Webster) of America’s earlier history, each party to a COMPACT has the sole right to determine whether the other party has complied with the compact.
But over the years, a political idea contrary to our original federal system was adopted–not through open discussion and consent, but by fraud and force. This position states that whatever the federal judiciary rules equates to the “supreme law of the land” and the states must comply therewith, regardless of whether the federal law usurps the power the states retained under the Constitution. What the nationalists were unable to obtain through honest and open debate during the conventions they have obtained through the erroneously construed “supremacy” clause of the Constitution.
What the federal government was denied through constitutional debate and ratification the nationalists have procured through masquerade, subterfuge and trickery. America has been duped into accepting a national government, not by interpolation, but by deceptive “construction.” If the federal government has the power to usurp its powers without a countermanding power checking its encroachments, where is the genius in our framers’ form of government?
Was this form of government the form that best secured our happiness and freedom? And if our framers in fact bequeathed to us a federal system, whereby the states were co-equal with the federal government in sovereignty and power regarding their powers, then where comes the notion that we now have a national system, whereby the states are mere corporate branches of the federal government? Where were the constitutional debates on that subject? Where was the surrendering of sovereignty by the states, which can only be done through expressed and voluntary consent? Where was the right of the people to establish the form of government most likely to effect their safety and happiness? Do we just accept the fact that our form of government can change over time without express and legal action being taken to effect that change? God forbid!
In 1776, the colonies rejected the European (nationalist) form of government. In the UNITED STATES, the people of the states ardently believed that their freedoms would be best protected if each of their agents (State and federal) possessed equal power to check the other against encroachments of power and freedom. This was the “more perfect union” of the US Constitution. How could the founders have suggested that the US Constitution was a “more perfect union” as a nationalist system, when the nationalist system was the very system they seceded from and rejected? That is nonsense!
Ironically, the very document that was designed to perpetuate these principles of federalism has in fact been de-constructed to destroy those same principles, leaving us with the very form of government that our framers and the Constitution’s ratifiers rejected. In the end, if the people of the states do not once again reject this national form of government and assert and defend the principles of federalism–the principles upon which America was founded–then this supposed federal power of constitutional “construction” will in fact be our freedom’s destruction.
Tenth Amendment Center
October 26, 2009
During the Constitutional Convention, from May to September 1787, delegates from the colonies were to gather together for the express purpose of amending the Articles of Confederation to form a “more perfect union” (NOT a completely different union!). The men that met in Philadelphia, Pennsylvania, were under direct and limited orders from their states to attend the Federal Convention explicitly to preserve the federation and State rights and to correct the errors of the existing federal government for the limited purposes of handling foreign affairs, commerce among the states and common defense.
Yet, during that private and secret convention, there were men who proposed that a national system be established in place of their current federal system, destroying State sovereignty in direct contradiction to their orders. (Jonathan Elliot, The Debates in the Several State Conventions on the Adoption of the Federal Constitution as Recommended by the General Convention at Philadelphia in 1787, vol. 1, 2nd ed., [Philadelphia, PA, JB Lippincott, 1891], 121) Of course, the public was not aware of this fact until years after the ratification of the Constitution, when the notes taken in the convention were printed and released to the public.
Indeed, those who proposed such a national system of government (e.g., Alexander Hamilton, John Dickinson and James Madison) would not have the people of the states aware of this proposal for fear of outright rejection of the Constitution and for fear that they would remove their delegates from the convention altogether, giving no chance of success for the ratification of a new Constitution. It was hush-hush for good reason. In fact, Alexander Hamilton was so tactful on the subject that he did not even present his nationalistic notions as a constitutional proposal, but only as his ideas of what America should be. (Ibid., 123) Despite these proposals, in the end, it was a federalist system that prevailed–a union of states and not a union of people, whereby the states retained complete and absolute sovereignty over all matters not delegated to the federal government. The states were indeed co-equal with the federal government. So, what was it about the national system that was rejected during the convention?
The most notable proposal reveals the underlying foundation for all national principles: that is, the national government possesses superior sovereignty to force the states to submit to the laws made by the national government and to negate any State law it deems repugnant to the articles of union. This supreme power was proposed (but rejected) as follows during the Federal Convention: the to-be national government should possess the power to “negative all laws passed by the several states contravening, in the opinion of the national legislature, the articles of union, or any treaties subsisting under the authority of the Union.” (Ibid., 207) Hamilton, and his like, would have loved it had this national principle of supreme sovereignty been accepted by the delegates. Thankfully, it was not accepted. In fact, as the convention progressed, what became apparent to those who advocated for this national form of government is that their ideas would never be accepted and ratified.
History proves with absolute certainty that a national government and its assuming principles were rejected, not only by the framers of the US Constitution, but also by those who sent delegates to the Federal Convention and who ratified the US Constitution at their State conventions. More important than the limited powers of the federal government, the people of the states rejected the nationalist doctrine that the federal government had the power to negate State laws that it deemed contrary to the Constitution. (John Taylor, New Views of the Constitution of the United States, [Washington DC, 1823], 15).
So, how is it that while the people of the states expressly forbade the federal government from interfering with the internal affairs of the states the federal government can now control nearly every facet of life within the states and the states supposedly can do absolutely nothing about it? Most attorneys who think they know so much about America’s history and the US Constitution would say, “The United States Supreme Court is given the power to say what the Constitution means and that over the years, they have interpreted Congress’ power to reach the internal affairs of a State.” It is the “living Constitution” idea, simultaneously coupled with nationalistic doctrine, which proclaims that the actual meaning of the Constitution can change over time, and that such change is constitutional and does not deny the people their freedom protected under the compact of the Constitution.
Interestingly, the “living Constitution” idea is only used when it promotes a constitutional “construction” that expands and empowers the federal government and neuters the State governments. The “living Constitution” idea (advanced by the British Parliament) in fact is the very notion that caused America’s War for Independence. (Claude Halstead Van Tyne, The Causes of the War of Independence, Volume 1, [Boston, MA: Houghton Mifflin Company, 1922], 235, 237)
The ludicrous proposition of a “living Constitution” begs numerous critical questions involving the very foundation of a free society, not the least of which is this: If the meaning of the Constitution can change over time, why did the Constitution’s framers spend nearly five months debating which words should be placed in the Constitution? More than that, why would the framers be so emotionally, mentally, intellectually and intensely involved in the question of what form of government we will have: national or federal?
How can it be that the judiciary branch of the federal government, which is not even politically responsible to the people or the states whatsoever (and only ever so slightly to the other federal branches), has the sole and complete power to say that the states have no power to interpret and comport to the US Constitution as they deem constitutional, when that same power was expressly rejected to the national government during the convention? After all, Hamilton and Madison both admit throughout the federalist papers that the states have complete and absolute sovereignty regarding the powers retained by them and granted to them by the people of each State, just as any foreign nation would. Both Hamilton and Madison admit that the only check on power is another independent power and thus, the only real power that could check federal power was State power. They even expected that the states would use their sovereign and independent power to the point of being the voice and, if necessary, the “ARM” of the people to implement a common defense against the federal government.
Both Hamilton and Madison admit that the federal government can never force the states out of existence and can never strip them of their rights and powers possessed prior to the ratification of the US Constitution, except as delegated to the federal government. They even refer to the states’ right of self-defense in this regard to resist federal tyranny. Was this mere “bait and switch” rhetoric to get the people of the states to ratify what they thought was a pure federal system? How can the states possess the absolute sovereign power to check federal tyranny when they are bound to submit to the federal government’s interpretation of the Constitution? The two positions are necessarily incompatible with each other. To say that you have power, so long as I say you have power is to deny your power altogether.
Quite obviously, in no place does the Constitution grant to the federal government (in any branch) superior sovereignty over the states. Instead, the Constitution requires ALL parties to it (State and federal) to comply with the Constitution, as it is the supreme law of the land. All the framers agreed that federal government and federal law do not equal the “supreme law of the land.” Both the federal government and the federal laws are bound by the terms to which all must comply. Thus, all parties must be watching each other to ensure each is complying with the compact. And as was admitted by even the most ardent nationalist (i.e., Daniel Webster) of America’s earlier history, each party to a COMPACT has the sole right to determine whether the other party has complied with the compact.
But over the years, a political idea contrary to our original federal system was adopted–not through open discussion and consent, but by fraud and force. This position states that whatever the federal judiciary rules equates to the “supreme law of the land” and the states must comply therewith, regardless of whether the federal law usurps the power the states retained under the Constitution. What the nationalists were unable to obtain through honest and open debate during the conventions they have obtained through the erroneously construed “supremacy” clause of the Constitution.
What the federal government was denied through constitutional debate and ratification the nationalists have procured through masquerade, subterfuge and trickery. America has been duped into accepting a national government, not by interpolation, but by deceptive “construction.” If the federal government has the power to usurp its powers without a countermanding power checking its encroachments, where is the genius in our framers’ form of government?
Was this form of government the form that best secured our happiness and freedom? And if our framers in fact bequeathed to us a federal system, whereby the states were co-equal with the federal government in sovereignty and power regarding their powers, then where comes the notion that we now have a national system, whereby the states are mere corporate branches of the federal government? Where were the constitutional debates on that subject? Where was the surrendering of sovereignty by the states, which can only be done through expressed and voluntary consent? Where was the right of the people to establish the form of government most likely to effect their safety and happiness? Do we just accept the fact that our form of government can change over time without express and legal action being taken to effect that change? God forbid!
In 1776, the colonies rejected the European (nationalist) form of government. In the UNITED STATES, the people of the states ardently believed that their freedoms would be best protected if each of their agents (State and federal) possessed equal power to check the other against encroachments of power and freedom. This was the “more perfect union” of the US Constitution. How could the founders have suggested that the US Constitution was a “more perfect union” as a nationalist system, when the nationalist system was the very system they seceded from and rejected? That is nonsense!
Ironically, the very document that was designed to perpetuate these principles of federalism has in fact been de-constructed to destroy those same principles, leaving us with the very form of government that our framers and the Constitution’s ratifiers rejected. In the end, if the people of the states do not once again reject this national form of government and assert and defend the principles of federalism–the principles upon which America was founded–then this supposed federal power of constitutional “construction” will in fact be our freedom’s destruction.
H1N1 UPDATE
Adam Murdock, MD
Campaign for Liberty
October 26, 2009
Stop the Swine Whine!
The H1N1 “swine” flu is an extraordinarily deadly virus.
You need to get the vaccine or you could suffer the consequences.
So-and-so has died in your neighborhood. Do you want to be next?
The above statements are typical of the lines that have been fed to the people of the world from the controlled media. In fact, the drum beat has been so deafening that you would think that people were dropping like flies. Sure there have been some deaths related to the flu but most have affected individuals with risk factors such as pre-existing lung conditions or people who are immunocompromised. Most healthy individuals that I have personally seen and in general have experienced nothing more than run of the mill flu symptoms.
Unfortunately, a lot of the hysteria has arisen out of disinformation or lack of information. I am going to address some of the disinformation by posing a few questions. First, do people die from the virus itself? And, if so, why do some individuals succumb to the virus and not others? The answers to the above questions are not commonly known but are pretty well established in the medical community. The facts are that the flu virus is seldom the sole cause of death, even among compromised individuals. In fact, many of the fatal cases arise from individuals that acquire bacterial superinfections. These bacterial infections arise after the lining of the lung is damaged by the virus which leaves the lung susceptible. The reason for this is that the lining of the lungs are critical for the removal of infectious elements and debris acquired during inhalation or from the upper respiratory tract. When these normal mechanisms breakdown or are already impaired, as is the case in pre-existing lung conditions, fatal bacterial infections can arise. It is these infections that are frequently the culprits in the flu. A result of this knowledge is that, I, as a physician am particularly cognizant of examining patients with presumed flu for signs and symptoms of pneumonia and in particular bacterial pneumonia.
What facts about the 1918 flu made some infectious disease experts worried about the swine flu this time around? The timeline of the 1918 flu was really composed of two flu seasons. The particularly virulent form of the flu was preceded by a mild flu much earlier in the season. It is believed that the milder form of the flu was able to acquire virulence factors by “mutating” into a more virulent form that affected younger, healthier patients. It was the second more virulent form that was the cause of the millions of deaths. Or was it? The media and public health officials like to blame all the deaths on the flu. As usual, there are some “confounding” variables, which in the case of the flu are other variables that may have affected the outcomes of flu victims. The first variable was sanitation. The cities of the early twentieth century were not known for their high sanitation standards. Nor was the importance of methods for preventing transmission of the virus such as hand washing and limited close contact understood. The second variable was an understanding about the virus itself and how it spreads, which as you might expect was rather limited at that time. Finally, treatment for flu patients at the time consisted entirely of supportive care. The advent of antivirals and antibiotics for the treatment of bacterial complications of the flu had yet to be invented. These factors greatly contributed to the mortality of the disease.
What about this year’s swine flu? This year’s flu also started earlier in the year, somewhat like the 1918 virus and has been relatively mild. The fear was that this virus would also acquire the factors that would make it more virulent. It is this question that has generated all the hysteria and government intervention.
This leads me to the next question: Did we really need all the hysteria over a highly speculative event with little probability of happening?
The answer might have been “maybe,” if we really were experiencing an exact copy of the 1918 flu. Yet, I am unaware that the current mild swine flu has undergone any type of comparable virulent transformation as many were predicting. In addition, a couple of the original vaccine trials published in the prestigious New England Journal of Medicine examining the efficacy of the H1N1 vaccine demonstrated that up to 40 % of people already had antibodies to the flu and therefore were possibly already immune. (1) (2) As this data is now several months old, the percentage is likely much higher now. It may be that the majority of people already have antibodies to the swine flu. Another study recently published in Euroscience by Purdue scientists predicts that the peak number of cases of swine flu will happen this week through Oct. 24. They also predict that the vaccine is not likely to have much effect on the total number of people that will acquire the swine flu because it has arrived too late. (3)
So with this information in hand what has been the response of government health officials? Have they halted a massive multi-billion dollar vaccination campaign that would vaccinate a group of people that may be already immune to a mild swine flu? Quite the contrary; they have intensified their efforts. They are calling medical professionals unethical if they don’t get vaccines and even in some cases forcing vaccinations upon nurses and doctors as in New York. In addition, there has much talk about suspending constitutional freedoms and forcing vaccinations upon the general population.
What is scariest about the whole situation is that governments are seizing this opportunity to create emergency power bills that include pandemics such as with flu, thus mimicking the unconstitutional powers that have already been usurped by our Presidents. Recently, Pennsylvania has proposed such legislation. (4)
House bill 492 proposes emergency powers to “compel a person to submit to a physical examination or testing, or both, as necessary to diagnose or treat the person.” This is to be done “without resort to judicial or quasi-judicial authority.” This legislation will also require that “any physician or other health care provider to perform the medical examination or testing, or both” under penalty of law. In addition, “the public health authority may, for such period as the state of public health emergency exists, compel a person to be vaccinated or treated, or both, for an infectious disease.” In other words, the rights of the patient and physician can be removed solely because a government public health authority believes a health emergency is imminent. This dictatorial power is to be accomplished without any judicial review.
What about the big pharmaceutical companies? I was recently reading about the pharmaceutical company, Baxter, who is projecting earnings of $30 – 40 million this quarter alone from swine flu vaccinations. Indeed, “Baxter International Inc., best known for its drug pumps and products for blood disorders and kidney disease, said it sees a lucrative new revenue source in vaccines and a multiyear opportunity in H1N1 swine flu vaccines.” (5) It appears that big pharma is seizing upon the hysteria around this flu to potentially establish a new flu vaccine for years to come. This is despite the fact that a majority of the people may be already immune to the current H1N1 virus and the potential for pandemic swine flu in the years to come is likely minimal.
What about harm from the vaccine? Public health officials and the media like to portray the vaccine as virtually harmless. Nothing could be further from the truth. Although most immediate side-effects are minimal, it is well established that people can experience severe allergic reactions and Guillain-Barre syndrome, a severe neurological condition characterized by ascending paralysis. These conditions can lead to death and frequently do if unrecognized. In addition, there may be long-term side-effects related to adjuvants and mercury in vaccines that yet to have been fully characterized due to a lack of randomized studies for vaccinations. To add insult to injury, this vaccination has been rushed through the usual safety evaluation for vaccines in order that the government might “save” us from the deadly swine flu. So why take the risk if the benefits at this point are ill-defined. Indeed, physicians are mandated by law to tell their patients about all risks, benefits, and alternatives to any proposed treatment. Surely, any self-respecting physician should uphold his/her Hippocratic Oath by sharing the information with their patients.
Finally, it is not my right to tell you whether or not you should get flu vaccines, much less force you. Under the constitution, nobody else should have that right either. Unfortunately, it may be soon that our constitutional rights are only as good as the next flu season.
References
1. Greenberg, Michael, et. Al. Response after One Dose of a Monovalent Influenza A (H1N1) 2009 Vaccine — A Prelimary Report. New England Journal of Medicine. Sept. 10, 2009.
2. Clark, Tristan, et. Al. Trial of Influenza A (H1N1) 2009 Monovalent MF59-Adjuvanted Vaccine — Preliminary Report. New England Journal of Medicine. Sept. 10, 2009.
3. Study: H1N1 Vaccine Too Late, Won’t Help Most. FoxNews. Oct. 20, 2009.
4. Pennsylvania House Bill 492.
5. Baxter sees multiyear opportunity in H1N1 vaccines. Reuters. Debra Sherman. Oct. 15, 2009.
Campaign for Liberty
October 26, 2009
Stop the Swine Whine!
The H1N1 “swine” flu is an extraordinarily deadly virus.
You need to get the vaccine or you could suffer the consequences.
So-and-so has died in your neighborhood. Do you want to be next?
The above statements are typical of the lines that have been fed to the people of the world from the controlled media. In fact, the drum beat has been so deafening that you would think that people were dropping like flies. Sure there have been some deaths related to the flu but most have affected individuals with risk factors such as pre-existing lung conditions or people who are immunocompromised. Most healthy individuals that I have personally seen and in general have experienced nothing more than run of the mill flu symptoms.
Unfortunately, a lot of the hysteria has arisen out of disinformation or lack of information. I am going to address some of the disinformation by posing a few questions. First, do people die from the virus itself? And, if so, why do some individuals succumb to the virus and not others? The answers to the above questions are not commonly known but are pretty well established in the medical community. The facts are that the flu virus is seldom the sole cause of death, even among compromised individuals. In fact, many of the fatal cases arise from individuals that acquire bacterial superinfections. These bacterial infections arise after the lining of the lung is damaged by the virus which leaves the lung susceptible. The reason for this is that the lining of the lungs are critical for the removal of infectious elements and debris acquired during inhalation or from the upper respiratory tract. When these normal mechanisms breakdown or are already impaired, as is the case in pre-existing lung conditions, fatal bacterial infections can arise. It is these infections that are frequently the culprits in the flu. A result of this knowledge is that, I, as a physician am particularly cognizant of examining patients with presumed flu for signs and symptoms of pneumonia and in particular bacterial pneumonia.
What facts about the 1918 flu made some infectious disease experts worried about the swine flu this time around? The timeline of the 1918 flu was really composed of two flu seasons. The particularly virulent form of the flu was preceded by a mild flu much earlier in the season. It is believed that the milder form of the flu was able to acquire virulence factors by “mutating” into a more virulent form that affected younger, healthier patients. It was the second more virulent form that was the cause of the millions of deaths. Or was it? The media and public health officials like to blame all the deaths on the flu. As usual, there are some “confounding” variables, which in the case of the flu are other variables that may have affected the outcomes of flu victims. The first variable was sanitation. The cities of the early twentieth century were not known for their high sanitation standards. Nor was the importance of methods for preventing transmission of the virus such as hand washing and limited close contact understood. The second variable was an understanding about the virus itself and how it spreads, which as you might expect was rather limited at that time. Finally, treatment for flu patients at the time consisted entirely of supportive care. The advent of antivirals and antibiotics for the treatment of bacterial complications of the flu had yet to be invented. These factors greatly contributed to the mortality of the disease.
What about this year’s swine flu? This year’s flu also started earlier in the year, somewhat like the 1918 virus and has been relatively mild. The fear was that this virus would also acquire the factors that would make it more virulent. It is this question that has generated all the hysteria and government intervention.
This leads me to the next question: Did we really need all the hysteria over a highly speculative event with little probability of happening?
The answer might have been “maybe,” if we really were experiencing an exact copy of the 1918 flu. Yet, I am unaware that the current mild swine flu has undergone any type of comparable virulent transformation as many were predicting. In addition, a couple of the original vaccine trials published in the prestigious New England Journal of Medicine examining the efficacy of the H1N1 vaccine demonstrated that up to 40 % of people already had antibodies to the flu and therefore were possibly already immune. (1) (2) As this data is now several months old, the percentage is likely much higher now. It may be that the majority of people already have antibodies to the swine flu. Another study recently published in Euroscience by Purdue scientists predicts that the peak number of cases of swine flu will happen this week through Oct. 24. They also predict that the vaccine is not likely to have much effect on the total number of people that will acquire the swine flu because it has arrived too late. (3)
So with this information in hand what has been the response of government health officials? Have they halted a massive multi-billion dollar vaccination campaign that would vaccinate a group of people that may be already immune to a mild swine flu? Quite the contrary; they have intensified their efforts. They are calling medical professionals unethical if they don’t get vaccines and even in some cases forcing vaccinations upon nurses and doctors as in New York. In addition, there has much talk about suspending constitutional freedoms and forcing vaccinations upon the general population.
What is scariest about the whole situation is that governments are seizing this opportunity to create emergency power bills that include pandemics such as with flu, thus mimicking the unconstitutional powers that have already been usurped by our Presidents. Recently, Pennsylvania has proposed such legislation. (4)
House bill 492 proposes emergency powers to “compel a person to submit to a physical examination or testing, or both, as necessary to diagnose or treat the person.” This is to be done “without resort to judicial or quasi-judicial authority.” This legislation will also require that “any physician or other health care provider to perform the medical examination or testing, or both” under penalty of law. In addition, “the public health authority may, for such period as the state of public health emergency exists, compel a person to be vaccinated or treated, or both, for an infectious disease.” In other words, the rights of the patient and physician can be removed solely because a government public health authority believes a health emergency is imminent. This dictatorial power is to be accomplished without any judicial review.
What about the big pharmaceutical companies? I was recently reading about the pharmaceutical company, Baxter, who is projecting earnings of $30 – 40 million this quarter alone from swine flu vaccinations. Indeed, “Baxter International Inc., best known for its drug pumps and products for blood disorders and kidney disease, said it sees a lucrative new revenue source in vaccines and a multiyear opportunity in H1N1 swine flu vaccines.” (5) It appears that big pharma is seizing upon the hysteria around this flu to potentially establish a new flu vaccine for years to come. This is despite the fact that a majority of the people may be already immune to the current H1N1 virus and the potential for pandemic swine flu in the years to come is likely minimal.
What about harm from the vaccine? Public health officials and the media like to portray the vaccine as virtually harmless. Nothing could be further from the truth. Although most immediate side-effects are minimal, it is well established that people can experience severe allergic reactions and Guillain-Barre syndrome, a severe neurological condition characterized by ascending paralysis. These conditions can lead to death and frequently do if unrecognized. In addition, there may be long-term side-effects related to adjuvants and mercury in vaccines that yet to have been fully characterized due to a lack of randomized studies for vaccinations. To add insult to injury, this vaccination has been rushed through the usual safety evaluation for vaccines in order that the government might “save” us from the deadly swine flu. So why take the risk if the benefits at this point are ill-defined. Indeed, physicians are mandated by law to tell their patients about all risks, benefits, and alternatives to any proposed treatment. Surely, any self-respecting physician should uphold his/her Hippocratic Oath by sharing the information with their patients.
Finally, it is not my right to tell you whether or not you should get flu vaccines, much less force you. Under the constitution, nobody else should have that right either. Unfortunately, it may be soon that our constitutional rights are only as good as the next flu season.
References
1. Greenberg, Michael, et. Al. Response after One Dose of a Monovalent Influenza A (H1N1) 2009 Vaccine — A Prelimary Report. New England Journal of Medicine. Sept. 10, 2009.
2. Clark, Tristan, et. Al. Trial of Influenza A (H1N1) 2009 Monovalent MF59-Adjuvanted Vaccine — Preliminary Report. New England Journal of Medicine. Sept. 10, 2009.
3. Study: H1N1 Vaccine Too Late, Won’t Help Most. FoxNews. Oct. 20, 2009.
4. Pennsylvania House Bill 492.
5. Baxter sees multiyear opportunity in H1N1 vaccines. Reuters. Debra Sherman. Oct. 15, 2009.
Back Door Taxes Hit US Citizens HARD
By Peter Robison, Pat Wechsler and Martin Z. Braun
Oct. 26 (Bloomberg) -- Salvatore Calvanese, the treasurer of Springfield, Massachusetts, for four years, had a ready defense for why he risked $14 million of taxpayer money on collateralized-debt obligations laden with subprime mortgages in 2007.
He didn’t know what he was buying, he says, and trusted the financial professionals who sold them and told him they were safe.
“I thought they were money markets that were just paying more,” Calvanese said in an interview. “Nobody ever used the term ‘CDO,’ and I am not sure I would have known what that was anyway.”
Such financial mistakes, often enabled by public officials’ lack of disclosure and accountability for almost 90 percent of government financings in the $2.8 trillion municipal bond market, are costing U.S. taxpayers as much as $6 billion a year, according to data compiled by Bloomberg in more than a dozen states.
The money lost to taxpayers -- when the worst recession since the Great Depression is forcing local governments to cut university funding, delay paying bills and raise taxes -- is enough to buy health care for everybody in Minneapolis; Orlando, Florida; and Grand Rapids, Michigan, according to figures from the U.S. Census Bureau and the U.S. Department of Health and Human Services.
Florida county commissioners approved no-bid deals with their favorite banks in an arrangement that led to criminal convictions. Pennsylvania school board members lost $4 million on an interest-rate swap agreement they didn’t understand in the unregulated $300 billion market for municipal derivatives.
Trouble With Swaps
Local agencies in Indianapolis, Philadelphia, Miami and Oakland, California, spent $331 million to end interest-rate swaps with banks including JPMorgan Chase & Co. of New York and Charlotte, North Carolina-based Bank of America Corp. during the past 18 months. The swaps, agreements to exchange periodic interest payments with banks or insurers, were intended to save borrowing costs. Payments increased instead.
New Jersey taxpayers are sending almost $1 million a month to a partnership run by Goldman Sachs Group Inc. for protection against rising interest costs on bonds the state redeemed more than a year ago, Bloomberg News reported Friday.
The interest-rate swap agreement, which the state entered in 2003 under former Governor James E. McGreevey, remained in place even after the state Transportation Trust Fund Authority replaced $345 million in auction-rate bonds that had fluctuating yields with fixed-rate securities last year.
Harvard Pays
Now, the 3.6 percent the trust fund is paying on the swap has pushed the cost on the original debt to 7.8 percent, the most the authority has paid since it was formed in 1985, according to records on its Web site. Canceling the swap before 2011 would require the state to pay an estimated $37.6 million fee, according to state records.
Even Harvard University, whose endowment of $26 billion makes it the world’s richest academic institution, fell for Wall Street’s financing in the dark: The Cambridge, Massachusetts- based university paid $497.6 million to investment banks during the year ended June 30 to cancel $1.1 billion of swaps.
The public needs more transparency in municipal debt transactions, said Elizabeth Warren, chairwoman of the Congressional Oversight Panel for the Troubled Asset Relief Program. Proposed reforms, such as an oversight agency for consumer finance, could help spur improvements, she said in an interview this month.
‘Worldview Change’
“We need a worldview change about transparency, and that includes municipal finance,” said Warren, a professor of bankruptcy law at Harvard Law School.
The public paid extra costs for borrowing with tax-exempt bonds because local governments resist providing investors the same level of disclosure as corporate borrowers, which file quarterly reports.
Municipalities typically file financial statements only once a year. Detroit, the largest U.S. city with a less-than- investment-grade credit rating, released its annual report for fiscal 2007 in March, more than 18 months later.
State and local governments that share more financial information than the minimum required pay yields as much as 0.20 percentage points lower than others, said Lisa Fairchild, professor and chairman of the finance department at Baltimore’s Loyola University Maryland, who produced a 1998 study on disclosure.
Applied across the tax-exempt bond market, that’s $5.6 billion a year, enough to buy more than 12,000 $465,608 pumper- tender fire trucks. That’s more than one truck for every county in the U.S. The rest could form a parade 50 miles (80 kilometers) long.
Build America Bonds
State and local governments that sold $43.8 billion of taxable Build America Bonds this year will pay $385 million a year more in interest than similarly rated corporate borrowers, based on data compiled by Bloomberg.
The bonds, for which the federal government subsidizes 35 percent of interest costs, pay an average yield that’s 0.8 percentage points more, relative to benchmark rates, than yields for corporate securities with the same credit ratings, the data show.
As a result, it costs New Jersey road authorities, Georgia sewer districts and other agencies more to borrow, even though they, unlike corporations, can raise fees or taxes to make up for deficits. Corporations are at least 90 times more likely to default than local governments, according to Moody’s Investors Service.
Discounted to their present value, those additional payments by municipal borrowers add up to $6.1 billion over the life of the debt.
‘It’s Horrendous’
“I think it’s horrendous, but it’s very hard to get anybody to pay much attention to it,” said Stanley Langbein, a law professor at the University of Miami and a former tax counsel at the U.S. Treasury in Washington.
Underwriters -- banks or securities firms that guarantee the purchase of debt issuers’ bonds -- have an interest in keeping prices low, and yields high, because it means higher returns for them and the first investors, Langbein said.
Many Build America bonds traded at higher prices immediately after agencies sold them, a sign that taxpayers lost, he said.
The Government Finance Officers Association, a professional group based in Chicago, warns municipalities of “competing objectives” in their relationships with underwriters. Many don’t heed that warning, said Christopher “Kit” Taylor, who was the top regulator of the municipal bond market from 1978 to 2007.
‘Stockholm Syndrome’
“They’re suffering from Stockholm syndrome,” he said, referring to the psychological phenomenon in which hostages begin to identify with and grow sympathetic to their captors. “They are being held hostage by their investment bank.”
Public officials shunned competitive bids for more than 85 percent of the $308.9 billion in new tax-exempt bond sales in the first nine months of this year, according to data compiled by Bloomberg. That’s up from 17 percent in 1970 and 68 percent in 1982, according to the Government Accountability Office.
Most borrowing costs that state and local taxpayers incur are set in private negotiations. Finance professionals say no- bid sales allow them to market debt to particular investors, helping issuers find demand when credit markets are tight.
The method boosts interest rates by as much as 0.06 percentage point, according to several academic studies reviewed by the GAO.
Excess Fees
Palm Beach County, Florida, paid $880,000 in excess bank fees and as much as $1.3 million a year in unnecessary interest because its commissioners sold bonds without bids, according to a county report in April.
Each commissioner nominated his or her favorite bank and work was parceled out on a rotating basis, the report showed. That allowed former commissioner Mary McCarty to steer more than $600 million in debt issues to banks that employed her husband, Kevin McCarty, according to federal charges that led to guilty pleas from both this year.
After the McCartys were charged, the county adopted a policy stating a preference for competitive bond sales. When bonds are sold by negotiation, a financing committee will circulate a request for proposals, evaluate them and then recommend an underwriter to commissioners, said Liz Bloeser, Palm Beach’s budget director.
No Bids
Beaver County, Pennsylvania, commissioners haven’t taken bids for bond underwriters since 1986, county records show. After relying on the same firm for more than two decades, they paid as much as $2.8 million more than they had to on a bond sale in January, based on trading records from the Municipal Securities Rulemaking Board, which oversees the tax-exempt bond market.
Using the same underwriter repeatedly for negotiated sales increases borrowing costs each time, according to a study published in the Winter 2008 edition of the Municipal Finance Journal. The study found that if an issuer had used the same bank twice before, its borrowing cost on $100 million of 10- year bonds increased by more than $1 million over the life of the debt.
Other financial mistakes can be difficult to quantify. Taylor, who studied government finances for 30 years as the executive director of the MSRB, said as many as five out of 10 local governments “aren’t getting the best deal by a long shot” on their investments.
Overpaid for Securities
Apache County, Arizona, overpaid its broker almost $500,000 for U.S. government securities, county records show. A price check would have caught the problem. The county has no record that it ever did one.
Many local officials are unprepared for Wall Street’s sales pitches, said Mary Christine Jackman, Maryland’s director of investments in Annapolis.
“When you combine people who are less sophisticated with people who can sell as those on Wall Street usually can, you end up with a very big problem,” she said. Jackman tries to offer basic training and advice to small municipalities, she said.
There are more than 89,000 cities, counties, school districts and other municipal authorities in the U.S., according to data from the Census Bureau. Each year, about 5,000 people attend training sponsored by the Government Finance Officers Association, which has 18,000 members, said Jeff Esser, the group’s executive director.
‘Doing Nothing’
The GFOA has never tried to make a comprehensive tally of its members’ educational attainment or professional backgrounds, he said. He added that during his 30 years with the organization, he has seen “a significant increase” in members’ education, training and professionalism.
Supervisors in Mohave County, Arizona, took issue with the professionalism of its treasurer, Lee Fabrizio, during an investigation last year in which employees reported that he played a lot of golf and was rarely in the office.
“It’s nice to get this paycheck for doing nothing,” Fabrizio told employees once, according to the July 2008 report by the county manager.
Fabrizio, who received a $56,500 annual salary, said he doesn’t remember making that statement and was in the office every day. He said he played nine holes of golf a day for two hours at lunchtime.
An employee’s grievance sparked the investigation and ultimately a state audit, which reported Aug. 28 that the treasurer bought corporate bonds with no evidence of competitive bidding, didn’t vet brokers’ backgrounds and continued to value a $5 million Lehman Brothers Holdings Inc. bond at full cost even after the firm’s Sept. 15, 2008, bankruptcy.
Not an Expert
The Lehman bond was purchased in late 2007, when the treasurer put $50 million, about 25 percent of the county portfolio, into 11 corporate bonds, 10 of them in financial firms including Lehman and Bear Stearns Cos.
“Even if it was a bad investment, I wouldn’t have known the difference; I’m not an investment expert,” Fabrizio said, adding that he relied on his hired deputy for those decisions. The deputy e-mailed competing brokers and had them fill out questionnaires, he said.
The county never sanctioned him, and he was voted out of office last year.
The Lehman loss cost the 7,000-student district in Kingman, Arizona, the county seat, almost $1 million, according to Wanda Hubbard, the schools’ finance director. The real losers are taxpayers, who will be levied more as a result, she said. The owner of a $250,000 house in the district may pay $25 extra this year, Hubbard estimated.
‘Back-Door Tax’
“It was kind of a back-door tax increase,” she said.
Officials are up against increasingly sophisticated financial products, including interest-rate swaps and so-called swaptions. A swaption grants the owner the option to force a particular party into a swap.
The Butler Area School District in western Pennsylvania paid JPMorgan $5.2 million last year to cancel such a pact. The payment was about seven times more than the district had received under the contract. Statewide, 55 Pennsylvania school districts have paid counterparties to exit interest-rate swaps since 2003, according to state records.
Some officials now say they didn’t understand the deals.
“The financial guys would come in with a lot of stuff that nobody at the district understood,” Penelope Kingman, a former member of the Butler school board who voted against the deal, told Bloomberg News last year. “Local governments are entering into these without fully understanding what they are doing.”
Market Has Grown
While such contracts aren’t traded on regulated exchanges, as much as $300 billion in municipal derivatives is traded annually, the MSRB said in an April report, citing information from market participants. Derivatives are a category of contracts whose value is tied to assets including stocks, bonds, commodities and currencies, or events such as changes in interest rates or the weather.
One type of derivative, the interest-rate swap, helped put Jefferson County, Alabama, on the brink of bankruptcy.
The county refinanced $3 billion of sewer debt in no-bid deals earlier this decade, issuing variable-rate bonds that were hedged with swaps. The plan backfired last year as the global credit crisis took hold. Interest payments due on the bonds more than tripled to 10 percent, while the swap income decreased.
Last week, the former president of the county commission, Larry P. Langford, went on trial in federal court in Tuscaloosa. Langford, now the mayor of Birmingham, pleaded not guilty in December to charges including bribery, conspiracy and filing false income tax returns.
‘Political Witch Hunt’
Prosecutors say he took cash, clothes and Rolex watches from a banker who received $7.1 million in fees on debt sales in 2003 and 2004. Langford has called the case “a political witch hunt.”
The Justice Department and the Securities and Exchange Commission are investigating whether Wall Street banks conspired with some brokers to rig bids and fix prices for municipal derivatives. The probe centers on interest-rate swaps and on investments that cities, states and schools buy with bond proceeds, according to subpoenas received by agencies in Alabama, Illinois, Pennsylvania and New Mexico.
While many municipalities turn to professional consultants for guidance on derivatives, the MSRB reported in April that 73 percent of financial advisers who participated in the municipal bond market in 2008 weren’t subject to the board’s rules because they weren’t registered securities dealers.
Legislation Considered
Congress is considering legislation to regulate the financial advisers. Still, there are other gaps.
Federal law exempts the municipal market from rules regarding disclosure and enforcement that apply to companies. And transactions between broker-dealers and municipalities are rarely scrutinized by the self-regulatory agencies that banks and securities firms use to police themselves, including the Financial Industry Regulatory Authority, said Taylor, the former MSRB chief.
Finra and other regulators presume that institutional clients are sophisticated enough to look after themselves, he said.
“Typically, what happens is, nobody looks,” he said. “Finra doesn’t look, the firm doesn’t look, the city council doesn’t look and the populace, the taxpaying populace, has no idea any of this is going on.”
Nancy Condon, a spokeswoman for Finra, declined to comment. The Strategic Programs Group of the authority’s enforcement department in May sent letters to dealers seeking information about interest-rate swaps, structured notes and other products they may have sold.
Enforcement Questions
Taylor questioned why the information-gathering hasn’t led to anything further.
“Finra wants the world to think it is doing something for investors and the good of the markets without actually bringing any enforcement actions or adopting any rulemaking,” he said.
In Orange County, the home of both Disneyland and the largest municipal bankruptcy in U.S. history, officials echoed the mistakes of 15 years ago by investing in another Wall Street innovation.
Robert Citron, who was county treasurer leading up to the 1994 bankruptcy, bought structured notes that paid off when short-term interest rates were lower than medium-term rates, and increased his gamble with funds from issuing new debt. The county lost $1.6 billion when interest rates rose.
Cost of Insolvency
Payments from the resulting insolvency still cost more than $80 million annually, about 1.5 percent of the county’s proposed fiscal 2010 budget.
County supervisors responded by creating an oversight committee to monitor the treasurer and banning investments in derivatives and the use of leverage to amplify returns.
Under John Moorlach, the accountant who exposed the bad bets and succeeded Citron as treasurer, the county later invested in structured investment vehicles, or SIVs. Banks set up the pools of loans to shift risk from their own balance sheets. They borrowed money at short-term rates to finance longer-term investments such as British credit-card receivables or home mortgages.
Moorlach said he got into SIVs, which often yielded more than the county’s other investments, after a ratings officer from Fitch Ratings told him that such exotic instruments were becoming more mainstream.
By 2007, one year after Moorlach won election to the county’s board of supervisors and was succeeded as treasurer by Chriss Street, the investments in SIVs totaled more than $800 million. They made up 14 percent of a county investment pool that manages money for the county, schools and local agencies.
‘Weren’t Paying Attention’
The county sold one SIV at $6.4 million below par last year and so far has recovered about $30 million of the $80 million it invested in Whistlejacket Capital LLC, created by London-based bank Standard Chartered Plc. Whistlejacket, which listed Citigroup Inc. debt and U.K. home loans among its assets, went into receivership last year.
“Despite the oversight, despite the audits, they weren’t paying attention -- and should have been,” said Terry Fleskes, a member of an independent panel that chastised the treasurer and county auditor in June for allowing more investments in complex financial products. Fleskes is a former controller at a unit of San Diego-based Sempra Energy.
“The lessons of the past have been forgotten,” the Orange County Grand Jury said in its report. The group, which doesn’t have the authority to compel changes, serves as a kind of ombudsman to examine county policies.
‘Best Stuff Around’
The structured vehicles were difficult to evaluate, Moorlach said. He relied on rating companies, which “were treating it like it was the best stuff around.”
“I think the rating agencies have a lot of explaining to do because of the overreliance by hardworking municipal treasurers,” he said.
A Fitch spokesman, Kevin Duignan, declined to comment.
“It’s easy to point the finger at others,” said Bart Hildreth, dean of the Andrew Young School of Policy Studies at Georgia State University in Atlanta and a former finance director of Akron, Ohio. “The rating agency didn’t authorize the allocation of the money.”
Orange County auditor David Sundstrom said the amount at risk in SIVs was nothing like the leveraged wagers made by Citron.
“The controls compared to pre-bankruptcy are incredibly strong,” he said.
Out of SIVs
The county has exited all of its SIV investments except Whistlejacket, in which it has notes in a restructured successor that’s being liquidated. Taking into account interest earned, the county hasn’t lost on the SIVs, said Deputy Treasurer Keith Rodenhuis. Interest totaled $58.6 million, with $50.2 million in capital still outstanding in the Whistlejacket successor. County officials expect to get that money back in time, he said.
While Moorlach said Orange County did what it could, sending an analyst to London to investigate one SIV and examining financial reports, the investments may have been a mistake.
“If something’s taking up so much of your time, maybe it ain’t worth it,” he said in his Santa Ana, California, office, overlooking a courtyard where volunteers from local churches serve hot dinners and distribute essentials like socks and toilet paper to a 40-deep line of needy people.
King County, Washington, the home of Seattle, has recovered less than half of $207 million that it put into four failed SIVs. It sued rating companies in federal court this month, saying it was misled by their assessments.
No Clue
“There’s a basic rule of finance: Don’t get into anything you don’t understand,” said Michael Granof, an accounting professor at the University of Texas in Austin. “Many municipalities had no clue as to what they were buying.”
Apache County, Arizona, an area the size of Maryland where 70,000 people live among vast mesas dotted with shrubs, stuck to safe investments, such as U.S. Treasury securities and federal agency bonds. It just didn’t know how to value them.
County treasurer Katherine Arviso, a school administrator on the Navajo reservation for 40 years until she won election in 2004, said she arrived to find investment records packed away in boxes.
“I had to put the whole office back together,” she said.
Then came an August 2005 letter from Piper Jaffray Cos.’sBradley Winges, the head of sales and trading for the Minneapolis-based firm’s public finance group. He wrote that the firm had reviewed trades in the county’s account and found unacceptable commissions. The firm credited $247,060.79 to the county’s account.
Eventual Refund
Piper Jaffray eventually refunded $472,060.79, according to a settlement obtained by Bloomberg News under the state public records act. That’s more than double the $194,870 that the county, one of the poorest in the U.S., spent on immunization, teen pregnancy prevention and home health care last year. Apache County’s per capita income was $8,986 in the 2000 U.S. Census, less than half the U.S. figure, $21,587.
Three days after sending the letter, the firm fired broker Eric Ely, according to Finra records. Ely didn’t return telephone messages or respond to an e-mail seeking comment for this story.
From Oct. 20, 2003, to June 29, 2005, Ely executed 103 trades for Apache County, buying and selling bonds, according to a subsequent investigation conducted by Edward “Buzz” France, a former deputy county attorney.
Estimated Commissions
In a presentation to county supervisors, France estimated that Piper Jaffray earned commissions of just over $1 million on $158.6 million in principal, an average rate of 0.638 percent. Investment bankers told France the commissions should have been no more than 0.3 percent.
“Our clients’ interests come first,” Piper Jaffray said in a statement. “Four years ago, we discovered a situation in which we believed one employee had run counter to this guiding principle, and we proactively and quickly worked to rectify any client impact, and terminated the employee.”
There was no need for so many trades if the goal was steady, reliable returns, said Charles Anderson, the former manager of field operations for the tax-exempt bond division of the Internal Revenue Service.
A reasonable commission for the $158 million of securities that Apache County purchased would have been $50,000 to $100,000, said Thomas Tucci, head of U.S. government bond trading at RBC Capital Markets Corp. in New York, one of 18 firms that trade directly with the Federal Reserve.
Not Unusual
Basic financial mistakes trip up many local governments, said Kevin Camberg, a partner with Fester & Chapman P.C., a Phoenix accounting firm that has checked the books of Apache County and others in Arizona for the state auditor.
“It’s not as unusual as it should be,” he said.
France, the county investigator, never determined how Piper Jaffray was chosen to handle Apache County’s investment fund. The treasurer at the time, Betty Montoya, declined to comment on the selection process for this story.
Had the county checked Ely’s licensing history with Finra, which oversees almost 4,800 brokerage firms, it would have found previous allegations of infractions. Since 2002, investors have been able to access BrokerCheck reports of disciplinary histories online, said Condon, the Finra spokeswoman.
Ely paid $80,000 toward a $260,000 settlement of a customer’s 1989 complaint of “unauthorized and unsuitable transactions,” according to Finra records. Ely worked for Merrill Lynch & Co. from 1983 to 1990, the records show.
Settlement in Wyoming
In 2002, Piper Jaffray reached a $42,500 settlement of a customer’s allegations that Ely had purchased and sold securities contrary to Wyoming state law or local investment policy, the records show.
Ely, now affiliated with Public Asset Management Group in Greenwood Village, Colorado, and First Financial Equity Corp. in Scottsdale, Arizona, continued seeking business with small local governments. The broker gave a speech called Investment Management Alternatives for the School at a meeting of the Montana Association of School Business Officials in June 2008.
“He said he was interested in all the smaller players,” said Dustin Zuffelato, who attended as business manager of the 2,400-student Columbia Falls School District Six in Flathead County, Montana.
Zuffelato recommended that his school board consider investing about $8 million with Ely. The board declined, citing the logistical hurdles of switching investments from a pool managed by the county treasurer, he said. Zuffelato said he didn’t check for complaints against the broker first.
Investing 101
In June, the broker appeared again at the Montana schools conference, this time teaching a class called Investing 101.
In Springfield, Calvanese, the former city treasurer, said brokers told him he was investing in money-market funds.
City officials could have learned that they were really buying securities that bundle various issuers’ bonds or loans, or both, if they had insisted on seeing disclosure documents about the securities. Calvanese said in an interview that he rarely looked at such documents, which outline risks.
Calvanese was fired after the CDO investment came to light. He has filed suit challenging his dismissal.
Springfield officials and the Massachusetts attorney general argued that the city was misled by its brokers from Merrill Lynch, who sold it financial instruments that violated a state restriction on public investments. Calvanese said the brokers assured him the transaction complied with state law.
Merrill Lynch, now owned by Bank of America, returned the $14 million the city had invested, and agreed to pay an additional $300,000 in July.
A $75,000 portion of that money was set aside for educating municipal officials on investment management.
To contact the reporters on this story: Peter Robison in Seattle at robison@bloomberg.net; Pat Wechsler in New York at pwechsler@bloomberg.net; Martin Braun in New York at mbraun6@bloomberg.net
Last Updated: October 26, 2009 17:56 EDT
Oct. 26 (Bloomberg) -- Salvatore Calvanese, the treasurer of Springfield, Massachusetts, for four years, had a ready defense for why he risked $14 million of taxpayer money on collateralized-debt obligations laden with subprime mortgages in 2007.
He didn’t know what he was buying, he says, and trusted the financial professionals who sold them and told him they were safe.
“I thought they were money markets that were just paying more,” Calvanese said in an interview. “Nobody ever used the term ‘CDO,’ and I am not sure I would have known what that was anyway.”
Such financial mistakes, often enabled by public officials’ lack of disclosure and accountability for almost 90 percent of government financings in the $2.8 trillion municipal bond market, are costing U.S. taxpayers as much as $6 billion a year, according to data compiled by Bloomberg in more than a dozen states.
The money lost to taxpayers -- when the worst recession since the Great Depression is forcing local governments to cut university funding, delay paying bills and raise taxes -- is enough to buy health care for everybody in Minneapolis; Orlando, Florida; and Grand Rapids, Michigan, according to figures from the U.S. Census Bureau and the U.S. Department of Health and Human Services.
Florida county commissioners approved no-bid deals with their favorite banks in an arrangement that led to criminal convictions. Pennsylvania school board members lost $4 million on an interest-rate swap agreement they didn’t understand in the unregulated $300 billion market for municipal derivatives.
Trouble With Swaps
Local agencies in Indianapolis, Philadelphia, Miami and Oakland, California, spent $331 million to end interest-rate swaps with banks including JPMorgan Chase & Co. of New York and Charlotte, North Carolina-based Bank of America Corp. during the past 18 months. The swaps, agreements to exchange periodic interest payments with banks or insurers, were intended to save borrowing costs. Payments increased instead.
New Jersey taxpayers are sending almost $1 million a month to a partnership run by Goldman Sachs Group Inc. for protection against rising interest costs on bonds the state redeemed more than a year ago, Bloomberg News reported Friday.
The interest-rate swap agreement, which the state entered in 2003 under former Governor James E. McGreevey, remained in place even after the state Transportation Trust Fund Authority replaced $345 million in auction-rate bonds that had fluctuating yields with fixed-rate securities last year.
Harvard Pays
Now, the 3.6 percent the trust fund is paying on the swap has pushed the cost on the original debt to 7.8 percent, the most the authority has paid since it was formed in 1985, according to records on its Web site. Canceling the swap before 2011 would require the state to pay an estimated $37.6 million fee, according to state records.
Even Harvard University, whose endowment of $26 billion makes it the world’s richest academic institution, fell for Wall Street’s financing in the dark: The Cambridge, Massachusetts- based university paid $497.6 million to investment banks during the year ended June 30 to cancel $1.1 billion of swaps.
The public needs more transparency in municipal debt transactions, said Elizabeth Warren, chairwoman of the Congressional Oversight Panel for the Troubled Asset Relief Program. Proposed reforms, such as an oversight agency for consumer finance, could help spur improvements, she said in an interview this month.
‘Worldview Change’
“We need a worldview change about transparency, and that includes municipal finance,” said Warren, a professor of bankruptcy law at Harvard Law School.
The public paid extra costs for borrowing with tax-exempt bonds because local governments resist providing investors the same level of disclosure as corporate borrowers, which file quarterly reports.
Municipalities typically file financial statements only once a year. Detroit, the largest U.S. city with a less-than- investment-grade credit rating, released its annual report for fiscal 2007 in March, more than 18 months later.
State and local governments that share more financial information than the minimum required pay yields as much as 0.20 percentage points lower than others, said Lisa Fairchild, professor and chairman of the finance department at Baltimore’s Loyola University Maryland, who produced a 1998 study on disclosure.
Applied across the tax-exempt bond market, that’s $5.6 billion a year, enough to buy more than 12,000 $465,608 pumper- tender fire trucks. That’s more than one truck for every county in the U.S. The rest could form a parade 50 miles (80 kilometers) long.
Build America Bonds
State and local governments that sold $43.8 billion of taxable Build America Bonds this year will pay $385 million a year more in interest than similarly rated corporate borrowers, based on data compiled by Bloomberg.
The bonds, for which the federal government subsidizes 35 percent of interest costs, pay an average yield that’s 0.8 percentage points more, relative to benchmark rates, than yields for corporate securities with the same credit ratings, the data show.
As a result, it costs New Jersey road authorities, Georgia sewer districts and other agencies more to borrow, even though they, unlike corporations, can raise fees or taxes to make up for deficits. Corporations are at least 90 times more likely to default than local governments, according to Moody’s Investors Service.
Discounted to their present value, those additional payments by municipal borrowers add up to $6.1 billion over the life of the debt.
‘It’s Horrendous’
“I think it’s horrendous, but it’s very hard to get anybody to pay much attention to it,” said Stanley Langbein, a law professor at the University of Miami and a former tax counsel at the U.S. Treasury in Washington.
Underwriters -- banks or securities firms that guarantee the purchase of debt issuers’ bonds -- have an interest in keeping prices low, and yields high, because it means higher returns for them and the first investors, Langbein said.
Many Build America bonds traded at higher prices immediately after agencies sold them, a sign that taxpayers lost, he said.
The Government Finance Officers Association, a professional group based in Chicago, warns municipalities of “competing objectives” in their relationships with underwriters. Many don’t heed that warning, said Christopher “Kit” Taylor, who was the top regulator of the municipal bond market from 1978 to 2007.
‘Stockholm Syndrome’
“They’re suffering from Stockholm syndrome,” he said, referring to the psychological phenomenon in which hostages begin to identify with and grow sympathetic to their captors. “They are being held hostage by their investment bank.”
Public officials shunned competitive bids for more than 85 percent of the $308.9 billion in new tax-exempt bond sales in the first nine months of this year, according to data compiled by Bloomberg. That’s up from 17 percent in 1970 and 68 percent in 1982, according to the Government Accountability Office.
Most borrowing costs that state and local taxpayers incur are set in private negotiations. Finance professionals say no- bid sales allow them to market debt to particular investors, helping issuers find demand when credit markets are tight.
The method boosts interest rates by as much as 0.06 percentage point, according to several academic studies reviewed by the GAO.
Excess Fees
Palm Beach County, Florida, paid $880,000 in excess bank fees and as much as $1.3 million a year in unnecessary interest because its commissioners sold bonds without bids, according to a county report in April.
Each commissioner nominated his or her favorite bank and work was parceled out on a rotating basis, the report showed. That allowed former commissioner Mary McCarty to steer more than $600 million in debt issues to banks that employed her husband, Kevin McCarty, according to federal charges that led to guilty pleas from both this year.
After the McCartys were charged, the county adopted a policy stating a preference for competitive bond sales. When bonds are sold by negotiation, a financing committee will circulate a request for proposals, evaluate them and then recommend an underwriter to commissioners, said Liz Bloeser, Palm Beach’s budget director.
No Bids
Beaver County, Pennsylvania, commissioners haven’t taken bids for bond underwriters since 1986, county records show. After relying on the same firm for more than two decades, they paid as much as $2.8 million more than they had to on a bond sale in January, based on trading records from the Municipal Securities Rulemaking Board, which oversees the tax-exempt bond market.
Using the same underwriter repeatedly for negotiated sales increases borrowing costs each time, according to a study published in the Winter 2008 edition of the Municipal Finance Journal. The study found that if an issuer had used the same bank twice before, its borrowing cost on $100 million of 10- year bonds increased by more than $1 million over the life of the debt.
Other financial mistakes can be difficult to quantify. Taylor, who studied government finances for 30 years as the executive director of the MSRB, said as many as five out of 10 local governments “aren’t getting the best deal by a long shot” on their investments.
Overpaid for Securities
Apache County, Arizona, overpaid its broker almost $500,000 for U.S. government securities, county records show. A price check would have caught the problem. The county has no record that it ever did one.
Many local officials are unprepared for Wall Street’s sales pitches, said Mary Christine Jackman, Maryland’s director of investments in Annapolis.
“When you combine people who are less sophisticated with people who can sell as those on Wall Street usually can, you end up with a very big problem,” she said. Jackman tries to offer basic training and advice to small municipalities, she said.
There are more than 89,000 cities, counties, school districts and other municipal authorities in the U.S., according to data from the Census Bureau. Each year, about 5,000 people attend training sponsored by the Government Finance Officers Association, which has 18,000 members, said Jeff Esser, the group’s executive director.
‘Doing Nothing’
The GFOA has never tried to make a comprehensive tally of its members’ educational attainment or professional backgrounds, he said. He added that during his 30 years with the organization, he has seen “a significant increase” in members’ education, training and professionalism.
Supervisors in Mohave County, Arizona, took issue with the professionalism of its treasurer, Lee Fabrizio, during an investigation last year in which employees reported that he played a lot of golf and was rarely in the office.
“It’s nice to get this paycheck for doing nothing,” Fabrizio told employees once, according to the July 2008 report by the county manager.
Fabrizio, who received a $56,500 annual salary, said he doesn’t remember making that statement and was in the office every day. He said he played nine holes of golf a day for two hours at lunchtime.
An employee’s grievance sparked the investigation and ultimately a state audit, which reported Aug. 28 that the treasurer bought corporate bonds with no evidence of competitive bidding, didn’t vet brokers’ backgrounds and continued to value a $5 million Lehman Brothers Holdings Inc. bond at full cost even after the firm’s Sept. 15, 2008, bankruptcy.
Not an Expert
The Lehman bond was purchased in late 2007, when the treasurer put $50 million, about 25 percent of the county portfolio, into 11 corporate bonds, 10 of them in financial firms including Lehman and Bear Stearns Cos.
“Even if it was a bad investment, I wouldn’t have known the difference; I’m not an investment expert,” Fabrizio said, adding that he relied on his hired deputy for those decisions. The deputy e-mailed competing brokers and had them fill out questionnaires, he said.
The county never sanctioned him, and he was voted out of office last year.
The Lehman loss cost the 7,000-student district in Kingman, Arizona, the county seat, almost $1 million, according to Wanda Hubbard, the schools’ finance director. The real losers are taxpayers, who will be levied more as a result, she said. The owner of a $250,000 house in the district may pay $25 extra this year, Hubbard estimated.
‘Back-Door Tax’
“It was kind of a back-door tax increase,” she said.
Officials are up against increasingly sophisticated financial products, including interest-rate swaps and so-called swaptions. A swaption grants the owner the option to force a particular party into a swap.
The Butler Area School District in western Pennsylvania paid JPMorgan $5.2 million last year to cancel such a pact. The payment was about seven times more than the district had received under the contract. Statewide, 55 Pennsylvania school districts have paid counterparties to exit interest-rate swaps since 2003, according to state records.
Some officials now say they didn’t understand the deals.
“The financial guys would come in with a lot of stuff that nobody at the district understood,” Penelope Kingman, a former member of the Butler school board who voted against the deal, told Bloomberg News last year. “Local governments are entering into these without fully understanding what they are doing.”
Market Has Grown
While such contracts aren’t traded on regulated exchanges, as much as $300 billion in municipal derivatives is traded annually, the MSRB said in an April report, citing information from market participants. Derivatives are a category of contracts whose value is tied to assets including stocks, bonds, commodities and currencies, or events such as changes in interest rates or the weather.
One type of derivative, the interest-rate swap, helped put Jefferson County, Alabama, on the brink of bankruptcy.
The county refinanced $3 billion of sewer debt in no-bid deals earlier this decade, issuing variable-rate bonds that were hedged with swaps. The plan backfired last year as the global credit crisis took hold. Interest payments due on the bonds more than tripled to 10 percent, while the swap income decreased.
Last week, the former president of the county commission, Larry P. Langford, went on trial in federal court in Tuscaloosa. Langford, now the mayor of Birmingham, pleaded not guilty in December to charges including bribery, conspiracy and filing false income tax returns.
‘Political Witch Hunt’
Prosecutors say he took cash, clothes and Rolex watches from a banker who received $7.1 million in fees on debt sales in 2003 and 2004. Langford has called the case “a political witch hunt.”
The Justice Department and the Securities and Exchange Commission are investigating whether Wall Street banks conspired with some brokers to rig bids and fix prices for municipal derivatives. The probe centers on interest-rate swaps and on investments that cities, states and schools buy with bond proceeds, according to subpoenas received by agencies in Alabama, Illinois, Pennsylvania and New Mexico.
While many municipalities turn to professional consultants for guidance on derivatives, the MSRB reported in April that 73 percent of financial advisers who participated in the municipal bond market in 2008 weren’t subject to the board’s rules because they weren’t registered securities dealers.
Legislation Considered
Congress is considering legislation to regulate the financial advisers. Still, there are other gaps.
Federal law exempts the municipal market from rules regarding disclosure and enforcement that apply to companies. And transactions between broker-dealers and municipalities are rarely scrutinized by the self-regulatory agencies that banks and securities firms use to police themselves, including the Financial Industry Regulatory Authority, said Taylor, the former MSRB chief.
Finra and other regulators presume that institutional clients are sophisticated enough to look after themselves, he said.
“Typically, what happens is, nobody looks,” he said. “Finra doesn’t look, the firm doesn’t look, the city council doesn’t look and the populace, the taxpaying populace, has no idea any of this is going on.”
Nancy Condon, a spokeswoman for Finra, declined to comment. The Strategic Programs Group of the authority’s enforcement department in May sent letters to dealers seeking information about interest-rate swaps, structured notes and other products they may have sold.
Enforcement Questions
Taylor questioned why the information-gathering hasn’t led to anything further.
“Finra wants the world to think it is doing something for investors and the good of the markets without actually bringing any enforcement actions or adopting any rulemaking,” he said.
In Orange County, the home of both Disneyland and the largest municipal bankruptcy in U.S. history, officials echoed the mistakes of 15 years ago by investing in another Wall Street innovation.
Robert Citron, who was county treasurer leading up to the 1994 bankruptcy, bought structured notes that paid off when short-term interest rates were lower than medium-term rates, and increased his gamble with funds from issuing new debt. The county lost $1.6 billion when interest rates rose.
Cost of Insolvency
Payments from the resulting insolvency still cost more than $80 million annually, about 1.5 percent of the county’s proposed fiscal 2010 budget.
County supervisors responded by creating an oversight committee to monitor the treasurer and banning investments in derivatives and the use of leverage to amplify returns.
Under John Moorlach, the accountant who exposed the bad bets and succeeded Citron as treasurer, the county later invested in structured investment vehicles, or SIVs. Banks set up the pools of loans to shift risk from their own balance sheets. They borrowed money at short-term rates to finance longer-term investments such as British credit-card receivables or home mortgages.
Moorlach said he got into SIVs, which often yielded more than the county’s other investments, after a ratings officer from Fitch Ratings told him that such exotic instruments were becoming more mainstream.
By 2007, one year after Moorlach won election to the county’s board of supervisors and was succeeded as treasurer by Chriss Street, the investments in SIVs totaled more than $800 million. They made up 14 percent of a county investment pool that manages money for the county, schools and local agencies.
‘Weren’t Paying Attention’
The county sold one SIV at $6.4 million below par last year and so far has recovered about $30 million of the $80 million it invested in Whistlejacket Capital LLC, created by London-based bank Standard Chartered Plc. Whistlejacket, which listed Citigroup Inc. debt and U.K. home loans among its assets, went into receivership last year.
“Despite the oversight, despite the audits, they weren’t paying attention -- and should have been,” said Terry Fleskes, a member of an independent panel that chastised the treasurer and county auditor in June for allowing more investments in complex financial products. Fleskes is a former controller at a unit of San Diego-based Sempra Energy.
“The lessons of the past have been forgotten,” the Orange County Grand Jury said in its report. The group, which doesn’t have the authority to compel changes, serves as a kind of ombudsman to examine county policies.
‘Best Stuff Around’
The structured vehicles were difficult to evaluate, Moorlach said. He relied on rating companies, which “were treating it like it was the best stuff around.”
“I think the rating agencies have a lot of explaining to do because of the overreliance by hardworking municipal treasurers,” he said.
A Fitch spokesman, Kevin Duignan, declined to comment.
“It’s easy to point the finger at others,” said Bart Hildreth, dean of the Andrew Young School of Policy Studies at Georgia State University in Atlanta and a former finance director of Akron, Ohio. “The rating agency didn’t authorize the allocation of the money.”
Orange County auditor David Sundstrom said the amount at risk in SIVs was nothing like the leveraged wagers made by Citron.
“The controls compared to pre-bankruptcy are incredibly strong,” he said.
Out of SIVs
The county has exited all of its SIV investments except Whistlejacket, in which it has notes in a restructured successor that’s being liquidated. Taking into account interest earned, the county hasn’t lost on the SIVs, said Deputy Treasurer Keith Rodenhuis. Interest totaled $58.6 million, with $50.2 million in capital still outstanding in the Whistlejacket successor. County officials expect to get that money back in time, he said.
While Moorlach said Orange County did what it could, sending an analyst to London to investigate one SIV and examining financial reports, the investments may have been a mistake.
“If something’s taking up so much of your time, maybe it ain’t worth it,” he said in his Santa Ana, California, office, overlooking a courtyard where volunteers from local churches serve hot dinners and distribute essentials like socks and toilet paper to a 40-deep line of needy people.
King County, Washington, the home of Seattle, has recovered less than half of $207 million that it put into four failed SIVs. It sued rating companies in federal court this month, saying it was misled by their assessments.
No Clue
“There’s a basic rule of finance: Don’t get into anything you don’t understand,” said Michael Granof, an accounting professor at the University of Texas in Austin. “Many municipalities had no clue as to what they were buying.”
Apache County, Arizona, an area the size of Maryland where 70,000 people live among vast mesas dotted with shrubs, stuck to safe investments, such as U.S. Treasury securities and federal agency bonds. It just didn’t know how to value them.
County treasurer Katherine Arviso, a school administrator on the Navajo reservation for 40 years until she won election in 2004, said she arrived to find investment records packed away in boxes.
“I had to put the whole office back together,” she said.
Then came an August 2005 letter from Piper Jaffray Cos.’sBradley Winges, the head of sales and trading for the Minneapolis-based firm’s public finance group. He wrote that the firm had reviewed trades in the county’s account and found unacceptable commissions. The firm credited $247,060.79 to the county’s account.
Eventual Refund
Piper Jaffray eventually refunded $472,060.79, according to a settlement obtained by Bloomberg News under the state public records act. That’s more than double the $194,870 that the county, one of the poorest in the U.S., spent on immunization, teen pregnancy prevention and home health care last year. Apache County’s per capita income was $8,986 in the 2000 U.S. Census, less than half the U.S. figure, $21,587.
Three days after sending the letter, the firm fired broker Eric Ely, according to Finra records. Ely didn’t return telephone messages or respond to an e-mail seeking comment for this story.
From Oct. 20, 2003, to June 29, 2005, Ely executed 103 trades for Apache County, buying and selling bonds, according to a subsequent investigation conducted by Edward “Buzz” France, a former deputy county attorney.
Estimated Commissions
In a presentation to county supervisors, France estimated that Piper Jaffray earned commissions of just over $1 million on $158.6 million in principal, an average rate of 0.638 percent. Investment bankers told France the commissions should have been no more than 0.3 percent.
“Our clients’ interests come first,” Piper Jaffray said in a statement. “Four years ago, we discovered a situation in which we believed one employee had run counter to this guiding principle, and we proactively and quickly worked to rectify any client impact, and terminated the employee.”
There was no need for so many trades if the goal was steady, reliable returns, said Charles Anderson, the former manager of field operations for the tax-exempt bond division of the Internal Revenue Service.
A reasonable commission for the $158 million of securities that Apache County purchased would have been $50,000 to $100,000, said Thomas Tucci, head of U.S. government bond trading at RBC Capital Markets Corp. in New York, one of 18 firms that trade directly with the Federal Reserve.
Not Unusual
Basic financial mistakes trip up many local governments, said Kevin Camberg, a partner with Fester & Chapman P.C., a Phoenix accounting firm that has checked the books of Apache County and others in Arizona for the state auditor.
“It’s not as unusual as it should be,” he said.
France, the county investigator, never determined how Piper Jaffray was chosen to handle Apache County’s investment fund. The treasurer at the time, Betty Montoya, declined to comment on the selection process for this story.
Had the county checked Ely’s licensing history with Finra, which oversees almost 4,800 brokerage firms, it would have found previous allegations of infractions. Since 2002, investors have been able to access BrokerCheck reports of disciplinary histories online, said Condon, the Finra spokeswoman.
Ely paid $80,000 toward a $260,000 settlement of a customer’s 1989 complaint of “unauthorized and unsuitable transactions,” according to Finra records. Ely worked for Merrill Lynch & Co. from 1983 to 1990, the records show.
Settlement in Wyoming
In 2002, Piper Jaffray reached a $42,500 settlement of a customer’s allegations that Ely had purchased and sold securities contrary to Wyoming state law or local investment policy, the records show.
Ely, now affiliated with Public Asset Management Group in Greenwood Village, Colorado, and First Financial Equity Corp. in Scottsdale, Arizona, continued seeking business with small local governments. The broker gave a speech called Investment Management Alternatives for the School at a meeting of the Montana Association of School Business Officials in June 2008.
“He said he was interested in all the smaller players,” said Dustin Zuffelato, who attended as business manager of the 2,400-student Columbia Falls School District Six in Flathead County, Montana.
Zuffelato recommended that his school board consider investing about $8 million with Ely. The board declined, citing the logistical hurdles of switching investments from a pool managed by the county treasurer, he said. Zuffelato said he didn’t check for complaints against the broker first.
Investing 101
In June, the broker appeared again at the Montana schools conference, this time teaching a class called Investing 101.
In Springfield, Calvanese, the former city treasurer, said brokers told him he was investing in money-market funds.
City officials could have learned that they were really buying securities that bundle various issuers’ bonds or loans, or both, if they had insisted on seeing disclosure documents about the securities. Calvanese said in an interview that he rarely looked at such documents, which outline risks.
Calvanese was fired after the CDO investment came to light. He has filed suit challenging his dismissal.
Springfield officials and the Massachusetts attorney general argued that the city was misled by its brokers from Merrill Lynch, who sold it financial instruments that violated a state restriction on public investments. Calvanese said the brokers assured him the transaction complied with state law.
Merrill Lynch, now owned by Bank of America, returned the $14 million the city had invested, and agreed to pay an additional $300,000 in July.
A $75,000 portion of that money was set aside for educating municipal officials on investment management.
To contact the reporters on this story: Peter Robison in Seattle at robison@bloomberg.net; Pat Wechsler in New York at pwechsler@bloomberg.net; Martin Braun in New York at mbraun6@bloomberg.net
Last Updated: October 26, 2009 17:56 EDT
Friday, October 23, 2009
Homework 10/26/09 Read and respond to the following letter
Write a two page letter responding to 2-3 issues addressed in this very thought provoking letter. Please make sure that you follow the format outlined in this letter. You may write the letter as if your are one of the following recipients.
Your letter must address 2-3 issues raised in this letter regarding the McCarran Ferguson Act of 1945. Please check your grammar and spelling to make sure that you have few to little errors. This assignment is worth 50 points.
For extra credit ask 5 adults their perspective and thoughts regarding this law. Students can earn 10 point extra credit per adult questioned.
To:
President Barack Obama
Sen. Dianne Feinstein
Sen. Barbara Boxer
Rep. Dan Lungren
September 16, 2009
How can we have health care reform without repeal of The McCarran Ferguson Act of 1945? As I know, you are aware that The McCarran Ferguson Act exempts Insurance companies from the Sherman Anti Trust Act. The only industry other than Major League Baseball that are allowed to legally engage in collusion and legally participate in Price Fixing.
There has been an attempt almost every year to overturn this Act but the insurance industries with their wallets make sure a bill never gets to the floor for a vote. I first became aware of this unfair consumer practice in 1974 when I was employed in The Auto Body Industry. Automotive Associations have been the most involved in attempting to repeal this Act, because for Body Shops 95% of their business is one customer only, the insurance companies, and there is collusion by insurers to set the hourly rate they pay the shops.
This Act allows the insurance companies to legally be involved in Price Fixing. Yet let any two or more businesses meet and set prices and they are rightfully prosecuted for Price Fixing under The Sherman Anti Trust Act. Yet we allow all insurance companies exemption from this same action, why? During the presidential election McCain's concept, and also recently mentioned by the President, of allowing people to buy cheaper health insurance from a state that has better rates is never going to happen, insurers would lose their exemption from Anti Trust laws due to interstate commerce. Am I wrong? If not, why is this not being talked about with regard to Health reform?
A public option would actually, for the first time, create competition among insurers and they would have to compete on value. Without a public option we must have repeal of The McCarran Ferguson Act, if not how do we get a free and competitive market concerning health insurance?
Your letter must address 2-3 issues raised in this letter regarding the McCarran Ferguson Act of 1945. Please check your grammar and spelling to make sure that you have few to little errors. This assignment is worth 50 points.
For extra credit ask 5 adults their perspective and thoughts regarding this law. Students can earn 10 point extra credit per adult questioned.
To:
President Barack Obama
Sen. Dianne Feinstein
Sen. Barbara Boxer
Rep. Dan Lungren
September 16, 2009
How can we have health care reform without repeal of The McCarran Ferguson Act of 1945? As I know, you are aware that The McCarran Ferguson Act exempts Insurance companies from the Sherman Anti Trust Act. The only industry other than Major League Baseball that are allowed to legally engage in collusion and legally participate in Price Fixing.
There has been an attempt almost every year to overturn this Act but the insurance industries with their wallets make sure a bill never gets to the floor for a vote. I first became aware of this unfair consumer practice in 1974 when I was employed in The Auto Body Industry. Automotive Associations have been the most involved in attempting to repeal this Act, because for Body Shops 95% of their business is one customer only, the insurance companies, and there is collusion by insurers to set the hourly rate they pay the shops.
This Act allows the insurance companies to legally be involved in Price Fixing. Yet let any two or more businesses meet and set prices and they are rightfully prosecuted for Price Fixing under The Sherman Anti Trust Act. Yet we allow all insurance companies exemption from this same action, why? During the presidential election McCain's concept, and also recently mentioned by the President, of allowing people to buy cheaper health insurance from a state that has better rates is never going to happen, insurers would lose their exemption from Anti Trust laws due to interstate commerce. Am I wrong? If not, why is this not being talked about with regard to Health reform?
A public option would actually, for the first time, create competition among insurers and they would have to compete on value. Without a public option we must have repeal of The McCarran Ferguson Act, if not how do we get a free and competitive market concerning health insurance?
Tuesday, October 20, 2009
Homework 10/20/09 due 10/21-10/22
All students will create 5 language arts based questions on any academic/scholarly topic. The students must ask 10 adults to answer the questions they have constructed. This assignment will help students become more comfortable with asking adults questions. Through questioning we learn.
All responses to your questions must be in complete sentences and must be free of spelling and grammar errors.
The overall objective is to teach students to be individuals who question authority when needed. If we as individuals never learn how to question people who we may perceive to be more educated than us how will we ever know if what they are telling us is TRUE.
This assignment is due on 10/21 and 10/22. This assignment is worth 100 points.
All responses to your questions must be in complete sentences and must be free of spelling and grammar errors.
The overall objective is to teach students to be individuals who question authority when needed. If we as individuals never learn how to question people who we may perceive to be more educated than us how will we ever know if what they are telling us is TRUE.
This assignment is due on 10/21 and 10/22. This assignment is worth 100 points.
Wednesday, October 14, 2009
Homework 10/14/09 due 10/16-10/17
Homework Assigned 10/14/09
Homework Due Date 10/16/09
Students must ask and collect data from 10 individuals (adults only) regarding the following questions: The student must write down the information in a sentence or paragraph format. All answers must be written in complete sentences. No exceptions. Worth 100 points. Students must present all of the answers to the following questions in order to receive any credit. Incomplete work will not be accepted.
1) What do you think about the current health bill? Do you think that it is fair for the government to allow companies under this new health bill to be waved of the legal responsibility to provide health insurance for full- time employees?
2) In your opinion do you believe that Mr. Obama deserved the Nobel Peace Prize? If so, why? If not, why not?
3) Are you aware that Mr. Obama has sent an additional 10,000 troops to Afghanistan, how does this make you feel? Do you believe that Mr. Obama has kept his promise to the American people regarding bringing our troops home?
4) Do you believe that Iran is a clear and present nuclear danger?
5) At the present time how many wars is the USA currently fighting, and with what countries are we currently fighting?
Extra Credit: You may ask: Schriber, Valencia, Brimer, Haberman, or any history teacher on this campus.
Worth 30 points per teacher response.
In the United States who makes our money? Who has the legal right to make interest free money? Why are the American people currently burdened by the interest and expenses of the big banks and every other corporation in America?
Homework Due Date 10/16/09
Students must ask and collect data from 10 individuals (adults only) regarding the following questions: The student must write down the information in a sentence or paragraph format. All answers must be written in complete sentences. No exceptions. Worth 100 points. Students must present all of the answers to the following questions in order to receive any credit. Incomplete work will not be accepted.
1) What do you think about the current health bill? Do you think that it is fair for the government to allow companies under this new health bill to be waved of the legal responsibility to provide health insurance for full- time employees?
2) In your opinion do you believe that Mr. Obama deserved the Nobel Peace Prize? If so, why? If not, why not?
3) Are you aware that Mr. Obama has sent an additional 10,000 troops to Afghanistan, how does this make you feel? Do you believe that Mr. Obama has kept his promise to the American people regarding bringing our troops home?
4) Do you believe that Iran is a clear and present nuclear danger?
5) At the present time how many wars is the USA currently fighting, and with what countries are we currently fighting?
Extra Credit: You may ask: Schriber, Valencia, Brimer, Haberman, or any history teacher on this campus.
Worth 30 points per teacher response.
In the United States who makes our money? Who has the legal right to make interest free money? Why are the American people currently burdened by the interest and expenses of the big banks and every other corporation in America?
Friday, October 2, 2009
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