Hedge Fund Industry Behind Congressman Rangel's' Troubles

After 38 years in the U.S. House of Representatives, suddenly Congressman Charlie Rangel wakes up to almost a hit piece a week in New York City newspapers.

In July, the New York Times reported on Rangel's four rent controlled apartments. In August, the New York Post first reported on Rangel's "beachfront villa in a sun-drenched Dominican Republic resort." Yesterday, NyPo followed up with another attack on his failure to report income from the villa. Then there was the report of Rangel using his official congressional stationary to solicit money from constituents for a Columbia University Center to encourage minority participation in government.  

This stuff the papers are focusing on is all in a days work for a ranking congressman. It is generally, impossible to get newspapers to feature stories about it. But, as  the second scandal broke, we wrote, "Somebody is out to get...Ways and Means Committee chairman, Congressman Charlie Rangel....Reports like this don't come out by accident. Somebody that is very powerful is after Rangel."

The Ways and Means committe chair has always been a hot seat.

Rep. Wilbur Mills (1957-1974) was removed via a set-up affair with a stripper, Fannie Fox; Rep. Dan Rostenkowski (1981-1994) was forced out in a concocted House Post Office scandal, and President William McKinley, who was assassinated in 1901, had previously been Chair of the Ways and Means Committee.

Now it's Rangel's turn. Who is powerful enough and has the money to sponsor and fund the takedown this time?

Friends tell us that it is the hedge fund and private equity industres.

The hedge fund and private equity industries have targeted Rangel because of his legislation in the House that would have taxed the earnings of hedge fund and PE managers at a 35% income tax rate, instead of the current capital gains rate they pay of 15%. Rangel's legislation for a tax increase on the fund managers passed the House 233-189, but it was blocked in the Senate.

Now it's pay back time for Rangel, who also has been makng noise about reinstituting the draft.

One Wall Street insider said to me, "This is almost as much fun as taking out Eliot Spitzer."

The Economics of Digging Up Dirt On Sarah Palin

The chart below shows the Quantcast traffic estimates for National Enquirer's web site through July 31, when they first started to break news on the John Edward's story. Traffic more than tripled to 906,000 per month. With rumors and interest brewing all around Sarah Palin right now, traffic has to be approaching, if not exceeding, 1.5 million visitors for them. And, keep in mind, National Enquirer's web presence is minor compared to its print publication.

Alert: Treasury To Detail Freddie/Fannie Takeover, Sunday

WSJ is reporting that the Treasury is expected to announce early Sunday afternoon details of a plan under which regulators will effectively take temporary control over Fannie Mae and Freddie Mac.

Barney Frank Confirms Fannie/Freddie Interventions

Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee, said in a statement that Treasury Secretary Henry Paulson "intends to use the powers that Congress provided it" in a law passed in July to enable Fannie Mae and Freddie Mac to keep functioning.

According to AP, Frank spoke with Paulson late Friday,but said he did not "know the details of the proposed interventions," and a Treasury spokeswoman declined to comment.

Carlyle To Buy Distressed Apartments

File under: "Buying while there is blood in the streets."

GFI Capital Resources Group and The Carlyle Group formed a $300 million joint venture to buy distressed residential apartment buildings, said Michael Weiser, executive vice president of acquisitions and dispositions at GFI, a Manhattan-based diversified real estate company.

The venture will leverage that cash to buy $1.2 billion worth of properties.

Weiser said the driving force of the venture was to capitalize on the deteriorating real estate market which is forcing some owners to sell buildings at deep discounts. He says GFI has a history of buying buildings in down markets.

“There is going to be a lot of opportunity out there,” said Weiser.

New York Times Goes From Six Sections to Four

NYT said yesterday that it will cut back the number of sections it has in the daily paper it sells in the metro New York area beginning next month.

The change returns the paper to the four sections it printed more than a decade ago. Since 1997, it had been publishing six sections. The Sports section will now be pushed back into the Business section on Tuesdays through Fridays. The Metropolitan section will be published as part of the A section, with national and international news, on Monday through Saturday.

The change is a cost cutting move. The savings, which the paper would only describe as "significant," come from eliminating an early shift in the printing plant on certain days.

"We are not reducing the space devoted to metro or sports news," Arthur Sulzberger Jr., the paper's publisher, said in the note to staff. "This is simply a way to produce the paper more efficiently."

Top Tax Writer Dodges Taxes

U.S. Congressman Charlie Rangel (D-NY)may lose his position as head of the powerful House Ways and Means committee following news that he failed to report income on a Dominican resort property he occasionally rented out.

His lawyer, Lanny Davis, said that Rangle didn't declare about $75,000 in rental income from his villa with panoramic ocean views at the Punta Cana Yacht Club.

Rangel will apparently use the "my wife was in charge of finances" defense.

Davis told NyPo that Rangel thought he didn't have to declare the income for a variety of reasons, including that his wife, Alma, handled their finances, so he never saw the sporadic statements.

Since the House Ways and Means Committee writes tax law, for the head of the committee to fail to report all his income, is a bit akward for the committee. The write all the tax laws you want, but never report the income philosophy is causing Republicans to take notice.

"Charlie Rangel is the designated leader on tax policy in the Democrat-led Congress, but while he is authoring massive tax hikes to exact on middle-class Americans, he is apparently dodging the IRS at all costs," said Ken Spain, spokesman for the National Republican Congressional Committee.

EPJ Dictionary: Wells Notice

A Wells notice is a notice sent by the Securities and Exchange Commission that informs its recipient that the SEC staff is considering enforcement action, and offers the recipient a chance to respond.

Silver State Bank Shutdown; McCain's Son Was Director

State of Nevada regulators and the FDIC have shutdown Silver State Bank.

John McCain's son, Andrew, sat on Silver State's board and was a member of its three-person audit committee, which was responsible for overseeing the company's financial condition.

Andrew McCain left the Henderson, Nev., bank July 26 after five months on the board, citing "personal reasons." He is McCain's adopted son from his first marriage.

Prominent libertarian writer, Douglas E. French, formerly Executive Vice President of Commercial Real Estate Lending at Silver State Bancorp and top Commercial Loan producer for the bank, resigned from the bank for "personal reasons" in May.

As of June 30, 2008, Silver State Bank had total assets of $2.0 billion and total deposits of $1.7 billion. Nevada State Bank agreed to purchase the insured deposits for a premium of 1.3 percent. At the time of closing, there were approximately $20 million in uninsured deposits held in approximately 500 accounts that potentially exceeded the insurance limits. This amount is an estimate that is likely to change once the FDIC obtains additional information from these customers.

CNN’s Lou Dobbs Suffered Major Losses From Bank Collapse

CNN's Lou Dobbs, who promotes himself on his television show as something of an economic and financial genius, apparently wasn't bright enough to spread his money over more than one bank. That is, he didn't keep his balances at any one bank under $100,000 for full FDIC protection. Thus, it appears he will be taking major losses.

Atlanta Business Chronicle is reporting:

The failure of Alpharetta’s Integrity Bank has likely wiped out the investments of some notable Atlantans, including CNN anchor Lou Dobbs...

Integrity Bank, a subsidiary of Integrity Bancshares Inc., was taken over by the Federal Deposit Insurance Corp. on Aug. 2.

Government Takeover of Freddie and Fannie

Senior officials from the Bush administration and the Federal Reserve informed top executives of Fannie Mae and Freddie Mac that the government is preparing a plan to seize the two companies and place them in a conservatorship, officials and company executives briefed on the discussions told NYT.

Developing....

UPDATE: Sounds like Freddie and Fannie will be run on an interim basis by the Federal Housing Finance Agency.

UPDATE 2: From WaPo:

The value of the company's common stock will be diluted but not wiped out while the holdings of other securities, including company debt and preferred shares, will be protected by the government...

Instead of giving each company a big capital infusion up front, the government plans to make quarterly infusions as the companies' losses warrant, the sources said. This would be an attempt to minimize the initial cost of the rescue...

Most Interesting Comment Of The Week

"If you could somehow start a large, well-capitalized bank today, with no legacy loans to deal with, you could rake in the money."
-Floyd Norris

Volcker Says Finance System `Broken'

"This bright new system, this practice in the United States, this practice in the United Kingdom and elsewhere, has broken down. Growth in the economy in this decade will be the slowest of any decade since the Great Depression, right in the middle of all this financial innovation. It is the most complicated financial crisis I have ever experienced, and I have experienced a few...

Changes are going to have to be made'' to the global financial system."

-Former Federal Reserve Chairman Paul Volcker in a speech today at a banking conference in Calgary

Hot Buzz: Government Moves On Fannie, Freddie

It appears that the  goverment is about  to pump capital into Fannie Mae and Freddie Mac, in what is sure to be a near takeover of the two agencies. 

A meeting was held this afternoon at the Federal Housing Finance Agency. Richard Syron CEO of Freddie Mac and Daniel Mudd CEO of Fannie Mae were summoned to it, according to Deborah Soloman and Damian Paletta at WSJ.  Also attending were the Fed's Ben Bernanke and Treasury Secretary Henry Paulson.

Reportedly, Mudd and Syron will be axed as part of the Treasury move.

An announcement could come as early as this weekend.

Specific details of Treasury's plan and specifics of the capital infusion are not yet available. The plan is expected to involve "a creative use" of Treasury's authority, according to WSJ. More than likely common stock shareholders will be crushed, with their shares diluted down to near worthlessness.

It looks like a done deal, more details here.

Did Sarah Palin Have Affairs With Two Of Her Husband's Business Partners?

As reported earlier, John McCain’s campaign threatened legal action against the National Enquirer for running a story about McCain’s running mate, Sarah Palin, allegedly having an affair with her husband’s business partner.

Speculation by some immediately turned to Brad Hanson as the man she may have had an affair with. According to Alaskan Abroad, sources in Alaska say the incident occurred in mid 1990s, right around the time she became mayor of Wasilla. Todd Palin's partner in a Polaris snowmachine dealership in Wasilla, Brad Hanson, and Sarah were reportedly in some kind of relationship, but they denied it was consummated.

Whatever went on, Todd found out enough so that he dissolved the partnership and sold the dealership.

But there's another more recent former business partner where Sarah's flirtatious ways may have gone to far. One, Scott Richter, filed an emergency motion on Wednesday to have his divorce papers sealed. Richter is another Todd Palin former business partner. Richter's motion to seal his divorce records has been denied.

The questions being asked now are "What's in the divorce files that Richter suddenly wants them sealed?" And some bloggers are asking "Did the very flirty Palin have affairs with two of her husband's business partners?"

Since the court has denied Richter's motion to have the files sealed , the first question should be answered shortly. And with more investigative reporters now in Alaska, than moose, no doubt the second question will also be answered soon.

UPDATE: Looks like we are down to one business partner. Smoking Gun reports:

So why did an associate of Republican vice presidential nominee Sarah Palin's husband file an emergency court motion Wednesday to seal all the documents in his divorce case? As followers of the Palin feeding frenzy know, the National Enquirer this week reported the "incredible allegation" that Palin had an extramarital affair with an unnamed former "business partner" of her husband. Once the politician's husband Todd learned of the purported affair, an Enquirer source claimed, he "quickly dissolved his friendship and his business associations with the guy." So when the blogosphere discovered today (via an online court docket) that Scott Richter, a Palin associate, personally filed a sealing motion in Alaska Superior Court, well, conclusions were jumped to. Was Sarah Palin named as the other woman in a messy divorce action? Well, since Richter's September 3 motion, a copy of which you'll find below, was denied yesterday, his divorce filings remain open to the public. And a TSG review of the 98-page file shows that the Palins are only mentioned in Richter's sealing request. According to the filing, Richter wanted the documents deemed confidential in a bid to cloak details about his home, workplace, and phone numbers because "reporters and news agencies" were using that information to contact him. Richter, a 39-year-old contractor, noted that he is "friends and land owners in a remote cabin" with the Palins and, as a result, journalists were intruding on the "cabin life and private life" of him and his 11-year-old son. The petition to dissolve the marriage was filed jointly last July by Richter and his ex-wife, who were not represented by lawyers. A judge granted the dissolution less than two months after the couple filed to end their marriage

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Ron Paul to Make Major Announcement Next Week

Congressman Ron Paul will make a major announcement next week in Washington D.C. at the National Press Club.

Both Bob Barr and Chuck Baldwin are expected at the news conference. Barr is the Libertarian presidential nominee and Baldwin is the presidential nominee of the Constitution Party.

Speculation is that that Baldwin and Barr are stepping aside so that Paul can become the nominee of both the Constitution and Libertarian Parties
The Montana Constitution Party has removed Chuck Baldwin from the ballot and is putting the ticket of Ron Paul for President and Michael Peroutka on the ballot for Vice-President.

UPDATE: Eric Garris reports:The Montana Constitution Party has removed Chuck Baldwin from the ballot and is putting the ticket of Ron Paul for President and Michael Peroutka on the ballot for Vice-President.

Ron Paul was aware that the party planned to do this, and has said that as long as he can remain passive and silent about the development, and as long as he need not sign any declaration of candidacy, that he does not object.

A group in Louisiana has also filed to have Ron Paul's name on the ballot for President under the "Louisiana Taxpayers Party" label.

Rangel: They Got Me

Rep. Charles Rangel (D) of New York who is chairman of the powerful House Ways and Means Committee admitted that he earned more than $75,000 of undeclared income from a Dominican Republic villa, after NyPo reported the possibility in an exclusive report earlier this week.

Someone has been sniping at Rangel, as only weeks ago the New York Times detailed the four rent controlled apartments he rents at far below market prices.

Rangel has owned the villa at the Punta Cana Yacht Club for 20 years, yet only sporadically declared income to Congress, and never reported it on his federal or state tax returns, his lawyer said, according to NyPo.

Rangel's lawyer says disclosure forms will be refiled for a number of years. Filing a false disclosure form can result in civil penalties and a possible five-year prison sentence.

Rangel is 78 years old.

Four Million Homeowners With Mortgage Problems

The Mortgage Bankers Association is reporting  that more than 4 million American homeowners with a mortgage - a record 9 percent - were either behind on their payments or in foreclosure at the end of June.

The latest quarterly figures broke records for late payments, homes entering the foreclosure process and for the inventory of loans in foreclosure. The trade group's records go back to 1979.

The percentage of loans at least one month past due or in foreclosure was up from 8.1 percent in the January-March quarter, and up from 6.5 percent a year ago, using figures that were not adjusted for seasonal factors.

New foreclosures rose from the first quarter in 35 states and Washington, D.C. The biggest increases were in Nevada, Florida, California, Arizona, Michigan, Rhode Island, Indiana and Ohio.New foreclosures actually declined in Texas, Massachusetts and Maryland. Both Maryland and Massachusetts recently passed laws to slow the foreclosure process and give borrowers more time to catch up on their payments.

Almost 500,000 homeowners, or about 1 percent, entered the foreclosure process in the second quarter.

But for the first time since the mortgage crisis started, delinquencies on subprime adjustable-rate loans declined. While more than one out of every five homeowners with a subprime ARM is still in default, that portion dipped 1 percentage point from the first quarter to 21 percent.

What's driving up the delinquency rate now is the number of homeowners with risky, adjustable-rate prime loans made with little or no proof of the borrowers' income or assets.

More than one out of 10 borrowers with a prime ARM is now delinquent or in foreclosure. That portion, 11.3 percent, was up from 9.7 percent in the first quarter, and is expected to rise as more homeowners see their monthly payments spike.

Many of these loans allowed the borrower to pay only the interest on the loan for a fixed period. Others gave the borrower the option to "pick-a-payment," adding any unpaid interest to the principal balance.

With home prices plummeting, particularly in California, Nevada, Arizona and Florida, many borrowers with these exotic loans now owe more on their homes than they are worth.

Worse still, these loans reset to higher monthly payments when borrowers reach maximum debt limits - typically around 10 to 25 percent more than the original loan.

Those resets can increase the borrower's monthly payment by more than $1,000 a month on average, Fitch Ratings said in a report this week.

And nearly half of these pay-option loans are expected to reset to higher monthly payments by the end of 2010, Fitch said.

Source AP via NyPo

Behind Sarah Palin's Support of Israel

A picture has been circling on the internet which highlights the fact that John McCain's running mate, Sarah Palin, has a flag of Israel in her office.

Prior to her big acceptance speech at the Republican Convention, she had cancelled all appearances except for a meeting with the pro-Israel lobby group AIPAC.

The obvious questions then become "What is Palin doing with an Israeli flag in her office when there does not seem to be any natural Israeli or Jewish constituency in Alaska, since there are few Jews in Alaska?", " Why is  AIPAC the first an only group she  met with before her big speech?"

The answer is likely in Palin's religious beliefs.

The McCain campaign has said Gov. Palin was baptized as an infant in the Catholic Church. At some point she converted to fudamnentalist Christian beliefs and as a junior high schooler, Palin was baptized at a Pentacostal church, the Wasilla Assembly of God. She worshipped for more than two decades there. According to WSJ, the congregants speak in tongues and are part of a faith that believes humanity is in its "end times" -- the days preceding a world-ending cataclysm bringing Christian redemption and the second coming of Jesus.

For the last seven years she and her family have attended the Wasilla Bible Church ,a nondenominational church in Wasilla. The church is evangelical, though not Pentecostal or charismatic, and believers don't speak in tongues. While in Juneau, the state capital, Palin attends the Juneau Christian Center, an Assemblies of God church. The continued Assemblies of God connection is key.

What does all this have to do with Israel?

The Wasilla Assembly of God, the Juneau Christian Center and the parent denomination -- the three-million member General Council of the Assemblies of God -- espouse core beliefs not widely ascribed to by major Christian factions, accordng to WSJ. The denomination's Web site says some scholars believe that the "end times" to the Holy Land, fulfilling a Biblical prophecy. The Assemblies of God is part of a Pentecostal movement that numbers 80 million people world-wide.

"Historically, the Assemblies of God have been dispensationalists, which means they believe in 'the rapture' of Christians that takes them out of the world. Central to that position is a very strong support for Israel. It's integral to their view of both prophecy and politics. Denying Israel is almost like denying the faith, " Merrill Matthews, an evangelical Christian specialst told the Washington Times.

In 2000, Dr. Gary North wrote an article, The Unannounced Reason Behind American Fundamentalism's Support for the State of Israel. In part of that article, North wrote:

The dominant premillennial view says that Jews will suffer the Great Tribulation. Born-again Christians will have flown the coop – literally. This is the doctrine of the pre-tribulation Rapture.

According to pre-tribulation premillennialists, who are known as dispensationalists, Jesus will come secretly in the clouds and raise deceased Christians – and only Christians – from the dead. Immediately thereafter, every true Christian will be transported bodily into the sky, and from there to heaven: the Rapture event...

The belief continues that all of the Christians, in the Rapture event, will have been removed from this world three and a half years prior to the beginning of a 42-month period of tribulation where two-thirds of all Jews will be killed. "The one third that are left will be refined and be awaiting the deliverance of God at the second coming of Christ," according to John F. Walvoord in his book, Israel in Prophecy.

North again:

The Rapture-based escape from history is now universally believed by fundamentalists to be imminent. Generations of fundamentalists have believed that they will escape bodily death. They will be transported into the sky, like Elijah, though without benefit of chariots...

But when? That has been the great question. The answer: "Soon"...

But how can they be so sure? Because of the events of 1948. In that year, the crucial missing piece of the prophetic puzzle – the restoration of the nation of Israel – seemed to come true. Critics of the dispensational system could no longer say, "But where is Israel in all this?" The answer, at long last: "In Palestine, just in time for the Great Tribulation."...

It should be clear why they believe that Israel must be defended at all costs by the West. If Israel were militarily removed from history prior to the Rapture, then the strongest case for Christians’ imminent escape from death would have to be abandoned. This would mean the indefinite delay of the Rapture. The fundamentalist movement thrives on the doctrine of the imminent Rapture, not the indefinitely postponed Rapture...Fundamentalists really do believe that they probably will not die physically...The presence of Israel validates the hope of fundamentalists that Christians, and Christians alone, will get out of life alive.

UPDATE: Details emerge of the Palin/AIPAC meeting from WaPo:

Joe Lieberman, who was the 2000 Democratic vice presidential nominee but is now an independent, has helped introduce Palin to officials of the American Israel Public Affairs Committee, the leading pro-Israel lobby. In a meeting Tuesday, the day before she delivered her prime-time address at the Republican National Convention here, Palin assured the group of her strong support for Israel, of her desire to see the United States move its embassy from Tel Aviv to Jerusalem and of her opposition to Iran's aspirations to become a nuclear power, according to sources familiar with the meeting

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Unemployment Rate Rises to 6.1%

The unemployment rate rose from 5.7 to 6.1 percent in August, and non- farm payroll employment continued to trend down (-84,000), according to the Labor Department.

In August, employment fell in manufacturing and employment services, while mining and
health care continued to add jobs. Average hourly earnings rose by 7 cents,
or 0.4 percent, over the month.

Over the past 12 months, the number of unemployed persons has increased by 2.2 million and the unemployment rate has risen by 1.4 percentage points, with most of the increase occurring over the past 4 months. Which happens to coincide with the period of Fed slowing of the money supply.

The job losses in August came in every sector, with manufacturing and business services the hardest hit.

In August, the unemployment rates for adult men (5.6 percent), adult women
(5.3 percent), whites (5.4 percent), blacks (10.6 percent), and Hispanics
(8.0 percent) rose, while the jobless rate for teenagers was little changed
at 18.9 percent. The unemployment rate for Asians was 4.4 percent in August,
not seasonally adjusted.

Conclusion: If the Fed continues its tight money policy, the unemployment number is lkely to continue to climb, perhaps to double digit levels.

Dell Plans to Sell Its Factories

Dell is trying to sell its computer factories around the world, a move to sharply overhaul a production model that was long a hallmark of the PC giant's strategy but is no longer competitive, WSJ is reporting.

One person briefed on the plan said he expects the company to sell most -- and possibly all -- of its factories "within the next 18 months."

Dell's plants are still regarded as efficient at churning out desktop PCs. But within the industry, company-owned factories aren't considered the least expensive way to produce laptops, which have been the main driver of growth lately and are complex and labor-intensive to assemble. Rivals such as Hewlett-Packard Co. years ago shifted to contract manufacturers -- companies that provide production services to others -- to build their portable computers. H-P builds "less than half" of its PCs in facilities it own.

Contract manufacturers can generally produce computers more cheaply because their entire operations are narrowly focused on finding efficiencies in manufacturing, as opposed to large firms like Dell, which must also balance marketing and other considerations.

Russia Props Up Ruble

Speculators should be thnking about buying the ruble while there is blood in the streets of Georgia.

Russia’s central bank intervened heavily yesterday to support the ruble, FT is reporting. Reports indicate that as much as  $21 billion of foreign capital might have been pulled out of the country in August in the wake of the conflict with Georgia. The central bank said that the capital outflow from Russia last month were only $5 billion.

The ruble fell as low as R30.41, yesterday, its weakest level since the Russian central bank adopted its euro/dollar basket in February 2007. The central bank governor admitted there had been capital outflows since the war but said the amount was much lower.

The currency intervention was the first since the height of the war with Georgia at the beginning of August. Before the conflict the central bank’s interventions in the market were aimed at stemming the rise of the rouble, which it manages to a basket weighted 55 per cent in dollars and 45 per cent in euros.

As a result of strong oil prices and other natural resources ,Russia’s central bank still has a huge war chest to defend its currency. Its reserves measured in this week at $582  billion, the third-largest foreign currency reserves in the world.