Fisker has received a loan guarantee of $528 million from US taxpayers, and has built 1,500 cars of which “several hundred” have been sold.  That works out to a cost of $350,000 per car built.  And nobody wants to buy them!  But that’s all OK, all the money went to Finland, anyway!  Hard to understand why an $88,000 car which can only go 50 miles on a charge won’t sell…

A123, by the way, was awarded a taxpayer grant of $250 million.

To be precise, it seems that the total cash drawn by the two companies is less than the maximum amount of the grants.  If they both went under today, taxpayers would only lose about $325 million-  a bargain!

Not so fast.  In 2008, Mormons were about 27% of the vote.  Romney won 95% of the Mormon vote.  This time around the turnout was light, and (according to the AP) Mormons were at least 25% of the turnout again.

Running some numbers, it turns out that if the Mormon turnout was the same this time as last, and that if Romney won 95% of the Mormon vote again, then you can calculate Romney’s share of the non-Mormon vote.  The answer:  Romney won 31% of the non-Mormon vote.

Now, if we assume that Newt, Paul and Santorum split the Mormon and non-Mormon votes in the same percentages, then we can compute how much of the non-Mormon vote they won.  Turns out that Newt won 31% of non-Mormons; Paul won 25%; and Santorum won 15%.

Romney also arguably underperformed relative to the last time around, in 2008.  In 2008, he won Nevada with 51% of the vote.  Turnout was 44,000, despite the fact that many Republicans crossed over to vote in the Democrat primary (Operation Chaos!).  The total vote count from yesterday’s primary, with 1305 out of 1805 precincts reporting, was 24,000 (as of 5:30 EST Sunday).  Maybe the turnout will match that of 2008 when the other precincts report, but news articles said that turnout was light.

So if I were a Republican strategist, I would have three thoughts:

1.  Newt and Romney tied for the non-Mormon vote.

2. Newt extended his lead over Santorum, while Paul held steady.  (It was a really bad day for Santorum.)

3.  There could be an enthusiasm gap developing.   Remember that the Republicans did so well in 2010 because Tea Party voters were enthusiastic.  Republican strategists say that Newt would doom chances to win the Senate and maybe hold the House.  Is this really true?  Or could Romney create such an enthusiasm gap that Republican turnout will fall?

A win is a win, and congratulations to Romney for it.  But it’s not correct to say that this win was a confirmation of his inevitability, unless one anticipates that Mormons will be 27% of the electorate in the remaining Republican primaries.  My conclusion is that Newt has once again bounced back, and that if he is able to stay positive and recognize that Romney and others will try to bait him to go negative, then Newt has an excellent shot, still.  My other conclusion is that this result was a very weak one for Santorum.

Carried interest income is a special type of income category claimed by people who manage venture capital and other investment activities.  It’s paid to compensate them for their work in making and supervising investments.  The tax rate on carried interest income is the same as the capital gains rate, which today is 15%.

A couple of comments:

1.  In order to receive a carried interest tax rate, you need to have performed services for the investment fund which is compensating you.  However, the carried interest that the Romney family received was earned by a blind trust in Mrs. Romney’s name, and it wasn’t clear who, if anyone, actually performed any services.

2.  As a free market taxpayer, I can’t see any justification for letting financial investors and managers pay a capital gains rate in lieu of the normal income tax rate that people who actually run companies pay.  To me, allowing favorable tax treatment for financial engineers and not for real engineers is pretty stupid.

Note that #2 is a general comment, while #1 could be a specific problem for Romney (though I don’t know a whole lot about the details of carried interest tax treatment).

If there’s any defense of a lower carried interest tax rate, Romney had better get ready to state it.

Immediately after the bankruptcy, the trustee for the bankruptcy sold $2 billion of Italian government bonds to JP Morgan and George Soros.  Today we learn that the trustee sold these assets AT A 5% DISCOUNT to the market value of those bonds at the time of the sale.  The bonds were trading for 94% of their face value when the sale occured.  The sale was for 89% of their face value.  Now they are selling for 96% of their value.

Further, it turns out that there are no controls over the trustee for the SIPC, a guy named James Giddens of the law firm Hughes Hubbard & Reed LLP.  This past March the SEC Office of the Inspector General audited the actions of the SIPC and pointed out that there are no controls whatsoever over the amounts charged by the trustee.  Of course, the Obama adminstration has done nothing to correct this.  How much are the fees?  Well for Lehman the fees were $642 million.  A New York judge found them to be excessive- but he had no choice but to approve the charges.

We also have learned that JP Morgan, an unsecured creditor of MF, was already paid amounts owed to it before the less influential individual or small company customers of MF who famously have lost over $1 billion of their own money which was supposed to be held in segregated accounts, and about which the estimable Mr. Corzine knows nothing.  (And why should he?  Before the bankruptcy, MF had total shareholder equity of about $1.3 billion.  So the amount of funds that Corzine et al really don’t know about was only equal to the entire net worth of the company.  I mean, what self-respecting CEO can keep track of such trivia?  It’s lunch money.

To summarize, our list of perps and perp-enablers in this theft of $1.2 billion from innocent investors include the following Democrats: John Corzine, Democrat former Senator and governor, fundraiser for Obama; George Soros; Bill Clinton (through MF Global advisory fees); and Gary Gensler, head of the CFTC, Democrat fundraiser and office-holder.

Well, the House of Representatives has changed parties twice in the last fifty years- in 1994 and in 2006.  It’s useful to note that both times, scandal involving leaders of the party controlling the House played a major role in the change.

1994

The 1994 scandal was really a combination of two scandals, the House Post Office scandal and the House banking scandal.  Republicans, led by a group of seven freshmen US Representatives, the Gang of Seven, did all they could to keep these scandals in the public eye.  (Among the members of the Gang of Seven were Newt Gingrich, John Boehner and Rick Santorum!)

The Post Office scandal involved allegations of Representatives trading postage stamps and stamp vouchers for cash.  The investigation began in 1991.  Democrats did all they could to quash the investigation, but the Gang of Seven kept publicizing the matter.  Finally, in July 1993, the Congressional Postmaster was convicted on charges of money laundering.  He implicated Ways and Means Chairman Dan Rostenkowski during his trial.  Democrat House leadership delayed requests by Republicans for a Congressional investigation into the scandal because the Clinton Administration claimed to be conducting a separate criminal investigation.  This investigation took so long it involved two grand juries and three U S attorneys.

The cumulative effect on public opinion of Democrats in the House was toxic.  It was this scandal, combined with the vision in the Contract with America that led to the Republican pickup of 54 seats and control of the House in 1994.

2006

The big scandal of 2006 was the Mark Foley congressional page “incident”.  Foley was accused of improper contact with under-aged male pages.  Investigators produced email and text message evidence, corroborated by testimony from a number of individuals.

This was awful enough, but the real problem for Republicans was that Republican leadership was portrayed as having known about Foley’s conduct for some time and doing nothing.  The scandal became a national story in September 2006.  By the end of the week when the scandal broke, House Speaker Hastert requested that Foley resign immediately.  Foley resigned and the next week checked into a rehab facility for alcoholism.

For Republicans, the scandal continued.  Democrats claimed that Republicans knew about Foley’s behavior for a long time and provided cover for him.  Their allegations, combined with a daily outpouring of stories about Foley’s past contacts, dominated the news cycle during most of the critical pre-election period.  The big question was who knew what, and when, about Foley.  (Only later- after the election- did it become public knowledge that Democrat leadership and staffers knew as much about Foley as Republicans did.)  Democrats, as well as many conservative news organizations like the Washington Times, called for Hastert to resign.  Polling after the affair broke indicated a strong voter preference swing toward Democrats.  The rest is history.  A 31 seat pickup for Dems, and control of the House.

2012

The Corzine scandal has the potential to be as significant as the 1994 and 2006 scandals.  It involves theft of money on an almost unimaginable scale- over a billion dollars- by a former Democrat governor who is a very close associate of Obama.  That’s bad enough.  But the element of the scandal which implicates Obama and the Democrat Party is the fact that the Democrat-controlled CFTC was successfully lobbied by Corzine to delay putting in place controls which could have at least partly prevented the theft.  (Try googling Gary Gensler, the head of the CFTC- a prominent Democrat hack.)  New disclosures are coming daily.  We learned this week that Bill Clinton was heavily involved in lobbying on behalf of Corzine’s MF Global, as well.

The reason the Foley scandal was so powerful was that it depressed turnout by value-oriented conservatives.  The Corzine scandal is a mirror image- it could depress turnout by the anti-capitalist Left, the core of Obama supporters.  The Corzine matter involves the actions of a very wealthy Wall Street leader. This leader was not just nominally a Democrat, he was one of the leading Democrats.  A central strategy of Obama’s re-election campaign is to tie Republicans to Wall Street excesses.  Think: Occupy Wall Street.  Think: “the 1%”.  But the Corzine scandal, at the very least, proves that with Obama it’s all talk when it comes to standing up for the 99% against Wall Street.

One more thing.  This scandal won’t become significant unless the Republican Party presses it.  So far, media and Republican attention has focused solely on Corzine.  While it was useful for the Republicans to ask Corzine to testify before the Agriculture Committee, the members of that committee didn’t ask the right questions about financial issues and about Corzine’s contacts with the CFTC, Obama administration, Clinton, and so on.  That’s where the bigger scandal is.

Republicans need leadership on this.  At least three people should be speaking up:

1. Newt.  This is the same Newt who, after all, led Republican takeover of the House in part by focusing on Democrat corruption in 1994.
2. Mitt.  This guy is hopeless.  The reason we like him is because he seems honest, scandal-free, smart and accomplished.  He’s supposed to understand matters financial.  So WHY doesn’t he respect our intelligence and speak in more detail about financial issues- about problems and solutions?  Does he think we don’t care?
3. Paul Ryan.  Remember him?  Where HAS Paul Ryan been lately, anyway?

Come on, Republicans.  Energize the base.  Depress the Democrat base.  Do something for your country.  Investigate this scandal.

1.  The Agriculture Committee in the House has called Corzine to testify.  Meanwhile any committees with anything to do with finance are doing nothing.

2.  The CFTC yesterday finally passed rules regarding brokerage company use of funds, two years after Dodd-Frank passed.  Why the delays?  Well, we learned yesterday that Bill Clinton was a lobbyist for MF Global.

3.  We also learned a bit more about Gary Gensler, the head of the CFTC who delayed dealing with the matter of misuse of client funds:

Gensler served as senior economic adviser to the Hillary Clinton in the 2008 campaign.  When her campaign closed shop, he jumped into the Obama camp as a fundraiser and adviser.  Once elected, the Obama transition team then charged him with charge of the reviewing the SEC.

Prior to this Gensler was active in Democratic party politics, appointed treasurer of the Maryland Democratic Party in 2003. He emerged as a major donor contributing more than $220,000 to Democratic party candidates and committees from 2002.  This figure includes the more than $72,000 in 2008 shortly before his appointment.

So to summarize, if you steal $100 from a 7-11 you get locked up right away.  Steal $1 billion from your customers at a brokerage firm (and hire the right help) and nothing at all happens. Will Republicans make an issue of this?

Meanwhile, the far bigger crime waiting to happen is that the Federal Reserve allowed Bank of America to transfer more than $70 trillion of derivatives contracts over to its banking subsidiary.  This means that BOA is subordinating $4 trillion of taxpayer-guaranteed deposits to its casino gambling.  That’s because in the event of bankruptcy under US law, derivatives holders go to the front of the line, they are senior to all other creditors (this in itself is ridiculous).  So if BOA goes under, American taxpayers could effectively guarantee up to $4 trillion of derivatives losses.  This isn’t news, it happened a couple of months ago.  What IS news is that no Republicans seem to be upset.  Democrats want answers.

There is another, bigger, example of similar misuse of customer funds, perpetrated with the knowledge and consent of the Obama administration.  The Federal Reserve recently allowed Bank of America to transfer $75 TRILLION of derivatives obligations over to its bank holding company.  BOA wanted to move the derivatives exposure over to the bank holding company because the counterparties to their-

derivatives investments, or, rather,

gambling debts, or, maybe

as Warren Buffett used to call it, financial “time bombs” (before Buffett became part of the problem)…

wanted BOA to put up its customer deposits as collateral.

Hold it, isn’t that what MF Global did?

By the way, when a company goes bankrupt, under current law for some really bizarre reasons, derivatives debts are senior to other debts of that company.

You would think that Dodd-Frank in its 2,000 pages of glory, would have prevented banks from transferring gambling debts (sorry, derivatives obligations, I keep getting these things confused) over to their bank holding companies.  Even if Dodd-Frank had required that derivatives bets should be subordinated in the event of bankruptcy, that would have brought some sanity to the $600 trillion derivatives market.  But, sadly, no, it’s cronyism as usual for Dodd, Frank, Obama, and the other Democrats who passed Dodd-Frank without a single Republican vote.

This could be the issue that Republicans use to point out that the massive Democrat financial reset (“so that we’ll never again have another financial crisis”), in the form of 2000+ page Dodd-Frank, really didn’t stop business as usual, but it instead just kept Obama’s buddies in business.  It could be the issue that Republicans use to tie Obama specifically and Democrats in general to Wall Street crony capitalism, but… no, that would be too useful.  In the last week, as news breaks daily about MF-Obamagate, there have been a grand total of 2,840 news articles for the search heading “MF Global Corzine”.  There have been 149 articles mentioning “MF Global Corzine Obama”.  For comparison, there have been 1,130 articles about Newt Gingrich and Freddie Mac in the last 24 hours alone.  There have been 15,200 articles in the last week about “Herman Cain sexual harrasment”.

Well, here’s some of the latest:

1. MF Global admits it doesn’t know what happened to all that client money.  (By the way, note that the head of the CFTC, Gary Genzler, has recused himself from the investigation because of his close ties to Corzine.  Note further that said head of the CFTC was appointed by Obama.)
2. More than 1,000 MF Global employees have been laid off.
3. Another commodities firm has shut its doors because- well, read this:

Dear Clients, Industry Colleagues and Friends of Barnhardt Capital Management,

It is with regret and unflinching moral certainty that I announce that Barnhardt Capital Management has ceased operations. After six years of operating as an independent introducing brokerage, and eight years of employment as a broker before that, I found myself, this morning, for the first time since I was 20 years old, watching the futures and options markets open not as a participant, but as a mere spectator.

The reason for my decision to pull the plug was excruciatingly simple: I could no longer tell my clients that their monies and positions were safe in the futures and options markets – because they are not. And this goes not just for my clients, but for every futures and options account in the United States. The entire system has been utterly destroyed by the MF Global collapse. Given this sad reality, I could not in good conscience take one more step as a commodity broker, soliciting trades that I knew were unsafe or holding funds that I knew to be in jeopardy.

Republicans, WHEN are you going to treat the MF Global fraud like an important issue which sheds a most useful light on the incompetence (or rather, corruption) of Obama administration financial regulation?  Democrats are positioning this and all other financial crimes as failures of capitalism, and you’re doing nothing.  Regulatory capture and theft are NOT failures of capitalism.

It’s been in the news that MF Global may have “borrowed” (better words are “fraudulently misappropriated” or just “stolen”) about $600 million of money that belonged to its clients, not it.  That is horrible enough.  But now this week, it’s coming out that Corzine lobbied the Democrat-controlled CFTC board (3 Democrats, 2 Republicans) to block regulation which would have prevented it from borrowing as much as it did, and specifically borrowing from customer accounts.  It looks like Corzine personally called Gary Genzler to lobby about this issue the day the CFTC was supposed to vote on it.  The CFTC ended up not passing the regulation.  Here is a good summary.  Here is another good article.

Republicans in the House ought to call Corzine to testify.  They could ask-

• Did Corzine discuss the pending regulation with any other members of the Obama administration?
• By the way, what DID happen to all that client money?
• Corzine criticized Lehman for its 35:1 leverage.  How does he feel about MF’s 45:1 leverage?
• What other contacts on other issues did Corzine have with the Obama administration regarding financial regulation?
• What does Corzine feel now should be done to regulate financial companies?

Ken Lay, you may recall, was the CEO of Enron, originally a Texas pipeline company and later principally a producer of arcane financial products whose function was to hide the stupid investments of Enron management.  Enron at one point had  assets of $64 billion, and was praised by politicians and the press alike for rapid growth.  The bankruptcy of Enron led to convictions of Lay and other members of Enron upper management; the passage of Sarbanes-Oxley; and the bankruptcy of the Arthur Andersen accounting firm.  Lay eventually committed suicide.

Since Lay was a significant campaign contributor to George Bush, Democrats gleefully tried to link the two, insinuating that somehow President Bush must have been aware of, or facilitated, the crimes of Enron management.  Check google- there’s over 1.7 million links when you google “Enron Bush”.

Never mind that Enron also had close ties to Democrats, particularly the Clinton administration.  For instance, Robert Rubin tried to get the Clinton Treasury Department to intervene when Enron’s credit rating was threatened, in exchange for which he was offered a position on Enron’s board.  The Clinton administration guaranteed over $1 billion of loans to Enron in return for which Enron raised more than $2 million for Democrat causes.  For a summary, see, for instance, this.

Fast forward to today.  Enron and MF had comparable assets- $45 billion for MF, versus $64 billion for Enron.  Both were taken down partly because of dubious off-balance-sheet transactions.  But MF has the additional distinction of having commingled customer funds with its own, which seems to have resulted in $600 million in losses by people who never should have been impacted by MF’s financial misadventures.  The stench from this is just awful, and is simple to understand- MF basically stole money from innocent third parties.

Look also at the political situation of MF versus Enron.  Whereas Enron had ties to both Republicans and Democrats, MF’s CEO is a Democrat through and through, with very close ties to Obama.

BUT- in 2001, the press and Democrats worked hard to make Enron exclusively a Republican scandal.  They are still reaping benefits from this when they portray Republicans as being responsible for the 2008 meltdown and hence not to be trusted with financial stewardship of the US economy.

What will the Republicans do with the MF scandal?  What they should do is to link MF and Democrats whenever possible, especially in the context of Dodd-Frank, which was apparently not at all adequate to prevent this sort of mess.  They also should express some of the outrage which people like me and many, many others feel about what John Corzine has done.  This is a great opportunity for Republicans to recast themselves as the grown-ups when it comes to financial regulation.  It’s part of a pattern which also recently includes the lack of action by Obama to block the transfer of $53 trillion of toxic derivatives of BOA onto taxpayers; and on and on.