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This morning, as we noted, the Washington Post reported that the prosecutor Nora Dannehy has met with defense lawyers and issued subpoenas, through a grand jury, in her investigation into criminal wrongdoing in connection with the US Attorney firings.

And it looks like Alberto Gonzales, the former Attorney General on whose watch the firings occurred, is among the people she's contacted.

In an interview with TPMmuckraker, Bob Bork Jr., who serves as a spokesman for the ex-AG, initially said that although Gonzales' lawyer, George Terwilliger III, had reached out to Dannehy at the start of her investigation, he didn't believe that Dannehy had formally contacted Gonzales or Terwilliger in connection with the probe.

But Bork Jr. called back an hour later to say that he had been mistaken about that. "We won't be able to talk about any interactions with DOJ," he now said.

In other words, it would appear, Dannehy has contacted Gonzo and/or his lawyer.

Since DOJ released a report in July into politicized hiring at the department, there has been intense speculation that Gonzales could face perjury charges in connection to his 2007 testimony to Congress.

Tom Carson, a spokesman for Dannehy declined to comment on the progress of the investigation.

We told you last month about the under-reported role of the credit ratings agencies in helping to cause the financial crisis. The problem, in a nutshell, is that the major ratings agencies -- Moody's, Standard & Poor's, and Fitch -- are paid by the insurers (often investment banks) who are issuing the bonds. That gives the agencies a clear incentive to produce favorable ratings, or risk seeing the banks hire a different ratings agency that's willing to offer a better rating.

So it's worth noting that the Securities and Exchange Commission today adopted new rules designed to protect against that conflict of interest.

The Associated Press has the rundown on the new rules:

Among other things, the conflict-of-interest rules ban the rating agencies from advising investment banks on how to package securities to secure favorable ratings. Gifts over $25 from clients also will be prohibited.

Rating agencies will be banned from making ratings in cases where the agency made recommendations to the company issuing securities or the investment bank underwriting them concerning the corporate structure, assets or activities of the issuing company.

In addition, rating agencies will be required to disclose statistics on all their upgrades and downgrades for each asset type. They also will have to disclose how much verification they performed on the quality of complex securities, such as those underpinned by mortgages, student loans or auto loans, in determining ratings for them.

Investors will receive detailed information on the ratings process for complex securities, thereby exposing potential conflicts of interest for the agencies, SEC officials said.

The SEC commissioners also voted to propose and open to public comment other rules that would require rating agencies to disclose in interactive electronic format the ratings history information for all of their assessments that companies issuing the securities pay them to do.

But the AP adds that the rules don't go far enough for some critics of the agencies, who want "new requirements to govern how the rating agencies are paid and to provide for the suspension of their licenses if they engage in unfair practices."

The Senate investigations committee has launched a probe of the ratings agencies. And we're going to be doing our own digging, so you'll hear more on this...

It's looking more and more like -- as we suspected -- Kentucky GOP senator Jim Bunning is the guy who placed the anonymous hold on the nomination of Neil Barofsky to the crucial post of special inspector general for the bailout.

Bunning's spokesman, Mike Reynard, wouldn't return any of our several calls on the subject. But the Associated Press appears to have reached him. It reports:

Republican Sen. Jim Bunning of Kentucky, a member of the Senate Banking Committee who opposed the bailout bill, has said he had "serious concerns" with Barofsky's nomination, though he has praised his experience. Bunning spokesman Mike Reynard would not comment on whether Bunning had placed the hold.

We'll let you draw your own conclusions...

Looks like top Congressional Democrats didn't find yesterday's GAO report on how Treasury is implementing the bailout program any more encouraging than we did.

In a statement, Speaker Nancy Pelosi said:

The GAO's discouraging report makes clear that the Treasury Department's implementation of the (rescue plan) is insufficiently transparent and is not accountable to American taxpayers."

And Rep. Barney Frank, who chairs the House Financial Services Committee, agreed, saying in his own statement:
The American people received two kinds of news about the TARP program - bad and worse news.

The bad news was confirmation by the GAO in its first report about the program that Treasury has no way to measure whether taxpayer funds invested in banks are being used in accordance with the purpose of the law - to increase lending. The much worse news is Treasury's response that it does not even have the intention of doing so.

Frank added: "A public hearing on the issues raised by the GAO report is now essential."

A report in the Washington Post suggests that Nora Dannehy, the prosecutor assigned by Attorney General Michael Mukasey to look into the U.S. attorney firings, is taking an aggressive approach to the job.

The Post says Dannehy "has been meeting with defense lawyers, dispatching subpoenas and seeking information about the events, according to legal sources familiar with the case."

It adds: "A grand jury in the District has issued subpoenas, the sources said."

And there's another interesting nugget:

D. Kyle Sampson, who served as the chief of staff to Gonzales until his March 2007 resignation, recently took a leave from his job as a partner at the law firm Hunton & Williams while the investigation proceeds. A spokeswoman for the law firm said he is on leave "pending admission to the D.C. bar."

DOJ's Inspector General report, released in late September, found that Sampson's testimony was "not credible" and "unpersuasive."

Dannehy was appointed September 29 to determine whether crimes had been committed in the affair. She was given 60 days to submit a preliminary report on her findings. The Justice Department did not immediately respond to a request for comment from TPMmuckraker about the report's status.

More on this soon...

The ACLU, which has sued to overturn retroactive immunity for telephone companies that illegally cooperated with the Bush administration's domestic surveillance program, appeared to receive support Tuesday from U.S. District Judge Vaughn Walker, according to Wired. Vaughn said that the law being challenged gave "attorney general carte blanche to immunize anyone" and was unprecedented. The trial began yesterday in San Francisco. (Wired)

President Bush issued an executive order Tuesday loosening the regulation of coal mining waste, a decision that was quickly condemned by environmentalists. Miners had lobbied heavily for the change, but greens say the new rule will endanger "mountains, forests and streams throughout Appalachia." The new law is one of a series of "midnight orders" issued by the president, many of which loosen environmental or labor standards.(New York Times)

Give credit where it's due. The CEOs of Ford, GM, and Chrysler said Tuesday they would accept $1 salaries in return for federal bailout funds. (Ford CEO Alan Mulally told the Wall Street Journal earlier, "I think I'm ok where I am.") Two weeks ago, the auto executives retreated home with their tails between their legs after their decision to fly private jets to Washington doomed their bid for federal funds. This time they drove or flew commercial. (CNN)

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In the sequence of posts below, we've tried to pick out the most interesting parts of the GAO report on the Treasury's administration of the bailout money. But we were working fast, so we might have missed stuff.

So if you feel like it, as usual, please review it yourself and let us know what else you find. It's here...

The GAO report sheds light on another interesting angle to the conflict of interest problem with Treasury's administering of the bailout.

The department has hired outside private contractors to administer parts of the bailout program, notes GAO. Given the reports we've seen about Treasury lacking staff -- and lacking the right staff -- to implement the program, that may be a good move.

But as the report explains, outside contractors aren't subject to the conflict of interest rules that govern Treasury staff. As a result, Treasury asked the contractors to identify potential conflicts. There were many:

From the report:

In their responses to Treasury's requirements, six of the eight service providers selected as of November 25, 2008, identified potential or actual sources of conflict. According to our review, the identified conflicts generally involve organizational conflicts of interest, though some also involve personal conflicts of interest:

Five contractors indicated that they either already had clients or could have clients who were receiving TARP assistance. • One contractor indicated that a potential conflict of interest would arise if it received information proprietary to multiple clients with competing investment interests. • One company identified conflicts regarding troubled assets owned either directly by the company or by clients that were eligible for assistance under TARP.

Treasury also asked contractors to explain how they would work with Treasury to avoid such conflicts. And it sounds like some didn't exactly go the extra mile in that regard.

The submitted plans provided few details, however, on how the companies would notify and communicate with Treasury if conflicts were identified during the course of performance:

• Two firms' plans indicated that they would either maintain an "open dialog" or would "work in good faith" with Treasury should conflicts of interest emerge. • Two other plans did not describe how the firms would address conflicts of interest or how they would notify Treasury. By comparison, one plan indicated that the company would provide information on conflicts of interest to Treasury in its weekly reports and offer recommendations for addressing each issue.
This section of the report concludes, not reassuringly:
Treasury relies on its financial agents and contractors to disclose conflicts of interest. Treasury officials stated that while under current procedures, they might not know if an agent or contractor did not disclose a conflict, they believed that the consequences for nondisclosure were sufficiently severe to deter such behavior. Finally, Treasury has noted in its solicitations that it intends to oversee and enforce compliance with conflict of interest mitigation plans. For example, Treasury noted in one of its solicitations for legal services that it would incorporate the offeror's final negotiated conflict of interest mitigation plan into the contract and then oversee and enforce the contractor's compliance with the plan. At the time we conducted our work, however, Treasury was still in the process of developing an oversight mechanism for enforcing financial agents' and contractors' mitigation plans. (our itals.)

It looks like the limits on executive compensation that Democrats in Congress fought to include in the bailout bill aren't a top priority for Treasury.

From the GAO report:

[A]t this point, the officials have not determined how Treasury will monitor executive compensation compliance. Bank regulators varied in their views about their oversight responsibilities related to compliance with executive compensation requirements and other required terms of CPP. For example, one regulator noted that it would rely on the institution's board of directors to assess compliance, and another regulator stated that it was Treasury's responsibility to provide such oversight. Without a consistent process for monitoring participating institutions, Treasury's ability to identify and address any potential problems in these institutions' compliance with program requirements will be limited.

In other words, Treasury officials aren't even on the same page with each other about how to enforce the limits -- and some think it can be left to the banks, fox-henhouse concerns be damned.

Here's a bit more detail, from page 25 of the GAO report, on what seems like the Treasury's utter aversion to requiring banks to offer any information whatsoever on what they're doing with the billions of dollars of taxpayer money they're getting.

[I]t is unclear how OFS and the banking regulators will monitor how participating institutions are using the capital investments and whether these goals are being met. The standard agreement between Treasury and the participating institutions does not require that these institutions track or report how they plan to use, or do use, their capital investments.

... With the exception of two institutions, institution officials noted that money is fungible and that they did not intend to track or report CPP capital separately. ...

The banking regulators indicated that they had not yet developed any additional supervisory steps, such as requiring more frequent provision of certain call report data for participating institutions, to monitor participating institutions' activities.

So it seems to come down to this: the banks won't say what they're doing with the money, and Treasury is too polite to ask.