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A federal grand jury indicted Bruce Karatz, the former CEO of real estate company KB Home, on Thursday for manipulating stock options to earn more than $230 million in three years. The indictment estimated that the backdating made Karatz's stock options $1.63 to $4.56 more valuable per share. Karatz has already paid a fine of $20 million to KB Home and the federal government for backdating stock options between 1999 and 2006. If convicted of all twenty counts of fraud and making false statements, Karatz will face 415 years in prison. (LA Times)

Darrell Dochow, an official at the Office of Thrift Supervision, retired quietly last Friday while under investigation for fraud. The U.S. Inspector General claims that Dochow allowed IndyMac to deceive its investors by reporting an $18 million deposit in a March 2008 financial disclosure document though the funds were not transferred until May. IndyMac filed for bankruptcy protection four months later. To investigators, writes ABC News, Dochow's retirement shows "how cozy government regulators have become with the banks and savings and loans they are supposed to be checking on." (ABC News)

The FEC will instiute a new fundraising rule designed to reduce the impact of lobbyists on elected leaders. Effective March 19, the rule requires PACs to disclose the names of lobbyists who collect contributions of more than $16,000 (sub. req.) from multiple sources. Currently, lobbyists can curry favor with lawmakers by collecting bundles of political contributions from personal and professional contacts. Disgruntled lobbyists tell Roll Call that they plan to dodge the restriction by hosting fundraisers registered under the names of multiple co-hosts, who could each raise $15,000. (Roll Call)

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Senator Arlen Specter (R-PA) could be in very serious trouble. Former Rep. Pat Toomey, who challenged Specter from the right in the Republican primary back in 2004, then went on to head the Club For Growth, is reportedly running again in 2010.

In this case, bad news for Specter could also be good news for Democrats -- if the ultra-conservative Toomey wins the primary, the Democratic nominee will have a very good shot at winning the seat, as opposed to Specter starting out as the favorite in any general election.

Toomey very nearly beat Specter in the 2004 primary, making it a 51%-49% race even though Specter had the full weight of the Bush White House behind him. This time could be different: There is no Republican White House; the GOP voter base is smaller and even more conservative; and most importantly, Specter has just voted for the stimulus package -- you know, that thing the right-wing activists denounce as a socialist takeover of America.

Indeed, a recent Susquehanna poll showed just how problematic things are for Specter: Among registered Republicans, 66% want someone else, and only 26% say he deserves another term.

The DLC has just announced that Al From, the long-time CEO and co-founder of the group over 20 years ago, is stepping down. He will be replaced by Bruce Reed, who recently co-authored a book on policy with Rahm Emanuel. And the organization itself will be shifting its focus from politics -- that is, elections -- to formulating and enacting policy, as well as highlighting a farm-team of elected officials across the country.

"I am immensely proud of the DLC's success," From said in the statement. "The DLC has largely achieved what we set out to do when I formed it in 1985. It has played a vital role in resuscitating the Democratic Party, and it has championed ideas that have changed our country for the better. Now is the right time for the DLC to take the next step, and Bruce Reed is the right person to lead it."

The political environment has changed dramatically since 1984, the landslide Democratic defeat that spurred centrists to come together and form their own organization. The group has had both its successes and failures over the years, to be sure. But this is now a different time, with a newly-elected president who was nominated from the more liberal end of the Democratic Party's ideological range. And that means the Democratic centrists will be shifting their own focus, too.

Al Franken's lawyers may well have just had a very productive day, netting a good chunk of votes for their side.

Franken attorney Kevin Hamilton was questioning Duluth elections director Jeffrey Cox today, and they went through over 30 rejected absentee ballots that fit solidly into one category: Ballots where the voter and the witness signed the envelope with different dates marked down. Most counties had actually included these ballots -- though Duluth did not -- and the judges themselves have now ruled this type of vote to have been valid.

Ballot after ballot, Cox confirmed that this had been the only reason these votes were rejected, and that in his judgment there was no other defect. It was also confirmed that these ballots were going to be counted during the review process this past December, but were vetoed by the Coleman campaign under the state Supreme Court's controversial decision that gave the campaigns this power.

Since Duluth is heavily Democratic to begin with, and the general assumption is that both sides are advocating for votes that are for themselves (and were vetoing ballots believed to be for the other guy) this means Franken could very well have just gained over 30 votes, padding his official 225-vote lead to a landslide margin of...255, plus a handful of other Franken ballots that the court is prepared to count.

For his part, Coleman lawyer Joe Friedberg used his cross-examination period to further go over the fact that mistakes have been made in the election, as part of the new Coleman push to have the whole result thrown out. Hamilton countered by having Cox affirm that the city is thorough in its training and procedures, and that mistakes are inevitable -- that is, demanding a perfect election is to demand the impossible.

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Quite a few readers have written in recent days with questions about the Republicans' ability to filibuster the $410 billion spending bill that's currently on the Senate floor, which is expected to come to a final vote late tonight or tomorrow morning.

Can you filibuster this spending bill? Yes -- because it's not a budget resolution, which is a non-binding document that sets general revenue levels for the next fiscal year. The $410 billion measure is what congressional types call "omnibus appropriations," meaning that it sets overall spending levels for various governmental departments from now until October, when the 2010 fiscal year begins.

So when you read about Mary Landrieu (LA), Ben Nelson (NE), and other Democratic centrist senators who are bridling at the high spending levels in President Obama's budget, it's important to remember that they're referring to the non-binding, filibuster-proof document that will likely come to a vote by mid-April.

Democrats can afford to lose as many as eight of their own senators on that vote, while still passing a budget with 50 votes and Vice President Joe Biden as the tie-breaker. The party can also use "budget reconciliation" rules that would allow for filibuster-proof passage of health care, climate change, or even student loan bills later in the year, provided that such legislation achieve a demonstrable reduction in the deficit.

The total savings can be small; for instance, last year the Democrats used reconciliation to pass a student-loan bill that saved $75 million, which is small potatoes compared with the overall budget but achieved meaningful reform for anyone attending college. No decision on reconciliation has been made yet, but it's safe to say that the debate is heating up.

A new Research 2000 poll suggests that Senator David Vitter (R-LA), the staunch social conservative who became bogged down in the D.C. Madam prostitution scandal in 2007, could potentially be vulnerable in 2010.

Vitter is still ahead in the primary and general elections, but in both cases he's scoring below 50% -- and that's before having to go through an actual campaign, where his personal and policy issues could all get dredged up.

In the Republican primary, Vitter attracts 43% of the vote, Secretary of State Jay Dardenne (used here as a stand-in for some reasonably well-known Republican) gets 32%, and porn star Stormy Daniels is at 1%. Louisiana primaries have runoffs, by the way -- so if multiple GOP challengers get in and Vitter were ahead but under 50%-plus-1, he would have to face a second round.

In general-election match-ups against two hypothetical Democratic candidates, Vitter is ahead of Rep. Charlie Melancon, a socially conservative and economically populist Dem, by 48%-41%. Against former Rep. Don Cazayoux, who has a similar political profile as Melancon, it's 48%-39%.

Over at TPM, Josh has been doggedly highlighting the refusal of both AIG and the federal government to reveal the identity of AIG's counter-parties in its disastrous credit default swaps. And several lawmakers have in recent days pressed Tim Geithner and Ben Bernanke on the issue.

The question matters, of course, because AIG needed to make its most recent multi-billion dollar trip back to the public trough (that's over $160 billion in all for AIG, if you're counting) in order to pay back its creditors on those disastrous swaps -- and thereby, we're told, prevent a wider financial collapse. So identifying who those swaps were made with will tell us, in effect, who this latest portion of our money is ultimately going to.

It's worth noting, then, that, thanks to some great reporting from the Wall Street Journal and the New York Times, we do in fact have some preliminary information about who AIG's partners were on the swaps.

This Journal story from October 2008 names the following nine American and foreign banks as having bought swaps from AIG: Goldman Sachs; Merrill Lynch; UBS of Switzerland; Credit Agricole SA of France; Deutsche Bank of Germany; Barclays, and Royal Bank of Scotland Group, of Britain; and CIBC, and Bank of Montreal, of Canada.

Merrill is described by the Journal as a "big client" of the AIG unit that did the swaps.

By the end of 2007, with the value of the underlying assets plummeting, many of these banks had asked for collateral on the swaps, according to the Journal. For instance, the paper reports that Goldman held swaps that insured about $20 billion of securities. In August 2007, Goldman demanded $1.5 billion in collateral from AIG. It ultimately got $450 million, then another $1.5 billion last October. At that point, says the Journal:

Goldman hedged its exposure by making a bearish bet on AIG, buying credit-default swaps on AIG's own debt.


That picture of Goldman's exposure jibes with a New York Times story from September 2008 about the credit default swaps, which reported that Goldman was AIG's "largest trading partner," and likewise gave a figure of $20 billion for Goldman's exposure to AIG.

The Times also implicates another domestic firm: JP Morgan (now JP Morgan Chase). In fact, it recounts that it was derivatives traders from that company that a decade ago, first brought to AIG's London-based financial products unit, run by Joseph Cassano, the ill-fated idea of doing credit default swaps.

It reports:
Ten years ago, a "watershed" moment changed the profile of the derivatives that Mr. Cassano traded, according to a transcript of comments he made at an industry event last year. Derivatives specialists from J. P. Morgan, a leading bank that had many dealings with Mr. Cassano's unit, came calling with a novel idea.

Morgan proposed the following: A.I.G. should try writing insurance on packages of debt known as "collateralized debt obligations." C.D.O.'s. were pools of loans sliced into tranches and sold to investors based on the credit quality of the underlying securities.


It's not 100 percent clear, then, that JP Morgan Chase is a current counter-party of AIG on the swaps -- but it certainly wouldn't be surprising.

That same Times story offers another hint, albeit a vague one, about the identity of the counter-parties.
While clients and counterparties remain closely guarded secrets in the derivatives trade, Mr. Cassano talked publicly about how proud he was of his customer list.

At the 2007 conference he noted that his company worked with a "global swath" of top-notch entities that included "banks and investment banks, pension funds, endowments, foundations, insurance companies, hedge funds, money managers, high-net-worth individuals, municipalities and sovereigns and supranationals."


What to make of all this? Well, here's one thing. As Josh has noted, the usual argument given against disclosing the identities of the counter-parties is that it would reduce public confidence in the banks that were named, with potentially disastrous consequences for their positions. But there's little evidence we're aware of that any of the banks named above suffered such an effect when, for instance, the Journal and the Times published their stories -- whose accuracy have not been questioned.

In fact, Geithner and Bernanke haven't deigned to explain their position in even this much detail -- so it's difficult to know whether there are factors we're not considering. But in the absence of a fuller explanation, we'll keep pressing...

One of the many amusing lines from President Obama's wrap up of the health care summit at the White House. Here's something of note: Obama pointed to Rep. Jim Cooper saying we can get health care done. This is something we noted here the other day and it belies easy stereotyping of fiscal conservatives as obstinate. Here are some highlights from the Obama Q & A:

Ted Kennedy looked great and talked about the importance of the issue. Mitch McConnell asked about the Conrad-Gregg proposal on reforming Social Security. The prez kicked it back to Congress saying that Medicare and Medicaid is the 800-pound gorilla. Henry Waxman talked about the importance of trade offs and willingness to negotiate. Rep. Joanne Emerson, the kind of moderate Republican Obama will need on many issues going forward, was very complimentary about the discussions as was Charles Grassley, the ranking Republican on the pivotal Senate Finance Committee.

Most interesting was Dan Danner of the National Federation of Independent Business. The group was a key opponent of the Clinton plan in 1994 and while he didn't pledge to support Obama he wasn't hostile either. For Obama's part he told "bleeding hearts" they needed to take cost control into account just as fiscal conservatives needed to know they couldn't control costs just by "throwing seniors off of Medicare."

No shortage of critics on the left have whacked Obama for being too bipartisan but I don't see how a conference like this can do anything but it's hard to imagine how today's session was anything less than helpful in promoting universal health reform. It's not impossible to imagine meetings like these become a practice that's continued by future presidents.

You get the feeling that Norm Coleman's legal team really doesn't like the appearance of having spent five weeks in court to get more of their own ballots counted, in the name of enfranchising all voters, and now having to watch the Franken attorneys take a turn at bat.

In court just before, Franken lawyer Kevin Hamilton was going over some rejected absentee ballots with Jeffrey Cox, the elections director for the Democratic stronghold of Duluth. On one envelope, Hamilton asked if the ballot had been rejected by the Coleman campaign, under the state Supreme Court's controversial decision to give each campaign a veto power over individual ballot envelopes during the review this past December.

At this point, Team Coleman objected to Hamilton's attempt to establish this, based on the forms in front of him.

"I'll take that back," Hamilton said. "All we know here is that someone named Frederick Knaak signed the rejection form, correct?"

Frederick "Fritz" Knaak is one of Norm Coleman's lawyers, and actually headed up his effort during the recount proper. Apparently, Team Coleman doesn't want it to be aired out that they'd personally stopped individual ballots from being counted.

Hamilton later asked Cox if a ballot should be counted. At that point, lead Coleman lawyer Joe Friedberg objected. Hamilton then pointed out that Friedberg had spent five weeks asking local election officials if ballots he'd picked out should be counted. Hamilton then continued asking the question, with just a slight modification in his phrasing to make it clear that he was asking for Cox's individual, professional judgment.

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