The Cleaner

Say you’re a billionaire. Journalists are printing flat-out lies about you, linking you to terrorism, organized crime. Your bank’s compliance department is calling. So what do you do? You call this guy.

Former CIA Executive Director pleads guilty (Updated)

CIA Executive Director Kyle “Dusty” Foggo pleaded guilty today to a single count of fraud. As the former No. 3 at the spy agency, he is one of the highest ranking CIA figures charged with a crime, but the sensitivity of his position is sparing him major time in prison. Simply put, Foggo played chicken with the government, and won.

The Justice Department tries to put a brave face on this news in its press release with the true but highly misleading fact that Foggo faces a maximum of 20 years in prison. Under his plea agreement, Foggo will serve no more than three years in prison, and there’s a good chance he will serve even less.

Foggo is quite a character. (Background here). He’s the last person charged in the Randy “Duke” Cunningham scandal to plead guilty, but his was the case one that threatened to transform what was essentially an embarrassing case of congressional bribery involving yachts, antiques and a mansion into “a referendum on the global war on terror.”

That’s the prosecution’s spin, at any rate. A few weeks ago, prosecutors warned that Foggo was threatening to expose details of highly-classified programs and protected “sources and methods.” This is a legal tactic known as “graymail” which is basically a game of chicken involving information that the government doesn’t want to risk disclosing. The defense’s take on this is classified, along with much of the case.

Prosecutors said those secrets were irrelevant to the charges that Foggo was using his influence at the CIA — his executive director “grease,” as he put it in an e-mail — to helping both his mistress and his best friend, a defense contractor named Brent Wilkes, who is serving 12 years in prison.

What were those secrets? No one really knows, which is how the CIA likes it.

There are few clues in court papers, but they are tantalizing ones. Among other things, Foggo was trying to help Wilkes land a multi-million dollar contract providing air support services for the CIA. The government refused to declassify the highly-secret information Foggo passed along to his poker buddy.

CIA air support. Sources and methods. A referendum on the war on terror.  It doesn’t strain credulity to wonder whether the secrets involved the CIA’s rendition program, which involves snatching suspected terrorists and whisking them to secret prisons and has proven to be a major black eye with some of our allies. But those who know aren’t talking. Not to me, at any rate.

Foggo’s plea agreement carries conditions I haven’t seen for anyone else in this case. The government had Foggo sign away his rights to information that was obtained during the government’s investigation of him. Foggo also waived his rights to profit from publicizing the circumstances of his crime.

The Justice Department’s reluctance to proceed is ironic given the other bit of news today involving the former U.S. Attorney in San Diego, Carol Lam. There have been incessant rumors in the liberal blogosphere that Lam was forced to resign because she poked her fingers into the Bush administration’s beehive by prosecuting Foggo. A report today by the Justice Department’s Inspector General Glenn Fine says that ain’t so, but bloggers aren’t letting facts get in the way.

There’s an interesting footnote in Fine’s IG report. Far from trying to hinder Lam’s investigation of Foggo, Deputy Attorney General Paul McNulty’s office tried to help her prosecutors “to obtain classified documents from the White House or the CIA that were relevant to an investigation.”

In the summer of 2006, as Foggo was being indicted, Lam’s office reached out to McNulty’s staff to obtain classified  information from the CIA on several matters, and “the White House Counsel’s Office was involved in those discussions.” Sensitive stuff indeed.

Who could have imagined that when the FBI drilled the locks and stepped into Cunningham’s mansion, the investigative trail would lead all the way to the White House and the executive offices of the CIA?

P.S. The Washington Post says Foggo is the “highest-ranking member of a federal intelligence or law enforcement agency to be convicted of a crime.” I guess CIA Director Richard Helms‘ 1977 conviction for lying to Congress doesn’t count.

What the Hell Happened to Our Economy? (In Plain English)

Here are the headlines today: Fiscal armageddon. The worst crisis since the Great Depression. Entire economy in danger, Bush warns Americans. $700 billion rescue package in peril.

Over and over, we’re told our financial system is in an unprecedented crisis. But how did we get here all of a sudden? What went wrong? Can’t someone answer these questions in plain English?

I’m not an “expert” or even a financial journalist, but the experts are too busy writing about Sarah Palin, politics and God knows what to answer such a simple question from a rube like me. But I wanted to know. So if no one ever reads this, at least I’ll have some idea how I came to be standing in the bread line.

According to the Treasury Department, the root cause of this mess are “illiquid mortgage assets” that have lost value as the housing market collapsed and are now clogging up the financial markets and stopping the flow of credit.

So what, you might say. Fuck those greedy Wall Street assholes. Let the whole thing crash. Well, hold on, there, Mr. Outrage. Credit is the grease that allows the U.S. economy to run.

Let’s say you, Mr. Outrage, order pizza from Domino’s on your VISA card. It takes a while for Domino’s to get your money from VISA, and in the meantime, the company needs money to pay employees and order pepperoni, mozzarella and tomatoes.

Just like you, Domino’s doesn’t want to go to the bank every week and fill out forms and pledge collateral. So it borrows in what’s known as the commercial paper market. Commercial paper is essentially a system of short-term IOUs issued by banks and big companies like Domino’s. It’s grown into an enormous market, more than $2 trillion.

Right now, the commercial paper market is shriveling up like a vampire in the sun. It shrank by $100 billion in the past two weeks. If the commercial paper market keeps shrinking and Domino’s can’t find short-term cash, it might not be able to pay its employees. Like it or not, you rely on American companies every day. So, when you hear people say the economy will come to a halt, this is what they’re talking about.

Commercial paper used to be considered very safe and boring. The system worked just fine. But Wall Street can’t leave a good thing alone. It came up with a different kind of commercial paper. This kind wasn’t sold by Domino’s or other companies that actually made something. It was issued by banks, hedge funds, and investment banks. Lehman Brothers used to be one of the biggest issuers of commercial papers. And a lot of it turned out to be crap.

This crap was backed by credit-card debt, student loans and residential mortgages. Wall Street took your mortgage or loan and repackaged it with thousands of other people’s debts. Some of these mortgages were “subprime,” which is another word for junk.

It wasn’t sold as junk though. Through the magic of financial “engineering,” it was transformed into high grade AAA investments. How this happened is incredibly complicated and may involve things like tranches, CDOs, Gaussian copula models and credit-default swaps (which is how insurance giant AIG got into trouble). Suffice it say that only Wall Street can turn shit into gold.

Money market funds, which were also supposed to be as safe as cash, bought up a lot of this crappy paper. It was thought to be so safe that federal regulators allowed companies to keep it off the books. So that’s another problem: we don’t know who is holding this stuff. Or how much of it. And the stuff is so complicated that no one really knows how much it’s worth.

But the paper was only as safe as the mortgages it was based upon. And a home loan is only good if the homeowner is paying it off. As we know, a lot of people bought homes they couldn’t afford. So the banks foreclosed on those homes. Millions of homes. And this crappy paper, these “cash equivalents” started to have that not-so-fresh feeling.

Suddenly, nothing looked safe anymore. Reserve Primary, the money market fund that invented money market funds, “broke the buck” because it had a lot of suddenly worthless IOUs from bankrupt Lehman Brothers. That means that the $1 you invested in the fund was worth less than $1.

When $1 is worth less than a $1 you hoard your cash. You don’t buy crappy paper. You don’t lend to companies that may be holding a ton of it. The credit markets freeze up.

That’s what’s happening and that’s why everyone is freaking out.

McCain in San Diego: "Washington changed us."

John McCain stopped in San Diego tonight for a fundraiser and reminded us of our major contribution to Washington politics in the past 20 years, the most corrupt congressman ever.

From the Union-Tribune:

“We came to Washington and gained a majority to change Washington and Washington changed us,” said the Arizona senator, who will officially claim the Republican presidential nomination next week. “We let spending get completely out of control.”

Without mentioning Cunningham by name, McCain alluded to the former Rancho Santa Fe Republican congressman who was driven from office in 2006 by a massive bribery scandal.

“I don’t use the word corruption lightly,” he said. “We have former members of Congress residing in prison, and it’s because of this practice of earmarks. And it’s going to stop.”

ABC News reports that McCain is preparing to ramp up attacks on Obama contributor Tony Rezko. Mentioning Cunningham will probably go over like warm champagne with McCain’s moneybags at The Grand Del Mar, but at least somebody’s talking about corruption in Washington. About damn time!