Nov 18, 2011

BEYOND INSIDER TRADING: Here's How Members Of Congress Get Rich Off Earmarks

From Business Insider, Nov. 15, 2011

Throw Them All Out, Peter Schweizer's explosive new expose, has pulled back the lid on congressional insider trading, revealing the shocking regularity with which elected officials use their legislative positions to reap financial rewards.
This 'honest' graft is by no means limited to using inside knowledge to play the stock market. Schweizer, a fellow at the conservative Hoover Institute, reports that members of Congress are also making a killing in real estate, using federal funds to boost their personal land holdings.
Like Congress's questionable trading practices, mixing real estate investments with taxpayer money is technically legal. Actually, it's pretty easy for members of Congress to get rich off of federal projects — land deals are more difficult to detect than trades, and land, unlike stocks, doesn't have a set price. Members of Congress aren't required to disclose if a land deal would benefit them personally.
In the corporate world, using company money for personal financial gain would at minimum get you fired. But in Congress, the practice is not only legal, but common.

House Minority Leader Nancy Pelosi (D-CA)

House Minority Leader Nancy Pelosi (D-CA)
For years, Pelosi has pushed for federal transportation earmarks to build and extend a lightrail project in her affluent San Francisco district, securing more than $890 million for the project between 2004 and 2011. Interestingly, Pelosi and her husband own an office building, valued between $1 million and $5 million, located at a prime distance from one of the planned lightrail stops. If the project is completed, the Pelosis could see the property value increase by as much as 150%, according to Schweizer. In 2006, Pelosi also managed to get a $20 million earmark for waterfront redevelopment just blocks away from the same office building. In another instance, she got $12 million for a beautification project abutting another property owned by the Pelosis.
Pelosi's real estate portfolio has also gotten a boost from her friends in Congress. In 2010, Rep. Bernie Thompson (D-MI)  got a $800,000 earmark to upgrade the Napa Valley airport. Pelosi, who helped Thompson get his position as chair of the Homeland Security Committee, owns or has stake in multiple properties that would benefit from the project.

Senate Majority Leader Harry Reid (D-NV)

Senate Majority Leader Harry Reid (D-NV)
Image: AP
In 2005, Reid sponsored a $18 million earmark to build a bridge connecting Laughlin, Nev., with Bullhead City, Ariz. — an expenditure Arizona's senators denounced as unnecessary pork. Incidentally, the bridge was located just a few miles from a 160-acre land parcel owned by Reid. According to Schweizer, local authorities predicted the bridge would "undoubtedly" increase surrounding land values. Schweizer writes that Reid has also leveraged his position in the Senate to persuade local officials. In 1998, for example, Reid bought an undeveloped residential tract for about $400,000, which he later sold to a partner, obtaining a joint stake in the limited liability company that owned the land. The company aggressively petitioned the county to rezone the land as commercial property, at the same time the county was lobbying Reid's office for earmarks.
Needless to say, county commissioners granted the rezoning, and Reid and his partner sold the land to a mall developer for $1.6 million. Reid himself walked away with $1.1 million.

Former House Speaker Dennis Hastert (R-IL)

Former House Speaker Dennis Hastert (R-IL)
Image: AP
As Speaker of the House, Hastert increased his net worth by more than $2 million by using a road-building earmark to increase the value of land he purchased in Illinois. In 2005, Hastert purchased (or had a hand in purchasing) 264 acres near the site of the proposed "Prairie Parkway," and the site of a planned real estate development. Months after the purchases in early 2005, he placed a $207 million earmark into the federal highway bill to fund the parkway. He sold 69 acres months later for $4.9 million — and netted between $2 million and $10 million in a year.
Hastert retired in 2007 after conceding House leadership to the Democrats in 2007.

Sen. Judd Gregg (R-NH)

Sen. Judd Gregg (R-NH)
Image: AP
As former chairman of the powerful Senate Budget Committee, Gregg earmarked around $66 million to turn New Hampshire's Pease Airforce Base into a business park, developed by Gregg's brother. The Senator himself invested between $240,000 and $1 million in the development, and collected between $240,000 and $650,000 on his investment. Gregg retired from the Senate in 2010 and is now a senior advisor to Goldman Sachs.

Rep. Ken Calvert (R-CA)

Rep. Ken Calvert (R-CA)
Image: AP
Yet another politician who used earmarks to benefit himself financially. Calvert and a business partner paid $550,000 for a parcel of land near March Air Reserve Base in California in 2005, not long before he got a $1.5 million earmark to support commercial development around the base. Less than a year later he was able to sell the land for $985,000. In another instance, his real estate firm brokered the purchase of a property near a proposed highway interchange. Calvert got an earmark to build the interchange, and his firm brokered the sale of the property at a profit. His company received a commission on both sides of the deal.
The House Ethics Committee signed off on the earmarks, saying the earmarks benefitted others besides for Calvert — but he made hundreds of thousands from the deals.

Rep. Carolyn Maloney (D-NY)

Rep. Carolyn Maloney (D-NY)
Image: AP
Maloney has been a strong supporter of plans to build the Second Avenue Subway in New York City — securing at least $641 million in federal earmarks for the projects. But Maloney also stands to gain personally from the project, owning a building at 409 East 92nd Street that is currently priced between $5 million and $25 million. The building is just blocks away from a station a station entrance at 94th street and Second Avenue — which is almost certain to raise the value of her property.

Rep. Maurice Hinchey (D-NY)

Rep. Maurice Hinchey (D-NY)
Image: AP
Hinchey managed to increase his wealth by 800% between 2004 and 2008 — mostly as a result of a land deal in his upstate New York hometown. Hinchey pushed for a $900,000 earmark for infrastructure improvements in the village of Saugerties, NY. Hinchey owned two properties that made up "a quarter of the land" benefited by the project, Schweitzer writes, and the value of his land increased five-fold — from between $30,000 and $100,000 to between $250,000 and $500,000.

Now That Greece Has Defaulted, the Default Dominos Are Coming Fast

Now that Greece has defaulted (and it was a default) I believe that in the coming weeks we will see other PIIGS countries line up for defaults. Indeed, we are already seeing hints of this:

Portugal, Spain urge G20 members to help ease crisis

Spain and Portugal said on Saturday the euro zone's debt crisis is a global problem, calling on the United States and other G20 powers to help contain the fallout.

Spanish Prime Minister Jose Luis Rodriguez Zapatero urged the G20 countries least affected by the crisis to provide "urgent stimulus plans" to shield the global economy.

Europe's debt crisis looks set to dominate the summit of Group of 20 leading economies in France from Nov. 3-4.

Merkel: Must prevent others from seeking hair cuts

Chancellor Angela Merkel said on Friday it was important to prevent others from seeking debt reductions after European Union leaders struck a deal with private banks to accept a nominal 50 percent cut on their Greek government debt holdings.

Now that a precedent has been set for debt defaults, other nations will soon follow Greece into debt restructuring. This is where things will begin to get really interesting for the EU.

While Greece is already presenting serious problems for the European Union, it is Italy that will prove to ultimately break the Euro’s back.

Italy’s GDP is $2.05 trillion, making it the third largest economy in the EU and the EU’s biggest financial headache. It has the second worst Debt to GDP ratio in Europe (behind Greece) and the third largest bond market in the world (behind Japan and the US).

In plain terms, Italy is a HUGE problem for the financial system. And it’s only going to be getting worse. Indeed, Italy’s reality is already far worse than most realize today.

When you throw in unfunded liabilities, Italy’s REAL Debt to GDP ratio is north of 360%.  In order for Italy to meet ALL future liabilities, it would need to have an amount equal to nearly 10% of its GDP sitting in a bank collecting interest FOREVER.

Suffice to say, Italy doesn’t have that cash. And based on its debt maturation cycle I expect we’ll see an Italian default within the next six months. Indeed, no matter what happens with Greece, Italy will make sure that the EU in its current form no longer exists within the next year.

In the next 14 months alone, Italy needs to roll over an amount of debt equal to over 30% of its GDP ($615 billion). When you add in NEW debt issuance to meet Italy’s deficit, the number balloons up to 40% of GDP or $820 billion.

The problem with this is that investors are quickly waking up to the fact that Italy is BROKE. With a GDP growth rate of 1.3% and an aging population, Italy’s economy is in shambles.

In this environment, appetite for Italian bonds is collapsing, resulting in higher interest rates on Italian bonds, making Italy’s debt payments even larger (each new percentage point in interest rates means $4.1 billion more in funding costs for Italy in 2012).

            Italy at heart of crisis as borrowing costs climb

Italy's borrowing costs jumped to record levels Friday, underlining its vulnerability at the heart of the euro zone debt crisis and skepticism about whether the struggling government of Prime Minister Silvio Berlusconi can deliver vital reforms.

The 6.06 percent yield paid at an auction of 10-year bonds was the highest since the launch of the euro, and not far from the level reached before the European Central Bank intervened in August to cap Rome's borrowing costs by buying Italian debt.

Indeed, by many accounts, the only reason Italy hasn’t already staged a failed bond auction is because the ECB has been aggressively intervening and buying Italian bonds.

In plain terms, if it were up to the market alone, Italy would have already defaulted. And yet… Italy is somehow going to find investors to buy up $800+ billion worth of its debt?

So Italy will be defaulting. And it will be defaulting sooner rather than later. The question all investors must ask themselves is: what happens when Italy defaults?

Global exposure to Italian debt is north of $860 billion. This is over THREE TIMES the exposure banks have to Greece… and we’ve already seen the impact that situation has had on the markets.

Regarding exposure to Italian bonds, European banks comprise 90% or $782 billion. As Bank of America Merrill Lynch notes, foreign bank claims on Italy are higher than for any of the other PIIGS countries.

The significance of this cannot be overstated. Indeed, it was $3.2 billion in Italian bond exposure that took down MF Global.

More and more, it looks like the EU will be broken up in the coming weeks. When it is this market rally will collapse. And the ensuing carnage will make 2008 look like a joke.

So if you have not already taken steps to prepare for systemic failure, you NEED to do so NOW. We're literally at most a few months, and very likely just a few weeks from Europe's banks imploding.
On that note, if you’re looking for specific ideas to profit from this mess, my Surviving a Crisis Four Times Worse Than 2008 report can show you how to turn the unfolding disaster into a time of gains and profits for any investor.

Within its nine pages I explain precisely how the Second Round of the Crisis will unfold, where it will hit hardest, and the best means of profiting from it (the very investments my clients used to make triple digit returns in 2008).

Best of all, this report is 100% FREE. To pick up your copy today simply go to: and click on the OUR FREE REPORTS tab.

Good Investing!

Graham Summers

Irish PM Accused Of 'Staggering Breach Of Faith' After Copy Of National Budget Winds Up In The Hands Of Germany

Cue conspiracy theories and bust out your tinfoil hats.
According to the Irish Times, a copy of the Irish budget got its way into the hands of the German bundestag, where it was presented and reviewed.
Folks who think Ireland is being run by the Germans are going to have a field day.
Mr Kenny met chancellor Angela Merkel in Berlin yesterday after which reports emerged that the Irish Government was planning raise the top rate of VAT by 2 per cent to 23 per cent.
According to documents presented to a Bundestag budget committee, the measure would generate an additional €670 million for the Government.
Opposition parties rounded on the Government today accusing it a "staggering breach of faith", with suggestions that the German chancellor was now "pulling the strings".

Please follow Europe on Twitter and Facebook.