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Dossier 44: Summertime Has Come Today
August 17, 2005: Though Labor Day looms Summer fun can still be found. In the dog days political candidates play serious mud-ball. Since a direct hit so close to election day can stick in a voter's mind. In the New Jersey gubernatorial race two plutocrats are doing the do in hopes of doing the public. On the Republican side there's multi millionaire Doug Forrester: on the Democratic, half billionaire Jon Corzine. Both promise to drain Jersey's pay-to-play swamp. Both have supporters who claim their candidate's mega wealth renders them impervious to corruption.

As August kicked off, the Corzine camp revealed that Doug Forrester has been gifting NJ Republican lawmakers for years with campaign contributions while holding a 51 percent interest in an insurance company (Heartland Fidelity) affiliated with a health benefits concern doing business with the state. By state law, individuals with controlling interests in companies that Serve The People, can't contribute to state candidates or political organizations. Forrester claims the law doesn't apply to him since Heartland is registered in the District of Columbia not New Jersey. Judging by this nimble if hoary legal dodge, Doug is ready to be Garden State Gov.

Meanwhile, Corzine The Mighty took a body blow when it emerged via a New York Times look into his finances (a subject of interest to many) that his ex-girlfriend's half million dollar mortgage debt was forgiven by an investment firm he owns. The problem isn't that Corzine, through a company owned solely by himself, let his lover welsh. It's that his ex is union president Carla Katz, of Local 1034 of the Communications Workers of America. Which represents 9000 state workers and has endorsed Corzine. And after X Governor Jim McGreevey and his Homeland Security squeeze Golan Cipel, Jersey is sensitive re pols who mix public and pubic.

Personally, I doubt if Katz could have swayed those union members to go Corzine unless they were already so inclined. I mean, would they really dig Doug? But as governor, Corzine would be negotiating with his ex. The mud buzz has been that Corzine might betray voters who want lower state taxes. But I'd say union members have more cause to worry: it was Katz after all, whose debt was forgiven. On the other hand, voters seeking lower federal taxes should work to put Senator Corzine in the statehouse-- in order to keep him from returning to DC in any way, shape or form. Since he might assume non-plutocrats are as eager as he to foot the bill of bad mortgage loans.

According to Dean Baker, co-director at the Center For Economic and Policy Research (CEPR) and author of "The Housing Bubble Fact Sheet" that bill is likely to come due any day.* Particularly in regard to the mortgage backed securities market-- now in excess of 6 trillion dollars. In Baker's words: "this market will be put in danger by a large wave of defaults following the collapse of the housing bubble. It is likely that the federal government will have to bail out the market in mortgage-backed securities to prevent a cascading series of defaults." Substitute "taxpayer" for federal government and you get the picture. Yet over at Fannie Mae, the Government Supported Enterprise (GSE) and major mortgage marketeer, matters remain murky. Fannie is still in the process of restating financial results for 2001 to 2004 and will not release that restatement till mid 2006.** But Chief Executive Officer Daniel Mudd says: "Completing this restatement is Fannie Mae's number one corporate priority and we are moving forward."

Take That To The Bank

Fannie Mae, along with Freddie Mac and several lesser GSEs, buy bundles of mortgage loans from banks and mortgage companies for resale on Wall Street as mortgage backed securities. Though a "government supported enterprise" is not the same as a government agency, the designation still means major privileges. It also conveys the impression GSE transactions are backed by the federal government. An assumption which helped encourage the shoddy lending practices, outsize debt and real estate frauds that inflated the housing bubble. Furthermore, many believe the GSEs were none too careful about the quality of the loans they were buying and selling. As example, in 1998 Fannie Mae sold $6.5 million worth of mortgage loans from the First Beneficial Mortgage Company to a smaller GSE, Ginnie Mae. First Beneficial was in the mortgage fraud business and Fannie Mae knew the loans were questionable. Last year Fannie was forced to reimburse Ginnie. With interest. Though it could have been worse-- senior officials at First Beneficial got 21 years in prison.

GSE reform policies initiated by the Office of Federal Housing Enterprise Oversight (OFHEO) include a rule requiring more timely reporting of suspected incidents of mortgage fraud. OFHEO, the agency directly responsible for GSE oversight, is a subsidiary of the U.S. Department of Housing and Urban Development (HUD). Historically, OFHEO's oversight of the GSEs has been so wimpy that there was talk the job might be transferred to the Treasury Department. In response, OFHEO hit the GSE reform trail. The Senate Banking Committee is also making a bi-partisan effort.

Some pols and public policy types, both left and right, want reform to be tied to a requirement that GSEs buy and peddle more loans backed by the Federal Housing Administration (FHA). Another HUD sub. Mortgage loans insured by the FHA are generally ones banks won't make without government backing. During the years the housing bubble inflated, FHA real estate fraud sky rocketed. HUD oversight of FHA programs was woefully inadequate. The illegal flips, defaults and abandoned FHA properties largely impacted low income neighborhoods. If the GSEs do get busy with FHA mortgages it will pump a last blast of even more risky loans into the bubble. Making the ultimate hit on that bank of last resort, the federal taxpayer, even worse.

Meanwhile, Back In Mudville

In New York State, Jeanine Pirro, the Republican district attorney of Westchester County, hopes to be her party's candidate for U.S. Senator next year. Her opponent: Hillary Clinton. Though early in the game, Pirro caught a mudball in mid-August when the New York Observer broke the news her fund raising team "Friends of Jeanine Pirro" has taken contributions from a Connecticut based construction company long suspected of ties to organized crime. The company is Worth Construction, headed by Joseph Pontoriero. In the 80's the feds in NYC deemed Pontoriero an unindicted Genovese mob conspirator. A decade or so later, the Attorney General's office in Jersey eyed Worth. In 98 the company was banned from NYC school contracts. But that was then, this is now. Worth Construction just landed a 14.8 million dollar contract for a courthouse in Putnam County in New York. And Worth is 17th on a list of 50 top contractors in the Tri-State area.

Jeanine Pirro, speaking through her staff (just like Moses!) has nothing but scorn for media scandal mongers. As D.A. she's been "a leader in the fight against organized crime". She seems little inclined to return the Worth contributions. She also blames Senator Hillary Clinton and her ops for the mud-ball. Which hit home a little harder because Pirro's lawyer-lobbyist husband Albert Pirro, spent 11 months in federal prison for tax evasion and has himself faced aspersions about organized crime.

Was Hillary behind the spillary? She says not. For what that's worth. But the NYC newspapers that did the most with the story, the Observer and the Daily News, gained street cred by naming Dems who've also had a helping of Worth. Including Al Gore in 1999 and Senator Joseph Lieberman of Connecticut in 2003. By 2003 Joseph Pontoriero and Worth had been all over the Connecticut newsmedia for several years. Due to their connection to infamous X Mayor Phil Giordano of Waterbury. Who ran against Lieberman in Connecticut's 2000 senate race.

In 2001 Mayor Giordano was the target of a federal corruption probe into Waterbury municipal contracts, focused mainly on alleged pay-to-play deals between Giordano, Joseph Pontoriero and Worth Construction. Giordano and Pontoriero had more than a business relationship. Mayor Phil apparently viewed the older Pontoriero as the epitome of sophistication. Imitating his dress style and dining with him in fancy NYC restaurants. Meanwhile, back in Waterbury, the federal investigation took an ultra sordid turn when a wire tap caught Mayor Phil arranging to buy two girls, aged 11 and 12, for sexual purposes. The children were the daughter and niece of Giordano's crackitute girlfriend. The need to stop Giordano from further child abuse cut the corruption investigation short. Though Giordano at his trial spoke of being bribed by "Joe" and federal interest in Worth and Waterbury is said to be ongoing, no indictments have yet been received by Joseph Pontoriero.

Should such docs ever be delivered, do you think every pol in the Tri-State area would then nix contributions from Joe Pontoriero, Worth Construction or related agents and entities? Or refuse to grant them public contracts? And what about other public servants who take cash from similarly questionable sources? Will they one day stop huffing "mere allegations and rumors" when asked about their own RICO Suave?

Don't bank on it.

Carola Von Hoffmannstahl-Solomonoff

PS: This just in from "Sam" in Ohio: Nate Gray, who's been referred to as a bagman for Cleveland's X Mayor Michael White, was found guilty late today on 36 corruption counts in a case with links to Cleveland, East Cleveland, Houston and New Orleans. Plus, Ohio Governor Bob Taft will be charged with four criminal misdemeanors related to his having accepted free golf trips from Republican fundraiser and rare coin maven Tom Noe. Taft is the highest public official yet indicted in a growing state investment scandal and the first sitting Ohio governor ever charged with a crime. Apparently, the janitor didn't do it after all...

*The Housing Bubble Fact Sheet, Dean Baker, Co-Director, Center for Economic and Policy Research, Washington DC

**Fannie Mae Still Struggling With Full Disclosure, Vol. II No. 16, FM Policy Focus

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Copyright (c) 2005 by Carola Von Hoffmannstahl-Solomonoff. This material may be freely distributed subject to the terms and conditions set forth in the Open Publication License. This license relieves the author of any liability or implication of warranty, grants others permission to use the Content in whole or in part, and insures that the original author will be properly credited when Content is used. It also grants others permission to modify and redistribute the Content if they clearly mark what changes have been made, when they were made, and who made them. Finally, the license insures that if someone else bases a work on this Content, that the resultant work will be made available under the Open Publication License as well.

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