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
*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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