GOP slashes budgets of agencies, goes easy on itself

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Republicans now running the House are barely touching Congress’ generous own budget even as they take a cleaver to many domestic agencies. A new GOP proposal would reduce domestic agencies’ spending by 9 percent on average through September, when the current budget year ends.

If that plan becomes law, it could lead to layoffs of tens of thousands of federal employees, big cuts to heating and housing subsidies for the poor, reduced grants to schools and law enforcement agencies, and a major hit to the Internal Revenue Service’s budget.

Congress, on the other hand, would get nicked by only 2 percent, or $94 million.

Recent hefty increases to the congressional budget — engineered by Democrats when they held power in the House from 2007-2010 — would remain largely in place under a plan announced Thursday by the chairman of the House Appropriations Committee, Rep. Harold Rogers, R-Ky.

The plan, developed in close consultation with Republican Speaker John Boehner’s office, would cut Congress’ budget less than any other domestic spending bill, except for the one covering the Department of Homeland Security.

All 12 spending bills left unfinished by Democrats will go into a single, enormous measure that Republicans promise to bring up the week of Feb. 14.”Charity begins at home, and Congress should lead the way with cuts to their own budget,” said Steve Ellis of Taxpayers for Common Sense, a Washington-based watchdog group. “Instead they’re protecting their bottom line while slashing everyone else’s.”

The cut to Congress gets a little deeper, to 3.5 percent, if it were imposed for a full calendar year instead of the seven months that will remain in the current budget year. But so, too, would the cuts to other agencies — growing to 16 percent.

When Democrats took over Congress in 2007, they inherited a $3.8 billion budget for Congress. That includes money for members’ and leadership offices, House and Senate committees, and support agencies such as the Capitol Police and the Congressional Budget Office, which crunches numbers for lawmakers as they consider legislation.

Since then, that budget has risen to $4.7 billion, a 23 percent increase over four years. The biggest jump, 11 percent, occurred when President Barack Obama signed a Democratic-written spending bill just after he took office in 2009.

Among the first items of business when the GOP regained the House was to pass a bipartisan measure to cut office and committee budgets by 5 percent. That move that prompted much self-congratulation even though it would produce just $35 million in savings. For context, the deficit is climbing toward $1.5 trillion this year.

Republicans bristle at the suggestion that Congress is getting off easy. They promise further cuts when the Senate pitches in and when the two chambers work out joint items such as budgets for the Capitol Police, Library of Congress and the Government Accountability Office.

“Earlier this year, the House passed unprecedented cuts to its own budget, and we are cutting more … a total of nearly $100 million in House-related spending cuts,” said Boehner’s spokesman, Michael Steel. “The Senate has substantial responsibility for the overall legislative branch appropriations bill, and we hope to work with them to cut even more going forward.”

Republicans will provide more details about the spending bill in the week ahead.

Legislative branch cuts are hardly unprecedented. Former Speaker Newt Gingrich engineered an 8 percent cut in Congress’s budget when Republicans last wrested control of the House, in 1995.

When Democrats gained a majority in 2007, the budget for the office of the speaker’s office — considered the most powerful of any in Congress — exploded. As speaker, Rep. Nancy Pelosi, D-Calif., engineered a $2 million, 71 percent increase immediately after that transfer of party control.

A Pelosi spokesman attributed some of the increase to her decision to consolidate a variety of leadership jobs within her office — as opposed to the power-sharing approach of her predecessor, Republican Dennis Hastert of Illinois.

Regardless, Boehner inherited a pretty flush office account, which permits him a sizable staff contingent, including a press and communications operation with a dozen people. Capitol Hill news coverage has increased considerably in recent years with the advent of the 24-hour news cycle, the growth of niche publications and a range of new online media, including Twitter and Facebook.

The Associated Press

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Madoff Trustee demands $300 million from N.Y. Mets owners

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The owners of the Mets turned a blind eye to Bernard Madoff’s massive fraud, reaping $300 million in false profits and using a large chunk to run the team, according to a lawsuit unsealed Friday. The lawsuit claims the owners were so dependent on the disgraced financier’s too-good-to-be-true returns that it “faced a severe and immediate liquidity crisis” when Madoff’s crimes were revealed in 2009.

The searing allegations were made by Irving Picard, the trustee appointed to recover funds for investors burned by Madoff’s scheme. The suit filed by Picard in federal bankruptcy court in Manhattan names Sterling Equities, along with its partners and family members, including Mets owner Fred Wilpon, team president Saul Katz and chief operating Jeff Wilpon, the owner’s son. Picard said Sterling withdrew over $94 million in fictitious profits from Mets accounts with Madoff.

“Given Sterling’s dependency on Madoff, it comes as no surprise that the partners willfully turned a blind eye to every red flag of fraud before them,” Fernando A. Bohorquez, Jr., a lawyer representing Picard, said Friday.

The suit had been filed under seal in December while the parties tried to work out a settlement. But lawyers told a judge this week that talks had collapsed and consented to having the complaint made public. Its opening salvo: “There are thousands of victims of Madoff’s massive Ponzi scheme. But Saul Katz is not one of them. Neither is Fred Wilpon.”

The complaint alleges the partnership “received approximately $300 million in fictitious profits” from hundreds of accounts opened with Madoff’s firm. Of that, it says, $90 million of “other people’s money” were withdrawn to cover day-to-day operations of the Mets.

Wilpon and Katz fired back Friday with a statement calling the suit “an outrageous strong-arm effort to force a settlement by threatening to ruin our reputations and businesses we built for over 50 years.”

The pair called the accusations “abusive, unfair and untrue,” insisting they were victims of the fraud. “We should not be made victims twice over — the first time by Madoff and again by the trustee,”  they wrote.

The lawsuit said Wilpon and Katz had meetings with Madoff in his office at least once a year, a privilege few investors enjoyed, and Katz at times spoke directly with Madoff at least once a day. It also said Wilpon and Katz maintained investments in Madoff accounts, even though Ivy Asset Management expressed concern in 2002 and the Sterling Stamos hedge fund warned repeatedly Madoff was “too good to be true.” The suit said a Sterling consultant advised Katz something was amiss in 2003, and Merrill Lynch warned them about Madoff as early as 2007.

The suit alleged that by December 2008, Sterling had referred approximately 178 “outsider” investor accounts to Madoff. It also said that when Wilpon and his family also bought Nelson Doubleday’s 50 percent ownership of the Mets in 2002, Madoff declined a chance to invest in the team that he was offered by Sterling.

The lawsuit said cash from Madoff accounts, including fictitious profits, was used for team payroll, players’ deferred compensation and stadium operations. The suit has cast a cloud over the Mets ownership, which has said it’s exploring a partial sale of the team. But Wilpon and Katz denied Friday that the operation was ever dependent on Madoff.

“That is complete nonsense,” they said. “We have good, sound businesses that were successful years before we invested with Madoff, including both real estate and the New York Mets.”

Madoff, 72, is serving a 150-year sentence in a federal prison in North Carolina after admitting that he ran his scheme for at least two decades, using his investment advisory service to cheat individuals, charities, celebrities and institutional investors.

Losses are estimated at around $20 billion, making it the biggest investment fraud in U.S. history.

The lawsuit describes the Sterling Partners as “a team of sophisticated professionals who built a business empire spanning four major industries, including real estate, professional baseball and sports media, private equity and hedge funds.”

It says Sterling Partners “willfully disregarded any criticisms of Madoff and simply buried their heads in the sand” during a nearly quarter-century relationship in which it supported its substantial business empire with Madoff money and reaped the benefits of bogus profits.

The firm was “simply in too deep … to do anything but ignore the gathering clouds,” the lawsuit says. “In the face of the parade of red flags, the Sterling Partners chose to do nothing.”

Numerous financial industry professionals over the years warned Sterling about Madoff and speculated he was operating a fraud, including one Sterling consultant who advised Katz in 2003 that he “couldn’t make Bernie’s math work and something wasn’t right,” the court papers say.

The lawsuit says Sterling was on notice as early as 1991 that Madoff’s firm was audited by a three-person operation in Rockland County that consisted of a certified public accountant, a semiretired accountant and an assistant. In 1996, it says, multiple banks refused to serve as custodian of Sterling’s 401K plan because of concerns about Madoff’s lack of transparency and inability to provide daily account balance information.

At one point after several financial news publications raised questions about the Madoff business in May 2001, Sterling considering getting fraud insurance that would have included a Ponzi scheme but Sterling ultimately rejected the insurance because coverage limits meant most of their money was uninsurable, according to the court papers.

The lawsuit said Sterling’s Madoff accounts produced positive returns during the Black Monday stock market crash of 1987, the bursting of the dot-com bubble in 2000, the terrorist attacks of Sept. 11, 2001, and the recession and housing crisis of 2008.

“Remarkably, Sterling’s [Madoff] investments were effectively immune from any number of market catastrophes, enjoying steady rates of return even during events that otherwise devastated financial markets, ” the lawsuit says.

The Associated Press

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Luxembourg ambassador leaves embassy in shambles, then resigns

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State Department officials are mopping up after an international crisis, this time in tiny Luxembourg.

The now-former ambassador to the country, a political appointee of the Obama Administration, Cynthia Stroum, abruptly resigned in January, leaving the embassy “in a state of dysfunction” and “unable to carry out its duties after her recent exit,” according to a State Department report.

Despite having no qualifications for the job, politically-connected Stroum was given the coveted post.

Stroum, the heir to a Seattle auto-parts fortune, was a major bundler for Barrack Obama’s 2008 presidential campaign, raising over $500,000. Despite having no qualifications whatsoever, she was given the coveted assignment as the ambassador to one of the world’s smallest and wealthiest nations.

The report, prepared by the U.S. State Department Inspector General, based on a visit during late October through early November, said that morale was so bad at the embassy, at least four senior staff members quit or applied for openings in Afghanistan and Iraq, just to get out quickly.

“Those who have questioned or challenged some of the Ambassador’s actions state that they have paid a heavy price in the form of verbal abuse and been threatened with dismissal,” according to the IG.

The report said that “The bulk of the mission’s internal problems are linked to her leadership deficiencies, the most damaging of which is an abusive management style.”  Embassy employees described her as “aggressive, bullying, hostile and intimidating, which has resulted in an extremely difficult, unhappy and uncertain work environment.”

Even before Stroum arrived, she exhausted an embassy employee over a six-week search for a temporary residence. More than two hundred homes were visited, and only four of those met her specific requirements. Stroum rejected all four.

Embassy staff said that they had “no expectation of privacy” in their emails or phone calls. When Stroum arrived, she announced that “her appointment letter from the President gave her the right to read any e-mail message that originated at Embassy Luxembourg.”

The report said that Stroum spent too much of her official time working on renovating the ambassador’s official residence, including the materials used in the bathrooms. The report added “”Normally, all such changes are approved by the (Overseas Buildings Operation) Office of Residential Design and Cultural Heritage and not by the occupant at the time. There appears to be some conflicting guidance on how much the Ambassador can be involved in this project.”

She also ordered a new queen-sized bed because she was unhappy with the king-sized one that was already there. She submitted a voucher twice for the expenditure, which the IG said was an improper use of funds because the bed size was a “personal choice.”

Stroum also used excess embassy funds to make a $3,400 purchase of expensive European wines right before the end of the year, despite written State Department rules stating “in no case, is the post authorized to use excess year-end funds to purchase wine.” Rules also mandated that all wine purchased were to be from American wineries.

Stroum and an assistant also flied to Switzerland at taxpayers’ expense to hire a chef, despite rules requiring all hires to be from the local area.

A website, popular among foreign service workers called Diplopundit, called the report “The Horror Report of the Year

The report concluded that the embassy “has underperformed for the entirety of the current ambassador’s tenure” and that “it plays no significant role in policy advocacy or reporting, though developments in Luxembourg are certainly of interest to Washington clients and other US missions in the NATO and EU communities.” After their visit, State Department investigators recommended bringing in doctors to the embassy, to “evaluate morale and stress levels of staff.”

Upon resigning her one-year stint, Stroum said she was leaving to spend more time with her family.

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Madoff trustee sues JPMorgan Chase for role in massive fraud

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E-mails and other internal documents show that executives at JPMorgan Chase were complicit in Bernard Madoff‘s massive fraud, lawyers seeking to recover funds for his victims said Thursday.

The lawyers work for a court-appointed trustee who filed a $6.4 billion complaint under seal late last year against JPMorgan, the disgraced financier’s primary bank for two decades. The parties agreed to make portions of it public on Thursday.

Among the e-mails cited is one in 2007 in which an unidentified JPMorgan Chase employee recounts being told “there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme.”

The material supports allegations that “the bank’s top executives were warned in blunt terms about speculation that Madoff was running a Ponzi scheme,” attorney Deborah Renner said in a statement. “Yet the bank appears to have been more concerned only with protecting its own investments in (the Madoff firm’s) feeder funds.”

In a statement on Thursday, JPMorgan said the complaint “is meritless and is based on distortions of both the relevant facts and the governing law.” It added that the bank “intends to defend itself vigorously against the unfounded claims brought by the trustee.”

The bank has denied having any suspicions about Madoff, saying it followed all commercial banking regulations in its dealings with him.

Trustee Irving Picard is in the midst of a two-year campaign to recover funds for Madoff’s burned clients with a flurry of lawsuits against financial institutions and brokers. Last year, he filed multibillion-dollar suits against HSBC and UBS AG over similar allegations the banks deny.

Madoff, 72, is serving a 150-year sentence in a federal prison in North Carolina after admitting that he ran his scheme for at least two decades, using his investment advisory service to cheat thousands of individuals, charities, celebrities and institutional investors.

Losses are estimated at around $20 billion, making it the biggest investment fraud in U.S. history.

Picard’s lawyers have accused JPMorgan and its affiliates of being “willfully blind” to “numerous red flags surrounding Madoff,” including the unwavering double-digit returns he reported to wealthy investors on fictitious account statements.

According to the lawsuit, JPMorgan initiated a thorough investigation of Madoff in 2008 after the nation’s financial crisis had begun — and that the inquiry was frustrated at every turn.

Madoff feeder funds “repeatedly found creative ways to dodge questions” about their knowledge of his investment schemes, the suit says. Bank Medici, one of Madoff’s biggest partners, promised to provide various risk reports, but then balked.

By October, a member of the bank’s due diligence team was questioning claims by a big feeder fund, Fairfield Greenwich, that it had access to the secretive office suite where Madoff did business.

“Judging from the lack of thoroughness of some of their other due diligence I am not entirely convinced that Madoff allowed them to actually enter the trading area,” the employee wrote.

Another bank official expressed amazement that the bank and hedge fund executives who were funneling money to Madoff had asked so few questions about his strategy, and observed that some seemed afraid to confront him.

“It’s almost a cult (Madoff) seems to have fostered,” the official wrote.

The complaint also cites a suspicious activity report JPMorgan sent to the Serious Organised Crime Agency in London on Oct. 28, 2008, less than two months before Madoff revealed himself to be a fraud.

The suit says the report concluded Madoff’s balance sheet appears “too good to be true — meaning it probably is.”

The report was triggered in part by a strange conversation that a bank employee had with one of its Madoff investment partners, Aurelia Finance. During that conversation, according to the suit, “Aurelia Finance representatives made threats … referring to ‘Colombian friends’ who could ’cause havoc’ if the bank went ahead with a plan to redeem some of its Madoff investments.”

The JPMorgan employee, the suit says, took that to mean that Colombian drug dealers were somehow involved in the investment deal, and would be angered if the bank dropped out.

JPMorgan began trying to pull more Madoff investments in October, including $167 million placed through Fairfield, according to the suit. By the time Madoff was arrested in December, it had managed to sell off all but $35 million of its stakes in his feeder funds

The Associated Press

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FBI said to have committed 40,000 violations of privacy laws since 2001

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The San-Francisco watchdog-group, the Electronic Frontier Foundation, released a report today saying it has discovered “indications that the FBI may have committed upwards of 40,000 possible intelligence violations in the 9 years since 9/11.”

The documents suggests, “that FBI intelligence investigations have compromised the civil liberties of American citizens far more frequently, and to a greater extent, than was previously assumed.” The report said that there was no indication whether anyone was disciplined for the violations.

The documents were provided by various agencies to the President’s Intelligence Oversight Board, and reported nearly 800 violations of privacy laws. The EFF took the data from records it obtained under the Freedom of Information Act.

The records were received from a number of agencies, but most were censored, making it difficult to evaluate them. The FB records were most intact, although names, exact dates and other identifying information had been obscured.

The report said that on average, a delay of 2 ½ years passed between the occurrence of a violation, and its reporting to the IOB.

Valerie Caproni, the FBI’s general counsel, told the Los Angeles Times, the violations were mostly technical or procedural, although many involved far more serious infractions, including “lying in declarations to the court, using improper evidence to obtain grand jury subpoenas, and accessing password-protected files without a warrant.”

Caproni offered that “the number of substantive violations someone’s rights is very small and we take them very seriously.” She added “Am I confident that, by and large, 99.9 percent of the time our agents are acting in compliance with the Constitution, the statutes, executive orders and FBI and DOJ policies on civil liberties? I am.”

Mark Rumold, the EFF lawyer who obtained the documents said “These guidelines were put in place to prevent civil rights abuses. And when the FBI is glibly treating violations as technical mistakes, it’s indicative of a broader problem — the FBI’s attitude toward dedicated, effective oversight.”

Most of the violations took place during the George W. Bush administration, the period covered by the investigation.

However, Rumold also took aim at the Obama administration. He said the president declared repeatedly that he would run a more transparent White House, “but when it comes to national security and intelligence investigations, that just hasn’t been the case.” The Obama administration has refused to say whether anyone is currently serving on the oversight board, which was formed in 1976 to monitor the collection intelligence data.

Access the EFF report here

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Florida judge rules Obama health care law unconstitutional

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A federal judge ruled Monday that the Obama administration’s health care overhaul is unconstitutional, siding with 26 states — including Nevada — that sued to block it. U.S. District Judge Roger Vinson accepted without trial the states’ argument that the new law violates people’s rights by forcing them to buy health insurance by 2014 or face penalties.

Attorneys for the administration had argued that the states did not have standing to challenge the law and that the case should be dismissed.

The next stop is likely the U.S. Supreme Court. Two other federal judges have upheld the insurance requirement, but a federal judge in Virginia also ruled the insurance provision violates the Constitution.

In his ruling, Vinson went further than the Virginia judge and declared the entire health care law unconstitutional.

“This is obviously a very difficult task. Regardless of how laudable its attempts may have been to accomplish these goals in passing the Act, Congress must operate within the bounds established by the Constitution,” Vinson wrote in his 78-page ruling.

At issue was whether the government is reaching beyond its constitutional power to regulate interstate commerce by requiring citizens to purchase health insurance or face tax penalties.

Attorneys for President Barack Obama’s administration had argued that the health care system was part of the interstate commerce system. They said the government can levy a tax penalty on Americans who decide not to purchase health insurance because all Americans are consumers of medical care.

But attorneys for the states said the administration was essentially coercing the states into participating in the overhaul by holding billions of Medicaid dollars hostage. The states also said the federal government is violating the Constitution by forcing a mandate on the states without providing money to pay for it.

Florida’s former Republican Attorney General Bill McCollum filed the lawsuit just minutes after Obama signed the 10-year, $938 billion health care bill into law in March. He chose a court in Pensacola, one of Florida’s most conservative cities. The nation’s most influential small business lobby, the National Federation of Independent Business, also joined.

Other states that joined the suit are: Alabama, Alaska, Arizona, Colorado, Georgia, Indiana, Idaho, Iowa, Kansas, Louisiana, Maine, Michigan, Mississippi, Nebraska, Nevada, North Dakota, Ohio, Pennsylvania, South Carolina, South Dakota, Texas, Utah, Washington, Wisconsin and Wyoming.

The Associated Press

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NYC investigators check out gun shows in Arizona, finds background checks not enforced

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The City of New York sent a team of investigators to a number of gun shows across the country to see if background checks were being undertaken by vendors. Mayor Michael R. Bloomberg, released the following report to media today:

How difficult is it for criminals, the mentally ill, and drug abusers to buy guns in Arizona?

We sent undercover investigators with hidden cameras to find out, and the answer is: not difficult at all. Just 15 days after the horrible tragedy in Tucson, our investigators found that people who may be prohibited by federal law from purchasing guns can nevertheless buy them as easily as a hamburger with fries at the local McDonald’s.

The investigators visited a Phoenix gun show as a follow-up to a 2009 undercover investigation we conducted at gun shows across Ohio, Tennessee, and Nevada. In that investigation, we found out just how easy it is for criminals and the mentally ill to walk in and buy guns – no questions asked. It called attention to a huge loophole in the law that enables criminals and other dangerous people like drug abusers and the mentally ill to get guns without having to go through a background check.

Since then, four of the seven gun shows we investigated have decided to require background checks for all gun sales. At the time of the investigation, those four gun shows hosted 198 private sellers who were offering 2,600 firearms for sale in just one weekend.

Furthermore, ATF has now investigated one of the unlicensed gun dealers we caught on camera making illegal sales in Nevada, and they seized a stockpile of 800 guns he was keeping at his house in Mesa, Arizona.

It’s great news that four of the seven gun shows from the initial investigation have decided to change their practices. But the reality is that the practice of selling to prohibited purchasers is widespread, as we saw again at a gun show in Arizona.

Our investigators went to the Crossroads of the West gun show in Phoenix. You can watch the undercover videos and ask Congress to close the loopholes in our gun background check system at gunshowundercover.org.

The investigation sought to answer two simple questions:

First, how easy is it to buy a gun without a background check?

It’s easy. At the gun show, an investigator bought – with no background check – a Glock 19 with an extended magazine, similar to the gun Jared Loughner allegedly used to kill six and wound 13 others, including Rep. Gabrielle Giffords. Unfortunately, under current federal laws, that sale was legal.

The second question we ask was would private sellers sell guns to people who said they probably couldn’t pass a background check?

Again, the answer was yes. An investigator bought two handguns from two different private sellers, even after they said they probably couldn’t pass a background check.

This fits the pattern of illegal activity at gun shows that we uncovered in 2009 – and it’s all the more frustrating that it’s happening just a little more than a hundred miles away from Tucson.

In 2009, 19 out of 30 private sellers made the sale in spite of the law, which says even private sellers are prohibited from selling to anyone they have reason to suspect could not pass a background check. This time, two private sellers in Arizona did the same thing.

We did these investigations for two reasons: to expose a glaring gap in the nation’s gun laws, and to urge Congress to take notice – and take action. Unfortunately, they’ve done nothing to close this deadly loophole in our background checks.

Last week, our coalition announced a new plan to fix gaps and close loopholes in our nation’s gun laws. Visit gunshowundercover.org to watch today’s new videos and ask Congress to finally take action.

As I said after our first investigation in 2009, the vast majority of gun buyers at gun shows are law abiding citizens. Requiring background checks on all gun sales will not detract from anyone’s Second Amendment rights. What it will do is send the message that we’re no longer going to make it easy for criminals to get around the law.

Michael R. Bloomberg, Mayor of New York City

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