Krebs Daily Briefing 21 December 2015


Inside the Billion-DollarBattle for Puerto Rico’s Future

The money poured in by the millions, then by the hundreds of millions, and finally by the billions. Over weak coffee in a conference room in Midtown Manhattan last year, a half-dozen Puerto Rican officials exhaled: Their cash-starved island had persuaded some of the country’s biggest hedge funds to lend them more than $3 billion to keep the government afloat. There were plenty of reasons for the hedge funds to like the deal: They would be earning, in effect, a 20 percent return. And under the island’s Constitution, Puerto Rico was required to pay back its debt before almost any other bills, whether for retirees’ health care or teachers’ salaries. But within months, Puerto Rico was saying it had run out of money, and the relationship between the impoverished United States territory and its unlikely saviors fell apart, setting up an extraordinary political and financial fight over Puerto Rico’s future. On the surface, it is a battle over whether Puerto Rico should be granted bankruptcy protections, putting at risk tens of billions of dollars from investors around the country. But it is also testing the power of an ascendant class of ultrarich Americans to steer the fate of a territory that is home to more than three million fellow citizens. The investors with a stake in the outcome are some of the wealthiest people in America. Many of them have also taken on an outsize role in financing political campaigns in the aftermath of the Supreme Court’s 2010 Citizens United decision. They have put millions of dollars behind candidates of both parties, including Hillary Clinton and Jeb Bush. Some belong to a small circle of 158 families that provided half of the early money for the 2016 presidential race. More:

Fake bomb forces diversion of Air France flight

A Paris-bound Air France flight from the tiny East African nation of Mauritius made an emergency landing Sunday in Mombasa, Kenya, because of a suspicious package that turned out to be a fake bomb, authorities said. The Kenya Airports Authority said all 473 people aboard Flight 463 were screened at Mombasa’s Moi International Airport and taken to hotels, while Kenyan authorities combed the plane for clues and other devices, the authority said on Twitter. “The object, believed to be an explosive device has successfully been retrieved from the aircraft,” the authority said. Later, Air France CEO Frederic Gagey said the package, found in a bathroom, was made simply of cardboard and a kitchen timer made to look like a bomb. “We find this behavior stupid,” he said. “It causes damage and is absolutely unacceptable.” Kenyan Interior Minister Joseph Nkaissery told CNN four people had been arrested in connection with the case. The Associated Press and the Kenyan Daily Nation, citing security sources they did not identify because they were not authorized to speak with the press, said six passengers were being held for questioning. CBS News, citing a police official who declined to be identified, said that during the flight a passenger found the package, which looked like a “stopwatch mounted on a box.” The passenger notified the crew, and preparations began to divert the Boeing 777, CBS said. A passenger who spoke to journalists in Mombasa described the scene on the plane. “The plane just went down slowly, slowly, slowly, so we just realized probably something was wrong,” Benoit Lucchini of Paris told CBS and other outlets. “The personnel of Air France were just great, they were just wonderful. So they keep everybody calm. We did not know what was happening.” Air France has been the target of bomb scares and threats at least four times since the Nov. 13 Paris attacks that left 130 dead. On Dec. 8, a Paris-bound Air France flight from San Francisco was diverted to Montreal after an anonymous threat was later determined to be bogus, the airline said. On Nov. 18, a flight from Los Angeles was diverted to Salt Lake City and a flight from Washington was diverted to Halifax, Nova Scotia. Both threats turned out to be hoaxes.

Behind the Black Flag: The Recruitment of an ISIS Killer

Hassan Aboud’s practiced baritone belied the malevolence in his words. “Oh Darraji!” he sang. “Our state provided us ammunition and sent us to assassinate you.” That state is the self-proclaimed Islamic State, also known as ISIS or ISIL, the terror group that controls territory in Syria and Iraq and has recently projected violence to Ankara, Beirut, Paris and San Bernardino, Calif. A soft-spoken double-amputee sometimes carried to meetings by fellow gunmen, Mr. Aboud is an Islamic State commander who also directs a network of assassins, including those who killed Darraji, a former subordinate, with bullets and flame. The recording of his singing circulated among past associates this year. A taunting dark requiem, it serves as evidence and confession. Mr. Aboud, who defected from Syria’s rebels to the terrorist group in 2014, was admitting to previously unsolved killings of former friends. “We plucked Adeeb Abbas’s head,” he continued, naming another of his one-time deputies, blasted from a motorcycle by a roadside bomb. “We spilled his filthy blood.” He then vowed to kill more, as a male chorus chanted to those marked to die: “We will liquidate every traitor.” More:

Blatter and Platini banned by FIFA for eight years

FIFA President Sepp Blatter and European soccer boss Michel Platini were both banned from soccer for eight years on Monday for ethics violations, leaving the global game leaderless as it struggles with a swirl of corruption cases. The pair, who were also fined, had been suspended in October while an investigation was carried out into a 2 million Swiss franc ($2.02 million) payment that soccer’s global governing body made to Platini in 2011, with Blatter’s approval. The decision means that Blatter’s 17 years at the helm of world soccer will end in disgrace, and spells the end of Platini’s hopes of replacing the 79-year-old in a presidential election in February. The Swiss, who spent four decades at FIFA, came out swinging, holding a news conference to tell reporters that he was sorry only that the president of FIFA was being treated as a “punching ball”. “I will fight for me and I will fight for FIFA,” said Blatter, unshaven and with a sticking plaster on his cheek, but defiant. He said FIFA’s Ethics Committee had no right to relieve him of his duties and that he would challenge the decision in FIFA’s Appeals Committee and, if necessary, the Court of Arbitration for Sport in Lausanne, Switzerland, and in the Swiss courts. The committee said it had not found evidence that the payment, made at a time when Blatter was seeking re-election, constituted a bribe, which meant the men were spared potential lifetime bans. More:

Meet ISIL’s Most Dangerous Affiliates

With startling speed, the Middle Eastern terrorist organization known as ISIL has burst into the local news in Western nations, associated with attacks in Paris and now, if indirectly, with the mass shooting in San Bernardino, California. This might have shocked Americans and Parisians for whom the group was long a distant-sounding threat, but for close observers of the organization, ISIL’s global strategy should come as no surprise. In fact, ISIL has pursued an international expansion campaign from the moment it declared its “caliphate” in June 2014. While the group solidifies its proto-state in parts of Iraq and Syria, it also is expanding its would-be caliphate regionally—and preparing for the apocalyptic war it desires with the West. To do that, it’s fostering affiliates in Muslim-majority areas and directing and inspiring terror attacks in the wider world. And for the U.S., this means that defeating ISIL will require not just combatting the group in Iraq and Syria, and countering its messaging and recruitment of foreign fighters. It also will require serious attention to ISIL’s growing affiliates in other nations. How widespread are these affiliates? This is a crucial, if underappreciated part of the challenge ISIL now poses. Our counterterrorism research team has been tracking ISIL’s activity through everything from social media to satellite imagery, and we’ve begun assembling a detailed portrait of ISIL’s formal affiliates in Egypt, Libya, Afghanistan, Pakistan, Yemen, Saudi Arabia, Algeria, Russia and Nigeria. Looking ahead, ISIL also appears to be preparing to establish entities in Bangladesh and Tunisia, where it has launched a spate of attacks, and another in Somalia, where some militants have declared allegiance to ISIL. Its growth strategy is sophisticated and systematic, much like a multinational corporation expanding by acquisition. Rather than build affiliates from the ground up, ISIL co-opts and changes existing militant groups or networks, some of which have splintered from Al Qaeda. Potential affiliates must consolidate factions, select a leader and present a military plan to ISIL’s leadership for approval, according to ISIL’s own standards. ISIL then chooses whether to establish a wilayat, or province, in the affiliate’s operating area. ISIL’s leaders help these affiliates to become more brutal and effective by exporting military training and expertise. ISIL calls for international recruits to reinforce its strongest partners; it also provides military training and funding to some affiliates. The relationship benefits both parties. ISIL gains a responsive global network, while the affiliate receives an influx of capabilities and cash. More:

ISIS and the Abuse of History

The rapid rise of ISIS and the attempted establishment of its anachronistic caliphate, along with a seeming omnipresence that has allowed it to wantonly strike out in brutal terrorist attacks abroad, has left many reeling in shock and disbelief. Political commentators have tried to account for the alarming alacrity and sheer audacity of the phenomenon by shining a critical light on the recent history of western intervention in the Middle East. Indeed the emergence of ISIS cannot be understood without taking into account the invasion and occupation of Iraq in 2003; the wanton destruction of the country’s infrastructure in its wake; the dismantling of its military and security apparatus, which left insecurity and power vacuums; the installing of a divisive, sectarian Shiite political administration in Baghdad; and the broader context of decades of western support for Middle Eastern despots and dictators at the expense of their people. The ISIS propaganda machine has been busy capitalising on the unintended consequences of disastrous western foreign policy in recent years to legitimise not just its goals, but its very existence. As historians, however, we must be aware of the context of a much deeper history of western intervention in the Middle East than political commentators suggest, in part because ISIS manipulates a much longer historical legacy of western intervention for its own ends in its propaganda and recruitment efforts. There are numerous examples of ISIS invoking a tendentious reading of history to justify violence and legitimise its world-view, but perhaps the most striking of these can also offer insights into just how precarious its historical narrative really is. – See more at:



JPMorgan to Pay $307 Million for Steering Clients to Own Funds


JPMorgan Chase has agreed to pay $307 million to settle accusations that it improperly steered clients to the company’s in-house mutual funds and hedge funds. From 2008 to 2015, brokers and financial advisers in several divisions of JPMorgan gave preference to investment products created by the bank’s asset management division when deciding where to put client money, regulators said on Friday.

In some cases, regulators said, the clients were put into products with higher fees, which earned JPMorgan more money, even when the same JPMorgan product was available for a lower fee.

“The undisclosed conflicts were pervasive,” the head of enforcement at the Securities and Exchange Commission, Andrew J. Ceresney, said in a conference call. The settlement is a black mark for JPMorgan’s asset management division, a business that the company has been aggressively expanding and that has been seen as particularly promising in the new regulatory environment. The bank admitted wrongdoing in the settlement. “We have always strived for full transparency in client communications, and in the last two years have further enhanced our disclosures in support of that goal,” said Darin Oduyoye, a spokesman for JPMorgan’s asset management division. “The disclosure weaknesses cited in the settlements were not intentional and we regret them,” he said. “We remain confident in our investment process and are proud of the way we manage money.” JPMorgan will pay $267 million to the S.E.C. and an additional $40 million to the Commodity Futures Trading Commission. More:


Hospitality and Gambling Interests Delay Closing of Billion-Dollar Tax Loophole


WASHINGTON — In the span of a mere 11 days this month, $1 billion in future federal tax payments vanished. As congressional leaders were hastily braiding together a tax and spending bill of more than 2,000 pages, lobbyists swooped in to add 54 words that temporarily preserved a loophole sought by the hotel, restaurant and gambling industries, along with billionaire Wall Street investors, that allowed them to put real estate in trusts and avoid taxes. They won support from the top Senate Democrat, Harry Reid of Nevada, who responded to appeals from executives of casino companies, politically powerful players and huge employers in his state. And the lobbyists even helped draft the crucial language. The small changes, and the enormous windfall they generated, show the power of connected corporate lobbyists to alter a huge bill that is being put together with little time for lawmakers to consider. Throughout the legislation, there were thousands of other add-ons and hard to decipher tax changes. Some executives at companies with the most at stake are also big campaign donors. For example, the family of David Bonderman, a co-founder of TPG Capital, hasdonated $1.2 million since 2014 to the Senate Majority PAC, a campaign fund with close ties to Mr. Reid and other Senate Democrats. TPG Capital has large holdings in CaesarsEntertainment and helps run a Texas-based energy company, both of which stand to benefit from the last-minute change. “For Senator Reid, it was important, as he represents Nevada, to help the large employers in his state,” said Kristen Orthman, a spokeswoman for Mr. Reid. She noted that Caesars, MGM ResortsInternational and Boyd Gaming, all Nevada-based casino companies, could benefit. A spokesman for Mr. Bonderman said he had played no direct role in pushing the cause, but did not dispute that his company was involved in the discussions with congressional staff members.

Both Ms. Orthman and the spokesman for Mr. Bonderman said it would be wrong to presume his contributions to Mr. Reid had played any role in the help his companies received. More:


A New Investment Opportunity: Helping Ex-Convicts

Every year, the government spends billions of dollars on programs designed to help America’s neediest citizens. In many cases, whether these programs work is anyone’s guess. Less than $1 out of every $100 of federal government spending is “backed by even the most basic evidence that the money is being spent wisely,” wrote Peter Orszag, the former head of the Office of Management and Budget, and John Bridgeland, the former director of the White House Domestic Policy Council, in a 2013 piece in The Atlantic. In their article, Orszag and Bridgeland advocate for a “moneyball for government,” arguing that an era of fiscal scarcity should force Washington to become more results-oriented. A new partnership among New York State, 40 private investors, and a nonprofit called the Center for Employment Opportunities seeks to apply this sort of thinking to an area of policy that has been particularly resistant to interventions: lowering the recidivism rate in an era of growing prison populations. The investors, including private philanthropists and former Treasury Secretary Larry Summers, have put up a total of $13.5 million to fund an expansion of the work that an organization called the Center for Employment Opportunities (CEO) already does with people coming out of prison. CEO’s model is simple:  It prepares people who have criminal records for the workplace, gives them up to 75 days of temporary employment, and then helps them find jobs of their own. With the $13.5 million, CEO will work with an additional 2,000 clients, targeting the highest-risk people. But the expansion of the program isn’t charity: The project is a so-called “Pay for Success” initiative, modeled after social-impact bonds, which were first used in the United Kingdom five years ago. The basic idea is that investors fund a program that has a promising approach, putting in place extensive data-collection points so that they can track the program’s results. The investors are betting on the idea that the program can do a better—and less expensive—job of providing a given service than the status quo. If they’re right, and the program meets certain expectations—in this case the benchmarks for success are to reduce recidivism by eight percent and increase employment by five percent—the government will have saved money in less prison spending. The government then pays back the investors with its savings. If the program succeeds, investors can earn a return. If it exceeds those goals substantially, investors can get a bigger return, which in this case is capped at 10 percent. The state at no point spends more money than it would have spent incarcerating the 2,000 individuals anyway. More:


Islam Is All-American


As American Muslims find themselves at the center of a heated debate over religious freedom, it’s important to remember that our nation’s founders contemplated these very issues since before the creation of the United States. “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the Pursuit of Happiness.” So begins the preamble of the Declaration of Independence, adopted by the Continental Congress on July 4, 1776, which announced that the American colonies regarded themselves as a new nation. The new nation would struggle to make that proposition a reality for all, including African slaves, women, and other religious and ethnic minorities. In times of real or perceived danger, this proposition has been tested: In 1882, for example, the Chinese Exclusion Act, a sweeping prohibition on the immigration of Chinese workers, was passed in the wake of anti-Asian hysteria. In 1919 and the 1950s, the “red scare” caused many innocent Americans to be unfairly accused of being communist sympathizers. American Jews, Catholics, and Mormons faced decades of prejudice and often violence. After Pearl Harbor, over 120,000 Japanese-American citizens were forced from their homes and placed in camps. Today, it’s the five to seven million Americans who happen to be Muslim who have been stereotyped and demonized. GOP presidential candidate Donald Trump has called for the registration of all Muslim Americans, the warrantless surveillance of all Muslim places of worship, and a ban on all Muslim travel and immigration, “They’re not coming to this country if I’m president,” he said this week in the Republican presidential debate in Las Vegas. “We have a problem in this country: It’s called Muslims. We know our current president is one. You know he’s not even an American…when can we get rid of ’em?” one of Trump’s supporters bellowed at a campaign rally in New Hampshire in September. Trump encouragingly nodded along: “We need this question,” he agreed, and promised that “we’re going to be looking at that and plenty of other things.” Such vitriolic sentiment stands in stark contrast to the unifying message of the most recent GOP occupant of the White House, President George W. Bush, in whose administration I was honored to serve for both terms. During the 2000 campaign for example, Bush praised the faith of Americans who regularly attended a “church, synagogue, or mosque,” met with Muslim American supporters across the country, and visited a prominent Islamic center in Michigan — the first major presidential candidate from either party to do so. The GOP convention in Philadelphia was the first in either national party’s history to feature a Muslim prayer. And after Muslim American community leaders expressed their civil liberties concerns regarding a provision of Clinton’s 1996 immigration enforcement legislation, Bush publicly promised to repeal the provision in the second presidential debate with Vice President Al Gore.


What Happened to the Common Core Debate?


The Common Core was expected to be a ubiquitous subject on the campaign trail in 2016. The education standards had, over time, become a political football as conservatives condemned them as federal overreach. It’s so far hardly been the case. Governors in the race, like Jeb Bush, have backed away from using the term because of its negative connotation among the electorate, even if he still stands by the standards. Should he gain traction moving into the presidential primary it might become more relevant as early-voting states—and other governors, like Chris Christie—grapple with the standards. The Common Core State Standards Initiative, known as the Common Core, is a set of academic standards for mathematics and reading for all ages. State school chiefs and governors collaborated to develop the standards, but since its rollout in 2009, it’s become a point of contention. A common criticism being that the standards aim to nationalize education, although they’re applied at the state level and weren’t ever explicitly mandated by the federal government. Forty-two states, the District of Columbia, and four territories have adopted the Common Core. Christie, the governor of New Jersey and a Republican presidential candidate, agreed to adopt the standards in 2010, but has since dropped his support. “The truth is that it’s simply not working,” he said earlier this year. The critique of the Common Core in part stemmed from the Obama administration’s Race to the Top initiative, which encouraged states to implement high standards, among other reform strategies, in exchange for grants. The competition at the root of Race to the Top sparked frustrations, as it gave the impression that the federal government was imposing the standards on the states, said Tamara Hiler, the policy advisor for education at Third Way.

The Common Core appeared to be at the forefront of issues to be tackled by presidential candidates come 2016. A year ago, The Washington Post had a headline that read “Common Core might be the most important issue in the 2016 Republican presidential race. Here’s what you need to know about it.” More:


Buy the Americana, hand your data to the GOP
From the photo of a blue “God Bless America” T-shirt at the top of the page to the barely visible disclaimer at the bottom, the online store called Delaware Crossing is blazing a new trail in political fundraising and data-gathering. Some political operatives also call it deceptive. The Americana-themed website sells goods seemingly designed to cross any partisan boundaries: a Declaration of Independence scarf, an Honest Abe tote bag, cuff links and mugs emblazoned with “USA,” and a flask “brought to you by the XXI Amendment” — as in the one that ended Prohibition. The site also offers a deal any consumer would welcome: free shipping in return for an email address. But the words at the bottom, in tiny white type on a light-blue background, make it clear that the store sits solidly on one side of the political divide: “Paid for by the NRCC,” it says, with a link to House Republicans’ campaign website. Online stores hawking polo shirts and mugs are nothing new among political groups, of course, and have become ubiquitous among nearly every 2016 presidential campaign — from Jeb Bush’s $75 guacamole bowl to Bernie Sanders’ “Babies for Bernie” bib. But Delaware Crossing, launched last month with next to no fanfare by the National Republican Congressional Committee, breaks new ground by selling merchandise with no explicit partisan ties — something neither political party has tried before. It’s a new way to raise money and gather the email addresses and other voter data that power modern campaigns, and both Democratic and Republican consultants say the store could bring in people who haven’t responded to more traditional fundraising asks. Then, once voter have donated or given their email address once, they are much more likely to respond to future campaign requests. More:


Hip-Hop Stars Support Mississippi Rapper in First Amendment Case


WASHINGTON — Musical tastes at the Supreme Court run toward opera. On Monday, a glittering array of hip-hop stars will try to expand the justices’ musical horizons. In a brief supporting a Mississippi high school student who was disciplined for posting a rap song online, artists including T. I., Big Boi and Killer Mike will explain to the justices that rap music is a political and artistic juggernaut that deserves attention and First Amendment protection. “The government punished a young man for his art — and, more disturbing, for the musical genre by which he chose to express himself,” their brief says. The rappers urged the justices to hear an appeal from Taylor Bell, who was a high school senior when he was suspended and sent to a different school for posting a song on Facebook and YouTube that drew attention to complaints of sexual misconduct by two coaches. “Following a long line of rappers before him,” the brief said, “Bell saw an opportunity to confront injustice.” T. I.’s hits include collaborations with Justin Timberlake and Rihanna. Big Boi is a member of the hip-hop duo Outkast. Killer Mike is a performer and political activist whose collaboration with the rapper El-P, “Run the Jewels 2,” was on many 10-best lists last year. Despite their prominence, their brief seemed to assume that the justices know little about hip-hop. Of Killer Mike it said, “It probably is worth noting that he has never actually killed anyone.” It is indeed a good bet that most of the justices have other musical preferences. “My colleagues are all enamored of opera,” Justice Sonia Sotomayor said at the University of Tulsa last year. In an interview, Killer Mike took a dim view of the Supreme Court, saying it had gutted the Voting Rights Act. But he held out hope that the justices would treat the violent images in Mr. Bell’s song no differently than they would similar ones in folk, country, reggae — or opera. “Anyone who is learned in law,” Killer Mike said, “is capable of separating art and lyrics, whether you agree with them or not, and actual human behavior. I think the courts understand it when it’s Johnny Cash. I think they understand it when it’s Robert Nesta Marley.” It is true that Johnny Cash did not actually shoot a man in Reno just to watch him die. Bob Marley did not actually shoot the sheriff. Treating rap lyrics differently, Killer Mike said, “persecutes poor young men based on their class and color.” Mr. Bell, who raps as T-Bizzle, is now 22 and still pursuing a career in music. He sounded stunned on hearing the names of the stars who have come to his aid. “It makes me feel like a kid in a candy store,” he said. The case started in 2011, when Mr. Bell was a senior at Itawamba Agricultural High School in Fulton, Miss. (The school has been in the news before. In 2010, it canceled a prom rather than let a lesbian student attend with her girlfriend.) After several female students said they had been subjected to sexually charged comments and unwanted touching from two male coaches, Mr. Bell recorded a song to address the complaints. He did so away from school, at a professional studio, over the school’s winter vacation. The song is angry, catchy and full of profanity and violent images. “Looking down girls’ shirts, drool running down your mouth,” Mr. Bell sings of the coaches. “Going to get a pistol down your mouth.” School officials disciplined Mr. Bell, saying he was guilty of harassment, intimidation and, as they put it in an appellate brief, “threatening two named educators with gun-related violence.” Mr. Bell said the officials had badly misunderstood his point. More:




How Speaker Hubbard’s Prosecutor Brought Stand Your Ground to Alabama

PELL CITY, ALABAMA – The use of Alabama’s “stand your ground” law is becoming more common in courtrooms across the state, and it all began with the help of William Van Davis, now the Acting Attorney General in the felony ethics prosecution of Speaker of the House Mike Hubbard, R-Auburn. So called “stand your ground” laws gained nationwide fame in relation to the George Zimmerman’s 2013 defense in the shooting death of African-American teenager Trayvon Martin in Florida. Years earlier – in 2006 – Alabama had passed its own version of the expansive self-defense legislation, which removes any responsibility to retreat as opposed to using deadly force for necessary self-protection. Until, 2010, though, that law wasn’t really used in the Yellowhammer State – until then, questions of self-defense typically went all the way to to trial, where the jury would be asked to decide the question of whether the defendant’s use of force was reasonable. Then, five years ago, enter W. Van Davis and Pell City Attorney Erskine Ramsay Funderburg. Davis and Funderburg, who saw a similar strategy being used in Florida courts, decided to employ the new 2006 provisions in the defense of a man who shot a relative. Davis and Funderburg asked Jefferson County Circuit Court Judge Tommy Nail for a hearing to decide whether their client was immune from prosecution because of the new “stand your ground” provisions in Alabama law. Judge Nail granted the hearing, ruled in the defendant’s favor, and the case was dropped. That was likely the first ever immunity hearing under “stand your ground” in Alabama, but definitely not the last. Immunity hearing have become more and more frequent lately, and the legal lines have become more and more gray, something Funderburg has acknowledged. “It has had unintended consequences,” Funderburg said, citing cases where in the Sunshine State where allegedly drug dealing defendants charged with murder attempt to use the law to their advantage because the victim is unable to testify. As for W. Van Davis, as Acting Attorney General, he likely won’t be answering questions on the issue anytime soon, but his role in the strategy’s foundations in Alabama are undeniable. “Before that [Davis’ case] we hadn’t heard of anyone using it. You’ve got more criminal defense attorneys using it now,” one Birmingham criminal defense lawyer has said. He says he’s begun using Davis’ strategy in his cases, too. Over twenty states have “stand your ground” statutes similar to Alabama’s.


Retirement Systems of Alabama Latest Political Scrum


Retirement Systems of Alabama (RSA) is the administrator of the pension fund for employees of the state of Alabama. It is headquartered in Montgomery. David G. Bronner is the chief executive officer.

Under Bronner’s tenure, RSA has made a number high profile, large investments designed to enhance the return on pensioner’s core retirement funds. Its best known development, and almost certainly most successful, is theRobert Trent Jones Golf TrailThis is a chain of eleven golf course complexes throughout the state. Since the early 2000’s, RSA has been ranked among the 20 largest internally funded pension funds in the world. See legislator comments at link below. There is a very large sum of money at work inside the Retirement Systems of Alabama. It’s recent return on investment has been poor. From a medium and longer term  perspective, the RSA’s track record appears to be acceptable and within expected ROI ranges. Thus, one key question appears to be: “Is this just ‘a bad year’ in the market? Or, is this low 1% ROI a symptom of some larger issue?”. The larger, and almost certainly most critical, question is:  “How does the $15.2 billion pension shortfall in Alabama’s retirement system get brought into balance?” The legislators mentioned above – along with many others – seem intent on attempting to answer those questions. What happens beyond that milestone is yet to be seen. However, at this point, it appears the entire Retirement Systems of Alabama matter may well turn into the latest political scrum. If you are a Alabama state pensioner, you would be wise to stay closely tuned to this process, and exercise your voice to the appropriate parties as needed.


Finance Director Threatens State Employees Who Speak with Media


MONTGOMERY—Acting Finance Director Bill Newton warned department heads to inform State personnel not to speak to the media, and report any contact to him immediately, or else.

On Thursday afternoon, Dec. 8, published an investigative report chronicling the failing implementation of the accounting software known as STAARS—the story was later updated on Dec. 9. Newton issues a directive concerning contact with the media on Dec. 10. In his directive, Newton issues a not-so-subtle threat to all employees stating, “Every media inquiry shall immediately be made known to the Finance Director. Any employee of the Department not authorized to communicate with the media shall refer any inquiry from the media to the Director. No employee of the Department of Finance shall initiate contact with the media or issue any communication that could reach the media concerning the operations, personnel, policies and activities of the Department of Finance or state government, unless the Director has given specific authority for such communication. Any inquiry not from the media that seeks information regarding the Department, shall be referred to the Legal Division to determine if the inquiry can be processed as a ‘Request To View Public Records’ or should be referred to the Director.”

SEE DIRECTIVE  He concludes with, “A violation of this policy shall immediately be reported to the Director.”


The weird thing you need to know about Montgomery


There is something weird you need to know about Montgomery and, no, it has nothing to do with what lawmakers are doing in Alabama’s capital city. You probably know that the city of Montgomery is located in Montgomery County. What you may not realize is that the two aren’t named for the same person. Montgomery – the county – was created April 6, 1816 by the Mississippi Territory General Assembly. It was named for Major Lemuel Putnam Montgomery, a Tennessee attorney who fought in the Creek War. Major Montgomery died March 27, 1814 and was the first U.S. soldier killed at the Battle of Horseshoe Bend, which took place near present-day Alexander City. So, that’s Montgomery County. But then there’s the matter of the city of Montgomery. It’s not named for Putnam. Montgomery – the city – was founded Dec. 3, 1819, about two weeks before Alabama became a state. It is named for Gen. Richard Montgomery, a Revolutionary War officer who led the attack on Canada and was killed in the battle of Quebec. In 1822 Montgomery – the city – was named the seat of Montgomery – the county. The city became the state’s permanent capital in 1846; the capital of the Confederacy in 1861; and the capital of the civil rights movement in the 1950-60s. And the rest, they say, is history.


State buys first piece of coastal land with BP money, but lags behind other Gulf states in restoration


Five years after the BP oil spill, Alabama has taken a first step toward permanently protecting its coastal marshes. It’s a small step, one that came only after years of hesitation from the state’s top officials. But it has finally happened. A tiny slice – less than half a percent — of the roughly $2 billion coming to the state was spent to purchase about 900 acres of land along the coast in Mobile County. These newly protected lands fit in the priority zones for coastal protection highlighted by in an April series – “How the secrets were spilled” – that marked the five-year anniversary of the BP oil spill. To be labeled one of the five priority zones, an area had to have a sizeable piece of coastal marsh, and a large and intact maritime forest that could provide high ground for the marsh to retreat to as sea levels rise. The best chunk of the new land fits into a priority area labeled “the Fowl River Corridor.” Here’s how we described it in the How the secrets were spilled series:  “This might be the preeminent prize in all our waters, a coastal river with two mouths, miles apart, each supporting vibrant marshes. Entering Fowl River at its mouth on Mobile Bay and traveling south to its other mouth on the Mississippi Sound, you pass through marshes unrivaled in Alabama for sheer acreage and species abundance. Home to osprey, bald eagles, yellow-crowned night herons and precious few homesteads, the marshes here are a biological dynamo…  If there were one chunk of marsh to save in Alabama, it would probably be this one. It is the engine that feeds the exceptionally productive waters of Portersville Bay, Heron Bay and much of Mobile Bay.”

While the new land is an important acquisition and safeguards a rare forest type, the story behind the purchase highlights the challenges ahead as state politicians, environmental interests and the feds clash over how to spend the windfall. But more on that later. First, a pat on the governor’s back for protecting a small piece of one or our rarest habitats. The new property lies at Fowl River’s mouth on Mobile Bay. There, shallow, brackish bayous cut a maze-like trail through ninety-three acres of marshland. The marsh is surrounded by several hundred acres of a most unusual forest type, one almost non-existent along the shores of Mobile Bay or anywhere else on the Gulf Coast.  More:


Alabama Patriots, NRA, ALFA endorse Shelby for re-election

U.S. Sen. Richard Shelby, R-Ala., picked up the endorsement this week of the Alabama Patriots, a tea party group with more than 1,000 members across the state. The endorsement came a week after Shelby received the backing of the NRA; he’s also endorsed by the Alabama Farmers Federation. Shelby is running for re-election in 2016, and is facing four challengers in the March 1 Republican primary.

Danny Joyner, commander of the Alabama Patriots, said Shelby was the only contender in the election to reach out to the group for its endorsement. The Alabama Patriots only considers candidates for an endorsement if they formally request one, but Joyner conceded it was highly unlikely that any of the challengers would have gotten his group’s backing over Shelby, who has served 37 years in the Senate.

“In this case, [the endorsement] was easy with the senator because he already had a Heritage [Action] rating of 99 percent,” Joyner told, referring to the conservative group.  “He’s done so much over the years. I want the state of Alabama to have the best political leadership in Washington for us. Shelby and [junior Alabama Sen. Jeff] Sessions give us that and I think Alabama is on the move.” Shelby, who has an A+ lifetime rating from the NRA, got the powerful gun rights group’s backing last week. The head of NRA’s PAC, Chris Cox, wrote a letter of endorsement that said Shelby has “consistently opposed all attempts to ban lawfully-owned firearms and magazine, and [has] stood strong against President Obama and former New York Mayor Michael Bloomberg’s gun control agenda.”  “Your leadership in the U.S. Senate in protecting the rights of law-abiding gun owners in unparalleled and is needed now more than ever,” Cox added. In October, the Alabama Farmers Federation rolled out its endorsement of Alabama candidates in 2016 and endorsed all incumbents, according to a spokeswoman for the group. In a statement sent to, ALFA President Jimmy Parnell said Shelby “shares the same conservative values that farmers and rural Alabamians hold so dear.” “Our country is at a critical juncture and Sen. Shelby’s tenure will put him in the best position yet to stand strong during these troubling times,” Parnell continued. “Sen. Shelby has proven time and again he can be trusted to do what is right for Alabama and our nation.”




How Martin Shkreli, the Teen Wolf of Wall Street, Thrived

PONDER for a moment the strange case of Martin Shkreli, the 32-year-old former hedge fund manager who was arrested by the Federal Bureau of Investigation at his Manhattan apartment before dawn on Dec. 17 and charged with securities and wire fraud. Even by the standards of the ego-driven, attention-grabbing, hedge fund industry, Mr. Shkreli’s alleged depravity stands out for its audacity and for his ability to keep the con going long after it should have been stopped dead in its tracks. Mr. Shkreli is best known, of course, as the pharmaceutical entrepreneur who bought orphaned, lifesaving drugs and then jacked up their prices to astronomical levels. But that’s not the behavior that got him arrested. Instead, if the F.B.I., federal prosecutors in Brooklyn and the Securities and Exchange Commission are to be believed, Mr. Shkreli had long been pulling off one scheme after another since his first hedge fund, Elea Capital, collapsed after a bad bet in 2007. In some corners of the business press, however, Mr. Shkreli was seen as something else altogether. In December 2012, Forbes named him to its list of “30 under 30 in Finance,” lionizing him as an activist investor best known for “battling billionaires and entrenched drug industry executives” through his various written screeds on social media. (Forbes provided a more critical take earlier this year.) Alan Geller, a former oil trader who invested with Mr. Shkreli, called him “a genius,” adding, “I’m betting he’s going to make a billion dollars rather than blow up.” Earlier this month, Business Insider praised him for “exposing the critical need for balance between the interests of shareholders and patients.” According to the indictment, the only group that Mr. Shkreli held in greater contempt than patients was shareholders. After his first hedge fund collapsed, he started a second, MSMB Capital, which also lost millions, although he assured investors that it was making them lots of money. Trying to obtain more capital, Mr. Shkreli told one investor in 2010 that MSMB Capital had assets of $35 million. In fact, it had $700. More:


Alabama hired Obamacare website developer to ‘fix’ accounting system

Ken Rollins, the vice president of the Alabama Council of the Vietnam Veterans of America, has good instincts. This week he told reporter Mike Cason that the state’s transition to a new accounting system seemed a lot like the Obamacare rollout of Like a lot of organizations, Rollins’ group has a specialty car tag, and when the state sells one of those specialty tags, Rollins’ group gets $3. Or that’s what typically happens. Since September, they’ve gotten nothing. The Alabama Finance Department is in the middle of updating its accounting software, and the upgrade has been anything but smooth. Throughout the state, government vendors and contractors have been paid late, if at all. Tom Layfield, director of the Alabama Road Builders Association, told the Montgomery Advertiser this week that the late payments have been hurting some of their members. “One of my members said, ‘I’ve begged, borrowed and stolen everything I can. I really have to get paid now,'” Layfield told the Advertiser. The finance department has brought on extra staff to try to unstick the backlog of accounts payable. But that’s work the IT contractor should be doing. Two years ago, the state hired CGI Technologies and Solutions to upgrade the state’s systems. Under the four-year contract, the state will pay CGI $47 million. If CGI seems familiar to you, you might have a nose as good as Rollins’. You see, CGI has bungled another government project before — a little thing called, the online home of Obamacare. Even the president had to admit that the website’s rollout was a failure. The irony here is so thick we might have to wait until spring for it to thaw. Alabama Gov. Robert Bentley has been no fan or friend of Obamacare. Two years ago, the governor refused to expand Medicaid in Alabama, turning away as much as $3 billion of federal money. That funding could have provided as many as 300,000 working Alabamians caught in the healthcare gap — too rich for Medicaid, too poor for insurance — with coverage. But Bentley refused, calling Medicaid a broken system that creates dependency on government by giving folks something for nothing. He said that Obamacare and its namesake couldn’t be trusted. But at the same time Bentley was bashing on Obama at the expense of so many Alabamians, his administration hired the same contractor that bungled to upgrade the state’s accounting software. Now the state has a whole other broken system. And after the state handed out that no-bid contract, Bentley’s campaign got a little something from CGI’s PAC. According to campaign finance reports, CGI Technologies and Solutions Inc. PAC gave the governor’s campaign $2,500. That’s not crazy money by Montgomery standards, but what does a contractor from Virginia and a subsidiary of a Canadian conglomerate care about Alabama politics so much that it would write a check in the first place? And Bentley wasn’t the only one to get a campaign contribution. Other beneficiaries included Lt. Gov. Kay Ivey, State Senate Pro Tem Del Marsh, Sen. Vivian Davis Figures, Sen. Arthur Orr, Sen. Jimmy Holley, Sen. Phil Williams, Rep. Craig Ford, Rep. Napoleon Bracy and Rep. Alan Boothe. They don’t have a problem with a flawed, broken system. Not so long as the money coming back to Alabama goes into their campaign accounts.


How Jefferson County lawmakers’ incompetence and greed put hundreds of Alabama laws in jeopardy


The key to being an Alabama lawmaker is to never let your incompetence get in the way of your greed, and vice versa. It’s the political equivalent of crossing the streams or wearing a belt with suspenders. You can live with people assuming you’re a crook, just as you can make it with everyone taking you for an idiot.  But being a dumb crook? That’s embarrassing and potentially disastrous. Case in point, the Jefferson County legislative delegation, which might again have put hundreds of laws affecting counties and cities throughout the state at risk, all because of its own greed and incompetence. The Jefferson County’s legislative delegation isn’t like some others. It’s the play within a play, or rather, the circus within a circus. When Jefferson County speaks, the rest of the state’s lawmakers roll their eyes, and the gears of Montgomery grind to a halt. If it wasn’t a joke already, House Speaker Mike Hubbard made it into one. When that bunch of lawmakers fusses and fights, Hubbard tells the school children in the gallery that they’ve witnessed something special — a disagreement in the Jefferson County local delegation. It always leaves me worried that those kids don’t really get it, and leave thinking they’ve seen some endangered species. But this is no bald eagle they’ve seen. Jefferson County bickering is as common as crows on a power line. Which is why it was so remarkable last year, when the delegation agreed on something — to effectively extend a one-cent sales tax in Jefferson County, maybe forever. If you live in Jefferson County, you’ve been paying that tax already for the last 10 years. Former County Commission President, now federal inmate, Larry Langford used it to finance $1 billion of school construction, and unlike some of the other disastrous bond schemes Langford put together, this one actually worked. School systems throughout Jefferson County built new buildings, whether they needed them or not, but more importantly, the county’s sales tax has been enough to pay off the debt on time, maybe even ahead of schedule, at which point the tax was supposed to go away. But taxes never really go away, do they? (Unless you live in Baldwin County.) County officials, community leaders and lawmakers couldn’t stand the idea of money staying in the pockets of Galleria and Summit Christmas shoppers. So they came to an agreement: Jefferson County would refinance that debt to lower its payments but stretch them out over a longer time, and this would leave millions each year that could be spent on all sorts of things — the county general fund, the museum, the transit system. Now you could argue that these are all worthy causes, but goodwill and the public’s interest aren’t what brought the county delegation together. Pork did — $3.6 million a year to be divided up and divvied out by the local delegation. This is the sort of thing reelections are bought with. The problem was that the lawmakers didn’t follow their own rules. Under the Alabama Constitution, the Legislature must pass the state budgets first. It can get around this requirement by first passing what’s called a Budget Isolation Resolution, which allows a bill to jump ahead of the budgets. Each year, there are hundreds of budget isolation resolutions, and the budgets inevitably pass last. But here’s where they screwed up: A BIR, as it’s called, needs three-fifths of a quorum (half) of all lawmakers to pass. When you do the math, that comes out to be 32 votes. The Jefferson County bill’s BIR had 13. A couple of conscientious citizens sued, and this week a Jefferson County Circuit Court judge ruled that the Legislature had violated its own rules and that the bill was passed illegally.  The county has said it will appeal the decision to the Alabama Supreme Court. In a statement, this week the county attorney, Carol Sue Nelson, said, “The county respectfully disagrees, and notes that hundreds of other local acts affecting cities and counties throughout the State have been adopted using the same procedure.” And here’s the thing: She’s right. The Alabama Legislature — not just Jefferson County’s delegation — in its laziness and incompetence has passed lots and lots of bills this way, even though you or I could read the plain language of the law and tell what they were doing was illegal. If Jefferson County’s pork bill passed illegally then all those others did, too, but nobody noticed or nobody cared. But that little potentially disastrous problem can’t be ignored anymore because Jefferson County wasn’t content to be merely incompetent. It had to be greedy, too.

Morning Money

FIRST LOOK: CFTC CHAIR SLAMS BUDGET DEAL — So maybe the anti-regulatory crowd did score a big win the omnibus after all. Per statement to M.M. from CFTC Chair Timothy Massad on the budget deal: “The failure to provide the CFTC even a modest increase … sends a clear message that meaningful oversight of the derivatives markets, and the very types of products that exacerbated the global financial crisis, is not a priority. The CFTC’s appropriation simply doesn’t match our vast responsibilities, especially as the markets we oversee have grown enormously in size, importance and technological complexity. …

“The CFTC’s hardworking staff has diligently implemented the directives of Congress to reign in excessive risk in the swaps market. … But sensible regulation requires resources, and strong rules are meaningless unless they can be enforced properly. While passing the federal budget was an important step forward, and it’s appropriate that the SEC received an increase, I am deeply disappointed that Congress and the Administration couldn’t find even a small increase for the agency’s critical work in a budget of $1.1 trillion.”

BIGGEST WEEKEND WINNER: STAR WARS — M.M. saw it with the family. Enough nostalgia for us older folk, great new characters and story for the kids. M.M. has a few quibbles but not enough to take away from a great experience. No spoilers, don’t worry. And the money, my God the money. We saw it at a 9:00 a.m. showing on Sunday and hordes were gathered well before the gates opened.

LATimes: “The Force, from a galaxy far, far away, rose from its slumber this weekend to assist Disney’s ‘Star Wars: The Force Awakens’ at the box office. Grossing an estimated $238 million in the U.S. and Canada, the seventh installment of the George Lucas-created franchise now holds the record for the largest opening weekend of a film ever.

“The box office has not seen a performance like this since Universal’s ‘Jurassic World’ opened in June ($208.8 million) and, prior to that, 2012’s premiere of ‘Marvel’s The Avengers’ from Disney ($207.4 million). .. Ahead of the weekend, those familiar with audience tracking surveys predicted an opening weekend of $180 million to $220 million. But by Friday afternoon, those projections began to look increasingly conservative.”

RUNNER UP: HILLARY CLINTON — She was far from flawless in the (little watched) Democratic debate but she easily outclassed Bernie Sanders and Martin O’Malley. She committed two significant flubs, saying we are “finally where we need to be” fighting ISIS (really??) and suggesting there is an actual ISIS recruiting video featuring Donald Trump’s anti-Muslim comments and policies.

There apparently is no such video. Clinton could easily have just stuck with arguing that ISIS could make recruiting videos out of Trump (because sure they could) without coming across as making it up. Still, Clinton continues to roll to the Democratic nomination regardless of what Sanders is doing in his neighboring New Hampshire.

SECOND RUNNER UP: VLADIMIR PUTIN — Apparently Donald Trump just can’t get enough of the guy. The billionaire has basked in Putin’s praise and defended the Russian president on ABC’s “This Week” when pressed over allegations that Putin has had journalists murdered (never mind the support for Assad, the murders of other innocents and all the rest). “In all fairness to Putin, you’re saying he killed people. I haven’t seen that. I don’t know that he has. Have you been able to prove that?,” Trump said. Apparently George Stephanopoulos has not personally been able to prove it.

BIGGEST LOSER: STEVE HARVEY — M.M. does not watch beauty pageants. But apparently Steve Harvey (who is awesome on Family Feud) crowned the wrong person last night in the Miss Universe contest.

SPAIN IN CHAOS — FT’s Tobias Buck and Ian Mount in Madrid: “Spain was heading for political uncertainty on Sunday night, after a general election that produced a deeply fragmented parliament with little chance of a stable government majority over the next four years. Mariano Rajoy, the prime minister and leader of the centre-right Popular party, will once again command the biggest bloc in parliament. With more than 99 per cent of the vote counted, the PP had won 29 per cent and 123 out of 350 seats in the legislature. But the result also made clear that neither Mr Rajoy nor any of the other party leader would have an easy path towards an overall parliamentary majority. ..

“The opposition Socialists were on course to win 90 seats, followed by the anti-austerity Podemos party with 69 seats. The centrist Ciudadanos party — the most likely of partners for Mr Rajoy — was on track to obtain a worse than expected 40 seats. With his supporters chanting “champions” outside the PP’s Madrid headquarters, Mr Rajoy pronounced himself the election winner, pointing out that his party had won 1.6m more votes and 33 more seats than the Socialists”

THE YEAR IN MONEY — New interactive Bloomberg graphic this morning: “2015: The Year in Money”: “Huge Mega-mergers. Anemic hedge fund returns. Billion-dollar venture capital deals. 2015 was a year of record highs and lows: Blackstone bought up more companies than anyone else; Netflix was the best performer in the S&P 500; The value of U.S. IPOs was the lowest since 2009; VC firms made a record six billion-dollar deals; and more job cuts were announced than in any year 2009”

GOOD MONDAY MORNING — Welcome to a shortened Christmas week. We are with you through Thursday and then go dark until Monday, Jan. 4th. Email me on and follow me on Twitter @morningmoneyben. Earlier risers can catch M.M. on CNBC’s Squawk Box at 6:40 a.m.

OIL KEEPS TANKING — Reuters: “Asian share markets advanced on Monday after a lackluster start, defying a dive on Wall Street, and the price of Brent crude threatened to plumb lows last seen in 2004 on renewed worries over a global oil glut. Brent crude prices LCOc1, which touched a seven-year low of $36.32 overnight, were trading at $36.47 at 0245 GMT as production around the world remained at or near record highs, and a strong dollar following last week’s U.S. rate increases weighed on demand. A break of $36.20 would take it to ground last trod in 2004. U.S. crude CLc1 lost 25 cents to $34.48 a barrel, close to Friday’s 2015 lows.”

DEM DEBATE REWIND — POLITICO’s Gabriel Debenedetti: “Hillary Clinton on Saturday night looked past the debate stage upon which she stood, turning the evening into a Democrat vs. Republican battle rather than focusing on the two remaining contenders badly trailing her in national polls. … The night also brought a de-escalation in the blowup involving Bernie Sanders’ campaign’s viewing and downloading her voter data information, with Sanders apologizing, despite indications that his campaign wanted to keep up the fight over the issue. …

“But the more lasting theme of the evening was Clinton’s attempt to position herself as the inevitable Democratic pick, despite the fact that Sanders is still edging her in New Hampshire, the setting of Saturday night’s showdown.”

WRONG-O-METER — POLITICO’s Danny Vinik investigates … Clinton’s claim – and finds no evidence, as yet, of Donald Trump being used to recruit ISIL forces”

SNOOZE FEST — POLITICO’s Glenn Thrush: “The press filing center at St. Anshelm’s College in Manchester resembled the parking lot of a baseball stadium whose team had been eliminated from the playoffs. By the reality-TV standards of the Trump-headlined Republican mud-fights, the substance-heavy, we-all-agree-on-the-basics discourse of the third Democratic debate was a narcoleptic’s dream”

BEZOS TAKES STRONG HAND AT THE WASH POST — WSJ’s Lukas I. Alpert and Jack Marshall: “When Washington Post owner Jeff Bezos received an email from a reader complaining about the time it took for the mobile app to load, he immediately fired off a note to the newspaper’s chief information officer. The message was simple: fix it. … Mr. Bezos helped solve the problem by suggesting loading low-resolution images onto the app first, allowing the page to load on readers’ screens more quickly. In the more than two years since Mr. Bezos bought the Post from the Graham family for $250 million, the billionaire Inc. founder has increasingly made his mark on how the paper is run.

“His focus on customer experience has become a near mandate within the news operation. Executives say Mr. Bezos has encouraged experimentation and building scale ahead of short-term financial gains — an approach that seems to mirror how he relentlessly built Amazon into an online retail giant. ‘Jeff has told us repeatedly that we have a long runway, but we are trying to make prudent business decisions,’ Publisher Fred Ryan said. ‘We are looking at the long term and not just for quick and temporary gains.’ Mr. Bezos has been willing to invest in the paper’s transformation, although executives say they aren’t working with a blank check.”

LOBBYISTS SCORE BIG OMNIBUS WIN — NYT’s Eric Lipton and Liz Moyer: “In the span of a mere 11 days this month, $1 billion in future federal tax payments vanished. … As congressional leaders were hastily braiding together a tax and spending bill of more than 2,000 pages, lobbyists swooped in to add 54 words that temporarily preserved a loophole sought by the hotel, restaurant and gambling industries, along with billionaire Wall Street investors, that allowed them to put real estate in trusts and avoid taxes. … They won support from the top Senate Democrat, Harry Reid of Nevada, who responded to appeals from executives of casino companies, politically powerful players and huge employers in his state.

“And the lobbyists even helped draft the crucial language. The small changes, and the enormous windfall they generated, show the power of connected corporate lobbyists to alter a huge bill that is being put together with little time for lawmakers to consider. Throughout the legislation, there were thousands of other add-ons and hard to decipher tax changes. Some executives at companies with the most at stake are also big campaign donors”

COOK: FALSE CHOICE ON ENCRYPTION VS. SECURITY — BI’s Biz Carson: “Apple CEO Tim Cook remains a strong supporter of encryption, even as governments continue to question the method of securely gathering data in wake of terrorist attacks. To Cook, it doesn’t have to be one or the other. ‘I don’t believe that the tradeoff here is privacy versus national security,’ Cook said during an interview on “60 Minutes”. ‘We’re America. We should have both.’ … People are using their iPhones to store private sensitive information, like their health and finances. Even conversations with friends or confidential business secrets should be able to be stored securely on an iPhone, Cook believes. …

“The National Security Agency and government officials have been arguing that encryption was a matter of natural security — a trade-off Cook clearly doesn’t buy. … Right now, if a government agency gives Apple a proper warrant, they will hand over what they have. But if the information is encrypted, like private messages, Apple simply may not have the information to give them. Apple is happy to comply with the government’s warrants, but it stops short of welcoming them into its users private, encrypted messages. ‘The reality is that if you put a backdoor in, then it becomes a backdoor for everybody, good or bad,’ Cook said.”

THE RETURN OF FRANK QUATTRONE — WSJ’s Maureen Farrell: “When Aruba Networks Inc. was considering a sale of the wireless-networking company to Hewlett-Packard Co. last year, the board of directors turned to an investment banker who made his name during the last technology boom. Frank Quattrone worked for 4½ months trying to nail down a deal. But then there was a problem. H-P Chief Executive Meg Whitman refused to negotiate with Mr. Quattrone because he had been so difficult to deal with in previous deals, says someone close to Ms. Whitman.

“Aruba brought in another investment bank to finish the $3 billion takeover agreement. That firm was paid $7.7 million for its work. Mr. Quattrone’s firm got $30 million. In this new era of rising tech stars, the 60-year-old Mr. Quattrone is again one of the biggest deal makers, often beating competing bankers at much larger firms who are a generation younger than he is. Mr. Quattrone is still controversial and still does business much as he did in the dot-com era. A relentless networker who isn’t shy about telling potential clients about the high prices he got in earlier deals, he also ruffles the feathers of adversaries by pushing beyond the usual rough and tumble of deal-making”

POTUS Events

President Obama is vacationing in Hawaii.

Floor Action

Congress is in recess for the holidays.