Krebs Daily Briefing 22 December 2015


Six U.S. troops killed by suicide bomber in Afghanistan

Six American troops were killed in Afghanistan on Monday when a suicide bomber on a motorbike struck their patrol near Bagram air base, a U.S. official said, in the latest high-profile attack claimed by Taliban insurgents. Just days ago, the Pentagon warned of deteriorating security in Afghanistan in the second half of 2015 and a rise in the number of effective strikes by Taliban insurgents. NATO’s Resolute Support mission in Kabul said that the attack killed six Resolute Support troops and wounded three others but declined to provide the nationalities of casualties. A U.S. official said all six killed were Americans. More than 2,300 U.S. troops have died in the Afghan war since the 2001 invasion. The police chief of Parwan province said three Afghan police had been wounded in the bombing, which was carried out just days after other suicide attacks on Kandahar air base in southern Afghanistan and on a Spanish embassy guesthouse in the Afghan capital, Kabul. Bagram, around 40 km (25 miles) to the north of Kabul, is one of the main bases for the 9,800 U.S. troops left in Afghanistan after international troops ended combat operations last year. District Governor Abdul Shukur Qudusi said the suicide bomber detonated his explosives near a joint U.S.-Afghan patrol. The attack underlined the Taliban’s ability to hit high-profile targets linked to the U.S.-backed government, which wants to reopen the peace process aimed at ending the 14-year-long insurgency. On Monday, Taliban forces in Helmand closed in on the district of Sangin as they tightened their grip on the volatile southern province. In a report to the U.S. Congress released last week, the Pentagon said casualties among Afghan national defense and security forces, or ANDSF, rose 27 percent from Jan. 1 to Nov. 15, compared with the same period last year. Although the Pentagon praised Afghan forces for regaining territory and becoming increasingly capable of staging large-scale operations, it assessed their overall performance as “uneven and mixed.”

Deutsche Bank Tally of Suspect Russia Trades at $10 Billion

Deutsche Bank AG has identified as much as $4 billion in suspicious transactions related to its Russian operations, in addition to $6 billion in so-called mirror trades it is examining, said several people with knowledge of the bank’s review of the matter. That means the Frankfurt-based bank flagged as much as $10 billion in total trades that may not have been vetted for money laundering as clients moved money out of Russia. Among the previously unreported trades under scrutiny are ones that consistently went in the same direction — primarily buy orders, for example — according to people familiar with the matter. Germany’s largest lender shared those findings with international authorities in September, according to two people familiar with the bank’s report on the trades. U.S. prosecutors were previously reported to be looking into whether Deutsche Bank’s handling of the mirror trades may have violated U.S. anti-money laundering rules. The U.S. officials have also been made aware of the additional suspicious trades, said the people familiar with the matter. While Russia’s central bank levied a small fine on Deutsche Bank after looking into some of the bank’s trading in the country, the U.S. Justice Department’s investigation continues. Should regulators find violations in laws or regulations, the overall tally of trades could be one factor in deciding an ultimate fine or penalty. U.S. Justice Department spokesmen declined to comment. Deutsche Bank’s internal review, conducted over the past year, came as many of the lender’s other activities drew international scrutiny. During that time, the bank paid about $2.75 billion to settle a U.S. probe into sanctions-law violation and U.S. and British investigations into the rigging of benchmark interest rates, admitting misconduct in both cases. It has also disclosed it is under U.S. investigations related to potential currency-market rigging and metals-price manipulation.



Sued Over Old Debt, and Blocked From Suing Back

Clifford Cain Jr., a retired electrician in Baltimore, was used to living on a tight budget, carefully apportioning his Social Security and pension benefits to cover his rent and medication for multiple sclerosis. So Mr. Cain was puzzled when he suddenly could not make ends meet. Months later, he discovered why: A debt collector had garnished his bank account after suing him for about $4,500 the company said he owed on an old debt. Mr. Cain said he never knew the lawsuit had been brought against him until the money was gone. Neither did other Baltimore residents who were among the hundreds of people sued by the collector, Midland Funding, a unit of the Encore Capital Group, in Maryland State Court. Some of them said they did not even owe any money, or their debt had long expired and was not legally collectible, according to a review of court records. In any case, the Encore subsidiary was not licensed to collect debt in Maryland. Yet when Mr. Cain brought a class action in 2013 against Midland Funding, the company successfully fought to have the lawsuit dismissed. If the plaintiffs wanted to try to recover their money, they would have to do so in private arbitration. And because class actions are banned in arbitration, Mr. Cain and the others would have to fight the unit of Encore — one of the largest debt buyers in the country with vast legal resources — one by one. “I can’t for the life of me understand how this is allowed to happen,” said Mr. Cain, who could not afford to pursue his case alone in arbitration.

In short, Encore and rival debt buyers are using the courts to sue consumers and collect debt, then preventing those same consumers from using the courts to challenge the companies’ tactics. Consumer lawyers said this strategy was the legal equivalent of debt collectors having their cake and eating it, too.

The use of arbitration by the companies is the latest frontier in a legal strategy orchestrated by corporations in recent years. By inserting arbitration clauses into the fine print of consumer contracts, they have found a way to block access to the courts and ban class-action lawsuits, the only realistic way to bring a case against a deep-pocketed corporation. Their strategy traces to a pair of Supreme Court decisions in 2011 and 2013 that enshrined the use of class-action bans in arbitration clauses.

In Shkreli Case, a Company Lawyer May Have Crossed the Line

The indictment of Martin Shkreli, the widely reviled head of a pharmaceutical company that secured the rights to a decades-old drug and then increased its price more than fiftyfold, was described by a F.B.I. official as the “securities fraud trifecta of lies, deceit and greed” — nothing particularly new when it comes to defrauding hedge fund investors. What makes the case interesting is that a lawyer, Evan Greebel, has been charged as an accomplice for not protecting his corporate client that Mr. Shkreli is accused of using essentially as a personal piggy bank. Lawyers are important players in corporate transactions, ensuring their clients comply with the rules. But when legal advice pushes over the line into enabling fraud, then a lawyer can wind up on the wrong side of the law. Mr. Shkreli was charged with securities fraud and conspiracy for misleading investors in a hedge fund he managed about losses it suffered. As The New York Times pointed out, this aspect of the case was little more than a small-time fraud in which investors were duped into believing their investment of a few million dollars was profitable when in fact Mr. Shkreli made a series of bad stock picks — hardly the stuff of front-page headlines.


FitzGibbon Media and the problem of sexual harassment in the progressive movement

The women who say Trevor FitzGibbon, founder of the progressive PR powerhouse FitzGibbon Media, assaulted or harassed them thought they were alone until an early-December staff retreat in Austin, Texas. Austin-based writer and journalist Sierra Pedraja was trying to get a job at FitzGibbon Media. Instead she got unwanted advances and lewd requests for pictures from FitzGibbon. He told her she was beautiful and asked if she wanted to have any “fun” during an in-person meetup, and followed up with texts asking if she wanted to “hook up” and Facebook messages about how “insane” her photos were. “I was very eager to get a job, and he used that to his advantage,” Pedraja told the Huffington Post. “He tried to make me feel very uncomfortable. He made it seem like I owed him these things to get the job.” When Pedraja told other women at the firm what had happened, other stories came pouring out. Staff members alleged more than half a dozen incidents of sexual harassment and at least two of sexual assault. In a statement, FitzGibbon called the allegations a “distraction” and shut down the whole firm, citing what he called an “irreconcilable difference” with his staff. (A spokesperson for FitzGibbon sent Vox the same statement when reached for comment.) Fitzgibbon’s staff had other things to say about that difference:  More:

How Many Airlines Does Delta Really Run? Try Five

By typical industry measures, Delta is the world’s third-largest airline. Yet, as an airline heavily invested in other airlines, Delta is arguably the world’s biggest player by a large margin. No other single airline has such power to shape the industry and spur further consolidation across the globe. In perhaps the best-known example of how this works, Delta owns 49 percent of Virgin Atlantic Airways. Next year the carrier will assume the same share (PDF) of Grupo Aeromexico; Delta anticipates greater air access to the Mexican market and a joint venture with the Mexican flag carrier, modeled after those it already operates across the Atlantic with Air-France-KLM and Virgin. Smaller pacts, too, highlight Delta’s unusually vast influence. The month of July, for example, was quite busy. A $450 million deal for 3.6 percent of China Eastern Airlines became Delta’s biggest foreign acquisition yet. The same month saw Delta increase its small stake in Gol Linhas Aereas Inteligentes, one of Brazil’s biggest carriers, to about 10 percent. What would have been Delta’s third deal for the month, an investment in bankrupt Japanese airline Skymark, came undone after creditors supported a rival offer. Unlike other airlines that invest in foreign carriers, Delta executives are unabashedly hands-on. Even when the company holds only a minority stake, they behave vigorously as board members and show eagerness to hire locally and in Atlanta to help manage Delta’s investment. In 2016, for instance, Delta will begin operating Virgin Atlantic’s reservation systems. Delta’s maintenance operation handles the work on Gol’s jet engines. “We are in the boardroom,” Richard Anderson, Delta chief executive officer, said last week of his airline’s minority investments at the airline’s annual Investor Day. “And instead of them hiring consultants that—candidly—are not going to be able to help them fix their businesses, they get our executive team.” He described the relationship between his company and Virgin, Aeromexico, and Gol as one in which his team can “really run that business the way we run Delta.”

FDA overturns 30-year ban on blood donations by gay men

The U.S. Food and Drug Administration ruled on Monday that gay men can donate blood 12 months after their last sexual contact with another man, overturning a 30-year ban aimed at preventing the transmission of HIV, the virus that causes AIDS. The agency said people with hemophilia and related blood clotting disorders will continue to be banned from donating blood due to potential harm they could suffer from large needles. Previously they were banned due to an increased risk of transmitting HIV. The agency said it has worked with other government agencies and considered input from outside advisory bodies, and has “carefully examined the most recent available scientific evidence to support the current policy revision.” The agency said it has also put in place a safety monitoring system for the blood supply which it expects to provide “critical information” to help inform future FDA blood donor policies. “Ultimately, the 12-month deferral window is supported by the best available scientific evidence, at this point in time, relevant to the U.S. population,” Dr. Peter Marks, deputy director of the FDA’s biologics division, said in a statement. Several countries, including the United Kingdom and Australia, have 12-month deferrals. During the change in Australia from an indefinite blood donor deferral policy, essentially a ban, to a 12-month deferral, studies evaluating more than 8 million units of donated blood were performed using a national blood surveillance system, the FDA said. “These published studies document no change in risk to the blood supply with use of the 12-month deferral,” the agency said. “Similar data are not available for shorter deferral intervals.” The agency said its policies to date have helped reduce HIV transmission rates from blood transfusions from 1 in 2,500 to 1 in 1.47 million.

The Great Republican Revolt

The angriest and most pessimistic people in America aren’t the hipster protesters who flitted in and out of Occupy Wall Street. They aren’t the hashtavists of #BlackLivesMatter. They aren’t the remnants of the American labor movement or the savvy young dreamers who confront politicians with their American accents and un-American legal status. The angriest and most pessimistic people in America are the people we used to call Middle Americans. Middle-class and middle-aged; not rich and not poor; people who are irked when asked to press 1 for English, and who wonder how white male became an accusation rather than a description. You can measure their pessimism in polls that ask about their expectations for their lives—and for those of their children. On both counts, whites without a college degree express the bleakest view. You can see the effects of their despair in the new statistics describing horrifying rates of suicide and substance-abuse fatality among this same group, in middle age. White Middle Americans express heavy mistrust of every institution in American society: not only government, but corporations, unions, even the political party they typically vote for—the Republican Party of Romney, Ryan, and McConnell, which they despise as a sad crew of weaklings and sellouts. They are pissed off. And when Donald Trump came along, they were the people who told the pollsters, “That’s my guy.” They aren’t necessarily superconservative. They often don’t think in ideological terms at all. But they do strongly feel that life in this country used to be better for people like them—and they want that older country back. You hear from people like them in many other democratic countries too. Across Europe, populist parties are delivering a message that combines defense of the welfare state with skepticism about immigration; that denounces the corruption of parliamentary democracy and also the risks of global capitalism. Some of these parties have a leftish flavor, like Italy’s Five Star Movement. Some are rooted to the right of center, like the U.K. Independence Party. Some descend from neofascists, like France’s National Front. Others trace their DNA to Communist parties, like Slovakia’s governing Direction–Social Democracy.

Poll: Trump presidency would embarrass half of Americans

Donald Trump maintains his lead among the GOP field but half of Americans would be embarrassed to have the real estate mogul as president, a new poll found. A Quinnipiac University poll released Tuesday shows Trump leading his next nearest opponent, Sen. Ted Cruz (Texas) 28 to 24 percent, but the Republican presidential front-runner trails behind both major Democratic hopefuls in the general election. While half of all polled would be embarrassed to have Trump as president, the majority of that sentiment comes from Democrats and independents. For Republicans, 44 percent would be proud to have Trump in the White House, twice as much as GOP voters who would be embarrassed. Only 4 percent of Democrats and 20 percent of independents would be proud to having Trump be president. The poll also shows that only 41 percent of those polled think he has a “good chance” of beating the Democratic nominee, though again, the attitudes run along party lines: Among Republicans, 70 percent think he has a good chance; among Democrats, 14 percent think he stands a good chance, while Trump fares better among independents, 40 percent of whom think he can beat the Democratic nominee. “Half of American voters say they’d be embarrassed to have Donald Trump as their Commander in Chief and most Americans think he doesn’t have a good chance in November, but there he is still at the top of the Republican heap,” Tim Malloy, assistant director of the Quinnipiac University Poll, said in a release. Following Trump and Cruz among the Republican candidates are Sen. Marco Rubio (R-Fla.), lagging behind in third place with 12 percent, and retired neurosurgeon Ben Carson who received 10 percent. None of the rest of candidates registers above 6 percent. Among voters of all parties polled, 59 percent think Democratic presidential front-runner Hillary Clinton has a good chance of beating the Republican nominee, with a majority of Democrats and independents believing that, while 36 percent of Repubicans polled agreeing.

Lindsey Graham dropping out is a surprisingly big opportunity for the GOP establishment

Four down, 12 more to go. On Monday, long-shot GOP candidate Lindsey Graham announced that he’s suspending his presidential campaign. Though he claimed he had succeeded in pulling the GOP in a more hawkish direction, he admitted to CNN’s Kate Bolduan that he’s “hit a wall here” — and threw in the towel. Now, Graham’s polling was absolutely dismal — he was below 2 percent even in his own home state of South Carolina. So it may seem absurd to claim that his withdrawal could make a difference in the race. But believe it or not, it actually could — because his exit will help free up some political elites to throw their support elsewhere. And though elite influence really hasn’t seemed to do much in this race so far, some of Graham’s former supporters could now help influence outcomes in two early states. One of these is South Carolina. Many members of the state’s political establishment had endorsed Graham out of loyalty to their home state senator, as Dave Weigel points out. South Carolina is the third state to vote in the GOP race, and has played a historically important role in winnowing the field. The Palmetto State is no longer the “firewall” for an establishment candidate that it once was — Newt Gingrich won there in 2012 — but if Trump and Cruz split the conservative vote there, it doesn’t seem unthinkable that the South Carolina establishment could boost another candidate into contention by unifying behind him. Second, and perhaps more importantly, is that John McCain’s endorsement has been freed up — and that could impact the New Hampshire race. McCain and Graham are famously close friends (McCain has jokingly called Graham his “illegitimate son”), and so McCain endorsed Graham early on (becoming the only member of Congress to do so). And while McCain, the 2008 GOP presidential nominee, might not be beloved by conservatives nationally, he remains popular in New Hampshire, which he won during both of his presidential primary bids. Furthermore, the Granite State race is unusually inchoate on the establishment side — Marco Rubio, Jeb Bush, John Kasich, and Chris Christie are all polling within a few points of each other. If one of them surges to the lead or even a strong second there, he could become the de facto mainstream Republican contender. And a McCain endorsement could help lead to that.



Alabama showcases the perils of abstinence-only sex education


BIRMINGHAM, Ala. — Lacey Kennedy, who graduated from a high school in northern Alabama in 2010, remembered students being told to sign an abstinence pledge and to fold the pledge down to the size of a condom wrapper and keep it in their wallet. “The idea was when you open your wallet to reach for a condom, instead you find this conveniently condom-wrapper-size abstinence pledge,” Kennedy said, “and that was supposed to be useful to us.” According to the most recent National Youth Risk Behavior Survey, administered by the Centers for Disease Control and Prevention (CDC), 50 percent of high school students in Alabama have had sex, and nearly half have had sex without condoms. Between 2004 and 2011, according to the Alabama Department of Health, people ages 13 to 24 were the only age group in the state to experience an increase in new HIV diagnoses. In 2013 they accounted for almost half of new HIV infections in the state. Alabama has high rates of STD infections. Data from the CDC in 2013 show that the state capital, Montgomery, had the highest STD rate in the nation. That year the state ranked third in the U.S. in numbers of chlamydial and gonorrheal infections, and the infection rate skyrockets in young adults 15 to 24 years old. The CDC issued a report in December of last year criticizing middle school and high school sex education programs across the U.S. for not teaching all the recommended sexual health topics. The least covered topic, the report noted, was how to get and use condoms. When Ali Simpson attended Vestavia Hills High School, a public school in an affluent neighborhood outside Birmingham, sex education was “100 percent abstinence only.” She graduated in 2011, and the last time she remembered a discussion about sexual health was in middle school. Her class gathered in the wrestling room. She said a woman entered and told a story about how she remained a virgin until marriage. Her husband, however, had had sex with one other person. “He gave her an STD that made her infertile, and that was her story about why not to have sex until marriage,” Simpson recalled many years later. Alabama’s teen birth rate has dramatically declined since, from 61.8 births per 1,000 people ages 15 to 19 in 1991 to 34.3 in 2013; however, it’s still higher than the national average of 26.5. Derrick Harris, the principal of Bullock County High School, a public school in rural eastern Alabama, said that out of his 470 students in grades eight through 12, one or two are pregnant this semester. “One is too many for me,” he said in a phone interview. But, he said, teen pregnancy is a problem he’s not quite sure how to solve. He said the school “teaches abstinence” through a program called Abstinence in Motion, which he said “works for some.” A 2007 study commissioned by the federal government showed that abstinence-only education does not keep teenagers from having sex or having sex with fewer partners. Nor does abstinence-only education increase or decrease the likelihood that teenagers will use a condom. More:


Alabama Considers a Step Back From Prosecuting Pregnant Drug Users


A health task force appointed by Alabama’s Republican governor is weighing proposals that could dramatically reform the nation’s harshest law against drug use during pregnancy, with a draft bill expected by the beginning of the February 2016 legislative session. ProPublica wrote about problems with the state’s chemical endangerment law in September in partnership with The law makes it a felony to “knowingly, recklessly, or intentionally” expose a child to controlled substances or drug-making chemicals. Sentences are tough: up to 10 years in prison if a child is unharmed and 99 years if a child dies.  The 2006 statute was initially aimed at parents who exposed children to methamphetamine labs, then was reinterpreted by prosecutors and courts to target women who used drugs during pregnancy. That shift, combined with a lack of law-enforcement guidelines, has led to wide disparities in how the law is used, including instances of overreach and abuse. Nearly 500 women have been arrested for pregnancy-related drug use since 2006, many turned over by hospitals that conducted legally dubious drug tests. Some have faced bails of $100,000 to $500,000, even when they had no prior record and their babies were fine. Because chemical endangerment is considered a form of child abuse, accused mothers have lost custody of their newborns and other children. Women can even be charged if they take controlled substances such as opiate painkillers and methadone prescribed by a doctor. Civil rights groups and public health experts have blasted the law, saying it does nothing to address the underlying problems of poverty and addiction. They say it discourages women most in need of prenatal care from getting it and burdens families with crushing fees and fines that increase economic stress and make recovery more difficult. The proposals under discussion by a subcommittee of the Governor’s Health Care Improvement Task Force take aim at some of those issues.  At a meeting of the task force Wednesday, Dr. Darlene Traffanstedt, a Birmingham-area internist who heads the subcommittee on quality of care, said her group is considering three proposals. One would require prosecutors to offer drug treatment to pregnant women in lieu of prosecution; another would protect women who are using legally prescribed drugs. The third would return the law to its “original intent” by preventing it from being used against women for pregnancy-related drug use, Traffanstedt said. Sara Ainsworth, director of legal advocacy for the New York–based National Advocates for Pregnant Women, which has worked to turn back laws that criminalize drug use in pregnancy, said the group was “thrilled and excited” about possible reforms in Alabama.


Alabama Renovates Abandoned Governor’s Mansion with BP Money


Fort Morgan, AL (WPMI) The governor’s mansion at the Gulf has been a derelict eyesore for years. Now, Gov. Robert Bentley is spending $1.5 million to restore it. The reason? He lost his own personal house at the Gulf in his divorce from 50-year-wife Dianne Bentley. “The governor now has a personal need for a Gulf place, so only now is he restoring the governor’s mansion at the gulf,” said State Auditor Jim Zeigler. “This is another example of poor stewardship of the state’s resources,” Zeigler said Monday. “It took a personal benefit to correct this dereliction.” “Neighboring home owners have been complaining about the deserted governor’s gulf mansion for years,” Zeigler said. “Nothing has been done, and the deterioration continued. The original donor of the property sued to get it back, but lost. Nothing got the governor to rehabilitate this property but losing his own personal Gulf house in the divorce. This is the way things go in the Bentley administration,” Zeigler said. Bentley will siphon $1.5 million to $1.8 million from the BP settlement to pay for the Gulf mansion renovation, which started with no announcement to the media or public. “Like too many things, this was done in the darkness of night and only confirmed after it was a done deal,” Zeigler said. Work on the two-story, 7,500-square-foot gubernatorial mansion started quietly in November. The project should be completed by May, in time for the governor to use this coming summer. Grant money from BP after the 2010 oil spill is being used to cover the cost, estimated at $1.5 million to $1.8 million. The contractor is Phil Harris Construction, Inc. Baldwin County tax records assess the house and property at $1 million, but the cinder-block building has been derelict for years and has boarded-up windows, peeling paint and a torn tarp covering the roof. Located on the Fort Morgan Peninsula, the house was built on property donated for a governor’s mansion in 1962. Governors beginning with George C. Wallace used the six-bedroom, four-bath house off and on. Architects began assessing the abandoned mansion in the spring after complaints from State Auditor Jim Zeigler. The repair work includes installing a new roof and replacing plumbing, electrical, and heating and air conditioning systems as required. Weather-battered exterior wood and stucco will be fixed, and much of the interior will be redone.


Retirement Systems of Alabama pays $370,000 in bonuses to investment staff


The Retirement Systems of Alabama will pay $370,000 in incentive bonuses to 14 employees on its investment staff for fiscal year 2015. RSA CEO David Bronner, who started the incentive pay program in 2002, said the bonuses enable him to retain strong performers in a competitive profession.

The RSA earned only a 1 percent return on its $32 billion in investments for the year that ended Sept. 30, below its long-range target of 8 percent. But Bronner said the bonuses are based on performance relative to the markets. “If your market went up, you’ve got to do better than the market,” Bronner said. “If the market went down, you’ve got to do better than the market going down. “It has nothing do with the 8 percent stuff.” The benchmarks that determine the bonuses are spelled out in reports to the boards that govern the Teachers’ Retirement System and Employees’ Retirement System. The boards approved the bonuses this month. State Treasurer Young Boozer, who sits on both boards, said the incentive program is “fair and reasonable.” “Incentive compensation is an essential component of overall compensation for the investment staff,” Boozer said in an email. “It allows RSA to attract and to retain personnel with the expertise required to manage its portfolios.” As for the 1 percent earnings for the year, Bronner said a stock market dip in September brought down the year-end number. Stocks comprise about 60 percent of RSA’s investments. Bronner noted that, even at 1 percent, the RSA ranked in the top 12 percent among 70 public pension funds ranked by State Street Investment Analytics for the fiscal year that ended Sept. 30. “They deserve (bonuses) because they beat everybody in the country who didn’t make 1 percent, who lost money,” Bronner said. In all, the RSA has paid $3.15 million in bonuses over the 14 years of the incentive compensation program. Bronner said the program has helped him build a strong team.

“I think we’ve got probably our best staff we’ve ever had,” he said. A legislative committee is studying the state pension system and might recommend changes during the legislative session that begins Feb. 2.

The Joint Committee on Alabama Public Pensions has already passed a resolution saying it will not do anything to reduce the monthly benefit for current retirees and employees or to divert retirement funds for other purposes. But lawmakers do have concerns. The system was 100 percent funded in 2001, but liabilities have grown faster than assets almost every year since, according to The Pew Charitable Trusts, which is compiling information for the joint committee. The RSA is now 67 percent funded, with assets of about $31 billion and liabilities of about $46 billion. Rep. Jim Patterson, R-Meridianville, who sponsored the resolution creating the joint committee, said the incentive pay sounds like a good policy to keep good employees. But Patterson said the RSA’s earnings performance over the last 20 years falls short of what it needs to be sustainable long-term. Taxpayers are ultimately on the hook if the system can’t meet its obligations. They already contribute about $1 billion a year, a number that rose dramatically during the 2000s but has leveled off since. The bonuses paid to investment analysts and directors ranged from $3,371 to $51,199. All 14 eligible employees received a bonus. But Bronner said bonuses are not guaranteed, even during years when the markets and RSA’s overall returns are strong. For example, four did not get bonuses in fiscal year 2014, when the RSA earned 12 percent returns. “Each person is graded totally in their area on numbers,” Bronner said. “Numbers only, no personality, no nothing else.” Bronner, who has run the RSA since 1973, said he learned from experience that he could not keep his best people without offering incentives. A 2007 survey by the CFA Institute reported the median annual pay for equity portfolio managers was $456,000, including a $200,000 bonus. The median pay for fixed income portfolio managers was $250,000, including a $100,000 bonus, according to the survey. The lucrative  opportunities made it hard to keep good people before he started the incentive program, Bronner said.

“They’ll stay awhile and they start getting hungry for the real big dollars and they leave me,” Bronner said. “So we came up with a method.” CFA stands for chartered financial analyst. To become a CFA, a person must complete three levels of study and pass a six-hour exam for each level. According to the RSA, there are 178 CFAs registered in Alabama. RSA employs 12 of them. Bronner said the RSA saves millions every year by using in-house investment analysts. Pew reported that Alabama’s costs are low relative to the nationwide average. RSA bonuses paid in fiscal year 2015, and salary in parentheses:  Hunter Harrell, director of private placements: $51,199 ($245,755). Julie Barranco, director of fixed income, public securities: $47,268 ($226,886) Marc Green, director of investments: $43,696 ($268,899). Jeff Silverman, equity analyst: $37,391 ($160,440) Steve Lambdin, assistant director of equities: $36,500 ($177,266) Lance Lachney, portfolio manager, fixed income analyst: $34,232 ($191,044) Michael McNair, equity analyst: $31,468 ($134,968)Nick P rillamin, portfolio manager, fixed income analyst: $28,096 ($134,968) Kevin Gamble, equity analyst: $24,817 ($186,271) Adam Rogers, equity analyst: $18,895 ($141,784) Catherine Ray, cash management: $4,333 ($45,501) Hunter Bronson, equity analyst: $4,278 ($128,440)  Allan Carr, portfolio manager, equity analyst: $4,107 ($191,044) Bobby Long, portfolio manager/equity analyst: $3,371 ($134,968)


Some Paragon Players Bring STAARS to State Finance


MONTGOMERY—What does a $13 million no-bid software contract have to do with the STAARS $47 million no-bid contract? Many of the same people who championed and worked on the 2009 Paragon Source debacle are the same ones responsible for the STAARS system, which has caused tens of thousands of payments, in the hundreds of millions, to be paid late or not paid at all. According to a 2009 report by Bob Lowry, then Gov. Bob Riley signed a $13 million, no-bid contract with Paragon Source which Lowry later discovered delivered nothing of value for the millions it extracted from the State’s taxpayers. According to the report, now found on the internet archive Wayback Machine, “Riley said a committee of top officials in the State Finance Department recommended he sign the contract.” That list of top officials was lead by Bill Newton, the same man who convinced Gov. Robert Bentley to authorize a no-bid contract with CGI to implement STAARS. Another actor who helped determine the State should use CGI’s STAARS system was Thomas T.J. Nola, a former sub-contractor for Paragon Source.

According to a 2011 article by Lowry, Nola was hired by Department of Finance as an IT manager, earning $86,390 a year. He now serves as head of IT for that department, where he earns almost double that amount.  In 2011 Lowry wrote, “Nola had earned $130 per hour as an independent subcontractor under a no-bid contract first awarded to Virginia-based Paragon Source in 2007, according to limited records released by the company under subpoena by the Legislature’s Joint Contract Review Committee.” However, nowhere on Nola’s State job application is there a single reference to Paragon Source. His work for Paragon is obviously listed under the time he spent as a consultant. Another Paragon player which has been involved in legislation that led to STAARS is Sen. Phil Williams (R-Rainbow City). Williams’ campaign site for his 2010 Senate bid lists his email as




Bob Davis: These Alabama children need our protection


Alabama Gov. Robert Bentley took issue with an editorial in The Star last week, emphatically vowing his primary interest was to “protect” the state. The subject of the editorial dealt with the governor’s reaction to the Nov. 13 Paris massacre carried out by jihadists who killed more than 120 people. Anniston Star reporter Tim Lockette has done important work looking into the steps the governor took before and immediately after his order barring the resettlement of Syrian refugees to Alabama. The highlights include:  — Within hours of the Paris attack, Spencer Collier, head of the Alabama Law Enforcement Agency, informed Bentley that “there are no known immediate threats to Alabama or the homeland.”

— An upside-down process that government emails show had Bentley announcing his no-refugees ban on Nov. 15 and his legal and communications staffers scrambling for talking points the day after.

— Confirmation from the Roman Catholic agency in Mobile that handles refugee resettlement in Alabama that the state was not and is not designated as a place to settle Syrians fleeing the violence and death in their native land. The Star’s editorial on Wednesday noted, “Of all the responses to last month’s Paris massacre Robert Bentley could have chosen, the governor opted to push the panic button.” After all, the order, which was cribbed from one issued by Louisiana’s governor, was unenforceable, according to experts who spoke to The Star, and unnecessary, according to an refugee aid agency. Out of bounds, cried the Bentley administration. The governor’s Twitter account wrote:  “@AnnistonStar,like the Obama Admin,doesn’t know the difference between ‘panic’ & ‘protect’. I will protect our state” Here’s a protect/panic challenge for the governor. We’ve recently read the 2015 Alabama Kids Count Databook. A few eye-opening (dare we say “panic-inducing”?) statistics:  — 26.9 percent of Alabama children live in poverty. That translates to 298,929 kids in Alabama. Said differently, the number of Alabama children living in poverty is almost 150 times more than the number of Syrian refugees settled in the entire United States. — Of those children in poverty, about half live in “extreme poverty,” meaning in households earning less than $12,000 a year. — Only 38.3 percent of Alabama fourth-graders are assessed as proficient in reading. — 26.2 percent of Alabama children suffer from food insecurity, which is defined as “without reliable access to a sufficient quantity of affordable, nutritious food.” — 34 percent of the state’s children live in single-family homes. — 7.6 percent of the state’s births were to unmarried teens. — 10 percent of Alabama babies were low-weight births. — 9.6 percent of teens are not enrolled in school and not employed. — In 2013, the infant mortality rate was 6.9 per 1,000 births. That’s a slight increase since 2003. These figures and many more should panic everyone in this state. They should also engage the fiercest instincts to protect the state’s children. Here are some proven threats to the wellbeing of our state. These trends aren’t new. For most of its history, Alabama has tolerated poverty, poor performance in its public schools and all the subsequent outcomes that deny opportunities and shorten lifespans. The next session of Alabama’s Legislature begins in about six weeks. That would be an excellent time to take serious steps — some might say radical steps — to correct the state’s grinding poverty. We’ll be waiting and watching.


Morning Money

M.M. CRYSTAL BALL CONTEST — As we head into the Christmas/New Year’s break, M.M. still wants your predictions for next year on some top questions. We will share answers and updated vote totals on Thursday, the final M.M. of 2015. Column returns Jan. 4. Email your entries to The questions:
1.) Who wins the GOP nomination?
2.) Who wins the White House?
3.) What will the unemployment rate be on Election Day?
4.) What unexpected story will drive the outcome of the 2016 race?

LOOKING AHEAD TO 2016 — A fly around of some top predictions for the new year.

Larry Summers for Premise: “I predict that interest rates in the US will remain lower than the Fed expects, and that the idea of a new era of low real interest rates, which may or may not be called secular stagnation, will come to be widely accepted.”

Goldman Sachs: “While we are banking on a sharp cut in US shale production to help the market regain balance by late 2016 and push prices moderately higher, the risk that cutbacks prove too little, too late, to avoid breaching storage capacity suggests oil prices could be heading much lower — to cash costs of around $20/bbl — before they head higher … [W]e expect the Fed to hike ¼ pp every quarter in 2016, about twice the pace that the market is currently discounting

Wells Capital’s Jim Paulsen: “While reaching full employment does not necessarily suggest an imminent end to the current bull market, it does suggest investors should anticipate significantly smaller future returns. Moreover, it has often led to much wider return dispersions favoring stock pickers over asset allocators, and finally, it has typically produced a major leadership change away from consumer toward industrial sectors.”

TRUMP: HILLARY CLINTON GOT “SCHLONGED” BY OBAMA — In the ya can’t make it up department, POLITICO’s Ben Schreckinger: “Donald Trump is taking his criticism of Hillary Clinton into new territory. The Republican frontrunner mocked his Democratic counterpart for a ‘disgusting’ bathroom trip she made during Saturday night’s debate, and said Barack Obama ‘schlonged’ her in the 2008 primaries at a raucous rally here on Monday night.

“For Trump — who comments often on Clinton’s penchant for pantsuits, has insinuated she is in a lesbian relationship with close aide Huma Abedin, and insists she doesn’t have ‘the strength or the stamina’ to be president — Monday’s remarks take his focus on her personal life to a new level of intimacy. … He also continued to defend the Russian president against accusations that he’s ordered the murders of Russian journalists … Trump said reporters would not have to fear such a fate if he were president. ‘I would never kill them,’ he said. ‘But I do hate them.’”

TRUMP GETS LIE OF THE YEAR AWARD — PolitFact: “PolitiFact has been documenting Trump’s statements on our Truth-O-Meter, where we’ve rated 76 percent of them Mostly False, False or Pants on Fire, out of 77 statements checked. No other politician has as many statements rated so far down on the dial. In considering our annual Lie of the Year, we found our only real contenders were Trump’s — his various statements also led our Readers’ Poll. But it was hard to single one out from the others. So we have rolled them into one big trophy”

CLINTON CRUSHES TRUMP IN GENERAL ELECTION POLL — Reuters: “Trump would win a hypothetical head-to-head contest against either of his two closest Republican U.S. presidential rivals, Ted Cruz and Marco Rubio, but he would fall short of beating Democratic front-runner Hillary Clinton if the election were held today, according to a Reuters/Ipsos poll … Despite months of leading the Republican polls, Trump would fall short in a general election competition held today against Clinton, the poll showed. In a one-on-one match-up, the former secretary of state would take 40 percent support of all voters to real estate mogul Trump’s 29 percent.”

GOOD TUESDAY MORNING — Hope everyone is enjoying a relatively quiet week with Congress gone and President Obama in Hawaii. Email me (send those 2016 predictions!) and follow me on Twitter @morningmoneyben.

PROGRAMMING NOTE: Morning Money is taking a newsletter publishing hiatus for the holidays! We’ll be off starting Dec. 24 through Jan. 3. Our next Morning Money newsletter will publish on Jan. 4. Please continue to follow Pro Financial Services issues here.

THE PROS CALL 2016 — Bloomberg: “The most accurate forecasters of stocks, bonds and precious metals have a warning for investors as they look forward to 2016: don’t trust the wisdom of crowds. … If their predictions for next year are on target, investors can expect 12 more months of resilience in U.S. government bond markets, disappointing returns from the Standard & Poor’s 500 Index and a fresh six-year low for gold.

“The majority of forecasters began this year looking for a stronger global economy to boost stocks and drag bond prices lower. Instead, Wall Street’s contrarians came to the fore amid market turmoil in China and a delayed interest-rate increase by the U.S. Federal Reserve. While that buoyed demand for Treasuries, it sent commodities prices to a 16-year low and left global equities on pace for their first annual decline since 2011.”

SEC APPEALS FACE LOGJAM — WSJ’s Jean Eaglesham: “[T]he SEC’s use of its own tribunal, more frequent in recent years, has coincided with longer delays in the agency’s handling of appeals, according to a Wall Street Journal analysis of rulings stretching back a decade. Since Mary Jo White became SEC chairman in April 2013, the median time for the agency to decide appeals of its in-house judges’ decisions has increased to 19 months, the analysis found. That is almost double the median times under her two main predecessors, Christopher Cox and Mary Schapiro. …

“Critics — including former SEC officials, business groups and defense lawyers — said the SEC’s approach means defendants often lose both ways. The trial portion of the civil case moves much more quickly than such matters typically would in federal court, giving limited time to prepare for trial, and defendants then can wait years for the SEC to decide appeals. … An SEC spokeswoman declined to comment on the case, but said the agency has managed to cut the delays in the last couple of years by changing how it handles appeals. The frustrations with the wait time on appeal are among several criticisms of the agency’s use of its own judges to try cases.”

OBAMA SLAMS TRUMP — NYT’s Julie Hirschfeld Davis: “President Obama said in a radio interview that began airing on Monday that … Trump … was exploiting the resentment and anxieties of working-class men to boost his campaign. Mr. Obama also argued that some of the scorn directed at him personally stemmed from the fact that he is the first African-American to hold the White House.

“Demographic changes and economic stresses, including ‘flat-lining’ wages and incomes, have meant that ‘particularly blue-collar men have had a lot of trouble in this new economy, where they are no longer getting the same bargain that they got when they were going to a factory and able to support their families on a single paycheck,” Mr. Obama said in the interview with National Public Radio. … ‘I think somebody like Mr. Trump is taking advantage of that. That’s what he’s exploiting during the course of his campaign.’”

SPACEX MARKS BIG ROCKET SUCCESS — FT’s Robert Wright: “Elon Musk’s SpaceX marked the first flight of its Falcon 9 rocket since a June explosion in spectacular fashion when it succeeded for the first time in returning to earth a booster rocket that had deployed satellites into space. … Amid deafening cheers from employees watching in the company’s mission control room on Monday, SpaceX returned the first stage of the rocket to a launch pad at Cape Canaveral, Florida, around 10 minutes after it had lifted off. The mission was carrying 11 small satellites into orbit for Orbcomm, the satellite communications company. …

“SpaceX hopes that the ability to reuse rockets could help significantly to reduce the cost of space launches, which have been high partly because rockets were used only once and discarded in the sea. The rocket’s second stage went on successfully to deploy all the satellites into orbit. The landing at Cape Canaveral — during which the rocket landed gracefully on a series of landing legs that had helped to slow it during the descent — marks SpaceX’s first successful return of a rocket in reusable condition after three failed attempts at landing rockets on barges at sea”

CFO’s NOT HOPEFUL — Per Deloitte: “[A] strong majority (83 percent) of CFO’s said ‘polarization observed in both elected officials and the general public is authentic and long-lasting.’ Almost as many, 81 percent, ‘did not believe the recent election of Paul Ryan as Speaker of the House would mark the beginning of greater productivity in Congress, with 61 percent of those respondents agreeing the problem is more systemic than can be addressed by the election of a new House Speaker.’”

PROMOTIONS AT GOLDMAN — FT: “A trio of top investment bankers at Goldman Sachs has been rewarded with management roles, after a year in which the firm stretched away from rivals across all regions. In an internal memo on Monday the bank said that it had promoted Gregg Lemkau, Marc Nachmann and Jim Esposito to its management committee. Mr Lemkau currently serves as co-head of global M&A while Mr Nachmann and Mr Esposito are co-heads of the global financing group …

“All have played key roles in a resurgence of advisory work at the firm, which — like many across Wall Street — has suffered patchy performance from its core bond-trading division. Goldman retained the number one ranking for financial advisory work this year, according to Thomson Reuters, gaining lead roles on 408 deals worth a total of $1.7tn — well ahead of Morgan Stanley’s 387 deals worth $1.5tn”

MORE E. COLI CASES FOR CHIPOTLE — USA Today’s Charisse Jones: “Chipotle’s stock took a beating Monday in the wake of news that the restaurant chain has been linked to a second outbreak of E. coli, just weeks after dozens of its diners reported becoming sickened by a rare strain of the bacteria. … The Centers for Disease Control said Monday that it was looking into an outbreak of a different DNA fingerprint of Shiga toxin-producing E. coli that had sickened five people in North Dakota, Kansas and Oklahoma between Nov. 18 and Nov. 26th. In each case, the person had eaten at a Chipotle in the week before they got ill.

“The restaurant chain’s reputation had already suffered in recent weeks after 46 of 53 people sickened during an earlier E. Coli outbreak reported to have eaten at a Chipotle restaurant in the days before. Earlier this month the company was also rocked when at least 120 Boston College students and others got sick after eating at Chipotle though those incidents were likely connected to norovirus and not E. coli … The Mexican-food chain had been one of the most coveted stocks over the last three years, but after questions around food safety arose, shares plummeted 29 percent in the second week of December from their higher point over the past year. The stock closed Monday down 3.5 percent to $522.01”

POTUS Events

President Obama today is vacationing in Hawaii.

Floor Action

Congress is in recess for the holidays.