Krebs Daily Briefing 29 September 2015

Thomas L. Krebs, Securities Litigation, Regulation and Compliance Attorney Lawyer (c)2014 Brandon L. Blankenship
Thomas L. Krebs


Bashar al-Assad and the Devil’s Endgame

ISIS is murdering and enslaving across Syria and Iraq. Russia is deploying dozens of aircraft to support the regime in Damascus. Huddled masses have been tempest-tossed into Europe. At the eye of the storm, Bashar al-Assad is pursuing a cynical, brutal, and risky strategy to cling to power. Assad’s plan, it seems, is to deliberately aid the rise of ISIS—what I call the devil’s gambit. The logic is simple and ruthless: radicalize the opposition so that the Syrian dictator looks like a lesser evil to domestic and foreign audiences. Here, Assad benefits from the inherently polarizing nature of civil war, as a cycle of atrocities and revenge pushes all sides to the extreme. He has further spurred radicalization by focusing the regime’s fire on moderate enemies, while reportedly releasing jihadists from jail and purchasing oil from ISIS. In recent months, the Syrian military allegedly used air strikes to help ISIS advance toward the city of Aleppo. Khaled Khoja, a Syrian opposition leader, claimed that Assad’s fighter jets were acting as “an air force for ISIS.” In the widening gyre, the center cannot hold. Back in 2011, the relatively moderate Free Syrian Army seemed a plausible candidate to lead the resistance against Assad. Now the leading rebel factions include ISIS, the Islamic Front, and the al-Nusra Front, which is affiliated with al-Qaeda. The U.S. effort to train a moderate Syrian force has proved to be a pitiful and quixotic quest. After 10 months and millions of dollars, the United States has created a rebel army that is five strong. Not 5,000 strong, or 5 percent of the opposition. But literally five guys—barely enough to run a burger joint. The tyrant and the terrorists have a symbiotic relationship. While ISIS rails against the secular regime, its focus is on building the caliphate, not getting rid of Assad. Meanwhile, ISIS’s advance in Iraq in 2014 was a godsend for the Syrian regime. The insurgents headed away from Damascus. And the group’s capture of the city of Mosul and much of Anbar province terrified the West. A reluctant Barack Obama could not accept the fall of Baghdad, and authorized extensive air strikes against ISIS. More:

The Fall of Kunduz

The Taliban has captured the northern Afghan city of Kunduz, marking the first time the militant group has seized a major city since 2001 when it was driven from power by the U.S.-led invasion. News of Kunduz’s fall was confirmed by Sediq Sediqqi, a spokesman for the Afghan Interior Ministry, who told The Associated Press: “Kunduz city has collapsed into the hands of the Taliban.” The Taliban’s spokesman had earlier claimed on Twitter that the group had taken  the capital of the province of the same name. The Taliban had besieged Kunduz for months. The northern city is not only an important transport hub, but it was also the Taliban’s northern stronghold before the U.S. invasion. The group already controls large parts of the province. Mohammad Yousuf Ayoubi, the head of the Kunduz provincial council, told The New York Times the government’s response to the months-long Taliban buildup had been inadequate. “The central government is neglecting Kunduz and its people,” he told the newspaper. “The local officials are incompetent, which is a major reason for the presence of the Taliban.” Ehsanullah Ehsan, a stabilization manager for DAI, an international development agency, tweeted the developments in Kunduz:

This awkward photo of Obama and Putin locking eyes at the UN speaks volumes

Barack Obama and Vladimir Putin’s relationship has always been, shall we say, fraught, but on Monday they shared a toast at the United Nations that looks to have been, even by their high standards, pretty weird. There’s so much to take in here. The nuclear powers side-eye. Putin’s almost triumphalist smirk; Obama’s undisguised loathing (there’s an unmistakable “let’s get this over with” look on his face) of the man with whom he’s touching glasses. The discrepancy in size between the two men — look at how much farther Obama’s arm reached than Putin’s — adds another layer to it all. But their eyes sure are locked. I thought Mashable’s global news editor, Louise Roug, put it best when she wrote, “They clearly see side-eye to side-eye on things.” This was a scripted event, but there was still plenty of reason for awkwardness. President Obama’s speech to the United Nations General Assembly that morning opened with an extended subtweet of Russian President Vladimir Putin, lamenting for example that “some major powers assert themselves in ways that contravene international law” (gee, I wonder which major powers). From there, Obama transitioned from implicit criticism of Putin to explicit, going point by point on Russia’s misdeeds in Ukraine. Putin returned the favor, giving a lengthy UN address of his own on Monday — his first since 2005 — blaming the United States for the wars in Libya, Syria, and Ukraine. But both Obama and Putin, in their respective speeches, paused briefly in trashing one another to suggest, however tentatively, that they could also maybe work together to resolve Syria’s civil war. And that leads us to that afternoon’s bizarre toast. What you’re seeing there is the mutual offer to work together in Syria — “ugh, fine, maybe if we really have no other choice” — colored by a deep mutual enmity that included, in just the hours before their meal together, some pretty fierce trash-talking on the world stage. Truly, this is side-eye diplomacy at its height. You can also see a bit of their personalities coming through: Obama, never particularly talented at hiding his disdain for his adversaries and not even really trying here; Putin, ever delighted in his ability to troll the Americans, smiling at having forced himself back to the grownups’ table. And that, in some ways, is what this is all about: Putin got Russia kicked out of the league of respected major powers over his invasion of Ukraine (Obama referred to Russia as a “regional power,” which, sick burn), and kicked out of the G8. Now, he may believe, he’s won his way back by intervening in Syria. Obama and Putin have a long, storied record of awkward and bizarre photo ops. There was, most famously, this gem from a 2013 G8 summit (Obama later said, of Putin’s characteristic slouch, he was “looking like that bored schoolboy in the back of the classroom”):

EU watchdog finalizes biggest securities reform in a decade

More light on bond markets, caps on “dark pool” or anonymous share trading, and limits on commodity holdings were the objectives of reforms put forward by European Union regulators on Monday to improve transparency for investors. The European Securities and Markets Authority (ESMA) unveiled its batch of 28 final rules to flesh out the Markets in Financial Instruments Directive II (MiFID II) law due to come into force in January 2017. MiFID II is the biggest overhaul of EU securities rules in a decade, designed to apply lessons from the 2007-09 financial crisis and reflect advances in computerised trading technology. Current MiFID rules focus on share trading but the revisions will bring bonds and commodities into the net and move swathes of off-exchange trading onto electronic platforms where it should be less opaque. ESMA Chairman Steven Maijoor said the rules will change the way Europe’s secondary markets function. “The magnitude of this change should not be underestimated,” he said in a statement. The new rules for bonds were hotly contested by banks and asset managers, with Britain’s Investment Association trade body calling for a delay. It warned that increasing transparency in bond markets in the wrong way, especially before a trade takes place, would harm already uncertain liquidity at a time when the EU wants capital markets to raise more funds for economic growth. Regulators will determine whether there is enough liquidity in each bond for it to be subject to the new transparency rules. Some 2,000 bonds, mostly government debt, out of 50,000 traded in the EU will face greater transparency, ESMA said. ESMA said it had decided on a bond-by-bond selection process rather than looking at classes of bonds. The Investment Association said on Monday it would have preferred the classes of bonds approach, but others said the approach chosen by ESMA will come as a relief to the market. “There were genuine concerns about misclassification risk for individual bonds under a category-based approach,” said Damian Carolan, a lawyer at Allen & Overy. ESMA also set out Europe’s first set of position limits or caps on market share in a commodity, ranging from 5 to 35 percent. In addition MiFID II will cap how much trading in a stock can be done in a “dark pool” or anonymously and ESMA said the final rules make no major change to what it previously proposed. High-frequency trading (HFT), which uses ultra-fast computers to place trades, will also be directly regulated, having been blamed by critics for accentuating volatility. ESMA’s recommended rules will need endorsement from the European Commission before coming into force in January 2017.


The next government shutdown fight, explained

Earlier this month, Washington journalists were reporting that Congress might be headed for another government shutdown at the end of the month. But the risk of shutdown has evaporated: A bill to fund the government through mid-December is sailing through the Senate and is expected to pass the House. This isn’t how shutdown fights usually go — over the past few years, Congress has marched right up to (or even past) deadlines before making a decision. But what’s different this time is that Speaker of the House John Boehner announced on Friday that he’ll resign in mid-October. Boehner’s resignation made it possible to avoid a shutdown this month — but might have made it more likely that the government will shut down in mid-December. That’s because the next speaker will still be leading a restive Republican majority full of members eager to confront President Obama on issues such as government spending and Planned Parenthood. Right now, the federal government is funded through September 30. It’s up to Congress to pass a bill before midnight on Wednesday that extends that funding. Before last Friday, it wasn’t clear that would happen: Conservative Republicans in the House refused to vote for any bill that funded Planned Parenthood, and Democrats refused to vote for any bill that didn’t. This isn’t an unfamiliar situation. It’s led to several near-shutdowns, and one actual shutdown in October 2013 (over funding for the Affordable Care Act). The reason for this was the “Hastert Rule,” named after former Speaker Dennis Hastert, which stated that a Republican speaker should only bring bills to the floor if they are supported by a majority of House Republicans. But after taking things to the brink (and in October 2013, over the brink) of a shutdown, Boehner eventually chose to just ignore the Hastert Rule. That allowed him to pass compromise legislation with a majority of Democratic votes and a minority of Republican ones. So the question this time around was whether Boehner would break the Hastert Rule before the deadline — or whether he would stick to the rule long enough to provoke an actual shutdown in hopes of getting Democrats to blink first.

With next term looming, U.S. top court’s justices mull new cases

The U.S. Supreme Court’s nine justices meet behind closed doors on Monday ahead of the Oct. 5 beginning of their new term to consider cases to add to a calendar that already includes significant cases on affirmative action and labor unions. In an important case the justices may consider, the U.S. government is seeking to overturn an appeals court decision that threw out two major insider trading convictions secured by federal prosecutors. During their private meeting, which starts at 9:30 a.m., the justices will review hundreds of cases that piled up over their summer recess. The court is expected to announce later in the week which cases it will hear during the term that begins on the first Monday in October and ends in June. Later this year, the justices are due to decide whether to hear a major case involving Republican-backed restrictions on abortion access under Texas law. The court has not decided an abortion case since 2007. Before the court recessed for the summer, it had already picked several high-profile cases for the new term. They include a challenge to racial preferences in higher education admissions and a bid to prevent public sector unions from collecting fees from non-members. In the insider trading case, Solicitor General Donald Verrilli has asked the high court to throw out a December ruling by the 2nd U.S. Circuit Court of Appeals in New York that reversed the convictions of hedge fund managers Todd Newman and Anthony Chiasson. The ruling marked a major setback for an insider trading crackdown underway since 2009 by Manhattan U.S. Attorney Preet Bharara, whose office brought charges against 96 people. Another case up for discussion is an appeal by Iran’s central bank seeking to prevent $2 billion from being transferred to terrorism victims. The court will also consider a challenge to Major League Baseball’s longstanding exemption from antitrust laws. When the justices take to the bench next Monday for the term’s first oral arguments, it will mark their first time together publicly since last term’s acrimonious end in June. The court ruled 5-4 on the term’s last day to uphold Oklahoma’s lethal injection procedure even as two justices, Stephen Breyer and Ruth Bader Ginsburg, questioned the death penalty’s constitutionality. That came just days after the court’s liberals forged 5-4 majorities in major rulings legalizing same-sex marriage nationwide and rejecting a conservative challenge to the Obamacare healthcare law.

Securities attorney Tom Krebs is in Mountain Brook, Alabama.

Let’s be honest about the dishonest attack on Planned Parenthood

Far-right Republicans in Congress are threatening to shut down the federal government rather than pass a budget that allows Planned Parenthood to continue receiving federal funds to provide women with healthcare. The renewed energy behind the effort to destroy Planned Parenthood, a consuming goal of anti-abortion zealots, comes from a discredited smear campaign that has provided fodder for lurid claims by pundits and presidential candidates, but has not withstood honest scrutiny. The campaign, based on strategically edited videos from the bogus “Center for Medical Progress,” is also providing justification for a one-sided “investigation” planned by the House Oversight Committee tomorrow. Given what is at stake for the millions of American women who rely on Planned Parenthood for health care, it is vitally important to evaluate the evidence and consider the credibility of Planned Parenthood’s accusers. First, a quick summary of the facts: A small fraction of Planned Parenthood facilities allow women the option of donating fetal tissue to medical research. The law allows researchers to reimburse Planned Parenthood for the costs associated with getting the tissue to researchers. And, for all the dramatic spy-camera video and righteous posturing, that is just what happens – at the one percent of Planned Parenthood facilities involved in fetal tissue research. This is a ludicrous rationale for trying to destroy Planned Parenthood, which does not use a penny of its federal funding to provide abortions. The bottom line: five states that have investigated CMP’s charges that Planned Parenthood is involved in the illegal selling of “baby parts” have cleared Planned Parenthood of wrongdoing. So where are these charges coming from? See more:

Decades-Old Questions Over Trump’s Wealth and Education

Thirty-one years ago, the estimable William E. Geist — not to be confused with his son Willie, of “Morning Joe and “Today show fame — spent a day or so following Donald Trump around New York and wrote about it in a memorable New York Times Magazine cover story. Mr. Geist’s tale has a certain familiar quality to it. “Spending a day with Donald Trump is like driving a Ferrari without the windshield,” he wrote. “It’s exhilarating; he gets a few bugs in his teeth.” One of the bugs involves his academic record at the prestigious Wharton School at the University of Pennsylvania. Another involves his net worth. Both issues are central to his identity as a successful businessman and in both cases he has been less than fully transparent. Mr. Trump transferred to Wharton after two years at Fordham University in the Bronx, and he graduated in 1968 with an undergraduate degree in economics. Mr. Trump is understandably proud of graduating from Wharton, and the presidential candidate talks about it all the time. “I went to the Wharton School of Finance,” he said in a July 11 speech in Phoenix. “I’m, like, a really smart person.” On Aug. 16, he told Chuck Todd, on “Meet the Press,” about the school: It’s “probably the hardest there is to get into,” and, “Some of the great business minds in the world have gone to Wharton.” Mr. Geist pointed out that “just about every profile ever written” about Mr. Trump — including stories in The New York Times in 1973 and 1976 — journalists say that he graduated first in his class at Wharton. “Although the school refused comment, the commencement program from 1968 does not list him as graduating with honors of any kind,” Mr. Geist wrote. More:

It’s sleazy, it’s totally illegal, and yet it could become the future of retirement

Over 100 years ago in America — before Social Security, before IRAs, corporate pensions and 401(k)s — there was a ludicrously popular (and somewhat sleazy) retirement scheme called the tontine. At their peak, around the turn of the century, tontines represented nearly two-thirds of the American insurance market, holding about 7.5 percent of national wealth. It’s estimated that by 1905, there were 9 million tontine policies active in a nation of only 18 million households. Tontines became so popular that historians credit them for single-handedly underwriting the ascendance of the American insurance industry. The downfall of the tontine was equally dramatic. Not long after 1900, a spectacular set of scandals wiped the tontine from the nation’s consciousness. To this day, tontines remain outlawed, and their name is synonymous with greed and corruption. Their memory lives on mostly in fiction, where they invariably propel some murderous plot. (There’s even a “Simpsons” episode in this genre.) Tontines, you see, operate on a morbid principle: You buy into a tontine alongside many other investors. The entire group is paid at regular intervals. The key twist: As your fellow investors die, their share of the payout gets redistributed to the remaining survivors. In a tontine, the longer you live, the larger your profits — but you are profiting precisely off other people’s deaths. Even in their heyday, tontines were regarded as somewhat repugnant for this reason. Now, a growing chorus of economists and lawyers is wondering if the world wasn’t too hasty in turning its back on tontines. These financial arrangements, they say, have aspects that make a lot of sense despite their history of disrepute. More:

As Banks Retreat, Private Equity Rushes to Buy Troubled Home Mortgages

Private equity and hedge fund firms have bought more than 100,000 troubled mortgages at a discount from banks and federal housing agencies, emerging as aggressive liquidators for the remains of the mortgage crisis that erupted nearly a decade ago. As the housing market nationwide recovers, this is a dark corner from which banks, stung by hefty penalties for bungling mortgage modifications and foreclosures, have retreated. Federal housing officials, for the most part, have welcomed the new financial players as being more nimble and creative than banks with terms for delinquent borrowers. But the firms are now drawing fire. Housing advocates and lawyers for borrowers contend that the private equity firms and hedge funds are too quick to push homes into foreclosure and are even less helpful than the banks had been in negotiating loan modifications with borrowers. Federal and state lawmakers are taking up the issue, questioning why federal agencies are selling loans at a discount of as much as 30 percent to such firms. One company has emerged as a lightning rod, criticized by housing advocates and lawyers for borrowers, but admired by investors: Lone Star Funds, a $60 billion private equity firm founded in 1995 by John Grayken. In just a few years, Lone Star’s mortgage servicing firm, Caliber Home Loans, has grown from a bit player to a major force in the market for distressed mortgages. An examination by The New York Times of housing data, court filings and interviews with borrowers, lawyers and housing advocates revealed a pattern of complaints that Lone Star was quick to begin foreclosure proceedings, whether the firm had bought a delinquent mortgage at a federal auction or directly from a bank. Take Charles and Pamela Hubbard of Sacramento. They briefly lost their home when Lone Star’s Caliber subsidiary dealt harshly with their request for a loan modification. The couple said they had submitted the application to reduce their monthly mortgage payments four days before a planned foreclosure sale, but the Lone Star subsidiary said the Hubbards had been late in completing the application and pushed ahead with the sale.

U.S. court hears challenge to $5.7 billion Visa, MasterCard settlement

A U.S. appeals court on Monday weighed whether to uphold the approval of an estimated $5.7 billion antitrust settlement by MasterCard Inc and Visa Inc with merchants over credit card fees despite the objection of several major retailers. A lawyer for retailers including Target Corp and Inc urged the 2nd U.S. Circuit Court of Appeals in New York to reject the deal, saying it forces merchants to give up their rights to sue over various policies and practices. “The defendants are trying to buy something that is not for sale,” said Thomas Goldstein, the lawyer. But Paul Clement, a lawyer for merchants who negotiated the deal, said the settlement was fair and provided not just $5.7 billion but reforms an expert valued as worth up to $62 billion. “There was meaningful relief here,” he said. The settlement, the largest in a U.S. antitrust class action, resolved lawsuits by merchants pending since 2005. The lawsuits accused Visa and MasterCard of fixing the fees they were charged each time customers used credit or debit cards. Merchants also claimed Visa and MasterCard prevented retailers from encouraging customers to use cheaper payment methods. U.S. District Judge John Gleeson in Brooklyn in 2013 approved the deal, saying it provided significant monetary award and meaningful relief. The settlement provides for cash payments to merchants and lets them begin charging customers a surcharge when they use Visa or MasterCard credit cards. Around 8,000 merchants, representing 25 percent of the transactional volume at issue, opted out of the deal, driving its value down to $5.7 billion from $7.2 billion. Over 30 lawsuits by those opt-outs are pending. Those retailers say a broad litigation release in the settlement forces current and future merchants who accept Visa or MasterCard to forgo rights to sue over various current and future policies and practices. The deal’s approval was thrown into further flux after Keila Ravelo, an ex-lawyer at MasterCard’s law firm, was charged in December with engaging in a fraud scheme. Following her arrest, the firm, Willkie Farr & Gallagher, discovered an exchange of communications between Gary Friedman, a lawyer for the plaintiffs, and Ravelo. Some retailers say the exchange of confidential information tainted the deal. Similar communications between Friedman and Ravelo resulted in August in a federal judge rejecting a separate antitrust settlement with American Express Co. The case is In Re: Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 2nd U.S. Circuit Court of Appeals, No. 12-4671.

Meet the Four Kinds of GOP Voters

The early departures of Scott Walker and Rick Perry from the 2016 presidential race demonstrate that the nation’s pundits should recheck their assumptions about what matters to the GOP in this election cycle. To learn where this topsy-turvy race might be going, it makes sense not to look at a list of “ups” and “downs” or cite any poll or set of polls—Donald Trump leads them all, of course, but at less than 40 percent, he’s far far from a lock on the proceedings, as he would be the first to admit—but instead to look at the electorate instead. The author of The Art of a Deal knows it isn’t a deal until it is closed, and voters don’t even begin to close round one until February. While it seems like they’ve been moving around a lot this summer, some have begun to settle as the fall begins—and we can learn a lot from the decisions they’re making. Looking at out the presidential race right now, I see clearly four different types of GOP primary voters and caucus-goers. Not all of them, of course, are conservatives or even Republicans, since independents and even Democrats can vote in some of the early GOP primaries. Figuring out who these voters are and what they’re looking for is critical to each of the remaining candidates—because they’re not all equally up for grabs. First, there are the GOP’s “True Believers,” to use Eric Hoffer’s term. Among the four categories of voters, the True Believers in 2016 have already picked a candidate and are sticking to him come hell or high water—at least unless and until he drops out or wins. It’s clear that the True Believers are lining up primarily behind Dr. Ben Carson, Sen. Ted Cruz, Gov. Mike Huckabee, Sen. Rick Santorum or Donald Trump. These voters aren’t for turning or wooing, at least not easily. More:


RSA’s winners and losers. Hint: the golf courses are a drag

In Alabama, a string of golf courses helps pay for the state pension system. So does a line of luxury hotels, a broadcast media empire, a bankrupt oil rig repair firm caught in a human trafficking suit, a New York City skyscraper, and a pile of small community newspapers. These properties are commonly known as Retirement Systems of Alabama’s alternative investments. RSA CEO David Bronner, who has led the system for four decades, has made it a point to take on these curious projects. He argues that a strong Alabama will result in a healthy pension system. By helping build hotels, golf courses, and other businesses in Alabama, the state can improve its image and attract new, and better industry. In turn, that growth bolsters the tax base that supports public employees who pay into the pension system. “If we won’t invest in ourselves, who the hell will?” Bronner said in an interview. These projects also serve as a kind of advertising because the RSA gets to slap its brand on some of Alabama’s highest-profile construction projects. For example, crowds gather in downtown Mobile every New Year’s Eve to watch the giant MoonPie drops from the RSA Trustmark Building. Raycom, the media empire the RSA has invested in, broadcasts the event. And, when golfer Scott Piercy won his third PGA tour win earlier this summer at the Barbasol Championship, he did it on a golf course that is owned by the RSA. This is the type of publicity many Alabama politicians can only dream of, and it’s an everyday reality for the RSA because of these investments. “If you take away all our investments in Alabama, we’d be in bad shape,” Bronner said. “Mobile would be a ghost town. Downtown Montgomery would not exist.” How do these investments perform for the pension system? The easiest way to tell is if the return rate equals or exceeds eight percent. That’s the RSA’s assumed rate of return over the long term. Here’s a breakdown of some of the RSA’s alternative investments using the latest data from September 2014:

Gov. Bentley and wife Dianne reach settlement in divorce case

Gov. Robert Bentley and First Lady Dianne Bentley have agreed to a settlement in their pending divorce case. The mutual agreement comes one month to the day after Mrs. Bentley filed for divorce from her husband of 50 years. Terms of the agreement were not available at the time of this post. However, Bentley said he will ask the judge in the case to make the settlement public as well as unseal the file in the case, which the Bentleys’ asked to be sealed shortly after Mrs. Bentley filed for divorce. Gov. Bentley has had little to say about the pending divorce since its filing. He issued this statement this afternoon: “The last four weeks have been a very difficult time for my family and for our state. The people of Alabama have prayed for us and have encouraged us. For that, I am extremely grateful.” Bentley goes on to say this:  “Dianne and I have reached a mutual agreement in our proceedings. I have asked Judge Philip Lisenby to unseal settlement documents so the public and the media will have full access to it.” Bentley ends the statement thanking the public for their continued prayers and support and adds this. “I am truly blessed and deeply honored to serve as your governor.” In her complaint filed Aug. 28th, Dianne Bentley claimed that the couple had not lived together since January. Mrs. Bentley in her complaint states that she and her husband were suffering from “a conflict of personalities which destroys the legitimate aims of matrimony. …Further attempts at reconciliation are impractical and not in the best interest of the parties,” according to the complaint. Since the filing last month unsubstantiated rumors have stalked the internet purporting the cause of the breakup of the marriage to be an improper relationship between Bentley and a senior advisor. Mrs. Bentley in her complaint did not charge her husband with infidelity. In her legal filing Mrs. Bentley had been seeking a division of the couple’s property, including their home in Tuscaloosa. In addition, Mrs. Bentley sought alimony and attorney’s fees from the governor.

Bentley to close multiple DMV offices, armories; State parks also in danger

BIRMINGHAM, AL (WSFA) – Governor Robert Bentley is moving ahead with plans to close some driver’s license offices, Alabama National Guard Armories, and – potentially – some state parks. The governor made the statement while speaking briefly with reporters Monday on a trip to Birmingham. There is a list of 33 possible driver’s license offices operated by the Alabama Department of Motor Vehicles that could close. Bentley is scheduled to meet with Alabama Law Enforcement Agency Director Spencer Collier to discuss those offices. “He’ll give me the definite number and which ones will be closed this afternoon,” the governor said. Bentley also said he’s ordered the director of the Alabama Department of Conservation to give him a list of affected state parks by Tuesday.  “We’ll know that definitely by tomorrow,” Bentley said. As for National Guard Armories, the governor said some were already slated to close while others will close “primarily due to lack of funding.” Jennifer Ardis, Gov. Bentley’s communications director, said the full plan will come out later in the week and will be rolled out before the Oct. 1 start of the 2016 fiscal year. Bentley asked the Alabama Supreme Court Friday for an opinion on whether language in portions of the General Fund Appropriations Act are constitutional. He believes some parts of the budget he signed illegally “encroach on the authority of the Executive Branch…”‘ after the Legislature limited, prohibited, or even mandated certain actions of state agencies that the governor says fall within the Executive Branch’s control. Ardis said the governor would likely roll out the closures regardless of what the Alabama Supreme Court says. That move could set the stage for potential lawsuits.

Mike Hubbard wants more testimony from Luther Strange

Alabama House Speaker Mike Hubbard’s defense team wants Attorney General Luther Strange to testify a second time in his ethics case. The state does not. The Auburn Republican’s attorneys sent subpoenas to Strange and paralegal Esther Deneve on Friday to appear at an Oct. 26 hearing, according to court filings. Augusta Dowd, an attorney for Hubbard, said Monday the defense team wants their testimony on defense accusations of selective prosecution and prosecutorial misconduct. “There is certainly a selective prosecution component to their basis for being subpoenaed,” she said. Prosecutors almost immediately objected to the subpoenas Friday. The state asked Lee County Circuit Judge Jacob Walker to quash them, noting that Strange had already testified in a deposition last May. Prosecutors wrote that his earlier testimony “identified no relevant information in support of Hubbard’s conspiracy theories.” “Hubbard has never identified what, if any, relevant information he could hope to obtain from Ms. Deneve that would not either be privileged (because it concerns her work on this case) or some kind of employment dispute (which would be irrelevant),” the filing said. A message seeking comment from the Alabama Attorney General’s Office was not immediately returned Monday morning. The filing also said prosecutors had moved to quash subpoenas from Hubbard’s attorneys to six other current or former attorney general’s office employees. That filing is under seal. If Walker allowed the subpoenas, prosecutors argued, Strange and the other witnesses should testify through deposition, as they have in the past. Prosecutors said that would be easier for some witnesses, who would otherwise have to travel more than 100 miles to testify. The state also said it would be a “reasonable means to protect the state’s privileges and confidentiality.” Dowd said she wanted them “testifying live on the stand.”

Hubbard Calls for Dismissal Because of Leaks

MONTGOMERY—On Friday, September 25, in an ever-continuing effort to deny, distract, and delay any action on the 23 felony counts of public corruption against Speaker Mike Hubbard, his legal team filed a motion to have the charges against him dismissed, because of an alleged violation of the Grand Jury Secrecy Act. (See Document Here.) According to Hubbard’s legal council, the State violated the Grand Jury’s Secrecy when one of its response filings revealed the names of some who testified before the Lee County Grand Jury. 292 Ala. at 507, 296 So.2d 784. states, “…because of strong public policy that grand jury deliberations should be surrounded by secrecy. There are many reasons for this policy. One is to prevent an accused from being afforded an opportunity to escape before an indictment is returned. Another is to protect the grand jury in their deliberations, so that they may freely state their opinions and cast their votes. Blevins v. State, supra; Rush v. State, supra. In addition, it is desirable to protect the good name of those not indicted, and to keep prosecution witnesses from being harassed or intimidated in order to keep them away from the trial of the indictment before a petit jury. State ex rel. Baxley v. Strawbridge, 52 Ala.App. 685, 690, 296 So.2d 779 (1974). Furthermore, if the actions of the grand jury were made public, an accused would be given an opportunity to destroy, remove, or conceal evidence. A potential witness, if embarrassed, frightened or recalcitrant, could become unavailable before being subpoenaed to appear.” Nowhere in this section does it indicate that names of witnesses are a matter of secrecy, as Hubbard’s attorneys argue. Team Hubbard continues to offer everything but a defense. They have questioned the ethics laws, saying they are unconstitutional, accused the prosecution of numerous deadly errors, and plied the media with misdirection, and false statements. In fact, Court documents reveal Hubbard, and his close associates, began receiving Grand Jury leaks in 2012. Hubbard’s criminal defense attorney J. Mark White has been making accusations of Grand Jury leaks even before the Lee County Grand Jury investigating Hubbard ever heard a word of testimony. The emails shows that Riley and Hubbard, along with Rob Riley, and Josh Blades, then Hubbard’s chief of staff, were involved in leaking secrets from the Grand Jury. It is also possible that a web of shared attorneys exchanged Grand Jury information under the guise of attorney/client privilege, former Deputy Attorney Henry T. “Sonny”  Reagan shared attorneys with Rep. Barry Moore and Hubbard. Court documents show that Moore’s attorney Bill Baxley, also represents Reagan. As this publication has previously reported, Rob Riley, the son of former governor Bob Riley, also represents Reagan as well as Hubbard, and these are just a few connections that court filings have disclosed. Still, Hubbard’s defense continues, “Hubbard has suffered actual prejudice from the State’s violation through numerous media reports disseminating the fact that Hubbard testified before the Grand Jury prior to indictment and speculating that Hubbard could not even persuade a Lee County Grand Jury that he was innocent.” Again, it is not prohibited for the public to know who testified before a Grand Jury. A violation occurs if the testimony itself was disclosed. In separate filings, Hubbard’s defense challenges motions to quash subpoenas for Attorney General Strange, Esther Deneve, a paralegal in the Criminal Trials Division of the Attorney General’s Office, and Baron Coleman, a radio newsman, and attorney. Coleman has filed to quash his subpoena, citing the Alabama Reporter’s shield law (Coleman is a contributor to this news publication, as well as a news analyst on the television show, The Voice of Alabama Politics, owned by this reporter). Coleman has characterized the call for his testimony as a “fishing expedition,” by Hubbard’s legal team. Here again Hubbard’s attorneys are looking for leaks outside their own camp, leaks that have so far been proven nonexistent. Over the last two years, Hubbard’s team has claimed Grand Jury leaks by the prosecution, while the evidence shows that the leaks are all coming for the defense side.

Hubbard’s Attorneys Fail to Guard Grand Jury Secrets

MONTGOMERY—In a stunning example of incompetence, attorneys for Speaker Mike Hubbard revealed pages of grand jury information in violation of the State’s Grand Jury Secrecy Act by failing to properly redact their latest filings. Even before Hubbard was indicted on 23 felony counts of public corruption his high-priced criminal defense attorney J. Mark White constantly whined about grand jury leaks even though many leaks have been tracked back to Hubbard’s team.  In his latest filing on Hubbard behalf White’s team failed to properly redact line after line of Grand Jury information in Hubbard’s Supplement To Motion To Dismiss For State’s Recent Violations Of Grand Jury Secrecy, filed Sept. 25. Within minutes of downloading the documents, the Alabama Political Reporter was able to see every line of redacted material. However, out of our respect for the legal process and the sanctity of the Grand Jury Secrecy Act we immediately stopped the process. However, anyone with a general knowledge of MS Word could have accomplished the same feat. Either through ignorance, incompetence or with malicious intent Hubbard’s attorneys revealed information that trial Judge Jacob Walker III, expressly had forbidden be made public.
Hubbard’s attorneys as record have shown and now as this report reveals have been the leakers and not the State.


Morning Money

BUSH DONORS PANICKED? — Not according to several M.M. talked to this week. Would they like poll numbers higher? Sure. But there are still several months to go before any votes are cast. Said one: “Team Bush is not panicked. Trump tried to channel Jeb today on taxes, but he can’t get into the weeds. Rubio is expanding the map but has no staff. Cruz is … .well, still Mr. Congealiality. Bottom line, Jeb is the only grownup with money, a message and organization. Time is, as the Stones say, on his side. … Jeb’s fundraising prowess is such a threat because he has more serious fundraising surrogates than everyone else on the R side, probably combined.

“43 is a surrogate, Laura Bush is a surrogate, Barbara Bush is a surrogate, Columba Bush is a surrogate, so are Jeb Jr. and George P, plus others, each of whom can swing well north of $50K an event. This is a structural advantage that far outweighs the negative of the Bush name, especially given the reality that the Rs may be running against Clinton Inc, the most formidable money machine in history.”

TRUMP’S SURPRISINGLY CONVENTIONAL TAX PLAN — Donald Trump’s rhetoric on Sunday night’s “60 Minutes” suggested he would come out with a highly populist tax plan that would slash rates on lower income groups and hike them on the wealthy. But his policy doesn’t do that.

He would in fact eliminate taxes for people making less than $50,000 — who often don’t owe much of anything anyway — but would also slash the top rate from 39.6% to 25% while cutting the top capital gains rate to 20% from 24%. He would eliminate some deductions enjoyed by the wealthy but that would not erase the big potential gains from lower overall rates. The plan is also not likely to be anywhere close to revenue neural, even though Trump claims it will be.

PRICE TAG: $3 TRILLION? — POLITICO’s Danny Vinik: “I did some back-of-the-envelope math on Trump’s plan to see if that’s true. The short answer: There’s no way the plan is deficit neutral. Even with the most optimistic assumptions, Trump’s plan will still significantly reduce the total amount of money the government takes in. That might appeal to a lot of conservatives, but it will also definitely increase the federal deficit. … “Add it all up and you have — approximately — $4-5 trillion in tax cuts with less than $2 trillion in new revenue. The total cost? $2-3 trillion. That’s an enormous gap. Even if you use ‘dynamic scoring’ … it’s impossible to see how this plan would break even. Who would be the winners of the Trump tax plan? The rich. The top tax rate falling from 39.6 percent to 25 percent will give them a huge windfall, as will eliminating the AMT, the estate tax for their heirs, and the Obamacare surtax on capital gains and dividends”

POLITICO’s Brian Faler: “Trump proposed … a traditional tax code rewrite that would swap big rate cuts in the individual and corporate tax rates for squelching tax credits and deductions, especially for the wealthy. Trump emphasized the hit the rich would take under his plan, but he pairs those provisions with such a large rate reduction that it would likely add up to a substantial tax cut for many of the well-to-do. ‘This is actually a tax reduction — a big tax reduction, including for the upper-income,’ he said”

BUSH PLAN, BUT CLASSIER — SLATE’s Jordan Weissmann: “Mostly, it looks like a steroidal tax cut for just about everybody, especially the wealthy, that’s suspiciously reminiscent of the budget-nuking plan that Trump’s favorite punching bag, Jeb Bush, recently laid out. In fact, it almost looks as if Trump simply looked at Bush’s plan, then slashed all the rates a little further — or, you know, classed it up a bit.”

CLINTON DOUBLES DOWN ON BIG BANK DEFENSE — From Hillary Clinton’s interview with Lena Dunham: “You know some people say, ‘All we have to do it break up the banks.’ Well the problem with that is that the banks did their fair share of trouble, but a lot of problems were not from these traditional banks they were from what’s called the shadow-banking world like Lehman Brothers, which went belly up and brought a lot of people down with them; or AIG, a gigantic insurance company.”

AMERICANS ARE NOT HAPPY — Per NBC: “One word seems to define the American public’s mood more than 13 months until Election Day 2016 – anger. According to the new NBC News/Wall Street Journal poll, 62% of respondents believe the country is headed in the wrong direction – the 59th-straight NBC/WSJ poll over the past six years when a majority thinks things are on the wrong track.

“The new poll also finds that if Vice President Joe Biden were to run for President, he would enter as the most popular candidate in the field. 40% of Americans have a positive impression of Biden, while 28% have a negative impression. Biden would also out-perform Clinton in hypothetical head-to-head general election matchups against top Republican presidential hopefuls” Full poll:

GOOD TUESDAY MORNING — In the “science is cool” category, NASA says there is water on Mars that could sustain life: Email me at and follow me on Twitter @morningmoneyben.

DRIVING THE DAY — President Obama this morning participates in a bilateral meeting with President Raul Castro of Cuba and will then chair the Leaders’ Summit on Countering ISIL and Countering Violent Extremism. … Senate Banking has a nominations hearing at 10 a.m. … Senate Finance Committee will hold a hearing at 10:00 a.m. on the Puerto Rico debt crisis … Consumer Financial Protection Bureau Director Richard Cordray testifies at 10 a.m. before the House Financial Services Committee .. HFSC housing subcommittee has a hearing at 2 p.m. on the impact of global and federal regulation on insurance companies. … Case-Shiller Home Prices at 9:00 a.m. expected to rise 0.1% … Conference Board consumer confidence at 10:00 a.m. expected to drop to 96.0 from 101.5 …

HOT CLICK: THE GAVEL — Obsessed with leadership fights on the Hill following House Speaker John Boehner’s surprise decision to resign at the end of next week? So are we. Follow it live here:

ASIA FOLLOWS WALL STREET DOWN — Reuters: “Asian shares skidded to 3-1/2-year lows and the dollar sagged on Tuesday, pulled down by a sharp losses on Wall Street after weak Chinese data rekindled worries about its fragile economy. Commodities struggled after fears of weaker demand pushed them to multi-year lows overnight. Adding to the gloom, commodity trader Glencore’s Hong Kong-listed shares were around 28-percent lower on Tuesday, after its London-listed stock plunged on debt worries a day earlier.”

SENATE MOVES AHEAD ON CR — POLITICO’s Seung Min Kim: “Congress is one step closer to dodging a government shutdown. On a 77-19 vote Monday night, the Senate advanced a short-term spending bill that will keep federal government agencies operating through Dec. 11, defusing the latest shutdown scare powered by conservative rage against funding for Planned Parenthood — for now. The suspense over whether the GOP-led Congress would keep the government open beyond Sept. 30 ended altogether when Speaker John Boehner announced his resignation plans last week.

“The stunning move ensures that the Ohio Republican would be free to rely on Democrats to pass a clean funding bill without political retribution from his conservative agitators. Once the spending measure passes the Senate — likely sometime Tuesday — the House will quickly take up the bill and send it to President Barack Obama, just in time to avoid a government shutdown. But the stopgap bill sets up an even bigger spending fight on Capitol Hill in December, when Democrats and Republicans will battle over a broader budget deal.”

HEALTH CARE SHARES TANK MARKET — WSJ’s Leslie Josephs: “U.S. stocks tumbled to a more than one-month low on Monday, weighed down by the health-care sector, as politicians ramped up scrutiny of drug pricing. The Dow … dropped 312.78 points, or 1.9%, to 16001.89, its lowest closing level since August 25. The Dow had dipped below 16000 for the first time since Sept. 1 on an intraday basis. The S&P 500 fell 49.57 points, or 2.6%, to 1881.77, while the Nasdaq Composite dropped 142.53 points, or 3%, to 4543.97.

“Valeant Pharmaceuticals International Inc. shares fell 16.5% to $166.50 after Democrats on the House oversight committee asked the committee chairman to force Valeant to provide documents explaining price increases for two heart drugs. Last week, biotechnology stocks fell after Hillary Clinton targeted specialty drug makers, tweeting about a plan that would counter ‘price gouging’ and proposing new rules that would control prescription-drug spending. The Nasdaq Biotechnology Index fell 6% on Monday, erasing gains for the year”

McCARTHY MAKE HIS MOVE — POLITICO’s Jake Sherman and John Bresnahan: “Rep. Kevin McCarthy has glided to victory in each of his leadership races — one for majority whip, and two for majority leader — by simply winning the support of more than half the members of the Republican Conference. To become the 54th speaker of the House, though, he’ll need to do something he’s never done before: find 218 supporters on the floor. And with room to lose only 29 Republican members, that will require the Californian to navigate the same political currents — inside the Republican Conference, and the party as a whole — that dogged Speaker John Boehner (R-Ohio) during his five years in power.

“McCarthy has quietly launched his campaign for speaker and is considered the overwhelming favorite to win. … McCarthy’s cellphones — he has two, a BlackBerry and an iPhone — are ringing off the hook. In a break from his normal practice of heading to California or out on the road to raise money for colleagues, McCarthy stayed in Washington over the weekend. He made countless phone calls and has locked up significant support, though he hasn’t yet reached the magic number of 218, sources familiar with his operation said.”

GLENCORE TANKS — Reuters: “Glencore shares tumbled almost 30 percent to close at an all-time low on Monday, on fears that the mining and trading company was not doing enough to rein in its debt to withstand a prolonged fall in global metals prices. About 3.5 billion pounds in market value was wiped off the firm, which is in the middle of a drive to sell assets and raise cash to help cut its $30 billion (£20 billion) debt pile and protect its credit rating after a crunch in prices of its main products, copper and coal.”

WALL STREET DRAWS FIRE OVER HOUSING MOVES — NYT’s Matthew Goldstein: “Private equity and hedge fund firms have bought more than 100,000 troubled mortgages at a discount from banks and federal housing agencies, emerging as aggressive liquidators for the remains of the mortgage crisis that erupted nearly a decade ago. … Federal housing officials, for the most part, have welcomed the new financial players as being more nimble and creative than banks with terms for delinquent borrowers.

“But the firms are now drawing fire. Housing advocates and lawyers for borrowers contend that the private equity firms and hedge funds are too quick to push homes into foreclosure and are even less helpful than the banks had been in negotiating loan modifications with borrowers. Federal and state lawmakers are taking up the issue, questioning why federal agencies are selling loans at a discount of as much as 30 percent to such firms”

DISPARATE IMPACT DEEP DIVE — American Banker’s Rachel Witkowski’s series on the CFPB’s use of disparate impact against auto lenders continues: First two in the series: and

BANKS ARE FED UP WITH YELLEN — FTs Ben McLannahan in New York: “Janet Yellen’s decision to delay an interest rate rise has worsened the outlook for big US banks, prompting them to try to eke out profits by shifting excess cash into longer-term assets. In the years since the crisis the banks have grown used to grappling with higher costs and subdued demand for credit, while keeping plenty of cash and cash-like instruments on hand in the hope of benefiting from an uptick in short-term rates. …

“But, after the decision from the US Federal Reserve to keep its target overnight rate on hold this month, more lenders are taking their cue from Wells Fargo, the biggest bank in the world by market capitalisation, said analysts. Over the past year the San Francisco-based bank has run down its cash and short-term investments to buy longer-term assets, on the basis that rates will stay ‘lower for longer’, according to John Shrewsberry, chief financial officer”


FISCAL CONFIDENCE AT 48 — Per release from the Peter G. Peterson Foundation: “The September Fiscal Confidence Index … shows that a significant majority of Americans remain concerned about the nation’s fiscal future. The Fiscal Confidence Index, modeled after the Consumer Confidence Index, is 48 (100 is neutral”

FIRST LOOK: NEW DARK POOL FOR BONDS — Per release going out today: “Liquidnet … announced the launch of their Fixed Income dark pool that facilitates direct, peer-to-peer trading of corporate bonds among asset managers in the US, Canada and Europe.. Liquidnet has enrolled more than 120 asset managers, representing a critical mass of liquidity and a sizeable portion of assets under management for high yield and investment grade bonds in the US”

iPHONE SALES HIT RECORD (STOCK FALLS) — FT’s Tim Bradshaw in San Francisco: “Apple beat the high end of analysts’ forecasts with more than 13m iPhone sales during their first weekend, thanks to a boost from China. But the announcement was not enough to lift the company’s languishing stock price. The iPhone 6s and 6s Plus launched in China almost a month earlier than models launched last year, when Apple said it sold more than 10m smartphones in their opening weekend. … The company had flagged strong demand for its latest iPhone after it began taking pre-orders two weeks ago, leading most analysts to predict initial sales of about 12m units.

“But the company’s shares traded down at about 1 per cent, at $113.36, on Monday morning in New York, below its most recent high above $132 in July. Investors have become more cautious as they wait to see how Chinese consumers’ demand for Apple’s high-priced smartphones is affected by economic uncertainty in the country.”

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POTUS Events


9:45 am || Meets with Raul Castro; United Nations
10:30 am || Chairs the Leaders’ Summit on Countering ISIL and Countering Violent Extremism
12:10 pm || Meeets with Kazakhstan President Nazarbayev
1:25 pm || Departs New York
2:35 pm || Arrives White House
All times Eastern


Floor Action

The Senate will continue its work on a short-term spending bill with an end-of-the-month deadline to avoid a government shutdown.

The funding bill, which includes federal money for Planned Parenthood, overcame a key procedural hurdle on Monday. Unless Majority Leader Mitch McConnell (R-Ky.) can get every senator to agree to speed up the votes, then under Senate rules a final vote can take place as early as 12:18 a.m. on Wednesday.


No votes are currently scheduled in the Senate, with lawmakers expected to recess from 12:30 p.m. to 2:15 p.m. for weekly party policy lunches.


Meanwhile, House Republicans will huddle on Tuesday evening to discuss the path forward after House Speaker John Boehner (R-Ohio) announced that he will retire at the end of October.


House lawmakers are expected to meet at 5 p.m. in the Capitol basement.


They’ll also take up to proposals on Tuesday, including legislation to give states more flexibility to exclude Medicaid providers that are also involved in abortions.


Votes in the House are expected between 1:30 p.m. to 2:30 p.m., and 3:30 p.m. to 4:30 p.m.