Krebs Daily Report 26 August 2015

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


Steep Swings for Chinese Shares as Global Markets Turn Mixed

HONG KONG — Volatility continued to dominate global markets on Wednesday, with whipsaw trading across Asia. Shares in Shanghai swung between sharp gains and losses, showing no sign that China’s cut in interest rates late Tuesday would lead to a broader rally. The main index fell nearly 4 percent, rallied to gain more than 4 percent, then fizzled, ending the day down 1.3 percent. Global markets have been tumultuous in recent days as fears have mounted about China’s weakening economy and the ability of its leadership to handle a slowdown. The Chinese stock rout is rattling markets from Tokyo to London to New York. The sell-off has erased all of this year’s gains on stocks in the United States and China. So far, there have been no clear signs that modest improvements in some markets on Tuesday and Wednesday would lead to a broader recovery. Around Asia, markets were mixed on Wednesday. Stocks in Japan rebounded 3.2 percent, ending a six-day losing streak. South Korea’s main index rallied 2.6 percent, while Australian shares came under renewed selling pressure before closing slightly higher. European stocks, which had been up sharply on Tuesday, began trading on Wednesday with declines of 1 percent to 2 percent. In the early going it was hard to tell how much of the selling might simply be a function of market volatility — or of following the downward lead of American markets on Tuesday — and how much might reflect actual concerns about European companies’ exposure to problems in China. The carmaker Volkswagen, for example, said on Tuesday that its July sales were off by 3.7 percent. That was partly because of a weakening of its business in China, which is the company’s single largest market. Volkswagen shares were down by 1 percent to 2 percent on Wednesday morning in Europe. That largely followed the pattern of Germany’s DAX index of 30 big companies, including Volkswagen. Futures contracts on United States stocks indicated that American markets would open higher on Wednesday, although that indicator is not always reflected in subsequent moves as trading continues. And after Tuesday’s tumult on Wall Street, the coming day’s movements are anyone’s guess. In Asia, the mixed trading followed the equally volatile session on Wall Street on Tuesday. Stocks had rallied sharply, until the rebound fell apart in the last hour of trading. The fears over China had also spread to emerging economies and continued to put pressure on commodities markets.

Putin’s Magnificent Messaging Machine

In trying to create a likeness of Soviet power, Vladimir Putin is doing one thing demonstrably better than the Kremlin masters of old: propaganda. During the Cold War Soviet outlets like Pravda would disseminate outlandish claims so crass and obviously false that even true comrades  turned the page or flipped the channel (and there were a lot fewer channels then). Today the Kremlin-funded RT, with its lineup of conspiracy cranks, slanted reportage and ceaseless assaults on Western institutions, has ended end up as the most-watched network on YouTube. Backed with budget approaching $450 million in 2014, RT now acts as the tip of the Kremlin’s information warfare machine, an agglomeration that seeks to undermine both notions of journalism and faith in the workings of liberal democracy. This is the new reality that I helped research while working with Columbia Journalism School’s “RT Watch” project. For the better part of 2015, the project compiled RT’s output, attempting to examine how, or whether, RT deserves its reputation as a bulwark for Kremlin-friendly programming. Alongside a group of other Columbia graduate students, we watched, read, and consumed RT for hours a day, months on end. We piled our findings—the deceits, the distractions, the direction RT takes—over at the RT Watch blog, along with assorted social media accounts. As one observer said, we watched RT so you didn’t have to. After subsuming ourselves in the entire RT gestalt, I’d like to share some of the things I found. The Moscow-based outlet—first created in 2005 and originally named Russia Today—does away with the mothballed propaganda of claiming the sunshine of socialism while bread and butter disappear amidst the reality of Soviet stagnation. “Mock journalism” is a more apt description of its technique than propaganda because, at its core, this is what RT offers: a trivialization and “truthiness” version of journalism. Just as Putin’s Kremlin has gutted meaning from prior political terms, RT ignores the inherent traits of journalism—checking sources, relaying facts, attempting honest reportage. But RT’s model creates a concerted mask of traditional journalism with all the trappings. Rather than push the transparent propaganda of its Soviet forebears, RT mixes and matches straight news with flippant falsehood, keeping viewers off-balance, keeping audiences muddled and confused and unsure of their footing. The outlet’s mantra—“Question More”—applies only in select cases, and only as it pertains to Western claims. If you’re looking for critique or criticism of Kremlin decisions, you won’t find them on RT. Instead, you’ll find “experts” lacking in expertise, conspiracy theories without backing, and, from time to time, outright fabrication for the sake of pushing a pro-Kremlin line. The outlet offers a “pseudo-diversity of opinions,” as another researcher found.




 The Best Defense is Good Offence: DOJ Challenges Local Public Defense Programs

Shortly before Attorney General Eric Holder announced his resignation last September, he told an interviewer: “Any attorney general who is not an activist is not doing his or her job.” One of Holder’s more activist initiatives received attention last week when The New York Times highlighted how Holder’s Justice Department began the novel practice of filing arguments in state and county courts. “[N]either career Justice Department officials nor longtime advocates can recall such a concerted effort to insert the federal government into local civil rights cases,” Matt Apuzzo wrote for the Times. The agency has used so-called “statements of interest” to file arguments in existing court cases—sometimes cases brought by the ACLUEqual Justice Under Law or other advocacy groups. One issue that’s garnered particular attention from Justice Department lawyers is fair access to legal defense, a right guaranteed by the Sixth and Fourteenth Amendments. The DOJ’s Civil Rights Division has filed four such statements in the past two years, a time in which bipartisan support has emerged for a renewed examination of how local and state governments are providing legal representation to the poor. The department maintains that it does not take a position on the facts of the case, but it argues larger points about civil rights issues with national implications. “It’s very much like having an amicus brief, but it’s an amicus brief by the United States Department of Justice,” said Norman Reimer, executive director of the National Association of Criminal Defense Lawyers. “That carries a lot of weight. No municipality or state wants to be found to be violating Constitutional rights in the eyes of the Justice Department.”


The Price of Silence on Wall Street

What is the price of silence on Wall Street? That is the question confronting Peter Sivere, a 46-year-old soon-to-be former compliance officer at Barclays in New York. This kind of moral and ethical quandary crops up all the time on Wall Street, of course. For instance, as we all know by now, the big banks have been paying up – something like $190 billion in fines and counting, according to a recent Keefe, Bruyette & Woods analysis — to settle various cases and investigations, which has also left out of the public record many of the precise details of what employees at the banks did wrong in the years leading up to the 2008 financial crisis. In November 2013, JPMorgan Chase paid $13 billion to various federal and state agencies; in July 2014, Citigroup paid $7 billion, and a month later, Bank of America paid nearly $17 billion. Not one individual was held accountable for their behavior, in large part because these settlements were accompanied by heavily negotiated “statements of facts” — little narratives about what the banks did wrong without naming names. Clearly, Wall Street will pay a high price for silence. Wall Street goes to similar lengths to keep quiet people who leave. In exchange for their silence, departing employees generally receive a cash settlement of some sort, at times running into the seven figures. Most people sign these documents, because they would prefer to move on quietly to another Wall Street job, if they can, and take some financial remuneration for their troubles. A few people do not sign them. (For instance, I did not sign a separation agreement with JPMorgan Chase when it fired me 11 years ago.)


Planned Parenthood sues to stop funding cuts in Louisiana

Planned Parenthood asked a federal court on Tuesday to block Louisiana’s efforts to defund its clinics in the state in reaction to the release of secretly recorded videos about how the group handles the tissue of aborted fetuses. Louisiana was the first of three Southern states to announce plans to end its contract with the reproductive health organization to provide medical services to low-income residents. Alabama and Arkansas have taken similar steps. Louisiana Governor Bobby Jindal, who is seeking the Republican presidential nomination, cited the release of videos this summer by a national anti-abortion group, the Center for Medical Progress. The center says the videos show Planned Parenthood sells tissue of aborted fetuses but the organization denies wrongdoing and says it does not profit from fetal tissue donation, noting it is allowed to charge costs to cover its expenses. Planned Parenthood is being investigated in the Republican-controlled U.S. Congress, where some conservatives want to cut off its federal funding. The organization says abortions make up just 3 percent of its work at the hundreds of healthcare centers it runs nationwide. It does not provide abortions in Louisiana, court records show. The defunding effort there targets other health services that it provides to more than 5,200 low-income patients at clinics in New Orleans and Baton Rouge, the organization said. Planned Parenthood Gulf Coast, the regional affiliate, received $730,000 last year for Louisiana patients covered by Medicaid, a federal and state healthcare program for the poor. The lawsuit, whose plaintiffs include three women identified as “Jane Doe,” said the state appears to be violating federal law “as part and parcel of Governor Jindal’s campaign against abortion and to punish abortion providers.”


Born to Run and the Decline of the American Dream

Forty years ago, on the eve of its official release, “Born to Run”—the song that propelled Bruce Springsteen into the rock-and-roll stratosphere—had already attracted a small cult following in the American rust belt. At the time, Springsteen desperately needed a break. Despite vigorous promotion by Columbia Records, his first two albums, Greetings from Asbury Park, N.J. and The Wild, The Innocent, and the E Street Shuffle, had been commercial flops. Though his band spent virtually every waking hour either in the recording studio or on tour, their road earnings were barely enough to live on. Sensing the need for a smash, in late 1974 Mike Appel, Bruce’s manager, distributed a rough cut of “Born to Run” to select disc jockeys. Within weeks, it became an underground hit. Young people flooded record stores seeking copies of the new single, which didn’t yet exist, and radio stations that hadn’t been on Appel’s small distribution list bombarded him with requests for the new album, which also didn’t exist. In Philadelphia, demand for the title track was so strong that WFIL, the city’s top-40 AM station, aired it multiple times each day. In working-class Cleveland, the DJ Kid Leo played the song religiously at 5:55 p.m. each Friday afternoon on WMMS, to “officially launch the weekend.” Set against the E Street Band’s energetic blend of horns, keyboards, guitars, and percussion, “Born to Run” was a rollicking ballad of escape, packed full of cultural references that working-class listeners recognized immediately. The rise of Bruce Springsteen is in many ways a typical rock success story, but it also reveals a great deal about one of America’s most contested eras. Since 1976, when Tom Wolfe branded the seventies as “the Me Decade,” Americans have tended to write off the era as a socially and politically barren time during which millions of people descended into mindless self-absorption. Standing in sharp contrast with the turbulent ‘60s, the ‘70s seem to have given rise to a popular repudiation of the high-minded spirit evident in the civil-rights, student, and anti-war movements. But the story of the ‘70s is much more complicated. Far from being an era of complacency and narcissism, the decade gave rise to social, political, and cultural debates that built on and even surpassed the era of Kennedy and King. Some issues, like civil rights, the sexual revolution, and Vietnam, belonged as much to the ‘70s as to the ‘60s. Others, like feminism, abortion, gay rights, busing, the tax revolt, and Christian Right politics, seemed altogether new.


House GOP leaders desperate to avoid shutdown

An explosive confrontation brewing between the House Republican leadership and conservatives over Planned Parenthood is threatening to shut down the government for the second time in three years. And House GOP leaders have yet to settle on a strategy to avert it. Desperate to avoid another closure, Speaker John Boehner (R-Ohio) and his team would prefer to build bipartisan opposition to funding the group through a series of high-profile Congressional investigations. But, at this point, that seems unlikely to cut it with a bloc of House conservatives who have said they simply won’t vote for a large-scale spending plan that funds Planned Parenthood. Funding runs dry Sept. 30, so Republican leaders have barely have a month to figure it out. Many GOP aides are skeptical of using a funding bill to cut off the group’s government money, aware that the legislation would likely die in the Senate. And, even if Congress could broker a deal on Planned Parenthood, anything that cuts its government funding would likely be vetoed by President Barack Obama. Instead, House GOP leaders would rather use’s Congress’ broad investigative powers to build an overwhelming case against the group, which they believe would allow them to hammer Planned Parenthood for months and put Democrats under enormous pressure to turn against the women’s health organization.


Do Supreme Court Decisions Move Markets?

Stock traders might want to start paying a bit more attention to the Supreme Court. That’s according to one research report published this week that says Supreme Court decisions moved the market value of publicly traded companies by a net $140 billion between 1999 and 2014. But unlike economic data or other typical market-moving news, there is often an hours-long time lag in trading around Supreme Court decisions. The implication, according to the report, is that there might be arbitrage opportunities for savvy traders willing to sift through complex legal rulings. “This is not a market that’s particularly well understood, so it’s taking a lot longer for traders to sort it out,” said Daniel Katz, an associate professor at IIT Chicago-Kent College of Law, who was a lead author on the report, which was produced by a four-person team including another law professor and a legal analytics consultant. The team looked at each one of the 1,363 Supreme Court decisions in a 15-year period and determined which ones could have potentially impacted a publicly-traded company. The researchers then studied those companies’ share prices to see if they moved by a statistically abnormal amount after a Supreme Court decision. Their methodology took into account other variables, like broader fluctuations in the S&P 500 Index, that could have also moved the stocks. If you’re wondering why more trades aren’t focused around Supreme Court cases, consider these caveats. Only about 6% of Supreme Court cases in the past 15 years moved markets, the report said. A trading strategy around high court decisions would also work best if traders had ways to predict them – an entirely different challenge. (A few of the same researchers who wrote this report also create algorithms that try to forecast Supreme Court decisions.) Some market impacts of Supreme Court decisions are clear. For instance, when the high court ruled in 2014 that online video start-up Aereo Inc. violated copyrights on programming, shares of broadcasters like CBS Corp. soared because a ruling in Aereo’s favor could have hurt traditional revenue streams for broadcasters. Overall, that decision boosted the market value of broadcasting companies by about $4.4 billion, the research report said. It’s not always so obvious. In a 2013 opinion, the court ruled that human genes cannot be patented, but cDNA, which is typically used for genetic engineering, can be. This led to a roller coaster ride for shares of Myriad Genetics Inc., the company that had tried to patent human genes. After shares rallied in the initial hours, traders read the decision more closely and realized this was bad for the company’s business interests. Myriad ended up losing $546.7 million in market value in the two-day trading window around the decision, according to the report. Mr. Katz said the next focus for his research could be lower-court rulings and motions, which occur with much higher frequency than Supreme Court decisions but don’t get much attention from traders.


John McAfee—namesake of the anti-virus software—thinks he knows who hacked Ashley Madison

“Ashley Madison was not hacked,” declares John McAfee, the cybersecurity entrepreneur known for his drug-dosing, gun-toting, murder accusation-dodging persona, in a post on the International Business Times. Rather, he says, the site was ransacked by an ex-employee. A female ex-employee. “[T]he data was stolen by a woman operating on her own who worked for Avid Life Media,” he says, referencing the company that owns the extramarital affairs site, which has been the subject a major security breach and several data dumps last week. McAfee, namesake of the anti-virus software company picked up by Intel INTC -1.45% in 2011, says he has pored over the 40 gigabytes of data released so far by the alleged Ashley Madison hacking group, which calls itself “Impact Team.” Analysis of the data has led him to draw three conclusions: 1. The hack was a solo affair, 2. The breach was perpetrated by an insider, and 3. A woman is behind it. As evidence, McAfee cites research involving the “wording” of the leaker’s manifestos, the attacker’s “intimate knowledge of the technology stack of the company,” as well as his own expertise and “reliable sources within the Dark Web—which have yet to fail me.” For evidence in support of the first claim—that the hack was a solo affair—you’ll have to read McAfee’s July IBTimes post to assess its validity. Okay, fine…here’s the spoiler: “I cannot tell you how I know, but the simple published data should help point to this fact.” In other words, you’ve got to take the man at his word. As for his conclusion that the hack was perpetrated by an insider? Well, he says, the alleged hacker simply knew too much about the corporate IT network. Plus, the attacker gave herself away by calling out individual employees by name. Lastly, why a woman? (Word of warning: This part of McAfee’s analysis may rub some people the wrong way.) He cites the attacker’s use of the word “scumbags” and her apparent predilection for Valentine’s Day as decidedly feminine. Really, he does. “If this does not convince you then you need to get out of the house more often,” he says. Of course, McAfee is a bit of a character in the cybersecurity world. Mm…okay, that’s an understatement. The man revels in his image as a loose canon libertine. He fled Belize in 2012 after being accused of murdering his neighbor. He has claimed to be the target of assassins. He has been arrested for driving while under the influence—and packing heat. On the other hand, McAfee is also an established name in security, an innovator who made millions through his eponymous anti-virus software. Nevertheless, a writer at Gizmodo has taken the opportunity to criticize McAfee’s Sherlock Holmesian forensics as “pretty subjective, not to mention offensive” as well as “obscenely sexist.” Fortune will let you draw your own conclusions. Although we suspect McAfee’s contribution will not win him that $500,000 bounty. At least not yet.


Two Virginia television journalists fatally shot in on-air attack

Two television journalists were shot and killed in Virginia on Wednesday morning while conducting a live television interview, the station said. The incident occurred at about 6:45 a.m. EDT during a live broadcast in Bedford County, when shots could be heard, sending the reporter and the person she was interviewing screaming and ducking for cover. The station, WDBJ7 in Roanoke, Virginia, said the reporter Alison Parker, 24, and the cameraman, Adam Ward, 27, died in the incident. Parker and Ward were filming a feature segment for the morning news program at Bridgewater Plaza, a shopping and recreation plaza. “We do not know the motive, we do not know who the killer is,” Jeff Marks, the station’s general manager, said on air. Parker and Ward were engaged to be married to other people.



Federal judges see problems with Ala. legislative map

A panel of federal judges see problems with Alabama’s legislative district map and its approach to race. But the judges indicated during two hours of arguments Tuesday morning that they wanted to see plaintiffs trying to overturn the map suggest changes, while following criteria established by the Legislature in 2012. That would include preserving incumbents, limiting county splits, maintaining the current number of minority districts and sticking with the Legislature’s strict criteria on maintaining population. “If we gave you a month . . . would you be willing to submit a plan that met those criteria?” U.S. Circuit Judge Bill Pryor, a former Alabama attorney general, asked Richard Pildes, a professor at the New York University School of Law, speaking for black lawmakers seeking to overturn the map. Pildes and other attorneys indicated they would be willing. “It’s a functional approach, not a numerical approach,” said U.S. District Judge Myron Thompson, a member of the panel. The judges did not take any action after the hearing. But the panel seemed to chart a course forward in a three-year-old case that has already gone to the U.S. Supreme Court. The Republican-controlled Legislature approved a 2012 redistricting plan that used a strict standard in maintaining minority percentages in majority-minority districts. Republicans who drew the maps said they had to follow the Voting Rights Act and maintain the number of majority-minority districts, most of which had lost population between 2000 and 2010.


Todd Strange wins 3rd term as Montgomery mayor

A long and contentious race ended Tuesday night in victory for Montgomery Mayor Todd Strange. With about 90 percent of the votes counted, Strange had won 20,896 votes, about 56 percent of the total, securing the mayor a third term and avoiding a runoff. Former U.S. Rep. Artur Davis finished second with 10,225 votes, about 27 percent. “Well, someone said we won the election,” Strange said in a ballroom in the Alley shortly after 9 p.m., to cheers and cries of “Roll Todd.” Montgomery County Commission vice-chairman Dan Harris finished with about 11 percent of the vote, while State Board of Education member Ella Bell got five percent. Community activist Buena Browder got one percent. In a brief five-minute speech, Strange promised to continue working on economic development and city schools in the hopes of making Montgomery a “shining city on a hill.” “We’re going to try to do the right thing about bringing good jobs to Montgomery,” he said. “We’ll be more involved in the education side of the equation because frankly, I think we’ve got a board now that’s more receptive as a city and county to help them along the way.” Opponents attempted to make the race a referendum on crime and employment in the city, saying the city lagged in both areas. Davis and other opponents criticized Strange over the existing crime rates in the city, and at one point accused him of reducing Montgomery’s police officers. But crime is lower in the city since 2011, and the number of police officers has been consistent. Job creation also proved to be an issue. Strange touted the creation of jobs in the city during his time in office. Montgomery created about 1,800 jobs over the last year, though there were fewer than cities like Birmingham and Huntsville, which opponents noted. Davis cited a July Forbes study that ranked Montgomery 190th out 200 cities for job creation. Echoing a long-standing criticism, opponents also suggested Strange was too focused on downtown redevelopment and not looking at other neighborhoods in the city needing help. Strange said that the city could not control where private companies would locate, and that the city would target development based on the needs of individual neighborhoods. The mayor, who does not plan to seek office again, called the race his “toughest,” but said he hoped his victory would “send a message that a positive campaign will win every time.” “I hope each and every one of us in this room and those that are watching appreciate the fact that we stayed very positive,” Strange said. “We talked about what’s happened over the last six years, but more importantly, what’s going to happen over the next four years.” For Davis, a four-term congressman who made an unsuccessful bid for the Alabama Democratic gubernatorial nomination in 2010, the race offered a chance to return to politics. Davis, who left the state and became a Republican after his defeat, began broadcasting his intentions to run in July of 2014, started raising money last October and left a job as a director of Virginia-based Huntington Ingalls last November to prepare for the race. Davis thanked his supporters Tuesday night and said “you will see me four years from now” in another mayoral campaign. raided for prostitution promotion: Site advertises $250-an-hour Alabama male ‘escorts’

The New York City offices of, which touts itself as “The World’s Largest Male Escort Site,” were raided by federal agents Tuesday afternoon. The international site catered to people around the world, advertising escorts working everywhere from Alabama to Afghanistan to Argentina. The CEO of and six other employees of the website were arrested during the Manhattan operation on “suspicion of conspiring to promote prostitution” and charged with a number of crimes including money laundering, according to the criminal complaint. The site, which was founded in 1996, is little more than a front for an international prostitution-promoting business, prosecutors said Tuesday. “As alleged, attempted to present a veneer of legality, when in fact this Internet brothel made millions of dollars from the promotion of illegal prostitution,” Kelly Currie, Acting U.S. Attorney for the Eastern District of New York, said in a statement, NBC New York reported. The website was still live on the Internet as of Tuesday afternoon, when a search for Alabama escorts came up with three results – two in Birmingham and one in Mobile. The Mobile listing advertises the services of “Pornstar Tony Serrano,” who writes that he is the “[s]tar of many hot skin flix,” and describes himself as “a very down to earth, masculine Spanish/Italian guy that is very sensual & intelligent. I can stimulate u both mentally & physically,” before detailing his looks and sexual prowess and explaining that his “out rate” is $250 or more per hour while he charges $1,000 for an overnight encounter. The website itself allows users to search for “escorts” by their appearance, sexual preferences and other options. The Internet has long harbored dark places where people can access and obtain illegal activities and materials – from prostitution and child pornography to mail-order illicit drugs and weapons. The federal government periodically cracks down on websites offering such services and materials, and Tuesday’s raid is just the latest such bust.


Alabama lawmakers meeting on budget shortfall this week

State lawmakers will be in Montgomery this week working on solutions to the state budget shortfall. The House Ways and Means General Fund Committee will meet on Thursday at 2 p.m. Rep. Steve Clouse, R-Ozark, the chairman, said one purpose of the meeting is to learn more about how two bills passed by the Legislature during the regular session could affect the budget. One new law allows state agencies to raise fees, with limitations, based on the Consumer Price Index. Before the law those agencies needed separate legislation to raise fees. The second new law allows agencies more freedom to spend revenues that are earmarked for specific purposes. The laws could have some effect on the bottom line as lawmakers try to resolve a shortfall of $200 million for the fiscal year that begins Oct. 1. Gov. Robert Bentley has said he would call a special session this summer to pass the budget. Lawmakers have said they expect that to be in August. Sen. Arthur Orr, R-Decatur, who chairs the General Fund committee in the Senate, said he would meet with other senators to discuss the budget problems on Thursday. Orr said the meeting would be to seek some consensus on how to resolve the shortfall. Legislators rejected Bentley’s $541 million tax increase package during the regular session. The governor says that amount is needed to reliably fund key state services like Medicaid, prisons and mental health next year and beyond while repaying transfers used to prop up the budget in recent years. House Republicans proposed a smaller tax package of about $150 million but dropped it after being told it would not pass the Senate. lLawmakers passed a budget that would have cut spending from the General Fund by $200 million. Bentley vetoed it.


Morning Money

THE DOOMSDAY SCENARIO FOR HILLARY — POLITICO’s Ben White: “U.S. stocks continued their sharp decline on Tuesday, fueling talk of a worst-case scenario for both Wall Street and the broader U.S. economy heading into 2016. And it is one that could make it all but impossible for Hillary Clinton or any other Democrat to win the White House. … Under this scenario, a further collapse in China reignites fear in U.S. markets. A strengthening dollar hurts exports while job growth, which is already slowing, stalls out completely. Meanwhile, Janet Yellen and the Federal Reserve make a huge policy mistake and raise interest rates too soon, choking off what little growth we have.

“If all this comes to pass, markets could return to free-fall, the U.S. economy could tip back into recession and voter attitudes about the direction of the country — already highly negative — could hit historic lows. ‘The economy is already flirting with recession right now. It’s not there, but it’s a little too close for comfort,’ said James Rickards, a best-selling author and expert on economic and political risk. ‘And if Yellen hikes rates in a weak economy, it’s going to start an emerging markets crisis like we saw in 1997. That would absolutely kill Hillary Clinton, Joe Biden or any other Democrat. They cannot win in that scenario.’”

NO PLAYBOOK — “It is a doomsday scenario that is not unfamiliar to Clinton’s campaign operation. Senior advisers do not expect all of these terrible things to come to pass, but they are aware they might. Still, the campaign plan is built around a middling economy continuing to grow around 2 percent or faster with the jobless rate still falling. In this scenario, Clinton can present her series of proposals to fix what’s wrong with the economy while counting on people feeling good enough about their situation to return a Democrat to the White House for another four years.

There is no playbook for running in a recessionary environment with panic coursing through financial markets, though Clinton supporters say even in a bad economy the GOP would have to come up with more compelling economic proposals. ‘Clearly the worse the economy is performing, the stronger the desire for change is likely to be,’ said Bill Galston, a scholar at the Brookings Institution.

“‘Everything becomes harder if an economy that is already not regarded as performing the way it should starts to do worse. Because that really calls into question the ‘let us continue and build on the foundation that’s been laid’ motif that any Democrat likely to get the nomination is going to have to put forward.’”

THE MOODY’S MODEL COULD TIP — “The grim scenario of a return to recession amid plunging markets is certainly not the most likely. Economists mostly still see decent growth the rest of this year and a jobless rate around 5 percent by the time of the 2016 election. An electoral model maintained by Moody’s suggests this kind of environment should narrowly favor a Democrat winning the White House. But there are already signals that current forecasts for the economy could be too rosy. The rate of job creation has slowed this year to a pace closer to 200,000 per month from 300,000 late last year. The jobless rate remained stuck at 5.3 percent the past two months after a long run of steady declines. A report out on Tuesday showed a slight tick down in major market home prices, taking some of the steam out Wall Street’s recovery.

“And Mark Zandi of Moody’s, who maintains the model, says a slight downgrade of economic performance would shift the electoral balance toward the GOP nominee.

‘Even a modestly less positive economy than I expect come Election Day will significantly flip the election results,’ Zandi said.

“‘Instead of the Democrats winning in a squeaker, the Republicans will win big. There are a handful of big states on the cusp of voting Democrat or Republican, and a small change in the economy in those states will significantly swing the election results. The presidential election outcome is on a razor’s edge and will be determined by even a small change in the economy’s performance.’”

EMAIL DU JOUR — From the illustrious Reba Shimansky on the above story: “The falling stock market will help Hillary. We had the best economy under the Clintons. It is GOP who create recessions and depressions and the Democrat clean up their messes. Only democrats know how to fix the economy.

LIBERAL GROUPS PRESSURE CLINTON ON WALL STREET — POLITICO’s Gabriel Debenedetti: “Eight liberal political groups are resuming pressure on Hillary Clinton over her Wall Street policies on Wednesday, releasing a letter that asks whether she supports legislation to ban financial companies from giving workers large bonuses before they join the government. The letter specifically points to two of Clinton’s State Department aides who came over from the banking world.”

CHINA SHARES RISE … THEN FALL AGAIN — Bloomberg: “China’s stocks extended the steepest five-day drop since 1996 in volatile trading as lower interest rates failed to halt a $5 trillion rout … The Shanghai Composite Index fell 1.3 percent to 2,927.29 at the close, after rising as much as 4.3 percent and declining 3.9 percent. The cuts in borrowing costs and lenders’ reserve ratios were announced hours after the benchmark measure closed with a 7.6 percent drop on Tuesday.

“Chinese equities have lost half their value since mid-June, as margin traders closed out bullish bets and concern deepened that valuations are unjustified by the weak economic outlook. The government has halted intervention in the equity market this week as policy makers debate the merits of an unprecedented rescue, according to people familiar with the situation.”

GOOD WEDNESDAY MORNING — Could this be the day U.S. shares finally decouple from China? Maybe. But if I actually knew the answer to that I would be in a different business.

THIS MORNING ON POLITICO PRO FINANCIAL SERVICES —  Patrick Temple-West on how the week’s market turmoil is fueling a political fight over the regulation of exchange-traded funds [].  For Pro’s subscriber-only coverage — and to get Morning Money every day before 6 a.m.– please contact Pro Services at (703) 341-4600or

CHANOS GOES ALL IN FOR BIDEN –  Bloomberg: “Jim Chanos, the hedge fund manager known for betting against companies, said he would back Vice President Joe Biden, who is considering seeking the Democratic nomination for president. ‘If the vice president is going to run, I would raise money for him and I would give to him personally,’ Chanos, 57, said in a telephone interview on Tuesday. ‘I’ve had no indication from him about what he’s going to do. I haven’t spoken to him.’

“Chanos, president and founder of New York-based Kynikos Associates, predicted the collapse of Enron Corp. in 2001. He has written his biggest checks to groups that support a broad range of Democratic candidates, such as his $100,000 donation in 2012 to House Majority PAC, a political-action committee backing Democrats in the House of Representatives, according to a tally of his donations by the Center for Responsive Politics. … The data show contributions to Barack Obama’s and John Kerry’s past Democratic presidential campaigns, but not to those of either Clinton or her husband, Bill.”

JEB’S CREAKY JUGGERNAUT — POLITICO’s Eli Stokols reports from Englewood, Colo.: “There are signs that Jeb Bush’s fundraising juggernaut is losing some momentum, after banking a stunning $120 million for his campaign and super PAC in the first half of the year. A prominent Florida donor backing Bush said the former Sunshine State governor and his supporting super PAC are having to work even harder to keep up the pace, as hard-money contributions have been harder to come by in recent weeks.

“‘The debate performance scared a few people,’ said Brian Ballard, a Tallahassee lobbyist backing Bush. ‘But I think the campaign’s trouble raising money right now is not because of his performance, but there’s some donor fatigue after that $100 million. I’ve been on some donor calls and it’s a hard sell for hard money.’”

WHY DID THE DOW TANK AGAIN? — Mohamed A. El-Erian on Facebook: “Today’s price action in the U.S. stock market reminded me of the good old days, some 15 years ago, on the emerging markets trading desk. A fast and furious multi-session selloff would be followed by an encouraging recovery — that is, until potential sellers and those going short would get an inkling that the base of buying was not that deep. As the selling resumed, buyers would immediately return to the sideline. With that, the market would brutally reverse, going from solid price gains to yet more losses.

“Today’s reversal in US stocks was particularly worrisome because it came after a seemingly perfect sequential setup: (i) Stabilization in Asian stock markets (outside of China); (ii) monetary policy stimulus by the PBoC, China’s central bank; (iii) a strong bounce in Europe; and (iv) a solid start and mid-session for US markets.

But all this mattered little into the close as the Dow embarked on its record point reversal to the downside…. It will raise doubts about the strength of the “BTD” (buy the dip) appetite. And it will also erode the faith that market participants have in the power of central banks to repress volatility.

FED FACES NEW MESS — WSJ’s Jon Hilsenrath: “Global central bankers are preparing to converge this week for the Federal Reserve’s annual retreat in Jackson Hole, Wyo., with a new economic mess on their hands. … Gathering at the mountain getaway in recent Augusts, the stewards of global currency have contended with the looming collapse of Lehman Brothers in 2008, global deflation worries in 2010, serial Greek fiscal meltdowns and other dramas. This time, they confront a big disparity between the world’s two largest economies, the U.S. and China.

“The U.S. has recovered enough from the last financial crisis that Fed officials have been preparing to raise interest rates to prevent overheating down the road. But China appears to have lost economic momentum, driving the People’s Bank of China to cut rates and take other measures to boost growth. Markets have responded to these conflicting forces with turbulence, creating new uncertainties for policy makers about the economic outlook.

STOCKS CAN’T BOOM FOREVER — NYT’s David Leonhardt: “The smart advice during a falling stock market is not to panic. Selling out of panic often leads investors to miss out on the market recoveries that typically follow a drop, because it’s all but impossible to predict when such a recovery will begin. … But here is some different advice that’s worth hearing during a week like the current one: Don’t expect the next few decades of stock returns to be as good as the last few. Be prepared for a period in which market dips are not inevitably followed by bull markets that make the dips look like footnotes. Be prepared for something like mediocrity or even disappointment.

“Why do I say this? Because stocks can’t boom forever. And the last 30 years, for all of their ups and downs, have mostly resembled one long boom. Stocks began rising in the early 1980s, and every market correction since then, including the financial crisis of 2007-8, has been quickly erased … As a result, stock prices today remain historically expensive, even after the declines of recent weeks. Stocks are more highly valued than at any point from the 1940s through the mid-1990s, relative to long-term corporate earnings.”

FRESH HELL AHEAD? — FT’s Robin Wigglesworth “The U.S. stock market recovery triggered by China’s efforts to buttress its economy unravelled in the last hour of the trading day, exacerbating concerns that the recent turmoil rattling global markets is far from over. The S&P 500 had jumped as much as 2.9 per cent early on Tuesday, clawing back some of its recent losses, after European and Asian bourses cheered China’s interest rate cut. … But the rally started to evaporate after 3 p.m. and by the closing bell the main U.S. equity gauge had fallen 1.3 per cent on the day, less than 1 point off the initial low touched after Monday’s opening dive and back at a level typically termed a correction.

… “Some analysts suggested that the late collapse could have been driven by investors selling exchange traded funds (ETFs), passive investment vehicles that typically rebalance their portfolio towards the end of the trading day. Nonetheless, the limp ending to the U.S. trading day underscored the lack of confidence in China’s economy turning the corner, and the unwillingness of investors to jump back into the stock market with both feet. … The recent turmoil has been severe enough for Ray Dalio, the head of Bridgewater, the world’s biggest hedge fund group, and former Treasury Secretary Lawrence Summers to suggest that the Federal Reserve could consider restarting quantitative easing rather than tighten monetary policy”

Tom Krebs knows securities.

HILLARY BUNDLERS SUMMONED TO NYC — POLITICO’s Gabriel Debendetti: Hillary Clinton’s top bundlers from around the country are set to descend on New York City for a day of conversations with top campaign staffers next Thursday, according to a person familiar with her fundraising plans. The itinerary includes a dinner with campaign manager Robby Mook and campaign chairman John Podesta, who will join the “Hillblazers” — Hillary Clinton backers who have raised $100,000 or more for the Democratic front-runner — at the end of the day.

“While the fundraisers have not been given details about the contents of the briefings they’ll receive, the meeting comes at a delicate time for the campaign. With Vice President Joe Biden more seriously considering a run, Clinton forces are eager to ensure that none of their backers defects from Brooklyn to Wilmington. And after a summer full of headlines about Clinton’s private email use as secretary of state, a number of prominent backers have expressed annoyance with how the controversy has been handled.”

POTUS Events

10:00 am || Receives the Presidential Daily Briefing
12:15 pm || Honors the 2014 WNBA Champion Phoenix Mercury; East Room
2:20 pm || Interviewed by local news anchors participating in “Live from the White House;” Diplomatic Reception Room

All times Eastern
Live Stream of White House briefing at noon

Floor Action

Congress is in recess.


Aug. 25, 2015   File As Soon As Possible to Maintain Eligibility for Advance Payments of the Premium Tax Credit

The IRS is sending letters to taxpayers who received advance payments of the premium tax credit in 2014, but who have not yet filed their tax return. You must file a tax return to reconcile any advance credit payments you received in 2014 and to maintain your eligibility for future premium assistance. If you do not file, you will not be eligible for advance payments of the premium tax credit in 2016.

If you receive a Letter 5591, 5591A, or 5596, you are being reminded to file your 2014 federal tax return along with Form 8962, Premium Tax Credit.  The letter encourages you to file within 30 days of the date of the letter to substantially increase your chances of avoiding a gap in receiving assistance with paying Marketplace health insurance coverage in 2016.

Here’s what you need to do if you received a 5591 or 5591A letter:

  • Read your letter carefully.
  • Review the situation to see if you agree with the information in the letter.
  • Use the Form 1095-A that you received from your Marketplace to complete your return. If you need a copy of your Form 1095-A, log in to your or state Marketplace account or call your Marketplace call center.
  • File your 2014 tax return with Form 8962 as soon as possible, even if you don’t normally have to file.
  • If you have already filed your 2014 tax return with Form 8962, you can disregard the letter.

Here’s what you need to do if you received a 5596 letter:

  • Read your letter carefully.
  • Review the situation to see if you agree with the information in the letter.
  • Use the Form 1095-A that you received from your Marketplace to complete Form 8962. If you need a copy of your Form 1095-A, log in to your or state Marketplace account or call your Marketplace call center.
  • File your 2014 tax return with Form 8962 as soon as possible, even though you have an extension until October 15, 2015, to file.
  • If you have already filed your 2014 tax return with Form 8962, please disregard this letter.

For more information, see the Affordable Care Act Tax Provisions for Individuals and Families page on