Securities Attorney Briefing 29 September 2016


Hot Mess: How Goldman Sachs Lost $1.2 Billion of Libya’s Money

Moammar Qaddafi’s Libya was a miserable place for a business trip. In 2008, a few years after renouncing its nuclear and chemical weapons program, the desert nation remained a menacing and ugly place, with cratered highways, awful restaurants with no booze, and Qaddafi’s leathery visage everywhere, staring balefully down from billboards. The dreary capital, Tripoli, sat at the edge of the Sahara, in the least barren sliver of a country defined in the West by dictatorship, terrorism, and billions of dollars’ worth of oil. Goldman Sachs’s Youssef Kabbaj was one of the few that enjoyed the commute. A securities salesman based out of the bank’s London headquarters, Kabbaj found that Libya reminded him of his native Morocco, and he considered the ruins in Tripoli’s old quarter enchanting. The city had a single decent hotel, the Corinthia, a crescent hulk the color of sand, and that year Kabbaj was such a frequent guest that he stored a rack of pressed suits there at all times. With slick black hair, round cheeks, and a mischievous smile, he was fluent in English, French, Arabic, and the language of international finance. Qaddafi’s peaceful turn had reopened Libya to Western banking for the first time in two decades. Its $60 billion in oil wealth, no longer dammed up by international sanctions, was ready to flood into the market, as directed by the Libyan Investment Authority, Qaddafi’s brand-new sovereign wealth fund. With his North African pedigree, Kabbaj had been one of the first at Goldman to spot the opportunity. The LIA had become his biggest client, transforming him in a year from rookie salesman into possibly the No. 1 rainmaker at the world’s most profitable investment bank. He was 31 years old. More:

Deutsche Bank Is the Darling of the Short-Sellers

In a market full of crowded trades, few have become as fashionable as the bet that Deutsche Bank’s stock price will keep on falling. Hedge funds, large and small, are shorting the stock. Long-term institutional investors are dumping their positions. And Wall Street’s secretive but influential community of independent research providers has been proclaiming for months that Germany’s largest bank does not have enough cash to survive. Even Tidjane Thiam, the chief executive of Credit Suisse, which itself has been the target of hedge funds, said at a conference on Wednesday that Europe’s banks were “not really investable.” This echo chamber of doom — fed in recent days by a cycle of reports in Germany that the government might step in, only to be followed by denials by Berlin — brings to mind some of the fears over Bear Stearns and Lehman Brothers before those institutions suddenly lost the trust of investors and clients alike in the dark days leading up to the 2008 financial crisis. With 1.8 trillion euros in assets and 220 billion euros of cash on hand, Deutsche Bank, strictly by the numbers, would seem to be in no danger of failing — a point that the bank’s chief executive, John Cryan, has been making repeatedly. And Deutsche Bank’s shares rallied on Wednesday, when the bank said that it had sold Abbey Life, its British insurance unit, for a little over $1 billion, feeding hopes that a spate of asset sales would bolster its finances. Still, for a large financial institution like Deutsche Bank, which relies on volatile short-term loans to fund a risky portfolio of derivatives, securitized mortgages and other hard-to-sell assets, market confidence can be fickle — there one moment, gone the next.

CIA Director Calls 9/11 Legislation ‘Badly Misguided’

CIA Director John Brennan warned against the national security risks of legislation that would allow families of victims of the September 11, 2001 terror attacks to sue the government of Saudi Arabia on Wednesday. “I think the legislation is badly misguided and doesn’t take into account the negative impact on U.S. national security,” Brennan told Jeffrey Goldberg at the Washington Ideas Forum presented by The Atlantic and the Aspen Institute. Brennan added: “We all recognize that the emotions associated with 9/11 are still quite palpable [and] …. the victims’ families are still seeking justices, but the 9/11 commission report said that there was no evidence that the Saudi government as an institution or senior Saudi officials, individually, were responsible for the 9/11 attack.” Congress voted to override the president’s veto on Wednesday, paving the way for the bill to become law and marking the first successful veto override of the Obama presidency. The CIA director cautioned that the implications of the legislation extend far beyond potentially damaging the relationship between the United States and Saudi Arabia.  “I think there’s a very, very dangerous slippery slope that we’re going to get on,” Brennan said, adding that “foreign governments are going to start to pass similar type of legislation that is going to haul the United States into court overseas, even for the most frivolous charges and allegations for what the U.S. has done overseas.” During the course of a wide-ranging conversation on U.S. national security and foreign policy, Brennan declined to say outright that Russia has intervened in the U.S. presidential election. But he warned that “Russia has tremendous capabilities in the cyber realm” and that “the Russians have been very active globally in trying to influence political developments in a variety of countries, including engaging in election politics and manipulation in countries overseas.” Yet the CIA director did not refute the possibility that, as Goldberg put it, Russia “is trying to, in essence, hack our election.” “The U.S. government right now is very much aware and working on the issue of who might be trying to get into and intrude in the electoral systems What we do at CIA is to look at a country’s capabilities, look at their intent, look at things that they have done in the past, and determine whether something that certainly looks like a duck, smells like a duck and flies like a duck, whether it’s a duck or not.” There is a widespread belief among cyber security experts that state-sponsored Russian hackers were responsible for the hack that led to leaked emails from the Democratic National Committee released on the eve of the Democratic National Convention. Last week, Democratic senator Dianne Feinstein and congressman Adam Schiff formally released a statement saying that “based on briefings,” they had “concluded that the Russian intelligence agencies are making a serious and concerted effort to influence the U.S. election.” The statement added that “this effort is intended to sow doubt about the security of our election and may well be intended to influence the outcomes of the election—we can see no other rationale for the behavior of the Russians.” Trump has praised Russian President Vladimir Putin during his campaign, provoking criticism and anxiety among high-profile Republicans. Hillary Clinton’s campaign manager Robby Mook said in August that there are “real questions” as to whether Trump is “just a puppet for the Kremlin in this race.”

Erdogan Adviser Says Turkey Should Consider Buying Deutsche Bank

Deutsche Bank AG’s crashing share price is prompting takeover speculation from unexpected places. Yigit Bulut, a chief adviser to Turkish President Recep Tayyip Erdogan, said the country must consider using a new wealth fund or a group of state-owned banks to buy the Frankfurt-based company. Bulut made the proposal on Tuesday via his Twitter account, saying Germany’s largest lender should be made into a Turkish bank. The stock of Europe’s biggest investment bank has slumped by more than 50 percent over the past year, falling to a record low on Tuesday, over concerns about its weakening financial position and penalties in the U.S. tied to mortgage-backed securities. Bulut’s comments come after Moody’s Investors Service on Sept. 23 cut Turkey to junk, citing slowing economic growth and deteriorating credit fundamentals. “For months on TV programs, I’ve been calling on Turkey’s private and public capital: ‘Some very good companies in the EU are going to fall into trouble and we need to be ready to buy a controlling stake in them,’” Bulut wrote on Twitter. “Wouldn’t you be happy to make Germany’s biggest bank into Turkish Bank!!” The suggestion may ignite political opposition in Germany, where Deutsche Bank — for all its troubles — has long been viewed as a national champion and has played an integral role in Germany’s economy.

Darkness and fear in Aleppo as the bombs rain down

BEIRUT — The bombings at night are the worst. There is no electricity in the rebel-held portion of eastern Aleppo, and the warplanes flying overhead target any light piercing the blackness beneath. So families huddle together in the dark, gathered in one room so that they don’t die alone, listening to the roar of the jets and waiting for the bombs to fall. After they do, rescue workers venture out, navigating the rubble and craters left by earlier bombings, to dig out victims without headlights or lamps. They haul them to hospitals swamped with patients being treated on the floor by doctors who barely sleep and must choose which lives to save and which to let go. In the small hours of Wednesday morning, it was the turn of two hospitals to be hit in the dark. The hospitals, the two biggest in eastern Aleppo, were struck by bombs shortly after 3:30 a.m., killing two patients and putting the buildings out of use for the victims of more bombings later in the day. Such is the tenor of life in rebel-held Aleppo, which had become accustomed to regular airstrikes in the four years since rebels seized control of the eastern portion of the city — but nothing like the intensity of the past week. The collapse of a U.S.- and ­Russian-sponsored cease-fire on Sept. 19 was followed by the launch of a Syrian government offensive, backed by Russian airstrikes, to recapture the neighborhoods held by the rebels. The operation heralded what residents, doctors and medical workers describe as the most ferocious bombardments yet. At least 1,700 bombs struck eastern Aleppo in the first week after the cease-fire’s collapse, according to the White Helmets civil defense group, a volunteer force funded by the United States and Europe that goes to the aid of people buried by buildings collapsed by bombs. Still, they keep raining down, with new bunker-buster bombs designed to be used against military installations blasting apartment buildings that house families. More:

The Real Scandal Behind The Panama Papers

After the leak of more than 11 million documents detailing sensitive, and often terrifying, information about offshore financial and legal activities, the Nobel-laureate economist Joseph Stiglitz was enlisted to help Panama reform its practices. But nothing could have prepared him for what came next.   confess that my jaw dropped when I looked beyond the headlines about the Panama Papers last spring and began to read the fine print. “Panama Papers” is shorthand for the widely publicized report of the International Consortium of Investigative Journalists, originally published on April 3, 2016. The story broke simultaneously on the I.C.I.J. Web site and in newspapers around the world and detailed what had been going on behind a cloak of secrecy. An enormous leak of 11.5 million documents from the Panamanian law firm Mossack Fonseca provided the investigative journalists with a trove of information about 200,000 entities incorporated in offshore havens—companies whose real owners were difficult or impossible to trace. The newspaper Süddeutsche Zeitung had obtained the documents; realizing that to analyze the data was beyond its own capacities, it enlisted the help of the I.C.I.J., which worked for a year through 107 media organizations in 80 countries before breaking the story. Panama is but one of a large number of “offshore” corporate havens, which include the British Virgin Islands, Cyprus, and the Cayman Islands. Often, the owners of a corporation in one secrecy haven will be a web of corporations incorporated into another. Why the secrecy and the dizzying complexity? In many instances, it is to throw law-enforcement agencies, tax collectors, and investigative journalists off the scent. The range of alleged activities encompassed by the Panama Papers was broad—from tax evasion and tax avoidance to money laundering associated with a variety of nefarious activities. The range of public figures who made an appearance in the documents was equally impressive. The publicity brought down the Icelandic prime minister, and forced Britain’s prime minister at the time, David Cameron, to explainwhy his father’s name appeared in the documents. The prominence of Putin associates in the Panama Papers led to accusations (from Moscow) that the revelations were a Western plot. China, too, had its share of prominent people represented. As Mark Pieth, a Swiss lawyer and anti-corruption expert at the University of Basel, put it in an interview this summer with The Guardian: “I have had a close look at the so called Panama Papers and I must admit that, even as an expert on economic and organized crime, I was amazed to see so much of what we talk about in theory was confirmed in practice.” The newspaper itself noted that the Panama Papers may include “evidence of crimes such as money laundering for child prostitution rings.” Years ago, after serving as chief economist of the World Bank—where I saw the role that corruption, tax evasion, and money laundering play in bleeding developing countries of money they need for development—I had urged that secrecy havens be shut down. With Leif Pagrotsky, Sweden’s trade minister at the time, I published an opinion article on the subject in the Financial Times. These centers are a cancer. The lack of transparency at their heart undermines the functioning of the global economy. What the Panama Papers showed was that matters were far worse than I had imagined. More:

U.S. to Send 600 More Troops to Iraq to Help Retake Mosul From ISIS

WASHINGTON — President Obama has authorized sending an additional 600 American troops to Iraq to assist Iraqi forces in the looming battle to take back the city of Mosul from the Islamic State, United States officials said on Wednesday. The announcement means that there will soon be 5,000 American troops in Iraq, seven years after the Obama administration withdrew all American troops from the country. Donald J. Trump, the Republican presidential nominee, has criticized both Mr. Obama and former Secretary of State Hillary Clinton, the Democratic nominee, for that decision. Defense Secretary Ashton B. Carter, traveling in New Mexico, said the additional troops would help with logistics as well as providing intelligence for Iraqi security forces in the fight for Mosul. Gen. Joseph F. Dunford Jr., chairman of the Joint Chiefs of Staff, said last week that Iraqi forces would be ready to retake the city by early October. “These are military forces that will be deployed to intensify the strategy that’s in place, to support Iraqi forces as they prepare for an offensive,” Josh Earnest, the White House press secretary, said Wednesday. Administration officials insisted that the deployment was consistent with Mr. Obama’s policy not to commit American ground forces again in Iraq. Mr. Obama, who vowed to end the Iraq war in his 2008 presidential campaign, has been wary of increasing the number of American troops there. The officials said the Americans would be there to assist Iraqi and Kurdish forces, who they said were leading the operations to retake the Islamic State’s remaining territory. Mrs. Clinton said at an NBC News forum on national security this month that she would not put ground troops in Iraq “ever again.” Mr. Trump said in March that he would deploy up to 30,000 American troops in the Middle East to defeat the Islamic State.


You Do Not Want to Be On the Radar of the IRS Wealth Squad

The very rich are different from you and me. They even have their own IRS audit squad. Saturday marks the start of the fourth quarter, a time of financial reckoning, of crashing toward quotas and scrambling to reach year-end targets. Corporations and individuals alike rush to cut the income tax they’ll need to pay next year. Some go too far (or just miss things, or misunderstand what and how they need to report). The IRS collected $6.3 billion last year assessing taxpayers for underreported income. Among them are the big fish, honored with the IRS equivalent of a SWAT team. It’s called the Global High Wealth Industry Group, and it falls under the Internal Revenue Service’s Large Business and International Division. It’s also been called “The Wealth Squad” (PDF). The unit, launched in 2010, aims to “take a holistic approach in addressing the high wealth taxpayer population; to look at the complete financial picture of high wealth individuals and the enterprises they control, ” according to a description in an IRS revenue manual. The unit’s cases involve an individual’s tax return “and related income tax returns where the individual has a controlling interest and significant compliance risk is deemed to exist.” Things that can get sucked into these cases include “interests in partnerships, trusts, subchapter S corporations, C corporations, private foundations, gifts, and the like.” Any audit of Donald Trump’s tax returns, for example, would be by the Wealth Squad, said Charles Rettig, a principal with Hochman, Salkin, Rettig, Toscher & Perez, of Beverly Hills, and past chairman of the IRS Advisory Council. What are these examinations like? Rettig once described them as “the audits from hell that your grandfather warned you about.”  The teams involve “highly capable, experienced examination specialists, which include technical advisers to provide industry or issue-specialized tax expertise, specialists regarding flow-through entities (such as trusts, partnerships, LLCs), international examiners, economists to identify economic trends within returns, valuation experts and others,” he said. As of 2013, almost 25 percent of taxpayers whose adjusted gross income topped $10 million were audited. The Wealth Squad may aim higher. “I have a client with a net worth close to $1 billion, and their return was a small return for that group,” said Rosalind Sutch, a certified public accountant at Philadelphia-based Drucker & Scaccetti. “They are super focused on, like, the top 50 percent of the 1 percent-ers.” One area the Wealth Squad is always interested in is aircraft and whether it is “being adjusted for correctly,” Sutch said. “There are ways of accounting for personal use whether you’re an employee or not.” More:


Former A.I.G Chief Spars With Prosecutor at His Fraud Trial

Maurice R. Greenberg, the former chief executive of American International Group, clashed with a New York State prosecutor on Wednesday over the extent of his role in a transaction at the center of his civil accounting fraud trial. In sometimes-heated exchanges with the state trial attorney, David E. Nachman, during his second day on the stand in State Supreme Court in Manhattan, Mr. Greenberg was shown what was said to be evidence that he had received a memo from and met with Joseph H. Umansky, a former A.I.G. executive who outlined the possible transaction in question. But Mr. Greenberg said he could not recall the memo, and could say only that he “may have” reviewed it. “Remember, this is 16 years ago,” said Mr. Greenberg, 91, his voice rising. “I don’t remember everything 16 years ago.” Although he mostly denied any recollection, at times he acknowledged he had been interested in pursuing Mr. Umansky’s idea. The state has charged that the sham transaction, known as Capco, allowed A.I.G. to convert into investment losses $163 million in auto warranty insurance losses, which were incurred under a program begun by Mr. Greenberg’s son Evan. Some investors see investment losses as less significant than insurance underwriting losses. Mr. Greenberg and the former A.I.G. chief financial officer Howard I. Smith are on trial, accused of playing a role in engineering bogus transactions that improved the appearance of A.I.G.’s financial results more than a decade ago. The case was first filed by Eliot Spitzer in 2005, when he was New York State attorney general. The other transactions at issue, arranged with General Reinsurance Corporation, allowed A.I.G. to increase its reserves by $500 million in 2000 and 2001, at a time when investors were concerned about the insurer’s reserve levels.


Wells Fargo scandal reignites debate about big bank culture

In the aftermath of the 2008 financial crisis, the banking industry sought to address an ethics crisis with surveys, town hall meetings, appointments of overseers and mechanisms for employees to report malfeasance. Now, the high-pressure sales scandal at Wells Fargo & Co (WFC.N) provides more evidence that large U.S. banks may have little to show for the effort. Bank consultants say tens of millions of dollars are spent each year on initiatives to build a culture of integrity, partly at the urging of regulators such as the Federal Reserve Bank of New York and the U.S. Office of the Comptroller of the Currency.

Octavio Marenzi, co-founder of Opimas, a management consultant that focuses on the finance industry, said banks have spent a lot of money researching their culture and updating ethics handbooks – with little impact. “A lot of what the banks are doing are superficial attempts,” said Marenzi. “It’s more window-dressing than anything else.” The continuing spate of scandals reinforces doubts about the effectiveness of such efforts. Wells Fargo’s debacle – involving the creation of as many as 2 million accounts without customers’ permission – is only the latest black eye for bankers. Other recent lapses have included widespread rigging of benchmark interest rates by traders at several banks; reports that JPMorgan Chase & Co (JPM.N) hired children of high-ranking Chinese officials to curry favor; and allegations in a London court that Goldman Sachs Group Inc (GS.N) bankers hired prostitutes for officials at Libya’s sovereign wealth fund to win business. Wells has also previously faced accusations of discriminatory mortgage lending practices from local and federal authorities. Wells, which has denied the accusations, reached a settlement with the U.S. Department of Justice in 2012.


In Virginia’s capital, a political ‘bad boy’ upends race for mayor

RICHMOND — As he listened to two African American teenagers complain about their decaying high school, the front-runner in this city’s race for mayor pointed to a photo of his wife and children in his campaign brochure. “These are my kids,” Joe Morrissey said, his finger on the image of the two babies as he greeted voters outside a supermarket. “I don’t want them going to a school with mold and no AC. That’s why I’m running.” Morrissey pointed to his wife, seated next to him in the photo, their then-2-month-old girl on her lap. “You recognize Myrna, don’t you?” Morrissey asked. Everyone in Richmond knows about Joe and Myrna Morrissey, as do many across Virginia and as far away as Europe, having feasted on a gush of salacious stories three years ago about the then-55-year-old state lawmaker who went to jail for cavorting with his 17-year-old receptionist. That he is white and she is black only added another level of intrigue to the saga. Yet, in the same way that Donald Trump defies the gravity of his many indelible missteps, polls show Morrissey, a Democrat, with an imposing lead over six opponents, a field that includes a well-funded protege to Gov. Terry McAuliffe (D). One candidate dropped out Tuesday, citing concern that the size of the field would split the vote and ensure Morrissey’s victory. Morrissey’s strength is rooted in his support among working-class African American voters who have viewed him as their defender in his varying roles over the years — Richmond’s chief prosecutor, Virginia state delegate and defense attorney. His one endorsement is from the Richmond Crusade for Voters, a 60-year-old organization that promotes black participation in city politics. Myrna Warren is now Morrissey’s 20-year-old wife — the couple married in June — and she has become a centerpiece of his unlikely quest to become Richmond’s next mayor, a seat once held by no less than Sen. Tim Kaine, the Democrats’ vice-presidential nominee. At a time when American politics is dominated by two presidential candidates with mountains of personal baggage, Morrissey, now 59, is starring on his own stage with enough proverbial Samsonite to fill a fleet of cargo planes. More:


Court gives green light to suit over Kentucky Retirement Systems’ alts investments

A lawsuit alleging the Kentucky Retirement Systems, Frankfort, illegally invested county employees’ retirement assets in private equity and hedge funds can move forward, a state appeals court ruled on Friday. In 2014, city of Fort Wright, Ky., filed a class-action lawsuit against the board of the $15 billion KRS alleging board members breached their fiduciary and statutory duties by investing funds of the County Employees Retirement System in unauthorized high-risk and costly alternative investments. The statewide county employees plan is part of the overall Kentucky Retirement Systems. The pension fund board argued it was entitled sovereign immunity and the lawsuit was not valid. The court of appeals rejected that argument on Friday, upholding a previous trial court ruling. David L. Eager, interim executive director at KRS, said the pension fund will confer with its outside general counsel on the next steps and could reach a decision next week on whether or not to appeal.


U.S. to Bar Arbitration Clauses in Nursing Home Contracts

The federal agency that controls billions of dollars in Medicaid and Medicaid funding has moved to prevent nursing homes from forcing claims of elder abuse, sexual harassment and even wrongful death into the private system of justice known as arbitration. The agency, the Department of Health and Human Services, on Wednesday issued a rule that bars any nursing home or assisted-living facility that receives federal funding from inserting an arbitration clause into its contracts. The rule, which would affect 1.5 million nursing home residents, promises to deliver major new protections. Clauses embedded in the fine print of nursing home admissions contracts have pushed disputes about safety and the quality of care out of public view and into arbitration. The system has helped the nursing home industry reduce its legal costs, but it has stymied the families of nursing home residents from getting justice, even in the case of murder. A case involving a 100-year-old woman who was found murdered in a nursing home, strangled by her roommate, was initially blocked from court. So was a case brought by the family of a 94-year-old woman who died at a nursing home in Murrysville, Pa., from a head wound that had been left to fester. The cases were the subject of a front-page article in The New York Times last November. “The sad reality is that today too many Americans must choose between forfeiting their legal rights and getting adequate medical care,” Senator Patrick Leahy, a Vermont Democrat, said in a statement on Wednesday. The new rule comes after officials in 16 states and the District of Columbia urged the government to cut off funding to nursing homes that use the clauses, arguing that arbitration kept patterns of wrongdoing hidden from prospective residents and their families. More:


The Sweet Irony of Trump’s Biggest Campaign Problems

Once again, Donald Trump was left sputtering. He was looking at Hillary Clinton and hearing her speak, but it was a much lesser-known figure who was ultimately responsible for his fury: Venezuelan-born Alicia Machado, 1996’s Miss Universe. An immigrant who becomes a U.S. citizen and ruins Trump’s week. A defiant Trump who pushes a clearly unfavorable news story into extra news cycles because he’s temperamentally incapable of admitting wrongdoing. For first-generation Americans like myself, there is nothing sweeter than watching Trump’s locomotive of jingoism derailed by folks who came to this country because they believed it was already great and wanted to contribute to that greatness. On Monday night, Clinton deftly walked viewers of the most-watched presidential debate in American history through Trump’s torment of Machado, who gained weight after winning the Trump-owned beauty pageant in 1996. Clinton told the audience that her rival for the presidency called Machado, then a teenager, “Miss Piggy” and “Miss Housekeeping.” Trump tried to interrupt: “Where did you find this? Where did you find this?” “Donald, she has a name,” Clinton said. “Her name is Alicia Machado. And she has become a U.S. citizen and you can bet she is going to vote this November.”

What Trump didn’t know, at the time, is that Clinton’s campaign had already cut an ad featuring Machado, which it sent reporters at the conclusion of the debate. Machado had already sat for a feature and photo shoot with Cosmopolitan magazine, and went on a media blitz on Tuesday. She grew emotional discussing her experiences during a prime-time interview on CNN. Journalists dug up vintage coverage of a suited-up Trump forcing Machado to work out in front of reporters. Machado has said that she suffered from anorexia and bulimia for years. (At the time, CNN’s own headline was, “Expanding Miss Universe Works to Shed Pounds.”) Meanwhile, Trump doubled down. “She gained a massive amount of weight, and it was a real problem,” he said on Fox & Friends the morning after the debate. Machado is an immigrant who has displayed emotional vulnerability—two of the traits Trump’s campaign values least. But she’s not the first such person to lay a trip wire in front of Trump. He also denigrated the sacrifices made by Khizr and Ghazala Khan, the Pakistani-American parents of Humayun Khan, a U.S. soldier who died fighting in Iraq in 2004. “Let me ask you: Have you even read the U.S. Constitution? I will gladly lend you my copy,” Khan said at the Democratic National Convention. “In this document, look for the words ‘liberty’ and ‘equal protection of law.’ . . . You have sacrificed nothing—and no one.” Trump threw the book at the Khans. Of Ghazala Khan, who stood silently by her husband as he made his remarks at the convention, Trump suggested that the mother of a dead U.S. soldier “wasn’t allowed to have anything to say.” She responded that she was too overcome with grief for her son to speak. And she countered Trump’s slur with one of the campaign’s most eloquent and heartbreaking lines, imploring him to consider their story as a parent: “Mr. Trump, feel my pain, and you will be better for it.”

In an average of polls, Clinton opened a nearly eight-point lead in the ensuing two weeks after the convention. Yes, Clinton’s deployment of these two immigrant stories is, in part, political gamesmanship. But Trump’s responses—delivered at great cost to himself—reveal the type of man he is. The Republican candidate has yet to learn his lesson, perhaps because he doesn’t consider the likes of the Khan family and Alicia Machado as worthy of a place in American political discourse. He’s not alone: Breitbart is replete with article accusing naturalized immigrants—also known as American citizens—of “disenfranchising Americans.” They mean white Americans. But there are also millions of Americans who saw their own father in the way Khizr Khan pulled his pocket constitution out of his jacket pocket, and who see in Machado a mother, sister, or friend who has been victimized by a jackass in an ill-fitting suit. And, yes, you can bet we’re going to vote in November.


Appeals court: Ballot selfie ban unconstitutional

A federal appeals court has ruled that New Hampshire’s ban on voters taking and publishing photos of their voted ballots is unconstitutional. The Boston-based 1st Circuit Court of Appeals on Wednesday upheld a lower court ruling that the law, revised in 2014, ran afoul of the First Amendment because lawmakers could not show that it was tailored to the purported threat of vote-buying and voter intimidation. The unanimous, three-judge appeals court panel also questioned how serious and present a threat that was. “Digital photography, the internet, and social media are not unknown quantities – they have been ubiquitous for several election cycles, without being shown to have the effect of furthering vote buying or voter intimidation. As the plaintiffs note, ‘small cameras’ and digital photography ‘have been in use for at least 15 years,’ and New Hampshire cannot identify a single complaint of vote buying or intimidation related to a voter’s publishing a photograph of a marked ballot during that period,” Judge Sandra Lynch wrote, in an opinion joined by Judges Ojetta Thompson and Kermit Lipez. “The prohibition on ballot selfies reaches and curtails the speech rights of all voters, not just those motivated to cast a particular vote for illegal reasons,” Lynch added. “New Hampshire does so in the name of trying to prevent a much smaller hypothetical pool of voters who, New Hampshire fears, may try to sell their votes. New Hampshire admits that no such vote-selling market has in fact emerged. And to the extent that the State hypothesizes this will make intimidation of some voters more likely, that is no reason to infringe on the rights of all voters.” “The ballot-selfie prohibition is like ‘burn[ing down] the house to roast the pig,’” the court’s opinion added, borrowing language from a 1957 Supreme Court ruling. The legal challenge to the anti-selfie law was brought by three New Hampshire voters who defied the ban in connection with a September 2014 primary. Social media firm Snapchat, the Reporter’s Committee for Freedom of the Press and others weighed in in favor of the challengers. A lawyer in the New Hampshire attorney general’s office, Stephen LaBonte, said he’d just received the opinion Wednesday afternoon and had no immediate comment. “We’re still looking at it,” he said. Lynch and Lipez were appointed by President Bill Clinton. Thompson is an appointee of President Barack Obama.

Bottom of Form

Student Loan Defaults Drop, but the Numbers Are Rigged

The good news is that Americans are taking longer to default on their federal student loans, the U.S. Department of Education announced Wednesday. The bad news is that the overall number of defaults continues to rise. How can this be? Well, defaults fell by a half percentage point, to 11.3 percent, compared with a year earlier. This measures the number of former students who went 360 consecutive days without making a payment since their first bill came due in fiscal year 2013. About 593,000 former college students out of 5.2 million total borrowers defaulted on their federal debt as of Sept. 30, 2015, the department said. Default rates at public and for-profit colleges dipped, while private, nonprofit schools experienced a slight increase. Former students who feel duped may take solace in knowing their alma maters could be on the hook, too. Schools whose former students default at sky-high rates—at least 30 percent for three straight years or more than 40 percent during the most recent year—can lose access to the nearly $130 billion in annual student loans and grants made available to colleges. With so much at stake, it’s probably not a surprise the system is being gamed. The default rate doesn’t accurately represent the degree to which former students struggle to repay their loans, federal officials and higher education experts have said. This is because of school efforts to push back eventual defaults to later years by persuading students to postpone payments under federally approved programs. Of 6,155 schools with default rates, just 10 may lose access to federal student aid as a result of their high default rates, the department said. The so-called cohort default rate published by the Education Department is “susceptible to artificial manipulation,” the White House said in a report last year. The share of borrowers paying down their loans, which the Obama administration publicly released for the first time last year, “more accurately reflect[s] the borrowing behavior of students than default rates,” the White House said.

The difference between the cohort default rate and the nonrepayment rate at junior colleges is about 25 percentage points, the White House said. At four-year schools, it’s about 12.5 percentage points. For-profits have a 30 percentage-point differential. That’s a lot of misery missing from the numbers. Student loan default has taken on critical importance as debt burdens surge to record levels, risking the spread of contagion to the broader economy as struggling debtors cut spending and other forms of borrowing. Some 41.5 million Americans collectively owe nearly $1.3 trillion on their federal student loans, Education Department data as of June 30 show. About one in every four borrowers is either delinquent or in default. Total indebtedness has doubled since 2009.


California Treasurer Suspends Ties With Wells Fargo

Citing Wells Fargo’s “venal abuse of its customers,” the California treasurer took the unusual step on Wednesday of suspending many of its ties with the bank as it continues to reel from the scandal over the creation of as many as two million unauthorized bank and credit card accounts. The state treasurer, John Chiang, said he was suspending Wells Fargo’s “most highly profitable business relationships” with the state for at least a year, including the lucrative business of underwriting certain California municipal bonds. “How can I continue to entrust the public’s money to an organization which has shown such little regard for the legions of Californians who placed their financial well-being in its care?” Mr. Chiang wrote in a letter on Wednesday to the bank’s chairman and chief executive, John G. Stumpf, and the bank’s board members. Mr. Chiang said he was also suspending his office’s investments in Wells Fargo securities and would suspend the bank’s work as a broker-dealer hired to buy investments on the treasurer’s behalf. The suspensions will last for one year, Mr. Chiang said, or longer if he finds evidence that Wells Fargo has “re-engaged in the same behavior” or failed to abide by the terms of a consent order it signed with the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency. The move could cost Wells millions of dollars in banking fees because California is the largest issuer of municipal debt in the country. The state treasurer manages $75 billion worth of investments.

But more than anything the move is symbolically hurtful for Wells, which has a large presence in California, particularly in San Francisco, where its top executives work and live. Mr. Chiang, a Democrat who is running for governor in 2018, said his office had “long relied on Wells Fargo, our oldest California-based financial institution, as a partner to meet the state’s investment and borrowing needs.” So far this year, California has sold about $50 billion in municipal debt out of total of about $318 billion issued nationwide, according to Municipal Market Analytics, a research firm.


Cyberattacks on personal health records growing ‘exponentially’

 This year marks the 20th anniversary of the Health Insurance Portability and Accountability Act, better known as HIPAA. Since it took effect, doctors’ offices, hospitals and other health-care providers have been very careful about releasing information. Sometimes frustratingly so. I’ve had providers refuse to send my information to me by email, because that form of communication is considered less secure than the now-ancient practice of faxing. A new Government Accountability Office report shows that concern is warranted, now more than ever. In 2015, 113 million electronic health records were breached, a major leap over the 12.5 million the year before. In 2009, the number was less than 135,000. The number of reported hacks and breaches affecting records of at least 500 individuals rose from none in 2009 to 56 last year, almost double from 2014. “The magnitude of the threat against health care information has grown exponentially,” GAO said, citing a 2015 study by the KPMG accounting firm. Electronic health records are not just convenient. They also provide a cost-efficient, valuable service in our fragmented health-care system. Modern technology allows different providers, say a primary care doc and a specialist, to share information about the same patient. Without that, care can suffer and health-care spending can grow unnecessarily. “Lack of care coordination can lead to inappropriate or duplicative tests and procedures that can increase health risks to patients and poorer patient outcomes,” GAO said. It previously reported that fragmentation can increase health care costs by $148 billion to $226 billion per year. But electronic health records come with a cost. As cyber thieves become bolder, more creative and more successful, the risks to our personal information increases. That includes everything from Social Security numbers to medical conditions. Health care is considered so important to that it has been declared part of the nation’s critical infrastructure. Critical infrastructure, GAO explained, is “so vital to the United States that the incapacity or destruction of such systems and assets would have a debilitating impact on the national public health or safety, nation’s security, or national economic security.”


Fox News Tells Hosts to Stop Citing Unscientific Polls Showing Trump Won Debate

In a memo Tuesday, Fox News vice president of public-opinion research Dana Blanton reminded the network’s talent that online post-debates polls were unscientific and should not be cited in their reporting.

“As most of the publications themselves clearly state, the sample obviously can’t be representative of the electorate because they only reflect the views of those Internet users who have chosen to participate,” said the memo, obtained by Business Insider. Blanton noted that campaigns and supporters often directed people towards such polls in order to skew the results. “News networks and other organizations go to great effort and rigor to conduct scientific polls — for good reason,” Blanton continued. “They know quick vote items posted on the web are nonsense, not true measures of public opinion.” The memo comes amid a PR blitz by the Donald Trump campaign to reframe his Monday debate performance as a win. Online post-debate polls from websites like the Drudge Report showed Trump winning by wide margins, while scientific polls showed that voters thought Hillary Clinton trounced Trump. At least some Fox News hosts cited the unscientific polls showing Trump winning, rather than the scientific polls showing the opposite. Trump even specifically thanked the hosts of Fox & Friends for doing so.

UPDATE – 01:17 pm: A Fox News spokesperson noted that Hannity and Kilmeade, two hosts that cited the polls are on the opinion side of Fox News.


Donald Trump’s history of corruption: a comprehensive review

In the big-picture conversation around the 2016 presidential election, the major negative narratives about Donald Trump have tended to focus on his racism, his temperament, or his tendency to tell lies.

Yet there’s another important Trump trait that’s gotten some attention but really needs to get much more — he’s corrupt, and in a consistent way. Whenever Trump has been in positions of power or authority, he has demonstrated a pattern of trying to enrich himself by abusing the trust others have placed in him — whether it’s creditors, contractors, charitable givers, Trump University students, regulators, or campaign donors. Over the past several months — and, indeed, the past few decades — reporters have unearthed many alarming stories that show this They’ve reported on Trump’s many shady business practices. His shady charity. His shady fake university scam. His shady campaign spending. His many shady associates. And, last but by no means least, there is Trump’s refusal to release tax returns or other financial information that would shed further light on his business practices, associates, and philanthropic undertakings. Now, sometimes Trump’s abuses of trust entail breaking the law, and sometimes they’re within the bounds of the law. And sometimes the legality of Trump’s actions isn’t yet clear — as in the case of Trump University, which will face a fraud trial shortly after the election, and with some of the controversies around the Trump Foundation. But the common thread is that Trump screws people over to benefit himself. And despite the plethora of excellent reporting on this topic, many voters seem to be unaware of his troubling history here, and may view him primarily as a successful businessman who says some offensive things. A recent NBC News/Wall Street Journal poll, for instance, found that Trump had a 10-point advantage over Clinton on “being honest and straightforward.” Indeed, he is betting his campaign on his hopes that he can frame himself as an independent outsider free of special interest influence, to contrast with Hillary Clinton, whom he has dubbed “crooked.”  But Trump’s record makes it crystal clear that he’s more interested in rapaciously extracting what money he can and doing what he wants, with little regard to laws, rules, or people who aren’t Donald Trump. Furthermore, he’s repeatedly proven willing to violate norms about what sort of behavior is acceptable and ethical. And most importantly of all, if elected president, Trump would wield incredible power. Yet if you look at what he’s done with power in the past, suddenly this theme in his biography — his corruption — becomes among the most troubling of his many troubling qualities. There are many, many reasons to be concerned about a Trump administration’s ethics and potential to abuse power. Here are just a few. More:


Rolling Stone has come up with the 100 greatest TV shows of all time. My list was a little different.

 The Oct. 6 issue of Rolling Stone is out, with the magazine’s list of “The 100 Greatest TV Shows of All Time” on the cover. (No. 1? Hardly a spoiler alert needed – it’s HBO’s “The Sopranos.”)



Alabama Chief Justice Roy S. Moore Battles Latest Ethics Charges

MONTGOMERY, Ala. — The sequel was not quite the blockbuster media sensation of the original, when TV satellite trucks parked at the state judicial building for days on end. This may be due in part to the competing theatrics here and elsewhere these days — the criminal conviction of the House speaker, the possible impeachment of an allegedly philandering governor, not to mention the national political spectacle. But the storyline was utterly familiar, as was the leading man: the Alabama Supreme Court chief justice, Roy S. Moore, who was on trial here Wednesday for the second time in 13 years, on judicial ethics charges that could again cost him his seat on the bench. Gone was the inimitable set piece for that first episode — a 5,280-pound granite monument of the Ten Commandments, which had been stealthily installed in the lobby of the State Supreme Court and which Chief Justice Moore refused federal orders to remove. The trial this time centered on a four-page administrative order that the chief justice sent out in January to the state’s 68 probate judges, informing them of their “ministerial duty” not to issue marriage licenses to same-sex couples. This directive came eight months after a federal judge issued an order to the exact contrary and more than seven months after the United States Supreme Court found marriage a constitutional right for same-sex couples. The Southern Poverty Law Center filed a series of complaints, and in May the state’s Judicial Inquiry Commission, an oversight body, filed charges on six counts of violating the state canon of judicial ethics. Chief Justice Moore was suspended pending the outcome of this trial. Supporters of the chief justice rallied, with veterans of past protests here, in other states and even at the United States Capitol coming in from around the country with large colorful signs about sin, death and repentance, and facing off with counter protesters who wore rainbow flag capes and held signs declaring that “Y’all Means All.” Still, the turnout may not have been quite what it was in 2003.

“People are saying it’s dwindling,” said the Rev. Tom Ford, a Baptist pastor in Montgomery who spoke of freedom and righteousness while eating a Chick-fil-A sandwich on the courthouse steps. “But I just don’t think people understand this case as well as the other one.” Again, the trial took place in the State Supreme Court before the state’s Court of the Judiciary, a special nine-member panel of selected judges, lawyers and outsiders to the legal profession. And again, Chief Justice Moore was unrepentant in his testimony. “What is the law of the land?” he asked, grilling the prosecutor on federal and state judicial sovereignty. “What is the supreme law of the land?” The charges concern a series of cases going back to last year. In January 2015, Callie V.S. Granade, a federal judge in Mobile, ruled that Alabama’s ban on same-sex marriage was unconstitutional. Days later, Chief Justice Moore wrote a letter to the governor, denying that the federal government had the authority to redefine the institution of marriage and insisting that “we must oppose such tyranny.” All spring a judicial battle ensued, referred to by prosecutors as “a constitutional game of chicken.” Judge Granade expanded her ruling to apply to every probate judge in the state. The Alabama Supreme Court, meanwhile, said that the state’s law outlawing same-sex marriage was indeed constitutional and ordered probate judges to carry it out. Then on June 26, the United States Supreme Court ruled that the right to marry was guaranteed to same-sex couples. Judge Granade clarified that her orders were now fully in effect. The State Supreme Court, however, remained quiet on the status of the orders it had made to the contrary. More:

Cliff Sims joins Trump campaign as advisor, takes leave of absence as Yellowhammer CEO

 BIRMINGHAM, Ala. — Yellowhammer Multimedia Chief Executive Officer Cliff Sims is taking a temporary leave of absence from the company he founded to join Donald J. Trump’s presidential campaign as a Communications Advisor. Sims will be based in Trump campaign headquarters in Manhattan and will return to his duties at Yellowhammer after Election Day. No interim replacement will be made. In his absence, day-to-day company operations will be helmed by Chief Business Development Officer Brian J. Ellis and the daily Yellowhammer Radio program will be hosted by former state senator Scott Beason.

“Cliff is a world-class communicator and the Yellowhammer family is confident he will be an asset to the Trump campaign,” said Ellis. “Our team will continue producing the top-notch news and commentary that have made Yellowhammer Alabama’s most trusted media brand. We look forward to Cliff’s return after the election.” Initially launched as Sims’ personal blog, the Yellowhammer brand has expanded to, which attracts millions of monthly visitors; Yellowhammer Radio, a daily two-hour terrestrial radio program airing across central and north Alabama on its flagship station, Superstation 101 WYDE; and the Yellowhammer News Radio Network, which provides top and bottom of the hour news on both talk and music stations all over the state. In addition to the Yellowhammer platforms, Sims’ articles and opinions have been featured in national publications including The Washington Post, Fox News, Politico, The Huffington Post, The Daily Caller and TheBlaze. He has appeared on cable news as a political commentator and guest-­hosted the nationally syndicated Laura Ingraham Show. Sims previously founded Yellowhammer Strategies, a communications and digital media consulting firm. All campaign-related inquiries should be directed to the Trump campaign.


Fate of Alabama Chief Justice Roy Moore to be known within 10 days

The chief judge on an Alabama disciplinary panel says they’ll decide “as soon as possible” whether to remove Chief Justice Roy Moore from office. The nine-member Court of the Judiciary has concluded its hearing on allegations that Moore intentionally misused his office to try to block gay couples from marrying in Alabama. Chief Judge Michael Joiner said he did not anticipate a decision would come Wednesday. The charges involve an administrative order Moore sent six months after the U.S. Supreme Court ruled that gays can marry in every U.S. state. Moore told probate judges that because the Alabama Supreme Court had not rescinded the state’s gay marriage ban, they still remained bound by it.

Moore’s lawyer, Mat Staver, told the court that Moore’s order was merely a “status report” that “did not order them to disobey anything.” Moore was removed from office in 2003 for disobeying a federal court order to remove a Ten Commandments monument from the state judicial building. Attorney John Carroll, representing the judicial commission seeking Moore’s removal, said “we are here 13 years later because the Chief Justice learned nothing from that first removal. He continues to defy law.”


ABC Board drops rule on taking names of beer buyers, says law still requires it

The Alabama Alcoholic Beverage Control Board today dropped a proposed requirement for breweries and brew pubs to record the names, addresses, telephone numbers and birth dates of people who buy beer to take home. Board officials said brewers still must record the names and addresses of buyers under a provision of state law applying to manufacturers. Board Chairman Robert W. “Bubba” Lee said that requirement is in the law for tax audit purposes. The proposed rule would have also applied to Alabama wineries and distilleries. Sen. Bill Holtzclaw, R-Madison, said he would try to fine-tune the law next year so that the requirement doesn’t apply to breweries when they act as a retailer, selling beer for off-premises sales. Holtzclaw, who attended today’s meeting, was a supporter of the bill that passed earlier this year allowing Alabama breweries to sell beer-to-go from their tap rooms for the first time.

“It’s clear to me that it’s a manufacturer issue, which is where it needs to reside, and we’re capturing the name and address of who the manufacturer is selling to. “But when that manufacturer, that brewer, takes off his manufacturer’s hat and puts on a retailer’s hat is what we’ve created and where this needs to be addressed. “I’m committed to taking these concerns and fixing it through the legislative process.”

The ABC Board had advertised the proposed rule for public comment and it drew opposition from Free the Hops, a group that has successfully advocated for changes in beer laws, and the Alabama Brewers Guild. Dan Roberts, executive director of the guild, which represents about 25 breweries and brew pubs, said he was pleased the rule was changed. “I think it’s a testament that the rule-making process works,” Roberts said. However, Roberts questioned whether the state law on manufacturers should necessitate breweries keeping records of the names and addresses of retail customers. He said that law has been on the books since 1980 and has never been enforced that way. A 2011 law allowed breweries and distilleries to have on-premises sales. This year’s law allowed off-premises sales for breweries and brew pubs. Those sales are limited to 288 ounces per customer per day. He said the breweries have always had to keep records of sales to distributors and sales to customers in their tap rooms for tax purposes.

Roberts said that should still provide the accountability the ABC Board needs for tax purposes.


Joe Espy steps down as Gov. Robert Bentley attorney

Joe Espy, one of the attorneys representing Gov. Robert Bentley as he faces possible impeachment, has stepped down. Espy told on Wednesday he resigned as Bentley’s attorney because of a conflict of interest that arose with another of his clients: Victoryland greyhound race track outside Montgomery and its owner, Milton McGregor. The conflict, Espy said, came about when Bentley and state Attorney General Luther Strange sent a letter to the district attorney and sheriff in Macon County, where Victoryland is located. “It is widely known that VictoryLand began operations on September 13, 2016, and continues as of today’s date to operate electronic bingo machines,” the letter says. “This is a violation of Alabama law.” Espy said he met with Bentley on Monday, explained the conflict of representing parties on both sides and why he needed to step down as the governor’s lawyer. “As a result of the conflict, it was necessary and appropriate for me to withdraw,” Espy said. “I have done so. The governor is my friend and I wish him the very best.” Espy has been representing Bentley since last year as his personal attorney, receiving no state funds in compensation. Espy’s relationship with Victoryland goes back much further, he said. “I’ve been representing folks in East Alabama for six years,” Espy said. “And last week, a letter was written by the governor and General Strange and that put me in a conflict position. That put me in a situation that I did have a conflict, the governor understood it and I met with the governor on Monday to go over it with him. “He understood. We were both sad about it but it was what it was.”



The Democrats’ triple threat strategy by Ed Rogers

Now that the first debate is behind Hillary Clinton, the Democrats are feeling more confident. So looking ahead, what are the Democrats going to do to try and maintain that small advantage heading into November? First, Senate Minority Leader Harry Reid (D-Nev.) had the core responsibility of forcing Congress to stay bogged down for at least an extra week in another Washington budget battle that wasn’t flattering for the Republican majority. The Democrats had a vested interest in keeping Congress in town for as long as possible, so vulnerable Republicans couldn’t campaign back home. While this particular showdown might be just about over, it doesn’t change the fact that Reid has been the epicenter of the partisan vitriol that has existed in Washington for most of the last decade. He’s completely partisan and completely uninhibited by the truth or reason. Just look at this latest example: Reid didn’t care about the consequences of his actions, as long as he could push a purely Democratic agenda, make Republicans look bad and keep Republicans from heading back to their home districts to campaign. Reid’s impending retirement from the Senate could be the best thing to happen to bipartisanship in the last 10-plus years.

Next, the Democrats want to see more of the same from Clinton (and Donald Trump) in the next two debates. After mostly being proclaimed the winner of the first debate — regardless of the lack of impact it may have had on undecided voters — Clinton is back on the campaign trail. She is being viewed in a slightly more favorable light and she seems invigorated, which could mean that her message and delivery will be more effective over the next few weeks. Third, look for Clinton and the Democrats to unleash their money advantage. The details aren’t clear, but Team Clinton is sure to spend significantly more money than the Trump forces. They will spend heavily to try and drive up turnout among traditional Democratic groups who are not necessarily motivated to vote in this election, restore some enthusiasm for Clinton among young people and keep Trump’s negatives high. I’m betting TV rating points still matter in swing states, and Clinton will have substantially more than Trump. Also, while it can’t be part of a campaign plan, the Democrats are hoping for some October surprises that could benefit them. They won’t be thrilled if one October surprise is a trove of Clinton’s deleted emails, but there are likely to be multiple October surprises that could overshadow any such email leak.  Plus, I think the email scandal is already baked into Clinton’s price. More emails probably won’t mean much. Anyway, with all of the investigative journalism firepower directed at Trump, I can’t imagine there won’t be some doozies that will put him in a bad light. That’s not to say that Trump has shown any particular vulnerability to any negative revelations thus far in the campaign, but perhaps damaging disclosures just days before the election will make a difference to voters who are on the fence.

Morning Money

FIRST LOOK: JACK LEW TO COUNTER TRUMP IN MEXICO CITY: Treasury Secretary Jack Lew will give a speech on the U.S.-Mexico economic relationship at 10:30 am EDT on Thursday in Mexico City. And he will provide a very differ message than what you hear from Donald Trump on the campaign trail: “The people of the United States and Mexico need us to work toward a future that benefits from increased trade, secure borders, and stronger, more inclusive economic growth in our two great countries, and one in which our globally competitive and integrated supply chains tap new markets in other parts of the world.” Livestream.

NO SHUTDOWN! — As expected, Congress cleared a short-term spending bill to avoid a shutdown at the end of the week and allow members to skip town through Election Day (though presumably House Financial Services members will stick around for Thursday’s Wells Fargo hearing with CEO John Stumpf). Of course, the deal only lasts into the lame duck session in December. But they finished with two days to spare, so gold stars all around.

POLITICO’s Rachel Bade, Seung Min Kim and Ben Weyl with the details: “The weeks-long funding fight was resolved rapidly after a bipartisan deal was hatched by House Speaker Paul Ryan and Minority Leader Nancy Pelosi to ensure that Flint, Michigan’s water crisis is addressed in the lame duck session. The bill flew through Capitol Hill — first being passed by the Senate, 72-26, and hours later by the House, 342-85.

“The legislation, which had White House backing, would fund the federal government through Dec. 9, provide $1.1 billion to combat the Zika virus and send $500 million to Louisiana and other states facing natural disasters.” Read more.

WHY TRUMP’S TAX RETURNS MATTER — Third Way breaks down what’s in a tax return that you can’t learn from Donald Trump’s FEC financial disclosure: “How much a candidate paid in taxes … What tax breaks a candidate claimed … Whether a candidate has offshore accounts … A more truthful picture. Financial disclosures are reviewed by the FEC for compliance with reporting requirements, but they are not audited for accuracy like tax returns which carry fines and possible jail time for fraud …

“Because of that, a tax return presents less of an opportunity to inflate claims of wealth. Numbers down to the cent. Financial disclosures report assets in broad ranges (e.g. $1,001 – $15,000; over $1,000,000), while tax returns focus on the exact dollar figure of an asset” Read more.

FIRST LOOK II: GOLDMAN VS. LIBYA — New Bloomberg Businessweek International cover story by Matthew Campbell and Kit Chellel delves into “the story of how Goldman Sachs lost $1.2 billion of Libya’s money … Goldman may have made hundreds of millions off the oil-rich nation, but it has put banking dogma at risk.

“A bedrock principle of the securities business is that sophisticated investors can look out for themselves and don’t have recourse to the courts if they lose their shirts. If a huge sovereign wealth fund can successfully claim it was duped, who else can?” Read more.

FED GUVS PUSH BACK ON SUMMERS PAPER — Via POLITICO’s Victoria Guida: “Two members of the Fed Board of Governors this week pushed back against a paper coauthored by former Treasury Secretary Larry Summers, which suggested the banking system might be no safer than it was before the financial crisis or perhaps facing even more risks. The paper notes in particular that more stringent regulations may have lowered the stock price of the largest institutions relative to their book value.

“Fed Chair Janet Yellen told House lawmakers on Wednesday that she ‘disagree[s] significantly’ with the conclusion of the paper, arguing that it is ‘based on the notion that the markets properly evaluated the risks before the crisis.’ Fed Gov. Dan Tarullo on Monday, meanwhile, argued there are multiple reasons beyond regulations that banks’ franchise value might have declined.

WARREN SAYS CLINTON WON’T FLIP BACK ON TPP — Sen. Elizabeth Warren (D-Mass.) to NBC’s Chuck Todd: “During the negotiations, she said exactly what she said in her book. She was quite explicit once the TPP came out that this is not the deal, and she has said that she will block it if she is president of the United States. There’s no ambiguity here. She has been absolutely explicit about it, and we’ve got it — you got it on tape, you got it on video multiple, multiple times.” Video.

Things Warren now apparently has power over in a hypothetical Clinton administration: trade policy and personnel.

WHY SANDERS MATTERS — Via Democracy for America’s Neil Sroka on Wednesday’s join appearance: “The reason why Bernie Sanders is one of Sec. Clinton’s most important surrogates this year isn’t because he has legions of supporters in every single state or deep-seated strength with the young voters that are essential to a Democratic victory.

“What really makes Bernie so potent on the trail is his life-long, laser beam-like focus on the big populist progressive ideas — from debt-free college to expanding Social Security — that are popular with voters across the ideological spectrum and especially important to individuals making the choice between voting for Clinton or staying home, rather than voting for Clinton or voting for Trump.”

FIRST LOOK III: NEW GSE PROPOSAL — Milken Institute on Thursday will release a new report from Ed DeMarco and Michael Bright, “Toward a New Secondary Mortgage Market,” proposing “keeping Fannie and Freddie but as lender owned companies operating in a competitive environment. They also endorse having a government guarantee of MBS, but they use the Ginnifer Mae platform to do it” Report.

DRIVING THE DAY — Wells Fargo CEO John Stumpf, who floundered before Senate Banking, appears before House Financial Services at 10:00 a.m. … Before his speech, Lew will speak with Bloomberg TV’s David Gura at 9:00 a.m. … Third estimate of Q3 GDP at 8:30 a.m. expected to be revised up to 1.3 percent from 1.1 percent.

The Big Tease: Newsweek’s Kurt Eichenwald on Thursday morning is posting a story the magazine says will detail how Trump “violated the US embargo against Cuba.” Cover.

WHAT TO LEARN FROM DEUTSCHE BANK — Mohamed A. El-Erian on Bloomberg View: “Shares of Deutsche Bank … have lost more than half their value in the last year, and have been subject to exceptional volatility … The decline is fueling lots of speculation, about the adequacy of the bank’s capital cushion, its strategic positioning, the need to dispose of non-core units and its relations with the government.

“More generally, the bank’s struggles hold important lessons for investors in the European banking sector, where some institutions are still struggling to overcome the legacy of the global financial crisis. Deutsche bank is battling three simultaneous headwinds that also are roiling other financial institutions: Ultra-low interest rates … A persistently sluggish economy … Financial-market distortions, including interventions by central banks that were deemed improbable not so long ago”

BRAINARD GETS BRAINED — Fed Gov. Lael Brainard took some heat from Rep Scott Garrett (R-N.J.) on Wednesday (during questioning of Chair Yellen) about Brainard’s controversial donation to Hillary Clinton. One emailer suggests that could be good for her: “Is Garret’s questioning criticizing her support for the Clinton administration helpful in buttressing her against the attack from the left on her regulatory leanings?”

MM STILL SAYS SANDBERG — While Brainard is certainly on the list for Treasury, MM’s money remains on Facebook’s Sheryl Sandberg. She’s got ties to and knowledge of the financial industry and the Democratic party’s more pro-business wing but not so much that they could derail her nomination. And if Clinton is going to have a cabinet made up of 50 percent women it’s hard to imagine Sandberg won’t be part of it. Would she generate a little grumbling on the left? Probably. But that’s all it would be.

YELLEN: STRESS TEST CHANGES COMING SOON — POLITICO’s Victoria Guida: “Yellen … said proposed changes to bank stress tests, which wouldn’t take effect during the next cycle, will be published sometime soon. After a Monday speech by Fed Gov. Dan Tarullo, the Fed released a proposed rule exempting most banks with under $250 billion in assets from the qualitative piece of the stress tests, along with a couple of tweaks for all holding companies.

“But Tarullo also laid out other changes with an unspecified timeline, like new capital requirements for systemically important banks and the creation of a ‘stress capital buffer’ … Yellen noted the publication of the proposed rule on Monday, and added, ‘Other aspects of the proposal should go out shortly.’ The Fed is working to finalize a number of regulations, such as the requirement for systemically important banks to hold a certain amount of long-term debt, that will likely be published before the proposed stress test changes.”

CONGRESS REBUKES OBAMA ON JASTA — POLITICO’s Seung Min Kim: “Congress’ overwhelming rebuke of President Barack Obama on a bill allowing 9/11 victims to sue the government of Saudi Arabia — and the bitter finger-pointing that followed — was a fitting coda to the dysfunctional relationship between the Obama White House and Capitol Hill. In the twilight of his presidency, Obama on Wednesday was summarily handed the first successful veto override on a bill that was wildly popular in Congress, yet stoked sharply worded warnings from top administration officials about potential national security ramifications.

“Notably, many influential lawmakers shared the White House’s concerns about the legislation … which would allow victims of terrorism on U.S. soil to sue foreign governments found responsible for those attacks. But instead of siding with the administration, Congress ended up blaming the White House for being MIA in the fight.” Read more.

OPEC AGREES ON NEED TO CUT — WSJ’s Benoit Faucon, Georgi Kantchev and Selina Williams: “OPEC said its members agreed that they need to cut crude output to reduce the world’s supply glut, a shift for the 14-member group that was enough to send oil prices higher, even though reaching a deal remains far from certain. Members .. said they reached an understanding after a six-hour gathering in the Algerian capital, but deferred until November the fraught task of finalizing a plan to make those cuts.

“OPEC officials said a committee would be formed to determine how much each country would have to cut and then report to the group at its next meeting on Nov. 30 in Vienna. Determining which countries will cut and by how much is a delicate negotiation that has undone previous efforts to curb output and boost prices. Still, the group’s position after a session of informal talks that turned into an emergency meeting represents the first collective acknowledgment since oil prices cratered two years ago” Read more.

GOING DEEP ON TRADE — NYT’s Peter S. Goodman: “For generations, libraries full of economics textbooks have rightly promised that global trade expands national wealth by lowering the price of goods, lifting wages and amplifying growth. The powers that emerged victorious from World War II championed globalization as the antidote to future conflicts. In Asia, Europe and North America, governments of every ideological persuasion have focused on trade as their guiding economic force.

“But trade comes with no assurances that the spoils will be shared equitably. Across much of the industrialized world, an outsize share of the winnings have been harvested by people with advanced degrees, stock options and the need for accountants. Ordinary laborers have borne the costs and suffered from joblessness and deepening economic anxiety. … Policy makers under the thrall of neoliberal economic philosophy put stock in the notion that markets could be trusted to bolster social welfare” Read more.

CALIFORNIA SLAPS WELLS — FT’s Ben McLannahan: “California’s state treasurer has slapped a one-year ban on doing business with Wells Fargo and called for chief John Stumpf to resign, joining a chorus of disapproval for the bank at the centre of a deepening sham-account scandal. Three weeks ago Wells was fined $185m by US regulators for allowing employees to open as many as 2m accounts that customers did not authorise. The bank has since scrapped its sales goals and docked more than $40m from the pay of Mr Stumpf, its chief executive since 2007 and chairman since 2010, in an attempt to defuse a mounting political row.

“But on Wednesday John Chiang, treasurer of Wells’ home state, dismissed the moves, saying he would suspend all of the bank’s business relationships with his office for a year, while he monitored its compliance with sanctions imposed by regulators including the Consumer Financial Protection Bureau.” Read more.

YELLEN VOWS PROBE — Bloomberg: “Lawmakers called the CEO’s payment a first step. Federal Reserve Chair Janet Yellen vowed to probe a ‘disturbing’ pattern of misconduct at big banks. … The worsening backlash raises the stakes for Stumpf as he prepares to testify Thursday before the House Financial Services Committee. His decision to return compensation won’t affect the panel’s scrutiny of the bank, said a spokesman for the committee’s chairman, Texas Republican Jeb Hensarling.

“Senators already thrashed the CEO at a hearing last week, with Elizabeth Warren calling him a ‘gutless’ leader and demanding he resign. ‘I don’t know that giving back the money saves his job,’ said Ralph Cole, a money manager at Portland, Oregon-based Ferguson Wellman Capital Management Inc., which sold most of its Wells Fargo stake earlier this year and now owns about 100,000 shares. ‘Maybe they won’t be satisfied until they have his head.’” Read more.

POTUS Events

12:05 pm || Welcome the 2016 U.S. Olympic and Paralympic teams to the White House; East Room
2:35 pm || Departs White House en route to Jerusalem for the funeral of Shimon Peres

All times Eastern
Live stream of White House briefing at 12:45 pm

Floor Action

The Senate convenes at 10 a.m. but there will be no votes. The House is gone.

AROUND THE HILL— Senate Minority Leader Harry Reid and Sen. Chuck Schumer hold a press conference at 10:30 a.m. in S-325. House Minority Leader Nancy Pelosi holds her weekly press conference at 10:45 a.m. in HVC Studio A. Senate Majority Leader Mitch McConnell holds a press conference at 11 a.m. in S-325.

House Speaker Paul Ryan holds his weekly press conference at 11:30 a.m. in HVC Studio A. Sens. Sherrod Brown, Bob Casey, Jeff Merkley, Ed Markey and Mazie Hirono hold a press conference on TPP in S-325 at 12 p.m.

Paparazzi watch: The legendary Patti LaBelle will be on Capitol Hill today touting her new line of desserts during an invite-only reception and tasting hosted by Walmart. Bres could hardly contain his excitement when he heard the news.

OFF THE HILL— Speaker Ryan will participate in the Washington Ideas Forum starting at 9:05 a.m. Tune in:

THE OTHER HOUSE SPEAKER— House Freedom Caucus Chairman Jim Jordan is arguably the second most powerful House Republican, but can he transcend being more than just the leader of the 40-odd rebels who are a thorn in leadership’s side? Rachael traveled to Ohio for the Jordan deep dive.

Jordan’s power “seems to have reached a tipping point,” she writes. “An increasing number of Jordan’s Republican House colleagues are fed up with his tactics. In the case of the impeachment hearing, it gave him and his allies another cathartic moment to rake [IRS Commissioner John] Koskinen over the coals, but the exercise mostly just angered other Republicans.”

Damn the torpedoes: “Jordan stands by the group’s damn-the-torpedoes approach, on impeachment and plenty of other matters (and there have been plenty) … ‘We have to win on something,’ he said during an interview in his central Ohio district, frustration bubbling in his voice. ‘It’s like a football team that’s 0 and 9. The last week of the season, you’re not playing for the state playoffs; you’re playing to win the game and set the tone for the future.’”