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Monday, December 21, 2009

[Bloomberg.Com] Obama's Incompetent Jewish Zionist Economists

I have been too busy working on some finance software to pay much attention to this blog over the last week or so, but I really have to include this article as a followup to Summers' Incompetence: Washington, Harvard, Washington. The analysis fails to explain clearly both
  1. how truly imbecilic Summers was and also
  2. how elementary the risk management errors were that he and his colleagues made.
In a nutshell, former Harvard President Larry Summers, whom Obama appointed to be Director of the White House's National Economic Council, made investment decisions of such gross stupidity during his tenure that they almost blew away the University.

Most of Harvard's losses related to auction-rate securities. The blog entry Cornucopia of Conspiracy, Corruption, Manipulation discusses the trial of Ralph Cioffi and Matthew Tannin, who were among other things accused of fraud in auction-rate securities deals.

Harvard Swaps Are So Toxic Even Summers Won’t Explain (Update3)

By Michael McDonald, John Lauerman and Gillian Wee

Dec. 18 (Bloomberg) -- Anne Phillips Ogilby, a bond attorney at one of Boston’s oldest law firms, on Oct. 31 last year relayed an urgent message from Harvard University, her client and alma mater, to the head of a Massachusetts state agency that sells bonds. The oldest and richest academic institution in America needed help getting a loan right away.

As vanishing credit spurred the government-led rescue of dozens of financial institutions, Harvard was so strapped for cash that it asked Massachusetts for fast-track approval to borrow $2.5 billion. Almost $500 million was used within days to exit agreements known as interest-rate swaps that Harvard had entered to finance expansion in Allston, across the Charles River from its main campus in Cambridge, Massachusetts.

The swaps, which assumed that interest rates would rise, proved so toxic that the 373-year-old institution agreed to pay banks a total of almost $1 billion to terminate them. Most of the wrong-way bets were made in 2004, when Lawrence Summers, now President Barack Obama’s economic adviser, led the university. Cranes were recently removed from the construction site of a $1 billion science center that was to be the expansion’s centerpiece, a reminder of Summers’s ambition. The school said last week they will suspend work on the building early next year.

‘Case Study’

“For nonprofits, this is going to be written up as a case study of what not to do,” said Mark Williams, a finance professor at Boston University, who specializes in risk management and has studied Harvard’s finances. “Harvard throws itself out as a beacon of what to do in higher learning. Clearly, there have been major missteps.”

Harvard panicked, paying a penalty to get out of the swaps at the worst possible time. While the university’s misfortunes were repeated across the country last year, with nonprofits, municipalities and school districts spending billions of dollars on money-losing swaps, Harvard’s losses dwarfed those of other borrowers because of the size of its bet and the length of time before all its bonds would be sold.

In December 2004, Harvard completed agreements that locked in interest rates on $2.3 billion of bonds for future construction in Allston, with plans to borrow $1.8 billion in 2008 after they broke ground and the remaining $500 million through 2020. At the time, the benchmark overnight interest rate set by the U.S. Federal Reserve was 2.25 percent. The agreements backfired last year after central banks slashed lending rates to zero and the value of the contracts plunged, forcing the school to set aside cash.

‘Education Business’

Borrowers use swaps to match the type of interest rates on their debt with the rates on their income, which can help reduce borrowing costs. Lenders and speculators use swaps to profit from changes in the direction of interest rates. A bet on higher rates, for example, means paying fixed rates and receiving variable. At Harvard, nobody anticipated some interest rates going to zero, making the university’s financing a speculative disaster.

Harvard’s woes stemmed from misunderstanding its role, said Leon Botstein, president of Bard College in Annandale-on-Hudson, New York.

“We shouldn’t be in the banking business, we should be in the education business,” Botstein said in a telephone interview.

Making Sense

The financing plan using the swaps was developed by the university’s financial team and discussed with the Debt Asset Management Committee, an oversight group, according to James Rothenberg, a member of the President and Fellows of Harvard College, or Harvard Corp., and the school’s treasurer, a board position.

The swaps plan was then approved by Harvard Corp. and implemented and monitored by the financial team, Rothenberg said in an e-mail.

Summers, who left Harvard in 2006, declined to comment. As president and as a member of the Harvard Corp., the university’s seven-member ruling body, Summers approved the decision to use the swaps.

The strategy made sense in the economic climate of the time, Rothenberg said in another e-mail. Rothenberg is chairman of Capital Research & Management Co., the investment advisory unit of Capital Group Cos. in Los Angeles.

“Rates were at then-historic lows, and the university was contemplating a major, multibillion-dollar campus expansion,” Rothenberg said. “In that context, locking in our financing costs so that we would achieve some budgetary certainty had definite advantages.”

Demanding Cash

Harvard’s failed bet helped plunge the school into a liquidity crisis in late 2008. Concerned that its losses might worsen, the school borrowed money to terminate the swaps at the nadir of their value, only to see the market for such agreements begin to recover weeks later.

Harvard would have avoided paying the costs of its swap obligations by waiting. Its banks, including JPMorgan Chase & Co., headed by James Dimon, were demanding cash collateral payments -- ultimately totaling almost $1 billion -- that Harvard in 2004 had agreed to pay if the value of the swaps fell. At least $1.8 billion of the swaps the school held were with JPMorgan, said a person familiar with the agreements. Dimon, a 1982 Harvard Business School alumnus, declined to comment on the agreements through a spokeswoman, Jennifer Zuccarelli.

Darkest Days

Drew Faust, Harvard’s president since 2007, said in an interview about the financial crisis she experienced some of her darkest days as she watched the collapse of U.S. markets that deepened the school’s losses.

“Someone would say that this happened, that had happened, they were going to bail out AIG or Lehman is failing,” Faust recalled in an interview, referring to the September 2008 bankruptcy of Lehman Brothers Holdings Inc. in New York and the subsequent government bailout of American International Group Inc. in New York. “We were wondering what was going to happen tomorrow.”

Harvard speculated in the swap market as early as 1994, according to rating companies’ reports. Under Jack Meyer, former chief executive of Harvard Management Co., the school’s endowment used swaps to profit from interest-rate changes. The university also used them to fix borrowing costs for capital projects.

Summers became president in July 2001, after serving as U.S. Treasury Secretary. He earned a Ph.D. in economics from Harvard, and became a tenured professor there at age 28. He served from 1991 to 1993 as chief economist at the World Bank, which initiated the first interest-rate swap with International Business Machines Corp. in 1981.

Feeling Flush

In the 1990s, Harvard began amassing 220 acres (89 hectares) for construction near Harvard Business School and its football stadium, located in Allston. In June 2005, Summers unveiled his vision for a campus expansion replete with new laboratories, dormitories and classrooms, renovated bridges and a pedestrian tunnel beneath the water. The Allston project was to transform an industrial and working-class neighborhood of two-family wood homes and small shops by building two 500,000- square-foot (46,000-square-meter) science complexes and a redrawn street grid.

Harvard was flush at the time, with an endowment of $22.6 billion that had returned an average of 16 percent during the previous 10 fiscal years. Summers told Faculty of Arts & Sciences professors in May 2004 that he hoped they wouldn’t be “preoccupied with the constraints imposed by resources, for Harvard was fortunate to have many deeply loyal friends,” according to minutes of a faculty meeting.

Forward Swaps

“Harvard would be able to generate adequate resources,” according to the minutes. “The only real limitation faced by the Faculty was the limit of its imagination.”

When the plan was made public in 2005, Harvard’s financial team had been busy for more than a year behind the scenes, devising a financing strategy for the project using interest- rate swaps. These derivatives enable borrowers to exchange their periodic interest payments. They typically involve the exchange of variable-rate payments on a set amount of money for another borrower’s fixed-rate payments.

In 2004, Harvard used swaps for $2.3 billion it planned to start borrowing four years later. The AAA-rated school would have paid an annual average rate of 4.72 percent if it had borrowed all the money for 30 years in December 2004, according to data from Municipal Market Advisors. The swaps let it secure a similar rate for bonds it planned to sell as it constructed the campus expansion during the next two decades.

‘Relatively Rare’

The agreements were so-called forward swaps, providing a fixed rate before the bonds were actually sold. Harvard was betting in 2004 that interest rates would rise by the time it needed to borrow. The school was also assuming the expansion would proceed on the schedule set by Summers and his advisers.

While the university could have paid banks for options on the borrowing rates, the swaps required no money up front.

That time frame, along with the size of the position, was unusual, said Peter Shapiro, an adviser at Swap Financial Group Inc. in South Orange, New Jersey.

“There have been lots of forward swaps, but out longer than three years is relatively rare,” Shapiro said in a telephone interview. That duration increases the risk, because the longer the term of the contract, the more volatile the value of the swap, he said.

Columbia, Yale

Columbia University is breaking ground on a $6.5 billion expansion in New York City, and last year used an interest-rate swap for its borrowing of $113 million of bonds sold seven months later. Yale University in New Haven, Connecticut, is also AAA-rated. It had 32 separate swap agreements totaling $975 million as of Oct. 31, hedging the school’s $1.4 billion variable rate debt and commercial paper, according to Moody’s Investors Service Inc.

Corporations might use derivatives to lower their borrowing costs as many as four years before a bond sale, according to bankers who sell derivatives. Anadarko Petroleum Corp. used the swap market in December 2008 and January 2009 to secure rates for $3 billion it plans to refinance in October 2011 and October 2012, according to the Houston, Texas-based company’s third- quarter report from Nov. 3. Matt Carmichael, a company spokesman, declined to comment.

Key Player

Rothenberg, a Harvard College and Harvard Business School graduate, said he was among the key players involved in developing the financing strategy. His Los Angeles-based company, Capital Group, operates American Funds, the second- biggest family of stock and bond mutual funds in the U.S. He had been Harvard’s treasurer for six months when the school arranged the Allston swaps in December 2004.

Ann Berman, Harvard’s chief financial officer at the time, also played a role in developing the plan, Rothenberg said. Berman declined to be interviewed. She stepped down in 2006 when she was named an adviser to the president, according to the school’s Web site. A certified public accountant, Berman got her master’s in business administration at the University of Pennsylvania’s Wharton School of Business in Philadelphia and had earlier served as a financial planner and adviser for Harvard’s dean of the Faculty of Arts & Sciences.

Rubin, Reischauer

Other members of Harvard Corp. in 2004 and 2005, who served with Summers and Rothenberg, were former U.S. Treasury Secretary Robert Rubin, Summers’s previous boss and predecessor at the U.S. Treasury, who was an instrumental supporter of his bid for the Harvard presidency; Robert D. Reischauer, former director of the Congressional Budget Office, who was a colleague of Summers and Rubin’s in Washington; Conrad K. Harper, a lawyer at Simpson Thacher & Bartlett LLP in New York; Hanna Gray, former president of the University of Chicago; and James R. Houghton, chairman of Corning Inc., the world’s biggest maker of glass for flat-panel televisions, in Corning, New York.

All except Rothenberg declined to comment or didn’t return telephone calls.

Harvard University’s finance staff worked with JPMorgan to develop the size and the length of the forward-swap agreements, said a person familiar with the contracts. Final negotiations to set the rates were left to Harvard Management, which oversees the endowment, because it had swap contracts in place with JPMorgan dating back to 1996 that set terms for the agreements, according to a copy of the agreement obtained by Bloomberg News.

The original swap contract between Harvard Management and JPMorgan was approved by Michael Pradko, the endowment’s risk manager, the copy shows. Pradko left Harvard Management in 2005, along with Jack Meyer, the endowment’s head, to join Convexity Capital Management LP in Boston, the hedge fund Meyer started. Pradko declined to comment.

Impeccable Timing?

When Harvard Management completed its swap contracts for the school, the timing was encouraging. U.S. Federal Reserve Chairman Alan Greenspan had just begun raising the overnight target rate as the economy rebounded from the bursting of the technology bubble. In the second half of 2004, he lifted it to 2.25 percent from 1 percent.

For more than 20 years, investment banks such as Goldman Sachs Group Inc., JPMorgan, and Citigroup Inc., all based in New York, have been selling swaps as a way for schools, towns and nonprofits to reduce interest costs and protect against rising interest payments on variable-rate debt. The swap agreements can be terminated if either the bank or the issuer is willing to pay a fee, which varies with interest rates.

Posting Collateral

“Swaps have become widely accepted by the rating agencies as an appropriate financial tool,” according to a slide entitled “Swaps Can Be Beneficial” that was used in a 2007 Citigroup presentation to the Florida Government Finance Officers Association. Debt issuers can “easily unwind the swap for a market-based termination payment/receipt,” the slide said.

Rothenberg said officials throughout Harvard were monitoring the school’s swap position, including members of the financial office, the budget office, the controller’s office and Harvard Management. Although the contracts required Harvard to post collateral, or set aside cash when the values reached certain thresholds, such provisions weren’t unusual, Rothenberg said.

“I think there are lots of swaps with collateral postings,” Rothenberg said in an interview. “From fiscal years 2005 through 2008, these swaps were in place and there were collateral postings. It was not a pressing concern for the University, even though you can look at the financial statements and see that there was at least an unrealized loss in certain years.”

‘Rapid Meltdown’

“I think the unusual nature of these swaps were two things,” Rothenberg said. “One, they were large, but the anticipated capital spending program was large; and two, they were longer-dated than most people are used to thinking about, because the capital spending program was expected to last over a number of years. The problem resulted from the rapid meltdown in the markets, which culminated in November when short-term interest rates and swaps rates collapsed.”

After credit markets seized up in 2007, central banks worldwide pushed some bank lending rates to zero in their effort to rescue the financial system.

While Harvard Corp. is ultimately responsible for the school’s financial decisions, the losses sustained by the school in almost every financial domain -- the endowment, cash account and swaps -- suggest that oversight was lax, said Harry Lewis, a Harvard alumnus, computer science professor and former dean of Harvard College.

‘Structural Problem’

Harvard not only lost money on the swaps last year. The value of its endowment tumbled a record 30 percent to $26 billion from its peak of $36.9 billion in June 2008, and its cash account lost $1.8 billion, according to Harvard’s most recent annual report.

“They have a structural problem,” Lewis said in a telephone interview. “There’s something systemically wrong with Harvard Corp. It’s too small, too secretive, too closed and not supported by enough eyeballs looking at the risks they are taking.”

Summers’s departure as president came in 2006, after he questioned women’s innate aptitude for math and science. Summers apologized formally and repeatedly for the remarks made in a speech, which he said were misconstrued, and the school said it would spend $50 million to help women succeed in science and engineering. He resigned after the faculty passed a no- confidence motion against him.

Successor Faust

That left Faust, the Civil War historian and prize-winning author who succeeded Summers as president in July 2007, to manage the Allston plans. Faust committed to its first phase: beginning construction of a $1 billion science center that would house researchers from the Harvard Stem Cell Institute, the Harvard School of Public Health and the Wyss Institute for Biologically Inspired Engineering.

By June 2005, the value of the swaps tied to Harvard’s debt was negative $460.8 million, meaning that’s how much it would have to pay the banks to terminate the agreements, according to the school’s annual report that year.

By 2008, Harvard had 19 swap contracts on $3.5 billion of debt with JPMorgan, Goldman Sachs, New York-based Morgan Stanley, and Charlotte, North Carolina-based Bank of America Corp., including the swaps for Allston, according to a bond- ratings report by Standard & Poor’s released on Jan. 18, 2008.

Financial Burden

The swaps became a financial burden last year as their value fell and collateral postings rose. In a contract with Goldman Sachs, the school agreed to post cash if the swaps’ value fell below $5 million, according to a copy obtained by Bloomberg News. The collateral postings with the banks approached $1 billion late last year as central banks slashed their target rates, according to people familiar with the situation.

Michael Duvally, a spokesman for Goldman Sachs, Mary Claire Delaney, a spokeswoman for Morgan Stanley and Kerrie McHugh, a spokeswoman for Bank of America, all declined to comment.

Harvard wasn’t alone in being forced to set aside cash last year to meet such margin calls. The difference was the scale.

Cornell University in Ithaca, New York, posted $38 million of collateral on $1.5 billion of swaps, according to a Moody’s report on the Ivy League School. Hanover, New Hampshire-based Dartmouth College, also in the Ivy League, didn’t post collateral on their swaps because their investment banks agreed to waive the requirement to win the business, according to a person familiar with the contracts. The Ivy League is a group of eight elite schools in the northeast U.S., including Harvard.

Markets Unravel

After a year during which central banks provided an unprecedented amount of money to rescue financial institutions, the credit markets unraveled along with the stock market in September 2008. Lehman Brothers filed the largest bankruptcy in history on Sept. 15. Two weeks later, the House of Representatives rejected a $700 billion bailout plan, sending the Dow Jones Industrial Average down 778 points, its biggest point drop ever.

The value of Harvard’s swaps plunged and its need for cash soared. Under contracts signed in 2004, Harvard had to post larger and larger amounts of collateral to cover the negative value of the swaps; the total amount would approach $1 billion.

At the same time, the usual sources the university relied on to generate cash -- the endowment and its operating cash account -- were hemorrhaging. The school’s endowment tumbled, losing 22 percent from July 2008 through October 2008.

Asset Allocation

The Harvard endowment had more than 50 percent of its assets allocated to private equity, hedge funds and other hard- to-sell assets. The university already had borrowed to amplify gains, with leverage targeted at 3 percent of assets as of last year. When Jane Mendillo took over as chief executive officer of Harvard Management on July 1 last year, one of her top priorities was to raise cash. The school couldn’t get acceptable prices from the $1.5 billion of private equity stakes Mendillo tried to sell.

Outside managers investing Harvard’s endowment were either performing poorly or preventing Harvard from withdrawing cash. Citigroup CEO Vikram Pandit shut down Old Lane Partners in June 2008. Ospraie Management, in New York, closed its biggest hedge fund in September and Farallon Capital Management, in San Francisco, put up a so-called gate, prohibiting clients from taking out cash.

Checkbook Fund

Making matters worse, Harvard disclosed Oct. 16 that its checkbook fund, the general operating account, lost $1.8 billion in the year ended June 30. Lumping the cash account with the endowment was risky, said Louis Morrell, who managed the endowment for Radcliffe College, which is part of Harvard, until 1990.

“They put the operating funds in the endowment --it’s like the guy who has his retirement income in company stock,” said Morrell, who is also the former treasurer of Wake Forest University in Winston-Salem, North Carolina.

Rothenberg, Mendillo and Daniel Shore, Harvard’s chief financial officer, decided last year as the credit crisis deepened that the school needed to borrow money. Shore became acting CFO last year after Elizabeth Mora, who was Berman’s successor, stepped down in May 2008. Shore was named to the position permanently in October 2008.

It was at this point, in October, that Harvard officials contacted Ogilby, their bond lawyer at Ropes & Gray LLP in Boston. A 1980 Harvard College graduate, Ogilby is head of the firm’s Public Finance Group. E-mails show that Craig McCurley, the director of Harvard’s treasury management office, and his associate director, Tom Balish, contacted Ogilby, who in turn reached out to the Massachusetts Health & Educational Facilities Authority, which sells bonds for the state’s nonprofits. Ogilby declined to comment.

Needing Cash

Harvard needed cash to pay bills, refinance outstanding debt and break its money-losing swap agreements, according to a series of e-mails beginning on Oct. 31 last year between Ogilby and staff members of the state authority that were obtained by Bloomberg News. School officials asked whether the agency could omit from a public hearing that some of the bonds would finance swap termination payments.

“There is some sensitivity at Harvard about not specifically flagging the swap interest unwind payments,” Ogilby wrote on Nov. 12 to Deborah Boyce, an analyst at the authority. “They still would like the ability to finance them, but would prefer to delete those references if they can do so.”

Timely Information

Benson Caswell, the bond authority’s executive director responded Nov. 13 that the swap agreements would have to be identified and that the authority needed “timely, accurate and unfiltered information, including a balanced presentation,” from issuers. Harvard disclosed the use of the bond proceeds, and only wanted to avoid telegraphing potential activity in the swap market, said Christine Heenan, a school spokeswoman.

“The spirit of our inquiry was whether prematurely disclosing plans for what are inherently market transactions would in any way jeopardize the execution of those transactions,” she said in an e-mail.

At its Nov. 13 monthly meeting in Boston’s financial district, the agency’s seven-member board approved a Harvard bond issue of up to $2.5 billion, about the amount of debt it sells for all schools and borrowers in a typical year. The board usually takes two meetings to approve a bond sale. In Harvard’s case it took just one meeting.

Nothing Special

“I can assure you that Harvard doesn’t get any special treatment,” Caswell said. “Other borrowers have received the same service.”

Caswell said one board member, Marvin Gordon, is a Harvard graduate and that as long as there is no conflict of interest between his business and the use of the bond proceeds, a board member may vote on approval of a bond sale.

Gordon said while he didn’t have a conflict in voting to approve Harvard’s bond issue, “they never should have been in the position where they had to get out” of the swaps.

Harvard unwound the swaps at possibly the worst moment in the history of financial markets, said Shapiro, the municipal swap adviser. Just as Harvard’s request for approval to sell tax-exempt bonds arrived in the state offices, the swap market began sliding, according to Bloomberg data. While the school waited for permission to raise money, the price to break the swap agreements escalated.

Tumbling Index

On Nov. 13, the index used to value the agreements, the U.S. dollar 30-year swap rate, closed at 4.247 percent. By the time Harvard held its bond sale Dec. 8, the swap index had tumbled to 2.7575 percent. Harvard exited three of its swaps tied to $431 million debt on Dec. 9, when the benchmark fell again to 2.6885 percent. The interest-rate swap market reached a record low of 2.363 percent on Dec. 18.

Harvard’s decision to borrow money came at a time when the difference, or spread, between yields on corporate and U.S. Treasury securities was the widest since at least 1990, according to data from Barclays Plc. That meant AAA-rated Harvard was selling bonds when the market was demanding the biggest premium in at least 18 years.

“December 2008 was, by an enormous amount, the worst time in history” to terminate the swaps by borrowing money, said Shapiro.

Harvard sold $1.5 billion of taxable and $1 billion of tax- exempt bonds, using $497.6 million of the proceeds to pay investment banks to extract itself from $1.1 billion of interest-rate swaps, according to its annual report released Oct. 16. Separately, the school agreed to pay another $425 million over 30 years to 40 years to the banks to terminate an additional $764 million of the swaps, Harvard’s Shore said.

Unwinding Swap

The school on Dec. 12 paid JPMorgan $34.5 million from the tax-exempt bond proceeds to unwind a swap tied to $205.9 million of variable-rate bonds it sold for capital projects, according to documents obtained from the Massachusetts financing authority. It also paid Goldman Sachs $41.6 million on Dec. 9 and $23.2 million on Dec. 11 to end agreements on another $226.8 million of existing debt. Harvard didn’t disclose recipients of the other termination payments because it paid them from the taxable bonds.

The timing was “less than ideal, but the surrounding context was less than ideal as well,” said Shore.

Harvard and JPMorgan celebrated the bond issue by hosting a cocktails-and-dinner party at the French restaurant Mistral, in Boston’s South End neighborhood, where appetizers start at $15 and entrees cost about $40, according to e-mails obtained from the state finance agency. JPMorgan invoiced the agency $388.78 for three employees who attended: Caswell, Marietta Joseph and Danielle Manning.

Recovering Values

Since then, some of the values in the swap market have recovered to their levels of December 2004 when Harvard signed the forward contracts.

“If Harvard had waited, the cost of terminating may well have been lower, but they weren’t willing to take that risk,” said Matt Fabian, managing director at Municipal Market Advisors in Westport, Connecticut.

Shore said that he, Mendillo and “a lot of us in senior management” contributed to the decision to break the swap agreements. That group included Ed Forst, the former executive vice president, who returned to Goldman Sachs after less than a year at Harvard, Shore said. Shore also cited Harvard Corp.’s role as bearing the school’s ultimate fiduciary responsibility. Forst didn’t return calls seeking comment.

Waiting didn’t appear to be an option at the time, Shore said.

Stability, Safety

“In evaluating our liquidity position, we wanted to get ourselves some stability and some safety,” he said in an Oct. 16 interview this year at Harvard. “It was to take the losses now rather than run the risk of having further losses if we continued to hold on to the positions.”

No one expected the indexes used for valuing swaps to fall as fast and as much as they did, said Chris Cowen, managing director of Prager, Sealy & Co. in San Francisco.

“What we ended up with was an outlier event,” said Cowen, who advised Harvard as it unwound its position last year. “I was taken by surprise by the falling rates.”

Harvard, in the meantime, has cut its capital spending estimate for the next four years in half to about $2 billion. Before the credit crisis, it planned on spending $10 billion over a decade on capital projects, including Allston. Faust is building a team to study “financially and structurally” how Harvard can expand, she said in an e-mail announcing the planned work stoppage in Allston.

Opposing Regulation

Summers, along with Rubin and Greenspan opposed the U.S. Commodity Futures Trading Commission’s attempt in 1998 to regulate so-called over-the-counter derivatives, which included agreements like interest rate swaps. At the time, Summers was Rubin’s deputy secretary.

Now Summers is leading the Obama administration’s effort to write stricter rules for the derivatives market “to protect the American people,” he said in October at a conference in New York sponsored by The Economist magazine.

Universities would have been better served if they had stayed away from the more complicated financial instruments being sold by Wall Street, said David Kaiser, a Harvard class of 1969 alumnus who has been critical of the high salaries paid to managers of the school’s endowment.

“They used many of the investment strategies of the big banks and hedge funds, and when things went badly they could not get a bailout,” said Kaiser, a history professor at the U.S. Naval War College in Newport, Rhode Island. “It would clearly be better for any nonprofit on whom many people depend to pursue safer, more stable strategies.”

Taxpayer Funds

Pennsylvania State Auditor General Jack Wagner said Nov. 18 that the state should ban local governments from entering into derivative contracts tied to bond issues, a practice he termed “gambling” with taxpayer funds.

Harvard might have considered it a conservative step to lock in rates when they were low, said Shapiro, the New Jersey- based swap adviser.

“You can be very big and very rich and very smart and still get things wrong,” Shapiro said.

To contact the reporters on this story: John Lauerman in Boston at; Michael McDonald in Boston at; Gillian Wee in New York at

Last Updated: December 18, 2009 16:28 EST
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Sunday, December 13, 2009

In Re: الاهتمام الغربي بما نقوله عنه: مازن مطبقاني أنموذجاً

Islamophobes Studying Arabs Studying America

I noticed that Daniel Pipes's organization has expanded its operations to include rock-throwing at Arab academics in Arab countries.

I sent the following email to Professor Mazen Mutabagani, who is assistant professor of Orientalism at King Saud University in Riyadh as well as head of the Occidental Studies Unit in the King Faisal Center for Research and Islamic Studies.
As-Salam Alaikum Professor Mutabagani,

I noticed your article posted at Mazin al-Mutabaqani: A Saudi View of Orientalism.

It was interesting to me because as a Jewish studies expert I have been studying the David Project and occasionally working to thwart its efforts here in the Boston area.

Despite the editors' preface I thought your piece was an accurate summary.

Because the study of the Jewish role in ME Studies probably belongs more to Jewish Studies than to ME Studies, you might be interested in my blog entitled Ethnic Ashkenazim Against Zionist Israel, which I created as a resource to help Jews and non-Jews stand up to Zionist manipulation and intimidation.

The following blog entries are possibly of relevance to your article:
There is probably a non-ideological component to the struggle by Jewish Zionist groups to control academic ME studies departments. Every job a non-Jew obtains in this field is one less for a Jew, and there is a feeling among Jewish endowers of academic chairs in Jewish in ME studies that these positions should be reserved for pro-Zionist Jews.

Nadia Abu el-Haj was particularly upsetting to Jewish donors and academic job seekers because she was a Palestinian American, who in effect specialized in Jewish or Israel studies even if she does not describe her focus in this way.

Wa'al Salam,

Joachim Martillo
Ethnic Ashkenazim Against Zionist Israel
In response Professor Mutabagani posted an article الاهتمام الغربي بما نقوله عنه: مازن مطبقاني أنموذجاً which along with some followup discussion can be found here.

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Open Letter: ATFP President Asali

This blog has occasionally covered the American Task Force on Palestine (ATFP) mostly because ATFP Senior Fellow Hussein Ibish likes to fling accusations of anti-Semitism at anti-Zionists.

Because I just noticed that ATFP President Ziad Asali recently endorsed a book by Zionist subversive and fanatic Jewish racist Ziad Asali, I sent him the following letter.
Dear Dr. Asali,

I am aghast that you would endorse a book by Matthew Levitt.

In From Epistemic to Bureaucratic Islamophobia, I pointed out:
Although Ehrenfeld is a clown that has made a career of scaremongering and defaming Arabs and Muslims, Congress continues to take her testimony as if she has actually has information of value. In contrast, the efforts of Neocon Zionist Matthew Levitt in the Bush administration have been far more dangerous and insidious. He served President Bush as Deputy Assistant Treasury Secretary for Intelligence and Analysis. He developed a logically specious formalism, which is described in detail in his book entitled Hamas, Politics, Charity, and Terrorism in the Service of Jihad. Levitt worked hard to indoctrinate Treasury and Justice Department officials with the idea that practically any Muslim charitable giving can be equated to material aid to terrorism because nothing is more fungible than money, and his text has been an important Zionist tool to demonize Islamic finance or charity just as Raphael Patai's book The Arab Mind served Zionists as means to spread a false understanding of Arab culture or society.

Levitt worked closely with Under Secretary for Terrorism and Financial Intelligence Stuart Levey, who has been retained by the Obama administration to the delight of Zionists inside and outside of government and who has received many accolades from the AJCommittee. By background, Levey is a lawyer specializing in the defense of white collar financial criminals. Thus he knows a tremendous amount about framing accusations of financial crime in the strongest way possible. Levey has slavishly implemented Levitt's program by adding Muslim charity after Muslim charity to the list of officially designated terrorist organizations. Yet despite the extraordinary history of Israeli military terrorism, he failed to add the IDF and charities or individuals giving to the IDF to the list of officially designated terrorist organizations even though the Iranian Revolutionary Guard has been added to the list without any comparable history of terrorism.
Matthew Levitt was instrumental in obtaining a conviction of good decent, patriotic Arab and Muslim US citizens in a political prosecution that undermined the US legal system: [khaleej times] us charities paying for sending aid to Palestinians.

You don't have to take my word that Levitt's politics and thinking are problematic. Read the review of Levitt's book by Harvard Senior Research Scholar Sarah Roy: BOOK REVIEW.

Sincerely yours,

Joachim Martillo
Ethnic Ashkenazim Against Zionist Israel
Here is a recent appearance of Dr. Asali on the BBC.

Responsible Arab and Muslim American leaders need to show some awareness that American Judaism is a major vector of Arabophobia and Islamophobia.

Not only are subversive Zionists like Matthew Levitt desperate to make sure that Israel and its supporters will be able to continue to parasitize the USA, but as extremist Jewish racists they are the enemies of every single Arab and Muslim American citizen as well as every single Arab and Muslim in the world.

Here is an example of modern American synagogue Islamophobia. (Item 6 below is a doozy. Item 4 is historical delusion. See Esau's Tears: Modern Anti-Semitism and the Rise of the Jews by Albert S. Lindemann.)

"Saving Israel" Expert says American Jews key to Israel's survival
WESTPORT - A standing-room only crowd of close to 300 people filled the small sanctuary at The Conservative Synagogue in Westport on Sunday, Dec. 6 to hear Dr. Daniel Gordis, senior vice president of the Jerusalem-based research and educational institute, The Shalem Center, discuss the future of Israel, Zionism and the U.S.-Israel alliance. The author of "Saving Israel: How the Jewish People Can Win A War That May Never End" delivered a message that was a mixture of hope and warning; a message that stressed the key role of American Jewry in ensuring the survival of the Jewish state.

Here are some of Gordis' key points:

1. Israel has survived all conventional military attacks and frustrated their aims, and Israel has reduced terrorism to a minor threat.

2. There is one potent attack by the Arabs against Israel that is capable of succeeding and against which Israel has no defense:. That is the direct assault that Israel is now under by the Arabs via appeals to the world community. This coordinated effort aims to delegitimize the Jewish state and cause it to be treated as an international pariah, whose products and scholars will be boycotted and ostracized from the international community.

3. In order to survive this new attack American Jews must fight it in the halls of Congress and on the American campuses. This means getting involved with organizations willing to present Jewish arguments, e.g. the American Israel Political Action Committee (AIPAC).

4. If Israel were to be destroyed, American Jewry would be reduced to the bleak existence they experienced years ago in Poland or Russia.

5. Israel cannot accept a nuclear-armed Iran because the basic Zionist ethic was to relieve Jews of existential threats. The Iranian threat could easily have been stopped by Presidents Bush or Obama, via bombings by the United States Air Force. Since, clearly, this didn't and won't happen, the Israel Defense Force (IDF) will have to do it. [Gordis noted that his prediction was not based on any special inside information, but on his own analysis of the situation.] In the event of such an attack, it is likely that Hezbollah, Hamas and Iran would retaliate with massive rocket assaults on the Jewish state.

6. We are at war with Islam and any denials to the contrary may be politically correct, but are wholly inaccurate. Of course, there are Muslims who are not Jihadists, but they represent a small percentage and are irrelevant. Militant Islam is succeeding in Europe, the Middle East and is coming to America.

Fred Leder is a retired oil company executive living in Westport who writes periodically for the Ledger.
I don't know much about the Westport Connecticut synagogue, which seems to be far more focused on Israel than on God, but I have attended presentations of this sort of Islamophobic nonsense in Newton Massachusetts at Temple Emanuel, to which several local billionaire Jewish Zionists belong. (See Report on Robert Spencer and the Boston Anti-Islamic Controversy. Spencer is closely associated with racist Jewish Islamophobe David Horowitz.)

American Jewish synagogues and community centers are the main disseminators of anti-Muslim and anti-Arab racism in the USA today.

[Why is Ahavath Torah Synagogue Inviting Wafa Sultan? provides another example of synagogue Islamophobia from the Boston area.]

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Friday, December 11, 2009

[Global Research] Obama's Big Sellout

I have previously discussed a lot of the same issues in the blog entries listed at the end of Summers' Incompetence: Washington, Harvard, Washington and in Against Whom Did Paulson Bet?

I am irritated that Taibbi has yet to address the Jewish Zionist aspect of the Wall Street coup against America.

Because Jewish Zionist social networks are strongest on Wall Street just as Jewish Communist social networks were strongest in the early days of the Soviet Union, Wall Street (especially mega-firms like Goldman Sachs) has become more Jewish with the financial meltdown just as the Soviet government became more (not less) Jewish with the purges of the 1930s.

[Andrew Leonard responds to Taibbi in Matt Taibbi goes Obama scalp hunting but does not refute the major points. Neither addresses the growing Jewish-Zionist domination of the US finance industry.]

The president has packed his economic team with Wall Street insiders

Global Research, December 10, 2009

The president has packed his economic team with Wall Street insiders intent on turning the bailout into an all-out giveaway

Barack Obama ran for president as a man of the people, standing up to Wall Street as the global economy melted down in that fateful fall of 2008. He pushed a tax plan to soak the rich, ripped NAFTA for hurting the middle class and tore into John McCain for supporting a bankruptcy bill that sided with wealthy bankers "at the expense of hardworking Americans."

Obama may not have run to the left of Samuel Gompers or Cesar Chavez, but it's not like you saw him on the campaign trail flanked by bankers from Citigroup and Goldman Sachs. What inspired supporters who pushed him to his historic win was the sense that a genuine outsider was finally breaking into an exclusive club, that walls were being torn down, that things were, for lack of a better or more specific term, changing.

Then he got elected.

What's taken place in the year since Obama won the presidency has turned out to be one of the most dramatic political about-faces in our history. Elected in the midst of a crushing economic crisis brought on by a decade of orgiastic deregulation and unchecked greed, Obama had a clear mandate to rein in Wall Street and remake the entire structure of the American economy.

What he did instead was ship even his most marginally progressive campaign advisers off to various bureaucratic Siberias, while packing the key economic positions in his White House with the very people who caused the crisis in the first place. This new team of bubble-fattened ex-bankers and laissez-faire intellectuals then proceeded to sell us all out, instituting a massive, trickle-up bailout and systematically gutting regulatory reform from the inside.

How could Obama let this happen? Is he just a rookie in the political big leagues, hoodwinked by Beltway old-timers? Or is the vacillating, ineffectual servant of banking interests we've been seeing on TV this fall who Obama really is?

Whatever the president's real motives are, the extensive series of loophole-rich financial "reforms" that the Democrats are currently pushing may ultimately do more harm than good. In fact, some parts of the new reforms border on insanity, threatening to vastly amplify Wall Street's political power by institutionalizing the taxpayer's role as a welfare provider for the financial-services industry. At one point in the debate, Obama's top economic advisers demanded the power to award future bailouts without even going to Congress for approval — and without providing taxpayers a single dime in equity on the deals.

How did we get here? It started just moments after the election — and almost nobody noticed.

'Just look at the timeline of the Citigroup deal," says one leading Democratic consultant. "Just look at it. It's fucking amazing. Amazing! And nobody said a thing about it."

[Click here to read entire article.]

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[Michtavim blog] Barukh Dayan Ha-Emet: Prof. Yosef Hayim Yerushalmi passed away earlier today in New York

I read Yosef Hayim Yerushalmi's book From Spanish Court to Italian Ghetto, Isaac Cardoso, A Study in Seventeenth-Century Marranism and Jewish Apologetics back when it appeared in 1971. It may have established Yerushalmi as a Jewish historian, but I remember that it was frustrating in its old-fashioned exceptionalist view of Jewish history.

I will have to go back to reread it, but as I remember, Yerushalmi discusses the equation Cristãos-novos (New Christians) with homens de negócios (businessmen) but never quite fully analyzes the interrelationship of business, finance, imperialism, marranism, 16th/17th century economic developments, Jewish social networking, and Sabbatianism.

Yerushalmi did not provide enough information to determine definitively whether Cardoso decided to return to Judaism in Italy from genuine religious conviction or perhaps more plausibly from considerations of quality of life.

In other words Cardoso may simply have preferred to be a well-compensated big fish in a small pond than to be part of the large crowd surrounding the Spanish court, whose policies toward Christian descendants of Iberian Jews were often problematic to say the least.

Yerushalmi's book and scholarship are deficient overall because of his refusal to look seriously or fully at the Spanish imperial context, in which the distinction between New and Old Christians was only part of a larger categorization system that distinguished criollos from peninsulares and that created extremely baroque racial categories of blood among whites, native Americans, and Africans within the Spanish Empire.

Barukh Dayan Ha-Emet: Prof. Yosef Hayim Yerushalmi passed away earlier today in New York

It is with deep sadness that I share with you the news of the passing of Prof. Yosef Hayim Yerushalmi. Two of his leading students, Profs. Elisheva Carlebach and David N. Myers, have shared some thoughts on Prof. Yerushalmi, which I have reproduced in the post-script below, in memory of their mentor.

Specifically related to Prof. Yerushalmi, among the chapters included in Elisheva Carlebach, John M. Efron, and David N. Myers, eds., Jewish History and Jewish Memory: Essays in Honor of Yosef Hayim Yerushalmi (London and Hanover: Brandeis University Press, 1998), see John M. Efron, "Yosef Hayim Yerushalmi: The Teacher," 453-455; and David N. Myers, "Of Marranos and Memory: Yosef Hayim Yerushalmi and the Writing of Jewish History," 1-21.

[Click here to read the entire article.]

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Wednesday, December 09, 2009

Zionist Control of Digg

My Digg account was turned off about 10 days ago.

The support staff finally replied to my questions about this action.

Here is the response.
Subj: Re: : Digg Feedback Received
Date: 12/06/2009 10:12:00 PM Eastern Standard Time
From: Digg Support []
To: ThorsProvoni
Hi from,

Your account was reported to us as being in violation of our Terms of Service ( for spamming Digg submissions with solicitations for donations. Because we must be vigilant in protecting against activities that compromise the Digg community, this decision is final and irreversible.

Thank you,

-Digg Support wrote:
> ----------------------------------------------------------------------
> Login: ThorsProvoni
> Name: Joachim Martillo
> Email:
> Registration Email:
> IP:
> Agent: Mozilla/5.0 (Windows; U; Windows NT 6.0; en-US)
> AppleWebKit/532.0 (KHTML, like Gecko)
> Chrome/ Safari/532.0
> ----------------------------------------------------------------------
> Why has my account been deactivated? Joachim Martillo
> President
> Ethnic Ashkenazim Against Zionist Israel
It is probably needless to say that I never solicited donations via Digg, but Jewish Zionist staff probably find such an accusation to be a convenient excuse for kicking off people that are saying things Zionists don't like.

I have run into this problem previously with Gather.
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Monday, December 07, 2009

[Salon] Where the bitter turns sweet: The story of Vietnamese coffee

Obviously, Lam is expressing a little whimsy below, but it is worthwhile to remember that Austria, Italy and France did not need to be colonized by Arabs or Turks to develop coffee culture even if attempted Ottoman expansionism is responsible for introducing coffee to the Hapsburg empire as one story claims.

Francis Lam

Where the bitter turns sweet: The story of Vietnamese coffee

Colonialism had its discontents, but this is worth keeping around

Salon/Francis Lam
My 20-year-old self would give me an open hand across the face for saying this, but: You know, colonialism wasn't all bad. It gave rise, for instance, to Vietnamese coffee.

I understand if you need to walk away right now to get a cup, because even just the mention of this stuff has that effect on people.

But for those still with us, imagine a short glass with a hard dose of sweetened condensed milk, the color of ivory and the texture of hot fudge. The glass wears a metal top hat, a filter with grounds and water, which dribbles in drops of thick coffee, crude-oil black and nearly as bitter. They sit, stacked in two layers, until you take a spoon and give it a turn. For a moment, the coffee and milk swirl around each other, hesitating before coming together, a phenomenon smarter people than me call sensitive chaos. You take a sip, and the sweetness hits first, full and rich. Then your mouth dries a bit, like the tide pulling back, and coffee leaves a mellow bitterness. You take another sip, and suddenly everything is right with the world.

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[SAIFULLAH.NL] Moslimkamerleden voor raamprostitutie

Despite the simplistic assertion of the article, historic sharia treatment of prostitution can be quite nuanced as is indicated by fetva collections and shari`a manuals published by senior judiciary officials of the Ottoman Empire.

Another appropriate context in which to analyze the relations between the different systems of law in Bursa is the handling of sexual offenses mentioned in the kadi records. As noted earlier, a large number of cases involve prostitutes, all said to have been apprehended in the act of committing the crime. The relevant penalty for such a violation is, of course, the had penalty of stoning to death (if the violator is or has been married) or at least one hundred strokes. But none of the cases ends with such severe punishment. In most cases the culprit is banished from the neighborhood or gets the tazir (discretionary punishment by the kadi), which is never specified exactly. This kind of treatment is again a sort of compromise between custom and shari`a.

Moslimkamerleden voor raamprostitutie

Naïma Azough (GL) en Fatma Koser Kaya (D66) willen ramen behouden
Raamprostitutie in Groningen.

DEN HAAG - Prominente moslimkamerleden van GroenLinks en D66 zijn voorstander van raamprostitutie. Dat hebben zij woensdagavond in een uitzending van EénVandaag gezegd.

Fatma Koser Kaya, kamerlid voor D66, is tegen de voornemens van burgemeesters om ramen te sluiten. Prostitutie kan niet effectief bestreden worden, volgens de politica, en door het toestaan van raamprostitutie kan het in ieder geval gecontroleerd worden.

"Het is buitengewoon lucratief [voor criminelen]. Maar dat los je niet op door raamprostitutie onmogelijk te maken. Het gaat dan ondergronds" zei Koser Kaya tegen EénVandaag.

Naïma Azough, kamerlid voor GroenLinks, vindt dat het vrouwen makkelijker wordt gemaakt om misstanden aan te kaarten als raamprostitutie wordt toegestaan.

"Overlast bestrijden lijkt me vanzelfsprekend. Maar als je daarmee zegt 'die prostitués willen we niet meer zien', dat vind ik een beetje hypocriet" aldus Azough.

"Ze verdwijnen niet. Ze zijn onzichtbaar geworden, en moeilijk te vinden" voegde de politica eraan toe.

GroenLinks heeft twee moslimkamerleden - Tofik Dibi en Naïma Azough - ondanks dat de partij Islam een probleem vindt. D66 heeft één moslimkamerlid.

Prostitutie is verboden in Islam. Volgens het Islamitisch recht (Sharia) wordt het bestraft met honderd zweepslagen.


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Sunday, December 06, 2009

[SAKMONGKOL] Melayu Ketuanism and Islamism

Because I have a slight Malaysian connection through my first wife, who was Chinese from Malaysia, I often follow the political discussions among Malaysians.

The article below reminds me of the discourse among citizens of Poland during the inter bellum period when Polish political thinkers where trying to define the relationship between the multinational or multiethnic Polish state and the Polish Nation or Polonism. In addition, the development problems of Polish peasants even today in many regards parallel those of village Malays not least because large sections of both populations function in an essentially subsistence economy.

Pro-Palestinian activists cannot help but see similarity in the demand for Melayu Ketuanism (properly Ketuanan Melayu -- Malay dominance) with the Zionist insistence on maintaining the Jewish character of the Israeli State, but Malays are unlike Israeli Zionists an indigenous population of Malaysia.

In addition, village Malays like Polish peasants have been relatively disadvantaged in the modern period while Jews insist on privilege after a millennium of relative advantage and after a century of overreaching. (See Esau's Tears: Modern Anti-Semitism and the Rise of the Jews by Albert S. Lindemann.)

The author asks why Islamic countries seem to lag behind states dominated by European Caucasian populations.

One must be careful with such questions because there is a wide range of modernization levels among European populations while successful development has generally correlated strongly with a connection to the historic Anglo-French-Rhenish modernizing centers.

The key modernizing center of the Islamic world lay in the Ottoman Empire's European regions, which were gradually lost during the 19th century even before the Ottoman state was vivisected at the end of WW2.

File:Flag of Malaysia.svg
Malaysian national symbols show at least a subconscious awareness of the importance of the Ottoman Empire to the Islamic world because the crescent of the Malaysia flag is not as much a symbol of Islam as of the Ottoman Byzantine heritage that characterized the world's most highly evolved Sharia state.

Yet Malays also lag relative not only to non-Muslim Malaysians but also relative to India-origin Muslim Malaysians.

Such differential development probably relates to significant differences in the sophistication of social networking.

Chinese and Indian Malaysians often participate in longstanding social networks that are often transnational and that generally reach into many academic, economic, and political sectors. Village Malays are only just beginning to build such networks of trust.

Melayu Ketuanism and Islamism

From Nationalism to Islamism.

Before any one goes into an incoherent rage about the statement 'religion being the opium of the masses', please read the last part of this essay. I was expecting these off base responses. The phrase opium of the masses is often associated with Karl Marx. His ideas are no longer in vogue today. One by one, the countries which adopted his thinking have fallen to capitalism. It seems those people, in those counties where the 'opium' is widely adopted have prospered. Meanwhile those countries which adopted his 'godless' doctrines have fumbled.

In my own not too distant past, I came across this very phrase that resulted in very extreme agitation and violent responses from certain quarters. That is not the meaning I applied in my previous essay. Accordingly, I am not going to be drawn into an argument on a topic or subject I did not sponsor. I have to politely decline the invitation to get into the subject in that context.

My object of interest was the combustible issue raised in the Dewan Rakyat a few days ago.

A few days ago, the MP from Ipoh Barat made a statement that caused ruckus and din in the Dewan Rakyat. The MP from Sri Gading demanded the minister in charge of we don't know what, to answer.

Many others and I find this strange- something was said about Ketuanan Melayu being a stumbling block to meaningful national unity, yet we expect and even demand a Chinese Minister to answer on our behalf?

Why don't those clever Malay MPs other than those from Sri Gading and Pasir Mas answer or challenge the assumption stated by the Ipoh Barat MP?

The MP from Pasir Mas was quick off his seat with his usual trademark stock in trade- berating anyone touching on the issue of Malayness. Ibrahim's Ali overt and at times combative defense of Malayness or all things Malay does not prove he is more Malay than other Malays. If at all, he has proven not to be beneath out-shouting other people or jumping on the bench.

It means nothing to skeptical and thinking people who do not care a hoot about how one declares his 'patriotism'. The manner in which he expressed his, is not the only one. This isn't a shouting contest where the one who shouts loudest is the winner.

Both the MP from Sri Gading and Pasir Mas were united in a very fundamental but non productive and therefore, less clever obsession- that of spending time on fighting for and fighting off over what we Malays already had- which is the protection of Malay interests by the constitution.

Why are we fighting over something we already have in our hands? Shouldn't our energy, efforts and resources be directed to acquiring for instance what we haven't got such as technological progress and finding ways how to increase productivity?

[Click here to read the entire article.]

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