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On Crying Wolf, Or, Why I Don’t Want To Give You $700 Billion September 24, 2008

As this is being written we are in the midst of the second day of testimony before Congress by Ben Bernanke and Henry Paulson in support of the Administration’s proposed financial rescue package.

The basic sales pitch is that the Nation’s financial problems are at this moment so severe that the only solution is to expose to risk $700 billion dollars of taxpayer money to buy assets with a currently unknown price…and to give the absolute and total power over what those valuations are, what should and should not be bought, what repayment terms will be sought—and additionally, what happens to any money recovered–to one man, Henry Paulson.

There are those who are not on board. They have critics, who continue to stress the dire consequences of inaction.

With all due respect to those critics…we have been down this road before with this Administration—and last time, they weren’t so big on telling the truth…or getting the job done effectively.

We’ll cover that ground, we’ll talk a bit about “mark to market” issues—and on a positive note, we’ll address the role of “warrants”, the negotiating power of Warren Buffett, and how the taxpayer could actually see substantial recoveries of money down the road.

So let’s start with the biggest elephant standing in the Plan’s way:

Weapons Of Mass Destruction.

This Administration flat-out lied to the American people to justify the current Iraq adventure. “Just trust us” was the basic message at the time, followed by “we absolutely know that Saddam is an imminent threat because of his Weapons Of Mass Destruction”, followed by “this will cost maybe $50, 60 billion…maybe as much as $200 billion”–which turned out to be possibly the worst estimate in the history of budgeting–followed by variations on The “I’m not the Commander-in Chief, General Petraeus is” Theme…followed by flag-draped caskets that the Administration still hides from public view.

All of this to find not one single operable WMD.

Now comes before us Federal Reserve Chairman Henry Paulson and Treasury Secretary Ben Bernanke, who tell us of imminent threat, who tell us to just trust them…who tell us that they are the most qualified people to understand the issues and take the appropriate action…and who, to top it off, must be left to the task unsupervised and uncontrolled, otherwise the plan will fail.

We are also being told that if we were just economically sophisticated enough we would understand why this plan must be put into place, and that our objections must be related to our economic ignorance.

To which I pose a question to the Joe Kernans of the world (well, one of them anyway): what if the public fully understands that the system is at risk…but we don’t trust the leadership?

(Ever watch “Sex And The City”? This would be the part where they would cut to Carrie’s laptop screen and we would see the words appear as she types them…)

…What if we think the Administration is lying?

I have heard so many lies from the President and his advisors that if Jesus Christ was Treasury Secretary and Mohammed (PBUH) was Chairman of the Federal Reserve I would have doubts about this proposal.

Back in March, Paulson (who, it turns out, is not a Deity) was telling us that “the worst is behind us”…meaning he either does not really understand what is going on here—or that somebody is trying to blow smoke up some unpleasant places, using Paulson as a sort of economic “General Petraeus” who is intended to divert attention from the real economic Commander-in-Chief.

So can this Administration be trusted to handle this without outside supervision?

“Trust, but verify”, Ronald Reagan used to say, and without outside oversight this proposal should be instantly dead on arrival to the Congress.

This might be the most critical issue surrounding this entire plan…and we must demand Congressional oversight. This is far too big a process for any single individual to manage—and too big for any single branch of Government, as well.

Go watch this satirical slap at Bernanke from a wannabe Bernanke.
It’s hilarious—and revealing.

That issue resolved, some economic education is in order:

What, you may ask, is “mark to market”?

Holders of assets are required, for accounting purposes, to report the value of those assets based on what they are worth at the current time. Normally you do this by seeing what “the market” thinks your asset is worth—something that is fairly easily done if the asset is, for example, your house.

On a larger, corporate scale, this marking to market each accounting period can cause the state of your company’s balance sheet to lurch around and gyrate from time to time—sometimes violently…which is the source of much complaint from corporate interests, but for the most part, it all works out. Recently, it has not.

The challenge in today’s economic environment is to figure out what an asset is worth when no market exists for that asset.

Banks are holding quibzillions © of dollars worth of paper that represent streams of mortgage payments that will continue for years into the future…but some unknown number of those mortgages will not be repaid.

The concerns about what can be repaid (or not) and who is holding how many of these “nonperforming” loans has caused virtually all the normal buyers of these kinds of assets to run away in fear, which is the simplest way to explain the “credit crunch” we hear so much about.

The Paulson proposal is based on you and I buying some portion of those assets, today, from the current holders and reselling the assets later. This will allow banks and other institutions to begin making loans, and will hopefully create the confidence needed to induce investors to again buy “pools” of those loans from those banks…after which, the lending cycle begins anew.

The hoped-for outcome, from the perspective of ordinary mortals such as you and I, is to minimize any losses to the taxpayer…or maybe, if we get lucky, generate a profit.

The hoped for outcome, for the current holders of these assets, is to minimize their loss.

So how do you decide what price the taxpayer will pay for these assets?

Picture, if you will, a $100 US Savings Bond. If you bought that bond today, it would cost you $50, and in 17 years the US Treasury will pay you $100, representing the interest income to you from that loan to the Treasury.

The “hold until original maturity” value of that bond is $100.
The “mark to market” value, if you’re “marking” it the day you bought it, is $50.

If you became convinced the Treasury might not pay back the loan, or all the interest, you might sell the bond for less than the original $50, just to recover something from the deal.

That process will work as long as someone else is willing to believe the bond will be repaid, and is willing to put up enough money on that bet to get you to sell.

If no buyer can be found, your bond’s value becomes either “unknown” or “zero”, your personal assets decline—and maybe, down the line, your credit score is affected by some small amount.

Picture that on a massive, quibzillion © dollar scale, and you can see what is happening in the mortgage market today—and to the investors, all over the world, that hold the debt from our collective mortgages.

When the Treasury prepares to buy a CDO or some other mortgaged-backed security from an investor in the near future, Paulson will have to decide, with no help from any market mechanism, if that paper is worth the “hold to maturity” value, zero, or somewhere in the middle…and he has no way to know if the pool of mortgages he’s buying with our money will be 100% repaid, 0% repaid, or something in between.

This issue will be one of the most contentious parts of the entire deal (and the most ripe for abuse…as it would be very easy indeed to reward friends and punish enemies in a system with no oversight), so watch carefully to see how it plays out.

Hint: when asked about this today, I heard Bernanke answer that he expected the Treasury to pay prices similar to what are seen “…in a more normal market…”.

Another satirical video: “Damn, it feels good to be a Banka”.

What’s a warrant?

It sounds all technical and tricky, but actually it’s not.

Warren Buffet invested $5 billion dollars this morning in Goldman Sachs, and as part of the deal he got the right to purchase up to $5 billion in Goldman Sachs stock, at a time in the future of his choosing, for $115 a share (roughly 43.5 million shares). That right is referred to as a warrant.

At this moment, the stock’s last trade was at $130.48. The difference between $115 and $130 is the current available profit to Buffett if he were to “execute” this warrant right now (which is just over $650 million profit in less than 12 hours)…but it’s not the maximum potential profit executing this warrant might bring.

In November of ’07 Goldman Sachs traded at $250 a share…and if Buffett is able to someday execute the warrant at that “strike price” (fancy technical term) the profit on his 43.5 million available shares would be $5.8 billion.

When we take assets from banks and other investors with depressed stock prices, we as taxpayers need to make the same deal Warren Buffet made—we need to demand warrants, and later, sell that stock back to the market, reducing the cost to the taxpayer over the long term…and maybe even making us actual profit….which could help to repay some national debt, perhaps?

There is precedent here. In the 1980’s the US did a bailout deal with Chrysler that involved issuing warrants…and the profit to the Treasury was substantial.

This is an additional huge part of the deal…and you can bet that there will be investor stockholder groups that will lobby—and lobby hard–to stop us from getting warrants.

We need to demand that we get our cut of the profit our tax dollars create…and to do that we need to get warrants as part of these deals…so bug your Member of Congress loudly and quickly on this one.

So, for the moment, let’s recap:

If the Administration wants to sell this plan they better acknowledge that it isn’t economic ignorance that’s the issue…that, instead, the problem is the basic element of distrust that they previously created by lying about matters of war and peace and Katrina…and if you want any plan at all, this is the issue you need to fix first.

Next, we need confidence that the prices paid for bad assets are not going to be excessive, we need oversight that allows us to be confident this isn’t another typical “reward and punish with taxpayer dollars” operation; and finally, we need to demand warrants, the tool that could make this something that turns the transactions, for a change, to the advantage of the taxpayer.

If we insist on these sorts of protections we have the chance to make this at least a fair deal for the taxpayer—and maybe even a good one. After all, if Warren Buffet can get good terms for a mere $5 billion investment…imagine the negotiating power $700 billion should be able to get us.

Even without the Priceline Negotiator, we should still demand the best deal possible…and if the currently frozen financial services industry doesn’t like that, perhaps they should borrow $700 billion somewhere else.

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On A Way Forward, Or, Practical “Subprime Crisis” Solutions September 23, 2008

AUTHOR’S NOTE: This was originally published on February 14th of this year, but it seems to be exceptionally timely today.

We had a lively discussion last week regarding the causes and possible future of the “subprime crisis” that is on everyone’s lips these days.

Having examined the sources of the problem, and noting the lack of holistic thinking about how things might be resolved, I’ve taken it upon myself to come forward with an idea that can actually get at the root causes of today’s difficulties…and do it in a way that offers a potential “win-win-win” outcome for homeowners, investors—and the taxpayer.

Paying attention, Presidential candidates?

Good—because time is short, and we need to get to work.

For today’s solution to make sense, we, like Sherman and Peabody, need to make use of the “WABAC Machine”. We’ll set the time dial to the late 1980s, and we’ll set the location as the headquarters of the Resolution Trust Corporation.

What we’d find is a governmental organization established at the height of the “savings and loan crisis” of the 1980s. The savings and loan companies had made a series of bad real estate investments (much like today), and many had already entered or were in danger of bankruptcy.

Perhaps not surprisingly, many of the same names we recognize today from the world of politics were also to be found “doing bidness” at the time of the birth of the RTC…and if you look it up, you’ll find such luminaries as John McCain, Barney Frank, and even Neil Bush doing things that they today wish we would forget.

In fact, there were so many people doing things they wish we would forget that the RTC was needed to find buyers for all the bankrupt savings and loans that had piled up across the nation. The way this was accomplished was to use regulatory pressure to politely force the bankrupt to accept offers from the more solvent.

As a result, the Silverados of the world vanished, and Keating Five became part of the lexicon.

And with the history lesson complete, let’s scoot on back to the “WABAC” machine and return to the present day, shall we?

Those who participated in our bond insurance discussion (and many who didn’t) may recognize that the biggest problem currently affecting the American financial sector (and beyond) is an inability to accurately determine the exact value of various financial assets.

As you may recall, we noted that one form of these assets are “collateralized debt obligations” (CDOs), which are fundamentally income streams from loans backed by real estate collateral. The original debt was incurred in the form of mortgages or equity loans. The current owners of these assets are not the originating lenders; but instead investors scattered across the planet which have purchased bundles of these loans, a process known as “securitization”.

Because there is a disconnect between an investor in Singapore who purchased a CDO and the borrowers back in the USA who are supposed to be making the payments; it is at the moment impossible to determine with any accuracy the actual value of any particular CDO. In other words, if you invested in loans and you don’t know who might fail to pay, how can you know what your investment is worth?

Lenders, regulators, and investors prefer clarity above all else. In a perfect world, borrowers who might be in trouble would promptly contact lenders to initiate a “workout”. Then everybody would know the status of every individual CUSIP, and life would again return to a state of near normality. (CUSIP is a fancy technical term: each individual loan that makes up a CDO is known colloquially as a CUSIP, and has a CUSIP registration number. Other types of debt instruments, such as bonds, also use the CUSIP registration process.)

But how is that supposed to happen when neither the borrower nor the investor know each other?

That’s where this proposal comes in.

Imagine, if you will, a new Resolution Trust Company that would be chartered with the purpose of creating a “clearinghouse” where investors and borrowers could reach accommodation—and where the status of individual CUSIPs could be determined, registered, made known to participating investors, and, in a privacy protected form, to the public at large.

On the investor side, the process would begin with each investor voluntarily “registering” their CDOs with the new RTC. The registration process would determine exactly which CUSIPs are associated with every registered CDO, and this data would be maintained in a public database.

On the borrower side, an advertising campaign that might look like the ads you see for “credit counseling” services would be run by the RTC…something like: “Are you facing foreclosure? We can help to keep you in your home. Call 800 NO FORECLOSE today”.

The RTC would be empowered to act under a limited power of attorney on behalf of the registered investors and would have the authority to negotiate payment arrangements that might include extending the term of the loans at lower payments, some form of delay on “teaser rate” ARM adjustments, or converting the ARM to a fixed-rate loan—or any combination of the above, as warranted.

In extraordinary cases, the RTC could facilitate direct negotiations between homeowners and investors—and in cases where the home is “under water” (the amount owed is greater than the home’s value) such negotiations will be needed.

Every day, as more and more homeowners call in and the status of their loans is determined (“current—no issues”, “default”, “in processing”, “resolution unsuccessful”, “unknown”, and “resolved” are examples of categories to which the loans might be assigned) they can be matched to their registered CUSIP. As the database fills, this creates the clarity that allows more accurate valuation of the CDOs associated with the CUSIPs…which should be the necessary first step in resolving the valuation issue that’s currently choking up the financial markets.

By publicly posting the loan status and the CUSIP number-without other personally identifiable information-it would be possible, to some degree, to protect the homeowner’s personal credit information from public view, while still offering an “open and public” assessment by an independent third party of the CDO to which the CUSIPs are associated…which means private financing can return to the mortgage market with renewed confidence in what they’re buying…which should also have a positive affect on the stock prices of some of the most beaten down companies in today’s market.

At the same time, as the foreclosure rate declines (if this proposal were successful, that could happen rather quickly) less surplus real estate appears on the market…making investment in land and homebuilding once again a reasonable business proposition. Fewer foreclosures also means less decline in the value of affected neighborhoods, which means the neighbors benefit as well.

All of this could be funded by a registration fee per CUSIP (or based on the amount of the loan) charged to the investors that covers the cost of the RTC’s operations.

You might have noticed that I have not referenced what might be the most daunting problem a new RTC might face: the problem of large loans for large projects. How does the $30,000,000 loan to the Florida land developer who has a half-finished condo complex as collateral get worked out?

I have no idea, but it seems to me that the role of the RTC might be best served by doing the high-volume, “cookie-cutter”, single-family home resolutions (and similar duplex, triplex, and other “small unit” properties), leaving the most complex solutions to be negotiated directly between borrower and investor, with loan servicers and bond insurers charged with facilitating resolutions of these problems on their own.

If solutions can’t be found, the bond insurers are on the hook for the income stream, but if the bond insurers default the investors will get nothing (even when they do get paid the cross-ownership is so convoluted that as we move through the process some of the investors will potentially have to work out deals with themselves), so everyone involved should already-or soon will-have what R. Lee Ermey once famously referred to as “the proper motivation”.

So with all that said, what do we have?

We have a proposal that creates a new RTC for the purpose of “clearing” CUSIPs, which allows CDOs associated with those CUSIPs to be valuated, which creates the conditions for private investment to return to the mortgage market.

We do this with the only cost to the taxpayer being limited to incidental costs (registration fees not collectable, and the cost of enacting the legislation, for example) and the burden of bearing the upfront costs of establishing the RTC and launching the ad campaign—which presumably will be recovered as the process moves along to conclusion.

We also do this without changing the “risk profile” of the loan portfolios held by Fannie Mae and Freddie Mac—a potentially huge benefit to the taxpayer.

The investors, bond insurers and loan servicers win because it suddenly becomes possible to credibly and independently valuate the CDOs, communities win if foreclosures return to normal levels, and homeowners get to keep their homes and credit ratings…and the larger economy benefits as the CDO market, for the first time, feels the “cleansing effect of sunshine” brought on by greater disclosure.

And to top it all off, the “moral cost” of the bad choices made are borne by the involved parties, rather than the American taxpayer: homeowners who made bad loan choices still have to pay off the loans, even if it takes longer than they originally thought…investors will lose or have delayed some portion of their interest income…and the best part—investors and “predatory lenders” who foolishly participated in sketchy loans to currently “under water” borrowers will probably lose some or all of the value of those investments as the true state of their CDO portfolio becomes known to the market at large.

 

On Distractions, Or, If You Hide In A Smoke Screen, Make Sure It’s Not Toxic September 22, 2008

Filed under: Diversion,Framing,Political Response — fakeconsultant @ 12:26 pm
Tags: , , , ,

It has been an extraordinarily bad week for John McCain, what with his interest in Sarah Palin’s boobs apparently keeping him from being sufficiently aware of the “fundamental soundness” of the economy…but luckily for McCain, the news cycle turns; and a hotel bombing in Pakistan might be the opening his campaign thinks it needs.

With that in mind, expect the next week leading up to Friday’s Presidential debate to be full of references to McCain’s favorite subject…“the transcendent challenge of our time—Islamofascism”…or something eerily similar.

His campaign is convinced this is the strongest place for him to make his argument for election—but what if it is not?

As we anticipate what is coming next from McCain, let’s remind ourselves just how much of a foreign policy expert McCain really is—and let’s do it using McCain’s own words.

McCain likes to talk about how he was the most vocal critic of the war…until January 2007, when Mr. Bush finally listened to McCain and adopted The Surge.

It’s a great story…and if it were true it would be even better.

“…I’ll teach you to kick me!”

“I don’t need you to teach me.
I already know how.”

–Edgar Kennedy and Chico Marx in “Duck Soup

Now I’m not as expert-y as John McCain, but here’s what I told my friends before the war started:

Try to imagine if the UK decided that our government had gone completely crazy, and that for our own good we needed their troops to remove our government and temporarily occupy the US until we could get ourselves back on the right track.

No matter how crazy our government had actually become, the instant that news was broadcast in this country it would become the biggest hunting season you ever saw on the beaches of New England, with millions of heavily armed Americans converging on the invading forces.

What makes you think Iraqis would act any differently?

McCain, the expert, was certain that Iraqis wouldn’t even fight…and he obviously never expected an insurgency:

“Look, we’re going to send young men and women in harm’s way and that’s always a great danger, but I cannot believe that there is an Iraqi soldier who is going to be willing to die for Saddam Hussein, particularly since he will know that our objective is to remove Saddam Hussein from power.”

–John McCain on “Face the Nation”, September 15, 2002

The guy who was supposedly such a critic of the war was also one of the co-sponsors of the Authorization for the Use of Military Force (AUMF) that got the war started in October of 2002.

And although he denies it now, during the runup to the war he wasn’t complaining about the number of troops to be deployed:

“But the fact is, I think we could go in with much smaller numbers than we had to do in the past. But any military man worth his salt is going to have to prepare for any contingency, but I don’t believe it’s going to be nearly the size and scope that it was in 1991.”

–John McCain on “Face the Nation”, September 15, 2002

When Robert Byrd questioned the logic of the war on the floor of the Senate, McCain rose to respond: “…when the people of Iraq are liberated, we will again have written another chapter in the glorious history of the United States of America.”

McCain was also very comfortable with how things were going…at first:

“I have no qualms about our strategic plans. I thought we were very successful in Afghanistan…”

–John McCain, in an editorial he wrote for the Hartford Courant, March 5, 2003

“It’s clear that the end is very much in sight. … It won’t be long…it’ll be a fairly short period of time.”

–John McCain on ABC, April 9, 2003

When questioned, McCain even defended the propriety of the “Mission Accomplished” banner on the June 11, 2003 edition of Fox News’ Your World With Neil Cavuto:

NEIL CAVUTO: Senator — after a conflict means after the conflict, and many argue the conflict isn’t over.

McCAIN: Well, then why was there a banner that said mission accomplished on the aircraft carrier?

Later in 2003, despite being a self-described critic of the war, he remained certain we were on the right track:

“Let there be no doubt: victory can be our only exit strategy. We are winning in Iraq.”

–John McCain, speaking to the Council on Foreign Relations, November 5, 2003

Al-Qaeda supporters are Sunni; Iranians are predominantly Shi’a.
That makes it highly unlikely that Iranians are training Al-Qaeda insurgents.

I know that, you probably know that, Joe Lieberman knows that…but for some reason John McCain…the foreign policy expert…can’t seem to remember which is which…and now he doesn’t have Lieberman standing at his shoulder to set him straight.

Of course, we are told, that was just a “senior moment”.

“…The last man nearly ruined this place,
He didn’t know what to do with it;
If you think this country’s bad off now,
Just wait’ll I get through with it “

–Groucho Marx as Rufus T. Firefly in “Duck Soup

One way to be right about an issue is to take both sides of the same argument; and this is a technique McCain employs on a regular basis.

An example? McCain was confident in the Bush Administration’s team in September of 2004…

“I think he [President Bush] strengthened our national defenses. I think he has a good team around him.”

John McCain, September 3, 2004

…but three months later, describing his feelings about then-Secretary of Defense Donald Rumsfeld on MSNBC, McCain gave this assessment:

“I said no. My answer is still no. No confidence.”

–John McCain, December 15, 2004

You may recall McCain said we could stay in Iraq for a hundred years…but you may not recall that in February of 2003, roughly a month before we went in, he said we can’t—and he said it as a way to justify the invasion:

“We cannot keep our forces indefinitely staged in the region. Were we to attempt again to contain Saddam, we would eventually have to withdraw them. The world is full of dangers and, more likely than not, we will need some of those brave men and women to face them down.”

You used to be able to see the original quote on John McCain’s Senate website…but for some reason the record is today “inaccessible”. (Big thanks to the PERRspectives Blog for grabbing the quote.)

And for those who think McCain might finally have his diplomatic act together…ummmm…despite his saying he knows the leaders of Latin America (and that Obama doesn’t), Spain is not Venezuela, it is not in Latin America—and they’re our friends.

Let’s sum all this up:

It is more likely than not that McCain will attempt to use the Pakistan bombing this week to position himself as the candidate who has the judgment required to keep America safe from “noun, verb, transcendent challenge”.

This is an opportunity for us, however, to remind voters that the real McCain record has not been one that inspires confidence in his leadership…that he really doesn’t know what he’s talking about much of the time…and that we can’t afford another 50 years of this, or a hundred—or a million.

McCain will take jabs at the truth this week…and it is our job to meet those jabs with parries of our own—and then to follow up with counterstrikes of reality, using his own record to knock back his attacks.

Now get out there, Gentle Reader…and let’s win this thing.

 

On Bucking A Trend, Or, Yes, Virginia, Sometimes Politicians Deserve Respect September 19, 2008

We are all guilty, from time to time, of beating up on our politicians–and why not?

It only takes a moment to think of someone we elected who immediately went “off the rails”…who today can’t even remember the promises they are busy breaking…and who can’t wait to get out of elective office so they can move on to lobbying their former colleagues.

Occasionally, however, we come across officials who are bucking the trend: working hard, dedicated to doing a good job for the voters that put ‘em in office…and doing that good job even when all around them were working feverishly to bring on indictments.

Such a politician is the subject of today’s unusually upbeat story…and with that said, allow me to introduce you to Port of Seattle Commissioner Lloyd Hara.

Who loved the movie Pulp Fiction? For me, the thing that made the movie was that the story was not told in “linear” time; instead bouncing around a bit, with the end eventually becoming the beginning.

Today, telling the Lloyd Hara story, we’ll do the same.

The Port of Seattle is a public agency charged with operating the water terminals within its area of jurisdiction as well as Sea-Tac Airport. It has a real estate operation which leases certain assets to tenants, is involved in efforts to improve regional freight mobility, and has relationships with certain contract providers and vendors who, among other things, make available legal and consulting services.

The Port has a CEO, five Commissioners who serve as a Board of Directors (for the princely sum of $6000 a year…), and a staff who perform the daily tasks of running a Port’s operations.

When you think of Seattle politics I suspect you imagine people who look like they could be working at Microsoft mingling with people who are squeaky-clean idealists—and I’m here to tell you that this can occasionally happen.

But it might surprise you to know that Seattle is far from squeaky-clean in its political history. In an effort to write their own chapter in the history of local corruption, former Port CEO Mic Dinsmore and certain members of the Port staff seem to have run the Port as their personal fiefdom.

It appears that lavish personal entertaining on the taxpayer’s dime was considered a personal perk, along with lavish, no-bid contracts for the consulting and legal services (who appear to have been associates of Dinsmore) that were concealed from the Commissioners…the effort to inappropriately influence Port elections is also alleged…and in the case of the contract for the “cruise ship consultant/operator”, a deal was struck that guaranteed the consultant/operator profit no matter how the year’s business turned out–and most of the profit even if things went well–despite the fact that the Port put up virtually all the assets and took on almost all the liability.

Now I’m not saying everyone involved was trying to profit off the Port, but I will say that the Commissioners, for many years, didn’t seem to be noticing what was happening…and it was probably far too easy to conceal what was being hidden, if you get my drift.

We’ll return to this story in a minute…but first, let’s jump back to a moment in Rotary Club history that also features in Lloyd Hara’s history.

Rotary International was a men’s-only operation for many years, but the door was cracking open because of a court case involving a Rotary Club in Duarte, California that eventually found its way to the Supreme Court. In 1984 Hara, as the Rotary “Governor’s Special Representative” led the formation of the Seattle-International District Rotary Club…and the club was to eventually challenge Rotary International by being the first Rotary who sought from the time of its formation to initiate women (only Duarte had women members at the time); a challenge that resulted in Karilyn Van Soest attending the International Convention in 1989 as only the second woman ever to be the President of a Rotary Club.

By 1989 Hara had already served as the youngest Auditor in King County history and was in the middle of his 12-year run as Seattle City Treasurer, earning numerous awards for the effort, including being named to City and State Magazine’s Public Officials of the Year list in 1987 (the class of five includes Dianne Feinstein, who was mayor of San Francisco at the time) and, as he tells us, named the Nation’s Best Treasurer in 1987.

He left the Treasurer job in 1991 to become the Regional Director for FEMA (back when they actually hired for competence), and he had also been teaching at Seattle University…and then in 2005 he was elected Port Commissioner (a legally nonpartisan position) on a reform platform, earning a variety of endorsements, including that of the Sierra Club. In the same election John Creighton became the second half of the “Reformist Bloc” to join the Commission.

At about the same time, the Washington State Auditor’s office was charged by initiative to, for the first time, perform “performance audits” in addition to the financial audits they had always conducted…the Port had released “incomplete” results from an internal audit of their own…the pressure from all the sudden reform caused Dinsmore to leave (leaving a questionable sudden pay raise in his wake)…and in December 2007 the State’s audit report was released—causing lots of things to hit lots of fans.

Among the things: the Commission hired a former US Attorney to conduct an internal investigation, the current US Attorney is conducting a criminal investigation, and the Commission has revoked many of the powers previously enjoyed by Port staff.

The State Auditor’s office presented 51 recommendations, new CEO Tay Yoshitani, previously Executive Director of the Port of Oakland, California joined with the Commission in moving toward adopting the recommendations…and as of August the Commission reports 45 of the 51 recommendations will have been implemented.

A new emphasis on accountability is emerging, something Hara and fellow Commissioner Bill Bryant discussed in a February, 2008 Town Square conversation.

Time for another “non-linear time” moment: in 1972 Hara was named as a respondent to a lawsuit, in his capacity as King County Auditor, in which a Mr. John Singer and a Mr. Paul Barwick sought a marriage license, which Hara, despite his personal support for the request, declined to issue—the second such lawsuit in US history.

To make a long story short, Washington State had recently adopted gender-neutral language in its statutes and regulations, and the Plaintiffs felt that the new language could be interpreted to permit same-sex marriage. This interpretation was not shared by the appellate courts, however, and Hara’s decision to reject the application was upheld.

I really began to appreciate Hara when his “Port Notes” began showing up in my email. I can truthfully say that I have never received more detailed and useful reports from any elected official…this being one example:

“Lora Lake Apartments: This complex in the shadow of the 3rd runway progressed from scheduled demolition, to a bone of contention with low-income housing advocates, to a pending transfer to King County Housing Authority, to a toxic waste site. It’s now unclear how severe the problem is, or whether the complex can ever be preserved as residential property. Needless to say, the transfer is on hold.

Eastside Corridor: After almost 2 years of negotiations, we authorized the purchase of the corridor from the BNSF and gave King County an easement for the trail. Every interested party has begun to weigh in — hikers and bikers, adjacent home owners, rail and transit interests, eastside cities and Snohomish County interests, business people and the public in general. We plan public hearings this summer and expect to broker a dual use facility of transit/rail and trail. It’s important to bring this corridor under public ownership, and the Port is probably the only government with funding capacity to make the $107 million acquisition.

3rd Runway: 20 years into the project, you may spot an FAA Learjet landing as testing continues this summer, looking forward to first commercial traffic in November. As you can see, siting a new airport in the region would be a very major undertaking.

T-30/91: We must complete the cruise terminal at T-91 in time for the 2009 season, and convert T-30 for container use shortly thereafter. Only T-91’s electrical cables are slated for reuse – not the gangway, the terminal building or other assets – so this bears watching for cost overruns.

T-25: On a 3-2 vote, we approved surface improvements for potential use as an extended container facility. John Creighton and I voted against. We originally contemplated a cold storage facility here, and I wanted to make sure the intended use was properly bid.”

–(Note: links are as they appeared in the original email)

As I said, this is far more detailed than the usual “Congressman So-and-so met with residents at the Senior Center” that I often see in my inbox—and as a taxpayer, it’s much appreciated.

All is not sunshine and rainbows, however. In 1991, Hara was investigated by Seattle’s Board of Ethics because of his relationship with Stuart C. Johnston. There were concerns that Johnston, Hara’s lead campaign fund-raiser and also a manager of City investment funds, might be inappropriately tied to Hara, who was the official responsible for overseeing the management of those same investment funds. He was later cleared of having committed any ethics violations.

Hara was fined $400 in March of 2008 by the State of Washington’s Public Disclosure Commission because his 2005 campaign failed to make certain filings in a timely manner.

Christopher Cain, who runs “The Port Observer”, was kind enough to offer this assessment of Hara and the Port reform efforts:

“Lloyd Hara runs a good campaign effort under the clever guidance of Sharon Gilpin, a campaign consultant. Effective campaigns are the key to remaining a Seattle Port Commissioner. As a Port Commissioner, and former accountant for the City of Seattle Mr. Hara has exhibited excellent qualities favorable to the public interest.

However, Lloyd has from time to time fallen prey to the old school ways of behaving badly. Numerous junkets to far off places will not make you a better steward of the public purse. Port CEO Tay Yoshitani’s handling of the accounting scandals was typical old boy club style politics and Hara has cozied up only because he wants so badly to be a part of that club. But Lloyd’s loyalty to the public must wreak havoc in attempting to balance the two relationships…

…The last few years have revealed some amazing things that have always lurked beneath the surface, but the path to change has been focused on changing public perception (as usual) and not really on how things are done at the Port. You can take the criminals out of the port but you can’t get corruption out of a system designed to be corrupt…Therefore, without someone willing to take on the establishment who understands this, all actions are futile exercises designed to get you re-elected. Lloyd understands this very well and likes to be a Port Commissioner.”

So that’s the story for today: despite what we often believe, there are politicians out there who are doing a good job for us, who have a history of working for the public good, and who like to keep us aware of where our money goes.

Not all is perfect…and some of his critics wonder if he is up for his current job…but all in all this is a politician I can surely respect, and in these times, that’s pretty good.