THE "PORK" IN NEW YORK, Thoughts of an older American on Constitutional Government in the USA Options

[Livyjr]

THE NEW YORK POST

"ELIOT'S ENFORCER - STRONG-ARMING INSURERS ON WTC CLAIMS"

February 11, 2008 -- Gov. Spitzer says he wants to make nice to financial firms - brokers, insurers, investment banks.

The very companies he targeted with a vengeance as attorney general.

Does he mean it?

Read on.

Last month, Spitzer chaired the first meeting of an obscure panel he set up to lighten the regulatory load on these businesses.

His avowed goal: "keeping New York the financial capital of the world."

Yet who'd he tap to head the panel?

One of the purported brains behind many of his attacks as AG on the financial industry, now-State Insurance Superintendent Eric Dinallo.

Dinallo is often credited with "rediscovering" the Martin Act - a (until then) little-used 1921 law that gives the AG considerable regulatory and prosecutorial muscle over financial firms.

It was reportedly Dinallo's idea for Spitzer to probe "abuses by investment advisers."

Dinallo and Spitzer, of course, have new goals now that they're no longer enforcement agents.

Plus, Spitzer is a Big Government Big Spender, addicted to tax revenues from industries like finance.

So you'd think the last thing they'd want to do is scare away these firms with probes and burdensome regulation.

But at least some in the industry see them as sticking to their old ways.

Those impressions come from some of the lawyers for World Trade Center insurers who worked with Dinallo to resolve remaining 9/11 claims.

The biggest sticking point in those claims - whether the attacks counted as one "occurrence" or two - had already been resolved.

But in 2006, when then-Gov. Pataki and other officials struck a new financial deal for WTC reconstruction, they neglected to clear it with the insurers, who ultimately were to provide most of the cash.

Oops.

The insurers raised new concerns - and fears of more delays at Ground Zero.

Pols raced to bash them preemptively.

"These insurance companies," Mayor Mike warned, will "pay up one way or another, whether they do it because it's right, or they do it because they have to."

Enter Spitzer-Dinallo.

Within months of taking office, the new governor suddenly announced that all loose ends with insurers had been tied off.

Nearly six years after 9/11, rebuilding would proceed.

Spitzer was hailed for persuading the firms to do what was right; behind the headlines, Insurance Superintendent Dinallo was the man who had made it all happen.

But a court transcript portrays the Spitzer-Dinallo powers of persuasion in a somewhat different light.

"The insurers right now are bearing the brunt of the pressure from Mr. Dinallo," Harvey Kurzweil, a lawyer for one of the firms, complains to US District Judge Harold Baer.

"I don't care to speculate as to why that is the case, but it is the case."

Baer appears perplexed by Dinallo:

"There must be some motivation that I am missing," Baer says.

Kurzweil says Dinallo "hammered us . . . about the head and shoulders with a sledgehammer" in an attempt to resolve the issue in favor of WTC leaseholder Larry Silverstein.

Another lawyer, John Massopust, also hints vaguely about Dinallo's threats; a third, Jane Stevens, spells it out point-blank: The superintendent, she says, threatened to "launch an investigation into everyone's claim practices."

In other words, if the insurers didn't go along, Spitzer's muscle man could virtually shut them down by drowning them in probes, an exec from one firm says.

Worse, he was threatening to "throw us in jail" - because if you probe every claim, eventually you might find something on which to hang a criminal charge.

Dinallo denies that he threatened to jail anyone or to paralyze their operations, noting that he lacks "criminal-prosecution authority."

He also insists that he was "even-handed" in applying pressure.

And he makes no apologies for his toughness:

"I thought the city and state needed to close the book" on WTC insurance claims.

Dinallo doesn't deny threatening to probe "everyone's claim practices."

Rather, he suggests that it would have been appropriate for him to do so, if he found the insurers acted "unreasonably."

A lawyer for Silverstein, Marc Wolinsky, backed that, noting that Silverstein's folks complained about the insurers' behavior and that Dinallo would have been obligated to investigate to establish a "pattern" of bad-faith claims-handling.

Still, if allegations of threats by Spitzer or an aide sound familiar, they should: The gov's folks have a long record of such accusations.

Kurzweil also hints about why firms didn't fight back: Dinallo is the state's "primary regulator," he says.

"We are certainly not anxious to antagonize him."

"We will be living with him for the next four years."

Nor has fear of the superintendent vanished now that the case has been resolved.

Apparently, some insurers are still battling with the Port Authority over other claims - amounting to some $1.5 billion - and at least one of them wonders whether Dinallo will resort to his old tricks.

And what do corporate types think of New York's "regulatory environment"?

Well, few will criticize Spitzer publicly.

But privately, one calls New York "Uganda" - suggesting a climate where playing ball with the gov comes ahead of the rule of law.

Maybe Dinallo, Spitzer and the rest will change, will warm to these firms, on whose revenue they depend so much to fund their $124 billion budget.

But a recent report by The Post's Fredric U. Dicker is hardly encouraging: Just last month, Spitzer and an aide "privately threatened" the Business Council, Dicker says, after it crossed him.

A source told Dicker that Spitzer had an explosive phone conversation with Business Council President Kenneth Adams.

Such reports, again, are hard to confirm on the record.

But if they're true, Spitzer sure has a funny way of cozying up to folks whose money he is going to need.

abrodsky@nypost.com

http://www.nypost.com/seven/02112008/posto...0661.htm?page=0

[Livyjr]

THE NEW YORK TIMES

"New York Legislators Pushing to Raise Their Pay"

By DANNY HAKIM and TRYMAINE LEE

Published: February 10, 2008

ALBANY — New York legislators are looking for a raise of as much as 22 percent, saying the $79,500 base salaries they earn are not enough.

Assembly Minority Leader James N. Tedisco says the time is wrong for a raise.

But an examination of state records shows that most make considerably more than their base salary.

With extra pay for chairmanships and other posts, they earn just over $90,000, on average, for what is widely considered a part-time job; the Legislature is in regular session for 63 days a year.

And more than a third earn more from outside employment, often as lawyers in their hometowns, but they are not required to disclose how much or from what clients.

The lawmakers also have enviable health insurance and pension plans.

They get $154 per diem when they travel to Albany.

Some also spend from their campaign accounts on meals and other expenses.

Any increase in pay must be approved by the Assembly and the Senate, and then signed by the governor.

Last month, Assembly Speaker Sheldon Silver told members of his Democratic caucus that Gov. Eliot Spitzer had agreed to back an increase in pay for lawmakers, along with raises for judges and commissioners.

Since then, the speaker and the governor have been cagey about the topic, but have not denied discussing what would be the legislators’ first pay increase since 1999.

The speaker has been seeking a raise of more than 20 percent, but it remains unclear what proposal is on the table.

The governor, who has been politically weakened by a difficult first year in office, is no longer seeking to extract legislative support of his campaign finance overhaul in exchange for his backing of the raises, as he did last year.

But according to a top administration official, Mr. Spitzer expects to see the Legislature sign off on some of his major budget proposals before he agrees to the raise.

For his part, Mr. Silver declared last month, “I’m proud to say I support it.”

“There are many legislators who work very hard, work extremely long hours, and it’s not just the days of session here in Albany,” he added.

“I think many of their constituents know they’re available to them almost on a 24-hour basis responding to their needs.”

Mr. Silver’s pride went only so far.

Frustrated by an onslaught of questions about the matter last month, he asked a gaggle of reporters, “Isn’t there anything else going on in the state you want to talk about?”

The Assembly’s minority leader, James N. Tedisco, a Republican from Schenectady, had a different view, saying “it really defies logic” to consider a raise when the state faces a $4.4 billion deficit.

“It’s the last thing on our conference’s mind,” he said.

Assembly Republicans, however, have little in the way of tangible political power — with only 42 of 150 members, they don’t even have enough people to block an override of a veto.

Assembly Democrats are pushing most vociferously for the raise because they make less, on average, than their Republican counterparts.

With more than 100 members, dozens of them earn only the base salary of $79,500.

Lawmakers can earn bonuses, known as “lulus,” for various leadership posts, but there are not enough posts to go around among Assembly Democrats.

Added to that, many of them live in New York City, where $79,500 buys less than it does upstate.

“Your job takes over your life,” said Assemblyman Harvey Weisenberg, a Democrat from Nassau County who makes $101,500 as a lawmaker and $9,000 to $10,000 moonlighting as a lifeguard.

“You’re a public servant and you work to help people, and the pay is just ridiculous."

"Not to have a respectable pay, if you compare salaries to people in other fields, you find that legislators are way behind.”

Senator Eric Adams, a Democrat from Brooklyn, said, “I sit down at the kitchen table like everyone else and I wonder how I’m going to pay for the oil and gas and for college.”

Mr. Adams raised eyebrows in December when, during a debate on raises, he thundered a line from the film “Jerry Maguire” on the Senate floor: “Show me the money!"

"Show me the money!”

Not only do lawmakers return for a few special sessions, Mr. Adams said, but “when I get off that train and I’m back in my district, I’m not going home, I’m going to a block association meeting and a community board meeting.”

How does their pay stack up?

Members of the New York City Council have salaries of $112,500, far more than state lawmakers.

On the other hand, New York legislators are the third-highest paid in the nation, ranking behind only California and Michigan.

Perks?

They get free dental insurance, according to the Department of Civil Service, and most are enrolled in the Empire health insurance plan for state employees, in which the state pays 90 percent of the premium.

And after 20 years, they can retire with a pension equivalent to 30 percent of the average of their highest three years of salary.

Over all, the highest paid members are Mr. Silver and the Senate majority leader, Joseph L. Bruno, the state’s top Republican; both are paid $121,000.

Both also have outside business interests, which are little known.

Mr. Silver is of counsel at Weitz & Luxenberg, a large personal-injury law firm.

His spokesman, Dan Weiller, said Mr. Silver “limits his legal work to represent only individuals in personal injury cases, none of which are against the State of New York.”

For well over a year, federal investigators have been investigating Mr. Bruno’s outside business interests.

He held a second salaried job for more than a decade, at a Connecticut investment firm, Wright Investors’ Service.

After a New York Times report late last year disclosed that the firm was managing money for a number of New York unions that lobby Senate Republicans, Mr. Bruno and the firm severed their relationship, but would not provide details of Mr. Bruno’s role.

The Senate passed a pay bill last year, but may be loath to move on one in an election year.

Unlike the Assembly Democrats, the Senate Republicans hold only a narrow majority.

The last pay bill was passed in an election year, but after the election.

“If the governor sends a bill up, we’ll make our judgments,” Mr. Bruno said in a recent radio interview.

“Right now, it’s not on our agenda.”

http://www.nytimes.com/2008/02/10/nyregion...runo&st=nyt

[Livyjr]

THE NEW YORK DAILY NEWS DAILY POLITICS BLOG:

AND AS WE CONTINUE TO TRACK THE PASSAGE OF THE TOXINS AND POISONS OF THE FINANCIAL DISEASE KNOWN VARIOUSLY AS "WALL STREET FEVER" OR "EXCESSIVE SHERIFF-ITIS" OR A RAMPANT RUN OF "ELIOT SPITZER'S GALLOPING TROTS" THROUGHOUT THE FINANCIAL MARKETS OF THE WORLD ...

Courtesy of EB and the New York Daily News, of course ...

By way of a quick review, on January 18, 2008, Governor Eliot Spitzer hosted the first formal meeting of HIS Commission to Modernize the Regulation of Financial Services in New York State, to make New York State's regulation of the financial services industry here FASTER and LOOSER than anywhere else in the world ....

According to his PRESS RELEASE, after the meeting, Governor Spitzer was joined by, among others, Martin J. Sullivan, President and Chief Executive Officer, AIG at a press conference to discuss the work of the commission and how principles-guided regulation will lead to a focus on outcomes rather than process.

According to Spitzer, the principles he is proposing for New York guide the regulator to focus on outcomes, rather than the rules in and of themselves.

According to "ex-SHERIFF OF WALL STREET" Spitzer, examinations of financial services companies should focus on what is important and what really makes a difference.

And in Spitzer's PRESS RELEASE, Martin J. Sullivan, President and CEO of American International Group, Inc., said:

“We are grateful for the opportunity to participate in this important and promising initiative."

"We look forward to helping ensure that the commission achieves its goal of streamlining the regulation of New York’s financial services sector in a way that enhances the industry’s ability to compete globally and better serve its customers.”

http://www.ny.gov/governor/press/0118081.html

In the meantime, to bring this on-going breaking story up to date, we have:

"Long-term Treasurys rise on CDO worries"

By LESLIE WINES, Associated Press

Last updated: 5:52 p.m., Monday, February 11, 2008

NEW YORK -- Long-term Treasury prices rose Monday after news of problems at American International Group Inc. again raised concerns about risky low-quality debt.

The insurer said it will make more information public about the methods it used to value the complicated debt pools known as collateralized debt obligations, or CDOs.

These assets are a major concern to investors because CDOs contain some subprime debt instruments that are likely to default and it is widely suspected their current prices do not reflect that liability.

The subprime crisis was also discussed at length over the weekend at a meeting of the Group of Seven finance ministers in Tokyo.

After the global economic summit, German Finance Minister Peer Steinbruck said the group fears that losses on securities due to subprime exposure in time will total $400 billion.

The finance chiefs also expressed concern that it is still unknown where much of the subprime pain will emerge, as collateralized debt obligations were sold to institutional and government investors around the world.

And subprime debt is not the only risky asset class that investors are worried about.

In recent sessions there also have been concerns about a possible wave of defaults on the low-rated corporate loans that were used to finance a leveraged buyout boom in 2006 and 2007.

Investors suspect that banks will try to sell off these leveraged loans at bargain rates to get them off their books soon.

Posted by John Galt on February 12, 2008 7:27 AM

http://www.nydailynews.com/blogs/dailypoli...he-day-189.html

[Livyjr]

THE NEW YORK DAILY NEWS DAILY POLITICS BLOG:

AND AT THE SAME TIME THAT NEW YORK STATE GOVERNOR ELIOT "BAM BAM" SPITZER IS TRYING TO GUT THE REGULATIONS WHICH GOVERN THE FINANCIAL SERVICES INDUSTRY HERE IN NEW YORK TO MAKE WALL STREET THE "FASTEST AND LOOSEST" FINANCIAL CENTER IN THE WORLD, WHERE ANYTHING GOES, SO LONG AS YOU HAVE THE "ARM" OF THE "SHERIFF" WRAPPED FIRMLY AROUND YOUR SHOULDER ...

WE HAVE AN ALTERNATE VIEW COMING FROM THE FEDERAL GOVERNMENT IN AMERICA AS FOLLOWS ....

Sooo ....

IS ANOTHER "CLASH OF THE TITANS" BETWEEN ELIOT SPITZER AND THE UNITED STATES GOVERNMENT IMMINENT HERE?

Stay tuned to this channel and see for yourselves ...

And so ...

FINANCIAL TIMES

"Monolines rescue efforts might be in vain"

By Aline van Duyn in New York

Published: February 7 2008 21:21 | Last updated: February 7 2008 21:21

MBIA, the world’s biggest bond insurer, has started the process of selling just over 50m of new shares, hoping this will raise $750m in fresh capital.

Once completed, the share issue could give MBIA enough funds to withstand further potential losses related to guarantees it has given on mortgage-backed securities in order to maintain its top triple-A credit rating.

Or it could not.

Unfortunately, the question of whether the extra capital will be enough is close to impossible to answer with any certainty.

“The company does not know, the ratings agencies do not know and banks with exposure to MBIA do not know how much extra capital is needed to protect the triple-A rating,” says a banker involved in capital-raising efforts.

“And no one knows this about any of the other bond insurers either.”

The uncertainty hanging over the fate of bond insurers such as MBIA, Ambac, FGIC and others has incr­eased in the past week.

“With the rating agencies moving the mark further out with the passing of each month, we believe there is still the risk that MBIA could be downgraded by one or more rating agencies,” says Tamara Kravec, analyst at Bank of America.

What happens if MBIA and its peers are downgraded?

Some banks will have to take further writedowns related to their exposure to risky mortgage loans.

Already such writedowns have exceeded $125bn on a global basis, and fears that the financial sector might have further troubles to absorb is hampering the performance of the stock market and leading to concerns of a recession in the US.

The banks with the biggest exposures to Ambac, MBIA and ACA (a smaller bond insurer already on the brink of insolvency) are Merrill Lynch, Citigroup and UBS, according to research by Oppenheimer.

The fund manager estimates the exposures to range from $7.4bn to $11.8bn for Merrill, $6.5bn to $10.3bn for Citi and $5.4bn to $8.7bn for UBS.

Congressman Paul Kanjorski, chairman of the subcommittee on capital markets, says he is convinced “of the real need to reform the oversight” of the bond insurance sector.

“Problems created by unrest in the bond insurance markets go to the heart of our economy and the very vitality of municipal fin­ance,” he says.

But an increase in regulatory oversight might come too late.

What really matters is trying to figure out where the subprime problems end.

“No one knows when the subprime mess is going to hit bottom."

"And until it does, no rating of any bond insurer is safe,” says Donald Light, senior analyst with Celent, a financial research and consulting firm.

“This drama will continue well into the second half of this year.”

http://www.ft.com/cms/s/85c6b744-d5b8-11dc...00779fd2ac.html

Posted by John Galt on February 12, 2008 7:48 AM

http://www.nydailynews.com/blogs/dailypoli...he-day-189.html

[Livyjr]

THE NEW YORK DAILY NEWS DAILY POLITICS BLOG:

February 14, 2008

"Spitzer Warns Of 'Financial Tsunami'"

Here is a copy of the testimony on bond insurance that Gov. Eliot Spitzer is scheduled to deliver at 11:30 a.m. before the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.

He's accompanied by state Insurance Superintendent Eric Dinallo.

UPDATE: In case you're inclined to watch Spitzer deliver his testimony, it will be streamed live here.

Reuters has the story, but here are some excerpts from the speech, during which Spitzer's wonkish is prominently displayed:

"...let’s be clear, the problems of the bond insurers are spreading and threaten serious problems well beyond the financial markets."

"The problems in this market will affect many average Americans."

"It will affect the cost of college loans."

"It will affect museum budgets."

"It will affect state and local taxes."

(Snip)

"There is a general tightening of credit, which means less money available for companies to borrow so they can expand and consumers to borrow so they can buy homes, cars, appliances and other goods".

"This comes at a time when the economy is already weak."

"In sum, if we do not take effective action, this could be a financial tsunami that causes substantial damage throughout our economy."

(Snip)

"Clearly, we would not be here today if the mortgage brokers and lenders and appraisers had maintained reasonable standards."

"But we would also not be here today if the relevant regulators had stopped these bad lending practices."

By Elizabeth Benjamin on February 14, 2008 9:36 AM

Comments

ELIOT "STEAMPIPE" SPITZER SAYS: "Clearly, we would not be here today if the mortgage brokers and lenders and appraisers had maintained reasonable standards"

JOHN GALT LAUGHS RIGHT OUT LOUD IN RETURN: YEAH, RIGHT, "STEAMPIPE" ...

Tell it just like it really is, there, dude .....

CLEARLY, FOLKS ...

WE REALLY WOULD NOT BE HERE TODAY AT ALL IF THE APPRAISERS HAD MAINTAINED REASONABLE STANDARDS .....

BUT THEY DID NOT ...

And so ...

TELL US WHY, Eliot ....

Please, tell us why ....

And I can do that for Eliot ....

By pointing to this following set of facts about CORRUPTION IN THE LAND APPRAISAL PROCESS IN NYS which Eliot defended in federal District Court for the Northern District of New York in Albany in 2005 in Matter of Paul R. Plante, P.E. v. KATHLEEN JIMINO, Renss. Co. Exec. et. al., to wit:

III. FACTS:

On May 22, 2001, Jeffey Pelletier was issued a sewage system construction permit by the County of Rensselaer.

On July 7 (2001), Plante conducted an investigation of defendants Aiken (engineer) and McGrath’s “deliberate falsification of inspection data and fraudulent submissions” resulting in the issuance of the Pelletier permit.

During Plante’s investigation, Pelletier assaulted him.

On August 9 (2001), defendant Reiter (Rensselaer County Director of Veterans’ Services) warned Plante to “back off” the Pelletier investigation because he (Pelletier) was a “protected person” in the county.

On August 17 (2001), defendant Jimino (Rensselaer County Executive) allegedly phoned Plante threatening to harm him if he did not stop his investigation.

Thereafter, he claims that Jimino conspired with Cybulski (County Director of Community Services) to obtain a fraudulent involuntary commitment order and a medical certification from Samaritan Hospital.

end quotes

There is a vivid portrait of WHY appraisers in NYS on Eliot Spitzer's watch as NYS AG were NOT maintaining REASONABLE STANDARDS ....

BECAUSE ELIOT SPITZER WAS ENCOURAGING THEM NOT TO ....

BY PROTECTING THEM WHEN THEY DIDN'T ...

AND HAD BEEN CAUGHT RED-HANDED AT IT BY A NYS LICENSED PROFESSIONAL ENGINEER WHO HAD DOCUMENTED THE FACTS AND WAS SET TO BRING THE MATTER BEFORE THE PROPER AUTHORITIES ...

ELIOT SPITZER WAS FOR FAST AND LOOSE IN NEW YORK STATE WHEN IT CAME TO APPRAISALS ....

And now ....

Those chickens are coming home to roost here in New York State ....

And it is going to be quite the show ....

Better than anything in the movies ....

Or on TV ....

This is a MADE-FOR-THE-INTERNET-DOCU-DRAMA unfolding before our eyes in here ....

And Eliot Spitzer is right smack dab in the middle of it ....

Up tp his elbows in it, in fact ....

MR. DIRTY?

Or JOE CLEAN?

You decide ....

And so ...

Posted by John Galt on February 14, 2008 4:56 PM

http://www.nydailynews.com/blogs/dailypoli...ancial-tsu.html

[Livyjr]

"Cuomo to sue major health insurers"

By MICHAEL GORMLEY, Associated Press

Last updated: 1:32 p.m., Wednesday, February 13, 2008

ALBANY -- New York Attorney General Andrew Cuomo on Wednesday said he will sue Ingenix, its parent UnitedHealth Group and three subsidiaries, saying the insurers are defrauding consumers by manipulating how much doctors and hospitals are reimbursed.

Cuomo also sent 16 subpoenas to insurance companies including Aetna Inc., Cigna Corp. and Empire Blue Cross Blue Shield, the state's largest health insurer.

The case contends that insurance companies are underpaying consumers who use out-of-plan physicians.

No company or individual has been charged with wrongdoing.

Cuomo said he wants to end what he claims is a fraudulent practice and also to seek restitution for customers.

"I believe it involves a fraud in the hundreds of millions of dollars and affects thousands and thousands of families," Cuomo said.

"That's what this investigation is about today."

The practice, which includes conflicts of interest, have gone on for nearly a decade, he said.

"We will continue to cooperate fully," UnitedHealth Group said in a statement.

Cuomo's investigation focused on the "reasonable and customary" rate that UnitedHealth used, but which investigators claim was kept artificially low, resulting in profit for the company and unnecessary cost for consumers.

"When insurers like United create convoluted and dishonest systems for determining the rate of reimbursement, real people get stuck with excessive bills and are less likely to seek the care they need," Cuomo said.

Investigators claim UnitedHealth manipulated data and even lied about reimbursement rates, which it said were based on national research.

In its statement, UnitedHealth defended the data.

"The reference data is rigorously developed, geographically specific, comprehensive and organized using a transparent methodology that is very common in the health care industry," the company stated.

"We believe these reference tools add substantial value to the health care system by providing all participants -- providers, payers and consumers -- with a long-standing transparent, consistent, and neutral line of sight into the health care market, its costs and performance."

Dr. Nancy H. Nielsen, of the American Medical Association, disagreed.

"UnitedHealth Group and other health insurers have shortchanged tens of millions of patients who agreed to pay higher premiums for access to their choice of physicians from outside a health insurer's network," Nielsen said in a prepared statement.

"At issue could be billions of dollars that health insurers have pocketed by paying treatment costs at less than what was promised."

[Livyjr]

"Lawmakers blast Spitzer's $15 charge on auto insurance"

By MICHAEL GORMLEY, Associated Press

Last updated: 5:33 p.m., Wednesday, February 13, 2008

ALBANY -- A proposal to charge New Yorkers a $15 fee on their auto insurance faced a road block Wednesday in the state Legislature.

Gov. Eliot Spitzer's proposal would help pay for bridge maintenance and repairs that lawmakers agree are overdue.

But Senate Transportation Committee Chairman Thomas Libous and Assemblyman Richard Brodsky told Spitzer's transportation commissioner at a budget hearing that the fee is unfair and unnecessary.

Libous, a Broome County Republican, questioned charging the fee while the administration raids what is supposed to be a fund dedicated for bridge repair.

The state has for years diverted as much as $750 million annually from the Dedicated Highway and Bridge Trust Fund for maintenance and repair, using the money instead to cover unrelated budget costs such as for snow and ice removal.

"We have a real problem with that," Libous said.

Brodsky, a Westchester Democrat, argues the fee doesn't distinguish between owners of luxury and economy cars and is another hit for middle class families in a budget that claims no tax increases.

"Hummers pay the same as Chevrolets," Brodsky said.

"It's just another fee attacking the middle class and poor people instead of asking everyone to share the burden."

State Transportation Commissioner Astrid Glynn defends the fee as essential to maintain the state's aging network of bridges, many of which are 50 years or older.

Much of the fee would go toward a $140 million fund to fix and maintain bridges this year, she said.

"The new program is intended to improve bridge safety and longevity by funding preventive and corrective maintenance on both state and locally owned bridges so that bridges in reasonably good shape remain so," she said.

Libous released data last year that showed 2,206 of the state's 7,604 bridges were rated deficient last year, a consistent number over the last three years.

He also said more than 1,000 of the bridges were built between 1910 and 1936.

[Livyjr]

"New regulations, more inspectors to protect against dam failures"

Associated Press

Last updated: 5:33 p.m., Wednesday, February 13, 2008

ALBANY -- The state Department of Environmental Conservation has proposed new dam regulations that would require owners of the 5,000 dams in New York to keep detailed design and modification records, as well as operation, maintenance and emergency action plans available for state inspection.

Citing a high-profile dam failure and some dangerous deficiencies found the past few years, the agency said it has increased dam safety staff statewide from three to 20, and the proposal clarifies that its enforcement authority applies even to smaller dams.

"These regulations finally address a legislative mandate to improve dam safety that dates to 1999 and which brings New York's regulations to a level consistent with other states," DEC Commissioner Pete Grannis said Wednesday.

For larger dams, owners will have to schedule inspections by a professional engineer at least every 10 years to determine if their classification remains accurate.

The DEC said its staff has completed inspections the past few years of all 389 high hazard dams, those whose failure would pose a serious threat to downstream communities.

In July 2005, about 200 homes in a northern New York village were evacuated after a recently rebuilt dam crumbled.

It was at the south end of the mile-long Hadlock Pond in Fort Ann, about 55 miles north of Albany.

The same year, emergency repairs began on an aging dam just north of the Catskills that serves New York City's drinking water supply to protect 2,500 upstate households and businesses.

They would have been in the path of some 20 billion gallons of water if the 80-year-old Gilboa Dam failed.

The $24 million project, finished in 2006, included installing 80 anchoring cables to pin the dam to the bedrock.

A $315 million reconstruction project is scheduled to start this year.

The DEC is taking public comments until May 17 on its proposal and scheduled three hearings.

--------

On the Net: http://www.dec.ny.gov/regulations/propregulations.html

[Livyjr]

"GOP chief seeks probe of donation - Chairman asks action against Democrats who got funds from Canadian drug plan vendor"

By PAUL NELSON, Staff writer, Albany, New York Times Union

First published: Thursday, February 14, 2008

SCHENECTADY -- County Republican Chairman Tom Buchanan wants a federal probe into what he says is an unlawful donation Democrats received last year from the Canadian drug company that provides prescription drugs to county workers.

"This is straight out of the Schenectady Democratic playbook, to hit up people that do business with the county for substantial contributions and funnel the county business back to the same company," said Buchanan, who branded it an example of "pay to play."

The term refers to a practice in which public officials award lucrative, in some cases no-bid government contracts and grant other favors to individuals.

Buchanan, an attorney, contends the $5,000 donation violates the McCain-Feingold Law, which bars local, state or national committees from accepting campaign contributions from foreign companies.

As a result, he is demanding the county Democrats return the money CanaRx Services Inc. of Ontario, Canada, gave Oct. 22, and said he believes the party also should be penalized for taking the money.

State financial disclosure records show that on Oct. 22, CanaRx made the donation to the county Democratic committee.

"I would expect that they would be fined and sanctioned by the Federal Election Commission," he said.

"This is a Canadian drug deal that went bad."

Democratic County Chairman Brian Quail issued a statement late Wednesday afternoon reacting to the allegation.

"When Tom Buchanan attacks the Schenectady Democrats for what at worst was an oversight -- when we are investigating -- he is the guy in the glass house throwing stones," Quail said.

He said the county Republican Party has failed to keep its financial disclosure forms up to date.

Since being launched in 2004, some 1,200 families have enrolled in the county's drug package offered through CanaRx, and the county is saving over $100,000 a month, county spokeswoman Theresa Cassiack said Wednesday.

Paul Nelson can be reached at 454-5347 or by e-mail at pnelson@timesunion.com.

[Livyjr]

"Berkshire Hathaway opening bond insurer"

By STEPHEN BERNARD, Associated Press

Last updated: 4:52 p.m., Friday, December 28, 2007

NEW YORK -- Town governments, school districts and other municipalities looking to borrow money got a new option Friday when trying to insure their bonds: billionaire investor Warren Buffett.

The New York Insurance Department expedited the licensing for Berkshire Hathaway Assurance Corp.

"Treasurys lower on Bernanke comments"

By LESLIE WINES, Associated Press

Last updated: 5:43 p.m., Thursday, February 14, 2008

NEW YORK -- Long-term Treasurys sold off for a third straight session Thursday after the latest weekly unemployment benefits tally suggested some stabilization in a worrisome labor market.

Signs of economic improvement do not as a rule benefit the Treasury market, which generally performs best when investors are nervous about the economic outlook and want secure goverment-guaranteed assets.

On Thursday, the Labor Department said first-time jobless claims dropped for a second week in a row.

Claims for the week to Feb. 9 fell 9,000 to 348,000.

Although weekly jobless claims data is volatile, investors were heartened by the latest figures as they followed recent news that the economy gave up jobs in January.

Ian Shepherdson, chief U.S. economist at High Frequency Economics, questioned the market's cheery interpretation of the data, noting that the four-week moving average for the claims actually rose last week.

"We expect claims to continue grinding higher in the wake of the clear downturn in business sentiment," Shepherdson said.

The benchmark 10-year Treasury note fell 25/32 to 97 12/32 with a yield of 3.82 percent, up from 3.73 percent late Wednesday, according to BGCantor Market Data.

Prices and yields move in opposite directions.

The 30-year long bond dropped 1 19/32 to 95 17/32 with a yield of 4.65 percent, up from 4.55 percent.

The 2-year note closed unchanged at 100 13/32 with a 1.91 percent yield, unchanged from late Wednesday.

Long-term yields were unchanged in after hours trade.

At 5:30 p.m. Eastern time, the 10-year yield remained 3.82 percent and the 30-year yield was still 4.65 percent, but the 2-year yield inched down to 1.90 percent.

The 3-month rate rose to 2.29 percent from 2.27 percent late Thursday as the discount rate ticked up to 2.24 percent from 2.22 percent.

The selling pressure was heaviest on longer-term bonds because they are the most sensitive to inflationary pressures.

Positive economic data suggests an improving economy could set off higher inflation over the long haul.

By contrast, short-term notes were little changed, benefiting from anticipated rate cuts in the near future.

Short-term notes are the most sensitive to rate expectations.

Federal Reserve Chairman Ben Bernanke on Thursday made remarks to lawmakers viewed as confirming that the Fed remains in rate-cutting mode.

Bernanke's testimony to the Senate Banking Committee gave a temporary boost to the bond market, although government bonds remained in negative territory.

Treasury investors would like to see cheaper money.

The Fed chief's basic message appeared to be that the Fed, which cut the overnight Fed funds rate by a full 1.25 percentage points in January, has done its best to stimulate a sagging economy and fractured credit markets, but is willing to do even more.

New York State Insurance Superintendent Eric Dinallo also appeared on Capitol Hill Thursday.

He argued in favor of splitting troubled bond insurers MBIA Inc. and Ambac Financial Group Inc. into two parts.

That would separate the high-risk subprime assets they backed from the healthier municipal bond instruments.

Dinallo has led a coalition of government officials and top banks that is seeking financing for hard-hit bond insurers.

Also on Thursday another troubled bond insurer, FGIC Corp., had its "AAA" rating cut two notches to "A3" by Moody's Investors Service.

The insurer failed to raise enough capital to pay for an unexpected spike in claims on subprime debt.

FGIC needed about $4 billion to maintain the "AAA" rating.

[Livyjr]

"Undersheriff admits misconduct in office, gets 21-month sentence"

By BEN DOBBIN, Associated Press

Last updated: 12:34 p.m., Thursday, February 14, 2008

ROCHESTER, N.Y. -- A former police official pleaded guilty to a variety of theft and official misconduct charges -- including trying to pin crimes on residents who criticized him -- in a scandal that rocked the sheriff's department in rural Seneca County.

James Larson, 47, who resigned as the department's undersheriff in March 2006 a few months after misconduct complaints surfaced, drew a 21-month jail sentence Wednesday in Waterloo, the county seat, after apologizing and accepting responsibility for his conduct.

Former Sheriff Leo Connolly is awaiting trial this summer on official misconduct charges that he too targeted his Internet critics with "selective enforcement" and offered a sheriff's deputy overtime pay to carry out his orders.

Four of his deputies were also implicated.

Larson, a father of two, pleaded guilty to two felony counts of criminal possession of stolen property and four misdemeanor counts of petit larceny and official misconduct dating back to January 2005.

He was jailed in neighboring Ontario County.

"This was very shocking, egregious conduct for anybody, let alone the No. 2 law enforcement officer in the county."

"It was very brazen," prosecutor R. Michael Tantillo said in an interview.

If convicted, Larson could have been sentenced to 15 months to four years in prison.

Among the accusations Larson admitted were stealing a colleague's shotgun as well as more than $1,000 worth of sheriff's office property.

He switched four tires from a patrol car onto his own vehicle and carried out a paying job for a lakeside homeowner while on duty, Tantillo said.

In addition, Larson directed two sheriff's deputies to target two people who posted political attacks on him and the sheriff on a popular Web site in western New York's Finger Lakes region.

The deputies were told to pursue "enforcement of traffic infractions or anything they could find," the prosecutor said.

Nobody was ever ticketed or arrested, however, because the deputies didn't follow those orders.

Connolly, who took over as sheriff of Seneca County in 2004, took a personal leave after he was charged last August and did not seek re-election in the fall.

If convicted, he could get a maximum 28 months to seven years in prison.

[Livyjr]

"Vernon Downs reopens after legislative deal"

Associated Press

Last updated: 11:12 a.m., Thursday, February 14, 2008

VERNON, N.Y. -- Vernon Downs is back in business after state lawmakers agreed to provide about $70 million in additional revenue to help struggling horse racing tracks across New York.

The harness track just east of Syracuse reopened Thursday morning, a day after an agreement in the state Legislature that gives Vernon about $5.1 million a year in additional revenue.

The track's principal owner, Jeff Gural, closed the track Monday, putting more than 200 employees out of work.

He said the gaming facility was losing too much money.

[Livyjr]

"Probe details clumsy policy - Inspector general's report shows ex-aide to Spitzer acted ineptly, but not illegally, in bid to change PSC board"

By JAMES M. ODATO, Capitol bureau, Albany, New York Times Union

First published: Friday, February 15, 2008

ALBANY -- Gov. Eliot Spitzer's former energy secretary was obnoxious and a poor manager, but he did not break the law in his push to dislodge a Pataki-era appointee from the Public Service Commission while ushering in a proposed new chairwoman, an inspector general's report has concluded.

The 130-page report, released Thursday by Inspector General Kristine Hamann, comes almost 10 months after PSC Commissioner Cheryl Buley complained about the conduct of Steven Mitnick, who resigned in August.

It essentially clears Mitnick of Buley's assertions.

But it blames him for giving Spitzer's nominee for PSC chairwoman, Energy East lobbyist Angela Beddoe, premature power to act as if she was the boss of the agency that regulated her employer, even as she continued in her private-sector job.

Hamann's report drew immediate criticism from Senate Republicans, who noted she was appointed by Spitzer and therefore lacked the independence to conduct such a probe.

The report referred the names of three commission staffers to the Public Integrity Commission.

According to the report, they allowed themselves to be interviewed for promotions by Beddoe at the same time as they held duties regulating Energy East, resulting in the appearance of a conflict of interest.

Those people included Eleanor Stein, an administrative law judge, whom Beddoe proposed to promote to general counsel.

Further, Beddoe was allowed to review personnel files of staffers as she planned reassignments, demotions and discharges.

She may have considered some of these people hostile to Energy East or herself, the report suggests, including Jaclyn Brilling, the agency's ethics officer, who had raised ethics questions about Beddoe.

Another staffer had filed a criticism of Energy East's newspaper advertising, which had blasted actions of the PSC.

During a public PSC meeting in April, Buley alleged Mitnick intimidated her and threatened her job.

She said Mitnick had tried to push her to delay a vote on whether the agency should probe Consolidated Edison's handling of the 2006 Queens blackout.

Mitnick, according to Hamann's report, "proved a poor fit for the position."

But he had a right to try to get Buley to leave the commission, Hamann said, and did not overstep ethics boundaries in handling her.

Buley made statements that could not be verified, the inspector general said.

Further, the other PSC commissioners questioned her credibility on the issue of the delay, particularly since Spitzer wanted ConEd investigated.

The probe did find merit in related complaints last May that Mitnick wrongly placed PSC staff in a corner because Beddoe had his blessing to act as an interim chairwoman without having accepted the post and quitting her utility job.

That led to Beddoe sitting down with top staffers to discuss their promotions and seeing documents marked confidential, plans for upcoming commission meetings and personnel records.

Robert Freeman, director of the state Committee on Open Government, said the materials Beddoe saw may have actually been public documents.

Pay information and disciplinary references are not confidential, for instance, but Social Security numbers are, and such details were not in files she reviewed.

Mitnick issued a statement saying he had been vindicated.

Buley said she wants to move forward as a commissioner, a post that pays $109,900, through 2012.

She said there were some inaccuracies in the report, but preferred not to dwell on them.

The investigators drew testimony from officials who said Buley was angling for another job, including a return to the state Racing and Wagering Board -- where she sat before Pataki appointed her to the PSC -- in order to increase her salary and lighten her workload.

She used lobbyist James Crane to get the word to Mitnick, according to testimony from Mitnick and Crane.

Senate Investigations Committee Chairman George Winner, R-Elmira, said he was dissatisfied with the report and questioned Hamann's independence from Spitzer.

"Inspector General Hamann's conclusions run the risk of giving a stamp of approval to a culture of coercion, intimidation and threats within the highest levels of New York government," Winner said in a statement.

Hamann's spokesman, Stephen Del Giacco, said "a fair reading ... will show we conducted a thorough and objective investigation."

He added the inspector general received total cooperation from all parties and agencies and did not share the report or any drafts with the governor's office until Thursday.

Odato can be reached at 454-5083 or by e-mail at jodato@timesunion.com.

[Livyjr]

"Stephentown official indicted"

By BOB GARDINIER, Staff writer, Albany, New York Times Union

Last updated: 12:44 p.m., Friday, February 15, 2008

TROY -- The Stephentown town highway superintendent was indicted this morning on 44 felony counts for allegedly purchasing gravel for the town from an illegal mine and submitting false documents to cover it up.

Following an investigation by the state Attorney General, a grand jury on Friday handed up the indictment that accuses Neil Gardner, a Republican, of 22 felony counts of first-degree offering a false instrument for filing, 10 felony counts of first-degree falsifying business records, 12 felony counts of second-degree criminal possession of a forged instrument, and one count of operating a mine without a permit, a state Department of Environmental Conservation violation.

Gardner's Troy attorney, Stephen Pechenik, could not be immediately reached for comment though he has said the mine was not illegal, that town officials were well aware of where the gravel came from and that his client was being criticized by state officials only for not making the voucher more specific.

Gardner, 52, the town's highway chief for more than 20 years, won another term in November with 55 percent of the vote a day.

Voters returned him to office the day after he was first arrested.

In October 2006, state investigators took records from the town clerk's office, Gardner's office and from Russ Freeman of Russ Freeman Excavating Inc. in Nassau, which regularly performed work for the Stephentown Highway Department.

Town Supervisor Michael Angley has said that a problem became apparent in 2005 when a North Stephentown landowner came to a Town Board meeting complaining that he was not paid for gravel the town and Freeman mined from a pit on his land.

The state later told the town that the mine was not permitted.

The indictment, delivered to Rensselaer County Court Judge Patrick McGrath, alleges that Gardner manipulated town records in November 2005 to make it look like the gravel came from a legally operated mine run by West Sand Lake-based Troy Sand and Gravel.

Freeman pleaded guilty in town court in October to one count of second-degree offering a false instrument for filing and was fined $1,000 fine.

He died of cancer in December.

Gardner's arraignment is pending.

[Livyjr]

"Berkshire Hathaway opening bond insurer"

By STEPHEN BERNARD, Associated Press

Last updated: 4:52 p.m., Friday, December 28, 2007

NEW YORK -- Town governments, school districts and other municipalities looking to borrow money got a new option Friday when trying to insure their bonds: billionaire investor Warren Buffett.

The New York Insurance Department expedited the licensing for Berkshire Hathaway Assurance Corp.

"FGIC expected to split operations"

By MICHAEL GORMLEY, Associated Press

Last updated: 5:23 p.m., Friday, February 15, 2008

ALBANY -- New York regulators are eager to consider splitting Financial Guaranty Insurance Co.'s core bond insurance businesses to protect municipal credit ratings against costly downgrades and stem troubles in the debt markets.

In a statement Friday, FGIC said would like to organize a new domestic financial guarantee insurer in New York to "provide support for public finance obligations previously insured by FGIC."

Analysts said other bond insurers are likely to make similar moves to split their exposure to riskier financial instruments.

"Other bond insurers will be tempted to follow suit, especially the ones that have already been downgraded by at least one ratings agency," said Donald Light, a senior analyst at Celent of Boston, a financial research and consulting firm.

State Insurance Superintendent Eric Dinallo, who has spoken sympathetically about FGIC's need for a split of its municipal insurance business, said he hopes that won't happen to other mortgage insurers.

He said talks are going well with the other bond insurers, including MBIA Inc. and Ambac Financial Group Inc.

"There's a lot of interest and they're just going to have to figure out how to economically execute on it," he said.

"But I think there's a much higher degree of optimism on those two companies."

Dinallo said rating agencies have given bond insurers a week or two to strike a deal.

Bond insurers have struggled in recent months as ratings agencies have worried the companies would not have enough capital to cover a potential spike in claims.

Ratings agencies are worried rising delinquencies and defaults on mortgages will lead to an increase in defaults among bonds backed by the troubled loans.

That in turn would force insurers to pay out claims.

Bond insurers pay principal and interest when issuers fail to make payments.

A ratings downgrade would make it more expensive for cities and towns to borrow money.

On Thursday, FGIC's critical financial strength rating was cut by Moody's to "A3" from "AAA."

Bond insurers essentially need a "AAA" rating to book new business.

Moody's said FGIC needs access to $9 billion to maintain the "AAA" rating, but the company currently has access to just $5 billion.

Standard and Poor's and Fitch Ratings had previously downgraded FGIC.

In its statement Friday, FGIC said it has been exploring various capital raising and other initiatives over the past several months.

"After careful consideration, the company has informed the New York state Insurance Department that it would like to begin the process of organizing a new domestic financial guarantee insurer in New York," the statement said.

"Once licensed, this new insurer would be used to provide support for public finance obligations previously insured by FGIC and to write new business to serve the municipal markets," the company said.

Dinallo said Friday that "without capital infusions this probably is the necessary outcome" for FGIC.

"That's sort of the endgame if we can't get capital infusions into these companies," he said.

Dinallo said word that FGIC may split its businesses stops the clock on any more downgrades.

He said a decision on whether the split will be allowed will take weeks because of the complexity of creating the application and then reviewing it.

A day after he and other state officials testified at a congressional hearing on the bond insurers, Dinallo said the message from Congress was, "If you can solve it, solve it, but don't let the municipalities downgrade."

The insurance department has been working in recent months with bond insurers and banks to figure out ways to help the insurers maintain their "AAA" ratings and ensure their viability.

"I think it's just important that we demonstrate, or the company at least tries to demonstrate, there is a plan, that we have the capacity to save the ratings on the municipal side of the books," Dinallo said.

"We want a private side solution that injects capital into these companies ... but failing that, we can't let the municipalities downgrade."

------

Associated Press Writer Michael Hill in Albany and Business Writer Stephen Bernard in New York City contributed to this report.

[Livyjr]

THE NEW YORK DAILY NEWS DAILY POLITICS BLOG:

ELIOT SPITZER ON GOVERNMENT REFORM TO THE ROCKEFELLER INSTITUTE OF GOVERNMENT, November 21, 2005:

I'm proud of the fact that my office has achieved a great deal during the last seven years in reforming Wall Street and the financial sector.

THAT WAS POSSIBLE IN PART BECAUSE I KNEW WHOSE SIDE I WAS ON.

I DIDN'T WAIVER.

I didn't worry about the pushback that inevitably comes when you try to change the status quo.

I believe that what happened on Wall Street and in these various other areas can also happen on State Street here in Albany.

My starting point is this proposition: you can't achieve reform - you can't achieve meaningful, far-reaching reform - unless it is based on core values.

In the financial sector we argued core values that no one could dispute: honest, full, free and fair competition.

OUR GOAL WAS AND IS TO MAKE THE FRE ENTERPRISE SYSTEM WORK AS IT SHOULD - THROUGH TRUTHFUL, FULL DISCLOSURE AND THE CREATION OF A LEVEL PLAYING FIELD.

To be sure, there were those who asserted that our actions would harm the markets.

The people who did that were protectors of the status quo.

THEY DID NOT UNDERSTAND THAT THERE ARE MOMENTS WHEN GOVERNMENT MUST ACT TO HELP RESTORE THE INTEGRITY OF THE MARKETS.

They did not understand that enforcement of the rules is good for business, and that such action helps unleash the true power of the system - with capital flowing freely to the greatest opportunities for growth.

Posted by John Galt on December 22, 2007 5:46 PM

http://www.nydailynews.com/blogs/dailypoli...4.html#comments

"Treasurys higher on weak manufacturing"

By LESLIE WINES, Associated Press

Last updated: 5:52 p.m., Friday, February 15, 2008

NEW YORK -- Long-term Treasury prices rose Friday after the New York Federal Reserve reported that manufacturing in its region contracted this month.

Another gauge showed that nationwide consumer confidence skidded to a 16-year low.

The news sent the yield on the rate-sensitive two year note briefly down to its weakest level in four years.

Prices and yields move in opposite directions.

The New York Fed's Empire State index of factory activity plunged almost 21 points to a negative 11.7 reading, the weakest level in almost three years.

Readings below zero show shrinkage.

February also marked the fourth straight decline for the index.

Economists had expected a much healthier reading of 5.75, according to Thomson/IFR.

The report helps build a case that the economy is on the brink of recession, although a recession requires two consecutive quarters of contraction and can only be declared in hindsight.

Separately, the Reuters/University of Michigan's consumer sentiment index dropped to 69.6 this month, its worst level since 1992 and down sharply from 78.4 in January.

Although the news triggered a strong reaction in the bond market, some economists caution that consumer cash flow is a more tangible metric than sentiment readings.

Although the data has negative portents for the economy, it is helpful to the Treasury market, as investors generally turn to government-backed bonds when they are worried about the economy.

In addition, the report puts extra pressure on the Fed to continue cutting interest rates.

The central bank cut the overnight Fed funds rate by 1.25 percentage points in January.

Fixed-income investors want to see more rate cuts to rejuvenate ailing debt markets.

The benchmark 10-year Treasury note rose 9/32 to 97 24/32 with a yield of 3.77 percent, down from 3.82 percent late Thursday, according to BGCantor Market Data.

The 30-year long bond gained 25/32 to 96 24/32 with a yield of 4.58 percent, down from 4.65 percent the day before.

However, there was some selling pressure on short-term notes.

The 2-year note fell 3/32 to 100 12/32 with a 1.92 percent yield, up from 1.90 percent late Thursday.

Immediately after the sentiment report the 2-year yield touched 1.82 percent, its worst level since 2004.

After hours trade had no impact on yields.

At 5:30 p.m. Eastern the 10-year yield remained 3.77 percent, the 30-year yield was still 4.58 percent and the 2-year yield stood at 1.92 percent.

The yield on the 3-month note fell to 2.21 percent from 2.27 percent on Thursday, as the discount rate dropped to 2.16 percent from 2.24 percent.

In other data news, the Fed said industrial output rose modestly last month, due to strength in the utility sector.

Industrial production increased 0.1 percent in January, in line with December's rise and analysts' expectations.

Separately, the Labor Department reported that U.S. import prices rose 1.7 percent in January, as oil prices jumped.

In December, prices slipped 0.2 percent.

Demand for Treasurys Thursday also was stoked by a complex barrage of negative developments elsewhere in the credit markets.

Since the subprime issue first surfaced last summer, Treasurys have been the asset of choice for investors spooked by the unraveling of normally stalwart forms of debt assets.

This week saw turmoil in the market for short-term auction-rate munis when bidders could not be found for weekly notes offered by a number of top-rated local government issuers.

There also are mounting problems in the leveraged loan market, as well as some ongoing weakness in corporate short-term commercial paper.

"In 25 years of working in this business, I don't believe I have seen more market disruption from so many different sources," said Kevin Giddis, managing director of fixed-income trading at Morgan Keegan.

The unusual degree of queasiness about debt issued by highly reliable companies and municipalities is linked to worries about bond insurers that unwisely backed subprime debt.

There are concerns that they may not be able to shore up enough capital to withstand an expected avalanche of defaults.

One of the wobbly bond insurers, FGIC Co., agreed to be split into two separate entities.

One would house its structured finance business where its troubled subprime assets are sheltered.

The other would contain the municipal bonds that FGIC backs which normally are considered desirable.

[Livyjr]

THE NEW YORK DAILY NEWS DAILY POLITICS BLOG:

ELIOT SPITZER ON GOVERNMENT REFORM TO THE ROCKEFELLER INSTITUTE OF GOVERNMENT, November 21, 2005:

OUR GOAL WAS AND IS TO MAKE THE FRE ENTERPRISE SYSTEM WORK AS IT SHOULD - THROUGH TRUTHFUL, FULL DISCLOSURE AND THE CREATION OF A LEVEL PLAYING FIELD.

To be sure, there were those who asserted that our actions would harm the markets.

The people who did that were protectors of the status quo.

THEY DID NOT UNDERSTAND THAT THERE ARE MOMENTS WHEN GOVERNMENT MUST ACT TO HELP RESTORE THE INTEGRITY OF THE MARKETS.

They did not understand that enforcement of the rules is good for business, and that such action helps unleash the true power of the system - with capital flowing freely to the greatest opportunities for growth.

Posted by John Galt on December 22, 2007 5:46 PM

http://www.nydailynews.com/blogs/dailypoli...4.html#comments

THE FINANCIAL TIMES

"Fed quiet on bond insurers rescue"

By Gillian Tett, Saskia Scholtes and Krishna Guha

Published: January 28 2008 20:56 | Last updated: January 28 2008 20:56

In autumn 1998 when hedge fund Long-Term Capital Management was imploding, William McDonough, then president of the New York Federal Reserve, pulled the heads of Wall Street banks into an oak-panelled Fed meeting room – and bullied them into organising a collective bail-out.

The meeting is renowned since it quelled the LTCM storm.

With Wall Street now facing the threat of a new financial calamity – this time from the embattled bond insurers – some bankers are wondering if the Fed could repeat its trick.

In public, at least, it would seem not.

In recent days, it has been Eric Dinallo, New York Superintendent of Insurance, who has spearheaded efforts to cut a deal, by approaching 13 large investment banks and issuing public statements on the matter.

By contrast, the New York Fed, and its president, Tim Geithner, have been notably silent, avoiding comment on the issue altogether.

This stance is partly because official responsibility for overseeing the bond insurers rests with the state insurance regulators, not the Fed.

Mr Geithner commands considerable credibility on Wall Street.

Mr Dinallo, by contrast, invokes more mixed emotions among some bankers because of his previous involvement in enforcement actions.

“This . . . should be organised at a Federal level, not by state regulators,” a senior official at one Wall Street bank claimed in Davos last week.

http://www.ft.com/cms/s/0/0a4bd548-cddb-11...0077b07658.html

"Bond insurer FGIC expected to seek OK from NY regulators to split into 2 companies"

By MICHAEL GORMLEY, Associated Press

Last updated: 12:32 p.m., Friday, February 15, 2008

ALBANY -- Bond insurer Financial Guaranty Insurance Co. is expected to apply to the New York State Insurance Department to separate into two companies, splitting its municipal bond business from its insurance on riskier financial instruments, the regulator said.

"Congress was clear, almost directional on that," state Insurance Superintendent Eric Dinallo told The Associated Press on Friday, a day after he and other state officials testified at a congressional hearing on the troubled bond insurance industry.

He said the message from Congress was, "If you can solve it, solve it, but don't let the municipalities downgrade."

A ratings downgrade would make it more expensive for cities and towns to borrow money.

FGIC has yet to submit any details about exactly how it would split the company, but the department is expecting a formal application soon, said David Neustadt, a spokesman for the insurance department.

A call and an email to FGIC for comment was not immediately returned.

The insurance department has been working in recent months with bond insurers and banks to figure out ways to help the insurers maintain their "AAA" ratings and ensure their viability.

"I think it's just important that we demonstrate, or the company at least tries to demonstrate, there is a plan, that we have the capacity to save the ratings on the municipal side of the books," Dinallo said.

"We want a private side solution that injects capital into these companies ... but failing that, we can't let the municipalities downgrade."

The company's application would be welcomed by state regulators.

"They have to present a plan we find acceptable, but obviously -- generally speaking -- we think it's an appropriate direction," said Neustadt.

Bond insurers have struggled in recent months as ratings agencies have worried the companies would not have enough spare capital to cover a potential spike in claims.

Ratings agencies are worried rising delinquencies and defaults among mortgages will lead to an increase in defaults among bonds backed by the troubled loans.

That in turn would force insurers to pay out claims.

Bond insurers pay principal and interest when issuers fail to make payments.

A review of the FGIC plan will be expedited once it is received, Neustadt said.

"Right on cue, after New York Gov. Eliot Spitzer talked to Congress yesterday about a 'good bank-bad bank' solution to the bond insurance crisis, FGIC announced that it is going to request that the New York State Insurance Department allow it to split into two companies," said Donald Light, a senior analyst at Celent of Boston, a financial research and consulting firm.

"Other bond insurers will be tempted to follow suit, especially the ones that have already been downgraded by at least one ratings agency."

On Thursday, FGIC had its critical financial strength rating cut by Moody's to "A3" from "AAA."

Bond insurers essentially need a "AAA" rating to book new business.

To maintain its top-caliber rating, Moody's said FGIC needs to be able to access $9 billion.

The company only has access to $5 billion, Moody's said.

Both Standard and Poor's and Fitch Ratings already downgraded FGIC.

Fitch has also downgraded Ambac Financial Group Inc. and Security Capital Assurance Ltd., while Standard & Poor's has downgraded SCA.

Moody's also lowered its ratings for SCA.

------

Associated Press Business Writer Stephen Bernard contributed to this report from New York City.

[Livyjr]

"Upstate town official charged with running illegal mine"

Associated Press

Last updated: 2:12 p.m., Friday, February 15, 2008

ALBANY -- The highway superintendent for an upstate town has been charged with operating an illegal mine and falsifying records to conceal the source of sand and gravel used in local projects.

State Attorney General Andrew Cuomo on Friday announced a multiple-count indictment against 52-year-old Neil Gardner, head of the highway department in Stephentown, in Rensselaer County 23 miles east of Albany.

Cuomo says Gardner operated the mine without the proper state permit and forged documents to keep town and state officials from finding out about the mine.

Gardner is accused of illegally removing thousands of cubic yards of sand and gravel from a rural property near the Massachusetts line.

[Livyjr]

"Increased attention on sales of land - Park agency uses records, mapping software to find illegal subdivisions"

By BRIAN NEARING, Staff writer, Albany, New York Times Union

First published: Sunday, February 17, 2008

ALBANY -- Chopping up the Adirondacks into illegal lots for sale might now be harder than in the past.

Up to now, the first time the Adirondack Park Agency learned about land that could not be legally developed -- usually because acreage was too small or encroached on wetlands -- normally came when a new owner, often an innocent victim, arrived looking for a building permit.

Sometimes land had been illegally subdivided two, three or more times before the agency caught on.

At six million acres spread across remote mountains and forests in a dozen counties, the park was simply too large for investigators to easily learn when land changed hands.

But a new approach may change all that.

Investigators who this year combined state land sale records with computerized mapping software sniffed out 55 suspected illegal land subdivisions, nearly a third of all subdivisions in the park last year.

"We hope that we now will find out about these subdivisions much quicker, before the person who did it has time to sell it," said agency spokesman Keith McKeever.

"This way, we can find out about this activity before construction or roads are built and before significant environmental impacts."

The agency can assess fines on violators and can force subdivisions to be undone, he said.

Last year, the agency hired two enforcement officers whose only duty is to find subdivision violations.

Word of the effort, which relies on a property sales database kept by the state Office of Real Property Services, is already spreading throughout the park, with some landowners calling the agency to learn if their lots were created legally, McKeever said.

"Most of the ones we have documented over the years have been small, two- or three-lot subdivisions that crept under everyone's radar until the APA got another request for a permit on the same property or a neighbor got mad and blew the whistle," said John Sheehan, a spokesman for The Adirondack Council.

"The reason for this is obvious.

Major subdivisions are created with the help of an attorney who will generally advise his clients to obtain all the needed permits before attempting to sell lots.

The larger the subdivision, the more likely it is to follow the rules, if only to avoid losing huge sums by being sued later," said Sheehan.

One of the largest examples was in Hadley, Saratoga County, when the Hunt Lake Land Company added six lots to an approved 31-lot subdivision.

The APA ended up approving the extra lots.

Agency Chairman Curtis Stiles said when illegal subdivisions are caught early significant environmental impacts and harm to future purchasers can be avoided, while costs to fix the problem can be minimized.

A park advocacy group applauded the effort.

"This has been a problem for a long time, which has left the APA in the unenviable position of who to fine or whether to even impose a fine," said John Sheehan, a spokesman for the Adirondack Council.

"It usually meant the agency legalized the illegal activity by papering (permitting) around it."

The problem is so common that about 600 cases of the agency's 1,200-case backlog, some of which stretch back years, involve illegal subdivisions.

Many of those cases were closed without being resolved because original sellers cannot be located.

"Historically, it has been difficult to be caught doing this and it is generally met with a mild penalty," said Sheehan.

McKeever was not able to provide figures on past fines for illegal subdivisions.

"Unless the APA has a tool to identify these cases and take action early on, then the only way to get this problem under control was to treat violators very harshly, and the agency has been reluctant to do this, given that the current owner usually didn't cause the violation," Sheehan said.

Brian Nearing can be reached at 454-5094 or by e-mail at bnearing@timesunion.com.

[Livyjr]

FORTUNE

"THE MYSTERY OF THE $890 BILLION INSURER - MBIA guarantees the safety of bonds that fund everything from the Eurotunnel to commercial aircraft to cities across America. A relentless short-seller charges that its business model isn't sound. Can he be right?"

By BETHANY MCLEAN

May 16, 2005

(FORTUNE Magazine) – HEDGE FUND MANAGERS are a secretive breed, especially when they're shorting a stock.

That's partly because many people still seem to feel that there's something almost unpatriotic about making money when a stock declines in value.

So it raised some eyebrows, back in 2002, when a guy named Bill Ackman took on a company called MBIA in a very public way.

First he shorted the company's securities, and then he issued a press release with a link to the website for the fund he ran, Gotham Partners, where he posted a 66-page analysis questioning almost every aspect of MBIA's business.

MBIA is not a household name, and by some measures it is small.

It employs just 623 people and its market value is less than $8 billion.

Yet MBIA is a subterranean powerhouse.

It guarantees interest and principal payments totaling $890 billion on bonds that fund everything from the Eurotunnel to the city of Minneapolis to trusts backed by royalties from DreamWorks movies.

As MBIA's chairman, Jay Brown, says, MBIA "touches a lot of things."

Certainly, it touches a lot of investors.

Major banks, pension funds, and moms and pops all own bonds that are seen as some of the safest investments in the world simply because they are insured by MBIA--carrying what it calls its "Good Housekeeping seal of approval."

The key to MBIA is that the credit-rating agencies--such as Standard & Poor's--give its insurance arm the rare and coveted rating of triple A.

That means that MBIA is judged to be one of a handful of the most financially sound companies in America, up there with Exxon Mobil and GE.

When MBIA insures, or in industry lingo "wraps," a bond, it gives that bond the attributes--mainly a lower interest rate--of a triple-A-rated bond.

In other words, what MBIA sells is its triple-A rating.

As CEO Gary Dunton wrote in his 2004 letter to shareholders, "MBIA's true constant--our North Star, if you will--is our commitment to protecting our triple-A ratings."

And it was precisely MBIA's triple-A rating that Ackman was publicly calling into question.

The initial response to his report was a swift and brutal backfire.

At MBIA's request, Eliot Spitzer's office launched an investigation of Gotham over possible market manipulation.

That alone led many on Wall Street to dismiss Ackman's allegations--when a short-seller is questioned by the state attorney general's staff, whatever credibility he has tends to vanish.

But today the tables have turned.

In March, MBIA announced that it would restate its earnings for the past six years to correct the accounting for a transaction that Ackman had identified as a "loss- deferral, earnings-smoothing device" in his initial report.

Then, later that month, MBIA announced that it had received subpoenas covering a range of issues from both the SEC and--yes--Spitzer's office.

Ackman, a persistent 39-year-old who has accumulated 40 boxes of MBIA-related documents in his office, is still convinced that MBIA engages in risky practices that endanger not only its own investors but also the global capital markets--if the company were to lose its triple-A rating, what would happen to the price of the billions in bonds it insures?

MBIA, of course, has a different story.

To hear its executives tell the tale, it is a good company that has been unfairly targeted by short-sellers.

They also say that MBIA is being swept along by the wave of regulatory attention that has struck the insurance industry lately.

And Brown observes that the subpoenas "could be nothing."

"A lot of times you send a lot of documents off and you never hear back from anyone."

The questions surrounding MBIA are critical ones not just for the millions of investors who own MBIA-guaranteed bonds but also for everyone who wonders whether the watchdogs of our financial system--the analysts, the accountants, and most critically in this case, the credit-rating agencies--can be trusted.

Most of those people are on MBIA's side.

The key is that few believe that MBIA's rating is at risk, because the agencies are--so far--affirming their triple A's.

To believe Ackman is right, you have to believe all those people are wrong.

It's almost impossible.

Almost.

Yet Ackman has already been proven right on one count.

And because the standard is supposed to be so high for MBIA, Ackman doesn't have to be right about everything to be right that the company doesn't deserve its triple A.

On that front, some agree.

"A triple A implies a bulletproof credit, that come hell or high water a company can easily satisfy its obligations on a timely basis," says analyst Sean Egan, a managing director of the independent credit-rating agency Egan-Jones.

He, like Ackman, does not think MBIA meets that standard.

Others have had their faith shaken by MBIA's earnings restatement.

"We believe that a breach of trust has occurred to such a degree that it may be difficult for shareholders to rely on management's statements going forward," proxy advisory firm Glass Lewis wrote in a recent report.

It recommended that investors withhold their votes for Brown and Dunton as board members.

For a company whose business model is built on trust, votes of no confidence are an ominous development.

AT FIRST GLANCE, MBIA's business is both elegant and simple.

The core idea is that a municipality--say, Kansas City--will be willing to pay a small premium to have its bonds insured, because the triple-A rating will lower its interest cost.

As long as the premium MBIA charges is less than what the client is saving in interest costs, it can market its product as a way for issuers to save money.

MBIA is often paid its premium up front, which it then recognizes as revenue over the life of the insurance.

That means that a substantial portion of future years' earnings are already in the bank.

Analysts often cite MBIA's smooth, predictable earnings as a reason to own the stock.

Bond insurance has proved to be wildly popular--and profitable.

MBIA was founded by a group of insurers in 1974, and today about half the municipal bond market is insured; MBIA is the market leader with about 18%.

In addition, over the past 15 years, MBIA has begun to insure what are known as structured finance deals--such as trusts backed by manufactured-housing loans and airplanes.

Last year MBIA's insurance operations reported just under $2 billion in revenues and $804 million in net income, meaning that its net margin was a stunning 40%.

(Like all insurance companies, MBIA is structured as a publicly traded holding company with an insurance company subsidiary. MBIA Insurance Corp., which has that all-important triple-A rating, provides almost all of MBIA Inc.'s earnings.)

Look beneath the surface of this business, though, and you find the potential for important conflicts of interest.

The credit-rating agencies--Standard & Poors, Moody's, and Fitch--are often referred to as the industry's "de facto regulators" because they control that triple-A rating.

But agencies are paid for the ratings they issue.

That means they are paid by the bond insurers and also by the issuers of debt--which might not bother to get a rating at all if it weren't a requirement for obtaining insurance.

These two streams of money are sizable.

A former S&P executive says that when he was involved in that agency's municipal finance division, fees from bond insurance accounted for roughly 50% of revenues.

Furthermore, both MBIA's former CFO, Neil Budnick, and its current CFO, Nick Ferreri, are agency veterans.

Debra Perry, who became an MBIA board member last spring, was a senior Moody's executive.

The rating agencies point out that they are always paid by issuers, and they say they can manage any conflicts inherent in that arrangement.

S&P also says most issuers would pay to get a rating whether or not the insurer required it.

To outsiders, there is another aspect of the business that is truly through the looking glass.

Unlike other insurers, which expect to suffer some level of losses, MBIA prides itself on "no-loss underwriting."

In other words, the company never intends to actually have to pay a claim.

MBIA says that, with rare exceptions, it insures only debt that is deemed relatively safe, or "investment grade," by the rating agencies, though some issues get downgraded after the initial guarantee.

Today the company says that 98% of the debt it guarantees is investment grade.

MBIA has had occasional losses, but if they were to become a regular, sizable occurrence, that could threaten its triple-A rating and blow a hole in its business model.

At MBIA's conference for its investors in March, Gary Dunton presented what he calls "my favorite slide."

It shows that over MBIA's three decades in business, the company has guaranteed more than $1.8 trillion of debt service and suffered only $586 million in losses, or about 0.03%.

To many investors, this is all the proof they need that MBIA can come very close to its promise of zero losses.

But it also raises a question.

Given how important that track record is, what measures has the company taken to preserve it?

BILL ACKMAN--who declined to be photographed, but who is otherwise anything buy shy--first became interested in MBIA back in the late spring of 2002.

He was talking to a dealer of credit-default swaps, which enable buyers and sellers to place a bet on the likelihood that a company will default on its bonds.

He asked if the guy could think of any companies that were rated triple A but shouldn't be.

The dealer told him that he had never understood the bond guarantors like MBIA.

How, the dealer asked, could a company that was leveraged 139 to one--at the time, MBIA had $764 billion of outstanding guarantees and just $5.5 billion of equity--be a triple A company?

Ackman flipped open MBIA's 2001 annual report and read the letter that then-CEO Brown had written to shareholders.

The first thing that caught his attention was a comment Brown made about how MBIA had "expanded the disclosures" on $8.6 billion of debt in off-balance-sheet special-purpose vehicles--the kinds of financial instruments that had become notorious in the Enron debacle.

Ackman couldn't find any previous disclosure of MBIA's SPVs.

SPVs are complex creatures, but here's a crude model of how one might work: The SPV raises money by issuing debt.

It takes those funds and lends them out to, say, a credit card company, which in turn gives the SPV its receivables.

If cardholders continue to pay their bills, the bondholders will get their money.

In MBIA's case, the insurance company also issues a guarantee, promising that if, say, the cardholders stop paying, it will step in.

Separately, it guarantees bondholders that they will be paid.

In a commonsense way the second guarantee seems duplicative, but it contains the potential for risk: What if the holders of a particular bond can demand payment right away, but the credit-card holders--or MBIA in their place--are scheduled to pay their bills over time?

Because the owners of the debt are guaranteed payment, they don't have to care what assets the SPV owns.

MBIA itself deems the contents "confidential."

In the post-Enron climate, Ackman had two concerns: First, he didn't see how MBIA would be able to avoid putting the SPV debt on its balance sheet.

And second, he wondered whether MBIA was using the SPVs to lend money to troubled entities that had issued bonds it had guaranteed--thereby helping them avoid defaulting and preserving its crucial "no-loss" promise.

By picking apart other companies' filings, Ackman was able to identify some $4 billion of assets that were or had been in the SPVs.

Many were, indeed, lines of credit to troubled companies that also had other debt that was guaranteed by MBIA.

An example was American Business Financial, which declared bankruptcy in early 2005.

That company had deals like securitized home equity loans that were guaranteed by MBIA.

To Ackman, that was a red flag.

But he couldn't prove that MBIA had loaned American Business Financial--or any other company--funds to avoid a default.

MBIA denies that it did.

It also says that each deal is structured so that bondholders can't demand payment early and trigger a large payment for which MBIA is on the hook.

As Ackman dug further, he saw more signs that worried him, including a strange deal MBIA had done back in 1998 after a hospital it insured had gone bankrupt.

On July 17, 2002, he placed a bet against MBIA using credit-default swaps that would pay off in the event of MBIA's bankruptcy.

On July 24 he shorted the stock.

Then he released his report.

The first page noted his short position.

The rating agencies responded by reiterating their triple-A ratings.

Other Wall Street analysts also voiced their support.

But Alice Schroeder, a well-respected analyst then at Morgan Stanley, downgraded the stock to "underweight."

Morgan Stanley soon dropped coverage of MBIA.

Egan-Jones, which does not accept payments from companies it rates, and which has a good track record--it issued warnings about Enron and WorldCom long before the major rating agencies did--released a report that rated MBIA several notches below triple A.

MBIA, for its part, issued a press release just over half an hour after Ackman posted his report in which Brown called his analysis "patently false" and warned investors to "carefully consider the credibility of any negative report issued by a hedge fund that would directly benefit from a decline in MBIA's share price."

And after that ... nothing really happened for nearly two years.

By late 2003, MBIA's stock, which hit a low of $35 earlier that year, had reached $60.

Both Dunton and Brown had provisions in their employment contracts that gave them big paydays if the stock stayed above $60 for ten consecutive trading days.

On Jan. 26, 2004, over $30 million of options and restricted stock for the two men vested.

In December the New York State Insurance Department allowed MBIA's insurance arm to pay a $375 million dividend to the holding company.

Those dollars belong to policyholders, so by allowing the money to leave, the NYSID is also showing its faith in MBIA.

All this is a big part of why many observers don't even feel as though they need to read or understand Ackman's report to know that he was wrong.

THERE ARE a few more reasons people find it easy to dismiss Ackman's concerns.

You'll often hear that he's a short-seller who has an economic interest in seeing MBIA fail.

(You'll rarely hear that the company's supporters have an economic interest in seeing it succeed.)

Then, Gotham Partners had its own problems with a large private investment it had made, and the fund began to liquidate right after Ackman issued the MBIA report.

Negative stories about Gotham began appearing everywhere.

Wasn't Gotham trying to bail itself out by issuing reports touting its positions in stocks like MBIA?

More bad press came when MBIA requested that Spitzer's office investigate the hedge fund.

MBIA alleged that Gotham and a cabal of other funds were manipulating the market by spreading rumors about its business.

Ackman says that in early 2003 he spent six days in depositions at the New York State attorney general's office, and more than $2 million in legal fees.

But no charges were ever filed, and although the AG's office, as is its policy, won't comment on the Gotham investigation, it is a safe bet that it is closed.

After all that, most people would have thrown in the towel.

Not Bill Ackman.

At a charity dinner, he introduced himself to Sam Di Piazza, CEO of PricewaterhouseCoopers, MBIA's accountants, and later sent him the report.

He cornered the CEO of S&P at the Harvard Club, and he hounded Moody's CEO by e-mail to read his report.

He says he got no response.

Ackman has since started a new fund, Pershing Square.

He says it now has more than $600 million under management and was up over 50% last year.

He is again shorting MBIA's stock, and as before, he has bet against MBIA in the credit derivatives market.

AT MBIA'S headquarters in Armonk, N.Y., the two words you'll hear over and over again are "transparent" and "conservative."

Brown describes the culture as "nerdy," and indeed, the offices are well-appointed but not at all luxurious.

MBIA executives are zealous about their mission and venomous about their critics.

Says Dunton:

"Think about what we do."

"We build infrastructure around the world."

"We enable countries to build markets."

"We do good."

"I don't know why anyone would question the legitimacy of this business."

He adds, "My mom says there are evil people out there."

MBIA's executives are particularly outraged about Ackman's allegations regarding the special-purpose vehicles.

MBIA executives insist that it is categorically untrue that they paper over trouble, and say they are simply a way to provide an additional service--access to capital--to the company's clients.

Dunton notes that the rating agencies review every deal that goes into the SPVs and maintains that "there is not a single non--investment grade credit" in any of these vehicles.

MBIA points out that even if a company whose assets it has guaranteed is troubled, that doesn't mean the assets themselves are in trouble.

In other words, just because, say, a credit-card company goes bankrupt, that doesn't mean cardholders will stop paying their bills.

MBIA says it hasn't taken any losses in its SPVs and doesn't expect to.

But there's no way for an outsider to judge--and skeptics like Ackman distrust "black boxes" whose contents are known only to company executives and the rating agencies.

As Ackman expected, MBIA consolidated the SPVs on its balance sheet after the Enron scandal drew attention to such financial instruments.

Today, when you look at MBIA's balance sheet, you see $7 billion in SPV assets and $6.4 billion in SPV debt (MBIA itself owns the remaining $600 million).

But because MBIA guarantees payment on the assets, the rating agencies don't include this debt when they look at MBIA's finances.

After all, as long as the assets are paying, the debt is covered.

This is critical, because under the rating agencies' own guidelines, MBIA's holding company's debt cannot exceed roughly 15% to 20% of its capital or the insurer could lose its triple-A rating.

If the SPV debt were counted, the ratio would be way over that limit.

Ackman and others say it simply defies economic common sense to say that the SPV debt--which after all is on MBIA's corporate balance sheet, and which the insurance company guarantees--doesn't belong to it.

"We think it should be considered MBIA's debt," says Egan of Egan-Jones.

MBIA at times is oddly cagey about the fact that it guarantees the debt in its SPVs.

On its most recent earnings conference call, a questioner asked if the SPV debt had "any recourse" to MBIA.

In response, Dunton said:

"That's nonrecourse debt...."

"It's got only the assets to look at for recovery."

But because MBIA's insurance arm guarantees the debt, this is not true.

MBIA says now that Dunton misspoke, and that when he said the debt was nonrecourse he was referring to the holding company.

IN AUTUMN 2004, very suddenly, MBIA's world changed.

MBIA announced that it had received subpoenas from both Spitzer's office and the SEC over a hospital deal that had gone sour--the very one Ackman had noted in his report.

The hospital chain in question was called the Allegheny Health, Education, and Research Foundation, or AHERF.

When it went bankrupt in the summer of 1998, MBIA, which insured AHERF's debt, was on the hook for over $300 million.

This was the biggest loss any bond insurer had ever suffered.

In the fall of 1998, MBIA took a highly unusual step: It entered into "retroactive reinsurance" agreements with three reinsurers.

Converium gave MBIA $70 million, and AXA Re and Munich Re each provided $50 million.

In exchange for that combined $170 million, MBIA agreed to give the reinsurers $296 million of premiums on some $45 billion of business it had guaranteed.

This type of deal --reinsuring for a loss that has already taken place--is, believe it or not, permitted by accounting rules, as long as the reinsurers are taking on actual risk.

Supposedly they were, and so MBIA executives wrote in the 1998 annual report to shareholders that "our loss reserves, our earnings, and our triple-A ratings were unaffected" by the AHERF bankruptcy, and that "we are fiercely proud of our near-perfect record of no losses."

Later, when questions were raised about this transaction, MBIA insisted that the deal had been fully vetted.

But on March 8 the company made an abrupt about-face and acknowledged that there was "likely" an oral agreement by an unnamed MBIA executive or executives committing MBIA to ultimately assume all but a sliver of risk on the business that was supposedly transferred to Converium.

In other words, even under accounting rules, that money shouldn't have been booked as earnings.

Although the company has restated its earnings for the past six years, reducing profits by $57 million because of the Converium slice of the transaction, it has not restated the other parts of the deal.

Much of what happened is still shrouded in secrecy.

Ongoing probes--including a criminal investigation launched by the U.S. Attorney's Office for the Southern District of New York --may provide answers.

In the wake of the AHERF transaction, then-CEO David Elliott stepped down, and Jay Brown, a board member at the time, took his place.

Gary Dunton became president.

Both say that they had nothing to do with the AHERF deal; Neil Budnick, who became CFO that fall, makes a point of saying that he "didn't sign the 1998 financials."

MBIA says that if any oral agreement was made, it was done by an executive who has since left the company.

MBIA has another odd deal in its past.

Another huge chunk--some $114 million--of the $586 million in losses MBIA has declared have come from a company called Capital Asset, which purchased tax liens.

MBIA bought roughly 50% of the company in 1996 and took a majority position in late 1998.

MBIA immediately tried to sell the company; then, in 1999, it wrote down the value of Capital Asset by $102 million.

Then MBIA refinanced the tax liens via securitizations.

MBIA guaranteed the deals, and in 2004 it was still taking losses on them.

The question is, why did MBIA increase its stake in Capital Asset in 1998?

At the time, an MBIA spokesman told the press, "MBIA thinks the business ... has even more promise in the future."

In an interview with FORTUNE in March, Brown said that Capital Asset was a "fraudulent shop," and that MBIA made its purchase to "take control of the problem."

It's not clear what happened at Capital Asset, but one person familiar with the company says that MBIA knew it had a big problem.

This person suspects that MBIA bought its second stake and refinanced the tax liens to delay taking losses.

MBIA denies doing so.

Its attorney says the idea that MBIA "viewed or could have viewed [Capital Asset] as a 'fraudulent shop' is simply wrong and not supported by the record."

Brown now says his earlier declaration was a "emotional statement" that has been "taken out of context."

It's true that the entire bond insurance industry tries to avoid losses.

And MBIA is proud of what it calls "surveillance" and "remediation."

For every time MBIA does take a loss, "there are hundreds that we find a way" to avoid a hit, says Brown.

That may range from MBIA's own collection agents calling nonpaying credit card holders to what the head of this division, Mitch Sonkin, calls "moral suasion."

Brown even says that MBIA likes to do business with companies that need it.

"When you're trying to fix something, you want to be the big guy in the room," he says.

Adds Dunton: "We provide you with access to low-cost capital, so if there's a problem, fix it."

"I wouldn't say it, but that's an unspoken rule in the industry."

But among its peers MBIA has a reputation for aggressiveness, and this raises questions: Is there such a thing as inappropriate pressure?

When will the company admit that a deal has gone bad?

And just how much do the rating agencies really know?

In Grady County, Okla., MBIA insures $12.7 million of $17.6 million in debt that was used to build a jail.

In late 2004 the jail, struggling to make interest payments, said it would lay off staff.

And so, in what state officials say was an apparent attempt to get Oklahoma's government to take over the jail's debt--which it is in no way obligated to do--MBIA for a period stopped doing business in Oklahoma.

"It's easy to say now that the deal was too risky, but MBIA made a bad judgment, and they should not expect us to step in and bail them out," says James Joseph, Oklahoma's state bond advisor.

As yet, there is no resolution to the jail's crisis, and Grady County sheriff Kieran McMullen says that the jail is looking for a way to make the bond payment due in May.

But MBIA has not yet taken a reserve.

MBIA also seemed reluctant to warn investors that it had a problem with $73 million of debt that belonged to the Fort Worth Osteopathic Hospital.

As early as 2003, the hospital was unable to meet certain terms of its debt agreement, and in mid-2004 it missed a payment.

But the first warning of trouble any outsider would have gotten came in late September, when Moody's, which until that point had rated the hospital's bonds investment grade, downgraded the noninsured bonds to junk.

And it wasn't until Oct. 7--just one day before Fort Worth Osteopathic announced that it was shutting its doors--that MBIA said it would take a $50 million reserve.

MBIA says that this was "consistent with its loss-reserving methodology."

MBIA also says it can collect another $22 million from a "sale or liquidation of the hospital's assets," which is why it reserved just $50 million instead of the full $73 million.

But in early 2005 the hospital was sold for less than $8 million.

MBIA says it can recover the rest from sales of real estate and other assets.

Fort Worth also makes you wonder how closely the rating agencies scrutinize MBIA's existing deals.

Brown, who claims that the agencies regularly review some 98% of transactions, says that this is why MBIA is not a black box.

"I don't care who you mention, Citigroup, Bank of America--they don't have anyone looking over their shoulder at every single transaction," he says.

But if that's the case, how did Moody's miss the problems at Fort Worth Osteopathic?

A Moody's spokesperson told Dow Jones that "we know as much as Fort Worth Osteopathic Hospital and MBIA were willing to disclose."

"It comes down to an honor system as to how much these guys share."

A former senior agency employee says the agencies simply don't have the manpower to regularly review deals.

"It's a lie that the rating agencies look at every transaction," he says.

The agencies all say they devote significant resources to regular surveillance.

Moody's says the idea that MBIA doesn't regularly reveal information is "inaccurate."

A problem deal like Fort Worth Osteopathic also raises an issue that has been hovering over MBIA since Ackman identified it in his initial report.

Are the company's tiny reserves really an adequate reflection of the risk in its portfolio?

MBIA has $693 million in net reserves, $401 million of which are already dedicated to cover known losses on specific deals like AHERF.

MBIA says its policy is to book a so-called case reserve only when it knows for certain it has a loss, and when that loss "can be reasonably estimated."

The remaining $292 million are "unallocated" reserves, or money set aside to cover potential losses that have not yet been identified.

MBIA has arrived at this figure by setting aside 12% of the premium it is scheduled to earn.

In other words, it assumes an 88% gross profit margin each year.

On the face of it, 12% may sound like a large number, but remember, MBIA's premium is just a sliver, perhaps 20 basis points, of the total value of its insurance.

For example, if MBIA insured a $1,000 deal, and it earned 20 basis points, or $2, as a premium, then over the life of the deal it would put away just 12% of $2, or 24 cents, as reserves.

The heart of the matter, though, may not be so much the actual level of reserves, but the fact that in bond insurance there is discretion in how companies determine both revenues and reserves.

As MBIA's filings note, determining reserves is an "inherently uncertain process involving numerous estimates and subjective judgments by management."

As for revenues, when the company collects an up-front premium, its policy is to recognize a greater percentage of that in the early years of a deal.

Changing this methodology "would materially affect the company's financial results," notes MBIA's financial statements.

Indeed, the way in which MBIA records revenues and expenses like reserves are precisely why it has that 40% net margin.

The SEC has asked the Financial Accounting Standards Board to rule on the reserving question for the entire industry.

MBIA executives say they are not concerned.

"Our reserving is as perfectly disclosed as I know how to disclose it," says Brown.

MBIA's latest financial report says that the company "cannot currently assess how the ... ultimate resolution of this issue will impact its loss-reserving policy or the effect it might have on recognizing premium revenue."

Ackman and MBIA's other critics argue that the company's reserves are too small and that it recognizes revenue too quickly.

In other words, they contend, MBIA's accounting makes its business look more profitable than it actually is.

MBIA says it is comfortable with its reporting.

IT WASN'T UNTIL March 30 that the debate over MBIA exploded into the mainstream of business news.

That was the day MBIA announced that it had received a series of subpoenas from both Spitzer's office and the SEC.

This time the subpoenas weren't limited to AHERF.

They requested documents relating to, among other things, MBIA's accounting for advisory fees and its reserving methodology.

There isn't a smoking gun in the subpoenas, but they raise more questions about MBIA's claim that it is "conservative."

Take the advisory fees.

From 2000 through 2004, MBIA has recognized $219.5 million of advisory fees, a portion of which are paid up front instead of being recognized over the life of a guarantee, as the premiums are.

That means higher revenue today but lower revenue tomorrow.

MBIA earns such fees when, for example, it provides advice on a complicated transaction, although according to Budnick, it is paid only if the transaction is completed.

MBIA says PricewaterhouseCoopers has signed off on its accounting.

"There is a very specific set of guidelines we follow on advisory fees, and it has been approved," says Brown.

But MBIA's competitors don't recognize fees in a similar manner.

Its largest competitor, Ambac, says it recognizes all but a minuscule amount of fees over the life of a guarantee.

Another competitor, Financial Security Assurance, even said in its financial filings, "Some industry peers receive so-called structuring or advisory fees ... and earn such fees upon receipt."

FSA says it recognizes all but a tiny sliver of fees over the life of the transaction.

After the subpoenas were issued, two firms came out with negative reports on MBIA.

One was Egan-Jones, which downgraded MBIA's credit another notch.

The other was Standard & Poor's equity division, which slapped a "strong sell" rating on MBIA's stock.

"We are concerned that weakness in the company's fundamentals ... could be exacerbated by uncertainties raised by these subpoenas," wrote the analyst.

The rating agencies still rate MBIA triple A, although they say they are monitoring the situation.

Back in 2002, after Gotham's original report, then--Morgan Stanley analyst Alice Schroeder wrote, "We would not expect rating agencies to do an immediate 180-degree turn as a result of a report such as Gotham's, for several reasons: their deliberate process, the potential impact on issuers and markets of downgrades, and the hurdle of reversing a long-standing point of view."

"In addition, the rating agencies are an explicit participant in the guarantor's business model and in effect are now in the awkward position of passing judgment on themselves."

The rating agencies say they would downgrade MBIA if it deserved it.

It is clear that for MBIA, the consequences of losing its triple A would be severe.

Its stock price would probably fall sharply, because after all, what MBIA sells is its triple A: Without the rating, much of its new business would dry up.

As Moody's itself once noted in a report, that could be the start of a vicious circle.

"It may well be that the additional negative impact on the firm's future franchise value from the downgrade itself could cause Moody's to downgrade the company by an extra rating notch."

In fact, the company's defenders cite this as a reason for their confidence: Because MBIA's triple-A rating is so critical to its franchise, its executives would never endanger that.

Or so goes the logic.

What is unknown is the impact a downgrade might have on the capital markets.

Some of the billions that MBIA insures would be repriced to reflect the fact that it would no longer have a triple-A rating, but it's unclear whether the reverberations of that repricing would be big or small.

It's worth hoping we don't have to find out.

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