Secret contributions in political campaigns are a formula for influencing-buying corruption. It has happened before and will happen again. [...]

Just as history tells us secrecy results in scandal, history also tells us that scandal results in reform.

The Watergate campaign finance scandals in the 1970s resulted in the creation of the landmark presidential public financing system which served the nation well for most of its existence until it became outdated when Congress failed to modernize it. The Watergate scandals also led to the enactment of limits on individual contributions to candidates and parties, upheld by the Supreme Court as necessary to prevent corruption of federal officeholders and government decisions.

The soft money scandals in the 1990s led to the ban on unlimited contributions to the national parties upheld by the Supreme Court in 2003, a decision that was reaffirmed by the Supreme Court earlier this year. The soft money ban continues to serve the country well in preventing a system of legalized bribery of federal officeholders.

There’s no doubt that a scandal involving tax code violations or legislative favors exchanged for some of the political spending in 2010 would most likely provide an onus for Congress to do something about the lack of disclosure in much of independent spending, but it also seems like a fairly longshot legislative strategy. I’ve yet to see why Democrats don’t just try to pass a disclosure-only version of the DISCLOSE Act in order to silence whining about special treatment for labor unions before it starts and just force a straight referendum on merits of the issue at hand.

A foreclosed home in Winchester, Va. (Jay Mallin/ZUMA Press)

Yesterday, Wall Street giant J.P. Morgan Chase announced a $4.4 billion profit in the third quarter. Wall Street analysts should have cheered. Instead, they golf-clapped, while the bank’s chief executive officer, Jamie Dimon, went on the defensive on an earnings call.

[Economy1] The reason: foreclosures, again threatening everything from homeowners’ security to banks’ bottom lines. In early September, an employee of GMAC Mortgage admitted he had signed as many as 10,000 affidavits, required in 23 states to proceed with foreclosure, a month. The affidavits attested that the employee had personal knowledge of homeowners’ financials before the bank foreclosed. Given that he obviously did not, the paperwork might have constituted fraud and the foreclosures were possibly illegal.

The scandal went big, embroiling mortgage-holding banks like J.P. Morgan Chase in a problem of possibly systemic proportions. Stories of banks lacking required title documentation and evicting the wrong families from homes flooded into the press. Financial companies, including J.P. Morgan Chase, halted foreclosures in the states that require judicial review, and then some halted them everywhere. Members of Congress announced hearings. Finally, yesterday, all 50 state attorneys general announced a probe into systemic problems with mortgage documentation.

On the J.P. Morgan Chase earnings call, Dimon promised that there was “almost no chance we made a mistake” with foreclosures. “We think we should continue and get done and make sure we do the right things for the consumers, the investors and the country. So it obviously will increase our cost a little bit and maybe we’ll have to pay penalties eventually to some of the attorneys general but we really think we should just continue.”

But the financial statement itself proved the lie. The bank said it was carefully checking 115,000 mortgage affidavits. It set aside a whopping $1.3 billion for legal costs. And it put an extra $1 billion into a now $3 billion fund for buying back bunk mortgages and mortgage products.

For banks like J.P. Morgan Chase, the issue is not just the legal headaches. It is the financial blowback. The mortgage-documentation scandal, housing experts warn, runs far and deep — involving not just foreclosure papers, but titles and rights and fiduciary contracts. And it has analysts on Wall Street and politicians on the Hill wondering whether the worst-case scenario might involve not just losses, but bank failures or government bailouts.

The pending mortgage problems resemble those that caused the failure of Lehman Brothers, the credit crunch and the ensuing financial crisis in October 2008: Every bank has problematic mortgage holdings on its books, and each bank is interconnected with every other. Before the bubble burst, investment banks bought up faulty mortgages, many of them subprime loans, from lending banks. Investment banks then bundled the mortgages into mortgage-backed securities, for sale to investors. But just as banks are now foreclosing without proper documentation, they were bundling mortgages without proper documentation — abdicating their fiduciary responsibility to investors and muddying the waters as to who actually owns the loans.

That means the investors who own mortgage-backed securities might argue that the products do not meet the contract standards. If those investors choose to sue the originating investment banks en masse, for breach of contract, they would force the banks to buy back the rotten mortgage-backed securities. That would cost in the hundreds of billions — swamping banks’ profits and sweeping away any cash they might be keeping on hand.

At least one mortgage analyst, Josh Rosner, a managing director at Graham Fisher & Co., has said that if investors force banks to take back the $1.3 trillion of mortgage-backed securities in question, it could create a kind of doomsday scenario pitching the markets back into crisis. Indeed, Rosner believes it could feel very much like 2008 again.

“This is poetic justice,” says Janet Tavakoli, of Tavakoli Structured Finance in Chicago. “The mortgages that seem to be most affected are by predatory lenders, or lenders who engaged in fraudulent practices, like appraising a home for twice its value. The careless investment banks were willing to overlook that fraud. But they just bred fraud into their mortgage-backed securities.”

She does not believe every bank will have face write-downs due to mortgage buy-backs. But she does believe the losses might be substantial. “It’s not clear to me that every mortgage has this problem,” she says. “But there’s no transparency on this issue now. And it is clear that we are dealing with massive, systemic fraud.”

One way or another, some on the Hill are bracing for the worst.

“[Banks will] have to buy back one mortgage at a time,” Rep. Brad Miller (D-N.C.) told The Washington Post. “Someone said there might be a second round of bank insolvencies because of this and there might need to be more TARP. There is no chance that Congress would pass more TARP. It’s hard even to see how it ends. But I’ve got to think it creates more uncertainty about the health of the banks.”

Rep. Alan Grayson (D-Fla.) has gone further, proactively asking the Financial Stability Oversight Council — created by the Dodd-Frank financial regulatory reform law — to step in to stop foreclosures and monitor the banks, just in case.

“There are now trillions of dollars of securitizations of these loans in the hands of investors,” Grayson wrote in a letter (PDF) to the Council, which includes Treasury Secretary Timothy Geithner and Federal Deposit Insurance Corp. Chair Sheila Bair. “The trusts holding these loans are in a legal gray area, as the mortgage titles were never officially transferred to the trusts. The result of this is foreclosure fraud on a massive scale, including foreclosures on people without mortgages or who are on time with their payments. The liability here for the major banks is potentially enormous, and can lead to a systemic risk.”

And it seems the banks — if not J.P. Morgan Chase — are also acknowledging that risk. Josh Levin, an analyst with Citigroup Global Markets, described three potential outcomes to investors, citing work by Georgetown law professor Adam Levitin. The first is that courts consider the erroneous foreclosures technicalities, and the losses are minimal. The second is that banks face significant legislation, but ultimately aren’t forced to buy back mortgage-backed securities.

And the third? “In the worst-case scenario,” he said, “the aforementioned issues become a ‘systemic problem’ which causes the mortgage market to grind to a halt.”

According to Reuters:

U.S. securities regulators are probing potential insider trading at BP Plc in the weeks and months following the disastrous Gulf of Mexico oil spill, two sources familiar with the investigation said on Monday.

RNC Chairman Michael Steele (ZUMA)

The “suggested amount” portion of the donation form is crossed out. There isn’t a box to check for no donation, so the would-be donor has simply drawn and filled in a new bubble and scrawled “NO.”

“What the hell happened in NY District 23?” writes the anonymous donor to an unrewarded Republican National Committee. “You guys supporting Dede Scozzafava?”

[GOP1] The form is one of many collected by blogger, columnist and TV pundit Michelle Malkin since the RNC chipped in for the doomed congressional campaign of Scozzafava, a moderate Republican who eventually withdrew from a November 2009 special election and helped Rep. Bill Owens (D-N.Y.) squeak past Conservative Party candidate Doug Hoffman. In the wake of Monday’s Daily Caller story on the RNC’s lavish spending, including a $1,923 check to the Voyeur West Hollywood nightclub — an embarrassment to RNC Chairman Michael Steele for which the offender, Allison Meyers, was fired, and her upcoming events postponed — Malkin put up another batch of defiled RNC donation forms, with graffiti like “Fire Steele. Hire Cheney. (Dick or Liz.) Then Get Back to Me.”

The Voyeur story dogged the RNC all week, especially after the committee pointed to outsized Democratic National Committee expenses as a distraction (giving the DNC an opportunity to take another whack at the juicier RNC tale) and after Politico noticed that a typo on one solicitation form sent donors to a phone sex line. But for many conservative activists, it only accelerated and amplified a revolt against the RNC that had been brewing for months. It’s given the growing number of conservative PACs and projects a new selling point to potential donors. And it’s emboldened the sizable number of loose-lipped Republican activists who are working to create new institutions outside of Steele’s purview.

“This nightclub story is absolutely awful,” said Eric Odom, a Tea Party activist and the chairman of Liberty First PAC, “but the RNC just came off of a meeting in Hawaii, and that was even worse. I don’t think there are conservatives who are going to turn on the RNC just because of this story. I think it’s the nail in the coffin.”

According to Odom — who famously denied Steele a speaking slot at the April 15, 2009 anti-tax Tea Party in Chicago (Steele, at the time, denied that he had wanted to speak) — donors to Liberty First PAC have been submitting RNC-bashing notes along with their checks. One out of ten donations via Paypal, said Odom, came with a message along the lines of “2009 was the last year I’ll donate to a party.”

Mark Skoda, the leader of the Memphis TEA Party who launched the Ensuring Liberty PAC at February’s National Tea Party Convention, told TWI that the troubles that had beset the RNC would be impossible in his group — and potential donors knew it.

“We’re not going to be buying first-class tickets,” said Skoda, who is convening the first meeting of Ensuring Liberty’s board next week. “There’ll be no big parties. We’re operating like a business. I used to work for FedEx — these things like vast overcharges didn’t happen.”

Skoda, who said he “felt bad” for Steele after hearing the Voyeur news, emphasized that Ensuring Liberty would be “a complement,” not a competitor, to the RNC. It would back Republican candidates, albeit after making sure they fit the PAC’s exacting standards and didn’t just have an “R” next to their names on the ballot. But other conservatives are less diplomatic. On Wednesday night, Family Research Council President Tony Perkins sent a blunt message to supporters: “Don’t give money to the RNC.” On Thursday afternoon, the Leadership Institute — whose president, Morton Blackwell, is an RNC committeeman – posted a Facebook message commenting favorably on the Perkins news. (Blackwell is out of the country and did not respond to requests for comment.)

The evidence of conservative donors taking their money elsewhere is hard to track. In the final quarter of 2009, for example, the most prominent competitors for conservatives’ donations pulled in modest amounts of money. Our Country Deserves Better PAC, the group behind the Tea Party Express, had only $161,174 in receipts. The Senate Conservatives Fund, Sen. Jim DeMint’s (R-S.C.) PAC to aid his hand-picked candidates, raised $238,189. By comparison, the RNC raised $22,295,310. But activists point to the RNC’s low cash-on-hand numbers to make their case.

“The bottom line is that Michael Steele never should have gotten this job in the first place,” said one exasperated conservative fundraiser. “Nothing that’s happening now should surprise anyone.”

That criticism has surfaced again and again as conservatives court donors for their projects. On Thursday, Jonathan Strong — the reporter whose initial Voyeur story started the latest stampede against the RNC – cobbled together the last few years’ worth of negative stories about Steele’s managerial and financial problems. They hadn’t been enough to push conservatives away from Steele when he ran for the U.S. Senate in 2006 or the RNC chairmanship in 2009. Indeed, in 2005, conservatives rallied around Steele when the Democratic Senatorial Campaign Committee hacked into the Senate candidate’s credit report to get the details on his personal bankruptcies.

Conservatives are no longer giving Steele a pass on those stories. The less faith small- and big-dollar donors have in the RNC, the more valuable they can be to other PACs, which are not being shy about soliciting their support.

“When I fly, I fly coach,” said David Bossie, the chairman of Citizens United and its political PAC, another competitor for small-dollar conservative donors. “We’re not lavish. If you donate to us, you know your money is going right back into the field to support conservative candidates, seeking out people who wouldn’t otherwise get support.”

The Susan B. Anthony List, the American Conservative Union’s PAC and Our Country Deserves Better can all point donors to their low-overheard campaigns in NY-23 or the Massachusetts special election for the U.S. Senate, contrasting those with the performance of the RNC.

The party committee is well aware of its predicament. “The press shop’s about as busy now as it was during the days that Sen. John McCain (R-Ariz.) suspended his presidential campaign,” groused one conservative strategist who’s worked with the RNC.

The problem for conservatives is that dividing their efforts, and nurturing mistrust in the RNC, might damage the GOP’s 2010 strategy even if competing groups are well funded.

“You’re seeing a lot of small donors, who in other times would be discovering the party committee, going to these PACs instead,” said Anthony Corrallo, a fellow at the Brookings Institution who studies campaign finance. “Large amounts of potential money that the RNC may have been able to attract are now going elsewhere. And you’d rather see money located in the parties — the RNC can do much more coordinated GOTV [get out the vote] and advertising.”

RNC defenders could point the detractors to the left’s experience with divided effort. In 2003, a team of big liberal donors that included George Soros and Peter Lewis founded America Coming Together, spending more than $10 million for GOTV. Because ACT couldn’t coordinate with the Democratic Party or John Kerry’s presidential bid, some of its efforts were wasted. And in 2007, the disbanded group paid a $750,000 fine to the FEC for fundraising violations.

It remains to be seen whether conservatives can avoid a similar fate.

Some notable highlights: The Young Eagles will be at the Phillies opening day baseball game (where President Obama will throw out the first pitch), a September “Texas bird hunt” and an October Ultimate Fighting Championship event in Las Vegas. The Young Eagles are also planning a September trip to London to meet Conservative Party leader David Cameron, who by that point is expected by many to be the prime minister of the United Kingdom. (As I noted before, the training facility event is at a Blackwater/XE facility.)

April
4/1 Phillies Opening Day ($15,000)
4/8-4/11 Southern Republican Leadership Conference ($60,000)
4/16 U.S. training facility ($60,000)

May
TBD Reception in Francisco featuring Steve Forbes ($22,500)
5/14 Event in Atlantic City ($30,000)
5/20 Event at the Indy 500 ($50,000)

June
6/11 Event in Oxford, MD ($20,000)

July
7/16 Event in Detroit
7/23 Event in Boise with Gov. Butch Otter (R-Idaho)

August
8/12 Major donor summer meeting ($50,000)

September
9/10 Texas bird hunt ($40,000)
9/17 London trip, meeting with David Cameron ($80,000)

October
10/8 Vegas UFC Fight ($60,000)
10/15 Professional bull riding ($50,000)

November
11/27 Ohio State vs. Michigan football game $30,000

The dismissal of New Mexico U.S. Attorney David C. Iglesias in December 2006 followed extensive communication among lawyers and political aides in the White House who hashed over complaints about his work on public corruption cases against Democrats, according to newly released e-mails and transcripts of closed-door House testimony by former Bush counsel Harriet Miers and political chief Karl Rove.

A campaign to oust Iglesias intensified after state party officials and GOP members of the congressional delegation apparently concluded he was not pursuing the cases against Democrats in a way that would help then- Rep. Heather Wilson in a tight releection race, according to interviews and Bush White House e-mails released Tuesday by congressional investigators. The documents place the genesis of Iglesias’s dismissal earlier than previously known. [...]

The House focused most of its attention on Iglesias, a rising star in New Mexico who came to displease his political patrons. Miers told investigators that Rove called her in September 2006, “agitated” about the slow pace of public corruption cases against Democrats and weak efforts to pursue voter fraud cases in the state. In the call, Miers said that Rove had described Iglesias as a “serious problem” and said he wanted “something done” about it. Miers testified that she called then Deputy Attorney General Paul McNulty to pass along the concerns.

Also, The Post reports that the debilitating amnesia that afflicted former Attorney General Alberto Gonzales when he testified before Congress appears to be contagious.

In their testimony in June and July 2009, both Miers and Rove failed to recall key incidents , according to the transcripts. Miers said she could not recall events nearly 150 times in the course of her 10-hour deposition. Rove portrayed himself as receiving hundreds of e-mails a day, so that “asking me to remember replies is like asking me to remember a raindrop in a thunderstorm.”

“An article containing a false headline has been published by Capitol Hill newspaper Politico today regarding an issue with expansion of the National Labor Relations Board.

This article concerns two letters; one issued by ACU and another issued by a separate organization.

Mr. David Keene’s name was on a letter prepared by another organization.  This was a personal decision on his part and he was not representing ACU at the time.  No permission was given by ACU, and no logo was provided by ACU, to the organization who issued the letter in question.

ACU’s policy position on this issue has not changed and it will not change.

ACU’s positions on important policy issues have never been for sale.

ACU does not support moving businesses under the jurisdiction of the NLRB or expanding the federal government’s power, reach or authority under the NLRB.

In fact, as we pointed out last year when auto bailouts were first proposed, the actions of organized labor in Detroit helped lead to a downfall of America’s storied auto industry.  This is a clear example of what can happen when organized labor extends its fingers too far into American business.

In this regard, ACU stands with the policy that FedEx should not be placed under the NLRB.

This was ACU policy – before and after – any letters in question were drafted.

No contributions, to date, regarding this issue have been given or promised to ACU from any organization mentioned in the Politico article.

For the record.

–

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The American Conservative Union asked FedEx for a check for $2 million to $3 million in return for the group’s endorsement in a bitter legislative dispute, then flipped and sided with UPS after FedEx refused to pay.

For the $2 million+, ACU offered a range of services that included: “Producing op-eds and articles written by ACU’s Chairman David Keene and / or other members of the ACU’s board of directors. (Note that Mr. Keene writes a weekly column that appears in The Hill.)”

The ACU, of course, heads up the massive yearly Conservative Political Action Conference. Its ratings for members of Congress are repeated by conservative Republicans all the time — “I have a 99 percent lifetime rating from the ACU,” for example. This is a big, embarrassing deal.

–

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To recap, Coburn, an obstetrician and gynecologist who lives with Ensign in Washington, has said he counseled his colleague to end an extramarital relationship with a staffer. But the husband of the former mistress has claimed that Coburn also advised Ensign to pay millions of dollars to the unhappy couple so they could move away from Ensign’s hometown of Las Vegas.

The Center for Responsibility and Ethics in Washington has filed several petitions with the Senate Ethics Committee and the Department of Justice to probe the legality of severance payments that Ensign allegedly made. But Coburn has said that he won’t cooperate in any investigations, claiming that his counseling derived from his capacity as a medical doctor, which prevents him from having to testify in any probe that might follow.

The Washington Post’s Al Kamen today picked up on Coburn’s line of argument to offer the most clever line yet to emerge from the scandal. “If a guy can’t trust his OB-GYN,” Kamen writes, “who can he trust?”

“Dr. Coburn did everything he could to encourage Senator Ensign to end his affair and to persuade Senator Ensign to repair the damage he had caused to his own marriage and the Hamptons’ marriage,” Coburn spokesman John Hart said in a statement. “Had Senator Ensign followed Dr. Coburn’s advice, this episode would have ended, and been made public, long ago.”

Hart told The Post that the husband’s claim that Coburn urged Ensign to pay restitution “is false.”

Thus likely endeth the Coburn chapter of this saga. The larger story here revolves around the separate charge that Ensign paid his mistress $25,000 in severance money as she was quitting her job in his campaign office. That payment didn’t show up on any campaign forms filed with the Federal Election Commission — a campaign finance violation that also happens to be a felony.

The Center for Responsibility and Ethics in Washington has filed an official complaint with the Senate Ethics Committee on that very point. Most such complaints are dismissed (lawmakers, after all, don’t really like policing themselves). This case, though, will be more difficult to dismiss as a triviality.

Stay tuned…