Developing the hot-button issues that appear in Killing Something Beautiful, the Washington, DC-based political thriller I wrote about two big firm lawyers who try to stop a terrorist whose plot is aided by a corrupt lobbyist.

Tuesday, March 25, 2008

Earmarks: The Good, The Bad, And The Ugly

In a city that can make money seem boring (it’s called Appropriations – asleep yet?), earmarks seem to be the one cash cow in Washington DC that is too sacred to kill. Despite widespread public revulsion against the practice of individual members of Congress giving piles of cash to whomever they damn well please, the Senate recently killed a measure that would have established a one-year moratorium on earmarks.

Earmarks are a great way to buy friends and increase campaign contributions. If a presidential candidate receives contributions from 64% of the companies she gets earmarks for, that's a sign that some healthy “win-win” relationships are being established. Lobbyists are usually the ones who set up the connections between private companies and members of Congress. Most lobbyists aren’t stupid or crazy enough to tell an elected official “Give these folks a $70 million earmark and they’ll cut you a nice check for your next election campaign,” but people who do this for a living understand how the system works. Giving money to a senator and then having the senator earmark money that benefits your company is part of the essential process of “establishing a relationship.”

After the lobbyist in my book – the incomparable Hugo Masterson – meets with a senator and is assured that a $230 million earmark will be heading his client’s way, the client says that “it seems like all you have to do is ask for the earmark.” Masterson’s reply succinctly explains the situation: “Once you have the relationship we do, yes, you can skip the bullshit and save everyone’s time. It’s all about establishing relationships so they trust you to do the right thing. When you’ve got that bond cemented, you just mention what would help your client. They know that you’re not just making conversation. They also know that the check’s in the mail. It’s gratitude for their assistance, and not a quid pro quo. It shows that you’re giving because you support what they’re doing, which counts as free speech, and is as American as apple pie.”

Tuesday, March 18, 2008

The Subprime Beast Escapes Its Cage

In today’s interconnected global marketplace, where billions of dollars can change hands with a few keystrokes, you only need one or two events to set off a catastrophic chain-reaction that spawns panic and fear, destroys trust, and eviscerates capital markets.

Fearing such an event in response to the subprime mortgage fiasco, the Federal Reserve, in a move unprecedented in banking history, lent a whopping $30 billion to JP MorganChase so it could purchase Bear Stearns – the formerly high-flying, fifth largest investment house on Wall Steet whose stock lost 97% of its value in about 100 hours. Then, truly taking the term “bailout” to the next level, the Fed put $400 billion – more than half the cash it keeps on reserve in the Treasury and at various banking institutions – into an open-ended lending program that major Wall Street banks could borrow from, in the the hope that the credit markets won’t dry up and send us all into unheated caves for the next few years.

The Fed is trying to prevent a worst-case scenario that would involve Bear Stearns going belly-up and dumping its entire portfolio of assets onto a market where lenders are terrified and buyers are in hiding. If this happened, every other institution that held the same kind of assets would have to lower their prices, which would force lenders to call in their debts, and cause more failures. Gretchen Morgenson (who won the Pulitzer for 2002 in Beat Reporting "for her trenchant and incisive Wall Street coverage") lays out the behind the scenes action.

It’s a classic run on the bank, powered by panic and fear. Bear Stearns and many other Wall Street banks are highly leveraged, often borrowing 25-30 dollars for every dollar they hold in assets. Which , if they have $1 billion in assets, means they’re in debt for $25-30 billion. Everything is fine as long as the lenders still trust the banks to repay the money. But once the whispers start that a bank is in trouble (perhaps because it financed a gigantic pile of subprime mortgages that are heading toward default) then lenders get nervous and start demanding repayment. On
ce panic sets in, and everyone calls in their debts at the same time, highly leveraged banks will never be able to make the payments and, well, it only took 100 hours for Bear Stearns to meet its end.

As the villain in my political thriller, Moment of Hercules, so ably put it:

"Globalization has created a gigantic interconnected marketplace, where everything depends on something else happening. It does not take much to let loose the deadly beast of uncertainty in this marketplace, and that starts a chain reaction by creating fear. Fear that promises won’t be kept, that goods won’t arrive, that debts won’t be repaid. If you create enough fear, trust starts to break down and the psychology of panic takes over. Overreaction becomes the norm. Financial institutions stop lending, investment houses stop buying, and everyone in the markets races towards the exits. You have a global sell-off."

What’s really scary is that no central bank has ever been exposed to this kind of market risk before. In taking its actions the Fed is, in the words of one Wall Street analyst, “driving with its tank half full.” Plus, there are land mines lurking in Bear Stearns’ portfolio – assets whose value cannot be determined because, in a market with no buyers, it’s awfully hard to determine what price you can get.

Lehman Brothers looks like it could be next to go. And yes, there most definitely will be a next.

Friday, March 14, 2008

Room 871 - I Was There!

So were some souvenir scavengers, as the traditional, engraved gold room number sign for the room that ended Eliot Spitzer's political career at the Mayflower Hotel has been removed and replaced with a thin paper sign. Wonder how much the original 871 will fetch on eBay.

The Writing Life

While I was in the middle of the long, cold slog of writing my first novel, I would often tell people what I was doing and many would say "That's sounds like fun." I would usually reply, "It used to be fun. Right now I'm looking forward to looking back on it." The quote below from Patrick McGrath is one of my favorites for describing the surreal, insane process of battling through the first time:

"The first novel, or at least the writing of it, arouses memories almost none of which are pleasant. Writing a novel is, by now, for many of us, a familiar act of sustained masochism, and when we are predictably overwhelmed by waves of frustration, rage, despair, self-disgust, and, above all, sheer incredulity that we could have ever committed ourselves to an exercise in such utter and total futility – and, moreover, have given months, even years of our lives to it – there is at least the bittersweet consolation that this has happened before. That it happens every time. That it will never stop happening. And that we will someone blarney our way out of the hole and end up for better or worse with a book. No novelist will tell you otherwise. This is what it’s like."

Tuesday, March 11, 2008

Power Corrupts: The Eliot Spitzer Version

While it isn’t a case of traditional political corruption, the Gov. Eliot Spitzer train wreck shows how superior and impervious the trappings of power can make otherwise well-intentioned people behave. Denial is certainly no river in Africa, and Spitzer’s actions remind us of how power can make people believe that what they’re doing isn’t that bad and that they won’t get caught – no matter how awful and idiotic their behavior.

Friday, March 7, 2008

Capturing the Lord of War

Victor Bout, the inspiration for the arms-dealing character played by Nicolas Cage in Lord of War, was arrested this week in Bangkok. Will the charges hold, or, like in the movie, will he walk out a free man because the arms-shipping service he provides is vital to the continued profits of powerful arms dealers? (As the movie notes, the five countries that make the most money from arms manufacturing happen to be the five permanent members of the United Nations Security Council.)

The US wants Bout extradited to face charges in the United States for conspiracy to provide material support to a foreign terrorist organization – namely, FARC, the leftist insurgents in Columbia’s ongoing armed conflict. FARC is identified in the US criminal code as a foreign terrorist group, and aiding such a group is a crime. However, the question of how the US has jurisdiction to prosecute someone arrested in Thailand for trying to ship arms to Columbia should be an issue raised by his defense.

Wednesday, March 5, 2008

Piracy Marches On

Pirate attacks were up by 10 percent worldwide in 2007, according to the International Maritime Bureau (IMB). This was the first increase in three years, making it a strong comeback for violence on the open seas. The Strait of Malacca and the coasts of Nigeria and Somalia remain hot spots for pirates to attack ships.

To view a global map of all piracy attacks so far this year, check out the IMB Live Piracy Map, which also contains annual maps of all pirate attacks from the last three years.

Last month, the U.S. Navy fired on Somali pirates attempting to hijack a Russian vessel off the Horn of Africa.

Tuesday, March 4, 2008

The Sweet Smell of Corruption

Brent Wilkes, who was convicted in November 2007 of bribing former U.S. Representative Randy "Duke" Cunningham, was recently sentenced to 12 years in a federal prison. But getting caught bribing the chair of the House Defense Appropriations sub-committee in exchange for having over $90 million in federal funds directed to his defense contracting firm is only the tip of the iceberg for what this inside-the Beltway operator was able to accomplish over the course of the past decade.

Representative Rick Renzi, the Arizona state co-chair of John McCain's presidential campaign, was recently indicted on 35 counts of corruption, including fraud, money laundering, and extortion. Rep. Renzi had been under investigation for over two years. The Republican House leadership made no effort to hide its displeasure at his actions.

Saturday, March 1, 2008

When Ricin Attacks

Law enforcement recently discovered a powdered form of ricin in a hotel room in Las Vegas. Ricin is one of the deadliest poisons around, and one which was famously used as a Bulgarian bioweapon in the late '70s. Despite comments to the contrary from investigators, the guy renting the room – currently hospitalized in critical condition – was clearly planning to kill a few people as he also had firearms and an anarchist-type textbook lying around his room at the Extended Stay America hotel, one mile west of the Strip. The New York Times has the full story.

The Centers for Disease Control and Prevention has issued a Health Advisory in response to this situation.