Monthly Archive for February, 2009

Porter Goss on Foggo and the CIA

ProPublica’s Marcus Stern has unearthed a trove of documents filed in the case against Kyle “Dusty” Foggo.

For those of you who don’t know, Foggo is the former No.3 man at the CIA who has pleaded guilty and is scheduled to be sentenced Thursday for steering agency contracts to his childhood friend, Brent Wilkes.

Reading the documents about this lothario of a man with a nasty temper, I came away with the same impression as one of Foggo’s former bosses at the spy agency who stated that he was “flabbergasted” when then-CIA director Porter Goss tapped Foggo in November 2004 as his executive director.

“I found Director Goss’s selection to be quite revealing, that Mr. Goss would be taken in by a ‘con man’ like Mr. Foggo,” wrote agency veteran described only as John Doe No. 2, who was Foggo’s supervisor at an overseas CIA station in 1989, when local police filed a diplomatic protest against  Dusty for assaulting a bicyclist.

So how did Foggo come to be selected as Goss’ No. 3? Goss refused to comment when I called him while reporting my book, but the question has always nagged at me.

Porter Goss answers those questions for the first time in a sworn declaration filed in an appendix to the memorandum, which you can read here.

Goss says Foggo’s name was suggested by members of his senior staff. Although Goss doesn’t say this, I’ve heard that Foggo was recommended by Patrick Murray. Murray was chief counsel on the House Permanent Select Committee on Intelligence, which Goss chaired, and he served as chief of staff at the spy agency during Goss’ stormy tenure there.

Goss says he directly asked Foggo whether there was anything he needed to know that would “reflect poorly” on the Director’s office or the CIA.  Foggo denied there was. Had he known what Foggo was up to with Wilkes, Goss says he would have fired him on the spot.

When press reports linked his executive director to Brent Wilkes, “I learned from my public relations staff that Foggo had been less than candid.” Ultimately he lost confidence in Foggo and asked him to resign. In May 2006, less than two years after he was sworn in as CIA director, the White House fired Goss and replaced him with Gen. Michael Hayden.

“I felt deceived and betrayed by Mr. Foggo,” Goss concludes.

A source tells Laura Rozen that Goss is lying, but I’m taking Goss at his word. He’s out of public life now, and I don’t think he would expose himself to perjury charges. At any rate, it’s more than apparent that he was absolutely the wrong man for the job of CIA director.

How out of the loop was Goss if it fell to public affairs to inform him of the problems with Foggo? As  the documents make clear, were already well known to his supervisors and were included in his agency file.

Foggo was not the only staff member who was unworthy of Goss’ trust. Equally suspect was Goss’ choice of Murray and the other “Gosslings” he brought over from Capitol Hill. As Ken Silverstein noted back in 2006, the Gosslings arrived at Langley with a “lengthy list of names of people to be purged and went about removing them.” One was Stephen Kappes, who eventually returned to the agency and is now serving as deputy director under President Obama.

A man who can’t tell the difference between the Foggos and the Kappeses shouldn’t be in charge of the Central Intelligence Agency. Period.

Update from CQ’s Jeff Klein:

Kyle “Dusty” Foggo’s CIA dossier included allegations that he was sharing a woman with a suspected Russian mole, according to a top former spy agency official and other sources.

CIA Director Porter J. Goss knew about the allegation when he hired Foggo to be the agency’s executive director, its third highest official, an aide said today.

But Merrell Moorhead, an aide to Goss at the CIA from 2004 to 2006, said CIA security officials later withdrew that and other serious allegations about Foggo’s record and “gave him a clean bill of health.”

Second Update: Klein updated his post to quote Moorhead as saying that Bassett “recommended” Foggo. Laura Rozen agrees. Ken Silverstein has reported that Bassett “positioned” Foggo for the job of executive director.

I’m not convinced. Bassett was a consultant to the agency. Maybe that makes him part of the “senior staff” Goss alludes to in his statement. I’m not so sure.

It seems there are still some hard feelings over Foggo and the blame game goes on.

The Citigroup “Death Star”

From the WSJ:

Former federal officials have dubbed Citigroup the “Death Star,” comparing the bank’s threat to the financial system with the planet-destroying super weapon in the “Star Wars” movies. Privately, in the words of one official, they regard the banking giant as “unmanageable.”

The economics of porn

Harvard’s Benjamin Edelman has issued a fascinating study Who Buys Online Adult Entertainment?

Internet porn was a $2.8 billion market in 2006, but who buys the cow when you can you have the milk for free?

Hypocrites, that’s who.

Subscriptions are slightly more prevalent in states that have enacted conservative legislation on sexuality. In the 27 states where “defense of marriage” amendments have been adopted (making same-sex marriage, and/or civil unions unconstitutional), subscriptions to this adult entertainment service are weakly more prevalent than in other states ( p=0.096). In such states, there were 0.2 more subscribers to this adult web site per thousand broadband households, 11 percent more than in other states….

As shown in Table 4, subscriptions are also more prevalent in states where surveys indicate conservative positions on religion, gender roles, and sexuality. In states where more people agree that “Even today miracles are performed by the power of God” and “I never doubt the existence of God,” there are more subscriptions to this service. Subscriptions are also more prevalent in states where more people agree that “I have old-fashioned values about family and marriage” and “AIDS might be God’s punishment for immoral sexual behavior.”

The state that subscribes the most to Internet porn? Utah

Stress tests = no more self-regulation

Mark Sunshine:

It is amazing that Geithner’s proposal to “stress test” banks is making news as new policy. After all, regulators were supposed to be doing this all along. After the last banking crisis in the 1980s banking regulators got the authority to anticipate capital shortfalls as well as operational deficiencies. When problems are identified regulators are supposed to mandate corrective action well before a bank is in real trouble. “Prompt corrective action” (or “PCA”) is the regulatory jargon to describe the regulatory authority that has existed for years but apparently not used recently. Geithner’s announcement that regulators are going to “stress test” banks is a nice politically correct way of saying that enforcement of safety and soundness rules is back in style and self regulation is out.

China to US: “We hate you”

Luo Ping, a director-general at the China Banking Regulatory Commission, in the Financial Times:

“Except for US Treasuries, what can you hold?” he asked. “Gold? You don’t hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.”

Mr Luo, whose English tends toward the colloquial, added: “We hate you guys. Once you start issuing $1 trillion-$2 trillion . . .we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.”

Newspaper Bankruptcy Watch: Lee Enterprises

Lee Enterprises, the nation’s fourth biggest newspaper chain, has been granted a last-minute stay of execution. The new execution date is April 28, 2012, when Lee will owe principal payments of $721m, plus interest.

To put this number into context for you, if Lee sold off all its printing plants, buildings and equipment, and liquidated all its inventory to satisfy its creditors, it would still be $400m short. Stil, Lee thinks it can somehow gut it out. Its sees its enormous problems as temporary, so the party continues!

Lee’s most pressing concern was a $306m balloon payment due to institutional investors in April.  The newspaper company was hit hard by the fall in ad revenues and so bloated with debt that it didn’t have enough cash to pay.  But rather than force Lee into bankruptcy, the lenders have given Lee a three-year reprieve:

Lee today repaid $120 million of the principal amount of its $306 million Pulitzer Notes debt due in April 2009 using a portion of its restricted cash, which totaled $129.8 million at Dec. 28, 2008. The remaining debt balance of $186 million has been refinanced by the existing lenders until April 28, 2012. Under the agreement, $9 million of restricted cash was retained to facilitate the liquidity of the operations of Pulitzer Inc., a wholly owned subsidiary of Lee, and its subsidiaries.

But like a good loan shark, the lenders are going to wring extra dollars out of Lee. Beginning in June, it must pay its lenders $4m every quarter. In October 2010, it will pay a total of $8m cash. Plus the interest rates on the Pulitzer Notes will rise from 8.05 percent to 9.05 percent next year, ultimately increasing to 10.05 percent ($19m) by 2012.

Lee also owes $1.1b amount to the bank, who make concessions to allow the company to survive. Lee owes the bank principal payments totaling $234m over the next three years. Payments at maturity will increase $80m to $535m due April 2012.

Escaping the hangman’s noose wasn’t cheap, by the way. Refinancing this whole mess cost Lee $20m.

Abandon all hope, ye who enter here.

China’s financial war chest goes shopping

Via Bloomberg:

China entered into an oil-for-loans accord with Brazil yesterday — its third such deal in three days — tapping the nation’s $1.95 trillion foreign-exchange reserves at a time when credit is scarce. In all, the world’s second-largest oil user will get about 600,000 barrels a day, equal to 17 percent of its imports last year, in return for providing $39 billion of loans….

  • China agreed on Feb. 17 to provide Russia with $25 billion of loans in return for 300,000 barrels a day of oil for 20 years.
  • Venezuela’s Petroleos de Venezuela, known as PDVSA, will provide 200,000 barrels a day to the Asian country to pay down a $4 billion loan from China Development Bank. Venezuela’s oil is “at the service of China,” President Hugo Chavez said Feb. 18.
  • Chinese President Hu Jintao visited Saudi Arabia Feb. 10-12. A deal between China Petroleum & Chemical Corp., Asia’s biggest oil processor, and Saudi Aramco is expected.
  • Chinalco, the Aluminum Corporation of China, plans to invest $30 billion into Australian mining giant Rio Tinto to back up its initial $11 billion stake made in 2007. Rio Tinto is three times the size of Chinalco.
  • China Minmetals placed and the $2.6 billion bid for troubled Australian mining company OZ Minerals. “If China wasn’t there, I don’t know where we would be … what’s the alternative?” said OZ Minerals chief executive Andrew Michelmore.
  • In Feburary 2007, Chinalco bought Peru’s Mount Tomorocho, the world’s most productive copper mine.

The history of the future is being written here.

Brother, can you spare a jet?

Orders for new aircraft are down, so the private jet industry has decided to launch a PR offensive to counter all the bad press it’s been getting over auto executives who flew private planes to beg for billions of dollars in government handouts. The message: “No plane, no gain.”

Lo and behold, two financial columnists expressed strikingly similar views on the subject this week.

Here’s Ben Stein’s take:

Then, once the attendees get to the meetings, they have to get up very early each day, hear speeches from experts in their fields, take notes, have seminars about their notes, hear more speeches, and meet new people to do more business. Then, exhausted from a very long day, they are offered the chance to play golf — and my experience is that most of them are far too tired to do so.

Waking up early, meeting people, attending seminars, hearing speeches and taking notes! How do they manage it all? Tired is the head that wears the crown.

Members of Congress, who love to catch a ride home on a contributor’s private plane, are helping out too. Just a few months after scolding auto executives for flying to Washington, Congress approved tax breaks to help those executives buy more planes.

Meanwhile, tongue firmly in cheek, JetBlue is welcoming bigwigs.

We understand it’s not easy being a high flyer these days. The CFO is picking apart your expense reports. Congress is mad about your bonus. And you can’t even hop on a private jet to the Cayman Islands without freaking out the shareholders. But even this economic cloud has a silver lining… actually more of a bluish lining. Because now you get to try JetBlue.

Welcome aboard. Um, do you mind switching seats?

Newspaper Bankruptcy Watch: Lee Enterprises

I’ve written before about the woes at Lee Enterprises, the nation’s fourth biggest newspaper chain, which has been teetering on the edge of bankruptcy.

Editor & Publisher reports today that not everyone has lost faith in Lee:

The California State Teachers Retirement System (CalSTRS) is not only jumping into LEE, it owns more than a 5% stake. Its approximately 2.01 shares are 5.16% of shares outstanding. A Lee spokesman confirms CalSTRS seems to be a new holder, and the SEC shows no similar filing going back more than a year.

I’ve been pretty down on Lee, but this gave me some second thoughts. CalSTRS is the second largest pension fund in the United States, with $129 billion in assets at the beginning of the year.

There’s  still an enormous amount of pessimism on Lee Enterprises. The shares are trading around 25 cents and a quarter of the float (shares available) are being shorted. So what does CalSTRS know that the street doesn’t?

David Swensen, Yale’s Financial Wizard

ProPublica has just posted a Q&A I did with David Swensen, Yale’s chief investment officer and one of the world’s most highly regarded investors.