The Everquest Financial Fiasco makes it clear: Jim Gilmore cannot be the nominee

March 25, 2008

With this post, I may very well burn to ashes half the friendships I have made in the blogosphere.  The Gilmore-Marshall Senate race has lead to many arguments (not a bad things), a lot of snark (which need not be bad either), and a good deal of informed discussion.  It has been largeyl focused on issues, as it should be.  I would like nothing more but for it to stay there.  Unfortunately, Jim Gilmore’s association with Everquest Financial has forced the debate to move to personal reputation – or to put it another way, Gilmore’s position as Chairman of Everquest means he cannot be the nominated this May, or the party will suffer incalculable and perhaps irreparable damage.

To understand why, we have to go back a year – to early 2007, when Everquest was preparing for its Initial Public Offering (sale of stock shares).  At the time, it was basically a holding company for a bunch of Collateralized Debt Obligations (CDOs), which is a fancy name for an asset group made up of a bunch of loans.  The trouble is, the CDOs Everquest had were largely based on subprime mortgages, the very mortgages that at the time were driving Wall Street crazy because they were providing default notices instead of investment returns.  

How and why did Everquest come by the subprime mortgages?  Here’s where it gets worse: Bear Stearns’ riskiest and most subprime-exposed hedge funds sold them to Everquest in exchange for stock in the company (Securities and Exchange Commission)- stock which when sold to the public would have effectively transferred all of the risk from Bear to unwitting stickholders.

Now, some will say that no one really knew just how bad things were in the subprime market back then.  Well, they’d be wrong.  Check out what Business Week thought of the Everquest adventure:

Never underestimate the ability of a Wall Street investment firm to find a new way to pawn off risky assets onto retail investors. The latest example? The initial public offering for Everquest Financial.  Everquest is a fledgling financial-services company that has been buying up equity interests in risky bonds backed by subprime mortgages from hedge funds managed by Bear Stearns . . .

Even worse, Everquest admitted that the sale of these CDOs were “not negotiated at arm’s length,” which as BW noted, ” is an indication of just how beholden the company is to the interests of Bear Stearns.”

In fact, as noted in the SEC documentation, one of Everquest’s co-Chief Executive Officers was none other than Ralph Cioffi, who just happened to manage to two Bear Stearns hedge funds that sold most of the CDOs to Everquest and owned a majority of the firm’s stock between them.

It took roughly a month for all of Wall Street to wise up on this little farce (as you can see above, some were already on to this), and the IPO was withdrawn, but that didn’t stop Time from listing it on the Top 10 Worst Business Deals of 2007.  Bill Saporito’s summary is as accurate as it is devastating (emphasis added):

Call it the IP-No. When the market for collateralized debt obligations (CDOs) began to melt down in the spring, Bear Stearns found itself sitting on billions of dollars of the stuff. What to do? How about this: Package the toxic, untradeable CDOs (securities backed by subprime mortgages) into a public company — Everquest Financial — and unload it on the usual chumps. That had been the plan all along, but by the time Bear tried to float this lead balloon in June you had to be living under a rock in Siberia not to know this junk wasn’t sellable. The IPO was withdrawn.

Naturally, such a move required a fresh face to make it all look above board.  Who better than a presidential candidate?  Which presidential candidate, you ask?  Why, none other than Jim Gilmore (SEC).

If Gilmore had quit Everquest, admitted that he had learned a lesson, and moved 0n, I wouldn’t be so worried.  It would still be a problem, but not as large.  Instead, he is not only still the Chairman, but he actually tried to defend this.  Each of his five points, in fact, conceal more than they reveal, as I’ll explain in a later post.

What we have, then, is a candidate who will become the poster-boy for the subprime crises – not because he made a subprime loan (he didn’t), not because he broke any law (he didn’t), but because he became the de facto front man for what is now a bailed-out firm’s hedge funds in their attempts to spin off their riskiest assets on unwitting investors (that, he did).  The Democratic ads practically write themselves.

Moreover, if the GOP nominates Jim Gilmore, he will force every Virginia Republican candidate to face questions on this.  McCain and his running mate will end up avoiding him like the plague.  Not only would this pave the way for mark Warner, it would also put Frank Wolf and Thelma Drake at risk, ensure the Dems take the 11th, and even give them a good shot at our presidential electors.

In other words, Jim Gilmore could make Virginia bluer than a medieval Scotsman at war.  Odds are it wouldn’t end there, either.  Democrats around the country will be able to tell their voters that their Republican opponent belongs to “the party of Jim Gilmore, the party of Everquest, the party of Bear Stearns.”  This is a disaster waiting to happen.

This is why the lefty blogs have been completely silent on this, despite mentions from Shaun Kenney and Brandon Bell.  The leftosphere knows full well what a gold mine this is, if Gilmore gets the nomination.

We can’t let that happen.  I know many in the blogosphere do not agree with me on the merits of Bob Marshall, but this is the inescapable fact – Bob Marshall is the only thing standing between the Republican Party of Virginia and certain disaster.

Next post: Gilmores’ responses, and why they don’t say much.


New China e-Lobby posts up

March 25, 2008

From today and yesterday; Tibet is the lead story, with some interesting sidebars on how the “riots” that the Communists claim they are putting down are not what they seem.


Thus endeth the Corey Stewart campaign

March 25, 2008

From WAVY-10 in Hampton Roads:

Republican Lieutenant Governor Bill Bolling says he will seek re-election next year, foregoing an anticipated run for governor.

. . .

Former state Senator Jay O’Brien of Fairfax County, Delegate Timothy Hugo of Fairfax County and Prince William County Board of Supervisors chairman Corey Stewart had considered a run for lieutenant governor, but today threw their support to Bolling.

This is why the Corey Stewart banner has come down.

Truth be told, had Stewart stayed in the race, I would have stayed with him.  It took a lot of guts to oppose HB3202 when everyone else was drinking the Kool-Aid (including Bolling), and honestly, the GOP will desperately need someone who can show Northern Virginia and Hampton Roads that it has learned from that debacle.

So now it’s McDonnell, Bolling, and Insert-NoVa-politician-here.

If I have time, I have my thoughts on this later today.


Will Obama pull out of Afghanistan, too?

March 24, 2008

Barack Obama made the most troubling statement I have ever heard in Campaign 2008 (CNN):

This war has now lasted longer than World War I, World War II or the Civil War

First of all, as nearly anyone outside the United States can confirm to the Audacity of Hype, World War II was a six-year war, not a four-year war.  Our refusal to engage in direct hostilities until December 1941 does not erase the rape of Poland, the fall of France, Dunkirk, the Battle of Britain, and the invasion of the Soviet Union.

Even more worrisome to me, however, is Obama’s fascination with time, and his explanation for why the Iraq theatre of the WBK War was essentially not worth the trouble in his view:

“Nearly 4,000 Americans have given their lives. Thousands more have been wounded. Even under the best-case scenario, this war will cost American taxpayers well over a trillion dollars,” he added. “And where are we for all this sacrifice? We are less able to shape events abroad.”

If Obama’s concern is nothing but being “able to shape events abroad” – what happened to protecting our citizens, Barack? – such logic can easily be extended to Afghanistan as well.  Again, outside of the United States, Afghanistan is a very controversial endeavor.  Even here in the U.S., public support for the Afghan mission has been weak (as in below 60%).  The next American President will hear loud calls for a withdrawal, and feel a ton of pressure for the same, coming from many of our own allies.  It will take tremendous political courage just to keep the WBK War ongoing, let alone the Iraq theatre.

Obama has not shown this kind of courage.  In fact, this most recent statement confirms my worst fears about the Democratic Party.  Should either Clinton or Obama win, I predict (as I have predicted before) that Americans will not only leave Iraq without victory, but Afghanistan as well.  I am now all but certain of this should the Democratic nominee be Obama.


For anyone wondering where I’ve been for the past few days

March 21, 2008

I brought my oldest blog (the China e-Lobby) back to life.

 Have a look.


McCain’s lead is translating into battleground states, too

March 19, 2008

For the last three days, John McCain has held a six-point lead over both of his Democratic rivals (Rasmussen).  That lead is now starting to show up in some of the battleground states that will decide this election.

Among the tidbits from Rasmussen are these:

  • McCain leads both Democrats by six in Ohio
  • McCain has erased Obama’s lead in Colorado, and leads Clinton by double digits there
  • McCain leads both Democrats in New Hampshire (carried by Kerry in 2004)
  • McCain leads both Democrats in Pennsylvania (also carried by Kerry in 2004)
  • As of one month ago (before his post-Super Tuesday II rise in the polls) McCain led both Democrats in Missouri
If these numbers were to hold through to November (and that is one mammoth-sized “if”), McCain defeat Clinton in every state Bush carried in 2004, plus Pennsylvania, New Hampshire, and a slew of other states.  Against Obama, McCain would carry every state Bush carried except New Mexico, Colorado, Iowa, and Nevada (the first two are a ties), while winning Pennsylvania, New Hampshire, New Jersey, and Washington.
In either case, were the election be held today, John McCain would win.
Of course, the election isn’t today, and with seven-and-a-half months to go, anything can happen.  Still, the Democrats began this campaign all but certain that they would be coasting to victory.
That certainty is now gone.

Why I’m OK with McCain’s mistake

March 18, 2008

John McCain made a mistake today (although by the time you read this, it will have been yesterday).  While in Amman, Jordan, McCain claimed that the Iranian regime was taking al Qaeda operatives for training.  He said it was “common knowledge and has been reported in the media that al-Qaeda is going back into Iran and receiving training and are coming back into Iraq from Iran, that’s well known. And it’s unfortunate” (Weekly Standard Blog).  He quickly corrected himself.  Tom Jocelyn at WS tries to claim it wasn’t a mistake, but it was – and more to the point, even in error, McCain reveals why he is the best choice for the White House.

Consider this: Hillary Clinton and Barack Obama insist that neither Saddam Hussein nor the Iranian mullahcracy had (and in Tehran’s case, has) any ties to al Qaeda or its affiliates.  That is a far more glaring and dangerous mistake, and one that is not only easily exposed (here’s Saddam’s ties, and here’s Iran’s).

McCain, by contrast, made and corrected a mistake on the nature of Tehran’s ties to al Qaeda (Tehran arms and funds al Q, but we have no evidence of actual training in Iran – yet).  That’s a lot better than not recognizing that Tehran and al Qaeda work together.  Fact is, John McCain’s mistakes are far better than those of his opponents.


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