A Look at Why Congresswoman Bachmann was First to Author the Bill to Repeal Dodd-Frank and her Refusal to Investigate Mr. Wallison's Misrepresentations, Despite Taxpayer Request 3 Months Ago

The Derivative Project owes its readers an update on our announcement May 20 concerning Congresswoman Bachmann's (R-MN) office agreement to investigate statements by FCIC Member Peter Wallinson and misuse of taxpayer funds in the 2008 financial crisis.  First, we pose these questions:

  • What was Financial Crisis Inquiry Commission (FCIC) Member Wallison's role, with Rep. Bachmann, in seeking the repeal of Dodd-Frank?
  • Why did Rep. Bachmann's office agree to investigate Mr. Wallison's misrepresentations, requested by The Derivative Project, in the FCIC report and then refuse to do so?
  • Shouldn't a taxpayer's request for investigation of the FCIC report carry the same weight as Congressman Issa's request?  Is this a failure of our democratic system and Congresswoman Bachmann, to not follow through on a promise to a taxpayer to investigate potential significant misrepresentation of facts in an investigative report paid for by Congress, on behalf of taxpayers?

Congressman Darrell Issa (R-CA) chairs the House Oversight and Investigations Committee, which Congresswoman Michele Bachman serves on.

Congressman Issa requested an investigation on lack of impartiality by Democrats influencing the conclusions of the FCIC report published January 2011. The FCIC was charged with investigating the causes of the 2008 financial crisis for all U.S. taxpayers. FCIC Commissioner Peter Wallison dissented from the majority and the FCIC report contains this statement by Mr. Wallison, on Page 447 of the Report:

"Claims that there was a general failure of risk management in financial institutions or excessive leverage or risk-taking are part of what might be called a "hindsight narrative."  He continued, "the FCIC interviewed hundreds of financial experts...it is not clear that any of them...were sufficiently convinced about an impending financial crisis that they put real money behind their judgment."

The Derivative Project requested an investigation of this statement by Mr. Wallinson in the FCIC report.

Here is a brief history of he Derivative Project's 2011 interaction with Congresswoman Bachmann's office:

The Derivative Project made a request April 14th, 2011 for a House Oversight Investigation by Michele Bachmann and Chair Issa on recouping taxpayer funds, and to reconsider Rep Bachmann's repeal of Dodd-Frank, based on new facts and misrepresentative statements in the FCIC report by FCIC member Wallison.  The Derivative Project wrote:

"Mr. Wallinson must amend his dissent to include these facts that were submitted to the FCIC and aggressively pursue remedies to protect the U.S. taxpayer from a repeat of such a blatant misuse of billions of dollars of taxpayer money to fund collateral calls on speculative over-the-counter derivative contracts."

The Derivative Project provided the written facts to Congresswoman Bachmann's office and in a meeting in Rep. Bachmann's Washington D.C. office laid out the indisputable facts that refute misleading statements by Mr. Wallison in his dissent in the FCIC report. 

The Derivative Project met with Congresswoman Bachmann's staffer, Chase Kroll, at Rep. Bachmann's office in D.C. on May 16, 2011, about this written dissent by Mr. Wallison, which contains significant misrepresentations, devoid of fact. This meeting was a follow-up to a letter sent to Congresswoman Bachmann, dated April 14th, about her introduction of a bill on January 6, 2011 to repeal Dodd-Frank.

Chase Kroll, representing Congresswoman Bachmann, stated Chairman Issa was always looking for taxpayer input and things to investigate and Bachmann's office believed this should be investigated on behalf of U.S. taxpayers and would forward immediately to Chairman Issa's Committee, of which Congresswoman Bachman is a member.

As a former counter party credit risk analyst for a major commercial bank's over-the-counter derivative positions, and as a former SEC registered investment advisor, I wanted to share with Rep. Bachmann, first hand:
  • How FCIC Commissioner Peter Wallison distorted the truth in his dissent to the FCIC and why it is absolutely essential that the American people be given the facts so changes can be made to the regulatory system to prevent this from ever happening again.
  • How changes in the current regulatory framework can reduce costs and at the same time become more effective to protect investors and prevent systemic risk.
  • What elements of Dodd-Frank are crucial, if one understands Mr. Wallison's statements in the FCIC report are not correct and are misleading?
In our meeting on May 16, Chase Kroll, representing Congresswoman Bachmann, said he would take The Derivative Project's concerns about Mr. Wallinson's blatant misrepresentations on "risk management" to the House Oversight committee of which Rep. Bachmann is a member.  He would get back to me on the date that the House Oversight Committee would hear these concerns.

Hearing nothing from Bachmann's office, after 30 days, I emailed Mr. Kroll on June 14, 2011. There was no response.  Hearing nothing from Bachmann's office, two weeks later, I contacted Congresswoman Bachmann's office by telephone and asked Mr. Kroll to please return my call.  He has not returned my call.  On June 27, 2011, I sent another email to Bachmann's office, to Mr. Kroll, he has not responded to my emails, nor my phone calls, nor has Congresswoman Bachmann.

Keep reading on the news on Chair Issa, Wallison and the FCIC

Here is the link to a Bloomberg new release yesterday on Mr. Wallison and Chair Issa's FCIC investigation.

Mr. Wallison, not only misrepresented facts in the FCIC report, he may have engaged in ethical or perhaps criminal activity, as a FCIC member, according to a D. C. lawyer, linked to below.  

Barry Riholtz's Blog shared a letter from a D.C. lawyer, yesterday, on potential implications of this report, the Cummings Report, produced by the House Oversight and Investigations Committee in response to Chair Issa's request for an investigation into conflict of interest by the Democratic members of the FCIC.  

According to the Blog: 

"A DC  lawyer type who has reviewed the Oversight Committee’s FCIC report sends along these notes:


I’m sure you’ve seen this by now, but the Oversight Committee’s minority report on the FCIC is explosive.

Based on this report, I would think that a broader investigation is certainly warranted. There were certainly major ethics violations here, and potentially some criminal ones as well.

You can see the full report here.

Read the section about how Peter Wallison leaked confidential documents to Edward Pinto, and about Bill Thomas’s correspondence with his former staffer (now a lobbyist). The Edward Pinto leak was actually referred to the FCIC’s General Counsel, who said that it was a violation of their ethics code.

Moreover, the actual charter for the FCIC was to investigate the causes of the financial crisis. If Wallison was actually using his position to try to advance the repeal of DFA, rather than simply objectively analyze the causes, I would assume he would be violating that Congressional mandate, and I would think that would at least merit a broader investigation. There are certainly ethics problems here, and maybe even criminal ones as well.

Finally, and this could be the big shocker (and perhaps why McHenry CANCELLED the “criticize the FCIC” hearing he had scheduled for today), the email traffic between Wallison and other commissioners, and Wallison’s relationship with the GOP staff, seems to suggest that Wallison may have been working with certain members of the House GOP to try to repeal DFA. That would seem to implicate certain Congressmen as well. Again, not sure if this rises to the level of criminality, but my off the cuff reaction is that an investigation is warranted here. The FCIC, which was authorized and funded by Congress, was supposed to provide an independent, bipartisan analysis of the causes of the crisis, NOT serve as a platform for a partisan, ideologically motivated attempt to repeal past legislation."

In closing, 

This is an example of our democracy run amok. One sincerely sought to engage Rep. Bachmann and her staffers in straight-forward facts/debate of how risk management in the financial markets work in OTC derivatives and  how one can construe, from a very narrow standpoint, there was a failure and unnecessary, perhaps fraudulent use of taxpayer dollars necessitating reform to prevent this from happening again. 

Sometimes straight-forward explanations from professionals may prove far more-insightful than "biased" experts produced by Wall Street lobbyists on both sides of the political spectrum.
In these fragile economic times, debate based on factual data is essential, even if it may force one to adjust a political ideology for the good of many.  It appears Congresswoman Bachmann does not have that capability.

Here are key issues for all voters to consider, particularly those in the State of Iowa, who will lead on the Presidential 2012 Caucuses: 

As the "D.C. Lawyer" stated in Barry Riholtz's Blog, 

"Wallison may have been working with certain members of the House GOP to try to repeal DFA. That would seem to implicate certain Congressmen as well."

Congresswoman Bachmann was the first to author a bill to repeal Dodd Frank. What was Congresswoman Bachmann's role in authoring the bill to repeal Dodd-Frank? Was she working with Mr. Wallison and is she complicit in this alleged unethical or criminal breach by a member of the FCIC?  Why did she fail to investigate, at the request of a taxpayer, as her duty as a member of the House Oversight and Investigations Committee, potential misrepresentations by a FCIC member, Mr. Wallison, now cited for potential ethics violation?

Is she still a viable candidate for President? 

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