Reprint Paradise Lost? Part Four: The Headwaters Forest Land Swap

The Headwaters Forest Land Swap

I believe in the golden rule. He who has the gold rules.
—Maxxam CEO Charles Hurwitz after his corporate takeover of Pacific Lumber in 1985.

Maybe the bullet train and the Bay Bridge were predictable in their methodology and in their ability to produce profits from transportation projects, which are traditionally laden with pork, but that’s usually in the form of mega-million dollar construction projects, not through stock options based on the contracts called for in the legislation.

Usually, you have to build something to make millions; in the Transcam cases like the Bay Bridge and the bullet train, you don’t. You just issue the stocks. Voila! Instant money.

Although both the bullet train and the Bay Bridge produced some drama, it was nothing close to the sturm und drang of the Headwaters Forest.

This show had it all: heroes and villains, courtroom drama, high-level deal making and an eleventh-hour salvation of the symbol that galvanized the environmental community. That a young woman, Julia “Butterfly” Hill, had been cynically used as a pawn by insiders in the other, far quieter events surrounding Hill’s symbolic act of sitting in a redwood tree she named “Luna,” for over a year, was never reported. The Headwaters deal also included a pump-and-dump, and the deal was negotiated for the Bill Clinton and Gray Davis administrations by U. S. Senator Dianne Feinstein.

Sometimes life has an uncanny ability to imitate art, and in this part of the series we have a character who is the real-life counterpart of Wall Street’s Gordon Gekko, with his unscrupulous business practices, and rapacious desire for milking wealth from unsuspecting taxpayers and Mom-and-Pop shareholders. This man is Charles Hurwitz,  owner and CEO of the Houston-based Maxxam Corporation.

Hurwitz’s business style was revealed when he acquired a California-based company called Pacific Lumber in 1986. Pacific Lumber was an old North Coast logging company that owned the Headwaters’ virgin redwood forest. Hurwitz mined this prize stand of lumber to maximum effect by forcing a $700 million sale of Headwaters to the State of California in 1999. The sale preserved the trees, but at a price that many observers feel was highly over-valued. Since that deal in early 1999, Hurwitz, in true Gordon Gekko fashion, has torched Pacific Lumber, which is now in bankruptcy proceedings.

In Wall Street, when asked why he wants to wreck the company of his young informant’s father, Gekko replies, “Because it’s wreckable!”

Charles Hurwitz’s office is decorated with a large picture of a big fish swallowing a smaller fish. Maxxam’s takeover of PL was one of many in the 1980s. Under these deals a company buys another company and finances the deal using high-interest, high-risk loans called junk bonds. The assets of the company must then be sold or turned into profit very quickly in order to pay these high-interest loans. Maxxam’s takeover was financed by the notorious firm of Drexel Burnham Lambert, headed by Michael Milken.

There were many shady deals that went into this takeover, including insider trading (using secret information that is not available to the public) and having people secretly purchase and hold stock to avoid public reporting requirements. Several of the key players ended up going to prison for their roles in the PL takeover, or other financial dealings. However, their sentences are not like those given to regular people. For example, Boyd Jeffries, a financier who purchased 2.5 percent of PL stock for Hurwitz, pled guilty to several violations of federal regulations. His “penalty” was community service, teaching young people to play golf in Aspen, Colorado.

The story of Pacific Lumber is an instructive one in and of itself. For over a century Pacific Lumber owned Headwaters Forest and nearly 200,000 acres of redwood timberland in Humboldt County. They were the largest employer in the county, with their mill in Scotia as their main base of operations. In the early 1980s PL still owned healthy forests long after other timber companies had cut their holdings.

Compared to some of Hurwitz’s other deals the takeover of Pacific Lumber was relatively straightforward. Pacific Lumber’s stock did not reflect the real value of its assets, largely because the company was harvesting its timberlands at a conservative rate compared to other timber companies. Drexel had been unable to interest other buyers in Pacific Lumber largely because of environmental issues. It was clear to everyone, in advance, that in order to buy Pacific Lumber with junk bonds, the plan would have to include not just a higher rate of logging, but rapid destruction of rare old-growth redwood forests.

Pacific Lumber also had $65 million in a pension plan for its employees. After the takeover Maxxam used this cash for its own purposes.

Interestingly, the Securities and Exchange Commission, in September 1988, charged that Drexel forced its client, Maxxam, to pay an inflated price for Pacific Lumber Company. As outlined in the SEC lawsuit, on September 30, 1985, Maxxam made a tender offer for Pacific Lumber at $36 a share, and the same day demanded and received a 50% cut in Drexel’s fee. Then Ivan Boesky started to buy stock for Michael Milken at Drexel, without Maxxam’s knowledge, pushing the open market price of Pacific Lumber above the offer price. Maxxam raised its tender offer to $38.50 a share. On October 22 Maxxam increased its offer to $40 per share and Pacific Lumber capitulated.

Several other lawsuits attended the Pacific Lumber takeover, including one by the heirs of the family that had controlled Pacific Lumber, and one over the raid on the pension fund.

Pacific Lumber’s financial outlook is heavily dependent on the outcome of a variety of lawsuits and regulatory proposals, and the proposed deal for the California and Federal government to acquire a small part of the Headwaters forest area of Pacific Lumber’s timber holdings…According to Pacific Lumber’s SEC filing 10-K405 of 3/26/98, the long list of laws that must be complied with “have not had a significant adverse affect on its financial position, results of operations, or liquidity. However, these laws and related administrative actions and legal challenges have severely restricted the ability of Pacific Lumber to harvest virgin old-growth timber.” Pacific Lumber claims that these timberlands have been “taken” by California and the Feds, and Pacific Lumber should receive just compensation.

According to the same filing, Pacific Lumber and Maxxam entered into an agreement with the US and California which “provides a framework for the acquisition of approximately 5,600 acres of Pacific Lumber’s timberlands” known as the Headwaters Forest.

In 1997, Hurwitz’s corporation Maxxam reported a net income of $65.2 million, or $2.42 per share. Net sales for 1997 were $2.7 billion. Aluminum operations (Kaiser) created operating income of $174 million for 1997. Forest products operating income (Pacific Lumber) was $84.9 million. Real estate and other operations lost $5 million. Interest received was $50 million. Interest expense ($211 million) on junk bonds is the main reason the net income of Maxxam is far lower than the total income of its three types of operations. On April 3, 1998 Maxxam shares, traded on the American Stock Exchange, closed at $60 per share. In 1994 Texas Monthly Magazine reported Charles Hurwitz’s personal wealth to be estimated at $140 million.

Hurwitz also acquired United Savings Association of Texas (USAT) along with Milken and Co. Hurwitz was Chairman of the Board of the United Financial Group, whose main asset was USAT. USAT was heavily invested in highly risky junk bonds and speculative real estate, with 97 percent of it’s securities portfolio in junk bonds. When USAT collapsed in 1988, it would leave the federal government a $1.6 billion debt, the fifth largest bank failure in U.S. history.

Meanwhile, Hurwitz commenced liquidating PL’s assets to pay his huge loans. One of the first things that Hurwitz did was raid the PL pension fund. By “renegotiating” the pension fund with a company called Executive Life Insurance, Hurwitz and Maxxam were able to walk away with $55 million of the $65 million-dollar pension fund. Outside consultants recommended against placing the pension fund with Executive Life, which was financially unstable and heavily invested in junk bonds. In 1991, the California Insurance Commissioner seized control of Executive Life, in the largest insurance failure in U.S. history. According to the reorganization worked out by the insurance commissioner the PL retirement plan continued to pay benefits, but only at the rate of 70 cents on the dollar. Maxxam has promised to make up the difference. After the failure it was revealed that Executive Life held $350 million in Pacific Lumber junk bonds.

Of course the main asset that PL needed to turn into cash was its huge timber holdings, including the Headwaters Forest. Immediately after the takeover PL tripled its redwood logging, purchased a fourth lumber mill, and added an extra shift. The ancient trees began falling at an alarming rate.

As huge logging trucks began to clog the highways of Humboldt County, environmental activists began to organize against the devastation. Earth First! organized direct action to slow down the pace of the cutting and to bring public awareness to the issue. They strung a huge banner over Highway 101, busted into corporate meetings, staged “tree-sits” where activists sat on three-foot by six-foot platforms high up in the redwoods. They blocked roads, and chained themselves to machinery and to trees.

In 1996 California Senator Dianne Feinstein brokered a deal with Maxxam to trade $380 million in state and federal money for 7,500 acres of Headwaters containing two of the six ancient groves. Environmental activists denounced this deal, saying it was primarily set up to end the protests. They were right; it did end the protests, and the protestors helped make Hurwitz and Maxxam a billion dollar profit.

When the deal went through in 1999, the insiders sang hosannas to their successful effort to “save” the Headwaters. On March 1, 1999, the United States Bureau of Land Management and the state of California acquired the Headwaters Forest Reserve and surrounding lands totaling 7,400 acres in central Humboldt County. These newly acquired public lands are co-managed by the Bureau of Land Management and the California Department of Fish and Game. Their mission is to protect the ecological and wildlife values, particularly the old-growth redwoods that provide habitat for the threatened seabird, the Marbled Murrelet. The forest also protects the headwaters of several major stream systems in the Reserve, which provide habitat for the threatened Coho Salmon and other fish. The forest was a focal point of the largest environmental movement in recent years and is now owned by the Federal government.

The late David Brower was an environmental heavyweight who was one of the few to say the deal stunk from the head. Brower was a fighter and he had taken on the new board of The Sierra Club, which he once headed, accusing them of selling out. “They’re fiddling while Rome burns,” Brower told me when we met in Sacramento.

Brower had written a critical piece of the Headwaters deal in the San Francisco Chronicle’s December 23, 1998 edition, characterizing it as a half-billion-dollar government shakedown. “If we allow tycoons like Charles Hurwitz to exact hundreds of millions of dollars by staring down the government, more will line up behind him,” Brower warned. It was a prophecy that has since proved to be the case.

In his column on another land swap in the Sacramento Bee called “A Succession of Land Deals” published in March of 2001, Dan Walters wrote that the Catellus desert land swap amounted to a deal where “Catellus walked away with cash and valuable land and gave up virtually nothing of real value. It was a coup for the company’s top executive, Nelson Rising,” wrote Walters, who went on to state that the Catellus desert bill bore some similarities to the Headwaters Forest bill: both were used to appease environmentalists, those who favored the desert park and wanted to protect the desert tortoise, and those who wanted to preserve the virgin-growth Headwaters redwood forest.

Feinstein negotiated the Headwaters deal for the Clinton and Davis 

Administrations in the fall of 1998, right before she authored a new bill we will cover later in this blog. This bill was the Desert Wildlands bill. The Headwaters negotiations began in 1997. The company that owned Headwaters, Houston-based Maxxam Corporation, was trading at around $45 a share with volumes of 10,000 shares a day when the negotiations got underway. The deal went through March 1, 1999. The land transfers were administered by the Bureau of Land Management. The next day, Maxxam’s stock jumped nearly $9.89, to $57.69. That translated to $1,107,414 of profit in one day. That same day, 112,200 shares of Maxxam stock were traded. The two-day aggregate sales of Maxxam on March 1 & 2, 1999 totaled 252,000 shares that netted them $13,155,224. The one day increase in stock price multiplied by the outstanding number of stocks at the time equaled a cool $53,028,000. Insiders at Maxxam held over 50% of these stocks.

If we refer to Senator Feinstein’s official website on the Headwaters under the heading “Accomplishments”, she wrote “Between the years 1995 and 1999, I brought together officials from the Federal Government, the State of California, and the Pacific Lumber Company to negotiate a compromise agreement that protects the magnificent grove for all time. The Headwaters Agreement, provided for the Federal acquisition of the 7,500-acre Headwaters Forest from the Pacific Lumber Company, required that the Pacific Lumber Company’s entire 210,000 acres be governed by the terms and conditions of a Habitat Conservation Plan… protected 12 additional groves of ancient redwood trees, comprising over 8,000 acres, as habitat for the marbled murrelet; and provided habitat protection for the endangered coho salmon and other aquatic species.”

Senator Feinstein summed up this accomplishment by writing “I am very proud of this agreement because it saves all of the Headwaters Forest and all of the 12 lesser groves of ancient redwood trees. This is something that at the beginning of this process and even two years into the negotiations I didn’t think possible. The end result is a strong plan on which all of us will have to work closely together to implement satisfactorily.”

Reprint from Paradise Lost? Part Two: The First Transcam: The Bullet Train, 1981-1983

 The First Transcam: The Bullet Train, 1981-83

On April Fools Day 1981, a pair of articles were published in the business section of the New York Times. At first, the stories didn’t seem at all related.

The first story gave readers an overview of the faltering Japanese economy, which was in the midst of a recession due to inflation and economic stagnation. The article posited the theory that Japanese industries would need to export hard goods if they were going to recover.

A reporter named Agis Salpukas wrote the other story. It floated the idea that a new bullet train was being considered for California. The train being considered was supposed to run between Los Angeles and San Diego. The Salpukas story also mentioned the fact that the California bullet train had the backing of a Japanese billionaire, who was helping to fund the project by providing the backers with a $5 million grant for preliminary marketing studies. The backer was Ryoichi Sasagawa.

Sasagawa said he was absolutely committed to seeing that a new bullet train came to California, and would fund a hundred such studies if necessary.. The start-up corporation promoting the train was called American High Speed Rail Corporation.

The bullet train was one of Jerry Brown’s pipe-dream projects during his two terms as Governor, at least that’s how it was regarded. When the brilliant but high-strung Adriana Gianturco became Jerry Brown’s chief of Caltrans in 1976, she began pushing for a bullet train.

In 1978, Gianturco commissioned a San Diego-to-Los Angeles high-speed rail corridor study and Caltrans did some preliminary work-ups. But the project was going nowhere. Gianturco was on San Jose Senator Alfred Alquist’s shit list. Alquist was then the chairman of the Senate Appropriations Committee. In other words, he ran one of the legislature’s two money committees.

Alquist loathed Adriana. During one of her bullet train presentations—in 1978, I believe—Alquist told Gianturco that if he ever heard the words “bullet train” come out of her mouth again he’d cut off all of Caltrans’ funding. Gianturco did as she was told and gave it up. But Jerry wouldn’t let go of his pipe dream, and when his former Secretary of Business, Transportation and Housing, Richard Silberman, the Jack-in-the-Box billionaire, became Brown’s Chief-of-Staff, the Japanese-funded bullet train crusade commenced again.

Besides Jerry Brown’s interest in bullet trains, there was now a national interest coming from Washington, D.C. There, the president and vice-president of AMTRAK, Alan Boyd and Larry Gilson respectively, were leading the effort to bring high-speed rail to California.

What Boyd and Gilson did was either shrewd or cynical, depending on how you define loaning yourself money from the public corporation you work for to start your own private, for-profit corporation. At the very least it seemed unethical. Boyd and Gilson loaned themselves $750,000 from AMTRAK to fund their new corporation, American High Speed Rail Corporation (AHSRC), which officially came into being on December 16, 1981. When the loan was made, Boyd and Gilson were still drawing AMTRAK salaries. Most of the money Boyd and Gilson loaned themselves was paid to the Arthur D. Little Company of Boston, Mass. for the first bullet train marketing study.

The train then began building up steam. California legislators began receiving free junkets to Japan so they could check out an actual bullet train. Among those going to Japan were the two legislative chairmen of the California state legislature’s transportation committees, Assemblyman Bruce Young, from Norwalk, and Senator John Foran, from San Francisco. Also making one of these junkets was Assemblyman Mike Roos, Willie Brown’s Assembly Majority Leader. Roos was Willie’s Field Marshall in the Assembly, and Roos’ chief bright boy on his staff was a funny-looking Greek kid from Sacramento, a Harvard grad with a big Adam’s apple and thick, dorky glasses named Phil Angelides. Angelides was first a staffer for Jerry Brown. Then he went to work for Roos, Willie’s floor leader. Angelides later served as the California State Treasurer from 1998-2006, and was also the Democratic Party’s gubernatorial candidate in 2006.

Footing the bill for all these junkets was Sasagawa and a lobbying group called Californians for Economic and Environmental Balance, CEEB, as they were commonly called. The man who brought CEEB into being was Jerry Brown’s father, Pat Brown. In the background were Nossaman, Guthner, Knox and Elliott, the main transportation-lobbying firm in Sacramento, maybe the Number One transportation- lobbying firm in the United States until recently.

From the Center for Investigative Reporting in San Francisco, I was able to obtain files that claimed Sasagawa’s money was largely derived from his interests in speedboat racing, which was then a known Yakuza, organized-crime enterprise.

Also in these files were allegations regarding Sasagawa’s career before the Japanese fascists came to power. They said that Sasagawa was a suspected World War II war criminal, and the U.S. State Department had acquired evidence that tied him to the assassination of Japanese Prime Minister Takeshi Inuki, in 1936. I saw telegrams from The State Department attesting to this, and recommending that Sasagawa be tried as a war criminal. Then they let him walk without coming to trial.

Four months after the “float” story in the New York Times Sasagawa started flying all those California legislators to Japan.

In early 1982, Larry Gilson and Alan Boyd came west to pitch California legislative unbelievers on the wonders of high-speed rail. They hosted parties in San Francisco and Los Angeles, pitching their project. In January of 1982, just weeks after forming their corporation, American High Speed Rail in Delaware, they hosted a reception for Sasagawa at The Sanwa Bank in Sacramento. They met with key legislators like Senators Foran and Alquist, and with Assemblymen Mike Roos and Lou Papan to tout their project. They also enlisted the support of Lynne Schenck, a key aide to former Secretary of California Business, Transportation and Housing Richard Silberman. Schenck then worked as assistant to Jack Harper, Silberman’s successor at BTH. AHSRC also announced that they had managed to secure the support of the Los Angeles Times and the Copley newspaper chain.

The legislative action on the first bullet train was a mirror image of what later occurred in almost every other Transcam bill process covered in my forthcoming book, Paradise Lost? .

The first thing they did was to introduce a “spot” bill by Assembly Transportation Committee chairman Bruce Young. The bill, AB 3647, was purely regulatory in nature and had nothing whatsoever to do with bullet trains. This bill floated through the respective committees and legislative houses without notice or controversy until late August of 1982, when it was hijacked and amended with legislation that all but named the Japanese companies. As soon as the bill was passed, the stocks of these companies soared.

A source that served under the legendary Jesse “Big Daddy” Unruh when he was Treasurer told me what happened on AB 3647. “I got a call on a Friday from someone who said that there were some people here in town (the AHSRC backers) and that they had a piece of legislation that we might want to take a look at because it involved state bonds.”

This source was then summoned to a Friday meeting with Mehdi and Linda Morshed. The Morsheds were then the chief transportation committee consultants in the California State Legislature. Mehdi worked in the Senate for John Foran, while Linda worked in the Assembly for Bruce Young.

The Morshed’s presented this person with a sample draft of the bill, who told me he saw that the state had a potential liability if the bonds failed. He asked the Morsheds if he could have a little bit more time to look it over more carefully. The Morsheds asked if he could make his changes by the end of day. The source said he would need the whole weekend. On Monday, August 23, 1982 my source told me he gave the Morsheds his amended version of the bill. On Wednesday, August 25, the bill was sent to the joint legislative conference committee.

The legislature had passed all of its legislation by then, and the only thing left for them to do was resolve the differences between the Assembly and Senate versions in the joint conference committee. The two legislative leaders, Senate Rules Committee chairman David Roberti and Assembly Speaker Willie Brown, appointed the six members of the joint conference committee.. The conference committee members were John Foran, Robert Beverly, and Jim Mills from the Senate, and Larry Stirling, Richie Robinson and Bruce Young from the Assembly. Suddenly, the AB 3647 bill about highway regulations was amended. The Morshed’s gutted the bill, striking out the language entirely and replacing it with a paragraph that called for “$1.25 billion in tax exempt California state revenue bonds for a Shinkansen-type bullet train” to be operated by a private corporation for profit.

Mills was the lone dissenter to the conference committee’s final report. “The whole thing, from the AMTRAK loan to American High-Speed Rail Corporation, which I opposed because I sat on the AMTRAK board at that time, to the conference committee bill of Young was totally unethical, and these guys were using their connections to that Japanese billionaire to make money for themselves,” Mills later told me.

AB 3647 was passed out of the joint conference committee by a 5-1 vote with Mills dissenting. After five minutes of floor debate, the bill was approved by the entire legislature. A month later, on September 29, 1982, Jerry Brown signed the bill into law, saying “the bullet train is controversial because the technology is not a way of life in California or in the nation.”

On October 12, 1982, AB 3647 became California law.

Shortly after the bill passed, a couple of Japanese companies associated with bullet train production—the kind of exportable hard goods sales which the New York Times said were necessary in order for the Japanese economy to recover—experienced sharp increases in their stock prices. The firms were Kawasaki Heavy Industries and Mitsubishi.

Both firms were involved in the manufacture of Japanese “Shinkansen” bullet trains. In December of 1981, Kawasaki stock was trading at $117 a share, Mitsubishi at $166 a share. In August 1982 after AB 347 had passed both houses of the California legislature, Kawasaki was trading at $159, Mitsubishi at $230.

Another company whose stock price dramatically increased during the bullet train legislative process was Irvine Sensors. This company was going to be providing the signaling equipment for the new bullet train. Irvine Sensors was an over-the-counter stock that started trading at $3 a share on October 13, 1982 the day after the legislation became law. By December it was trading at $7 a share.

The passage of AB 3647 stunned many observers, including Adriana Gianturco, who had been led to believe that a bullet train would fall under the aegis of Caltrans. In fact, Alan Boyd and Larry Gilson of American High Speed Rail had promised Gianturco when she met with them in the spring of 1982 that Caltrans would still be involved in the project. Gianturco told me this when I interviewed her in the spring of 1983. Gianturco then found that Caltrans was cut out of the process entirely. American High Speed Rail Corporation would instead build the bullet train with private engineering and design, and construction firms like the Irvine Company and the Fluor Corporation, the two biggest developers in Orange County, and both politically wired. The environmental work on the project was going to be the responsibility of a firm called Woodward-Clyde. AHSRC was supposedly on the hook if the system failed to perform as advertised, or if the tax-exempt revenue bonds failed.

The bullet train process and the low-ball legislation outraged a number of environmental groups and citizens along the route. AHSRC held a number of public and legislative meetings in an attempt to mollify them with some pork. Station stops were promised to so many small communities that the train would spend most of its time braking or accelerating; rarely hitting its 125 mile-per-hour top speed where it was most efficient. The promoters also promised clean-up legislation to the environmentalists.

At one legislative meeting, Jess Unruh was called to testify and said: “I am here to bite the bullet on this bullet train.” Unruh, the former all-powerful Assembly Speaker, confessed that he too had been promised studies showing how the bullet train would produce such fantastic ridership figures that it would shortly be in the black, with the ability to cover the tax-exempt state bonds.

On February 12, 1983, at a Senate Transportation Committee hearing I attended, one of the bullet train’s chief critics came forward to testify. Jonathan Richmond was then a visiting Fullbright scholar and London School of Economics graduate. He specialized in transportation issues and questioned the figures contained in the Arthur D. Little marketing study report, which until then had never been made public.

Richmond was then a full-time employee of the Southern California Association of Governments (SCAG), the regional government and planning agency for metropolitan Los Angeles. Before he took the stand, committee chairman John Foran read a letter that said Richmond was “appearing here on his own and does not represent SCAG.” Then, after being all but discredited by Foran, Jonathan Richmond presented the Senate Transportation Committee and the assembled press with the theretofore “secret” Arthur D. Little study, which had been funded with the AMTRAK loan to AHSRC.

Richmond tore it to shreds. The studies were flawed, said Richmond. The numbers in the Arthur Little report didn’t make sense. They wouldn’t stand up; they were make-believe. Richmond demonstrated that the methodology used to assemble the figures showing the bullet train could operate without further state funding was insupportable, until John Foran shut him up. AHSRC tried to undo the damage, but it was too late. Their credibility was shot.

Six months later, the City of Tustin released a “white paper” detailing the politics behind the passage of AB 3647, exposing the murky Japanese connections and the bill’s effect on the Japanese corporations’ stocks. American High Speed Rail Corporation, the bastard offspring of AMTRAK’s Alan Boyd and Larry Gilson, then folded its tent and the bullet train faded into memory.

One Citizen Speaking: Dianne Feinstein: Oops I Did It Again? Reprint from One Citizen Speaking Blog

http://www.onecitizenspeaking.com/2009/04/dianne-feinstein-oops-i-did-it-again.html

April 22, 2009

DIANNE FEINSTEIN: OOPS I DID IT AGAIN?

There is no doubt in my mind that the democrats pander to their special interests and are infamous for nepotistic deals involving spouses, relatives and close friends.

So why should we be surprised when the Washington Times is reporting …

“Senator's husband cashes in on crisis”

“On the day the new Congress convened this year, Sen. Dianne Feinstein introduced legislation to route $25 billion in taxpayer money to a government agency that had just awarded her husband's real estate firm a lucrative contract to sell foreclosed properties at compensation rates higher than the industry norms.”

“Mrs. Feinstein's intervention on behalf of the Federal Deposit Insurance Corp. was unusual: the California Democrat isn't a member of the Senate Committee on Banking, Housing and Urban Affairs with jurisdiction over FDIC; and the agency is supposed to operate from money it raises from bank-paid insurance payments - not direct federal dollars.”

“Documents reviewed by The Washington Times show Mrs. Feinstein first offered Oct. 30 to help the FDIC secure money for its effort to stem the rise of home foreclosures. Her letter was sent just days before the agency determined that CB Richard Ellis Group (CBRE) - the commercial real estate firm that her husband Richard Blum heads as board chairman - had won the competitive bidding for a contract to sell foreclosed properties that FDIC had inherited from failed banks.”

“About the same time of the contract award, Mr. Blum's private investment firm reported to the Securities and Exchange Commission that it and related affiliates had purchased more than 10 million new shares in CBRE. The shares were purchased for the going price of $3.77; CBRE's stock closed Monday at $5.14.”

“Spokesmen for the FDIC, Mrs. Feinstein and Mr. Blum's firm told The Times that there was no connection between the legislation and the contract signed Nov. 13, and that the couple didn't even know about CBRE's business with FDIC until after it was awarded.”

“Senate ethics rules state that members must avoid conflicts of interest as well as "even the appearance of a conflict of interest." Some ethics analysts question whether Mrs. Feinstein ran afoul of the latter provision, creating the appearance that she was rewarding the agency that had just hired her husband's firm.”

Déjà vu all over again …

Apparently this is not the first time Senator Feinstein has been associated with suspicious dealings …

“Feinstein Resigns: Senator exits MILCON following Metro exposé”

“SEN. Dianne Feinstein has resigned from the Military Construction Appropriations subcommittee.”

“As previously and extensively reviewed in these pages, Feinstein was chairperson and ranking member of MILCON for six years, during which time she had a conflict of interest due to her husband Richard C. Blum's ownership of two major defense contractors, who were awarded billions of dollars for military construction projects approved by Feinstein.”

“As MILCON leader, Feinstein relished the details of military construction, even micromanaging one project at the level of its sewer design. She regularly took junkets to military bases around the world to inspect construction projects, some of which were contracted to her husband's companies, Perini Corp. and URS Corp.

“Perhaps she resigned from MILCON because she could not take the heat generated by Metro's expose of her ethics (which was partially funded by the Investigative Fund of the Nation Institute). Or was her work on the subcommittee finished because Blum divested ownership of his military construction and advanced weapons manufacturing firms in late 2005?”

For a liberal left-wing democrat, it must have been extremely hard to constantly denounce the war that was supplying herself and her husband with a handsome lifestyle?

“Feinstein abandoned MILCON as her ethical problems were surfacing in the media, and as it was becoming clear that her subcommittee left grievously wounded veterans to rot while her family was profiting from the occupations of Iraq and Afghanistan. It turns out that Blum also holds large investments in companies that were selling medical equipment and supplies and real estate leases—often without the benefit of competitive bidding—to the Department of Veterans Affairs, even as the system of medical care for veterans collapsed on his wife's watch.”

Must have been tough railing against Halliburton, who was often the only contractor suitable to perform services, and no-bid contracts while her husband was doing the same thing?

“As of December 2006, according to SEC filings and www.fedspending.org, three corporations in which Blum's financial entities own a total of $1 billion in stock won considerable favor from the budgets of the Department of Defense and the Department of Veterans Affairs:

Boston Scientific Corporation: $17.8 million for medical equipment and supplies; 85 percent of contracts awarded without benefit of competition.

Kinetic Concepts Inc.: $12 million, medical equipment and supplies; 28 percent noncompetitively awarded.

CB Richard Ellis: The Blum-controlled international real estate firm holds congressionally funded contracts to lease office space to the Department of Veterans Affairs. It also is involved in redeveloping military bases turned over to the private sector.”

I seem to remember something about Senator Feinstein and gold mining that I had heard when I was with my hunting buddies on a daytrip to the old ghost town at Bodie State Park.  And then I found this …

“On October 8, 1994 the biggest gold heist in history occurred, but this theft lacked the melodrama of a Jesse James holdup or the excitement of a Brink's truck robbery. Nary a word was reported by the media even though this thievery was committed in the light of day. The citizens that were being robbed tried to cry out for help but the lawmen wouldn't listen because unbeknownst to them they were helping the bandits gain their booty.”

“The 103rd Congress managed to accomplish more than a gang of train robbers could achieve in a lifetime when they approved the Desert Wilderness Protection Act. ‘Instead of voting on the Desert Wilderness Protection Act, Congress should be convening a criminal investigation,’ said Donald Fife, spokesman for the National Association of Mining Districts. Fife was commenting on recent information that indicates tens of billions of dollars in gold deposits and huge real estate swindles may be the motivating factors behind the act.”

“Sponsored by Senator Diane Feinstein, the Desert Wilderness Protection Act and it's companion bill known as the California Desert Protection Act create three new national parks and seventy-four new wilderness areas in the desert of California that would total 8 million acres (an area the size of Maryland). This will close this acreage to development, force out private owners within the protected area and close down mines and ranches. It would also expand the Death Valley and Joshua Tree national monuments and upgrade them to national parks. This is the largest wilderness land lockup since the 1980 Alaska Lands Act; largest ever in the lower 48 states. Senator Feinstein contends that the fragile ecosystem of the desert must be protected from development, but in reality the areas being placed into park and wilderness closures are not threatened.”

“In 1980, the California Desert Conservation Area Plan was enacted to protect the desert and it has been rigorously enforced by the U.S. Bureau of Land Management. Furthermore, the designated acreage mentioned in this bill have largely been for sale at bargain prices for over 100 years with no takers because there is absolutely no water or any prospect of water for development. It seems that the real motivation for passage of this bill lies with the special interest groups that would benefit monetarily.”

“Through a complex series of land exchanges, Catellus Corp., a subsidiary of Santa Fe Pacific, would receive land that contains some of the richest gold deposits in the world. In exchange the public gets seventy-four widely scattered tracts of desert which have found no economic use in more than a century.

“Catellus owns over 400,000 acres of worthless land in the California Mojave Desert. This land was obtained by Santa Fe Pacific and its predecessor railroad companies as part of the ‘checkerboard’ railroad lands awarded for the building of the transcontinental railroad. Santa Fe transferred these lands which have been for sale for over 100 years, over to its subsidiary, Catellus Corp. In the land swap, Catellus Corp. will receive land from decommissioned military bases. One of the bases will be the Chocolate Mountain gunnery range. Unbeknownst to the public, inside the range is the world's richest gold rift zone. Geologists estimate that the gold contained in this zone is worth between $40 to $100 billion. These are surface gold deposits which are more profitable to mine than the one-mile deep gold deposits in South Africa.”

“In addition to controlling Catellus, Santa Fe owns and operates the Mesquite gold mine located on the Chocolate Mountain rift zone. The Mesquite gold mine is one of the top ten mines in the United States and has some of the most profitable gold deposits of any mine in the world. To the north is the Chocolate Mountain gunnery range. The Mesquite open pit gold mine literally stops at the fence that borders the gunnery range.”

According to mining engineers who work at the Mesquite mine, the main gold ore body is north of the fence inside the gunnery range. Engineers allege that in 1981 and 1982, Consolidated Goldfields, which owned the mine at the time, illegally drilled into the gunnery range area to determine the composition of the ore body. The samples proved to be of high quality. According to these same engineers, beginning in the mid-1980s, military helicopters brought high ranking military officers, Congressmen and Senators to the area to examine these large gold deposits. Congressman Bruce Vento (D-Minn.) was one of those who toured the area. Engineers allege that the purpose of these tours was to come up with a way to hand these gold deposits to Consolidated Goldfields. No legal mechanism was then available to transfer this land without alerting the public to the existence of the gold. But around the same time the California Desert bill was introduced into Congress by former Senator Alan Cranston.

The California Public Employees Retirement System, (CALPERS) is a nearly $80 billion pension fund whose investment clout is heavily influenced by California leadership which includes Sen. Diane Feinstein. Several years ago, CALPERS made a $400 million investment in Catellus. Shortly after CALPERS made its investment in Catellus, the value of the stock collapsed 82%.

“Dehnert Queen, a San Francisco businessman, filed a criminal complaint in regards to this investment to U.S. Attorney Michael J. Yamaguchi and Ms. Sylvia Scott of the U.S. Securities and Exchange Commission. Queen states, in his complaint that Sen. Feinstein ‘misrepresented facts to defraud a public corporation (CALPERS), abused power and conflicts of interest to defraud State and U.S. taxpayers. In early 1993, CALPERS doubled its investment in Catellus to 41 percent...Queen contends ‘that both former Senator Cranston and Senator Feinstein acted to sponsor the Desert Protection Act in order to preserve and protect the formal agreement that then Mayor Feinstein signed with Catellus to build the Mission Bay Project in 1984, updated in 1986 and shepherded same through the City's (San Francisco) departments and commissions.’"

“Ed White, who owns a family mining business in the area is one of many whose business will now be destroyed. ‘The Sierra Club was just used, in my opinion, by Feinstein's bankers friends and the railroad or their land company Catellus, to create the public perception that these lands are fragile and threatened by development,’ said White. ‘The truth appears to be just the opposite. The scattered railroad lands that could never be developed are to be consolidated into a single block of 226,000 acres so they can be developed by Chocolate Mountain Gunnery Range Land and Mining Development.’"

“It is alleged that JLB Realty Corp. based out of Chicago, is tied to Dick Blum, millionaire husband of Sen. Diane Feinstein and that JLB allegedly will stand to make a huge profit on this development. In the name of "re-wilding" millions of acres of desert, grave financial and environmental damage will occur once the land is closed to the public.”

<To read more on this fascinating story in context> 

The Apropos Observations of one James Bond (007) …

According to James Bond: once is happenstance, twice is coincidence and three times it is definitely enemy action.

While there is little chance of a democrat-controlled Senate Ethics Committee investigation or hearing, the situation does provide yet another example of an appearance of impropriety that should be investigated on behalf of the taxpaying public.

In any event, it is not all that surprising to learn that a left-leaning liberal anti-war democrat was personally profiting from our war efforts and involved with the mistreatment of soldiers by her committee’s inattention to detail.

There is but one solution …

-- steve

Research Links …

Washington Times - Senator's husband cashes in on crisis

News & Culture in CA | Dianne Feinstein resigns

Catellus Development: The Octopus Reborn

Hunters Point Shipyard Affair

“In January of 2005, Ethics Commission investigator Richard Mo met with complainants and over the next two years received over 500 pages of hard copy and email documentation compiled by the editors of the San Francisco Bay View with assistance from Lynne Brown, Michael Boyd, Francisco Da Costa, Kevin Williams and Roland Sheppard detailing the extensive history of corruption surrounding the shipyard transfer.”

“In February of 2005, U.S. Attorney Andrew Cheng received documentation of violations of federal law involving Rep. Pelosi and Sen. Feinstein, whose husband, Richard Blum, has a financial interest in Catellus Developers, the master developer for the UCSF Mission Bay Campus, Lennar Corp. and numerous Bayview Hunters Point community non-profits.”

“Feinstein resigned from a seat on the U.S. Senate Military Construction Appropriations Committee due to conflicts of interest complaints involving her husband and has been reportedly investigated by the FBI, according to a former writer for the San Francisco Bay Guardian.”

“Cheng, in subsequent communications, referred the Hunters Point Shipyard redevelopment investigation to the Ethics Commission, the City Attorney’s division of governmental integrity and the San Francisco Division of the FBI but took no action at the level of the U.S. Department of Justice.”

“In March of 2005 the City’s Sunshine Ordinance Task Force concluded that violations of the Sunshine Act occurred during the Board of Supervisors’ enactment of the 14 measures approving development on Parcel A.”

“In March of 2005 the state’s Fair Political Practices Commission acknowledged receipt of complaints documenting financial conflicts of interest involving City officials and contractors. No action was taken.”

“In January of 2007 Congresswoman Nancy Pelosi became speaker of the U.S. House of Representatives. Her first act was a failed attempt to install Rep. John Murtha as the House majority whip in exchange for his help in the transfer of shipyard Parcel A.”

Resnick NAS 1/26/10

http://cetehama.ucanr.edu/?blogstart=36&blogtag=Water&blogasset=6362

Delta environmental review underway at UC Davis

An independent panel appointed by the National Academy of Sciences is working this week at UC Davis to review Delta water allocations, according to yesterday's Sacramento Bee. The activity doesn't directly involve ANR scientists, but the implications for agriculture in California are huge.

Sen. Dianne Feinstein asked for the review in response to requests from San Joaquin Valley farmers, including Stewart Resnick, owner of Paramount Farms, according to the Bee. Resnick's Sept. 4 letter to Feinstein says "sloppy science" contributed to the new water and species protection rules.

Resnick and other farmers have sued and mounted public relations battles to avoid giving up water to help fish, the Bee reported.

Jeffrey Mount, a UC Davis geology professor, believes the academy was asked to get involved simply because "people of great influence" don't like the rules.

"It's not a wise use of the National Academy of Sciences, in my opinion," Mount was quoted in a Bee article published last week. "It will become a sideshow. We are setting a bad precedent that will stretch well beyond the Delta."

Perhaps to emphasize the political nature of the panel's review, Sacramento Bee reporter Matt Weiser pointed out in his story that conservative Democratic Congressman Jim Costa of Fresno was allotted 20 minutes to speak to the panel on Sunday but spoke for an hour. As a result, Mount, a nationally known expert on the Delta, was forced to squeeze his one-hour presentation into 30 minutes.

Costa told the panel the fish protections have harmed his constituents and are based on "flawed science."

Mount said he is concerned the NAS is not the right body to review the federal fish protections. NAS is a science entity, but the rules are somewhat political.

The panel will continue to meet in Davis through Thursday.

Posted on Tuesday, January 26, 2010 at 10:17 AM

How Limousine Liberals, Water Oligarchs and Even Sean Hannity Are Hijacking Our Water Supply - Reprint Yasha Levine Alternet.org

How Limousine Liberals, Water Oligarchs and Even Sean Hannity Are Hijacking Our Water Supply

November 9, 2009 by Yasha Levine

http://www.alternet.org/story/144020/how_limousine_liberals%2C_water_oligarchs_and_even_sean_hannity_are_hijacking_our_water_supply?paging=off&current_page=1#bookmark

A group of water oligarchs in California have engineered a disastrous deregulation and privatization scheme. And they've pulled in hundreds of millions of taxpayer dollars without causing much public outrage. The amount of power and control they wield over California's most precious resource, water, should shock and frighten us -- and it would, if more people were aware of it. But here is the scary thing: They are plotting to gain an even larger share of California's increasingly-scarce, over-tapped water supply, which will surely lead to shortages, higher prices and untold destruction to California's environment.  
California is in year three of a fairly nasty dry spell. And some very powerful forces are not letting this mini-crisis go to waste, fiercely lobbying Governor Schwarzenegger and Senator Dianne Feinstein, paying off corporate shills like Fox News' Sean Hannity and capitalizing on people's fear of drought to push a massive waterworks project that will pump more water, build more dams and keep sucking the state's rivers dry. The fearmongering schtick goes like this: California is on the brink of a water crisis of cataclysmic proportions, with a life-or-death struggle just around the corner, pitting small farmers who want to save their livelihood against big city elitists who care more about the environment than they do about American jobs. But in reality, this drought hysteria is nothing more than political theatrics, a scare tactic backed by big agribusiness to strong-arm California voters into building a multi-billion dollar system of dams and canals that would not really help small farmers -- of which there are very few anyway -- but would deliver more water to corporations, subsidize their landholdings, fuel real estate developmentand enable large-scale water privatization. At its core, it is a war waged for water by California's megarich on everyone else.  

The leader of these recent water privatization efforts in California is a Beverly Hills billionaire named Stewart Resnick. Stewart and his wife, Lynda Resnick, own Roll International Corporation, a private umbrella company that controls the flowers-by-wire company Teleflora, Fiji Water, Pom Wonderful, pesticide manufacturer Suterra and Paramount Agribusiness, the largest farming company in America and the largest pistachio and almond producer in the world. Roll Corp. was ranked #246 on Forbes' list of America's largest private companies in 2008 and had an estimated revenue of $1.98 billion in 2007. 

They are a limousine liberal power couple. Hyperactive in politics, business and philanthropy, the two raise huge amounts of cash for the Democratic party, donate to the arts, support education and hobnob with influential progressives like Arianna Huffington and the anti-global warming activist and producer of An Inconvenient Truth, Laurie David. Stewart Resnick gave over $350,000 to the Gray Davis campaign and various anti-recall groups between 2000 and 2003, a favor Governor Davis returned by appointing Resnick to co-chair his agriculture-water transition team. A shrewd businesswoman, Lynda is credited with single-handedly creating the pomegranate health fad to sell her Pom Wonderful and catapulted Fiji Water to its recent success, one that environmentalists love to hate as was recently documented inMother Jonesby Anna Lenzer. 

But there is a gaping hole in most accounts of the jet-set Baby Boomer couple: their company, Roll International, is one of the largest, if not the largest, private water brokers in America. Through a series of subsidiary companies and organizations, Roll International is able to convert California's water from a public, shared resource into a private asset that can be sold on the market to the highest bidder. 

It all comes down to Stewart Resnick's involvement in the creation of a powerful but little-known entity called the Kern County Water Bank -- an underground water storage facility at the center of a plan to bring deregulation to California's most important public utility: water. 

According to a 2003 Public Citizen report titled "Water Heist," the Kern County Water Bank is an underground reservoir in the hottest, driest, southernmost edge of the Central Valley with a capacity of 1 million acre-feet, enough to convert the entire state of Rhode Island into a swampland one-foot deep or supply the City of Los Angeles with water for 1.7 years. The water bank was envisioned in the late '80s by the Department of Water Resources as a safeguard against prolonged drought. During wet years, it would serve as a repository for excess water coming in from Northern California and the Sierras, and pumped out in dry years. California spent nearly a hundred million dollars to develop the underground reservoir and connect it to the state's public canals and aqueducts, but in 1995, California's Department of Water Resources suddenly, and without any public debate, transferred it to a handful of corporate interests. 

Here is how Los Angeles Times writer Mark Arax described it in 2003:

The story of how the state's largest water bank -- jump-started with $74 million in taxpayer money -- ended up as an integral piece of the private empire of Stewart Resnick begins with a lawsuit, or at least the threat of it.

A seven-year drought ending in the early 1990s pitted Southern California water contractors, such as the Metropolitan Water District, against agricultural contractors, such as the Kern County Water Agency. Each region made its case to the state, telling why it deserved to receive the water guaranteed by long-standing contracts. In the drought's worst years, urban users got 30% of the draw, while Kern farmers received less than 5%. (However, doesn't WWD's CVP contract specifically state it only gets excess water made available in excess or wet water years? Seems to me MWD should have insisted upon contractual enforcement in its senior water rights claim.)

In 1994, agricultural and urban interests threatened to sue the state for nondelivery. The main parties gathered in a closed-door meeting in Monterey to hash out a settlement. Public interest groups, environmentalists and smaller water contractors -- locked out of the meeting -- cried foul.

When it was over, the very flow of California water had been redirected.

Redirected, as in "privatized."

The details of the transfer are complicated and opaque, but, put simply, the State of California transformed a small number of corporate farmers into a de facto water oligarchy by signing over a massive water holding facility and the many billions of gallons of government-subsidized water that it could store. Arcane and trivial as it may seem, the transfer of the water bank circumvented the usual resale restrictions placed on subsidized water purchased from the state. After the water enters the Kern County Water Bank, it stops being a public resource that could otherwise be used to irrigate crops locally or sold on the free-market to the highest bidder. The transfer privatized water without actually needing to do so explicitly. 

But the secretive crew that met in Monterey did more than just privatize one underground water reservoir. California's water oligarchy hammered out a plan that put them at the controls of the state's water market and gave them the ability to create non-existent water out of thin air. 

The Monterey Amendments, as the revisions that emerged from the closed meetings came to be called, established a legal framework that, for the first time in history, made unregulated water commerce in California possible by creating the concept of "paper water," which could be traded, transferred, divvied up and put on the books as easily as money in the bank or collateral on a loan without anyone having to transfer a drop. It proved to be a blessing for land speculators during the housing boom that was just around the corner.

Every large real estate development in California has to prove that a secure water source will be available for the project decades into the future. It was a requirement that, until "paper water" came along, posed a serious hurdle to developers building low-income suburban paradises in the Southern California desert. Water is not a easy resource to come by in the West. Underground sources are being depleted at a record pace and the state's aqueduct system, which pumps rainwater and snow that melts hundreds of miles south, does not have the capacity to support both exponentially growing sprawl and massive farming operations out in the desert. Even if there were an abundance of virgin rivers to dam and redirect, the hundreds of millions of dollars such projects would cost would eat into the fat profit margins of real estate developers and bring suburban sprawl expansion to a crawl. The "paper water" market banished this pesky problem once and for all. From the mid-90s on, real estate developers could satisfy all their hydration needs by shopping for "paper water," meaning that they were able to satisfy planning regulations simply by convincing a city or county to purchase virtual water rights. They weren't securing a real water supply, or even transferring a single ounce. But it didn't matter as long as the water was on their books. 
Most urban dwellers would not be happy with the water even if it did arrive. Because private water storage facilities are not subject to public oversight, "paper water" merchants are not required to adhere to basic water quality requirements, or even to test it. Reports of polluted water being pumped out of private banks and contaminating clean water flowing in the aqueduct are rare only because no one cares to look. In 2008, water pumped out by one of the stakeholders in the Kern bank, Semitropic, had arsenic levels six times higher than federal EPA limits, which caused a plume of arsenic-tainted water to flow south down the state aqueduct towards Los Angeles County and surrounding districts, according to the Antelope Valley Press. (AND, Semitropic is the entity holding the permits for Delta Wetlands Project).

But development-crazed Southern California does not seem to care, and neither do the water merchants. Real estate development needed "paper water" as a person in a vegetative state needs their IV drip.

And so, with no warning and negligible media attention, the Monterey Agreements created the strange, new and unregulated "paper water" market, not unlike mortgage-backed securities and other exotic debt instruments dreamed up by Wall Street, if only because the "paper water" market trades in pure fantasy and is built on deception. For decades, California's water authorities have been in denial about the amount of water they can deliver to their customers. Contractually, the state is obligated to deliver 4 million acre-feet a year. (Los Angeles uses roughly 600,000 acre-feet a year). But in reality, the state can only deliver half the water it promises. Which means that half of the "paper water" being traded on the open market simply does not exist, and never has. And everyone who deals in water knows it, too. Naturally, this posed a problem. Why would anyone buy water that didn't exist?

The Monterey Amendments got around this problem by making a few legal alterations that made the state explicitly accountable for its original water contracts, regardless of whether there was water or not. This gave buyers the confidence to fuel real estate developments with non-existent water because the government was contractually obligated to bail them out, rain or shine. Where will the state get that water? Well, it could take it away from small farmers, rural communities and anyone else who is poor and politically unconnected. 
California's newly established "paper water" market was a speculator's wet dream. It was a scam opportunity too promising for the deregulation con artists at Enron to pass up. A few years after the Monterey Amendments, Enron apparently took a cue from the Kern bank, set up a water division, bought up a huge chunk of land in the Central Valley that sat atop a natural underground reservoir and started working on a water bank of their own. But Enron's snake oil brain trust was scheming on a bigger, more global level. Still in the grips of the Dot Com Bubble, Enron wanted to spark an Internet-based water trading revolution and launched a site that they hoped would become the etrade.com of H20. Called Azurix, it would function as an "exchange on the Internet for buying, selling, storing and transporting water in the West, hoping to make water a traded commodity much like natural gas or electricity," the Wall Street Journal wrote in 2000.

An e-water market where people could buy, sell, trade and speculate on water like any other tradeable commodity? It was the kind of delusional that only people in the grips of a speculative boom centered on the limitless possibilities of a technological revolution could believe in. To think that you could wake up in Shanghai, check out a few weather forecasts and purchase a few million gallons of California water, aiming to buy wet and sell dry -- a scam built on insane dreams. A few years later, Azurix went belly up. 
But while Enron's futuristic vision of water speculation may have come before its time, a more modest version of the water trade was thriving in the Golden State, and it apparently owed it all to one man: Stewart Resnick.   

Public Citizen's "Water Heist" report uncovered evidence that the Beverly Hills farmer was instrumental in the privatization of the Kern Water Bank. Not surprisingly, Resnick's Paramount Farms emerged with a majority stake in the venture. In fact, Resnick's farm empire controls the Kern Water Bank so thoroughly that it is not easy to discern where Paramount ends and the Kern Water Bank begins. The Kern Water Bank Authority, which administers the bank, is located in Paramount's corporate office building outside of Bakersfield, California.  

This has brought in massive profits to owners of the Kern bank at taxpayers' expense, and frequently involve nothing more than buying water at subsidized rates from the state, then turning around and selling it back to a different government agency for a tidy profit. 

Just as the Federal Reserve allows banks to borrow money from taxpayers so they can reap huge profits by lending it right back to the masses at a higher rate, the Kern bank allows a handful of corporate farmers to sell a public resource back to the public at markup. According to Public Citizen, in 2001, the Kern County Water Bank bought subsidized water from the State Water Project at $161 an acre-foot and flipped it back to the state's Environmental Water Account for $250 an acre-foot, making a cool $6.3 million for its owners -- just for having the right friends in the right places. 

The Environmental Water Account (EWA) was set up in 2000 by the state of California to protect salmon populations in the Sacramento Delta. In dry periods, when Delta water levels would drop below a critical level and pumping stations would start slurping up too many fish and grinding them into mush, the state would slow down pumping and supplement water deliveries by buying back water from whoever had any to spare. The plan looked good on paper, but it turned into a very expensive and useless failure -- but only for us and the fish. For members of the Kern County Water Bank, who raked in nearly $40 million dollars by reselling water to the EWA from 2001 to 2004, it worked out pretty well.

As majority stakeholder, Resnick took the lion's share of the profits. A recent investigation by the Contra Costa Times revealed that even as its fish populations teetered on the brink of extinction, California pumped "unprecedented amounts of water out of the Delta only to effectively buy some of it back at taxpayers expense." From 2000 to 2007, California spent $200 million on buying water for the EWA, of which Stewart Resnick's subsidiary companies skimmed 20 cents of every dollar for a total profit of $40 million in seven years. With such gracious help from taxpayers, it is no wonder the Resnicks were able to build such a successful business empire.

"For a program that was supposed to benefit the environment, it apparently did two things -- it didn't benefit the environment and it appears to have enriched private individuals using public money," said Jonas Minton, a water policy expert with the Planning and Conservation League, a California environmental advocacy group, as quoted by the Contra Costa Times. 

In a 2008 interview with the New Yorker, Stewart Resnick said he initially got into farming in 1978 as a hedge against inflation. Either he was feigning naivete, or he must have quickly realized that he stumbled upon the money-making opportunity of his life, one that helped grow Paramount Farms into an agribusiness empire.

While California's farming industry was steadily shedding land and farms all through the 90s, the Resnicks were expanding production and acreage, nearly doubling their cultivated land holdings just in the three years after the Monterey Agreements. 

But the profiteering off California's environment-friendly water program by Resnick and the rest of the Kern Water Bank crew is chump change compared to the  profits water merchants like him can make by selling paper water to real estate developers in the semi-desert wastelands of Southern California.

Take the deal that went down this summer between a farmer with a stake in the Kern bank and a McTractHome paradise in the Mojave Desert, 100 miles east of Los Angeles. For roughly $73 million, the Mojave Water Agency acquired permanent rights to 14,000 acre-feet of water pumped out of the Sacramento Delta and delivered via the State Aqueduct, enough water to flood an area the size of San Francisco six inches deep or hydrate up to 30,000 families for a whole year. 

The farmer selling the water was not really a "farmer" in the poor, homesteading, buck-toothed sense of the word, but a private Bay Area-based company called Sandridge Partners owned by the Vidovich family. In addition to running a lucrative cotton and almond growing operation in the heart of the Central Valley, the Vidoviches also control a small real estate empire in the Silicon Valley, building and managing estate developments: office complexes, condominiums, mobile home parks, hotels and shopping centers.

John Vidovich, the current patriarch of the family business, and his wife Lydia live in an $11.4 million Los Altos Hills home. Hilly, wooded and overlooking the bay just south of San Francisco, it's one of the ritziest places to live in Northern California and the 8th most expensive zip code in America. (The president of Resnick's Paramount Farms, Joseph MacIlvane, rubs shoulders with the Vidovich family, sharing a post on the board of directors of the Dudley Ranch Water District, a private water district that owns 9.62% the Kern bank, along with John Vidovich.) 

Despite -- or maybe because of -- the family's extreme wealth, Sandridge Partners is one of the top welfare queen-farmers in the country. In 2007, it received $1 million in federal farm subsidies, more than any other farmer that year, raking in an additional $6.8 million between 1995 and 2006, according to the Environmental Working Group. Known as "direct payments," the subsidies are made each year mostly to growers of corn, wheat, rice and cotton, with payout amounts based on past production, sometimes even regardless of whether the crops are still being grown.

But their $73-million water deal shows that farm subsidies aren't the only, or even the most, lucrative handout that has the Vidoviches living well. The money paid out via farm subsidies pale in comparison to the massive profits that can be reaped from simply reselling the heavily taxpayer subsidized water they receive from the state.

According one state water official, the Vidovich's $5,200 per acre-foot deal with the Mojave Water Agency was nearly double previous record price paid for water in California.

Just look at these profit margins: these days, Central Valley farmers buy water from California's Department of Water Resources for a heavily-subsidized $100 to $500 per acre-foot, while city slickers in San Francisco pay around $8,500 for the same water. With this kind of discount, Vidoviches could score a ten- to fifty-fold spread on their purchase-to-sale price. Even if they paid the maximum price of $500 per acre-foot, the water they sold to the Mojave Desert for $73 million would have only cost them $7 million. That's $66 million in pure profit, and all they have to do is let a couple of hundred acres of almond groves wither and let California taxpayers, their ritzy Los Altos Hills neighbors included, fill up their bank accounts. 
Shocking as this textbook example of transfer of wealth is, it is neither an isolated incident nor a freak loophole. It was the intended effect of the deregulation and privatization of water hashed in Monterey almost 15 years ago, which transformed water into a truly liquid asset that could be traded with ease on the market. (In 2002, the Sacramento Bee estimated that members of the Kern County Water Bank made at least $128 million from water sales to other cities and counties, which the paper admitted was an incomplete and low-ball figure.)

"Think of the Bank of America, the way it operates with dollars, that's the way we operate with water," said Jonathan Parker, general manager of the Kern Water Bank Authority. "What we do is provide a service. We store water at cost and then take water out of the ground, at cost. They pay us to provide that service in the least expensive manner." 

Parker was quoted in 2003. With all the bank bailouts that happened since then, the money-bank to water-bank analogy works even better. The Kern Water Bank shifts the cost for its water onto taxpayers and shifts all of the profits it makes by selling the water to itself. As it turns out, the money-making ideology of "nationalizing losses, privatizing profits" is no longer limited to Wall Street, and hasn't been for a long time. It's all part of the business plan for California's corporate farmers, and a glimpse into the future of California's water trade. 

This is the backdrop against which the hysterics and fearmongering of California's water debate are being played out. The drought has been getting increasing political and media attention in recent months. At the core of the discussions are plans for a multi-billion dollar Peripheral Canal, a huge aqueduct that would be constructed to bypass the dying Sacramento Delta and tap into fresh water further upstream with supposedly less harm. It sounds nice on paper. But in reality, the Peripheral Canal is a water privatization con that would move water over to Central Valley water bankers and balloon California’s already over-leveraged "paper water" market.

Governor Schwarzenegger has been trying to push the project through California's legislature for months, and has received ample support from both sides of the isle. In September, Democratic Senator Dianne Feinstein backed the governor and badgered the Obama administration to step in and help California's struggling farmers, going as far as including a letter personally written by Stewart Resnick in one of her communiques. In it Resnick went after Obama officials for siding with environmental interests over those "struggling" farmers. That same month, second-rate FOX news anchor Sean Hannity jetted to Fresno to lead an AstroTurf campaign -- complete with paid Latino "protesters" and funded by the PR firm Burson-Marsteller, which has done work for a wide range of evil clients, from the tobacco industry to Blackwater to the junta in Argentina -- and push for exactly the same thing. Hannity isn't losing any sleep for backing Resnick's "liberal" agenda. The Peripheral Canal is backed by powerful corporate interests regardless of party affiliation.

Of course, the profit drive of corporate America is relentless. And we, the people, have short lives and short memories. And that’s the funny thing: this isn't even a new scam. "The Peripheral Canal had been a top priority of the water interests for forty years," wrote the late and much admired Marc Reisner in 1986 in his book Cadillac Desert, one of the most eye-opening and sweeping histories of water use in the American West. It was part of Governor Pat Brown's original master plan for the California Aqueduct, the baby he pushed through in 1960. His son, Jerry Brown tried to finish what his dad started when he took the governor's seat in the mid-late 70s. But Gov. Brown's attempt to get it passed collapsed amid a worsening economy and a wet year.

Reisner chronicles the infighting, corruption, fraud and blatant media manipulation of public opinion that took place when corporate interests launched an all-out, yet ultimately unsuccessful, blitz to convince the Californian people that apocalypse would be at hand if the Peripheral Canal was not built 25 years ago.

Now, three decades later California's legislature is trying to hammer out exactly the same plan, which is as much about opening up more farm land as it is about securing more paper water to fuel suburban sprawl in the desert. And the corporate powers-that-be are using the exact same strategy -- fear -- to convince California taxpayers to finance their personal wealth.