Feinstein Resigns!

Duh. It isn't corruption when Democrats do it.

It's like all those comments in the leftosphere about "Pedro Gonzales" - because remember, kids, it's not racism if you're a liberal.

Why hasn't this been front-page news for the last four years?

Because it is business as usual, of course. As I recall, Tom Daschle's wife, who was a lobbyist, got similar favors. I recall a story that the Senate required the TSA to buy the single most expensive and least reliable baggage scanning machine, solely because his wife was a lobbyist for the manufacturer of that particular lemon. A small example, to be sure, but it's always nice to know that when it comes to protecting air travelers, the Senate has it's priorities right.

Feinstein was the ranking member for six years, but the chairperson only since January. Senator Kay Bailey Hutchison was the chairman the previous two years. Feinstein's chairmanship lasted less than a month?

Short story version: Sen. Feinstein's husband DOES NOT own two major military contractors.

Long story version: The Feinstein/Blum kerfuffle is a faux scandal, and the story repeated here is way off the mark. And I will say at the outset that I'm a proud member of the Vast Right Wing Conspiracy (New York City chapter).

I've spent over 20 years in the securities and investment management business, and while I don't personally know Richard Blum, I know his business and reputation. Blum runs an investment management business--he's a fiduciary for the owners of the assets he manages. If you want to call Feinstein's relationship with her husband's fiduciary responsibilities an "appearance of a conflict of interest," then good for her resigning when the Democrats retook the majority. This is not a scandal--irrespective of any comparison to other faux scandals anyone cares to make for partisan purposes.

Let me be clear, Richard Blum doesn't own Perini, URS, Boston Scientific, Kinetic Concepts (all publicly-traded companies), and billions of dollars (from government contracts) are not going into the "family business." The "family business" is Blum Capital Partners LP, and related-named entities that are investment management fiduciaries. For the record, Blum is chairman of the board of directors of CB Richard Ellis, a real estate services company--a private company for which such "public" information is not readily available. Blum's day-to-day responsibilities are overseeing an investment management business, not managing the operating businesses in which he has invested on behalf of others. Admittedly, a significant portion of Blum's personal wealth will be tied up in his investment management business, as well as co-invested along with his clients' assets--which is the standard, and expected, practice in the private investment management business.

Furthermore, a review of the most recent proxy statement for Perini (http://www.sec.gov/Archives/edgar/data/77543/000007754306000047/proxy_2006.htm) clearly refutes the idea that Blum, in concert with CEO Ronald Tutor, control 75% of the voting stock of Perini, as reported by The Center for Public Integrity (http://www.publicintegrity.org/wow/bio.aspx?act=pro&ddlC=45).

The reports on this matter is badly researched, and clearly, the issue of how the investment management business operates is not understood, as it is flagrantly misrepresented. Such ill-informed critiques, and the repetitious linking thereof, further fosters a hyper partisan environment.

And I'd be happy to fill in the gaps in the knowledge surrounding this topic--follow-on questions welcomed.

(Sorry about the link format.)

Pat--I'll try to answer your general question, but first let me restate why this isn't a scandal--at least in the way the baseline story describes it: Richard Blum does not own or control the two companies (Perini and URS) as alleged. A review of the most recent proxy statements will demonstrate they (the Metro) have the facts wrong. They have conflated owning shares with owning the company, IMO.

(Also, I believe it may have been pointed out above, but it bears repeating, as Sen. Feinstein was in the minority, she didn't chair the committee for the last six years. So I think the article demonstrates a rather creative element when dealing with the facts.)

Now, your question: "[T]o what extent [does] Sen. Feinstein's husband benefit financially when military contracts are awarded to the companies which he represent[s] or manages pursuant to his investment management business?

Let start with some basics: Richard Blum is in the investment management business--Blum Capital Partners, LP (herein "BCP"). (Visit their web site to learn more.) BCP's basic mission is no different than Fidelity, Vanguard, T. Rowe Price, et. al., in offering a pooled, diversified investment vehicle in which individuals and institutions turn over the fiduciary responsibility for their assets to a professional manager. The notable difference is a form over substance distinction, whereas Fidelity, et. al., offer mutual funds to the public, BCP's investment offerings are made via private means. In a nutshell, Fidelity can advertise to the public at large, and BCP cannot.

Let me make a caveat regarding the phrasing in your question, to wit: "...when military contracts are awarded to the companies which he represent[s] or manages pursuant to his investment management business." BCP does not "represent" or "manage" companies that receive military contracts. BCP works for, and on behalf of, their clients, and does not manage companies. (At least as regards the companies so identified in the Metro article.)

Now, let me answer the first half of your question: How does Sen. Feinstein's husband benefit financially...pursuant to his investment management business?

The simple answer is based on how investment managers are compensated--on the assets under management. For example, if the price of a stock goes up 10%, then the assets will have risen by 10%, and consequently the investment managers fee will rise by 10%--with equally corresponding results when prices decline.

This is a basic concept: An investment manager selects securities, the securities appreciate in value, assets grow, compensation goes up, and with good performance the manager can attract new investors and new assets, and compensation will also increase with these increased assets--and with bad performance, assets decline and investors depart with their assets, leaving the manager with shrinking--even zero--compensation. It's a dog-eat-dog business. Good managers are well compensated, poor managers are dime-a-dozen.

Now the deeper question: Does BCP benefit when companies in which it invests are awarded military (or government) contracts? The short answer is: Yes, but. BCP benefits in the same way as does every other investment manager--through increased management fees--due to an appreciation in the stock price that benefits all stockholders. There is nothing nefarious in this sort of relationship.

The long answer includes an important assumption--the company awarded the contract successfully profits when fulfilling the contract. Look at Halliburton's (now Kellog, Brown and Root) experience with government contracting over the last 3-4 years--you might not find the path particularly rosie, or profitable. While large contracts might appear as some sort of government give-away, it's the profits that count, and government contracting is known for extremely long lead times, and low margins.

Finally, Richard Blum has been an investor in URS for some 30 years, this is not the mark of some flash-in-the-pan, day-trading, get rich quick scheme, based on access to some information or influence not commonly available. The alleged conflict of interest only makes sense if Perini and URS were privately owned by Blum, and Sen. Feinstein was awarding contracts to these companies. Anyone with a bit of knowledge of federal government contracting and public company reporting knows that that story--as alleged--doesn't pass the smell test.

To see this story--from some left-wing California weekly rag--picked up on all sorts of right-wing web sites (e.g. The Corner, Captain Ed) is disturbing.

Hope this helps.

Richard McEnroe: Pronounce the verdict, then examine the evidence? Look, I think it makes sense for politicians to avoid even the appearance of a conflict, so as I said above, good for her for resigning from the committee. But the act of resigning shouldn't automatically result in a conclusion of wrongful conduct. Examine the record, and report the facts, but the cited article made up their own facts: "Richard C. Blum's ownership of two major defense contractors"--he doesn't. Let's not play that game.

Tully: So you're accusing Blum of buying low and selling high? Successful investing is a crime? Or are you accusing Blum of illegally possessing a crystal ball that told him, in 2000, to invest in Perini because of the military contracts that would flow from the invasion of Iraq in 2003? Scandalous, I know. I blame Bush.
;-)

Pat: You've zeroed in on the operative question: Did "Sen. Feinstein's actions, as chair or ranking member of the subcommittee, have a direct impact on his (and their) personal finances"? The answer is no. (Even correcting for the falsities alleged in the cited article.) At best, it could be suggested that she had an indirect impact, on an indirect financial interest--but then nearly every action will have an indirect impact, so what conclusion do we draw? Do we disqualify Senators when their spouse makes a living in the investment management business? Nearly every action taken--legislation that regulates, taxes imposed, spending appropriated--will affect businesses, those who have invested therein, and the investment managers whose income is derived from their fiduciary responsibilities.

I think you can see where this leads. Might just as well disqualify all the lawyers, because, well, their incomes are affected by the laws so enacted... (Perhaps not a bad idea, but rather impractical.) But then you'd still be stuck with Sen. Feinstein, as she's not a lawyer.

Cheers.