We all know the story by now.

Former Speaker of the House–and current Minority Leader–Nancy Pelosi and her husband, Paul Pelosi, bought 5,000 shares of Visa stock at a preferential IPO price in 2008. That same year, Speaker Pelosi failed to support a bill that would have protected consumers and amended anti-trust laws so that credit card companies would have to negotiate their “swipe fees.”

The Pelosi-Visa IPO story has made the rounds ever since Breitbart editor Peter Schweizer revealed the connection in his new book, Throw Them All Out, which was featured on CBS’s 60 Minutes in November (Schweizer’s book and the CBS report were targeted by Pelosi’s Congressional office in a November 13 statement).

According to Schweizer, the Pelosis were granted the IPO opportunity from Visa just before Nancy could supported the Credit Card Fair Fee Act, a bill which had cleared the Judiciary Committee and reportedly had 77 percent support from the American public (according to the Merchant’s Payment Coalition). If passed, the bill would have dented Visa’s profits by reducing so-called “interchange fees,” the 1 to 3 percent charge retailers pay Visa when customers use their credit cards for purchases. The four major credit card companies reportedly collected $48 billion in 2008 from interchange fees.

Although Pelosi has been known to crusade against credit card companies, disclosure reports indicate that she and her husband bought between $1 million and $5 million of Visa stock (Congressional members are only required to report ranges, not specific amounts) at the IPO price of $44 a share. Two days later, the stock soared to $65 a share, producing a 50 percent profit. The Pelosis then bought more Visa stock, and by the time they engaged in their third purchase on June 4, 2008, Visa was selling for $85 a share.

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Yesterday, I wondered how Nancy Pelosi and her husband were able to participate in Visa’s IPO in March 2008. It is very difficult for an individual investor to participate in IPOs, especially those which are heavily ‘oversubscribed’ as Visa’s was. It was the hottest IPO of the year, drawing what one analyst described as “extreme demand.” So, this tidbit from Newsweek’s story on Visa’s campaign to curry favor with Pelosi caught my attention:

Separately, Pelosi’s husband, Paul, a major investor in California, got a lucrative phone call from his personal broker—a pre-screen invite in March 2008 to take part in Visa’s $17.9 billion public stock offering, at the time one of the hottest stock offerings in an otherwise soft market. The initial-public-offering price was $44 per share and was limited to institutional investors and a group of specially selected individuals. Almost $18 billion was made available in public stock to preselected investors. Paul Pelosi made the cut.

Wait, what? He was called and ‘invited’ to purchase shares in the IPO? Seriously? Let’s isolate one particular sentence from this graph:

The initial-public-offering price was $44 per share and was limited to institutional investors and a group of specially selected individuals.

Specially selected individuals? Selected by whom? And, for what reasons, specifically?

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From Newsweek:

The effort began in earnest in late 2007. Ogilvy, one of Visa’s outside lobbying firms, picked off one of Pelosi’s government-affairs advisers, Dean Aguillen, who had close ties in the speaker’s office. Aguillen quit the speaker’s team and went to Ogilvy in December 2007. By law he was unable to lobby his former boss for a year, but he immediately registered to lobby Congress on the credit-card issue, offering guidance to other lobbyists on Visa’s team during strategy sessions, according to a lobbyist present in strategy deliberations.

Visa wanted to meet with Pelosi and her top aides to make the case against the swipe fees. That summer Visa’s outgoing CEO, Carl Pascarella, bumped into Pelosi on the street in the San Francisco neighborhood they share, and she arranged for him to contact her Washington office for a meet-and-greet, according to sources families with the encounter.

Around the same time—on July 21, 2008, to be exact—Pelosi’s reelection campaign received a $1,000 donation from Visa’s political-action committee. Two days later, according to Pelosi’s office, the speaker met Pascarella and the incoming Visa chief executive, Joe Saunders, in her Capitol Hill office. The three exchanged pleasantries and no specific legislation was discussed, according to Pelosi’s office.

Aguillen, for his part, also contributed $1,000 to Pelosi and another $1,000 to the Democratic Congressional Campaign Committee during the first half of 2008.

Separately, Pelosi’s husband, Paul, a major investor in California, got a lucrative phone call—a pre-screen invite in March 2008 to take part in Visa’s $17.9 billion public stock offering, at the time one of the hottest stock offerings in an otherwise soft market.

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Last night, 60 Minutes aired its report on possible insider trading by Members of Congress. A principal focus of the report was House Minority Leader Nancy Pelosi and her participation in an IPO of Visa, one of the hottest IPOs in recent years. Reporter Steve Kroft questioned Leader Pelosi recently at a press conference about her investment and its possible impact on credit card legislation before the House during her term as Speaker.

I will have much more to say on this soon, as the legislative maneuvering around the recent credit card bill is a rich narrative and suggests there may be something to Kroft’s suspicions. For now, though, I have a more fundamental question: How did Nancy Pelosi get access to Visa’s IPO in the first place?

Participation in a stocks IPO, i.e. Initial Public Offering, is one of the more sought after trades on Wall Street. Often, an IPO investor is able to get into a stock at a relatively low price and realize an almost immediate gain once trading commences, especially if the IPO is “hot” or, rather oversubscribed, meaning more investors wanted shares than were available. Visa’s IPO was blockbuster-level “hot.” As reported by The New York Times:

Visa‘s blockbuster initial public offering is currently oversubscribed for its expected trading start on March 20, Scott Sweet of the research firm IPO Boutique told MarketWatch.

Mr. Sweet told the publication that the I.P.O. is drawing “extreme demand.”

It is very difficult for any individual investors to participate in an IPO, as most of the shares are reserved for major brokerage clients, institutional investors and pension funds. It is so difficult, in fact, the SEC has published an “FAQ” on why it is so difficult for individual investors to participate in IPOs:

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Former Speaker of the House–and current Minority Leader–Nancy Pelosi apparently bought $1 million to $5 million of Visa stock in one of the most sought-after and profitable initial public offerings (IPO) in American history, thwarted serious credit card reform for two years, and then watched her investment skyrocket 203%.

The revelation appears in Throw Them All Out, the new book by investigative journalist and Breitbart editor Peter Schweizer, which was the focus of 60 Minutes on CBS this evening, and which is featured in this week’s issue of Newsweek.

Schweizer’s investigation of Pelosi and other members of Congress–from both parties–raises a critical question:  should it be legal for lawmakers to buy stocks in companies directly affected by their legislative efforts?

In early 2008, Nancy Pelosi and her real estate developer husband, Paul, were given an opportunity to buy into a Visa IPO. It was a nearly impossible feat–one that average citizens almost certainly could never achieve. The vast majority of purchase opportunities went to institutional investors, large mutual funds, or pension funds.

Despite Pelosi’s consistent railing against credit card companies, on March 18, 2008, the Pelosis bought between $1 million and $5 million (politicians do not have to report the exact amounts, only ranges) worth of Visa stock at the IPO price of $44 per share. Two days later, the stock price rocketed to $65 per share, yielding a 50% profit. The Pelosis then bought Visa twice more. By their third purchase on June 4, 2008, Visa was worth $85 per share.

How did Nancy Pelosi snag one of the most coveted initial public offerings in history? The facts are still emerging. Yet according to Schweizer, corporations that wish to build congressional allies will sometimes hand-pick members of Congress to receive IPOs. Pelosi received her Visa IPO almost two weeks after a potentially damaging piece of legislation for Visa, the Credit Card Fair Fee Act, had been introduced in the House. If passed, the bill would have cut into Visa’s profits substantially by lowering so-called “interchange fees,” the 1% to 3% charge retailers pay Visa when customers use Visa cards for purchases. Interchange fees are a critical source of revenue for the four credit card companies–$48 billion in 2008, to be exact.

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In July of 2010, Barack Obama signed the Dodd-Frank bill into law. Forcing this unpopular piece of legislation upon the American people was akin to tossing a hand grenade of regulation into the banking industry and ducking to avoid the inevitable splatter. The problem is that instead of only damaging the profits of the people that Barney Frank claimed were responsible for the 2008 fiscal meltdown, the shrapnel went into the general populace. Those Americans who enjoyed the benefits of their banks debit rewards programs will find that particular perk is becoming extinct.

So what does this mean to the average American? Fall starts the season where consumer spending ticks up dramatically. We are spending money to send our kids back to school. Halloween has also become a bigger ticket holiday for many of us and of course there is the spendgasm of Thanksgiving and Christmas. Millions of people would accumulate points and use those during this time to subsidize the cost of school supplies and the slew of fast approaching holidays. For those people the end of these rewards programs takes literally hundreds of dollars out of their pockets.

The culprit in the Dodd-Frank bill that resulted in many banks pulling back their debit rewards programs is the Durbin amendment. In a nutshell, each time your debit card is swiped at a store or restaurant, that merchant pays a transaction fee. The benefit to the merchant in paying this fee is that they get to accept your card. That is why the door of most establishments displays the Visa, MasterCard, American Express, and other logos from financial service companies. The more methods of payments they accept the deeper their pool of potential customers.

There is no doubt that a business would do itself great damage by not accepting credit or debit cards with the Visa or MasterCard logo on it. On the minus side, they must pay for this privilege. The purpose of the Durbin amendment was to put a cap on this transaction fee, and limit the profits that the banks could make from merchants.

According to the Durbin Amendment, a hard cap of 12¢ per transaction will be put into place. This replaces the previous method of calculating transaction fees based upon the cost of the item. Before the Dodd-Frank bill, banks would charge a transaction fee of approximately 1% of the total cost of the goods or services that had been purchased. The 12¢ rule is now in play whether you are buying a Cadillac with your card, a computer or a can of Mr. Pibb.

According to J.P. Morgan, this cap will cost them over a billion dollars in lost revenue. In fact many banks claim that 12¢ is too low, and that it costs them more than that to process each transaction. In short, the Durbin amendment removes the incentive for banks to encourage their customers to use debit cards as a method of payment. So as a result, the debit rewards program that many of us have come to rely on are going away.

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On a snowy Thursday in the nation’s capital – with little more than a week to go until Christmas – the Board of Governors of the Federal Reserve Bank decided once again to play Santa to a select group of businesses that included the world’s wealthiest corporations. And once again, average Americans are going to be footing the bill for this fat cats’ holiday feast served up by the Fed.

The gift the Fed voted to give on Dec. 16 wasn’t free money through more quantitative easing – or whatever new name they have come up with to make inflation sound nice – although that’s probably coming up soon. Rather, under the direction of an amendment to the Dodd-Frank financial “reform” law by Senate Majority Whip Dick Durbin (D-Ill.), the Fed bestowed near-free access to the services of the vast electronic debit card payment system for some of the nation’s wealthiest retailers – with the tab to be paid for by community banks, credit unions and, of course – you the American consumer.

If the Fed’s proposed rule goes through, come next Christmas Wal-Mart, Walgreens, Home Depot and the other retailers who lobbied for this piece of corporate welfare will have even more overstuffed stockings. These and other retailers benefit greatly from consumers using cards, both in increased sales and in protection from the costs of fraud from bad checks and theft of cash, yet they have gone charging to Washington to for a regulatory “free lunch” to allow them to shift the costs of these valuable services to consumers.

In one of those rare moments of politicians acknowledging the true masters whom they serve, Sen. Durbin admitted on the Senate floor that the CEO of Walgreens, headquartered outside of Chicago in his home state, called him to complain that the transaction fees Walgreens pays to process debit and credit cards were “the fourth largest item of cost for their business.” Durbin actually argued that relieving costs of doing business for a company that makes $2 billion in annual profits was a reason for support price controls on what they pay for financial services.

But the Fed even exceeded Durbin’s order, filling the wish lists of Walgreens and other merchants while giving their customers several lumps of coal. Next holiday season, even if they are not paying vastly inflated prices for the goods they buy due to quantitative easing, American consumers will be losing their free checking, seeing the return of annual fees, and getting significantly reduced reward points for the purchases they make with plastic.

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PETA (People for the Ethical Treatment of Animals) has been known to employ attention-getting methods with everything from nude models protesting fur to activists throwing vegan custard pies in the face of Ronald McDonald in front of children. PETA describes its mission as ending the suffering of animals on “factory farms, in laboratories, in the clothing trade, and in the entertainment industry.”  To that end, the group has used everything from engaging in agitprop to aiding the terrorist tactics of animal rights groups, as investigative reporters have charged.

Of late, the group that claims to be the “largest animal rights organization in the world” focuses efforts on behind-the-scenes strategies to fill coffers.  Their more recent endeavors exploit the pressure companies feel to display their “social responsibility.” 

At the same time, the non-profit engages in clever partnerships with companies whose competitors are targeted by PETA.  And often those who “partner” with PETA treat animals in a manner similar or identical to that which PETA claims is abusive when done by targeted companies.

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