ProPublica

by Kim Barker , Al Shaw and Ariel Wittenberg

When super PACs announced their 2011 fundraising numbers earlier this week, it provided an early glimpse into how the new way of financing political campaigns may work in the upcoming election.

The filings showed that super PACs are indeed fundraising juggernauts, pulling in more than $98 million, with an average donation of $47,718. But so far, their sources of funding are largely transparent, not clouded in the kind of secrecy that some campaign-finance watchers had feared, and not relying that much on connected nonprofits that don’t disclose donors.  

Instead, it was separate announcements this week from a cluster of politically active social welfare groups, known as 501(c)4s for their IRS tax code, that hinted at how secret money could factor into the upcoming election -- and in a more direct fashion than initially forecast after the Supreme Court opened the door to super PACs two years ago.

On Tuesday, Crossroads GPS, the nonprofit arm of the GOP super PAC American Crossroads, announced it raised $32.6 million last year, far outstripping the super PAC itself, which raised $18.4 million.  Priorities USA and American Bridge 21st Century Foundation, the nonprofit arms of the two largest Democrat super PACs, announced they raised $5.1 million. The super PACs, Priorities USA Action and American Bridge 21st Century, raised $8.1 million.

Unlike super PACs, which are required to identify their donors, social-welfare nonprofits such as Crossroads GPS and Priorities USA -- also referred to as “dark money” groups -- don’t have to disclose contributions to the FEC, although they are supposed to report spending on political ads within a day or two. The nonprofits have to disclose their annual revenue and expenses to the IRS, but often delay such filings. A few have not yet filed their taxes for 2010. 

Campaign finance watchdogs had worried that 501(c)4s, or “c4s” as insiders call them, would filter money from unidentified donors through super PACs, but, if the recent filings are any guide, they may spend funds directly. This means c4s could have a more muscular, proactive role than previously anticipated.

“Certainly the Crossroads announcement of their fundraising totals suggest the c4s will be big players, and could be even bigger players than the super PACs themselves,” said Paul Ryan, a lawyer for the Campaign Legal Center.

Though social-welfare nonprofits have been around for years, they emerged as bigger players in the 2010 midterm elections.

The Supreme Court’s ruling in Citizens United v. FEC in January 2010 led to the creation of super PACS, the turbo-charged political action committees that can raise unlimited amounts of money from donors, including corporations, unions and nonprofits, as long as they don’t coordinate with a candidate when they spend that money.

The ruling also jump-started a new crop of nonprofits. Fifty-nine social-welfare groups reported spending more than $78.6 million on political ads during the 2010 election cycle, according to numbers provided to ProPublica by the Center for Responsive Politics. That money was spent mainly by Republican-leaning groups, including more than $26 million spent by the GOP-leaning American Action Network and more than $17 million by Crossroads GPS. For a time, those groups shared the same offices. It’s unknown where any of their money came from.

After the 2010 election, Democrats started forming their own super PACs and connected social-welfare nonprofits, such as Priorities USA Action, the super PAC, and Priorities USA, the nonprofit. Both were formed by former aides to President Barack Obama, although he and other Democrats have expressed ambivalence and even anger over the role of anonymous money in politics.

Super PAC filings released Tuesday showed  few donations from social-welfare nonprofits, or from shell companies with mystery owners.

Republicans, engaged in a bitter primary, raised more than 74 percent of the super PAC money that could be attributed to partisan groups, according to data compiled by the Center for Responsive Politics. (Our “PAC Track” application keeps track of spending and donations to prominent super PACs, and has different numbers.) Of those groups, Restore Our Future, the super PAC supporting GOP frontrunner Mitt Romney, raised more than $30 million. American Crossroads, the super PAC led by former Bush White House strategist Karl Rove and other top Republicans, including former party chairman Ed Gillespie and Mississippi Gov. Haley Barbour, raised $18.4 million.

Fourteen conservative super PACs, nine of which supported specific Republican presidential candidates, got the bulk of their more than $67 million in donations from publicity-shy conservative billionaires and companies. Almost 26 percent of donations to Republican super PACs came directly from companies, but two super PACS—the one backing Newt Gingrich, and one backing former candidate Jon Huntsman—only collected money from individuals. (About 70 percent of the donations to the Huntsman super PAC came from Huntsman’s father. The major backer of the Gingrich super PAC is Las Vegas billionaire Sheldon Adelson, who gave $10 million in January. That money has not yet been reported to the FEC.)

A 15th conservative super PAC, Revolution PAC, which backs Ron Paul, missed the FEC filing deadline, but so far has spent almost $126,000 on ads and has given another $10,000 to another pro-Paul super PAC.   

The four best-known Democratic super PACs didn’t raise nearly as much—perhaps because President Barack Obama is relying on more traditional sources of funding, or because Democrats don’t have to worry about a primary. They raised more than $13.7 million, getting the bulk of their donations from unions, liberal PACs and Hollywood types. Almost 36 percent of the donations to the liberal super PACs were from unions and union PACs.

Tuesday’s filings included only a handful of donations that raised questions about transparency.

A social-welfare group called the League of American Voters, Inc. gave $25,000 to American Crossroads on Dec. 12. The league, formed in the summer of 2010, is likely related to a better known Republican-leaning nonprofit, Americans for Tax Reform, run by strategist Grover Norquist; it rents office space from the group, and gets calls through its phone line.

But it’s not clear what the League of American Voters actually does. An intern who answered the phone said she was told the man who ran the group, Bob Adams, a longtime GOP activist, rarely came to the office. Adams did not respond to an email from a ProPublica reporter.

A Democrat-leaning super PAC, Citizens for Strength and Security, reported that almost all of its $72,000 came from a social-welfare nonprofit, also called Citizens for Strength and Security. Both are run out of post-office boxes at a UPS store on M Street in Washington.

The New York Times also reported on Thursday that $500,000 of the donations to Restore Our Future came from two companies with questionable backgrounds: Paumanok Partners LLC and Glenbrook LLC.

Some campaign-finance watchdogs had a problem with super PACs that reported receiving large payments from affiliated nonprofits for overhead and administrative expenses. A conservative super PAC, Freedomworks for America,  reported getting almost half its total contributions--$1.34 million—as “in kind” payments from a linked social-welfare nonprofit, Freedomworks.  The two leading Democrat super PACs, Priorities USA Action and American Bridge 21st Century, reported that they received a total of $438,000 from their affiliated nonprofits, for rent and other expenses.

Other Republican super PACs reported getting much less money from their affiliated nonprofits for operating expenses. Two Republican super PACs, Club for Growth Action and the Congressional Leadership Fund, reported getting less than $30,000 from their affiliated nonprofits for shared expenses. American Crossroads reported getting nothing from Crossroads GPS.

“Bottom line, you still have a problem that secret money is being channeled into the super PAC to help it function without the name of the donors ever being known ,” said Fred Wertheimer, who runs Democracy 21, which advocates campaign-finance reform. “In essence you are hiding the donors.”

The most prominent c4s seem to be saving their money for the general election. Crossroads GPS has spent less than $61,000 on political ads in the last year, paying for one anti-Obama ad in December and another released Wednesday. Other conservative social-welfare nonprofits, such as American Action Network and the National Organization for Marriage, have reported spending nearly $300,000 on ads for this election cycle. It’s not clear how much either group raised in 2011, as that amount of money does not have to be made public.

Liberal social-welfare nonprofits also appear to be waiting to spend their money. Priorities USA has not reported spending anything; American Bridge 21st Century Foundation has spent only $5,089 on an ad opposing Mitt Romney on Jan. 20.

UC Irvine professor Rick Hasen, an election-law expert who runs a popular blog, said early reports indicated that people and groups that didn’t mind being publicly identified gave to super PACs, while those preferring anonymity gave to c4 groups. But it was too early to say what might happen in the coming months, he added.

“Whatever conclusions people are tempted to make right now, you have to be tentative, it’s a moving object,” Hasen said. “Campaign finance is changing so quickly, it’s difficult in the midst of the election to get a handle on what’s going on.”

Jesse Eisinger, ProPublica, and Chris Arnold, NPR News

Senator Robert Casey (D-PA) sent a list of questions about Freddie Mac’s controversial trades to the mortgage giant’s regulator, highlighting how much remains unknown even after a flurry of statements from the regulator.

ProPublica and NPR reported on Monday that Freddie Mac, the taxpayer-owned mortgage-insurance company, placed multibillion-dollar bets that pay off if homeowners stay trapped in expensive mortgages with interest rates well above current rates.

Questions the Senator put to the regulator, the Federal Housing Finance Agency, include why Freddie made the deals in the first place; when the FHFA learned of the trades; what role, if any, the FHFA played in them; and what the FHFA plans to do about the billions of dollars worth of deals Freddie still has on its books.

Freddie began increasing those deals, called inverse floaters, deals dramatically in late 2010, the same time that the company was making it harder for homeowners to get out of such high-interest mortgages.

No evidence has emerged that these decisions were coordinated, and Freddie says that they weren’t.

But the trades highlight a conflict of interest: Freddie’s charter calls for the company to make home loans more accessible, but Freddie also has giant investment portfolios and could lose substantial amounts of money if too many borrowers refinance.

Freddie and its sister company Fannie Mae are regulated by the Federal Housing Finance Agency. But with those companies in government conservatorship, the FHFA is more than a regulator. It also acts essentially as Freddie’s board of directors.

In a letter to Senator Casey dated Tuesday, FHFA acting director Edward DeMarco said that last that Freddie’s trades, known as inverse floaters, had raised “concerns.” He explained that FHFA believed “that the risk associated with these transactions is inconsistent with FHFA’s goals of having Freddie Mac reduce its risk profile and avoid unnecessary complexity that requires specialized risk management practices.”

In a previous statement, Mr. DeMarco said that those concerns forced Freddie to agree not to engage in any new inverse floater deals. Freddie had stopped making the deals a few months earlier, according to the FHFA, but it is unclear why. Freddie retains about $5 billion worth of the floaters on its books.

In his letter today to Mr. DeMarco, Senator Casey wrote:

…I would appreciate you addressing some additional questions:

· What rationale did Freddie Mac have for its increased purchase of inverse floaters in 2010 and 2011?

· What was FHFA’s involvement in the sale? Please detail for me when FHFA was made aware of these purchases, and when they intervened.

· What type of oversight does FHFA practice over Freddie Mac’s investment division? Are potentially risky trade pre-approved by you or other FHFA officials?

· Although Freddie Mac has ceased their purchase of the types of securities in question, they are still in their portfolio. How does FHFA plan to address these securities moving forward?

· What steps will you take to ensure that in the future FHFA is able to intervene before risky trade take place?

by Blair Hickman

Here are this week's top must-read stories from #MuckReads, ProPublica's ongoing collection of the best watchdog journalism. Anyone can contribute by tweeting a link to a story and just including the hashtag #MuckReads or by sending an email to MuckReads@ProPublica.org. The best submissions are selected by ProPublica's editors and reporters and then featured on our site and @ProPublica.

Brown ordered firing of regulator who took hard line on oil firms, Los Angeles Times
After a top regulator refused to authorize more lenient oil drilling laws, California Gov. Jerry Brown had him fired. The method in dispute, underground injection, is a particularly risky form of oil extraction — but is also, Brown's administration argues, a source of jobs in California's struggling economy.
Contributed by @ashleypowers

FDA staffers sue agency over surveillance of personal email, The Washington Post
After a group of FDA employees warned Congress about agency approval of risky medical devices, the FDA secretly monitored their personal email — a practice the group says eventually contributed to harassment or dismissal. The whistleblowing group worked in an office reviewing devices for cancer screening and other purposes.
Contributed by @Jake_Bernstein

Quietly, U.S. Moves to Block Lawsuits by Military Families, The Atlantic
A 1946 law protects the U.S. government from medical malpractice suits "arising out of the combatant activities of the military or naval forces, or the Coast Guard, during time of war." However, federal lawyers are quietly trying to expand the government's immunity, making it difficult for current and former members of the military to bring their medical grievances to trial.
Contributed by @TheAtlantic

Failure to bring border-crossing fugitives to justice a national problem, Chicago Tribune
An analysis of nearly 10,000 international fugitive leads has revealed a nationwide failure to extradite criminal suspects even when their location is known. High extradition costs, diplomatic and political conflicts and miscommunication have all contributed to problem, with only a "fraction" of the fugitives abroad brought back to the U.S. to stand trial.
Contributed by @brianboyer

Super Bowl Lands On Taxpayers' Backs, Bloomberg
As the market turned sour, taxpayers in central Indiana dug deep to foot the bill for the stadium where the Super Bowl will be played. City officials have dubbed the stadium and the surrounding village the "epicenter of awesome," but the actual return on investment remains unclear.
Contributed by @BloombergNews

Did the stimulus do anything for transparency? Governing
Whatever the ultimate economic impact of the stimulus, one result is clear: increased government transparency on both the state and federal levels that has resulted in the release of an unprecedented amount of data. Many see this transparent recovery as a blueprint for the future of open government.
Contributed by @tinatrenker

These stories and many more can be found at ProPublica. You can also subscribe to a daily #MuckReads email or follow ProPublica on Twitter. Reader submissions are key to making #MuckReads a success — please contribute!

by Jesse Eisinger, ProPublica and Chris Arnold, NPR News

Freddie Mac’s regulator gave new detail today on why it halted the company’s controversial trades in complex mortgage-backed securities last year. In a letter to Senator Robert Casey (D-Pa), the Federal Housing Finance Agency said the trades were risky and required specialized risk management.

ProPublica and NPR reported on Monday that Freddie Mac, the taxpayer-owned mortgage giant, placed multibillion-dollar bets that pay off if homeowners stay trapped in expensive mortgages with interest rates well above current rates. With Freddie in government conservatorship, the FHFA is more than its regulator. It also acts essentially as its board of directors.

“FHFA’s concerns arose through its supervisory process, which found that the risk associated with these transactions is inconsistent with FHFA’s goals of having Freddie Mac reduce its risk profile and avoid unnecessary complexity that requires specialized risk management practices,” FHFA acting director Edward DeMarco wrote.

As part of the government bailout, Freddie and its sister company Fannie Mae were required to sell down their investment portfolios every year. In the mortgage-backed securities transactions at issue, known as inverse floaters, ProPublica and NPR reported that Freddie had sold off some investments yet retained most of the risk – possibly violating the spirit, if not the letter, of the government agreement. Freddie is below the portfolio threshold mandated by the government agreement.

It is unclear if DeMarco was referring to the portfolio-reduction mandate that Freddie operates under. FHFA didn’t respond to a request for comment about the letter to Senator Casey.

Senator Casey was not satisfied with the response from FHFA, according to a congressional staffer, because questions remain unanswered.

In his letter to Senator Casey, DeMarco wrote that Freddie’s investment “did not – and was not intended to – have any impact on homeowners’ ability to refinance.” He wrote that “the underlying premise of the ProPublica story, that Freddie Mac securitization and investment practices are meant to inhibit mortgage refinancing, is simply incorrect.”

ProPublica and NPR did not state that the transactions “did” or were “meant to inhibit mortgage refinancing.” Here’s what the original story said:

Freddie began increasing these bets dramatically in late 2010, the same time that the company was making it harder for homeowners to get out of such high-interest mortgages.

No evidence has emerged that these decisions were coordinated. The company is a key gatekeeper for home loans but says its traders are “walled off” from the officials who have restricted homeowners from taking advantage of historically low interest rates by imposing higher fees and new rules.

According to the FHFA, Freddie has ceased making new inverse floater investments. However, the agency says that Freddie retains $5 billion of these investments on its books. They continue to require the same “specialized risk management” that prompted the FHFA to halt any new inverse floater deals, raising the question of whether the FHFA will force Freddie to sell them.

by Cora Currier

Earlier this week, ProPublica and NPR detailed how Freddie Mac placed bets against homeowners that paid off if borrowers were unable to refinance their mortgage loans. The story highlighted the conflicted role of the huge and now government-controlled Freddie Mac and Fannie Mae: They are supposed to maximize their profits and thus pay back taxpayers, while many feel that, as government wards, they should also be helping millions of struggling Americans stay in their homes.

Here's our attempt to explain Fannie and Freddie's role in the housing market, and why it seems as if their actions often go against the interests of homeowners.

What are Freddie Mac and Fannie Mae supposed to do?

Fannie and Freddie were created to make homeownership more accessible. They are Government-Sponsored Enterprises — private companies chartered by the government to expand access to credit, particularly for low- and middle-income homeowners, and to foster stability in the mortgage market. Fannie Mae was founded as a government institution during the Great Depression and privatized in 1968. Freddie Mac has been private since it was founded in 1970. (Freddie was started in part to divide responsibility in the mortgage market, but there's no real difference between the two now, except that Fannie is larger.) But "private" is not exactly the right word — Freddie and Fannie are exempt from most state and local taxes, as well as some SEC regulations, and they have access to a credit line from the federal government. And they still have their chartered obligation to make mortgages more available.

Fannie and Freddie can't make loans directly. Instead, they guarantee existing mortgages, and repackage and pool them into bonds called mortgage-backed securities. Someone who buys the bonds from Freddie gets the interest and the original principal even if a homeowner defaults. In exchange for that guarantee, Freddie collects a fee from the buyer of the bonds and can use that to guarantee more mortgages (or to buy mortgages that stay in their portfolio). This handy New York Times graphic shows the various flows of debt: The idea is that by basically ensuring that someone (often Freddie or Fannie) will guarantee a mortgage, it becomes easier for anyone to get a mortgage.

So, how did they get so big?

Because Fannie and Freddie have been able to borrow lots of cheap money.

For years, investors have loaned them money at lower-than-average interest rates, allowing Fannie and Freddie to expand their portfolio of mortgages and securities. As a history compiled by the Congressional Budget Office shows, investors have treated Fannie and Freddie as essentially risk-free. The assumption, which has turned out to be correct, was that the government would never let Fannie and Freddie fail. The two companies used that windfall not only to invest in more mortgages but to try to increase their profits by pouring money into a variety of fancy financial instruments.

Fannie and Freddie became, as The New Yorker's James Surowiecki described them, the "duck-billed platypuses of the financial world" — strange institutions with the perceived safety of a government guarantee and the high-risk strategies of a private corporation. And that led them to become the giants of the mortgage market, managing a massive portfolio of debt. In 2008, they had a combined $5 trillion in debt and guarantees.

Why are taxpayers on the hook for their mistakes?

The bubble burst — and Fannie and Freddie's execs had overreached.

In the last stretch of the boom, the two companies had loaded up on iffy mortgages. When the housing market began to turn in mid-2006, delinquency rates rose, increasing the chances that Fannie and Freddie would have to make good on their guarantees. Compounding their problems, it became harder for Freddie and Fannie to borrow money as concerns mounted about the companies' health. In the mid-2000s, they admitted to overstating earnings and making billions of dollars' worth of accounting errors.

By 2008, they were in trouble. That $5 trillion in debt and guarantees was backed by only $80 billion in core capital. The federal government took them over, becoming the major shareholder of both companies, while the Federal Reserve bought up most of their debt and the Treasury Department pledged to cover their losses. The taxpayer buyout of the two companies has cost roughly $169 billion.

The SEC filed a lawsuit against the companies' executives in December, accusing them of misleading investors about the riskiness of their investments.

The companies' high compensation of their executives has also been under fire from Congress. Although the bailout calls for Fannie and Freddie to wind down their portfolios of mortgages, they continue to make billions of dollars' worth of risky investments like the "inverse floaters" we described.

So, do Fannie and Freddie actually help homeowners? And why can't the government force their hand?

The companies say that by bolstering their finances, they are helping to stabilize the housing market as a whole, but Freddie and Fannie have hampered many of the administration's plans to provide relief for struggling homeowners.

The two report to a regulatory body called the Federal Housing Finance Agency, which has acted since the bailout as their board of directors and shareholders, making their major decisions. In the wake of our story, the White House and several senators have called for more oversight and an explanation as to why Freddie's investment strategy seems to run counter to the mandate to help homeowners.

More broadly, the Obama administration and the acting head of FHFA, Edward DeMarco, have often clashed over the goals of the companies.

This week, President Obama outlined a new set of initiatives aimed at making it easier for homeowners to refinance and encouraging loan forgiveness. But Fannie and Freddie have previously refused to participate in loan forgiveness programs, and they continue to tussle with the administration on the issue. (It seems unlikely that any of Obama's proposals will get through Congress, and ProPublica has documented extensive problems with similar programs aimed at preventing foreclosures.)

The two aims of Fannie and Freddie are continually at odds — policies encouraging refinancing and forgiveness for more mortgage holders can increase costs to the taxpayer-owned companies. While the administration has made relief for homeowners their priority, DeMarco says his agency's priority is to protect Fannie and Freddie's profits, aka taxpayers' assets. Of course, many of those taxpayers are struggling homeowners, and that is at the heart of the dilemma over Fannie and Freddie's future.

Sen. Barbara Boxer, D-Calif., told NPR she was shocked by a recent meeting with DeMarco. "It was the worst meeting I've ever had in my life," said Boxer. "His interest is making sure Fannie and Freddie do well financially."

Will they be around much longer?

Probably, even though there's rare bipartisan consensus that they shouldn't be.

Both the Obama administration and congressional Republicans want to get rid of Fannie and Freddie. Obama's plan gradually winds them down to a position equivalent to private-sector mortgage companies while giving the market time to adjust to their removal. Republicans want a more immediate rollback of their influence.

These plans were unveiled almost a year ago, but the companies are still massively important to the mortgage market, guaranteeing approximately 70 percent of the country's home loans. Their elimination might make it more difficult to get a mortgage loan, and it remains unclear what kind of assistance for homeownership could, or should, replace them.

by Lena Groeger

A few weeks ago, the Food and Drug Administration hit the American Red Cross with a nearly $10 million fine for safety violations, lax oversight and faulty testing of its blood services. The fine is just the latest of more than a dozen the Red Cross has racked up in the last decade.

In 2003, a federal court, frustrated by repeated blood safety violations by the Red Cross, gave the FDA the power to fine the organization. Forty-six million dollars in penalties later, many of the same violations -- understaffing, ineffective screening of donors, failure to recall infected blood -- are outlined in the recent letter the FDA sent to the executive vice president of Biomedical Services for the Red Cross.

The 32-page letter describes hundreds of violations over several months in 2010 at 16 Red Cross facilities across the country, and details how the Red Cross repeatedly failed to properly track and record information about donors and blood units. (To see the actual document and others like it, go to our timeline of Red Cross fines.)

For example, the agency failed to notify health departments when donors had infectious diseases such as HIV and syphilis, failed to add new donors with infected blood to a national list of people who aren't allowed to donate, and failed to review records of donors who had bad reactions, such as a 16-year-old who lost consciousness and fell to the floor after giving a unit of blood. It also failed to follow written procedures, such as the case of a phlebotomist in Arizona who stuck herself with a needle before sticking a donor with the same needle to draw blood. The case went unreported for a month, because a staff member "was not aware of the need to immediately notify a Medical Director," according to the inspection letter.

In a recent statement, the Red Cross said it was disappointed that the FDA issued the fine for "an inspection conducted so long ago" and noted that it has "already taken corrective steps to address those matters and that improvements in operations have been made."

In an email to ProPublica, a Red Cross spokeswoman also said there is no evidence that these violations endangered any patients, adding that the blood supply is safer than it has ever been. The spokeswoman said the agency has made significant improvements, including reducing the number of problems system-wide by at least 65 percent, and is investing in technology upgrades. For example, the agency recently upgraded software and computer equipment at blood drives to better collect and track donor information.

The FDA's letter laying out the fines says the Red Cross "has known of these continuing problems and has failed to take adequate steps to correct them." The FDA also noted that "many of the violations recounted in this letter are virtually identical to violations charged in previous [letters]." In June 2010 the FDA imposed a $16 million penalty on the Red Cross for the same type of violations.

The chronic problems raise the question of whether penalties are working at all.

The Red Cross has been making promises and failing to keep them for over a decade, according to Sidney Wolfe, who heads the health research group at the consumer watchdog organization Public Citizen. Wolfe said he wrote to head of the FDA in 2000, urging it to hold the Red Cross in contempt of court. A federal court first put the Red Cross under government supervision in 1993 after finding blood safety lapses. A decade later, in 2003, the court empowered the FDA to impose fines.

"But fast-forward nine years ahead, and we have the same violations," Wolfe said.

If the Red Cross disagrees with an assessment, it can ask the FDA to reevaluate the penalty, but in most cases the fine only changes by a few thousand dollars.

Most of the recent problems inspectors cited have to do with managing records and tracking blood donors. The Red Cross says it is unaware of any infections or deaths that stemmed from problems noted in the report, and that "serious problems" account for only three percent of the total problems found.

The FDA doesn't think that's good enough.

"FDA cannot definitively say there was never any danger to the blood supply since the violations can create conditions that could lead to potential safety consequences," said FDA spokeswoman Patricia El-Hinnawy.

The government requires that the Red Cross (like any blood services operation) have multiple safeguards for its blood services. That includes asking a donor questions to identify any risks, checking his or her name against a national list of people who aren't allowed to give blood, testing for infectious diseases, keeping track of blood units so infected blood isn't released, and investigating any deviations from standards.

Because blood transfusions always carry a degree of risk, the FDA considers every step in that process critical to minimizing problems. "Failure of an individual safeguard does not automatically translate into the release of unsafe products," an FDA spokeswoman told ProPublica in an email, "however, it may increase the potential for risk."

In 2008, the Red Cross consolidated its blood work to two facilities: one in Charlotte, N.C., and the other in Philadelphia. The offices are in charge of managing, tracking and, if need be, recalling blood. But according to the inspection letter, both offices have been chronically understaffed, and simply haven't been able to carry out their required functions in a timely or effective manner. As of 2010, the offices had a backlog of about 18,000 donor management cases.

by Charles Ornstein and Tracy Weber

Now you see it. Now you don't.

Since April, drugmaker Allergan, best known for its wrinkle-fighting drugs Botox and Juvederm, has been posting on its website the payments it made to physicians for promotional speaking and consulting and the value of meals it provided to them.

But the Irvine, Calif., company recently removed all except the most recent payments from its website, erasing the record of those it had paid to help market its products from the third quarter of 2010 to the second quarter of last year.

Allergan's website now includes only those payments it made to doctors in the third quarter of 2011 -- and then only ranges, not specific dollar amounts.

Allergan's removal of the data won't prevent the public from viewing it. ProPublica's Dollars for Docs database of industry payments to doctors includes the figures Allergan had reported for the last half of 2010. Later this month, the company will post data for the full year 2011, and that will be added to the ProPublica database as well.

Allergan is among 12 pharmaceutical companies that post such payments to the web, either voluntarily or as a result of legal settlements with the U.S. government over allegations of improper marketing and illegal kickbacks to doctors. (Allergan pleaded guilty in September 2010 to a misdemeanor charge of promoting Botox for uses not approved by the U.S. Food and Drug Administration. It paid $600 million to resolve related criminal and civil lawsuits.)

Allergan is the only company to pull earlier payments from its site. The other 11 companies simply add new data while maintaining an archive of previous releases.

Allergan spokeswoman Heather Katt said in an email that Allergan remains in compliance with the terms of its corporate integrity agreement with the inspector general of the U.S. Department of Health and Human Services.

As part of that legal agreement, Katt said, Allergan was required to expand its disclosures in a second phase starting in November. In addition to speaking, consulting and meals, it now posts payments for research, royalties, travel and educational materials. Allergan decided to take down the earlier disclosures to avoid confusion, she said.

"The earlier reports were accurate, but represented limited data and as such would not provide meaningful or accurate comparisons," Katt said.

Donald White, a spokesman for the health department's inspector general, agreed that Allergan was in compliance with its corporate integrity agreement despite the removal of payment data.

Allergan's Katt said removing the older information was "in the spirit of providing the general public with the most current and comprehensive information."

Every pharmaceutical company will have to publicly report all payments to physicians nationwide beginning next year under a provision of the health-care overhaul known as the Physician Payment Sunshine Act.

by Michael Grabell

A group of five Republican and Democratic senators on the homeland security committee introduced a bill today that would require an independent health study of the X-ray body scanners used in airports nationwide.

We have been reporting on the cancer risk associated with the Transportation Security Administration’s scanners and on the expansion of X-ray equipment at the border, in prisons and on U.S. roads.

In addition to mandating a health study, the bill would also require the TSA to place larger signs in front of security lines advising airline passengers about the radiation and the option to have a physical pat-down instead.

"An independent study is needed to protect the public and to determine which technology is worthy of taxpayer dollars," said Sen. Susan Collins, the top Republican on the homeland security committee. "Surely passengers should be well informed of their screening options."

by Michael Grabell

This story was adapted from "Money Well Spent?: The Truth Behind the Trillion-Dollar Stimulus, the Biggest Economic Recovery Plan in History," which will be published Tuesday by PublicAffairs.

A common criticism of President Obama's $800 billion stimulus package has been that it failed to produce anything – that while the New Deal built bridges and dams, all the stimulus did was fill some potholes and create temporary jobs.

Don't tell that to Annette Herrera. She was 50 when the auto supplier she worked for in Westland, Mich., closed its factory and moved the work to Mexico. Then, after being unemployed for 2½ years, she got a job in October 2010 with A123 Systems, which had received $250 million in stimulus money to help open a new lithium-ion battery plant in nearby Romulus, Mich.

"The first thing I did was call my husband and tell him, 'You're never going to guess! I got a job!'" Herrera recalled. "And then it was like celebration time."

One success the Obama administration can duly claim is the rebirth of the electric-car industry in the United States. Automakers have unveiled a number of mass-market electric cars, which have seen small but rising sales. Battery and parts manufacturers are building 30 factories, creating thousands of new jobs. A123 has hired 700 workers at Herrera's plant and a second one in nearby Livonia, and plans to hire a couple thousand more people over the next few years.

If it wasn't for the stimulus, the companies say, they would have built these plants overseas.

It was all part of an effort to promote "green" manufacturing and put a million electric cars on the road by 2015.

The question is: Will it last?

Elkhart, Ind., once believed it would. It saw electric vehicles as its salvation after watching its unemployment rate hit 20 percent. Eager to seed a new industry, the county witnessed electric-vehicle ventures sprout out of nowhere as the stimulus took off in 2009.

But by late summer 2011, what had sprouted were weeds. The parking lot of the Think electric-car plant was full of them, some more than a foot high growing from the cracks. Out front were two pickups and a motorcycle.

Hundreds of laid-off factory workers were supposed to have found jobs churning out the Norwegian company's bug-like, plastic-bodied cars, which ran solely on electricity.

Today the Elkhart factory employs two. Its parent company filed for bankruptcy in June. Its largest shareholder and battery maker, Ener1, which received $118 million in stimulus money, did the same last week.

A second life

Electric cars began appearing on California roads in the mid-1990s after state regulators mandated that a certain percentage of automakers' fleets include zero-emissions vehicles.

But within a few years, they were deemed a failure by car companies, which stopped making them and took back those they had leased.

Much had changed in the eight years leading up the stimulus package. The lead-acid and nickel-metal hydride batteries that weighed as much as 1,200 pounds were replaced with lithium-ion batteries that weighed as little as 400 pounds.

In the early 2000s, gas hadn't even passed $2 a gallon. Less than a decade later, it was twice that. Toyota had proven the demand with its long waiting list for the Prius hybrid.

Government policy had changed, too, with a 2007 energy bill that increased fuel-efficiency standards and provided $25 billion in loans for automakers to upgrade their plants.

But until the economic stimulus package was passed in 2009, the manufacture of electric cars and their batteries in the United States was nearly nonexistent.

The United States had only two factories manufacturing less than 2 percent of the world's advanced batteries. Most were made in Korea and Japan. In America, only Tesla manufactured an electric car — which sold for a cool $100,000. Across the entire country, there were a mere 500 electric charging stations.

But as the stimulus kicked in, there was suddenly no better environment for the electric car to thrive.

With more than $2 billion in federal grants, matched by another $2 billion in private investment, the Obama administration was supporting electric cars from the mine to the garage.

Chemetall Foote Corp., which operates the only U.S. lithium mine, received $28 million to boost production at its plants in Nevada and North Carolina. Honeywell received $27 million to become the first domestic supplier of a conductive salt for lithium batteries. More than $1 billion was spent to open and expand battery factories, many of them in hard-luck towns across Michigan. Through a separate federal program, automakers received loans to retool their assembly lines.

Customers could receive a $7,500 tax credit for buying an electric car. The stimulus provided funding for 20,000 electric charging stations by 2013. In many cities, drivers could get a home charger for free.

Although electric cars would not make up for the generation-long loss of manufacturing jobs, at least not yet, it was novel to see companies creating jobs in the Rust Belt instead of outsourcing them.

In July, Johnson Controls opened the first U.S. factory to produce complete lithium-ion battery cells for electric vehicles. Compact Power is building a $300 million factory in Holland, Mich., to produce batteries for the Chevy Volt and the electric Ford Focus. A123 now supplies the luxury electric carmaker Fisker Automotive and the manufacturers of electric delivery trucks used by FedEx and Frito-Lay. "Quite simply, if we didn't get that grant, we wouldn't have built [the factory] in the U.S.," A123 spokesman Dan Borgasano said.

The battery grants have created and saved more than 1,800 jobs for assembly workers, toolmakers and engineers, according to a ProPublica analysis of stimulus project reports filed by the companies. That number doesn't include the workers who constructed the plants or those hired by the matching private investment the companies had to make to get the grants.

Killed again?

The problem: Consumers have been slow to embrace the electric car.

The price of the battery is still too high, and the price of gas is still too low, the Government Accountability Office warned in June 2009 before the grants were awarded. The starting price for the all-electric Nissan Leaf is $33,000, while the hybrid Volt sells for about $40,000 before tax credits — far more than many middle-class families can afford.

About 40 percent of drivers didn't have access to an outlet where they park their vehicles, the GAO noted.

"Although a mile driven on electricity is cheaper than one driven on gasoline," the National Research Council reported, "it will likely take several decades before the upfront costs decline enough to be offset by lifetime fuel savings."

Perhaps the biggest obstacle, though, was what the automobile represents in the American psyche: the freedom of the open road. While most people drive less than 40 miles per day, consumers want cars that they can also take on summer vacations — and they don't want to have to constantly worry about looking for a charging station.

The Leaf's range is just 73 miles, according to the official government rating, well below the much-advertised 100 miles.

By the end of 2011, fewer than 18,000 Leafs and Volts had been sold in the United States.

A report by congressional researchers last year concluded that the cost of batteries, anxiety over mileage range and more efficient internal combustion engines could make it difficult to achieve Obama's goal of a million electric vehicles by 2015. Even many in the industry say the target is unreachable.

While the $2.4 billion in stimulus money has increased battery manufacturing, the congressional report noted that United States might not be able to keep up in the long run. South Korea and China have announced plans to invest more than five times that amount over the next decade. Even A123 had to lay off 125 workers in November — though Borgasano says the company plans to rehire them all by June — because Fisker reduced orders.

Dick Moore, the mayor of Elkhart, had hoped the area known for its recreational-vehicle factories would one day be not just the "RV Capital of the World" but the "EV Capital of the World" as well.

Navistar International had received $39 million in stimulus money to build 400 electric delivery trucks in the first year. But by early 2011, it had hired about 40 employees and assembled only 78 vehicles.

Think had rallied into 2011 with plans to start production in Elkhart earlier than expected. But in April, assembly work suddenly stopped as the plant awaited parts from Europe.

In June, Think's parent company filed for bankruptcy. The decision left the Elkhart plant slouching toward extinction until the American subsidiary was purchased by a Russian entrepreneur who promised to restart production in early 2012.

But on Thursday, its battery maker, Ener1, also filed for Chapter 11 bankruptcy, reporting that the demand for electric vehicles "did not develop as quickly as anticipated."

Elkhart's dream of becoming the EV capital?

Moore put it this way: "The fact that this hasn't moved very quickly, that doesn't bode well for that idea."

The future

The fate of the electric car depends greatly on whether sales take off soon.

There are other factors, such as the price of gas and whether Congress approves proposed standards requiring automakers to raise the average fuel economy of their vehicles to 55 miles per gallon by 2025.

The electric car has always struggled with a chicken-and-egg dilemma: Automakers have been reluctant to build electric cars without consumer demand. But consumers won't buy them until automakers develop cheaper, longer-range batteries.

One of the goals of the ongoing stimulus spending is to solve this problem. By 2015, the 30 battery and component factories will be able to produce 40 percent of the world's batteries, according to the administration.

The investments would help manufacturers increase the batteries' life from four years to 14 and cut their cost from $33,000 to $10,000, the administration said in a report on innovation. That would make the electric car more competitive.

Herrera noted that many people at the A123 factory believe they will never be able to afford the cars powered by the batteries they make. But, she says, "you never know."

"When the flat-screen TVs first came out, they were way expensive, and now they're reasonably priced," she said. "I think that's going to be the same thing with electric automobiles. This is a new product. It's going to take time."

by Jesse Eisinger and Cora Currier, ProPublica, and Chris Arnold, NPR

This story was co-produced with NPR News.

Freddie Mac agreed last month to stop making new bets against American homeowners after its regulator, the Federal Housing Finance Agency, raised concerns, according to a statement the agency issued late Monday. Freddie, the taxpayer-owned mortgage giant, still retains $5 billion worth of such bets.

The agency, responding to an investigation by ProPublica and NPR, said it had "identified concerns regarding the controls, including risk management, surrounding the inverse floaters," as the investments at issue are known. The agency did not specify what it had found, but said Freddie agreed in December that "these transactions would not resume pending completion of [FHFA's] examination work." The statement also said that Freddie had ceased making the deals earlier in 2011 but did not explain why.

Separately, the White House said the Department of the Treasury is "looking into" Freddie's investments, and at least three senators called on Freddie not to bet against struggling homeowners.

The mortgage-insurance company bought billions worth of complex mortgage-backed securities that profit if borrowers stay trapped in high interest rate home loans. The $5 billion figure released Monday afternoon is more than had been reported in the ProPublica-NPR investigation.

In late 2010 and early 2011, Freddie began dramatically increasing these multibillion-dollar deals. At the same time, Freddie also made it harder for homeowners to get out of their high-interest mortgages and into more affordable loans that could save them thousands of dollars a year. No evidence has emerged that these decisions were coordinated at the company, and Freddie has denied that they were.

But the deals highlight a conflict of interest: While Freddie's charter calls for the company to make home loans more accessible, the company also has giant investment portfolios that could lose large amounts of money, at least in the short run, if too many borrowers refinance into more affordable loans.

At a press briefing today, White House spokesman Jay Carney was asked whether Freddie Mac's investment strategy contradicted President Barack Obama's stated commitment to make homeowner refinancing more affordable. In his response, Carney stressed that the president does not directly control FHFA.

"This is an independent institution with independent governance, so we don't make those kinds of decisions," Carney said.

Meanwhile, Sen. Bob Casey, D-Pa., sent a letter to the White House today demanding an explanation of the Freddie Mac investments. Referring to the head of the company, the senator wrote, "I question the leadership that would position the government-backed organization to bet against homeowners."

Sen. Casey wants the administration to "exercise influence over the FHFA, and make sure that Freddie is not making these kinds of bets," his spokesman said.

Sen. Johnny Isakson, R-Ga., said in an interview that if Freddie "bet on keeping everybody in the loans they're in, and not allowing them to refinance, that would be wrong. Particularly for those people that are qualified to refinance." And Barbara Boxer, D-Calif., fired off a letter to the acting director of the FHFA expressing "outrage" over Freddie's deals.

In its statement today, the FHFA confirmed that Freddie, in making these investments, retained significant risks. When Freddie was taken over by taxpayers in 2008, Freddie Mac entered into an agreement with the U.S. Treasury to reduce the company's investment holdings. The inverse floater deals leave "Freddie Mac with a portion of the risk exposure it would have had if it simply held the entire set of mortgages on its balance sheet," the FHFA said.

In fact, mortgage experts said that inverse floaters burden Freddie with new risks. With these deals, Freddie has taken mortgage-backed securities that are easy to sell and traded them for ones that are harder and possibly more expensive to offload.

ProPublica and NPR found $3.4 billion of Freddie's inverse floater deals, and their value is based mostly on interest payments on $19.5 billion of mortgage-backed securities. The new statement suggests that Freddie retained exposure to greater than $19.5 billion, but it is unclear how much more.

by Joaquin Sapien, ProPublica, and Daniel Zwerdling, NPR

When Army Sgt. Victor Medina returned home from Iraq in the summer of 2009, his life was a shambles. His tour had been cut short after he suffered a concussion during a roadside blast. Though his injury wasn't visible, he struggled with balance and noticed that his ability to read, think and even talk had changed for the worse.

But in the spring of 2011, Medina became one of the first patients at the National Intrepid Center of Excellence, the military's $65 million, state-of-the-art treatment center for brain-injured soldiers.

During his three weeks at the Bethesda, Md., center, the staff developed a rehabilitation program designed specifically for Medina. His recovery has progressed rapidly ever since, he and his wife, Roxana Delgado, told ProPublica and NPR.

Medina has continued to work from El Paso, Texas, by videoconference with a speech therapist based at the center, and he said his stutter is improving. After his injury, he had struggled to read more than a paragraph; now he says he can read and absorb two pages in one sitting. Medina also was ordered to stop driving after his injury, but he told ProPublica and NPR that he has regained his ability to do that, too.

"It's like night and day," Delgado said of his improvement.

The couple believes that Medina benefited dramatically from media attention. In June 2010, ProPublica and NPR published stories about the couple's struggle to get medical treatment for Medina at Fort Bliss, Texas, where he was stationed at the time. The Army's vice chief of staff, Gen. Peter Chiarelli, denounced the reports at a hearing before the Senate Armed Services Committee as a "disservice ... to everyone." But a year later, Chiarelli flew the couple to Washington so they could talk privately to top commanders about their battles at Fort Bliss, and how to improve treatment for troops with TBI.

Last year, Medina became one of NICOE's first patients. He received more than 100 hours of personalized treatment from neurologists, psychologists, physical therapists and others at the center, a NICOE spokesman said. Medina also had access to some of the center's virtual-reality equipment, which is used to simulate ordinary civilian activities like crossing the street and driving a car.

Delgado and Medina have become advocates for victims of traumatic brain injury, or TBI, the signature injury of the Iraq and Afghanistan conflicts. Last week, Delgado was invited to attend President Barack Obama's State of the Union speech as a guest of Rep. Silvestre Reyes, D-Texas, whose district includes part of Fort Bliss.

In an interview with ProPublica and NPR before the speech, Delgado said the invitation was "very empowering because it tells me that leadership and people in Congress are paying attention to traumatic brain injuries," she said.

But not every soldier with a brain injury has been as fortunate as Medina.

Delgado told ProPublica and NPR that she frequently receives calls from military wives who've had a hard time getting their husbands enrolled at NICOE, which has treated only about 200 soldiers since it opened in October 2011, center spokesman Joshua Stueve told ProPublica and NPR.

By comparison, recent estimates show that nearly 230,000 soldiers have been diagnosed with traumatic brain injuries, Stueve said. "We aren't going to make a huge dent in that population," said Stueve. Most of the center's $35 million budget is spent on research, not clinical care, he noted.

To get into the program, a service member must be referred by a physician at his or her local military hospital, agree to live with other soldiers in a group house near the facility, and plan to continue military service after treatment.

Brain-injured troops who don't plan on staying in the military have to rely on U.S. Veterans Affairs Department hospitals for treatment once they get out. But VA hospitals don't have the same resources or equipment as NICOE.

Stueve said troops at NICOE benefit from being treated by an "inverted system" in which a soldier has the opportunity to work with perhaps 10 doctors at once, instead of being at a hospital where there might be just one doctor for every 10 patients. The advantage, he said, is that a patient isn't shuffled to separate referrals from multiple specialists over the course of treatment.

Stueve said the center "doesn't keep data" on how many soldiers are rejected, and handles only 20 patients at a time for about four weeks of concentrated treatment.

"The real story here is patient experience," Stueve said. "The service members, when they come here, they feel like they are in control, and they play a huge part in their own treatment."

Delgado agrees but said she knows "that's not the case for all service members, because some are denied a chance to go to NICOE. This should be the standard of care for everybody."

The Pentagon plans to expand the NICOE system to other bases, Stueve said, but that effort could be stymied by pending defense budget cuts. The defense department is drafting a plan to cut $259 billion from its budget over the next five years.

The military is already having problems with its budgets for TBI and post-traumatic stress disorder. In a recent report to Congress, the Government Accountability Office said the defense department can't provide reliable data on how it spent $2.7 billion allocated to treat soldiers with brain injuries and psychological health problems.

by Jesse Eisinger, ProPublica and Chris Arnold, NPR News

Jan. 30: Read the update to this article, "Bets Against Homeowners Must Stop, Freddie Mac Was Told."This story is not subject to our Creative Commons license.This story was co-published with NPR News.

Freddie Mac, the taxpayer-owned mortgage giant, has placed multibillion-dollar bets that pay off if homeowners stay trapped in expensive mortgages with interest rates well above current rates.

Freddie began increasing these bets dramatically in late 2010, the same time that the company was making it harder for homeowners to get out of such high-interest mortgages.

No evidence has emerged that these decisions were coordinated. The company is a key gatekeeper for home loans but says its traders are “walled off” from the officials who have restricted homeowners from taking advantage of historically low interest rates by imposing higher fees and new rules.

Freddie’s charter calls for the company to make home loans more accessible. Its chief executive, Charles Haldeman Jr., recently told Congress that his company is “helping financially strapped families reduce their mortgage costs through refinancing their mortgages.”

But the trades, uncovered for the first time in an investigation by ProPublica and NPR, give Freddie a powerful incentive to do the opposite, highlighting a conflict of interest at the heart of the company. In addition to being an instrument of government policy dedicated to making home loans more accessible, Freddie also has giant investment portfolios and could lose substantial amounts of money if too many borrowers refinance.

“We were actually shocked they did this,” says Scott Simon, who as the head of the giant bond fund PIMCO’s mortgage-backed securities team is one of the world’s biggest mortgage bond traders. “It seemed so out of line with their mission.”

The trades “put them squarely against the homeowner,” he says.

Those homeowners have a lot at stake, too. Many of them could cut their interest payments by thousands of dollars a year.

Freddie Mac, along with its cousin Fannie Mae, was bailed out in 2008 and is now owned by taxpayers. The companies play a pivotal role in the mortgage business because they insure most home loans in the United States, making banks likelier to lend. The companies’ rules determine whether homeowners can get loans and on what terms.

The Federal Housing Finance Agency effectively serves as Freddie’s board of directors and is ultimately responsible for Freddie’s decisions. It is run by acting director Edward DeMarco, who cannot be fired by the president except in extraordinary circumstances.

Freddie and the FHFA repeatedly declined to comment on the specific transactions.

Freddie’s moves to limit refinancing affect not only individual homeowners but the entire economy. An expansive refinancing program could help millions of homeowners, some economists say. Such an effort would “help the economy and put tens of billions of dollars back in consumers’ pockets, the equivalent of a very long-term tax cut,” says real-estate economist Christopher Mayer of the Columbia Business School. “It also is likely to reduce foreclosures and benefit the U.S. government” because Freddie and Fannie, which guarantee most mortgages in the country, would have lower losses over the long run.

Freddie Mac’s trades, while perfectly legal, came during a period when the company was supposed to be reducing its investment portfolio, according to the terms of its government takeover agreement. But these trades escalate the risk of its portfolio, because the securities Freddie has purchased are volatile and hard to sell, mortgage securities experts say.

The financial crisis in 2008 was made worse when Wall Street traders made bets against their customers and the American public. Now, some see similar behavior, only this time by traders at a government-owned company who are using leverage, which increases the potential profits but also the risk of big losses, and other Wall Street stratagems. “More than three years into the government takeover, we have Freddie Mac pursuing highly levered, complicated transactions seemingly with the purpose of trading against homeowners,” says Mayer. “These are the kinds of things that got us into trouble in the first place.”

'We’re in financial jail'

Freddie Mac is betting against, among others, Jay and Bonnie Silverstein. The Silversteins live in an unfinished development of cul-de-sacs and yellow stucco houses about 20 miles north of Philadelphia, in a house decorated with Bonnie’s orchids and their Rose Bowl parade pin collection. The developer went bankrupt, leaving orange plastic construction fencing around some empty lots. The community clubhouse isn’t complete.

The Silversteins have a 30-year fixed mortgage with an interest rate of 6.875 percent, much higher than the going rate of less than 4 percent.  They have borrowed from family members and are living paycheck to paycheck. If they could refinance, they would save about $500 a month. He says the extra money would help them pay back some of their family members and visit their grandchildren more often.

But brokers have told the Silversteins that they cannot refinance, thanks to a Freddie Mac rule.

The Silversteins used to live in a larger house 15 minutes from their current place, in a more upscale development. They had always planned to downsize as they approached retirement. In 2005, they made the mistake of buying their new house before selling the larger one. As the housing market plummeted, they couldn’t sell their old house, so they carried two mortgages for 2½ years, wiping out their savings and 401(k). “It just drained us,” Jay Silverstein says.

Finally, they were advised to try a short sale, in which the house is sold for less than the value of the underlying mortgage. They stopped making payments on the big house for it to go through. The sale was finally completed in 2009.

Such debacles hurt a borrower’s credit rating. But Bonnie has a solid job at a doctor’s office, and Jay has a pension from working for more than two decades for Johnson & Johnson. They say they haven’t missed a payment on their current mortgage.

But the Silversteins haven't been able to get their refi. Freddie Mac won’t insure a new loan for people who had a short sale in the last two to four years, depending on their financial condition. While the company’s previous rules prohibited some short sales, in October 2010 the company changed its criteria to include all short sales. It is unclear whether the Silverstein mortgage would have been barred from a short sale under the previous Freddie rules.

Short-term, Freddie’s trades benefit from the high-interest mortgage in which the Silversteins are trapped. But in the long run, Freddie could benefit if the Silversteins refinanced to a more affordable loan. Freddie guarantees the Silversteins' mortgage, so if the couple defaults, Freddie — and the taxpayers who own the company — are on the hook. Getting the Silversteins into a more affordable mortgage would make a default less likely.

If millions of homeowners like the Silversteins default, the economy would be harmed. But if they switch to loans with lower interest rates, they would have more money to spend, which could boost the economy.

“We’re in financial jail,” says Jay, “and we’ve never been there before.”

How Freddie's investments work

Here's how Freddie Mac’s trades profit from the Silversteins staying in “financial jail.” The couple’s mortgage is sitting in a big pile of other mortgages, most of which are also guaranteed by Freddie and have high interest rates. Those mortgages underpin securities that get divided into two basic categories.

One portion is backed mainly by principal, pays a low return, and was sold to investors who wanted a safe place to park their money. The other part, the inverse floater, is backed mainly by the interest payments on the mortgages, such as the high rate that the Silversteins pay. So this portion of the security can pay a much higher return, and this is what Freddie retained.

In 2010 and '11, Freddie purchased $3.4 billion worth of inverse floater portions — their value based mostly on interest payments on $19.5 billion in mortgage-backed securities, according to prospectuses for the deals. They covered tens of thousands of homeowners. Most of the mortgages backing these transactions have high rates of about 6.5 percent to 7 percent, according to the deal documents.

Between late 2010 and early 2011, Freddie Mac’s purchases of inverse floater securities rose dramatically. Freddie purchased inverse floater portions of 29 deals in 2010 and 2011, with 26 bought between October 2010 and April 2011. That compares with seven for all of 2009 and five in 2008.

In these transactions, Freddie has sold off most of the principal, but it hasn’t reduced its risk.

First, if borrowers default, Freddie pays the entire value of the mortgages underpinning the securities, because it insures the loans.

It’s also a big problem if people like the Silversteins refinance their mortgages. That’s because a refi is a new loan; the borrower pays off the first loan early, stopping the interest payments. Since the security Freddie owns is backed mainly by those interest payments, Freddie loses.

And these inverse floaters burden Freddie with entirely new risks. With these deals, Freddie has taken mortgage-backed securities that are easy to sell and traded them for ones that are harder and possibly more expensive to offload, according to mortgage market experts.

The inverse floaters carry another risk. Freddie gets paid the difference between the high mortgages rates, such as the Silversteins are paying, and a key global interest rate that right now is very low. If that rate rises, Freddie's profits will fall.

It is unclear what kinds of hedging, if any, Freddie has done to offset its risks.

At the end of 2011, Freddie’s portfolio of mortgages was just over $663 billion, down more than 6 percent from the previous year. But that $43 billion drop in the portfolio overstates the risk reduction, because the company retained risk through the inverse floaters. The company is well below the cap of $729 billion required by its government takeover agreement.

How Freddie tightened credit

Restricting credit for people who have done short sales isn’t the only way that Freddie Mac and Fannie Mae have tightened their lending criteria in the wake of the financial crisis, making it harder for borrowers to get housing loans.

Some tightening is justified because, in the years leading up to the financial crisis, Freddie and Fannie were too willing to insure mortgages taken out by people who couldn’t afford them.

In a statement, Freddie contends it is “actively supporting efforts for borrowers to realize the benefits of refinancing their mortgages to lower rates.”

The company said in a statement: “During the first three quarters of 2011, we refinanced more than $170 billion in mortgages, helping nearly 835,000 borrowers save an average of $2,500 in interest payments during the next year.” As part of that effort, the company is participating in an Obama administration plan, called the Home Affordable Refinance Program, or HARP. But critics say HARP could be reaching millions more people if Fannie and Freddie implemented the program more effectively.

Indeed, just as it was escalating its inverse floater deals, it was also introducing new fees on borrowers, including those wanting to refinance. During Thanksgiving week in 2010, Freddie quietly announced that it was raising charges, called post-settlement delivery fees.

In a recent white paper on remedies for the stalled housing market, the Federal Reserve criticized Fannie and Freddie for the fees they have charged for refinancing. Such fees are “another possible reason for low rates of refinancing” and are “difficult to justify,” the Fed wrote.

A former Freddie employee, who spoke on condition he not be named, was even blunter: “Generally, it makes no sense whatsoever” for Freddie “to restrict refinancing” from expensive loans to ones borrowers can more easily pay, since the company remains on the hook if homeowners default.

In November, the FHFA announced that Fannie and Freddie were eliminating or reducing some fees. The Fed, however, said that “more might be done.”

The regulator as owner

The trades raise questions about the FHFA’s oversight of Fannie and Freddie. But the FHFA is not just a regulator. With the two companies in government conservatorship, the FHFA now plays the role of their board of directors and shareholders, responsible for the companies’ major decisions.

Under acting director DeMarco, the FHFA has emphasized that its main goal is to limit taxpayer losses by managing the two companies’ giant investment portfolios to make profits. To cover their previous losses and ongoing operations, Fannie and Freddie already had received $169 billion from taxpayers through the third quarter of last year.

The FHFA has frustrated the administration because the agency has made preserving the value of the companies’ investment portfolios a priority over helping homeowners in expensive mortgages. In 2010, President Barack Obama nominated a permanent replacement for acting director DeMarco, but Republicans in Congress blocked him. Obama has not nominated anyone else to replace DeMarco.

Even though Freddie is a ward of the state, top executives are highly compensated. Peter Federico, who was in charge of the company’s investment portfolio when most of these leveraged investments were made, earned $2.5 million in 2010. He left the company in May 2011.

One of Federico’s responsibilities — tied to his bonuses —  was to “support and provide liquidity and stability in the mortgage market,” according to Freddie’s annual filing with the Securities and Exchange Commission. Mortgage experts contend that the inverse floater trades don’t further that goal.

ProPublica and NPR made numerous attempts to reach Federico. A woman who answered his home phone said he declined to comment.

The FHFA knew about the trades before ProPublica and NPR approached the regulatory agency about them, according to an FHFA official. The FHFA has the power to approve and disapprove trades, though it doesn’t involve itself in day-to-day decisions. The official declined to comment on whether the FHFA knew about them as Freddie was conducting them or whether the FHFA had explicitly approved them.

Liz Day of ProPublica contributed to this story.

Correction Feb. 3, 2012: Peter Federico, who was in charge of Freddie Mac’s investment portfolio, left the company in May 2011. A previous version of this story incorrectly said he still held that position.

by A.C. Thompson

A Texas district attorney has decided to re-try an Amarillo man on charges that he sexually assaulted a six-month old girl, just days after the state’s appeals court threw out his 2003 conviction.

ProPublica, PBS “Frontline,” and NPR examined the case against Ernie Lopez last year, raising questions about the soundness of the medical evidence used against him. The appeals court ruled that Lopez had received ineffective counsel because his lawyer failed to challenge testimony by the medical examiner and other prosecution witnesses that the child’s injuries were caused by abuse.

The baby, Isis Vas, died shortly after the alleged assault.

The court left it up to the local prosecutor to decide whether Lopez would go free or face a second trial.

“The case is not going to get dismissed,” Potter County District Attorney Randall Sims told ProPublica and PBS “Frontline.” Sims represents the state’s 47th Judicial District.

In a press conference yesterday, Sims made it clear that he will go forward with a second trial.  “He’s coming back on the exact same charge,” said the prosecutor, according to the Amarillo Globe-News. “The case is at the exact same place any case would be right after it’s been indicted by the grand jury.”

In the years since the trial, Lopez’s appellate attorneys have marshaled an array of experts who’ve challenged the notion that he sexual assaulted and violently shook Vas, pointing to medical evidence suggesting she may have been killed by a blood disorder brought on by an infection. The condition can mimic the symptoms of child abuse.  

The case highlights a growing international debate about the soundness of the science used to prosecute cases of fatal child abuse and sexual assault. At least 23 people in the U.S. and Canada have been wrongly accused of killing children, and in California, Gov. Jerry Brown is currently considering granting clemency to a woman convicted of shaking her 7-week-old grandson.

by Daniel Victor

Here are this week's top must-read stories from #MuckReads, ProPublica's ongoing collection of the best watchdog journalism. Anyone can contribute by tweeting a link to a story and just including the hashtag #MuckReads or by sending an email to MuckReads@ProPublica.org. The best submissions are selected by ProPublica's editors and reporters and then featured on our site and @ProPublica.

In China, human costs are built into an iPad, New York Times

The workers who assemble iPhones, iPads and other Apple products labor in dangerous environments, but a radical overhaul would slow innovation.

Contributed by @ericuman

Dispute over drug in feed limiting US meat exports, MSNBC

The controversial drug ractopamine has sickened or killed more pigs than any other livestock drug on the market, leading the European Union and China – which together produce and consume about 70 percent of the world’s pork – to refuse to import meat raised on the additive. The U.S. pork industry wants to change their minds.

Contributed by @naomistarkman

Texas hate crime law has little effect, Austin American-Statesman

A decade after a Texas hate crime law was enacted, just 10 cases have been prosecuted despite hundreds of hate-crime reports. Only one case has gone to a jury.

Contributed by @AASInvestigates

Washington state is wasting millions to help sex predators avoid lockup, Seattle Times

Two hundred and eighty sex offenders in Washington State are locked up indefinitely "as a way to protect society.” Under state law, prisoners who are legally defined as "violently sexual predators" are legally allowed to be detained after their sentences are through. Part of a series.

Contributed by James Neff

In police training, a dark film on U.S. Muslims, New York Times

At least 1,489 police officers have been shown an anti-Muslim film during training, according to documents obtained by the Times. A top police official denied in January 2011 that the department had used the film, then said it had been mistakenly screened "a couple of times" for a few officers.

Contributed by Richard Tofel

Con artist starred in sting that cost Google millions, Wall Street Journal

Google agreed to pay $500 million to avoid prosecution for aiding illegal sales of pharmaceuticals. The settlement “signals that, where evidence can be developed that a search engine knowingly and actively assisted advertisers to promote improper conduct, the search engine can be held accountable as an accomplice,” said to the lead prosecutor.

Contributed by @kleinmatic

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by Lois Beckett

An investigative series by the New York Times and a performance piece by Mike Daisey featured on This American Life have put the spotlight on Foxconn, the Taiwanese company whose massive Chinese factories manufacture some of the world's most popular consumer electronics.

As well as working with companies like Dell, Motorola, Nokia and Hewlett-Packard, Foxconn assembles popular Apple products like the iPhone and iPad.

Here's a quick look at what we know about Foxconn. (The company disputes workers' accounts of abusive conditions. In a 2010 company report, Foxconn said it promotes "employee respect, an atmosphere of trust, and personal dignity.")

Working for Foxconn

1.2 million: number of workers employed by Foxconn in China, according to the New York Times.

40: Estimated percent of the world's consumer electronics manufactured by Foxconn.

7: seconds it takes Foxconn's workers to complete a single step of their work, according to a survey cited by the New York Times.

12: Hours in a typical work shift, according to interviews with Foxconn employees.

83.2: Average hours of overtime worked each month, according to a 2010 survey of Foxconn employee.

13: age of a Foxconn employee Mike Daisey interviewed outside the gates of a Foxconn plant in Shenzhen.

91: cases of underage labor found by Apple's audits of its suppliers in 2010, the year Daisey visited China.

3,000: number of workers Foxconn could hire overnight, according to Apple's former worldwide supply demand manager.

10-20: percent estimated monthly turnover in Foxconn's workforce.

$7,500: amount founder Terry Gou used to start the anchor company of Foxconn Technology Group in 1974, according to the company website.

$5.7 billion: Terry Gou's estimated net worth as of March 2011.

Living Conditions

230,000: number of workers at "Foxconn City" in Shenzhen, according to the New York Times.

13: tons of rice prepared each day at the central kitchen at Foxconn City.

$0.65: meal allowance for dinner at the Foxconn City canteen in 2010.

2: number of free swimming pools there, according to The Telegraph, which noted that the pools "are said to be quite dirty."

70,000: number of workers at Foxconn's Chengdu plant who live in company dorms, according to the New York Times.

20: number of employees sometimes packed into a three-room apartment.

200: Reported number of police officers who responded to a Foxconn dormitory riot.

Deaths

17: Number of reported suicides of Foxconn workers in China between 2007 and February 2011, according to Wired. Eleven workers died after jumping off buildings in the Foxconn Campus in Shenzhen, which were then draped with preventive netting. (Wired noted that the rate actually seems to be below China's national averages.)

70: number of psychiatrists employed by Foxconn to prevent suicides, according to a 2010 announcement by CEO Terry Gou.

100: Estimated number of employees at a Foxconn factory in Wuhan who stood on the roof of a factory building this month to protest working conditions and wages. Several threatened to commit suicide, according to the New York Times.

$450: monthly salary a worker involved in that protest said employees had been promised for moving from the Foxconn campus in Shenzhen to one in Wuhan.

34: continuous hours a Foxconn employee worked in 2010 before he collapsed and died, according to media reports.

4: workers killed last year by an explosion at a Foxconn factory in Chengdu, China that assembles iPads.

$22: approximate daily salary earned by Lai Xiaodong, a 22-year-old college graduate, working at a Foxconn factory in Chengdu, China, according to the New York Times.

$150,000: approximate amount the company wired Lai's family after he was killed in the aluminum dust explosion.

by Minhee Cho

When popular websites like Wikipedia and Reddit decided to blackout their pages last week in protest of SOPA, otherwise known as the Stop Online Piracy Act, the controversial bill got thrown to the forefront of public discussion.

The problem was, as ProPublica's Dan Nguyen soon realized, it was extremely difficult to find information on where members of Congress stood on the bill.

"When I set out to look up information I was disappointed at how hard it was to really find much," Nguyen said. "Part of it is just the way information in general is organized for our government. It's not like there's some central site where politician A and B can just say, 'Here's my position on this,' and it's easy to find."

Lucky for us, Nguyen was inspired to independently research this information and mapped out his results on a news application he called SOPA Opera. In this week's podcast, he explains what SOPA and its Senate equivalent, Protect IP Act (PIPA), entail; how he came to create the news app; and his reaction to SOPA Opera going viral.

Read the full transcript below and subscribe to all of ProPublica's podcasts on iTunes.

TRANSCRIPT

Mike Webb: Hi, I'm Mike Webb and welcome to the ProPublica Podcast. Last week, a passionate battle took place over a proposed bill in the House known as SOPA, the Stop Online Piracy Act, and a similar bill in the Senate called PIPA, the Protect IP Act. On one side were Hollywood entertainment companies who believe SOPA will curb the illegal distribution of movies and music. On the other side were online companies like Google, Facebook, and Wikipedia who were concerned that the bills would be too difficult to implement and tantamount to censorship. So what was true and what wasn't? That's what ProPublica news application developer Dan Nguyen wanted to know.

To find out, he created an online resource on his personal website with details about the bill and info on who was for SOPA and who was against it. When the staff at ProPublica saw it, we asked him to move it over to our site and it turned out to be one of the most viewed pages in ProPublica history.

Joining us in the storage closet studio to talk about the project is Mr. Dan Nguyen. Welcome to the podcast.

Dan Nguyen: Hey, Mike. How are you doing?

Mike: All right. Dan, what would SOPA actually do if it were enacted?

Dan: SOPA is trying to go after what it calls "foreign rogue websites," and these are websites that are not on American soil that are distributing the latest Hollywood movies or music and the U.S. system can't go after them as it stands now. The law would provide this legal framework in which companies like Google would be asked to de link these foreign sites that are sharing illegally pirated material. From the American perspective, it's still illegal for you to copy your movies and send them around, but, of course, the police here can come after you. They can't really do that for an overseas site, so this is one way to stop the spread of illegally pirated material from coming outside of America into America.

Mike: The online companies were against it because they didn't want to be held responsible?

Dan: Yes. They argue that this would create an undue burden on their operations. If they are already hosting pirated content because a user uploaded it to them, they have the responsibility once they're notified to remove it and they saw SOPA as increasing that burden to a degree that they couldn't follow. That was their interest in this whole thing. The fight over SOPA and its Senate version, Protect IP, has been going on for a while, actually. I briefly read about the bills, and in most of the major online forums it's been highly talked about for months. To be honest, I didn't really pay that much attention to it but over the holiday break I think the news was that this was an imminent thing as far as it progressing through Congress.

I just wanted to know more about the bill. I also thought, judging by the volume of controversy that it had generated, at least online, that this was like the healthcare bill in the way that every politician would have said something by now on it. When I set out to look up information I was disappointed at how hard it was to really find much.

Part of it is just the way information in general is organized for our government. It's not like there's some central site where politician A and B can just say, "Here's my position on this," and it's easy to find. The easiest thing to do is go on their Facebook page. Then during the Congressional recess not many politicians had taken a stand besides the many cosponsors, of course, and a couple of dozen politicians, mostly centered in the Bay Area, who obviously have constituents who are highly against it.

Otherwise, it was really, for me, just like looking up as many Congress members as I could. It really wasn't something that was high on anyone's list beyond the people who are deeply involved in authoring and pushing the bill forward.

Mike: Who had a stake. Everything was under the radar. You wanted to figure out what was what.

Dan: Like programming. Sorry, I should say that sometimes it's hard for me to get into programming, but when I have something like a goal in mind that I can make something useful to other people while practicing programming, that's always a good incentive. Yeah, I was annoyed at how hard it was to find this information. For me, the app wasn't really that complicated. It's pretty straightforward display of who was saying what about SOPA.

Mike: Was the hardest part trying to figure out where everybody stood on the bill?

Dan: Yeah. Trying to find that information was difficult because, again, not many people had said much about it. It wasn't even that you could just visit everyone's official page. Like everyone has a different kind of way they run their official Congressional page and some of them barely update them, some of them don't have a press releases section.

Mike: Did you go to each individual page to put it all together?

Dan: Yeah. There are a good number of legislative resources that non profits like govtrack.us and opencongress.org and the New York Times, they've got pretty good repositories of the official information, so finding the sponsors was easy, obviously. Then it was just basically going to Google, Google News, typing up some congress member's name and typing in SOPA and seeing if anything came up. Usually the answer was no. Yeah, I guess I wanted to show everyone in Congress and when I first put it up it had less than 100 people on it and that was just through a ton of research. Finding stuff like the hearings and all that is not at all straightforward.

Mike: Yeah. You did it all on your own, right?

Dan: Yeah. There's one hearing on SOPA and it's in this archaic Windows web format that I had to pull out an old laptop to try to get it to view. There was no printed transcript from what I could see and then the Senate site's completely different structured. When I made the site the initial response that I got from people was, "Oh, my gosh, I can't believe Senator Franken is for this bill." Actually, that was the most common name that I saw. I think people associate his neutrality stance as being one that would also be against SOPA or Protect IP and, in fact, he's one of the most fervent defenders of the law.

Mike: Because he probably has a stake as an actor.

Dan: Yeah, you can say that he was in the industry and so has a different take on it. Even after the entire blackout thing many senators, many cosponsors, backed off. I think last Friday he wrote a pretty long blog post telling people tough luck. He feels very passionate about this. So anyway, when I was making the app the initial response from people was like, "Oh, my gosh, I can't believe it has this much support," or, "I can't believe that this many Republicans are against it." Because, again, I think people automatically assume that one party or the other is trying to regulate things. And I think probably one of the most useful things my app did I mean, there are a lot of great resources out there. But I think one thing mine did well was to show right away, "Oh, there's a lot of red and blue here on both sides. This is a bipartisan issue."

And that's what the backers would say, too, is, hey, that's one thing you can say about his bill, it's united a lot of people for it. And so their reasoning is, "Oh, that must be a great bill."

Mike: I think the visual aspects is what made it so appealing. You can see who's for and against it right away. So you were getting decent traffic at your site, but then you moved it over to ProPublica. Why was that?

Dan: Yeah. I mean, that was always kind of the goal. I told my boss, Scott, that I just wanted to kind of demo it on my own. Since I was doing it on my own time, I don't have the time to make sure all my I's were dotted and all that. It was good to put it out there and see what kind of criticism I would get. For the most part it was all very positive in terms of people who were trying to find out information. I always thought that ProPublica was a natural place for it, because we try to make transparent these kind of issues. You could say we could do this for any law, but SOPA was kind of the talk of the town at that point.

And so, yeah, I knew it would get bigger exposure at ProPublica. It was getting pretty good traffic from Reddit and all that. But, yeah, I had also seen that very few mainstream news organizations had really spent much time covering this, so I thought we could be one of the first out the gate. So it worked out well for everyone.

Mike: It seemed like the hardest part was sort of keeping it up to date, because so many politicians were changing positions on the law.

Dan: From that point on, when I had gotten to work I was typing out emails as fast as I could to people who were sending me in updates. I literally would be typing an email and two more would come in. So people really engaged. Obviously having Craigslist and Wikipedia and all those other sites draw attention to it. Having Craigslist link to us, and Reddit, and various other sites. Yeah, people were very interested in getting as many people and telling us about what their legislators were saying. And telling us, "Oh, I called my legislator and this is what they said."

So, yeah, it was very difficult to keep up with that, but also very gratifying to see people take such an active stance on civic issues.

Mike: Do you think people really understood what was in the bill? Or some of the fears kind of coming from the online companies?

Dan: I think as with any big piece of legislation, things are simplified. And so the way to sell people on opposing this bill is to say, "Oh, it amounts to censorship." And of course the people who back it wouldn't I mean, there's actually language in there explicitly saying, "Hey, this isn't about censoring." But what the companies are arguing is it's tantamount to it, because if you put these kinds of penalties and responsibilities on the online company, they're going to move forward with their own corporate policies that dampen speech on their networks.

And so is that going too far that that's censorship? Obviously it depends on what side of the coin you are. Of course the people who back the law talk about it in very black and white terms of how this all about stopping piracy and protecting content creators. And of course it's not that simple as well.

Yeah, it's hard to say. And much of the law was still under discussion. It was supposed to go the before the holiday recess, they were still in the middle of amending it and they didn't get through it. And they were going to jump right back into it until this blackout happened. There was a lot of moving parts.

But, yeah, I don't think it was a very easy to understand law by anyone, either by the supporters or the opponents.

Mike: Why don't you tell us a little bit about the before and after visual you created? How you put that together.

Dan: Sure. For me, that took about a minute. And it was an obvious thing to do, because I know one constant thing I heard since making this was like, again, "Oh, my gosh, look at how many people are for this versus the people who are against it." It was like 80/30 before the blackout, and then afterwards it was 60 some to 130 or so, something like that. And that was even me being way, way behind on updates. This was like way past midnight too, so I didn't get them all in. But I know, for me, it was just cool to see, again, before the blackout it was hard to find anything on record from politicians about this, and then during the blackout apparently a lot decided to jump on the bandwagon. So I knew it would be a strong visual to see what one 24 hour day of activism can bring out with hundreds of thousands of calls pouring in to our legislator's offices.

Mike: What's the status of the bill now?

Dan: It's pretty much dead in the water.

Mike: Are they going to try to rewrite it?

Dan: Protect IP was a different law. A year ago, again, proposed by Senator Leahy and blocked by Senator Widen, who's also the principle opponent in the Senate against Protect IP. So, yeah, the backers who are behind it are very much still behind it. Senator Franken, again. So they probably will rewrite the bill. From their own admissions it sounded like they had tried to tackle too much at once. They were obviously clearly unprepared for the backlash by the online community. But, yeah, there was nothing, as far as the hundreds of statements that I looked at, there was nothing that was contrite in that. Like, "Oh, we should never have even thought about this." It was more like, "Oh, we obviously need to think about... We, the legislators still care very much about stopping online piracy, so we're going to go about it in a different way. Try to come up with a better law that meets everyone's needs."

So, yeah, this is clearly something that's going to be fought repeatedly over and over again in the future.

Mike: All right. Thanks for joining us, Dan.

Dan: Mm hmm.

Mike: For more information about SOPA and PIPA and to see Dan's work, visit Projects.ProPublica.org/SOPA. And now for our Officials Say the Darndest Things Tumblr Quote of the Week. "After the Wikipedia blackout, somewhere a student today is doing original research and getting his or her facts straight. Perish the thought." Who said it? Jonathan Lamy, senior vice president of the Recording Industry Association of America, regarding Wikipedia's blackout in protest of SOPA and PIPA.

OK, that's it for this week's show. Thanks as always to Minhee Cho for producing this podcast, and a long overdue offer of appreciation to our editor, Colin Tipton, who makes this program more listenable for you. Thanks you checking it out. For ProPublica, I'm Mike Webb. We'll catch you next time.

Transcription by CastingWords

by Michael Grabell

We're seeking anyone who has had personal experience with certain X-ray devices. Please see the bottom of the story for information on how you can contribute.

U.S. law enforcement agencies are exposing people to radiation in more settings and in increasing doses to screen for explosives, weapons and drugs. In addition to the controversial airport body scanners, which are now deployed for routine screening, various X-ray devices have proliferated at the border, in prisons and on the streets of New York.

Not only have the machines become more widespread, but some of them expose people to higher doses of radiation. And agencies have pushed the boundaries of acceptable use by X-raying people covertly, according to government documents and interviews.

While airport scanners can show objects on the surface of the body, prisons have begun to use X-rays that can see through the body to detect contraband hidden in cavities. U.S. Customs and Border Protection is in the process of deploying dozens of drive-through X-ray portals to scan cars and buses at the border with their passengers still inside.

X-ray scanners have been tested at ferry crossings, for visitor entries at the Pentagon and for long-range detection of suicide bombers at special events. And drawing the ire of privacy groups, Customs and the New York Police Department have deployed unmarked X-ray vans that can drive to a location and look inside vehicles for drugs and explosives.

Most federal health regulations for medical X-rays do not apply to security equipment, leaving the decision of when and how to use the scanners almost entirely in the hands of security officials.

Although the 9/11 attacks provided the impetus and prompted the spending to develop such equipment, most of the machines have been deployed only in the last few years. New attacks and ever-tighter security measures have made law enforcement officials more willing to expose the public to X-ray devices that were once taboo.

When the body scanners were introduced in prisons in the late 1990s, the Food and Drug Administration convened an advisory panel. Several of the outside scientists warned that once the longstanding practice of X-raying humans only for health reasons was ended, it was just a matter of time before the machines would become acceptable in airports, courthouses and schools.

"This is exactly what I was afraid was going to happen back when we had the FDA meetings," said Kathleen Kaufman, who as director of Los Angeles County's radiation management program served on the advisory panel.

The FDA has little authority to regulate the use of electronic products emitting radiation. Because security scanners are not classified as medical devices, the agency doesn't approve them for safety before sale. And it can go after only the manufacturers for excessive radiation -- not the users of the machines for deploying them too frequently or in other questionable ways.

Handicapping its power even more, the FDA ultimately went against the advisory panel's recommendation to adopt a federal safety standard for the new security devices. Instead, it followed congressional direction to use industry standards wherever possible and let the scanners fall under voluntary guidelines set by a nonprofit group made up largely of manufacturers and agencies that wanted to use the X-ray machines.

It is difficult to estimate the long-term health risks of low levels of radiation. At higher levels, ionizing radiation -- the energy used in the scanners -- has been shown to damage DNA and mutate genes, potentially leading to cancer. A comprehensive study by the National Academy of Sciences concluded that the more radiation a person gets, however little at a time, the greater their lifetime risk of dying from cancer.

The manufacturers counter that their machines emit extremely low levels of radiation, hundreds of times less than a chest X-ray. Humans are constantly exposed to background radiation from radon in the ground and cosmic rays in the atmosphere. In comparison, the radiation from security devices is trivial, they say.

Moreover, the X-ray scanners have produced a number of success stories, intercepting immigrant smugglers, unearthing tons of cocaine and other drugs, preventing contraband in jails and adding a layer of protection to the nation's transportation system, according to the agencies that use them.

But the rapid expansion raises serious questions about whether the United States is sacrificing safety in the name of security.

"Because of the wide proliferation of these things, we don't know who's using them and how frequently," said Peter Rez, an Arizona State University physicist who has criticized the use of the machines. "It's not that the radiation from these machines is very high. It's 'Does the benefit outweigh the risk?'"

X-rays on Wheels

One of the first technologies after 9/11 that would expose humans to X-rays was the Z Backscatter Van -- essentially a x-ray scanner on a truck -- made by American Science & Engineering.

The device, which was deployed by the military to detect car bombs in war zones, uses X-rays that are designed to find organic materials such as drugs and explosives. The rays scatter back to a detector rather passing through an object as in a medical X-ray. The van can scan while driving alongside a line of vehicles or while parked as they pass by.

According to a company presentation obtained by a civil liberties group, the Electronic Privacy Information Center (EPIC), a backscatter van delivers a radiation dose about twice that of an airport body scanner.

Soldiers serving in Iraq nicknamed the vans "white devils." Customs officers call them "ice cream trucks."

Customs and Border Protection has purchased 75 backscatter vans for use at border crossings, ports, Border Patrol checkpoints and even the Super Bowl, according to agency records. Customs spokeswoman Jenny Burke said passengers must exit the vehicle before the scan.

While the Transportation Security Administration hasn't bought them, it tested them at a Delaware ferry crossing in 2004 and at a Long Island ferry crossing in 2009, spokesman Greg Soule said. In the first test, passengers weren't in the vehicles. But in the second test, passengers remained in the vehicles but could opt out, he said. Another TSA test in 2009 was conducted in northern New Jersey on empty commuter train cars in a rail yard.

The X-ray vans have also shown up on American streets. In 2010, Homeland Security officials conducted an exercise scanning tractor-trailers on Interstate 20. And the New York Police Department uses the vans.

The NYPD has declined to release details about the use of the machines.

ABC News reporters Richard Esposito and Ted Gerstein provide one of the few accounts of the backscatter van in a book they wrote chronicling a year inside NYPD's bomb squad. Describing the security ahead of President Bush's motorcade to the 2004 Republican convention, they wrote that every vehicle entering the street in front of the hotel was ordered to drive between two unmarked white vans, which X-rayed each vehicle for bombs.

Such covert use of radiation, if done without informed consent, would violate the industry standard.

"The institution operating the system shall inform each person being screened that the system emits radiation," the standard states. It also requires that people be told the radiation dose and that there be a visible indicator when X-rays are emitted.

Joe Reiss, AS&E's vice president of marketing, said although the vans are designed for covert use, the vans comply with the standard because they have two lights that flash when a scan is in progress.

Kevin Barry, an NYPD bomb squad detective who retired in 2002, said that when he was there, the police ensured that the area was clear of people any time they used X-ray equipment and that officers wore film badges to monitor radiation exposure.

"They're very cognizant of the fact that if there's a radiation issue that they have to monitor the health issue," he said.

But even if a violation were discovered, there is little the FDA can do because the standard is voluntary and not a federal regulation.

The FDA, which said it doesn't regulate the "use" of security scanners emitting radiation, referred questions to New York State, which also said it does not regulate the scanners and referred questions to the New York City Department of Health, which also said it does not regulate the devices.

Drive-through Scanners

Customs and Border Protection is also installing 35 drive-through X-ray portals purchased with economic stimulus money, according to a company report posted on the government's stimulus website, Recovery.gov.

A test system was installed at the San Ysidro border crossing in San Diego in 2008 and portals will soon be deployed in El Paso and Laredo, Texas, and elsewhere on the Southwest border, according to contract documents obtained by the privacy group EPIC.

The portals, made by AS&E, can scan cars and buses from the top and sides as their drivers pass through at 3 mph.

The scanners' X-rays have to penetrate metal and glass. But according to Customs and the company, the radiation dose is equivalent to an airport body scan.

The dose is low because Customs officers do not need as high a resolution to see bulk explosives or drugs as a TSA screener would need to see a tiny detonator or a razor blade, said Rez, the Arizona State physicist. He estimated the dose by analyzing the images with a computer program.

The company says the portal is safe for everyday use. But Burke, the Customs spokeswoman, said it won't be used on every driver crossing the border -- only those who raise suspicion and require additional inspection. Passengers will be allowed to opt out and have a Customs officer drive it through the portal for them.

Ginger McCall, director of EPIC's Open Government program, is skeptical.

"You know what else started out as a secondary screening mechanism?" she asked. "Airport backscatter machines. The TSA said 'don't worry' to the American public. 'These are only going to be used as secondary screening devices.' And look how that turned out."

"Intelligent Pedestrian Surveillance"

There are now about 250 X-ray body scanners in airports nationwide. But government agencies are exploring additional uses for the technology.

In 2010, the military brought two TSA body scanners to the Pentagon visitors' entrance, where they were tested by Defense Department staff. But plans were put on hold pending TSA testing of new privacy software that wouldn't show an image of a person's body.

"There's now technology which makes it look like a cartoon figure," said Chris Layman, spokesman for the Pentagon Force Protection Agency. "We wanted to make sure that if we did this, all the privacy concerns are taken care of."

The Department of Homeland Security has funded research for walk-through X-ray body scanners that could be used at special events, and for long-range X-ray scanners to detect suicide bombers in crowds, according to documents obtained by EPIC.

Using similar backscatter technology, the walk-through scanner would speed up checks that now require people to stand with their hands over their heads while scanned. In tests of the long-distance scanner, according to contract documents, officials wanted to see whether it could identify people with metal and dense plastic from up to 30 feet away.

"Customers need a greater capability than what is currently available for detecting IEDs on people," Homeland Security officials wrote in a statement of work for a technology dubbed the "Intelligent Pedestrian Surveillance Platform." "This is especially relevant at high-volume public areas and entrances to important infrastructure."

The radiation dose for such a scanner was listed in 2006 as 10 times higher than that of an airport scanner.

Intelligence released last summer that terrorist groups are considering implanting bombs in their bodies has raised concerns that the TSA would one day deploy X-ray scanners that can see into the body. In the past, the agency has declined to say whether it had ever considered the technology, known as "transmission X-rays."

But other Homeland Security documents, also obtained by EPIC and provided to ProPublica, show that in 2010, Homeland Security's science and technology division entered into an agreement with the FDA to test such technology.

"Transmission X-ray devices are being considered by DHS for passenger screening," the statement of work says. "The proposed use of transmission methods for routine passenger screening may have significant health & safety implications and requires special study and evaluation."

John Verrico, a spokesman for the department's science and technology division, said the proposed tests never went forward and the discussion of transmission X-rays was ultimately removed from the final statement of work.

"Transmission X-ray systems have not been tested," he said in an email. "Personnel have viewed vendors' demonstrations at their locations to evaluate the maturity of the equipment and the state of the technology."

"Treating People Like Luggage"

Such machines, however, were introduced in prisons in 2011.

A transmission X-ray body scanner, the RadPRO SecurPASS, is sold by Virtual Imaging, a Florida subsidiary of Canon USA. In the last year, it has been installed at the Cook County Jail in Chicago; several jails in Florida and Alabama; and the Federal Transfer Center in Oklahoma City, a temporary detention center for inmates being transported across the country.

The dose has two settings. The standard setting delivers a radiation dose about 10 times higher than that of an airport body scanner. But to produce a better image, the operator has the ability to switch to a higher exposure, said Kris Kessler, creative marketing manager for Virtual Imaging.

That dose is still a fraction of the radiation received in a chest X-ray or cross-country flight. But it's more than 50 times higher than that of an airport scanner.

Even with the standard setting, the quality of the image produced by the SecurPASS is so good that people don't have to take off their jackets or shoes, as they do before going through the airport scanners, Kessler said.

"It's almost like we're treating people like luggage," he said.

The device has already made some interesting finds. One inmate was found to have swallowed 10 pouches of heroin, Steve Patterson, then the Cook County Sheriff's Office spokesman, told ProPublica last year. Another inmate, he said, was found to have kidney stones.

Jails use the SecurPASS mostly on prisoners as they leave and come back from work detail, Kessler said. But some facilities are considering using it on employees as well, he added, to prevent them from bringing in contraband.

Dennis Wolfe, Virtual Imaging's national sales manager for security products, said he has had conversations with the TSA and that a test lasting several months was overseen by Homeland Security science and technology staff in 2010 and 2011. The department denied that.

The device, which was initially used to prevent theft in diamond mines, has already been used at London's Heathrow Airport to scan suspected drug mules. (Customs officials in the United States and other countries can, with a traveler's consent, order a medical X-ray, which would deliver a higher radiation dose.)

For now, however, Virtual Imaging is focusing on corrections facilities.

Chris Burke, a spokesman for the Federal Bureau of Prisons, said the system is running a pilot test of various scanners but has not made a decision.

Still, Wolfe said he expects many federal prisons and larger jail systems to be using the SecurPASS in the next few years. "It doesn't take a rocket scientist," he said. "If somebody's hiding something up their butt, which technology are you going to use?"

The rapid growth of X-ray scanning for security and the limited authority granted to regulators make it difficult to keep track of the equipment.

Two airport body scanners, for example, were recently auctioned off by the General Services Administration. A new scanner typically sells for $170,000. But these scanners, which had been in storage, were sold for a total of $600.

Under FDA regulations, sellers would normally be required to keep records of who purchases their X-ray products. But because the FDA never adopted a mandatory safety standard for the airport body scanners, this rule does not apply.

To help determine the extent of the use of these devices, we're seeking stories from those who have had personal experience. Please share your stories in a private email to xray@propublica.org.

We are especially interested in the following:

• Have you seen the NYPD backscatter vans? If so, where and how were they being used?
• Have you gone through a Z Portal at the border? What was your experience?
• If your car was scanned by a backscatter van by Customs or Border Patrol, were you asked to get out of the car or did you remain inside?
• If you work in a prison or jail with an X-ray body scanner, how are they used?
• Have you seen these technologies anywhere we didn't mention in the story?
• Do you know of other security X-ray products that are being used or developed?

Any information is appreciated.

by Cora Currier

New York Gov. Andrew Cuomo will spend this weekend discussing infrastructure projects at the Democratic Governors Association's winter policy meeting. The meeting will focus on public-private partnerships, and Cuomo is the big draw, a rising star who just unveiled a massive infrastructure fund for the state.

He's also the event's big fundraising draw, luring the "private" in "public-private." The Wall Street Journal and New York Times obtained a letter from a lobbyist to prospective corporate donors, offering them a spot on the panel with Gov. Cuomo for a $50,000 donation to the DGA. (Cuomo's panel was the top spot; places on other legislators' panels were offered for $25,000.) The event is closed to the media and the public.

There are, of course, countless ways to give money to politicians, but the solicitation seems to put a twist on your typical rubber-chicken fundraiser. The event was billed as a policy discussion.

Cuomo's allure for corporate donors is particularly notable. He campaigned under the slogan "Clean Up Albany" and pledged to rid New York of "pay-to-play" situations in which corporations or their lobbyists offered campaign donations or other gifts in exchange for access to government officials and contracts. During the campaign, Cuomo championed his record as an attorney general who cracked down on pay-to-play and illegal campaign finance contributions from nonprofits.

Campaign finance groups have applauded Cuomo's efforts as well. In his State of the State address in early January, he called for lower limits on campaign contributions, stricter enforcement and voluntary public financing of elections. Of course, that would affect only New York state, not the federal campaign finance laws that allow independent groups to collect unlimited corporate donations.

The fundraising by the governors' association appears to be perfectly legal. Unless there is concrete evidence that a campaign contribution constitutes an actual intent bribe, it is protected as free speech and is not a gift subject to ethics regulations. There's also nothing in campaign finance law that prevents donors from paying to attend events with elected officials nor anything that prevents corporations from making unlimited contributions to independent groups like the DGA. Indeed, even if a corporation that donates to the DGA and attends a panel with Cuomo later lands an infrastructure contract in New York state, there would likely be no legal violation.

New York lobbyists like Tonio Borgos, who sent the letter, are often "bundlers," acting as conduits between politicians and interest groups, bringing in a lot of cash, and potentially amplifying their influence and that of their clients. (Burgos was an aide to Cuomo's father, Mario Cuomo, during the latter's tenure as governor, and at least one of Burgos' clients, The Wall Street Journal noted, is involved in private-public partnerships.)

A DGA spokesman said there was nothing unusual about this event, and that the association had not coordinated with fundraisers. It declined to name the panel participants. (The DGA does disclose its top donors but not the attendees of specific events). Neither Burgos nor the governor's office returned calls requesting comment. In a statement to the Times, Cuomo spokesman Josh Vlasto said that "any funds raised go to the DGA, not the governor's campaign."

Russ Haven, legislative counsel for the New York Public Interest Research Group, said the perception of a conflict of interest is inherent in campaign finance law. "We have pretty good disclosure laws, so tongues will wag, but a donation doesn't necessarily prove anything," Haven said. "That's the problem with the system — everything's up for suspicion, even if you get something on the merits, even when things work the way they are supposed to."

by Michael Grabell

Sen. Susan Collins, the top Republican on the homeland security committee, plans to introduce a bill in the coming days that would require a new health study of the X-ray body scanners used to screen airline passengers nationwide.

The Transportation Security Administration began using the machines for routine screening in 2009 and sped up deployment after the so-called underwear bomber tried to blow up a plane on Christmas Day of that year.

But the X-ray scanners have caused concerns because they emit low levels of ionizing radiation, a form of energy that has been shown to damage DNA and mutate genes, potentially leading to cancer. ProPublica and PBS NewsHour reported in November that the TSA had glossed over cancer concerns. Studies suggested that six or 100 airline passengers each year could develop cancer from the machines.

Shortly after our report, the European Union separately announced that it would prohibit X-ray body scanners at its airports for the time being “in order not to risk jeopardizing citizens’ health and safety.”

The new bill drafted by Collins would require the TSA to choose an independent laboratory to measure the radiation emitted by a scanner currently in use at an airport checkpoint. The peer-reviewed study, to be submitted to Congress, would also evaluate the safety mechanisms on the machine and determine whether there are any biological signs of cellular damage caused by the scans.

In addition, the bill would require the TSA to place prominent signs at the start of checkpoint lines informing travelers that they can request a physical pat-down instead of going through the scanner. Right now, the TSA has signs in front of the machines noting that passengers can opt out. But the signs mostly highlight the images created rather than possible health risks.

The bill is the latest volley in a back-and-forth between Collins and the TSA. At a hearing in November, TSA administrator John Pistole agreed to a request from Sen. Collins to conduct a new independent health study.

But a week later at another hearing, Pistole backed off the commitment citing a yet-to-be-released report on the machines by the Department of Homeland Security’s inspector general.

“I have urged TSA to move toward only radiation-free screening technology,” Collins said in a statement to ProPublica. “In the meantime, an independent study is needed to protect the public and to determine what technology is worthy of taxpayer dollars.”

The TSA uses two types of body scanners to screen passengers for explosives. The X-ray machines, known as backscatters, look like two refrigerator-size blue boxes and are used at Los Angeles, Chicago O’Hare, New York’s John F. Kennedy, and elsewhere. The other machine, which looks like a round glass booth, uses electromagnetic waves that have not been linked to any adverse health effects. Those machines are used at airports in Dallas and Atlanta, among others.

The TSA says the radiation from the X-ray machines is minute, equivalent to that received in two minutes of flying at altitude. That measurement has been verified in previous tests by the Food and Drug Administration, the Johns Hopkins University Applied Physics Laboratory and the Army Public Health Command.

“All the previous independent testing showed that the machines are well below the national standard,” TSA spokesman Greg Soule said.

A group of vocal critics, primarily based at the University of California, San Francisco, has cast doubt on those tests, suggesting that the device used to measure the radiation isn’t equipped to provide accurate measurements on body scanners, among other flaws.

While not commenting specifically on the drafted legislation, Soule said, “the TSA is committed to working with Congress to explore options for an additional study to further prove these machines are safe for all passengers.”

by A.C. Thompson

This story was co-published with PBS Frontline.

The Texas Court of Criminal Appeals today set aside the conviction of Ernie Lopez, an Amarillo man found guilty in 2003 of sexually assaulting six-month-old Isis Vas. The baby died shortly after the purported attack.

Lopez has been serving a term of 60 years in Texas prison for the crime. But a joint reporting effort by ProPublica, NPR, and PBS "Frontline" last year explored the possibility that Lopez might be innocent.

In the years since Lopez's trial, a host of physicians have reviewed the medical evidence in the case, raising questions about the soundness of his conviction. Many of these specialists have come to believe that Vas actually died of natural causes, and that Lopez never assaulted the child at all.

During a tearful prison interview, the inmate insisted he wasn’t a sex offender and killer. "That's not my character," he said. "That's not who I am."

"We are very pleased with the Court of Criminal Appeals' decision to set aside Ernie’s conviction," said one of Lopez’s attorneys, Heather Kirkwood, in an email. "The Texas courts deserve ample recognition for the careful review of the record that led to today’s decision."

The Lopez case highlights the growing international controversy about the reliability of the science used to prosecute cases of fatal child abuse and sexual assault. In Canada and the U.S. at least 23 people have been wrongly accused of killing children based on questionable medical evidence, and California Gov. Jerry Brown is currently considering commuting the sentence of a grandmother convicted of fatally shaking her 7-week-old grandson.

The Texas court didn’t rule on Lopez’s culpability and did not set him free. Instead, the court concluded that Lopez received ineffective legal representation during his trial because his lawyers failed to challenge the prosecution’s medical evidence.

The ruling, which affirms the findings of a lower court, calls for Lopez to be returned to Amarillo, where local prosecutors will have the option to try him a second time or simply let him go.

In August 2010, Potter County Judge Dick Alcala recommended that Lopez's conviction be overturned, stating that Lopez's original attorneys had failed to "fully investigate the medical issues of whether a sexual assault had occurred" and "the cause of death of the child."

Kirkwood, who began representing Lopez after he’d been sent to prison, said she was hopeful that her client would be released on bond while District Attorney Randall Sims decides whether or not to retry Lopez.

During the appeals process, the prosecutor’s office tapped a number of medical experts who supported the conclusion that Vas had been sexually assaulted and abused.

A phone call to Sims was not immediately returned.