REASONS FOR LACK OF PROSECUTIONS AFTER 2008 COLLAPSE

ABSTRACT: In Judge Rakoff’s article entitled “The Financial Crisis: Why have no high-level executives been prosecuted?” [1] he discusses the reasons given by officials of the Department of Justice (DOJ) for the failure to criminally prosecute either individuals or corporations.

Finding the publicly presented explanations for the failure to prosecute unconvincing, Rakoff then proposes some other reasons. First, he suggests that law enforcement agencies had other priorities and limited resources. Another possible explanation is the government’s own involvement in setting the stage for the 2008 financial crisis. The de-regulation of banks and the financial industry was a contributing factor. The federal government also had for years encouraged the growth of home ownership and the availability of mortgages, including to low income home buyers. It had also supported less stringent documentation and underwriting standards for obtaining a mortgage.

Finally, Rakoff notes a 30-year trend toward prosecuting corporations rather than prosecuting individuals. He states that the traditional approach was based on the fact that organizations do not commit crimes, only their human agents do. Rakoff believes that prosecuting individuals has a much stronger deterrence value than prosecuting corporations. He also believes that prosecuting just the corporation and not any individual is both legally and morally wrong.

FULL POST: In Judge Rakoff’s * article entitled “The Financial Crisis: Why have no high-level executives been prosecuted?” [2] (See previous post of 2/9/14 for more details:  https://lippittpolicyandpolitics.org/2014/02/09/too-little-punishment-for-misbehavior-in-the-financial-sector/), he discusses the reasons given by officials of the Department of Justice (DOJ) for the failure to criminally prosecute either individuals or corporations that were involved in causing the 2008 crisis. First, they argue that proving fraudulent intent is difficult. However, Rakoff points out that with clear evidence of mortgage fraud (e.g., numerous reports of suspected mortgage fraud from within the financial institutions themselves), executives couldn’t escape prosecution by claiming they didn’t know what was going on. Furthermore, convictions, despite claims ignorance, are well established in criminal law based on the doctrine that “willful blindness” or “conscious disregard” does not exonerate a defendant.

Second, Department of Justice (DOJ) officials sometimes argue that fraud couldn’t be proved because the buyers of the mortgage-backed securities were sophisticated investors who knew enough not to rely on any misrepresentations and deception by the sellers. Rakoff states that this “totally misstates the law.” The law says that if society or the market is harmed by the lies of a seller, criminal fraud has occurred.

Third, Attorney General Holder himself said in testimony to Congress that in considering a criminal prosecution the impact on the US and world economies had to be taken into consideration. This is called the “too big to jail” excuse. Holder has said that his comment was misconstrued. Rakoff notes that this rationale is irrelevant in terms of prosecuting individuals because no one believes that a large financial corporation would collapse if one or more of its high level executives was prosecuted.

Finding the publicly presented explanations for the failure to prosecute unconvincing, Rakoff then proposes some other reasons. First, he suggests that law enforcement agencies had other priorities and limited resources. He notes that in 2001 the FBI had over 1,000 agents assigned to investigating financial fraud. In 2007, there were only 120 agents working on financial fraud and they had more than 50,000 reports of possible mortgage fraud to review. The shift of agents to anti-terrorism after 9/11 and budget limitations are the two causes he cites for this reduced capacity to respond to financial fraud.

The Securities and Exchange Commission (SEC) has been focused on Ponzi schemes and misuse of customers’ funds. It too is experiencing significant budget limitations. The DOJ has been focused on insider trading cases. When the 2008 financial collapse occurred, it spread the investigation of financial fraud among numerous US Attorney’s Offices in various states, many of which had little or no previous experience with sophisticated financial fraud.

Another possible explanation of the failure to prosecute, according to Rakoff, is the government’s own involvement in setting the stage for the 2008 financial crisis. The de-regulation of banks and the financial industry, including the repeal of Glass-Steagall, was a contributing factor. Both the SEC and the Treasury Department had had their power and oversight weakened by de-regulation. The federal government also had for years encouraged the growth of home ownership and the availability of mortgages, including to low income (and therefore higher risk) home buyers. It had also supported less stringent documentation and underwriting standards for obtaining a mortgage. Hence, the federal government helped create the conditions that led to mortgage fraud and a corporate executive could, with some justification, claim in his defense that he believed he was only trying to further the government’s goals.

In addition, after the 2008 collapse, the government made little effort to hold the financial corporations accountable when it bailed them out.

Finally, Rakoff notes a 30-year trend toward prosecuting corporations rather than prosecuting individuals. He states that the traditional approach was based on the fact that organizations do not commit crimes, only their human agents do. In addition, prosecuting an organization inevitably punishes totally innocent employees and shareholders. However, in recent years “deferred prosecution agreements” and even “non-prosecution agreements” with corporations have become the standard fare. Under these, a corporation and its employees avoid prosecution by agreeing to take internal, preventive measures to protect against future wrongdoing, often while paying a fine.

Rakoff believes that prosecuting individuals has a much stronger deterrence value than the internal preventive measures of “deferred prosecution agreements” that are often little more than window dressing. He also believes that prosecuting just the corporation and not any individual is both legally and morally wrong. Under the law, a corporation should only be prosecuted if one can prove a managerial agent of the corporation committed the alleged crime. If so, why not prosecute that manager? Morally, punishing a corporation and many innocent employees and shareholders for crimes committed by an unprosecuted individual(s) seems unjust.

*    Jed Rakoff is a United States District Judge on senior status for the Southern District of New York. A full-time judge from 1996 to 2010, he moved to senior status in 2010. Senior status is a form of semi-retirement for judges over 65 where they continue to work part-time. Judge Rakoff is a leading authority on securities laws and the law of white collar crime, and has authored many articles on those topics. He is a former prosecutor with the U.S. Attorney’s office in New York. [3]


[1]       Rakoff, J.S., 1/9/14, “The Financial Crisis: Why have no high-level executives been prosecuted?” The New York Review of Books

[2]       Rakoff, J.S., 1/9/14, see above

[3]       Wikipedia, retrieved 2/5/14, “Jed S. Rakoff,” http://en.wikipedia.org/wiki/Jed_S._Rakoff

TOO LITTLE PUNISHMENT FOR MISBEHAVIOR IN THE FINANCIAL SECTOR

ABSTRACT: One person who has both spoken out and acted when he felt the punishment for misbehavior in the financial sector was too lenient or lacking is federal District Court Judge Jed Rakoff.* In 2011, he refused to approve a proposed settlement with Citigroup related to the 2008 financial crisis because he thought that it was too lenient. Currently, he is withholding approval of settlement of an insider trading case. The proposed settlement would allow two men to settle the case for $4.8 million without admitting guilt.

SAC Capital, a huge, $15 billion hedge fund, has been charged in what probably is the biggest insider trading scandal ever. Five employees of SAC have already pleaded guilty to insider trading and the company itself has agreed to a record $616 million settlement. However, it is unlikely that anyone will go to jail and the head of SAC, despite any fines and restitution he may be required to pay, is likely to remain a billionaire.

Judge Rakoff recently wrote an article entitled “The Financial Crisis: Why have no high-level executives been prosecuted?” [1] Multiple authorities, including enforcement agencies, have describe what occurred in the run up to the 2008 financial crisis as fraud. Rakoff states that if the financial crisis was the result of intentional fraud, then “the failure to [criminally] prosecute those responsible must be judged one of the most egregious failures of the criminal justice system in many years.”

Rakoff notes that in previous financial crises individual perpetrators were successfully prosecuted. In the 1980s savings and loan crisis, which has strong parallels to the 2008 crisis but at a much smaller scale, over 800 individuals were successfully, criminally prosecuted.

Rakoff concludes by writing, “if it was [fraudulent misconduct] – as various governmental authorities have asserted it was – then the failure of the government to bring to justice those responsible … bespeaks weaknesses in our prosecutorial system that need to be addressed.”

FULL POST: One person who has both spoken out and acted when he felt the punishment for misbehavior in the financial sector was too lenient or lacking is federal District Court Judge Jed Rakoff.* For example, in 2011, he refused to approve a proposed settlement by the Securities and Exchange Commission (SEC) with Citigroup related to the 2008 financial crisis because he thought that it was too lenient.

Currently, he is withholding approval of settlement of an insider trading case where two men, acting on an illegal insider’s tip, bought $90,000 worth of securities a day before the announcement of the buyout of H.J. Heinz (the ketchup maker). The next day, when the buyout was announced, the securities became worth $1.8 million. The SEC’s proposed settlement would allow the two men to settle the case for $4.8 million without either admitting or denying guilt. Such settlement language had been standard practice for insider trading cases until a public debate erupted, prompted in large part by Judge Rakoff. In June 2013, the new chair of the SEC, Mary Jo White, announced a new SEC policy that would require some defendants to admit guilt. [2]

There have been a number of insider trading cases in the news lately. These are cases where an individual buying or selling securities benefited from illegally obtained, confidential information that gave him or her an unfair opportunity to profit from securities transactions. For example, SAC Capital, a huge, $15 billion hedge fund, responsible for about 1% of all US securities exchanges’ average daily trading, has been charged in what probably is the biggest insider trading scandal ever. Five employees of SAC have already pleaded guilty to insider trading and the company itself has agreed to a record $616 million settlement for more than 10 years of trading based on illegal tips from corporate insiders. More legal action is still to come, but it is unlikely that anyone will go to jail and the head of SAC, Steven A. Cohen, despite any fines and restitution he may be required to pay, is likely to remain a billionaire. [3][4]

However, Judge Rakoff’s primary focus has not been on insider trading but on the financial industry’s misbehavior that led to the 2008 financial crisis and the Great Recession. He recently wrote an article entitled “The Financial Crisis: Why have no high-level executives been prosecuted?” [5] In it, he explores why there have been no criminal prosecutions when multiple authorities, including enforcement agencies, have describe what occurred in the run up to the 2008 financial crisis as fraud (i.e., intentional deception for financial or personal gain). Rakoff states that if the financial crisis was the result of intentional fraud (and he makes clear that he has no personal knowledge of whether that was the case or not), “the failure to [criminally] prosecute those responsible must be judged one of the most egregious failures of the criminal justice system in many years.”

Rakoff notes that in previous financial crises – the junk bond scandal of the 1970s, the savings and loan (S&L) crisis of the 1980s, and the accounting frauds of the 1990s (e.g., Enron and WorldCom) – individual perpetrators were successfully prosecuted. Specifically, in the S&L crisis, which has strong parallels to the 2008 crisis but at a much smaller scale, over 800 individuals were successfully, criminally prosecuted.

There is strong evidence of criminal fraud in the events leading to the 2008 crisis. The federal government’s Financial Crisis Inquiry Commission uses the word “fraud” 157 times in its report describing what led to the crisis. Furthermore, indications that fraud was occurring emerged well before the 2008 collapse. There were 20 times as many reports of suspected mortgage fraud in 2005 as in 1996, and the number kept growing. In 2008, the number of fraud reports was double that of 2005. As early as 2004, the FBI was publicly warning of the “pervasive problem” of mortgage fraud. In the years before the 2008 crisis, sub-prime mortgages, in other words mortgages with more risk of default than normal mortgages, increasingly provided the underpinnings for mortgage-backed securities that continued to be sold with AAA ratings. This rating is supposed to identify securities of very low risk. It seems impossible that this could have occurred without fraud taking place.

Rakoff discusses reasons given by officials of the Department of Justice (DOJ) for the failure to criminally prosecute either individuals or corporations and finds them unconvincing. He then proposes some reasons that he finds more believable. I’ll summarize all of this in my next post.

Rakoff concludes by writing, “if it was [fraudulent misconduct] – as various governmental authorities have asserted it was – then the failure of the government to bring to justice those responsible for such colossal fraud bespeaks weaknesses in our prosecutorial system that need to be addressed.”

*    Jed Rakoff is a United States District Judge on senior status for the Southern District of New York. A full-time judge from 1996 to 2010, he moved to senior status in 2010. Senior status is a form of semi-retirement for judges over 65 where they continue to work part-time. Judge Rakoff is a leading authority on securities laws and the law of white collar crime, and has authored many articles on those topics. He is a former prosecutor with the U.S. Attorney’s office in New York. [6]


 

[1]       Rakoff, J.S., 1/9/14, “The Financial Crisis: Why have no high-level executives been prosecuted?” The New York Review of Books (http://www.nybooks.com/articles/archives/2014/jan/09/financial-crisis-why-no-executive-prosecutions/?pagination=false)

[2]       Raymond, N., 1/30/14, “U.S. judge takes on SEC again, questions Heinz insider trading pact,” Reuters

[3]       Editorial, 7/27/13, “Pursuit of SAC Capital sends needed message to Wall St.,” The Boston Globe

[4]       Lattman, P., 7/31/13, “Ex-analyst charged in insider-trading crackdown,” The Boston Globe (from The New York Times)

[5]       Rakoff, J.S., 1/9/14, see above

[6]       Wikipedia, retrieved 2/5/14, “Jed S. Rakoff,” http://en.wikipedia.org/wiki/Jed_S._Rakoff

WEAK PENALTIES FOR FINANCIAL CORPORATIONS’ MISBEHAVIOR

ABSTRACT: If you follow the financial news, you regularly hear about financial corporations paying penalties as they reach settlements with regulators for their misbehavior. Although the amounts of some of the recent penalties have been noteworthy, keep in mind that to these large corporations they barely put a dent in their annual profits. Furthermore, in many cases the penalties are tax deductible as a business expense. This means that, in effect, the government and we as taxpayers are subsidizing the penalty by allowing the corporations to reduce their taxes by deducting the amount of the penalty from their income. In other cases, the corporations are allowed to take credit for having paid all or part of the settlement based on other actions they have taken.

This has led Senators Elizabeth Warren (MA Democrat) and Tom Coburn (OK Republican) to propose a Truth in Settlements bill in Congress that would require government regulators to disclose whether they are allowing all or part of the settlement amount to be deducted from income or paid with credits.

In most cases, the corporations are agreeing to the settlements without having to admit wrongdoing. There have been very few criminal charges against the corporations and none against any executive of any of the large financial corporations. Furthermore, the executives have continued to be lavishly rewarded despite behavior that plunged the world into a financial crisis and a recession.

If we are going to prevent another financial collapse and resulting recession, we must prevent serious misbehavior by our large financial corporations. Stronger laws, oversight, and enforcement, with stronger penalties for executives and corporations, including criminal prosecutions, are needed. These would provide the strong incentives necessary to ensure legal, ethical, and prudent behavior by executives and, hence, the corporations they run.

FULL POST: If you follow the financial news, you regularly hear about financial corporations paying penalties as they reach settlements with regulators for their misbehavior. Many of these settlements are for misbehavior that contributed to the 2008 financial collapse where enforcement actions are finally being concluded. Some are for more recent misbehavior. (See posts of 8/14/13, Large Financial Corporations Continue Illegal Activity [https://lippittpolicyandpolitics.org/2013/08/14/large-financial-corporations-continue-illegal-activity/] and 8/29/12, Big Financial Corporation Scandals Continue [https://lippittpolicyandpolitics.org/2012/08/29/big-financial-corporation-scandals-continue/] for more detail on financial corporations’ misbehavior.)

Although the amounts of some of the recent penalties – in the billions of dollars – have been noteworthy, keep in mind that to these large corporations this barely puts a dent in their annual profits. Their stocks have been performing well, despite the penalties. In many cases the penalties are tax deductible as a business expense, which means that the impact on the corporation is typically only two-thirds of the stated amount. As a result, in effect, the government and we as taxpayers are subsidizing the penalty by allowing the corporations to reduce their taxes by deducting the amount of the penalty from their income. In other cases, the corporations are allowed to take credit for having paid all or part of the settlement based on other actions they have taken. For example, in a 2013 settlement with 13 mortgage service providers for illegal foreclosures, over 60% of the announced $8.5 billion settlement could be paid through credits for modifications to existing mortgages.

This has led Senators Elizabeth Warren (MA Democrat) and Tom Coburn (OK Republican) to propose a Truth in Settlements bill in Congress that would require government regulators to disclose whether they are allowing all or part of the settlement amount to be deducted from income or paid with credits. The regulators would generally have to make settlement agreements public and for any that were kept confidential, they would have disclose that fact and their rationale for doing so. [1] Bills have also been filed to prohibit the deduction of penalties as a business expense.

In most cases, the corporations are agreeing to the settlements without having to admit wrongdoing. There have been very few criminal charges against the corporations. Most of the enforcement actions have been civil actions, which seriously limits the consequences, even if the corporation misbehaves again, even in a similar manner.

Also noteworthy, is that no executive of any of the large financial corporations has been charged with criminal activity. (My next post will explore this issue.) Furthermore, the executives have continued to be lavishly rewarded despite behavior that plunged the world into a financial crisis and a recession. A corporate culture of immunity for senior executives from the consequences of their actions appears to persist despite public outrage. [2]

For example, JPMorgan’s CEO, Jamie Dimon, will be paid $20 million for 2013. This is up substantially from the $11.5 million he was paid last year, despite the $20 billion in fines and penalties JPMorgan paid in 2013 (due to a variety of corporate misbehavior) and the very large related legal expenses. Apparently, JPMorgan’s Board of Directors feels Dimon did a great job of handling these matters with the regulators and that pay cuts in 2008 and 2012 had already punished him for having gotten the corporation into trouble in the first place. [3] The corporation’s stock did have a good year. It was up 37%, out pacing both its peers and the overall market. (Note: If JPMorgan’s Directors and shareholders feel the settlement agreements were so positive, maybe the regulators have let Dimon and JPMorgan off too lightly!) In 2008, Dimon received a $1 million salary and no bonus, presumably because of the problems that led to the financial crisis and the need for the government to bail out JPMorgan (among other financial industry corporations). However, by 2011 his compensation was up to $23 million. It was cut to $11.5 million for 2012, which was viewed as a strong rebuke by the corporation’s Board for the $6 billion loss on speculative trading that occurred in 2012.

Final figures for 2013 CEO compensation at two smaller financial corporations, Goldman Sachs and Morgan Stanley, were not available yet, but are expected to be above the 2012 levels that were $21 million and $9.75 million, respectively.

If we are going to prevent another financial collapse and resulting recession, we must prevent serious misbehavior by our large financial corporations. Stronger laws, oversight, and enforcement, with stronger penalties for executives and corporations, including criminal prosecutions, are needed. These would provide the strong incentives necessary to ensure legal, ethical, and prudent behavior by executives and, hence, the corporations they run.


 

[1]       Associated Press, 1/9/14, “Mass. Democrat: Settlements need more transparency,” in the Daily Times Chronicle

[2]       Stewart, J.B., 2/1/14, “Accounting for Dimon’s big jump in pay,” The New York Times

[3]       Silver-Greenberg, J., & Craig, S., 1/24/14, “Despite scandals, JPMorgan awards CEO raise,” The Boston Globe from The New York Times

SHORT TAKES ON CURRENT EVENTS

ABSTRACT:

CONFIRMING PRESIDENTIAL NOMINEES: The US Senate voted on 11/21 to change its rules and eliminate the use of the filibuster to block presidential nominees other than Supreme Court Justices, given that Republicans had returned to full-scale obstructionism since the deal to approve 7 nominees in July. Under the new rules, the Senate has confirmed 11 nominees and Senate Democrats are pursuing at least 10 more confirmations before the holiday recess. Roughly 70 nominees remain pending.

FINING DRUG CORPORATIONS FOR COLLUSION: The European Union has fined two giant drug corporations, Johnson & Johnson and Novartis, $22 million for colluding to delay the availability of a cheaper generic drug.

FDA REDUCING ANTIBIOTIC OVERUSE AND DRUG-RESISTANT INFECTIONS: The Food and Drug Administration (FDA) is taking steps to reduce the unnecessary use of antibiotics in meat production. This overuse of antibiotics used for treating infections in humans is linked to the development of antibiotic-resistant infections in humans. 23,000 people are dying each year from such infections. The FDA is asking drug corporations to voluntarily stop labeling drugs used to treat human infections as acceptable for growth promotion in animals. The FDA is using this voluntary approach and giving the drug corporations 3 years to comply because it believes the complex regulatory process a mandatory rule would require would take many years and might not be successful.

FULL POST:

CONFIRMING PRESIDENTIAL NOMINEES

The US Senate voted on 11/21 to change its rules and eliminate the use of the filibuster to block presidential nominees other than Supreme Court Justices. Democrats in the Senate exercised this option, the so-called “nuclear option”, because after a deal in July that allowed the approval of 7 nominees for executive branch positions, Republicans had returned to full-scale obstructionism. With roughly 90 judicial vacancies and some key executive branch openings, the Democrats threatened again to change the filibuster rule and proceeded to do so when the Republicans refused to relent from their obstructionism.

Since then, the Senate has confirmed 11 nominees including the Secretary of Homeland Security, an Assistant Secretary of State, the Secretary of the Air Force, and 2 judges, despite continuing Republican use of delaying tactics. Interestingly, once the Republican blockade of the first two of these was overcome, they were confirmed by 78-16 votes.

Senate Democrats are pursuing at least 10 more confirmations before the holiday recess, including the Chair of the Federal Reserve and the head of the Internal Revenue Service. Roughly 70 nominees remain pending and some of them may have to be re-nominated and start the process all over again in the new year. (1. Alman, A., 12/16/13, “Jeh Johnson confirmed by Senate as Secretary of Homeland Security, The Huffington Post.  2. Reuters, 12/13/13, “U.S. Senate confirmation marathon approves two more Obama nominees,” Reuters) (See my post A Respite from Obstructionism on 7/25/13 at https://lippittpolicyandpolitics.org/2013/07/25/a-respite-from-obstructionism/, as well as those of 7/21/13 and 7/16/13, for more details on the July deal and obstruction of nominees’ confirmations.)

 

FINING DRUG CORPORATIONS FOR COLLUSION

The European Union has fined two giant drug corporations, Johnson & Johnson (J&J) and Novartis, $22 million for colluding to delay the availability of a cheaper generic drug. A patent on a J&J pain killer expired in 2005 but J&J paid Novartis to delay for 17 months production of a cheaper generic version of the drug. Both corporations were more profitable as a result. (Daily Briefing, 12/11/13, “EU fines drug firms over delay,” The Boston Globe)

FDA REDUCING ANTIBIOTIC OVERUSE AND DRUG-RESISTANT INFECTIONS

The Food and Drug Administration (FDA) is taking steps to reduce the unnecessary use of antibiotics in meat production. Many producers of cattle, hogs, and poultry give their animals antibiotics to make them grow faster. This overuse of antibiotics used for treating infections in humans is linked to the development of antibiotic-resistant infections in humans, which are much more difficult and expensive to treat, and can be fatal: 23,000 people are dying each year from such infections. The FDA is asking drug corporations to voluntarily stop labeling drugs used to treat human infections as acceptable for growth promotion in animals. This would make such use illegal without a prescription for use in a sick animal. The FDA is using this voluntary approach and giving the drug corporations 3 years to comply because it believes the complex regulatory process a mandatory rule would require would take many years and might not be successful. (Jalonick, M.C., 12/12/13, “FDA working to phase out some antibiotics in meat,” The Boston Globe from the Associated Press)

 

NOTE: There are so many issues and events that I think those of us trying to be well informed citizens and voters should know about that I can’t write full posts on all of them. And I’m sure you don’t have time to read full posts about them. Therefore, I’ll use this format to complement the full posts: Short Takes on current events. Please let me know if you find these valuable by commenting on them. I will provide references or links to more information for the topics, so you can pursue them in more depth if you have the interest and time.

CHARITY ISN’T THE ANSWER

ABSTRACT: Some people advocate for reducing government spending on social welfare programs by arguing that private charity should and could address social needs. However, when people’s needs are essential and time sensitive, charity is insufficient and undependable. For example, charities won’t be able to fill the $5 billion hole left by the recent cuts to the $78 billion federal Food Stamps program. This amount is equal to the total amount of annual contributions to all food banks in the country.

Charity or philanthropy can also serve as a smoke screen for activities that do far more harm than the benefits of the charitable giving. An example is the recent $20 million gift by the billionaire corporate executive, David Koch, to provide child care for 126 children at MIT. He spent easily ten times this amount on political activism in the last federal elections, supporting politicians who have been leaders in cutting the federal budget. Such cuts have meant that 57,000 poor children have been denied Head Start child care services, and, in addition, in Massachusetts alone, there are over 30,000 low income children on the waiting list for largely federally-funded child care subsidies. As Joan Vennochi wrote in her column in the Boston Globe about Koch’s gift, “The generosity of individuals is a blessing, but it’s no substitute for national policy.”

There are many examples of philanthropy, similar to this Koch case, where the givers, both individuals and corporations, have much greater negative impacts on society than the positive effects of their charity. In the case of McDonald’s, history indicates that from the start the goal of its philanthropy has been positive public relations for the corporation, not helping those in need. Its aggressive marketing of unhealthy food to children does far more harm than the good its very modest philanthropy does.

FULL POST: Some people advocate for reducing government spending on social welfare programs by arguing that private charity should and could address social needs. While charity or philanthropy plays an important role in our communities and country, when people’s needs are essential and time sensitive, charity is not dependable enough to be relied on. Charity can meet some people’s needs some of the time but it doesn’t – and can’t – meet all people’s needs, even their critical needs, all the time. The public sector must serve as the resource of last resort and ensure that critical needs are met in a timely fashion.

Charity is insufficient and lacks the consistency necessary to meet critical needs on a regular and timely basis. For example, access to sufficient and nutritious food is essential to well-being for adults and especially for children. However, charities won’t be able to fill the $5 billion hole left by the November 1 cuts to the $78 billion federal Food Stamps program. This reduction in food assistance from the federal government is equal to the total amount of annual contributions to all food banks in the country, according to a study by the Washington-based anti-hunger advocate Bread for the World. [1] Therefore, charitable donations for food would need to double instantaneously to fill this gap. Furthermore, Congress is likely to cut federal funding for food assistance even further in the next budget. (See my post Starving America on 11/11/13 for more detail at https://lippittpolicyandpolitics.org/2013/11/11/starving-america/.)

Clearly, there is no way that private charity can make up for the recent lost funding let alone for future cuts. Therefore, these cuts mean that nutrition will suffer and hunger will increase. For some young children, this may well have long lasting effects on their developing brains.

Charity or philanthropy can also serve as a smoke screen for activities that do far more harm than the benefits of the charitable giving. An example is the recent $20 million gift by the billionaire corporate executive, David Koch, to provide child care for 126 children at MIT. [2] Child care is essential for working parents and quality early education and care is critical for young children due to the foundational brain development that occurs in the first five years of life.

Koch is a generous philanthropist, but he is better known for his political activism. He spent easily ten times this $20 million on his political activism in the last federal elections. The politicians he supports have been leaders in cutting the federal budget. The cuts in March, 2013, known as the sequester, meant that 57,000 poor children nationwide have been denied Head Start child care services. In addition, in Massachusetts alone, there are over 30,000 low income children on the waiting list for child care subsidies, which are largely federally funded. This number has grown significantly due to cuts in federal funding. So, while Koch’s philanthropy got him a very positive story on the front page of the Boston Globe, its impact is far, far outweighed by the negative effects on national child care policies of his political activism.

There are two lessons to be learned from this example. First, charity is not and will not be sufficient to ensure affordable, quality early care and education for every child of working parents. Substantially increased spending by state and federal governments is needed to meet this critically important need. As Joan Vennochi wrote in her column in the Boston Globe about Koch’s gift, “The generosity of individuals is a blessing, but it’s no substitute for national policy.” [3]

The second lesson to be learned from this example is that it is often important to look at the context of charity and the overall impact of the giver. There are many examples of philanthropy, similar to this Koch case, where the givers, both individuals and corporations (or other organizations), have much greater negative impacts on society than the positive effects of their charity. Walmart and McDonald’s are two classic examples from the corporate world. In some cases, the charitable activities are a relatively blatant attempt at public relations; an effort to get favorable stories in the media and divert attention from the negative effects of other activities. (See my post Lack of Good Jobs is Our Most Urgent Problem on 10/29/13 for more information on how low pay and part-time jobs at Walmart, McDonald’s, and other large corporations are costing taxpayers billions of dollars in public assistance for their employees. https://lippittpolicyandpolitics.org/2013/10/29/lack-of-good-jobs-is-our-most-urgent-problem/)

In the case of McDonald’s, history indicates that from the start the goal of its philanthropy has been positive public relations for the corporation, not helping those in need. Its philanthropy is less that 0.5% of its profits and it spends 25 times as much on advertising. Its aggressive marketing of unhealthy food to children does far more harm than the good its very modest philanthropy does. It also spends far more lobbying for favorable public policies than it spends on philanthropy. [4]

This is the first of a couple of posts on charity or philanthropy (terms I use interchangeably). There are a number of other issues about charity that I plan to discuss, including:

  • Decisions about charitable or philanthropic spending are made by private individuals or organizations. They may not reflect public priorities and often lack public input and accountability.
  • Charity can exacerbate inequality. Richer communities generally have greater capacity to raise money than poorer communities, so communities where the need is the greatest, both rural and urban, often have less capacity for charitable activity.
  • Philanthropic activity can affect public policies and programs. It may undermine the democratic decision-making process and community involvement.

[1]       Wallbank, D., & Bjerga, A., “Wal-Mart to widows will feel U.S. Food Stamp cuts,” Bloomberg

[2]       Johnson, C.Y., 10/4/13, “Scientists at MIT get prized gift of day care,” The Boston Globe, front page

[3]       Vennochi, J., 10/10/13, The two David Kochs,” The Boston Globe

[4]       Simon, M., 10/29/13, “Clowning around with charity,” Corporate Accountability International and Small Planet Fund (http://www.eatdrinkpolitics.com/2013/10/29/clowning-around-with-charity-how-mcdonalds-exploits-philanthropy-and-targets-children/)

LACK OF GOOD JOBS IS OUR MOST URGENT PROBLEM

ABSTRACT: The most urgent problem facing the US right now is a lack of jobs, especially jobs that pay middle class wages and provide benefits. Unemployment is high and long-term. The jobs being created during our 4 year old economic recovery are disproportionately low-wage, low skill jobs.

Fast food workers are emblematic of the low wage, low skill jobs being created. The typical fast food worker makes $8.69 per hour. As a result, over half of fast food workers rely on public, taxpayer funded benefits to make ends meet. The cost to taxpayers is estimated to be $7 billion per year. Meanwhile, the fast food corporations make billions of dollars in profits and pay tens of millions of dollars to their senior executives. Workers at Walmart, the largest employer in the US, are in a similar situation. These very profitable corporations can afford to raise their workers’ wages to $15 an hour – a wage they could live on without public assistance. In the meantime, taxpayers are subsidizing these corporations.

It used to be that unions and government provided workers with a voice and the power to balance that of the large employers. Today, that voice and power are largely gone. Therefore, wages, benefits, and job security have been eroding. Starting in the late 1970s, the historic link between growth in the economy and productivity on the one hand, and growth in workers’ wages on the other hand, was severed. We undid or failed to adopt rules for our economy that ensure the gains of economic and productivity growth are widely and fairly distributed.

The failure of our policy makers in Washington to focus on creating jobs, let alone good jobs, and on spurring economic growth is the clear and tragic result of the ascendancy of politics over rational policy making.

FULL POST: The most urgent problem facing the US right now is a lack of jobs, especially jobs that pay middle class wages and provide benefits. Unemployment is high and long-term – since 2010 roughly 40% of those unemployed and actively looking for work have been unemployed for more than 6 months. This is triple the rate of long-term unemployment in the period from 2000 – 2007. [1]

The official unemployment rate is 7.2% based on those who are actively looking for a job. It would be significantly higher, well over 10%, if those who have given up looking were included. And higher still if the under-employed were included – those working part-time who would like to be working full-time and those who are working at jobs for which they are over-qualified.

The jobs being created during our 4 year old economic recovery are disproportionately low-wage, low skill jobs. (See post of 9/27/13 for more detail.) High unemployment and low wage jobs are key factors in our slow economic recovery (consumers’ lack purchasing power), in the government’s budget deficit (reduced tax revenues), and in growing inequality (95% of the economic gains during the recovery have gone to the richest 1%). As a result, income and wealth inequality have increased to levels not seen since the 1920s.

Fast food workers are emblematic of the low wage, low skill jobs being created. The typical fast food worker makes $8.69 per hour. Two-thirds of them are adults, most of them bring home at least half of the family’s income, and a quarter of them have children. Only 13% get health insurance through their employers.

As a result, over half of fast food workers rely on public, taxpayer funded benefits to make ends meet. The cost to taxpayers is estimated to be $7 billion per year; much of it is for health care, but also food assistance and other economic supports. [2] You can watch a 2 minute video about this, which includes a recording of the McDonald’s help line telling a 10-year employee with 2 children to access food stamps and Medicaid, at
http://lowpayisnotok.org/mcvideo/?utm_campaign=LowPay&utm_medium=email&utm_source=mcvideo-r.

Meanwhile, the fast food corporations make billions of dollars in profits and pay tens of millions of dollars to their senior executives. For example, McDonald’s has 700,000 employees. They are estimated to get $1.2 billion a year in taxpayer funded benefits. McDonald’s is very profitable, making $5.5 billion a year and paying its CEO $13.8 million. It has just purchased a $35 million luxury jet for its executives, which costs at least $2,400 an hour to operate.

Workers at Walmart, the largest employer in the US, are in a similar situation. They make an average of $8.80 an hour. When General Motors was the largest employer in the 1950s, it paid its workers about $50 to $60 an hour (adjusted for inflation). As with the fast food workers, we taxpayers are supporting Walmart workers with multiple types of public assistance. [3]

These big, profitable corporations operate with a business model that uses low paid and part-time workers, typically without benefits, who are, therefore, unable to afford the necessities of life. This leaves taxpayers to pick up the tab for the public benefits they need. These very profitable corporations can afford to raise their workers’ wages to $15 an hour (see post of 9/8/13 for more detail)  – a wage they could live on without public assistance. In the meantime, taxpayers are subsidizing these corporations.

Nationally, the typical workers’ wages, adjusted for inflation, have barely increased over the last 30 years. (See post of 9/2/13 for more detail.) The typical male worker in 1978 was making around $48,000 (adjusted for inflation), while the average person in the top 1% earned $390,000. By 2010, the typical male workers’ pay had gone down, while the person in the 1% had their pay more than double. Today, the richest 400 Americans have more wealth than the bottom half of the country, 150 million people, combined.

It used to be that unions and government provided workers with a voice and the power to balance that of the large employers. Today, that voice and power are largely gone. Therefore, wages, benefits, and job security have been eroding. Workers are not even receiving the benefits of their increased productivity. As a result, we are losing the middle class, equal opportunity, and upward mobility. This is undermining our economy and our democracy.

In the first 4 years of the current recovery, the richest 1% of Americans took home 95% of the income gains. In stark contrast, between 1946 and 1978, as the economy doubled in size, everyone’s income doubled as well.

Starting in the late 1970s, the historic link between growth in the economy and productivity on the one hand, and growth in workers’ wages on the other hand, was severed. Income gains started going to the richest Americans and people in the middle, the typical worker, saw their wages stagnate. Part of the problem is that we didn’t adapt to globalization and technological change. We didn’t change public policies. We didn’t change the rules of our economy to continue to provide opportunity, upward mobility, and ensure that economic and productivity growth were broadly shared. We could have done so, but we didn’t. [4]

Among other things, we let the minimum wage fall behind inflation. If it had kept up with inflation, the national minimum wage would be $10.40 today instead of $7.25. If productivity improvement was included, it would be at least $15 an hour. We deregulated the financial system, both domestically and internationally, favoring investors and corporations over workers. And we didn’t include labor standards in trade treaties. Meanwhile, we cut tax rates on high incomes and wealth substantially.

If we had a democracy that was working for the people, the average citizen and worker would have the voice and power to see that their interests and the greater good were served. Instead, we undid or failed to adopt rules for our economy that ensure the gains of economic and productivity growth are widely and fairly distributed – without sacrificing efficiency or innovation. The failure of our policy makers in Washington to focus on creating jobs, let alone good jobs, and on spurring economic growth is the clear and tragic result of the ascendancy of politics over rational policy making. This failure may put their political careers at risk because every poll shows that the public is much more concerned about jobs and the economy than any other issue, including the deficit.


[1]       Woolhouse, M., 10/22/13, “Long search finally ends,” The Boston Globe

[2]       Johnston, K., 10/16/13, “Public aid crucial to fastfood workers,” The Boston Globe

[3]       Moyers, B. with Reich, R., 9/20/13, “Inequality for all,” http://billmoyers.com/episode/full-show-inequality-for-all/

[4]       Moyers, B. with Reich, R., 9/20/13, see above

CORPORATIONS’ TAX AVOIDANCE

ABSTRACT: Large corporations are dodging taxes by using offshore tax havens. They use them to avoid paying about $90 billion a year in US income taxes. Of the 100 largest US corporations with publicly traded stock, 82 maintain subsidiaries in offshore tax havens and they are holding $1.2 trillion in them, on which they have avoided paying US income tax. If all 82 of these corporations reported their $1.2 trillion stashed offshore as US income and paid the 35% rate, the federal government would receive $420 billion, which would cut the deficit by more than half.

For the 2010 tax year, profitable US corporations that filed a US income tax return paid an average of only 13% of their worldwide profits in income tax, despite the stated US corporate income tax rate of 35%.

The loss of this revenue for the federal government hurts all of us. It means that we, as individual taxpayers, and small businesses either have to pay more taxes to make up the difference or that our federal government (and state governments too) have less to spend on things we count on government to do.

Closing this offshore tax haven loophole would be a step toward tax fairness. There are bills in Congress to do so. I urge you to contact your Senators and Representative to urge them to support closing the offshore tax haven loophole.

FULL POST: Large corporations are dodging taxes by using offshore tax havens. They use them to avoid paying about $90 billion a year in US income taxes. This costs the US government more than was saved ($85 billion a year) by the ill-conceived, across-the-board budget cuts in March (known as the sequester) and far more than the proposed cut in food stamps (known as SNAP) would save ($4 billion a year). (See posts of 9/16 and 9/19 for some of the effects of the sequester.)

Of the 100 largest US corporations with publicly traded stock, 82 maintain subsidiaries in offshore tax havens and they are holding $1.2 trillion in them, on which they have avoided paying US income tax. Fifteen corporations hold two-thirds of this cash in 1,900 subsidiaries. [1] Many of these subsidiaries are officially housed in the Cayman Islands where the corporations maintain a legal address but no other physical presence. Ironically, roughly half of this offshore money is invested in US securities or through US accounts. [2]

In part because of the use of these offshore tax havens and accounting tricks that shift income to them, for the 2010 tax year, profitable US corporations that filed a US income tax return paid an average of only 13% of their worldwide profits in income tax. Even when state, local, and foreign income taxes are included, they paid only around 17% of profits, despite the stated US corporate income tax rate of 35%. [3] (See post of 11/5/11 for more information on corporate income taxes.)

A few specific examples help to put this in perspective.

  • Pfizer, the world’s largest drug maker, has 40% of its sales in the US but reported no taxable income in the US over the last 5 years. It has $73 billion sitting untaxed in 172 subsidiaries in offshore tax havens.
  • Microsoft has an untaxed $61 billion in 5 offshore tax havens.
  • Citigroup, which US taxpayers bailed out during the 2008 financial collapse, has $43 billion sitting untaxed in 20 offshore subsidiaries. [4]
  • Apple Computer made $30 billion in supposedly offshore profits over the past 4 years on which it paid no taxes to any national government, largely by exploiting technicalities in US and Irish tax laws. [5]
  • The Bank of America, also bailed out by US taxpayers during the 2008 financial collapse, has $17 billion sitting untaxed in 316 offshore subsidiaries.
  • Oracle has an untaxed $21 billion in 5 offshore subsidiaries.
  • Google has $33 billion sitting untaxed in 25 offshore subsidiaries. [6]

If these 7 corporations reported this $278 billion as US income and paid the 35% tax rate on it, the federal government would receive $97 billion. This would be more than enough to reverse the sequester’s cuts and continue food stamp benefits. If all 82 of the largest corporations with offshore tax haven subsidiaries reported their $1.2 trillion stashed offshore as US income and paid the 35% rate, the federal government would receive $420 billion, which would cut the deficit by more than half.

The loss of this revenue for the federal government hurts all of us, including small and local businesses. It means that we, as individual taxpayers, and small businesses either have to pay more taxes to make up the difference or that our federal government (and state governments too) have less to spend on education and job training, transportation and other infrastructure, safety and security, and all the other things we count on government to do.

Closing this offshore tax haven loophole would be a step toward tax fairness. There are bills in Congress to do so: in the US Senate, the Cut Unjustified Tax (CUT) Loopholes Act (bill # S.268) and in the US House, the Stop Tax Haven Abuse Act (bill # H.R. 1554). I urge you to contact your Senators and Representative to urge them to support closing the offshore tax haven loophole.

(You can find out who your Congress people are and get their contact information at: http://www.senate.gov/general/contact_information/senators_cfm.cfm for your Senators and http://www.house.gov/representatives/find/ for your Representative.)


[1]       US PIRG, 7/31/13, “Offshore shell games,” (http://www.uspirg.org/reports/usp/offshore-shell-games)

[2]       Clark, K., 10/4/13, “Crackdown on offshore tax havens,” Daily Times Chronicle

[3]       US General Accounting Office, May 2013, “Corporate income tax: Effective tax rates can differ significantly from the statutory rate,” (http://www.gao.gov/products/GAO-13-520)

[4]       MASSPIRG, 4/4/13, “Picking up the tab,” (http://masspirg.org/reports/map/picking-tab-2013)

[5]       The Balance Sheet, 5/21/13, “Apple slips through $30 billion tax-code hole,” The American Prospect

[6]       US PIRG, 7/31/13, see above

UPDATES ON POSTS ON LOW PAY FOR FAST-FOOD WORKERS, PESTICIDES AND BEES, & DETROIT

PAY FOR WORKERS IN THE FAST-FOOD INDUSTRY (A follow-up to my 9/2/13 post)

As the portion of the jobs in our economy that are in the retail sector grows, it is important to the well-being of individuals and families, as well as the health of the economy, that these jobs provide better pay. But could the fast-food industry, for example, afford to pay higher wages?

Franchisees in the fast-food industry, in other words your local outlets, have profit margins of only 4% to 6% – 4 to 6 cents on every dollar they take in. Their parent companies, the 5 big, publicly-traded fast-food companies, have profit margins of 16% – 16 cents on every dollar they take in. That is 73% higher than the average big US company’s profit margin. In other words, they are VERY profitable. Last year, McDonald’s reported a profit of $5.5 billion on sales of $27.6 billion – a 20% profit margin. And its CEO got $13.8 million. McDonald’s, and the others, could cut the fees they charge their franchisees so the franchisees could increase pay for their workers. (Choi, C., & Fahey, J., 9/2/13, “Fast-food workers face a big problem: Who’ll fund raises?” The Boston Globe (from the Associated Press))

 

PESTICIDES AND BEES (A follow-up to my 8/10/13 post)

The good news is that the Environmental Protection Agency (EPA) has released new rules and requirements for labels for pesticides containing neonicotinoids, which are linked to mass killing of bees. These labels feature a special warning and prohibit use of these products where bees are present. (Boyd, V., 8/21/13, “EPA issues new label rules for neonicotinoids to protect bees,” The Grower) (Aren’t bees present everywhere?)

However, there are three pieces of bad news. First, a recent study found that some home garden plants sold at Home Depot, Lowe’s and other garden centers have been pre-treated with the neonicotinoids. (Friends of the Earth, 8/14/13) Second, one of Florida’s biggest citrus growers, Ben Hill Griffin, Inc., has been fined only $1,500 after illegally spraying pesticides multiple times that killed millions of bees. (Salisbury, S., 8/28/13, “Ben Hill Griffin Inc. accused of killing honeybees, faces fine,” Palm Beach Post) Third, the chemical corporations Syngenta and Bayer have submitted legal challenges to the European Union’s 2 year suspension of the use of several neonicotinoid pesticides, which is scheduled to begin in December. (Boyd, V., 8/28/13, “Syngenta, Bayer challenge EU’s ban on neonicotinoids,” The Grower)

 

MORE ON DETROIT’S BANKRUPTCY (A follow-up to my 9/1/13 post)

The factors contributing to Detroit’s bankruptcy include suburban sprawl, the lack of regional planning or coordination, Michigan’s declining economy, and the state’s reneging on revenue sharing (to the tune of $700 million). In addition, people have moved out of the city – since 2000 the city’s population has declined by about 200,000 to 687,000 – eroding the tax base. Residents in blighted neighborhoods have sold homes for $5,000 that were once worth $100,000; others have simply abandoned their houses.

Since 2007, Detroit’s median income has fallen from $30,000 to $25,000; less than half of the national figure. 40% of those remaining in Detroit are in poverty. Almost 20% of Detroit households have no access to a car.

As public services have been cut over many years, living conditions have declined, including increased crime in part due to a police force reduced by roughly 35% (4,000 officers to 2,600). The murder rate is the 2nd highest of any city in the country (Flint, MI is 1st).

The 9,700 city employees are taking unpaid furloughs and wage cuts, some as much as 20%. And the 21,000 retirees know their pensions are at risk. Meanwhile, Detroit’s bankruptcy process is expected to cost the city $100 million in legal fees and costs.

While the downtown is thriving with business activity and gentrification (and a new sports arena on its way), the neighborhoods, as little as a half mile away, are eviscerated. The neighborhoods are 80% black and the homes of thousands of current and retired city employees.

The city’s receiver proposes privatizing trash, electricity, and water and sewer services. Although that will save the city money, it is unclear how many of the residents would be able to afford the fees private providers would charge, and lower quality services are likely, one way or the other. The state has taken over running 15 low performing schools, but the initial results have not been promising. (Felton, R., 9/2013, “Is there Detroit after bankruptcy?” In These Times)

LARGE FINANCIAL CORPORATIONS CONTINUE ILLEGAL ACTIVITY

ABSTRACT: The large US financial corporations, whose illegal and unethical activities caused the 2008 financial crash and recession, continue to engage in a wide variety of illegal activity. Clearly, the fines and penalties they’ve paid to-date, although hundreds of millions of dollars, haven’t been sufficient to deter them. Or they are so large and so impossible to manage that they are just out of control. The only way to reduce the risk to our financial system and economy, and to stop these illegal activities, is to break them up and institute much tighter regulation.

Their past behavior includes fraudulent creation of mortgages and the fraudulent packaging and selling of risky mortgage-backed securities, fraudulent foreclosures on home owners, manipulation of interest rates in multiple settings, money laundering for criminals and countries under international sanctions, and out-of-control speculative trading. Despite this, it doesn’t look like any senior managers will be charged with criminal activity.

More recently uncovered activities include speculation in and manipulation of commodities markets that costs consumers billions, fraudulent debt collection practices, and the selling of inappropriate securities to, among others, elderly investors seeking secure investments.

These are highlights of what we know about, and, therefore, are the tip of an iceberg of unknown size. The executives who profit (through pay, bonuses, and stock options) from these criminal and unethical activities currently have no reason to stop committing or allowing them.

The variety of illegal activities, the involvement of literally all the large financial corporations, and the scale of the impact on our economy and us individually is breathtaking. We need better laws and regulation overseeing these large financial institutions. See my posts of 8/6 and 8/4 for steps that are needed to move in that direction, including petitions of support you can sign.

FULL POST: The large US financial corporations, whose illegal and unethical activities caused the 2008 financial crash and recession, continue to engage in a wide variety of illegal activity. Clearly, the fines and penalties they’ve paid to-date, although hundreds of millions of dollars, haven’t been sufficient to deter them. Or they are so large and so impossible to manage that they are just out of control. In either case, they present a significant risk for another financial collapse, another possible bailout, and another recession. The only way to reduce the risk to our financial system and economy, and to stop these illegal activities, is to break them up and institute much tighter regulation. This is what the 21st Century Glass Steagall Act, recently proposed in the US Senate (see post of 8/6/13), and the Dodd-Frank Act (if appropriately implemented) would go a long way toward doing.

You probably remember the fraudulent creation of mortgages and the fraudulent packaging and selling of risky mortgage-backed securities as “safe” investments. These activities were key contributors to the 2008 financial system collapse. You may remember that these same handful of corporations engaged in fraudulent foreclosures on home owners, manipulation of interest rates in multiple settings, money laundering for criminals and countries under international sanctions, and out-of-control speculative trading (which cost JPMorgan $6 billion in early 2013). Many of these activities are still under investigation with penalties still to be finalized, but it doesn’t look like any senior managers will be charged with criminal activity. (In the Savings and Loan crash of the late 1980s, which was less than one-tenth the size of the 2008 crash, over 1,000 senior managers were convicted of felonies.) (See posts of 8/29/12 and 7/12/12 for more detail.)

Here are some other examples of illegal or unethical behavior by the large financial corporations that have come to light more recently.

Their speculation in and manipulation of commodities markets costs consumers billions. This includes oil and gasoline (see post of 3/5/12 for more detail), electricity, aluminum, wheat, cotton, coffee, and other commodities. [1] In the last year, US regulators have accused three financial corporations of manipulating electricity prices, including JPMorgan, which recently agreed to a $410 million settlement. [2][3]

In the commodities market for aluminum, Goldman Sachs and others make millions in profits that end up costing consumers many times that. Using special exemptions from the Federal Reserve and relaxed regulations approved by Congress, the large financial corporations have purchased much of the infrastructure used to store and deliver aluminum (and other commodities) as they are traded on commodities exchanges. Three years ago, Goldman Sachs bought one of the largest firms storing and delivering aluminum; almost a quarter of the supply of 1,500 pound aluminum bars bought and sold on commodities exchanges is in its 27 warehouses (1.5 million tons). Goldman, over the last three years, has increased the delivery wait time for customers from an average of six weeks to roughly 70 weeks. This significantly increases the rent and fees paid to Goldman for the storage and delivery of the aluminum in its warehouses. [4][5][6]

JPMorgan and other big financial corporations are under investigation for their debt collection practices. It has recently come to light that their efforts to collect delinquent credit card debt have suffered from faulty or forged documents, improperly reviewed documentation, and failure to notify debtors of legal filings. These are some of the same practices that resulted in the lawsuits and settlements over improper home foreclosures! [7]

Morgan Stanley just settled claims that it sold inappropriate securities to, among others, elderly investors seeking secure investments. [8]

These are highlights of what we know about, and, therefore, are the tip of an iceberg of unknown size. The amounts of the fines and settlements sound large, but they’re just a cost of doing business when compared to the revenue and profits at these mega-financial corporations. (See post of 2/20/12 on the mortgage foreclosure settlement for an example with more detail.) Because shareholders and not corporate executives bear the cost of these settlements, and, furthermore, they are subsidized by us as taxpayers because they are typically considered a business expense (which reduces taxable income), the executives who profit (through pay, bonuses, and stock options) from these criminal and unethical activities have no reason to stop committing or allowing them. And the record shows they are continuing. [9]

The variety of illegal activities, the involvement of literally all the large financial corporations, and the scale of the impact on our economy and us individually is breathtaking. We need better laws and regulation overseeing these large financial institutions. See my posts of 8/6 and 8/4 for steps that are needed to move in that direction, including petitions you can sign to support such actions. (See posts of 7/31/12, 5/31/12, 5/29/12, 3/25/12, 3/23/12, and 2/29/12 for more on the need for regulation of these giant financial corporations.)


[1]       Kocieniewski, D., 7/21/13, “Aluminum shuffle is pure gold to the banks,” The Boston Globe (from The New York Times)

[2]       Silver-Greenberg, J., & Protess, B., 8/8/13, “JPMorgan Chase faces civil, criminal inquiries,” The Boston Globe (from The New York Times)

[3]       Associated Press, 7/31/13, “JPMorgan owes $410 million in energy suit,” The Boston Globe

[4]       Kocieniewski, D., 7/21/13, see above

[5]       Morgenson, G., 8/1/13, “Goldman Sachs offers to speed up metal delivery,” The Boston Globe (from The New York Times)

[6]       Chan, K., 8/6/13, “Goldman Sachs, LME sued over aluminum storage,” The Boston Globe (from the Associated Press)

[7]       Silver-Greenberg, J., & Wyatt, E., 7/10/13, “Big lenders face scrutiny on collections,” The Boston Globe (from The New York Times)

[8]       Associated Press, 7/31/13, “Morgan Stanley settles EFT claims,” The Boston Globe

[9]       Eskow, R.J., 8/7/13, “7 Things About Prosecuting Wall Street You Wanted to Know (But Were Too Depressed to Ask),” The Huffington Post

FINANCIAL SYSTEM REFORM

ABSTRACT: The need for financial system reform was made clear by the 2008 crash. One of the goals of the Dodd-Frank financial reform law was to end speculative trading by large financial corporations that are also banks because it has the potential to jeopardize consumer deposits. However, speculative trading has continued.

Therefore, a tri-partisan group of Senators, led by Sen. Elizabeth Warren, has recently proposed new legislation, the 21st Century Glass Steagall Act, that would require the separation of speculative trading and consumer bank deposits. You can sign on as a citizen sponsor of this proposed federal legislation at: http://my.elizabethwarren.com/page/s/glass-steagall?source=20130711emf.

Senator Warren was on CNBC to talk about the importance of this new legislation. You can watch the informative and entertaining video clip (under 3 minutes) at: http://gawker.com/nbc-censors-video-of-elizabeth-warren-taking-cnbc-to-th-837411782.

FULL POST: The need for financial system reform was made clear by the 2008 crash. We are now at the third anniversary of the passage of the Dodd-Frank financial reform law. However, implementation has been slow, due to the complexity of the law, efforts by the large financial corporations to block and delay it, and obstructionism by Republicans, particularly in the Senate. For example, a Director for the Consumer Financial Protection Bureau, created by Dodd-Frank, was finally approved by the Senate on July 17. (See post of 7/26/12 for background.)

One of the goals of the Dodd-Frank financial reform law was to end speculative trading by large financial corporations that are also banks. Such trading has the potential to generate large losses that could jeopardize consumer deposits at these banks, requiring a federal government bailout. Dodd-Frank and the so-called Volcker Rule were supposed to end such trading. However, speculative trading has continued. (See posts of 5/31/12 and 5/29/12 for more details.)

Therefore, a tri-partisan group of Senators, led by Sen. Elizabeth Warren, has recently proposed new legislation, the 21st Century Glass Steagall Act, that would require the separation of speculative trading and consumer bank deposits.

You can sign on as a citizen sponsor of this proposed federal legislation at: http://my.elizabethwarren.com/page/s/glass-steagall?source=20130711emf. It will reduce risk-taking by big financial corporations that enjoy federal insurance of depositors’ money, thereby reducing the risk of another government bailout of these huge corporations and enhancing the safety of consumer deposits.

Senator Elizabeth Warren (Democrat, MA), an expert on the financial system, states that we need to learn from the financial crisis of 2008 and, moving forward, to prevent the kinds of high-risk activities that made a few people rich but nearly destroyed our economy. She has joined forces with Senators John McCain (Republican, AZ), Maria Cantwell (Democrat, WA), and Angus King (Independent, ME) to introduce the 21st Century Glass Steagall Act to modernize core banking safety.

This legislation would reinstate some of the protections of the original Glass Steagall Act put in place after the Great Depression but repealed in 1999. For over 50 years before this repeal, the banking system was stable and our middle class grew stronger. Wall Street had spent 66 years and millions of dollars lobbying for repeal, and, eventually, the big financial corporations won.

This new law will rebuild a firewall between the banks where American families have checking and savings accounts, and the investment banks that engage in risky financial speculation. It will make sure Wall Street doesn’t gamble with your money, and will help prevent another financial crisis. The bill will give a five year transition period for financial institutions to split their business practices into distinct entities – shrinking their size and taking an important step toward ending “Too Big to Fail” once and for all, while minimizing the risk of future bailouts.

The Federal Deposit Insurance Corporation (FDIC) insures our banks to keep your money safe. That way, when you want to withdraw your money, you know the money will be there. That’s what makes our banking system safe and dependable. But the government should NOT be insuring hedge funds, swaps dealing, and other risky investment banking activities. When the same institutions that take these huge risks are also the ones that control your savings account, the entire banking system is riskier.

This is an important bill that will implement the lessons we learned from the 2008 crisis and make sure we hold Wall St. accountable. Click here to become a citizen sponsor of the new 21st Century Glass Steagall Act. (Paste the following address into your web browser if the link doesn’t work: http://my.elizabethwarren.com/page/s/glass-steagall?source=20130711emf.)

Senator Warren was on CNBC to talk about the importance of this new legislation. The video clip of Warren’s appearance was on You Tube, but CNBC and NBC in effect censored it, claiming copyright infringement. They did so, apparently, because Warren did such a good job of defending the legislation and, in the process, made the CNBC commentators look bad because they were critical of the legislation and tried to attack Warren and her arguments for the legislation. This is a reflection of how our mainstream media, which are all big corporations themselves, report on – or in many cases don’t report on – news that is not favorable to corporate America.

You can read an article about this censorship and watch the informative and entertaining video clip (under 3 minutes) at: http://gawker.com/nbc-censors-video-of-elizabeth-warren-taking-cnbc-to-th-837411782. (Paste the address above into your web browser if the link doesn’t work automatically.)

NOTE: Please let me know by submitting a comment on this post if you would like me to continue sharing links to on-line petitions on issues I have written about. These petitions are an easy way to express your opinion and increase its weight by combining it with that of others. The effectiveness of these petitions varies greatly based on a wide range of factors, but there’s little downside given how quick and easy it is to do. Each petition also will give you a link to the advocacy organization sponsoring it. If it’s an issue you are particularly interested in, you may want to engage directly with the organization. One forewarning: in many cases when you sign a petition the sponsoring organization will put you on their email list. In some cases, there is a check box on the petition that you can uncheck if you don’t want the organization to start sending you information. You can, of course, always unsubscribe via any email you get from such an organization

OVERSIGHT OF FINANCIAL CORPORATIONS – PETITIONS YOU CAN SIGN

INTRO: The need for strong oversight of our large financial corporations was made starkly clear by their collapse in 2008. Nonetheless, necessary changes have not happened. The six huge financial corporations are bigger than ever, despite concern that they were too big to fail back in 2008. News of illegal activity in the financial sector continues to surface regularly and financial corporations are increasingly engaging in activities similar to those that led up to the 2008 crash. [1] (See posts of 8/29/12 and 7/12/12 for background.)

Strong oversight and regulation are needed from the Federal Reserve and the Securities and Exchange Commission, among others. (See posts of 7/31/12, 5/31/12, and 5/29/12 for background.) The government bailout (trillions of dollars in total) and the economic recession (that we still haven’t recovered from) that followed must not be allowed to happen again.

Here are two steps that should happen to increase oversight and accountability, while reducing risk of a re-occurrence of the 2008 crash. I include (see below) links to petitions you can sign (each in a minute or less) that will register your support for them:

  • President Obama should NOT to nominate Larry Summers as the next head of the Federal Reserve (the Fed)
  • The Securities and Exchange Commission (SEC) should implement and enforce disclosure of the compensation given to the heads of the big financial corporations

TELL PRESIDENT OBAMA NOT TO APPOINT SUMMERS AS FED CHAIRMAN

Larry Summers is apparently Obama’s leading candidate to replace Ben Bernanke as the chairman of the Federal Reserve in January. Summers is a former Treasury Secretary, Obama economic advisor, and Harvard University President. He is currently a paid consultant to Citigroup, one of the six huge Wall St. financial corporations.

Summers contributed to the financial collapse — he helped lead the charge to deregulate Wall Street in the 1990s, he blocked efforts to regulate derivatives (which were a key cause of the 2008 collapse), and he dismissed concerns about deregulation just before the 2008 crash that tanked the economy. [2]

We need strong leadership at the Fed. We need someone willing to stand up to Wall Street instead of letting them play by their own rules and bailing them out when the going gets tough. Larry Summers is not that man.

Please email President Obama via the Daily Kos website now — tell him not to appoint Larry Summers to lead the Fed. (from Michael Langenmayr, Campaign Director, Daily Kos blog site. Paste the following address into your web browser if the link doesn’t work: http://campaigns.dailykos.com/p/dia/action3/common/public/?action_KEY=505)

TELL THE SECURITIES AND EXCHANGE COMMISSION TO IMPLEMENT DISCLOSURE OF CEOs’ PAY

Please urge the Securities & Exchange Commission (SEC) to enforce the law on disclosure of CEO’s salaries. Excessive CEO salaries contributed to the reckless financial culture that nearly ruined our economy.

The Dodd-Frank financial reform law, which Congress passed in 2010, requires publicly traded corporations to disclose how much their executives make and compare it to their average worker’s pay. Three years later, the law still hasn’t been implemented. Why? Because the SEC has not produced the regulations needed to implement the law. Meanwhile, big corporations are putting pressure on the SEC and Congress to quietly kill this requirement.

This is basic public information that we have the right to know, and will help prevent the next financial crisis. Join Daily Kos and USAction by signing this petition to the SEC, urging them to enforce Dodd-Frank’s provision on disclosing CEO salaries. (from Paul Hogarth, Daily Kos blog site. Paste the following address into your web browser if the link doesn’t work: http://campaigns.dailykos.com/p/dia/action3/common/public/?action_KEY=518)

My next post will describe, and give you the opportunity to be a citizen co-sponsor of, Congressional legislation to reduce risk and improve stability at our big bank corporations. It will reduce the risk of a future government bailout while enhancing the safety of your deposits.

NOTE: Please let me know by submitting a comment on this post if you would like me to continue sharing links to on-line petitions on issues I write about. These petitions are an easy way to express your opinion and increase its weight by combining it with that of others. The effectiveness of these petitions varies greatly based on a wide range of factors, but there’s little downside given how quick and easy it is to do. Each petition also will give you a link to the advocacy organization sponsoring it. If it’s an issue you are particularly interested in, you may want to engage directly with the organization. One forewarning: in many cases when you sign a petition the sponsoring organization will put you on their email list. In some cases, there is a check box on the petition that you can uncheck if you don’t want the organization to start sending you information. You can, of course, always unsubscribe via any email you get from such an organization.


[1]       Popper, N., 4/18/13, “Wall St. redux: Arcane names hiding big risk,” The New York Times

[2]       Editorial, 8/2/13, “Tornado at the Fed? Obama has better choices than Summers,” The Boston Globe

OUR TOXIC ENVIRONMENT AND WHAT YOU CAN DO

ABSTRACT: On a societal level, a disproportionate burden of toxic pollution is borne by Americans of color. At the specific level, every day skin care products contain toxic chemicals. Many contain formaldehyde (a known carcinogen), phthalates (linked to hormonal disruption and birth defects), and/or parabens (which mimic the hormone estrogen and have been linked to breast cancer). Lead (a neurotoxin so damaging to young children that it is banned from house paint and gasoline) is present in lipstick.

The US Food and Drug Administration (FDA) does NOT have the authority to test cosmetic ingredients before they are marketed or to order recalls. Regulation is in the hands of the industry itself, which to-date has found only 11 chemicals to be unsafe for use. In contrast, in Europe, 1,400 chemicals have been banned from personal care products. The chemical and cosmetics corporations spend millions of dollars every year on lobbying and other efforts to influence US policy.

Atrazine is a weed killer, widely used in the US but banned in the European Union. As an example of the lengths the chemical industry and its allies in Congress will go to stop any momentum to regulate toxins, they blocked a resolution honoring Rachel Carson, author of Silent Spring 50 years ago, which established a clear link between DDT and other pesticide use and the widespread deaths of birds, as well as reproductive, birth, and developmental abnormalities in mammals.

Options for what you can do at home and politically are included in the full post below.

FULL POST: Before sharing some specific examples of toxic chemicals in our everyday lives and some things you can do about them, here’s an important societal perspective. A disproportionate burden of toxic pollution is borne by Americans of color. The environmental justice movement has documented the disproportionate presence of pollution sources in and near communities with high percentages of people of color. Prominent examples are in Louisiana and Detroit. The stretch along the Mississippi River from Baton Rouge to New Orleans is dotted with oil refineries that belch a variety of toxins into the air of the surrounding, largely minority, communities. This area is known as “Cancer Alley.” Detroit’s zip code 48217 is 85% African American and is know as Michigan’s most polluted area. It is adjacent to a steel plant, a coal-fired power plant, a salt mine, and a huge oil refinery. The refinery alone emits close to 4 tons of toxins per year. Virtually every household in the area has at least one member who suffers from asthma, leukemia, cancer, or sarcoidosis (a disease in which inflammation occurs in the lymph nodes, lungs, liver, eyes, skin, or other tissues). After some homes in the area tested positive for up to 20 toxic gases, the refinery offered to buy the homes in an effort to reduce its liability. [1]

At the specific level, every day skin care products, including cosmetics, contain toxic chemicals. Many of these products, from suntan oil to makeup to hair spray to perfumes and colognes, contain formaldehyde (a known carcinogen), phthalates (linked to hormonal disruption and birth defects), and/or parabens (which mimic the hormone estrogen and have been linked to breast cancer). Lead (a neurotoxin so damaging to young children that it is banned from house paint and gasoline) is present in lipstick at concentrations 30 times higher than what the FDA allows in candy bars. Our skin is our largest organ and readily absorbs these products’ ingredients. Some of the chemicals absorbed accumulate over time because our bodies do not eliminate them or break them down. [2]

The US Food and Drug Administration (FDA), created by the Federal Food, Drug, and Cosmetic Act of 1938, does NOT have the authority to test cosmetic ingredients before they are marketed or to order recalls – as it does for drugs and medical devices. Regulation is in the hands of the industry itself, which to-date has found only 11 chemicals to be unsafe for use in its products, including for use by women of child bearing age. In contrast, in Europe, 1,400 chemicals have been banned from personal care products because they are carcinogenic, mutagenic*, or toxic to reproduction.

The chemical and cosmetics corporations spend millions of dollars every year on lobbying and other efforts to influence US policy. In 2012, they blocked federal legislation that would have required complete ingredient labels on fragrances and hair sprays, as well as banned the use in cosmetics of carcinogens and chemicals linked to reproductive disorders. In addition, these corporations attempted to pass legislation that would block state regulation, such as that in California. If you would like more information and to take action, you can go to the Campaign for Safe Cosmetics at http://safecosmetics.org.

Home cleaning products are another example of every day items that contain toxic chemicals. For information on how to keep your home clean and shiny without using products with toxic chemicals go to http://www.bostonhealthcoach.com/oilrecordings.html and select the teleclass entitled “Chemical-Free Home.”

Atrazine is a weed killer, widely used in the US but banned in the European Union. In the human body, it mimics hormones and has what are referred to as endocrine system disrupting effects. It has been shown to disrupt the reproduction and immune systems in a wide range of animals, including mammals. It is present in water everywhere, including in rain water. It can actually turn male frogs into functioning females. [3]

As an example of the lengths the chemical industry and its allies in Congress will go to stop any momentum to regulate toxins, they blocked a resolution honoring Rachel Carson, author of Silent Spring, on its 50th anniversary and what would have been her 100th birthday. They attacked her as having made “junk-science claims about DDT” and accuse her and her supporters of being responsible for the deaths of “millions of people … particularly children” because supposedly the lack of use of DDT led to deaths from malaria and other diseases. The facts are that the EPA never banned DDT for use against malaria and Carson did not support a universal ban on pesticides but advocated for use of as little as possible. In Silent Spring, Carson established a clear link between DDT and other pesticide use and the widespread deaths of birds, as well as reproductive, birth, and developmental abnormalities in mammals. DDT, other pesticides, and some of the tens of thousands of chemicals in use today will be part of the environment and in our bodies for decades to come because they decompose or are eliminated very slowly. [4]

I urge you to contact your US Representative and Senators (and your state ones too) and to ask them to support the Safe Cosmetics and Personal Care Products Act (H.R. 1385) and the Safe Chemicals Act (S. 696). (Find your Representative at http://www.house.gov/representatives/find/ and your Senators at http://www.senate.gov/general/contact_information/senators_cfm.cfm.)


[1]       Brune, M., July / August 2013, “And justice for all,” Sierra Club magazine

[2]       Wasik, J.F., May / June 2013, “Beauty tips for the FDA: Did my wife’s cosmetics give her breast cancer?” The Washington Monthly

*       Mutagenic chemicals cause changes in the genetic material, usually DNA, of an organism and thus increase the frequency of mutations. As many mutations cause cancer, mutagenic chemicals are therefore also likely to be carcinogens. http://en.wikipedia.org/wiki/Mutagen

[3]       Steingraber, S., 4/19/13, “Sandra Steingraber’s war on toxic trespassers,” Bill Moyers public TV show, available at BillMoyers.com. Note: Steingraber has written multiple books including “Having faith: An ecologist’s journey to motherhood” and “Raising Elijah: Protecting our children in an age of environmental crisis.”

[4]       Mangano, J.J., & Sherman, J.D., 10/1/12, “Rachel Carson’s brave, groundbreaking ‘Silent Spring’ at 50 years,” The Washington Spectator

BLOCKING REGULATION OF TOXINS

ABSTRACT: Corporations with a financial interest in the use and sale of toxic chemicals are engaged in a major, multi-faceted effort to prevent, weaken, and delay regulation. They work to prevent clear, unbiased, scientific information from being available to our policy makers and the public. They engage in efforts to affect the regulatory process – from the enactment of laws to the implementation of regulations – in the legislative, executive, and judicial branches of government. They work to make the whole process as long and complicated as possible. This gives them many opportunities to block, weaken, and delay the actual regulation of a toxic chemical.

The chemical industry works to limit the effectiveness of any regulations eventually implemented and of the agency enforcing them.

It achieves results by using the standard tactics of 1) Campaign contributions, 2) Lobbying, and 3) The revolving door of personnel moving between the industry and legislative and executive branch staff positions, which result in personal relationships (and potential conflicts of interest) that can benefit the chemical industry.

Given that corporations typically have more resources, a more singular focus, and greater longevity for waging the battle against regulation than those working to regulate a toxic chemical, dragging out the process and making it costly generally works to their advantage.

FULL POST: Corporations with a financial interest in the use and sale of toxic chemicals are engaged in a major, multi-faceted effort to prevent, weaken, and delay regulation, despite threats to public health and safety, as well as to the environment. These corporations work to prevent clear, unbiased, scientific information from being available to our policy makers and the public. They engage in efforts to affect the regulatory process – from the enactment of laws to the implementation of regulations – in the legislative, executive, and judicial branches of government. [1] The regulation of lead [2] (see post of 6/2/13 for more detail) and tobacco are classic examples. (Similar efforts are occurring in other arenas, such as climate change and regulation of the financial industry.)

The efforts of the chemical industry on the legislative front are both proactive and reactive, offensive and defensive, as well as high profile and hidden. Examples, for among many, include:

  • The fracking* industry proactively but quietly got legislation passed that exempted fracking from review by the Environmental Protection Agency (EPA) under the Safe Drinking Water Act. This happened in 2005 under President Bush and Vice President Cheney and is widely referred to as the “Halliburton Loophole” because a major beneficiary is Cheney’s previous employer, Halliburton Co.
  • The genetically modified organism (GMO) industry quietly attached a provision to an emergency budget bill (passed and signed into law by President Obama) that allows corporations (notably Monsanto) to sell GMO seeds for agriculture even when a federal court has ordered them not to. [3]
  • A provision in the 2013 Farm Bill, currently in the US House of Representatives, would prohibit states from enacting laws requiring the labeling of food with GMO ingredients or otherwise regulating the production of agricultural goods. [4]

The chemical industry achieves legislative results by using the standard tactics of:

  • Campaign contributions to Congress people (and state legislators) who have oversight roles,
  • Lobbying, and
  • The revolving door of personnel moving between the industry and legislative staff positions, which result in personal relationships (and potential conflicts of interest) that can benefit the chemical industry.

Then, once laws are in place, the chemical industry works to make the process of implementation through rules and regulations as long and complicated as possible. This gives it many additional opportunities (beyond those of the legislative process) to block, weaken, and delay the actual regulation of a toxic chemical.

The chemical industry also works to limit the effectiveness of any regulations eventually implemented and of the agency enforcing them. One way is to lobby to make the regulations as complex as possible with loopholes and details that make them difficult to enforce and open to court challenges. This can include putting the burden of proof on the agency as opposed to the corporation and setting a high standard of proof or harm. For example, the Toxic Substances Control Act gives the EPA just 90 days to find “unreasonable risk” if it wants to regulate a new chemical (see post of 6/2/13 for more detail). Another tactic is to require an extensive and often biased cost-benefit analysis of any new regulation.

The tactics of lobbying and the revolving door of personnel, in this case involving the regulatory agency in the executive branch rather than the legislative branch of government, are used to achieve these results.

A regulatory agency can also have its effectiveness hurt by budget cuts or legislative failure to confirm key agency personnel. And challenging regulations or regulatory decisions in court uses the judicial branch of government as another way to delay and drive up the costs of regulation.

Finally, the chemical industry engages in efforts to control the flow and clarity of information. Corporations with a stake in research on a potentially toxic chemical will create a false and parallel science by paying for biased research and will control, as much as possible, the dissemination of scientific information. They will attack scientists, sometimes directly and personally, including threatening them and suing them, when their research finds toxic effects from the corporation’s chemical. [5] An important goal of these efforts is to create false or exaggerated doubt in the minds of policy makers and the public about the harm that a chemical causes.

Trade associations like the American Chemical Council and public relations experts are used in efforts to manipulate public opinion and influence the media. Supposedly independent groups are created and funded specifically to promote the industry’s position. These allow the corporation with a vested interest to remain behind the scenes and apparently independent of public relations efforts to downplay evidence of dangers, exaggerate uncertainty, allege misconduct by scientists who find toxic effects, and plant inaccurate or biased stories in the media. [6][7]

To avoid having to share information with the public, corporations will claim that it represents “trade secrets” or “proprietary information”. For example, the fracking industry makes such claims when asked to reveal the chemicals it is pumping into the ground to release natural gas. This claim is also used to avoid labeling products with their chemical contents. Eastman Chemical Co. has used this claim to suppress information from a court case on the presence and effects of chemicals in its plastics. [8]

Given that corporations typically have more resources, a more singular focus, and greater longevity for waging the battle against regulation than those working to regulate a toxic chemical, dragging out the process and making it costly generally works to their advantage.


 

[1]       Union of Concerned Scientists, Feb. 2012, “Heads they win, tails we lose: How corporations corrupt science at the public’s expense,” http://www.ucsusa.org/scientific_integrity/abuses_of_science/how-corporations-corrupt-science.html

[2]       Rosner, D., & Markowitz, G., 5/17/13, “Toxic disinformation,” Bill Moyers’ public TV show, available at billmoyers.com

*      Fracking is shorthand for hydraulic fracturing where high pressure water and other fluids, including toxic chemicals, are injected into the ground to release natural gas.

[3]       McCauley, L., 5/20/13, “Senator leads call to repeal the ‘Monsanto Protection Act’,” http://www.commondreams.org/headline/2013.05/20-2

[4]       Sheets, C.A., 5/17/13, “’Monsanto Protection Act 2.0’ would ban GMO-labeling laws at the state level,” International Business Times

[5]       Riley, T., 5/18/13, “Blinding us from science,” http://billmoyers.com/2013/05/18/blinding-us-from-science

[6]       Rosner, D., & Markowitz, G., 4/29/13, “You and your family are guinea pigs for the chemical corporations,” TomDispatch.com

[7]       Union of Concerned Scientists, Feb. 2012, see above

[8]       Dubose, L., 6/1/13, “Silencing science: What you may never know about plastic baby bottles,” The Washington Spectator

HOW AND WHY TOXINS ARE IN YOUR BLOOD

ABSTRACT: The dozens of toxic chemicals we all have in our blood are there because they are in the clothes we wear; the toys, furniture, fabrics, paint, and construction materials in our homes; the cleaning and personal care products we use; and the containers for our food and beverages. They are in all these places because our government regulators are failing us and the corporations that produce and use these chemicals engage in extensive efforts to block regulation.

The Toxic Substances Control Act (TSCA) of 1976 is the US law that regulates chemicals. Almost all of the 60,000 chemicals in use in 1976 when the law was passed were deemed safe without testing or review. Only a handful of chemicals have had their use restricted. For a new chemical, the EPA must act in just 90 days (!) and find an “unreasonable risk” or the chemical is deemed safe. In addition, the burden of proof lies on the EPA to show “unreasonable risk” rather than on the corporation to show that a chemical is safe.

There are numerous examples, historically and currently, of the difficulty of implementing regulations on chemicals, including lead, asbestos, pesticides, PCBs, formaldehyde, flame retardants, and BPA. Chemical exposure has been associated with a very wide range of health and developmental problems, including learning disabilities, asthma, birth defects, developmental problems in children, cancer, obesity, and problems with the immune and reproductive systems, as well as with the brain and nervous system. The effects of long-term exposure to multiple chemicals and the impacts on fetuses and young children are unknown.

Our bodies are toxic dumps and we are the guinea pigs – without our consent and often without even our knowledge – in the largest, uncontrolled experiment that has ever occurred.

FULL POST: The dozens of toxic chemicals we all have in our blood are there because they are in the air we breathe, the food we eat, and the water we drink. (See 5/22/13 post for more detail.) They get there from the clothes we wear; the toys, furniture, fabrics, paint, and construction materials in our homes; the cleaning and personal care products we use; and the containers for our food and beverages. They are in all these places because our government regulators are failing us and the corporations that produce and use these chemicals engage in extensive efforts to block regulation. Many of these chemicals are new, but some have been around for 100 years. [1]

The Toxic Substances Control Act (TSCA) of 1976 is the US law that regulates the introduction of new chemicals and the chemicals existing when it was enacted. Almost all of the 60,000 chemicals in use in 1976 when the law was passed were deemed safe without testing or review. The TSCA is administered by the Environmental Protection Agency (EPA). The EPA has tested only 200 of the more than 75,000 synthetic chemicals in use in the US. In the 37 year history of the TSCA, only a handful of chemicals have had their use restricted. This is partly because the Pre-Manufacturing Notice a corporation submits for a new chemical it wants to use has only limited information (e.g., no safety information is required). Then, the EPA must act in just 90 days (!) and find an “unreasonable risk to human health or the environment” or the chemical is deemed safe for use. Even the EPA’s own Office of the Inspector General has criticized the TSCA as weak and ineffective, noting that corporations’ assertions of trade secrets prevent effective testing and that the EPA process is predisposed to protecting industry information rather than providing the public with health and safety information. [2] The Natural Resources Defense Council says that under the TSCA “it is almost impossible for the EPA to take regulatory action against dangerous chemicals, even those that are known to cause cancer or other serious health effects.” One reason is that the burden of proof lies on the EPA to show “unreasonable risk” rather than on the corporation to show that a chemical is safe, as a drug company is required to do. [3]

Lead is a classic example of the difficulty of implementing regulation. The dangers of lead have been known for 100 years. Yet the lead industry engaged in a 60 year campaign to cover-up the effects of lead and to promote its use – in a campaign similar to that waged by the tobacco industry more recently. In wasn’t until 1971 that Congress passed a law to limit the use of lead paint in public housing and 1978 when the Consumer Product Safety Commission banned lead paint for consumer use. During the 1980’s, the EPA issued rules that eventually eliminated the use of lead in gasoline in 1995 (although it is still used in aviation fuel).

Even today, the Centers for Disease Control (CDC) estimates that children in 4 million US households are exposed to dangerous amounts of lead and that 500,000 children from birth to 5 have elevated levels of lead in their blood. No level of lead is considered safe and child exposure to lead is linked to attention and cognitive deficits, behavior problems, and learning disabilities – all of which risk putting a child on a trajectory for problems in school and later life. [4]

A similar pattern occurred with efforts to regulate asbestos. Chlorinated hydrocarbons, including pesticides such as DDT, were widely used until their detrimental effects became clear. Then they were successfully banned decades ago. However, these chemicals persist in the environment and have accumulated in our bodies. The same is true for polychlorinated biphenyls (PCBs). The non-stick coating for cookware, Teflon, is widely present in our blood and is linked to cancer.

Bisphenol A (BPA), which is used in plastics including baby bottles and water bottles, as well as the linings of food cans, has been found widely in our blood. At even very low doses, it has been shown to interact with our endocrine system and its hormones, with links to obesity, neurobehavioral problems, reproductive abnormalities, and breast and prostate cancers. Nonetheless, its regulation is being fought in the courts and elsewhere at this moment.

Currently, formaldehyde is used as a fungicide, germicide, and disinfectant in plywood and many materials used in building homes and furniture. However, as it ages it evaporates and the vapors we inhale accumulate in our bodies; it is known to cause cancer. Similarly, flame retardants are found in almost everyone’s blood and have been linked to thyroid, memory, learning, cognitive, and developmental problems, as well as early onset of puberty.

These are prominent examples of our widespread exposure to a large number of toxic chemicals. This exposure has been associated with a very wide range of health and developmental problems, including learning disabilities, asthma, birth defects, developmental problems in children, cancer, obesity, and problems with the immune and reproductive systems, as well as the brain and nervous system. The effects of long-term exposure to multiple chemicals are unknown.

When the TSCA passed in 1976, the scientific understanding of biochemistry was not nearly as sophisticated as it is today. The ways chemicals affect our health, their potential to accumulate in and have subtle, long-term effects on our bodies and how they function, were unknown. Even today, the effects chemicals have on fetuses and young children are largely unstudied and unknown. [5] In 1976, it was generally believed that the placenta filtered a mother’s blood and prevented dangerous chemicals from reaching the fetus. We now know that this isn’t true.

Our bodies are toxic dumps and we are the guinea pigs – without our consent and often without even our knowledge – in the largest, uncontrolled experiment that has ever occurred. The large corporations that produce and use these chemicals are using every tactic at their disposal and their huge treasuries to fight regulation and stop laws that would require testing of chemicals. My next post on this topic will focus on this battle.


[1]       Rosner, D., & Markowitz, G., 4/29/13, “You and your family are guinea pigs for the chemical corporations,” TomDispatch.com

[2]       Wikipedia, retrieved 6/1/13, “Toxic Substances Control Act of 1976,” en.wikipedia.org/wiki/Toxic_Substances_Control_Act_of_1976

[3]       Natural Resources Defense Council, retrieved 6/1/12, “More than 80,000 chemicals permitted in the US have never been fully assessed for toxic impacts on human health and the environment,” http://www.nrdc.org/health/toxics.asp?gclid=CPjZ66CLw7cCFYii4Aod6GwAWA

[4]       Rosner & Markowitz, 4/19/13, see above

[5]       Steingraber, S., 4/19/13, “Sandra Steingraber’s war on toxic trespassers,” Bill Moyers public TV show, available at BillMoyers.com

BIG FINANCIAL CORPORATION SCANDALS CONTINUE

ABSTRACT: Things are rotten in the big financial corporations. News of illegal activity continues to surface regularly. The fines that have been imposed haven’t been a sufficient deterrent to stop this bad behavior. Multiple big banks have paid penalties of over $100 million for 1) money-laundering for countries subject to US economic sanctions, 2) selling inappropriately risky investments to conservative investors including municipalities and non-profits, 3) fraudulently foreclosing on mortgages, 4) interest rate manipulation in multiple scenarios, and 5) discriminating against minority borrowers.

Despite this repeated wrong doing, the Securities and Exchange Commission (SEC) and the Justice Department announced recently that they have ended their investigation of Goldman Sachs for fraud related to selling mortgage-backed securities to customers when it knew the securities were likely to be bad investments. This is the latest indication that there will be no significant accountability for the banks that brought on the collapse of the financial sector and our economy.

These huge financial corporations are not just too big to fail, they are simply too big and complex to control by either internal management or outside regulators. Either these huge financial corporations need to be broken up into smaller and less complex entities, or government regulation of them needs to be dramatically changed and strengthened. We cannot allow them to continue to pocket the gains from their risky business practices when we know that we will bear the costs when things go wrong.

FULL POST: Things are rotten in the big financial corporations. News of illegal activity continues to surface regularly across a broad range of banks and financial activities. Here are some of the latest. The fines that have been imposed (which sound like big amounts but are small compared to the size and profitability of these corporations) haven’t been a sufficient deterrent to stop this bad behavior. (In terms of the size of these financial firms, JP Morgan Chase took a $6 billion loss on internal, speculative securities trades and still had a profit for the quarter.)

  • Standard Chartered, a big British bank, has agreed to a $340 million penalty with New York State to settle charges of money-laundering for countries subject to US economic sanctions. It admitted to concealing transactions with Iran of over $250 billion over nearly 10 years. The bank made hundreds of millions of dollars in fees on the transactions. It agreed to increased monitoring but received no other sanctions on its business. A former US Treasury official noted his disappointment in the small penalty and the lack of criminal charges. A federal investigation is on-going. Since 2005, the US Treasury has imposed fines of over $2 billion on banks for violating US economic sanctions including ING Bank ($617 million), Lloyds Bank ($350 million), UBS ($100 million), Barclays ($176 million), and JP Morgan Chase ($88 million). HSBC bank has been accused of laundering billions of dollars for drug cartels and terrorists and has yet to settle, but has set aside $700 million for potential penalties. [1][2]
  • Wells Fargo bank is paying $6.5 million to settle charges that it sold inappropriately risky investments to conservative investors including municipalities and non-profits. A Wells Fargo vice president will pay $25,000 and serve a 6 month ban on working in the securities industry. Wells Fargo and its vice president have neither admitted nor denied wrongdoing, as is typical in these cases. Last month, Wells Fargo paid $175 million to settle charges that it discriminated against minority borrowers. [3]

Despite repeated wrongdoing, the Securities and Exchange Commission (SEC) and the Justice Department announced recently that they have ended their investigation of Goldman Sachs for fraud related to selling mortgage-backed securities to customers when it knew the securities were likely to be bad investments. They will not pursue criminal charges against the corporation or its employees. This occurred despite President Obama’s announcement of a special investigative task force in January, despite a formal notice from the SEC in February that it intended to pursue legal action, and despite the $550 million fine Goldman Sachs paid in 2010 for failing to make appropriate disclosures to investors on a similar security. This is the latest indication that there will be no significant accountability for the banks that brought on the collapse of the financial sector and the economy, especially given that the deadline to file cases is fast approaching. [4] [5]

Whatever the reasons are for these huge financial corporations not being held accountable, it is clear that they are not just too big to fail, but simply too big and complex to control. Internal management seems unable to control traders and stop illegal activity (assuming they intend to). Outside regulators have an extremely difficult time detecting and responding to illegal and harmful behavior, not to mention doing so in a timely manner that might prevent the worst of the consequences.

Dramatic changes are needed. Either these huge financial corporations need to be broken up into smaller and less complex entities, or government regulation of them needs to be dramatically changed and strengthened. Otherwise, the risk that they will do serious damage to our economy again is simply too high. We cannot allow them to continue to pocket the gains from their risky business practices when we know that we will bear the costs when things go wrong.


[1]       Rooney, B., 8/14/12, “Standard Chartered pays $340 million to settle Iran charges,” CNN Money

[2]       Sanati, C., 8/8/12, “Why London bankers are shrugging of Standard Chartered threat,” CNN Money

[3]       O’Toole, J., 8/14/12, “Wells Fargo in $6.5 million SEC settlement over risk disclosure,” CNN Money

[4]       Protess, B., & Ahmed, A., 8/9/12, “SEC and Justice Dept. end mortgage investigations in Goldman,” DealBook of The New York Times

[5]       Mattingly, P., 8/10/12, “US won’t prosecute Goldman Sachs, employees over CDO deals,” Bloomberg Businessweek

CAMPAIGN FUNDRAISING: THE PERFECT STORM

ABSTRACT: The unprecedented spending and the unprecedented secrecy in the current election campaigns are creating the perfect storm and it’s battering our democracy. They are the result of three factors: 1) great concentration of wealth, 2) unlimited campaign contributions, and 3) secrecy through weakly regulated non-profit organizations. Non-profit organizations don’t have to report contributors and are spending tens of millions of dollars on political activity. These non-profit organizations have accounted for two-thirds of the outside spending to-date – close to $100 million. The Internal Revenue Service has, so far, failed to exercise its oversight responsibilities. Corporations, in particular, like the secrecy.

The DISCLOSE Act in Congress would require disclosure of contributors of over $10,000 by all organizations. Senate Republicans have filibustered it (including a watered down version) multiple times. We need to demand that our elected officials require disclosure of campaign contributors. And we need a Constitutional Amendment that will reverse the Citizens United decision and allow limitations on contributions to political campaigns. Otherwise, the voices of we the people are drowned out by the purchased – not free but purchased – speech of wealthy individuals and corporations.

FULL POST: The unprecedented spending in the current election campaigns and the unprecedented secrecy about who’s contributing to the campaigns are creating the perfect storm and it’s battering our democracy. As Supreme Court Justice Louis Brandeis said, “we can have a democracy or we can have great wealth in the hands of a comparatively few, but we cannot have both.” This perfect storm is the result of three factors:

  • The greatest concentration of wealth in more than a century,
  • Unlimited campaign contributions (thanks to the Supreme Court’s Citizens United decision that allows unlimited spending by corporations, unions, and other groups), and
  • Secrecy for many of the contributors, especially corporations, through weakly regulated non-profit organizations. [1]

In addition to the Super PACs, which have to disclose contributors, there arenon-profit trade associations (such as the US Chamber of Commerce) and non-profit “social welfare” organizations [501(c)(4)s] that don’t have to report contributors. Politics is not supposed to be the primary purpose of these organizations. However, the US Chamber of Commerce is spending tens of millions of dollars on political activity, while refusing to disclose its contributors. Republican strategist Karl Rove’s Crossroads GPS, for example, is a 501(c)(4) that is raising and spending tens of millions of dollars on political activity in close alliance with his Super PAC, while refusing to disclose its contributors. [2]

So far in the 2012 election, these non-profit organizations have accounted for two-thirds of the outside spending – close to $100 million spent primarily on advertising. Back in 2010, they spent $130 million, outspending Super PACs 3-to-2. The Internal Revenue Service has, so far, failed to exercise its oversight responsibilities for these non-profit entities. It has no clear test for what constitutes excessive political activity and these tax-exempt groups are permitted to raise and spend money before being officially reviewed and approved. The tax exempt status of Karl Rove’s Crossroads GPS is still pending more than two years after being created and after having spent tens of millions back in the 2010 elections. [3]

Corporations, in particular, like the secrecy these non-profit groups provide. For example, insurance giant Aetna secretly gave $3 million to a non-profit running ads attacking Obama’s health care plan, while publicly supporting the President. Not a single Fortune 500 company has been reported as contributing to a Super PAC, but they are giving millions to non-profit organizations where their contributions can be kept secret. [4]

At the time of the Citizens United decision, eight of the nine justices made it clear that transparency on contributions for political activity was important and that it was Congress’s responsibility to require appropriate disclosure. The DISCLOSE Act in Congress would require disclosure of contributors of over $10,000 by all organizations, Super PACs, trade associations, unions, and 501(c)(4)s. However, Senate Republicans have filibustered it (including a watered down version) multiple times. Many of the Republicans filibustering the DISCLOSE Act previously supported disclosure, including Senator McCain and Senate Minority Leader McConnell, and 14 Republicans who supported it just a couple of years ago. [5]  “[T]he essence of free speech, and democracy, is openness and accountability. … but Republican leaders remain adamantly opposed, and for an obvious reason. Republicans raise far more secret money than the Democrats and have far more to hide.” [6]

We the people are going to have to weather this perfect storm as best we can in this election. And then we will need to demand that our elected officials require disclosure of campaign contributors so we know who is trying to influence our elections. Ultimately, we need a Constitutional Amendment that will reverse the Citizens United decision and allow limitations on contributions to political campaigns. Otherwise, the voices of we the people are drowned out by the purchased – not free but purchased – speech of wealthy individuals and corporations who have amounts of money that far exceed that of everyone else.


[1]       Reich, R., 7/13/12, “The selling of American democracy: The perfect Storm,” RobertReich.org

[2]       Roberts, C., & Roberts, S.V., 7/18/12, “Shine a light on political donations,” Daily Times Chronicle

[3]       McIntire, M., & Confessore, N., 7/7/12, “Corporate money funneled to nonprofits with an agenda,” The New York Times

[4]       Moyers, B., & Winship, M., 7/17/12, “Presto! The DISCLOSE Act disappears,” Moyers & Company

[5]       Moyers & Winship, 7/17/12, see above

[6]       Roberts & Roberts, 7/18/12, see above

WHY WE NEED STRONG REGULATION

ABSTRACT: A fierce battle is occurring over government regulation. Key arguments against regulation are that corporations will regulate themselves and that the discipline of free market capitalism will punish bad corporate behavior and reward good behavior. The series of scandals in our large banks have clearly proven these arguments are wrong. And there are many examples beyond the recent bad behavior in the financial industry.

The market is unable to detect, publicize, and punish bad behavior before very serious damage has been done. Corporations resist efforts to exert control or set standards from outside and our huge corporations have the power to successfully do so. As Robert Sherrill wrote, “thievery is what unregulated capitalism is all about.” “Trust but verify” seems applicable here. We need strong regulators and regulations to verify that large corporations are behaving in a legal and ethical manner. Albert Einstein defined insanity as “doing the same thing over and over and expecting different results.” Deregulation is insanity; we’ve seen the results time and again. Strong regulation of corporations, particularly large corporations, by government is necessary.

FULL POST: A fierce battle is occurring in Congress and the federal government over regulation of the financial industry and over government regulation in general. Key arguments against regulation are that corporations will regulate themselves (with minimal standards from government) and that the discipline of free market capitalism will punish bad corporate behavior and reward good behavior. President George W. Bush asserted that these forces were effective and sufficient as he promoted deregulation.

Over the last couple of years, the series of scandals in our large banks have clearly proven these arguments are wrong. The large banks have not regulated themselves. The mortgage and LIBOR scandals (among others) have shown a pattern of behavior by many banks over many years where they clearly did not regulate themselves, but spun further and further out of control and into illegal and unethical behavior. The recent huge JPMorgan trading loss, currently estimated at $6 billion, shows that they simply cannot control internal behavior despite strong incentives to do so. And there are many examples beyond the recent bad behavior in the financial industry: for example, the Savings and Loan scandal of the late 1980s, Enron and WorldCom’s collapses of 2001 and 2002, and the “dot com” stock bubble of 2000. Our large corporations don’t even seem to be able to exert reasonable control over executive compensation.

The discipline of a competitive market place has also clearly not been effective as a deterrent for bad behavior. The recent scandals have shown as false the assumption that banks would behave honestly to protect their reputations with customers. Moreover, it is clear in all of the examples cited above that the market is unable to detect, publicize, and punish bad behavior before very serious damage has been done. [1]

Finally, corporate capitalism, where the goal is to maximize profits, clearly has strong incentives for promoting self-interest. Conversely, the corporations have strong incentives to resist the public interest, such as worker safety, fair employee compensation, and clean air and water, because they might increase costs and reduce profits. Therefore, corporations resist efforts to exert control or set standards from outside. And our huge corporations have the power to successfully do so, in the market place, in the courts, and in our elections and government.

As Robert Sherrill (the reporter and investigative journalist for The Nation, the Washington Post, and the New York Times Magazine, among others, and the author of numerous books on politics and society [2] ) wrote about the Savings and Loan scandal, “thievery is what unregulated capitalism is all about.” The recent behavior of our large banks seems to have proven this statement again.

“Trust but verify,” a phrase President Reagan popularized when he used it to describe relations with the Soviet Union, seems applicable here. [3] We need strong regulators and regulations to verify that large corporations are behaving in a legal and ethical manner.

Finally, Albert Einstein is quoted as defining insanity as “doing the same thing over and over and expecting different results.[4] Deregulation of the financial industry in particular, and corporate America in general, is insanity. We’ve seen the results time and again over the last 30 years of deregulation and in the events leading up to the Great Depression. We’re paying a very steep price right now in high unemployment, lost wealth in homes and investments, and over the longer haul in lower wages and reduced benefits for workers.

We need to push back against the large corporations and their special interests in the name of the public interest and the interests of we the people. Strong regulation of corporations, particularly large corporations, by government is necessary.


[1]       Surowiecki, J., 7/30/12, “Bankers gone wild,” The New Yorker

[2]       Wikipedia, retrieved 7/25/12, “Robert Sherrill,” en.wikipedia.org/wiki/Rovbert_Sherrill

[3]       Wikipedia, retrieved 7/26/12, “Trust, but verify,” en.wikipedia.org/wiki/Trust_but_verify

[4]       BrainyQuote, retrieved 7/26/12, “Albert Einstein quotes,” http://www.brainyquote.com/quotes/quotes/a/alberteins133991.html

BAD BEHAVIOR AT THE BIG BANKS

Abstract: Two “new” major, multi-bank scandals have gotten attention recently: the manipulation of the LIBOR interest rate index from 2005 – 2009 and the rigging of interest rates on municipal deposits over at least ten years. These far-reaching scandals are but the tip of the iceberg, which includes the endemic fraudulent mortgage practices that led to the 2008 financial collapse and more. JPMorgan Chase, among others, is involved in all of the above. It has also paid a $153 million fine for fraud in securities trading and a $700 million penalty for its misbehavior in municipal finance.

Despite overwhelming evidence of serious, chronic criminal behavior at the big banks, penalties are mere slaps on the wrist, no senior executive has been prosecuted, and the banks continue to do business as if they had done nothing wrong. This behavior and the unhealthy economic and political power of the big banks must be stopped. The only way to do so is to prosecute bankers and send some of them to jail.

Full post: On the heels of the large trading losses at JPMorgan Chase (somewhere between $2 and $9 billion) comes news of two major, multi-bank scandals: the manipulation of the LIBOR interest rate and the rigging of interest rates on municipal deposits.

Barclays Bank, based in London, has paid British and American regulators a fine of $450 million for rigging the London Inter-Bank Offered Rate (LIBOR) from 2005 through 2009. This is a big deal because LIBOR is used worldwide to set the variable interest rates on an estimated $500 trillion worth of financial contracts, including mortgages, credit cards, and many commercial and personal loans. The rate rigging helped Barclays’ traders make more money and made their bank look stronger in the midst of the financial crisis. Other banks were clearly involved in the scheme and more penalties are expected. [1]

The second scandal, rigging interest rates on municipal deposits, has, at least so far, received far less attention. Three low level employees at GE Capital (the financial services subsidiary of General Electric) have been convicted in a scheme that involved virtually every major bank and finance company on Wall St. They conspired to skim billions from cities and towns across the country by paying them lower interest rates on their deposits. The cities and towns are generally legally required to get competitive bids from at least three banks. The bidding is managed by a broker. In this scheme, the banks divvied up the business so there was a prearranged winner of the bidding. The broker was bribed to tell the prearranged winner what the other two bids were, so it could come in just over those bids. [2]

This conspiracy had been going on for at least ten years. The municipalities’ deposits were the multi-million proceeds of bonds that were sold to finance major projects and were spent over the multiple years those projects, such as building a school or sewer system, took to complete. Therefore, lowering the interest rate the municipality is paid by just a 100th of a percent (e.g., 5.00% instead of 5.01%) could cheat a city or town out of tens of thousands of dollars, and save the bank the same amount. Overall, municipalities lost tens of millions of dollars on tens of billions of dollars of municipal deposits. To-date, four banks – UBS, Bank of America, JPMorgan Chase, and Wells Fargo – have admitted involvement and have paid $673 million in restitution and fines.

These two new scandals, amazingly, are but the tip of the iceberg in terms of fraud in the financial industry. Fraudulent writing of mortgages, fraudulent packaging and selling of them as supposedly safe AAA-rated securities, and fraudulent mortgage foreclosures (see blog post / newsletter issue #19, 2/20/12) led to the 2008 financial collapse.

JPMorgan Chase, to focus on one of the big banks, is involved in all of the wrongdoing mentioned above. It has also paid a $153 million fine for fraud in the trading of collateralized debt obligations (CDOs) and a $700 million penalty for its misbehavior in the funding of a $300 million sewer system in Birmingham and Jefferson County Alabama. In this latter scandal, it bribed Goldman Sachs with $3 million not to compete with it and bribed local officials (some of whom are now in jail) to accept a complex financial deal that means the $300 million sewer system will cost $3 billion. This provided profits to JPMorgan while saddling local households, some of them quite poor, with sewer bills of at least $50 month. [3]

The pattern of repeated misbehavior in the financial system is clear. Our big banks’ executives are more interested in their profits and bonuses than serving their customers or playing by the rules. The fines and penalties they’ve paid are mere slaps on the wrist given their size and profitability. None of these payments have meant even one quarter where a bank reported a loss instead of a profit. Despite the overwhelming evidence of serious, repeated criminal behavior, there has been no prosecution of any senior official – not a one, and the banks continue to do business, including with local, state, and the federal governments, as if they had done nothing wrong. [4] (In the Savings and Loan collapse, which was truly miniscule by comparison, over 1,000 senior officials were convicted of felonies.)

Joseph Stiglitz, a Nobel Prize winner and former World Bank economist, believes we must break the unhealthy economic and political power of the financial sector in order to have a more just and prosperous society. He believes the only way to do this is to prosecute bankers and send some of them to jail. [5]


[1]       Morgenson, G., 7/7/12, “The British, at least, are getting tough,” The New York Times

[2]       Taibbi, M., 7/5/12, “The scam Wall Street learned from the Mafia,” Rolling Stone

[3]       Moyers & Company, 6/22/12, “How big banks victimize our democracy,” Public Affairs Television, Inc.

[4]       Eskow, R., ???, “Wall Street’s unpunished crimes,” Huffington Post

[5]       Common Dreams staff, 7/2/12, “Following Barclays’ scandal, Stiglitz says, ‘Send bankers to jail’,” http://www.commondreams.org/headline/2012/07/02-4

WHY THE DECLINE IN LABOR UNIONS

Here’s issue #38 of my Policy and Politics Newsletter, written 7/3/12. The previous newsletter described the role of unions. This newsletter outlines the reasons for the decline in private sector union membership.

Private sector union membership has dropped from 34% of the workforce in 1954 to 7% today. (Public sector union membership has grown from 10% to 37%, so that’s a different story for another day.) [1]

The Wagner Act of 1935 (also know as the National Labor Relations Act) created the basis for current labor unions. It was part of President Roosevelt’s New Deal. It gave workers rights and protections in organizing unions and bargaining collectively. [2]

Employers, especially large corporations, have been pushing back ever since. Initial efforts to weaken the Act failed, until the Taft-Hartley Act was passed in 1947. It was vetoed by President Truman but the Republican Congress overrode his veto. Previously, employers were expected to remain neutral during union organizing efforts. Now employers were allowed to actively oppose unionization. Taft-Hartley also gave flexibility to states to regulate unions and prohibited secondary boycotts (where a union encourages customers not to buy the employers products). Requiring all employees of a unionized workplace to become union members was outlawed. It made union organizing much more difficult and is generally seen as the turning point in unionization in the US [3] (although membership continued to increase for 8 more years before beginning its long decline). In the last 30 years, labor laws have been weakened and the ones that remain are often not vigilantly enforced. [4]

Since the early 1980s, large employers have increasingly aggressively opposed unions. One strategy has been to increase competition among workers for jobs, particularly in the manufacturing and industrial sector that was the heart of middle class union jobs. For example:

  • Trade agreements, developed with corporate input, have few if any worker protections, which means US workers must compete against much cheaper labor in other countries
  • Differences in state labor laws and practices are used to make workers compete against workers in other states where unions are weaker, the standard of living and pay is lower, and state and local governments provide financial incentives for relocation of jobs
  • Threats to replace workers if they strike pit current workers against non-union and unemployed workers. Employers were emboldened in the use of this tactic by President Reagan’s firing and replacing of air traffic controllers when they went on strike [5]

Wal-Mart in particular is well known for it aggressive anti-union tactics, both in attacking any efforts to unionize (including eliminating business components where unionization seemed likely) and using part-time workers that are harder to unionize. [6] The widespread, increased use of part-time workers, contractors, and consultants effectively undermines the use of full-time, potentially union workers. The presence and hiring of immigrant workers, often undocumented ones, also weakens unions.

Weakened labor laws and weak enforcement undermines unions. For example, workers who engage in organizing efforts are not infrequently, illegally fired. However, the enforcement process typically takes many months if not years and if the firing is found to be illegal, typically the company is ordered to reinstate the worker with back pay. This provides only a small financial penalty to the employer and means the worker has to subsist for an extended period of time without the job. Under current law, there is a 45 to 90 day waiting period between the request for and occurrence of the secret ballot voting by employees for a union, and employers work to delay this even longer. In that time, the some employers retaliate against, fire, harass, and generally make life miserable for the pro-union employees, while actively campaigning against the union in mandatory meetings with employees, intimidating them into rejecting the union. [7] [8]

Finally, employers lobby and make campaign contributions to encourage public policies that weaken labor laws, unions, and their power. They band together for these activities and for media campaigns against unions through groups such as the US Chamber of Commerce, the National Federation of Independent Business, Associated Builders and Contractors, The Center for Union Facts, and the National Right to Work Committee and Foundation. [9]

There are other factors, including unions’ internal problems (e.g., corruption and lack of democracy) and unions suffering from their success. For example, their success in improving pay, benefits, and working conditions left some workers feeling that union membership was not necessary, and through their success in advocacy and standard setting, government policies have addressed many of the issues that unions originally tackled, such as limits on working hours, overtime pay requirements, and health and safety issues. [10] [11]

In the US, since 1947, our politics and policies have given employers more clout in the balance of power between employers and employees. One of the effects has been the decline of private sector union membership from 34% to 7%. It doesn’t have to be this way. In Europe, although there has been some decline in union membership, it has been nowhere near as great as in the US and union membership currently ranges between 20% and 71% (in Sweden). [12] Corporations are more likely to work with their unions than to be aggressively anti-union as they are in theUS.


[1]       Bureau of LaborStatistics,US Dept. of Labor, 1/27/12, “Union members – 2011,” http://www.bls.gov

[2]       Wikipedia, retrieved 7/1/12, “National Labor Relations Act,” en.wikipedia.org/wiki/Nation_Labor_Relations_Act

[3]      Clark, B., retrieved 7/1/12, “The decline of unions – Why?” http://www.old-yankee.com/blog/decline-of-unions

[4]       Cassidy, J., 6/8/12, “America’s class war,” The New Yorker

[5]       About.com Economics, retrieved 7/1/12, “The decline of union power,” economics.about.com/od/laborinamerica/a/union_decline.htm

[6]       Wikipedia, retrieved 7/2/12, “Criticism of Walmart,” en.wikipedia.org/wiki/Criticism_of_Walmart

[7]       Wikipedia, retrieved 4/23/12, “Labor unions in the United Sates,” en.wikipedia.org/wiki/Labor_unions_in_the_United_States

[8]       Reich, R., 6/14/11, “Why the Republican war on workers’ rights undermines the American economy,” robertreaich.org

[9]       Johnson, D., 9/1/10, “How companies turn people against unions,” Campaign forAmerica’s Future

[10]     Macaray, D., 1/10/08, “Three big reasons for the decline of labor unions,” CounterPunch

[11]     Hunter, R.P., 8/24/99, “Four reasons for the decrease in union membership,” http://www.mackinac.org

[12]     Fischer, C., 9/11/10, “Why has union membership declined?’ Economist’s View

INSIDE JOB: THE 2008 COLLAPSE OF US FINANCIAL FIRMS

Here’s issue #24 of my Policy and Politics Newsletter, written 3/23/12. Last week, I finally watched the movie Inside Job, a documentary on the 2008 collapse of US financial firms that caused our current recession. I highly recommend it. Here are some highlights.

The movie Inside Job documents how the deregulation of the financial industry over the last 30 years has led to three financial crises, each of increasing severity. These three crises were the Savings and Loan (S&L) crisis of the late 1980s, the Internet stock bubble burst of 2000-2001, and the financial collapse of 2008.

The 2008 collapse was the worst of the crises and was largely caused by risky and fraudulent practices in the mortgage industry and by financial firms’ packaging of mortgages into securities that were sold to investors. These practices had fueled a bubble in the housing market – unwarranted price increases and over-building – that then caused a dramatic decline in house prices. This resulted in millions of mortgage defaults and foreclosures, and an economic recession – often called the Great Recession – that is the worst since the Great Depression of the 1930s. The losses in households’ wealth, primarily in housing and investment assets, exceed $14 trillion. Tens of millions of homeowners, who had significant equity in their homes in 2007, now have little or nothing. It is estimated that homeowners who owe more on their mortgages than their homes are worth – who are “underwater” – owe $700 billion more than their homes are worth. [1]

Inside Job documents that despite warning signs former Federal Reserve Board Chairman Alan Greenspan, Treasury Secretaries Lawrence Summers and Henry Paulson, and SEC Chairman Arthur Levitt (among others) vehemently opposed any regulation of complex financial instruments known as “derivatives” (because they are “derived” from other financial instruments such as mortgages). They blocked efforts of the Commodity Futures Trading Commission under the leadership of Brooksley Born to regulate derivatives. By the late 1990s, the unregulated derivatives market involved $50 trillion of securities and was (and is) described by many as legalized gambling.

The movie notes that an orchestrated campaign by Wall St. and its lobbyists for deregulation of the financial industry, along with the incestuous revolving door which had formerWall St. executives in senior positions in government, succeeded in creating widespread support for deregulation. Greenspan, Summers, Paulson, and other senior government officials, as well as many in Congress, supported deregulation. This led to:

  • The 1999 repeal of the Glass–Steagall Act of 1933, passed in the aftermath of the Great Recession, which had required the separation of Wall Street investment firms and their risky investments from banks to reduce the risks that banks and their depositors would need a government bailout
  • Staff cuts at the Securities and Exchange Commission (SEC), which oversees our financial markets
  • Financial firms being allowed to decrease their reserves that protect against bankruptcy to as little as 3% of their assets, increasing the risk of the need for a taxpayer bailout
  • Academic economists supporting deregulation and downplaying risks
  • Specific warnings about high levels of risk being ignored
  • Credit rating agencies (e.g. Standard & Poor’s) covering up the risks of mortgage-related derivatives

The mortgage industry pushed unaffordable, sub-prime mortgages on unwitting customers because it received higher fees for them. Then, financial firms packaged these mortgages into derivatives and sold them as safe investments when the firms knew they were risky – and often made side bets that underlying mortgages would go into default and that the derivatives would decline in value.

The next issue of my newsletter will provide more context and some follow-up on the 2008 financial collapse, including steps to take to reduce the likelihood of another financial crisis. Unfortunately, it is not at all clear that Congress and the regulators will take these steps.


[1]       Wikipedia, retrieved 3/21/12, “Late-2000s recession,” http://en.wikipedia.org/wiki/Late-2000s_recession

CORPORATIONS: ARE THEY PAYING FAIR TAXES?

Here’s issue #2 of my Policy and Politics newsletter, written 11/5/11. It’s a bit long and dense, but has important information corporate taxation. I’ll be shorter and sweeter in the future!

I’m very concerned about the pervasive and powerful influence corporations have on our every day lives, as well as on our politics and policy in the United Sates. This is a theme I will address fairly regularly. I will attempt to link various facets of this influence together, because I do believe the whole is more than the sum of the parts and that the reinforcing interactions among the various facets often go unnoticed and underestimated.

A study just came out of 280 of America’s most profitable companies (all were profitable in each of the last 3 years, 2008-2010, and all are from the Fortune 500 list). [1] The study finds that:

1.   Many large corporations pay taxes at actual rates much lower than the stated rate of 35% despite being quite profitable, with roughly a quarter paying no taxes at all.

  • The average effective tax rate for all 280 companies in the study over the three year period was 18.5%; roughly half the 35 percent rate they theoretically pay. (Note: An individual with over $35,000 in income and a couple filing jointly with over $70,000 in income are taxed at a 25% rate.)
  • About a quarter of the companies (71) did pay an average effective tax rate of 32%.
  • Almost a quarter of them (67) paid an average of no federal income tax over the last three years, despite combined profits of $357 billion.
  • 30 of these companies actually got money back from the government (i.e., had a “negative income tax rate”) over the three year period, despite combined profits of $160 billion. For example, GE paid a rate of negative 45% and Verizon negative 3%.
  • The top ten defense contractors with profits of $67 billion over 3 years paid at an average rate of roughly 15%.

2.   Many large corporations receive subsidies from the federal government.

  • Total tax subsidies given to all 280 profitable corporations amounted to $223 billion over 3 years.
  • The financial services industry received the largest share (17%) of all federal tax subsidies over the last three years.
  • Wells Fargo tops the list of 280U.S.corporations receiving the most in tax subsidies, getting nearly $18 billion in tax breaks from theU.S.treasury in the last three years. Others in the top 20 include AT&T, Verizon, GE, IBM, Exxon Mobil, Boeing, Goldman Sachs, Proctor & Gamble, Wal-Mart, Coca-Cola, and American Express.

3.   Corporations are paying less in taxes today than they used to, measured in a variety of ways.

  • The corporate tax rate today is 35%; it was 46% up until 1986. The overall effective corporate tax rate (i.e., what was actually paid) today is 18.5% for these 280 corporations; it was 26.5% in 1988. This is a 24% reduction in the stated tax rate and a 30% reduction in the effective tax rate based on what is actually paid.
  • In 2010, corporate taxes paid for 6% of the federal government’s expenses, roughly half of the 11% they paid in the late 1990s and a quarter of the 25% they paid in the 1950s.
  • As a share of the economy (i.e., of gross domestic product or GDP), overall federal corporate tax collections for fiscal years 2009-2011 fell to 1.16% of GDP, their lowest level since World War II. This is roughly half the level of the 1970s through 2008 and a third of the level of the 1960s.

4.   Stark inequities exist in taxes paid across industries and among companies in the same industry because of special tax breaks and the complexities of our tax policies.

5.   Corporations claim that US firms pay more income tax than their foreign competitors. However, overall, the effective foreign tax rate on the 134 companies with significant foreign profits was 6.1 percentage points higher than their effective U.S. tax rate — almost a third higher. Furthermore, they can “defer” paying U.S. taxes on their foreign profits indefinitely.

Twenty-five years ago, President Ronald Reagan was horrified by a similar epidemic of corporate tax dodging and addressed the problem by eliminating many corporate tax loopholes in 1986. Over time, the results of this effort have been reversed and, ironically, that reversal has been led in large part by politicians who claim to be Reagan’s disciples and to oppose government subsidies that interfere with market incentives.

 Over the years, corporations clearly have, through lobbying and campaign contributions, convinced policy makers to reduce their tax burden. Today, they are lobbying for lower tax rates and an exemption for profits of overseas subsidiaries. However, the report (on page 1) notes that “today corporate tax loopholes are so out of control that most Americans can rightfully complain, ‘I pay more federal income taxes than General Electric, Boeing, DuPont, Wells Fargo, Verizon, etc., etc., all put together.’”

 The evidence indicates that significant numbers of corporations are not paying their fair share of taxes. Requiring them to pay their fair share would not only make our tax system fairer, but also help to reduce the budget deficit.


[1]       Citizens for Tax Justice and the Institute on Taxation and Economic Policy, 11/3/11, “Corporate Taxpayers and Corporate Tax Dodgers, 2008-2010,” http://www.ctj.org/corporatetaxdodgers/