Category: Corporate power and influence

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

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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

TOXINS IN YOUR BLOOD

ABSTRACT: Did you know that there are most probably dozens of toxic chemicals in your blood? These are likely to include polychlorinated biphenyls (PCBs), dioxins, and pesticides, including DDT, all of which are toxic to humans. We are all test subjects – largely unknowingly – in a huge chemical exposure experiment.

There are roughly 75,000 chemicals in use in the US and only about 500 of them have been tested for health risks. Many of the chemicals found in our blood are long-lasting in the environment and in our bodies. The impacts of the combinations of these chemicals that we all have in our blood have never been looked at.

None of us were asked if it was OK to expose us to these chemicals. Therefore, some people refer to this as “toxic trespass.” These toxins are trespassing in our bodies without our permission. From a common sense perspective, and certainly from a public health perspective, it doesn’t make sense to expose people to toxic chemicals and then engage in a debate about what level of them is safe.

Future posts will address related topics such as how we got to this point, what the possible impacts are, and what we can do about this.

FULL POST: Did you know that there are most probably dozens of toxic chemicals in your blood? These include chemicals from consumer products, plastics, pesticides, flame retardants, and non-stick coatings on cookware, as well as industrial chemicals. We are all test subjects – largely unknowingly –in a huge chemical exposure experiment. Scientists call the total amalgamation of chemicals in your body your “body burden.” [1]

Bill Moyers, as part of his documentary Trade Secrets, had his blood analyzed back in 2001. He was tested for 150 chemicals and 84 were found, including 31 polychlorinated biphenyls (PCBs), 13 dioxins, and at least two pesticides, including DDT, all of which are toxic to humans. His results are typical of what any US residents could expect to find in his or her blood. The only one of the 84 that would have been found in a person’s blood, or even anywhere in the environment, 100 years ago was lead. [2]

There are roughly 75,000 chemicals in use in the US and only about 500 of them have been tested for health risks. On average, twenty new chemicals are introduced each week, generally without testing. Many of the chemicals found in our blood are long-lasting in the environment, i.e., they don’t breakdown readily and aren’t biodegradable. Many are also long-lasting in our bodies, i.e., our bodies don’t have a mechanism for breaking them down or removing them. For example, DDT was banned in the US in 1972 and PCBs in 1979, but they were still in Bill Moyers’ blood in 2001 – and are likely to be in your blood today.

The impacts of the combinations of these chemicals that we all have in our blood have never been looked at. And only a very few of these chemicals have been investigated for their impacts children or babies in utero.

None of us were asked if it was OK to expose us to these chemical. For most of them we have no choice about introducing them to our bodies, because they are in the air we breathe, the water we drink, the food we eat, and the consumer products we use. And although we have some control over the latter two categories, we often don’t know about the chemicals that are present or that we absorb into our bodies, let alone about any potential negative effects. We know that many of these chemicals can be toxic, but we don’t know at what levels or what the risks are of the current levels of them in our bodies.

Therefore, some people refer to this as “toxic trespass.” These toxins are trespassing in our bodies without our permission. [3]

From a common sense perspective, and certainly from a public health perspective, it doesn’t make sense to expose people to toxic chemicals, some of which are known carcinogens, and then engage in a debate about what level of them is safe. We should remove them from our environment to the greatest extent possible, as we did with DDT and PCBs.

Future posts will address related topics, including:

  • How this plethora of chemicals, including toxins, got into our environment and our blood
  • How regulation is failing to protect us
  • The chemical industry’s and others’ efforts to limit regulation of these chemicals
  • The role of Genetically Modified Organisms in agriculture and food in putting toxins into our bodies
  • The body burden of chemicals in babies’ and pregnant women’s blood
  • Possible impacts of our body burden and toxic trespass, especially on children
  • What’s being done about this and what you can do

 

[1]       Barnett, S., 10/6/11, “What’s your body’s chemical burden, “ The Huffington Post

[2]       Moyers, B., retrieved 5/20/13, “Moyers moment (2001): Toxins in our blood,” http://billmoyers.com/2013/05/17/moyers-moment-2001-toxins-in-our-blood

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

SHAMEFUL FAILURE TO ADDRESS GUN VIOLENCE

ABSTRACT: A filibuster in the US Senate just blocked passage of a law to require background checks on most gun buyers, despite the fact that 90% of Americans support these background checks; even 74% of National Rifle Association (NRA) members support them!

This reflects the power of money in politics – the money of the gun and ammunition makers and sellers. Their well-funded front organization, the NRA, only has about 2 million members, but wields outsized influence.

The facts make this failure to address gun violence shameful. In the four months since the Newtown massacre of 20 young children and 6 adults, over 3,500 people have died from gun violence. Roughly 30,000 people die each year from gun violence in the US. This is ten times as many as died on September 11th, but we spend far more time and money to prevent violence by terrorists than we do to prevent gun violence.

Contrary to the NRA’s rhetoric, guns do NOT make you safer: 1) For every use of a gun in self-defense at home, there are 11 suicide attempts, 7 assaults or murders, and 4 gun accidents; 2) Gun death rates are over three times higher in states with high gun ownership; and 3) Despite the claim that more armed civilians would stop mass shootings, this hasn’t happened once in the last 30 years.

In 1996, Australia banned automatic and semi-automatic weapons, required strict permitting and tracking of gun purchases, and purchased and destroyed about 700,000 firearms. The results are:

  • 59% decrease in firearm murders (without an increase in non-firearm murders)
  • 65% decrease in firearm suicides (without an increase in non-firearm suicides)
  • No gun massacres in the 16 years since enactment of the law compared with 13 massacres (in which 4 or more people died) in the 18 years before enactment
  • The murder rate has dropped to 1 per 1 million people. (The US rate is 33 times higher.)

The votes in the US Senate are profiles in cowardice. There is no reason for anyone other than law enforcement and the military to have automatic and semi-automatic weapons with magazines that hold over 10 bullets. I urge you to call, email, and / or write your federal and state elected officials and demand reasonable gun laws that will prevent future gun massacres.

FULL POST: A filibuster in the US Senate just blocked passage of a law to require background checks on most gun buyers. Although there was a majority of 54 votes in favor, the Republicans, abetted by four Democrats, obstructed progress. This occurred despite the fact that 90% of Americans support these background checks; even 74% of National Rifle Association (NRA) members support them! The Senate also failed to pass a provision banning the sales of assault weapons; there were only 40 votes in favor, even though 45% of gun owners support a ban on these weapons. [1]

This reflects the power of money in politics – the money of the gun and ammunition makers and sellers. While their lobbyists operate behind the scenes, their well-funded front organization, the NRA, operates in public. Although it only has about 2 million members (out of 300 million people in the US), which is only 5% of gun owners, and 30% of gun owners have an unfavorable opinion of the NRA, it wields outsized influence. Together, the money, the private lobbying, and the public publicity have banned federal research and data sharing on gun violence and perpetrated myths about guns and gun violence.

The facts make this failure to address gun violence shameful. In the four months since the Newtown massacre of 20 young children and 6 adults, over 3,500 people have died from gun violence. Roughly, 30,000 people die each year of gun violence in the US, 12,000 murders and 18,000 suicides. This is ten times as many as died on September 11th, but we spend far more time and money to prevent violence by terrorists than we do to prevent gun violence. There is also far more focus, effort, and resources spent to keep illegal immigrants out of this country than there is to keep guns out of the hands of illegal gun purchasers.

Contrary to the NRA’s rhetoric, guns do NOT make you safer:

  1. For every use of a gun for self-defense at home, there are 11 suicide attempts, 7 assaults or murders, and 4 accidents with a gun. Six times more women were shot by husbands, boyfriends, and ex-partners than were murdered by strangers. A women’s chance of being killed by her abuser is 7 times higher if he has access to a gun.
  2. Gun death rates are over three times higher in states with high gun ownership. The state with the highest gun ownership (Wyoming, over 60% of households) also has the highest rate of gun deaths (over 15 per 100,000 people). The state with the lowest gun ownership (Hawaii, less than 10% of households) also has the lowest rate of gun deaths (less than 5 per 100,000 people). The other states clearly demonstrate this relationship that more guns means more gun deaths.
  3. Despite the claim that more armed civilians would stop mass shootings, this hasn’t happened once in the last 30 years.
  4. Civilians in the US own roughly 310 million guns while law enforcement and the military have 4 million guns. Roughly a third of Americans own a gun, down from about half in 1973. The average gun owner has 8 guns. [2]

In terms of evidence to support the effectiveness of legislation to prevent gun violence, there is a very relevant example from Australia. In 1996, 35 people were killed in Australia by a gunman in a massacre reminiscent of those we have experienced recently here in the US. In response, Australia, under Conservative Prime Minister John Howard, banned automatic and semi-automatic weapons, required strict permitting and tracking of gun purchases, and purchased and destroyed about 700,000 firearms in a gun buyback program. [3]

The results are: [4][5]

  • 59% decrease in firearm murders (without an increase in non-firearm murders)
  • 65% decrease in firearm suicides (without an increase in non-firearm suicides)
  • No gun massacres in the 16 years since enactment of the law compared with 13 massacres (in which 4 or more people died) in the 18 years before enactment
  • The murder rate has dropped to 1 per 1 million people, a fortieth of what it was. (The US rate is 33 times higher.)

The votes in the US Senate are profiles in cowardice. Colorado, New York, and Connecticut have recently passed meaningful gun violence prevention laws. There is no reason for anyone other than law enforcement and the military to have automatic and semi-automatic weapons with magazines that hold over 10 bullets. Sensible gun laws, as evidenced by the Australian experience, would make a difference. (See my post of 12/16/12 for more detail.)

I urge you to call, email, and / or write your federal and state elected officials and demand reasonable gun laws that will prevent future gun massacres. I also encourage you to participate in on-line or local actions to express your support for common sense gun violence prevention laws.

It’s past time to take serious steps to reduce gun deaths and violence, as well as hopefully, eventually, to eliminate the occurrence of gun massacres – as Australia did. We must insist that our elected officials pass sensible gun violence prevention laws.

[1]       Jan, T., & Viser, M., 4/18/13, “Wider checks on guns rejected,” The Boston Globe

[2]       Gilson, D., March/April 2013 issue, “Hits and myths: Ten pro-gun claims that don’t stand up to fact-checking,” Mother Jones

[3]       An equivalent buyback program in the US would need to purchase and destroy 40 million guns.

[4]       Matthews, D., 8/2/12, “Did gun control work in Australia?” The Washington Post

[5]       Editorial Board, 12/18/12, “Australian gun control holds lessons for U.S.,” USA Today

NO FISCAL CLIFF FOR CORPORATE TAX LOOPHOLES

ABSTRACT: So you thought our Washington politicians were serious about reducing the deficit? Guess again. The actual bill that averted the “fiscal cliff” in January included 43 corporate tax breaks worth $67 billion in 2013, which is more than the revenue that was raised! This means that the “fiscal cliff” legislation did NOT decrease the deficit, but rather increased it. The tax breaks include: 1) $11 billion for corporations such as GE, Citicorp, and Ford on overseas earnings, 2) $430 million for Hollywood producers for filming in the US, 3) $331 million for railroads for track maintenance, 4) $500 million for pharmaceutical giant Amgen, and 5) $120 million for Whirlpool Corporation. The support for corporate tax loopholes is often bipartisan as they provide leverage for campaign contributions.

So, take with a big grain of salt all the talk about deficit reduction. Corporate welfare continues unabated while deficit reduction is used as an axe to cut government programs, many focused on helping low and middle income families. And take with a big grain of salt the talk about the need to cut Medicare and Medicaid spending when big giveaways to Amgen and other pharmaceutical corporations are costing these programs billions of dollars every year.

Note: I’m back to blogging after a three month hiatus. And no, unfortunately, this post is NOT an April Fool’s joke.

FULL POST: So you thought our Washington politicians were serious about reducing the deficit given the last minute “fiscal cliff” deal in January and the automatic spending cuts (“the sequester”) that went into effect on March 1? Guess again. Corporate tax loophole giveaways that were actually part of the “fiscal cliff” bill cost more than the revenue that was raised!

As background, the manufactured austerity crisis, known as the “fiscal cliff,” was a package of spending cuts and tax increases set to go into effect automatically on December 31, 2012, if a substitute agreement on deficit reduction wasn’t reached. (See post of 12/12/12 for more details.)

Early on New Year’s Day legislation was passed that supposedly tackled the deficit by increasing revenue. It also postponed the spending cuts until March 1. Most of the scheduled tax increases were scaled back, so only $30 – $60 billion per year in new revenue was generated. Income tax rates on individuals with incomes over $400,000 were increased, with some reductions in deductions starting at $250,000 in income. The estate tax was increased a bit and workers’ Social Security taxes were increased by 2% of wages on earnings up to $110,000. (This restored a temporary cut in the Social Security tax that was targeted at boosting the economy and middle and low income workers during the Great Recession.) (See post of 1/7/13 for more details.)

The postponed spending cuts ended up going into effect on March 1 because our politicians could not come to an agreement on other deficit reduction measures. These spending cuts are likely to hurt the economy, slowing the recovery and increasing unemployment. In addition, these cuts are hurting low and middle income families. Head Start’s high quality school readiness programs are serving fewer children – fewer 3 and 4 year olds from families in poverty. School systems are laying off teachers and staff. College students are losing government support. Housing authorities are laying off staff and cutting housing assistance to poor families. And there will be cuts in health care that will disproportionately affect low income individuals. [1]

Despite all of this, quietly, and with very little coverage by the mainstream (corporate) media, the actual bill that averted the “fiscal cliff” in January included 43 corporate tax breaks worth $67 billion in 2013, which is more than the revenue that was raised by the highly publicized tax increases. [2] This means that the “fiscal cliff” legislation did NOT decrease the deficit, but rather increased it by giving more in tax breaks to corporations than it raised in tax revenue from individuals!

For example, Whirlpool Corporation got a tax benefit worth an estimated $120 million in 2012 and 2013 after spending $1.8 million on lobbying over the last two years; a 6,700 percent return on investment. Whirlpool’s total income taxes paid to federal, local, and foreign governments for 2009 -2011 were a REFUND of $561 million! And it is carrying forward federal tax credits it can use to decrease its US taxes in future years. Meanwhile, Whirlpool closed a factory in Arkansas and laid off 800 workers, moving the manufacturing of its refrigerators to Mexico. This was part of an overall reduction of its workforce in North America and Europe of 5,000 jobs, which it announced in 2011. [3]

Another example was a provision in the “fiscal cliff” legislation that gave two years of relief from Medicare cost controls for certain drugs. Although not mentioned by name, the clear beneficiary is the pharmaceutical giant, Amgen. It is estimated that this loophole will cost taxpayers about $500 million over two years – to the benefit of Amgen. The company’s CEO quickly informed investment analysts of this good news. Two factors make this particularly egregious:

  • Amgen had already received a two year delay on these cost controls and another one is hard to justify
  • Two weeks earlier, Amgen had pleaded guilty in a major federal fraud case to illegal drug marketing and had agreed to pay $762 million in criminal and civil penalties

This particular case is tied to close relations Amgen has with three Senators: Max Baucus (D – Montana), Mitch McConnell (R – Kentucky), and Orrin Hatch (R – Utah). [4][5] As in this case, the support for corporate tax loopholes is often bipartisan. Many of them have to be renewed every two years. This gives members of Congress leverage for an on-going source of campaign contributions from these corporations and their lobbyists. The supposedly temporary nature of these corporate tax loopholes also avoids the accounting analysis, and resultant publicity, the federal budget process requires of permanent or longer-term tax expenditures. Overall, corporate welfare will cost the federal government at least $154 billion in 2013 through 135 individual provisions in the tax code. [6]

Other corporate tax breaks in the “fiscal cliff” legislation include:

  • $11 billion for corporations such as GE, Citicorp, and Ford on overseas earnings
  • $430 million for Hollywood producers for filming in the US
  • $331 million for railroads for track maintenance

So, take with a big grain of salt all the talk about deficit reduction. Corporate welfare continues unabated while deficit reduction is used as an axe to cut government programs, many focused on helping low and middle income families. And take with a big grain of salt the talk about the need to cut Medicare and Medicaid spending when big giveaways to Amgen and other pharmaceutical corporations are costing these programs billions of dollars every year.

[1]       Coalition on Human Needs, 3/22/13, “Sequester Impact,” http://www.chn.org/wp-content/uploads/2013/03/sequester-impact-mar-13-21.pdf

[2]       Rowland, C., 3/17/13, “Tax lobbyists help businesses reap windfalls,” The Boston Globe

[3]       Rowland, C., 3/17/13, see above

[4]       Moyers, B., & Winship, M., 1/25/13, “Foul play in the Senate,” Common Dreams

[5]       Lipton, E., & Sack, K., 1/20/13, “Fiscal cliff bill benefits Amgen,” The New York Times

[6]       Rowland, C., 3/17/13, see above

REBUTTING ARGUMENTS AGAINST INCREASING INCOME TAXES ON THE WEALTHY

ABSTRACT: The Bush tax cuts, and the even larger cuts in the income tax rates for high incomes over the last 30 years, have contributed to creating the federal government’s deficit (see post of 12/22/12) and to dramatically widening income and wealth inequality in the U.S. There has been a dramatic shift of the tax burden from the well-off and corporations to middle and lower income households. This shift in the tax burden has contributed to stagnant incomes for middle and lower income earners while incomes at the top have skyrocketed.

 Despite the Republican rhetoric that high income individuals are “job creators,” the fact is that increased income for them is far less effective in stimulating job growth than increased incomes for low and middle income individuals. There is strong evidence, from multiple perspectives, that increasing taxes on the wealthy and redirecting the funds to productive investments or to lower income individuals, for example through unemployment benefits, will benefit the economy and job creation. It would also reduce inequality and address a root cause of the deficit.

FULL POST: The Bush tax cuts, and the even larger cuts in the income tax rates for high incomes over the last 30 years, have contributed to creating the federal government’s deficit (see post of 12/22/12) and to dramatically widening income and wealth inequality in the U.S., which are at their highest levels since the 1930s.

The 400 richest individuals in the US, as identified by Forbes magazine, have pocketed $1.3 trillion because of the Bush tax cuts. The best estimates are that these individuals actually pay only about 18% of their income in taxes, while their predecessors in 1960 paid more than 70%. Not only have their tax rates fallen dramatically (from 91% in 1960 and 70% in 1980 to 35% today [see 11/27/11 post for more detail]), but their increased use of offshore tax havens and other tax reduction strategies has further reduced the taxes they actually pay. For example, the tax return Mitt Romney released shows that he, and presumably his partners at Bain Capital, reported their management fees as capital gains rather than earned income. Assuming they all did, they saved an estimated $200 million on income taxes and another $20 million on the Medicare payroll tax. [1] Also since the 1960s, corporate taxes have fallen from over 27% of federal government revenue to about 10% today. [2]

These reductions in government revenue from high income individuals and corporations have dramatically shifted the tax burden from them to middle and lower income households at the federal, state, and local levels. This shift to regressive revenue sources [3] includes flat rate payroll taxes (i.e., Social Security and Medicare), and in the case of Social Security a cap so that no tax is paid on earnings over $110,000. It also includes most state and local revenue sources, such as sales and excise (e.g., cigarette, alcohol, and car) taxes; flat rate state income taxes; and state revenue from gambling (i.e., lotteries and casinos), all of which are quite regressive. [4] This shift in the tax burden has contributed to stagnant incomes for middle and lower income earners while incomes at the top have skyrocketed. [5] (See my post of 11/13/11 for more detail.) Both fairness and reversing causes of the deficit would argue for increased income tax rates on high incomes.

Despite the Republican rhetoric that high income individuals are “job creators,” the fact is that increased income for them is far less effective in stimulating job growth than increased incomes for middle and low income individuals. The US economy is driven by consumer spending; it’s 70% of our Gross Domestic Product (GDP), a measure of overall economic activity. The lower an individual’s income, the more likely he or she is to spend any additional income to buy goods and services in the local economy. On the other hand, the wealthy are more likely to save additional income or to spend or invest it outside of the US. Furthermore, they are much more likely than the less well-off to use the money for speculative rather than productive investments. Speculative investments do not help the economy or create jobs; they actually harm the economy by increasing prices for consumer goods (e.g., food and gasoline [see my post of 3/5/12]) and by contributing to speculative bubbles (e.g., Internet stocks and mortgage investments) that eventually burst and harm the economy.

Republicans have opposed an increase in the tax rate on high incomes, claiming it will hurt small businesses. But only about 2 – 3% of “small businesses” would be affected and many of these aren’t really small or aren’t businesses at all. Republicans also claim that such a tax increase would hurt the economy and job creation, but “yearly gains in employment, GDP growth, and small business job growth were all greater after the Clinton tax hikes of 1993 than after the Bush tax cuts of 2001.” [6]

In summary, there is strong evidence, from multiple perspectives, that increasing taxes on the wealthy and redirecting the funds to productive investments (such as infrastructure building) or to lower income individuals (who will spend it in their local economies), for example through unemployment benefits, will benefit the economy and job creation. [7] It would also reduce inequality and address a root cause of the deficit.

In my next posts, I’ll take a look at cutting the deficit through spending cuts, the spending cuts in the austerity package, and alternatives to them.

[1]       Peters, C. Nov./Dec. issue, “The Bain of my existence,” Washington Monthly

[2]       Van Gelder, S., 12/8/12, “4 ways to leap the ‘fiscal cliff’ to a better USA,” YES! Magazine

[3]       Regressive revenue sources place a greater burden, relative to one’s ability to forego the income, on middle and lower income households than on higher income individuals.

[4]       Jacoby, J., 12/9/12, “Biggest lottery winner? That’d be the Treasury,” The Boston Globe

[5]       Appelbaum, B., & Gebeloff, R., 11/29/12, “Tax burden is lower for most Americans than in the 1980s,” The New York Times

[6]       Lehigh, S., 12/14/12, “Points of clarity through the fiscal cliff fog,” The Boston Globe

[7]       Judis, J.B., 12/12/12, “Rein in the rich: How higher taxes could lift the economy,” The New Republic

STOP THE GUN MASSACRES

ABSTRACT: Gun massacres must stop. We must enact sensible gun laws. Automatic weapons with magazines that hold over a dozen bullets turn tragic murder into horrifying massacre. Sensible gun laws would make a difference; they lead to much lower gun violence in other countries, and the federal assault weapon ban made a difference in the 10 years it was in effect.

The profits of gun and ammunition makers are at stake. The right to bear arms the framers of our Constitution had in mind was not unfettered access to weapons that fire a dozen bullets per second.

We must seize this moment to loudly and collectively demand that our elected leaders enact strong, sensible gun laws (detail below). To take action, start by going to the White House petitions site (https://petitions.whitehouse.gov/petitions). Find a petition calling for action on gun laws and sign it.

FULL POST: Gun massacres must stop. We must enact sensible gun laws. Yes, guns don’t kill people, people kill people. But automatic weapons with magazines that hold over a dozen bullets turn tragic murder into horrifying massacre. There is no reason anyone other than law enforcement or military personnel should have automatic weapons with high capacity magazines. The federal bans on assault weapons and high capacity magazines that were in place from 1994 to 2004 need to be reinstated.

Why is getting a driver’s license so much more rigorous than getting a gun, including an automatic? With over 4 times as many civilians murdered each year with guns (over 12,000) as died in the September 11 attacks, why do we do so much to prevent terrorism and so little to prevent gun violence? Why do we allow gun homicides in the US at almost 20 times the rate in similar countries with similar overall crime and violence rates? [1]

Sensible gun laws would make a difference; they lead to much lower gun violence in other countries and the federal assault weapon ban made a difference in the 10 years it was in effect. In the struggle for sensible gun laws, remember that the profits of gun and ammunition makers are at stake. They support loose gun laws and the National Rifle Association so they can maximize their profits.

The right to bear arms (as part of a well regulated militia) that is in the second amendment to the Constitution was written when guns were muzzle loaders and the time per bullet – to reload and fire again – was measured in minutes. Today we measure the number of bullets fired per second. The right to bear arms the framers of our Constitution had in mind was not unfettered access to weapons that fire a dozen bullets per second.

We must seize this moment to loudly and collectively demand that our elected leaders – our President and Members of Congress, our Governors and State Legislators – enact strong, sensible gun laws including 1) a ban on assault weapons and high capacity magazines, 2) limits on the number of guns and amount of ammunition an individual can buy, 3) reasonable requirements for obtaining a gun license, and 4) strong background check requirements for all gun purchases. In addition, the penalties for violating gun laws should be tough; any gun or ammunition seller who violates the law and allows an individual to obtain guns or ammunition illegally should be treated as an accomplice to murder, under criminal and civil law.

To take action, start by going to the White House petitions site (https://petitions.whitehouse.gov/petitions). Find a petition calling for action on gun laws and sign it. (If you don’t already have an account you will need to go through the quick process of obtaining one.) There are multiple petitions on the firearms issue, which you can scroll down to find or select the “Filter by issue” button and select “Firearms”. I urge you to sign at least one and as many as you support if you have the time. This will send a strong signal of support for this issue. The two I’d suggest starting with are:

  • “Immediately address the issue of gun control through the introduction of legislation in Congress” (http://wh.gov/RN6U). It already has over 100,000 signers; please add your voice.
  • “Today IS the day: Sponsor strict gun control laws in the wake of the CT school massacre” (http://wh.gov/RRkn). It has over 19,000 signers and you can add your support.

Also, call, email, and / or write your federal and state elected officials and demand gun laws that will end the massacres now. Participate in local or on-line actions to express your support for sensible gun laws.

It’s past time to take serious steps to reduce and hopefully eventually eliminate the occurrence of gun massacres. We must insist that our elected officials pass sensible gun laws.

[1]       Brady Center to Prevent Gun Violence, retrieved 12/15/12, “Facts: Gun violence,” www.bradycampaign.org/facts/gunviolence

GENETICALLY MODIFIED FOODS: WHY NO LABELS?

ABSTRACT: There aren’t laws in the US requiring labeling of genetically modified (GM) food (as there are in the other developed countries) because the large food and agricultural-biotechnology corporations and their trade associations have spent years working to block labeling. They’ve spent $572 million on lobbying and campaign contributions over the last 10 years. In addition, the revolving door moves people back and forth between their organizations and the relevant government agencies. GM organisms are patented and provide their creators with a monopoly, significant market place power, and potentially substantial profits. Farmers are prohibited from producing their own seed for next year’s crop; they are required to buy it from the corporation.

The costs and benefits of GM foods are, at best, unclear. The large agro-biotech corporations and the related chemical corporations are working hard, through campaign contributions, lobbying, and the revolving door, to have minimal regulation and oversight, and to prevent requirements to label foods as having GM content. This is another example of corporate power riding roughshod over the public interest. Our public officials need to stand up to the corporate interests and serve the public interest and demand of over 90% of the public for GM food labeling and oversight.

FULL POST: There aren’t laws in the US requiring labeling of GM food (as there are in the other developed countries) because the large food and agricultural-biotechnology corporations and their trade associations have spent the years since 1994 (when the first GM tomatoes were marketed) working to block labeling. They’ve spent $572 million on lobbying and campaign contributions over the last 10 years. In addition, the revolving door moves people back and forth between their organizations and the Department of Agriculture and the Food and Drug Administration (FDA) – most recently President Obama appointed Michael Taylor, a former vice president and lobbyist for Monsanto, as a senior advisor to the Commissioner at the FDA – they have successful prevented federal and state efforts to require GM food labeling.

GM organisms serve corporate interests in a way that naturally occurring seeds, plants, and animals don’t. Because they are patented, they provide their creators with a monopoly, significant market place power, and potentially substantial profits. This also allows the corporations to restrict independent, objective research into the efficacy, safety, costs, and benefits of GM organisms. It gives seed corporations great power because in their contracts with farmers, the farmers are prohibited from producing their own seed for next year’s crop; they are required to buy it from the seed corporation. The large seed corporations have, through acquisition and other means, concentrated their scope and power and now four large corporations control 50% of the market. Over 200 independent seed companies have ceased to exist over the last 15 years. One of those large seed corporations, Monsanto, has gone so far as to sue thousands of individual farmers whose crops were contaminated by Monsanto’s GM crops for illegally possessing their GM plants. [1]

The costs and benefits of GM foods are, at best, unclear. The costs, beyond the immediate ones (seed, pesticides, and herbicides), are largely uncalculated, and to some extent are unknown. The benefits have not been as great as the agro-biotech corporations have claimed, for example in increased yields, reduced herbicide and pesticide use, improvement of farmers’ economic conditions, and reduction of world hunger. The large agro-biotech corporations and the chemical corporations that produce the herbicides, pesticides, and fertilizers that GM crops require, have substantial market power and profit potential. They are working hard through campaign contributions, lobbying, and the revolving door of sharing personnel with government, to have minimal regulation and oversight, and to prevent requirements to label foods as having GM content. [2]

This is another example of corporate power in the US, in contrast to other countries, riding roughshod over the public interest. There is a clear public interest, as well as public desire (over 90% in multiple polls), to have foods with GM content labeled. And there is a clear need for more effective oversight of the introduction of GM organisms into the environment and our food, as well as monitoring of long term costs and benefits. Our public officials need to stand up to the corporate interests and serve the public interest on GM food labeling and oversight.

[1]       Farm Aid, see above

[2]       Moyers, B., with Shiva, V., 7/13/12, “The problem with genetically modified seeds,” Moyers & Company

GENETICALLY MODIFIED FOODS AREN’T LABELED

ABSTRACT: Federal regulators are allowing a growing number of genetically modified (GM) agricultural products into our food. What is surprising is that these foods are not labeled. This is the result of a powerful and concerted effort by big corporations in the GM business. Over 90% of the American public in multiple polls supports GM labeling and forty-nine countries, including Russia and even China, require labeling. From a public health perspective, labeling is the only way to track unintended health effects.

FULL POST: Federal regulators are allowing a growing number of genetically modified (GM) agricultural products into our food [1]. What is surprising is that these foods are not labeled as being or containing GM products. In general, foods are required to be labeled with their ingredients so consumers can know what they are eating. The lack of GM labeling is the result of a powerful and concerted effort by big corporations who make significant profits from the raising and selling of GM products.

This lack of labeling flies in the face of the economic theory of free markets, which requires consumers to have full information and make knowledgeable decisions when purchasing goods and services. It also contradicts a basic premise of democracy – that citizens are informed.

Over 90% of the American public in multiple polls supports labeling of food to indicate GM content. Forty-nine countries, including Russia and even China, require the labeling of food that contains GM ingredients. The United Nations (UN) food safety organization supports labeling. Furthermore, the US is the only developed country that does not require safety testing of GM plants, which also is supported by the UN. The lack of testing and labeling creates the risk that other countries will block the importation of US agricultural products.

The US Senate in June 2012 voted 73 – 26 against an amendment to the 2012 Farm Bill that would have allowed states to require GM labeling of food. At least 19 states have introduced legislation on GM labeling of food. A bill in Vermont died this year after Monsanto, a dominant player in the GM field, threatened to sue the state if the bill passed.

From a public health perspective, labeling is the only way to track unintended effects. Neither you as an individual nor public health officials can know that a GM food triggers allergic reactions or other health problems if you don’t know the food that’s being eaten contains GM content. [2] For these reasons, the American Public Health Association and the American Nurses Association, among others, have called for labeling GM foods. [3]

In California, there will be a ballot question this November known as the California Right to Know if Your Food has Been Genetically Engineered Act (Proposition 37). It would require food manufacturers and retailers to label GM foods. Over 1 million people signed the petition to get this measure on the ballot. The opposition includes the big agro-biotech and herbicide / pesticide corporations such as Monsanto, BASF, DuPont, Syngenta, Bayer, and Dow Chemical, as well as big food manufacturers such as PepsiCo, Coca-Cola, and Kellogg, which are some of the biggest users of high-fructose corn syrup, soy lecithin, and sugar beets, commonly used GM ingredients. [4]

The next two posts will also be on GM foods. The next one will examine the reasons for GM organisms and foods along with the risks they present. The subsequent post will look at what’s behind the lack of GM food labeling in the US.

[1]       GM foods are also referred to as Genetically Modified Organisms (GMOs), Genetically Engineered (GE) foods, and biotech foods.

[2]       Silver, C., 6/26/12, “How Monsanto is sabotaging efforts to label genetically modified food,” Inter Press Service

[3]       Sanders, B., 6/19/12, “Label genetically engineered food,” The Huffington Post

[4]       Sauve, C., retrieved 8/16/12, “This is the food fight California cannot afford to lose,” San Jose Mercury News

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

DODD-FRANK & CFPB ANNIVERSARIES

ABSTRACT: We have just reached the second anniversary of the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the first anniversary of the Consumer Financial Protection Bureau (CFPB) that it created. Much has been accomplished despite efforts of the financial industry and some in Congress to block, weaken, and/or delay progress. The CFPB, in its first major enforcement action, ordered Capital One Bank to pay $210 million to settle charges of deceptive marketing. The CFPB has received 45,000 complaints and projects over 200,000 per year. (To file a complaint go to http://www.consumerfinance.gov/complaint.)

For the Dodd-Frank law overall, it is estimated that 31% of the rule making required by the law has been finalized. This effort is extensive because Congress was unable to resolve many of the complex and controversial issues and instead passed them on to the regulators’ rulemaking process. The financial industry has been lobbying heavily (over $200 million over the last two years and 1,300 meetings with three key regulatory agencies) to delay, weaken, and complicate the rulemaking and implementation. Sheila Bair, the very effective former chair of the Federal Deposit Insurance Corporation (FDIC) writes, “we see regulators who are too timid … they try to placate industry lobbyists … We need a regulatory system focused on the public interest, not the special interest. … and Congress needs to support them.” [1]

I urge you to let your representatives in or candidates for Congress know that you support strong regulation of the financial industry and strong penalties, including jail time, for violators.

FULL POST:We have just reached the second anniversary of the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the first anniversary of the Consumer Financial Protection Bureau (CFPB) that it created. (The existence of a similar agency in Canada has been credited by some with having avoided the mortgage fraud and predatory lending that contributed to the financial and housing market collapse in the US. [2]) Much has been accomplished despite efforts of the financial industry and some in Congress to block, weaken, and/or delay progress. Most notably, Senate Republicans blocked President Obama’s appointment of anyone to head the CFPB to prevent it from functioning effectively. Obama eventually appointed a head of the CFPB in January 2012 without Senate approval when it was in recess.

The CFPB, in its first major enforcement action, ordered Capital One Bank to pay $210 million to settle charges of deceptive marketing to credit card customers. In addition, the CFPB has:

  • Engaged in lots of fact-finding and gathering of input from a wide range of constituencies
  • Undertaken its “Know Before You Owe” initiative to help people understand the consequences of debt
  • Proposed a redesign of mortgage forms to enhance disclosure and understanding
  • Started developing a range of mortgage regulations making them safer for borrowers and lenders, including a ban on balloon payments and prepayment penalties, and a cap on late fees
  • Jointly with the Education Department, issued a report on subprime-style lending in the private student loan market and created a model document on college costs and financing options [3]
  • Initiated oversight of companies reporting on individuals’ creditworthiness
  • Launched a database that tracks credit card complaints

The CFPB has received 45,000 complaints, many about credit cards and mortgages. The frequency is increasing and is projected to exceed 200,000 per year, perhaps by a lot. [4][5] (To file a complaint go to http://www.consumerfinance.gov/complaint.)

For the Dodd-Frank law overall, it is estimated that 31% of the rule making required by the law has been finalized (123 of 398 rules). To-date, 8,843 pages of rules and regulations have been created by 10 regulatory agencies. The CFPB is responsible for 1,013 of those pages and most of the 1,561 pages devoted to consumer protection. The other major contributors are the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) each with 3,200 pages and the Federal Reserve with 1,439 pages. [6] This effort is so extensive because Congress was unable to resolve many of the complex and controversial issues and instead passed them on to the regulators’ rulemaking process.

The financial industry has been lobbying heavily (over $200 million over the last two years and 1,300 meetings with three key regulatory agencies: the Treasury, the Federal Reserve, and the CFTC) to delay, weaken, and complicate the rulemaking and implementation. For example, new requirements for reserves to protect against losses won’t begin kicking in until January and won’t be fully implemented until 2019. New rules on trading of derivatives won’t start until later this year and will apply to many fewer companies than originally envisioned. The Volcker Rule, to prevent excessive, risky trading by federally insured banks, is still in the works with no draft released and nothing implemented, despite JPMorgan’s recent huge loss on such trading, estimated to be $6 billion. [7][8]

Sheila Bair, the very effective, former chair of the Federal Deposit Insurance Corporation (FDIC), writes, “Yet, still, we see regulators who are too timid … they try to placate industry lobbyists by creating this clarification or that exception, resulting in indecipherable rules that are hundreds, and in some cases, thousands of pages long. … And the irony is that once the rules have ballooned … the lobbyists who sought all the clarifications and exceptions ridicule the regulators for … red tape. … We need a regulatory system focused on the public interest, not the special interest. And we need strong, credible voices who will weigh into the debate on the side of the population at large. … The system is not getting fixed and we need to send a message to Washington. … We need regulators to write rules that the public can understand and the [bank] examiners can enforce. … and Congress needs to support them.” [9]

I hope this information and that in previous posts will help you do anything you can to support strong regulation of the financial industry. I urge you to let your representatives in or candidates for Congress know that you support strong regulation of the financial industry and strong penalties, including jail time, for violators. Tell them your personal stories about how the financial collapse has affected you and your family. Only strong grassroots pressure by voters will ultimately make the difference.

[1]       Bair, S., 7/20/12, “Two years after Dodd-Frank, why isn’t anything fixed?” Yahoo! Finance

[2]       Krugman, P., 2/1/10, “Good and boring,” The New York Times

[3]       Dougherty, C., & Lorin, J., 7/20/12, “CFPB says students victimized by ‘subprime-style’ lending,” Bloomberg Businessweek

[4]       Singletary, M., 7/11/12, “Consumer protection bureau nears its first anniversary,” The Boston Globe

[5]       Puzzanghera, J., 7/23/12, “Cordray marks consumer protection agency’s 1st year,” Los Angeles Times

[6]       Davis Polk & Wardwell LLP (law firm), 7/20/12, “Dodd-Frank progress report,” http://www.davispolk.com/dodd-frank-rulemaking-progress-report

[7]       Liberto, J., 7/21/12, “Two-thirds of Dodd-Frank still not in place,” CNN Money

[8]       Drutman, L., 7/19/12, “Big banks dominate Dodd-Frank meetings with regulators,” Sunlight Foundation

[9]       Bair, S., 7/20/12, “Two years after Dodd-Frank, why isn’t anything fixed?” Yahoo! Finance

CORPORATE RIGHTS IN TRADE TREATIES

ABSTRACT: The “Investor State Dispute Settlement” provisions in the draft of the Trans-Pacific Partnership trade treaty (TPP) give an investor (generally a multi-national corporation) the right to sue a government directly for compensation for any negative effect on its profits of any law or regulation. These suits are decided by international tribunals and raise significant concern that they can undermine public health, environmental protection, human rights, and management of economic activity. Under the North American Free Trade Agreement (NAFTA), these tribunals have required governments to pay more than $350 million to corporations and there are more than $12 billion in pending cases. Cases involve food and cigarette labeling; pesticides, drugs, and health care; and pollution and toxic waste. Australia has announced it will stop supporting the inclusion of investor state dispute settlement provisions in trade treaties.

We need openness and debate during the development of the Trans-Pacific Partnership trade treaty to ensure that protections for workers and the middle class are at least as strong as they are for corporations and the investor class. “At stake is nothing less than a democratic society’s ability to regulate a market economy in the broad public interest.” [1]

FULL POST: The “Investor State Dispute Settlement” provisions in the draft of the Trans-Pacific Partnership trade treaty (TPP), as well as in North American Free Trade Agreement (NAFTA) and numerous other treaties, give an investor (generally a multi-national corporation) the right to sue a government directly for compensation for any negative effect on its profits of any law or regulation. These suits are decided by international tribunals made up of three trade lawyers from the private sector who hear the cases and have the power to order trade sanctions or unlimited amounts in fines payable by governments to corporations. The lawyers rotate between serving as the tribunals’ judges and representing the corporations bringing the suits, thereby earning income from the corporations bringing the suits. The tribunals are conducted in secret with no accountability to the public and taking into account only the claim to profits, not health, environmental, or other concerns. [2][3]

Traditionally, international law has been used to settle disputes between countries, while a corporation was required to pursue a dispute in the courts of the country concerned. However, trade and investment treaties, of which there are now over 2,000 worldwide, typically give foreign investors (generally corporations) the right to bypass local court systems and directly sue governments. NAFTA expanded these rights and the TPP draft expands them further. (Note that these treaties allow companies to sue governments but not the reverse.) [4]

The investor state dispute settlement provisions in these treaties raise significant concern that they can undermine the ability of democratically elected governments to implement policies on public health, environmental protection, human rights, and management of economic activity. [5] Laws and regulations that could be attacked include Buy American provisions in government contracting, requirements that energy come from renewable sources, regulation of financial products and companies, and anti-sweat shops rules.

Based on suits under NAFTA, international tribunals have required governments to pay more than $350 million to corporations based on issues such as bans on toxic substances and land-use policies. There are more than $12 billion in pending cases under US trade treaties. [6] Through 2011, the United Nations Conference on Trade and Development had identified 450 lawsuits brought by companies against governments under trade and investment treaties. These are the known cases (see some examples below); most are kept secret. Argentina had the most cases (51), many related to its financial crisis and the privatization of water. It has been required to pay over $1 billion to multi-national corporations. [7]

Based on its experiences, Australia announced in 2011 it would stop supporting the inclusion of investor state dispute settlement provisions in trade treaties. It stated that it supported equal treatment of domestic and foreign business, but felt that these provisions provided greater legal rights to foreign businesses. Furthermore, it stated that it would not support these provisions because they constrained its ability to make laws on social, environmental, and economic matters. Finally, it noted that these provisions had been included at the behest of Australian businesses seeking protections when they entered foreign markets. It stated that if Australian businesses had concerns about investing in foreign countries, they should make there own assessments and decisions and not look to trade treaties for protection. [8]

In the US, concerns about previous trade and investment treaties led to press coverage, debate, and stopping them: the 1998 Multilateral Agreement on Investment, the 2005 Free Trade Area of the Americas, and the original efforts at an Asian-Pacific free trade area. We need openness and debate during the development of the Trans-Pacific Partnership trade treaty. We need to ensure that protections for workers and the middle class are at least as strong as they are for corporations and the investor class. [9] “At stake is nothing less than a democratic society’s ability to regulate a market economy in the broad public interest.” [10]

Examples of investor state dispute settlements include:

  •  The World Trade Organization (WTO) recently ruled that the US cannot require country of origin labeling on meat. Canada and Mexico brought suit against the policy and now will be able to impose trade sanctions on the US if it does not comply with the ruling. Not only will consumers not know where their meat is coming from but public health personnel will have a harder time tracking down the source if health problems occur. [11]
  • In 2012, the WTO ruled against US dolphin-safe tuna labeling and against a US ban on clove, candy, and cola flavored cigarettes.
  • Foreign manufacturers of generic drugs have sued the US government claiming US patent laws and court decisions have prevented them from marketing their generic versions of drugs.
  • A US health care provider has sued Canada, challenging its Canada Health Act, as interfering with its ability to provide services and make profits in Canada.
  • Two US manufacturers of pesticides have sued Canada based on its ban of certain pesticides.
  • Philip Morris, the multi-national tobacco company, has sued Australia and Uruguay over health warnings and advertizing on cigarette packages, even though their regulations are in compliance with and encouraged by the World Health Organization’s convention on tobacco control.
  • Ecuador was required to pay Chevron $78 million because its efforts to protect the Amazon from pollution were found to have negatively affected Chevron’s profits.
  • A Swedish energy company is threatening to sue Germany for its decision to phase out nuclear energy. It previously challenged a German standard on the increase in river water temperatures at its coal-fired power plant and got Germany to relax the standard.
  • Mexico was required to pay $17 million to US-based Metalclad because a local government refused to give it a permit to build a toxic waste dump.

[1]       Wallach, L., 3/13/12, “A stealth attack on democratic governance,” The American Prospect

[2]       Wikipedia, retrieved 7/18/12, “Investor state dispute settlement,” http://en.wikipedia.org/wiki/Investor_state_dispute_settlement

[3]       Wallach, L., 3/13/12, “A stealth attack on democratic governance,” The American Prospect

[4]       Wikipedia, retrieved 7/18/12, see above

[5]       Wallach, L., 3/13/12, see above

[6]       Wallach, L., 3/13/12, see above

[7]       Agazzi, I., 5/7/12, “Global corporations undermining democracy worldwide,” Inter Press Service

[8]       Wikipedia, retrieved 7/18/12, see above

[9]       Faux, J., 3/13/12, “The myth of the level playing field,” The American Prospect

[10]     Wallach, L., 3/13/12, see above

[11]     Public Citizen, 6/29/12, “WTO rules against yet another US consumer protection policy,” Public Citizen

TRADE AGREEMENTS PAST AND PRESENT

ABSTRACT: Past trade agreements have not lived up to their promises of new, good jobs for Americans and increased exports. While they have provided cheaper goods for us to buy, they have reduced jobs and put downward pressure on wages in the U.S., while increasing our trade deficit. [1] They have undermined U.S. laws protecting workers, the environment, and public health.

The currently under-negotiation Trans-Pacific Partnership (TPP) appears to be taking all of this a step further. TPP negotiations are being kept secret, although corporate representatives are fully involved. The big winners under past trade agreements and the TPP (as drafted) are multi-national corporations. The TPP negotiations and draft documents must be open to the public and Congress. This will ensure that various interests are appropriately balanced and that corporate interests don’t dominate.

FULL POST: First, a little history. NAFTA, the North American Free Trade Agreement, was signed in 1993. The best estimates are that NAFTA has resulted in the loss of almost 700,000 jobs in the US. Our trade deficit with the other participants, Canada and Mexico, has increased from $9 billion to $101 billion. [2][3] In the 20 years since China joined the World Trade Organization, 2.9 million jobs have been offshored to China, many of them well-paying manufacturing jobs. “[S]tate-subsidized Chinese production [has] decimated American industry and reduced the incomes of American workers.” [4] Our trade deficit with China has grown from $13 billion in 1991 to $295 billion in 2011. [5] “[I]n the past, the U.S. trade imbalance has widened after each new agreement. … U.S. businesses … profit immensely from outsourcing and offshoring … Nor is there any apparent economic benefit to the United States.” [6] “Historically, trade deals like NAFTA … are associated with economic displacement and instability, the erosion of labor and human rights standards, and the subordination of national sovereignty to foreign investors.” [7]

The current Trans-Pacific Partnership negotiations (13 negotiating meetings over two years) involve Australia, Canada, Chile, Malaysia, Mexico, Peru, Singapore, Vietnam, and other countries. TPP is actually much more than a traditional trade agreement and the negotiations have been conducted in secret because US Trade Representative Ron Kirk has indicated that he believes the only way to complete the deal is to keep it secret. (Negotiators have agreed not to release negotiating documents until four years after the deal is completed or abandoned.) Although 600 corporate representatives serve as official US trade advisors and have full access to the negotiations, the US Senate committee with jurisdiction over TPP has been denied access to the negotiations. [8][9]

Recently, two of the 26 chapters of the draft agreement were leaked. The TPP draft text includes:

  • International rights for pharmaceutical corporations that would prohibit generic versions of drugs in developing countries, dramatically increasing drug prices and reducing access [10]
  • Further financial industry deregulation
  • Prohibition on controlling the flow of money among countries and other measures designed to limit negative effects of financial speculation
  • Increased protection for foreign investors
  • Incentives for US firms to offshore jobs and investment
  • Provisions that favor foreign corporations (including government subsidized ones) over domestic ones
  • Provisions allowing corporations, including foreign corporations, to assert control over natural resources
  • Expansion of NAFTA’s international tribunals where corporations can sue governments if laws or regulations that protect the public interest (e.g., health, safety, and the environment) might have a negative affect on profits (More on this in my next post.)

Wallach sums up TPP with these words: “Countries would be obliged to conform all their domestic laws and regulations to TPP’s rules – in effect a corporate coup d’état.” [11]

We need to know more about the TPP draft. And we need to apply what we’ve learned from past experience with trade agreements so intended results are achieved and various interests are more appropriately balanced. The US is a democracy; therefore the TPP negotiations and draft documents must be open to the public and to Congress. Then, there can be open discussion and debate about its provisions and its balancing of various interests – those of the public, workers, corporations, investors, local communities, and countries. We need to ensure that corporate power doesn’t run roughshod over other interests.

[1]       Faux, J., 3/13/12, “The myth of the level playing field,” The American Prospect

[2]       Hindery, L., 5/1/12, “Free trade run amok: the TPP,” The Huffington Post

[3]       D’Amico, S.J., 7/10/11, “Trade deals are no deals for the US,” The Boston Globe

[4]       Lind, M., Dec. 2011, “The cost of free trade,” The American Prospect

[5]       U.S. Census Bureau, retrieved 7/16/12, “Trade in goods with China,” http://www.census.gov/foreign-trade/balance/c5700.html

[6]       Prestowitz, C., 3/13/12, “The pacific pivot,” The American Prospect

[7]       Chen, M., 6/21/12, “Backdoor talks on trans-Pacific trade deal aim to globalize corporatocracy,” In These Times

[8]       Wallach, L., 7/3/12, “NAFTA on steroids: The Trans-Pacific Partnership is a global coup d’état,” The Nation

[9]       Chen, M., 6/21/12, see above

[10]     Common Dreams, 7/10/12, “Obama’s trade policy ensures big pharma profit at expense of world’s poor,” http://www.commondreams.org/headline/2012/07/10-2

[11]     Wallach, L., 7/3/12, see above

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

THE ROLE OF LABOR UNIONS

Here’s issue #37 of my Policy and Politics Newsletter, written 6/28/12. Labor unions have been in the news quite a bit lately. This issue focuses on the role of unions in our society and economy.

Labor unions allow workers to approach employers as a group to discuss working conditions, pay, benefits, and other workplace issues. This affects the balance of power between workers and employers.

If you as an individual employee approach your employer about any of these issues, for example, receiving paid sick days if you currently had none, where does the balance of power lie? With the employer, of course. But if workers as a group approach the employer about such issues the balance of power is quite different.

Pay is probably the first item that comes to mind when thinking about employer – employee issues. There is lots of evidence that when employees are members of unions and bargain collectively on pay, they average 10 – 30% higher pay after controlling for other important variables. [1]

Employee pay is ultimately about how the profits of a business are divvied up among front-line or on-the-floor workers, senior executives and managers, and owners (which may be senior executives or stockholders). The balance of power among these groups affects how the rewards of the business are split. If workers participate in the discussion as a group, i.e., as members of a union, the result will be different, as indicated by hard evidence, common sense, and economic theory. Highly visible examples of this have been the negotiations between professional athletes and team owners in basketball most recently, but also in football, baseball, and hockey.

Therefore, it’s not surprising that as union membership in the private sector has dropped dramatically (from 34%in 1954 to 7% today [2]), income inequality has widened. Senior executives and stockholders have gotten much richer, while the rest of us have barely maintained our standard of living. The share of profits going to workers’ pay is the smallest it’s been since tracking began in 1947. [3]

This has not just increased in income inequality, but has undermined the middle class broadly. Union members’ pay and benefits used to set a standard in many sectors of the economy and to some extent for the economy as a whole. Non-union workers would receive similar compensation because there was competition in the job market, so companies with non-union workforces had to pay competitively to attract good workers. As union membership has declined, this is less of a factor in the job market and therefore there is downward pressure on wages and benefits.

The erosion in benefits has been very visible. Fewer and fewer workers have company managed pension plans, which were standard for union workers. And workers are paying more and more for their health care. Reductions in job security and increasing use of part-time workers are also partially the result of decreased union membership. Other issues that unions over the years have had an impact on are the length of the work week, overtime rules, availability of paid vacation and sick time, safety in the workplace (there are an estimated 58,000 workplace related deaths each year [4]), the minimum wage, unemployment and workplace injury compensation, how layoffs are handled, unfair or arbitrary actions by supervisors, and discrimination in hiring, pay, and promotions in the workplace.

Without or with weakened unions, union and non-union employees have less power and employers have more power. As a result, workers are likely to receive less pay, fewer benefits, and experience less desirable working conditions.

The next issue of the newsletter will address the reasons for the decline in private sector union membership.

[1]       Wikipedia, retrieved 4/23/12, “Labor unions in theUS,” en.wikipedia.org/wiki/Labor_unions_in_the_Unitede_States

[2]       Bureau of LaborStatistics,US Dept. of Labor, 1/27/12, “Union members – 2011”

[3]       Reich, R., 3/2/12, “Bye bye American pie: The challenge of the productivity revolution,” retrieved on 3/3/12 from www.commondreams.org/view/2012/03/02-6

[4]       Nader, R., 3/30/12, “If big labor would fight millions would join them on the ramparts,” retrieved at http://www.commondreams.org/view/2012/03/30-5

REGULATING THE BIG BANKS (Part 2)

Here’s issue #33 of my Policy and Politics Newsletter, written 5/31/12. The previous issue of the newsletter laid out the rationale and need for strong regulation of the six big banks that dominate the industry. It closed by noting that JPMorgan Chase’s recent multi-billion dollar loss from securities trading has re-focused attention on bank regulation. This issue of the newsletter takes a look at the response to the JPMorgan loss.

The over $2 billion trading loss at JPMorgan has strengthened support for the Volcker Rule, which bans speculative and risky proprietary trading by banks. It has reinvigorated the discussion about financial institutions that are “too big to fail.” The six biggest US banks are bigger now than they were before the recent financial collapse and have assets ($9.5 trillion) equal to 2/3 of the entire US economy. Many believe that the collapse of any one of them would trigger events that would cripple the US economy. Therefore, despite the provisions of the Dodd-Frank law that state there will be no future bailout, many find it hard to believe that a bailout wouldn’t happen because these huge banks truly are too big to fail. [1]

Opponents of stronger bank regulation will characterize the push for the Volcker Rule and splitting up the six big banks as an attack on successful businesses, business people, and the wealthy. But JPMorgan CEO Dimon’s own reputation disproves this. Until the current fiasco, he and his leadership at JPMorgan had been praised and celebrated. The call for strong regulation is not an attack on success or wealth, but on bad and unethical business practices, failures of risk management, greed, and bad judgment that harm the public good. [2]

Because of the historical inability of these banks to control risk, as was just demonstrated by the best of them, and because of the inability of government to effectively regulate, oversee, and hold accountable these extremely large, complex, and powerful financial corporations, many experts are arguing that breaking them up into smaller entities is the only real solution. These experts include four regional Federal Reserve presidents and the head of research at one of the regional Federal Reserve banks. [3]

One example of the power of these banks and the conflicts of interest that exist in our financial system is that JPMorgan CEO Dimon sits on the Board of the Federal Reserve Bank of New York. Among other responsibilities, it regulates and oversees JPMorgan and the other Wall Street banks. Many experts see this as a major conflict of interest and are calling on him to step down. For example, Simon Johnson (professor at MIT’s Sloan School of Management and former chief economist of the International Monetary Fund) says, “he should, under these circumstances, absolutely step down from that role. It’s completely inappropriate to have such a big bank represented in this fashion.” [4]

Our current recession and financial crisis were caused by bad risk management, unethical business practices, and greed at our large financial institutions coupled with a failure of government oversight, enforcement, and regulation. The result has been high unemployment, extensive loss of homes and home value, and large losses of revenue for governments at the federal, state, and local levels. The bailout of the financial industry and the steep loss of revenue due to the recession are major factors contributing to the large federal government deficit with which we are struggling.

The big banks are working hard to weaken and delay (if not prevent) the implementation of the Volcker Rule and support for it. I am amazed they have any credibility to lobby against regulation after the financial debacle and recession they just caused. Some of their supporters, including in Congress, appear to have an ideology that corporations can do no wrong and that there is no such thing as a good regulation. Others, I believe, are swayed by the large campaign contributions from the financial sector and the new potential of unlimited spending by it through Super PACs.

The Volcker Rule is needed to prevent proprietary trading losses, like the one just experienced at JPMorgan, from seriously impacting our banking system, our federal government, and our economy. It is one, critically important step in regulation and oversight of our financial system that is necessary to reduce and, hopefully eventually eliminate, the potential for too big to fail banks again requiring a taxpayer bailout and crashing our economy.

[1]       Moyers, B. & Johnson, S., 5/17/12, “Are JPMorgan’s losses a canary in a coal mine?” Common Dreams

[2]       Editorial, 5/15/12, “Dimon in the rough,” The Boston Globe

[3]       Rohde, D., 5/11/12,  “Break up the big banks,” Reuters

[4]       Moyers, B. & Johnson, S., see above

REGULATING THE BIG BANKS (Part 1)

Here’s issue #32 of my Policy and Politics Newsletter, written 5/29/12. JPMorgan Chase’s recent multi-billion dollar loss from securities trading has focused attention on the regulation of our large banks. This issue of my newsletter and the next one take a look at this issue.

The Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in 2010. Its goal was to put an end to practices in the financial industry that led to the 2008 collapse of the financial sector and our economy.

One of its goals was to prevent speculative securities trading by banks that many equate to gambling with taxpayers’ money. This trading, called proprietary trading, enhances banks’ profits (when things go right) and senior managers’ bonuses, but do not benefit or serve bank customers. The Volcker Rule, named after former Chairman of the Federal Reserve (under Presidents Carter and Reagan), Paul Volcker, who proposed and supports it, is the specific piece of the Dodd-Frank law that bans such trading by banks. It would reinstate a key provision of the Glass-Steagall Act, put in place after the Great Depression but repealed in 1998, that required separation of banking from proprietary trading.

The reason for separating banking and proprietary trading is that banking is protected and supported by the federal government to ensure the safety of depositors’ money. Banks’ deposits are insured by the Federal Deposit Insurance Corporation (FDIC) and banks have access to very low cost funds from the Federal Reserve. Proprietary trading is speculative and risky, providing potentially big gains and big losses to the banking corporation and its executives. If a bank, while protected and supported by the government, is allowed to engage in proprietary trading, this amounts gambling with taxpayers’ money. [1] And as we have just experienced, banks that are “too big to fail” will receive bailouts using taxpayer funds if their bets go bad.

During the process of writing the Dodd-Frank law, and now during the writing of regulations to implement the law, including the Volcker Rule, the financial industry from Wall Street has worked tirelessly to water down, delay, complicate, and confuse the process. [2] Using legions of lawyers and lobbyists, large campaign contributions, media campaigns, and friends in Congress and the Executive Branch (some who have traveled through the revolving door of moving between financial industry and government jobs), Wall Street works to add provisions and loopholes that complicate the result, and to undermine support for reform. Those working to create solid regulation and limitations try to write provisions that allow reasonable activities but close loopholes, knowing that after the fact the financial institutions will exploit any loopholes they can find.

The Volcker Rule’s ban on proprietary trading by banks only significantly affects the six biggest banking corporations, [3] as they are the ones who engage in extensive proprietary trading. Proprietary trading is not an essential banking activity and it creates a conflict of interest between the bank and its customers. The other 20 regional banks and 7,000 community banks are generally supportive of the Volcker Rule but find it “impossible … to challenge” the six big banks on this issue. The Volcker Rule is scheduled to go into effect in July 2012, but the banks have managed to get a two year delay and will have until 2014 to comply. [4] Two of the six big banks, Goldman Sachs and Morgan Stanley, got their banking licenses during the recent financial crisis specifically to reassure their depositors that their deposits were protected by the FDIC and to get access to support from the Federal Reserve. [5]

The recent $2 billion plus proprietary trading loss at JPMorgan Chase really grabbed everyone’s attention because JPMorgan is touted as having the best risk management in the industry. Its highly regarded CEO, Jamie Dimon, has been leading the charge against the Volcker Rule, claiming it is unnecessary. [6] If proprietary trading at JPMorgan in calm financial markets could result in such a big loss, many are wondering how great the current risk of huge losses at other banks might be, let alone what it would be when financial markets are more volatile.

The next issue of my newsletter will cover the response to this JPMorgan trading loss.

[1]       Silver-Greenberg, J., &Schwartz,N.D., 5/17/12, “JPMorgan losses reportedly up $1b,” The Boson Globe

[2]       Taibbi, M., 5/24/12, “How Wall Street killed financial reform,” Rolling Stone

[3]       The six biggest banks are JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley. They average $1.6 trillion in assets.

[4]       Rohde, D., 5/11/12,  “Break up the big banks,” Reuters

[5]       Moyers, B., with Volcker, P., 4/5/12, “Gambling with your money,” Moyers & Company on National Public Radio

[6]       Gogoi, P., 5/15/12, “Dimon likely to face ire, not ouster at JPMorgan meeting,” The Boston Globe

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

CORPORATE POWER (Part 3): LOBBYING AND THE REVOLVING DOOR

Here’s issue #23 of my Policy and Politics Newsletter, written 3/15/12. This issue examines how corporations influence our government and its policies through lobbying and the “revolving door.”

Corporate influence on government actions and policies occur through campaign contributions (see Newsletters #13 – 17), lobbying, and the “revolving door” where personnel often cycle back and forth between working in government and working for a corporation for which they had an oversight responsibility in their government position.

Lobbying and the revolving door are two key pieces of the puzzle of how corporations have such strong influence. Corporate personnel and their lobbyists build strong personal relationships with Congress people, their staffs, and government agency personnel. Here are examples of how these relationships are built and operate:

  • Corporations, their executives, and their lobbyists:
    • Provide electoral support to Congress people through campaign contributions, solicitation of donors, political action committees (PACs), and Super PAC expenditures.
      • $3.4 billion in campaign contributions between 2007-2010 (see Newsletter #17)
      • $774 million in 2010 from 26,783 wealthy individuals (see Newsletter #14)
    • Provide information and persuasionto Congress people, their staffs, and government agencies, through lobbying, including expertise, position papers, and draft legislation.
      • $3.3 billion in total lobbying expenditures in 2011 with 12,633 registered lobbyists, over 23 lobbyists per member of Congress [1]
      • $476 million spent on lobbying by 30 large corporations between 2008 and 2010 [2]
    • Go to work for Congress or government agencieswhere they have power and influence, which may benefit, directly or indirectly, their previous employer.
      • Obama’s 3 chiefs of staff all previously worked in the financial sector: Jacob Lew at Citigroup, Bill Daley at JPMorgan Chase, and Rahm Emmanuel at Wasserstein Perella [3]
      • Treasury Secretary Tim Geithner is the former head of the Federal Reserve Bank of NY. Hank Paulson, head of Goldman Sachs, was Treasury Secretary under Bush and Robert Rubin, co-chairman of Goldman Sachs, was Secretary under Clinton. Other Treasury Secretaries in these administrations were the CEO of CSX Corp. and the CEO of Alcoa. [4]

On the other side of the revolving door, people leave government positions and go to work for the corporations (or their lobbying firms) that they oversaw or regulated while in government. As a result of all these relationships and interconnections, corporations receive:

  • Friendly legislation from Congress such as laws governing corporate practices, regulation, taxes, competition, trade, etc.
  • Accommodating regulations and oversight from government agencies and even outright support at times, such as the recent bailout of financial firms.
  • Inside information. For example, multiple sources document multiple instances where Treasury Secretary Paulson shared inside government information with his former employer, Goldman Sachs. [5]

There are many, many examples of the results of corporate influence on government actions and policies; a few have been highlighted in previous newsletters:

  • Failure to regulate speculation in oil and gasoline markets (see Newsletter #22)
  • Lax regulation and oversight of the financial industry (see Newsletters #21 and #19)
  • Low effective tax rates for many corporations (see Newsletter #2) and low tax rates for high income individuals (see Newsletters #21, #8, and #7)
  • Failure to regulate health threats such as mercury emissions and the use of antibiotics to enhance growth of healthy farm animals (see Newsletter #20)
  • High levels of spending that benefit corporations such as military contractors and that seem impossible to cut (see Newsletter #5)

These are only highlights and examples of corporate influence; future newsletters will highlight others, but the full story takes books to tell and involves many corporations and industries. The outsized influence corporations wield in our democracy was of great concern and impact before the Citizens United decision, which now allows unlimited corporate spending in our election campaigns. With unlimited corporate campaign spending now unleashed, our democracy, and government of, by, and for the people, is truly at risk.

[1]       The Center for Responsive Politics, retrieved 3/7/12, “Lobbying database,” http://www.opensecrets.org/lobby/index.php

[2]       Public Campaign, Dec. 2011, “For hire: Lobbyists or the 99%? How corporations pay more for lobbyists than in taxes,” publicampaign.org/reports/forhire

[3]       Moyers, B., & Winship, M., 1/24/12, “The Washington – Wall Street revolving door just keeps spinning along,” http://www.commondreams.org/view/2012/01/24-3

[4]       Wikipedia, retrieved 3/13/12, “US Secretary of the Treasury,” en.wikipedia.org/wiki/United_States_Secretary_of_the_Treasury

[5]       Moyers and Winship, see above

CRONY CAPITALISM AND WINNER TAKE ALL POLITICS

Here’s issue #21 of my Policy and Politics Newsletter, written 2/29/12. This issue will begin to link the issues of corporate power, great inequality of income and wealth, and campaign finance. It is a bit long, as it is a summary of the first three shows of Bill Moyers’ return to public TV.

In case you haven’t heard, Bill Moyers is back on public television. (In theBostonarea, he’s on Sunday at 4:00 on channel 2. Or you can do what I do, download the podcasts from billmoyers.com or other sources.)

His first show back on (Jan. 13) was on Winner Take All Politics, the title of a recent book by Hacker and Pierson, whom Moyers interviews. The book and show document that the huge income disparity in the US (see issue #4 of my newsletter) is, in large part, the result of government policies over the last 30 years. Although globalization, technological change, and other changes in our economy have been factors, the real culprit is our public policies and how they have responded to these challenges. Other countries face these same challenges but have not experienced the dramatic increase in inequality that has occurred in theUS.

Over the last 30 years, the top income tax rate has been reduced from 70% to 35% (see issue #7 of my newsletter) with even lower rates for unearned (i.e., investment) income. As we’ve heard recently, multi-millionaires like Presidential candidate Romney are paying less than 15% of their income in taxes. If you were making around $20 million a year as he is, every one percentage point reduction in your tax rate puts $200,000 in your pocket. And with your tax rate cut in half, you are saving $3 million or more a year, or over $90 million over the last 30 years. Specifically, the Bush tax cuts of the early 2000s have given $50 to $100 million to each of the 400 richest Americans over the last 10 years.

This sets up a reinforcing cycle as some of these riches are funneled back into our political system through campaign contributions and Super PACs, further increasing the influence of the well-off and getting them favorable treatment. In addition, the lobbying capacity of the corporations and very rich has grown, while that of the middle class, particularly unions, has shrunk, further expanding the gap in political power and influence.

Hacker and Pierson note that politicians have learned that they can get re-elected despite ignoring or only giving symbolic support to the middle class, while moving the agenda of the corporations and very rich forward.

On Moyers’ second show (Jan. 20), David Stockman, President Reagan’s budget chief, was a guest. Stockman is writing a book entitled The Triumph of Crony Capitalism. He defines crony capitalism: using political power such as campaign contributions and lobbying to get returns that can’t be gotten in the market. He states that in theUS we do not have free market capitalism or democracy, but crony capitalism.

Stockman believes that we need to re-institute and strengthen the separation of the investment business and its risks from the banking system, as was in place prior to 1999 under a law called Glass-Steagall. Otherwise, he predicts that we will have recurring economic crashes. He says that financial institutions that are too big to fail are too big to exist and he advocates for banning corporate money from our political system and capping all campaign contributions at $100.

Moyers’ third show (Jan. 27) was with John Reed, who retired as CEO of Citigroup in 2000 after presiding over the merger of Citibank with Travelers Insurance. This merger led to and actually required the repeal of the Glass-Steagall law. The mantra at the time was that the new, enhanced financial system could handle the increased risk better than before and therefore repealing the separation of banking from the investment business wouldn’t be a problem. There was an extensive public relations and lobbying campaign to deliver this message, which ultimately skewed almost everyone’s thinking about this deregulation.

Reed, in retrospect, says that it’s amazing that everyone was so wrong and that the system as a whole went so far off the tracks that it caused the great recession we are now experiencing. He states that this was the result of crony capitalism between Wall Street executives andWashington politicians.

In other countries, including Canada, the crisis in the financial institutions wasn’t nearly as bad as here in the US. Our financial deregulation allowed financial institutions (including banks) to take great risks and to provide huge rewards to their people, an important part of our income and wealth inequality. And ultimately, these institutions and individuals did not bear the risk when things went wrong; the government and the public bailed them out.

Reed calls for re-regulation of the financial system, noting that regulations are need so that appropriate risks can be taken. He makes the analogy that cars have brakes (regulation) so that we can drive fast (take risks), but control our speed as needed. If cars did not have brakes, we’d all drive only very slowly. He is amazed that those lobbying against re-regulation and strengthening of oversight of financial institutions have any credibility given the crash they caused with deregulation. He notes that when corporations and the wealthy can buy the rules (or lack thereof), the situation is unstable.

One person who loudly warned of the dangers and, as Glass-Steagall was being repealed in 1999, predicted that in 10 years we would all come to realize that a big mistake was being made, was Senator Byron Dorgan of North Dakota. He noted that the deregulation was designed by those with a self-interest and that the complex securities, i.e. “derivatives,” that have been created are casino gambling with trillions and trillions of dollars. He states that the Dodd-Frank re-regulation law, which is being heavily lobbied against by Wall Street, is too weak to prevent the next collapse.

Another Moyers guest was Gretchen Morgenson of The New York Times who has written a book entitled Reckless Endangerment. She noted that there have been no meaningful penalties for the individuals or institutions that caused the collapse of the financial system and no one has gone to jail. Furthermore, the same people who drove the ship into the iceberg are still in leadership roles on Wall Street and in the federal government.

Moyers closes by calling the Supreme Court’s Citizens United decision, which allows unlimited spending by corporations in our political campaigns, “grotesque,” stating that it corrupts our political system and means that those with no (or little) money have no speech. He calls Winner Take All Politics immoral and notes that we have experienced a deep undermining our democratic institutions.

He cites a sign he saw at Occupy Wall Streetas telling it like it is: “The system isn’t broken, it’s fixed.”

I encourage you to listen to the podcasts of these three shows. They are 52 minutes each and will provide you the richness and depth that I can’t in this summary.

CORPORATE POWER (Part 2): HEALTH IMPACTS

Here’s issue #20 of my Policy and Politics Newsletter, writtten 2/26/12. The last issue looked at the mortgage foreclosure settlement that was very favorable for the corporations involved. Here are some different examples of corporate interests trumping the greater good.

Corporations frequently find ways to avoid costs and risks, while maximizing profits and paying huge amounts to corporate executives. These include avoiding paying for the costs of impacts on the environment and on public health.

One example is air pollution that is bad for health. Another is the use of antibiotics in animals for non-medical reasons (they grow more quickly) that jeopardizes public health.

The Environmental Protection Agency recently issued standards for the release of mercury into the air by power plants. As you probably know, mercury, even at very low levels, harms brain and nervous system development in young children and fetuses. More than 300,000 children are born each year with exposure to unsafe levels of mercury. Because airborne mercury accumulates in fish, pregnant women are advised to avoid eating many types of fish.

These regulations have been delayed for 20 years by corporate power, through campaign contributions, lobbying, and inside influence. The utility companies and their allies in Congress are continuing to try to block them today. A cost-benefit analysis shows that the public benefits are huge, $90 billion per year is a very conservative estimate, and the costs relatively small, $10 billion per year in slightly higher electricity costs. Despite this, the companies claim the regulations would kill jobs, disrupt electricity supplies, and lead to soaring electricity rates. These are the same arguments they made when acid rain regulations went into effect and none of these things happened. [1]

In a similar situation, the US Food and Drug Administration recently dropped plans to regulate the use of human antibiotics in animal feed. Livestock consume roughly 80% of the antibiotics sold in the US. This practice contributes to the presence of drug resistant bacteria. This problem was first identified in 1977 and it was recommended then that approval for the non-therapeutic use of penicillin and tetracycline be rescinded, but no action has been taken. The European Union has banned the use of antibiotics in animal feed for healthy animals. Many scientific and medical organizations have called for similar action by theUS, including the American Medical Association, the Infectious Diseases Society of America, the Pediatric Infectious Disease Society, and the World Health Organization.

Over 100,000 Americans die each year from bacterial infections and 70% of these involve bacteria resistant to the commonly used treatment drugs. Last summer over 36 million pounds of turkey was recalled after it was found to contain drug resistant salmonella. Outbreaks of disease from drug resistant E.coli have also occurred in the last year. [2]

These two are particularly egregious examples of corporate interests trumping public health. Other examples will be presented in future newsletters along with examination of the ways corporations obtain and wield this kind of influence and power, for example through campaign contributions, lobbying, and the revolving door where public officials move between government positions and positions working for or with corporations.

[1]       Krugman, P., 12/26/11, “Springtime for toxics,” The New York Times

[2]       McVeigh, K., 12/29/11, “FDA draws criticism after U-turn on antibiotics in animal feed,” The Guardian

CORPORATE POWER (Part 1): THE MORTGAGE FORECLOSURE SETTLEMENT

Here’s issue #19 of my Policy and Politics Newsletter, written 2/20/12. The last issue looked at Supreme Court decisions that favor corporations. Here’s an example of a legal settlement that favors corporations.

You’ve probably heard about the recent $26 billion settlement of the mortgage foreclosure fraud case against 5 large financial institutions: Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, and Ally Financial. This settlement, agreed to by 49 of the 50 states, is for foreclosures that occurred fraudulently, without proper documentation or where it was unclear that the institution foreclosing on the homeowner was the owner of the mortgage and had the legal right to foreclose. (This settlement has nothing to do with the creating of risky and fraudulent mortgages or the selling of them to investors as high quality investments, which are the two key elements of the financial fraud that crashed our financial system in 2008 and caused our current recession.)

Although $26 billion sounds like a lot, it isn’t very much when viewed from the perspective of these 5 companies’ $425 billion in revenue in 2010 and their $39 billion in profits (even though they hadn’t fully recovered from the financial collapse they and others created). Furthermore, they are only actually paying $5 billion. The other $21 billion comes from reducing the amount owed (principal) on mortgages where homeowners owe more than their house is worth. These costs will be borne largely by the investors who bought the mortgages or by the government’s Making Home Affordable Modification Plan that subsidizes principal reductions by banks. This latter piece means that we, the taxpayers, are again bailing out these banks! [1] [2]

If you were illegally foreclosed on by one of these 5 companies and have lost your home, you will get between $1,500 and $2,000. This doesn’t seem like much compensation for the trauma you’ve experienced! Looking at it another way, this settlement sets the penalty for forgeries and fabricating documents at a maximum of $2,000 per loan. [3]

Some other points that help put the $26 billion settlement in perspective: [4]

  • Financial institutions, including these 5, received a $700 billion bailout and $1.2 trillion in low cost loans from the Federal Reserve to keep them afloat when they crashed our financial system.
  • The federal government’s track record of enforcing consent decrees in settlements such as this one is poor. In consent decrees, companies, without admitting guilt, state that they won’t engage in specific illegal activities in the future. In the current settlement, there is essentially no penalty for Countrywide Mortgage (now owned by Bank of America) for failing to comply with a previous consent decree over some of the same practices.
  • This settlement has been reached before there has been a full investigation of what occurred. The President just announced a new federal task force to investigate the financial sector in his State of the Union speech. It may uncover more extensive or egregious fraud than is currently known.

In this settlement of “this remarkable fraud that the banks and the [mortgage] servicers have created … the only big losers are the taxpayers and, of course, the homeowners.” [5] This is a “raw demonstration of who wields power in America.” [6]  This is a great deal for the companies because no one is going to jail and the $5 billion cost may well be less than what it would have cost them to do things right in the first place. Hence, they can simply view this $5 billion as a cost of doing business.

This settlement is an example of corporations getting off easily, while people suffer. One piece of this is the not unusual practice of corporations, without admitting guilt, consenting not to engage in illegal activity in the future. As occurred here with Countrywide, there is typically little enforcement when they engage, again, in similar illegal activity. As is the case with this settlement, financial penalties are typically small and provide no significant disincentive for engaging in illegal activity.

Future newsletters will examine other examples of corporate interests trumping the greater good and ways corporations obtain and wield influence and power. One way, which has been documented in past newsletters, is through the substantial investments the business community makes in our public officials through campaign contributions.

[1]       Common Dreams staff, 2/17/12, “Mortgage settlement ‘whitewash’: US taxpayers will pay for big bank settlement, mortgage deal or not; abusive foreclosures continue,” http://www.commondreams.org/headline/2012/02/17-0

[2]       Levitin, A., retrieved 2/17/12, “The servicing settlement: Banks 1, public 0,” http://www.creditslips.org/creditslips/2012/02/the-servicing-settlement-banks-1-public-0.html

[3]       Smith, Y., 2/16/12, “The top twelve reasons why you should hate the mortgage settlement,” Naked Capitalism

[4]       Bond, B., 2/10/12, “A bad deal,” Credo Action

[5]       Common Dreams staff, see above

[6]       Smith, Y., see above