Tarnished Heroes of the Drug Industry

April 23rd, 2015 by Phil Mattera

tevaGeneric drugmakers are supposed to be the heroes of the pharmaceutical business, injecting a dose of competition in what is otherwise a highly concentrated industry and thus putting restraints on the price-gouging tendencies of the brand-name producers.

Just recently, the Food and Drug Administration approved a generic version of Copaxone, paving the way for the first multiple sclerosis medication that is not wildly overpriced.

Yet some generic producers are acting too much like Big Pharma. Israel’s Teva Pharmaceuticals just announced a $40 billion offer for its rival Mylan NV, which had recently made its own bid for another drugmaker, Perrigo. A marriage of Teva and Mylan would create the world’s largest generic drugmaker with more than $30 billion in revenue from customers in 145 countries.

Bigger would not be better, at least for customers. A stock analyst told the New York Times: “Last year taxes were one of the main drivers,” referring to deals in which Mylan and Perrigo reincorporated abroad to avoid federal taxes and Pfizer sought to do the same. “Now the main driver is getting bigger. Getting bigger gives you better pricing and better leverage.”

Even before the Mylan deal, Teva’s shining armor has been getting tarnished. Recently, its subsidiary Cephalon agreed to pay $512 million to settle allegations that it made questionable payments to other generic producers to keep their cheaper versions of the narcolepsy drug Provigil off the market.

Last year the Federal Trade Commission sued Teva and AbbVie for colluding to delay the introduction of a lower-priced version of the testosterone replacement drug AndroGel. While AbbVie filed what the agency called “baseless patent infringement lawsuits,” it also entered into an “anticompetitive pay-for-delay” deal with Teva. Mylan’s record also has blemishes. It once had to pay $147 million to settle price-fixing allegations.

A weakening of the deterrent power of generics is troubling at a time when the brand-name producers remain sluggish in their introduction of new drugs and are doing everything possible to milk their existing offerings. Their idea of innovation seems focused these days on what are known as “biosimilars,” close copies of certain brand-name drugs that are somewhat less expensive but much more costly than traditional generics. In March the FDA approved the first biosimilar, a cancer drug called Zarxio made by Sandoz. Pfizer indicated its intention to compete in this arena by announcing plans to acquire biosimilar pioneer Hospira.

Rising drug costs are, of course, a concern not only for individuals but also for taxpayers. The Medicare program, which thanks to the Bush Administration and Congress cannot negotiate with pharmaceutical companies, now spends about $76 billion a year providing drug benefits.

To be fair, Part D costs in recent years have been lower than the Congressional Budget Office had previously projected, but the CBO attributed the difference in large part to the increased use of generics. If generic producers continue to consolidate — and collude with brand-name producers — those savings will evaporate and we will be completely at the mercy of Big Pharma.

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New Resource: Greenpeace has introduced the Anti-Environmental Archives, a collection of thousands of documents on the efforts of corporations and their surrogates to undermine the environmental movement and government regulation.

Color-Coded Cancer Sticks

April 16th, 2015 by Phil Mattera

colorcodedcigsAt the headquarters of Reynolds American (parent of R.J. Reynolds Tobacco) in North Carolina and the Virginia headquarters of Altria (parent of Philip Morris USA) time is apparently running backwards. The two companies just filed a lawsuit in DC federal court that reads like it was written in 1995, not 2015.

The target of the suit (15-CV-00544) is the U.S. Food and Drug Administration, which the companies apparently have forgotten was given authority by Congress in 2009 to regulate tobacco marketing, including the introduction of new products. That law came after years of vociferous opposition by Big Tobacco.

What has the companies up in arms is an FDA guidance document issued in March concerning review requirements for packaging changes. The agency takes the position that certain modifications in background color, logo and descriptors can be significant enough to trigger the stricter rules regarding new products.

Presenting themselves as victims of government overreach, the companies argue that their First Amendment rights are being violated: “FDA’s unlawful actions already have harmed Plaintiffs and threaten greater harms in the future by restricting Plaintiffs’ ability to modify their product labels without FDA preauthorization and by chilling and restricting protected speech.”

Although the case does not involve the federal warning labels that have been required for decades, it makes the puzzling argument that the FDA guidelines also violate the industry’s Fifth Amendment rights against self-incrimination.

While it is not unusual for big business to assert free speech rights to oppose regulations, this position is particularly galling when it comes from the tobacco industry. These are the companies, after all, that for decades concealed and denied the hazards of smoking, asserting it was their right to “believe” their products were non-addictive and did not cause cancer despite the mountain of evidence to the contrary. Their dishonest claims were made all the more fraudulent when documents came to light indicating that firms such as Brown & Williamson (now part of Reynolds American) knew about the dangers at least as far back as the early 1960s.

The issue of control over tobacco packaging was already fought, and the industry lost. In 2006 a federal court, finding that the industry had caused “an immeasurable amount of suffering,” ordered it stop labeling cigarettes with designations such as low tar, light and natural that gave the misleading impression that they were safe.

Tobacco companies began using techniques such as package coloring to get around the restriction. In 2010 a New York Times article on the practice quoted Prof. Gregory Connolly of the Harvard School of Public Health as saying the industry was “circumventing the law.” He added: “They’re using color coding to perpetuate one of the biggest public health myths into the next century.”

At the heart of the new case is the tension between public policies designed to discourage tobacco use and the continued existence of an industry which has to attract customers to survive. The industry’s lawsuit, with its assertion of free speech rights, proceeds from the assumption that producing and selling tobacco products is a legitimate activity. A more appropriate premise might be that tobacco is a public health menace that should be controlled as tightly as possible until the last smoker has kicked the habit and the companies can shut down.

Big Tobacco would do well to stop wrapping itself in the Bill of Rights and acknowledge that it is lucky it is still allowed to sell its deadly products at all.

Note: This piece draws from my new Corporate Rap Sheets on Reynolds American and Altria.

Smokeless Tobacco and Toothless Regulation

April 9th, 2015 by Phil Mattera

snusIt took decades for the federal government to overcome tobacco industry deception and adopt warning labels for cigarette packages in the 1960s. It took three more decades before the Food and Drug Administration was given the authority to regulate both the content of tobacco products and their marketing.

Now a branch of the industry is seeking to turn back the clock with regard to a specific product. Swedish Match is petitioning the FDA to drop the customary dire warning requirements for its smokeless tobacco called snus, which is sold as small packages that the user tucks between the lip and the gums.

Giving in to the Swedish Match proposal for a “light” warning that in effect says that snus is not as harmful as cigarettes would begin to differentiate the regulation of different types of tobacco products. It would be a coup not only for Swedish Match but potentially for makers of e-cigarettes, who also claim to be selling something safer than regular cancer sticks. Swedish Match, by the way, does not sell cigarettes, but it does produce cigars and chewing tobacco.

Yet perhaps the worst impact of granting Swedish Match’s request is that it would begin to restore credibility to an industry whose level of irresponsibility is perhaps unmatched in the world of business. Let’s recall the history.

Warnings about the harmful effects of smoking date back at least to the early 1950s, when Reader’s Digest published a widely discussed article on the subject. Rather than address the underlying issues, Big Tobacco started promoting filtered cigarettes, especially the R.J. Reynolds brand Winston, as a supposedly safer alternative. Reynolds also tried to give a healthier allure to its unfiltered Camels with an ad campaign claiming they were smoked by more doctors than any other brand. Lorillard promoted its Micronite filter as the greatest protection in cigarette history (much later it came out that the filter contained asbestos).

The same thing happened after the publication of the famous 1964 Surgeon General report on the dangers of smoking. While refusing to acknowledge the growing body of evidence, the industry stepped up its marketing efforts and introduced new products, such as Philip Morris’s low-tar Merit brand, that deceived consumers into thinking they were less deleterious.

Along with the warning labels, Congress banned cigarette advertising on radio and television, yet the tobacco companies used other channels. Reynolds egregiously sought to hook youngsters with its ads featuring a friendly cartoon character named Joe Camel.

Philip Morris, whose parent company is now called Altria, took another tack that was also in its own way pernicious. Once it became clear that federal regulation was coming, the company jumped on the bandwagon but slowed it down by pushing for oversight only on marketing to children. The well-funded argument that smoking was a legitimate adult activity slowed the push toward more comprehensive regulation and caused countless deaths.

Although the industry eventually had to accept such regulation in the United States, it is doing its best to thwart protections elsewhere, especially in smaller and poorer countries. Philip Morris International, which was spun off by Altria into a separate company, has tried to bully nations such as Uruguay and Togo into abandoning strong anti-smoking policies by threatening to drag them into expensive legal proceedings under the auspices of the World Trade Organization.

Swedish Match may protest that it has not been involved in many of these practices, yet it is a dominant player in the market for chewing tobacco, which like cigarettes is linked to cancer. It is also worth noting that the company was built by Ivar Kreuger, whose financial empire turned out to be a Ponzi scheme that collapsed during the Great Depression.

Whether or not there are significant differences between the health effects of cigarettes and snus, federal officials should do nothing to weaken a regulatory system that remains vitally important for public health.

Note: This piece draws from my new Corporate Rap Sheet on Altria and Philip Morris International as well as a soon-to-be-posted one on Reynolds American.

Uncle Sam’s Favorite Billionaires

April 2nd, 2015 by Phil Mattera

william-erbey_416x416Inequality is becoming so pronounced that presidential hopefuls of all ideological persuasions are acknowledging that something needs to be done. One issue they should consider is the extent to which the federal government itself contributes to the problem.

It’s clear that the federal tax code is structured in a way that favors wealthy individuals and corporations. But it turns out that Uncle Sam is also providing direct financial assistance to the billionaire class. The extent of that assistance can be estimated from the data my colleagues and I at Good Jobs First assembled for Subsidy Tracker 3.0, which we released recently.

We compiled 164,000 company-specific entries for federal grants, allocated tax credits, loans, loan guarantees and bailout assistance provided through 137 programs overseen by 11 cabinet departments and six independent agencies. These were added to 277,00 state and local awards in the database. Since 2000 the grants and allocated tax credits have amounted to $68 billion; the face value of the loans and bailouts, which we tally separately, have run into the trillions.

Along with the release of Tracker 3.0, we published a report called Uncle Sam’s Favorite Corporations that described the extent to which large corporations dominate federal subsidies. Some of those companies are owned in whole or in part by the country’s wealthiest individuals and families.

I subsequently matched the big federal subsidy recipients to the companies linked to members of the Forbes 400 list of the richest Americans. This exercise was an extension of an analysis my colleagues and I performed on state and local data for our December 2014 report Tax Breaks and Inequality.

Of the 258 companies controlled by a member of the Forbes 400, 39 have received federal grants and allocated tax credits. Their awards total $1.3 billion. The richest of the billionaires linked to these firms is Warren Buffett, whose Berkshire Hathaway conglomerate accounts for $178 million of the subsidies.

Two of the other companies are worth examining more closely, because they have also been embroiled in controversies over their business practices.

At the top of the list is Ocwen Financial, which received $434 million in subsidies through a provision of the Home Affordable Modification Program (a part of the TARP bailout) that provided incentives to mortgage servicers to revamp loans to homeowners whose properties were underwater or otherwise unsustainable.

Ocwen, which made extensive use of that program, was founded by William Erbey (photo), whose net worth was estimated at $1.8 billion in the most recent Forbes list, published when he was still chairman of the company. Subsequently, Erbey had to step down as part of a settlement the company reached with New York State financial regulators to resolve allegations of improper foreclosures and other abusive practices. Ocwen also had to provide $150 million in assistance to those whose homes had been foreclosed. It is also paying a smaller amount under a settlement with California regulators.

While Erbey is no longer running Ocwen, he may still be a major shareholder. As of last year’s proxy statement, he held the largest stake in the company (15 percent); this year’s proxy is not out yet.

The second largest subsidy recipient linked to a member of the Forbes 400 is SolarCity, which has received $326 million in grants and allocated tax credits, mostly through Section 1603 of the Recovery Act, which provides cash payments to companies installing renewable energy equipment. The chairman of SolarCity is Elon Musk, better known for his role in the electric car company Tesla Motors (which, by the way, got a $465 million federal loan and later repaid it). Musk, whose cousins Lyndon and Peter Rive are the top executives at SolarCity, has a net worth estimated by Forbes at $11.6 billion. Tesla Motors has business dealings with SolarCity.

It was recently reported that SolarCity is being investigated by Oregon prosecutors in connection with allegations that it used solar panels made by federal prisoners in renewable energy projects at two state university campuses for which it received $11.8 million in state tax credits designed to promote local employment.

Assuming the allegations turn out to be accurate, it is difficult to know where to begin in stating all that is wrong with this situation. A company chaired by the 44th richest person in the country that has received hundreds of millions of dollars in federal subsidies used prisoners paid less than a dollar an hour to install solar panels so that it can collect millions more in state subsidies.

Subsidies, whether federal or state, are by no means the largest contributor to inequality, but policymakers should try to find some way to limit their use by billionaires, especially those linked to shady business practices.

The Madness Continues

March 26th, 2015 by Thomas Mattera

confettiGuest blog by Thomas Mattera

When the dust settles from March’s biggest battle, one group of winners will emerge with unimaginable spoils while others come away empty-handed. There will be heartbreaking results, ruthless opponents, and at least one pathetic defense.

And sure, there will be some pretty good basketball as well.

This is because no mere buzzer beater or timely block can match the maddest part of March: the monetary exploitation of collegiate basketball players by large corporations and their own school administrators.

Yes, the NCAA Tournament is in full swing and nothing has changed. Once again, unpaid, logo-covered young men race up and down the court on every channel round the clock, creating billions in revenue for some, millions in salary for others and little for themselves.

Of course, this is far from a new revelation. The ludicrous injustice of big time college athletics has been uncovered, covered, and re-covered. And the tide of public perception is slowly but unmistakably shifting. More and more people are seeing college amateurism for what is has always been: a thinly veiled attempt to avoid paying workers compensation for injuries as well as compensation in the broader sense.

However, many current players are not interested in waiting for things to change slowly from the outside. Instead, they have taken matters into their own hands, showing their discontent with the NCAA by rallying under the “All Players United” banner.

Former Northwestern quarterback Kain Colter took this effort even further eleven months ago, arguing that college athletes are employees and should be able to unionize. His stance was supported by an NLRB ruling last March. Unsurprisingly, Northwestern appealed and the players’ ballots are trapped in a sealed box while the matter makes its way through a litigious obstacle course.

Though they are far from a permanent victory, Colter and his allies have clearly rattled some cages. Case in point: In 2014, Michigan Governor Rick Synder signed a provision pre-emptively banning athletes from being considered public employees who can collectively bargain. This step was especially galling given that just a few months earlier the flagship University of Michigan football program re-inserted a visibly concussed player back into a game after a vicious hit to the head. The university initially claimed it had done nothing wrong before eventually walking back its story and apologizing in the wake of public outrage.

Meanwhile, the National Basketball Association and the NCAA are currently considering a mutually beneficial agreement that would force players to wait two years after high school to be eligible to play in the NBA. Under the deal, the NCAA would get two years of unpaid labor on often unguaranteed scholarships from the best athletes in the world. For their part, the professional ranks get a free farm system to scout the players before investing in them. Of course, the NCAA’s “corporate champions” won’t be complaining either as they use teenage athleticism as filler between $1,500,000 a minute beer ads.

There has been some progress in the struggle for fairness even as the Northwestern ballots remain in limbo. The last year has seen improvements in NCAA scholarship policy, better player healthcare, and in the fight for athletes to see some profits from the selling of player-specific merchandise. Yet this is far from enough

It is March once again, a year after college players took a stand and were vindicated. However, the biggest event in collegiate sports looks and feels no different: They will work, we will watch, and someone else will get paid. What is madder than that?

Uncle Sam’s Favorite Corporations

March 17th, 2015 by Phil Mattera

UncleSam_WebTeaserIt’s said that the partisan divide is wider than ever, but there is one subject that unites the Left and the Right: opposition to the federal business giveaway programs popularly known as corporate welfare.

These programs include cash grants that underwrite corporate R&D, special tax credits allocated to specific firms, loan guarantees that help companies such as Boeing sell their big-ticket items to foreign customers, and of course the huge amounts of bailout assistance provided by the Treasury Department and the Federal Reserve to major banks during the financial meltdown. The costs to taxpayers is tens of billions of dollars a year.

Back in 1994 then-Labor Secretary Robert Reich gave a speech arguing that it was unfair to cut financial assistance to the poor while ignoring special tax breaks and other benefits enjoyed by business. Reich inspired a strange bedfellows coalition led by public interest advocate Ralph Nader and then-House Budget chair John Kasich (now governor of Ohio). Ultimately, the effort was stymied, as every business subsidy’s entrenched interests lobbied back. The subsidy-industrial complex emerged largely unscathed.

Nonetheless, the anti-corporate welfare movement has continued up to the present, with the latest battled being waged mainly by some Tea Party types against the Export-Import Bank.

Throughout these two decades of subsidy analysis and debate, the focus has been on aggregate costs, either by program, by industry or by type of company. Except for bailouts, very little analysis has been done of which specific corporations benefit the most from federal largesse.

My colleagues and I at Good Jobs First have just completed a project which will allow those on all sides of the debate to identify the companies enjoying corporate welfare. Today we are releasing Subsidy Tracker 3.0, a expansion to the federal level of our database which since 2010 has provided information on the recipients of state and local economic development subsidy awards.

We have collected data on 164,000 awards from 137 federal programs run by 11 cabinet departments and six independent agencies. Much of the data, covering the period from FY 2000 to the present, is extracted from the wider range of content on USA Spending, which also covers non-corporate-welfare money flows such as federal grants to state and local governments and federal contracts. We also tracked down about 40 other sources from a variety of lesser known reports and webpages. Farm subsidies are excluded as they are already ably covered by the Environmental Working Group’s agriculture database.

Our data does not cover the full range of federal business assistance, given that most tax breaks are offered as provisions of the Internal Revenue Code that any qualifying firm can claim. We include only the small number of tax credits (mostly in the energy areas) that are allocated to specific firms. But we’ve got plenty of company-specific grants, loans, loan guarantees and bailouts.

Today we are also releasing a report, Uncle Sam’s Favorite Corporations, that analyzes the federal data. While we don’t endorse or critique any of the wide-ranging programs themselves, we do find some remarkable patterns among the recipients.

The degree of big business dominance of grants and allocated tax credits is comparable to what we previously found for state and local subsidies. A group of 582 large companies account for 67 percent of the $68 billion total, with six companies receiving $1 billion or more.

At the top of the list with $2.2 billion in grants and allocated tax credits is the Spanish energy company Iberdrola, whose U.S. wind farms have made extensive use of a Recovery Act program designed to subsidize renewable energy.

Mainly as a result of the massive rescue programs launched by the Federal Reserve in 2008 to buy up toxic securities and provide liquidity in the wake of the financial meltdown, the totals for loans, loan guarantees and bailout assistance run into the trillions of dollars. These include numerous short-term rollover loans, so the actual amounts outstanding at any given time, which are not readily available, were substantially lower but likely amounted to hundreds of billions of dollars. Since most of these loans were repaid, and in some cases the government made a profit on the lending, we tally the loan and bailout amounts separately from grants and allocated tax credits.

The biggest aggregate bailout recipient is Bank of America, whose gross borrowing (excluding repayments) is just under $3.5 trillion (including the amounts for its Merrill Lynch and Countrywide Financial acquisitions). Three other banks are in the trillion-dollar club: Citigroup ($2.6 trillion), Morgan Stanley ($2.1 trillion) and JPMorgan Chase ($1.3 trillion, including Bear Stearns and Washington Mutual). A dozen U.S. and foreign banks account for 78 percent of total face value of loans, loan guarantees and bailout assistance.

Other key findings:

  • Foreign direct investment accounts for a substantial portion of subsidies. Ten of the 50 parent companies receiving the most in federal grants and allocated tax credits are foreign-based; most of their subsidies were linked to their energy facilities in the United States. Twenty-seven of the 50 biggest recipients of federal loans, loan guarantees and bailout assistance were foreign banks and other financial companies, including Barclays with $943 billion, Royal Bank of Scotland with $652 billion and Credit Suisse with $532 billion. In all cases these amounts involve rollover loans and exclude repayments.
  • A significant share of companies that sell goods and services to the U.S. government also get subsidized by it. Of the 100 largest for-profit federal contractors in FY2014 (excluding joint ventures), 49 have received federal grants or allocated tax credits and 30 have received loans, loan guarantees or bailout assistance. Two dozen have received both forms of assistance. The federal contractor with the most grants and allocated tax credits is General Electric, with $836 million, mostly from the Energy and Defense Departments; the one with the most loans and loan guarantees is Boeing, with $64 billion in assistance from the Export-Import Bank.
  • Federal subsidies have gone to several companies that have reincorporated abroad to avoid U.S. taxes. For example, power equipment producer Eaton (reincorporated in Ireland but actually based in Ohio) has received $32 million in grants and allocated tax credits as well as $7 million in loans and loan guarantees from the Export-Import Bank and other agencies. Oilfield services company Ensco (reincorporated in Britain but really based in Texas) has received $1 billion in support from the Export-Import Bank.
  • Finally, some highly subsidized banks have been involved in cases of misconduct. In the years since receiving their bailouts, several at the top of the recipient list for loans, loan guarantees and bailout assistance have paid hundreds of millions, or billions of dollars to U.S. and European regulators to settle allegations such as investor deception, interest rate manipulation, foreign exchange market manipulation, facilitation of tax evasion by clients, and sanctions violations.

 

Subsidies and Bad Actors

March 12th, 2015 by Phil Mattera

coalashAre corporate subsidies a right or a privilege? Should a company’s accountability track record be a factor in determining eligibility? These questions take on increased relevance in light of two new developments.

The first is that utility giant Duke Energy is being fined $25 million by environmental regulators in North Carolina. The penalty, the largest in state history, relates to the contamination of groundwater by coal ash from Duke’s Sutton power plant near Wilmington. Federal prosecutors are reportedly pursing a separate and broader case against Duke in connection with its large spill of toxic coal ash from another plant into the Dan River.

The other development is that my colleagues and I at Good Jobs First are about to make public a new version of our Subsidy Tracker that for the first time extends coverage to the federal level (the release date is March 17). Without giving away too much ahead of time, I can say that Duke Energy is among the ten largest recipients of grants and allocated tax credits (those awarded to a specific company) for the period since 2000, with a total in the hundreds of millions of dollars.

Duke got about half of its subsidies in the form of grants from Energy Department programs designed to promote renewable energy and smart grid development. The other half came from a Recovery Act provision that allows companies to receive cash payments for the installation of renewable energy equipment.

Like other large utilities, Duke has taken steps in the direction of renewables while still deriving most of its power from fossil fuels and nuclear. Are federal subsidies helping to wean Duke off dirtier forms of energy, or are they simply enriching a company that is still committed to dirty energy and has shown some serious lapses in its management of its fossil fuel facilities?

Duke is hardly the only major subsidy recipient with a tainted track record. Previously, I discussed the fact that both U.S. banks and foreign banks that received huge amounts of bailout assistance later had to pay billions of dollars to settle allegations on issues such as currency market manipulation and abetting tax evasion.

Federal officials may argue that they were not aware of these practices when the bailouts happened (though these banks hardly had spotless records as of 2008), or they may claim that they had no choice but to bail them out, since they were too big to allow to fail.

Yet the list of large federal subsidy recipients includes other major corporate miscreants. Take the case of BP, which the new database will show as having receiving more than $200 million in federal grants and allocated tax credits. Much of that money postdates its 2010 catastrophe in the Gulf of Mexico, and even more came after the 2005 explosion at its Texas City, Texas refinery that killed 15 workers and for which the company $60 million in fines to the EPA and $21 million to OSHA.

In the wake of the Deepwater Horizon disaster, BP was barred from receiving federal contracts, though the debarment was later lifted. Perhaps an even stronger case can be made for disqualifying regulatory violators from receiving federal subsidies, since they are more akin to gifts than payment for goods or services rendered. This is not likely to happen anytime soon, but the release of the new Subsidy Tracker will make it a lot easier to identify which bad actors have been enjoying Uncle Sam’s largesse.

Bailouts and Bad Actors

March 5th, 2015 by Phil Mattera

moneybagsontherunNewly released transcripts of the 2009 meetings of the Federal Reserve’s open market committee show that monetary policymakers were still agonizing over whether they were doing enough to stabilize the teetering global financial system.

These documents have a special interest for me because, as I discussed in last week’s Digest, my colleagues and I at Good Jobs First recently collected a great deal of data about the Fed’s special bailout programs in 2008 and 2009 as part of the extension of our Subsidy Tracker database into the federal realm. The Fed’s info is part of the more than 160,000 entries we have amassed from 137 federal programs of various kinds. Subsidy Tracker 3.0 will go public on March 17.

In last week’s post I mentioned that the Fed programs involved the outlay of some $29 trillion (yes, trillion) and that the totals for several large banks (Bank of America, Citigroup, Morgan Stanley and JPMorgan Chase ) each exceeded $1 trillion. I pointed out that these totals referred to loan principal and did not reflect repayments (information on which is not readily available).

What I also should have pointed out is that some of the Fed lending consisted of relatively short-term loans that were often rolled over. In other words, the actual amount outstanding at any given time was considerably lower than the eye-popping trillion dollar figures. That’s not to say that the amounts were chicken feed. It’s safe to say that the loan totals were in the hundreds of billions of dollars, and here again company-specific amounts are not available.

This is still high enough to justify the point I was making about the bailout amounts far outstripping the sums these banks have been paying out in settlements with the Justice Department to resolve allegations about investor deception in the sale of what turned out to be toxic securities in the run-up to the financial meltdown. And the amounts still justify anger at the current crusade by the big banks to weaken the Dodd-Frank regulatory safeguards adopted by the same government that bailed them out.

What is also worth pointing out is that the bad actor-bailout recipients are not limited to the big U.S. banks. Large totals also turn up for major European banks that have been involved in their own legal scandals in recent years. The biggest foreign recipient of Fed support turns out to be Barclays, which has an aggregate loan amount (including rollover loans and excluding repayments) of more than $900 billion. Next is Royal Bank of Scotland with more than $600 billion and Credit Suisse with more than $500 billion.

In 2012 Barclays had to pay $450 million to U.S. and European regulators to settle allegations that it manipulated the LIBOR interest rate index. The following year Royal Bank of Scotland had to pay $612 million to settle similar allegations. In 2014 Credit Suisse had to pay $2.6 billion in penalties to settle Justice Department charges that it conspired to help U.S. taxpayers dodge federal taxes. This was a rare instance in which a large company actually had to plead guilty to a criminal charge.

The frustrating truth is that the global financial system is dominated by big banks that seem to have little respect for the law and for financial regulation, but they do not hesitate to turn to government when they need to be rescued from their own excesses.

Banks Bite the Hand that Rescued Them

February 26th, 2015 by Phil Mattera

moneybags_handoutInvestment bank Morgan Stanley has disclosed that it will pay only $2.6 billion to settle U.S. Justice Department allegations that it deceived investors in the sale of toxic securities in the run-up to the financial meltdown.

I say “only” because the amount is substantially lower than the figures paid by Bank of America ($16.7 billion), JPMorgan Chase ($13 billion) and Citigroup ($7 billion) in similar cases. Thanks to the efforts of groups such as U.S. PIRG, we know that these amounts are less onerous than they appear because the companies are often allowed to deduct the payouts from their corporate income tax obligations.

My colleagues and I at Good Jobs First have been assembling data that does more to put the payouts in perspective. As part of an expansion of our Subsidy Tracker database to the federal level, we obtained information on the massive bailout programs implemented by the Federal Reserve in 2008 to stabilize the teetering financial system by purchasing toxic assets on the books of financial institutions and by serving as a lender of last resort.

These programs, with esoteric names such as the Term Auction Facility, the Term Asset-Backed Securities Loan Facility and the Term Securities Lending Facility, are not as well known as the Treasury Department’s Troubled Asset Relief Program, but the amounts involved are eye-popping. A 2011 paper by James Fulkerson of the University of Missouri-Kansas City estimates that the Fed made bailout commitments worth a total of more than $29 trillion. Yes, that’s trillion with a t.

We’ve been going through the recipient lists the Fed (reluctantly) made public for 11 bailout programs to match the entities to their parent companies. We’re not quite done with that process, but it appears that the totals for a few large banks, including Bank of America, Citigroup and JPMorgan Chase as well as Morgan Stanley, will end up being in excess of $1 trillion each (excluding repayment amounts). Our final figures will be released March 17, both in what we are calling Subsidy Tracker 3.0 and in an accompanying report.

It’s already clear that the settlement amounts paid by the banks (especially in after-tax terms) have been easily absorbed as costs of doing business. The Fed bailout data shows that another reason the banks have been little fazed by their legal expenses is that they received government assistance worth a thousand times more during their time of grave vulnerability in 2008 and 2009 — vulnerability that was largely of their own making due to reckless securitization of subprime mortgages and consumer loans.

After Lehman Brothers collapsed in 2008, the Fed was apparently willing to spare no expense in rescuing the other big financial players. Its efforts ensured the survival of the big banks that are riding high today. Perhaps the top executives of these banks should keep this fact in mind before criticizing the modest regulations put in place to save them (and us) from their excesses.

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New in Corporate Rap Sheets: Entergy, the utility that has bet heavily on nukes and engages in creative billing.

Unions Back from the Dead

February 19th, 2015 by Phil Mattera

refinerystrikersRight-wing governors in states such as Illinois and Wisconsin, corporate front men such as Rick Berman, and an unholy alliance of the American Legislative Exchange Council and the Heritage Foundation are among those seeking to nail shut the coffin of what they see as a dying labor movement. Yet recent events allow unions to channel Mark Twain and declare that the reports of their death have been greatly exaggerated.

As the Bureau of Labor Statistics announced that strikes last year sank to their second lowest level since 1947, workers at oil refineries around the country have been walking picket lines. A simmering labor dispute between shippers and members of the International Longshore and Warehouse Union may result in a work stoppage at West Coast ports.

Discussions of wage stagnation, which all too often are devoid of references to declining union membership rates, are starting to acknowledge the importance of collective bargaining. Mainstream columnist Nicholas Kristof of the New York Times just published a piece headlined “The Cost Of a Decline In Unions” in which he cites research estimating that deunionization (which has brought membership levels below 7 percent in the private sector) may account for one-third of the rise of income inequality among men.

This comes after Kristof recites some of the obligatory criticisms (“corruption, nepotism and rigid work rules”), but he has seen the light in stating that “in recent years, the worst abuses by far haven’t been in the union shop but in the corporate suite.” He hedges a little bit at the end by saying “at least in the private sector, we should strengthen unions, not try to eviscerate them” but the column is remarkable nonetheless.

Also remarkable is the announcement by Wal-Mart Stores that it will raise the wages of all its U.S workers to at least $9 an hour. Wal-Mart, the country’s largest private sector employer, remains entirely non-union, but the move is an indication of the impact that labor groups such as Making Change at Walmart and OUR Walmart have had on the giant retailer. Their work is far from done; $9 an hour is still too low and there are many other reforms the company needs to make. But the fact that Wal-Mart, which has a notoriously intransigent history, has budged is a significant achievement.

The non-traditional organizing at Wal-Mart is just one example of alternative approaches to building worker power. Others include the minority union model being tested by the United Auto Workers at the Volkswagen plant in Tennessee and the worker center model employed by groups such as ROC United.

Yet traditional collective bargaining still has a role to play, and not only in raising pay levels. The oil refinery walkout, for example, is not about wages (which are good, thanks to Steelworker contracts), but instead involve issues such as workplace safety. In an industry with companies such as BP, with its abysmal refinery safety record, that is no small matter. In fact, it can be a matter of life and death.

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New in Corporate Rap Sheets: Dollar General, the king (for now) of deep discounters is facing pressure over the safety of its cheap merchandise.