Debunking Anti-Regulatory Rhetoric

January 15th, 2015 by Phil Mattera

dimonBelief in the infallibility of papal pronouncements is not as great as it used to be, but conservatives have lost none of their reverence for the statements of corporate executives. Nowhere is this clearer than in the new Congress, where Republicans seem preoccupied with addressing calls for regulatory “reform” from business leaders.

The vote in the House to begin gutting Dodd-Frank is the case in point. Conservatives appear to have taken to heart the dubious complaints by banks that they are being crippled by what are actually far from draconian restrictions.

JPMorgan Chase CEO Jamie Dimon is keeping up the drumbeat, telling reporters the other day that “banks are under assault.” Would that it were so. Dimon cited as “evidence” the fact that his institution needs to deal with multiple regulatory agencies: “You should all ask the question about how American that is, how fair that is.”

First of all, the fragmentation of bank regulation in the United States is an old issue that has nothing to do with the severity of the oversight. Several agencies treating banks with kid gloves do not amount to something more onerous than having one do so.

What makes Dimon’s laments all the more absurd is that they come from the head of a bank with an abominable track record. This is the bank that in 2013 had to pay $13 billion to settle federal and state allegations concerning the sale of toxic mortgage-backed securities. It is also the bank that suffered a $2 billion trading loss generated by a group of London-based traders that top management failed to rein in and that Dimon himself all but excused in a blustering appearance before a Congressional committee.

And it is the bank that a year ago paid $1.7 billion to victims of the Ponzi scheme perpetuated by Bernard Madoff to settle civil and criminal charges of failing to alert authorities about large numbers of suspicious transactions made by Madoff while it was his banker.

Criticisms of financial regulations coming from someone like Dimon should be accorded as much respect as denunciations of the racketeering laws coming from a mobster.

Another key source of overheated anti-regulation rhetoric is the U.S. Chamber of Commerce. The Washington Post’s Dana Milbank has published a funny but telling account of how top officials of the powerful trade association reacted when he asked them how their dire warnings about the threats to free enterprise posed by the Obama Administration squared with the recent good news about the economy.

Chamber President Tom Donohue and chief lobbyist Bruce Josten called Milbank “crazy” for saying that the Chamber had ever issued such warnings, with Donohue offering to buy the journalist lunch if he could produce such statements. Of course, Milbank goes on to reproduce several overwrought quotes.

It’s quite possible that the likes of Donohue and Josten are so used to speaking in exaggerated terms that they forget the meaning of their words.

Unfortunately, their acolytes in Congress, who receive those words wrapped in campaign contributions, take the messages all too seriously.

Prosecuting Corporate Culprits

January 8th, 2015 by Phil Mattera

SteinzorOn December 18th, the national page of the New York Times contained two stories on atypical events in the business world. One was headlined “Pharmacy Executives Face Murder Charges in Meningitis Deaths” and the other “Chemical Company Owners are Charged in Spill That Tainted West Virginia Water.”

By all rights, articles like these should be as common as those reporting on the prosecution of warring gang members or drug kingpins. Actually, they should be more common, since street crime is declining while corporate malfeasance seems to be on the rise.

The reasons for the reluctant prosecution of corporate crime are carefully dissected in the new book Why Not Jail? Industrial Catastrophes, Corporate Malfeasance, and Government Inaction by Rena Steinzor (photo), a law professor at the University of Maryland.

Steinzor, who is also president of the Center for Progressive Reform, starts by pointing a finger at what she calls “hollow government,” by which she means “outmoded and weak legal authority, funding shortfalls that prevent the effective implementation of regulatory requirements, and the relentless bashing of the civil service.”

What makes the decline of health, safety and environmental regulation so troubling is that for quite a while the system was, Steinzor notes, working fairly well. Both the food and drug laws of the early 20th Century and the environmental and workplace health legislation of the 1970s were helping to reduce deaths and illnesses.

Yet by the beginning of the new century, regulatory agencies were becoming timid while industry opponents and their Congressional allies grew ever more aggressive and successful. Steinzor takes the Obama Administration to task for often putting politics above regulatory rigor and for allowing the OMB’s Office of Information and Regulatory Affairs to continue its traditional practice of weakening proposed rules.

Steinzor also excoriates the Justice Department for its widespread use of deferred prosecution agreements and non-prosecution agreements, both before and during the Obama Administration. She sees these techniques as exactly the wrong approach in addressing corporate culpability in situations such as the Massey Energy mine collapse and two disasters — the Macondo well blowout and Texas City refinery explosion — linked to BP.

Rather than letting corporations buy their way out of these situations with financial settlements and promises not to sin again, Steinzor shows how it is possible to basic use legal concepts such as recklessness and willful blindness to bring criminal prosecutions against culpable managers and executives, especially when “industrial activities cause grave harm to public health, consumer or worker safety, or the environment.”

This needs to be done not only at the federal level, but also by local prosecutors, who have the powerful but largely neglected weapon of state manslaughter laws at their disposal.

Steinzor acknowledges that it will be difficult to change the attitudes of prosecutors, who all too often go for the easier approaches.

Another obstacle is the reluctance prosecutors seem to have about bringing cases they think might threaten the continued existence of a large corporation, a phobia stemming from the demise of the Arthur Andersen accounting firm in 2002 in the wake of its criminal conviction for actions relating to the Enron fraud.

It is significant that the two prosecutions cited at the start of these piece involve executives at relatively small firms. Until we also see executives at Fortune 500 companies facing the risk of time behind bars, the current corporate crime wave will continue unabated.

The 2014 Corporate Rap Sheet

December 31st, 2014 by Phil Mattera

gotojailThe bull market in corporate crime surged in 2014 as large corporations continued to pay hefty fines and settlements that seem to do little to deter misbehavior in the suites. Payouts in excess of $1 billion have become commonplace and some even reach into eleven figures, as seen in the $16.65 billion settlement Bank of America reached with the Justice Department to resolve federal and state claims relating to the practices of its Merrill Lynch and Countrywide units in the run-up to the financial meltdown.

This came in the same year in which BofA reached a $9.3 billion settlement with the Federal Housing Finance Agency concerning the sale of deficient mortgage-backed securities to Fannie Mae and Freddie Mac and in which the Consumer Financial Protection Bureau ordered the bank to pay $727 million to compensate consumers harmed by deceptive marketing of credit card add-on products.

The BofA cases helped boost the total penalties paid by U.S. and European banks during the year to nearly $65 billion, a 40 percent increase over the previous year, according to a tally by the Boston Consulting Group reported by the Wall Street Journal.

Among the other big banking cases were the following:

  • France’s BNP Paribas pleaded guilty to criminal charges and paid an $8.9 billion penalty to U.S. authorities in connection with charges that it violated financial sanctions against countries such as Sudan and Iran.
  • Citigroup paid $7 billion to settle federal charges relating to the packaging and sale of toxic mortgage-backed securities.
  • U.S. and European regulators fined five banks — JP Morgan Chase, Citigroup, HSBC, Royal Bank of Scotland and UBS — a total of more than $4 billion after accusing them of conspiring to manipulate the foreign currency market.
  • Credit Suisse pleaded guilty to one criminal count of conspiring to aid tax evasion by U.S. customers and paid a penalty of $2.6 billion.
  • JPMorgan Chase paid $1.7 billion to victims of the Ponzi scheme perpetuated by Bernard Madoff to settle civil and criminal charges that it failed to alert authorities about large numbers of suspicious transactions made by Madoff while it was his banker.

Banks were not the only large corporations that found themselves in legal trouble during the year. The auto industry faced a never-ending storm of controversy over its safety practices. Toyota was hit with a $1.2 billion criminal penalty by U.S. authorities for concealing defects from customers and regulators. The National Highway Traffic Safety Administration fined General Motors $35 million (the maximum allowable) for failing to promptly report an ignition switch defect that has been linked to numerous deaths. Hyundai and its subsidiary Kia paid $300 million to settle allegations that they misstated the greenhouse gas emissions of their vehicles.

Toxic dumping. Anadarko Petroleum paid $5.1 billion to resolve federal charges that had been brought in connection with the clean-up of thousands of toxic waste sites around the country resulting from decades of questionable practices by Kerr-McGee, now a subsidiary of Anadarko.

Pipeline safety. The California Public Utilities Commission proposed that $1.4 billion in penalties and fined be imposed on Pacific Gas & Electric in connection with allegations that the company violated federal and state pipeline safety rules before a 2010 natural gas explosion that killed eight people.

Contractor fraud. Supreme Group BV had to pay $288 million in criminal fines and a $146 million civil settlement in connection with allegations that it grossly overcharged the federal government while supplying food and bottled water to U.S. personnel in Afghanistan.

Bribery. The French industrial group Alstom consented to pay $772 million to settle U.S. government charges that it bribed officials in Indonesia and other countries to win power contracts. Earlier in the year, Alcoa paid $384 million to resolve federal charges that it used a middleman to bribe members of Bahrain’s royal family and other officials to win lucrative contracts from the Bahraini government.

Price-fixing. Japan’s Bridgestone Corporation pleaded guilty to charges that it conspired to fix prices of anti-vibration rubber auto parts and had to pay a criminal fine of $425 million.

Defrauding consumers. AT&T Mobility had to pay $105 million to settle allegations by the Federal Trade Commission and the Federal Communications Commission that it unlawfully billed customers for services without their prior knowledge or consent.

The list goes on. Whether the economy is strong or weak, many corporative executives cannot resist the temptation to break the law in the pursuit of profit.

Note: For fuller dossiers on some of the companies listed here, see my Corporate Rap Sheets.

Corporate Subsidies and Economic Inequality

December 16th, 2014 by Phil Mattera

inequality_graphicThe intensification of economic inequality, one of the defining issues of our times, has many causes, ranging from the weakening of labor unions to the decimation of inheritance taxes. In Tax Breaks and Inequality, a report my colleagues and I at Good Jobs First have just published, we argue that another factor belongs on the list: subsidies given by state and local governments to large corporations in the name of economic development.

This conclusion is based on a mash-up of data from our Subsidy Tracker with two groups of corporations: firms linked to members of the Forbes 400 list of the wealthiest Americans and a list we created of large low-road employers.

The first part of the report is in effect a rebuttal to Forbes, which in this year’s edition of the 400 plays up those individuals who supposedly built fortunes entirely on their own (rather than through inheritance). We show that many of many of the super-rich – both those Forbes calls “bootstrappers” and those labeled “silver spooners” – received help of another kind: government assistance to the corporations through which they got filthy rich.

Development subsidies – in the form of business property tax abatements, corporate income tax credits, sales tax exemptions, training grants, infrastructure improvements and the like – are supposed to promote job creation and broad-based economic growth. Yet they are often awarded to profitable, growing companies that do not need tax breaks to finance a project, meaning that the subsidies serve mainly to increase profits. When these companies are owned in whole or substantial part by wealthy individuals or families, especially the billionaires in the 400, the subsidies are serving to enlarge those private fortunes — directly in privately held firms or through stock price appreciation and dividends in publicly traded ones.

We find that more than one-third of the 258 companies currently linked to members of the Forbes list are substantial recipients of subsidies. Ninety-nine of them have received awards totaling $1 million or more. The combined value of those awards is $19.4 billion, or an average of $196 million per company.

Five of the 99 firms have been awarded more than $1 billion in subsidies, including Intel ($5.9 billion), Nike ($2 billion), Cerner ($1.7 billion), Tesla Motors ($1.3 billion) and Berkshire Hathaway ($1.2 billion).

About one-third of the individuals on the Forbes 400 are linked to one or more of the 99 highly subsidized companies, including every one of the 11 wealthiest individuals and all but two of the top 25. These include Bill Gates, whose $81 billion fortune comes mainly from his holdings in Microsoft, which has been awarded $203 million in subsidies; Warren Buffett, whose $67 billion net worth derives from Berkshire Hathaway, which has been awarded $1.2 billion in subsidies; Larry Ellison, whose $50 billion net worth comes from Oracle, which has been awarded $18 million in subsidies; the Koch Brothers, each worth $42 billion from Koch Industries, whose subsidies total $154 million; and four members of the Walton Family, each worth more than $35 billion from Wal-Mart Stores, which has been awarded more than $161 million in subsidies.

The second part of the report looks at subsidies awarded to corporations notorious for stingy pay rates and other low-road employment practices. We identify 87 such companies that have each been awarded more than $1 million in state and local subsidies, for a total of $3.3 billion. Retailers dominate the list, with 60 firms awarded more than $2.6 billion in subsidies. Twelve firms in the hospitality sector (restaurants, hotels and foodservice companies) account for more than $245 million in subsidies. The low-wage companies with the most in subsidies are: Sears ($536 million), Amazon.com ($419 million), Cabela’s ($247 million), Convergys ($202 million), Starwood Hotels & Resorts ($166 million) and Wal-Mart Stores ($161 million).

Eight companies are both linked to members of the Forbes 400 and pay low wages. Listed in order of their subsidy totals, they are: Sears, Amazon.com, Wal-Mart, Best Buy, Bass Pro, Meijer, Menard, and Allegis Group. These are all retailers except for the staffing services company Allegis.

Subsidies are not the primary source of the Forbes 400’s wealth, but they contribute to it in a way that makes things more difficult for working families. When large corporations controlled by billionaires are given lavish taxpayer subsidies, the rest of society — especially working families — gets stuck with a larger share of the cost of essential public services. And when those subsidies go to low-road employers, they are promoting the substandard jobs that keep so many people at the bottom of the income spectrum.

By enriching those at the top and helping to impoverish those at the bottom, subsidies are part of the inequality problem rather than part of the solution.

Waterboarding and Price Gouging

December 11th, 2014 by Phil Mattera

inquisitionThe shameful revelations in the Senate Intelligence Committee report on the CIA torture program are, as the New York Times editorial board put it, “a portrait of depravity.” At the same time, they constitute one of most serious federal contracting scandals of all time.

Although it sounds like an idea dreamed up by the writers of the TV series Homeland, it turns out that the creation of the “enhanced interrogation” system was left to a pair of contractors, neither of whom, as the report states, “had any experience as an interrogator, nor did either have specialized knowledge of al-Qa’ida, a background in counterterrorism, or any relevant cultural or linguistic expertise.”

The contractors had previously worked with the U.S. Air Force’s Survival, Evasion, Resistance and Escape (SERE) school, which was created to helped military personnel deal with coercive interrogation techniques to which they might be exposed if taken prisoner by a country that did not adhere to the Geneva Convention. That was before the U.S. became one of those countries.

Referred to in the report by the pseudonyms Dr. Grayson Swigert and Dr. Hammond Dunbar, the two are psychologists whose real names are reported to be James Mitchell and John “Bruce” Jessen. Their firm, Mitchell, Jessen & Associates of Spokane, Washington, is said to have been paid $81 million by the CIA for its dubious services. The agency thoughtfully provided the firm “a multi-year indemnification agreement to protect the company and its employees from legal liability arising out of the program.”

Among the brutal methods promoted by Mitchell and Jessen was waterboarding, which the report says they described as an “absolutely convincing technique.”

It may have been the case that the water used for that torture was provided by another rogue contractor. The Justice Department recently announced that Supreme Group BV would pay $288 million in criminal fines and a $146 million civil settlement in connection with allegations that it grossly overcharged the federal government while supplying food and bottled water to U.S. personnel in Afghanistan, one of the countries where the torture took place.

Supreme Group, which is based in the Netherlands but has its main operating base in Dubai, had been awarded an $8.8 billion supply contract that was extended twice before coming to an end in 2013. The fraud was uncovered thanks to a whistleblower inside the company. Despite the egregious nature of the charges and the hefty penalties, Supreme is not, according to the Wall Street Journal, being barred from seeking new federal business.

The abuses of Mitchell and Jessen deserve to be judged more harshly than those of Supreme Group, but they are both examples of the loose morals of many of the parties selling their services to the federal government. Each in its own way serves as a rebuttal to those who extol outsourcing and the superiority of the private sector.

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New in Corporate Rap Sheets: a profile of Newmont Mining and its record of environmental and human rights controversies around the world.

Getting Even Tougher on Corporate Crime

December 4th, 2014 by Phil Mattera

blankenshipWest Virginia’s coal country is not very fond of the Environmental Protection Agency these days, but another part of the federal government — the Justice Department — is viewed more sympathetically.

The reason is that Don Blankenship, the most reviled man in the state, is being prosecuted. A federal grand jury recently handed up an indictment with four criminal counts against Blankenship (photo), the former CEO of Massey Energy, for conspiring with other managers to violate safety laws on a massive scale, thereby creating the conditions that led to the 2010 Upper Big Branch disaster, in which 29 miners were killed.

It is a rarity for criminal charges to reach the CEO level, and if any chief executive deserves such special treatment, Blankenship is the one. The indictment paints a picture of a manager who was utterly contemptuous of federal safety regulations and thus of the safety and well being of his employees. He is said to have called the use of workers for safety compliance “ridiculous” and “crazy.”

What’s really crazy is that Blankenship is not facing even more serious charges. He could theoretically spend as much as 31 years in prison, but if convicted he would likely serve much less time. The indictment makes a compelling case for the conspiracy charges, but they also detail activity that could easily be construed as homicide or at least negligent homicide. In fact, back in 2010 there were calls for Blankenship to be charged with murder.

Blankenship is emblematic of a type of business misconduct that brings about serious harm or even death to workers, consumers or the general public. This kind of brazen corporate behavior originated in the 19th Century and persisted in the 20th, especially in industries such as tobacco and asbestos. A new investigation by the Center for Public Integrity documents steps by the petroleum industry beginning in the late 1940s to suppress evidence linking benzene, an ingredient in gasoline, to leukemia.

It was not long ago that business apologists were claiming that such egregious cases of corporate irresponsibility were a thing of the past. We were made to believe that Big Business had cleaned up its act and was now taking the lead in promoting ethical and sustainable practices.

That notion took a beating in 2010, which saw not only the Upper Big Branch explosion but also the Deepwater Horizon disaster in the Gulf of Mexico brought about by the negligence of BP, Transocean and Halliburton.

This year corporate wrong-doing is once again in full bloom. At the center of it has been General Motors, the company whose dangerous Corvair compact gave rise to the modern public interest movement. Fifty years later, the new, post-bankruptcy GM is again facing charges of endangering lives through foolish cost-cutting measures.

GM, however, is not alone this time. We’re seeing negligent behavior by other automakers, including the Japanese, and now a scandal is growing over the practices of airbag supplier Takata, which is alleged to have covered up evidence that its products were rupturing and spewing metal debris at drivers. Now the company is resisting calls in the U.S. for a nationwide recall.

For a long time, the discussion on business misconduct has focused on the need to bring criminal charges against top executives. That’s a worthy goal, but we need to give more attention to the nature of the charges. A CEO who has knowingly placed human lives in danger should be prosecuted as toughly as street criminals who do the same. Potential penalties along the lines of life imprisonment may be the only thing that can deter the Don Blankenships of the world.

Corporate America’s Government Bonanza

November 20th, 2014 by Phil Mattera

moneybagsontherunWe’re taught to believe that government is a system for protecting the country, ensuring justice and helping people pursue happiness. For large corporations, on the other hand, government amounts to a big investment opportunity.

One of the most detailed assessments of the return on that investment has just been produced by the Sunlight Foundation. Not surprisingly, it turns out that the interaction big business has with the public sector is very profitable. What’s amazing is Sunlight’s estimate of the magnitude of those gains.

In its report called Fixed Fortunes, Sunlight takes great pains in estimating both what 200 of the largest and most politically active firms spend on government – in the form of campaign contributions and lobbying expenditures – and what they receive in benefits. Sunlight puts those benefits in two categories: federal business and federal support.

The first includes federal contracts as well as foreign sales enabled by the Export-Import Bank and certain transactions involving commercial banks in the wake of the financial meltdown. Federal support includes grants, loans and loan guarantees as well as other forms of assistance to banks following the meltdown.

Sunlight finds that the 200 companies spent $5.8 billion on political influence during the period from 2007 to 2012 while receiving $1.3 trillion in federal business and $3.2 trillion in federal support. This shows, Sunlight says, that for every dollar spent on influencing federal policy, these corporations received $760 in benefits. And that’s just the average. Some of the big banks got vastly more. Goldman Sachs received about $229 billion in business and support combined, more than 6,000 times what it spent on influence. For Bank of America it was more than 10,000 times. These are rates of return even the most successful hedge funds couldn’t imagine.

In some ways, Sunlight’s benefit numbers are understated, since they do not include the payoff from lobbying for corporate income tax reductions. The report includes figures from Citizens for Tax Justice showing the low effective tax rates most large companies enjoy, but Sunlight does not attempt the probably impossible task of estimating the dollar value of the tax benefits individual companies have gained from their lobbying efforts. Sunlight points out other examples of unquantifiable benefits corporations receive from Uncle Sam, such as those deriving from the artificially low rates charged to petroleum companies for drilling on federal land.

Moreover, Sunlight acknowledges that its estimates apply only at the federal level, though in its summary list of the results for the 200 companies it includes links to the state and local subsidy totals my colleagues and I at Good Jobs First have assembled in our Subsidy Tracker database.

On the other hand, one could take issue with the way in which Sunlight calculates some of the categories of federal support. For loan and loan guarantee programs, for example, it apparently uses the face value of the funding, whereas the actual cost (except in cases of default) is much lower. It would have been helpful if Sunlight had listed the totals derived from each form of assistance; it is not always clear which numbers it used in the underlying spreadsheets it makes available.

Despite these quibbles, Sunlight has performed a great service in documenting the extent to which the federal government functions as a giant ATM for corporate America. We at Good Jobs First will soon be contributing to this effort by extending Subsidy Tracker to the federal level. We’ve been gathering data on many of the same programs examined by Sunlight, plus others, and we will be including entries for all companies, both large and small.

Let’s hope that as more light is shined on the ways government benefits corporations, we can shame elected officials into remembering who it is they are supposed to be serving.

Bankers Gone Wild (Again)

November 13th, 2014 by Phil Mattera

get_out_of_jail_freeThere seems to be no end to the chutzpah of the big banks. They brazenly break the law and then pay growing but still quite affordable penalties to get out of their legal jeopardy.

The latest examples have just been reported by the New York Times. The front page of the newspaper has a blood-boiling story on how the likes of JPMorgan Chase, Bank of America and Citigroup intimidate people who have gone through personal bankruptcy into paying back debts that have been discharged in court. Although the debts are not legally collectable, the banks keep the obligations alive on credit reports, meaning that borrowers are faced with a choice between paying and having their credit rating ruined. Such a tactic makes loan sharks look good by comparison.

According to the Times, the practice is being investigated by the Justice Department. Before long we will read of a settlement, and the banks will move on to a new way of cheating their customers.

JPMorgan and Citi are also involved in a settlement just announced by U.S. and European regulators involving another sleazy banking practice: the manipulation of foreign currency markets. The U.S. Commodity Futures Trading Commission ordered five banks to pay more than $1.4 billion in penalties, including $310 million each from JPMorgan and Citi. Britain’s Financial Conduct Authority fined the five banks (which also include HSBC, Royal Bank of Scotland and UBS) another $1.7 billion, including around $350 million each for JPMorgan and Citi. Swiss regulators hit UBS with an additional $138 million penalty.

In foreign exchange markets, the daily setting of rates is known as the fix. Evidence released by regulators made it abundantly clear that traders at the five banks saw to it that the fix was fixed (i.e. manipulated) by colluding rather than competing.

These settlements involved civil charges. The Justice Department is reportedly investigating criminal misconduct by the banks. That’s good news, but there is a strong possibility that these probes will result in something disappointing.

The Justice Department has a long track record of allowing large corporations to evade serious criminal charges by offering miscreants the option to enter into deferred prosecution or non-prosecution agreements that amount to get-out-of-jail-free cards. And even when token criminal charges are enforced, as happened in the Credit Suisse tax case last May and the UBS interest-rate-manipulation case before that, the consequences are hardly devastating.

This failure of corporate prosecution is the subject of a new book called Too Big to Jail by Brandon Garrett, a professor of the University of Virginia School of Law. In an interview with the Corporate Crime Reporter, Garrett says: “There are a number of ways to punish a company. The concern is that none of those ways are being taken seriously enough.” Garrett proposes a system in which corporations plead guilty and are put on probation – hopefully a more rigorous form than the probation BP was on (because of its 2007 case involving an explosion at its Texas City refinery) at the time of the Deepwater Horizon disaster.

Garrett’s notion that having a judge (rather than just a monitor) involved in these cases is laudable, but it is not clear that would be enough to rein in corporate lawlessness.

Note: Garrett has posted a handy list of more than 300 deferred and non-prosecution agreements on his website.

 

The Nonexistent Corporate Mandate

November 6th, 2014 by Phil Mattera

source-mitch-mcconnell-plans-to-vote-against-the-budget-dealAmerican voters have spoken, and what they demanded is a repeal of the excise tax imposed on medical device manufacturers.

That, more or less, is what the incoming Senate Majority Leader Mitch McConnell said in his post-election remarks about the Republican agenda for the new Congress. Eliminating that tax, which is one of the lesser known provisions of the Affordable Care Act, is on the short list of the GOP’s legislative priorities.

I think it’s safe to say that the medical device issue, which is of great concern to companies such as Medtronic and Boston Scientific, was not uppermost in the minds of voters who pulled Republican levers on Tuesday.

It’s no surprise that the Republican members of Congress and the corporate interests that bankrolled their campaigns are engaged in another massive bait and switch. After subjecting the electorate to a torrent of ads that whipped up a frenzy of fear about Ebola and ISIS and demonized President Obama, they are now returning to the real objective: using government to serve big business.

What makes this ruse tricky to carry out is that voters provided telltale signs that they were not endorsing that self-serving agenda. The biggest clue was the overwhelming support for ballot measures on raising the minimum wage in solidly red states such as Arkansas, Nebraska and South Dakota. These measures were so popular that some business opponents gave up long before November 4, prompting the Employment Policies Institute, the mouthpiece for low-wage employers, to make the lame assertion that the votes did not mean much because its side did not really try.

Voters in Massachusetts; Oakland, California; and Trenton and Montclair in New Jersey voted in favor of requiring employers to provide paid sick days. And in Illinois, voters approved a measure favoring an amendment to the state constitution allowing an additional 3 percent tax on personal income above $1 million. That was on the same day they chose a wealthy private equity dealmaker to be their next governor.

If the GOP has any mandate, it’s certainly not one to pursue a pro-corporate agenda on employment and income distribution issues. On the contrary, there is reason to believe that much of the reason for voter rejection of Democrats was not because they are too far to the left, but rather that they are not far enough, at least on economic justice matters.

Take the issue of Obamacare, which many right-wingers foolishly believe is the greatest assault on personal liberty in the history of the republic. Ever since the legislation was being debated, the media has conflated that sort of opposition with the more appropriate criticism that the law did not go far enough in taking profit out of healthcare. Today, one does not have to be a reactionary to believe that the Affordable Care Act is seriously flawed, as evidenced in the ability of the insurance industry to go on peddling ultra-high-deductible junk plans through the exchanges.

Just as there is little room in mainstream discourse for the varieties of discontent on issues such as healthcare, the choices that people have for expressing their displeasure are limited. Many of those voting GOP were doing so simply to register dissatisfaction, not to endorse a party whose policy prescriptions are often out of cloud-cuckoo-land. If the Republicans and their corporate handlers forget this, they will be assuring that 2016 is a rerun of 2012 rather than 2010.

What’s the Point of Profits?

October 30th, 2014 by Phil Mattera

mrmoneybagsAccording to conventional economic theory, corporations earn profits in large part to finance expansion, which means both additional investment and more hiring. How old fashioned. As an article the other day in the Wall Street Journal points out, today’s executives at publicly traded firms increasingly think that the most important use of excess cash is to buy back portions of the company’s stock from investors. The Journal notes that one in four companies in the S&P 500 index have recently carried out stock buybacks.

This practice, which was once limited to troubled companies seeking to prop up a faltering stock price, is now becoming an epidemic. In an earlier article, the Journal reported that buybacks in the first half of this year totaled $338 billion, putting 2014 on track to break last year’s figure of $600 billion.

Out-of-control buybacks are symptomatic both of rampant executive greed and the growing unwillingness of large corporations to grow in a way that will bring about broad-based economic prosperity. The greed comes into play because the buybacks automatically increase corporate earnings-per-share figures, which are widely used as a basis for determining executive compensation levels.

In addition to lining their own pockets, executives who carry out buybacks are refusing to invest in growth. As the Journal put it: “While the economy has crawled back to life, many businesses remain reluctant to buy new equipment, build factories or hire workers.” For these top managers, all that matters is their personal enrichment.

It’s significant that the company listed by the Journal as one of the most aggressive users of buybacks is Ingersoll-Rand, which has employed the technique to boost its EPS figure about 90 percent over the past year. What the Journal does not mention is that Ingersoll-Rand is one the corporations that has reincorporated abroad to dodge U.S. taxes, moving on paper first to Bermuda and then to Ireland.

Like other companies going through so-called inversions, Ingersoll-Rand did not change where it did its actual business. The purportedly Irish company derives 59 percent of its revenues from the United States and has 80 percent of its long-lived assets there.

Apologists for inversions claim they help generate higher net profits that companies use for investment and job creation, yet Ingersoll-Rand shows how such a firm is instead using its ill-gotten gains to buy back stock and thus propel its top executives higher into the 1 Percent.

The edition of the Journal with the buyback article also ran a piece with the headline “As Life Span Grows, So do Worries on Pensions.” The fact that people are living longer is apparently seen as a problem for those companies that still provide defined-benefit retirement plans. New actuarial data show that the average 65-year-old will live more than two years longer (to 88.8 years for women, 86.6 years for men) than was estimated in 2000. This is expected to increase retirement plan liabilities by about 7 percent.

Experts quoted in the article expect that corporations will respond to the change primarily by accelerating their move into 401(k)s and other defined-contribution benefits which relieve the employer of long-term financial responsibilities. It does not seem to occur to business leaders that all that excess cash going into stock buybacks could instead be devoted to pension plans that now have even more need for better funding.