Protesting the Wrong AIG Giveaway

Far be it from me to discourage the current populist outburst over the $165 million in employee bonuses paid out by American International Group, but I can’t avoid the feeling that this is drawing attention away from a much larger outrage.

The bonus controversy erupted just as AIG was forced to reveal the identities of the parties that were the biggest beneficiaries of the federal government’s massive bailout of the insurance company last fall. Billions of federal dollars flowed through AIG to make good on complex financial transactions with major banks. The institutions included ones that also received bailouts or capital infusions, including Goldman Sachs ($12.9 billion from AIG), Bank of America ($5.2 billion) and Citigroup ($2.3 billion). It also included foreign banks such as Société Générale ($11.9 billion), Deutsche Bank ($11.8 billion), Barclays ($8.5 billion), UBS ($5 billion) and BNP Paribas ($4.9 billion).

U.S. taxpayers were in effect preventing losses at firms that were also getting direct public financial assistance. The likes of Goldman Sachs, Bank of America and Citi were in effect double or triple dipping at the federal trough. By keeping the identity of the parties secret until now, AIG saw to it that these deals did not get considered when the bank bailouts were being debated. It also kept U.S. taxpayers in the dark on the extent to which the AIG rescue was actually a bailout of foreign banks.

More evidence of the coddling of financial institutions by AIG and the federal government came in a document quietly filed by AIG with the Securities and Exchange Commission on Monday. In it the insurance company gives details on the terms by which it resolved its credit-default swaps with major banks with the help of a financing entity called Maiden Lane III LLC, which was set up last fall by AIG and the Federal Reserve Bank of New York (then run by the current Treasury Secretary Timothy Geithner).

For example, the document shows how AIG and Maiden Lane helped Goldman Sachs recoup the full nominal value of nearly $14 billion on contracts whose market value had sunk to $8 billion. Merrill Lynch (now part of Bank of America) was made whole on $6 billion in contracts whose market value was only half that amount. A variety of foreign banks also enjoyed big recoupments.

Given the spectacular failure of AIG, the company’s bonus plan certainly deserves all the fulmination being directed at it by politicians of all stripes. But the few hundred million involved is inconsequential compared to the tens of billions in taxpayer money that went to AIG customers in sweatheart deals enabled by the Federal Reserve. Some of the effort now being exerted to recoup the bonuses should be put to work trying to claw back the much bigger misappropriation by the banking giants.

Who Will Determine the Future of Capitalism?

Amid the worst financial and economic crisis in decades, the U.S. business press tends to get caught up in the daily fluctuations of the stock market and, to a lesser extent, the monthly changes in the unemployment rate. By contrast, London’s Financial Times is looking at the big picture. It recently launched a series of articles under the rubric of The Future of Capitalism. In addition to soliciting varying views on this monumental question, the paper published a feature this week presuming to name the 50 people around the world who will “frame the way forward.”

Kicking off the series, the FT’s Martin Wolf was blunt in asserting that the ideology of unfettered markets promoted over the past three decades must now be judged a failure. Sounding like a traditional Marxist, Wolf writes that “the era of liberalisation [the European term for market fundamentalism] contained seeds of its own downfall” in the form of tendencies such as “frenetic financial innovation” and “bubbles in asset prices.”

An article in the series by Gillian Tett casually notes that “naked greed, lax regulation, excessively loose monetary policy, fraudulent borrowing and managerial failure all played a role” in bringing about the crisis. Richard Layard of the London School of Economics weighs in with a piece arguing that “we should stop the worship of money and create a more humane society where the quality of human experience is the criterion.” Did editorial copy intended for New Left Review mistakenly end up in the FT computers?

Wolf finished his initial article with the statement: “Where we end up, after this financial tornado, is for us to seek to determine.” Yet who is the “we” Wolf is referring to?

Following the damning critique of markets and poor government oversight, the last ones we should turn to for leadership are the powers that be. Yet that is exactly the group that dominates the list of those who, according to the editors of FT, will lead the way forward. The 50 movers and shakers include 14 politicians, starting with President Obama and Chinese Prime Minister Wen Jiabao; ten central bankers; three financial regulators; and four heads of multinational institutions such as the IMF and the WTO. Also included are six economists, including Paul Krugman and Obama advisor Paul Volcker, and three prominent investors, among them George Soros and Warren Buffett.

The list also finds room for three chief executives (the heads of Nissan, PepsiCo and Google) and, amazingly, the chiefs of four major banks: Goldman Sachs, JPMorgan Chase, HSBC and BNP Paribas. It even includes two talking heads: Arianna Huffington and Rush Limbaugh.

Except for Olivier Besancenot of France’s New Anticapitalist Party, who is included among the politicians in a way that seems a bit condescending, there is not a single person on the list directly involved in a movement to challenge corporate power or even to significantly alter the relationship between business and the rest of society. There is not a single labor leader, prominent environmental advocate or other leading activist. The editors at FT seem never to have heard of civil society.

Then again, the problem may not be thickheadedness among FT editors. Perhaps the voices for radical change have simply not been loud enough to earn a place on a list of those who will play a significant role in the shaping capitalism’s future. In fact, one of the articles in the FT series suggests that in Europe neither the Left nor the labor movement has taken a leadership role in responding to the crisis, even as spontaneous protests have erupted in numerous countries.

In the United States, where those forces are weaker, anger at the crisis has to a great extent been channeled into support for the Keynesian policies of the Obama Administration. That’s unavoidable in the short term, but it doesn’t address the need for fundamental alteration of economic institutions. If, as the Financial Times suggests, the future of capitalism is up for grabs, let’s make sure we all join the fray.

Workplace Tyrants Talk “Democracy” to Undermine Worker Free Choice

The halls of Congress are buzzing with talk of “workplace democracy.” This isn’t about syndicalism or co-determination. The slogan is being brazenly exploited by front groups for corporate interests fighting against a piece of federal legislation, the Employee Free Choice Act (EFCA), that would make it easier for U.S. workers to form unions free of management intimidation.

Major companies and their trade associations are sparing no expense in fighting EFCA, which was just introduced in the Senate by Tom Harkin of Iowa and in the House by George Miller of California . We thus have an abundance of bogus grassroots campaigns operating under names such as the Coalition for a Democratic Workplace, the Employee Freedom Action Committee, the Workplace Fairness Institute and the Alliance for Worker Freedom.

They all foster the delusion that U.S. workplaces are currently a realm of full self-determination in which employees can robustly exercise their Constitutional rights. This Eden of autonomy is said to be threatened by EFCA, which, according to the Coalition for a Democratic Workplace, “is fundamentally incompatible with protecting the interests of individual liberty and the principles of a sound democracy.”

It is mind-boggling that these groups can get away with mouthing such slogans in furtherance of a movement whose leading proponents include Wal-Mart Stores, a company whose name is synonymous with labor abuses ranging from short-changing workers on overtime pay to mercilessly squashing any union organizing efforts. “We believe every associate or employee should have the right to make a private and informed decision regarding union representation,” a Wal-Mart spokeswoman told the Wall Street Journal recently. And when that decision results in a vote favoring the union, the company promptly shuts down the offending workplace.

Given its reputation, Wal-Mart has nothing to lose in openly opposing EFCA. Most other large non-union companies have been more circumspect, letting the front groups and trade associations do the dirty work. Yet their fear and loathing of EFCA sometimes make it on the record. For example, Wal-Mart’s cooler competitor Target Corp., which is just as “union free,” is also riding the anti-EFCA bandwagon, according to a Minneapolis Star Tribune article that appeared in January. That same article cited two other Twin Cities-based firms, Best Buy and Hubbard Broadcasting, as EFCA opponents.

The latter company’s chief executive, Stanley S. Hubbard, is a long-time foe of unions who has kept collective bargaining out of nearly all his stations. Just this week, union members in the Twin Cities picketed (photo) the company’s flagship station KSTP to protest Hubbard’s effort to extract radical concessions—including the right to withdraw negotiated pay increases at any time—from NABET-CWA Local 21 at WNYT in Albany, New York. The workers at the station have been without a contract since last September.

Stanley Hubbard also has a history of mistreating his non-union employees. A May 1997 profile of him in the publication Corporate Report Minnesota (available via Nexis) stated: “Junior reporters and cameramen regularly told friends that they would have to leave KSTP just before their fifth anniversary because the Hubbards didn’t want them vested in the company pension plan.” The author of the article quotes Hubbard as mocking reporters who challenged his autocratic style: “Newspeople think, Oh, no one should tell me what to do.”

Such is the workplace “democracy” that corporate opponents of EFCA want to preserve.

Pump and Slump: Will Citi Sleep with the Fishes?

A couple of years ago, the mighty Citigroup traded at around $50 a share. Today, March 5, the price hovered around $1 and for a while was below a buck. In other words, one of the largest financial institutions in the world is in effect a penny stock. At one time, a descent to that level would have been enough to get a company delisted from the New York Stock Exchange, but standards have been relaxed.

Penny stocks have traditionally been associated with unscrupulous brokerage practices, such as the “pump and dump” scheme graphically illustrated during some episodes of The Sopranos (photo). A look back at the record of Citi during the past decade does not suggest a moral compass much different from the wise guys of Northern New Jersey. As U.S. PIRG Education Fund notes in its recent report Failed Bailout, Citi helped crooked companies such as Enron carry out deceptive transactions and itself set up scores of entities in offshore tax havens such as the Cayman Islands in order to avoid both taxes and oversight.

Citi’s actions had an impact beyond its own unjust enrichment. As Multinational Monitor editor Rob Weissman and his colleagues show in their new report Sold Out, Citigroup played a key role—thanks to $19 million in campaign contributions and $88 million in lobbying expenditures—in bringing about the demise of the Glass-Steagall Act and other deregulatory moves that paved the way for the current meltdown of the financial system.

Yet Citi’s management is, to a great extent, no longer in control of the company’s fate. Today it is the federal government that is in effect trying to pump up the bank and its stock. The Obama Administration, regrettably, is perpetuating the idea that Citi is too big to fail and thus requires a seemingly unlimited commitment of public resources.

Unfortunately for U.S. taxpayers, the pumping will not be followed by a timely dumping of the federal holdings in Citi at a fat profit. In fact, the federal capital infusions, loss-sharing agreements and loan guarantees are not stabilizing the company and pushing up its stock price. The more the feds put into the bank, the less the market seems to think it is worth. This downward move is attributed in significant part to short-selling of Citi’s common stock by hedge funds. At one time, those funds were apparently in cahoots with Citi. Last fall the Senate Permanent Subcommittee on Investigations charged that Citi was one of the banks that had helped offshore hedge funds engage in tax avoidance. I guess there really is no honor among thieves.

The U.S. government is now in the ridiculous position of having made commitments potentially costing hundreds of billions of dollars to a bank that the stock market, as of today, thinks is worth a total of only about $5 billion. As long as the Administration avoids the seemingly inevitable need to nationalize and reorganize Citi and the other large zombie banks, its strategy amounts to little more than “pump and slump.” Despite the efforts of the feds, the bank whose motto is “the Citi never sleeps” may soon be sleeping with the fishes.

Blurring the Bailouts

This is the time of year when most U.S. public companies file their 10-K annual reports with the Securities and Exchange Commission, which in turn makes them available to the public through its IDEA web page (formerly EDGAR). These reports include sections in which management discusses the firm’s performance over the past year and tries to put the best face on the financial results.

Many companies are, of course, reporting disappointing results this time around, but perhaps the most awkward filings are the ones being made by companies that had to get bailed out by the federal government to get through the year. Let’s take a look at how they are talking about being wards of the state.

We don’t yet know how General Motors is dealing with this challenge, since it notified the SEC that its 10-K will be late. So let’s focus on two of the other biggest supplicants: Citigroup and AIG. The first lesson, apparently, is not to use the term “bailout” when talking about being bailed out. The term appears nowhere in either firm’s 10-K.

Citi instead employs the bland statement that “the Company benefited from substantial U.S. government financial involvement.” Substantial, indeed. Citi matter-of-factly describes the capital infusions, loss-sharing agreements and loan guarantees through which the feds have made a commitment potentially costing several hundred billion dollars to keep the giant bank holding company afloat. With all the references to UST and USG, a casual reader might think Citi was referring to conventional investors rather than the U.S. Treasury and the U.S. Government.

AIG adopts a more narrative approach, writing that: “By early Tuesday afternoon on September 16, 2008, it was clear that AIG had no viable private sector solution to its liquidity issues. At this point, AIG received the terms of a secured lending agreement that the NY Fed was prepared to provide.” This does not quite capture the gravity of events that the New York Times, for example, reported on in a front-page story headlined: FED IN AN $85 BILLION RESCUE OF AN INSURER NEAR FAILURE; U.S. GETS CONTROL; POLICY REVERSAL ARISES FROM GROWING FEAR OF GLOBAL CRISIS.

Aside from downplaying the gravity of their bailouts, the Citi and AIG 10-Ks are less than lucid on what led up to their troubles. In describing conditions in 2008 that led to a $27 billion net loss, Citi takes no responsibility. The causes, instead, are said to have been “continued losses related to the disruption in the fixed income markets, higher consumer credit costs, and a deepening of the global economic slowdown.” Contrast this to its 10-K of two years ago, which stated: “We enter 2007 with good business momentum, as we expect to see our investment initiatives generate increasing revenues, and are well-positioned to gain from our balanced approach to growth and competitive advantages.” In other words, when things are going well, management strategy gets the credit; when the red ink begins to gush, impersonal market forces are to blame.

AIG, which reported an astounding $99 billion net loss for the year, also paints itself as a victim of conditions outside its control, saying “the 2008 business environment was one of the most difficult in recent decades.” The difference with Citi is that AIG’s management is blunter about the continuing dismal prospects for the company. The notes to its financial statements include a section entitled “Going Concern Considerations” that raises the possibility that the company may need yet more government assistance and that, even then, its survival is far from a sure thing.

Perhaps the most telling parts of the reports are the sections in which the companies have to disclose significant legal proceedings in which they are involved. It takes more than 7,000 words for AIG to summarize all of its legal problems, including about a dozen securities fraud class action cases. Citi engages in a similar recitation.

While the two companies are still in a state of denial about their responsibility both for their own circumstances and for the larger financial crisis (as illustrated in the image above from Citi’s website), the existence of these legal proceedings may see to it that they are eventually held accountable for their financial misdeeds.

The Corporate Crime Fighting Budget

The call to boost taxes on the wealthy to start paying for healthcare reform is not the only refreshing thing about the budget outline just released by the Obama Administration. There is also a marked shift toward tighter regulation of business. Here are some features of what might be called the Corporate Crime Fighting Budget:

Cracking down on corporate polluters. The Environmental Protection Agency—a joke during the Bush Administration—is slated for a 34 percent increase in funding. This would result in a hike in the budget for core functions such as enforcement to $3.9 billion, an all-time high for the agency.

Cracking down on abusive employers. Obama wants the Department of Labor—another agency enervated by the Bush crowd—to get a smaller increase than EPA, but the additional funds are intended to rebuild DOL’s responsibilities in workplace monitoring. The budget document proposes to “increase funding for the Occupational Safety and Health Administration, enabling it to vigorously enforce workplace safety laws and whistleblower protections, and ensure the safety and health of American workers; increase enforcement resources for the Wage and Hour Division to ensure that workers are paid the wages that are due them; and boost funding for the Office of Federal Contract Compliance Programs, which is charged with pursuing equal employment opportunity and a fair and diverse Federal contract workforce.”

Prosecuting white-collar crooks. The section on the Justice Department in the budget document says that the Administration will seek [not yet quantified] “resources for additional FBI agents to investigate mortgage fraud and white collar crime and for additional Federal prosecutors, civil litigators and bankruptcy attorneys to protect investors, the market, the Federal Government’s investment of resources in the financial crisis, and the American public.”

Thwarting purveyors of tainted food. The Administration plans to “take steps to improve the safety of the Nation’s supply of meat, poultry and processed egg products and to ensure that these products are wholesome, and accurately labeled and packaged.” The proposed budget for the Agriculture Department “provides additional resources to improve food safety inspection and assessment and the ability to determine food safety risks. This will lead to a reduction in foodborne illness and improve public health and safety.” The Food and Drug Administration, which is under the auspices of the Department of Health and Human Services, would also get a hike in funding.

Restricting plunderers of national resources. The section of the budget document on the Interior Department outlines the Administration’s intention to rein in the windfalls long enjoyed by extraction companies with leases to drill and mine on public lands. The plan includes “a new excise tax on offshore oil and gas production in the Gulf of Mexico to close loopholes that have given oil companies excessive royalty relief” as well as the imposition of user fees and more realistic royalties for oil and gas drilling on federal lands.

Controlling drug and healthcare price gouging. The general framework for healthcare reform released by the Administration as part of the budget document contains plans to slow down the growth in Medicare costs. This includes a proposal to force providers of privatized coverage under the name of Medicare Advantage to participate in competitive bidding. Medicare drug costs would be reined in by tightening oversight of Part D spending and by preventing brand-name pharmaceutical companies from paying generic drug producers to keep their low-cost products off the market.

To these should be added tax proposals that would put an end to various boondoggles that have enriched oil companies, hedge funds and other anti-social elements. Some of Obama’s proposals (especially regarding healthcare) do not go nearly far enough, but the budget as a whole represents a major break from the priorities of the Bush Administration. Though you would hardly know that from the geeky, matter-of-fact way it is being promoted by Budget Dirtector Peter Orszag (photo).

Budget documents are, of course, merely wish lists conveyed by the executive to the legislative branch. In the short term, the main impact of Obama’s blueprint will be to launch a massive wave of business lobbying. Now it is up to Congress to resist the entreaties of those paid persuaders and make it clear that the days of unchecked corporate giveaways have come to an end.

Nationalization Would Be Good for Our Health

Nationalization—a term alien to most Americans taught to believe in the ideology of a free market—is now at the center of a public discussion on how to address the ongoing crisis of the country’s major financial institutions. For most observers, nationalization is viewed as an unfortunate and temporary step that would be taken to restore troubled banks to health and then turn them loose on the market again.

Yet perhaps we shouldn’t be thinking in such narrow terms. If the taboo against government ownership is disappearing, now might be the time to consider applying that solution to another industry that causes Americans a great deal of grief: for-profit health insurance.

Long before the banking system became a national embarrassment, health insurance companies—especially health maintenance organizations—were a leading symbol of market forces running amok. A wave of consolidation put the industry under the control of a handful of huge for-profit corporations whose business plans are based on the denial of as much care as possible. Despite being hit with a variety of class action lawsuits filed on behalf of patients and healthcare providers, their practices remain largely unchanged.

Calls for healthcare reform have grown, yet mainstream analysts insist that private insurers have to remain a central part of any new system. Although it is the norm in most other developed countries, the conventional wisdom is that government-managed coverage—the single-payer approach long advocated by groups such as Physicians for a National Health Program—is unthinkable here.

That’s not because single-payer isn’t feasible. On the contrary, it’s the for-profit system that leaves a lot to be desired in the efficiency department. Consider this: According to their latest financial statements, the five largest private U.S. health insurers—UnitedHealth, WellPoint, Aetna, Humana and Cigna—together spent more than $36 billion on marketing, administration and other non-medical costs last year. This represented 19 percent of their total costs, which doesn’t include the administrative costs they impose on doctors, hospitals and other healthcare providers. By contrast, in Canada’s government-run single-payer insurance system, administration accounts for only 3.4 percent of total costs.

If the five big U.S. private insurers were that efficient, they would be spending only about $7 billion a year on non-medical costs. In other words, they are wasting nearly $30 billion a year on functions that do little to promote the physical well being of their subscribers. In fact, a large portion of the waste represents their efforts to reduce care and thereby raise profits, which for the five totaled more than $8 billion last year despite a difficult economic environment.

A great deal of the waste among private insurers reflects the huge workforce—totaling more than 200,000 at the top five firms—they employ to operate their immense bureaucratic machine. Imagine how much better our system would be if most of those 200,000 people were retrained to be healthcare providers rather than deniers, and the billions in wasteful spending went toward lowering premiums and improving care.  Some researchers have estimated that the replacement of the multiplicity of private and public payers into a single national system would eliminate $350 billion a year in wasteful expenditures.

In his speech to Congress this week, President Obama was emphatic about moving on healthcare reform soon, but he was vague about details.  Vast sums are being spent to at least partially nationalize banks. Why not use some of those funds to take over the health insurers that create their own form of financial distress?

It is an auspicious time to take the plunge. Thanks to the slumping stock market, the stock prices of the big insurers are cheap. The total market capitalization of the big five is currently only about $74 billion. For far less than what has been spent giving dubious capital infusions to banks, the federal government could buy out all the shareholders of the large insurers and move their subscribers into a federally operated system—perhaps an extension of Medicare—that could use cost savings to remove restrictions on coverage and enroll the uninsured.

I know there are a lot of complications, but this may be a rare opportunity to cast away old assumptions about what is possible and seek radical rather than patchwork reform. Nationalization of shaky banks may prove to be a futile effort; the federal takeover of private medical insurance would pave the way to a more humane and effective healthcare system.

Not Quite Beyond Petroleum

For the past eight years, the oil giant formerly known as British Petroleum has tried to convince the world that its initials stand for “Beyond Petroleum.” An announcement just issued by the U.S. Environmental Protection Agency may suggest that the real meaning of BP is Brazen Polluter.

The EPA revealed that BP Products North America will pay nearly $180 million to settle charges that it has failed to comply with a 2001 consent decree under which it was supposed to implement strict controls on benzene and benzene-tainted waste generated by the company’s vast oil refining complex in Texas City, Texas, located south of Houston.  Since the 1920s, benzene has been known to cause cancer.

Among BP’s self-proclaimed corporate values is to be “environmentally responsible with the aspiration of ‘no damage to the environment’” and to ensure that “no one is subject to unnecessary risk while working for the group.” Somehow, that message did not seem to make its way to BP’s operation in Texas City, which has a dismal performance record.

The benzene problem in Texas City was supposed to be addressed as part of the $650 million agreement BP reached in January 2001 with the EPA and the Justice Department covering eight refineries around the country. Yet environmental officials in Texas later found that benzene emissions at the plant remained high. BP refused to accept that finding and tried to stonewall the state, which later imposed a fine of $225,000.

In March 2005 a huge explosion (photo) at the refinery killed 15 workers and injured more than 170. The blast blew a hole in a benzene storage tank, contaminating the air so seriously that safety investigators could not enter the site for a week after the incident.

BP was later cited for egregious safety violations and paid a record fine of $21.4 million. Subsequently, a blue-ribbon panel chaired by former secretary of state James Baker III found that BP had failed to spend enough money on safety and failed to take other steps that could have prevented the disaster in Texas City. Still later, the company paid a $50 million fine as part of a plea agreement on related criminal charges.

In an apparent effort to repair its image, BP has tried to associate itself with positive environmental initiatives. The company was, for instance, one of the primary sponsors of the big Good Jobs/Green Jobs conference held in Washington earlier this month. Yet as long as BP operates dirty facilities such as the Texas City refinery, the company’s sunburst logo, its purported earth-friendly values and its claim of going beyond petroleum will be nothing more than blatant greenwashing.

Another Crooked Philanthropist?

A recent article in the Wall Street Journal discussed the ways a person can enhance his or her profile on Google by creating positive material that will displace unflattering references from the top of the search results. R. Allen Stanford, who has just been accused by the U.S. Securities and Exchange Commission of engaging in a “massive, ongoing fraud,” seems to have done something similar in the management of his public image.

Until word got out recently that federal authorities were combing through records at the Houston offices of his Stanford Financial Group operation, Stanford (center in photo) had successfully cultivated his image as a flamboyant Caribbean-based financier, a leading promoter in the world of cricket and an active philanthropist. He began referring to himself as Sir Allen after being knighted by the government of Antigua.

While investors were most interested in the spectacular yields his firm provided on so-called certificates of deposit (which were actually more exotic investments), Stanford seemed to work hardest in his efforts on behalf of St. Jude Children’s Research Hospital in Memphis and his Stanford 20/20 cricket tournaments. He brought his interests in philanthropy and sports together in 2007, when Stanford Financial took over the primary sponsorship of a PGA golf tournament benefitting the children’s cancer hospital. In 2007 the event became known as the Stanford St. Jude Championship.

Until this month, Stanford’s public record in news databases such as Nexis was dominated by articles concerning his charitable and sporting side activities. A little digging, however, unearthed what Stanford may have been trying to suppress: a series of unflattering articles in the late 1990s and early 2000s about his efforts to block legislation in Congress to crack down on offshore money laundering, especially in the Caribbean, where Stanford’s offshore bank, Stanford International Bank, is based.

In June 1999 Shelley Emling of Cox News Service wrote a story suggesting that Stanford was involved in weakening money laundering regulations in Antigua, where he had taken up residence. An article by David Ivanovich published on July 16, 2000 in the Houston Chronicle provided more details on Stanford’s role in strengthening Antigua’s bank secrecy practices, which were a source of frustration for U.S. officials trying to prevent money laundering.

In 2002 Stanford was in the news again after Public Citizen published a report listing Stanford Financial Group as a major provider of soft money contributions to promote the campaign against new U.S. money laundering proposed during the Clinton Administration. The report found that major recipients of the contributions included 527 groups affiliated with Senator Thomas Daschle and Democratic Caucus Chairman Martin Frost.

The Center for Responsive Politics points out that Stanford continued to invest in the political process even after the money laundering controversy died down. The group calculates that Stanford Financial’s PAC and the firm’s employees have given $2.4 million to federal candidates since 1989, and the firm has spent $4.8 million on federal lobbying efforts during the past decades.

It is difficult to know if these contributions helped Stanford thwart earlier investigations of his money management practices. One also wonders how many other possible business crooks are out there deflecting attention from their misdeeds by wrapping themselves in heartwarming activities such as fundraising on behalf of pediatric cancer victims. It is unfortunate that worthy endeavors such as St. Jude have to depend on wealthy supporters who may have much less noble ulterior motives.

The Banality of Corporate Evil

Our culture worships spunky small businesses and entrepreneurship.  Stewart Parnell epitomized that ideal and was living the good life in Lynchburg, Virginia until last month, when his Peanut Corporation of America (PCA) was linked to one of the biggest salmonella outbreaks—at least eight deaths and more than 500 illnesses—ever to occur in the United States.

According to federal officials, PCA knowingly shipped contaminated peanuts as well as peanut butter and paste on numerous occasions, including 32 truckloads meant for the school lunch program. PCA also provided tainted raw materials for many large food processors, which have issued a cascade of product recalls. PCA is now the subject of a criminal investigation, and this week Parnell (photo) was compelled to appear at a Congressional hearing, where he grim-facedly invoked the Fifth Amendment and declined to answer questions.

He had reason to look grim. The House Energy and Commerce Committee released several e-mail messages sent by Parnell, including one in which he told his plant manager to make shipments (his exact words were “let’s turn them loose”) despite some test results showing evidence of salmonella. In another he complained that those problematic results were “costing us huge $$$$$.”

This was also a week when the chief executives of the country’s largest financial institutions were called before Congress and pelted with questions about bonuses paid out amid the massive federal bailout of the industry. But these days everyone expects executives of large corporations to be reprobates.

The Parnell situation is more chilling. He is the head of a privately held company with annual revenues of only about $25 million, which makes it a small business by contemporary standards. PCA had almost no public profile until last month, and Parnell’s only previous time in the national spotlight (though a much dimmer one) was in 2005, when Bush Administration Agriculture Secretary Mike Johanns appointed him to the Peanut Standards Board. (Parnell was just ousted from the panel by the USDA, which also announced that it is seeking to debar PCA from doing business with the federal government.)

According to the Atlanta Journal-Constitution, PCA was built by Parnell’s father, Hugh Parnell, as an outgrowth of his ice cream sandwich business. The company later got caught up in the takeover wave that swept through the small world of peanut processing. The Journal-Constitution reports that PCA was sold in 1995 to Morven Partners, the vehicle set up by billionaire investor John Kluge to take over various nut companies such as Jimbo’s Jumbos.

Jimbo’s, by the way, was mentioned in one of the e-mails released this week by the House. In it Parnell said: “We need to find out somehow what our competition (JIMBOS) is doing [about salmonella] and at the very least mimic their policy.”

Stewart Parnell and his brother Hugh Brian Parnell, the Journal-Constitution goes on to report, became management consultants for Morven until the late 1990s, when Stewart repurchased PCA.

Hugh Brian Parnell told reporters that work and family occupy his brother Stewart’s time. “He doesn’t drink, smoke or socialize,” Huge was quoted as saying. “He’s a family man. You never see him without a grandchild around.” The Associated Press quotes a neighbor of Stewart’s as saying: “He’s always been an upstanding, generous person and a pillar of the community.” Parnell and PCA didn’t have a much of a presence in the business community in Lynchburg, where the company has its modest headquarters. “This episode is the first time I’ve heard of them,” the president of the city’s chamber of commerce was quoted as saying.

Even less is known about Parnell’s associate David Royster III, who reportedly financed the acquisitions that allowed PCA to reach its current size. Royster is one of the younger members of a family that operates a variety of apparently respectable businesses in Shelby, North Carolina.

The apparent fact that supposed pillars of the community can engage in outrageously reckless business practices shows that there is sometimes a fine line between the aggressive pursuit of profit and behavior that can legitimately be called evil. Those who would venerate entrepreneurship should keep in mind that it can also have a dark side.