November 2014 Archives

Corporate America’s Government Bonanza

moneybagsontherun We’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)

get_out_of_jail_free There 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

source-mitch-mcconnell-plans-to-vote-against-the-budget-deal American 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.