Just in Time for Christmas

As day after day of misery goes by in the lives of the little folks crushed by the financial crisis, one question lies in the back of their minds. Who did this to us? Who’s looking for them and when will they be punished? We have known the answer to the first question for some time. The Wall Street investment banks’ sophisticated (read Crappy) investment packages whipped up a perfect storm.

They sold this Crap (their term not ours) to people who should have known better based largely on stellar ratings from the agencies charged with vetting these investments. The ratings agencies were pushed by their customers (big banks)  and did not look – as hard as they should – at the packages.

And it turns out that the bailout bucks we knew about (TARP) were nothing when compared to the zero interest loans the Federal Reserve was handing out to keep the banks afloat, trillions in secret loans. Bloomberg Markets Magazine blew the lid off this program. It was ten times the size of TARP.  By far the biggest hunk of these bucks (63% of the daily average) went to the same gang that got us into this mess – six humongous banks.

How did these half-dozen too-big-to-fail banks position themselves to come out of any crisis they might create covered in gold? Over a couple of decades they conned Congress into repealing the laws designed to prevent things like the 2008 crash. They even got “The Fools on the Hill” (AKA the Congress) to exempt banks from State Lottery laws. Who helped this along?  Clinton’s Secretary of the Treasury, Robert Rubin, fresh from 26 years and the top job at Goldman Sachs.

When the house of cards collapsed, who came up with the plan to save the banks? Bush Secretary of the Treasury Hank Paulson, fresh from the top job at Goldman Sachs, led the charge to save his comrades.  It gets even better; in 2006 Goldman Sachs was able to foresee that the crap was really crappy and likely to crash. Did they sound the alarm? Of course not, that might have interfered with their efforts to sell crap to their customers. Instead they bet it would crash and reaped a huge profit.

What ties this all together? Two of the key players, Rubin and Paulson, both came from Goldman at just the right moment to get rid of the pesky banking laws. So in addition to the efforts of all the banking lobbyists, you might say it was an “Inside Job.”

However, our wait to make those responsible pay may be nearly over. The SEC has charged six former Fanny Mae and Freddy Mac executives. More important, New York State Attorney General Eric Schneiderman and other State AGs are looking at criminal and civil charges. It would be nice to see a few of the arrogant bankers on their way to jail?  When you think about it, what they did was harmful than Bernie Madoff’’s scams. “Pants-on-Fire” Goldman CEO, Lloyd Blankfein has another view; bankers, he says, are “doing God’s work.”

A New Path?

The unemployment rate in the United States dropped precipitously last month (11.11) to 8.6%, the lowest it’s been since the early days of the recession in 2009. The disturbing note, however, is the contributing factor of those “no longer looking for work.” In addition to giving the merchants of gloom something to point to, it raises the issue that we would hope would concern us all. What happened to all those people? They didn’t just fall off the edge of the earth.

If they are still receiving unemployment benefits, they must be near the end of that lifeline. Odds are they have other family members who are still working, and while they may be tightening the family budget, they are not out on the street. In some cases they and perhaps their families are headed for disaster, loss of their car, even their home. That raises an ethical question for those cutting funding to our safety-net programs. How ethical is that effort? Is that the kind of nation we have become? Times are tough, crush the poor.

On the brighter side, maybe those no longer hunting for work have found it, at home: on the computer, in the basement, in the garage. History teaches us that tough times are when new enterprises are likely to be launched. Counterintuitive as it may seem, even comfortably employed individuals will leave their employer during dark times to launch the business they have been thinking about for years. And of course others, who have been thrust into the world of the unemployed unexpectedly, think “What the heck, I might as well give my dream a try.”

A series of articles in the business journal Fast Company got us thinking that there may be more going on in the current episode of lean times. Launching a business is never as easy as it looks, but it’s a whole lot easier today than ever. Depending on where you live, you can get set up with your local governing entity for a few bucks and open a bank account in the business name. Then your major problem is having something to support you and your family until it catches on.

A century ago, your prospects for customers when you opened a shop were those who happened by as they walked down the street, or those who heard that you offered sewing services from your home. These days, with a tad of social network skills the world is your marketplace. You can do business with someone a world away as easily as your next door neighbor. There are services that will connect you and guarantee that you get paid. You can even take credit cards without a major investment in technology.

And some of those with manufacturing skills that seem unwanted in today’s work force are finding that they can use those skills to create things in a world where handcrafted quality is appreciated. From welding to woodwork, handmade goods are in demand. So perhaps those who are no longer looking for work have created their own little corner and are very happy there, thank you very much. And if they do well, they may hire a helper or two. That’s where jobs are created.  

 © 2011 GLG

British Tabloid Culture

British Tabloid Culture

There’s a celebrity “A” list from Hugh Grant to JK Rowling parading before Lord Justice Leveson in London. The ongoing Leveson Inquiry is investigating media ethics in Britain centered on the Murdoch phone hacking mess. The celebs, along with lesser known folk, are laying out the damages the phone hacking, celebrity stalking, tabloid press has inflicted on them. Yes, it’s not just the Murdoch papers that employ these pond scum techniques. Nor is the damage limited to the crimp that it puts in the lifestyles of the rich and famous. Much sadder are the tales of everyday folk, most notably the family of murdered schoolgirl Milly Dowler. 

In an effort to keep the headlines coming Murdoch’s minions repeatedly emptied the voicemails from Milly’s mobile phone, leading her parents (and the police) to believe that she was alive and picking up the messages. Actually the 13-year-old had been lured into the hands of "predatory" nightclub bouncer Levi Bellfield on her way home from school and lay dead in a field at the end of that day. Bellfield was subsequently charged with the murder of two more young women. Witnesses are laying out stories of inconvenience, embarrassment, and tragedy before Lord Justice Leveson, all brought on by the telephone hacking, police bribing, peeping Tom, high speed chase stalking style of journalism favored by the British tabloids.

The lurid stories gained by these methods dim in shock value to the testimony of one former Murdoch editor, Paul McMullan, once a deputy features editor at The News Of The World. According to published reports, McMullan admitted that all these "worthy tools'” as he called them, were not only routinely used at the paper, they were aggressively urged upon him and his colleagues by their bosses.

McMullan even called out two former Murdoch executives, Andy Coulson and Rebekah Brooks. Coulson was the chief spokesperson for Prime Minister David Cameron by the time the firestorm hit, while Ms. Brooks headed all the Murdock newspaper holdings in Britain. McMullan said they could have been the “heroes” of journalism; instead they became the “scum,” apparently for their failure to take responsibility for the use of the worthy tools at The News Of The World.  He also calls Ms. Brooks an “arch-criminal.”

McMullan’s testimony was particularly hard to swallow when he described a culture that not only used these “tools” but believes they are “worthy tools.” He hotly defended a wide range of behaviors that we find ethically repulsive. When asked to define public interest, McMullan replied, “If the public is interested,” adding that if they don’t approve they could stop reading these stories. This culture seems pervasive among British tabloids and within the Murdoch Empire. Unlike McMullan we do not see these “tools” as “worthy,” we see them as disgustingly shameful.

“Round One,” The Banks vs. The Rest of Us

“Round One,” The Banks vs. The Rest of Us

Within a month Federal District Judge Jed Rakoff has launched what may be the beginning of the end for rapacious behavior on the part of our banking sector. Earlier this month he refused once again to rubberstamp an under-the-table deal the Security and Exchange Commission (SEC) made with a “Too Big To Fail” Bank, this time Citi. Unlike earlier deals that came before him, he is apparently not going to agree to any settlement without all the gory details being revealed.

As you may recall from our 11.15.11 OP-ED, Citi has been charged with fraud. With selling their customers a bundle of crappy investment vehicles while at the same time betting against them. Of course the crappy stuff turned out to be crappy and when they failed, Citi’s customers took a hit somewhere north of $700 million bucks and Citi collected on their bet. Judge Rakoff questioned the settlement -$95 million- and the fact that only one individual was charged with criminal behavior. In an earlier case (Bank of America) Rakoff signed off when the SEC upped the penalty. Two other Federal Judges signed off on similar deals with Goldman Sachs and J.P. Morgan Securities, as many judges have over the years.

After mulling over the Citi deal for a couple weeks, Rakoff took a very different tack. This time he rejected the premise that Citi could walk away with a fine and a promise to never do it again. He wants all the gory details out on the table. A path that drew a snarky headline, “Rakoff Cements Status as Populist Firebrand”, on the American Lawyer Magazine website’s report on his ruling. Basically saying that his failure to play “go along to get along” would end any chance of promotion for the judge.  But isn’t that what ethics is all about, doing the right thing without regard for self interest?

An end may be at hand to the age of repeated SEC “Peanuts and a promise” deals for those who pull off massive ripoffs. As Steve Denning noted in a recent Forbes article, What Shall We Do With The Big, Bad Banks, “Over the last 15 years, some 19 large major financial institutions have been found by the SEC to have broken anti-fraud security laws at least 51 times—laws  that they agreed ‘never again to breach’. The group of offenders included Citigroup, Bank of America, JPMorgan Chase, UBS, Goldman Sachs, Wachovia, and AIG. In this period, the Securities and Exchange Commission has never once brought a contempt of court citation against any of the banks for repeated offences.”

The leaders of these behemoths, the Lloyd Blankfeins and Jamie Dimons and their minions who hide behind these “Don’t Ask, Don’t Tell” deals with the SEC, may be called to task if it turns out that they were aware of the double dealings underlying the SEC charges. An outcome sure to be cheered by the State Attorney Generals across the country that have been pursuing the culprits who triggered the financial collapse we are enduring; looking for someone to jail.

Wouldn’t that be nice? Three cheers for Judge Jed Rakoff.

What's Fair

What's Fair

 

A Bloomberg Businessweek focus on wealth inequality (11.16.11) came up with some stunning conclusions. Using Census numbers –and a wide variety of past and present expert opinions– they point to the existing and growing disparity of wealth in America and conclude that it is bad for our economy. The gridlock we are experiencing leads those who are slipping behind to conclude that they have no hope, that they are at the mercy of the rich. The two ends of the economic ladder slip into bitter blame game positions.

Here’s where this game goes wrong for the rich. Income inequality leads to social instability. That leads to the belief that the system (read Stock Market) is rigged in favor of the ultra rich and you lose as much as a generation of investors. They point to the stock market following the crash in 1929. It took until 1954 for it to regain its pre-depression level, more than a quarter century. One wonders how long an extended downturn of that nature might last if we do not find our way out of the gridlock now engulfing us. Unlike the ‘30s, ‘40s, and ‘50s, in the era of the 401k etc. there are lots of middle class folks with a stake in the stock market these days.

We keep hearing that the rich create jobs. But the research shows that jobs are created by small businesses. Those folks are not the rich; they are what’s left of the middle class. They are looking for loans to grow and hire, but the banks that we all bailed out are not lending to small businesses. Instead they are back in the risky games that got us into this mess. Worse, small businesses are paying the high corporate taxes –not the big guys.

Speaking of taxes, it makes no sense for the poor and middle class to shell out a bigger piece of their income than the rich. Everyone seems to understand this except those in DC who hold to the job creation myth, and of course the rich who haven’t been able to do the math. When you talk to the savvy wealthy folks, you find that they favor a more equitable tax system. They understand that you can’t build a healthy economy on the backs of the poor. The smartest investor on the planet, Warren Buffett, figured it out years ago. No matter how big your slice is, you can’t do well if the pie keeps shrinking.

In the meantime, if the rich are not creating jobs with their wealth, what are they doing with their money? Well, their investments seem focused on commodities, where they speculate and drive up prices on food and oil; thanks for high gas prices. And they are driving the luxury market; if it’s expensive, they’re buying. Even the price of first class air travel – would you believe aircraft fitted with showers and private compartments? After all you have to look sharp when you arrive in some exotic locale. And what’s $15,000 or $20,000 for a plane ride. There are some pretty obvious ethical issues in all this. Too bad they don’t seem to matter much in our world where the Lobbyists rule in DC. How many of them do you think work for the middle class and the poor?

Take Off The Kid Gloves

Take Off The Kid Gloves

The Securities & Exchange Commission (SEC) ended its fiscal year in September having filed a record number of cases (735), up almost 10% from their pace (677) last year. They collected nearly $3 billion in penalties both years. Meanwhile the annual Johnson Associates’ “Executive Compensation Study” shows an alarming drop in pay for the folks on Wall Street, as much as 20% - 30%. Alarming perhaps to the Wall Street types, but to those who are trying to make ends meet the Wall Street pay scale, that begins at a hundred grand and can escalate into seven or eight figures, still looks really good. 

Reuters reports that over the last two years the SEC has removed a management layer and restructured their enforcement division. And, they have created a new whistleblower bounty program alongside other incentives to encourage witnesses to cooperate. Given the two record years they have registered, it must be working.

Or is it? It appears that the SEC is still treading softly with the big banks and the individuals behind the misdeeds (AKA CEOs etc.).  A Federal District Judge, Jed Rakoff, doesn’t seem convinced that a proposed settlement with Citibank is tough enough on the bank. Citi is charged with fraud; selling customers crappy financial instruments at the same time the bank was betting they would fail. The very same double dealing that triggered the financial collapse we are enduring.

In a hearing last week Judge Rakoff questioned the SEC on the settlement: $95 million when the investors Citi ripped off lost $700 million. The judge has taken a similar position with several lowball settlements the SEC proposed in the past. Rakoff also questioned why only one individual in this case has been charged with wrongdoing.

We –along with many others, including State Attorney Generals across the country– have been wondering about the SEC slap-on-the-wrist penalty proclivity. A concern the Attorney Generals also direct toward the Justice Department; why has it not zealously prosecuted bankers who triggered the recession? We know who they are and what they did. Instead, after bailing them out we are forced to watch as they go back to the same risky stuff all over again, sure that we will bail them out again when it collapses. All the while taking home eight-figure bucks.

The banks’ reaction to the relatively mild restraints of the Dodd/Frank Act is to pile new fees on their customers. They have grown so accustomed to inflated profits from what are nothing more than risky gambling schemes that when a little of that revenue stream is cut off, they sock it to their customers instead of living lean. In the meantime we have to listen to Jamie Dimon, JPMorgan Chase “Whiner in Chief,” and Goldman Sachs CEO, Lloyd Blankfein (AKA The Artful Dodger) complain. They are so misunderstood and unappreciated after all they do for us, poor babies.

Alan Johnson, managing director of Johnson Associates, the firm that carried out the Wall Street wage study, put the ethical issue very succinctly, “Wall Street executives,” he said, “haven’t gotten the memo at all.”

Not for Sale

Not for Sale

There are –and always have been– so-called “pay for play” print and broadcast deals. That’s why federal law requires them to be labeled “advertising” or “paid programming”. Unfortunately, there is no such law covering internet content. So it should come as no surprise that web based news sites are being targeted by those looking for a plug for one thing or another.

While we understand legitimate efforts to gain media exposure, when there is money involved the ground rules need to be crystal clear.  Apparently, with no legal firewall, some of the slime that inhabits the fringe of every sector of media and marketing will attempt to slip over the ethical wall that protects most all of the world of commerce.  

Hamilton Nolan, who writes for the popular blog Gawker, recently received an email from a marketer suggesting an easy way to earn a little extra money. All he had to do was drop in a website link for one of their clients, only –of course– if it “fits naturally in the context of the article.” In a series of emails this solicitation was identified as coming from a so-called “marketing agency” specializing in this kind of placement. Payment offered began at $130 and escalated quickly to $175. Not bad, as Nolan noted, for five seconds’ work.  

The “agency” claimed to represent a number of “major” clients, Motorola, Dell, and T-Mobile, all of whom denied any connection. The agency also told Nolan that they had writers taking their bucks from a wide range of top ranked internet sites including The Huffington Post. You can guess Huffington’s response; it was mirrored by the other sites where writers and/or editors were said to be on the “take”.

Who knows how many clients these guys really represent? Or how many writers and/or editors at internet sites have succumbed to this siren call? There is always a certain amount of slime on both sides of the ethical wall. Sadly, one cannot exist without the other.

The Return of the Robber-Barons

The Return of the Robber-Barons

At the dawn of the 20th century America experienced unprecedented change. The young were moving off the farms into the cities. Steel, rail, and oil giants wrought permanent change; change that created a chasm between the wealthy few and the vast number of Americans struggling far below.

Into this moment stepped Theodore Roosevelt.  A brash young President who recognized that a nation so divided could never achieve the greatness that would allow its people to thrive. His trust-busting crusade initiated a series of legal restraints on the robber-barons culminating in the Glass–Steagall Acts of 1932 and 1933. These boundaries, along with labor laws and a variety of safety nets, allowed our free enterprise system –and our people– to thrive and grow.

The loosening of those restraints as the 20^th century faded into the 21st brought a return of the practices they were designed to control. A study of the effect of wide spread deregulation was ordered several years ago by Senators Max Baucus and Charles Grassley, then ranking members of the Senate Finance Committee. The Congressional Budget Office delivered the study just last week. Its findings paint a bleak picture: the middle class is fast shrinking while those on the bottom are sinking farther away from those on the top of the pile.

Over the last few decades the top 1% of Americans enjoyed a 275% jump in their income. The bottom 20% not so much, they gained 18%. Do the math, 275% is over 15 times greater than 18%. The report points to the move from progressive income taxes to payroll taxes, easing the tax burden on those with the 275% gain while increasing the tax rate of those who have seen a measly 18% improvement.

As the giants of industry are quick to point out, our corporate taxes are among the highest in the world. However, since most of them have successfully lobbied their way out of paying taxes at the local, state and federal level, the federal tax rate has little or no effect on the corporate titans. Our hefty corporate rate does hit small businesses – the folks who are struggling to stay afloat in the aftermath of the collapse triggered by the bankers’ reckless gambling.

Since everyone agrees that small businesses create jobs, we find ourselves taxing these job creators, while the Fortune 500 (who rang up a net job loss over the last twenty years) pay little taxes, if any. The banks we bailed out are swimming in profits generated from the same risky games that got us into this mess. Weren’t they were supposed to help small businesses who want to grow and create jobs? What happened to that?

Meanwhile the top 1% (the 275% folks) are investing overseas or gambling on commodities (like oil – boosting gas prices and adding to the woes of the poor) all the while giving luxury marketers like Tiffany’s a boost. Sales in Tiffany’s New York flagship store increased 41% in the second quarter ending in July, up 33% thus far for the year. Tiffany’s stores worldwide are booming as well, thank you.

If you missed the ethical issues in this scenario, read it again.

W.T.”Bill” McKibben is a Buffalo based author. © 2011 GLG

The Essential Benefit

The Essential Benefit

We are puzzled by a decision retail giant Wal-Mart announced limiting access to its health insurance programs. Access to healthcare benefits is important to the individuals in our workforce and to society as a whole. Living without coverage is a nightmare experience. The number of Americans who find themselves without health insurance –about 50 million– is shocking.

Two groups dominate this segment of our neighbors.
    1) The young: They believe they are immune to serious illness. They often have health insurance available –and they could afford it– but they would rather spend their bucks on something else. For minor issues they visit tax and/or community supported clinics. They pay a few bucks for routine care, leaving the rest of the cost for their treatment to the taxpayers, or those who support these clinics through charitable gifts. If they become seriously ill they often end up with a crushing debt, or bankruptcy. In the end we all pay for it.

   2) The working poor: They are not eligible for Medicare, Medicaid, or any of the other government funded programs that provide healthcare benefits for roughly half of all Americans. They worry about their health and try to ignore problems until a condition is really serious. Then it costs a ton to treat, either through the emergency room, or hospitalization. They can’t pay and so the hospitals pass the costs on to all their other patients driving up the cost of healthcare. Once again, we all pay for it.

This is where Wal-Mart, etc. –who employ the young and the working poor– can make a huge difference. Nobody expects any of these companies to pick up the health insurance premiums for these folks, but what they can do is make it available at a fraction of the cost of healthcare coverage in the open market.

When the working poor go direct to the insurers they face premiums far beyond their ability to pay, often three or four times the cost of a group plan offered through an employer. The reason for that hinges foremost on the ability of a company with thousands of employees to negotiate favorable rates. Add to that the much higher costs insurers incur in administering individual policies. A part of this cost –group insurance administration– is borne by the companies. We would guess that’s one of the reasons behind the decision at Wal-Mart to exclude some of their employees.

A short-sighted decision in our view. Access to affordable healthcare insurance is vital; it’s the kind of benefit that stabilizes a workforce. Less employee turnover cuts retraining costs and makes for better customer service, the lifeblood of a retail company. Moreover, taking care of your employees in this fashion says a lot about an employer, it makes people loyal and more productive. Not having to worry about their family’s healthcare costs keeps them focused on their job.

And besides, it’s the right thing to do; Ethics 101.

W.T.”Bill” McKibben is a Buffalo based author. © 2011 GLG

The Rich get Richer, Redux

We’ve been reading a Merrill Lynch Global Wealth Management report on High Net Worth Individuals (HNWI). There are a number of metrics to define this group, but most include those who have at least a million bucks to play with. That’s a million+ not counting homes, yachts, private jets, etc. Then there is a subset, Ultra High Net Worth Individuals (UHNWIs), those with 30-50 million in play money. There are about 10 million worldwide in the HNWI playpen; North America has by far the most, over 3 million.

The HNWIs took a hit when the economy collapsed. Not that they had to make any lifestyle changes, but it got their attention. Not to worry, you’ll be happy to hear that this report shows they pretty much recovered from the beating they took — within one year. The Merrill Lynch study was just released but it covers the HNWI world as it was in 2009, just one year after the collapse. At that point the HNWIs were up 18.9% with a total of $39 Trillion in their piggybanks. The subset UHNWIs were up 21.5%. Apparently the Joneses couldn’t quite keep up.

What are they doing with their money? Here’s what Merrill Lynch sees in the research, “By 2011, HNWIs are expected to further reduce investments in their home regions and look to those regions in which growth is expected to be more robust. While HNWIs from the mature economic regions of North America and Europe are expected to continue increasing their allocations to Asia-Pacific in search of higher returns, HNWIs in Europe are also likely to increase their North American holdings to inject stability into their portfolios.”

So Merrill Lynch says the 1% of Americans who have almost all the bucks are going to invest in Asia. Their tax advisors will -of course- have them leave their profits offshore so they aren’t bothered by those pesky IRS types. On the other hand, the HNWIs from Europe will be investing over here; in our Treasury Bonds if they are looking for stability. One way or the other, none of the HNWIs are doing anything for our economy, except maybe for Tiffany & Co. along with all the others in the booming luxury markets.

None of this creates the jobs we need. Small businesses create jobs and there are precious few small business owners in the HNWI class. Most are lucky to take home healthy five figure paychecks and everything they have is in their business. To grow they need help from the banks whose coffers are bulging with bucks (thanks to the tax payers), but they aren’t lending. So the folks who create jobs are stuck, in many cases barely hanging on in a slow economy the banks created.

If the HNWIs think they are immune from the growing discontent rising in America they are mistaken. If they believe they have no responsibility to restore and maintain the safety nets put in place following the Great Depression, they are mistaken. “With great power there must also come great responsibility,” so saith Peter Parker (AKA Spiderman). That is the essence of ethics.  

W.T.”Bill” McKibben is a Buffalo based author. © 2011 GLG

The Bottom Line

Dog Eat Dog, nothing but the bottom line matters. Surprisingly there are those in business who still buy into this myth. Understand, it works. Goldman Sachs and many of the other Wall Street types come quickly to mind. It is always those who get away with playing dirty and breaking the rules who make the headlines. As the saying goes, “Good News is not News.”

Truth is, from the days of the industrial revolution businesses that treated their stakeholders well– their employees, their customers, their community, their suppliers, and the environment– found that the bottom line took care of itself.   Does that mean the good guys always win? Of course not. It does mean they have a better chance of winning.  And when they do, they win bigger than those who choose the alternative path.

The problem is documenting this truism. A few years ago a writer and couple of  college professors set out to do just that. Their book, Firms of Endearment, showed that those who took care of all their stakeholders returned eight times as much as the Standard and Poors average over the ten years prior to their study. That’s not eight times the worst, that’s eight times the AVERAGE return; that’s the kind of bottom line every company dreams of.

A massive research effort, 10,000 consumers in ten countries, The Cone/Echo 2011 Global Corporate Responsibility Study, shows that consumers not only support those who follow this business model, they will punish businesses that focus solely on the bottom line. The margins surprised the researchers as they did us. Over nine out of ten respondents said that to win their business companies must go beyond the legal requirements and that they need to look at their practices and make sure their overall impact on society as a whole is as positive as possible.

Their number one concern is a company’s efforts to support and expand the economy. Nearly all the respondents (96%) placed economic development at the top of the list they expect companies to strive for. The environment comes in at the same level (96%), followed by human rights, education, health, and poverty, all above -or just below- the ninety percentile mark. That’s pretty dramatic.

And it’s widespread; the study covered a lot of geography: Canada, China, Brazil, France, Germany, India, Japan, Russia, The United Kingdom and The United States. Nations that house almost half the people on the planet and by far the majority of enlightened consumers. Consumers who told the researchers that they would switch brands to be assured of their makers’ devotion to high ethical standards.

Pack that all together and it makes for an overwhelming argument for the ethical business model. It makes sense; who would want to do business with someone or a company that is trying to rip you off? Who wants a company that does not care about you, your community, the air you breathe, the water you drink? Who needs those kind of people? You can no more run a company by focusing on the bottom line, than you can win a ball game by focusing on the scoreboard. 

© 2011 GLG

CEO Meltdown

What is it with these people? The banking class seems to forget how we got into this mess and who is primarily responsible. Wholesale stripping away of the rules of the road –read banking regulations–over the last few decades opened the doors to unbelievable levels of greed.

Now that the rather mild (after the lobbyists beat it down) Dodd-Frank Act is in place, they are whining about too much regulation. In truth that unregulated playground where greed-monger bankers frolicked, it’s still open. They are playing the same game with reckless abandon. While the law says we won’t bail them out again, they know we can not allow “too-big-to-fail” banks to fail.

The mere mention of restraint triggers an explosive response. Take the reports leaked from a meeting of the Financial Stability Forum in Washington. Mark Carney, Governor of the Bank of Canada, endured a hissy fit from JP Morgan Chase Honcho, Jamie Dimon. Dimon found suggested changes to the Basel III banking standards, “anti-American.”  

When banks like Chase were fighting for their lives and begging our taxpayers to bail them out, Canada’s banks were fine. Carney’s response to Dimon’s attack was measured: "If some institutions feel pressure today, it is because they have done too little for too long, rather than because they are being asked to do too much, too soon." Based on sixteen attributes worldwide, 42,000+ respondents to The Reputation Institute's 2011 annual study ranked Canada #1. Is it any wonder the US came in 23^rd – behind even Greece?

It’s not as though JP Morgan Chase is a “Poster Child.” They are mired in a smarmy Jefferson County, Alabama bribery mess where political types have been convicted of pocketing $8 million. Birmingham’s mayor went down for taking $235,000. As part of the settlement, Chase eats $647 million in fees, pays Jefferson County $50 million, plus a $25 million SEC penalty. This does the county little good; it is still drowning in over $3 billion in derivative based financial instruments.

The ethical no-man’s-land JP Morgan Chase seems to inhabit extends to our fighting men and women as well. The law is crystal clear when it comes to mortgage holders and the military. But, Chase may have missed that memo. In just one case, a Marine captain flying F-18 missions overseas suffered an ongoing nightmare. He and his wife did everything right. To their surprise Chase ignored their on-time mortgage payments, began foreclosure proceedings, and set collection agency dogs on them. The captain’s wife was raising their small children on her own, one with health issues, all the while the Chase collection goons are ringing her telephone around the clock.

When Chase finally recognized the string of goof-ups on the military that included the Marine Captain, a mid-level banker apologized. That – is – pathetic! JP Morgan Chase and its spoiled brat CEO, Jamie Dimon, that’s who is “anti-American” in this sad tale.  

Murdoch Woes

It just keeps getting worse for the Murdoch Empire. An empire so vast that it’s hard to grasp the wide flung tentacles that encompass a host of newspaper, television and entertainment entities spread across the planet. Rupert Murdoch’s shadow darkens almost every English speaking nation in the world, from his birthplace in Australia, to Great Britain and of course the United States. They are all rife with Murdoch properties. 

Things first began to get out of hand in Great Britain. London’s rough and tumble Fleet Street newspaper world, the world that formed the Murdoch culture has ironically exposed behaviors that may end it all for the clan. A rival newspaper, the Guardian, has unearthed one misdeed after another. Most of the media coverage has focused on the telephone hacking the Murdoch London newspapers seemingly used at every opportunity. That, however, is the least of it.

Murdoch scion, James –who heads (in title if not in fact) much of the family enterprise– testified before Parliament that he knew nothing of any hacking beyond one rogue reporter. When the then editor of the now shuttered News of the World and their legal manager came forth with detailed testimony to the contrary, it left James flopping about like a fish out of water. 

Rupert started with a tabloid stable his daddy left him in Australia. He moved on to London while still in his early twenties and much later came to America where he owns a wide array of media from newspapers to motion pictures to television entities. Actually it isn’t “his;” while Murdoch effectively controls News Corp, it is a public company. In fact it is an American company headquartered in New York City.

While fibbing to a parliamentary committee is serious stuff, it is not the worst of the specters looming over the Murdoch Empire. The courts present the most serious threat. News Corp stockholders are lining up to sue. These law suits are serious but not nearly as serious as the gathering storm in Washington. Rupert Murdoch is an American citizen, and News Corp is an American company; both are subject to American laws.

The U.S. Justice Department is looking at bribes paid to London police by News Corp newspapers. Under our Foreign Corrupt Practices Act (FCPA) American companies are not permitted to practice bribery abroad. News Corp is taking this threat very seriously, as well they should. They have hired a flock of lawyers to deal with it, many of them former Department of Justice FCPA experts.

As the noose tightens it’s hard to see any outcome short of the collapse of the Murdoch Empire. An outcome that would seem foreordained in a company run by a man described by one of his executives as, “a man who wants it all, and doesn't understand anybody telling him he can't have it all." That sounds more like a spoiled child than the kind of person we want running the largest media company in the world. While it fits the trashy tabloid culture that spawned Murdoch, a person of character would have grown into a more ethical mode. It seems a waste to have the resources Rupert Murdoch has amassed devoted to the smarmy ends he put them to.

Unexpected Consequences

Unexpected consequences frequently arise from actions at every level of life. Not in the least when it comes to enacting new legislation. Take the Wall Street Reform & Consumer Protection Act (AKA Dodd–Frank), created in response to the reckless actions of a handful of bankers that triggered the 2008 financial collapse.

(Actually the collapse was triggered by the banking lobbyists’ success in conning a brain dead 1999 Congress into removing one of the last remaining firewalls in the circa 1933 Banking Act (AKA Glass–Steagall). This Act protected us from this kind of nonsense for +/- 70 years; anybody for reinstating Glass–Steagall? Dodd–Frank left the gap opened in 1999 unfilled and the banks are headed full tilt for the same cliff they took us over in 2008. But that’s another subject for another day)

Dodd–Frank will “undermine existing compliance programs” according to its critics–read lobbyists. That pile of bovine excrement has vanished in the light of a study conducted by the SCCE (Society of Corporate Compliance and Ethics).

The SCCE surveyed compliance and ethics professionals on Dodd–Frank. Surprise, they found the exact opposite of the banking lobby fueled fears and expectations. The SCCE found more transparency; companies are making employees more aware of how to react when they come across misdeeds or misbehavior in the workplace, even if it’s your boss. They found compliance programs grown stronger thanks to Dodd–Frank.

The Act has also triggered more ethics training at the management level. Anything that improves ethics in our society is good news. Business ethics is not an oxymoron. Most people strive to do the right thing day in and day out. The impression that nice guys finish last is dead wrong. Study after study shows that –all things being equal– an ethics driven business model will out perform any alternative. Does that mean that dog-eat-dog never wins? Of course not, but even then the good guys will win bigger.

If that’s true, then why do we never hear about it? Simple, good news is no news. We want to hear about the unusual, the dramatic. Same thing with drama, on

stage, television or the movies, if it’s not comedy it’s got to be action. Even in the most famous good guy movie of all time, It’s a Wonderful Life, it took divine intervention to save George Bailey.

Aristotle is quoted* as declaring that Philosophy** led him, “to do without being commanded what others do only from fear of the law” That exactly defines ethics. And while ethics often gets bundled up with compliance, there’s a vast chasm between complying with a rule or law and doing the right thing.

 

* Supposedly uttered by Aristotle according t0 Laërtius Diogenes, who lived six or seven hundred years after Aristotle    (BTW not the lantern dude, Diogenes of Sinope. He also lived six or seven hundred years before Laërtius Diogenes).

** Philosophy, a system of principles for guidance in practical affairs. – Dictionary.com 09.20.11

Crooks?

Three years after the big banks drove our economy off the cliff we are beginning to call some of the players to task. It’s been no secret that mortgage entities lured people into buying properties they could not afford. They coached them on deceptive practices, like lying about their income and most everything else. These subprime (read unlikely to be repaid) mortgages were gobbled up largely by the big Wall Street banks who demanded more, ever more from these small time con artists.

The banks bundled them into investment instruments called Collateralized Debt Obligations (CDOs). These mortgage packages were blessed with AAA (the very best) ratings by Standard & Poor’s, Fitch Ratings, and Moody’s Investor’s Service. Soon they were being bought and sold all over the world. This charade* carried on until the rotten mortgages in these packages began to collapse.

The agency that oversees Fanny Mae and Freddie Mac (who live on taxpayer dollars) is gearing up to sue a bunch of the big banks for +/- $30 billion in losses (our money). Add to this, lawsuits from various individuals along with AIG – they got suckered into insuring some of the banks against losses from these loans. And the Attorneys General of all 50 states who are in settlement negotiations with a bunch of the big banks. There’s trouble on Wall Street.

As you can imagine, this has triggered a flurry of finger pointing. The banks shrug and point to the rating agencies, ignoring the obvious. The agencies were seriously overmatched by the fast talking bankers. Plus, the banks are among the rating agencies’ best customers. Everybody is pointing to the “sophisticated investors, who knew what they were buying.” Again, maybe overmatched by the fast talking bankers?

This whole dance is ridiculous. The California farm hand earning $14,000 a year had to be conned into buying a $750,000 house, as did many like him who had never heard of a subprime mortgage. The big banks knew what they were buying; they cynically put decent mortgages on top of the losers in the CDOs to make them smell better. Internally they referred to these CDOs as “Crap.” They hustled this “Crap” to their customers; all the while buying insurance to cover the “Crap” they were holding.

When it all fell apart, the taxpayers were forced to bail them out to keep the banking system from collapsing. A generation ago we had the S&L crisis. An avalanche of bad mortgages threw the nation into a recession. The savings banks took a hit, nearly 750 were closed, about a fourth of the national total. The taxpayers took a $90 billion hit – the beginning of the national debt that has been building over the last decade.

There’s a difference between what happened to the peddlers of “Crap” in the last decade and those responsible for the S&L disaster twenty years ago. The S&L flimflammers (AKA crooks) were nailed for racketeering and other crimes. They were fined and in some cases jailed. The flimflammers who triggered the recession we are now suffering through still have their big jobs, big pay checks and bonuses, just as if nothing happened. Meanwhile the poor and the middle class suffer. What’s wrong with this picture?

*Dictionary.com – “Charade”  A blatant pretense or deception,  

especially something so full of pretense as to be a travesty.  

© 2011 GLG

The Rich Get Richer

The Institute for Policy Studies (IPS) –a left wing think tank– released a startling study on corporate taxes at the federal level. While we have some quibble points, their underlying facts are solid – and alarming. Much has been made of our sky high 35% corporate tax rate. Who pays these taxes? Apparently not the big guys.

Major corporate entities have the accounting and legal resources to find every loophole. They pour money into the pockets of the politicians and into lobbying; looking to avoid taxes. Many large companies put more into lobbyists and their CEO’s paycheck than they pay in taxes. Makes you wonder if CEO stands for Chief Evasion Officer. So if the big guys don’t pay taxes, who does? The little guys, they pay the corporate taxes. The hundreds of billions in corporate taxes pouring into the federal coffers comes mostly from small businesses. As famously put by billionaire Leona Helmsley: "We don't pay taxes. Only the little people pay taxes.”

We have known for years that major corporations create few of the jobs in America. Small businesses create jobs. So our high-end 35% tax on corporations falls on the shoulders of the very people who create the jobs we need to get our economy going again. Taxes, however, aren’t the only thing hindering small businesses from creating jobs. It’s hard to expand and hire if you don’t have the bucks for growth.

So who has the bucks? The banks, the same banks we bailed out with our tax dollars. Are they lending our money to the small businesses to create jobs? No, the banks are back in the business of trading complicated financial instruments –“Derivatives,” “Collateralized Debt Obligations” and such. Then laying bets on which ones will fail. This is the same nonsense that took us off the cliff.

How about the rich, the untouchables getting big tax breaks? Are they investing in small businesses, or maybe in the stock market? No, they’ve taken to trading commodities. Helping to drive up food prices and pushing up the price of oil while the world was awash in oil. That gave us high vacation time gas prices.

All the while consumer spending –the backbone of our economy– is struggling, except at the luxury level. Yachts, $1,495.00 shoes, private jets, $1.650.00 for a jar of facial “Crème,” jewelry, $200,000+ Mercedes, fancy resorts and spas, the rich have lots of bucks to pamper themselves.

All of this is perfectly legal. Most of it enabled by the stripping away of the laws and regulations put in place following the Great Depression. Legal, however, is not necessarily ethical. Therefore, it sometimes takes the hand of the people (read government) to restrain those who won’t do what’s right on their own. Otherwise they run amuck as they are now, pointing to spending on the poor, the old and the defenseless as the cause of the problem.

Rolling the Dice, Again

Let’s suppose a bunch of organized crime types –unbeknownst to you– put together a scheme to offer odds on whether or not you will pay your mortgage on time each month for the next year. And even though your mortgage is only a few hundred bucks a month, they found high rollers willing to put big money, hundreds of millions, on one side or the other of these bets.

While that’s a little oversimplified, that’s pretty much what happened leading up to the 2008 financial crash when the big banks had folks betting for and against packages of home mortgages. Of course organized crime types would be in big trouble if they did something like that; gambling laws in almost every state make that kind of activity a big no-no. Those laws, however, do not apply to banks, and others engaged in what can laughably be called investing. During recent decades the Federal Government adopted laws exempting this form of gambling.

You would think that after what happened so recently we would have changed those laws. You would be wrong. In fact the lobbyists have managed to block even modest reform. Dodd/Frank would have made some important changes, but it has been hamstrung by opponents who simply cut off funding to implement the reforms.  

And the gamblers have turned to the commodity market. Summer, normally a quiet time, has seen an all-time record trading month in July and it looks like August will surpass it. All the exchanges from commodities to stocks are racking up billions of trades every day; some are showing trading increases in the billion range doubling normal volume. From the high-frequency traders who are little more than pirates roaming the capital markets to panicky investors afraid to be skinned by the gamblers, the markets are crazy.  

It’s time to set some parameters that will bring the markets back to their purpose, to create capital to support our economy. Banks need to get back to banking and off the trading floor. The exchanges need to focus on their purpose, to serve as a marketplace for capital and business to meet and create growth in our economy. At this point they are too interested in the revenue created by billions of trades and not interested enough in the future of this nation.

We need to reward investors, those who buy and hold stocks. Those in the market for the long haul. They’re the ones who should get the tax breaks. Let’s make capital gains taxes gradually go away the longer you hold an investment. Let’s make the gains reaped by those who buy and sell stocks in a matter of days or hours or a few seconds subject to punishing taxes. This kind of “playing” the market generates no public benefit.

And let’s call those who bet for and against almost anything what they are, gamblers. Let’s take away their “Get out of jail free cards.” Let them suffer the same legal consequences as those running an illegal card game in their basement. It’s the right thing to do.

Our First Amendment??

Five big tobacco companies, 

AKA Merchants of Death, have filed suit against our Food and Drug Administration (FDA). The FDA rolled out a batch of gruesome warning labels –the first new ones in 25 years– and they are due to go on every pack of cigarettes in September. Big tobacco is suing to stop the new labels based on their First Amendment rights.

Their what!

“Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.”

That First Amendment?

We’re talking about beefing up warnings on the sale and use of a drug that kills about a half million people in the United States every year. We don’t see any difference between these labels and the king-sized skull & cross bones on a box of rat poison. The new warnings are certainly more dramatic than the current bland text warnings. If there’s a First Amendment issue in that difference we sure can’t find it.

Before enabling the use of something harmful, even life threatening, one must make an ethical decision. Everything that is legal is not necessarily ethical. It’s easy to rule out certain potentially harmful sectors in our culture, but there is no way to protect against everything. There is, however, no way to rule out tobacco, we know how to protect against this lethal substance. Those who are part of this world are drug dealers pure and simple. Their drug, tobacco, happens to be legal but that doesn’t make it ethical nor any less lethal.

Don’t listen to, “Back when we started we didn’t know.”  We knew. A hundred years ago during World War One cigarettes were called “Coffin Nails.” American “Doughboys” sang “If the Fatimas don’t kill you the Camels will.” They knew. R.J. Reynolds knew. He shipped his “Camels” by the millions “Over There” where they were handed out, “Free” to our troops. R.J. was secure in the knowledge that they would get hooked and be forced to buy them by the time they returned home.

Those who have chosen to cross the great ethical divide and take part in this evil enterprise will find a way to justify their action. But for Big Tobacco to challenge a need to warn those who buy cigarettes, that is a new low. Since they can’t ban tobacco, the least the FDA can do is to warn smokers of the devastating outcomes they risk. Seeing the gruesome conditions cigarettes trigger every time they light up may help, especially for those lighting up the first time.

Many of those who have escaped this horrific habit say getting off cigarettes was the hardest thing they ever did. Enduring the physical pain when your body screams for a narcotic, be it heroin or nicotine, is near unbearable. Then there’s a  constant craving that lasts sometimes for years. The health risks, Cancer, Emphysema, Heart Disease, they all await that first puff. Not taking that first puff is the easiest way to breathe easy.