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.