Posts tagged with 'Laura Flanders'
Weekly Audit: Doomsday for the CFPA?
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By Alison Hamm, Media Consortium Blogger
Just when the Democrats need to be tougher than ever on financial reform, Senate Banking Committee Chair Sen. Chris Dodd (D-CT), seems to have given up completely and put the proposed Consumer Financial Protection Agency (CFPA) at risk.
Last fall, Dodd called the Federal Reserve’s regulatory efforts an “abysmal failure.” And yet, on March 1, he proposed housing a consumer protection agency within the Fed instead of establishing the CFPA as its own independent entity. This drastic change in strategy has left many Democrats shaking their heads. WTF, Senator Dodd?
A change in focus
As Andy Kroll reports for Mother Jones:
“Dodd appears to have switched his focus from out-reforming the White House to out-compromising just about everyone. As the Senate banking committee prepares to release a draft of a comprehensive reform bill as early as this week, Dodd has repeatedly conceded to his Republican counterparts on key issues, almost guaranteeing that the Senate’s measure will be far more lenient on the banking industry than the legislation the House passed in December… Dodd’s willingness to appease Republicans like Sen. Bob Corker (R-Tenn.), the main GOP negotiating partner, and Sen. Richard Shelby (R-Ala.), the banking committee’s ranking member, has disappointed Dodd’s fellow Democrats and reform advocates who urge a tougher crackdown.” (more…)
Weekly Audit: Don’t Let Citizens United Wreck Our Economy
By Zach Carter, Media Consortium Blogger
In a landmark decision last week, the Supreme Court ruled that corporations could spend unlimited funds to influence American elections, overturning a century of legal precedent. The Court’s ruling in Citizens United v. FEC undermines the integrity of the U.S. government, as President Barack Obama emphasized at his State of the Union address. But the decision also deals a damaging blow to the U.S. economy by encouraging lawmakers to write economic rules that benefit specific companies at the expense of everyone else.
The editors of The Nation lay out the High Court’s hubris in no uncertain terms:
The Citizens United campaign finance decision by Chief Justice John Roberts and a Supreme Court majority of conservative judicial activists is a dramatic assault on American democracy, overturning more than a century of precedent in order to give corporations the ultimate authority over elections and governing. This decision tips the balance against active citizenship and the rule of law by making it possible for the nation’s most powerful economic interests to manipulate not just individual politicians and electoral contests but political discourse itself. (more…)
Weekly Audit: Unemployment Fueling Political Storm
By Zach Carter, Media Consortium Blogger
Unemployment figures in the U.S. are staggering: The official rate stands at 10.2%, the highest in 26 years. A broader measure that includes people who are involuntarily working part-time or who have given up looking for work is at 17.5%. That’s a full-blown economic emergency.
But, as Joshua Holland explains for AlterNet, President Barack Obama’s response to the unemployment crisis has not matched the urgency of his response to the crisis on Wall Street. This isn’t just unfair, it’s bad economics. (more…)
Weekly Audit: Saying ‘No’ to Corporate America
By Zach Carter, Media Consortium Blogger
By proposing financial reforms that won’t curb Wall Street excess, U.S. policymakers have offered an unacceptably weak response to our enormous financial crisis. If voters don’t demand that their elected representatives help workers and consumers instead of simply boosting corporate profits, the economic downturn will last for several more years and leave the economy vulnerable to another bank-induced meltdown. (more…)
Weekly Audit: Too Big to Fail is Just Too Big
by Zach Carter, Media Consortium Blogger
Last week, President Barack Obama released key legislation designed to fight the banking industry’s too-big-to-fail problem. But Obama’s plan doesn’t actually address too-big-to-fail at all. It reinforces a broken system in which economically dangerous companies are bailed out whenever they drive themselves to the brink of failure.
If we want the economy to support all people, we have to break up the big banks and start treating the creation of good jobs as an economic priority on par with Wall Street rescues. (more…)
Weekly Audit: Bigger Than ‘Too Big to Fail’
by Zach Carter, TMC MediaWire Blogger
Now that trillions of taxpayer dollars have been pumped through the financial system, Wall Street giants JPMorgan and Goldman Sachs are reporting record profits—and giving out record bonuses. Goldman is planning to pay out $11.4 billion in compensation “earned” with our money. Even worse, attempts to regulate reckless financiers or empower ordinary workers are still being stymied by influential corporate lobbyists.
How did Goldman score the biggest quarterly profit in its history? Matt Taibbi explains in an interview with GritTV’s Laura Flanders. The $10 billion in direct capital that Goldman received from taxpayers under the Troubled Asset Relief Program (TARP) is actually one of the minor offenses. The company also converted corporate charters to become eligible for guarantees, and issued a whopping $28 billion in debt guaranteed by the government.
Banks were foundering last Fall, and very few investors were willing to supply them with emergency capital. So the FDIC guaranteed their debt, which allowed banks to raise funds at extremely low interest rates. The FDIC guarantee means that taxpayers will get stuck with the bill if the company defaults. If you can raise money at absurdly low rates, its very easy to turn over huge profits, as both Goldman and JPMorgan did.
There are other outrages: We still don’t know how much money the Federal Reserve loaned Goldman through its emergency lending facilities. The government’s bailout of AIG served as a huge windfall for the company, funneling at least $12.9 billion in taxpayer largesse directly to Goldman Sachs.
“AIG owed Goldman about $20 billion, and if AIG had gone through a normal bankruptcy, Goldman probably would have gone out of business. Instead, they got paid 100 cents on the dollar for every dollar that AIG owed them,” says Taibbi, author of a blistering take-down of the investment banking giant in the most recent issue of Rolling Stone.
In Salon, former Clinton Secretary of Labor Robert Reich says that this year’s big bank failures have resulted in a heavier concentration of financial influence in the few surviving firms, namely Goldman Sachs and JPMorgan. We have taken the “too big to fail” problem and made it bigger. JPMorgan acquired rival Bear Stearns for a pittance last March with billions of dollars in government guarantees. The company also picked up national banking giant Washington Mutual last fall. That means more risk in our economy and a greater concentration of lobbying power in our political system.
“We’ve ended up with two giants that now have most of the casino to themselves, are playing with poker chips backed by taxpayers, and have a big say in what the rules of the game are to be,” Reich writes.
Adam Schlesinger of Air America took to Wall Street to compile a hodgepodge of one-on-one interviews with bailout critics and condescending financiers. Schlesinger underscores the absurdity of Goldman’s pending bonuses by posting his own checking account balance ($13.75). The point of this massive bailout was to make the economy function for ordinary people. Instead, we’ve made sure that it benefits extremely wealthy bankers.
The government so completely resists doing anything about this staggering inequality, as Eyal Press writes for The Nation. There are two ways to approach the inequality problem. We can rein in the recklessness at the top by imposing serious regulations, and empower those at the bottom by giving them greater negotiating leverage with their employers (i.e., promoting unionization). While the bonus money flows on Wall Street, the Employee Free Choice Act (EFCA), a key bill to empowering unions, was just stripped of a crucial provision that would have made it easier for workers to organize, as David Moberg reports for In These Times.
As EFCA is gutted, bills proposing regulations for the financial sector are moving at a snail’s pace—even after two years of economic turmoil. Last week, Congressional leaders from both parties nominated members for a new panel, the Financial Crisis Inquiry Commission, to investigate the causes of the financial crisis. The investigation seems doomed to failure by its very design. Zachary Roth details the committee’s various shortcomings for Talking Points Memo. Of the panelists, six were nominated by the Democratic leadership, while four were nominated by the Republican leadership. If all four Republican nominees vote to block a subpoena, the committee cannot issue it, and without broad subpoena power, the entire exercise is futile.
Roth also emphasizes the excessively political nature of the appointees, particularly on the Republican side, which named former Rep. Bill Thomas, R-Calif., as Vice Chair. The Democratic picks are generally uninspiring, except for Brooksley Born, who fought to regulate derivatives in the 1990s as head of the Commodity Futures Trading Commission. But the Democrats have nobody anywhere near as frightening as Rep. Thomas, a vicious partisan who specialized in ushering money to special interests during his tenure as Chairman of the House Ways and Means Committee.
Mary Kane of The Washington Independent explains the troubling record of another Republican commission appointee, Peter Wallison of the American Enterprise Institute (AEI), a conservative think tank. The various conspiracy theories Wallison peddled include a robustly debunked belief that a decades-old anti-discrimination law is responsible for the mortgage meltdown. The law in question, known as the Community Reinvestment Act (CRA), dates back to 1977, and Wallison’s conspiracy theory has been rejected by nearly everyone in the financial commentariat, including regulators appointed by George W. Bush.
The Community Reinvestment Act requires banks to make loans to communities where they collect deposits. If you accept deposits at a branch in a poor neighborhood, you have to offer responsible loans in the same community. The idea is to expand access to affordable credit in the inner cities, while the subprime crisis is heavily concentrated in the suburbs. CRA loans have to be affordable, which means high-interest subprime loans do not count. CRA does not require banks to lower their lending standards, because any recipients have to be credit-worthy. Only 6% of high-interest mortgages were made by companies subject to CRA regulations, and lest we forget, this law was passed in 1977, while financial crisis erupted in 2007.
Instead of appointing toothless commissions, we should be making sure the financial oligarchs do things that are good for the rest of us. Congress should be writing regulations to curb risk in the financial system as fast as bankers are paying themselves bonuses. They’re our representatives, after all, and it’s our money.
This post features links to the best independent, progressive reporting about the economy. Visit StimulusPlan.NewsLadder.net and Economy.NewsLadder.net for complete lists of articles on the economy, or follow us on Twitter. And for the best progressive reporting on critical health and immigration issues, check out Healthcare.NewsLadder.net and Immigration.NewsLadder.net. This is a project of The Media Consortium, a network of 50 leading independent media outlets, and was created by NewsLadder.
Weekly Immigration Wire: White House Meeting a First Step to Reform
by Nezua, TMC MediaWire Blogger
After postponing twice, President Obama finally met with a bipartisan group of lawmakers on June 25 to discuss moving immigration reform legislation forward. The meeting was applauded by activists and advocates for immigration reform, as the issue seemed to have stalled, and the acrimonious tone of the debate has proven deadly.
All parties emerged from the meeting with positive feelings about the prospect for progress, as I heard on last Friday’s White House debriefing conference call. A confluence of positive factors are contributing to the momentum: Major labor leaders are united for reform, Democrats are leading much of Washington, and voters in the U.S. clearly want to see reform passed. President Obama made his intention to pass reform very clear and the White House predicts the process will begin late this year or early 2010.
New America Media calls the meeting a hopeful beginning, but makes it clear that nothing is guaranteed this year—despite the pressing need. And we can’t wait too long for reform to begin. 2010 is the beginning of the 2012 Presidential election cycle and the issue could be “too easily politicized” at that time.
Wiretap Mag’s M. Junaid Levesque-Alam writes that, while Obama complimented Senator John McCain for taking risks, he seemed averse to boldly stating what he hoped to see or would stand behind; that “nothing [Obama] said indicated significant political movement” on the issue. But, Levesque-Alam hypothesizes that Obama’s caution is related to tension caused by “core contradictions not simply between but within the political parties.” The immigration issue is contentious, even among members of the same party.
GritTV and The Nation teamed up to present a panel asking Is Immigration Reform Dead or Alive? (video). The panelists discuss a potential future in which immigration reform does not pass. Their predictions make a grim scene, centered around the horrors of a growing detention industry. Children are incarcerated in these facilities. Over 90 people have died in detention and they are damaging families. Guest Ravi Ragbir, now a member of Families for Freedom, spent two years in a detention center. Ragbir’s young daughter was so disturbed by the sight of her father in shackles that Ragbir requested she no longer visit while he was detained.
A Truthdig article titled America’s ICE Backwards Approach to Immigration details the broken legal system that further clouds the immigration process. Over 200,000 immigration cases are backlogged and the number of government attorneys who argue for deportation has risen by 35%, stressing the court system accordingly. Add a declining number of judges and a sharp increase in the number of border guards and the result is a setting where “the equivalent of death penalty cases” are heard “in a traffic court setting,” according to Judge Dana Leigh Marks, the president of the National Association of Immigration Judges.
New America Media also explores the results of a study that finds a low rate of crimes are committed by the undocumented, which is a stark contrast to the accusations of right-wing pundits. The undocumented population in Utah grew from 70,000 to 110,000 in the last four years, according to a new study released by the Sutherland Instituate, but the number of incarcerated undocumented increased by only 28. That’s 28 people, not percent. In fact, the crime rate for undocumented immigrants in Utah is only 3.9% and dropping.
Finally, RaceWire’s Michelle Chen reports on the impact of the Western Hemisphere Travel Initiative on Mexican Americans who want to deliver children using a midwife. The Initiative, which went into effect yesterday, “requires Americans passing across the Canadian and Mexican borders to have a valid U.S. passport or passport card.” Previously, only a valid driver’s license was required. This is yet another policy that refuses to recognize the long pattern of movement over the border area, and is culturally antagonistic to Mexican Americans.
Law indicates humankind’s attempt to be just; it is an extension of a civilization’s morality. Immigration reform must come soon; it is a moral duty. It must pass not just for the benefit of the undocumented community, but so we can live up to our national ideals, and also, to decisively stave off a destructive energy made possible by the lack of humane law.
This post features links to the best independent, progressive reporting about immigration. Visit Immigration.NewsLadder.net for a complete list of articles on immigration, or follow us on Twitter. And for the best progressive reporting on critical economy and health issues, check out Economy.NewsLadder.net and Healthcare.NewsLadder.net. This is a project of The Media Consortium, a network of 50 leading independent media outlets, and was created by NewsLadder.
Weekly Audit: Radical Inequality Fueled the Wall Street Meltdown
Now that Treasury Secretary Timothy Geithner isn’t going to impose pay restrictions on bailed out Wall Street executives, it’s critical to remember that severe economic inequality was a major factor in the financial meltdown. Our tax code funnels money into the hands of our wealthiest citizens, which means that our financial system protects the interests of the affluent—not the the average citizen. The broad divergence between our core democratic values and the existing U.S. economic structure must become part of the public debate over financial reform.
As Les Leopold notes in a roundtable discussion with GritTV’s Laura Flanders, much of the Wall Street meltdown can be traced to a steady redistribution of wealth to the wealthy dating back to the Reagan years. Poor people, after all, do not have money to invest in the Wall Street speculation machine. By 2007, the financial world accounted for over 40% of U.S. corporate profits, an astounding percentage for a business intended to facilitate the operation of other industries. According to Leopold, we need to find constructive ways to shrink the financial sector, like taxing Wall Street transactions to move money into the real economy or imposing meaningful pay caps on financial jobs.
Pay for citizens who live outside the executive class has been steadily falling for decades. As Chuck Collins and Sam Pizzigati note for AlterNet, weekly wages for average Americans are now below 1970s levels after adjusting for inflation, while CEO payouts have exploded. So far, President Barack Obama has been hesitant to fight economic inequality at either end of the spectrum. Remember the promises he made to curb extravagant CEO pay on Wall Street back when the AIG bonuses were generating outrage back in February? Treasury Secretary Timothy Geithner has already made them irrelevant, eliminating a $500,000/year salary cap.
While we’ve heard quite a bit about how Wall Street excess wreaked havoc for homeowners, relatively little attention has been paid to the plight of renters, who often face personal catastrophe when their landlord is foreclosed on. Under a new law passed by Congress, when a bank or new owner takes control over a foreclosed property, they have to give renters living in the home at least 90 days notice before evicting them. But the law does nothing to address other injustices renters face. If your landlord is foreclosed on, for instance, you can forget about getting your security deposit back, even if the house is in top condition.
Banks also are not required to hire property managers to maintain homes they take over, which means they often let houses deteriorate despite objections from tenants. Writing for The Colorado Independent, Martha White explains that these problems are easy to correct, if Congress actually wanted to: Require landlords to put security deposits in a special account that cannot be raided by creditors in bankruptcy and force banks to hire managers to maintain the properties they foreclose on. The latter policy would also discourage banks from foreclosing in the first place by making ownership of the property more expensive for the bank.
Obama recognizes the need for change, which is why he’s proposed a major overhaul of the government’s Wall Street oversight. But in many ways, his plan identifies the wrong problems and offers the wrong solutions. The Real News features a great video spot with commentary by University of Massachusetts at Amherst Economist Robert Pollin. One of the key reforms involves granting the Federal Reserve broad powers to oversee systemic risk in the economy, but the Fed already has similar authority.
“The problem is, the Fed has already had an enormous amount of regulatory power, they just don’t exercise that power,” Pollin says.
Instead of granting the Fed more power, we should be finding ways to hold its leaders accountable. By subjecting top officials at the Fed to democratic elections, we could help ensure that the top regulatory body in the U.S. answers to the people it is supposed to be protecting.
Other creative new approaches to combating the economic crisis are featured in the most recent issue of Yes!, which is devoted entirely to economic reforms. From tips on investing locally to overhauling our broken monetary system to empowering workers, the issue emphasizes solutions that rely on democratic structures, rather than the corporate status quo (full disclosure: I’ve got an article in there on community banks).
It’s time to put some political firepower behind those ideas. Ordinary people simply have no serious voice in the policy debate surrounding Wall Street. In The Nation, Christopher Hayes describes the banking lobby’s total domination over financial reform proposals.
“On the other major legislative battles—healthcare, climate change, the Employee Free Choice Act—there is an organized, mobilized permanent infrastructure to push lawmakers in a progressive direction,” Hayes writes. “They may be underdogs, but at least it’s a fight.”
Changing the too-big-to-fail financial sector must become a priority. If we defer to the banking lobby or advisers like Larry Summers, who helped create the crisis by backing wildly deregulatory laws during the Clinton years, we can guess what the end result will look like. If we want our economy to answer to us, we have to do something about it. Income inequality and unaccountable regulators were a major part of the financial collapse. Addressing those problems has to be part of the economic solution.
This post features links to the best independent, progressive reporting about the economy. Visit StimulusPlan.NewsLadder.net and Economy.NewsLadder.net for complete lists of articles on the economy, or follow us on Twitter. And for the best progressive reporting on critical health and immigration issues, check out Healthcare.NewsLadder.net and Immigration.NewsLadder.net. This is a project of The Media Consortium, a network of 50 leading independent media outlets, and was created by NewsLadder.
Weekly Audit: Reining in the Subprime Scoundrels
by Zach Carter, TMC MediaWire Blogger
President Barack Obama is scheduled to unveil his agenda for revamping financial regulation later this week. As the economy struggles though a recession created by the banking industry, it’s crucial that Obama and his advisers craft a set of rules ensuring that the financial sector strengthens our economy instead of destroying it.
Various government regulatory agencies are sparring over how the final regulatory structure will be divided. But, as Robert Kuttner notes for The American Prospect, the most important aspects of the plan will not be who regulates what, but how stringently they are required to regulate. The Federal Reserve has had the power to devise consumer protection regulations for years, but has generally decided against writing strong rules to defend borrowers. There is perhaps no area of public policy more critical to the nation’s economic stability than consumer protections in banking, especially as the subprime mortgage crisis continues to devastate U.S. households.
Without stronger regulations, the government’s rescue programs for the financial sector will be a complete waste, and bailouts will only reward the destructive behavior that created the current recession. And the bailout plans are getting more absurd every week. Writing for Mother Jones, Nomi Prins details the latest bank bailout farce: The false euphoria emanating from the Treasury Department after it decided to allow 10 banks to return the bailout money it received from the public. Or, at least, some of the bailout money.
As Prins explains, the Troubled Asset Relief Program (TARP) accounts for just a tiny fraction of the bank rescue efforts currently orchestrated by the Treasury, the Federal Reserve and the FDIC. When banks accepted TARP money, they agreed to implement a few modest restrictions on executive pay, though none of the other bailouts came with any strings attached. The FDIC, for instance, agreed to guarantee the corporate debt that banks issue to fund their operations without requiring banks to adopt any changes in the way they do business. This government backing has allowed banks to raise several billion dollars in funding at extremely inexpensive rates, at a time when most banks were struggling to raise any money at all. Suddenly, some of the chief beneficiaries of the FDIC program—Goldman Sachs, Morgan Stanley and American Express, to name three—find themselves flush with cash and able to pay back the TARP money, and thus allow their CEOs to escape the executive compensation caps.
As Laura Flanders explains in the below video from GritTV, there is a difference between how “healthy” a bank appears to the U.S. Treasury and what it actually does for ordinary people. The TARP money was supposed to serve a public purpose by freeing up funds that could be lent out into the economy. But the very banks now going off the public payroll have been retroactively jacking up interest rates on credit cards all year and spending millions to lobby against legislation that would prevent foreclosures. Small surprise, then, that the state of the U.S. housing market is as bad as it has ever been.
“The lesson is pretty clear: you cannot stabilize the mortgage market and undercut the working family at the same time, you just can’t,” Flanders says.
It’s not as if the economy has suddenly turned a corner. In addition to all those foreclosures, the unemployment rate is 9.4% at last count and keeps surging higher. But the effects of the recession are not being felt equally among all workers. New America Media (NAM) features a piece by Raechal Leone that highlights the even more severe unemployment rate among blacks in the U.S.—a whopping 14.9%. Those numbers are not expected to get better anytime soon. When economists talk about the recession “ending,” they mean that the Gross Domestic Product (GDP), a measurement of the total output of the U.S. economy, will have stopped shrinking. Economists almost universally believe that the unemployment rate will increase well after GDP stops contracting—as many as five years in some predictions.
The Applied Research Center (ARC) has released a report detailing the disparate impact of the recession on minorities, accompanied by a host of constructive policy recommendations. In the financial world, minority borrowers still face a dramatically uneven playing field. Black and Latino borrowers were more much more likely to be steered into an expensive subprime mortgage during the housing bubble than white borrowers were. As Nina Jacinto details for Wiretap, these lending practices have been so pervasive that the NAACP has filed lawsuits against both Wells Fargo and HSBC for systematically targeting black borrowers with expensive supbrime mortgages.
We need to upgrade our anti-discrimination banking regulations to end this systematic predation. Many of the other policies that ARC endorses are not geared specifically toward ending the racial wealth gap, but would alleviate some of the glaring effects of institutional racism. Since people of color are disproportionately relegated to low-paying jobs (or, as Leone noted for NAM, no work at all), policies that make it easier for low-wage workers to organize and demand fair pay, like the Employee Free Choice Act, would help ease this rampant inequality.
The Obama team’s regulatory proposal will only mark the beginning of a policy debate that will likely last for months. But make no mistake, serious bank reform is one of the most important steps the government can take to make the economy accountable to ordinary citizens and CEOs alike. Without substantive change in the financial sector, the next meltdown could already be underway.
This post features links to the best independent, progressive reporting about the economy. Visit StimulusPlan.NewsLadder.net and Economy.NewsLadder.net for complete lists of articles on the economy, or follow us on Twitter. And for the best progressive reporting on critical health and immigration issues, check out Healthcare.NewsLadder.net and Immigration.NewsLadder.net. This is a project of The Media Consortium, a network of 50 leading independent media outlets, and was created by NewsLadder.
Weekly Audit: Debt and Taxes
by Zach Carter, TMC MediaWire Blogger
Earlier this month, President Barack Obama rolled out a new plan to limit the use of offshore tax havens and crack down on corporate abuse of the tax system. These tax havens siphon over $100 billion a year from the government, and have allowed many U.S. banks to duck paying taxes despite receiving massive, taxpayer-funded bailouts. The president’s plan is far from perfect, but comes as a welcome acknowledgment of the unfairness embedded in the current tax code.
Corporate taxes are precisely the type of issue that mainstream media outlets prefer to avoid. Even though the government’s tolerance of corporate tax evasion is a major scandal, it takes time to explain the issue’s intricacies, and it’s easier to resort to pundit-jousting than to provide a detailed report on how companies are cooking the books.
Most discussions of corporate taxes are quickly distorted by focusing on the overall income tax rate for the wealthiest corporations. This rate is 35% in the U.S., which is relatively high when compared to other developed nations with complex economies. But corporate lobbyists have successfully pushed thousands of complex loopholes into the U.S. tax code, making the actual, paid tax rate much lower. In a battle between pundits, a talking head screaming “Thirty-five per cent!” tends to be more persuasive than an academic talking about offshore deferred compensation.
This sheer density of the tax code creates a destructive feedback loop for policymakers. “If the loopholes are very complicated, then the only people who know enough to argue over them will be the lobbyists dedicated to their preservation,” Ezra Klein writes for The American Prospect.
As a result of this information imbalance, lobbyists can convince Congress to gouge ordinary citizens, even when those lobbyists are representing companies dependent on taxpayer largess for their very existence. Financial firms are particularly fond of establishing small sub-corporations in the Caribbean to shield their income from the U.S. Treasury. By registering their headquarters in these tiny nations, companies pay tiny fees to their “home” country and shirk being taxed in the U.S.
Citigroup has received over $45 billion in direct capital injections from taxpayers and billions more in federal insurance, but as Jim Hightower notes, the banking behemoth has a total of 427 sub-corporations scattered around the globe, and they serve no purpose other than avoiding taxes.
It’s not as if these companies have actually moved their employees or their trading houses or their factories to these remote locales. Their existence outside the United States entirely a fiction of paperwork crafted by clever corporate lobbyists. About 400,000 companies are headquartered in the British Virgin Islands, and none actually do any business there.
“All 400,000 companies are located in one gray, two-storey building in the town of Tortola,” Hightower notes.
Similar situations exist in dozens of other tax-haven nations. The Cayman Islands have over 12,000 companies “housed” in a single building. As David Cay Johnston explains in The Nation, the Caymans bar these pseudo-firms from engaging in any business beyond hiding profits.
Corporate tax-dodging has real consequences. “Honest taxpayers have to make up for the revenues lost through this offshore cheating in three ways: we pay more in taxes, we get fewer government services and we incur rising government debt,” Johnston writes.
The practice also helps artificially inflate corporate profits—and fake profit-taking was one of the chief drivers of the current financial crisis. In an illuminating interview with GritTV’s Laura Flanders, former banking regulator William Black explains how top-level executives at major financial institutions used accounting gimmicks to score record bonuses at the expense of the greater economy.
“It was an epidemic of fraud lead by the CEOs, and they were using accounting to commit that fraud,” Black says.
Subprime loans have much higher interest rates than ordinary prime loans. This means subprime loans are actually worth more to banks, provided the borrower can actually pay the loan. An executive with an eye to his own paycheck might urge his company to gobble up massive quantities of subprime loans, according to Black, enabling the bank to book record profits for the few months or years that borrowers could actually keep up with their mortgage payments. Giant profits generate gigantic bonuses for the executives, so even when the company is destroyed by all this subprime binging, the executive walks away rich.
Executives also aligned the pay incentives of employees lower on the corporate food chain with this strategy, ensuring that lenders churned out as many loans as possible, regardless of quality. The result is a devastating chain of fraud starting at the Wall Street CEO and ending at the mortgage broker. In the below video for American News Project, Lagan Sebert outlines the operations subprime mortgage giant Ameriquest and their Wall Street enablers, Citigroup.
Obama deserves some credit for acknowledging that corporate tax-scamming is a problem—Presidents Bill Clinton and George W. Bush were happy to sign-off on laws that made it easier for wealthy companies to evade taxes. But Obama’s crackdown doesn’t go nearly far enough. His plan would only bring in about 10% of the revenue the U.S. Treasury Department thinks it is losing through these scams. If Obama is serious about restoring accountability to Wall Street, that commitment does not end with the tax code. It is equally essential for Obama to secure new regulations on CEO pay that tie compensation to meaningful, long-term profits instead of short-term risk-taking, and to hire financial regulatory officials who will not tolerate endemic fraud.
This post features links to the best independent, progressive reporting about the economy. Visit StimulusPlan.NewsLadder.net and Economy.NewsLadder.net for complete lists of articles on the economy, or follow us on Twitter. And for the best progressive reporting on critical health and immigration issues, check out Healthcare.NewsLadder.net and Immigration.NewsLadder.net. This is a project of The Media Consortium, a network of 50 leading independent media outlets, and was created by NewsLadder.