Executive Compensation as Control Fraud

What This Article Covers

  • What is Control Fraud?
  • What is the Relationship Between Compensation and Control Fraud

What is Control Fraud?

It seems most of the population often lack the vocabulary to understand things that they know are wrong. When an executive takes in huge amounts of money, most people know it’s not good for the company and unfair, but then they get confused with the framing of the activity. Executives and think tanks discuss things like the “value creation” of stock that went up under their tenure, or how the company must pay this money to keep the “talent” (notice normal workers are never considered talented, when it comes to normal workers pay must be kept down to keep the company competitive.)

William Black, the ex-bank regulator who now teaches at the University of Missouri has an interesting term which he applies to bank executives that loot their companies. The term is “control fraud.” The more we thought about it, the more we think the term should be applied to overpaid executives. Like banks that falsely pump up their balance sheet writing bad loans, only to get rich off of short term stock options while the bank eventually craters and is bailed out by taxpayers, executives seem to do much the same thing. We took some examples from the excellent book Real World Banking and this excerpt was written by Ellen Frank. It is from the stock bubble of 2001, but nothing has changed since then, and sometimes it is good to reach into the past to see how continuous the scam is.

Global Crossing’s stock, which had traded at nearly $100 per share, became virtually worthless, but not before CEO Gary Winnick exercised his own options and walked away with $734 ion. Qwest Communications director Phil Anschutz cashed in $1.6 billion in the two years before the firm stumbled under a crushing debt load; the stock subsequently lost 96% of its value. The three top officers of telecom equipment maker 3S Uniphase collectively raked in $1.1 billion between 1999 and 2001. The stock is low trading at $2 per share. An investigation by the Wall Street Journal and Thompson Financial analysts estimates that top telecommunications executives captured a staggering $14.2 billion in stock gains between 1997 and 2001. The industry is now reeling, with 60 firms bankrupt and 500,000 jobs lost. The Journal reports that, as of August 2002, insiders at 38 telecom companies had walked away with gains greater than the current market value of their firms. “All told, it is one of the greatest transfers of wealth from investors—big and small—in American history,” reporter Dennis Berman writes. “Telecom executives … made hundreds of millions of dollars, while many investors took huge, unprecedented losses.”

The Problem with Milton Friedman – Compendium

What This Article Covers

  • Selling Opinions
  • The Shock Doctrine

Professor Friedman felt both that corporations had no business spending money for social good, and that business should not be regulated because all regulation would eventually be captured by business interests. What type of world would this result in we wonder?

Introduction

Of the posts on this blog, those related to Milton Friedman seem to be some of the most popular. People seem surprised that Milton Friedman is so heavily criticized in this blog and in others. While Friedman has an aura of respectability which has been granted by concentrated power, the fact is that Friedman is easy to criticize because his track record is so weak. No doubt we all know a person who is good at their job but tends to have a number of doctrinal or essentially retarded political views.

This was Friedman in a nutshell. Economics is presented as a topic that has a great deal of applicability to everyday life. However, academic economics, which is the area where Friedman achieved fame, is so esoteric and deliberately obtuse that it is nowhere near as applicable as many people think. Furthermore, the emphasis of economics over the past century has been to move further and further way from the real economy and focusing on advanced forecasting (which while containing a great deal of math can’t seem to predict the most apparent asset bubbles). Thus, while Friedman’s academic work may or may not have been good (for non-academics it makes no difference as Friedman was not publishing research for any applicability, but simply to impress other academics or wealthy benefactors), it does not have much to do with his political opinions. While Friedman used his Nobel Prize reputation to back his political opinions, they were, in fact, nothing more than that.

Selling Opinions

A second problem with the profession of economics is that most economists outside of academics work for large concentrated financial interests. This actually relates to the reason why economists can’t seem to predict anything. Economists are paid to provide forecasts their bosses want, not forecasts that are “negative.” Furthermore, many economists simply can not speak out about the present boondoggle-bailout because they work for the institutions receiving the money. Paul Krugman can afford to criticize idiotic banking and bailout policy because he has made his name already, however, if he was silent, he could make even more money because he would be lavished with hedge fund speaking opportunities (like economics super-whore Larry Summers) and so on. In terms of selling his opinions for cash, Friedman was peerless.

In this post, we wanted to list our posts that discuss Friedman.

This post discusses how Friedman appeared to configure his opinion in order to get on the gravy train from wealthy corporations. He said what they liked, and they promoted him.

This post describes Friedman’s greatest defect…he was simply unethical. He was primarily about accruing power, therefore, how he accomplished this goal was secondary. The immorality in his own life went a long way to explain why he could not see a place for morality or standards in society in general. Friedman was famous for supporting any regime internationally, no matter how terrible, as long as they implemented his “shock therapy.”

This post describes how economics writing is filled with politics and that much of it has nothing to do with economics.

The Shock Doctrine

Naomi Klein’s book – the Shock Doctrine is an excellent primer on Milton Friedman.

100% Wrong?

One thing we have recently begun to do is to try to find instances where Friedman was right about something. He has what must be the most miserable track record of popular economists, or at least he is tied with Larry Summers for being consistently wrong. However, we did find a documented instance where Friedman was correct about something, and it is related to real estate taxation. You can find out where he was right here.

Michael Hudson on Real Estate Taxation

What This Article Covers

  • Real Estate Taxation
  • Michael Hudson’s Statements
  • Financial Sector Taxation

Introduction

Michael Hudson has been covering real estate for some time and is one of the very few experts on real estate taxation. The picture above is a good representation of how banks see the optimal real estate situation, people who are so in debt that they have to allocate most of their income to their mortgage. This is accomplished by both the mortgage deduction (increasing the price of houses and the desire to finance as much as possible with the bank) and also through moving taxation away from real estate (which adds very little of substance to the economy) and onto income and sales taxes.

Every now and then an article comes along that changes how you think about an issue. Michael Hudson writes more than his fair share of these types of articles which is why we consider him the most innovative economist that we have been exposed to. First let’s lay out the common assumptions regarding real estate and taxation.

  • Promoting people to invest in real estate is good for the economy
  • Housing should be tax advantages in order to promote “home ownership”
  • The main way the middle class gains wealth is through the appreciation of their home

Michael Hudson calls into question all these assumptions and many of the other pro-housing assumptions that we have heard. From his article A Tax Program for U.S. Economic Recovery Hudson points out:

Hudson’s Statements

…you want to avoid having the tax collector lower property taxes, leaving more revenue available to be pledged to banks as interest on higher mortgage loans.

To get a lower-cost world, you have to counter political pressure from real estate owners and their bankers to shift taxes off rent-yielding properties onto labor and capital.

Most economists – even Milton Friedman – recommend that the more efficient tax burden is one that collects economic rent – property rent, fees charged for using the airwaves, monopoly rent, and other income that is basically an access charge.

(we were surprised by this as this is the first good idea we have heard from Milton Friedman who we and other progressives view as simply a tool for concentrated power)

Right. The financial sector translates its economic power into the political power to cut back real estate taxes. What has really been fueling the rise in property prices in this country has been the fact that real estate has been untaxed. What the tax collector relinquishes is now free to be capitalized into debt service on higher loans to bid up real estate prices. In 1930 about 75% of state and local finances came from the property tax. Last year it was down to 16%, so that’s from 3/4ths down to 1/6. Cities have shifted the property tax onto wages and salaries – income and sales taxes that increase the price of business. Taxes used to fall on property and hence were progressive, but now have turned regressive. The result is that “tax deflation” now reinforces debt deflation. This threatens to aggravate the depression we’re entering.

The venture-capital model that you’re talking about applies to enterprises that create new goods and services, especially products that weren’t produced before. But in real estate what you have is not so much a profit as “economic rent” and the free lunch of land-price gains that John Stuart Mill said landlords make in their sleep. The rental value of their property is determined by economic conditions and by local infrastructure spending to raise the rent-of-location, not by their own efforts and enterprise. Land and natural resources therefore should be the basis of taxation, because a real estate tax keeps down house prices and makes them more affordable. Homeowners may imagine that they are benefiting when property is un-taxed. But this simply leaves more rental income available to be pledged to the banks and capitalized into larger mortgage loans. So people end up paying the same amount of income to carry property as they did when real estate taxes where higher, but now they pay the banker instead of the tax collector. In fact, not only do they have to pay the same amount – but in the form of mortgage interest instead of taxes –they still have to carry the tax burden. This tax burden now takes the form of income tax and sales taxes. So you double the sum of taxes plus debt charges.

Analysis

This is an amazing revelation and it is 180 degrees from what is taught in business schools across the country and what is the common thinking among most people. Now that the real estate market has bust, many people are saddled with very large mortgages that they must service the debt on. These people are all hoping the real estate market comes back and are essentially debt peons, which is exactly what banks like. CountryWide is reported to have suggested a borrower who was having problems meeting their mortgage could “eat less.” For those the sold out of expensive markets at the right time and moved to low-cost markets (say retirees who sold in 2006 in San Jose and moved to Pittsburg) the housing bubble was great, as it was for real estate agents who pocketed exorbitant fees. However, for most of the rest of the population, the extreme tax benefits given real estate has meant the following:

  • Financial discrimination against renters (who are generally lower income)
  • A more expensive cost of living (thus a lower standard of living)
  • An increased percentage of money flowing to banks

We have to say, after listening to the conventional wisdom for decades from real estate promoters, who really were preaching a bankrupt economic philosophy, it can certainly embitter someone. Increasingly we are beginning to wonder about the quality of economics that trickles down to the general population. Increasingly we find ourselves debating completely false economics information which is simply repeated by people who have a very strong focus on promoting things good for them, but really no abstract concept of economics and certainly not the history of economics. We are very thankful that Michael Hudson’s website is always available to provide both clarity and critical thinking that is so lacking in universities and media outlets.

References

https://www.michael-hudson.com/

Quality and Funding in Economics and Finance Reporting

What This Article Covers

  • Who Can You Trust?
  • Good Versus Bad Sources
  • So Many Bad Sources of Financial Information

Quality and Funding in Economics and Finance Reporting

Conventional and wealthy media outlets are a good place to find out what Goldman Sachs and Morgan Stanley would like you to believe. In these magazines you can learn how the bailout is necessary to save “Main Street” and how executives and Wall Street stars deserve their exorbitant compensation. However, not all sources are corrupt stenographers for concentrated power. Some small media outlets are and have been fighting against this.

Good vs. Bad Sources

I have lauded three sources a number of times on this blog. I have gone through their past statements and predictions (some going back to 1995) and found them to be remarkably accurate. However, it took us some time to find these sources. When I was younger presented with information sources such as Business Week, Fortune and the Wall Street Journal.

I originally figured out The Wall Street Journal was filled with false information when I began working in companies and the articles written by the Journal that covered the companies I was actually consulting in were completely inaccurate. It took me longer to figure out that Fortune and Business Week are also nothing but stenographers for the ultra wealthy and executive class. In addition to being consistently wrong, these magazines don’t really understand the concept of guilt. That is past errors, do not interfere with future forecasts, always produced with great confidence. For instance, Fortune named Enron the most innovative company in the country….6 times in a row. They recently had a cover that discussed how the Social Security System (which is in perfectly fine financial shape as the CEPR has written about and demonstrated, as well as the Office of Management and Budget multiple times) will need to be bailed out.

How curious, as Social Security is backed by the US government and has a .07% administration cost. It is the most efficient financial program in the country bar none. However, its administrators also don’t own Ferraris or date supermodels, and they don’t pay for expensive advertisements in business magazines like the big investment banks and mutual funds do. Wall Street wants all that Social Security money to pump up the stock market, so they can skim it. Therefore, Fortune goes ahead and publishes a false article on the topic. Forbes, Fortune, etc…will publish any article for concentrated power because concentrated power will reduce their advertising and their access if they don’t.

Why Can You Trust?

It’s easy to see which media outlets are friends of concentrated power because they have all the money. They are also wrong most of the time. They are actually paid to mislead because if you can get the masses betting one way, and you are pulling the strings, then you can bet the other, and make a fortune. Think about who was behind all the propaganda surrounding how housing pricing always increases, or how the stock market over time always goes up. It’s quite obvious who, the same institutions who benefit from these myths. This is why your cousin, grandmother, niece and nephew all have so many incorrect economic concepts running around in their heads. They have been explicitly placed there by our media system, and unless each of them begins to perform independent research or find the right sources, they will continue to believe false thinks and make bad decisions.

The best quality economic and financial reporting comes from non-corrupt sources. After 15 years or so of being exposed to all a wide variety of economic/business information outlets, I have found three that are consistently right.

These sources and a rough estimate of their revenues are as follows:

  • Center for Economic Policy Research: $1.2 Million
  • Michael Hudson N/A (i.e one person)
  • Dollars and Sense $400,000

The combined revenues of these outlets, along with Michael Hudson who is part of The Institute for the Study of Long-Term Economic Trends, but also works independently is most likely somewhere around $2,000,000. (with Dollars and Sense producing an amazing output for their yearly revenues)

Total = $2,000,000

When compared to several of the media outlets that consistently get it wrong, the results are telling.

  • Forbes: $700 Million
  • Business Week: $500 Million
  • Wall Street Journal: $1 Billion

Total $2,000,000,000

That is 1000 times more revenue for corrupt reporting, that pumps up asset bubbles as well as stock options on command, over those principled outfits performing real reporting and investigation. The combined revenues of the bad economic and financial reporting is tremendous. Clearly, if you were in it just for the money, there is a much higher demand for false information (both on the part of consumers and advertisers) than for accurate information. Furthermore, the good sources go beyond basic reporting and question the underlying structure of our systems. This is a big no-no. Chevron, Chase, and GM are not paying good money for advertising in media outlets so readers can be made to question things or think outside the box.

So Many Bad Sources of Information

The situation is even more extreme when one considers that there are few quality sources of information, but many more corrupted sources. (Economist, Money, etc..). A detailed analysis on this topic would list all the corrupt sources vs. all the trustworthy sources and perform a division between the two to obtain a proportion. If that were done, the proportion would be even higher than the 1000 to 1 ratio I have listed above.

Conclusion

If you want to find accurate information on economics and business, look for the smaller sources that I have listed above. This is not simply a matter of ideology. Dollars and Sense, CEPR and Michael Hudson all saw and predicted the housing bubble, while other outlets were pumping up the bubble and getting rich off of real estate based advertising dollars. There are at least two reasons to patronize these sources. One is on the basis of their values. However, if you don’t care about that, then read them because they can help protect you from being victimized by institutional propaganda.

Reference

https://www.btobonline.com/apps/pbcs.dll/article?AID=/20090504/FREE/305049963/1109/FREE

This excerpt goes on to explain how the economics profession benefits people who take the opinion of elite power. It is taken from The Nation online. Perelman, who is there for the EPI reception, works at the margins of the discipline; he is one of a few hundred self-described “heterodox” economists at the conference. His last book, Railroading Economics, was about the creation of the “free market mythology,” and his next book is titled The Confiscation of American Prosperity: From Right-Wing Extremism and Economic Ideology to the Next Great Depression. I ask him about how he relates to the so-called mainstream of his profession. “It’s a mafia,” he says quietly, his eyes roving over to the suits spilling out of the Freedom to Choose room. Mafia is probably a tad hyperbolic, but there is undoubtedly something of a code of omertà within the discipline. Just ask Alan Blinder and David Card. Blinder, a renowned Princeton economist and former Clinton economic adviser, has long been a zealous advocate of trade liberalization. But this past March, the Wall Street Journal ran a front-page article on Blinder’s concerns about the massive dislocations that the current trade regime and outsourcing trends might bring for American workers. He suddenly found himself under fire from fellow economists for stepping out of line. Card, a highly esteemed economist at the University of California, Berkeley, caught flak for his heresy not on trade but on the minimum wage. In 1994 he conducted a study to see whether an increase in the minimum wage in New Jersey had the negative effect on employment that basic neoclassical theory would predict. He found it didn’t. In fact, his regression analysis showed that, controlling for other factors, New Jersey gained fast-food jobs after increasing its minimum wage, compared with Pennsylvania, which hadn’t raised wages. The paper attracted a tremendous amount of attention and criticism, and Card himself largely abandoned working on the minimum wage. In a 2006 interview, he explained his decision to leave the topic behind this way: “I’ve subsequently stayed away from the minimum wage literature for a number of reasons. First, it cost me a lot of friends. People that I had known for many years, for instance, some of the ones I met at my first job at the University of Chicago, became very angry or disappointed. They thought that in publishing our work we were being traitors to the cause of economics as a whole.” https://www.thenation.com/doc/20070611/hayes

Grayson Asking Difficult Questions Regarding Bailout Corruption

What This Article Covers

  • Who is Alan Grayson?
  • How is the Bailout Being Managed
  • Simply Illegal

There is one Congressman on the Financial Services Committee who has actually stood up to concentrated financial power, Alan Grayson.

Who is Alan Grayson?

Alan Grayson is a new Congressman who is a former practicing attorney who has clerked for the Supreme Court in his younger days. He sits on the Financial Service Committee. What is interesting is he is one of the few Congressmen asking these types of questions. Furthermore, it should be noticed that in several of these videos there is no one else sitting on the committee side. The question would be why on such important questions no one else except Barney Frank (who is the chair, and is obligated to be there) is interested in participating in these meetings. There are over 70 Congressmen who sit on this committee, yet almost no one participates when Grayson is asking questions.

Our interpretation is that is that this is a sign of respect to the banking industry. That is if the committee members know what is “best for them” they will not even be associated with these questions. Grayson is one of the few (only) Congressmen who are standing up for the people that voted for him.

How is the Bailout Being Managed

A good portion of the population thinks that the bailout was necessary (without observing the deep fraud and corruption that caused the bailout), however, just these videos demonstrate that the bailout is being and has been executed with extreme opacity which is covering up fraud on a huge scale. Grayson, as well as the entire Financial Services Committee (most of who are not there) is clearly being lied to or the interviewees are clearly attempting to dodge the question. Here is a listing of the Congressmen on this committee. It might help if they were asked why they have no interest in getting to the bottom of this corrupt bailout. https://financialservices.house.gov/who.html

Simply Illegal

As we have been saying for some time, so much of what went on before and after the financial crisis is simply illegal. Unless the people responsible are punished, we will accelerate towards a system where justice is entirely based upon wealth. The first person to begin prosecuting is Henry Paulson, who violated the restrictions of his powers as head of the Treasury and conspired to show preferential treatment to his old firm (Goldman Sacks) in a way that broke the law.

References

An excerpt from an interview in Salon.

GG: The argument that he made–he did give you a reason why he felt as though you shouldn’t get that information, or at least why it ought not be publicly disclosed–was that if these institutions know that their receipt of these funds will be made public, that they will refuse to participate in the bailout program, that they won’t take the money. Do you find that to be persuasive, and why do you or don’t you?

AG: I don’t. And I don’t find it too persuasive for a couple of different reasons. The first reason is that by law the Federal Reserve is the lender of last resort. So the people who borrowed this $1.2 trillion from the Federal Reserve literally have nowhere else to go. That’s the principle, the underlying principle that governs the Federal Reserve’s operation. It’s why we have the Federal Reserve. We have a Federal Reserve to serve as the lender of last resort. So they would take the money because they’d literally have no choice.

The second reason is that the whole reason why we have securities law in the first place, why we have a Securities Exchange Act, is to allow investors to make informed decisions. So if in fact it’s true that Citicorp took $50 billion from the Federal Reserve, certainly the people who are investing in Citicorp need to know that. Frankly all the rest of us do, too.

If these institutions are going to fail at some point in the future, then people need to be able to protect themselves against that. It doesn’t seem to me to be a good idea in general to try to deliberately keep people in the dark, under the assumption that if they knew the truth; they might actually act on it.

Think that through a little bit. What he’s saying is, we wouldn’t want people to know that $50 billion went to institution X, because if they knew–well, what? What would they do? The fact is the matter is that they would understand the truth of the matter, which is that institution X is pretty shaky, and maybe institution X doesn’t deserve their money. So, what we have is the collaboration between the Federal Reserve and failing institutions to keep the public in the dark.

AG: No, I think if you look at this particular situation, the Federal Reserve is assuming that it has certain authorities in a very aggressive way, based upon laws that were written under entirely different circumstances 70 years ago. You know, if somebody said 70 years ago to Mr. Mellon, the Secretary of the Treasury, the Federal Reserve would like to issue $1.2 trillion to favored institutions, he would have said, what are you talking about; there isn’t $1.2 trillion in the entire world. And now they’re taking that as some sort of license, 70 years later, to do what they want to do, and keep it secret.

It’s utterly senseless. Not only does it completely mock the idea of checks and balances in government, and mock the idea of democracy, but it opens us up to a tremendous possibility of corruption.

Let’s suppose for the sake of the argument, that Mr. Bernanke decides to give a billion dollars to a fledging institution called the Dick Cheney Savings and Loan, and its only asset was a numbered Swiss bank account. How would we know? How would we know that that happened? The answer is, if you take the Federal Reserve’s view of things, we wouldn’t. And that’s disastrous.

https://www.salon.com/opinion/greenwald/radio/2009/01/26/grayson/index1.html

This is an interesting excerpt from Wikipedia.

In early 2009, Grayson responded to controversial comments by talk radio personality Rush Limbaugh, in which Limbaugh stated that he wanted President Barack Obama “to fail”, by saying, “Rush Limbaugh is a has-been hypocrite loser, who craves attention. His right-wing lunacy sounds like Mikhail Gorbachev, extolling the virtues of communism. Limbaugh actually was more lucid when he was a drug addict. If America ever did 1% of what he wanted us to do, then we’d all need pain killers.”[10] On March 3 of that year, satirizing incidents in which prominent Republican officials (including Republican National Committee Chairman Michael S. Steele) were forced to apologize to Limbaugh for criticizing him, Grayson released a second statement, in which he said, “I’m sorry Limbaugh called for harsh sentences for drug addicts while he was a drug addict. I’m also sorry that he’s bent on seeing America fail. And I’m sorry that Limbaugh is one sorry excuse for a human being.”[11][12] Grayson Suing Corrupt Defense Contractors

“Mr. Grayson has filed dozens of lawsuits against Iraq contractors on behalf of corporate whistle-blowers. He won a huge victory last month [March 2006] when a federal jury in Virginia ordered a security firm called Custer Battles LLC to return $10 million in ill-gotten funds to the government. The ruling marked the first time an American firm was held responsible for financial improprieties in Iraq.”[10]

In the words of Senator Dorgan, there is an “orgy of greed” in Iraq. Vice President Cheney’s old firm Halliburton gets billions of dollars in no-bid contracts. War profiteers run wild, stealing millions from both US taxpayers and the Iraqi people. Corrupt corporations plunder Iraqi reconstruction funds, sabotaging the war effort. And the Bush Administration does nothing to stop it.

Everyone is concerned about the War in Iraq. Alan Grayson has done something about it.

Alan has taken on the biggest corrupt defense contractors and won. His work on behalf of taxpayers has been recognized and applauded not only in the Wall Street Journal, but in the Washington Post, the New York Times, the Boston Globe, CNN, 60 Minutes, the BBC, and newspapers and magazines in dozens of countries around the world.

“Mr. Grayson has filed dozens of lawsuits against Iraq contractors on behalf of corporate whistle-blowers. He won a huge victory last month [March 2006] when a federal jury in Virginia ordered a security firm called Custer Battles LLC to return $10 million in ill-gotten funds to the government. The ruling marked the first time an American firm was held responsible for financial improprieties in Iraq.”[10]

In the words of Senator Dorgan, there is an “orgy of greed” in Iraq. Vice President Cheney’s old firm Halliburton gets billions of dollars in no-bid contracts. War profiteers run wild, stealing millions from both US taxpayers and the Iraqi people. Corrupt corporations plunder Iraqi reconstruction funds, sabotaging the war effort. And the Bush Administration does nothing to stop it.

Everyone is concerned about the War in Iraq. Alan Grayson has done something about it.

Alan has taken on the biggest corrupt defense contractors, and won. His work on behalf of taxpayers has been recognized and applauded not only in the Wall Street Journal, but in the Washington Post, the New York Times, the Boston Globe, CNN, 60 Minutes, the BBC, and newspapers and magazines in dozens of countries around the world. – Wikipedia

Why There Is No Hope for Haiti

What This Article Covers

  • Haiti, Hope and History
  • A Brief History of Haiti
  • The Alliance of the State Department and the World Bank
  • Haiti’s Unsustainable Population
  • Why Aid to Haiti Does Not Work

Introduction

Charities often attempt to make the Haitian problems temporary and due to a natural disaster, when in fact, the problems in Haiti are endemic, and the US government is responsible for many of them. Being for hope in Haiti means opposing US foreign policy and putting pressure to bear on the State Department.

Haiti, Hope and History

After the earthquake in Haiti, there has been a great deal of US news coverage and discussion about giving “hope to Haiti.” What most people miss out on is the hand that the US and other powers have had in making Haiti the decrepit mess that it currently is. Obama’s statement regarding the disaster is misleading.

Obama’s statement regarding the disaster is misleading.

“With just a few hundred miles of ocean between us and a long history that binds us together, Haitians are our neighbors in the Americas and here at home.”Barack Obama

This comment is high comedy. The only history the US has in Haiti is exploiting the Haitian people. The fact that the statement is made by an African-American president makes it ironic but is just a testament that if you pay a person enough, they will say anything. As with most politicians, Obama is excellent at lying for a living and covering up important information that can help understand a topic area.

So let us get into important details regarding Haiti.

Brief History of Haiti

There are some facts that the aid organizations and Obama would like you not to know.

  • The US installed a puppet regime and supported it with a nineteen-year military occupation from 1915 to 1934.
  • They also had a hand in destabilizing presidents that were not considered pro-US corporation in the years that proceeded the occupation. The logic for the initial invasion was fairly typical and completely illegal. It was that due to the assassination of the Haitian president (most likely arranged by the US), that the US needed to safeguard US assets in Haiti. This was approved by colonial US President Woodrow Wilson.

The Alliance of the State Department and the World Bank

While using debt to control countries is the current strategy of the State Department through its proxies the World Bank (which reports to the Department of the Treasury) and the IMF (which also receives funding mostly from the Treasury).

As early as 1915 the US was using the same tactic of offering loans that it new Haiti could not pay back to control the politics of the country. And the US is not alone, the French, Dutch and English all had a hand in abusing Haiti as the quote below demonstrates:

And the US is not alone, the French, Dutch and English all had a hand in abusing Haiti as the quote below demonstrates:

“Economically, French occupation was a runaway success. But Haiti’s riches could only be exploited by importing up to 40,000 slaves a year. For nearly a decade in the late 18th century, Haiti accounted for more than one-third of the entire Atlantic slave trade. Conditions for these men and women were atrocious; the average life expectancy for a slave on Haiti was 21 years. Abuse was dreadful, and routine: “Have they not hung up men with heads downward, drowned them in sacks, crucified them on planks, buried them alive, crushed them in mortars?” wrote one former slave some time later. “Have they not forced them to eat excrement? Have they not thrown them into boiling cauldrons of cane syrup? Have they not put men and women inside barrels studded with spikes and rolled them down mountainsides into the abyss?”The Guardian

Moreover, in exchange for diplomatic recognition from France, the new republic was forced to pay enormous reparations: some 150m francs, in gold. It was an immense sum, and even reduced by more than half in 1830, far more than Haiti could afford.

“The long and the short of it is that Haiti was paying reparations to France from 1825 until 1947,” says Von Tunzelmann. “To come up with the money, it took out huge loans from American, German and French banks, at exorbitant rates of interest. By 1900, Haiti was spending about 80% of its national budget on loan repayments.” – The Guardian

Actual analysis of history shows how “serious” countries like France and Germany are when they discuss the abhorrent US foreign policy. Not at all. And France and Germany are insistent that you don’t ever learn of this history.

Haiti’s Unsustainable Population

Haiti has a population of 9 million, which is just far too high for the island’s resources. Haiti shares its island with the Dominican Republic, but the Haitian side is ecologically devastated and mostly stripped of its trees. Still, the average Haitian woman has 3.12 children and Haiti as a country seems intent on seeing how deep of a disaster is can create for itself through no family planning and fouling of their environment.

In several years Haiti could repeat the experience of Easter Island.

Why Aid to Haiti Does Not Work

No economist would be paid to perform this research, but countries that accept aid from other countries do not do well. One reason for this is that countries don’t care about the welfare of other countries, but use the aid as a cover to politically influence the “assisted” country and get their business interests in the country. This is not to say that there are not idealist aid workers who genuinely want to help, but the people in powerful positions in the aid organizations are puppets for business or foreign political interests. Another problem is the receiving country becomes reliant on the aid. There are now a number of books that describe what a complete scam organizations like the World Bank and IMF are and the actual intent of their programs, so much so that the entire concept of foreign aid is being questioned in serious progressive economic circles.

Conclusion

Due to centuries of mismanagement and colonial intervention Haiti is a basket case, and a basket case that the US would like to deny responsibility for.

Historically a blank slate, most Americans are able to accommodate the prevailing view that Haiti is just responsible for all its problems. No matter what the short-term improvement in conditions, the situation in Haiti is hopeless because the island’s resources are depleted through mismanagement, and Haitian population is so out of control that the only answer is for the Haitians to immigrate off of the island. When they do immigrate, the exodus of millions of illiterate devastated peoples will cause dislocations and social strife in any country that they immigrate to. The US will continue to undermine efforts for Haiti to the right itself by attempting to exploit Haiti for its corporations.

Getting Better Outcomes

Rather than giving money for earthquake relief, a more powerful gesture would be to begin opposing the US use of military and economic power to subjugate weak countries worldwide. The US is involved in the use of intimidation to get its punitive pro-corporate across in every country on the globe and is currently using this same technique against Iran, which illegally occupying two countries (Iraq and Afghanistan). To reduce human suffering, it is important to know where to look. The place to look, the place to put one’s efforts is to contradict and oppose the US.

References

https://en.wikipedia.org/wiki/United_States_occupation_of_Haiti

https://www.guardian.co.uk/world/2010/jan/14/haiti-history-earthquake-disaster

Understanding How Adam Smith Favored Labor Unions

Executive Summary

  • How the anti-union big money interests cherry pick Adam Smith’s work.
  • Big money fashions a moral philosopher as an amoral Wall Street trader.
  • Adam Smith’s real view of labor.

Adam Smith understood the unequal treatment between when companies combine to keep wages low vs. when labor combines to maintain high wages.

Cherry Picking Adam Smith’s Work

Adam Smith is almost never read by people that quote him and that what quotes do come from him is cherry picked by elitist institutions such as The Hoover Institute, and The Heritage Foundation to support their pro-corporate agendas.

Adam Smith Fashioned as an Amoral Wall Street Trader

Adam Smith is presented to us by conservatives as something like a Wall Street trader constantly extolling the virtues of the “free market.” Free market should always be in quotes, as very few free markets exist or are allowed to exist by the monopolies that control the economy and being divorced from all morality. Undiscussed by the elites is Adam Smith’s consistent moral discussions in all of his works, but in particular his book The Theory of Moral Sentiments.

Being immoral, The Hoover Institute, Exxon and Goldman Sacks don’t seem to acknowledge that this book exists because it describes how people naturally empathize with those in need. And that it could lead people to strive to maintain good relations with their fellow human beings, and how this can serve as the basis to structure a system to benefit the most people. How inconvenient it must be that Adam Smith’s position at the University of Glasgow was not Professor of Economics, but Professor of Logic and Moral Philosophy.

https://en.wikipedia.org/wiki/The_Theory_of_Moral_Sentiments

Adam Smith and Labor

Another view of Adam Smith which is not discussed is his view on labor. Elite institutions have not brought Adam Smith’s statements on labor to the masses because it does not fit with their interests. In the US, the current understanding of labor is that when companies use HR, manipulation, and intimidation of employees to keep wages low, that this is the company’s right, is “good business” and is just what companies do. Therefore when Wal-Mart or McDonald’s flies crack union-busting teams around the US in a private jet to wherever there is possible union activity, this is considered within their rights. However, when workers attempt to combine, this is seen as a form of socialism, leading towards a slippery slope to communism.

According to current US thinking, labor unions are a slippery slope to communism. However, there is a problem with this. Mainly that the Soviet Union nor China never had the type of unions designed to negotiate higher pay for workers.

“In the case of the Soviet Union, the unions they did have, called Soviet Trade Unions “were government organizations whose chief aim was not to represent workers but to further the goals of management, government and the CPSU. As such they were partners of management in attempting to promote labor discipline, worker morale, and productivity. Although they were also empowered to protect workers against bureaucratic and managerial arbitrariness.”Wikipedia

Thus, this thing which is a slippery slope to communism did not, in fact, exist under communism. However, the fact that this is historically inaccurate does not bother the people that say it or repeat it, because they are not historians, but propagandists by trade. So far the propaganda has worked.

So, in addition to being completely inconsistent (praising corporation’s efforts against workers, while criticizing workers), corporate America’s God, i.e. Adam Smith, did not agree with this. Adam Smith clearly saw no difference between companies “combining” to reduce wages vs. employees “combining’ to increase wages. And he did note that the activities were treated very differently during the time that he lived in the 1800s.

“We rarely hear, it has been said, of the combinations of masters, though frequently of those of workmen. But whoever imagines, upon this account, that masters rarely combine, is as ignorant of the world as of the subject. Masters are always and everywhere in a sort of tacit, but constant and uniform, combination, not to raise the wages of labour above their actual rate…Masters, too, sometimes enter into particular combinations to sink the wages of labour even below this rate. These are always conducted with the utmost silence and secrecy till the moment of execution; and when the workmen yield, as they sometimes do without resistance, though severely felt by them, they are never heard of by other people” In contrast, when workers combine, “the masters..never cease to call aloud for the assistance of the civil magistrate, and the rigorous execution of those laws which have been enacted with so much severity against the combination of servants, labourers, and journeymen.” A Wealth of Nations

There are many anti-monopoly and collusion quotes in Adam Smith’s works such as the following:

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” – A Wealth of Nations

Conclusion

The more one reads Adam Smith; the more one sees many areas to criticize conservative business policies. For instance, Adam Smith was vehemently opposed to monopolies as “Monopoly is a great enemy to good management,” however many of the companies that quote Adam Smith are…..you guessed it, monopolies. The fact that elites have been able to get away with misappropriating Adam Smith’s work demonstrates how weak the forces against corporate power are, and how ineffectual academics is in contradicting false statements made by corporations and their think tanks, and how little Americans seem to read, and how easily they are propagandized.

References

https://en.wikipedia.org/wiki/The_Theory_of_Moral_Sentiments

Ricardian Trade Theory Misappropriated by Corporations

What This Article Covers

  • A Misappropriated Theory
  • Is This What David Ricardo Was Talking About?
  • Understanding Fake Trade
  • Trade in the Future
  • How Globalization is Often a Scam

Introduction

David Ricardo was the originator of the trade theory which is referred to as comparative advantage.

This book, Principles of Political Economy, introduces the theory of comparative advantage. According to Ricardo’s theory, even if a country could produce everything more efficiently than another country, it would reap gains from specializing in what it was best at producing and trading with other nations. (Case & Fair, 1999: 812–818). Ricardo believed that wages should be left to free competition, so there should be no restrictions on the importation of agricultural products from abroad. Comparative advantage forms the basis of modern trade theory, reformulated as the Heckscher-Ohlin theorem, which states that a country has a comparative advantage in the production of a product if the country is relatively well-endowed with inputs that are used intensively in producing the product.- Wikipedia

A Misappropriated Theory

However, while Ricardo is often quoted by corporations and organizations that they pay to advanced their position (think tanks, major media outlets like Fortune, Forbes and the Wall Street Journal), what is often left out is how far current trade practices diverge from trade theory. Currently, businesses engage in trade to take advantage of the following:

  • Lack of environmental regulations in other countries
  • Lack of labor standards or safety standards in other countries
  • Transfer pricing (where a product is sold to a subsidiary and in a low tax country and then resold to another subsidiary in a high tax country, effectively removing the tax burden)
  • Use of the threat of relocating plants to drive labor concessions in high-cost countries

Is This What David Ricardo Was Talking About?

Ricardo discussed none of this, and most likely would have supported none of this. However, these “advantages” are driving a tremendous amount of trade. Engaging in business or setting up plants to remove oneself from regulation violates the spirit of having regulation in the first place, and furthermore reduces the leverage of countries in maintaining standards as businesses can threaten to move facilities to places with no regulation. Because of this, China is now an environmental catastrophe in the making. Maquiladoras in Mexico lack clean water for their workers, but it is not because of why you may think.

Understanding Fake Trade

It turns out that major US firms dump industrial waste containing heavy metals directly into their workers water supply. Secondly, as pointed out by Noam Chomsky, many of the activities that are listed as trade, would not have been considered trade in the past. Sending material over to Mexico for basic assembly to dump hazardous waste and then take the profits out of the product before it is brought back and sold to a subsidiary within the same company is not trade but an inter-company transfer.

Trade in the Future

Trade, a nice idea, in theory, has become an excuse and cover for unethical behavior by corporations. In addition to the direct negative ecological and human consequences of trade, “globalization” has become a catch-all excuse for companies to walk away from obligations and to further enrich their executives. One mindless business television programs, many individuals comment that in a global economy US executives are worth even more (hard to see how, as US executives are the most expensive in the world, in a real market, this would drive their rates down as it does for manufacturing workers).

How Globalization is Often a Scam

Conversely, we are told that globalization also means lower wages for normal American workers because “we have to be competitive in a global economy.” So which is it, does globalization increase wages or decrease them? The answer is it increases them for those that are protected from international competitions (executives, doctors, lawyers), but decreases it for those subjected to international competition (manufacturing workers, IT workers, etc..). Because it reduces the wages of normal or average Americans, it is even more popular with the wealthy.

Reducing the wages of average Americans and undermining the standards regarding workplace safety, clean drinking water, and public education and so on are the perennial interest of the elite all over the world, and in the US as well. Globalization is simply a handy tool to leverage toward that end.

Investment Bankers Destroy $7 for Every $1 They Take in Compensation According to NEF

What This Article Covers

  • Value Creating Professions
  • Value Destroying Professions
  • Accounting for Social Costs

Introduction

In an excellent study of the value provided by different professions, the New Economics Foundation has published the type of work that could simply not be published at any economics university in the US, and probably in the UK due to political reasons.

The following excerpt is from an online source we are enthusiastic about, the New Economics Foundation. The proposals below will be very hard for most Americans even to understand as we are so thoroughly propagandized and most of us worship the rich almost like our personal gods.

The NEF is really onto something by quantifying the benefits (or costs) that different professions bring (or impose) to society. If efficient markets prevailed, investment bankers would have to pay roughly seven times their salary to perform their professions, and professions like hospital cleaners would go up by a factor of 20.

According to the NEF:

Value Creating Professions:

  • Waste Recycle Workers = $12 in societal value created for every $1 taken in wages
  • Hospital Cleaners = $10 in societal value created for every $1 taken in compensation
  • Childcare = between $7 and $10 societal value created for every $1 taken in compensation

Value Destroying Professions

  • Tax Accountants = $47 societal value destroyed for every $1 taken in compensation
  • Advertising Executive = $11 societal value destroyed for every $1 taken in compensation
  • Investment Banking = $7 societal value destroyed for every $1 in compensation taken

Accounting for Social Costs

Because social and environmental costs are not properly accounted for, the market tends to oversupply products that may have a significantly negative environmental or social impact – such as cheap consumer goods and complex financial products. In the same way we underpay work that has a high social value, creating high vacancy rates in our most important public services such as nursing and social work. By making social value creation an important societal goal we could set the right incentives to maximise net social benefits, ensure a greater return to labour rather than capital, and a more equal distribution of economic resources between workers.

High-earning investment bankers in the City of London are among the best remunerated people in the economy. But the earnings they command and the profits they make come at a huge cost because of the damaging social effects of the City of London’s financial activities. We found that rather than being ‘wealth creators’, these City bankers are being handsomely rewarded for bringing the global financial system to the brink of collapse. While collecting salaries of between £500,000 and £10 million, leading City bankers to destroy £7 of social value for every pound in value they generate.

Both for families and for society as a whole, looking after children could not be more important. As well as providing a valuable service for families, childcare workers release earnings potential by allowing parents to continue working. They also unlock social benefits in the shape of the learning opportunities that children gain outside the home. For every £1 they are paid, childcare workers generate between £7 and £9.50 worth of benefits to society.

Until goods and services reflect the real costs and benefits of their production, incentives will be misaligned with the kinds of positive behaviours society wishes to promote. Getting the prices right would affect relative profitability and so would align what wages could be paid with the value that is created. Consumption and corporation tax are two vehicles for doing this, but they need to be applied in a progressive way.

One of the reasons why a minimum wage has become the norm is because it has been accepted that perfect competition does not exist and that employers have ‘monopsony’ power – the power to set wages. It is increasingly evident however, that workers at the top end have the power to command salaries over and above what the market will bear.

The disconnection between executive remuneration and corporate performance means that high pay differentials cannot be rationalised by performance delivery. An honest analysis ought to concede that the executive elite has the power to demand and receive excessive pay without being bound to contribute greater returns. Remuneration committees are both self-regulated and self-fulfilling, comprised as they are of members of the executive elite. Shareholders have little power to contain management pay.

It has been claimed that workers at the top end of the income scale work long hours and therefore ‘deserve’ higher earnings. There are several factors, however, that are not usually taken into consideration when calculating hours worked.

One of these factors is the fact that the poorest in our society are just as likely to work long hours in a main job and/or to take on multiple paid jobs. Many need to do so to make ends meet.

The private sector is more efficient than the public sector, hence the higher salaries
Work that is cheap is not necessarily work that is effective. This myth about the supposed efficiency of the private sector has contributed to an increase in competitive tendering of public services to private contractors. It has also been used to justify spending less on a service. But lower prices often come at a cost.
In the case of hospital cleaning UNISON has shown how cost savings have been generated by paying staff less and allowing working conditions to deteriorate. Cost cutting can reduce the time spent on cleaning and affect the quality of the cleaning service as a whole. Competitive tendering can thus lead to all sorts of negative consequences.

Similar trends emerge when we broaden the question to include goods and services that traditionally fall outside of public services. Our current system – in which efficiency means doing more for less – can actually crowd out many of the things that we value as a society. It means it is ‘efficient’ for City bankers to devise more and more creative financial products rather than provide sustainable access to finance. It means it is ‘efficient’ for advertisers to motivate consumers to eat more and more cake, regardless of the costs in obesity-related health problems for the state. It also means it is ‘efficient’ for the cake that the advertising agencies promote to be extravagantly packaged and exported half way across the world – regardless of the environmental impact. We need a new definition of efficiency, one that takes account of outcomes.77 Efficiency savings will be misleading unless we include the true social and environmental outcomes of the goods or services being produced. The concept of ‘efficiency wages’ is useful here. This term describes the situation where it is more effective to pay staff above the minimum wage. It can build loyalty, increase incentives for staff to do their job effectively, and enable people to enjoy a decent standard of living.

Orthodox economic theory suggests that people will choose to live and work where they stand to gain most in terms of personal finances.82 Given the opportunity, the theory says, they will move from a high tax jurisdiction to a low tax one to keep a higher share of their pay.

Intuitively, however, we understand that decisions on whether to emigrate are far more complex than that. They depend on a multitude of factors beyond just the financial, including cultural familiarity, environment, proximity to friends and family, and quality of public services.83
If it were the case that higher taxes caused wealth to flee we would expect to see an exodus of the wealthier citizens of Sweden, Denmark, Norway and France – the countries with the highest tax rates. A glance at the latest Forbes billionaires list84 reveals that of four Norwegians on the list all live in Norway, the two Danes live in Denmark, five of the nine Swedes live in Sweden, and eight of the ten French live in France.

Some of the super-rich like to hide behind the myth that they contribute more to our society than the rest of us. Think of all the tax they pay, the argument goes, and their very visible charity donations.

In the United States the economist Simon Head has calculated that the average weekly wages of the bottom 80 per cent of the working population fell by 18 per cent from 1973 to 1995, while the pay of the corporate elite rose 19 per cent before taxes. This increase reached 66 per cent after the tax accountants had ‘worked their magic’.86 In the UK executive pay increases in the past decade have vastly outstripped those for employees, on top of which the rich pay proportionately much less of their income in tax than the poorest.

Not only do the rich pay less tax, but they often form a powerful lobby to erode the tax base of the economy. They have supported the propagation of the misguided view that tax cuts are good for stimulating growth and even increasing government tax revenues. The Nobel Prize- winning economist Paul Krugman claims that this is not true in the context of the United States. The tax cuts of the Bush administration that disproportionally benefited the most affluent had disastrous consequences for the economy. They contributed to converting the $230 billion surplus inherited by President Bush into a $300 billion deficit.

Rich people who avoid paying tax often justify this by referring to the inefficiency of public services. Some hide behind a smokescreen of high-profile charity donations. However, the rich actually donate less in relative terms to charity than the poor. The top fifth of households give less than 1 per cent of their income, while the poorest tenth give 3 per cent. In fact, inequality in income terms is echoed by unequal philanthropic giving.89 It is as if the small-change contributions of the super-rich are merely a salve to a guilty conscience for some. Polly Toynbee has stated that “true philanthropy in the modern world is tax-friendliness: public acknowledgement that a reputable mechanism exists to extract money from those who have too much and give to those who have nothing”. – NEF

How About Cap and Trade for Illegal Activities?

What This Article Covers

  • Cap and Trade Madness
  • Do Murder Credits Make Sense?

Introduction

There has been a lot of talks recently about “cap and trade.” This is a scheme whereby instead of having a straight-forward regulation that simply sets limits on pollution and punishes those that violate those regulations, Wall Street is extremely enthusiastic about setting up yet another casino where they will control a marketplace of “pollution credits” and the taxpayer will lose.

Cap and Trade Madness

The idea is that this will somehow be more “efficient” than simply regulating pollution. This is a strange thing to think and only works if the person pitching or listening to this message has no experience with regulation or even with the legal system. Society setting limitations or restrictions on certain types of behavior that cause negative externalities (that is bad things happen to society, while good things happen to the perpetrator) is quite straightforward and well tested.

A standard is set, and those that violate the standard are punished. All that is needed is a publishing of the standard, and then an enforcement mechanism. This works pretty well for say….limiting crime. One wonders why this is so inapplicable to pollution. The reason why the proponents of cap and trade think it isn’t is that cap and trade are more efficient. How, and why this is the case is not demonstrated. However, if cap and trade work for the negative externality of pollution, why not for other things?

Do Murder Credits Make Sense?

For instance, Wall Street could also trade the credits of various illegal activities such as murder or grand larceny. Say for instance that you wanted to murder someone, but feared to go to jail? Well, you could buy murder credits, which is purchase the credits from other people who don’t plan on murdering anyone, and then when you have enough gone and commit your murder. Seems pretty efficient, because the person you bought the credits from was not going to use them, and secondly, you have saved the government the time and effort from having to prosecute you.

Finally, and most importantly, Wall Street made their cut from the transaction. Seems like a great deal for everyone….except of course the person who got murdered….and their family. This essentially would be a scam to maximize revenues to the state and Wall Street, while increasing the murder rate. And this is what will happen with cap and trade for pollution credits.

Conclusion

Those that buy and sell credits will maximize their pollution. However, we don’t want pollution maximized as a society. Now Wall Street will that that this is not true, that the credits can be managed in a win-win situation that will be better for everyone. Sure it will. However, when was the last time that Wall Street was right? About anything? Do we really want the greediest and sleaziest people on the planet setting or manipulating our pollution standards? So the people that brought us the mortgage-backed security meltdown are here to improve the environment now? If you believe that, I have part of a bridge in Brooklyn to sell you.

Wall Street’s special privilege is the ability to shake down Main Street and taxpayers. The old logic was that Wall Street was necessary for raising capital, however, only $1 out of every $113 dollars actually goes to company capital. The rest is frittered away on fees, gains to executives and gains by speculators (mostly the wealthy). Now normal businesses will have to pay a cut to Wall Street so that they can “manage” the market for pollution credits.