Is the Tea Party Fit to Govern?

In order to lead in a democracy, representatives must comprehend the consequences of their actions, respect democratic processes and not recklessly or intentionally disable the government from functioning in accordance with the wishes of the people. The US Government is the United States of America and its operation is a direct reflection of the democratic wishes of its people as expressed (albeit imperfectly) in our elected leaders. When one speaks of loving America and patriotism, those ideals cannot be divorced from the government. True patriots are willing to make supreme sacrifices on behalf of their fellow citizens and in support of their government.

The best analysis of the fiscal position of the US government immediately prior to October 17, 2013 (when the government would have hit the debt ceiling without the intervention of responsible leadership on both sides of the aisle) shows that the US government would not be able to pay its legal obligations as early as October 22, 2013. After that the US would pile up more and more unpaid legal obligations. Failure to pay legal obligations is a default--whether it is the mortgage payment or the credit cards. It is no different for the government. The default on one legal obligation calls all other legal obligations into question. That is why major holders of US debt assumed such a aggressive position in asserting that the US must pay its lawful obligations and not pick and choose which creditors to pay. US obligations used to be a zero risk instrument; now we must pay more because partisan politics impedes the ability of the government to make payments on its lawful obligations. If the US misses payments the value of all its obligations decline--that is basic finance and an iron rule of market discipline. Call it Economic Logic 101.

But even if that problem could be overcome (and it cannot), it appears that the US Treasury is literally not wired for a selective default: "The Treasury Department maintains that it has no ability to pick and choose which bills to pay if it's short of cash. According to the agency's inspector general, its computer systems are designed to 'make each payment in the order it comes due.'" Thus, there was never any real possibility of selective default, logically or administratively.

Further, there is no legal basis for prioritizing same payments over others.  The law treats all obligations as legally binding. So, even if the Treasury could prioritize payments, because Congress has issued no legal direction on how to allocate funds, President Obama would be forced to break some laws, or ignore the debt ceiling limit to comply with more laws, a Constitutionally impossible position. Further, he would apparently enjoy unbridled discretion and power over the allocation of revenues among lawful obligations. Either way the utter lawlessness of this approach and the massive power transfer to the President apparently never dawned on the Tea Party leaders who led us into this (now imaginary) nightmare. After October 17, our constitutional democracy was doomed, as was our economy.

Yet, 18 GOP Senators and 144 GOP Representatives voted against raising the debt ceiling late on October 16. Did they intend to force Obama into unconstitutional acts so that they could impeach him? Did they want a constitutional crisis? Did it occur to them that our creditors would lose confidence in our obligations and that we no longer would be able to issue zero risk securities? Did they understand the costly consequences of continuing down the road to default?

The sad truth is that the Tea Party leadership was clueless at best. Here are some examples:

"You’re seeing the tremor before the tsunami here. I’m not going to raise the debt ceiling. I think we need to have that moment where we realize [we’re] going broke. I think, personally, it would bring stability to the world markets."  Ted Yoho, Tea Party Rep. from Fla.

"We have 10 times as much tax revenue as we've got annual interest on the debt obligations. So if the president does not want us to default on our credit or obligations, we won't." Mo Brooks, Tea Party Rep. from Alabama.

"I'm not as concerned as the president is on the debt ceiling, because the only people buying our bonds right now is the Federal Reserve. So it's like scaring ourselves." Richard Burr, Tea Party Senator from NC.

"If you don't raise your debt ceiling, all you're saying is, 'We're going to be balancing our budget.' So if you put it in those terms, all these scary terms of, 'Oh my goodness, the world's going to end' — if we balance the budget, the world's going to end? Why don't we spend what comes in?"  Rand Paul, Tea Party Senator from Ky.

"CNN’s Erin Burnett: You would be willing to make cuts, I want to make it clear, to entitlements, things like Medicare, that’s what you’re asking for [in order to raise the debt ceiling and avoid default]?
GOP/Tea Party’s Tim Huelskamp: We have had those votes, we’ve had those votes on numerous things, yes I will." Tea Party Rep. from Kan. (Interview with Erin Burnett).

These quotes demonstrate a complete lack of appreciation for democratic lawmaking under our constitution as well as basic principles of finance and economics. For example, the Federal Reserve simply is not the exclusive investor in Treasury debt and in no way would a default enhance stability in global financial markets. Similarly, imposing a balanced budget mandate in the face of a default would disable our nation in lasting ways that would be against the overwhelming majority of voters. Thinking otherwise is akin to believing in the tooth fairy or the Easter bunny.

Further, entitlement reform is necessary for long term budget sustainability. But, insisting upon either entitlement reform or default is contrary to all notions of democratic governance and completely contrary to the Constitution. If all politicians behaved this way democratic rule making would cease, our government would cease to function, and we would be in constant economic depressions. Defaults would become endemic to the system to maintain credibility behind the constant threat of default. Extreme conservatives should consider the patent irresponsibility if the Democrats insisted on default in exchange for the passage of Cap and Trade for carbon emissions.

Plainly, we cannot allow our system of government to devolve into political and economic terrorism. Otherwise, we all end up less prosperous, more impoverished and consigned to constant state of economic pain and misery. This is not the American tradition and this is not what made our nation great. Our common commitment to each other and democratic lawmaking necessarily imposes limits on the extreme measures we can permit for partisan advantage.

For these reasons, many of the leaders of the Tea Party (certainly those quoted above) simply have no right to continue in Congress. They are not fit to govern. Responsible elements of our political system must work for the defeat of those who share ideas like those expressed above and those who would otherwise resort to default as a tool of political advantage.

Benefit Corporations: New Indiana Law Review Article Explains and Explores the Virtues of Benefit Corporations

Recently, my article entitled "When Making Money and Making a Sustainable and Societal Difference Collide: Will Benefit Corporations Succeed or Fail?" appeared in Volume 46:3 of the Indiana Law Review.  To my knowledge, this is one of the first articles to examine the "benefit corporation" a new form of organization that is a recent legislative creation, existing in a handful of states.  I believe that benefit corporations hold a great deal of promise for socially-minded entrepreneurs.  I'm placing a link to the article on my SSRN page, and encourage you to download and review this article.  Below is a brief abstract of the article: 

• A quiet, but important, corporate revolution is afoot in the United States. Many of us, laypersons and corporate scholars alike, have not even noticed. A new type of corporate entity has been created-the benefit corporation.

• This article explores benefit corporations as a tool entrepreneurs can use to make money, foster environmental sustainability, and create societal improvement. Part I briefly examines who has been advocating for the creation and passage of benefit corporation legislation in the United States. Part II analyzes the statutory requirements to form a benefit corporation. Specifically, Part II discusses the issues of purpose, accountability, transparency, rights of action, and enforcement of those rights in connection with the creation and operation of a benefit corporation. Part III highlights the states that have passed benefit corporation statutes and highlights those considering similar legislation. Part IV examines the pre-existing use of benefit entities, in unincorporated form, through exploration of the benefit certification process. Finally, Part V offers a future prognosis and debates whether benefit corporations will succeed or fail.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2338140

The Utter Recklessness (and Worse) of Default

In my last post, I commended the 144 GOP Representatives who voted against default as well as the 24 GOP Senators who joined against default. I also commended the Business Roundtable for its farsighted stand against default.

But, one wonders why the option of default even became an issue. Virtually all experts agree that a default of the US Government would mean an economic cataclysm. For example:

"If there is that degree of disruption, that lack of certainty, that lack of trust in the US signature, it would mean massive disruption the world over and we would be at risk of tipping yet again into recession." IMF Managing Director, Christine Lagarde.

"Inaction could result in interest rates rising, confidence falling and growth slowing. . . . if default comes to pass it would be a disastrous event for the developing world and that will in turn greatly hurt the developed economies as well." World Bank President, Jim Yong Kim.

"The point is that with each passing day the debt limit is not increased the more damage it will do to our economy. If lawmakers don’t raise the debt limit by November 1, the economy will fall back into recession. If they can't raise it by the end of November, we will be dooming our economy and the entire global economy to a wrenching economic downturn with implications for years if not decades to come." Former Economic Adviser, McCain-Palin Campaign and Chief Economist, Moody's Analytics, Mark Zandi.

"It's very hard to see a silver lining. . . . It's a constitutional breakdown, [and] threatening financial Armageddon is blackmail. . . . A good guess is that it would be worse than you think." Former McCain Adviser and Harvard Economist Kenneth Rogoff.

"What sane people should be emphasizing is that in addition to the risk of financial disruption, there’s the certainty of huge pain from spending cuts and a crippling hit to economic growth." Nobel laureate Paul Krugman.

“If we miss an interest payment, that would blow Lehman out of the water. Lehman was an isolated company, and now we are talking about the U.S. government.” Former Bush Administration Official and Managing Director, BNP Paribus, Tim Bitsberger.

So, it is fair to say that with near unanimity economists and financial experts use terms like insane or Armageddon or catastrophic to describe the financial consequences of default. One thoughtful analysis of the risk of default by Nobel laureate Michael Spence demonstrates the loss of global economic clout. He states that "the long-run effects of the US default threat will be overwhelmingly negative," endangering our global economic leadership and international leadership.

The long-run effects of the US default threat will be overwhelmingly negative
Read more at http://www.project-syndicate.org/commentary/on-the-price-of-us-political-dysfunction-by-michael-spence#Cu3xzIWv1fJMpgcB.99

The long-run effects of the US default threat will be overwhelmingly negativ
Read more at http://www.project-syndicate.org/commentary/on-the-price-of-us-political-dysfunction-by-michael-spence#Cu3xzIWv1fJMpgcB.99

The long-run effects of the US default threat will be overwhelmingly negativ
Read more at http://www.project-syndicate.org/commentary/on-the-price-of-us-political-dysfunction-by-michael-spence#Cu3xzIWv1fJMpgcB.99

But, there are even more consequences of a default. For example, the Director of National Intelligence testified that the government shutdown degraded US intelligence capabilities and made a terrorist attack more likely. Fareed Zakaria reported that the shutdown comforted Al-Qaeda and encouraged them to launch more attacks to bleed us economically. The Army Chief of Staff, General Ray Ordierno, stated that "[t]he longer [the shutdown] goes on, the worse it gets. Every day that goes by, we are losing manpower, we are losing capability, so in my mind it is important we get this resolved."

Some claim the threat of default is treasonous. Given the patent costs and dangers implicit in the shutdown and the threatened default, one naturally wonders if these tactics constitutes treason. Most likely, it falls just short of treason. According to the United States Constitution, Article III, § 3: “Treason against the United States, shall consist only in levying war against them, or in adhering to their Enemies, giving them Aid and Comfort. No Person shall be convicted of Treason unless on the Testimony of two Witnesses to the same overt Act.” Voting to defund the US government or to allow a default  is certainly weakening our national defense, our anti-terrorist efforts, our economy and rendering indirect aid to our enemies. But there was no adhering to our enemies or any apparent intent to aid our enemies. If Congress declares war then certainly the refusal to raise the debt limit would be treasonous, but Congress has not declared war.

Nevertheless, this threatened default was the most anti-American and unpatriotic attack on our government and national security I have seen in my lifetime, short of war. In my next post I will spotlight specific individuals and so-called leaders who acted with the highest degree of recklessness and irresponsibility.

Responsible Leadership Averts Default

 

My last post on the debt debacle showed that as a result of extreme politics regarding the debt limit and funding the government the US economy: 1) has lost $150 billion in foregone output; 2) suffered employment losses totaling 900,000 jobs; and 3) must now pay up to $15 billion in additional interest payments per annum on our debt. Why?

Well, its hard to get a better source than the credit rating agencies. The Fitch credit rating agency put the US on negative watch on October 15, 2013 for "political brinksmanship" on the budget and debt limit. Here is the direct quote from Fitch regarding the primary reason for its action:

"The U.S. authorities have not raised the federal debt ceiling in a timely manner before the Treasury exhausts extraordinary measures. The U.S. Treasury Secretary has said that extraordinary measures will be exhausted by 17 October, leaving cash reserves of just USD30bn. Although Fitch continues to believe that the debt ceiling will be raised soon, the political brinkmanship and reduced financing flexibility could increase the risk of a U.S. default."

This harkens back to the Standard & Poors downgrade of 2011, also reported on this blog:

"The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy … [This] weakens the government's ability to manage public finances."

I want to focus first on the those who stood up and made sure that the US Government did not default on its obligations. Speaker John Boehner, for example, deserves credit for keeping his word--that he would not permit default--and taking the bill raising the debt limit to the floor of the House last night. In defying extremist pressure from the far right extremists in his party Boehner displayed exemplary leadership.  The same holds true for the 87 GOP representatives in the House who voted against default.

Senators Murkowski, Collins and Ayotte also deserve huge kudos for forging a bi-partisan coalition against default in the Senate. They too took a powerful stand in favor of keeping America strong and safe along with 24 other GOP Senators.

Similarly, the Business Roundtable, the lobbying group for American CEOs, (not usually a fan) deserves credit for clarifying the economic stakes of the default vote. Here is their statement:

"Now that the U.S. Senate has passed a bipartisan agreement to end the government shutdown and raise the federal debt ceiling, America’s business leaders strongly urge the House to follow suit immediately.  The government shutdown and flirtation with default have dealt a severe and entirely avoidable blow to America’s reputation around the world while harming economic growth and job creation."

Finally, President Obama must be applauded for essentially refusing to buckle to extra-Constitutional mechanisms to thwart the normal lawmaking processes of the US Government.

In my next post, I will discuss the reckless and irresponsible individuals and organizations that wanted a costly, anti-American, and unpatriotic default.  

Bill Gross on the Costs of the Shutdown and Debt Ceiling Fight

As I write, it appears that the budget impasse, the government shutdown and the debt ceiling debacle are all about to end. Assuming the GOP controlled house passes the current proposal on the table, and the crisis melts into the past, what were the economic costs of our dysfunctional politics?

Bill Gross, perhaps the world's foremost bond investor and debt expert, just appeared on CNBC and provided a decent first draft of the costs of political extremism.

First, he projects a one time hit to GDP growth from the uncertainty in DC of about .25 percent. Based upon current GDP, that is about $10 billion in lost GDP in this quarter. Other estimates put the cost at $24 billion. Hardly insignificant.

Second, he argues that perception of increased risk and volatility associated with US debt will add 5 to 10 basis points to the cost of our debt in terms of higher interest rates. That works out to about $15 billion per annum in higher government debt service costs. So basically, until the demise of extremist politics the US taxpayer will continue to pay for the risks of holding US debt. 

Moreover, this latest episode of extreme irresponsibility is simply the most recent since the financial crisis. A recent study estimates that the total hit to GDP arising from fiscal uncertainty since the crisis amounts to $150 billion, and up to 900,000 lost jobs.

I will write more on this topic in the next few days. But, it is clear that the irresponsibility of playing politics with the budget and debt ceiling is very costly to all Americans.

The 25 Highest-Paid Women in Corporate America

Safra Catz, CFO Oracle

I was looking at CNN-Money's website and came across something very interesting-a list of the 25 highest-paid women in corporate America.  I'll share the list with you.  Here goes the list by individual name, executive title, company, and total 2012 compensation package:

1.  Safra A. Catz, President and CFO, Oracle, $43,590,605

2.  Marissa A. Mayer, President and CEO, Yahoo, $36,615,404

3.  Sheryl K. Sandberg, COO, Facebook, $26,216,173

4.  Wellington J. Denahan, Chairman and CEO, Annaly Capital Management, Inc., $25,810,129

5.  Sharen J. Turney, President and CEO, Victoria's Secret, L Brands, Inc., $25,410,052

6.  Elizabeth A. Smith, Chairman and CEO, Bloomin' Brands, Inc., $24,450,233

7.  Irene B. Rosenfeld, Chairman and CEO, Mondelez International, Inc., $22,034,929

8.  Carol Meyrowitz, CEO, TJX Companies, Inc., $19,052,474

9.  Jane Elfers, President and CEO, Children's Place Retail Stores, Inc., $17,212,902

10.  Margaret C. Whitman, President and CEO, Hewlett-Packard Co., $15,362,142

11.  Virginia M. Rometty, Chairman, President and CEO, International Business Machines Corp., $15,361,725

12.  Renee J. James, EVP and General Manager, Software and Services Group, Intel Corp., $15,271,300

13.  Mary C. Erdoes, CEO, Asset Management, JPMorgan Chase, $14,700,000

14.  Sheri McCoy, CEO, Avon Products, Inc., $12,890,942

15.  Angela F. Braly, Former Chairman, President and CEO, WellPoint, Inc., $12,741,428

16.  Ellen J. Kullman, Chairman and CEO, DuPont, $12,730,440

17.  Kay Krill, President and CEO, ANN, Inc., $12,690,938

18.  Indra K. Nooyi, Chairman and CEO, PepsiCo, Inc., $12,577,115

19.  Jackwyn L. Nemerov, Executive Vice President, Ralph Lauren Corp., $11,792,285

20.  Debra A. Cafaro, Chairman and CEO, Ventas, Inc., $11,166,819

21.  Laura J. Alber, President and CEO, Williams-Sonoma, Inc., $10,110,372

22.  Ursula M. Burns, Chairman and CEO, Xerox Corp., $9,976,466

23.  Kathryn F. Fagan, CFO and Treasurer, Annaly Capital Management, Inc., $9,310,129

24.  Carrie L. Tolstedt, Senior EVP Community Banking, Wells Fargo & Co., $8,745,008

25.  Rosalind G. Brewer, Executive Vice President: President and CEO, Sam's Club, Wal-Mart Stores, Inc., $14,448,472


[photo of Safra Catz courtesy of Ilan Costica via Wikimedia Commons]

History in the Making: Janet Yellen Tapped to Become First Female Federal Reserve Chair

Janet Yellen

Later today,  President Obama is  scheduled to announce his nomination of Janet Yellen to serve as chair of the Federal Reserve.  This is history in the making-assuming Yellen's nomination is confirmed by the Senate.  Yellen would be the first woman to head the Federal Reserve in its 100-year history.

Yellen has a rich resume.  Yellen currently serves as the Federal Reserve's vice chair.  Previously, Yellen served as the president of the San Francisco Federal Reserve Branch.  Yellen previously served as chair of the Council of Economic Advisors in the 1990's during the Clinton Administration.  Yellen has taught economics at Cal Berkeley and the London School of Economics.  Most importantly, Yellen received her A.B. degree from my alma mater Brown University in Providence, Rhode Island.  Yellen received her Ph.D in Economics from Yale University-one of those other Ivy League institutions of dubious merit (you can add your own to the list-with the exception of Brown-you have six other choices).  Undoubtedly, Yellen brings an impeccable resume of past accomplishment to the table. 

Yellen's nomination comes on the heels of Larry Summers, President Clinton's Treasury Secretary, pulling his name from consideration as Fed Chair last week.  This is a step in a positive direction for the Obama Administration-who has been rightfully criticized for failure to promote women to key and meaningful positions within the government.  Male or female, Yellen's ability has been demonstrated through an incomparable record of service.  She is among the best people for the job.  I'm excited to hopefully see history being made.  Now, if only we could get Congress to end this government shutdown, and pass some meaningful legislation.....I guess that's asking for too much!!!  

The Foreclosure Crisis Recovery Is Enriching the Elite

As the housing market continues to rebound, it appears that those benefiting the most from the recovery are wealthy Americans and real estate corporations.  In her New York Times piece  Boom Bust Flip, economic reporter Catherine Rampell describes how most foreclosures during the mortgage crisis occurred in middle and lower class neighborhoods, often when big banks refused to renegotiate mortgages.  Most purchasers of foreclosed properties in the past five years have been wealthy Americans and large corporations like Blackstone, the private equity giant.  Foreclosed properties were purchased at deep discounts and are now being resold at close to or in excess of the the original purchase price of those that were foreclosed on - meaning that housing prices have rebounded in some areas to close to pre-crisis levels.  However now, the original middle and lower class homeowners have foreclosures on their record while wealthy Americans and large corporations are profiting handsomely on the housing price rebound. 

Rampell describes this trajectory as follows:  "There’s a popular perception that so-called McMansions and Garage-Mahals brought down the housing market. Yet more than half of all homes that went into foreclosure between 2007 and 2012 were actually in the lowest price tier when they were purchased, and most were located in middle- and lower-income areas. As foreclosures mounted and home prices plummeted, observers have noted, it was disparately the wealthier investors who bought them up at bargain prices. (Credit was hard to come by, after all, which benefited cash buyers.) Blackstone, the private-equity giant, bought almost 30,000 homes around the country and now has a nationwide single-family-home rental platform. . . . 

Now, five years after the start of the financial crisis, the housing market has come back, and many of these investors are cashing in. According to tabulations by Redfin, an online real estate listings site, banks have already sold about 1.5 million of the nearly 2 million homes that were foreclosed on during the past half-decade. Resales are becoming more common and can be hugely profitable. A house in Redwood City, Calif., for instance, was sold in a foreclosure auction in 2011 for less than half what the evicted owner paid in 2006. Ten months later, it was flipped for close to its previous price. Another house in Los Angeles went into foreclosure in 2012 and was flipped seven months later for a markup of $254,000, or 66 percent. Of the 87,062 foreclosures in the last five years that were bought by corporate investors and have been flipped, about a quarter were sold for at least $100,000 more than what the investor originally paid, according to Redfin."

Once again, Main Street suffers while Wall Street scoops up piles of cash.  As noted by Rampell: "The boom-bust-flip phenomenon is just one of the most obvious ways that research suggests the financial crisis has benefited the upper class while brutalizing the middle class. . . . Even before the recession, inequality was growing. Now, despite all the promises that politicians of both parties have made, the housing market and public policy are helping to accelerate the [inequality] trend."

Will Wall Street's Fleecing of Main Street Citizens Never Cease?

Matt Taibbi

I am growing weary of the ways that Wall Street manufactures wealth and "growth" from thin air,
providing no real public good, but rather re-routing cash flow to elite bankers while engaging in voodoo economics.  The latest incarnation of Wall Street's duplicity and fleecing of Main Street workers is through the recent nationwide trend of moving pension fund deposits into the hands of hedge fund financiers, all the while casting dispersions on workers and pension funds as the "cause" of crisis-like budget conditions in states the nation over.

Matt Taibbi, in his latest exposé, describes the looting of pension funds across the country by Wall Street bankers and hedge fund executives providing no real value, but collecting hundreds of millions of dollars in fees.  In "Looting the Pension Funds," Taibbi describes that astonishing audacity of Wall Street in refusing to accept any blame for the financial crisis of 2008 as the leading reason that state's across the country have been plunged into budget crises, and instead fingering pension fund existence and funding as the reason for state shortfalls while lobbying states to turn the investment dollars in pension funds over to Wall Street, through hedge fund investment and the collection of billions of dollars of fees, simultaneously exposing pension funds to the inordinate risk associated with hedge funds, rarely the type of risk that pension funds should assume.

Per Taibbi:  "This is the third act in an improbable triple-f***ing of ordinary people that Wall Street is seeking to pull off as a shocker epilogue to the crisis era. Five years ago this fall, an epidemic of fraud and thievery in the financial-services industry triggered the collapse of our economy. The resultant loss of tax revenue plunged states everywhere into spiraling fiscal crises, and local governments suffered huge losses in their retirement portfolios - remember, these public pension funds were some of the most frequently targeted suckers upon whom Wall Street dumped its fraud-riddled mortgage-backed securities in the pre-crash years.  

Today, the same Wall Street crowd that caused the crash is not merely rolling in money again but aggressively counterattacking on the public-relations front. The battle increasingly centers around public funds like state and municipal pensions. This war isn't just about money. Crucially, in ways invisible to most Americans, it's also about blame. In state after state, politicians are following the Rhode Island playbook, using scare tactics and lavishly funded PR campaigns to cast teachers, firefighters and cops - not bankers - as the budget-devouring boogeymen responsible for the mounting fiscal problems of America's states and cities.

Not only did these middle-class workers already lose huge chunks of retirement money to huckster financiers in the crash, and not only are they now being asked to take the long-term hit for those years of greed and speculative excess, but in many cases they're also being forced to sit by and watch helplessly as Gordon Gekko wanna-be's like Loeb or scorched-earth takeover artists like Bain Capital are put in charge of their retirement savings. 

It's a scam of almost unmatchable balls and cruelty, accomplished with the aid of some singularly spineless politicians. And it hasn't happened overnight. This has been in the works for decades, and the fighting has been dirty all the way."

And why select hedge funds to oversee investment of pension fund deposits?  Surely it cannot be about performance.  Again, from Taibbi:  "On Wall Street, people are beginning to clue in to the fact - spikes notwithstanding - that over time, hedge funds basically suck. In 2008, Warren Buffett famously placed a million-dollar bet with the heads of a New York hedge fund called Protégé Partners that the S&P 500 index fund - a neutral bet on the entire stock market, in other words - would outperform a portfolio of five hedge funds hand-picked by the geniuses at Protégé.  

Five years later, Buffett's zero-effort, pin-the-tail-on-the-stock-market portfolio is up 8.69 percent total. Protégé's numbers are comical in comparison; all those superminds came up with a 0.13 percent increase over five long years, meaning Buffett is beating the hedgies by nearly nine points without lifting a finger."

Can it be that the only real reason that pension deposits are being redirected to hedge funds and Wall Street, is so that Wall Street cronies can bilk investors out of millions of dollars of fees while cozying up to the politicians that direct the pension investments their way?  Seems so.

The Business of Human Rights: Moving Forward, Looking Back

Professor Jena Martin

A cutting edge conference hosted by Professor Jena Martin entitled "The Business of Human Rights: Moving Forward, Looking Back" is being held at the West Virginia University College of Law on September 23-24, 2013.  The conference features Bill Richardson, former U.S. Ambassador to the United Nations, as a keynote speaker.  The symposium also includes a variety of interesting panels, presentations and workshop sessions aimed at examining the role that multinational corporations play in global human rights.  The two-day symposium "will examine the United Nations’ recent work on business and human rights issues, an area that has grown substantially in the last ten years. Highlights of the subject’s growth include the United Nations’ establishment of a Working Group on Business and Human Rights and its adoption of the Guiding Principles for business and human rights. Participants will use these two major events as a focal point for discussing the roles that corporations, civil society, and states can all play in advancing the cause of human rights."

Bill Richardson

Day one focuses on a "Practicum on Human Rights and Risk Management" facilitated by Roger Branigin, the Executive Director of the Global Corporate Community of Practice for Business and Human Rights.  Day two features a "Symposium Exploring Some Themes for Business and Human Rights, featuring academics and corporate representatives from across the United States and around the world.

The conference agenda can be viewed here.

The live webcast can be viewed here.

Is the Current American Economy and Recovery a House of Cards?

According to Sanjay Sanghoee the current American economic recovery is deeply flawed and unsustainable.  Emerging evidence indicates that while the mortgage crisis of 2008 wiped out nearly 40% of wealth in the United States, nearly all of the economic recovery since that time has been reaped by the top 1% (fully 95% of the recovery gains have gone to the most wealthy Americans).  Inequality is growing and at it worst rate since the 1920s. From Sanghoee at the Huffington Post:

"Here are the hard facts:

• Unemployment in the United States, at 7.3 percent, is declining but only because people are giving up and leaving the work force completely.

• Income inequality in our nation is the worst it has been since the 1920s and almost double that of other developed nations.

• The average income of those in the top 1 percent is $717,000 compared to $51,000 for everyone else.

• The same top 1 percent also owns 42 percent of America's wealth, with the next 4 percent claiming another 30 percent.

• The financial crisis of 2008 wiped out 39 percent of the wealth in the United States, but the top 1 percent have reaped 95 percent of all income gains since that time.

• The average CEO of an S&P 500 company makes 204 times the income of rank-and-file employee and this ratio has increased by 20 percent since 2009.

• Two-thirds of minimum-wage earners in America live below the poverty line.

• Major companies like Walmart refuse to pay a living wage to most employees, make it impossible for workers to unionize, and deny them benefits by labeling full time workers as contractors (even as healthcare costs rise).

• Our Treasury loses $150 billion in revenues every year because of offshore tax shelters and $200 billion because of other loopholes that disproportionately benefit the wealthy, which then necessitates cutting public services and welfare.

• Social Security and Medicare, which low-income Americans and seniors rely on heavily for financial support, are projected to run out of money by 2033 and 2026 respectively, which will trigger a sharp reduction in benefits for both programs."

That the United States, with so many resources and creative intellects at its disposal, cannot get it together when it comes to inequality and poverty is a deeply disturbing proposition.

He’s baaaack: Viacom gives Michael Richards another chance.

 

    I stopped watching reruns of the sitcom Seinfeld about seven years ago when I heard about Michael Richards’ racist tirade in 2006 at Laugh Factory, a Los Angeles comedy club.  When heckled by two Black people attending his show, he called them “nigger” at least six times and said “Fifty years ago we’d have you upside down with a…fork up your ass.”  Richards played Cosmo Kramer - a buffoon - in Seinfeld.  It turned out that Richards himself is a buffoon – a racist one.  (After the incident, a spokesperson for Laugh Factory said that Richards was no longer welcome on their stage.)

     Richards apologized for his rant.  “I’m not a racist”, he said.  “That’s what’s so insane about this…and yet…it fires out of me.”  The insanity of this incident, however, is found in the fact that in his apology he denied being a racist.  Michael Levine, a publicist, predicted that Richards’ outburst would be “a career ruiner.” 

     Why am I blogging about this now?  The publicist was wrong.  It seems that Richards’ career may not have been ruined after all.  It was derailed for a while but he will be costarring in a pilot for TV Land with Kirstie Alley and Rhea Perlman this fall.  TV Land is owned by MTV Networks Entertainment Group.  MTV Networks is part of a division of the global media company Viacom.  Consumers who are offended by the revelation of Richards’ blatant racism should do all that we can to make sure that the prediction that Richards’ career would be ruined remains true.  It is not enough to avoid or boycott TV Land.  Consumers should communicate with decision makers at MTV Networks, and even Viacom, to express concern about a company willing to advance the career of an overt racist.

Momentum Shift in the Failed War on Drugs

Important news last week out of Washington D.C.:  The Justice Department will not challenge state laws in Colorado and Washington that legalize marijuana and will abruptly change focus in the prosecution of the War on Drugs.  In what is no doubt bad news to the private prison industry, federal enforcement will now shift focus from scooping up low level, non-violent drug offenders and instead prioritize stopping large drug cartels and kingpin operations.

From CNN:  "Under the new guidelines, federal prosecutors are required to focus on eight enforcement priorities, including preventing marijuana distribution to minors, preventing drugged driving, stopping drug trafficking by gangs and cartels and forbidding the cultivation of marijuana on public lands. . . .

Nineteen states and the District of Columbia allow some legal use of marijuana, primarily for medicinal purposes.  The attorney general told the Washington and Colorado governors that the Justice Department will work with the states to craft regulations that fall in line with the federal priorities, and reserves the right to try to block the laws if federal authorities find repeated violations."

As private prison profiteers have raked in billions of dollars of taxpayer money warehousing low level marijuana users, this shift in focus will now harm bottom line profitability.  Private prison corporations, perhaps anticipating the impending sea change, have already re-focused efforts to fill prison beds and maintain profitability by lobbying furiously for detention policies that imprison immigrants.  The next battle against the perverse incentives that motivate private prison corporations is shaping up to take place along immigration reform lines.

cross posted on the Hip Hop Law Blog

The Next Wave of Criminal "Clients" for Private Prison Profit

Just as Eric Holder seems to be signaling an end to the chaos and unsustainable economics of the War on Drugs, it appears that the talons of the private prison industry have already sunk deeply into its next prey/victim of choice.  As has been signaled for some time now on the CrImmigration blog and other outlets, criminal prosecution of undocumented immigrants has become the "new wave of non-violent" prisoners that are "flooding" into prisons in the United States.

This nation seems intent on locking up as many non-violent human beings as it possibly can, so long as the prisoners are persons of color, and this hysteria is driven furiously by private prison corporate influence, as the private prison regime seeks revenue and profit at every turn.

From Chris Kirkham:  "Now, just as the federal government has pulled back the throttle on the drug war, it is embarking on an unprecedented campaign to criminally prosecute undocumented immigrants crossing the border. The result: A new wave of non-violent offenders are flooding the nation's prisons.

'This is the crime du jour,' said Judith Greene, director of the nonprofit Justice Strategies, which has focused on the private prison industry's growing reliance on incarcerating undocumented immigrants. 'It's the drug war all over again. It's what's driving the market in federal prisons.'  Immigration offenders represent one of the fastest-growing segments of the federal prison population, providing a lucrative market for private prison corporations that largely control these inmates in the system. Over the last decade, revenue from the federal prison system has more than tripled for the GEO Group and nearly doubled for Corrections Corp. of America - the two companies that dominate the private prison industry."

The Economics and Immorality of a Failed Drug War

Many commentators now agree that the War on Drugs has become an epic failure.  That the Obama administration and AG Holder have publicly acknowledged as much is a good first step in correcting the fail, but it is just a small first step.  Holder's announcement is simply a policy shift.  This shift does not carry the weight of the law behind it, nor has any new legislative enactment mandated this change of policy direction.  And, as is the case in all policy decisions, it can later be reversed by a politician of a different mind.  Essentially, Holder's pronouncement means that federal prosecutors, who wield enormous discretionary power in our crime and punishment system, will be directed to use that discretion now to no longer prosecute low level, non-violent drug offenders to the full extent that the law currently allows.  Federal prosecutors have been directed to power down the charging authority handed them by Congress and the courts, that enables massively disproportionate punishment outcomes and devastating consequences.

Our nation's prisons are overflowing with low level, non-violent marijuana users and sellers costing the United States billions per year.  More than 40% of our country's prison population has been incarcerated on draconian marijuana convictions.  Of those drug convictions, more than 70% have been African American and Latino offenders.  The outrage in this outcome, is that statistics reveal that drug use occurs at a fairly consistent rate/percentage across races, meaning basically that the War on Drugs has been enforced in a wildly discriminatory manner.  Drug use percentages is essentially the same for white citizens, Asian citizens, African American citizens, and Latino citizens, yet 70% of convicted drug felons are black and Latino.  Law enforcement has systematically targeted minority and urban communities to win their drug convictions, literally steering clear of suburban, beach city, and University drug users.

Not surprisingly, local law enforcement has come out in opposition to Holder's policy announcement.  For three decades, national law enforcement has prosecuted the War on Drugs in a very systematic and discriminatory manner.  Holder's policy will force peace officers to begin targeting high level drug kingpins and cartel bosses, not low level, non-violent offenders who literally fill our nation's prisons to overcrowding.  Statistics will now be kept differently as police officers that turn low level drug users over to prosecutors will be sorely disappointed when prosecutorial discretion is used to refuse to charge the low level offenders, despite the draconian laws that call for such charging.

The tide seems to be turning on the drug war.  Momentum is growing for real and radical change.  Although this Holder policy shift is a small step, Adam Gopnik at the New Yorker argues in "Mandatory Sentences and Moral Change" that small steps can sometimes signal enormous sea changes.  I am optimistic that we can begin to turn back the incredibly misguided era of mass incarceration in the United States.  That said, corporate power and influence will have to be dealt with and thwarted as profit maximization in the private prison industry has become a powerful force in the U.S. punishment regime.