2012 and the Scope of the New Lawless Capitalism

On August 15, 2012, the New York Times reported that the US Department of Justice would not pursue criminal charges against Jon Corzine (right), or anyone else, in connection with the failure of MF Global. More than four months later, it appears the New York Times got that one right. The media silence on the case has been deafening. In fact, numerous Google searches turn up only the New York Times story on the MF Global criminal inquiry. The one exception is a Reuters report confirming the Times story on September 12, 2012. dre cummings blogged on MF Global's demise and the over $1 billion missing from customer accounts shortly after it declared bankruptcy.

It is possible that, as the Obama Administration has claimed repeatedly with respect to financial crimes, that while "much of the conduct that led to the financial crisis was unethical and irresponsible. . . .[W]e also have discovered that some of this behavior, while morally reprehensible, may not necessarily have been criminal." But that seems exceedingly unlikely.

First, the legal system ought to condemn morally reprehensible behavior that is very costly to society as the putative criminal behavior in the financial sector certainly was. Indeed, if such costly and anti-social misconduct is not criminal then the legal system is deficient and legislation must be introduced to promptly address these deficiencies. The Obama Administration has not expanded white collar crimes. I note that I proposed new criminal provisions to stem the too big to fail problem (criminal penalties for causing losses to a TBTF bank through recklessness) in 2009. Managers would likely avoid TBTF in the first instance rather than face such criminal sanctions. This proposal never attracted Obama Administration support. 

Second, bank fraud, wire fraud, mail fraud, and securities and commodities fraud are all federal crimes. MF Global never disclosed in statements mailed to customers (including banks) that they were dipping into customer funds in violation of exchange and CFTC rules. These customers no doubt lost massive amounts of money as even today payments on customer segregated funds total only 26 cents on the dollar. Shareholders also did not receive disclosure of this shoddy, illegal and fraudulent business practice. Consequently, it is certain that a massive fraud was committed. Further, we know who directed the fraud--Assistant Treasurer Edith O'Brien sent an email stating that Jon Corzine (or more precisely "JC") directed that customer funds be transferred to cover losses. The assistant treasurer invoked the 5th Amendment before congress in order to avoid incriminating herself.

So, the Obama Administration's claim that the conduct here "is not necessarily criminal" can only be termed utter hogwash with less than a 5 percent likelihood. MF Global definitely broke federal law. The only question is who directed the criminal conduct. Immunizing Edith O'Brien is the logical next step--if the government had any inclination to learn the truth and pursue criminal charges.

That brings us to the HSBC fiasco, which I blogged about a little more than two weeks ago. Again, here there was no doubt of pervasive and costly illegality. The bank admitted to money laundering for drug cartels and trading with the enemy--including Iran. Given our nation's eagerness to incarcerate young people of color pursuant to the the so-called War on Drugs, certainly banks that conspired with drug cartels would face harsh punishment for money laundering the proceeds of drug transactions, right? Wrong! HSBC and all of its agents face zero criminal sanction and only HSBC shareholders paid any fine. Those involved in petty drug transactions, even tangentially, on the other hand, get ridiculously harsh sentences.

Why did DOJ decide to let HSBC go completely unaccountable for massive criminality? Well, DOJ claims that punishing criminality in the financial sector (at least within the megabanks) may disrupt financial markets or cause importnt firms to fail. As I argued two weeks ago, this is absurd. The best means to destroy big finance is to telegraph to investors that financiers are not accountable for criminality. Why would anyone invest in a massive racketeering scheme?

So, the government has yet to even proffer a colorable claim why it does not pursue criminal charges against criminal bankers.

But, aside from the patent nonsense that DOJ now peddles to justify its abuse of prosecutorial discretion, is MF Global. MF Global was the largest bankruptcy since Lehman. Yet, the failure of MF Global had minimal impact on the stability of the financial system. It failed, and MF Global declared bankruptcy on October 31, 2011, but still the DOJ brought no criminal prosecutions against the firm or any individual.

Basically, the DOJ jumps from excuse to excuse for why criminal charges are not pursued in the financial sector. Sometimes they argue no crimes were committed--even when criminality is manifest. Other times they try to use the prospect of systemic risk to justify non-prosecution--even though going after individuals actually reduces systemic risk by bolstering confidence. The only thesis that makes sense is this: rich and powerful senior bankers now hold immunity for white collar crime. There is no policy at work, just pure political power.

Whether future jobs, lobbyists, campaign contributions or board seats are used, Wall Street elites simply hold too much sway in Washington to go to jail. Jon Corzine epitomizes this. He was one of the Obama campaign's top fundraisers. He raised over $500,000, although the campaign did return Corzine's direct contributions of $70,000. According to Bloomberg and the Government Accountability Institute, Attorney General Eric Holder's former law firm, Covington & Burling, represented MF Global (as well as virtually all of the megabanks). As of the date of bankruptcy, MF Global owed Covington over $114,000. (p. 26, para. 23).

This must qualify as the most under reported story of 2012. A new lawlessness grips the apex of the American economy and its scope remains highly obscure. The new lawlessness can only be discerned through leaks to the NY Times, like this and this. Between MF Global and HSBC there is is no longer any doubt that rich and powerful financiers enjoy criminal immunity from white collar crimes.

Compare this American reality with the Icelandic legal system's response to the financial crisis. Iceland just jailed a bank CEO and CFO for their role in the meltdown. As I highlight in Lawless Capitalism the rule of law in the US is collapsing.

In recent weeks the situation has gone from bad to worse.

More Cowbell . . .

Catching up on newsworthy events from a very busy 2012.  Below are links to stories that caught our attention this past year, but never quite made it onto our blog roll.  Happy Holidays and memorable reflections on a simultaneously exciting and challenging 2012.

From March 2012:

Tech Titans Fund Undocumented Students
The Wall Street Journal reported that Silicon Valley heavy-hitters, tired of waiting on Congress to pass the DREAM Act, were acting to assist undocumented graduates to stay and work in the United States.

Homeowners Battle Banks to Stop Foreclosures . . .  and Win
MSNBC reported that homeowners were taking their banks to court when they were faced with foreclosure and a bank that was unwilling to negotiate or work with the homeowner.  In many of these cases, because the banks could not prove homeownership or its practice of "robo-signing," the foreclosures were halted by the courts.

Former Coca-Cola Bottling Executive Charged with Insider Trading
The Washington Post reported that Steve Harold, a former Vice-President of Strategy and Innovation at Coca-Cola had been charged by the SEC with insider trading.  During a 2010 acquisition of a bottling company, Harold purchased 15,000 shares of Coca-Cola Enterprises (through his wife's brokerage account), the day before the acquisition was announced.  The next day, Coke's stock soared and Harold reaped a profit of $87,000 on an investment of about $290,000.

Bank Officials Cited in Churn of Foreclosures
The New York Times reported "Managers at major banks ignored widespread errors in the foreclosure process, in some cases instructing employees to adopt make-believe titles and speed documents through the system despite internal objections, according to a wide-ranging review by federal investigators."

From April 2012:

Lobbying Disclosures Shake Up Proxy Season
Business 2 Community reported that "[a]ctivist shareholders are aggressively pushing to get broan new lobbying disclosure initiatives on proxy ballots this year, in an effort to convince a number of corporations to voluntarily disclose campaign contributions to investors. . . .  Advocates of the new proposals are billing them as ‘a natural extension’ of shareholder campaigns calling for greater political spending transparency, which have led nearly 100 companies over the last seven years to voluntarily increase information available on company websites relating to campaign contributions."

Insider Trading Riddle:  Why Do The Rich Risk It?
Three high-profile cases beg the question, why do the wealthy risk insider trading?  In the past several years, three millionaires/billionaires have been accused/convicted of insider trading, all at profits that netted very little in comparison to their net worth, including Mark Cuban, Martha Stewart and Raj Rajaratnam.  Stewart saved $45,000 in losses based on her insider trading; Cuban avoided losing $750,000 of his $2.3 billion net worth by allegedly engaging in insider trading; and Rajaratnam was convicted of insider trades that took in $60 million, as his company managed $7 billion.  Why?

When Shareholders Make Their Voices Heard
From Gretchen Morgenson in the New York Times, the Dodd-Frank "say on pay" provisions are actually making an impact on executive compensation.  Though not binding, these votes, particularly when negative, are inspiring corporate executives to change their compensation structures and in some cases, take pay cuts.  "[An] example of a shareholder-induced change came at Johnson & Johnson. In 2011, its pay practices got a thumbs-down from a quarter of the shares voted at its annual meeting. This year, J.& J. revamped its long-term incentive program for executives. Out went longstanding cash payments for long-term incentives. Now, the company awards stock units that vest only over three years and after meeting three goals aligned with shareholder returns. The company’s proxy statement said the change came 'as a result of what we learned in 2011.'"

Why People Hate the Banks
Joe Nocera, in a New York Times op-ed, describes banking practices that justify the public's genuine distrust of banks and in some cases abhorrence of them.  Nocera writes:  "As it turns out, this same kind of awful behavior [subprime mortgage abuse] has been taking place inside the credit card collections departments of the big banks. Records are a mess. Robo-signing has been commonplace. Collections practices hurt primarily the poor and the unsophisticated, just like foreclosure practices. (I sometimes wonder if banks would make any profits at all if they couldn’t take advantage of the poor and unsophisticated.)."

From October 2012:

Mississippi Town Sued Over "School-to-Prison-Pipeline"
The Corporate Justice Blog continues to monitor the evils of the "prison-industrial-complex" and school-to-prison seems another byproduct of the broken prison regime in the United States.  The Department of Justice is suing a town and school district in Meridian, Mississippi for operating a system in which students are denied basic constitutional rights, sent to court and incarcerated for minor school infractions.  Further, ColorLines reports that the school-to-prison-pipeline has just received its first-ever airing before the United States Senate.

From December 2012:

That Terrible Trillion
Economist Paul Krugman talks about the federal deficit and describes, as Keynes would have, that an economic depression is not the appropriate time to cut government spending.

The GOP's Electoral College Scheme
As reported in The Nation, "Republicans alarmed at the apparent challenges they face in winning the White House are preparing an all-out assault on the Electoral College system in critical states, an initiative that would significantly ease the party's path to the Oval Office."

Elizabeth Warren and Timothy Geithner

Timothy Geithner with President Obama aboard Air Force One

Very important news coming out of Washington D.C. in recent days.  First, with the imminent departure of Timothy Geithner as head of the U.S. Treasury department in 2013, a unique opportunity for President Barack Obama has presented, where he has the chance to nominate, for the first time in a long time, a Treasury Secretary that is NOT a Wall Street puppet. Second, with the election of consumer protection expert Elizabeth Warren to the U.S. Senate (D., MA), the United States Senate has a unique opportunity to genuinely  utlize an individual with expertise when it comes to consumer protection and capital markets regulation.  Senator Warren has just been named as a member of the Senate Banking Committee.

As per Geithner's resignation, Professor Tim Canova has just published a compelling article with American Prospect entitled "Not Another Wall Street Puppet," where he calls upon President Obama to abandon the strategy of Treasury leadership direct from Wall Street, and instead adopt a strategy of nominating a Treasury Secretary that places the needs of Main Street, and middle class Americans, ahead of the needs and desires of Wall Street Banks.  According to Canova:  "In his first post-election press conference, President Barack Obama said voters had awarded him only one mandate: to help middle class families and those striving to reach the middle class. In line with fulfilling this charge, the administration’s top priority would be creating manufacturing jobs and rebuilding the nation’s schools and infrastructure. An early bellwether of the president’s commitment to this will be his selection of a replacement for Timothy Geithner, who is expected to step down as Treasury secretary early next year. The nomination presents an opportunity for a White House course correction, finally putting Main Street ahead of Wall Street. . . .

Most of the names mentioned as potential new Treasury secretaries are people with Wall Street backgrounds like BlackRock CEO Larry Fink, or deficit hawks from within the administration such as White House Budget Director Jacob Lew. After three decades of a Wall Street Treasury, that’s the last thing the country needs or voters want. What’s now needed is a secretary who can answer Obama’s convention-speech call for “bold, persistent experimentation”—language recycled from President Franklin Delano Roosevelt, whose administration was genuinely bold, experimental, and largely successful in confronting another protracted economic crisis."

Canova not only points out the failed strategy of Wall Street insiders as Treasury policymaker, but he suggests the names of individuals that would very likely fight first for American citizens and a robust middle class, rather than fighting first for the survival and profitability of Wall Street banks.  Canova suggests the following:  "First, Obama should consider nominating the first female Treasury secretary. Brooksley Born, chairperson of the Commodity Futures Trading Commission in the ’90s, sounded the alarm about the growing risks in the unregulated financial-derivatives market. Unfortunately, her warnings were beaten down by Alan Greenspan, Larry Summers, and Robert Rubin—Geithner’s old mentors. Sheila Bair, a Republican who, unlike the present Federal Reserve Chairman Ben Bernanke, would have swept out the failing bankers and broken up some big banks when Wall Street was on government life support. Sarah Bloom Raskin, a very effective former Maryland state banking commissioner and now the most progressive governor on the Federal Reserve Board, well understands the importance of repairing the debt overhang in the housing and consumer sectors by helping the middle class."

As per Elizabeth Warren, despite intense pressure from Wall Street lobbyists, Senate Majority Leader Harry Reid has placed Senator Warren on the Senate Banking Committee.  From the L.A. Times:  "Talk about karma.  After lobbying ferociously to prevent Elizabeth Warren from running the new Consumer Financial Protection Bureau, the banking industry now must contend with her sitting on the Senate Banking Committee.  Rumors have circulated for weeks the Massachusetts senator-elect would be tapped for the gig overseeing the industry she so completely cheesed off with accusations of fraud and unfair play."

Wall Street bankers and lobbyists spent millions to keep Senator Warren from joining the U.S. Senate, backing her opponent, incumbent Scott Brown, more than 9 to 1 in campaign contributions.  "Warren has been a harsh critic of Wall Street practices, and the securities and investment industry spent $3 million in an unsuccessful effort to boost her Republican opponent Scott Brown in the Massachusetts Senate race, according to the Center for Responsive Politics.  The financial/ insurance/ real estate sector spent another $6 million to boost Brown. Those sectors combined spent less than $1 million on Warren's behalf."

LAWLESS CAPITALISM and HSBC

On Tuesday, the US Department of Justice announced the civil settlement of a major pattern of criminal misconduct by HSBC Holdings plc and HSBC Bank USA for about $1.9 billion in fines and forfeitures. No criminal action will occur; instead under a deferred prosecution agreement HSBC promises to stop violating the law and allow compliance monitoring for 5 years.

"A four-count felony criminal information was filed today in federal court in the Eastern District of New York charging HSBC with willfully failing to maintain an effective anti-money laundering (AML) program [and] willfully failing to conduct due diligence on its foreign correspondent affiliates . . . . HSBC has waived federal indictment, agreed to the filing of the information, and has accepted responsibility for its criminal conduct and that of its employees." 

HSBC engaged in horrendously criminal conduct: "HSBC Bank USA violated the [Bank Secrecy Act] by failing to maintain an effective anti-money laundering program and to conduct appropriate due diligence on its foreign correspondent account holders.  The HSBC Group violated the [International Emergency Economic Powers Act ] and the [Trading with the Enemy Act] by illegally conducting transactions on behalf of customers in Cuba, Iran, Libya, Sudan and Burma – all countries that were subject to sanctions enforced by the Office of Foreign Assets Control (OFAC) at the time of the transactions."

For example, HSBC processed "over $670 billion in wire transfers and over $9.4 billion in purchases of physical U.S. dollars from HSBC Mexico during this period, when HSBC Mexico’s own lax AML controls caused it to be the preferred financial institution for drug cartels and money launderers."

"A significant portion of the laundered drug trafficking proceeds were involved in the Black Market Peso Exchange (BMPE), a complex money laundering system that is designed to move the proceeds from the sale of illegal drugs in the United States to drug cartels outside of the United States, often in Colombia."

According to DOJ: "In addition to forfeiting $1.256 billion as part of its deferred prosecution agreement (DPA) with the Department of Justice, HSBC has also agreed to pay $665 million in civil penalties – $500 million to the Office of the Comptroller of the Currency (OCC) and $165 million to the Federal Reserve – for its AML program violations."

As Professor Ellen Podgor argues, deferred prosecution agreements have their place, and they certainly are a tool for positively influencing corporate behavior. But, I fundamentally agree with Bill Black that the failure to indict the individuals who committed these serious felonies in the financial sector is ill-founded: "It's mind-boggling how they think you can have a financial system and allow this kind of impunity." HSBC "put the world at enormous risk." Corporations act only through agents; necessarily the charges against HSBC mean that numerous individuals participated in (and conspired to commit) felonies.

The failure to indict any individual in the face of HSBC's galactic criminality corrodes the rule of law throughout society and creates perverse incentives at the apex of our economy. After all when a corporation pays fines, it is innocent shareholders who pay. If senior officers and directors know they can fatten their compensation by generating illusory profits through criminal conduct at the expense of shareholders and the economy generally then the very viability of capitalism itself is at risk.

In Lawless Capitalism I argue that we have allowed those controlling the most wealth--like the megabanks--to rise above the law and escape traditional norms of criminal and civil accountability. The power of corporate and financial elites to subvert law and regulation drove the entire financial crisis of 2007-2009.

The HSBC catastrophe proves once again that the US (and capitalism generally) desperately requires a sturdier economic rule of law. While I articulate a number of mechanisms in Lawless Capitalism for imposing a real economic rule of law in the US, it must start with holding all economic actors to the same criminal standards (based upon a reasonable assessment of social costs) regardless of wealth or employment with a megabank.

There is no sound reason for failing to pursue criminals within the financial sector. The DOJ's decision to pursue HSBC through fines alone and allow individual crimes to go unpunished is certain to spawn more lawlessness. According to the New York Times the reason authorities brought no criminal charges revolved around concerns about the stability of the global financial system; yet, nothing can undermine confidence in the financial system and destroy capitalism with more speed and certainty than an official green light for even heinous financial crimes. The rule of law is dying in modern America as our corrupt governing elite arrogate more and more legal indulgences and prerogatives not available to all. The new potentates are now officially immune from white collar crime.

ADDENDUM:

NY Times editorial 12/12/12: "IT IS A DARK DAY FOR THE RULE OF LAW."

Krugman on the Fiscal Cliff

Nobel Laureate Paul Krugman

With the "fiscal cliff" frenzy building, Nobel Laureate Paul Krugman weighs in describing how those that gravely warn about the deficit are now trying to have it both ways.  In the New York Times, Krugman takes to task those that concern themselves more with the deficit than they do with unemployment.   

Per Krugman:  "Yet there is a whole industry built around the promotion of deficit panic. Lavishly funded corporate groups keep hyping the danger of government debt and the urgency of deficit reduction now now now — except that these same groups are suddenly warning against too much deficit reduction. No wonder the public is confused.  Meanwhile, there is almost no organized pressure to deal with the terrible thing that is actually happening right now — namely, mass unemployment. Yes, we’ve made progress over the past year. But long-term unemployment remains at levels not seen since the Great Depression: as of October, 4.9 million Americans had been unemployed for more than six months, and 3.6 million had been out of work for more than a year."

Ultimately, the fiscal cliff debate, as did most of the Presidential election rhetoric, boils down to different economic approaches to government spending.  The campaign debate focused on trickle down economics versus trickle down government, to paraphrase the two candidates for President.  Krugman describes a Keynesian approach to difficult unemployment and deficit spending panic:

Again, Krugman argues:  "So what can be done? The panic over the fiscal cliff has been revelatory. It shows that even the deficit scolds are closet Keynesians. That is, they believe that right now spending cuts and tax hikes would destroy jobs; it’s impossible to make that claim while denying that temporary spending increases and tax cuts would create jobs. Yes, our still-depressed economy needs more fiscal stimulus. . . . So why aren’t we helping the unemployed? It’s not because we can’t afford it. Given those ultralow borrowing costs, plus the damage unemployment is doing to our economy and hence to the tax base, you can make a pretty good case that spending more to create jobs now would actually improve our long-run fiscal position.

Nor, I think, is it really ideology. Even Republicans, when opposing cuts in defense spending, immediately start talking about how such cuts would destroy jobs — and I’m sorry, but weaponized Keynesianism, the assertion that government spending creates jobs, but only if it goes to the military, doesn’t make sense.  No, in the end it’s hard to avoid concluding that it’s about class. Influential people in Washington aren’t worried about losing their jobs; by and large they don’t even know anyone who’s unemployed. The plight of the unemployed simply doesn’t loom large in their minds — and, of course, the unemployed don’t hire lobbyists or make big campaign contributions.  

So the unemployment crisis goes on and on, even though we have both the knowledge and the means to solve it. It’s a vast tragedy — and it’s also an outrage." 

Paul Krugman sees the fiscal cliff as problematic, but not for the reasons that so many pundits and politicians do.

[Photo of Paul Krugman courtesy of Wikimedia Commons and Prolineserver]

Lawless Capitalism

Professor Steven Ramirez

As teased earlier this week, the NYU Press has just announced the release of blog contributor Professor Steven Ramirez's new book "Lawless Capitalism."  This book offers an insightful and surgical examination of the subprime crisis of 2008, and more than simply identifying causes, offers a new economic rule of law suggesting a fairer and more economically just way forward.

From the Back Cover:  "Professor Steven Ramirez's Lawless Capitalism is a tour de force. The pages are virtually crackling with urgency and deeply considered alternatives to the wayward capitalism currently practiced in the United States. Ramirez, in his critical contribution to the ongoing debate in connection with free markets and governmental regulation, envisions a new and different kind of capitalism. Ramirez's capitalism  respects individual potential and human capital, considers equality and fairness, and promotes the abilities of all people, rather than focusing on deeper entrenchment of the elite. Lawless Capitalism meticulously weaves the best thinking of dozens of economists, law professors, sociologists and philosophers into a new conceptualization of an economic rule of law, one that Ramirez fully develops, that offers a better economic way for our nation and the world. Lawless Capitalism is an important book, representing a powerful new voice that literally demands to be heard."
-andré douglas pond cummings, Indiana Tech Law School

"Capitalism and the profit motive can stimulate human productivity and innovation.  But they can also lead to corruption, shady politics, and self-dealing. This brilliant book shows how intelligently designed laws and lawsuits can facilitate the former and discourage the latter. . . . Steven Ramirez is the new Andrew Hacker.  He wields statistics, numbers, and concepts like a scalpel."
-Richard Delgado, co-author of Critical Race Theory

"Ramirez catalogues the many ills and failures in the American economic system, casting a broad net that implicates governing institutions, political and corporate elites, and their policy agendas. He provides a valuable contribution to discussions on reforming capitalism and restoring the foundations of middle class prosperity through a renewed commitment to transparency, economic democracy, and the rule of law."
-Timothy A. Canova, Nova Southeastern University

From the NYU Press abstract: "The subprime mortgage crisis has been blamed on many: the Bush Administration, Bernie Madoff, the financial industry, overzealous housing developers.  Yet little scrutiny has been placed on the American legal system as a whole, even though parts of that system, such as the laws that regulate high-risk lending, have been dissected to bits and pieces.  In this innovative and exhaustive study, Steven A. Ramirez posits that the subprime mortgage crisis, as well as the global macroeconomic catastrophe it spawned, is traceable to a gross failure of law.


The rule of law must appropriately channel and constrain the exercise of economic and political power.  Used effectively, it ensures that economic opportunity isn't limited to a small group of elites that enjoy growth at the expense of many, particularly those in vulnerable economic situations.  In Lawless Capitalism, Ramirez calls for the rule of law to displace crony capitalism.  Only through the rule of law, he argues, can capitalism be reconstructed."

Available here:  Lawless Capitalism: The Subprime Crisis and the Case for an Economic Rule of Law

Election 2012: Death of the Southern Strategy?

Originally posted at NYU Press, From the Square Blog, on November 21, 2012.

 

For many decades the GOP played the politics of racial divisiveness to further the cause of tax cuts, deregulation and a more limited federal government. The election of 2012 promises to end this ugly chapter in American politics. The ultimate outcome will change our political landscape in far-reaching ways.

Surprisingly, Republican leaders openly admit that their party used race to appeal to white voters (particularly in the old Confederacy) disaffected with the perceived embrace of racial equality within the Democratic Party. Republican strategist Kevin Phillips openly admitted to seeking out the votes of “negrophobe whites” in the New York Times in 1970. The Nation very recently posted the actual audio recording of Reagan Administration Official Lee Atwater articulating how the GOP implemented the Southern Strategy in sordid (and highly offensive) detail in 1981. Atwater unabashedly ties the politics of race to economic issues such as tax cuts. Two Republican National Committee Chairs actually apologized for the Southern Strategy.

In my book Lawless Capitalism, I argue that the politics of racial division led directly to the subprime debacle through massive financial deregulation beginning in the Reagan Administration. Deregulation of mortgage lending, the basic structure of globalization, and financial consolidation all find their roots in the Reagan Administration. Indeed, the fundamental explosion in American debt started in 1980.

To be fair, the Democrats contributed much to the crisis too. The crisis resulted from longstanding and bipartisan policies. Nevertheless, the Southern Strategy dominated the political scene in the decades preceding the subprime debacle.

The election of 2012 may spell the end of the Southern Strategy, at least as a means of GOP success. African American and Latino voters turned out in record numbers. Asian American voters supported President Obama over Mitt Romney by 73-26, a margin that exceeds Obama’s advantage among Latino voters.

The viability of the GOP’s Southern Strategy will continue to fade. Asian Americans form the fastest growing minority group in the nation. A recent study by the Pew Hispanic Research Center projects that the voting power of Hispanics will double by 2030—to nearly half of the electorate. If the Democrats continue to run candidates of color to energize this base, then these growing voting groups will constitute a formidable foundation for a durable Democratic majority. Meanwhile, the GOP base still today favors discriminatory practices, such as anti-immigration laws and legislation designed to suppress the vote of minority communities.

On issues relating to immigration, education, voting rights, the war on drugs, and many others, a fundamental change in political calculus is afoot. I contend the change may be even more monumental than such core issues. Ultimately, without the ability of governing elites to use the politics of racial division to further their interests, the very high level of economic inequality currently burdening our nation may be unsustainable.

Steven A. Ramirez is Professor of Law at Loyola University of Chicago, where he also directs the Business and Corporate Governance Law Center. His book, Lawless Capitalism: The Subprime Crisis and the Case for an Economic Rule of Law, will publish in December 2012.

Corporate Sponsorships and the Power of the Boycott

Extraordinarily interesting news out of England and the Premier League last month:  Several members of the Newcastle United Football Club may refuse to wear the corporate logo of Wonga, a short-term, pay day loan company, on their game jerseys because Wonga's company practices are an affront to their religious beliefs.  Newcastle United FC recently announced a corporate sponsorship agreement with Wonga.

Newcastle footballers Demba Ba, Papiss Cisse, Cheick Tiote and Hatem Ben Arfa are all practicing Muslims. "Under Sharia law, Muslims must not benefit from either lending money or receiving money from another person - meaning that interest is prohibited. Interest is not paid on Islamic bank accounts or added to mortgages." Because Wonga is seen by many in the UK, much like pay day loan companies in the United States, as established to prey on the poor and the unbanked, Ba, Cisse, Tiote and Ben Arfa may refuse to promote its practices by refusing to display the Wonga logo on their jerseys.

From the story in the Daily Mail:  "Shaykh Ibrahim Mogra, assistant secretary general of the Muslim Council of Britain, told The Independent: 'There are two aspects to this. We have the rulings of the religious law and we have the individual’s choice and decision on how they want to follow or not follow that rule. 'The idea is to protect the vulnerable and the needy from exploitation by the rich and powerful.' 'When they [Wonga] are lending and are charging large amounts of interest, it means the poor will have short-term benefit from the loan but long-term difficulty in paying it back because the rate of interest is not something they can keep up with. The Islamic system is based on a non-interest-based system of transaction.'"

Demba Ba, Newcastle United FC

In fact, on some short-term loans, Wonga charges an interest rate that would annually exceed 4,000%. "Should a Newcastle fan accept a loan to buy a £50 club shirt, they would have to repay £71.92 after a month with a rate equivalent to 4,212 per cent per year."  Local politicians in Newcastle were aghast to learn that Newcastle United had partnered with a corporate sponsor such as Wonga: "Nick Forbes, the leader of Newcastle City Council, said: 'I’m appalled and sickened that they would sign a deal with a legal loan shark. It’s a sad indictment of the profit-at-any-price culture at Newcastle United. We are fighting hard to tackle legal and illegal loan sharking and having a company like this right across the city on every football shirt that’s sold undermines all our work.'"

Boycotting a corporate sponsor would be deemed a hugely controversial move in the United States. In fact, the activist athlete has been discussed on the Sports Law Blog many times over the years, and has seemed to be in decline since the advent of the corporate endorsement and the potential to profit in the dozens of millions of dollars. That said, there appears to have been a rise in athlete activism in recent months . . . .

In addition, pay day loan companies have been harshly criticized in recent months as predatory lenders and are typically found only in poor or run down communities.  The Consumer Financial Protection Bureau, the brainchild of new Massachusetts Senator Elizabeth Warren, has vowed to rein in and regulate pay day loan shops in the United States.  Clearly, pay day lenders are controversial "across the pond" as well.


cross-posted on the Sports Law Blog
(photo of Demba Ba courtesy of Creative Commons and Egghead 06)  

Why President Obama Must Deal with the Megabanks

The megabanks threw President Obama and the Democrats under the bus during the election of 2012 and doubled down on the GOP. With virtually zero hedge, they were all in with Mitt Romney. All of Romney's top 6 supporters were megabanks, as were 9 of his top 12. Three of his top 12 supporters were foreign megabanks. Further, the financial sector spent over $52 million supporting Mitt Romney. The securities industry spent $20 million supporting Romney. So, big finance was Mitt Romney's biggest supporter.

President Obama, on the other hand, owes the megabanks nothing. Not a single megabank was among his top 15 supporters. Finance spent three to one in favor of Romney. The megabanks also strived mightily to deny the Democrats the senate. They spent millions supporting GOP candidates against Elizabeth Warren and Sherrod Brown. So, one major consequence of this election is that President Obama and the Democrats owe the megabanks nothing.

The megabanks still threaten our economy and still play with excessively risky derivatives as proven by the recent multi-billion dollar derivatives loss suffered at JP Morgan Chase and the failure of MF Global arising from excessively risky bets on Eurozone debt. The essential problem is that because they are perceived to be too big to fail creditors lend them money on cheaper terms and management is thereby enticed to take on more risk. Further, since they gorge on cheap debt they naturally become ever larger and too complex to manage. Only fragmenting the megabanks will cut off their supply of cheap capital. 

As NYU economist Nouriel Roubini puts it: "The only solution to to break up too big to fail banks.There is no other alternative. We have to go back to Glass-Steagall. I would have thought after the worst global financial crisis in a generation, the decision would have been made. Maybe we need another big financial crisis." 

MIT economist Simon Johnson states: "There are large implicit government subsidies available if your financial institution is perceived as too big to fail. These subsidies -- in the form of implicit downside protection or guarantees for creditors -- drive up size and exacerbate complexity." 

These are two of the finest economists of our time and each boasts huge credibility. Johnson is the former Chief Economist of the IMF and author of the definitive study of the hazards of an excessively large financial sector, Thirteen Bankers. Roubini famously predicted the financial meltdown in great detail as early as 2005.

Nor are these two outstanding economists alone in recognizing the threat posed by the megabanks. University of Maryland economist Peter Morici: "The real solution in the banks is not all of this excessive regulation, but to bust up the big banks. The fact is not only are they too big to fail, but because they're too big to fail, they're too big to effectively regulate. That's why there's no lending and they continue trading." Even former Fed Chair Alan Greenspan, who actually presided over much of the growth of the megabanks, now recognizes that they must be allowed to fail. Mainstream economics has achieved rare consensus: too big to fail banks present a clear and present danger to the economy and must be eliminated from the system.

I cannot count the number of posts on this blog protesting the socialization of financial risk in our economy under the guise of too big to fail. I have also written numerous law review articles criticizing the continuation of too big to fail. But, without the right political context all the academic analysis is meaningless.

I believe that President Obama faces an historic opportunity to address the scourge of the megabanks. This is a compelling economic issue. He is a lame duck who owes the big banks nothing. Huge popular support would back any move to end too big to fail. Here are the most promising and straightforward mechanisms available to tame the megabanks: 

1)  Amend section 121 of Dodd-Frank to allow the government to more easily break up the megabanks. Specifically, change the requirement of 2/3 approval of the Fed Board of Governors to a simple majority. Further, allow the Fed to order divestiture of operating divisions of megabanks without having to show that other alternatives would be inadequate. Finally, delete the term "grave" and allow the Fed to break-up any megabank that threatens the financial stability of the US. (They all already pose a grave threat).

2) Amend section 203 of Dodd-Frank to allow the FDIC to take a megabank into orderly liquidation (i.e., receivership) solely based upon a determination by the Treasury Secretary that the firm faces a high risk of default. This would eliminate the need to get a 2/3 vote by the Fed and the FDIC.  It would also help to short-circuit any judicial review.

3) Appoint a truly tough minded financial expert as Secretary of Treasury. The best appointment would be Sheila Bair. As a Republican, she would bring immediate bipartisan credibility on a range of important economic issues. As former FDIC Chair, she understands banking and was a consistent voice for tough reforms. She has a new book out that pulls no punches. Her appointment as the first woman to head Treasury would also help the Democrats to continue to earn the support of women politically.

Of course, perhaps the reinstatement of the Glass-Steagall Act would be the most certain means of taming the megabanks.

In any event, President Obama holds a huge opportunity to impose rational policy and achieve a superior political outcome for Democrats, all at once. He must get tough on the megabanks. My next post will further this basic point in the specific context of corporate governance.

“The real solution in the banks is not all of this excessive regulation, but to bust up the big banks. The fact is not only are they too big to fail, but because they're too big to fail, they're too big to effectively regulate. That's why there's no lending and they continue trading. You know with their profits down, bonuses will be up again for CEOs.”

Read more: Morici: Big Banks Are ‘Too Big to Effectively Regulate’
Important: Can you afford to Retire?

“The real solution in the banks is not all of this excessive regulation, but to bust up the big banks. The fact is not only are they too big to fail, but because they're too big to fail, they're too big to effectively regulate. That's why there's no lending and they continue trading. You know with their profits down, bonuses will be up again for CEOs.”

Read more: Morici: Big Banks Are ‘Too Big to Effectively Regulate’
Important: Can you afford to Retire?

http://www.businessinsider.com/roubini-says-break-up-the-banks-2012-10#ixzz2CeEk8bCk

The only solution to to break up too big to fail banks. There is no other alternative. We have to go back to Glass-Steagall. I would have thought after the worst global financial crisis in a generation, the decision would have been made. Maybe we need another big financial crisis.

Read more: http://www.businessinsider.com/roubini-says-break-up-the-banks-2012-10#ixzz2CeEk8bCk

The only solution to to break up too big to fail banks. There is no other alternative. We have to go back to Glass-Steagall. I would have thought after the worst global financial crisis in a generation, the decision would have been made. Maybe we need another big financial crisis.

Read more: http://www.businessinsider.com/roubini-says-break-up-the-banks-2012-10#ixzz2CeEk8bCk

Election Outcomes

Several frightening outcomes have surfaced following last week's presidential election.  Of course, many very positive takeaways have emerged as well, with Professor Steve Ramirez writing about two of them in this Corporate Justice space.  Yet, the frightening outcomes appear to show that our nation remains deeply divided along racial and class lines.

Following the election, statisticians and social media analysts got busy and turned up the following two charts, which should give Americans everywhere pause. First, the chart below shows that we are most definitely not a post-racial place, as evidenced by the number and intensity of racist tweets that were sent on election night following President Obama's re-election.

The next chart shows how the state's with the most educated populations voted, versus how the state's with the least educated populations voted for president.  How "educated" a state is was determined by percentages of citizens 25 years of age and older with a college degree or more.

These two charts seem to evidence that our nation remains deeply divided, both on issues of race and of class.  Racist tweets in the deep south were prevalent, most obviously in Mississippi and Alabama following President Obama's re-election success.  Still, racist tweets were evident throughout the nation.  Further, if "education" level is to be measured by college degree, then those states with the most college graduates voted overwhelmingly for President Obama, where those states with the fewest college graduates were nearly as overwhelmingly in support of Mitt Romney.  We must continue to try to bridge divides in the United States by honestly confronting issues of festering racism and poverty.

Why President Obama Should Get Behind Weed

A recent poll shows that a clear majority of American voters support legal and regulated marijuana by a margin of 56 to 36. Other polls show similar results, but even weaker opposition. Further, some of President Obama's key constituencies favor legalized marijuana by even greater majorities: 69% of liberals favor legalization; 62% of younger voters favor legalization; and, 57% of moderates, independents and Democrats favor legalization. Only southerners, the elderly, and conservatives strongly oppose legalization. In Colorado both women and Latino voters supported legalization last Tuesday. Medical marijuana consistently enjoys even stronger support of up to 80% of voters.

Moreover, it appears that including ballot initiatives relating to marijuana enhances voter turnout, particularly among young voters. "In the three states with marijuana legalization initiatives on the ballot, Colorado, Oregon and Washington State, there was a significant surge in the voters age 18-29. In 2008 young people made up just 14 percent of the vote in Colorado but this year it was 20 percent. Even more incredibly, in Washington State the youth vote went from just 10 percent of the electorate last election to 22 percent this time." In Massachusetts, voters "turned out in droves" to approve a medical marijuana ballot initiative.

President Obama should immediately reverse his hardline stance on the War on Drugs and instead return the issue of marijuana to the states to determine democratically. According to Rolling Stone: "the Obama administration has quietly unleashed a multi­agency crackdown on medical cannabis that goes far beyond anything undertaken by George W. Bush." In 2010, President Obama renominated a Bush holdover to head the DEA. Ever since the administration has aggressively use a variety of federal sanctions to shutter medical marijuana dispensaries. Recently, the Feds sentenced a medicinal pot provider to 80 years in prison.


The War on Drugs is a dismal failure that disproportionately penalizes communities of color. Even though whites use marijuana at rates that exceed usage among Latinos and African Americans, people of color are arrested at rates that can only be termed outrageous. In Colorado, Latinos were arrested at 1.5 time the rate as whites and African Americans at 3 times the rate as whites. In California, minorities are arrested at up to 12 times the rate of whites. In New York City, the War on Drugs has become a War on Weed--waged primarily on minorities--as shown in the chart at right.

This war is an economic catastrophe. If weed were legal and taxed like alcohol or tobacco it would lead to total government savings of about $7 billion and another $7 billion in revenues.  If marijuana were the same size as the alcohol industry it would amount to $150 billion per annum--and that means jobs.

In terms of costs, even the government's own studies suggest that costs are low or zero, and certainly less than those associated with tobacco and alcohol use. Moreover, there is little evidence that making pot illegal reduces usage. In fact, in the Netherlands, where marijuana is legal, usage is a fraction of that in the US. Therefore, a policy of allowing states to determine whether marijuana should be legal, illegal, or somewhere in between could be costless.

President Obama holds the power to issue a New Emancipation Proclamation with respect to marijuana. As president he can direct the Attorney General to remove marijuana from the list of Schedule I narcotics (which includes drugs like heroin and LSD) under 21 U.S.C. §811. This would immediately pave the way for medicinal marijuana which is now legal in 20 states and the District of Columbia. He should also direct a multi-agency review to assure the federal government's policies accommodate state medical marijuana laws. Finally, he should mandate an in-depth study on whether the federal government needs to regulate marijuana at all, as opposed to leaving it up to the states.

There are around 50,000 Americans in prison for pot-related offenses. The American taxpayer pays over $30,000 per year per inmate to incarcerate these citizens. Countless others have been disenfranchised for marijuana offenses. It makes no sense to continue this prohibition economically, politically or morally.

President Obama and the Democrats generally need to end the War on Drugs, starting with medical marijuana.

Election 2012: Obama 332 and Romney 206

Tuesday's election heralds a fundamental shift in our democracy. The map above shows the shrinking electoral base of the GOP. Even an incumbent facing 8 percent unemployment and a population still riddled with racism won handily.

Four years ago, I reported from Grant Park that: "The Grant Park crowd was one of the most diverse crowds I have ever seen, from all demographic perspectives. On the way to the party we passed a Young Republican event. It was perfectly white and 85% male. Barack took 95% of the Black vote; 66% of the Hispanic vote; 56% percent of the female vote; 69% of new voters; and 66% of voters 18-29.  That adds up to a historic coalition that could prove durable for many election cycles yet to come.  Indeed, the one age group McCain won was voters over 65."

At Tuesday's celebration at McCormick Place, a more powerful demonstration of that reality displayed itself. The energy and determination of Obama's supporters saved the Democrats and not even a hurricane of big money could stop them. In fact, the big money back-fired as people voted against the candidates most supported by big money, which I will be writing about soon. I met middle class people who scraped to the bottom of their monthly budget to give money to President Obama's campaign.

But the big story of the night was the diversity of the President's supporters. It was a beautiful crowd. The only Americans I did not meet there were wealthy, old, white males. They apparently had monopolized the Romney gathering in Boston.

In sum, I saw intense energy and diversity on display Tuesday at McCormick Place. This election provides a virtual road map to future Democratic victory.

Here are the hard facts of the power of diversity for the Democrats: Obama won woman voters by a 55-44 margin; African Americans by 93-7; Latinos by 71-27; and Asian Americans by 74-25. He also carried the youngest voters by 23 percentage points. Notably, Obama also won the votes of the highly educated by 55-42. This coalition is not going away and the GOP should come to grips with this reality, although they utterly failed to see its implications after 2008.

Indeed, looking at the map above, Texas seems poised to become the next  battleground state that used to vote solidly Republican. In Texas, Latinos now comprise 25% of voters. Texas also includes major urban areas, a demographic that voted overwhelmingly for Obama.

In coming days, I will write about many dimensions of all of this, including: the need for the GOP to abandon its collapsing Southern Strategy (particularly its voter suppression efforts); its manifest hostility to Latino voters; its excessive reliance on big oil and big finance; and the opportunities for a new progressive coalition that puts broad-based economic growth front and center.

Today, the emphasis is the power of diversity at the polls. As former GOP Chair Michael Steele put it: "Every month 50,000 Hispanics turn 18 years old, what is the Republican Party going to do about that?"

Obama, Romney and Mancur Olson

I posit that today in America the debates, the stump speeches and the TV ads all have almost nothing to do with how a given candidate actually governs. The stakes are simply so high that one should expect that what is really important is not the hyper-marketing that each candidate projects (now very often differing from audience to audience) but rather commitments made to those expending large sums to propel "their" candidate into office. The voting public has no ability to force elected officials to respect campaign rhetoric and promises. In today's money driven political system the best way to determine what a candidate intends to do if elected is to focus on the money behind the candidate. Large contributors hold enforcement mechanisms that the public does not.

First, almost always politicians must return to the money trough again and again. On the other hand, the public has a notoriously short memory and 85-90 percent of the vote is locked-in to either the GOP or the Dems. So, most voters will stick with their guy regardless of whether the candidate is an etch-a-sketch.

Second, over time these candidates become more dependent upon big money interests than mere campaign contributions may reveal. Their entire social and professional network will ultimately consist of those who will help them most--and that inevitably means well-connected wealthy people like CEOs. After all, its fun to hob-knob with wealthy folks, and who wants to alienate their rich friends?

Third, it hard to overstate the impact of the Citizens United decision. For example, Chevron just gave a pro-GOP Super PAC $2.5 million. Corporate titans can now make or break politicians, their friends, their family and their followers. Few would risk the wrath of the new potentates.  They now have the power to crush opponents right up to election day.

All of this gives our so-called leaders powerful incentives to tell the voting public whatever they want to hear while doing what is needed to assure the continue flow of corporate patronage for themselves and their pals.

Rather than thinking of politicians as autonomous agents with the power to unilaterally change the fundamentals of our society, we should understand that the higher they reach on the political ladder the more likely it is that they succumb to clear incentives to guard the interests of the most privileged in our society, especially under conditions of high inequality. This is the basic teaching of Mancur Olson. As more wealth is concentrated in fewer hands the costs of organizing politically plunge because fewer numbers means lower organizational costs and less temptation toward free riding. Notably, Olson suggested that in a democracy the voters can resist the tendency of special interests to subvert law and regulation for profit (and incidentally destroy capitalism by rigging the system). Voters need only to recognize the negative economic influence of concentrated interests, and vote against the candidate most beholden to such interests.

We live in the age of a new corporatocracy dominated by CEOs. And, as the chart below makes clear, today CEOs of large public firms make more money and control more wealth than any class of royalty from our feudalist past:

Basically since the mid-1980s, CEO compensation has increased by a factor of 10 in real terms. In 2011, executive compensation set new records. So, the real question facing voters today s whether they vote for candidates supported more by big money or candidates supported less by big money. Or, stated differently, the question is which candidate is beholden to which CEOs.

I made this very argument on the NYU Press blog where I tied my forthcoming book, Lawless Capitalism, in a concrete way into the election. My argument there focused on the financial sector which expended $52,000,000 to elect Mitt Romney (compared to $19 million for Obama). So, big finance is behind Romney loud and clear. All voters in favor of more lax financial regulation and letting the megabanks run amok again should definitely vote for Romney.

The next most important difference in funding sources is Big Oil. Here, Romney holds a 5 to 1 fundraising advantage. So what would Big Oil CEOs want? High gasoline prices lead to high CEO compensation. Naturally then CEOs of big oil companies want price spikes in gasoline.

Obama's number one industry is education where he holds a 6 to 1 fundraising advantage over Romney. Both Harvard and the University of California rank on Obama's top 5 sources of support. (Romney's top 5 supporters are all megabanks). Does this mean more money for basic research, more financial aid for students, loan forgiveness programs or something else? Hard to say. It could just be a bunch of professors expressing their own political preferences.

But one thing is certain. Romney is funded more by large contributors and Obama is funded more by small individual contributors, as is clear from this Opensecrets.org webpage.

Further, it is certain that President Obama will not need to raise any more money after November 6.

It is therefore fair to say that Governor Romney is the candidate of big corporate money, especially the megabanks and Big Oil. He is the candidate of the CEOs.

Private Prison Industry Shenanigans in Florida

Protesting private prison profiteering

The Corporate Justice Blog has taken up the issue of the privatization of the U.S. prison industry repeatedly in the past several months.  Now news from Florida, as lawmakers and private prison company executives together have attempted to circumvent the law in order to see a massive privatization effort expand to many more of the state's prisons.  In a wide-ranging and lengthy exposé, David Reutter on Prison Legal News has painstakingly detailed the incredible conflict between private prison companies CCA and the GEO Group together with Florida lawmakers, and the public prison union as they grapple furiously in state court seeking control over the state's prisoners.

Sadly, no party to these proceedings seems to be advocating on behalf of ending the failed system of mass incarceration in the nation or in Florida in particular, as all involved parties seek their own economic interests above all else.

Essentially, Florida lawmakers, bankrolled by the private prison lobby, attempted to massively privatize the prison system in Florida by quietly attaching a prison proviso to an appropriations bill, efforts which were recently found to be against the law by a state trial court judge.  Why attempt to hugely increase the percentage of private prisons in Florida in the dark of the night?

From the article, several very unsettling themes emerge:

First, the privatization attempt was manufactured without careful Florida legislature consideration:

"State Senator Mike Fasano, who chairs a Senate Budget Subcommittee in charge of prison spending, applauded the court’s decision striking down the wholesale prison privatization plan. 'This is a perfect example of why we should not be making major policy changes in provision language that did not go through substantive committees, debated, and taken testimony pro and con,' he stated.  'It didn’t go through the appropriate committee process. It wasn’t heard in criminal justice committee in the Senate. It wasn’t heard in my committee that oversees the Department of Corrections budget,' Fasano noted. 'You would think that if we were doing such a major policy change, it would have gone through those two committees. It wasn’t a stand-alone bill and that’s what, if I’m not mistaken, the court has said, that it should have been a stand-alone bill because it’s a single subject issue.'

Second, claims that private prisons save taxpayer money in the long run have proven false or elusive:

"Senate Budget Committee Chairman J.D. Alexander responded to criticism about the failure to perform due diligence and follow proper legislative procedures regarding the prison privatization plan by saying his committee had received testimony that the plan would save around $22 million annually. That estimate was based on the minimum 7% cost savings required by statute for private prison contracts, though such savings have not been proven. . . . Despite being almost two decades into its prison privatization experiment, Florida has been unable to show that private prisons have been a solution to the state’s ever-expanding prison system. 'Florida’s experience with privatized prisons raises serious questions about whether the taxpayers are getting their money’s worth,' concluded an April 2010 report by the Florida Center for Fiscal and Economic Policy (FCFEP), an independent research organization. . . .  'The FCFEP found there was no evidence that prison privatization had saved Florida taxpayers money, as required by law, because “the procedure to establish a 7% cost savings is flawed.' Additionally, there is virtually no difference in recidivism rates of prisoners released from private or public prisons, so savings have been elusive in that respect as well."

Third, prison privatization efforts simply function as a lawmaker channeling of taxpayer funds from the public sector into the hands of private prison executive friends and donors:

"Prior to representing FDOC employees, on September 12, 2011 the Teamsters filed an ethics complaint against Governor Scott. The complaint alleged that the prison privatization plan was tainted by almost $1 million in political contributions from CCA and GEO Group that went to Scott, state lawmakers and the Republican Party.  According to the Teamsters, during the last election cycle GEO and its executives gave $829,665 to political parties and candidates in Florida, while CCA donated $138,494. Additionally, both CCA and GEO made contributions to Governor Scott’s inaugural fund in the amounts of $5,000 and $25,000, respectively. GEO had also paid its team of Florida lobbyists between $220,000 and $360,000 to influence state officials, and the company reportedly said it would spend $3 million to compete for the Region IV private prison contract.  'The governor’s privatization scheme smacks of political payback, pure and simple,' said Wood.  'It all comes down to politics and the big donors,' noted Senator Fasano. 'GEO and the other private companies that run prisons are very big donors to the party here in Florida and to the elected officials, both past and present.'

Finally, fourth, why privatize an industry that is clearly a governmental function?  For efficiency?  Cost saving due to competition?  Hardly.  Not in the prison industry:

"Considering there is scant evidence that private prisons in Florida have saved the state money, and that prisoners released from privately-operated facilities have the same or higher recidivism rates as those released from public prisons, the repeated efforts by the state legislature to privatize FDOC Region IV can best be explained as political payback for campaign contributions from private prison firms.  While companies like CCA and GEO Group will profit from expanded prison privatization contracts, and politicians will benefit from those companies’ continued lobbying efforts and financial largess, should the legislature prevail in its private prison plan the loser will be Florida’s taxpayers, as public funds will be diverted from the FDOC into the coffers of for-profit prison firms with no discernable benefit to the state.  As the battle to expand prison privatization in Florida continues, one expert has recommended that everyone slow down. 'In what will be the largest correctional privatization contract in U.S. history, a more deliberate process would be prudent,' said Professor Hallett. 'Assuming you accept the logic of market forces controlling costs, then why would you bias the process in favor of an already monopolized industry, which itself lowers cost efficiency and accountability?"

The privatization of the prison industrial complex has been and will continue to be a terrible failure, for all parties involved, except perhaps, for the executives and shareholders of the private prison companies.