The problems with private Prisons (2011 - International Criminology Congress)

Problems With Private Prisons (2011)

In case the embedded viewer does not work, it is available here via Scribd and as a .pdf from PaulsJusticePage.

Download the original Power Point .pptx slides.

The problems with private Prisons (2013 - Michigan Statewide Forum on Prison Privatization, Mass Incarceration and Prison Reform)

Problems With Private Prisons (2013)

In case the embedded viewer does not work, it is available here via Scribd and as a .pdf from PaulsJusticePage.

Download the original Power Point .pptx slides.

Information on Punishment for Sale from Amazon.com

Information from publisher: Rowman and Littlefield

An earlier blog entry about Punishment for Sale.

ABSTRACT:Criminology generally does not collect data on class, which is more likely to be "controlled” for than explained. The discipline is interested in psychopaths engaged in street crime but not white collar crime or the harms done by corporate “persons” who act without conscience. Strain theory is taught without reference to economic facts about wealth distributions or economic mobility. This paper provides an overview of class, reviews some of criminology’s blind spots and reaffirms class as important for a “rich” understanding of criminology.

Criminology Needs More Class: Inequality, Corporate Persons & an Impoverished Discipline

Download .pdf of presentation (3.5mb)

Download .pptx of presentation (6.8mb)

The first part of the lecture is an overview of class, including income, wealth, economic mobility and corporate power. It is descriptive rather than making a moral or justice argument (although it does report on some surveys on our feelings about inequality). 

The second part discusses implications of inequality for criminology based on Braithwaite's idea that inequality worsens both crimes of poverty motivated by need and crime of wealth motivated by greed. It includes a number of Occupy Wall Street posters, graphics and pictures. 

If you would like to view the presentation below, use the left button to switch to the full screen mode so all the text is legible.

Inequality, Corporate Power and Crime

The 39 slide Powerpoint (.pptx - 10mb) is available here.

The .pdf (3mb) is here.

Of related interest: Gregg Barak - my co-author on Class, Race, Gender & Crime - has written a short article on the Financially Respectable Crimes of Wall Street; he also has a the introduction posted from his forthcoming book Theft of a Nation: Wall Street Looting and Federal Regulatory Colluding.

So, here's a screencapture of a .pdf that was part of a challenge by the Electronic Privacy Information Center against the scanners.  They have copies of their briefs and those filed by the Dept of Homeland Security, so this is a good place to review the arguments for yourself. (I still haven't seen a scan of a female body that I believe was an authentic capture of a TSA scan, but when one is released I sure it will add more fuel to the fire.)

Click for a larger version that includes the

person's back side as well

For those interested in some excellent discussion - better than I can provide -- check out the posting by security expert Bruce Schneier.  He is one of the parties challenging the use of scanners, so he is not a neutral party, but his blog and books on security are always thoughtful and deserve consideration. Read, for example, his discussion on airport security generally or "security theater" ("security measures that make people feel more secure without doing anything to actually improve their security").

ISSUES: 

1. Is it dangerous? I'm skeptical that the TSA will be candid about the risks.  The best info I have seen is here, noting that the comparison of a scan to a few minutes of actual airplane flight is misleading. The type of radiation is different, and what is put out from the scanner:

this means that the X-ray source used in the Rapiscan system is the same as those used for mammograms and some dental X-rays, and uses BOTH 'soft' and 'hard' X-rays. Its very disturbing that the TSA has been misleading on this point. Here is the real catch: the softer the X-ray, the more its absorbed by the body, and the higher the biologically relevant dose! This means, that this radiation is potentially worse than an a higher energy medical chest X-ray.

The author poses these questions:

Essentially, it appears that an X-ray beam is rastered across the body, ... what happens if the machine fails, or gets stuck, during a raster. How much radiation would a person's eye, hand, testicle, stomach, etc be exposed to during such a failure. What is the failure rate of these machines? What is the failure rate in an operational environment? Who services the machine? What is the decay rate of the filter? What is the decay rate of the shielding material? What is the variability in the power of the X-ray source during the manufacturing process? This last question may seem trivial; however, the Johns Hopkins Applied Physics Laboratory noted significant differences in their test models, which were supposed to be precisely up to spec. Its also interesting to note that the Johns Hopkins Applied Physics Laboratory criticized other reports from NIST (the National Institute of Standards and Technology) and a group called Medical and Health Physics Consulting for testing the machine while one of the two X-ray sources was disabled (citations at the bottom of the page).

2. Does it make us safer? The explosive of choice at the moment is PETN (pentaerythritol tetranitrate), which is in the same family as Semtex. Schneier comments that

The problem is that no scanners or puffers can detect PETN; only swabs and dogs work. What the TSA hopes is that they will detect the bulge if someone is hiding a wad of it on their person. But they won't catch PETN hidden in a body cavity. That doesn't have to be as gross as you're imagining; you can hide PETN in your mouth. A terrorist can go through the scanners a dozen times with bits in his mouth each time, and assemble a bigger bomb on the other side. Or he can roll it thin enough to be part of a garment, and sneak it through that way. These tricks aren't new. In the days after the Underwear Bomber was stopped, a scanner manufacturer admitted that the machines might not have caught him.

3. What about privacy? A Washington Post column suggested: 

Although the Supreme Court hasn't evaluated airport screening technology, lower courts have emphasized, as the U.S. Court of Appeals for the 9th Circuit ruled in 2007, that "a particular airport security screening search is constitutionally reasonable provided that it 'is no more extensive nor intensive than necessary, in the light of current technology, to detect the presence of weapons or explosives.'"

In a 2006 opinion for the U.S. Court of Appeals for the 3rd Circuit, then-Judge Samuel Alito stressed that screening procedures must be both "minimally intrusive" and "effective" - in other words, they must be "well-tailored to protect personal privacy," and they must deliver on their promise of discovering serious threats. Alito upheld the practices at an airport checkpoint where passengers were first screened with walk-through magnetometers and then, if they set off an alarm, with hand-held wands. He wrote that airport searches are reasonable if they escalate "in invasiveness only after a lower level of screening disclose[s] a reason to conduct a more probing search."

As currently used in U.S. airports, the new full-body scanners fail all of Alito's tests.

For those who like to protest, there are T shirts with the 4th Amendment printed on them in metallic ink, so they words show up on scans of the body.  (There's a more provocative one - based on the concern that images of kids would constitute child porn - that says "read the 4th amendment, perverts".)

Just so we're all on the same page, the 4th Amendment reads: "The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no warrants shall issue, but upon probable cause, supported by oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized." Remember that the framers of the Constitution were overthrowing the English King, whom they described in the Declaration of Independence as a "tyrant," and they had concerns about strong federal government that are reflected in our founding documents. (see earlier blog postings on habeas corpus, aka The Great Writ or “Those who won our independence by revolution were not cowards,” wrote Supreme Court Justice Brandeis: “They did not exalt order at the cost of liberty”.)

CONCLUSION

In a column about the difficulty of securing the Washington Monument, Schneier suggests we close it down "empty and inaccessible, as a monument to our fears" and a symbol of our lawmakers' "inability to truly lead." He continues:

Terrorism isn't a crime against people or property. It's a crime against our minds, using the death of innocents and destruction of property to make us fearful. Terrorists use the media to magnify their actions and further spread fear. And when we react out of fear, when we change our policy to make our country less open, the terrorists succeed -- even if their attacks fail. But when we refuse to be terrorized, when we're indomitable in the face of terror, the terrorists fail -- even if their attacks succeed.

We can reopen the monument when every foiled or failed terrorist plot causes us to praise our security, instead of redoubling it. When the occasional terrorist attack succeeds, as it inevitably will, we accept it, as we accept the murder rate and automobile-related death rate; and redouble our efforts to remain a free and open society.

The grand reopening of the Washington Monument will not occur when we've won the war on terror, because that will never happen. It won't even occur when we've defeated al Qaeda. Militant Islamic terrorism has fractured into small, elusive groups. We can reopen the Washington Monument when we've defeated our fears, when we've come to accept that placing safety above all other virtues cedes too much power to government and that liberty is worth the risks, and that the price of freedom is accepting the possibility of crime.

If the point seems naive, consider the tactics of terrorism and how low-cost attacks (from the terrorists' perspective) cost us extensively in increased security measures (a "security tax" that affects the economy). The thoughtful Global Guerrillas blog noted:

Al Qaeda's choice of a demonstration was to use parcel bombs (called Operation Hemorrhage -- a classic name for a systems disruption attack).  These low cost parcel bombs, were inserted into the international air mail system to generate a security response by western governments.  It worked.  The global security response to this new threat was massive.

Part of effective systems disruption is a focus on ROI (return on investment) calculations.  As paraphrased in Inspire:  it is such a good bargain for us to spread fear amongst the enemy and keep him on his toes in exchange of a few months of work and a few thousand bucks.  We knew that cargo planes are staffed by only a pilot and a co-pilot, so our objective was not to cause maximum casualties but to cause maximum losses to the American economy.  (this shift is a clear attempt to avoid limitations of blood and guts terrorism by adopting systems disruption as outlined in this article)

To demonstrate this ROI, Inspire listed the costs of the investment in the operation:

• Printers:  $300 each
• Nokia mobile phones:  $150 each
• Shipping and transportation:  short $$
• TOTAL COST:  $4,200

It's pretty clear that the security costs inflicted as a result of this operation are counted in the millions of dollars, making for an impressive return on investment for the operation.  ROIs from systems disruption can reach one million to one.

Bin Laden's plan is to keep poking at us to cause expensive over-reactions. An article in Foreign Policy called "Death by  a Thousand Cuts" noted: 

The economic strategy of jihad would go through refinement. Its initial phase linked terrorist attacks broadly to economic harm. A second identifiable phase, which al Qaeda pursued even as it continued to attack economic targets, is what you might call its "bleed-until-bankruptcy plan." Bin Laden announced this plan in October 2004, in the same video in which he boasted of the economic harm inflicted by 9/11. Terrorist attacks are often designed to provoke an overreaction from the opponent and this phase seeks to embroil the United States and its allies in draining wars in the Muslim world. The mujahideen "bled Russia for 10 years, until it went bankrupt," bin Laden said, and they would now do the same to the United States. 

Who can play this game longer: the terrorists or the US/US economy?

FURTHER READING

My chapter, Demystifying Terrorism: 'Crazy Islamic Terrorists Who Hate Us Because We're Free'? The full text of that chapter is available on this site, and as a preview I answer that they're not crazy.

(more below the image)

At the end are some links to more information, but this is a Box explaining the book. It comes from the forthcoming third edition of Class, Race, Gender & Crime, which I just finished copyediting (that book will be available over the summer). Yes this is either cross-promotion or shameless self-promotion, depending how you look at it. 

Box 10.1 [of Class, Race, Gender & Crime, 3rd ed]

Punishment for Sale: Private Prison, Big Business, and the Incarceration Binge

Chapter 2 [of Class, Race, Gender & Crime, 3rd ed] identified privatization as one of the major trends that would continue to exert an influence on the criminal justice enterprise. Privatization refers to the practice of outsourcing government functions and services to private, for-profit business under a contract with the government. Punishment and incarceration may seem like odd functions to privatize, but private prisons are a multi-billion dollar a year business and the two largest firms – Corrections Corporation of America (CCA) and GEO Group – are multinational businesses that are traded on Wall Street. 

In a recent groundbreaking examination of prison privatization, criminologists Donna Selman and Paul Leighton argue in Punishment for Sale (2010) that understanding the nature of the contemporary criminal justice system requires understanding privatization, including the business model and financial dynamics of these firms. It’s not just a multi-billion dollar business, but CCA has a billion dollar credit line with various powerful Wall Street investment banks. They – and all the shareholders – ensure that the private prison firms are managing the business risk factors that they must disclose in filings with the Securities and Exchange Commission. Risk factors include not getting enough inmates from government to be profitable, sentencing reform (like the repeal of certain mandatory minimum sentences), steps toward the legalization of drugs, and immigration reform.

While these are controversial topics, the debate over justice policy needs to be on the merits of reform – not based on the financial interests of wealthy shareholders and Wall Street. Indeed, research demonstrates that private prison firms have already influenced public policy to their own benefit through campaign donations, and they have rejected a shareholder proposal to fully disclose donations and lobbying money. (They have also voted down proposals to make the performance incentive piece of executive pay include criteria related to the absence of human rights or labor violations.)

Selman and Leighton (2010) argue that privatization was born from two trends. First, the relentless war on crime and war on drugs caused massive prison overcrowding. Extremely costly prison expansion and renovation were the inevitable results of “getting tough,” but it ran into conflict with politicians’ other favorite lines about lower taxes and less government. Second, President Ronald Reagan declared in his first inaugural address that “government is the problem,” and he set the stage for anti-government politicians to privatize a range of services. The historical moment was ripe for several politically well-connected individuals, backed by the same venture capital that facilitated the expansion of Kentucky Fried Chicken, to use private funds to build their own prison and collect money from government to house inmates from overcrowded facilities. 

As briefly noted in this chapter [of Class, Race, Gender & Crime, 3rd ed], the incarceration binge has been costly and ineffective – —and has contributed to social injustice (especially racial). Selman and Leighton (2010), after developing these points more fully, argue that private prisons were born from an oppressive war on crime and the future of their business depends on the continuation of those dynamics. Companies traded on the stock exchange owe a basic duty to shareholders to grow and become more profitable, regardless of the impact on others or on justice. 

Privatization has several important implications for understanding the intersections of class, race, gender, and crime. First, in a variation of The Rich Get Richer and the Poor Get Prison (Reiman and Leighton 2010), with prison privatization the rich whites get richer because the poor minorities go to prison. As noted in chapter 3 [of Class, Race, Gender & Crime, 3rd ed], stock ownership is concentrated in the hand of relatively few wealthy families who are mostly white. As noted in this chapter [of Class, Race, Gender & Crime, 3rd ed], those going to prison are disproportionately minority – and private prisons have a substantial number of contracts to house immigrants (including detained families). Racial fear means business and profits for private prison companies. 

Second, chapter 2 [of Class, Race, Gender & Crime, 3rd ed] noted that private prison firms pay substantially less than their government counterparts for prison staff, a point that generates opposition to privatization from unions. (Median earnings for all correctional officers and jailers were $35,760, but private prisons paid $25,050.) But private prison firms also pay their executives substantially more than the head of a Department of Corrections who manages substantially more inmates. For example, the cash pay (excluding stock awards and options) of the CEO for the GEO Group was almost $3 million in 2007 for having 54,000 beds under supervision. The Director of Corrections for Michigan was paid just over $200,000 that year for having almost 52,000 inmates under supervision and a parole and probation caseload of another 200,000 people (Selman and Leighton 2010).

Paying those at the top substantially more while paying those at the bottom substantially less directly contributes to income and class inequality. This process is exacerbated by additional fees at the top to the Board of Directors, who make $50,000 a year at CCA and $60,000 a year at GEO, plus fees for attending various meetings (including a compensation committee that decides how much the executive gets paid). In comparison, the median household income in 2007 was $50,230, so the pay for the part-time director position of a private prison was more than what half of all U.S. households earned from all their employment responsibilities (Selman and Leighton 2010). Overhead costs for the directors, SEC lawyers, consultants, mergers and acquisitions, “customer acquisition” (advertising and lobbying), shareholder lawsuits, and shareholder relations mean a wide variety of criminal justice workers will have lower wages and less economic security than if they had a government job.
  

Information from Amazon.com

Information from publisher: Rowman and Littlefield

Information on Class, Race, Gender & Crime (the 2nd ed does not contain the box above, but information contained in the link will be updated when the new edition comes out)

More information on private prisons (current "crime pays" section of paulsjusticepage.com. This will be updated and moved <eventually> to a section related to Punishment for Sale.

So, along comes the USA series White Collar. Neal, a convicted art forger, joins forces with an FBI agent to solve white collar crimes. Television is now dealing with white collar crime, right? Well, sort of. As I will explain below, the crimes that are portrayed are a narrow set of white collar crimes -- and they are ones that do not challenge abuses of power by corporations or government. I'll provide some examples of "ripped from the headline" events that the show will not touch. Finally, I'll raise the issue that USA's ownership by GE (which owns NBC Universal) might be a factor given GE's habitual offending over the course of decades (no 3 strikes and you're out for the powerful). 

My research, teaching and  TV watching

I like USA's Burn Notice, so the idea of a series about white collar crime caught my attention. Part of it was a professional interest, but I try to avoid rationalizing TV watching as part of my work. Still, I am a co-author of Class, Race, Gender and Crime (going into a 3rd ed); co-author of the ninth edition of The Rich Get Richer and the Poor Get Prison; and I teach a class on white collar crime. I've seen most of the episodes of White Collar, thanks to repeats and not TiVo.

In the premier episode, I noticed a scene where Neal is in prison, sitting on a bunk with  scratch marks in the walls to count the passage of days. The show was trying to establish his motivation for cooperating with the FBI, but I was disappointed when the scene ended with swatting a bare light bulb hanging from cord and the bulb breaks. Please - prisons are designed so there is nothing around for the inmates to use to hurt themselves, each other or the guards. Electric cords are a no-no; there's not just the shock risk, but also a strangulation and suicide risk as well. Glass is a no-no; it can be used by a prisoner to cut himself (suicide risk here as well) and as a weapon. A light bulb, in the possession of someone patient with lots of time on their hands could potentially be turned into an explosive. When exposed to air, the filament gets red hot, so fuel from a lighter (yes, it would be contraband, but available) could be combined with a light bulb into something problematic. (I guess I should say I have also taught a corrections class.)

In spite of my critique above and below, I generally like the show. My critique is really about the politics of white collar crime. More specifically, my critique is that they have created a show about white collar crime that is non-political -- especially in an era where Wall Street just got huge bonuses for fucking up the world's economy. 

White Collar Crime and Power

Too frequently, white collar crime is about employee theft, bank tellers embezzling, and credit card fraud. In each of these cases, the perpetrators, white "white collar" professionals, are victimizing an entity more powerful than themselves (stores, banks, and financial institutions). What's missing from the picture are harms done by the powerful, usually powerful corporations and governments. 

White Collar follows the former pattern and not the latter. Counterfeiting is a crime against the government; the perpetrators may be rich and sophisticated, but still have less resources and power than a government. Art theft or the other variations in the show tend to be personal crimes: one on one crimes, either without a clear power dynamic or one in which an individual is protected from a more powerful group of obvious "bad guys" (organized crime, for example). Absent are episodes where someone with power and prestige who is seen as a respectable person victimizes the less powerful. This is really the essence of white collar crime and the common theme of most definitions.

"Ripped from the headlines" applied to White Collar

"Ripped from the headlines" is part of the advertising for Law and Order, which airs in (endless) re-runs on USA because of the ownership of Law and Order's production company. This gives the show a timeliness and vague "reality" that catches people's curiosity: "Although the stories tend to wander into make-believe, they rely on the lightly disguised depiction of real people and events for their immediacy and sense of authenticity," notes the Washington Post in an article about surviving family feel "blindsided" and violated when crimes appear on the show.

While using people's personal tragedies as fodder for popular TV without contacting them is not a model I would recommend for White Collar, a few "ripped from the headlines" examples might help clarify my critique about the apolitical nature of White Collar. This is a short list pulled from my recent bookmarks...

A Big Car Manufacturer that became became "a little safety-deaf." Yes, Toyota in real life, but the safety deaf quote was from Transportation Secretary LaHood, who noted some problems penetrating the corporate culture. He added that "For now, any car that's on the Web site needs to go back to the dealer because they're not safe."But there are many questions about whether the dealer's fix really solves the problem. To add to the intrigue, maybe a West Wing flare, we see that "Toyota heads to Capitol Hill with team of lobbyists, history of political giving" Can the FBI ensure that justice prevails even though the there's "a million bucks in donations, a million bucks to charities preferred by key members of Congress, a 32-person (and growing) lobbying operation -- what’s a little free speech among friends? I’m sure it’s a coincidence, but Toyota spent $45,000 feting Sen. Jay Rockefeller (D-W.V.), who, oh my gosh, happens to chair one of the relevant transportation committees readying for hearings on the company." It might not be Jack Bauer in 24, but lives are on the line.

A Treasury Secretary misleads Congress about how $700 billion will be spent: then Secretary Paulson said: "During the two weeks that Congress considered the [TARP] legislation, market conditions worsened considerably. It was clear to me by the time the bill was signed on October 3rd that we needed to act quickly and forcefully, and that purchasing troubled assets—our initial focus—would take time to implement and would not be sufficient given the severity of the problem." For those needing more explanation, a financial blogger explains "So Paulson knew 'by the time the bill was signed' that it wouldn’t be used for its advertised purpose – disposing of toxic assets – and would instead be used to give money directly to the big banks. But he didn’t tell Congress before they voted to approve the TARP legislation." At what point does misleading Congress and the public become a crime? Is it relevant that the biggest beneficiaries of the new and undisclosed plan was Goldman Sachs, where the Treasury Secretary was a former executive?

Added intrigue: The Federal Reserve asks AIG to keep quiet about the huge payments that went to Goldman (even a national security exemption! - but that wouldn't be believable on TV, would it?). Of course there are further issues about the payment of huge bonuses by those institutions receiving taxpayer money through TARP as well as the lobbying they are doing to defeat reform. (Some Way too much of it seems to be legal, but this could still be part of the plot, just as discussions about whether to charge and what to charge are part of the drama of Law & Order. )

Food processor as mass murderer, knowingly ships contaminated food that kills 5 and sickens 500:  The Peanut Corporation of America. Remember those hundreds of potentially contaminated products? The executive who would not eat any of the products when a Congressman offered him some at a hearing? The back story is that on 12 occasions of two years they had lab reports that confirmed salmonella and they shipped products anyway according to a Washington Post article. Investigation is hindered by the fact that companies are not required to report test results to the FDA. The FDA has no power to order a recall, so all they can do is pressure the company into a "voluntary" recall. Again, maybe not Jack Bauer, but real lives, real children died. More than a year later, no criminal charges, even though there's a very good case to be made for them.(There's another possible investigating similar concerns with hamburger.)

Pharmaceutical giant illegally markets drugs: Pfizer agrees to a $2.3 billion settlement over illegally marketing a drug. According to the New York Times, it was "the largest health care fraud settlement and the largest criminal fine of any kind ever."  Reading further, it was "Pfizer’s fourth settlement over illegal marketing activities since 2002." The recidivism seems to be important as "the government charged that executives and sales representatives throughout Pfizer’s ranks planned and executed schemes to illegally market not only Bextra but also Geodon, an antipsychotic; Zyvox, an antibiotic; and Lyrica, which treats nerve pain. While the government said the fine was a record sum, the $2.3 billion fine amounts to less than three weeks of Pfizer’s sales." There's also an issue that this "occurred while Pfizer was in the midst of resolving allegations that it illegally marketed Neurontin, an epilepsy drug for which the company in 2004 paid a $430 million fine and signed a corporate integrity agreement — a company wide promise to behave." (More here and here). Illegal marketing mean higher costs to taxpayers as people on Medicare are prescribed drugs they don't need and/or higher doses of drugs, plus there are all the side effects that people have to deal with for medication they did not need to take.

As a related episode or subplot, the NYT reports that: "Newly unveiled court documents show that ghostwriters paid by a pharmaceutical company played a major role in producing 26 scientific papers backing the use of hormone replacement therapy in women, suggesting that the level of hidden industry influence on medical literature is broader than previously known." (Yes, the companies write articles for medical journals about their drugs and "solicit" pay doctors to put their names on it.)

You get the idea. If not, see some white collar crime reviews on this blog.

Corporate Media

While some people would say the topics are boring and that's why they are not on TV, I'd point out the success of John Travolta's Civil Action (pollution from chemical company causes cancer); Julia Roberts' Erin Brockovitch (same); Al Pacino's The Insider (informant on tobacco company); and Enron: The Smartest Guys in the Room.. If White Collar can create a drama around a stolen piece of art, why not some of the high stakes issues above. 

The problem more likely is corporate ownership of the media. Specifically, USA is owned by NBC universal, which is owned by GE. Here's part of the lowdown, which is in the opening of Chapter 8 of Class, Race, Gender and Crime (the forthcoming 3rd ed; the 2nd ed has a less detailed version). 

Now consider the case of General Electric, which is not considered a habitual criminal offender despite committing diverse crimes over many decades. In the 1950s, GE and several companies agreed in advance on the sealed bids they submitted for heavy electrical equipment. This price-fixing defeated the purpose of competitive bidding, costing taxpayers and consumers as much as a billion dollars. GE was fined $437,000—a tax-deductible business expense—the equivalent of a person earning $175,000 a year getting a $3 ticket. Two executives spent only 30 days in jail, even though one defendant had commented that price-fixing “had become so common and gone for so many years that we lost sight of the fact that it was illegal” (in Hills 1987, 191).

In the 1970s, GE made illegal campaign contributions to Richard Nixon’s presidential campaign. Widespread illegal discrimination against minorities and women at GE resulted in a $32 million settlement. Also during this time, three former GE nuclear engineers—including one who had worked for the company for twenty-three years and managed the nuclear complain department—resigned to draw attention to serious design defects in the plans for the Mark III nuclear reactor because the standard practice was “sell first, test later” (Hills 1987, 170; Glazer and Glazer 1989).

In 1981, GE was convicted of paying a $1.25 million bribe to a Puerto Rican official to obtain a power plant contract. GE has pled guilty to felonies involving illegal procurement of highly classified defense documents, and in 1985, it pled guilty to 108 counts of felony fraud involving defense contracts related to the Minuteman missile. In spite of a new code of ethics, GE was convicted in three more criminal cases over the next few years, plus paying $3.5 million to settle cases involving retaliation against four whistleblowers that helped reveal the defense fraud. (GE subsequently lobbied Congress to weaken the False Claims Act.) In 1988, the government returned another 317 indictments against GE for fraud in a $21 million computer contract.

In 1989, GE’s stock brokerage firm paid a $275,000 civil fine for discriminating against low-income consumers, the largest fine ever under the Equal Credit Opportunity Act. A 1990 jury convicted GE of fraud for cheating on a $254 million contract for battlefield computers, and journalist William Greider reports that the $27.2 million fine included money to “settle government complaints that it had padded bids on two hundred other military and space contracts” (1996, p. 350; see also Clinard 1990; Greider 1994; Pasztor 1995; Simon 1999).

Because of tax changes that GE had lobbied for and the Reagan tax cuts generally, GE paid no taxes between 1981 and 1983 when net profits were $6.5 billion. In fact, in a classic example of corporate welfare, GE received a tax rebate of $283 million during a time of high national deficits even though the company eliminated 50,000 jobs in the United States by closing 73 plants and offices.

Further, “Citizen GE” whose advertising slogan has been—“brings good things to life”—is one of the prime environmental polluters and is identified as responsible for contributing to the damage of 52 active Superfund sites in need of environmental cleanup in this country alone. In 1999, they agreed to a $250 million dollar settlement to clean up the Housatonic River in Massachusetts.

GE is responsible “for one of America's largest Superfund site, the Hudson River, where the company dumped more than a million pounds of toxic wastes including cancer-causing polychlorinated biphenyls over a period of decades, according to the EPA” (Center for Public Integrity 2007). Instead of cleaning up their part of the 197-mile site, they mounted an eight-year challenge to the Superfund law that requires polluters to remedy toxic situations they created. (GE’s corporate environmental counsel during part of this time, Ignacia Moreno, was appointed by President Obama to be Assistant Attorney General for the Environment and Natural Resources Division in the Department of Justice.)

Even though felons usually lose political rights, GE donated almost $18 million to candidates in federal elections between 1989 and 2009 (Center for Responsive politics 2009), and they spent $191 million for lobbying between 1998 and 2009 (Center for Responsive Politics 2009a). In spite of having been convicted of defrauding every branch of the military multiple times, GE is frequently invited to testify before Congress.

GE also has the ability to shape public opinion through its ownership of NBC Universal, which owns NBC television (and A & E, USA, and others), MSNBC and the financial news outlet CNBC. Some call CNBC an “economic infomercial” because there’s a rather obvious but little discussed conflict of interest between owning a financial news outlet, being one of the world’s largest financial operations and receiving government support during the economic crisis.

GE created a number of finance arms to help people and companies buy its products, and those activities account for nearly half of their earnings in the last five years (Gerth and Dennis 2009). Most people know GE “for light bulbs and home appliances, but GE Capital is one of the world's largest and most diverse financial operations, lending money for commercial real estate, aircraft leasing and credit cards for stores such as Wal-Mart. If GE Capital were classified as a banking company, it would be the nation's seventh largest” (ibid). Although GE was not originally eligible for government support through programs enacted to help with the financial crisis, they engaged in lobbying and received $74 billion in loan guarantees that helped the company finance its operations at low cost (ibid).

For 2008, GE was the sixth largest company on the Fortune 500 list. If the corporation’s revenue were compared to the Gross Domestic Product of countries, it would be in the fifty largest economies in the world. With this kind of political, economic, and social power, it is easy to understand why “three strikes and you’re out” does not apply to the “big hitters” like GE.

Gee, I can't imagine why they wouldn't want a show about white collar crime that was "ripped from the headlines" and more importantly spoke truth to power. When you are the power, you shape people's vision of truth. And the the (corporate) truth is that crime isn't about what the rich and powerful do. Nothing to see here - check out the good looking guy dealing with white collar crimes about computer chips...

Listening to:

I want my bailout money

As the headline of this post notes, PaulsJusticeBlog is on the list (see #4). But I'm posting the link to the article - Fighting for Liberty and Justice for All (11/10/09)- to share the list with others and hope people will browse through it. I found several interesting blogs that I didn't know about: Howard Zehr has a restorative justice blog and I enjoyed the corporate justice blog. Yes, there are some questionable ones that don't seem to me to fit the description, but it is worth browsing. 

Since I am writing about the blog, let me mention that I'm aware of promising more frequent posting that hasn't really happened. There was a bunch of work preparing for the national criminology conference and dealing with flu in the family. I'll be posting my presentation quite soon - I just need to make a few small change to make it suitable for posting on the web.

Was the theme to "Sesame Street" really played to torture prisoners held at Guantanamo and other detention camps? What about Don McLean's "American Pie"? Or the Meow Mix jingle? Bruce Springsteen's "Born in the U.S.A."?  A high-profile coalition of artists -- including the members of Pearl Jam, R.E.M. and the Roots -- demanded Thursday that the government release the names of all the songs that were blasted since 2002 at prisoners for hours, even days, on end, to try to coerce cooperation or as a method of punishment.

The article quotes Suzanne Cusick, whom the Post describes as "a music professor at New York University who has studied, lectured about and written extensively on the use of music as torture in the current wars." (As someone who studies genocide and hate crimes, I'm not in a position to say this is odd...). She states that "Sound at a certain level creates sensory overload and breaks down subjectivity and can [bring about] a regression to infantile behavior. Its effectiveness depends on the constancy of the sound, not the qualities of the music." Played at a certain volume, she said, "it simply prevents people from thinking."

It makes sense that the loudness is a key factor. But certainly the type of music can also have an effect. Many of my students drive in a cars with huge huge speakers cranking rap.  So, using rap with them in an interrogation setting would take longer for it to be effective.

"Cusick, the NYU music professor, has interviewed a number of former detainees about their experiences and says the music they most often described hearing was heavy metal, rap and country. Specific songs mentioned include Queen's "We Are the Champions" and "March of the Pigs" by industrial rockers Nine Inch Nails." 

The FOIA request was from the National Security Archive at George Washington University. Having gone through some frustrating FOIAs for information for my private prison book, I know this will take a while a long @#$%*ing time. Among other items, we submitted a FOIA for contracts the federal Bureau of Prisons had with private prisons. The law requires them to acknowledge your request within a certain time period, but there is no limit on how long they can take to produce documents - and you may need to hassle with them over the photocopying cost. Several years later and we're still waiting for the contracts.

The National Security Archive has some more info and a list of links to other stories about this request.  The deeper background is available on this page, which has excerpts of documents that mention the use of music in interrogation. This includes "declassified documents and published reports that refer to the use of 'loud' music to 'create futility' in uncooperative detainees at Guantanamo. A 2004 Defense Department report on abuses at the military base in Cuba, for example, stated that the 'futility technique included the playing of Metallica, Britney Spears and Rap music.' For FOIA geeks (like me), they have the actual FOIA letter they sent to the government.

But here's the rundown:

1. The Rich Get Richer and the Poor Get Prison, 9th ed.

I've been working with Jeff Reiman on this since the 4th edition and this is the first where I'll be a co-author. [Amazon.com info ~ companion website]

2. The Rich Get Richer and the Poor Get Prison: A Reader

This is the first edition of the reader. In the reviews that the publisher commissions before each edition, professors keep wanting more coverage of issues, more depth etc. So, we came up with this companion volume so we could keep the main text relatively true to the original (which has done so well). Selecting articles, writing intro, dealing with permissions hassles, making some cuts to accommodate length - this has been a bit of work, but  I'm happy with how it turned out (at least how the page proofs looked - the book itself will not be available until late October). [Amazon.com info ~ publisher's website]

3. Punishment for Sale: Private prisons, Big Business and the Incarceration Binge

This is co-written with my colleague Donna Selman and the research won EMU's Merlanti Faculty Ethics Research Award this year. The book was delivered to Rowman and Littlefield quite late, but  it is good and a contribution to the waning literature on private prisons. Here's the 150-200 word description we wrote for the Author's Questionnaire:

Punishment for Sale is the definitive modern history of private prisons – businesses that build and/or manage prisons for a profit. Today, these businesses have shares that are traded on the stock exchange, and this volume traces their origin back to the incarceration binge and President Reagan’s embrace of privatization. Based on original research, this volume uses stock offering documents to explain the (hotel-like) business model of private prisons and their place within the prison-industrial complex. It provides an analysis of key issues and problems found in a difficult to obtain sample of contracts executed between governments and private prison companies. And, it examines the efficiency and overhead costs of private prisons by reviewing executive pay, acquisition, mergers and other corporate activity. Punishment for Sale, which won the Merlanti Research Ethics award, provides a balanced telling of the story of private prisons within a theoretically critical framework. Its revelations from “following the money” make it a must-read for anyone interested in understanding the criminal justice system, public policy and the effects a multi-billion dollar industry can have.

[Publisher's info]

4. Class, Race, gender & Crime, 3rd ed

This isn't quite finished yet, but it is a 3rd ed of the book. We're trying to spend a bit of time reorganizing, updating the literature, trimming out of date material and polishing some of the explanations. More to come on this project.

So, going forward, I hope to put up a post or two a week. I'm working on shorter posts more frequently rather than the longer and more detailed ones I've been doing. 

1. Recognize how important this is - if the financial crisis doesn't get resolved favorably, then it will be impossible to do anything. Health care reform and use of our military will be much harder if we're in a Depression. 

2. You need to make sure that $700 billion is well spent. Priority #1. That means ensuring no conflicts of interest with the people running it (ie financial institutions giving advice on how to spend the govts money and selling their own crap tot he govt or getting paid by clients for advice on selling crap to the govt). Since Americans are now saddled with a Wall Street Incompetence Tax, make sure that this money achieves its goal of stabilizing the financial system at least cost to the taxpayers. 

3. Work on a regulatory system that will ensure this does not happen again. Priority #2. We've been through the S & L, Enron and the other financial frauds, now this. Worse still, we deregulated after the S & Ls, then scaled back the SEC after Enron, Worldcom, Tyco, Global Crossing, Adelphia, etc and etc blew up in some of the largest corporate bankruptcies up to that time. We don't need 'deregulators' who have now changed their tune - and could well change back again when the crisis has passed, thus paving the way for more problems.

We know there will always be business cycles, and financial markets need some room to innovate. But when things go poorly, they shouldn't take down the national or global economy. We need some intelligent regulation that will not be undone by lobbying three or four years down the road. 

It is a big job, but at least pretend you have a clue.

PS - John "my friend" McCain - you have some explaining to do because this quote of yours scares the crap out of me: "Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation."

Last week, the proposed bailout was the big news and the bare bones, 3 page plan for a $700 billion bailout package was being fleshed out. One commentator quoted a Wall St Journal story that Treasury Secretary "Paulson cautioned lawmakers against letting the plan get bogged down in a debate over unnecessary additions." The commentator adds: "'Unnecessary additions' - things like accountability, transparency, making sure that the crisis does not happen again, and making sure that it solves the underlying problem."

The revised plan grew to 110 pages and started to include a few items to strengthen oversight and transparency, and deal with some of the criticisms summarized by this blog last week. The plan was ultimately defeated by the House. As I'm putting together this blog, the Senate is preparing to vote on a very slightly revised plan later tonight. The 'new' plan is exactly like the previous one, except that it also (1) raises the amount of bank deposits that are federally insured, something that helps a little and (2) include tax breaks for businesses, individuals and alternative energy, which really have nothing to do with the problem. The latter are added to attract some votes, even though the tax cuts will enlarge the national debt and could turn some previous supporters away from the new bill.

Some lingering problems: 

- We don't need it

• "any rescue could have been handled by expanding existing programs"
• the bailout complicates matters enormously, because it doesn't address the immediate problems
• it's a "rip-off", "pathetic" and a "disgrace"
• it's not big enough to be effective given the amount of toxic debt floating around (try $5 trillion)
  

- The problem of what the govt should be paying for toxic securities has not been resolved. As noted last week, the plan seemed to be to pay above market price for them:

Market Value. Repeat after me - M A R K E T V A L U E. This is what can and should be paid for liquifying toxic balance sheets. Not a penny more. The mere fact that Mr. Paulson has been fighting against this tooth and nail has only destroyed his credibility as a bright, pragmatic thinker, a leader that can get us out of this mess. Instead, he reads as a pandering ex-Wall Street executive, a man more concerned with preserving the status quo than helping usher the financial markets into a new, more customer-focused and risk-managed phase.

For those who want more explanation, check out the links from last week and see the commentary of fund manager John Hussman. He provides some helpful examples to make the point that "The only way that buying the questionable assets will increase capital on the liability side of the balance sheet is if the Treasury overpays for them."

- 200 economists sign a letter saying it is unfair, ambiguous and desperately short sighted. For those who want more detail, see the new study by the International Monetary Fund that analyzes 124 banking crises. (Economists were also not keep on the GOP alternate bailout proposal, which has been folded into the new senate version.)

- Reform. The summary by Speaker Pelosi emphasizes Reinvest, Reimbuse (taxpayers) and Reform. But the reform part seems linked to CEO pay - a problem that's been mentioned here the last few weeks, but other areas are in need of much more substantial reform. Granted, this is something that may take some more time and shouldn't be done before Congress runs off to re-elect itself, but how do we make sure it doesn't get forgotten?

The problem has been noted here a number of times over the last few weeks as we've discussed the idea of 'normal accidents' - how human decisions and responsibility gets lost when complex systems break down. To keep this issue front and center, consider reading the full column that this is excerpted from: 

We on Wall Street feel somewhat compelled to take at least some responsibility. We used excessive leverage, failed to maintain adequate capital, engaged in reckless speculation, created new complex derivatives. We focused on short-term profits at the expense of sustainability. We not only undermined our own firms, we destabilized the financial sector and roiled the global economy, to boot. And we got huge bonuses.

But here's a news flash for you, D.C.: We could not have done it without you. We may be drunks, but you were our enablers: Your legislative, executive, and administrative decisions made possible all that we did. Our recklessness would not have reached its soaring heights but for your governmental incompetence.

The same blog notes that the Securities and Exchange Commission has fewer people working for it than the Smithsonian Institution, the collection of museums in DC. "Indeed, Congress doles out more than five times as much money for corn subsidies ($4.9 billion in 2006, the most recent year for which data are available) as it does for the SEC." There's a $675 Trillion derivatives market that is totally unregulated. The blog concludes: "Gee, how on earth did the 3 million people working in the finance industry ever mange to get away with anything with that type of police enforcement?"

As noted last week, weakening regulations about leverage played an important role in  allowing companies to take on much more additional risk. If you want a better understanding of leverage, check out the interactive feature on leverage from portfolio.com.

Finally, there's some concern that proposals to suspend rules about who firms price securities they own may make the problem worse. The term is 'mark to market' and requires firms to use market prices to value securities they hold. The firms claim that the current market price is not the 'real' price, but reflects distressed and unusual conditions. So they'd like more flexibility to use their own statistical modeling to come up with what they see as the right value.  Obviously, a firm can easily manipulate assumptions on the model to produce very favorable valuations for what it owns, and not really disclose all the assumptions. The 'mark to market' was originally introduced to bring increased transparency to the process. "Suspending mark-to-market accounting, in essence, suspends reality" (link goes to good discussion of the issue). Some are even blaming the requirement for the current problems, which prompted an analyst at JP Morgan to comment: "Blaming fair-value accounting for the credit crisis is a lot like going to a doctor for a diagnosis and then blaming him for telling you that you are sick."

Other reading: 

Bailout linkfest  ~ Tally of federal Rescues ~ alternative plans ~ bracket breakdown, the Financial version of the March Madness

Special Prosecutor Named in Federal Attorney Firings Case

The Washington Post summarizes the developments in the two year old/long improper dismissal case:

Investigators probing the firing of nine U.S. attorneys concluded that top Justice Department officials "abdicated their responsibility" by failing to supervise subordinates who carried out the botched plan, according to a long-awaited report released today. 

[snip]

The investigation uncovered "significant evidence" that partisan political factors played a role in some of the 2006 dismissals. Particularly "troubling," according to the report, was the sacking of New Mexico U.S. Attorney David C. Iglesias after several Republican elected officials complained about voter fraud and public corruption cases he pursued. That episode raises the possibility that obstruction of justice and wire fraud laws were violated.

Justice Department Inspector General Glenn A. Fine and Office of Professional Responsibility Director H. Marshall Jarrett, who had been investigating the basis for the dismissals for 18 months, also cited "inconsistent, misleading or inaccurate" statements by the department's former leaders.

In the 390-page report, issued this morning, they said Gonzales "bears primary responsibility" for the debacle and asserted that he was "remarkably disengaged" from the process, which stretched on for months. Investigators said that after the mass firings came to light, Gonzales made "misleading" public statements about his involvement, failing to recall his attendance at a critical meeting and documents that landed on his desk.

[snip]

In their strongest conclusions, the Justice Department investigators said that D. Kyle Sampson, the former chief of staff to Gonzales, had committed "misconduct" by making a series of questionable public statements and failing to share information with the White House, lawmakers and his own superiors about the extent of the White House involvement in the firings. 

[snip]

The internal watchdogs asked that the investigation continue under the authority of a prosecutor with the power to compel testimony and production of documents. They said their probe was thwarted in part because they could not interview key witnesses, including former White House officials Karl Rove, Harriet E. Miers and William Kelley. Investigators also pointed out that the White House refused to turn over internal documents related to the dismissal of the prosecutors by citing the "sensitivity" of the issues, saying the move had "hindered" their inquiry. 

The NY Times adds:

An internal Justice Department investigation concluded Monday that political pressure drove the firings of several federal prosecutors in a 2006 purge, but said that the refusal of major players at the White House and the department to cooperate in the year-long inquiry produced significant “gaps” in its understanding of the events.

At the urging of the investigators, who said they did not have enough evidence to justify recommending criminal charges in the case, Attorney General Michael B. Mukasey appointed the Acting United States Attorney in Connecticut, Nora Dannehy, to continue the inquiry and determine whether anyone should be prosecuted.

The 356-page report, prepared by the department’s inspector general and its Office of Professional Responsibility, provides the fullest picture to date of an episode that opened the Bush administration up to charges of politicizing the justice system. The firings of nine federal prosecutors, and the Congressional hearings they generated, ultimately led to the resignation of Attorney General Alberto Gonzales last September.

The investigation, which uncovered White House e-mail messages not previously made public, offered a blistering critique of Mr. Gonzales’s management of the department. It called Mr. Gonzales “remarkably unengaged” in overseeing an unprecedented personnel review, and said that he “abdicated” his administrative responsibilities, leaving those duties to his chief of staff. It said that the process for deciding which prosecutors were fired was “fundamentally flawed.”

[snip]

Mr. Mukasey, in announcing the appointment of an in-house prosecutor to continue the investigation, acknowledged that the process for firing the prosecutors was “haphazard, arbitrary and unprofessional, and that the way in which the Justice Department handled those removals and the resulting public controversy was profoundly lacking.”

One of the most controversial firings is of David Iglesias, who was hassled by Republicans over a case involving corruption charges against a Democrat. A review of his book notes that Iglesias was "talented, Hispanic, evangelical, a military veteran and a loyal Bush supporter... [In his book,] Iglesias claims shocking attempts to "co-opt the Justice Department for political ends" with statements that as early as 2003, U.S. Attorneys were being pressured to purge Democrats from voter rolls wherever possible; Iglesias says he was thrown under the bus after refusing to release sealed details of an ongoing prosecution that would scandalize Democratic contenders in a local 2006 race. Iglesias's text, like his testimony before the Senate Judiciary Committee, implicates a number of big dogs, including Gonzales and Karl Rove, as well as the President."

CIA Top Administrator Pleads Guilty to Fraud

According to the Washington Post ("Ex-CIA Official Pleads Guilty to Fraud, 30 Sept 2008, A2):

The CIA's former top administrator pleaded guilty yesterday to steering agency contracts to a defense contractor and concealing their relationship, making Kyle "Dusty" Foggo the highest-ranking member of a federal intelligence or law enforcement agency to be convicted of a crime, officials said.

Foggo, 53, admitted that he conspired to defraud the government through his relationship with Brent R. Wilkes, a California businessman and close friend. Prosecutors said Wilkes took Foggo and his family on a $30,000 Hawaiian vacation and courted the CIA official with expensive meals throughout the Washington area...

In return, court documents say, Foggo helped Wilkes get lucrative contracts, including one in which the CIA paid 60 percent more than it should have for water a Wilkes-affiliated company supplied to CIA outposts in Afghanistan and Iraq.

Foggo, a longtime logistics officer, was the CIA's executive director from November 2004 until May 2006, holding the agency's third-ranking position and one in which he oversaw the CIA's daily operations and budget. The position, which has since been eliminated, was sometimes referred to as "Mayor of the CIA." Foggo was accused of using his seniority and influence at a prior CIA job in Europe to help Wilkes. It is one of the first cases that has involved the CIA's clandestine operations in Europe and the Middle East.

Although Foggo, a Vienna resident, pleaded guilty to one count of wire fraud in U.S. District Court in Alexandria, prosecutors agreed to dismiss 27 other counts against him and to recommend a sentence of no more than 37 months in prison. Judge James C. Cacheris, after accepting Foggo's plea, took the unusual step of telling Foggo that his attorneys "have done a good job for you in this case." Under federal law, Foggo could receive a prison term of as much as 20 years when he is sentenced Jan. 8.

Violations reported at 94% of Nursing Homes

The NY Times reports that: 

More than 90 percent of nursing homes were cited for violations of federal health and safety standards last year, and for-profit homes were more likely to have problems than other types of nursing homes, federal investigators say in a report issued on Monday.

About 17 percent of nursing homes had deficiencies that caused “actual harm or immediate jeopardy” to patients, said the report, by Daniel R. Levinson, the inspector general of the Department of Health and Human Services. Problems included infected bedsores, medication mix-ups, poor nutrition, and abuse and neglect of patients.

The inspector general said 94 percent of for-profit nursing homes were cited for deficiencies last year, compared with 88 percent of nonprofit homes and 91 percent of government homes.

Full report of the inspector general (pdf)

related:  What Are We Going to Do With Dad? [Geriatrician Jerald Winakur looks at the "vast inland sea of elders" that is building and wonders where the doctors will come from to care for them. Writing as the son of an eighty-six-year-old man with dementia, Winakur also details the nitty-gritty of caring for an increasingly debilitated parent. In both of his roles—loving son and highly skilled professional—he is hard pressed to alter a course that punishes his dad and tears at his family.]

Bottled Water: Commercial Use of Public Good

The Washington Post reports (Bottled Water at Issue in Great Lakes, 29 Sept 2008, A7) about a loophole in the campaign to stop the wholesale export of Great Lakes water:

A provision of the Great Lakes Compact allows water to be diverted from the basin if it is in containers holding less than 5.7 gallons. The question is whether bottling water from the aquifers that feed the lakes, the largest repository of fresh water on Earth, should be seen as ordinary human consumption, commercial production, or export of a treasured natural resource. 

[snip]

opponents of bottled water say soda and beer are different because the water is consumed in making something else, whereas they view Nestle as taking a public good, paying very little for it, and making a profit on it.

They also fear that since the compact officially treats water as a "product," the door could be opened to further commercialization and sale. It was such fears that in 1998 launched the process that led to the compact, after the tiny company Nova Group obtained a permit from the Ontario government -- later withdrawn -- to ship up to 158 million gallons of Great Lakes water per year to Asia.

33 Pastors Flout Tax Law With Political Sermons

Churches, like many other organizations, receive tax emptions so long as they do not endorse candidates. I think this makes sense because if tax exempy organizations can endorse candidates, then people will set up nonprofits for the purpose of politics and undercut all our campaign finance laws. So I'd see this as white collar crime, although the pastors and religious groups see this as a govt crime - denying them free speech. (They can still say what they want; they just don't get a tax break.)

From the Washington Post: 

Johnson and 32 other pastors across the country set out Sunday to break the rules, hoping to generate a legal battle that will prompt federal courts to throw out a 54-year-old ban on political endorsements by tax-exempt houses of worship. The ministers contend they have a constitutional right to advise their worshipers how to vote.

[snip]

Each campaign season brings allegations that a member of the clergy has crossed a line set out in a 1954 amendment to the tax code that says nonprofit, tax-exempt entities may not "participate in, or intervene in . . . any political campaign on behalf of any candidate for public office." 

This time, the church action is concerted. Yet while the ministers say the rules stifle religious expression, their opponents contend that the tax laws are essential to protect the separation of church and state. They say political speech should not be supported by a tax break for the churches or the worshipers who are contributing to a political cause.

In an open letter Saturday, a United Church of Christ minister, the Rev. Eric Williams, warned that many members of the clergy are "exchanging their historic religious authority for a fleeting promise of political power," to the detriment of their churches.

"The role of the church -- of congregation, synagogue, temple and mosque -- and of its religious leaders is to stand apart from government, to prophetically speak truth to power," Williams wrote, "and to encourage a national dialogue that transcends the divisiveness of electoral politics and preserves for every citizen our 'first liberty.' "

[snip]

"I have no objections to clergy taking off their robes and walking out the door of their church, synagogue or mosque and immersing themselves in political campaigns," said Rabbi Jack Moline of Agudas Achim Congregation in Alexandria, chairman of the Interfaith Alliance board. "But a sanctuary should not be a place of political agitation on behalf of a candidate. On behalf of issues, yes. Of candidates, no." 

"Pirates" ??

I'll admit I don't know enough to say who is on the right end of this story, but present it as an example of we should be careful about definitions of crime and criminals. The reports are of "Somali priates" hijacking a ship full of tanks an arms, which would seem to be white collar crime.  A later story claimed the pirates had no idea what the ship was carrying when they seized it. According to an interview,

He said that so far, in the eyes of the world, the pirates had been misunderstood. “We don’t consider ourselves sea bandits,” he said. “We consider sea bandits those who illegally fish in our seas and dump waste in our seas and carry weapons in our seas. We are simply patrolling our seas. Think of us like a coast guard.”

The piracy industry started about 10 to 15 years ago, Somali officials said, as a response to illegal fishing. Somalia’s central government imploded in 1991, casting the country into chaos. With no patrols along the shoreline, Somalia’s tuna-rich waters were soon plundered by commercial fishing fleets from around the world. Somali fishermen armed themselves and turned into vigilantes by confronting illegal fishing boats and demanding that they pay a tax.

“From there, they got greedy,” said Mohamed Osman Aden, a Somali diplomat in Kenya. “They starting attacking everyone.” By the early 2000s, many of the fishermen had traded in their nets for machine guns and were hijacking any vessel they could catch: sailboat, oil tanker, United Nations-chartered food ship.

“It’s true that the pirates started to defend the fishing business,” Mr. Mohamed said. “And illegal fishing is a real problem for us. But this does not justify these boys to now act like guardians. They are criminals. The world must help us crack down on them.”

related: profile of Henry Okah (global guerrilas):  Henry, energized by the grinding poverty he saw when he visited his family's ancestral village in the Delta, sought to reverse this flow: away from the capital and the oil companies and into the hands of the people of the Delta. However, in order to do this, Henry had to innovate with warfare.

[click for a slightly larger version]

I took his one while I was there this time...

[click for a larger version]

With the economy in Southeast Michigan a bit worse than average for the nation, the SaftHouse budget is under stress (understatements all around). For anyone who is interested, here info on donations - and you can also help simply by using this link to order from Amazon.com (bookmarking it means you automatically help every time you order). 

FYI - 

• earlier posting with more survivor art 
• StopViolence.com resources on domestic violence and sexual assault
  

Sarah Palin and the Rape Kits

Just as I'm getting ready to finalize this posting, my colleague Donna emails me this article from the NY Times (with the headline used above):

Even in tough budget times, there are lines that cannot be crossed. So I was startled by this tidbit reported recently by The Associated Press: When Sarah Palin was mayor of Wasilla, Alaska, the small town began billing sexual-assault victims for the cost of rape kits and forensic exams.

Ms. Palin owes voters an explanation. What was the thinking behind cutting the measly few thousand dollars needed to cover the yearly cost of swabs, specimen containers and medical tests? Whose dumb idea was it to make assault victims and their insurance companies pay instead? Unfortunately, her campaign is shielding the candidate from the press, so Americans may still be waiting for answers on Election Day.

The rape-kit controversy is a troubling matter. The insult to rape victims is obvious. So is the sexism inherent in singling them out to foot the bill for investigating their own case. And the main result of billing rape victims is to protect their attackers by discouraging women from reporting sexual assaults.

That’s why when Senator Joseph Biden, the Democratic vice-presidential nominee, drafted the 1994 Violence Against Women Act, he included provisions to make states ineligible for federal grant money if they charged rape victims for exams and the kits containing the medical supplies needed to conduct them. (Senator John McCain, Ms. Palin’s running mate, voted against Mr. Biden’s initiative, and his name has not been among the long list of co-sponsors each time the act has been renewed.)

That’s also why, when news of Wasilla’s practice of billing rape victims got around, Alaska’s State Legislature approved a bill in 2000 to stop it.

“We would never bill the victim of a burglary for fingerprinting and photographing the crime scene, or for the cost of gathering other evidence,” said Alaska’s then-governor, Tony Knowles. “Nor should we bill rape victims just because the crime scene happens to be their bodies.”

[snip]

In the absence of answers, speculation is bubbling in the blogosphere that Wasilla’s policy of billing rape victims may have something to do with Ms. Palin’s extreme opposition to abortion, even in cases of rape. Sexual-assault victims are typically offered an emergency contraception pill, which some people in the anti-choice camp wrongly equate with abortion.

entire article...

The big news this week is the proposed $700 billion agency, funded by taxpayer $, to buy troubled debt and rescue the financial system.  The NY Times has the text of the original bill, which is worth considering even though Congress is likely to demand changes. (Hat tip to the Big Picture for the "incompetence tax" phrase.) Some of the key provisions and criticisms include:

$700 billion

The proposed text:

Sec. 6. Maximum Amount of Authorized Purchases.

The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time.

Note that this is outstanding at any one time, so the Treasury Secretary can expend more as he (maybe she in the next admin?) sells off some of what was previously purchased. This has lead some commentators to note that the total amount expended over the two year lifetime of this facility could be more (ie buy $700 billion, sell $200 billion, then buy $200 billion more, etc). Others note that the price of what is bought will not go to zero; it will eventually be sold for something, so the cost could potentially be less than $700 billion (ie buy $700 billion, sell for $350 billion, taxpayers make up difference of $350 billion). Much depends on the purchase and sales price (more on that below).Note that this amount is inaddition to the other bailouts discussed here in previous weeks - $85 billion for AIG, $200 billion for Fannie/Freddie, $29 billion for Bear Sterns, $50 billion guarantees for Money Market funds, and likely $25 billion in loans to US automakers to produce fuel efficient cars.

As a related issue, the bill also increases the upper limit on the national debt:

Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.

For the current debt (to the penny), see this Treasury Dept page.

"Mother of All Power Grabs"

The title is from a NY Times column, which discusses Section 8:

Sec. 8. Review.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

This provision has perhaps captured the most attention and criticism. Arguably Secretary Paulson, a former CEO of Goldman, knows what he is doing. But he also didn't seem to see any of this coming. NY Times columnist Krugman notes: "he is a smart guy, but what, exactly, in the experience of the past year and a half — a period during which Mr. Paulson repeatedly declared the financial crisis “contained,” and then offered a series of unsuccessful fixes — justifies the belief that he knows what he’s doing? He’s making it up as he goes along, just like the rest of us." So why are we trusting him with such a large blank check? Other commentators put this in the context of a Bush administration which had broad authorization for Iraq, which has turned into a mess.

How Much Is the Govt Going to Pay for This Junk?

This issue is the heart of the 'plan' but we have few details on it. The heart of the problem is a dilemma: paying a dirt cheap price for toxic assets represents a good deal for taxpayers, but offers minimal help to institutions that need to recapitalize (have assets/cash in a ratio appropriate to their liabilities); paying a lot for the assets helps banks but represents a poor deal for taxpayers. The Washington Post puts it this way (Bailout's Tricky Balancing Act 23 Sept 2008, p A8):

The higher the prices the government pays for troubled mortgage securities held by banks, the more the rescue will bolster those banks and sustain the lending that is vital to the broader economy. But higher prices would also mean a worse deal for taxpayers. In other words, the more effective the plan, the more expensive it will ultimately be.

Disturbingly, the NY Times reports Big Financiers Start Lobbying for Wider Aid: "Even as policy makers worked on details of a $700 billion bailout of the financial industry, Wall Street began looking for ways to profit from it."

Bloomberg.com headline: Paulson, Bernanke Put Shoring Up Banks Ahead of Cutting Best Taxpayer Deal. 

What's Missing?

Economic and Financial bloggers have posed a variety of additional provisions:

1. Regulatory reform. If the taxpayer is shelling out huge amounts, should some reform of the system that created this mess be part of the package? Should we feel rushed to enact this and think about reform at some later time? See for example, some of the discussion on this blog last week and the week before. The Big Picture also had a recent post on how SEC exemptions helped the collapse along:

the events of the past year are not a mere accident, but are the results of a conscious and willful SEC decision to allow these firms to legally violate existing net capital rules that, in the past 30 years, had limited broker dealers debt-to-net capital ratio to 12-to-1. Instead, the 2004 exemption -- given only to 5 firms -- allowed them to lever up 30 and even 40 to 1.

2. 'Upside participation' - if the taxpayers are going to be swapping their hard earned $ for bad assets, there should be a direct way for them to participate (benefit) from the recovery of these firms. Exchanging tax $ for bad debt and shares in the company would be one way to do this. As the firms recover, the share price increases, and the US can sell some of the shares at a price will  help reduce the cost to the taxpayers.

3. CEO pay limits. Should CEOs of these firms be paid tens of millions of millions of dollars by their companies while those companies are receiving billions from the taxpayers because of bad decisions by the CEOs? The Big Picture blog lists the companies that have already received help or gone bankrupt and lists CEO salaries, severance agreements, etc. He writes:

As I have argued in the past, I have no problem with people making millions or billions IF THEY EARN IT. But these guys above? If every man woman and child in the USA is going to be on the hook for a Wall Street Incompetence Tax of $5-10k each, then the folks who brought us this mess, and took bonuses under the false pretense that the profits they generated were real, should also shoulder some of the costs . . .

A related issue is the fees paid to remaining Wall Street investment firms for advice on how to run this facility. Paulson currently can hire any firm at any price.

See also: Need a Job? $17,00 an Hour. No Success Required (NY Times); Key Lehman Employees to get $2.5 Billion in Bonuses (these are executives working for the firm before it went bankrupt who are now regarded as key employees needed to continue).

4. Conflict of Interest Provisions. Companies seeking to help the Treasury Dept run this facility may have securities of their own they are trying to sell, or could be getting paid to advise clients about selling to the govt. The advisers hired to help the Treasury and taxpayers here should not be using that position to work special deals, benefit financially from inside information, or betray our trust by helping out large account holders at taxpayer expense.

5. Wall Street Stops Campaign Contributions. Former Labor Sec Robert Reich, who has a good post on What Wall Street Should Be Required to Do, notes:

All Wall Street executives immediately cease making campaign contributions to any candidate for public office in this election cycle or next, all Wall Street PACs be closed, and Wall Street lobbyists curtail their activities unless specifically asked for information by policymakers. Why should taxpayers finance Wall Street’s outsized political power – especially when that power is being exercised to get favorable terms from taxpayers?

Alternatives

Apparently, Sec Paulson and Fed Chairman Bernake's session with lawmakers painted a drastic picture of the financial system. Most people accept the dire nature of the situation, but not everyone thinks a plan along these lines is advisable: "Basically, after having spent a year and a half telling everyone that things were under control, the Bush administration says that the sky is falling, and that to save the world we have to do exactly what it says now now now."

Former Labor Secretary Reich suggests: "Whether you call it a reorganization under bankruptcy or just a hellova fire sale, the process should resemble chapter 11 under bankruptcy." The taxpayers do not need to be directly involved.

The Interfluidity Blog has a different take on the problem and solution: 

the question we should be asking is not whether or how much, but to whom and for what. The financial crisis we are facing is a symptom of a much larger economic and social crisis. Wall Street is not the source of the pain. On the contrary, the financial sector has been put this decade primarily in the service of hiding, literally of papering over, unsustainable trends in the current account, income distribution, human and physical capital deterioration, and the sectoral composition of the American economy. The conventional wisdom is that this is a financial crisis, and that so far "Main Street" has been largely insulated from the catastrophe. That is rubbish. The cancer is on Main Street, and the tumor has been growing there for years. Wall Street provided drugs to hide the pain and keep us going, palliative but not curative. What is happening now is those drugs are wearing off. The American economy is fundamentally unsound, and has been for some time. We would have noticed sooner, were it not for financial methamphetamine conjured by mad scientists in lower Manhattan from a whirlwind of foreign central bank money.

I think we'll only get one shot to set things right by throwing a ton of money at the problem, so we'd better think carefully before we throw it at symptoms rather than causes. Trying to figure this out in a week before Congress goes off to reelect itself strikes me as ambitious. Broadly, my view is that if we are going to legislate, Congress should empower regulators to declare systemically important firms insolvent, write off existing common and preferred, fire incumbent management and unilaterally convert debt to equity as far up the capital structure as they need to go until the firms are unambiguously well-capitalized, with little or no public money involved. 

Portfolio.com columnists opening fund to outside investors, so taxpayers are not responsible for much: "The fund is, after all, a distressed-debt fund at heart, and there are a lot of investors who would love to take this opportunity to buy up distressed assets on the cheap -- especially if they could piggyback on the negotiating leverage that Treasury will have." This idea also comes up in the Washington Post article, Alternative Solutions Diverge From Administration's Approach (24 Sept 2008, p A1).

Conclusion

According to the NY Times,  "Attorney General Michael B. Mukasey has rejected calls for the Justice Department to create the type of national task force that it did in 2002 to respond to the collapse of Enron." 

Best single critique:  Naked Capitalism - Why You Should Hate the Treasury Bailout Proposal. The blog entry contains a quote from a Congressional staffer that has lead to a few more insiders commenting on how responsive Congresspeople seem to be to public sentiment. If you're interested, see Lies From Paulson Keep Stacking Up: What You Can Do About It.

Interesting if incomplete roundup of criticism here. 

Funny if it were not sad:  McCain - "Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation." (see last week's notes about deregulators who have now changed their tune - and could well change back again when the crisis has passed, thus paving the way for more problems)

Federal Prosecutors Probe Food-Price Collusion

The Wall St Journal article witht he headline above notes that: "Federal prosecutors have opened separate criminal probes into possible price-fixing by major egg producers and California tomato processors, the latest in a series of U.S. investigations of alleged collusion in food and agriculture. The investigations, which have not been previously reported, add to concerns that beyond the rising cost of fuel and feed, a hidden factor may be driving food prices higher: collusion among farmers, food processors or exporters."

Interesting items from the story:

"When big guys get bigger, it makes collusion easier," said Peter Carstensen, a University of Wisconsin law professor who has testified in Congress on competition in the food industry.

Under U.S. law, it's a crime for competitors to collaborate on production or prices. However, many farm groups and cooperatives are allowed to work together under antitrust exemptions such as the 1922 Capper-Volstead Act. The act, one of a web of loopholes carved out over the years, was originally meant to help small farms bargain with big processors. Egg and tomato producers say their cooperation is shielded by these exemptions. In stepping up enforcement in food, prosecutors are signaling a new willingness to test these exemptions' limits.

The tomato probe grew out of an investigation into allegations that a consultant to a big processor, SK Foods Inc. of Lemoore, Calif., was working with SK to bribe buyers at six major food companies to pay inflated prices for tomato paste and chili peppers. In wiretaps and raids carried out as part of the bribery probe, investigators found evidence of the wider price-fixing conspiracy, according to FBI documents filed in federal court in Sacramento.

In an unrelated probe, the three largest U.S. egg processors also have received grand-jury subpoenas. The criminal investigation is focused on the pricing and marketing of egg products, such as liquid and powdered eggs, lawyers and industry executives said. 

EPA Unlikely to Limit Pollutant in Tap Water

The Washington Post, in an article with the headline above (22 Sept 2008, p A9), notes:

According to a near-final document obtained by The Washington Post, the EPA's "preliminary regulatory determination" -- which was extensively edited by White House officials -- marks the final step in a six-year-old battle between career EPA scientists who advocate regulating the chemical and White House and Pentagon officials who oppose it. The document estimates that up to 16.6 million Americans are exposed to perchlorate at a level many scientists consider unsafe; independent researchers, using federal and state data, put the number at 20 million to 40 million.

Some perchlorate occurs naturally, but most perchlorate contamination in U.S. drinking water stems from improper disposal by rocket test sites, military bases and chemical plants. A nationwide cleanup could cost hundreds of millions, if not billions, of dollars, and several defense contractors have threatened to sue the Defense Department to help pay for it if one is required

The new EPA proposal -- which assumes the maximum allowable perchlorate contamination level is 15 times what the EPA had suggested in 2002 -- was heavily edited by officials of the White House Office of Management and Budget. They eliminated key passages and asked the EPA to use a new computer modeling approach to calculate the chemical's risks. 

"They have distorted the science to such an extent that they can justify not regulating" the chemical, said Robert Zoeller, a University of Massachusetts professor who specializes in thyroid hormone and brain development and has a copy of the EPA proposal. "Infants and children will continue to be damaged, and that damage is significant."

Zoeller said scientific studies have shown that a small reduction in thyroid function in infants can translate into a loss of IQ and an increase in behavioral and perception problems. "It's absolutely irreversible," he said. "Even small changes in thyroid functions early on have impacts on functioning through high school and even into people's 20s."

A reference to those studies in the EPA's proposal was deleted by OMB officials.

This is only one of a number of chemicals EPA and others are refusing to regulate. See also EPA's decision to devalue the cost of human life, which makes it less likely regulations that save life will have the appropriate cost-benefit ratio. EPA says life is worth less [Washington Post, 18 July 2008, A1]

In a perhaps related story, States Accuse Pentagon of Threats, Retaliation (Washington Post, 19 Sept 2008, A2):

Environmental officials from several states that have tried to force the Pentagon to clean up polluted military sites say the Defense Department has retaliated by reducing or withholding federal oversight dollars due them.

A group representing state environmental officials says California, Colorado, Alabama, Ohio and about a dozen other states have been pressured by the Pentagon to back off the oversight of cleanup at polluted military sites. "In the worst-case scenarios, the Department of Defense is intimidating a state environmental agency into not pursing enforcement," said Steve Brown, executive director of the Environmental Council of States.

Wayne Arny, deputy undersecretary of Defense ... discussed the Pentagon's refusal to sign agreements to clean up the three sites that the EPA has said pose "imminent and substantial" dangers to public health and the environment. It also has declined to sign agreements required by law that cover 11 other military sites on the Superfund list of the most polluted places in the nation. He said that the military is committed to protecting public health and the environment and merely differs with the EPA over cleanup procedures. He said the Pentagon was proceeding with its own cleanup.

Under executive branch policy, the EPA will not sue the Pentagon as it would a private polluter. Although the law gives final say to EPA Administrator Stephen L. Johnson in cleanup disputes with other federal agencies, the Pentagon refuses to recognize that provision. Military officials have asked the Justice Department and the White House to intervene in the dispute.

Arny said Pentagon lawyers and policymakers judged the EPA's cleanup plans to be "excessive."

But [Sen. Barbara Boxer (D-Calif.)] said it is not the role of the polluter to design the cleanup. "I don't want the EPA making decisions on war strategy, and I don't want you making decisions on environmental cleanup, because you have an interest in the easiest way out," Boxer told Arny.

The Pentagon is the nation's biggest polluter. Of 1,255 Superfund sites, the Pentagon is responsible for 129 -- the most of any entity.

Citigroup Busted for Skimming from the Dead

Citigroup's settlement with California happened earlier in Sept - so not actually part of the review of the week - but this worth noting. Citigroup used a computerized 'credit sweep' to turn up a number of accounts - of people recently dead, who double paid, etc - and swept the money from their accounts. California Attorney General Brown commented: "The company knowingly stole from its customers, mostly poor people and the recently deceased, when it designed and implemented the sweeps. When a whistleblower uncovered the scam and brought it to his superiors, they buried the information and continued the illegal practice."

Story via creditbloggers; press release from California AG; pdf of settlement.

Citgo pays $13 million, largest ever for misdemeanor violation of Clean Water Act

The U.S. Dept of Justice press release notes that they ignored evidence their system was inadequate and failed to maintain their system. "As a result of these failures approximately 53,000 barrels of oil was discharged into the Indian Marais and Calcasieu Rivers following a heavy rain storm." That "illegal discharge resulted in limited commercial transportation on the water ways for approximately 10 days" 

“CITGO failed to properly maintain and operate equipment designed to prevent oil spills,” said Granta Y. Nakayama, Assistant Administrator for EPA's Office of Enforcement and Compliance Assurance.  “Companies that harm the environment and their community as a result of their own negligence will be prosecuted and pay a heavy price.”

Senator Stevens: On Trial for Public Corruption, Running for Re-election

From the Washington Post, although many places ran versions of this story:

Embattled Sen. Ted Stevens of Alaska goes on trial tomorrow in a historic public corruption case, bucking conventional legal wisdom in the hope of winning acquittal in time to be reelected to a seventh full term. The first sitting senator to face a federal trial in more than two decades, Stevens, an 84-year-old Republican icon of both the Senate and his home state, was indicted eight weeks ago on charges that he failed to disclose lavish gifts he received from executives of an oil services company.

Prosecutors have said their case is simple. In a 28-page indictment and other court filings, the Justice Department's Public Integrity Section alleges that Stevens repeatedly lied on Senate financial disclosure forms about gifts and $250,000 in home renovations he received from executives of the now-defunct oil services company Veco.

Prosecutors say Stevens never attempted to pay Bill Allen, Veco's chief executive, for the cost of the renovations or other gifts. Allen pleaded guilty to bribery and conspiracy charges in a long-running federal investigation of corruption in Alaska's government, and he has provided critical testimony that already has helped convict two Alaska state legislators.

In hearings and court filings, prosecutors allege that Veco, Allen or friends gave Stevens a Viking grill, a discounted Land Rover, a $29,000 bronze statue of a fish, a $2,700 vibrating massage chair, a $3,200 stained-glass window and a sled dog -- none of which the senator reported. Those gifts were in addition to extensive renovations to Stevens's Girdwood, Alaska, home by Veco employees and contractors, who installed a wrap-around deck and raised the home on stilts to add a new floor, prosecutors allege. They say Stevens interacted with the workers, discussed the project with Allen and suggested improvements to the renovation plans.

In exchange, the government says, Stevens helped or promised to help Veco on various matters, including prodding officials to build a natural gas pipeline in Alaska and requesting that the World Bank get involved in a dispute between Veco and Pakistan over delays in a project. At the time, Stevens chaired two of the most powerful committees on Capitol Hill, the Senate's Appropriations and Commerce panels.

...prosecutors stopped short of charging Stevens with corruption. By limiting the charges to failing to report gifts, some legal experts said, the prosecution can introduce Stevens's alleged favors as context and motive, not a required element of the crime.

Dept of Justice statement about indictment. pdf of Indictment.

FYI - Fake Facebook 'Add Friends' E-Mail Adds Malware

Before the review, a quick example of what Friedrich's Trusted Criminals book means by 'normal accident.' Remember that this is how human responsibility for the failure of complex systems becomes erased, so failures seem like 'normal accidents' (no one to blame here, move along). I mentioned the current financial crisis and Barry Ritholtz, who was chief investment strategist  for an investment firm overseeing $5 billion in assets, highlights the following conclusions:

The current headache begins and ends with ideology, namely that of former Fed Chairman Alan Greenspan--an acolyte of Ayn Rand, a free-market absolutist, a true believer in the evils of regulation. Many of the present headaches point directly back to the decisions made by the Greenspan Fed. Sure, there is plenty of other blame to go around: an unengaged president, a clueless Congress, a hapless FDIC, a compromised OFHEO, and Phil Gramm--but the biggest and most accusatory finger points directly at Easy Al....

More background on Ritholtz - and see his discussion on "nonfeasance": "This wasn't mere Incompetence (doing a job poorly) or Malfeasance (commission of an unlawful act) -- this was Nonfeasance -- the Failure to perform an act that is either an official duty or a legal requirement."

A columnist on Bloomberg.com notes that the complexity  not only "enable[s] the firms to hide the risks they run; it allows the people who make fortunes, while at the same time helping destroy vast amounts of capital, to remain essentially unknown to the wider public. In pointing to SEC Chairman Christopher Cox, the columnist notes:

the SEC has been morally bankrupt for some time now. The people who work for the place -- especially the ones who call the shots -- have for years had a disconcerting habit of leaving their low-paying government jobs regulating Wall Street firms for high-paying ones at those same Wall Street firms. They are meant to guard against systemic corruption when they are themselves systematically corrupt. 

Also as follow-up: last week, I noted a question about severance pay for the CEOs of Fannie Mae and Freddie Mack.  Footnoted.org reports that the govt will not contest the severance packages and explains that the contract for Fannie CEO Mudd,

like countless other CEO deals, says that the only way to dump him without his full severance package is a termination for “cause.” In Mudd’s case, as is common in CEOLand, ”cause” means dishonesty, willful misconduct, gross negligence or a felony conviction.

Some say Mr. Mudd has made rather a hash of things. But he’s not necessarily guilty of any of the above sins. CEOs negotiate for terms like “willful misconduct” and “gross negligence” because they set the behavior bar so low; generally speaking, you have to have bad intentions or show reckless disregard for the consequences of your actions. If you were merely incompetent, clueless, or inattentive, that’s usually not “cause.”

$85 Billion bailout of AIG - govt now owns largest insurance business

The New York Times reports the bailout of AIG this way:

The decision, only two weeks after the Treasury took over the federally chartered mortgage finance companies Fannie Mae and Freddie Mac, is the most radical intervention in private business in the central bank’s history...

If A.I.G. had collapsed — and been unable to pay all of its insurance claims — institutional investors around the world would have been instantly forced to reappraise the value of those securities, and that in turn would have reduced their own capital and the value of their own debt. Small investors, including anyone who owned money market funds with A.I.G. securities, could have been hurt, too. And some insurance policy holders were worried, even though they have some protections. “It would have been a chain reaction,” said Uwe Reinhardt, a professor of economics at Princeton University. “The spillover effects could have been incredible.”

Representative Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee, commented: “this is one more affirmation that the lack of regulation has caused serious problems. That the private market screwed itself up and they need the government to come help them unscrew it.”

The details of the plan:

Under the plan, the Fed will make a two-year loan to A.I.G. of up to $85 billion and, in return, will receive warrants that can be converted into common stock giving the government nearly 80 percent ownership of the insurer, if the existing shareholders approve. All of the company’s assets are being pledged to secure the loan. Existing stockholders have already seen the value of their stock drop more than 90 percent in the last year. Now they will suffer even more, although they will not be totally wiped out.

Since we've notes executive severance packages a few times: "Under the terms of his employment contract with A.I.G., Mr. Willumstad could receive an exit package worth as much as $8.7 million if his removal is determined to be “without cause,” according to an analysis by James F. Reda and Associates."

Brief overview of AIG Bailout/Takeover (Big Picture Blog)

Keep an eye on this: Some Seek [Govt] Agency to Buy Bad Debt as Long Term Answer (NYT). As with last week, part of the deeper question is 'socialism for the rich' (profits remain private; losses become everybody's responsibility) and new regulations put in place for firms that are 'too big to fail.' (see end of this week's entry for more on regulation)

Lehman Files for Record Bankruptcy, Victim of Meltdown Firm Helped Create

If that sounds harsh, that was the original headline to Bloomberg.com news story. They note: 

The 158-year-old firm, which survived railroad bankruptcies of the 1800s, the Great Depression in the 1930s and the collapse of Long-Term Capital Management a decade ago, filed a Chapter 11 petition with U.S. Bankruptcy Court in Manhattan today. The collapse of Lehman, which employs about 25,000 people and listed more than $613 billion of debt, dwarfs WorldCom Inc.'s insolvency in 2002 and Drexel Burnham Lambert's failure in 1990.

Lehman was forced into bankruptcy after Barclays Plc and Bank of America Corp. abandoned takeover talks yesterday and the company lost 94 percent of its market value this year. Chief Executive Officer Richard Fuld, who turned the New York-based firm into the biggest underwriter of mortgage-backed securities at the top of the U.S. real estate market, joins his counterparts at Bear Stearns Cos., Merrill Lynch & Co. and more than 10 banks that couldn't survive this year's credit crunch.

Lehman paid $5.7 billion (yes, with a 'b') in bonuses last year. Will any of those be recoverable? 

Sex, Drugs & Corruption at Interior Dept 

From the Washington Post (Report Says Oil Agency Ran Amok - 11 Sept 2008, A1):

Government officials in charge of collecting billions of dollars worth of royalties from oil and gas companies accepted gifts, steered contracts to favored clients and engaged in drug use and illicit sex with employees of the energy firms, federal investigators reported yesterday. 

The report from Inspector General Earl E. Devaney contains fresh allegations about the practices at the beleaguered royalty-in-kind program of Interior's Minerals Management Service, which last year collected more than $4 billion worth of oil and natural gas from companies given contracts to tap energy on federal and Indian lands and offshore.

The royalty-in-kind program, based near Denver, allows energy companies to pay the government in oil and gas, rather than cash, for the privilege of drilling on government land. It has been the subject of multiple investigations since 2006 by the Interior Department's secretary, its inspector general, the Justice Department and Congress for alleged mismanagement and conflicts of interest.

In the report released yesterday, investigators said they "discovered a culture of substance abuse and promiscuity" in which employees accepted gratuities "with prodigious frequency."

The royalty-in-kind program, which started as a small pilot project a decade ago, has been touted as a way to simplify the way oil and gas companies pay for the right to drill on federal land and offshore. Instead of calculating the profit from a well, they can simply give the government one-eighth to one-sixth of whatever they take from the ground.

Revenue rose quickly, from $1.5 billion in 2004 to $4.3 billion last fiscal year. But the growth occurred "in an environment with relatively unstructured in-house oversight," the congressionally convened Royalty Policy Committee said in a December report. Previous reports have said that companies were allowed to revise their million-dollar bids for projects indiscriminately, that government workers routinely failed to seek out legal advice on complicated deals and that the agency used outdated computers and a $150 million software program that resulted in royalty money going uncollected.

Former Interior Department auditors accused the agency of failing to bill companies. "We weren't allowed to audit them. It was kind of disturbing," said Bobby L. Maxwell, an auditor who sued the federal government for not collecting royalties. "You couldn't really see what was going on." 

The New York Times also covered this story - Sex, Drug Use and Graft Cited in Interior Dept (11 Sept 08). From that story we can add a few other notes:

The Interior Dept's Inspector general noted in a cover letter to the report that there's “a culture of ethical failure” pervades the agency. The NYT characterized the report as portraying "a dysfunctional organization that has been riddled with conflicts of interest, unprofessional behavior and a free-for-all atmosphere for much of the Bush administration’s watch." And:

On one occasion, the report said, the royalty-in-kind program allowed a Chevron representative who had won a bid to purchase some of the government’s oil to pay taxpayers a lower amount than his winning offer because he said he had made a mistake in his calculations. A report from Mr. Devaney’s office earlier this year found that the program had frequently allowed companies that purchased the oil and gas to revise their bids downward after they won contracts. It documented 118 such occasions that cost taxpayers about $4.4 million in all.

Dept of Interior Inspector General has reports on Gregory Smith (a supervisor)  and the Minerals Management Service (discussed above). The transmittal letter for both reports states: "I know you share my frustration with the length of time these investigations have taken, primarily due to the criminal nature of some of these allegations, protracted discussions with DOJ and the ultimate refusal of one major oil company - Chevron - to cooperate with our investigation."

Republicans: Lose Your Home, Lose Your Vote (MI, OH, elsewhere?)

As if it isn't bad enough to be foeclosed on and lose your home, Republicans then want to challenge your vote if you remain registered at the address of the foreclosed house. Certainly there is a legitimate voter fraud issue here - is the person living elsewhere and voting twice - but let's also be clear there's some problematic partisan politics also. The blog I read this on quoted the following from the original newspaper report:

The Macomb County party’s plans to challenge voters who have defaulted on their house payments is likely to disproportionately affect African-Americans who are overwhelmingly Democratic voters. More than 60 percent of all sub-prime loans — the most likely kind of loan to go into default — were made to African-Americans in Michigan, according to a report issued last year by the state’s Department of Labor and Economic Growth...

Credit Slips also covers this story and adds: "The leading foreclosure firm in the state seems to be a major supporter of the GOP's election efforts.  That's a connection worth exploring--a law firm to file the foreclosures and a political party to challenge voters based on those same foreclosure filings."

Florida Farmworkers Exploited, Even Enslaved

From the Indiana Gazette (why no mainstream news coverage?)

Between each December and May, Florida grows nearly the entire U.S. crop of fresh field tomatoes for our homes, restaurants and supermarkets. Although the tomato is essential produce, most consumers do not know, or do not care, that many of the farm workers who harvest the crop are exploited and otherwise mistreated.

A federal case just ending in Fort Myers, in fact, shows that too many farm workers, especially tomato pickers, are being held as slaves. Five Immokalee field bosses, all relatives, pleaded guilty to several charges of enslaving Guatemalan and Mexican farm workers, forcing them to work and brutalizing them.

The 17-count indictment alleged that for two years, ringleaders Cesar Navarette and Geovanni Navarette kept more than a dozen men in boxes, shacks and trucks on their property. The workers were chained, beaten and forced to work on farms in North Carolina, South Carolina and Florida. Incredibly, the indictment shows that the men were forced to pay rent of $20 a week to sleep in a locked furniture van. They were forced to urinate and defecate in a corner of the vehicle.

To keep the workers obligated to them, the Navarettes devised drug, drink and food schemes to increase and guarantee the men's indebtedness.

[snip]

Farm workers are and always have been excluded from U.S. fair labor standards and are prevented from unionizing.

For more info, see the Coalition of Immokalee Workers.

Banks Helped Foreigners Escape US Taxes

The Washington Post reports (10 Sept 2008):

Big Wall Street investment banks have designed and marketed schemes enabling non-U.S. taxpayers, including offshore hedge funds, to evade millions of dollars in taxes each year on U.S. stock dividends, Senate investigators have found.

Some banks have been crafting for more than 10 years transactions designed to enable their foreign clients to dodge U.S. taxes on dividends, while the Internal Revenue Service failed to act to prevent the abuse, two senators say.

A yearlong investigation by a Senate Homeland Security and Governmental Affairs subcommittee, whose results are to be made public Thursday, found that the evasion of dividend taxes adds up to billions of dollars in revenue lost to the U.S. Treasury over the past decade.

[snip]

The inquiry is part of a series of hearings by the Senate panel on offshore tax abuse, which is estimated to cost the United States $100 billion a year in lost tax revenue. 

SEC Enforcement and General Financial Regulation

A columnist for the New York Times, Floyd Norris, was curious to an SEC press release: 

“The new tools the legislation provides will be a boon to the S.E.C. enforcement staff, which under Chairman Cox has increased to 34 percent of the S.E.C. work force from 32 percent in 2005 and 29 percent in the 1990s. This investment in investor protection already is paying significant dividends.”

Norris asks:  "So Chris Cox has hired more investment staff, right? No. The staff is down on his watch." Turns out that the number of enforcement staff fell by 57, but the percentage is higher because the overall staffing at the SEC fell even more - or, as Norris puts it, "the enforcement staff has been cut less than other divisions."

He asks: "Is there anyone at the commission with the nerve to tell Mr. Cox that the enforcer of disclosure laws ought to be particularly careful to avoid misleading hype?"

The presidential candidates are now talking about the problem, and not to be partisan, but I need to point out a Washington Post story, "McCain Embraces Regulation After Many Years of Opposition" (Sept 17, 2008, p A1).  I point this out because a variety of politicians who pushed for deregulation were shocked (shocked!) about financial markets came to be deregulated enough to cause the accounting scandals starting with Enron. See Labaton, Stephen. 2002. “Now Who, Exactly Got Us Into This?: Enron? Arthur Andersen? Shocking Say Those Who Helped It Along” New York Times, February 3, p C01.

Does this seem familiar?

The McCain Embraces Regulation notes: 

A decade ago, Sen. John McCain embraced legislation to broadly deregulate the banking and insurance industries, helping to sweep aside a thicket of rules established over decades in favor of a less restricted financial marketplace that proponents said would result in greater economic growth.

Now, as the Bush administration scrambles to prevent the collapse of the American International Group (AIG), the nation's largest insurance company, and stabilize a tumultuous Wall Street, the Republican presidential nominee is scrambling to recast himself as a champion of regulation to end "reckless conduct, corruption and unbridled greed" on Wall Street.

In 1999,

McCain had joined with other Republicans to push through landmark legislation sponsored by then-Sen. Phil Gramm (Tex.), who is now an economic adviser to his campaign. The Gramm-Leach-Bliley Act aimed to make the country's financial institutions competitive by removing the Depression-era walls between banking, investment and insurance companies.

That bill allowed AIG to participate in the gold rush of a rapidly expanding global banking and investment market. But the legislation also helped pave the way for companies such as AIG and Lehman Brothers to become behemoths laden with bad loans and investments.

McCain now condemns the executives at those companies for pursuing the ambitions that the Gramm-Leach-Bliley Act made possible, saying that "in an endless quest for easy money, they dreamed up investment schemes that they themselves don't even understand."

A bit more history:

McCain has not always opposed government regulation. He supported efforts to allow the Food and Drug Administration to regulate tobacco. And he pushed to strengthen the Sarbanes-Oxley Act requirements, which were put in place after the accounting scandals involving Enron and other major firms.

But he has usually reverted to the role of an unabashed deregulator. In 2007, he told a group of bloggers on a conference call that he regretted his vote on the Sarbanes-Oxley bill, which has been castigated by many executives as too heavy-handed. In the 1990s, he backed an unsuccessful effort to create a moratorium on all new government regulation

Obama has been vague on what to do, and McCain has discussed "new rules for fairness and honesty." The Post notes:

He did not describe how he would bring greater transparency to the process. His senior policy adviser, Douglas Holtz-Eakin, told reporters earlier in the day that there was no need for McCain to be specific right now. "There's no magic solutions, and I don't think it's imperative at this moment to write down what the plan should be," he said. "The real issue here is a leadership issue.''

I'd disagree - if there ever was a time to put forward good, specific ideas, it's now.  For those interested, there's a 5 minute video interview that discusses some of the problems with deregulation and has a few ideas about what to do moving forward.

Fannie Mae - Freddie Mac Bailout

The government announced the takeover of these two institutions, which own or guarantee between $5 and $6 billion in mortgages. They were GSEs - government sponsored entities - so they already had some government involvement, but now it is total. (Everything you might want to know is collected in the links here.) This raises questions about free markets and whether how much this will cost taxpayers, which in turn raises questions about 'socialism for the rich' (ie when there are profits, private parties and people keep them, but when things go badly the taxpayers foot the bill). Several people quoted below make this claim and going forward we'll need to keep an eye on who has benefited from this takeover. 

Watch a segment on CNBC Europe that discusses the socialism in the U.S. The guest in Jim Rogers, who managed the famed hedge fund with George Soros.

There's also a powerful discussion by NYU professor Nouriel Roubini, Comrades Bush, Paulson and Bernanke Welcome You to the USSRA (United Socialist State Republic of America).  Roubini was the subject of a New York Times magazine profile - "Dr Doom" - which noted his correct, if early, predictions about the current economic crisis. His comments include (my editing to convey key points):

The now inevitable nationalization of Fannie and Freddie is the most radical regime change in global economic and financial affairs in decades. For the last twenty years after the collapse of the USSR, the fall of the Iron Curtain and the economic reforms in China and other emerging market economies the world economy has moved away from state ownership of the economy and towards privatization of previously stated owned enterprises. This trends was aggressively supported the United States that preached right and left the benefits of free markets and free private enterprise.Today instead the US has performed the greatest nationalization in the history of humanity.

Socialism is indeed alive and well in America; but this is socialism for the rich, the well connected and Wall Street. A socialism where profits are privatized and losses are socialized with the US tax-payer being charged the bill of $300 billion. This biggest bailout and nationalization in human history comes from the most fanatically and ideologically zealot free-market laissez-faire administration in US history. These are the folks who for years spewed the rhetoric of free markets and cutting down government intervention in economic affairs. But they were so fanatically ideological about free markets that they did not realize that financial and other markets without proper rules, supervision and regulation are like a jungle where greed – untempered by fear of loss or of punishment – leads to credit bubbles and asset bubbles and manias and eventual bust and panics.

The ideologue “regulators” who literally held a chain saw at a public event to smash “unnecessary regulations” are now communists nationalizing private firms and socializing their losses: the bailout of the Bear Stearns creditors, the bailout of Fannie and Freddie, the use of the Fed balance sheet (hundreds of billions of safe US Treasuries swapped for junk toxic illiquid private securities), the use of the other GSEs (the Federal Home Loan Bank system) to provide hundreds of billions of dollars of “liquidity” to distressed, illiquid and insolvent mortgage lenders, the use of the SEC to manipulate the stock market (restrictions on short sales), the use of the US Treasury to manipulate the mortgage market (Treasury will now for the first time outright buy agency MBS to manipulate and prop up this market), the creation of a whole host of new bailout facilities (TAF, TSLF, PDCF) to prop and rescue banks and, for the first time since the Great Depression,to bail out non-bank financial institutions, and a whole range of other executive and legislative actions (including the recent bill to provide a public guarantee to mortgage for banks willing to reduce their face value).

Like scores of evangelists and hypocrites and moralists who spew and praise family values and pretend to be holier than thou and are then regularly caught cheating or cross dressing or found to be perverts these Bush hypocrites who spewed for years the glory of unfettered wild west laissez faire jungle capitalism (and never believed in any sensible and appropriate regulation and supervision of financial markets) allowed the biggest debt bubble ever to fester without any control, have caused the biggest financial crisis since the Great Depression and are now forced to perform the biggest government intervention and nationalizations in the recent history of humanity, all for the benefit of the rich and the well connected. So Comrades Bush and Paulson and Bernanke will rightly pass to the history books as a troika of Bolsheviks who turned the USA into the USSRA. Fanatic zealots of any religion are always pests that cause havoc and destruction with their inflexible fanaticism; but they usually don’t run the biggest economy in the world. But these laissez faire voodoo-economics zealots in charge of the USA have now caused the biggest financial crisis since the Great Depression and the nastiest economic crisis in decades. So let them be shamed in public for their hypocrisy and zealotry that has caused so much financial and economic damage.

Roubini appears in this thoughtful panel discussion about the bailout and the problems that continue to face the U.S. 

Keep an eye on this issue as well - the fired executives of Fannie and Freddie who got their businesses and taxpayers into this mess "are eligible for as much as $24 million in severance, retirement benefits and deferred compensation."  While one of the executives apparently will not be seekign the full severance due to him, Mr Mudd "has hired Robert B. Barnett, a high-profile Washington lawyer, to represent him in any negotiations with the government. His legal fees, according to Mr. Mudd’s employment agreement with Fannie Mae, will be paid by the company."

See also, A Con Game in Pinstripes(Steve Pearlstein, Washington Post 9/5/08 D1)

In recent weeks, Merrill Lynch, Goldman Sachs, Deutsche Bank, Citigroup, J.P. Morgan Chase, Morgan Stanley, UBS and Wachovia have reached settlements with state regulators under which they agreed to pay more than $500 million in fines and penalties. They have also agreed to buy back more than $50 billion in so-called auction-rate securities from retail investors who had been misled into believing that those securities were as safe as shares in money-market funds.

On Wednesday, a federal grand jury in Brooklyn indicted two former brokers at Credit Suisse on charges of lying to corporate clients about how $1 billion of their money had been invested. The investors thought it was in securities backed by federally guaranteed student loans. In fact, it was put in riskier mortgage-backed auction-rate securities that earned higher fees for the brokers and their firms, prosecutors said. The alleged fraud may have caused losses to the clients of as much as $500 million.

Earlier this summer, two executives from Bear Stearns were charged with nine counts of fraud for allegedly telling investors in a conference call that their hedge funds were in fine shape while, in private e-mails, they fretted over recent losses and, in one case, had just pulled their own money out of the funds. A month after the call, the funds collapsed, costing investors $1.6 billion.

Now comes word from the Bloomberg News Service that the Justice Department has launched a criminal investigation of J.P. Morgan Chase and other banks following civil allegations that they conspired to overcharge local governments for hedging on the interest rate risks in their bonds. One such government customer, Jefferson County, Ala., which claims it was overcharged by as much as $100 million in financing a new sewerage system, is now on the brink of bankruptcy.

What is so telling about these stories -- and, rest assured, there will be many more before we're finished -- is that they come only a few years after these same companies reached similar settlements for defrauding many of the same investors during the telecom and dot-com boom. While the fraud back then had more to do with bogus research and accounting and manipulation of initial public offerings, it is clear that they sprang from the same slimy ethical culture that has produced the current credit crisis. Wall Street has become a fundamentally corrupt enterprise in which the motto is: "We'll do anything for a fee."

I refer not to the narrow legal definition of "corrupt," but to the general instinct to mislead clients, double-cross and collude with counterparties, and pull the wool over the eyes of investors. It is the kind of corruption grounded in the attitude that it's all just a game in which the only rules are "buyer beware" and "heads I win, tails you lose." In a corrupt business culture like that of modern-day Wall Street, cynicism is rampant, candor and accountability are first casualties, and a man is measured by the size of his bonus rather than the depth of his integrity. It's not so much immoral as amoral.

New Marketing Code for Student Lenders

As part of resolving an investigation by the NY Attorney General's office, seven student loan companies have agreed to a new code of conduct for marketing. (Interesting it is the NY Attorney General - where are the feds?)  According to the New York Times,

Those companies are Campus Door, EduCap, GMAC Bank, Graduate Loan Associates, Nelnet, NextStudent and Xanthus Financial Services.An eighth lender, My Rich Uncle, has agreed to the marketing code voluntarily even though the attorney general’s office did not find fault with its marketing.

Some of the companies sent solicitations to students that looked as if they had come from the federal government, according to the attorney general’s office. Others advertised interest rates not available to most borrowers. Some offered prizes and ran contests to lure student borrowers.

Representatives of EduCap, Nelnet and GMAC Bank denied any wrongdoing but each said they welcomed the new code. 

The code of conduct, which Mr. Cuomo said he hoped other lenders would adopt, would ban using logos and return addresses that resemble those used by the federal government; sending false checks or rebate offers; offering free iPods or other gifts to lure borrowers; making misleading statements about loan terms and benefits, and providing examples of loan costs that are available to a small percentage of borrowers.

In developing the code and persuading lenders to adopt it, Mr. Cuomo’s office is pursuing a similar strategy to one followed in addressing questionable ties between college financial aid offices and student loan companies uncovered in investigations last year. Benjamin Lawsky, special assistant to the attorney general, said the office’s investigation was continuing and expanding to include other potential conflicts of interest on college campuses.

“Numerous vendors do millions of dollars of business on college campuses, and we have found that they often pay to play,” Mr. Lawsky said. “The question then becomes, are students getting the best deals or, as we found in the student loan industry, are universities entering into financial arrangements that benefit them at the expense of students?”

See also, New York Plans to Sue Student Loan Company (Goal Financial and eStudentLoan.com)

Justice Dept's Guidelines on Monopolies Criticized

The Washington Post story has a subtitle explaining that "Majority of Federal trade Commission Says Policy Would Weaken Enforcement."  Note that this is a bi-partisan majority of a federal agency that is making the criticism. The story explains:

The Justice Department issued a report yesterday establishing how and when it will crack down on misbehaving monopolies, but its approach was immediately assailed as too lax and the work of an administration willing to allow big business to run roughshod over consumers.

A bipartisan majority of the Federal Trade Commission characterized the report as "a blueprint for radically weakened enforcement" against monopolies that engage in predatory pricing and other illegal tactics.

Sen. Herb Kohl (D-Wis.), chairman of the Senate Judiciary Committee's antitrust subcommittee, called the report an assault on the Sherman Act, the basis for much U.S. law on monopolies. "If followed, the Justice Department's interpretation of this fundamental law written nearly 120 years ago . . . could make it virtually impossible to prevent many forms of abusive conduct by dominant firms, such as predatory pricing and tying" goods to a sale, Kohl said in a statement. "This report represents another anti-competition and anti-consumer decision by this Antitrust Division."

...a bipartisan majority of the Federal Trade Commission -- Pamela Jones Harbour, an independent; Democrat Jon Leibowitz and Republican J. Thomas Rosch -- disputed the notion that the report protects consumers or reflects a consensus of judicial opinion. "The final report's descriptions and conclusions . . . cannot be said to represent the consensus or even the prevailing view of the myriad stakeholders," the FTC group said.

The group took issue with a number of findings in the report, including many of the threshold tests that would determine whether the Justice Department can take action against a firm engaging in monopoly tactics. "In almost every case, the Department adopts standards that are tougher -- and in some cases much tougher -- than existing standards," the FTC group said. Those tougher standards would make it far less likely for the Justice Department to act against a market bully, officials said. "As an inevitable consequence," the FTC group said, "dominant firms would be able to engage in these practices with impunity."

Meatpacker Violates Immigration and Child Labor Laws

What's notable is that the owner actually got charged, though we'll have to see if the charges stick. From the New York Times: 

The state [Iowa] charges were the first to be brought against owners and senior managers at the plant, Agriprocessors, since the May 12 raid. Federal prosecutors convicted nearly 300 workers, most of them illegal immigrants from Guatemala, on document fraud charges, with the majority sentenced to five months in prison. Advocates for immigrants had criticized federal prosecutors for punishing the workers but not the managers.

In all, 9,311 criminal misdemeanor charges involving 32 under-age workers were filed against the company, Agriprocessors Inc., and its owner, Aaron Rubashkin, and his son Sholom, who was the top manager of the packing plant in Postville, Iowa. The complaint charges that the plant employed workers under the legal age of 18, including seven who were under 16, from Sept. 9, 2007, to May 12. Some workers, including some younger than 16, worked on machinery prohibited for employees under 18, including “conveyor belts, meat grinders, circular saws, power washers and power shears,” said an affidavit filed with the complaint.

The managers are blaming the workers for lying about their age. 

The two-page affidavit claims that Aaron and Sholom Rubashkin were “frequently present” in the slaughterhouse where under-age employees were working, and that they “possessed shared knowledge that Agriprocessors employed undocumented aliens” and that “many of those workers were minors.”

The complaint also charges that under-age workers were not paid for all the overtime they worked and were forced to work before 7 a.m. and after 7 p.m., a violation of child labor laws. Agriprocessors managers “participated in efforts to conceal children when federal and state labor department officials inspected the plant,” the complaint says.

Closing comment - hell of a week.