Big City Gang Bang Productions
Artist Charts
Week ending 03 Apr 2010
#2 Industrial artist for 2 weeks in a row.
Saturday, April 3, 2010
#1 Shoegazer Artist for a Solid Month--4th week at #1
Artist Charts Week ending 03 Apr 2010
Big City Gang Bang Productions
Artist Charts
Week ending 03 Apr 2010
#2 Industrial artist for 2 weeks in a row.
Big City Gang Bang Productions
Artist Charts
Week ending 03 Apr 2010
#2 Industrial artist for 2 weeks in a row.
Big Energy Firms Blocking Solar Power in South
Big Energy Firms Blocking Solar Power in South
By Matthew Cardinale
ATLANTA, Georgia, Mar 31, 2010 (IPS) - As citizens, businesses and non-profit organisations seek to transition to cleaner power sources like solar and wind, some big energy firms whose business models rely on polluting sources are standing in the way.
In Georgia, the energy company Georgia Power has lobbied for favourable public policies at the Public Service Commission (PSC) and State legislature that are making it difficult for the state's residents to transition to solar power.
IPS learned that the Dekalb County school system wanted to put solar panels on their schools, but could not do it because of state policies like the Territorial Electric Service Act of 1973 which gives Georgia Power a monopoly over the purchase of energy.
"In Georgia, we have about a dozen state policies preventing creation of solar energy," James Marlow, vice chair of the Georgia Solar Energy Association, told IPS. "One of those is the Territorial Act."
"If you're looking at a school, one of the common ways [of setting up solar panels] is using a power purchase agreement or PPA," Marlow said.
Typically, one of the biggest obstacles for businesses and organisations to switch to solar energy is the initial cost of obtaining and installing the panels. A PPA allows a school system, for example, to obtain the panels for no cost from a solar installation company which finances the panels.
Then, the school can purchase the energy from the solar installation company, which would own the panels, for a 20-year period. Marlow said that a PPA client typically pays for the panels after the first five years and then saves money on energy for the next 15, all the while avoiding the use of dirty energy.
However, because of Georgia's Territorial Act, individuals, organisations, and businesses with solar panels can only sell their energy to Georgia Power. This means they cannot enter a PPA with a solar installation company and may have difficulty affording the panels in the first place.
Other states like Colorado have taken a different approach to encourage the use of solar panels. They charge all energy customers 50 cents a month, a very low amount, to support the purchase of solar energy from producers.
According to the Morning News, the Tennessee Valley Authority has enrolled 13,000 green-power customers and has no cap on the annual amount of green energy it will buy from producers. Florida Power & Light "is building three solar facilities that combined will generate 110 megawatts of electricity... Duke Energy in North Carolina plans to invest 50 million in rooftop installations."
To be sure, Georgia Power is only following the regulations established by the legislature and PSC. However, they lobbied for those policies to be enacted in the first place, Marlow said.
"At this point, the utilities are opposed to solar and they're not working to foster its development," Marlow said.
In addition to regulatory tricks, there are more direct ways in which big energy companies like Georgia Power are blocking solar and wind power.
"They are trying to block clean energy by trying to flood the market with cheap, dirty energy," said Erin Glynn, director of the Sierra Club's Beyond Coal Campaign, referring to companies attempting to build two new coal plants and two new nuclear reactors in Georgia alone. As previously reported by IPS, numerous coal and nuclear plants are in planning stages throughout the U.S. South.
"If you build these giant power plants, there will be no demand for clean energy. The clean technologies are here today. People have solar panels. The companies are blocking the market," Glynn said.
Big energy companies are lobbying at the state and national levels to prevent public policies from shifting towards renewable energy production as well. Georgia Power's parent company, Southern Company, employed 63 lobbyists to fight the recent federal clean energy bill.
A recent report from the Centre for Public Integrity (CPI) shows that many big utility companies employed two dozen or more lobbyists to oppose the clean energy bill, while Southern Company had far more lobbyists than any other company.
"We feel it's very important to educate our legislators, and we continue to work with Congress to further address the issues we see as critical to our ability to provide affordable, reliable energy," Southern Company spokeswoman Terri Cohilas told CPI.
Southern Company argues that pursuing renewable energy or taking steps to address carbon dioxide's recent classification as a pollutant will drive up the cost of energy to consumers. However, Marlow believes that dirty and clean energy are quickly approaching "cost parity," and he said there are indirect costs of dirty energy such as high asthma rates near coal plants.
Twenty-nine states have a renewable portfolio standard, which requires that a certain percentage of the state's energy will be renewable by a certain date.
"California and Colorado will require 30 percent comes from renewable by 2020," Marlow said. "North Carolina requires 12 percent. Georgia has no requirement. North Carolina is the only state in the Southeast that has a renewable portfolio standard."
By Matthew Cardinale
ATLANTA, Georgia, Mar 31, 2010 (IPS) - As citizens, businesses and non-profit organisations seek to transition to cleaner power sources like solar and wind, some big energy firms whose business models rely on polluting sources are standing in the way.
In Georgia, the energy company Georgia Power has lobbied for favourable public policies at the Public Service Commission (PSC) and State legislature that are making it difficult for the state's residents to transition to solar power.
IPS learned that the Dekalb County school system wanted to put solar panels on their schools, but could not do it because of state policies like the Territorial Electric Service Act of 1973 which gives Georgia Power a monopoly over the purchase of energy.
"In Georgia, we have about a dozen state policies preventing creation of solar energy," James Marlow, vice chair of the Georgia Solar Energy Association, told IPS. "One of those is the Territorial Act."
"If you're looking at a school, one of the common ways [of setting up solar panels] is using a power purchase agreement or PPA," Marlow said.
Typically, one of the biggest obstacles for businesses and organisations to switch to solar energy is the initial cost of obtaining and installing the panels. A PPA allows a school system, for example, to obtain the panels for no cost from a solar installation company which finances the panels.
Then, the school can purchase the energy from the solar installation company, which would own the panels, for a 20-year period. Marlow said that a PPA client typically pays for the panels after the first five years and then saves money on energy for the next 15, all the while avoiding the use of dirty energy.
However, because of Georgia's Territorial Act, individuals, organisations, and businesses with solar panels can only sell their energy to Georgia Power. This means they cannot enter a PPA with a solar installation company and may have difficulty affording the panels in the first place.
Other states like Colorado have taken a different approach to encourage the use of solar panels. They charge all energy customers 50 cents a month, a very low amount, to support the purchase of solar energy from producers.
According to the Morning News, the Tennessee Valley Authority has enrolled 13,000 green-power customers and has no cap on the annual amount of green energy it will buy from producers. Florida Power & Light "is building three solar facilities that combined will generate 110 megawatts of electricity... Duke Energy in North Carolina plans to invest 50 million in rooftop installations."
To be sure, Georgia Power is only following the regulations established by the legislature and PSC. However, they lobbied for those policies to be enacted in the first place, Marlow said.
"At this point, the utilities are opposed to solar and they're not working to foster its development," Marlow said.
In addition to regulatory tricks, there are more direct ways in which big energy companies like Georgia Power are blocking solar and wind power.
"They are trying to block clean energy by trying to flood the market with cheap, dirty energy," said Erin Glynn, director of the Sierra Club's Beyond Coal Campaign, referring to companies attempting to build two new coal plants and two new nuclear reactors in Georgia alone. As previously reported by IPS, numerous coal and nuclear plants are in planning stages throughout the U.S. South.
"If you build these giant power plants, there will be no demand for clean energy. The clean technologies are here today. People have solar panels. The companies are blocking the market," Glynn said.
Big energy companies are lobbying at the state and national levels to prevent public policies from shifting towards renewable energy production as well. Georgia Power's parent company, Southern Company, employed 63 lobbyists to fight the recent federal clean energy bill.
A recent report from the Centre for Public Integrity (CPI) shows that many big utility companies employed two dozen or more lobbyists to oppose the clean energy bill, while Southern Company had far more lobbyists than any other company.
"We feel it's very important to educate our legislators, and we continue to work with Congress to further address the issues we see as critical to our ability to provide affordable, reliable energy," Southern Company spokeswoman Terri Cohilas told CPI.
Southern Company argues that pursuing renewable energy or taking steps to address carbon dioxide's recent classification as a pollutant will drive up the cost of energy to consumers. However, Marlow believes that dirty and clean energy are quickly approaching "cost parity," and he said there are indirect costs of dirty energy such as high asthma rates near coal plants.
Twenty-nine states have a renewable portfolio standard, which requires that a certain percentage of the state's energy will be renewable by a certain date.
"California and Colorado will require 30 percent comes from renewable by 2020," Marlow said. "North Carolina requires 12 percent. Georgia has no requirement. North Carolina is the only state in the Southeast that has a renewable portfolio standard."
False Profits
“False Profits” by Dean Baker
by DANIEL on APRIL 3, 2010
Making a change from the usual run of the genre (ie, books about the “financial crisis” by people who didn’t tell you that there was a bubble while it was going on, but who nevertheless expect you to be interested in what they have to say about it now that it’s been and gone). A book about the bubble in the US, written by someone who was absolutely right about it, provably, ahead of time and in writing, and who is a lot more angry about the whole mess than those authors who just regard it as a great big game in which some entertaining characters made money at the expense of their dumb counterparties. Despite the comparatively microscopic size of his promotional budgets, I think Baker might have caught the spirit of the times a bit better than Andrew Ross Sorkin or Michael Lewis[1].
(Full disclosure –I got a promotional review copy of “False Profits”. Normally I don’t count the very occasional review copies I get as constituting a declarable interest because I am short of shelving space and so the gift of a book is only a good thing for me if it is a good book anyway – if it is crap, the publisher has gifted me the chore of lugging the thing to Oxfam. But I thought False Profits was a good book, and I am probably going to get some help on a different project from the person I am giving my copy to after I’ve finished this review, so purists might think me compromised).
“False Profits” has the big advantage that it gets the crisis right and doesn’t mess around with all the obfuscation that has been put into the debate by people who were trying to sell the line that “The Global Financial Crisis” was a very complicated thing that ordinary voters couldn’t possibly understand but nonetheless had to cough up ungodly amounts of money for. This wasn’t a global financial crisis; it was a crisis of US real estate valuations. Whatever else went on, whatever shady dealings or irresponsible banking practices or misplaced belief in models or whatever else, it wouldn’t have had much of an effect on the world if it hadn’t all been based on a foundation of overvalued property prices. True, a lot of the disastrous financial wizardry was aimed at justifying and enabling the property bubble to continue and (as John points out in a couple of CT posts) the causal relationship between financial malpractice and the property bubble was two-directional, but it’s necessary to be clear here – the original sin here was the real estate bubble, a bubble which could and should have been the object of anti-bubble policy, and which wasn’t, because of a massive, ghastly policy error on the part of the Federal Reserve. This is Dean’s thesis, and he names the guilty men.
My god, by the way, does he ever name the guilty men. One of the very attractive characteristics of Dean Baker’s economics writing, shared with the best bits of Paul Krugman and Doug Henwood, is that he is a left-liberal writer about economics who completely lacks the ‘cultural cringe’ common to the species. He doesn’t feel the need to call people like Martin Feldstein “really smart” and he doesn’t waste time giving house room to the normal platitudes of market theism or pretending that his view of the world is really properly considered quite close to orthodoxy. In general, he doesn’t crawl around seeking the approval of the economics profession. I would surmise that the constant torrent of scorn would get depressing at length (as I think it sometimes does on his blog), just as a boy who kept on shouting out that the emperor was bare-arsed every ten seconds would eventually get on your nerves, but really, we can cross that bridge when the airwaves are full of self-confident liberal economists giving their message as if they expect it to be agreed with and The Economist is a minor newsletter.
But anyway, the explanation of what happened and its consequences is clear and simple – this is economics the way it ought to be done, focusing on simple causal relationships and adding-up constraints. None of the arguments made by housing bulls during the bubble made a lick of sense, for the simple reason that the ratio of house prices to rents was constantly increasing – any fundamental change in the economics of housing ought to have shown up equally in the rental market as in the market for house purchase, and the “buy versus rent calculation” wasn’t an anomaly or a quirk – it was a simple and easily comprehensible piece of information showing that prices were in a bubble, which was almost universally ignored. The model that fits the data is a simple, myopic-expectations one under which people were prepared to invest in housing at ever higher rental multiples (or alternatively, ever lower rental yields) because they were making an implicit comparison of the cost of renting a house versus the up-front, teaser-rate cost of buying one on mortgage, with the highest level of gearing that the market would give them. Such a model works until it doesn’t, and then we had the crash.
As I mention in a bit more detail on my own blog, this pretty much gives the lie to any comparisons with the Internet bubble – there really were a lot of new technologies invented between 1997 and 2001, many of which did in fact change the whole structure of economic life. But rent is rent and has seen basically no technological progress since the Domesday Book. Failure to spot the housing bubble was much more unforgivable than failure to spot the dot com bubble, and the case for anti-housing bubble policy is therefore much stronger than for anti-stock-market-bubble policy. I am not sure that I agree with all of Dean’s views on the TARP (not necessary, massive con), bank nationalization (should have happened) or policy solutions going forward (rather heavier on IMO meaningless financial technocratic fixes), but the facts are that I’m much more prepared to listen to them because they come from someone who was actually right about this damn thing, and who did indeed sell his house at a profit. And his key policy prescription, on the subject of the Federal Reserve Board and anyone who served on it in the last ten years(sack the bastards!), is a good point well made; there really does have to be some sort of accountability for this sort of thing.
[1] Capsule review of the Lewis book – definitely don’t bother with the hardback, it costs 25 quid, and is basically a collection of chortlesome anecdotes. On the other hand, Liar’s Poker was also basically a collection of chortlesome anecdotes and that was a very good book; Lewis does get the finance right and explains it in very clear terms (he even gets the analogy right, between a CDO and a housing block – this was the only way I found to explain these structures too). The cast of characters are interesting and well-researched and if it wasn’t for the constant rankling of the expense of the book, I think I would have wholeheartedly enjoyed it. In paperback it will be a very good read and probably cleanses Lewis’s soul of the accumulated sins of a decade of ghastly magazine articles. Now he just has to write something to make up for The New New Thing and he can probably go to heaven.
by DANIEL on APRIL 3, 2010
Making a change from the usual run of the genre (ie, books about the “financial crisis” by people who didn’t tell you that there was a bubble while it was going on, but who nevertheless expect you to be interested in what they have to say about it now that it’s been and gone). A book about the bubble in the US, written by someone who was absolutely right about it, provably, ahead of time and in writing, and who is a lot more angry about the whole mess than those authors who just regard it as a great big game in which some entertaining characters made money at the expense of their dumb counterparties. Despite the comparatively microscopic size of his promotional budgets, I think Baker might have caught the spirit of the times a bit better than Andrew Ross Sorkin or Michael Lewis[1].
(Full disclosure –I got a promotional review copy of “False Profits”. Normally I don’t count the very occasional review copies I get as constituting a declarable interest because I am short of shelving space and so the gift of a book is only a good thing for me if it is a good book anyway – if it is crap, the publisher has gifted me the chore of lugging the thing to Oxfam. But I thought False Profits was a good book, and I am probably going to get some help on a different project from the person I am giving my copy to after I’ve finished this review, so purists might think me compromised).
“False Profits” has the big advantage that it gets the crisis right and doesn’t mess around with all the obfuscation that has been put into the debate by people who were trying to sell the line that “The Global Financial Crisis” was a very complicated thing that ordinary voters couldn’t possibly understand but nonetheless had to cough up ungodly amounts of money for. This wasn’t a global financial crisis; it was a crisis of US real estate valuations. Whatever else went on, whatever shady dealings or irresponsible banking practices or misplaced belief in models or whatever else, it wouldn’t have had much of an effect on the world if it hadn’t all been based on a foundation of overvalued property prices. True, a lot of the disastrous financial wizardry was aimed at justifying and enabling the property bubble to continue and (as John points out in a couple of CT posts) the causal relationship between financial malpractice and the property bubble was two-directional, but it’s necessary to be clear here – the original sin here was the real estate bubble, a bubble which could and should have been the object of anti-bubble policy, and which wasn’t, because of a massive, ghastly policy error on the part of the Federal Reserve. This is Dean’s thesis, and he names the guilty men.
My god, by the way, does he ever name the guilty men. One of the very attractive characteristics of Dean Baker’s economics writing, shared with the best bits of Paul Krugman and Doug Henwood, is that he is a left-liberal writer about economics who completely lacks the ‘cultural cringe’ common to the species. He doesn’t feel the need to call people like Martin Feldstein “really smart” and he doesn’t waste time giving house room to the normal platitudes of market theism or pretending that his view of the world is really properly considered quite close to orthodoxy. In general, he doesn’t crawl around seeking the approval of the economics profession. I would surmise that the constant torrent of scorn would get depressing at length (as I think it sometimes does on his blog), just as a boy who kept on shouting out that the emperor was bare-arsed every ten seconds would eventually get on your nerves, but really, we can cross that bridge when the airwaves are full of self-confident liberal economists giving their message as if they expect it to be agreed with and The Economist is a minor newsletter.
But anyway, the explanation of what happened and its consequences is clear and simple – this is economics the way it ought to be done, focusing on simple causal relationships and adding-up constraints. None of the arguments made by housing bulls during the bubble made a lick of sense, for the simple reason that the ratio of house prices to rents was constantly increasing – any fundamental change in the economics of housing ought to have shown up equally in the rental market as in the market for house purchase, and the “buy versus rent calculation” wasn’t an anomaly or a quirk – it was a simple and easily comprehensible piece of information showing that prices were in a bubble, which was almost universally ignored. The model that fits the data is a simple, myopic-expectations one under which people were prepared to invest in housing at ever higher rental multiples (or alternatively, ever lower rental yields) because they were making an implicit comparison of the cost of renting a house versus the up-front, teaser-rate cost of buying one on mortgage, with the highest level of gearing that the market would give them. Such a model works until it doesn’t, and then we had the crash.
As I mention in a bit more detail on my own blog, this pretty much gives the lie to any comparisons with the Internet bubble – there really were a lot of new technologies invented between 1997 and 2001, many of which did in fact change the whole structure of economic life. But rent is rent and has seen basically no technological progress since the Domesday Book. Failure to spot the housing bubble was much more unforgivable than failure to spot the dot com bubble, and the case for anti-housing bubble policy is therefore much stronger than for anti-stock-market-bubble policy. I am not sure that I agree with all of Dean’s views on the TARP (not necessary, massive con), bank nationalization (should have happened) or policy solutions going forward (rather heavier on IMO meaningless financial technocratic fixes), but the facts are that I’m much more prepared to listen to them because they come from someone who was actually right about this damn thing, and who did indeed sell his house at a profit. And his key policy prescription, on the subject of the Federal Reserve Board and anyone who served on it in the last ten years(sack the bastards!), is a good point well made; there really does have to be some sort of accountability for this sort of thing.
[1] Capsule review of the Lewis book – definitely don’t bother with the hardback, it costs 25 quid, and is basically a collection of chortlesome anecdotes. On the other hand, Liar’s Poker was also basically a collection of chortlesome anecdotes and that was a very good book; Lewis does get the finance right and explains it in very clear terms (he even gets the analogy right, between a CDO and a housing block – this was the only way I found to explain these structures too). The cast of characters are interesting and well-researched and if it wasn’t for the constant rankling of the expense of the book, I think I would have wholeheartedly enjoyed it. In paperback it will be a very good read and probably cleanses Lewis’s soul of the accumulated sins of a decade of ghastly magazine articles. Now he just has to write something to make up for The New New Thing and he can probably go to heaven.
U.S. Recants Claims that Main Sources for the 9/11 Report--
...who also was Repeatedly Tortured--Was Involved in 9/11 or Even Al Qaeda
Abu Zubaydah was the first "high-value" detainee who was tortured, as the U.S. claimed he was a top Al Qaeda terrorist who knew a lot about 9/11.
He was waterboarded at least 83 times in August 2002 alone.
In fact, Abu Zubaydah was one of the main sources of information for the 9/11 report.
Never mind that he was literally crazy. As the New Yorker noted a year ago:
Heck of a job, guys.
Abu Zubaydah was the first "high-value" detainee who was tortured, as the U.S. claimed he was a top Al Qaeda terrorist who knew a lot about 9/11.
He was waterboarded at least 83 times in August 2002 alone.
In fact, Abu Zubaydah was one of the main sources of information for the 9/11 report.
Never mind that he was literally crazy. As the New Yorker noted a year ago:
The F.B.I.’s point man on the Abu Zubaydah interrogation, Daniel Coleman, had read Zubaydah’s diaries and concluded that he “had a schizophrenic personality.”Indeed, the Washington Post noted in 2007:
Retired FBI agent Daniel Coleman, who led an examination of documents after Abu Zubaida's capture in early 2002 and worked on the case, said the CIA's harsh tactics cast doubt on the credibility of Abu Zubaida's information."I don't have confidence in anything he says, because once you go down that road, everything you say is tainted," Coleman said, referring to the harsh measures. "He was talking before they did that to him, but they didn't believe him. The problem is they didn't realize he didn't know all that much."***
Abu Zubaida ... was a "safehouse keeper" with mental problems who claimed to know more about al-Qaeda and its inner workings than he really did.Pulitzer Prize winning journalist Ron Suskind writes that Coleman advised a top FBI official at the time:
***
Looking at other evidence, including a serious head injury that Abu Zubaida had suffered years earlier, Coleman and others at the FBI believed that he had severe mental problems that called his credibility into question. "They all knew he was crazy, and they knew he was always on the damn phone," Coleman said, referring to al-Qaeda operatives. "You think they're going to tell him anything?"
"This guy is insane, certifiable, split personality."Now, Jason Leopold reports that the government is backing away from all claims that Abu Zubaydah had any role in Al Qaeda or 9/11:
For the first time, the government officially admitted that Zubaydah did not have "any direct role in or advance knowledge of the terrorist attacks of September 11, 2001," and was neither a "member" of al-Qaeda nor "formally" identified with the terrorist organization.
Heck of a job, guys.
Bust Up the Banks
Bust Up the Banks
by Jeffrey E. Garten
April 2, 2010
With financial reform as Obama’s next big push, Jeffrey Garten reviews Simon Johnson’s buzzy new book that calls for massive intrusion by the federal government.
A week or so from now, after the congressional recess, efforts to enact financial reform will go into high gear. The House of Representatives has passed a bill, the Senate is about to debate one, and President Obama is determined to sign a new law by early summer. In 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown, Simon Johnson and James Kwak predict, correctly in my view, that the ultimate legislation will be fairly modest in its impact. There will be nothing to compare, for example, to the 1930s’ passage of the Glass-Steagall Act that separated staid commercial banking from risky investment banking, or the establishment of federal deposit insurance to prevent runs on a bank, or the creation of the Securities & Exchange Commission to protect investors. The authors ask what accounts for the lack of radical change given the severity of the recent banking crisis and the deep, painful recession. The bulk of this riveting book answers that question not with reference to short-term politics but instead with an extraordinarily rich sweep of history.
The only answer, say the authors, is to bust what they call the American financial oligarchy, which they compare to the power wielded by a handful of oligarchs in Russia or South Korea.
But 13 Bankers is not a dramatic story of the credit implosion or the government response, as is Andrew Ross Sorkin’s pot boiler Too Big to Fail. It doesn’t cover the waterfront of policy issues such as Robert Pozen’s Too Big to Save, and it isn’t a substitute for personal accounts, such as Henry Paulson’s On the Brink. What it does do, uniquely, is provide a clear and compelling account of the evolution of the relationship between Wall Street and Washington from the days when Thomas Jefferson and Alexander Hamilton argued over how fragmented or centralized America’s banking system should be. It provides the essential context for understanding how the financial and the political worlds in America came to interact as they do, and how Wall Street and all it has stood for—free markets, constant innovation, the glamour of personal wealth—came to dominate American politics so heavily in the past 30 years.
13 Bankers: The Wall Street Takeover and the Next Financial Meltdown. By Simon Johnson and James Kwak. 320 pages. Pantheon. $26.95. Starting with the Reagan revolution, the book describes Wall Street’s growing clout in financing political campaigns and the additional policy influence it has accrued from the movement of its leaders—such as ex-Goldman Sachs CEOs Robert Rubin and Henry Paulson—to the most influential Washington positions. Johnson, a professor at MIT, and Kwak, a consultant and entrepreneur, show how waves of deregulation since the 1980s have allowed banks to expand from being able to operate in just one state to establishing branches throughout the country; how barriers dissolved between conservative deposit-taking institutions and those who were able to take big investment risks; and how trading in derivatives escaped regulation. While Wall Street was able to earn outsized profits in good times, say the authors, they didn’t hesitate to come running to taxpayers for a bailout when they got into trouble. Moreover, their political influence insured that the government rescue was enacted with hardly any constraints on their future behavior.
In addition to a fascinating historical tour, 13 Bankers describes the high degree of concentration that has resulted from bank mergers over the years and how it was greatly enhanced since 2008, giving the big financial firms even more political clout than they had. JPMorgan Chase is emblematic. Before the crisis, it was a roll up of what had been Chemical Bank, Manufacturers Hanover, Bank One, First Chicago, Chase Manhattan, and JP Morgan. During the crisis, it acquired Bear Stearns and Washington Mutual. In 2008, Bank of America, also comprised of many former companies, acquired Merrill Lynch, and Wells Fargo gobbled up Wachovia. There are far fewer megabanks today, but they now control a far greater proportion of the nation’s assets, including mortgages and derivatives, than they did in 2007, and their global reach and connections are even greater than before. As a result, the most explosive problem with big banking has now been magnified: They are free to take exceptional risks because they are sure that taxpayers cannot and will not let them fail. Given that, there is no reason to think another major crisis will not take place.
The only answer, say the authors, is to bust up what they call the American financial oligarchy, which they compare to the power wielded by a handful of oligarchs in Russia or South Korea. They call for dismantling the big banks—reduce their size, and separate deposit-taking from more risky investments—and thereby defuse their political capability to hold the country hostage. Johnson and Kwak understand that such actions will require a new political zeitgeist in America, but they are hopeful that the public mood could shift over the next several years, just as it changed from the laissez-faire attitudes of the late 19th century to the early 20th century, when Theodore Roosevelt and Woodrow Wilson finally busted up big industrial trusts such as US Steel and Standard Oil.
I wish I shared their optimism that there is a political scenario in which big banks could fail and not bring down the global financial system with them, but the American public could be light years away from agreeing to the massive government intrusion that would be necessary to implement this book’s revolutionary proposal. Even the Supreme Court has recently made it easier for big companies to influence elections. Besides that, the authors too cavalierly wave off critical competitive issues of America’s needing big banks at a time when European and Asian financial institutions are bulking up. And although the authors try to come to grips with the question of how big is too big, they, like everyone else, don’t really have a good answer.
by Jeffrey E. Garten
April 2, 2010
With financial reform as Obama’s next big push, Jeffrey Garten reviews Simon Johnson’s buzzy new book that calls for massive intrusion by the federal government.
A week or so from now, after the congressional recess, efforts to enact financial reform will go into high gear. The House of Representatives has passed a bill, the Senate is about to debate one, and President Obama is determined to sign a new law by early summer. In 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown, Simon Johnson and James Kwak predict, correctly in my view, that the ultimate legislation will be fairly modest in its impact. There will be nothing to compare, for example, to the 1930s’ passage of the Glass-Steagall Act that separated staid commercial banking from risky investment banking, or the establishment of federal deposit insurance to prevent runs on a bank, or the creation of the Securities & Exchange Commission to protect investors. The authors ask what accounts for the lack of radical change given the severity of the recent banking crisis and the deep, painful recession. The bulk of this riveting book answers that question not with reference to short-term politics but instead with an extraordinarily rich sweep of history.
The only answer, say the authors, is to bust what they call the American financial oligarchy, which they compare to the power wielded by a handful of oligarchs in Russia or South Korea.
But 13 Bankers is not a dramatic story of the credit implosion or the government response, as is Andrew Ross Sorkin’s pot boiler Too Big to Fail. It doesn’t cover the waterfront of policy issues such as Robert Pozen’s Too Big to Save, and it isn’t a substitute for personal accounts, such as Henry Paulson’s On the Brink. What it does do, uniquely, is provide a clear and compelling account of the evolution of the relationship between Wall Street and Washington from the days when Thomas Jefferson and Alexander Hamilton argued over how fragmented or centralized America’s banking system should be. It provides the essential context for understanding how the financial and the political worlds in America came to interact as they do, and how Wall Street and all it has stood for—free markets, constant innovation, the glamour of personal wealth—came to dominate American politics so heavily in the past 30 years.
13 Bankers: The Wall Street Takeover and the Next Financial Meltdown. By Simon Johnson and James Kwak. 320 pages. Pantheon. $26.95. Starting with the Reagan revolution, the book describes Wall Street’s growing clout in financing political campaigns and the additional policy influence it has accrued from the movement of its leaders—such as ex-Goldman Sachs CEOs Robert Rubin and Henry Paulson—to the most influential Washington positions. Johnson, a professor at MIT, and Kwak, a consultant and entrepreneur, show how waves of deregulation since the 1980s have allowed banks to expand from being able to operate in just one state to establishing branches throughout the country; how barriers dissolved between conservative deposit-taking institutions and those who were able to take big investment risks; and how trading in derivatives escaped regulation. While Wall Street was able to earn outsized profits in good times, say the authors, they didn’t hesitate to come running to taxpayers for a bailout when they got into trouble. Moreover, their political influence insured that the government rescue was enacted with hardly any constraints on their future behavior.
In addition to a fascinating historical tour, 13 Bankers describes the high degree of concentration that has resulted from bank mergers over the years and how it was greatly enhanced since 2008, giving the big financial firms even more political clout than they had. JPMorgan Chase is emblematic. Before the crisis, it was a roll up of what had been Chemical Bank, Manufacturers Hanover, Bank One, First Chicago, Chase Manhattan, and JP Morgan. During the crisis, it acquired Bear Stearns and Washington Mutual. In 2008, Bank of America, also comprised of many former companies, acquired Merrill Lynch, and Wells Fargo gobbled up Wachovia. There are far fewer megabanks today, but they now control a far greater proportion of the nation’s assets, including mortgages and derivatives, than they did in 2007, and their global reach and connections are even greater than before. As a result, the most explosive problem with big banking has now been magnified: They are free to take exceptional risks because they are sure that taxpayers cannot and will not let them fail. Given that, there is no reason to think another major crisis will not take place.
The only answer, say the authors, is to bust up what they call the American financial oligarchy, which they compare to the power wielded by a handful of oligarchs in Russia or South Korea. They call for dismantling the big banks—reduce their size, and separate deposit-taking from more risky investments—and thereby defuse their political capability to hold the country hostage. Johnson and Kwak understand that such actions will require a new political zeitgeist in America, but they are hopeful that the public mood could shift over the next several years, just as it changed from the laissez-faire attitudes of the late 19th century to the early 20th century, when Theodore Roosevelt and Woodrow Wilson finally busted up big industrial trusts such as US Steel and Standard Oil.
I wish I shared their optimism that there is a political scenario in which big banks could fail and not bring down the global financial system with them, but the American public could be light years away from agreeing to the massive government intrusion that would be necessary to implement this book’s revolutionary proposal. Even the Supreme Court has recently made it easier for big companies to influence elections. Besides that, the authors too cavalierly wave off critical competitive issues of America’s needing big banks at a time when European and Asian financial institutions are bulking up. And although the authors try to come to grips with the question of how big is too big, they, like everyone else, don’t really have a good answer.
Contesting Jobless Claims Becomes a Boom Industry
sorriness!
Contesting Jobless Claims Becomes a Boom Industry
By JASON DePARLE
WASHINGTON — With a client list that reads like a roster of Fortune 500 firms, a little-known company with an odd name, the Talx Corporation, has come to dominate a thriving industry: helping employers process — and fight — unemployment claims.
Talx, which emerged from obscurity over the last eight years, says it handles more than 30 percent of the nation’s requests for jobless benefits. Pledging to save employers money in part by contesting claims, Talx helps them decide which applications to resist and how to mount effective appeals.
The work has made Talx a boom business in a bust economy, but critics say the company has undermined a crucial safety net. Officials in a number of states have called Talx a chronic source of error and delay. Advocates for the unemployed say the company seeks to keep jobless workers from collecting benefits.
“Talx often files appeals regardless of merits,” said Jonathan P. Baird, a lawyer at New Hampshire Legal Assistance. “It’s sort of a war of attrition. If you appeal a certain percentage of cases, there are going to be those workers who give up.”
When fewer former workers get aid, a company pays lower unemployment taxes.
Wisconsin and Iowa passed laws to curtail procedural abuses that officials said were common in cases handled by Talx. Connecticut fined Talx (pronounced talks) and demanded an end to baseless appeals. New York, without naming Talx, instructed the Labor Department staff to side with workers in cases that simply pit their word against those of agents for employers.
Talx officials say they have been unfairly blamed for situations caused by tight deadlines, confusing state rules or uncooperative employers. Talx cannot submit information about idled workers, they say, until clients give it to them. They say Talx improves the system’s efficiency by mastering the complexities of 50 state programs, allowing employers to focus on their businesses.
“We can speed the whole process, rather than bog it down,” said Michael E. Smith, a senior Talx executive. “The whole idea is to protect those employees who have lost their job through no fault of their own and make sure they get unemployment insurance.”
Mr. Smith said employers, not Talx, controlled decisions about which cases to contest. “We just do what the client asks us to do and leave it to the state to decide,” he said.
Advocates for the unemployed cite cases like that of Gerald Grenier, 47, who spent four years as a night janitor at a New Hampshire Wal-Mart and was fired for pocketing several dollars in coins from a vending machine. Mr. Grenier, who is mentally disabled, told Wal-Mart he forgot to turn in the change. Talx, representing Wal-Mart, accused him of misconduct and fought his unemployment claim.
After Mr. Grenier waited three months for a hearing, Wal-Mart did not appear. A Talx agent joined by phone, then seemingly hung up as Mr. Grenier testified. The hearing officer redialed and left an unanswered message on the agent’s voice mail. The officer called Mr. Grenier “completely credible” and granted him benefits.
Talx appealed, claiming that the officer had denied the agent’s request to let Wal-Mart testify by phone. (A recording of the hearing contains no such request.) Mr. Grenier won the appeal, but by then he had lost his apartment and moved in with his sister.
“That was a nightmare,” he said.
In the case of Dina Griess, Talx and its client, the subprime lender Countrywide Financial, were involved in what a judge deemed an outright fraud. Ms. Griess worked for Countrywide outside Boston and quit as it collapsed in 2008, saying she was distressed by internal investigations of lending practices. People can receive unemployment benefits if they quit for “good cause,” like unsafe working conditions, but Talx argued that Ms. Griess’s reason did not meet the legal standard.
She won benefits at a hearing that Talx and Countrywide skipped, but Talx successfully appealed, saying the Countrywide witness had missed the hearing because of a family death. Later asked under oath if that was true, the witness said, “No, it’s not.”
A Massachusetts judge reviewing the case, Robert A. Cornetta of Salem District Court, denounced the deceit and gave Ms. Griess benefits. “The court will not be party to a fraud,” he said.
Despite the large role that Talx and other agents play in a program that spent $120 billion last year, the federal Department of Labor has done little to measure their impact.
Talx, which is based in St. Louis, declined to make clients available for interviews, citing pledges of confidentiality, and none of those contacted chose to comment. Other major employers that have used Talx include Aetna, AT&T, Best Buy, FedEx, Home Depot, Marriott, McDonald’s and the United States Postal Service. (The New York Times uses Talx for a different service, to answer inquiries from lenders about its employees’ earnings.)
Talx entered the field brashly, buying the industry’s two largest companies on a single day in 2002. In the next few years, it bought five more. Until then, Talx had never handled an unemployment claim, and skeptics wondered how well it could blend seven companies in an unfamiliar industry.
The Federal Trade Commission argued in a 2008 antitrust complaint that the acquisitions, which cost $230 million, had allowed Talx to “raise prices unilaterally” and “decrease the quality of services.” Talx modified some contracts to settle the case, but admitted no legal violations.
Financially, the gamble paid off: Talx was acquired three years ago by Equifax, the credit-rating giant, for $1.4 billion. But work once done locally became centralized — at a loss, critics say, of responsiveness and expertise.
Wisconsin officials were among the first to complain, passing a law in 2005 to prevent what they called a common Talx practice: failing to respond to requests for information, only to appeal when workers got benefits. That clogged the appeals docket and drained the benefits fund, since money sent to ineligible workers was hard to get back.
While the law brought about quicker participation, said Hal Bergan, the state’s unemployment insurance administrator, the company’s overall speed and accuracy “still leaves something to be desired.”
Indeed, years of e-mail messages, obtained through an open records law, show a continually exasperated Wisconsin staff. While a few cited improved performance, others complained that Talx “returned half-empty questionnaires,” sent back “minimal or ‘junk’ info,” reported in error that applicants were dead, filed “frivolous protests” and caused “the holdup of many claims.”
“Same problems as always,” wrote Amy Banicki, a senior manager, in a 2008 e-mail message. “Talx is Talx.”
Iowa passed a similar law in 2008 to curtail unnecessary appeals. Of the 10 employers who most often appealed after failing to respond to data requests, officials said nine were represented by Talx, including Cargill, Target, Tyson Foods, Wal-Mart and Wells Fargo.
Connecticut cited “frivolous motions” and “unnecessary delays” in filing a complaint against Talx under a law that regulates employer agents. Without admitting fault, Talx paid a $12,000 fine and agreed to tell clients in writing that it would not file baseless appeals.
While there is no comprehensive research, the Labor Department did an internal study of 2,000 cases in 2007 and found Talx significantly slower and less complete in answering auditors’ questions than employers who handled their own claims. Officials said they did not release the study, which drew on seven states, because they could not ensure it was representative. The New York Times obtained it under the Freedom of Information Act.
Talx supporters say the program’s tight deadlines often give Talx just a few days to answer requests. They emphasize that Talx is working with states to develop a common computer format that will help provide the data more rapidly. They also say scrutiny of claims by companies like Talx helps deter fraud.
“Increased vigilance is an appropriate thing,” said Douglas J. Holmes, president of UWC, a Washington group that represents employers on unemployment issues. “Integrity is important.”
But other say that Talx, by promising to save clients money, has an incentive to fight even legitimate claims. In marketing materials, it warns employers that “a single claim can result in a higher tax rate” and makes the promise that “we deliver increased winning percentages.”
Joseph Walsh, deputy director of Iowa’s employment security agency, said, “We are more likely to see a claim of misconduct that is completely unsupported by the factual record” when agents are involved.
Officials in the New York State Department of Labor were so concerned last year about the credibility of agents that they warned staff members against taking their word over that of jobless workers. Absent other evidence, the officials wrote, “give greater weight to the claimant’s statement.”
That guidance was relevant in the case of Genssy Frias, a Bronx woman who took a took a maternity leave from a sales job at Lord & Taylor. Ms. Frias said that she tried to return but that her supervisor told her she had been laid off. A Talx agent said Ms. Frias quit because she lacked child care.
“We did not hear from her again,” the agent wrote.
New York canceled Ms. Frias’s benefits and accused her of lying.
In an interview, Ms. Frias said the agent’s response to the state was not only inaccurate but also deceitful, because she did not disclose that she worked for Talx and implied first-hand knowledge by using the pronoun “we.” Had she identified herself as an agent, officials would have given her statement less weight.
A Talx spokeswoman said the agent made a clerical error in writing “we” and called it an isolated incident. Lord & Taylor did not respond to requests for comment.
Ms. Frias appealed and presented a babysitter’s note, which vouched that she had arranged for child care. Neither Talx nor Lord & Taylor appeared at the hearing, and Ms. Frias won.
“I was thinking, how can they lie like that when they know I didn’t quit?” Ms. Frias said.
Contesting Jobless Claims Becomes a Boom Industry
By JASON DePARLE
WASHINGTON — With a client list that reads like a roster of Fortune 500 firms, a little-known company with an odd name, the Talx Corporation, has come to dominate a thriving industry: helping employers process — and fight — unemployment claims.
Talx, which emerged from obscurity over the last eight years, says it handles more than 30 percent of the nation’s requests for jobless benefits. Pledging to save employers money in part by contesting claims, Talx helps them decide which applications to resist and how to mount effective appeals.
The work has made Talx a boom business in a bust economy, but critics say the company has undermined a crucial safety net. Officials in a number of states have called Talx a chronic source of error and delay. Advocates for the unemployed say the company seeks to keep jobless workers from collecting benefits.
“Talx often files appeals regardless of merits,” said Jonathan P. Baird, a lawyer at New Hampshire Legal Assistance. “It’s sort of a war of attrition. If you appeal a certain percentage of cases, there are going to be those workers who give up.”
When fewer former workers get aid, a company pays lower unemployment taxes.
Wisconsin and Iowa passed laws to curtail procedural abuses that officials said were common in cases handled by Talx. Connecticut fined Talx (pronounced talks) and demanded an end to baseless appeals. New York, without naming Talx, instructed the Labor Department staff to side with workers in cases that simply pit their word against those of agents for employers.
Talx officials say they have been unfairly blamed for situations caused by tight deadlines, confusing state rules or uncooperative employers. Talx cannot submit information about idled workers, they say, until clients give it to them. They say Talx improves the system’s efficiency by mastering the complexities of 50 state programs, allowing employers to focus on their businesses.
“We can speed the whole process, rather than bog it down,” said Michael E. Smith, a senior Talx executive. “The whole idea is to protect those employees who have lost their job through no fault of their own and make sure they get unemployment insurance.”
Mr. Smith said employers, not Talx, controlled decisions about which cases to contest. “We just do what the client asks us to do and leave it to the state to decide,” he said.
Advocates for the unemployed cite cases like that of Gerald Grenier, 47, who spent four years as a night janitor at a New Hampshire Wal-Mart and was fired for pocketing several dollars in coins from a vending machine. Mr. Grenier, who is mentally disabled, told Wal-Mart he forgot to turn in the change. Talx, representing Wal-Mart, accused him of misconduct and fought his unemployment claim.
After Mr. Grenier waited three months for a hearing, Wal-Mart did not appear. A Talx agent joined by phone, then seemingly hung up as Mr. Grenier testified. The hearing officer redialed and left an unanswered message on the agent’s voice mail. The officer called Mr. Grenier “completely credible” and granted him benefits.
Talx appealed, claiming that the officer had denied the agent’s request to let Wal-Mart testify by phone. (A recording of the hearing contains no such request.) Mr. Grenier won the appeal, but by then he had lost his apartment and moved in with his sister.
“That was a nightmare,” he said.
In the case of Dina Griess, Talx and its client, the subprime lender Countrywide Financial, were involved in what a judge deemed an outright fraud. Ms. Griess worked for Countrywide outside Boston and quit as it collapsed in 2008, saying she was distressed by internal investigations of lending practices. People can receive unemployment benefits if they quit for “good cause,” like unsafe working conditions, but Talx argued that Ms. Griess’s reason did not meet the legal standard.
She won benefits at a hearing that Talx and Countrywide skipped, but Talx successfully appealed, saying the Countrywide witness had missed the hearing because of a family death. Later asked under oath if that was true, the witness said, “No, it’s not.”
A Massachusetts judge reviewing the case, Robert A. Cornetta of Salem District Court, denounced the deceit and gave Ms. Griess benefits. “The court will not be party to a fraud,” he said.
Despite the large role that Talx and other agents play in a program that spent $120 billion last year, the federal Department of Labor has done little to measure their impact.
Talx, which is based in St. Louis, declined to make clients available for interviews, citing pledges of confidentiality, and none of those contacted chose to comment. Other major employers that have used Talx include Aetna, AT&T, Best Buy, FedEx, Home Depot, Marriott, McDonald’s and the United States Postal Service. (The New York Times uses Talx for a different service, to answer inquiries from lenders about its employees’ earnings.)
Talx entered the field brashly, buying the industry’s two largest companies on a single day in 2002. In the next few years, it bought five more. Until then, Talx had never handled an unemployment claim, and skeptics wondered how well it could blend seven companies in an unfamiliar industry.
The Federal Trade Commission argued in a 2008 antitrust complaint that the acquisitions, which cost $230 million, had allowed Talx to “raise prices unilaterally” and “decrease the quality of services.” Talx modified some contracts to settle the case, but admitted no legal violations.
Financially, the gamble paid off: Talx was acquired three years ago by Equifax, the credit-rating giant, for $1.4 billion. But work once done locally became centralized — at a loss, critics say, of responsiveness and expertise.
Wisconsin officials were among the first to complain, passing a law in 2005 to prevent what they called a common Talx practice: failing to respond to requests for information, only to appeal when workers got benefits. That clogged the appeals docket and drained the benefits fund, since money sent to ineligible workers was hard to get back.
While the law brought about quicker participation, said Hal Bergan, the state’s unemployment insurance administrator, the company’s overall speed and accuracy “still leaves something to be desired.”
Indeed, years of e-mail messages, obtained through an open records law, show a continually exasperated Wisconsin staff. While a few cited improved performance, others complained that Talx “returned half-empty questionnaires,” sent back “minimal or ‘junk’ info,” reported in error that applicants were dead, filed “frivolous protests” and caused “the holdup of many claims.”
“Same problems as always,” wrote Amy Banicki, a senior manager, in a 2008 e-mail message. “Talx is Talx.”
Iowa passed a similar law in 2008 to curtail unnecessary appeals. Of the 10 employers who most often appealed after failing to respond to data requests, officials said nine were represented by Talx, including Cargill, Target, Tyson Foods, Wal-Mart and Wells Fargo.
Connecticut cited “frivolous motions” and “unnecessary delays” in filing a complaint against Talx under a law that regulates employer agents. Without admitting fault, Talx paid a $12,000 fine and agreed to tell clients in writing that it would not file baseless appeals.
While there is no comprehensive research, the Labor Department did an internal study of 2,000 cases in 2007 and found Talx significantly slower and less complete in answering auditors’ questions than employers who handled their own claims. Officials said they did not release the study, which drew on seven states, because they could not ensure it was representative. The New York Times obtained it under the Freedom of Information Act.
Talx supporters say the program’s tight deadlines often give Talx just a few days to answer requests. They emphasize that Talx is working with states to develop a common computer format that will help provide the data more rapidly. They also say scrutiny of claims by companies like Talx helps deter fraud.
“Increased vigilance is an appropriate thing,” said Douglas J. Holmes, president of UWC, a Washington group that represents employers on unemployment issues. “Integrity is important.”
But other say that Talx, by promising to save clients money, has an incentive to fight even legitimate claims. In marketing materials, it warns employers that “a single claim can result in a higher tax rate” and makes the promise that “we deliver increased winning percentages.”
Joseph Walsh, deputy director of Iowa’s employment security agency, said, “We are more likely to see a claim of misconduct that is completely unsupported by the factual record” when agents are involved.
Officials in the New York State Department of Labor were so concerned last year about the credibility of agents that they warned staff members against taking their word over that of jobless workers. Absent other evidence, the officials wrote, “give greater weight to the claimant’s statement.”
That guidance was relevant in the case of Genssy Frias, a Bronx woman who took a took a maternity leave from a sales job at Lord & Taylor. Ms. Frias said that she tried to return but that her supervisor told her she had been laid off. A Talx agent said Ms. Frias quit because she lacked child care.
“We did not hear from her again,” the agent wrote.
New York canceled Ms. Frias’s benefits and accused her of lying.
In an interview, Ms. Frias said the agent’s response to the state was not only inaccurate but also deceitful, because she did not disclose that she worked for Talx and implied first-hand knowledge by using the pronoun “we.” Had she identified herself as an agent, officials would have given her statement less weight.
A Talx spokeswoman said the agent made a clerical error in writing “we” and called it an isolated incident. Lord & Taylor did not respond to requests for comment.
Ms. Frias appealed and presented a babysitter’s note, which vouched that she had arranged for child care. Neither Talx nor Lord & Taylor appeared at the hearing, and Ms. Frias won.
“I was thinking, how can they lie like that when they know I didn’t quit?” Ms. Frias said.
Myth of Shareholder Capitalism
The Myth of Shareholder Capitalism
by Loizos Heracleous and Luh Luh Lan
When Kraft took over Cadbury in January, the deal was viewed as a victory of shareholder capitalism. The acquired company’s deeply English roots were no match for the wealth shareholders could gain by selling out to what one Cadbury family member called “a company that makes cheese to go on hamburgers.” Cadbury chairman Roger Carr said, “The reality is we are part of a global business.”
Did Carr have a choice? Was he truly beholden to his shareholders’ desire to take the deal? If not, how can directors act against the wishes of shareholders to preserve value for other stakeholders—value that is often less easily measured than a buyout price? In the wake of the scandals that caused the recession, the management world has been immersed in trying to answer such questions.
Oddly, no previous management research has looked at what the legal literature says about the topic, so we conducted a systematic analysis of a century’s worth of legal theory and precedent. It turns out that the law provides a surprisingly clear answer: Shareholders do not own the corporation, which is an autonomous legal person. What’s more, when directors go against shareholder wishes—even when a loss in value is documented—courts side with directors the vast majority of the time. Shareholders seem to get this. They’ve tried to unseat directors through lawsuits just 24 times in large corporations over the past 20 years; they’ve succeeded only eight times. In short, directors are to a great extent autonomous.
And yet, in an important 2007 article in the Journal of Business Ethics, 31 of 34 directors surveyed (each of whom served on an average of six Fortune 200 boards) said they’d cut down a mature forest or release a dangerous, unregulated toxin into the environment in order to increase profits. Whatever they could legally do to maximize shareholder wealth, they believed it was their duty to do.
Why are directors so convinced of their obligation that they’d make decisions with such damaging results? If the law clearly doesn’t call for all the kowtowing, couldn’t Cadbury’s Carr have assumed a more defiant stance against a takeover?
The problem, we believe, is that managers and lawyers have failed to meaningfully collaborate on defining directors’ role. That lack of communication has led to the election of directors who, frankly, don’t know what their legal duties are. Indeed, they’re being taught the wrong things. The case still most often used in law schools to illustrate a director’s obligation is Dodge v. Ford Motor (1919)—even though an important 2008 paper by Lynn A. Stout explains that it’s bad law, now largely ignored by the courts. It has been cited in only one decision by Delaware courts in the past 30 years.
Collaboration between legal and management entities should start at the MBA and executive-education level, to change the way directors are trained and developed. But it should also shape director selection, a process where trustworthiness and independence from all stakeholders, not just from managers, is critical.
The impact on directors’ decision making could be significant. The Cadburys of the future may not end up selling out just because it looks like a good deal for the shareholders.
by Loizos Heracleous and Luh Luh Lan
When Kraft took over Cadbury in January, the deal was viewed as a victory of shareholder capitalism. The acquired company’s deeply English roots were no match for the wealth shareholders could gain by selling out to what one Cadbury family member called “a company that makes cheese to go on hamburgers.” Cadbury chairman Roger Carr said, “The reality is we are part of a global business.”
Did Carr have a choice? Was he truly beholden to his shareholders’ desire to take the deal? If not, how can directors act against the wishes of shareholders to preserve value for other stakeholders—value that is often less easily measured than a buyout price? In the wake of the scandals that caused the recession, the management world has been immersed in trying to answer such questions.
Oddly, no previous management research has looked at what the legal literature says about the topic, so we conducted a systematic analysis of a century’s worth of legal theory and precedent. It turns out that the law provides a surprisingly clear answer: Shareholders do not own the corporation, which is an autonomous legal person. What’s more, when directors go against shareholder wishes—even when a loss in value is documented—courts side with directors the vast majority of the time. Shareholders seem to get this. They’ve tried to unseat directors through lawsuits just 24 times in large corporations over the past 20 years; they’ve succeeded only eight times. In short, directors are to a great extent autonomous.
And yet, in an important 2007 article in the Journal of Business Ethics, 31 of 34 directors surveyed (each of whom served on an average of six Fortune 200 boards) said they’d cut down a mature forest or release a dangerous, unregulated toxin into the environment in order to increase profits. Whatever they could legally do to maximize shareholder wealth, they believed it was their duty to do.
Why are directors so convinced of their obligation that they’d make decisions with such damaging results? If the law clearly doesn’t call for all the kowtowing, couldn’t Cadbury’s Carr have assumed a more defiant stance against a takeover?
The problem, we believe, is that managers and lawyers have failed to meaningfully collaborate on defining directors’ role. That lack of communication has led to the election of directors who, frankly, don’t know what their legal duties are. Indeed, they’re being taught the wrong things. The case still most often used in law schools to illustrate a director’s obligation is Dodge v. Ford Motor (1919)—even though an important 2008 paper by Lynn A. Stout explains that it’s bad law, now largely ignored by the courts. It has been cited in only one decision by Delaware courts in the past 30 years.
Collaboration between legal and management entities should start at the MBA and executive-education level, to change the way directors are trained and developed. But it should also shape director selection, a process where trustworthiness and independence from all stakeholders, not just from managers, is critical.
The impact on directors’ decision making could be significant. The Cadburys of the future may not end up selling out just because it looks like a good deal for the shareholders.
What's Driving Up Oil Prices Again? Wall Street, Of Course
What's Driving Up Oil Prices Again? Wall Street, Of Course
by Kevin G. Hall
WASHINGTON - Oil consumption has fallen, demand from U.S. motorists for gasoline is flat at best and refiners that turn crude into fuel are operating well below capacity. Yet oil prices keep marching toward $90 a barrel, pushing gasoline toward $3 a gallon in many markets, and prompting American drivers to ask, "What gives?"
![[]](http://www.commondreams.org/files/article_images/OILPRICES.small.prod_affiliate.91.jpg "OILPRICES.small.prod_affiliate.91.jpg")
Blame it on the same folks who brought you $140 oil and $4 gasoline in 2008: Wall Street speculators.
Experts attribute much of the recent rise in prices to flows of speculative money into oil markets. These bets are fueled by investor expectations that the U.S. and global economies are poised to return to growth and thus spark increased use of oil. Strong growth in China supports the narrative of rising oil consumption and tightening supplies.
"The thinking goes that rising stock (market) prices implies expanding business activity, implies growing energy demand, implies rising oil prices. I think you can make that case, but it's awfully weak," said Michael Fitzpatrick, vice president-energy for MF Global, a financial firm that brokers the sale of contracts for future delivery of oil.
While there are signs of U.S. economic recovery, such as a slight uptick in consumption and strong manufacturing data, there are plenty of ho-hum signs too, including dismal construction spending and continued high unemployment.
"I just don't think if you look across the entire spectrum of the macro-economy that it creates a picture of a growing body of incontrovertible evidence that there is a strong, sustainable recovery. I just don't see it," Fitzpatrick said. "I think it should be closer to the range we were seeing in late summer and early fall, $67 to $72" a barrel.
On the last day of July, oil traded at $67.50 a barrel and gasoline sold at a nationwide average of $2.52 a gallon for regular unleaded. On Thursday, oil prices settled at $84.87 on the New York Mercantile Exchange, and regular unleaded gasoline averaged $2.80 a gallon and more than $3 on the West Coast, according to the AAA.
"It's the story we've been talking about . . . . It's really about oil being an attractive investment for investors right now," said Troy Green, a AAA spokesman. "You've seen quite a bit of money flooding into the oil markets because of that."
What's different about today's price run-up from two or three years ago is that oil is now in ample supply.
"If you look at the fundamentals right now, there is certainly an abundance that is available (of oil) to the market for the next 12 months or so. It's not a near-term supply shortfall," said David Dismukes, the associate director of the Center for Energy Studies at Louisiana State University in Baton Rouge.
U.S. motorists and businesses consumed 18.69 million barrels per day (bpd) of petroleum product last year. That's projected to rise slightly this year to 18.89 million bpd. However, it remains far below peak consumption of 20.80 million bpd in 2005.
The latest data from the Energy Information Administration, the statistical arm of the Energy Department, shows that as of mid-March, U.S. refiners were operating at 81.1 percent capacity. They're making eight gallons of gasoline for every 10 they're capable of producing, a clear sign that demand is down.
Perhaps the only argument that would justify rising prices is that global consumption is expected to grow by 1.6 million bpd to 86.6 million bpd this year, according to the Paris-based International Energy Agency.
Even so, there's 6 million bpd of oil that's shut-in, a technical way of saying that recoverable oil is being left in the ground by the world's oil producers.
"When you look at inventories and shut-in capacity, (oil) prices today are above what those would indicate," said Daniel Yergin, the author of "The Prize: The Epic Quest for Oil, Money & Power," the recently updated Pulitzer Prize-winning book that chronicles the history of oil.
When oil traded above $140 a barrel nearly two years ago and pundits warned that the world was running out of oil, Yergin suggested that a glut of oil would come onto the market in 2010 and beyond. The 6 million bpd of oil now on the sidelines suggests that he was right.
Today's spare production capacity is three times what it was in 2004 and 2005, when supply actually was tight.
The Organization of Petroleum Exporting Countries signaled this week its concerns about rising prices by not calling for hard enforcement of production quotas by its members. That suggested the cartel will tolerate an open-spigot policy by its 12 members as needed to stabilize prices.
"While OPEC was silent on any threat to the recovery, speculation continues that the cartel is deliberately allowing members to exceed production quotas in order to limit upward price pressure," wrote analyst Matt Robinson, in a research report Thursday by forecaster Moody's Economy.com.
Rising oil and gasoline prices are deja vu all over again for Michael Masters. The hedge fund manager has crusaded for legislation that would prevent so much speculative money in the oil markets.
Wall Street is "gaming" the price of oil, he warns.
"If you're a bank, and you know there is going to be a large amount of investor inflows into the commodities market, you are going to position yourself ahead of them . . . You want to be a seller at a higher price," explained Masters, noting that large Wall Street banks invest for themselves in these markets even as they also broker the oil investments of others.
What's abundantly clear, he and others argue, is that an oil contract's price today has little to do with the supply of and demand for oil.
"It's a capital asset now. Once the majority of participants are capital-asset folks, common sense would tell you it's going to be traded like a capital asset . . . and consumers pay," Masters said. "It wasn't that way in the past."
The Commodity Futures Trading Commission is weighing a proposal to put global limits on how many oil contracts any one market player can buy or sell, and legislation to revamp financial regulation that's expected to pass Congress this year could force greater disclosure by oil traders to regulators.
Neither, however, promises imminent relief at the pump.
ON THE WEB
Oxford Institute study on oil prices 2002-2009
"The thinking goes that rising stock (market) prices implies expanding business activity, implies growing energy demand, implies rising oil prices. I think you can make that case, but it's awfully weak," said Michael Fitzpatrick, vice president-energy for MF Global, a financial firm that brokers the sale of contracts for future delivery of oil.
While there are signs of U.S. economic recovery, such as a slight uptick in consumption and strong manufacturing data, there are plenty of ho-hum signs too, including dismal construction spending and continued high unemployment.
"I just don't think if you look across the entire spectrum of the macro-economy that it creates a picture of a growing body of incontrovertible evidence that there is a strong, sustainable recovery. I just don't see it," Fitzpatrick said. "I think it should be closer to the range we were seeing in late summer and early fall, $67 to $72" a barrel.
On the last day of July, oil traded at $67.50 a barrel and gasoline sold at a nationwide average of $2.52 a gallon for regular unleaded. On Thursday, oil prices settled at $84.87 on the New York Mercantile Exchange, and regular unleaded gasoline averaged $2.80 a gallon and more than $3 on the West Coast, according to the AAA.
"It's the story we've been talking about . . . . It's really about oil being an attractive investment for investors right now," said Troy Green, a AAA spokesman. "You've seen quite a bit of money flooding into the oil markets because of that."
What's different about today's price run-up from two or three years ago is that oil is now in ample supply.
"If you look at the fundamentals right now, there is certainly an abundance that is available (of oil) to the market for the next 12 months or so. It's not a near-term supply shortfall," said David Dismukes, the associate director of the Center for Energy Studies at Louisiana State University in Baton Rouge.
U.S. motorists and businesses consumed 18.69 million barrels per day (bpd) of petroleum product last year. That's projected to rise slightly this year to 18.89 million bpd. However, it remains far below peak consumption of 20.80 million bpd in 2005.
The latest data from the Energy Information Administration, the statistical arm of the Energy Department, shows that as of mid-March, U.S. refiners were operating at 81.1 percent capacity. They're making eight gallons of gasoline for every 10 they're capable of producing, a clear sign that demand is down.
Perhaps the only argument that would justify rising prices is that global consumption is expected to grow by 1.6 million bpd to 86.6 million bpd this year, according to the Paris-based International Energy Agency.
Even so, there's 6 million bpd of oil that's shut-in, a technical way of saying that recoverable oil is being left in the ground by the world's oil producers.
"When you look at inventories and shut-in capacity, (oil) prices today are above what those would indicate," said Daniel Yergin, the author of "The Prize: The Epic Quest for Oil, Money & Power," the recently updated Pulitzer Prize-winning book that chronicles the history of oil.
When oil traded above $140 a barrel nearly two years ago and pundits warned that the world was running out of oil, Yergin suggested that a glut of oil would come onto the market in 2010 and beyond. The 6 million bpd of oil now on the sidelines suggests that he was right.
Today's spare production capacity is three times what it was in 2004 and 2005, when supply actually was tight.
The Organization of Petroleum Exporting Countries signaled this week its concerns about rising prices by not calling for hard enforcement of production quotas by its members. That suggested the cartel will tolerate an open-spigot policy by its 12 members as needed to stabilize prices.
"While OPEC was silent on any threat to the recovery, speculation continues that the cartel is deliberately allowing members to exceed production quotas in order to limit upward price pressure," wrote analyst Matt Robinson, in a research report Thursday by forecaster Moody's Economy.com.
Rising oil and gasoline prices are deja vu all over again for Michael Masters. The hedge fund manager has crusaded for legislation that would prevent so much speculative money in the oil markets.
Wall Street is "gaming" the price of oil, he warns.
"If you're a bank, and you know there is going to be a large amount of investor inflows into the commodities market, you are going to position yourself ahead of them . . . You want to be a seller at a higher price," explained Masters, noting that large Wall Street banks invest for themselves in these markets even as they also broker the oil investments of others.
What's abundantly clear, he and others argue, is that an oil contract's price today has little to do with the supply of and demand for oil.
"It's a capital asset now. Once the majority of participants are capital-asset folks, common sense would tell you it's going to be traded like a capital asset . . . and consumers pay," Masters said. "It wasn't that way in the past."
The Commodity Futures Trading Commission is weighing a proposal to put global limits on how many oil contracts any one market player can buy or sell, and legislation to revamp financial regulation that's expected to pass Congress this year could force greater disclosure by oil traders to regulators.
Neither, however, promises imminent relief at the pump.
ON THE WEB
Oxford Institute study on oil prices 2002-2009
Healthcare reformageddon
As I recall, Tom Tomorrow was very critical of the health care bill prior to its passing, like I was. I still don't like its loophole ridden arse, but I also don't consider it something worth dividing the nation for.
Bisphenol A in lining of most popular cans
(This stuff almost always happens in the UK before it happens in the US...--jef)
Revealed: the nasty secret in your kitchen cupboard
18 of 20 most popular tins made with controversial bisphenol-A in lining
By Martin Hickman, Consumer Affairs Correspondent
Revealed: the nasty secret in your kitchen cupboard
18 of 20 most popular tins made with controversial bisphenol-A in lining
By Martin Hickman, Consumer Affairs Correspondent
Some of Britain's best-known foods contain the controversial chemical bisphenol A, The Independent can reveal.
Tins of Heinz baked beans, soup and beans, John West and Princes fish, and Napolina tomatoes are lined with a membrane containing bisphenol A, or BPA, a molecule of which is pictured top left. Other companies using it in their tins include the biggest retailers in the UK, Tesco, Sainsbury's and Asda, who use it for tins of tuna and sardines.
Britain's Food Standards Agency (FSA) has given the chemical the all-clear, in contrast to the US Food and Drug Administration, which in January expressed concern over its impact on the brains and development of young children and said it was "taking reasonable steps to reduce human exposure" to it in the food supply. After the American U-turn, the EU-funded European Food Safety Authority (EFSA) launched and is still carrying out a review of BPA.
Some scientists fear that exposure to minute doses of the chemical in food and other products may be damaging to the health of individuals.
BPA is an endocrine disruptor that interrupts hormones and, in laboratory experiments on animals, has been linked with breast cancer, prostate cancer, hyperactivity and other metabolic and behavioural problems, diseases which are all on the rise in the West. But the plastics and chemicals industries insist its use is safe and accuse campaigners of misleading the public, pointing to industry-funded studies involving large numbers of rodents that have shown no harm.
At stake is the future of one of the highest production volume chemicals in the world. BPA is widely used to harden the plastic casings of mobile phones and computers and makes baby bottles shatterproof. In food products, it commonly lines the inside of cans and tins to protect their contents from being contaminated by the metal.
To establish its prevalence in food, The Independent surveyed manufacturers of the UK's 20 best-selling tinned foods. Although it is not stated on tins, BPA is used in the linings of 18 out of the 20 products, which have combined annual sales of £921m, or 43 per cent of UK tinned food sales. All the companies said their products were safe because the levels of BPA leaching out into food were so low that they were safe.
However Heinz said it was looking to phase out BPA once alternatives could be found. In a statement, the US tinned food giant said: "Although UK and European food authorities have stated that minute levels of BPA in can coatings are safe, Heinz remains committed to moving to alternatives. For beans, pasta and many soups a protective coating is only applied to the can ends which would not provide any trace of BPA or would be at the limit of detection of a few parts per billion. This compares with the safe legal limit of 600 parts per billion. Heinz continues to advance research into alternative coatings in response to consumer opinion but safety remains our first priority before making any changes."
Princes, the tinned fish company which also owns the Napolina brand, said: "The inside of most food cans requires a protective coating. Bisphenol A (BPA) is used industry wide as a component part of this coating. It is an approved food contact material and there is guidance from both the FSA and the EFSA regarding its use."
John West said: "Some of John West's tinned products are lined with a lacquer that contains a derivate of Bisphenol. By contact tiny amounts of Bisphenol-A are able to migrate within the EU regulation limits." Baxters, the Scottish soup-maker, said its cans contained "minute" amounts of BPA at levels "substantially lower" than that approved by the EFSA.
Tesco, Sainsbury's and Asda, and other producers such as Premier Foods, General Mills and Hormel Foods, the US company which makes Spam, insisted their tins were safe and produced in accordance with current safety regulations.
Tinned drinks also include a membrane with BPA. A spokeswoman for Coca-Cola UK confirmed: "We use BPA in the linings of our cans. Our top priority is to ensure the safety and quality of our products and packaging through rigorous standards that meet or exceed government requirements... All available scientific evidence and testing shows that drinks in aluminium and steel cans are safe."
According to the FSA, studies have shown that BPA is not harmful to laboratory animals when fed in amounts equivalent to more than exposure levels in humans. However the last review of the safety of BPA in tinned foods in Britain was eight years ago by the Committee on Toxicity. Since then several peer-reviewed scientific studies have detected low-dose effects on animals. These low-dose effects are not currently recognised by British or European regulators.
Breast Cancer UK is among several campaigning organisations which wants to see reductions in BPA used in food and other products. Claire Dimmer, chair of trustees, said: "We welcome the research that the food packaging industry is undertaking to find potential BPA alternatives. But these efforts need to be stepped up significantly. " She called on manufacturers to introduce clear BPA labelling – "otherwise it's impossible for us to make a decision on ways of limiting our and our families exposure to this chemical."
TOP 20: BRITAIN'S MOST POPULAR TINNED FOODS
Brand / Maker/ Contains BPA?
1. Heinz classic soup / Heinz / YES
2. John West canned fish / John West / YES
3. Heinz Baked Beans / Heinz / YES
4. Princes canned fish / Princes / YES
5. Napolina tomato products / Princes / YES
6 Branston Baked Beans / Premier Foods / YES
7. Tesco canned fish / Tesco / YES
8. Sainsbury canned fish / Sainsburys / YES
9. Green Giant Niblets / General Mills / YES
10. Princes Corned Beef / Princes / YES
11. Fray Bentos canned pies / Premier Foods / YES
12. Heinz Big Soup / Heinz / YES
13. Baxters Favourites Soup / Baxters / YES
14. Tesco Value tomato products / Tesco / NO
15. Asda canned fish / Asda / YES
16. Spam Chopped Ham/Pork / Spam / YES
17. Heinz Long Spaghetti / Heinz / YES
18 Heinz Beans with Pork Sausages / Heinz / YES
19 Tesco Value canned fish / Tesco / YES
20. Tesco canned fruit / Tesco / NO
Sources: Kantor Worldpanel and The Independent
Fed Admits To Breaking The Law
| The Fed Admits To Breaking The Law | |
| Published on 04-02-2010 | |
April 1 (Bloomberg) -- After months of litigation and political scrutiny, the Federal Reserve yesterday ended a policy of secrecy over its Bear Stearns Cos. bailout.
In a 4:30 p.m. announcement in a week of congressional recess and religious holidays, the central bank released details of securities bought to aid Bear Stearns’s takeover by JPMorgan Chase & Co. Bloomberg News sued the Fed for that information.
The problem is this: The Fed is not authorized to BUY anything other than those securities that have the full faith and credit of The United States.
In addition Ben Bernanke has repeatedly claimed that these deals would not cost anyone money. But the current value looks differently:
Assets in Maiden Lane II totaled $34.8 billion, according to the Fed, which set their current market value in its weekly balance sheet at $15.3 billion. That means Maiden Lane II assets are worth 44 cents on the dollar, or 44 percent of their face value, according to the Fed.
Maiden Lane III, which has $56 billion of assets at face value, is worth $22.1 billion, or 39 cents on the dollar, according to the Fed’s weekly balance sheet. A similar calculation for the Bear Stearns portfolio couldn’t be made because of outstanding derivatives trades.
In other words, they have lost more than half of their value.
This was and remains a blatantly unlawful activity.
The Fed has effectively usurped Article 1 Section 7 of The Constituion which reads in part:
All bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as on other Bills.
The Fed effectively appropriated taxpayer funds without authorization of Congress. At the time these facilities were put in place neither TARP or any other Congressional authorization existed for them to do so, and to date no bill has been put through Congress authorizing the expenditure of taxpayer funds, either through putting them at risk or via outright expense, for this purpose.
Nor does it stop with a "mere" Constitutional violation - The Federal Reserve Act's Sections 13 and 14 do not permit Fed asset purchases except, once again, for items carrying "full faith and credit" guarantees. Credit-default swaps and trash mortgages most certainly do not meet these qualifications.
I know I've harped on this for more than two years, but here we have a raw admission of exactly what was done - and there is simply no way to construe any of it in a light that conforms with either The Constitution or black-letter statutory law.
What's worse is that Tim Geithner, head of the NY Fed at the time, was very much involved in this - that is, he in effect personally, along with Ben Bernanke, usurped the power of the United States House.
The Fed has spent two years trying to hide this from the public and Congress. It has fought off both Congressional demands for disclosure and multiple FOIA lawsuits, the latter of which has resulted in a series of adverse rulings (and, it appears, was ultimately going to force disclosure anyway.)
These actions are unacceptable but promising "never to do that again" is insufficient. In a Representative Republic where the rule of law is supposed to be paramount - that is, where we do not crown Kings and relegate everyone else to the status of knaves,unlawful actions such as this demand that strong and unmistakable sanction also be applied to all wrongdoers in addition to protection against future abuse.
In this case this means that both Geithner and Bernanke must go - for starters.
Amending The Federal Reserve Act of 1913 (as Chris Dodd has proposed to prevent future lending bailouts) is not sufficient in that The Fed did not lend in this case, it purchased, and by buying what we now know were trash loans it violated the black letter of existing law.
There is only one effective remedy for an institution that has proved that it will not abide the law: it must be stripped of all authority that has been in the past and can be in the future abused.
This means that The Fed, if we are to keep it at all, must be relegated to a body thatonly practices and provides monetary policy - nothing more or less - and that all monetary operations must be performed openly, transparently, and within those constraints.
We cannot have a republic where an unelected body is left free to violate The Constitution with wild abandon and those acts are then allowed to stand.
One final thought: If the individuals responsible for this blatant black-letter violation of the law do not face meaningful sanction for these acts, and neither does The Fed as an institution, can you fine folks over at The Executive, Judiciary and Legislative branches of our government please explain to us ordinary Americans why we should obey any of the laws of this land when you will not enforce the laws that already exist?
U.S. economy adds 162,000 jobs
Unemployment rate unchanged
The U.S. economy added 162,000 jobs in March, the Labor Department reported today, marking only the second time in 27 months that jobs have been created.
The government's formula unemployment rate remained unchanged at 9.7% for the third straight month.
Economists who had forecast the jump in jobs noted that as many as 100,000 could reflect temporary hiring for the U.S. Census.
The total includes 48,000 temporary workers hired for the U.S. Census, the Associated Press reports. Private employers added 123,000 jobs, the most since May 2007.
The U.S. economy added 162,000 jobs in March, the Labor Department reported today, marking only the second time in 27 months that jobs have been created.
The government's formula unemployment rate remained unchanged at 9.7% for the third straight month.
Economists who had forecast the jump in jobs noted that as many as 100,000 could reflect temporary hiring for the U.S. Census.
The total includes 48,000 temporary workers hired for the U.S. Census, the Associated Press reports. Private employers added 123,000 jobs, the most since May 2007.
Too big to nail? Pfizer ordered to pay up
Pfizer ordered to pay up over ‘AIDS-like’ virus infections
By Daniel Tencer
Friday, April 2nd, 2010
In what is being hailed as a major victory for workers in the biotech and nanotech fields, a former scientist with pharmaceutical firm Pfizer has been awarded $1.37 million for being fired after raising the alarm over researchers being infected with a genetically engineered "AIDS-like" virus.
Becky McClain, a molecular biologist from Deep River, Connecticut, filed a lawsuit against Pfizer in 2007, claiming she had been wrongly terminated for complaining about faulty safety equipment that allowed a "dangerous lentivirus" to infect her and some of her colleagues.
The Hartford Courant describes the virus as "similar to the one that can lead to acquired immune deficiency syndrome, or AIDS." Health experts testified that the virus has affected the way McClain's body processes potassium, which they say causes McClain to suffer complete paralysis as often as a dozen times per month, the Courant reports.
McClain's lawsuit (PDF) asserted that Pfizer had interfered with her right to free speech, and that she should have been protected from retaliation by whistleblower legislation.
Pfizer challenged her assertion, claiming McClain only started complaining about safety problems once her employment was terminated, the Associated Press reports. Pfizer also claimed to have investigated McClain's claims about safety violations and found them to be untrue, according to the New London Day.
On Thursday, a jury in a US District Court in Connecticut disagreed with Pfizer, granting McClain the $1.37 million, as well as punitive damages, meaning the total amount could be much greater.
The WorkersCompensation.com Web site says the ruling is being "considered the first successful employee claim in the biotech and nanotech industry."
Workers' rights advocates are pointing to the McClain lawsuit as "evidence that risks caused by cutting-edge genetic manipulation have outstripped more slowly evolving government regulation of laboratories," reports the Courant.
McClain's lawsuit says she was exposed to the experimental virus repeatedly between 2002 and 2004, and when she lodged complaints about it, her supervisor said he would "falsify her future performance reviews and he told her they would be negative, and he threatened her in an aggressive fashion following the plaintiff’s repeated complaints regarding safety. He forcibly backed the plaintiff into a wall during one encounter."
'TOO BIG TO NAIL'
A report at CNN (see below-jp) about a separate legal matter involving Pfizer states that the Department of Justice considered Pfizer to be "too big to nail" in an investigation of the company's illegal marketing of the painkiller drug Bextra.
CNN reports that, if Pfizer had been prosecuted over the drug, the company would have been excluded from doing business with Medicaid and Medicare. But because federal officials considered the company too big to be exempted from working with the government health programs, a dummy corporation -- Pharmacia & Upjohn Inc. -- was set up, and that dummy corporation then pleaded guilty to the crime.
"P&UCI sold no drugs and had no real employees, and its creation was simply a figleaf to allow a Pfizer entity to take the rap without harming Pfizer itself," explains Jim Edwards at the Bnet business blog.
Pfizer is the world's largest drugmaker, with annual revenue around $44 billion.
Feds Found Pfizer Too Big to Nail
by Drew Griffin and Andy Segal
Imagine being charged with a crime, but an imaginary friend takes the rap for you.
When Bextra was taken off the market in 2005, more than half of its profits had come from "off-label" prescriptions.That is essentially what happened when Pfizer, the world's largest pharmaceutical company, was charged with illegally marketing Bextra, a painkiller that was taken off the market in 2005 because of safety concerns.
When the criminal case was announced last fall, federal officials touted their prosecution as a model for tough, effective enforcement. "It sends a clear message" to the pharmaceutical industry, said Kevin Perkins, assistant director of the FBI's Criminal Investigative Division.
But beyond the fanfare, a CNN Special Investigation found another story, one that officials downplayed when they declared victory. It's a story about the power major pharmaceutical companies have even when they break the laws intended to protect patients.
Big plans for Bextra
The story begins in 2001, when Bextra was about to hit the market. The drug was part of a revolutionary class of painkillers known as Cox-2 inhibitors that were supposed to be safer than generic drugs, but at 20 times the price of ibuprofen.
Pfizer and its marketing partner, Pharmacia, planned to sell Bextra as a treatment for acute pain, the kind you have after surgery.
But in November 2001, the U.S. Food and Drug Administration said Bextra was not safe for patients at high risk of heart attacks and strokes.
The FDA approved Bextra only for arthritis and menstrual cramps. It rejected the drug in higher doses for acute, surgical pain.
Promoting drugs for unapproved uses can put patients at risk by circumventing the FDA's judgment over which products are safe and effective. For that reason, "off-label" promotion is against the law.
But with billions of dollars of profits at stake, marketing and sales managers across the country nonetheless targeted anesthesiologists, foot surgeons, orthopedic surgeons and oral surgeons. "Anyone that use[d] a scalpel for a living," one district manager advised in a document prosecutors would later cite.
A manager in Florida e-mailed his sales reps a scripted sales pitch that claimed -- falsely -- that the FDA had given Bextra "a clean bill of health" all the way up to a 40 mg dose, which is twice what the FDA actually said was safe.
Doctors as pitchmen
Internal company documents show that Pfizer and Pharmacia (which Pfizer later bought) used a multimillion-dollar medical education budget to pay hundreds of doctors as speakers and consultants to tout Bextra.
Pfizer said in court that "the company's intent was pure": to foster a legal exchange of scientific information among doctors.
But an internal marketing plan called for training physicians "to serve as public relations spokespeople."
According to Lewis Morris, chief counsel to the inspector general at the U.S. Department of Health and Human Services, "They pushed the envelope so far past any reasonable interpretation of the law that it's simply outrageous."
Pfizer's chief compliance officer, Doug Lanker, said that "in a large sales force, successful sales techniques spread quickly," but that top Pfizer executives were not aware of the "significant mis-promotion issue with Bextra" until federal prosecutors began to show them the evidence.
By April 2005, when Bextra was taken off the market, more than half of its $1.7 billion in profits had come from prescriptions written for uses the FDA had rejected.
Too big to nail
But when it came to prosecuting Pfizer for its fraudulent marketing, the pharmaceutical giant had a trump card: Just as the giant banks on Wall Street were deemed too big to fail, Pfizer was considered too big to nail.
Why? Because any company convicted of a major health care fraud is automatically excluded from Medicare and Medicaid. Convicting Pfizer on Bextra would prevent the company from billing federal health programs for any of its products. It would be a corporate death sentence.
Prosecutors said that excluding Pfizer would most likely lead to Pfizer's collapse, with collateral consequences: disrupting the flow of Pfizer products to Medicare and Medicaid recipients, causing the loss of jobs including those of Pfizer employees who were not involved in the fraud, and causing significant losses for Pfizer shareholders.
"We have to ask whether by excluding the company [from Medicare and Medicaid], are we harming our patients," said Lewis Morris of the Department of Health and Human Services.
So Pfizer and the feds cut a deal. Instead of charging Pfizer with a crime, prosecutors would charge a Pfizer subsidiary, Pharmacia & Upjohn Co. Inc.
The CNN Special Investigation found that the subsidiary is nothing more than a shell company whose only function is to plead guilty.
According to court documents, Pfizer Inc. owns (a) Pharmacia Corp., which owns (b) Pharmacia & Upjohn LLC, which owns (c) Pharmacia & Upjohn Co. LLC, which in turn owns (d) Pharmacia & Upjohn Co. Inc. It is the great-great-grandson of the parent company.
Public records show that the subsidiary was incorporated in Delaware on March 27, 2007, the same day Pfizer lawyers and federal prosecutors agreed that the company would plead guilty in a kickback case against a company Pfizer had acquired a few years earlier.
As a result, Pharmacia & Upjohn Co. Inc., the subsidiary, was excluded from Medicare without ever having sold so much as a single pill. And Pfizer was free to sell its products to federally funded health programs.
An imaginary friend
Two years later, with Bextra, the shell company once again pleaded guilty. It was, in effect, Pfizer's imaginary friend stepping up to take the rap.
"It is true that if a company is created to take a criminal plea, but it's just a shell, the impact of an exclusion is minimal or nonexistent," Morris said.
Prosecutors say there was no viable alternative.
"If we prosecute Pfizer, they get excluded," said Mike Loucks, the federal prosecutor who oversaw the investigation. "A lot of the people who work for the company who haven't engaged in criminal activity would get hurt."
Did the punishment fit the crime? Pfizer says yes.
It paid nearly $1.2 billion in a criminal fine for Bextra, the largest fine the federal government has ever collected.
It paid a billion dollars more to settle a batch of civil suits -- although it denied wrongdoing -- on allegations that it illegally promoted 12 other drugs.
In all, Pfizer lost the equivalent of three months' profit.
It maintained its ability to do business with the federal government.
Pfizer says it takes responsibility for the illegal promotion of Bextra. "I can tell you, unequivocally, that Pfizer perceived the Bextra matter as an incredibly serious one," said Doug Lankler, Pfizer's chief compliance officer.
To prevent it from happening again, Pfizer has set up what it calls "leading-edge" systems to spot signs of illegal promotion by closely monitoring sales reps and tracking prescription sales.
It's not entirely voluntary. Pfizer had to sign a corporate integrity agreement with the Department of Health and Human Services. For the next five years, it requires Pfizer to disclose future payments to doctors and top executives to sign off personally that the company is obeying the law.
Pfizer says the company has learned its lesson.
But after years of overseeing similar cases against other major drug companies, even Loucks, isn't sure $2 billion in penalties is a deterrent when the profits from illegal promotion can be so large.
"I worry that the money is so great," he said, that dealing with the Department of Justice may be "just of a cost of doing business."
By Daniel Tencer
Friday, April 2nd, 2010
In what is being hailed as a major victory for workers in the biotech and nanotech fields, a former scientist with pharmaceutical firm Pfizer has been awarded $1.37 million for being fired after raising the alarm over researchers being infected with a genetically engineered "AIDS-like" virus.
Becky McClain, a molecular biologist from Deep River, Connecticut, filed a lawsuit against Pfizer in 2007, claiming she had been wrongly terminated for complaining about faulty safety equipment that allowed a "dangerous lentivirus" to infect her and some of her colleagues.
The Hartford Courant describes the virus as "similar to the one that can lead to acquired immune deficiency syndrome, or AIDS." Health experts testified that the virus has affected the way McClain's body processes potassium, which they say causes McClain to suffer complete paralysis as often as a dozen times per month, the Courant reports.
McClain's lawsuit (PDF) asserted that Pfizer had interfered with her right to free speech, and that she should have been protected from retaliation by whistleblower legislation.
Pfizer challenged her assertion, claiming McClain only started complaining about safety problems once her employment was terminated, the Associated Press reports. Pfizer also claimed to have investigated McClain's claims about safety violations and found them to be untrue, according to the New London Day.
On Thursday, a jury in a US District Court in Connecticut disagreed with Pfizer, granting McClain the $1.37 million, as well as punitive damages, meaning the total amount could be much greater.
The WorkersCompensation.com Web site says the ruling is being "considered the first successful employee claim in the biotech and nanotech industry."
Workers' rights advocates are pointing to the McClain lawsuit as "evidence that risks caused by cutting-edge genetic manipulation have outstripped more slowly evolving government regulation of laboratories," reports the Courant.
McClain's lawsuit says she was exposed to the experimental virus repeatedly between 2002 and 2004, and when she lodged complaints about it, her supervisor said he would "falsify her future performance reviews and he told her they would be negative, and he threatened her in an aggressive fashion following the plaintiff’s repeated complaints regarding safety. He forcibly backed the plaintiff into a wall during one encounter."
'TOO BIG TO NAIL'
A report at CNN (see below-jp) about a separate legal matter involving Pfizer states that the Department of Justice considered Pfizer to be "too big to nail" in an investigation of the company's illegal marketing of the painkiller drug Bextra.
CNN reports that, if Pfizer had been prosecuted over the drug, the company would have been excluded from doing business with Medicaid and Medicare. But because federal officials considered the company too big to be exempted from working with the government health programs, a dummy corporation -- Pharmacia & Upjohn Inc. -- was set up, and that dummy corporation then pleaded guilty to the crime.
"P&UCI sold no drugs and had no real employees, and its creation was simply a figleaf to allow a Pfizer entity to take the rap without harming Pfizer itself," explains Jim Edwards at the Bnet business blog.
Pfizer is the world's largest drugmaker, with annual revenue around $44 billion.
++++
Feds Found Pfizer Too Big to Nail
by Drew Griffin and Andy Segal
Imagine being charged with a crime, but an imaginary friend takes the rap for you.
When Bextra was taken off the market in 2005, more than half of its profits had come from "off-label" prescriptions.That is essentially what happened when Pfizer, the world's largest pharmaceutical company, was charged with illegally marketing Bextra, a painkiller that was taken off the market in 2005 because of safety concerns.
When the criminal case was announced last fall, federal officials touted their prosecution as a model for tough, effective enforcement. "It sends a clear message" to the pharmaceutical industry, said Kevin Perkins, assistant director of the FBI's Criminal Investigative Division.
But beyond the fanfare, a CNN Special Investigation found another story, one that officials downplayed when they declared victory. It's a story about the power major pharmaceutical companies have even when they break the laws intended to protect patients.
Big plans for Bextra
The story begins in 2001, when Bextra was about to hit the market. The drug was part of a revolutionary class of painkillers known as Cox-2 inhibitors that were supposed to be safer than generic drugs, but at 20 times the price of ibuprofen.
Pfizer and its marketing partner, Pharmacia, planned to sell Bextra as a treatment for acute pain, the kind you have after surgery.
But in November 2001, the U.S. Food and Drug Administration said Bextra was not safe for patients at high risk of heart attacks and strokes.
The FDA approved Bextra only for arthritis and menstrual cramps. It rejected the drug in higher doses for acute, surgical pain.
Promoting drugs for unapproved uses can put patients at risk by circumventing the FDA's judgment over which products are safe and effective. For that reason, "off-label" promotion is against the law.
But with billions of dollars of profits at stake, marketing and sales managers across the country nonetheless targeted anesthesiologists, foot surgeons, orthopedic surgeons and oral surgeons. "Anyone that use[d] a scalpel for a living," one district manager advised in a document prosecutors would later cite.
A manager in Florida e-mailed his sales reps a scripted sales pitch that claimed -- falsely -- that the FDA had given Bextra "a clean bill of health" all the way up to a 40 mg dose, which is twice what the FDA actually said was safe.
Doctors as pitchmen
Internal company documents show that Pfizer and Pharmacia (which Pfizer later bought) used a multimillion-dollar medical education budget to pay hundreds of doctors as speakers and consultants to tout Bextra.
Pfizer said in court that "the company's intent was pure": to foster a legal exchange of scientific information among doctors.
But an internal marketing plan called for training physicians "to serve as public relations spokespeople."
According to Lewis Morris, chief counsel to the inspector general at the U.S. Department of Health and Human Services, "They pushed the envelope so far past any reasonable interpretation of the law that it's simply outrageous."
Pfizer's chief compliance officer, Doug Lanker, said that "in a large sales force, successful sales techniques spread quickly," but that top Pfizer executives were not aware of the "significant mis-promotion issue with Bextra" until federal prosecutors began to show them the evidence.
By April 2005, when Bextra was taken off the market, more than half of its $1.7 billion in profits had come from prescriptions written for uses the FDA had rejected.
Too big to nail
But when it came to prosecuting Pfizer for its fraudulent marketing, the pharmaceutical giant had a trump card: Just as the giant banks on Wall Street were deemed too big to fail, Pfizer was considered too big to nail.
Why? Because any company convicted of a major health care fraud is automatically excluded from Medicare and Medicaid. Convicting Pfizer on Bextra would prevent the company from billing federal health programs for any of its products. It would be a corporate death sentence.
Prosecutors said that excluding Pfizer would most likely lead to Pfizer's collapse, with collateral consequences: disrupting the flow of Pfizer products to Medicare and Medicaid recipients, causing the loss of jobs including those of Pfizer employees who were not involved in the fraud, and causing significant losses for Pfizer shareholders.
"We have to ask whether by excluding the company [from Medicare and Medicaid], are we harming our patients," said Lewis Morris of the Department of Health and Human Services.
So Pfizer and the feds cut a deal. Instead of charging Pfizer with a crime, prosecutors would charge a Pfizer subsidiary, Pharmacia & Upjohn Co. Inc.
The CNN Special Investigation found that the subsidiary is nothing more than a shell company whose only function is to plead guilty.
According to court documents, Pfizer Inc. owns (a) Pharmacia Corp., which owns (b) Pharmacia & Upjohn LLC, which owns (c) Pharmacia & Upjohn Co. LLC, which in turn owns (d) Pharmacia & Upjohn Co. Inc. It is the great-great-grandson of the parent company.
Public records show that the subsidiary was incorporated in Delaware on March 27, 2007, the same day Pfizer lawyers and federal prosecutors agreed that the company would plead guilty in a kickback case against a company Pfizer had acquired a few years earlier.
As a result, Pharmacia & Upjohn Co. Inc., the subsidiary, was excluded from Medicare without ever having sold so much as a single pill. And Pfizer was free to sell its products to federally funded health programs.
An imaginary friend
Two years later, with Bextra, the shell company once again pleaded guilty. It was, in effect, Pfizer's imaginary friend stepping up to take the rap.
"It is true that if a company is created to take a criminal plea, but it's just a shell, the impact of an exclusion is minimal or nonexistent," Morris said.
Prosecutors say there was no viable alternative.
"If we prosecute Pfizer, they get excluded," said Mike Loucks, the federal prosecutor who oversaw the investigation. "A lot of the people who work for the company who haven't engaged in criminal activity would get hurt."
Did the punishment fit the crime? Pfizer says yes.
It paid nearly $1.2 billion in a criminal fine for Bextra, the largest fine the federal government has ever collected.
It paid a billion dollars more to settle a batch of civil suits -- although it denied wrongdoing -- on allegations that it illegally promoted 12 other drugs.
In all, Pfizer lost the equivalent of three months' profit.
It maintained its ability to do business with the federal government.
Pfizer says it takes responsibility for the illegal promotion of Bextra. "I can tell you, unequivocally, that Pfizer perceived the Bextra matter as an incredibly serious one," said Doug Lankler, Pfizer's chief compliance officer.
To prevent it from happening again, Pfizer has set up what it calls "leading-edge" systems to spot signs of illegal promotion by closely monitoring sales reps and tracking prescription sales.
It's not entirely voluntary. Pfizer had to sign a corporate integrity agreement with the Department of Health and Human Services. For the next five years, it requires Pfizer to disclose future payments to doctors and top executives to sign off personally that the company is obeying the law.
Pfizer says the company has learned its lesson.
But after years of overseeing similar cases against other major drug companies, even Loucks, isn't sure $2 billion in penalties is a deterrent when the profits from illegal promotion can be so large.
"I worry that the money is so great," he said, that dealing with the Department of Justice may be "just of a cost of doing business."
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