Thursday, July 5, 2012
Spiderlegs' Advances to the Next Round in the MASSPIRE Battle of the Bands Beta contest
Round Two!
Posted on July 2, 2012
Round One is at an end. The Beta Season did wonders for our faith that small artists are
capable of creating awesome things.
Here’s a List of All the Songs that Qualified:
Round Two ends on July 7th. Round Three will go from July 8th – 31st. The prize for 1st is $500.
If you wouldn't mind, folks out there, click the song link and upvote it, if you like it. I'd appreciate it.--jef
Here’s a List of All the Songs that Qualified:
- Perfectly Broken
- lyric
- hussy
- Where Are You
- Into the Fray
- Cross Walk
- The Willies
- Like Rain Like Rust
- Funkyness
- Insanity
- Mintberry Slush
- Heavy Groove
- Olive Juice
- Note From Her
- Everything
- Kristy Ray
- Already Home
- A Wavering Line
- Jackass
- Space Journey
- Grey Wool
- The Boy Left Behind
- A Piss Before Dying by Spiderlegs
- Go to Hell
- Superman
- Peyote Coyote
- Under an Atom Bonding
Round Two ends on July 7th. Round Three will go from July 8th – 31st. The prize for 1st is $500.
++++
If you wouldn't mind, folks out there, click the song link and upvote it, if you like it. I'd appreciate it.--jef
New Report on the Dangers of Genetically Modified Foods
Thursday, July 5, 2012 by Common Dreams
The myth, they say, is that GM foods have been proven safe. The truth is that there are hidden dangers which corporate-funded research has not yet adequately investigated.
What makes this report unusual is that it was authored not by the usual food activists and environmentalists, but by two well known genetic engineers with help from an investigative reporter. The team conducted an exhaustive survey of hundreds of peer-reviewed scientific studies and concluded not only that GM food crops pose significant, if largely under-evaluated, health risks, but that they have so far failed to deliver on their promise to increase crop yields and lower herbicide and pesticide use.
The authors argue, moreover, that there are already safer environmentally friendly ways to grow more food for the planet’s exploding population. By focusing on the false panacea of genetic modification as a way to feed the world’s hungry, vital research dollars have been siphoned away from more promising lower-tech approaches to increasing the efficiency of the global food system.
The report’s authors include Dr Michael Antoniou of King's College London School of Medicine in the UK, who helped to develop genetic engineering for medical applications, and John Fagan, a biomedical researcher and expert in food system sustainability and GMO testing, who returned $614,000 in grant money to the National Institutes of Health in 1994 because of his concerns about the safety and ethics of genetic modification.
The paper, produced together with Claire Robinson, research director of Earth Open Source, comes out at a critical moment as California voters are considering a referendum which will appear on their ballot in November calling for the labeling of genetically modified foods in the state. Such labeling is already mandatory in Europe, China, India and many other nations.
Seventy percent of the foods that Americans purchase in the supermarket contain ingredients (mostly corn, soy and canola oil) that are genetically modified. The food industry, and often the media, assure us that there is a scientific consensus that GM foods are equivalent nutritionally to foods that have not been modified and not a danger to those who consume them. But it is just not true that all scientists agree. Given the uncertainties in the field and the lack of long-term health studies, some groups like the American Academy of Environmental Medicine and the Union of Concerned Scientists have called for labeling of GM foods.
If Californians agrees, it could have a big impact on the rest of us. Some believe that if the labeling referendum there passes, other states may follow suit. Furthermore, as I reported in the Guardian last month, if food companies are made to label GM foods in California, the nation’s most populous state, they may well do so all over the country, rather than maintain a costly two-tier packaging and distribution system.
The food and biotech industries are expected to fight the labeling initiative with a multi-million dollar statewide PR blitz, like the one which helped to defeat a similar measure in Oregon in 2002. But nearly 90% of Americans-- Republicans and Democrats equally according to a recent survey-- want to see GMOs labeled. This latest report on the dangers of genetically engineered foods will give the referendum’s advocates valuable ammunition in the upcoming California debate.
Here are some of the conclusions of the report:
“Aren’t critics of genetically engineered food anti-science? Isn’t the debate over GMOs (genetically modified organisms) a spat between emotional but ignorant activists on one hand and rational GM-supporting scientists on the other?”These questions are posed by Earth Open Source, a not-for-profit organization dedicated to assuring the sustainability, security, and safety of the global food system. They answer their own questions in a new study “GMO Myths and Truths.”
The myth, they say, is that GM foods have been proven safe. The truth is that there are hidden dangers which corporate-funded research has not yet adequately investigated.
What makes this report unusual is that it was authored not by the usual food activists and environmentalists, but by two well known genetic engineers with help from an investigative reporter. The team conducted an exhaustive survey of hundreds of peer-reviewed scientific studies and concluded not only that GM food crops pose significant, if largely under-evaluated, health risks, but that they have so far failed to deliver on their promise to increase crop yields and lower herbicide and pesticide use.
The authors argue, moreover, that there are already safer environmentally friendly ways to grow more food for the planet’s exploding population. By focusing on the false panacea of genetic modification as a way to feed the world’s hungry, vital research dollars have been siphoned away from more promising lower-tech approaches to increasing the efficiency of the global food system.
The report’s authors include Dr Michael Antoniou of King's College London School of Medicine in the UK, who helped to develop genetic engineering for medical applications, and John Fagan, a biomedical researcher and expert in food system sustainability and GMO testing, who returned $614,000 in grant money to the National Institutes of Health in 1994 because of his concerns about the safety and ethics of genetic modification.
The paper, produced together with Claire Robinson, research director of Earth Open Source, comes out at a critical moment as California voters are considering a referendum which will appear on their ballot in November calling for the labeling of genetically modified foods in the state. Such labeling is already mandatory in Europe, China, India and many other nations.
Seventy percent of the foods that Americans purchase in the supermarket contain ingredients (mostly corn, soy and canola oil) that are genetically modified. The food industry, and often the media, assure us that there is a scientific consensus that GM foods are equivalent nutritionally to foods that have not been modified and not a danger to those who consume them. But it is just not true that all scientists agree. Given the uncertainties in the field and the lack of long-term health studies, some groups like the American Academy of Environmental Medicine and the Union of Concerned Scientists have called for labeling of GM foods.
If Californians agrees, it could have a big impact on the rest of us. Some believe that if the labeling referendum there passes, other states may follow suit. Furthermore, as I reported in the Guardian last month, if food companies are made to label GM foods in California, the nation’s most populous state, they may well do so all over the country, rather than maintain a costly two-tier packaging and distribution system.
The food and biotech industries are expected to fight the labeling initiative with a multi-million dollar statewide PR blitz, like the one which helped to defeat a similar measure in Oregon in 2002. But nearly 90% of Americans-- Republicans and Democrats equally according to a recent survey-- want to see GMOs labeled. This latest report on the dangers of genetically engineered foods will give the referendum’s advocates valuable ammunition in the upcoming California debate.
Here are some of the conclusions of the report:
- Genetically modifying crops, which involves the transfer of genes between biologically unrelated species, is not an extension of traditional plant hybridization, but a radical departure which can produce new toxins or allergens in food that are unlikely to be spotted in current regulatory checks.
- GM foods have not been adequately safety tested. There has been no long term research, and the few short term studies have been inadequate. In many cases proprietary restrictions put in place by biotech companies like Monsanto the devil have prevented independent research by scientists not connected to the corporations which are making claims about their safety.
- Animal studies of the effects of GM foods have disclosed clear signs of toxicity– notably disturbances in liver and kidney function and immune responses.
- Over 75% of genetical modification are to to increase crop tolerance of herbicides. Where these crops are grown there has been a massive increases in herbicide use.
- Over half of GM crops are engineered to withstand application of Monsanto the devil’s best selling Roundup. Contrary to the company’s claims Roundup is not safe at the levels it is being use, but has been found to be associated with miscarriage, birth defects, neurological development problems, DNA damage, and certain types of cancer. A public health crisis has occurred in GM soy-producing regions of South America, where people exposed to spraying with Roundup and other agrochemicals report escalating rates of birth defects and cancer.
- There is insufficient evidence that the BT toxin engineered into the plant structure of corn and cotton (whose seeds are used in food oil production) is safe for human consumption. Bt crops have been found to have toxic effects on laboratory animals in feeding trials. These toxins have also been found circulating in the blood of pregnant women in Canada and in the blood supply to their foetuses.
- GM crops have not been shown to offer higher crop yields, enhanced nutritional value or greater drought tolerance, as they have been hyped to do. The products of conventional breeding continue to outstrip GM in all of these arenas.
- Conventionally bred, locally adapted crops, used in combination with environmentally sustainable farming practices, offer a safer, cheaper and more efficient way to ensure global food security than genetic modification.
“Crop genetic engineering as practiced today is a crude, imprecise, and outmoded technology,” says the report's coauthor John Fagan. “Recent advances point to better ways of using our knowledge of genomics to improve food crops, that do not involve GM."
Selling patented genetically modified seeds, and the agro-chemicals designed to be used with them, has earned biotech giants like Monsanto the devil, Dupont, Bayer and Syngenta untold billions of dollars in the past two decades. But what is good for these corporate bottom lines may not be good for human health, or the integrity of the environment.
Vast Extent of Congressional 'VIP' Loans from Countrywide Financial Before Crash in Exchange for Influence
Thursday, July 5, 2012 by Common Dreams
In a report released on Thursday, the U.S. House and Government Oversight Committee has revealed how Countrywide Financial Corp sold 'VIP' loans to members of congress in exchange for influence in Washington, Associated Press reports.
In an ongoing bid to kill any legislation that could hurt the company's profits, Countrywide granted hundreds of loans between 1991 and 2008 through the VIP program, which included reduced interest rates and discounted fees, to lawmakers, their staff, top government officials and executives of government-controlled mortgage company Fannie Mae (FNMA.OB), according to the committee's report.
"The VIP loan program was a tool used by Countrywide to build goodwill with lawmakers and other individuals positioned to benefit the company," the report states.
The central findings in the report were also revealed by news reports directly after the crash, but the three-year committee investigation now shows the vast extent of the VIP program, nicknamed “Friends of Angelo” for the company’s chief executive Angelo Mozilo, how it came into existence and how it eventually became one of the biggest scandals of the recession, reports Talking Points Memo.
Countrywide, acquired by Bank of America Corp (BAC.N) in 2008, was a major player in the mortgage business during the housing boom leading up to the mortgage crisis, Reuters reports. The company and its chief executive, Angelo Mozilo, were well known for the risky lending practices which lead to the housing market crash.
The report, obtained by the Associated Press, shows how the discounts were not only aimed at gaining influence for Countrywide but also were used to help other mortgage giants.
"In the years that led up to the 2007 housing market decline, Countrywide VIPs were positioned to affect dozens of pieces of legislation that would have reformed Fannie" and its rival Freddie Mac, the committee said.
See report below.
In an ongoing bid to kill any legislation that could hurt the company's profits, Countrywide granted hundreds of loans between 1991 and 2008 through the VIP program, which included reduced interest rates and discounted fees, to lawmakers, their staff, top government officials and executives of government-controlled mortgage company Fannie Mae (FNMA.OB), according to the committee's report.
"The VIP loan program was a tool used by Countrywide to build goodwill with lawmakers and other individuals positioned to benefit the company," the report states.
The central findings in the report were also revealed by news reports directly after the crash, but the three-year committee investigation now shows the vast extent of the VIP program, nicknamed “Friends of Angelo” for the company’s chief executive Angelo Mozilo, how it came into existence and how it eventually became one of the biggest scandals of the recession, reports Talking Points Memo.
Countrywide, acquired by Bank of America Corp (BAC.N) in 2008, was a major player in the mortgage business during the housing boom leading up to the mortgage crisis, Reuters reports. The company and its chief executive, Angelo Mozilo, were well known for the risky lending practices which lead to the housing market crash.
The report, obtained by the Associated Press, shows how the discounts were not only aimed at gaining influence for Countrywide but also were used to help other mortgage giants.
"In the years that led up to the 2007 housing market decline, Countrywide VIPs were positioned to affect dozens of pieces of legislation that would have reformed Fannie" and its rival Freddie Mac, the committee said.
See report below.
* * *
* * *
Countrywide VIP Report By House Oversight Committee
# # #
EU Defeats ACTA
Wednesday, July 4, 2012 by Common Dreams
ACTA, the controversial online piracy treaty, was dealt a blow on Wednesday when the European Parliament voted overwhelmingly to reject it.
The European Parliament voted 478 to 39 against the Anti-Counterfeiting Trade Agreement, which was drawn up in secret and had been protested by hundreds of thousands across the EU who saw the treaty as an infringement on internet freedom.
President of the European Parliament Martin Schulz welcomed the decision and stated that "ACTA is the wrong solution to fight online piracy." He said that the treaty negotiations had lacked transparency and acknowledged the massive public mobilizations against the treaty.
"The majority of the parliament is of the opinion that ACTA is too vague - leaving room for abuses and raising concerns about its impact on privacy and civil liberties, on innovation, creativity and the free flow of information," wrote Schulz.
"We have to take all possible measures to fight piracy, but this should never be done at the cost of what has made the internet one of the most revolutionary technologies in history: the EP wants the web to remain free and open," he added.
Civil liberties advocates including Pirate Party leader Loz Kaye also welcomed the decision. "The European Parliament vote is a triumph of democracy over special interests and shady back-room deals. This is a significant victory for digital rights, and it's thanks to the tireless work of activists and grass roots organizations, including the Pirate Party world wide. Without this opposition, our representatives would have waved this agreement through. It is now clear that it is becoming increasingly politically poisonous to be 'anti-internet'," Kaye said.
With this vote, there is no possibility of EU ratification, leaving the future of the treaty uncertain.
European Parliament votes against controversial Anti-Counterfeiting Trade Agreement
ACTA, the controversial online piracy treaty, was dealt a blow on Wednesday when the European Parliament voted overwhelmingly to reject it.
The European Parliament voted 478 to 39 against the Anti-Counterfeiting Trade Agreement, which was drawn up in secret and had been protested by hundreds of thousands across the EU who saw the treaty as an infringement on internet freedom.
President of the European Parliament Martin Schulz welcomed the decision and stated that "ACTA is the wrong solution to fight online piracy." He said that the treaty negotiations had lacked transparency and acknowledged the massive public mobilizations against the treaty.
"The majority of the parliament is of the opinion that ACTA is too vague - leaving room for abuses and raising concerns about its impact on privacy and civil liberties, on innovation, creativity and the free flow of information," wrote Schulz.
"We have to take all possible measures to fight piracy, but this should never be done at the cost of what has made the internet one of the most revolutionary technologies in history: the EP wants the web to remain free and open," he added.
Civil liberties advocates including Pirate Party leader Loz Kaye also welcomed the decision. "The European Parliament vote is a triumph of democracy over special interests and shady back-room deals. This is a significant victory for digital rights, and it's thanks to the tireless work of activists and grass roots organizations, including the Pirate Party world wide. Without this opposition, our representatives would have waved this agreement through. It is now clear that it is becoming increasingly politically poisonous to be 'anti-internet'," Kaye said.
With this vote, there is no possibility of EU ratification, leaving the future of the treaty uncertain.
Token Fine for GlaxoSmithKline Won't Stop BigPharma's Bad Behavior: Watchdog
Tuesday, July 3, 2012 by Common Dreams
Pharmaceutical mammoth GlaxoSmithKline (GSK) has been ordered to pay $3 billion fine
in what is described as the largest case of healthcare fraud in U.S.
history. But critics say it is just as a slap on the wrist as the amount
"pales in comparison" to the profits pharmaceutical companies earn and
does nothing to preclude such further behavior from big pharma.
GSK, which had $44 billion in sales and a net profit of nearly $9 billion in 2011, faces the fine for marketing its antidepressants Paxil and Wellbutrin for non-FDA-approved purposes, including marketing them to children, and for withholding from the FDA safety information for its diabetes drug Avandia.
Deputy U.S. Attorney General James Cole said, "At every level, we are determined to stop practices that jeopardize patients' health; harm taxpayers; and violate the public trust — and this historic action is a clear warning to any company that chooses to break the law," he said.
But Dr. Sidney Wolfe, Director of Public Citizen’s Health Research Group, states that this is in no way a "clear warning."
"The fines imposed on pharmaceutical companies for dangerous and illegal conduct pale in comparison to the profits generated from such activity. The industry is therefore tacitly encouraged to continue its illegal activity," Wolfe said in a statement.
"Until more meaningful penalties and the prospect of jail time for company heads who are responsible for such activity become commonplace, companies will continue defrauding the government and putting patients’ lives in danger," added Wolfe.
Economist Dean Baker notes that GSK's lying about its drugs' safety and uses was incentivized by the monopolies drug companies are allowed to have. "This is the incentive that we give to drug companies when the government grants patent monopolies that allow them to sell drugs for hundreds or even thousands of times the cost of production."
GSK, which had $44 billion in sales and a net profit of nearly $9 billion in 2011, faces the fine for marketing its antidepressants Paxil and Wellbutrin for non-FDA-approved purposes, including marketing them to children, and for withholding from the FDA safety information for its diabetes drug Avandia.
Deputy U.S. Attorney General James Cole said, "At every level, we are determined to stop practices that jeopardize patients' health; harm taxpayers; and violate the public trust — and this historic action is a clear warning to any company that chooses to break the law," he said.
But Dr. Sidney Wolfe, Director of Public Citizen’s Health Research Group, states that this is in no way a "clear warning."
"The fines imposed on pharmaceutical companies for dangerous and illegal conduct pale in comparison to the profits generated from such activity. The industry is therefore tacitly encouraged to continue its illegal activity," Wolfe said in a statement.
"Until more meaningful penalties and the prospect of jail time for company heads who are responsible for such activity become commonplace, companies will continue defrauding the government and putting patients’ lives in danger," added Wolfe.
Economist Dean Baker notes that GSK's lying about its drugs' safety and uses was incentivized by the monopolies drug companies are allowed to have. "This is the incentive that we give to drug companies when the government grants patent monopolies that allow them to sell drugs for hundreds or even thousands of times the cost of production."
Tuesday, July 3, 2012
Where the Money Lives
For all Mitt Romney’s touting of his business record, when it comes to his own money the Republican nominee is remarkably shy about disclosing numbers and investments. Nicholas Shaxson delves into the murky world of offshore finance, revealing loopholes that allow the very wealthy to skirt tax laws, and investigating just how much of Romney’s fortune (with $30 million in Bain Capital funds in the Cayman Islands alone?) looks pretty strange for a presidential candidate.
By Nicholas Shaxson - VANITY FAIRE
By Nicholas Shaxson - VANITY FAIRE
A person who worked for Mitt Romney at
the consulting firm Bain and Co. in 1977 remembers him with mixed
feelings. “Mitt was … a really wonderful boss,” the former employee
says. “He was nice, he was fair, he was logical, he said what he wanted …
he was really encouraging.” But Bain and Co., the person recalls,
pushed employees to find out secret revenue and sales data on its
clients’ competitors. Romney, the person says, suggested “falsifying”
who they were to get such information, by pretending to be a graduate
student working on a project at Harvard. (The person, in fact, was a
Harvard student, at Bain for the summer, but not working on any such
projects.) “Mitt said to me something like ‘We won’t ask you to lie. I
am not going to tell you to do this, but [it is] a really good way to
get the information.’ … I would not have had anything in my analysis if I
had not pretended.
“It was a strange atmosphere. It did leave a bad taste in your mouth,” the former employee recalls.
This unsettling account suggests the young Romney—at that point only two years out of Harvard Business School—was willing to push into gray areas when it came to business. More than three decades later, as he tried to nail down the Republican nomination for president of the United States, Romney’s gray areas were again an issue when he repeatedly resisted calls to release more details of his net worth, his tax returns, and the large investments and assets held by him and his wife, Ann. Finally the other Republican candidates forced him to do so, but only highly selective disclosures were forthcoming.
Even so, these provided a lavish smorgasbord for Romney’s critics. Particularly jarring were the Romneys’ many offshore accounts. As Newt Gingrich put it during the primary season, “I don’t know of any American president who has had a Swiss bank account.” But Romney has, as well as other interests in such tax havens as Bermuda and the Cayman Islands.
To give but one example, there is a Bermuda-based entity called Sankaty High Yield Asset Investors Ltd., which has been described in securities filings as “a Bermuda corporation wholly owned by W. Mitt Romney.” It could be that Sankaty is an old vehicle with little importance, but Romney appears to have treated it rather carefully. He set it up in 1997, then transferred it to his wife’s newly created blind trust on January 1, 2003, the day before he was inaugurated as Massachusetts’s governor. The director and president of this entity is R. Bradford Malt, the trustee of the blind trust and Romney’s personal lawyer.
Romney failed to list this entity on several financial disclosures, even though such a closely held entity would not qualify as an “excepted investment fund” that would not need to be on his disclosure forms. He finally included it on his 2010 tax return. Even after examining that return, we have no idea what is in this company, but it could be valuable, meaning that it is possible Romney’s wealth is even greater than previous estimates. While the Romneys’ spokespeople insist that the couple has paid all the taxes required by law, investments in tax havens such as Bermuda raise many questions, because they are in “jurisdictions where there is virtually no tax and virtually no compliance,” as one Miami-based offshore lawyer put it.
That’s not the only money Romney has in tax havens. Because of his retirement deal with Bain Capital, his finances are still deeply entangled with the private-equity firm that he founded and spun off from Bain and Co. in 1984. Though he left the firm in 1999, Romney has continued to receive large payments from it—in early June he revealed more than $2 million in new Bain income. The firm today has at least 138 funds organized in the Cayman Islands, and Romney himself has personal interests in at least 12, worth as much as $30 million, hidden behind controversial confidentiality disclaimers. Again, the Romney campaign insists he saves no tax by using them, but there is no way to check this.
Bain Capital is the heart of Romney’s fortune: it was the financial engine that created it. The mantra of his campaign is that he was a businessman who created tens of thousands of jobs, and Bain certainly did bring useful operational skills to many companies it bought. But his critics point to several cases where Bain bought companies, loaded them with debt, and paid itself extravagant fees, thereby bankrupting the companies and destroying tens of thousands of jobs.
Come August, Romney, with an estimated net worth as high as $250 million (he won’t reveal the exact amount), will be one of the richest people ever to be nominated for president. Given his reticence to discuss his wealth, it’s only natural to wonder how he got it, how he invests it, and if he pays all his taxes on it.
Ironically, it was Mitt’s father, George Romney, who released 12 years of tax returns, in November 1967, just ahead of his presidential campaign, thereby setting a precedent that nearly every presidential candidate since has either willingly or unwillingly been subject to. George, then the governor of Michigan, explained why he was releasing so many years’ worth, saying, “One year could be a fluke, perhaps done for show.”
But his son declined to release any returns through one unsuccessful race for the U.S. Senate, in 1994, one successful run for Massachusetts governor, in 2002, and an aborted bid for the Republican Party presidential nomination, in 2008. Just before the Iowa caucus last December, Mitt told MSNBC, “I don’t intend to release the tax returns. I don’t,” but finally, on January 24, 2012—after intense goading by fellow Republican candidates Newt Gingrich and Rick Perry—he released his 2010 tax return and an estimate for 2011.
These, plus the mandatory financial disclosures filed with the Office of Government Ethics and released last August, raise many questions. A full 55 pages in his 2010 return are devoted to reporting his transactions with foreign entities. “What Romney does not get,” says Jack Blum, a veteran Washington lawyer and offshore expert, “is that this stuff is weird.”
The media soon noticed Romney’s familiarity with foreign tax havens. A $3 million Swiss bank account appeared in the 2010 returns, then winked out of existence in 2011 after the trustee closed it, as if to remind us of George Romney’s warning that one or two tax returns can provide a misleading picture. Ed Kleinbard, a professor of tax law at the University of Southern California, says the Swiss account “has political but not tax-policy resonance,” since it—like many other Romney investments—constituted a bet against the U.S. dollar, an odd thing for a presidential candidate to do. The Obama campaign provided a helpful world map pointing to the tax havens Bermuda, Luxembourg, and the Cayman Islands, where Romney and his family have assets, each with the tagline “Value: not disclosed in tax returns.”
Romney’s personal tax rate is a particular point of interest. In 2010 and 2011, Mitt and Ann paid $6.2 million in federal tax on $42.5 million in income, for an average tax rate just shy of 15 percent, substantially less than what most middle-income Americans pay. Romney manages this low rate because he takes his payments from Bain Capital as investment income, which is taxed at a maximum 15 percent, instead of the 35 percent he would pay on “ordinary” income, such as salaries and wages. Many tax experts argue that the form of remuneration he receives, known as carried interest, is really just a fee charged by investment managers, so it should instead be taxed at the 35 percent rate.
Lee Sheppard, a contributing editor at the trade publication Tax Notes, whose often controversial articles are read widely by tax professionals, is nonplussed that the Obama campaign has been so listless on the issue of carried interest. “Romney is the poster boy, the best argument, for taxing this profit share as ordinary income,” says Sheppard.
In the face of such arguments, Romney’s defense is that he never broke the rules: if there is a problem, it is in the laws, not in his behavior. “I pay all the taxes that are legally required, not a dollar more,” he said. Even so. “When you are running for president, you might want to err on the side of overpaying your taxes, and not chase every tax gimmick that comes down the pike,” says Sheppard. “It kind of looks tacky.”
“It was a strange atmosphere. It did leave a bad taste in your mouth,” the former employee recalls.
This unsettling account suggests the young Romney—at that point only two years out of Harvard Business School—was willing to push into gray areas when it came to business. More than three decades later, as he tried to nail down the Republican nomination for president of the United States, Romney’s gray areas were again an issue when he repeatedly resisted calls to release more details of his net worth, his tax returns, and the large investments and assets held by him and his wife, Ann. Finally the other Republican candidates forced him to do so, but only highly selective disclosures were forthcoming.
Even so, these provided a lavish smorgasbord for Romney’s critics. Particularly jarring were the Romneys’ many offshore accounts. As Newt Gingrich put it during the primary season, “I don’t know of any American president who has had a Swiss bank account.” But Romney has, as well as other interests in such tax havens as Bermuda and the Cayman Islands.
To give but one example, there is a Bermuda-based entity called Sankaty High Yield Asset Investors Ltd., which has been described in securities filings as “a Bermuda corporation wholly owned by W. Mitt Romney.” It could be that Sankaty is an old vehicle with little importance, but Romney appears to have treated it rather carefully. He set it up in 1997, then transferred it to his wife’s newly created blind trust on January 1, 2003, the day before he was inaugurated as Massachusetts’s governor. The director and president of this entity is R. Bradford Malt, the trustee of the blind trust and Romney’s personal lawyer.
Romney failed to list this entity on several financial disclosures, even though such a closely held entity would not qualify as an “excepted investment fund” that would not need to be on his disclosure forms. He finally included it on his 2010 tax return. Even after examining that return, we have no idea what is in this company, but it could be valuable, meaning that it is possible Romney’s wealth is even greater than previous estimates. While the Romneys’ spokespeople insist that the couple has paid all the taxes required by law, investments in tax havens such as Bermuda raise many questions, because they are in “jurisdictions where there is virtually no tax and virtually no compliance,” as one Miami-based offshore lawyer put it.
That’s not the only money Romney has in tax havens. Because of his retirement deal with Bain Capital, his finances are still deeply entangled with the private-equity firm that he founded and spun off from Bain and Co. in 1984. Though he left the firm in 1999, Romney has continued to receive large payments from it—in early June he revealed more than $2 million in new Bain income. The firm today has at least 138 funds organized in the Cayman Islands, and Romney himself has personal interests in at least 12, worth as much as $30 million, hidden behind controversial confidentiality disclaimers. Again, the Romney campaign insists he saves no tax by using them, but there is no way to check this.
Bain Capital is the heart of Romney’s fortune: it was the financial engine that created it. The mantra of his campaign is that he was a businessman who created tens of thousands of jobs, and Bain certainly did bring useful operational skills to many companies it bought. But his critics point to several cases where Bain bought companies, loaded them with debt, and paid itself extravagant fees, thereby bankrupting the companies and destroying tens of thousands of jobs.
Come August, Romney, with an estimated net worth as high as $250 million (he won’t reveal the exact amount), will be one of the richest people ever to be nominated for president. Given his reticence to discuss his wealth, it’s only natural to wonder how he got it, how he invests it, and if he pays all his taxes on it.
Ironically, it was Mitt’s father, George Romney, who released 12 years of tax returns, in November 1967, just ahead of his presidential campaign, thereby setting a precedent that nearly every presidential candidate since has either willingly or unwillingly been subject to. George, then the governor of Michigan, explained why he was releasing so many years’ worth, saying, “One year could be a fluke, perhaps done for show.”
But his son declined to release any returns through one unsuccessful race for the U.S. Senate, in 1994, one successful run for Massachusetts governor, in 2002, and an aborted bid for the Republican Party presidential nomination, in 2008. Just before the Iowa caucus last December, Mitt told MSNBC, “I don’t intend to release the tax returns. I don’t,” but finally, on January 24, 2012—after intense goading by fellow Republican candidates Newt Gingrich and Rick Perry—he released his 2010 tax return and an estimate for 2011.
These, plus the mandatory financial disclosures filed with the Office of Government Ethics and released last August, raise many questions. A full 55 pages in his 2010 return are devoted to reporting his transactions with foreign entities. “What Romney does not get,” says Jack Blum, a veteran Washington lawyer and offshore expert, “is that this stuff is weird.”
The media soon noticed Romney’s familiarity with foreign tax havens. A $3 million Swiss bank account appeared in the 2010 returns, then winked out of existence in 2011 after the trustee closed it, as if to remind us of George Romney’s warning that one or two tax returns can provide a misleading picture. Ed Kleinbard, a professor of tax law at the University of Southern California, says the Swiss account “has political but not tax-policy resonance,” since it—like many other Romney investments—constituted a bet against the U.S. dollar, an odd thing for a presidential candidate to do. The Obama campaign provided a helpful world map pointing to the tax havens Bermuda, Luxembourg, and the Cayman Islands, where Romney and his family have assets, each with the tagline “Value: not disclosed in tax returns.”
Romney’s personal tax rate is a particular point of interest. In 2010 and 2011, Mitt and Ann paid $6.2 million in federal tax on $42.5 million in income, for an average tax rate just shy of 15 percent, substantially less than what most middle-income Americans pay. Romney manages this low rate because he takes his payments from Bain Capital as investment income, which is taxed at a maximum 15 percent, instead of the 35 percent he would pay on “ordinary” income, such as salaries and wages. Many tax experts argue that the form of remuneration he receives, known as carried interest, is really just a fee charged by investment managers, so it should instead be taxed at the 35 percent rate.
Lee Sheppard, a contributing editor at the trade publication Tax Notes, whose often controversial articles are read widely by tax professionals, is nonplussed that the Obama campaign has been so listless on the issue of carried interest. “Romney is the poster boy, the best argument, for taxing this profit share as ordinary income,” says Sheppard.
In the face of such arguments, Romney’s defense is that he never broke the rules: if there is a problem, it is in the laws, not in his behavior. “I pay all the taxes that are legally required, not a dollar more,” he said. Even so. “When you are running for president, you might want to err on the side of overpaying your taxes, and not chase every tax gimmick that comes down the pike,” says Sheppard. “It kind of looks tacky.”
The assertion that he broke no laws is widely accepted. But it is
worth asking if it is actually true. The answer, in fact, isn’t
straightforward. Romney, like the superhero who whirls and backflips
unscathed through a web of laser beams while everyone else gets zapped,
is certainly a remarkable financial acrobat. But careful analysis of his
financial and business affairs also reveals a man who, like some other
Wall Street titans, seems comfortable striding into some fuzzy gray
zones.
One
might perhaps accept an explanation by Romney’s campaign spokeswoman,
Andrea Saul, that the candidate’s failure to include his Swiss account
in earlier financial disclosures was merely a “trivial inadvertent
issue.” But deeper questions do emerge.
All the assets on Mitt’s financial disclosures are in blind trusts or retirement accounts held by him and Ann. Blind trusts are designed to avoid conflicts of interest for those in public office by having politicians’ assets managed by independent trustees. The Romneys’ blind trust was created when Mitt was elected governor of Massachusetts. Curiously, the Romneys appointed Bradford Malt as their trustee. It’s certainly true that under Malt the trusts don’t appear to be as blind as they might be: for instance, in 2010 the Romneys invested $10 million in the start-up of the Solamere Founders Fund, co-founded by their eldest son, Tagg, and Spencer Zwick, Romney’s onetime top campaign fund-raiser; Solamere is now in the Ann Romney blind trust. Malt has said he invested in Solamere without consulting Mitt or Ann and explained he liked Solamere because of its diversified approach and because he knew the founders and had confidence in them.
Likewise, the Romneys were reported to have invested at least $1 million in Elliott Associates, L.P., a hedge fund specializing in “distressed assets.” Elliott buys up cheap debt, often at cents on the dollar, from lenders to deeply troubled nations such as Congo-Brazzaville, then attacks the debtor states with lawsuits to squeeze maximum repayment. Elliott is run by the secretive hedge-fund billionaire and G.O.P. super-donor Paul Singer, whom Fortune recently dubbed Mitt Romney’s “Hedge Fund Kingmaker.” (Singer has given $1 million to Romney’s super-pac Restore Our Future.)
It is hard to know the size of these investments. Romney’s financial disclosure form lists 25 of them in an open-ended category, “Over $1 million,” including Solamere and Elliott, and they are not broken down further. Romney hides behind a disclaimer that the fund managers “declined to provide such information” about their underlying assets. Many of these funds are set up in tax havens such as the Cayman Islands, where a confidentiality law states that you can be jailed for up to four years just for asking about such information.
Andrea Saul said of these investments, “Everything … was reported correctly.” Joseph Sandler, a Democratic lawyer who has worked with candidates on disclosures for more than two decades, is skeptical. “The law is the law,” Sandler says. “[Romney] says, ‘Well, you know, they won’t tell me.’ But when you run for office in the U.S. and are not prepared to comply with disclosure requirements, you should either divest yourself of the assets or don’t run.” The Washington Post summarized the opinions of experts across the political spectrum by saying Romney’s disclosures were “the most opaque they have encountered.”
Mysteries also arise when one looks at Romney’s individual retirement account at Bain Capital. When Romney was there, from 1984 to 1999, taxpayers were allowed to put just $2,000 per year into an I.R.A., and $30,000 annually into a different kind of plan he may have used. Given these annual contribution ceilings, how can his I.R.A. possibly contain up to $102 million, as his financial disclosures now suggest?
The Romneys won’t say, but Mark Maremont, writing in The Wall Street Journal, uncovered a likely explanation. When Bain Capital bought companies, it would create two classes of shares, named A and L. The A shares were risky common shares, to which they would assign a very low value. The L shares were preferred shares, paying a high dividend but with the payoff frozen, and most of the value was assigned to them. Bain employees would then put the exciting A shares in their I.R.A. accounts, where they grew tax-free. With all the risk of the deal, the A shares stood to gain a lot or collapse. But if the deal succeeded, the springing value could be stunning: Bain employees saw their A shares from one particularly fruitful deal grow 583-fold, 16 times faster than the underlying stock.
The Romneys won’t tell us how, or even if, they assigned super-low values to the A shares, but there are a couple of ways to do it. One is to use standard options models to price the shares—then feed inappropriate assumptions into those models. Romney could alternatively have used a model called liquidation valuation, which Kleinbard says would have been “completely inappropriate.” Without seeing the assumptions used on Romney’s tax returns from the years when those lowball A shares were squirted into his I.R.A., we cannot know how he did it. Whatever methods he used, however, the valuations were, according to Andrew Smith, of Houlihan Capital in Chicago, “pushing the envelope.” (Andrea Saul retorts, “Why should successful investments be criticized?”)
Mitt’s and Ann’s I.R.A.’s have also been receiving profit interest from (mostly Cayman Island–based) Bain Capital funds that were set up long after he had left the company, in 1999. For example, the 2010 return reveals a profits interest in a Cayman-based fund called Bain Capital Partners (AM) X LP, which was transferred to the Ann D. Romney trust in October 2010. An attachment to the return says the Ann D. Romney trust is “performing services” to the partnership, which is boilerplate language for these kinds of filings. Her blind trust could receive lightly taxed income from Bain Capital for years to come, well into the presidential term her husband hopes to win.
But administrative guidance says you can do this kind of thing only if the compensation is in recognition of past services you have provided. “This should not mean retired from the mother ship 10 years out and getting profits you had nothing to do with,” Sheppard says, adding that Romney can get away with it because of excessive “administrative indulgences” that have allowed a “perversion of the law in favor of a small class of overcompensated investment managers.”
Romney’s I.R.A. also appears to have invested in so-called blocker corporations in the Cayman Islands and elsewhere. U.S. pension funds, foundations, and even I.R.A.’s routinely use offshore blocker corporations to avoid something called the Unrelated Business Income Tax, which was designed to keep nonprofits from competing with ordinary companies in areas outside their core purpose: if you invest directly you get hit with the tax, but if you invest in a blocker, which then invests in the U.S. business, you escape it. Romney’s I.R.A. appears to have employed this lawful escape route, and his campaign has used language suggesting that it has. But that would mean the Romney camp’s claim that Mitt’s tax consequences of investing via the Cayman Islands is “the very same” as it would have been had he invested directly at home is simply not true. (Romney spokesperson Andrea Saul says Romney “gets the same benefit anyone would get from an I.R.A.,” but she did not respond to questions on whether his I.R.A. had used blockers or avoided taxes by investing via tax havens.)
A Deutsche Bank analysis of 68 Bain deals Romney was involved in calculated an internal rate of return—a standard private-equity benchmark—at a staggering 88 percent annually (though after fees and inflation, investor performance may have been little more than half that). It is substantially on this stellar record that Romney is now running for president. His work at Bain was unquestionably good for himself and for Bain, but was it also good for the businesses he acquired, for their workers, and for the economy, as he claims?
A report by Bain and Co. itself, looking at the period from 2002 to 2007, concluded that there is “little evidence that private equity owners, overall, added value” to the companies they took over: nearly all their returns are explained by broad economic growth, rising stock markets, and leverage. Josh Kosman, who researched the subject of private equity for his book The Buyout of America, singles out Bain Capital in particular. “They take pride in pushing the leverage envelope [i.e., use of borrowed money, which magnifies returns, while off-loading the risks onto others] more than their peers,” he says. “I have heard that from limited partners in Bain’s funds. I have heard that from bankers who lend money to finance their leveraged buyouts. Bain always prided itself on ‘We’ll push leverage more than the others.’ They brag about that, behind closed doors.”
The Caped Avoider!
All the assets on Mitt’s financial disclosures are in blind trusts or retirement accounts held by him and Ann. Blind trusts are designed to avoid conflicts of interest for those in public office by having politicians’ assets managed by independent trustees. The Romneys’ blind trust was created when Mitt was elected governor of Massachusetts. Curiously, the Romneys appointed Bradford Malt as their trustee. It’s certainly true that under Malt the trusts don’t appear to be as blind as they might be: for instance, in 2010 the Romneys invested $10 million in the start-up of the Solamere Founders Fund, co-founded by their eldest son, Tagg, and Spencer Zwick, Romney’s onetime top campaign fund-raiser; Solamere is now in the Ann Romney blind trust. Malt has said he invested in Solamere without consulting Mitt or Ann and explained he liked Solamere because of its diversified approach and because he knew the founders and had confidence in them.
Likewise, the Romneys were reported to have invested at least $1 million in Elliott Associates, L.P., a hedge fund specializing in “distressed assets.” Elliott buys up cheap debt, often at cents on the dollar, from lenders to deeply troubled nations such as Congo-Brazzaville, then attacks the debtor states with lawsuits to squeeze maximum repayment. Elliott is run by the secretive hedge-fund billionaire and G.O.P. super-donor Paul Singer, whom Fortune recently dubbed Mitt Romney’s “Hedge Fund Kingmaker.” (Singer has given $1 million to Romney’s super-pac Restore Our Future.)
It is hard to know the size of these investments. Romney’s financial disclosure form lists 25 of them in an open-ended category, “Over $1 million,” including Solamere and Elliott, and they are not broken down further. Romney hides behind a disclaimer that the fund managers “declined to provide such information” about their underlying assets. Many of these funds are set up in tax havens such as the Cayman Islands, where a confidentiality law states that you can be jailed for up to four years just for asking about such information.
Andrea Saul said of these investments, “Everything … was reported correctly.” Joseph Sandler, a Democratic lawyer who has worked with candidates on disclosures for more than two decades, is skeptical. “The law is the law,” Sandler says. “[Romney] says, ‘Well, you know, they won’t tell me.’ But when you run for office in the U.S. and are not prepared to comply with disclosure requirements, you should either divest yourself of the assets or don’t run.” The Washington Post summarized the opinions of experts across the political spectrum by saying Romney’s disclosures were “the most opaque they have encountered.”
Mysteries also arise when one looks at Romney’s individual retirement account at Bain Capital. When Romney was there, from 1984 to 1999, taxpayers were allowed to put just $2,000 per year into an I.R.A., and $30,000 annually into a different kind of plan he may have used. Given these annual contribution ceilings, how can his I.R.A. possibly contain up to $102 million, as his financial disclosures now suggest?
The Romneys won’t say, but Mark Maremont, writing in The Wall Street Journal, uncovered a likely explanation. When Bain Capital bought companies, it would create two classes of shares, named A and L. The A shares were risky common shares, to which they would assign a very low value. The L shares were preferred shares, paying a high dividend but with the payoff frozen, and most of the value was assigned to them. Bain employees would then put the exciting A shares in their I.R.A. accounts, where they grew tax-free. With all the risk of the deal, the A shares stood to gain a lot or collapse. But if the deal succeeded, the springing value could be stunning: Bain employees saw their A shares from one particularly fruitful deal grow 583-fold, 16 times faster than the underlying stock.
The Romneys won’t tell us how, or even if, they assigned super-low values to the A shares, but there are a couple of ways to do it. One is to use standard options models to price the shares—then feed inappropriate assumptions into those models. Romney could alternatively have used a model called liquidation valuation, which Kleinbard says would have been “completely inappropriate.” Without seeing the assumptions used on Romney’s tax returns from the years when those lowball A shares were squirted into his I.R.A., we cannot know how he did it. Whatever methods he used, however, the valuations were, according to Andrew Smith, of Houlihan Capital in Chicago, “pushing the envelope.” (Andrea Saul retorts, “Why should successful investments be criticized?”)
Mitt’s and Ann’s I.R.A.’s have also been receiving profit interest from (mostly Cayman Island–based) Bain Capital funds that were set up long after he had left the company, in 1999. For example, the 2010 return reveals a profits interest in a Cayman-based fund called Bain Capital Partners (AM) X LP, which was transferred to the Ann D. Romney trust in October 2010. An attachment to the return says the Ann D. Romney trust is “performing services” to the partnership, which is boilerplate language for these kinds of filings. Her blind trust could receive lightly taxed income from Bain Capital for years to come, well into the presidential term her husband hopes to win.
But administrative guidance says you can do this kind of thing only if the compensation is in recognition of past services you have provided. “This should not mean retired from the mother ship 10 years out and getting profits you had nothing to do with,” Sheppard says, adding that Romney can get away with it because of excessive “administrative indulgences” that have allowed a “perversion of the law in favor of a small class of overcompensated investment managers.”
Romney’s I.R.A. also appears to have invested in so-called blocker corporations in the Cayman Islands and elsewhere. U.S. pension funds, foundations, and even I.R.A.’s routinely use offshore blocker corporations to avoid something called the Unrelated Business Income Tax, which was designed to keep nonprofits from competing with ordinary companies in areas outside their core purpose: if you invest directly you get hit with the tax, but if you invest in a blocker, which then invests in the U.S. business, you escape it. Romney’s I.R.A. appears to have employed this lawful escape route, and his campaign has used language suggesting that it has. But that would mean the Romney camp’s claim that Mitt’s tax consequences of investing via the Cayman Islands is “the very same” as it would have been had he invested directly at home is simply not true. (Romney spokesperson Andrea Saul says Romney “gets the same benefit anyone would get from an I.R.A.,” but she did not respond to questions on whether his I.R.A. had used blockers or avoided taxes by investing via tax havens.)
A Deutsche Bank analysis of 68 Bain deals Romney was involved in calculated an internal rate of return—a standard private-equity benchmark—at a staggering 88 percent annually (though after fees and inflation, investor performance may have been little more than half that). It is substantially on this stellar record that Romney is now running for president. His work at Bain was unquestionably good for himself and for Bain, but was it also good for the businesses he acquired, for their workers, and for the economy, as he claims?
A report by Bain and Co. itself, looking at the period from 2002 to 2007, concluded that there is “little evidence that private equity owners, overall, added value” to the companies they took over: nearly all their returns are explained by broad economic growth, rising stock markets, and leverage. Josh Kosman, who researched the subject of private equity for his book The Buyout of America, singles out Bain Capital in particular. “They take pride in pushing the leverage envelope [i.e., use of borrowed money, which magnifies returns, while off-loading the risks onto others] more than their peers,” he says. “I have heard that from limited partners in Bain’s funds. I have heard that from bankers who lend money to finance their leveraged buyouts. Bain always prided itself on ‘We’ll push leverage more than the others.’ They brag about that, behind closed doors.”
Dade Behring is a cause célèbre for
Romney’s and Bain’s critics, and it illustrates the leverage problem
clearly. In 1994, Bain bought Dade International, a medical-diagnostics
company, then added the medical-diagnostics division of DuPont in 1996
and a German medical-testing company called Behring in 1997. Former Dade
president Bob Brightfelt says the operation started well: the Bain
managers were “pretty smart guys,” he recalls, and they did well cutting
out overlap, and exploiting synergies.
Then brutal cost cutting began. Bain cut R&D spending to an average of 8 percent of sales, a little more than half what its competitors were doing. Cindy Hewitt, Dade’s human-resources manager, remembers how the firm closed a Puerto Rico plant in 1998, a year after harvesting $7.1 million in local tax breaks aimed at job creation, and relocated some staff to Miami, then the company’s most profitable plant. Based on reassurances she had received from her superiors, she told those uprooting themselves from Puerto Rico that their jobs in Miami were safe for now—but then Bain closed the Miami plant. “Whether you want to call it misled, or lied, or manipulated, I do not believe they provided full information about what discussions were under way,” she says. “I would never want to be part of even unintentionally treating people so poorly.”
Bain engaged in startling penny-pinching with the laid-off employees. Their contracts stipulated that if they left early they would have to pay back the costs of relocating to Miami—but in spite of all that Dade had done to them, it refused to release the employees from this clause. “They said they would go after them for that money if they left before Bain was finished with them,” Hewitt recalls. Not only that, but the company declined to give workers their severance pay in lump sums to help them fund their return home.
In 1999, generous pensions were converted into less generous benefits, wages were cut, and more staff members were laid off. Some employees contacted Norman Stein, then the director of the pension-counseling clinic at the University of Alabama law school, with a view to challenging the conversions. Stein says the employees were “extraordinarily nervous,” so fearful, in fact, that they refused to let lawyers even make copies of pension documents. “I have been dealing with pensions issues for over 25 years and I never saw anything like this,” recalls Stein. The spooked employees did not go to court. Stein says that, while breaking pension contracts like this was not unheard of, the practice at that time was “questionable,” adding that Dade may have saved $10 to $40 million from converting its pensions.
The beauty—or savagery—of leverage is that it can magnify any and all cash-flow boosts, such as this one. Take $10 to $40 million squeezed from a pension pot, then use that to create new, rosier financial projections to borrow several times that amount, and then pay yourself a big special dividend from the borrowed funds, many times the size of the pension savings. That is just what Bain Capital did: the same month it converted the pensions, it created new financial projections as a basis to borrow an extra $421 million—from which Bain, its co-investor Goldman Sachs, and top Dade management extracted $365 million in dividends. According to Kosman, “Bain and Goldman—after putting down only $85 million … made out like bandits—a $280 million profit.” Dade’s debt rose to more than $870 million. Romney had left operational management of Bain that year, though his disclosures show that he owned 16.5 percent of the Bain partnership responsible for the Dade investment until at least 2001.
Quite soon, however, a fragile Dade faced adverse conditions in the currency markets, and it had to start in effect cannibalizing itself, cutting into the core of its business. It filed for bankruptcy in August 2002 and Bain Capital departed. When Dade emerged from bankruptcy, its new owners invested in long-term R&D, and it flourished again.
Nor was this an isolated incident: Kosman lists five other “formerly healthy” companies—Stage Stores, Ampad, GS Technologies, Details, and KB Toys—Bain helped drive into bankruptcy, while making big profits.
(Despite numerous entreaties from Vanity Fair to Bain Capital to address on the record points in this article with which it might disagree, the firm refused to do so and instead provided this statement: “When politics overwhelm fact, some will distort or cherry-pick our record and launch unfounded allegations and insinuations. The truth and the full record show that Bain Capital operates with high standards of integrity and excellence in compliance with all laws. Any suggestion to the contrary is baseless.”)
The
term “financialization” describes two interlocking processes: a
disproportionate growth in a country’s deregulated financial sector,
relative to the rest of the economy, and the rising importance of
financial activities with a focus on financial returns among industrial
and other non-financial corporations, often at the expense of real
innovation and productivity.
Some see the rising influence of finance and financial models in epochal terms. Author of Financialization and the U.S. Economy Özgür Orhangazi summarizes academic literature that sees financialization “as one of the indicators of the decline of the hegemonic power”: imperial Venice, Genoa, Holland, and Britain all saw their power rise on the back of productive industrial capitalism, followed by domination by the financial sector, which eventually began to cannibalize the productive sector in pursuit of financial returns—a process that ended in weakness and collapse.
Little noticed in the academic discussions of financialization is the role of offshore tax havens, one of the big reasons the financial sector has become so powerful. In 1966, Michael Hudson, a young Chase Manhattan balance-of-payments economist, was in a company elevator when he was handed a memo by a former State Department operative. The memo came from the U.S. government, and Hudson was tasked with figuring out how much foreign money the U.S. might attract. “They were saying, ‘We want to replace Switzerland,’ ” Hudson explains. “All this money will come here if we make this the criminal center of the world. We wanted foreign criminal money, which was patriotic, but not American criminal money.”
In the years since then, almost unknown to most Americans, the United States has turned itself into a giant tax haven for foreigners, just as the memo suggested. Federal and state tax laws have been deliberately shaped to give foreigners special tax exemptions unavailable to Americans, plus financial secrecy and exemptions from regulatory restraints. “We have criticized offshore tax havens for their secrecy and lack of transparency,” said Senator Carl Levin. “But look what is going on in our own backyard.”
In this grand scenario, tax havens such as the Caymans serve as feeders of foreign savings into Tax Haven U.S.A. from abroad, providing foreign investors with additional ways to skip around tax, disclosure, and regulatory requirements that they might trigger if they invested directly.
The money sucked into Tax Haven U.S.A., often via the “feeder” tax havens, is frequently tax-evading and other criminal foreign money, in the spirit of Hudson’s 1966 memo, and it is predominantly channeled not into productive investment but into real estate and financial business.
One cannot properly understand Wall Street’s size and power without appreciating the central role of offshore tax havens. There is absolutely no evidence that Bain has done anything illegal, but private equity is one channel for this secrecy-shrouded foreign money to enter the United States, and a filing for Mitt Romney’s first $37 million Bain Capital Fund, of 1984, provides a rare window into this. One foreign investor, of $2 million, was the newspaper tycoon, tax evader, and fraudster Robert Maxwell, who fell from his yacht, and drowned, off of the Canary Islands in 1991 in strange circumstances, after looting his company’s pension fund. The Bain filing also names Eduardo Poma, a member of one of the “14 families” oligarchy that has controlled most of El Salvador’s wealth for decades; oddly, Poma is listed as sharing a Miami address with two anonymous companies that invested $1.5 million between them. The filings also show a Geneva-based trustee overseeing a trust that invested $2.5 million, a Bahamas corporation that put in $3 million, and three corporations in the tax haven of Panama, historically a favored destination for Latin-American dirty money—“one of the filthiest money-laundering sinks in the world,” as a U.S. Customs official once put it.
Then brutal cost cutting began. Bain cut R&D spending to an average of 8 percent of sales, a little more than half what its competitors were doing. Cindy Hewitt, Dade’s human-resources manager, remembers how the firm closed a Puerto Rico plant in 1998, a year after harvesting $7.1 million in local tax breaks aimed at job creation, and relocated some staff to Miami, then the company’s most profitable plant. Based on reassurances she had received from her superiors, she told those uprooting themselves from Puerto Rico that their jobs in Miami were safe for now—but then Bain closed the Miami plant. “Whether you want to call it misled, or lied, or manipulated, I do not believe they provided full information about what discussions were under way,” she says. “I would never want to be part of even unintentionally treating people so poorly.”
Bain engaged in startling penny-pinching with the laid-off employees. Their contracts stipulated that if they left early they would have to pay back the costs of relocating to Miami—but in spite of all that Dade had done to them, it refused to release the employees from this clause. “They said they would go after them for that money if they left before Bain was finished with them,” Hewitt recalls. Not only that, but the company declined to give workers their severance pay in lump sums to help them fund their return home.
In 1999, generous pensions were converted into less generous benefits, wages were cut, and more staff members were laid off. Some employees contacted Norman Stein, then the director of the pension-counseling clinic at the University of Alabama law school, with a view to challenging the conversions. Stein says the employees were “extraordinarily nervous,” so fearful, in fact, that they refused to let lawyers even make copies of pension documents. “I have been dealing with pensions issues for over 25 years and I never saw anything like this,” recalls Stein. The spooked employees did not go to court. Stein says that, while breaking pension contracts like this was not unheard of, the practice at that time was “questionable,” adding that Dade may have saved $10 to $40 million from converting its pensions.
The beauty—or savagery—of leverage is that it can magnify any and all cash-flow boosts, such as this one. Take $10 to $40 million squeezed from a pension pot, then use that to create new, rosier financial projections to borrow several times that amount, and then pay yourself a big special dividend from the borrowed funds, many times the size of the pension savings. That is just what Bain Capital did: the same month it converted the pensions, it created new financial projections as a basis to borrow an extra $421 million—from which Bain, its co-investor Goldman Sachs, and top Dade management extracted $365 million in dividends. According to Kosman, “Bain and Goldman—after putting down only $85 million … made out like bandits—a $280 million profit.” Dade’s debt rose to more than $870 million. Romney had left operational management of Bain that year, though his disclosures show that he owned 16.5 percent of the Bain partnership responsible for the Dade investment until at least 2001.
Quite soon, however, a fragile Dade faced adverse conditions in the currency markets, and it had to start in effect cannibalizing itself, cutting into the core of its business. It filed for bankruptcy in August 2002 and Bain Capital departed. When Dade emerged from bankruptcy, its new owners invested in long-term R&D, and it flourished again.
Nor was this an isolated incident: Kosman lists five other “formerly healthy” companies—Stage Stores, Ampad, GS Technologies, Details, and KB Toys—Bain helped drive into bankruptcy, while making big profits.
(Despite numerous entreaties from Vanity Fair to Bain Capital to address on the record points in this article with which it might disagree, the firm refused to do so and instead provided this statement: “When politics overwhelm fact, some will distort or cherry-pick our record and launch unfounded allegations and insinuations. The truth and the full record show that Bain Capital operates with high standards of integrity and excellence in compliance with all laws. Any suggestion to the contrary is baseless.”)
Tax Haven U.S.A.
Some see the rising influence of finance and financial models in epochal terms. Author of Financialization and the U.S. Economy Özgür Orhangazi summarizes academic literature that sees financialization “as one of the indicators of the decline of the hegemonic power”: imperial Venice, Genoa, Holland, and Britain all saw their power rise on the back of productive industrial capitalism, followed by domination by the financial sector, which eventually began to cannibalize the productive sector in pursuit of financial returns—a process that ended in weakness and collapse.
Little noticed in the academic discussions of financialization is the role of offshore tax havens, one of the big reasons the financial sector has become so powerful. In 1966, Michael Hudson, a young Chase Manhattan balance-of-payments economist, was in a company elevator when he was handed a memo by a former State Department operative. The memo came from the U.S. government, and Hudson was tasked with figuring out how much foreign money the U.S. might attract. “They were saying, ‘We want to replace Switzerland,’ ” Hudson explains. “All this money will come here if we make this the criminal center of the world. We wanted foreign criminal money, which was patriotic, but not American criminal money.”
In the years since then, almost unknown to most Americans, the United States has turned itself into a giant tax haven for foreigners, just as the memo suggested. Federal and state tax laws have been deliberately shaped to give foreigners special tax exemptions unavailable to Americans, plus financial secrecy and exemptions from regulatory restraints. “We have criticized offshore tax havens for their secrecy and lack of transparency,” said Senator Carl Levin. “But look what is going on in our own backyard.”
In this grand scenario, tax havens such as the Caymans serve as feeders of foreign savings into Tax Haven U.S.A. from abroad, providing foreign investors with additional ways to skip around tax, disclosure, and regulatory requirements that they might trigger if they invested directly.
The money sucked into Tax Haven U.S.A., often via the “feeder” tax havens, is frequently tax-evading and other criminal foreign money, in the spirit of Hudson’s 1966 memo, and it is predominantly channeled not into productive investment but into real estate and financial business.
One cannot properly understand Wall Street’s size and power without appreciating the central role of offshore tax havens. There is absolutely no evidence that Bain has done anything illegal, but private equity is one channel for this secrecy-shrouded foreign money to enter the United States, and a filing for Mitt Romney’s first $37 million Bain Capital Fund, of 1984, provides a rare window into this. One foreign investor, of $2 million, was the newspaper tycoon, tax evader, and fraudster Robert Maxwell, who fell from his yacht, and drowned, off of the Canary Islands in 1991 in strange circumstances, after looting his company’s pension fund. The Bain filing also names Eduardo Poma, a member of one of the “14 families” oligarchy that has controlled most of El Salvador’s wealth for decades; oddly, Poma is listed as sharing a Miami address with two anonymous companies that invested $1.5 million between them. The filings also show a Geneva-based trustee overseeing a trust that invested $2.5 million, a Bahamas corporation that put in $3 million, and three corporations in the tax haven of Panama, historically a favored destination for Latin-American dirty money—“one of the filthiest money-laundering sinks in the world,” as a U.S. Customs official once put it.
Bain Capital has said it did everything required by the U.S.
government to check that the investors were not associated with unsavory
interests. U.S. law doesn’t require Bain to enforce the tax laws of its
investors’ home countries, but the presence of Swiss trustees, Bahamas
trusts, and Panama corporations would raise red flags with any tax
authority.
Many Americans might react with a shrug to the idea of shady foreign money such as Robert Maxwell’s being invested here. But, says Rebecca Wilkins, of the Washington, D.C.–based nonprofit Citizens for Tax Justice, “It is shocking that a presidential candidate should think that is O.K.”
Many Americans might react with a shrug to the idea of shady foreign money such as Robert Maxwell’s being invested here. But, says Rebecca Wilkins, of the Washington, D.C.–based nonprofit Citizens for Tax Justice, “It is shocking that a presidential candidate should think that is O.K.”
Government-sponsored study destroys DEA’s classification of marijuana
By Stephen C. Webster - RAW Story
While numerous prior studies have shown marijuana’s usefulness for a host of medical conditions, none have ever gone directly at the DEA’s placement of marijuana atop the schedule of controlled substances. This study, sponsored by the State of California and conducted at the University of California Center for Medicinal Cannabis Research, does precisely that, driving a stake into the heart of America’s continued war on marijuana users by calling the Schedule I placement simply “not accurate” and “not tenable.”
Reacting to the study, Paul Armentano, director of the National Organization for the Reform of Marijuana Laws (NORML), told Raw Story that the study clearly proves U.S. drug policy “is neither based upon nor guided by science.”
“In fact, it is hostile to science,” he said. “And despite the Obama Administration’s well publicized 2009 memo stating, ‘Science and the scientific process must inform and guide decisions of my Administration,’ there is little to no evidence indicating that the federal government’s ‘See no evil; hear no evil’ approach to cannabis policy is not changing any time soon.”
Schedule I is supposedly reserved for the most inebriating substances that have no medical value, like LSD, ecstasy, peyote and heroin. As the DEA describes it: “Drugs listed in schedule I have no currently accepted medical use in treatment in the United States and, therefore, may not be prescribed, administered, or dispensed for medical use. In contrast, drugs listed in schedules II-V have some accepted medical use and may be prescribed, administered, or dispensed for medical use.”
And that’s the problem, the study’s authors portend.
“The classification of marijuana as a Schedule I drug as well as the continuing controversy as to whether or not cannabis is of medical value are obstacles to medical progress in this area,” they wrote. “Based on evidence currently available, the Schedule I classification is not tenable; it is not accurate that cannabis has no medical value, or that information on safety is lacking. It is true cannabis has some abuse potential, but its profile more closely resembles drugs in Schedule III (where codeine and dronabinol are listed). The continuing conflict between scientific evidence and political ideology will hopefully be reconciled in a judicious manner.”
They add that their evidence showed marijuana reliably reduced chronic neuropathic pain and muscle spasticity due to multiple sclerosis versus trials where a placebo was used. They also specifically tested marijuana’s effects when smoked, calling the delivery method “rapid and efficient” but noting that vaporization is a better choice because it produces less carbon monoxide.
The study adds that, like all medicines, there are negative side effects associated with marijuana, such as dizziness, fatigue, lightheadedness, muscle weakness and pain and heart palpitations — all of which can pose a risk in some chronic pain patients with co-occurring conditions like cardiovascular disease or substance abuse disorders. However, they call these side effects “dose-related” and “of mild to moderate severity,” adding that they “appear to decline over time, and are reported less frequently in experienced than in naïve users.”
Researchers also noted that “fatal overdose with cannabis alone has not been reported.”
Authors additionally found that marijuana does cause withdrawal symptoms within 12 hours of use, noting the symptoms are mild in experienced users and typically abate within 72 hours. They added that ingesting marijuana “can acutely impair skills required to drive motor vehicles,” but noted that the data on marijuana and traffic accidents is “inconclusive.”
Ultimately, they concluded that more clinical trials are needed to determine which individual components of the marijuana plant are causing the medicinal effects, and whether the plant can be used to treat a host of other ailments.
“Medical marijuana is mostly used for chronic pain, and has enabled countless patients to either reduce or eliminate their pharmaceutical drug regimen,” Kris Hermes, a spokesman for Americans for Safe Access (ASA), one of the nation’s leading medical marijuana advocacy groups, told Raw Story. “However, it can also be used for: arthritis, nausea or as an appetite stimulant for people living with HIV/AIDS or cancer, gastrointestinal disorders, and movement disorders (not just for people with multiple sclerosis). That is only a sampling of health conditions for which cannabis has been found helpful in alleviating symptoms. Other health conditions include: [post-traumatic stress disorder], [attention deficit disorder], [attention deficit hyperactivity disorder] and other mental health conditions, glaucoma, and migraines.”
In hopes of forcing recognition of marijuana’s medical value, ASA sued the federal government last year after a long-running appeal for the reclassification of marijuana was shot down nearly a decade after it was filed. That case should go before the U.S. Court of Appeals District of Columbia Circuit later this year.
“The federal government’s strategy has been delay, delay, delay,” ASA chief counsel Joe Elford said in an advisory. “It is far past time for the government to answer our rescheduling petition, but unfortunately we’ve been forced to go to court in order to get resolution.”
“Reform advocates can and should use this study to show their congressional representatives that our country’s leading medical marijuana researchers agree that it should be reclassified,” Hermes added. “…This certainly should also have a bearing on the D.C. Circuit’s deliberations in the appeal of the rescheduling petition denial.”
Medical marijuana is currently legal in just 17 states and Washington, D.C.
GlaxoSmithKline settles healthcare fraud case for $3 billion
By David Ingram - Reuters
WASHINGTON (Reuters) – GlaxoSmithKline Plc agreed to plead guilty to misdemeanor criminal charges and pay $3 billion to settle what government officials on Monday described as the largest case of healthcare fraud in U.S. history.
The agreement, which still needs court approval, would resolve allegations that the British drugmaker broke U.S. laws in the marketing and development of pharmaceuticals.
GSK targeted the antidepressant Paxil to patients under age 18 when it was approved for adults only, and it pushed the drug Wellbutrin for uses it was not approved for, including weight loss and treatment of sexual dysfunction (one of its side effects is sexual dysfunction), according to an investigation led by the U.S. Justice Department.
The company went to extreme lengths to promote the drugs, such as distributing a misleading medical journal article and providing doctors with meals and spa treatments that amounted to illegal kickbacks, prosecutors said.
In a third instance, GSK failed to give the U.S. Food and Drug Administration safety data about its diabetes drug Avandia, in violation of U.S. law, prosecutors said.
The misconduct continued for years beginning in the late 1990s and continued, in the case of Avandia’s safety data, through 2007. GSK agreed to plead guilty to three misdemeanor criminal counts, one each related to the three drugs.
Guilty pleas in cases of alleged corporate misconduct are exceedingly rare, making GSK’s agreement especially unusual.
The agreement to settle the charges “is unprecedented in both size and scope,” said James Cole, the No. 2 official at the U.S. Justice Department. He called the action “historic” and “a clear warning to any company that chooses to break the law.”
The settlement includes $1 billion in criminal fines and $2 billion in civil fines.
GSK said in a statement it would pay the fines through existing cash resources. The company announced a $3 billion charge in November related to legal claims [ID:nL5E7M315A].
NEW ‘ERA’ AT GSK
Chief Executive Officer Andrew Witty said the misconduct originated “in a different era for the company” and will not be tolerated. “I want to express our regret and reiterate that we have learnt from the mistakes that were made,” he said in a written statement.
The GSK settlement surpasses what had been the largest criminal case involving a drugmaker in U.S. history. In 2009, Pfizer Inc agreed to pay $2.3 billion to settle allegations it improperly marketed 13 drugs.
The cases follow a trend of U.S. authorities cracking down on how pharmaceuticals are sold, in part because of the rising cost of providing drugs through government programs.
Part of civil fines address allegations that, from 1994 to 2003, GSK underpaid money owed to Medicaid, the healthcare program for the poor run jointly by states and the federal government. The company had an obligation to tell the government its “best prices” but failed to do so, prosecutors said, and $300 million of the settlement will go to states and other public health authorities.
A portion of the $2 billion in civil fines may go to a group of whistleblowers who contributed to the government’s investigation and who are eligible to share in the recovery under the False Claims Act. Cole said the amount has not been determined.
‘INTEGRITY’ PLAN
As part of the settlement, GlaxoSmithKline agreed to new restrictions by the U.S. government to prevent the use of kickbacks or other prohibited practices. The inspector general of the U.S. Department of Health and Human Services will oversee the “Corporate Integrity Agreement” for five years.
The company will not be able to compensate its salesmen based on sales goals for territories. It was also required to change its executive compensation program to allow the company to “claw back” certain pay for those engaged in misconduct.
Witty said GSK’s U.S. unit has “fundamentally changed our procedures for compliance, marketing and selling. When necessary, we have removed employees who have engaged in misconduct.”
Prosecutors have not brought criminal charges against any individuals in connection with the GSK case, although the settlement expressly leaves open that possibility. Cole declined to comment on the possibility of future charges.
Almost exactly a year ago GSK agreed to pay nearly $41 million to 37 states and the District of Columbia in an unrelated case about substandard manufacturing processes at a Puerto Rico factory.
In 2010, the company took a $2.4 billion charge in connection with Avandia to settle claims from patients.
GSK’s shares were positive on the New York Stock Exchange on Monday, up 1.6 percent to $46.29 at 1400 EDT.
The case is U.S. v. GlaxoSmithKline LLC, U.S. District Court for the District of Massachusetts, No. 12-cr-10206.
Monday, July 2, 2012
Some Outrageous Facts about Inequality
Monday, July 2, 2012 by Common Dreams
by Paul Buchheit
Studying inequality in America reveals some facts that are truly hard to believe. Amidst all the absurdity a few stand out.
1. U.S. companies in total pay a smaller percentage of taxes than the lowest-income 20% of Americans.
Total corporate profits for 2011 were $1.97 trillion. Corporations paid $181 billion in federal taxes (9%) and $40 billion in state taxes (2%), for a total tax burden of 11%. The poorest 20% of American citizens pay 17.4% in federal, state, and local taxes.
2. The high-profit, tax-avoiding tech industry was built on publicly-funded research.
The technology sector has been more dependent on government research and development than any other industry. The U.S. government provided about half of the funding for basic research in technology and communications well into the 1980s. Even today, federal grants support about 60 percent of research performed at universities.
IBM was founded in 1911, Hewlett-Packard in 1947, Intel in 1968, Microsoft in 1975, Apple and Oracle in 1977, Cisco in 1984. All relied on government and military innovations. The more recently incorporated Google, which started in 1996, grew out of the Defense Department's ARPANET system and the National Science Foundation's Digital Library Initiative.
The combined 2011 federal tax payment for the eight companies was just 10.6%.
3. The sales tax on a quadrillion dollars of financial sales is ZERO.
The Bank for International Settlements reported in 2008 that total annual derivatives trades were $1.14 quadrillion. The same year, the Chicago Mercantile Exchange reported a trading volume of $1.2 quadrillion.
A quadrillion dollars is the entire world economy, 12 times over. It's enough to give 3 million dollars to every person in the United States. But in a sense it's not real money. Most of it is high-volume nanosecond computer trading, the type that almost crashed our economy. So it's a good candidate for a tiny sales tax. But there is no sales tax.
Go out and buy shoes or an iPhone and you pay up to a 10% sales tax. But walk over to Wall Street and buy a million dollar high-risk credit default swap and pay 0%.
4. Many Americans get just a penny on the dollar.
The United Nations estimates that $30 billion per year is needed to eradicate hunger. Several individuals have more than this amount in personal wealth.
There are 925 million people in the world with insufficient food. According to the World Food Program, it takes about $100 a year to feed a human being. That's $92 billion, about equal to the fortune of the six Wal-Mart heirs.
One Final Outrage...
In 2007 a hedge fund manager (John Paulson) conspired with a financial company (Goldman Sachs) to create packages of risky subprime mortgages, so that in anticipation of a housing crash he could use other people's money to bet against his personally designed sure-to-fail financial instruments. His successful gamble paid him $3.7 billion. Three years later he made another $5 billion, which in the real world would have been enough to pay the salaries of 100,000 health care workers.
As an added insult to middle-class taxpayers, the tax rate on most of Paulson's income was just 15%. As a double insult, he may have paid no tax at all, since hedge fund profits can be deferred indefinitely. As a triple insult, some of his payoff came from the middle-class taxpayers themselves, who bailed out the company (AIG) that had to pay off his bets.
And the people we elect to protect our interests are unable or unwilling to do anything about it.
1. U.S. companies in total pay a smaller percentage of taxes than the lowest-income 20% of Americans.
Total corporate profits for 2011 were $1.97 trillion. Corporations paid $181 billion in federal taxes (9%) and $40 billion in state taxes (2%), for a total tax burden of 11%. The poorest 20% of American citizens pay 17.4% in federal, state, and local taxes.
2. The high-profit, tax-avoiding tech industry was built on publicly-funded research.
The technology sector has been more dependent on government research and development than any other industry. The U.S. government provided about half of the funding for basic research in technology and communications well into the 1980s. Even today, federal grants support about 60 percent of research performed at universities.
IBM was founded in 1911, Hewlett-Packard in 1947, Intel in 1968, Microsoft in 1975, Apple and Oracle in 1977, Cisco in 1984. All relied on government and military innovations. The more recently incorporated Google, which started in 1996, grew out of the Defense Department's ARPANET system and the National Science Foundation's Digital Library Initiative.
The combined 2011 federal tax payment for the eight companies was just 10.6%.
3. The sales tax on a quadrillion dollars of financial sales is ZERO.
The Bank for International Settlements reported in 2008 that total annual derivatives trades were $1.14 quadrillion. The same year, the Chicago Mercantile Exchange reported a trading volume of $1.2 quadrillion.
A quadrillion dollars is the entire world economy, 12 times over. It's enough to give 3 million dollars to every person in the United States. But in a sense it's not real money. Most of it is high-volume nanosecond computer trading, the type that almost crashed our economy. So it's a good candidate for a tiny sales tax. But there is no sales tax.
Go out and buy shoes or an iPhone and you pay up to a 10% sales tax. But walk over to Wall Street and buy a million dollar high-risk credit default swap and pay 0%.
4. Many Americans get just a penny on the dollar.
5. Our society allows one man or one family to possess enough money to feed EVERY hungry person on earth.
- For every dollar of NON-HOME wealth owned by white families, people of color have only one cent.
- For every dollar the richest .1% earned in 1980, they've added three more dollars. The poorest 90% have added one cent.
- For every dollar of financial securities (e.g., bonds) in the U.S., the bottom 90% of Americans have a penny and a half's worth.
- For every dollar of 2008-2010 profits from Boeing, DuPont, Wells Fargo, Verizon, General Electric, and Dow Chemicals, the American public got a penny in taxes.
The United Nations estimates that $30 billion per year is needed to eradicate hunger. Several individuals have more than this amount in personal wealth.
There are 925 million people in the world with insufficient food. According to the World Food Program, it takes about $100 a year to feed a human being. That's $92 billion, about equal to the fortune of the six Wal-Mart heirs.
One Final Outrage...
In 2007 a hedge fund manager (John Paulson) conspired with a financial company (Goldman Sachs) to create packages of risky subprime mortgages, so that in anticipation of a housing crash he could use other people's money to bet against his personally designed sure-to-fail financial instruments. His successful gamble paid him $3.7 billion. Three years later he made another $5 billion, which in the real world would have been enough to pay the salaries of 100,000 health care workers.
As an added insult to middle-class taxpayers, the tax rate on most of Paulson's income was just 15%. As a double insult, he may have paid no tax at all, since hedge fund profits can be deferred indefinitely. As a triple insult, some of his payoff came from the middle-class taxpayers themselves, who bailed out the company (AIG) that had to pay off his bets.
And the people we elect to protect our interests are unable or unwilling to do anything about it.
There Is an Alternative to Capitalism: Mondragon Shows the Way
Monday, June 25, 2012 by The Guardian/UK
Why are we told a broken system that creates vast inequality is the only choice? Spain's amazing co-op is living proof otherwise
by Richard Wolff
Why are we told a broken system that creates vast inequality is the only choice? Spain's amazing co-op is living proof otherwise
by Richard Wolff
There is no alternative ("Tina") to capitalism?
Really? We are to believe, with Margaret Thatcher, that an economic system with endlessly repeated cycles, costly bailouts for financiers and now austerity for most people is the best human beings can do? Capitalism's recurring tendencies toward extreme and deepening inequalities of income, wealth, and political and cultural power require resignation and acceptance – because there is no alternative?
I understand why such a system's leaders would like us to believe in Tina. But why would others?
Of course, alternatives exist; they always do. Every society chooses – consciously or not, democratically or not – among alternative ways to organize the production and distribution of the goods and services that make individual and social life possible.
Modern societies have mostly chosen a capitalist organization of production. In capitalism, private owners establish enterprises and select their directors who decide what, how and where to produce and what to do with the net revenues from selling the output. This small handful of people makes all those economic decisions for the majority of people – who do most of the actual productive work. The majority must accept and live with the results of all the directorial decisions made by the major shareholders and the boards of directors they select. This latter also select their own replacements.
Capitalism thus entails and reproduces a highly undemocratic organization of production inside enterprises. Tina believers insist that no alternatives to such capitalist organizations of production exist or could work nearly so well, in terms of outputs, efficiency, and labor processes. The falsity of that claim is easily shown. Indeed, I was shown it a few weeks ago and would like to sketch it for you here.
In May 2012, I had occasion to visit the city of Arrasate-Mondragon, in the Basque region of Spain. It is the headquarters of the Mondragon Corporation (MC), a stunningly successful alternative to the capitalist organization of production.
MC is composed of many co-operative enterprises grouped into four areas: industry, finance, retail and knowledge. In each enterprise, the co-op members (averaging 80-85% of all workers per enterprise) collectively own and direct the enterprise. Through an annual general assembly the workers choose and employ a managing director and retain the power to make all the basic decisions of the enterprise (what, how and where to produce and what to do with the profits).
As each enterprise is a constituent of the MC as a whole, its members must confer and decide with all other enterprise members what general rules will govern MC and all its constituent enterprises. In short, MC worker-members collectively choose, hire and fire the directors, whereas in capitalist enterprises the reverse occurs. One of the co-operatively and democratically adopted rules governing the MC limits top-paid worker/members to earning 6.5 times the lowest-paid workers. Nothing more dramatically demonstrates the differences distinguishing this from the capitalist alternative organization of enterprises. (In US corporations, CEOs can expect to be paid 400 times an average worker's salary – a rate that has increased 20-fold since 1965.)
Given that MC has 85,000 members (from its 2010 annual report), its pay equity rules can and do contribute to a larger society with far greater income and wealth equality than is typical in societies that have chosen capitalist organizations of enterprises. Over 43% of MC members are women, whose equal powers with male members likewise influence gender relations in society different from capitalist enterprises.
MC displays a commitment to job security I have rarely encountered in capitalist enterprises: it operates across, as well as within, particular cooperative enterprises. MC members created a system to move workers from enterprises needing fewer to those needing more workers – in a remarkably open, transparent, rule-governed way and with associated travel and other subsidies to minimize hardship. This security-focused system has transformed the lives of workers, their families, and communities, also in unique ways.
The MC rule that all enterprises are to source their inputs from the best and least-costly producers – whether or not those are also MC enterprises – has kept MC at the cutting edge of new technologies. Likewise, the decision to use of a portion of each member enterprise's net revenue as a fund for research and development has funded impressive new product development. R&D within MC now employs 800 people with a budget over $75m. In 2010, 21.4% of sales of MC industries were new products and services that did not exist five years earlier. In addition, MC established and has expanded Mondragon University; it enrolled over 3,400 students in its 2009-2010 academic year, and its degree programs conform to the requirements of the European framework of higher education. Total student enrollment in all its educational centers in 2010 was 9,282.
The largest corporation in the Basque region, MC is also one of Spain's top ten biggest corporations (in terms of sales or employment). Far better than merely surviving since its founding in 1956, MC has grown dramatically. Along the way, it added a co-operative bank, Caja Laboral (holding almost $25bn in deposits in 2010). And MC has expanded internationally, now operating over 77 businesses outside Spain. MC has proven itself able to grow and prosper as an alternative to – and competitor of – capitalist organizations of enterprise.
During my visit, in random encounters with workers who answered my questions about their jobs, powers, and benefits as cooperative members, I found a familiarity with and sense of responsibility for the enterprise as a whole that I associate only with top managers and directors in capitalist enterprises. The easy conversation (including disagreement), for instance, between assembly-line workers and top managers inside the Fagor washing-machine factory we inspected was similarly remarkable.
Our MC host on the visit reminded us twice that theirs is a co-operative business with all sorts of problems:
Really? We are to believe, with Margaret Thatcher, that an economic system with endlessly repeated cycles, costly bailouts for financiers and now austerity for most people is the best human beings can do? Capitalism's recurring tendencies toward extreme and deepening inequalities of income, wealth, and political and cultural power require resignation and acceptance – because there is no alternative?
I understand why such a system's leaders would like us to believe in Tina. But why would others?
Of course, alternatives exist; they always do. Every society chooses – consciously or not, democratically or not – among alternative ways to organize the production and distribution of the goods and services that make individual and social life possible.
Modern societies have mostly chosen a capitalist organization of production. In capitalism, private owners establish enterprises and select their directors who decide what, how and where to produce and what to do with the net revenues from selling the output. This small handful of people makes all those economic decisions for the majority of people – who do most of the actual productive work. The majority must accept and live with the results of all the directorial decisions made by the major shareholders and the boards of directors they select. This latter also select their own replacements.
Capitalism thus entails and reproduces a highly undemocratic organization of production inside enterprises. Tina believers insist that no alternatives to such capitalist organizations of production exist or could work nearly so well, in terms of outputs, efficiency, and labor processes. The falsity of that claim is easily shown. Indeed, I was shown it a few weeks ago and would like to sketch it for you here.
In May 2012, I had occasion to visit the city of Arrasate-Mondragon, in the Basque region of Spain. It is the headquarters of the Mondragon Corporation (MC), a stunningly successful alternative to the capitalist organization of production.
MC is composed of many co-operative enterprises grouped into four areas: industry, finance, retail and knowledge. In each enterprise, the co-op members (averaging 80-85% of all workers per enterprise) collectively own and direct the enterprise. Through an annual general assembly the workers choose and employ a managing director and retain the power to make all the basic decisions of the enterprise (what, how and where to produce and what to do with the profits).
As each enterprise is a constituent of the MC as a whole, its members must confer and decide with all other enterprise members what general rules will govern MC and all its constituent enterprises. In short, MC worker-members collectively choose, hire and fire the directors, whereas in capitalist enterprises the reverse occurs. One of the co-operatively and democratically adopted rules governing the MC limits top-paid worker/members to earning 6.5 times the lowest-paid workers. Nothing more dramatically demonstrates the differences distinguishing this from the capitalist alternative organization of enterprises. (In US corporations, CEOs can expect to be paid 400 times an average worker's salary – a rate that has increased 20-fold since 1965.)
Given that MC has 85,000 members (from its 2010 annual report), its pay equity rules can and do contribute to a larger society with far greater income and wealth equality than is typical in societies that have chosen capitalist organizations of enterprises. Over 43% of MC members are women, whose equal powers with male members likewise influence gender relations in society different from capitalist enterprises.
MC displays a commitment to job security I have rarely encountered in capitalist enterprises: it operates across, as well as within, particular cooperative enterprises. MC members created a system to move workers from enterprises needing fewer to those needing more workers – in a remarkably open, transparent, rule-governed way and with associated travel and other subsidies to minimize hardship. This security-focused system has transformed the lives of workers, their families, and communities, also in unique ways.
The MC rule that all enterprises are to source their inputs from the best and least-costly producers – whether or not those are also MC enterprises – has kept MC at the cutting edge of new technologies. Likewise, the decision to use of a portion of each member enterprise's net revenue as a fund for research and development has funded impressive new product development. R&D within MC now employs 800 people with a budget over $75m. In 2010, 21.4% of sales of MC industries were new products and services that did not exist five years earlier. In addition, MC established and has expanded Mondragon University; it enrolled over 3,400 students in its 2009-2010 academic year, and its degree programs conform to the requirements of the European framework of higher education. Total student enrollment in all its educational centers in 2010 was 9,282.
The largest corporation in the Basque region, MC is also one of Spain's top ten biggest corporations (in terms of sales or employment). Far better than merely surviving since its founding in 1956, MC has grown dramatically. Along the way, it added a co-operative bank, Caja Laboral (holding almost $25bn in deposits in 2010). And MC has expanded internationally, now operating over 77 businesses outside Spain. MC has proven itself able to grow and prosper as an alternative to – and competitor of – capitalist organizations of enterprise.
During my visit, in random encounters with workers who answered my questions about their jobs, powers, and benefits as cooperative members, I found a familiarity with and sense of responsibility for the enterprise as a whole that I associate only with top managers and directors in capitalist enterprises. The easy conversation (including disagreement), for instance, between assembly-line workers and top managers inside the Fagor washing-machine factory we inspected was similarly remarkable.
Our MC host on the visit reminded us twice that theirs is a co-operative business with all sorts of problems:
"We are not some paradise, but rather a family of co-operative enterprises struggling to build a different kind of life around a different way of working."Nonetheless, given the performance of Spanish capitalism these days – 25% unemployment, a broken banking system, and government-imposed austerity (as if there were no alternative to that either) – MC seems a welcome oasis in a capitalist desert.
Gov. Gary Johnson challenges the two-party system with Libertarian presidential bid
Kerri Connolly -- CurrentTV
July 2, 2012
In a presidential campaign with more media coverage than ever before, one of the more surprising stories of this election might be the story no one is telling about Gary Johnson.
Who? Start here: Gary Johnson is running for president.
The usual third parties need not apply here, so throw out your Independents and Greens and get back to basics: liberty.
Thanks to Ron Paul, Libertarian ideals aren’t new to this campaign. But unlike Ron Paul, who touts Libertarian-leaning policies under a Republican flag, Johnson is actually running as a member of the Libertarian Party, which advocates for minimalist government interference and great personal freedoms for citizens. The former two-term governor of New Mexico calls his platform a collection of common-sense policies that appeal to what most Americans believe: a combination of financial frugality and unconstricted civil liberties. Johnson says he is more fiscally conservative than Romney and more socially accepting than Obama.
So where has he been all this time? Well, luck seems to have something to do with it.
Despite the fact that he was the first Republican to announce his intentions to run for presidential office, he’s had a tough time telling anyone about it. An early burn from CNN kept him out of the second Republican debate (Johnson was not invited, though CNN has not made public the reason for the rebuff). After a lackluster fall, in December 2011 he announced he was switching parties and entered the race as the Libertarian candidate (the party designated him its official nominee in May).
In April, he was polling at 6 percent, compared with President Obama’s 47 percent and presumptive Republican nominee Mitt Romney’s 42 percent.
If elected, Johnson says that he will:
Governor Johnson’s ideas might sound out there, but he’ll be the first to say that he’s got the record to back it up. He was elected governer of New Mexico as a Republican by an electorate in which registered Democrats outnumber Republicans by roughly 2-to-1. Third party indeed.
- Recall all troops from abroad. An act that would mean an end to the American presence in Afghanistan, but also in peaceful countries throughout Europe where military bases and resources have been cached.
- Terminate the Department of Education. Johnson says the money currently being given to the Cabinet-level institution would be better spent by the states.
- Abolish the IRS. Johnson aims to do away with the current tax code in favor of a “fair tax” that would be based on consumption rather than income.
- End the so-called war on drugs by legalizing marijuana.
- Support gay rights and pro-choice causes.
- Cut federal spending across the board to the tune of 43 percent.
Is there even a point to running in a race where he stands almost no chance of winning? Johnson says yes, and that the voice of those supporting the kind of policies he and Ron Paul support will be lost when Romney accepts the official mantle of his party. Johnson says his message deserves to be heard, and he aims to stick with the race till the end.
A symbolic race this might be, but if anyone is tough enough to stick it out, it’s Johnson, whose previous (nonpolitical) conquests include climbing Mount Everest on a broken leg and completing the Ironman race. Five times.
Graphic Images...
When you are an independent, issues aren't so cut & dry as the above comic (but it's a Batman themed comic so hey!), and Romney still sucks and isn't going to improve the economy at all, either. And Bain Capital is the "bane of existence" for many unemployed Americans. Better the devil you know than the devil you don't know much about except that he's a flip-flopper to put John Kerry to shame and his company is a vulture capital company that makes money of the despair and misery of others, similarly to the banks but with less investment capital of their own.
Sunday, July 1, 2012
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