Tag Archives: corruption

Hyperlinks of Hypocrisy: Money, Power and Corruption

April 8, 2016 Mike

[tube]F6XnH_OnpO0[/tube]

The extraordinary and very welcome leak of over 11 million files — collectively known as the Panama Papers — from one of the world’s largest offshore law firms, Mossack Fonseca, shows three very simple things. First, power corrupts. Second, the super-rich will continue to get richer. Third, the very rich live by different rules to the rest of the global population.

None of the preceding is, of course, of any surprise.

What fascinates me is to see this common thread of brash hypocrisy and self-aggrandizement links politicians of all stripes in democracies, with business leaders in totalitarian states, with so-called “communist” dictators, and holier-than-thou celebrities.

This tangled web of tax-avoiders and wealth-obfuscators links oligarchs with royals; it links Christians and Muslims; it links atheists with the pious; it links military dictators with socialists; it links criminals and bankers (too many, one and the same) and drug lords; it links sanctions-busters with sanctions-enforcers; it links the Saudis with the Iranians; it links footballers with cello players.

Avarice and greed knows no boundaries and transcends all political systems.

This, of course, shouldn’t come as any surprise either.

From the International Consortium of Investigative Journalists:

A massive leak of documents exposes the offshore holdings of 12 current and former world leaders and reveals how associates of Russian President Vladimir Putin secretly shuffled as much as $2 billion through banks and shadow companies.

The leak also provides details of the hidden financial dealings of 128 more politicians and public officials around the world.

The cache of 11.5 million records shows how a global industry of law firms and big banks sells financial secrecy to politicians, fraudsters and drug traffickers as well as billionaires, celebrities and sports stars.

These are among the findings of a yearlong investigation by the International Consortium of Investigative Journalists, German newspaper Süddeutsche Zeitung and more than 100 other news organizations.

The files expose offshore companies controlled by the prime ministers of Iceland and Pakistan, the king of Saudi Arabia and the children of the president of Azerbaijan.

They also include at least 33 people and companies blacklisted by the U.S. government because of evidence that they’d been involved in wrongdoing, such as doing business with Mexican drug lords, terrorist organizations like Hezbollah or rogue nations like North Korea and Iran.

One of those companies supplied fuel for the aircraft that the Syrian government used to bomb and kill thousands of its own citizens, U.S. authorities have charged.

“These findings show how deeply ingrained harmful practices and criminality are in the offshore world,” said Gabriel Zucman, an economist at the University of California, Berkeley and author of “The Hidden Wealth of Nations: The Scourge of Tax Havens.” Zucman, who was briefed on the media partners’ investigation, said the release of the leaked documents should prompt governments to seek “concrete sanctions” against jurisdictions and institutions that peddle offshore secrecy.

World leaders who have embraced anti-corruption platforms feature in the leaked documents. The files reveal offshore companies linked to the family of China’s top leader, Xi Jinping, who has vowed to fight “armies of corruption,” as well as Ukrainian President Petro Poroshenko, who has positioned himself as a reformer in a country shaken by corruption scandals. The files also contain new details of offshore dealings by the late father of British Prime Minister David Cameron, a leader in the push for tax-haven reform.

The leaked data covers nearly 40 years, from 1977 through the end of 2015. It allows a never-before-seen view inside the offshore world — providing a day-to-day, decade-by-decade look at how dark money flows through the global financial system, breeding crime and stripping national treasuries of tax revenues.

Read the entire story here.

Video: The Panama Papers: Victims of Offshore. Courtesy: International Consortium of Investigative Journalists (ICIJ).

Idea Soup

Monarchy: Bad. Corporations and Oligarchs: Good

December 5, 2015 Mike

The Founders of the United States had an inkling that federated democracy could not belong to all the people — hence they inserted the Electoral College. Yet they tried hard to design a system that improved upon the unjust, corruptness of hereditary power. But while they understood the dangers of autocratic British monarchy, they utterly failed to understand the role of corporations and vast sums of money in delivering much the same experience a couple of centuries later.

Ironically enough, all of Europe’s monarchies have given way to parliamentary democracies which are less likely to be ruled or controlled through financial puppeteering. In the United States, on the other hand, the once shining beacon of democracy is firmly in the grip of corporations, political action committees (PAC) and a handful of oligarchs awash in money, and lots of it. They control the discourse. They filter the news. They vet and anoint candidates; and destroy their foes. They shape and make policy. They lobby and “pay” lawmakers. They buy and aggregate votes. They now define and run the system.

But, of course, our corporations and billionaires are not hereditary aristocrats — they’re ordinary people with our interests at heart — according to the U.S. Supreme Court. So, all must be perfect and good, especially for those who subscribe to the constructionist view of the US Constitution.

From the Guardian:

To watch American politics today is to watch money speaking. The 2016 US elections will almost certainly be the most expensive in recent history, with total campaign expenditure exceeding the estimated $7bn (£4.6bn) splurged on the 2012 presidential and congressional contests. Donald Trump is at once the personification of this and the exception that proves the rule because – as he keeps trumpeting – at least it’s his own money. Everyone else depends on other people’s, most of it now channelled through outside groups such as “Super PACs” – political action committees – which are allowed to raise unlimited amounts from individuals and corporations.

The sums involved dwarf those in any other mature democracy. Already, during the first half of 2015, $400m has been raised, although the elections are not till next autumn. Spending on television advertising is currently projected to reach $4.4bn over the whole campaign. For comparison, all candidates and parties in Britain’s 2010 election spent less than £46m. In Canada’s recent general election the law allowed parties to lay out a maximum of about C$25m (£12.5m) for the first 37 days of an election campaign, plus an extra C$685,185 (to be precise) for each subsequent day.

Rejecting a challenge to such campaign finance regulation back in 2004, the Canadian supreme court argued that “individuals should have an equal opportunity to participate in the electoral process”, and that “wealth is the main obstacle to equal participation”. “Where those having access to the most resources monopolise the election discourse,” it explained, “their opponents will be deprived of a reasonable opportunity to speak and be heard.”

The US supreme court has taken a very different view. In its 2010 Citizens United judgment it said, in effect, that money has a right to speak. Specifically, it affirmed that a “prohibition on corporate independent expenditures is … a ban on speech”. As the legal scholar Robert Post writes, in a persuasive demolition of the court’s reasoning, “this passage flatly equates the first amendment rights of ordinary commercial corporations with those of natural persons”. (Or, as the former presidential candidate Mitt Romney put it in response to a heckler: “Corporations are people, my friend,”)

In a book entitled Citizens Divided, Post demonstrates how the Citizens United judgment misunderstands the spirit and deeper purpose of the first amendment: for people to be best equipped to govern themselves they need not just the freedom of political speech, but also the “representative integrity” of the electoral process.

Of course, an outsize role for money in US politics is nothing new. Henry George, one of the most popular political economists of his day, wrote in 1883 that “popular government must be a sham and a fraud” so long as “elections are to be gained by the use of money, and cannot be gained without it”. Whether today’s elections are so easily to be gained by the use of money is doubtful, when so much of it is sloshing about behind so many candidates, but does anyone doubt the “cannot be gained without it”?

Money may have been shaping US politics for some time, but what is new is the scale and unconstrained character of the spending, since the 2010 Citizens United decision and the Super PACs that it (and a subsequent case in a lower court) enabled. Figures from the Center for Responsive Politics show outside spending in presidential campaign years rising significantly in 2004 and 2008 but then nearly trebling in 2012 – and, current trends suggest, we ain’t seen nothing yet.

The American political historian Doris Kearns Godwin argues that the proliferation of Republican presidential candidates, so many that they won’t even fit on the stage for one television debate, is at least partly a result of the ease with which wealthy individuals and businesses can take a punt on their own man – or Carly Fiorina. A New York Times analysis found that around 130 families and their businesses accounted for more than half the money raised by Republican candidates and their Super PACs up to the middle of this year. (Things aren’t much better on the Democrat side.) And Godwin urges her fellow citizens to “fight for an amendment to undo Citizens United”.

The Harvard law professor and internet guru Larry Lessig has gone a step further, himself standing for president on the single issue of cleaning up US politics, with a draft citizen equality act covering voter registration, gerrymandering, changing the voting system and reforming campaign finance. That modest goal achieved, he will resign and hand over the reins to his vice-president. Earlier this year he said he would proceed if he managed to crowdfund more than $1m, which he has done. Not peanuts for you or me, but Jeb Bush’s Super PAC, Right to Rise, is planning to spend $37m on television ads before the end of February next year. So one of the problems of the campaign for campaign finance reform is … how to finance its campaign.

Read the entire story here.

Image courtesy of Google Search.

Idea Soup, tD

It’s Official: The U.S. is an Oligarchy

April 18, 2014 Mike

Until recently the term oligarchy was usually only applied to Russia and some ex-Soviet satellites. A new study out of Princeton and Northwestern universities makes a case for the oligarchic label right here in the United States. Jaded voters will yawn at this so-called news — most ordinary citizens have known for decades that the U.S. political system is thoroughly broken, polluted with money (“free speech” as the U.S. Supreme Court would deem it) and serves only special interests (on the right or the left).

From the Telegraph:

The US government does not represent the interests of the majority of the country’s citizens, but is instead ruled by those of the rich and powerful, a new study from Princeton and Northwestern Universities has concluded.

The report, entitled Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens, used extensive policy data collected from between the years of 1981 and 2002 to empirically determine the state of the US political system.

After sifting through nearly 1,800 US policies enacted in that period and comparing them to the expressed preferences of average Americans (50th percentile of income), affluent Americans (90th percentile) and large special interests groups, researchers concluded that the United States is dominated by its economic elite.

The peer-reviewed study, which will be taught at these universities in September, says: “The central point that emerges from our research is that economic elites and organised groups representing business interests have substantial independent impacts on US government policy, while mass-based interest groups and average citizens have little or no independent influence.”

Researchers concluded that US government policies rarely align with the the preferences of the majority of Americans, but do favour special interests and lobbying oragnisations: “When a majority of citizens disagrees with economic elites and/or with organised interests, they generally lose. Moreover, because of the strong status quo bias built into the US political system, even when fairly large majorities of Americans favour policy change, they generally do not get it.”

The positions of powerful interest groups are “not substantially correlated with the preferences of average citizens”, but the politics of average Americans and affluent Americans sometimes does overlap. This merely a coincidence, the report says, with the the interests of the average American being served almost exclusively when it also serves those of the richest 10 per cent.

The theory of “biased pluralism” that the Princeton and Northwestern researchers believe the US system fits holds that policy outcomes “tend to tilt towards the wishes of corporations and business and professional associations.”

Crony Capitalism

August 17, 2012 Mike

We excerpt below a fascinating article from the WSJ on the increasingly incestuous and damaging relationship between the finance industry and our political institutions.

[div class=attrib]From the Wall Street Journal:[end-div]

Mitt Romney’s résumé at Bain should be a slam dunk. He has been a successful capitalist, and capitalism is the best thing that has ever happened to the material condition of the human race. From the dawn of history until the 18th century, every society in the world was impoverished, with only the thinnest film of wealth on top. Then came capitalism and the Industrial Revolution. Everywhere that capitalism subsequently took hold, national wealth began to increase and poverty began to fall. Everywhere that capitalism didn’t take hold, people remained impoverished. Everywhere that capitalism has been rejected since then, poverty has increased.

Capitalism has lifted the world out of poverty because it gives people a chance to get rich by creating value and reaping the rewards. Who better to be president of the greatest of all capitalist nations than a man who got rich by being a brilliant capitalist?

Yet it hasn’t worked out that way for Mr. Romney. “Capitalist” has become an accusation. The creative destruction that is at the heart of a growing economy is now seen as evil. Americans increasingly appear to accept the mind-set that kept the world in poverty for millennia: If you’ve gotten rich, it is because you made someone else poorer.

What happened to turn the mood of the country so far from our historic celebration of economic success?

Two important changes in objective conditions have contributed to this change in mood. One is the rise of collusive capitalism. Part of that phenomenon involves crony capitalism, whereby the people on top take care of each other at shareholder expense (search on “golden parachutes”).

But the problem of crony capitalism is trivial compared with the collusion engendered by government. In today’s world, every business’s operations and bottom line are affected by rules set by legislators and bureaucrats. The result has been corruption on a massive scale. Sometimes the corruption is retail, whereby a single corporation creates a competitive advantage through the cooperation of regulators or politicians (search on “earmarks”). Sometimes the corruption is wholesale, creating an industrywide potential for profit that would not exist in the absence of government subsidies or regulations (like ethanol used to fuel cars and low-interest mortgages for people who are unlikely to pay them back). Collusive capitalism has become visible to the public and increasingly defines capitalism in the public mind.

Another change in objective conditions has been the emergence of great fortunes made quickly in the financial markets. It has always been easy for Americans to applaud people who get rich by creating products and services that people want to buy. That is why Thomas Edison and Henry Ford were American heroes a century ago, and Steve Jobs was one when he died last year.

When great wealth is generated instead by making smart buy and sell decisions in the markets, it smacks of inside knowledge, arcane financial instruments, opportunities that aren’t accessible to ordinary people, and hocus-pocus. The good that these rich people have done in the process of getting rich is obscure. The benefits of more efficient allocation of capital are huge, but they are really, really hard to explain simply and persuasively. It looks to a large proportion of the public as if we’ve got some fabulously wealthy people who haven’t done anything to deserve their wealth.

The objective changes in capitalism as it is practiced plausibly account for much of the hostility toward capitalism. But they don’t account for the unwillingness of capitalists who are getting rich the old-fashioned way—earning it—to defend themselves.

I assign that timidity to two other causes. First, large numbers of today’s successful capitalists are people of the political left who may think their own work is legitimate but feel no allegiance to capitalism as a system or kinship with capitalists on the other side of the political fence. Furthermore, these capitalists of the left are concentrated where it counts most. The most visible entrepreneurs of the high-tech industry are predominantly liberal. So are most of the people who run the entertainment and news industries. Even leaders of the financial industry increasingly share the politics of George Soros. Whether measured by fundraising data or by the members of Congress elected from the ZIP Codes where they live, the elite centers with the most clout in the culture are filled with people who are embarrassed to identify themselves as capitalists, and it shows in the cultural effect of their work.

Another factor is the segregation of capitalism from virtue. Historically, the merits of free enterprise and the obligations of success were intertwined in the national catechism. McGuffey’s Readers, the books on which generations of American children were raised, have plenty of stories treating initiative, hard work and entrepreneurialism as virtues, but just as many stories praising the virtues of self-restraint, personal integrity and concern for those who depend on you. The freedom to act and a stern moral obligation to act in certain ways were seen as two sides of the same American coin. Little of that has survived.

[div class=attrib]Read the entire article after the jump.[end-div]

[div class=attrib]Image: The Industrial Revolution brought about the end of true capitalism. Courtesy: Time Life Pictures/Mansell/Time Life Pictures/Getty Images.[end-div]

Idea Soup, tD

Corporate Corruption: Greed, Lies and Nothing New

July 30, 2012 Mike

The last couple of decades has seen some remarkable cases of corporate excess and corruption. The deep-rooted human inclinations toward greed, telling falsehoods and exhibiting questionable ethics can probably be traced to the dawn of bipedalism. However, in more recent times we have seen misdeeds particularly in the business world grow in their daring, scale and impact.

We’ve seen Worldcom overstate its cashflows, Parmalat falsifying accounts, Lehman Brothers (and other investment banks) hiding critical information from investors, Enron cooking all their books, Bernard Madoff marketing his immense Ponzi scheme, Halliburton overcharging government contracts, Tyco executives looting their own company, Wells Fargo and other retail banks robo-signing contracts, investment banks selling questionable products to investors and then betting against them, and now ever more recently, Barclays and other big banks manipulating interest rates.

These tales of gluttony and wrongdoing are a dream for social scientists; and for the public in general, well, we tend to let the fat cats just get fatter and nastier. And, where are the regulators, legislators and enforcers of the law? Well, they are generally asleep at the wheel or in bed, so to speak, with their corporate donors. No wonder we all yawn at the latest scandal. However, some suggest this undermines the very foundations of western capitalism.

[div class=attrib]From the New York Times:[end-div]

Perhaps the most surprising aspect of the Libor scandal is how familiar it seems. Sure, for some of the world’s leading banks to try to manipulate one of the most important interest rates in contemporary finance is clearly egregious. But is that worse than packaging billions of dollars worth of dubious mortgages into a bond and having it stamped with a Triple-A rating to sell to some dupe down the road while betting against it? Or how about forging documents on an industrial scale to foreclose fraudulently on countless homeowners?

The misconduct of the financial industry no longer surprises most Americans. Only about one in five has much trust in banks, according to Gallup polls, about half the level in 2007. And it’s not just banks that are frowned upon. Trust in big business overall is declining. Sixty-two percent of Americans believe corruption is widespread across corporate America. According to Transparency International, an anticorruption watchdog, nearly three in four Americans believe that corruption has increased over the last three years.

We should be alarmed that corporate wrongdoing has come to be seen as such a routine occurrence. Capitalism cannot function without trust. As the Nobel laureate Kenneth Arrow observed, “Virtually every commercial transaction has within itself an element of trust.”

The parade of financiers accused of misdeeds, booted from the executive suite and even occasionally jailed, is undermining this essential element. Have corporations lost whatever ethical compass they once had? Or does it just look that way because we are paying more attention than we used to?

This is hard to answer because fraud and corruption are impossible to measure precisely. Perpetrators understandably do their best to hide the dirty deeds from public view. And public perceptions of fraud and corruption are often colored by people’s sense of dissatisfaction with their lives.

Last year, the economists Justin Wolfers and Betsey Stevenson from the University of Pennsylvania published a study suggesting that trust in government and business falls when unemployment rises. “Much of the recent decline in confidence — particularly in the financial sector — may simply be a standard response to a cyclical downturn,” they wrote.

And waves of mistrust can spread broadly. After years of dismal employment prospects, Americans are losing trust in a broad range of institutions, including Congress, the Supreme Court, the presidency, public schools, labor unions and the church.

Corporate wrongdoing may be cyclical, too. Fraud is probably more lucrative, as well as easier to hide, amid the general prosperity of economic booms. And the temptation to bend the rules is probably highest toward the end of an economic upswing, when executives must be the most creative to keep the stream of profits rolling in.

The most toxic, no-doc, reverse amortization, liar loans flourished toward the end of the housing bubble. And we typically discover fraud only after the booms have turned to bust. As Warren Buffett famously said, “You only find out who is swimming naked when the tide goes out.”

Company executives are paid to maximize profits, not to behave ethically. Evidence suggests that they behave as corruptly as they can, within whatever constraints are imposed by law and reputation. In 1977, the United States Congress passed the Foreign Corrupt Practices Act, to stop the rampant practice of bribing foreign officials. Business by American multinationals in the most corrupt countries dropped. But they didn’t stop bribing. And American companies have been lobbying against the law ever since.

Extrapolating from frauds that were uncovered during and after the dot-com bubble, the economists Luigi Zingales and Adair Morse of the University of Chicago and Alexander Dyck of the University of Toronto estimated conservatively that in any given year a fraud was being committed by 11 to 13 percent of the large companies in the country.

[div class=attrib]Read the entire article after the jump.[end-div]

[div class=attrib]Image: Mug shot of Charles Ponzi (March 3, 1882 – January 18, 1949). Charles Ponzi was born in Italy and became known as a swindler for his money scheme. His aliases include Charles Ponei, Charles P. Bianchi, Carl and Carlo.. Courtesy of Wikipedia.[end-div]