PaulsJusticeBlog

Memo to Presidential Candidates on the Financial Crisis

2008-10-09T03:35:58Z

Both candidates did a lousy job in last night's debate discussing the current financial crisis. From having talked about it here for the last few weeks, I have a modest suggestion on how to talk about it to the American people in a way that may instill confidence.

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

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

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

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

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

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

White Collar Crime Review - Oct 1

2008-10-01T16:13:03Z

"Wall St Incompetence Tax", Continued

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

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

Some lingering problems:

- We don't need it

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

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

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

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

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

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

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

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

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

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

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

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

Special Prosecutor Named in Federal Attorney Firings Case

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

Investigators probing the firing of nine U.S. attorneys concluded that top Justice Department officials "abdicated their responsibility" by failing to supervise subordinates who carried out the botched plan, according to a long-awaited report released today.
[snip]
The investigation uncovered "significant evidence" that partisan political factors played a role in some of the 2006 dismissals. Particularly "troubling," according to the report, was the sacking of New Mexico U.S. Attorney David C. Iglesias after several Republican elected officials complained about voter fraud and public corruption cases he pursued. That episode raises the possibility that obstruction of justice and wire fraud laws were violated.

Justice Department Inspector General Glenn A. Fine and Office of Professional Responsibility Director H. Marshall Jarrett, who had been investigating the basis for the dismissals for 18 months, also cited "inconsistent, misleading or inaccurate" statements by the department's former leaders.
In the 390-page report, issued this morning, they said Gonzales "bears primary responsibility" for the debacle and asserted that he was "remarkably disengaged" from the process, which stretched on for months. Investigators said that after the mass firings came to light, Gonzales made "misleading" public statements about his involvement, failing to recall his attendance at a critical meeting and documents that landed on his desk.

[snip]
In their strongest conclusions, the Justice Department investigators said that D. Kyle Sampson, the former chief of staff to Gonzales, had committed "misconduct" by making a series of questionable public statements and failing to share information with the White House, lawmakers and his own superiors about the extent of the White House involvement in the firings.
[snip]
The internal watchdogs asked that the investigation continue under the authority of a prosecutor with the power to compel testimony and production of documents. They said their probe was thwarted in part because they could not interview key witnesses, including former White House officials Karl Rove, Harriet E. Miers and William Kelley. Investigators also pointed out that the White House refused to turn over internal documents related to the dismissal of the prosecutors by citing the "sensitivity" of the issues, saying the move had "hindered" their inquiry.

The NY Times adds:

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

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

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

The investigation, which uncovered White House e-mail messages not previously made public, offered a blistering critique of Mr. Gonzales’s management of the department. It called Mr. Gonzales “remarkably unengaged” in overseeing an unprecedented personnel review, and said that he “abdicated” his administrative responsibilities, leaving those duties to his chief of staff. It said that the process for deciding which prosecutors were fired was “fundamentally flawed.”
[snip]
Mr. Mukasey, in announcing the appointment of an in-house prosecutor to continue the investigation, acknowledged that the process for firing the prosecutors was “haphazard, arbitrary and unprofessional, and that the way in which the Justice Department handled those removals and the resulting public controversy was profoundly lacking.”

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

CIA Top Administrator Pleads Guilty to Fraud

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

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

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

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

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

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

Violations reported at 94% of Nursing Homes

The NY Times reports that:

More than 90 percent of nursing homes were cited for violations of federal health and safety standards last year, and for-profit homes were more likely to have problems than other types of nursing homes, federal investigators say in a report issued on Monday.
About 17 percent of nursing homes had deficiencies that caused “actual harm or immediate jeopardy” to patients, said the report, by Daniel R. Levinson, the inspector general of the Department of Health and Human Services. Problems included infected bedsores, medication mix-ups, poor nutrition, and abuse and neglect of patients.
The inspector general said 94 percent of for-profit nursing homes were cited for deficiencies last year, compared with 88 percent of nonprofit homes and 91 percent of government homes.

Full report of the inspector general (pdf)

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

Bottled Water: Commercial Use of Public Good

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

A provision of the Great Lakes Compact allows water to be diverted from the basin if it is in containers holding less than 5.7 gallons. The question is whether bottling water from the aquifers that feed the lakes, the largest repository of fresh water on Earth, should be seen as ordinary human consumption, commercial production, or export of a treasured natural resource.
[snip]
opponents of bottled water say soda and beer are different because the water is consumed in making something else, whereas they view Nestle as taking a public good, paying very little for it, and making a profit on it.
They also fear that since the compact officially treats water as a "product," the door could be opened to further commercialization and sale. It was such fears that in 1998 launched the process that led to the compact, after the tiny company Nova Group obtained a permit from the Ontario government -- later withdrawn -- to ship up to 158 million gallons of Great Lakes water per year to Asia.

33 Pastors Flout Tax Law With Political Sermons

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

From the Washington Post:

Johnson and 32 other pastors across the country set out Sunday to break the rules, hoping to generate a legal battle that will prompt federal courts to throw out a 54-year-old ban on political endorsements by tax-exempt houses of worship. The ministers contend they have a constitutional right to advise their worshipers how to vote.
[snip]
Each campaign season brings allegations that a member of the clergy has crossed a line set out in a 1954 amendment to the tax code that says nonprofit, tax-exempt entities may not "participate in, or intervene in . . . any political campaign on behalf of any candidate for public office."
This time, the church action is concerted. Yet while the ministers say the rules stifle religious expression, their opponents contend that the tax laws are essential to protect the separation of church and state. They say political speech should not be supported by a tax break for the churches or the worshipers who are contributing to a political cause.

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

"The role of the church -- of congregation, synagogue, temple and mosque -- and of its religious leaders is to stand apart from government, to prophetically speak truth to power," Williams wrote, "and to encourage a national dialogue that transcends the divisiveness of electoral politics and preserves for every citizen our 'first liberty.' "
[snip]
"I have no objections to clergy taking off their robes and walking out the door of their church, synagogue or mosque and immersing themselves in political campaigns," said Rabbi Jack Moline of Agudas Achim Congregation in Alexandria, chairman of the Interfaith Alliance board. "But a sanctuary should not be a place of political agitation on behalf of a candidate. On behalf of issues, yes. Of candidates, no."

"Pirates" ??

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

He said that so far, in the eyes of the world, the pirates had been misunderstood. “We don’t consider ourselves sea bandits,” he said. “We consider sea bandits those who illegally fish in our seas and dump waste in our seas and carry weapons in our seas. We are simply patrolling our seas. Think of us like a coast guard.”
The piracy industry started about 10 to 15 years ago, Somali officials said, as a response to illegal fishing. Somalia’s central government imploded in 1991, casting the country into chaos. With no patrols along the shoreline, Somalia’s tuna-rich waters were soon plundered by commercial fishing fleets from around the world. Somali fishermen armed themselves and turned into vigilantes by confronting illegal fishing boats and demanding that they pay a tax.
“From there, they got greedy,” said Mohamed Osman Aden, a Somali diplomat in Kenya. “They starting attacking everyone.” By the early 2000s, many of the fishermen had traded in their nets for machine guns and were hijacking any vessel they could catch: sailboat, oil tanker, United Nations-chartered food ship.
“It’s true that the pirates started to defend the fishing business,” Mr. Mohamed said. “And illegal fishing is a real problem for us. But this does not justify these boys to now act like guardians. They are criminals. The world must help us crack down on them.”

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

Domestic Violence Survivor Art

2008-09-27T16:15:05Z

I'm on the Board of our local domestic violence shelter, SafeHouse, and was down there tonight to help with the start of training. Seeing the T-shirts made by survivors, reminded me I had this I took a while ago with my cell phone.

[click for a slightly larger version]

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

[click for a larger version]

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

FYI -

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

Sarah Palin and the Rape Kits

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

Even in tough budget times, there are lines that cannot be crossed. So I was startled by this tidbit reported recently by The Associated Press: When Sarah Palin was mayor of Wasilla, Alaska, the small town began billing sexual-assault victims for the cost of rape kits and forensic exams.
Ms. Palin owes voters an explanation. What was the thinking behind cutting the measly few thousand dollars needed to cover the yearly cost of swabs, specimen containers and medical tests? Whose dumb idea was it to make assault victims and their insurance companies pay instead? Unfortunately, her campaign is shielding the candidate from the press, so Americans may still be waiting for answers on Election Day.
The rape-kit controversy is a troubling matter. The insult to rape victims is obvious. So is the sexism inherent in singling them out to foot the bill for investigating their own case. And the main result of billing rape victims is to protect their attackers by discouraging women from reporting sexual assaults.
That’s why when Senator Joseph Biden, the Democratic vice-presidential nominee, drafted the 1994 Violence Against Women Act, he included provisions to make states ineligible for federal grant money if they charged rape victims for exams and the kits containing the medical supplies needed to conduct them. (Senator John McCain, Ms. Palin’s running mate, voted against Mr. Biden’s initiative, and his name has not been among the long list of co-sponsors each time the act has been renewed.)
That’s also why, when news of Wasilla’s practice of billing rape victims got around, Alaska’s State Legislature approved a bill in 2000 to stop it.
“We would never bill the victim of a burglary for fingerprinting and photographing the crime scene, or for the cost of gathering other evidence,” said Alaska’s then-governor, Tony Knowles. “Nor should we bill rape victims just because the crime scene happens to be their bodies.”
[snip]
In the absence of answers, speculation is bubbling in the blogosphere that Wasilla’s policy of billing rape victims may have something to do with Ms. Palin’s extreme opposition to abortion, even in cases of rape. Sexual-assault victims are typically offered an emergency contraception pill, which some people in the anti-choice camp wrongly equate with abortion.
entire article...

White Collar Crime Review - Sept 24

2008-09-24T20:42:34Z

$700 Billion Bailout / "Wall St Incompetence Tax" for Taxpayers

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

$700 billion

The proposed text:

Sec. 6. Maximum Amount of Authorized Purchases.

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

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

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

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

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

"Mother of All Power Grabs"

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

Sec. 8. Review.

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

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

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

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

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

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

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

What's Missing?

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

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

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

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

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

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

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

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

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

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

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

Alternatives

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

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

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

the question we should be asking is not whether or how much, but to whom and for what. The financial crisis we are facing is a symptom of a much larger economic and social crisis. Wall Street is not the source of the pain. On the contrary, the financial sector has been put this decade primarily in the service of hiding, literally of papering over, unsustainable trends in the current account, income distribution, human and physical capital deterioration, and the sectoral composition of the American economy. The conventional wisdom is that this is a financial crisis, and that so far "Main Street" has been largely insulated from the catastrophe. That is rubbish. The cancer is on Main Street, and the tumor has been growing there for years. Wall Street provided drugs to hide the pain and keep us going, palliative but not curative. What is happening now is those drugs are wearing off. The American economy is fundamentally unsound, and has been for some time. We would have noticed sooner, were it not for financial methamphetamine conjured by mad scientists in lower Manhattan from a whirlwind of foreign central bank money.
I think we'll only get one shot to set things right by throwing a ton of money at the problem, so we'd better think carefully before we throw it at symptoms rather than causes. Trying to figure this out in a week before Congress goes off to reelect itself strikes me as ambitious. Broadly, my view is that if we are going to legislate, Congress should empower regulators to declare systemically important firms insolvent, write off existing common and preferred, fire incumbent management and unilaterally convert debt to equity as far up the capital structure as they need to go until the firms are unambiguously well-capitalized, with little or no public money involved.

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

Conclusion

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

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

Interesting if incomplete roundup of criticism here.

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

Federal Prosecutors Probe Food-Price Collusion

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

Interesting items from the story:

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

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

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

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

EPA Unlikely to Limit Pollutant in Tap Water

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

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

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

The new EPA proposal -- which assumes the maximum allowable perchlorate contamination level is 15 times what the EPA had suggested in 2002 -- was heavily edited by officials of the White House Office of Management and Budget. They eliminated key passages and asked the EPA to use a new computer modeling approach to calculate the chemical's risks.
"They have distorted the science to such an extent that they can justify not regulating" the chemical, said Robert Zoeller, a University of Massachusetts professor who specializes in thyroid hormone and brain development and has a copy of the EPA proposal. "Infants and children will continue to be damaged, and that damage is significant."

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

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

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

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

Environmental officials from several states that have tried to force the Pentagon to clean up polluted military sites say the Defense Department has retaliated by reducing or withholding federal oversight dollars due them.
A group representing state environmental officials says California, Colorado, Alabama, Ohio and about a dozen other states have been pressured by the Pentagon to back off the oversight of cleanup at polluted military sites. "In the worst-case scenarios, the Department of Defense is intimidating a state environmental agency into not pursing enforcement," said Steve Brown, executive director of the Environmental Council of States.

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

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

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

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

Citigroup Busted for Skimming from the Dead

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

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

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

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

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

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

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

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

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

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

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

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

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

Dept of Justice statement about indictment. pdf of Indictment.

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

White Collar Crime Review - Sept 17

2008-09-17T18:22:26Z

Last week I started a White Collar Crime review as part of a class on white collar crime I am teaching, and here's an update on elite deviance, abuses of power, etc that's happened in the last week.

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

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

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

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

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

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

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

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

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

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

The decision, only two weeks after the Treasury took over the federally chartered mortgage finance companies Fannie Mae and Freddie Mac, is the most radical intervention in private business in the central bank’s history...
If A.I.G. had collapsed — and been unable to pay all of its insurance claims — institutional investors around the world would have been instantly forced to reappraise the value of those securities, and that in turn would have reduced their own capital and the value of their own debt. Small investors, including anyone who owned money market funds with A.I.G. securities, could have been hurt, too. And some insurance policy holders were worried, even though they have some protections. “It would have been a chain reaction,” said Uwe Reinhardt, a professor of economics at Princeton University. “The spillover effects could have been incredible.”

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

The details of the plan:

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

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

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

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

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

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

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

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

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

Sex, Drugs & Corruption at Interior Dept

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

Government officials in charge of collecting billions of dollars worth of royalties from oil and gas companies accepted gifts, steered contracts to favored clients and engaged in drug use and illicit sex with employees of the energy firms, federal investigators reported yesterday.
The report from Inspector General Earl E. Devaney contains fresh allegations about the practices at the beleaguered royalty-in-kind program of Interior's Minerals Management Service, which last year collected more than $4 billion worth of oil and natural gas from companies given contracts to tap energy on federal and Indian lands and offshore.
The royalty-in-kind program, based near Denver, allows energy companies to pay the government in oil and gas, rather than cash, for the privilege of drilling on government land. It has been the subject of multiple investigations since 2006 by the Interior Department's secretary, its inspector general, the Justice Department and Congress for alleged mismanagement and conflicts of interest.
In the report released yesterday, investigators said they "discovered a culture of substance abuse and promiscuity" in which employees accepted gratuities "with prodigious frequency."
The royalty-in-kind program, which started as a small pilot project a decade ago, has been touted as a way to simplify the way oil and gas companies pay for the right to drill on federal land and offshore. Instead of calculating the profit from a well, they can simply give the government one-eighth to one-sixth of whatever they take from the ground.

Revenue rose quickly, from $1.5 billion in 2004 to $4.3 billion last fiscal year. But the growth occurred "in an environment with relatively unstructured in-house oversight," the congressionally convened Royalty Policy Committee said in a December report. Previous reports have said that companies were allowed to revise their million-dollar bids for projects indiscriminately, that government workers routinely failed to seek out legal advice on complicated deals and that the agency used outdated computers and a $150 million software program that resulted in royalty money going uncollected.
Former Interior Department auditors accused the agency of failing to bill companies. "We weren't allowed to audit them. It was kind of disturbing," said Bobby L. Maxwell, an auditor who sued the federal government for not collecting royalties. "You couldn't really see what was going on."

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

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

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

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

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

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

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

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

Florida Farmworkers Exploited, Even Enslaved

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

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

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

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

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

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

For more info, see the Coalition of Immokalee Workers.

Banks Helped Foreigners Escape US Taxes

The Washington Post reports (10 Sept 2008):

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

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

A yearlong investigation by a Senate Homeland Security and Governmental Affairs subcommittee, whose results are to be made public Thursday, found that the evasion of dividend taxes adds up to billions of dollars in revenue lost to the U.S. Treasury over the past decade.
[snip]
The inquiry is part of a series of hearings by the Senate panel on offshore tax abuse, which is estimated to cost the United States $100 billion a year in lost tax revenue.

SEC Enforcement and General Financial Regulation

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

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

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

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

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

Does this seem familiar?

The McCain Embraces Regulation notes:

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

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

In 1999,

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

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

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

A bit more history:

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

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

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

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

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

White Collar Crime Review - Sept 10

2008-09-10T14:26:58Z

Now that I'm teaching a class on white collar crime, I hope to periodically post collections of links about white collar crime, elite deviance and abuses of power.

Fannie Mae - Freddie Mac Bailout

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

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

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

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

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

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

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

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

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

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

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

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

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

Now comes word from the Bloomberg News Service that the Justice Department has launched a criminal investigation of J.P. Morgan Chase and other banks following civil allegations that they conspired to overcharge local governments for hedging on the interest rate risks in their bonds. One such government customer, Jefferson County, Ala., which claims it was overcharged by as much as $100 million in financing a new sewerage system, is now on the brink of bankruptcy.
What is so telling about these stories -- and, rest assured, there will be many more before we're finished -- is that they come only a few years after these same companies reached similar settlements for defrauding many of the same investors during the telecom and dot-com boom. While the fraud back then had more to do with bogus research and accounting and manipulation of initial public offerings, it is clear that they sprang from the same slimy ethical culture that has produced the current credit crisis. Wall Street has become a fundamentally corrupt enterprise in which the motto is: "We'll do anything for a fee."

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

New Marketing Code for Student Lenders

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

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

Some of the companies sent solicitations to students that looked as if they had come from the federal government, according to the attorney general’s office. Others advertised interest rates not available to most borrowers. Some offered prizes and ran contests to lure student borrowers.
Representatives of EduCap, Nelnet and GMAC Bank denied any wrongdoing but each said they welcomed the new code.
The code of conduct, which Mr. Cuomo said he hoped other lenders would adopt, would ban using logos and return addresses that resemble those used by the federal government; sending false checks or rebate offers; offering free iPods or other gifts to lure borrowers; making misleading statements about loan terms and benefits, and providing examples of loan costs that are available to a small percentage of borrowers.
In developing the code and persuading lenders to adopt it, Mr. Cuomo’s office is pursuing a similar strategy to one followed in addressing questionable ties between college financial aid offices and student loan companies uncovered in investigations last year. Benjamin Lawsky, special assistant to the attorney general, said the office’s investigation was continuing and expanding to include other potential conflicts of interest on college campuses.
“Numerous vendors do millions of dollars of business on college campuses, and we have found that they often pay to play,” Mr. Lawsky said. “The question then becomes, are students getting the best deals or, as we found in the student loan industry, are universities entering into financial arrangements that benefit them at the expense of students?”

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

Justice Dept's Guidelines on Monopolies Criticized

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

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

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

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

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

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

Meatpacker Violates Immigration and Child Labor Laws

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

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

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

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

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

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

Closing comment - hell of a week.

July 4, 2008

2008-07-05T01:28:45Z

July 4 is usually fun - picnic, fireworks, a day off. But it is also a time to reflect on the founding of the country - our independence from England, and, as I've written about before, some of the values that served as the foundation for the new country.

Today's lesson comes courtesy of Boumrdiene v Bush, the recent Supreme Court case involving a detainee in Guantanamo suing the President for holding him without due process. The Court sides with the detainee and provides a nice discussion about habeas corpus, aka The Great Writ, which is the mechanism used to challenge any unjust imprisonment by the government by anybody.

From the majority opinion (slightly edited for brevity). The Suspension Clause is reference to the part of the Constitution that reads, "The Privilege of the Writ of Habeas Corpus shall not be suspended, unless when in Cases of Rebellion or Invasion the public Safety may require it."

We begin with a brief account of the history and origins of the writ. Protection for the privilege of habeas corpus was one of the few safeguards of liberty specified in a Constitution that, at the outset, had no Bill of Rights. In the system conceived by the Framers the writ had a centrality that must inform proper interpretation of the Suspension Clause.

The Framers viewed freedom from unlawful restraint as a fundamental precept of liberty, and they understood the writ of habeas corpus as a vital instrument to secure that freedom. Experience taught, however, that the common-law writ all too often had been insufficient to guard against the abuse of monarchial power. That history counseled the necessity for specific language in the Constitution to secure the writ and ensure its place in our legal system.

Magna Carta decreed that no man would be imprisoned contrary to the law of the land. (“No free man shall be taken or imprisoned or dispossessed, or outlawed, or banished, or in any way destroyed, nor will we go upon him, nor send upon him, except by the legal judgment of his peers or by the law of the land”). Important as the principle was, the Barons at Runnymede prescribed no specific legal process to enforce it. Holdsworth tells us, however, that gradually the writ of habeas corpus became the means by which the promise of Magna Carta was fulfilled.

The development was painstaking, even by the centuries-long measures of English constitutional history. The writ was known and used in some form at least as early as the reign of Edward I. Yet at the outset it was used to protect not the rights of citizens but those of the King and his courts. The early courts were considered agents of the Crown, designed to assist the King in the exercise of his power. Thus the writ, while it would become part of the foundation of liberty for the King’s subjects, was in its earliest use a mechanism for securing compliance with the King’s laws. Over time it became clear that by issuing the writ of habeas corpus common-law courts sought to enforce the King’s prerogative to inquire into the authority of a jailer to hold a prisoner.

Even so, from an early date it was understood that the King, too, was subject to the law. As the writers said of Magna Carta, “it means this, that the king is and shall be below the law.” [see also 2 Bracton On the Laws and Customs of England 33 (S. Thorne transl. 1968) (“The king must not be under man but under God and under the law, because law makes the king”]. And, by the 1600’s, the writ was deemed less an instrument of the King’s power and more a restraint upon it.

Still, the writ proved to be an imperfect check [on illegal imprisonment by public officials]. Even when the importance of the writ was well understood in England, habeas relief often was denied by the courts or suspended by Parliament. Denial or suspension occurred in times of political unrest, to the anguish of the imprisoned and the outrage of those in sympathy with them.

A notable example from this period was Darnel’s Case. The events giving rise to the case began when, in a display of the Stuart penchant for authoritarian excess, Charles I demanded that Darnel and at least four others lend him money. Upon their refusal, they were imprisoned. The prisoners sought a writ of habeas corpus; and the King filed a return in the form of a warrant signed by the Attorney General. The court held this was a sufficient answer and justified the subjects’ continued imprisonment.

There was an immediate outcry of protest. The House of Commons promptly passed the Petition of Right, which condemned executive “imprison[ment] without any cause” shown, and declared that “no freeman in any such manner as is before mencioned [shall] be imprisoned or deteined.” Yet a full legislative response was long delayed. The King soon began to abuse his authority again, and Parliament was dissolved. When Parliament reconvened in 1640, it sought to secure access to the writ by statute. The Act of 1640 expressly authorized use of the writ to test the legality of commitment by command or warrant of the King or the Privy Council. Civil strife and the Interregnum soon followed, and not until 1679 did Parliament try once more to secure the writ, this time through the Habeas Corpus Act of 1679. The Act, which later would be described by Blackstone as the “stable bulwark of our liberties,” established procedures for issuing the writ; and it was the model upon which the habeas statutes of the 13 American Colonies were based.

This history was known to the Framers. It no doubt confirmed their view that pendular swings to and away from individual liberty were endemic to undivided, uncontrolled power. The Framers’ inherent distrust of governmental power was the driving force behind the constitutional plan that allocated powers among three independent branches. This design serves not only to make Government accountable but also to secure individual liberty. Because the Constitution’s separation-of-powers structure, like the substantive guarantees of the Fifth and Fourteenth Amendments, protects persons as well as citizens, foreign nationals who have the privilege of litigating in our courts can seek to enforce separation-of-powers principles.

That the Framers considered the writ a vital instrument for the protection of individual liberty is evident from the care taken to specify the limited grounds for its suspension: “The Privilege of the Writ of Habeas Corpus shall not be suspended, unless when in Cases of Rebellion or Invasion the public Safety may require it.” Art. I, §9, cl. 2. The word “privilege” was used, perhaps, to avoid mentioning some rights to the exclusion of others. (Indeed, the only mention of the term “right” in the Constitution, as ratified, is in its clause giving Congress the power to protect the rights of authors and inventors.)

Surviving accounts of the ratification debates provide additional evidence that the Framers deemed the writ to be an essential mechanism in the separation-of-powers scheme. In a critical exchange with Patrick Henry at the Virginia ratifying convention Edmund Randolph referred to the Suspension Clause as an “exception” to the “power given to Congress to regulate courts.” A resolution passed by the New York ratifying convention made clear its understanding that the Clause not only protects against arbitrary suspensions of the writ but also guarantees an affirmative right to judicial inquiry into the causes of detention. See Resolution of the New York Ratifying Convention (July 26, 1788), in 1 Elliot’s Debates 328 (noting the convention’s understanding “[t]hat every person restrained of his liberty is entitled to an inquiry into the lawfulness of such restraint, and to a removal thereof if unlawful; and that such inquiry or removal ought not to be denied or delayed, except when, on account of public danger, the Congress shall suspend the privilege of the writ of habeas corpus”). Alexander Hamilton likewise explained that by providing the detainee a judicial forum to challenge detention, the writ preserves limited government. As he explained in The Federalist No. 84:

“[T]he practice of arbitrary imprisonments, have been, in all ages, the favorite and most formidable instruments of tyranny. The observations of the judicious Blackstone … are well worthy of recital: ‘To bereave a man of life … or by violence to confiscate his estate, without accusation or trial, would be so gross and notorious an act of despotism as must at once convey the alarm of tyranny throughout the whole nation; but confinement of the person, by secretly hurrying him to jail, where his sufferings are unknown or forgotten, is a less public, a less striking, and therefore a more dangerous engine of arbitrary government.’ And as a remedy for this fatal evil he is everywhere peculiarly emphatical in his encomiums on the habeas corpus act, which in one place he calls ‘the bulwark of the British Constitution.’ ”

Post-1789 habeas developments in England, though not bearing upon the Framers’ intent, do verify their foresight. Those later events would underscore the need for structural barriers against arbitrary suspensions of the writ. Just as the writ had been vulnerable to executive and parliamentary encroachment on both sides of the Atlantic before the American Revolution, despite the Habeas Corpus Act of 1679, the writ was suspended with frequency in England during times of political unrest after 1789. Parliament suspended the writ for much of the period from 1792 to 1801, resulting in rampant arbitrary imprisonment. Even as late as World War I, at least one prominent English jurist complained that the Defence of the Realm Act, 1914, effectively had suspended the privilege of habeas corpus for any person suspected of “communicating with the enemy.”

In our own system the Suspension Clause is designed to protect against these cyclical abuses. The Clause protects the rights of the detained by a means consistent with the essential design of the Constitution. It ensures that, except during periods of formal suspension, the Judiciary will have a time-tested device, the writ, to maintain the “delicate balance of governance” that is itself the surest safeguard of liberty. The Clause protects the rights of the detained by affirming the duty and authority of the Judiciary to call the jailer to account. (See Preiser v. Rodriguez, “[T]he essence of habeas corpus is an attack by a person in custody upon the legality of that custody”). The separation-of-powers doctrine, and the history that influenced its design, therefore must inform the reach and purpose of the Suspension Clause.

As I noted in the inaugural post of this blog on another July 4:many may like the rhetoric, but feel it's idealistic in a time of terrorist threats. President Bush, among many others, has made this case: wanting to curtail a range of liberties and expand presidential power in the name of protecting freedom. But Justice Douglas, writing in his Almanac of Liberty, reminds us:

Short cuts are always tempting when one feels his cause is just. Short cuts have always been justified on the ground that the end being worthy, the means of reaching it are not important. Short cuts, however, are dangerous. If they can be taken against one person or group, they can be taken against another. Our greatest struggle has been to provide procedural safeguards that will protect us against ourselves and make as certain as possible that reason and calm judgment will not be swept away by passion and hysteria. (1954, p 69)

Happy 4th of July...

DC v Heller and the Future of Gun Control

2008-03-21T14:57:52Z

The Supreme Court just hear arguments in a case that potentially has important implications for the Second Amendment and gun control. It's the first time the Court has taken on meaningful issues on this topic in almost 70 years and argument actually seemed to focus substantive issues rather than a technical resolution (relating to DC not being a state but under the oversight of the Federal Govt).

As this post details, the case has a variety of briefs with some surprises in terms of how positions fall out. My comment on this case will be limited to Vice President Cheney signing on to a brief opposing the ban.

Normally, interests of the federal govt are represented by the Solicitor General, who argued here that there is a personal right of gun ownership but that the DC regulations were overall rational (because his job is to defend existing federal gun control laws...) Cheney signed on to a brief with members of Congress urging the Court to strike down DC's law, which includes a ban on handguns in the nation's capital.

So the Bush administration has scaled back many personal freedoms arguing that they need tools to fight their ill-conceived war on terror. At every chance, they expand powers of the federal government - to wiretap, search, etc. But the one freedom Cheney defends is the right to have handguns in the nation's capital, even though it is well known that Al Qaida practices political assassinations in urban areas?

Let's be clear that this comment does not suggest that terrorists will obey the law, or that the law against handguns will prevent terrorists using them. Rather, the law against guns can be an important tool to disrupt terrorists and terrorist plots. If law enforcement got wind of something, searched and found weapons, the current law would allow them to make arrests, detain and gather other information. If there's no gun law, then there may or may not be other grounds to hold suspects, but make no mistake that the law is a potentially important tool - or at least as useful as a very, very long list of "tools" the administration has wanted.

[As background, see mar Hamm's Terrorism as Crime, which argues that terrorists commit any number of more minor, everyday crimes in establishing themselves, their identities and further larger plots. These crimes can frequently provide the justification for arrests, just as mafia types get caught up on tax evasion - not the charge we'd really like to bring, but at least it gets them off the street. My StopViolence site has some chapter excerpts; there's an earlier version of this he did for the National Institute of Justice called Crimes by Terrorist Groups (abstract or document/pdf).]

For those interested in the case, here's the prview from Cornell Law School (link at end goes to the rest of the preview)

District of Columbia v. Heller (07-290)

SECOND AMENDMENT, RIGHT OF THE PEOPLE TO KEEP AND BEAR ARMS, MILITIA, DISTRICT OF COLUMBIA, GUN BAN, HANDGUNS

The District of Columbia bans possession of handguns, and bans anyone from carrying a handgun or other deadly or dangerous weapon without a license within its borders (the "Gun Ban"). It also requires that any firearms which may be kept within the District, such as rifles, be kept either disassembled or with a trigger lock. These are some of the most restrictive gun laws in the nation. Joseph Heller claims these laws violate his Second Amendment right to "keep and bear Arms." The Supreme Court has not taken a Second Amendment case since 1939, and it has never decided whether the Second Amendment confers a right to bear arms upon individuals or only upon the militias it refers to in its opening clause. In the intervening 69 years, the federal and state governments have passed many laws regulating and restricting the ownership and use of guns. Should the Supreme Court uphold the D.C. Circuit's invalidation of the Gun Ban, it could have a substantial impact on these gun laws and will almost certainly lead to more litigation as gun rights advocates challenge those laws as violating the Second Amendment. If the Court finds that the Gun Ban is constitutional, it will strengthen the ability of government to regulate gun ownership, and may result in more restrictive gun laws across the country. (Continue reading this preview via Cornell Law...)

You can read the transcript of oral argument via the Supreme Court website or Oyez has an audio version (listen to it on the web or download an mp3) along with the transcript.

My favorite quotes include Mr Dellinger (arguming in support of DC's law):

this right of personal liberty, the Blackstonian right, is an unregulated right to whatever arm, wherever kept, however you want to store it, and for the purposes an individual decides, that is a libertarian ideal. It's not the text of the Second Amendment, which is expressly about the security of the State; it's about well-regulated militias, not unregulated individual license [emphasis added]

and

If you're going to protect the kind of right that is -- that is being spoken of here, different from the militia right, the plain language to do it would be "Congress or the States shall pass no law abridging the right of any person to possess weapons for personal use." And that's not the right that is created here.

As I noted above, Cheney split with the federal government in this case; public health professionals are on both sides; academics are on both sides; women are on both sides; former Justice Dept officials are on both sides; you get the idea:

District of Columbia v Heller - Overview of selected briefs
DC = Petitioner	Heller = Respondent
Brief for the United States of America as Amicus Curiae Brief for Violence Policy Center and the Police Chiefs for the Cities of Los Angeles, Minneapolis, and Seattle Brief of District Attorneys as Amici Curiae in Support of Petitioners Brief for New York, Hawaii, Maryland, Massachusetts, New Jersey, and Puerto Rico in Support of Petitioner	Brief for 55 Members of the United States Senate, the President of the U.S. Senate [Cheney], and 250 Members of the U.S. House of Representatives in Support of Respondent Brief for the States of Texas, Alabama, Alaska, Arkansas, Colorado, Florida, Georgia, Idaho, Indiana, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Mexico, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Utah, Virginia, Washington, West Virginia, and Wyoming in Support of Respondent Brief for Members of Congress in Support of Reversal
Brief for Former Department of Justice Officials in Support of Petitoner Brief of the American Bar Association	Brief for Former Senior Officials of the Department of Justice in Support of Respondent
Brief for Professors of Criminal Justice in Support of Petitioner Brief for Professors of Linguistics and English Dennis E. Baron, Ph. D, Richard W. Bailey, Ph. D, and Jeffrey P. Kaplan in Support of Petitioner [Don't laugh - a great deal of the case centers around understanding the relationship between "well regulated militia" and "the right of the people to keep and bear arms"]	Brief for Criminologists, Social Scientists, Other Distinguished Scholars, and the Claremont Institute in Support of Respondent Brief for Organizations and Scholars Correcting Myths and Misrepresentations Commonly Deployed by Opponents of an Individual-Right-Based Interpretation of the Second Amendment in Support of Respondent Brief for Academics in Support of Respondent Brief for Academics for the Second Amendment in Support of Respondent
Brief for the American Academy of Pediatrics, the Society for Adolescent Medicine, the Childrens Defense Fund, Women Against Gun Violence, and Youth Alive! in Support of Petitioner	Brief for the Association of American Physicians and Surgeons in Support of Respondent ["AAPS has long defended the practice of ethical medicine, and firearms serve an essential role against misuse of medicine by tyrannical governments for unethical goals."]
Brief for the National Network to End Domestic Violence et al. in Support of Petitioner [Women are killed by intimate partners more often than by any other category of killer. It is the leading cause of death for African-American women aged 15-45 and the seventh leading cause of premature death for U.S. women overall. Intimate partner homicides make up 40 to 50 percent of all murders of women in the United States, [and that number excludes exlovers, which account for as much as 11% of intimate partner homicides of women] When a gun [is] in the house, an abused woman [is] 6 times more likely than other abused women to be killed."]	Brief for 126 Women State Legislatures and Academics in Support of Respondent Brief for the Pink Pistols and Gays and Lesbians for Individual Liberty in Support of Respondent ["More anti-gay hate crimes occur in the home than in any other location, and there are significant practical limitations on the ability of the police to protect individuals against such violence."]
Brief for the the American Jewish Committee et al. in Support of Petitioner	Brief for Jews for the Preservation of Firearms Ownership in Support of Respondent
Brief of Brady Center to Prevent Gun Violence, et al. as Amici Curiae Supporting Petitioner	Brief of Nat’l Rifle Assoc. et al. as Amici Curiae in Support of Respondent
Brief of Congress of Racial Equality as Amicus Curiae in Support of Respondent	Brief of NAACP Legal Defense & Educational Fund, Inc. as Amicus Curiae in Support of Petitioner

Sex Toys and Sexual Privacy: Texas Anti-Vibrator Law Struck Down

2008-02-28T22:06:51Z

In 1979, Texas passed an obscenity law that a recent ruling by the Fifth Circuit Court of Appeals described as "prohibit[ing] the 'promotion' and 'wholesale promotion' of 'obscene devices,' which includes selling, giving, lending, distributing, or advertising for them" (Reliable Consultants v Earle # 06-51067). A 1985 decision by a Texas court upheld the law because they found there was no constitutional right to “stimulate . . . another’s genitals with an object designed or marketed as useful primarily for that purpose.” Lest you think that this is just a Texas problem, Mississippi, Alabama, Virginia, Louisiana, Kansas and Colorado have all dealt with this issue.

While that doesn't mean such a law is coming to your state, it is important to take a look at what's going on - esp since since our right to privacy includes sexual privacy. Michael Dorf, writing at Findlaw.com on the Alabama case noted "Patrick Henry never said "give me dildos or give me death," but he did speak of liberty, as does the Constitution. And not surprisingly, how the courts go about defining that "liberty" has ramifications far beyond the legality of vibrator sales in Mobile." As BoingBoing put it, One could stroll down Alabama's southern streets selling semiautomatic rifles and dildos, and be arrested for the dildos.

In the Alabama case, "the appeals court suggested that the case posed the question whether there is an absurdly narrow (and vulgar) fundamental right to use 'vibrators, dildos, anal beads, and artificial vaginas'." The majority there also rejected the idea of a generalized right of sexual privacy " because (among other reasons) it would encompass pederasty, prostitution and incest -- which the judges believed were clearly proscribable consistent with the Constitution."

What other rights of your do you think could be put in such a way as to make them sound absurd to conservatives who talk about freedom but are all in favor of government intruding on the parts of your life that offend them?

Back to the Texas case:

According to the Fifth Circuit, the district court upheld the law because "there is no constitutionally protected right to publicly promote obscene devices." Those challenging the law [the businesses selling sex toys] "claim that the right at stake is the individual’s substantive due process right to engage in private intimate conduct free from government intrusion." Texas itself proposes that the case is about “the right to stimulate one’s genitals for non-medical purposes unrelated to procreation or outside of an interpersonal relationship.” (See Dorf's Findlaw.com column which discusses the importance of the level of generality in phrasing rights.)

The Fifth Circuit uses Lawrence v Texas as its guide. Lawrence struck down a(nother) Texas law that made it a crime to engage in consensual homosexual intercourse and struck down Bowers v Hardwick (a 1986 case that upheld a similar law). The Fifth Circuit quotes Lawrence:

To say that the issue in Bowers was simply the right to engage in certain sexual conduct demeans the claim the individual put forward, just as it would demean a married couple were it to be said marriage is simply about the right to have sexual intercourse. The laws involved in Bowers and here are, to be sure, statutes that purport to do no more than prohibit a particular sexual act. Their penalties and purposes, though, have more far-reaching consequences, touching upon the most private human conduct, sexual behavior, and in the most private of places, the home.

They emphasize [conservative get-government-off-our-back types take note]: "The right the Court recognized was not simply a right to engage in the sexual act itself, but instead a right to be free from governmental intrusion regarding 'the most private human contact, sexual behavior'." The Fifth Circuit notes that in Lawrence, the Supreme Court "expressly held that 'individual decisions by married persons, concerning the intimacies of their physical relationship, even when not intended to produce offspring, are a form of ‘liberty’ protected by the Due Process Clause of the Fourteenth Amendment. Moreover, this protection extends to intimate choices by unmarried as well as married persons'.” (It took the law a while to recognize that privacy attached to individuals, not marriages, as the right to privacy grew out of a 1965 case Griswold v Conn. involving the right of married couples to use contraceptives.)

What's important Lawrence and this ruling is the precedence given to individual liberty over the state's interest in "public morality laws" (badly named because the act is done in private). Texas asserts an interest in "discouraging prurient interests in autonomous sex and the pursuit of sexual gratification unrelated to procreation and prohibiting
the commercial sale of sex." The Fifth Circuit notes:

In Lawrence, Texas’s only argument was that the anti-sodomy law reflected the moral judgment of the legislature. The Court expressly rejected the State’s rationale by adopting Justice Stevens’ view in Bowers as “controlling” and quoting Justice Stevens’ statement that “‘the fact that the governing majority in a State has traditionally viewed a particular practice as immoral is not a sufficient reason for upholding a law prohibiting the practice.’”

The Fifth Circuit also notes that the "commercial sale of sex" is a problematic formulation:

The sale of a device that an individual may choose to use during intimate conduct with a partner in the home is not the “sale of sex” (prostitution). Following the State’s logic, the sale of contraceptives would be equivalent to the sale of sex because contraceptives are intended to be used for the pursuit of sexual gratification unrelated to procreation. This argument cannot be accepted as a justification to limit the sale of contraceptives. The comparison highlights why the focus of our analysis is on the burden the statute puts on the individual’s right to make private decisions about consensual intimate conduct. Furthermore, there are justifications for criminalizing prostitution other than public morality, including promoting public safety and preventing injury and coercion.

Frankly, I'm skeptical that prostitution laws uphold public safety - prostitutes are harmed all the time partly because they cannot go to the police and report injuries. That's a different story, but see the decision by a New York court striking down the prostitution law and Stanford Encyclopedia of Philosophy entry on Feminist Perspectives on Sex Markets.

[Hat tip to Health Law Blog]

Of Related Interest

The Technology of Orgasm: "Hysteria," the Vibrator, and Women's Sexual Satisfaction by Rachel Maines (Johns Hopkins University Press 2001)

Amazon ~ Ch 1 (via New York Times)

Danielle J. Lindemann, Pathology Full Circle: A History of Anti-Vibrator Legislation in the United States, 15 COLUM. J.GENDER&L. 326, 327–30, 336–41 (2006).

Getting Tough on Corporate Crime? Paul's Talk on YouTube (plus some comments on subprime wrongdoing)

2008-02-11T02:41:43Z

Back in 2004, I had the opportunity to write a piece with Jeffrey Reiman, A Tale of Two Criminals: We’re Tougher on Corporate Criminals, But They Still Don’t Get What They Deserve. It grew out of several invited lectures I gave, including a Distinguished Visiting Faculty Lecture at Eastern Kentucky University. The folks there recorded the lecture and have just posted it on YouTube.

If the embedded player doesn't work, here's the link for the playlist (six parts of about 10 minutes each). And just to make sure it's accessible - Part 1, Part 2, Part 3, Part 4, Part 5 and Part 6.

Many thanks to Carole Garrison and EKU multimedia for making this happen.

SUBPRIME FINANCIAL SCANDAL

Subprime Primer - very funny, direct, sometimes crude but helpful short explanation (stick figures in 45 powerpoint slides). Worth checking out.

On the first page of the Tale of Two Criminals article, I added a box, "Questions we should be asking" and included this:

Why, soon after the S & L crisis, did Congress go on a wave of “cavalier” financial deregulation, creating a “paradox of increasing financial deregulation coming on the heels of the most catastrophic experiment with deregulation in history” [Calivita, Pontell & Tillman, Big Money Crime: Fraud and Politics in the Savings and Loan Crisis]. This question is especially important in light of complaints - discussed in the final section - that the Sarbanes-Oxley reform legislation goes too far, it's unnecessarily rigorous and should be relaxed.

While Sar-Box "reform" is still an issue - it is such a hassle to make sure there's no fraud - what we have seen is massive problems with subprime lending and a host of financial products (CDOs, etc) related to them. Forbes magazine asks: Credit Crisis: Where was the SEC? (via Financial Armaggedon). A few snippets:

Investment banks, mortgage brokers and ratings agencies are all being blamed for the subprime mortgage bubble and its sudden and stunning demise. But little has been said about the watchdogs at the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority, the regulators who oversee the activities of the banks. They have the power to stop fraud in the business of selling the complex credit derivatives, and they have jurisdiction over whether the complex securities sold by the banks met suitability requirements for the investors who bought them. Yet time and again, they've failed to do so...
Washington and Wall Street have been hesitant to clamp down on the over-the-counter market, the source of much profit-making. Last year, as the subprime market began its collapse, the President's Working Group, which includes the Treasury Department, the Federal Reserve, the SEC and the Commodities Futures Trading Commission, recommended against tighter oversight of the over-the-counter market, in the context of vetoing tighter regulation of hedge funds, saying the industry can self-police...

Leaving it up to Wall Street hasn't proven very effective, however. "The decision by the President's Working Group to recommend no detailed regulation of the over-the-counter market was wrong," says David Ruder, a former SEC chairman and now law professor at Northwestern University.

Thepriceofeverything blog comments on the ability to self-police: "After the dotcom research fiasco (where $10bn was paid in settlement, mysteriously without any acknowledgment of blame) and now subprime, with the apparent connivance of the ratings agencies, expecting Wall Street and the City to show moral leadership is like expecting brothel-keepers to advocate chastity."

In an earlier piece I did with Jeff, Getting Tough on Corporate Crime, Enron and a year of Corporate Financial Scandals, we noted a huge conflict of interest with brokerage houses making millions in fees from companies and having supposedly independent analysts tout them to the public as stocks that should be bought:

brokerage firms came under fire because their high-profile analysts enthusiastically endorsed stocks publicly that they were disparaging privately (in emails), all because their firms derived underwriting fees or other business from the troubled companies. Salomon Smith Barney telecoms analyst Jack Grubman admitted that “The bank supported ‘pigs’ [i.e., stocks in poorly performing firms] in supposedly objective research notes to ensure that [those firms] granted Salomon investment banking business.” And Merrill Lynch internet analyst Henry Blodgett described some stocks as a “piece of shit” while recommending them to small investors.

Now, we see some different conflicts of interest with the ratings agencies like Moody's and S & P. They didn't catch all the problems with the bonds and financial products built off subprime loans, and gave the products the top AAA rating. (Imagine you paid Equifax for your credit score and they were dependent on your satisfaction for you to continue pay...)

Moody's and S & P are now being investigated by New York State Attorney General Andrew Cuomo (where is the SEC? Indeed, with Enron and earlier frauds, then NY Attorney general Spitzer did most of the work.) The ratings agencies are going to change the system they use and decide whether to put warning labels on their ratings. Barry Ritholtz, a NY hedge fund manager, suggests this:

WARNING: THESE BONDS HAVE BEEN RATED AAA BY A MAJOR RATING FIRM. THESE RATING FIRMS HAVE PROVEN THEMSELVES TO BE CLUELESS, MONEY-LOSING INCOMPETENTS IN EXCESS OF A TRILLION DOLLARS IN LOSSES. THEY WERE PAID HANDSOMELY BY THE BOND UNDERWRITER, AND ARE HOPELESSLY COMPROMISED. PURCHASERS OF THESE BONDS ARE ADVISED TO IMMEDIATELY KILL THEMSELVES, THUS SPARING THEIR LOVED ONES EMBARRASSMENT IN THE FUTURE. ALSO, THESE BONDS MAY LOSE VALUE. I JUST WET MYSELF MERELY THINKING ABOUT THIS PAPER. WHILE PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RETURNS, YOU SHOULD BE AWARE THAT PAST PERFORMANCE ALSO SUCKED. DONT BLAME US IF YOU LOSE ANY MONEY, AS WE HAVE NO IDEA WHAT THE F$#@ WE ARE DOING ANYWAY. REALLY, YOU ARE ON YOUR OWN.

Ouch. While you're over at Barry's blog, check out his posting on "occupancy fraud" and the attempt to shift blame for the problems onto individuals: "Zero adult situation across the entire process, and now, wild ass covering and blame shifting."

Looks like we're in good shape - do nothing about this mess, undo Sar-Box soon and wait for the next massive fraud that will take everyone by surprise.

Baze v Rees and the Future of Lethal Injection

2008-01-31T15:08:15Z

The Supreme Court just heard a case challenging aspects of the way states administer lethal injection. There is only a slim chance the Court's decision will have far-reaching implications, but it is an opportunity to peek into the process that apparently would be illegal to use to euthanize an animal in Kentucky (where the case originated). So, if you put you dog or cat to sleep using the combination of drugs Kentucky uses on condemned men, that would be illegal in Kentucky.

On the other hand, Kentucky has only done 1 execution and there was not a problem. So the case involves potential problems with the execution protocol, focusing on concerns about administration of the drugs. For example, during oral argument, Justice Stevens forced the concession that if the protocol was followed, there would be no case. But he was also deeply disturbed that one of the drugs in the mix is given to paralyze the inmate but does nothing to bring about death; it prevents contortions and other signs that might be disturbing to witnesses and supposedly contributes to the 'dignity' of the execution. But if the first drug - a pain killer what quickly wears off - is not given in a high enough dose, then the inmate would experience severe pain from the second two drugs.

As a quick review: The first drug is sodium thiopental, a "fast-acting barbiturate" that makes the inmate unconscious. The second drug is pancuronium bromide, which causes paralysis and stops muscular movement. The third drug is potassium chloride, which causes cardiac arrest. The sodium thiopental is fast-acting and fast-wearing off, so if the dose is not high enough, the condemned will feel both burning from the other drugs being injected and a "chemical asphyxiation" (choking, etc). But because of the pancuronium bromide, the condemned is paralyzed and unable to show pain. For this reason, the veterinarians do not use it and argue they can more closely monitor the euthanasia of animals.

It seems like the problem should be easy to fix by drawing on doctors to come up with the right dosage and mix to do the job right. But the American Medical Association ethics prohibit doctors being involved in any way. Medical ethics call for doing no harm and require informed consent for medical procedures or specific directives for withdrawing care (and letting the underlying disease cause death). Having doctors participate in executions might also undermine public confidence in medicine, so the American Society of Anesthesiologists has a brief telling the Court that there are problems but they can't help - it is not a health issue or a medical problem.

So, fixing the problems represents a problem. So does keeping the present system. And the case itself seems to have an inadequate basis for the Court to raise some issues it might want to hear (i.e. alternate drugs and combinations). Finally, the Court has stayed all lethal injections pending the decision here, which means that sending the case back for additional argument would effectively put a moratorium on executions for the near future. Declaring lethal injections unconstitutional until further study would mean going back to electrocutions, maybe even a hanging or firing squad. (Justice Scalia sees no problem with the current system, so there is part of the Court that wants to vote against the inmates and resolve the uncertainty solidly in favor of the present system.)

Welcome to the American death penalty, 2008.

For more information, the following current resources are available:

Background brief from Cornell Law School; Berkeley Law School "resource kit" on the case; Supreme Court wiki materials.

Transcript of oral argument (note on p 29: the state has practiced and done the execution drill 100 times, but only executed 1 inmate. And people ask why the death penalty is more expensive than life in prison!) The Oyez project has an audio file for those who want to listen to oral argument plus the full transcript.

Links to all briefs in the case (Berkeley Law School/lethalinjection.org) While all the briefs are interesting in some way, I'd suggest the Brief of the American Society of Anesthesiologists (filed "in support of neither party") and the brief by the veterinarians (filed in support of the condemned). The Brief of Critical Care Providers and Clinical Ethicists is quite detailed about pancuronium bromide and filed on behalf of the condemned. [There's also a .pdf summary of all the briefs.]

Sentencing Law Blog (written by a law prof) has background on this case, other challenges to lethal injection and will do a better job keeping current than I will). Prof Berman also has an 8 minute podcast.

Observations Regarding Lethal Injection, by the President of the American Society of Anesthesiologists (30 June 2006). Good brief summary of ethical issues, and part of what I found interesting:

Even more troubling to me is the Missouri court’s move to require an environment more like an “operating room”. I am concerned because anesthesiologists actually have more of a reason not to be involved than other physicians. The more the execution looks like an anesthetic, the less comfortable patients are likely to be with anesthesia. Surgery is already a frightening time and one in which patients need to trust their anesthesiologist. The last thing patients need is to equate the O.R. with a death chamber, to equate anesthetic drugs with death drugs, or to have in their subconscious the specter of the anesthesiologist as an executioner.

Lethal Injection for Execution: Chemical Asphyxiation? Article in the peer-reviewed Public Library of Medicine journal.

If that's not enough, the Supreme Court wiki has links to more news articles and blogs.

Listening to

Morphine

Cure for Pain

Former Prez Jimmy Carter

2007-11-24T05:34:40Z

I was at the American Society of Criminology meeting in Atlanta last week, and the keynote talk was given by former President Jimmy Carter. I've always appreciated his human rights work, his involvement in Habitat for Humanity and his humble ethic of service.

Among the highlights:

When asked about Christianity and the many who call themselves Christian but do not share his values, Carter commented "I worship the Prince of Peace, not the Prince of Pre-emptive Strikes."

He articulated human rights as simple common sense - the right to have a job, the right to have shelter, the right to have food, the right to basic health care, the right to some human dignity and the right to hope for a better future. [Hallelujah!]

Yes, a silly picture of Jimmy Carter with a cell-phone camera from across a large ballroom.

He did a great job during the question and answer, especially the final question about whether the reputation of the U.S. was irreparably injured in the global community. No, Carter said - the next president could take huge steps to fixing it in the first 10 minutes. State: The U.S. will not torture; we will abide by the Geneva Convention; we will respect nuclear non-proliferation agreements; we will abide by the Kyoto Protocol on global warming; ...

So, which one of the many presidential candidates in our great two party system will do that?

Black Swans, Banks and Bird Flu in the U.S.

2007-11-06T04:33:32Z

In nature, swans are white, but black swans are a low probability event that is observed with regularity. In other contexts, a black swan is a low probability event with serious, even catastrophic consequences. Terrorism is a prime example of a black swan event, and I earlier blogged about the simulation of a 10 megaton nuclear weapon in a shipping container being sent to the port of Los Angeles. Now, we have another simulation of a black swan event - an examination to see how the U.S. financial system would hold up to a bird flu pandemic that could happen if the virus mutated so it could be spread human to human.

The simulation imagines human to human transmission that starts in Asia but quickly spreads because of airline passengers.

One of the biggest challenges financial institutions will face is how to cope with absenteeism. In week one, the Treasury exercise directs the financial organizations to assume that 25 percent of their work force is not coming to work, either because of illness or because of fear of being infected or because they are staying home to take care of children who can't go to school because the schools have closed.

To decide who is absent, the Treasury directs the institutions to assume that everyone whose last name begins with certain letters, which could cover the bank president down to the local teller, cannot come to work. The 25 percent absentee rate will jump to 49 percent in week two.

[snip]
Absent employees won't be the only troubles facing the financial institutions. Under Treasury's scenario, they also will have to cope with shrinking Internet bandwidths as more and more people try to work from home. Cash withdrawals from ATM machines are expected to rise sharply and getting the machines refilled will present problems because of rising absentee rates at the armored car companies and the difficulty of getting fuel for the armored trucks as gasoline refineries curtail their production.

The simulation finished last month, although it will be a while before all the results are analyzed a report comes out. In the meantime, TheStreet.com recommends you prepare for the bird flu also. I'm not so sure, but I would look over the recommendations and see which ones reinforce other disaster preparedness ideas you might already be considering. If you take this seriously, then check out PlanForPandemic.com and PandemicFlu.gov.

Many people like the idea of putting away gold or silver in case of an emergency, especially "junk silver" coins. [Before 1964 U.S. coins were made with silver, giving them a value because of the precious metal and would be easy to trade because it is a known amount of silver in smaller coins instead of a gold bar.] But note that the U.S. Treasury claims the power to seize not just precious metal but all other financial assets if necessary. You can rub your eyes and blink again, but the sentence will read the same. And it is based on a letter from the Trasury, not the rantings of a paranoid here-comes-the-black-helecopters type.

Now, back to your regularly scheduled reality...

Listening to

Annie Lennox

Songs of Mass Destruction

Corrections Corporation of America Votes Down Transparency on Political Donations

2007-10-24T03:26:29Z

As part of work for a new project (more details to come soon), I've been reviewing the Securities and Exchange Commission filings of the Corrections Corporation of America, which is the largest private prison company in the US. Each year, companies traded ont he stock exchange have annual meetings where shareholders get to vote on issues related to governance, which are reported in form 14A (definitive proxy). For 2007, the following proposal by a group of activist shareholder nuns caught my eye. What's in the box below is the exact writeup from CCA's 2007 14A (see p 29-31):

PROPOSAL 5 – PROVIDE SEMI-ANNUAL REPORTS TO STOCKHOLDERS REGARDING THE COMPANY’S POLITICAL CONTRIBUTIONS AND EXPENDITURES

Stockholder Proposal

Sisters of Charity of the Blessed Virgin Mary, 205 W. Monroe, Suite 500, Chicago, Illinois 60606-5062, beneficial owner of at least 100 shares of our common stock, Mercy Investment Program, 205 Avenue C, #10E, New York, New York 10009, beneficial owner of 200 shares of our common stock, and The Province of St. Joseph of the Capuchin Order, 1015 North 9th Street, Milwaukee, Wisconsin 53233, beneficial owner of at least 100 shares of our common stock, have given the Company notice that they intend to present the following stockholder proposal at the Annual Meeting. In accordance with applicable proxy regulations, the proposal and supporting statement, for which the Company accepts no responsibility, are set forth below.

Corporate Political Contributions and Trade Association Dues
Corrections Corporation of America – 2007

Resolved: that the shareholders of Corrections Corporation of America hereby request that our Company provide a report, updated semi-annually, disclosing our Company’s:

	1.		Policies and procedures for political contributions and expenditures, both direct and indirect, made with corporate funds.

	2.		Monetary and non-monetary political contributions and expenditures, not deductible under section 162(e)(1)(B) of the Internal Revenue Code, including but not limited to contributions to or expenditures on behalf of political candidates, political parties, political committees and other political entities organized and operating under 26 USC Sec. 527 of the Internal Revenue Code and any portion of any dues or similar payments made to any tax exempt organization that is used for an expenditure or contribution if made directly by the corporation would not be deductible under section 162(e)(1)(B) of the Internal Revenue Code. The report shall include the following:

	a.		An accounting of our Company’s funds that are used for political contributions or expenditures as described above;

	b.		Identification of the person or persons in our Company who participated in making the decisions to make political contribution or expenditure; and

	c.		The internal guidelines or policies, if any, governing our Company’s political contributions and expenditures.

This report shall be presented to the Board of Directors’ audit committee or other relevant oversight committee and posted on our Company’s website to reduce costs to shareholders.

Supporting Statements

As long-term shareholders of Corrections Corporation, we support policies that apply transparency and accountability to corporate spending on political activities. Such disclosure is consistent with public policy and in the best interest of our Company’s shareholders.

Company executives exercise wide discretion over the use of corporate resources for political activities. These decisions involve political contributions called “soft money.” They also involve payments to trade associations and related groups used for political activities that media accounts call the “new soft money.” Most of these expenditures are not disclosed. In the 2006 election cycle, Corrections

Corporation contributed at least $403,000 in soft money. (PoliticalMoneyLine: http://www.fecinfo.com/cgi-win/irs_ef_inter.exe?DoFn=&sText=1910&sYR=2006). In the 2004 election cycle, Corrections Corporation contributed at least $401,435 in soft money. (PoliticalMoneyLine: http://www.fecinfo.com/cgi-win/irs_ef_inter.exe?DoFn=&sText=1910&sYR=2004). In the 2002 election cycle, Corrections Corporation contributed at least $135,500 in soft money. (PoliticalMoneyLine: http://www.fecinfo.com/cgi-win/irs_ef_inter.exe?DoFn=&sText=1910&sYR=2002)

However, its payments to trade associations used for political activities are undisclosed and unknown. This proposal asks our Company to disclose its political contributions and payments to tax exempt organizations including trade associations.

The Bi-Partisan Campaign Reform Act of 2002 allows companies to contribute to 527s and to give to tax-exempt organizations that make political expenditures and contributions.

Absent a system of accountability, corporate executives are free to use company assets for political objectives that are not shared by and may be inimical to the interests of a company and its shareholders. Relying on publicly available data does not provide a complete picture of the company’s political expenditures. Our Company’s Board and shareholders need complete disclosure to be able to fully evaluate the political use of corporate assets. Thus, we urge your support for this critical governance reform.

The Response of the Board of Directors to the Stockholder Proposal

The Board of Directors has considered this proposal and believes that its adoption is unnecessary and would not be in the best interests of the Company or our stockholders.

The Board believes that participating in the political process is an important means to enhance stockholder value and promote good corporate citizenship. From our perspective, it is important that federal, state and local governments have an understanding of how their actions impact the Company’s business, customers and employees as well as an understanding of the benefits of public-private partnerships and the Company’s ability to assist them in meeting their corrections needs. Consequently, we communicate with government organizations and officials about our business concerns and the services we provide. We also seek to be an effective participant in the political process by making prudent political contributions that are consistent with federal, state and local laws. We also contribute to tax-exempt organizations, some of which may make political expenditures, from time to time when we believe that doing so is in the best interests of the Company and its stockholders. When made, such contributions are not earmarked and thus may be used for non-political purposes such as research activities, charitable endeavors, education initiatives and public information campaigns.

The Company’s ability to be active in the political process is already limited by numerous federal, state and local laws and regulations that restrict the organizations and entities that may receive corporate funding. In addition, political contributions are subject to extensive disclosure requirements by both the federal and state governments. The Company also has in place established budgeting, reporting and compliance procedures that are designed to ensure that all of the Company’s political activities are subject to the Company’s budgeting process, known and evaluated by management and in compliance with applicable laws and regulations, including laws requiring public disclosure. Such procedures and the contributions made by the Company are subject to oversight by the Board, through its Nominating and Governance Committee.

Overall, the Board deems the Company’s political activities to be important efforts that should not be burdened by special disclosures in addition to those required by federal, state and local regulatory authorities. We also believe that the high level of disclosure that is already publicly available is sufficient to provide information to stockholders and others who are interested in the Company’s political activities, and that the Company’s current budgeting, reporting and compliance activities are sufficient to ensure accountability. Accordingly, we believe that the time and expense that would be required to implement the proposal would result in little, if any, corresponding benefit to the Company’s stockholders.

For these reasons, the Board of Directors unanimously recommends a vote AGAINST this proposal.

Approval of the proposal requires the affirmative vote of a majority of the votes cast on the matter.

Because most shares are owned by management and large institutions, shareholder votes go overwhelmingly in favor of what the Board recommends. The results are found in the 10Q form (p 40), filed after the annual meeting and we see:

On a stockholder proposal for the Company to provide a semi-annul report to stockholders disclosing certain information with respect to the Company’s political contributions and expenditures, 28,180,340 shares, or 25% of the shares present or represented at the Annual Meeting, voted in favor of the motion, 52,448,090 shares voted against the proposal and 33,524,778 shares abstained.

The 14A also contains new info on executive salaries, which I will soon use to update my existing page on why private prisons do not save money over public prisons (hint - the CEO's salary is $700,000).

This is disappointing but not surprising. It's no consolation, but CCA is in good company with Google. As a column on TheStreet.com explains, the by the New York City Comptroller proposal meant

Google management would have been required to take all legal steps possible to fight any demand for censorship. The company would never have been required to break the law anywhere. But if a government wanted Google to start doctoring search engine results to suppress politically inconvenient truths, that government, any government, would have had to take the company to court to impose its will.

Not much to ask, really. But it was too much for Brin, Page and Schmidt. And it was too much for your fund manager. (Brett Arends, Funds Cave to Google Blind Eye at Censorship 9/26/2007)

Who needs political freedoms and transparency when you have capitalism?

Domestic Violence Awareness Month & Survivor Art

2007-10-11T01:33:16Z

In honor of Domestic Violence Awareness Month there was a candlelight vigil at SafeHouse, where I am a Board member. That's motivated me to finally get this post together and upload some pictures I've taken of the survivor artwork they have.

The usual question is "Why Does She Stay?" but we know the real question should be "Why Is He Violent?" Still, if this is the question you have, then read Why (Some) Women (Sometimes) Stay.

The issue is changing men's behavior, so I'd suggest checking out the resources on StopViolence.com about Men Working to End Violence Against Women.

For anyone who is motivated, you can donate to SafeHouse or use your Amazon account to order off their wishlist.