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Elizabeth Warren’s big win: The new, much-needed rule that could rein in Wall Street

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Andrew Burstein and Nancy Isenberg report in Salon:

Are you in the market for some good news? While everyone is being told to follow the excitement of the 2016 campaign to the exclusion of all else, out of the spotlight but not far away, the Obama administration is calmly trying to enact lasting progressive change. In the Labor Department earlier this month, consumer advocates won a big battle, as the vast middle class was “gifted” with a new requirement being placed on the financial services industry. As Massachusetts Sen. Elizabeth Warren explained, a glaring conflict of interest has been resolved in the favor of people saving for retirement. No longer can investment advisers recommend funds to their clients that reward them or their firms; instead, they must, without exception, direct customers into the best financial products, with lower or, sometimes, zero fees.

In her inimitable style, Warren crowed: “No more pushing products that generate financial benefits for advisers, while draining the customer’s savings.” It’s a very simple principle: “No more free vacations, cars, bonuses, fees, and other kickbacks.” Her mantra, as we know, is fairness. Her legislative agenda is to introduce new legal protections for consumers. She is quick to point out that most financial advisers are ethical, and work hard to help their clients. But these individuals have, for many years, been forced to compete with “slick-talking” advisers whose recommendations reflect personal incentives and produce “terrible results” for middle-class savers, amounting, the Labor Department says, to many billions of dollars.

Firms must now make a full disclosure. Facing the music, the largest independent company that manages retirement savings, with $450 billion in retirement assets, right away cut account fees for investors by “up to 30 percent.” Retirees win. The system can adapt. As Warren stated: “Americans are tired of a Washington that works great for the big guys and doesn’t work for anyone else.”

You know who she sounds like? Frances Perkins, Franklin D. Roosevelt’s secretary of labor for the entirety of his presidency, and the first female cabinet member in U.S. history. She should never be forgotten. Having personally witnessed the Shirtwaist Triangle fire of 1911, a tragedy in New York’s Greenwich Village that took the lives of 146 garment workers, a young and inspired Fannie Perkins resolved to devote herself to the cause of the American worker. As the accomplished business journalist Kirstin Downey lays out in her 2009 biography, Perkins pushed constantly for child labor laws, for safety regulations and a host of other fair labor practices. To prevent workers from descending into poverty, she urged compensation for workplace injury; she saw to the imposition of a minimum wage for the first time–which in the mid-1930s was around 45 cents an hour–and she pioneered unemployment insurance as we know it.

As compellingly up-front, if perhaps less pleasantly in-your-face than Warren is, Perkins told FDR when he was president-elect to think twice about naming her to the cabinet: “If you don’t want these things done…, I’d be an embarrassment to you.” She fed public demand. Fortunately for Roosevelt’s own historical reputation, he was not afraid of a strong woman. It is arguable that, were it not for Secretary Perkins, Social Security would never have happened.

At the same event at which Warren spoke, Sen. Cory Booker put in his own two cents when it came to the resistance of established financial firms to the “best interest standard” that the DOL has given life to. The New Jersey senator called the previous system that for so long “bilked” investors of their retirement saving “an assault on the ideals of this country.” Under the old rules, brokers only had to honor a level of ethical performance that was euphemistically called a “suitability standard,” and Republicans predictably complained that the Obama administration was trying to place “an undue burden” on finance professionals. Booker, like Warren, would have none of that. “We’re not surrendering to cynicism in this country,” he challenged. . .

Continue reading.

Good news is always a pleasure, and a kudos to Obama for this.

Written by LeisureGuy

23 April 2016 at 10:02 am

GAO: JPMorgan Chase Customers Lost $5.4 Billion to Madoff

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Pam Martens and Russ Martens report in Wall Street on Parade:

Buried in a report released yesterday by the Government Accountability Office (GAO) was a stunning piece of news. Customers of JPMorgan Chase, the bank that Wall Street analyst Mike Mayo has preposterously called the “Lebron James of banking,” were major victims of Bernie Madoff’s Ponzi scheme – to the tune of $5.4 billion – because of negligence on the part of the bank. The report states the following:

“In 2014, DOJ [Department of Justice] assessed a $1.7 billion forfeiture – the largest penalty related to a BSA [Bank Secrecy Act] violation – against JPMorgan Chase Bank. DOJ cited the bank for its failure to detect and report the suspicious activities of Bernard Madoff. The bank failed to maintain an effective anti-money-laundering program and report suspicious transactions in 2008, which contributed to their customers losing about $5.4 billion in Bernard Madoff’s Ponzi scheme.”

The JPMorgan Chase settlement with the Justice Department came in January 2014, more than two years ago, but thus far, according to the GAO, Madoff victims haven’t seen a dime of the money. According to the Special Master for the Justice Department, he’s still wading through 64,000 claim forms. The Justice Department’s Madoff Victim Fund functions separately from the victims fund being operated by the bankruptcytrustee, Irving Picard. That fund has already distributed $8.6 billion out of $11.1 billion recovered to date. The forfeiture laws under which the Justice Department’s fund will be operated allowed Madoff victims who invested through feeder funds, as well as through a direct account with Madoff, to submit a claim.

JPMorgan Chase and banks it had purchased had held the Madoff business account for more than two decades. According to the Securities Investor Protection Corporation (SIPC), the Justice Department prosecutors who settled the criminal case against JPMorgan Chase in the Madoff matter used the investigative material that Picard had already unearthed. That investigative material showed that JPMorgan Chase had relied on unaudited financial statements and skipped the required steps of bank due diligence to make $145 million in loans to Madoff’s business.

Lawyers for Picard wrote that from November 2005 through January 18, 2006, JPMorgan Chase loaned $145 million to Madoff’s business at a time when the bank was on “notice of fraudulent activity” in Madoff’s business account and when, in fact, Madoff’s business was insolvent. . .

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Written by LeisureGuy

22 April 2016 at 11:11 am

NYPD bullies bodega owners

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Sometimes the NYPD seems indistinguishable from a mafia-style criminal organization/protection racket. Radley Balko reports in the Washington Post:

The infuriating story of the day comes from ProPublica and the New York Daily News. It seems that New York police have been using nuisance laws to harass immigrant owners of bodegas, laundromats, and other small businesses. They claim the businesses aren’t doing enough to prevent criminal activity, aren’t doing enough to prevent the sale of alcohol to minors or are guilty of some other inaction. They then threaten to shut the place down unless the owner gives police carte blanche to co-opt their surveillance cameras, search their stores, and spy on their customers. ProPublica and the Daily News reviewed 600 such cases. Among the many disturbing things they found:

  • “Nine out of 10 nuisance abatement actions were against businesses located in neighborhoods where most of the residents are minorities.”
  • “The police begin nearly every case with a secret application to a judge requesting an order closing the business while the case is being decided, and before the owner has had the opportunity to appear in court. Judges approved the closure requests 70% of the time.”
  • “NYPD lawyers justify these emergency orders by claiming the illegal activity at the location is ongoing and poses an immediate threat to the community. But the Daily News and ProPublica found the NYPD didn’t get around to filing cases until, on average, five months after the last offense cited.”
  • “Most cases resulted in settlements, 333 of which allow the NYPD to conduct warrantless searches. In 102 cases, the owner agreed to install cameras that the NYPD can access upon request. Another 127 settlements require storeowners to use electronic card readers that store customers’ ID information, also available to the NYPD upon request.”

Most of the alleged “nuisances” appear to have been manufactured by NYPD officers themselves, such as sending an undercover cop or informant into a business to entice customers into buying stolen iPads or other electronics. . .

Continue reading.

Written by LeisureGuy

22 April 2016 at 11:08 am

Health Care Industry Moves Swiftly to Stop Colorado’s “Single Payer” Ballot Measure

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Somehow I don’t believe that the opposition is caused by concern for the patients and their health and convenience. Lee Fang reports in The Intercept:

The campaign in Colorado to create the nation’s first state-based “single payer” health insurance system, providing universal coverage and replacing insurance premiums with higher taxes, has barely begun.

But business interests in Colorado are not taking anything for granted, and many of the largest lobbying groups around the country and in the state are raising funds to defeat Amendment 69, the single-payer ballot question going before voters this November.

The Council of Insurance Agents & Brokers, a national trade group, is mobilizing its member companies to defeat single payer in Colorado. “The council urges Coloradans to protect employer-provided insurance and oppose Proposition 69,” the CIAB warns. The group dispatched Steptoe & Johnson, a lobbying firm it retains, to analyze the bill.

Lobby groups that represent major for-profit health care interests in Colorado, including hospitals and insurance brokers, are similarly mobilizing against Amendment 69. The Colorado Association of Commerce & Industry — a trade group led in part by HCA HealthOne, a subsidiary of HCA, one of the largest private hospital chains in the country — is soliciting funds to defeat single payer. The business coalition to defeat the measure also includes the state’s largest association of health insurance brokers.

The proposal calls for the Colorado legislature to pass new laws raising $25 billion a year from a mix of employer payroll taxes, a 3 percent tax on employee gross pay, and a new tax on self-employed net income. The money would be used for a new health care system that would cover all premiums and out-of-pocket costs for health and dental care. The state would also be charged with negotiating for better prices for drugs and with providers. Supporters of the plan say the system would save $4.5 billion a year.

I asked Sean Duffy, a spokesperson for “Coloradans for Coloradans,” an ad-hoc coalition against the single-payer ballot measure, how the state should address high health care costs and those struggling to afford health insurance premiums.

We are focused on sharing with Coloradans the numerous questions, ambiguities, and concerns with Amendment 69,” said Duffy. He noted that “motivations for universal coverage are shared by many in Colorado” but that making Colorado a “one-state experiment, and the cost of doubling our state budget, potentially diminishing the accessibility and quality of care and creating an unaccountable, massive bureaucracy is just not a good idea for Colorado.”

The U.S. is the only wealthy nation without a publicly financed universal health care system — and spends far more than every other industrialized nation on health care costs. America also has one of the highest infant mortality rates of countries ranked by the Organization for Economic Co-operation and Development.

Patients using Medicare, the single-payer program for the elderly set up by President Lyndon Johnson, consistently tell pollsters that they prefer Medicare over private insurance. But expanding the system has proven difficult over . . .

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Written by LeisureGuy

22 April 2016 at 11:04 am

Why Haven’t Bankers Been Punished? Just Read These Insider SEC Emails

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Jesse Eisinger reports in ProPublica:

In the late summer of 2009, lawyers at the Securities and Exchange Commission were preparing to bring charges in what they expected would be their first big crackdown coming out of the financial crisis. The investigators had been looking into Goldman Sachs’ mortgage-securities business, and were preparing to take on the bank over a complex deal, known as Abacus, that it had arranged with a hedge fund. They believed that Goldman had committed securities violations in developing Abacus, and were ready to charge the firm.

James Kidney, a longtime SEC lawyer, was assigned to take the completed investigation and bring the case to trial. Right away, something seemed amiss. He thought that the staff had assembled enough evidence to support charging individuals. At the very least, he felt, the agency should continue to investigate more senior executives at Goldman and John Paulson & Co., the hedge fund run by John Paulson that made about a billion dollars from the Abacus deal. In his view, the SEC staff was more worried about the effect the case would have on Wall Street executives, a fear that deepened when he read an email from Reid Muoio, the head of the SEC’s team looking into complex mortgage securities. Muoio, who had worked at the agency for years, told colleagues that he had seen the “devasting [sic] impact our little ol’ civil actions reap on real people more often than I care to remember. It is the least favorite part of the job. Most of our civil defendants are good people who have done one bad thing.” This attitude agitated Kidney, and he felt that it held his agency back from pursuing the people who made the decisions that led to the financial collapse.

While the SEC, as well as federal prosecutors, eventually wrenched billions of dollars from the big banks, a vexing question remains: Why did no top bankers go to prison? Some have pointed out that statutes weren’t strong enough in some areas and resources were scarce, and while there is truth in those arguments, subtler reasons were also at play. During a year spent researching for a book on this subject, I’ve come across case after case in which regulators were reluctant to use the laws and resources available to them. Members of the public don’t have a full sense of the issue because they rarely get to see how such decisions are made inside government agencies.

Kidney was on the inside at a crucial moment. Now retired after decades of service to the SEC, Kidney recently provided me with a cache of internal documents and emails about the Abacus investigation. The agency holds the case up as a success, and in some ways it was: Goldman had to pay a $550 million fine, and a low-ranking trader was found liable for violating securities laws. But the documents provided by Kidney show that SEC officials considered and rejected a much broader case against Goldman and John Paulson & Co.

Kidney has criticized the SEC publicly in the past, and the agency’s handling of the Abacus case has been previously described, most thoroughly in a piece by Susan Beck, in The American Lawyer, but the documents provided by Kidney offer new details about how the SEC handled its case against Goldman. The SEC declined to comment on the emails or the Abacus investigation, citing its policies not to comment on individual probes. In a recent interview with me, Muoio stood by the agency’s investigation and its case. “Results matter. It was a clear win against a company and culpable individual. We put it to a jury and won,” he said.

Kidney, for his part, came to believe that the big banks had “captured” his agency — that is, that the SEC, which is charged with keeping financial institutions in line, had become overly cautious to the point of cowardice.


The Abacus investigation traces to a moment in late 2006 when the hedge fund Paulson & Co. asked Goldman to create an investment that would pay off if U.S. housing prices fell. Paulson was hoping to place a bet on what we now know as “the big short”: the notion that the real-estate market was inflated by an epic bubble and would soon collapse. To facilitate Paulson’s short position, Goldman created Abacus, an investment composed of what amounted to side bets on mortgage bonds. Abacus would pay off big if people began defaulting on their mortgages. Goldman marketed the investment to a bank in Germany that was willing to take the opposite side of the bet — that housing prices would remain stable. The bank, IKB, was cautious enough to ask that Goldman hire an independent manager to assemble the deal and look out for its interests.

This is where things got dodgy. . .

Continue reading.

I think in the area of regulating Wall Street and investigating crimes that may have been committed, the Obama administration, including the Department of Justice and the SEC, have failed us utterly, and the failure has not been accidental but the result of collusion between Wall Street and the Obama administration.

Written by LeisureGuy

21 April 2016 at 2:50 pm

At long last, time-and-a-half for overtime is restored for millions

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Naturally the GOP does not like it. The GOP works hard to ensure that employees are paid as little as possible and receive as few benefits as possible. That’s one reason I’m a Democrat. Nick Hanauer and Robert Reich write in the NY Times:

THIS summer the Department of Labor is expected to introduce new rules to restore overtime pay to millions of Americans — rules that require no congressional approval. From the fearful protests coming from Republican leadership, you’d think the sky was falling. “This mandate on employers will hurt the lowest paid American workers the most, by reducing their opportunities for a promotion or a better job,” said Senator Lamar Alexander of Tennessee, the chairman of the Health, Education, Labor and Pensions Committee.

In fact, far from the right’s end-of-the-world, Chicken-Little economics, restoring time-and-a-half overtime pay would return to American workers a protection they long had, one that made them more secure and productive.

Half a century ago, overtime pay was the norm, with more than 60 percent of salaried employees qualifying. These are largely the sorts of office- and service-sector workers who never enjoyed the protection of union membership. But over the last 40 years the threshold has been allowed to steadily erode, so that only about 8 percent qualify today. If you feel as if you’re working longer hours for less money than your parents did, it’s probably because you are.

Today, if you’re salaried and earn more than $23,600 dollars a year, you don’t automatically qualify for overtime: That means every extra hour you work, you work free. Under the new proposed rules, everyone earning a salary of $50,440 a year or less would be eligible to collect time-and-a-half pay for every hour worked over 40 hours a week.

According to the Economic Policy Institute, it would give 13.5 million more workers a new or stronger right to overtime pay — substantially increasing both middle-class incomes and employment. It’s not as high as the $69,000 threshold it would take to return to 1975 levels, after adjusting for inflation, but it’s a courageous step in the right direction. It’s like a minimum wage hike for the middle class.

Everybody knows Americans are overworked. A 2014 Gallup poll found that salaried Americans now report working an average of 47 hours a week — not the supposedly standard 40 — while 18 percent report working more than 60 hours. And yet overtime pay has become such a rarity that many Americans don’t even realize that a majority of salaried workers were once eligible.

In a cruel twist, the longer and harder we work for the same wage, the fewer jobs there are for others, the higher unemployment goes and the more we weaken our own bargaining power. That helps explain why over the last 30 years, corporate profits have doubled from about 6 percent of gross domestic product to about 12 percent, while wages have fallen by almost exactly the same amount. The erosion of overtime and other labor protections is one of the main factors leading to worsening inequality. But a higher threshold would help reverse this trend.

Under the restored salary threshold, employers would have a choice: They could either pay you time-and-a-half for your extra hours worked, or they could hire more workers at the standard rate to fill your previously unpaid hours. The former would grow your paycheck. The latter would increase your leisure time while directly adding more jobs to the economy. Either would be great for workers and great for economic growth.

Lower- and middle-income workers don’t stash their earnings in offshore accounts the way high-paid chief executives do — the more the typical worker is paid, the more she spends on goods and services. When workers have more money, businesses have more customers; and when businesses have more customers, they hire more workers.

Whether through an increase in consumer demand or a reduction in unpaid hours, a higher overtime threshold would increase total employment, tightening the labor market and driving up real wages for the first time since the late 1990s.

Senate Republicans have introduced legislation to block the Department of Labor from implementing the new rule, arguing that it would hurt workers and employers. True, some businesses predicated on low wages and abusive scheduling practices may struggle to adapt. But the great thing about capitalism is that where one entrepreneur fails, another quickly figures out how to fill his niche. Adapting to new challenges is what successful businesspeople do.

When it comes to labor standards, Senator Alexander and his Republican colleagues always sing the same old trickle-down tune: . . .

Continue reading.

Written by LeisureGuy

21 April 2016 at 11:25 am

Corporate ethics: Pretty low

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Two more examples, just in today’s news:

Mitsubishi Admits Cheating on Fuel-Economy Tests

In the latest scandal to hit the automobile industry, Mitsubishi Motors said on Wednesday that it had cheated on fuel-economy tests for an ultrasmall car it produces in Japan, acknowledging its engineers had intentionally manipulated evaluations.

The cheating affected about 620,000 cars sold in the Japanese market starting in 2013, Tetsuro Aikawa, Mitsubishi’s president, said at a news conference.

But the problem could stretch beyond that make of car. Mr. Aikawa said that the same testing method, which was in violation of Japanese standards, was used on other models in the country and that Mitsubishi was investigating whether fuel-economy ratings for other lines had been exaggerated as a result. . .

A Canadian Energy Company Is About to Expose an Inuit Community to Toxic Mercury

It’s a tale as old as time: energy company proposes big project, energy company says it will have no effects on the local population, local population says it’ll actually poison their land, and their people, for decades.

Classic!

The energy company in question here is Nalcor Energy, and the project is the multi-billion dollar Muskrat Falls hydroelectric dam in Labrador, Newfoundland, which got the green light from the provincial government in 2012. Flooding the reservoir to build the dam will release toxic methylmercury into the area around nearby Lake Melville, but Nalcor argues that it will be diluted enough to have no effect on the local Inuit population.

But a new study, commissioned by the aboriginal Nunatsiavut Government and completed by scientists from Memorial University, Harvard, and the University of Manitoba, says that the toxic mercury released during the dam’s construction will have highly detrimental effects on the area’s wildlife and the aboriginal people who live off of it.

More than 200 individuals (and their children and grandchildren) could be affected by the toxic mercury, the study’s authors concluded. Additionally, 66 percent of the community in nearby Rigolet will be pushed above acceptable mercury levels, per the most conservative US Environmental Protection Agency guidelines, according to the report. . . .

Written by LeisureGuy

20 April 2016 at 9:33 am

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