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The many extracts on these
pages are from copyright material. they are owned by the reference
given or its owner. They are reproduced here for educational purposes
and to stimulate public debate about the provision of health and aged
care. I consider this to be "fair use" in the common interest. They
should not be reproduced for commercial purposes. The material is
selective and I have not included denials and explanations. I am not
claiming that all of the allegations are true. The intention is to
show the general thrust of corporate practices as well as the nature
and extent of any allegations made.
The Banking
Marketplace
This page examines the financiers
marketplace, its ideology, its power, its control over other markets
including health care, and its political influence.
CONTENTS
Introduction
The heart of the
market
The increasing frequency and severity of
corporate fraud can be related to the embrace of market ideology and
its rigid implementation through legislation. It is not difficult to
make the connection or to understand why this is so.
As in the health care marketplace and in
health care fraud, success in making money and building empires on
Wall Street was validation of market thinking and sufficient reason
for ignoring all other considerations. In the 1980s and 1990s market
enthusiasm was intense and at the centre of this was Wall Street. The
mania spread from Wall Street across the USA and then across the
world.
Large financial institutions are the
incubators, the arbiters and the disseminators of market theory and
practice. They are also victims in the way they respond to the
pressures this theory generates.
In fact, if
you have to choose the primary breeding ground for the various
business misdeeds now consuming national attention, New York, I'm
afraid, is the place.
-----------------------------
No matter where they are, lines of blame for the companies'
current circumstances lead straight back to our city. And it's
disingenuous to pretend otherwise.
-----------------------------
It was New York investment bankers who drove the
mergers-and-acquisitions deal culture of the 80's and 90's and who
most aggressively oversold the myth of synergy that justified it.
It was New York investment bankers and their Wall Street brothers
who trained a generation of obedient American C.E.O.'s (by means
of stock-option-based compensation) to worry more about jacking up
their share prices in the short term than about running their
companies well for the long haul. It was they who permitted the
digital-technology giddiness of the late 90's to spread beyond
Silicon Valley; Palo Alto venture capitalists may have doled out
most of the initial dot-com money, but it was New York investment
bankers who took all those companies public for billions of
dollars, thus enabling the national festival of greed. It was they
who created an inherently corrupt equities research establishment.
It was they -- with their lawyers at the big New York firms -- who
invented the novel financial architectures of Enron and WorldCom,
just as it was the New York consulting firm McKinsey & Company
that provided Enron with its egregiously go-go, ultra-fast-company
ideology.
------------------------------
At Salomon, meanwhile, Grubman was also very lucratively combining
the roles of analyst and investment banker. It was he and his
Salomon colleagues who engineered the improbable acquisition of
M.C.I. by scrappy little WorldCom in 1997; without him, both
companies, and all their investors, might be doing just fine
today. Since 1997, Citigroup and Salomon have underwritten
telecommunications I.P.O.'s worth $17 billion, including those of
Global Crossing (whose board Grubman privately advised) and
Teligent; both companies are now bankrupt. Grubman attended
WorldCom board meetings and schemed with Salomon Smith Barney
bankers to funnel shares of hot I.P.O.'s to WorldCom executives
and directors.
City of Schemes
The New York Times October 6, 2002
to
contents
Relevance and Health
Care
This page examines some aspects of these
developments. Other aspects are addressed at multiple points on other
web pages about financiers and health care corporations.
The practices and beliefs described are
equally relevant to health care. The market sees health as a
commodity to be packaged and marketed for the benefit of
shareholders. They have demonstrated that fortunes can be made and
vast empires created by doing so. Even in places like Canada where
health is still seen by citizens as a service provided for the
community by the community they are selling Christmas health packages
to people who think in the corporate package mode. The health
benefits of this are minimal.
But at the
Personal Health Planning Institute in Calgary, the idea is taking
off. It's selling holiday packages ranging from $249 to
$3,000.
-----------------------------
Aimed at the overworked, stressed-out corporate junkie, a base
package buys a personal health screening profile, including a
battery of tests and a 20-page report with a rating from poor to
excellent.
Tying a red bow
around a $3,000 envelope gets the recipient six hours of clinical
testing, X-rays, blood work, a test to determine the "actual" age
of the patient's body versus the "real" age, a comprehensive
health report with action plans, 12 weeks with a personal health
coach and a checkup after six months.
------------------------------------
Another private clinic in the city is offering holiday deals on
MRIs, virtual colonoscopies and CT scans.
Would you ask Santa for a
free colonoscopy? : Clinics offer 'gifts of health' Calgary
Herald December 20, 2003
to
contents
Marketplace
Qualities
In his Boyer lectures on ABC radio Australian
author David Malouf described entrepreneurial capitalism as "an eye
for the main chance and the weakness of others". He was describing
the positive contribution these characteristics, inherited from our
convict ancestors, made to the development of Australia. If he had
added "weakness in the system" he would have described Wall Street
financiers. His insightful comments link success in the marketplace
to criminal tendencies.
Malouf might also have added that, in
Australia, society's subtle control of these entrepreneurial criminal
tendencies successfully harnessed and directed them for the benefit
of its acquisitive white colonial citizens. Overtly aggressive,
competitive and criminal tendencies were frowned on so holding them
in check and limiting their negative impact. While the taming of the
land was an accepted objective the other characteristics Malouf
praises were not sanctioned in the way they are today.
Community control and its subtlety might be
the key to a more balanced view, and to a more livable society in
civilisations based on capitalism.
The adverse experience of Australia's
Aborigines in confronting Malouf's white entrepreneurs in their
self-certain world would suggest the need for definitions of
citizenship and society to be far more inclusive than at that
time.
The parallel with Aborigines is that the
financier's market, for all its importance for the physical well
being of society, is in its "malignant self-certainty" equally blind
to the adverse impacts it has on much of the rest of that society - a
society which it looks down on.
to
contents
Self
Regulation
Self regulation of an industry presupposes a
high degree of professionalism, and a supportive environment.
Professionalism has a history of bending before strong social
pressures. This has happened in health care under fascism, apartheid
and more recently market corporatisation in the USA.
The same thing seems to have happened in the
financial markets. The intense competitive pressures generated by
modern market thinking leaves little room for professionalism. As a
consequence the regulatory process has been captured by the industry
itself. The following is from an article about the US stock exchange.
The article deals with its failures and its conflicts of
interest.
Supervision
of the markets by the industry itself was a cornerstone of the
Securities Exchange Act of 1934 that arose out of the market
crises during the Great Depression and also created the Securities
and Exchange Commission.
The intellect
behind the concept that Wall Street was in the best position to
police itself was William O. Douglas, whose brief tenure as head
of the commission before becoming a Supreme Court justice is
generally regarded as the most productive and innovative in the
history of the agency.
Douglas
maintained that it was "impractical, unwise and unworkable" for
the government to try to directly regulate the thousands of
brokers, dealers and specialists of all of the stock markets,
which were decentralized - - - - -
--------------------------------
But Douglas also concluded that the great danger of an
industry-imposed regulatory apparatus might be doomed to failure
because the regulators could, in effect, be "captured" by the
industry itself.
He thus proposed
that the industry oversight be closely monitored by the commission
to keep it from becoming too passive or laden with conflicts of
interest.
-------------------------------
But it has not always worked that way. Market failures in the
1950's and again in the 1970's and 1990's resulted in overhauls of
some of the markets' police, and now the issue has arisen
again.
The current
review of the structure of the stock exchange follows growing
criticism of the exchange for attempting to simultaneously police
and promote itself, a practice that other experts and
institutional investors say poses an inherent conflict of
interest.
--------------------------------
New York exchange officials have denied the existence of a
conflict, saying that the recent compensation issues leading to
the departure of Mr. Grasso had no bearing on the ability of the
exchange to prosecute brokers and specialists who trade on insider
information or who manipulate stock prices.
Growing S.E.C. Role In
Big Board Reform The New York Times September 26, 2003
to
contents
A
continuation of past
practices
"If you go
back into history, this is hardly the first time securities firms
have had to deal with serious damage to their reputations. There
were the 1930s and the years after 1912 that led to the creation
of the Federal Reserve," says Raphael Soifer, a veteran Wall
Street banking analyst who now heads his own consulting company.
"But if you go back and look at them all, the loss of public
confidence did more damage to the industry than anything the
courts and Congress were able to do. I think this will be no
different. For many public investors it will be many years before
they come back into the market."
Wall Street under fire: daily, complaints grow of unfair
treatment and unethical deals: Financial Times
(London,England) October 4, 2002
What happened during the DotCom era, and was
exposed during the waves of scandals which followed should come as no
surprise when the past conduct of these companies is examined. On the
three previous pages I looked at the skeletons in the cupboards of
the John Reed run Citicorp/Citibank
arm of Citigroup, the Sandy Weill run
Salomon Smith
Barney/Travellers arm, and the
continuation of theis conduct after
the merger. Both exhibited cultures
which would grasp any opportunity for profit and not look too closely
at the morality or consequences for others.
Salomon
Brothers was criticised in the 1980s
Maxwell scandal in the United Kingdom. It barely survived the bond
rigging scandal in 1991 yet was back indulging in allegedly illegal
share 'spinning' in 1997. Its staff were active in Smith Barney's
unsavoury practices following the mergers with Smith Barney and then
later in Citigroup when it embraced Smith Barney.
After all,
this wasn't the first scandal for many of these firms. Financial
regulators have stood the likes of Salomon Brothers in front of an
open grave before. After a bond-trading scandal in the early 90's,
Mr. Buffett, a shareholder at the time, was summoned to save the
firm from its own sharp practices. He then gave Salomon traders
some advice about integrity: "If I hear of an employee losing the
company money, I'll be understanding. However, if I hear of any
employee losing Salomon one shred of reputation, I'll be
ruthless!"
Though the
admonition was widely quoted and admired, careful readers will see
the Salomon name now embedded in Citigroup's Salomon Smith Barney,
one of the firms regulators have accused of
fraud.
A Fraud by Any Other
Name The New York Times May 4, 2003
Mr. Ebbers's
biggest winners came before Salomon merged with Smith Barney in
1997. He made $4.6 million on 100,000 shares of Metromedia Fiber,
a telecommunications company whose shares were underwritten by
three investment firms, including Salomon, in October
1997.
Ebbers Made $11 Million
on 21 Stock Offerings The New York Times August 31, 2002
It is a mistake to consider the pressures of
the DotCom bubble as the cause of the frauds. It merely exposed what
had been happening. It exposed the growing trend for the market, one
of society's structures, to misuse the citizens that structure should
have served -- and to undermine the basic value systems through which
society controls its members. The DotCom bubble was simply another
opportunity seized by those with an "eye for the main chance" and the
weakness of investors who depended on advice.
The tawdry behaviour by these financial
institutions is representative of what had been happening in the
heart of the market over many years. In a context where economic
success was its own validation no one was interested in looking, or
asking questions. That the problems became worse and worse as time
went by can be seen as a reflection of intensifying competition and
an unchallenged ideology being applied ever more
rigorously.
As financial institutions have spread across
the world, the market has become supremely arrogant and self
righteous. Their dominance and success has fuelled an omnipotent view
of the world - a view hardly dented by their misconduct.
The tone and
style of the US financier spread across Europe like margarine
-----------------------------
With the Asian financial system in ruins, the US financier has
moved in and is being embraced as never before.
----------------------------
The Goldman Sachs partner is the late 20th century
equivalent of the colonial administrator. He is the man who moves
into weaker countries and tells them how to behave.
------------------------------
The Goldman Sachs partner is freed from whatever self doubt he
might have felt; the entire industrialised world now recognises
his essential superiority.
----------------------------
The rule is that if you don't know who the bully in the global
economy is, you're the bully. As US bankers look down upon the
world with malignant self-certainty, they ought to keep
this rule in mind.
The Industrial World Bows
to the US financier: The Ways of Wall Street by Michael Lewis
The International Investment Week May 18, 1998
to
contents
Ideology
Mr. Oxley
(chairman of the House Financial Services Committee) is more
likely to line up with the industry than to combat it. A
conservative Republican from a mostly rural district, he says free
markets operate best when they are undisturbed by government
regulation. He came to Congress in 1981.
-----------------------------
Since January 2001, according to Federal Election Commission
filings, accounting firms, brokerage houses, banks, insurance
companies and their employees have poured $1.16 million into his
coffers and those of his political action committee.
Pipeline to a Point
Man The New York Times November 3, 2002
Self
Regulating Markets
At the same time as technology fever
increased during the 1990s "market think" in political and academic
business circles was becoming more intense and more ideological. In
order to improve competition and increase competitive pressures
government legislated to repeal older legislation that imposed
restrictions designed to avoid conflicts of interest and limit market
excesses. These were seen to restrict the markets and limit mergers
and takeovers. Past experience was ignored in the unfounded belief
that markets were self regulating.
The craze
(ie DotCom boom) had its roots in the Telecommunications
Act of 1996, which deregulated the industry and swept out rules
limiting competition. Soon, entrepreneurs saw a chance to build
huge networks crisscrossing the globe to serve the big jumps in
demand for data transmission.
Telecom's Pied Piper:
Whose Side Was He On? The New York Times November 18, 2001
Three years
ago Congress dismantled the Depression-era wall separating
commercial from investment banking.
Underwriting
Fraud The New York Times August 25, 2002
Mr. LaFalce
(ranking Democrat on the House Committee on Financial Services)
also asked the committee to examine whether the
Gramm-Leach-Bliley Act of 1999, which eliminated barriers for
banks from certain securities businesses, added to the potential
for conflicts. Regulators
Find MoreRed Flags In Another Analyst's Optimism The New York
Times September 12, 2002
Turning the
tables on Congress as the hearing moved to the historic causes of
the scandal, Mr. Spitzer (the New York attorney General who is
criticised because the US $1.4 billion fraud settlement is too
low) attacked "an overarching effort to deregulate the
financial services industry over the last 20 years."
Senators Question
Effectiveness of $1.4 Billion Settlement The New York Times
May 8, 2003
to
contents
Consolidation
and Diversification
By manipulating the market abstraction,
consolidation which reduced the number of competitors became
desirable and was seen to be more efficient - even more competitive.
Diversification which increased the conflicts of interest was seen to
be more competitive and to increase productivity. Building empires
was a greater marker of success than running them. Legislation was
repealed specifically to allow the 1998 merger of Reed and Weill's
empires to form Citigroup. What all this did was to create ever
larger empires, and ever more powerful individuals with ever greater
conflicts of interest - a potent witches brew.
The fluid
nature of the Grubman-Weill (Market Analyst for SSB and
Chairman of Citigroup) relationship underscores as well the
regulatory pitfalls that arise when financial conglomerates the
size of Citigroup try to please such diverse constituencies as
retail investors and investment banking clients, all with their
conflicting interests.
Citigroup's Chairman Is
Barred From Direct Talks With Analysts The New York Times
April 29, 2003
SOME of the
nation's biggest banks are being challenged for serving in dual
roles as lenders and advisers to troubled companies.
The situation
gives rise to conflicts, say the companies' creditors, adding that
it is the inevitable result of banks' increasingly diverse roles,
particularly in the two years since legislation eliminated the
separation between investment banking and commercial lending
businesses.
"Since the
repeal of the Glass-Steagall Act, this has been an issue," said
David Friedman, a partner with Kasowitz, Benson, Torres &
Friedman, which frequently represents the bondholders of companies
in distress.
----------------------------
Potential conflicts have arisen at commercial banks that have been
expanding into investment banking, including Citigroup, J. P.
Morgan Chase and Bank of America, Many
creditors are increasingly worried that big banks have conflicting
roles as both lenders and advisers. The New York Times June
13, 2002
A lawsuit
filed by a former high-level broker in Salomon's (part of
Citigroup) office in Atlanta indicates that different,
ostensibly independent, businesses within Salomon shared
significant information about WorldCom employees' investing plans,
putting Salomon in a position to profit at the expense of those
customers. Notebooks and diaries kept by the broker also contain
more examples of how Salomon's star research analyst, Jack B.
Grubman, served as a nexus through which privileged information
flowed between telecommunications companies and Salomon, and among
nominally distinct units within Citigroup.
The notes
also show the potential conflicts of interest that can arise at
huge financial conglomerates and the perils that consumers may
face when they entrust these companies with control over many
aspects of their lives.
In a Broker's Notes,
Trouble for Salomon The New York Times September 22, 2002
to
contents
Power
Jeffrey E. Garten, dean of the Yale School of
Management and a former investment banker who was Under Secretary of
Commerce for International Trade in the first Clinton Administration,
wrote an article for Business Week in January 1999 soon after the
Citigroup merger. While his article does not predict the problem of
socially immoral behaviour and regulatory failure, its prophetic
comments about the potential problems for society created by the
shifts in power in these massive mergers are well worth reading. Much
of what has happened is a consequence of this shift in
power.
The wave of
megamergers washing over the U.S. cannot be held back. But that's
no reason why we should ignore its impact on American society. The
past two years have seen some of the largest combinations in
history: Citibank and Travelers, WorldCom and MCI, Daimler and
Chrysler, and British Petroleum and Amoco, to name a few. Many
more huge transactions are pending, including Deutsche Bank and
Bankers Trust, Exxon and Mobil, and Aetna and Prudential
Health.
-----------------------------------
But the mergers raise a broad issue that goes beyond traditional
concerns. For example, antitrust issues could be a worry -- but
happily the Justice Dept. and the Federal Trade Commission are
alert to their responsibilities.
------------------------------------
The big problem with these gigantic mergers is the growing
imbalance between public and private power in our society. No one
should deny the importance of free markets as the best engine for
our economy and as protector of so much of our personal
freedom.
But it is
doubtful that Americans will equate Adam Smith forever with the
total interests of society. In the gilded age of J.P. Morgan and
John D. Rockefeller, for example, unchecked corporate power led to
a dramatic increase in government activism -- from antitrust laws
to the establishment of the Federal Reserve and the Securities
& Exchange Commission.
The
laissez-faire 1950s were followed by more than a decade of new
government mandates on business in fields such as environmental
cleanup and equal-opportunity employment.
LOCAL
LAPSES. Today, the pendulum is swinging again, as markets, and
particularly the megacorporations, come to dominate national and
global affairs. Of course, huge multinationals are nothing new,
but nowadays an era of Big Government is being superseded by the
age of global goliaths.
Superlarge
companies with interests and commitments stretching from Boston to
Brisbane are unlikely to focus as intensely as smaller ones do on
support for the local neighborhoods -- the schools, the arts, the
development of research activities, the training of potential
workers.
Big companies
have disproportionate clout on national legislation. Our
scandalously porous laws for campaign contributions leave little
doubt that megacompanies will exercise huge power over politicians
when it comes to such issues as environmental standards, tax
policy, Social Security, and health care.
------------------------------------
Megacompanies are almost beyond the law, too, because their
deep pockets allow them to stymie prosecutors in ways smaller
defendants cannot. Or, if they lose in court, they can pay large
fines without much damage to their operations.
NEAR EQUALS. Corporate giants will also exert massive
pressure on America's international behavior. - - - - - - -
Companies like Exxon-Mobil Corp. will deal with oil-producing
countries almost as equals, conducting the most powerful private
diplomacy since the British East India Company wielded
near-sovereign clout throughout Asia.
The American
economic system is at its best when public and private needs are
balanced. The sheer magnitude of mergers is skewing the
equilibrium.
What can be
done? The obvious priority is serious campaign-finance reform to
prevent any single economic interest group from controlling
national politics. There may also be a variety of tax and
regulatory questions that will make Washington more effective in
keeping up its end in the seesaw of public and private
power.
------------------------------------
Finding the right balance between markets and the public
framework in which they operate is the most important issue of our
times.
MEGAMERGERS ARE A CLEAR
AND PRESENT DANGER Business Week January 25, 1999
to
contents
Power and
Corruption
These powerful individuals and the
institutions they controlled came to exert an ever greater control
over the political system and a disproportionate influence in
society. Society's ability to harness and direct was further
compromised.
Instead of society harnessing and controlling
the market, the wealth of the powerful billionaires was often used to
corrupt society - even to corrupting nursery school admissions.
Citigroup's billionaire chairman Sandy Weill is alleged to have made
a million
dollar donation to a nursery school
to ensure that Grubman's children be accepted. This was in exchange
for Grubman writing a suitably slanted "independent" analysts' report
on AT&T. This brought Citigroup a US $45 million contract.
Grubman alleged this also gave Weill the board room support he needed
to oust John Reed in a board room battle for control of the
company.
Helping out
with school applications greases the wheels of business and
philanthropy in New York and any other city where getting into
private schools is difficult.
Private Preschool
Admissions: Grease and the City The New York Times November
16, 2002
Less overt
than the naked political exchanges of United States senators or
Washington lobbyists, the favor bank has long flavored the ways by
which New Yorkers, especially, get into private schools, procure
dinner reservations, join a golf club and find a spouse. New
Yorkers rarely go to dinner just to go to dinner. They go to
dinner to promote their sub rosa agendas.
---------------------------
From England, where Mr. Homberger (author of books about US
society) lives, - - - - It reinforces his thesis, he said,
that Americans don't practice democracy as often as they preach
it. Doing Unto Others in
a Big Way The New York Times November 24, 2002
to
contents
Micro-economic
"Reform"
Modern management was, at this time
increasingly embracing micro-economic reform with its emphasis on
linking economic performance closely to remuneration - so targeting
employees self interest and harnessing them to the corporate profit
mission rather than their responsibilities to society. This was in
spite of the clearly demonstrated and predictable consequences of
this approach in similarly sensitive
areas like health. Doctors were
not
immune. It is hardly surprising that
offering bonuses for a willingness to exploit fellow citizens for
corporate benefit should be corrupting.
In many
cases, analysts were compensated not so much on how well their
advice served investors but rather how much their favorable
research commentary induced companies to steer business to their
firms.
S.E.C. Taking Closer Look
At Wall St. The New York Times June 1, 2002
According to
a former analyst at the firm, Mr. Grubman's (Citigroup analyst)
pay was tied specifically to the deals that the firm did in
telecommunications. "I remember meeting with these guys and they
would have a list of deals and they would say, 'Here's how much
we're paying you deal by deal,' " this person said. "There was a
formula." Telecom's Pied
Piper: Whose Side Was He On? The New York Times November 18,
2001
to
contents
The Witch's
Brew
The pressures driving inappropriate behaviour
were increased and given greater legitimacy at the same time as the
structures designed to control them were dismantled. Instead of
prohibiting dangerous practices they were permitted provided the
intention was not commercial advantage - without asking how you could
ever prove that intention. Any monkey who examined what was happening
would have predicted the outcome but the hunt for market reform by
intensifying competition was in full cry. None of the monkeys were
looking.
Banks were
entitled to give shares in hot initial public offerings to
favoured clients provided there was no understanding that the
share allocations were given expressly to generate further banking
business.
The Securities
and Exchange Commission, the US's chief financial regulator,
concluded in a study three years ago that there was no case to
bring against the banks, especially since there was no evidence of
a promise to give business in return.
Under federal
securities law, the transactions would have to be shown to be
commercial bribery to be considered illegal. Arthur Levitt,
previous head of the SEC, told the Financial Times recently that
he abhorred the IPO allocation practices and that they looked to
him "like commercial bribery". But securities lawyers say bribery
is hard to prove.
Wall Street under fire:
daily, complaints grow of unfair treatment and unethical deals
Financial Times (London,England) October 4, 2002
It is becoming increasingly obvious that the
market model which financiers and others have promoted so strongly is
not working. Those claiming to address the problems are only
twiddling with the economic details and not the powerful social
forces at work, or the belief systems driving the process.
For years,
only the bottom line mattered for Citigroup. The financial
conglomerate formed by the 1998 merger of Travelers and Citicorp
made mountains of money - Dollars 14.6bn (Pounds 10bn) last year -
and its shares consistently outperformed the competition.
But this year,
the biggest US financial company seems to be losing its hold on
investors. Citigroup shares have fallen 25 per cent since January,
and the company commands a lower price-earnings multiple than
other leading US banks.
Even investment
analysts recommending Citigroup see a problem. They say investors
are worried about the size and complexity of the company assembled
by Sandy Weill, 69, Citigroup's chairman and chief executive.
---------------------------
Diane Glossman, banking analyst at UBS Warburg, said: "The company
is involved in virtually every activity that is concerning
investors today. They are a complicated company in a market that
craves simplicity." Diversity
could come back to haunt Citigroup: The US financial group's
breadth of business may be a
risk,
Financial Times
(London,England) July 1, 2002
to
contents
The Nexus
between Business and Public Policy
"The
political situation in America just seems to be unremitting: money
talks," said John C. Nogle, founder and former chairman of the
Vanguard Group, discussing donations in general. "Corporations
don't make political contributions without the knowledge that they
want a return on their capital. There is no corporate investment
with a higher return on capital than political contributions."
-------------------------------
"What you're seeing with Oxley is a situation where it really pays
off for the industry," Mr. Noble said. "There was a lot of
pressure to look at the industry, and now the reports are it's
really been derailed and that's what the industry wanted. People
often ask what did the industry get; show us a bill the industry
got. But sometimes what's more important is the dog that didn't
bark, the legislation that never got passed."
An example may
be Mr. Oxley's lack of interest in the conflicts among Wall Street
analysts, an issue that is front and center with investors.
-----------------------------
Mr. Oxley has castigated Eliot Spitzer, the New York attorney
general, whose investigations into corrupt Wall Street research
have made him the most aggressive instigator for change among
brokerage firms. In a speech in May before the United States
Chamber of Commerce in Washington, Mr. Oxley said Mr. Spitzer's
$100 million settlement with Merrill Lynch, and the prospect of
others, "will seriously weaken the ability of American companies
to raise funds in the capital markets" and threaten to undermine
the national regulatory system set up to oversee market
participants. "Grandstanding by ambitious and publicity-hungry
political officials will not lead to healthy and responsible
securities markets, in my estimation," Mr. Oxley said.
Pipeline to a Point
Man The New York Times November 3, 2002
to
contents
Establishment
and Community
One of the weaknesses of modern democracy is
its susceptibility to dominance by establishment groups and
establishment figures within society. All too often they come to
dominate not only the political process but also the thinking of the
community. In contrast the strength of democracy is that it allows
for citizens to develop alternative points of view and so return to a
balanced society without violent revolution. This is never an easy or
painless process, particularly when the establishment takeover holds
all of the cards.
As I see it the problem for us today is that
the market and market thinking has become so pervasive and embraced
so many facets of our lives that there is far too little real
cooperative social activity which is not market based. The building
of community values and norms, and the exercise of the sort of social
constraints that might contain marketplace excesses is consequently
truncated.
An examination of the web pages on this site
shows how little room there is in the marketplace for the expression
of community values and norms. Donating to good causes is not the
same as participation. Health and aged care are two areas where the
exercise of values and norms has traditionally been encouraged and
strongly supported - but no more.
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Corporations and
Politics
Political donations, personal relationships,
close links with politicians, political appointments, targeted
corporate marketing, and extensive lobbying in the USA, all reveal
the extent to which an elite corporate "class" has come to dominate
public policy. Australia is is well down the same path.
The claim made by a government official in
Australia that the market is where the talent is, is valid. There are
now few credible non market community activities in which citizens
can exercise and reinforce values, develop talent and leadership
skills, and then follow a path into the corridors of
power.
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Politics
and Regulatory
failure
The influence of the marketplace
establishment is all pervasive. It gets what it wants and obstructs
what citizens want if this will impact on market interests. Arthur
Levitt was chairman of the SEC during the 1990s and was responsible
for prosecuting many of the earlier frauds in which Salomon Smith
Barney were involved. President Bush replaced Levitt with one of
Levitt's strongest critics, a more corporate compliant, market
focussed, and ineffective Harvey Pitt.
ARTHUR
LEVITT was one of the last honest men left standing when they put
out the lights on the Clinton administration. The longest serving
chairman of the Securities and Exchange Commission (1993-2001), he
was charged with regulating America's financial markets during an
economic boom that has now gone splendidly bust.
Levitt
confronted corrupt brokers and analysts who were profiting from
insider information. He fought price fixing on the stock exchanges
and battled to keep accountants from cooking corporate
books.
The politicians
who served these special interests accused him of being an
obstructionist who didn't understand the New Economy. Forget about
profits and cash flow, they said. We need a different kind of
metrics for measuring how information flows through the new
knowledge industries. Buy
Cheap, Sell Dear The New York Times November 24, 2002
For years
now, political reformers have been railing against the unseemly --
and rampant -- practice of former government officials pouring
through Washington's golden revolving door only to return a short
time later as well-paid lobbyists, auctioning off their access and
influence.
Well, compared
to the latest trend, turns out those were the good old days.
Today's new breed of public servants prefers to cash in while
still stalking the halls of power and deeply involved in the
highest levels of creating public
policy.
Having Your Souffle
And Eating It Too <http://www.truthout.org/docs_03>
March 26, 2003
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Ideological
Amnesia
No sooner were the massive scandals of 2001
to 2003 over than the market put it all behind them. It was back to
business as usual, minimising what had happened and networking with
compliant politicians to remove restrictions on business, and get the
laws they wanted passed. Wall Street is the heart of US capitalism
and its interests are still seen as the interests of the USA. This
"self evident" justification gets them what they want!
2003
On March 19, when it passed the Bankruptcy Abuse Prevention
and Consumer Protection Act of 2003, the House voted to remove a
significant restriction from the bankruptcy code that has barred
so-called interested parties from advising a company during
bankruptcy.
-----------------------------------
The restriction on interested parties has been in the bankruptcy
code since 1898. Understandably. Why should a firm earn fees
advising a company that it may have helped push into bankruptcy
by, say, loading on too much debt?
Jeff Lungren, a
spokesman for the House Judiciary Committee, whose chairman
introduced the bill, said barring investment bankers who are
familiar with a company's inner workings from advising it in
bankruptcy is inefficient and costly.
-----------------------------------
Stock and bond issuance is down, and so are banking fees.
Financial firms are naturally eager to earn money from bankruptcy
advice, and their lobbyists have been working the issue hard in
Washington. For the 12 months ended June 2002, the Securities
Industry Association and the Financial Services Roundtable, two
big industry groups, spent $10.5 million pleading their views.
---------------------------------
Arthur Levitt, a former chairman of the Securities and Exchange
Commission, said: "I haven't read a single argument made by the
investment banks that would persuade me that that prohibition
should be changed. What we're talking about is a significant
potential conflict of interest, and I think it is outrageous that
investment banks would even try to go down this road."
Outrageous,
perhaps, but not surprising. Investment banks and corporate
America want investors to get over the dreary corporate governance
craze already. Failures at Enron and WorldCom are so
five-minutes-ago. Never mind about the recent debacle at
HealthSouth. It is time to return to business as usual, when
corporate executives were worshipped and investment bankers
revered.
----------------------------------
Financial services firms may be able to use political influence to
win relaxed legislation and a new fee source. But having the
bankruptcy law changed to allow new conflicts of interest will not
help these firms win back the investor trust they have lost.
Advisers May Get Second
Chance to Fail New York Times April 6, 2003
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The Business
Round Table
A typical example of corporate influence is
the business round table in the USA. It is a self elected group of
powerful businessmen, each a leader of a corporate empire.
Citigroup's John Reed and Sandy Weill were both members as were a
number of others whose companies milked shareholders in the recent
market scandals.
The round table meets with the president at
least once a year but connects with senior sectors of the
administration far more often. It has separate groups examining
different policy issues and spends large sums in lobbying.
Over the years it has successfully opposed
many efforts to reform market practices. Of particular interest was
the round table's obstinate stance on executive options used as
incentives. This has been one of the major causes of problems in
health care and a major contributor to the latest financial
scandals.
It is perhaps typical that Bush should turn
to the round table to address transgressions in which so many members
of the round table have participated.
IN late
June, with the fresh indictments of two chief executives only the
latest in a seemingly endless string of business scandals,
President Bush invited the 140 corporate leaders who make up the
Business Roundtable to a briefing in the Old Executive Office
Building. The group meets with the president most summers, but
this time there was something new at the top of his agenda:
corporate accountability.
"I expect you,
as corporate leaders, to do everything within your power to bring
back trust in corporate America," Mr. Bush told the assembled
elite.
Soon thereafter,
the Business Roundtable -- the only business group named by the
president in his speech on Tuesday -- issued a statement saying
that its members were "appalled, angered and, finally, alarmed"
about the year's run of outrageous business news.
-------------------------------
For most of its 30 years, the Roundtable has remained a small,
effective, somewhat mysterious fraternity, far less visible but
far more influential than, say, the United States Chamber of
Commerce, and tightly focused on a few important topics on which
the government can affect business.
---------------------------------
Institutional investors, academics, consumer watchdogs and others
who monitor the goings-on in America's executive suites have their
doubts. What reforms can emerge from a process in which the top
executives themselves all play an instrumental role, they ask?
-------------------------------------
-- the Roundtable in the past has used its considerable powers to
block some of the very proposals now getting a second look in
Washington.
-------------------------------------
Even today, despite the rhetoric, the Roundtable opposes any
changes in the accounting treatment of stock options, the
seemingly obscure issue that many governance experts say is behind
exorbitant executive pay and has fueled the worst abuses of many
of the current scandals. (Reed and Weill were both active in
opposing this)
-------------------------------------
Founded by a handful of power brokers bent on building a pipeline
between the nation's corporate leaders and its top government
decision makers, its members today include - - - - , Sanford I.
Weill of Citigroup, - - - - and other chief executives chosen
for their wattage and corporate heft. Together, their companies
boast $3.5 trillion in revenue a year and employ about 10 million
people.
-------------------------------------
As a lobbying group, the Roundtable itself regularly comes in
second only to the Chamber of Commerce in spending by business
groups -- but even that standing understates its influence.
Individually, these corporations are among the biggest check
writers to both political parties and to individual members of
Congress. Those donations, along with the stature that members
have in their headquarters cities, gives them open-door access at
the highest levels of government and adds considerable weight to
their viewpoints.
---------------------------
Charles Lewis, executive director of the Center for Public
Integrity, a nonprofit research group in Washington that monitors
money in politics. "They were out there lobbying against any
reforms throughout the 1990's."
--------------------------
Only chief executives of selected companies can be members of the
Roundtable, - - - , Mr. Castellani, who is an employee of the
Roundtable, said it selects new members in part on the basis of
where their corporations are, what they do, whether a prospective
company seems to view participation in the public-policy process
as important and whether the candidate "is an individual chief
executive whose voice is important in the public-policy
process."
---------------------------------
From the beginning, the idea was to draw strength not from numbers
but from exclusivity
---------------------------------
The idea: to cut out the middleman and create a forum where the
nation's top corporate chieftains could lobby government decision
makers directly.
-------------------------------
The Roundtable creates task forces to carry out its agenda, each
led by a chief executive who typically taps his own corporate
staff for task-force work. Is
True Reform Possible Here? The New York Times July 14, 2002
The nexus between business, politics and
market ideology is alluded to at multiple points on these web pages
as it plays such an important part not only for Wall Street
financiers but in health care - an area where legislation also has a
profound impact on profits. Lobbying and political donations are
particularly intense when citizen's put pressure on regulators to
control health care corporations and protect citizens from being
misused. Managed
care's successful battle to castrate
effective patients rights legislation is a good example.
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Financial
Institutions in the Marketplace
The giant financial groups have successfully
positioned themselves to control and profit from every facet of
market activity. Without their approval and support success in the
marketplace is nearly impossible. Their central position as both
advisers to, financial agents for, and analysts of all aspects of
business activity gives them control of the marketplace. From guiding
companies through their first IPO, to subsequent floats, through
takeovers and mergers, to structured finance to beautify balance
sheets and avoid tax, through fraud, and finally through bankruptcy
they facilitate, guide, lend and profit handsomely. They make vast
sums from this cycle of activity.
Lately, the
rain has become a downpour. "This is boom time," said Henry S.
Miller, a leading restructuring guru, unabashed by the paradox
that his good fortune happens because of the misfortune of others.
"It's just the way it is. This is our time."
------------------------
Mr. Newman, whose restructuring staff numbers about 40, is now
working on two of the largest reorganizations in history: those of
Enron and Global Crossing, as well as that of the Williams
Communications Group.
-------------------------
A handful of other boutique investment banks are also busy trying
to mend tattered companies and advise upset creditors.
-------------------------
There is no question that the business of corporate restructuring,
once a backwater, has grown into a big business in recent
years.
-------------------------
All told,
industry analysts estimate that cleaning up corporate messes will
net more than $5 billion in fees this year for the firms like
those of Mr. Newman and Mr. Miller
Bankruptcy Doctors Are
Most Definitely In The New York Times July 14, 2002
The one thing the bankers don't want is a
stable marketplace where instead of doing deals the companies
concentrate on the business of serving the community and making a
profit from doing that. Without deals there are few profits for the
financiers and greater benefits for the community. With an excess of
deals service to the community is compromised and in their role of
investors they are at extreme risk. Multiple competitors are steadily
replaced with industry giants who control and exert far too much
influence. Democracy becomes the victim of a blind faith in
efficiency and productivity as ultimate goals.
It is perhaps no coincidence that the
financiers have driven the market ideology and directed competition
away from services to takeovers and mergers. They have created a
situation where a company's survival depends on competing
successfully in the merger marketplace.
By creating a series of bubbles and collapses
they ensure their own profitability. When one bubble collapses they
go looking for another activity where the process can be repeated. In
this climate a few make vast riches at the expense of the majority of
the population. It is tempting to label this as deliberate
manipulation by greedy entrepreneurs but it is more likely that it is
simply the consequence of the ideology and the unrestrained market
forces to which people are responding.
The noble American ideals of democracy,
opportunity, reward for work, and a level playing field full of
opportunity have been corrupted and are now an illusion. Politicians
and market bigots maintain and sell this illusion. The public still
buys it. At some stage the myth must dissolve and if capitalism is to
survive then the underlying problems inherent in an ideology which
legitimises this excessively competitive market system need to be
addressed.
After examining the Wall Street scandals and
the extent of the unethical and immoral practices one can only
conclude that the market in its present form is a powerful and
pervasive force for corruption in our society. Fixing it is not going
to be easy but the longer we ignore it the more difficult it gets. It
is not a few errant criminals. It lies at the heart of the
marrketplace and the way we think about it. We need to start thinking
about what is really important for us and what we believe in. Then
start restructuring and repositioning the market in fundamental
ways.
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contents
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January 2004 by Michael Wynne
