Good Business News
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A New Way Forward: Too-Big-To-Ignore Banks
Change is coming to America. There are a few groups bravely trying to change the rules on what MIT's Simon Johnson calls the big bank oligarchy (author of 13 Bankers and Baseline Scenario Blog). Big banks enjoy privileges the rest of us do not. We follow laws and regulations that the Too-Big-To-Fail Banks are not required to by the terms of the Federal Reserve bailout. It is frustrating for ordinary citizens, independent entrepreneurs, social justice advocates, regional banks, small, medium and large businesses who are beholden to the six U.S. banks that monopolize the nation's access to credit and capital. A New Way Forward is a grass roots organization very much in line with GoodB business ethics and has a ground breaking edge of its own. The main goal of ANWF is to shift the undemocratic monopoly the Big Bailout Banking Six have on the American economy and level the playing field. We hope to do everything to support them toward the goal of re-establishing a truly free and fair market system.
A New Way Forward (reprinted from www.anewwayforward.org)Regulators are deciding THIS FALL whether or not to close that loophole that allows banks to lend through subsidiaries in order to keep "outstanding" grades on their investment practices. They are also deciding when a bank should get a "failing" grade. This is an area where 200 extra comments on proposed regulations can make a huge, huge difference.
You don't have to pretend that you know more about the relevant law (the Community Reinvestment Act) than you do. What is important is that your voice is heard about how we should grade banks. You can just speak your mind in a few words, and tell the regulators that you think that the big banks should not be able to avoid the rules that require them to reinvest in communities. As Edda Lopez wrote:
Elizabeth Warren: Banking is Based on Trust
The champion of middle class America, Elizabeth Warren, Chairwoman of the TARP Congressional Oversight Panel (COP) has some pretty strong views on the necessity of a Consumer Financial Protection Agency (CFPA). What, you ask? There was an “oversight panel?” Yes, but in typical Washington fashion, it had no teeth, just bite. To appease the American public and pretend they weren’t giving away the store, Congress created the COP to follow the TARP money. Unfortunately, it has absolutely no power to access that information and enforce any action from its findings. Ms.Warren was asked by Jon Stewart on The Daily Show “Where’s the money?” The Harvard law professor replied, “I don’t know.” Ms. Warren’s refreshing honesty and obvious commitment to the American public has not helped her get any closer to the real story. Maybe, if she actually had an official seat in the Attorney General’s Office, we would have a better clue as to where exactly our taxpayer money went.
The CFPA, currently debated in the Senate with the “Restoring American Financial Stability Act”, would oversee financial products hawked to the nation’s consumers—like a Food & Drug Administration (FDA) for the financial markets. (Before a new food or medication is sold on the market, it must be approved for public safety by the FDA.) The CFPA would function similarly on credit cards, mortgages, loan products, student and car financing etc. In other words, the agency would demand better underwriting standards for mortgages including the super subprime that tanked the housing market. Additionally, it would protect consumers from dubious practices like “predatory lending,” loan-sharking interest rates, and Neg-Am mortgages.
Okay, sounds good right? Well, not exactly. Not if you were one of those that benefiting from such “business” activity. The same folks who brought the markets down are lobbying hard to do it again, according to Ms. Warren.
The following is reprinted from a recent Op-Ed piece by the economist in the Wall Street Journal detailing the status of consumer protection in the U.S.
Wall Street's Race to the Bottom (February 9, 2010 Opinion – WSJ)By ELIZABETH WARREN
Banking is based on trust. The banks get our paychecks and hold our savings; they know where we spend our money and they keep it private. If we don't trust them, the whole system breaks down. Yet for years, Wall Street CEOs have thrown away customer trust like so much worthless trash.
Banks and brokers have sold deceptive mortgages for more than a decade. Financial wizards made billions by packaging and repackaging those loans into securities. And federal regulators played the role of lookout at a bank robbery, holding back anyone who tried to stop the massive looting from middle-class families. When they weren't selling deceptive mortgages, Wall Street invented new credit card tricks and clever overdraft fees.
In October 2008, when all the risks accumulated and the economy went into a tailspin, Wall Street CEOs squandered what little trust was left when they accepted taxpayer bailouts. As the economy stabilized and it seemed like we would change the rules that got us into this crisis—including the rules that let big banks trick their customers for so many years—it looked like things might come out all right.
Now, a year later, President Obama's proposals for reform are bottled up in the Senate. The same Wall Street CEOs who brought the economy to its knees have spent more than a year and hundreds of millions of dollars furiously lobbying Washington to kill the president's proposal for a Consumer Financial Protection Agency (CFPA).
Within the thousands of pages of print in the "Restoring American Financial Stability Act" now before the Senate, the consumer agency is the only proposal that would help families directly. Even those most concerned about the role of personal responsibility concede that it is hard for families to make smart decisions and to compare products when the paperwork on mortgages, credit cards and even checking accounts has morphed into reams of incomprehensible legalese.
The consumer agency is a watchdog that would root out gimmicks and traps and slim down paperwork, giving families a fighting chance to hang on to some of their money. So far, Wall Street CEOs seem determined to stop any kind of watchdog. They seem to think that they can run their businesses forever without our trust. This is a bad calculation.
It's a bad calculation because shareholders suffer enormously from the long-term cost of the boom-and- bust cycles that accompany a poorly regulated market. J.P. Morgan CEO Jamie Dimon recently explained this brave new world, saying that crises should be expected "every five to seven years."
He is wrong. New laws that came out of the Great Depression ended 150 years of boom-and-bust cycles and gave us 50 years with virtually no financial meltdowns. The stability ended as we dismantled those laws and failed to replace them with new laws that reflected modern business practices.
The reputations of Wall Street's most storied institutions are evaporating as the lack of meaningful consumer rules has set off a race to the bottom to develop new ways to trick customers. Wall Street executives explain privately that they cannot get rid of fine print, deceptive pricing, and buried tricks unilaterally without losing market share.
Money Talks
Did you hear the one about big money saving democracy? Well, apparently the Supreme Court did. A small majority of 5-4 judges on our nation’s highest court believe that protecting the interests of big business lobbyists serves the country’s core values: the cherished First Amendment right of Free Speech.
Sadly, the Supreme Court ruled last week that “the government has no business regulating political speech” even by non-human corporations. The ruling gives corporations powers that only individuals held previously – in effect creating a dual citizenry. Corporations, such as too-big-to-fail banks, can spend unlimited amounts of money on lobbying for their own cause such as trying to block financial reform, and turn back the clock to the deregulating days of 1999. Influence peddling in Washington formerly out of control has now reached astronomical new heights.
Dissenting judges, including Sonia Sotomayor, claim the ruling trumps the Free Speech of mere mortals and corrupts democracy. Proving once again, that capitalism needs limits. Runaway or “raw” capitalism as Hank Paulson once called it is a dangerous thing to free nations. It translates into survival-of-the-fittest models and removes power from ordinary people. The Supreme Court has essentially turned our free market system into a “sold to the highest bidder” culture. Hail Caesar! May the richest corporation win.
If you feel moved to take action, contact your Senator and Representative.
New York State of Mind
The New York Times reports, “Mandatory mediation could provide the most relief for struggling borrowers, some of whom have been unable to get their lenders to consider loan modifications. Because of the high volume of mortgage defaults, many lenders have been unable to keep pace with such inquiries from borrowers.”
The new law, set to go into effect in January 2010, would extend protection to co-op owners and tenants as well. Without this legislation, co-op owners and tenants could be pushed out of their homes without reasonable notice. Lenders are now required to notify appropriate housing agencies before 90 days of planned foreclosure giving the agencies ample time to notify occupants and inform tenants of their rights.
The Holy Grail of Free Markets: Competition
Anti-trust laws in Europe and the U.S. are very clear that competition in the marketplace is a fundamental value of modern business. Much of the criticism surrounding global banking and official bailouts has been centered on the interference with free market competition in the wake of government aid.
Competition is held so sacred that Microsoft was aggressively litigated in the U.S. and Europe for anti-trust infringement. The tech company was forced to pay hundreds of millions in penalties to the EU and the U.S. Simon Johnson, former IMF economist and MIT professor, expressed a persuasive view in The Quiet Coup that financial institutions, particularly in the U.S., are monopolies.
A one day annual conference, European Competition Day, was held in early October in Stockholm to encourage European countries and the EU to keep market competition open.
“The European Commission wants to enhance the visibility of EU competition policy (or anti-trust policy, in American terminology) and explain its achievements to the general public. The idea for a European Competition Day grew out of the concern that European citizens are in general poorly informed about the benefits they can derive from EU competition policy. In light of the current economic crisis, consumer education and awareness-raising has never been more crucial.
In order to preserve public confidence in competitive markets, and in the benefits derived from them for our everyday life, a better understanding of the importance of competition policy is invaluable.
In Europe, the U.S. and elsewhere, the crisis has generated much debate about the reliance on market forces to provide the best outcome for consumers and the economy as a whole. It has poked holes in the idea that financial markets will self-correct. Extending this concern to markets in general is not a big leap. Many industries in distress have already requested greater tolerance towards cartels, abuses of dominant positions and other anti-competitive practices and, as the social impact of the recession unfolds, political pressure to retrench competition enforcement is expected to intensify. As a response to these calls, the EU and U.S. competition authorities declare that they continue business as usual. However, the European Commission already showed flexibility in the application of the rules under which state aid is monitored (it approved over 2,900 billion Euro of state guarantees in favour of banks). Furthermore, if history can tell us anything, it is that no government has reacted to a crisis by calling for a more vigorous anti-trust enforcement. In the face of the Great Depression, the U.S. government suspended the anti-trust rules and put in its place a system of industry-sponsored codes. Similarly, albeit less radical, the European Commission relaxed its stance on competition issues in response to the oil crises in the mid-1970s.
The current economic reality of course needs to be recognized. And it is certainly true that unrestrained markets will not necessarily deliver. But in settling the relationship between regulatory interventions and ex post market corrections (through the competition rules), it would be wrong to lose the commitment to the latter. As the EU competition commissioner, Neelie Kroes, likes to phrase it: adequate competition oversight is not part of the problem, it is part of the solution to help markets work better. Yet herein lies a fundamental problem: a preference for market-based solutions, and thus also the support for a vigorous competition policy, is based on public confidence in the market process.” Read More
Banksters and the Law of the Land
U.S. Congressman Barney Frank(D-Mass.) and Congresswoman Carolyn Maloney (D-NY) have teamed up to curb credit card companies predatory business practices. Earlier this year, Congress passed historic legislation prohibiting credit card overcharges, illegal interest rate hikes, deceptive fees, and all around loan shark-like activities. Unfortunately, the new credit reform laws are not due to be enforced until 2010. Frank and Maloney are now calling for the effective date of this legislation to be moved from late February 2010 to December 1, 2009 to prevent further abuses.
Since the legislation was passed, lenders have threatened revenge on consumers and small businesses alike by demanding higher rates and fees to “make up” for the soon-to-be illegal fees. Eliminating “over-the-limit fees” and arbitrary rate hikes would cost the industry billions, companies argue.
Not to worry. White Knight (he has pure white hair) and Senate Banking Committee Chairman, Democrat Chris Dodd has introduced a new bill that would freeze interest rates on existing balances until reforms are officially enacted.
Referring to the Credit Card Accountability, Responsibility, and Disclosure Act passed last Spring, Dodd stated, “…no sooner had it been signed into law, but credit card companies were looking for ways to get around the protections this Congress and the American people demanded. This bill would end those abuses and further protect customers today.”
Credit card interest rates have jumped up to 29% in the past year for customers formally charged 12-14%. These rates represent credit card abuses by bailout banks who directly contributed to the credit collapse that continues to handicap small businesses and consumers. Every one of the credit card companies charging excessive and unreasonable fees are legally borrowing from the United States government at zero percent. The double standard for irresponsible banks and responsible consumers is forcing a showdown between thug banking practices and the United States Congress.
Federally Exempt from the Law
Imagine if you were an American company and were federally exempt from the law.
Well, that is the way it goes in the U.S. for health insurance companies and big banks these days. Banks and health insurance companies have different rules than you and me. These entities operate in an oligarchic economic structure, while the rest of us mere mortals live in a “democracy” and must obey common wealth laws.
But President Obama is challenging the constitutionality of the “bogus” anti-trust exemption afforded to the nation’s largest health insurance dynasties.
The New York Times reports: “It’s smoke and mirrors,” Mr. Obama said. “It’s bogus. And it’s all too familiar. Every time we get close to passing reform, the insurance companies produce these phony studies as a prescription and say, ‘Take one of these, and call us in a decade.’ Well, not this time.” Rather than trying to curb costs and help patients, he said, the industry is busy “figuring out how to avoid covering people.” “And they’re earning these profits and bonuses while enjoying a privileged exemption from our antitrust laws,” he said, “a matter that Congress is rightfully reviewing.”
The President is referring to the McCarran-Ferguson Act of 1945 that declares “federal anti-trust laws will not apply to the ‘business of insurance’ as long as the state regulates in that area, but federal anti-trust laws will apply in cases of boycott, coercion, and intimidation.”
It seems we have reached the state of coercion and intimidation. It is time to repeal the ineffective and criminally neglectful law. Insurance companies not only have a monopoly on the industry itself, they are also holding an entire nation of 300 million “free people” hostage to blood sucking (literally) extortionist profits. If they want to cover your medical treatment, they can; if they deem it “unnecessary,” they won’t. In other words, if maintaining your health is too expensive, you are out of luck.
The New York Times reported that “The head of the antitrust division at the Justice Department testified at the Senate hearing that repealing McCarran-Ferguson would create more competition, which could help reform industry practices.”
In America over a century later, we can firmly respond to Morgan and say, “Everything.”
The World’s 20 Biggest Economies Agree on Global Economic Change
What exactly did the G-20 accomplish?
All of these goals are naturally, given the economic collapse of the last year, urgently needed. However, the dialog has only begun. The holes in the plan include no global watchdog or power of enforcement to oversee the policies. No specific and common standards to date of banking executive compensation, financial derivatives oversight, and global banking regulation in general.
While the conversation at the G-20 established vital mandates for financial regulatory change, it has no teeth yet. Let’s chalk it up to a great start and keep our eye on the progress going forward. France and Germany have been the leaders in economic and financial regulatory reform. The world is waiting for the United States and the other 17 nations to follow their lead. President Obama appears committed to
Short-Selling Gets a New Leash
“Short-selling” otherwise known as shorting stocks is the practice of betting that a stock will decline in price. Short-sellers like Hedge Fund Manager David Einhorn of Greenlight Capital can do some serious damage to companies. Famously, in 2008, Einhorn publicly shorted Lehman saying they were undercapitalized and over their heads in bad debt. Of course, we all know now, he was correct in his public statements. Yet he made a small fortune by stating this publicly and betting on Lehman’s decline. The market responded to Einhorn’s warnings on Lehman’s fragile economic state and stocks plummeted. The result was Einhorn and investors pocketed an enormous fortune and Lehman and investors, along with the U.S. and global markets, went belly up.
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A new law on the books since last year in New York helps protect subprime mortgage holders from foreclosure. A similar bill protecting prime borrowers recently was passed by the State Legislature. The bill requires lenders to give 90 days’ warning and forces lenders into settlement conferences with borrowers before proceeding with foreclosure.
To punish the rebelling public and to strong-arm legislators into crumbling under threat of diminishing campaign contributions, Banksters are threatening to tack fees onto the best “credit” customers. The most credit cautious consumers represent small profits for big creditors who can only garner fees from merchants if a consumer bill is paid in full by the due date. To remedy that loophole, credit card companies like Discover Card, Bank of America, Chase, and Citibank are set to charge annual “membership” fees for these customers, as well as charging interest immediately from the date of purchase. That will teach those consumers from playing hard ball with the Big Boys, say Banksters.
When Teddy Roosevelt broke up JP Morgan’s railroad monopoly in 1902 he was called a “traitor to his class.” The courageous Roosevelt believed it was his duty to ensure that the nations’ hardworking citizens got a “square deal” and were not at the mercy of giant monopolies.
The G-20 was met with angry protestors armed with signs “Down With Capitalism” and “No More Bailouts” and Pittsburgh police responding in shockingly violent ways with tear gas and aggression. The crime? Not having a permit. But some protestors went way beyond free speech and smashed windows and defaced small blameless businesses that had nothing to do with the G-20 or the financial collapse of our nation’s economy. In doing so they relegated themselves to being named fringe anarchists and diluted what could have been an important and rational message of ordinary citizen rights.
The Bottom Line of Greenhouse Gases 
Turning the Tide: Debt Collection
Campus Credit: The New Deal
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Obama: The New Tax Man |
Honoring another campaign promise to stop rewarding companies that outsource American jobs, President Obama’s new tax proposal aims “at the epicenter of Indian outsourcing.”
Heather Timmons of the New York Times reports on the Indian business community backlash: “It’s a tax disincentive to discourage outsourcing to countries like India,” said Uday Ved, head of tax issues at KPMG India.
Well, actually Mr. Ved has got it wrong. It is a tax incentive to keep American jobs in America. Ms.Timmons writes, “But according to Mr. Ved and other international tax experts, companies do not move jobs to India because the tax rate is lower; they do it because labor costs less.”
This is true. Indian labor is dirt cheap compared to American wages. After all, American workers are compensated based on cost of living in the U.S. not India. Also in the mix of savings for companies and corporations is the lack of worker rights or benefits fit for the American public. Dispensable issues like minimum wage, worker’s compensation, unemployment and disability insurance, and health care benefits no longer concern the outsourcing company. In larger firms, employee expenses like retirement plans and 401K plans add to the overhead expenses.
There is no question that doing business in the U.S. is substantially more expensive than in India, China or anywhere else where basic worker rights are absent and the standard of living is diminished. In China and India, for example, if you are laid off due to economic downturns like the current one you are out of luck. No such thing as unemployment compensation or COBRA laws. No help, nada, nichts! That helps big American corporations save a lot of greenbacks. It is very simple to fire or lay off in these countries. Simply do it with no further obligation or responsibility to no longer useful workers.
Of course many American citizens are out of luck too. Portions of American cities look sadly like the poorest streets of Calcutta. In the U.S., you don’t get health care unless you can afford it personally or you have a benevolent employer who supplies it!
America stands just behind India and China on worker’s rights compared to the rest of the western world. For example, in Germany if you want to lay off workers, employees with children or elderly parents depending on them for support are given priority in the downsizing pecking order. Good or bad, German employer-employee relations include a social component.
Most of Western Europe has programs that prevent the unemployed from homelessness, lack of medical care, and starvation. Not so in the developing nation of America. “Developing nation of America,” you protest! “Just what do you mean by that GoodB?” We thought you might ask that question…
Simply this: American business is developing a social consciousness worthy of the 21st century. Never mind that Europe beat us to the punch decades ago! We are catching up (hopefully). Never say Americans are backward. (Well, you can say it- go ahead.) But truly, we may be dumb, but we are not stupid. Given the current climate of predatory bankers and unscrupulous lenders, we are quickly recognizing that if American business has its druthers we will all be out in the street. Literally. Perhaps the same way that people live in many other parts of the world.
But fortunately…we have a maverick president, Barack Obama, who sees this ethic of live and let die as ripe for change. Can he do it? Yes he can! After all he is the supreme tax man!
So here is the plan: to eliminate the tax deduction for sending jobs overseas. Wow! Did you know businesses were given kickbacks to send U.S. jobs elsewhere? You’re thinking that son of a B, (b for Bush of course) George Junior, created this. But no, it began under the other son of a __(fill in as you wish), Bill Clinton.
But that was so 90’s folks. We are onto something totally new: giving workers new opportunities for economic well-being that big business management monopolized for so long.
So what is wrong you may ask in a global economy to outsource jobs to India, China and elsewhere? Isn’t that the whole point of a global economy, per Tom “The World is Flat” Friedman? Well, sure, okay it is. The world operates as a harmonious community where there are no economic and nationalistic boundaries. That is the Dream of all enlightened folk. Is it not? Yup, in our perfect world that is the Dream. But we have so many steps to get there.
The first one is labor rights. The rights of workers are inseparable from human rights anywhere and everywhere in the world. They have been from Day One. That day being the beginning of recorded civilization. Back in Ancient Mesopotamia issues of labor rights and human rights were intertwined. Slavery topped the list of human rights violations and King Hammurabi’s code issued the first proclamations of official labor rights. Basically, there were none. Those at the top of the food chain (the wealthy, privileged and politically potent) held all the rights and those at the bottom (the enslaved through debt or war) had none.
Folks, that was nearly four thousand years ago! And somehow we are still pushing that giant boulder of bedrock around for change.
In Scotland, England, France and America throughout the 19th century, things started to shift in a big 
way! Unions formed and fought violent battles on behalf of workers’ rights for over one hundred years. The U.S. labor laws of record that drastically changed the paradigm were established under President Franklin Roosevelt. The Fair Labor Standards Act of 1938 officially abolished child labor and established minimum wage and maximum working hours. The National Labor Relations Act of 1935 established the right for collective bargaining for U.S. workers and prohibited employers from “unfair labor practices.” These were landmark decisions and changed the social order. Suddenly the ordinary American worker had legal rights to fair working conditions formerly only given to management. All those rights hard fought and hard won began to disappear as companies under NAFTA and the international trade agreements that followed in the last decade, circumvented cherished labor laws by outsourcing jobs to countries without those legal protections.
We are on the threshold of the “Second Enlightenment.” The seeds were planted by maverick thinkers in the 1960’s. Pushed down and ignored for a few decades, the movement was never gone just unheeded. The extreme economic inequities of the last several years, combined with the urgent mandate for change due to pervasive ideological intolerance and indifference has inspired an entirely new crop of activists to the surface and reactivated the older ones.
We are mad as hell and not going to take it anymore, is the cry of the people across the globe. Barack Obama resonates with this cry. His call for change resulted in a global surge for Hope and his election as the most powerful person in the modern world. The have-nots have taken their rightful place alongside of the haves. All we can say at GoodB is: Hallelujah! A change is gonna come.
And here it is: A significant change in the tax code signaling no more free lunch for big business. It may not be enough to keep American jobs in the U.S. as reported in the New York Times: “The jobs aren’t coming back to the U.S. as a result of this proposal,” experts say. Translation: If it is still cheaper to do business in India, then companies will do so.
Yet GoodB’s view is not to punish Indian workers in favor of Americans. More to the point, it is to favor fair labor-human rights over “profit at any cost” management. Outsourcing American jobs oversees without any legal obligation to foreign workers represents a step back in time of more than a century.
“The tax proposal is about revenues and that’s it,” claims a critic of Obama’s new proposal. Yet it really is about much more than revenues. It is about the principles of individual freedom and human decency that American labor rights are founded upon—the right to reasonable working conditions, fair wages, unemployment protection and worker’s compensation in case of on-the-job injury. These are the issues at stake for carte blanche outsourcing.
American workers deserve protection by enforcing the labor code established 75 years ago, while Indian, Chinese and workers around the globe deserve the same. Obama’s new tax code may not prevent worker abuse, but it certainly won’t reward it. As President of the U.S., he cannot force the Indian and Chinese government to enact their own fair standards labor laws.
Whatever the case, Obama’s plan is a good start toward creating a value system that honors people over profit. It sends the message that business has a responsible to humanity. It certainly is about time…!
Reference: New York Times - Obama’s Plan on Corporate Taxes Unnerves the Indian Outsourcing Industry By HEATHER TIMMONS
Government Policy Makers Profit on Taxpayer Billions
John Snow who relinquished his job in 2006 as Treasury Secretary (under George W. Bush) begs his replacement Hank Paulson for taxpayer billions. As a current employee of the highly profitable and equally secretive private hedge fund Cerberus (owner of Chrysler) Snow is lobbying his Wall Street colleague Paulson hard for government bailout money. Private Equity is hurting this year and Snow has his hand out like the rest of the beleaguered, but hardly impoverished Wall Street.
Yet Treasury Secretaries seem to have a solid “in” with the Feds. Clinton’s Treasury Secretary, Robert Rubin, the former Co-Chairman of Goldman Sachs during Paulson’s tenure, was paid $115 million from 1999 through 2008. He received $33 million in stock options the same year Citi received $25 billion US taxpayer dollars for poor risk management. Citigroup, with Rubin still on board, successfully lobbied and received $306,000,000,000 in backstop bad loan guarantees from the US Treasury and old buddy Hank. While it is good for business to have friends in high places, somehow the greasing of palms of former US Treasury Secretaries seems an obscene conflict of interest.
Credit Crisis: The Perfect Storm
IN REGARD TO the perfect storm that is the 2008 US credit crisis, Treasury Secretary, Hank Paulson is calling for greater transparency for the investment banking industry.
Words like “transparency,” “oversight,” and “regulation” that ordinarily make a free market capitalist shudder, peppered the former Goldman Sachs chief exec’s plan for a credit market overhaul. Under his new proposal, the Federal Reserve would expand its authority to investigate any financial institution or industry it deemed economically suspect. Lawmakers have not enthusiastically endorsed this proposal stating its mandate did not go far enough. However, the creation of a new Mortgage Origination Commission to oversee and regulate mortgage lending practices did garner substantial support. The former investment banker’s blueprint for oversight is currently being debated by lawmakers.
CEO Perks Revealed
IN 2007, the US Securities & Exchange Commission created new rules in response to outcries protesting runaway executive pay.
Corporate executives managing public companies whose profits plummeted under their watch are feeling the heat from the new call for transparency. Investors don’t seem to mind CEO perks when profits are booming. However, shareholders want to know what CEO and top executives are being paid not only in salary but formerly hidden perks as well. The SEC cannot regulate salaries in a capitalist economy. Yet it can allow shareholders full disclosure on executive comp by requiring corporations to reveal all chief executive perks exceeding $10,000.
Swiss Banks Exposed
EUROPEAN UNION GOVERNMENTS are calling for an overhaul to the cherished secrecy of the Swiss banking system.
Fueled by Germany’s official investigation of tax evaders, the 27-nation EU is pressuring Switzerland to relinquish its tight grasp on depositor confidentiality. The majority of Swiss citizens (80%) support the banking confidentiality laws. Only forty percent, however, support this provision for foreign citizens. EU authorities are preparing for a battle with secretive Swiss bankers. France, which takes over the presidency of the EU later this year, vowed to join forces with Germany and push for Swiss banking reforms. The pressure for reform could have a major global market impact as confidentiality is a cornerstone of the Swiss banking industry.
| THE MORALITY OF MONEY |
Say on Executive Pay
IN APRIL 2007, the U.S. House of Representatives passed a “non-binding” resolution for shareholder “say” on executive pay. The bill introduced by lawmaker Barney Frank of Massachusetts gives shareholders the right to approve executive compensation.
It also gives shareholders the right to vote on executive “exit” compensation should the company be sold or taken over, or if executives leave the firm with or without cause. One of the concerns of executive compensation in public companies for lawmakers is to limit possible abuse of sales and takeovers of companies. Departing executives had been accused of facilitating sales of companies solely for personal gain from a “golden parachute” windfall. This practice is often seen by observers and shareholders alike to be an abandonment of executive responsibility to the overall financial health of the firm. Also lawmakers felt the need to legislate shareholder voting rights to discourage executive compensation not commensurate with performance. Dozens of company executives in recent years have received enormous pay packages as their company stock sank, even in some cases as their companies filed for bankruptcy.
Unless US corporate law is significantly overhauled the US Congress does not have the legal right to legislate executive pay of companies. Hence, the House bill is “non-binding,” which translates to “unenforceable.” The United States Senate has not adopted the “non-binding” legislation passed by the House one year ago. However, the House is currently investigating whether three chief executives of failing banks in the subprime mortgage markets were illegally paid “performance” bonuses for non-performance losses.
In Great Britain and Australia, advisory votes on executive pay are an established annual event. In the U.S., reverence for the free market system and lack of regulations make this a difficult issue to legislate. Many business experts believe the market should correct these abuses itself. (See The Board Room.)
Passenger Bill of Rights
NEW YORK was the first state in the U.S. to enact a long overdue “passenger bill of rights.” The bill was legislated in response to the unreasonably long delays on the tarmac in the winter of 2007 at JFK airport.
Passengers, including children and pregnant mothers, were held captive on planes without water and food for up to ten hours due to severe weather conditions. The outrage from passengers was enough to spur lawmakers to quick action. The passenger bill of rights insured passengers would be supplied with ample water, snacks, fresh air, and clean bathrooms if held on the tramac for over three hours. A federal judge upheld the contested law in December. The airline industry challenged the decision again in Appeals Court where it was overturned. The appeals court determined that only federal law had jurisdiction over the airline industry. There has been no federal airline passenger bill to date for US travelers.
However, JetBlue Airways known for its phenomenal customer service was also one of the worst violators of passenger’s rights due to extended delays in February 2007. CEO David Neeleman was not waiting for lawmakers to force him to do the right thing. JetBlue representatives called every passenger affected by the delays, allowed them to air their grievances, apologized for the experience, and explained their remedy to avoid such disasters in the future. It remains a business management 101 textbook example of how to turn failure into triumph. JetBlue’s swift and thorough response restored the trust customers had lost without a law to enforce it.
European Union Bans Animal Testing
AFTER TEN YEARS of debate, the testing of little animals for hygiene and cosmetic products has been banned by an overwhelming majority in the European Union.
By March 2009, no vanity or health products made in the EU can be tested on animals. Nor can any products be sold that have been produced outside of the EU and have used animal testing. A compromise was reached exempting animal testing for toxicity and fertility. The cosmetics industry is burdened with finding new non-animal testing methods for their products. For the animals however, it seems a Godsend.
Climate Change
EUROPEAN UNION takes the lead in climate change.
“The international consensus is growing that the planet is facing irreversible climate change unless action is taken quickly. The EU has already formulated a clear response in the shape of an integrated energy and climate change policy, a commitment to cut emissions of ‘greenhouse’ gases by at least 20 % by 2020, and a promise to take the lead in international negotiations to adopt even more ambitious targets. This will help to prevent the world’s temperatures rising by more than 2 °C, the level which is increasingly thought by scientists to be the point of no return.” —From Europa – EU Press Room (Sept 2007)
Power to the People
LANDMARK NEW LABOR CONTRACT LAW went into effect Jan. 1, 2008 in China.
“The law -- designed to combat forced labor, withholding of pay, unwarranted dismissals and other abuses -- represents a major victory for Chinese workers who for decades have complained of companies that would stop at nothing to wring out profits. It has prompted legions of workers in recent months to become bolder about quitting and about staging strikes to demand improvements in work conditions and wages.” —From the Washington Post, April 2008
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