“Well written and an interesting perspective.” Clan Rossi --- “Your article is too good about Japanese business pushing nuclear power.” Consulting Group --- “Thank you for the article. It was quite useful for me to wrap up things quickly and effectively.” Taylor Johnson, Credit Union Lobby Management --- “Great information! I love your blog! You always post interesting things!” Jonathan N.

Friday, July 8, 2011

An Ethical Meltdown in Japan: On the Toxicity of Tepco's Nuclear Power

According to The Wall Street Journal, Japan’s largest power provider, Tokyo Electric Power Co. (Tepco), faced the biggest challenge of its 50-year-history in "recovering from the damage done to its nuclear facilities and power systems by a devastating earthquake and tsunami." The New York Times reported on March 17, 2011, that "foreign nuclear experts, the Japanese press and an increasingly angry and rattled Japanese public are frustrated by government and power company officials’ failure to communicate clearly and promptly about the nuclear crisis. Pointing to conflicting reports, ambiguous language and a constant refusal to confirm the most basic facts, they suspect officials of withholding or fudging crucial information about the risks posed by the ravaged Daiichi plant."

According to The Wall Street Journal, when Tepco said early in the morning of March 16th "that a fire had broken out at the Daiichi plant’s No. 4 reactor, a reporter naturally asked how the fire had begun, given that just the day before the company had reported putting out a fire at that same reactor. The executive’s answer: ‘We’ll check. . . . We don’t have information here,’ he explained. After about two hours, the Tepco representative had the information: Turned out the smoke was coming not from reactor No. 4, but from reactor No. 3. If Tepco’s information had been delayed and vague, the reporters’ response was quick and direct. ‘You guys have been saying something different each time!’ one shouted. ‘Don’t tell us things from your impression or thoughts, just tell us what’s going on. Your unclear answers are really confusing!’"



                Tepco executives leave one of the many press conferences held during the disaster in 2011


Analysis at Cases of Unethical Business, available in print and as an ebook at Amazon.



Thursday, July 7, 2011

Voluntary Greek-Debt Maturity Extensions: A Rush for the Exits?

As the E.U. was working out more loans for Greece in summer 2011, rating agencies looking at the state’s debt indicated that default would be pronounced should the decision of bond-holders to continue to hold Greek bonds be anything less than voluntary. Germany had been pushing for something less than voluntary so taxpayers would not have to bear so much of the risk and cost. France, doing the bidding of its banks, effectively used the rating agencies’ default-guidelines to insist that additional E.U. loans do not require then-current bond-holders to agree to later maturities. Given the extent of Greece’s debt-load relative to the state’s GDP, a private sector bond-holder, such as a bank, would naturally loose little time in getting out of holding Greek debt, even given the high interest rates (which reflect the risk).  



The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

Wednesday, July 6, 2011

Gandhi as a Model for the Arab Spring

After two weeks in 2011 of mass protests in Egypt for representative democracy and the ouster of President Mubarak, the Egyptian government agreed to concessions including allowing freedom of the press, releasing of political prisoners arrested during the protests, and commencing a committee with the opposition to consider constitutional amendments. According to The New York Times, the "regime also pledged not to harass those participating in the anti-government protests." Gandhi would have been proud, though the protesters left room for improvement on this score. Understanding how they could have done so can be of use to pro-democracy protesters not only in the Middle East, but also around the world.

The full essay is at "Gandhi as a Model for the Arab Spring."

Tuesday, July 5, 2011

The Tail Wagging the Dog: Congress under the Influence

Congress may be like a drunk, unaware that it is being handed one drink after another by vested interests oriented to legislation with specific financial objectives. On February 28, 2010 on CNN’s State of the Union, Nancy Pelosi, Speaker at the time of the U.S. House of Representatives, said that the health insurance companies didn’t want a government-financed and operated "public option" for American citizens, so it was off the table. Her statement resonates with the earlier one by U.S. Senator Richard Durbin just after his forclosure-assistance amendment failed: "The banking lobby owns Congress." That the health insurance companies and Wall Street banks were generally viewed as at least partially culpable even as they still had Congress in their pockets points to a serious corruption in American government.

Even when companies (or an industry) are at fault, they can still call the shots in Congress when their interests are at stake. At the very least, they can encourage diversions that enable them to safeguard planks in legislation that protect their interests. Consider, for example, Representative Dennis Cardoza, a Democrat of California in the U.S. House. The husband of a family practice physician, he is intimately familiar with the failings of the American health care system. His wife “comes home every night,” he said, “angry and frustrated at insurance companies denying people coverage they have paid for.” Even so, he is on the fence on the Democratic health-care reform proposal because he wants stronger anti-abortion language and more cost control. Were he really angry like his wife, he would be pushing for the public option and for real restrictions on the insurance companies, rather than allowing secondary issues to get in the way.

I don’t believe Dennis Cardoza was all that angry at the companies that have been refusing to fuffill their responsibilities to their customers who have paid premiums. Moreover, he was allowing himself to succumb to the self-interested manipulation of the insurance companies that had purported sparked his anger. It is in the health insurance companies' interest that costs are reduced because then their expenses are reduced. If he were really angry like his wife, he would not be so willing to do something that would benefit them so much; rather, he would be working to take power and money away from them by insisting on a public option.

America’s Health Insurance Plans, a lobbyist for the insurers, announced in March 2010 as Congress was considering health-insurance reform that the organization was buying more than a million dollars’ worth of television advertising time in order to "explain" why insurance premiums had been rising. Such a claim of educating the public is a subterfuge behind a financially-induced intention to manipulate public opinion to shape the health insurance law in the interest of the insurers (even as their practices of exclusion had been part of the problem). The week before, the White House had indicated that the industry’s rationale for the raised premiums was unconvincing, but how many people got this information through the din of the lobbyist's commercials?

All too often without realizing it, citizens allow industries to get away with their misrepresentations that are geared to thwart reform. The health insurance industry’s ads convince us that the companies really aren’t sharks; we ignore Sen. Rockefeller’s likening of the companies to sharks—you don’t know there is a shark until you see its fin and feel its sharp teeth. In other words, our anger is too easily (and conveniently…for the sharks) dissipated. In other words, we let the bad kids off the hook and go on as if the problem were somehow no longer out there. This puts the misbehaving kids in a position to thwart any parenting. We ignore the inherent conflict of interest in this scenerio as the kids steer public policy to our detriment.

I suppose it is only natural that sick kids would not feel culpable for their illnesses. Even so, the sick kid sitting on the table in a physician's office does not get to decide on his own treatment even if he or she is from a rich family. If there is an adult in the room, the kid is overruled in his own case and the shot is given over the kid’s objection. In the case of health reform, one might reasonably ask: where are the adults, or are the sick insurers in the driver's seat even as they are on the table?



 Source:

 David M. Herszenhorn and Robert Pear, “Parliamentary Hurdle Could Thwart Latest Health Care Overhaul Strategy,” The New York Times, March 9, 2010.

The Conflict of Interest in a Silent Oligarchy Being Engaged in Its Public Policy

Goldman Sachs, which had played a role in enabling Greece to hide its public debt, urged investors in March of 2010 to buy shares in two big health insurance companies, UnitedHealth Group and Cigna. The reason: their rates were sharply up and competition was down. According to The New York Times, the White House claimed, “ the Goldman Sachs analysis shows that while insurers can be aggressive in raising prices, they also walk away from clients because competition in the industry is so weak.” Rate increases ran as high as 50 percent, with most in “the low- to mid-teens” — far higher than overall inflation. 


The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.
 

Monday, July 4, 2011

On the Aristocracy of Wealth

The "ardent glow of freedom gradually evaporates;—the charms of popular equality . . . insensibly decline; —the pleasures, the advantages derived from the new kind of government grow stale through use. Such declension in all these vigorous springs of actions necessarily produces a supineness. The altar of liberty is no longer watched with such attentive assiduity; —a new train of passions succeeds to the empire of the mind; —different objects of desire take place: —and, if the nation happens to enjoy a series of prosperity, voluptuousness, excessive fondness for riches, and luxury gain admission and establish themselves—these produce venality and corruption of every kind, which open a fatal avenue to bribery. Hence it follows, that in the midst of this general contagion a few men—or one—more powerful than all others, industriously endeavor to obtain all authority; and by means of great wealth—or embezzling the public money, —perhaps totally subvert the government, and erect a system of aristocratical or monarchic tyranny in its room. What ready means for this work of evil are numerous standing armies, and the disposition of the great revenue of the United States! . . . All nations pass this parokism of vice at some period or other; —and if at that dangerous juncture your government is not secure upon a solid foundation, and well guarded against the machinations of evil men, the liberties of this country will be lost—perhaps forever!"

The analysis of this quote is at "On the Aristocracy of Wealth."

Source:

The Impartial Examiner, Essay (March 5, 1788), 5.14.15, in Herbert J. Storing, ed., The Anti-Federalist (Chicago: University of Chicago Press, 1985), pp. 290-91.

Corporate Influence in the West Wing: A Daley Occurrence

President Obama's chief of staff, William Daley, was a top executive at JPMorgan Chase, where according to The New York Times, he was paid as much as $5 million a year and supervised the Washington lobbying efforts of the nation’s second-largest bank. Daley also served on the board of directors at Boeing, the giant military contractor, and Abbott Laboratories, the global drug company, which "has billions of dollars at stake in the overhaul of the health care system." Although some argue that the White House needed someone on the inside who has the ear of business, the conflict of interest in having someone so tied to vested commercial interests decide who gets into the Oval Office and determine the President's agenda ought to be troubling. Just one year earlier, a Wall Street reform bill had been passed that sidestepped the question of whether banks too big to fail should be allowed to exist. Also, the enacted health-care reform law both included a mandate and excluded a public option...as per the interests of the heath insurance lobby. Rather than worry that well-financed private interests might already have too much clout in Washington, some people suggest the need for more corporate influence in the West Wing.

In terms of the Obama administration, the appointment of Mr. Daley represents "staying the course." Larry Summers, for example, had been instrumental in the Clinton Administration in keeping derivative securities from being regulated. Like Clinton, Obama is a pro-business Democrat, at least in practice--the charges of socialism notwithstanding. I contend that the fear over socialism is overplayed, while the ease with which corporate executives (such as Hank Paulson--Bush's Treasury Secretary and former CEO of Goldman Sachs--and William Daley) encase themselves in the White House is cause for concern. Yet there appears to be a societal blind spot with respect to some rather obvious ways in which corporations can capture our federal government. For instance, no one suspects a tie between Daley coming on board leading up to the re-election campaign and his corporate ties. It may be that Obama did not press "too big to fail" and the public option more because he knew he would draw on corporate campaign contributes. I suspect that we are blind to this possibility because our values are largely in line with corporate interests.

Whether corporate capture is from design or not, our corporate-friendly societal-orientation provides a bedding of sorts for structural conflicts of interest that must seem strange elsewhere in the world. William Daley is a beneficiary of a friendly American culture that enables looking the other way, or even cheerleading on behalf of greater corporate influence in Washington.

 Source:

 Eric Lipton, “Business Background Defines Chief of Staff,” The New York Times, January 6, 2011.


Presidential Leadership Standing up to Wall Street

“What haunts the Obama administration is what still haunts the country: the stunning lack of accountability for the greed and misdeeds that brought America to its gravest financial crisis since the Great Depression. There has been no legal, moral, or financial reckoning for the most powerful wrongdoers. Nor have there been meaningful reforms that might prevent a repeat catastrophe. Time may heal most wounds, but not these.”
 “After the 1929 crash, and thanks in part to the legendary Ferdinand Pecora’s fierce thirties Senate hearings, America gained a Securities and Exchange Commission, the Public Utility Holding Company Act, and the Glass-Steagall Act to forestall a rerun. After the savings-and-loan debacle of the eighties, some 800 miscreants went to jail. But those who ran the central financial institutions of our fiasco escaped culpability (as did most of the institutions).”

“The weak Dodd-Frank financial-reform law that rose from the ruins remains largely inoperative, since the actual rule-writing was delegated to understaffed agencies now under siege by banking lobbyists and their well-greased congressional overlords.”

“Rather than purge the crash’s crimes, Wall Street’s leaders are sticking to their alibi: Everyone was guilty of fomenting this “perfect storm,” and so no one is. Too-big-to-fail banks are bigger than ever, and ­Masters of the Universe swagger is back.”

Analysis:

 The hegemony of the moneyed interest in any republic renders the public weal subject to a plutocracy—rule by wealth. In the wake of the credit crisis of 2008, U.S. Senator Richard Durbin of Illinois observed that the banking lobby still owned Congress even as the public regarded the banks as at least partially culpable for the crisis. Durbin made his remark after the Senate defeated his amendment that would have allowed foreclosure judges to modify mortgages in trouble. Even though mortgage companies had written steep interest rate hikes into the subprime mortgages that the mortgage writers must surely have known the borrowers could not afford, the servicers stood by the vaunted sanctity of contract doctrine—a faithfulness conditioned, no doubt, by the article serving their interests. Financial influence over elected representatives enabled the U.S. Government to provide cover, or at least to refrain from going after the financial institutions that had been so culpable. That government also refused to break up the banks too big to fail, whose very concentrations of wealth, increased by the TARP program, stood even more as systemic risk.

 Historically, Americans have looked to independently-minded occupants of the U.S. Presidency to stand up to powers of the day to protect the viability of the states. Andrew Jackson, for example, stood up to the moneyed interest before his reelection in 1832 in depleting the Second National Bank of the United States of funding (the bank ended in 1836). Doubtless Jackson spent many nights before the election worried that standing up to money might cost him the election. Of course, he won and enjoyed distinct respect.

 I suspect that Barak Obama did not enjoy respect in the wake of the credit crisis precisely because he did not stand up to the banking lobby. Relatedly, he caved to the demands of the health insurance industry lobby that he no longer push for a public option and resist a mandate for guaranteed customers. I suspect that people sense a lack of political courage and recalibrate their respect accordingly. The political weight of such a collective judgment at the ballot box is an open question; the reward such as Jackson received in 1832 is likely more certain even as it is thought less. Herein occupies the political trap wherein the path of least resistance may gain the upper hand in a president’s political calculation. Faith in the people rewarding courage against concentrated interests can be difficult to embrace even as such reward is perhaps germane to the office as it was designed and intended. Americans seem to innately know this, even as their collective judgment is difficult for politicians to discern.

 In the want of a Jacksonian presider standing for the public weal against being overrun by the private moneyed interest, the historical answer would have been to look to normative, even religious, constraints. Frank Rich includes this type among the more contemporaneously popular legalistic and economic ones where he writes, “There has been no legal, moral, or financial reckoning for the most powerful wrongdoers.” Even so, he concentrates on government regulation as essentially the only means available to constrain the unrepentant greed of Wall Street. Historically, ethical constraint against greed was thought to depend on religious, and specifically Christian, auspices. Frank Rich’s focus alone may be read as rendering a verdict on the efficacy of Christian ethics in countering the fundamental desire for more. Yet how many Jackson’s have the States seen that we may rely on presidential leadership and any ensuing regulation to constrain the moneyed interest?  Moreover, what if greed is so entrenched in human nature that virtually any bulwark must ultimately be found wanting?  


 Source:

 Frank Rich, “Obama’s Original Sin,” The New Yorker, July 3, 2011.

Related essay: “Godliness and Greed

Sunday, July 3, 2011

European Banks Ignoring the E.U.

As banks based in the E.U. state of Britain decided to pull back their operations around the world in mid 2011, the bankers may have overlooked key distinctions between their banks’ operations within the E.U. and internationally. Besides ignoring the converging impact of E.U. financial regulation within the E.U., the bankers were discounting the proposal of European Central Bank President Jean-Claude Trichet for a European rating agency. The proposal implies that certain advantages can be had for the E.U. as a whole—benefits that Lloyds, for example, implicitly discounted to the extent that the bank treated pulling back in the states of Ireland, the Netherlands, and Spain similar to pulling back in Dubai, which is not an E.U. state.

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.