Category: Profiteering of A Corporate Nature That REALLY Hurt Taxpayers and Society

Sons of Wichita

The Book of the Week is “Sons of Wichita, How the Koch Brothers Became America’s Most Powerful and Private Dynasty” by Daniel Schulman, published in 2014.

Born in Texas in 1900, Fred Koch was of Dutch ancestry. He pronounced his name “coke” instead of the way the late former mayor of New York City (Ed “cotch”) did. He and his wife Mary bore four sons– Fred Jr., Charles, and David and Bill (fraternal twins), starting in 1933.

Fred was a chemical engineer who moved to Wichita, Kansas and became wealthy in the oil-refining industry. In the early 1930’s, he did business with the U.S.S.R. At the dawn of the 1940’s, he switched to ranching due to legal action over patents that Universal Oil launched against Fred’s company, Winkler-Koch, and also Root Refining. His oil company broke up in 1944.

In 1958, Koch joined the new John Birch Society, a rabidly anti-Communist group who saw Communists everywhere it looked, including those in unions, in charge of government financial programs, and in the United Nations. And the Boy Scouts. It aggressively spread hysteria about these people who were a threat to the American way. Fred had seen the political system in the Soviet Union when he was there, and realized it oppressed people.

Fred, Jr. took after his mother and upon reaching adulthood, moved to New York City and ran with the theater crowd. Charles, his father’s favorite, was groomed to take over the family business, which became Koch Industries. He did so in late 1967, when Fred passed away. The business made acquisitions in the oil industry and its sole goal was growth.

Charles had previously acquired extensive education in chemical and nuclear engineering. In the early 1970’s, he became interested in acquiring knowledge on the political ideology of libertarianism. He became a convert to it in its most extreme form. It espouses the belief that a purely capitalist society is the best economic system. This means total deregulation, no entitlements such as government-administered retirement or medical plans, no unions, no socialism of any kind, no income tax, and a government whose role is only to protect citizens and property from each other and outsiders, and from fraud.

In 1980, David Koch ran for American president on the Libertarian ticket. He knew he couldn’t possibly win but the goal was to plant seeds for future acceptance of his political ideology.

In early 1997, Charles co-founded the Cato Institute, a libertarian think tank. He and his brother David poured money into front groups that aggressively lobbied to reduce the size of government and expand the public’s freedoms. In 2008, the brothers opposed the taxpayer bailouts of companies bankrupted by the subprime mortgage crisis, and opposed deficit spending. They also denied allying with the Tea Party politicians but were secretly supporting them. About a year later, Charles and his henchmen launched fierce opposition to President Barack Obama’s national health care plan.

During his 2012 reelection campaign, Obama viewed the Koch brothers as a bigger threat than his Republican opponent, Mitt Romney. Obama copied the Kochs’ above actions (forming propagandizing front groups) to counteract the libertarians. Successfully.

As a result of their political mentality, Charles and David could have cared less about the environmental destruction and wrongful deaths their company caused due to poorly maintained oil and gas pipelines. Perhaps to salve his conscience, David made huge donations to cultural institutions, especially in New York City. The liberals (hypocritically) gratefully accepted the money, notwithstanding David’s political activities that led to rack and ruin. He also heavily funded medical research on prostate cancer, presumably to enhance the chances of his own physical survival.

Read the book to learn of the lawsuits that started in 1982 that Bill launched against Charles on various causes of action; the details of the Koch Industries’ legal troubles; the brothers’ sibling rivalry; the corporate culture of market-based management that Charles instituted in the family business; and what the siblings did for fun and profit; etc., etc., etc.

See You in Court – BONUS POST

The Book of the Week is “See You in Court” by Thomas Geoghegan, published in 2007. The author, a labor lawyer in Illinois, argued in this short paperback that the decline of unions in the United States is responsible for all sorts of ills that were plaguing the nation at the book’s writing (and have gotten worse since), such as the replacing of the of Rule of Law, contract law, and anti-trust law– with tort litigation; the risk of the disappearance of retirement funds at the whim of employers, and the growing income gap between rich and poor.

The author failed to differentiate between unions in the private sector, and ones in the government. Beginning in the 1950’s, the unions in the private sector were becoming unnecessary with the way things were progressing in the United States.

Economics 101 says that a nation requires a healthy, well-educated workforce. Unions in the private sector discouraged upward mobility– why should workers want to acquire more training and edification in their careers if they were making a decent living and their jobs were protected? Unions in low-skilled positions especially, fostered complacency. Private-sector unions fostered a lazy, poorly educated nation of low-skilled employees who went to work to collect a paycheck.

By the 1990’s, non-union, private-sector employees needed no protection. Employee satisfaction gets the same score as customer service. Free-market competition usually kept employers in line.

If employees walked off the job en masse, other employers gladly accepted employees and business lost by the wayward employer. Customers and employees could go over to Wendy’s if McDonald’s was unsatisfactory, or to Target if Walmart didn’t deliver. Low pay and difficult working conditions should have encouraged fry cooks and greeters to go to school to get a better job.

In the early 20th century, there was a need to protect workers– who were easily subjected to exploitation because many workers were poorly skilled, poorly educated new immigrants. There was limited opportunity for education, and limited transportation options even if workers were willing to relocate to find a job. Into the 1990’s, workers had more resources than ever to find work or engage in professional improvement if they wanted to.

Unions are always needed in civil service and in a few monopolistic industries (such as couriers, transportation, education and healthcare services), because they are exceptional. They are providing essential services (health, education and welfare), or else the work they provide is a matter of life and death. Government employees who are providing essential services deserve due process, in exchange for not striking.  Striking is illegal, and rightly so. There would be massive economic and/or societal disruption, and possible deaths, if they were to walk off the job en masse. Therefore, civil service unions are a necessary evil.

The unions in the author’s day used to minimize the number of workers’ compensation claims, which have now become tort suits, in which the cause of action (grounds for suing) has become discrimination. Such suits are many more times complex than contract law. The legal bills for these suits keep soaring, as well. Pretrial discovery entails “fishing expeditions”– extremely intrusive investigations of, say, medical records and activities of the plaintiffs, so that the defendants can gain every possible legal advantage.

The author also ranted about various other issues. He wrote that hegemonic institutions such as nonprofit hospitals, Ivy League universities (which get billions of dollars in government grants) and nonprofit organizations sue people for nonpayment but get massive tax breaks themselves.

These entities get away with this because they are allowed to keep their accounting books secret– they file neither tax returns nor SEC documents. The author failed to specify how big a part of the U.S. economy this sector is. That situation has partially changed among the hospitals anyway (but not necessarily improved), due to Obamacare.

The author pointed out that “The more we deregulate, the less stability and civic trust we have… More and more it seems we don’t trust government, we don’t trust business, we don’t even trust each other.”

But– in the 2020’s, after the Trump administration has continued its predecessors’ policies to the extreme–  running the government like one big brand (the president’s own) while allowing monster-sized corporations to ruthlessly profit with regard to neither the workers nor various populations who will be victims of pollution, poor quality education, housing and healthcare– history will have come full circle. There will be a need for unions in the private sector again (!)

Read the book to learn of additional outrages that have arisen in recent decades, such as the replacement of litigation with arbitration imposed by big corporations, how the law has changed to allow widespread usury, why people are suing Social Security to collect disability payments that are rightfully theirs, and how overpaid CEO’s (a redundant phrase) are making U.S. companies’ products less competitive overseas.

The Real Deal

The Book of the Week is “The Real Deal, My Life in Business and Philanthropy” by Sanford Weill and Judah S. Kraushaar, published in 2006. This career memoir describes how, over the course of about fifty years, Weill became a major change agent in the American financial services industry. His specialty became leading the execution of mergers and acquisitions for the investment, banking, and insurance companies of which he was an executive and board member.

In spring 1960, he started a securities brokerage, actually on Wall Street, with three partners. The stock market was bearish in 1962 and 1963. Interesting Side Note: “The typical stock in the Dow Index had a price 23 times its earnings as this downturn began, compared to a multiple of only 10 times in the early 1950s.”

Through the years, he gained more and more power and accumulated more and more wealth. When he attended events at which he had to speak to stockbrokers, he adopted a policy of brevity, saying, “You’ve heard enough speeches– what questions do you have for me?”

Although the author fostered a corporate culture of informality and “Management By Wandering Around” at his own company, in many instances, he failed to take into consideration the culture of the target company. His strengths lay more in bringing the top executives of the parties together to do the deals, and negotiating the new management structures. It was ironic that he was such a poor judge of how the two cultures would mesh once the integration process began.

At times, Weill tapped the power of his friends in high places, one of which was the government. It helped him change federal law to allow transactions to proceed. For instance, prior to 1999, certain banking and investment banking services could not be legally offered by the same company, due to financial conflicts and possibilities for abuses. He and his cohorts had a hand in making the historic change so that people within the same company could offer their clients all kinds of financial services.

Weill describes a whole bunch of instances that provided evidence for the necessity of strict financial auditing laws. In just a few years at the turn of the 21st Century, greed had spun out of control in the industry, leading to the accounting scandals of Enron and WorldCom, the dot-com crash, and a major hedge-fund crash that required a bailout. A terrorist attack didn’t help, either. By 2002, the chickens had come home to roost in the form of a bear market. “The regulators, the press, and politicians of all stripes…” played “the game of pointing fingers.”

And yet Weill writes, “…governance rules mandated by Sarbanes-Oxley (enacted in summer 2002) made it seem likely that bureaucratic needs would trump the fun of the business.” He also complains that businesses would have to spend more money preparing their financial statements. Sorry about that, Mr. Weill. Yes, pesky, bureaucratic, expensive laws reining in greed are no fun.

Six years later– same song, different verse… a whole lot worse. Need it be said– The more things change, the more they stay the same. History will continue to repeat itself, given human nature.

Read the book to learn the details of Weill’s career ups and downs and trials and tribulations. This blogger skipped the last chapter, in which Weill merely rambles on stating his opinions, and the endnote, which is an interview with his wife, whom he lavishly praises as loving and supportive throughout this ebook.

Why I Left Goldman Sachs

The Book of the Week is “Why I Left Goldman Sachs” by Greg Smith, published in 2012.

This career memoir details how the author experienced the change for the worse in corporate culture of stock brokerage Goldman Sachs (GS) over the course of a little more than a decade, from 2000 to early 2012. The company lost its way in terms of its mission and values, which embodied fiduciary duty and integrity.

In 2000, the author completed the selective, elitist, highly coveted summer internship program at the brokerage. He saw how principled the money managers were in recommending truly suitable transactions to their clients; not necessarily the most profitable ones.

When he began working there as a full-fledged staff member the following year, he took to the work, possessing the right combination of talents, skills and abilities to focus for long hours on conferring with clients and doing what was financially best for them. The goal was to build trust in order to foster a long-term relationship. It stands to reason that that is a more profitable course of action than seeking to rake in maximum money in the short term– which would provoke disloyalty from the client, when the client realizes he’s been taken advantage of.

Smith writes that a gradual change was occurring at his workplace around the start of 2005. At the time, he admittedly was “drinking the Kool Aid” like everyone else. The megabucks were multiplying because conflicts of interest were increasing betwen the brokerage and the government and other entities with which the brokerage was associated in various ways. The CEO and COO of GS were all for it. Their yearly letter to shareholders reasoned that such conflicts were inevitable, and were a sign that business was good. A telling example: GS netted approximately $100 million when it helped its client, the New York Stock Exchange merge with publicly traded, electronic exchange Archipelago in a $9 billion deal.

In the early 2000’s, one trend in the securities industry that would contribute to huge financial losses for the big firms including GS, was automated trading via software. The autotraders of the different firms were programmed to engage in largely the same behavior. They sought to trade in obscure, off-the-beaten path investments in markets in which it was difficult to find a buyer when it came time to sell. And they were all trying to sell at the same time. That was not a condition the autotrader creators had anticipated.

Another aspect of the big picture was that the people selling the financial products– more specifically, derivatives– did not themselves, understand what they were selling. It might be recalled that a derivatives debacle plagued the securities industry in 1994. Apparently, in 2007-2009, the greedy people involved in this rerun of a financial catastrophe failed to read their history, or had short memories. And governments of entire countries like Libya, were suffering losses of billions of dollars, thanks to GS, in 2007.

Read the book to learn much more about the outrageous occurrences borne of avarice witnessed by the author and the world during what became for him, an ordeal, characterized by the saying, “The fish rots from the head down.”

Webs of Power… – Bonus Post

This blogger “clicked” through the ebook, “Webs of Power: Notes from the Global Uprising” by Starhawk, published in 2002.

The ebook is the author’s description of what her activism is about. She explains that the way globalization is currently occurring is wrong because big corporations are favoring money over people. Greedy corporations (and governments) are destroying the earth and life on earth.

One specific way governments are allowing this, is through the World Trade Organization. The United States joined the Organization and signed the trade agreement called GATT. That agreement lets the Organization, whose member-countries’ representatives, appointed via cronyism, make laws whose disclosure is denied to the world. No hearings of their proceedings are permitted. The actions taken by this secret society affect workers and human rights worldwide and of course, the environment.

The negative consequences have included, for example, allowing poisons to permeate the world food supply, endangering species and keeping drug prices high, all to the benefit of global corporations. What is not a secret is that those companies have, in recent decades, increased their profitability by moving their production facilities to nations where they can get labor at minimal cost while avoiding pesky health, safety and environmental laws. The author argues that this has also resulted in significantly increased income inequality the world over.

Read the book to learn of additional ways greed and power hunger are wrecking the world, and the role the author has played, through planning and organizing protests, training protesters, protesting and writing in trying to prevent further harm; and of her various proposals for governance and allocating resources in ways that do the greatest good for the greatest number.

Fateful Harvest

The Book of the Week is “Fateful Harvest” by Duff Wilson, published in 2002. Here is yet another book that describes one of the countless ways humans are destroying the earth and themselves.

Wilson, a journalist, revealed an environmental problem (and by natural extension, health hazard) perpetrated by large corporations on people in a small town in Washington State. It is unknown how many people elsewhere are affected, since it is extremely difficult to prove proximate cause when it comes to cancer in people who have had unmeasured exposure to countless carcinogens throughout their lives. The story was reminiscent of the book and movie “A Civil Action.” However, in Quincy, Washington, there has yet to be a class action suit.

In recent decades, companies have found a way to save millions of dollars disposing of toxic wastes they generate. In the 1990’s, they paid $50-$100 a ton to have fertilizer companies use those wastes in fertilizer, which was then sold to farmers. They would have paid $200 or $300 a ton to dump the wastes in a landfill instead. The fertilizer companies take advantage of a loophole in the law, which regulates “wastes,” not “products.” Fertilizer is a “product” even when it contains fly ash, contaminated phosphoric acid, beryllium, cadmium, chromium and other toxins from automakers, zinc smelters, copper recycling plants and steel mills.

Food becomes contaminated when grown in contaminated fertilizer. The farmers grow the potatoes, corn and beans, etc., sold to food processing plants that make and sell French fries and other edible products.

Read the book to learn how this serious environmental threat was discovered, and the various reasons why outspoken farmers, a horse breeder and the mayor, among other adversely affected Quincy residents, could not acquire sufficient power and influence to close the loophole in the law.