From Shanghai: Corruption
I have heard enough about corruption in China.
Allow me to set the record straight. Yes: We all know that corruption is very bad for individuals, society, and the economy. This is equally true for developed nations like, say, the U.K., and emerging economies like China. But for sheer, unbridled, overt corruption, we must look to the United States of America. There, corruption not only exists at the highest levels of government but is enshrined in the law of the land.
For example, there are over 12,000 registered lobbyists in Washington, D.C. These are firms that register with the government. And they are not necessarily the major problem because they include NGO’s, social advocacy, environmental, and art groups that do a great deal of good. The major problem is commercial interests, as well as the countless other groups that lobby government. This latter group includes law firms, businesses, trade associations, public relations agencies, and – especially – former members of government. The rot extends from the Supreme Court to the President, from the halls of Congress to the Pentagon, from the American Chamber of Commerce to Wall Street, Big Oil, agribusiness and many other multinational firms. The Washington Post reported 34,000 lobbyists in D.C. in 2005. In 2008 The Economist put the number of lobbyists at 44,000. Note that there are only 435 members of the U.S. Congress. You do the math. Vested corporate interests own D.C., including all three branches of the U.S. government.
Judicial corruption: In 2010 the Supreme Court of the United States, in the Citizens United Case, overturned a law that prevented corporations and labor unions from engaging in contributions or expenditures for “electioneering communication,” such as paid advertisements or films advocating specific candidates in political campaigns. Wealthy individuals also can now donate as much as they please to candidates’ political action committees (PACs). Thus, today, corporations and the wealthiest individuals can donate as much money as they wish, giving rise to Super PACS armed with tens of millions of dollars. Thus, corporations can and do, legally, attempt to influence – buy -- political campaigns; that is, they can buy influence with politicians so that those politicians will give those corporations special weight in legislation. Thus, corruption is enshrined in law. Note that the Supreme Court, driven by the pro-business ideology of Chief Justice John Roberts, Jr., chose to hear the Citizens United case over the vociferous objections of many lawyers, citizens, and lawmakers.
Legislative corruption: Corruption also is pervasive throughout the Legislative Branch of the U.S. government. Why else would Congress have to pass, and President Obama sign, on 4 April of this year, a law to outlaw insider trading in the House of Representatives and the Senate? Members of the House and Senate historically achieved returns on their investments 12% above average market returns. The high rates of return on their investments in the stock market were due to insider trading, a felony that puts regular folks in jail. The issue is “material nonpublic information” to which members of Congress are privy.
Furthermore, individual members of Congress take in millions from banks and large corporations. John Boehner, currently Speaker of the House of Representatives, in 1996 distributed envelopes of cash from the tobacco lobby to his colleagues on the House floor while, reportedly, dressed in a Santa Claus outfit. He is known for his ties to lobbyists, and once even petitioned the EPA (Environmental Protection Agency) on behalf of a steel company that had made donations to his campaign committee. These are only two of countless examples.
In addition, U.S. banks and their allied trade associations have spent hundreds of millions on lobbying and hiring former members of government. The 12,655 registered lobbyists in D.C. spent $3,314,594,923 on their activities in 2011. In 2010 alone, the six largest U.S. banks hired 243 lobbyists who previously had professional positions with the U.S. government in Congress, in the White House, at the Treasury Department, or at a government agency such as the Securities and Exchange Committee. At least 950 former government employees work as lobbyists or for lobbying firms that attempt to influence legislation by winning concessions for the financial industry. These groups spend $1 million per day lobbying Congress, the White House, and other government offices. Since the first bail-out of the big banks in 2008, lobbyists and trade associations have spent some $1 billion dollars on campaign contributions and lobbying activities.
This begs the question of the “revolving door” that allows government workers and executives of corporations to move into or out of government. It is for this reason we have “Government Sachs” – the all-to-many members of Goldman Sachs in key positions in government. Conflicts of interest abound; “material nonpublic information” is distributed wholesale, a felony.
Take, for instance, Hank Paulson, the Secretary of the Treasury under George Bush II who oversaw the first bailout of Wall Street. Paulson was Chairman and CEO of Goldman Sachs prior to taking his post at the Treasury Department. When Wall Street banks -- thus the entire U.S. banking system, thus the global financial system -- were on the brink of meltdown in 2008, Paulson got down on his knees and begged Nancy Pelosi, then Speaker of the House of Representatives, for her vote on the Troubled Asset Relief Program (TARP), a $700-billion program designed to stop the credit and financial crises through measures that included foreclosure settlements.
Pelosi gave her vote. But Paulson lied. He changed his mind and, rather than targeting or even addressing foreclosures, began handing that $700-billion directly, no strings attached, to the biggest Wall Street banks – all of whom were implicated in the meltdown. The Inspector General of the TARP law, Neil Barofsky, wrote the following in the New York Times on 29 March 2011: “The legislation that created TARP, the Emergency Economic Stabilization Act, had far broader goals, including home values and preserving home ownership. These Main Street goals were not, as the Treasury Department is now suggesting, mere window dressing that needed only to be ‘taken into account’. Rather, they were a central part of the compromise with reluctant members of Congress to cast a vote that in many cases proved to be political suicide.” In other words, Paulson blatantly broke the law. Tim Geithner continued to ignore – that is, break -- that law. So will his successor.
In addition, Paulson is known to have given material nonpublic information to his friends in financial firms (including hedge funds and his old firm, Goldman Sachs), not once but twice, in Moscow and New York City. Thus, Paulson was and is guilty of lying to members of Congress and disclosure of material nonpublic information, both of which are crimes for which anyone not in the government of the USA would be in prison. This is ‘crony capitalism’ writ very large.
Yet the biggest scandal is that no one is in jail. We know rules, regulations, and laws were skirted, ignored, or broken, especially by the largest banks and their allied mortgage services, including the credit ratings agencies. We know U.S. banks rushed to sell, through their own departments or mortgage service firms, high-risk “sub-prime” mortgages to unqualified consumers. We know those same banks packaged those mortgages into financial instruments they knew, in many instances, were toxic, then sold them into the global economy. In many instances, the paperwork for such mortgages was invented, just as the foreclosure papers were, at the “too big to fail” banks such as Bank of America and Citigroup, among others. We also know that these firms and their top executives were and are guilty of felonies; for example, Goldman Sachs and, again, Bank of America, to mention only two.
We know that, most recently, major banks in the U.S. and London manipulated the London interbank offered rate, or LIBOR, beginning at least four years ago. We know the banks and their senior-most managers are guilty of “robo-signing” and related felonious infractions of law. We know that during the last financial scandal, the Keating Five, some 800 bank executives went to prison. The Pecora Commission of 1932-1934, set up to investigate the Crash of 1929 that led to the Great Depression, summoned the top bankers of the day, shredded their reputations, and exposed the conflicts of interests, insider trading, exorbitant salaries and bogus, often illegal, business arrangements that caused the last, great financial crisis. Pecora named and shamed those at fault. Why can such not be done now?
Executive corruption: The answer is not hard to find. At any time during the past four-plus years, President Barack Obama could have ordered his Attorney General, Eric Holder, to establish a modern-day Pecora Commission. He promised to set up such a committee during his State of the Union Address last January, but that group is still not functional. The reason for such lack of haste or urgency is that, as Cornel West at Princeton University said, Obama is “a black mascot for Wall Street.” That is, Obama is owned by Wall Street. To quote from an analysis in the New York Times on 13 April of this year: “Among those who gave $30,000 or less, about 20% visited the White House. Among those who gave $100,000 or more, 70% visited the White House for business purposes.” Seventy-five percent of the top Obama fund-raisers and donors visited the White House at least once, and often numerous times, often with known lobbyists in tow. According to Patrick J. Kennedy, a former member of the House of Representatives quoted in the same article, “that’s how this system works . . . If you want to call it a ‘quid pro quo’, fine.”
But those amounts are small change compared to donations from major banks. During Obama’s 2008 presidential campaign, banks were among Obama’s largest contributors: Goldman Sachs ($1,013,019); JPMorgan Chase ($808,799); CitiGroup ($736,711); UBS AG ($532,674); Bank of America, ($421,242); Morgan Stanley ($425,502). In total, banks and related financial firms gave Obama over $15 million during his 2008 election campaign. That’s a huge amount of ‘quid pro quo’ owed by Obama to Wall Street, and explains why Obama has not ordered his Attorney General, Eric Holder, to initiate criminal investigation of the banks. (Note that Holder himself has close ties to both banks and lobbyists.)
As if this were not sufficient proof of corruption in the U.S., in addition we have the words of Jack Abramoff, the single-most notorious lobbyist, who did hard time in prison for highly illegal lobbying efforts. After his 3.5 years in prison, Abramoff wrote an article that was published in Bloomberg News on 18 November 2011. He reported that the primary cause of corruption in the American government is the “revolving door” between government and K Street (the supposed yet very real lair of many lobbyists). Abramoff reported this: “In my years as a lobbyist, I saw scores of congressional staff members become the willing vassals of K Street firms before soon decamping for K Street employment themselves. It was a dirty little secret. And it is a source of major corruption in Congress.”
Enough said. In terms of corruption, the U.S. wins over China. In China, corruption is illegal; violators are often severely punished – just look to Bo Xilia. But in the United States, corruption is more than legal. It’s the law of the land
Ned Boudreau taught economics and theory of knowledge in the International Baccalaureate Organization Diploma Program at two high schools in China over six years; he also taught English. Prior to teaching in China, Boudreau spent 20 years in the U.S. corporate sector as a marketing professional, journalist, and creative director. He is also a former Peace Corps Volunteer. A summa cum laude graduate in philosophy from Boston College, Boudreau studied graphic arts at Northeastern, marketing at Harvard, and holds an M.S. in development economics from Southern New Hampshire University. He lives and teaches in Shanghai.
