THE JOYS OF CAPITALISM – PROFITING FROM CRIME

Once upon a time we were taught the amazing benefits of capitalism. How it can fuel the engine of state and raise the standard of living. How everyone had an equal chance to become the next American billionaire. How the accumulation of wealth had far reaching consequences and could be a tool for good.

That line of teaching dates back to the beginning of our nation and has been refined and updated over the years. Created by the public relations offices of corporate American and the Madison Avenue ad agencies whose lifeblood was the contracts they received from those corporations, it was not created for the common good.

There is a charade of benevolence, philanthropy and improved quality of life that may have resulted from the capitalism driving America but it was way down the distribution chain from the board rooms where the art of greed, the accumulation of power, the total disregard for law and the manipulation of governments ruled.

This is not to suggest that all corporations share the same outlook but once they join the elite group of major corporations in America the ethics, loyalty to the nation and upholding of the law seem to become secondary to the quest for the almighty dollar.

Yet it is more than that because questing for dollars is not bad in and of itself, it is the methods one chooses to use that become the choice between good and evil. The Bible says St. Michael cast Lucifer out of Heaven and down to Earth. Well Lucifer must having been wearing a suit and tie and he has certainly made himself at home here on Earth. Remember Lucifer; he’s the bad guy.

So what’s the point you might ask? Well let the facts speak for themselves. Today I am highlighting one of the most critical sectors of our capitalistic society, one upon which every aspect of your life in America is dependent.

Our first look is at the financial institutions which rule the nation from the powerful houses controlling the stock, commodities and real estate markets to the banks throwing credit cards at you. Like them or not you depend on them because they own you. Your homes are mortgaged to them, your pension, 401k, IRA and investments are managed by them, and probably about everything you buy is financed by them.

The really big boys have powerful names like Bank of America, Bear Stearns, Citigroup, Credit Suisse, J. P. Morgan, Merrill Lynch, Goldman Sachs, Lehman Brothers, UBS Warburg, and US Bancorp. Between them and a handful of others they rule the world financial markets.

So what do they have in common other than being the custodian of everything you have spent your life working toward? Well, how about criminal acts of such magnitude that they have been fined billions, yes billions, of dollars in the last 8 years. What were the crimes? Price fixing, fraud in stock deals, illegal charges to consumers, cheating on taxes, cheating stockholders, filing false financial statements, and cover-ups are just a sample of the actions charged against them.

AMERICA’S ELITE FINANCIAL INSTITUTIONS
FINES BY GOVERNMENT AGENCIES

Citigroup $3,062,150,000
Bank of America/Citigroup $2,750,000,000
Credit Suisse $450,000,000
Merrill Lynch $418,500,000
Morgan Stanley $281,200,000
J. P. Morgan/Chase $2,290,000,000
Goldman Sachs $112,000,000
Lehman Brothers $130,000,000
Bear Stearns $130,000,000
UBS Warburg $180,000,000
US Bancorp/Piper Jaffray $32,500,000
American Express $32,350,000
MasterCard $1,000,000,000
VISA $2,000,000,000

Okay, that is just a sampling of what fines we could find and the total is already nearly $13 billion. That does not count the billions and billions of dollars in sub-prime mortgage losses many of the companies absorbed by backing highly suspect loans. Now don’t you feel better about how your money and investments are being managed?

Of course this isn’t even all of the tragedy of our obsession with capitalist promises. Most of the fines were negotiated with the government and settled without trials, a pretty good sign of guilt. However, the settlements also meant the companies did not have to plead guilty, just admit to the practices and pay the fines. Now that seems efficient doesn’t it? An organization called CorpWatch whose purpose is to hold corporations accountable for their actions explains it as follows.

“Ever wonder why it is that when a company gets caught lying to, and/or cheating investors that they so often settle the case quickly, agreeing to pay millions of dollars back but "without admitting or denying" they did anything wrong?

Simple -- because the IRS kicks back a big hunk of the fine to them in the form of a tax write off.

That's right, you and I -- through the IRS -- subsidize corporate wrongdoing by providing substantial tax breaks to companies that settle shareholder lawsuits or regulatory actions in the right way.

For example, the Wall Street Journal reports that Merrill Lynch will likely harvest a fat $30 million tax write off this year -- a 30% kickback of the $100 million it agreed to cough up to settle fraud charges with New York prosecutors. The key here is that company officials insisted that the following magic words be included in their settlement agreement -- "without admitting guilt." The company had been charged with an elaborate pump and dump scheme in which its analysts falsely promoted stocks in companies underwritten by Merrill Lynch.

By being allowed to not admit guilt, the $100 million payment could be classified for tax purposes as "compensatory" damages rather than as a "fine" for wrongdoing.

This is a longstanding practice with both the SEC and IRS. And, in spite of the cascade of corporate evildoing, the IRS reinforced it in a similar case this April. The IRS ruling not only enshrines the practice but also appears to concede that getting caught and fined for lying and cheating is now a legitimate expense of doing business.

"It appears that the proximate cause of the litigation was the dissemination of false and misleading statements and press releases. Such dissemination of financial information is a routine business activity and therefore the expense of settling allegations regarding disseminating inaccurate information may be considered ordinary."(IRS ruling, April 2002)

Under the IRS's corporate tax rules settlements that result in a company having to pay "compensatory" damages are fully deductible as legitimate business expenses. This includes both compensatory as well as punitive "compensation."

The Political Connection

There you have it, the government rewards the corporations for criminal acts and regulatory violations. These are the same organizations pumping hundreds of millions of dollars into the political campaigns of our elected officials. Now just who is being protected?

Perhaps this massive infusion of dollars into campaigns of every major candidate has something to do with the fact they can get away with this practice. So when your favorite politician tells you he or she is looking out for you ask what they are doing to stop rewarding the criminals. If they look perplexed tell them the ones in the suits and ties.