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“It’s The People Stupid”: The Way To Stop Corporate Lawbreaking Is To Prosecute The People Who Break The Law

Today General Motors announced that it has fired 15 employees and disciplined five others in the wake of an internal investigation into the company’s handling of defective ignition switches, which lead to at least 13 fatalities.

But who’s legally responsible when a big corporation breaks the law? The government thinks it’s the corporation itself.

Wrong.

“What GM did was break the law … They failed to meet their public safety obligations,” scolded Sec of Transportation Anthony Foxx a few weeks ago after imposing the largest possible penalty on the giant automaker.

Attorney General Eric Holder was even more adamant recently when he announced the guilty plea of giant bank Credit Suisse to criminal charges for aiding rich Americans avoid paying taxes. “This case shows that no financial institution, no matter its size or global reach, is above the law.”

Tough words. But they rest on a bizarre premise. GM didn’t break the law, and Credit Suisse never acted above it. Corporations don’t do things. People do.

For a decade GM had been receiving complaints about the ignition switch but chose to do nothing. Who was at fault? Look toward the top. David Friedman, acting head of the National Highway Traffic Safety Administration, says those aware of the problem had ranged from engineers “all the way up through executives.”

Credit Suisse employees followed a carefully-crafted plan, even sending private bankers to visit their American clients on tourist visas to avoid detection. According to the head of New York State’s Department of Financial Services, Credit Suisse’s crime was “decidedly not the result of the conduct of just a few bad apples.”

Yet in neither of these cases have any executives been charged with violating the law. No top guns are going to jail. No one is even being fired.

Instead, the government is imposing corporate fines. The logic is that since the corporation as whole benefited from these illegal acts, the corporation as a whole should pay.

But the logic is flawed. Such fines are often treated by corporations as costs of doing business. GM was fined $35 million. That’s peanuts to a hundred-billion-dollar corporation.

Credit Suisse was fined considerably more — $2.8 billion. But even this amount was shrugged off by financial markets. In fact, the bank’s shares rose the day the plea was announced – the only big financial institution to show gains that day. Its CEO even sounded upbeat: “Our discussions with clients have been very reassuring and we haven’t seen very many issues at all.” (Credit Suisse wasn’t even required to turn over its list of tax-avoiding clients.)

Fines have no deterrent value unless the amount of the penalty multiplied by the risk of being caught is greater than the profits earned by the illegal behavior. In reality, the penalty-risk calculus rarely comes close.

Even when it does, the people hurt aren’t the shareholders who profited years before when the crimes were committed. Most current shareholders weren’t even around then.

Calling a corporation a criminal is even more absurd. Credit Suisse pleaded guilty to criminal conduct. GM may also face a criminal indictment. But what does this mean? A corporation can’t be put behind bars.

To be sure, corporations can effectively be executed. In 2002, the giant accounting firm Arthur Andersen was found guilty of obstructing justice when certain partners destroyed records of the auditing work they did for Enron. As a result, Andersen’s clients abandoned it and the firm collapsed. (Andersen’s conviction was later overturned on appeal).

But here again, the wrong people are harmed. The vast majority of Andersen’s 28,000 employees had nothing to do with the wrongdoing yet they lost their jobs, while most of its senior partners slid easily into other accounting or consulting work.

The truth is, corporations aren’t people — despite what the Supreme Court says. Corporations don’t break laws; specific people do. In the cases of GM and Credit Suisse, the evidence points to executives at or near the top.

Conservatives are fond of talking about personal responsibility. But when it comes to white-collar crime, I haven’t heard them demand that individuals be prosecuted.

Yet the only way to deter giant corporations from harming the public is to go after people who cause the harm.

 

By: Robert Reich, The Robert Reich Blog, June 4, 2014

June 7, 2014 Posted by | Auto Industry, Corporations, Financial Industry | , , , , , | Leave a comment

“The Great Detroit Betrayal”: The Residents, Employees And Retirees Are Not The Tragic Heroes Who Brought The City Down

Detroit has filed for bankruptcy. Most of the spot-news coverage has focused on the immediate fiscal crisis of the city, but the immediate fiscal crisis really isn’t what got the city into such deep trouble. Certainly, Detroit’s contracts with its employees and its debts to its retirees don’t explain anything about how and why this once-great city has come to such grief. Those contracts and retirement benefits are par for the course for major American cities—certainly, no more generous than those in cities of comparable size.

Any remotely accurate autopsy of the city will find the cancer that killed Detroit was the decline of the American auto industry. The failure of U.S. automakers in the ’70s, ’80s and ’90s to make better cars at a time when foreign-made autos were beginning to enter the U.S. market was surely one factor. Another was the trade deals that made it easy for Detroit automakers to relocate to cheaper climes—most particularly, NAFTA, which boosted maquiladoras while shuttering auto plants in the United States, disproportionately, in Greater Detroit. Taken in aggregate, the U.S. trade deals of the past half-century have benefited finance while crippling manufacturing, and Detroit—along with swaths of Cleveland, Chicago, Pittsburgh, and other industrial cities—paid the price.

A second factor is the racial polarization that Detroit has never managed to overcome. As far back as the 1920s, the Detroit factories attracted workers who didn’t always get along. In particular, it drew hundreds of thousands of workers from the African American South and white Appalachia. Since its formation in the 1930s, the United Auto Workers has spent much time and energy trying to combat white racism, and to keep tensions between these two groups from erupting in violence. The union didn’t always succeed. While it generally managed to get both its white and black members voting for liberal Democrats for state and national office, it seldom managed, even during the height of its strength in the ’30s, ’40s and ’50s, to get its white members to vote for its endorsed candidates for Detroit city office. Why the difference? Because city officials, unlike state and national ones, set Detroit’s policing and housing policies, and many white Detroiters, including auto workers, wanted to preserve racially segregated housing and a brutal, racist police force.

As mass suburban development came to Detroit in the decades following World War II, the city became prey to epochal white flight. By the late ’80s, when pollster Stan Greenberg conducted his now famous study of Macomb County—a white, working-class suburb adjoining Detroit, which had voted overwhelmingly for John Kennedy in 1960 and just as overwhelmingly for Ronald Reagan in 1984—he discovered a white electorate convinced that Democrats had created a government that benefited only blacks. Any notion of regional cooperation between increasingly black Detroit and its white suburbs was a non-starter.

As the auto plants closed and the whites fled, Detroit hollowed out. In time, as jobs and services vanished, blacks fled as well. In 1950, the city was home to 2 million people. Today, it is home to 700,000. Its unemployment rate, at 18.6 percent, is the highest of the 50 largest American cities. Its tax revenues, not surprisingly, can’t support adequate city services. And today’s bankruptcy filing is likely to reduce those services still further, while likely reducing the monthly pension checks of its retirees, though they and their unions have a strong moral claim to most favored creditor status. Moral claims often don’t amount to much, however, in bankruptcy proceedings.

Is it right to call what has happened to Detroit a tragedy? Not, surely, in a strictly Greek sense. There was hubris aplenty, but it was the hubris of auto executives who certainly don’t live within the city limits and won’t suffer the bankruptcy’s consequences. As for those who will suffer them—the residents, employees and retirees of Detroit—they’re not the tragic heroes who brought the city down. They’re the tragic victims.

 

By: Harold Meyerson, The American Prospect, July 19, 2013

July 21, 2013 Posted by | Auto Industry | , , , , , , , , | 1 Comment

“Binders Full Of Lies”: Mitt Romney Doubles Down On Auto Industry Lies

Mitt Romney has tried to dodge, bob, weave, change the subject, and pretend it didn’t happen when it comes to his position on the automobile companies.

But obfuscation is not enough for Mitt Romney: Now he is resorting to an outright lie in his speeches and in his last minute, desperate advertising. In fact, two big lies.

Lie No. 1: Contrary to Romney’s claim, Detroit and Chrysler are not moving jobs and the making of Jeeps to China. In fact, they are selling Jeeps to China and they are adding $500 million and 1,100 workers to their Ohio Jeep plant. Chrysler smacked down Romney’s lie when he first said it and now Romney is up with an ad repeating the lie, ignoring Chrysler.

Chrysler Chief Executive Sergio Marchionne was forced to send employees an E-mail Tuesday afternoon: “I feel obliged to unambiguously restate our position: Jeep production will not be moved from the United States to China.”

Hello, Mitt? Apologize and take down your TV ad. Instead, he is buying more air time and putting up radio ads with the same lie.

But it gets worse.

Lie No. 2: This is the one Romney has been repeating over and over about the American auto industry—he would have saved it with his “managed bankruptcy.” I worked for GM; there was no way the auto companies could have survived without Barack Obama’s rescue and with the decision to provide bridge loans and government help. Romney’s plan was not Obama’s plan—as he would try and make you believe. His plan was to get private capital, and as Steve Rattner, who ran the rescue team, and everyone else has stated, there was no private money. Even the conservative Detroit News praised President Obama and referred to Romney’s “wrong-headedness on the auto bailout…he was wrong in suggesting the automakers could have found operating capital in the private markets.”

When Romney called for letting Detroit go bankrupt, he meant it, because his view was the popular one at the time—no more bailouts, no more government money or intervention, enough already. Romney was playing politics. And he knew no one would buy a car from a bankrupt car company, unless the government stepped in to help

Now that the hard decision that President Obama made to provide government loans is popular, Romney is singing a different tune. He is not only trying to give voters the impression that he would have saved Detroit, which is absurd, he is implying that Obama is part of a plot to ship Jeep jobs to China.

Romney will lie and say anything to get elected. Let’s hope the people of Ohio and the United States see through it by next Tuesday.

By: Peter Fenn, U. S. News and World Report, October 30, 2012

October 31, 2012 Posted by | Auto Industry, Election 2012 | , , , , , , , | 1 Comment

“Wealth-Tainted Asides”: Mitt, Michigan And A Couple Of Cadillacs

Mitt Romney just can’t stop wealth allusions from creeping into the conversation.

He did it again on Friday. At the end of a speech about his economic plan before the Detroit Economic Club, when it felt as though he was just winging it, he said: “I love this country. I actually love this state. This feels good being back in Michigan. Um, you know the trees are the right height. The, uh, the streets are just right. I like the fact that most of the cars I see are Detroit-made automobiles. I drive a Mustang and a Chevy pickup truck. Ann drives a couple of Cadillacs, actually.”

Two Cadillacs?

That’s rich, literally.

That’s not what you want to say when you are in Detroit, which, as I pointed out last week, has the highest poverty rate of any big city in America.

That’s not what you want to say in a city where Megan Owens of the Detroit-based advocacy organization Transportation Riders United said on Friday that roughly half of its bus service has been eliminated in the past five or so years.

That’s not what you want to say when discussing a tax-cut plan that, according to models prepared by the Tax Policy Center, would heavily weight the benefits toward the top of the income spectrum.

That’s not what you want to say when, as David Cay Johnston of Reuters pointed out this week, Romney’s plan would:

“Raise taxes on poor families with children at home and those going to college. Romney does this by reducing benefits from the child tax credit and the earned income tax credit and by ending the American Opportunity tax credit for college education.”

That’s probably not the thing to say in Detroit after arguing in a now-famous New York Times Op-Ed article against the auto bailouts, saying: “If General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye.”

That was probably not the thing to say on the day after Steven Rattner, the lead adviser on the Obama administration’s auto task force in 2009, smacked you down in a New York Times Op-Ed article for suggesting that the government “should have stayed on the sidelines” and allowed the companies to go through “ ‘managed bankruptcies’ financed by private capital.”

As Rattner put it:

“That sounds like a wonderfully sensible approach — except that it’s utter fantasy. In late 2008 and early 2009, when G.M. and Chrysler had exhausted their liquidity, every scrap of private capital had fled to the sidelines. I know this because the administration’s auto task force, for which I was the lead adviser, spoke diligently to all conceivable providers of funds, and not one had the slightest interest in financing those companies on any terms. If Mr. Romney disagrees, he should come forward with specific names of willing investors in place of empty rhetoric. I predict that he won’t be able to, because there aren’t any.”

Ouch. I need to catch my breath after that one.

O.K., carrying on.

The “couple of Cadillacs” comment probably wasn’t the thing to say the day after the Pew Research Center found that most Americans now support the bailouts, with 56 percent saying “the loans the government made to G.M. and Chrysler were mostly good for the economy.”

That probably wasn’t the thing to say in a city where you published an op-ed in The Detroit News on Valentine’s Day continuing to argue against the bailout, saying:

“This was crony capitalism on a grand scale. The president tells us that without his intervention things in Detroit would be worse. I believe that without his intervention things there would be better.”

That probably wasn’t the thing to say the week that your campaign felt the need to remove this lovely little passage from The Detroit News’s endorsement of you before sending it to reporters:

“We disagree with Romney on a point vital to Michigan — his opposition to the bailout of the domestic automobile industry. Romney advocated for a more traditional bankruptcy process, while we believe the bridge loans provided by the federal government in the fall of 2008 were absolutely essential to the survival of General Motors Corp. and Chrysler Corp. The issue isn’t a differentiator in the G.O.P. primary, since the entire field opposed the rescue effort.”

The Detroit Free Press’s endorsement this week echoed the complaint about Romney’s opposition on the bailouts, calling him “dead wrong” and saying that in the past year he has been “refashioning himself as something other than what his record suggests. He has made gestures toward economic and social radicalism, and eschewed the common sense of cooperative governing that made him a success in Massachusetts.”

But what is likely more telling about Romney’s ineloquence and continued wealth-tainted asides that draw attention away from his message onto his wallet is this gem from his Friday endorsement by The Arizona Republic:

“There are better orators in American politics. Indeed, the Democrats appear to have one. And certainly there are Republicans who better project the passion for the office they seek. Steady, unflappable Romney would not a ‘passion president’ make.”

So, poor oratory, anemic passion, possessed of “utter fantasy,” and gestures toward radicalism while cruising in a couple of Caddies: That’s probably not the image you want going into a make-or-break primary.

By: Charles Blow, Op-Ed Columnist, The New York Times, February 24, 2012

February 25, 2012 Posted by | Auto Industry, Election 2012 | , , , , , , | Leave a comment

“Son Of Detroit”: Mitt Romney Overplayed His Hand In Michigan

In the campaign world, it’s almost a cardinal rule:  Undersell your chances, then overdeliver at the ballot box. Former Gov. Mitt Romney never got the memo on this, and he might well pay a severe price for this misstep in next week’s Michigan primary.

After squeaking by in the disputed Maine nominating contest and getting clocked by Santorum in Missouri, Minnesota, and Colorado before  that, Romney’s veneer of invincibility was gone and his campaign was left to deal with a harder question: Could he lose his home state of Michigan?

True, Romney was born in Michigan, where his father was a prominent auto executive and later governor. But Mitt Romney is more identified with Massachusetts, where he served as governor, or even with Mormon (like him) Utah, where he rescued the 2002 Winter Olympics.

He could’ve had it both ways. He could’ve acknowledged his  family’s deep connection to Michigan without declaring himself “a son of Detroit.” Expectations would’ve been lower, and the connection—for any   benefit it may hold next Tuesday—would’ve been solidified.

But he used those exact words—son of Detroit—to describe himself in a widely circulated  op-ed in The  Detroit News.

This went over about as well as could be expected for the campaign that can’t seem to shoot straight in recent weeks. Poll numbers barely  budged. Talk of losing the home state intensified—one Republican U.S. senator   said,  “If Romney cannot win Michigan, we need a new candidate.” And the campaign had to pull out the checkbook and again try to buy a primary by carpet-bombing the opponents with negative ads.

Then, in hardscrabble Michigan—home to shuttered factories,  high unemployment, and one of the weakest state economies in the nation—Romney  decided to unleash his secret weapon—Donald Trump. The Donald, who endorsed Romney after his own campaign flamed out, toured the  state stumping for Romney and, no doubt, making deep connections with working-class or wish-they-were-working-class voters  in the Wolverine State.

At that point, the Obama campaign no longer could resist joining in the fun. A super PAC associated with the president made its own huge ad buy to thwart Romney’s plan for a happy homecoming. It’s like the Fourth of July in Michigan right now—negative ad bombs going off in  every direction.

And because Romney could not leave well enough alone, could not underpromise and overdeliver, and could not resist calling himself “a  son  of Detroit,” his campaign has spent the last two weeks trying to douse the political equivalent of a five-alarm fire.

Romney should’ve focused on Arizona all along. Its primary—the same  day as Michigan’s—yields 29 delegates in a winner-take-all format. Michigan’s yields 30, awarded proportionally. If Romney hadn’t spent a dime on Michigan, he probably would’ve ended up with more delegates on the day than his current chief rival, former Sen. Rick Santorum. Santorum lags in the polls in Arizona and didn’t help himself with a poor debate performance in the state on Wednesday night.

Ironically, as we inch closer to the two primaries next Tuesday, Team Romney has begun to lower expectations in Michigan—to say the state is not, in fact, a must-win for his campaign. No kidding.

But the Romney camp could’ve saved itself a lot of money and a giant headache if it had started off trying to shape the narrative rather than becoming beholden to it.

 

By: Fred O’Connell, U. S. News and World report, February 24, 2012

February 25, 2012 Posted by | Auto Industry, GOP Presidential Candidates | , , , , , , , | Leave a comment

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