Corporate Dysmorphia: Why “Business Needs Certainty” Is Destructive
If you read the business and even the political press, you’ve doubtless encountered the claim that the economy is a mess because the threat to reregulate in the wake of a global-economy-wrecking financial crisis is creating “uncertainty.” That is touted as the reason why corporations are sitting on their hands and not doing much in the way of hiring and investing.
This is propaganda that needs to be laughed out of the room.
I approach this issue as as a business practitioner. I have spent decades advising major financial institutions, private equity and hedge funds, and very wealthy individuals (Forbes 400 level) on enterprises they own. I’ve run a profit center in a major financial firm and have have also operated a consulting business for over 20 years. So I’ve had extensive exposure to the dysfunction I am about to describe.
Commerce is all about making decisions and committing resources with the hope of earning profit when the managers cannot know the future. “Uncertainty” is used casually by the media, but when trying to confront the vagaries of what might happen, analysts distinguish risk from “uncertainty”, which for them has a very specific meaning. “Risk” is what Donald Rumsfeld characterized as a known unknown. You can still estimate the range of likely outcomes and make a good stab at estimating probabilities within that range. For instance, if you open an ice cream store in a resort area, you can make a very good estimate of what the fixed costs and the margins on sales will be. It is much harder to predict how much ice cream you will actually sell. That is turn depends largely on foot traffic which in turn is largely a function of the weather (and you can look at past weather patterns to get a rough idea) and how many people visit that town (which is likely a function of the economy and how that particular resort area does in a weak economy).
Uncertainty, by contrast, is unknown unknowns. It is the sort of risk you can’t estimate in advance. So businesses also have to be good at adapting when Shit Happens. Sometimes that Shit Happening can be favorable, but they still need to be able to exploit opportunities (like an exceptionally hot summer producing off the charts demand for ice cream) or disaster (like the Fukushima meltdown disrupting global supply chains). That implies having some slack or extra resources at your disposal, or being able to get ready access to them at not too catastrophic a cost.
So why aren’t businesses investing or hiring? “Uncertainty” as far as regulations are concerned is not a major driver. Surveys show that the “uncertainty” bandied about in the press really translates into “the economy stinks, I’m not in a business that benefits from a bad economy, and I’m not going to take a chance when I have no idea when things might turn around.”
The “certainty” they are looking for is concrete evidence that prevailing conditions have really turned. But with so many people unemployed, growth flagging in advanced economies, China and other emerging economies putting on the brake as their inflation rates become too high, and a very real risk of another financial crisis kicking off in the Eurozone, there isn’t any reason to hope for things to magically get better on their own any time soon. In fact, if you look at the discussion above, we actually have a very high degree of certainty, just of the wrong sort, namely that growth will low to negative for easily the next two years, and quite possibly for a Japan-style extended period.
So why this finger pointing at intrusive regulations, particularly since they are mysteriously absent? For instance, Dodd Frank is being water down in the process of detailed rulemaking, and the famed Obamacare actually enriches Big Pharma and the health insurers.
The problem with the “blame the government” canard is that it does not stand up to scrutiny. The pattern businesses are trying to blame on the authorities, that they aren’t hiring and investing due to intrusive interference, was in fact deeply entrenched before the crisis and was rampant during the corporate friendly Bush era. I wrote about it back in 2005 for the Conference Board’s magazine.
In simple form, this pattern resulted from the toxic combination of short-termism among investors and an irrational focus on unaudited corporate quarterly earnings announcements and stock-price-related executive pay, which became a fixture in the early 1990s. I called the pattern “corporate dysmorphia”, since like body builders preparing for contests, major corporations go to unnatural extremes to make themselves look good for their quarterly announcements.
An extract from the article:
Corporations deeply and sincerely embrace practices that, like the use of steroids, pump up their performance at the expense of their well-being…
Despite the cliché “employees are our most important asset,” many companies are doing everything in their power to live without them, and to pay the ones they have minimally. This practice may sound like prudent business, but in fact it is a reversal of the insight by Henry Ford that built the middle class and set the foundation for America’s prosperity in the twentieth century: that by paying workers well, companies created a virtuous circle, since better-paid staff would consume more goods, enabling companies to hire yet more worker/consumers.
Instead, the Wal-Mart logic increasingly prevails: Pay workers as little as they will accept, skimp on benefits, and wring as much production out of them as possible (sometimes illegally, such as having them clock out and work unpaid hours). The argument is that this pattern is good for the laboring classes, since Wal-Mart can sell goods at lower prices, providing savings to lower-income consumers like, for instance, its employees. The logic is specious: Wal-Mart’s workers spend most of their income on goods and services they can’t buy at Wal-Mart, such as housing, health care, transportation, and gas, so whatever gains they recoup from Wal-Mart’s low prices are more than offset by the rock-bottom pay.
Defenders may argue that in a global economy, Americans must accept competitive (read: lower) wages. But critics such as William Greider and Thomas Frank argue that America has become hostage to a free-trade ideology, while its trading partners have chosen to operate under systems of managed trade. There’s little question that other advanced economies do a better job of both protecting their labor markets and producing a better balance of trade—in most cases, a surplus.
The dangers of the U.S. approach are systemic. Real wages have been stagnant since the mid-1970s, but consumer spending keeps climbing. As of June, household savings were .02 percent of income (note the placement of the decimal point), and Americans are carrying historically high levels of debt. According to the Federal Reserve, consumer debt service is 13 percent of income. The Economist noted, “Household savings have dwindled to negligible levels as Americans have run down assets and taken on debt to keep the spending binge going.” As with their employers, consumers are keeping up the appearance of wealth while their personal financial health decays.
Part of the problem is that companies have not recycled the fruits of their growth back to their workers as they did in the past. In all previous postwar economic recoveries, the lion’s share of the increase in national income went to labor compensation (meaning increases in hiring, wages, and benefits) rather than corporate profits, according to the National Bureau of Economic Analysis. In the current upturn, not only is the proportion going to workers far lower than ever before—it is the first time that the share of GDP growth going to corporate coffers has exceeded the labor share.
And businesses weren’t using their high profits to invest either:
Companies typically invest in times like these, when profits are high and interest rates low. Yet a recent JP Morgan report notes that, since 2002, American companies have incurred an average net financial surplus of 1.7 percent of GDP, which contrasts with an average deficit of 1.2 percent of GDP for the preceding forty years. While firms in aggregate have occasionally run a surplus, “. . . the recent level of saving by corporates is unprecedented. . . .It is important to stress that the present situation is in some sense unnatural. A more normal situation would be for the global corporate sector—in both the G6 and emerging economies—to be borrowing, and for households in the G6 economies to be saving more, ahead of the deterioration in demographics.”
The problem is that the “certainty” language reveals what the real game is, which is certainty in top executive pay at the expense of the health of the enterprise, and ultimately, the economy as a whole. Cutting costs is as easy way to produce profits, since the certainty of a good return on your “investment” is high. By contrast, doing what capitalists of legend are supposed to do, find ways to serve customer better by producing better or novel products, is much harder and involves taking real chances and dealing with very real odds of disappointing results. Even though we like to celebrate Apple, all too many companies have shunned that path of finding other easier ways to burnish their bottom lines. and it has become even more extreme. Companies have managed to achieve record profits in a verging-on-recession setting.
Indeed, the bigger problem they face is that they have played their cost-focused business paradigm out. You can’t grow an economy on cost cutting unless you have offsetting factors in play, such as an export led growth strategy, or an ever rising fiscal deficit, or a falling household saving rate that has not yet reached zero, or some basis for an investment spending boom. But if you go down the list, and check off each item for the US, you will see they have exhausted the possibilities. The only one that could in theory operate is having consumers go back on a borrowing spree. But with unemployment as high as it is and many families desperately trying to recover from losses in the biggest item on their personal balance sheet, their home, that seems highly unlikely. Game over for the cost cutting strategy.
And contrary to their assertions, just as they’ve managed to pursue self-limiting, risk avoidant corporate strategies on a large scale, so too have they sought to use government and regulation to shield themselves from risk.
Businesses have had at least 25 to 30 years near complete certainty — certainty that they will pay lower and lower taxes, that they’ will face less and less regulation, that they can outsource to their hearts’ content (which when it does produce savings, comes at a loss of control, increased business system rigidity, and loss of critical know how). They have also been certain that unions will be weak to powerless, that states and municipalities will give them huge subsidies to relocate, that boards of directors will put top executives on the up escalator for more and more compensation because director pay benefits from this cozy collusion, that the financial markets will always look to short term earnings no matter how dodgy the accounting, that the accounting firms will provide plenty of cover, that the SEC will never investigate anything more serious than insider trading (Enron being the exception that proved the rule).
So this haranguing about certainty simply reveals how warped big commerce has become in the US. Top management of supposedly capitalist enterprises want a high degree of certainty in their own profits and pay. Rather than earn their returns the old fashioned way, by serving customers well, by innovating, by expanding into new markets, their ‘certainty’ amounts to being paid handsomely for doing things that carry no risk. But since risk and uncertainty are inherent to the human condition, what they instead have engaged in is a massive scheme of risk transfer, of increasing rewards to themselves to the long term detriment of their enterprises and ultimately society as a whole.
By: Yves Smith, Salon, August 14, 2011
Former Sen. Phil “Mental Recession” Phil Gramm Endorses His “Protege” Rick Perry
Texas Gov. Rick Perry (R) yesterday jumped in the 2012 GOP presidential primary, saying that “it is time to get America working again.” “I will work every day to make Washington, DC, as inconsequential in your lives as I can, and free our families, small businesses and states from a burdensome and costly federal government so they can create, innovate and succeed,” he said. And Perry quickly picked up the endorsementof former Sen. Phil Gramm (R-TX):
Former senator and current banker Phil Gramm of Texas — well-connected to big donors but controversial for his role in preventing tighter regulation of Wall Street — told The Huffington Post yesterday that he is endorsing his former student and political protege, Texas Gov. Rick Perry...”I’m for Rick and I will do what I can to help,” Gramm said in an interview in Detroit. “He has been an effective governor. He is a determined guy from a small town who knows how to get things done.”
In 2008, Gramm, who was advising Sen. John McCain’s (R-AZ) presidential campaign (and was floated as McCain’s choice for Treasury Secretary) gained notoriety for saying that the country was “a nation of whiners” that was only in a “mental recession.”
But Gramm’s legacy goes much deeper than that. In 2001, he tucked the Commodity Futures Modernization Act into an unrelated, 11,000 page appropriations bill. That act ensured that the huge market in over-the-counter derivatives stayed unregulated, laying the groundwork for the 2008 financial crisis (and the implosions of AIG and Lehman Brothers). He also believes there should be no minimum wage and has derided the working poor by saying, “we’re the only nation in the world where all our poor people are fat.”
Perry was a student of Gramm’s at Texas A&M, and when Perry became governor “Gramm and his bank pushed a controversial proposal to allow the company to take out insurance polices on teachers and other workers, even though the workers themselves would not benefit.” If Gramm’s support is any indication, Perry’s zeal for financial deregulation will know no bounds.
By: Pat Garofalo, Think Progress, August 14, 2011
Protest Needed To Enforce Full Employment Laws
Marjorie Cohn, immediate past president of the National Lawyers Guild, has a post up at Op-Ed News, “Lost in the Debt Ceiling Debate: The Legal Duty to Create Jobs” addressing the federal government’s failure to comply with existing job-creation legislation.
Cohn focuses primarily on The Employment Act of 1946 and the Humphrey-Hawkins Act of 1978, noting also mandates for job-creation in 1977 reforms requiring the Federal Reserve to leverage monetary policy to promote maximum employment. She ads that the Universal Declaration of Human Rights sets a global standard of employment as an important right, which, not incidentally, some major industrialized nations have actually tried to honor.
Cohn’s review of the two jobs acts provides a timely reminder of the moral imperative that faces every great democracy, the responsibility to take action to help insure that every family has at least one breadwinner who earns a living wage:
The first full employment law in the United States was passed in 1946. It required the country to make its goal one of full employment…With the Keynesian consensus that government spending was necessary to stimulate the economy and the depression still fresh in the nation’s mind, this legislation contained a firm statement that full employment was the policy of the country.As originally written, the bill required the federal government do everything in its authority to achieve full employment, which was established as a right guaranteed to the American people. Pushback by conservative business interests, however, watered down the bill. While it created the Council of Economic Advisers to the President and the Joint Economic Committee as a Congressional standing committee to advise the government on economic policy, the guarantee of full employment was removed from the bill.
In the aftermath of the rise in unemployment which followed the “oil crisis” of 1975, Congress addressed the weaknesses of the 1946 act through the passage of the Humphrey-Hawkins Full Employment Act of 1978. The purpose of this bill as described in its title is:
“An Act to translate into practical reality the right of all Americans who are able, willing, and seeking to work to full opportunity for useful paid employment at fair rates of compensation; to assert the responsibility of the Federal Government to use all practicable programs and policies to promote full employment, production, and real income, balanced growth, adequate productivity growth, proper attention to national priorities.”
The Act sets goals for the President. By 1983, unemployment rates should be not more than 3% for persons age 20 or over and not more than 4% for persons age 16 or over, and inflation rates should not be over 4%. By 1988, inflation rates should be 0%. The Act allows Congress to revise these goals over time.
If private enterprise appears not to be meeting these goals, the Act expressly calls for the government to create a “reservoir of public employment.” These jobs are required to be in the lower ranges of skill and pay to minimize competition with the private sector.
The Act directly prohibits discrimination on account of gender, religion, race, age or national origin in any program created under the Act. Humphey-Hawkins has not been repealed. Both the language and the spirit of this law require the government to bring unemployment down to 3% from over 9%…
This legislation only requires the federal government to take action. The private sector, which employs 85+ percent of the labor force, would be indirectly influenced by monetary policy, but would not be required to do any hiring. Still, full enforcement of existing legislation could substantially reduce unemployment by putting millions of jobless Americans to work in public service projects rebuilding our tattered infrastructure.
The ’46 and ’78 full employment laws have been winked at and shrugged off by elected officials for decades as merely symbolic statutes, despite the fact that they actually do require the President, Congress and the Fed to do specific things to create jobs.
Cohn points out that Rep. John Conyers (D-MI) has introduced “The Humphrey-Hawkins 21st Century Full Employment and Training Act” (HR 870), to fund job-training and job-creation programs, funded by taxes on financial transactions. But the bill has no chance as long as Republicans control the House.
Cohn urges President Obama to demand that the Fed “…use all the tools relating to controlling the money supply…to create the funds called for by HR 870, and to start putting people back to work through direct funding of a reservoir of public jobs as Humphrey-Hawkins mandates.” Imagine the political donnybrook that would ensue following such action, legal though it apparently would be. It’s an interesting scenario that needs some fleshing out.
The best hope for full employment remains electing strong Democratic majorities to both houses of congress, while retaining the presidency. Under this scenario, full enforcement of the ’46 and ’78 employment acts is certainly doable. But it’s a very tough challenge, given the Republican edge in Senate races next year.
There are signs that the public is tiring of the tea party obstruction of government, and therefore hope that at least some Republicans may have to move toward the center to survive. It’s possible they could be influenced by energetic protest and lobbying campaigns by their constituents.
Like other groups across the political spectrum, we progressives are very good at blaming elected officials when they don’t follow through on their reform promises. But too many progressive Dems fail to realize that finger-pointing, while necessary, is only part of our responsibility. If we really want to see significant progressive change, especially full employment, we simply must escalate our protest activities to compel our elected and government officials to act.
At a white house meeting, FDR reportedly told the great African American labor leader A. Philip Randolph “Make me do it” in response to Randolph’s appeal for racial justice and economic reform. Roosevelt was not being a smart ass; He was underscoring an important law of politics, that elected officials need protest to galvanize them to act, and progressive politicians welcome it because it provides cover, as well as encouragement.
Regarding protest leadership, we have a great role model, whose 30+ foot stone image will be unveiled not far from the Lincoln, Jefferson and FDR Memorials on the National Mall in the capitol August 28th. The Martin Luther King, Jr. Memorial will not only honor the historic contributions of a great African American leader; It will also inspire — and challenge — coming generations of all races to emulate his strategy of militant but dignified nonviolent protest to achieve social and economic justice.
Let’s not forget that the Great March on Washington MLK and Randolph lead in 1963 was not only about racial justice. The twin goals were “Jobs and Freedom,” a challenge that echoes with prophetic relevance for our times. It was FDR who said “make me do it,” and MLK showed us the way, not only with one demonstration, but with a sustained commitment to mass protest. Now let’s make them do it.
By: J. P. Green, The Democratic Strategist, August 13, 2011
CEO’s And Teapartiers, Shut Up And Pay Your Taxes: Starving The Government Is Not Patriotic
As I sit here in Germany’s financial capital, a few hours by train from where my forbearers set out for the United States a century ago, I’m remembering what antitax Americans are forgetting: Living in a stable and free society that supports economic initiative isn’t a given.
Those who think that U.S. corporations and wealthy individuals already pay too much in taxes and get too little in return are taking for granted social order and economic opportunity. Keeping the peace costs money, and paying police, fire and other emergency personnel requires tax revenue. Just ask U.K. Prime Minister David Cameron, whose plan to make substantial cuts in London’s Metropolitan Police budget now looks ill-timed, amid pictures of looters making off with stolen goods.
U.S. corporations benefit every day from operating in an environment where bricks aren’t flying through windows and gunshots aren’t going off in parking lots. Civil unrest can be expensive, as executives at Sony Corp learned this week after its London warehouse went up in flames.
It also costs money to educate a workforce, something that also seems glossed over by those who want to slash money for federal education grants.
When I first arrived in Germany, people asked me whether the news they saw on TV is true, that “everyone in the United States is lining up for food stamps,” as one Frankfurter put it. Their questions were a reminder that even though Germany’s tax burden is higher than that in the United States, its economy weathered the global recession of 2008-09 better than America’s did, and its unemployment rate today, at 7%, is significantly lower than ours at 9.1%.
People like Grover Norquist, who claim that high taxes are the root of all our economic problems, have no answer for facts like these.
Those who want to lower business taxes often say that the U.S. corporate tax rate of 35% is higher than the 25% average of the world’s developing economies. But that argument ignores the long list of tax loopholes that allow U.S. companies to pay much lower rates in actuality.
Go down the list of second-quarter earnings reports for companies in the S&P 500 Index and stop when you get to one that paid 35% of earnings. That might take a while.
What the United States needs isn’t more tax cuts, but tax reform to eliminate the many loopholes that create an uneven playing field.
Tax corporate cash
Given the sluggish pace of U.S. economic growth, perhaps such reform could include a tax on the enormous amounts of cash that American companies now have sitting on their balance sheets.
Non-financial companies in the S&P 500 are sitting on more than $1 trillion in cash right now — an absurd amount given that many of those same companies are laying off workers. Some estimates put the total closer to $2 trillion.
Forcing corporations to spend that money, either by hiring workers or paying investor dividends, would go a long way toward spurring growth.
When I hear Norquist — along with the candidates active in the tea-party movement that are too weak to resist signing his so-called loyalty oath — complain about actually having to pay for government services, I think we’ve come to take those services for granted.
I also think such whining is the exact opposite of the can-do attitude of the waves of immigrants who helped build the U.S. economy and continue to do so today. I’d like to introduce them to some of the start-up CEOs that I interview every week in Silicon Valley.
During the past few months, I’ve been writing a series of profiles on tech entrepreneurs for the site Entrepreneur.com. Neither I nor my editors planned it this way, but given that recent immigrants tend to be among the hardest-working Americans, perhaps it’s no surprise that none of the first four that I’ve written about are native to the United States.
These executives are people who, like generations of immigrants before them, came to the States and put their energy into building companies, rather than sitting around complaining how terrible a place this is to do business. They also, by the way, create jobs.
They come from across the globe: Victoria Ransom and Alain Chuard of Wildfire Interactive grew up in New Zealand and Switzerland, respectively; Mikkel Svane and his Zendesk co-founders hail from Denmark; Rahim Fazal of Involver is from Vancouver, B.C.
Yet all of them came to the United States to build their businesses. Why would they do that if it’s so hostile to their efforts, as the antitax extremists claim the country to be?
The answer is it’s not. On the contrary, America’s still the most attractive country for entrepreneurs. Keeping it that way costs money — something that tax haters seem to forget.
By: John Shinal, MarketWatch, August 12, 2011
Big Business Has Been Very, Very Good To Mitt Romney
As the noted philosopher and rock ‘n’ roll irritant David Lee Roth once said, “Money can’t buy you happiness, but it can buy you a yacht big enough to pull up right alongside it.”
I often think of his sage words as I watch the early days of the 2012 political campaigns. For the phrase “buy you a yacht,” simply substitute “buy you an election.” Then behold the havoc wrought by Citizens United and other court decisions that have unleashed a mudslide of corporate cash into our electoral system, much of it anonymous, hurling the average citizen out of the democratic equation.
An estimated $40 million will be spent in those nine Wisconsin state Senate recall elections — most of it from outside, third-party interest groups and twice what was spent last year on all 116 of the state’s legislative races. Most believe President Obama will raise a billion dollars or even more for his reelection bid; enough, as NPR’s Peter Overby observed, to buy up all the TV ads on the Super Bowl — four times.
The Republican nominee may also raise and spend a billion. If it turns out to be former Massachusetts Gov. Mitt Romney, buying that electoral yacht will be a tad easier than for others. Back in 2007, the New York Times estimated his worth at nearly $350 million, and he plowed a reported $44.5 million of his own money into his 2008 presidential campaign.
Certainly, there has been a deep strain of noblesse oblige throughout the history of American governance, the wealthy feeling the urge (and having the disposable income and free time) to come to the aid of their country, both for good and ill. But with Romney, so much a complaisant creature of the corporate culture that dropped us into our current mess without a parachute, we have a tsunami-in-waiting.
As he scurries to the right, running away from his moderate record as Massachusetts governor (although there’s no escaping the irony of this week’s reports that the state’s upgrade to an AA rating from Standard & Poor’s during his tenure was achieved, in part, through tax hikes), it’s illuminating to remember not only how Romney amassed his personal fortune but also how the fundraising apparatus surrounding him probes for yet more ways to scam the system. Not content with the freewheeling liberties already granted by the courts, his money machine relentlessly pursues ever more insidious routes to the fattest wallets and checkbooks.
The opening chapters may be familiar to you. As a June 2007 article in the Times reported, Romney’s personal fortune was amassed from his leadership at the private equity firm Bain Capital. “Mr. Romney’s Bain career — a source of money and contacts that he has used to finance his Massachusetts campaigns and to leap ahead of his presidential rivals in early fund-raising … exposes him to criticism that he enriched himself excessively, sometimes by cutting jobs to increase profits.” The newspaper quoted Boston University business professor James E. Post: “Increasingly, this world of private equity looks like a world of robber barons, and Romney comes out of that world.”
A similar article that same month and year in the Boston Globe noted that Bain Capital specialized in leveraged buyouts and cited MIT Sloan School of Management professor Howard Anderson. Bain, he said, would do “everything they can” to increase the value of the companies it bought. “The promise [to investors] is to make as much money as possible. You don’t say we’re going to make as much money as possible without going offshore and laying off people.”
Stephen Colbert may have summed it up best:
“Mitt Romney knows just how to trim the fat. He rescued businesses like Dade Behring, Stage Stories, American Pad and Paper, and GS Industries, then his company sold them for a profit of $578 million after which all of those firms declared bankruptcy. Which sounds bad, but don’t worry, almost no one worked there anymore.”
Another of the companies sucked into Bain’s gravitational pull was the medical testing firm Damon Corp. that, according to the Globe,
“later pleaded guilty to defrauding the federal government of $25 million and paid a record $119 million fine.
“Romney sat on Damon’s board. During Romney’s tenure, Damon executives submitted bills to the government for millions of unnecessary blood tests. Romney and other board members were never implicated… But court records suggest that the Damon executives’ scheme continued throughout Bain’s ownership… Bain, meanwhile, tripled its investment. Romney personally reaped $473,000.”
But unlike the companies it bought, at Bain itself, even failure could be rewarded — even if your name was Mitt. Take a look at the sweetheart deal Romney got when he took over Bain Capital, a spinoff of consulting firm Bain & Company where he had been an executive. In an arrangement any start-up enterpriser would kill for, as per the Globe, founder Bill Bain guaranteed that if the Bain Capital experiment tanked, “Romney would get his old job and salary back, plus any raises handed out during his absence.” What’s more, if he proved unfit for the task, “Bain agreed to craft a cover story if necessary, promising to bring Romney back to the consulting firm and explain Romney’s return as a matter of his being more valuable to Bain as a consultant.”
Nice. No wonder Romney told an Iowa crowd this week that, “Corporations are people, my friend.” Like Garrett Morris’ Chico Escuela in the early days of “Saturday Night Live,” big business been berry berry good to him. Would that it had been berry berry good to the hundreds fired at companies taken over by Bain Capital.
Yes, corporate people power has served Romney well, especially when it comes to political fundraising. As Huffington Post reported this week, “According to disclosure reports filed at the end of July, 61 registered lobbyists and five lobbyist-linked political action committees contributed $137,650 to Romney’s campaign between Jan. 1 and June 30, 2011. The former Massachusetts governor raised more money from lobbyists during this period than all of his competitors combined … Craig Holman, legislative representative for the watchdog group Public Citizen, told HuffPost that Romney’s lead in lobbyist cash ‘strongly suggests that Romney is the favored candidate for wealthy special interest groups, especially K Street. They clearly think that they can get their foot in the door with Mitt Romney.’”
Then there’s this in the July 20 Washington Post:
“The largest corporate sources of money for Romney are mostly finance industry leaders, including Morgan Stanley and Bank of America. Goldman Sachs employees have given nearly a quarter of a million dollars in contributions… The keys to his success appear to be large donors and contributors from the New York area. Nearly three-quarters of Romney’s money came from donors giving the maximum $2,500 contribution, and one in eight of Romney’s donors live in New York City and its suburbs.”
Of the $18 million raised by his campaign in the second quarter this year, one million came from a single trip to New York in May, including a University Club event crammed to its poshly appointed walls with banking executives.
So it’s not surprising that in the Romney camp, the creative accounting techniques perfected by Wall Street are a specialty. It was again The Boston Globe — which seems to have covered Romney’s political ambitions since they first danced in his head — that wrote back on April 15, “The former Massachusetts governor has become a master of a controversial but legal fund-raising technique that relies on a network of loosely regulated state political action committees to collect those funds.”
Example: Four members of the Marriott hotel family, close friends with the Romneys and fellow Mormons, wrote checks totaling $215,000 to Romney’s campaign, far more than an individual is allowed to give to federal political committees. According to the Globe:
“Romney, more fully exploiting the system he employed in the 2008 election cycle, got around those restrictions by taking in contributions through political committees set up under the rules of individual states. Most of the money was then transferred to Romney’s federal political action committee, Free and Strong America, and used to pay the salaries of top aides, political consultants, and traveling expenses.”
Consider, too, the super PAC Restore Our Future, supposedly independent, but run by former Romney political aides in support of their man’s candidacy. Restore Our Future raised $12.2 million in the first half of 2012. Under the new, relaxed rules it can raise unlimited funds but must disclose who contributes and cannot legally coordinate with the candidates themselves or the candidates’ official campaign committees. Of Restore Our Future’s 90 wealthy donors so far, the ubiquitous Marriotts among them, four gave a million dollars apiece. One was John Paulson, described by the website Politico as “a New York hedge fund billionaire who became famous for enriching himself by betting on the collapse of the housing industry.”
The other three allegedly are corporations but none of them conduct any real business. Two, Eli Publishing and something called F8 LLC, each list the same Provo, Utah, address as trusts set up by the families of two executives at the anti-aging product company Nu Skin Enterprises. Nu Skin founders and fellow Mormons Stephen Lund and Blake Roney were big contributors to Romney’s first White House campaign in 2008. (For what it’s worth, twice in the ’90s, Nu Skin was hauled before the Federal Trade Commission and paid a total of $2.5 million to settle allegations of unsubstantiated product claims.)
The other shell company, W Spann LLC, was even more mysterious. As first reported by Michael Isikoff of NBC News, it was dissolved only months after it was created, and just two weeks before Restore Our Future reported the company’s donation. As Isikoff wrote, “Campaign finance experts say the use of an opaque company like W Spann to donate large sums of money into a political campaign shows how post-Watergate disclosure laws are now being increasingly circumvented.”
After days of media demands and questions, the man behind W Spann finally came forward: Edward Conard, a retired managing director of — surprise — Bain Capital. But he only stepped up after the groups Democracy 21 and the Campaign Legal Center requested investigations by the Justice Department and the Federal Elections Commission. He made his donation “after consulting prominent legal counsel regarding the transaction,” Conard said, “and based on my understanding that the contribution would comply with applicable laws.”
Phony businesses set up for the sole purpose of laundering campaign money and shielding who’s really behind massive contributions? The donors responsible for the dummy corporations all say they have nothing to hide. So why hide it? Maybe to keep their distance, because Restore Our Future could be planning attack ads on Republican rivals and President Obama that will be harsher and more truth bending than anything Romney and his nearest and dearest can officially support.
We need to discover this and other answers before the money machine completely supplants the voting machine, and any last chance to have our voices heard is permanently stilled by cold hard cash.
By: Michael Winship, Senior Writing Fellow, Demos, published in Salon, August 12, 2011
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