Thursday, November 07, 2019

American political and business corruption predated Trump presidency

"Critics say that America is a lie because its reality falls so far short of its ideals. They are wrong. America is not a lie; it is a disappointment. But it can be a disappointment only because it is also a hope," are the concluding lines of the 1981 book, 'American Politics - The Promise of Disharmony' written by Samuel P. Huntington (1927-2008), a Harvard political scientist.

In every third generation, Huntington argued, Americans tried to reconstruct their institutions to make them more truly reflect deeply rooted national ideals.

Today the vista is bleak and Trump is only the latest manifestation of what is a long tradition of corruption for both politics and business. However, the current president is different in that he directly engages in corruption in plain sight while being enabled by a cabal of cretinous cowards in Congress, which is officially known as the Republican Party — James Comey, former director of the FBI, has suggested that they should be guided by their oaths to uphold the Constitution.

In 2009, US senator Dick Durbin of Illinois said in a radio interview in Chicago, “Hard to believe in a time when we are facing a banking crisis, that many of the banks created, that the banks are still the most powerful lobby on Capitol Hill. They frankly own the place."

High inequality is also a product of a corrupt system which I recently covered here:

Real US 2019 weekly pay for production/ non-supervisory staff 9% below 1972 level

Last month Moody's Analytics, a unit of the credit ratings agency, said, "The top income quintile (20%) accounts for more than 60% of all (consumer) spending" in the United States.

Old normal of business and political corruption

'The Gilded Age: A Tale of Today' was a satirical novel written by Mark Twain and Charles Dudley Warner, which was first published in 1873. The book’s title became synonymous with graft, materialism, and corruption in American public life in the years after the end of the Civil War.

What was called the 'spoils system' where political supporters were given civil service jobs, began during the presidency of Thomas Jefferson (1801–1809) but it had evolved by the presidency of Andrew Jackson (1829–1837) and his friend Senator William Marcy (1786–1857) of New York, coined the phrase 'spoils system' in 1832, when he stated, "to the victor belong the spoils of the enemy."

Richard Hofstadter (1916-1970), a renowned American historian, in his series of essays published in 1948 as 'The American Political Tradition,' Chapter VII is titled 'The Spoilsmen: an Age of Cynicism.' He wrote:

"In the years from Appomattox to the end of the nineteenth century, the American people settled half their continental domain, laid down a vast railroad system, and grew mighty in the world on their great resources in coal, metals, oil, and land. There is no other period in the nation’s history when politics seems so completely dwarfed by economic changes, none in which the life of the country rests so completely in the hands of the industrial entrepreneur.

In business and politics, the captains of industry did their work boldly, blandly, and cynically. Exploiting workers and milking farmers, bribing Congressmen, buying legislatures, spying upon competitors, hiring armed guards, dynamiting property, using threats and intrigue and force, they made a mockery of the ideals of the simple gentry who imagined that the nation’s development could take place with dignity and restraint under the regime of laissez-faire."

At Appomattox, Virginia, April 09, 1865, Robert E. Lee (r) surrenders his Confederate forces to Ulysses S. Grant,  the Union's commanding general, to end the Civil War.

"One might search the whole list of Congress, Judiciary, and Executive during the twenty-five years 1870 to 1895," concluded contemporary historian Henry Adams (1838-1918), "and find little but damaged reputation."

President Ulysses S. Grant had a few honest men in his cabinet but most were crooks and there was a raft of scandals during the two terms (1869-1877). 

Grant agreed to give a written legal deposition in the criminal trial — first by a sitting president — of General Orville Babcock, his private secretary and friend, who was charged in 1876 with participation in the 'Whiskey Ring' scandal that diverted government revenues. It's said that the president "applied his ignorance and poor memory to more than thirty-five questions regarding Babcock's relationship with the Whiskey Ring conspirators" — Grant had perjured himself to protect his army friend.

Following the assassination of  President James Garfield in 1881 by a disappointed office-seeker, the spoils system was modified by the Pendleton Act of 1883 which established a federal Civil Service Commission and created a category of civil service workers (14,000 out of a total of 100,000) who would have to take an examination to be awarded a government job.

In this period of rampant corruption, while the states of the defeated Deep South passed measures to prevent freed slaves from voting, the so-called wealthy robber barons were able to control the United States Senate by purchasing Senate seats which were filled by state legislatures, not via a popular vote.

William Clark, a Montana copper mining baron, won a US Senate seat in 1899. According to the Senate historian, "Clark's agents had paid mortgages, purchased ranches, paid debts, financed banks, and blatantly presented envelopes of cash to legislators." Clark's Montana enemies forced him to resign his seat. However, he won the seat in a new vote by the legislature and was seated as a US senator in March 1901.

The 17th amendment to the Constitution was ratified in 1913 and provided for direct elections of senators.

On May 15, 1911, the Supreme Court declared Standard Oil’s monopoly illegal. It was ordered to divest itself of its subsidiaries and also forbidden to re-establish its monopoly. After 41 years of operation, the company was no more.

John D. Rockefeller (1839-1937) who had been involved with the Standard Oil Trust since 1863, which through the crushing of competitors, mergers with other firms, and use of favourable railroad rebates, it controlled the refining of 90 to 95% of all oil produced in the United States by 1880. 

On that late Monday afternoon in May 1911 Rockefeller was playing golf with a Father J.P. Lennon, a Catholic priest, near his home in Pocantico, New York.

According to Ron Chernow's 1998 book, 'Titan: The Life of John D. Rockefeller Sr.' the most notorious of the robber barons reacted to the news from the Supreme Court with studied nonchalance. 

["Father Lennon," he asked, "have you any money?" The priest said no and asked why. "Buy Standard Oil," Rockefeller said."]

Chernow noted that all those who thought the demise of Standard Oil would be a punishment for Rockefeller were in for a nasty surprise. He held so many of the subsidiaries’ shares, that when the companies began to be traded as independent entities from December 1911, his fortune went from a net worth of $300m to a billion dollars.

The Supreme Court had helped to mint the world's first dollar billionaire.

Modern normal of business and political corruption

Clients spent $3.42bn on US political lobbying in 2018, the largest sum since the all-time peak in 2010, according to data from the Center for Responsive Politics. Federal records show that Amazon.com Inc. lobbied more public agencies than any other tech company in 2018 and sought to exert its influence over more issues than any of its tech peers except Alphabet Inc.’s Google, according to Bloomberg. The Washington office of Amazon is led by a former Federal Trade Commission official and other lobbyists include 3 Democratic former members of Congress as well as two former Justice Department lawyers.

There are about 11,500 registered lobbyists in Washington DC while about 7,000 journalists had access to the Capitol according to Pew in 2014.

Google and Facebook have funded hundreds of influential trade groups and think tanks across the ideological spectrum, including the US Chamber of Commerce, the American Conservative Union, the Brookings Institution and the Center for American Progress.

This year the US has fallen out of the top 20 “cleanest,” or least-corrupt, countries in the world on the internationally recognized Corruption Perceptions Index

Several of Trump's appointees have had ethics issues while the president refused to surrender control of his business; he promotes his business services and he may be impeached for inviting a foreign power to investigate a domestic political opponent. Trump also has refused to release his tax returns which has been a more than 40-year tradition for presidential nominees.

Money continues to dominate politics and since the Republican majority in the Supreme Court ruled in 2010 that rich people have a free speech right to spend as much,  as they wish and remain anonymous, the situation has got worse. 

Sheldon Adelson, a Las Vegas casino owner and his wife Miriam, for example, donated more than $123m during the 2018 election cycle to the Republican Party. Michael Bloomberg, former New York City mayor and Tom Seyer, liberal billionaire spent $95m and $72m respectively to help Democrats or liberals unseat Republicans. See here for more background.

This IMF chart unveils two clear facts that contradict Tyler Cowen's claim that corporate concentration is a myth. First, markups among advanced economies have significantly increased since the 1980s, by 43% on average, and this trend has accelerated during the present decade. Second, among emerging market and developing economies, the rise of markups is much more moderate, a 5% increase on average since 1990.
A markup — the ratio between the cost of a good or service and its selling price — provides a measure of market power.
More in-depth analysis shows that the increase in markups in advanced economies is mostly driven by “superstar” firms that managed to increase their market power further, while markups in other firms have essentially been flat. Interestingly, this pattern is found in all broad economic sectors, not just in information and communication technology. More here

This year a pean to big business 'Big Business: A Love Letter to an American Anti-Hero,' by Tyler Cowen, an American economist, was published and while big corporations do improve people's lives, it's an insult to our intelligence to for example whitewash the damage caused by the worst international economic contraction since the Great Depression.

Tax avoidance is sometimes evasion and big companies like Apple can escape sanction for activities that would be considered tax fraud if smaller firms were the perpetrators.  

Apple decided that it's top Irish shell company used for booking sales from Europe, Africa, Middle East and across to India, was stateless i.e. not tax resident anywhere, even though it was required by Irish law to confirm where it had its tax residency

When does the buck stop?

Steve Easterbrook, the British-born chief executive fired by McDonald’s for having a relationship with an employee, can keep stock awards worth more than $37m as well as about $675,000 in severance pay. In 2004 the chief executive of Bank of Ireland was fired for accessing porn at work but it took the crash of the Irish economy for his successor to be fired for reckless lending!  

When Goldman Sachs, Wall Street's biggest investment bank, sells junk subprime mortgages concealed in apparently alluring securities, maybe that is an aberration?

However, GS is also central to one of the biggest cases of financial embezzlement in history — the looting of Malaysia’s state development fund, 1Malaysia Development Berhad, or 1MDB. 

Last year Tim Leissner, the GS chief in Southeast Asia pled guilty in the US to bribery, conspiracy and money laundering charges in connection with 1MDB.

Goldman arranged the underwriting of $6.5bn of bond offerings for 1MDB in 2012 and 2013, earning $600m in fees and trading gains. A total of $2.7bn was allegedly siphoned off by the Malaysian financier Jho Low, who is accused of masterminding the fraud, to pay for a lavish lifestyle and to pay off Malaysian officials. 

Up to $1bn was spent in the US on buying properties, investing in a movie on financial fraud (The Wolf of Wall Street) and $27m was paid for a diamond ring for the wife of the then Malaysian prime minister. 

“Goldman Sachs has offered something like less than $2bn,” Mahathir Mohamad, Malaysia's prime minister,  told the Financial Times in an interview. “We are not satisfied with that amount so we are still talking to them . . . If they respond reasonably we might not insist on getting that $7.5bn,” he added, without elaborating.

Malaysia has charged 17 former and current Goldman Sachs bankers — including Richard Gnodde, the most senior banker in London — over the corruption investigation.

Economy of Liars

In 2010, Gerald O'Driscoll, a former executive of the Federal Reserve Bank of Dallas, and vice president of Citigroup, wrote in a Wall Street Journal op-ed, 'An Economy of Liars,' how the failed investment bank Lehman Brothers hid its leverage (how much money it was borrowing) by using a Repo to borrow money but an accounting rule allowed Lehman to book the transaction as a sale and reduce its reported borrowings.

O'Driscoll argued, "Any static rule will be circumvented or manipulated to evade its application. Better than multiplying rules, financial accounting should be governed by the traditional principle that one has an affirmative duty to present the true condition fairly and accurately — not withstanding what any rule might otherwise allow. And financial institutions should have a duty of care to their customers. Lawyers tell me that would get us closer to the common law approach to fraud and bad dealing."

It would be a commonsense test.

Pre-Silicon Valley and a robber baron

In 1989, California named a garage on Addison Avenue, Palo Alto, California, "the birthplace of Silicon Valley" and made it a California Historical Landmark.

Stanford University classmates Bill Hewlett and Dave Packard founded Hewlett-Packard (HP) in 1939 and the company's first product, an audio oscillator — an electronic test instrument used by sound engineers — was built in the garage.

The Santa Clara Valley, south of San Francisco, got the nickname Silicon Valley in the early 1970s and it was a robber baron, Leland Stanford (1824-1893), a politician — California governor and US senator — and railroad opportunist, who founded the Leland Stanford Junior University in 1885 (officially opened in 1891) to honour his son,and it  would be the genesis of the electronics cluster that would produce the computer chip in the 1950s following the invention of the transistor in 1947 at Bell Laboratories in New Jersey.

Standford was one of the promoters of the Central Pacific Railroad, which was tasked with constructing the western half of the Transcontinental Railroad, which linked up with the Union Pacific at Promontory, Utah in 1869.

The 4 promoters were provided with 9m acres of public lands (3.6m hectares) and a $24m loan financed by federal bonds. According to Encyclopedia Britannica, they "intimidated local governments into providing millions of dollars in subsidies by threatening to have the rail line bypass their communities."

Stanford and his colleagues looted millions of dollars from the project according to a congressional investigation in 1887.

Ambrose Bierce (1842-1914), the short story writer and poet, called Leland Stanford: $tealin’ Landford.

Stanford gave over 8,000 acres of land in Palo Alto for the university project. He had begun acquiring land from 1876, just over a century after Spanish/ Mexican colonisers including Catholic priests, stole the land from the local Muwekma Ohlone people who had been there for thousands of years.

Today it's recognised that the indigenous Bay Area communities had lived in many distinct villages and each group had recognized homelands, with young people who were required to marry partners from outside their home villages. "Over thousands of years, ancestral Ohlone left tangible signs across their homelands through artefacts, buried features, and changes to the land itself."

Besides tribal knowledge, archaeological evidence contradicts the notion that European and US occupiers found a western “wilderness.” "They encountered a dynamic world susceptible to violent disruption." 

The Franciscan monk Father Junípero Serra (1713-1784), who was born in Spain, was a key leader of the colonial enterprise. He arrived in what was then called Alta California in 1769.

Serra was made a saint of the Catholic Church by Pope Francis in 2015, who said, “Junípero sought to defend the dignity of the native community, to protect it from those who had mistreated and abused it” — this version of history simply is a whitewash.

According to Stanford University:

"Requiring land and labor to build the missions, the Spanish captured local Muwekma Ohlone people and brought them into mission compounds to be baptized and to work as unpaid laborers (slaves). The Muwekma Ohlone resisted conquest and colonisation for nearly three decades, raiding Spanish cattle, and attacking Spanish soldiers and converts. Decimated by introduced epidemic diseases (major epidemics occurred in 1795, 1802, and 1806), surviving Muwekma Ohlone populations on the peninsula began surrendering to the missions beginning as early as 1795. During the period of Spanish conquest and rule, the Stanford area was gradually incorporated into the cattle and sheep grazing territory of Mission Santa Clara, but no Spanish colonial settlements were established on Stanford lands in unincorporated Santa Clara County."

Ukraine: Dodgy generals and ambassadors 

In the 1850s the area of modern Ukraine was ruled by the Russian and Austrian empires (the eastern part of the Austrian province of Galacia had a majority Ukranian population). Britain and France had declared war on Russia in response to aggression against the Ottoman Empire.

James Brudenell, seventh earl of Cardigan (1797-1868) gave his name to the military woollen collarless jacket, which he wore leading the Charge of the Light Brigade against Russian forces during the 1854 Battle of Balaclava in Crimea. While the blundering failure was immortalised in Alfred, Lord Tennyson’s famous poem, the cruel Cardigan and his hated brother-in-law, Lord Lucan, who gave the order to charge were incompetent aristocrats who had bought their commissions. At nighttime during the campaign, Cardigan stayed on his private yacht in Balaclava harbour.

In the United States today ambassadorships continue to be sold — more than 40% of appointments compared with a rate of 30% in previous administrations — and in 2018 a wealthy hotelier, Gordon Sondland, became US ambassador to the European Union after paying $1m. The former Trump critic had made a Faustian Bargain and his ambition for further advancement in the Trump administration made him the ideal neophyte diplomat who as a consigliere lapdog would try and impress Trump in participating in the illegal scheme to have the Ukraine open investigations on a domestic political rival of the US president.