“Take responsibility for your own retirement by trusting us with your money,” was the pretzel logic employed by the financial services industry.
The grand 401(k) experiment worked out just dandy for mutual fund companies, allowing them to skim 1-3% in fees annually from workers’ accounts, as assets under management swelled, and for employers who were freed of responsibility for the fate of their workers in retirement. The only losers were the workers participating in these so-called retirement plans.
Four years after the nation was awaken to the 401(k) debacle, you might expect that responsible employers would be concerned about the dire circumstances facing the majority of their retirees, be motivated to strengthen the plans they offer, and address many of the weaknesses that three decades of defined contribution experience have exposed. If so, you’d be dead wrong.
Recently IBM, often considered a trendsetter for employee benefits, notified workers that starting next year it is changing the timing of the IBM match and automatic contribution from semi-monthly to an annual lump-sum contribution at the end of the year. IBM noted that “the percentage of the IBM match and automatic contribution workers receive – which makes IBM’s 401(k) plans among the best in the industry – is not changing.”
The percentage of the IBM match may not be changing but the percentage of workers receiving it sure as hell is. Gutting of this benefit makes the IBM 401(k) plans far from “best in the industry,” in my opinion. By the way, every employer I’ve ever encountered in my career tells workers that its 401(k) is among the best in the industry – if not the very best. Not surprising, no employer seems willing to acknowledge its plan is garbage.
IBM’s move is consistent with the trend large employers have followed in recent decades of slashing costs related to workers’ retirement plans—both defined benefit and defined contribution. Over time the clear trend has been to cut or eliminate existing pension obligations; shift workers into 401(k)s and, most recently, reduce employer contributions to these defined contribution plans.
IBM will benefit greatly from the switch to an annual match; workers, on the other hand, will pay the price. Again, there is absolutely nothing to be gained by workers from the shift to an annual match and, of course, workers, under ERISA, have no say in the matter. As a fiduciary to the plans it sponsors, IBM should have, in my opinion, clearly disclosed to participants the downside and dangers related to this change.
Expect more of the same as the nation’s leading employers, assisted by their hired-guns (employee benefits experts), to join IBM in a race to the bottom of the 401(k) heap.
As of January 1, 2013, IBM will no longer give employees their 401(k) match with each pay cycle. Instead, the technology behemoth will make one large lump-sum payment to employee accounts on December 31 of each year.
The motivation? Most independent observers say we should follow the money – IBM’s money, that is.
According to the Wall Street Journal, IBM paid out $875 million in employee 401(k) contributions in 2011, a number that will likely decrease as a result of the planned change in 2013.
First, any employee who leaves IBM’s employment prior to December 15 for any reason other than a formal retirement will not receive any company match to his or her own 401(k) contributions for the entire year. Nada. IBM executives could fire someone on December 14 and the company would not have to pay out.
Second, all employees lose an entire year of the IBM match working for them in the investment sense. To be fair, that could be considered a lucky break if the year is 2008, when the S&P 500 fell by 37 percent. But in 2012? The advantage would go to IBM. As of today, the S&P 500 is up by 12.6 percent for the year.
All in all, this points to one of the main problems in the United States’ private retirement planning system: companies can change the structure of their plans with little or no notice, throwing years of employee financial planning for their golden years into chaos.
IBM is as good a place to see this in action as any.
In 1999, IBM jettisoned its traditional pension plan in favor of a cash-balance plan. Pension amounts were frozen in place, with all future benefits coming in the form of a cash credit. Many employees – especially older workers who had been with IBM for more than a decade — lost tens of thousands of dollars in future retirement benefits in the switch.
Anger, recriminations, charges of age discrimination and lawsuits resulted, an ongoing legal and public relations mess that was not fully resolved until 2007, when the United States Supreme Court ruled in IBM’s favor. But by then, IBM was already making other changes to their retirement benefits package. In the cash balance plan, IBM was still responsible for investment risk. That would soon end. Beginning in 2005, the company ceased offering new employees the cash balance plan at all, instead granting them access to a 401(k) plan. Then in 2008, IBM froze ceased offering the cash balance plan to all employees, freezing those plans as well. All future contributions would come in the form of the 401(k).
IBM Corporation recently announced a change to their 401K match for 2013 that has many harmful side-effects for their employees and financial markets.
IBM announced that all 401K matches of personal contributions to the 401K retirement plan would be withheld until the end of every calendar year. Previously the employee match was done bi-weekly.
Here is why the change is wrong for IBM employees, and reason #1 listed below might be illegal:
Patterns in corporate buying factored in across hundreds of corporations timing their investment activity using financial clout and insider information from interlocking directorates and boards should sound the alarm bells among any Congresspersons who worry about monopolistic practices in financial trading.
Please contact Ginny Rometty, CEO and Chair of the Board of IBM and urge her to reverse this wrong-headed and mean-spirited change to the IBM 401K plan.
Your Name Here, IBM Employee/IBM Retiree/IBM Spouse
Workers at IBM aren't marching to the picket line like Walmart workers and longshoreman who protest pay and working conditions, but you just never know.
Only about 9% of the nation's employers make matches once a year. IBM's move is paving the way for big companies to go down this road. ...
The company can be pretty sure that there will be very few workers exiting during crunch time season: September, October and November. It would really be IBM's choice in determining which employees to let go. This incremental addition to IBM's control over their employees is surely the main reason IBM changed its 401(k) payment timing.
Selected reader comments follow:
My original point is not that companies should engage in altruism, but rather that they never do. My point is that a 401k match that comes with each paycheck or more frequently than once a year is part of a company strategy to offer good compensation to have good people. You do believe that the best employees command the best compensation right? I'm pretty sure even your conservative economist Sowell would agree with that...right?
Bottom line is this. IBM is making a short sighted decision based on what's in front of them right now. Their management may be rewarded handsomely for it, but in the long run, they will suffer because the economy will change and it's harder to reverse and go back to this sort of thing than not. IBM will have to find another way to compete that could wind up being even more costly. Welcome to a more complex economics than you're used to.
But the wider issue is that employees are considered superfluous widgets now. The perfect workforce is the non existent workforce. IBM isn't alone in this. They'd all be thrilled if no one worked for them. And in industries that are largely service based and not stamping out widgets based, they can 'leverage' labor savings in far off lands, even if it's just a nickel cheaper. Hell even Indian companies are starting to do their own outsourcing to Malaysia and Bangladesh. A nickel's a nickel.
The economy is improving and there are a lot of high tech jobs available for those with the skills, training and experience. Since employees provide their own pensions, in the form of 401k's, rather than the old vesting pension plans, if IBM cuts the benefits, the people they will lose first will be the most skilled. It might not hurt them in the course of a few months, but as the economy continues to improve, it will likely cost them a lot more in human capital than it will save them in dollars.
The argument that it makes less work for HR and finance is baloney. Do you think IBM does its payroll by hand? I would imagine they have it done by a service like ADP, or a computer services company like, er, IBM.
And for this person to insinuate that workers should be happy about it is an example of one of the fundamental problems in this country. This suggestion from some people that the middle class should just happy with what they have and shut up. Meanwhile, the executives and major shareholders, who already have profane amounts of wealth don't need to follow the same doctrine - it's fine and dandy for them to take more at the expense of individuals and the whole economy. Why don't we say '*those* people should be happy with what they have and stop this assault on U.S. employees and the entire U.S. economy'?
Why don't we say '*those* people should be happy with what they have and stop this assault on U.S. employees and the entire U.S. economy'? People should be happy they just got exploited and had more taken away from them so people who already have too much can benefit even further? It's not like this is a case where this company is struggling and all employees (including executives) need to make a sacrifice to keep it afloat. Far from it.
How does this attitude of 'be happy things aren't worse for you' help *anyone* (except executives and major shareholders who already have way more than they deserve)? Again, in different circumstances maybe employees could tolerate something like this, but as corporations continue to offshore jobs, drive down salaries, and take away benefits just to boost stock prices and EPS in the short-term, the American economy suffers. This gives leverage and incentive to other companies to follow suit making things worse for most people in this country. The trickle-down theory has not panned out.
We know based on historical evidence and the current situation that small numbers of people making exponentially more than the vast majority of the population and reduction in pay, benefits, and jobs for everyone else hurts the economy. Things are not going to get better until treatment of the overwhelming majority of people (i.e., the middle class) gets better. Remember, "A rising tide lifts all the boats" (and I mean that in the way JFK meant it during his speeches in 1962 and 1963, not in the way it's been co-opted to mean by some of the greedy, short-sighted among us).
If executives can make this kind of move for their own self-interest, then employees have every right to defend *their* self-interest (which again, is the interest of the entire U.S. economy). There is a petition for people to add their voice against this sort of thing. Please consider signing it to stand up for American employees and the entire U.S. economy - search keywords "ibm 401k" at change dot org
Among those messes was a payroll system that saw staff paid incorrectly, or not at all. Some nurses were paid more than they were owed, but were told it was not possible to repay the extra money. The State government later docked wages to recoup the overpayments, a deeply unpopular move as some had been overpaid by 25% and did not enjoy the resulting cash flow hit. Newman has signalled an intention to claw back cash from IBM and others found to have dudded the State. “The Inquiry will … fully examine the implementation of the Health Payroll and may be used to assist with the potential recovery of losses from any external party,” Newman said in a canned statement.
Selected reader comments follow:
Unfortunately, IBM have a record of promising the customer that they will manage and deliver a working system, but then buy in the cheapest people that they can find to work on the project (whilst charging the client an arm and a leg). These contractors often have limited experience or knowledge of SAP or its implementation; the result is inevitable.
U.S. District Judge Richard Leon said he couldn't approve the settlement unless the SEC and IBM agreed to abide by additional settlement terms imposed by the court or explain why the terms are "too burdensome," The Journal noted.
During a hearing in Washington, Leon criticized the SEC and IBM (NYSE: IBM) for opposing his proposed reporting requirements for the company. He said IBM and the SEC need to prove statistically that his disclosure obligations are too burdensome.
“I’m not just going to roll over like the SEC has,” Leon told IBM’s lawyer, Peter Barbur, during the 25-minute hearing. “You’re going to need data to satisfy me.”
The heart of the dispute is that Leon, who has had the case under review for 22 months, wants reporting on a broader range of possible wrongdoing than the company is willing to turn over. Leon, who spoke loudly and angrily, asked why the regulator would agree to limit such requirements for a company with a history of books-and-records violations. He also threatened to hold Barbur, of Cravath, Swaine & Moore LLP, in contempt for talking over him. ...
Leon said that IBM has at least one employee dedicated to monitoring company litigation and FCPA compliance. Leon said he didn’t understand “why for one of the largest companies in the world this is too burdensome.” He said that IBM accountants may be called to testify in his courtroom to back up the company’s position. “I guess you want that $10 million judgment on your list of achievements this year,” Leon told DeYoung. “Well, it’s not going to happen.” ...
The change to active employees is a takeaway, but not devastating. If you assume $80,000 salary with an 8% match, and an 8% annual return over 1/2 year on average, the difference with the new plan would be $256.
MUCH more significant is changing the semi-monthly match payment to yearend, if one is still an active employee. It could provide a way for the company to boost yearend profit by reversing previously accrued expenses. December 1st conversation could be:
"Hello Randy? Mark here. Fine, and you? Hey, got a situation where we need your help. I'm running about $50 million low on pre-tax profits this year so I need you to target (no pun intended) about 7,000 heads to appear before the Firing Squad (no pun intended). Should get us about $50 mil in match reduction, all in Q4. Call the Plant & Lab GM's with their allocations, and keep it in enough small groups so we don't have to bother with WARN stuff.
Have the GM's shoot for (no pun intended) high salary 401(k) participants. But stay away from Director and above – we gotta protect them. Announce it on 12/13, and have the firees clean out their desks by 12/14. Most of the schmucks will be on vacation and not even know what hit them til January. Take care of this by the end of the week, and give Ginni and me a call when you're done. Yeah, and hope you and your family have a great Christmas. `Tis the season."
In Brazil, where IBM has grown its presence from 11 branches in 2009 to over 30 today, the new Caxias do Sul location will service clients and partners in the city and in the neighboring Serra Gaucha region. Caxais do Sul has experienced strong economic growth in recent years becoming an important exporter of rolling stock, automotive parts and machinery.
Some of the spending on buybacks is just financial tinkering—interest rates on borrowed money are cheaper than paying dividends, so companies take on more debt to eliminate some of their shares. But it's also an exercise that boosts per-share profits without creating more productive capacity or new jobs, revealing a lack of confidence on the part of executives to commit to new projects while the global economy remains sluggish. ...
International Business Machines Corp. has one of the biggest share buyback plans. The company plans to buy back $50 billion of its own stock in the five years to 2015. In the past year, the company reduced its shares outstanding by 4.9%.
Selected reader comments follow:
Ironically, executives say they are buying back shares because they think their share prices will go up. But in conceding that they can't use the cash for internal growth, they may send a different sign to investors who aren't fixated on earnings per share. In earlier decades, share buybacks were often seen as an admission of failure from executives.
Cons: Layoffs (aka Resource Actions or RAs) are an annual event. Areas impacted often have job openings for more people when they occur, which are then frozen until the RAs last day. Replacing experienced employees with inexperienced employees, and then mgmt wonders why nobody on the team knows how to handle a critical customer problem in an area that they just had the talent walk out the door. Many layoffs occurred in such areas in March 2012, and products went out the door to customers with extremely low quality. RA'd employees also get last day set to be a couple days before the end of a month so that they employee does not get vacation credit for that month even though they almost completed it.
In US, focus is more on Project Management and less on those putting in the long hours and actually creating the product. A software engineer will get more positive feedback/rewards for putting together a simple status report for management (on something they shouldn't be micro-managing) rather than for high quality work on a product that only shipped because of excessive overtime and commitment put in by the team.
Salary has essentially been frozen the past few years.
Expectations are that you will work nights and weekends on a regular basis. A 50 hour week will feel like a vacation after you have been here awhile. IBM used to brag about its "Work/Life Balance" but has in recent years change that term (publicly) to "Work/Life Integration". In other words, you are expected to integrate work into your personal life. Don't be surprised if you work 14 hours on Saturday only to be questioned in your Sunday morning status meeting (yes, Sunday) about why you aren't finished.
I have never witnessed so many employees voluntarily leaving IBM as I have now seen in the past few years. In my early years, nobody left unless retiring or RA'd. And that was when the economy was roaring and software jobs were abundant. Now when the pool is much smaller, we are seeing more voluntary exits.
Ongoing deterioration of benefits. The most recent change to the 401K is an obvious example. Back when the defined contribution pension was converted to a cash balance plan, IBM tried to present it as a better benefit to the employee (which for most, it was not). Now the change to only contribute to the 401K at end of the year is 100% a cost savings measure that has negative benefits to the employees. Along with no salary increases, while the company is making more money than ever before.
Advice to Senior Management: Read the Cons. Product quality is deteriorating, employees are being overworked, and this is going to backfire as the economy improves and your top quality people are running to the exits.
Products don't get produced by status reports, they get out the door by the dedicated employees you are overworking 14+ hour days and weekends. Although I do see many intelligent employees in China and India, they do not have the experience in designing robust, enterprise-level applications. It is very much a code-it-as-quickly-as-you-can without considering the reliability and robustness that is expected of an Enterprise level application. Take a look at the quality issues over there.
Our enterprise customers cannot run their mission critical business operations on software that is written and tested with the quality of a smartphone app. Management is reinforcing this attitude by expecting designs to be done in a couple days without sufficient expertise reviews, coding and testing a few days later, and the Agile "done done done" by end of month. This will decrease long term customer satisfaction and increase software maintenance costs.
The group, which advocates a range of federal health and fiscal issues that affect older Americans, angered many of its own last year when it opened the door for the first time to the possibility of accepting modest cuts in Social Security benefits.
Chastened, AARP now appears to have veered back to a hard-line position of opposing any cutbacks in Medicare or Social Security and is seeking to keep those programs off the bargaining table altogether. The group’s stance has made it a favorite target in recent weeks for conservatives pushing for cuts in social programs.
The only reason we’re considering moving to chained-CPI because it saves money, and it saves money by cutting Social Security benefits and raising taxes, and it’s a much more regressive approach to cutting Social Security benefits and raising taxes than some of the other options on the table. ...
The question worth asking, then, is if we want to cut Social Security benefits, why are we talking about chained-CPI, rather than some other approach to cutting benefits that’s perhaps more equitable? The answer is that chained-CPI’s role in correcting inflation measurement error is helpful in distracting people from its role in cutting Social Security benefits. Politicians who are unwilling or unable to offer a persuasive political or policy rationale for cutting Social Security benefits are instead hiding behind a technocratic rationale. We’re not “cutting benefits,” we’re “correcting our inflation measure.”
A similar dynamic is behind the popularity of raising the retirement age, or the Medicare eligibility age: Its advocates can pretend that it’s not a cut, but a technical adjustment made to account for the fact that Americans are living longer. Compared to other approaches to cutting benefits, raising the retirement age is, again, a substantively unwise, regressive approach. But it can be justified as a mere technocratic tweak.
This is bad policymaking. If we want to cut Social Security and/or Medicare, we should have a conversation about how to cut Social Security and/or Medicare, decide what our priorities are — Progressivity? Making the health-care system more efficient? Total deficit-reduction? — and find the policy that does the best job achieving those goals. The effort to mask cuts in technical adjustments just leads to worse cuts, as the top priority isn’t protecting the poorest or improving the program, but finding a policy sufficiently confusing that you can pass it before most people realize what it is.
Under InCubator, engineers can get 30 to 90 days away from their regular work to develop ideas of their own into products. Their ideas must first be developed into prototypes and clear two rounds of judging, with founder Reid Hoffman and CEO Jeff Weiner involved in the final round. Many ideas submitted to InCubator come from LinkedIn’s monthly “hack days,” in which workers can win awards for small bits of quickly written software. ...
If LinkedIn can extract profitable, high-impact products from InCubator, it could become a model for other companies trying to foster employee experimentation with their own versions of 20 percent time. At the moment, Silicon Valley companies seem eager to tap into employees’ ideas with such programs, but their approach is largely split between startup-friendly hackathons, which are like short sprints, and Google’s 20 percent time, which can be like a grueling marathon for workers. LinkedIn seems to be trying to find a middle way by making medium-sized investments in the most promising hacks.
Editor's comment: IBM Global Services offers a similar program, what I'll call the "reverse 20 percent time" program. With it, employees are expected to "make up" for all holidays, vacation, sick time, doctor's visits, and other time off, and, contribute at least an extra 20% of overtime (for free!) so as to ensure that senior executives in the company receive their large bonuses! What's in it for employees? Oh heck, don't you remember...they get to keep their jobs! (Maybe).
On Friday, the company gave employees their first profit-sharing checks in four years, plus a ham. While the checks were relatively modest — $799,379 was split among 2,573 employees, an average of $311 for each employee — company officials said it was a sign that the worst of the crisis may be over. ...
During the presidential campaign, President Obama referred to Marvin on several occasions as an example of a company that valued its employees over profits. Instead of laying off workers, Marvin officials cut back hours for hourly workers, eliminated some perks and cut pay for salaried employees, including executives and family members, with the goal of breaking even until the economy improved.
In his acceptance speech at the Democratic National Convention, President Obama noted that Marvin did not lay off any of its employees when the recession hit “even when their competitors shut down dozens of plants, even when it meant the owner gave up some perks and some pay because they understood that their biggest asset was the community and the workers who had helped build that business — they give me hope.”
Ironically, Marvin’s top executives are Republicans and reliable contributors to Republican presidential campaigns. The company’s president, Susan Marvin, endorsed Mitt Romney at a rally with his running mate, Paul Ryan. In November, before the election, Mr. Romney visited a Marvin plant in Virginia. ...
In an interview last year, several members of the Marvin family said the no-layoff policy was a long-term business strategy that they thought would give them a competitive advantage by retaining experienced workers when its competitors were shedding them. In addition, they said it would keep its hometown Warroad, Minn., vibrant at a time when others were being hard hit by unemployment.
We, the petitioners want IBM to keep the automatic contribution at semi-monthly and NOT an annual contribution.
IBM, by moving the automatic contribution from semi-monthly to an annual contribution effectively denies employees who are terminated in resource actions up to the cut off of December 15 of the given year, the matching contribution from IBM. Furthermore, the movement of the automatic contribution to the end of the year denies interest generated for the employees 401(K) account. Sign this petition to tell IBM to REVERSE this decision, immediately!
And if you are an active IBM employee, please Join Alliance@IBM CWA Local 1701.
Web site: http://www.allianceibm.org; Twitter ID: @Allianceibm; Facebook: Allianceibm CWA
Alliance reply: This is just speculation by you at this time. Will it become fact? Time will tell.
It’s true whether the health care offered is a heart stress test or a routine visit to a doctor’s office. And it’s part of a national shift that experts say is raising costs but not quality: Hospitals are increasingly buying doctors’ practices, then sending bills for routine services that are significantly higher than those charged by independent doctors.
By one count, the percentage of doctors nationally who are employed by hospitals has doubled over the past decade. No similar statistics are available in North Carolina, but it’s clear that more and more doctors are affiliating with hospitals. ...
One example: For a common echocardiogram procedure, Duke Hospital submitted 4,879 claims to Medicare in 2010, up 68 percent from the year before. Medicare allows $471 for outpatient echocardiograms, more than twice the $200 allowed for those performed in physician offices. ...
Jenny Palmer of Durham had been seeing a Duke neurologist for years for her epilepsy. She was furious when her $50 copay turned into a $425 payment applied to her deductible. The visit was less than 10 minutes, Palmer said, as she told the doctor her health was good and she received a prescription for a year’s worth of medicine. Her bill made no mention of a facility fee, but Duke confirmed it in a letter after she complained.
“This clinic is now owned by Duke University Hospital (DUH) and in addition to the professional fee, there is also a facility fee charged in conjunction with each visit. Both charges are billed as an outpatient service as opposed to an office visit.” “It makes no financial sense for me to see Duke doctors now,” Palmer wrote to her neighborhood Listserv. “BUT there aren’t many non-Duke doctors in Durham. ARGH!” ...
Gay Miller thought she knew what to expect when she received a heart test earlier this year – until she got the bill. After a heart valve replacement eight years ago, she has been getting periodic echocardiograms at her cardiologist’s office in Shelby to ensure the valves still work properly. Under her insurance plan, the tests used to cost her a $60 copay. Not this year. During Miller’s annual checkup at the Sanger Heart & Vascular Institute in February, her doctor told her she would need to go to nearby Cleveland Regional Medical Center for her echocardiogram. At the hospital, Miller received the usual 30-minute test. And the usual technician conducted it. But there was nothing typical about the bill: Miller wound up owing $952. ...
In late 2011, Bruce Stanley was invited to an open house at WakeMed’s new Brier Creek facility. He nibbled cookies and toured the facility. He liked the convenient location and pleasant staff. In January, he had two routine blood tests done there. He did them in advance of a physical and wanted to be able to discuss the tests with his doctor. The results pleased Stanley. The bill did not. Stanley owed WakeMed $240.82 for two routine blood panels. Three months earlier, he had paid $13.73 for the same tests done at the LabCorp office near Rex Hospital. Stanley didn’t know he would be charged full hospital prices.
Here's where the law of unintended consequences kicks in. If Medicare raises its eligibility age, the medical costs for seniors ages 65 and 66 don't disappear -- they're simply shifted somewhere else. Consider:
The day after his birthday in October, when he qualified for Medicare, Lewis got a checkup. Days later, he went under the knife: open-heart surgery, a triple-bypass, three arteries blocked with plaque, one of them, 99 percent. "If I'd had to wait until 67 for Medicare," Lewis said, "I'd be dead."
A proposal to raise the Medicare eligibility age from 65 to 67 to ratchet down spending is one of the more explosive ideas in the fiscal talks between House Speaker John Boehner and the White House. The negotiations are aimed at a deficit deal to avert automatic tax increases and spending cuts slated to take effect Jan. 1. Liberal Democrats say they loathe the Medicare proposal, but the White House has not taken a public position on it. ...
"All they’re doing is shoving the cost onto the backs of business," said Don Marks, president of Uesco Industries in Alsip, Ill., a family-owned company that assembles overhead cranes and hoists used in manufacturing plants.
Uesco employs 45 people and pays some medical expenses of retirees that are not picked up by Medicare. With no set retirement age, the company would pay health insurance costs for older, likely sicker workers who might no longer retire at 65 because they would not be eligible for Medicare. ...
The left-leaning Center for American Progress projects that raising the Medicare age could put up to 435,000 older people at risk of having no insurance at all, even with the protections afforded by the health care law – although the CBO’s estimate is far lower.
"But dependency on government has never been bad for the rich. The pretense of the laissez-faire people is that only the poor are dependent on government, while the rich take care of themselves. This argument manages to ignore all of modern history, which shows a consistent record of laissez-faire for the poor, but enormous government intervention for the rich." From Economic Justice: The American Class System, from the book Declarations of Independence by Howard Zinn.
However large or small it seems, the fine doesn’t begin to address the magnitude of what HSBC did when it helped drug traffickers launder nearly $1 billion of illegal proceeds, or helped Qadaffi’s Libya, the military junta in Burma, the Iranian theocracy and other so-called rogue states evade sanctions aimed at ensuring they couldn’t get access to the efficient and liquid U.S. financial system. That made the bank a de facto if not de jure facilitator of these governments, none of whom are known for their human rights track records.
Among the Mexican organized crime groups that benefitted from HSBC’s lackadaisical approach to oversight – the U.S. government’s investigation revealed that the bank even widened windows at some branches so that customers could hand bigger boxes stuffed with cash to tellers, while the drug traffickers used boxes tailor-made to fit through those HSBC windows – was the Sinaloa cartel. One of the most deadly such groups in the world, Sinaloan enforcers are known for filming the murders they commit – beheadings, and bodies that are dissolved in vats of acid or alkali – and posting them online.
In light of that, a fine of $1.9 billion and what has become the ritual mea culpa – in this case, a comment from HSBC execs that the bank is “profoundly sorry” for its “past mistakes” – looks like chicken feed. ...
It’s time to revisit this, and find a way to hold the CEOs, CFOs and other individuals personally liable for misdeeds like this that take place on their watch. I’m fairly confident that a CEO who is aware that frustrated regulators and government officials, fed up with slapping wrists, instead have the power to slap him with a criminal case will suddenly become a devoted adherent of risk management. Bankers are bound to be more vigilant if they know they risk not just a public apology but a jail term if they are found to have violated sanctions, helped traffickers hide money or shaken the financial system by failing Risk Management 101.
Third, it will do little to address concerns about fairness: the richest taxpayers actually make relatively little use of deductions and credits.
What is needed is an additional element, one that has largely been absent to date: the numerous exclusions from the definition of adjusted gross income that enable the accumulation of great wealth with the payment of little or no taxes. The issue of the special capital gains treatment of carried interest – performance fee income for investment managers – is only the tip of a very large iceberg. There are far too many provisions that favour a small minority of very fortunate taxpayers. Because these provisions effectively permit the accumulation of wealth to go substantially underreported on income and estate tax returns, they force the federal government to consider excessive increases in tax rates if it is to reach any given revenue target.
All parties – whether their primary concern is preserving incentives for small businesses, closing prospective budget deficits or protecting the social safety net – should be able to come together around the idea that it should not be possible to accumulate and transfer large fortunes while avoiding taxation almost entirely. Yet this is all too possible today. ...
Why do current valuation practices built into the tax code make it possible for investment partners to end up with $50m or more in entirely tax-free individual retirement accounts when the vast majority of Americans are constrained by a $5,000 annual contribution limit?
A simple calculation shows that the US estate tax system is broken. Assets that are passed to relatives or other personal relations are often badly misvalued relative to what they cost on an open market. The total wealth of American households is estimated at more than $60tn. It is heavily concentrated in very few hands. ...
Why should international companies be able to locate the lion’s share of their foreign income in small, low-tax jurisdictions such as Bermuda, the Netherlands and Ireland, and avoid paying taxes? ...
It has been observed that the greatest scandals are not the illegal things that people do but the things that are fully legal. This is surely true with respect to a tax code in urgent need of reform.
One major obstacle stood in Wal-Mart’s way.
After years of study, the town’s elected leaders had just approved a new zoning map. The leaders wanted to limit growth near the pyramids, and they considered the town’s main entrance too congested already. As a result, the 2003 zoning map prohibited commercial development on Mrs. Pineda’s field, seemingly dooming Wal-Mart’s hopes.
But 30 miles away in Mexico City, at the headquarters of Wal-Mart de Mexico, executives were not about to be thwarted by an unfavorable zoning decision. Instead, records and interviews show, they decided to undo the damage with one well-placed $52,000 bribe.
The plan was simple. The zoning map would not become law until it was published in a government newspaper. So Wal-Mart de Mexico arranged to bribe an official to change the map before it was sent to the newspaper, records and interviews show. Sure enough, when the map was published, the zoning for Mrs. Pineda’s field was redrawn to allow Wal-Mart’s store.
Wal-Mart de Mexico broke ground months later, provoking fierce opposition. Protesters decried the very idea of a Wal-Mart so close to a cultural treasure. They contended the town’s traditional public markets would be decimated, its traffic mess made worse. Months of hunger strikes and sit-ins consumed Mexico’s news media. Yet for all the scrutiny, the story of the altered map remained a secret. The store opened for Christmas 2004, affirming Wal-Mart’s emerging dominance in Mexico.
It’s an old story, the latest chapter of which came to light a few days ago with a small item in Politico: “Elizabeth Fowler is leaving the White House for a senior-level position leading ‘global health policy’ at Johnson & Johnson’s government affairs and policy group.”
A familiar name. We had talked about Liz Fowler on Bill Moyers Journal in 2009, during the early stages of Obama’s health care reform. She was at the center of the action, sitting behind Montana Senator Max Baucus, chairman of the Senate Finance Committee at committee hearings. We noted, “She used to work for WellPoint, the largest health insurer in the country. She was Vice President of Public Policy. And now she’s working for the very committee with the most power to give her old company and the entire industry exactly what they want: higher profits, and no competition from alternative non-profit coverage that could lower costs and premiums.”
After Obamacare passed, Senator Baucus himself, one of the biggest recipients in Congress of campaign cash from the health care industry, boasted that the architect of the legislation was none other than Liz Fowler. “I want to single out one person,” he said.
“… Liz Fowler is my chief health counsel. Liz Fowler has put my health care team together… She put together the white paper last November 2008, [the] 87-page document which became the basis, the foundation, the blueprint from which almost all health care measures in all bills on both sides of the aisle came. She is an amazing person. She is a lawyer; she is a Ph.D. She is just so decent. She is always smiling, she is always working, always available to help any Senator, any staff. I just thank Liz from the bottom of my heart.”
The health care industry was very pleased, too. Early on in the evolution of Obamacare, the Senate and the White House cut deals that protected the interests of the health care industry, especially insurers and the pharmaceutical companies. Lobbyists beat back such popular proposals as a public option, an expansion of Medicare, and a requirement that drug companies negotiate the prices they charge. As the eagle-eyed journalist Glenn Greenwald noted in The Guardian last week, “The bill’s mandate that everyone purchase the products of the private health insurance industry, unaccompanied by any public alternative, was a huge gift to that industry.” That sound you hear isn’t jingle bells; it’s cash registers ringing. ...
Reforms were passed that are supposed to slow down the revolving door, increase transparency and limit the contact ex-officials and officeholders can have with their former colleagues. But those rules and regulations have loopholes big enough for Santa and his sleigh to drive through, reindeer included. The market keeps growing for insiders poised to make a killing when they leave government to help their new bosses get what they want from government. That’s the great thing about the revolving door: one good turn deserves another.
Shareholder value: Since the early 1980s, this theory had claimed that corporate management should concentrate primarily on increasing share prices. In practice, it is fraught with problems: Short-term focus on quarterly earnings leads to a decline in long-term research and development, typically to the detriment of a company’s long-term prospects. Short-termism and stock-option compensation causes management to focus on immediate quarterly returns. It has also led to earnings “management,” accounting fraud and a raft of management scandals. Shareholders derive much less value than the name implies. ...
Austerity: Conceived from the puritanical idea that we must pay a penance for our sins, the Austerians (as we like to call them) insist that a post-bubble economy can be cured with spending cuts and tax increases, producing a balanced budget. When the United States tried this in 1938, it helped send the nation back into recession. More recently, Greece was forced to adopt austerity measures as part of its financial-rescue terms. It pushed the country into a depression. Austerity measures in Britain and Ireland and Spain — indeed, everywhere they have been imposed in Europe — have all led to recessions. Despite the wealth of evidence showing that this is a terrible idea, it refuses to die. ...
Tax cuts pay for themselves (supply-side economics): Sometimes bad ideas start as good ones. When tax rates are so high as to cause all manner of tax avoidance strategies — think confiscatory rates of 75 to 90 percent — reducing them makes sense and can change investor behavior for the better. Where we run into trouble is when this concept gets extrapolated to an absurd degree. Claiming that any tax cut will pay for itself by producing greater economic activity has now reached that point. No, Virginia, cutting taxes 3 percent does not lead to more revenue. Get over it. ...
Markets can self-regulate: Another example of an idea that started out reasonably enough but soon after went off the rails. After 30 years of postwar economic growth, there was a credible argument that government regulations had become too costly, time-consuming and complex. With inefficiencies holding back small businesses, paring the worst of the regulatory burden should be productive. As so often occurs, this good idea was taken to an illogical extreme. Instead of removing onerous, expensive regulations, zealots such as then-Sen. Phil Gramm (R-Tex.) argued against all regulations. Markets can regulate themselves much better than some bureaucrat or lawyer. Besides, the self-interest of companies and the efficient market would more effectively police behavior than any government agency ever could. We know how that turned out. ...
Incompetency: Skilled people have a greater understanding of their limitations for a given task; unskilled people do not. This is called the Dunning-Kruger effect, and it tells us that the worse we are at any given talent, the weaker our own meta-cognition about it is.
Recently, the Hostess Bakery Company, which was the maker of such products as Twinkies, Ding Dongs, Butternut Bread and countless other scrumptious baked goods, placed its union members in a very precarious position. They were given the choice to accept an eight percent wage cut and a sixteen percent increase in the amount they had to invest in their benefits or the company’s assets would be liquidated and the company would cease to exist. They had already granted concessions in 2004 and were placed behind the proverbial eight ball. What I find reprehensible is that the company’s CEO’s salary would have increased three hundred percent if the workers had agreed to have their wages go down to around minimum wage while the CEO prospered. Unfortunately, in spite of the fact that a bankruptcy judge intervened and coerced the two sides to make one final attempt at mediating this contentious issue, the CEO and management showed no desire to assist the employees in their plight and the company had now been terminated and 18,000 workers are without jobs and the CEO is still rich beyond his wildest dreams and will improve on that position once he sells the business and its recipes.
More than a dozen banks in the U.S. and Europe are under investigation for allegedly manipulating a key short-term interest rate known as Libor, which influences borrowing costs throughout the global economy. Swiss bank UBS on Wednesday agreed to pay $1.5 billion to settle charges that its traders manipulated Libor over several years. The bank's Japanese unit pleaded guilty to a crime -- a rarity for a bank -- and two of its former traders have also been hit with federal criminal charges. Earlier this year U.K. bank Barclays Capital agreed to pay about $450 million to settle Libor charges. ...
Libor-setting banks have already been sued by their trading partners and customers alleging billions of dollars in losses. And Wall Street analysts have tried to estimate just how big the legal liability could be for the banks. But Linick's analysis marks the first semi-official estimate of actual damages caused by the Libor scandal.
Nancy Pelosi insists that these benefit reductions aren't "cuts," which is consistent with the propensity to describe the slowed growth or freezing of military spending as a "reduction." ...
Why are people so anxious to avoid the "fiscal cliff" that they'll sacrifice the elderly, along with the disabled, veterans, and their families? And why does the President's proposal ask so much more "shared sacrifice" from them than it does of the nation's bloated defense contractors?
As the old saying goes: Follow the money.
Ike's Warning. In this case the money trail quickly leads from the corridors of power to the boardrooms of the Military Industrial Complex. (You didn't think it had gone away, did you?)
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