Thursday, May 28, 2015

Three clicks and you're out

“Home! And this is my room—and you’re all here! And I’m not going to leave here ever, ever again, because I love you all! And—Oh, Auntie Em—there’s no place like home!”

Words spoken by Dorothy upon returning to Kansas from the Land of OZ.

— L.Frank Baum, The Wizard of Oz

Had she known she would not have clicked her heels three times. That was the number of clicks it took to transport her from the Land of Oz back home to Kansas. If she had known what Kansas would become, she would have stayed in the Land of Oz. While there, after all, she played a vital role in the Cowardly Lion getting courage, the Scarecrow brains and the Tin Woodman a heart. None of those qualities is possessed by most of the legislators in the Kansas state legislature. There is only one character from the Wizard of Oz who would be happy in Kansas today-the Wizard. As he acknowledged, when his true identity was discovered by Dorothy and her friends, “I am a humbug.” That does not, of course, mean that he couldn’t be as good a governor as Sam Brownback who is now serving. But this isn’t about Sam or the Wizard. It’s about the state legislature.

Kansas legislators have distinguished themselves by demonstrating through their actions that they lack brains, hearts and courage. On April 16, 2016 Governor Sam Brownback signed the Hope, Opportunity and Prosperity for Everyone Act, known as the HOPE Act. Although it applies to everyone in Kansas, a reading of the Act discloses that it affects only a few. The few it affects are families on welfare. One of the legislators (who sounded like the Tin Woodman might have sounded before he got a heart) explained the Act’s purpose. It is to make sure, said he, “that Kansans have a high quality of life. And you don’t have high quality of life if you don’t have a job.” The law doesn’t provide employment but it includes work and job training requirements for those on welfare. It also provides that lifetime benefits for those on welfare are limited to 36 months, a powerful incentive to get work since the alternative is no benefits and no means of support. The legislation helps welfare recipients by spelling out the kinds of things for which welfare benefits cannot be used. If those prohibitions were not enumerated, welfare recipients might squander the $300 a month that they receive on some of the proscribed items not realizing that buying those things are not in their best interest. The legislative summary enumerates the things for which welfare funds may not be used. The funds may not be used in a “liquor store, casino, gaming establishment. . .nail salon, lingerie shop. . . vapor cigarette store, psychic or fortune telling business, movie theater, swimming pool, cruise ship . . . .” Since the average welfare recipient in Kansas receives less than $300 per month, it is unlikely he or she will be able to book a cruise. However, as every conscientious legislator knows, one can’t be too careful and people on welfare may be ignorant as well as poor and might squander their benefits had the statute not included guidance. Helping people on welfare spend their money wisely was not the Kansas legislature’s only contribution to good governance.

On May 19, 2015, it was reported that the legislature had decided to make itself the arbiter of Kansas Supreme Court decisions. In 2014 the legislature passed a law that took away from the Missouri Supreme Court the right to control the budgets and leadership of local courts because the legislature wanted that control to be local. A Kansas judge sued to invalidate that law and the case is now pending. If successful, control of all state courts would be returned to the Kansas Supreme Court which would be in accordance with the Missouri Constitution The legislature is less concerned with whether its actions are constitutional, than with the fact that the Supreme Court might take it upon itself to find the legislature’s actions to be unconstitutional. Accordingly, as part of the budget it adopted in 2015 it included language that provides that if the 2014 law is “stayed or is held to be invalid or unconstitutional” certain provisions of the budget, including funding for the courts “are hereby declared to be null and void.” The legislators, who don’t get the separation of powers idea, intend with this language to encourage the courts to rule in favor of the 2014 legislation lest they lose all funding including for salaries of all employees, including judges.

Wherever Dorothy now is, she is probably trying desperately to click her heels three times. That is what it took to get her from Oz to Kansas. It might work in reverse. It would certainly be worth a try. If any of my readers is visiting Kansas and observes citizens jumping up and down trying to click their heels three times, offer them a word of encouragement. They need and deserve iit.

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Thursday, May 21, 2015

Banks and Punishments

And watten penance will ye drie for that, Edward, Edward?
A Scottish Ballad about a man who killed his father

Occasionally people inquire as to the different treatment of different kinds of persons in our legal system. As the U.S. Supreme Court has explained, corporations are persons just like my readers. The only difference between a corporate person and a human person is that when a human person breaks the law, the human person depending on the offense, may go to jail. When a corporate person breaks the law, the corporate person may be punished, but is never sent to jail.

The question that arises out of this disparate treatment is how do “three strike laws” work when a corporate person is a repeat offender. Three strike laws provide that if a human person has three offenses (misdemeanors or felonies, depending on how a state statute is drafted) the human person is sentenced to life in prison. The question is relevant these days because in the past years there have been many occasions on which large banks have been assessed fines in the millions, and frequently, billions of dollars for corporate misconduct. Almost all the large banks that have been fined are repeat offenders. There are two reasons they are never sentenced under “Three Strike Laws.” The first is big banks are corporate persons and corporate persons cannot be sent to jail. The second is, when big banks misbehave, their misconduct, no matter how egregious, is almost always dealt with as a civil matter. Events of May 20, 2015 were the exception. On that date the Department of Justice, the Federal Reserve and other enforcement agencies announced that 5 big banks had agreed to pay more than $5 billion in fines to settle criminal charges that they had worked together to manipulate international interest and foreign currency exchange rates. Among the banks that acknowledged criminal conduct and agreed to pay large fines was JPMorgan Chase. It agreed to pay $550 million for its criminal conduct. being charged with criminal conduct was an almost unheard of event for the bank although its conduct before then was anything but exemplary.

In November 2013 JPMorgan Chase paid $13 billion in fines and penalties for its non-criminal misdeeds. The Wall Street Journal described those fines as “the biggest combination of fines and damages extracted by the U.S. government in a civil settlement with any single company.” That fine was in addition to $7 billion the bank had paid in the preceding months as punishment for other misdeeds. Those combined fines were for a variety of acts of misconduct that, had they been criminally charged and engaged in by a human person, would very likely have earned them a life sentence under “Three Strike Laws.”

JPMorgan’s next demonstration of how it could skirt the law to its own advantage occurred as a result of its dealing with debtors who had taken bankruptcy. Those people thought they could not be dunned for debts that were discharged in bankruptcy. They were wrong. JPMorgan Chase (and Bank of America) figured out how to profit from those discharged debts even though they could not collect them from the former debtors. The banks bundled debts that had been discharged in bankruptcy and sold them to unscrupulous debt collectors who led the discharged debtors to believe they owed the money and were required to pay the debts that had been discharged. When this practice was first reported in late 2014 it was disclosed that the justice department was investigating the practice to see if the banks had violated the law. In one of the cases brought by individual plaintiffs against the banks, Judge Robert Drain, who was hearing the civil cases, stated that if the facts alleged by the debtors were proved at trial, he would consider referring the matter to the U.S. attorney for criminal prosecution of the banks. Sale of discharged debts we have now learned was not the only way unscrupulous banks made money from debts that had been discharged in bankruptcy.

In 2014 Bank of America paid $16.7 billion in a settlement with the Justice Department arising out of questionable mortgage practices. Pursuant to the terms of the settlement Bank of America agreed, among other things, to provide $7 billion in mortgage relief in the form of loan modifications or forgiveness to some of its customers who owed it money. In May 2015 it was disclosed that it attempted to fulfill part of its obligations by providing debt relief to debtors whose debts had been discharged in bankruptcy and, as a result, were no longer owed by the debtor. It got caught and will no longer use that ruse to fulfill its obligation.

The May 20, 2015 settlement is unusual in that the banks admitted criminal conduct, admissions that did not accompany payment of the earlier billions in fines paid by JPMorgan Chase and other banks. Alan Goelman, the trading commission’s head of enforcement, said of the May 20 settlement: “There is very little that is more damaging to the public’s faith in the integrity of our markets than a cabal of international banks working together to manipulate a widely used bench mark in furtherance of their own interests.” An observer might conclude that equally disturbing are the practices of the large banks in furtherance of their own interests that have resulted in payment of billions in fines but no criminal convictions of the corporate person or the human persons running the banks. Lesser criminal types should be so lucky.

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Thursday, April 30, 2015

Learning from Limbaugh

“At length I recollected the thoughtless saying of a great princess, who, on being informed that the country people had no bread, replied, ‘Let them eat cake.’’” Jean Jacques Rousseau, Confessions

In 2008 Rush Limbaugh was paid $38 million. In 2014 Rush Limbaugh earned $66 million. For terrestrial navigation he drives, among other things, a Mayback 57S that costs $450,000 fully loaded. For celestial travel he flies in a Gulfstream G550 that cost $54 million.

April 2015 was noteworthy for reasons having nothing to do with the income tax. On April 19, 2015, Dan Price, the CEO of a company called Gravity Payments, a credit card processing company located in Seattle, Washington, announced that he was cutting his own salary and raising the minimum annual salaries for everyone in his company to $50,000 immediately and over the next three years, years, to $70,000. In doing so he was cutting his own annual salary from $1 million to $70,000. In making the announcement at a quarterly firm meeting he was, understandably greeted by a standing ovation from employees. He explained that he was doing it partly in response to a study conducted by Princeton that concluded that emotional well being rises when income reaches about $75,000 a year. Mr. Price said “I want to be a part of the solution to inequality in this country, and so if corporate America also wants to be a part of that solution, that would make me really happy.”

One week later there was a story in the New York Time with the enthusiastic headline: “Democrats are Rallying Around $12 Wage Floor.” The headline gives the impression of a gathering of politicians eager to do something similar to what Mr. Price did. That was a bit misleading. What Democrats wanted to do would happen only incrementally and the goals were more modest than those of Mr. Price. The Democrats hoped to see the minimum wage go from $7.25 an hour or $14,500 a year to $12 an hour or $24,000 a year by 2020. Of course no one thinks that will happen. It is simply aspirational. There is no reason for a minimum wage worker to expect anything to change with respect to his or her earnings if an increase depends on Congress.

One day before that story appeared, the Washington Post had a story about Charles Gladden, a homeless man who works in the basement of the Dirksen Senate Office Building. According to the Post “For eight years, he has greeted senators, staffers and lobbyists in the hallways and the cafeteria, at exclusive banquets and special functions.” He earns about $18,270 a years serving the elected nobility, assuming he works 52 weeks a year. Of course he doesn’t. The senate takes lots of paid vacations and when they are on paid vacation he, too, is on vacation-unpaid. Part of the time he lives at the McPherson Square Metro Station which is about 2000 feet from the White House. He moves around quite a bit since he is homeless and hasn’t had a permanent residence for more than 20 years.

“At length I recollected the thoughtless saying of a great princess, who, on being informed that the country people had no bread, replied, ‘Let them eat cake.’’” Jean Jacques Rousseau, Confessions

In 2008 Rush Limbaugh was paid $38 million. In 2014 Rush Limbaugh earned $66 million. For terrestrial navigation he drives, among other things, a Mayback 57S that costs $450,000 fully loaded. For celestial travel he flies in a Gulfstream G550 that cost $54 million.

April 2015 was noteworthy for reasons having nothing to do with the income tax. On April 19, 2015, Dan Price, the CEO of a company called Gravity Payments, a credit card processing company located in Seattle, Washington, announced that he was cutting his own salary and raising the minimum annual salaries for everyone in his company to $50,000 immediately and over the next three years, years, to $70,000. In doing so he was cutting his own annual salary from $1 million to $70,000. In making the announcement at a quarterly firm meeting he was, understandably greeted by a standing ovation from employees. He explained that he was doing it partly in response to a study conducted by Princeton that concluded that emotional well being rises when income reaches about $75,000 a year. Mr. Price said “I want to be a part of the solution to inequality in this country, and so if corporate America also wants to be a part of that solution, that would make me really happy.”

One week later there was a story in the New York Time with the enthusiastic headline: “Democrats are Rallying Around $12 Wage Floor.” The headline gives the impression of a gathering of politicians eager to do something similar to what Mr. Price did. That was a bit misleading. What Democrats wanted to do would happen only incrementally and the goals were more modest than those of Mr. Price. The Democrats hoped to see the minimum wage go from $7.25 an hour or $14,500 a year to $12 an hour or $24,000 a year by 2020. Of course no one thinks that will happen. It is simply aspirational. There is no reason for a minimum wage worker to expect anything to change with respect to his or her earnings if an increase depends on Congress.

One day before that story appeared, the Washington Post had a story about Charles Gladden, a homeless man who works in the basement of the Dirksen Senate Office Building. According to the Post “For eight years, he has greeted senators, staffers and lobbyists in the hallways and the cafeteria, at exclusive banquets and special functions.” He earns about $18,270 a years serving the elected nobility, assuming he works 52 weeks a year. Of course he doesn’t. The senate takes lots of paid vacations and when they are on paid vacation he, too, is on vacation-unpaid. Part of the time he lives at the McPherson Square Metro Station which is about 2000 feet from the White House. He moves around quite a bit since he is homeless and hasn’t had a permanent residence for more than 20 years.

Charles Gladden won’t start a conversation. The minimum wage won’t start a conversation. Dan Price started a conversation. Rush Limbaugh and others joined the conversation. Rush knows a lot about how compensation affects workers and he shared his knowledge with his listeners. And it didn’t take him more than an hour or two. He described what Dan was doing. Dan is taking 80% of the $2.2 million in company profits and using them for the salary increases. Rush sees through Dan Price. In his radio show Rush explained the fallacy in what Dan Price is doing. “What he [Dan Price] doesn’t understand is, happiness does not equal productive. Happiness equals comfort. ‘Seventy grand, well, I can stop working hard’ is what it means. . . . This is pure, unadulterated socialism, which has never worked. That’s why I hope this company is a case study in MBA programs on how socialism does not work, because it’s gonna fail. . . . When you take care of people they tend to take care of you. For a while, that will be true. . ..For a while they’re all gonna appreciate it, but it isn’t gonna take long before the appreciation dries up and the expectation settles in, and it doesn’t take long at all for the appreciation to vanish.”

Rush knows about appreciation. In 2008 his syndicator Clear Channel Inc’s Premiere Radio Network Clear Channel Radio entered into a five-year contract with Rush for $38 million a year plus a $100 million sign up bonus. He appreciated that. The following year Clear Channel fired almost 3,000 of its employees, about 12% of its work force. It did not fire him. He appreciated that. It is not known whether any part of Rush’s $38 million could have been used to keep some of the workers employed. Rush was almost certainly grateful for the $38 million salary and $100 million sign up bonus he got. But as he explained when addressing Dan Price’s actions, people don’t remain appreciative. As Rush said, “appreciation dries up.” That explains why in 2014 it was reported that his earnings now come to $66 million a year making him the 59th highest paid person in the United States. He obviously needed more money than what he got from his meager salary negotiated in 2008. When his contract comes up for renewal in 2016 he will probably ask for a raise. Increases in Rush’s income is what keeps Rush’s appreciation from drying up and permits him to focus on explaining to his fans why Dan Price is making such a terrible mistake by paying his workers enough to live on. And what’s more, his salary will never be a case study in how socialism does not work.
Rush Limbaugh and others joined the conversation. Rush knows a lot about how compensation affects workers and he shared his knowledge with his listeners. And it didn’t take him more than an hour or two. He described what Dan was doing. Dan is taking 80% of the $2.2 million in company profits and using them for the salary increases. Rush sees through Dan Price. In his radio show Rush explained the fallacy in what Dan Price is doing. “What he [Dan Price] doesn’t understand is, happiness does not equal productive. Happiness equals comfort. ‘Seventy grand, well, I can stop working hard’ is what it means. . . . This is pure, unadulterated socialism, which has never worked. That’s why I hope this company is a case study in MBA programs on how socialism does not work, because it’s gonna fail. . . . When you take care of people they tend to take care of you. For a while, that will be true. . ..For a while they’re all gonna appreciate it, but it isn’t gonna take long before the appreciation dries up and the expectation settles in, and it doesn’t take long at all for the appreciation to vanish.”

Rush knows about appreciation. In 2008 his syndicator Clear Channel Inc’s Premiere Radio Network Clear Channel Radio entered into a five-year contract with Rush for $38 million a year plus a $100 million sign up bonus. He appreciated that. The following year Clear Channel fired almost 3,000 of its employees, about 12% of its work force. It did not fire him. He appreciated that. It is not known whether any part of Rush’s $38 million could have been used to keep some of the workers employed. Rush was almost certainly grateful for the $38 million salary and $100 million sign up bonus he got. But as he explained when addressing Dan Price’s actions, people don’t remain appreciative. As Rush said, “appreciation dries up.” That explains why in 2014 it was reported that his earnings now come to $66 million a year making him the 59th highest paid person in the United States. He obviously needed more money than what he got from his meager salary negotiated in 2008. When his contract comes up for renewal in 2016 he will probably ask for a raise. Increases in Rush’s income is what keeps Rush’s appreciation from drying up and permits him to focus on explaining to his fans why Dan Price is making such a terrible mistake by paying his workers enough to live on. And what’s more, his salary will never be a case study in how socialism does not work.

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