SUMMARY: Part of the GOP tax overhaul tax bill that has not gotten a lot of attention is the possibility of opening up a pristine and long-protected part of Alaska to oil extraction. The Arctic National Wildlife Refuge is 19 millions acres of rich ecosystem. Why are lawmakers talking about drilling now? William Brangham joins Miles O’Brien to take a closer look.
SUMMARY: You could say that the field of finance has an image problem, with both fictional and real-life figures projecting greed and other less-than-likeable attributes. That's why Mihir Desai has written a book, "The Wisdom of Finance," to balance the picture and appeal to those in the field to get back to the core ideas. Economics correspondent Paul Solman reports.
Thirty-five years ago, babies born in the U.S. had an infant mortality rate equal to Germany. Today, American babies die at twice (PDF download) the rate of those in Germany.
Thirty-five years ago, the U.S. ranked 13th in life expectancy for girls among the 34 recognized industrial societies. Today we are ranked 29th out of those same 34 countries.
We have the highest teenage birth rate among the industrialized world.
One out of every four children in this country lives with a single parent, the highest rate by far in the industrialized world.
Our incarceration rate is triple what it was four decades ago, with an incarceration rate five times that of other wealthy democracies.
Economists from the University of Chicago, MIT and the University of Southern California conducted research to find out why our children die at a rate exponentially higher than European kids. Their conclusion? Staggering rates of income disparity, all stemming directly from the 1980's, the Era of Ronald Reagan and the beginning of the resurgence of the conservative movement.
"On nearly all indicators of mortality, survival and life expectancy, the United States ranks at or near the bottom among high-income countries,” says a report on the nation’s health by the National Research Council and the Institute of Medicine.
What’s most shocking about these statistics is not how unhealthy they show Americans to be, compared with citizens of countries that spend much less on health care and have much less sophisticated medical technology. What is most perplexing is how stunningly fast the United States has lost ground.
The statistics above are taken from this article by Eduardo Porter in today's New York Times. As Porter states, "Pick almost any measure of social health and cohesion over the last four decades or so, and you will find that the United States took a wrong turn along the way." But as his analysis shows, it wasn't just lower wages caused by globalization and technological advancement that led to this dismal state of affairs (although those certainly played a part), but the unique failure of our U.S. government to respond to these developments:
[B]laming globalization and technological progress for the stagnation of the middle class and the precipitous decline in our collective health is too easy. Jobs were lost and wages got stuck in many developed countries.
What set the United States apart — what made the damage inflicted upon American society so intense — was the nature of its response. Government support for Americans in the bottom half turned out to be too meager to hold society together.
From the time most of us have even had a political memory we have had to listen to conservative ideology spewed at us, telling us that the U.S. was living in a "welfare state," that "handouts" to the poor were sapping our productivity and harming the "spirit" of the country. That if we only unleashed the power of Big Business through fostering "entrepreneurship" while cutting programs designed to support the rest of us, the nation would "regain" its stature and create vast sums of wealth for all of our citizens, with corporate profits leading us back to a mythical promised land. That shrinking government programs while cutting taxes for the richest would put wealth back into all our pockets and improve the quality of our lives. This was the dominant narrative in the 1980's, it was swallowed nearly whole and regurgitated by Bill Clinton in the 1990's, and reached its apotheosis in the 2000's prior to the Economic Crash presided over by George W. Bush and the same tax-cutting, supply-side ilk who sold it to us from the start, often in the guise of "deficit reduction." It is the same narrative that continues to paralyze our government's ability to respond to our citizens needs, now mutated into what we know as the "Tea Party."
Now this narrative has borne itself out to be nothing but a staggering lie. The reality is that beyond a meager Social Security and Medicare for the aged, both creations of Democratic Administrations, and with the constant demonization and derogation of Labor and Unions, there was not much at all to break the fall of ordinary Americans when trends like globalization appeared over the horizon:
A more compelling explanation is that when globalization struck at the jobs on which 20th-century America had built its middle class, the United States discovered that it did not, in fact, have much of a welfare state to speak of. The threadbare safety net tore under the strain.
Call it a failure of solidarity. American institutions, built from hostility toward collective solutions, couldn’t hold society together when the economic underpinning of full employment at a decent wage gave in.
"Hostility toward collective solutions" is polite terminology for "greed."
In searching for solutions, Porter weighs the benefits of education, but rightly concludes that the way education is structured in this country today it actually exacerbates inequality. One need only to examine the income levels of those victimized by the latest collapse of for-profit colleges, left clutching their near-worthless degrees, to understand why. He also points to attempts by Senator Elizabeth Warren and others to generate enthusiasm for lifting the payroll cap on Social Security to expand benefits for the elderly. But caring for the elderly is ultimately not our biggest problem. Ultimately the changes necessary to reverse the criminal damage already wreaked on us by the American Right and its malignant, self-serving ideology must be solved at the ballot box.
The challenge America faces is not simply a matter of equity. The bloated incarceration rates and rock-bottom life expectancy, the unraveling families and the stagnant college graduation rates amount to an existential threat to the nation’s future.
That is, perhaps, the best reason for hope. The silver lining in these dismal, if abstract, statistics, is that they portend such a dysfunctional future that our broken political system might finally be forced to come together to prevent it.
So this election is not just "our time." It may be the only time.
The Justice Department’s inquiry comes after a ProPublica investigation and years of complaints from landowners who say they have been underpaid for leasing land to the energy giant for drilling.
The U.S. Department of Justice is investigating how Chesapeake Energy pays landowners for the natural gas it drills on their property, according to disclosures made earlier this month in the company's filings with the Securities and Exchange Commission.
The probe comes after years of complaints by landowners that they are being underpaid, and an investigation by ProPublica, which found the company was using the fees it had been been paying those landowners to repay billions of dollars of hidden corporate debt instead.
Chesapeake received subpoenas about its royalty practices from the federal government and several states, the company stated Nov. 6. The company did not respond to a request for comment from ProPublica.
In lawsuits filed in several states, Chesapeake has been accused of inflating its operating expenses and then deducting those expenses from the share of income it pays for the right to drill on peoples' land. Chesapeake has paid hundreds of millions of dollars in judgments and to settle some of these cases.
In mid-2013, landowners in Pennsylvania who had leased their gas rights to Chesapeake saw the payments they were receiving abruptly slashed by as much as 97 percent. In some cases checks for thousands of dollars a month were replaced with payments for less than a dollar. Those early complaints prompted a probe by Pennsylvania's Attorney General and a letter from the state's governor, Tom Corbett, to Chesapeake's chief executive calling the practices "unfair and perhaps illegal."
A ProPublica investigation traced that shift in payments to a series of complicated corporate transactions, worth nearly $5 billion, in which Chesapeake sold its pipelines for an inflated price, but then signed long-term contracts to pay the pipelines' new owner exorbitant fees to continue to use them. While Chesapeake raised billions through the sale, it committed to repay all of that money and more in fees. The fees Chesapeake paid to the new company, called Access Midstream Partners, were then charged back to landowners, erasing much of their share of the economic bounty from the surge in natural gas drilling in the Marcellus Shale. At the same time that landowners' gas income dropped, Chesapeake was attempting to raise cash to rescue itself from enormous and mounting corporate debt.
"I think they looked at it as an opportunity to effectively get disguised financing ... that is going to be repaid at a premium,'' an executive of an energy company who routinely does business with Chesapeake told ProPublica at the time.
In July, after news of the deals was published, county commissioners in Bradford County, Pennsylvania, where much of the Marcellus drilling was taking place, appealed to U.S. Attorney Peter Smith to investigate the company. The commissioners wrote that ProPublica's reporting pointed to possible "violations of state and federal law." Several new lawsuits have also been filed against the company in Pennsylvania and elsewhere.
Throughout 2013 and early 2014, Chesapeake never responded to any of ProPublica's initial written questions or requests for interviews about the size or origins of its corporate debt and the sale of its pipeline companies. But after receiving our written questions, Chesapeake for the first time acknowledged in its quarterly financial filings that it had $36 billion dollars in "off-balance-sheet arrangements," and that much of it was related to its pipeline businesses.
Chesapeake faces other inquiries as well. Following a Reuters investigation alleging Chesapeake rigged land leasing prices in Michigan, the company was charged with antitrust violations by Michigan's state attorney general. It faces separate racketeering charges in the state as well. Chesapeake has said both sets of charges are without merit, and the two cases are expected to go to trial. The company's financial disclosures state that Chesapeake has been served federal subpoenas related to anti-trust inquiries in Michigan as well.
U.S. Department of Labor investigations have uncovered hundreds of cases in which oil and gas workers, many involved in dangerous jobs, are being cheated of earnings.
A ProPublica review of U.S. Department of Labor investigations shows that oil and gas workers – men and women often performing high-risk jobs – are routinely being underpaid, and the companies hiring them often are using accounting techniques to deny workers benefits such as medical leave or unemployment insurance.
The DOL investigations have centered on what is known as worker "misclassification," an accounting gambit whereby companies treat full time employees as independent contractors paid hourly wages, and then fail to make good on their obligations. The technique, investigators and experts say, has become ever more common as small companies seek to gain contracts in an intensely competitive market by holding labor costs down.
In the complex, rapidly expanding oil and gas industry, much of the day to day work done on oil rigs and gas wells is sub-contracted out to smaller companies. For instance, on one gas rig alone, the operator might hire one company to construct the well pad, another to drill the well, a third company to provide hydraulic fracking services and yet another to truck water and chemicals for disposal.
But for the thousands of workers in the hundreds of different companies, a single standard is supposed to apply; by law, they must be paid more than minimum wage and they must be fairly compensated for any overtime accrued.
In 2012, the DOL began a special enforcement initiative in its Northeast and Southwest regional offices targeting the fracking industry and its supporting industries. As of August this year, the agency has conducted 435 investigations resulting in over $13 million in back wages found due for more than 9,100 workers. ProPublica obtained data for 350 of those cases from the agency. In over a fifth of the investigations, companies in violation paid more than $10,000 in back wages.
One of those companies was Morco Geological Services, a company providing mud logging services for other oil and gas drilling companies. In 2013, the DOL found that Morco was paying some workers $75 daily for working virtually round-the-clock shifts. The company eventually agreed to pay $595,737 in back wages to 121 workers following the DOL's investigation. In another significant case, Hutco, a company providing labor services to the oil and gas industry, ended up paying $1.9 million to 2,267 employees assigned to work in Louisiana, Mississippi and Texas.
"The problem of misclassification has become pervasive," said Dr. David Weil, a former economics professor at Boston University who today heads the DOL's Wage and Hour Division. "Employers are looking for opportunities in a changing business landscape at the employee's expenses to cut corners as much as possible, leaving room for wage and hour violations."
Over the last decade, the oil and gas industry has seen tremendous growth. Between 2007 and 2012, when average employment in all U.S. industries fell by 2.7 percent, employment in the oil and gas industry increased by over 30 percent. According to research conducted by Annette Bernhardt, a scholar on low-wage work, 84 percent of workers in the oil, gas and mining industry were employed by contractors in 2012.
At the same time, the industry has also seen an increase in fatalities and injuries on the job. There is, so far, no evidence to suggest that these accidents are a result of inadequate training or overworked laborers. But accounts from other industries that heavily outsource work suggest those risks could be present.
For example, a 2012 investigation by ProPublica and PBS Frontline showed that cell phone carriers often contract out the dangerous job of climbing towers to smaller firms, which don't provide the necessary training and equipment to climbers. As a result, the death rate was 10 times higher among cell tower climbers than other construction workers.
Between December 2009 and November 2011, Troy Bearden worked on gas rigs in Pennsylvania and Colorado for Precision Air Drilling Services, a company that provides labor services for oil and gas exploration around the country. During that time period, Bearden worked an average of 12 hours a day, seven days a week, unloading and hooking up drilling equipment and maintaining it during operation.
Bearden was a full time employee of Precision Air Drilling, but the company classified him as exempt from the federal overtime statute, the Fair Labor Standards Act, and did not pay him time and a half for his overtime hours.
In 2011, Bearden and other workers filed a class action lawsuit against the company. Precision Air Drilling settled for $500,000.
"We know that the oil and gas industry has a reputation of paying high wages, but the economic reality often is they receive large paychecks because of the number of hours they're putting in," said Betty Campbell, the Deputy Regional Administrator for the Wage and Hour Division’s Southwest Region.
JUDY WOODRUFF (NewsHour): You almost never see employees hit the streets to save the job of their company’s president. But that scene is playing out in a most unusual battle in New England this summer, one involving a supermarket chain, a deep family feud, and set against the backdrop of big debates over wages, benefits, corporate profits and inequality.
Our economics correspondent, Paul Solman, has the story, part of his ongoing reporting Making Sense of financial news.
PAUL SOLMAN (NewsHour): In Tewksbury, Massachusetts, it was hellishly hot the other day, but that didn’t deter a holy ruckus.
MAN: Heavenly Father, thank you for giving us today as a new day, even though we find ourselves in the same situation as yesterday, without our true leader, Arthur Demoulas.
PAUL SOLMAN: That’s Arthur T. Demoulas, former president of Market Basket supermarkets, one of New England’s most successful retailers, with 71 stores, sales of $4.6 billion last year, 25,000 employees with above-average compensation and profit-sharing, and two million customers who enjoy below-industry prices.
But Arthur T. was fired in June by a board of directors controlled by Arthur S. Demoulas, who seems to think his cousin, Arthur T., was spending stockholder money too liberally. Neither cousin is giving interviews, but the basic fact is clear enough. The family-owned business has ground to a halt.
In mid-July, truck drivers and warehouse workers walked off their jobs, a non-union strike in support of their employee-friendly leader.
With stores near military bases across the country, the retailer USA Discounters offers easy credit to service members. But when those loans go bad, the company uses the local courts near its Virginia headquarters to file suits by the thousands.
This article was co-published with The Washington Post.
Army Spc. Angel Aguirre needed a washer and dryer.
Money was tight, and neither Aguirre, 21, nor his wife had much credit history as they settled into life at Fort Carson in Colorado in 2010.
That's when he saw an ad for USA Discounters, guaranteeing loan approval for service members. In military newspapers and magazines, on the radio, and on TV, the Virginia-based company's ads shout, "NO CREDIT? NEED CREDIT? NO PROBLEM!" The store was only a few miles from Fort Carson.
"We ended up getting a computer, a TV, a ring, and a washer and dryer," Aguirre said. "The only thing I really wanted was a washer and dryer."
Aguirre later learned that USA Discounters' easy lending has a flip side. Should customers fall behind, the company transforms into an efficient collection operation. And this part of its business takes place not where customers bought their appliances, but in two local courthouses just a short drive from the company's Virginia Beach headquarters.
From there, USA Discounters files lawsuits against service members based anywhere in the world, no matter how much inconvenience or expense they would incur to attend a Virginia court date. Since 2006, the company has filed more than 13,470 suits and almost always wins, records show.
"They're basically ruthless," said Army Staff Sgt. David Ray, who was sued in Virginia while based in Germany over purchases he made at a store in Georgia.
Timothy Dorsey, vice president of USA Discounters, said the company provides credit to service members who would not otherwise qualify and sues only after other attempts to resolve debts have failed.
As for the company's choice of court, he said it was "for the customer's benefit." In Virginia, the company isn't required to use a lawyer to file suit. USA Discounters' savings on legal fees are passed on to the customer, he said.
"This company is committed to ensuring that the men and women who serve and sacrifice for our country are always treated with the honor and respect they deserve," Dorsey said.
The federal Servicemembers Civil Relief Act, or SCRA, was designed to give active-duty members of the armed forces every opportunity to defend themselves against lawsuits. But the law has a loophole; it doesn't address where plaintiffs can sue. That's allowed USA Discounters to sue out-of-state borrowers in Virginia, where companies can file suit as long as some aspect of the business was transacted in the state.
The company routinely argues that it meets that requirement through contract clauses that state any lawsuit will take place in Virginia. Judges have agreed.
"This looks like somebody who has really, really researched the best way to get around the entire intent of the SCRA," said John Odom, a retired Air Force judge advocate and expert on the SCRA.
Once a judge awards USA Discounters a judgment, the company can begin the process of garnishing the service member's pay. USA Discounters seizes the pay of more active-duty military than any company in the country, according to Department of Defense payroll data obtained by ProPublica.
Consumer advocates say the strategy cheats service members who may have valid defenses. It's "designed to obtain default judgments against consumers without giving them any real opportunity to defend themselves," said Carolyn Carter of the National Consumer Law Center.
To investigate USA Discounters' practices, ProPublica reviewed 70 of the company's contracts for service members and non-military borrowers, all of which had been filed in court. A reporter also identified 11 recent court cases against active-duty service members to examine their treatment.
The same courts in Norfolk and Virginia Beach are favored by two similar companies headquartered in the area - Freedom Furniture and Electronics and Military Credit Services - that offer high-priced credit to military clientele. Together with USA Discounters, the three companies have filed more than 35,000 suits since 2006.
Officials with Freedom and Military Credit Services did not respond to repeated phone calls and e-mails.
USA Discounters opened its first store in 1991 in the Hampton Roads metropolitan area, where more than 70,000 military personnel are stationed.
Many sailors start their careers at the sprawling Naval Station Norfolk, "bringing their pay and their naiveté," said Dwain Alexander, a senior civilian attorney with the Navy in Norfolk.
USA Discounters, which is privately owned, now has 31 locations, including seven free-standing jewelry stores that go by the name Fletcher's Jewelers.
While the company does not exclusively lend to service members, it has a location just a short drive from each of the country's 11 largest military bases.
The company's showrooms are packed with bedroom sets, TVs and tire rims, but that's not the main draw. "You're not selling the furniture. You're not selling the appliances," said one former sales employee. "You're selling our financing program." The former employee, and others quoted in the story, spoke on condition of anonymity because they feared USA Discounters could adversely affect future employment.
Younger soldiers such as Aguirre are drawn in by the guaranteed credit - something not offered by cheaper big-box stores. "A lot of the time, this would be the first time they get a paycheck over $1,000," said a former store manager.
The company can confidently extend credit to such customers, former employees said, because the loans are almost always repaid through the military's allotment system. Part of the service member's paycheck automatically goes to the company every month.
Despite the company's name, USA Discounters' items sometimes come at a substantial markup. An iPad Mini, for example, last year sold at USA Discounters for $699 when Apple's retail price was $329.
On top of these costs, the loans typically are layered with fees for a warranty and a program that cancels the debt under certain circumstances. The plans are optional, but are included on the vast majority of loans, former employees said.
Dorsey, the USA Discounters executive, said the company's cost of purchasing goods was higher than big-box retailers with greater buying power. As for the add-ons, he said they are clearly disclosed as optional. The company's typical interest rate is "less than 20 percent," he said.
The final tally on the loans can be staggering for some young service members. In 2009, Army Pvt. Jeramie Mays, then 26, walked into the USA Discounters near Fort Bliss in Texas to buy a laptop before being deployed to Iraq. He chose a model that typically retailed for $650. At USA Discounters, it sold for $1,799. On top of that came $458 in add-ons. After another $561 in interest charges, Mays walked out owing $2,993 in payments over 23 months, according to a copy of his contract.
For Aguirre, it was only later, when he and his wife tried to get their finances under control, that he realized just how much he owed. The total loan amount is clearly listed on all USA Discounters' contracts, but customers often don't grasp how long they'll be paying, said a financial counselor who advises soldiers and sailors.
The military generally provides credit counseling for young service members. But for some, the allure is too great, particularly when the companies bill themselves as military friendly. "After the horse is out of the barn, there's not a lot you can do about it," said Lynn Olavarria, the financial readiness program manager at Fort Bragg in North Carolina.
Aguirre said he was told by his superiors that his struggles with debt have kept him from being promoted.
Late last year, after he had fallen far behind on his loan, he got a notice in the mail. USA Discounters was suing him in a Virginia court, more than 1,500 miles away. When he didn't show up, the company won a judgment of $8,626.
On every active-duty service member's contract ProPublica examined, just below various disclosures, it says the buyer "is subject to the jurisdiction of the state courts of the COMMONWEALTH OF VIRGINIA." To receive financing, customers must agree.
Such a demand is "abusive" and is not typically found in contracts involving consumers, said Carter of the National Consumer Law Center. The Federal Debt Collection Practices Act prohibits such suits if they are filed by a third party, such as a law firm. Because USA Discounters uses a company employee to file its debt collection suits, the law doesn't apply.
Dorsey said if customers ask to be sued elsewhere, the company will honor their requests, despite the contract. The clause is only included in the contracts of service members, according to ProPublica's review.
Gene Woolard, the chief judge of Virginia Beach General District Court, said under state law, the terms of a contract are binding.
If a defendant can't afford to travel to Virginia to contest a suit, "you can't do much about that," he said. And while he's sympathetic to debtors, Woolard said, "That's not a legal defense." Norfolk Chief Judge S. Clark Daugherty declined to respond to questions.
Court records show USA Discounters has obtained judgments in 89 percent of the suits it has filed in Norfolk's and Virginia Beach's courts since 2006.
Dorsey said the high success rate is to be expected - the customers owed money they hadn't paid. "[I]t is not surprising that they do not appear in collections proceedings in court - in any state in which we file," he said.
As for the federal law protecting active-duty service members, its requirements are easily met by USA Discounters. If a service member can't be located, the law requires a 90-day delay. Once that passes, the way is clear to obtain a judgment. If a service member doesn't appear in court, an attorney is appointed to represent the defendant. But the law does not specify what that lawyer must do.
In Virginia courts, the creditor can suggest the attorney to be appointed. USA Discounters appears to request the same lawyer for all its cases involving service members. In each of the 11 cases ProPublica examined, the court appointed Tariq Louka of Virginia Beach.
In response to written questions, Louka said that he represents "in the range of 300-400" service members each year. His primary duty, he said, is to inform his clients they have a right to request a delay, which he does by mail. "MY ONLY OBLIGATION IS TO REVIEW YOUR RESPONSE AND REQUEST AN ADDITIONAL STAY OR CONTINUANCE IF I FEEL IT IS APPROPRIATE GIVEN YOUR ANSWERS," his letters say in capital letters.
USA Discounters said that it had no business relationship with Louka or his firm.
Armed with judgments, creditors can attempt to garnish borrowers' wages or bank accounts. As of January 2014, 230 service members were involuntarily paying USA Discounters a portion of their pay, Department of Defense data shows. Altogether, those service members have paid more than $1.4 million to the company.
Next on the list of most active creditors were the two other local companies, Military Credit Services and Freedom, which together had seized the pay of 92 service members for a total of $289,000 as of January, according to the data.
USA Discounters also aggressively pursues funds in service members' bank accounts. Mays, the Army private who signed the nearly $3,000 contract for a laptop, said he initially stopped payment after the computer broke in Iraq. But other financial pressures, mainly costs associated with the care of his disabled mother, eventually made him decide to file for bankruptcy, he said.
Before he could, he was deployed to Germany and Afghanistan.
USA Discounters brought suit against him while he was in Germany. After winning a judgment, he said, the company sought to seize both his pay and funds in his credit union account. The action froze his account for several weeks, Mays said.
Mays, currently based at Joint Base Lewis-McChord in Washington state, said that for most of last January, he could not withdraw funds. "Trying to take care of two kids and my mother and myself on nothing doesn't help," he said. Around the same time, he finally filed for bankruptcy. His debt with USA Discounters was discharged last March, protecting any assets from seizure.
Dorsey of USA Discounters declined to respond without written, signed waivers from customers. Reached recently, Mays said he was in training and would not have an opportunity to provide a waiver. Other USA Discounters' customers either had their waiver rejected as incomplete by the company or could not provide one because of personal circumstances.
In Virginia, court judgments on debts can remain in force for decades. Court records show USA Discounters pursues debts for years, regardless of whether a service member has retired, or where he or she might live.
While in the Army, Sgt. LaShonda Bickford and her then-husband racked up an enormous debt with the company. After they fell behind, USA Discounters won a judgment in Virginia for $15,747. The 2011 judgment has continued to grow at the contract's interest rate of 18 percent, as Virginia law allows, and by late 2013, the debt stood at $21,291.
Every two weeks, USA Discounters gets about a quarter of her paycheck from a medical transport company, which pays Bickford about $27,000 a year. What's left barely supports Bickford, now divorced, and her 6-year-old son.
"It's a stretch to do everything I need to do every month," she said. Assuming the garnishment continues, Bickford has at least three more years of stretching ahead of her. "It's hard, it really is."
SUMMARY: A new drug has a 90 to 100 percent chance of curing the Hepatitis-C virus, but costs tens of thousands of dollars for a course of treatment. The announcement by the manufacturer that it earned more than $2 billion in the year’s first quarter raises the question, who should pay when drugs are highly effective, but extremely expensive? Hari Sreenivasan reports on the profits, coverage and costs.
JUDY WOODRUFF (NewsHour): ....Who should pay when drugs are very effective, but extremely expensive?
That’s an important question for the U.S. health care system as new treatments come along, and it’s a matter of real concern over a new drug that has a 90 percent to 100 percent chance of curing the Hepatitis-C virus. Its manufacturer announced record sales yesterday of more than $2 billion in just the first quarter of the year.
Profits, coverage and costs are all at issue, as Hari Sreenivasan reports.
HARI SREENIVASAN (NewsHour): Kim Bossley knows how fragile life can be. In 2005, Bossley was diagnosed with Hepatitis-C, a blood-borne virus that can destroy the body’s liver.
KIM BOSSLEY: I went from stage one to stage four, decomposed liver, very quickly.
HARI SREENIVASAN: News of her rapidly declining health was devastating for the 46-year-old mother of two.
KIM BOSSLEY: You fall into a depression when you’re diagnosed with Hep-C. Your own mortality rate hits you.
DR. GREGORY T. EVERSON, University of Colorado Hospital: That’s a pretty good response.
HARI SREENIVASAN: This fall, after nine years of battling the virus, Kim Bossley was accepted into a treatment trial with a new drug called Sovaldi.
DR. GREGORY T. EVERSON: So, Kim, we will check your labs here.
HARI SREENIVASAN: Almost immediately after taking Sovaldi, the Hepatitis-C virus disappeared.
JPMorgan Chase, the nation’s biggest bank, ignored internal controls and manipulated documents as it racked up trading losses last year, while its influential chief executive, Jamie Dimon, briefly withheld some information from regulators, a new Senate report says.
The findings by the Congressional investigators shed new light on the multibillion-dollar trading blunder, which has claimed the jobs of several top executives and prompted an inquiry by the Federal Bureau of Investigation. The 300-page report, released a day before a Senate subcommittee plans to question bank executives and regulators at a hearing, will escalate the debate over how to police complex risk-taking on Wall Street. It may also foreshadow a criminal case against employees at the heart of the troubled wager.
A spokeswoman for the bank said on Thursday, “While we have repeatedly acknowledged significant mistakes, our senior management acted in good faith and never had any intent to mislead anyone.”
Mr. Dimon, whose reputation as an astute manager of risk has been undercut by the trading losses, comes under the harshest criticism yet from the Senate investigators. The chief executive signed off on changes to an internal alarm system that underestimated losses, seemingly contradicting his earlier statements to lawmakers, according to the report.
He is also accused of withholding from regulators details about the investment bank’s daily losses — and then raising “his voice in anger” at a deputy who later turned over the information.
While people close to the matter dispute whether the outburst actually happened, it illustrates a broader problem at JPMorgan: after emerging from the financial crisis in far better shape than rivals, the bank saw itself as being above its regulators. The bank was so filled with hubris, Senate investigators said, that an executive once screamed at examiners and called them “stupid.”
The bipartisan report, citing some of the same private documents that F.B.I. agents are now poring over, also highlighted how JPMorgan managers “pressured” traders to lowball losses by $660 million, a previously undisclosed figure, and then played down the problems to authorities.
The bank’s trader who became known as the London Whale — because of the outsize derivatives trades at the center of the bank’s losses, which now total more than $6 billion — told a colleague last year that the bank’s estimated losses were “getting idiotic,” according to a transcript of their phone conversation cited by the subcommittee. The trader, Bruno Iksil, added that “I can’t keep this going” and that he didn’t know where his boss in London “wants to stop.”
SUMMARY: Ina Drew, the former J.P. Morgan Chase executive who resigned after that bank made a billion dollar trading error, faced a Senate hearing Friday, where she testified she had been a diligent manager but had been lied to by subordinates. Ray Suarez talks with Bloomberg News' Dawn Kopecki who attended the hearing.
SUMMARY: Cell phone bills are up 30 percent since 2009. So are cable television bills. Big companies are inserting tiny fees that add up to a lot and their profits do not reflect market competition. In fact, quite the opposite. Economics correspondent Paul Solman talks to David Cay Johnston about what's in the fine print on your bills.
JEFFREY BROWN (Newshour): Now:What's behind all those charges and fees that make up your monthly cable and cell phone bills?
NewsHour economics correspondent Paul Solman recently took a look at the fine print with writer David Cay Johnston.
It's part of Paul's ongoing reporting Making Sense of financial news.
As many have noted, this summer has seen one bank after another slapped with fines or rocked by reports of wrongdoing. You’ve probably heard something about Libor, or credit card overcharges, or money-laundering, but it can be hard to keep track. We’ve laid out the details on some of the most notable cases, including fines, resignations, and which investigations aren’t over yet.
Libor Fixing
The Banks
Barclays, JPMorgan Chase, Citigroup, UBS, Deutsche Bank and more
The Details
In late June, Barclays settled with British and American regulators over charges that it manipulated the Libor, a critical international interest rate set in London each day by a panel of banks. Barclays traders tried to rig the rate (and its Eurozone counterpart, the Euribor) in order to benefit particular trades, schemes clear from emails where traders promised one another bottles of champagne for their help. Also, during the financial crisis, Barclays submitted artificially low rates to make the bank look stable.
This kind of behavior wasn't limited to Barclays, and the investigation is still growing. Regulators first started getting worried about Libor in 2008. And in the wake of Barclays’ settlement, officials at the Bank of England and the New York Fed have come under fire for not pressuring the British Bankers’ Association, the industry trade group that oversees the Libor, to do more to reform the way the rate was set then.
Who’s been hurt
Ordinary consumers and investors.
Libor is used as a benchmark for trillions of dollars in financial contracts, from derivatives on down to student loans and credit cards. If the rate was messed with, consumers could have paid artificially high rates, or investors could have lost out if rates were too low. And submitting artificially low rates during the financial crisis could have misled the public and regulators about the health of the banking system.
Who’s taken a fall
Barclays' CEO, chairman, and chief operating officer have all stepped down. The Libor itself is also being targeted for reforms by the British government.
Penalties
$453 million in a settlement from Barclays to the U.S. Justice Department and Commodity Futures Trading Commission, and the U.K.’s Financial Services Authority.
What does Barclays say?
In their settlement with the Justice Department the bank admitted that traders tried to rig rates and also acknowledged lowballing rates during the financial crisis. CEO Robert Diamond has said no one "above desk supervisor level" knew about traders' scheming, and that he did not know about rate-suppression by the bank until the settlement was reached this summer.
Who’s still under investigation
More than a dozen banks have disclosed that they are under investigation by U.S. or other regulators. They have all said they are cooperating with requests for information.
- UBS reported in early 2011 that some regulators—including the anti-trust division of the Justice Department—had promised them leniency in exchange for cooperating with the investigation, but the bank could still face charges from other regulators. Some individual traders have also reportedly been offered non-prosecution agreements. The bank has reportedly fired or suspended more than 20 staff in the wake of the scandal. UBS was sanctioned by Japanese regulators in December for traders trying to manipulate the Tibor, Tokyo’s Libor equivalent.
- Citigroup disclosed ongoing investigations in a recent filing. Japanese regulators also sanctioned Citigroup in December as part of their investigation into rate-rigging by Tokyo traders.
- Deutsche Bank: In July, the bank said that an internal investigation had identified a "limited number" of staff who were involved in rate manipulations, and cleared all senior management.
- Royal Bank of Scotland: RBS says they have fired four employees and maintains that the wrongdoing is confined to a "handful" of individuals.
- Credit Suisse, HSBC, JPMorgan Chase, Bank of America, and a few other international banks have also acknowledged they are part of the Libor probe.
Key reads
For a history of the Libor, and how it got so important, see this London Review of Books essay from 2008. Also see the Wall Street Journal’s early reporting about banks lowballing Libor, and the Financial Times’ interactive explainer.
A Blind Eye to Money Laundering
The bank
HSBC
The details
A scathing report released by the U.S. Senate this July alleged that HSBC failed over the last decade to perform basic anti-money-laundering protections and evaded Treasury sanctions against Iran, Myanmar, and others. The report says HSBC allowed billions in cash to flow between Mexico and the U.S. despite warnings drug money was involved, opened Cayman Island accounts for customers with little-to-no background information, and provided cash to banks with terror ties. The report also faulted the government’s Office of the Comptroller of the Currency for taking virtually no action against the bank despite being aware of problems for years.
Who’s been hurt
Well, we know who’s not been hurt: Mexican drug cartels, Saudi Arabian banks, and others who may have moved money with little scrutiny.
Who’s taken a fall
HSBC’s head of compliance resigned July 18.
Penalties
$27.5 million, in a fine to Mexican regulators.
In a recent financial disclosure, HSBC said it had put aside $700 million as a "best estimate" of what it may have to pay U.S. regulators. The Justice Department, OCC, Treasury, and others are investigating.
What does HSBC say?
The bank has apologized and promised reforms are already underway. (It made similar claims back in 2003, when it was cited for similar violations.
Key Reads
Here’s the Senate’s full report. If you don’t have time for all 340 pages, Reuters has long been covering the bank’s lapses. And if you want a quick overview of the report itself, we broke out the most remarkable stats.
The London Whale’s Big Losses
The bank
JPMorgan Chase
The details
This spring JPMorgan Chase reported staggering losses from a risky derivatives trade run by the bank's London office. Since then the estimated losses have almost tripled to $5.8 billion.
Who’s taken a fall?
Bruno Iksil, aka the “London Whale,” who was the trader in charge of the blown-up trade, left the bank in July. Ina Drew, who was in charge of the bank’s investment unit, resigned in May, and in July agreed to return two years of pay to the bank.
What’s the bank say?
CEO Jamie Dimon has apologized for inadequate risk management, and for initially dismissing reports of losses as “a tempest in a teapot,” but maintained that it was shareholder money lost—not customers’ or taxpayers’.
Who’s investigating?
At least eleven state, federal, and British agencies are investigating the losses as of August. In June, the Securities and Exchange Commission, and the CFTC told Congress they are looking into how JPMorgan disclosed risks to shareholders and regulators. The OCC, the Federal Reserve, and the Federal Deposit Insurance Corporation each said that they were examining JPMorgan's risk management oversight.
Why does it matter?
JPMorgan has lobbied heavily against regulations that could put a damper on risky trades like this one. For example, the Volcker Rule is meant to ban proprietary trading—when a bank trades for profit, using its own, rather than customers’ funds. The rule hasn’t yet been fully implemented. The head of the OCC said in June that the agency hasn't determined whether the rule would have covered JPMorgan’s trade.
Key reads
For a blow-by-blow, start with the Wall Street Journal’s coverage of the London Whale. See also New York Magazine’s recent interview with Dimon,who says the bank has “crossed the t’s and dotted the i’s and put in new rules, and we’re fine.”
Steering Minorities into Subprime Loans
The bank
Wells Fargo
The details
On July 12, Wells Fargo settled with the Justice Department over claims that the bank steered African-American and Hispanic customers into high-interest subprime loans and charged them more than it did white borrowers with similar qualifications. The Justice department described a pattern of systemic discrimination between 2004 and 2009.
Who’s been hurt
Roughly 34,000 black and Hispanic borrowers in 36 states.
The settlement
$175 million. $125 million will go to harmed borrowers, and $50 million will go to help with down payments in areas of the country hit hard in the crisis and where the Justice Department found widespread evidence of discrimination.
Did Wells admit wrongdoing?
Nope. The bank still denies the DOJ’s claims, saying it settled to avoid a long legal battle.
Key Reads
The Washington Post recently detailed the lasting impact on black and Hispanic communities of credit scars from subprime fiascos. We’ve also reported on complaints that Wells Fargo has fallen short in its upkeep of foreclosed homes in black and Hispanic neighborhoods.
Misleading Customers on Credit Card Services
The bank
Capital One
The Details
On July 18th, Capital One settled with the Consumer Financial Protection Bureau and the OCC for pressuring customers to buy unnecessary and costly account features and misleading them about benefits, requirement, and eligibility.
Who’s been hurt?
The settlement estimates some two million Capital One credit card holders were affected.
The settlement
$210 million. $150 million will be returned to harmed customers, for a payment of about $70 each.
Did the bank admit wrongdoing?
Kinda, sorta. In a statement, the bank blamed third-party vendors for the swindling, but apologized and said it was accountable for its contractors’ actions.
Wrongful Foreclosure on Members of the Military
The bank
Capital One
The details
On July 26th, Capital One settled with the Justice Department over allegations that the bank violated the Servicemembers Civil Relief Act, which gives active-duty military a temporary break from some debts, and puts a cap on interest rates they can be charged. Capital One violated those provisions, resulting in wrongful foreclosures and overcharges.
Who’s been hurt
Roughly 4,000 members of the military with Capital One credit cards, loans, or other products between June 2005 and November 2011.
The settlement
$12 million, to be paid to harmed servicemembers.
What’s the bank say?
Capital One says it cooperated with the Justice Department’s investigation, and has already taken some extra steps to offer bonus benefits to the military.
Key read
Similar violations may be flying under the radar. A Government Accountability Office report released in July faulted regulators for not watching banks more closely. The report found that the government reviewed less than half of U.S. banks for compliance, and relied on banks to identify which loans actually involved members of the military.
Doing Business with Iran
The banks
Standard Chartered, ING Bank
The details
In June, ING Bank settled with the Treasury for violating sanctions against Cuba, Iran, and other countries. In more than 20,000 transactions—totaling $1.6 billion—ING removed or disguised references to embargoed countries in order to skirt sanctions.
In what seems to be a much larger scale case, New York state filed an order on August 6th, alleging that Standard Chartered had also flouted Treasury sanctions by allowing as much as $250 billion worth of transactions from Iranian clients to pass through its New York office, and like ING, taking deliberate steps to obscure the country of origin. Most of the action happened in “U-Turn transactions,” which involved Iran and passed through the U.S. but started and ended in non-U.S. banks. They were legal until 2008. New York alleges the bank didn’t keep accurate records and sought to mislead regulators about even legal trades.
Settlements
$619 million from ING to the Justice Department and the Manhattan District Attorney (who were investigating alongside the Treasury).
$340 million from Standard Charted to New York, in a settlement announced August 14th. Standard Chartered will keep its license to operate in New York, which the state's financial regulator had threatened to revoke.
What does Standard Chartered say?
When New York first filed its order, the bank responded that only $14 million of the $250 billion in transactions actually violated sanctions. Standard Chartered’s announcement on the settlement last week doesn’t mention that figure (the bank did not respond to our requests for comment). The precise wording of the settlement is still being worked out, but New York says that Standard Chartered agreed that the “conduct at issue” involved $250 billion. (The New York Times explained the gray area behind the huge disparity in these numbers).
More to come?
Standard Chartered could still see fines from other regulators, though the Treasury, Fed, and Justice Department were reportedly taken by surprise by New York’s order, as they hadn’t yet determined the scope of wrongdoing. Standard Chartered had previously disclosed that they were cooperating with inquiries from those and other agencies
They’re not the only bank in hot water here. Remember HSBC’s money-laundering lapses? The Senate’s report also alleged a pattern of evading sanctions, and the bank says it is still under investigation by the Treasury.
Interest rates on mortgages and refinancing are at record lows, giving borrowers plenty to celebrate. But the bigger winners are the banks making the loans.
Banks are making unusually large gains on mortgages because they are taking profits far higher than the historical norm, analysts say. That 3.55 percent rate for a 30-year mortgage could be closer to 3.05 percent if banks were satisfied with the profit margins of just a few years ago. The lower rate would save a borrower about $30,000 in interest payments over the life of a $300,000 mortgage.
“The banks may say, ‘We are offering you record low interest rates, so you should be as happy as a clam,’ ” said Guy D. Cecala, publisher of Inside Mortgage Finance, a home loan publication. “But borrowers could be getting them cheaper.”
Mortgage bankers acknowledge that they are realizing big gains right now from home loans. But they say they cannot afford to cut rates even more because of the higher expenses resulting from stiffer regulations.
“There is a much higher cost to originating mortgages relative to a few years ago,” said Jay Brinkmann, chief economist at the Mortgage Bankers Association, a group that represents the interests of mortgage lenders.
The jump in revenue for the banks is not coming from charging consumers higher fees. Instead, it comes from the their role as middlemen. Banks make their money from taking the mortgages and bundling them into bonds that they then sell to investors, like pensions and mutual funds. The higher the mortgage rate paid by homeowners and the lower the interest paid on the bonds, the bigger the profit for the bank.
Mortgage lenders may also be benefiting from less competition. The upheaval of the financial crisis of 2008 has led to the concentration of mortgage lending in the hands of a few big banks, primarily Wells Fargo, JPMorgan Chase, Bank of America and U.S. Bancorp.
“Fewer players in the mortgage origination business means higher profit margins for the remaining ones,” said Stijn Van Nieuwerburgh, director of the Center for Real Estate Finance Research at New York University.
Mary Eshet, a spokeswoman for Wells Fargo, said the mortgage business remains competitive. “The only way we can effectively grow our business and deliver great service to customers is by offering market competitive rates,” she said.
The other three banks declined to comment. But the banks are benefiting from the higher mortgage gains. Wells Fargo reported $4.8 billion in revenue from its mortgage origination business in the first six months of the year, an increase of 155 percent from $1.9 billion in the first six months of 2011. JPMorgan Chase and U.S. Bancorp, the other big lenders, are also reporting very high levels of mortgage origination revenue. Wells Fargo made 31 percent of all mortgages in the 12 months through June, according to data from Inside Mortgage Finance.
“One of the reasons that the banks charge more is that they can,” said Thomas Lawler, a former chief economist of Fannie Mae and founder of Lawler Economic and Housing Consulting, a housing analysis firm.
The banks are well positioned to profit because of their role in the mortgage market. After they bundle the mortgages into bonds, the banks transfer nearly all of the loans to government-controlled entities like Fannie Mae or Freddie Mac. The entities, in turn, guarantee the bond investors a steady stream of payments.
The banks that originated the loans take the guaranteed bonds, called mortgage-backed securities, and sell them to investors. The banks nearly always book a profit when the bonds are sold.
The mortgage industry has a yardstick for measuring the size of those profits. It compares the mortgage rates paid by borrowers and the interest rate on the mortgage bond — a difference known in the industry as the spread.
For example, a bank may lend money to homeowners at a 3.6 percent interest rate. After bundling those mortgages, the bank may then sell them in bonds that have an interest rate of 2.8 percent. The lower interest rate on the bond shows that the banks are effectively able to sell the mortgages to investors for a gain.
The banks pocket that markup when they sell the bonds. The bigger the spread between the mortgage rate and the bond rate, the bigger the markup for the banks.
JUDY WOODRUFF (Newshour): The investment bank Goldman Sachs is back at the center of public attention again over questions about its culture and business practices and whether it and other firms are too focused on their own profits.
As the New York Stock Exchange opened this morning, the financial world was still buzzing about an op-ed article in yesterday's New York Times. Greg Smith, a vice president at Goldman Sachs in Europe, resigned with a series of broadsides aimed at the bank.
He wrote that the firm cares about money, not about its customers -- quote -- "I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients," he said. "It's purely about how we can make the most possible money off of them."
Smith did not accuse Goldman of anything illegal, but he said CEO Lloyd Blankfein and president Gary Cohn had -- quote -- "lost hold of the firm's culture on their watch." And he warned that the decline in the firm's moral fiber is the single biggest threat to its survival.
In response, Blankfein and Cohn issued a public letter to employees, saying, "We are far from perfect, but where the firm has seen a problem, we have responded to it seriously and substantively. And we have demonstrated that fact."
But former Federal Reserve Chairman Paul Volcker said yesterday that Goldman's character changed after it went public in 1999.
By now, most Americans have taken the leap and tossed out their old boxy televisions in favor of sleek flat-panel displays.
Now manufacturers want to convince those people that their once-futuristic sets are already obsolete.
After a period of strong growth, sales of televisions are slowing. To counter this, TV makers are trying to persuade consumers to buy new sets by promoting new technologies. At this week’s Consumer Electronics Show, which opens Thursday, every TV maker will be crowing about things like 3-D and Internet connections — features that have not generated much excitement so far.
Unit sales of liquid-crystal and plasma displays were up 2.9 percent in 2010 from the previous year, according to figures from the market researcher DisplaySearch. That is tiny compared with the gains of more than 20 percent in each of the prior three years.
Those heady days of the last decade were the result of an unusual set of circumstances. The rise of flat-panel television technologies like plasma and LCD almost perfectly coincided with a government-mandated switchover to digital broadcasting and the availability of high-definition shows and movies — something these new televisions were all ready to display.
That sparked a mass migration of consumers from using the old cathode-ray tube television sets to the thinner and lighter plasma and liquid-crystal displays.
“Those were the golden years,” Paul Gagnon, director of North American TV research at DisplaySearch, said. “During that period, the whole pie grew. Technology inflated the size of the category.”
But now, most people who want a flat-screen TV already own one. Industry watchers and manufacturers estimate that nearly two-thirds of households in the United States have a flat-screen set.
Something has gone wrong in this country and it is difficult to figure out how and when we got so far off track. We have always been the model to the world with our egalitarian ethic and our can-do attitude. Together, we won World War II, we rebuilt Western Europe, and we built the finest public education system in the world.
We believed in a middle class society, which honored work more than wealth and where every kid had a chance to run for president or rise from a position in the mailroom to head the corporation. We enjoyed paying taxes as our ante to the democracy game. Our tax dollars made us participants in the goal of improving the commonwealth.
We didn't have so many material things but we helped our neighbors. Older citizens with children grown and out of the house voted in favor of new schools because we all believed that each generation of Americans should be better than the last.
When it came to war, a young man's choices were to be drafted or enlist. One thing for sure. If our country went to war, we were all part of the war effort. And those who didn't go into the Army sacrificed in other ways. It was a total effort.
Looking for a leader to bring our country home,
reunite the red, white and blue before it turns to stone.
Lookin' for somebody young enough to take it on,
clean up the corruption and make the country strong.
America has a leader but he's not in the house,
he's walkin' here among us and we've got to seek him out.
Neil Young
