The Intermingled Elite and the Economic Crisis
Perhaps nothing illustrates the “intermingled elite” of crony capitalism and its devastating consequences for the American economy better than the creation of the Citigroup financial conglomerate in 1998 and its decadelong dance into financial apocalypse.31 Citigroup is the largest and perhaps the most dysfunctional of the “too big to fail” financial conglomerates. In 2007, it fired its CEO but paid him $105 million.32 In 2009, the federal government bailed out Citigroup with a $306 billion guarantee of its toxic assets and a $20 billion cash infusion.
Citigroup is a monument to virtually every component of corporate misconduct that wiped out millions of jobs, homes, retirement funds, and other assets of middle-class America in the 2008 financial crisis. These components include incestuous relationships with high government officials, subprime mortgage scams, unregulated derivatives and credit default swaps, misleadingly inflated assets, securities packed with junk loans and stamped with bogus ratings, wildly excessive and irresponsible CEO and executive compensation, billions in government bailouts, unapologetic resistance to regulation or oversight, and millions of dollars in lobbying and campaign spending to continue the flow of government favors. Almost as a bonus, Citigroup has also been a leader in corporate outsourcing of thousands upon thousands of American white-collar jobs to what it calls “lower-cost locations” such as India.33
Back in April 1998, Citigroup, at the time one of the largest bank corporations in the world, announced its merger with Travelers Group, also a large financial and insurance conglomerate. The merger would create the largest financial company in the world. According to reports at the time, “Much of Wall Street liked the deal,” and the share price of both companies soared.34 There was only one problem: the corporate conglomerate they had in mind was illegal.
The law of the United States for at least fifty years had banned this kind of financial conglomerate. The law, known as Glass-Steagall, was passed after the 1929 stock market collapse and the ensuing financial panic that led to the Great Depression. Requiring separation of commercial and investment banks, Glass-Steagall created “firewalls” that had successfully prevented a repeat of the financial panic and Great Depression for half a century.
Illegality, though, was no deterrent. The CEOs and leaders of Citigroup and Travelers privately consulted with President Bill Clinton, Federal Reserve Chairman Alan Greenspan, and Treasury Secretary Robert Rubin (former chair of Goldman Sachs) before going public with the merger, confident that they would change the law.35 Announcing the merger, Sanford Weil, CEO of Travelers, said that the corporations could take time to “divest” the illegal pieces of the business if they must but did not think they would need to do so. “We are hopeful that over that time the legislation will change.”36
They were right; the legislation did change. Congress dutifully repealed Glass-Steagall with the Financial Modernization Act of 1999 soon after the merger. A few days after Secretary Rubin’s Treasury Department and the White House paved the way for Citigroup by supporting the repeal of Glass-Steagall, Rubin announced that he would be leaving government to become a top official and “senior adviser” at Citigroup. In the next decade, Citigroup paid Rubin $126 million.37 Upon leaving the company in the midst of the meltdown and bailout in 2009, Rubin said he regretted that he did not “recognize the serious possibility of the extreme circumstances that the financial system faces today.”38
At least Rubin acknowledged regret. The same cannot be said for former Senator Phil Gramm, who as chair of the Senate Banking Committee drove the repeal of Glass-Steagall and was a longtime antiregulatory zealot. In Congress from 1983 to 2002, Gramm, like the corporate pharmaceutical lobbyist Billy Tauzin, was flexible enough to be both a Democrat and a Republican, depending on the winds. Gramm led the way to repeal Glass-Steagall’s stabilizing regulation for Wall Street and the financial industry. A year later, he led the way to enact a law to exempt derivatives from government oversight.39 Consensus opinion, apart from Phil Gramm, links the financial meltdown in 2008 directly to this rash abandonment of responsible government. Congress essentially surrendered the country’s fortunes to the “years-long, massive lobbying effort by the banking and financial services industries to reduce regulation in their sector.”40
Economists say this deregulation of the financial services industry and the related failure of oversight created a “less competitive and more concentrated banking system” that directly contributed to the financial crisis of 2008.41 Conservatives and libertarians like Robert Ekelund and Mark Thornton at the Ludwig von Mises Institute say, “This ‘deregulation’ amounts to corporate welfare for financial institutions and a moral hazard that will make taxpayers pay dearly.”42 Investigative journalists at Mother Jones say:
Because of the swap-related provisions of Gramm’s bill… a $62 trillion market (nearly four times the size of the entire U.S. stock market) remained utterly unregulated, meaning no one made sure the banks and hedge funds had the assets to cover the losses they guaranteed. In essence, Wall Street’s biggest players (which, thanks to Gramm’s earlier banking deregulation efforts, now incorporated everything from your checking account to your pension fund) ran a secret casino.43
Where is Phil Gramm now? In 2002, while still serving in the Senate, he announced that at the end of his term he intended to join the UBS corporation, an international investment bank headquartered in Switzerland, as vice chairman. Since then, UBS has added a new twist to Citigroup’s long list of misdeeds, the folly, greed, and misconduct that led to the financial crisis: in 2009, as a result of a federal criminal investigation, UBS admitted that between 2000 and 2007, UBS participated in a criminal scheme to defraud the United States by helping rich people hide assets so as to illegally evade taxes.44
Gramm, still with UBS, now lives in Texas with his wife, Wendy, who chaired the Commodity Futures Trading Commission (CFTC) from 1988 until 1993 and who herself is an intermingled corporate-government player. Back in 1993, just before leaving the CFTC office, she granted a “midnight order” that barred CFTC oversight of the trading in derivatives (called “weapons of mass destruction” by Warren Buffett). Mrs. Gramm then joined the board of directors of Enron, a major beneficiary of unregulated derivatives trading and a major financial supporter of Phil Gramm’s political campaigns. She remained on Enron’s board and its audit committee until the company’s collapse due to systemic, repeated, and egregious accounting fraud in late 2001. Her Enron salary and stock income amounted to between $915,000 and $1.8 million.45
Phil Gramm is unrepentant. He says that he has seen “no evidence” that the financial crisis was caused by deregulation. In the summer of 2008, as the financial crisis began to unravel the nation and the world, he explained that the economy was not the problem. Rather, the American people were the problem. “This is a mental recession,” he said. “We have sort of become a nation of whiners.”46
Chapter Six
Corporations Can’t Love
Only a virtuous people are capable of freedom.
—Benjamin Franklin
No free government can stand without virtue in the people, and a lofty spirit of patriotism.
—Andrew Jackson
Virtue may be defined as the love of the laws and of our country. As such love requires a constant preference of public to private interest, it is the source of all private virtue…. A government is like everything else: to preserve it we must love it…. Everything, therefore, depends on establishing this love in a republic.
—Thomas Jefferson
In America, we are equal and free not because we have the same material goods, power, and interests as each other but because we are people. We believe that freedom and rights are our birthright. Now Citizens United has reopened ancient questions: How can a republican government of free and equal people survive in the real world of massive inequalities of wealth and power? How can all Americans participate in government on equal terms? How do we prevent
the corruption of government and the destruction of liberty by what James Madison called “faction”?
Madison defined faction as “a number of citizens, whether amounting to a majority or minority of the whole, who are united and actuated by some common … interest, adverse to the rights of other citizens, or to the permanent and aggregate interests of the community.” Madison and the other Founders well understood that faction was part of life. Because we are people, we might grasp for power and seek advantage for ourselves, for our families, and for our friends. The Constitution incorporates the truths of human liberty and equality and of human faults.
The Constitution seeks to increase the odds for the success of liberty and self-government by diluting faction, balancing powers, and declaring rights. Even with better odds, government of the people requires a trait that only people can seek: virtue. “To suppose that any form of government will secure liberty or happiness without any virtue in the people, is a chimerical idea.”1
Americans have kept this improbable run of human possibility going one generation after another, overcoming grievous injustice and brutal challenge, because of love: love of country and family, of justice and freedom. As Americans and human beings, we cannot help but believe and sacrifice for this miracle that has nothing to do with the corporate marketplace. In Citizens United, the Court forgot this human underpinning of our Constitution and, in thrall to its imprecise corporate metaphors, forgot the essential relationship of speech and other human rights to a virtuous republic of people. Corporate money is not speech, and corporations do not have the capacity for virtue—nor are they designed for it.
This point lay at the heart of Justice Rehnquist’s repeated objections to Justice Powell’s creation of corporate rights in the 1970s and 1980s. Whether or not the states or Congress regulate corporate political spending, Rehnquist wrote, “all natural persons, who owe their existence to a higher sovereign than the Commonwealth, remain as free as before to engage in political activity.” He added, “In a democracy, the economic is subordinate to the political, a lesson that our ancestors learned long ago, and that our descendants will undoubtedly have to relearn many years hence.”2
Virtue, Patriotism, and the Corporation
We are relearning at last. Distorting our Constitution and its Bill of Rights to create corporate, rather than human, rights destroys virtue and strengthens faction. Rather than balance or dilute Madison’s faction, the corporate rights doctrine promotes and strengthens the most formidable faction the world has ever known. Then it disables the constitutional mechanisms of controlling such faction by invalidating inconvenient laws and inserting corporate money between lawmakers and the people. That is why, in America, there can be no such thing as “corporate speakers,” “corporate voices,” or “corporate citizens.”
Corporations do not have voices or rights; they have no virtue or shame; and they do not love America. I am not saying, and do not believe, that people who work at corporations do not love our country and would not sacrifice for the nation. But corporations are not people. People in the corporation come and go, but the corporation goes on and on (so long as it is making money). Corporations do not love (or hate) anything, including countries or humanity. It is not that corporations are disloyal to our country (and again, here I am speaking primarily of global, Fortune 500, extremely large corporations). Rather, it is more that they are “aloyal.” Loyalty is not a trait that has any meaning or applicability to corporate charters or corporate entities or transnational corporate conglomerates, no matter how many flags General Motors or Anheuser Busch may use in advertisements. Indeed, despite its flag waving, Anheuser Busch and its “Great American Lager,” Budweiser, are part of the Belgium-based global corporation called Anheuser Busch InBev.
After Citizens United ruled that Americans are not permitted to limit corporate spending in elections, some of the grave concern focused on “foreign corporations.” But what does “foreign corporation” even mean today? The global corporations that dominate the Chamber of Commerce agenda and spend billions on lobbying are not American or any other nationality. They have trillions in revenues and profits from around the world. They operate everywhere but are citizens of nowhere. Their largest shareholders are institutions, extremely wealthy people, or even other countries, anywhere in the world. They may have a cluster of corporate charters out of Delaware (and in various countries), but to global corporations, including what we might think of as “American corporations,” the United States is just another market to control and manipulate and, if possible, in which to eliminate government oversight.
By way of example, News Corporation, the parent corporation of Fox News, funneled millions of dollars into the November 2010 election. Prince Waleed bin Talal’s Kingdom Holding Company of Saudi Arabia is the second-largest shareholder, with $2 billion in shares. UBS, the bailout recipient and employer of former Senator Phil Gramm, is headquartered in Switzerland, operates in fifty countries, and has as its largest shareholder the government of Singapore. Exxon, one of the biggest spenders on Washington lobbying, handing out more than $150 million from 1998 to 2010, operates in two hundred countries. Exxon derives most of its revenues outside of the United States, and fewer than 25 percent of its employees work in this country. BP, formerly known as British Petroleum, is based in London, operates in eighty countries, and has twice as many employees outside the United States as in the country. GE (which spent more than $230 million in Washington lobbying from 1998 to 2010) operates in one hundred countries and has more employees and more production plants outside the United States than here. Apple, which has experienced explosive growth and enriched its shareholders, assembles virtually every one of its products in China and other parts of Asia.
It would have been bizarre and dangerous indeed if the Supreme Court of earlier times had ruled that Rockefeller’s Standard Oil Corporation or the Union Pacific Railroad Corporation had “free speech” rights to spend corporate money in elections, no matter what the people or Congress thought about that. Now, in the modern age of giant corporations with byzantine international structures and international institutional shareholders, the ruling in Citizens United borders on assisted national suicide.
We Americans may disagree vehemently on many things. We may lose our tempers and perspectives in political fights and say terrible things about each other, but at bottom, I think, most Americans know that we all love our country and we all want America to succeed. We share values. We are family members, sometimes literally, sometimes figuratively. Our children will live together. And we take the future, nature, patriotism, and other nonmonetary considerations into account when we vote, support parties or candidates, and do what people in a republic must do. We know we will not be here to see the America our grandchildren will grow old in, but we all hope to make decisions and live in ways that will leave a free, strong country and world behind for them.
Corporations do not, and cannot, do that. The owners and executives and other people in the corporation do that, as people, on their own behalf outside of work. Almost certainly, however, any decision to spend corporate money to influence an election or to make up a constitutional corporate right to eliminate a law regulating the corporation will not reflect these diverse human considerations but will reflect only a calculation of possible corporate profit.
The virtue that so concerned the founders of our nation is a human aspiration, if not always a human trait. We all know that no one is perfect, but it is impossible to observe a jury deliberate a case, or talk to people in polling places at election time, or watch cops, nurses, firefighters, teachers, and soldiers do their jobs, or go to a school parent meeting, blood drive, food kitchen, or any local volunteer group, and not see how strong virtue remains in America. That is civic virtue, and it happens because of human, not corporate, love.
Crime and Punishment: Conceiving of Corporations as “Speakers” or a Mere “Group” Is Foolhardy
No matter how forgiving we may be, it is ve
ry hard to think of those who commit crimes against people and against the community as virtuous. People may be rehabilitated, and eventually, in some states, former felons may participate fully in civic life again. We usually expect, however, some combination of jail time, shame, and repentance before someone can earn back the right to be a full participating member of the community after committing crimes against it.
Not so with corporations. Shame, repentance, community condemnation, and redemption are for people. Bank of America, General Motors, Credit Suisse, General Electric, Deutsche Bank, BP, Exxon, Boeing, WellCare Health Plans, Alcoa, Volvo, Pfizer, and many, many more large corporations are criminals.3 I don’t say that as a provocative insult. I say that as a fact for consideration in evaluating whether it makes any sense to conceive of corporations as bearers of the people’s constitutional rights. Those corporations have all admitted crimes or, in the case of General Motors, have been convicted of crimes after trial. If these corporations were people, they might not be allowed to vote, coach Little League, or head a scouting troop. They would not be trusted. Yet after Citizens United, nothing restricts their dominating political influence in our national life.
These convicted corporations are not people, so they did not go to jail, feel shame, or let down their parents, children, or neighbors. They paid some money and went back to making more money. They went back to paying hundreds of millions of dollars to lobbyists to block laws, preserve tax breaks and subsidies, and otherwise ensure favorable government policy. In some instances, they went back to committing more crimes.
In most cases, the corporation itself suffers no lasting damage after pleading guilty to crimes and, indeed, may even profit from breaking the rules. In the corporatist era, some even claim that is just fine and is as it should be. As Kent Greenfield describes in The Failure of Corporate Law, some of the leading scholars argue that corporate managers “do not have an ethical duty to obey economic regulatory laws just because they exist. They must determine the importance of these laws…. The idea of optimal sanctions is based on the supposition that managers not only may but also should violate the rules when it is profitable to do so.”4
Corporations Are Not People Page 14