Saturday, September 24, 2016


Earlier this month, I warned about the possibility of non-transparent influence of Russian oligarchs and Russian dictator Vladimir Putin on Donald Trump under Citizens United. I argued that Trump could easily benefit from money flowing from Russia into his pockets and allow Russian militarism to run amok. This post focuses on that concern as well as our failure to secure our elections from computer hacking as I proposed in this law review article. The fear is that Trump will further the geopolitical ambitions of Vladimir Putin to the great detriment of long term US interests. A former CIA Director views Trump in precisely the same light, as do many mainstream conservative Republicans, as manifest here, and in the above image, from here. A Trump victory poses the unprecedented threat that a dictator could seize control of American foreign policy and politically defeat our armed forces that otherwise cannot be defeated.

Recent news spotlights the heightening of that concern.

First, media outlets reported yesterday that the US intelligence community is probing whether Trump foreign policy adviser Carter Page (a former Moscow-based investment banker with investments in Gazprom) already opened discussions about lifting US-led sanctions with high level Russian agents and officials. This sort of tampering with US foreign policy on behalf of a dictator by a presidential campaign stands without precedent in US political history. Worse, the Trump effort appears to seek the patronage of Putin's vast arsenal of dirty political tricks, including his hacking capabilities (discussed further below). Of course, Trump has long called on the US to ally itself with Russian efforts to maintain its client state in Syria.

Second, earlier this week, ABC News reported its investigative findings into Trump's Russian business ties. They uncovered "hundreds of millions of dollars" flowing from Russian business interests into the coffers of Trump, Inc. Trump benefits directly from these Russian business ties through sales concessions paid to him as a result of Russian purchases of Trump-sponsored properties. ABC News also found that many Russian oligarchs frequently furnish investment capital for Trump business. Russian business leaders openly admit to these connections:
"The level of business amounts to hundreds of millions of dollars -- what he received as a result of interaction with Russian businessmen. They were happy to invest with him, and they were happy to work with Donald Trump."
Donald Trump, Jr., also openly admitted to these same links in 2008: "Russians make up a pretty disproportionate cross-section of a lot of our assets. We see a lot of money pouring in from Russia." At this point, it is beyond dispute that Trump has major business ties with Russian business interests. These findings directly support conservative columnist George Will's position that Trump refuses to produce his tax returns because they would reveal unflattering ties with Russia.

Third, high level US Congressional leaders, from both parties, with access to classified material, recently warned that Russia appears poised to hack American democracy itself to get Trump into office. Vice-Chair of the Senate Intelligence Committee, Senator Dianne Feinstein, and the Ranking Member of the House Intelligence Committee, Adam Schiff, released the following joint statement:
"Based on briefings we have received, we have concluded that the Russian intelligence agencies are making a serious and concerted effort to influence the U.S. election. At the least, this effort is intended to sow doubt about the security of our election and may well be intended to influence the outcomes of the election. We can see no other rationale for the behavior of the Russians."
In short, the axis of interests between Trump and Putin now poses an unprecedented external threat to the security of the US and its citizens. Even in the Election of 1940, which I previously identified as the last concerted effort by a dictator, Adolph Hitler, to interfere with American politics, Hitler had neither the capabilities nor brazenness to pull off what Putin and Trump appear to be doing: the subversion of US democracy and defense capabilities in the service of a dictator.

Friday, September 23, 2016

Corporate Justice

Hot off the presses, a new coursebook for law school classrooms entitled "Corporate Justice" has just been released by the Carolina Academic Press authored by blog contributors Todd J. Clark and andré douglas pond cummings.  This coursebook offers an alternative approach to traditional Corporate Law courses.

“Corporate justice” refers to a shared responsibility, even a moral obligation, between corporate decision makers, shareholders, external organizational constituencies, and society to ensure that the corporate decision making process is fair, civil, responsible, and just. More than that, corporate justice requires that corporations do no harm in their pursuit of profits and that shareholders as well as society in general have an affirmative responsibility to facilitate this pursuit. Corporate justice expects that founders, stakeholders, and executives in a business will honor human potential and eschew profits when such derive from unfairness, inequality, danger, and damage. This book explores each of these themes in depth, providing an insight practically non-existent in corporate law textbooks and treatises available today.

The book is available at the Carolina Academic Press site.

Saturday, September 3, 2016

Trump, Putin, Hitler & Citizens United

The election of 1940 functioned as a referendum on US participation in WWII and the willingness of the US to defend western democracy as well as capitalism itself. FDR staked out a powerful anti-Hitler position. The rather farsighted measures he implemented to assure US survival prior to that fateful election include: 1) the Two Ocean Navy Act, the largest naval procurement act in US history which assured US naval dominance throughout the war and was signed into law on July 19, 1940; 2) the first peacetime conscription act which FDR signed into law on September 16, 1940;  and 3) agreeing in September of 1940 to trade 50 old navy destroyers to Great Britain (already at war and suffering daily bombing from the Luftwaffe)  in exchange for bases around the world. Hitler had no doubt that FDR was a foe to be reckoned with.

Image result for 1940 election amid a stormConsequently, Hitler possessed a strong incentive to try to influence the election of 1940 and history proves he did exactly that. William Shirer reported from Berlin at the time that the Nazis "ardently wished" that the GOP would triumph in the election of 1940 giving them time to overrun Europe before America could reverse the tide as they did in 1918. Due in part to recent books on the topic, we now know that Nazi operatives in the US solicited Hitler's government to fund ads in the New York Times to persuade American voters to stay out of the European conflict that was at full boil after the invasion of Poland in September 1939. Such ads ultimately appeared in the Times during the GOP convention in June of 1940. Further, Nazi Germany funneled $160,000 ($2.7 million in 2016 dollars) to defeat pro-Roosevelt democrats and to stop Roosevelt himself at the Democratic convention through William Rhodes Davis. Fortunately, Hitler's effort to defeat Roosevelt in the election of 1940 failed and the US once again destroyed the irrational autocrats of Europe.

This Nazi effort in 1940 counsels us today to exercise vigilance over the possible foreign influence over our elections and democracy. Unfortunately, the Supreme Court essentially gave all money--domestic or foreign--the green light to subvert American democracy in the Citizens United decision which today figures as a major Achilles heel in our national defense. Justice Kennedy basically invited any foreign autocrat to spend unlimited funds (through domestically domiciled corporations) to defeat our nation, which even Vladimir Putin admits cannot be defeated on the battlefield.

As a direct result of Justice Kennedy's decision to throw his weight behind big money we now need to fear foreign threats as never before. Autocrats like Putin no doubt understand that Justice Kennedy's ruling allows foreign dictators to use Citizens United to turn the Constitution into a suicide pact. They simply funnel their cash through a US corporation that does not coordinate with a candidate's campaign and they can spend unlimited funds to install a friendly government in Washington DC. Justice Stevens predicted all of this in his dissent in Citizens United highlighting that the majority's opinion in Citizens United opened the door to foreign controlled corporations.

This issue of opening the door for foreign enemies to influence US elections has not gone away since Citizens United. Federal Election Commissioner Ann Ravel tried earlier this month to cut back foreign election influence. She states that foreign influence over our elections poses a threat that was unthinkable a decade ago. 

Which brings us to the strange and unprecedented relationship between Presidential nominee Donald Trump and Vladimir Putin. According to the Washington Post (banned from press credentials by the Trump Campaign):
"The overwhelming consensus among American political and national security leaders has held that Putin is a pariah who disregards human rights and has violated international norms in seeking to regain influence and territory in the former Soviet bloc. In 2012, one year before Trump brought his beauty pageant to Moscow, then-Republican presidential nominee Mitt Romney called Russia the United States’ top geopolitical threat — an assessment that has only gained currency since then."

Trump has deep ties with Russia. His son Eric Trump admitted that Russian money has flooded into Trump investments: "Russians make up a pretty disproportionate cross-section of a lot of our assets. We see a lot of money pouring in from Russia." On the issue of Russia's military aggressions into the Crimea and the Ukraine, Trump simply parrots the Kremlin's party line. Trump has been castigated by GOP leaders as well as others for weakening NATO in accordance with the very high priority that Russia has to divide the western allies. Conservative columnist George Will suspects that if Trump released his tax returns (like all other Presidential candidates) they would show even more financial connections to Putin. A former CIA Director suspects that Trump is already acting as an unwitting Russian agent.

Despite Putin's nasty conduct Trump has curried his favor just as he has with other dictators. Indeed, North Korea has officially endorsed Trump for president. Trump reportedly has directly solicited foreign campaign contributions.

Trump's candidacy thus poses a serious national security threat to the US without precedent. Hopefully, American citizens will disregard all super-PAC spending in favor of Trump for the simple reason that it could all be funded through foreign dictators that wish us ill, and seek to destroy America's traditional role as opponent of autocrats and dictators. If money pours into this election in favor of Trump it is likely to be from some foreign dictator.

Thursday, August 18, 2016

Department of Justice Will End its Use of Private Prisons

The United States Department of Justice announced today that it no longer intends to house federal inmates in private, for-profit prisons.  The DOJ cited its own study finding that private prisons "simply do not provide the same level of correctional services, programs, and resources; they do not save substantially on costs; and as noted in a recent report by the Department's Office of Inspector General, they do not maintain the same level of safety and security."  In a memo released by Deputy Attorney General Sally Q. Yates, federal prison officials were directed to no longer renew contracts with private prison corporations, like the Corrections Corporation of America and the GEO Group, or to significantly reduce the scope of the contract with the end-goal of eliminating federal use of private prison facilities.  According to Deputy Yates' release:  "Today, I sent a memo to the Acting Director of the Bureau of Prisons directing that, as each private prison contract reaches the end of its term, the bureau should either decline to renew that contract or substantially reduce its scope in a manner consistent with law and the overall decline of the bureau’s inmate population.  This is the first step in the process of reducing—and ultimately ending—our use of privately operated prisons."

This is clearly not good news for CCA, the GEO Group, and other for-profit private prison operators.  The federal government had steadily supplied prisoners to these profit centers for the past decade as mass incarceration overwhelmed good moral and fiscal judgment in the United States.  In fact, CCA and GEO Group stock plunged nearly 40% upon the news today.  CNN reports: "[A]dvocates for prison reform believe this could be the beginning of the end for private prisons. Wall Street appears to agree. The stocks of two of the largest private prison operators fell dramatically after The Washington Post reported the news. Corrections Corporation of America (CXW) lost 40% of its value Thursday. Geo Group (GEO) also slumped about 40%" 

The Street reports:  "Shares of private prison operators have plunged to new lows for the year on steep declines Thursday following the [DOJ's] decision to effectively end contracts with those companies. . . . Neither company [CCA or GEO] figures to weather this storm very easily, as they don't have any significant brand extensions that insulate them from their primary business of providing correctional facilities for the government. In 2015, for instance, 45% of GEO revenue came from the Federal Government. However, these companies also operate state penitentiaries, which should not be directly affected by the DOJ's action."

The Corporate Justice Blog has long maintained that private, for-profit prison corporations are fundamentally immoral as its leaders are perversely incentivized to injure U.S. citizens by lobbying for harsher sentences (three-strikes laws), developing "new" crimes punishable by prison time (AZ SB 1070, crimmigration), providing poorer services to inmates in order to cut costs, and forcing cities and municipalities into signing contracts that guarantee 90% occupancy rates in the private prisons.  Recent research and scholarship indicate that the promised benefits of private prisons, that they are  cheaper, safer, and more efficient, are simply not true.  This research shows that private prisons keep inmates locked-up longer (for same-time sentences), are less safe, and are more costly, each attributable directly to a profit motivation.

Adam Lamparello and I recently published an update on the perverse incentives that motivate private prison executives summing up the research that finds that private, for-profit prisons do not deliver on their promised efficiencies:  Private Prisons and the New Marketplace for Crime.

Friday, August 12, 2016

Trump's New Smoot-Hawley Depression?

I have written extensive legal critiques on the shortcomings of the western model of globalization that the US largely imposed after WWII. Indeed, my book on the lawlessness of the uber-class in the years before the Great Financial Crisis of 2008, Lawless Capitalism, includes an entire chapter called "Rigged Globalization."

That chapter argues that US financial and corporate elites (including the megabankers Trump wishes to free from law and regulation) rigged globalization to maximize profits from low wages world-wide and the use of unsustainable debt to spur consumption even in the face of declining job prospects throughout the developed world due to massive off-shoring of jobs to low wage locales. Globalization was not constructed or implemented with a view towards sustainable economic growth.

The book includes specific innovations to reconstruct globalization in accordance with economic science to vindicate its pro-growth potential to the maximum extent possible. These innovations include empowering all people to freely move to their highest and best use (which would double global GDP) and investing currency reserves into global infrastructure projects which would immediately spur massive global job creation. Globalization can be fixed and can operate to secure rising living standards worldwide.

 Trashing globalization and pursuing protectionist policies such as higher tariffs is not a good idea. In fact, it was done before and led to global economic disaster. In 1930, the GOP-controlled Congress passed the Smoot-Hawley Tariff Act, and GOP President Herbert Hoover signed the Act into law. There is broad agreement among economists that this Act prolonged and deepened the Great Depression by raising tariffs and triggering a global trade war. According to the Economist, global trade collapsed by over 60 percent in the aftermath of Smoot-Hawley as shown in the accompanying chart.

Yet, Donald Trump, ignoring history, consistently built his campaign on the theme of protectionism. He has pledged to slap a 45 percent tariff on Chinese imports and a 35 percent tariff on Mexican imports. We need not rely only upon history to understand the danger of Trump's economic ideas. Mark Zandi (a former economic adviser to the Senator John McCain presidential campaign in 2008) of Moody's projects that Trump's trade policy would lead to a recession, drive up unemployment to 9.5 percent, lead to up to 7 million lost jobs, and increase the national debt by 60 percent. In short, according to Zandi, it is a scenario "any rational person would want to avoid." Zandi is not the only economist that concludes that Trump's idea's would lead to risks from a severe recession to higher prices for consumers.

Even traditional GOP supporters are aghast at the sheer recklessness of Trump's promises. For example, Peter Singer, a financial expert and longstanding GOP donor states: "If he actually . . . gets elected president its close to a guarantee of a global depression, [a] widespread global depression." Former Bush Administration official, Robert Zoellick, calls Trump's trade ideas "foolhardy." He adds that free trade saves the average household $10,000 per year through lower prices on a range goods produced outside the US. In fact, no less than three former US Trade Representatives joined 50 other former GOP officials to reject Trump's candidacy and terming his proposals "most reckless."

In sum, economic science and theory, history, and expert opinion all align on Trump's trade proposals: they are dangerous, reckless, and ill-informed.

Tuesday, August 9, 2016

Trump Wants to "Dismantle" Dodd-Frank and Re-ignite the Great Financial Crisis of 2008

Understandably, GOP presidential nominee Donald Trump and the rump of the GOP still standing behind his "bigotedcampaign (in the words of former  and current GOP representatives) do not want to talk about the accompanying chart at right. They claim the USA economy is "ruined." The chart at right proves them wrong and proves that President Obama can rightly claim that the US economy is the "envy of the world."

President Obama is not the only one making this claim. The Economist termed the US economy the "lonely locomotive" of growth in a world mired in stagnation. The OECD reckons that since 2008 the US economy is 11 percent larger, while the Eurozone and Japan have grown by a small fraction of this number. The out-performance of the US economy under President Obama is a reality-based fact!

Further, with respect to the crucial question of job growth, President Obama's policies led to more than 14 million new jobs since the depths of the crisis of 2008. Even a cursory look at job growth in the USA since the Bush Administration (see chart below) proves that the GOP led the economy to the greatest job destruction in modern history. According to the Wall Street Journal, George W. Bush had the worst job creation record since WWII. President Obama quickly turned around the massive job losses he inherited, and has now presided over 70 straight months of job growth.

And, the most recent jobs report from the US Department of Labor is perhaps one of the best yet. Wages were up. The employment ratio was up. The US is now creating more jobs than at any other time since the last Clinton years.

Certainly, more job growth would be better, particularly for the middle class. Inequality is also a major barrier to continued economic growth. Economic weakness across the world further hinders US export growth. Global growth in turn would lead to more impressive job growth.These topics warrant separate posts, for another day.

The key point for this post is that after a devastating economic collapse in  2008, after 8 years of GOP control, the US economy has achieved the most impressive economic recovery among developed nations. The entire developed world suffered a massive heart attack in 2008, and faced a total financial collapse; the US recovered the fastest and has enjoyed the most growth since the crisis.

The charts herein and the facts cited above show beyond dispute that the USA outperformed the entire world after the GOP trashed the economy the last time they controlled the government. After 8 years of GOP leadership, the US economy cratered in 2008, losing over 800,000 jobs per month. It now produces hundreds of thousands of jobs per month, month after month.

What particular policies led to this historic turnaround?

The OECD attributes the US recovery to government policies, including Obama's stimulus bill and financial stability, secured by the Dodd-Frank Act. Indeed, the OECD finds that:

Chart of GDP growthEfforts to raise further capital requirements for large financial institutions, reduce fragmentation among regulators, and introduce macro-prudential tools is justified. In this respect, full implementation of Basel III and the Dodd-Frank Act is critical.

I have previously criticized the Dodd-Frank Act for being incomplete, too weak, and too pro-banker. That is why I agree with Hillary Clinton and the experts at the OECD that it should be fully implemented and expanded. After all, the American economy outperformed the entire developed world after the financial crisis while Dodd-Frank became law and regulators implemented its mandates.

Yet, Trump wants to go the opposite direction. Trump quite clearly wants to "rip up" Dodd-Frank and return to the 2008 pre-Dodd-Frank legal and regulatory reality that spawned the Great Financial Crisis. This is the key difference between Trump and Clinton on the issue of bank regulation according to the Wall Street Journal. Indeed, Trump has already met with congressional leaders to plot the repeal of Dodd-Frank, suggesting that unlike most of his other crazy ideas he is quite serious about returning to the dark days of later 2008.

But given the impressive and successful performance of the US economy after the Great Financial Crisis of 2008, it just makes no sense to return to the same legal and regulatory reality that spawned that crisis. Why even roll the dice? If the gamble goes wrong (as so many Trump gambles do) it could mean mass unemployment like that which occurred prior to the inauguration of President Obama.

Monday, May 16, 2016

Federal Reserve is too ‘White and Male’ say Democrats

Federal Reserve Chair Janet Yellen
Democratic lawmakers recently forwarded a letter to Federal Reserve chair Janet Yellen indicating that the level of diversity currently represented at the Fed is unacceptable.  The letter stated:  “When the voices of women, African-Americans, Latinos, Asian Pacific Americans, and representatives of consumers and labor are excluded from key discussions, their interests are too often neglected. . . .  By fostering genuine full employment, the Federal Reserve can help combat discrimination and dramatically reduce the disproportionate unemployment faced by minority populations.”  The letter, signed by 11 U.S. Senators and more than 100 members of Congress, called upon chairperson Yellen to aggressively seek to increase minority and female representation at the Federal Reserve bank.  To wit: "[W]e remain deeply concerned that the Federal Reserve has not yet fulfilled its statutory and moral obligation to ensure that its leadership reflects the composition of our diverse nation in terms of gender, race and ethnicity, economic background, and occupation, and we call on you to take steps to promptly begin to remedy this issue."

The letter noted that the Federal Reserve bank leadership is "overwhelmingly and disproportionately white and male."  The Financial Times noted that "[e]leven of the 12 regional Federal Reserve Bank presidents are white and 10 of the 12 are men. All of the 10 current voting members of the Federal Open Market Committee, which sets monetary policy, are white, while four of them are women. Members of the Fed’s Board of Governors, who rank among the top rate-setters, are selected by the president and confirmed by the Senate, but the Board of Governors has a key role in selecting the Fed’s regional bank presidents."

Of course, this story begs the question, does diversity in the boardroom and diversity at the heights of fiscal policymaking make a difference?  Would the Fed set different policies if board members were women or persons of color?  Certainly 11 Senators and 116 Congresspersons believe so.

hat tip:  T.J. Williams, Indiana Tech Law School

Tuesday, May 3, 2016

Predatory lending in the context of home ownership continues in 2016 under another name

   Almost five years ago I wrote an essay about predatory lending practices that targeted African Americans and other communities of color.  Mortgage originators relaxed their standards to offer subprime mortgages, and in some instances, engaged in fraud so that they could make more loans at high rates of interest and therefore make more money.  Many consumers of color who qualified for prime or low-interest mortgages were offered only subprime, high-interest loans.  People of color who did not qualify for low-interest mortgages were offered subprime loans even though they had no or low incomes and no assets.  Lenders told these consumers that they would be able to pay off their mortgages as housing prices climbed.  But the housing bubble burst and housing prices plummeted.  Predictably, many borrowers could not repay these predatory loans.  The mortgages, however, had been pooled together to create securities that were sold to investors.  Banks and lenders were able to transfer foreseeable risks that borrowers would default on the underlying mortgages to investors who purchased the securities.  These are risks that should have been anticipated by lenders and the experts who advised them.  These risks were understandably unforeseen by borrowers with no economic expertise.

     Billions of dollars in wealth were drained from African American and Latino families when banks foreclosed on the homes of consumers who were victims of this predatory lending.  Communities were infested with unsightly, abandoned homes. Investors who purchased mortgage-backed securities lost billions.  Predatory lending harmed local, national, and global economies and helped to precipitate the economic downturn of 2008.

     In that article I described how banks and other financial institutions targeted people of color, and African Americans in particular, for high-interest predatory mortgages.  For example, a former Wells Fargo credit officer revealed in a sworn statement that the bank targeted African American borrowers for high-interest loans they could not afford because of the pervasive perception at the bank that African American customers were not savvy enough to figure out that the loans offered them were predatory.  Another loan officer admitted that African Americans who qualified for prime loans were targeted for subprime loans.  Yet another Wells Fargo loan officer revealed that African Americans were called “mud people” and the predatory loans offered them were labeled “ghetto loans.”  Loan officers targeted black churches also.  And, when loan officers referred borrowers who qualified for low-interest loans to the subprime division, they earned bonuses and higher fees. 

     In the aftermath of the predatory mortgage lending that targeted African Americans and Latinos, and even after the passage of the Dodd-Frank Act enacted, in part, to address this misconduct, the predatory practices used in the mortgage context werereplicated by the auto industry.  Auto dealers often connect auto buyers to lenders.  The dealers are allowed to engage in discretionary pricing when setting interest rates and there is evidence that dealers charge consumers of color more for their auto loans than they charge similarly situated white consumers.  As was true in the mortgage context, these predatory loans are assigned to other institutions.  When it was created, The Consumer Financial Protection Bureau covered auto lenders but only if they do not assign the loan.  The creation of the CFPB under Dodd-Frank left unprotected those consumers whose auto loans were assigned.

     The stunning audacity of this type of economic discrimination in the auto industry becomes even more outrageous when we consider the Bush administration’s decision to bail out Chrysler and General Motors along with the banks and other financial institutions near the end of the twenty-first century’s first decade.  The justifications for bailing out car companies were identical to the pro-bailout arguments made for the banks.  The argument was that like the banks, Chrysler and GM were too big to fail.  If they failed, massive layoffs at the two companies and the firms that supply them with goods and services would exacerbate the economy’s demise.

     Even more disturbing is the fact that predatory conduct in the context of home ownership continues in 2016 under another name.  On April 18, 2016, the New York Times reported on a relatively new practice that targets low-income homebuyers who are now unable to get mortgages because they lost homes in the recent downturn, and because banks now adhere to lending standards.  The deals allow home sellers to provide consumers with high-interest, long-term loans that are known as contracts for deed.  If the consumer can repay the loan in installments on time, he or she will own the home.  But two things make it unlikely for borrowers to be able to pay on time.  First, the interest rates are exorbitantly high.  Once again we see the terribly familiar practice of imposing interest rates that make repayment difficult if not impossible.  Second, many of the homes are in a state of disrepair and consumers need to spend money to make the home inhabitable.  When a would-be homebuyer defaults on the contract for deed, the lender may convert the contract to a month-to-month tenancy.  Even worse, the laws that protect homeowners who default on mortgages from eviction do not apply in this context.