Monthly Archives: April 2014

Naked Capitalism: Let the Good Times Roll

Bill Black: GAO and Wall Street Journal Whitewash Huge Criminal Bank Frauds

Posted on April 30, 2014 by 

By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Originally published at New Economic Perspectives

Every day brings multiple new scandals. At least they used to be scandals. Now they’re simply news items strained of ethical content by business journalists who see no evil, hear no evil, and speak not about evil. The Wall Street Journal, our principal U.S. financial journal ran two such stories today.

The first story deals with tax evasion, and begins with this cheery (and tellingly inaccurate) headline: “U.S. Banks to Help Authorities With Tax Evasion Probe.” Here’s an alternative headline, drawn from the facts of the article: “Senior Officers of Goldman Sachs and Morgan Stanley Aided and Abetted Tax Fraud by Wealthiest Americans, Failed to Make Required Criminal Referrals, and Demanded Immunity from Prosecution for Themselves and the Banks before Complying with the U.S. Subpoenas: U.S. Department of Justice Caves in to Banker’s Demands Continuing its Practice of Effectively Immunizing Fraud by Most Financial Elites.”

Oh, and the feckless DOJ (again) did not require any officer who committed the felony of aiding and abetting tax fraud to resign or to repay the bonuses he “earned” through his crimes. But not to worry, the banks – not the bankers – may have to pay fines as the cost of doing their felonious business. The feckless regulators did not even require Goldman Sachs and Morgan Stanley to disclose to shareholders their participation in the program.

Best of all, the “cooperation” the banks will offer will be of vastly reduced value because under Swiss law they will not report the names or any identifying information of the wealthy U.S. taxpayers that they helped commit felonies. But not to worry says DOJ:

“Through the program, as well as through ongoing investigations and other law enforcement tools, we are confident that we will obtain information that will lead us to account holders who have thought for too long that they can keep hiding,” said Dena Iverson, a Justice Department spokeswoman.

And did I mention that there was an U.S. amnesty program for wealthy U.S. tax cheats who used Swiss banks to commit their felonies?

Note that this aspect of Switzerland’s deliberate national policy of aiding tax evasion by the world’s wealthiest tax cheats fits into the article I wrote earlier this week about Dr. Hans Geiger’s rage that FATF is seeking to require banks to make criminal referrals against tax cheats. Geiger is a leader in a Swiss movement to block that requirement. He has also written that requirements that the banks file criminal referrals when they discover evidence indicating that they may have aided money laundering, the funding of terrorists, or international sanctions busting should be eliminated.

The Ethics-Free WSJ Story on the Regulator’s Latest Betrayal of Homeowners

The context of this WSJ story is the broader series of betrayals of homeowners by the regulators and prosecutors led initially by Treasury Secretary Timothy Geithner and his infamous “foam the runways” comment in which he admitted and urged that programs “sold” as benefitting distressed homeowners be used instead to aid the banks (more precisely, the bank CEOs) whose frauds caused the crisis. The WSJ article deals with one of the several settlements with the banks that “service” home mortgages and foreclose on them. Private attorneys first obtained the evidence that the servicers were engaged in massive foreclosure fraud involving knowingly filing hundreds of thousands of false affidavits under (non) penalty of perjury. As a senior former AUSA said publicly at the INET conference a few weeks ago about these cases – they were slam dunk prosecutions. But you know what happened; no senior banker or bank was prosecuted. No banker was sued civilly by the government. No banker had to pay back his bonus that he “earned” through fraud.

Naturally, the WSJ provides none of that context, but what the article does discuss remains a travesty. It is entitled “GAO: U.S. Foreclosure Review Could Have Generated Higher Payments: Review Could Have Delivered $1.5 Billion More to Consumers if Not Halted, Federal Watchdog Finds.”

I’ve added emphasis to the dishonest euphemisms the WSJ employs (and quotes) for the “f” word (fraud).

• The Government Accountability Office, in a report being released Tuesday, evaluated federal bank regulators’ decision last year to cancel a prolonged review of foreclosure-processing and loan-assistance mistakes.

• The GAO report shows that the settlement “was reached without adequate investigation into the harms committed by the servicers,” Rep. Maxine Waters (D., Calif.) said in a prepared statement.

• “Many of the files did not contain complete data, making it impossible to know whether borrowers were disqualified from the possibility of the greatest cash payouts” [the WSJ quoting Water’s prepared statement].

• But finishing this process would have been a long and complicated affair. Doing so, the GAO said, would have taken up to two more years for consulting firms to scour thousands of foreclosure files for errors, at a cost to banks of about $4.6 billion.

• The foreclosure review was ordered three years ago by the Office of the Comptroller of the Currency and the Federal Reserve, which told banks to hire independent consultants to evaluate allegations the firms used shoddy practices when handling a huge volume of foreclosures during the housing bust.

Sadly, I tend to read the underlying documents and the truly bad news is that the GAO report uses the “f” word only once and is otherwise a mass of euphemisms. This sentence will give you an accurate flavor of the Report.

In September 2010, allegations surfaced that several servicers’ documents in support of judicial foreclosure may have been inappropriately signed or notarized [GAO 2014: 7, emphasis added].

In addition to the euphemisms and the fact that the sentence reads like it was written by the banks’ criminal defense counsel, it is a sentence crafted to mislead. By that time there were sworn statements by a series of servicer personnel admitting that their offices engaged in systematic foreclosure fraud through filing affidavits that were known to be false. They admitted to tens of thousands of criminal acts by their organizations.

The one time the GAO uses the word fraud is to report that the foreclosure payout program carefully protects itself from fraud by the victims – by providing that the checks expire after 90 days [GAO 2014: 34 n. 51]. In a very dark Irish humor kind of way I find this hysterically funny. By contrast, when the GAO discusses real frauds the passage again reads as if it were drafted by the bank’s criminal defense lawyers.

Failure to review documents filed in support of a judicial foreclosure may violate consumer protection and foreclosure laws, which vary by state and which establish certain procedures that mortgage servicers must follow when conducting foreclosures [GAO 2014: 7 n.13].

Everyone involved in the faux foreclosure review – the “consultants” hired who to do the review, the mortgage servicers, the (non) regulators, and the GAO performed abysmally. The “review” was an expensive farce. The regulators did not conduct the review. The servicers did not conduct the review. The consultants were chosen by the servicers, which the regulators should never have allowed. The consultants were allowed to have additional conflicts of interest such as having worked on the loan foreclosures they were reviewing. The “design” of the (non) study was an embarrassment. The (non) study collapsed almost immediately because it turned out that many of the servicers’ files were so pathetic that the study “design” could not be followed. Rather than stop and reconsider the implications of those file defects for the likelihood that the servicers engaged in fraud in order to foreclose the regulators decided to continue. The more severe the file defects the greater the incentive of servicers to engage in foreclosure fraud.

The consultants were soon hopelessly behind schedule and budget because of the severity of the loan file defects. Eventually, the (non) regulators gave up and brought the (non) study to an end, not with a bang but with a whimper.

Real regulators would have had great negotiating leverage. The servicers had agreed to conduct the study and failed. It would cost the servicers more to complete the review than simply boost the payout by several billion dollars. The two obvious answers were to continue the study and order interim payouts or to stop the study and in return for a significantly larger payout to homeowners.

Naturally, the Office of the Comptroller of the Currency (OCC) and the Federal Reserve found a third, far worse choice. They left the cash on the table that could have gone to the homeowners.

The GAO was no stronger. They do agree that the OCC and the Fed left billions on the table but they also give them a pass, saying that the settlement is in the “range” that would emerge from the regulators assumed rate of bad foreclosures. The problem, as the facts disclosed in the GAO’s report make clear, but GAO’s analysis ignores, is that the regulators’ assumed rate of bad foreclosures had no reliable basis and was proven to be far too low an estimate by the fact that the loan files were so incomplete that the consultants could not complete the study. So, there is no reliable basis for GAO’s claim that there is any “range” of reasonableness for the payments to homeowners.

This passage from the GAO report conveys the GAO and the regulators’ unique approach to (non) quantification.

• Failure to maintain sufficient documentation of ownership. Although the 2010 coordinated reviews found that servicers generally had sufficient documentation authority to foreclose, examiners noted instances where documentation in the foreclosure file may not have been sufficient to prove ownership of the mortgage note. Likewise, during the subsequent consent order file reviews, some consultants found cases of insufficient documentation to demonstrate ownership [GAO 2014: 55]

“Generally,” “instances,” and “some consultants found cases” – billions of dollars were spent to produce nothing but these useless, vague phrases. The “study” “results” were so worthless that the GAO reports that the consultants did not even bother to create reports on their work. Instead, and this is hilarious, the OCC and the Fed held “exit interviews” with the consultants. Only a PR “expert” planning to put lipstick on a wild boar would spend even more money on such a useless exercise. The GAO tells us that many of the regulators’ exam teams given the exit interview materials concluded that they were useless.

Representative Maxine Waters, the ranking Democrat on the House Financial Services Committee, has been trying to get the regulators to do the right thing and has urged the chairman of the committee to investigate the servicers’ and regulators’ actions. Waters has been, rightly, extremely critical of the servicers and the regulators. Here is the link to an interview of her that is well worth reading in its entirety.

Postscript: The WSJ Op Ed’s Ode to Insider Trading

Henry Manne is back. The WSJ published his op ed on same day these other two stories ran. Manne ran the effort for decades to indoctrinate judges and law professors in theoclassical economics. Manne’s metaphor is that insider trading is like prohibition.

Manne’s op ed asserts that insider trading cases target “low level functionaries.” Manne’s so-called “low level functionaries” consist of millionaires and multi-millionaires that include the head of a major hedge funds and a senior official at Goldman Sachs.

We see federal prosecutors making names for themselves by convicting mostly low-level functionaries. We see the so-called corruption of otherwise good folks, including medical researchers and high-tech specialists, with valuable information. Yet with so much wealth at stake, this ‘corruption’ surely goes far beyond what prosecutors have been able to demonstrate.

Manne’s point is that if business officials have an incentive to cheat they will.

There is about as much chance of stopping trading on undisclosed financial information as there ever was of stopping the consumption of booze. There is simply too much money sloshing around the world’s stock exchanges waiting for an “edge.”

To use Manne’s metaphor, Wall Street is manned by alcoholics who are so addicted to greed and so devoid of ethics that Manne says it is impossible to deter them from committing these felonies even if you put hundreds of them in prison.

The imagination of wealth seekers in using valuable information in the stock market will always outpace the ability of regulators to cope. The payoffs are too big and too accessible and the number of willing players too great for the practice to be significantly inhibited by scores of convictions.

So, the financial industry is run by alcoholics who are so addicted to greed that they think they have the right to profit personally from confidential corporate information – and Manne’s answer is to roll out the keg and shout “drinks for everyone.” Manne provides another proof of one of our family rules: it is impossible to compete with unintentional self-parody.

Is anyone on Wall Street horrified by Manne’s “defense” (indictment) of them? Now would be a good time for you to take a public stand and lead a long-term public campaign to clean up the Street.

Cliven Bundy Monday–Tom Toles

From our friends at thebestoftheinternets blog…

the best of the internets

The less said about Cliven Bundy the better. But too late for that. The lessons drawn from a story like this will always be wrong ones. Except abject cynicism, and that’s a lesson we struggle not to learn.

This is the kind of story I pray I will be able to ignore, but as they say, some prayers go unanswered. It was clearly a manufactured story, or cause, or controversy or whatever, another scarlet efflorescence in the ongoing Fox News Fever Dream. Fever Dreams don’t end badly, they never end. They are an ongoing loop of strange unpleasant nonsense that make you feel trapped and despairing.

I won’t hold it against conservatives that their new hero turned out to be a remainder-bin-grade monster in his racial views. Was I surprised? Hardly. But I have to say the frequent reaction of “Of course we knew,” is a bit facile, and dangerous…

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Naked Capitalism: Fracking and Corruption

Abigail Field: The Government Corruption Case Against Fracking and Keystone

Posted on April 28, 2014 by

Yves here. Although this intense focus on fracking may seem a bit wide of Naked Capitalism’s usual beat, you’ll see how the approaches used to cover up environmental damage, via lobbying and by weakening oversight to the point of near non-existence are similar to those used in finance. One of the bizarre assumptions that Abigail Field mentions is that chemicals “that are not expected to be consumed” are considered “innocent” as in safe, until proven guilty. Thus if all sort of industrial nasties that were never meant to be foodstuffs wind up in your water, the onus is on the victim to establish that it is hazardous. It’s hard to find strong enough language to decry this sort of reasoning; “corruption” doesn’t seem adequate.

By Abigail Caplovitz Field, an attorney and a freelance writer. She writes news for and others, and posts a new blog every Sunday morning at Reality Check. Jointly posted with Reality Check

America is struggling with at least three major environmental policies: fracking, Keystone, and climate change. Climate change needs its own post. This one focuses just on the first two, which are so critical because of their potentially devastating impact on our water (again, setting climate change aside.)

The debate on whether to frack or not, whether to build the Keystone pipeline or not, focuses on jobs v. environment. The claims are two: the jobs will be many and good paying (and implicitly, there’s no alternative source of such jobs) and the environmental consequences are overblown because both fracking and oil pipelines are safe (or could be done safely.)

Both are flawed. Sure, these projects will create large numbers of good paying jobs, and we desperately need such. However, they are not the only way to get such jobs.

Building and restoring decrepit infrastructure is an easy way to generate good jobs. And we could invest in cleaning up contaminated soil and water too–the Superfund list is quite long.

Second, the track record of contamination and secrecy shows that both fracking and pipelines are currently done in ways that produce large amounts of contamination and have very high contamination risk profiles. (See below, after the corruption examples)

Let’s assume, however, that it is possible to frack and pipe oil in a way that poses very very little risk to our water supply. Do we have any reason to believe that is what will happen as fracking expands?

The answer is no, because of the corrupt relationship between industry and government at all levels. Americans cannot trust industry to act safely on its own; Americans cannot trust the government to ensure industry acts safely.

In such a situation: catastrophic risk profile, and inability to manage risk effectively, the only sane option is to not run the risk at all.

In short, unless and until Americans can trust that state and federal environmental regulators have the rules, culture and budget to ensure industry is operating safely, we must stop fracking’s expansion and we must reject Keystone.

Seeing the Corruption

An encyclopedic recitation of all evidence of government corruption in the environmental context would require a book. Below I highlight two recent examples from the coal industry, to illustrate what and how it happens.

First a housekeeping note: what I mean by “corruption.” I mean both something personal and something policy.

On the personal level, I mean people gaining money or power in exchange for enacting and enforcing public health policies that prioritize industry profits over clean water (or clean air and clean soil) and the health impacts dirty water, dirty air and dirty soil have.

On the policy level I mean the fact that such policy exists is a res ipsa loquitur case that the personal corruption is occurring.

Last, I’m not suggesting that industry’s viability is irrelevant to policy making; just that the pro-industry skew is so extreme it cannot be explained except through underlying corruption.

West Virginia and the Freedom Industries Spill

Freedom Industry’s January 2014 spill of a chemical into the drinking water used by about a third of West Virginians shocked locals and will have unknown but possibly quite serious consequences overtime.

Evan Osnos documented the back story to the spill for the New Yorker, a tale big coal’s cementing of power in West Virginia. The article is a compelling read, but here are the key bits for this post’s purposes:

MCHM—[the primary chemical leaked]—is part of a chemical bath that the mining industry uses to wash clay and rock from coal before it is burned.

Doesn’t sound like something I’d want to drink.

There are more than eighty thousand chemicals available for use in America, but, unless they are expected to be consumed, their effects on humans are not often tested, a principle known in the industry as “innocent until proven guilty.

How safe does innocent until proven guilty make you feel? How do you like the idea of being confronted with a chemical in your drinking water and not knowing just how bad it is?

…the [leak] site posed an immediate problem: it was a mile upriver from the largest water-treatment plant in West Virginia. The plant served sixteen per cent of the state’s population, some three hundred thousand people—a figure that had risen in the past decade, because coal mining has reduced the availability and quality of other water sources, prompting West Virginians to board up their wells and tap into the public system.

Note: an industry leak threatened the public water supply West Virginians had turned to because prior pollution wrecked their well water.

Does the “expected to be consumed” part of “innocent until proven guilty” consider the risk of consumption via pollution? If it does, why didn’t we know the risk profile of a chemical stored in tanks next to a river just upstream from a major drinking water treatment plant?

[West Virginia] has become a standard-bearer for pro-business, limited-government conservatism. The day before the chemical spill, the governor, Earl Ray Tomblin, delivered his State of the State address, criticizing federal environmental regulators… Tomblin, a conservative Democrat elected in 2011, cut corporate taxes … For the second consecutive year, West Virginia’s Department of Environmental Protection would take a 7.5-per-cent cut in state funds, dropping to its lowest level since 2008.

It’s very hard to protect the public without the money to do the job.

Things have been so poorly regulated in West Virginia that:

In 2008, the Charleston Gazette discovered that in a nearly five-year period coal companies had self-reported around twenty-five thousand violations of the Clean Water Act, but the D.E.P. had not reviewed the reports or issued a fine.

Can you imagine admitting you violated the law 25,000 times and never getting in trouble for it? Can you imagine relying on an agency like that to protect your drinking water from fracking or oil pipeline leaks? Indeed, it’s so bad that

In 2009, four environmental organizations petitioned the federal government to take over enforcement of parts of the Clean Water Act in West Virginia; they described the state’s regulatory system as approaching a “nearly complete breakdown.”

Also in 2009

… federal investigators from the Office of Surface Mining wrote that West Virginia had become so lax in its enforcement of coal-mining pollution regulations that “the consequences for violating the law, even when the violations are intentional, willful and blatant, are not significant enough to be a deterrent.

Nonetheless, nothing came of the petition to have the feds take over enforcing the Clean Water Act. How safe does that make you feel? Think the feds have your back if your state doesn’t?

This lax enforcement is not accidental; it is a direct result of policy set by Governors and legislators who directly benefited from, or were threatened by, the industry:

…Joe Manchin, the governor from 2005 to 2010, “said that when the industries see the D.E.P. coming onto their property he wanted them to feel comfortable.” Manchin, a Democrat, had prospered as a middleman who helped coal mines sell to power plants and other users. Once in office, he repeatedly advised the department to shift its emphasis from enforcement to “compliance assistance.” …

In 2010, Manchin left the Governor’s Mansion and ran for the U.S. Senate. …The American Chemistry Council, the leading industry group, spent two hundred and twenty-five thousand dollars on advertisements praising Manchin as the “Senator for Our Future.”…On his Senate financial disclosures, he has reported income of more than three million dollars between 2009 and 2012 from Enersystems, a coal brokerage that he owned. (It is now run by his son.)

“Senator for Our Future” of undrinkable water, perhaps.

But it’s not just Manchin.

The West Virginia legislature has proved vulnerable to the forces of outside influence. In the nineteen-eighties, coal companies converted part of the top floor of a hotel into a Coal Suite, where lawmakers could enjoy an open bar, a buffet, card tables, and private areas.

Sounds fun!

Today, the Coal Suite is gone, but, unlike in a majority of states, West Virginia industry groups and their clients don’t have to report how much they spend. In 2010, the Pacific Research Institute compared state laws on transparency in politics—the requirement, for instance, that a lobbyist disclose its spending on behalf of a client. West Virginia tied with Nevada as the least transparent in America.

Heck, who cares how much lobbyists spend on behalf of their clients?

The Democrat John Unger, a pastor and former Rhodes Scholar who serves as the majority leader in the state Senate, told [Osnos] that he has identified three steps by which lobbyists win the coöperation of his peers. “First, they try to wine and dine you. Then they try to set you up. And then they try to threaten you.”

“Set you up?” [Osnos] asked.

“Set you up in the sense of getting something on you so that you become beholden to them,” he said.

Industry punishes those who dare buck them:

In 2012, a coal-industry lobbyist asked Larry Barker, who was the chair of the House Energy, Industry, and Labor Committee, to advance an industry-backed bill out of his committee. Barker declined, and the meeting adjourned.

Afterward, Barker told me, a lobbyist “walks over and crowded me with his shoulder, kind of back to the corner, where there was nobody there but me and him. And I’m looking up at him, and I said, ‘What is it?’ And he said, ‘What’s it going to take for you to run our bill?’ And I said, ‘I want to look it over. I want to let the attorney look at it, I want the union to look it over.’”

“He said, ‘This is the last meeting. You can call a special meeting and put this bill on there.’ And I said, ‘Well, now, why do you think I would do that?’ He said, ‘Because we want it.’ We, meaning the coal industry. ‘We want it. Period.’”

“I said, ‘Well, we’ve reached a deadline. If I’m still here next year in this same position, if this is a good bill, I promise you I’ll run it in the first meeting next year.’ He looked me in the eye and he said, ‘That will be too late for you.’” […]

That fall, a first-time candidate backed by the coal industry challenged Barker and defeated him.

Don’t you feel safe and secure now, knowing that people who dare defy industry can be pushed out of office by industry’s deep pockets? Aren’t you confident that fracking and the Keystone pipeline will be pursued safely, with tremendous focus on potential public health impacts?

And although much is not known about the safety of the leaked chemical, note:

The company that made MCHM, Eastman Chemical, of Tennessee, had tested it on laboratory animals and given it a U.S. Occupational Safety and Health Administration rating of “hazardous.”

Sounds super safe to me!

Dr. Gupta, the head of the [local] health department [said that he and his family were not drinking tap water]. The water at their house still had an odor….[Osnos] asked if there were any outstanding scientific questions, and he laughed. Then he said, “What is the metabolism and excretion of this compound in humans? Does it accumulate? Where does it accumulate? What is the carcinogenic potential? What is the teratogenic potential? What does it do to home pipes? How does it interact, if at all, with other compounds in water, such as chlorine? Does it form harmful or harmless products?”

Good ol’ innocent until proven guilty at work!

There’s much more in the article, read it when you can.

Coal Rules

New rules designed to protect coal miners from black lung, which has been sharply rising, were announced April 23, 2014. As the Center for Public Integrity reported, the new safety standard was lower than labor and environmentalists wanted, but the Secretary of Labor Tom Perez, and Joe Main, the head of the Mine Safety Administration, touted the the new rules’ closure of existing loopholes.

What loopholes?

From the Center for Public Integrity report:

Under existing rules, miners wear pumps that collect samples of the amount of dust in the air, but coal companies get to average five samples, meaning some miners could be exposed to dangerously high dust levels as long as they are balanced by lower exposures to other miners. Samples are taken over an eight-hour period, even though many miners now work 10- or 12-hour shifts.

Nice–assess safety based on an 8 hour average that didn’t reflect actual worker exposure. But it gets worse:

When an inspector is conducting sampling, companies are allowed to operate at half of normal production levels, generating less dust than likely would be present at full production.

So the average based on a short shift is further low-balled by cutting production in half. And this counts as a test?

When MSHA does issue a citation, companies often have been allowed to avoid fixing the underlying problems for weeks or even months, potentially leaving miners exposed to high dust levels.

Wait–even with the test rigged to be an artificially short sampling of artificially low dust production and averaged to minimize the chance of a high test result, the companies still fail tests and MSHA issues a citation?

The new rule allows MSHA to issue a citation if any individual miner’s sample is too high, mandates sampling over a full shift, requires companies to operate at 80 percent of normal production levels during sampling and gives the agency authority to order quick fixes of violations and step up enforcement efforts at mines that appear to be cutting corners.

Much better, but why operating at 80 of normal production levels? Why not a real world test?

Miners have long described what they viewed as rampant cheating of dust samples. Documents and interviews with current and former miners have revealed practices such as supervisors placing pumps in clean air or tampering with pumps after sampling.

Wow, nothing says ‘we don’t give a s–t about our workers’ more than stuff like that. The new rules require continuous monitors, which “should make such practices much more difficult, Main said Wednesday.”

No wonder black lung has been increasing. And again, we’re supposed to have faith that industry, unregulated, will protect us? Or that our governments as currently composed will? Not likely. Seems the best that can happen is closing egregious loopholes after tremendous health impacts have already been documented.

Fracking Risks

1. When the chemicals get in drinking water, people get sick.

Consider the $3 million awarded to a Texas family poisoned by fracking. For a more humorous presentation, see Aasfi Monvi’s Daily Show take.

2. Fracking destablizes the ground by causing earthquakes.

(At this point in the national policy discussion, it’s deeply misleading to say it’s not fracking, it’s the disposal well, that causes the quakes. When people think about fracking–whether to have it or not–they mean the industry as a whole, not the component parts of the process. It doesn’t matter if the fracking industry is causing the quakes at the start or end of the process. Unless and until the industry disposes of its waste in a way that does not cause earthquakes, it is fair to say “fracking” causes quakes.)

Fracking has been found to cause (or at least be strongly correlated with) earthquakes in at least Ohio (see here too), Oklahoma, Texas,and Kansas. Indeed, the injection wells pose enough risk that earthquakes in distant countries have triggered quakes at well locations, as this article explains.

What’s the big deal, given that these quakes are generally small? First, there’s no way of knowing they’ll stay small; each earthquake relieves stress but may build stress elsewhere on a fault. Second, earthquakes can change groundwater flow by producing new cracks in bedrock or changing the compactness of soil.

The ground water flow impacts of earthquakes are normally studied in response to big earthquakes. However, when you consider that source of the quake is pollution-laden water, the risk is clear: how can anyone really know where the dirty water will end up?

3. Only the companies know what’s in fracking chemicals. (One company, Baker Hughes, announced this April that it would voluntarily disclose all ingredients in its fracking fluid. Other companies say they will continue to use the trade secret exceptions.

How safe do you feel now? What’s in the fracking chemicals can make you sick, but we don’t really know what they all are, and we don’t really know where they’ll end up.

4. Home values

People whose properties are impacted by fracking pollution lose a lot of value.

5. NYC’s water supply.

More than 8 million people get water from upstate New York, piped untreated into New York City. Governor Cuomo is considering allowing fracking in NY. Here’s a look at where “initial” fracking is likely to be. Note it shows the key shale is in the watershed and that initial fracking (if approved) is expected to include areas near it.

Do you think that if fracking companies contaminate NYC’s drinking water supply they will pay for the treatment plant to clean it up?


This post is already very long, so rather than highlight the risks of the Keystone pipeline, see here for starters, which explains:

Catastrophic spills of tar sands crude in Mayflower, Arkansas and Michigan’s Kalamazoo River illustrate just how risky tar sands pipelines are. The inevitable spills from tar sands pipelines poison waterways, disrupt communities, make residents sick, and decrease property values. The unique chemical makeup of tar sands oil causes it to sink in water, making it particularly difficult to clean-up. The spill that occurred in the Kalamazoo River three years ago still hasn’t been cleaned up, and the total cost of redressing the devastation will top $1 billion.

Given that Keystone XL runs right over the Ogalala aquifer, one of the most important sources of water in the Midwest, the risks of contamination are enormous. Just one spill from the Keystone XL pipeline could destroy a water source on which hundreds of communities and thousands of ranchers and farmers rely.

So. Put aside for the moment the fight over whether or not it is technically possible to frack and pipe tar sands oil in a way that poses very very little risk to drinking water. Assume for the sake of argument that both can be done safely (ex-climate change.)

They won’t be.

Industry, and our governments as currently composed, won’t keep our water safe; they will put our lives, and our ways of life, at risk. In this context, the only way to manage these risks is not to run them.

Naked Capitalism on Corporate Medicine

The Stealthy, Ugly Growth of Corporatized Medicine

Posted on April 25, 2014 by

Yves here. We’ve written a great deal about Obamacare, since it epitomizes so much about what is wrong with contemporary America: the use of complexity to mask looting, the creation of two-tier systems, the crapification of the underlying service, which in this case is vitally important to society as a whole.

But Obamacare also needs to be recognized as a big step forward in a process that was already well underway, which is to convert the practice of medicine from a patient-oriented to a profit-driven exercise. This is perverse because medicine is so highly valued that medical practitioners almost always enjoy high status and at least decent incomes in most societies. And in societies undergoing breakdown, being a doctor is about the safest place to be, provided you can manage to avoid becoming aligned with the wrong warring faction.

But what is going on in the US is a type of under-the-radar enclosure movement. Doctors historically have been small businessmen, either operating solo or in a group practice. But big corporations see their profits as another revenue opportunity, and have become increasingly adept at making it so hard for them to operate independently that becoming part of the corporatized medicine apparatus looks like the least bad of the available options.

We warned last year that current institutional efforts to regiment doctors undermine the caliber of medical care. It has become distressingly common for HMOs and other medical enterprises to have business-school trained managers putting factory-style production parameters on doctor visits. Outside of foreclosure mills, it’s hard to find similar approaches in other professions.

Doctors are already being told of the Brave New World that is about to be visited on them. One account came from Whole Health Chicago. The writer, Dr. David Edelberg, describes a recent presentation by a large insurance company. They’ve apparently been hosting similar sessions with physicians in the Chicago area in large medical practices. Here are the key bits (emphasis original):

The speaker at these evenings is always a physician employed by the insurance company. His/her title is medical director (I begin to think there must be dozens and dozens on their payroll) and he always begins by reassuring the audience that he was in clinical practice himself so he understands something of what physicians–especially primary care physicians–are facing. I view this physician more as a “Judas steer,” the animal that leads an innocent but doomed herd of cattle through the slaughterhouse corridors to the killing floor.

The health industry hopes that individual medical practices and small medical groups will ultimately disappear from the landscape by being financially absorbed into larger groups owned by hospital systems.

And here’s what you as patient should expect:

Physicians are expected to spend a limited amount of time with each patient, and are encouraged to see as many patients as possible during a workday. The insurance companies, sometimes with the token cooperation of a few physician-employees, create vast books of patient-care guidelines to which they believe their physicians must be “accountable” (remember this word, it will crop up again). These guidelines might mean documented Pap smear and mammogram frequency, weight management and exercise, colonoscopies for patients over 50, and getting that evil LDL (bad cholesterol) below 99 by any means possible…

If the chart audit system discovers that a physician, for whatever reason, is an “outlier”–that she’s either not following the guidelines exactly or not getting the results anticipated for her patient population—she’ll be financially penalized. A quick example of what might occur: if your LDL is 115, you may be on the receiving end of a statin sales pitch from your doctor, not because bringing it down to 99 will improve your longevity, but because your refusal to do so will impact her financial bottom line.

Now how are doctors being forced into this horrible position? The big one, as the update below states, is cost pressures. I guarantee one big source is the cost of dealing with insurers, both government and corporate. One culprit is Medicare, but I strongly suspect you see similar patterns with private insurance.

As a mere patient, I always paid for medical services and submitted for reimbursement. My claims would be processed, and only occasionally would they be haircut because the insurer thought the charges exceeded “ordinary and customary” prices (your humble blogger would generally contest these and would prevail over half the time). But about 4-5 years ago, Cigna suddenly ratcheted up its tricks for not paying me, including simply not processing the claim at all and hoping I wouldn’t notice (this still happens to about 20% of my submissions). I began having my doctors submit for reimbursement when I was seeing an in-network doctor to escape the hassle.

I have to imagine that insurers are making doctors spend even more on claims processing, as well as squeezing them on their contracted reimbursement rates, both as profitable exercises in and of themselves and to push more doctors into practicing out of hospitals, which further fattens insurer bottom lines. And why am I so confident insurers are helping to drive this bus? Again, from the Whole Health Chicago post:

As a test run, the insurance industry, large hospital systems, and government jointly created a healthcare delivery system called Accountable Care Organizations (ACOs). They’ve tried it with certain Medicare patients, liked what they saw in terms of both savings and patient surveys, and now ACOs will be the health care of the future. To cobble together an ACO, hospital management (or a very large medical group such as Northwestern or Advocate), speaking for its salaried physicians, contractually agrees to provide all health care (primary care, specialty referrals, hospitalizations, etc) for a certain patient population–say Medicare recipients, employees of a particular company, or members of a union. For this, the hospital is paid a very large sum annually from which to fund the health care of their enrollees.

And now we present more on how this grand scheme works in practice.

By JB McMunn, M.D., a board-certified pain specialist who trained at the Massachusetts General Hospital who has spent over 35 years practicing medicine. He writes under a pseudonym because he still works in his medical community and there be peeps who don’t like what he says fo’ shizzle. Cross posted from Testosterone Pit

Over the past decade, Medicare fees have risen about 10% while the cost of running a medical practice has risen about 30%. It has become increasingly difficult to stay in business as a private practitioner. At the lower range of compensation – pediatricians, family doctors, internists – it has become almost impossible.

Many practices have stopped accepting Medicare or Medicaid, and some have opted out of third party payment altogether, electing to go to a concierge practice (flat fee for all services the doctor provides, usually paid monthly or annually) or just a straight cash-based fee-for-service model.

Another option is to work as an employee of a hospital. There are several advantages for the physician: a more secure and predictable level of income, none of the hassles that face a small business, such as personnel management, billing and collections, rent, equipment expenditures, maintenance, and so on. They have fixed hours, guaranteed vacation, a 401(k), health insurance, malpractice coverage, etc, and … higher income.

Higher income? Yup, but there’s a catch.

Physicians can receive a higher income when employed by a hospital because hospitals often receive higher payments than a private practice for the same service. For instance, a hospital can tack on a facility fee in addition to the physician fee, something a private practice cannot do. This can easily increase the fee by 70%. Thus, the hospital can afford to pay the physician more because they collect 70% more than the private office across the street just on the fee differential. Since the doctor also leverages the system with referrals for other services, they can also supplement physician salaries. If a doctor increases hospital revenues by $1,000,000 a year, do they mind paying her an extra $50,000 a year above the usual level of compensation?

Impact of Corporatized Medicine on Physicians and Care

Is it all rainbows and unicorns once a doctor goes to work for a hospital? What many doctors discover is that they are reduced to the status of livestock – that it’s all about production.

Probably the worst aspect of being a hospital employee instead of a private practitioner is the loss of autonomy. A doctor has a fiduciary obligation to the patient to do what’s best for the patient, not for the doctor. This not just a legal consideration; it’s pounded into physicians during their training (at least 7 years of indoctrination). Supermarkets, gas stations, airlines, and movie theaters have no such encumbrances.

While there are greedy doctors who exploit their patients, the vast majority of doctors, based on my 30-plus years of observation, do place their patients first. That’s one area where corporate people and medical people often bump heads.

The most significant problem with loss of autonomy is production pressure. The employed physicians are hired to draw patients into the larger system where they can be funneled into other hospital services. Many hospitals are quick to claim that there is no policy or contractual obligation to refer internally, but the physician who takes them at their word does so at his peril.

Compensation is usually linked at least in part to productivity, which can be measured in various ways, all of which have a final common pathway: money. There is intense pressure for the employed physician to use ancillary services such as blood work, x-rays, MRIs, physical therapy, etc and to refer to doctors either employed by the system or system-friendly.

How Has Corporatized Medicine Worked Out So Far?

Some snippets from online physician discussions:

  • In the past we were very picky in who we had join our group. Now the hospital was in charge of recruiting, and they hired any old warm body they could find. They would show us CVs of candidates with red flags all over, and we said we would never even interview these people. The hospital would hire them. And of course it would be a disaster. We had a revolving door of anesthesiologists while the old core group tried to hold it together. The hospital made ridiculous demands, required expansion into unprofitable service lines and then constantly bitched at us that we were unproductive and underutilized. Meeting after meeting: “You need to be more productive.” They just never seemed to get it that we can only provide care to the patients that surgeons bring us. If the surgeons don’t have cases, we don’t have cases. [From an anesthesiologist. They can only do as many cases as surgeons bring them. It’s like blaming the truck driver for not delivering enough packages when the factory isn’t producing enough to deliver.]
  • The administrators and medical directors are always focused on where they stand on the corporate ladder and how they can get more leverage, not only over the doctors below them, but on their counterparts and their superiors. Large systems have all the loyalty, well meaning, and altruism demonstrated by a character from Game of Thrones. [Arguably, the main difference between a large hospital system and the Lannisters is that hospital systems have more money.]
  • I knew things were severely problematic when I was having a meeting with my bosses, and the head of the PCP division said, “We don’t understand why you’re not being a ‘team player’. We expect this to operate like the Coumadin clinic. We start them on the opioids, and you just take over prescribing, and the nurses monitor the urines!” At which point the business manager for my division pops in, before I can retort, to say, “Yeah we should be able to operate that way.” Needless to say, the professional bullying from the PCPs, the administrators, etc. to run both a pill mill and a needle jockey business was tremendous. I resisted the entire time, but god it wore me out. [From a pain specialist for a large multi-specialty group.]
  • We had a meeting with administration and the whole medical staff. They wanted to know why staff meetings were so poorly attended. (They didn’t used to be.) One brave soul spoke and said “It’s a waste of time for us to attend meetings where our opinions aren’t valued and our concerns aren’t addressed.” He was gone shortly thereafter.
  • I have watched employed physicians who do it ethically, at least in their viewpoint, and are only driven out. When the hospital system starts hurting for cash, it isn’t the CEO’s salary that will be examined, it is yours and your production value . . . The Admins . . .  refer to the independents as being “outside of the framework” which seems like a bureaucratic euphemism for not liking the lack of ability to direct and control their work.” [It’s amazing to me that they allow this independent physician to hear these conversations.]
  • One day, administration fired all the ER physicians and put in place an entire department of locums and tried to rebuild. It was a disaster. They couldn’t cover shifts, the competency level was horrendous. The hospital had 3 major law suits out of that ER in the first two months of this transition.

“Locums” is short for “locum tenens”, or a doctor who is hired for a short period of time to cover vacations or other temporary short-staffing situations. Doctors who do this type of work aren’t called “temps.” They are “locum tenens.” That’s Latin for “place holder” or in common parlance, “temp worker.” Doctors have learned that you can charge more when it’s in Latin or Greek. And it all follows the theme: a perfect storm of unhappy doctors, corporate-style medicine, and higher prices.

Naked Capitalism on the Volcker Rule


Volcker Rule: Swiss-Cheesed or Beefed Up?

Posted: 21 Apr 2014 09:20 PM PDT

By Gerald Epstein, Professor of Economics and a founding Co-Director of the Political Economy Research Institute (PERI) at the University of Massachusetts, Amherst. Originally published in Intereconomics 2014, Leibniz Information Centre for Economics

When President Obama’s fortunes were tanking in the winter of 2010, he needed a way to come out punching at the bankers again in order to gain some more momentum on financial reform—and with the voters. So he turned to an unlikely “populist” symbol—Paul Volcker, former head of the Federal Reserve System from the 1980s, who had been widely reviled, especially on the left, for his anti-inflationary crusade and high interest rate policy at that time. Volcker’s policy raised unemployment to dizzying heights, resulted in thousands of bankruptcies, and ushered in the Third World debt crisis that left much of South America in economic ruin for a decade or more.

But as a sign of how crazy U.S. politics had become and how far economic discourse had shifted to the right in the ensuing 30 years, Paul Volcker had become a voice of relative sanity in the fight over financial reform in the wake of the Great Financial Crisis of 2007-2008. Obama called a press conference with Volcker at the front and Timothy Geithner, Obama’s Treasury Secretary who had been very unenthusiastic about significant financial reform, slightly behind and with a scowl on his face. The conference announced Obama’s support for “the Volcker Rule,” which was to be included in the Dodd-Frank Financial Reform bill that was under development and the subject of furious debate in Washington—and that ultimately became law in the summer of 2010.

The problem with the Dodd-Frank bill is that it passed along responsibility for the complex “rule-making” process to five federal regulators, who were tasked with writing the fine details governing the implementation of the financial reform law. By design on the part of the banks, this rule-making process gave the Wall Street lobby an open playing field to obstruct, gut, and re-write the financial reform. Consequently, it was not until December 2013, a full year after the original deadline, that the actual detailed wording of the Volcker Rule was finalized. Moreover, most of it will not be implemented until 2015 or 2016, six years after passage of the Dodd-Frank legislation.

Why so much time? The answer: the banks hate the Volcker Rule and have invested millions of dollars in lobbying and buying off politicians and their staff members to delay and water down the measure. This presents us with an important question: Had the rule been so thoroughly Swiss-cheesed by the banks that it had too many holes to be of any value? Or does it still have enough substance to make the financial system safer and more socially productive?

The Volcker Rule, whose details were developed by Democratic Senators Jeff Merkeley of Oregon and Carl Levin of Michigan, called for an end to “proprietary trading” by banks that had access to taxpayer bailout funds if they got into trouble. Proprietary trading is defined as activities in which banks put their own capital at risk to profit from changes in asset prices and movements in interest rate spreads, rather than from interest or fees from providing services for their customers. The logic behind the Rule is that if financial institutions want to engage in risky, speculative activities, they should not put taxpayer resources at risk. Those activities should be left to hedge funds and other similar institutions, leaving banks to engage in activities that are socially beneficial, such as providing useful credit to businesses, households and governments.

The Rule also called for strict regulations to end conflicts of interest between these banks and their customers, such as had occurred in the run-up to the crisis when Goldman Sachs sold complex securities to customers—even though it knew that they were likely to crash in value—while at the same time taking out large bets that these securities would fail, without informing their customers that they had done so. Such conflicted activities were part and parcel of the highly complex and risky deals that the large banks engaged in that greatly contributed to the financial crisis and that the Volcker Rule was designed to prevent. In short, the Volcker Rule was meant to separate boring banking supported by taxpayer safety nets from highly risky and speculative banking that, in theory, had no such support: a sort of “Glass-Steagall lite.”

But even as the Dodd-Frank wording was still being developed, the banking lobby sprang into action. They were able to get importance exceptions written into the law for “market making” and “hedging.” In the ensuing battle, the tireless defenders of the Volcker Rule, including Sens. Merkely and Levin as well as poorly funded public interest groups such as Americans for Financial Reform (AFR), Better Markets, and Occupy the SEC, tried to keep these exceptions as narrow as possible, while the bankers tried to blast them open as far as they possibly could.

In terms of market making, the banks argued that they needed to have holdings of securities on their books in order to have them available to sell to (and buy from) their customers. If they did not accumulate these securities, then they could not provide needed liquidity to their customers and this would harm financial markets and the economy. The Merkely-Levin writeup of the Volcker Rule allowed banks to hold inventories based on the expected short-term demand of their customers, which should have been adequate to provide the needed liquidity. This issue of defining market making was of great interest to the banks. Writers at Bloomberg estimate that market making provides more than $40 billion a year in revenue to the Wall Street banks.

Defining hedging, the second exception, was also crucial. Banks could claim that their holding of risky securities were simply designed to hedge or offset some other position that the bank had to take on behalf of customers, so as to reduce the overall risk assumed by the bank. In other words, they could hide massive amounts of proprietary investments by the bank, claiming they were simply hedges. And in fact, the banks were winning this fight until the JP Morgan “London Whale” scandal broke in 2012, in which JP Morgan lost over $6 billion engaging in risky proprietary bets that they claimed were “hedges.”

At this point, the regulators were forced to take a tougher stance on hedging by defining it more narrowly and requiring more documentation in order to limit proprietary trading masquerading as “portfolio hedging.” In the final rule, banks are required to match their holdings closely with the positions they are hedging and also to report data to regulators on these positions on a timely basis.

Furthermore, the rule requires the CEOs of the banks to attest that their bank has a framework in place to identify and prevent proprietary trading. This language was watered down from what Paul Volcker had suggested, namely that CEOs should verify that no illegal proprietary trading was taking place, period. Another key feature of the final language reflected the understanding that unless incentives at Wall Street banks are changed, no amount of verbiage will prevent illegal proprietary trading from taking place. Accordingly, the final language prohibits traders from receiving payments based on profits from illegal proprietary trading.

Still, the vast amounts of money the banks put into lobbying paid off handsomely in other respects. The bankers organized European politicians to fight against Volcker prohibitions on the proprietary holding of sovereign debt and strict regulations on foreign-based subsidiaries of banks with activities in the United States. These resulted in some key exemptions on proprietary trading in certain assets and for certain foreign-related banking entities. The banks were also able to broaden the rules to some extent that allow them to invest in hedge funds. Still, many of the large Wall Street banks have been spinning off hedge fund operations in order to create a bit more distance between themselves and these funds.

So what is the ultimate verdict on the battle over the Volcker Rule? It is still too soon to tell. While many press reports claimed that the rule passed by the regulators in December was “much tougher” than had been expected, Goldman Sachs saw its stock price actually climb by 1.2 percent on the day the new rules were announced.

Of course, this is not the end of the fight. Much of the interpretation and enforcement of the rules was left to the regulators. And the banks, which have already threatened to sue the regulators over aspects of implementation, will continue to lobby as long as they can. The supporters of financial reform, such as AFR, Better Markets, and some key regulators, will need a lot of help from citizens to keep these issues on the front burner and to remain vigilant. You can bet that the bankers will.



The Rich Get Richer


Jim Hightower on Paul Ryan

Paul Ryan’s New Budget Proposal Is the Same Joke He Told Us Before

In the latest round of attacks on accessible health care for all, the GOP causes public upchuck over same old, same old.

Photo Credit: Gage Skidmore / Wikimedia Commons

My guess is that Rep. Paul Ryan, the Republican Party’s highly touted budget guru, doesn’t have a very tight grip on the concept of irony.

Otherwise, why would he choose April Fools’ Day to release the latest version of what the GOP intends to do to federal programs (and to the people who count on them) if it takes total control of Congress? But there he was on April 1, declaring with a straight face that, “We [Republicans] believe that we owe it to the country to offer an alternative to the status quo. It’s just that simple.”

Sure it’s simple. He just Xeroxes the same stale budgetary flimflams that he always puts out, even though the public keeps upchucking at the sight of them. Ryan’s “alternative” to the status quo is taking Americans back to the harsh days before there were any programs to help unemployed, elderly, sick, and other people in need.

Ryan envisions turning Medicare into a privatized “WeDon’tCare” program. He wants to outright pull the plug on the new health care law that just extended coverage to millions of people, replacing it with, uh, nothing.

The Wisconsin Republican’s budget scheme also slashes job training, education, infrastructure repairs, medical research, public broadcasting, the arts, and pretty much anything else that regular people need.

Still, he claims that he’s “helping” — in an ideological, Republicany way. For example, Ryan explains that whacking food stamps “empowers recipients to get off the aid rolls and back on the payrolls.”

What payrolls, you ask? That’s not my problem, says the guy drawing $174,000 a year and a gold package of benefits from the government he pretends to despise.

Yeah, let ‘em eat right-wing ideology. I wish it were all an April Fools’ joke. But Ryan’s joke is on us.

Jim Hightower is a national radio commentator, writer, public speaker, and author of the new book, “Swim Against the Current: Even a Dead Fish Can Go With the Flow.” (Wiley, March 2008) He publishes the monthly “Hightower Lowdown,” co-edited by Phillip Frazer.

Humor: The Borowitz Report

Rick Perry Hopes Combination of Wearing Glasses and Not Talking Will Make Him Seem Smarter

rick-perry-glasses.jpgAUSTIN, Tex. (The Borowitz Report)—With an eye toward a Presidential run in 2016, Rick Perry, the Texas governor, is hoping that a two-pronged strategy of wearing glasses and not speaking will make him appear smarter to voters, aides to the Governor confirmed today.“After the 2012 Republican primary, we knew that we needed to solve what we called the Governor’s smartness problem,” said Harland Dorrinson, an aide to Perry. “The fix that we came up with was glasses, but, as it turned out, that was only half the solution.”

After outfitting Perry with designer eyewear, aides sent him on the road to reintroduce himself to voters, but the response, Mr. Dorrinson said, was underwhelming: “The problem was, he was still talking.”

A round of focus groups convinced aides that only through a combination of wearing glasses and not emitting any sounds could Perry overcome voters’ initial impressions of him.

At a recent political stop in San Antonio, the newly minted Governor Perry was on display, wearing his glasses and gesticulating expressively while saying nothing for thirty minutes.

“Our focus groups show people no longer know what Rick Perry is thinking,” said Mr. Dorrinson. “That’s a huge improvement.”

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Photograph: Bill Clark/CQ Roll Call/Getty

Naked Capitalism: No Fault General Mills

General Mills Opens New Frontier in Denying Consumers Right to Sue: Just Use Its Products

Posted: 17 Apr 2014 01:47 AM PDT

We have just moved beyond an event horizon as far as the corporate version of neo-feudalism is concerned. Remember that one of the salient qualities of feudalism was that the nobility had far more rights than the peasants.

By contrast, one of the hoary old notions of jurisprudence is equality before the law. That doesn’t serve our corporate-overlords-in-the-making too well. Subverting jurisprudence over time via inculcating pro-business thinkings through the law and economics movement apparently isn’t good enough for them; they want even higher odds of favorable outcomes. One of them is sneakily getting customers to relinquish their right to sue via getting them to agree to be subject to binding arbitration.

This requirement has long been in place as a condition of getting a securities brokerage account. Although it is difficult to prove, many securities brokerage customers feel that they don’t get the restitution which they deserve through this process (and one might cynically observe that that is a feature, not a bug). Some arbitration forums have been so clearly biased as to lead attorneys general to sue. For instance, as described by Martin & Jones:

The Minnesota Attorney General recently sued the National Arbitration Forum (“NAF”), contending that NAF committed fraud and engaged in false advertising and deceptive trade practices by intentionally misrepresenting its independence and neutrality and by hiding its ties to the debt collection industry. Soon after the case was filed, NAF agreed to a settlement, the terms of which included a requirement that NAF stop accepting all future consumer arbitrations.

The Attorney General’s lawsuit and others recently filed against NAF demonstrated that NAF was anything but the neutral, unbiased forum it represented itself to be. The lawsuits exposed the following: (1) NAF actively concealed the fact that it was owned and managed by the same New York hedge fund which also owned the three largest debt collection law firms which had claims decided by the NAF; (2) NAF helped creditors draft claims to be filed against consumers or referred them to debt collection law firms which would then file arbitration claims against the consumers before the NAF; (3) NAF solicited business from creditors by touting arbitration before the NAF as a less costly and more effective debt collection tool than the courts; and (4) NAF instructed arbitrators how they should rule with respect to certain claims and denied assignments to arbitrators who found against repeat business filers.

In other words, arbitration forums can all too easily become privatized kangaroo courts. And even when generally well-run arbitration panels have serious shortcomings in process,challenging the results of arbitration due to arbitrator bias rarely succeeds.

Heretofore, binding arbitration clauses have been limited to cases where a consumer enters into a contract with a service provider, such as a credit card issuer or a cell phone company. But General Mills is trying to prohibit consumers from suing based on penny-ante benefits and even mere contact. From the New York Times:

General Mills, the maker of cereals like Cheerios and Chex as well as brands like Bisquick and Betty Crocker, has quietly added language to its website to alert consumers that they give up their right to sue the company if they download coupons, “join” it in online communities like Facebook, enter a company-sponsored sweepstakes or contest or interact with it in a variety of other ways…

Instead, anyone who has received anything that could be construed as a benefit and who then has a dispute with the company over its products will have to use informal negotiation via email or go through arbitration to seek relief, according to the new terms posted on its site.

Yves here. Since when is liking a product a benefit to the consumer??? It’s a benefit to the merchant. That alone gives you an idea of what an overreach this is. Back to the article:

“Although this is the first case I’ve seen of a food company moving in this direction, others will follow — why wouldn’t you?” said Julia Duncan, director of federal programs and an arbitration expert at the American Association for Justice, a trade group representing plaintiff trial lawyers. “It’s essentially trying to protect the company from all accountability, even when it lies, or say, an employee deliberately adds broken glass to a product.”…

Companies have continued to push for expanded protection against litigation, but legal experts said that a food company trying to limit its customers’ ability to litigate against it raised the stakes in a new way.

What if a child allergic to peanuts ate a product that contained trace amounts of nuts but mistakenly did not include that information on its packaging? Food recalls for mislabeling, including failures to identify nuts in products, are not uncommon.

“When you’re talking about food, you’re also talking about things that can kill people,” said Scott L. Nelson, a lawyer at Public Citizen, a nonprofit advocacy group. “There is a huge difference in the stakes, between the benefit you’re getting from this supposed contract you’re entering into by, say, using the company’s website to download a coupon, and the rights they’re saying you’re giving up. That makes this agreement a lot broader than others out there.”

And it turns out that the reason General Mills is so keen to shield itself from litigation is that it has repeatedly engaged in deliberately dishonest product labeling, and apparently intends to keep up this profitable form of consumer fraud:

Last year, General Mills paid $8.5 million to settle lawsuits over positive health claims made on the packaging of its Yoplait Yoplus yogurt, saying it did not agree with the plaintiff’s accusations but wanted to end the litigation. In December 2012, it agreed to settle another suit by taking the word “strawberry” off the packaging label for Strawberry Fruit Roll-Ups, which did not contain strawberries.

General Mills amended its legal terms after a judge in California on March 26 ruled against its motion to dismiss a case brought by two mothers who contended that the company deceptively marketed its Nature Valley products as “natural” when they contained processed and genetically engineered ingredients.

“The front of the Nature Valley products’ packaging prominently displays the term ‘100% Natural’ that could lead a reasonable consumer to believe the products contain only natural ingredients,” wrote the district judge, William H. Orrick.

So here’s a simple answer. Don’t buy anything made by General Mills. And encourage everyone you know to do the same. This is a list of their brands:

8th Continent
Betty Crocker
Big G Cereals
Cascadian Farm
Forno de Minas
Fruit Snacks
Gold Medal
Green Giant
Hamburger Helper
Knack & Back
La Salteña
Lucky Charms
Muir Glen
Nature Valley
Old El Paso
Pop Secret
V. Pearl
Wanchai Ferry

Please circulate this post widely. Thanks!