Week of December 29

     The following excerpt of a run-of-the-mill article in the conservative financial press has several instructive lessons for American voters.

From The Wall Street Journal, December 31.

Fund Investors Face
Higher Post-Scandal Costs

Tougher Rules to Boost
Legal Expenses, Insurance;
Paying for Others' Sins

Regulatory efforts to root out wrongdoing in the $7 trillion mutual-fund industry are driving up costs for the victims of the share-trading abuses—fund investors themselves.

Though fund-management companies could end up absorbing fines and restitution payments—as New York Attorney General Eliot Spitzer is demanding in settlements—insurance, legal and administrative costs are soaring. These expenses, tied to enforcement of stricter rules, could easily total more than $1 billion a year—money that likely will come out of fund assets, and therefore out of the pockets of fund investors.

"Even fund companies that had nothing to do with this, and their shareholders, are going to pay the price for the sins of others," says Jim Atkinson, president of Guinness Atkinson Funds, a small fund-management company that hasn't been drawn into the trading scandal….

Fund companies will be loath to immediately boost fees they charge investors, particularly because of the potential public-relations backlash. But there are ways that firms can push up their fees without drawing attention. Fund companies sometimes arbitrarily waive part of their fees. Louis Harvey, president of Dalbar Inc., a Boston fund-research firm, says a fund company looking to boost fees could simply undo such a waiver….

"The idea that the management company is going to pay for all this is fleeting, at best," Mr. Harvey says. "Even if the management company agreed to pay, at the next discussion of management fees they'll raise their fees a few" hundredths of a percentage point….

• Greed exacts huge costs from the American public, as corporate executives bend the rules to enrich themselves.

• Not only does the public have to pay for the obscene incomes of the corporate executives, the executives’ misbehaviors require that

• Our government enact more regulations and provisions to prevent abusive behaviors in the future, which

• Creates still more expenses that new regulations always entail. And when

• Corporate executives find that their incomes will be reduced because of the increased costs of regulations, they then

• Pass on to consumers the increased costs (which resulted from their own misbehavior.), and

• The executives are just as rich as they ever were, and even moreso.

     Of course, when it is all over, Republicans and conservative Democrats will tell the voting public: “See, we told you so. We need to get government out of your lives so we can reduce the cost of doing business.”

     If you want to know whose interests America’s conservatives favor, just read the editorials in their most respected financial publications. The full editorial below enumerated Wal-Mart’s negative effects on local businesses, suppliers, and employee wages and working conditions—as well as it’s benefits: lower costs to consumers and bigger returns for investors.

     Of course, the problem in such editorials is the balance is all skewed. While consumers save some money as a result of, for example, the brutalization of employees, the main beneficiaries are the investors. As far as Barron’s is concerned, that makes Wal-Mart a fine example of capitalism at its best.

From Barron’s, December 29.

EDITORIAL COMMENTARY

America at a Discount

Wal-Mart is a success story that some love to hate

By THOMAS G. DONLAN

… Despite ritual poor-mouthing by retail companies, Americans are still shopping like they suddenly came into an inheritance. And a lot of them are shopping at Wal-Mart, a chain of stores that they have been told they ought to hate, despite its low prices.

For years now, Wal-Mart has been handed up as the symbol of all that's wrong with America: Along with "Coca-Colonization," there's the "Wal-Martification" of America and the world. In books, magazines and newspapers, Wal-Mart is often depicted as the company that ruined Main Streets in rural America, the company that uses its size to bankrupt its competitors, the company that exploits its workers by refusing to countenance unions, the company that impoverishes its American suppliers by driving impossibly hard bargains, the company that ruins the economies of Third World countries by a constant demand for the lowest-cost goods….

One place (Wal-Mart’s cost cutting) goes is into the pockets of Wal-Mart customers and another place is into the pockets of Wal-Mart shareholders—who include hundreds of thousands of past and present Wal-Mart workers, as well as five of Sam Walton's heirs who happen to be among the 15 richest people in the world.

Wal-Mart's niche-market victories add up to 40 years of astonishing success in the U.S. retail industry—a difficult industry that is marked by more failures than manufacturing. Starting from a small store in a small state, Wal-Mart now would be the 31st largest economy in the world if it were a country—bigger than Saudi Arabia and all its oil, bigger than Switzerland and all its banks, factories and tourism.

The Wal-Martification of America: How can we sneer at a bargain like that?

     Unstated in this editorial: the large numbers of failures in the retailing business (and other businesses) are due to the immoral and ruthless corporations that drive moral and conscientious corporations out of business. And they’ll do it every time, if there are not enough governmental protections of workers, the environment and sound business practices.

     The following excerpt demonstrates yet another disconnect between editorial policies and news reporting in the same conservative financial publication.

From Fortune, December 29.

INVESTOR'S GUIDE 2004

Double Agents

The pros you've hired to manage your money are more deeply conflicted than you may think.

The market-timing scandals of the past months have made one thing very clear: Mutual fund executives don't always have their customers' interests at heart.

But then, wouldn't it be strange if they did? The people who run mutual funds have needs, hopes, and dreams of their own. Most obviously, they want to make money. The same is true for brokers, hedge fund managers, and financial planners. These people are agents, hired to act on someone else's behalf. Many do a perfectly good job. Many don't, usually for the simple reason that their interests and those of their clients don't happen to coincide…

An added conflict evolved at big brokerages as trading commissions shrank and investment banking became a big profit center in the 1980s and 1990s. Some Wall Street firms came to see the executives who gave them IPO and M&A business as their true customers, so the "research" they handed out to brokerage customers evolved into puffery. In effect, they'd become double agents, shifting their loyalty to new paymasters while still collecting from the old ones….

     After clearly explaining why unsophisticated investors have been—and always will be—taken to the cleaners by Wall Street, Fortune still supports the privatization of Social Security. Go figure.

     (Note: this was a very large article. Those interested in its investment implications should read the original.)

     So, it turns out that some of those Indian telephone clerks are not performing as well as expected. And the article excerpted below doesn’t even deal with the most important issue.

From Fortune, December 29.

Hang-Ups in India

Call center backlash! India isn't the answer, say some firms.

…Corporations are having to tread more gingerly on the outsourcing front for fear of backlash from elected officials and customers. If the U.S. economy keeps strengthening, that backlash should fizzle. But CEOs are being forced to realize that while their shareholders may think it's swell that customer calls can be routed seamlessly to people in India making $2,000 a year, many customers are less pleased…. ….

     The most important issue that is not even discussed in today’s media: corporations have shifted the costs of customer services from themselves to their customers.

     Think about it. Instead of being able to dial a number and talk directly to someone who has been trained to actually help you, you now must go through an endless supply of menus—and may not even be connected to anything that you’re looking for. And if you make a single mistake, you have to go through the entire process again.

     So, instead of providing employment to well-trained corporate representatives who are actually useful to consumers—corporations utilize computers and poorly trained foreigners—and thus saving money for themselves while costing you your valuable time and raising your frustration level to historic proportions.

     The real conservative strategy is represented by this single paragraph in an article against tariffs.

From Fortune, December 29.

INTERNATIONAL FIRST: TARIFFS

Steel Glut

On balancing international supply and demand in steel.

The only way to balance international supply and demand in steel is to end market-distorting subsidies or tariffs, as the EU has largely done. To achieve that happy outcome, the OECD has been hosting talks with steel producers for the past two years. But asking developing countries like Brazil and China to treat steel firms like businesses rather than national treasures is uphill work—particularly when the U.S. sets such a terrible example.

     That just about says it: Our country is a business, not a society that considers stable communities and reliable employment for working-class Americans as national treasures.

     Republicans and conservative Democrats are all about money folks. The quality of life for workers is irrelevant.

     Sure, China is the country of the future. But investors beware.

From Fortune, December 29.

INVESTOR'S GUIDE 2004

How to Play the China Boom

Investors have been rushing into this red-hot market. But be warned: It's one easy place to get burned. Here, a few safer ways to bet.

Investing in China ought to be a no-brainer. With an economy that has barreled forward at an average rate of 7% for five years running and that will probably advance 9% in 2003 despite SARS, China boasts the world's most compelling growth story. As it rises, China is roiling markets everywhere—driving up the price of commodities from copper to gas, sucking in billions of dollars of investment from foreign multinationals, and fanning protectionist sentiment in Washington, Tokyo, and Brussels. For all appearances, China's transformation from communist backwater to manufacturing powerhouse is a megatrend right up there with the Industrial Revolution….

Experts pale at the suggestion that small investors emulate the Sage of Omaha by loading up on shares of a single company. "The last thing you want to do in this market is put all your chips on one or two stocks in the hope of finding China's IBM," says Geoff Lewis, head of investor services at JF Asset Management in Hong Kong. They also warn against following a broader index. Too few China shares trade on overseas exchanges to build a balanced portfolio….

Alas, for now, predicting Chinese growth remains a lot easier than profiting from it. ….

     Unstated in the above article is the ultimate danger in investing in any country that has become a magnet for industries seeking low wages and no protections of workers or the environment. Eventually, those corporations who are unwilling to the most ruthless in the treatment of workers and the environment will eventually go out of business—no matter where they are located. And if you invested in them—too bad.

     (Note: this is a brief excerpt if an extremely lengthy article. Those interested in the investment implications should read the original.)

     From Enron to Wal-Mart, examples of the destructiveness of executive greed are reported in the conservative business press itself. The following excerpt represents more of a tally (one more checkmark against corporate American ethical standards) than an attempt to detail specific actions.

From The Wall Street Journal, December 29.

Many Companies Report
Transactions With Top Officers

'Related Party' Deals Disclosed
By 300 Large Corporations;
Potential for Conflict

…To get a better handle on the extent of related-party transactions, The Wall Street Journal examined filings made with the Securities and Exchange Commission by more than 400 of the nation's biggest public companies over the past two years.

The survey found that some 300 of those companies reported one or more related-party transactions. Major corporations, from Wal-Mart Stores Inc. to Walt Disney Co. reported multiple related-party transactions. Many of the deals involved millions of dollars. All these deals present the risk of conflicts between a company official's two roles: representative of the shareholder and individual seeking to get the best deal for himself….

     This was a massive article that detailed example after example of those who have enriched themselves at the probable expense of shareholders and the general public. These violations of common ethical standards are so well known by now they will not be repeated here.

     It’s absolutely delicious when the conservative press is confronted with one of their own who decides to tell the truth.

From The Wall Street Journal, December 30.

REVIEW & OUTLOOK

The Soros Agenda

The press corps is finally giving billionaire George Soros the attention he deserves as the new Daddy Warbucks of the Democratic Party. Mr. Soros has responded that all he's doing is exercising his own Constitutional right to free speech. We'd agree, except for the detail that the world's 38th richest man (according to Forbes) is using his money to restrict everyone else's freedom….

The hedge-fund operator made his money practicing capitalism but now he spends it trying to give himself and his ideological allies an advantage over other voices….

As his clout grows, we hope the media pay even more attention to the views of Mr. Soros and his web of left-wing activists…. We'd say they reveal a billionaire who is himself a threat to what he likes to call an "open society."

     The “freedom” that Soros wants to restrict is the ability of the established wealthy and corporations to use their money to deliberately lie to the American public through the mainstream media that they already own.

     To conservatives, the “open” society is the society that they totally control. And when a successful capitalist exposes their motivations and strategies, it drives them bonkers.

     As you read the following seemingly innocuous excerpt, remember: one of the keys to keeping wages low is to increase the labor supply.

From The Wall Street Journal, December 30.

Luring Moms Back to Work

To Fight Female Flight, Some Companies
Overhaul Leave Programs; a Five-Year Break

As more working mothers seek lengthy leaves to care for their families—or quit jobs entirely—some companies are devising new ways to lure them back to work.

After years of steady increases, the rate of working mothers with young children is declining. The percentage of new mothers who work fell to 55% in 2000 from 59% in 1998—and it hasn't risen since, according to the U.S. Census Bureau. The growing efforts to retain mothers may seem odd at a time when the labor market remains soft. But companies say that keeping ties with old workers is often cheaper than recruiting and training new workers….

KPMG anticipates that the labor market will start tightening at some point and is preparing itself for the day when workers have choices again, he says….

     And why do so many women have to go back to work? Simple, it now takes two working members of a family to have a decent income.

     If there weren’t so many working mothers, corporations might have to pay working fathers enough money to actually support a family of four in this country.

     You can get a good idea of the values held by the editors and writers for The Wall Street Journal from the following excerpt.

     See previous excerpts from conservative financial publications during the past three months about the outrageous scandals in the mutual fund industry. It’s painfully clear that insiders made huge illegal profits through practices that enriched themselves at the expense of shareholders.

     In the above excerpt, the Journal implicitly justifies these behaviors by saying that investors still made money during the last year (and despite the fact that investors lost money during the previous three years).

     (Note: this is a brief excerpt of a long article, for purposes of criticism only, and readers who are interested in the investment implications should read the original.)

Week of December 22

     Have you noticed the glowing reports of our country’s improving productivity? On radio, TV, and in the newspaper editorials, conservatives say our improving productivity is a harbinger of a better economy to come for workers.

     If you want to know the real implications of these “improving” productivity numbers for workers, you need to look at what conservatives are saying when they give advice to investors.

From Forbes, December 22.

Financial Strategy

Profits and Layoffs

By A. Gary Shilling

Productivity gains in this recovery are mostly the result of trimming workers from the payroll. And so earnings have benefited. Alas, this elixir can't keep working forever. Look out.

The jobless recovery, much in the news lately, is a scary notion. That's why optimists seize upon any shred of evidence that employment is coming back, such as the small downtick in unemployment claims in mid-November. And we keep hearing that U.S. unemployment really isn't so bad after all—just 6.1%, versus three percentage points higher in Europe.

So there's nothing to worry about, right? Wrong. Layoffs are a key concern. And that will have baleful consequences for investors who are betting on better times….

The nation saw a productivity boom in the 1990s, chiefly powered by marvelous advances in information technology. Better labor training, more-efficient staffing structures (fewer managers) and smarter corporate strategy were helpful. Today's better productivity, though, is catalyzed by layoffs….

The sober truth is that cutting costs is the only route to profits salvation these days. Most costs, directly or indirectly, are labor. And that means more layoffs.

These announcements just keep coming. Sprint, for instance, said on Nov. 24 it would lop 2,000 workers, 2.9% of its payroll. The latest manufacturing employment numbers (six months through October) show a 1.4% drop, about in line with a year ago….

Cost-cutting layoffs will squeeze consumer incomes. Fiscal and monetary stimuli, which masked the devastating effects of layoffs on consumer incomes, are fading, too….

I hate to be the bearer of bad tidings. But if you expect the economy and the market to keep climbing next year, you will be sorely disappointed.

     “Alas, this elixir can't keep working forever.” Translation: you can’t keep improving profits forever by screwing your workers. Eventually, they get totally screwed out and there is no other place to go.

     Note: this brief excerpt of an article is presented for purposes of critique only. Readers who are interested in the investment implications of the article should read the original. It also should be pointed out that most financial advisors today are predicting a good stock market next year.

     Mr. Shilling’s observations (above) about the nature of our country’s recent productivity “improvement” were confirmed by Business Week.

From Business Week, December 22.

U.S. GDP Revisions:
The Recovery's Lift Is Slower For Workers

…Of more interest to the outlook are the new data on income. Businesses and workers alike earned more money so far in this recovery, but not by an even margin.

Total national income was revised higher by increasing amounts, so that by 2002, there was $967 billion more income. Much of the gain came from an inclusion of certain taxes into the income accounts. But Commerce also says that corporate profits have grown at a far faster pace in this recovery than first thought, mostly because companies had to expense fewer stock options exercised by workers. In the second quarter of 2003, profits totaled more than $1 trillion, 14% higher than the $897 billion previously reported.

Wages and salaries grew as well, but the gain was not as large. Pay in the second quarter totaled $6.17 trillion, up just 1.2% from the old $6.09 trillion figure.

What the data suggest is that companies relied more on cost-cutting in this recovery than was first thought. The resulting productivity growth benefited capital more than labor. The data also explain why workers have been so pessimistic in this business cycle, even though the unemployment rate did not rise much by historic standards….

     As usual, the financial benefits of improved productivity favored investors and corporate executives, and not the understaffed workers who brought it about: employees working harder, longer, and for less pay.

     The current Business Week reports what a "smashing success" NAFTA was for Mexico—although not, apparently, as seen by most Mexicans.

     "Success" depends upon who benefited. The Mexicans who like NAFTA are the ones who got rich off of it. Those who don’t like NAFTA are workers and taxpayers who see their overall quality of life going to hell.

From Business Week, December 22.

Mexico: Was NAFTA Worth It?

A tale of what free trade can and cannot do

…On Jan. 1, NAFTA will celebrate its 10th anniversary. The assessment? The grand experiment was a smashing success on many levels. American manufacturers, desperate for relief from Asian competition, flocked to Mexico to take advantage of wages that were a 10th of those in the U.S. Foreign investment flooded in, rising to an annual average of $12 billion a year over the past decade, three times what India takes in….

But rightly or wrongly, a large proportion of Mexicans today believe the sacrifices exceeded the benefits. The Mexican mood is infecting other Latin countries, which after 15 years of gradually opening their own economies to trade and investment are showing pronounced fatigue with the "Washington consensus," the free-market formula preached by the U.S. and the International Monetary Fund. In an August poll of 17 Latin countries carried out by Chile-based Corporación Latinobarómetro, just 16% of respondents said they were satisfied with the way market economics were working in their countries….

Mexicans also feel shortchanged by globalization. They thought they would be America's biggest workshop. That honor now belongs to China, whose workers often earn a fraction of what Mexicans do. Mexican policymakers thought even more trade pacts would deliver additional benefits: That's why Mexico has signed trade agreements with 30 other countries, more than any other nation. Sure enough, consumers got cheaper and better goods. Yet local manufacturers of everything from toys to shoes, as well as farmers of rice and corn, are struggling just to survive the onslaught of cheap imports.

Ordinary Mexicans hoped NAFTA would generate enough jobs to keep them at home. Instead, the jobless are flocking in ever-greater numbers across the border. Voters figured that somehow NAFTA's gains would be translated into better schools. Yet a cash-starved government is still struggling to deliver the minimum in teachers, classrooms, and books. Vital but controversial reforms that pressed on Mexico before NAFTA—such as modernizing the power sector and overhauling the leaky tax code—are an even more difficult sell now that political power is split among several parties.

Do Mexico's woes disprove the value of free trade? Few would argue that Nafta was a waste. "If we didn't have Nafta, we'd be in far worse shape than we are today," says Andrés Rozental, president of the Mexican Council on Foreign Relations. If NAFTA has disappointed, it is in large part because the Mexican government has failed to capitalize on the immense opportunities it offered. "Trade doesn't educate people. It doesn't provide immunizations or health care," says Carla A. Hills, the chief U.S. negotiator in the NAFTA talks. "What it does is generate wealth so government can allocate the gains to things that are necessary."

If a government does not allocate the new wealth correctly, the advantages of free trade quickly erode. That is Mexico's plight….

While U.S. companies praise the work of their Mexican employees, they now make it abundantly clear that there are other, cheaper locales. The numbers tell the tale. An assembly line worker in Mexico earns $1.47 an hour; his counterpart in China makes 59 cents an hour, according to a recent McKinsey & Co. report….

     If you read between the lines in articles like this, you find that conservatives who are benefiting from globalization always blame government for the failures of the unregulated market to bring better lives to average citizens. According to them, globalization’s failures are never caused by the greed of the globalization masterminds—who always skim the cream off the top—it’s the fault of government bureaucrats.

     In a sense, their charge is true. But the government bureaucrats are at fault because they are serving the rich and powerful in their own country—and doing exactly what they are told to do. And, as always, an unprincipled government makes sure that the poor and powerless make all the sacrifices.

     Just as in the U.S., the Mexican investors and corporations get rich by not paying enough taxes to correct the social and economic disruptions that economic growth always causes. And, of course, a major reason American corporations have located there is that they were given extremely favorable tax treatment, and lax environmental regulations and enforcement, by the Mexican government.

     Note: this was a massive article, and those who are interested should read the original. However, the implications for the future of average Mexican citizens are just as ominous as the excerpt above suggests.

     When the conservative Forbes magazine suggests that ethics may be a problem with an American corporation, readers should pay attention.

From Forbes, December 22.

Coke's Sinful World

Today signs of a Coke rebound continue on its long march to conquer the world. Coke has built its booming overseas business by teaching thousands of bottlers, distributors and retailers how to sell the world's best-known soda. Now if only the company could teach its overseas partners a thing or two about ethics.

     The dirty little secret that Forbes neglects to reveal in this article is the major reason corporations’ overseas activities are so successful. When they make deals “with the devil,” they know that their unscrupulous foreign associates are quite willing to take a few ethical shortcuts to get easy profits—like murdering labor union organizers.

     And by owning less than 50% of the devil’s operation, they get the benefits of partnership with the devil, yet have legal deniability of the wrongdoing they know is occurring.

     By using a football analogy, Roger Martin clearly explains why our compensation systems for U.S. CEOs are so totally screwed up.

From Barron’s, December 22.

The Wrong Incentive

Executives taking stock will behave like athletes placing bets

By ROGER MARTIN

…In football, there is a rigid separation of the real market—the games played on Sundays—from the expectations market, or the betting that takes place prior to the game. No participant in the real market is permitted to participate in any way in the expectations market. If they do, they risk a lifetime ban for even one infraction….

Senior executives, arguably the most critical players in the real market, are strongly encouraged and often compelled to participate in the expectations market. They are given massive stock-based compensation under the misguided theory that stock-based compensation aligns their interests with the interests of shareholders.

Stock-based compensation does nothing of the sort. Like encouraging NFL players to bet on football, it encourages executives to manipulate the expectations market and the real market to benefit themselves at the expense of outside shareholders.

There is only simplistic logic in assuming that powerful stock-based compensation incentives will cause executives to work hard in the real market to improve performance, which then will increase the stock price and make investors rich….

Stock-based compensation is an incentive to increase expectations, not performance. The easiest way to do that is to hype the stock by talking up the company's prospects on TV and in newspapers and magazines. Alternatively, a hungry executive can use extremely aggressive accounting to inflate performance in the real market in an attempt to raise expectations. Or he can make a bunch of acquisitions that appear to produce profitable growth in the short run but hurt the firm in the long run. Better still: Combine all three, like Tyco International!...

The greatest incentive for stock-compensated managers is to create as big a gap as possible between expectations and reality—in either direction—then utilize their superior knowledge either to sell or buy stock for personal profit.

In the numerous stock-market scandals of the recent years—Enron, Worldcom, Global Crossing, Qwest, Tyco, Adelphia, etc. –observers seemed shocked that senior managers appeared so misaligned with the interests of outside shareholders, despite high levels of stock-based compensation.

There should have been no shock. Senior managers were completely misaligned with the interests of outsider shareholders because of their high levels of stock-based compensation….

     This is one of the clearest explanations of why most CEOs of American corporations have incentives to MISmanage their own corporations—at the direct expense of outsider stockholders, consumers, and the general public.

     And the Bush Administration has given these very people huge tax breaks—while cutting government services to the people who need them the most.

     The extent of corporate misdeeds and outright fraud continues to amaze even the most cynical observers.

From The Wall Street Journal, December 23.

CIBC's Penalty
For Enron Role
Is $80 Million

The various settlements all have been tied to intricate financial transactions that regulators and prosecutors say served to dupe investors as to the true financial condition of the once-powerful energy-trading company, which entered into bankruptcy-court protection in December 2001….

     Of special note: Darrell Komansky, Chairman of the Board of Merrill Lynch raked in $14,436,344 in 2002. Robert Rubin, Chairman of the Executive Committee of Citigroup made $18,333,332 in 2002. William B. Harrison, Chairman and CEO of J.P. Morgan Chase & Co. made $13,207,722 in 2002. How much the top executives of CIBC is not easily available.

     (If you’re interested in how much other CEOs of American corporations made in 2002, check out PayWatch.)

     How all these guys can be in charge of so much skullduggery, and make so much money in the process, is truly one of the mysteries of the age we’re living in.

     But why the Bush Administration gave them such huge tax breaks is no mystery at all: they're in his club, they support him, and he paid them back.

Week of December 15

     Remember all the promises that were made to American workers that NAFTA would create more jobs in the U.S. than it would lose? And ever since NAFTA was passed, it was claimed that we were actually, in fact, gaining more jobs than we were losing.

     Now the truth finally comes out, even in our conservative financial press. It's buried, of course, in the middle of an article about the Bush Administration’s attempts to put still more pressures on the incomes of working-class Americans.

From The Wall Street Journal, December 18.

U.S. Reaches a Trade Agreement
With 4 Central American Nations

WASHINGTON—The Bush administration reached agreement on a free-trade deal with four Central American countries but now faces an election-year fight that could mirror the brawl in the early 1990s over opening up trade with Mexico.

Free-trade skeptics in Congress say the agreement must overcome stiff opposition amid rising anxiety in the U.S. over the flight of jobs overseas and the merits of trade liberalization….

The Central American Free Trade Agreement, known as Cafta, will stir controversy in Congress because of what opponents describe as its weak provisions on labor and environmental rules, and tough patent protections that could limit access by Central Americans to important medicines. Many lawmakers also are concerned that increasing trade with Latin America could lead to more job losses in the U.S., particularly in the hard-hit textile and clothing sector….

Debate a decade ago over the North American Free Trade Agreement, or Nafta, drew loud warnings that liberalized trade with Mexico would lead to huge job losses in the U.S. Trade with Mexico has soared since Nafta's debut in 1994, but recent studies have concluded that the U.S. did lose more jobs in various industries than it gained because of the pact….

     What’s worse—even more than the fact that Nafta caused us to lose more jobs than we gained—is that the wages of the workers who didn’t lose their jobs to other countries were depressed because of the increase in the labor supply in this country.

     And that, of course, is the hidden agenda of America’s Republicans and conservative Democrats: cut labor costs to increase corporate profits. Benefit investors at the direct expense of working-class Americans. And they’ve been incredibly successful.

     As you read the following excerpt from our leading conservative financial newspaper, keep in mind that:

• Jack Bovender, CEO of HCA, Inc., made $9,372,270 in 2002, and has $19,201,323 in unexercised stock options from previous years, and

• Jeffrey Barbakow, CEO of Tenet Healthcare, made $31,992,980 in 2002, cashed out $111,050,000 in stock options exercises, and has another $208,475,680 in unexercised stock options from previous years.

     Given the intense competition for the honor, it would be difficult today to award the top prize for unabashed greed and callous moral standards to any single CEO. However, these guys are probably right up there in the running.

From The Wall Street Journal, December 17.

Hospitals Will Give Price Breaks
To Uninsured, if Medicare Agrees

They Concede Many Charges Aren't Fair
To the Needy, but Blame Federal Rules

Under pressure from lawmakers and consumer advocates, the hospital industry said it would consider making broad price cuts for the uninsured—provided the federal government approves. The announcement by the American Hospital Association included a stark admission that some hospital billing and collections practices are unfair to needy patients….

At the heart of the issue is the hospitals' common practice of charging full listed prices to the nation's 43.6 million uninsured patients. Meanwhile, other patients enjoy steep discounts negotiated on their behalf—either by private insurers and HMOs or by government programs such as Medicare and Medicaid, the federal-state program for the poor. In some areas, the hospitals' official charges amount to several times the discounted rates.

Adding to the problem for the uninsured, many hospitals have become more aggressive in seeking payment of these bills. Hospitals have placed liens on debtors' homes, garnisheed wages, seized bank accounts and, in some cases, sought the arrest of debtors who miss court dates, a practice known in some states as "body attachment."…

A major for-profit hospital chain, HCA Inc. of Nashville, Tenn., said it struggled for months to craft a program of price breaks for uninsured patients that would satisfy Medicare rules….

Meanwhile, another large, for-profit chain, Tenet Healthcare Corp. of Santa Barbara, Calif., said it hasn't been able to move forward on its own discounting plan, which involved billing low-income, uninsured patients at the same discounted prices it gets from HMOs. …

     As in almost all other areas of our economy, fairness and justice have no roles in decision making. It’s all about power and who has it. Right now, with Republicans and conservative Democrats in control of government, the wealthy and powerful reap all the benefits and the poor and powerless make all the sacrifices.

     Actually, I suppose these CEOs of HCA and Tenet are worth the incomes they’re getting. As everyone knows, for-profit organizations always do better at keeping costs—like medical care—down for everyone.

     Incidentally, CEOs of other corporations involved in the industry make incomes similar to those mentioned—pharmaceutical, insurance, accounting, and virtually all aspects of delivering health care to the public. If you’re curious to check out the incomes of any particular CEO, go to Paywatch.

     A pair of articles from the same issue of The Wall Street Journal demonstrate how absurd it was to allow U.S. corporations to export whole industries overseas to other countries.

From The Wall Street Journal, December 16.

Indian Immigrants Return Home
Where Software Jobs Await Them

A year ago, Gaurav Maheshwari was living the dream of a generation of Indian engineers. The 30-year-old software programmer was earning more than $100,000 a year at a Silicon Valley start-up, living in a luxury San Jose, Calif., apartment complex with a swimming pool, and driving a Nissan Maxima with a souped-up sound system.

Then, Mr. Maheshwari learned that his employer, Lumenare Networks Inc., was moving all of its programming jobs to India to reduce costs. Uncertain of his U.S. prospects amid the tech slump, and with strong family ties tugging him home, Mr. Maheshwari volunteered to go….

As companies like Lumenare increasingly move software and other service-sector jobs to India, Mr. Maheshwari effectively wound up competing against himself in the global labor market. Tens of thousands of U.S. programmers are unemployed, and pay is declining for those still working.

In returning to India, Mr. Maheshwari may be in the vanguard of a growing reverse migration. Over the past decade, hundreds of thousands of Indian engineers moved to the U.S. for jobs, adventure and Silicon Valley wealth. Now, the U.S. job market is lousy and the government is tightening the rules on immigrants….….

     This is how globalization works:

• The first corporations to outsource jobs to another country—like computer programming to India—make huge profits and gradually take business away from other corporations that have much higher labor costs.

• In order to survive, other corporations also send their low-skill jobs to India, and eventually wages are more equalized at the lowest levels in both countries.

• Then, the process steps up a notch. The more greedy corporations decide to send top talent to India to teach them how to take more high-skill jobs from the U.S. , and again, other corporations are forced to follow suit or go out of business.

• Eventually, the process works up the skill and income ladder, until the entire industry is in India, and if American workers are to have jobs, they must go to India to work.

     The moral of these stories: increasing your skills doesn’t assure you of having a good income in this country—or even having a job. Investors can send overseas any job that doesn’t absolutely have to be done in this country.

     I’m not their fan, but 15 years ago, Ross Perot, Pat Buchanan and Ralph Nader all warned us of the giant sucking sound that we were creating. They were right, and the leaders of the conservative movement knew it, but denied it.

     The lesson you can take to the bank: the Republican and conservative Democrats who have been assuring us that globalization will eventually benefit all Americans are either deliberate liars and hypocrites—or just plain stupid.

     At one time, IBM took pride in its commitment never to fire employees without cause. It became America’s premier corporation as a desirable place to work. It produced quality products, had excellent management, and employees could rely on it as a stable source of employment.

     Globalization has changed all that. Now, IBM is just another corporation that must join the abandonment of American communities and workers in order to survive.

From The Wall Street Journal, December 15.

IBM to Export
Highly Paid Jobs
To India, China

In particular, he predicted "to train someone to do a job that you know will no longer be yours" raises issues of "dignity and fairness" that unions might exploit….

     Talk about unmitigated gall. Not only are IBMers going to lose their jobs, they will have to train their replacements. And, to get an extra six month pay, they will do it.

     If anyone ever doubted workers’ need for unions, all they need to do is look at the behind-the-scenes communications of senior management. Of course, given the current state of our political environment and our conservative judiciary, the ability of unions today to protect workers is severely limited.

     It goes without saying that IBM’s only reason for offshoring is to cut labor costs. They aren’t going to the middle of the distribution area, near where the raw materials are, or even where people are already trained.

     That’s what globalization is all about folks, cost reduction and corporate profits. And, increasingly, it’s a matter of corporate survival.

     Welcome to the new economy that Republicans and conservative Democrats have given us.

     If you want to know what conservatives really think about the world economy, never read their editorials or listen to what they say on radio or TV. In these media, they always claim that globalization is good for American workers and average citizens.

     It’s when they are giving investment advice to rich investors that you hear what they really think.

From Barron’s, December 15.

Stepping Up to the China Plate

Already, Lennon (Jim Lennon, head of global commodity research at Macquarie Bank in London) says, aluminum smelters have needed to shut down capacity because of a paucity of electric power. Shortages of iron ore and coke also will restrict the steel industry's ability to produce….

     By getting Congress and the Presidency to support globalization policies, conservatives have created an investment boom in China—which has allowed them to realize huge gains in wealth as a result of the declining wages in this country and abroad.

     Of course, the ones who got there first will profit most, and are likely the ones who will get out in time before the world economy collapses from its own weight.

     Their incredible short-sightedness has already seriously damaged our U.S. economy, as people have lost their well-paying jobs, and the rest of the workers’ wages have stagnated for at least the past 25 years.

     In effect, America’s wealthy investors have sold our economy to China, India, Mexico, etc. at great profit to themselves. They’ve effectively cashed-in the wealth that American workers created over the previous century.

     And it looks like the final gasp of globalization will occur in China, as it produces the world’s products and uses the world’s raw materials.

     Of course, until the end of the process of selling-out American workers comes, the prices of energy and raw materials are going to go up, and the American investors in commodities will also reap huge profits.

     The following two excerpts from an article and a commentary in the same issue of Business Week demonstrate what globalization has done to the moral standards and economic health of the U.S. and the world.

Where Free Trade Hurts

"Take anything—garments or textiles—and people will say, 'Sorry, China is cheaper than anywhere else,"' says G.K. Ram, general manager of a Kahatex Group factory in Bandung, Indonesia, that churns out apparel for Wal-Mart Stores Inc. (WMT ) and Kmart (KMRT ). Perhaps sooner than most realize, Tuch Phearom and millions like her will be struggling to find new jobs.

Commentary: Lessons From A Faded Levi Strauss

…UNFORTUNATELY, NICE GUYS OFTEN DO FINISH LAST. With a long history of taking care of its workers and an admirable commitment to American manufacturing, Levi's discovered that it simply couldn't compete with brands produced more cheaply overseas. So after years of plant shutdowns, Levi's announced in September that it would close its last two U.S. plants. Union leaders say Marineau and the controlling Haas family made the move reluctantly. For too long, Levi's history and culture has prevented it from becoming the lean marketing and design organization needed to compete…..

     Finally, it’s becoming clear to everyone what a disaster globalization is becoming. Benefits of globalization to workers are always temporary and fleeting—with corporations abandoning workers as soon as they start making decent incomes.

     Not even morally responsible corporations, like Levi, can resist the immoral tide that brutalizes working-class people throughout the world.

     Remember the Neil Bush who was a disaster in every business venture he got involved in?

     Finally, it looks like he’s successful—unfortunately for taxpayers and the security of the U.S.

A Bush In Hand Is Worth...A Lot

Still, there is little doubt that Grace could use a bit of help in its dealings with the U.S. Grace is one of many Chinese and Western companies that would benefit from a repeal of controls on the sale of tech equipment that Western countries fear could be used by the Chinese military…..

     Who could object to a little influence peddling when a person can’t succeed at anything else?

     As if more arguments were needed for not privatizing Social Security, more evidence appears daily in the conservative financial press.

Breach Of Trust

Put it all together—light regulation, a savvy trade association, a compliant Congress, a declining market, and frantic competition over a shrinking investment pie—and you get the witches' brew of unsavory business practices now being uncovered. It was a disaster waiting to happen…..

     It’s hard to find in a single article so many descriptions of what’s wrong with our economy and political system: greed, political influence, industrial favoritism, weak regulations, and on and on.

     Note: this is a brief excerpt of a huge article that details the skullduggery of the securities industry—the very same industry that Republicans and conservative Democrats want unsophisticated workers to entrust their retirement funds with.

Week of December 8

     The unabashed greed of today’s corporate executives knows no bounds.

     One would think that articles like the one below would embarrass them enough to make them at least pretend that they had the interests of their lower-level employees at heart.

     Not even remotely so.

From The Wall Street Journal, December 10.

For Pension Plans, Risky Is Fine

Accounting Rules Let Companies
Benefit From Investment Upside,
Escape Consequences of Mistakes

…In the past decade, many employers have quietly taken on more risk in pension plans—loading up on stocks, their own securities and nontraditional and illiquid investments—thanks to accounting rules for pensions that enable employers to capture all of the investment upside, while postponing losses and shifting the consequences of poor investment results to their workers and retirees….

(Companies are) merely taking advantage of accounting rules that can make pension investments a no-lose proposition for employers. The key to this investing success lies in accounting rules that allow companies to use "assumed" returns for the pension assets. In 2002, large companies generally assumed rates of return between about 8.5% and 9%, though a few used assumptions as high as 10%.

If the investments do better than expected, companies can stockpile the excess gains and use them later. Meanwhile, if the investments go sour, companies can postpone the losses, and dribble them into their income calculations over many years.

While these rules were intended to cushion companies from the ups and downs of their pension investments, they have also given companies an incentive to take on more risk than they otherwise might if they were truly on the hook for lousy investment results….

By law, employers are required to invest pension assets prudently, and must make investment decisions in the interests of the employees in the pension plan. Historically, employers had a good reason to do so: After all, if the pension plan loses money, employers have to come up with the shortfall eventually, and might even have to dump more into the plan to pay the promised benefits. (That's what makes pensions different from 401(k)s, in which employees bear all of the investment risk.)

But increasingly, that risk equation has changed, thanks in part to the accounting rules, which protect employers from any immediate consequences for bad investment decisions in the pension plans….

The risk equation is further skewed by employers' ability to cut pensions: When the pension assets lose money, employers can cut benefits, which generates accounting gains that offset the stockpiled investment losses before they begin to hurt the company's financial results.

Indeed, in the past year, many companies, citing pension-plan losses, have cut pensions by making the formulas less generous, or even terminated the pension plans….

…executive pensions are rarely invested in company stock. Employees with regular pensions have often complained that rules permitting employers to invest as much as 10% of pension assets in company stock leave the pension underdiversified.

Delta Air Lines Inc., for instance, specifically forbids the use of Delta stock or debt obligations in its executive trusts. Delta confirmed this information, but declined to comment further.

     So, the executives of our fine American corporations get their pensions funded by solid, conservative investments that they can count on.

     Their lower-level employees’ pensions are funded by risky investments that may allow the company—if it is lucky—to take money out of the pension fund for other purposes. And if those investments lose money, well, they just cut—or eliminate—the pension payouts to retirees.

     Incidentally, the CEO of Delta Air Lines, Leo Mullin, made $12,901,554 in 2002. And his pension will be guaranteed by investments other than Delta stock.

     Is this a great economy or what?

     Finally, workers in undeveloped countries who have been victimized by American corporations may be getting some justice.

     Anyone who pays attention knows that conditions described below are characteristic of what’s happening in country after country, as foreign political leaders do whatever American corporations require to ensure a low-wage, compliant labor force.

From The Wall Street Journal, December 9.

Trial of Unocal on Claims
Of Slave Labor Set to Start

Unocal Corp. Tuesday is set to become the first American company to stand trial in the U.S. for alleged human-rights violations committed overseas….

Although Unocal did not operate the field, owned by the government of Myanmar, American lawyers for the villagers assert in a lawsuit that the company was aware of the labor conditions and therefore faces legal liability.

Attorneys for the El Segundo, Calif., company dispute that the villagers even worked for the pipeline and add that, even if they did, Unocal is shielded from any liability because its Myanmar venture involved only its foreign-based subsidiaries, not the parent. Indeed, Unocal fought unsuccessfully to have the matter tried in either a Myanmar court, or in Bermuda, where the subsidiaries are based….

"We are using the American justice system to hold corporations liable for their conduct in foreign countries," said Dan Stormer, a Los Angeles attorney who is representing some of the villagers….

While the plaintiffs' lawyers categorize the units as shell corporations, Unocal contends they are viable entities with combined assets in the billions….

The villagers—the women and 10 men—say their lives have been turned upside down after being forced to work on the Unocal venture. According to the villagers' lawyers, Myanmarese soldiers ordered hundreds of nearby peasants to work on the gas pipeline, uprooting them from homes and retaliating against any who tried to refuse. For example, one woman said she and her baby were thrown into a fire after her husband tried to escape. She said the baby died and she suffered injuries. Other villagers report being beaten, raped and otherwise mistreated when the alleged slave-labor conditions were going on….

     There ought to be law that makes unbelievable stupidity a crime. American corporate executives know damn well—or ought to know—that these kinds of conditions are caused by their own pressures on foreign governments to ensure cheap, compliant workers for them.

     And if they don’t know—their ignorance has to be at a level that should be considered illegal.

     Incidentally, Charles R. Williamson, CEO of Unocal, made $1,466,280 in 2002.

     The world economy is beginning to unravel. And the political conservatives who caused it are beginning to get nervous.

From Fortune, December 8.

FREE TRADING

The Unlikely Trade Warrior

Bush never planned to be a protectionist. But his presidency is turning into a free-traders' nightmare.

By Justin Fox

President George Bush is a free-trader. So is every last one of his economic advisors. "Certainly the rhetoric has been the strongest of any President since Roosevelt in favor of free trade," says Dartmouth economist and trade expert Douglas Irwin.

But now, in one of those delicious ironies that makes American politics so maddeningly interesting (think Nixon goes to China), free-trader George Bush appears to be dragging us back to the protectionist past.

It started, as these things do, with the 2001 recession. When economic times are tough, American voters—or at least key voters in key states whose jobs happen to be disappearing—lose patience with vague talk about how trade benefits us all. So in 2002 the President slapped a 30% tariff on steel imports and signed a farm bill chock full of protectionist measures. This November he imposed a quota on Chinese bras and bathrobes. The plan, if you can call it that, was to keep pushing for free trade through forums like the World Trade Organization but grab headlines (and votes) with a few high-profile protectionist moves….

"There is a Mid-Atlantic trade storm whipping up," Niall FitzGerald, co-chairman of Anglo-Dutch food and consumer-products giant Unilever, told the BBC in late November. "There will be retaliation and then retaliation to that retaliation, which could lead us to a 1930s decline."

That's a stretch—the steel tariffs and the planned European response are nowhere near the size or scope of the Smoot-Hawley Tariff Act that set off the 1930s trade wars. And while Smoot-Hawley and its foreign counterparts worsened the Great Depression, hardly anybody thinks they caused it….

     At least Fortune, unlike most of America’s right-wing propagandists, doesn’t pretend that the Smott-Hawley tariff caused the depression. (After all, it didn’t even pass until 1930, after the damage had already been done.) They couldn’t stand to let it go at that, however, so they simply say that it made the depression worse.

     Not even that is true. The cause of the depression was that rich investors world-wide took too much profit off the top, and left too little for those who actually spent their money for products and services. Businesses everywhere found that they couldn’t sell their products at a profit, so they stopped producing, and started dumping—and working-class citizens everywhere lost even more of their incomes and savings.

     When the politicians of the world realized that they had been had, again, by rich investors—they tried, too late to correct the situation by implementing the tariffs that would protect workers’ wages.

     Now, it’s happening all over again. And, again, America’s right-wing propagandists will blame tariffs, not corporate and investor greed, as the culprit.

     Remember what conservatives were saying—for public consumption—after Clinton got his deficit reduction act passed in 1993? That’s right. It was “the biggest tax increase in history.”

     If you want to know what conservatives really think, you need to read their objective analyses of the economy when they are advising investors about what they should do with their money.

From Forbes, December 8.

The Wages of War

By Steve H. Hanke

Like it or not, the war on terrorism is going to mean more public spending, regulations, taxes and inflation. Invest accordingly….

What about taxes? Yes, the Bush Administration has delivered cuts. Enjoy them while you can. Wars are expensive and eventually have to be paid for. And big tax reductions are vulnerable to Washington's whittling ways. Just look at what happened to President Reagan's supply-side tax cut of 1981. Less than a year later the Gipper put his pen to another tax law that raised taxes by almost 1% of GDP, making it the biggest peacetime tax increase in American history. And that was not all. In every subsequent year of Reagan's presidency, with the exception of 1988, Congress passed and Reagan signed tax increases.

The wages of war are always the same: a more obese and intrusive government and, yes, more inflation, too. The prices of precious metals and other commodities, an early indication of inflation, are already in a bull-market phase.

Faced with these prospects, what should an investor do? Dump conventional bonds and position the core of your portfolio (65%) in inflation-protected government bonds….

     So, who really passed “the biggest peacetime tax increase in American history”? Your favorite president and mine, the Gipper.

     And what do conservatives see in our inevitable future: more tax increases to undue the damage the Bush Administration’s tax cuts have obviously done to our economy.

     Business Week’s cover story tried to put a good face on globalization by citing all kinds of supposed long-term benefits to the world.

     But the key paragraphs are presented below:

From Business Week, December 8.

The Rise Of India

Growth is only just starting, but the country's brainpower is already reshaping Corporate America

…Still, this deep source of low-cost, high-IQ, English-speaking brainpower may soon have a more far-reaching impact on the U.S. than China. Manufacturing—China’s strength—accounts for just 14% of U.S. output and 11% of jobs. India's forte is services—which make up 60% of the U.S. economy and employ two-thirds of its workers. And Indian knowledge workers are making their way up the New Economy food chain, mastering tasks requiring analysis, marketing acumen, and creativity.

This means India is penetrating America's economic core….

A study by McKinsey Global Institute, which believes offshore outsourcing is good, also notes that only 36% of Americans displaced in the previous two decades found jobs at the same or higher pay. The incomes of a quarter of them dropped 30% or more. Given the higher demands of employers, who want technicians adept at innovation and management, it could take years before today's IT workers land solidly on their feet.

India's IT workers, in contrast, sense an enormous opportunity. The country has long possessed some basics of a strong market-driven economy: private corporations, democratic government, Western accounting standards, an active stock market, widespread English use, and schools strong in computer science and math. But its bureaucracy suffocated industry with onerous controls and taxes, and the best scientific and business minds went to the U.S., where the 1.8 million Indian expatriates rank among the most successful immigrant groups….

Throughout U.S. history, workers have been pushed off farms, textile mills, and steel plants. In the end, the workforce has managed to move up to better-paying, higher-quality jobs. That could well happen again. There will still be a crying need for U.S. engineers, for example. But what's called for are engineers who can work closely with customers, manage research teams, and creatively improve business processes. Displaced technicians who lack such skills will need retraining; those entering school will need broader educations….

     Increasingly, it’s becoming painfully obvious that globalization is dealing our economy and society a severe body blow to “America’s economic core.”

     Think of it. One-fourth of Americans who lost their jobs in the past 20 years have suffered an income loss of over 30%—and only 36% got the same or higher incomes. That means the 34% got lower incomes. And all the while investors and high-level corporate executives got incredibly rich.

     And does anyone seriously believe that, just as Americans left the farms to go to work in factories, that something like that will happen again? (Why workers leaving textile mills and steel factories were included in the example is baffling. That’s a relatively recent development and those workers still haven’t found decent jobs.)

     When ultra-conservative Forbes magazine complains about the “cozy ties” that exist on Wall Street, readers had better pay attention.

From Forbes, December 8.

Team Players

By Neil Weinberg

The SEC somehow missed the fact that bad things have been going on in the mutual fund industry. Could that be because of its cozy ties?

"The fund industry can be proud of its history of promoting a culture of honesty, integrity, transparency and accountability, and also should be proud of its commitment to strong fund governance and compliance practices."

These are the words of Paul Roye, director of the Securities & Exchange Commission's Division of Investment Management—the guy who writes the rules for the $7 trillion industry. He uttered them in March, six months before it came out that certain funds had been allowing unethical, possibly criminal, trading to take place in their shares.

Roye's admiration for the industry he regulates is reciprocated. At the same conference Matthew Fink, president of the Investment Company Institute, the fund management lobby, said: "Strong day-to-day regulation by the SEC has protected the nation's 95 million mutual fund shareholders and kept the industry free of systemic scandal for more than 60 years."

The coziness says a lot about how trading rip-offs managed to stay under the radar for so long. The industry's lobbying arm is immensely powerful and is aided by a revolving door connecting the regulated to the regulators. Indeed, Roye and his colleagues at the SEC have known about many of the problems for years—like lax governance, weak fee disclosure and under-the-table payments between fund firms and brokerages—but have a long history of making rules that don't solve the underlying problems….

     The only mystery now is: Given the obvious corruption of the entire securities industry, how can the Forbes editorial staff—in good conscience—still recommend that Congress privatize Social Security?

     Just when you think that Forbes would never support anything that actually will benefit consumers instead of corporations—it surprises you.

     This article proves that even a stopped clock can be right at least twice a day. Finally, Forbes and the Cato institute came down on the right side of an issue.

     The following is merely another monotonous reporting of corruption in corporate America.

From Forbes, December 8.

Where's That Deposit Insurance?

HomeGold Financial propped up a failing mortgage business with cash from a subsidiary. Duped investors didn't spot the trouble until $275 million went missing….

For the people of Easley, a bucolic burg of 18,000 in northwest South Carolina, the big yellow-and-black sign for Carolina Investors on East Main Street represented a familiar brand for 40 years. It was a consumer lender, specializing in loans for homes, cars and cemetery plots for senior citizens, blue-collar workers and the wealthy alike. But its focus shifted in the 1990s, as it began heavily promoting an investment account offering a handsome annual return, most recently 7.5%, for anyone depositing $10,000 for three years.

Carolina branches looked an awful lot like banks. The investments looked like savings accounts--why, the balances were posted in passbooks. But this wasn't any bank, and the accounts were not federally insured. The investments were junk bonds, unsecured and not registered with the Securities & Exchange Commission….

So far no payments have been made. Inspired by the collapse of Carolina, the state legislature rammed through a law this summer giving prosecutors more teeth to indict securities fraudsters. Cold comfort for Carolina's investors….

     Despite an almost unlimited stories like the above, Forbes still chronically opposes any regulation of corporate America.

     More corporate and political sleaze. This excerpt has it all—profiteering, insider no-bid contracts, corporate deniability, etc.—and those who are interested should read the original article.

From The Wall Street Journal, December 12.

Halliburton's Contracts in Iraq
Face Investigation by Pentagon

The Pentagon has launched a sweeping investigation of Halliburton Co. activities in Iraq and found evidence of "substantial overcharging" in $1.2 billion of fuel sales by the company once run by Vice President Dick Cheney….

The larger audit is sure to become politically explosive because of Halliburton's past ties to Mr. Cheney and allegations by the administration's critics that the company won its lucrative contracts in Iraq through political favoritism. KBR's contracts in Iraq are currently valued at $5 billion….

Halliburton officials said KBR would be cleared of any wrongdoing once the audit agency's questions are answered. "It is not fact that KBR has overcharged. KBR has acted in full accordance with its fiduciary and contractual responsibilities under the contract," said Halliburton Chief Executive Dave Lesar in a statement. "We expect and want continuing reviews and audits that detail our work in Iraq. We welcome a thorough review of any and all of our government contracts," he said.

As to the fuel audit, Mr. Lesar said that the U.S. Army Corps of Engineers, which oversees the work, had repeatedly found "no signs of overcharging or any other impropriety." The Army Corps, he said, also directed KBR to buy fuel in Kuwait and has been unable to find anyone else to do the job, which KBR has been trying to relinquish. The company "only makes a few cents on the dollar when fuel is delivered from Kuwait to Iraq," he said.

KBR so far has received about $2.3 billion through a no-bid contract it received in March to help rebuild Iraq's oil industry. About $1.2 billion of the money KBR received was to supply gasoline and other fuels for the Iraqi people, with almost all of that money coming from seized assets or Iraqi oil revenue….

     What everyone knows, but isn’t in the article, is that if open bids had been allowed by the Bush Administration—and Germany, Italy, France, and Russia could have participated—the American taxpayer would have saved a bundle on the cost of fuel in Iraq. And the cost of virtually everything else in Iraq for that matter.

Week of December 1

     Despite all the propaganda, the conservative economic policies of our country for the past 20 years have been a disaster for working-class Americans. Now, even the conservative Business Week can’t avoid reporting the reality of what’s happening.

From Business Week, December 1.

Commentary: Waking Up From The American Dream

Last year, Wichita State University sociology professor David W. Wright and two colleagues updated a classic 1978 study that looked at how sons fared according to the social and economic class of their fathers. Defining class by a mix of education, income, and occupation, they found that sons from the bottom three-quarters of the socioeconomic scale were less likely to move up in the 1990s than in the 1960s. Just 10% of sons whose fathers were in the bottom quarter had made it to the top quarter by 1998, the authors found….

     Increasingly, it’s becoming so obvious, even the conservative press must recognize it: we’re rapidly losing the bedrock of our society—the middle class.

     And as more people get permanently stuck in the lower echelons of society, it gets worse daily.

     Consider:

• Matthew Rose, CEO of Burlington Northern, made $5,024,285 in 2002.

• Richard Davidson, CEO of Union Pacific, made $16,278,789 in 2002.

     Undoubtedly, they cite their outstanding management skills as justification for such high incomes. These skills would include cutting labor and equipment costs to the bare bones—to the point where both people and machines are stretched to their breaking points.

     Employees not only experience more stressful working conditions, they also find that their vulnerability to future layoffs prevents them for pressing for higher wages—even enough to keep up with inflation. In today’s economy, it seems that only low-level employees must make the sacrifices necessary for corporate profits.

     As you read the following excerpt, ask yourself: was the public well served by the effects of these incredibly greedy CEOs on the national economy?

From The Wall Street Journal, December 1.

Railroad Logjams
Threaten Boom
In the Farm Belt

"It galls people that they're putting in a rate increase when they can't perform with what they got," says Jerry Cope, transportation manager of South Dakota Wheat Growers Association, a farmer-owned cooperative based in Aberdeen, S.D. ….

     Cutting costs is all the rage today, no matter how stupid, and as long as it improves the short-term bottom-line. Instead of maintaining employees and equipment—by repairing, training, upgrading and preparing for the future—the egomaniacs at the tops of our railroad corporations wanted to make their quarterly reports look good so their bonuses and stock options would be worth more.

     So, they got incredibly rich, while forcing expenses on practically all other sectors of the society, which are paying dearly for their greed and poor management.

     If you think our political process is broken, you’re right. Even The Wall Street Journal finds facts of politics hard to ignore in their news columns. Of course, in their editorials, they still defend the purchasing of politicians as a form of “free speech.”

From The Wall Street Journal, December 1.

Louisiana Lobbyist
Keeps State Laws
On Drinking Loose

After the bill passed, Mr. Brown says he was asked by a lawmaker to approach the brewers and demand $15,000. In secret grand jury testimony reviewed by The Wall Street Journal, a Dixie manager said he met Mr. Brown at the Beer League and gave him an envelope stuffed with $20 bills….

     Whatever happened to campaign reform? And why does the public still vote for the Republicans, who blatantly defend the right of the wealthy to purchase the favors of politicians?

     China is emerging as a world-class superpower. Its effects on the U.S. and the world are indications of the failures of our national policies—both economically and environmentally.

     Again, the discrepancy between The Wall Street Journal’s excellent news reporting and its editorial policies have never been clearer. The following news item clearly describes what’s happening to our world—yet, the Journal continues to support unmanaged world trade and opposes environmental controls on corporations.

This excerpt is from The Wall Street Journal, December 3.

China's Growing Thirst for Oil
Remakes the Global Market

Still, many analysts are wary of a Beijing that could begin to feel boxed in by its energy needs. The study noted that China might emerge as a major arms supplier to the Saudis. Other analysts fear that China might be tempted to trade weapons technology for access to oil in countries such as Libya and Iran….

     This single article highlights several disasters caused by—or aggravated by—our own Congress and Executive branch. By making it legally acceptable to abandon American communities and workers to countries like China, we’ve effectively frozen working-class wages at pre-1973 levels (adjusted for inflation).

     In addition, the countries that got our industries increase the world-wide demand for oil—thus raising the price of oil to American consumers (workers included), while enriching the entire oil industry and their investors.

     The higher costs of energy force countries like China and North Korea to seek ways to get money to purchase oil, possibly by selling weapons technology and materials to countries like Libya and Iran.

     And, believe it or not, even the Chinese recognize the dangers to the environment as more people drive cars and consume energy at ever-increasing rates: It “plans to introduce standards that could be even tougher than those in the U.S.” How’s that as a horrible comparison with the Bush Administration’s head-in-the-sand stance toward the environment? The U.S. can’t beat even the Chinese for having a minimally-acceptable moral concern for the future of the environment.

     So, drive your Hummer H2 while it’s still legal. Eventually, even the Republicans will recognize the damage they’ve done to the futures of their own children.

     So this is what a good economic recovery looks like. Productivity and profits are going up and more jobs are being created.

     That’s fine, except those who benefit most are wealthy investors who are getting richer and paying less for what they buy because “wage inflation” isn’t keeping up with either the productivity or the profit improvements.

     Why? Simple. The large corporations have moved their manufacturing operations to third world countries—thus putting downward pressures on all wages in the U.S.—and the downsized workers are getting jobs in poorer-paying smaller companies of all kinds.

Excerpt is from The Wall Street Journal, December 4.

Small Companies Slowly Build
Momentum in the Job Market

"The auto industry in Detroit has really taken a turn for the worse. Security isn't there," she says. He is managing the restaurant, while she continues her day job as an engineer. They have 10 employees and ideally want to have twice as many, with a mix of full- and part-time workers….

     Understand the terrible implications of this article. Large employers cut labor costs by outsourcing—even within this country—to smaller companies who pay less, offer fewer or no benefits, and have worse working conditions.

     And those who are able, take great risks to go into business themselves, and hope to make a living by paying low wages to those who work for them.

     Employment may stay the same or even go up a little—but the quality of life is significantly reduced for those who are at the bottom of the food chain and are powerless to defend themselves.

     Score another victory for Republicans and conservative Democrats who believe that an economic system should benefit primarily the winners—and the devil take the hind most.

Excerpt is from The Wall Street Journal, December 4.

The New Stresses Of
Chinese Society Shape a Girl's Life

She speaks some English ("Men like to smoke and drink beer, wine and whiskey," she observed in English one evening on the way to her piano lesson.) and knows her way around the family computer. She has her own bedroom in the family's 650-square-foot apartment, something unheard of in her parents' generation. The family bought a larger apartment two years ago but squeezes into the old one because it is closer to Bella's school….

     Now that we’ve given most of our manufacturing industry to China—and we’re in the process of giving all our other jobs that don’t absolutely have to be done in this country to India and elsewhere—China, India and other fine civilized countries are now setting the living standards for the world.

     In other words, Republicans and conservative Democrats like what’s happening in the world economy because we now must:

• Forget childhood. Since winners take all, and losers get a life of drudgery, preparation for the competition must start at birth.

• Forget safety nets. That doesn’t fit in with the Republican belief in aristocracy (wealth, education and political power should be inherited) or meritocracy (those whose parents finance an excellent education for their kids should succeed; those of poor parents should remain poor). And, Voilà,

• Wealthy, educated citizens of the world have great lives—consuming the world’s resources with abandon—while the peasants service their every need.

     What a great economy the Republicans and conservative Democrats have given us.

     Sometimes I wonder why I bother. The endless reports of greed, conspicuous spending, and corruption among America’s corporate elite are so numerous, it seems almost pointless to keep criticizing.

     Almost pointless. But not quite. Because there is a constant political battle in which Republicans constantly tell us that corporate executives are better stewards of our society than are government bureaucrats. Anyone who objectively reads our five most prestigious conservative financial publications knows that that’s simply not true.

     If it weren’t for our democratic government, we’d now have a full-blown corporate aristocracy, with people being born into wealth and power and others being born into poverty and servitude. (We’re not there yet, but if Republicans and conservative Democrats have their way, we’ll be there shortly.)

From The Wall Street Journal, December 5.

Indictment Alleges
Westar's Former CEO
Sought to Loot Firm

Mr. Wittig was forced to resign in November 2002, after he was subpoenaed on separate charges that he conspired with a local banker to conceal a loan payment. He was convicted of those charges this past summer, though Mr. Wittig is seeking a new trial….

     Remember, Republicans don’t believe in democratic (small d) government and are doing everything they can to destroy it. People like Wittig are the Republican’s heroes, although Wittig went so far in his insatiable greed that he got caught.

     There are many out there who are almost as bad, but are too smart to get caught—and it is the Republican dismantling of government (deregulation) that has allowed them to succeed.

Week of November 24

     The spinners are coming! The spinners are coming! Arm yourself, because they’re masters of the classic logical fallacy of "Post Hoc, Ergo Propter Hoc.” (“After this, therefore because of this.” )

     Recent news items clearly indicate that we’re headed for a worldwide global recession, possibly even a depression. Just as happened in the 1920s, most of the profit from the world economy has been going to the top 20%—with the bottom 20% losing pace with inflation, and the middle 60% somewhere in between.

     The rich have already bought most of what they need, and they’re now using their money to invest in those parts of the world where workers are most brutalized. This has resulted in “overproduction,” although that’s not really the problem. The problem, as was true in the early 1930s, is that too many people don’t have the money to buy the products and services they need.

     Countries worldwide are now trying to salvage some semblance of relief for the struggling bottom 80% of citizens who are victims of globalization. Obviously, this means that they must reverse the trend that caused the original problem, by reinstituting reasonable trade restrictions that previously protected the interests of workers.

     Naturally, conservative propagandists are seeing the same danger signs throughout the world, and are already laying the blame on others for their own skullduggery. The ones who caused the fundamental problem—via globalization—are shifting the blame to the restoration of the “protectionism” (of working-class incomes) that they previously destroyed.

     For example, consider Gary Shilling’s warning to investors that their gravy train may be coming to an end:

From FORBES, November 24.

Financial Strategy

The Protectionist Threat

By A. Gary Shilling

Free trade is hard to find. There are U.S. steel tariffs, European crop-import curbs and Chinese currency supports. That's scary. Does anyone recall the 1930s?

… As restructuring and automation abound, employment losses appear not just cyclical but permanent. So politicians find it easy to succumb to cries for protectionism from both management and labor. Foreigners don't vote in U.S. elections. A recent poll found that 54% of Americans believe that when multinationals produce abroad they export U.S. jobs.

Protectionist actions here and elsewhere are mushrooming….

The protectionist impulse in the U.S. used to come from blue-collar employees—first textile, then steel- and autoworkers. Now computer programmers and Wall Street researchers are seeing their jobs exported to India. Displaced American professionals can end up bagging groceries….

Let's hope that policymakers recall what protectionism and deflation did to the world economy in the 1930s….

Watch out for creeping—nay, galloping!—protectionism. Regardless of intentions, it's ultimately the enemy of jobs, the economy, profits and stocks.

     Do you “recall the 1930s”? Republicans and conservative Democrats certainly do, and they remember how they successfully blamed the Smoot-Hawley and similar tariffs as causes of the depression. It’s hard to tell if they are deliberate liars and hypocrites, or whether they are just plain stupid.

     The stock market crash occurred in 1929. The Smoot-Hawley act was passed on June 17, 1930. It was the result of the horrible economic policies of the 1920s, that shifted most of the wealth from workers to investors—just as has been happening from 1976 to the present.

     In both periods of history, the damage to the economy was already done. Protectionism was simply the last stage of cycle, which goes like this:

• By eliminating all protections of workers from brutalized foreign workers, create an economic boom that rewards rich investors at the expense of workers.

• Invest money overseas which lowers labor costs in the U.S. and increases corporate profits and investor’s incomes.

• Suck the workers in the U.S. dry as long as you can, until they run out of money.

• Then the inevitable happens. Economies begin to crash, and people can’t afford rent, food, medical care, education, etc.

• Countries worldwide then realize, again, that they’ve been conned by the rich and powerful, and try to reverse the disastrous trend, too late, through tariffs.

• Result: a recession or depression—and the right-wing-crackpots of the world blame the last stage of the cycle, “protectionism” for the results of their own insatiable greed.

     Of course, what got us out of the depression of the ’30s were the progressive policies of Roosevelt, which included, among many other things, reasonable protections of U.S. workers from unbridled foreign competition. And that’s exactly what can get us out of the next recession or depression.

     The following brief excerpts are from four extensive articles in FORTUNE’s “SPECIAL REPORT ON THE U.S. ECONOMY.”

     How Fortune editors can publish such articles—and still support the Bush Administration’s economic policies—should be a subject of a Ph.D. dissertation on the symptoms of insanity.

     Go figure:

• We are exporting our best-paying jobs outside the country, and thus losing a significant part of our tax base. Not only will workers make less money and pay less taxes, many of them will place almost insurmountable burdens on social services.

• We’re cutting taxes on the wealthy—the ones who are profiting from the sacrifices forced on workers.

• We’re permanently losing our manufacturing jobs for reasons both good (productivity improvements) and bad (outsourcing purely to cut the cost of, and incomes of, American workers).

• And we’re creating a massive federal debt that will likely ruin us.

If Things Are So Good, Why Do We Feel So Bad?

Besides the threat of terrorism and the long, hard slog in Iraq, the biggest worry for most of us is jobs.

...Bolstered by dazzling productivity growth, America will continue to be a manufacturing powerhouse; we'll just need fewer and fewer American factory workers

Once, we white-collar types at least felt insulated from foreign competition. No longer. Just as China in the past decade became the world's workshop, India in this decade is becoming the world's back office. Cheap bandwidth and the Internet allow companies to tap a vast market of English-speaking, educated workers happy to take jobs in software, accounting, consulting, and other services for 10% to 20% of what an American employee would charge…

Morgan Stanley economist Stephen Roach believes the migration of millions of service jobs is "a new source of joblessness that could well be the defining macro event of our times." Will that necessarily translate into higher U.S. unemployment? No, says Intel chairman Andy Grove: "I think it just exerts strong downward pressure on wages for years to come."…

Politicians from both parties have yet to even acknowledge the staggering bill that must eventually be paid through future tax increases and benefit cuts….

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Where Your Job Is Going

A visit to Bangalore, India, a city where tech is hot, the drinks are cold, work is plentiful, and the salaries are a lot lower than yours.

…After years of wondering what all those fiber-optic cables laid around the earth at massive expense in the late 1990s would ever be good for, we finally have an answer: They're good for enabling call-center workers in Bangalore or Delhi to sound as if they're next door to everyone. Broadband's killer app, it turns out, is India.

It's not just about call centers. In Bangalore some 110,000 people are employed writing software, designing chips, running computer systems, reading MRIs, processing mortgages, preparing tax forms, and doing other essential work for U.S., European, Japanese, and even Chinese companies. Intel, Cisco, Oracle, Philips, and GE are among the multinationals with significant R&D facilities there. AOL, Accenture, and Ernst & Young have big operations in town too. Scores more Western corporations outsource work to Indian companies like Bangalore-based IT services firms