Employees encouraged to take vacation in July.
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By Frank Ahrens
Chrysler, which is restructuring a troubled business under private ownership, told its workers in an e-mail yesterday that almost all of the company will shut down for two weeks in July to save money.
"This year, in order to create better alignment and efficiency across organizational lines and boost productivity, Chrysler will use a corporate-wide vacation shutdown for the weeks of July 7 and July 14," chief executive Robert L. Nardelli wrote to Chrysler's 71,578 employees.
Sales of new autos are down 5.4 percent this year, as the economy flags and the national average price of gasoline tops $3 per gallon. Chrysler's sales are down 13 percent for the first two months of this year compared with last year. Toyota Motor said yesterday that it would cut production of its Tundra pickup trucks at plants in Texas and Indiana.
Automakers in recent years have selectively shut down plants or entire manufacturing units, usually during the summer, to save money. General Motors and Ford plan two-week plant shutdowns this summer. During the technology crash of 2001, several Silicon Valley companies, such as Adobe Systems and Sun Microsystems, ordered employees to take a week off to save money.
But Chrysler's shutdown is notable for two reasons: It will include all of Chrysler's employees except for minimal staff needed for what Nardelli called "business critical operations." It's also notable because of the company's current state of play - executing tough cuts in a turbulent economy to prepare it for sale, likely to another automaker.
"They want to use the urgency that comes with the crisis atmosphere" in the current economy, said David Cole, an analyst at the nonprofit Center for Automotive Research.
Cerberus Capital Management bought an 80 percent stake in Chrysler from Daimler for $7.4 billion last May, taking the automaker private. Cerberus has been paring the company to make it attractive to a buyer, possibly Volkswagen or the Nissan-Renault alliance, Cole said.
The current economic volatility - retail sales fell and jobs were lost in February, according to government reports - gives Chrysler extra leverage to make the cost-savings cuts it wants, including the July shutdown, Cole said.
Nardelli encouraged Chrysler workers to take vacation during the shutdown, during which they will be paid. The cost-savings result in temporarily idling Chrylser's 27 manufacturing plants. Employees who will have to work during the shutdown include those that deal with customers and dealers, said Chrysler spokeswoman Mary Beth Halprin.
Last year, Chrysler negotiated a contract with the United Auto Workers that changes the benefits structure for the company's employees, significantly lightening Chrysler's long-term obligations. Also, the company announced last year that it would lay off as many as 12,000 workers and discontinue several slow-selling vehicles, including the Crossfire sports coupe and Magnum muscle sedan.
Monday, March 17, 2008
Triple Shock to the Global Economy
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By Eric Le Boucher
You've entered the kingdom of uncertainties. Oil? How high will it go? The dollar? How far will it drop? The financial crisis? When will it end? Recession? In the United States? In France? From week to week, the prognosis for each of these questions eludes us. A dark crisis mechanism is at work that seems impossible to arrest.
We're suffering the blows of a great triple shock, the scope and the consequences of which are still difficult to measure, but which we know will profoundly refashion the global system.
The first shock is the world's shift from the West to the East. The unique American engine is exhausted, China, Asia are taking over. The second shock is a consequence of the first: Chinese thirst for raw materials has caused prices to explode and provoked a return of inflation - dead for 30 years - to the forefront of concern. The third shock is the financial crisis which persists, expands and leads to the end of (too-) easy credit.
There is no equivalent for the first shock unless it be the passage of supremacy from Europe to America during the First World War. The second is like the so-called "oil" shock of the 1970s. For the final shock, comparison oscillates among the Great Depression of the 1930s and the more limited crises of the 19th century and those more recent crises of the 1980s. The three shocks together have, in any case, an unprecedented scope: boom, boom, boom, they come at once and act in concert.
The Federal Reserve is blamed for having been the source of the evils of easy money. The "wizard" Alan Greenspan, adulated only yesterday, decided on interest rates too low to encourage growth, but that inflated asset bubbles instead. American households were able to go into debt cheaply and consume more and more. Imports grew in a straight line; the trade deficit deepened; the dollar began to weaken.
The United States has other, enviable, "fundamentals:" productivity gains, a high-tech sector, immigration ... but its debt-fueled growth model spiraled out of control with respect to real estate. The house was barely purchased before it gained in value, which allowed it to be refinanced and borrowing to be increased. Lending organizations invented subprimes to convince households without the means that they, too, could become property-owners under this system. Up until the day when, after an increase of 80% between 2000 and 2006, prices stagnated, forcing those households into bankruptcy.
The subprime crisis is one of excessive indebtedness. The American growth model will have to change: the return to savings will atrophy consumption; the dollar's fall could allow exports to take up a part of the slack. How? To what extent? It's too early to know.
In any case, the American deficit has its complement: the Asian surplus. China became the United States's workshop, then, as it accumulated monetary reserves, its creditor. The size of developing economies has grown vertiginously: they account for 50% of global GNP (in purchasing power parity). The "dragon" swallows half of global pork production, ditto for cement, a third of steel production. Its oil consumption will triple between now and 2030. Hence the surge in energy, metal and food prices.
From now on, food and energy will be more expensive. We are experiencing the end of a 30-year downward trend in commodity prices. Does that mean the resurgence of the specter of inflation? Probably not, even if it is too soon to be entirely reassured. In the immediate future, these elevated prices are going to corrode purchasing power, slowing both consumption and growth.
To what extent are developing countries autonomous enough to resist the fall of the American economy, now poised on the verge of recession? This East versus West "uncoupling" is one major uncertainty.
Then, there's the financial crisis. The collapse of an investment fund in the American giant Carlyle Group, this week, has come to show that that crisis is far from being contained. What's new about this crisis is that it does not center on one country or one bank, but concerns the sui generis construction of the financial world. Did the Fed's too-low interest rates or the excessive ingenuity of the math geniuses bring it about? In any case, the banks, and especially other financial organizations have sold and resold fragile stacks of "products," in ignorance of their risks. The regulations that forced these products off-balance sheet were an incentive to crime, while the obligation to mark to market daily has precipitated losses. In short, the hyper-finance world offers a great many subjects for revision, and, in the meantime, fear of new losses, failures and credit rationing after years of excess is strong.
The three shocks create uncertainty in the short term. Over the longer term, they will prove not to have been solely negative, and should give birth to a new economy with multi-polar growth, strong research and development in energy and agriculture, wiser finance. But the process of giving birth is always agonizing.
By Eric Le Boucher
You've entered the kingdom of uncertainties. Oil? How high will it go? The dollar? How far will it drop? The financial crisis? When will it end? Recession? In the United States? In France? From week to week, the prognosis for each of these questions eludes us. A dark crisis mechanism is at work that seems impossible to arrest.
We're suffering the blows of a great triple shock, the scope and the consequences of which are still difficult to measure, but which we know will profoundly refashion the global system.
The first shock is the world's shift from the West to the East. The unique American engine is exhausted, China, Asia are taking over. The second shock is a consequence of the first: Chinese thirst for raw materials has caused prices to explode and provoked a return of inflation - dead for 30 years - to the forefront of concern. The third shock is the financial crisis which persists, expands and leads to the end of (too-) easy credit.
There is no equivalent for the first shock unless it be the passage of supremacy from Europe to America during the First World War. The second is like the so-called "oil" shock of the 1970s. For the final shock, comparison oscillates among the Great Depression of the 1930s and the more limited crises of the 19th century and those more recent crises of the 1980s. The three shocks together have, in any case, an unprecedented scope: boom, boom, boom, they come at once and act in concert.
The Federal Reserve is blamed for having been the source of the evils of easy money. The "wizard" Alan Greenspan, adulated only yesterday, decided on interest rates too low to encourage growth, but that inflated asset bubbles instead. American households were able to go into debt cheaply and consume more and more. Imports grew in a straight line; the trade deficit deepened; the dollar began to weaken.
The United States has other, enviable, "fundamentals:" productivity gains, a high-tech sector, immigration ... but its debt-fueled growth model spiraled out of control with respect to real estate. The house was barely purchased before it gained in value, which allowed it to be refinanced and borrowing to be increased. Lending organizations invented subprimes to convince households without the means that they, too, could become property-owners under this system. Up until the day when, after an increase of 80% between 2000 and 2006, prices stagnated, forcing those households into bankruptcy.
The subprime crisis is one of excessive indebtedness. The American growth model will have to change: the return to savings will atrophy consumption; the dollar's fall could allow exports to take up a part of the slack. How? To what extent? It's too early to know.
In any case, the American deficit has its complement: the Asian surplus. China became the United States's workshop, then, as it accumulated monetary reserves, its creditor. The size of developing economies has grown vertiginously: they account for 50% of global GNP (in purchasing power parity). The "dragon" swallows half of global pork production, ditto for cement, a third of steel production. Its oil consumption will triple between now and 2030. Hence the surge in energy, metal and food prices.
From now on, food and energy will be more expensive. We are experiencing the end of a 30-year downward trend in commodity prices. Does that mean the resurgence of the specter of inflation? Probably not, even if it is too soon to be entirely reassured. In the immediate future, these elevated prices are going to corrode purchasing power, slowing both consumption and growth.
To what extent are developing countries autonomous enough to resist the fall of the American economy, now poised on the verge of recession? This East versus West "uncoupling" is one major uncertainty.
Then, there's the financial crisis. The collapse of an investment fund in the American giant Carlyle Group, this week, has come to show that that crisis is far from being contained. What's new about this crisis is that it does not center on one country or one bank, but concerns the sui generis construction of the financial world. Did the Fed's too-low interest rates or the excessive ingenuity of the math geniuses bring it about? In any case, the banks, and especially other financial organizations have sold and resold fragile stacks of "products," in ignorance of their risks. The regulations that forced these products off-balance sheet were an incentive to crime, while the obligation to mark to market daily has precipitated losses. In short, the hyper-finance world offers a great many subjects for revision, and, in the meantime, fear of new losses, failures and credit rationing after years of excess is strong.
The three shocks create uncertainty in the short term. Over the longer term, they will prove not to have been solely negative, and should give birth to a new economy with multi-polar growth, strong research and development in energy and agriculture, wiser finance. But the process of giving birth is always agonizing.
Audit: Bush Barely Trims FOIA Backlog
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Washington - Despite ordering improvements more than two years ago, President Bush has barely made a dent in the huge backlog of unanswered requests under the Freedom of Information Act.
At the same time, an audit by the National Security Archive found that Bush has provided citizens someone to talk to about how long it is going to take to get the government records they want or to be turned down.
The archive, a private research group at The George Washington University, released its seventh audit Sunday of the 1967 law that gives people the power to request information from federal government files. The audit of 90 government agencies found mixed results from Bush's executive order on Dec. 14, 2005, to agencies to clear the backlog and be more responsive to requesters.
"Behind its ambitious facade, the order lacked both carrot and stick," the audit said, because it provided no additional money to do the job and no way to force agencies to set substantial goals or step up their efforts if they fell short.
"Many of the same old scofflaw agencies are still shirking their responsibilities to the public," said Tom Blanton, director of the archive, whose FOIA audits are funded by the John S. and James L. Knight Foundation.
The archive found that unanswered requests government-wide dropped just over 2 percent, from 217,000 to 212,000, from the end of 2005 to the end of 2007.
Of those agencies with backlogs, 31 percent even saw pending requests rise during the two years, including some agencies that significantly reduced very old unanswered requests but saw gains wiped out by a surge of new requests.
Some agencies did well:
-The Energy Department focused on requests more than a year old and instituted biweekly reports from its field offices to top headquarters FOIA officials. It cut the agency-wide backlog from 1,162 requests to 438.
-The CIA set up a task force to tackle the oldest requests. Requests more than five years old were cut 25 percent in 2006 and 74 percent in 2007.
-The Health and Human Services Department added staff but an unexpected increase in new requests prevented it from achieving its planned 5 percent reduction in 2006. It did achieve a 24 percent reduction during 2007.
The Homeland Security Department set an ambitious goal of eliminating its entire backlog by the end of 2007, but instead saw it grow from 82,544 to 83,661 requests.
The FBI failed to meet its reduction goals for 2006 and 2007 and twice pushed them back a year.
The audit particularly criticized the Treasury Department for trying to "wait out the requester." Treasury sent letters to requesters requiring them to reaffirm their interest in the data within 15 business days.
The archive, a major FOIA requester, received such letters from Treasury for 42 outstanding requests. In 27 cases, Treasury sent a second letter after the archive responded it was still interested. For 10 requests all over a decade old, Treasury said the files had been transferred to the National Archives and a new request would have to be submitted there.
Treasury closed 718 requests over two years because the requester no longer wanted the documents or because Treasury's letters went unanswered or were returned because of outdated addresses.
"That many agencies have made significant improvements without additional funding is a real credit to the professionals who work there," said Melanie Poustay of the Justice Department. She heads the Office of Information and Privacy, which advises all government agencies how to obey FOIA and suggests improvements in the FOIA plans Bush ordered each agency to prepare.
"Obviously, though, backlog reduction is an area that continued to need attention," she said.
The audit praised Bush for requiring each agency to set up an FOIA Service Center that people can call to track the progress of their requests; an FOIA Public Liaison to take complaints about the service center; and a chief FOIA officer to manage agency efforts.
The archive sent FOIA requests to all 90 agencies. At 51 of 53 agencies that did not respond in the required 20 days, the archive was able by calling service centers or public liaisons to confirm its requests had been received and sometimes learn where they were in processing. Most FOIA officers they reached "were courteous and helpful."
But not at the CIA and Transportation Department. Multiple calls to the service centers and public liaisons at those two agencies went unanswered. The CIA had no voicemail to take a message; voicemail messages left at the Transportation Department were not returned.
Poustay said the audit revealed "great strides agencies have made in improving customer service." She said her office emphasizes to all agencies the value of direct dialogue between requesters and FOIA officers. "We have seen firsthand how helpful that is to the process."
FOIA amendments enacted last year, after the Bush administration tried to delay them to give its efforts more time, require agencies to establish telephone or Internet service allowing requesters to learn electronically the status and estimated completion date of their requests.
Washington - Despite ordering improvements more than two years ago, President Bush has barely made a dent in the huge backlog of unanswered requests under the Freedom of Information Act.
At the same time, an audit by the National Security Archive found that Bush has provided citizens someone to talk to about how long it is going to take to get the government records they want or to be turned down.
The archive, a private research group at The George Washington University, released its seventh audit Sunday of the 1967 law that gives people the power to request information from federal government files. The audit of 90 government agencies found mixed results from Bush's executive order on Dec. 14, 2005, to agencies to clear the backlog and be more responsive to requesters.
"Behind its ambitious facade, the order lacked both carrot and stick," the audit said, because it provided no additional money to do the job and no way to force agencies to set substantial goals or step up their efforts if they fell short.
"Many of the same old scofflaw agencies are still shirking their responsibilities to the public," said Tom Blanton, director of the archive, whose FOIA audits are funded by the John S. and James L. Knight Foundation.
The archive found that unanswered requests government-wide dropped just over 2 percent, from 217,000 to 212,000, from the end of 2005 to the end of 2007.
Of those agencies with backlogs, 31 percent even saw pending requests rise during the two years, including some agencies that significantly reduced very old unanswered requests but saw gains wiped out by a surge of new requests.
Some agencies did well:
-The Energy Department focused on requests more than a year old and instituted biweekly reports from its field offices to top headquarters FOIA officials. It cut the agency-wide backlog from 1,162 requests to 438.
-The CIA set up a task force to tackle the oldest requests. Requests more than five years old were cut 25 percent in 2006 and 74 percent in 2007.
-The Health and Human Services Department added staff but an unexpected increase in new requests prevented it from achieving its planned 5 percent reduction in 2006. It did achieve a 24 percent reduction during 2007.
The Homeland Security Department set an ambitious goal of eliminating its entire backlog by the end of 2007, but instead saw it grow from 82,544 to 83,661 requests.
The FBI failed to meet its reduction goals for 2006 and 2007 and twice pushed them back a year.
The audit particularly criticized the Treasury Department for trying to "wait out the requester." Treasury sent letters to requesters requiring them to reaffirm their interest in the data within 15 business days.
The archive, a major FOIA requester, received such letters from Treasury for 42 outstanding requests. In 27 cases, Treasury sent a second letter after the archive responded it was still interested. For 10 requests all over a decade old, Treasury said the files had been transferred to the National Archives and a new request would have to be submitted there.
Treasury closed 718 requests over two years because the requester no longer wanted the documents or because Treasury's letters went unanswered or were returned because of outdated addresses.
"That many agencies have made significant improvements without additional funding is a real credit to the professionals who work there," said Melanie Poustay of the Justice Department. She heads the Office of Information and Privacy, which advises all government agencies how to obey FOIA and suggests improvements in the FOIA plans Bush ordered each agency to prepare.
"Obviously, though, backlog reduction is an area that continued to need attention," she said.
The audit praised Bush for requiring each agency to set up an FOIA Service Center that people can call to track the progress of their requests; an FOIA Public Liaison to take complaints about the service center; and a chief FOIA officer to manage agency efforts.
The archive sent FOIA requests to all 90 agencies. At 51 of 53 agencies that did not respond in the required 20 days, the archive was able by calling service centers or public liaisons to confirm its requests had been received and sometimes learn where they were in processing. Most FOIA officers they reached "were courteous and helpful."
But not at the CIA and Transportation Department. Multiple calls to the service centers and public liaisons at those two agencies went unanswered. The CIA had no voicemail to take a message; voicemail messages left at the Transportation Department were not returned.
Poustay said the audit revealed "great strides agencies have made in improving customer service." She said her office emphasizes to all agencies the value of direct dialogue between requesters and FOIA officers. "We have seen firsthand how helpful that is to the process."
FOIA amendments enacted last year, after the Bush administration tried to delay them to give its efforts more time, require agencies to establish telephone or Internet service allowing requesters to learn electronically the status and estimated completion date of their requests.
Supreme Court Inc.
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By Jeffrey Rosen
I.
The headquarters of the U.S. Chamber of Commerce, located across from Lafayette Park in Washington, is a limestone structure that looks almost as majestic as the Supreme Court. The similarity is no coincidence: both buildings were designed by the same architect, Cass Gilbert. Lately, however, the affinities between the court and the chamber, a lavishly financed business-advocacy organization, seem to be more than just architectural. The Supreme Court term that ended last June was, by all measures, exceptionally good for American business. The chamber's litigation center filed briefs in 15 cases and its side won in 13 of them - the highest percentage of victories in the center's 30-year history. The current term, which ends this summer, has also been shaping up nicely for business interests.
I visited the chamber recently to talk with Robin Conrad, who heads the litigation effort, about her recent triumphs. Conrad, an appealing, soft-spoken woman, lives with her family on a horse farm in Maryland, where she rides with a fox-chasing club called the Howard County-Iron Bridge Hounds. Her office, playfully adorned by action figures of women like Xena the Warrior Princess and Hillary Rodham Clinton, has one of the most impressive views in Washington. "You can see the White House through the trees," she said as we peered through a window overlooking the park. "In the old days, you could actually see people bathing in the fountain. Homeless people."
Conrad was in an understandably cheerful mood. Though the current Supreme Court has a well-earned reputation for divisiveness, it has been surprisingly united in cases affecting business interests. Of the 30 business cases last term, 22 were decided unanimously, or with only one or two dissenting votes. Conrad said she was especially pleased that several of the most important decisions were written by liberal justices, speaking for liberal and conservative colleagues alike. In opinions last term, Ruth Bader Ginsburg, Stephen Breyer and David Souter each went out of his or her way to question the use of lawsuits to challenge corporate wrongdoing - a strategy championed by progressive groups like Public Citizen but routinely denounced by conservatives as "regulation by litigation." Conrad reeled off some of her favorite moments: "Justice Ginsburg talked about how 'private-securities fraud actions, if not adequately contained, can be employed abusively.' Justice Breyer had a wonderful quote about how Congress was trying to 'weed out unmeritorious securities lawsuits.' Justice Souter talked about how the threat of litigation 'will push cost-conscious defendants to settle.'"
Examples like these point to an ideological sea change on the Supreme Court. A generation ago, progressive and consumer groups petitioning the court could count on favorable majority opinions written by justices who viewed big business with skepticism - or even outright prejudice. An economic populist like William O. Douglas, the former New Deal crusader who served on the court from 1939 to 1975, once unapologetically announced that he was "ready to bend the law in favor of the environment and against the corporations."
Today, however, there are no economic populists on the court, even on the liberal wing. And ever since John Roberts was appointed chief justice in 2005, the court has seemed only more receptive to business concerns. Forty percent of the cases the court heard last term involved business interests, up from around 30 percent in recent years. While the Rehnquist Court heard less than one antitrust decision a year, on average, between 1988 and 2003, the Roberts Court has heard seven in its first two terms - and all of them were decided in favor of the corporate defendants.
Business cases at the Supreme Court typically receive less attention than cases concerning issues like affirmative action, abortion or the death penalty. The disputes tend to be harder to follow: the legal arguments are more technical, the underlying stories less emotional. But these cases - which include shareholder suits, antitrust challenges to corporate mergers, patent disputes and efforts to reduce punitive-damage awards and prevent product-liability suits - are no less important. They involve billions of dollars, have huge consequences for the economy and can have a greater effect on people's daily lives than the often symbolic battles of the culture wars. In the current Supreme Court term, the justices have already blocked a liability suit against Medtronic, the manufacturer of a heart catheter, and rejected a type of shareholder suit that includes a claim against Enron. In the coming months, the court will decide whether to reduce the largest punitive-damage award in American history, which resulted from the Exxon Valdez oil spill in 1989.
What should we make of the Supreme Court's transformation? Throughout its history, the court has tended to issue opinions, in areas from free speech to gender equality, that reflect or consolidate a social consensus. With their pro-business jurisprudence, the justices may be capturing an emerging spirit of agreement among liberal and conservative elites about the value of free markets. Among the professional classes, many Democrats and Republicans, whatever their other disagreements, have come to share a relatively laissez-faire, technocratic vision of the economy and are suspicious of excessive regulation and reflexive efforts to vilify big business. Judges, lawyers and law professors (such as myself) drilled in cost-benefit analysis over the past three decades, are no exception. It should come as little surprise that John Roberts and Stephen Breyer, both of whom studied the economic analysis of law at Harvard, have similar instincts in business cases.
This elite consensus, however, is not necessarily shared by the country as a whole. If anything, America may be entering something of a populist moment. If you combine the groups of Americans in a recent Pew survey who lean toward some strain of economic populism - from disaffected and conservative Democrats to traditional liberals to social and big-government conservatives - at least two-thirds of all voters arguably feel sympathy for government intervention in the economy. Could it be, then, that the court is reflecting an elite consensus while contravening the sentiments of most Americans? Only history will ultimately make this clear. One thing, however, is certain already: the transformation of the court was no accident. It represents the culmination of a carefully planned, behind-the-scenes campaign over several decades to change not only the courts but also the country's political culture.
II.
The origins of the business community's campaign to transform the Supreme Court can be traced back precisely to Aug. 23, 1971. That was the day when Lewis F. Powell Jr., a corporate lawyer in Richmond, Va., wrote a memo to his friend Eugene B. Snydor, then the head of the education committee of the U.S. Chamber of Commerce. In the memo, Powell expressed his concern that the American economic system was "under broad attack." He identified several aggressors: the New Left, the liberal media, rebellious students on college campuses and, most important, Ralph Nader. Earlier that year, Nader founded Public Citizen to advocate for consumer rights, bring antitrust actions when the Justice Department did not and sue federal agencies when they failed to adopt health and safety regulations.
Powell claimed that this attack on the economic system was "quite new in the history of America." Ever since 1937, when President Franklin D. Roosevelt threatened to pack a conservative Supreme Court with more progressive justices, the court had largely deferred to federal and state economic regulations. And by the '60s, the Supreme Court under Chief Justice Earl Warren had embraced a form of economic populism, often favoring the interests of small business over big business, even at the expense of consumers. But what Powell saw in the work of Nader and others was altogether more extreme: a radical campaign that was "broadly based and consistently pursued."
To counter the growing influence of public-interest litigation groups like Public Citizen, Powell urged the Chamber of Commerce to begin a multifront lobbying campaign on behalf of business interests, including hiring top business lawyers to bring cases before the Supreme Court. "The judiciary," Powell predicted, "may be the most important instrument for social, economic and political change." Two months after he wrote the memo, Powell was appointed by Richard Nixon to the Supreme Court. And six years later, in 1977, after steadily expanding its lobbying efforts, the chamber established the National Chamber Litigation Center to file cases and briefs on behalf of business interests in federal and state courts.
Today, the Chamber of Commerce is an imposing lobbying force. To fulfill its mission of serving "the unified interests of American business," it collects membership dues from more than three million businesses and related organizations; last year, according to the Center for Responsive Politics, the chamber spent more than $21 million lobbying the White House, Congress and regulatory agencies on legal matters. But its battle against the forces of Naderism got off to a slow start. In 1983, when Robin Conrad arrived at the chamber, the Supreme Court was handing Nader and his allies significant victories. That year, for example, the court held that President Reagan's secretary of transportation, Andrew L. Lewis Jr., acted capriciously when he repealed a regulation, inspired by Nader's advocacy, that required automakers to install passive restraints like air bags. In 1986, the chamber supported a challenge to the Environmental Protection Agency's aerial surveillance of a Dow Chemical plant. The chamber's side lost, 5-4.
But eventually, things began to change. The chamber started winning cases in part by refining its strategy. With Conrad's help, the chamber's Supreme Court litigation program began to offer practice moot-court arguments for lawyers scheduled to argue important cases. The chamber also began hiring the most-respected Democratic and Republican Supreme Court advocates to persuade the court to hear more business cases. Although many of the businesses that belong to the Chamber of Commerce have their own in-house lawyers, they would have the chamber file "friend of the court" briefs on their behalf. The chamber would decide which of the many cases brought to its attention were in the long-term strategic interest of American business and then hire the leading business lawyers to write supporting briefs or argue the case.
Until the mid-'80s, there wasn't an organized group of law firms that specialized in arguing business cases before the Supreme Court. But in 1985, Rex Lee, the solicitor general under Reagan, left the government to start a Supreme Court appellate practice at the firm Sidley Austin. Lee's goal was to offer business clients the same level of expert representation before the Supreme Court that the solicitor general's office provides to federal agencies. Lee's success prompted other law firms to hire former Supreme Court clerks and former members of the solicitor general's office to start business practices. The Chamber of Commerce, for its part, began to coordinate the strategy of these lawyers in the most important business cases.
At times, the strategic calculations can be quite personal. Because Supreme Court clerks have tremendous influence in making recommendations about what cases the court should hear, Conrad told me, having well-known former clerks involved in submitting a brief can be especially important. "When Justice O'Connor was on the bench and we knew her vote was very important, we had a case where the opposition had her favorite clerk on the brief, so we retained her next-favorite clerk," she said with a laugh. "We won."
In our conversation, Conrad was especially enthusiastic about Maureen Mahoney, a former clerk for Chief Justice Rehnquist and one of the top Supreme Court litigators who coordinate strategy with the chamber. When Mahoney agreed in 2005 to represent an appeal by the disgraced accounting firm Arthur Andersen, which was convicted in 2002 of obstructing justice by shredding documents related to the audit of Enron, few people thought the Supreme Court would take the case. "The climate was very anti-Enron," Mahoney told me, "and it was viewed as a doomed petition."
Mahoney rehearsed her Supreme Court argument in a moot court sponsored by the chamber. ("She was absolutely dazzling," Conrad recalls.) On April 27, 2005, Mahoney stood calmly before the justices and delivered one of the best oral arguments I've ever seen at the Supreme Court. She argued that because Arthur Andersen's accountants had followed a standard document-destruction procedure before receiving the government's subpoena, they couldn't be guilty of a crime; they weren't aware what they were doing was criminal. The Supreme Court unanimously agreed and reversed the conviction, 9-0.
The Arthur Andersen case is a good example of how significantly the Supreme Court has changed its attitude about cases involving securities fraud - and business cases more generally - from the Warren to the Roberts era. In a case in 1964, the court ruled that aggrieved investors and consumers could file private lawsuits to enforce the securities laws, even in cases in which Congress hadn't explicitly created a right to sue. In the mid-1990s, however, Congress substantially cut back on these citizen suits, and the court today has shown little patience for them. Mahoney says she sees her victory in the Arthur Andersen case as significant because it applied the same principle in criminal cases involving corporate wrongdoing that the court had already been recognizing in civil cases: namely, "refusing to create greater damage remedies or criminal penalties than Congress has explicitly specified." She describes the case as "a very important win for business."
This term, the Supreme Court has continued to cut back on consumer suits. In a ruling in January, the court refused to allow a shareholder suit against the suppliers to Charter Communications, one of the country's largest cable companies. The suppliers were alleged to have "aided and abetted" Charter's efforts to inflate its earnings, but the court held that Charter's investors had to show that they had relied on the deceptive acts committed by the suppliers before the suit could proceed. A week later, the court invoked the same principle when it refused to hear an appeal in a case related to Enron, in which investors are trying to recover $40 billion from Wall Street banks that they claim aided and abetted Enron's fraud. As a result, the shareholder suit against the banks may be dead.
III.
In addition to litigating cases before the court, the Chamber of Commerce also lobbies Congress and the White House in an effort to change the composition of the court itself. (Unlike many other government officials, the justices themselves are not, of course, subject to direct corporate lobbying.) The chamber's efforts in this area were inspired by Robert Bork's thwarted nomination to the court in 1987. Business groups were enthusiastic about Bork - not because of his conservative social views but because of his skepticism of vigorous antitrust enforcement. "In reaction to the Bork nomination, it struck us that we didn't even have a process in place to be a player," Conrad said.
So the chamber set up a formal process for endorsing candidates after their nominations. The process was designed to be bipartisan; and the chamber has encouraged Democratic as well as Republican presidents to appoint justices. Nominees are evaluated solely through the prism of their views about business. "We're very surgical in our analysis," Conrad said.
After the election of Bill Clinton, for example, the chamber endorsed Ruth Bader Ginsburg, who in addition to her pioneering achievements as the head of the women's rights project at the A.C.L.U. had specialized, as a law professor, in the procedural rules in complex civil cases and was comfortable with the finer points of business litigation. The chamber was especially enthusiastic about Clinton's second nominee, Stephen Breyer, who made his name building a bipartisan consensus for airline deregulation as a special counsel on the judiciary committee; and who, as a Harvard Law professor, advocated an influential and moderate view on antitrust enforcement.
During Breyer's confirmation hearings his sharpest critic was Ralph Nader, who testified that his pro-business rulings were "extraordinarily one-sided." Another critic, Senator Howard Metzenbaum of Ohio, said that the fact that the chamber was the first organization to endorse Breyer indicated that "large corporations are very pleased with this nomination" and "the fact that Ralph Nader is opposed to it indicated that the average American has a reason to have some concern." The chamber's imprimatur helped reassure Republicans about Breyer, and he was confirmed with a vote of 87 to 9. "Frankly, we didn't feel like we had anyone on the court since Justice Powell who truly understood business issues," Conrad told me. "Justice Breyer came close to that."
The Breyer and Ginsburg nominations also came at a time when liberal as well as conservative judges and academics were gravitating in increasing numbers to an economic approach to the law, originally developed at the University of Chicago. The law-and-economics movement sought to evaluate the efficiency of legal rules based on their costs and benefits for society as a whole. Although originally conservative in its orientation, the movement also attracted prominent moderate and liberal scholars and judges like Breyer, who before his nomination wrote two books on regulation, arguing that government health-and-safety spending is distorted by sensational media reports of disasters that affect relatively few citizens.
Since joining the Supreme Court, Breyer has also been an intellectual leader in antitrust and patent disputes, which often pit business against business, rather than business against consumers. In those cases, many liberal scholars sympathetic to economic analysis have applauded the court for favoring competition rather than existing competitors, innovation rather than particular innovators. "The court deserves credit for trying to rationalize a totally irrational patent system, benefiting smaller new competitors rather than existing big ones," says Lawrence Lessig, an intellectual-property scholar at Stanford.
Clinton's nominations of Ginsburg and Breyer may have been welcomed by the chamber, but with the election of George W. Bush, the chamber faced a dilemma. Ever since the Reagan administration, there had been a divide on the right wing of the court between pragmatic free-market conservatives, who tended to favor business interests, and ideological states-rights conservatives. In some business cases, these two strands of conservatism diverged, leading the most staunch states-rights conservatives on the court, Antonin Scalia and Clarence Thomas, to rule against business interests. Scalia and Thomas were reluctant to second-guess large punitive-damage verdicts by state juries, for example, or to hold that federally regulated cigarette manufacturers could not be sued in state court. As a result, under Conrad's leadership, the chamber began a vigorous campaign to urge the Bush administration to appoint pro-business conservatives.
When it came time to replace Chief Justice William Rehnquist and Justice Sandra Day O'Connor, the candidate most enthusiastically supported by states-rights conservatives, Judge Michael Luttig, had a record on the Court of Appeals for the Fourth Circuit that some corporate interests feared might make him unpredictable in business cases. ("One of my constant refrains is that being conservative doesn't necessarily mean being pro-business," Conrad told me.) The chamber and other business groups enthusiastically supported John Roberts, who had been hired by the chamber to write briefs in two Supreme Court cases in 2001 and 2002. At the time of Roberts's nomination, Thomas Goldstein, a prominent Supreme Court litigator, described him as "the go-to lawyer for the business community," adding "of all the candidates, he is the one they knew best." When Roberts was nominated, business groups lobbied senators as part of the campaign for his confirmation.
The business community was also enthusiastic about Samuel Alito, whose 15-year record as an appellate judge showed a consistent skepticism of claims against large corporations. Ted Frank of the American Enterprise Institute predicted at the time of the nomination that if Alito replaced O'Connor, he and Roberts would bring about a rise in business cases before the Supreme Court. Frank's prediction was soon vindicated.
"There wasn't a great deal of interest in classic business cases in the last few years of the Rehnquist Court," Carter Phillips, a partner at Sidley Austin and a leading Supreme Court business advocate, told me. In 2004, Judge Richard Posner, a founder of the law-and-economics movement, argued that the Rehnquist Court's emphasis on headline-grabbing constitutional cases had politicized it, and called on the court to hear more business cases. The Roberts court has unambiguously answered the call. As Phillips told me, Roberts "is more interested in those issues and understands them better than his predecessor did."
IV.
Exactly how successful has the Chamber of Commerce been at the Supreme Court? Although the court is currently accepting less than 2 percent of the 10,000 petitions it receives each year, the Chamber of Commerce's petitions between 2004 and 2007 were granted at a rate of 26 percent, according to Scotusblog. And persuading the Supreme Court to hear a case is more than half the battle: Richard Lazarus, a law professor at Georgetown who also represents environmental clients before the court, recently ran the numbers and found that the court reverses the lower court in 65 percent of the cases it agrees to hear; and when the petitioner is represented by the elite Supreme Court advocates routinely hired by the chamber, the success rate rises to 75 percent.
Faced with these daunting numbers, the progressive antagonists of big business are understandably feeling beleaguered and outgunned. "The fight before the court is generally not an even one," said David Vladeck, who once worked for the Public Citizen Litigation Group and now teaches law at Georgetown. "There's us on one side, with a brief or two, and industry on the other side, with a well-coordinated campaign of 10 or 12 briefs, with each one written by a member of the elite Supreme Court bar that address an issue in enormous depth." He added, ruefully, "You admire their handiwork, but it's frustrating as hell to deal with."
To gauge the degree of the frustration, I recently paid a visit to Ralph Nader, a few weeks before he announced his most recent campaign for president of the United States. It was a surprise to find that his office, the Center for Study of Responsive Law, shares an address in a grand building with the Carnegie Institution for Science. But the office itself, reassuringly, is buried on the ground floor, where Nader received me at a conference table surrounded by file cabinets stuffed with faded back issues of Mother Jones and The Nation.
Nader was uncontrite about his 2000 run against Al Gore - which is often credited with helping George W. Bush win the presidency - and he insisted that because Clinton appointed justices like Breyer, Gore would have done the same. "Breyer hasn't been worse than I feared, because I had real concern when he was nominated," Nader told me. He conceded that, like Breyer, Democratic justices appointed by President John Kerry would presumably have been better on civil rights and liberties than John Roberts and Samuel Alito. Nevertheless, he disparaged Breyer as a "deregulation quasi-ideologue" who was able to weave a "tapestry of illusion" in his arguments by dealing in abstractions.
The main casualty of the 2000 run, Nader said, is that he is no longer collaborating with America's trial lawyers. They would ordinarily be his natural allies in representing consumer interests, but they donated heavily to Gore's campaign. After 2000, the trial lawyers "have been vitriolic," Nader explained. He blames them for not using their money to help counteract the influence of the Chamber of Commerce and other business groups before the federal courts. In part as a result of their stinginess, he said, his colleagues at Public Citizen are underfinanced and worn down. "There were some lawyers who left Public Citizen because they got tired of losing," he said. "Everyone is desperately trying to hold on to whatever issues are left, and then they become demoralized and discouraged."
Thirty years after the Chamber of Commerce founded its litigation center to counteract his influence, Nader all but conceded defeat in the battle for the Supreme Court. With the decline of economic populism in Congress, the weakening of trade unions and the rise of globalization, the political climate, he lamented, was passing him by. "I recall a comment by Eugene Debs," Nader said, looking at me intensely. "He said: The American people live in a country where they can have almost anything they want. And my regret is that it seems that they don't want much of anything at all."
Nader chuckled quietly and shook his head. "I say ditto."
V.
If there is an anti-Nader - a crusading lawyer passionately devoted to the pro-business cause - it is Theodore Olson. One of the most influential Supreme Court advocates and a former solicitor general under President George W. Bush, Olson is best known for his winning argument before the Supreme Court in Bush v. Gore in 2000. But Olson has devoted most of his energies in private practice to changing the legal and political climate for American business. According to his peers in the elite Supreme Court bar, he more than anyone else is responsible for transforming the approach to one of the most important legal concerns of the American business community: punitive damages awarded to the victims of corporate negligence.
Punitive damages - money awarded by civil juries on top of any awarded for actual harm that victims have suffered - are designed to penalize especially egregious acts of corporate misconduct resulting from malice or greed, and to deter similar wrongdoing in the future. In the 19th century, courts generally demanded a clear assignment of fault in cases where victims sued for injuries caused by malfunctioning products. It was hard for plaintiffs to recover in personal-injury cases unless the corporation was obviously at fault. But in the 20th century, in liability cases involving a rapidly expanding class of potentially dangerous products like cars, drugs and medical devices, courts increasingly applied a standard of "strict liability," which held that manufacturers should pay whether or not they were directly at fault.
The animating idea was that manufacturers were in the best position to prevent accidents by improving their products with better design and testing. They and their insurance companies (rather than society as a whole) would shoulder the costs of accidents, thus giving them an incentive to make their products safer. Encouraged by Ralph Nader's book, "Unsafe at Any Speed," published in 1965, courts began to see car accidents as predictable events that better car design could have prevented. In 1968, for example, a federal court held that car manufacturers could be sued for failing to make cars safe enough for drivers to survive crashes, even if the driver was at fault for the crash.
A series of well-publicized awards in the 1980s and '90s culminated in the largest punitive damage award in American history the $5 billion levied against Exxon after the Exxon Valdez oil spill in 1989. This was hardly typical: the median punitive award actually fell to $50,000 in 2001 from $63,000 in 1992. Nevertheless, critics like Olson claimed that multimillion-dollar punitive-damage verdicts were threatening the health of the economy. They resolved to fight back on several fronts. In his first Supreme Court argument, in 1986, Olson set out the broad contours of his argument: for most of English and American history, private litigants were entitled to be compensated for whatever damages they suffered, including pain and suffering, but any public wrongs like the failure of American business to make cars safer by adopting air bags should be addressed by legislation or regulation, not by the courts.
Olson decided that his clients deserved not just a lawyer who could argue a case but a lawyer who could change the political culture. "You had to attack it in a broad-scale way in the legislatures, in the arena of public opinion and in the courts," he told me recently. "I felt the business community had to approach this in a holistic way." He set out, in lectures and op-ed pieces, to publicize especially egregious examples. The poster child for punitive-damage abuse, widely derided in TV and radio ads paid for by the business community, was a New Mexico grandmother who, in 1994, was awarded $2.7 million in punitive damages when she scalded herself with hot McDonald's coffee. Consumer advocates countered that she had originally asked for $20,000 for medical expenses, which McDonald's refused to pay, and the award appeared to have the effect of persuading McDonald's to serve its coffee at a safer temperature. Nonetheless, the campaign to vilify plaintiffs' lawyers has been effective enough that the American Association of Trial Lawyers recently changed its name to the fuzzier American Association for Justice.
The business community made other inroads against punitive damages. Corporations financed campaigns against pro-punitive-damage state judges who had been elected with the assistance of large contributions from plaintiffs' lawyers. The business community also helped persuade more than 30 states to either impose caps on punitive-damage awards or direct substantial portions of the awards to be paid into special state funds. In 1996, it helped persuade the Republican Congress, led by Newt Gingrich, to pass legislation that would cap punitive-damage awards in product-liability cases in every state court in the country. But in 1996, President Clinton, with what must have been perverse pleasure, vetoed the bill on the grounds that it violated principles of federalism and states rights to which conservatives claimed to be devoted.
Thwarted by Clinton, and unable to persuade Congress to override the veto, opponents of punitive damages turned their attention back to the Supreme Court, looking for a victory they were unable to win in the political arena. Here, they were remarkably successful. As late as 1991, the court had refused to impose limits on a large punitive-damage award. But in a case in 1996, the court held for the first time that punitive-damage awards had to be proportional to the actual damage incurred by the plaintiff. The case involved a man who said he was deceived by BMW when it sold him a supposedly "new" car that was, in fact, used and had received a $300 touch-up job. The court, in a 5-4 opinion, overturned a $2 million punitive-damage award as "grossly excessive." In 2003, the court clarified what it meant: a single-digit ratio between punitive damages and compensatory damages was likely to be acceptable.
Last year, the business community watched with anticipation as Roberts and Alito revealed their views about punitive damages. The case involved the estate of a heavy smoker who sued Philip Morris for deceitfully distributing a "poisonous and addictive substance." A jury had awarded the estate $821,000 in compensatory damages and $79.5 million in punitive damages - a ratio of about 100 to 1. In a 5-4 opinion written by Breyer, the court held that it was unconstitutional for a jury to use punitive damages to punish a company for its conduct toward similarly affected individuals who are not party to the lawsuit.
This spring, the court will decide the Exxon Valdez punitive-damage case, which many consider the culmination of the business community's decades-long campaign against punitive damages. In 1989, the Exxon Valdez tanker, whose captain had a history of alcoholism, ran into a reef and punctured the hull; 11 million gallons of oil leaked onto the coastline of Prince William Sound. A jury handed down a $5 billion punitive-damage award.
After the verdict, Exxon began providing money for academic research to support its claim that the award for damages was excessive. It financed some of the country's most prominent scholars on both sides of the political spectrum, including the Nobel laureate Daniel Kahneman and Cass Sunstein, a law professor at the University of Chicago. (Sunstein says he accepted only travel grants, not research support, from Exxon; and Kahneman stresses that the financing had no influence on the substance of his work.) In a 2002 book, "Punitive Damages: How Juries Decide," Sunstein studied hundreds of mock-jury deliberations and concluded that jurors are unpredictable and often irrational in punitive-damage cases. Jury deliberations, he found, increase the unpredictability, as well as the dollar amount of the final awards. Sunstein concluded that a system of civil fines determined by experts, rather than punitive damages determined by juries, might be more sensible. When Exxon appealed the $5 billion verdict in 2006, it was reduced by an appellate court to $2.5 billion. The reduced verdict is once again being challenged as excessive.
Walter Dellinger, the lawyer now arguing Exxon's case before the Supreme Court, is no Republican activist. Like Sunstein, he is one of the most respected Democratic constitutional scholars, as well as a former acting solicitor general for President Clinton. Last month, in his argument before the court, Dellinger argued that because Exxon has already paid $3.4 billion in fines, cleanup costs and compensation connected with the Exxon Valdez spill, and because it didn't act out of malice or greed in failing to monitor the alcoholic captain, additional punitive damages would serve no "public purpose."
During the argument, Breyer noted that the $2.5 billion punitive damage award represents a less than 10-to-1 ratio between punitive damages and compensatory damages, which is in the single-digit range that the Supreme Court has considered acceptable in the past. But Breyer also seemed concerned at other points that punitive-damage awards have not been routine in maritime cases like this one, and that the award might create "a new world for the shipping industry." Alito, who owns Exxon Mobil stock, did not participate, and because a tie would affirm the $2.5 billion punitive-damage award, the plaintiffs who are opposing Exxon need only four votes to prevail. But whether Dellinger gets five votes, a significant triumph is already behind him: he persuaded the court to take the case in the first place.
VI.
Ted Olson and the Chamber of Commerce aren't only trying to persuade the Supreme Court to cut back on large punitive-damage awards; they're also arguing that consumers injured by dangerous or defective medical devices and drugs in some cases shouldn't be able to file product-liability suits at all. Because there is no national product-liability law that allows federal suits for personal injuries, consumers who are injured by, say, defective heart valves or artificial hips have to sue in state courts under state tort law. By asking the Supreme Court to prevent injured consumers from suing in state court, the business community, supported by the Bush administration, is trying to ensure that these consumers often have no legal remedy for their injuries. And the Supreme Court has been increasingly sympathetic to the business community's arguments.
In a Supreme Court case Olson argued in December, he stood before the justices and argued that the manufacturers of defective medical devices - like heart valves, breast implants and defibrillators - should be immune from personal-liability suits because the federal Food and Drug Administration had approved the devices before they were marketed and the manufacturers had complied with all federal requirements. The case involved Charles Riegel, who had an angioplasty in 1996 during which the catheter used to dilate his coronary artery burst. Riegel, who needed advanced life support and emergency bypass surgery, eventually sued the manufacturer of the catheter, Medtronic. The company is colloquially referred to in the business community as "the pre-emption company" because of its practice of arguing that the Food and Drug Administration's "premarket approval" of its products pre-empts product-liability suits in state courts.
The lawyer representing Riegel's estate before the Supreme Court, Allison Zieve of Public Citizen, countered that Congress never intended to ban state product-liability suits when Senator Edward Kennedy sponsored a bill regulating medical devices in 1976. (Kennedy himself filed a brief in the case noting that he indeed intended no such thing.) "Lawyers think this is a close issue, but any time I talk to a nonlawyer about it, they're shocked," Zieve told me after the argument. "People think: of course, if somebody makes a defective product you can sue."
It's one thing to argue that the federal government's "premarket approval" of food, drugs and medical devices should pre-empt clearly inconsistent state laws and regulations. After all, if states imposed safety requirements that conflicted with the federal standard, the resulting regulatory confusion would make a national (and global) market impossible. But Olson's claim that federal regulation of medical devices and drugs should also pre-empt product-liability suits under state tort law is one of the more creative and far-reaching legal arguments of the business groups that litigate before the Supreme Court.
This type of argument arose out of the tobacco litigation of the 1980s and '90s, which culminated in a $206 billion settlement paid by the top tobacco companies to a consortium of 46 state attorneys general in exchange for dropping tort suits against the companies. The tobacco litigation began modestly: in 1983, Rose Cipollone, a New Jersey woman dying of lung cancer, sued several of the country's largest tobacco companies for their failure to give adequate warnings about the dangers of smoking. After spending tens of millions of dollars fighting the verdict, the companies decided to take their defense to the next level. They argued that because the federal government required cigarette companies to have warning labels, tobacco companies couldn't be subject to tort suits in state courts. Jury verdicts, they argued, are no less a form of regulation than laws explicitly adopted by state legislatures.
In a decision in 1992, the Supreme Court endorsed part of the companies' argument. The decision unleashed a torrent of similar "pre-emption" claims by the manufacturers of dangerous drugs, defective medical devices and cars without air bags. And after the election of President Bush in 2000, the business community's crusade was aggressively supported by the White House. At the same time that the White House was scaling back on federal health-and-safety enforcement, it insisted that consumers should not be able to sue federally regulated industries in state court. Bush appointed as the general counsel of the Food and Drug Administration a former drug- and tobacco-company lawyer named Daniel Troy. With Troy's support, the F.D.A. reversed its position, held for 25 years, and argued for the first time that its premarket approval of medical devices should prevent injured consumers from bringing product-liability suits in state court.
After her Supreme Court argument in the Medtronic case, Zieve told me she wasn't sure what to expect. Until the arrival of Chief Justice Roberts, groups like Public Citizen had found that they had a better chance of winning pre-emption cases before the Supreme Court than in the lower courts. But during the first two years of the Roberts Court, the justices had decided two pre-emption cases in favor of the corporate defendants.
The trend has continued. On Feb. 21, the Supreme Court handed Zieve a crushing defeat: an 8-1 opinion immunizing the makers of defective medical devices from product-liability suits. The lone dissent was written by Ruth Bader Ginsburg, who objected that Congress could not have intended such a "radical curtailment" of state personal-injury suits when it regulated medical devices in 1976. Ginsburg, who is devoted to liberal judicial restraint, has consistently opposed efforts to second-guess punitive-damage awards or expand federal pre-emption. I called Zieve soon after the Supreme Court issued its opinion, and she sounded shocked. "It's really unfathomable to me," she said. "I wasn't sure that this was a business-friendly court, but now I'm finding it harder not to view it that way." Zieve said that, as a result of the decision, "I think the industry will keep unsafe devices on the market longer and be slower to improve products."
In the eyes of advocates like Zieve and Public Citizen, the public is now caught in a Catch-22: at the very moment that agencies like the F.D.A. are being strongly reproved by critics - including the agency's own internal science board - for being unwilling or unable to protect public health, the court is making it harder for people to receive compensation for the injuries that result. On rare occasions, the Roberts Court has held that the Bush administration's deregulatory efforts circumvent the will of Congress - like the 5-4 decision last year holding that the Environmental Protection Agency acted capriciously when it adopted a rule that said it had no legal authority to regulate greenhouse gases. But by and large, the Supreme Court defers to agencies that refuse to regulate public health and safety. "The industry has a lot of money, and they can routinely hire the biggest names in the biggest firms, while we're doing it on our own," Zieve told me. "We don't charge anything - we're free. It didn't cost $250,000 to get us to write the brief."
VII.
The Supreme Court is unlikely to reconsider its pro-business outlook anytime soon. Nevertheless, there are several currents in American political life that run counter to the court, even if they may not be strong enough, or suitably directed, to reverse it. There are, for example, economic populists in both political parties - John Edwards Democrats and Mike Huckabee Republicans, to cite just two types - who express concern about growing economic inequality and corporate corruption, and blame unchecked corporate power for America's escalating economic problems. These populists tend to be from the working and middle classes rather than the professional classes, and their numbers may be growing. In recent Pew surveys, 65 percent of Americans agreed that corporations make excessive profits - the highest number in 20 years. Moreover, about half the country now asserts that America is divided on economic lines into two groups - the "haves" and "have nots" - up from only 26 percent two decades ago. And the number of Americans who view themselves as "have nots" has doubled to 34 percent today from 17 percent in 1988. Responding to pressures from this demographic, a Democratic Congress - bolstered by states-rights conservatives - might well try to pass legislation to counteract the court's recent decisions barring product-liability suits for defective medical devices.
What about the executive branch? It seems unlikely that John McCain, if he were elected president, would push back against the court: he has already pledged to appoint "judges of the character and quality of Justices Roberts and Alito," rather than justices more devoted to states rights, like Scalia and Thomas. As for Barack Obama and Hillary Clinton, both have sounded increasingly populist notes in an effort to attract union and blue-collar supporters, ratcheting up their attacks on corporate wealth and power, singling out the drug, oil and health-insurance industries and promising to renegotiate the North American Free Trade Agreement. But despite their rhetoric, it is not clear that either candidate would actually appoint justices any more populist than Bill Clinton's nominees. "I would be stunned to find an anti-business appointee from either of them," Cass Sunstein, who is a constitutional adviser to Obama, told me. "There's not a strong interest on the part of Obama or Clinton in demonizing business, and you wouldn't expect to see that in their Supreme Court nominees."
Still, the possibility does exist. If the economy continues to decline and blue-collar voters end up being crucial in the election, a Democratic president might appoint an economic populist to the Supreme Court as a kind of payback. Earlier this month, on the campaign trail in Ohio, Obama mentioned Earl Warren, who served as governor of California before becoming chief justice, as a model of the kind of justice he hoped to appoint. "I want people on the bench who have enough empathy, enough feeling, for what ordinary people are going through," Obama said. He praised Warren for understanding that segregation was wrong because of the stigma it attached to blacks, rather than because of the precise nature of its sociological impact. Appointing a former politician to the court would almost certainly introduce a more populist element: the Supreme Court that in 1954 decided Brown v. Board of Education included, in addition to a former governor, three former senators, a former Securities and Exchange Commission member and two former attorneys general. (By contrast, the Roberts court is composed of nine former judges.)
Whatever happens in November, Robin Conrad says the Chamber of Commerce is prepared to lobby as hard as ever for the appointment of pro-business justices. "If we do have a Democrat president, and that president has opportunities to nominate to the court," she said in our meeting as I glanced at her Hillary Clinton action figure, "we want to be able to express ourselves and work with that president." Regardless of how many justices retire in the next presidential term, Conrad is confident that, having helped to transform the Supreme Court in less than 30 years, she and her colleagues can assure American business of a sympathetic hearing for decades to come.
When I told Conrad that Ralph Nader told me that lawyers were leaving Public Citizen because they were tired of losing, she achieved a look of earnest concern. "I hope if they feel they've lost," she said, "they lost for a good reason - not because they've been overpowered or muscled by the big, bad business community, but they've lost because reason won."
Conrad looked at me squarely, and then added, "I guess if Ralph Nader wants to say we did him in" - she paused to weigh her words - "so be it."
After the Bear Stearns bailout: Fears of more Wall Street failures
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By Barry Grey
In the aftermath of Friday’s emergency action by the Federal Reserve Board to prevent the immediate collapse of the Wall Street investment bank Bear Stearns, US and global markets are bracing for signs that other major US financial institutions will similarly implode.
In a move than has no precedent since the Great Depression of the 1930s, the US central bank brokered an arrangement whereby JP Morgan Chase borrows money from the Federal Reserve Bank of New York and makes it available to Bear Stearns, in the form of a 28-day loan. The Fed explicitly stipulated that it, not JP Morgan Chase, would assume the risk of a default on the loan by Bear Stearns.
The Fed acknowledged that it took this extraordinary action to prevent a run on Bear Stearns, the fifth largest investment bank in the US, from causing an immediate failure of the institution. Noting the danger of “systemic” consequences of such a development, the Fed in effect signaled that it feared a collapse of Bear Stearns would lead to a panic on financial markets and collapse of confidence in the US banking system.
In an article published on Saturday, headlined, “Debt Reckoning: US Receives a Margin Call,” the Wall Street Journal summed up the significance of Friday’s events as follows:
“The US is at the receiving end of a massive margin call: Across the economy, wary lenders are demanding that borrowers put up more collateral or sell assets to reduce debts.
“The unfolding financial crisis—one that began with bad bets on securities backed by subprime mortgages, then sparked a tightening of credit between big banks—appears to be broadening further. For years, the US economy has been borrowing from cash-rich lenders from Asia to the Middle East. American firms and households have enjoyed readily available credit at easy terms. No longer.
“Recent days’ cascade of bad news, culminating in yesterday’s bailout of Bear Stearns, is accelerating the erosion of trust in the longevity of some brand-name US financial institutions. The growing crisis of confidence now extends to the credit-worthiness of borrowers across the spectrum—touching American homeowners, who are seeing the value of their bedrock asset decline, and raising questions about the capacity of the Federal Reserve and US government to rapidly repair the problems.”
In its lead editorial, the Financial Times of London sounded a similarly ominous note, writing:
“Bear Stearns is a leverage machine: with only $11.8 billion of capital from its shareholders it supports a balance sheet of $395 billion, most of it in bonds, and many of those backed by mortgages. To finance that balance sheet, Bear relies on short-term loans secured against its portfolio of bonds...
“A poisonous cycle has taken hold. As mortgage-backed bonds fall in value—even those backed by quasi-government entities Fannie Mae and Freddie Mac—banks demand more security to lend against them. That pushes leveraged investors to sell bonds, depressing prices still further, prompting more margin calls and the collapse of some funds, such as Peloton Capital and Carlyle Capital Corporation...
“There is a whiff of 1929 about all this... Now the question is: what else is out there? Will the liquidity and solvency of other large banks and brokers be called into question?”
The New York Times on Saturday quoted James L. Melcher, president of Balestra Capital, a hedge fund based in New York, as saying, “You get to where people can’t trade with each other. If the Fed hadn’t acted this morning and Bear did default on its obligations, then that could have triggered a very widespread panic and potentially a collapse of the financial system.”
The Fed’s action was aimed at buying time for an orderly disposition of the Bear Stearns debacle, most likely involving the sale of the 85-year-old company, either in whole or in parts, to other banks or financial institutions. Talks were launched on Friday to find one or more buyers of the firm, with speculation centering first on JP Morgan Chase, the clearing bank for Bear Stearns. Other possible takers mentioned in press accounts include the Royal Bank of Scotland and J. C. Flowers, a private equity firm.
Even as these talks were underway, doubts were being raised about another Wall Street titan, the investment bank Lehman Brothers. Bear Stearns was particularly vulnerable to the pressure of a growing credit crisis, combined with a slide into recession, mounting inflation and a rapid fall in the US dollar, in part because it was the second biggest underwriter of mortgage-backed securities. Lehman, however, is the largest underwriter of these distressed and largely unmarketable investments.
While Lehman’s capital position is reportedly stronger than Bear Stearns’, it is the weakest of the other major Wall Street investment houses and commercial banks. The price of Bear Stearns’ stock plummeted by 47 percent on Friday, but Lehman Brothers’ stock also took a gigantic hit, losing 15 percent.
In an unambiguous sign of investor nervousness over Lehman’s prospects, the price for insuring the firm’s debt jumped to $478 per $10,000 in bonds on Friday, from $385 in the morning, according to Thomson Financial.
Another indication of problems was Lehman’s announcement Friday that it had obtained a $2 billion, three-year line of unsecured bank credit from a consortium of 40 banks. JP Morgan Chase and Citigroup led the effort to shore up Lehman’s balance sheet.
The near-panic mood in US and global markets is not likely to improve this week, as four of the five biggest Wall Street investment banks report their fourth quarter earnings. Bear Stearns was due to report on Thursday, but moved the timing up to Monday after Friday’s developments. The others due to report are Goldman Sachs, Morgan Stanley and Lehman Brothers. It is widely expected that the firms will report billions more in write-downs and losses from failing mortgage-backed securities and other distressed debt holdings.
On March 7, Goldman Sachs upped its projection of total bank losses likely to be suffered as a result of the credit crisis to $1,156 trillion—$500 billion in mortgage-backed securities and $656 billion in other soured investments.
The Fed’s action in throwing a temporary life-line to Bear Stearns was the latest in a series of increasingly desperate measures taken by the central bank to avert a financial meltdown. Already this month, the Fed has allocated an additional $400 billion in credit to major banks and investment houses, agreeing to accept as collateral for Treasury bonds privately issued mortgage-backed securities.
On Tuesday, the Federal Reserve’s Federal Open Market Committee meets and is expected to announce a further cut in short-term interest rates of at least 0.5 percent. Market players are betting heavily that the Fed will go even further and slash rates by 0.75 percent or even a full 1 percent. This will bring the federal funds rate, the rate banks charge one another for overnight loans, to 2.5 percent or less. It will mean a cumulative cut of at least 2.75 percent since the Fed began slashing interest rates last September in response to the credit crunch brought on by the collapse of the housing market and soaring home loan defaults and foreclosures.
The massive injections of liquidity and rapid reduction in interest rates can only accelerate the rise in commodity prices, stoking inflationary pressures, and further undermine the dollar on world currency markets. On Friday, Gold reached new records, surpassing the $1,000-per ounce mark and crude oil hit new highs. The dollar reached a twelve-year low against the Japanese yen, hit record lows against the euro, and for the first time ever fell below parity with the Swiss franc.
These are devastating expressions of the decline of confidence worldwide in the US financial system. “Gold is not only an inflation hedge,” said James Turk, founder of GoldMoney.com, “it’s a catastrophe hedge.” He added, “Gold is becoming increasingly important as the credit crunch continues to spiral out of control.”
US Treasury Secretary Henry Paulson’s appearances on Sunday talk shows could not have improved the view of investors on the prospects for the US and global economy. Asked point blank by moderator Chris Wallace of Fox News and George Stephanopoulos of ABC News whether there were other major banks or finance houses likely to suffer a fate similar to that of Bear Stearns, Paulson evaded the question, but pointedly did not rule it out. When asked whether the Bush administration would take stronger measures to bolster the dollar, he similarly demurred, merely repeating the official mantra that “a strong dollar is in the national interest of the United States.”
Notwithstanding the assurances by the Bush administration that the present crisis is little more than a “rough patch,” the signs of impending disaster are mounting. As the Wall Street Journal reported Saturday, there are indications that the massive flow of capital into the US that has sustained the increasingly indebted American economy is markedly slowing. The Journal noted:
“While cash continues to pour into the US from abroad, this flow has been slowing. In 2007, foreigners’ net acquisition of long-term bonds and stocks in the US was $596 billion, down from $722 billion in 2006, according to Treasury Department data. From July to December, as jitters about securities linked to US subprime mortgages spread, net purchases were just $121 billion, a 65 percent decrease from the same period a year earlier. Americans, meanwhile, are investing more of their own money abroad.”
Agence France-Presse carried a story Saturday on one indication of the historical decline in the global position of American capitalism that is at the heart of the current crisis. Under the headline “Dollar’s Plunge Pushes Eurozone Past US,” the news agency cited a report issued last week by Goldman Sachs noting: “‘With the euro now trading around 1.56 against the dollar, the size of its annual output (at market value) has exceeded that of the United States’.”
By Barry Grey
In the aftermath of Friday’s emergency action by the Federal Reserve Board to prevent the immediate collapse of the Wall Street investment bank Bear Stearns, US and global markets are bracing for signs that other major US financial institutions will similarly implode.
In a move than has no precedent since the Great Depression of the 1930s, the US central bank brokered an arrangement whereby JP Morgan Chase borrows money from the Federal Reserve Bank of New York and makes it available to Bear Stearns, in the form of a 28-day loan. The Fed explicitly stipulated that it, not JP Morgan Chase, would assume the risk of a default on the loan by Bear Stearns.
The Fed acknowledged that it took this extraordinary action to prevent a run on Bear Stearns, the fifth largest investment bank in the US, from causing an immediate failure of the institution. Noting the danger of “systemic” consequences of such a development, the Fed in effect signaled that it feared a collapse of Bear Stearns would lead to a panic on financial markets and collapse of confidence in the US banking system.
In an article published on Saturday, headlined, “Debt Reckoning: US Receives a Margin Call,” the Wall Street Journal summed up the significance of Friday’s events as follows:
“The US is at the receiving end of a massive margin call: Across the economy, wary lenders are demanding that borrowers put up more collateral or sell assets to reduce debts.
“The unfolding financial crisis—one that began with bad bets on securities backed by subprime mortgages, then sparked a tightening of credit between big banks—appears to be broadening further. For years, the US economy has been borrowing from cash-rich lenders from Asia to the Middle East. American firms and households have enjoyed readily available credit at easy terms. No longer.
“Recent days’ cascade of bad news, culminating in yesterday’s bailout of Bear Stearns, is accelerating the erosion of trust in the longevity of some brand-name US financial institutions. The growing crisis of confidence now extends to the credit-worthiness of borrowers across the spectrum—touching American homeowners, who are seeing the value of their bedrock asset decline, and raising questions about the capacity of the Federal Reserve and US government to rapidly repair the problems.”
In its lead editorial, the Financial Times of London sounded a similarly ominous note, writing:
“Bear Stearns is a leverage machine: with only $11.8 billion of capital from its shareholders it supports a balance sheet of $395 billion, most of it in bonds, and many of those backed by mortgages. To finance that balance sheet, Bear relies on short-term loans secured against its portfolio of bonds...
“A poisonous cycle has taken hold. As mortgage-backed bonds fall in value—even those backed by quasi-government entities Fannie Mae and Freddie Mac—banks demand more security to lend against them. That pushes leveraged investors to sell bonds, depressing prices still further, prompting more margin calls and the collapse of some funds, such as Peloton Capital and Carlyle Capital Corporation...
“There is a whiff of 1929 about all this... Now the question is: what else is out there? Will the liquidity and solvency of other large banks and brokers be called into question?”
The New York Times on Saturday quoted James L. Melcher, president of Balestra Capital, a hedge fund based in New York, as saying, “You get to where people can’t trade with each other. If the Fed hadn’t acted this morning and Bear did default on its obligations, then that could have triggered a very widespread panic and potentially a collapse of the financial system.”
The Fed’s action was aimed at buying time for an orderly disposition of the Bear Stearns debacle, most likely involving the sale of the 85-year-old company, either in whole or in parts, to other banks or financial institutions. Talks were launched on Friday to find one or more buyers of the firm, with speculation centering first on JP Morgan Chase, the clearing bank for Bear Stearns. Other possible takers mentioned in press accounts include the Royal Bank of Scotland and J. C. Flowers, a private equity firm.
Even as these talks were underway, doubts were being raised about another Wall Street titan, the investment bank Lehman Brothers. Bear Stearns was particularly vulnerable to the pressure of a growing credit crisis, combined with a slide into recession, mounting inflation and a rapid fall in the US dollar, in part because it was the second biggest underwriter of mortgage-backed securities. Lehman, however, is the largest underwriter of these distressed and largely unmarketable investments.
While Lehman’s capital position is reportedly stronger than Bear Stearns’, it is the weakest of the other major Wall Street investment houses and commercial banks. The price of Bear Stearns’ stock plummeted by 47 percent on Friday, but Lehman Brothers’ stock also took a gigantic hit, losing 15 percent.
In an unambiguous sign of investor nervousness over Lehman’s prospects, the price for insuring the firm’s debt jumped to $478 per $10,000 in bonds on Friday, from $385 in the morning, according to Thomson Financial.
Another indication of problems was Lehman’s announcement Friday that it had obtained a $2 billion, three-year line of unsecured bank credit from a consortium of 40 banks. JP Morgan Chase and Citigroup led the effort to shore up Lehman’s balance sheet.
The near-panic mood in US and global markets is not likely to improve this week, as four of the five biggest Wall Street investment banks report their fourth quarter earnings. Bear Stearns was due to report on Thursday, but moved the timing up to Monday after Friday’s developments. The others due to report are Goldman Sachs, Morgan Stanley and Lehman Brothers. It is widely expected that the firms will report billions more in write-downs and losses from failing mortgage-backed securities and other distressed debt holdings.
On March 7, Goldman Sachs upped its projection of total bank losses likely to be suffered as a result of the credit crisis to $1,156 trillion—$500 billion in mortgage-backed securities and $656 billion in other soured investments.
The Fed’s action in throwing a temporary life-line to Bear Stearns was the latest in a series of increasingly desperate measures taken by the central bank to avert a financial meltdown. Already this month, the Fed has allocated an additional $400 billion in credit to major banks and investment houses, agreeing to accept as collateral for Treasury bonds privately issued mortgage-backed securities.
On Tuesday, the Federal Reserve’s Federal Open Market Committee meets and is expected to announce a further cut in short-term interest rates of at least 0.5 percent. Market players are betting heavily that the Fed will go even further and slash rates by 0.75 percent or even a full 1 percent. This will bring the federal funds rate, the rate banks charge one another for overnight loans, to 2.5 percent or less. It will mean a cumulative cut of at least 2.75 percent since the Fed began slashing interest rates last September in response to the credit crunch brought on by the collapse of the housing market and soaring home loan defaults and foreclosures.
The massive injections of liquidity and rapid reduction in interest rates can only accelerate the rise in commodity prices, stoking inflationary pressures, and further undermine the dollar on world currency markets. On Friday, Gold reached new records, surpassing the $1,000-per ounce mark and crude oil hit new highs. The dollar reached a twelve-year low against the Japanese yen, hit record lows against the euro, and for the first time ever fell below parity with the Swiss franc.
These are devastating expressions of the decline of confidence worldwide in the US financial system. “Gold is not only an inflation hedge,” said James Turk, founder of GoldMoney.com, “it’s a catastrophe hedge.” He added, “Gold is becoming increasingly important as the credit crunch continues to spiral out of control.”
US Treasury Secretary Henry Paulson’s appearances on Sunday talk shows could not have improved the view of investors on the prospects for the US and global economy. Asked point blank by moderator Chris Wallace of Fox News and George Stephanopoulos of ABC News whether there were other major banks or finance houses likely to suffer a fate similar to that of Bear Stearns, Paulson evaded the question, but pointedly did not rule it out. When asked whether the Bush administration would take stronger measures to bolster the dollar, he similarly demurred, merely repeating the official mantra that “a strong dollar is in the national interest of the United States.”
Notwithstanding the assurances by the Bush administration that the present crisis is little more than a “rough patch,” the signs of impending disaster are mounting. As the Wall Street Journal reported Saturday, there are indications that the massive flow of capital into the US that has sustained the increasingly indebted American economy is markedly slowing. The Journal noted:
“While cash continues to pour into the US from abroad, this flow has been slowing. In 2007, foreigners’ net acquisition of long-term bonds and stocks in the US was $596 billion, down from $722 billion in 2006, according to Treasury Department data. From July to December, as jitters about securities linked to US subprime mortgages spread, net purchases were just $121 billion, a 65 percent decrease from the same period a year earlier. Americans, meanwhile, are investing more of their own money abroad.”
Agence France-Presse carried a story Saturday on one indication of the historical decline in the global position of American capitalism that is at the heart of the current crisis. Under the headline “Dollar’s Plunge Pushes Eurozone Past US,” the news agency cited a report issued last week by Goldman Sachs noting: “‘With the euro now trading around 1.56 against the dollar, the size of its annual output (at market value) has exceeded that of the United States’.”
Rising costs throw Chinese manufacturing into crisis
Go to Original
By John Chan
For years, China’s cheap labour has helped global corporations push down the wages and conditions of workers around the world. Cheap goods churned out by sweatshops based in China also kept inflation low internationally and underpinned the low interest rate policy in the US that fuelled its financial and housing bubbles.
All this is coming to an end. Thousands of manufacturers have shut down or moved out of China because of rising raw materials costs, higher wages and the rise of the yuan against the US dollar. These processes are in turn accelerating inflationary pressures, not just within China, but internationally.
Small and medium firms (with capital under $US3 million) in China’s light industries, such as shoes and textiles, have been hard hit. The Financial Times (FT) on March 2 reported that one in six Chinese textile companies lost money last year, even though export prices increased 8 percent. According to the China National Textile and Apparel Council, growing wages and a weaker US dollar are squeezing the textile industry’s profit margins.
The textile sector’s average profit margin is 3.9 percent, but the bottom two-thirds of companies are struggling on an average margin of just 0.74 percent. While textile exports grew 19 percent last year to $US175.6 billion, national textile council chairman Du Yuzhou told the FT the industry was “relentless at weeding out the weak”, with large corporations absorbing smaller bankrupt firms. Amid a wave of industrial restructuring, many corporations are shifting production to inland provinces or countries such as Vietnam, Indonesia and India, seeking cheaper labour.
The Asia Footwear Association estimates that about 15 percent of shoe makers in Dongguan—a major export hub in Guangdong’s Pearl River Delta—have shut down or relocated in the past year. During that time, more than 1,000 mainly small and medium footwear factories have closed throughout the province—out of a total of 7,000-8,000. The Federation of Hong Kong Industries predicts that 10 percent of the 60,000-70,000 Hong Kong-owned factories in the delta will close this year. Many factories chose to shut before January 1—when limited new labour laws take effect, requiring employers to sign long-term contracts with workers, pay social security insurance premiums and provide higher compensation for layoffs.
A Hong Kong shoe factory owner, Leung Ka-yiu, who was planning to move his operations to Vietnam told Asia Times that since 2006 the Chinese government had been implementing polices that were unfavourable to the export processing. The measures included heavier taxes for foreign investors and reduced tax rebates for exports. “The labour law can be said to be the last push for me to leave,” he said. “If the law is strictly followed, my factory’s labour cost will increase by 20 percent, which many shoe factories like mine cannot afford, given our profit margin of about 8 percent.” He laid off two-thirds of his workers in December.
Zhu Yongxin, a shoe factory owner in Foshan, Guangdong province, complained that the cost of steel for buttons had trebled from 20,000 yuan a tonne in 2004 to more than 60,000 yuan. Oil for sewing machines cost 75 yuan a barrel—up from 60 yuan a year ago. The cost of unskilled labour had risen to around 1,200 yuan ($US168) a month from 800 yuan two years ago. Skilled workers must now be paid 1,500-2,000 yuan. Zhu said he planned to move the factory to inland Hunan province.
Many migrant workers lost their jobs when they returned to work after the Chinese New Year. Lu Yongyuan, from Guizhou province found that his employer, the Taiwanese-owned Dongguan Hongsheng Mould Factory, had closed. Lu told the FT on February 25: “The government will auction the assets. Costs were just too high [to keep the business going].” A notice posted on the factory gate told its 300 workers to contact local village authorities to collect one month’s wage, although the new labour laws require 10 months’ redundancy pay.
Another factor is the rising yuan. Since the Chinese government delinked the currency from the US dollar in July 2005, it has risen by 16 percent against the dollar, placing enormous pressure on some exporters. Major Western retailers like Wal-Mart have refused to make any significant concessions on procurement prices from China. John Cheh, chief executive of Hong Kong-based Esquel, which makes more than 60 million shirts a year for major brands such as Nike and Gap, told the FT on March 2: “It’s very difficult to raise prices. We show [clients] the numbers and say: ‘Hey, we are losing money on your orders’.”
Xu Jiangchang, general manager of a Ningbo-based garment exporter that employs 4,000 workers, told Reuters: “Each percentage point rise in yuan [against the dollar] means a half percentage point loss in our foreign exchange earnings”. Zhou Dewen, head of the Wenzhou Small and Medium-Size Enterprise Development Promotion Association, pointed out that Wenzhou, which is famous for its small to medium factories, saw half the companies that started in 2007 suspend operations before the end of the year. “The average profitability of Wenzhou enterprises stands at only 3 to 5 percent of assets. A 3-percent yuan rise will wipe out profits in many firms here, in particular textile and shoe companies with low profitability,” Zhou said.
The Chinese government has said these factory closures are part of President Hu Jintao’s philosophy of “Scientific Development” for promoting technologically-intensive industries and moving up in the value chain. Tougher labour and environmental regulations are said to be efforts to build a “harmonious society”. Chinese officials have commented that large corporations should wipe out small firms with low added value and backward technology. Beijing is also encouraging factories to move to inland provinces, supposedly helping to narrow the vast economic gap between rural and coastal regions.
Global processes
The Chinese government, however, has no effective control over many factors behind the growing pressure on the manufacturing industry. Consumer demand in the US is slowing, with the subprime crisis and rising prices forcing many workers to cut back their spending. According to the Ministry of Commerce, Chinese exports to the US increased 20.4 percent in the first quarter of 2007, but the growth rate dropped to 15.6 percent and 12.4 percent in the following two quarters.
Nevertheless, China’s rising production costs will be translated into higher consumer prices in the US and globally. Economic analysts have pointed out that China is likely to retain its position as the world’s largest low-cost manufacturing platform because its huge workforce and extensive infrastructure still enable it to provide competitive advantages over other countries. Vietnam’s share of the US apparel market jumped from 2.8 percent in 2005 to 6 percent this year, but China’s share rose from 25 percent to 40 percent in the same period.
Wal-Mart vice chairman Michael Duke told the media on February 25 that his firm directly sourced $9 billion worth of goods from China in 2007. “China will continue to be a major portion of direct purchases by Wal-Mart for a long time,” he said, adding that although some imports from China may be decreasing, others were increasing. The largest categories of Chinese exports are now machinery and electronics, such as auto parts, computers and electrical home appliances, rather than shoes, textiles and toys.
Rising inflation in China was signalled last year by serious pork shortages. It is now clear that inflation is a far bigger world problem. There has been a wave of financial speculation in global commodities markets, from basic metals to grains. Major energy and mining corporations are demanding huge prices increases from manufacturers. In February, Asian steelmakers were forced to accept a 65 percent increase in iron ore prices, which will be passed onto other industries.
Under these conditions, Chinese workers are demanding higher wages. In an interview with Newsweek on February 14, Auret Van Heerden, head of the Washington-based Fair Labor Association, offered his impressions from a recent visit to China. He commented on the new labour law: “At the factory level people are talking about it everywhere. One of the things about the law is it doesn’t rely on outside labour enforcement... There have already been strikes about it; there have been employers who have been panicked by the commitment the law would require, so they’ve tried to lay off or outsource workers. The workers struck, saying, ‘No, we’re not going to accept that.’ There have been a couple of high profile cases of strikes against dismissal involving Hong Kong-listed companies. Take the richest woman in China [Zhang Yin, CEO of Nine Dragon Papers], who owns a huge paper company. She tried to outsource guards and security cleaning services, and didn’t want to give contracts. The workers struck. It’s been an emblematic case: if one of the richest and most powerful businesswomen in China couldn’t sidestep the law, it’s a good indication of the signal the government wants to send.”
As in the past, Beijing will not hesitate to use police-state methods to suppress unrest among workers. The real motive behind this legislation is fear of social instability. The intense exploitation of workers in sweatshops, coal mines and construction sites has created a climate for social explosions, worrying employers around the globe. Willie Fung, chairman of brassiere maker Top Form, told the Australian the biggest worry was not a cyclical US recession, but labour costs, which “once jacked up, cannot go down”.
While sections of manufacturers are leaving China for countries such as Vietnam, they face similar problems. A wave of unrest among Vietnamese workers demanding higher pay has shaken foreign investors, amid escalating inflation. The annualised rate was more than 15 percent in February. On February 28, 1,500 workers went on strike at a South Korean garment factory in Long An province, demanding $10 more a month. On March 5, 10,000 workers at Tae Kwang Vina, a South Korean shoe contractor for Nike in Dong Nai province, struck for higher wages—although they were already paid 20 percent more than the minimum wage.
The Vietnamese official statistics record that 387 strikes occurred last year—with almost 300 in foreign-owned companies. Hanoi was forced to promise a 12 percent minimum wage increase this year. At the same time, the Vietnamese Stalinist regime’s response to inflation—increasing interest rates and tightening money supply—has led to a severe shortage of the Vietnamese currency, the dong. The global scale of inflation and the crisis in manufacturing industry demonstrates the need for workers in China, Vietnam, Asia and beyond to develop an international movement against the global capitalist system.
By John Chan
For years, China’s cheap labour has helped global corporations push down the wages and conditions of workers around the world. Cheap goods churned out by sweatshops based in China also kept inflation low internationally and underpinned the low interest rate policy in the US that fuelled its financial and housing bubbles.
All this is coming to an end. Thousands of manufacturers have shut down or moved out of China because of rising raw materials costs, higher wages and the rise of the yuan against the US dollar. These processes are in turn accelerating inflationary pressures, not just within China, but internationally.
Small and medium firms (with capital under $US3 million) in China’s light industries, such as shoes and textiles, have been hard hit. The Financial Times (FT) on March 2 reported that one in six Chinese textile companies lost money last year, even though export prices increased 8 percent. According to the China National Textile and Apparel Council, growing wages and a weaker US dollar are squeezing the textile industry’s profit margins.
The textile sector’s average profit margin is 3.9 percent, but the bottom two-thirds of companies are struggling on an average margin of just 0.74 percent. While textile exports grew 19 percent last year to $US175.6 billion, national textile council chairman Du Yuzhou told the FT the industry was “relentless at weeding out the weak”, with large corporations absorbing smaller bankrupt firms. Amid a wave of industrial restructuring, many corporations are shifting production to inland provinces or countries such as Vietnam, Indonesia and India, seeking cheaper labour.
The Asia Footwear Association estimates that about 15 percent of shoe makers in Dongguan—a major export hub in Guangdong’s Pearl River Delta—have shut down or relocated in the past year. During that time, more than 1,000 mainly small and medium footwear factories have closed throughout the province—out of a total of 7,000-8,000. The Federation of Hong Kong Industries predicts that 10 percent of the 60,000-70,000 Hong Kong-owned factories in the delta will close this year. Many factories chose to shut before January 1—when limited new labour laws take effect, requiring employers to sign long-term contracts with workers, pay social security insurance premiums and provide higher compensation for layoffs.
A Hong Kong shoe factory owner, Leung Ka-yiu, who was planning to move his operations to Vietnam told Asia Times that since 2006 the Chinese government had been implementing polices that were unfavourable to the export processing. The measures included heavier taxes for foreign investors and reduced tax rebates for exports. “The labour law can be said to be the last push for me to leave,” he said. “If the law is strictly followed, my factory’s labour cost will increase by 20 percent, which many shoe factories like mine cannot afford, given our profit margin of about 8 percent.” He laid off two-thirds of his workers in December.
Zhu Yongxin, a shoe factory owner in Foshan, Guangdong province, complained that the cost of steel for buttons had trebled from 20,000 yuan a tonne in 2004 to more than 60,000 yuan. Oil for sewing machines cost 75 yuan a barrel—up from 60 yuan a year ago. The cost of unskilled labour had risen to around 1,200 yuan ($US168) a month from 800 yuan two years ago. Skilled workers must now be paid 1,500-2,000 yuan. Zhu said he planned to move the factory to inland Hunan province.
Many migrant workers lost their jobs when they returned to work after the Chinese New Year. Lu Yongyuan, from Guizhou province found that his employer, the Taiwanese-owned Dongguan Hongsheng Mould Factory, had closed. Lu told the FT on February 25: “The government will auction the assets. Costs were just too high [to keep the business going].” A notice posted on the factory gate told its 300 workers to contact local village authorities to collect one month’s wage, although the new labour laws require 10 months’ redundancy pay.
Another factor is the rising yuan. Since the Chinese government delinked the currency from the US dollar in July 2005, it has risen by 16 percent against the dollar, placing enormous pressure on some exporters. Major Western retailers like Wal-Mart have refused to make any significant concessions on procurement prices from China. John Cheh, chief executive of Hong Kong-based Esquel, which makes more than 60 million shirts a year for major brands such as Nike and Gap, told the FT on March 2: “It’s very difficult to raise prices. We show [clients] the numbers and say: ‘Hey, we are losing money on your orders’.”
Xu Jiangchang, general manager of a Ningbo-based garment exporter that employs 4,000 workers, told Reuters: “Each percentage point rise in yuan [against the dollar] means a half percentage point loss in our foreign exchange earnings”. Zhou Dewen, head of the Wenzhou Small and Medium-Size Enterprise Development Promotion Association, pointed out that Wenzhou, which is famous for its small to medium factories, saw half the companies that started in 2007 suspend operations before the end of the year. “The average profitability of Wenzhou enterprises stands at only 3 to 5 percent of assets. A 3-percent yuan rise will wipe out profits in many firms here, in particular textile and shoe companies with low profitability,” Zhou said.
The Chinese government has said these factory closures are part of President Hu Jintao’s philosophy of “Scientific Development” for promoting technologically-intensive industries and moving up in the value chain. Tougher labour and environmental regulations are said to be efforts to build a “harmonious society”. Chinese officials have commented that large corporations should wipe out small firms with low added value and backward technology. Beijing is also encouraging factories to move to inland provinces, supposedly helping to narrow the vast economic gap between rural and coastal regions.
Global processes
The Chinese government, however, has no effective control over many factors behind the growing pressure on the manufacturing industry. Consumer demand in the US is slowing, with the subprime crisis and rising prices forcing many workers to cut back their spending. According to the Ministry of Commerce, Chinese exports to the US increased 20.4 percent in the first quarter of 2007, but the growth rate dropped to 15.6 percent and 12.4 percent in the following two quarters.
Nevertheless, China’s rising production costs will be translated into higher consumer prices in the US and globally. Economic analysts have pointed out that China is likely to retain its position as the world’s largest low-cost manufacturing platform because its huge workforce and extensive infrastructure still enable it to provide competitive advantages over other countries. Vietnam’s share of the US apparel market jumped from 2.8 percent in 2005 to 6 percent this year, but China’s share rose from 25 percent to 40 percent in the same period.
Wal-Mart vice chairman Michael Duke told the media on February 25 that his firm directly sourced $9 billion worth of goods from China in 2007. “China will continue to be a major portion of direct purchases by Wal-Mart for a long time,” he said, adding that although some imports from China may be decreasing, others were increasing. The largest categories of Chinese exports are now machinery and electronics, such as auto parts, computers and electrical home appliances, rather than shoes, textiles and toys.
Rising inflation in China was signalled last year by serious pork shortages. It is now clear that inflation is a far bigger world problem. There has been a wave of financial speculation in global commodities markets, from basic metals to grains. Major energy and mining corporations are demanding huge prices increases from manufacturers. In February, Asian steelmakers were forced to accept a 65 percent increase in iron ore prices, which will be passed onto other industries.
Under these conditions, Chinese workers are demanding higher wages. In an interview with Newsweek on February 14, Auret Van Heerden, head of the Washington-based Fair Labor Association, offered his impressions from a recent visit to China. He commented on the new labour law: “At the factory level people are talking about it everywhere. One of the things about the law is it doesn’t rely on outside labour enforcement... There have already been strikes about it; there have been employers who have been panicked by the commitment the law would require, so they’ve tried to lay off or outsource workers. The workers struck, saying, ‘No, we’re not going to accept that.’ There have been a couple of high profile cases of strikes against dismissal involving Hong Kong-listed companies. Take the richest woman in China [Zhang Yin, CEO of Nine Dragon Papers], who owns a huge paper company. She tried to outsource guards and security cleaning services, and didn’t want to give contracts. The workers struck. It’s been an emblematic case: if one of the richest and most powerful businesswomen in China couldn’t sidestep the law, it’s a good indication of the signal the government wants to send.”
As in the past, Beijing will not hesitate to use police-state methods to suppress unrest among workers. The real motive behind this legislation is fear of social instability. The intense exploitation of workers in sweatshops, coal mines and construction sites has created a climate for social explosions, worrying employers around the globe. Willie Fung, chairman of brassiere maker Top Form, told the Australian the biggest worry was not a cyclical US recession, but labour costs, which “once jacked up, cannot go down”.
While sections of manufacturers are leaving China for countries such as Vietnam, they face similar problems. A wave of unrest among Vietnamese workers demanding higher pay has shaken foreign investors, amid escalating inflation. The annualised rate was more than 15 percent in February. On February 28, 1,500 workers went on strike at a South Korean garment factory in Long An province, demanding $10 more a month. On March 5, 10,000 workers at Tae Kwang Vina, a South Korean shoe contractor for Nike in Dong Nai province, struck for higher wages—although they were already paid 20 percent more than the minimum wage.
The Vietnamese official statistics record that 387 strikes occurred last year—with almost 300 in foreign-owned companies. Hanoi was forced to promise a 12 percent minimum wage increase this year. At the same time, the Vietnamese Stalinist regime’s response to inflation—increasing interest rates and tightening money supply—has led to a severe shortage of the Vietnamese currency, the dong. The global scale of inflation and the crisis in manufacturing industry demonstrates the need for workers in China, Vietnam, Asia and beyond to develop an international movement against the global capitalist system.
Sub-prime mortgage watchdogs kept on leash
Loan checkers say their warnings of risk were met with indifference
Go to Original
By E. Scott Reckard
They could see the meltdown coming.
Freelance financial watchdogs who examined the paperwork on sub-prime home loans being sold to Wall Street had an inside view of the boom in easy-money lending this decade. The reviewers say they raised plenty of red flags about flaws so serious that mortgages should have been rejected outright -- such as borrowers' incomes that seemed inflated or documents that looked fake -- but the problems were glossed over, ignored or stricken from reports.
The loan reviewers' role was just one of several safeguards -- including home appraisals, lending standards and ratings on mortgage-backed bonds -- that were built into the country's complex mortgage-financing system. But in the chain of brokers, lenders and investment banks that transformed mortgages into securities sold worldwide, no one seemed to care about loans that looked bad from the start. Yet profit abounded -- until defaults spawned hundreds of billions of dollars in losses on mortgage-backed securities.
"The investors were paying us big money to filter this business," said Cesar P. Valenz, one of the loan checkers. "It's like with water. If you don't filter it, it's dangerous. And it didn't get filtered."
As foreclosures mount and home prices skid, the loan review function, known as due diligence, is gaining attention. The FBI is conducting more than a dozen probes into whether companies along the financing chain concealed problems with mortgages. And a presidential working group has blamed the sub-prime debacle in part on a lack of diligence by investment banks, rating firms and mortgage-bond buyers.
"Although market participants had economic incentives to conduct due diligence," the group said in a policy statement, "the steps they took were insufficient." To prevent mortgage crises, the group recommended increased disclosure of "the level and scope of due diligence performed" on home loans underlying the securities.
At the height of the sub-prime era, such disclosure wouldn't have been pretty, the freelance loan checkers say.
In interviews with The Times, eight experienced loan reviewers said that as marginal lending increased, quantity took precedence over quality. Squads of 10 to 15 veteran loan checkers gave way, they said, to packs of 40 to 50 mostly novice reviewers posted at or near sub-prime factories such as now-defunct Orange County lenders New Century Financial Corp. and Ameriquest Mortgage Co.
Executives at the two main firms that hired the freelancers -- Shelton, Conn.-based Clayton Holdings Inc. and San Francisco-based Bohan Group -- say the reviewers weren't there to find every potential problem with a sub-prime loan. Rather, the executives say, the job was to perform specific tests to help buyers determine how much to pay for a pool of loans. In some cases, the investors wanted only minimal testing, said Frank P. Filipps, Clayton's chairman and CEO.
"The client really drives the process," Filipps said.
Sub-prime mortgages skyrocketed in popularity -- with the volume of sub-prime-backed securities soaring from $13 billion in 1995 to $594 billion in 2005 and $521 billion in 2006 -- and business exploded for Clayton and Bohan. At the peak, Clayton had about 900 loan-review contractors working for it at any given time, and privately held Bohan had about 350. At publicly held Clayton, revenue rose from $19 million in 2000 to $239.2 million in 2006.
As time passed, Clayton and Bohan executives said, Wall Street firms and their investor customers accepted increasing levels of default and fraud in sub-prime loans as they grew to trust software designed to offset those risks by charging higher interest rates, extra fees and penalties for paying off mortgages early.
As Wall Street grew more comfortable, it demanded less of the review process. Early in the decade, a securities firm might have asked Clayton to review 25% to 40% of the sub-prime loans in a pool, compared with typically 10% in 2006, although the requirements varied, Filipps said.
By contrast, loan buyers who kept the mortgages as an investment instead of packaging them into securities would have 50% to 100% of the loans examined, Bohan President Mark Hughes said.
But the freelancers interviewed by The Times never got the memo that their reviews were supposed to be nice and easy. Flying from city to city and typically paid $30 to $40 an hour, with expenses covered, the reviewers say they worked conscientiously to assure the investment banks and mortgage-bond investors that no surprises lay in the files.
Loan reviewer Jana Lujan recalled showing a file to a supervisor in 2004, during a check of sub-prime mortgages made by a Brea bank that regulators later cited for unsound lending. A title report showed a tax lien on the property.
"I said we needed evidence it had been paid off and released," to ensure against foreclosure, Lujan said. "And he said: 'Just go ahead. Assume it's being taken care of.' "
Loan-buyer representatives who were on site during the reviews also showed little interest in the details, Lujan said.
Lujan said one Clayton supervisor would throw away documents that appeared to have been altered fraudulently. The lack of a document in the file meant the loan had to be sold at a slight discount, she said, but it still could be sold.
Lujan, Valenz and one other loan checker said supervisors at Clayton and Bohan also would change the way fees were described so that mortgages would not be red-flagged as potentially predatory under U.S. law, which would render them unsalable and force the sellers to take them back.
Filipps said he wasn't aware that anyone at Clayton had changed fee categories to bring loans into compliance. He said discarding of documents had never been brought to his attention.
At Bohan, Hughes said he had heard of lenders, but not employees of loan-review firms, throwing documents away. He described attempts to change fee classifications as not unheard of in the industry, but he added that Bohan didn't tolerate such misrepresentations.
New York Atty. Gen. Andrew Cuomo, who is investigating some aspects of the mortgage debacle, has given Clayton immunity from prosecution in return for help in learning whether debt-rating firms and investors got enough information about the loans being sold.
Calling the immunity deal misguided, former Clayton contractors say Clayton and Bohan knowingly understated problems in loan pools.
"There's no way you should give immunity to these guys. They are part of the problem," Valenz said.
Valenz, a veteran employee of mortgage firms, said he complained to bosses about flawed reviews while working directly for Clayton and also for other companies that hired him through a temporary staffing firm on Clayton's referral. He said that after he clashed with supervisors on one such referral job at a bank in Puerto Rico, he was sent home and Clayton never again offered him work.
An attorney for Clayton said Valenz was let go because the Puerto Rico bank fired him for insubordination. Valenz now works as an out-of-state lender's representative to mortgage brokers in Southern California.
The reviewers said the less-thorough approach made their expertise irrelevant and led to pressure to work faster. Valenz and Lujan said they were told to check two or three files an hour when it took an hour or more to do one properly.
One Clayton project supervisor "told us if we spent more than 20 minutes on a file, we were spending 20 minutes too long," Lujan said.
Though quick checks called "data scrubs" could take 20 minutes per loan, Filipps said, complex reviews could take three hours, with the average review taking 80 minutes in 2006.
The biggest problems, the reviewers said, were appraisals that looked inflated and "liar's loans," so nicknamed because borrowers weren't required to prove they earned enough to make their payments.
"You can't tell me a Kmart or a Wal-Mart or a Target floor worker is making $5,000 a month, or a house cleaner is making $10,000," said former loan reviewer Irma Aninger of Palm Desert, a 40-year financial services industry veteran.
Aninger, who did work for Clayton and Bohan, said she tried repeatedly to have such loans marked as unacceptable but was overruled by supervisors, who were known as project leads. "The lead would say, 'You can't do that. You can't call these people liars,' " Aninger said.
Aninger said one such supervisor was Clayton's Ed Peek. He denied discouraging the rejection of "stated income" loans. "Many, many, many stated income loans were rejected," he said, but the loan buyers often bought the rejected mortgages anyway.
From his perch, Peek said, he could see the deterioration of overall standards.
"I had been looking at sub-prime mortgages since the beginning," he said. "When it started, you couldn't get a sub-prime loan for over 80%" of a property's value.
"But the guidelines loosen, and the investors would still buy," Peek said. "They loosen up some more, and investors still buy," until highly risky loans for 100% of a home's value were pushed through.
"Everyone knew this was a bubble that couldn't last," he said. "We all could see this coming."
Go to Original
By E. Scott Reckard
They could see the meltdown coming.
Freelance financial watchdogs who examined the paperwork on sub-prime home loans being sold to Wall Street had an inside view of the boom in easy-money lending this decade. The reviewers say they raised plenty of red flags about flaws so serious that mortgages should have been rejected outright -- such as borrowers' incomes that seemed inflated or documents that looked fake -- but the problems were glossed over, ignored or stricken from reports.
The loan reviewers' role was just one of several safeguards -- including home appraisals, lending standards and ratings on mortgage-backed bonds -- that were built into the country's complex mortgage-financing system. But in the chain of brokers, lenders and investment banks that transformed mortgages into securities sold worldwide, no one seemed to care about loans that looked bad from the start. Yet profit abounded -- until defaults spawned hundreds of billions of dollars in losses on mortgage-backed securities.
"The investors were paying us big money to filter this business," said Cesar P. Valenz, one of the loan checkers. "It's like with water. If you don't filter it, it's dangerous. And it didn't get filtered."
As foreclosures mount and home prices skid, the loan review function, known as due diligence, is gaining attention. The FBI is conducting more than a dozen probes into whether companies along the financing chain concealed problems with mortgages. And a presidential working group has blamed the sub-prime debacle in part on a lack of diligence by investment banks, rating firms and mortgage-bond buyers.
"Although market participants had economic incentives to conduct due diligence," the group said in a policy statement, "the steps they took were insufficient." To prevent mortgage crises, the group recommended increased disclosure of "the level and scope of due diligence performed" on home loans underlying the securities.
At the height of the sub-prime era, such disclosure wouldn't have been pretty, the freelance loan checkers say.
In interviews with The Times, eight experienced loan reviewers said that as marginal lending increased, quantity took precedence over quality. Squads of 10 to 15 veteran loan checkers gave way, they said, to packs of 40 to 50 mostly novice reviewers posted at or near sub-prime factories such as now-defunct Orange County lenders New Century Financial Corp. and Ameriquest Mortgage Co.
Executives at the two main firms that hired the freelancers -- Shelton, Conn.-based Clayton Holdings Inc. and San Francisco-based Bohan Group -- say the reviewers weren't there to find every potential problem with a sub-prime loan. Rather, the executives say, the job was to perform specific tests to help buyers determine how much to pay for a pool of loans. In some cases, the investors wanted only minimal testing, said Frank P. Filipps, Clayton's chairman and CEO.
"The client really drives the process," Filipps said.
Sub-prime mortgages skyrocketed in popularity -- with the volume of sub-prime-backed securities soaring from $13 billion in 1995 to $594 billion in 2005 and $521 billion in 2006 -- and business exploded for Clayton and Bohan. At the peak, Clayton had about 900 loan-review contractors working for it at any given time, and privately held Bohan had about 350. At publicly held Clayton, revenue rose from $19 million in 2000 to $239.2 million in 2006.
As time passed, Clayton and Bohan executives said, Wall Street firms and their investor customers accepted increasing levels of default and fraud in sub-prime loans as they grew to trust software designed to offset those risks by charging higher interest rates, extra fees and penalties for paying off mortgages early.
As Wall Street grew more comfortable, it demanded less of the review process. Early in the decade, a securities firm might have asked Clayton to review 25% to 40% of the sub-prime loans in a pool, compared with typically 10% in 2006, although the requirements varied, Filipps said.
By contrast, loan buyers who kept the mortgages as an investment instead of packaging them into securities would have 50% to 100% of the loans examined, Bohan President Mark Hughes said.
But the freelancers interviewed by The Times never got the memo that their reviews were supposed to be nice and easy. Flying from city to city and typically paid $30 to $40 an hour, with expenses covered, the reviewers say they worked conscientiously to assure the investment banks and mortgage-bond investors that no surprises lay in the files.
Loan reviewer Jana Lujan recalled showing a file to a supervisor in 2004, during a check of sub-prime mortgages made by a Brea bank that regulators later cited for unsound lending. A title report showed a tax lien on the property.
"I said we needed evidence it had been paid off and released," to ensure against foreclosure, Lujan said. "And he said: 'Just go ahead. Assume it's being taken care of.' "
Loan-buyer representatives who were on site during the reviews also showed little interest in the details, Lujan said.
Lujan said one Clayton supervisor would throw away documents that appeared to have been altered fraudulently. The lack of a document in the file meant the loan had to be sold at a slight discount, she said, but it still could be sold.
Lujan, Valenz and one other loan checker said supervisors at Clayton and Bohan also would change the way fees were described so that mortgages would not be red-flagged as potentially predatory under U.S. law, which would render them unsalable and force the sellers to take them back.
Filipps said he wasn't aware that anyone at Clayton had changed fee categories to bring loans into compliance. He said discarding of documents had never been brought to his attention.
At Bohan, Hughes said he had heard of lenders, but not employees of loan-review firms, throwing documents away. He described attempts to change fee classifications as not unheard of in the industry, but he added that Bohan didn't tolerate such misrepresentations.
New York Atty. Gen. Andrew Cuomo, who is investigating some aspects of the mortgage debacle, has given Clayton immunity from prosecution in return for help in learning whether debt-rating firms and investors got enough information about the loans being sold.
Calling the immunity deal misguided, former Clayton contractors say Clayton and Bohan knowingly understated problems in loan pools.
"There's no way you should give immunity to these guys. They are part of the problem," Valenz said.
Valenz, a veteran employee of mortgage firms, said he complained to bosses about flawed reviews while working directly for Clayton and also for other companies that hired him through a temporary staffing firm on Clayton's referral. He said that after he clashed with supervisors on one such referral job at a bank in Puerto Rico, he was sent home and Clayton never again offered him work.
An attorney for Clayton said Valenz was let go because the Puerto Rico bank fired him for insubordination. Valenz now works as an out-of-state lender's representative to mortgage brokers in Southern California.
The reviewers said the less-thorough approach made their expertise irrelevant and led to pressure to work faster. Valenz and Lujan said they were told to check two or three files an hour when it took an hour or more to do one properly.
One Clayton project supervisor "told us if we spent more than 20 minutes on a file, we were spending 20 minutes too long," Lujan said.
Though quick checks called "data scrubs" could take 20 minutes per loan, Filipps said, complex reviews could take three hours, with the average review taking 80 minutes in 2006.
The biggest problems, the reviewers said, were appraisals that looked inflated and "liar's loans," so nicknamed because borrowers weren't required to prove they earned enough to make their payments.
"You can't tell me a Kmart or a Wal-Mart or a Target floor worker is making $5,000 a month, or a house cleaner is making $10,000," said former loan reviewer Irma Aninger of Palm Desert, a 40-year financial services industry veteran.
Aninger, who did work for Clayton and Bohan, said she tried repeatedly to have such loans marked as unacceptable but was overruled by supervisors, who were known as project leads. "The lead would say, 'You can't do that. You can't call these people liars,' " Aninger said.
Aninger said one such supervisor was Clayton's Ed Peek. He denied discouraging the rejection of "stated income" loans. "Many, many, many stated income loans were rejected," he said, but the loan buyers often bought the rejected mortgages anyway.
From his perch, Peek said, he could see the deterioration of overall standards.
"I had been looking at sub-prime mortgages since the beginning," he said. "When it started, you couldn't get a sub-prime loan for over 80%" of a property's value.
"But the guidelines loosen, and the investors would still buy," Peek said. "They loosen up some more, and investors still buy," until highly risky loans for 100% of a home's value were pushed through.
"Everyone knew this was a bubble that couldn't last," he said. "We all could see this coming."
Bidding for a bargain on the foreclosure auction block
Bank-owned homes in the region can start as low as $35,000.
Go to Original
By Andrea Chang
For the past year, Dennis and Carol Anderson had been eyeing a property in Idyllwild, thinking it would make a great retirement home.
On Sunday, the Cypress couple was ready to make an offer. The three-bedroom, 3,000-square-foot mountain house, which was on the market for about $700,000 a year ago, was being sold at a foreclosure auction. The starting bid: $235,000.
"I'm a nervous wreck," said Dennis Anderson, 62, as he waited for the property to be called.
As the housing market continues to slump and mortgage defaults mount, public auctions of foreclosed properties are luring buyers with the promise of bargains. On Sunday, about 600 prospective buyers and real estate agents packed a ballroom at the Doubletree Hotel in Ontario to bid on about 120 bank-owned homes across Southern California.
Starting bids ranged from $35,000 for a three-bedroom in Barstow to $390,000 for a four-bedroom in Norco. Potential buyers were able to view the properties at open houses that took place in the weeks before the auction.
Real estate services and investment firm Kennedy Wilson put on the event, promising an "exceptional inventory clearance" with "incredible deals." The Beverly Hills-based company holds foreclosure auctions around the country and is now staging them as often as every other week.
With thousands of foreclosed homes on the market, "some people tend to look at auctions as their first option as opposed to three years ago," said Rhett Winchell, president of Kennedy Wilson's auction division.
The Andersons, first-time auction goers, waited anxiously as dozens of other homes were sold. After three hours, the Idyllwild house -- Property No. 76 -- was called.
With his glasses perched on the end of his nose, Dennis Anderson entered the starting bid by waving a blue bidding card. Four other bidders jumped in, driving the price up in increments of $10,000.
At $300,000, he raised his card again. The price rose further.
Bidding began to slow once the price topped $400,000, but Anderson remained determined. He offered $416,000. No other cards were raised. Finally, he heard the words he'd been waiting for: "Once, twice, third and final opportunity. . . . Sold!" "Wonderful," he said, as his family cheered and neighboring bidders offered handshakes and congratulations. "It feels like we got a good bargain."
Homes typically enter foreclosure when borrowers can no longer make their mortgage payments and can't sell their homes for amounts that would pay off their loans. Once the properties are turned over to the bank, the lender is motivated to sell them as soon as possible -- and often for a reduced price, said Michael Carney, a professor of finance and real estate at Cal Poly Pomona.
"They've got money tied up in these houses that's not generating anything for them," Carney said. "It's basically a dead loss."
Susana and Edward Salgado arrived at the auction intending to bid on a four-bedroom Lake Elsinore home for their family of four.
"We're tired of renting," said Susana Salgado, 40, a customer service representative from Lake Elsinore. "Homes are going for a great price."
But the couple's bid of $257,000 was topped at the last second by another offer of $258,000. The Salgados didn't go higher.
"We should have bid a little more -- I think we would have got it," she said. "We're a little disappointed."
Although auctions can seem like a good way to buy a home, experts said buyers should research the properties first.
"People see these big signs -- 'Sale: 20% off, 50% off.' Off what?" Carney said. "We don't know what the price of housing ought to be. The real price right now is whatever they can sell it for."
The median price for a Southern California home last month was $408,000, down 17.6% from a year earlier and 19.2%, on average, from peaks reached last year, according to research firm DataQuick Information Systems.
And property records show that foreclosures are growing as a proportion of the home sales market. About 33% of Southern California homes sold in February had been foreclosed since January 2007, up from 3.5% of sales a year earlier.
Carney said home values could drop further. But he noted that at a foreclosure auction, lenders "do have pretty strong incentives to sell," which could translate into large savings for smart buyers.
Not every home was a hot commodity: A handful of properties, including three in San Bernardino, received no bids. But by the end of the day, most had been sold after a flurry of activity.
After one frenzied round of bidding, auctioneer Ty Beahm, his forehead dotted with beads of sweat, had to stop to fan his face after calling out a slew of numbers.
Bidders said the fast-paced auction was both overwhelming and exhilarating.
"It's more exciting than the fantasy football draft," said Jeffrey Nelson, 46, a first-time auction participant from Ontario.
Nelson, an advertising art director, came with his father, Lawrence, to bid on a four-bedroom Corona home with a starting price of $175,000.
"The market's right," he said. "It seems hard to pass up."
Rather than buying for himself, Nelson said he was hoping to turn a profit by buying the fixer-upper and "flipping it in two to three years." But the bidding quickly exceeded his limit of $200,000, and he watched as the house went to another bidder.
Nelson said he wasn't too disappointed.
"We're going to another auction Wednesday," he said.
Go to Original
By Andrea Chang
For the past year, Dennis and Carol Anderson had been eyeing a property in Idyllwild, thinking it would make a great retirement home.
On Sunday, the Cypress couple was ready to make an offer. The three-bedroom, 3,000-square-foot mountain house, which was on the market for about $700,000 a year ago, was being sold at a foreclosure auction. The starting bid: $235,000.
"I'm a nervous wreck," said Dennis Anderson, 62, as he waited for the property to be called.
As the housing market continues to slump and mortgage defaults mount, public auctions of foreclosed properties are luring buyers with the promise of bargains. On Sunday, about 600 prospective buyers and real estate agents packed a ballroom at the Doubletree Hotel in Ontario to bid on about 120 bank-owned homes across Southern California.
Starting bids ranged from $35,000 for a three-bedroom in Barstow to $390,000 for a four-bedroom in Norco. Potential buyers were able to view the properties at open houses that took place in the weeks before the auction.
Real estate services and investment firm Kennedy Wilson put on the event, promising an "exceptional inventory clearance" with "incredible deals." The Beverly Hills-based company holds foreclosure auctions around the country and is now staging them as often as every other week.
With thousands of foreclosed homes on the market, "some people tend to look at auctions as their first option as opposed to three years ago," said Rhett Winchell, president of Kennedy Wilson's auction division.
The Andersons, first-time auction goers, waited anxiously as dozens of other homes were sold. After three hours, the Idyllwild house -- Property No. 76 -- was called.
With his glasses perched on the end of his nose, Dennis Anderson entered the starting bid by waving a blue bidding card. Four other bidders jumped in, driving the price up in increments of $10,000.
At $300,000, he raised his card again. The price rose further.
Bidding began to slow once the price topped $400,000, but Anderson remained determined. He offered $416,000. No other cards were raised. Finally, he heard the words he'd been waiting for: "Once, twice, third and final opportunity. . . . Sold!" "Wonderful," he said, as his family cheered and neighboring bidders offered handshakes and congratulations. "It feels like we got a good bargain."
Homes typically enter foreclosure when borrowers can no longer make their mortgage payments and can't sell their homes for amounts that would pay off their loans. Once the properties are turned over to the bank, the lender is motivated to sell them as soon as possible -- and often for a reduced price, said Michael Carney, a professor of finance and real estate at Cal Poly Pomona.
"They've got money tied up in these houses that's not generating anything for them," Carney said. "It's basically a dead loss."
Susana and Edward Salgado arrived at the auction intending to bid on a four-bedroom Lake Elsinore home for their family of four.
"We're tired of renting," said Susana Salgado, 40, a customer service representative from Lake Elsinore. "Homes are going for a great price."
But the couple's bid of $257,000 was topped at the last second by another offer of $258,000. The Salgados didn't go higher.
"We should have bid a little more -- I think we would have got it," she said. "We're a little disappointed."
Although auctions can seem like a good way to buy a home, experts said buyers should research the properties first.
"People see these big signs -- 'Sale: 20% off, 50% off.' Off what?" Carney said. "We don't know what the price of housing ought to be. The real price right now is whatever they can sell it for."
The median price for a Southern California home last month was $408,000, down 17.6% from a year earlier and 19.2%, on average, from peaks reached last year, according to research firm DataQuick Information Systems.
And property records show that foreclosures are growing as a proportion of the home sales market. About 33% of Southern California homes sold in February had been foreclosed since January 2007, up from 3.5% of sales a year earlier.
Carney said home values could drop further. But he noted that at a foreclosure auction, lenders "do have pretty strong incentives to sell," which could translate into large savings for smart buyers.
Not every home was a hot commodity: A handful of properties, including three in San Bernardino, received no bids. But by the end of the day, most had been sold after a flurry of activity.
After one frenzied round of bidding, auctioneer Ty Beahm, his forehead dotted with beads of sweat, had to stop to fan his face after calling out a slew of numbers.
Bidders said the fast-paced auction was both overwhelming and exhilarating.
"It's more exciting than the fantasy football draft," said Jeffrey Nelson, 46, a first-time auction participant from Ontario.
Nelson, an advertising art director, came with his father, Lawrence, to bid on a four-bedroom Corona home with a starting price of $175,000.
"The market's right," he said. "It seems hard to pass up."
Rather than buying for himself, Nelson said he was hoping to turn a profit by buying the fixer-upper and "flipping it in two to three years." But the bidding quickly exceeded his limit of $200,000, and he watched as the house went to another bidder.
Nelson said he wasn't too disappointed.
"We're going to another auction Wednesday," he said.
Sunday, March 16, 2008
Take the Zeitgeist Challenge
Take the Zeitgeist Movie Challenge. We’re so confident that the claims made by Zeitgeist can’t be proven that we are offering a 200 dollars prize to anyone who can fulfill our simple challenge requirements.
You can take this challenge here http://zeitgeistchallenge.com
Before wasting your time, we encourage you to refer to the links below. Simply put, the so called truths the Zeitgeist film reveals about the "origin" of Jesus Christ are baseless claims without proof.
When searching for truth, regardless of religious or political affiliation, proof is paramount. As such, we encourage you all to do your own research, which will inevitably reveal the deception and anti-Christian bias of the Zeitgeist film.
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SalvationRevelation
You can take this challenge here http://zeitgeistchallenge.com
Before wasting your time, we encourage you to refer to the links below. Simply put, the so called truths the Zeitgeist film reveals about the "origin" of Jesus Christ are baseless claims without proof.
When searching for truth, regardless of religious or political affiliation, proof is paramount. As such, we encourage you all to do your own research, which will inevitably reveal the deception and anti-Christian bias of the Zeitgeist film.
http://www.thedevineevidence.com/jesu... http://www.tektonics.org/copycat/copy... http://www.kingdavid8.com/Copycat/Hom... http://video.google.com/videoplay?doc... http://benwitherington.blogspot.com/2... http://www.preventingtruthdecay.org/z...
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SalvationRevelation
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