Silence as Price of TARP Bailout Funds

Organized labor has seized the bailout of financial services companies as a tool to silence them in the political process.

Last month, the House of Representatives passed two bills in reaction to the AIG executive compensation story: H.R. 1586 (imposing a 90 percent tax on income in the form of retention bonuses received by executives at firms that accepted more than $5 billion in bailout funds) and H.R. 1664 (requiring Treasury to curb "unreasonable or excessive" executive compensation at firms that accepted federal bailout money).

Last Tuesday, labor federation Change to Win asked Neil Barofsky, Inspector General of the Troubled Asset Relief Program (TARP), to audit Bank of America and other firms who received TARP money to determine whether Bank of America and other financial institutionsused TARP money to lobby against the two bills. Treasury officials responded with puzzlement. Money is fungible. Change to Win doesn't agree. In particular, it wants the TARP Inspector General to disclose how much TARP recipients paid in membership dues to the Financial Services Roundtable, a financial services industry group that spoke out against the House bills amid the AIG populist revenge fervor. The Roundtable wrote to lawmakers just after H.R. 1586 passed urging Congressmen to consider the likely effect of bill on the success of the TARP program.

The AFL-CIO's Executive Pay Watch Website unveiled an annual update on April 14 which includes a section on pay practices at companies that have received TARP money. The site also features a report on companies, including Bank of America, that are actively opposing the union-backed Employee Free Choice Act (H.R. 1409, S. 560), a bill that would allow workers to form unions through a majority "card check" process and not by secret ballot. The AFL-CIO has its eye on B of A and Citigroup, TARP recipients who likely oppose the bill.

How Do You Say AIG in Portugese?

Reuters reports that yesterday Portugal's Council of Ministers gave a preliminary nod to legislation that would lift bank customer's privacy rights and impose a special tax rate of 60% to "especially grave, unjustified enrichment" in a customer's account.

Under the proposed legislation, upon "well-grounded suspicions" of tax fraud and a "well-justified resolution by the General Tax Directorate," the government can access a taxpayer's banking information without court order. If the tax authority finds a difference of more than than 100,000 euros ($131,813) over previously reported income that the taxpayer cannot explain, the difference is subject to a 60% tax rate. If it exceeds 100,000 euros, the government gets direct access to the taxpayer's bank account.

The Portgugese Parliament has already approved a similar bill, introduced by the ruling Socialists together with the Left Block coalition party, the Portuguese Communist Party, and the Greens. The last opposition to encroachment of customers' bank privacy rights, President Anibal Cavaca Silva of the conservative Social Democrat party, apparently has folded. Yesterday, he reportedly endorsed the Council of Minister's plan to lift bank secrecy protection.

Lawyer Loses License for Failure to Pay Student Loans

The National Law Journal reported yesterday that a Texas lawyer lost his law license because he defaulted on his student loan. I'd heard of lawyers losing their licenses for failure to pay child support, but student loan debt-- that's hitting close to home. It turns out that there's a little more to this story than the NLJ reported.

Attorney Frank Santulli first ran into trouble with the Texas Bar in 2001. Five years earlier, in 1996, the Supreme Court of Texas adopted Rules for Suspension of Attorneys in Default of Guaranteed Student Loans under which the Texas Guaranteed Student Loan Corporation (TGSCL) can inform the State Bar that a lawyer is in default. The Bar then notifies the lawyer of the report and the lawyer has sixty days to obtain certification from the TGSLC that he has entered into a repayment agreement or that he is otherwise not in default. On the sixty-first day following the notice, if the lawyer cannot produce the requisite certificate, he is automatically suspended from the practice of law. (The New Jersey Bar has adopted a similar rule).

In 2001, after TGSLC informed the Bar of Santulli's default, he appealed his suspension before the Board of Law Examiners. Santulli was in a swamp of credit card and student loan debt. He had worked out a debt management plan with Consumer Credit Counseling Services (CCCS). The Board entered an agreed order granting Santulli a two-year probationary license. He agreed to make payments under the CCCS plan and provide proof of payments to the Board.

Santulli defaulted on the payments due under the plan and in December 2002, the Board held a hearing on revocation of his probationary license. Santulli explained that he had experienced financial setbacks and indeed had not made the agreed payments on his student loan since December 2001. The Board was concerned with the professional implications of his financial problems, in particular that Santulli could find himself "in so much debt and under so much pressure that there are opportunities and temptation either to short-shrift . . . clients, or . . .convert money [from clients] to take care of those debts."

The Board granted Santulli a six-month extension of his probationary license subject to conditions including one that required him to "make suitable arrangements for payment or discharge of all his past due debts." Moreover, the order stated that Santulli's failure to comply with this payment condition would conclusively indicate a lack of trustworthiness and support the inference that Santulli posed an unreasonable risk of harm to his clients. Santulli did not object to the order.

A year later, in December 2003, Mr. Santulli appeared again before the Board and admitted that he had not made any payments on his debt. He had made arrangements with a bankruptcy lawyer to swap family-law work for bankruptcy represenation. But, the bankruptcy lawyer didn't deliver. Santulli hired another bankruptcy lawyer in October, but still no bankruptcy petition. Santulli asked the Board for another month to file for bankruptcy.

The Board rejected Santulli's request for an extension and found him in violation of the condition of his probationary license -- that he make arrangements to pay or discharge his debts. Pursuant to the 2002 agreement, Santulli's failure indicated the lack of good moral character required for the privilege of practicing law. In particular, it found that his failure to make arrangements to pay or discharge his debt presented a clear likelihood that he would harm a client, obstruct justice or violate the lawyer disciplinary rules.

Santulli sought judicial review of the revocation of his license. The trial court affirmed the Board. Santulli appealed arguing that the trial court's order did not rest on substantial evidence, that the condition of his probationary license requiring him to pay or discharge his loans was arbitrary and capricious, and that the Board erred in concluding that his behavior justified a conclusion that he was unfit for the practice of law.

The Texas Court of Appeals (3d Dist.) noted that Santulli did not object to or appeal the Board's 2002 order that imposed the payment condition. The condition was not ambiguous or otherwise inappropriate, and Santulli fully understood it. Although Santulli had filed for bankrutpcy relief in 2004, after entry of the Board's 2003 order, his bankruptcy case and ultimate discharge was not before the Board in 2003. The court held that based on the record before the Board, its decision to revoke Santulli's law license was not erroneous. "[T]he evidence shows that two and one-half years after being given a probationary license conditioned in part on paying or discharging his debts to satisfy the Board's concerns, Santulli had not made any progress . . . other than to develop a more concrete intention to file for bankruptcy within a month."

As for the connection between Santulli's failure to pay his debts and his moral character, the court found that the Board's order was supported by reliable evidence "such that a reasonable man could find that there were substantial doubts about [Santulli's] 'honesty, fairness and respect for the rights of others and for the laws of the state and nation.'" (citing Koningsberg v. State Bar of Cal., 353 U.S. 252 (1957).

In re: Bob

In my counterterrorism seminar, we have come, perhaps inevitably, to the subject of torture. Torture is a thing, like pornography, that is hard to define at the margins but easily identified in its galloping variety. And torture, almost uniquely, is a thing beyond the law. Professor John Yoo gained unhappy fame not for offering the opinion that torture is legal, but by placing a great deal of conduct outside the rubric of torture by attempting to define torture narrowly in the law.

To be sure, there are those who feel torture (even the strident stuff) should be recognized in the law as available to cope with extraordinary circumstances. The quintessential example of such a circumstance is the ticking time bomb scenario, where you (yes, you) have custody of a terrorist who has planted a bomb somewhere (only he knows where) which will detonate in one hour and kill scores of people.

Would you, for example, shoot the terrorist in the leg to extract from him the location of the bomb? Whatever your answer, the idea that you should be able to do so legally (i.e. suffer no legal jeopardy after the fact) is not an exotic one. But whether one subscribes to that idea or rejects it, the basis for doing so cannot be found in the law. It has to be found outside the law, on the far side of a moral reckoning.

I won’t go into how folks in my class came down on the ticking time bomb scenario, because to do so would literally be talking out of school. But our discussion reminded me of a few other moral dilemmas, in my view more agonizing than the ticking time bomb scenario, that I was presented with in my undergraduate years. And it is with these that the rest of this post is concerned. Both came up, unsurprisingly, in philosophy classes.

The first dilemma puts you at the control of a railroad switch. Down one track, on which a runaway train presently travels, are five people who for some reason (you have to just accept the parameters of the scenario to get to the critical moral choice) cannot get off the track and will be killed if you take no action. Along the other track, to which it is in your power to redirect the train, is a single person likewise unable to vacate. The question, of course, is whether you pull the switch and save the five people by sacrificing one, or whether you stand by. You will notice that in addition to the raw number of lives calculus, there is the moral agency dimension to this dilemma: if you pull the switch, you act affirmatively to kill a person who otherwise was not in jeopardy.

Utilitarianism has an answer to this dilemma. Save the five by killing the one. But what if the five are members of the Manson family (they have escaped) and the one is a child who will grow to be the scientist who cures cancer. Utilitarianism then switches sides, even if it had to flip the switch to kill the five. What would you do?

Here’s my favorite: You are in a cave with five friends. For some reason, the cave begins to fill up with water. There is but one exit, and presently one of your five friends gets perfectly and emphatically lodged in the threshold (I’ll call him Bob). There is no way to dislodge Bob by pushing or pulling, and the water continues to rise. It is certain that the five of you yet in the cave will drown if Bob is not dislodged. Bob, incidentally, will live if left undisturbed because his face is directed out of the cave. Luckily for you and the others, and tragically for Bob, there is lying about a stick of dynamite and a means to light it. Using the dynamite on Bob (i.e. blowing him up) will free you and your four friends from the cave. Of course Bob will perish in the exercise. It has been some years since I was in the class in which we discussed this dilemma, and so I feel free, in the interest of writing a more interesting post, to go into some of the views expressed by the students.

The first consideration for the students was to decide whether to use the dynamite. Many of us quickly determined to do so. A few said no, and prepared to hypothetically die. And a few others remained for the time uncommitted. The first and last practical difficulty the Explode Bob caucus ran into was where to place the dynamite. This was a completely unnecessary inquiry, since it had been stipulated that the dynamite would dislodge Bob. Nevertheless, we dilated on the issue. At length, and to our great amusement, we determined that the dynamite would have to be used as a particularly unmarketable suppository. Then one of the uncommitted students asked to be heard. I remember him because he had to that point in the semester not said a single word in class. Accordingly, I had invested him with wisdom. He knitted his brow. He was, he said, in general if reluctant agreement that Bob had to go. But he had some nagging doubts and meant to soothe his conscience thus: couldn’t we, he said, ask Bob if it was ok to blow him up. He spoke, it turned out, too soon in that class.

If you are disposed to do so, change around the numbers involved and the moral character or utilitarian worth of the players and note when you switch from one determination to the other. You will reach decisions intuitively, easily. Then try to identify a consistent principle guiding your decisions. That is only easy if you are prepared to be categorical. And categorical approaches tend, at the limit, to produce absurd results.

Junk not joke email

I knew it even before I opened the email - the telltale signs were all over the subject line .... "Between us".... Now I've won the Irish sweepstakes more times than I can count, been invited to share in the plundered oil wealth of a nation (which one? the emails never say), secret accounts of deceased dictators can be mine, steal the inheritance of those bearing my name, yes, I've seen it all. I especially appreciated the offers that cynically pose as dying religious folk begging to donate huge sums for charity - sure, there's a sucker born every minute, these say - steal from a dying woman, go ahead, you deserve it. They all go into the delete box with a chuckle.

But this one goes too far:
"Between us.... I am an investigative consultant with Holocaust Victims Assets Litigation (Swiss Banks). Between July 1997- July 2008, the Swiss Banker's Association published a list of dormant accounts originally opened by non-Swiss citizens. These accounts had been dormant since the end of World War II (May 9,1945). The continuing efforts of the Claims Resolution Tribunal (CRT) have since resulted in the discovery of various accounts. The published lists contain all types of dormant accounts, including interest-bearing savings accounts,securities accounts,safe deposit boxes,custody accounts, and non-interest-bearing transaction accounts.Numbered accounts are also included. Interest is paid on accounts that were interest bearing when established.The Claims Resolution Tribunal (CRT)handles processing of all claims on accounts due non-Swiss citizens. A dormant account of Aronson Rudolf, with a credit balance of 25,000,000 US dollar plus accumulated interest was discovered by me. The beneficiary left no WILL and no possible records for trace of heirs.As a top executive officer, I have all secret details and necessary contacts for claim of the funds without any hitch. Please verify using this website: http://www.crt-ii.org/links.phtm All that is required from you is to indicate your interest to receive the funds into your norminated Bank account. Please Reach Me Through This email: paulwarren@tsamail.co.za Thanks Paul Warren"

Not funny. Indecent, in fact.

The Crisis of Credit Visualized

A refreshingly lucid explanation of the credit crisis.

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

Finally

Premium, Natural, and Organic Supermarket shoppers, rejoice! Whole Foods has settled with the FTC. According to the FTC press release, "The consent order will restore competition in 17 geographic markets that were impacted by the acquisition. In addition to requiring the transfer or divestiture of all rights to 32 stores, Whole Foods also is required to divest related Wild Oats intellectual property, including unrestricted rights to the “Wild Oats” brand, which retains significant name recognition and loyalty among consumers." FTC Chairman Jon Leibowitz says, "As a result of this settlement, American consumers will see more choices and lower prices for organic foods." Sounds good to me, but is it true?

The settlement requires Whole Foods to divest itself of thirty-two stores, in seventeen geographic markets (In 2007, when the merger agreement was entered into, Whole Foods acquired seventy-four Wild Oats stores). Nineteen of these stores are already closed. Selling closed stores will not likely prove to be easy, and unlike the competition created by a Wild Oats-esque competitor, Whole Foods need not sell the designated stores to a single buyer. This means, the stores could potentially be sold to smaller-scale operations, which may not have the ability to effectively compete with the efficiencies of an operation the size of Whole Foods. A similar problem is seen with the IP rights. Whole Foods must sell its interest in the Wild Oats name, but if the buyer is not at least as big as Wild Oats, the value of the name could diminish greatly.

The settlement also means the Supreme Court won't have the chance to review the D.C. Circuit's opinion, issued last summer, which some have criticized as "a step backward" as it "runs counter to the strong trend in recent Supreme Court jurisprudence for economic rigor and clear standards to guide businesses and the agencies." Will this consent order truly "restore competition"? Only time will tell. All I can say for sure is that settlements are always a compromise.