Category Archives: Corruption

Warren Fighting for Americans, Not Running for President

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“You’re one of the household names in American politics,” Colbert said, “and yet you are one of the few household names that is not running for president of the United States. Are you sure you’re not running for president of the United States? Have you checked the newspapers lately? Because a lot of people have jumped in. You might have done it in your sleep.”

“I’m sure I’m not,” Warren said.

“These days, politicians actually have to check the opt-out button,” Colbert said. But he wasn’t ready to give up.

“Can you tell us why you’d be such a terrible choice?” Colbert said. “… Why we shouldn’t be clamoring for an Elizabeth Warren presidency?”

“I’m out there every single day,” Warren said, “in the middle of a huge fight. And it’s a fight about what this country is going to look like going forward. The game is rigged.”

“What is the game you’re talking about?” Colbert said.

“I’m talking about our country and how it’s run,” the senator said. “… We have a federal government that works great for millionaires, it works great for billionaires, it works great for giant corporations.”

But many, Warren said, were left out.

“For the rest of America, it’s just not working,” Warren said. “It’s time for us to take that government back.”

Colbert’s crowd erupted in applause.

“Well, you don’t sound like you’re running for president,” the show’s host said.

In Colbert’s previous life as a buffoonish right-winger on Comedy Central’s “Colbert Report” in 2014, the talk-show host needled Warren about the benefits of lax financial regulation – mostly to her benefit.

“Have you ever heard of the invisible hand of the market?” Colbert said. “You can’t put handcuffs on an invisible hand. The cops can’t find it… . What you call breaking the law, I call pushing the envelope.”

“You can put handcuffs on people that break the envelope,” Warren said. “When they break the law, they deserve to have handcuffs.”

warren

Does Structure of German Corporations Work Against Whistleblowing?

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Leonid Bershidsky writes: As it accepted the resignation of Chief Executive Martin Winterkorn on Wednesday, the executive committee of Volkswagen’s supervisory board praised his “towering contributions” to the company that stands to lose much of its $37 billion cash stash making amends for major fraud committed on Winterkorn’s watch. Such graciousness is a German tradition, and it raises the question whether there’s something fundamentally wrong with the country’s corporate establishment.

The committee declares as fact that Winterkorn “had no knowledge of the manipulation of emissions data.” There was no way to establish that in the short time since VW’s use of special software to cheat emissions tests came to light. The board, which in April backed Winterkorn in a battle with company patriarch Ferdinand Piech, must have taken the chief executive’s world for it.

When Anshu Jain stepped down as co-chief executive of Deutsche Bank in June, the bank’s stock price was down 17 percent from this year’s high in April, dogged by continuing heavy fines for all sorts of past misdeeds — many committed on Jain’s watch — and a helpless restructuring plan he had proposed. Yet Paul Achleitner, chairman of Deutsche’s supervisory board, expressed his appreciation for the contribution of Jain and the other co-chief executive, Juergen Fitschen, who is leaving at the end of this year, in almost the same words the VW board used for Winterkorn.

In 2013, the supervisory board of Siemens, Germany’s fifth biggest company by revenue, announced the resignation of Peter Loescher, whose time as chief executive was marked by costly delays in important projects and woeful strategic errors, noting that “Under his leadership, the company achieved a substantially higher level of performance and profitability.” Loescher was credited with cleaning up Siemens after the company was caught bribing officials in a number of countries to land contracts.

It may be that malfeasance of the kind seen at VW, Deutsche Bank and Siemens over the years, as well as a lack of executive responsibility for it — beyond the nuisance of having to resign and be sorely missed — is built into the German corporate governance system.

This system is distinctive in that it recognizes the interests of more than just the shareholders. Other stakeholders, such as workers, local governments and often creditors are represented on supervisory boards. Half of Volkswagen’s board consists of employee representatives elected by the workforce. Besides, two of the board’s 20 members are delegated by the state of Lower Saxony. Votes by the workers and the local bureaucrats secured Winterkorn’s boardroom triumph in April. Workers’ representatives, including labor union leaders, take up half the seats on the boards of Siemens and Deutsche Bank, too.

This is called “co-determination.” The term has more to it, though, than joint decision-making. As a result, employees’ and other stakeholders’ interests become closely aligned with those of management.

It is a feature of every scandal that it is followed by promises of a clean-up.

No wonder it often takes intervention from foreign authorities to uncover wrongdoing by German corporations. In the cases of VW and Siemens, U.S. probes led to the damaging revelations. At Deutsche Bank, shady practices might have continued but for the attention of financial regulators in the U.S. and the U.K.

Chancellor Angela Merkel, who has run Germany for the last decade, has done a lot to turn it into a values-based society

The German corporate establishment is out of step with a society that is actively atoning for its 20th century sins. If it cannot cleanse itself, perhaps changes are needed to the corporate governance system to give investors a bigger role and give other stakeholders a stronger voice.

Fixing VW

Emissions Scandal: Libor on Four Wheels

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In the US, in important consumer areas like banking and automobiles, we pass legislation that protects consumers and keeps them safe.  In theory.  We have often discussed the problem of banking regulation on this site.  The ongoing Volkswagen emissions scandal is part and parcel with our failure to jail culpable bankers.

In this case, we regulate fuel emissions to improve the environment.  Often car manufacturers conduct the emissions tests.  If they don’t, the test are conducted in controlled venues.  Cr manufacturers have figured out how to make cars look like they are complying with emissions standards  under these tests.  When the car goes out on the road, the car no longer meets the standards.

In Europe and in the US, diesel cars are desirable because they burn less fuel.  However, with emissions standards, it is apparently difficult to make a profit with a fuel efficient, environmentally-sound vehicle.

What happened with VW was Libor on wheels.  There is no doubt that other car manufacturers will be outed.  Ford already made a deal with the government.

If we take the time to make rules and laws, shouldn’t we try hard to enforce them?   Slowly people like Senators Warren and Sherrod Brown are calling the public’s attention to banking irregularities that tear down economies.  Cars will be next.

Libor on Wheels

 

Tarnished: Made in Germany

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The Volkswagen emissions scandal has rocked Germany’s business and political establishment and analysts warn the crisis at the car maker could develop into the biggest threat to Europe’s largest economy.

Volkswagen is the biggest of Germany’s car makers and one of the country’s largest employers, with more than 270,000 jobs in its home country and even more working for suppliers.

Volkswagen Chief Executive Martin Winterkorn paid the price for the scandal over rigged emissions tests when he resigned on Wednesday and economists are now assessing its impact on a previously healthy economy.

“All of a sudden, Volkswagen has become a bigger downside risk for the German economythan the Greek debt crisis,” ING chief economist Carsten Brzeski told Reuters.

“If Volkswagen’s sales were to plunge in North America in the coming months, this would not only have an impact on the company, but on the German economy as a whole,” he added.

Volkswagen sold nearly 600,000 cars in the United States last year, around 6 percent of its 9.5 million global sales.

The U.S. Environmental Protection Agency said the company could face penalties of up to $18 billion, more than its entire operating profit for last year.

Although such a fine would be more than covered by the 21 billion euros ($24 billion) the company now holds in cash, the scandal has raised fears of major job cuts.

The broader concern for the German government is that other car makers such as Daimler (DAIGn.DE) and BMW (BMWG.DE) could suffer fallout from the Volkswagen disaster. There is no indication of wrongdoing on the part of either company and some analysts said the wider impact would be limited.

The German government said on Wednesday that the auto industry would remain an “important pillar” for the economy despite the deepening crisis surrounding Volkswagen.

“It is a highly innovative and very successful industry for Germany, with lots of jobs,” a spokeswoman for the economy ministry said.

But analysts warn that it is exactly this dependency on the automobile sector that could become a threat to an economy forecast to grow at 1.8 percent this year. Germany is already having to face up to the slowdown in the Chinese economy.

“Should automobile sales go down, this could also hit suppliers and with them the wholeeconomy,” industry expert Martin Gornig from the Berlin-based DIW think tank told Reuters.

In 2014, roughly 775,000 people worked in the German automobile sector. This is nearly two percent of the whole workforce.

In addition, automobiles and car parts are Germany’s most successful export — the sector sold goods worth more than 200 billion euros ($225 billion) to customers abroad in 2014, accounting for nearly a fifth of total German exports.

The German BGA trade association also tried to calm the public by saying there were no signs that customers abroad were starting to doubt quality and reliability of German companies.

But he acknowledges there is a degree of concern among German companies that the scandal over cheating on U.S. diesel emission could have a domino effect on their businesses, eroding the cherished ‘Made in Germany’ label.

VW Emissions Deceit

Who Called for the Defeat Device at VW?

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Volkswagen CEO Martin Winterkorn stepped down Wednesday over the scandal in which the German carmaker admitted to rigging its diesel cars’ emissions to pass U.S. tests.

In a statement, Winterkorn said he took responsibility for the “irregularities” found in diesel engines but that he was “not aware of any wrongdoing on my part.”

No replacement for the post of CEO was announced.

“Volkswagen needs a fresh start — also in terms of personnel,” he said. “I am clearing the way for this fresh start with my resignation.”

“This is the only way to win back trust. I am convinced that the Volkswagen Group and its team will overcome this grave crisis,” he added.

Following his statement, VW’s share price was up 8.7 percent at 121 euros.

Still, it has a long way to make up for the declines that saw nearly 25 billion euros (around $28 billion) wiped off the company’s market value.

Winterkorn had come under intense pressure since last Friday’s disclosure from the Environmental Protection Agency that the company had tried to dupe testers over emissions coming from its diesel cars.  His contract was scheduled to be extended by two years through 2018 at a meeting this Friday of the supervisory board.

The EPA has said Volkswagen could face fines of as much as $18 billion. Other countries, among them South Korea, have also ordered investigations into emission levels of VW cars and some law firms in North America have filed class-action suits.

On Tuesday, Volkswagen said 11 million of its vehicles worldwide contained the so-called “defeat device” that allowed the cars to beat the testers.

In April Winterkorn won a battle against the car executive of the 20th Century, Ferdinand Piech.  Piech is a member of the Porsche family, and the battle against Winterkorn may be the only one he lost in his legendary career.  One of these two men, but likely not both, is responsbile for the “defeat device.”

VW Emissions Deceit

 

VW Emissions: German Reported to Tip Off California Air Resources Board

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Joanna Walters writes:   The emissions-fixing scandal that has engulfed Volkswagen in the US could extend to other companies and countries, one of the officials involved in uncovering the alleged behaviour has told the Guardian.

Billions of pounds have been wiped off the value of global carmakers amid growing concerns that emissions tests may have been rigged across the industry.

“We need to ask the question, is this happening in other countries and is this happening at other manufacturers? Some part of our reaction is not even understanding what has happened exactly,” said John German, one of the two co-leads on the US team of the International Council for Clean Transportation (ICCT), the European-based NGO that raised the alarm.

South Korea said on Tuesday it would investigate emissions of VW Jetta and Gold models and Audi A3 cars produced in 2014 and 2015. If problems are found, South Korea’s environment ministry said its probe could be expanded to all German diesel imports, which have surged in popularity in recent years in a market long dominated by local producers led by Hyundai.

US Congress confirmed it is investigating the scandal on Monday. House energy and commerce committee chairman Fred Upton and oversight and investigations subcommittee chairman Tim Murphy announced that the Oversight and Investigations Subcommittee will hold a hearing.

The US Justice Department is conducting a criminal investigation of Volkswagen admission.

VW shares fell by 19% in Frankfurt, wiping almost €15bn (£10.8bn) off its value.

The US Environmental Protection Agency (EPA) said on Friday that VW had installed illegal software to cheat emission tests, allowing its diesel cars to produce up to 40 times more pollution than allowed. The US government ordered VW to recall 482,000 VW and Audi cars produced since 2009.

In response, Martin Winterkorn, chief executive of VW, said on Sunday he was “deeply sorry” for breaking the trust of the public and ordered an external investigation.

German tipped off regulators at the California Air Resources Board (Carb) and the EPA after conducting tests that showed major discrepancies in the amount of toxic emissions some VW cars were pumping out compared with the legal limits.

VW Emissions Deceit

SEC Asks Offenders to Cough Up Individuals

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Yves Smith writes:  The Department of Justice may face an early test of its long-overdue policy change, that the government will seek to prosecute individuals, including executives, along with those of corporations. As Sally Yates, Deputy Attorney and author of the memo setting forth the new policy, put it, “We mean it when we say, ‘You have got to cough up the individuals.’”

Private plaintiffs have filed two suits alleging bid-rigging by the 22 primary dealers, adding pressure to an ongoing Department of Justice investigation.

The same analytical technique that uncovered cheating in currency markets and the Libor rates benchmark — resulting in about $20 billion of fines — suggests the dealers who control the U.S. Treasury market rigged bond auctions for years, according to a lawsuit….

The plaintiffs built their case against the 22 primary dealers who serve as the backbone of Treasury trading — including Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley — using data from Rosa Abrantes-Metz, an adjunct associate professor at New York University who has provided expert testimony in rigging cases.

Bear in mind that investigations and litigation is underway, and no charges have yet been proven. However, in the last major Treasury bid-rigging scandal, in 1991, the Fed didn’t bother to wait for the Department of Justice to act.  SEC Says- Cough Up Individual Wrongdoers

Too Big to Jail

Deposit Insurance Not Good for Banks?

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Asli Demirgüç-Kunt and Enrica Detragiache, World Bank, Development Research Group, and International Monetary Fund, Research Department write:

In a system without deposit insurance depositors have a big incentive to monitor their banks behaviour, to ensure they do not act in a manner which may endanger their solvency. (If the government didn’t promise to repay your money in the case that your bank fails, would you not be a little more concerned about how the bank uses your money?). In a system with deposit insurance this incentive is removed. Economists call this moral hazard. Moral hazard is when the provision of insurance changes the behaviour of those who receive the insurance in a undesirable way. For example, if you have contents insurance on your house you may be less careful about securing it against burglary than you otherwise might be.

Deposit insurance removes depositors incentive to monitor bank lending decisions because they are guaranteed to receive their money back. Instead, depositors are incentivised by the interest rate offered. Of course, those banks offering the highest interest rate will be those taking the greatest risks, and so banks are incentivised to finance the highest risk, highest return projects.

While higher interest rates may seem to benefit depositors due to higher returns (but not taxpayers – due to greater risks leading to more financial crisis and bailouts) it reality they do not. Instead of offering a higher rate of interest the private bank can offer a lower rate, because the deposit is risk free. This results in a subsidy to the banking sector – the value of which reached over £100bn in 2008.

So despite the fact that deposit insurance is intended to increase the stability of the banking system by preventing bank runs it may in fact make it more dangerous by encouraging risky behaviour from banks:

The U.S. Savings & Loan crisis of the 1980s has been widely attributed to the moral hazard created by a combination of generous deposit insurance, financial liberalization, and regulatory failure… Thus, according to economic theory, while deposit insurance may increase bank stability by reducing self-fulfilling or information-driven depositor runs, it may decrease bank stability by encouraging risk-taking on the part of banks.   Banks are Different from Other Businesses

Bank Deposit Insurance

Ending Corruption in Africa?

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Duncan Alfreds writes:  Corruption is not the most pressing challenge to venture capital investment in the African tech start-up scene, according to an investor.

“I was born in Naples, Italy, and corruption is equal to Lagos,” Maurizio Caio founding partner of TLcom Capital LLP told Fin24.

Caio is on a drive to invest a minimum of $500 000 in tech start-ups in Africa and he has said that developmental challenges are not an impediment to investment in technology companies.

“There are problems: There are traffic problems, corruption problems, which is what you would say if you invest in Naples. We should be aware of the problems, but not take them too seriously,” he said.

TLcom Capital LLP has examined between 600 and 700 tech companies focusing on lower risk areas where government action might present a revenue risk.

“You need to look at hundreds of companies to actually pick the one that has the potential to demonstrate this experiment that we’re all doing here,” said Caio.

The company, which boasts Harvard graduates, rejects 99% of tech firms based on strict criteria that include a detailed examination of business models.

 “In this round, for this cycle, we need to be very merciless in focusing on the highest potential entrepreneurs to make a point, to demonstrate that there are high returns that are possible,” Caio said.

“We discard a very high number of entrepreneurs because of many problems and, to tell you the truth, corruption is not the biggest problem.”

Meanwhile, Caio’s views differ to Transparency International, which has said corruption is costing Africa.

In a blog post by Transparency International’s Chantal Uwimana in 2014, she said that “illicit financial flows from Africa are quickly draining the continent”.

“The UN Economic Commission for Africa estimates that the annual outflow of illicit finance through trade mis-pricing alone stands at about $60bn, having grown at a real rate of 32.5% in the decade between 2000 and 2009,” wrote Uwimana.

“This estimate stands higher than outflows from other developing regions. Illicit financial flows are a serious threat to Africa’s economic growth and development. This situation needs to stop and it is a global responsibility to stop it,” she wrote.

@wtwfinance Designed Derek Easterby

@wtwfinance
Designed Derek Easterby

Who Migrates Across Borders?

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Alex Griswold writes:   Actress Emily Blunt said that after watching the Republican presidential debate in August, she regretted becoming an American citizen.

Blunt made the comments in an interview with The Hollywood Reporter at the Toronto Film Festival. “I became an American citizen recently, and that night, we watched the debate and I thought, ‘this was a terrible mistake. What have I done?’” she said.

The British-born actress only recently obtained dual citizenship in August. Blunt also told THR that she supports Democratic Massachusetts Senator Elizabeth Warren for president.

Blunt stars in the film SICARIO about drug enforcement on the US/Mexican border.  At a time when we are wondering about exactly who is coming across borders from one country to another, these detailed, terrifying film on US efforts to stem the flow of drug traffic to the US is important.  Both in the EU and in the US, refugees, economic migrants, drug traffickers and human traffickers are mixed in a toxic brew.

BLUNT