Blog

Robert Borosage

By Robert L. Borosage
Co-Director Campaign for America’s Future

Focused on the election? Might be a good idea to watch your pockets at the same time. Here’s a glance at what’s happening to the Wall Street bailout.

Hank Paulson is, no doubt, the most impressive of the Bush administration cabinet members, (admittedly not a high bar.) He made hundreds of millions on Wall Street, ascending to be the head of Goldman Sachs. Now, as Treasury Secretary, he has brought in colleagues from Goldman to help manage the $700 billion bailout of Wall Street banks that are in trouble, including Goldman, and… Wait one minute. Doesn’t something ring false here? Hank Paulson no doubt is honorable, but even he has conflicted interests.

When the bailout bill was before Congress, a number of outside groups — including the Campaign for America’s Future which I head — pushed hard for the bailout to be managed by an independent agency, with an empowered board that included independent representatives of workers and consumers. Whatever the form of the bailout — Paulson’s initial demand for $700 billion left that undefined — it was vital that the transactions be accountable to more than once and future bankers.

And know we know why. After initially proposing to buy toxic securities from the banks at inevitably elevated prices, Paulson sensibly decided to follow the British model and inject capital directly into the major banks in exchange for equity. $125 billion is going into the first nine — Goldman Sachs, Morgan Stanley, Merrill Lynch, Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, and Bank of New York Mellon and State Street Corporation. This plus a guarantee of new debt over the next three years is designed to reassure other banks of their solvency, and hopefully get them to resume lending to one another and to businesses.

But Mr. Paulson didn’t exactly cut a great deal for taxpayers. He didn’t get the terms that Warren Buffett demanded, putting up a lot less cash, to invest in Goldman Sachs. And as the New York Times editorial complained, he made government a passive investor, leaving in place the boards and the directors that led their banks into crippling losses.

He made no demands that the banks begin lending again, instead of just hunkering down, girding for future losses. And remarkably — unlike the British — he didn’t demand that the banks stop paying out dividends to shareholders. Nor is it clear that bank regulators will perform the triage needed, merging and purging the banks of excess capacity.

That failure is likely to be very costly to taxpayers and very generous to the very folks who led us into this mess. In a New York Times op ed, David S. Scharfstein and. Jeremy C. Stein show that, if paid at the current levels, the dividends will redirect more than $25 billion of the $125 billion to shareholders in the next year alone. One in five dollars will go out the door, and thus be unavailable to plug the large capital hole on the banks’ balance sheets.

Will those dividends be paid? Most likely, since the directors and officers of the nine banks are leading shareholders. Scharfstein and Stein estimate their personal take will amount to $250 million in the first year, nothing to sneeze at.

Worse, Paulson does nothing to curb the bloated compensation levels that characterized Wall Street in the days of debauch. Jonathan Weil of Bloomberg News shows the effect. Morgan Stanley, for example, gets $10 billion in taxpayers, dollars. Yet this year it has racked up $10.7 billion in employee compensation — the vast majority not yet paid out — even as its stock market value plummeted lost 34.7 billion since the beginning of the company’s fiscal year. With taxpayers help, Morgan Stanley may well pay those bonuses.

Weil reports that the ” five families of Wall Street” — Goldman, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Bear Sterns — lost about $83 billion in stock market value from the start of the 2004 fiscal year. At the same time, they reported about $239 billion of employee compensation. For every dollar of shareholder value destroyed, the employees pocketed almost three. And that was before they got taxpayer money.

No one doubts that the bailout is needed to prop up the global economy. But under Paulson’s plan, we may end up, in Weil’s words, “throwing money at an industry that pays too many people more than they’re worth, to perform services the world has too much of already.”

What’s needed is an independent agency with summary powers and an independent board, to work with the FDIC and other agencies to sort out the solvent banks from the broke, those that need to be saved from those that should fail. And, as in the Chrysler bailout, a suspension of dividends to shareholders until the government has been repaid.

Now maybe Paulson is making the best choices possible given the extent of the crisis. He’s got more information and is far better banker than the rest of us. But with $700 billion in taxpayers’ money at stake, surely it would be wise to have an independent board that can hold him accountable.

By Leo W. Gerard
International President

Toxic Toys
Over the past year, American parents rebuffed foreign-made toys when they contained leaded paint, poisonous cadmium beads or the “date rape” drug.
These toxic toys created a scandal as it became clear that the Bush administration’s deliberately stripped down Consumer Product Safety Commission was not protecting American children and families from dangerous imports. Republicans eschew government regulation, but its absence has allowed our supermarkets to sell us imported tainted toothpaste and deadly dog food.
Now, the National Labor Committee (NLC), which often works with the United Steelworkers to combat sweatshop labor conditions internationally, has released an investigation of the Kai Da Toy Factory in Shenzhen City, China, where the Sesame Street Kid K’Nex Ernie construction kits are assembled, that raises a moral question for American parents: Are they willing to rebuff toys that are toxic to other people’s children?
In this case, it’s the children of Chinese parents who the National Labor Committee found work in grueling, sweatshop conditions to assemble toys that are supposed to bring joy to American boys and girls, toys of Ernie that, ironically, is the character symbolizing playfulness, not work, on Sesame Street.
Even if the Ernie K’Nex toy isn’t bathed in lead paint, the National Labor Committee inquiry found that he’s drenched in the sweat of young workers, including some child laborers. Here is what the NLC discovered:

Forced overtime

The 600 workers at the factory, including 100 16-year-olds, routinely put in 13 to 15-hour days, and work seven-day weeks for months on end. Occasionally, they’re required to endure 23½-hour work days. The weekly overtime is mandatory, even though it exceeds China’s legal limits.
Despite the long hours, workers earn less than one cent per Ernie doll they assemble – 43 cents an hour. That is below Shenzhen City’s minimum wage of 62 cents an hour. And, like the minimum wage in the U.S., that is not subsistence earnings in China. After the factory deducts for room and board, the workers receive only about 28 cents an hour.
The rooms are shared by eight workers, sleeping on metal bunk beds, washing their clothes in sinks, and using communal bathrooms. Many of these workers are young teenagers, who pay additional money toward tuition with the hope of eventually attending technical schools.
Younger children who were working in the factory earlier this year disappeared after a Chinese newspaper, Southern Metropolis, revealed in April that hundreds, if not thousands, of children from impoverished areas in Liangshan Prefecture in Sichuan Province were being sold to work as slave laborers in toy and garment factories.
The Kai Da factory does not cover health care and will dock pay if workers refuse overtime. In addition, if a worker quits before a committed period of time elapses, typically six months, the factory will withhold an entire month’s pay.
These practices are all illegal under Chinese law – the excessive overtime, paying less than minimum wage, and not providing health care. But the National Labor Committee documented them.
K’Nex responded to the report by saying: “We are a family owned company, and we are committed to the safety and welfare of children. The . . .toy factory is ICTI (International Council of Toy Industries) certified, which means that we comply with the highest safety and labor laws in the toy industry. We take the NLC allegations very seriously, and as a result we are launching an immediate investigation.”

Laborer-children

The question, however, is whether K’Nex, or any multinational, is devoted only to the safety and welfare of customer-children and not to that of laborer-children who produce the products.
Or, really, more fundamentally, how did we get ourselves into a situation in which children in China are assembling Ernie toys for children in America? Surely the late Mr. Rogers, were he here to advise us, would say there’s something deeply wrong with this neighborhood. Sesame Street could benefit from a little morality training from Rogers, a Presbyterian minister: It’s wrong to abuse one child so another may play with a cheap Ernie toy. It’s wrong to abuse a child for corporate profit.
There’s something else at play here as well. As children began to toil in China, factories closed in the U.S. The American toy industry lost nearly 60 percent of its jobs over the past 15 years. U.S. factories closed. American workers found themselves unemployed. Now, Chinese adolescents are assembling toys in sweatshops for American parents to buy and wrap for Christmas for their children – well, the American parents who still have jobs and houses in which to put those Christmas trees anyway.
It’s difficult not to buy a toy made in China with 85 percent of those in U.S. stores made there now. But a parent wouldn’t knowingly hand his own child a dangerous toy, one with lead paint or the Aqua-dots kit with its “date rape” chemical substituted by a Chinese manufacturer.
American parents must provide the same consideration to Chinese youngsters and boycott toys that have endangered them by working them in sweatshops. The Sesame Street Kid K’Nex “Ernie” is one of those toys.
The National Labor Committee investigation has provided us with that documentation.

Fair trade

No moral American can enjoy seeing their child play with a toy covered with the sweat of a child laborer. We must have fair trade agreements and regulation that ensure products imported into the U.S. are manufactured in factories that, at the very least, conform to the minimum child labor, wage and overtime laws of the countries of origin.
Sen. Byron Dorgan, a Democrat from North Dakota, has introduced legislation, the Decent Working Conditions and Fair Competition Act, supported by the NLC and the USW, that would make it illegal it import or export goods made with sweatshop labor.
If we as a country can protect property with trademarks and copyrights, and if we can defend foreign pets by prohibiting the importation of cat and dog fur, it’s time to pass Dorgan’s bill protecting human beings from degrading and inhumane sweatshop conditions.

By Leo W. Gerard
International President

21st century slavery
The Government Accountability Office reported to Congress this week that, under the Bush administration, the Labor Department determined that what amounted to a 21st century case of slavery was just fine with the U.S. government.
A Labor Department investigator told the slave, a night attendant at an assisted living facility in Ohio, to file a civil suit to seek redress if she was aggrieved by her lot. And then he closed the case. With no action against the employer who had neglected to pay the woman any wages for an entire year.
Yep, that’s your U.S. Labor Department working for you, the very Labor Department charged with the duty of protecting 100 million workers, the very Labor Department responsible for ensuring employers pay workers, at the very least, the federal minimum wage, and for overtime hours, under the provisions of the Fair Labor Standards Act.
The GAO report arrived in Congress in the midst of high unemployment and inflation, the subprime mortgage crisis spreading like, well, just like fear of bank failure, taking down homeowners; the former global investment bank Bear Stearns, and now IndyMac Bancorp, the second largest financial institution to fail in U.S. history. Meanwhile, the nation’s two largest mortgage finance companies, Fannie Mae and Freddie Mac, are stumbling, causing havoc on the stock market. The dollar’s value continues to fall, which, of course, forces the price of gasoline in the opposite direction. (more…)

By Leo W. Gerard
International President

Toxic Trader invades DC
With a motorcycle police escort, the United Steelworkers’ “Toxic Trader” puppet lurched down Pennsylvania Avenue, past the White House, on his way to the Grand Hyatt Hotel on H Street in Washington, D.C. on July 9.
That is where the Bush administration-backed Import Safety Summit was being conducted by industry leaders and lobbyists who proposed self-instituting standards for safety rather that face government-imposed inspections and regulations to ensure products shipped into this country don’t maim and injure consumers. (more…)

By Leo W. Gerard
International President

Nobody’s second class citizens

In Las Vegas, a town infamous for carelessly bankrupting the naïve, members of the United Steelworkers voted Tuesday to pay a little more forward out of each paycheck to ensure they won’t be duped, overpowered or taken for anybody’s second class citizens.
All of the additional pennies-per-hour steelworkers decided to invest into our strike and defense fund will provide added protection. From 850,000 steelworkers, that will build the account into a formidable force, one to stand up to the kind of power that comes from the boundless capital multinational corporations command, the very multinationals that unions now must reckon with. (more…)

By Leo W. Gerard
International President

Rich get richer

After a year in which the majority of Americans suffered the effects of recession, including tens of thousands who lost jobs because of rising unemployment, hundreds of thousands who lost homes in the subprime mortgage crisis and millions who lost their shirts because of unrelenting gas price hikes, Merrill Lynch & Co. informed us last week that, by contrast, the rich still got richer.
Merrill found that the number of dollars in millionaires’ bank accounts grew faster than the number of millionaires did, a trend expected to continue. The average wealth of the world’s richest was more than $4 million, the highest it has ever been, according to Merrill. They’re an elite club — one-fifth of one percent of the globe’s 6.7 billion people. (more…)