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Chicago Teachers Pension Fund Win First Anti-Trust Case Against Big Banks

 Ruling advances case alleging world’s largest investment banks conspired to maintain anti-competitive stranglehold over $275-trillion market.

Case brought forward by the Chicago Teachers Pension Fund

NEW YORK  — In a critical victory for investors and traders across the country, a federal judge ruled today to uphold a majority of claims in a class action lawsuit against many of the world’s largest financial institutions for allegedly conspiring to engineer and maintain a collusive and anti-competitive stranglehold over the market for interest rate swaps (IRS) in violation of federal antitrust laws. In a decision issued by U.S. District Judge Paul Engelmayer, the court ruled that 11 “Dealer Defendant” banks, including Bank of America J.P. Morgan Chase & Co, Citigroup, Goldman Sachs, and Credit Suisse, must face claims brought forth in litigation led by the Chicago Teachers Pension Fund, which seeks an injunction against the banks’ anticompetitive arrangement and compensatory damages.

“We are pleased with the judge’s decision and look forward to vigorously pursuing justice for the Chicago Teachers Pension Fund and other investors harmed by this conspiracy by the world’s biggest banks,” said Michael Eisenkraft, a partner at Cohen Milstein Sellers & Toll, which is co-lead counsel for the plaintiffs in the class action.

 “For far too long, the world’s banking giants have shut investors out of electronic trading, and today’s ruling is a critical victory in leveling the playing field,” said Carol Gilden, a partner at Cohen Milstein Sellers & Toll also representing the Chicago Teachers Pension Fund and working on the case. “Interest rate swaps represent a multi-trillion-dollar market that traders across the world depend upon, and we will fight to ensure investors have access to the transparency, competitive pricing, and faster execution denied to them by the Defendant Banks.”

Interest rate swaps, which are regularly used by a broad spectrum of investors, including pension funds, university endowment funds, hedge funds, and municipalities, allow an entity to swap its fixed interest-rate payments for the floating interest-rate payments of a benchmark, or vice-versa.  Given their daily use across the financial industry, interest rates swaps are a critical, multi-trillion dollar market which investors depend upon.

According to the lawsuit filed in November 2015 in the U.S. District Court, Southern District of New York, interest rate swaps have been standardized and ripe for exchange trading for years. Exchange trading brings transparent and competitive pricing and faster execution to a market, thus bringing significant benefits to investors.

As alleged in the complaint, the market for interest rate swaps has been economically ready for standardized exchange trading, but investors remain stuck trading IRS in an inefficient and antiquated market dominated by the Dealer Defendants. The lawsuit alleges that by blocking the entry of exchanges into the IRS market, the banks force investors to trade with them in an opaque and inefficient over-the-counter market, allowing the Dealer Defendants to extract billions of dollars in higher fees and costs. According to the lawsuit, the Dealer Defendants maintained this profit center by conspiring to squash potential market entrants that threatened to bring competition and transparency to the buy-side in the IRS market. As detailed in the complaint, the Dealer Defendants have jointly threatened, boycotted, coerced, and otherwise eliminated any entity or practice that had the potential to bring exchange trading to investors in the IRS market.

The plaintiffs are being represented by Cohen Milstein Sellers & Toll and Quinn Emanuel Urquhart & Sullivan.

This Thanksgiving: How To Talk About The Economy Without Getting Into An Argument

man yelling with megaphone

Is your family one of those families… where Thanksgiving dinner always ends up in a political argument?

First thing to remember is that arguing won’t get you anywhere. Research shows that when the people you’re talking with hold strong beliefs, arguing with them only makes it harder for them to change those beliefs. And “when people’s confidence in their beliefs is shaken, they become stronger advocates for those beliefs. … when faced with doubt, people shout even louder.”

Political scientists call it the “backfire” effect – and if you’re an activist, you need to know about it (and remember it). Also remember that there are neurological differences between “Republican” and “Democratic” brains… and there are behavioral differences… although scientists are still trying to figure out exactly what those differences mean.

no_megaphoneSo what are you supposed to do? If you’re, say, sitting around the Thanksgiving table when Great Uncle Chester starts berating your college-graduate niece about the fact that she’s living at home rather than in her own apartment…?

Start by finding common ground. There’s always something to agree on, if you just look hard enough. Even if it’s just a gentle restatement of what the other person said. “Yes, Uncle Chester, we all agree that college graduates should be able to find jobs that allow them to support themselves.”

Then, add a little reality in there. “But that doesn’t seem to be happening in the current economy. There are a whole lot of twenty-somethings who are still living at home.”

Try to use personal examples rather than just facts. “I remember what my neighbor’s son went through, when he graduated two years ago. It took him 18 months to find a job, and even then he earned barely enough for him to make his student loan payments.”

When you talk about facts, try to frame them as a question, not a statement. “Don’t you think that the economy has changed from when you graduated college? Remember how working in a bank used to be a highly-respected job? Did you know that, these days, almost one-third of bank tellers need food stamps?”

Don’t push too hard. With Uncle Chester, you might not be able to persuade him of anything other than that he should stop berating your niece. (And if you push any further, the conversation might get loud and become a “nobody’s going to win this” argument.)

But continue the conversation, if your audience seems receptive. “Did you know that, these days, banks are paying billions of dollars to stockholders, rather than paying their tellers a decent wage?”

— — — —

no_megaphoneDo you have a second cousin Mildred who insists that “cutting taxes for job creators” is the answer to everything?

Find something you both agree on. “Nobody likes paying taxes.”

Add a personal story. “I remember when we got President Bush’s ‘tax refund checks’ back in 2001 and 2008. It was nice to get the money, but I didn’t invest it. I don’t know anybody who invested it. Most people either kept the money in the bank or used it to pay down debt.”

Then, a little reality. “Did you know that Congress has been cutting taxes on ‘job creators’ since Ronald Reagan was President? Back then, they used to call it ‘supply side economics.’ But it didn’t fix the economy; all it did was create a huge budget deficit. So after a few years President Reagan gave up on the idea and increased taxes again.”

Is Mildred still listening? If she looks interested, rather than angry, give her a few more facts. “Did you know that corporations are spending literally trillions of dollars buying back their own stock? Rather than building new factories or hiring new employees, they’re buying back shares of their own stock in order to keep stock prices high.”

Is she still listening? “And corporations are even borrowing money – bonds they will be paying back for decades – in order to give money to their stockholders now. So I don’t think CEOs would really invest money from tax cuts in ‘job creation.’ Don’t you think they would just pay it out to stockholders?”

Is she still listening? “I wonder what would happen to our tax rates, if corporations were paying taxes at the same rate they used to, before the SEC started allowing companies to buy back their own stock. Don’t you think that we might be paying less in taxes?”

— — — —

no_megaphoneDo you have a brother-in-law who isn’t bothered by increasing inequality? Who thinks CEOs actually deserve to receive 373 times as much as their employees are paid?

Then you ought to read this Pacific-Standard magazine article about a recent International Monetary Fund report.

And you can start the conversation with something like, “We all agree that economic growth is a good thing.”

Then add a little reality. “Did you know that income inequality actually hurts our country’s economic growth?”

Add a story. “Gosh, I wonder if this is why Macy’s is having such a hard time. None of my friends are planning to do their Christmas shopping there.   It seems like everybody is shopping discount stores or making their gifts, this year.”

Use questions. “How can the economy recover, if ordinary people don’t have money to spend? Did you know that one in ten American jobs is in retail? What’s going to happen to that sector of the economy if wages stay stagnant?  What’s going to happen to the rest of the economy?”

Know your audience, and either stop (before things get loud) or keep going. “Did you know that increasing the income share to the bottom 20% – even just by a tiny bit – helps the whole economy grow?”  “Do you think that’s why the economy grew more, back when income was a bit more equal?”

— — — —

no_megaphoneAnd if the conversation turns to the Trans-Pacific Partnership (TPP) treaty… please be thoughtful and careful about what you say.

Personally, I’m tired of politicians pitting people against each other. And factory employees in Singapore are working to feed their families, just like we are.

The problem with the TPP isn’t overseas workers, it’s how much power the treaty would give to corporations. It’s how much power the treaty would give to big banks. It’s the idea of America giving up our right to enforce our laws, when those laws are inconvenient to multinational corporations. It’s the idea of turning over even more of our country’s sovereignty to international “investor-state dispute settlement” (ISDS) tribunals.  Read more about how the TPP empowers corporations on the Public Citizen website.

So please, if you’re opposing the TPP, don’t talk about how overseas workers are taking “our” jobs. The real problem is how much it will benefit corporations.

The real problem is that corporate profits are at all-time highs… while labor’s share of that bounty is pretty close to its all-time low.

And the TPP is likely to make that problem worse, not better.

But that’s not the fault of the migrant workers in a Malaysian electronics factory.

— — — —

Happy Thanksgiving! I hope the conversation around your dinner table is a peaceful one.

— — — —

no_fearBut if the conversation turns to Paris and Syrian refugees, please be especially careful. Fear is one of the most basic human emotions… it’s also one of the most destructive… and one of the easiest to manipulate.

Journalist Naomi Klein is the author of “The Shock Doctrine: The Rise of Disaster Capitalism.” She’s done a lot of research into how corporatists use disasters to push through political change. Read her work about the aftermath of Hurricane Katrina here.

“For more than three decades, [economist Milton] Friedman and his powerful followers had been perfecting this very strategy: waiting for a major crisis, then selling off pieces of the state to private players while citizens were still reeling from the shock, then quickly making the ‘reforms’ permanent. In one of his most influential essays, Friedman articulated contemporary capitalism’s core tactical nostrum, what I have come to understand as the shock doctrine. He observed that ‘only a crisis— actual or perceived—produces real change.’ ”

I think of her work every time someone mentions the Bush tax cuts. Back in 2001, the federal government had a budget surplus; and in the first few weeks of September, the Washington Post did a poll that found 57% of Americans wanted the Bush tax cuts reversed, in order to preserve that surplus. Then 9/11 happened. And a decade and a half later, we still haven’t gotten tax rates restored to Clinton-era levels… and the federal debt has increased by $12.4 trillion.  (And we’re being told we need to cut Social Security, rather than restore the tax rates that President Bush cut even further “while citizens were still reeling from the shock” of 9/11.)

The Paris attacks renewed the atmosphere of fear that I remember after 9/11… and we’ve already seen how some politicians want to use that fear to change government policies. The good news is: my Facebook feed is full of people pushing back against these proposals, questioning them and using historical analogies to say “This is not what America stands for.” The bad news is: Facebook feeds are determined by an algorithm that tends to reinforce what people already believe.

So… when the conversation turns to Paris, and ISIS, remember the advice above.  Arguing isn’t going to help. You need to find some way to help the people you’re talking with step away from their fear, and step into the reality that their fear allows them to be manipulated. Find something to say that you both agree on – most people agree that refugees should be vetted before being resettled – and work from there.

One ‘Modest Proposal’? Or the other?

cloverI couldn’t help it.  This year, on Saint Patrick’s Day, I didn’t feel much like partying.

I couldn’t stop thinking about Ireland’s Great Famine — and hearing echoes across the centuries, right here in the United States, as the working class endures Year Seven of their Great Recession (while the elite are taking home more money than ever).

Apparently, I wasn’t the only one thinking along those lines.  If you can take three minutes to read “Paul Ryan’s Irish Amnesia” you’ll see what I mean.

[In the 1840s] A great debate raged in London: Would it be wrong to feed the starving Irish with free food, thereby setting up a “culture of dependency”? Certainly England’s man in charge of easing the famine, Sir Charles Trevelyan, thought so. “Dependence on charity,” he declared, “is not to be made an agreeable mode of life.”

That Great Famine, of course, wasn’t the first time Ireland’s poor had been ravaged by economic conditions.

In 1729, Irish author Jonathan Swift (writing anonymously) tried to call attention to the plight of the poor — and the heartless attitudes of the rich — through his classic satire, “A Modest Proposal.”

The plight of the poor… versus the attitudes of the rich.  Some things don’t ever seem to change.

I found an interesting chart on the website of the Federal Reserve Bank of St. Louis. It compares the amount of federal taxes paid by corporations (red line) with the amount of profit that corporations pay out to their stockholders as dividends (blue line).

And it looks like during all those decades when the American Middle Class was thriving, corporations were paying about the same amount in taxes to the federal government as they were paying in dividends to their stockholders.

  • Corporate taxes help the federal government fund the various infrastructures that businesses need to thrive, including transportation (highways, bridges, ports); the court system (contract enforcement); public safety and law enforcement.  These days, large employers like WalMart, McDonalds and the country’s biggest banks also depend on safety-net programs such as Medicaid and Food Stamps to supplement their workers’ low wages.
  • Dividends represent the payout of corporate revenues which were not spent on wages/benefits or invested in expansion (new factories, new equipment, new product development, new employees).  To the stockholders, they are “passive earnings” — similar to the bank interest most of us used to earn on money in our savings accounts — money that you get simply because you already have money.

All the way up until Ronald Reagan signed “The Tax Reform Act of 1986”, it looks like those two amounts were pretty much equal: what corporations paid as taxes, and what they paid out as dividends.

So I’d like to make a “Modest Proposal” of my own: let’s go back to that tradition.

From the chart, it looks like that single change would add about $380 billion a year in federal revenues: enough to fund the Food Stamp program four times over (and still have billions to spend other things).

Restore corporate tax levels.

MY “Modest Proposal” isn’t intended as a satire. And it would be a lot easier to swallow than Jonathan Swift’s.

Just sayin’.

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