Free Lunch: David Cay Johnston off the leash

A version of this review appeared at Spot-on last week, but as you know over there I get heavily edited by Chris Nolan who’s a real journalist and all that. The beauty of the zero cost of publishing online is that you can show lots of versions. This is what it looked before it got to her. Enjoy.

Despite being buried in Health 2.0 work, somehow I’ve been managing to read a few books lately. But none of them have been quite as staggering as Free Lunch, the latest from former NY Times investigative reporter David Cay Johnston.

Johnston’s best known for his exhaustive investigation into how corporations and very very rich individuals subvert the tax code so that they pay less, while the rest of us pay more. But in this book (probably because he’s no longer a NY Times Reporter and is off the leash of restraint that the Grey Lady seems to put on its reporters) he gets almost biblical in calling out the cheats, crooks and murderers.

And when I say murderers, Johnston is talking about John Snow, Bush’s former treasury secretary — yup the one who did such a great job regulating the sub-prime mortgage market that the potential for a credit and housing collapse in the latter part of this decade was avoided…oh, wait….

Snow was CEO of CSX corp, a railroad corporation that Johnson shows
sucked entirely off the public teat, and systematically and knowingly
reduced the amount it spent on safety—and also subverted the safety
inspectors who were supposed to enforce the law—to the point that train
crashes and subsequent passenger deaths dramatically increased. And
when CSX was finally successfully sued by the wife of a Miami cop who
died in a crash, somehow it had managed to subvert the rules that
instead of the CEO or the shareholders paying the huge damages, Amtrak
did. Yup, you and me paid for it. That of course didn’t stop Snow
raking tens of millions off CSX over his tenure there, even as the
stock price fell. He later went off to run a company that managed to
fail to deliver ice to Katrina victims and was in charge of maintenance
in the infamous buildings at Walter Reed where Iraq war veterans lived
in squalid conditions.

If Johnston’s utter disdain for Snow drips off every page he writes about him, well Snow’s in good company.

Johnston goes after the welfare queens who run sports teams (George
Steinbrenner, George W. Bush et al) and the politicians who tax the
poor and middle class to pay them huge subsidies. In fact organized
sport in the US makes a profit for its owners that is less than the
amount of public subsidies it receives. That’s right—we’re all paying
for the billions those owners make.

He continues down the line of industries and individuals who have
lobbied to change the rules that benefit the rich at the expense of
everyone else. You think Warren Buffet is some cuddly grandfather who
gets a free pass cause he’s a Democrat who’s giving it all away to
charity? Not in Johnson’s world.

Johnston demonstrates that de-regulated electricity “markets” brought
to you by Enron and its kept politicians Bush, Cheney et al, were
systematically rigged against consumers, and shows why municipally-owned utilities produce cheaper (and more reliable supplies of)
electricity. Something by the way that the residents of Sacramento,
Palo Alto and Los Angeles know and that those in San Francisco would
like to find out, which is PG&E’s ads against the public power
initiative on the ballot in my home town have started 2 full months
before the election.

Johnson shows how Buffet’s lobbyists systematically went after
municipalities in Iowa which owned their own utilities and wanted to
compete with his utilities. He didn’t stop them in the free market; he
stopped them by paying off politicians.

That pattern is repeated over and over again in the book. Under the
cover of obfuscation and an emasculated corporate media, politicians at
the state and Federal level take payola (sorry, campaign
contributions), and wealthy men and corporations do anything they can
to suck more from the public teat and to avoid paying their fair share.
To the extent that the richest 400 families in America making over
$100m each pay a lower proportion of their income in tax than
the rest of us. And don’t forget, we’re borrowing from the Chinese to
fund that tax break, so our kids will pay it off.

Health care is not spared Johnson’s wrath. I was amused last year
when Bob Gumbiner who made tens of millions of dollars converting FHP
from a non-profit to a for-profit sent me his book
proclaiming that a single-payer socialized system was the answer for
America. Johnson reminds us how he essentially defrauded the state of
California out of about $200 million (in 1986 dollars!) when he got to
convert FHP on the cheap. Same with Len Schaeffer, who’s own initial
attempts to pay nothing when Wellpoint/Blue Cross converted
were eventually blocked. Of course the amount eventually given to the
California Endowment & the CHCF were quite large, but puny in
comparison to the market cap of Wellpoint. I’ve written about the excessive fawning over Len Schaeffer before on THCB,
but coincidentally I talked last week to someone about to go to lunch
with him. We got onto the topic of how much Len has taken out of the
health care system and the estimate was around $1 billion.

It’s good to know that in the course of Schaeffer, McGuire,
Abramson, Glasscock et al becoming billionaires, the health care system
became cheaper and all the problems with access got fixed….oh wait…

Johnson ends the book laying out the income data. And although we
know it, it’s staggering. All of the gains in the last thirty years
have gone to the top 10%. Everyone else has seen their incomes go down
in real terms and of course their share of the nation’s wealth plummet.
But wait there’s more (a catch phrase Johnson likes!). The bottom half
of the top 10% are standing still and it’s only the top 5% who have
gained, and most of that gain is in the top 1% and most of that gain is
in the top 0.1%.

After 35 years of “free marketeers” running their own version of
corporate welfare, we are a nation that has an income distribution that
looks like Mexico, Russia or Brazil. Or like France before 1789.

Revolution anyone?

Free Lunch is a fabulous book by a veteran investigative reporter
giving you his life’s work. There’s way more in it than I’ve described
here. Buy it and read it.

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5 replies »

  1. 1) Gosh, when did DCJohnston leave the NYTimes? Did I miss a story in the Times?
    2) David’s “Perfectly Legal” is another, earlier, screed on the IRS–of particular interest in that it documents how our Congress has insisted on spending lots of money on audits of the poor (with full-dress terrorizing tactics and draconian punishments perfectly matched (NOT) to the incredibly huge amount of dollar-damage (NOT) done to our national debt by the disgustingly evil, greedy, sinful and immoral poor people. (Do I have to say NOT again?).
    And wait! There’s MORE!! Congress’ concomitant cutting of funds –even the tiniest sums requested–to audit the very, very richest of “filers”– to ADD A SINGLE YES/NO CHECK-BOX TO THE 1040 after the question: DO YOU HAVE FOREIGN BANK ACCOUNTS?
    Was this budgetary resistance based on the cost of ink or page-layout design time? Nope. It was based on the cost of hiring typists–typists–to enter the check-marks into the IRS database. (You perhaps thought the 1040s were read by computer, like the way you can scan and optically-recognize text documents on your $0.0000025-Billion ($2,500) home computer and $30 8.5″ x 14″ scanner with free OCR software?
    Not at all. Our IRS is probably paying billions of bucks for custom software being written with command-line interfaces (80 cols by 25 line display screens) FORTRAN or COBOL under MS DOS 1.0 by a software archaeology company, for high-end 64K ram, dual 5.25-floppy disk IBM PS/1s (1981 vintage). So hiring 50 or 100 temporary keyboardists might indeed break the bank, leaving not enough money to pay Halliburton et al. to double-bill us for preparing troop meals in Iraq. Of course, I’ve been prejudiced by my days pulling KP in Vietnam, where draftees and enlistees actually DID peel potatoes–at least dig out the remaining eyes after running the potatoes through the floor-standing Hobart “potato-sanders.”
    (If you’re ever drafted, here’s a tip: the trick on KP is to sleep in and not race to be first in line–to try to get just table-setting and clearing duty. If you get up at 4:30, there’s no guarantee that others won’t roll out of the sack at 3:45 or 4:00. Roll into the mess hall or mess tent around 7:00 and you’re assured of getting that extra 3 hours of sleep and the same job every time–pots and pans–so you can buy a pair of elbow-length industrial strength rubber gloves from the PX, run the sink-water at its hottest level–about 165°–at which temperature the pots and pans pretty much wash themselves. You just have to pull ’em out of the hot, soapy water and rinse. The pots and pans also dry themselves at that temperature.)
    3. As for who “owns” the financial “crisis” (who says it’s a crisis? Is it really a crisis? Or is the press merely quoting self-serving, There’s-A-Chicken-Little-Lying/Stupid Politician-In-Every-Congressional-District), the Demicans, with Bobby Rubin, and the Republicrats, with Cheney, Snow, Paulson, etc., all own the problem.
    4) In “Bad Money,” Kev. Phillips notes that the “financial sector” is now the “biggest part of our GNP,” having out-stripped manufacturing somewhere back in ~1995 (I’m hoping that the “~” is the graphical equivalent of “circa” or “about,” “approximately,” etc.)
    Just think of it. The “financial” sector, with its four-wheel-drive “investment vehicles,” it’s carefully shrink-wrapped, bar-coded, shipped-in-climate-controlled tractor-trailers “financial products,” its “investments” is “productive” in some way.
    Are you kidding me? The “financial sector” is one huge gambling casino, with its touts, shills, marks (that’s us). Stocks? An IOU from the company to the mark, signifying your bet that the company will pay you the promised dividend if you hold the IOU long enough, or your bet that some mark will buy it from you for more than you paid for it a little later.
    The “financiers” deal in nothing more than computer entries and IOUs on paper, written up in great detail, with a few signatures at the bottom.
    If you feel a little bit of distrust towards a “central bank” that calls itself “Federal” when it’s private (it’s against the law to name your private corporation with a misleadingly “governmental” sounding name, I remember once reading), that says it’s a “Reserve” outfit when there are NO reserves, you’d be quite rational. The only thing accurate about the name Federal Reserve System is the last word–System. A system to issue and control all the money supply in the United States as a LOAN to the citizens and make the citizens pay interest on it the loan.
    In other words, if you wanted to get real gold or silver (as required by the US Constitution–in a section that has NOT been amended, not once, not ever, since its ratification in 1789–for your greenbacks, you could not do so. We probably don’t even have any gold or silver sitting in Ft. Knox. The US Mint probably has what little silver the country possesses in its own coin-making vaults. The so-called “Federal Reserve Notes” — our money — is “legal tender” but only by statute–by “legislative action” or “legislative fiat.”
    Every dollar in your pocket or bank account(s) is an IOU. An IOU that the “fed” holds against you, at least as I understand it.
    The US Mint buys very expensive paper, hires expensive engravers, buys very expensive printing presses, ink, paper-cutters, and so on, then prints, cuts, shrink-wraps and palletizes these Federal Reserve IOUs and ships them off to the dozen “fed” bank vaults in the US.
    The “fed” pays not one purple penny for the printing, wrapping, shipping of this fancy paper. It just stores it in its vaults, until it decides to turn the paper into money. In other words, one Benjamin has absolutely no value, is not counted as part of our economy, doesn’t exist as money, until the “fed” decides, on its own, private, secretive own hook, to turn it into “money.”
    What turns pretty green paper into “money,” you ask? Well, as I get it, the “fed” “buys” US Treasury Bonds (taxpayer IOUs) with a few pallets-worth of Benjamins. I’m not clear whether the actual bond documents/IOUs exchange hands. The “fed” probably has tons of ’em stuffed in the same vaults alongside the no-value greenbacks, and does all of this “buying” of bonds by making some key-clicks on a computer. I don’t know if there is any paper-trail.
    But once the “fed” assigns some number of greenbacks to some number of US Treasury notes, bonds, whatever, the taxpayer debt is created. A debt that must be repaid, with interest, at the IOU due-date, say 30 years hence. I don’t know whether the interest is simple interest or compound interest, and, if compound, with what compounding frequency–daily, monthly, yearly, whateverly. Chime in if you know, please.
    This private “fed” used to issue reports on the total, total, total amount of money “in circulation” or some such, called the “M-3” number. They don’t do that any more.
    The reason seems simple to guess. If you know that “M-3” in September, 2008, is Ten Trillion bucks and in October, 2008 it rises to Seven Hundred Ten Trillion bucks, then you can tell that Seven Hundred Trillion bucks of IOUs have been created by the “fed” — which is the onlyiest outfit that can turn fancy, otherwise worthless paper into “money”. Ditto for coins, although some coins are more valuable as metal than they are as “legal tender.” (Some call the greenbacks ‘legal tinder,” because you can at least use it to start a fire.)
    And if you learn that there are $700 trillion more IOUs in October than in September, you also know that every one of the dollars in your pocket is worth one seven hundred trillionth of a dollar less than it was worth in September. Or maybe even less than that–I don’t quite get how you factor in both the dilution of dollars people hold and the future interest due on the IOU when the IOUs become due.
    I do know that, from about the time the “fed” was established (Dec. 23, 1913 or so) supposedly to “control inflation”, the value of one dollar in 1913 has been diminished to about three cents today. Or, put another way, if you wanted to buy today what you could buy for one dollar in 1913, you’d have to pull something like $700 from your wallet.
    (The Philadelphia “fed” web site has a table of inflation, covering 1913 to 2007 or so, on its website. Plug those values into a spread-sheet and make your own calculations. Mine are, I think, at least in the ball-park.)
    So if you think I’m nutz or Ron Paul is nutz, do some figuring on your own. I can guarantee that, however ignorant I remain about our private, secret “monetary system,” there are a few billion people in the US more ignorant than I. wouldn’t it be amazing if, in grade and high school, US citizens were taught REAL “home economics” or “home eck” that covered the US monetary system, the secret ‘fed’, the US Constitution, etc.?
    And about how the US sickness care industry runs, with welfare for the corporations and punishment for the poor, etc.
    (I certainly wish that Dick Cheney had the same “health” insurance policy that I had, before I decided to take advantage of my Vietnam Veteran status–I had no health insurance. No disrespect intended, but Dick would have either been forced to resign for ill-health or would have already died, with all his heart problems. Of course, he’s well-provided with his Halliburton millions (billions?), so he wouldn’t have been lacking for health care, regardless.
    It’s sort of like Charlie Gibson complaining that it was unfair to raise taxes on the working poor like him, with income in the half- to full-million-dollar range. I have a hunch that it’s easier to live on $500,000 a year than on $14,000 a year. Just a hunch, mind you, since, while I have first-hand experience of living on $14,000 year, I’ve have never had the contrasting experience of living on $500,000+ a year.
    But until folks like Charlie actually HAVE the experience of living on Social Security or welfare (I think there was one reporter who tried it for a year or so?), then they should follow Bill O’Reilly’s trenchant and ever-appropriate advice: “Shut up. You just shut up. Cut his mic! Shut up. Get him off this program!”

  2. MG, before you start assigning blame take a look at JS-2369, April 13, 2005. That’s Snow’s testimony before the House Financial Services Committee…and yes there was testimony before the Senate as well. Bottom line Chairman Oxley & ranking member Frank, did not want Fannie Mae or Freddie Mac regulated…I think a D follows there political affiliation. Try doing some research and get your facts straight. Might also interest you that, yes, the incompetant administration has been calling for regualtion since 2001. It was Raines a, oopps, a ‘D’ buddy who mismanaged the organization and walked with 90 million over his 6 years of mismanagement.

  3. Yes. We’re all victims of a systemic-level pyramid scam. Sell the rabble on the idea of being well-off, of buying classy goods, of being a solid, unfrightened, casual citizen without care. Give them “opportunities” to save and scrimp and invest. Make up paper entities to invest in, with promises of silly returns guaranteed to take care of them the rest of their lives. Oh, or for retirement. Yeah. That’s a nice long time. No one will notice.
    Sell documents that are selling documents of assets that are themselves documents of documents of assets that are promises of future assets that are documents of other documents. Take a slice of the top. A smidge. A proper finder’s fee. A little more. Stir it around and collect the foam. Sell the foam. Sell the future of the foam. Sell the bet that the future of the foam will increase or decrease. Take profit from invisible, inexact, lies.
    Oh. And we spent your money. Sorry. We’ll need a bailout now.
    Yes. These same people are now asking taxpayers to pay them back the money they already stole from us. Because our money? They’ve already moved offshore. Or spent it. Or whatever. Because the grinding iron gears of the books must be balanced. With blood. Or oil. Or coal. Or gold. Or iron. But never with integrity.
    We’re getting ripped off twice with lies and duplicity and just plain blind greed and belief that the pyramid can’t run out of point. All in the name of a “freedom” for corporations that are less encumbered than a newborn child when it comes to responsibility, integrity and pity.
    Shame on all of us for falling for it.

  4. What great timing for this book. As we are seeing there is just not a free lunch for connected million/billionaires, but dishonest ones as well. Think about how this financial mess was created – non-regulated corporations (Thank you Republicans) actively involved in creating fraudulent paper, then getting that paper’s risk fraudulently changed to AAA rating, then selling that paper to incompetent corporations. Taxpayers get your checkbooks out – if you have any money in the bank after cashing in your home’s equity, maxing out your credit cards, borrowing for your kids education, paying for your healthcare; and now for the pièce de résistance, cashing in your 401K just to get by.
    Another great book is “Bad Money” by Kevin Phillips. Is this what Rome looked like in it’s demise? Except that we’ll do in 30 years, what it took Romans to do in a couple of centuries.

  5. Lots of industries in the US receive subsidies of one form or another but the most disgusting is professional sports franchise. I love baseball but here is just a taste:
    Cities have forked over over $3 billion of public funding for baseball stadiums since 1991. But the 9 stadiums that opened in the 90s, 81%(~$2B) came from public funding. For stadiums that opened between 2000-06, public funding went down to ~55%. For the 6 baseball stadiums built or to be built afterward 2006, 45% is expected from public funding.
    Most of these taxes too are kind of hidden in the form of additional charges on restaurants, hotels, and rental cars. In some cases, it is more direct through an elevated local sales tax. So if you are wondering why you pay $15 in local taxes on car rental, it is a good bet that is because the local sports teams got a fat cut of public funding that will go directly in the owners’ pockets.
    BTY – American professional sports franchises (including the NFL) have been some of the most profitable investments over the past 20 years in terms of return to investors when the franchise is sold.