The Fine Print: How Big Companies Use "Plain English" to Rob You Blind (3 page)

The worst of these are laws in nineteen states that let companies pocket the state income taxes withheld from their workers’ paychecks for up to twenty-five years. Hard as it is to believe such laws exist, they do, and they are spreading fast. General Electric, Goldman Sachs, Procter & Gamble and more than 2,700 other big companies have these deals. It is not just American companies, either. Siemens, the big German computer maker, the Swedish appliance maker Electrolux and a host of Japanese, Canadian and European banks have similar arrangements with states from New Jersey to Oregon. In many of these subsidy programs, no jobs are created. Instead the state income taxes are given to companies that agree to move jobs from one state across the border to another, as AMC Theatres agreed to do in moving its headquarters from Kansas City, Missouri, to Leawood, Kansas, just ten miles away. AMC will get to pocket $47 million withheld from its workers, a boon to its major owners: J. P. Morgan, Apollo Management, the Carlyle Group and the firm Mitt Romney cofounded in 1984, Bain Capital Management.

From the corporations’ point of view, the best part is that the workers are left in the dark. None of these states requires that workers be told that their state income taxes go to their employers—that they are in effect being taxed by their bosses. GE says that it did tell its Ohio workers about how it updated its operations there, investing $126 million and pocketing $115.3 million of tax monies. GE shareholders paid just eight cents on the dollar for the investment.

Legislatures passed these laws, presidents and governors signed them and the courts have endorsed them. In many cases they effectively gut state constitutional provisions and laws banning gifts to business.

In New York, lawyer James Ostrowski filed a lawsuit on behalf of more than fifty citizens, ranging from serious libertarians to liberal Democrats, challenging a gift of at least $1.4 billion of state taxpayer funds to a company controlled by Abu Dhabi’s hereditary ruler, Sheikh Khalifa bin Zayed Al Nahyan, one of the wealthiest people in the world. The sheikh’s company, GlobalFoundries, is building a microchip factory in the Hudson
River Valley near Albany. Back in 1846, the New York State constitution banned gifts to corporations or other business entities, a provision that the voters reaffirmed in 1874, 1938 and again in 1967. In each case the vote was by a margin of two to one, which would seem to make the desires of voters clear.

In deciding Ostrowski’s suit, two justices said such gifts were plainly illegal. But the court majority found a way around this. They reasoned that while the state government could not make such gifts, the legislature could create an economic development agency, give it the money and, in turn, the agency could give it away to the sheikh and any other business owner. If parallel reasoning were applied to drug deals, the kingpins who finance the drug trade could never be convicted of a crime as long as they do not touch the drugs.

The court also showed its contempt for those who challenge giveaways in its final order in the case, which ordered Ostrowski to pay $100 because he asked for a rehearing to show the factual errors in the court ruling.

You’ll learn in this book how other courts, including the United States Supreme Court, have diminished the rights of consumers, voters and workers while enhancing corporate power. One instance was the Lilly Ledbetter case, which demonstrated the willingness of the court majority to favor corporations over people. Ledbetter retired in 1998 after almost two decades at a Goodyear Tire & Rubber plant in Gadsden, Alabama. Only when she was leaving did she learn that the men holding the same job she had held all earned significantly more—as much as $18,000 a year more. Paying men 40 percent more than women for the same work looks like an easy case of discrimination. But the Supreme Court said that Ledbetter’s legal right to sue ended 180 days after the discrimination first took place, which was so many years earlier that the court ruled she had lost her right to sue. But how would Ledbetter have known she was being discriminated against? Only by a tortured reading of the statute could the majority rule against Ledbetter.

Bits and pieces of the complex story of business gaming government and gaining unfair advantage over consumers have been reported in the press, most often on the business pages. That coverage, however, tends to be narrow, typically portraying what are fundamental issues as disputes between competing industries, say, telephone companies versus cable companies or truckers versus railroads. Looked at from a larger perspective, these disputes were really about how to raise prices, limit
competition, and diminish consumer protections. But the forest was often lost in the trees.

Similarly, banking gets lots of news coverage, but usually from the point of view of the bankers or bank investors, not customers. This seems odd for mass media given that bank owners are few and bank customers abound. An exception to this focus on bank owners came in the intense coverage in 2011 of Bank of America’s plan to impose a $5 monthly fee on some debit card users, a plan it withdrew in the face of popular criticism. To corporate publicists this fiasco was a reminder of why they are employed—to make sure the news media stays focused on what the companies want, not on customers, lest they demand reforms.

That meant you
didn’t
read how Bank of America treated customers who deposited a check that bounced. BofA hits customers with a $12 “chargeback” fee for each bounced deposit. Suppose you waited for your bank to advise that the deposit had cleared and only then wrote checks. In New York the courts say the bank can still
un
clear the deposit and hit you with overdrafts fees, which at BofA are $35 per check.

What does it cost banks to deal with a bounced check? Back in the late 1970s, when checks were still processed by a person and a machine rather than digitally, Crocker Bank (now part of Wells Fargo) was forced to reveal in a California court case that its cost was thirty cents. At that time, the bank was charging customers $6 for bounced checks, a markup of 2,000 percent. The California Supreme Court held that charging twenty times cost was not necessarily unconscionable. Adjusted for inflation, that $6 fee would now be $21, less than half what BofA charges.

What are today’s bank costs for processing a bounced check? BofA won’t tell customers, but research papers on costs in the digital era suggest it could be less than a penny, making the markup by BofA in the neighborhood of 470,000 percent. But corporate values now so infuse our society that price gouging is easily brushed off as a function of competition, regardless of whether that’s the truth or an ideological fantasy.

No other modern country gives corporations the unfettered power found in America to gouge customers, shortchange workers and erect barriers to fair play. A big reason is that so little of the news, which informs us about the world around us, addresses the private, government-approved mechanisms by which price gouging is employed to redistribute income upward. When news breaks about one company buying another, the focus is almost always on the bottom line and how
shareholders
will
benefit from higher prices and less competition; much less is said about added costs for
customers
as competition wanes. This powerful yet subtle bias appeals to advertisers such as mutual funds and other financial services companies who wish to address investors.

On arrival at the
Philadelphia Inquirer
in 1988, I sought to chronicle the coming spread of gambling. Part of the job was to report the monthly results from Atlantic City. Most papers reported how much the casinos won, but on the theory that there was just a handful of casino owners and millions of players, I looked at the story from the players’ point of view, reporting the sum of all player losses at the slots and table games.

That first month, I wrote that Atlantic City gamblers lost a record amount of money in the seaside temples of chance. When I left Philadelphia for the
New York Times,
however, the
Inquirer
went back to reporting the casino winnings, just like every other news organization, once again seeing the story from the corporate point of view.

I believe people want news about the issues that concern them, but the slant, whether it’s on corporate takeovers, consumer price levels or gambling outcomes, is typically reported in ways that address the interests of investors, not customers. Such investor-oriented reporting is one reason why fewer people pay to have a newspaper delivered at home.

In
The Fine Print
, the corporate point of view is secondary to that of customers, workers and taxpayers. Much of what is reported in these pages will be new to you; even specialty industry publications don’t cover this ground. You will read about the machinations used to inflate profits through a regulation that imposes a tax that does not exist and how, in one case, I got this legalized theft stopped, a result that demonstrates that foul practices can be ended if readers simply act on what they learn and speak up at public hearings.

You will read about why your retirement funds are not safe and why you and your children are endangered because of little-known government rules that give safety waivers to deadly industrial facilities underneath schools and playgrounds whose locations are kept secret by the federal Department of Transportation.

You will even read about an insurance company owned by one of America’s most admired billionaires that asked a paralyzed man to die because the cost of keeping him alive was cutting into the insurer’s profits.

I invite you to read, to see these and other awful stories in context, and to learn how business has been regulated throughout history. I will try to offer a sense of how, in the past four decades, we have forgotten the tried
and tested (and therefore profoundly conservative) principles of business developed over thousands of years. Allowing corporate values to overwhelm us is not necessary—I will close with some suggestions and solutions—but, in the meantime, our wealth, our well-being and our freedom are being diminished daily.

2.
Just a few
blocks from the Wyoming state capitol sits a modest brick house with a neatly manicured lawn at 2710 Thomas Avenue. As my Reuters colleague Brian Grow revealed in 2011, this unimposing building in Cheyenne is the headquarters of more than two thousand companies.

This is the home of Wyoming Corporate Services, which, for a fee, will create a company, set up a bank account, appoint officers and directors (including a chief executive officer) and even provide a lawyer as a corporate director so the company can invoke attorney–client privilege. Wyoming Corporate Services will also make any required regulatory filings. It can do all of this without anyone being able to ascertain, without a court order, who is behind any corporation it creates. As the Wyoming Corporate Services Web site notes, “Imagine the possibilities!”

Inflated ad copy? Perhaps. But let’s try imagining exactly what it could mean.

Let’s say you’re driving to work when a radio station reports that astronomers have discovered a comet with an unusual tail that the earth will pass through in a few days. When night comes, you enjoy the cosmic light show in the sky, then you go to bed and the event is soon forgotten.

As the years pass, however, you and others begin to notice that a few of us—say one in every thousand—has stopped aging. These people never get sick. In an accident they can be crushed and bleed to death, but otherwise they are immortal. That is not the only change. Whatever
their interests before the comet, they now have a single desire. All they care about is money. They will do anything to get it as long as their actions are not illegal. They are neither moral nor immoral, but calmly amoral. As their wealth grows, they hire very smart people to help them make even more money.

If such immortal, amoral and greed-driven people walked the earth, we would have to rewrite our laws governing property. Property law assumes a finite human lifespan, and thus whatever property and power one builds up will be passed on when that person’s time runs out. But our new class of immortals could just keep accumulating wealth and power forever. In time they would probably own every single asset on earth worth having.

Here’s the kicker. The immortal being I’ve just described exists: it is the modern corporation. Unless it bleeds so much cash that it goes bankrupt, the corporation can exist forever. Even if it does go bankrupt, modern American laws allow a fresh infusion of cash from banks and investors to revive it. Because a corporation is not a natural person but an artificial entity, it has no conscience and is therefore amoral. The corporation can do anything legal in order to make money. The values of its officers and directors will shape the company, but by and large, legality alone rules. To be sure, some corporations are scrupulous because the managers of the moment have high ethical standards. But some other corporations will act illegally because their managers believe they will not get caught, that the law is unfair or because illegal conduct by competitors forces them to do likewise or go out of business.

In any case, they’re in business to serve the interests of their shareholders, not John Q. Public.

A BLESSING AND A CURSE

Of course corporations can and often do make our lives better. Without corporations we would see far less enterprise. Corporations create wealth, which benefits those who possess it. Without the corporation, innovation might stagnate, and some of the comforts, services, pleasures, and much else that we value in our lives might not come to pass.

But certain corporate attributes can also be a curse.

To maximize gain, companies lobby for less government. Many seek reductions in the ranks of the white-collar police. These are auditors from the Internal Revenue Service, or tax police; examiners from the
comptroller of the currency, or bank police; Securities and Exchange Commission investigators, or Wall Street police; and others whose job is to investigate and enforce the laws of commerce.