posted 12-23-2003 11:02 PM
Editor's Note | The following remarks were delivered by William Rivers Pitt to a September 11 symposium hosted by WBAI at the Riverside Church on Friday, September 12. Mr. Pitt was asked to speak about the Project for a New American Century, their pre-9/11 plans, and how those plans have been translated into policy by the Bush administration.
New York, You’ve Been Used
By William Rivers Pitt
t r u t h o u t | Perspective Monday 15 September 2003
It is an honor beyond words to stand before the people of this great and noble and brave city to speak on issues of such importance. Thank you for having me, New York. You are the definition of greatness.
You are also the definition of America, and that, in the end, is the reason I have come here to tell you what I have to tell you. You are the definition of America, plurality writ large, brave and brassy and strong and free. The differences between you and the men and women within this Bush administration could not be larger or more profound, and that is the wretched irony of it all. Two years ago, you became the test case for this administration, victims of an ideology that has absolutely nothing to do with the definition of America. Your pain became their excuse. Your woe became their cover. Your fear, and the fear shared by all of your fellow Americans, became a sharp weapon that was used deliberately and viciously against you, and against all of us.Before I begin to explain all that, I’d like to share with you the words of a man whom, it would seem, has a potentially brilliant career as a prognosticator and fortune teller ahead of him. Feast upon this:
"Trying to eliminate Saddam, extending the ground war into an occupation of Iraq, would have violated our guideline about not changing objectives in midstream, engaging in ‘mission creep,’ and would have incurred incalculable human and political costs. Apprehending him was probably impossible. We would have been forced to occupy Baghdad and, in effect, rule Iraq. The coalition would instantly have collapsed, the Arabs deserting it in anger and other allies pulling out as well. Under those circumstances, there was no viable ‘exit strategy’ we could see, violating another of our principles. Furthermore, we had been self-consciously trying to set a pattern for handling aggression in the post-Cold War world. Going in and occupying Iraq, thus unilaterally exceeding the United Nations' mandate, would have destroyed the precedent of international response to aggression that we hoped to establish. Had we gone the invasion route, the United States could conceivably still be an occupying power in a bitterly hostile land. It would have been a dramatically different--and perhaps barren--outcome."
Who said that? George Herbert Walker Bush said that, in a 1998 book entitled ‘A World Transformed.’
Someone once said the apple never falls far from the tree. In the matter of George Herbert Walker Bush and his son George W., and on the matter of invading and occupying Iraq, it appears the apple fell, rolled, got picked up, pocketed, carried, and then thrown into a sewage tank. Something clearly got lost in the translation here. What happened? I’ll tell you what happened. The Project for a New American Century happened.What is the Project for a New American Century? It is a Washington-based right-wing think tank formed in 1997 by members of another Washington-based think tank that is basically the godfather of right-wing think tanks, called the American Enterprise Institute. The Project for a New American Century, or PNAC (or ‘panic’), describes its mission thusly on its web page, newamericancentury.org. The following is some lines from PNAC’s Statement of Principles, dated June 3 1997:
"As the 20th century draws to a close, the United States stands as the world's preeminent power. Having led the West to victory in the Cold War, America faces an opportunity and a challenge: Does the United States have the vision to build upon the achievements of past decades? Does the United States have the resolve to shape a new century favorable to American principles and interests? We are in danger of squandering the opportunity and failing the challenge. We seem to have forgotten the essential elements of the Reagan Administration's success: a military that is strong and ready to meet both present and future challenges; a foreign policy that boldly and purposefully promotes American principles abroad; and national leadership that accepts the United States' global responsibilities. We need to accept responsibility for America's unique role in preserving and extending an international order friendly to our security, our prosperity, and our principles."
There are a number of names signed at the bottom of this Statement of Principles, but we will get to those in a moment. On the surface, this statement basically sounds like your standard boilerplate Ronald-Reagan-Is-God stuff, right? More hawkish than some might feel comfortable with, perhaps, but nothing to send the world spiraling off its axis. Right?
Wrong.
The Project for a New American Century was formed with a number of specific purposes in mind. The first, and foremost, was to fundamentally reorganize the foreign policy standards of the United States, to change forever the way America deals with the world. The first step in doing this, according to PNAC, was to attack, invade and take over the nation of Iraq. This plan was codified in a scolding letter sent to President Clinton in 1998 which chastised him for not rolling tanks on Baghdad. The next step in the process, according to PNAC, was to invade and take out friendly and unfriendly regimes alike in the Middle East, thus ‘Westernizing’ the region through warfare and bringing our values to them. Implicit within this plan is the PNAC idea that open warfare and wholesale regime-change in the Middle East is all part of "Defending Israel." Unfortunately, the most common thing to see within the progressive community today is two people who agree on 99% of the issues screaming in fury at each other. 99% of the time, that screaming happens because of the fundamental differences between supporters of Israel and supporters of Palestine. This is the rift within the progressive community, and it is a mile wide, and PNAC falls right in the center of it. Now, there are 100 sides to these arguments and these issues. I am not here to stand and espouse one side or the other, beyond this: It is flat insanity to claim that theater-wide warfare and destabilization in the Mideast will do anything but make Israel less safe, and by proxy will cause further suffering and death within the Palestinian community. These are things we have to be able to talk about. We cannot discuss the Bush administration without discussing PNAC. We cannot discuss PNAC without discussing Israel and Palestine. If we cannot discuss Israel and Palestine without shredding each other, we will never be able to address this profound problem.
The PNAC plan was codified in the passage by the Gingrich-controlled Congress of the Iraqi Liberation Act in 1998, an act that made regime change in Iraq a matter of American law. The letter sent to Clinton in 1998, and the strident advocacy for the passage of the Iraqi Liberation Act, both bore the same signatures and fingerprints of the men and women who signed the PNAC Statement of Principles.
The Project for a New American Century came out with a defense review in September of 2000 entitled ‘Rebuilding America’s Defenses.’ This is their flagship document, their reason for existing, and represents the essence of their ideology. It makes for some very interesting reading. This is the document which outlines that revolution in American foreign policy and global military presence I mentioned. It is far, far less benign than the Statement of Principles. In this document lies a plan to make the Defense Department infinitely more massive, and to make America a violently hyperactive and unilateral presence throughout the world. In the section titled ‘Key Findings,’ several items jump right out. Among the ‘Four Core Missions’ listed, you will find the demand to:
"Fight and decisively win multiple, simultaneous theater wars;" and, "Perform the ‘constabulary’ duties associated with shaping the security environment in critical regions;" and, "Increase defense spending to a minimum level of 3.5 to 3.8 percent of gross domestic product."
Page 26 of the report carries the following lines:
"The United States has for decades sought to play a more permanent role in Gulf regional security. While the unresolved conflict with Iraq provides the immediate justification, the need for a substantial American force presence in the Gulf transcends the issue of the regime of Saddam Hussein."
So let’s tie all these threads together, and find out why some wacky right-wing think tank is important. We’ll start with the signatures on that Statement of Principles. Among those who signed on with the Project for a New American Century in 1997, who founded the Project, who stand by its ideologies and who press those ideologies out into an unwitting world, are:
Dick Cheney, Vice President, and former CEO of Halliburton Petroleum;
Donald Rumsfeld, Secretary of Defense;
Paul Wolfowitz, Assistant Secretary of Defense;
Elliot Abrams, senior member of the National Security Council, who pled guilty to the charge of lying to Congress in the Iran/Contra scandal;
Norman Podhoretz, a writer who described the PNAC mission and the war on Iraq as, "A process of the reformation and modernization of Islam;"
Bill Bennett, whom you’ve surely met if you’ve been to Vegas recently;
Lewis "Scooter" Libby, chief assistant to Dick Cheney.
The list goes on, and on, and on. Not listed on this page, but prominent throughout PNAC, is Richard Perle, former chair of the powerful Defense Policy Board, and perhaps the single most dangerous human being alive on the planet today. In Washington, they call him "The Prince of Darkness." I could spend this entire evening speaking of his influence over American foreign policy, but as there are so may other issues to discuss, I would compel you to research this man on your own.
Understand the ramifications here. The Project for a New American Century was, in 1997, so far out there that nobody ever thought these goofballs would come within 100 miles of power in government. And yet here we stand today, with the chief men from the Project now controlling every single nook and cranny of America’s foreign policy, defense strategy, military, and budget. These guys I just listed, particularly Cheney and Rumsfeld and Perle and Wolfowitz and Abrams, are quite literally the men running America. The Project asked for the fighting of several major theater wars – not the need to be prepared to fight these wars, but to actually fight these wars - and we now have two: Iraq and Afghanistan.
The Project asked for the creation of a permanent military presence in Iraq, and we have Kellog Brown & Root, a Halliburton subsidiary, right there in the mix. Brown & Root’s stock in trade is the building of permanent military bases, and they are there in Iraq today, building.
The Project asked for American commitment to ‘constabulary duties’ in strategically important places, and that is what we now have in Iraq, whether we like it or not.
The Project asked for 3.8 percent of gross domestic product to be poured into the Defense budget, and that is exactly the number – exactly – that this administration’s last budget asked for and got from this Congress.
The Project said, "The need for a substantial American force presence in the Gulf transcends the issue of the regime of Saddam Hussein." That transcendent need is all the explanation required for why this administration lied with its bare face hanging out for months and months about the threat posed by Iraq. The lies were justified by the ideology, by the "transcendent need" to make war on a nation that, while ruled by a tyrant, posed no threat whatsoever to The United States or her citizens.
To understand the final and complete and total influence the Project for a New American Century has over the foreign policy, and by default the domestic policy of this nation, look no further than the ground-breaking and profoundly important White House document entitled "The National Security Strategy of the United States of America." Released in September of 2002, one year ago almost to the day, this report redefines America’s mission in the world. It states flatly that America will act unilaterally, and that the mission of our government and our military has changed forever. That document is a mirror-image, in ideology and design and in many places text, of the Project for a New American Century’s September 2000 ‘Rebuilding America’s Defenses.’ If you need any further proof that the leading lights of one of the most extremist right-wing think tanks ever formed in America are now running this government, hold those two reports side by side in your hands. Read them, one after the other. You will have all the answers you need.
So let’s recap, as I have just dropped a whole barnload of data on you. In 1997, this think tank was formed. Their principal goals were to radically change American foreign policy and the basic concept of how and why we go to war. By proxy, they wanted to take Iraq over and establish a permanent military presence there. From there, they wanted to take over, basically, the entire Middle East. One broken election later, the prime and powerful advocates for these clearly documented and clearly fringe concepts became the Vice President (Cheney), the Secretary of Defense (Rumsfeld), the Assistant Secretary of Defense (Wolfowitz), the chairman of the Pentagon’s Defense Policy Board (Perle), and the head of the National Security Council (Abrams). In short, the prime movers of this group became the foreign policy, military, and national security establishment of the United States government.
In 2000, they put out a report asking to fight several major theater wars. Under Bush, they got their wish. In 2000, they asked for at least 3.8 percent of GDP to go to the Defense Department. Under Bush, they got it. In 2000, they asked for a war in Iraq. Under Bush, they got it, and be damned to the truth. In 2000, they asked for the ability to turn America into a nation that attacked first and asked questions never. Under Bush, and his ‘National Security Strategy’ of 2002, they got it. The Project for a New American Century is, in point of fact, the government of the United States of America. What will they reach for if they win the 2004 election?
So what, you may say. September 11 happened. We have to respond.I would answer with the following: First of all, understand that these ideas were formulated well before September 11. These officials within the Bush administration did not cobble these concepts together in the aftermath of that attack, but had them waiting before the attack ever came, and used the attack to bulldog these ruinous policies out into the world. That is disturbing on its face. In a moment, I will share with you the most disturbing part of all. But first, this. A reaction to the September 11 attacks, and to the fringe ideology and the perversion of Islam that motivated them, was and is necessary. Osama bin Laden and al Qaeda are thugs, a protection racket that uses terror instead of Tommy guns. Yet they are heroes to many in the Muslim world. They are not heroes because of what they do. They are heroes because of what we do. They win the hearts and minds of people throughout the world not because of their actions, but because their actions are motivated by our actions.
If we are to win this War on Terror, this new Cold War, we will not do so by bombing decrepit countries and slaughtering Muslim civilians. We will not do so by swaggering across the planet and slapping the international community across the face. In this struggle, I look to one of my favorite Red Sox fans, President John F. Kennedy. Kennedy was by no means a foreign policy prince; he pulled crap that would make Richard Perle blush. Yet Kennedy understood something fundamental about the Cold War struggle, from back when that struggle was as hot and dangerous as it ever got, that resonates in roaring truth today. Kennedy understood that to win the Cold War, America did not simply have to defeat the Soviet Union by force of arms, or threaten to be able to do so. America had to give the rest of the world, especially those regions where communism stood a good chance of taking hold, the belief and understanding that we had a better way. We had to convince the world that were right, and righteous, and though we were not perfect by any means, the hope and goodness of what we represented had to be carried to the corners of the world with something besides a bayonet and a bomb. Hatred of America does not take root when America shows its best face. The bastion of immigration that is New York City proves this beyond doubt. We are not perfect, but we can be very good, and bringing this simple truth to the world will defang these thugs, period.
That is the final failure of this administration, and of these boys from the Project for a New American Century. They believe we can defeat terrorism by kicking ass and taking names, by being violent and unilateral, by basically shoving the worst aspects of our country and our system into the international community’s face and demanding, at gunpoint, that they be with us or against us. Machiavelli said, long ago, that given such a choice, the attacked would always choose to be against. Kicking ass in Iraq, while being exposed as liars and bullies, has proven to be the greatest recruiting poster al Qaeda could have ever asked for. We can defeat these thugs if we go after them properly. We can cut off their funds and their ability to bring in people who will die for the privilege of watching you die. But when we do what we have been doing, when we follow the PNAC plan, we create an unending tide of furious humanity that will, in the end, bury us.
You’ve been used, New York. Your pain and woe has been used to justify a course of action formulated years before those Towers fell. The fear caused by those falling Towers has been used against you, on purpose, to drag us all along on a suicide ride that fulfills the extremist dreams of a tiny minority while filling the coffers of defense and petroleum companies that do not, and will never, have your best interests in mind. Those companies exist to serve themselves, and with the rise of PNAC, they have found their champions. At your expense.
I told you, a moment ago, about the most disturbing part. I told you, also, that these PNAC plans were formulated in that ‘Rebuilding America’s Defenses’ report written long before September 11. I didn’t tell you about page 51 of that report. Page 51 of a report that has become the basis for our war in Iraq, and our new and aggressive foreign policy stance. Page 51 of the report that is now the heart and soul and ideology of this government. Page 51, and one simple sentence: "The process of transformation, even if it brings revolutionary change, is likely to be a long one, absent some catastrophic and catalyzing event – like a new Pearl Harbor."
That was written in September of 2000. It is now September of 2003. Now we have the facts. What are we to do with them? It is not enough to know. We must act.
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William Rivers Pitt is the Managing Editor of truthout.org. He is a New York Times and international best-selling author of three books - "War On Iraq," available from Context Books, "The Greatest Sedition is Silence," available from Pluto Press, and "Our Flag, Too: The Paradox of Patriotism," available in August from Context Books. http://www.truthout.org/docs_03/091503A.shtml
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Several articles referring to PNAC: http://www.truthout.com/cgi-bin/htsearch?config=htdig&restrict=&exclude=&method=and&format=builtin-long&sort=time&words=PNAC+
The Corporate Reform Weekly
Vol II, #48 December 22, 2003
Note: This is the last issue of the Corporate Reform Weekly for 2003. We will resume publication in January 2004.
In Short
In Business
New York Stock Exchange
1. NYSE gets a new CEO and an improved governance structure, but questions linger
2. Calpers lawsuit says NYSE is to blame in abuses of specialist system
Mutual Funds
3. Former fund executive sentenced to prison for trying to destroy e-mails in fund probe; Putnam fires nine more
4. Alliance settlement with Spitzer brings lower fees, tension between states and SEC
5. SEC weighs rules to give fund investors more information on trading costs and discounts
6. Mutual Fund group asks SEC to fix conflicts of interest
Scandal
7. Merrill Lynch trader pleads guilty to $43 million fraud
8. PricewaterhouseCoopers pays $54.5 million to settle charges it overbilled on travel expenses
In Washington
Public Company Accounting Oversight Board
9. PCAOB chair says accounting firm's tax work will not be a priority
This Week's Action Item
Tell PCAOB that tax conflicts of interest need to be resolved
In Business
New York Stock Exchange
1. NYSE gets a new CEO and an improved governance structure, but questions linger
The New York Stock Exchange, still trying to rebuild its image after the Dick Grasso $188 million pay package fiasco, last week settled on Goldman Sachs President John A. Thain as the exchange's new head. Thain was picked by John Reed, who took over as interim chief after Grasso's sudden departure this summer.
As president of Goldman Sachs, Thain is a Wall Street insider. Goldman is regulated by the NYSE, and Thain owns $300 million worth of stock in Goldman. Through Goldman, he is a part-owner of Spear, Leeds & Kellogg Specialists LLC, one of the exchange's specialists firms that have come under increasing fire (see #2). Both of these holdings, if not sold off, could create serious of conflicts of interest.
News articles painted Thain as a tech-savvy executive who has criticized the Exchange in the past for not embracing new electronic trading technologies.
Thain will earn $4 million a year as the NYSE's chief. That is significantly smaller than Grasso's outrageous $188 million pay package, but still about 25 times more than the salary of Securities and Exchange Commission chairman William Donaldson, who earns $142,000 a year.
Unlike Grasso, however, Thain will not also serve as the chairman of the board. The NYSE members have agreed to split the CEO and chairman function, a decision supported by Donaldson who said that splitting the roles would help avoid "the concentration of too much executive authority in one individual." At approximately 80 percent of U.S. corporations, the chairman and CEO are the same person, creating dangerous concentration of power. The NYSE split should be seen as a model.
The new NYSE will also have a board of only eight directors, as opposed to the 27-member board of Grasso's era. However, the governance structure came under criticism from the National Coalition for Corporate Reform, a group of state pension funds that argued that the board should have a public investor representative and should split its business and regulatory functions.
But the new NYSE is working hard to distinguish itself from the old NYSE. In fact, the new leadership at the exchange is reportedly considering suing Grasso and the board that awarded his pay package, under the legal premise that the directors were negligent in their duties to the exchange by approving such a package.
For more, see:
"Goldman Sachs President Named Chief of NYSE" by Ben White of the Washington Post: http://www.washingtonpost.com/wp-dyn/articles/A13707-2003Dec18.html
"NYSE board not enough," by David Callaway of CBSMarketwatch.com: http://cbs.marketwatch.com/news/story.asp?guid={12C9687A-B3E1-400E-B2BC-B621B678447E}&siteid=mktw&dist=&archive=true
"Next for the Big Board: To Sue or Not to Sue?" by Patrick McGeehan and Landon Thomas Jr. of the New York Times: http://www.nytimes.com/2003/12/21/business/yourmoney/21reed.html
2. Calpers lawsuit says NYSE is to blame in abuses of specialist system
A lawsuit filed last week by the California state pension fund (Calpers) alleges that seven "specialist" firms that conduct trading on the floor of the NYSE engaged in improper trading that cost investors hundreds of millions of dollars and that the NYSE failed to regulate them properly.
The NYSE, unlike other stock exchanges, still relies on a system of "specialists" to manually execute trades. Critics have alleged, however, that not only do these specialists provide no value in an era of electronic trading, but worse, they actually hurt investors because they use their first-hand knowledge of which way the market is going to make their own trades first. The SEC has estimated that specialist abuse cost investors $150 million between 2000 and 2002.
"The New York Stock Exchange together with the specialist firms it is supposed to regulate have engaged in fraudulent trading scheme so widespread it has generated untold shareholder losses," said Sean Harrigan, president of Calpers. 'The lawsuit alleges that the exchange looked the other way when these rule violations occurred because it profited them to do so…What all this demonstrates is that self-regulation does not work and that the relationships between the NYSE and the specialists is just too cozy."
Harrigan noted that officials from two of the specialist firms were on the board of the NYSE when the NYSE approved Dick Grasso's $188 million pay package, which Harrigan suggests may have had something to do with the lax regulation of specialists.
The specialist system has been under fire for months. Investor advocates want the exchange to move to an electronic system, but traditionalists want to keep the system. John Thain, the newly-named head of the NYSE, is both a part-owner of a specialist firm and a big enthusiast of new technology. He has not yet indicated his plans for the specialist system.
For more, see: "Pension Fund Sues NYSE, Specialist Firms: Suit Alleges Improper Trading," by Ben White of the Washington Post: http://www.washingtonpost.com/wp-dyn/articles/A6461-2003Dec16.html
See also the Calpers suit: http://www.calpers.ca.gov/whatsnew/press/newscenter/attachments/lawsuit-nyse-specialist.pdf
For a good look at the how state pension funds are getting more involved in corporate governance see, "After Scandals, State Treasurers Take Aim at Corruption," by Jim Wasserman of the Associated Press: http://www.washingtonpost.com/wp-dyn/articles/A20218-2003Dec21.html
Mutual Funds
3. Former fund executive sentenced to prison for trying to destroy e-mails in fund probe; Putnam fires nine more
A former executive at Fred Alger Management will spend one to three years in prison for trying to destroy e-mails soon after New York Attorney General Eliot Spitzer announced that he was investigating Fred Alger as part of his probe into mutual fund trading improprieties.
James Patrick Connelly, Jr., the former executive, will also pay $400,000 to settle a civil complaint filed by the Securities and Exchange Commission. The SEC said it had evidence that Connelly allowed certain investors to engage in rapid trading, or market-timing, without telling investors. Regulators are also investigating whether illegal after-hours trading took place at Fred Alger.
SEC enforcement director Stephen Cutler said that the sentence, "appropriately sends a message that obstruction of any regulatory investigation is a serious offense from which the most serious of consequences will flow."
In other mutual fund mishaps, Putnam Investments fired nine more employees for improper trading, bring the total to 15. While Putnam has already settled with the SEC, Massachusetts Secretary of State William Galvin is continuing to investigate trading improprieties at the nation's fifth-largest mutual fund.
For more, see: "Mutual Fund Ex-Executive is Sentenced to Prison," by Riva Atlas of the New York Times: http://www.nytimes.com/2003/12/18/business/18fund.html
"Putnam discharges 9 more staff for improper trades," by Herbert Lash of Reuters: http://www.reuters.com/financeNewsArticle.jhtml?type=governmentFilingsNews&storyID=4004661
4. Alliance settlement with Spitzer brings lower fees, tension between states and SEC
Alliance Capital will reimburse investors $250 million and cut its fees by 20 percent for five years to settle charges brought by New York State Attorney General Eliot Spitzer that the mutual fund firm engaged in rapid trading (market timing) without telling investors.
Spitzer, who first opened the mutual fund probe in September with charges of market timing and late trading, has increasingly turned his focus to excessive fees, which he believes cost small investors more than trading abuses. For example, Alliance was charging small investors advisory fees six times as high as the fees it was charging institutional investors.
Under the settlement, Alliance will reduce fees 20 percent over the next five years, at a cost of about $350 million. After that, it will have to appoint an executive whose job it is to make sure the fees are set at reasonable levels and are clearly disclosed.
While Spitzer considers this settlement a model, the SEC has criticized it, saying that markets, not government, should decide fees. "The government isn't good at setting prices," said SEC Commissioner Harvey Goldschmid. "If you have good disclosure, competitive markets and an independent board bargaining hard, that's the way to bring fees down." Since Spitzer has no rulemaking power, he can only bring about reforms as part of settlements.
In other settlement, news, Janus Capital Inc., agreed to pay fund investors $31.5 million to cover losses that resulted from improper trading privileges that Janus gave to special hedge funds. Janus admitted that it had allowed 10 investors to engage in improper frequent trading between January 2001 and the first half of 2003. The pay back does not resolve ongoing investigations by regulators.
For more, see: "In Settlement, Alliance Agrees to Cut Fees," by Riva Atlas of the New York Times: http://www.nytimes.com/2003/12/17/business/17fund.html
"Janus to Pay Investors $31.5 Million to Cover Losses From Scandal" by Steven Gray of the Washington Post: http://www.washingtonpost.com/wp-dyn/articles/A16440-2003Dec19.html
5. SEC weighs rules to give fund investors more information on trading costs and discounts
The Securities and Exchange Commission preliminarily approved two new rules that would expand disclosure in the mutual fund industry.
One rule would require more information about volume discounts that are available at various dollar levels, or "breakpoints." Under the rules, fund companies would have to provide more information about these discounts in their prospectuses and make sure that investors get the discounts they are promised. The SEC is currently suing brokers who overcharged investors
The other rule would require mutual fund companies to disclose more information about trading costs, which can add up to quite a bit for investors.
The rules are both now open for comment.
For more, see: "SEC Weighs Changes for Funds' Trading Costs, Discounts," by Dow Jones Newswire: http://www.quicken.com/investments/news_center/story/?story=NewsStory/dowJones/20031217/ON200312171454001278.var&column=P0DFP
SEC's role proposal: Disclosure of Breakpoint Discounts by Mutual Funds: http://www.sec.gov/rules/proposed/33-8347.htm
See also: "For funds, the end of an era: Regulators cast wider net over murky practices and deals." By Jonathan Burton of CBS Marketwatch.com: http://cbs.marketwatch.com/news/story.asp?guid=%7BDD7C2EED-00EC-4A3D-9D37-895B97B9CBFE%7D&siteid=google&dist=google
6. Mutual Fund group asks SEC to fix conflicts of interest
In an unusual move, the Investment Company Institute (ICI, the mutual fund industry trade group) asked the SEC to enact two rules that would limit conflicts of interest in the mutual fund industry.
1) Soft dollars. Soft dollars are extra fees for things like research that are rolled into the commissions that funds pay brokers when the funds trade stocks and bonds. The ICI wants the SEC to ban soft-dollar arrangements because they hurt shareholders.
2) Directed brokerage. This is where funds will steer trades to brokerage houses as long as those brokerage houses push investors to fund, a kind of you scratch my back, I'll scratch your back arrangement that hurts investors. The ICI wants the SEC to crack down on this.
To see the ICI's letter to Donaldson: http://www.ici.org/statements/cmltr/03_sec_soft_com.html
Scandal
7. Merrill Lynch trader pleads guilty to $43 million fraud
A Merrill Lynch trader accused of putting $43 million of Merrill Lynch money into an Anguilla-based energy holdings company he controlled pleaded guilty to wire fraud and money laundering last week.
Daniel Gordon, 27, admitted to setting up a phony contract between Merrill Lynch and his offshore entity Falcon Energy Holdings S.A in August 2000. But he said he did so under pressure from supervisors to make his energy trading unit look more profitable by reducing Merrill's exposure on another deal through the purchase of a $43 million insurance contract.
Merrill sold its energy-trading unit to Allegheny Energy Inc. in January 2001 for $390 million. In September 2002, Allegheny sued Merrill, saying that the firm misrepresented the financial health of the energy-trading unit and Gordon's experience, which ultimately led to federal charges against Gordon for embezzling $43 million.
Gordon could face up to 55 years in prison and a fine of up to $86 million, twice the $43 million.
For more, see: "Energy Trader Admits Stealing $43 million," by Ben White of the Washington Post: http://www.washingtonpost.com/wp-dyn/articles/A16439-2003Dec19.html
8. PricewaterhouseCoopers pays $54.5 million to settle charges it overbilled on travel expenses
Accounting firm PricewaterhouseCoopers will pay $54.5 million to settle part of a class-action suit that charges the accounting firm with not properly accounting for its own travel-related expenses on customer invoices.
PwC is charged with failing to pass along travel rebates it received, billing clients the full amount for travel expenses instead from 1991 to 2001. PwC says it will now charge clients flat fees when billing for travel expenses and structure volume discounts as upfront price adjustments.
The class-action suit also names Big Four firms Ernst & Young and KPMG.
8. Six are indicted on federal fraud charges in insurance company take-over
The U.S. Attorney's office last week charged two former chairmen of the French bank Credit Lyonnais and four others for making false statements in connection with a 10-year-old takeover of a failed insurance company.
According to prosecutors, the bank investors who bought the failed insurance company (called Executive Life) made false statement to try to get around a law that prohibited banking companies from owning insurance companies. While Credit Lyonnais acquired a $3 billion junk bond portfolio from Executive Life, other investors who were secretly connected to Credit Lyonnais bought Executive Life.
For more, see: "Ex-Chairmen of French Bank Indicted by U.S." by Andrew Pollack of the New York Times: http://www.nytimes.com/2003/12/18/business/18credit.html
In Washington
Public Company Accounting Oversight Board
9. PCAOB chair says accounting firm's tax work will not be a priority
Backing down on earlier promises to crack down on accounting firms who are also doing lucrative tax work for clients, Public Company Accounting Oversight Board Chairman William McDonough now says that that restricting that effort will not be a high priority, according to the Financial Times .
McDonough told the Financial Times that "I do not believe it is a high priority for the board." He said that he was confident that he wouldn't have to get involved because there was "a self-policing aspect of it that makes us not think that the single most important thing we have to do this week is come up with a new edict on tax."
Just a month ago, at a Senate hearing on accounting firm KPMG's role in promoting tax shelters, McDonough had this to say: "Abusive, or even very aggressive tax strategies undertaken primarily to have an impact on a public company's financial statements may be difficult for regulators and other investigators to find, but auditors are in a unique position to identify them. If the accounting profession chooses to rise to this challenge, then it will reap the benefits of renewed confidence in the integrity of its professionals. If the accounting profession shrinks from the challenge, then we will address it for them."
At the hearing, officials from KPMG refused to admit that they were promoting tax shelters, despite massive evidence generated by the Senate Permanent Subcommittee on Investigations.
Tax shelters cost the U.S. treasury an estimated $18 billion a year. Under current accounting rules, the same accounting firm that audits a company's books can also provide tax advice to a company, a huge conflict of interest. Senator Carl Levin (D-Mich.) has introduced a bill (S. 1767, the Auditor Independence and Tax Shelters Act) that would eliminate this conflict of interest.
For more, see: "US accounting watchdog rules out early blitz on tax work," by Adrian Micheals and Andrew Parker of the Financial Times: http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1071251666053
To read McDonough's testimony, see: http://www.senate.gov/~govt-aff/_files/112003mcdonough.pdf
For a look at the role that accountants plan in pushing tax shelters, see: "Paying Taxes is For Suckers," by Lee Drutman of Citizen Works: http://www.tompaine.com/feature2.cfm/ID/9533
This Week's Action Item
Tell PCAOB that tax conflicts of interest need to be resolved
In an interview with the Financial Times, PCAOB chairman William McDonough said he was not going to focus on a new rule that would restrict auditors from doing tax work for clients. "I do not believe it is a high priority for the board," he said.
Yet, just a month ago McDonough testified before a hearing of the Senate Permanent Subcommittee on Investigations that detailed how one accounting firm, KPMG, set up and aggressively pushed four tax shelters that cost the U.S. Treasury $1.4 billion. KMPG earned $124 million from 350 clients for those tax shelters. And that's just a small fraction of the $18 billion a year that tax cheating costs the U.S. Treasury. McDonough said that then the PCAOB would make sure accounting firms are not complicit in tax shelter strategies. He shouldn't back down now.
Allowing accounting firms to also sell tax advice to clients is a conflict of interest. Accounting firms are responsible for assuring the accuracy of corporate books, not for helping corporations to slyly avoid paying taxes. Prohibiting auditors from providing tax advice is an important step to removing this conflicts of interest and reducing corporate tax shelters. Without strict regulations, it is unlikely that accounting firms will give up this lucrative consulting work on their own.
As this week's action item, please remind Chairman McDonough that allowing auditors to double as tax consultants results in dangerous conflicts of interest. Please urge him to refocus his attention on rooting out these conflicts of interest and refocus his attention on reforming the accounting industry.
To contact Mr. McDonough, e-mail: mcdonoughw@pcaobus.org
PCAOB Phone: (202) 207-9100
PCAOB Fax: (202) 862-8430
To read McDonough's recent testimony on tax shelters, see: http://www.senate.gov/~govt-aff/_files/112003mcdonough.pdf
For a look at the role that accountants plan in pushing tax shelters, see: "Paying Taxes is For Suckers," by Lee Drutman of Citizen Works: http://www.tompaine.com/feature2.cfm/ID/9533
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Letxa,
Hello Again! Mech holds opinions which are built upon many years of research. To ask him to defend an opinion based on his views, and to find "proof" that this present regime has planned it's foreign policy as well as its domestic and financial policy is really too huge a task.
If I were to answer this to you, from my opinion and information base, I would simply say that similar to the PNAC in attempting to overpower other countries and resources with a plan, the present agenda is to also overpower and control as many institutions as possible. Economically, unfortunately, trickle down does not work. Giving tax breaks and handouts to the wealthy wage earners and corporations does not stimulate job growth. Giving more freedom to the corporations and less freedom to citizens, doesn't work,either. Notice how the government has promised to help in various social programs, but ends up supporting insurance companies (for example in the recent medicare bill) and various corporate and elite interests while actually slashing the social programs and simultaneously creating more bureaucracies, more government control, and more government spending. "Tax and spend" is no longer the criticizing sticking point in referring to liberals or Democrats. OK, given the overtaking of governmental powers in terms of the Patriot Act, the overstepping the Bill of Rights, and the executive priviledge brought on by the so-called "War on Terror", it's also obvious that government is overstepping its bounds into the realm of privacy and basic civil rights. Even recent judicial rulings have underlined this fact in reference to Padilla and two other cases. We won't even mention the deficit as an indication of overspending.
Given that all of this is happening openly and that all can see this, the only question is whether it is planned. I do believe it is planned. The word referring to the plan, is CONTROL. Big government in collusion with coporations in ultimate control of the people. NOT a government of the people, for the people, and by the people. The PNAC is a plan, and along with that is the plan for controlling the people as well.
Mech's readings go into more detail and probably include Sherman Skolnick's writings, and information on the Illuminati. I'm aware of these factions and believe that they could be working behind the scenes. But for me, the obvious is enough to convince me that their domestic direction is wrong, their foreign policy aims too caustic and power-hungry and resource hungry, as well as the weaponry R & D, out of hand and dangerous to all life. I can't call it haphazard!
So, yeah, I agree with mech that there is a plan and the proof of it is in their present and recent actions.
bc
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