Huffington pigs at the trough; how corporate greed and political corruption are undermining america (2009)

Citigroup, which received $45 billion in government bailout funds—but was still about to take delivery on a new $50 million corporate jet that featured a “plush interior withleather seat

Praise for Pigs at the Trough

“Hu ngton yanks back the curtains on the ’90s ‘go-go market’ to reveal a portrait of Dorian Greed… wicked gallows humor … Democrats and Republicans sizzle like bacon under her broilering spotlight Scrupulous detail

… real porcine heft.”

—Christian Science Monitor

“A rousing call to action As only she can, Arianna breathes energy and passion into the reform agenda A withering, breath taking, quintessentially controversial book that will inspire, in flame, and educate.”

—Senator John McCain

“Arianna Hu ngton makes an appealing and compelling argument for the repeal of human nature—that part of it that indulges savage, unconscionable, and despicable greed.”

Also by Arianna Huffington

The Female Woman After Reason Maria Callas: The Woman Behind the Legend

The Gods of Greece Picasso: Creator and Destroyer

The Fourth Instinct Greetings from the Lincoln Bedroom

How to Overthrow the Government

On Becoming Fearless … in Love, Work, and Life

Fanatics & Fools Right Is Wrong

For Isabella,

my youngest daughter, with much love

WRITING THIS BOOK was a juggling act—keeping the big themes clear while trackingall the startling details unfolding every day on the front pages of our newspapers.Keeping ahead of this moving target could not have been done without a great team.Deep thanks go to Billy Kimball, who was shuttling back and forth between L.A andLong Island, and to Peter Abbott, who landed here for a year from Cambridge, ourshared alma mater in England, and went back the day after the book went to press Ihope that his decision to return to Cambridge to do a Ph.D on the use of “terror” inGreek and Shakespearean tragedy was not entirely the result of researching the “pigs.”Additional thanks to Chris Kyle, Moira Brennan, Jon Hotchkiss, Roy Seko , StephenSherrill, Victor Abalos, Leslie Borja, Mia Mazadiego, Prof Christopher Gill, and to mygood friends Mary Arno, David Booth, Bob Borosage, Marc Cooper, David Corn, LyndaObst, and Lynn Sweet, who read the manuscript at di erent stages and greatlyimproved it

Many thanks also to my anonymous sources, both at the top of the corporate worldand among the recently downsized who provided fascinating leads and key details LikeDeep Throat, my inside sources reminded me to “follow the money.” I can’t name thembut my thanks go to them all the same I can name, however, Steven Weiss, ScottKlinger, Russell Mokhiber, Robert Weissman, and Micah Sifry

All my gratitude to my amazing editor, Emily Loose, whose outrage at the pigs neveragged, even after her fourth masterly editorial pass on the same text; and to myincredible agent, Richard Pine, whose involvement embraced every detail from thebook’s contract to the book’s content To Steve Ross, who welcomed me back into theCrown fold, Barbara Marks for the enthusiasm she brought to the book’s promotion, andCaroline Sincerbeaux for all the many ways she helped the pigs come to life Manythanks also to Barbara Sturman for her work in creating an attractive design for thebook, to Amy Boorstein for her expert management of the copyediting, and to DerekMcNally for his efforts to make this book come in on time

The book is dedicated to my younger daughter, Isabella, who together with her oldersister, Christina, provided constant joyous interruptions

P.S My thanks and gratitude go to Whitney Snyder, Nour Akkad, and Roy Seko , as

well as my editor at Three Rivers Press, Sean Desmond, for all their help with Pigs at the

Trough circa 2009.

Acknowledgments Preface to the 2009 Edition

INTRODUCTION

Twilight of the Corporate Gods

PIGS ON PARADE

Power, Perks, and Impunity

THE BLOODLESS COUP

The Corporate Takeover of Our Democracy

THE ENABLERS

A Conspiracy of Thousands

THE BINGE AND THE RECKONING

The Chickens Come Home to Roost

Epilogue Afterword to the 2009 Edition

Preface to the 2009 Edition

HEN I WAS ASKED to reissue Pigs at the Trough in the midst of our current economic

crisis, I sat down to reread it and was stunned by how much of what the bookspeaks to has brought us to our knees in 2009

Sure, the characters are di erent, the accounting gimmicks have di erent names, thesophistication that allows the gimmicks to take place within the law is greatlyenhanced, and the numbers have gone from mere billions to hundreds of billions andtrillions So, di erent pigs, deeper trough, worse result—but, other than that, thenarrative is unchanged: CEOs and others at the top of the corporate ladder engaging inrampant—though often legal—corruption to improve the bottom line and line their ownpockets until nally they fall prey to their greed and self-indulgence … only to ndthemselves routinely protected from the retribution of their beloved “free market” bytheir companies, their peers—and, ultimately, by the government

“So the stomach-turning revelations of corruption that have come to light,” I wrote inthe book in 2003, “are surely only the appetizer for a far larger banquet of sleazyscandals.” Little did I know at the time just how much larger the banquet of scandalswould end up being It turned into an all-they-could-eat buffet

The corporate crooks of WorldCom, Tyco, Global Crossing, Adelphia, Enron, andothers pro led in this book were largely playing with shareholders’ money (smallcomfort to the thousands who saw their nest eggs scrambled by the likes of Ken Lay, JeSkilling, and Bernie Ebbers) The new villains are playing with taxpayer money,trillions of it During the French revolution, Marie Antoinette and her “let them eatcake” attitude became the symbol of not getting it And just like Marie Antoinette, JohnThain, the former Merrill Lynch CEO, didn’t get it even while being led to the corporateguillotine Though Merrill Lynch was hemorrhaging money and preparing to lay othousands of workers, Thain, reaching new heights of tone deafness, spent $1.2 millionredecorating his o ce Lowlights included $80,000 for an area rug and $1,400 for atrash can And even after Merrill Lynch, in a deal brokered by the government andpartially nanced by taxpayers, was acquired by Bank of America in October 2008,Thain, sleeping through this wake-up call, asked for a $30-$40 million bonus He wasawarded a much more appropriate bonus of $0 But he was not stopped from rammingthrough $4 billion in bonuses for Merrill Lynch executives just days before the Bank ofAmerica merger became official

Which brings us to the miserable job Thain did at Merrill, for which he wanted to so

lavishly reward himself As one insider told the Wall Street Journal, Thain “didn’t really

have a good grasp of what was going on.” But apparently having a grasp of what’sgoing on isn’t one of the requirements for becoming America’s highest paid CEO, asThain was in 2007, taking in a package worth around $83 million This disconnectbetween performance and reward is at the heart of what has plagued our economy andhas contributed to the crisis we are living through today In no other industry is this gulf

as wide as it is in the industry that most publicly celebrates its belief in the market

system Pigs at the Trough deals with the failures both of poorly regulated markets, which

were magni ed in the recent years, and of our market system to appropriately rewardand penalize executives As Treasury Secretary Tim Geithner put it, “Excessive executivecompensation that provides inappropriate incentives has played a role in exacerbatingthe nancial crisis.” The list of clueless Marie Antoinettes of the meltdown is very long.Among them:

Gateway Financial Holdings executives Ben Berry and David Twiddy, who receivednearly $1 million in bonuses on the same day their bank received $80 million in bailoutmoney

Wells Fargo and State Street Both nancial institutions received bailout money ($25billion for Wells Fargo, $2 billion for State Street), then turned around and increased theamount of money they spent lobbying the government in the last quarter of 2008 Not abad deal: we give them our money, which they use to pay lobbyists to buy olawmakers to give them more of our money—a perfect (if very costly) Washingtonperpetual motion machine

Citigroup, which received $45 billion in government bailout funds—but was still about

to take delivery on a new $50 million corporate jet that featured a “plush interior withleather seats, sofas and a customizable entertainment center,” until public outrageforced Citigroup to cancel the order Let them eat cake … while sitting on plush leathersofas!

Corporate jets, redecorated o ces, lavish retreats, and CEO bonuses may be smallpotatoes compared to the bailout billions poured into the black hole of basicallyinsolvent nancial institutions But they are emblematic of the tone deafness of those atthe top of our crumbling economic pyramid It’s as if nothing has been learned since theEnron days It’s just that the numbers got larger Two days prior to Enron going belly-

up, the company gave $55 million in bonuses to senior employees while simultaneouslycoming out against additional help for the 4,500 unceremoniously red workers Therewas outrage and recrimination But little did we know it was just a prelude

Similarly, in 2002, on the same day WorldCom stunned the world with the magnitude

of its accounting fraud, the company’s inner circle began an extravagant, paid vacation at the Grand Wailea Resort Hotel and Spa in Maui—a foreshadowing ofthe $443,000 luxury spa retreat executives of AIG took in October 2008, just days afterthe government unveiled an $85 billion bailout package for the insurance giant

all-expenses-And as outrageous as they were, the $165 million in bonuses paid out by AIG in early

2009 were in keeping with what has come to be expected on Wall Street—and come to

be accepted in Washington Which is why the Treasury Department pushed SenatorChris Dodd to put a loophole in the stimulus bill allowing these kinds of bonuses—andwhy a provision in the stimulus package that would have curtailed bonuses at bailed-outcompanies was killed in conference after it had passed the Senate “It is the ultimateindictment of what Washington has become,” Senator Ron Wyden, cosponsor of theeliminated provision, said “It’s a place where, again and again, the public interest is

deep-sixed behind closed doors and without any fingerprints.”

In his inaugural address, Barack Obama de ned what the New Era of Responsibilitywould entail: “A recognition, on the part of every American, that we have duties toourselves, our nation, and the world.” But we are a long way from ushering in the NewEra of Responsibility and tossing the Era of Not Getting It into the trash can, one thatcosts considerably less than John Thain’s $1,400 wastebasket

Capitalism comes with great rewards—and commensurate risks Allowing topexecutives to reap the rewards during the good times and having taxpayers pick up thetab when their gambles don’t pay off isn’t capitalism It’s lunacy

But unfortunately, while the collapse of communism as a political system sounded thedeath knell for Marxism as an ideology, the ideology of unregulated capitalism remainsalive and kicking even though it has been proven to be a monumental failure If apolitician announced that his campaign would be guided by the principle “From eachaccording to his ability, to each according to his needs,” he would be laughed o thestage That is also the correct response to anyone who continues to make the case thatmarkets do best when left alone

William Seidman, the longtime GOP economic adviser who oversaw the S&L bailout in

1991, said that the Bush administration “made decisions that allowed the free market tooperate as a barroom brawl instead of a prize ght To make the market work well, youhave to have a lot of rules.” Even Alan Greenspan, whose owl-eyed visage would adorn

a Mount Rushmore of unregulated capitalists, has begun to see the light, telling a Housecommittee in October that he “made a mistake in presuming that the self-interests oforganizations, speci cally banks and others, were such that they were best capable ofprotecting their own shareholders and their equity in the firms.”

Yet, as we are bailing out insolvent zombie banks while letting millions of averageAmerican home owners lose their homes and 401(k)s, it is clear that our leaders are stilloperating on the basis of an outdated cosmology that places banks and other nancialinstitutions—rather than people—at the center of our economic universe

Here is one example Everybody agrees on the paramount importance of freeing upcredit for individuals and businesses In a bank-centric universe, the solution was abailout plan giving hundreds of billions to banks It failed because, instead of using themoney to make loans, the banks “are keeping it in the bank because their balance sheets

had gotten so bad,” as President Obama acknowledged in March on The Tonight Show

with Jay Leno As a result, the administration, again according to the president, had to

“set up a securitized market for student loans and auto loans outside of the bankingsystem” in order to “get credit flowing again.”

But think of all the time we wasted while the rst scheme predictably failed And howmuch better o we’d now be if we had provided credit directly through credit unions orsmall, healthy community banks or, as happened during the Depression, through a newentity like the Reconstruction Finance Corporation

Yet, in a bank-centric universe, funneling no-strings-attached money to too-big-to-fail

banks is the logical thing to do In a bank-centric universe, its also no surprise that

“mark-to-market” accounting rules, in which banks have to calculate and report theirassets based on what those assets are actually worth, instead of what they’d like them to

be worth, are being abandoned A good name for the reworked accounting standardswould be mark-to-fantasy, because that’s basically what balance sheets will be underthese new rules Of course, to a true believer in bank-centrism, the problem with mark-to-market is that it’s not good for the banks

In the years covered in Pigs at the Trough, which ended with the collapse of the “new

economy”—for which Enron was the poster child—“restatement of earnings” became theeuphemism du jour to refer to out-and-out fraud in overstating earnings in thesupposedly meticulous annual reports prepared by well-established accountants andauditors

At the G-20 meeting in 2009, Gordon Brown proclaimed that “the old Washingtonconsensus is over.” Wishful thinking, Mr Prime Minister, because when it comes toattacking the nancial crisis, the Wall Street/Washington consensus that has everything

in America orbiting around a few big zombie banks is still the order of the day

Back in the days after the collapse of Enron, executives at Citigroup and JPMorganChase appeared on Capitol Hill to be lambasted for helping Enron defraud shareholders

to the tune of $8 billion But after being publicly raked over the coals—branded as faced liars and criminal accessories—they were allowed to go back to Wall Street, heat

bold-up the derivatives market, and produce what turned out to be a nancial Chernobyl.And once again, in 2009, the Wall Street chieftains were brought back to Capitol Hill to

be theatrically attacked for their misdeeds while, at the same time, hundreds of billions

of taxpayer dollars were being allocated in an attempt to save them It’s a slap on thewrist the executives will take every time

This toxic collusion between nancial interests and policy makers is the onlyexplanation for policies that appear more driven by the perceived need to saveparticular banks than by the clear necessity to serve the American people This is hardly

an ideological ght Its a battle between the status quo and the future, between theinterests of the small but extremely powerful nancial/lobbying establishment and thepublic interest

None other than Anna Schwartz, the coauthor of Milton Fried man’s seminal work, A

Monetary History of the United States, 1867-1960, described the battle this way: “They

should not be recapitalizing rms that should be shut down Firms that made wrongdecisions should fail.” You’d think so, but not while bank-centrism is the dominantcosmology of our public policy It’s time to put the American people at the center of thiseconomic universe

There is an enormous human cost to this bank-centric dogma Unemployment, already

at levels not seen since 1983, is skyrocketing As of this writing, in many places in thecountry, it’s approaching 20% (and in Detroit it’s 22%) And the depressing indicatorskeep piling up, each statistic representing more pain and hardship

More than thirty-two million people received food stamps in January 2009, anincrease of 16% from a year earlier In Philadelphia, demand for emergency foodassistance is up 31% In New York City, the number of homeless families enteringshelters is up 40% In Massachusetts, 20,000 new applications for food stamps arecoming in each month, along with 18,000 requests for extensions.

In Arizona, there’s been a 100% increase in the number of people seeking socialservices from the state In Contra Costa, California, 40,000 families applied for 350available a ordable-housing vouchers In San Francisco, food banks report a 30% rise indemand for emergency food assistance In Lehigh Acres, Florida, demand is up 75%

With national unemployment approaching double digits, the Center on Budget andPolicy Priorities estimates that the number of Americans driven into poverty will rise by

7 to 10 million—on top of the 37.3 million currently living below the poverty line (andwhile that number is the latest from the Census Bureau, it’s from 2007, before the worst

of the downturn)

Making matters worse—much worse—is the fact that the growing need is being met by

a decrease in government programs and charitable services: Eighteen states cut theirwelfare rolls last year The number of families receiving government nancialassistance is at a forty-year low In South Carolina, low-income women under forty withbreast or cervical cancer have had their treatment cut In Nevada, the state’s largestpublic hospital has stopped providing outpatient oncology services In Arizona,programs to prevent child abuse and lower the number of children in foster care wereslashed In Florida, home services for poor seniors are on the budget chopping block InUtah, 20,000 poor people face being removed from the state’s primary care healthnetwork And more cutbacks like these seem inevitable as forty-four states are facingbudget shortfalls over the next two years

“The scale of this is unprecedented,” AARP vice president Elaine Ryan told the Los

Angeles Times Ryan says that in her nearly thirty years of working on health-policy

issues, “I really have never seen anything like this.”

Meanwhile, over half of the nation’s charitable organizations saw a decrease indonations in the nal quarter of 2008, normally the time of the year when charitiesreceive the majority of their annual contributions

This brutal combination of rising need and lowered services has led to a growing sense

of anxiety, uncertainty, and fear

“The rst thing we see in times like this,” Los Angeles police chief Bill Bratton told me,

“is a rise in domestic violence.” Adding to the volatility, gun ownership is on the rise.According to FBI data, gun sales in February 2009 were 23% higher than February 2008

A study by the National Domestic Violence Hotline found that 54% of those calling thehotline had experienced a change in their family’s nancial situation in the past year

“Domestic violence is about power and control,” says a spokesperson for the hotline “Ifyou lose control in one area of your life, like losing your job, you may want to exertmore control in another area of your life, like at home.”

Even though there has not been a spike in other types of crime, criminologists saythere is usually a one-year delay between economic downturns and a rise in crime Notgood news when juxtaposed with a new report that found 63% of police agencies acrossthe country are facing budget cuts.

You can see America’s already-frayed safety net coming apart, strand by strand

WRITING about the “grand book” that is the universe, Galileo declared that it “cannot beunderstood unless one rst learns to comprehend the language and interpret thecharacters in which it is written … without these, one is wandering about in a darklabyrinth.”

That’s where we nd ourselves today, wandering about in a dark nancial labyrinth—being led by good men blinded by an obsolete view of the world But navigating oureconomic crisis using maps based on a cosmology that places banks at the center of theuniverse can only lead to our being lost for years to come

If you compare the relative amount of attention given to the banking part of thenancial crisis—both by the government and by the media—to the amount of attentiongiven to the fore closure part, the catastrophe faced by millions of American homeowners, the contrast is staggering

But we are facing nothing less than a national emergency, with 10,000 Americansgoing into foreclosure every day and 2.3 million home owners having faced foreclosureproceedings in 2008 When we put esh and blood on these numbers, the su ering theyrepresent is enormous, and so is the social disintegration they entail

“The banks are too big to fail” has been the mantra we’ve been hearing sinceSeptember 2008 But when you consider the millions of American home owners facingforeclosure, aren’t they, collectively, also too big to be allowed to fail?

Despite being treated like an afterthought, foreclosures are actually a gatewaycalamity: every foreclosure is a crisis that begets a whole other set of crises Someoneloses his or her home It sits vacant Surrounding home values drop Others move out.Squatters move in Crime goes up Community tax revenues plummet, taking schoolbudgets down with them

So why hasn’t the foreclosure crisis gotten the attention it deserves? A combination ofperverse priorities and awed thinking and the myopia of an increasingly clubby andisolated political, media, and financial establishment

At the congressional celebration of Lincoln’s birthday in February, the Senate chaplainthanked God for our sixteenth president who, as he put it, was able to “transcend theflawed thinking of his time.”

Clearly, the thinking of our time has been deeply—and disastrously— awed Thepublic interest—people being able to keep their houses—is not aligned with the banks’interest Banks don’t want to adjust nonperforming mortgages down to their actualcurrent value because it would lead to marking down the value of the massive assetpools they have rolled the mortgages into But it is time to start treating America’s home

owners as well as we’ve been treating Wall Street’s bankers.

It is also time to do something about the growing credit card crisis in the country.According to the Federal Reserve, the total outstanding credit card debt carried byAmericans reached a record $951 billion in 2008—a number that will only climb higher

as more and more people take the only option available to them and reach for theplastic to make ends meet What’s more, roughly a third of that is debt held by riskyborrowers with low credit ratings

Credit card defaults are on the rise and expected to hit 10% this year This willobviously drive many banks closer to failing their stress tests—but it will have an evengreater impact on the lives of people who nd themselves sinking deeper and deeperinto levels of debt that, when coupled with skyrocketing interest rates, they will neverescape

It’s a particularly vicious economic circle: every day, Americans, faced with layo sand tough economic times, are forced to use their credit cards to pay for essentials likefood, housing, and medical care—the costs of which continue to escalate But as theirdebt rises, they nd it harder to keep up with their payments When they don’t, or even

if they miss a payment by a day, the banks then turn around and hike interest rates andimpose all manner of fees and penalties … all of which makes it even less likelyconsumers will be able to pay off their mounting debts

And that’s not the end of the economic downward spiral As more and more Americansdefault on their credit card debt, banks will nd themselves faced with a sickeninginstant replay of the toxic securities meltdown from the mortgage crisis In anotherexample of Wall Street “creativity,” credit card debt is routinely bundled into “creditcard receivables” and sold o to investors—often pension funds and hedge funds.Securities backed by credit card debt is a $365 billion market This market motivatedcredit card companies to o er cards to risky borrowers and to allow greater and greateramounts of debt

As these borrowers continue to default, banks and the investors who bought theirpackaged debt will take a serious hit And how are the credit card companies trying to

o set the rise in bad debts? By raising rates on the rest of their customers—making itlikely that more of them will end up defaulting, causing even more losses for the banks.And round and round and round we go Short-term gain for bankers and their friends.Long-term losses for everybody else

And such is the paradoxical nature of the meltdown that Americans are encouraged to

go back to spending in order to get the economy rolling again But the problem is, moreand more Americans are broke So the only way they can spend is to charge it, running

up balances on credit cards that are structured in a way that makes it harder and harder

to pay them off

Getting dizzy yet?

For years, credit card companies have been fattening their bottom lines with an widening array of fees Late fees, cash-advance fees, over-the-limit fees In 2007, lenders

ever-collected over $18 billion in penalties and fees JPMorgan Chase, the nation’s top creditcard lender, began charging many of its customers $10 a month for carrying a largebalance for too long a time—that’s on top of the interest they are already collecting onthose balances.

And interest rates are escalating In February, Citibank warned customers that if theymiss a single payment, they could see their interest go up to 29.99% (so nice of them toshave o the 01 to keep it from being 30%, isn’t it?) The company also raised rates by3% on millions of nonpayment-missing customers Citibank is not alone: Capital Oneraised its standard rate on good customers by up to six points, and American Expressraised rates by 2 to 3% on the majority of its customers

Senator Chris Dodd, chairman of the Senate Banking Committee, accuses the banks of

“gouging,” saying, “the list of questionable actions credit card companies are engaged in

is lengthy and disturbing.” Perhaps he should send the bankers a Bible bookmarked toDeuteronomy 23:19: “Thou shalt not lend upon usury to thy brother.”

For their part, the bankers have tried to cloak their behavior with nonsense speak A Citibank spokesman called the rate hikes the result of “severe fundingdislocation,” and said, “Citi is repricing a group of customers in our Citi-brandedconsumer credit card business in the U.S to appropriately manage these risks.” AnAmEx spokeswoman chalked up its rate hike to “the cost of doing business.”

corporate-Making such pronouncements particularly galling is the fact that many of the bankssummarily raising interest rates and piling on the penalties were receiving billions inbailout money while they were raising the rates on the taxpayers funding the bailout.Our money We gave Citibank $45 billion, Bank of America $45 billion, JPMorganChase $25 billion, American Express $3.4 billion, Capital One $3.6 billion, and Discover

$1.2 billion In fact, American Express and Discover converted to bank-holdingcompanies to make themselves eligible for bail out funds

Yet that money seems to have been delivered with no strings attached Banks cashtheir bailout checks, then turn around and gouge their most vulnerable customers.Priceless

One of the ironies of the credit card crisis is that the nancial industry laid thefoundation for much of the trouble we are seeing with its full-throated—and deep-pocketed—support of the cynically named Bankruptcy Abuse Prevention and ConsumerProtection Act of 2005, a truly loathsome piece of legislation that opened the door tomany of the banking abuses currently ravaging the country It made it much tougher forAmericans to le for bankruptcy—even the millions of hardworking Americans whosebankruptcy is the result of a serious illness (fully half of all bankruptcies are the result

of crushing medical expenses) It also did nothing to rein in the kinds of lending abusesthat frequently and predictably turn manageable debt into unmanageable personalfinancial catastrophes

The nancial industry spent $100 million lobbying to get the bill passed—and millionsmore in campaign contributions The shameful result was a sweetheart deal for the

financial industry—with eighteen Senate Democrats voting for it.

And the banking lobbyists are at it again There are currently several bills in Congressdesigned to roll back some of the worst provisions of the 2005 legislation and to bringabout credit card reform But the banking industry is pushing back hard Wait, youmight ask, aren’t the banks broke? So where’d they get all that money to lobby againstcredit card reform?

From us There may not be much transparency about the hundreds of billions oftaxpayer dollars doled out through the TARP program, but we know that at least some

of the money has gone into making sure that none of the Bankers Gone Wild behaviorthat led to the current disaster is curtailed

IN Pigs at the Trough, I write how we have spawned a business culture that has made gods

out of those who choose to do the easy thing—whether it’s ripping o shareholders,avoiding taxes, or slicing and dicing workers—instead of the right thing And whilesome of the corporate Zeuses chronicled in these pages crossed the line into criminalactivity, countless others pulled o elaborate nancial scams, bankrupted theircompanies, and plundered their shareholders without needing to break the law AsMichael Kinsley once famously pointed out, the real scandal in Washington is what’slegal

Flash forward to today, as we try to dissect and unravel the even more elaboratenancial scams that led to the current economic catastrophe, and see that they, too,were pulled off without the law needing to be broken

As you read Pigs at the Trough, many names will be familiar to anyone following our

current crisis It’s a lot like a prequel to where we find ourselves today Names like LarrySummers, who is currently part of the White House team working to bring about our

economic recovery, and who, during part of the period covered in Pigs at the Trough, was

Treasury Secretary under Clinton and played an important role in convincing Congress

in 1999 to pass the Gramm-Leach-Bliley Act, which repealed key portions of the Steagall Act and allowed commercial banks to get into the mortgage-backed securitiesand collateralized debt obligations game The measure also created an oversightdisaster, with supervision of banking conglomerates split among a host of di erentgovernment agencies—agencies that often failed to let each other know what they weredoing and what they were uncovering

Glass-At the signing of the bill, Summers hailed it as “a major step forward to the first century.” And a major step back ward for mankind

twenty-Summers also backed Phil Gramm’s other nancial time bomb, the Commodity FuturesModernization Act, which allowed nancial derivatives to be traded without anyoversight or regulation So it was on his watch that the credit-default swaps warheadthat has blown up our economy was launched

Indeed, during a 1998 Senate hearing, Summers testi ed against the regulation of thederivatives market on the grounds that we could trust Wall Street “The parties to these

kinds of contracts,” he said, “are largely sophisticated nancial institutions that wouldappear to be eminently capable of protecting themselves from fraud and counterpartyinsolvencies and most of which are already subject to basic safety and soundnessregulation under existing banking and securities laws.”

It would be hard to make assumptions that turned out to be more wrong thanSummers’s were For a more accurate portrayal of what Summers described as “largelysophisticated nancial institutions,” I turn to Matt Taibbi’s devastating depiction ofAIG’s upper management as utterly clueless about the “selective accounting” scam beingrun by credit-default swap pimp Joseph Cassano, head of AIG’s 400-person FinancialProducts unit (Taibbi dubs Cassano “the Patient Zero of the global economicmeltdown”)

“For six months before its meltdown,” writes Taibbi, “the company had been searchingfor a full-time chief nancial o cer and a chief risk-assessment o cer, but never gotaround to hiring either That meant that the eighteenth-largest company in the worldhad no one at the helm in these positions just prior to its collapse The situation was sobad that when outside consultants were called in a few weeks before the bailout, seniorexecutives were unable to answer even the most basic questions about their company—like, for instance, how much exposure the firm had to the residential-mortgage market.”

Taibbi describes Cassano getting on a conference call with investors in 2007 and, ashis credit-default swap portfolio was racking up $352 million in losses, announcing: “It

is hard for us, without being ippant, to even see a scenario within any kind of realm ofreason that would see us losing $1 in any of those transactions.”

These are the kinds of “parties” Summers was so con dent could regulate themselvesand be “eminently capable of protecting themselves from fraud and counterpartyinsolvencies.” Of course, it’s not just the Financial Products unit at AIG that beliesSummers’s glib predictions The toxic balance sheets at megabank after megabank alsotell a very different story

In a speech at the Kennedy School of Government in September 2000, Summersdeclared: “The traditional industrial economy was a Newtonian system of opposingforces, checks, and balances… While, in contrast, the right metaphors for the neweconomy are more Darwinian, with the fittest surviving.”

He forgot to add the part about the “ ttest” surviving by being bailed out by the rest

of us

Real economic Darwinism—or Randian capitalism—would mean letting oldinstitutions that have failed die Keeping them on life support is not just catastrophicallyburdensome for taxpayers but also prevents new institutions from flowering

What Kevin Phillips, the author of Wealth and Democracy, describes in Pigs at the Trough

as the “ nancialization of the economy” reached new heights as the rst decade of thenew century progressed, and the power of government regulators was deliberatelyweakened “The processes of money movement, securities management, corporatereorganization, securitization of assets, derivatives trading, and other forms of nancial

packaging are steadily replacing the act of making, growing, and transporting things,”Phillips wrote In this nancialization fun house, real pro ts weren’t necessary; youcould simply make them up.

And with George W Bush’s deregulating regulators refusing to stand guard, thewizards of Wall Street turned the nancial carnival into an “every-bet’s-a-winner”casino, where Bernie Ma do , Allen Stanford, and the AIG Financial Products unit couldflourish un detected

Now Summers and Tim Geithner are trying to clean up the mess But the way they aregoing about it proves that the toxic thinking that got us into this mess is part of theirDNA—and even more dangerous than the banks’ toxic assets Geithner remains acreature of Wall Street, habitually sympathetic to the people at the top of the nancialsystem While president of the New York Fed, Geithner eliminated two key regulatorymeasures—a quarterly risk report and a ban on major acquisitions—that may haveprevented (or at least lessened the impact of) the unraveling of Citigroup, which his

o ce was responsible for supervising Then, together with Hank Paulson, he wasinstrumental in the original bailout of AIG and the creation of the TARP plan

And now he has surrounded himself with others who share his Wall StreetWeltanschauung, including his chief of sta Mark Patterson, a former lobbyist forGoldman Sachs who had fought against then-Senator Obama’s 2007 bill to reform CEOpay It’s all one big happy family

Geithner’s Masters of the Universe, the people he still thinks are the ones we shouldtrust to save the day are the same people who brought us here So we continue to knowvery little about what’s happening to the stunning amounts of money that have beendoled out over the last few months The lack of oversight and transparency has meantthat, again and again, what we know is dwarfed by what we don’t know, and whatrenders this even more dangerous than it might otherwise be is that these are trulyextraordinary times when things that we never would have imagined are happening allaround us (Only a year ago, if you’d have said that $7 trillion of shareholder wealthwould be lost in the stock market in 2008, and that the government would spend $2.2trillion and commit to spending another $7.7 trillion to bolster America’s strugglingnancial system—and that it probably will need to spend even more—no one wouldhave believed you.)

Pigs at the Trough helps explain how we got here and how the table was set for today’s

pigs to gorge themselves at the public trough, while the average American struggles tomake do with the leftovers

INTRODUCTION Twilight of the Corporate Gods

“Old truths have been relearned; untruths have been unlearned We have always known that heedless

self-interest was bad morals; we know now that it is bad economics Out of the collapse of a prosperity

whose builders boasted their practicality has come the conviction that in the long run economic

morality pays.”

FRANKLIN D ROOSEVELT

(Second Inaugural Address, January 20, 1937)

N AUGUST OF 2002 I received a politely phrased notice from my cable company,Adelphia, addressed to “Dear Valued Customer” announcing that my monthly cable feewould be increasing The letter explained that, “like other businesses, Adelphiaconstantly faces increases in operational expenses such as wages, specialized trainingfor our employees, utilities, fuel, insurance, equipment….” Missing from the missive?Any mention of another operational expense that no one at Adelphia seemed too happy

to discuss During the unfortunate latter days of his reign, former CEO John Rigas hadborrowed $3.1 billion from the company and spread the money around like seed on asun-scorched lawn His own lawn, of course He spent $13 million to build a golf course

in his backyard, $150 million to buy the Bu alo Sabres hockey team, $65 million to fund

a venture capital group run by his son-in-law, thousands to maintain his three privatejets, and $700,000 for a country-club membership It’s a wonder my bills not going up amillion dollars a month I just hope Adelphia’s subscribers aren’t also paying for his bail

In the super-heated nineties we were told repeatedly that the “democratization ofcapital” and unparalleled increases in productivity would level the playing eld andproduce unprecedented gains in everyone’s standard of living Well, far from closing thevast gap between the haves and the have-nots, the lunatic excesses and the frenzy offraud perpetrated by our high- ying corporate chieftains have left America’s 401(k)sand pension plans in ruins and more than 8 million people out of work Meanwhile,despite the much vaunted Corporate Responsibility Act and the highly publicized round

up of a few of the most heinous o enders, the awful truth is that the corporate trickstershave pillaged the U.S economy and gotten away with it They’re still living in theirgargantuan houses, still feasting on their wildly in ated salaries, and engorgingthemselves on staggering sums of stock options, while the rest of America tries to gureout how to rebuild for retirement Or send a kid to college on a worthless stockportfolio

Ask yourself, Which America do you live in?

Are you con dent that even if you really messed up and not only lost all thecompany’s money but also lost thousands of other people their jobs, you’d still walkaway with millions of dollars in bonuses and options and an extremely generous annualpension payment?

If you answered yes to this question, you live in a very special suburb of America:

“CEO-ville.” It’s a cushy, exclusive enclave that has broken away from the rest of theRepublic, where the motto is “Land of the free, home of the o -shore tax shelter.” Thecurrency is emblazoned with the inscription, “In God and crooked accountants we trust,”and the Declaration of Independence includes the phrase: “all men are endowed by theircreator with certain inalienable rights, that among these are stock options, goldenparachutes, and the reckless pursuit of limitless wealth.”

In all likelihood, though, you’re living in the other America, the one 99.9999% of thecountry has to make do with The one in which a record-breaking 1.5 million led forbankruptcy between March 2001 and March 2002 The one in which investors have lostnearly $9 trillion since March 2000 and retirement assets lost 11% of their value—$630billion—over roughly the same period

How did this divisive and anti-democratic tale of two Americas come to pass? How didthe impossibly rich upper crust get impossibly crustier? How did we allow the haves tohave so insanely much while the rest of America got stuck with the bill? What did ourfearless corporate leaders do to deserve such excessive pay and perks, and severancepackages, as they laid o hundreds of thousands of hardworking Americans, andmagically made trillions of dollars in pension plans and small investor shareholdingsdisappear?

It’s not just that corporate America corrupted the watchdogs that were supposed to beguarding the public interest by feeding them under the table While it is true that federalregulators, overseers, accountants, and the corporate boards were only too happy to lickthe hands that fed them, corporate corruption will not just be chased away by a better-trained pack of Dobermans

Most of us live our lives according to a set of generally accepted rules Some are actuallaws, which we may or may not be happy with—who likes paying taxes?—but which wefollow anyway Others are moral conventions governed by our sense of decency Werelinquish our seat to an elderly woman on a crowded bus We hand back the extramoney when a cashier gives us too much change We don’t gamble away our kids’allowance in the o ce football pool And although we’re ambitious, we don’t cheatpeople just to speed up our own rise to the top

A small group of Americans isn’t happy with this arrangement Not content to conductthemselves according to a code of fair play that allows more than ample opportunity forhardworking, talented, or just plain lucky people to prosper—even to become very rich

—they’ve created their own set of rules that defy logic, violate basic decency, corruptcommerce, and laugh in the face of the laws and regulations established to protect therest of us These are the standards that comprise the Code of the Crooked CEO It’s acode of dishonor that rewards unprecedented avarice with gargantuan wealth andensures a lifestyle of appalling excess—where “keeping up with the Gateses” means thathaving too much is never enough

Whenever gang members mow each other down in inner-city shootouts, we aresubjected to endless speculation about the root causes of their behavior Was it a family

breakdown, the absence of a father gure, the scourge of crack cocaine, the risingillegitimacy rate, or the collapse of religious values? Watching the latest installments ofMust CEO TV—disgraced corporate execs carted o in handcu s or robotically takingthe Fifth in front of congressional committees—I nd myself asking the same question:What led these men (and, Martha excepted, they are all men, though one suspects thatbehind more than a few avaricious men stand greedy women) to do the despicablethings they did?

How could they show such wanton disregard for the well-being of so many? Whatmakes them tick—and what made them into ticking nancial time bombs? Perhapsinstead of the usual talk-show pundits, it would be more useful to convene a roundtablediscussion on the subject featuring Dr Freud, Dr Jung, and Dr Phil Call it “The ThreeDoctors.”

I’d love to hear what these legendary explorers of the human psyche would make ofthe likes of John Rigas, Dennis Kozlowski, Bernie Ebbers, Sam Waksal, and those ThreeHorse men of the Enron Apocalypse, Ken Lay Je Skilling, and Andy Fastow Were they

as some armchair analysts have theorized, kids who grew up with no love in their lives,now desperately trying to ll the inner void with money and material possessions?Were they suffering from reckless grandiosity? Grotesque delusions? Sheer madness?

I n Without Conscience, renowned criminologist Dr Robert Hare identi ed the key

emotional traits of psychopaths Included in what he called “The Psychopathy Checklist”were: the inability to feel remorse, a grossly in ated view of oneself, a pronouncedindifference to the suffering of others, and a pattern of deceitful behavior

Could there be any better example of a person with a grandiose—and sociopathic—sense of entitlement, of feeling that the rules that mere mortals live by don’t apply tohim, than John Rigas? He thought nothing of “borrowing” $3.1 billion dollars from hisshareholders so he and his sons could live like sultans—even though they were alreadyfantastically rich, by anyone’s definition, before raiding the company coffers

If you’re wondering what the inability to feel regret or shame looks like, take a goodlook at Dennis Kozlowski He may have cost Tyco shareholders $92 billion in marketvalue, and he may be facing criminal trials for tax fraud and for looting $600 millionfrom the company, but “Deal-a-Day Dennis” refused to let a few unfortunate details likethese stop him from shamelessly hosting a lavish and boisterous Fourth of July bash—only one month after his art fraud scheme was revealed—at his magni cent spread inNantucket and aboard his antique racing sloop

Whether it was a last hurrah or just excess as usual, Kozlowski spared no expense toguarantee that a good time was had by all A legion of private security guards protectedthe cases of vintage wine and other goodies being delivered to the yacht, which sat on a

mooring that costs Kozlowski $1.5 million a year After a sail on the Endeavour, one

eyewitness reported that “he cruised back into port at the helm—like he was aconquering hero.” Unwilling to try his guests’ sea legs further, Kozlowski next conquered

a lavish repast at the elegant White Elephant restaurant, from which he watched theisland’s annual reworks display And just to show what a stand-up guy he is, Kozlowski

stood a round of drinks for everyone at the restaurant’s bar And why not? It’s not likeit’s his money.

You’d be hard pressed to nd a man more willing to play fast and loose with the truththan that indefatigable social climber Dr Sam Waksal He didn’t just lie about big thingslike the prospects of FDA approval for his company’s cancer drug, Erbitux No, Waksallied even when there was nothing to gain from the deceit: he claimed he was 52 when

he was actually 54, that he was raised in Toledo, Ohio, when he grew up in nearbyDayton Either way, he’s a middle-aged Middle American, so why the subterfuge?

As for Je Skilling, who abandoned Enron’s sinking ship with his $100 million stockoption lifejacket, he exhibits the psychopath’s complete lack of remorse, unable to admitwrong-doing Instead he continues to insist he “made the right decisions.”

During the nineties, America fell under the spell of the corporate kingpins, putting a

premium on charismatic CEOs who looked good on the cover of BusinessWeek or being interviewed on Squawk Box (although many also mainstreamed themselves with appearances on Larry King or even The Tonight Show) It was the era of the rock star

CEO

It turns out, of course, that far too many of these preening, pampered, overpaid,egocentric corporate American Idols were good on the tube or glad-handing Wall Streetbut tended to overlook mundane little things like where to list assets and where to listliabilities on a balance sheet

The o -the-chart CEO extravagances would be a tad easier to stomach if they had beenpaid for with money earned as reward for superior performance But they weren’t.Many of these superstar executives were not even good at what they were overpaid to

do In fact, some were downright atrocious—to say nothing of felonious But howevermuch they ravaged their companies’ bottom line, it never seemed to a ect their ownannual haul

Consider the case of former Ford CEO Jacques Nasser, who was rewarded with millions

in stock and cash despite an awful 34-month reign that left the carmaker’s revenue in anosedive and 35,000 workers out of a job It’s hard to imagine that Ford could havedone worse if they’d just made decisions by letting a monkey flip a coin

In fact, the CEOs’ lust for excess has been indulged at the direct expense of thepyramid of workers below them The very system that the CEOs have taken advantage

of depends upon the premise that the other America follows the other code—the onebased on laws and morality The scandals at Enron, Arthur Andersen, Global Crossing,Tyco, WorldCom, Xerox, Qwest, Merrill Lynch, and the rest have exposed a brutaldisregard in the boardroom for the fate of those in the o ce cubicles or on the factoryfloor

Against all odds, Kozlowski, Waksal, Rigas, and Fastow are actually being criminallyprosecuted But that doesn’t happen very often, because most CEOs and their PraetorianGuard of lawyers, accountants, and advisors are smart enough not to break the law.They don’t have to

The mad stampede of greed that coincided with the waning of the bull market and thebursting of the loony tunes tech balloon would not have been possible without anunholy alliance between the CEO class and their buddies on Capitol Hill For a small fee,payable at the beginning of each election cycle—some call such fees “politicaldonations;” others, less concerned with semantics, political correctness, and charges ofslander, call them “legal bribes”—corporate mandarins can purchase an all-access passguaranteeing a sympathetic look the other way from our so-called public servants Sure,for a few weeks last summer, when the WorldCom bomb made them fear for theirpolitical lives, our political leaders actually passed a set of reforms But don’t be fooled.Both political parties have a richly vested interest in corporate corruption.

The hustling salesmen known as stock “analysts,” and their unindicted co-conspirators,the handsomely attired and blow-dried anchors of the cable business news channels,hardly held CEOs’ feet to the re Glaring disparities in compensation, along with anall-you-can-eat menu of ultra-cushy CEO perks—golden parachutes, interest-free loans,options with obscene returns—were not only tolerated but winked at And why shouldthe average American have begrudged the CEOs their fabulous pay packages? After all,

we thought they were working hard for their money When stock prices and corporatevalues were ying so high, why should small-stake stock punters not believe that high-priced executives were worth their in ated salaries, their personal jets, and theirshareholder-funded mansions?

Now, of course, we know the appalling truth

With the bull market a distant memory and nearly $9 trillion of market value lost,those who play by the rules are nally demanding justice But the harsh and infuriatingreality is that at the top of the economic heap, despite scandal after scandal, and themuch-touted corporate reform bill, little has changed

Confronted with the ever-growing litany of distasteful abuses, the defenders of thesystem of excess and fraud have protested, sometimes with some pro-forma show ofregret, that the invisible hand of the market inevitably anoints both winners and losers

They blithely sidestep the inconvenient fact that the democratic social contractdepends upon the vast majority of citizens trusting that the economic game is not riggedlike some shady ring-toss booth on a carnival midway If the playing eld isn’t level,then the market isn’t free—it’s xed Despite the disingenuous protestations of the truebelievers, the fraud and deceit perpetrated in our corporate suites and boardrooms havenothing to do with the free market—and everything to do with the swindles and consyou traditionally associate with a rug bazaar

“Businessmen,” said Ayn Rand in 1961, “are the symbol of a free society—the symbol

of America If and when they perish, civilization will perish.” Obviously the highpriestess of free enterprise never met the men of Enron, Adelphia, and WorldCom

In books such as The Virtue of Sel shness and Atlas Shrugged, the bibles of free

marketeers like Alan Greenspan, Rand championed the idea that by doing what is bestfor yourself, you end up doing what is best for society That equation has now been

turned on its ear The gross excesses of today’s crony capitalists are no longer alignedwith the interests of their shareholders or workers, or even with the long-term interests

of the companies they run—not to mention society as a whole

The orgy of money-grubbing by the corporate cabal has in icted real, long-lastingpain on a host of deceived Americans: emptying their wallets, pillaging their 401(k)plans and dashing all their expectations for a comfortable retirement The have-notsfound themselves on the opposite side of an ever-widening economic Grand Canyonseparating them from the have-way-too-muches

How can there be talk of a shared destiny in a nation where just over 1% of thepopulation (170 billionaires, 25,000 deca-millionaires and 4.8 million millionaires)control approximately 50% of the entire country’s personal wealth? Where the richest20% earn 48.5% of the income and the poorest 20% merely 5.2%? Where, since 1980,real income for the bottom fifth of families fell by $800, while for the top fifth, it rose by

In truth, more money is hardly the only di erence No news ash there But what should

be making headlines is the fact that the gap between what’s going on upstairs inboardrooms, executive suites, and private planes and what’s going on downstairs inoffice cubicles and on factory floors has become an abyss

Upstairs: Former Kmart CEO Charles Conaway received nearly $23 million in

compensation during his two-year tenure

Downstairs: When Kmart led for bankruptcy in 2002, 283 stores were closed and

22,000 employees lost their jobs None of them received any severance pay whatsoever

Upstairs: Former Tyco CEO Dennis Kozlowski made nearly $467 million in salary,

bonuses and stock during his four-year tenure

Downstairs: Shareholders lost a massive $92 billion when Tyco’s market value plunged.

Upstairs: The CEOs of 23 large companies under investigation by the SEC and other

agencies earned 70% more than the average CEO, banking a collective $1.4 billionbetween 1999 and 2001

Downstairs: Since January 2001 the market value of these 23 companies nosedived by

over $500 billion, or roughly 73%, and they have laid off over 160,000 employees

Upstairs: In the year before Enron collapsed, about 100 executives and energy traders

collected more than $300 million in cash payments from the company More than $100million went to former CEO Kenneth Lay

Downstairs: After ling for bankruptcy Enron lost $68 billion in market value, 5,000

employees lost their jobs, and Enron workers lost $800 million from their pension funds

Upstairs: Wal-Mart CEO H Lee Scott, Jr received more than $17 million in total

compensation in 2001

Downstairs: Wal-Mart employees in 30 states are suing the company alleging that

managers forced employees to punch out after an eight-hour work day, and thencontinue working for no pay This is a clear violation of the Fair Labor Standards Act,which says employees who work more than 40 hours a week must be paid time and ahalf for their overtime

Upstairs “Penthouse A”: Citigroup provided Enron with $8.5 billion in loans

disguised as commodity trades The deals allowed Enron to arti cially in ate cash

ow and hide debt, which deceptively boosted share price and ultimately led to thecompany’s collapse

Upstairs “Penthouse B”: Citigroup o ered hot initial public o ering shares to

WorldCom CEO Bernie Ebbers and other telecom titans in exchange for their investmentbanking business Ebbers is alleged to have made nearly $11 million on IPO shares sold

to him by Citigroup

Downstairs: Citigroup agreed to pay $215 million in nes to the FTC to settle

allegations of “predatory lending,” loosely de ned as mortgage lending that preys oncustomers, especially ones with bad credit, through abusive practices like deceptivemarketing and inflated fees on unnecessary refinancings

Upstairs: More than a million U.S corporations and individuals have registered as

citizens of Bermuda to avoid taxes, a practice okayed by the IRS Although the exactnumber is unknown, the IRS estimates that “tax motivated expatriation” drains atleast $70 billion a year from the U.S Treasury

Downstairs: If you were poor enough to apply for the Earned Income Tax Credit in

2001, your chance of being audited was 1 in 47 If you made more than $100,000 ayear, your chance of being audited was 1 in 208

Upstairs: The richest 20% of Americans earn almost 50% of the nation’s income.

Downstairs: The poorest 20% of Americans earn 5.2%.

Upstairs: The top 1% of stock owners hold 47.7% of all stocks by value.

Downstairs: The bottom 80% of stock owners own just 4.1% of total stock holdings.

Upstairs: In 2000, the average CEO earned more in one day than the average

worker earned all year

Downstairs: In 2000, 25% of workers earned less than poverty-level wages.

Upstairs: Between 1990 and 2000, average CEO pay rose 571%.

Downstairs: Between 1990 and 2000, average worker pay rose 37%.

For more information about the disturbing disparity in wealth and privilege betweenthe top 1% and the bottom 80%, open up the business section of your newspaper Or

turn on Court TV.

The excesses of corporate America have become more than just a social crime; they are

a direct threat to the well-being of our society The bottom line is that the United Statescan no longer hold its head up as the world’s standard-bearer of capitalist virtue

Even as our country has taken steps to abolish welfare, forcing the poor to sink orswim, we’ve allowed the high-end corporate class to weave a giant safety net for itsmembers Is this corporate welfare really any di erent or less costly than the kind most

of these people inveigh against? To use their own argument, how are we ever going toget them to act responsibly when we keep rewarding them for irresponsibility? To saynothing of criminality

Those devoted to the principles of a free and fair market are the ones who should beworking the hardest to put an end to the sorry state of a airs in which businessmen—those “symbols of America”—are richly rewarded for failing

Indeed, a report from United for a Fair Economy and the Institute for Policy Studiesrevealed that CEOs of companies under investigation by the SEC, the JusticeDepartment, and other agencies for accounting irregularities, received as much as 70%more than the average CEO It’s downright un-Randian And, much more important for

those of us who do not sleep with Atlas Shrugged under our pillow, it’s downright

un-American

How did the free-market ideology of the Reagan revolution come to be the politicalconsensus of our times? How did we get suckered by the fairy tale that as long as peoplekept shopping, the market could keep our prosperity expanding as far as the eye couldsee? And that by voting with our credit cards, we could spread the gospel of prosperousdemocracy to any corner of the earth where American products were made or

consumed? Like all fairy tales, it’s a nice story But it’s time to acknowledge that thisone didn’t have a happily-ever-after ending.

Over the last twenty years, Americans have been doused with regular sermons on thesupposed correlation between unregulated markets and higher standards of living Inthe process, the American people were demoted from citizens to consumers, and sold abill of goods (rather than a Bill of Rights) about how the almighty market was theessential foundation of democracy Accepted notions of public protections—of theenvironment, of workers, of the poor—were scrapped, cast out as superannuated relics.Compassion became the 8-track player of public policy

In the course of selling us on buying, the market worshippers shredded the modernsocial contract, the hard-fought consensus that had emerged since the New Deal, whichordered our political priorities, and expressed both our communal concern for the mostvulnerable and our disapproval of huge inequalities We were now supposed to believethat all that could be left up to the soulless, self-correcting calculus of supply anddemand The free market had become the People’s Market and would, of course, takecare of the people

On June 26, 1995, President Clinton, speaking at the World Economic Forum inDavos, Switzerland, described the job of our generation: “to persuade people thatdemocracy and free markets can give all people the opportunity to live out theirdreams.” Almost imperceptibly “free markets” had come to mean unregulated markets

As for democracy, well, it was a nice rhetorical ourish But in reality, the fact that half

of our citizens do not vote in presidential elections, while two-thirds don’t bother to turn

up for midterm elections did not seem to concern our political leaders

Once the province of Republican supply-siders, this all-encompassing faith waswarmly embraced in the nineties by New Democrats And some old Democrats, too.Even Jesse Jackson rang the opening bell at the New York Stock Exchange and created

a Wall Street Project

The media dutifully did their part, hyping stories that made it seem like everyone wasmaking money investing Who can forget the Beardstown Ladies, those best-selling,stock-pickin’ grannies from Illinois who were supposedly making a 23% return in themarket? Or all those Millionaires Next Door—like Anne Scheiber, the lowly governmentauditor who, by patiently investing in stocks, turned $5,000 into a $22 million fortune?

Stressed out about retirement? Your kids’ college tuition? A family health emergency?Not to worry! The market would take care of all that Even being downsized could bemade fun and pro table After AT&T laid o 40,000 workers in January 1996, hedge-

fund manager Jim Cramer wrote a cover story for the New Republic entitled “Let Them

Eat Stocks.” In it he proposed a simple solution “Just give the laid-o employees stockoptions,” he exulted, “let them participate in the stock appreciation that their ringscaused.” And why not toss in a year’s worth of Turtle Wax while you’re at it, Jim? So allsocial ills would be redressed by the market while the onward march of democracywould be guaranteed by the democratization of capital “One dollar, one vote.” The newevangelists had seen the future and it worked Even when it was out of work

The future that Wall Street had dreamt of for decades—free of snooping politicians,pesky regulators and pro t-sapping social activists—had nally arrived in a golden,irrationally exuberant dawn Just as communists had promised a utopia in which thestate would wither away, the free-market ideologues in control in the nineties promised

us that we would reach Nirvana when all government intervention would, well, justwither away

We would then nd ourselves in a glorious Brave New World Marxists and CNBCstock analysts together at last, holding hands and feverishly chanting: “From eachaccording to his culpability, to each according to his greed.”

I was lucky that I got my degree in economics at Cambridge, where I inhaled a healthyskepticism of the power of the free market to bring about the good society After all,Cambridge was the home of John Maynard Keynes I well remember a lecture in myfreshman year in which free-market guru Milton Friedman was dismissed in onesentence as someone who did not understand Keynesian economics

My rst speech at the Cambridge Union was on the motion, “This House Believes Thatthe Market Is a Snare and an Illusion.” I was speaking on J K Galbraith’s side against

William F Buckley In 1978 I published a book, The Other Revolution, in which I

marveled at the attempt of free-market ideologues to ascribe all public good to theinvisible hand of the market It took a while—and the fall of Ken Lay, Bernie Ebbers,Sam Waksal, et al.—before the invisible hand was exposed as a pickpocket But evenduring my Republican interregnum in the early nineties I never believed that we couldtrust trickle-down economics to solve social problems I’ve actually always agreed withMark Russell, who de ned trickle-down as, “something that bene ts David Rockefellernow and Jay Rockefeller later.” Or, to be a bit more current, George Herbert WalkerBush then, and George Walker Bush now

But evidence can never, by itself, trump ideology Forget the inconvenient fact thatderegulation hasn’t worked—that it’s given us an airline industry on the verge ofcollapse, higher electric and cable bills, a savings and loan disaster, to say nothing ofEnron, WorldCom, Adelphia, Xerox, and Merrill Lynch—the invisible hand is still themagical answer to all our woes So even after the free-market parade had to be called

o on account not of rain, but of fraud, we have begun to hear the trickle-downmarching bands warming up in the distance, ready to play their familiar siren songs

Like a lung-cancer patient reaching for a pack of smokes, the Bush administration hasagain and again greeted gloomy economic news with a nerve-settling pu of its favoritebrand of economic relief: tax cuts for the rich And considering the imprudence of thatidea, maybe Team Bush is smoking something a little stronger than Marlboros

What makes the free market ideology stronger than ever is that it is now powered bythe nexus of money and politics that dominates our political process

“No more easy money for corporate criminals, just hard time,” President Bush saidwhen he signed the corporate reform bill in July 2002 It was supposed to usher in thenew era of corporate responsibility, but the new era message is nothing but a Madison

Avenue gimmick—a “new and improved” label slapped on the same old package ofdeceit.

Watching the president smile for the cameras as he signed a reform bill he had neversupported, I couldn’t help but wonder if the glint in his eye was because he knewsomething the rest of us didn’t That for all his get-tough promises, the bill wouldactually do very little to reduce the level of corporate influence over our government

It made me think of the time a friend took a family trip on a cruise ship Her old son kept pestering every crew-member he encountered, begging for a chance todrive the massive ocean liner The captain nally invited the family up to the bridge,whereupon the boy grabbed hold of the wheel and began vigorously turning it Myfriend panicked—until the captain leaned over and told her not to worry, that the shipwas on autopilot, and that her son’s antic maneuvers would have no effect

10-year-It’s the same with our leaders They stand on the bridge making theatrical gesturesthey claim will steer us in a new direction while, down in the control room, theautopilot, programmed by politicians in the pocket of special interests, continues toguide the ship of state along its predetermined course And you can bet that corporateAmerica—with its Energizer Bunny lobbyists and wide-open checkbooks—will now beworking overtime to further its own interests

Although the corporate reform law was presented as a big win for the public interest,corporate lobbyists actually succeeded in ghting o a whole slew of potential reforms:stock options still don’t have to be treated as a corporate expense, o shore tax havenscontinue to flourish, and there’s been no pension fund reform

What’s more, industry lobbyists were able to water down many of the provisions thatactually made it into the bill, including those a ecting the ability of accounting rms to

o er consulting services to the companies they audit—the fountainhead of so muchdishonest bookkeeping The new law doesn’t ban such double-dipping—it only limits it.And even those limits can be overridden by the new accounting oversight board whosemembers will be appointed by an SEC still stocked with the industry’s shills

A few more “victories” like this and we’re going to lose the war

It’s really pretty astounding when you think of it: with all the public outrage andmedia focus on corporate wrongdoing, moneyed interests are still able to undermine thepublic interest—as our political leaders shamelessly continue dancing to their tune

How else to explain the brazen hypocrisy exhibited by the president after theceremonial signing of the new bill? Less than eight hours after warning corporate crooks

“you will be exposed,” he furtively issued an interpretation of the law that undercuts aprovision designed to make it easier for employees to—you got it—expose corporatecrooks According to the White House, whistleblowers would be protected only if theirinside information is provided during the course of a formal congressional investigation

When the president’s action was harshly criticized by the provision’s bipartisan sponsors, White House spokesman Ari Fleischer pu ed out his chest and sni ed:

co-“Welcome to the statutes That’s why statutes are often complicated, and that’s why

somebody created lawyers.” In other words: “Forget it, Jake, it’s Chinatown.”

Over the last 10 years, corporations have doled out more than $1.08 billion in money contributions This down payment on preferential public policy has extendedacross party lines, with $636 million going to Republicans and $449 million toDemocrats

soft-Indeed, what makes the corporate crime wave not just a business scandal but apolitical one is precisely the fact that there is simply no consistent institutionalopposition to the corporate takeover of our politics—certainly not from the DemocraticParty It was, after all, Tom Daschle who blocked the stock-option amendment proposed

by John McCain And all but two Democratic senators—Mark Dayton (Minn.) andThomas Carper (Del.)—have accepted campaign contributions from WorldCom, Enron,

or Arthur Andersen

During his run for the White House, Bush fought long and hard to convince us that hewas a new breed of conservative—a Compassionate Conservative But recent eventsmake clear that he is actually the standard bearer of a far more coldhearted breed Callthem the Enron Conservatives

Enron Conservatives can be either Republicans or Democrats They are people who usepolitical money and connections as levers to free themselves of all accountability tolaws, regulations, and responsibility—even to their own employees Simply put, theyare people who consistently, shamelessly, and aggressively put their self-interest abovethe public interest And when the lives of others are destroyed in the process, they justlook the other way and hope that the law does, too

As emotionally satisfying as the Rigas-Sullivan-Fastow-Waksal-Kozlowski “CorporateExecs in Chains” lmfest was, in the end it was just political theater—a focus group-tested performance piece written by Karl Rove and directed by John Ashcroft And withthose guys calling the shots, it would be foolish to expect a long run for the production

No public interest group is able to match the relentless lobbying and contributing bycorporate heavy hitters And until we have such a populist countervailing force, we aredoomed to live in a less and less democratic society

By the time you nish this book, it is my hope that you will be ready to join forces to

storm the control room on the S.S America and shut off the autopilot.

P.I.Q TEST

Would you rather watch CNBC’s Business Center than Monday Night Football? Do you

some times fantasize that you’re Mrs Lou Dobbs? Well, whether you answered “yes”

to these questions, or whether you don’t know who Lou Dobbs is, take this test todetermine your Porcine Intelligence Quotient (P.I.Q.) Some of the answers maysurprise you Don’t worry, if you don’t score well, you can always retake the testafter you’ve read the book

1 Bernie Ebbers is to WorldCom as Gary Winnick is to _?

c Wall Street Weekly

d The Harvard Business Review

4 Arthritis? Migraines? Cancer? Herpes? Which disease did ImClone hope to ghtwith a drug the FDA ultimately rejected in December of 2001?

5 In an e ort to remain solvent, Kenneth Lay’s wife, Linda, opened a secondhandstore in Houston to unload some of her pricey baubles The store was called _?

Blodget that have since gone belly up.

9 The mascot for Pets.com was:

a A snuggly teddy bear named “Peepers”

b An angry, cigar-smoking rat named “Mr Krunk”

c An adorable wise-cracking sock puppet

d A lovable foul-mouthed dancing chicken

10 Of two years and two days, three years and three days, and one year and one day,

how long was former Sotheby’s boss Al Taubman sentenced to prison for? Bonus

Question 1: What crime was Taubman convicted of? Bonus Question 2: Name the

head of Christie’s Auction House who was implicated in Taubman’s scheme

11 Of private plane, private yacht, or private island, where was Martha Stewart whenshe allegedly called her broker to sell her shares of ImClone?

12 What was the name of Bernie Ebbers’ 60-foot yacht?

a Sea-E-O

b Man Over Board-of-Directors

c Aquasition

d The In-Vest-Or

13 True or False? Before becoming a powerful Washington lobbyist, Chet Lott, Senator

Trent Lott’s son, owned a Chuck E Cheese pizza restaurant

14 If everyone who works for Haley Barbour’s lobbying rm is male and everyone isRepublican, which then is also true?

a All the secretaries are female

b All the men are gay

c All the men are Republicans

d No one makes a decent cup of coffee

15 What happened to UBS PaineWebber broker Chung Wu when he warned clientsthat “Enron’s financial condition is deteriorating?”

a Promoted by management

b Hailed as a “hero” by co-workers

c Fired by boss

d Shot at dawn

16 In the last ve years, Time magazine has selected two CEOs as their “Person of the

Year.” Who are they?

17 True or False? In 2001 all 30 of the blue chip companies in the Dow Jones Industrial

Average paid their accountants more for consulting and tax service than for thecompany audit

18 American Express Daimler Chrysler Dow Jones Revlon Sara Lee Xerox CallawayGolf What do these companies have in common?

a Al Dunlap is a former CEO

b Vernon Jordan sits on their boards

c Martha Stewart sold their stock based on insider information

d Each makes a simply delicious coffee cake

19 Fill in the blank In 1998, hot-shot Wall Street analyst Mary Meeker wrote a famousInternet stock report titled “Yahoo, Yippee, _.”

Bonus Question: What firm does Mary Meeker work for?

20 Only one word can be made when you unscramble all the following letters What isit? “YNTPCRKBUA.”

21 Which of the following is NOT like the others: Bill Gates, Andrew Fastow, LarryEllison, Rupert Murdoch, Warren Buffett

Bonus Question: Name the type of soda Warren Buffett drinks five cans of a day.

22 When asked about her dumping of ImClone stock during a cooking segment on CBS

This Morning, Martha Stewart famously said:

a “My lawyer has urged me not to discuss this matter.”

b “I want to focus on my salad.”

c “It’s only a matter of time before I’m declared innocent of all charges.”

d “I want to talk about something that’s really important: celery.”

23 George W Bush affectionately refers to his friend Kenneth Lay as …

a “Kenny My Man”

b “The Kenster!”

c “Kenny Boy”

d “The Lay-minator”

24 True or False? Salomon Smith Barney maintained “hold” ratings on eight companies

up to the date the companies filed for bankruptcy

25 In 100 words or less, what is the single most important lesson we can take from thisrecent corporate crisis, and what can we do to bring about fundamental reform?Send your responses to arianna@huffingtonpost.com Selected high lights from

your responses will be posted on The Huffington Post.

6 False; Bonus: “Tycoon Imprisoned”

7 b; Bonus: Nitec and Max Phillips & Son

8 Aether Systems, Infospace and Excite@Home

22 b

23 c

24 True

Scoring

Zero correct answers: That banging you hear? It’s the Emergency Medical Services.

They want to make sure you’re still alive

1 to 7 correct answers: It’s time to read something other than the National Enquirer.

8 to 13 correct answers: It’s time to read something other than People.

14 to 22 correct answers: The good news is you buy the Wall Street Journal The bad

news is you left it on the subway

23 to 26 correct answers: Congratulations! You’d be the Dow Jones Man of the Year,

if such an award existed

27 to 30 correct answers: That banging you hear? It’s the police You’re under arrest

for insider trading, or falsifying tax returns, or fraud, or stealing, or lying toCongress If you know that much, you must be one of the Pigs

PIGS ON PARADE Power, Perks, and Impunity

They hang the man and flog the woman that steal the goose from off the common.

But let the greater villain loose that steals the common from the goose.

—ENGLISH FOLK POEM, c 1764

URVEYING THE STATE of corporate America from his number two perch on Forbes

magazine’s list of the 400 Richest People in America, Warren Bu ett, the avuncularsage of American capitalism, opened re with both barrels At a Berkshire Hathawayshareholder meeting in May 2002, Bu ett told his audience, among other things, thatWall Street loves a crook, investment bankers have contempt for investors, stock-option-engorged CEOs are shameless, and American business is teeming with fraud

Bu ett’s blast was a remarkably honest assessment—as rare in the world of highnance as it was necessary The litany of sins committed by the high priests of pro t is

a study in venality, deceit, theft, treachery, pride, and most of all, greed, greed, andmore greed

And who do you think is paying the price for all of this greed and corruption? Thecorporate criminals have made out like bandits while the American public has beenrobbed Bu ett nailed it when he wrote in a recent letter to his shareholders that he is

“disgusted by the situation, so common in the last few years, in which shareholders have

su ered billions in losses while the CEOs, promoters, and other higher-ups who fatheredthese disasters have walked away with extraordinary wealth To their shame, thesebusiness leaders view shareholders as patsies, not partners.”

You know things have really gotten out of hand when the most scathing attacks oncorporate greed and Wall Street malfeasance are being launched not by knee-jerkbusiness haters and anti-globalization Jeremiahs but by the country’s leading investmentguru

Family Pig: John Rigas

Rigas, Kozlowski, Waksal, Winnick, Lay, Skilling, Fastow, Ebbers, Sullivan This rogues’gallery of corporate scoundrels has turned our country’s state-of-the-art free enterprisesystem into a smorgasbord of corruption

The stories of these pigs at the trough are as rich and varied as the personalities oftheir protagonists

Take John Rigas, the small-town hero who turned into a big time crook You couldn’tmake up a story as incredible as the all-too-true tale of Rigas’ rise and fall—or a

character as unforgettable.

Rigas is straight out of a Frank Capra movie: a self-made man who turned a $300investment in a local cable franchise into a $7 billion communications empire; a Greekboy who remained true to his roots, refusing to move his company’s headquarters out ofthe little Pennsylvania town where it got its start; a benevolent billionaire who treatedhis employees like family, put his home phone number on Adelphia cable bills, o eredjobs and loans to those down on their luck, helped nance a medical center in hishometown, and every now and then collected tickets and made popcorn at the localmovie theater he has owned for nearly half a century

He clearly considers himself a very moral man He steadfastly refused, for instance, tocarry X-rated programming on Adelphia, even though it cost the company $10 to $20million in annual revenue That’s what makes the revelations about Rigas’s sleazybusiness practices all the more shocking His morality is reminiscent of the 1980stelevangelist Jim Bakker who, like Rigas, read from the “Good Book” on Sunday andcooked the books on Monday through Friday Where Rigas is headed, Bakker has been,having served ve years in prison for eecing his ock out of $158 million Of course,

where both men are ultimately headed is up to a higher court than any here on Earth.

But I have my suspicions that both are more likely to feel the poke of a pitchfork thantry on angels’ wings

The problem is that Rigas, like so many CEOs in the headlines today, began to seehimself and the multi-billion-dollar company he led as one and the same, adopting the

outlook of France’s Louis XIV, who notoriously proclaimed: L’état c’est moi—“I am the

state.”

Now he has been forced to resign from the company he founded and is facing chargesthat he and his sons engaged in conspiracy and securities, wire, and bank fraud WhenRigas and his two sons realized that they could no longer postpone the inevitable, they

o ered to present themselves discreetly to the authorities to be charged However, thegovernment declined It needed pictures of CEOs in handcu s to try to convince thepublic that there was just one set of laws for both the haves and the have-nots

The Rigases chose to spend the day before their arrest in an all-American car-switchingextravaganza After renting a Chevy Lumina in New York City (surely a downgradefrom what they were used to) and attempting to drive from Manhattan to their home inCoudersport, Pennsylvania, John and Michael Rigas noticed that they were being tailed.They pulled a quick U-ey and returned to the Big Apple While this bizarre scene wasbeing played out, Timothy Rigas was jumping on a train bound for Greenwich,Connecticut At his destination he impulsively splurged on a 1997 Audi from a localdealer and drove back to New York From overhead, they must have looked like rats in amaze

The Rigas clan was reunited back in New York and rose early the next morning When

ve armed postal policemen knocked on the door of their apartment, John and MichaelRigas were dressed in blue suits and white shirts, and ready to go Tim Rigas, in blueblazer and khaki pants, was heard to joke: “We live on the farm We get up early.”

Anyway, the Rigases had enough spare change on hand to cover their $30 million bailand were back home in plenty of time for a nice family dinner You know what theysay: the family that eats together, cheats together.

Maybe at least one of them will end up in a cell next to Dennis Kozlowski, whose storycould be subtitled “Still Life in Prison Stripes.”

Boss Pig: Dennis Kozlowski

When Kozlowski was arrested in May 2002 on charges of evading $1 million in sales

taxes on $13.2 million worth of paintings he bought—wryly described by the New York

Times as “second-tier work by big-name artists”—the question on everyone’s lips was:

why?

Why would a man who earned $125 million in 2001, owned planes, yachts, and anassortment of multi-million-dollar homes, and who routinely donated millions to charityrisk it all in an e ort to save a million bucks—probably about what he spent each year

to keep his fleet of Harley-Davidson motorcycles running?

But, after immersing myself in Kozlowski’s business history, I came up with analtogether di erent question: Why was anyone surprised? The behavior that now hashim facing the possibility of 30 years in prison is exactly the behavior that was thehallmark of his run as Tyco’s swashbuckling, take-no-prisoners CEO

Why is it so shocking to learn that Kozlowski cooked up a con job to avoid paying hispersonal taxes? After all, this is the same guy who, in 1997, moved his company’snominal headquarters o shore to Bermuda to avoid paying taxes on billions of dollars

in overseas earnings Apparently, life imitates business when it comes to the art ofcutting corners

According to the scabrous portrait painted by prosecutors, Kozlowski bought hisextravagant artwork—which included a $3.95 million Monet and a $4.7 million Renoir

—to accessorize his $18-million, 13-room apartment on Fifth Avenue But he thencleverly had his pricey paintings routed through Tyco’s o ces in New Hampshire so hewouldn’t have to spring for New York City’s 8.25% sales tax

In one case, cooperative art dealers didn’t even bother to actually ship the paintings toNew Hampshire Instead, they sent them directly to Kozlowski’s apartment, shippingempty crates to Tyco headquarters Unfortunately for Kozlowski, along with creating apaper trail of phony invoices, his co-conspirators generated a number of other deeplyincriminating documents “Here are the ve paintings to go to New Hampshire (wink,wink),” reads one smoking gun memo addressed to an art handler

Adding to this murky moral landscape, it appears that Kozlowski funded some of hisart purchases with no-interest loans drawn from a Tyco program designed to helpemployees buy company stock Perhaps if he had made do with a few LeRoy Neiman

sports scenes and that perennial classic, Dogs Playing Poker, he could have avoided

downsizing employees and raiding their stock fund.

Like Rigas, somewhere along the way Kozlowski, the son of a New Jersey cop, began

to see himself and the multi-billion-dollar company he led as one and the same So whynot get Tyco to make charitable donations in his name and buy his Manhattanapartment and $11 million in furniture and knickknacks, including a $6,300 sewingbasket, a $15,000 dog umbrella stand, and $2,900 worth of coat hangers? And why notget Tyco shareholders to fork out nearly $100,000 for owers or a million bucks for hiswife’s fortieth birthday party on the island of Sardinia with Jimmy Bu ett to serenadeher? He viewed all of Tyco’s assets as his because, well, without him Tyco was nothing

Dennis the Public Menace’s progress from tax aversion to alleged tax evasion beganwith his loophole-exploiting business practices and ended with his defrauding the publicout of tax money New York desperately needs With the city digging out from under apost-9/11 budget de cit, what are we to make of a clown like Dennis Kozlowski whosteals $1 million from the public to decorate his apartment even after he’s engorgedhimself with hundreds of millions from the company trough?

According to the nancial press, we were supposed to admire him—until the scandalbroke Maneuvers like these had for years earned Kozlowski the admiration of WallStreet and a glowing reputation as America’s “Most Aggressive CEO”—the title of a

2001 cover story in Business Week The magazine even went so far as to laud Kozlowski

—an accountant by trade—for his “willingness to test the limits of acceptableaccounting and tax strategies.” And yes, I believe that, in the same issue, street cornercrack dealers were lauded for their “willingness to test the limits of acceptablecommerce strategies.”

These accounting strategies allowed the company to report billions of dollars in pro tsevery year, while building up $26 billion in debt Only after the Enron collapse did WallStreet stop applauding and start scrutinizing Tyco’s business more closely The result?The company’s stock lost three-quarters of its value in 2002, costing investors $92billion

On September 12, 2002, three months after he was indicted for evading sales taxes,Kozlowski and former Tyco CFO Mark Swartz were charged with “enterprise corruptionand grand larceny”—for treating Tyco as their “personal piggy bank,” and raiding its

co ers to the tune of more than $600 million Former general counsel Mark Belnick wascharged with falsifying business records and hiding more than $14 million in loans hetook from the company

The previous May, three weeks before he resigned, Kozlowski gave the commencementaddress at New Hampshire’s St Anselm’s College A psychoanalyst would have had aeld day with the message he chose to impart to the school’s Class of 2002 “You will beconfronted,” he warned them, “with questions every day that test your morals Thinkcarefully, and for your sake, do the right thing, not the easy thing.” You could almostsee his superego and his id duking it out underneath his mortarboard