Pilant’s Business Ethics CBS NewsIf you have been reading my blog for more than a month or so, you know that my idea of the ideal American is Benjamin Franklin. I have posted about him several times and I have a number of his biographies. This is a review of another book about him which I recommend to your attention.
James Pilant
Innovation and Education Won’t Save Our EconomyThat’s the name of the article which appears in New America web site. It charges that American companies are often forced to move to China by bribes and threats. In the first part, the author challenges the idea that a lack of innovation is why jobs ae moving overseas.
U.S.-based multinationals are not transferring production to China and other countries because those nations surpass the U.S. in innovation. The U.S. remains the leader in global innovation, with a sophisticated system of creative interaction among universities, business, venture capitalists and government. Other countries are trying to catch up, but that is nothing new. China recently alarmed many Americans with its policy of “indigenizing” innovation. But ever since the 1970s East Asian and European countries have been trying to create their own artificial “Silicon Valleys,” usually with limited success despite huge investments.
Here is where, the author, Michael Lind, makes the shocking charge that China gets American companies to build factories there through bribes and intimidation.
American multinationals are not shutting factories in the U.S. and transferring production to China because of China’s superior innovation culture or superior educational achievements. Nor are low Chinese wages the major factor. For the most part, multinationals are pressured or bribed by the Chinese dictatorship into producing in China. In some cases, U.S. multinationals are told they must produce inside China in order to have access to China’s large and growing consumer market. In other cases, multinationals are bribed to relocate production to China by enormous subsidies from the Chinese government.
According to one trade expert in Washington, who spoke to me on condition of anonymity, Chinese government subsidies to individual American companies can amount to as much as 70 percent of the cost of a product. China’s artificially undervalued currency amounts to a government subsidy to Chinese-based manufacturers of around 30 percent. On top of the currency subsidy, the Chinese dictatorship often offers financial subsidies and gifts of free land and facilities that can amount to as much as 40 percent. China can afford to spend money on this lavish scale because it deliberately suppresses the consumption of its underpaid and unfree workers and controls investment decisions by its banking sector, while accumulating enormous surpluses from its artificially maintained trade deficit with the U.S. In other words, China recycles money spent on imports by American consumers to poach the factories of American producers.
I am familiar with the Chinese offering no taxation zones in coastal cities to attract American companies to move, but I have never heard these kind of charges before. Certainly many of the incentives offered to move plants to that country have the look and sound of bribery, nevertheless, the money advantages do not seem to rise to the definition of bribes. However, the Chinese government’s actions of international threats does give a certain credence to the charges.
I will see if I can find out more.
James Pilant
I’m surprised this hasn’t already happened. When you buy securities you expect that they be “secure.” These are not supposed to be the equivalent of penny stocks. Countrywide packaged securities that it knew were risky and packaged securities that it knew had serious ownership issues.
This is hard legal question. What is the first warranty guarantee that a seller gives automatically (implied)? Answer, that they own the product they are selling. That is the first thing you are supposed to do. And Countrywide sold a product that it knew it didn’t have a clear title to.
Is this going to be hard lawsuit to win? If it can be proved that Countrywide knew that its title to these properties was not secure, Bank of America which now owns Countrywide is going to be pay out more. I have heard estimates of up to 40 billion dollars in possible paybacks over these bad securities.
From CBS Money Watch -
A lawsuit alleges Countrywide Financial Corp. and two of its former executives misled institutional investors who were stuck with huge losses from mortgage-related investments that they say were portrayed as low-risk.
The lawsuit was filed Monday in New York State Supreme Court by investors who bought hundreds of millions of dollars in Countrywide’s mortgage-backed securities from 2005 to 2007, before the housing market went bust. The list of a dozen plaintiffs includes New York Life Insurance Co., TIAA-CREF Life Insurance Co. and Dexia Holdings Inc.
The complaint names Countrywide, various subsidiaries that issued the securities, two former company executives including ex-CEO Anthony Mozilo, and Bank of America, which bought Countrywide in 2008.
The big guns are out on this one. Read a little more -
The plaintiffs allege they wanted conservative investments that Countrywide portrayed as being backed by low-risk mortgages written according to strict underwriting criteria.
Materials that Countrywide subsidiaries circulated to potential investors indicated all the mortgage-backed securities had been assigned investment-grade ratings, and most had top-rung “AAA” ratings, according to the lawsuit.
But as of last month, more than 31 percent of the mortgage loans underlying those securities were over 30 days delinquent, in foreclosure, bankruptcy or repossession, the lawsuit says. The securities “are no longer marketable at or near the prices the plaintiffs paid for them,” leaving them with “significant losses,” the complaint says.
The lawsuit seeks unspecified damages for alleged securities fraud.
These investments were marketed as conservative (solidly secure), given a triple AAA rating (higher than any paper you ever wrote could get) and are now sinking in value daily.
The American mortgage crisis just keeps rockin’ on.
James Pilant
