Sunday, April 24, 2016

Move The NBA's 2017 All Star Game Out of Moron Mountain
If you've ever seen Space Jam, the North Carolina General Assembly is looking a lot like Moron Mountain. They even have former NBA superstar/movie-star Michael Jordan going against them. The Assembly recently passed what is known as House Bill 2, which repeals some of Charlotte's rules that prohibit certain forms of employment discrimination based on skin color, religion, and most notably, sexual orientation. The league and Jordan's team, the Charlotte Hornets, have an opportunity to deliver a major blow against acts of legislation that allow for discrimination. In an effort to promote tolerance and inclusion at all NBA games, Commissioner Adam Silver is considering moving the game out of Charlotte as a result of this bill, focusing on the ban on Charlotte's protections for the LGBT community.

The league's concerns about the passing of this bill are legitimate. The NBA is a dominant global force. Players from all over the country and world hope to play in the NBA one day. The best team in the league is considered the best team in the world, and the same goes for the most valuable players being among the best in the world. With such a widespread influence, there is a strong emphasis on the love for the sport overcoming all sorts of differences between people, making it an enjoyable environment for all, while trying to promote equality and acceptance. Consequently, this was the first major sports league able to create an atmosphere friendly and accepting enough for Jason Collins, the first openly gay player in any of the major professional American sports leagues, to come out to the world, receive nothing but support from the NBA, and comfortably join his team in the locker room shortly after. 

The All Star game is a huge globally diverse event for the NBA. People from all over travel to watch it live or tune in on TV for the historic game. So although moving it for political reasons seems like a bit of a push, the North Carolina Assembly pushed pretty hard against the NBA's core values with House Bill 2. Even before the bill, there were no state law protections for discrimination based on sexual orientation. Local governments established anti-discrimination rules, until this bill overturned and banned all of them, most notably the Charlotte Ordinance. It's difficult to a business that attracts such diverse fans to host a large-scale event in a state that recently sent such a striking message directly to the city of Charlotte.

With respect to the NBA and its fans, reactions can be better analyzed through the resemblance to Donald Sterling's scandal as the owner of the Los Angeles Clippers. After a recording leaked with some extremely racist conversations involving Sterling, in which he basically said he doesn't like certain minorities coming to his games, the entire league turned their backs on him, boycotted his ownership, and even many influential voices like Magic Johnson refused to attend Clipper games until Sterling sold his share of the Clippers. The NBA consistently insisted there is no place in the league for discrimination. They eventually ran him out of team ownership and initiated a lifetime ban. The NBA and its affiliated media sources publicly humiliated and punished Sterling for his racist scandal, and for good reason, because the association thrives on the diversity and acceptance of everyone who wants to play or attend.

From Adam Silver's perspective, any threat to the inclusion of a group of people threatens to diminish the league's values. Whether motivated by profit or goodwill, the NBA is fighting an important cause working to further stigmatize discrimination towards the LGBT community and any other minority group, but rather than spend money on convincing lawmakers, they currently have the unique power to take a significant benefit away from the state ultimately for a good cause. It seems fitting that the state loses out on the opportunity to host the All Star Game when they attempt to allow for discrimination. 

With Jordan on his side, Adam Silver should motivate the league to stand together and move the 2017 All Star Game out of Moron Mountain. 

Saturday, April 16, 2016

The New Breed of Tax-Friendly Companies and the Outstanding Talent in Ireland

Companies that make up the young "sharing economy," including Uber and Airbnb, have created various legal complications for the government since their rise to popularity. These firms provide a useful service and reliable income for many users. Behind the surface of the apps, however, they are joining the group of corporate giants that exploit the global economy stemming from the U.S. out of large amounts of tax revenue, and they can do it even easier than the asset-heavy businesses that currently make up most of the market.

Uber has set up a very elaborate scheme to avoid paying taxes on nearly all of the rides that take place outside of the U.S. The revenue is recognized based on where the intellectual property is, and through a large amount of subsidiaries and paperwork, Uber shifts money around in the form of royalties through Ireland, the Netherlands, and Bermuda, where the tax codes are very favorable. Airbnb has joined the party with very similar tricks. David Kocieniewski quoted an interesting Australian hearing that took place in November 2015 on Bloomberg Businessweek in a post titled "The Sharing Economy Doesn't Share the Wealth." Representatives from Uber and Airbnb attended the conference:
The Australian Senate called local managers to testify alongside Uber in November at a public hearing on corporate tax avoidance. Sam McDonagh, Airbnb's country manager there, testified that taxes never motivate the company's strategic choices. "The No. 1 reason we located ourselves in Ireland was for access to great talent," McDonagh said. The response from one of the senators: "Come on!" 
No offense to Irish employees, but that laughable statement from Sam McDonagh portrays how the company plans to affect the global economy as its growth is solidified through the profits they deceptively keep. It also negates another statement from an Airbnb spokesman Nick Papas, stating "When we make long-term business decisions, we act in the best interest of our community." Airbnb shields almost all of its profit from the country where they actually rented. If they are acting in the best interest of local communities, a good start would be paying taxes to the communities' governments that provide the basic services they benefit from. Uber, as the other main example, should pay its fair share for safe roads that governments' tax revenues provide.

If it's not the U.S.'s revenue being lost, it's taxes that should have went to another government where the service took place. Furthermore, these companies are taking a lot of business out of more industries that are less susceptible to tax tricks, like traditional taxi cabs and hotels, to fuel their growth. Uber has 10 subsidiaries in the Netherlands that share one address. There is no way to argue any income should be associated with a location based on a bunch of paperwork and an office, as opposed to where the service is being performed or where the company's intellectual property was created.

Whatever the solution may be, whether it leans in favor of the U.S. or local countries participating in the growth of the sharing economy, this outbreak of paperwork and subsidiaries ruling the tax revenues that governments collect cannot continue to be the status quo of corporate taxation. All around the world these firms deceive governments, and in turn, the people. At least the outstanding talent in Ireland has something to show for it.

Saturday, April 9, 2016

California's $15 Minimum Wage Will Keep the Poor, Poor

Imagine you are attempting to get out of your family's cycle of poverty in a sketchy, less developed area of California, and you have a job to support at least the most basic of needs, you're struggling but at least you're slightly above the poverty line in your county. Suddenly, you get laid off, and it doesn't look like another job is in sight, and you can't afford to move to LA or SF where there's work.  

Nobody should live below the poverty line. That should be the point of a minimum wage. The current political approach to minimum wage nearly abandons this for the sake of politics. The previous minimum was too low, but it doesn’t make much sense to simply wait for the minimum to become outdated so the poor hit rock bottom, and then agree to raise it to a new level, until enough people eventually agree it should be at some other level, and so forth.

The underlying argument makes even less sense in the grand scheme of preventing poverty. ‘We should set minimum wage at $X an hour for the foreseeable future’ does not work to stabilize poverty in the long term. Minimum wage policy should not be a tool to exert control on lower class wages. Costs of basic necessities and the poverty level are results of local economic factors; they are not set by policymakers. If the goal is to make sure workers aren’t living in poverty, the minimum wage should also be a result of our economy, not a way to control the supply and demand of unskilled labor and try to drastically improve the lives of the poor overnight. The minimum wage should rise proportionally to rises in the cost of basic living. Whether or not full-time workers are living in poverty should not depend on the bets of current policymakers.

The California minimum wage change creates a short-term solution at best; it would eventually need to be updated. Due to the lack of federal action, minimum wage is now largely a state issue, but sometimes even a county/city decision. Even before the state decision, Los Angeles incorporated a higher minimum wage for the sake of the high living expenses in the city. The problem with the state following its lead is that it costs significantly less to live in most of the California that exists outside of the major urban counties, a rural population consisting of well over half of the state.

California has a large living wage variation in different parts of the state, an economic phenomenon virtually ignored in this decision. Businesses have decisions to make that are affected by the cost of labor. No company is going to put money into any type of jobs that don’t warrant a return. If outsourcing wasn’t already a huge threat to the economy, having to pay $15 an hour for unskilled labor anywhere in California will largely discourage investment into rural and lower class areas that need small businesses, development, infrastructure and jobs the most. This change will deplete those areas and keep most of the poor poor.

The Living Wage Calculator developed by Amy Glasmeier, a professor of urban planning at MIT, portrays this problem and thus the ignorance of this decision. The living wage for a single adult with no children in San Francisco and the areas surrounding ranges from $13 to $14 per hour. For the most expensive counties in Southern California near Los Angeles, this number ranges from $12 to $13. The vast majority of the state, however, has a living wage of about $9 to $10. Businesses do not stay alive by providing unnecessary welfare to minimum wage earners. A favorable difference of roughly 30% above the cost of living for a large portion of the unskilled working-class population will drive much of California out of consideration for any type of investments that require that level of labor and it will end up severely damaging the state economy. We’ll see small businesses suffer, more borderline-poverty level workers move to part-time, and much of the poor will be out of work altogether.

The minimum wage should be updated proportionally to rises in the cost of basic living for specific counties or large areas inside of which the living wage can be reasonably averaged out and then updated on a yearly basis, so all areas of the state can continue to grow with the economy and more minimum wage workers can actually find jobs to avoid living below the poverty line. Until we make this change, minimum wage will always be an argument instead of an attempt at an actual solution that reduces poverty and helps get less privileged people out of their cycles. 

Sunday, April 3, 2016

Anti-Semitism on College Campuses

The Israeli-Palestinian debate has taken its form in college student organizations such as the Students for Justice in Palestine (SJP). This group has a strong influence in many schools such as the University of California campuses, that attempt to maintain objectivity and the institution's values in its political standpoints, and usually don't lean one way or another. Educational institutions are also quick to control any situation of verbal harassment and simultaneously attempt to promote free speech. SJP should be given its right to advocate for the Palestinian people, but it looks more like this organization supports movements that attack the state of Israel and go against the foundation of free enterprise democracy, even in America. Considering the radical nature of the leaders and causes they implicitly support and the basic values their support goes against, should this group be banned as a hate group?

SJP's motives are in line with the movement to Boycott, Divest, and Sanction the state of Israel (BDS) in America, and asks schools like UCLA to divest from a large number of companies that contribute to Israel in any way. Additionally, SJP affiliates are vocally active in promoting "a ban of all Zionists" from various campuses like CUNY. Many Jewish students have reported they felt harassed and as if members of SJP were creating a hateful environment for Jews, consistently shouting racial slurs and hinting of another intifada, which refers to violent efforts against Israel.

And not only does the group clearly ask universities to take a very aggressive side on the issue, but it promotes violence and anti-democracy here in America. The group's founder, Hatem Bazian, in a rally against the Iraq war in San Francisco, indicated efforts need to become even more radical, and that "it's about time that we have an intifada in this country that changes fundamentally the political dynamics in here [America]." It is ok to disagree with actions taken by the Israeli government and advocate for the wellness of a people. But this is clearly taking a touchy issue and getting a free pass to discriminate and invoke fear.

Free speech is extremely important, especially to produce open young minds on campuses. But when a group contributes hate and promotes violence in schools in America, their membership as a student organization should be revoked.

Sunday, March 27, 2016

Will the 2016 Election Initiate the Fall of the Two-Party System?
The 2016 election displays how much of a mess our two-party system has become. The Republican party has been infiltrated, divided, and weakened by the likes of Donald Trump. On the left, the rift between Clinton and Sanders is riddled with enough drama and finger-pointing for an episode of House of Cards, and their supporters seem more divided than ever. It is no doubt the force of advancement in social technology has brought more people into the world of politics, especially in the world of anti-establishment campaigns like the Sanders campaign.

Thus, It seems like this round of deciding the nomination has made people more aware, and actually split voters into three or four major groups, consisting of Trump supporters, other GOP supporters, Sanders fans, and moderate Democrats who support Clinton. After the nominations are complete, voters will become increasingly dissatisfied with having to piggyback onto whichever candidate lands closer to their side when they see too much distance between their preferred candidate and the one who wins the nomination, for example it would be tough for a hard nose Bernie supporter to end up voting for Clinton. We may be more likely than ever in the next few major elections to see a 3rd party rise up and make noise in an upcoming election.

Robert Reich predicts a change in the two-party system where a 3rd party called "The People's Party" wins the 2020 election. He explained since many people were so tired of the political system and unfair economy that work in favor of the rich, that they came together and took over Congress as well, all after another recession in 2018 required bailouts for large banks once again.

The message Reich sends is important. The current political system does not take into account the people's real demands, and instead just sets up a system that can be taken advantage of by those at the top. With how the superdelegate system for the nominations is set up, the electoral college, gerrymandering, and the control over the media, the people have lost most of the actual power contained in their votes, and politicians and the wealthy have come together to perpetuate their power and control. Reich might be describing somewhat of a utopia, but this is what America's political system needs, anything that provides more of a real choice to citizens.

Saturday, March 19, 2016

Feel the "Burn"

The chances of Bernie Sanders winning the Democratic nomination seem to be slimming. Although Hillary will probably move on to represent the party in November, Sanders' campaign is sending an undeniable message to citizens, politicians, and corporations about the need to reform Wall Street and large corporations. A related portion of his campaign has become about updating the tax code and he strongly emphasizes targeting the 1%. Many people blame the Clintons' money and media influence for Bernie's perceived downfall, but perhaps much of the more realistic left were a bit "turned off" from the tax implications that seep into the average personal return even though they idealized many of his other proposals.

170 economists have endorsed Sanders' plan to reform Wall Street and bring about regulations that are similar to Glass-Steagall, separating investment and commercial banking and breaking up the 'too-big-to-fail' banks. They even claimed Clinton's proposals are too modest and leave room for serious risks. His plan also calls for a change in the outdated corporate tax structure, including the necessary elimination of many corporate tax loopholes.

With regards to personal taxes, the most outspoken Sanders supporters emphasize the increases being focused on the wealthy and 1%, which is true. His plan would make the top earners pay a much higher effective percentage, but the anxiety of many moderates is grounded considering the non-partisan Tax Foundation's report analyzing the effects of Sanders' proposals. Some of the key findings include:

·       Senator Sanders (I-VT) would enact a number of policies that would raise payroll taxes and individual income taxes, especially on high-income households.
·       A majority of the revenue raised by the Sanders plan would come from a new 6.2 percent employer-side payroll tax, a new 2.2 percent broad-based income tax, and the elimination of tax expenditures relating to healthcare.
·       According to the Tax Foundation’s Taxes and Growth Model, the plan would significantly increase marginal tax rates and the cost of capital, which would lead to 9.5 percent lower GDP over the long term.

·       On a static basis, the plan would lead to 10.56 percent lower after-tax income for all taxpayers and 17.91 percent lower after-tax income for the top 1 percent. When accounting for reduced GDP, after-tax incomes of all taxpayers would fall by at least 12.84 percent.

Although the report doesn't mention the healthcare savings and benefits of increased public expenditures, hearing the plan would lead to 10.56% lower after-tax income for all taxpayers is scary. Tax plan includes another 6.2% payroll tax, which comes directly out of paychecks, along with the effects of a lower GDP in the future. This speaks to the extent in which Sanders led his campaign by coupling the popular corporate/1% policy adjustments with changes that are socialistic in nature, too much so for enough people to be convinced America needs this large transformation. If Sanders loses the nomination to Clinton, it will most likely be blamed on his straying too far on the spectrum and in effect, his perceived inability to bring parties to a beneficial compromise instead of initiating a political revolution.

Saturday, March 12, 2016

The Cultural Plague of Corporate America

When you're a teenager, peer pressure makes you do things that your friends do, sometimes until it causes some harm, and other times it develops into a cycle of bad decisions growing up. At a presentation at the University of Southern California given by Andrew Fastow, former CFO of Enron discussing the great 2001 scandal, his train of thought throughout the fraud strangely resembled someone walking through his oblivious teenage decisions that led him to rehab (white-collar prison). It was frustrating considering he is a convicted white collar criminal/perpetrator of the greatest fraud in the history of corporate America/millionaire.  
Whether a scheme is honed in from a few top-level individuals like Fastow or the fault can be distributed to many large, ethically lenient companies and their managers like the 2008 Mortgage Crisis, corporate decisions with a conscious disregard for the principles behind the rules have caused tremendous harm, such as catapulting the country into recessions, robbing civilians of jobs, destroying retirement accounts, and cheating taxpayers out of billions of dollars. This paper will outline the intricacies behind the most prominent examples of financial deceptions to help shed some light on how they harm the public. It will also explore the perpetrators’ skewed motivations and the influence of the culture that allows—or drives—their damaging behavior. This will lead to the examination of the related social and psychological patterns, all coming together to look at possible solutions for this destructive cultural epidemic, both regulatory and collective.
           Fraud can be defined as “an intentional act of deception for purpose of personal gain.” In most of the white collar crimes focused in on one firm, the perpetrators tip toe on their skewed version of ethical boundaries; they gradually evolve into criminals as their intentions take small steps downward toward the definition of fraud. Although they are much different than your average bank robber, their actions can arguably be considered worse; executive robberies result in monetary consequences that are much more substantial than your average theft. Prominent examples of public deception can illustrate how criminal they are, even though they go way less punished. The behavior of those behind the Enron scandal is often used as a primary example of how a group of executives' poor decisions can snowball into disastrous outcomes. The 2008 housing crisis was more of a widespread manipulation of deregulation among many large firms, which has not been treated as legitimate fraud by the government, but had devastating results nonetheless. More discreetly, companies currently go more out of their way than ever to exploit the government and taxpayers with tax loopholes.
Consequently, the inner workings of the biggest corporations travel with their moral compass replaced by a device that points them towards what technically isn’t illegal, even though it might be wrong. The compliance culture of corporate America has become a game to see who can create the best loopholes, who can bury disclosures deepest in the fine print, and who can best exploit the law, and this mindset has proven to be the source of some devastating consequences for innocent civilians. These examples call for a solution. To limit the scope to relatively recent events, we will begin with the Enron scandal in the early 2000’s.  

The Enron Scandal
It is worth noting the principles that the perpetrators of the Enron scandal ignored and the way they went right around the rules. What is referred to as the greatest fraud in the history of corporate America has made a large mark on the way we currently criticize business leaders. The details of this case will be utilized to draw parallels between more recent forms of public deception so we can properly analyze these maneuvers from a broader perspective.
To perpetrate this fraud, the leaders of Enron strategically combined various manipulations of accounting policies. It began with misrepresentations through a concept referred to as “mark-to-market accounting.” Generally, when a company invests in a project, it is first reflected in their financial statements as an asset in the amount of the investment. Mark-to-market accounting was created to allow companies to revalue the asset to what it is worth in the market, or its “fair value,” after it has perhaps shown to be a good investment, and report the increase in value as income. Enron managers made lousy investments in projects like failed oil and gas explorations, but used mark-to-market to make drastic claims about their “success,” overstate the worth of these investments, and recognize false profits, leading to false increases in their stock price  (Jackson 224). It didn’t stop there.
The even larger step was the use of “special purpose entities.” The rules state corporations can create a legally separate entity and avoid combining the financial results of that entity with the parent company if the entity serves a specific purpose that is substantially different than the parent’s ordinary course of business. The basic purpose is the project being different enough so that the results aren't considered the same as the results of the overall business. Certain requirements need to be met, but the new entity can have its own set of assets and take out its own loans off the books of the parent, hence the strategy is now referred to as "off-balance sheet financing." 
By the time Enron collapsed, the company owned over 3,000 “special purpose entities.” The purpose they replaced the basic principle with was ultimately disguising loans as income. The entities comprised of billions of dollars of loans taken out indirectly by Enron. They then took those previous assets that they had already inflated the price of using mark-to-market accounting and “sold” them to their own special purpose entities with the intent to make look like an actual sale, but it was all being paid for with their own loans. So management could kill two birds with one stone: get rid of improperly priced assets and record what was actually debt as enormous profit, once again falsely driving up their stock price. These are just two of the countless strategies employed by Enron management to disguise loans and take home millions of dollars in income (Jackson 224-26). None of the exact details were systematically prohibited at the time, but it had to have been clear to those on the inside that it was all just a large fraud that went around the wording of the rules.  
At first glance, it really seems the intent is focused on a small group of individuals including the CEO, CFO, and so forth. However when one considers Arthur Andersen, the accounting firm who audited their financial statements, it points to the notion that unethical behavior can viciously spread throughout individuals and companies. Enron was a client of Arthur Andersen, both an audit client and a client of their consulting business (subsequent independence rules that prohibit this conflict were established after the crisis). Since Arthur Andersen was receiving such hefty payments on the consulting side for "advising" managers on their highly profitable affairs, it is assumed they turned a blind eye on the audits and allowed the company to move forward freely. Leaders at Arthur Andersen and the firm lost their accreditations, basically due to the practice of willful blindness.
As a result of this fraud, 4500 Enron employees lost jobs, not to mention the accountants who lost their jobs when Arthur Andersen went under. Investors lost about $60 billion within a few days; for many people invested in the stock, this meant they lost much of their retirement security. Employees of the company lost literally all of their pensions. The stock market overall took the largest hit it had seen in decades. This example shows not only how far certain individuals will go to defraud people and how much power those individuals possess, but the problematic tendency for other people in influential positions to become ferociously infected with a tolerance for tactics that use positions of power to exploit. This idea will be further explored in the next example, the fraud that was the 2008 mortgage crisis.
Because of the massive headlines surrounding the Enron managers directly responsible, one can be quick to misperceive this problem as one concentrated effort from a CEO and CFO that got extremely out of hand. But ignoring certain principles can spread through companies just like a competitor's profitable business opportunity. Analyzing the mortgage crisis, from which we can draw some similarities to Enron, implies these consequences are more the result of a larger group of individuals and corporations in different areas of business, coming together to either commit or accept these actions. The culture that fueled Enron’s malicious efforts is alive and well.  

The Mortgage Crisis
The causes of the 2008 housing crisis are of the same misleading strategies that constitute fraud in the Enron case, just more complicated and systematically discrete. A large number of managers ignored basic principles of home loans, and it once again led to a tremendous amount of harm and uncertainty across the entire country. Institutional business leaders’ unethical behavior and deceptive tactics strongly contributed to the most tragic financial market crash since the Great Depression, while the executives responsible got off without prosecution in this case. The nature of the story and the schemes utilized can shed some light on structural similarities with the Enron scandal and other, more current frauds.
The government wanted to encourage home ownership. This resulted in the need to flow more money into the market by selling mortgage-backed securities, which are investments in a pool of mortgage loans. Basically, investors buy a security that represents a portion of a pool of loans, earn a return paid by homeowners’ payments, and invested capital flows to mortgage lenders who should be able to get more people to own homes with the increased capacity. It started out limited to mortgages that were safely backed by government entities like the VA, until Wall Street lobbied to be granted access to engage in the same tactics, as long as the underlying mortgages had high ratings from credit agencies. Thus, lenders shifted their efforts from focusing on receiving their payments to selling their loans, ignoring the principle of having a successful loan so the person keeps their home, and focusing on unwarranted profits. Over the couple of decades prior to 2008, they increasingly gave out more loans with very high risk of default and high interest rates to compensate. The deception was deepened when credit agencies were able to slap positive ratings on the loans because the banks actually went out of their way to offer letters of credit guaranteeing payment to investors of the loans if the homeowners default. The point of loan ratings is to represent the risk associated with the payments. These barely legal letters clearly paved the way around this rule, and this shows how badly they wanted in on the action (Jackson 304).
Lenders, insurance companies, and banks then started to merge into larger, more powerful corporations. These conglomerates irresponsibly controlled almost every aspect of home buying, and they allowed what became known as “subprime loans,” basically loans that were very likely to default, to comprise of 12.5% of residential home mortgages by 1999 (Jackson 305). They allowed many people a home loan regardless of if it was within their means, which was dramatically driving up the value of homes, which encouraged many economically na├»ve people to go ahead and take on a heavy mortgage. But managers were cashing in for years selling these loans that had a false rating from credit agencies. Firms  sacrificed basic principles of safe home ownership and accurate risk representation for short-term profits.
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Managers clearly knew it would all come crashing down on them as soon as an abnormally large number of people started to actually miss payments and the rising value of homes being used as collateral inevitably began dropping. Accounting rules generally require firms to create “reserves.” If the company is lending money, on their financial statements they estimate the overall risk of defaults across all of their loans and put some money away in an allowance account that is allocated yearly over the duration of the loan. Frankly, the whole point is once again so that the risk is represented in one way or another. This is so that a company cannot, for example, give out very risky loans without presenting a fair look at the nature of the increased expected losses due to defaults. Basically, they would have had to disclose how risky the loans were if they followed the correct risk representation principles.
Concentrating on the exact wording of the rules, however, they worked around this complication with the creation of credit default swaps, prolonging and aggravating the pressure being forced into this damaged bubble. The holder of the credit default swap pays to have the right to be paid if the underlying homeowners default. If more people defaulted, the price of the credit default swaps they owned would rise. In essence, they could buy a credit default swap, effectively making payments that get them paid in the event of people defaulting. To combat the risk of too many defaults, firms would buy and sell these credit default swaps sort of like insurance policies. allowing them to omit the reserves that indicate payments are risky (Jackson 307). Again, this was such a complicated scheme that there was no specific law against this at the time. Many firms held the loans and also held credit default swaps. By the logic used in this accounting strategy, if the company is getting paid in the event of certain defaults, it is in some sense hedging their bets, and accounting rules tend to let you reduce the risk represented when you've spent money trying to manage it. So their loans overall are not as risky per se. But billions of dollars of the swaps were intertwined between all the largest firms, it was certain the mortgage backed securities and the credit default swaps were largely overvalued, which meant home values were being grossly inflated. They should have known this couldn't go on forever and house prices would crash, they wouldn't have enough collateral anymore which causes people's mortgage rates to increase dramatically, and people would get foreclosed. Ignoring those basic principles and getting increasingly greedy with it set up an inevitable crash that doomed the entire country. 
Although there was not a specific regulation against this, it proved dangerously unethical. For a period of time, they were essentially being used as false insurance policies. Entities could buy only the credit default swap alone, effectively betting on people losing their homes; it is astounding no managers evidently communicated something was extremely wrong with this. So there was not just one Enron and one Arthur Andersen. Investment banks like Lehman Brothers had more than $700 billion worth of credit default swaps, many of them backed by AIG. AIG held $440 billion of credit default swaps as well, tied to other firms. Many other large institutions like Merrill Lynch, Leyman Brothers, and Countrywide are examples of companies that contributed to the tremendous crash. None of it was against the rules.
Regardless, any competent economic professional in any one of these firms should see a nationwide problem in making so much money from hidden risk concealed within people who would likely end up defaulting on their home loans. They should have known that they were dramatically inflating the housing market with these instruments and charging too high of interest rates borrowers couldn’t afford, but they were taking millions of dollars home to their own bank accounts in the meantime. At the very least, someone should have spoken up for the thousands of people for whom it was inevitable a significantly large portion of would lose homes.
In 2007-2008, as various rumors about the nature of these mortgage trades began to surface, the market inevitably corrected itself and house prices tanked. All of a sudden, all of the collateral that backed those guarantees was gone and economists realized it was all a big sham. Homeowners defaulted and unsurprisingly, the banks and insurance companies didn’t have nearly enough cash to back all those guarantees, calling for government bailouts, which catapulted the country into its worst recession in decades. The decision-makers took the idea of encouraging home ownership and viciously ran it into the wall. With respect to consequences of the fraud to Americans, the drastic increase in foreclosures was just the start. People lost retirement plans, unemployment hit peak levels, and well-qualified borrowers couldn’t get approved for a home for years. Bankruptcies rose 32% in 2009 after this widespread crash took other firms and people with them. AIG, for example, had to be bailed out with $14 billion of taxpayer money. These constitute just a portion of what it can mean for innocent citizens when those representing large companies ignore the principles behind the rules set up for businesses, and corporations in particular. 
Government officials against prosecuting those many executives and firms involved argued proving intent was difficult because they claimed top-level management was far removed from those actually putting together the dubious securities. However, various “suspicious activity reports” regarding the questionable strategies were found to have surfaced from the banks themselves in years prior to the crash. So how could managers not perform an inquiry or investigate further on these suspicious reports within their own firms, and eventually come forward or fix it internally? Even if it can’t be proven managers made direct orders, it is clear they can be held accountable. Willful blindness, just as we saw with Arthur Andersen, does not and should not serve as an excuse for unethical business practices, as the Supreme Court has acknowledged in various situations in the past.
This massive screw up seems to get away with the teenage excuse of "...But everybody else is doing it!" Nonetheless, the complex nature of the maneuvers behind the mortgage crisis exemplifies how ridiculously far leaders of corporations will travel to commit and conceal deceptive acts, just like the Enron scandal. Because there were such a large number of firms and executives working with the intent of realizing false profits for so long in this case, another relatively worsened resemblance to Enron is the level of contagion the exploitation of unregulated behavior reached in this situation, and again how it can prove effective enough to severely harm the public financially.

The Illusion of Fair Taxation
Although nobody can currently point out another major fraud in the works, a more prolonged and discrete deception that ignores basic principles of protecting the financial interests of all citizens still exists today. It is the widespread exploitation of tax loopholes. When the government doesn’t collect corporate taxes, the costs undoubtedly fall on citizens in one way or another. The way in which companies maneuver through the code of law to avoid paying taxes is in many aspects similar to the frauds mentioned above. Although it is not as punishable, the manipulations ignore even the most basic reasons why the rules try to enforce what they try to enforce, just like the way principles are ignored with fraud that was "technically not against the law at the time." Furthermore, the behavior is widespread among almost every large company with the ability to take advantage in a given industry, like we observed with the mortgage crisis.
To move forward with the increasingly global economy, the tax code allows corporations various benefits of investing in “foreign subsidiaries” (similar to the special purpose entities discussed, just based on international location). One controversial benefit is the deference of paying taxes on foreign income until the income is “repatriated” or reinvested in the area. Repatriating is basically the act of bringing the income back into the US. When the company does repatriate, the tax system provides a foreign tax credit so they get an equal amount in a benefit if they already paid taxes somewhere else. This system is set up to avoid the discouragement of foreign investment into the new global economy.
The problem arises with how brutally the technicalities of this system are taken advantage of. Setting up a subsidiary in a foreign area must serve a legitimate business purpose besides tax incentives, but decision-makers find reasons to conveniently set up shop in the most tax effective, middle-of-nowhere countries around. Many of these areas, such as the Cayman Islands and Ireland, only impose an income tax on locally controlled companies. So technically, US-controlled corporations that are simply “operating” there don’t fit that bill. Your favorite tech company Apple, for example, picked Ireland to refer to as the center of all of their European operations to house billions of dollars of income that they pay virtually no taxes on. In 2014, Pfizer paid less than $1 billion in taxes good for an effective tax rate of just 7.5% (the federal and state combined corporate tax rate is about 39%). Since they can just “defer” the income by not repatriating, some get away with paying little to no taxes on billions of dollars in income.
One might think that at the bare minimum, they would eventually have to bring the extra money home to reap the benefits of the income here in the US. But the people at the top will indeed take the next step necessary for monetary concealment, without a consideration of the money fundamentally missing from the pockets of civilians. There are dozens of next steps available to realize this income by recharacterizing the income. A popular example is masking it as a loan going back to some entity in the US. The act of concealing profits as a loan seems to bear a striking resemblance to what Enron did.
People often wonder why CEO’s get paid so much compared to employees. The tax code attempts to prevent this, likely for principles such as income inequality and protecting workers, by stating that the compensation of any officer salary over $1,000,000 becomes non-deductible for the taxes of the corporation. The loophole points to the blatant ignorance of these important principles. It resides in the area of “performance-based pay,” where corporations can deduct bonuses that are contingent upon achieving some sort of benchmark goal. Corporations end up deducting ridiculous amounts of loosely set up performance-based bonuses, even though salaries remain at $1,000,000 for tax purposes. Nowadays, CEO’s make on average 300x the average worker (this number was 30 in the last generation). Unfortunately, this is just one of dozens of examples of the unlimited boundaries being pushed for personal gains while ignoring the principles that the tax code tries to enforce.
In March of 2014, in a report titled “The Disappearing Corporate Tax Base,” the Center for Effective Government outlined the way these loopholes have affected ordinary taxpayers, and analyzing the numbers can help develop an accurate impression of the lost public funds. In 2013 corporate tax revenues were 1.6% of US GDP and made up less than 10% of our federal funding, compared to 3.5% and 15% in the 1970s, respectively. Corporate profits in 2013, however, reached an all-time high of 12% of GDP. So even though corporations are making more money than ever before relative to the government, they are paying less and less than of a share of the government's bills, primarily because of the various loopholes companies have learned to take advantage of.
To gain a good perspective out of this report, if these percentages reflected what they did in 1973,  corporations would have paid an additional $188 billion in 2013. The money from just one year of honest corporate taxpayers who follow the principles instead of the rules could potentially be used to refill the 667,000 jobs that teachers, first responders, librarians, and caretakers lost to budget cuts since the recession ($36 billion), while making a substantial commitment in infrastructure ($125 billion), adding 2.5 million brand new jobs as well. 
The following chart displays what the loss of corporate tax revenue has been actually attributed to over the years. The 100% level at the top of the chart represents all of the federal government’s bills and each section represents how much of the total is contributed from each form of tax. 
("The Disappearing Corporate Tax Base" by the Center for Effective Government)
Over time, corporate taxes have made up less and less of our federal government’s revenue, and the missing cost is clearly attributed to payroll and income taxes which come straight from civilians’ pockets. So as the US economy is recovering from the recession that was largely the fault of deceptive leaders, US businesses are flourishing, and from a tax perspective, corporations reap much more of the benefits that come with all of this while leaving lower income workers and the middle class hoping to someday fully recover from the effects. It seems like many of our problems, such as income inequality and the slow recovery from the recession, could be solved with honest corporations.

“But everybody else is doing it!”
We discussed the odd resemblance to "peer pressure" among teenagers. Before Enron fell apart, Andrew Fastow was receiving numerous awards for being an outstanding CFO, was nationally recognized in financial magazines and newspapers, his directors were calling him a financial genius, and he was taking millions home until he went to prison (he was estimated to have been able to keep a substantial amount of his money after serving his six year sentence). This is evidence that loudly speaks to the social glorification of these actions in corporate America. What should have clearly been questioned as faulty financial manipulations from the start were viewed ultimately as creative success, as was previously mentioned, mainly because they weren't illegal per se and netted positive results. Fastow and other perpetrators act as if it is all just one big game, as if clearly going right around the rules won't have some other effect on innocents, as if none of their business decisions can ever cause collective harm. The same goes for the masterminds behind each tax loophole that weakens citizens' paychecks, or the bankers who first began using credit default swaps as insurance policies. Not to mention, the entire idea of credit default swaps was created by a guy at JPMorgan during an "off-site weekend," basically a retreat for teams of bankers with alcohol and bikini models on yachts. So no, this behavior is not just limited to the actors on "Wolf of Wall Street." Considering the apparent capability of these powerful corporate leaders to reap havoc on the lower classes, the surrounding forces of each tactic speaks to the broken culture that has relinquished the population's strive towards a safer economy; that control is now focused into one questionable group of people, firm managers, who have made some horrible decisions. 
There are definitely a number of select individuals leading corporations who have room for moral improvement. Although we have displayed evidence of the motivating culture behind it, frankly, the leaders responsible for the outcomes are viewed as highly unethical. However, the motivation and/or willingness to commit financially deceitful acts can be explained by tendencies that show up frequently in human nature, and since questionable moral tendencies have proven to be common among businesspeople in particular, it pumps more fuel into the minds that make up the hazy corporate culture.
In a very interesting TedTalk titled, “Our Buggy Moral Code,” behavioral economist Dan Ariely dives into the psychological aspects of these actions by giving similar opportunities of “cheating” to ordinary people and analyzing the results. Of his most interesting findings, he observed that people are significantly more likely to cheat for extra money if they see someone else do it and get away with it. This speaks to the contagious nature of these exploitations discussed. He also found that the further the distance between people and the actual physical cash they are stealing, the more likely they are to cheat to make more and more of it (they were more likely to cheat when they were presented the same opportunity except with tokens redeemable for cash instead of actual cash). Executives are among the most detached from the actual physical cash in decision-making. Psychology can somewhat explain the reason why when working together, many times their minds can rationalize misappropriating a relatively large amount money but could never imagine individually robbing a bank at gunpoint.
They see other people get away with it and they are very detached from the reality of the effects of their actions. So, from a cultural and psychological perspective, executive overshadowing of the moral compass is well explained in the workings of how their minds justify pursuing deceitful advantages, both from internal and external motivators. 
It is interesting to examine how this tendency adds to a primary defense from the competitive perspective. Most CFOs would argue they would assume competitors take full advantage of any legal exploitation that arises, whether it’s a tax loophole or a new sketchy business tactic. Cash is always tight. From the perspective of any CFO, if the company were to come out and willingly pay a tax competitors aren’t paying or avoid an opportunity competitors are taking advantage of without legal motivation, they would be putting their future cash flows at a tremendous disadvantage and risk losing the business altogether. After 2004 early warnings of the "pervasive problem" of mortgage-backed securities surfaced, they were shoved aside. This was not because they were believed to be incorrect or every single executive was just too stubborn to admit wrongdoing, but as one top-level banker stated, "A decision was made that 'we're going to have to hold our nose and start buying the stated product if we want to stay in business.'" Business is business. But this shouldn't be considered an actual excuse. If one executive crosses a certain line for profit, enough to significantly threaten the existence of other firms, should it really be the norm that all of the rest follow? But with the way things are now, this “everybody is doing it” justification, combined with the psychosocial effects discussed earlier, come together to create an acceptance for corporate managers to engage in these tactics, further them, and eventually become one of the frontrunners in the newest cycle. 

Fixes to Consider
            How exactly do you fix a culture? Is there anything aside from costly regulations that could help prevent this? Although we established many similarities among the three major areas of fraud discussed, it’s difficult to hope for one collective solution. From a long-term social perspective, there is a need to reach young corporate employees and business students at an early age and educate them on the importance of business ethics and the tragic results of unethical decisions in the past. Many firms, especially accounting firms like Deloitte, have recently employed programs with an ethical focus for all employees for this exact reason. These efforts should be expanded and rewarded. 
              It seems to get more complicated in the political grand scheme of things. The Sarbanes Oxley Act of 2002 took care of the major tactics employed by Enron. Similarly, regulations popped up after the mortgage crisis that disallowed much of the same behavior. Corporate taxes have gotten more and more complicated by the year since 1988. One might raise the question of why there weren’t regulations to enforce any of these things in the first place, or why the tax code is so increasingly complex and easy for professionals to take advantage of, or how we can end each cycle. 
              From a tax point of view, there are far too many complicated deductions and exemptions to begin proposing the elimination of specific loopholes. This in and of itself is a major source of the tax issue: it is so excruciatingly complex that eventually anyone with enough money and the right teams will find ways to realize unwarranted benefits. As shown, the major problem remains that corporations no longer make up as significant of a portion of the government’s tax receipts. In 1986, Reagan saw a similar issue and negotiated a corporate tax reform bill that in essence, exchanged the closing of a large number of loopholes with a slice in the corporate tax rate from 46% to 34%. Even though there was a simpler code with less loopholes back then, and even considering a huge 12% cut in the corporate tax rate, the share of the federal budget covered by corporate taxes rose from 8.4% to 10.4% by just two years later in 1988. Whether the corporate tax rate itself is too high falls out of the scope of this argument, however any plausible solution that nets positive results should be considered, and a similar "trade," especially with the offshore account phenomenon, seems like it can help. Either way, loopholes obviously need to be closed.
            Specifically regarding the mortgage crisis, one notion remains surprisingly simple. None of the high level executives responsible were ever prosecuted for what was clearly an enormous fraud, primarily because the prosecutions themselves would have further damaged the US economy. Prosecutors might have been overwhelmed with the drastic crash and thought to do what seemed to be best for the overall good. However, this notion of putting them above the law because of how great their fraud was strongly contributes to the infected culture we so desperately need to put an end to. Sending those primarily responsible to prison would help prevent others from chasing similar opportunities in the future, which is worth the extra hit to the economy in the long run. Increasing punishments for these crimes, in general, might do a number on the increased cultural glory of getting away with it. Frankly, people in this country serve life sentences and end up dying in prison for causing much less overall harm. In general, prosecuting more of these types of people and truly stripping them of their wealth and accomplishments would send a signal to current perpetrators that these actions are not tolerated and they will likely end up in jail for longer and broke. When other managers look at the executives responsible for the mortgage crisis, for example, there is not a great deterrence factor to help prevent deceptive ideas from catching wind riding on the next yacht with alcohol and bikini models.
It is surprising how much of the behavior prior to the two major crashes can be traced back to one form of effort that catalyzed each of the major fraud developments, not to mention most major tax loopholes: lobbying. Enron lobbied for all sorts of things they wanted to take advantage of (Jackson 207). Wall Street had to lobby for the ability to get in on the mortgage-backed security market and create their tools of destruction. Furthermore, large corporations have a long history of lobbying for the tax complications they take advantage of. There needs to be a fix centered on this misused ability to influence policy. Allowing firms to lobby is clearly the first step in encouraging harmful corporate behavior. If something is against the rules, but managers believe they have a great chance of changing the rules, this pushes them to strive for whatever deceitful business tactic they can come up with. At least with regard to certain regulations and tax rules that are most crucial to the US economy and might be most dangerous to let up on, such as home ownership, the evidence calls for a limit of lobbying efforts.

The blame can be placed across many different parties in all of these different situations, but certain things remain common. Managers of corporations are not concerned with how their decisions affect the financial well-being of American citizens, the most immoral of those decisions have caused and are currently causing a great deal of financial harm for purpose of personal gains, and there exist psychological, social, business-related, and most importantly, cultural reasons behind it all. They will probably keep cheating. They are likely to continue finding loopholes. It is policymakers’ and sophisticated law enforcements’ collective responsibility, however, to focus on enforcing proper business ethics and protecting the financial interests of citizens. Hopefully beginning with some policy adjustments, we will begin to see a societal shift and eventually rid ourselves of the corporate culture that is plaguing America.