Category Archives: Finance

A Frenchman Turns Economics Upside Down

Thomas-PikettyBy Peter Galuszka

Call it “The Anti-Baconomics.”

Thomas Piketty, a French economist, is turning conventional, conservative economic thinking on its head. Goodbye to the idea that all boats rise in capitalism. What we are seeing instead is a dangerous concentration of  21st century wealth in the hands of an ever-smaller elite.

This is Piketty’s message in his book “Capital in the Twenty-First Century” (a 700-pager on my reading list) that caught Europe by storm last year and is now a best-seller in this country.

Unlike convention wisdom, the thesis from this thinker from the Paris School of Economics is that Marx was wrong about capitalism self-destructing but so is Nobel Prize winner Simon Kuznets who posited a few decades ago that the inequality gap inevitably grows smaller with economic growth. Just the opposite, it turns out.

“One of the great divisive forces at work today,” Pinketty has said, “is what I call meritocratic extremism. This is the conflict between billionaires, whose income comes from property and assets, such as a Saudi prince, and super-managers. Neither of these categories makes or produces anything but their wealth, which is really a super-wealth that has broken away from the everyday reality of the market, which determines how most ordinary people live.”

This is why, perhaps, middle class families struggle to see declining disposable income while others who do not produce wealth but slice it and dice, like hedge fund managers or managers of huge corporations, are safe with their unsinkable portfolios. It is the same in just about any country, capitalist or no, from the U.S., to Spain, to China, to India to Russia.

If this continue continues unabated, as it probably will, you will see increasing social unrest as the 21st century wears on.

It seems interesting that Piketty who is in this 40s, came up of this relatively free from the residual Marxist thinking, or Keynesian for that matter, that did lurk in the background of many college economics intro courses. The Frenchman seems to be viewing things through a new prism of what has actually been happening over the past five decades when the middle class dream started evaporating and hard work, sacrifice and productivity simply no longer mattered.

If you read one of the books published a few years back by a prominent blogger here, you get the same-old Reaganomics of trickle down topped with a sauce of the Protestant worth ethic masquerading as agnosticism.

What’s the upshot of Piketty? It seems to be taxes, taxes and more taxes. In other words, it is time to start considering redistributing wealth from the elite back to their societies. The question seems to be “Why not? The elite didn’t really earn it anyway.”

Read meat for conservatives. The right-wing media has launched an anti-Piketty counterattack which is healthy and predictable. But he has a few things going for him. Given his youth, he represents the fresh views of up-and-coming thought leaders. And their thoughts are hardly the conventional all-boats-rise sophistry. Watch as the debate becomes stronger.

April Is The Cruelest Month

deepwaterBy Peter Galuszka

April is the cruelest month, especially for brutal energy disasters.

This Sunday is the fourth anniversary of the Deepwater Horizon offshore drilling blowout that killed 11 and caused one of the country’s worst environmental disasters. April 5 was the fourth anniversary of the Upper Big Branch coal mine explosion in West Virginia that killed 29.

What lessons have been learned from both? Not a hell of a lot. In both cases, badly needed, tougher regulations to prevent such messes from happening again go languishing while politicians – including Virginia’s Democratic Governor Terry McAuliffe – say move on fast for more exploitation of energy resources including in Virginia’s sensitive offshore waters.

Take Deepwater Horizon. The rig linked to British Petroleum in the Gulf of Mexico was tapping reserves 5,000 feet down. When the rig hit a rough patch, the blowback exploded upwards, racking the surface part with explosion and fires. Down below, a blowout protector was supposed to swing into action, chop into the pipe and shut down any flow. That didn’t happen and oil flowed freely at the bottom until July 15 generating one of the biggest oil spills ever.

Four years later, what has been done? According to experts S. Elizabeth Birnbaum, and Jacqueline Savitz, not enough. In December 2011, the National Academy of Engineering reported that Deepwater’s blowout preventer had never been designed or tested for the conditions that occurred and that other rigs may have the same problem.

Sixteen months later, nothing has been done in terms of new regulations – not even proposed one. It sounds as if that socialist-minded, regulation maniac Barack Obama is actually off the job. Meanwhile, McAuliffe changed his mind about the risks of offshore drilling and has jumped on board the Republican bandwagon led by former Gov. Robert F. McDonnell to expose Virginians to similar dangers.

McAuliffe’s turnaround came last year during the gubernatorial campaign. According to the Washington Post: “Terry has learned more about offshore drilling from experts in Virginia,” said McAuliffe spokesman Josh Schwerin. “He thinks that because of technological progress we can now do it in a responsible fashion.”

Say what? Maybe he should take a trip to Brazil and Norway that have more advanced blow-out preventers and policies. By the way, Democrat Mark Warner, running for re-election for U.S. Senate, is for offshore drilling as well.

If you really want to see evidence of the lack of regulation, check out Upper Big Branch owned by the former, Richmond-based Massey Energy.

The firm was notorious for its anti-regulation, anti-labor union policies led by its in-your-face chief executive Don Blankenship. Four reports say that Massey’s lax safety standards allowed the disaster to happen, including letting badly maintained equipment be used and not taking measures to keep highly explosive coal dust from building up. A flame caused by a ball of flaming methane touched off the dust leading to an underground blast that covered seven miles underground. In the process, 29 miners were either blown apart of asphyxiated in the worst coal mine disaster in 40 years.

Every mine event has led to some kind of regulatory reform such as the one at Farmington, W.Va. that killed 78 in 1968 and the Buffalo Creek W.Va. coal sludge pond breach and flood that killed 125 in 1972.

Post-Upper Big Branch reforms have been proposed, notably the Robert C. Byrd bill that would protect whistleblowers, hold boards of directors responsible for knowing and doing nothing about safety threats and giving the feds subpoena power which, incredibly, they do not now have in the case of mine safety. The Department of Agriculture can subpoena records in the case of possible milk or meat price-fixing, but the Mine Safety and Health Administration cannot in the case of human miners.

The Byrd bill is all but dead mostly because of the Republican controlled House of Representatives where the majority leader is none-other than business toady Eric Cantor of Henrico County.

And if you want to understand just how little miners’ lives are regarded, compare the media coverage of Deepwater Horizon versus Upper Big Branch. I guess you could say that in the media’s eyes, the life of an offshore rig worker is worth 2.6 times that of a coal miner.  Six months after Deepwater, there were at least six books about the disaster. Four years after Upper Big Branch there is one book about it and it happens to be mine.

So, this Sunday, I propose a toast to the dead oil rig workers and coal miners. Let’s not allow their souls to stay on our consciences. Let’s have anti-regulation reign in the name of free market economic policies and profits! It doesn’t matter if you are a Republican or a Democrat. Salute!

An Inconvenient Obamacare Truth

SNL spoofBy Peter Galuszka

It is highly amusing to watch Obamacare detractors mock news that the Affordable Care Act has more than reached it goal by signing up 7.1 million Americans.

This inconvenient truth turns the Fox News echo chambers on its head. You also read a bit of that on this blog – there’s an unassailable assumption that Obamacare is a certain failure, the Website is a mess and that it will be rejected hands down by consumers. Therefore, it’s a given that it must be repealed or undergo massive surgery.

Obamacare deniers also link expanding Medicaid to the fray. That is why the General Assembly has not passed a budget. Hard right Republicans in the House of Delegates, led by House Speaker Bill Howell, have set up expansion along the lines of their Obamacare fight. Medicaid is DOA, they claim, and they are quite right risking shutting down state government July 1 to make their point.

Of course, they are plowing ground for November elections in which they assume (underlined) that Obamacare will be a killer topic for their allies.

Problem is, if Americans keep signing up (early problems with the Website notwithstanding), they kinda lose some of their thunder. They may have to come up with a new mule to beat.

Anyway, I caught this skit on Saturday Night Live last night and immediately thought of Bacon’s Rebellion. Enjoy!

Why Five Ex-Attorneys General Are So Wrong

mcdonnells arraignedBy Peter Galuszka

The practice of law in Virginia is supposed to be an honorable profession.

The state, which produced such orators as Patrick Henry and Thomas Jefferson, loves its lawyers perhaps much more than individuals who actually create or do something of value. It could be why the state has so many of them.

This makes a filing in the McDonnell corruption case by five former attorneys general all the more despicable. The bunch includes both parties and is made up of Andrew P. Miller, J. Marshall Coleman, Mary Sue Terry, Stephen D. Rosenthal and Mark L. Earley.

They want corruption charges thrown out against former Gov. Robert F. McDonnell, who, with his wife, has been indicted on 14 federal corruption charges. Their trial, expected in July, will explore charges they misused their position to help a dietary supplement maker who showered them with more than $165,000 in personal gifts and loans.

The five attorneys general claim that there is no clear evidence the McDonnells did anything wrong. Odd, but I thought lawyers knew enough not to try and bias a case that has been through the indictment and arraignment phase and is due for trial but then I didn’t go to law school.

Their other reason is actually more upsetting. Their filing claims that future governors might be reluctant to invite state business leaders on foreign trade missions or to host campaign donors at the governors mansion, according to The Washington Post.

Huh? I don’t see the connection. Of course, governor’s can host trade missions. They can invite people to the Executive Mansion. It’s just that, in the process, the governors can’t reasonably be OK with accepting a $6,500 Rolex from the head of Kia Motors or a special loan for his failing beach houses from the local rep of Rolls Royce North America.

It is stunning that the five attorneys general are caught up in “the Virginia Way” of having hardly any controls on gift giving and spending that everything is OK. They also can’t seem to move beyond the conceit that  anyone who occupies the governor’s chair must naturally be an honest gentleman or gentlewoman.

This kind of thinking helps explain nothing substantive has been done to reform the state’s ethics laws. I can give you five reasons why.

Is Virginia Now the “Mother of Dictators?”

Dictator_charlie3315 By Peter Galuszka

One of the serious problems in this state that has been called the “Mother of Presidents” is that its electoral process is in many ways anything but a democracy.

In far too many districts, especially rural and suburban ones, gerrymandering and autocratic party diktat mean that the races are utterly non-competitive and devoid of much debate on issues essential for the state’s well-being.

In 2013, for instance, only 12 or 14 of the 100 races for the House of Delegates were actually competitive, according to the Sorenson Institute for Political Leadership at the University of Virginia. That’s an odd fact to ponder.

And that is why you get unneeded legislative sessions such as the one starting today to try and sort out Medicaid expansion and a $96 billion, two year budget. My view is that both the expansion and the budget are being held hostage by hard-line social and fiscal conservatives who are unwilling to consider the needs of moderates or even their own constituents, many of whom are receiving Medicaid or who benefit by its expansion. Indeed, polls show that more Virginians are in favor of expanding Medicaid. A broad coalition of activists, Democrats, business executives and moderate Republicans favors it.

For more, check this opinion piece I wrote this Sunday in The Washington Post.

The bottom line is that Virginia is changing but how fast is held in check by engineered voting districts. More people from other states or countries are moving here and that is certain to shake up the old ways of doing business. More millennials are leaving rural areas for cities where there are more jobs and progressive ideas. Eventually, their voices will be heard but not until there’s a level playing field.

According to Leigh Middleditch, a Charlottesville lawyer and Sorenson founder, a crucial task for the Old Dominion is to address redistricting issues. He’s part of the bipartisan Virginia Redistricting Reform Coalition, to bring elections back into balance. As he notes, they’re getting the money and haven’t given themselves six years to complete the job.

I wish them well. If that happens you won’t have a tiny, hard-right cadre representing maybe three percent of the eligible electorate dictating who the candidate is because they only have to worry about a primary in a rigged district.

It’s become “the Virginia Way.”

McDonnell’s U.S. 460 Debacle

va_route_460_improvementsBy Peter Galuszka

Towards the end of his term, former Gov. Robert F. McDonnell and his transportation chief, Sean Connaughton, bulldozed through a dubious project that would build a superhighway from Suffolk to Petersburg along the path of old U.S. 460 in southeastern Virginia.

Few understood the urgency of such a project, which involved a public private partnership that Virginia so loves. Mayors in Tidewater cities questioned it. Some scratched their heads as to why it was rolling forward without environmental permits.

Well, now it has come to a screeching halt. Some $300 million has been spent on the 55-mile-long road that will cost a total of $1.4 billion. Not on shovel of earth has been turned. The new administration of Gov. Terry McAuliffe has pulled the plug on it for now.

US 460 Mobility, the PPP3 type firm pushed by McDonnell to proceed with the fast-track plan, did not return phone calls to the Richmond Times-Dispatch after Transportation Secretary Aubrey L. Layne Jr. announced the temporary halt.

At issue are permits from the U.S. Army Corps of Engineers and other issues. Normally, such matters are dealt with before the state commits to a road. This apparently fell by the wayside because of the public-private partnership deal, Layne said.

How odd is that? Why did the McDonnell administration zoom forward with such a deal?

He certainly laid the public relations groundwork for it. I wrote a story about a year ago in Style Weekly noting that Chmura Economics & Analytics, a Richmond forecasting firm hired by the state, “predicted a massive boost in jobs and investment: $7.3 billion in economic impact through 2020. Besides 4,295 temporary construction jobs, the project would support 14,120 other new jobs. These include 4,730 jobs in Hampton Roads linked to greater port activity and 689 jobs at the 40 service business — at least four for each of the highway’s nine interchanges — that would accompany the new thoroughfare.

“The bulk of the remaining jobs — 8,415, more than half of the predicted number — could come from advanced manufacturing or automotive factories that might locate at industrial “megasites” in Isle of Wight and Sussex counties.”

But when I looked at where and how these jobs might be created, the numbers started to slide. It was all very murky and much in the future.

Connaughton tried to sell the project by saying the new superhighway was needed to handle extra truck traffic hauling ocean-going containers that would swamp the Port of Hampton Roads as the Panama Canal was expanded. He also said that Tidewater needed a second evacuation route if a monster hurricane loomed.

Del. S. Chris Jones, a Suffolk Republican, says he’s very concerned about how this all happened. He says he wants to “figure out how this could happen, who was responsible for the contract and what we do going forward.” The next forum comes April 23 when Layne and VDOT Chief Charles Kilpatrick brief the House Appropriations Committee which is headed by Jones.

The big takeaway here is how the state and its business elites rush forward with Public Private Partnership road projects as a way to fast track and sidestep financial and impact problems. There’s been a tremendous amount of cheerleading about PPP on this blog. It is time to settle down, take a deep breath and reconsider.

In other words, you can’t have your cake and eat it too.

Coal Giant Alpha Pays Biggest Water Fine Ever

MTRBy Peter Galuszka

Alpha Natural Resources of Bristol, the coal giant that took over troubled Massey Energy of Richmond in 2011, has the dubious honor paying the highest fines ever of $27.5 million for water pollution violations at its coal mining operations in five Appalachian states, including Virginia.

Massey Energy, the owner of the Upper Big Branch mine in West Virginia where an explosion killed 29 miners in the worst such disaster in the U.S. in 40 years, held the previous water pollution fine record of $20 million issued in 2008.

The Environmental Protection Agency says that from 2006 to 2013, Alpha and its subsidiaries violated water pollution permits 6,000 times and allowed toxic materials such as heavy metals into streams and the watersheds of Tennessee, West Virginia, Kentucky and Pennsylvania besides Virginia. The firm will also pay $200 million to reduce such toxic discharges.

The settlement comes after a pair of unrelated water pollution situations involving coal in West Virginia and North Carolina. Some 300,000 residents of the Charleston area went without drinking water for several days when a toxic chemical used to treat coal leaked into a river. Duke Energy faces fines in North Carolina for improperly maintaining its coal ash storage facilities, leading to a substantial spill into the Dan River which provides drinking water for Danville and eventually, Virginia Beach.

Alpha has touted its “Running Right” safety and management program as it absorbed Massey Energy and its rich coal reserves in a $7 billion deal. Alpha said it was retraining Massey workers who had suffered from Massey’s abusive corporate culture that cut corners on mine safety and environmental control, regulators say.

Alpha had agreed to pay $200 million in a deal with the U.S. Attorney’s Office of Southern West Virginia to cover violations from the Upper Big Branch which it bought and closed after acquiring Massey. Alpha later settled a number of shareholder lawsuits for $265 million. Some of the payout funding had factored into funds set up by Massey before the acquisition by Alpha.

Like most Appalachian coal producers, Alpha has been taking hits with soft markets for steam and metallurgical coal. Its 2013 revenues were $5 billion compared with $7 billion the year before.

Environmentalists say that Alpha’s fine does not address the massive ecological destruction of mountaintop removal strip mining which they say should be stopped at the permit stage. Alpha operates a number of such mines.

The latest fines involve 79 active coal mines and 25 coal processing plants.

Federal investigators are still probing Massey for violations of safety laws related to the operation of Upper Big Branch where the explosion occurred April 5, 2010 and other mines. So far, three former employees have been convicted and Massey’s former CEO Don Blankenship is said to be a target of the probe. There is also a suggestion that Alpha is cooperating with federal investigators in the investigation.

McAuliffe Peruses Tobacco Commission

tobacco leafBy Peter Galuszka

What’s going on with the Tobacco Commission? Gov. Terry McAuliffe wants to know and is asking for a detailed accounting of its finances over the past five years.

The Tobacco Indemnification and Revitalization Commission, created in 1999 with a $1 billion endowment from lawsuit settlements with four major tobacco companies, has been under the gun for years.

The idea was that Virginia would take its settlement from a $206 billion nest egg 46 states won from Big Tobacco and put it to good use. Some states allocated their share solely for health concerns and to convince people, especially children, not to start smoking.

Virginia used part of its funds for this, but also created a slush fund supposedly for economic development in counties affected by changes in the tobacco economy from Southside to Southwest Virginia that grew bright leaf and burley tobacco.

The commission has always operated in a kind of “Andy of Mayberry” fashion without much oversight and that has caused some big problems. The worst was in 2010 when former state Finance Secretary John W. Forbes and later commission head was convicted of using $4 million in tobacco money for personal purposes, like fixing his house.

A 2011 report by the Joint Legislative Audit and Review Commission gave the commission mixed reviews, noting that some projects it funded made sense but others did not.

JLARC praised the commission for its worker training programs and helping expand high speed broadband to rural areas. But it said that the commission needed a better and more sophisticated way of tracking the impacts of projects it funded. Two years earlier, a commission headed by former Gov. Gerald E. Baliles had come up with some similar findings but the commission adopted only eight of 22 of them. One of the Baliles’ recommendations was to have a JLARC study made of the commission but it was not pursed at the time.

One area of concern for the McAuliffe administration is the $20 million in grants provided to Liberty University’s Center for Medical and Health Services spent over the past two years when the commission was making less than $60 million on interest payments.

One could argue that having a medical center in Lynchburg would help residents in Southside but another issue is that Liberty, founded by fundamentalist Protestant preacher Jerry Falwell, is a religious institution. The late Falwell was a major political player. The school is starting an osteopathic medical school which is interesting since it chose not to found a traditional one, although osteopathic doctors receive much the same training as medical doctors.

Speaking of politics, the co-chairman of the tobacco commission is Terry Kilgore, a Republican politician. By coincidence, his twin brother, Jerry, is a former attorney general, gubernatorial candidate and a lawyer for Jonnie R. Williams Sr., the former head of Star Scientific and the man who paid or gave now-indicted former Gov. Robert F. McDonnell and his wife Maureen more than $160,000 in gifts.

At one point, Williams who has not been indicted in the GiftGate matter and is expected to be an important prosecution witness against the McDonnells, tried to push for tobacco commission help with his nicotine-based dietary supplements.

There could be a political motivation with McAuliffe’s query but the tobacco commission has always been a ripe target for good reason.

N.B. Maurice Jones, McAuliffe’s nominee for Commerce Secretary and the former publisher of The Virginian-Pilot, has been targeted by a probe by the U.S. Department of Housing and Urban Development for possible improper lobbying while he was a HUD deputy secretary. It appears there will be no criminal charges but the Jones matter will be part of a Capitol Hill hearing today. Republicans are certain make some political hay out of the matter. Full disclosure, I worked part time for Richmond’s Style Weekly (still do) when Jones was Pilot publisher and oversaw Style. I know him personally.

Dem Billionaire Runs With Big Dogs

SteyerBy Peter Galuszka

A major funder of Democratic Gov. Terry McAuliffe plans on putting $100 million into this year’s mid-term election races to warn of the danger of climate change and beat back global warming deniers and their conservative financiers.

Tom Steyer, a billionaire hedge fund founder, plans on targeting the Florida gubernatorial race where Rick Scott, who does not believe that climate change is manmade, is running for election.

Last year, Steyer (photo) helped McAuliffe outraise Republican Kenneth Cuccinelli in political contributions and defeat him. The former attorney general had made an issue of global warming and initiated a campaign to investigate Michael Mann, a former University of Virginia climatologist, who believes that human activity does contribute to global warming. Steyer gave the McAuliffe campaign $11 million.

Conservatives are well-funded by their own advocates, notably the Koch brothers of Kansas whom the Washington Post reports helped raise $400 million for the 2012 elections. The Koch brothers raise much of their funding through political action committees and non-profits such as Americans for Prosperity and the Heartland Institute.

Democrats who likewise have pumped money to raise concerns of global warming include former New York Mayor Michael Bloomberg.

Coincidentally, the news of Steyer’s donation plans comes just after the release of a new book “The Sixth Extinction” by New Yorker magazine staff writer Elizabeth Kolbert.

The book notes that the earth has seen five significant extinctions of living organisms and now faces a sixth one that is caused by mankind and carbon emissions. The book has won favorable reviews in such media outlets as the “Wall Street Journal.”

Tar Heel Grief Just Down the Road

By Peter Galuszka

It’s sad to see mccrorytwo states to which I have personal ties – North Carolina and West Virginia — in such bad ways.

The latest raw news comes from the Tar Heel state where we are seeing the handiwork of hard-right- Gov. Pat McCrory who has been on a tear for a year now bashing civil rights here, pulling back from regulation there.

The big news is Duke Energy’s spill of coal ash and contaminated water near Eden into the Dan River, which supplies Danville and potentially Virginia Beach with drinking water. Reports are creeping out that the McCrory regime has been pressuring the N.C. Department of Environment and Natural Resources (DENR) to pull back from regulation.

According to Rachel Maddow, DENR officials had stepped in with environmentalists as plaintiffs on two occasions in lawsuits to get Duke Energy to clean up coal ash. But when a third suit was filed, McCrory, a former Charlotte Mayor and career Duke Energy employee, influenced a third lawsuit settlement against Duke to be delayed.

Also, not long before the Eden spill, the City of Burlington released sewage into the Haw River which flows into Lake Jordan serving drinking water to Cary, Apex and Pittsboro. DENR allegedly did not release news of the spill to the public.

Late last year, Amy Adams, a senior DENR official, resigned to protest the massive cuts McCrory and Republican legislators were forcing at her department, notably in its water quality section.

McCrory’s been on a Ken Cuccinelli-style rip in other ways such as cutting back on unemployment benefits in a top manufacturing state badly hit by the recession and globalization. He’s shut down abortion clinics by suddenly raising the sanitation rules to hospital levels, much like former Gov. Robert F. McDonnell did in Virginia.

A reaction to McCrory is building, however. Recently, I chatted with Jason Thigpen who served in the Army and was wounded in Iraq in 2009. When Thigpen returned to his home in southeastern North Carolina, he was upset that the state was sticking it to vets by making them pay out-of-state college tuition in cases where some had been state residents before deploying. So, he started an activist group to protect them.

Next, Thigpen decided to run for Congress. His views fit more neatly with the Republican Party but he simply could not take what McCrory was doing in Raleigh so he became a Democrat and is a contender in a primary this spring.

Why the switch? “I just couldn’t see what the GOP was doing with my state in Raleigh,” He told me. “Also, I didn’t like what they were doing with women. I had served with women in war and they come back to North Carolina and they are treated like second class citizens,” he said.

West Virginia, meanwhile, is still struggling with its drinking water issues from a spill near Charleston. Although drinking water for 300,000 is said to be potable, children are reporting rashes.

Somehow, this conjures up another story involving a Republican governor – Arch Moore.

Back in 1972, Moore was governor when Pittston, a Virginia-based energy firm, had badly sited and built some damns to hold coal waste. After torrential rains, the dams burst and a sea of filthy water raced down the hollows, inundating small villages and killing 125 people. The state wanted a $100 million settlement from Pittston for the Buffalo Creek disaster, but Moore interceded and they settled for a measly $1 million.

Moore was later convicted of five felonies after he was caught extorting $573,000 from a coal company that wanted to reduce its payments to a state fund that compensated miners who got black lung disease.

Does anyone see a pattern yet?

Meanwhile, we in Virginia should breathe a sigh of relief considering just close it was dodging the bullet last election.