I spent the morning in Detroit watching the Joe Louis fist–one of Detroit’s iconic symbols–be swallowed up by a crowd of people demanding that GE–which was holding its shareholders meeting in the Renaissance Center nearby–pay its fair share in taxes (to say nothing of keeping jobs in the US).
Seeing crowds of people, swarm that fist, pointed right towards where Jeff Immelt was speaking, was a pretty awesome way to spend the morning.
Inside the event, some of the 99% were making the same demand. Then, Jeff “China China China” Immelt apparently rushed through his legal obligation to at least pretend that shareholders own GE (he finished one hour in exactly).
As we walked around Detroit’s Renaissance Center, a few people came to the balcony to look on.
I think the Powers that Be had originally thought it’d be smart to hide us out back. For some reason, they had us leave the hidden back area and move right up front.
The sign reads: To hell with greed. –God
I’ll update later if my video is any good and when Dave Johnson–who managed to stay through the whole whopping 60 minute (exactly) meeting posts his story.
Update: Kelly just stepped down, citing “differences in approach.”
A number of outlets have carried the report on the number of CEO’s getting paid more than their companies paid in taxes last year, but few have linked to the actual report, which means just the usual suspects, like GE’s Jeff Immelt, are getting the bulk of the focus.
Yet if you look at the appendices (pages 31-33–click the picture to the right to enlarge it), the report not only lists all the companies paying their CEOs more than they pay Uncle Sam, but provide details like the company’s political spending.
Among those listed in the report not getting much attention is Bank of New York Mellon’s CEO Robert Kelly, who got millions while his company got a $670 million tax refund.
Bank of New York Mellon CEO Robert Kelly took home $19.4 million in 2010. The bank, the same year, claimed a $670 million federal tax refund, despite $2.4 billion in U.S. pre-tax income.
Kelly’s compensation has skated above $10 million during each of the past three years of financial crisis. The CEO artfully managed to avoid the salary limits President Obama’s “pay czar” imposed on bailed-out banks by making sure Bank of New York Mellon repaid the taxpayer funds before those restrictions went into effect.27 The bank raised the money to pay back its $3 billion in TARP assistance by taking on uninsured debt, slashing dividends, and issuing new stock.28
The Bank of New York Mellon, with 10 subsidiaries in tax havens, did not pay a dime in federal taxes in 2010. However, the banking giant did devote $1.4 million to lobbying over the year. The bank’s lobbyists worked diligently to exempt currency trading from new transparency and oversight rules.29 In related news, officials from eight U.S. states are conducting inquiries or pursuing litigation against Bank of New York Mellon for ripping off state pension funds by overcharging for currency trades. The Securities and Exchange Commission and Justice Department are also investigating the allegations.
Screwing pension funds on currency trades is not the only anti-social behavior the federal government gave BNYM a refund to engage in. They’re also the trustee on the controversial Bank of America settlement.
That’s relevant because of the terms the settlement’s chief defender, Kathryn Wylde, has used to defend it, particularly in the face of Eric Schneiderman’s lawsuit to stop it.
The lawsuit angered Bank of New York Mellon, and as Mr. Schneiderman was leaving the memorial service last week for Hugh Carey, the former New York governor who died Aug. 7, an attendee said Mr. Schneiderman became embroiled in a contentious conversation with Kathryn S. Wylde, a member of the board of the Federal Reserve Bank of New York who represents the public. Ms. Wylde, who has criticized Mr. Schneiderman for bringing the lawsuit, is also chief executive of the Partnership for New York City.
Characterizing her conversation with Mr. Schneiderman that day as “not unpleasant,” Ms. Wylde said in an interview on Thursday that she had told the attorney general “it is of concern to the industry that instead of trying to facilitate resolving these issues, you seem to be throwing a wrench into it. Wall Street is our Main Street — love ’em or hate ’em. They are important and we have to make sure we are doing everything we can to support them unless they are doing something indefensible.”
Now, as I’ve already pointed out, it’s sort of odd for Wylde to defend Bank of America, a North Carolina corporation, in her role as NYC’s chief booster.
But if BNYM is paying nothing in the US–rather is getting tax refunds–on its $2.5 billion global profit, then presumably it’s a corporate resident of some other place, not New York, not the United States. So maybe, in addition to North Carolina, Wylde has added the Cayman Islands to the list of places whose corporations she defends as her own Main Street?
In any case, Wylde says Schneiderman shouldn’t sue to prevent BNYM’s scam settlement with BoA. Why is she protecting such a giant corporate deadbeat?
Jeff “China China China” Immelt spoke at Dartmouth yesterday, ostensibly about energy. But as it happens, he had the opportunity (in question period) to pressure SuperCongress to “reform” taxes rather than raise them on people like Immelt (while later saying he didn’t think SuperCongress should also look at job creation). He claimed GE would embrace the elimination of loopholes, so long as the corporate tax rate was also lowered.
The largest U.S. conglomerate would accept the elimination of loopholes “in a heartbeat” if it was coupled with a lowering of the statutory 35 percent rate, Jeff Immelt told a group of students on Thursday.
Right. We’re to take Immelt’s word that GE will stop taking advantage of any means to evade taxes based on its own history of evading taxes.
Which, in combination with Immelt’s comments about investing are all the more interesting. Here’s how Reuters described it.
Immelt, who leads a panel advising the Obama administration on job creation, said he puts little stock in talk that the government could do more to encourage companies to invest and lower the nation’s persistently high unemployment rate.
“A lot has been said that business isn’t investing because of uncertainty. I think that’s rubbish,” the 55-year-old CEO said. “The government couldn’t do anything to make me invest and believe me the rest of the world isn’t that stable either. We’ve made our own choices that we’re going to keep investing regardless of what happens in Washington.”
But in an uncharacteristically animated moment, he blasted critics who contend that companies like GE that do much of their sales outside the United States are hurting the economy. He noted that GE sells 90 percent of its jet engines abroad but manufacturers all of them in U.S. factories.
“That’s not taking jobs out of the United States, that’s what we have to do,” Immelt said. “We’ve gotten this psychotic thing that anybody that does business outside the United States is a heathen, anti-American … I don’t understand why we’re rooting against companies that are out there competing because we’re creating good jobs here.” [my emphasis]
Now there’s actually more than this going on. First, in response to a question (around 42:10) about allegations that GE doesn’t pay taxes, Immelt shifted the answer to claim, incorrectly, that people were beating up on GE for exporting, rather than beating up on GE for not paying taxes. So rather than talking about tax evasion, he instead talked about how many jet engines GE exports from the US. And when, later (around 52:00), he was asked whether all the energy products GE sells in India and China were made in the US, he again focused on jet engines (energy products?) and gas turbines.
In other words, he avoided talking about taxes by pretending all GE does does export large manufactured goods. (More interesting, too, though probably worth another post, is his exhortation–around 50:00–that you shouldn’t watch TV or read the news, said in the context of the crash, “everybody had to wake up and realize you gotta change,” without admitting that GE’s financial games were a huge part of the crash.)
And yes, Immelt says that the government can’t do anything to make GE invest–though in context it appeared to say the government can’t make GE invest here (as opposed to other countries–he noted that investments in energy are primarily happening in Europe and China).
I find that claim, in particular, interesting given how GE is claiming credit for creating a greater proportion of jobs in the US. But the big headline item–a tech center in the Detroit area–happened precisely because of government intervention.
Chief Executive Officer Jeffrey Immelt has said GE will add more than 15,000 jobs in the three years through December. About 1,100 will be just outside Detroit in a center for information technology, a field emblematic of outsourcing. So far, GE has hired about 660 people in Michigan, a state that led the nation in jobless rates, making it a symbol of U.S. industrial decline.
GE took advantage of incentives such as Michigan’s tax benefits and skilled workforce. Immelt said in announcing the Michigan site in 2009 that GE would invest $100 million, while state officials offered more than $60 million over 12 years in incentives.
“The change in approach is critical, and it comes right from the top,” said Harley Shaiken, a labor professor at the University of California at Berkeley. “He’s addressed it both from the context of GE and in the importance of the U.S. having a vibrant, high-tech manufacturing base.”
So I guess the government can do something to make Jeff Immelt’s company invest in the US. But for some reason he didn’t want to talk about it.
In a recent op-ed, Alliance for American Manufacturing head Scott Paul offered a number of suggestions to rebuild manufacturing in the US. Among other worthy suggestions, he suggested what might be called the “Immelt Rule”–banishing CEOs from federal advisory boards (like Obama’s job’s council) if they’re outsourcing faster than they’re creating jobs here in the US.
Kick any CEO off of federal advisory boards or jobs councils who has: (1) not created net new American jobs over the past five years, or (2) is expanding the company’s foreign workforce at a faster rate than its domestic workforce. Replace them with CEOs who are committed to investing in America. Shame is a good motivator.
I guess Immelt would rather just talk about exporting jet engines and be done with it.
The AP wrote a story on the hoax GE Press Release reprinted in its entirely below; after GE informed them it was a hoax, they withdrew the story.
But of the reports on the hoax, few seem to get it.
Business Insider notes it “OBVIOUSLY reads like a hoax” because of “comments in there about new policies about creating one American job for every one created abroad.” And the Chicago Tribune included this much of the explanation a self-described member of the Yes Men–which claimed credit–offered in an interview:
The “Yes Men” sent the release to draw attention to GE’s approach to taxes, Boyd said in a phone interview.
Yet aside from that, most of the coverage has focused on GE’s explanations for why they’ve paid so little in taxes, pointing to GE Capital’s big losses in recent years.
That is, no one really wants to report on what GE’s approach to taxes is. To the extent they do, they accept GE’s explanation unquestioningly. But if the AP had a sense of what GE’s real approach to taxes is, they would never have fallen for the hoax in the first place.
As such, the reporting on the hoax is revealing much about press ignorance.
Here is the explanation Jeff Immelt offered for GE’s tax scam a few weeks ago at DC’s economic club:
Now GE has taken criticism lately over our tax rate over the past two years. Like any American, we do like to keep our tax rate low. But we do it in a compliant way and there are no exceptions. The reason why our tax rate was so low in 2009 and 2008, or 2009 and ’10 is simple. We lost $32 billion in GE Capital as a result of the global financial crisis. Our tax rate will be much higher in 2011 as GE Capital recovers. But make no mistake, make no mistake. Business rarely speaks with one voice about anything. About anything. But we do on taxes. That’s because our system is old, complex, and uncompetitive. The purpose of the tax code should be that everyone pays their fair share, including GE. But it also should help to promote jobs and competitiveness and it does the opposite today. Like most of our business colleagues, GE favors closing loopholes, a lower corporate rate, and a territorial system. This would put us in line with every other developed country in the world — Germany, Japan, United Kingdom — all of them. Taxes are an important part of jobs and competitiveness and we think it deserves a healthy debate.
Now, this speech was reported credulously by the press, which in and of itself is a testament to the sorry state of our journalism. That coverage allowed Immelt to focus on loopholes in the corporate tax system and not the entire system of havens that multinational businesses like GE exploit. It accepted Immelt’s claim that all the losses GE Capital took took place in the US, but doesn’t ask why GE Capital’s profits of years past weren’t themselves registered in the US. And it accepted that Immelt’s claim that taxes are about the competitiveness of one country over another, rather than the optimization of taxes over many countries.
Compare what real Jeff Immelt had to say to his corporate buddies a few weeks ago with what this hoax release says. Hoax Immelt focuses on GE’s use of tax havens as a strategy to avoid taxes.
Immelt acknowledged no wrongdoing. “All seven of our foreign tax havens are entirely legal,” Immelt noted.
And the changes Hoax Immelt lays out to fix the problem also focus on multinationals’ ability to shift profits from jurisdiction to jurisdiction to avoid taxes.
Immelt outlined several concrete steps he would take to push for modernized tax policies that reflect the realities of the global economy. “I will personally ask President Obama to work with Congress to require country-by-country reporting by multi-national corporations of the sales made, profits earned and taxes paid in every jurisdiction where an entity operates. Instead of moving money via “transfer pricing,” corporations ought to pay taxes in the jurisdictions where profits are actually made. If Congress is able to establish standard industry-wide solutions, GE will close our tax haven operations abroad, including our subsidiaries in Bermuda, Singapore and Luxembourg.”
In other words, Hoax Immelt gets right to the core of the tax cheat strategies of all multinationals, not just those that have become finance companies while they gut their manufacturing operations in this country.
Sure. As Business Insider noted, Hoax Immelt’s claim that GE would create one job here for every job it created overseas should have been a tip-off that this Press Release couldn’t possibly come from the company that has been shipping jobs overseas. But the larger point of the hoax–the improbability that GE would stop its shell games to avoid taxes–seems to have entirely skipped the notice of most coverage of this so far. →']);" class="more-link">Continue reading
I spent much of the day yesterday pointing out how stupid it was for Obama to put outsourcer, China nut, and TBTF bankster Jeff Immelt in charge of his Council on Jobs and Competitiveness. Meanwhile, Paul Krugman and Robert Reich have been focusing on Obama’s frame for the problem as “competitiveness.”
In his piece, Krugman calls the frame “hackneyed” (and Jeff Immelt’s op-ed on it “vacuous”). He then links to an older discussion on competitiveness of his, in which he explains,
The rhetoric of competitiveness turns out to provide a good way either to justify hard choices or to avoid them.
Reich makes largely the same point about how meaningless the term “competitiveness” has become.
Whenever you hear a business executive or politician use the term “American competitiveness,” watch your wallet. Few terms in public discourse have gone so directly from obscurity to meaninglessness without any intervening period of coherence.
Reich goes on to show how competitiveness might mean:
In case you haven’t noticed, the profits of American corporations are soaring. That’s largely because sales from their foreign-based operations are booming (especially in China, Brazil, and India). It’s also because they’ve cut their costs of production in the US (see the first item above). American-based companies have become global — making and selling all over the world — so their profitability has little or nothing to do with the number and quality of jobs here in the US. In fact, it may be inversely related.
Reich argues that the only way to improve our “competitiveness” by that last measure–the number and quality of American jobs–is to make investments America is probably not willing to make.
The only sure way to improve the quality of jobs over the long term is to build the productivity of American workers and the US overall, which means major investments in education, infrastructure, and basic R&D. But it’s far from clear American corporations and their executives will pay the taxes needed to make these investments. →']);" class="more-link">Continue reading
In my first post on how stupid it was for Obama to pick Jeff Immelt for his election season commission to appear focused on jobs, I looked mostly at how much GE has been outsourcing manufacturing and technology. Though I mentioned GE’s status as another TBTF finance company, I didn’t explain that in depth.
Mike Konczal has a post in which he corrects Joe Klein’s misperception that GE is not another big finance company, and in the process shows how GE was one of the biggest beneficiaries of the government’s bailout of shadow banking in 2008-09.
In it, he shows how GE received the second biggest FDIC debt guarantees of any of the big finance firms, after only Citi. He borrows the graphic at the left from a Raj Date paper that also explains how GE leveraged (heh!) its teeny FDIC insured deposits to get a big debt guarantee.
Only a small fraction of GE Capital’s funding (some $24 billion in the middle of 2008) came through FDIC-insured deposits. Despite that, the structure of the FDIC’s Debt Guaranty Program enabled GE Capital to issue well more than that (more than $50 billion) in unsecured debt that was, in effect, taxpayer-guaranteed. In essence, the program was structured in a way that almost uniquely favored a shadow bank like GE — one with a relatively small depository, but with immense unsecured debt that had been issued by the depository’s affiliates.
Konczal then goes on to cite another paper explaining why this happened: GE used the credit rating it won in its manufacturing business to make a lot of big finance games possible.
1 run the industrial business for earnings;
2 add industrial services to cover hollowing out of the industrial base;
3 buy and sell companies through acquisition and divestment to achieve returns and growth objectives;
4 rely on large-scale acquisition to prevent like-for-like comparisons and to increase opacity and the power of narrative;
5 grow the financial-services business up to the limit of the company’s credit rating;
6 accept the balance-sheet costs in terms of return on capital but focus on managing return on equity and cost of capital;
7 add financial engineering to smooth earnings and manage growth….
If the expansion of GE Capital rested on judgement and controls, it also reflected the structural advantage of the triple-A credit rating, which effectively made the financial business (as user of the credit rating) dependent on the industrial business (as credit-rating generator), and this in turn set limits on how much GE could expand without risking reclassification by credit-rating agencies. GE Industrial may be a low-growth business but it has high margins, is consistently profitable over the cycle and has funded almost all of the dividends that GE Consolidated has paid out, as well as providing the funds for acquisitions and repayment of debt. This solid industrial base is the basis for GE’s triple- A credit rating, which allows GE Capital to borrow cheaply the large sums of money that it lends on to consumers and commercial customers… [my emphasis]
Konczal summarizes the business model that Obama tapped, through Immelt, to build American jobs and competitiveness this way:
GE has been at the forefront of blurring a “financial services”-centric model of business onto the remains of a hollowed out manufacturing base, one kept in a minimal state just strong enough to qualify for high credit scoring.
In other words, Immelt and GE aren’t about building the jobs American needs (for graphic representation of that, see this post). Rather, they’re about transforming the fruits of American manufacturing into yet more destabilizing casino games.
And that’s what Obama picked today to lead his election-season effort to appear serious about job creation.
Sure, maybe it’ll fool the Joke Lines of the world into believing outsourcing to China is a solution to America’s job crisis. But those of us in flyover country seeing that jobs crisis up close are smarter than all that.
As I noted earlier, President Obama just named Jeff “Nut on China” Immelt to head his election season effort to appear serious about jobs in the US.
I asked for a statement from Senator Bernie Sanders–who has been critical of the way Immelt and GE received welfare in the Fed bailout–about what he thought of the appointment. He seems as skeptical as I am. Here’s what he said at an event in Vermont:
“I hope he changes his mind and focuses on rebuilding the manufacturing sector here in the United States, not in China, and in the process creates millions of good-paying jobs,” Sanders said during a visit to this once-thriving industrial community in Vermont’s Connecticut River Valley.
“For the sake of our manufacturing sector and the collapsing middle class, let’s hope that Mr. Immelt’s appointment by President Obama indicates a transformation in his thinking,” Sanders added. “It is time for GE and other large and profitable corporations to start investing in America again.”
When Google announced that Eric Schmidt was stepping down yesterday, I joked that Schmidt must be leaving to lead Obama’s campaign economy — the one he’ll use to get re-elected with. After all, Schmidt is one of the Obama’s closest CEO buddies, and he’s leaving at the same time as Jim Messina and Patrick Gaspard are leaving to take over the campaign infrastructure. The decision to close the Office of Political Affairs seems to indicate a decision to stop governing and start spinning wildly to ensure re-election. There’s no area where Obama will need to spin more wildly than with the economy, right?
Turns out, I wasn’t far off.
What else can you conclude from the news that Obama is replacing his President’s Economic Recovery Advisory Board, led by Paul Volcker, with a President’s Council on Jobs and Competitiveness, led by General Electric CEO Jeff “Nut on China” Immelt?
President Obama has asked me to chair his new President’s Council on Jobs and Competitiveness. I have served for the past two years on the President’s Economic Recovery Advisory Board, and I look forward to leading the next phase of this effort as we transition from recovery to long-term growth. The president and I are committed to a candid and full dialogue among business, labor and government to help ensure that the United States has the most competitive and innovative economy in the world.
Aside from the tired DC trick of renaming the Council with the latest buzzwords — jobs and competitiveness — there’s all the things GE has done under Immelt that make the U.S. less competitive. I noted the other day that GE had signed a big deal with China that will involve us sharing our jet technology with China, which will ultimately help China compete with both GE and — China has said explicitly — Boeing. Then there’s the fact that, even as Immelt has been calling for manufacturing in the U.S., his company has been shutting U.S. plants to move the work to China.
While Immelt was calling for manufacturing to stay in the U.S., his company was at the same time shipping manufacturing jobs overseas by canceling an order with an American-based wind turbine maker, ATI Casting Service in LaPorte, Ind., so that GE could instead buy the parts from a factory in China.
Recently, ATI made $30 million worth of investments to buy, convert, and modernize a shuttered factory in economically ravaged Michigan so the company could provide more parts to GE as the green economy expands with federal stimulus funding. But a Chinese firm underbid ATI, and the factory faced having to lay off 302 union workers and shutter the plant.
In an aggressive bid to keep the factory open, ATI offered to match the price of the Chinese producers. GE once again said they would prefer to buy from China. The ATI plant is now closed, the jobs gone.
Then there is Immelt’s call for Free — not Fair — Trade in his op-ed announcing the Kabuki Council.
Free trade: America cannot expand its manufacturing base without greatly increasing the volume of goods it sells overseas. That is why I applaud the free-trade agreement recently concluded between the United States and South Korea, which will eliminate barriers to U.S. exports and support export-oriented jobs. We should seek to conclude trade and investment agreements with other fast-growing markets and modernize our systems for export finance and trade control. Those who advocate increasing domestic manufacturing jobs by erecting trade barriers have it exactly wrong.
And then, finally, there’s the little detail that GE managed, alone of “manufacturing companies” in the U.S., to turn itself into a Too Big To Fail overleveraged finance company in need of a $16 billion bailout from the government (as has happened with all the TBTF finance companies, bailouts have made GE’s financing business profitable again).
In short, no matter how many times Immelt gets up on a podium or in an op-ed and feigns an interest in American jobs, his actions make him the poster child for everything wrong with the U.S. economy right now.
And that’s what Obama is rolling out, as he moves into campaign mode, to convince Americans he’s going to do a damn thing about jobs.
Remember this? Remember when Bernie Sanders used a chunk of his FiliBernie to note that GE CEO Jeff Immelt, whose company benefited from $16 billion in welfare from the federal government, was a big fan of outsourcing to China?
Gee! When GE had, a couple of years ago, some really difficult economic times, they needed $16 billion to bail them out, I didn’t hear Mr. Immelt going to China, China, China, China, China. I didn’t hear that. I heard Mr. Immelt going to the taxpayers of the United States for his welfare check. So I say to Mr. Immelt, and I say to all these CEOs that have been so quick to run to China, that maybe it’s time to start reinvesting in the United States of the America.
Well, that “Nut on China,” Immelt, will take the opportunity of Hu Jintao’s visit to the US this week to sign a deal that will share GE’s jet technology with a Chinese partner hoping to compete with Boeing and Airbus.
G.E., in the partnership with a state-owned Chinese company, will be sharing its most sophisticated airplane electronics, including some of the same technology used in Boeing’s new state-of-the-art 787 Dreamliner.
For G.E., the pact is a chance to build upon an already well-established business in China, where the company has booming sales of jet engines, mainly to Chinese airlines that are now buying Boeing and Airbus planes. But doing business in China often requires Western multinationals like G.E. to share technology and trade secrets that might eventually enable Chinese companies to beat them at their own game — by making the same products cheaper, if not better.
The other risk is that Western technologies could help China in its quest to play catch-up in military aviation — a concern underscored last week when the Chinese military demonstrated a prototype of its version of the Pentagon’s stealth fighter, even though the plane could be a decade away from production.
The first customer for the G.E. joint venture will be the Chinese company building a new airliner, the C919, that is meant to be China’s first entry in competition with Boeing and Airbus.
Now, I’m not surprised about this–this is what all companies hoping to do business in China do. In fact, GM is surely sharing technology with its Chinese partner at the same rates it was before it got an even bigger bailout from the federal government.
This is just the next phase of it, the next higher level of technology we give away to China, soon to be followed by our jobs.
You’d think we could have gotten more in exchange for that $16 billion we gave GE.