From corporation-watch at countercorp.org Tue Apr 20 03:18:08 2010 From: corporation-watch at countercorp.org (Corporation Watch) Date: Tue, 20 Apr 2010 00:18:08 -0700 Subject: [Corp. Watch] Yet another Wal-Mart crime: Falsely labeled 'organics' Message-ID: <0BBAD5C0-E76F-401D-8658-ED7FF9B5600D@countercorp.org> Wal-Mart in Trouble Again Over Organic Marketing Practices Home pesticide manufacturer misrepresenting products as certified ?organic? (Cornucopia News, March 30) -- The Cornucopia Institute has filed legal complaints with the USDA alleging that Wal-Mart and North Carolina-based HOMS are violating the USDA organic standards by using conventional agricultural oils, and other ingredients, in pest control products that bear the word "organic" and the green ?USDA organic? seal. The pest control products in question are marketed under the Bio Block label. A debate has been raging for years whether non-food products, such as pet food and personal care products, are included in the strict regulations that determine the use of the word ?organic? on packaging. Most of those products at least had organic ingredients involved in their manufacture, whereas Bio Block pest control products contain not a single organically produced ingredient. Moreover, there has never been any question that the green ?USDA Organic? seal can be used only by producers that follow the rigorous standards mandated by Congress and administered by the USDA?s National Organic Program. In addition to using the word "organic" prominently on its label, HOMS uses the USDA seal on at least one of its Bio Block products without specifying that organic ingredients were used, and without disclosing the identity of the organic certifying agent, which is also required by federal organic regulations. ?This amounts to illegally usurping the value of the 'organic' label,? says Mark Kastel, senior farm policy analyst at the Cornucopia Institute. ?The USDA organic seal is meaningful to consumers, and should not be used frivolously. [Doing so] places ethical industry participants at a competitive disadvantage.? The Bio Block products that appear to violate the organic standards were discovered on the shelves of Wal-Mart stores, resurfacing concerns long held by the Cornucopia Institute and others in the organic industry that the giant corporation has failed to take the organic standards seriously. For years, Cornucopia has criticized Wal-Mart for inventing a ?new? [form of] organic -- food from corporate agribusiness, factory farms, and cheap Chinese imports of questionable authenticity. Wal-Mart brand organic milk, for example, comes from Aurora Dairy in Boulder, Colorado. In 2007, federal investigators found that Aurora had ?willfully? violated 14 tenets of the organic standards, including confining their cattle to feedlots, instead of grazing them, and bringing thousands of illegal conventional cows into their organic operation. Inside Wal-Mart stores, Cornucopia researchers at the time discovered that the company was mislabeling conventional foods as organic, including yogurt, sugar, rice milk, soy milk and produce. Cornucopia notified Wal-Mart?s CEO of the problems with in-store signage, but the corporation ignored these concerns until officials of the Wisconsin Department of Agriculture, Trade and Consumer Protection and the USDA took enforcement actions against Wal-Mart in 2007. ?These instances of mislabeling are emblematic of the company?s lack of investment in knowledgeable staff, its inexperience, and its questionable commitment to organics,? says Kastel. While Wal-Mart vowed to solve its false and misleading in-store signage problems, the Cornucopia Institute says it has failed to ensure that its store brand organic milk, and some of its other product offerings, come from ethical family farmer following the spirit and letter of the organic law. Now the organic industry watchdog alleges Wal-Mart is once again marketing organic products fraudulently. Cornucopia contends that it is not only up to farmers, food processors, and certifiers to ensure that foods labeled ?organic? are truly organic, but that retailers play an important role as well. Retailers can and do invest in the resources necessary to ensure organic integrity in their stores. When the Wedge, a member-owned cooperative grocer in Minneapolis, was recently approached by a HOMS distributor, one of their buyers questioned the legality of Bio Block?s labels. The store, one of the first certified organic retailers in the country, has a full-time organic certification and sustainability coordinator. ?We take the confidence our members and shoppers have in the Wedge very seriously,? that coordinator, Susan Stewart, said. ?Our job is to protect the integrity of the organic label and the authenticity of the food and products we offer in our store.? The collaboration between farmers, organic processors, and retailers -- in partnership with the USDA -- makes the organic label the gold standard in helping consumers choose safe and ethically produced food. ?As an organic industry watchdog, we make sure that stakeholders in the organic community like the Wedge are not placed at a competitive disadvantage by outfits like Wal-Mart that are attempting to profiteer from the trust consumers have in the organic label,? stated Cornucopia?s Kastel. From corporation-watch at countercorp.org Tue Apr 20 04:04:41 2010 From: corporation-watch at countercorp.org (Corporation Watch) Date: Tue, 20 Apr 2010 01:04:41 -0700 Subject: [Corp. Watch] Ponzinomics: "Fraud wasn't a problem -- it was the business plan" Message-ID: Was Bernie Madoff the Exception or the Rule? by Robert Borosage (Huffington Post, April 14) -- Were the big banks all knowingly running Ponzi schemes? That's the question that arises from the stunning hearings held this week by the Senate Permanent Committee on Investigations, chaired by Senator Carl Levin, on the collapse of Washington Mutual (WaMu), the largest thrift failure in U.S. history. Faced with looking like fools or knaves, the barons of the big banks -- from Robert Rubin to Lloyd Blankfein to WaMu's Kerry Killinger -- have chosen, not surprisingly, the fool. But the WaMu hearings -- and Zach Carter's stunning running commentary on them -- suggest that while Bernie Madoff may have been the extreme, he wasn't the exception. The Levin hearings show that WaMu systematically peddled loans to people it knew could not pay them back. This wasn't an accident. Levin uncovered a WaMu internal audit that reviewed 132 loans, and found 115 involved confirmed fraud, with 80 having "unreasonable" income -- meaning the income listed on the loan was so preposterous that any reasonable person, much less a trained loan officer, would have called it into question. Yet the audit resulted in no -- zero -- changes in WaMu's lending practices. Fraud wasn't a problem; it was the business plan. As Carter summarizes: > According to the FBI, 80% of mortgage fraud is committed by the lender. We're not talking about stupid loan officers allowing borrowers to get away with something crazy that is bad for the bank. We're talking about clever loan officers pushing fraudulent documents in order to score bigger paychecks, and bank executives looking the other way so that they can keep getting big paychecks from the securitization machine. This isn't a problem unique to WaMu. This is how the U.S. mortgage system operated for half a decade. WaMu particularly pushed predatory option-ARM loans -- loans with an initial monthly payment so low that it often didn't even cover the interest on the loan. Then after a couple of years, the monthly payment explodes -- and the loan becomes unaffordable. WaMu actively trained its personnel to convince skeptical borrowers to take these loans because option-ARMS received a very high yield when packaged into securities. So WaMu's compensation schemes rewarded loan officers for the number of loans sold, not the quality of the loans. Stunningly, Levin cited internal memos showing that even loan officers under investigation for fraud were rewarded with trips to Hawaii and the Bahamas for their high production. WaMu packaged the fraudulent loans into securities and sold them to investors, or peddled the loans to investment banks that did the same. Even after WaMu's own internal audits reported that a high percentage of the loans were fraudulent, WaMu still sold them to investors. Worse, even after WaMu's own study showed that the default rates on option-ARMS were going to be staggering, WaMu rushed to peddle even more of these loans to investors on an "urgent" basis. As Carter reports, "They not only packaged existing option-ARM loans into securities, they issued as many new option-ARMs as possible, in order to score securitization profits before the market collapsed." CEO Kerry Killinger testifies that he doesn't know if it would have been appropriate to tell investors what the company knew about default rates. "I don't know what actually happened," says Killinger. As Carter summarizes, this was essentially a Ponzi scheme, similar to Madoff's: > Making truckloads of fraudulent loans can only end in disaster, but WaMu [executives weren't] really interested in the long-term picture. They were only interested in their ability to book loans for big, short-term profits. Even when those bad loans finally took the company under, it had been, in a sense, a 'success'. Its executives had already made millions. > > WaMu's [executives were] in many ways operating a simple Ponzi scheme. Their risky loans were going bad, but the company was trying to counter those inevitable losses with the short-term profits from issuing more risky loans. That's basically how Bernie Madoff's scam worked, except he wasn't using make-believe loan profits, he was using make believe stock returns. So long as the bubble keeps growing, the scam could keep moving. But when the bubble burst, there was no way to keep issuing lots of loans in an economy where home prices were plunging. > > The one divergence from the Ponzi scheme is securitization -- if WaMu could dump the bad loans off its books, then it wouldn't have to eat the inevitable losses. But that doesn't reflect well on WaMu -- it means [the executives] were deceiving and abusing investors. Why run this scheme that would lead to the ruin of the bank? Because the executives were making out like, well, like bandits. WaMu CEO Killinger was taking home $11 million to $20 million a year during the housing boom. As Carter points out, what WaMu was doing in mortgages -- originating mortgages that they knew would default, cutting them up into securities, and marketing them to investors without notice -- isn't much different than what Goldman Sachs was doing in synthetic sub-prime CDOs -- creating securities that it knew would fail in order to bet against them, while selling them to investors without notice. These guys weren't fools. They knew what they were doing. They knew that the music would stop someday, and the reckoning would come, or more likely, the Feds would step in and bail them out. (Amazingly Killinger is still outraged that WaMu wasn't bailed out rather than put out of business). But they kept dancing because they were cleaning up along the way. In the last two weeks, the Financial Crisis Inquiry Commission and the Levin hearings provide a stunning picture of the industry. The good cop, the FCIC, treats the bankers as experts, listens to their opinions, and lets them claim the role of fools: "We didn't know." "We didn't realize housing prices wouldn't always go up". " We weren't responsible." Then yesterday, the bad cop -- the Levin committee -- exposed the inner working of what Bill Black calls "control fraud," a business model based upon fraud as central to its profitable operations. It is hard to believe that WaMu or Madoff are an exception. Levin should probe every major bank engaged in the securitization of mortgages. Is it likely that their bank officers were fools -- or that they were prepared to turn their heads or hold their noses because the rewards were so great. Ignorance is their defense, not their condition. They knew what they were doing. The rest is for a prosecutor to sort out. ---------------------- Robert Borosage is co-director of the Campaign for America's Future