What Happened to Anti-Trust Law?

What Happened to Anti-Trust Law?
By: Rene Velez Mar. 18th, 2009

A closer look at the shear size of a company such as AIG and the impact on our national economy and its far reaching implications to our global economy make me wonder why congress would allow a company to get so big. By any account it is a monster that is feared by congress, the Fed and our secretary of the treasury. As I recall during my education in finance and accounting I do recall some laws that seem to imply limits to large corporations that had monopolies. It was not too long ago that ma-bell was broken up, Office Depot was not allowed to merge with Staples and Microsoft was charged with operating a monopoly. As it turns out no one is truly is looking out for the national economy in allowing AIG to become the apocalyptic, and financial nemesis that it has become. The Sherman Anti-Trust Act together with the Clayton Act do not seem to protect us from the sheer size and financial influence a large corporation or conglomerate can exert in a free market. Yet it’s devastating effects are upon us all as is evident in the historical bailout of AIG.

Sherman Anti-Trust and Clayton:

The following is an excerpt from WIKIPEDIA on Mar. 18th, 2009 and speaks to address the intention of these two well known laws.
In 1879, C. T. Dodd, an attorney for the Standard Oil Company of Ohio, devised a new type of trust agreement to overcome Ohio state prohibitions against corporations owning stock in other corporations. A trust is a centuries old form of a contract whereby one party entrusts their property to a second party. The property is then used to benefit the first party. In a corporate trust, the various corporations assign their stock to a board of trustees. The trust then issues trust certificates to the stockholders. They receive the financial benefits, while the board of trustees maintain operational control. By consolidating control of most companies in an industry under one controlling board, the industry is essentially monopolized.[7]
Around the world, what U.S. lawmakers and attorneys call "Antitrust" is more commonly known as "competition law." The purpose of the act was to oppose the combination of entities that could potentially harm competition, such as monopolies or cartels. Its reference to trusts today is anachronism. At the time of its passage, the trust was synonymous with monopolistic practice, because the trust was a popular way for monopolists to hold their businesses, and a way for cartel participants to create enforceable agreements.[8].
The Sherman Act was not specifically intended to prevent the dominance of an industry by a specific company, despite misconceptions to the contrary. According to Senator George Hoar, an author of the bill, any company that "got the whole business because nobody could do it as well as he could" would not be in violation of the act. The law attempts to prevent the artificial raising of prices by restriction of trade or supply.[9] In other words, innocent monopoly, or monopoly achieved solely by merit, is perfectly legal, but acts by a monopolist to artificially preserve his status, or nefarious dealings to create a monopoly, are not.

Our Regulatory Framework is Outdated

The current economic crisis clearly is reflecting that our regulatory agencies are far behind and in many cases incapable of dealing with the economic structure of today’s large corporations. We can now see with certainty that we have not engineered the controls and safeguards to manage business in the 21st century. I continue to think free markets do work, but not without due caution and controls to prevent catastrophic failures that bring down a national economy. Scholars will look back at this moment in history and will learn much by our failures. Systemic control are in fact very important, the real question is how do you do that and not stifle innovation, creativity and the growth of an economy. We must find a balance in how to do this and we have to do it quickly. A completely unregulated economic engine is like building a race car with no brakes simply because you believe that the purpose of a race car is to go fast and nothing should slow it down. Any aeronautical engineer would tell you, you need to have landing gear on an airplane even though they serve no purpose in flight. Why then would anyone argue that controls and safeguards stifle economic growth. It is amazing to ponder on how creative and innovative mankind is. This is true in science as it is in business. However, we have a propensity to derail ourselves. Our sense of curiosity ability to innovate and experiment and to exert our will outside of the envelope is a dangerous thing. Systems, controls and regulation should not be of the nature to hinder our progression but rather to make us stop and think of the consequences of our actions.

In this economic crisis we allowed our economy to venture onto the edge of a cliff and we are in effect balancing on the center of gravity.


The Implications to Global Economics

International trade and commerce has served this country well. It has also created stability and economic opportunity for all who trade with us. International trade and commerce is bringing many emerging markets to the forefront of world politics and economic opportunity. Look at China, India and Brazil. This venture is feeding the hungry, clothing the poor, educating the masses and in sum improving the human condition for many countries.

As our global economy continues to evolve we should be very concerned about how we go about creating interdependent relationships on the global level. We must understand the repercussions of failed business, failed economies and how debt and other financial structures work and are supported. Why do I mention this? We need to be extremely fearful of what could precipitate from forming relationships with countries who’s banking system, economic system and monetary policy is severely flawed. Where a business failure in one country is marginalized, for the most part, to its boundaries, in an entire country economic failure, to the extent of what we face today in the U.S. could mean a holocaust, political unrest and even war.

Just as the U.S. has tried to be a responsible country in creating peace and avoiding conflict that saves lives we now have the obligation to make sure that no country could possibly fail economically to the point where all chaos breaks out and we are unprepared to address these issues. We must be preemptive.

Surely, we have only a limited control as to what we can have sovereign countries do, but we must be risk averse. The propensity and desire of other countries to emulate western economic power on a framework that is not suited to support that activity will in fact have profound effects throughout the world. Economic and political instability are key ingredients to war and political, cultural and religious ideology that is contrary to everyone’s desire for world peace and democracy. That being said I doubt there are many in congress (if any) that have a full grasp of the consequences and what are the drivers to these events. Economics is tricky and complicated to master.


Trends to the Future

There is much talk in the accounting profession to start to merge the standards of accounting into an international standard. In effect we will abandon historical cost accounting and adopt fair market value accounting. Many a seasoned accountant thinks this is a huge mistake. Adding fuel to the fire is the continued interest of merging foreign stock exchanges and in forming business combinations of capital markets in order to support multinational business activity. As emerging markets continue to expand and grow we will in effect need access to capital from around the world. Although, I feel that diversification of investment is a good idea, we must be extremely cautious of the inequities, abuses and the confusion of information that will be inherent in the complications of different economic climates, political risks, accounting rules and methods, regulatory systems controls and laws, competitive laws and a host of other issues of a modern day economy.

Does our president, our congress, our regulatory agencies have the ability to judge and limit the associated risks? The answer is a resounding NO!. No one is. No one company has their hands completely around this. In fact many are venturing into uncharted waters and learning as they go along. Many are making history in their own right and even ignoring the recommendations from experts in various disciplines. Why? Because of greed. , because of need.

The desire of countries, companies and governments to seize opportunity for greater wealth and for the maintenance of market share could well be the undoing of what greater good democracy and capitalism may offer. As the greatest capitalist country in the world we need to be cognizant that wherever we have influence, we will be blamed for the downfalls and potentially devastating effects not only of economic cycles but of failures of sovereign economies. History already shows us the Unites States has taken blame for many well intentioned efforts to help governments, and its people.

With the failure of so many large businesses in this economic downturn, do we as a nation abdicate our foreign policy and national responsibility to large multinational corporations? We need to start realizing that each U.S. company that ventures to a foreign country to do business is in effect an economic ambassador and by shear economic might and political influence is at the forefront of foreign policy. Congress, regulatory agencies and the like come along for the ride after the fact.

Congress Is Failing America!

Congress is Failing America!
By: Rene Velez Mar. 17, 2009

In some of my commentaries I have often cited the majority of America’s congressmen are lawyers by profession. Although I have been known from time to time to make folly of how lawyers have a funny way of making simple matters a complicated bureaucracy, I could not of imagined that they were as foolish as they are collectively. At minimum I would have thought there was a sense of safety in numbers, because someone eventually comes out and says……”wait a minute this doesn’t seem right!. Our congress has been fed the hook line and sinker, they have been hood winked, hog tied, extorted, deceived, lied to and they don’t even know it. These are the people we have in a position of power and trust of our money and government. I am in disbelief and if it were not for the seriousness of the matter I would think it’s a comedy of absolute stupidity. I need to add, I am not alone on this! I think what I say here most of America is beginning to understand.

The World As It Is For You and Me

If you or I (the typical average American) is having a hard time and we find ourselves having to cover for business mistakes, losses and a poor economy, we could try to find investors and or banks to give us financial assistance. If we were in the position of AIG, if somehow we could possibly convince a bank to loan us $165 billion dollars, there would not be a bank or investor in the country worth their weight in salt, that would give us money unless there was a contract drawn up. (Of course this is very hypothetical as no one would lend us or invest in a $165 billion dollar failure) But, for this illustration the terms and conditions would say things like, no excessive compensation to owners and officers, no distributions unless approved by lender, collateral of all personal holdings and even those of your children would be at risk, a guarantor would be required, like your rich grandfather or someone who had some financial weight. The stipulations for this kind of highly speculative loan would be long and extracting of the company and its owners. You probably could not buy a company lunch unless the lender approved it. Not only is this typical for lenders to do, but regulatory agencies would require prudent legal documents for such a loan and just about any newly minted attorney would tell you….you should have that agreement in writing, recorded and all the like legal procedures complied with. The truth is we would not likely get this type of loan unless we were holding some very special wild card that would amount to a miracle card. Something like an anti-aging drug, or the cure to all known diseases. Not even a cure for cancer would warrant a $165 billion dollar nailout. Oops, bailout.

So the question is , why didn’t congress create a better loan term document for AIG? Was there perhaps a shortage of lawyers? Did no one realize that there was an expectation of performance, repayment, control and transparency and accountability. These concepts of negotiated terms are so basic to a financial transaction that if congress has not properly protected US taxpayers, I dare say it is malpractice.

The Keys to The US Treasury

I know there is some document out there with terms and all, but it would seem that whatever the legal jargon on that document is the net effect appears to be, congress gave AIG the keys to the US Treasury and has told AIG, “write yourself a check and we will square it out later.” When I was a young boy visiting my relatives in Puerto Rico, I came to the realization, the small town I lived in was indeed very small and I was by no means living in Brooklyn. On a given day my cousins and some friends decided to go on a camping adventure through the cane fields and farms in the local area. So we gathered all the equipment and I was assigned the task of going to the local “Bodega” (a small country store) to secure basic provisions. This amounted to bread, butter some hard salami and other goodies. The only issue is I had no money. My cousin said, “don’t worry just go in there get the stuff and Miguel will put it on our list.” I didn’t know who Miguel was but asked, hey how does Miguel know who I am. My cousin replied, “ you are grandpas’ grandson from New York, everybody knows who you are. Indeed people I never met and that were not related to me knew who I was in town, knew I was from New York, thought very highly of my New York lifestyle, and even called me by my first name. Surely, coming from New York that was novel but truly I never gave it too much thought. I was not brought up to think I was more special than anyone although in retrospect, I was privileged among even my immediate relatives. I went as instructed to the Bodega, was kindly greeted at the door ordered my supplies and when I was finished, I was never asked to pay. Miguel simply said to say hello to my Dad for him and wrote down our purchase in a “school composition book” and told me to have a great day! That was they way things were done in Puerto Rico in that day and age and in many Latin American countries round the world. Today, I realize I was given that honor because I was wealthy compared to many in the town. I was also very well known because of my grandfather, who was well liked and respected in the community. I was indeed privileged to have doors opened to me by people who had much less than I. Who respected accomplishments by my grandfather and father and therefore looked kindly to their children. These people knew my grandfather would not abuse his credit or repayment obligation even though my grandfather never authorized or called ahead to say, let the kids put it on my tab. The only way that happens is when you have a tight community.

Such is the case in Washington. AIG has close ties to Washington and their power and influence must have been strong enough to bypass common sense and the ordinary course of how things typically get done so that congress simply wrote down $165 billion in loans in their congressional “school composition book”. Of course it doesn’t hurt when President Bush, the Federal Reserve Chairman Bernanke and Treasury Secretary Paulson have committed themselves and the nation with the political language of “Financial Crisis”!. All, on the eve of the presidential elections. That’s the grease that makes things move quickly in D.C.

Bankruptcy By Default

When I read that congress can not do anything, about executive bonuses paid out of taxpayer bailout funds, because those agreements were already in place and that contracts can not be voided I say; “Non Sense!”. That’s the most ridiculous thing I have ever heard. Let’s have a trial by jury and see if you can find a diversified group of Americans that will agree to not voiding those contracts. Why didn’t congress force AIG to file bankruptcy in order to get the bailout? Why didn’t congress invoke the laws of bankruptcy as a condition to a government bailout? Was there not a single lawyer qualified in congress the day AIG was given the keys to the United Sates Treasury? Let’s face it this is bankruptcy by default. When the only alternative is for you to seek a government bailout with taxpayer money the jig is up. You are by all accounts more than bankrupt, you are indebted to taxpayers and the United States of America. In the case of bankruptcy, the trustee has enormous powers. They can force the return of money paid out by a company to anyone or any company. Enforce contracts and make others void. They can dispose of assets, abandon them etc. They have all kinds of tools in their arsenal of laws to fix things. Of course somehow AIG did not follow what you or I would have to do. They just went to their rich “Uncle Sam” and asked them for help. After all, they are a credible, pilar of the financial community and a model business failure to boot. You know that’s worth about $165 billion dollars. When you’re failure is that big you get special dispensation in America. The fact is they declared bankruptcy and in deed filed a petition to the United Stated Government and its taxpayers and congress does have the means to void contracts they deem unjust. Salary or not. Now can we find a decent lawyer in our congress to fight for the American public? Anyone? Let’s not forget the credibility of congress and this great nation is at stake!


True Concern for our Future

I have but the utmost belief that this country will regain better days, but it is going to cost this country dearly. In addition to regaining ground we must do a multitude of things correctly simultaneously. Therein lies my fears. Our track record in allowing this crisis to happen and to respond to it leaves me and many Americans to be gravely concerned about our nation’s ability to handle these types of crisis without further sustained injury to the economic lives of our citizens. Our democracy as great as it is, is not used to or prepared for this modus operandi. I do not believe any members of congress have ever faced this type of crisis management and many are disconnected to the realities of the vast majority of our population. Many of our citizens will continue to get hurt in this arena and there is no safety net in place. The lacking leadership in this country and many of the economic inequities that has been coming forward for the past 30 years seem to be quickly coming to a head as the economy continues to contract. I know this seems alarmist. It really is not my style.

Plan for Action / Plan For Change

Congress needs to create a special committee to study analyze and become a special economic and crisis management team to make sure taxpayer money, the presidents economic recovery plan and a multitude of national priorities are carried out efficiently and effectively. The concept of a House and Senate bi-partisan legislative process conducting business as usual simply is not enough or efficient. Like many business ventures streamlining and fast tracking plans of action need to be implemented. In some ways the logistics of warfare could be put to good use in the current economic climate and in carrying out national initiatives. I realize as a democracy we deplore this concept. As much as I hate to admit it, we could learn from how the Chinese have managed to combine political ideology with capitalism.

I would not think of changing our form of government. My comments are geared towards changing how we do things not why we do things. We have to change how we do things in order to arrive at a different outcome. I don’t think in our country’s case it is fair to look back at history and apply exactly the same tactics that have worked in the past. The world, our position in it and the pace at which our global economies react are much different today than they were in 1933 or 1974. We need to recognize this and adapt. Congress and our president needs to somehow recognize that we need to change the business of politics if we are to be able to sustain a competitive edge. If we are to survive as a leader of nations.

The Faith in Your Politcs

The Faith In Your Politics
By: Rene Velez March 9th, 2009


It seems to me that it has come to the point when we have to talk politics and faith, all in one breath. Not that this should be so surprising when, you consider that the United States, the great nation that it is, was formed over two hundred years ago in large part by many seeking religious freedom, among other things. As part of this pursuit, every political, legal and business device was employed as a means to this end. The end did come and this nation became a nation where religious tolerance became not only a way of life but also a way of politics. Our constitution protects individual’s religious beliefs not only by means of common law but also as part of our constitution.

Having said that when did it become popular or a matter of proper form that no politician should utter a word as to their convictions of faith? Somehow from the beginning of when this country was formed through the late sixties it was a safer bet to stay silent, or at least not to stir the wine, by mixing politics and religion. I think somewhere their was an unwritten rule that said; be sterile if you want to get the vote of the masses. Yet, within I would say, (I am guessing) the last 30 years politics and religion seems to be at the forefront of many a campaign. What goes on here?

I suppose that part of the issue is that religious organizations have a great deal of political clout in terms of money and votes. In addition I believe that, the poor judgments and outcomes of corporate America together with the sins of politics (no punt intended) looks towards the values and morals of faith to lend a guiding hand towards, ethics and values. Some call this the right and wrong in terms of values or the left or right in terms of politics.

God Is With You

As an observer, I read stories in the press regarding conflicts about some peoples religious freedoms over the freedoms of another. For example; should a menorah be placed at a community center if the community is mostly Christian? Is this offensive? Or should a Christmas tree and Santa Clause be erected in a ‘round about’, in front of a Jewish temple? Or perhaps , most perplexing should a sculpture of the ten commandments be in display in a county courthouse? The latter has a peculiar twist in that our legal system tends to borrow a great deal from religion as a whole. We swear in witnesses on a bible. Our basic law of torts is derived in part by the very same commandments. We utter the words “God Bless America” in full glory and most people do not raise an eyebrow. The President of the United States is sworn in with is right hand on a bible. Our money says “In God We Trust”. Curiously, now that our banking system is in intensive care, we trust less in our banks, we are cautious with anything congress does and we despise corporate America for its evil ways. Right about now, God and the moral values of religion have my attention! God help my 401K, and deliver us from all evils!

The fact of the matter is that religion is in all forms of government and politics. We never really managed to separate church and state. Technically, churches and other religious organizations are not required to file or register for tax exempt status. However, they are obligated to follow the same tax laws that apply to other tax exempt organizations. Something the IRS is now interested in since the mega churches seemed to grow overnight into large financial dynasties. Some of what they do is in fact taxable. Or from a political point of view, or twist, their vast numbers and economic and political might make them more visible.

A Calling for a Moral Compass

Strangely enough religion is in politics today and politicians are less fearful although very calculated in how they embrace religion and politics together. Why? I think America, if not the world, has a calling for values and morals in how our country is governed and how equitable representation is made possible by political candidates. The desire for a moral compass is well founded and I suspect that it will endure for some time to come. I fear though that any strict adherence or association with any religious denomination is flawed at best. In the end the tensions, conflicts and extreme positions between the idealism of any religion is a greater liability than it is a resource. I suspect that in the end voters will get tired of ‘converted politicians’ and some will burn in hell for their choices. However, this speaks volumes for the dire need for straight non-biased ethics of elected officials. In the end people don’t care what religion the political leader favors, or sympathizes, only that they carry out there roles in a capable and well informed manner. Our political moral compass will not work solely through religion, it would work better through sterile intellect and through transparency and accountability, tempered with the sense of humanity of and for the voting public. What people want are smart politicians that are knowledgeable and well rounded, who act in the furtherance of our society and not on their political futures or for the interests of big money. If my suspicions are correct politics in this country will have to change and nothing is more of a catalyst to change than a bad economy and proof positive of the shortcomings of a congress who in large part could well be proven as incapable.

Ethics and Values as Part of College Education

I have in the past made mention of the urgent need to teach ethics and values as part of business schools. As a parent raising two kids, I have often thought that ethics, values and morals should come from the home. But in an era when a new generation of have-nots, that are coming from less than educated and well rounded social circles, are in fact meeting the challenge to work their way towards a college education, we must face the fact that many have not known the best of ethics and morals from their upbringing. I don’t mean this to be a criticism in any way. What I am trying to say is that we must embrace the disadvantaged, who strive to better themselves by means of an education, and have not been privy to the models of moral and ethical values to acquire those skills. If these models are not part of their upbringing then they should be, as part of their continued education. I would also like to mention, what I say here is not limited to the disadvantaged. My personal experience in knowing many a wealthy and advantaged contemporaries, who have it all, yet lack the very same models of ethics and morals. In some cases these members of our society could be worse. Why? Because no one typically denies them access and because they grow up with a mentality of entitlement through association of money and influence. In other words, they are spoiled brats. Yes, the lack of ethics and morals is an equal opportunity vise. People without ethics and morals have no social class. (how appropriate in that last sentence has two meanings, (a) They have no class, (b) and, there is no difference between social classes).

We are in fact a divided nation on Sunday! We deny children the right to public prayer at our schools and yet we expect them to have proper values and morals. This is not to say I don’t see the point of argument related to religious freedom in schools. I wouldn’t know how to draw those boundaries of rights. But, I suspect it would look like a cross between Picasso cubism and the those melted images on a Salvadore Dali. (I really don’t know how anyone can draw up denominational boundaries and be faire) I think the best way to teach ethics and morals to our children and in our colleges and universities is simply to teach it in a sterile and non denominational context. There is a right and a wrong. This is basic. You don’t need religion for that. Where it gets complex, we need to learn to analyze. In the end we will all make mistakes, but if we must, then let’s make the mistake that benefits society as a whole and hurts society the least. There is a way to teach this, although I realize it is not easy, and somewhat philosophical.

I leave you with this one sentence which I remember and try to follow in my personal and professional life. It is in fact, I think, an admission that life is not perfect and that we often face difficult choices and that often ethics and morals are not popular, but try we must even when logic fails us and the odds are not in our favor. :

“The most difficult thing to do in life, is to do the right thing!, Even when no one expects us to do the right thing and when no one is doing the right thing, and when no one wants to do the right thing for you.”

God Bless You!, Have Faith.