Paul Volcker Invests in Foreign Banks as He Lectures on U.S. Bank Reform

By Pam Martens and Russ Martens: April 27, 2015 

Paul Volcker (right) Hobnobbing at a Group of 30 Event

Paul Volcker (right) Hobnobbing at a Group of 30 Event

Last Monday, former Fed Chairman Paul Volcker held a press conference at the National Press Club to release his nonprofit’s plan for reforming U.S. bank regulation. Volcker’s plan includes elevating the Federal Reserve to even greater heights as a super regulator of a consolidated system. That’s exactly the opposite of what Congress has in mind as it holds hearings on fatal conflicts of interests between the Fed and Wall Street.

At the press conference, Volcker delivered a thoroughly discredited statement suggesting some deep-pocketed backers are putting words in his mouth. Volcker said: “The Federal Reserve is the best-equipped, the most independent and most respected financial agency of the United States government.”

Volcker’s views on financial reform must be seen against the backdrop of Volcker’s myriad conflicts and ties with the global ruling elite. His non-profit organization, The Volcker Alliance, has multiplied its income by a factor of 30 in one year. From 2012 to 2013, The Volcker Alliance went from $500,000 in contributions to over $15 million. It fails to list its donors on its public IRS 990 tax form. And then there is the matter of Volcker’s personal investments in unseemly foreign bank deals alongside global banks that are serially charged with breaking the law.

In December of last year, Simon Clark of the Wall Street Journal reported that Volcker had just completed his third investment stake in a foreign bank. Clark wrote that Volcker is well known for taming inflation in the 1980s (as Fed Chairman) but “Less well known is the 87-year-old former Fed chairman’s penchant for investing in banks around the world.”

According to Clark, since 1999, Volcker has invested in three separate foreign bank deals put together by private equity firm, Ripplewood. The most recent deal is for a stake in Latvia’s Citadele Bank. Earlier deals include the 1999 takeover of the Long-Term Credit Bank of Japan (now known as Shinsei Bank) and the 2006 investment in Egypt’s Commercial International Bank.

The Latvia deal looks like an attempt by Ripplewood to replay the maneuver it perfected in the Shinsei Bank deal. Both Citadele Bank and Shinsei Bank were bailed out by taxpayers before Ripplewood came up with its offers.

The Shinsei Bank deal has failed to pass the smell test among the myriad book authors and business journalists that have written about how the deal was conducted.

In The Making of Global Capitalism: The Political Economy Of American Empire, Sam Gindin and Leo Panitch describe the lead up to the purchase of Shinsei Bank, at the time known as LTCB for Long-Term Credit Bank. The authors write:

“…Paul Volcker was recruited as an advisor to Ripplewood, the obscure American firm that was interested in buying the LTCB. He flew over to meet with Kichi Miyazawa, Japan’s Finance Minister, whom he had first come to know in the ‘intimate settings’ of the old G10 meetings, where they had built up a reserve of mutual trust.”

Goldman Sachs was selected by the government of Japan to represent its side since it had nationalized the bank when it failed in October of 1998. Interestingly, paring up with Ripplewood was Chris Flowers who had only recently left Goldman Sachs as a partner heavily engaged in mergers and acquisitions among financial institutions.

Reports from the myriad books and reports in the Wall Street Journal, Los Angeles Times and New York Times, each divulging a few more names of those entities that invested alongside Paul Volcker in the Shinsei deal, suggests a coziness not heretofore understood between Volcker and the Wall Street elite. Investors included David Rockefeller, Citigroup, UBS, Deutsche Bank, Grupo Santander, GE Capital, Mellon Bank, ABNAmro, Gap’s controlling Fisher family, and AIG.

The investors made billions of dollars in profits when the bank went public in 2004 and a secondary offering in 2005. Japanese taxpayers, meanwhile, were forced under the deal to take back loans that turned sour over the next three years on top of the tens of billions of dollars they had already poured into the bank in the nationalization.

Some of those investors have a sordid record here in the U.S. Citigroup and AIG became insolvent during the 2008 financial crisis and were bailed out with massive infusions from taxpayers. Both Citigroup and Deutsche Bank have been charged by various regulators with serial violations of banking and/or securities laws. Both Citigroup and Deutsche Bank would like nothing better than to thwart any serious financial reform. Indeed, Citigroup effectively legislated its own repeal of a core part of the Dodd-Frank overhaul legislation late last year.

On January 3, 2010, the The Scotsman newspaper published a revealing look at the Shinsei deal and Volcker’s involvement. At that time, Volcker was ensconced as Obama’s Wall Street reform guru, serving as the Chairman of the President’s Economic Recovery Advisory Board from 2009 to 2011. The Scotsman found these troubling conflicts:

“After months of fighting talk, US President Barack Obama unveiled his plan to tame America’s banks by telling them they should no longer own, invest in or sponsor hedge or private-equity funds, nor trade on their own account.

“Towering behind him was its author, Paul Volcker, a former chairman of the Federal Reserve…It is difficult, however, to reconcile his avowed wariness of private equity and proprietary trading with his nine years as senior adviser to Japan’s Shinsei Bank, from 2000-09…

“This private equity stake in Shinsei has aroused widespread suspicions of a conflict of interest. Billionaire Christopher Flowers, a former Goldman Sachs partner before starting his own firm, sits on Shinsei’s board, and has admitted the bank and his fund have been involved together in many deals. One such deal was the purchase of 24.9 per cent of German property lender Hypo Real Estate in June 2008… Hypo was later nationalised by the German government…

“In Japan, controversy has dogged Shinsei ever since Flowers and other investors bought the failed Long-Term Credit Bank of Japan (LTCB) from the government…

“Flowers and his partners then reaped billions of dollars in profits by selling shares in the bank when Shinsei finally went public. ‘This may be the most profitable private-equity deal of all time,’ David Rubinstein, co-founder of the Carlyle private equity group was quoted as saying in 2004 after Shinsei’s initial public offering.

“But the deal left the Japanese public furious. According to Kenichi Ohmae, a former chairman of McKinsey in Tokyo, taxpayers were ‘taken to the cleaners’…”

The article notes further that shortly after the Shinsei Bank was taken over by the U.S. investors, it invested about $3.7 billion in corporate bonds, including those of WorldCom. Four years later, the value of the corporate bond portfolio had shrunk to $900 million. This was the very kind of high risk proprietary trading the Volcker Rule was meant to guard against. Volcker sat as a Senior Adviser to the Shinsei Bank as this and other high risk gambles occurred.

Volcker is also affiliated with organizations perceived by the public to represent the interests of the global elite. Volcker serves on the Executive Committee of the Trilateral Commission, founded by David Rockefeller. He is Chairman Emeritus of the Group of 30, a body of international bankers and central bankers. Volcker also serves as a Global Counselor at the Conference Board, a group representing 1200 businesses around the globe, among numerous other affiliations.

Eric Holder Exits Without Bringing Libor or Foreign Exchange Charges Against Citigroup or JPMorgan

By Pam Martens and Russ Martens: April 24, 2015

U.S. Attorney General Eric Holder Testifying on High Frequency Trading Before the House Appropriations Committee on April 4, 2014

U.S. Attorney General Eric Holder Testifying on High Frequency Trading Before the House Appropriations Committee on April 4, 2014

Americans have been reading about Citigroup’s and JPMorgan’s roles in rigging the Libor interest rate benchmark for so many years that it’s a sure bet most folks think the U.S. Department of Justice has already fined and settled charges against these two banks. The truth of the matter is that despite seven years of probing these two banks’ involvement, the U.S. Justice Department has yet to lay one hand on either Citigroup or JPMorgan for their role in the Libor cartel.

Libor is an interest rate benchmark used to set rates for trillions of dollars in consumer loans, swaps and interest rate contracts around the world. Banks having inside information on where Libor rates will set can make massive profits.

The appearance of a home court advantage for these two U.S. banks comes in the wake of a guilty plea extracted yesterday by the U.S. Justice Department against a subsidiary of the German bank, Deutsche Bank. The bank itself also agreed to a 3-year deferred prosecution agreement with the Justice Department for its role in manipulating Libor and participating in a price-fixing conspiracy by rigging Yen Libor with other banks. Deutsche Bank and its subsidiary will pay $775 million in criminal penalties to the Justice Department. Total penalties levied on Deutsche Bank yesterday by U.S. and U.K. regulators was $2.5 billion.

Back in 2012, Stephen Gandel reported for Fortune Magazine on academic studies suggesting that Citigroup was the biggest Libor cheater of all. According to documents released in 2012, a trader named Tom Hayes, who worked at Citigroup from December 2009 through September 2010 after leaving UBS, was deeply involved in the Libor rigging. In a Bloomberg terminal electronic chat on May 12, 2010, while employed at Citigroup, Hayes stated to a trader at his former firm, UBS: “libors are going down tonight.” The UBS trader asked: “why you think so?” Hayes responded: “because i am going to put some pressure on people.”

The Canadian Competition Bureau produced an affidavit as far back as 2011 implicating JPMorgan and Citigroup. According to the prosecutors’ affidavit, a trader “had communications with two IRD [interest rate derivatives] traders at JPMorgan regarding its Yen Libor submissions.  Trader A communicated his trading positions, his desire for a certain movement in Yen Libor and gave instructions for them to get JPMorgan to make Yen Libor submissions consistent with his wishes.  Trader A also asked if the IRD traders at JPMorgan required certain Yen Libor submissions to aid their trading positions.  The JPMorgan IRD traders acknowledged these requests and said they would act on them.  On another occasion one of the JPMorgan IRD traders asked Trader A for a certain Yen Libor submission, which Trader A agreed to help with.  Trader A admitted to an IRD Trader at RBS that he colluded with IRD traders at JPMorgan.”

The affidavit provides two names of traders at JPMorgan that prosecutors believe were involved in the rigging. Similar allegations are listed in the affidavit for Citigroup/Citibank.

According to Congressional testimony by Gary Gensler, former Chair of the Commodity Futures Trading Commission (CFTC), his agency opened its Libor investigation in April 2008 and the Justice Department commenced their own investigation in 2010. That’s five years of looking at Citigroup and JPMorgan without the Justice Department bringing charges.

In December 2013, JPMorgan and Citigroup admitted participating in the Yen Libor cartel to the European Commission and accepted fines of €79.8m ($108.3 million) and €70m ($95 million), respectively. Citigroup avoided paying an additional €55m ($74.6 million) by being granted full immunity for one of its three charged infringements, ostensibly for its cooperation in the matter. It only took two years for the European Commission to conduct its investigation and bring its charges. Other banks settled at that time as well.

Adding to the public’s growing contempt for Wall Street and its ineffective regulators, while the largest global banks were under scrutiny for rigging Libor, their traders continued to engage in a cartel to rig the foreign currency markets which trades more than $5.3 trillion a day.

The Wall Street Journal reported in September 2014 that “Criminal Charges Are Expected as Early as Next Month” in the foreign currency investigations. In November of last year, Bloomberg News reported the following:

“The U.S. Justice Department has given banks about a month to come clean about wrongdoing as it moves closer to wrapping up an investigation into the rigging of currency benchmarks, a person familiar with the probe said…Prosecutors have demanded a full accounting of any misconduct by mid-December, the person said.”

This sounds much less like a serious criminal investigation with wire taps and subpoenas and more like a request for self confessions to one’s Priest. But don’t be alarmed; as recently as this February, the New York Times has reassured us that “for the first time in decades, American institutions” will be forced by the Justice Department “to plead guilty to criminal charges that they manipulated the prices of foreign currencies.” The Times adds that the Justice Department has informed JPMorgan and Citigroup that “they must enter guilty pleas to settle the cases.” Foreign banks are also mentioned in the article.

The new U.S. Attorney General, Loretta Lynch, is expected to be sworn in one business day from now – next Monday, April 27. Unless U.S. Attorney General Eric Holder surprises everyone with guilty pleas today, any criminal charges against JPMorgan and Citigroup for either Libor or currency rigging will fall to Lynch.

Related articles from Wall Street On Parade:

Citigroup and JPMorgan Settle With EU Commission for Rigging Libor; U.S. Justice Department Stays Mum

Libor Scandal: The Unvarnished Story of Wall Street’s Heist of the Century

Is the Justice Department Conspiring on the Libor Conspiracy

The Untouchables: PBS Asks Why U.S. Justice Department Isn’t Prosecuting Wall Street

Why Was Libor Rate Rigging Committed Over the Bloomberg Terminal

Barclays Appointed to Review Libor Integrity 90 Days Before It Was Charged With Rigging Libor

Libor Scandal Made Simple: It’s About Illegal Proprietary Trading

At Last We Know the Real Purpose of the Federal Reserve Bank of New York: It’s a Confessional for Traders Gone Rogue

Eric Holder’s Coup de Grâce: Arresting a Bedroom Trader for the Flash Crash

By Pam Martens: April 22, 2015

Flash Crash Chart of May 6, 2010

Flash Crash Chart of May 6, 2010

The U.S. Justice Department is relying on Americans’ gullibility with its arrest of a 36-year old in the U.K., charging him as a key culprit in the Flash Crash of the stock market on May 6, 2010. London newspapers report the young man trades from his bedroom in his parents’ middle class row house.

The arrest came on the same day that news broke that Loretta Lynch was speeding toward a confirmation vote in the U.S. Senate as the next U.S. Attorney General, meaning that current U.S. Attorney General Eric Holder is making his last hurrah after failing to prosecute any bigwigs on Wall Street throughout his tenure, notwithstanding their insidious role in the greatest financial collapse since the Great Depression.

The first problem with the Justice Department’s complaint against the bedroom spoofer is that the complaint has gone missing. What was released to the public consists of a one-pager stating that there is a complaint, followed by an affidavit from an FBI agent and a one-page Exhibit A which shows trading prices on an S&P 500 futures contract from 11:00 to 11:12 – far removed from when the Flash Crash occurred in the afternoon.

The press release issued by the Justice Department tells us that “Navinder Singh Sarao, 36, of Hounslow, United Kingdom, was arrested today in the United Kingdom, and the United States is requesting his extradition.  Sarao was charged in a federal criminal complaint in the Northern District of Illinois on Feb. 11, 2015, with one count of wire fraud, 10 counts of commodities fraud, 10 counts of commodities manipulation, and one count of ‘spoofing,’ a practice of bidding or offering with the intent to cancel the bid or offer before execution.”

However, the actual complaint that would provide specifics of these counts is missing from what was released by the U.S. Justice Department.

Another problem in this case is that the FBI agent, Gregory Laberta, appears to be getting the bulk of his theories and trading analysis from “representatives of an economic consulting group retained in connection with this investigation who have reviewed relevant trading and order book data.” Both the names of the representatives and the name of the consulting group are withheld.

The crux of the allegations is that Sarao put downward pressure on market prices via the E-Mini Standard and Poor’s 500 futures contract. The FBI agent’s affidavit states: “Between 12:33 p.m. and 1:45 p.m., SARAO placed 135 sell orders consisting of either 188 or 289 lots, for a total of 32,046 contracts.”

Just as the original finger pointing at the mutual fund company Waddell and Reed made no sense, neither do these allegations. As we reported in 2010:

“The so-called Flash Crash report was the product of the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) and consists of 104 pages of data that is unintelligible to most Americans, including the media that are so confidently reporting on it.  It names no names, including the firm it is fingering as the key culprit in setting off the crash.  Earlier media reports say the firm is the mutual fund manager, Waddell and Reed, and Waddell has conceded that it made a large trade that day to hedge its positions in its mutual funds which total $70 billion according to its web site.

“As the official report goes, Waddell set off a computerized algorithm to sell 75,000 contracts of the E-mini futures contract that is based on the Standard and Poor’s 500 stock index and trades at the Chicago Mercantile Exchange.  At roughly $55,000 per contract, the total amount Waddell was seeking to sell to hedge its mutual fund stock positions was $4.125 billion.

“But here’s where the official theory comes apart: fourteen days after the Flash Crash, Terrence Duffy, the Executive Chairman of the CME Group which owns the Chicago Mercantile Exchange testified before the U.S. Senate’s Subcommittee on Securities, Insurance, and Investment of the Committee on Banking, Housing and Urban affairs that “Total volume in the June E-mini S&P futures on May 6th was 5.7 million contracts, with approximately 1.6 million or 28 per cent transacted during the period from 1 p.m. to 2 p.m. Central Time.”  In other words, the government investigators are suggesting that a trade that represented 1 per cent of the day’s volume in a futures contract in Chicago and less than 5 per cent of contracts traded in the pivotal 1 to 2 p.m. time frame in Chicago (2 to 3 p.m. in New York) caused stocks in the cash market to plunge to a penny.”

If no charges were brought against Waddell and Reed for their 75,000 contracts, why are charges being brought against the bedroom trader for his 32,046 contracts?

The official reports in 2010 focused heavy suspicions on two trading firms that went unnamed, other than Waddell and Reed. We filed a Freedom of Information Act request for the names of those firms and our request was denied. There’s your smoking gun.

From the 2010 report:

“Detailed analysis of trade and order data revealed that one large internalizer (as a seller) and one large market maker (as a buyer) were party to over 50 per cent of the share volume of broken trades, and for more than half of this volume they were counterparties to each other (i.e., 25 per cent of the broken trade share volume was between this particular seller and buyer).”

Our analysis at the time:

“Broken trades or ‘busts’ (as the street refers to them) were only allowed for trades occurring between 2:40 p.m. and 3 p.m. (New York time) and where the stock had moved 60 per cent or more from its 2:40 p.m. value.  This was an extremely controversial decision and left small investors with heavy losses of 30 to 59 per cent with nowhere to turn.  The busts that were allowed covered 5.5 million shares and two-thirds of these trades had been executed at less than $1.00, some for as little as a penny.  We now learn from this one sentence on page 66 of the Flash Crash report that half of the share volume in these bizarre trades came from just two firms and half the time they were exclusively trading with each other. Let me state this another way: two trading firms were predominantly involved in handing investors’ losses of 60 per cent or more in their stocks on May 6 but a staid old mutual fund company trading an S&P  futures contract in Chicago has been fingered as the culprit of the Flash Crash.”

If Eric Holder thinks this arrest of a bedroom trader in the U.K. is going to bolster his legacy, good luck with that.

Ayn Rand, Alan Greenspan and Their Early Corporate Ties

By Pam Martens and Russ Martens: April 21, 2015

AynRand_Nation_coverOn October 23, 2008, with much of Wall Street lying in ruins and the U.S. economy rapidly heading toward a 1930s type of collapse, Henry Waxman, Chair of the House of Representatives’ Oversight Committee, attempted to elicit answers from Alan Greenspan, the former Chair of the Federal Reserve for an unprecedented 18 years who had pushed for the deregulation of Wall Street that had left the country teetering.

After enumerating a series of  recent financial collapses occurring from either deregulation or corrupted business principles, Waxman said:

“Each of these case studies is different, but they share common themes. In each case, corporate excess and greed enriched company executives at enormous cost to shareholders and our economy. In each case, these abuses could have been prevented if Federal regulators had paid more attention and intervened with responsible regulations.”

In those three sentences, Waxman had correctly indicted a lifetime of writing and theories espoused by Ayn Rand and her acolyte, Alan Greenspan. Rand’s theory is simpleminded and destructive – on both the personal and societal level. It holds that the selfish desires of the individual should have no restraints by government; the poor deserve their lot and should receive no tax support from other citizens while the rich have a right to unrestricted power.

Alan Greenspan, Former Fed Chairman, Testifying to the House Oversight Committee on How He Got It Wrong, October 23, 2008

Alan Greenspan, Former Fed Chairman, Testifying to the House Oversight Committee on How He Got It Wrong, October 23, 2008

Greenspan not only worshiped at the feet of Rand but wrote essays for her “Objectivist” newsletter and contributed articles for her book Capitalism: The Unknown Ideal. One of Greenspan’s articles in the book is titled “Antitrust.” Greenspan makes the same simplistic and deluded case as Rand that if government will only get out of the way, corporate leaders will move the country forward. Greenspan writes:

“The churning of a nation’s capital, in a fully free economy, would be continuously pushing capital into profitable areas — and this would effectively control the competitive price and production policies of business firms, making a coercive monopoly impossible to maintain…To sum up: The entire structure of antitrust statutes in this country is a jumble of economic irrationality and ignorance. It is the product: (a) of a gross misinterpretation of history, and (b) of rather naive, and certainly unrealistic, economic theories…No speculation, however, is required to assess the injustice and the damage to the careers, reputations, and lives of business executives jailed under the antitrust laws.” At the end of this treatise, Greenspan writes, “I am indebted to Ayn Rand for her identification of this principle.”

In addition to writing for Rand, Greenspan was a member of her “Collective” in New York City. Gary Weiss wrote about the “Collective” in his book Ayn Rand Nation: The Hidden Struggle for America’s Soul. According to Weiss, “For much of its existence the Collective was for all intents and purposes a cult. It had an unquestioned leader, it demanded absolute loyalty, it intruded into the personal lives of its members, it had its own rote expressions and catchphrases, it expelled transgressors for deviation from accepted norms, and expellees were ‘fair game’ for vicious personal attacks.”

At the October 2008 Congressional hearing, when Congressman Waxman was finally able to get Greenspan to address how he had been blindsided to the craven corruption building right under his nose, leading to an epic collapse of the economy and Wall Street in 2008, Greenspan replied:

“So the problem here is something which looked to be a very solid edifice, and, indeed, a critical pillar to market competition and free markets, did break down. And I think that, as I said, shocked me. I still do not fully understand why it happened and, obviously, to the extent that I figure out where it happened and why, I will change my views. If the facts change, I will change.”

After leaving the Fed, Greenspan went on to collect large fees as an adviser to John Paulson’s hedge fund, the epitome of selfish pursuit and greed. Greenspan’s successor at the Fed, Ben Bernanke, has recently announced he will be joining a hedge fund as well, Citadel.

Rand was not only a subpar thinker and writer but a fake as well. She vilified government welfare programs but collected Social Security. She wrote copious odes to the inherent morality of the intellectual elite, then had an extra-marital affair with a younger man in her employ. She abhorred government intrusions, but testified willingly before the House Un-American Activities Committee in 1947 about communist intrusions into Hollywood.

As for the caliber of her writing, in 2012 Harold Bloom, Sterling Professor of the Humanities and English at Yale University replied to my email query that: “Ayn Rand was a writer of no value whatsoever, whether aesthetic or intellectual. The Tea Party deserves her, but the rest of us do not. It is not less than obscene that any educational institution that relies even in part on public funds should ask students to consider her work. We are threatened these days by vicious mindlessness and this is one of its manifestations.”

Professor Bloom was likely referring to revelations at the time that corporate money was contractually mandating the reading and teaching of Rand at publicly funded universities.

Both Rand and Greenspan had early ties to corporate front groups. In the 1930s, Rand wrote a novella that was eventually published in the U.S. in 1946 under the title, Anthem, by a corporate front group.  In recent years, Anthem has been pumped into high schools across the U.S. and Canada with financial inducements to both teachers and students by a corporate funded nonprofit tied to hedge funds. The book presents a frightening dystopian world engineered by an out of control government.

On February 13, 1946, Rand wrote to Leonard Read, suggesting that he arrange for the publishing of Anthem. Read had become the head of the western division of the U.S. Chamber of Commerce in the 1930s and assumed the leadership of the Los Angeles branch and its 10,000 members in 1939. In the letter to Read, Rand explains:

“I don’t want to issue ANTHEM as a regular book now, because it is only a novelette and not big enough to follow THE FOUNTAINHEAD. But when you asked, in your letter: ‘Why don’t we get it published?’ – did you mean as a pamphlet – specifically by The Pamphleteers? I think that might be a very good idea – if a fiction story fits in with The Pamphleteers’ program. Perhaps you might even be able to arrange to sell it, as a pamphlet, in bookstores and, if so, might get quite a large sale on the strength of my following.”

The Pamphleteers published Anthem in 1946. In the book, Invisible Hands: The Businessmen’s Crusade Against the New Deal, Kim Phillips-Fein writes that another notable event happened in 1946. Read reached out to David Goodrich, President of the B.F. Goodrich Company, and the first free market think tank in the post-war period was founded: the Foundation for Economic Education (FEE).

According to Fein, initial funding of $10,000 each came from ConEd, General Motors, U.S. Steel and Chrysler. Many of the same individuals involved in The Pamphleteers were involved in the Foundation.

According to Jennifer Louise Burns in her book, Goddess of the Market: Ayn Rand and the American Right, 1930 – 1980, “Read tapped Rand to serve as FEE’s ‘ghost,’ asking her to read material he intended to publish to make sure it was ideologically coherent.” Rand also submitted her own prospective writings to Read to review and referred to herself in correspondence to him as FEE’s “ghost.”

FEE is still very much alive and has been charged by Greenpeace with being one of the climate denial front groups.

One of Greenspan’s earliest jobs was at the National Industrial Conference Board (NICB), today known simply as The Conference Board. NICB was created with corporate money in 1916 to counter the devastating negative publicity that grew out of the Triangle Shirtwaist Factory fire where children and women were burned to death in a New York City sweatshop and the Ludlow Massacre in which a tent colony of striking miners and their families were attacked by the National Guard, leaving women and children dead along with striking miners.

Despite the devastating hubris this twosome has wrought on the United States, our Nation’s students are still being force fed this rot through corporate money lurking behind the dark curtains of nonprofits.

Faux Democracy and the Tea Party: How Far Back Does It Go?

By Pam Martens and Russ Martens: April 20, 2015

Paid Actors Pose as Tea Party Protesters

Paid Actors Pose as Tea Party Protesters

Manipulating Americans to organize or protest against their own interests is the sine qua non of big corporate front groups. These groups are alternately known as astroturf organizations because the grass in “grassroots” is fake turf.

Just how fake that turf is came into crisp perspective on April 2 when Christine Stapleton, an investigative reporter at the Palm Beach Post, revealed that a protest rally called by the Tea Party of Miami and Florida Citizens Against Waste used paid actors from the Broward Acting Group as faux protesters. (Watch a video here.)

Real Citizens Show Up to Protest the State's Failure to Purchase Land for Everglades Restoration in March 2015; Paid Actors Hold a Counter Protest on April 2

Real Citizens Show Up to Protest the State’s Failure to Purchase Land for Everglades Restoration in March 2015; Paid Actors Hold a Counter Protest on April 2

The fake protest was in response to more than 100 real citizens turning out the prior month to demand that the South Florida Water Management District, a state agency, exercise its option before it expires to purchase 48,600 acres of corporate land owned by U.S. Sugar, a huge sugar cane grower in South Florida. According to studies and experts, the land purchase is vital to preventing marine life die-offs in the Caloosahatchee and St. Lucie River basins and along the Indian River Lagoon.

Laura Reynolds, Executive Director of the Tropical Audubon Society, explained what’s at stake: “The purchase can solve the problems of getting sufficient water for the Everglades and greatly reducing the damaging pulses of polluted fresh water to the northern estuaries while delivering much needed clean water to the southern estuaries.”

Corporate front groups do not want to see more land owned by government because with it comes the ability to regulate it against pollution. The Tea Party’s mantra against “big government” is a pseudo cover against government regulation of big business. The Koch brothers involvement in the modern Tea Party movement is by now well known. Much less understood is just how far back the roots of our Faux Democracy under Koch brothers’ financing extend.

On February 8, 2013, the health professionals’ journal, Tobacco Control, published a comprehensive report on the roots of the Tea Party, dating it to the 1980s.  The research was funded by the National Institute of Health (NIH), a Federal Agency and titled ‘To Quarterback Behind the Scenes, Third Party Efforts’: The Tobacco Industry and the Tea Party.

The authors reveal that Citizens for a Sound Economy (CSE), which split into Americans for Prosperity and FreedomWorks in 2004, “was co-founded in 1984 by David Koch, of Koch Industries, and Richard Fink, former professor of economics at George Mason University, who has worked for Koch Industries since 1990.” According to the report, “CSE supported the agendas of the tobacco and other industries, including oil, chemical, pharmaceutical and telecommunications, and was funded by them.”

Long before the Tea Party attracted media attention, CSE started the first online Tea Party in 2002, calling it the US Tea Party. The NIH-funded study shows that between 1991 and 2002, Philip Morris and other tobacco companies gave CSE at least $5.3 million.

CSE was a pure Koch-created organization and considered an integral part of the Philip Morris strategy to thwart Federal regulation of cigarettes and second hand smoke. The study shows that Philip Morris  designated CSE a “Category A” organization for funding and it was assigned its own Philip Morris senior relationship manager.

In 1994 and 1995, Philip Morris and other tobacco companies launched an assault, using nonprofit front groups including CSE, to undermine the credibility of the Food and Drug Administration (FDA) which was attempting to regulate second-hand smoke. One Philip Morris memo in late 1994 indicated that CSE and other front groups were working “to define the FDA as an agency out of control and one failing to live up to its congressional mandate regarding regulation of drugs and medical devices.”

Beginning in December 1994, the memorandum stated, “these groups conducted an aggressive media campaign toward these goals, incorporating the issuance of policy papers, conducting symposia, filing petitions with FDA and taking other steps to keep the public and media focus on the agency.” CSE developed a 15-page strategy document for gutting the FDA’s funding and keeping it under withering media glare.

In 1999, the U.S. Department of Justice sued the largest tobacco companies under the Racketeer Influenced and Corrupt Organizations Act (RICO). The government charged that the tobacco companies engaged in a 40-year conspiracy to mislead the public about the dangers of smoking, distort the dangers of secondhand smoke, and target the youth market as “replacement smokers.”

After a nine-month bench trial, on August 17, 2006, Judge Gladys Kessler of the U.S. District Court for the District of Columbia issued a 1,683 page opinion.  The Court found that “Cigarette smoking causes disease, suffering, and death. Despite internal recognition of this fact, defendants have publicly denied, distorted, and minimized the hazards of smoking for decades.”

The Court also found that lawyers for Big Tobacco had played an unconscionable role in the conspiracy, writing:

“At every stage, lawyers played an absolutely central role in the creation and perpetuation of the Enterprise and the implementation of its fraudulent schemes. They devised and coordinated both national and international strategy; they directed scientists as to what research they should and should not undertake; they vetted scientific research papers and reports as well as public relations materials to ensure that the interests of the Enterprise would be protected; they identified ‘friendly’ scientific witnesses, subsidized them with grants from the Center for Tobacco Research and the Center for Indoor Air Research, paid them enormous fees, and often hid the relationship between those witnesses and the industry; and they devised and carried out document destruction policies and took shelter behind baseless assertions of the attorney client privilege.”

In 2004, David Koch’s Citizens for a Sound Economy split into FreedomWorks and Americans for Prosperity. In this video, David Koch appears before an annual convention of chapters of Americans for Prosperity and states “…my brother Charles and I provided the funds to start the Americans for Prosperity.” Later in the video, members of the state chapters of Americans for Prosperity report to David Koch on how many Tea Party groups they have created. One man states: “…hey folks, we’ve held 29 Tea Parties”; another says his chapter has “organized dozens of Tea Parties.” A woman reports that her Americans for Prosperity group turned out 10,000 people at a Tea Party rally in California.

Americans for Prosperity is just one tentacle in a massive matrix of  interconnected nonprofits created, overseen or funded by billionaires Charles and David Koch. The nonprofits have words like liberty or freedom or tea party in their names but preach an anti-regulation, anti-union, anti-social security/medicare mantra.

In 2010 we exposed how Donors Capital, which has the fingerprints of Charles Koch smudged all over it, bankrolled a $17 million project carried out by the nonprofit Clarion Fund to distribute 28 million DVDs of a race-baiting, Islamophobic documentary titled “Obsession: Radical Islam’s War Against the West.” The DVDs were blanketed across swing voter states just seven weeks before the Presidential election of 2008.

Corporate media was a willing participant in the effort. The DVDs were inserted into approximately 100 major newspapers and magazines across the U.S., along with a direct mail campaign. Simultaneously, there was an ongoing smear campaign suggesting that the election of Barack Obama would put a Muslim in the White House and elevate Islam in the U.S.

While the Koch brothers have clearly been honing their skills at Faux Democracy since 1984 with the gag-worthy Citizens for a Sound Economy, we’ll present our research tomorrow suggesting that the high-priestess of anti-government rhetoric, Ayn Rand, was at work with corporate front groups a full half-century earlier.