Category Archives: ALPHA

Meet the Latest Trump Aide Who’s Even Worse Than All the Other Trump Aides

Mother Jones

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The White House is like a rotten onion these days: every time we peel back a layer, it smells worse and worse. First we all heard about Steve Bannon, the Breitbart News CEO who plays the Rasputin role in the West Wing, whispering in Donald Trump’s ear about Muslim terrorists and Mexican rapists. Then we all learned about Stephen Miller, the 31-year-old wunderkind who is, if anything, even more glib and hardcore than Bannon. Now we’re all learning about Sebastian Gorka:

For years, Gorka had labored on the fringes of Washington and the far edge of acceptable debate as defined by the city’s Republican and Democratic foreign policy elite. Today, the former national security editor for the conservative Breitbart News outlet occupies a senior job in the White House and his controversial ideas — especially about Islam — drive Trump’s populist approach to counterterrorism and national security.

….For him, the terrorism problem has nothing to do with repression, alienation, torture, tribalism, poverty, or America’s foreign policy blunders and a messy and complex Middle East. “This is the famous approach that says it is all so nuanced and complicated,” Gorka said in an interview. “This is what I completely jettison.”

For him, the terror threat is rooted in Islam and “martial” parts of the Koran that he says predispose some Muslims to acts of terror. “Anybody who downplays the role of religious ideology . . . they are deleting reality to fit their own world,” he said.

Last month, as he celebrated at the inaugural ball…Gorka said he had one last message for America’s troops — “the guys inside the machine” — and its enemies. He turned toward the host, his medal glinting in the TV lights. “The alpha males are back,” he said.

It’s a sewer in there. But here’s the funny thing: Gorka might well be right but for entirely the wrong reasons. Young men who live in a wide swath of the world stretching from North Africa to Central Asia probably are more prone to violence than they are in the developed North. But it has nothing to do with Islam. That’s just the handiest thing to latch onto. It’s all about lead:

The Trumpies got struck down for temporarily banning immigration from a set of seven seemingly arbitrary countries, so instead they should create a rule that temporarily bans immigration from any country that phased out leaded gasoline later than, say, 2001. They might have to fiddle a bit with the numbers, which they have plenty of experience doing, and maybe add some weird second condition in order to get only the countries they want, but with a little creativity they could make it work. And it’s not based on ethnicity, religion, or even nationality. You’re welcome!


Meet the Latest Trump Aide Who’s Even Worse Than All the Other Trump Aides

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The Private Prison Industry Is Licking Its Chops Over Trump’s Deportation Plans

Mother Jones

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Immigration agents sparked panic across the country last week, when a series of high-profile operations made it clear that a new era of crackdowns on undocumented immigrants had begun. Coming on the heels of a couple of major executive orders on immigration, the arrests and deportations were a very public reminder of President Donald Trump’s promise to deport upwards of 2 million immigrants upon taking office.

But given that America’s detention system for immigrants has been running at full capacity for some time now, where is the president going to put all of these people before deporting them?

In new jails, for starters. In the same executive order that called for the construction of a southern border wall, Trump instructed Immigration and Customs Enforcement (ICE) to build out its sprawling network of immigration detention centers. Starting “immediately,” his order said, ICE should construct new facilities, lease space for immigrants alongside inmates in existing local jails, and sign new contracts—likely with private prison companies. The scale of that expansion became clearer on February 5, when the Los Angeles Times reported on a memo handed down in late January from White House immigration experts to top Homeland Security officials. The document called for raising the number of immigrants ICE incarcerates daily, nationwide, to 80,000 people.

Last year, ICE detained more than 352,000 people. The number of detainees held each day, typically between 31,000 and 34,000, reached a historic high of about 41,000 people in the fall, as Customs and Border Protection apprehended more people on the southwest border while seeing a simultaneous rise in asylum seekers. But doubling the daily capacity to 80,000 “would require ICE to sprint to add more capacity than the agency has ever added in its entire history,” says Carl Takei, staff attorney for the ACLU’s National Prison Project. It would also take an extra $2 billion in government funding per year, detention experts interviewed by Mother Jones estimated. And, Takei warned, “we don’t know if 80,000 is where he’ll stop.”

Yet even if ICE does not adopt an 80,000-person detention quota, other changes laid out in Trump’s executive orders suggest that vastly more people will be detained in the coming months and years. For example, Trump ordered ICE to prioritize deporting not only immigrants who been convicted or charged with crimes, but also those who had “committed acts that constitute a chargeable offense”—a category that could include entering the country illegally and driving without a license. Trump also ordered Homeland Security Secretary John Kelly, who oversees ICE, to take “all appropriate actions” to detain undocumented immigrants while their cases are pending.

Beyond that, ICE could stop granting parole to asylum seekers, explains Margo Schlanger, a former Obama administration official who served as Homeland Security’s top authority on civil rights. With ICE taking enforcement action against more categories of immigration offenders and releasing fewer of them, Schlanger says, “we could get to a very large sum of people in detention very quickly.”

It’s not difficult to guess who profits. In an earnings call last week, the private prison giant CoreCivic (formerly known as the Corrections Corporation of America, or CCA) announced that it saw the ICE detention expansion as a business opportunity. “When coupled with the above average rate of crossings along the southwest border, these executive orders appear likely to significantly increase the need for safe, humane, and appropriate detention bed capacity that we have available,” CoreCivic President and CEO Damon Hininger said.

As of November, a whopping 65 percent of ICE detainees were held in facilities run by private prison companies, which typically earn a fee per detainee per night and whose business model depends upon minimizing costs to return profits to their shareholders. Since Trump’s election, private prison stocks have soared, and two new, for-profit detention centers are opening in Georgia and Texas.

Another private prison company, Management & Training Corp., is reportedly seeking a contract with ICE to reopen the Willacy County Correctional Institution, a troubled detention camp that held up to 2,000 ICE detainees in Kevlar tents between 2006 and 2011. “Historically, ICE has relied heavily on the private prison industry every time the detention system has expanded,” Takei says. “There’s little doubt in my mind that they will continue to rely on the private prison industry in what’s going to be the biggest expansion of the agency in history.”

The first new detention center contracts will likely take the form of arrangements between ICE and local governments to reopen empty prison facilities as detention centers or rent beds in existing local jails, Takei says. The arrangements, known intergovernmental service agreements, allow ICE to cut deals with local governments and private prison companies while avoiding a lengthy public bidding process. Occasionally, the local government agrees to hold ICE detainees alongside inmates in their publicly run jail—an arrangement a Department of Homeland Security subcommittee recently called “the most problematic” option for holding detainees. But most of the time, local governments simply act as middlemen in deals between ICE and private prison companies.

The opaque nature of the process allows all parties to avoid public outcry before the deals are signed, explains Silky Shah, co-director of the Detention Watch Network, an immigrant rights advocacy group. So far, immigration advocates haven’t gotten wind of many new contracts being negotiated or signed since Trump’s inauguration. “But that doesn’t mean contracting activity is not taking place,” Takei says. “I suspect there are closed-door meetings taking place across the country right now.”

Expanding detention quickly could have a high human cost. Schlanger is worried that conditions inside detention facilities could deteriorate without proper oversight from the Department of Homeland Security. “There are a lot of bad things that happen if the number of beds is ramped up fast, without appropriate controls, monitoring, supervision, and care,” she says, pointing to the potential overuse of solitary confinement, inadequate safety measures, poor nutrition, and insufficient medical care. “That means detainees could die.” Asylum seekers, she warns, will have a harder time fighting their immigration cases from inside detention centers, where it’s difficult to access lawyers and gather evidence. More could be coerced into voluntary deportation: “You’re vulnerable to the government saying to you, ‘Look, we’ll let you out from detention, but you have to give up your immigration case.'”

We don’t have to look far in the past to see the danger of rushing to open new detention facilities. Last year, as several thousand Haitian immigrants arrived on the southern border, fleeing natural disasters and poverty, the Department of Homeland Security began seeking contracts for new detention facilities to accommodate the surge. In their scramble to secure space for the new arrivals, ICE officials reportedly considered ignoring quality standards for the facilities—”scraping the bottom looking for beds,” as one official told the Wall Street Journal.

The bottom of the barrel, in this case, included a prison in Cibola County, New Mexico, owned by CoreCivic. Last summer, after an investigation by The Nation revealed a pattern of severe, longtime medical neglect in the 1,100-bed facility—which had gone months without a doctor—the US Bureau of Prisons decided to pull its inmates out and cancel its contract with CoreCivic. Yet less than a month after the last federal prisoner was transferred out, ICE was already negotiating an agreement with the county and CoreCivic to detain immigrants in the newly vacant facility. Four hundred immigrants are currently detained there. Takei notes that ICE contracted with the same company, for the same prison: “There weren’t any substantive changes.”

Shah expects to see familiar problems like poor medical care worsen as new deals for detention facilities are finalized. “One of the concerns we hear most often is that when people complain about ailments, officers will come back and just say, ‘Well, drink more water, or take an Advil and you’ll be fine,'” she says. “It’s a really harsh system already. If you’re going to expand at this level, it’s just going to become that much harsher.”

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The Private Prison Industry Is Licking Its Chops Over Trump’s Deportation Plans

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Trump’s environmental assault continues, and now he’ll have Pruitt as a henchman

Even as national security scandals and general chaos engulf the White House, President Trump continues to wreak environmental havoc. Your Trump Tracker columnist already told you what POTUS got up to in his first and second weeks; now here’s a roundup of the mayhem from weeks three and four.

Not-so-great Scott:
Oil industry ally taking helm at EPA

What happened? Scott Pruitt is expected to be confirmed by the Senate as administrator of the Environmental Protection Agency on Friday. [UPDATE: Yep, he was confirmed.] He doesn’t lack for detractors. EPA employees are making unprecedented calls for senators to oppose his nomination. Maine Republican Susan Collins says she won’t vote for him. Democrats have been kicking up a fuss over Pruitt’s refusal to release emails from his time as Oklahoma attorney general, when he did the oil and gas industry’s bidding. On Thursday, an Oklahoma judge ordered Pruitt to release those emails by next Tuesday. But none of that will be enough to stop him from being confirmed.

So the EPA will be led by a man who appears to hate the EPA. Pruitt has sued the agency 14 times to challenge environmental rules, and couldn’t or wouldn’t name a single EPA rule he likes. His ties to oil and gas producers and the Koch brothers are notorious, and the donations he’s received from them have been bounteous. He sides with different kinds of polluters too, like the poultry industry.

In other cabinet news, Trump’s nominees for two more environment-related jobs — Rep. Ryan Zinke for interior secretary and Rick Perry for energy secretary — are expected to sail through confirmation once they get squeezed onto the Senate calendar. They will join a host of other climate deniers in the Trump cabinet, including recently confirmed Attorney General Jeff Sessions and Health and Human Services Secretary Tom Price.

How much does it matter? Pruitt’s confirmation is a huge deal. The EPA is responsible for implementing federal laws that protect air and water, and determining what the latest science tells us about protecting human health. If Pruitt refuses to implement those laws or consider that science, the environment will get dirtier and Americans’ health will suffer. Which leads us to …

Something wicked this way comes:
Trump poised to bludgeon the EPA

What happened? The Trump team told EPA officials this week that the president is planning to sign executive orders to revamp the agency and curb its work on climate change. He’s just been waiting for Pruitt to be confirmed. As soon as next week, Trump is expected to hold a swearing-in ceremony for Pruitt at EPA headquarters and sign the orders, which may include one related to the State Department and the Paris climate deal. The orders could “suck the air out of the room,” a source told Inside EPA. And the agency is already gasping for breath. EPA Acting Administrator Catherine McCabe said on Tuesday that Trump’s federal hiring freeze is “creating some challenges to our ability to get the agency’s work done.”

How much does it matter? A ton. Reversing progress on climate change in particular will have massive, global impacts. If, as expected, Trump kills Obama’s Clean Power Plan, the U.S. will be unlikely to meet its emission-reduction pledge under the Paris deal, and if the U.S. flakes, other countries are more likely to flake on their pledges, too. If Trump tries to pull out of or undermine the Paris agreement, the repercussions will be even bigger.

If you build it …
Full speed ahead on Dakota Access

What happened? Construction started up on the controversial segment of the Dakota Access Pipeline last week, after the Trump administration officially granted an easement for the pipeline to be built on federal land. The disputed segment will run underneath Lake Oahe, a reservoir in North Dakota near the Standing Rock Sioux Reservation. The Sioux and environmental allies have been trying various legal challenges to stop the construction, but none have worked so far and they’re increasingly looking like long shots. The pipeline could be completed and pumping oil by June 1.

Meanwhile, the company that wants to build the Keystone XL Pipeline is also moving forward. Obama rejected the proposed pipeline in fall 2015, but Trump encouraged pipeline builder TransCanada to revive the project. On Thursday, the company made a step in that direction, applying to a Nebraska commission for approval of its proposed route through the state.

Trump said last week that his pipeline moves must not have been controversial because he hadn’t gotten a single phone call in opposition. Perhaps that’s because the White House wasn’t picking up the phones.

How much does it matter? A lot. Both pipelines pose local environmental risks and global climate threats, but more notably, stopping them had become a cause for the climate and environmental justice movements to rally around. Activists aren’t giving up, though: They’re continuing to fight both projects and ramping up battles against other pipelines around the U.S.

Breaking the rules:
Repealing regs to help pollutocrats

What happened? The House has been swiftly and giddily voting to repeal Obama-era environmental regulations, and the Senate has been following suit at a slightly slower pace. This week, Trump signed two of those rule revocations into law. The first one was a gift to Secretary of State Rex Tillerson and his oil industry buddies; Trump did away with a rule that had required oil, gas, and mining companies to disclose any payments they made to foreign governments, with the aim of curbing corruption. The second was a gift to the coal industry; now mountaintop-removal mining companies will again be free to dump their waste into streams. And thanks to a provision in the law Congress used to make these repeals, the government is banned from issuing substantially similar regulations in the future.

The Trump administration has also delayed some regulations that the Obama team had put in place, including one to add the rusty patched bumble bee to the endangered species list.

How much does it matter? Some. We’ll now see more corruption in developing countries and more pollution in coal-mining communities. Trump may next sign repeals of regulations on methane leaks and public participation in land management. But the real danger is still to come. As Juliet Eilperin recently reported in the Washington Post, “Trump has embarked on the most aggressive campaign against government regulation in a generation.” We ain’t seen nothing yet.

On that note, have a happy long weekend!

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Trump’s environmental assault continues, and now he’ll have Pruitt as a henchman

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These Professors Make More Than a Thousand Bucks an Hour Peddling Mega-Mergers

Mother Jones

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This story originally appeared on ProPublica.

If the government ends up approving the $85 billion AT&T-Time Warner merger, credit won’t necessarily belong to the executives, bankers, lawyers, and lobbyists pushing for the deal. More likely, it will be due to the professors.

A serial acquirer, AT&T must persuade the government to allow every major deal. Again and again, the company has relied on economists from America’s top universities to make its case before the Justice Department or the Federal Trade Commission. Moonlighting for a consulting firm named Compass Lexecon, they represented AT&T when it bought Centennial, DirecTV, and Leap Wireless; and when it tried unsuccessfully to absorb T-Mobile. And now AT&T and Time Warner have hired three top Compass Lexecon economists to counter criticism that the giant deal would harm consumers and concentrate too much media power in one company.

Today, “in front of the government, in many cases the most important advocate is the economist and lawyers come second,” said James Denvir, an antitrust lawyer at Boies, Schiller.

Economists who specialize in antitrust—affiliated with Chicago, Harvard, Princeton, the University of California, Berkeley, and other prestigious universities—reshaped their field through scholarly work showing that mergers create efficiencies of scale that benefit consumers. But they reap their most lucrative paydays by lending their academic authority to mergers their corporate clients propose. Corporate lawyers hire them from Compass Lexecon and half a dozen other firms to sway the government by documenting that a merger won’t be “anti-competitive”: in other words, that it won’t raise retail prices, stifle innovation, or restrict product offerings. Their optimistic forecasts, though, often turn out to be wrong, and the mergers they champion may be hurting the economy.

Some of the professors earn more than top partners at major law firms. Dennis Carlton, a self-effacing economist at the University of Chicago’s Booth School of Business and one of Compass Lexecon’s experts on the AT&T-Time Warner merger, charges at least $1,350 an hour. In his career, he has made about $100 million, including equity stakes and non-compete payments, ProPublica estimates. Carlton has written reports or testified in favor of dozens of mergers, including those between AT&T-SBC Communications and Comcast-Time Warner, and three airline deals: United-Continental, Southwest-Airtran, and American-US Airways.

American industry is more highly concentrated than at any time since the gilded age. Need a pharmacy? Americans have two main choices. A plane ticket? Four major airlines. They have four choices to buy cell phone service. Soon one company will sell more than a quarter of the quaffs of beer around the world.

Mergers peaked last year at $2 trillion in the US The top 50 companies in a majority of American industries gained share between 1997 and 2012, and “competition may be decreasing in many economic sectors,” President Obama’s Council of Economic Advisers warned in April.

While the impact of this wave of mergers is much debated, prominent economists such as Lawrence Summers and Joseph Stiglitz suggest that it is one important reason why, even as corporate profits hit records, economic growth is slow, wages are stagnant, business formation is halting, and productivity is lagging. “Only the monopoly-power story can convincingly account” for high business profits and low corporate investment, Summers wrote earlier this year.

In addition, politicians such as US Senator Elizabeth Warren have criticized big mergers for giving a handful of companies too much clout. President-elect Trump said in October that his administration would not approve the AT&T-Time Warner merger “because it’s too much concentration of power in the hands of too few.”

During the campaign, Trump didn’t signal what his broader approach to mergers would be. But the early signs are that his administration will weaken antitrust enforcement and strengthen the hand of economists. He selected Joshua Wright, an economist and professor at George Mason’s Antonin Scalia Law School, to lead his transition on antitrust matters. Wright, himself a former consultant for Boston-based Charles River Associates, regularly celebrates mergers in speeches and articles and has supported increasing the influence of economists in assessing monopoly power. “Mergers between competitors do not often lead to market power but do often generate significant benefits for consumers,” he wrote in The New York Times this week.

A late Obama administration push to scrutinize major deals notwithstanding, the government over the past several decades has pulled back on merger enforcement. In part, this shift reflects the influence of Carlton and other economists. Today, lawyers still write the briefs, make the arguments and conduct the trials, but the core arguments are over economists’ models of what will happen if the merger goes ahead.

These complex mathematical formulations carry weight with the government because they purport to be objective. But a ProPublica examination of several marquee deals found that economists sometimes salt away inconvenient data in footnotes and suppress negative findings, stretching the standards of intellectual honesty to promote their clients’ interests.

Earlier this year, a top Justice Department official criticized Compass Lexecon for using “junk science.” ProPublica sent a detailed series of questions to Compass Lexecon for this story. The firm declined to comment on the record.

Even some academic specialists worry that the research companies buy is slanted. “This is not the scientific method,” said Orley Ashenfelter, a Princeton economist known for analyzing the effects of mergers. Referring to one Compass study of an appliance industry deal, he said, “The answer is known in advance, either because you created what the client wanted or the client selected you as the most favorable from whatever group was considered.”

In contrast to their scholarship, the economists’ paid work for corporations rests almost entirely out of the public eye. Even other academics cannot see what they produce on behalf of clients. Their algorithms are shared only with government economists, many of whom have backgrounds in academia and private consulting, and hope to return there. At least seven professors on Compass’s payroll, including Carlton, have served as the top antitrust economist at the Department of Justice. Charles River Associates boasts at least three.

“There are few government functions outside the CIA that are so secretive as the merger review process,” said Seth Bloom, the former general counsel of the Senate Antitrust Subcommittee.

One evening in 1977, University of Chicago law professor Richard Posner hosted a colleague from the economics department and a young law student named Andrew Rosenfield at his apartment in Hyde Park. The leading scholar of the “Law and Economics” movement, Posner wanted to apply rigorous math and economics concepts to the real world. “Why not see if there are some consulting opportunities?” he mused. The three of them agreed to form a firm, throwing in $700 for a third each. They called it “Lexecon,” combining the Latin for law with “econ.”

The trio then shopped their services to a dozen law firms, which all turned them down. “If you had to value the firm at the end of the tour, you’d have to say it was zero,” said Rosenfield.

They went back to their academic work. Not too long after, AT&T called Posner to ask if he could consult on its antitrust defense. The government was trying to break up Ma Bell. Posner agreed. So began a long and mutually beneficial relationship between AT&T and Lexecon.

Soon after its founding, Lexecon hired one of Chicago’s most promising young economists: Dennis Carlton. He had grown up in Brighton, Mass., earning degrees from a trifecta of elite local institutions: Boston Latin High School, Harvard, and MIT, where he would later endow a chair. He played basketball in his spare time. “Backaches have temporarily sidelined me from embarking on my second career as a basketball player in the NBA,” he joked in a 40th reunion report to his Harvard classmates in 2012. (After a short interview with ProPublica, Carlton subsequently declined comment, citing client confidentiality.)

Ronald Reagan appointed Posner to the federal bench in 1981. Posner left Lexecon. “Andy and I were young,” Carlton said. “Gee, we wondered: Is the firm going to survive? Not only did it survive, but it did very well.”

Lexecon capitalized on the Eighties merger explosion. M&A was rising to cultural prominence as the domain of swashbucklers. Corporate raiders enlisted renegade lawyers and brash investment bankers to take on stalwart names of American industry.

Behind the scenes, the less-flamboyant economists gained influence. From the time antitrust laws began to be passed, in the late 19th century, until the 1970s, courts and the government had presumed a merger was bad for customers if it resulted in high concentration, measured at thresholds much lower than the market shares for the dominant companies in many sectors today.

Led by University of Chicago theorists, a new group of scholars argued that this approach was overly simplistic. Even if a company dominated its industry, it might lower prices or create offsetting efficiencies, allowing customers more choice or higher quality products. In 1982, William Baxter, Reagan’s first head of the Justice Department antitrust division, codified the requirement that the government use economic models and principles to forecast the effect of mergers.

Lexecon seized the opportunity. “We were not just going to talk about economic theory but show with data that what we were saying could be justified,” Carlton said. By the late 1980s, the top four Lexecon officers were each making $1.5 million a year, according to a Wall Street Journal article.

Any merger over a certain dollar size—currently, $78 million—requires government approval. The government passes most mergers without question. On rare occasions, it requests more data from the merging parties. Then the companies often hire consulting firms to produce economic analyses supporting the deal. (Sometimes the government hires its own outside academic.) Even less frequently, the government concludes it can’t approve the merger as proposed. In such cases, the government typically settles with the two companies, requiring some concession, such as sale of a division or product line. Just a handful of times a year, the government will sue to block a merger. Recently, the Obama administration has filed several major suits to block mergers, as companies in already concentrated industries propose bigger and bigger deals. According to a tally from the law firm Dechert, the government challenged a record seven mergers last year out of a total of 10,250.

Recent research supports the classic view that large mergers, by reducing competition, hurt consumers. The 2008 merger between Miller and Coors spurred “an abrupt increase” in beer prices, an academic analysis found this year. In the most comprehensive review of the academic literature, Northeastern economist John Kwoka studied the effects of thousands of mergers. Prices on average increased by more than 4 percent. Prices rose on more than 60 percent of the products and those increases averaged almost 9 percent. “Enforcers clear too many harmful mergers,” American University’s Jonathan Baker, a Compass economist who has consulted for both corporations and the government, wrote in 2015.

Once a merger is approved, nobody studies whether the consultants’ predictions were on the mark. The Department of Justice and the Federal Trade Commission do not make available the reports that justify mergers, and those documents cannot be obtained through public records requests. Sometimes the companies file the expert reports with the courts, but judges usually agree to companies’ requests to seal the documents. After a merger is cleared, the government no longer has access to the companies’ proprietary data on their pricing.

The expert reports “are not public so only the government can check,” said Ashenfelter, the Princeton economist who has consulted for both government and private industry. “And the government no longer has the data so they can’t check.” How accurate are the experts? “The answer is no one knows and no one wants to find out.”

Compass Lexecon itself is the product of serial M&A. A Michael Milken-backed company bought Lexecon for $60 million in 1999. Then it sold Lexecon to FTI Consulting, an umbrella group of professional consulting service firms, in 2003 for $130 million. In the deal, Carlton received $15 million through 2008 in non-compete payments, according to a Chicago Crain’s Business story. He also has held an equity stake in the firm. In 2006, FTI bought Competition Policy Associates, another consulting firm that had also built itself through combination, merging it with Lexecon to form Compass Lexecon. FTI Consulting had $1.8 billion in revenue in 2015, of which $447 million came from economic consulting. The economic consulting division has 600 “revenue-producing” professionals who bill at an average hourly rate of $512 an hour, the highest of all the company’s segments. Charles River Associates brought in about $300 million in revenue last year, led by antitrust consulting.

So few top consulting firms and leading experts dominate the sector today that economists wonder mordantly whether excess concentration plagues their own industry. In 2013, the government granted a waiver to Joshua Wright, the law professor and economist who was a consultant for Charles River. The waiver permitted him to serve as an FTC commissioner and review deals his former consulting firm advised on, as long as he didn’t deliberate on matters that he had directly worked on. Otherwise, the commission’s business might have ground to a halt because Charles River was involved in a third of all merger cases that came before the agency. Wright declined to comment.

Jonathan Orszag, senior managing director of Compass Lexecon, came up with a solution to allow Compass experts to work on more mergers. He is a well-known figure in Washington circles, and the brother of Peter Orszag, the vice chairman of investment bank Lazard and former high level Obama administration official. Jonathan’s social media teems with his globetrotting adventures. Brides magazine featured his destination wedding in the Bahamas. In August 2015, he celebrated on Twitter that he had played on all of the top 100 golf courses in the world. Although he does not have a Ph.D. in economics, he serves as an expert himself and is respected particularly for his expertise on global deals. He declined to comment on the record to ProPublica.

At Orszag’s urging, the firm relaxed its conflict of interest rules, according to multiple people who have worked with or for Compass. Now, Compass Lexecon experts can, and do, advise both sides in disputes. (Under Compass policy, the parties need to consent to such arrangements.) Separate teams of staffers, who cannot communicate with the opposing side, run the cases. The arrangements require on occasion that experts with adjacent offices must stop talking to each other during cases.

Compass economists can reach very different answers to the same question, depending on who is paying them. In 2012, the federal government and a group of states sued Apple for conspiring with several major publishers to fix prices on e-books.

The states hired American University’s Jonathan Baker, the Compass economist, as one of its experts. Baker’s report concluded that e-book prices cost 19 percent more than they should, as a result of the price-fixing. Another government expert arrived at the same 19 percent estimate, and calculated that consumers had been overcharged by $300 million.

Apple later hired Orszag, also of Compass, to do the same calculation. Orszag first came to the conclusion that the effect on prices was lower than the government side’s estimate, around 15 percent. Then he argued there were offsetting benefits to consumers that knocked the number all the way down to 1.9 percent, or just $28 million.

“The actual harms suffered by consumers … are modest,” Orszag concluded.

A federal judge slapped Orszag down for that work. Denise Cote, of the Southern District of New York, threw out part of Orszag’s report in the Apple case. The judge assailed Orszag’s study as “unmoored” from facts and “unsupported by any rigorous analysis,” criticizing a calculation of his as “jerry-rigged.”

Lawyers for the states found out Orszag was working for Apple only when he filed his expert report in the case. The news shocked them, two of the lawyers said, because they felt Orszag had been privy to their legal strategy. Orszag had personally negotiated and signed the contract when the states retained Compass and Baker to do the expert work attacking Apple, now Orszag’s client. The contract prohibited Compass from working on both sides of the case without permission, which had not been obtained.

The states, which had paid Compass and Baker $1.2 million for their work, later sued Compass for breach of contract. They found out that two of its staffers, an administrative assistant and an entry level researcher, had worked for both of the opposing economists. In a deposition, Orszag defended his firm, saying that he believed the Compass contract with the state governments “had been suspended” when he signed on to work for Apple.

Compass settled with the states, paying back some of the money. A person familiar with Compass’ position says that its conflict-of-interest rules didn’t apply to the low-level employees who helped both economists.

The premier economists in the field move back and forth from consulting firms to the top positions at the Justice Department and the Federal Trade Commission. In 2006, Carlton joined the Bush Department of Justice for a 17-month stint as the highest-ranking department economist, before returning to the firm.

Carlton and the other luminaries in the field keep busy. From 2010 to 2014, Carlton consulted on 35 cases, according to his declaration in one case. That total includes his help for companies not only in front of the government but also in private litigation. Mostly he works on the defense side, fending off accusations of price-fixing or anti-competitive behavior. His clients have included Verizon, Honeywell, Fresh Del Monte, and Philip Morris. Because top experts get bonuses based on what the firm generates in billings, their annual incomes can run up to $10 million in a very good year.

Like other top consultants, Carlton devotes hundreds of words in his expert reports to describing his academic credentials, scholarly publications, and journal affiliations. Corporate clients value him not just for his prestige and point of view but for his skill as a witness. Unlike some of his colleagues, he is never bombastic or arrogant. With small eyes, puffy cheeks crowding his soft, wide nose, and hair that sweeps above his brow, Carlton looks as intimidating as a high school guidance counselor. But his calm, unassuming demeanor, even under intense cross-examination, makes him the perfect champion for his corporate clients.

“If you needed one guy for one deal and price didn’t matter, I’d take Dennis,” said a partner at one top New York corporate law firm. “He is the best.”

Carlton also knows just how far he can go. When he speaks, he proceeds deliberately, in a nasal accent, displaying a wariness that comes from decades of being questioned in court. Economists often argue that a merger will produce efficiencies, allowing companies to make more widgets for less money, an overall boon for society. But for an efficiency to count as an argument in a merger’s favor, it must be a result of the merger itself. Carlton sometimes says the cost-savings are “merger related,” according to a former Justice Department economist. “He is very careful about language. He won’t say ‘merger specific.'”

An off-the-cuff comment at a recent conclave illustrated Carlton’s prominence in the hidden world of antitrust proceedings. One evening in April, lawyers, government officials, and economists gathered in Washington for the spring meeting of the American Bar Association’s Antitrust Section. Held at the JW Marriott on Pennsylvania Avenue, the gathering is the prime marketing event of the year for the economic consulting industry.

After a mind-numbing day of panels on issues like “Clarifying Liability in Hub-and-Spoke Conspiracies,” the consultancies hosted competing cocktail receptions. The Charles River Associates event featured a generous spread of Peking Duck. Berkeley Research Group hired a live jazz band. Justice Department staffers sipped drinks with once-and-future colleagues now at white-shoe law firms, and Ivy League economists.

Earlier in the day, during a discussion of new theories about the damage caused by concentration in the airline industry and the overall economy, antitrust attorney John Harkrider shrugged at his fellow panelists. “I’m sure if you paid Dennis Carlton a million bucks, he’d blow up all these things,” he remarked.

Carlton’s rosy forecasts about the impact of proposed mergers haven’t always proven accurate. In the summer of 2005, Whirlpool, the appliance giant, decided to take over Maytag, a storied name that had gradually faded. The combination would leave three companies—the other two being GE and Electrolux—in control of more than 85 percent of the market for clothes washers and dryers. They would have 88 percent of the dishwasher market and 86 percent for refrigerators. In addition to the namesake brands, the newly enlarged Whirlpool would own Amana, KitchenAid and Jenn-Air, and manufacture many Kenmore appliances. The companies hired top law firms to persuade the Bush administration Justice Department to allow the deal. And the firms brought in Carlton.

Despite the combined entity’s powerful position, Carlton argued in his report that it still faced a threat from foreign competition. The possibility that a big box retailer might switch to LG or Samsung would prevent the newly combined company from raising prices, he asserted.

The companies did not persuade Justice Department officials, who proposed blocking the merger. An outside economic expert of their own, University of California at Berkeley’s Carl Shapiro, backed the staff’s analysis. The Bush appointee who headed the antitrust division, Assistant Attorney General Tom Barnett, resisted the staff’s conclusions. Right after Shapiro provided his analysis, Barnett wrote to the companies’ law firms, outlining the arguments that Shapiro and the staff made against the merger. Barnett, who declined comment, provided a roadmap to how to respond to the government’s claims, a person familiar with the letter said.

After months of deliberation, in March 2006, Barnett overruled the staff recommendation, allowing the merger to go through with no conditions. Shapiro and American University’s Baker later called it a “highly visible instance of under enforcement.”

Carlton’s predictions did not pan out. Whirlpool raised prices. Five years after the deal, Princeton’s Ashenfelter and an economist with the Federal Trade Commission found that, contrary to the Compass Lexecon pre-merger forecasts, the takeover resulted in “large price increases for clothes dryers” and price increases for dishwashers. In addition, the companies reduced their offerings, giving consumers fewer choices. By 2012, LG and Samsung had grabbed some market share mostly from second-tier players. Whirlpool and Maytag’s combined shares dropped just over two percentage points in washers and dryers, according to Traqline. But the competition had not brought down prices. Antitrust experts say that a scenario in which companies raise prices despite losing market share to competitors can be evidence that a merger hurt consumers.

The Whirlpool-Maytag merger was revisited in 2014 when GE tried to sell its appliance division to Electrolux, a Swedish manufacturer. Electrolux hired Jonathan Orszag. In December 2015, government officials questioned Orszag’s expert report on the possible effects of the GE-Electrolux merger. Contradicting Ashenfelter, Orszag had submitted a study asserting that the Whirlpool-Maytag merger had not raised prices, conclusions he based mainly on the washer and dryer market.

Justice Department staff economists studied backup material to his analysis and they found something troubling. Buried there was an acknowledgment that the Whirlpool-Maytag merger had resulted in price increases in cooking appliances, the very sector of the market that government officials worried might be affected by the GE-Electrolux combination. The Justice Department filed suit to stop the deal and GE pulled out during the trial.

In a speech in June, outgoing deputy attorney general David Gelfand warned about gamesmanship by economic consultants. While much economic work is good, “we do see junk science from time to time,” he said. As an example, Gelfand pointed to the GE-Electrolux case, though he did not name the company or Orszag. He said the inconvenient data “should have been disclosed and presented with candor” in the expert report supporting the merger.

Orszag did allude in a footnote to the other data, and provided backup materials that disclosed the higher prices in cooking appliances. He contended in his testimony that these price increases were due not to the merger itself but to other factors such as rising costs of raw materials. He said that Ashenfelter’s conclusions were wrong because, unlike Orszag, the Princeton economist did not have access to Whirlpool’s costs for making appliances.

Ashenfelter stands by his study. “My concern with Orszag’s deposition as evidence is that all this is done behind a curtain of secrecy. None of us know just what he did, how the cost data were constructed,” he wrote in an email to ProPublica. “Orszag’s results would only have been presented if they favored his client. Our paper had no clients and we would have been happy to find no price effect.”

In a bright conference room at Fordham Law School on a warm day this past September, an economist realized she had made a mistake in a deposition.

A WilmerHale partner seized on the error. A group of people, seated at blond wood tables in sleek, ergonomic black chairs, took notes as light streamed into the room, reflecting off the columns of Lincoln Center across the street. The economist, Michelle Burtis of Charles River Associates, turned to the audience and, letting out a laugh, broke character.

“And at this point, I would definitely start obfuscating,” she said, smiling.

Burtis was presenting a mock deposition to train lawyers and economists on the pivotal role economists can play in antitrust matters. Charles River and another consulting firm, Cornerstone Research, sponsored the conference.

Burtis, who has short, chin-length brown hair, oversized glasses, a friendly demeanor, and a doctorate in economics from the University of Texas at Austin, continued to guide the attendees toward “what is helpful in a situation like this,” where the economists had erred but still needed to push the client’s line. “You’re never going to get me to admit this is a mistake,” she explained.

The government’s reliance on economic models rests on the notion that they’re more scientific than human judgment. Yet merger economics has little objectivity. Like many areas of social science, it is dependent on assumptions, some explicit and some unseen and unexamined. That leaves room for economists to follow their preconceptions, and their wallets.

Economists have an “incentive to get a reputation as someone who will make a certain type of argument. People will hire you because they know what testimony you will give,” said Robert Porter, an economist from Northwestern who has never testified on behalf of a corporation in an antitrust matter.

In a 2007 interview, Carlton maintained an expert witness shouldn’t be biased. “It is the job of the economic consultant to reach an expert opinion in light of all the evidence, both the good and bad. I think it destroys an expert’s credibility to present only the supportive evidence,” he said.

Economists who do a lot of consulting on antitrust cases say it is not in their long-term interest to shill for a corporate client. Carlton says consulting is tougher than writing for peer-reviewed journals. For scholarship, “it’s not required for the editor to re-run your numbers. In litigation, the expert on the other side has reviewed to make sure I haven’t made errors. The scrutiny is good and leads to a higher quality of report,” he told Global Competition Review, an antitrust trade publication in 2014.

While the data is hidden from outsiders, what matters to Carlton is that there are no secrets between the companies and the government. “When economists are speaking to each other, it’s transparent. They are discussing the economics. The data is turned over to the other side. It’s your model vs. theirs,” Carlton told ProPublica.

Several former employees of consulting firms describe their jobs differently. They say they understood that clients wanted them to reach favorable conclusions. The job was “to go through analyses of market data and try to suggest that this merger doesn’t raise antitrust concerns,” said David Foster, who left Compass Lexecon in 2014, after working as a young analyst there for a year and a half.

The companies and lawyers that rely on economists as witnesses aren’t looking for neutrality. At the Fordham conference, a panel moderator asked Katrina Robson, a lawyer at O’Melveny & Myers, what she sought in an expert. “To be able to be an advocate without seeming to be an advocate,” she replied.

Companies and their lawyers shop around for amenable economists, looking for the reports that provide the answers they are looking for. Karen Kazmerzak, a partner at Sidley Austin, told attendees that she likes to hire two economists if the client can afford it. “It often comes out that one economist is not prepared to deliver the conclusions you need them to deliver,” she said. In those cases, the law firm can fire one economist and go forward with the other, more malleable consultant.

When an expert concludes that a merger won’t pass muster with the government, the corporate client typically either backs out of the proposed deal, figures out concessions to offer the government, finds a more supportive economist at the same consulting firm, or switches firms. Sometimes, according to a prominent antitrust lawyer, unwelcome predictions are locked in a drawer, protected by attorney-client privilege, never to be seen by the government or the public.

On occasion, Carlton has told companies that their deals are unlikely to be approved. He’s walked away from at least one merger: H&R Block’s 2011 takeover of TaxAct, a software firm. The government challenged it, and Carlton pulled out a few months before the trial. The companies hired a new expert from a competing firm, who defended the merger in court. The Justice Department used Carlton’s departure to cast doubt on the credibility of the new consultant and won the case.

In 2011, when AT&T sought to take over the cell phone company T-Mobile, the government balked. T-Mobile, a smaller and scrappier rival, often tried out new and innovative offerings to keep cell service costs low. Carlton represented AT&T. Based on data the company provided, he predicted that the cost of cell phone service would explode if AT&T couldn’t take over T-Mobile and use its network to meet rising demand. Without the acquisition, Carlton and his Compass colleagues concluded, AT&T would be forced to charge higher prices.

When government officials looked closely at Carlton’s model, they realized that it was implying that prices would rise so high without the merger, the cell phone market would shrink by 90% within a few years. Justice Department officials viewed this as wildly implausible. “We find that the applicants’ economic model is deficient,” the government wrote of the work by Carlton and other Compass Lexecon consultants. Soon after the companies announced their deal, the Department of Justice sued to block the transaction and after several months of wrangling, the companies dropped the transaction in late 2011.

Even though AT&T was not able to complete its takeover, cell phone usage in the US has not collapsed by 90%.

Shortly after AT&T withdrew its offer for T-Mobile, the top economist at the Justice Department, Fiona Scott Morton, held a dinner at the Caucus Room, a Washington eatery, for several economists who worked on the deal. The restaurant provided an intimate and comfortable setting for a post-mortem. “Everyone is friends,” recalls one attendee. “It was fun.”

They debated who had the better case. Carlton conceded that AT&T and T-Mobile would have found it hard to win at trial, according to an attendee. But he wished it had gone to court. He was eager to try out a new and provocative argument for mergers: That even though prices would have risen for customers, the companies would have achieved large cost savings. The gain for AT&T shareholders, he contended, would have justified the merger, even if cell phone customers lost out.

Carlton’s expert report predicted that T-Mobile was doomed to failure without the merger. “Our review indicates that T-Mobile USA’s competitive significance is likely to decline in the absence of the proposed transaction,” he and two other Compass Lexecon economists wrote.

Five years later, T-Mobile’s stock price and market share are up and its colorful CEO, John Legere, has been credited by the business press for “singlehandedly dragging the industry into a new era” with innovations such as abolishing cellular contracts. In 2014, Bill Baer, then the head of the antitrust division at the Justice Department, claimed victory: “T-Mobile went back to competing to win your business,” he said in a speech. “And T-Mobile’s competitors were compelled to respond.”

Today, AT&T’s much grander takeover of Time Warner will be an early test case for president-elect Trump, who feuded during the campaign with CNN, a Time Warner property. It will also be a boon for Compass and the small army of academic economists mobilizing for the multi-front battle waged by the government, competitors and the merging companies.

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These Professors Make More Than a Thousand Bucks an Hour Peddling Mega-Mergers

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Trump and a Bunch of Silicon Valley Moguls Had an Awkward Little Talk Today

Mother Jones

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Executives from Facebook, Apple, Alphabet (Google’s parent company), Amazon, and other Silicon Valley tech giants had a much-anticipated meeting with Donald Trump this afternoon, despite the rocky relationship between tech groups and Trump during his campaign. According to the Wall Street Journal, the president-elect struck a “conciliatory tone,” leading off the meeting with the reassurance that he wants “to help you folks do well.”

“We want you to keep going with the incredible innovation,” he continued. “Anything we can do to help this go along we’re going to be there for you.”

That tone is in sharp contrast to the more critical, sometimes hostile words exchanged between Silicon Valley leaders and Trump in the months leading up to his election. Many tech moguls repeatedly lambasted Trump, characterizing his views on immigration and trade as “a disaster for innovation,” while Trump castigated tech executives for, among other things, sending jobs overseas. In one notable instance, Trump also accused Amazon CEO Jeff Bezos for buying the Washington Posttemporarily blacklisted by Trump for its unfavorable coverage of his campaign—to keep taxes low and avoid antitrust scrutiny.

The only tech billionaire at the meeting who supported Trump during his campaign was Peter Thiel, the entrepreneur and venture capitalist who founded PayPal. Thiel, who spoke at the Republican National Convention in July and is now on Trump’s transition team, helped decide who from Silicon Valley should be invited to the meeting. One striking omission from the guest list was Twitter CEO Jack Dorsey, who was reportedly excluded as retribution over a failed “crooked Hillary” emoji hashtag.

According to sources close to the meeting, the official agenda was focused on jobs and the role of technology in government. It’s unclear whether other issues important to the attendees were topics of discussion at the meeting. Climate change, for example, which Trump has repeatedly denied, is a priority for Tesla CEO Elon Musk, who acquired the solar panel company SolarCity only a week before the election. Sheryl Sandberg, COO of Facebook and author of Lean In, has forcefully advocated better women’s workplace rights.

On Tuesday, Bill Gates paid a visit to the president-elect only a day after launching a $1 billion fund to fight climate change with clean energy innovation. “We had a good conversation about innovation, how it can help in health, education, impact of foreign aid, and energy,” Gates said after the meeting.

Many in Silicon Valley remain wary of how a Trump presidency will change the industry following its exponential growth during the Obama administration. But Trump is doing his best to be liked. “I’m very honored by the bounce,” he said during the meeting Wednesday in reference to the recent uptick in stocks. “Everybody’s talking about the bounce, so everybody in this room has to like me at least a little bit.”

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Trump and a Bunch of Silicon Valley Moguls Had an Awkward Little Talk Today

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