Audit Notes: GE Corruption, Poor Subsidizing the Rich, Takedown

Footnoted’s Theo Francis spotlights an eye-raising settlement by GE, which essentially confessed to bribing foreign officials (in Iraq, no less) to get contracts.

GE has to forfeit the $22.5 million it made from the contracts and gets a million-dollar fine on top, the Associated Press reports. Big whoop. That’s not much disincentive to the same thing all over again. That’s like stealing a $1,000 computer, getting caught, and then having to give back the computer and pay the court a measly $40 fine.

And let’s point out that GE was doing business with Saddam Hussein’s regime. This stuff went on from 2000 to 2003 and involved the UN’s oil-for-food program.

Francis notes that GE never bothered to tell investors about the investigation until now, since it was not material:

As for the settlement’s size, was GE always certain it would be so small? Moreover, given the nature of bribery scandals — they call into question everything from corporate culture to internal controls — we can’t help but wonder if some kinds of investigations should be disclosed even where the penalties are likely to be minimal in dollar terms.

Why not make public companies disclose all investigations?

— The Federal Reserve of Boston has an important report out on what Kevin Drum aptly calls “The Great Interchange Fee Scam.”

On average, each cash-using household pays $151 to card-using households and each card-using household receives $1,482 from cash users every year. Because credit card spending and rewards are positively correlated with household income, the payment instrument transfer also induces a regressive transfer from low-income to high-income households in general. On average, and after accounting for rewards paid to households by banks, the lowest-income household ($20,000 or less annually) pays $23 and the highest-income household ($150,000 or more annually) receives $756 every year.

Floyd Norris was on this angle last year in the Times when he asked:

But it does seem absurd to have a system that requires people who do not use credit to subsidize those who do. You know there is something wrong when a middle-class person can get a part of his purchases refunded by the bank, or can collect miles good for free airline tickets, while paying the same price as a poor person who can get none of those benefits.

Drum says:

This is the result of allowing an effective monopoly in the card business, thus giving network providers the power to force merchants to keep interchange fees hidden instead of charging them directly to card users.


And the Journal has the best headline here:

Credit Cards Take From Poor, Give to the Rich

— Mike Konczal takes down a post by The Atlantic’s Megan McArdle in which she tried to poke holes in Elizabeth Warren’s Two Income Trap.

For instance:

I have no idea what to make of this. Megan opens her critique by saying that there’s a massive bias in the data sample implied by the low response rate of 20%. A commenter politely responds that the response rate is 50%. She is very polite as the 50% is on the front page of the 2009 study. Megan then says she meant the interview rate.

Nobody is perfect, especially on the blogs. I’ve messed up data on this blog before, I’ve confused terms that I knew but didn’t catch in a proofread, and I’ve used data and terms that I thought meant one thing that turned out to mean another thing. Anytime someone points this out I correct it, or pause and double-check what I thought, or quietly ditch using that information.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.