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Archive | Senator Carl Levin Column

Report shows need to rein in Wall Street

_V-LevinBy Sen. Carl Levin

 

Recently my Senate Permanent Subcommittee on Investigations held the final hearing I will hold as its chairman and one of the most important. Our hearing, and a 396-page report we issued, examined the involvement of three Wall Street banks in the market for commodities like metal, coal, uranium and energy.

These are not activities that banks typically take on. For decades, our laws restricted banks to traditional banking businesses like taking deposits and making loans, and they were generally barred from commercial businesses like mining coal, warehousing uranium or running power plants. That changed in 1999, when Congress passed a law that weakened that traditional separation of banking and commerce. Our subcommittee spent more than two years examining the impact of those changes, and what we found was worrisome.

While Wall Street’s growing role in physical commodities has been discussed and debated, the scope of this involvement and the potential for abuse have not been widely known.

One problem is that operating things like oil tankers and coal mines exposes banks to immense risks in the event of a natural disaster or a catastrophic accident. A Federal Reserve study we reviewed showed that banks involved in these activities lacked the capital reserves and insurance coverage to cover potential losses. Should catastrophe strike, it could undermine a bank or spark fears that it might fail, which would bring turmoil to the U.S. economy. My colleague on the committee, Sen. John McCain of Arizona, noted the enormous expense of the BP Horizon oil spill in the Gulf of Mexico, and asked, “What if BP had been a bank?”

Bank involvement with physical commodities also raises concerns about unfair trading, and in some cases, outright market manipulation. JPMorgan recently paid $410 million to settle charges by the Federal Energy Regulatory Commission that it used manipulative bidding schemes at its power plants to elicit $124 million in excessive electricity prices in Michigan and California.

One case study from our report highlights the risks to manufacturers, consumers and markets. In 2010, Goldman Sachs bought a Detroit-area company called Metro International Trade Services LLC, which owns a global network of warehouses certified by the London Metal Exchange, or LME, the world’s largest market for trading metals. Under Goldman’s ownership, Metro mounted an unprecedented effort to dominate the North American market for storing aluminum.

Under the LME’s warehouse rules, no matter how many customers want to remove their metal, the warehouse is only required to ship out a limited amount each day. If customers ask to withdraw more metal than the daily minimum, a line or queue forms, and customers have to wait to take delivery. When Goldman bought the warehouses in 2010, the queue in Detroit was just a few days long. But by this year, it had grown to more than 600 days.

We found that Goldman’s warehouse company made a series of complex agreements with some warehouse customers that made it longer. Goldman would pay the owners of aluminum to put their metal in the queue for withdrawal. When that aluminum reached the head of the queue, it was loaded on trucks, but instead of going to a manufacturer, it was shipped a short distance – sometimes just a few hundred yards – to another Goldman-owned warehouse, and placed back in storage. The effect of these deals was that the queue got longer and longer without actually removing any aluminum from the warehouse system.

The lengthening queue boosted revenue at Goldman’s warehouses – the more metal stored in the warehouses, the more rent and fees. But this merry-go-round also affected aluminum prices by increasing the so-called “premium” that customers must pay to cover logistical costs such as storage. Our report found, and expert witnesses confirmed at our hearing, that Goldman’s warehouse, by making the queue longer and pushing the premium higher, was hurting manufacturers and consumers by making aluminum more expensive.

Expert witnesses also told us that if Goldman could use its warehouse to manipulate the queue, and therefore affect aluminum prices, it could profit by employing trading strategies to take advantage of that power. And in fact, Goldman rapidly increased its own aluminum trading after it bought the warehouse company.

Our report offers a number of ways to address these issues. The Federal Reserve is considering rules that could limit banks’ activities in commodities, and it should do so. We also need stronger rules against improper use of insider information and market manipulation. Until such protections are in place, our manufacturers, our markets and our economy are at risk.

Carl Levin is the senior U.S. senator from Michigan and the chairman of the Senate Permanent Subcommittee on Investigations.

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Tax-avoiding companies shouldn’t get contracts paid for with your tax dollars

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By Sen. Carl Levin

Over the last few months, there has been a growing rush of U.S. corporations seeking to swear off their U.S. citizenship and move their mailboxes, for tax purposes, to a low-tax jurisdiction. I don’t think that’s right, and it’s time we put a stop to it. Three months ago, I introduced the Stop Corporate Inversions Act with 22 co-sponsors, which would do just that.

A few weeks ago, Sen. Richard Durbin of Illinois, Sen. Jack Reed of Rhode Island, and I introduced another bill, the No Federal Contracts for Corporate Deserters Act. This new legislation would at least ensure that companies that shift overseas and renounce their U.S. citizenship to avoid taxes don’t get taxpayer-funded federal contracts.

Most Americans agree with us that taxpayer dollars shouldn’t be used for contracts with companies that move their addresses abroad to dodge U.S. laws. Over the last 12 years, Congress has passed a series of restrictions on federal contracting with inverted corporations. We passed restrictions in 2002, 2006 and 2007. Since fiscal year 2008, a government-wide provision banning contracts with inverted corporations has been included in every annual appropriations bill.

The No Federal Contracts for Corporate Deserters Act would strengthen that ban by closing a number of loopholes in the current law. Those loopholes have allowed some inverted corporations to continue collecting revenue from American taxpayers while at the same time shifting their tax burden onto those same American taxpayers. Our bill also makes the existing ban, which has been included in annual appropriations bills, permanent.

Some may say that the real reason for inversions is that our tax rate is too high. It’s true the top corporate rate is 35 percent. But the effective tax rate—what corporations really pay—is about 12 percent. And when companies can go to places like Ireland or the Caribbean and negotiate sweetheart deals to pay little or no taxes, there will always be tax incentives for companies to abandon their country instead of paying their tax bill, no matter what our tax rate is.

Some may say that we should wait for tax reform to address this issue. There are two reasons why we shouldn’t. First, if it happens at all, tax reform is months or years away; these inversions are happening now. Second, this is a bill about contracting.

This bill doesn’t amend the tax code. And it has been referred to the Homeland Security and Governmental Affairs Committee, which oversees federal contracting, and not to the Finance Committee, which oversees tax policy. So even senators who think we should wait until we pass comprehensive tax reform before fixing the tax inversions problem should be able to support this bill.

In similar circumstances in the past, Congress has chosen to act overwhelmingly and in a bipartisan fashion. This should not be a partisan issue. This is about fairness. It is simply unfair to businesses that don’t invert to have to compete with companies that do invert.

This is about putting American families who work hard and pay their share. We shouldn’t sacrifice the interests of those families. We shouldn’t ask them to send their hard-earned tax dollars to contractors who skip out on their tax obligations. I look forward to working with my colleagues to move this legislation forward.

Carl Levin is the senior U.S. senator from Michigan.

 

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In Washington, the need for compromise is greater than ever

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By Sen. Carl Levin

March 21, 2014

 

Not long ago, Northern Michigan University invited me to address students there as part of a series of addresses on public policy. The subject I chose for my address is, in many places, a scandalous subject: compromise.

Almost all of us in Congress have strong opinions on public policy, strong values that guide us. And on rare occasions, all of us agree on what is the right thing to do.

But we live in a large, complex nation. The interests of our state or region are different than those of others. And aside from local interests, sometimes the answer to a problem just isn’t easy or clear. Sometimes we honestly disagree about what’s best for the country.

The challenge for the Founding Fathers was designing a system that could accommodate the widely varying opinions of a nation that needed at least some unity to survive. The solution to that puzzle was our Constitution, which ensures that, while everyone has some voice in our government, no single voice dominates. The whole system forces us to accommodate the views of others, even those who disagree strongly with us, in order to accomplish our goals. It forces us to compromise.

But that system breaks down when compromise is in short supply. And it is a rare commodity these days. Leaders in Washington are influenced by constituents back home who believe “compromise” is a dirty word.

Six months ago, that attitude got us a government shutdown. Some of my colleagues in Congress refused to approve funding to keep the government running. They demanded that any legislation to keep the government open also repeal the Affordable Care Act.

Now I can respect a strongly held opinion, even if I disagree with it. But when you refuse to allow basic government functions to continue unless you get your way – your whole way – our system breaks down.

After all, I have strong opinions of my own. I feel strongly that the tax burden in this country has shifted so that working families bear more of the load, and wealthy people less. Suppose that I, as chairman of the Senate Armed Services Committee, told my colleagues, “I will not allow our annual defense authorization act to come before the committee unless Congress passes a bill that closes unjustified tax loopholes used by corporations and the wealthiest individuals.” What if every member of Congress adopted such an attitude? Each of us would refuse to allow government to function unless we won total victory – and nothing would get done.

And we have so much to do. We have to deal with immigration – with the millions of people who now live in the shadows as undocumented immigrants – and with the economic costs of maintaining the status quo. We have to continue building our economy. We have to discover new worlds and new cures for deadly diseases.

We can’t do any of that if we’re not willing to compromise.

There have been some signs that the wave of hostility to compromise is cresting. Early this year, Congress passed a two-year budget agreement. There were provisions that many of us disliked. But partial agreement meant we avoided the cycle of budget crisis after crisis that has done our economy so much harm.

And just last month, Congress passed a farm bill that had been delayed for almost two years by a variety of disputes. Sen. Debbie Stabenow, who chairs the Senate Agriculture Committee, did a remarkable job getting this bill passed. Nobody agreed with every part of that bill. But we were willing to compromise. We knew that settling for half a loaf, so to speak, was important to the farmers who put the bread on our tables.

These compromises are not so remarkable when you compare them to the scope of the challenges before us. But I hope they are a start. I don’t want to spend my remaining months in the Senate fighting over who can be tougher and more uncompromising. I’d rather spend that time working together on the challenges our country faces – challenges that will affect the lives of the NMU students I spoke to long after I am gone from Washington.

It is time for us all to recognize that if we are to be remembered in a positive light, it will not be for political opponents we hold down, but for the future generations we come together to lift up.

Carl Levin is the senior U.S. senator from Michigan.

 

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A Year of Focused Commitment

_V-LevinBy Sen. Carl Levin

When I announced last March that I would not seek reelection in 2014, I said that I wanted to spend my time working on a number of serious challenges that Michigan and the nation face, rather than on reelection. As we begin the new year, I want to update you on the tests we faced in 2013 and where I believe we can move forward in the year ahead.

Among the tasks I mentioned in my announcement was my responsibility as chairman of the Senate Armed Services Committee to monitor and advance the end of our combat commitment to Afghanistan and to help the services, our troops and their families recover from the strains of more than a decade at war.

In two trips to Afghanistan over the last year, I have seen rapid and positive changes that are transforming security and daily life for the people of Afghanistan. Challenges remain, but our troops and our nation should feel a sense of accomplishment about what we have done there for our national security and for the people of Afghanistan.

In Syria, where severe repression has sparked a revolt against the dictator Bashar Assad, the use of chemical weapons by Assad’s forces against civilians shocked the world. With a strong U.S. push, international pressure pushed Assad into an unprecedented agreement to destroy Syria’s chemical weapons capability. That agreement is an advance for the security of the region and the world.

Pressure on another outlier country—Iran—has for the first time in decades provided at least some hope of progress. Late in the year, the United States and our allies reached an interim agreement that freezes Iran’s nuclear program and could set the stage for a final agreement that ends the possibility of an Iranian nuclear weapon. Like most Americans, I am skeptical of Iran’s leaders, but I believe this interim step should be given a chance to succeed.

As our involvement in Afghanistan recedes, we have an opportunity and a responsibility to give greater attention to tired military families and help the services rebuild military readiness that has been strained by war. But that opportunity will slip away if we do not address the continuing threat of budget sequestration.

Sequestration is the across-the-board, automatic spending cuts that slashed major funding from important domestic and national security programs in 2013. These cuts have closed Head Start classrooms; ended research programs to fight life-threatening diseases; and forced our military to ground fighter jets and cancel important training exercises. The budget agreement we reached at the end of 2013 reduces sequestration’s impact somewhat for the next two years and offers a bit of hope for an end to the cycle of crisis that has plagued Congress. But it does not touch sequestration for the following six years.

In the longer term, there is only one solution to the sequestration problem: We should replace these meat-ax cuts with a balanced deficit reduction plan. Any such plan must include additional revenue. I have introduced two bills that would close unjustified tax loopholes identified by the Permanent Subcommittee on Investigations, which I chair. These loopholes are the source of massive tax avoidance by highly profitable multinational corporations and wealthy individuals at the expense of middle-income families. I will continue searching for common ground with colleagues of both parties to work for a balanced replacement for sequestration.

We’ve made significant progress in recent years in building on Michigan’s manufacturing and technological excellence to enhance our state’s competitiveness and improve opportunities for Michigan workers. The growing strength of our auto industry as it emerges from its restructuring is just one result of these efforts. Michigan is an increasingly important hub for development of green-energy technologies in vehicles and other fields. The Facility for Rare Isotope Beams, a groundbreaking nuclear research facility being established at Michigan State University, reached important milestones. I’ll keep working in the year ahead to strengthen our foundation of economic competitiveness.

The last year was a difficult one for our state’s largest city, Detroit. I and other members of the Michigan delegation have worked to do all we could to make sure that the city has access to all available federal resources to assist in its recovery, and I’ll continue to look for ways to help.

There is no question this year will be a challenging one. My final year in the Senate will be one of focused commitment to the job I was sent here to do.

Carl Levin is the senior U.S. senator from Michigan.

 

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