Huffington pigs at the trough; how corporate greed and political corruption are undermining america (2009)

Praise for Pigs at the Trough
“Hu ngton yanks back the curtains on the ’90s ‘go-go market’ to reveal a portrait of Dorian Greed…. wicked

gallows humor … Democrats and Republicans sizzle like bacon under her broilering spotlight. Scrupulous detail
… real porcine heft.”

—Christian Science Monitor
“A rousing call to action. As only she can, Arianna breathes energy and passion into the reform agenda. A
withering, breath taking, quintessentially controversial book that will inspire, in flame, and educate.”

—Senator John McCain
“Arianna Hu ngton makes an appealing and compelling argument for the repeal of human nature—that part of it
that indulges savage, unconscionable, and despicable greed.”

—Walter Cronkite
“Even the most worldly activist and most cynical political observers will be shocked by what they read here. A
powerful book, brimming with wit and sulphurous satire.”

—Publishers Weekly
“With a passion for the truth and an eye for detail, Arianna Hu ng ton reports on the hijacking of democracy.
Read it and weep—then head for the barricades. We have work to do.”

—Bill Moyers
“Arianna Hu ngton has written the most entertaining tour guide to hell since Virgil led Dante through the
Inferno. Crooked CEOs beware!”

—Bill Maher

Also by Arianna Huffington
The Female Woman
After Reason
Maria Callas: The Woman Behind the Legend
The Gods of Greece
Picasso: Creator and Destroyer
The Fourth Instinct
Greetings from the Lincoln Bedroom
How to Overthrow the Government
On Becoming Fearless … in Love, Work, and Life
Fanatics & Fools
Right Is Wrong



For Isabella,

my youngest daughter,
with much love


Acknowledgments
WRITING THIS BOOK was a juggling act—keeping the big themes clear while tracking
all the startling details unfolding every day on the front pages of our newspapers.
Keeping ahead of this moving target could not have been done without a great team.
Deep thanks go to Billy Kimball, who was shuttling back and forth between L.A. and
Long Island, and to Peter Abbott, who landed here for a year from Cambridge, our
shared alma mater in England, and went back the day after the book went to press. I
hope that his decision to return to Cambridge to do a Ph.D. on the use of “terror” in
Greek and Shakespearean tragedy was not entirely the result of researching the “pigs.”

Additional thanks to Chris Kyle, Moira Brennan, Jon Hotchkiss, Roy Seko , Stephen
Sherrill, Victor Abalos, Leslie Borja, Mia Mazadiego, Prof. Christopher Gill, and to my
good friends Mary Arno, David Booth, Bob Borosage, Marc Cooper, David Corn, Lynda
Obst, and Lynn Sweet, who read the manuscript at di erent stages and greatly
improved it.
Many thanks also to my anonymous sources, both at the top of the corporate world
and among the recently downsized who provided fascinating leads and key details. Like
Deep Throat, my inside sources reminded me to “follow the money.” I can’t name them
but my thanks go to them all the same. I can name, however, Steven Weiss, Scott
Klinger, Russell Mokhiber, Robert Weissman, and Micah Sifry.
All my gratitude to my amazing editor, Emily Loose, whose outrage at the pigs never
agged, even after her fourth masterly editorial pass on the same text; and to my
incredible agent, Richard Pine, whose involvement embraced every detail from the
book’s contract to the book’s content. To Steve Ross, who welcomed me back into the
Crown fold, Barbara Marks for the enthusiasm she brought to the book’s promotion, and
Caroline Sincerbeaux for all the many ways she helped the pigs come to life. Many
thanks also to Barbara Sturman for her work in creating an attractive design for the
book, to Amy Boorstein for her expert management of the copyediting, and to Derek
McNally for his efforts to make this book come in on time.
The book is dedicated to my younger daughter, Isabella, who together with her older
sister, Christina, provided constant joyous interruptions.
P.S. My thanks and gratitude go to Whitney Snyder, Nour Akkad, and Roy Seko , as
well as my editor at Three Rivers Press, Sean Desmond, for all their help with Pigs at the
Trough circa 2009.


Contents

Acknowledgments
Preface to the 2009 Edition

INTRODUCTION
Twilight of the Corporate Gods
PIGS ON PARADE
Power, Perks, and Impunity
THE BLOODLESS COUP
The Corporate Takeover of Our Democracy
THE ENABLERS
A Conspiracy of Thousands
THE BINGE AND THE RECKONING
The Chickens Come Home to Roost
Epilogue
Afterword to the 2009 Edition


Preface to the 2009 Edition

W

HEN I WAS ASKED to reissue Pigs at the Trough in the midst of our current economic
crisis, I sat down to reread it and was stunned by how much of what the book
speaks to has brought us to our knees in 2009.
Sure, the characters are di erent, the accounting gimmicks have di erent names, the
sophistication that allows the gimmicks to take place within the law is greatly
enhanced, and the numbers have gone from mere billions to hundreds of billions and
trillions. So, di erent pigs, deeper trough, worse result—but, other than that, the
narrative is unchanged: CEOs and others at the top of the corporate ladder engaging in
rampant—though often legal—corruption to improve the bottom line and line their own
pockets until nally they fall prey to their greed and self-indulgence … only to nd
themselves routinely protected from the retribution of their beloved “free market” by
their companies, their peers—and, ultimately, by the government.

“So the stomach-turning revelations of corruption that have come to light,” I wrote in
the book in 2003, “are surely only the appetizer for a far larger banquet of sleazy
scandals.” Little did I know at the time just how much larger the banquet of scandals
would end up being. It turned into an all-they-could-eat buffet.
The corporate crooks of WorldCom, Tyco, Global Crossing, Adelphia, Enron, and
others pro led in this book were largely playing with shareholders’ money (small
comfort to the thousands who saw their nest eggs scrambled by the likes of Ken Lay, Je
Skilling, and Bernie Ebbers). The new villains are playing with taxpayer money,
trillions of it. During the French revolution, Marie Antoinette and her “let them eat
cake” attitude became the symbol of not getting it. And just like Marie Antoinette, John
Thain, the former Merrill Lynch CEO, didn’t get it even while being led to the corporate
guillotine. Though Merrill Lynch was hemorrhaging money and preparing to lay o
thousands of workers, Thain, reaching new heights of tone deafness, spent $1.2 million
redecorating his o ce. Lowlights included $80,000 for an area rug and $1,400 for a
trash can. And even after Merrill Lynch, in a deal brokered by the government and
partially nanced by taxpayers, was acquired by Bank of America in October 2008,
Thain, sleeping through this wake-up call, asked for a $30-$40 million bonus. He was
awarded a much more appropriate bonus of $0. But he was not stopped from ramming
through $4 billion in bonuses for Merrill Lynch executives just days before the Bank of
America merger became official.
Which brings us to the miserable job Thain did at Merrill, for which he wanted to so
lavishly reward himself. As one insider told the Wall Street Journal, Thain “didn’t really
have a good grasp of what was going on.” But apparently having a grasp of what’s
going on isn’t one of the requirements for becoming America’s highest paid CEO, as
Thain was in 2007, taking in a package worth around $83 million. This disconnect
between performance and reward is at the heart of what has plagued our economy and
has contributed to the crisis we are living through today. In no other industry is this gulf


as wide as it is in the industry that most publicly celebrates its belief in the market

system. Pigs at the Trough deals with the failures both of poorly regulated markets, which
were magni ed in the recent years, and of our market system to appropriately reward
and penalize executives. As Treasury Secretary Tim Geithner put it, “Excessive executive
compensation that provides inappropriate incentives has played a role in exacerbating
the nancial crisis.” The list of clueless Marie Antoinettes of the meltdown is very long.
Among them:
Gateway Financial Holdings executives Ben Berry and David Twiddy, who received
nearly $1 million in bonuses on the same day their bank received $80 million in bailout
money.
Wells Fargo and State Street. Both nancial institutions received bailout money ($25
billion for Wells Fargo, $2 billion for State Street), then turned around and increased the
amount of money they spent lobbying the government in the last quarter of 2008. Not a
bad deal: we give them our money, which they use to pay lobbyists to buy o
lawmakers to give them more of our money—a perfect (if very costly) Washington
perpetual motion machine.
Citigroup, which received $45 billion in government bailout funds—but was still about
to take delivery on a new $50 million corporate jet that featured a “plush interior with
leather seats, sofas and a customizable entertainment center,” until public outrage
forced Citigroup to cancel the order. Let them eat cake … while sitting on plush leather
sofas!
Corporate jets, redecorated o ces, lavish retreats, and CEO bonuses may be small
potatoes compared to the bailout billions poured into the black hole of basically
insolvent nancial institutions. But they are emblematic of the tone deafness of those at
the top of our crumbling economic pyramid. It’s as if nothing has been learned since the
Enron days. It’s just that the numbers got larger. Two days prior to Enron going bellyup, the company gave $55 million in bonuses to senior employees while simultaneously
coming out against additional help for the 4,500 unceremoniously red workers. There
was outrage and recrimination. But little did we know it was just a prelude.
Similarly, in 2002, on the same day WorldCom stunned the world with the magnitude
of its accounting fraud, the company’s inner circle began an extravagant, all-expensespaid vacation at the Grand Wailea Resort Hotel and Spa in Maui—a foreshadowing of
the $443,000 luxury spa retreat executives of AIG took in October 2008, just days after

the government unveiled an $85 billion bailout package for the insurance giant.
And as outrageous as they were, the $165 million in bonuses paid out by AIG in early
2009 were in keeping with what has come to be expected on Wall Street—and come to
be accepted in Washington. Which is why the Treasury Department pushed Senator
Chris Dodd to put a loophole in the stimulus bill allowing these kinds of bonuses—and
why a provision in the stimulus package that would have curtailed bonuses at bailed-out
companies was killed in conference after it had passed the Senate. “It is the ultimate
indictment of what Washington has become,” Senator Ron Wyden, cosponsor of the
eliminated provision, said. “It’s a place where, again and again, the public interest is


deep-sixed behind closed doors and without any fingerprints.”
In his inaugural address, Barack Obama de ned what the New Era of Responsibility
would entail: “A recognition, on the part of every American, that we have duties to
ourselves, our nation, and the world.” But we are a long way from ushering in the New
Era of Responsibility and tossing the Era of Not Getting It into the trash can, one that
costs considerably less than John Thain’s $1,400 wastebasket.
Capitalism comes with great rewards—and commensurate risks. Allowing top
executives to reap the rewards during the good times and having taxpayers pick up the
tab when their gambles don’t pay off isn’t capitalism. It’s lunacy.
But unfortunately, while the collapse of communism as a political system sounded the
death knell for Marxism as an ideology, the ideology of unregulated capitalism remains
alive and kicking even though it has been proven to be a monumental failure. If a
politician announced that his campaign would be guided by the principle “From each
according to his ability, to each according to his needs,” he would be laughed o the
stage. That is also the correct response to anyone who continues to make the case that
markets do best when left alone.
William Seidman, the longtime GOP economic adviser who oversaw the S&L bailout in
1991, said that the Bush administration “made decisions that allowed the free market to
operate as a barroom brawl instead of a prize ght. To make the market work well, you

have to have a lot of rules.” Even Alan Greenspan, whose owl-eyed visage would adorn
a Mount Rushmore of unregulated capitalists, has begun to see the light, telling a House
committee in October that he “made a mistake in presuming that the self-interests of
organizations, speci cally banks and others, were such that they were best capable of
protecting their own shareholders and their equity in the firms.”
Yet, as we are bailing out insolvent zombie banks while letting millions of average
American home owners lose their homes and 401(k)s, it is clear that our leaders are still
operating on the basis of an outdated cosmology that places banks and other nancial
institutions—rather than people—at the center of our economic universe.
Here is one example. Everybody agrees on the paramount importance of freeing up
credit for individuals and businesses. In a bank-centric universe, the solution was a
bailout plan giving hundreds of billions to banks. It failed because, instead of using the
money to make loans, the banks “are keeping it in the bank because their balance sheets
had gotten so bad,” as President Obama acknowledged in March on The Tonight Show
with Jay Leno. As a result, the administration, again according to the president, had to
“set up a securitized market for student loans and auto loans outside of the banking
system” in order to “get credit flowing again.”
But think of all the time we wasted while the rst scheme predictably failed. And how
much better o we’d now be if we had provided credit directly through credit unions or
small, healthy community banks or, as happened during the Depression, through a new
entity like the Reconstruction Finance Corporation.
Yet, in a bank-centric universe, funneling no-strings-attached money to too-big-to-fail


banks is the logical thing to do. In a bank-centric universe, its also no surprise that
“mark-to-market” accounting rules, in which banks have to calculate and report their
assets based on what those assets are actually worth, instead of what they’d like them to
be worth, are being abandoned. A good name for the reworked accounting standards
would be mark-to-fantasy, because that’s basically what balance sheets will be under
these new rules. Of course, to a true believer in bank-centrism, the problem with markto-market is that it’s not good for the banks.

In the years covered in Pigs at the Trough, which ended with the collapse of the “new
economy”—for which Enron was the poster child—“restatement of earnings” became the
euphemism du jour to refer to out-and-out fraud in overstating earnings in the
supposedly meticulous annual reports prepared by well-established accountants and
auditors.
At the G-20 meeting in 2009, Gordon Brown proclaimed that “the old Washington
consensus is over.” Wishful thinking, Mr. Prime Minister, because when it comes to
attacking the nancial crisis, the Wall Street/Washington consensus that has everything
in America orbiting around a few big zombie banks is still the order of the day.
Back in the days after the collapse of Enron, executives at Citigroup and JPMorgan
Chase appeared on Capitol Hill to be lambasted for helping Enron defraud shareholders
to the tune of $8 billion. But after being publicly raked over the coals—branded as boldfaced liars and criminal accessories—they were allowed to go back to Wall Street, heat
up the derivatives market, and produce what turned out to be a nancial Chernobyl.
And once again, in 2009, the Wall Street chieftains were brought back to Capitol Hill to
be theatrically attacked for their misdeeds while, at the same time, hundreds of billions
of taxpayer dollars were being allocated in an attempt to save them. It’s a slap on the
wrist the executives will take every time.
This toxic collusion between nancial interests and policy makers is the only
explanation for policies that appear more driven by the perceived need to save
particular banks than by the clear necessity to serve the American people. This is hardly
an ideological ght. Its a battle between the status quo and the future, between the
interests of the small but extremely powerful nancial/lobbying establishment and the
public interest.
None other than Anna Schwartz, the coauthor of Milton Fried man’s seminal work, A
Monetary History of the United States, 1867-1960, described the battle this way: “They
should not be recapitalizing rms that should be shut down. Firms that made wrong
decisions should fail.” You’d think so, but not while bank-centrism is the dominant
cosmology of our public policy. It’s time to put the American people at the center of this
economic universe.
There is an enormous human cost to this bank-centric dogma. Unemployment, already

at levels not seen since 1983, is skyrocketing. As of this writing, in many places in the
country, it’s approaching 20% (and in Detroit it’s 22%). And the depressing indicators
keep piling up, each statistic representing more pain and hardship.


More than thirty-two million people received food stamps in January 2009, an
increase of 16% from a year earlier. In Philadelphia, demand for emergency food
assistance is up 31%. In New York City, the number of homeless families entering
shelters is up 40%. In Massachusetts, 20,000 new applications for food stamps are
coming in each month, along with 18,000 requests for extensions.
In Arizona, there’s been a 100% increase in the number of people seeking social
services from the state. In Contra Costa, California, 40,000 families applied for 350
available a ordable-housing vouchers. In San Francisco, food banks report a 30% rise in
demand for emergency food assistance. In Lehigh Acres, Florida, demand is up 75%.
With national unemployment approaching double digits, the Center on Budget and
Policy Priorities estimates that the number of Americans driven into poverty will rise by
7 to 10 million—on top of the 37.3 million currently living below the poverty line (and
while that number is the latest from the Census Bureau, it’s from 2007, before the worst
of the downturn).
Making matters worse—much worse—is the fact that the growing need is being met by
a decrease in government programs and charitable services: Eighteen states cut their
welfare rolls last year. The number of families receiving government nancial
assistance is at a forty-year low. In South Carolina, low-income women under forty with
breast or cervical cancer have had their treatment cut. In Nevada, the state’s largest
public hospital has stopped providing outpatient oncology services. In Arizona,
programs to prevent child abuse and lower the number of children in foster care were
slashed. In Florida, home services for poor seniors are on the budget chopping block. In
Utah, 20,000 poor people face being removed from the state’s primary care health
network. And more cutbacks like these seem inevitable as forty-four states are facing
budget shortfalls over the next two years.

“The scale of this is unprecedented,” AARP vice president Elaine Ryan told the Los
Angeles Times. Ryan says that in her nearly thirty years of working on health-policy
issues, “I really have never seen anything like this.”
Meanwhile, over half of the nation’s charitable organizations saw a decrease in
donations in the nal quarter of 2008, normally the time of the year when charities
receive the majority of their annual contributions.
This brutal combination of rising need and lowered services has led to a growing sense
of anxiety, uncertainty, and fear.
“The rst thing we see in times like this,” Los Angeles police chief Bill Bratton told me,
“is a rise in domestic violence.” Adding to the volatility, gun ownership is on the rise.
According to FBI data, gun sales in February 2009 were 23% higher than February 2008.
A study by the National Domestic Violence Hotline found that 54% of those calling the
hotline had experienced a change in their family’s nancial situation in the past year.
“Domestic violence is about power and control,” says a spokesperson for the hotline. “If
you lose control in one area of your life, like losing your job, you may want to exert
more control in another area of your life, like at home.”


Even though there has not been a spike in other types of crime, criminologists say
there is usually a one-year delay between economic downturns and a rise in crime. Not
good news when juxtaposed with a new report that found 63% of police agencies across
the country are facing budget cuts.
You can see America’s already-frayed safety net coming apart, strand by strand.
WRITING about the “grand book” that is the universe, Galileo declared that it “cannot be
understood unless one rst learns to comprehend the language and interpret the
characters in which it is written … without these, one is wandering about in a dark
labyrinth.”
That’s where we nd ourselves today, wandering about in a dark nancial labyrinth—
being led by good men blinded by an obsolete view of the world. But navigating our
economic crisis using maps based on a cosmology that places banks at the center of the

universe can only lead to our being lost for years to come.
If you compare the relative amount of attention given to the banking part of the
nancial crisis—both by the government and by the media—to the amount of attention
given to the fore closure part, the catastrophe faced by millions of American home
owners, the contrast is staggering.
But we are facing nothing less than a national emergency, with 10,000 Americans
going into foreclosure every day and 2.3 million home owners having faced foreclosure
proceedings in 2008. When we put esh and blood on these numbers, the su ering they
represent is enormous, and so is the social disintegration they entail.
“The banks are too big to fail” has been the mantra we’ve been hearing since
September 2008. But when you consider the millions of American home owners facing
foreclosure, aren’t they, collectively, also too big to be allowed to fail?
Despite being treated like an afterthought, foreclosures are actually a gateway
calamity: every foreclosure is a crisis that begets a whole other set of crises. Someone
loses his or her home. It sits vacant. Surrounding home values drop. Others move out.
Squatters move in. Crime goes up. Community tax revenues plummet, taking school
budgets down with them.
So why hasn’t the foreclosure crisis gotten the attention it deserves? A combination of
perverse priorities and awed thinking and the myopia of an increasingly clubby and
isolated political, media, and financial establishment.
At the congressional celebration of Lincoln’s birthday in February, the Senate chaplain
thanked God for our sixteenth president who, as he put it, was able to “transcend the
flawed thinking of his time.”
Clearly, the thinking of our time has been deeply—and disastrously— awed. The
public interest—people being able to keep their houses—is not aligned with the banks’
interest. Banks don’t want to adjust nonperforming mortgages down to their actual
current value because it would lead to marking down the value of the massive asset
pools they have rolled the mortgages into. But it is time to start treating America’s home

owners as well as we’ve been treating Wall Street’s bankers.
It is also time to do something about the growing credit card crisis in the country.
According to the Federal Reserve, the total outstanding credit card debt carried by
Americans reached a record $951 billion in 2008—a number that will only climb higher
as more and more people take the only option available to them and reach for the
plastic to make ends meet. What’s more, roughly a third of that is debt held by risky
borrowers with low credit ratings.
Credit card defaults are on the rise and expected to hit 10% this year. This will
obviously drive many banks closer to failing their stress tests—but it will have an even
greater impact on the lives of people who nd themselves sinking deeper and deeper
into levels of debt that, when coupled with skyrocketing interest rates, they will never
escape.
It’s a particularly vicious economic circle: every day, Americans, faced with layo s
and tough economic times, are forced to use their credit cards to pay for essentials like
food, housing, and medical care—the costs of which continue to escalate. But as their
debt rises, they nd it harder to keep up with their payments. When they don’t, or even
if they miss a payment by a day, the banks then turn around and hike interest rates and
impose all manner of fees and penalties … all of which makes it even less likely
consumers will be able to pay off their mounting debts.
And that’s not the end of the economic downward spiral. As more and more Americans
default on their credit card debt, banks will nd themselves faced with a sickening
instant replay of the toxic securities meltdown from the mortgage crisis. In another
example of Wall Street “creativity,” credit card debt is routinely bundled into “credit
card receivables” and sold o to investors—often pension funds and hedge funds.
Securities backed by credit card debt is a $365 billion market. This market motivated
credit card companies to o er cards to risky borrowers and to allow greater and greater
amounts of debt.
As these borrowers continue to default, banks and the investors who bought their
packaged debt will take a serious hit. And how are the credit card companies trying to
o set the rise in bad debts? By raising rates on the rest of their customers—making it

likely that more of them will end up defaulting, causing even more losses for the banks.
And round and round and round we go. Short-term gain for bankers and their friends.
Long-term losses for everybody else.
And such is the paradoxical nature of the meltdown that Americans are encouraged to
go back to spending in order to get the economy rolling again. But the problem is, more
and more Americans are broke. So the only way they can spend is to charge it, running
up balances on credit cards that are structured in a way that makes it harder and harder
to pay them off.
Getting dizzy yet?
For years, credit card companies have been fattening their bottom lines with an everwidening array of fees. Late fees, cash-advance fees, over-the-limit fees. In 2007, lenders


collected over $18 billion in penalties and fees. JPMorgan Chase, the nation’s top credit
card lender, began charging many of its customers $10 a month for carrying a large
balance for too long a time—that’s on top of the interest they are already collecting on
those balances.
And interest rates are escalating. In February, Citibank warned customers that if they
miss a single payment, they could see their interest go up to 29.99% (so nice of them to
shave o the .01 to keep it from being 30%, isn’t it?). The company also raised rates by
3% on millions of nonpayment-missing customers. Citibank is not alone: Capital One
raised its standard rate on good customers by up to six points, and American Express
raised rates by 2 to 3% on the majority of its customers.
Senator Chris Dodd, chairman of the Senate Banking Committee, accuses the banks of
“gouging,” saying, “the list of questionable actions credit card companies are engaged in
is lengthy and disturbing.” Perhaps he should send the bankers a Bible bookmarked to
Deuteronomy 23:19: “Thou shalt not lend upon usury to thy brother.”
For their part, the bankers have tried to cloak their behavior with nonsense corporatespeak. A Citibank spokesman called the rate hikes the result of “severe funding
dislocation,” and said, “Citi is repricing a group of customers in our Citi-branded
consumer credit card business in the U.S. to appropriately manage these risks.” An
AmEx spokeswoman chalked up its rate hike to “the cost of doing business.”

Making such pronouncements particularly galling is the fact that many of the banks
summarily raising interest rates and piling on the penalties were receiving billions in
bailout money while they were raising the rates on the taxpayers funding the bailout.
Our money. We gave Citibank $45 billion, Bank of America $45 billion, JPMorgan
Chase $25 billion, American Express $3.4 billion, Capital One $3.6 billion, and Discover
$1.2 billion. In fact, American Express and Discover converted to bank-holding
companies to make themselves eligible for bail out funds.
Yet that money seems to have been delivered with no strings attached. Banks cash
their bailout checks, then turn around and gouge their most vulnerable customers.
Priceless.
One of the ironies of the credit card crisis is that the nancial industry laid the
foundation for much of the trouble we are seeing with its full-throated—and deeppocketed—support of the cynically named Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005, a truly loathsome piece of legislation that opened the door to
many of the banking abuses currently ravaging the country. It made it much tougher for
Americans to le for bankruptcy—even the millions of hardworking Americans whose
bankruptcy is the result of a serious illness (fully half of all bankruptcies are the result
of crushing medical expenses). It also did nothing to rein in the kinds of lending abuses
that frequently and predictably turn manageable debt into unmanageable personal
financial catastrophes.
The nancial industry spent $100 million lobbying to get the bill passed—and millions
more in campaign contributions. The shameful result was a sweetheart deal for the


financial industry—with eighteen Senate Democrats voting for it.
And the banking lobbyists are at it again. There are currently several bills in Congress
designed to roll back some of the worst provisions of the 2005 legislation and to bring
about credit card reform. But the banking industry is pushing back hard. Wait, you
might ask, aren’t the banks broke? So where’d they get all that money to lobby against
credit card reform?
From us. There may not be much transparency about the hundreds of billions of

taxpayer dollars doled out through the TARP program, but we know that at least some
of the money has gone into making sure that none of the Bankers Gone Wild behavior
that led to the current disaster is curtailed.
IN Pigs at the Trough, I write how we have spawned a business culture that has made gods
out of those who choose to do the easy thing—whether it’s ripping o shareholders,
avoiding taxes, or slicing and dicing workers—instead of the right thing. And while
some of the corporate Zeuses chronicled in these pages crossed the line into criminal
activity, countless others pulled o elaborate nancial scams, bankrupted their
companies, and plundered their shareholders without needing to break the law. As
Michael Kinsley once famously pointed out, the real scandal in Washington is what’s
legal.
Flash forward to today, as we try to dissect and unravel the even more elaborate
nancial scams that led to the current economic catastrophe, and see that they, too,
were pulled off without the law needing to be broken.
As you read Pigs at the Trough, many names will be familiar to anyone following our
current crisis. It’s a lot like a prequel to where we find ourselves today. Names like Larry
Summers, who is currently part of the White House team working to bring about our
economic recovery, and who, during part of the period covered in Pigs at the Trough, was
Treasury Secretary under Clinton and played an important role in convincing Congress
in 1999 to pass the Gramm-Leach-Bliley Act, which repealed key portions of the GlassSteagall Act and allowed commercial banks to get into the mortgage-backed securities
and collateralized debt obligations game. The measure also created an oversight
disaster, with supervision of banking conglomerates split among a host of di erent
government agencies—agencies that often failed to let each other know what they were
doing and what they were uncovering.
At the signing of the bill, Summers hailed it as “a major step forward to the twentyfirst century.” And a major step back ward for mankind.
Summers also backed Phil Gramm’s other nancial time bomb, the Commodity Futures
Modernization Act, which allowed nancial derivatives to be traded without any
oversight or regulation. So it was on his watch that the credit-default swaps warhead
that has blown up our economy was launched.
Indeed, during a 1998 Senate hearing, Summers testi ed against the regulation of the

derivatives market on the grounds that we could trust Wall Street. “The parties to these


kinds of contracts,” he said, “are largely sophisticated nancial institutions that would
appear to be eminently capable of protecting themselves from fraud and counterparty
insolvencies and most of which are already subject to basic safety and soundness
regulation under existing banking and securities laws.”
It would be hard to make assumptions that turned out to be more wrong than
Summers’s were. For a more accurate portrayal of what Summers described as “largely
sophisticated nancial institutions,” I turn to Matt Taibbi’s devastating depiction of
AIG’s upper management as utterly clueless about the “selective accounting” scam being
run by credit-default swap pimp Joseph Cassano, head of AIG’s 400-person Financial
Products unit (Taibbi dubs Cassano “the Patient Zero of the global economic
meltdown”).
“For six months before its meltdown,” writes Taibbi, “the company had been searching
for a full-time chief nancial o cer and a chief risk-assessment o cer, but never got
around to hiring either. That meant that the eighteenth-largest company in the world
had no one at the helm in these positions just prior to its collapse. The situation was so
bad that when outside consultants were called in a few weeks before the bailout, senior
executives were unable to answer even the most basic questions about their company—
like, for instance, how much exposure the firm had to the residential-mortgage market.”
Taibbi describes Cassano getting on a conference call with investors in 2007 and, as
his credit-default swap portfolio was racking up $352 million in losses, announcing: “It
is hard for us, without being ippant, to even see a scenario within any kind of realm of
reason that would see us losing $1 in any of those transactions.”
These are the kinds of “parties” Summers was so con dent could regulate themselves
and be “eminently capable of protecting themselves from fraud and counterparty
insolvencies.” Of course, it’s not just the Financial Products unit at AIG that belies
Summers’s glib predictions. The toxic balance sheets at megabank after megabank also
tell a very different story.

In a speech at the Kennedy School of Government in September 2000, Summers
declared: “The traditional industrial economy was a Newtonian system of opposing
forces, checks, and balances…. While, in contrast, the right metaphors for the new
economy are more Darwinian, with the fittest surviving.”
He forgot to add the part about the “ ttest” surviving by being bailed out by the rest
of us.
Real economic Darwinism—or Randian capitalism—would mean letting old
institutions that have failed die. Keeping them on life support is not just catastrophically
burdensome for taxpayers but also prevents new institutions from flowering.
What Kevin Phillips, the author of Wealth and Democracy, describes in Pigs at the Trough
as the “ nancialization of the economy” reached new heights as the rst decade of the
new century progressed, and the power of government regulators was deliberately
weakened. “The processes of money movement, securities management, corporate
reorganization, securitization of assets, derivatives trading, and other forms of nancial


packaging are steadily replacing the act of making, growing, and transporting things,”
Phillips wrote. In this nancialization fun house, real pro ts weren’t necessary; you
could simply make them up.
And with George W. Bush’s deregulating regulators refusing to stand guard, the
wizards of Wall Street turned the nancial carnival into an “every-bet’s-a-winner”
casino, where Bernie Ma do , Allen Stanford, and the AIG Financial Products unit could
flourish un detected.
Now Summers and Tim Geithner are trying to clean up the mess. But the way they are
going about it proves that the toxic thinking that got us into this mess is part of their
DNA—and even more dangerous than the banks’ toxic assets. Geithner remains a
creature of Wall Street, habitually sympathetic to the people at the top of the nancial
system. While president of the New York Fed, Geithner eliminated two key regulatory
measures—a quarterly risk report and a ban on major acquisitions—that may have
prevented (or at least lessened the impact of) the unraveling of Citigroup, which his

o ce was responsible for supervising. Then, together with Hank Paulson, he was
instrumental in the original bailout of AIG and the creation of the TARP plan.
And now he has surrounded himself with others who share his Wall Street
Weltanschauung, including his chief of sta Mark Patterson, a former lobbyist for
Goldman Sachs who had fought against then-Senator Obama’s 2007 bill to reform CEO
pay. It’s all one big happy family.
Geithner’s Masters of the Universe, the people he still thinks are the ones we should
trust to save the day are the same people who brought us here. So we continue to know
very little about what’s happening to the stunning amounts of money that have been
doled out over the last few months. The lack of oversight and transparency has meant
that, again and again, what we know is dwarfed by what we don’t know, and what
renders this even more dangerous than it might otherwise be is that these are truly
extraordinary times when things that we never would have imagined are happening all
around us. (Only a year ago, if you’d have said that $7 trillion of shareholder wealth
would be lost in the stock market in 2008, and that the government would spend $2.2
trillion and commit to spending another $7.7 trillion to bolster America’s struggling
nancial system—and that it probably will need to spend even more—no one would
have believed you.)
Pigs at the Trough helps explain how we got here and how the table was set for today’s
pigs to gorge themselves at the public trough, while the average American struggles to
make do with the leftovers.


INTRODUCTION
Twilight of the Corporate Gods
“Old truths have been relearned; untruths have been unlearned. We have always known that heedless

self-interest was bad morals; we know now that it is bad economics. Out of the collapse of a prosperity
whose builders boasted their practicality has come the conviction that in the long run economic
morality pays.”

FRANKLIN D. ROOSEVELT

(Second Inaugural Address, January 20, 1937)

I

N AUGUST OF 2002 I received a politely phrased notice from my cable company,
Adelphia, addressed to “Dear Valued Customer” announcing that my monthly cable fee
would be increasing. The letter explained that, “like other businesses, Adelphia
constantly faces increases in operational expenses such as wages, specialized training
for our employees, utilities, fuel, insurance, equipment….” Missing from the missive?
Any mention of another operational expense that no one at Adelphia seemed too happy
to discuss. During the unfortunate latter days of his reign, former CEO John Rigas had
borrowed $3.1 billion from the company and spread the money around like seed on a
sun-scorched lawn. His own lawn, of course. He spent $13 million to build a golf course
in his backyard, $150 million to buy the Bu alo Sabres hockey team, $65 million to fund
a venture capital group run by his son-in-law, thousands to maintain his three private
jets, and $700,000 for a country-club membership. It’s a wonder my bills not going up a
million dollars a month. I just hope Adelphia’s subscribers aren’t also paying for his bail.
In the super-heated nineties we were told repeatedly that the “democratization of
capital” and unparalleled increases in productivity would level the playing eld and
produce unprecedented gains in everyone’s standard of living. Well, far from closing the
vast gap between the haves and the have-nots, the lunatic excesses and the frenzy of
fraud perpetrated by our high- ying corporate chieftains have left America’s 401(k)s
and pension plans in ruins and more than 8 million people out of work. Meanwhile,
despite the much vaunted Corporate Responsibility Act and the highly publicized round
up of a few of the most heinous o enders, the awful truth is that the corporate tricksters
have pillaged the U.S. economy and gotten away with it. They’re still living in their
gargantuan houses, still feasting on their wildly in ated salaries, and engorging

themselves on staggering sums of stock options, while the rest of America tries to gure
out how to rebuild for retirement. Or send a kid to college on a worthless stock
portfolio.
Ask yourself, Which America do you live in?
Are you con dent that even if you really messed up and not only lost all the
company’s money but also lost thousands of other people their jobs, you’d still walk
away with millions of dollars in bonuses and options and an extremely generous annual
pension payment?


If you answered yes to this question, you live in a very special suburb of America:
“CEO-ville.” It’s a cushy, exclusive enclave that has broken away from the rest of the
Republic, where the motto is “Land of the free, home of the o -shore tax shelter.” The
currency is emblazoned with the inscription, “In God and crooked accountants we trust,”
and the Declaration of Independence includes the phrase: “all men are endowed by their
creator with certain inalienable rights, that among these are stock options, golden
parachutes, and the reckless pursuit of limitless wealth.”
In all likelihood, though, you’re living in the other America, the one 99.9999% of the
country has to make do with. The one in which a record-breaking 1.5 million led for
bankruptcy between March 2001 and March 2002. The one in which investors have lost
nearly $9 trillion since March 2000 and retirement assets lost 11% of their value—$630
billion—over roughly the same period.
How did this divisive and anti-democratic tale of two Americas come to pass? How did
the impossibly rich upper crust get impossibly crustier? How did we allow the haves to
have so insanely much while the rest of America got stuck with the bill? What did our
fearless corporate leaders do to deserve such excessive pay and perks, and severance
packages, as they laid o hundreds of thousands of hardworking Americans, and
magically made trillions of dollars in pension plans and small investor shareholdings
disappear?
It’s not just that corporate America corrupted the watchdogs that were supposed to be

guarding the public interest by feeding them under the table. While it is true that federal
regulators, overseers, accountants, and the corporate boards were only too happy to lick
the hands that fed them, corporate corruption will not just be chased away by a bettertrained pack of Dobermans.
Most of us live our lives according to a set of generally accepted rules. Some are actual
laws, which we may or may not be happy with—who likes paying taxes?—but which we
follow anyway. Others are moral conventions governed by our sense of decency. We
relinquish our seat to an elderly woman on a crowded bus. We hand back the extra
money when a cashier gives us too much change. We don’t gamble away our kids’
allowance in the o ce football pool. And although we’re ambitious, we don’t cheat
people just to speed up our own rise to the top.
A small group of Americans isn’t happy with this arrangement. Not content to conduct
themselves according to a code of fair play that allows more than ample opportunity for
hardworking, talented, or just plain lucky people to prosper—even to become very rich
—they’ve created their own set of rules that defy logic, violate basic decency, corrupt
commerce, and laugh in the face of the laws and regulations established to protect the
rest of us. These are the standards that comprise the Code of the Crooked CEO. It’s a
code of dishonor that rewards unprecedented avarice with gargantuan wealth and
ensures a lifestyle of appalling excess—where “keeping up with the Gateses” means that
having too much is never enough.
Whenever gang members mow each other down in inner-city shootouts, we are
subjected to endless speculation about the root causes of their behavior. Was it a family


breakdown, the absence of a father gure, the scourge of crack cocaine, the rising
illegitimacy rate, or the collapse of religious values? Watching the latest installments of
Must CEO TV—disgraced corporate execs carted o in handcu s or robotically taking
the Fifth in front of congressional committees—I nd myself asking the same question:
What led these men (and, Martha excepted, they are all men, though one suspects that
behind more than a few avaricious men stand greedy women) to do the despicable
things they did?

How could they show such wanton disregard for the well-being of so many? What
makes them tick—and what made them into ticking nancial time bombs? Perhaps
instead of the usual talk-show pundits, it would be more useful to convene a roundtable
discussion on the subject featuring Dr. Freud, Dr. Jung, and Dr. Phil. Call it “The Three
Doctors.”
I’d love to hear what these legendary explorers of the human psyche would make of
the likes of John Rigas, Dennis Kozlowski, Bernie Ebbers, Sam Waksal, and those Three
Horse men of the Enron Apocalypse, Ken Lay Je Skilling, and Andy Fastow. Were they
as some armchair analysts have theorized, kids who grew up with no love in their lives,
now desperately trying to ll the inner void with money and material possessions?
Were they suffering from reckless grandiosity? Grotesque delusions? Sheer madness?
I n Without Conscience, renowned criminologist Dr. Robert Hare identi ed the key
emotional traits of psychopaths. Included in what he called “The Psychopathy Checklist”
were: the inability to feel remorse, a grossly in ated view of oneself, a pronounced
indifference to the suffering of others, and a pattern of deceitful behavior.
Could there be any better example of a person with a grandiose—and sociopathic—
sense of entitlement, of feeling that the rules that mere mortals live by don’t apply to
him, than John Rigas? He thought nothing of “borrowing” $3.1 billion dollars from his
shareholders so he and his sons could live like sultans—even though they were already
fantastically rich, by anyone’s definition, before raiding the company coffers.
If you’re wondering what the inability to feel regret or shame looks like, take a good
look at Dennis Kozlowski. He may have cost Tyco shareholders $92 billion in market
value, and he may be facing criminal trials for tax fraud and for looting $600 million
from the company, but “Deal-a-Day Dennis” refused to let a few unfortunate details like
these stop him from shamelessly hosting a lavish and boisterous Fourth of July bash—
only one month after his art fraud scheme was revealed—at his magni cent spread in
Nantucket and aboard his antique racing sloop.
Whether it was a last hurrah or just excess as usual, Kozlowski spared no expense to
guarantee that a good time was had by all. A legion of private security guards protected
the cases of vintage wine and other goodies being delivered to the yacht, which sat on a

mooring that costs Kozlowski $1.5 million a year. After a sail on the Endeavour, one
eyewitness reported that “he cruised back into port at the helm—like he was a
conquering hero.” Unwilling to try his guests’ sea legs further, Kozlowski next conquered
a lavish repast at the elegant White Elephant restaurant, from which he watched the
island’s annual reworks display. And just to show what a stand-up guy he is, Kozlowski


stood a round of drinks for everyone at the restaurant’s bar. And why not? It’s not like
it’s his money.
You’d be hard pressed to nd a man more willing to play fast and loose with the truth
than that indefatigable social climber Dr. Sam Waksal. He didn’t just lie about big things
like the prospects of FDA approval for his company’s cancer drug, Erbitux. No, Waksal
lied even when there was nothing to gain from the deceit: he claimed he was 52 when
he was actually 54, that he was raised in Toledo, Ohio, when he grew up in nearby
Dayton. Either way, he’s a middle-aged Middle American, so why the subterfuge?
As for Je Skilling, who abandoned Enron’s sinking ship with his $100 million stock
option lifejacket, he exhibits the psychopath’s complete lack of remorse, unable to admit
wrong-doing. Instead he continues to insist he “made the right decisions.”
During the nineties, America fell under the spell of the corporate kingpins, putting a
premium on charismatic CEOs who looked good on the cover of BusinessWeek or being
interviewed on Squawk Box (although many also mainstreamed themselves with
appearances on Larry King or even The Tonight Show). It was the era of the rock star
CEO.
It turns out, of course, that far too many of these preening, pampered, overpaid,
egocentric corporate American Idols were good on the tube or glad-handing Wall Street
but tended to overlook mundane little things like where to list assets and where to list
liabilities on a balance sheet.
The o -the-chart CEO extravagances would be a tad easier to stomach if they had been
paid for with money earned as reward for superior performance. But they weren’t.
Many of these superstar executives were not even good at what they were overpaid to

do. In fact, some were downright atrocious—to say nothing of felonious. But however
much they ravaged their companies’ bottom line, it never seemed to a ect their own
annual haul.
Consider the case of former Ford CEO Jacques Nasser, who was rewarded with millions
in stock and cash despite an awful 34-month reign that left the carmaker’s revenue in a
nosedive and 35,000 workers out of a job. It’s hard to imagine that Ford could have
done worse if they’d just made decisions by letting a monkey flip a coin.
In fact, the CEOs’ lust for excess has been indulged at the direct expense of the
pyramid of workers below them. The very system that the CEOs have taken advantage
of depends upon the premise that the other America follows the other code—the one
based on laws and morality. The scandals at Enron, Arthur Andersen, Global Crossing,
Tyco, WorldCom, Xerox, Qwest, Merrill Lynch, and the rest have exposed a brutal
disregard in the boardroom for the fate of those in the o ce cubicles or on the factory
floor.
Against all odds, Kozlowski, Waksal, Rigas, and Fastow are actually being criminally
prosecuted. But that doesn’t happen very often, because most CEOs and their Praetorian
Guard of lawyers, accountants, and advisors are smart enough not to break the law.
They don’t have to.


The mad stampede of greed that coincided with the waning of the bull market and the
bursting of the loony tunes tech balloon would not have been possible without an
unholy alliance between the CEO class and their buddies on Capitol Hill. For a small fee,
payable at the beginning of each election cycle—some call such fees “political
donations;” others, less concerned with semantics, political correctness, and charges of
slander, call them “legal bribes”—corporate mandarins can purchase an all-access pass
guaranteeing a sympathetic look the other way from our so-called public servants. Sure,
for a few weeks last summer, when the WorldCom bomb made them fear for their
political lives, our political leaders actually passed a set of reforms. But don’t be fooled.
Both political parties have a richly vested interest in corporate corruption.

The hustling salesmen known as stock “analysts,” and their unindicted co-conspirators,
the handsomely attired and blow-dried anchors of the cable business news channels,
hardly held CEOs’ feet to the re. Glaring disparities in compensation, along with an
all-you-can-eat menu of ultra-cushy CEO perks—golden parachutes, interest-free loans,
options with obscene returns—were not only tolerated but winked at. And why should
the average American have begrudged the CEOs their fabulous pay packages? After all,
we thought they were working hard for their money. When stock prices and corporate
values were ying so high, why should small-stake stock punters not believe that highpriced executives were worth their in ated salaries, their personal jets, and their
shareholder-funded mansions?
Now, of course, we know the appalling truth.
With the bull market a distant memory and nearly $9 trillion of market value lost,
those who play by the rules are nally demanding justice. But the harsh and infuriating
reality is that at the top of the economic heap, despite scandal after scandal, and the
much-touted corporate reform bill, little has changed.
Confronted with the ever-growing litany of distasteful abuses, the defenders of the
system of excess and fraud have protested, sometimes with some pro-forma show of
regret, that the invisible hand of the market inevitably anoints both winners and losers.
They blithely sidestep the inconvenient fact that the democratic social contract
depends upon the vast majority of citizens trusting that the economic game is not rigged
like some shady ring-toss booth on a carnival midway. If the playing eld isn’t level,
then the market isn’t free—it’s xed. Despite the disingenuous protestations of the true
believers, the fraud and deceit perpetrated in our corporate suites and boardrooms have
nothing to do with the free market—and everything to do with the swindles and cons
you traditionally associate with a rug bazaar.
“Businessmen,” said Ayn Rand in 1961, “are the symbol of a free society—the symbol
of America. If and when they perish, civilization will perish.” Obviously the high
priestess of free enterprise never met the men of Enron, Adelphia, and WorldCom.
In books such as The Virtue of Sel shness and Atlas Shrugged, the bibles of free
marketeers like Alan Greenspan, Rand championed the idea that by doing what is best
for yourself, you end up doing what is best for society. That equation has now been

turned on its ear. The gross excesses of today’s crony capitalists are no longer aligned
with the interests of their shareholders or workers, or even with the long-term interests
of the companies they run—not to mention society as a whole.
The orgy of money-grubbing by the corporate cabal has in icted real, long-lasting
pain on a host of deceived Americans: emptying their wallets, pillaging their 401(k)
plans and dashing all their expectations for a comfortable retirement. The have-nots
found themselves on the opposite side of an ever-widening economic Grand Canyon
separating them from the have-way-too-muches.
How can there be talk of a shared destiny in a nation where just over 1% of the
population (170 billionaires, 25,000 deca-millionaires and 4.8 million millionaires)
control approximately 50% of the entire country’s personal wealth? Where the richest
20% earn 48.5% of the income and the poorest 20% merely 5.2%? Where, since 1980,
real income for the bottom fifth of families fell by $800, while for the top fifth, it rose by
$56,800?
UPSTAIRS/DOWNSTAIRS
“What we have in this country is socialism for the rich and free enterprise for the poor.”
—Gore Vidal

“The only di erence between the rich and other people is that the rich have more
money,” said literary critic Mary Colum during lunch with Ernest Hemingway in 1936.
In truth, more money is hardly the only di erence. No news ash there. But what should
be making headlines is the fact that the gap between what’s going on upstairs in
boardrooms, executive suites, and private planes and what’s going on downstairs in
office cubicles and on factory floors has become an abyss.
Upstairs: Former Kmart CEO Charles Conaway received nearly $23 million in
compensation during his two-year tenure.

Downstairs: When Kmart led for bankruptcy in 2002, 283 stores were closed and

22,000 employees lost their jobs. None of them received any severance pay whatsoever.
Upstairs: Former Tyco CEO Dennis Kozlowski made nearly $467 million in salary,
bonuses and stock during his four-year tenure.

Downstairs: Shareholders lost a massive $92 billion when Tyco’s market value plunged.
Upstairs: The CEOs of 23 large companies under investigation by the SEC and other
agencies earned 70% more than the average CEO, banking a collective $1.4 billion
between 1999 and 2001.