Fair warning—this report may ruin your day, maybe even your entire week, when you see how the financial industry blatantly prey’s on senior citizens.

This report, a year in the making by an award winning investigative journalist, concerns how financial institutions such as Morgan Stanley and Bank of America currently betray trust by selling so called risk-hedging derivatives to senior citizens. Seniors, of course, care more about risk than any other demographic. They’re generally out of the job market, and depend on that savings account they’ve been socking away for all those decades ideally to make their golden years bright.

“For far too long, brokers have been selling their older clients complex investments known as structured products,” writes Wasik. “These products are so risky, and so costly in fees, that some of them are almost sure money losers. They entered retirement portfolios like Trojan horses, and then destroyed people’s life savings. Yet the financial meltdown of 2008 has not chastened Wall Street. Brokers and banks continue to sell these high-risk investments to people who can’t afford major losses.”

Wasik’s monograph documents that in 2010, banks and brokers sold more than $52 billion of these products. Why? “Mostly because they are hugely profitable to the banks and brokers themselves,” Wasik finds.
Profitable for the banks and brokers, certainly, but genuine losers for seniors, as individual investors have lost at least $113 billion. And counting.  That $113 billion in losses could be a tenth the actual number from these toxic time-bombs, “since most burned investors don’t confront their brokers or win back their money,” Wasik speculates. “Even when investors discover that they’ve lost money, the system is designed to thwart efforts to recover such losses.”
The products hide under inscrutable names: reverse convertibles, equity-linked, buffered or enhanced notes.  A derivative is a gamble based on the outcome of some other instrument, such as a stock, bond, a collection thereof, or an index such as interest rates, or foreign exchange rates. They’re called “derivatives” because their value “derives” from that other instrument.

Chief culprits?  They may be on the list of the largest firms Wasik names: Morgan Stanley, which controls 18 percent of the market; Bank of America with 16 percent; Barclays, with 13%; JPMorgan, with 9 percent; and rounding out the Top Five is Goldman Sachs, with 8 percent.

“Many individual investors are still struggling to recover catastrophic losses suffered from investing in complex derivative-based vehicles that tanked in 2008,” Wasik writes colorfully. “Now, long after the top banks were bailed out and recapitalized by taxpayers and the Federal Reserve, Wall Street continues to sell these dangerous complex products, which lie in wait, ready to unleash a shocking new wave of financial pain.”
There may be a role for these complex instruments. Derivatives, based on complicated mathematical formulas, once traded only in the province of sophisticated institutional investors, who only held small portions of them in multi-billion-dollar portfolios. But, observes the Reuters columnist and author of “The Cul-de-Sac Syndrome,” “In recent years, these complex “structured” derivative products — wagers based on other financial instruments — have been falsely repackaged by Wall Street as ways to preserve principal for yield-starved Main Street investors.”
This trend was documented by more than a year’s worth of research involving interviews with investors, state securities regulators, investors’ attorneys and officials with the Securities and Exchange Commission (SEC).

Wasik also proposes solutions, namely for Congress to fund the SEC more appropriately so it can police this mugging ground better. Wasik’s report comes from Demos. Demos is a non-partisan, New York-based public policy research and advocacy organization founded in 2000. But perhaps Wasik stops short; why not ban the sale altogether to any but the sophisticated investor? That’s the suggestion of Janet Tavakoli, a consultant Wasik interviewed: “These notes flunk the suitability and appropriateness test for retail investors. They also flunk the test for most investment managers, investment advisors and pension fund managers.”

Or we could simply read Wasik’s report and weep.

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Flickr photo by suratlozowick

If you read one thing today…

Here’s a way around the campaign finance law that a number of presidential hopefuls are exploiting.

Rather than establishing a federal political action committee to help pay for the cost of exploring the feasibility of running, some hopefuls are using state organizations instead. Donors  give to multiple state organizations, thereby avoiding the donation limit for a single federal PAC.

The Washington Post described the scheme:

On a single day in October, Eldon and Regina Roth each wrote separate checks to political funds set up by Republican Mitt Romney in five states around the country. That allowed the South Dakota beef barons to donate $190,000 – well beyond limits for contributions to federal political action committees.

The state-based funds are among several creative – and perfectly legal – strategies embraced by potential GOP presidential contenders as they lay the groundwork for 2012. The efforts amount to an aggressive and sophisticated preliminary campaign, in which candidates exploit incentives and gaps in the nation’s patchwork election system.

Federal law requires candidates to establish federal PACs if they are even remotely considering running, but these wily candidates get around that requirement by avoiding all mention of the words “White House.”

Paul S. Ryan, associate legal counsel at the Campaign Legal Center, told the Post:

What we have are fairly sophisticated people with very good lawyers insisting that they’re repeatedly flying to Iowa just to talk about issues. It’s really a bit of a charade at this point.

Sounds like this is something that needs to be addressed. But as we have said before, we need to do more than tinker around the edges. Thanks to the U.S. Supreme Court’s ruling in Citizens United v. Federal Election Commission, corporations can now spend as much as they want to sway elections. What’s needed is a constitutional amendment to overturn that bad decision. If you agree, go to www.DontGetRolled.org and sign the petition.

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In our recent survey, activists across the nation expressed interest in supporting our effort to undo the Supreme Court’s disastrous decision in Citizens United v. Federal Election Commission by gathering petition signatures.

So we created a printer-friendly version of the constitutional amendment petition (PDF), a tip sheet about how to gather petition signatures and a web page where activists can pledge to collect signatures.

We’re already coordinating with activists in Washington, D.C., who are planning to help us gather signatures at several events, including Jon Stewart’s Rally to Restore Sanity. And we’re encouraging activists across the nation to help build the movement by gathering signatures in their own communities.

Petitioning is a fundamental way to show Congress and others in power that the American people demand action against the threat to our democracy posed by the flood of unlimited corporate money into our elections. And we’re convinced that once they hear about it, millions more will join this cause.

As Americans gather this fall for events ranging from local festivals and concerts to political rallies and demonstrations, everyone can play a critical role by collecting signatures.

So take the pledge to gather signatures for the Don’t Get Rolled petition. If you have any questions or ideas, don’t hesitate to get in touch with us at action@citizen.org.

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They just issued a poll that they claim demonstrates public opposition to the DISCLOSE Act – even though their own numbers actually demonstrate broad public support for disclosure!

Jesse Zwick over at the Washington Independent skewers the poll – scarily titled, “Voters skeptical of intrusive disclosure.” In particular, questions 9 and 10 are instructive:

9. For interest groups that run political advertisements, information about members and contributors including their name, home address, employer, and occupation should be reported to the government and posted on line for anyone who gives, any amount of money,$200 or more, $600 or more, $1,000 or more, or more than $10,000.

21% Information about an interest group running political advertising members and contributors should be reported and posted for any contribution

13% For contributions over $200

10% Over $600

23% Over $1000

20% More than $10,000

13% None of this information should be reported to the government or posted online

So … 67 percent of the public thinks donations of more than $1,000 should be disclosed. Seriously, when was the last time you saw 67 percent of the public agree on anything like this? Oh wait, there’s question 10, where 68 percent of the public agree:

10. By law, interest groups that sponsor political advertising must include the name of their group in the advertisement, in addition to filing public reports with further information on the group and the ad. There is discussion to also require the leader and the largest donor to the organization both personally appear in the ad, identify themselves, and state that they approve the ad. Would this additional information allow you to better judge the credibility and accuracy of the ad?

68% This would be of some or great value in better understanding and judging the ad’s accuracy and credibility

22% This would be of little or no value in better understanding and judging the ad’s accuracy and credibility

10% Not sure

One would think an organization with the purported mission “to educate the public on the actual effects of money in politics” would not spend its time deliberately attempting to mislead the public.

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In Citizens United, the court’s “5 to 4 conservative majority broke with decades of precedent and said Congress had no right to ban corporate or labor union spending to influence the outcome of elections,” Dionne said. “The decision is Machiavellian if the conservatives on the court consciously want to bring us back to the 1890s. Or it’s naive because the justices didn’t consider what their ruling would mean in practice.”

Legislation that would at least disclose who is funding campaign ads is currently stalled in the Senate, and Dionne says it is up to three Republican senators to move the bill beyond the roadblock. Tell your Senators to support the DISCLOSE Act.

Learn more about Public Citizen’s work to overturn the Supreme Court’s dangerous decision.

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And now our worst predictions about the Supreme Court ruling are coming true.

Target and Best Buy already have contributed more than $100,000 apiece to the campaign of a corporate candidate for governor of Minnesota.

However, the lack of disclosure laws enable most corporate contributions to remain in the dark and avoid the sort of backlash Target (and to a lesser extent Best Buy) (we know about these contributions only because of Minnesota’s disclosure laws, which are currently being contested in court by defenders of secret electioneering).

The U.S. Chamber of Commerce plans to spend more than $75 million this election season. Karl Rove’s American Crossroads plans to spend $50 million. Americans for Prosperity, an arm of the billionaire Koch brothers’ empire of corporate Astroturf, plans to spend more than $45 million. All told, hundreds of millions in corporate cash are expected to flood the election.

No doubt about it, we democracy-loving people are in the midst of the fight of our lives. Thankfully, there are solutions to the problem of corporate domination in our democracy.

The DISCLOSE Act would force corporations to disclose the names of those who make political contributions that go directly to candidates or front groups used for funneling money to political campaigns.

The Fair Elections Now Act would give congressional candidates a public financing alternative to elections bankrolled by corporations and address the corrosive influence of corporate spending in elections for local, judicial, and state candidates. A similar measure also has been proposed for presidential candidates.

The Shareholder Protection Act would empower stockholders to stop activist CEOs from spending corporate money on electioneering.

And support is growing throughout the country for a constitutional amendment to undo Citizens United v. FEC, the decision that said corporate political spending is “free speech.”

None of these fixes are easy. None of them will make the immense wealth and power that corporations wield to attack any perceived threat to maximum profits disappear overnight.

But with enough people working together toward a solution to this crisis of corporate influence, we can finally achieve a government that is truly of the people, by the people, and for the people. It will be extremely difficult, but it sure will be worth it.

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Stunning Statistics of the Week:

• Amount political parties and outside groups have spent on ads this election season: $150 million
• Amount political parties and outside groups spent on ads at this point in 2006: $109 million
• Percent of those ads this election season that have been negative: nearly 80 percent

Source here.

Video highlights effects on real people of money in politics
A new video from FairElectionsNow.org features real people describing in their own words the profound impact of corporate corruption in Washington. The video shows how big agriculture, corporate coal and BP play the money game to make government work for them – not the American public. As long as members of Congress must rely on donations from corporations and lobbyists to fund their campaigns, wealthy corporate interests will continue to have an outsized role in crafting national policies.

Where there’s smoke, there’s fire: Three members of Congress still in hot water with ethics committee
Enough evidence of wrongdoing exists to continue investigating the link between fundraising events and votes made by three members of Congress, according to the Office of Congressional Ethics. The office is recommending further investigation of three members of the House of Representatives who held fundraisers just days before casting votes on financial reform legislation. The three are Reps. John Campbell (R-Calif.), Joseph Crowley (D-N.Y.) and Tom Price (R-Ga.). Five other members were cleared.

Texans rally against U.S. Supreme Court ruling
Despite a heat index of 104 degrees, folks in Texas rallied recently against the U.S. Supreme Court’s ruling in Citizens United v. Federal Election Commission, which opened the door for unlimited corporate spending to influence elections. Watch the video here.

Two groups try to block PAC request to raise unlimited bucks
The Campaign Legal Center and Democracy 21 are urging the Federal Election Commission (FEC) not to grant a request by a political action committee (PAC) to be allowed to raise unlimited amounts of money for independent expenditures. The National Defense PAC says the U.S. Supreme Court’s Citizens United ruling supports its position. However, the Campaign Legal Center counters that the court has explicitly said that PACs are subject to contribution limits and the Citizens United ruling doesn’t change that.

FEC addresses coordination between candidates and interest groups
The Federal Election Commission (FEC) has issued new rules addressing the sticky issue of coordination between interest groups and candidates. This is a hot topic among campaign finance wonks because if a candidate does coordinate with groups, FEC rules regarding contribution limits and other matters kick in. The commission said that any ads containing the “functional equivalent of express advocacy” for or against a congressional candidate should be subject to campaign finance restrictions. But the new rules, which don’t take effect until after November’s elections, don’t clear things up much, some say. Look for more litigation over this issue.

Bopp strikes again, challenges Hawaii’s campaign finance restrictions
James Bopp Jr., who was involved in the Citizens United suit and who is making a career of challenging campaign finance rules throughout the country, is at it again. He has filed a lawsuit challenging Hawaii’s campaign finance rules, which ban political donations by state and county contractors, require corporations to register as PACs before making donations and limit donations from PACs, among other things.

Dems to IRS: Right-wing group is breaking tax law
The Democratic Congressional Campaign Committee has filed a complaint with the IRS alleging that the right-wing group Americans for Prosperity Foundation is breaking tax law. The group has been running ads in the key election states of Kansas, Missouri and Michigan. The Democrats say the ads are political in nature, which is a no-no under the group’s 501(c)3tax status. Americans for Prosperity denies the charge.

New report: Conservative groups to spend $400 million on elections
Conservative groups will spend $400 million on elections to advance the conservative agenda this year, according to a new report from ThinkProgress, a project of the Center for American Progress Action Fund. That’s more than the Democratic campaign committees spent when they took back both houses of Congress in the last midterm election. The top three spenders are the U.S. Chamber of Commerce ($75 million), American Crossroads ($52 million) and Americans for Prosperity ($45).
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A new video from our friends at FairElectionsNow.org features real people describing in their own words the profound impact of corporate corruption in Washington. You can see from the video that big agriculture, corporate coal and BP are all playing the money game to make government work for them and not the American public.

As long as members of Congress must rely on donations from corporations and lobbyists to fund their campaigns, these special interests will continue to have a huge advantage over real people when it comes to finding policy solutions for the people’s problems.

After you watch the video, urge your members of Congress to end the political money chase by supporting public financing of elections via the Fair Elections Now Act at http://www.citizen.org/supportfairelectionsnow.

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Robert Weissman speaks about oil companies' influence in Congress at a demonstration on Capitol Hill July 20.

We just got back from Capitol Hill where Public Citizen President Robert Weissman spoke about the powers of corporations in Congress and about shifting our economies to sustainable forms of energy.

Weissman noted:

The first step is to get the oil money out of Congress. We’ve got to clean up Congress. We need clean money in our elections.

The demonstration marked not just the three-month “anniversary” of the BP oil spill but also the 41st anniversary of the moon landing. Echoing similar speeches by former Vice President Al Gore, activist Ted Glick called for the United States to use the same motivating energy that led to the world’s first moon landing and harness it as we move away from oil to renewable sources of energy. Faith-based groups also dominated the scene and religious leaders spoke of the urgency we must feel as we go about saving our planet.

What struck me about the event was how many different people had so many reasons why we need to “get off oil” and begin using clean technologies. We don’t need to find all that many new reasons. We’ve known the most important reasons for years. They are quite simple:

• With the effects of Climate Change (which, despite the vocal deniers’ canned statements, most scientists agree is occurring), people will be physically harmed. They will lose their jobs and homes as the coastline recedes and droughts increase both in frequency and severity.
• As fossil fuels become more scarce, the risk of catastrophe increases. The recent BP oil spill is an example of this. Deepwater drilling is very dangerous. As we drill deeper and in more dangerous places, the more likely it is that something might go wrong. In a new documentary, director Josh Fox shows how a dangerous form of natural gas drilling is affecting American citizens’ water supplies.
• Oil money drives organizations such as Al Qaeda and dangerous governments such as those in Iran and Venezuela. We must not continue jeopardize our national security so much.

These reasons are certainly good enough to explain why we have to get off oil. More keep cropping up, but we shouldn’t need them. We should already realize the urgency of the situation.

The situation has become untenable but the oil money in Congress makes things difficult to accomplish. After the rally, protesters went to the offices of the Congressmen who receive the most money from oil lobbyists. It will take an army of public citizens to stop oil money from flowing into Congressmen’s pockets.

A good place to start taking action would be at beyondbp.org. Sign the petition vowing to boycott this disgusting company for three months.

Next, sign up to receive emails from us. Check the “energy” box when you sign up and we will send you the most important news about oil lobbyists and other energy and environment-related issues.

To fight back against corporate influence in elections, visit dontgetrolled.org.

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Last night, Public Citizen participated in a panel discussion about the solutions to the crisis of money in politics following a sneak peak screening of Casino Jack and the United States of Money at George Washington University in Washington, D.C.

Panelists included Angela Canterbury of Public Citizen (above right), Heather Smith of Rock the Vote, Mark McKinnon of Change Congress and Ilyse Hogue of MoveOn.org. You can now watch a recording of the discussion on ustream.tv.

The documentary tells the story of uber-lobbyist Jack Abramoff and teaches tough lessons about the “way Washington works” – an all-too-frequent euphemism for how corporate interests warp the political process to serve their agenda against the public interest.

In the early 2000s, Abramoff siphoned money from lobbying clients into the political war chests of mostly conservative members of Congress. In particular, he cultivated a close (and lucrative) relationship with then-House Majority Leader Rep. Tom Delay (R-Texas), who was indicted and forced to resign because of his association with the scandal.

Abramoff subsequently was convicted of fraud and corrupting public officials. He is now serving a four-year prison sentence. But while Abramoff is out of business, film makes it clear that the corrupting incentives for lawmakers to exchange campaign donations for legislative favors are stronger than ever. (And the film’s Web site also has an interesting tool you can use to compare your members of Congress’ voting record to the interests of their biggest campaign donors.)

Among the solutions panelists discussed was a constitutional amendment to limit corporate influence in elections, as well as the Fair Elections Now Act and the recently proposed DISCLOSE and Shareholder Protection Acts.

Clearly, there is much to be done. But momentum is building to fight for the solutions. This film will help educate and engage activists and spark the necessary discussions that will help push the American people to repair our wounded democracy.

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