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Yellen assures lawmakers that banking system is ‘sound’ while pledging collaboration with Congress on budget

Treasury Secretary Janet Yellen testified before the Senate Finance Committee after the collapse of two major banks, while also addressing questions about the proposed $6.8 trillion budget.

Sanders presses ahead with labor rights at hearing after showdown with Starbucks CEO

The Senate HELP Committee heard from labor leaders on Wednesday about the challenges of labor rights.

House passes bill to impose new rules on executive orders to reduce inflation

House Republicans re-introduced the REINS Act to give more transparency to inflation effects of executive orders, but Democrats claim it is a political theater.

Supreme Court questions social media’s role in preventing terrorism

The Supreme Court heard arguments Wednesday for Twitter v. Taamneh, a case questioning whether social media companies can be culpable for aiding and abetting terrorism.

Supreme Court hears arguments on whether to weaken tech companies’ legal protections

Justices asked sharp questions to both the plaintiffs and the defense about whether or not to alter interpretation of Section 230.

Biden To Sign Executive Order Outlining Path Toward Crypto Governing Principles

WASHINGTON — President Biden is expected to sign an executive order Wednesday outlining a nationwide governing approach for cryptocurrency. The measure suggests potential for clarity in a murky financial market that was designed to be difficult to regulate, but which recently re-surpassed $2 trillion in global value. 

The language of the executive order reflects an early attempt to regulate a market that the Commodity Futures Trading Commission Chair Rostin Behnam told Congress in February is “in essence, unregulated.” Executive agencies from the Department of Treasury to the Financial Stability Oversight Council are tasked with developing reports, policy recommendations, studies and regulatory frameworks, as well as identifying risks associated with cryptocurrency use.

New York Times reporters say the executive order was months in the making.

A White House press release outlining Biden’s executive order stressed the importance of the U.S. “maintain[ing] technological leadership in this rapidly growing space, supporting innovation while mitigating the risks for consumers, businesses, the broader financial system and the climate.”

Notably, the order directs government agencies to explore the possibility of developing a U.S. Central Bank Digital Currency (CBDC) — essentially a government-sponsored Bitcoin. 

The move is popular with some international economists who believe the U.S. needs to develop a digital dollar to stay competitive, especially after China developed and began rolling out a digital yuan.

The order also calls for an “unprecedented focus of coordinated action across all relevant U.S. Government agencies to mitigate” the risk of cryptocurrencies’ use in financing illegal activities, according to the press release.

Lawmakers Scrutinize Bank And Brokerage Mandatory Arbitration Agreements

WASHINGTON — Last Thursday, President Biden signed into law a bipartisan bill to bar companies from contractually forcing sexual assault and harrassment complaints into arbitration. Now, the change has reinvigorated efforts to pass similar legislation in the financial services industry.

Forced arbitration agreements require consumers to waive their right to sue in open court or as part of a class action lawsuit, instead bringing their case individually before a private arbitrator. The arbitrator is often selected by the company writing up the contract and is not necessarily required to document its findings.

“Studies have shown consumers do not understand what they’re signing in these agreements.  It’s not because we aren’t smart enough — it’s because corporations pay high-priced lawyers. It’s what they do for a living,” Sen. Sherrod Brown (D-Ohio) said Tuesday at a hearing of the Senate Banking, Housing and Urban Development Committee.

“Corporations even write these arbitration clauses so they can handpick the arbitrator, who works behind closed doors,” Brown said. “They choose the venue, they choose the referee – anywhere else we would call that gaming the system.”

Provisions Aplenty

Most brokerages include mandatory arbitration agreements in their contracts, including Charles Schwab/TD Ameritrade, Fidelity Investments, Bank of America/Merrill Lynch, J.P. Morgan Chase and Robinhood. (And Coinbase, for crypto fans.)

Disputes between brokerage firms and investors are mostly handled by the arbitration arm of the Financial Industry Regulatory Authority (FINRA), a private nonprofit corporation overseen by the SEC. 

The majority of consumer banks, credit card issuers and payday lenders also contain forced arbitration clauses. These companies choose among large arbitration firms like the American Arbitration Association (AAA) or Judicial Arbitration and Mediation Services (JAMS) to resolve disputes.

Under forced arbitration, “consumers can’t go to court if they’re cheated or injured,” said Paul Bland, Executive Director of Public Justice, in a written opening statement. “They have to go to a secretive, unreviewable system, selected by the corporation that wrote the contract.”

“Even if arbitrators make very egregious errors in their decisions, those decisions are almost completely unreviewable by any court,” Bland said.

Law professor Myriam Gilles of Yeshiva University told senators that forced arbitration agreements prevented regulators from noticing and reacting to corporate fraud. As an example, she cited Wells Fargo’s history of opening up fraudulent accounts without customers’ permission.

“The customers were aware of this back in 2013, but it took the rest of us until 2017 to figure out what was really going on. That’s because Wells Fargo used their forced arbitration clause as a shield,” Gilles said.

Disagreeing on the Data

Senators, and the academics and lawyers seated before them, offered varying – and sometimes conflicting – accounts of how common these agreements are in the financial industry, and whether arbitrators were biased toward companies when awarding damages.

Citing data from the Consumer Financial Protection Bureau, Gilles told senators that arbitrators tend to award damages to companies more often, and in larger volumes, than they do to consumers.

Sen. Patrick Toomey (R-Pa.) cited more recent, conflicting data that showed consumers prevailed 14% more often in arbitration and urged the committee not to ban mandatory arbitration agreements. 

“If these efforts are successful, consumers would receive less money less quickly,” Toomey said. 

“The arbitration process uses impartial decision-makers and is subject to strict fairness rules,” said Steven Lehotsky, a lawyer representing the U.S. Chamber of Commerce. He told senators the Chamber supports arbitration as a “lower-cost alternative to our overburdened court system.”

Senators Probe Role Of Asset Giants In Warrior Met Coal Strike

WASHINGTON — A nearly year long coal miner strike in Alabama drew attention to a handful of the largest private equity and asset management companies in the world at a Senate hearing Thursday.

“Just three Wall Street firms, BlackRock, Vanguard and State Street manage 22 trillion dollars in assets,” said Senate Budget Committee Chairman Bernie Sanders (D-Vt.). “The amount of money these three firms control is nearly equal to the entire gross domestic product of the United States.”

The panel met Thursday to consider the role asset management firms like these played in the 11-month strike at Warrior Met Coal, (formerly Walter Energy) a coal supplier to the global steel industry valued at $1.5 billion. 

The coal giant emerged from bankruptcy in 2016 with a new name and a new private equity owner, going public the following year. Afterward, the company paid $1.4 billion in dividends to its shareholders, giving special distributions to firms behind the distressed buyout. These included private equity giants like Apollo Global Management, Blackstone Group and KKR. 

Workers said this payout came at the expense of their salaries.

“As part of the restructuring, workers were forced to take a $6 per hour wage cut,” said Sanders. “The workers agreed to these cuts with the understanding they would be returned when the company returned to profitability. That is not what happened.”

Braxton Wright, a miner at Warrior Met Coal who has been striking after working at the company for more than a decade, told the lawmakers that managers intended to “starve them out.”

“While the company I have helped make billions of dollars for over the past decade has turned their back on the workers during our strike, the UMWA has provided strike pay and major medical insurance for our families,” Wright said, referring to United Mine Workers of America, which represents the striking miners.

Miners and Acquisitions

Private equity is a loose term that describes a range of firms that take on debt to buy mismanaged or underperforming companies and then try to turn a profit. This succeeds if the private equity firm can improve the financial position of the purchased company in the long term and then sell it for a profit. Or, alternatively, bleed the purchased company dry in the short term and walk away with the cash. Or, if the math works out, sell it for scrap and turn a profit that way.

Private equity firms in the U.S. did a combined $1.2 trillion in deals in 2021, more than double the transaction volume in 2020. 

“After sucking as much cash for themselves out as they possibly could, private equity sold off their shares and moved on to the next target,” Sen. Elizabeth Warren (D-Mass.) said of the private equity firms behind the Warrior Met Coal deal. Warren called these firms “vulture capitalists.”

“[A]sset management firms, with trillions of dollars at their disposal, have become more influential than governments and the regulatory entities responsible for keeping them in check,” Nomi Prins, a former managing director at Goldman Sachs, said in an opening statement.

Prins told the committee the multi trillion-dollar asset management firms had no historical comparison, exerting money through private equity buyouts and by using their shares of public companies to vote on issues of corporate strategy. 

“Private equity business practices are largely designed to extract capital, not build it,” Prins said. “As a result, small businesses and communities caught in the private equity crossfire will come under greater control of big finance that puts cost and job cutting ahead of worker stability. 

House Budget Committee Democrats Urge Abolition of Debt Limit

WASHINGTON – The federal debt ceiling has caused headaches for decades. Now, House Democrats are considering the value of doing away with it altogether.

“The debt ceiling has become a political weapon used to extract concessions, or more recently, simply score political points,” Louise Sheiner of the Brookings Institution told the House Committee on the Budget Wednesday. 

Last December, amid a protracted fight over government funding and Democrats’ Build Back Better plan, 209 House Republicans and 49 Senate Republicans voted against raising the debt ceiling. 

“America is one of the few countries in the world that has a debt limit, and none of them go through the crisis we do,” said House Majority Leader Steny Hoyer (D-Md.). He added, “Weaponization of the debt limit puts our country at risk.”

OK, I’ll bite. What’s the debt limit?

The national debt is really a collection of interest-bearing bonds issued by the U.S. Treasury, commonly known as “Treasuries,” and can be purchased here by anyone with at least $100 to invest. 

Roughly one-third of these bonds are held by governments, investors and sovereign wealth funds outside of the U.S. Twenty-six percent are owned by government agencies. The rest is held by U.S. citizens, banks and corporations.

Treasury bonds are regarded as the safest investment in the world. The thinking goes: the U.S. is a currency-issuing government, and there is nothing preventing it from creating new dollars to pay off its debt. By definition, it should always have enough dollars to pay off its loans because it can just make more. Therefore, the risk to the bondholder of not being paid back is zero.

But the federal government is legally only allowed to take on so much debt at a time. The cap — currently set near $31.4 trillion — is known as the “debt ceiling.” If U.S. debt exceeds that ceiling without an extension from Congress, the Treasury will have to stop making basic payments. 

“The debt ceiling is not the amount of money we can spend… it’s the amount we already owe,” said Rep. John Yarmuth (D-Ky.). “You cannot reduce the national debt by failing to raise the debt ceiling, and we have a hundred years of evidence of that.”

The price that lenders are willing to pay for Treasury Bonds directly affects all other interest rates. Defaulting on government debt would quickly send bond prices into disarray. Stocks, commodities, property values and savings accounts in the U.S. could all be put in jeopardy.

To avoid defaulting on debt payments, the government would need to immediately slash spending by 40%, according to a committee report. 

“This would include payments to Social Security, Medicare, Medicaid, nutrition benefits, military salaries and retirement, defense contractors, law enforcement, unemployment insurance and others,” the report states. 

The report goes on to claim that even a short default would be felt for years. “Families would suffer from lost benefits and increased prices, and markets would likely take years to restabilize. Simulations predict that a brief default would lead to millions of jobs lost, with Great Recession-levels of job loss projected in a long impasse.”

Babies and Bath Water

“Debt limit negotiations [have] given us real checks on government spending,” Rep. Jason Smith (R-Mo.) said. “If the debt limit didn’t exist, or was raised to a gazillion dollars, as the chairman has suggested in the past, Washington Democrats would spend without end.”

The ceiling has been raised or suspended many times, under both Republican and Democratic Congressional majorities.

Smith cited rampant inflation, which he claimed is more pronounced in rural areas, as an example of why Congress needs a cap on spending.

“This would severely undermine, if not destroy, the power of the purse… It would let Congress take credit for spending without being accountable for the debt it creates,” Smith said.

Former Office of Management and Budget Director Mick Mulvaney, who served as President Trump’s acting chief of staff from 2019 until 2020, argued that the debt limit rule was “not broken,” pointing out it facilitated necessary conversations.

“How often would you, as members of Congress, be talking about the debt and the deficit if not for the debt ceiling? I can’t remember it ever coming up on the floor of the house when we were there [other than ceiling discussions],” said Mulvaney, previously a four-term member of Congress from South Carolina.

Hoyer called the debt limit “dangerous” and “such a tempting hostage.”

“The serious threat of a potential default in 2011 caused Standard & Poor’s to downgrade America’s credit rating for the first time, based on its assessment that our political dysfunction could inadvertently trigger a financial catastrophe,” Hoyer said. “Sadly, I share that assessment.”

CFTC Asks Lawmakers To Ramp Up Crypto Regulation

WASHINGTON — Cryptocurrencies shed more than $1 trillion in global value since November, and the space is overrun with scams. Wednesday, the regulatory agency tasked with overseeing digital assets told senators they lacked the information, resources and mandate to crack down.

The Commodities Futures Trading Commission is in charge of regulating commodities like wheat or oil, as well as futures contracts that can be exchanged for commodities and traded via financial markets. 

In September 2018, a federal court ruled that digital currencies meet the definition of a commodity under the Commodity Exchange Act. But the CFTC does not have a clear mandate to act, caught between federal regulators with overlapping regulatory interests, like the Securities and Exchange Commission, as well as state agencies.

“We have limited authority,” CFTC Chairman Rostin Behnam told lawmakers on the Senate Committee on Agriculture, Nutrition and Forestry Wednesday. The committee oversees commodities markets, which historically have been solely focused on natural resources.

“There is no one regulator, either state or federal, with sufficient visibility into digital asset commodity trading activity to fully police conflicts of interest and deceptive trading practices that impact retail investors,” Benham said, citing a lack of data from exchanges.

Sam Bankman-Fried, founder and CEO of one such crypto exchange, FTX, told the committee his exchange was in fact more open than most traditional securities exchanges.

“All of our market data is one hundred percent free for everyone. It is available on our website for users, for regulators, for press and for any other interested parties,” Bankman-Fried said. FTX was valued at $32 billion in a recent fundraising round and is headquartered in the Bahamas, a popular tax haven.

Benham said digital asset markets were unique among commodities, “currently characterized by a high number of retail investors mostly engaged in price speculation.” But some familiar trends have carried over.

“We’re seeing the traditional scams used, whether it’s Ponzi schemes, pump-and-dumps,” the CFTC chair said. “It’s no different than what we’ve seen, they’re just using this new asset class as a tool to prey on vulnerable individuals.”

Benham added that there is no one regulator with sufficient view into the complex and secretive cryptocurrency markets to effectively enforce regulations.

The CFTC chair confirmed that the cryptocurrency market has an abnormally high proportion of retail investors, and is marked by high volatility and price manipulation. He listed Ponzi and pump-and-dump schemes among the tactics used to bilk investors.

A recent FTC report listed investment scams, including manipulated cryptocurrencies, as the most profitable scam in the U.S.

“In essence, this is an unregulated market,” Benham said. “We’re relying on retail customers who have been defrauded to bring [complaints] to us.”

“Every American, whether or not they have a bank account, should be able to send money to their loved ones quickly and our financial markets should be available to” everyone, said Sen. Debbie Stabenow (D-Mich.), chair of the committee.

But Stabenow urged caution, pointing out that a third of Americans trading digital assets earn less than $60,000 per year, an allocation of risk the senator called “unacceptable.” She also called into question blockchain’s electricity use and resulting carbon emissions.

“We can’t afford to wait until the next crisis,” Stabenow said.

“Depending on where this technology takes us… we have to be prepared for it to be a part of our macro and micro economy,” Benham told the committee. “We need to prepare now.”

Senators Examine “Texas Two-Step” Bankruptcy Abuses

WASHINGTON — March 2023. That’s when Kimberly Ann Naranjo told senators she was expected to die of mesothelioma.

“It all happened so fast,” Naranjo, a mother of seven, told the Senate Judiciary subcommittee Tuesday. “One week I was enjoying my forever home, surrounded and celebrating life with my family. The next week I was on an aggressive treatment plan in hopes to extend my life by a few months.”

For sixteen months, the Sandy, Utah, resident had used talcum-based baby powder from Johnson & Johnson, later found to contain cancer-causing asbestos. She is now a plaintiff in a lawsuit against the pharma giant.

Because of a bankruptcy trick called the “Texas Two-Step,” Johnson & Johnson is not directly liable for damages.

“There’s a larger scope for fairness here where it looks like companies are getting away with dodging real responsibilities by using complicated trickery that ordinary people don’t have access to,” said Sen. Whitehouse, D-R.I., chair of the Senate Judiciary Subcommittee on Federal Courts, Oversight, Agency Action, and Federal Rights.

Chapter 11 bankruptcy, typically called a “reorganization bankruptcy,” gives businesses an opportunity to manage out-of-control debts without losing control of their company or shutting down operations. Individuals can also file for Chapter 11, though the requirements are slightly different.

The Texas Two-Step goes like this: A company liable for damages (“GoodCo,” in the parlance of a panel of lawyers tasked with explaining the maneuver for the committee) creates a subsidiary company (“BadCo”) and transfers its own legal liability to the subsidiary.

Then, BadCo files for Chapter 11 bankruptcy. Plaintiffs suing for damages cannot recoup money from the financially healthy parent GoodCo, and are left to settle for however much cash BadCo has to offer.

In Johnson & Johnson’s case, this left 38,000 plaintiffs with just over $52,000 apiece to collect from its bankrupt $2 billion subsidiary LTL Management LLC, according to Whitehouse.

“Johnson & Johnson is worth more than $450 billion, and its credit rating is higher than the U.S. government’s,” said Kevin C. Maclay, head of the bankruptcy and complex litigation practice groups at Caplin & Drysdale.

“When the richest and most powerful corporations in the country are using the federal bankruptcy system to avoid paying the most vulnerable people in the country, something is wrong,” Maclay said.

Cloak and Shield

In addition to the Texas Two-Step, recent high-profile bankruptcy cases have also shed light on the strategic use of Chapter 11 to quietly settle lawsuits while legally shielding owners, executives and insurance companies from liability.

A Department of Justice watchdog group Monday objected to a proposed $2.7 billion settlement that would give legal protections to Boy Scouts of America’s insurers and local councils. BSA filed for bankruptcy in February 2020 amid a wave of lawsuits alleging sexual abuse by troop leaders.

The Archdiocese of Santa Fe, which is three years into a bankruptcy case stemming from lawsuits alleging sexual abuse by church priests, is attempting to use Chapter 11 proceedings to shield information about their insurers from public view. Victims’ attorneys say the insurance was sought as far back as the 1990s to secretly prepare for abuse lawsuits.

A bankruptcy judge in White Plains, New York, in 2019 halted thousands of lawsuits against OxyContin maker Purdue Pharma for the company’s role in the deadly opioid epidemic. A 2020 settlement agreement that shielded executives from criminal charges was struck down by an appeals court in December 2021.

Lawmakers: “Ridiculous” 5G Rollout Scramble Was Preventable

WASHINGTON — The rollout of new ultra-fast fifth generation (5G) cellular networks was supposed to revolutionize internet access and cement the U.S.’s technological position against a rising China. Now, lawmakers are trying to figure out how it went so wrong.

“We found ourselves in this absolutely ridiculous situation… where at the very last minute there are claims, cries, demands, what have you, on something that was entirely preventable” Rep. Garret Graves (R-La.) said Thursday during a House Subcommittee on Aviation hearing.

Wireless carriers and cell phone companies paid the U.S. government $81.17 billion in a February 2021 auction, buying up 280 megahertz worth of licensed space in the data-friendly “C-Band” of frequencies. Verizon and AT&T spent a combined $68.9 billion with the intention of rolling out 5G to the U.S.

It turns out there was a catch. A small army of aging planes have been using radio signals — some in or near that vaunted “C-Band” of frequencies — to determine their altitude. Concerns flared in aviation circles that the imminent launch of 5G could cause interference, putting pilots, passengers and shipping networks in real danger.

In a letter to government officials signed by JetBlue, UPS and FedEx among others, executives warned that the rollout would be “catastrophic,” and that “the nation’s commerce will grind to a halt.”

Aviation experts said that these safety concerns should not have come as a surprise.

“We tried for over a year, and we were asking [the Federal Communications Commission] for this data,” Federal Aviation Administration head Steve Dickson told lawmakers Thursday. “As it turns out, the FCC didn’t even have the data we needed.”

According to Dickson, the FAA discovered only later, when working directly with telecommunications companies, that nobody had ever asked them to test the impact of 5G on planes or radio altimeters.

Rep. Peter DeFazio (D-Ore.) expressed frustration that the companies hadn’t been forthcoming about their plans to launch 5G near airports.

“The industry refused to share that data, even though there was a very specific request made by the FAA on November 2,” DeFazio said. He added that the agency didn’t learn about the planned towers until just days before the planned launch date in December.

After a temporary delay urged by regulators at the FAA, Verizon and AT&T have partially turned on their 5G networks in January in select cities and urban areas. 5G towers within a few miles of airports remain inactive while safety officials review the impact on equipment.

Dickson did not provide a strict timeline for finalizing safety standards and getting all planes back in the air. “There will probably be some airplanes that need to retrofit new equipment,” he told the committee, but the agency already cleared dozens of models of altimeters in January.

“We’re still in the middle of a big mess,” Graves said. “Although the temperature has been turned down, there’s a lot of work to do for all parties.”

Expanding financial technology access a solution to racial wealth gap

WASHINGTON — The right technology could aid in mitigating the racial gap in financial health and wealth by making these services more accessible to underbanked communities, panelists shared in a webinar on Wednesday.

“What fintech really does is it enables community based on consumer segments rather than geography and that just provides a lot more options to people,” said Sangeetha Raghunathan, who serves as general counsel and chief compliance officer at Earnin, during a virtual conversation hosted by Brookings Metro.

For many years, Black and Latino communities were considered underbanked because they lacked access to conventional financial institutions. In fact, studies have shown that the unbanked and underbanked rates were the highest among Black adults with Latino adults coming in second.

“There’s actually at least a dozen studies showing the same racial disparities in credit scores for Black and Latinx consumers to a lesser extent,” said Chi Chi Wu, who serves as a Staff Attorney at National Consumer Law Center. 

Fintech, which exists online, allows people to partake in financial services that were not available to them previously due to geographical restraints, among other issues. Now, this technology makes these services more accessible. 

“Today, anybody with a phone has access to the same high-quality services,” said Raghunathan, “and that creates services that cater to a number of different communities that have not been served by traditional financial institutions.”

Although fintech provides an opportunity to improve the financial health and wealth of underserved communities, some worry about the regulations that exist for these companies — and some view regulation as a cornerstone to responsible fintech.  

“Responsible fintechs are not afraid of regulation. What they support is smart regulation. That means regulation that is good for consumers and good for the companies,” said Raghunathan. 

Another concern is that some view fintech as the sole solution to this problem. While fintech provides an opportunity to lessen the racial wealth gap, it only serves as one step of many. 

“I’ve worked at several HBCUs and just found that they didn’t have all of the information about credit or about loans,” said Kristen Broady, who is a fellow at Brookings Metro. “I think that more needs to be done, not just with colleges, but with high schools so that people can learn about credit and all of these products before they start needing them and using them.”

Congress Confronts Self-Driving Safety Standards, Job Loss

WASHINGTON – Automated Vehicles (AVs) are poised to overhaul supply chains and taxi networks, and potentially displace hundreds of thousands of workers. But Congress has yet to give concrete guidance on how regulators should react.

“It shouldn’t be done state by state, it needs to be done federally, and we need to get it right,” Rep. Peter DeFazio (D-Ore.) remarked, adding that the AV market poses a “tremendous challenge” to regulators. 

Lawmakers on the House Highways and Transit Subcommittee Wednesday heard from union leaders, transportation experts and AV company representatives on how this new technology would affect the public. The House previously passed a bill in 2017 that would have regulated self-driving vehicles, but the effort stalled in the Senate. 

Rep. Rodney Davis (R-Ill.) cited data that 38,680 people died in car accidents in 2020. “According to the Department of Transportation, 94% of serious crashes are due to human error,” he said in opening remarks. “Maybe technology would increase safety and save lives.”

“The simple fact is that AVs do not drive drunk, they do not drive while texting, they do not fall asleep at the wheel, and they do not recklessly speed,” Ariel Wolf told the committee. Wolf is general counsel of the Autonomous Vehicle Industry Association, which represents more than a dozen corporations developing self-driving technology.

Wolf said he looked forward to autonomous vehicles making roads safer for his daughters and grandmother. 

Cathy Chase, president of Advocates for Highway and Auto Safety, urged the committee to deploy mechanisms like automatic braking, blind spot detection and lane departure warnings. 

“Advocates is deeply concerned about the rush to deploy under-tested, unproven and unsafe autonomous vehicles… while overlooking the need to advance current life-saving solutions,” she said.

Drivers Versus Data

“It almost seems like a week doesn’t go by without announcing an accident, a computer-triggered accident, with the testing of these vehicles. They’re not ready for primetime,” John Samuelsen, international president of the Transport Workers Union of America, told MNS.

According to Samuelsen, the Transport Workers Union represents 155,000 workers across air, public transit and rail sectors whose jobs are directly threatened by the automation push. Samuelsen asked the committee to fight for those jobs.

In an interview with MNS, Samuelsen said that, during the Sept. 11 attacks, train and bus operators worked tirelessly to bus thousands of people out of Manhattan — sometimes against the direct orders of bosses.

“The robot would have froze, that’s what the robot would have been programmed to do,” Samuelsen said. “[Drivers] actually dropped people off at hospitals and headed right back into the danger zone, with buses loaded with first responders that had no way to get down there.”

Doug Bloch, politics director of Teamsters Council District 7, told the committee unregulated automation could hurt truck drivers as well. 

“Before deregulation in the ‘80s, driving a truck was a good middle class job,” Bloch said. “But in very little time trucking devolved to one where misclassified independent contractor drivers work an average of over 60 hours a week, in many cases, making less than minimum wage.”

“Automation offers an answer to a driver retention problem that the industry itself created,” he said.

Full Steam Ahead

The race is on among giant tech companies to get automated vehicles onto the streets. (Or, in the case of some ambitious ventures like Kitty Hawk, into the air.)

Tesla Motors, which briefly surpassed the trillion-dollar valuation mark in October, plans to have fully self-driving passenger vehicles on the road this year, according to CEO Elon Musk. Musk said he has dreams of borrowing customers’ cars for an autonomous taxi network when they would otherwise be sitting in the driveway unused. 

The technology is close at hand, but not quite ready. Last week, Tesla recalled nearly 54,000 vehicles that don’t fully stop at stop signs.

Uber is also eyeing plans to replace their fleet of independently contracted drivers with algorithms. The rideshare giant owns roughly 26% of AV developer Aurora Innovation after selling the startup its own self-driving division in late 2020, alongside a cash investment of $400 million.

FTC to Congress: COVID-Related Fraud, Price Gouging “Skyrocketing”

WASHINGTON – Elderberries claiming to boost immune response. Empty storefronts posing as testing clinics. Contact tracing calls that are actually from identity fraudsters. Bootleg hand sanitizer from Mexico, fake KN95 masks from China and $60 rapid tests from profiteers all over.

Coronavirus-related scams are overwhelming the government agencies tasked with solving the problem.

In the first of two hearings on pandemic-era price gouging and coronavirus-related scams, senators questioned regulators about an ongoing surge of fraud and false advertising. The House will hold a similar hearing on Wednesday, where lawmakers on the Subcommittee on Consumer Protection and Commerce will consider specific legislation on the matter.

Consumer protection experts from the Federal Trade Commission and the Better Business Bureau described to the committee a rising tide of social media fraud and fake personal protective equipment like masks.

“An unprecedented amount of PPE is coming through our nation’s ports,” Sen. Marsha Blackburn (R-Tenn.) said, pointing the finger at China.

Teresa Murray, director of the U.S. Public Interest Research Group’s Consumer Watchdog Office, cited data confirming that a majority of imported N95 and KN95 masks do not meet standards.

“There is a glaring lack of enforcement at the federal level,” said Sen. Richard Blumenthal (D-Conn.). As subcommittee chair, Blumenthal admonished the FTC for not doing enough, noting the agency had only brought three cases under the expanded authority afforded to them last year.

As for profiteers, Blumenthal implored the FTC to refer more cases to the Department of Justice and other prosecutors. “The only thing these companies understand is prison time and criminal charges,” he said.

In response, Bureau of Consumer Protection Director Samuel Levine stressed the agency’s will to act. “There are a lot of people using this pandemic as a basis to prey on American consumers,” he told the committee, “and we want to make sure they pay a price and know that they’ll pay a price if they persist in their wrongdoing.”

Pressed further by Blumenthal about the agency’s record, Levine put his position more starkly.

“We want to obtain permanent injunctions against these scammers, and put them under court order for the rest of their lives,” he said. “That’s what they deserve, and that’s what we’re gonna be seeking in court.”

A Meta Problem?

Levine called the scope of the fraud problem “staggering” in an article posted to the FTC’s website in November. He cited a marketer on Facebook Live who promised their beaded bracelets would cleanse lung tissue and alleviate COVID-related breathing issues; a clinic on Instagram with hokey vitamins, injections, and “concoction[s];” a doctor who pitched the anti-parasitic Ivermectin as both a COVID-19 prevention and treatment.

In another report published last week, The FTC called social media a “gold mine for scammers” with more than 95,000 people reporting a combined $770 million in losses in 2021. The figure is nearly triple the $258 million reported stolen in 2020.

The most lucrative scam, according to the report, is the “investment scam.” A bad actor encourages users to test their luck with a new cryptocurrency or some other investment and pockets the cash. The majority of these start on social media platforms.

“Romance scams” are the second most profitable. Scammers flirt with their target, most often on Facebook or Instagram, and then ask for money.

But the most common scam by number of reported incidents is bogus online shopping products, with almost 90% of these coming from Facebook and Instagram.

Blumenthal called social media platforms a “mega mall for snake oil salesmen,” but did not call out any particular platforms by name.

HRC: Corporate Support for LGBTQ+ Workplace Equality Continues to Rise

WASHINGTON — A record-number of corporations participated in the Human Rights Campaign’s 20th annual workplace equality survey, the organization announced on Thursday. 

“We are never going to reach a destination but will always be on a path of continuously improving workplaces and setting better benchmarks that capture the needs and the requirements for the whole community to feel included and safe at work,” said Keisha Williams, the director of the Workplace Equality Program at the Human Rights Campaign Foundation.

The 2022 Corporate Equality Index report marks a record-breaking engagement from corporations with the participation of 1,271 companies, which includes 379 Fortune 500 companies. Of these participants, 66% received a score of 100% while only 1.73% received a 0%.

The same focus on protections for the LGBTQ community did not always take center stage, but there has been notable progress since the release of the initial report in 2002.

That year, 319 companies participated in the survey, including 208 Fortune 500 Companies. 4.07% of corporations received a 100% while 0.94% received a 0%. Then as now, the HRC receives information from corporations that is later verified or conducts research from corporations that did not participate in the survey process.

With time, as a growing number of corporations have shown tangible dedication to LGBTQ equality, the HRC has continued to raise the bar so as not to allow entities to become complacent.

“It’s harder to get a score of 100 now than it was 20 years ago,” said Karen Morgan, who serves on the HRC Board of Directors and Business Advisory Council as well as the CRM Operations Manager at GE.

There are seven companies that have maintained a score of 100% throughout the last two decades despite the increased difficulty in doing so. Some companies, however, took a bit longer to receive such high marks.

Originally, Accenture North America received 86% in 2002. Accenture worked to improve its score and consistently received a 100% for the last 15 years. 

“Accenture’s been involved with the Index since its very first year: 2002. And for us, it reinforced how we can all do the right thing,” said Jimmy Etheridge, the CEO of Accenture North America. “All along the way, we have benefited from the Human Rights Campaign’s support.”

During an event to unveil this year’s findings, HRC leaders expressed pride in the progress that it has made over the last 20 years and looks forward to continuing on its mission in the future.

“While we celebrate our successes, we also know that the work must continue,” said Joni Madison, the interim president of the Human Rights Campaign. “With your help, we look forward to driving workplace inclusion and LGBTQ+ equality in the years to come.”

Lawmakers Weigh Blockchain Promise Against Energy Use

WASHINGTON — Although the largest blockchain products have drawn investment toward renewable power sources, their energy footprint is massive — and growing — according to new data that lawmakers grappled with at a Thursday hearing.

“According to one estimate, 2021 carbon emissions from Bitcoin and Ethereum crypto mining were 78.8 million tons of carbon,” said House Energy and Commerce Chairman Frank Pallone (D-N.J.). “Roughly equivalent to the tailpipe emissions of more than 15.5 million gasoline cars on the road.”

At issue is a type of algorithm called “proof-of-work,” which many blockchain networks use to verify and log transactions. The algorithm is designed to process transactions at a set speed no matter how much computing power is spent, and does so by gradually making the underlying calculations more difficult and energy-intensive. 

Since rewards for “miners” who contribute computing power are so plentiful (equivalent to more than $250,000 every 10 minutes globally, just on the Bitcoin network) the amount of computing power devoted to mining has been racing steadily upwards, with no real value being added for people who use the currency.

Pallone added that as of 2022, the estimated energy required to process each Bitcoin transaction could power a typical American home for more than 70 days.


In Defense of Consumption


“The requirement of energy expenditure is one of the features that allow Bitcoin in particular to maintain a credible monetary policy,” Bitfury CEO Brian Brooks told members of the Subcommittee on Oversight and Investigations. 

Brooks rejected the idea that a more versatile “proof-of-stake” algorithm, which has been implemented successfully among other cryptocurrencies, would be worth the energy savings, on the grounds it may be less secure. Based in the Netherlands, Bitfury is one of the world’s largest crypto mining hardware manufacturers.

Ranking member of the Oversight and Investigations subcommittee H. Morgan Griffith (R-Va.) pointed out that there may be benefits to having energy-hungry electricity buyers like crypto miners to consume electricity during hours when surplus electricity is available, and switch off during peak demand times.

“For example, cryptocurrency mining companies in Texas are enrolling in programs with ERCOT to become a controllable-load resource,” Griffith said, referring to the Lone Star State’s non-government electric grid manager. “This can provide stability to a grid, as well as lower prices for other customers.”


Clogging the Grid


Steve Wright, former CEO of the Chelan County Public Utility District in Washington state, in 2014 noticed an influx of cryptocurrency miners coming to take advantage of his county’s high-speed internet and cheap electricity. 

In the years that followed, the practice put tremendous stress on Chelan’s power grid.

“In one instance overloaded distribution infrastructure led to a fire in a vacant lot bordered by residential dwellings,” Wright told the committee in an opening statement. 

He described a hazardous instance, one of several in the county, where someone had packed an apartment unit full of computers for Bitcoin mining and walked away, operating the machines remotely.

“Whether cryptocurrency’s value to society is sufficient for a community to want mining operations based in their area was debated in Chelan County and at best left many of our customer-owners perplexed,” Wright said.

Blockchain networks have come under increased scrutiny internationally. This Wednesday, a top EU regulatory official urged the bloc, now mired in an unfolding energy crisis, to ban proof-of-work mining, telling the Financial Times the practice may imperil goals set forth in the Paris Climate Accords. China banned cryptocurrency altogether in 2021, citing concerns of money laundering and energy inefficiency.


The U.S. Perspective


The scrutiny comes at an inopportune moment for decentralized finance (“DeFi”) enthusiasts, with cryptocurrencies valued at just shy of $2 trillion worldwide and Wall Street firms beginning to embrace cryptocurrencies as legitimate financial assets. Several large securities firms have begun marketing cryptocurrency index funds. The surge in popularity won crypto market Coinbase an $86 billion IPO last April, and the company is now exploring the idea of selling “crypto derivatives.”

Lawmakers on Thursday showed no appetite for crackdowns. 

“Blockchain and cryptocurrency technology bring enormous promise, and this hearing is not meant to stifle that promise or discourage innovation,” Pallone assured the room. “But we do want to examine the potential cost of the crypto mining industry, and what can be done to address those impacts.”



Medill Today | March 2, 2023