Daily Pulse: White Collar Criminals Beware, Why Brazil is Junk, Income Inequality Worries Even Harvard Elite

The Justice Department is going after white-collar criminals. In a memo, Deputy Attorney General Sally Q. Yates instructed federal prosecutors nationwide to go after individuals, not just companies, involved in corporate wrongdoing and to pressure companies to turn over evidence implicating their boards and executives. Yates will discuss the policy today in a speech at the New York University School of Law.

The announcement seems to address criticism of the DoJ for not being tough enough on Wall Street following the financial crisis. The US government collected an unprecedented amount of fines from major banks -- $190 billion at last count -- but most judicial action ended in settlements. Fines barely dented profits and none of the executives who made negligent or nefarious decisions faced a judge or the bars of a cell. As The Atlantic’s William D. Cohan notes in the latest issue, the Justice Department was much harder on FIFA officials for rigging the attribution of a couple World Cups...

“Corporations can only commit crimes through flesh-and-blood people. It’s only fair that the people who are responsible for committing those crimes be held accountable.”

- Sally Q. Yates, deputy attorney general

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China’s yuan moves yet one step closer to reserve currency. Premier Li Keqiang announced the country will be opening up the onshore foreign exchange market to foreign central banks. So far, they had been trading the yuan in Hong Kong at a different rate from the mailand. With this, Beijing moves closer to satisfying IMF requirements for the yuan to join the family of major world currencies alongside the US dollar, euro, yen and British pound. This summer, it started to allow the yuan to fluctuate more freely -- with the results you know. Speaking at the “summer Davos” in Dalian, the prime minister also assured “China won’t see a hard landing in the economy” (he can’t really say anything else) and ruled out quantitative easing.

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Because you’ve heard enough about Greece and China, let’s talk about Brazil. Standard & Poor’s downgraded the country’s sovereign rating to BB+ with a negative outlook aka junk, after 7 years as investment grade. Here’s what’s going on with the once shining star of the BRICs:

• an incredibly unpopular government mired in corruption scandals, with protests calling for President Dilma Rousseff’s impeachment;
• the deepest recession in 25 years at -2.6% in the second quarter and forecast to last the longest since the 1930s;
• a rapidly degrading fiscal situation, with a deficit at 0.5% and debt at 65% of GDP -- numbers Europe would envy, but that have already been reviewed down twice this year;
• inflation at a decade high, near 10%, with outlook rising every week;
• overcapacity and a real estate bubble bursting, with the highest vacancy rate in Latin America in Rio.

But at least there’s the Olympics… For more on Brazil, don’t miss daily updates from our local editor, Rodrigo Brancatelli, who’s taking it all in strides with a great sense of humor. (Google Translate works wonders.)

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Apple's event yesterday did not live up to the hype. (When does it ever?) The company announced a bigger iPad for professionals called, unsurprisingly, iPad Pro that even comes with a stylus, should be nostalgic for your Palm Pilot. Slightly better iPhones too and not nearly as cool a Siri upgrade as we had anticipated. (The beauty of making tech predictions is it never fails to teach you humility.) John C Abell has all the details but really, it's all in these six lines. 

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“Shared prosperity is not around the corner.” You’d expect this conclusion from a Bernie Sanders rally, but maybe not from Harvard Business School alumni. Yet 71% of this business elite has come to see rising income inequality, middle-class stagnation, rising poverty, or limited economic mobility not just as a social issue, but as a problem to their businesses and US competitiveness, according to a survey by HBS’ Jan W Rivkin, Karen G. Mills and Michael E. Porter.

US companies are doing great, respondents said, but are unable or unwilling to share the gains of prosperity with the average American worker. Two-thirds of them found that addressing this issue was more urgent than increasing overall economic growth. And most also found that the issue wouldn’t resolve itself under current US institutions and policies. When asked how will and how should future income gains be distributed, this is what HBS alumni answered:

(Even the predictions on the left are low-balling actual income inequality: it’s estimated that more than half of income gains in 1993-2014 went to the 1%.) So while the idea is gaining traction, business leaders don’t seem optimistic anything will be done about it. First comes realization, then comes action?  

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Photo: U.S. Deputy Attorney General Sally Yates speaks during a formal investiture ceremony for Attorney General Loretta Lynch on June 17, 2015 in Washington, DC. (Photo by Alex Wong/Getty Images)