Delawareness (with Hal Weitzman)
“Delaware is inescapable,” Weitzman writes. “Delaware is everywhere.”
It was 20 years ago when I had the first inkling that something was rotten in Delaware. I happened upon a 2002 piece for the New Republic called “Rogue State: The Case Against Delaware,” in which Jonathan Chait eviscerates the second-smallest state of the union.1 He begins by grousing about the traffic on I-95—traffic I was well acquainted with, having had numerous trips from New Jersey to D.C. stall out during the 23-and-a-half miles on the other side of the Delaware Bridge:
The State of Delaware had turned the East Coast’s main traffic artery into a sweltering parking lot merely so it could exact a tribute from each driver crossing its miserable little stretch of concrete. The practice of charging road tolls is an archaic holdover blighting much of the Northeast. But Delaware has taken it to a grotesque extreme. Whereas the I-95 tolls amount to less than five cents per mile in New Jersey and four cents per mile in Maryland, in Delaware they cost an exorbitant 18 cents per mile. Which isn’t surprising because, in a deeper sense, Delaware’s tolls epitomize the state’s entire ethos. The organizing principle of the Delaware government is to subsidize its people at the rest of the country’s expense. While tolls represent the most obvious of the state’s nefarious methods, Delaware also utilizes its appallingly lax regulation of banks and corporations to enrich itself while undermining its neighbors. Indeed, Delaware’s image as small and inoffensive is not merely a misconception but a purposeful guise. It presents itself as a plucky underdog peopled by a benevolent, public-spirited, entrepreneurial citizenry. In truth, it is a rapacious parasite state with a long history of disloyalty and avarice.
I remember finding Chait’s piece both interesting and amusing—more a curiosity than anything else. But a lot can change in 20 years. Delaware’s disloyalty and avarice have increased exponentially. Income inequality in the U.S. is worse. Wages are flat. Tax avoidance is a more serious problem. The dirty money sloshing through Delaware is dirtier than ever before. Oh, and one of the state’s longtime senators—whose campaigns were funded in the main by the same Delaware banks, law firms, and other corporations that Chait found so rapacious and parasitic—is now the President of the United States.
Delaware demands a closer look than a delightfully arch article written two decades ago. In his new book, What’s the Matter With Delaware?, Hal Weitzman—the executive director for intellectual capital at the University of Chicago Booth School of Business, and my guest on today’s PREVAIL podcast—has given us that closer look. If Chait’s piece is a tour bus zipping along—or, more accurately, mired in bumper-to-bumper traffic in—the stretch of I-95 in Delaware, then Weitzman’s book is an extensive, on-the-ground backpacking excursion through every nook and cranny in Biden’s fishy home state. (That it’s also an excellent read eases the journey considerably.)
“Delaware is inescapable,” Weitzman writes. “Delaware is everywhere.”
And this is not just a sweeping generalization. It really is everywhere. As he writes:
If you bought this book (or anything else) on Amazon, you’re giving money to a corporation registered in Delaware. If you used Google to find out about the book, you used a service run by a company incorporated in Delaware (as is its parent company, Alphabet). Perhaps you prefer shopping in real stores, so you went to Walmart. That too is incorporated in Delaware. If you’re more upscale and went to Whole Foods, it’s owned by Amazon, so that takes you back to Delaware. If you used a credit card to make your purchase, your credit card issuer may very well be incorporated in Delaware. If you got there in an Uber, you were generating revenue for a Delaware company. You may well be on Facebook or Twitter, which are also Delaware corporations. If you’ve saved money in a retirement account, like half of all working Americans, your funds are very likely invested in a range of companies incorporated in Delaware. If you have a student loan, your lender may well be a Delaware corporation. If you have a brokerage account to buy stocks, both your broker and most of the companies whose stock you’re buying are likely incorporated in Delaware. Even if you just have a bank account, there’s a good chance your bank is incorporated in Delaware. If you’ve ever given money to a US presidential campaign or a political action committee, it might well have been registered in Delaware. If you’ve ever bought anyone a gift card and they failed to spend all of it, you may have inadvertently paid into Delaware’s public coffers.
How did this happen? About a century ago, Delaware made a concerted effort to lure corporate business into the state. It did this by writing laws that were…I was going to say “business friendly,” but friendly is not a strong enough word. Bartenders are friendly. Waitresses are friendly. Delaware transcends mere friendliness. For corporations large and small, Delaware is the Champagne Room. The state is one big corporate red light district.
Here are three shitty things you may not have known about Delaware:
Putting the “secret” in “Secretary of State”
“In order to be as business-friendly as possible,” Weitzman tells me, “Delaware wants to make it as easy as possible to form a corporation. So before the end of this podcast, Greg, you and I could set up a company, in thirty minutes, as long as we paid a little bit of an extra fee. We don’t need to go to Delaware. We don’t need any identification. And the documents don’t need to have our name on them anywhere.”
Too, the office of the Secretary of State is open until midnight—because who among us hasn’t felt the urgent need to start a corporation at 11:30 pm, perhaps after knocking back flights of vodka with well-financed, cologne-swathed guys named Ivan and Sasha?
“It doesn’t take a big leap of imagination to think about who would like to set up an anonymous company in the middle of the night,” Weitzman says. “It doesn’t take a big leap of imagination to realize this has been used by a lot of nefarious actors, and a lot of activity I talk about in the book: narco traffickers, arms smugglers, unfortunately sex trafficking, not to mention the standard bribery, corruption, and kleptocracy. This has all been enabled by Delaware.” (Cut to Elon Musk chest-bumping Vladimir Putin.)
What happens in Delaware stays in Delaware.
Where Gift Cards Go to Die
I have two Subway gift cards connected to the Subway app on my phone. Both of them have less that two bucks remaining, and the app doesn’t let me cash them out and move on. So the money will be on those cards forever.
Well, not forever. You know who keeps the unused money on gift cards? I’ll give you a hint: it rhymes with “Sell a Fare.” As Weitzman explains in his book,
It’s estimated that around $1 billion of the money put on gift cards every year never gets spent. Retailers cannot consider the revenue from these cards as income until it’s spent or declared “unused.” Until then, this money sits in accounting limbo, unearned revenue that appears as a liability on companies’ balance sheets. But a card sometimes has an expiration date. If the card remains unspent by then, or if five years have passed, the money is considered to be unclaimed property. Delaware seizes the unclaimed money from companies that are registered in the First State, in a practice known as escheatment. To be fair, Delaware also operates a website where those who own the funds can try to claim them back. But Delaware has come to be dependent on the funds that consumers have failed to use, for whatever reason. Unclaimed property provided about $444 million to the state’s coffers in 2020. That makes escheatment Delaware’s third-largest source of funds after incorporation fees and income taxes.
The word “cheat,” I’ll point out, is right there in escheatment.
The Art of the Deal
Perhaps the sneakiest, most piece-of-shit thing Delaware does involves high-end art: paintings by the likes of Van Gogh, Picasso, and Leonardo da Vinci. With regard to paintings in that stratum, there are always a lot more buyers than there are works at auction. For ultra-high-net-work individuals, art has become just another commodity, an investment hedge, like buying gold bullion. So some artless hereditary psychopath gazillionaire like MBS can buy “Salvator Mundi,” and then the lost Leonardo (or maybe not Leonardo) vanishes from view forever.
Not only do rich assholes who don’t give a fuck about art own so much good art, but unlike the Gilded Generation billionaires, they don’t give it to museums so the hoi polloi can enjoy it. Often it just stays in a climate-controlled freeport—like the one in Newark, Delaware—to avoid being taxed. New York has a nine percent tax on art purchased at auction. Nine percent of $450 million—what MBS forked over for his possibly fake Leonardo—is, as the saying goes, real money. But because the initial buyer set up shop in Delaware, and the painting was delivered to the freeport there, the Empire State gets fucked out of some $40 million in revenue. And it’s not like Delaware keeps it. It stays in the pockets of MBS, so he has more money to invest in internet trolling, Kushner purchasing, and journalist slaughtering.
As if that weren’t bad enough, art is, as Weitzman explains,
the biggest legal unregulated market in the United States. Anti–money laundering and antiterrorism financing controls don’t apply to art sales—art dealers aren’t required to know the identity of buyers and sales are often done using an intermediary. Americans are prohibited from selling to or buying from individuals or groups on the US Treasury’s sanction list, and the biggest auction houses perform voluntary anti–money laundering checks. Yet shady dealing continues. A 2020 Senate report revealed how Russian oligarchs used art sales to evade US sanctions, buying more than $18 million of artworks using shell companies, including René Magritte’s “La Poitrine (The Chest)” for $7.5 million in a private sale. The report was prepared by the staff of the Senate’s Permanent Subcommittee on Investigations, whose most senior Democratic member is Delaware’s Tom Carper. “Criminals, terrorists and wealthy Russian oligarchs...are able to use an unregulated art industry...to hide assets, launder funds, and evade sanctions,” Carper noted.
There is no good reason why any of this should be. As Weitzman points out, Delaware isn’t even making much money from the art market. It’s basically a nice amenity the state offers its shadiest customers, like a fancy gym in a luxury hi-rise—only pure evil.
All of this is really nice for the movers and shakers in Delaware—the attorneys, the accountants, the financial services managers, and so on. It’s really good for the point-one percenters. It’s lovely for murderous dictators like MBS, Russian oligarchs and mobsters, and tax cheats. It’s bad for literally everyone else on earth. Even ninety-nine percent of the one-percenters lose out.
Time was, New Jersey, not Delaware, was the state that catered to big business. As Weitzman explains in his book, John D. Rockefeller moved the headquarters of Standard Oil to the Garden State—a short walk from the house where I grew up, in fact—for tax purposes, and New Jersey lawmakers devised a lot of the workarounds that Delaware still uses today. On the campaign trail in 1912, Theodore Roosevelt, by then running as a third-party Progressive, lambasted Woodrow Wilson, the governor of New Jersey and the Democratic candidate, for not being able to clean up the corruption in his own state. After the election, and during his lame-duck period in Trenton, Wilson spearheaded legislation that made New Jersey much less friendly for new businesses (while grandfathering in Rockefeller, of course), whereupon the rapacious parasites of Delaware seized the opportunity, muscling in to claim the new business.
In short, a New Jersey politician who became president ended New Jersey’s run as the most business-friendly state. We need a Delaware politician who became president to end Delaware’s.
After sharing his thoughts about Liz Truss, King Charles III, and Hugh Grant, Greg Olear interviews Hal Weitzman, executive director for intellectual capital at the University of Chicago Booth School of Business, about his new book, “What’s the Matter With Delaware?” (Short answer: a lot.) Plus: bare-naked ladies and money.
Watch his book trailer:
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I could have sworn it was earlier than 2002, but then, my memory ain’t what it used to be.