What’s wrong with these people, er, this picture?

Oo! Oo!  I know how to fix this!  Maybe we can take the fines from the banks like Chase, who now consider fines just protection money they have to pay so they can keep doing what they want, and use it to make Detroit solvent.  Or would we hear whining from Wall Street that it is unfaaaaair to redistribute our country’s tax dollars to the unworthy?

Assholes

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In another story of bad deed doing, Glaxo Smith Kline (GSK) is creating an international incident in China where it has been accused of bribing government officials and doctors with about $500 million in order to raise the price of their prescription drugs.  Note that it was probably the testosterone and amphetamine soaked sales department that came up with this brilliant idea.  Now, China is forbidding GSK’s finance director from leaving the country.  What a splendid idea!  Maybe we should send all of our misbehaving finance directors to China.  Derek Lowe has more on the story.

If I recall correctly, the GSK research site in Shanghai was also accused of some falsification of data that lead to publications being pulled from Nature.  Hey, the management in China wanted to show it could get publications in Nature so it did- by lying.  For a brief time there, the Shanghai site was probably held up as a model of research brilliance by the executive class to all of the other global, loser “centers of excellence” at GSK.  That ought to give the King of Prussia, PA site a nice warm and fuzzy feeling.  We shouldn’t be surprised by the China syndrome.  One of my Chinese colleagues told me that China wasn’t like the US in terms of business infrastructure and relatively low levels of corruption but that only time would prove to the executive class that China wasn’t ready for a world class research industry.

It’s also GSK that proposed to pay their scientists million dollar bonuses if a drug candidate goes blockbuster.  Read Derek Lowe’s post on the topic for a run down of why this is a phenomenally bad idea.

GSK, this week’s poster child.

Convergence: “Reckless Endangerment” and “Can you afford to retire?”

One of the reasons I don’t like labels is because they tend to interfere with the free flow of information that contains some of the most interesting material.  Sometimes, it’s more useful to let your mind float around, collecting flotsam and jetsam without you consciously being aware, until it slams two things together.

Here are two of those things that were separated by several years and aren’t really related to one another on the surface.  And yet, the two of them when considered together point to a very unsettling conclusion that puts the last three years, or thirty years for that matter, in sharp perspective. I’m going to recommend that you listen and read first and then come back.

The first bit of info comes from Gretchen Morgenson’s recent interview on Fresh Air with Terry Gross about her new book Reckless Endangerment: How Outsized Ambition, Greed and Corruption Lead to Economic Armageddon.  Pay particular attention to Morgenson’s story about how James Johnson, head of Fanny Mae petitioned Congress for a government lifeline years before Fanny Mae needed it.

The second bit comes from the transcript of the PBS special “Can You Afford to Retire?”

JAMES H.M. SPRAYREGEN: I would say that Chapter 11 has become somewhat of a more accepted strategic tool than just companies filing who are about to go out of business, or something like that. And as a result, there is more use of Chapter 11 now than probably 20 years ago.

HEDRICK SMITH: Over time, sophisticated lawyers and financial insiders figured out how to game the bankruptcy law. Their strategy enables companies like United to walk away from costly pension obligations.

HUGH RAY, Bankruptcy Attorney: It wasn’t that way some years back. But now it’s become a virtual control situation between the management of a company in Chapter 11 and the bankers. They control the playing field, the size, the shape, and generally, the final score.

HEDRICK SMITH: Hugh Ray, a bankruptcy lawyer for more than three decades, gave me an inside look at United’s playbook in this fat stack of documents known as the judge’s first day orders. First day orders are not actually written by the bankruptcy judge, but by United and its lawyers, hand in glove with its bankers.

HUGH RAY: If you look in the bankruptcy code, you won’t see anything about first day orders. It’s something that’s developed. And the first day order practice is probably the biggest single thing that turned around the practice of bankruptcy to where it is now.

HEDRICK SMITH: First day orders are not written to take care of employees, but to protect the power of management and the loans of bankers.

HUGH RAY: It says right here in the United first day order that the lenders are given superpriority claims­ superpriority­ not just priority, but superpriority.

BILL REPKO, Former Executive, J.P. Morgan: It’s a superpriority claim.

HEDRICK SMITH: Bill Repko, who was with J.P. Morgan, led United’s bank syndicate.

BILL REPKO: The framers of the bankruptcy code recognized that people who were going to lend money to bankrupt companies were embarking upon a very risky enterprise, and so they created a series of safeguards, one of which moved the bankruptcy loan to the head of the queue to get repaid. And that’s called the superpriority.

HEDRICK SMITH: [on camera] It sounds as though, through the first day orders, the whole deal, the whole outcome is pre-cooked.

HUGH RAY: Absolutely, the die is cast.

ELIZABETH WARREN: The question up front about who will have what priorities if this business collapses is where the whole game is won or lost. Ironically, it is the bankruptcy laws that are responsible for much of what has happened here because bankruptcy laws currently say, “Banks, you can take it all,” because bankruptcy laws don’t leave something on the table for the employees and the retirees.

HEDRICK SMITH: [voice-over] So if bankruptcy doomed United’s pensions from day one, why did United take two-and-a-half years to kill its pensions? I asked Jamie Sprayregen.

JAMES H.M. SPRAYREGEN: It may have been, you know, intellectually obvious, but coming up with a process by which to handle adjusting expectations so people would buy into the need to address the pension issue, without it becoming a situation where we would lose what we call the hearts and minds of the employees, was a real challenge and an art.

GREG DAVIDOWITCH, Pres., Flight Attendants Union, United: Ultimately, what we concluded was that management had a very deliberate course of action set out from the beginning of the bankruptcy, which was to roll out demands for concessions over a period of time in an escalating way, in order to bring the employees along without creating a spark that would have led to real labor unrest.

I might actually throw in Too Big to Fail but it wasn’t a great movie.  But at one point, some of the players are talking to Hank Paulsen about the structure of the bailout and ask him what they should do about homeowners or nationalizing the banks.  Ideologically, he was agin’ it.  No expository background explanation or anything.  It was just “No, we’re not doin’ any of that stuff because it goes against our political religion”.  Basically, anything that would have made the investment bankers accountable to the taxpayer was anathema to him and his political philosophy.  Through the agonizing closeups of his sweat drenched, sleepless face, hunched over the toilet as his troubled stomach threatens to hurl again, one gets the sense that he was caught in a difficult position: trying to prevent the markets from crashing while making goddam sure that none of the  the masters of the universe would have the taxpayers be the boss of them.

One more convergence point to show how pervasive and common the assault on us is: The bankruptcy of the Philadelphia Orchestra.

So, what do we have here?  Right now, Republicans are on the verge of winning it all.  There doesn’t seem to be much of a barrier between what they set out to do, which was overturn the New Deal and all of its protections.  How was this accomplised?

1.) Starve the beast.  Privatize a lot of government functions.  Make what’s left work not so well.  Start some unnecessary wars.  Siphon lots of cash to uber free market authorities in war torn countries.  Cut taxes on the rich; dump the responsibility for running government on the poor and middle class.

2.) Set up superpriority orders.  If the markets fail, Fanny Mae gets paid first.  TARP was a superpriority order that made sure the banks and AIG were paid first. I’d be interested to know how many other institutions also have superpriority deals and how many of them have been set up with the aid of Democratic Congressmen and Senators (Frank and Dodd?)  Time to spill the beans.

3.) Once the beast is starved and the rich have received their money, it will be time to move in for the kill and dismantle the pension system, just as if the country were in Chapter 11 bankruptcy.  The squeeze will be applied economically until workers give in and take cuts to Medicare and Social Security.  Medicare probably does need an overhaul.  The government needs to control costs at the provider and consumer end.  But vouchers are not an overhaul.  Vouchers are truck for anyone under 55 who has paid into the system for years, expecting to receive their deferred wages in the form of this particular health benefit.  Instead, we’ll get company issued ‘scrip’ to be used in the high priced insurance market.  There will be no cost controls except on the heads of the hapless worker who had the misfortune to be born after 1956.

So, now we hear that Mitch McConnell is going to move in for the kill and threaten to not raise the debt ceiling in order to get the Democrats to cave.  Hah!  All he needs to do is say, “boo!” very softly and they crumple like dry faded leaves.  And everyone is thinking, “he wouldn’t really do that.  His backers would kill him.”  But that’s not who is going to suffer.  No.  His backer dudes are superpriority creditors who are Too Big To Fail.  The people who are going to take this hit are the retirees who have their money in a 401k.

It doesn’t much matter who wins in the 2012 election if Republicans are successful at wrecking the social safety net between now and then.  The only reason they’ve been running is to get rid of any vestiges of support for the losers who weren’t born rich or don’t have the stomach to eat what they kill.  Once it’s done, it will be difficult to undo.  The Republicans could lose a lot of seats next year, but if they retain enough seats to prevent the reinstitution of the New Deal programs, they can remain a potent minority for a very long time.  Remember that the Democrats had to outnumber Republicans 2:1 in 1964 for Medicare to pass.   Any ratio less than that guarantees Republicans control.  The rest of the right wing crazies can call it a day and retire.  That’s why they are happy as clams to push the button that would send us all into economic armageddon.  They win either way.

So, what would I do if I were Obama?  Well, I wouldn’t mince words for one thing.  What Mitch McConnell is proposing to do is the equivalent of global and domestic economic terrorism.  That’s a very serious threat he’s making.  What do we do with terrorists these days, (well, short of showing up at their compound unannounced and gunning them down without a sensational trial first)?

Maybe a little indefinite detention would be good for Mitch.  Give him time to think things through, clear his conscience, assuming he actually has one.

Thursday: Chrysler, Cytokine Storms and Crowd Control

Eight years of the Bushies have left me paranoid.  I suspect there is a dosier on me in the Department of Homeland Security, I worry about being able to get on planes, and periodically I say “Hi!” to the NSA when I’m on the phone.  It’s hard for me to see myself as a threat to anyone but distrust has become ingrained in many of us since 9-11.  I don’t like to think ill of our government but something feels deeply weird about the recent flu pandemic.

But before I get to that, the big news today is that Chrysler is on the verge of bankruptcy due to the recalcitrance of bondholders to strike a deal with Treasury.  That’s right, banks and hedge funds have been holding out expecting that the government will sweeten the pot instead of forcing the automaker to bankruptcy court where assets will be sold and thousands of jobs lost.  What happens to Chrysler will surely happen to GM and when that happens, I would expect to see a lot of very angry autoworkers who will see their way of life disappear due to the unchecked greed of bank and hedge fund managers. And this is partially due to the gentle handholding that the Bush and Obama administration have been giving the banks since they lost all of our money.  It could get really ugly.  James Kwak at Baseline Scenario has more to say about banks and the government in a Cuban Missile Crisis scenario that will make your blood boil.  Just go read it.

Back to the flu thingy.  Mexico has now issued directives on crowd control due to the “pandemic” swine flu:

The president said a shutdown of a broad range of public services and activities would start Friday and continue through Tuesday, encompassing the long Cinco de Mayo holiday weekend. Most federal offices will be closed; restaurants, schools and museums will remain shuttered; and spectators will be barred from all professional soccer matches.

Churches are expected to be nearly empty on Sunday.

The measures came as the World Health Organization raised its alert level on swine flu to Phase 5 on Wednesday, based on the flu’s continuing spread in the United States and Mexico. Phase 5, the next-to-highest level in the worldwide warning system, has never been declared since the system was introduced in 2005 in response to the avian influenza crisis. Phase 6 means a pandemic is under way.

Worldwide, at least 10 countries have confirmed cases of swine flu.

“All countries should immediately activate their pandemic preparedness plans,” Dr. Margaret Chan, the W.H.O. director general, said at a news conference in Geneva. While she emphasized the need for calm, at times she spoke as if a pandemic had already begun, saying, for instance, “W.H.O. will be tracking the pandemic.”

Now, I’m not a health professional but this seems to me to be a bit of overkill.  I have to assume they know something I don’t but so far there is no evidence that this particular flu triggers a cytokine storm.  A cytokine storm is what killed young healthy adults during our worst flu pandemics in the past.

triggering a cytokine storm

It was the reason for half of the deaths from the 1918 Spanish Flu and was also present in the Asian and Hong Kong flus of the recent past.  A cytokine storm is what happens when your immune system takes it up to 11.  The body sort of overreacts to the flu antigen and unleashes an immune system “storm” of macrophages, T-cells and other elements of its defense arsenal.  Usually, there is a feedback mechanism that tells the body to stop before it goes too far and damages itself.  In cytokine storms, the feedback mechanism doesn’t get triggered so the body can’t stop itself.  People with robust immune systems, where all systems are ‘go’ most of the time, tend to fare the worst during these kinds of flu.

But here’s the thing.  As recently as yesterday, the CDC bulletin on Swine flu makes no reference to a cytokine storm.  It just looks like a normal seasonal flu with the expected symptoms.  The people most at risk are the typical populations: kids under 5, senior citizens, people with compromised immune systems.  Nevertheless, Mexico is closing up shop, going on siesta and cancelling tickets to their soccer games.  It seems a bit extreme.  The only thing I can think of that would provoke this kind of reaction is that the vaccine makers didn’t see this one coming and they don’t have a vaccine ready.  So, we’re all kind of vulnerable- to a typical flu.  If you get it, you can expect to be sick and uncomfortable.  You probably won’t be able to take the cheap anti-virals to make it less bad.  And if you fall into one of the high risk groups, it could be serious.  But other than that?  It’s not like 1918. There won’t be body laden carts driven by lackadaisical smartasses crying, “Bring out your dead!”

Having a country on lockdown seems counterproductive to me, especially in a bad economy.  Not all of us can work from home and some of our employers have made that pretty impossible these days anyway.  I suspect that such a directive could make the economic crisis exponentially worse.  But yesterday as I went into work, there were signs posted on the doors telling people to not enter the buildings if they had a runny nose, sore throat, fever or cough.  I considered for a moment whether my scratchy throat was due to spring pollen or some deadly plague and decided that going through the medical review team gauntlet was probably not worth the day off and went in.  But still, you have to wonder why we go to these extremes over a typical flu.  Maybe we’re just covering our asses.  Maybe we just can’t deal with illness these days when everyone expects a quick cure and a shot for everything.  Or maybe it’s just a perfect excuse to keep everyone scared and indoors.

I told you I was paranoid.

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The Cram Down Myth

*Disclaimer: nothing in this post should be construed as legal advice. If you think bankruptcy might be right for you, you should consult with an attorney. Your state bar association will be able to refer you to an attorney licensed to practice law in your state.

“How did you go bankrupt?” Bill asked.
“Two ways,” Mike said. “Gradually and then suddenly.”
Ernest Hemingway, The Sun Also Rises

The image of the irresponsible debtor dripping in diamonds, driving around in a flashy car and burning money while nonchalantly filing bankruptcy is a stereotype created by the credit card and banking industries to guilt middle class Americans into thinking of bankruptcy as some shameful act to be avoided on pain of death instead of what it is: a financial planning tool. The vast majority of people who file bankruptcy are honest, hard-working people who paid their bills on time and never dreamed of filing bankruptcy until . . . until that devastating illness kept them out of work for 6 months, until the insurance coverage turned out to be inadequate, until the divorce, until the factory closed, until, until, until. No one is immune.

The law recognizes that sometimes unforeseen, uncontrollable events can lead a consumer to accumulate unmanageable debt that can ruin their lives. For this reason, the Bankruptcy Code was written: to provide the honest but unfortunate debtor with a fresh start. Yet, every single person who walks through my door for a consultation ends up crying in my office. They have spent months without sleep stressing out about how in the world they will ever pay down their overwhelming, soul-crushing debt. Often they have been working two jobs trying to make ends meet. They have been robbing Peter to pay Paul in the hope that something will turn up to enable them to catch up on their bills. I am their last resort and they know it, or they would not have come to see me.

And still they do not want to file bankruptcy. Still they hope against hope that I will be able to tell them that that there is something (anything! can I sell my kidney?) else they can do other than filing bankruptcy. Anyone who expects me to tell the 60 year old hair dresser with no insurance and $100,000 in medical bills from her double-mastectomy who walked into my office a year ago to work until she is 90 and go without “luxuries” (like food) so that she can pay that debt because it is the “responsible” thing to do can just stop reading now. And I suggest you avoid my future posts as well.