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.

I wouldn’t celebrate yet

We need the passengers of United 93

Today Paul Krugman wrote in Medicare and Mediscares about the Republicans hoisting themselves on their own petard by embracing Paul Ryan’s plan to gut Medicare.  The triumph of the Democrat in a special election in NY-25 was supposed to be evidence that the Republicans had gone too far.  Now, if Democrats can only capitalize on the mistakes Republicans have made, maybe they can win in 2012!

Not so fast.

Have you seen gas prices lately?  I wanted to buy some cherries yesterday at Wegman’s.  LOVE those things.  But at $3.99/lb the prepacked bag was going to set me back $8.00.  My kid loves fresh fruit but the cherries went back for a more sensible quart of strawberries.  On an unemployment budget, cherries are out of the question.

A lot more little luxuries like that will become increasingly out of the question this year.  Most employers in my industry are laying off and the R&D professionals are scrambling for anything they can get, even working for peanuts, in order to make the mortgage and fill the gas tank.  Health insurance?  Such a distant memory.  We have a nation of pre-retired professionals who are having a lot of trouble making ends meet.  It’s been this way for three years and counting and from what I can see, it’s only going to get worse.

And that’s just what the Republicans have planned.  They’re taking a page from the playbooks of big companies like United Airlines and GM, which declared bankruptcy and renegotiated all of their union contracts.  If you want to know how this works, check out the PBS special “Can You Afford to Retire?” that was broadcast in May 2006.  Here’s how the companies wear you down until you finally give in and scream, “take my pension! PLEASE!!”  From the transcript:

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.

HEDRICK SMITH: [on camera] A strike.

GREG DAVIDOWITCH: A strike.

ELIZABETH WARREN: What it really comes down to is, How much can we take away from the employees before they finally say, “Fine, you take it, but I’m not working here anymore.” And no one else will come to work for them, either. That’s what corporate reorganization in America has become, “How much less can I give you and still keep you here?

The Republicans loathe Elizabeth Warren with a white hot intensity.  She’s got their number.  It’s very important to get her to STFU, to waste her time, to humiliate her and make sure she never gets an appointment to the CFPC.  She’s got powerful mojo.  By the way, I think the R&D industry has crossed the line with their workers.  Experienced researchers are getting out and new ones are getting scarce.  The field is too demanding and difficult to find that you’ve wasted 10 years of your life in school only to land a job making $37,000/year and no health benefits.  And no, I don’t expect India or China to be able to make up the slack for a long time.

So, the company starts putting a lot of pressure on the employee.  Pay is cut, benefits are cut, hours are increased.  Before you know it, you’re doing a lot more work for a lot less pay.  The changes are slow and gradual.  The company doesn’t want the employees striking or jumping ship.  But the give backs start to wear on the employee to the point where there is really not much more that can be cut in the short term without inflicting real pain and inciting sans culouttes type resentment.  To avoid that, the company goes in for the kill and tells the employee that the only thing that will save the company and their jobs is if they give up their pension benefits.  Before they know it, the employee ends up with a pension 1/3 the size of the originally promised benefit.  The CEO rides off into the sunset with a huge bonus having done the job he was hired to do.

(Hmmm, is this the roadmap that Pfizer is following right now?  I wonder…)

This is what the Republicans (and some accommodating Democrats) are trying to do with the country as a whole.  They want to eliminate Social Security and Medicare.  But provoking us outright is dangerous.  There may be rioting and strikes.  So, they put pressure on us gradually.  They keep the fiscal stimulus package small,  it runs out years before it can engage the country’s economic gears, they pursue a deficit reduction policy while allowing unemployment to rise, they make it difficult for the unemployed to get benefit extensions, they allow houses to foreclose without an effective program to help strapped, unemployed homeowners and they raise gas and commodity prices to inflate the costs of food.

All this puts a lot of stress on the average American.  Spending starts to grind to a halt, putting even more pressure on small businesses, who in turn lay off more people.  And let’s not forget the Republican governors who want to suspend collective bargaining rights.  It is all designed to make the average American feel so much pressure that they will scream “Uncle!” and be a lot more willing to talk about what Medicare and Social Security means to them.

Republicans may be mindless borgs but they are really good at assimilating the rest of us.  There is still an entire 17 months between us and the 2012 election.  I anticipate a lot more pain as the Republicans crank the rack on which we are stretched.  We will be screaming and begging for relief before they are done.  And that’s when they’ll hand us the papers for us to sign away our deferred wages for Medicare benefits and all of the extra taxes that we late boomers put away for the surplus.  Timing is everything and they’ve got time to get the job done.  There won’t be a significant number of special elections before Nov. 2012 and what do they care if they lose a lot of seats in Congress in 2012?  They will have accomplished what they have been trying so hard to do since the New Deal was enacted 70 years ago- kill it dead.  Once the social safety net is gone, it will be very hard to revive.  To their backers, they will be heros and ride of into the sunset with mighty fists full of dollars.

Democrats aren’t stupid.  They know what’s going on.  We have to assume that some of them are OK with this plan.  Well, until you realize you may need social security, it’s not that big a deal.  Maybe they’re hoping that voters will be so frightened of the prospect of Republican rule in 2012 that they won’t vote the bastards in again.  But as I said before, timing is everything and by this time next year, the damage may already be done.

If the Democrats have any intention of saving the system, they’d better get a lot more aggressive and innovative about how they do it.  That would mean that Obama would have to make use of the bully pulpit and convince people that Republicans are about to steal their lunch money.  It’s too bad he’s not very good at this.  Or he could use the mechanisms of government to apply pressure on Republicans but that’s not why he was hired, right?  He was hired to make Democrats feel good.  Well, the orgasm is over now.  It’s time for him to pull his weight or sit the next term out.  If he can’t stop the Republicans from continuing the beatings to the point where we agree to the Medicare plan, it will be too late to replace him as a candidate next year.  Democrats better think that over carefully.

Taking a victory lap now is not going to stop Ryan and his cohort.  They’ll just increase the pain in the interim.  Be prepared.  This year is going to get really rough for us.