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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.

Tuesday: Yeah, why *are* we giving bailout money to foreign banks?

Gretchen Morgenson, finance reporter for the NYTimes, gave an interview to Terry Gross yesterday.  Terry must be on the road to Kool-Ade sobriety.  She didn’t sound nearly as hopeful about Obama’s Change-tastic administration.  Come to think of it, even I didn’t expect Obama to be this bad.  It simply boggles the mind how  strongly the finance giants have him in their grip.

There weren’t any standout quotes from the interview.  Morgenson is calm and direct, unlike Adam Davidson on Planet Money who was boiling mad over the bonuses on yesterday’s podcast. ( Anger is good, Adam.)  But Morgenson asks some great questions like why is US taxpayer money bailing out foreign banks like HSBC?  She gives a little bit of the background of the credit default swap industry and says that the whole ingenius concept of this nifty little “instrument” that brought the world economy to its knees started in London.  Well, that’s something we didn’t know before.  Was this some kind of British revenge for that Independence thing?  Were they just waiting for the right moment to unleash havoc?

Terry seemed to be pretty bummed about the bonuses that AIG employees are getting.  The retention bonuses are a way of keeping the bastards from fleeing the company in pursuit of greener pastures, like that’s going to happen.  Morgenson thinks that AIG’s insistence that they must be paid because of some unbreakable contract is a form of blackmail.  Plus the instruments are so confounding that only the geniuses that put them together can resolve them.  She’s also pretty skeptical about the legalities of the contract.  Bankruptcy judges are in the habit of breaking contracts to satisfy creditors so why not in this case?  If I were an auto worker, I’d be ready to march on Washington over this bull$#@% argument.  The UAW has been forced to renegotiate labor contracts to keep the auto industry from going under.  Hmmm, do you think Obama will get their endorsement next election season?

But let’s think about this bonus-retention idea for a second.  Are the AIG guys saying behind closed doors, “Give us the money with no strings attached and we’ll get you out of this mess.  If you don’t, we pull the plug on the world’s markets.”?  Because if they are, I’d call their bluff.  No, seriously.  Call me crazy but that sounds like terrorism and we don’t negotiate with terrorists.  What we do with terrorists is declare them enemies, put them in jail while they’re awaiting trial and seize their property.  Then we can force the shareholders to “take a haircut” as Morgenson says, provided pension funds are covered with the bailout money first.  I mean, why are Geithner and Summers playing patty-cake with these people?  It’s not rocket science anymore.  These are bad guys.  They are holding a financial gun to our heads.  Throw their asses in jail already, impose some huge bail so they don’t flee and make them sit in a cold and lonely cell until they come to their senses.  I give these cushy bastards a weekend before they crack.

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