The 1% Simply “Shed” Their Obligations
Posted on November 29th, 2011 at 2:18 pm by Steve

Corporations are legal “persons,” and, like you and me, enter into binding legal contracts. One difference is, when they go bankrupt, they just “shed” their obligations and move on. You and I aren’t usually so lucky.

A case in point is extreme financial distress. For a person, this might be caused by a loss of employment, or sudden illness; for a corporation, it could be a drop in business, excessive operational costs, or bad planning. In either case: revenue is down, costs are up, and the balance sheet is negative.

If you’re a person, this kind of crisis means that you’ll suffer direct hardships: the things you own get taken away, and if you actually still earn money, your future earnings are pledged to your creditors. If you have a mortgage, you’re typically foreclosed and lose your home. Your car gets repossessed. Your belongings are sold off to pay your debts.

Ah, but if you’re a corporation, things are different! You can simply “shed” those expensive obligations and soldier on! Well, you can’t shed all your contracts – just the ones you made with your employees:

AMR [American Airlines’ parent company] was determined to avoid Chapter 11 as air travel fell and losses mounted after the 2001 terrorist attacks, even as peers used bankruptcy to shed costly pension and retiree benefit plans and restructure debt.

(Source: Bloomberg Business Week, November 29, 2011)

Of course, the obligations you made to your peers (i.e., other corporations) must still be honored. These debts will be “restructured.” But your contractual promises to pay for the doctor visits and medicine for the thousands of people who gave you 30 of the best years of their lives? Those you can “shed” like a tired skin you’ve outgrown.

“You would expect a leaner, stronger company to emerge from bankruptcy,” Chris Logan, an analyst at Echelon Research & Advisory LLP in London, said today by telephone. “As they are in Chapter 11, it will be more easy to demand concessions from the labor force.”

Ah yes, “concessions from the labor force!” In other words, the executives hold a gun to the heads of the employee unions and offer them a choice: either some of you lose your jobs and the rest lose your benefits and even more of your salary, or all of you lose your jobs and your benefits and all of your salary. Some choice.

It’s not like we haven’t been down this road before, with this very company. American’s pilots, flight attendants, mechanics, gate agents, baggage handlers – you know, the people who actually make the planes fly and keep the passengers safe – these very employees took a 30% pay cut back in 2003 in hopes of avoiding a bankruptcy proceeding. Those poor saps! Now, instead of regaining the $1,600,000,000 that they gave up eight years ago, they’re being told that they’re still earning too much, and that if they don’t make further sacrifices, they’ll all lose their jobs.

While the workers have already taken huge pay cuts, given up their pensions, and paid more in health insurance premiums, American’s executives have somehow managed to escape harm. In 2008, the same year his airline lost more than $2 BILLION the boss’s compensation package topped $5 million. But, pity poor Gerald Arpey: that $5 mil was a 22% drop over his 2007 compensation.

A quick glance at the headlines will tell you that, even through huge losses and now bankruptcy, The 1% at AMR are doing just fine: “Despite losses, American Airlines CEO’s compensation climbs” – Fort Worth Star-Telegram, Apr. 21, 2011; “Executive compensation at American Airlines raises eyebrows” – Tulsa World, April 19, 2010; “AP says Arpey earned $6.6 million in 2007” – Dallas Morning News, April 19, 2008.

Thus do the executives of the corporate entity continue to prosper and thrive, continuing to do their “jobs” of running the business, while thousands of employees are laid off, and tens of thousands more lose the only hope they had of actually being able to, you know, survive their retirement years on something other than handouts and cat food.

Although all of that can change.

In 1996, MBTA Promised Green Line to Somerville by 2011
Posted on August 2nd, 2011 at 7:21 pm by Steve

In 1996, the MBTA planned to have the Green Line extended to Somerville by 2011.

Today, in 2011, the Patrick administration announced that they will be delaying – until at least 2018 – construction and operation of the Green Line into Somerville and Medford.

Long-time watchers of Somerville’s transit woes (such as this author) are unsurprised by this latest development.

Courtesy of those pesky “archives” that libraries seem to love, here’s a Boston Globe article from January 28, 1996 (more than FIFTEEN years ago!):

Slater, the T’s planning director, contends, “Somerville probably has more bus service than any comparable area. It’s got a lot of service going into both Lechmere and Sullivan, where people can make connections. Part of the long range plan is to extend the Green Line into Somerville. The deadline on that is the year 2011, and we’re trying to meet earlier deadlines now on other projects.”

I guess the good news is that the planning horizon today is half what it was in 1996. Maybe in 2018, they’ll announce service in 2022. And, in 2022, they’ll announce service in 2024. And, in 2024, they’ll announce service in 2025, and maybe by then it will actually be built.

I’m not holding my breath.

“Deficits Don’t Matter”
Posted on April 8th, 2011 at 5:37 pm by Steve

Today, the U.S. government is on the verge of “shutting down” over a budget impasse in the Congress. Republicans are insisting that massive spending cuts are required to avert disaster. Just today, Illinois Republican Representative Judy Biggert said, “We’re facing an economic disaster. We have to cut the spending.”

But during the Bush era, Republicans were singing a very different tune. After the 2004 elections, Dick Cheney famously said, “Reagan proved: deficits don’t matter” (according to then-Treasury Secretary Paul O’Neill). Whether or not Cheney actually said those exact words, that’s certainly how the Cheney-Bush administration behaved:

During his eight years in office, President Bush oversaw a large increase in government spending. In fact, President Bush increased government spending more than any of the six presidents preceding him, including LBJ. In his last term in office, President Bush increased discretionary outlays by an estimated 48.6 percent.

During his eight years in office, President Bush spent almost twice as much as his predecessor, President Clinton. Adjusted for inflation, in eight years, President Clinton increased the federal budget by 11 percent. In eight years, President Bush increased it by a whopping 104 percent.

[source: Spending Under President George W. Bush, Veronique de Rugy, George Mason University.]

Conservative commentators must have been outraged, right? After all, deficit spending is mortgaging our children’s future!

Turns out, not so much. Here’s the tune that the Weekly Standard was singing back in 2005:

WHEN DICK CHENEY SAID, “Deficits don’t matter,” economists took that as proof of the economic illiteracy of the Bush administration. But it turns out there is a case to be made that Cheney was onto something.

On the deepest level, the vice president was echoing, in slightly exaggerated form, an idea put forward a few years ago by Irving Kristol, the Godfather of the neoconservatives who have had such a wide-ranging effect on Bush administration policy. Kristol wrote then, and still believes, that “We should figure out what we want before we calculate what we can afford, not the reverse.”


The deficits that Bush ran up in the years in which the country was teetering on the verge of a serious recession had the beneficial effect of righting the economy. In that sense, deficits not only didn’t matter, but were a force for economic good.

[source: Do Deficits Matter?, Irwin M. Stelzer, Hudson Institute]

Something has changed in the last five years, however. For some reason… can’t quite put my finger on it… but for some reason, Republicans now fear the DOOM of deficit spending:

“There’s no daylight between the Tea Party and me. What they want is they want us to cut spending. They want us to deal with this crushing debt that’s going to crush the future for our kids and grandkids. There’s no daylight there.”

[Source: John Boehner talking to ABC’s George Stephanopolous on April 7]

I wonder if having a Democrat in the White House could possibly have anything to do with their objections?

And besides… if they’re so worried about improving the government’s balance sheet, maybe they could do something about this:

General Electric, the nation’s largest corporation, had a very good year in 2010. The company reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States.

Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.

[Source: tG.E.’s Strategies Let It Avoid Taxes Altogether, New York Times, March 24, 2011]

Nah. The Republicans would much rather shut down essential government services, fire public employees, and ensure that poor people become even more desperate for any crumbs the rich may throw their way.

In fact… isn’t that the GOP’s 2012 campaign platform?

The True Cost of Wind Energy
Posted on May 2nd, 2010 at 11:20 pm by Steve

The problem with wind energy is that it drives prices down! From Bloomberg news:

After years of getting government incentives to install windmills, operators in Europe may have become their own worst enemy, reducing the total price paid for electricity in Germany, Europe’s biggest power market, by as much as 5 billion euros some years, according to a study this week by Poeyry, a Helsinki-based industry consultant.

Jerome a Paris has an excellent discussion of the article over at The Oil Drum. He also links from there to an excellent (and entirely wonky) discussion of the proper pricing of wind power. It is a great article – one key takeaway is that wind power actually brings electricity prices down! Understanding that assertion requires a discussion of marginal costs, initial investments, demand curves, spot pricing, intermittency, externalities, and Spitzenlast (see above), but it’s totally worth it.

Another key point is that “market” pricing actually tilts the playing field toward fuel-based generation of electricity, because of its lower capital and debt-servicing requirements:

selecting market mechanisms to set electricity prices (rather than regulating them) is, again, not technology neutral: here as well, deregulated markets are structurally more favorable to fossil fuel-based generation sources than publicly regulated price environments.

So while I definitely wanted to highlight the issues around wind power (and point you to some excellent, informed commentary), I mostly just wanted an excuse to show that graph! SPITZENLAST!

Yes, Mr. President, You Showed the Insurance Industry Who’s Boss!
Posted on March 26th, 2010 at 12:44 pm by Steve

President Obama is now out on tour daring the Republicans to try to repeal the new health care reform law. Here’s what he said yesterday:

“If they want to have that fight, we can have it. Because I don’t believe the American people are going to put the insurance industry back in the driver’s seat.”

Yeah, not after we worked so hard to shove the insurance industry aside, right? I mean, before the law passed, if you wanted to buy insurance, you paid whatever the Insurance industry demanded.

Whereas now, you will be obligated by law to give your money to a private insurance company, at whatever price they name, or else pay a tax penalty.

Yessirree Bob, we certainly wouldn’t want to let the insurance industry back in the driver’s seat! We showed them who’s boss!

…Now, to be fair: eliminating lifetime payout caps, limiting annual payout caps, and requiring the companies to accept customers regardless of pre-existing conditions are all good reforms. But there are currently no provisions for limiting the costs of insurance premiums! And, if you earn more than 400% of the Federal poverty limit, you receive NO FINANCIAL ASSISTANCE from the government (this year, the magic 400% number is about $43,000).

So, the government is mandating that you buy insurance, but they’re not setting limits on what the companies can charge for it.

I seem to remember one of the Presidential candidates opposing this idea… saying something about how it wouldn’t work, and it wasn’t fair… Now let me see, who was it again…?

Never mind, I can’t remember that far back!

The Biggest Con in History EVAH!
Posted on March 3rd, 2010 at 3:31 pm by dr.hoo

the con

Matt Taibbi breaks it down (once again). Make the time to read this and you’ll get a much better grasp on the insane shit that’s gone down over the past year of “recovery”. This “bailout” has been like having the guy who mugged you sending you his dry cleaning bills for getting your blood on his shirt AND THEN charging you interest for the bill ($1billion).

It seems to me that the calling this a “Recession” is a misnomer and misdirection. It kind of implies that this is some sort of natural dip to the economic flow. What we are really witnessing is the largest and most egregious transfer of wealth from the American tax-payers to a few large players on Wall St.

As Warren Buffet said in 2006, “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”

In Case You Were Wondering…
Posted on February 22nd, 2010 at 11:44 am by Steve

…the masters of the American economy (and, thus, the people whose largely unaccountable decisions determine the material fortunes of most people in our country) don’t give a flying fuck about you, me, or anyone else we know:

“American business is about maximizing shareholder value,” said Allen Sinai, chief global economist at the research firm Decision Economics. “You basically don’t want workers. You hire less, and you try to find capital equipment to replace them.”

(Source: New York Times, “The New Poor: Millions of Unemployed Face Years Without Jobs”)

What a shame that the structure of our economic and political life is simply a force of nature that is immune to modification. If only there were some way to structure a society so that the primary economic activities were directed toward something else in addition to “maximizing shareholder value.”

Or, wait…

Author James Herod’s Book “Getting Free”
Posted on February 16th, 2010 at 4:16 pm by Steve

“The knowledge that we are slaves being bought by the hour rather than the lifetime has also been lost. We have been wage slaves for so long that we have forgotten there is any other way to live. We have forgotten that once we had land and tools and could live independently, providing for ourselves, without being forced to sell our labor power for wages.”

I’ve linked to him before… and now I’ll do it again. Highly worth reading.

I Know It’s Gauche to Quote Oneself, But…
Posted on December 22nd, 2009 at 9:03 pm by Steve

…I just can’t resist. This is something I wrote right here on this here blog-o-thingy waaaaaaaay back in October of 2008:

the Democratic Party is happy to use the efforts of thousands of dedicated volunteers to elect their candidate; don’t expect the Democrats to return the favor, when those thousands of people are demanding mortgage relief, welfare payments, and health care. The Democrats have demonstrated, time and time again, that they are firmly on the side of the corporate masters, and against the people.

I’m hopeful that, with so many people getting experience in organizing their fellow citizens during the Obama campaign, we’ll find it easier to work together to bring about greater economic and social justice. The big difference will be that, instead of working with the support of the Democratic party, we’ll be “out in the cold,” working against the entire corporate-political juggernaut. If you think it’s hard to fight the Republicans with the Democrats on your side, wait until they’ve ganged up on you!

Indeed. Even though Obama campaigned on a promise of a “public option” for healthcare coverage, the new Democratic bill contains no provision for a public option, no early Medicare buy-in, no cost controls on doctors, hospitals, drug manufacturers, or insurance companies. Worst of all, Obama actually told the Washington Post this week, “I didn’t campaign on the public option.”

In other words: we were sold a bill of goods. Obama’s campaign website promised “any American will have the opportunity to enroll in [a] new public plan,” but now he denies ever having made such a promise. And the entire Democratic establishment is now turning on anyone who criticizes the bill; Glenn Greenwald takes note of what he calls the swarm of White House operatives, media professionals, and bloggers who deride

the bill’s progressive critics as insane [David Axelrod], crazy [Five-Thirty-Eight’s Nate Silver], childish [Time’s Joe Klein], idiotic and drugged-out, [CNBC “reporter” John Harwood] Naderite, purist [TPM’s Josh Marshall] liars [Ezra Klein] who — we now learn today — are the equivalent of “global warming denialists.” [Nate Silver again]

It’s like 2003 all over again, except the mud being slung is blue instead of red.

Obama also promised to run the most transparent administration in American history. He said that all of his healthcare negotiations would be televised on C-SPAN. Instead, he met in secret with pharmaceutical company executives and promised them there would be no cost controls on prescription drugs and no plan to allow the reimportation of medicines from abroad. In fact, this new bill even extends the patent protection on prescription drugs to 12 years, with an additional 12 years offered any time a change is made to the drug.

While the so-called “left” sees betrayal and a complete evisceration of real healthcare reform, the health insurance industry (and their investors) see a major windfall. Here are their stock prices since October 27, 2009 (the date that Holy Joe Lieberman pledged to filibuster any bill that included a public option):

The Huffington Post’s Shahien Nasiripour has all the details, including this summary of the numbers:

  • Coventry Health Care, Inc. is up 31.6 percent;
  • CIGNA Corp. is up 29.1 percent;
  • Aetna Inc. is up 27.1 percent;
  • WellPoint, Inc. is up 26.6 percent;
  • UnitedHealth Group Inc. is up 20.5 percent;
  • And Humana Inc. is up 13.6 percent.

I don’t post this to be cynical; I post this to remind myself and those few who might read this that national electoral politics are not the main avenue by which we can transform our lives and our world. No president, no matter how well-intentioned, can wrest control of the state from the hands of Wall Street and their symbionts in the Pentagon.

The Imperial Conquest of Wall Street
Posted on December 22nd, 2009 at 8:06 pm by Steve

Come to think of it, this would explain the $700 BILLION bailout of the banking sector…

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