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.

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!

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.”

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…

Wait, Those Weren’t Suggestions?
Posted on November 19th, 2009 at 4:50 pm by Steve

Mahatma Gandhi’s “Seven Deadly Sins” sound more like the Mission Statement for the leaders of the transnational corporations that dominate our society!

1. Wealth Without Work
2. Pleasure Without Conscience
3. Knowledge Without Character
4. Commerce Without Morality
5. Science Without Humanity
6. Religion Without Sacrifice
7. Politics Without Principle

Nice Work If You Can Get It
Posted on August 23rd, 2009 at 1:42 pm by Steve

Rate that banks pay the Federal Reserve to borrow money for up to 90 days, “No Questions Asked”: 0.5%.

Rate that banks pay depositors for regular savings accounts: 0.05%.

Rate that banks charge borrowers for borrowing money with many “questions asked”: 5.25%.

Nice work, if you can get it.

Should’ve Paid Attention in “Stocks for Jocks” (EC 10)
Posted on July 22nd, 2009 at 1:18 pm by Steve

Writing in Vanity Fair, Nina Munk explores Harvard’s staggering endowment losses in Fiscal 2009 (the amount they lost that year is about DOUBLE the total amount of the endowment in 1993):

last December [2008], the university sold $2.5 billion worth of bonds, increasing its total debt to just over $6 billion…

To be clear, even if you’d tried hard, you could not have picked a worse time to sell bonds than December 2008; that was the precise moment when credit markets seized up. But Harvard, it seems, had no choice. Unwilling to sell its assets at fire-sale prices, it needed immediate cash to cover, among other things, what my sources say was approximately a $1 billion unrealized loss from interest-rate swaps

Those swaps, put in place under Harvard’s then president, Lawrence “Larry” Summers, in the early 2000s, were intended to protect, or hedge, the university against rising interest rates on all the money it had borrowed. The idea was simple: if interest rates went up, the swaps would bring in enough money to cover Harvard’s higher debt payments.

Instead, interest rates went down. And for reasons no one can explain to me, even as interest rates were plunging in 2007 and 2008, the university simply forgot, or neglected, or chose not to cancel its swaps—with the result that Harvard wound up facing that $1 billion loss! Whose responsibility was that? Where were Harvard’s chief financial officer and treasurer while all this was going on?

When you remember that the so-called “Masters of the Universe” and “financial wizards” who run Wall Street and the world’s major corporations are educated at places like The Big H… maybe it shouldn’t be so surprising that The Big H itself was the biggest financial loser in the latest round of global economic catastrophe.

Winners and Losers (which are you?)
Posted on July 21st, 2009 at 11:55 am by dr.hoo

goldman sachs fortress

Goldman Sachs Fortress of $$$

Looks like not everyone is hurting in this economic downturn. Check out Matt Taibi’s recent RS article in which he uncovers how Goldman Sachs has managed to manipulate markets and their own regulators to make the major economic bubbles of the past 100 years into massive profit booms for their firm. Even now, they have used the recent bailouts as an opportunity to “to pick the American carcass clean of its loose capital”.

Guess having your former executives as your overseeers has it’s advantages.

They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased. They’ve been pulling this same stunt over and over since the 1920s — and now they’re preparing to do it again, creating what may be the biggest and most audacious bubble yet.

If you want to understand how we got into this financial crisis, you have to first understand where all the money went — and in order to understand that, you need to understand what Goldman has already gotten away with. It is a history exactly five bubbles long — including last year’s strange and seemingly inexplicable spike in the price of oil. There were a lot of losers in each of those bubbles, and in the bailout that followed. But Goldman wasn’t one of them.


Billyburg Bust
Posted on July 14th, 2009 at 5:11 pm by Steve

An article in New York magazine discusses the dozens of stalled or foreclosed residential construction projects in the Williamsburg section of Brooklyn… home to some dear friends of Noise Is Information.

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