Democratic power abhors a vacuum... Party of Fear!

Party of Fear

The only thing we have to fear is ignorance.

“It’s what people know about themselves inside that makes them afraid.”  - Clint Eastwood – High Plains Drifter

By J.M. Hamilton  (9-21-12)

I kept thinking about Candidate Romney this week, and his staff.  This is a man who gave up being a private equity billionaire, so that he could help us all, or at least 53% of us, by becoming President.  Mr. Romney has been running for the nation’s highest office for years, the opportunity costs for this candidate are enormous.  And yet, Mr. Romney’s defeat hangs in the air, like Napoleon fleeing Russia at the onset of winter, and leaving behind his Grand Armee.  Ravenous Russian wolves in pursuit of the emperor’s sleigh, snapping at the trace horses for miles upon miles in a desolate winter scape.

Maddening.  Or for Mr. Romney’s team is it like Hitler, and staff, spending final moments with his bride, with U.S and Russian soldiers closing in, a mighty German nation ruined.  Feelings of despair and of what might have been – dashed hopes and dreams – deep down in the bunker. Valhalla beckons.

Mr. Romney’s fall, like Napoleon’s and Hitler’s, is largely self-inflicted.

Granted the candidate is no megalomaniac; but if the video that Mother Jone’s offered up this week is any indication, Mr. Romney does appear to be suffering from an acute form of socio-economic prejudice, having written off nearly half the nation (only to tell us this week, it was all a mistake and he loves 100%of us, after all).  Of course, many of those Mr. Romney wrote off as parasitic are the Republican faithful, including tax dodging U.S. soldiers (as noted by Mr. Kristof in the Times).  The very people who lay their lives down for us, the plutocracy, and the DOD.  But we can’t blame this all on Mr. Romney; he’s just the most recent incarnation of a long line of Republican Party leaders, who have suspended rational thinking for a failed ideology, with ruinous results for the country.

Mr. Romney is rich and his party represents the wealthy, and those who wish to be.  Today’s GOP is quite possibly more reactionary than ever, and it refuses to change, even at the risk of extinction.  This is a party that preys upon your fear, and has no reservation about prevarication or stretching the truth, witness Mr. Ryan’s GOP convention speech (which even his own Party assailed).   The antidote for fear is knowledge and education, and as GOP Candidate Santorum conveyed earlier in the Republican campaign, education is no good.  You see, education and knowledge gets in the in way of your exploitation, and makes things harder on the ruling oligarchs.  The only question that remains this election season is will Mr. Sheldon Adelson and the Koch brothers double-down?  How much money is the plutocracy willing to spend in support of a failed candidacy and an attempt to purchase the White House?  My guess is a lot more.  Cost-Benefit analysis would suggest upping the ante.

Contained is this week’s New Yorker is an extraordinary piece on the very first political consulting firm, Campaign Inc (CI).  The piece is entitled the Lie Factory, and was written by Jill Lepore.  Needless to say it is outstanding and, among other things, draws the connection between political consulting and advertising campaigns.   Both enterprises are selling something.

Among the tried and true principles of Campaign Inc. were:  make it personal; candidates are easier to sell than issues; attack, attack, attack; never underestimate the opposition; never explain anything; fan flames (embrace and win controversy); simplify, simplify, simplify.  

Said Mr. Whitaker, a partner in Campaign Inc. (CI), which was formed in the 1930′s, “A wall goes up when you try to make Mr. and Mrs. Average American Citizen work or think.  The average American doesn’t want to be educated.”

Today, political consulting is big business.  Campaign Inc.’s principals are on full display this election season, and they have been a key part of most successful campaigns for the last eighty years.  Perhaps by no coincidence, CI’s primary clients were big business and the GOP.

If we think long and hard about it, one could easily argue that nearly a century of political consulting has brought the country to where it is today.  Where glib one-liners and sound bites are not only used to gain political advantage, and admission to political office, but become public policy itself.  It’s much easier to trot out negative advertising, than to explain a highly complex problem, and the detailed solution to that problem (and the reality is few candidates have the skills to pull it off, and many have lost office trying).  Many of our problems today are so complex that the quick lie or one liner can no longer stand up to scrutiny, and so as we have seen in this election cycle, the candidates don’t even try.   Again, observe the GOP’s criticism of the Romney/Ryan tickets refusal to fill in the blanks on their proposed fiscal and tax policies.  And they are the experts?

Or witness both candidates, Messrs. Romney and Obama, failure to address the financial crisis, and the resulting mortgage debacle, four years on-going, and the cornerstone of the nation’s economic problems.

Other key examples where the quick fix, or simple solution, have failed the nation are:

Endless rounds of quantitative easing, which is nothing more than code for back door bank bailouts.  The Cartel is so powerful now that it appears to be dictating Fed policy.  The Fed has become the go to market for MBS and CDO’s, the liabilities and moral hazard for bank excess have been transferred from private sector balance sheets and onto the public’s.  And the result of the Fed’s efforts:  Stagflation in commodity prices, and Stagdeflation in home prices.  Central banks around the world have swaddled zombie banks in a cocoon of soothing liquidity, so that the inevitable write-downs can be postponed at taxpayer, market, worker and business expense.  Contagion is spreading and sound healthy currencies and economies are being dragged down with the bad, all so that we can prop up banks.  The “lost Japanese decade” scenario is with us to stay now.  One can gather from Mr. Romney’s reticence on the matter that he would have done nothing different than the President’s team, Messrs. Geithner, Summers and Bernanke.   Banking uber alles!

Check out Mr. Romney’s criticism of this administration and its handling of the Middle East.   The GOP’s solution to every problem involving an Arab country is to subcontract out foreign policy to the state of Israel, play the fear card, and reach for the DOD. That’s right, order two air strikes and call me in the AM.  That sound bite, the Arabs are the problem, and Islam is the issue, entirely misses the boat.  Some in-depth analysis might conclude that there is extreme poverty throughout much of the Middle-East, brought about by wide disparities in economic opportunity and education, and concentrated wealth and power into too few hands.  Successive authoritarian regimes, with the economic and military support of Western democracies, have amassed fantastic wealth, at the expense of Arab citizens.  Poverty stricken, these Arab citizens have turned to all that they have left, religion and the Prophet Mohammad.  In some instances these citizens have been radicalized by poverty, and are all too easily manipulated by their religious and political leaders.  The antidote for Arab radicalism is democracy, education, and greater economic opportunity; but that solution will take patience and time, indeed generations, with many problems for U.S. companies operating in the region along the way.  This scenario doesn’t fit into Big Oil’s or the DOD’s agenda, so don’t look for Candidate Romney to trot that out any time soon.  Besides the proceeding doesn’t fit into a neat power point presentation, or a Campaign Inc. style sound bite, so forget about it.

Better to sound bellicose and rattle the saber, it plays nicely into many American’s fears and prejudice.  Campaign Inc. would advise a candidate, and a political party, to have an enemy at all times, and if one can’t be found than create one!

And finally, Mr. Romney appears to have an issue with the 47%, who receive some sort of government benefit, many of whom are Republican.  The Campaign Inc. sound bite is that these folks are moochers, the state is growing, and the solution is more tax cuts for the wealthy.  What doesn’t fit neatly into this paradigm is the fact that economist after economist will tell you that concentrated wealth and power (like that which has occurred in this country over the last 35 years, with ever declining upper income tax rates) correlates into lost educational and economic opportunities, and therefore, greater reliance upon the state for solutions.  Democratic power abhors a vacuum:  and if U.S. entrepreneurs and major corporations are no longer going to hire American, pay a living wage, or provide retirement benefits, than these free market institutions are ceding authority and power to the state, and building an ever growing Democratic base.

America needs an industrial policy that includes favorable policies for business, the market, and the worker.  However, industrial policy might also include telling CEOs something that they haven’t heard from the GOP in several decades, that is the laissez faire fairy tale is dead, markets do not have perfect knowledge and are not self-regulating; hence the need for a new industrial policy.

But that’s not very “Campaign Inc.”

Much better to stick to playing the fear card, campaign on ignorance, and continue to let things slide into crisis.

 Copyright JM Hamilton Publishing 2013

“There was of course no way of knowing whether you were being watched at any given moment,” George Orwell wrote in “1984.”

June 8, 2013 NYTIMES

Peeping Barry

By MAUREEN DOWD

WASHINGTON — THE acid that corroded George W. Bush’s presidency was fear — spreading it and succumbing to it.

You could see the fear in his eyes, the fear that froze him in place, after Andy Card whispered to W. in that Florida classroom that a second plane had crashed into the twin towers.

The blood-dimmed tragedy of 9/11 was chilling. But instead of rising above the fear, W. let it overwhelm his better instincts. He and Dick Cheney crumpled the Constitution, manipulated intelligence to go to war against a country that hadn’t attacked us, and implemented warrantless eavesdropping — all in the name of keeping us safe from terrorists.

Americans want to be protected, but not at the cost of vitiating the values that make us Americans. 

That is why Barack Obama was so stirring in 2007 with his spirited denunciations of W.’s toxic trade-offs. The up-and-coming senator and former constitutional law professor railed against the Bush administration’s “false choice, between the liberties we cherish and the security we provide.”

Now that we are envisioning some guy in a National Security Agency warehouse in Fort Meade, Md., going through billions of cat videos and drunk-dialing records of teenagers, can the Ministries of Love and Truth be far behind?

“There was of course no way of knowing whether you were being watched at any given moment,” George Orwell wrote in “1984.” “How often, or on what system, the Thought Police plugged in on any individual wire was guesswork. It was even conceivable that they watched everybody all the time. But at any rate they could plug in your wire whenever they wanted to.”

It was quaint to think we had any privacy left, once Google, Facebook, Twitter and Instagram braided themselves into our days and nights.

 

 http://www.nytimes.com/2013/06/09/opinion/sunday/dowd-peeping-president-obama.html?partner=rssnyt&emc=rss&pagewanted=print

Thousands of technology, finance and manufacturing companies are working closely with U.S. national security agencies... Bloomberg

U.S. Agencies Said to Swap Data With Thousands of Firms

By Michael Riley - Jun 15, 2013

Thousands of technology, finance and manufacturing companies are working closely with U.S. national security agencies, providing sensitive information and in return receiving benefits that include access to classified intelligence, four people familiar with the process said.

These programs, whose participants are known as trusted partners, extend far beyond what was revealed by Edward Snowden, a computer technician who did work for the National Security Agency. The role of private companies has come under intense scrutiny since his disclosure this month that the NSA is collecting millions of U.S. residents’ telephone records and the computer communications of foreigners from Google Inc (GOOG). and other Internet companies under court order.
Many of these same Internet and telecommunications companies voluntarily provide U.S. intelligence organizations with additional data, such as equipment specifications, that don’t involve private communications of their customers, the four people said.

Makers of hardware and software, banks, Internet security providers, satellite telecommunications companies and many other companies also participate in the government programs. In some cases, the information gathered may be used not just to defend the nation but to help infiltrate computers of its adversaries.

Along with the NSA, the Central Intelligence Agency (0112917D), the Federal Bureau of Investigation and branches of the U.S. military have agreements with such companies to gather data that might seem innocuous but could be highly useful in the hands of U.S. intelligence or cyber warfare units, according to the people, who have either worked for the government or are in companies that have these accords.

Microsoft Bugs

Microsoft Corp. (MSFT), the world’s largest software company, provides intelligence agencies with information about bugs in its popular software before it publicly releases a fix, according to two people familiar with the process. That information can be used to protect government computers and to access the computers of terrorists or military foes.

Redmond, Washington-based Microsoft (MSFT) and other software or Internet security companies have been aware that this type of early alert allowed the U.S. to exploit vulnerabilities in software sold to foreign governments, according to two U.S. officials. Microsoft doesn’t ask and can’t be told how the government uses such tip-offs, said the officials, who asked not to be identified because the matter is confidential.

Frank Shaw, a spokesman for Microsoft, said those releases occur in cooperation with multiple agencies and are designed to give government “an early start” on risk assessment and mitigation.
In an e-mailed statement, Shaw said there are “several programs” through which such information is passed to the government, and named two which are public, run by Microsoft and for defensive purposes.

Willing Cooperation

Some U.S. telecommunications companies willingly provide intelligence agencies with access to facilities and data offshore that would require a judge’s order if it were done in the U.S., one of the four people said.

In these cases, no oversight is necessary under the Foreign Intelligence Surveillance Act, and companies are providing the information voluntarily.

The extensive cooperation between commercial companies and intelligence agencies is legal and reaches deeply into many aspects of everyday life, though little of it is scrutinized by more than a small number of lawyers, company leaders and spies. Company executives are motivated by a desire to help the national defense as well as to help their own companies, said the people, who are familiar with the agreements.

Most of the arrangements are so sensitive that only a handful of people in a company know of them, and they are sometimes brokered directly between chief executive officers and the heads of the U.S.’s major spy agencies, the people familiar with those programs said.

‘Thank Them’

Michael Hayden, who formerly directed the National Security Agency and the CIA, described the attention paid to important company partners: “If I were the director and had a relationship with a company who was doing things that were not just directed by law but were also valuable to the defense of the Republic, I would go out of my way to thank them and give them a sense as to why this is necessary and useful.”

“You would keep it closely held within the company and there would be very few cleared individuals,” Hayden said.

Cooperation between nine U.S. Internet companies and the NSA’s Special Source Operations unit came to light along with a secret program called Prism. According to a slide deck provided by Snowden, the program gathers e-mails, videos, and other private data of foreign surveillance targets through arrangements that vary by company, overseen by a secret panel of judges.

U.S. intelligence agencies have grown far more dependent on such arrangements as the flow of much of the world’s information has grown exponentially through switches, cables and other network equipment maintained by U.S. companies.

Equipment Specs

In addition to private communications, information about equipment specifications and data needed for the Internet to work -- much of which isn’t subject to oversight because it doesn’t involve private communications -- is valuable to intelligence, U.S. law-enforcement officials and the military.
Typically, a key executive at a company and a small number of technical people cooperate with different agencies and sometimes multiple units within an agency, according to the four people who described the arrangements.

Committing Officer

If necessary, a company executive, known as a “committing officer,” is given documents that guarantee immunity from civil actions resulting from the transfer of data. The companies are provided with regular updates, which may include the broad parameters of how that information is used.

http://www.bloomberg.com/news/print/2013-06-14/u-s-agencies-said-to-swap-data-with-thousands-of-firms.html

“Freedom is the right to tell people what they do not want to hear.” – George Orwell

             Turkey   (www.bagnewsnotes.com)

Blowback

“Freedom is the right to tell people what they do not want to hear.”  – George Orwell

By J.M. Hamilton (2-20-11)

It’s been awhile, but the arguments still hang in the air.  One of the resolutions for my collegiate debate team went something like this:  Resolved, the U.S. should not trade arms to non-democratic regimes.  The affirmative argued that the U.S. should not provide arms to dictatorships, which are by their very nature oppressive; the negative argued that by providing arms to military dictatorships and authoritarian regimes, the U.S. was able to influence these regimes and had a greater opportunity to bring about democratic reform.   The resolution came up in the eighties, as President Reagan turned the screws on the Soviets with amped up defense spending, and the cold war was rapidly coming to an unexpected conclusion.   At the time the world to this young and naïve Republican appeared bi-polar, comprised either of democratic governments, or right wing dictatorship headed toward democracy, versus communist and/or socialist/totalitarian regimes.  The ends appeared to justify the means, as, nearly, any regime that was a foe of godless communists bent on global domination, appeared to this debater worthy of U.S. military support.

The balance of the debate team, all of them liberals, thought I was mad, and that my case for supporting right wing dictatorships (the case for the negative) was “repugnant.”

Nearly a quarter of century later, and with hindsight being twenty-twenty, I couldn’t agree with my teammates more, that is to say, supporting military dictatorships and authoritarian regimes is, indeed, repugnant.  A practice that unfortunately, the U.S. did not abandon at the conclusion of the cold war… when America road tall, was the only superpower left standing, and for a couple of decades anyway, truly had an opportunity to push these regimes towards democracy, reform, and may have helped to shape democratic institutions and parties within these countries.

We can see the results of U.S. foreign policy in the current wave of democracy sweeping the member states of the Arab League.  For the last several decades the U.S., and Western Europe, have propped up dictatorships throughout the middle-east in the name of commercial “stability,” by providing billions in economic and military assistance and a steady stream of petrol dollars into the region.   In the case of Egypt, we know that the U.S. gave between 1.3 and 1.5 billion in military aid, annually.  Of course, there is nothing as unstable as authoritarian or totalitarian regime, if we believe Presidents Kennedy and Reagan, who both said that communism (i.e. authoritarian and totalitarian rule) was not the wave of the future, freedom is.

And it’s really that simple, man craves freedom.   As important to man’s inner core as air and water, political and economic freedom, for all educated citizens of the world, is an imperative.  Freedom is instinctual.   In the present day, for U.S. leadership not to have seen the uprising in the middle-east coming makes one wonder what other blind spots exist?  And now, instead being able to help shape events, the U.S. and the world must depend upon a military dictatorship, on the heels of Mubarak’s departure, to bring about the necessary reform. 

Omar Suleiman, Mr. Mubarak’s vice-presidential appointee (aka Mr. Torture!), now runs the show, and the Egyptian economy, which is also said to be dominated by military run monopolies (sounds a lot like Iran’s Revolutionairy Guard).  Per the N.Y. Times: “…Mr. Suleiman has outraged members of the anti-government protest movement by saying that he does not think it is time to lift the 30-year-old emergency law that has been used to suppress and imprison opposition leaders and that he does not think his country is yet ready for democracy.”  So this story and democratic revolution is still very much playing out.

Of course, if the U.S. really wants both economic and political stability in the region, it should support democracy and democratic movements.  Realpolitik would suggest backing dictatorships, but given demographics, the rising levels of education, and informational and social networks provided by the internet… true long term stability, economic and political, will come from democracy, not from authoritarian or even theocratic regimes.

The counter argument against democracy for the region offers up the same old bogey man, that of Muslim religious extremist, such as the Muslim Brotherhood.   This argument is specious at best, and at worst may only come to fruition, if democracy is not allowed to flower and take hold.  The fact that some of the arguments made in this piece are even remotely novel, or even contrarian to U.S. foreign policy, shows the extent to which the short term thinking of commercial interests dictate both U.S. foreign policy and political trajectory within the region.   Observe German President, Horst Koehler, who was forced to resign in 2010 over remarks he made demonstrating that German foreign policy and military support in Afghanistan was not backed by idealism for democratic reform (the line we are often fed in this country), but rather, commercial, trade and economic self-interest.  Shocking!  Truth spoken here, so fire the poor man.

Fortunately, in this instance, doing the right thing, supporting democracy in the region, is actually in the United States foreign policy, commercial and geo-political self- interest.   Military dictatorship is so passé.  Democracy is de rigueur.  

And the man of the hour for the middle-east… the catalyst, the spark, the dynamo who started the whole process?   Well that would be Chairmen of the Fed, Ben Bernanke, whose policy of QE2/devaluing the dollar, has lead to rising headline inflation, and a speculative bubble in commodities.  The Arab Leagues reluctant and nascent move towards democracy is fueled by hungry bellies.  Many years from now, history may state that Mr. Bernanke, directly and indirectly, contributed to the birth of Pan-Arab democracy.  Chinese and Iranian political leadership would do well to take note.


 Copyright JM Hamilton Publishing 2013

Your Tax Dollars At Work

Your Tax Dollars At Work

“The general American public should not have to make up the balance as corporations avoid paying billions in U.S. taxes,” Senator McCain said.  NYTIMES 5-23-13

“The middle class and future generations are being robbed by U.S. tax policy, as it presently stands.  The middle class, what remains of it, cannot escape paying taxes, and pay a higher rate to subsidize those entities, individuals and organizations, which often pay at half the tax rate we do, that is if they pay any taxes at all.”  JM Hamilton Blog, 3-17-12 – Mr. Demagogue?

By J.M. Hamilton (6-8-13)

This blog has gotten a number of things wrong, but over the last couple of years, it’s nailed a few calls, too.  Among the issues it has correctly called is the grand heist the American taxpayer suffers daily, when it subsidizes major corporations and wealthy private enterprise, and the numerous tax loopholes these entities lobby for, write, and embrace.  Tim Cook, Apple CEO, was recently before a Senate committee, and elaborated on how Apple dodges taxes by shifting earnings to subsidiaries that do not exist anywhere.  That is to say these subsidiaries are domiciled nowhere on this planet (maybe – this being Apple- they are in the cyber realm?).  The “check the box” loophole, along with the “Double Irish, and Dutch Sandwich” loopholes, et al., are said to allow Apple to avoid paying $9 billion dollars in taxes last year, per a recent Insight piece written by Reuters (5-31-13).  

Even the CBO estimates the wealthiest will enjoy a tax break of $12 trillion in the coming decade.

Apple is not alone.  G.E., Facebook, Google, you name it, if a major multinational isn’t deploying these strategies, their tax department would probably be responsible to their shareholders for errors and omissions, and fiduciary liability.  What’s galling is not that these corporations deploy these lawful strategies, but that our elected officials allow these loopholes to exist at the taxpayer’s expense, and that nation states – and these United States - allow themselves to be played off upon one another, in a tax arbitrage/tax code race to the bottom.  Meanwhile, Europe and America suffers from economic malaise, wage stagnation, fiscal austerity, record budget deficits, and high unemployment and underemployment.  Politicians being what they are, and in many cases owned by these corporate and private interests, it should not surprise any of us that this goes on.

Mr. Cook was recently filmed and quoted, as shown on Bloomberg, telling students from his alma mater, Duke, that they should break existing rules, and write their own rules.  Sounds like a recipe for anarchy, civil disobedience, and nihilism that the elites are said to abhor.  Then again, these same executives are often fond of talking about capitalism’s “creative destruction.”  Yes, their creativity (1%), and our destruction (99%).  Perhaps Mr. Cook is merely stating the obvious:  that he who owns the gold makes the rules.

It’s not just that the average taxpayer is paying a higher tax rate to subsidize the low rates corporate and private enterprise pay, and that this means the public has less discretionary income to spend within the economy, but an even bigger problem is what the G.E.s, Apples, Googles, and private equity does with tax dollars they are able to retain, as a result of the public’s tax assistance for the wealthy. 

A quick digression: Taxes are not only meant to pay for the various services government affords to maintain the capitalist system, but they also are used to guide and direct social policy (e.g. the child tax credit and/or the punitive tax on tobacco). 

Therefore, we can read into today’s tax code that you, Dear John Q Public, are being penalized for being an ordinary citizen, and the tax code is rewarding the aristocracy and the elite for being wealthy.  In short, you are being penalized for minding the rules, while they make up the tax laws as they go along.  But I stray.   Back to what these monopolies do with the tax dollars that they are able to retain and dodge paying, as a result of our dysfunctional political leadership and government institutions.

What these entities do with your tax subsidy, mixed in with earnings and ldebt, is eradicate and buyout competition, which often eliminates management and jobs from going concerns.   It’s all over the news that Apple has purchased nine companies in the last fiscal year.  With those purchases comes synergy and pink slips, and a growing Apple monopoly on products and services, which translates into fewer jobs and opportunities for the American public, not to mention fewer product and service options.  It also means fewer investment opportunities for those who would like place their money into Silicon Valley stocks and bonds. 

Private Equity, a classic example, enjoys numerous tax loopholes and dodges, including but not limited to the tax deductibility of debt and carried interest.  When, we the people, allow our politicians to dole out tax favors to our friends in private equity, at our collective expense, not only do we have to underwrite the resulting tax liability; but we also allow private equity to turn around and gut businesses, merge, strip, and often enough bankrupt them with our tax dollars; which again, results in the 99% having fewer economic opportunities, fewer product and service options, and fewer investment opportunities. 

In short, your tax dollars at work! 

And you are paying higher taxes to allow this to happen, and incurring an ever growing mountain of Federal and State debt, and the resulting interest on same, to allow this to be done to you.   As result of all this M&A activity and taxpayer subsidized globalization, your wages stagnate, due to the lack of entrants and competition in a given business sector.

If you are middle class, or wealthy and cannot escape paying taxes, when you give a corporate or privately held monopoly a tax break, you are quite often giving them more money with which to leverage up and destroy and eliminate their competition, and solidify their economic, political and financial hold on power.  

Much of this corporate money is said to be parked offshore, which is really a euphemism for Wall Street banks (remember the offshore subsidiaries, who are domiciled no where?).  The corporates are crying out for a tax holiday, so that they can repatriate these funds to America, and pay themselves a huge dividend.  If our politicians agree to this, there will almost assuredly be no quid pro quo.  If the prior Bush Holiday is any indication, our elected officials will not insist that these tax breaks (not even a portion) contribute to jobs or investment in America… but almost assuredly, our politicians will request a campaign contribution or donation.  No direct linkage of course.

Seeing as how our tax dollars are spent by the elite, and often the resulting elimination of jobs and opportunity, perhaps it is time for the American taxpayer to insist upon their own tax holiday?  What better way to stimulate the economy?  At the minimum, the American people should insist that the corporates pay at an equitable rate.  If our corporate friends and private partners had to pay at the same rates the middle and upper middle class pay, real tax reform would begin in earnest.

P.S. 

Another thing J.M.H. called in a recent editorial (ThePolitical Tide Breaks?  Roll Tide!) was the nature of the current Presidency and our government.  Believing he was clearly the lesser of two “concerns,” I voted for President Obama twice.  Americans are often distracted by political labels (Republican versus Democrat), and social policy, which is really the only thing remaining that differentiates the two political parties, both in practice and reality (all campaign rhetoric aside)… that said, we should make no mistake about it, both parties are dedicated to the military & cyber industrial complex, monopolies, and big government.  As such, we really do live in a one party state, and this state has increasingly encroached upon your freedoms since, and at the excuse of, 9-11.

Arguably, this government is no longer by and for the people, but apparently by and for the protection of the elite. 

Given NSA data mining and intelligence gathering on U.S. citizens by the government, of which Apple and Silicon Valley appears to play an exceptional and extraordinary role, it would appear that we are all assumed to be guilty, until proven innocent.


 Copyright JM Hamilton Publishing 2013

Why are we paying a Cartel to do their job?

June 2, 2013 NYTIMES

Pressure Grows to Create Drugs for ‘Superbugs’

By BARRY MEIER

Government officials, drug companies and medical experts, faced with outbreaks of antibiotic-resistant “superbugs,” are pushing to speed up the approval of new antibiotics, a move that is raising safety concerns among some critics.

The need for new antibiotics is so urgent, supporters of an overhaul say, that lengthy studies involving hundreds or thousands of patients should be waived in favor of directly testing such drugs in very sick patients. Influential lawmakers have said they are prepared to support legislation that allows for faster testing.

The Health and Human Services Department last month announced an agreement under which it will pay $40 million to a major drug maker, GlaxoSmithKline, to help it develop medications to combat antibiotic resistance and biological agents that terrorists might use. Under the plan, the federal government could give the drug company as much as $200 million over the next five years.

“We are facing a huge crisis worldwide not having an antibiotics pipeline,” said Dr. Janet Woodcock, director of the Center for Drug Evaluation and Research at the Food and Drug Administration. “It is bad now, and the infectious disease docs are frantic. But what is worse is the thought of where we will be five to 10 years from now.”

Annually, tens of thousands of Americans die from infections, largely acquired in hospitals, that are resistant to antibiotics, experts say.

Doctors, faced with dwindling options and little time to decide, are often left with agonizing choices over how to save a patient’s life. For example, some doctors, in extreme cases, are again using Colistin, an older antibiotic that was largely abandoned years ago because of the damage it can cause the kidneys.

“A drug like Colistin would not be developed today because it is too toxic,” said Dr. Helen W. Boucher, an infectious disease expert at Tufts University in Boston.

Under a plan proposed by a professional medical group, the Infectious Disease Society of America, new antibiotics approved through quicker testing would carry a special label specifying that their use be limited to very sick patients.

But critics of the plan argue that merely putting a restrictive label on a medicine is not enough, and that limited tests might not be adequate to determine a drug’s safety and effectiveness. They say they worry that the new medications, without the more comprehensive testing, could then be used on healthier patients who do not necessarily need them.

“There is really no way of knowing how these drugs are going to perform,” said Dr. John H. Powers, a former F.D.A. antibiotics reviewer who is now an associate professor at George Washington University in Washington.

The overuse of antibiotics in people and animals, often for conditions for which the drugs are ineffective or not needed, is seen as a driving force in the development of resistant bacteria. As these organisms have evolved and developed resistance, the development of new drugs has not kept pace.

Pharmaceutical companies have frequently chosen to put their resources into developing drugs with bigger payoffs than antibiotics. Also, the F.D.A., after a scandal several years ago involving an antibiotic called Ketek, which the agency approved on the basis of fraudulent data and was subsequently linked to severe liver damage, has been cautious in approving new drugs, infectious disease experts say.

“It has been progressively more difficult to usher a new anti-infective to market,” said Dr. Vance G. Fowler Jr., an infectious disease expert at Duke University.

Efforts to develop new antibiotics are not limited to the United States. In Europe, several big producers including GlaxoSmithKline and AstraZeneca recently became part of a joint government and industry initiative to develop antibiotics that kill resistant strains of bacteria. As part of the project, companies are pooling their resources and research data.

Along with the recent grant to GlaxoSmithKline, federal officials have also been giving grants to drug makers worth tens of millions of dollars to help them underwrite the costs of developing new antibiotics.

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http://www.nytimes.com/2013/06/03/health/experts-debate-plan-to-speed-antibiotic-development.html?nl=afternoonupdate&emc=edit_au_20130603


 Copyright JM Hamilton Publishing 2013

THE PROBLEM WITH MONOPOLIES...

MRSA and Private Equity

For both there is a cure!

By J.M. Hamilton (11-7-10)

Several interesting titles came to mind for this week’s editorial, among them:  Private Equity, the Killer Whales of Capitalism, or Private Equity & Saturated Fat, Clogging the Arteries of Commerce and the Economic Recovery.  But hey, I have nothing against Killer Whales, who are only acting out their role in nature by culling out the weak and infirm from the seal population.  And saturated fat is absolutely benign compared to private equity.   At least with a little will power we can avoid saturated fat.  Private equity, on the other hand, is more pernicious, insidious and prevalent in our society; that is to say, private equity is much more analogous to the super-bug, MRSA or methicillin-resistant staphylococcus aureus.  Besides, the government’s concern about MRSA, and required intervention into market place, nearly completes the hook, and allows this piece to run full circle.

Government Intervention into the Market Place: Democrats, Republicans and Bears!  Oh My!

The Times ran a story this week, Antibiotics Research Subsidies Weighed by U.S., where for once, we may actually have both Democrats and Republicans coming to agreement that government intervention into the market place might be a positive thing.  Its seems as though MRSA, and assorted superbugs, are overthrowing and growing beyond the reach of medicine; and Big Pharma has more profitable endeavors to pursue (like adding vitamins to medicines, so that patents and monopolistic profits can be extended), than developing new antibiotics to fight MRSA and his deadly friends.  Funny how the most ardent Laissez Faire Capitalist becomes all “lovey” about government, when the market falls on its ass, and there’s a life threatening crisis at hand.

Seems as though both Democrats and Republicans want to throw all kinds of financial incentives, tax breaks, and other assorted financial goodies, Big Pharma’s  way (on top of the multitude of breaks Big Pharma already receives), so what would transpire in a more perfectly capitalist system, can now happen through government intervention into a oligopolistic market place.  Unfortunately, as usual, government is attacking the symptom of the problem (Big Pharma intransigence and greed), instead of the problem (Monopolies authorized by our government), essentially applying a band aid to the boil on the skin instead of addressing and attacking the MRSA that lurks beneath the boil. 

Adam Smith and an “Absurd Tax”

We’ll eventually get to private equity, but first a quick visit to our friend Adam Smith.  Mr. Smith warned about the pernicious tendency of capitalism to metastasize into monopoly, when he wrote:

(The interests)… “in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public.   To widen the market and narrow the competition, is always in the interests of the dealers… and can serve only to enable dealers, by raising their profits above what they would naturally be, to levy, for their own benefit, an absurd tax upon the rest of their fellow citizens.  The proposal of any new law or regulation of commerce which comes from this order (Merchants, Dealers, Monopolies), ought always to be listened to with great precaution, and ought never be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention.”

No way.   Adam Smith, a free market deity, nearly 235 years ago warned that monopolistic profits are a tax on society, and warned about capitalism’s tendency toward combination?  And as this blog has written about (see Monopolies and Double Standards, Et Al.) monopoly can only occur by the grant and authority of the government.   And hence, the market place failure we are now witnessing:  Having created the oligopoly, Big Pharma, the government now has to go begging this oppressive power for core and fundamental medicine.   Had the government not allowed Big Pharma to consolidate and grow so powerful, there would be many varied entities and entrants in the pharmaceutical market place, each seeking out their own niche, presumably one of these would have been antibiotics to keep up with superbugs.  Instead, we have a few powerful actors, Big Pharma, who can hold out for compounded government largess, at the expense of the tax payer and general welfare of society, before developing drugs that would otherwise, most likely, be developed in a less monopolistic market sector.

“This is market place failure,” states California Democrat Mr. Waxman in the Times article.   Indeed, Mr. Waxman, but rather than throw yet more tax payer money at Big Pharma (in the form of financial incentives and tax breaks), perhaps the real solution is the break up the pharmaceutical cartel, so that there are more players to address life threatening disease and illness?

How the Game is Played

Enter private equity…. Shadow banking’s co-evil twin.  Private Equity makes its money by acquiring, merging, leveraging up perfectly healthy companies and corporations with colossal amounts of debt, front loading profits, extracting huge management fees, of course taking a portion of the profits (if any) from the targeted company, tax deductibility on the massive debt, and even enjoys the kicker of special tax break, under the guise of “carry forward.”  Private equity further guarantees profitability by sealing itself off from loss by creating LLC funds and holding companies; hence, profits can flow up, but losses and bankruptcy may stay below with the LLC.  But the really big pay off occurs when the private equity company takes the acquired firm and flips it, by taking it public (IPO), merging it with another company (M&A), or tossing said company to another private equity firm (to be leveraged up and “debted up” all the more), much as a pack of Orcas does with baby seals.  Of course, private equity, like MRSA, goes barely unnoticed when things are going along swimmingly; but when the economy heads south or the bubble bursts, all that leverage, and the debt service load, tends to tear a company apart at the seams, to the detriment of:  society, management, investors, employees, bond or debt holders, vendors of the bankrupt company, and the tax base.

Witness a record number of business failures in this country in the last couple of years, possibly half of them pushed over the edge by their recent, or present liaison, with private equity.  From the NY Times story, Profits for Buyout Firms as Company Debt Soared (10-5-09), we get the following:

“A disproportionate number of the companies that were acquired during that frenzy are now struggling with the enormous debts. More than half the roughly 220 companies that have defaulted on their debt in some form this year were either owned at one time or are still controlled by private equity firms, according to analysts at Standard & Poor’s. Among them are household names like Harrah’s Entertainment and Six Flags, the theme park operator.”

Gee… all those tax breaks and special considerations, do you think private equity has some ties to the Federal Government?  You bet.  Why look no further than the occupations of our recent Treasury Secretaries: 

*Mr. Henry Paulson (Bush Administration) former Goldman Sachs, CEO and creator of TARP.  Say no more. 

*John W. Snow (Bush Administration) now a member of Cerberus Capital Management Groups, private equity, and the fine folks who helped bring Chrysler down.

*Larry Summers (Clinton Administration), lieutenant of Robert Rubin, and a key player in the deregulation of the derivatives industry.  The derivatives industry will and does, undoubtedly, play a significant role in private equity, and yet another round of M&A activity to come.

*Robert Rubin (Clinton Administration): Goldman Sachs, Citigroup, both of which ran and supported private equity operations.

Alone, of our recent Treasury Secretaries, Paul O’Neill (Bush Administration) stands out as a man of fiscal integrity, a man who bucked the Bush tax cuts and the neo-cons, and a man who did not come from, or return to, investment banking and private equity.  Perhaps that’s why Mr. O’Neill was let go?  As for Mr. Summers, the derivatives he has championed over the years play a unique role in private equity, by allowing investments banks, and private equity, itself, to hedge their bets against targets for acquisition.  Derivatives can secure profits for debt holders, if a takeover target fails, so that, depending upon the deal, and the subsequent financial results, the investors, private equity, banks and bondholder, may actually have an incentive to see the target fail or enter into bankruptcy.  As we can see in our on-going financial crisis, Wall Street makes money coming and going (lose, win or draw), and if the system blows up, well there’s always Uncle Sam ready to offer a bailout.

Fed Reserve and QE2:

The mother’s milk of private equity is cheap liquidity.  We are talking tons of money sloshing around, like the kind we see right now under QE 1 and QE2.  Private Equity has enjoyed peak periods, during bubbles, and massive monetary easing, like that seen in the mid to late eighties courtesy of Fed Chairman Alan Greenspan, and the earlier part of this decade, again under the auspices of the Fed, commanded yet again, by Mr. Alan Greenspan.  During these periods private equity awash with easy money, courtesy of investors and friends in the banking industry, runs around preying upon companies, leveraging them, merging them, and most stock analyst’s favorite, creating “synergy” and “economies of scale”…. All code for down-sizing, layoffs, and organizational restructuring. 

At a macro level, as companies merge or fall prey to their massive debt load, private equity plays a critical role in the consolidation of industry and markets, that is to say, the creation of monopolies and oligopolies, not unlike what we see with Big Pharma, and problems associated with Big Pharma, like MRSA.

These monolithic business entities have tremendous problems with risk management, as we saw with B.P. earlier this year, and often end up performing poorly for their stockholders and society. 

And the Fed’s and Treasury’s role in all this?  Well presently, the Treasury finds itself in the ownership of a car company, and several financial institutions.  What better way for the Fed and Treasury to divest themselves of these entities, than to print money, flood the market with cheap liquidity, drive down bond yields and treasury yields, and drive unwilling participants back into the stock market…. So that the Fed can exit, stage left, from its forays into the private sector.  TARP might, officially, then be proclaimed an economic/government success, and the preeminence of “Too Big to Fail,” as a government policy, upheld. 

Of course, an intended or unintended consequence of massive liquidity, and lower bond yields, is to drive investors into junk bonds, and riskier investment vehicles, such as hedge and private equity funds.  Again, all the mother's milk of private equity….so that at a time of record unemployment in this country, and with the Fed printed money so fast that the printing presses are beginning to smoke, we can reasonably expect more job killing raids by private equity in the market place.  Merger and acquisition activity should soar.

The Bottom Line:

Merger and acquisition activity, as well as, the taxation and regulation of private equity, like monopolies themselves, all fall under government purview.  One quick way for government to arrest rising unemployment is to slow merger and acquisition activity (via Justice, SEC and the FTC), and tax private equity at the appropriate rate all businesses face, and eliminate the tax deductibility of debt; all the better for the government to address unemployment, MRSA and intransigent industries, such as Big Pharma, who are literally holding public health hostage, so that they can, possibly, extract further financial concessions from our government.

Private equity, too, has a role to play.  Perhaps instead of becoming a contractionary force in our economy, it can be a force for good, by deploying its capital toward new ventures and start-ups that create jobs and opportunity, instead of the elimination of same.

At the end of the day, MRSA is a growing life taker and a threat to the nation’s health; likewise, private equity, in its present incarnation, is a threat to society, business, the consumer, management and employees, and our nation’s economic health.  For both there is a cure.

 Copyright JM Hamilton Publishing 2013