GlaxoSmithKline — Guilty as charged

The Justice Department announced today that:

SB Pharmco Puerto Rico Inc., a subsidiary of GlaxoSmithKline, PLC (GSK), has agreed to plead guilty to charges relating to the manufacture and distribution of certain adulterated drugs made at GSK's now-closed Cidra, Puerto Rico, manufacturing facility, the Justice Department announced today. The resolution includes a criminal fine and forfeiture totaling $150 million and a civil settlement under the False Claims Act and related state claims for $600 million.

The False Claims Act (31 U.S.C. § 3729–3733), on which see this, enables whistleblowers to sue in the name of the government and to receive damages when the suite proves successful. In the present case, a GlaxoSmithKline employee, Cheryl Eckard, asserted "…in her whistle-blower suit that she warned Glaxo of the problems [with the production of the affected medications] but the company fired her instead of addressing the issues," according to the New York Times report. The problem was the manufacture at a specific plant altered the nature of the drugs, as the Justice Department statement explains:

The Food, Drug and Cosmetic Act (FDCA) prohibits the introduction or delivery for introduction into interstate commerce of any drug that is adulterated. Under the FDCA, a drug is deemed adulterated if the methods used in, or the facilities or controls used for, its manufacturing, processing, packing or holding did not conform to or were not operated or administered in conformity with current good manufacturing practice to assure that such drug met the requirements as to safety and had the identity and strength, and met the quality and purity characteristics, which it purported or was represented to possess.

The drugs addressed by the suit:

• Kytril
  
• Bactroban
  
• Paxil CR
  

• Avandamet (a combination of Avandia and Metformin)

Toto tugs on the curtain

Dean Baker hopes to deprogram the credulous among us in his "Cult of the Subprime Central Bankers." He begins by stating that:

The world is suffering from the worst downturn since the Great Depression. The crisis has left tens of millions unemployed in the U.S., Europe, and elsewhere. The huge baby boomer generation in the United States, now on the edge of retirement, has seen much of its wealth destroyed with the collapse of the housing bubble.

It would be difficult to imagine a worse economic disaster. Prior periods of bad performance, like the inflation ridden seventies, look like mild flurries compared to the blizzard of bad economic news in which we are now enmeshed.

None of this is new. People don't need economists to tell them that times are bad. However, what the public may not recognize is that the same people who caused this disaster are still calling the shots. Specifically, there has been little change in personnel and no acknowledgment of error at the central banks whose incompetence was responsible for the crisis.

Remarkably, this crew of incompetents is still claiming papal infallibility, warning governments and the general public that bad things will happen if they are subjected to more oversight. Instead, the central bankers and their accomplices at the IMF are dictating policies to democratically elected governments. Their agenda seems to be the same everywhere, cut back retirement benefits, reduce public support for health care, weaken unions and make ordinary workers take pay cuts.

He continues:

It is important to be clear about the responsibility of the central bankers and the IMF for this totally preventable disaster. The first reason is accountability, something that is very important to economists who believe in economics. Economic theory teaches us that if workers are not held accountable for poor work, then they have no incentive to do their jobs well. If the central banker and IMF crew can mess up disastrously and continue to draw their paychecks as though everything is fine, what is their incentive to do better next time?

The other reason why it is important to recognize the responsibility of the central bankers and the IMF for this disaster is so that we don't continue to take advice from people who apparently don't have a clue. Before anyone listens to Ben Bernanke, European Central Bank President Jean-Claude Trichet, or IMF Managing Director Dominique Strauss-Kahn, they should first be forced to tell us when they stopped being wrong about the economy. We cannot afford to let these subprime central bankers control economic policy any longer.

One possible explanation which Baker does not discuss but which cannot be rule out as impossible or even highly improbable: These central bankers are succeeding because they are managing an economic system based upon elite predation, not social production that ensures social stability and collective well being.

Grayson apologizes for smearing a whore

The pertinent deed happened in late September when Rep Alan Grayson (D-FL) called ex-Enron lobbyist and current Federal Reserve senior adviser Linda Robertson a "K Street whore." One can listen to the relevant interview here. But Grayson shows himself to be confused as to whom he wronged when he used the bad word, "whore," for he apologized to the wrong person, as may be seen in his statement:

"I offer my sincere apology to Linda Robertson, an adviser to Fed Chairman Ben Bernanke. I did not intend to use a term that is often, and correctly, seen as disrespectful of women.

"This characterization of Ms. Robertson, made during a radio interview last month in the context of the debate over whether the Federal Reserve should be independently audited, was inappropriate, and I apologize."

Grayson's apology should have gone to all women and to all sex-workers who deal with too much crap as it is. They were surely defamed by a comparison to an Enron lobbyist and Federal Reserve advisor, a taxonomic unit that is ambiguously related to the human species. They deserve the apology.

Entitled to loot

This is one to savor as the world plunges into the abyss

One may find this sentiment expressed in the Guardian:

One of the City's leading figures has suggested that inequality created by bankers' huge salaries is a price worth paying for greater prosperity.

In remarks that will fuel the row around excessive pay, Lord Griffiths, vice-chairman of Goldman Sachs International and a former adviser to Margaret Thatcher, said banks should not be ashamed of rewarding their staff.

Speaking to an audience at St Paul's Cathedral in London about morality in the marketplace last night, Griffiths said the British public should "tolerate the inequality as a way to achieve greater prosperity for all".

A very clear presentation on the financial crisis

The author: William K. Black (a link to the video can be found at Economic Populist):

That settles that….

According to a New York Times report:

In his first public response to days of protests, Iran's supreme leader, Ayatollah Ali Khamenei, sternly warned opponents Friday to stay off the streets and denied opposition claims that last week's disputed election was rigged, praising the ballot as an "epic moment that became a historic moment."

In a somber and lengthy sermon at Friday prayers in Tehran, he called directly for an end to the protests by hundreds of thousands of Iranians demanding for a new election.

"Street challenge is not acceptable," Ayatollah Khamenei said. "This is challenging democracy after the elections." He said opposition leaders would be "held responsible for chaos" if they did not end the protests.

His remarks seemed to deepen the confrontation between Iran's rulers and supporters of the main opposition candidate, Mir Hussein Moussavi, who have accused the authorities of rigging the vote.

Well, shit…..

William Pesek of Bloomberg tells us that:

Two Japanese men are detained in Italy after allegedly attempting to take $134 billion worth of U.S. bonds over the border into Switzerland. Details are maddeningly sketchy, so naturally the global rumor mill is kicking into high gear.
The implications of the securities being legitimate would be bigger than investors may realize. At a minimum, it would suggest that the U.S. risks losing control over its monetary supply on a massive scale.

(The original news report may be read here. Additional coverage by the same source can be read here.)

Indeed. On the other hand, they may be forgeries. And who, after all, would want hundreds of billions of dollars of worthless bonds?

The trillions of dollars of debt the U.S. will issue in the next couple of years needs buyers. Attracting them will require making sure that existing ones aren't losing faith in the U.S.'s ability to control the dollar.

The dollar is, for better or worse, the core of our world economy and it's best to keep it stable. News that's more fitting for international spy novels than the financial pages won't help that effort. It is incumbent upon the U.S. Treasury to get to the bottom of this tale and keep markets informed.

Assuming the bonds are legitimate, the next question hones in on who could or would have this kind of largess to dump? The list is short:

Other than the U.S., China or Japan, no other nation could theoretically move those amounts. In the absence of clear explanations coming from the Treasury, conspiracy theories are filling the void.

Given the lack of hard and sure answers, I suppose the conjectures flooding the void where the truth ought to reside could be considered as nothing better than conspiracy theories. Yet are they "conspiracy theories" as that term is normally understood when they refer to actual conspiracies in action?

Update (6.19.2009):

Yesterday, the US Treasury declared the bonds fakes (see this, this and this).

Another Chicago crime boss

Obama's neomercantilist moment in American history

This is my creative interpretation of Steven Lendman's recent judgment of Barack Obama:

Since taking office, Obama, wittingly or otherwise, has headed the largest criminal enterprise in history — the mass looting of national wealth to enrich his Wall Street benefactors. He assembled a rogue economic team of Clinton/Robert Rubin retreads — to fix the current crisis they engineered.

On the Wall Street grifters

Glenn Greenwald asks his readers to:

Just think about how this [Wall Street scam] works. People like Rubin, Summers and Gensler shuffle back and forth from the public to the private sector and back again, repeatedly switching places with their GOP counterparts in this endless public/private sector looting. When in government, they ensure that the laws and regulations are written to redound directly to the benefit of a handful of Wall St. firms, literally abolishing all safeguards and allowing them to pillage and steal. Then, when out of government, they return to those very firms and collect millions upon millions of dollars, profits made possible by the laws and regulations they implemented when in government. Then, when their party returns to power, they return back to government, where they continue to use their influence to ensure that the oligarchical circle that rewards them so massively is protected and advanced. This corruption is so tawdry and transparent — and it has fueled and continues to fuel a fraud so enormous and destructive as to be unprecedented in both size and audacity — that it is mystifying that it is not provoking more mass public rage.

Greenwald continues by marking some of the ways President Obama and his administration had already helped these grifters to loot the public's money. He quotes with approval William Black who went so far as to identify the financial system as one grand Ponzi scheme and Secretaries of the Treasury Geithner and Paulson before him of "covering up" this immense fraud. Campaign rhetoric aside, that the Obama administration gave this help should have surprised no one. Not only had the FIRE sector (Finance, Insurance, Real Estate) given candidate Obama more money than any other candidate, but Wall Street has effectively captured not only the executive institutions which finance capital found most interesting but even the federal government as a whole, as Greenwald points out by quoting from Simon Johnson's recent article on the crisis.

Briefly put, the federal government is becoming — or has become — a massive rent extraction mechanism which serves the interests of American finance capital.

Barack Obama’s Katrina moment?

Frank Rich latest column for the New York Times believes that President Obama now faces just this situation:

A charming visit with Jay Leno won't fix it [Obama's legitimation problem]. A 90 percent tax on bankers' bonuses won't fix it. Firing Timothy Geithner won't fix it. Unless and until Barack Obama addresses the full depth of Americans' anger with his full arsenal of policy smarts and political gifts, his presidency and, worse, our economy will be paralyzed. It would be foolish to dismiss as hyperbole the stark warning delivered by Paulette Altmaier of Cupertino, Calif., in a letter to the editor published by The Times last week: "President Obama may not realize it yet, but his Katrina moment has arrived."

Popular outrage focuses on Senator Dodd

Senator Christopher Dodd (D-CT) must regret some his ties to AIG as scrambles to save his political career, according to the New York Times:

Across Connecticut, anger is erupting against Mr. Dodd, the chairman of the Senate Banking Committee, whose stature in Washington once reflected the state's beneficial ties with the financial industry. Now, he finds himself a symbol of the political establishment's coziness with tainted corporations and a target of populist wrath over their excesses.

A reversal like this can happen and should be expected when a powerful and well-known politician appears to have aided corporate looters while most of his or her constituents suffer through an economic crisis.

On Thursday, the senator sought to defuse the furor over the latest revelation, holding a conference call with reporters to explain how legislation meant to limit executive compensation was changed at the last minute. That change exempted bonuses protected by contracts, like those at American International Group, a big campaign contributor to Mr. Dodd that received billions in federal bailout money.

Some of Connecticut's citizens were unimpressed by Dodd's excuse:

In dozens of interviews, residents said they were appalled by Mr. Dodd's ties to financial firms and believed that he had damaged himself as he prepares to run for re-election next year.

It remains to be seen whether this backlash moment has the staying power needed to undermine Dodd's 2010 reelection efforts.

Panic grips the Street

According to the Washington Post:

The firestorm over bonuses paid by insurance giant American International Group has triggered alarm at other financial firms, threatening federal efforts to draw private investors into economic recovery programs.

…

A senior executive at one of the nation's largest banks said he had heard from several hedge funds that they would not partner with the government for fear that lawmakers would impose retroactive conditions on their participation, such as limits on compensation or disclosure requirements.

Other firms want to bide their time to see how early participants in the rescue programs are treated before they decide whether to sign up, said the executive, who spoke on condition of anonymity.

Briefly put, it appears that America's rentier capitalists will take the government's money when it comes without strings attached. But they will think twice about taking this money when it comes with these strings. I find their reluctance odd, however. Are we to believe that they and their agents would rather have their firms made bankrupt by the crisis than to bind themselves to rules requiring transparency, personal integrity and fiscal probity? I ask because bankruptcy is a probable alternative for some of these companies. If my conjecture is true, if they prefer firm failure to governmental oversight and regulation, then those rentiers staffing companies facing destruction simply do not care how greedy and vicious they appear to the rest of the country while those who work at firms that can survive the crisis seemingly wish to engage the Obama administration in a game of chicken in order to gain an advantageous position from which to exploit the crisis for their personal advantage. Both possibilities are outrageous and ought to draw a firm response from the Obama administration.

The reason why the AIG bonus scandal matters

Yves Smith of Naked Capitalism concisely identifies a reason for its significance:

I agree, as others have said, the bonus affair seems overdone, but on another level, it makes perfect sense. Intuitively, the public knows the execs and troops of the big financial firms were overpaid in recent years since the earnings were overstated, due to phony accounting and insufficient loss reserves. They can't get that money back, but the idea of even more going out the door, even amounts small relative to the bailouts, now that the companies are bust, is offensive.

What likely offends most common folk is not the size of the AIG bonuses per se. Nor is it their size when compared to the bailout payments the government has already made to AIG. Rather it is likely the size of these bonuses when compared to the job compensation most Americans enjoyed even in the best of times. Obviously few feel secure in the midst of a crisis. It appears to these individuals that AIG's executives got the lion's share of the rewards from the destruction of this company but have suffered little from their catastrophic mistakes. Nor, for that matter, will these well-compensated executives need to personally manage the risks generated by the AIG bailout. Their wealth can save them from a bad fate if they are prudent. The risks will mostly fall upon the taxpayers of the present and the future. Most American taxpayers are not well-compensated and will not be so any time in the future if the current crisis is a manifestation of America's secular economic fate.

The compensation matter poses, then, a question of justice (what share of the burdens must be given to these executives if justice is to be served), on the one hand, while it presents the world with an instance of a class-specific injury (the exploiters accumulate and the exploited suffer because of this accumulation). It ought to be interpreted as a path that leads to more pressing political problems and not to the pressing issue of the moment.

Yet another AIG outrage

According to the New York Times:

The bonuses that the American International Group awarded last week were paid to 418 employees and included $33.6 million for 52 people who have left the failed insurance conglomerate, according to the office of the New York attorney general [emphasis added].

Retention bonuses were paid to employees who were not retained!

It sounds like a plan

In an article appearing on the Huffington Post (a link appears on Naked Capitalism), William K. Black, Thomas Ferguson, Robert Johnson and Walker Todd offer a practical solution to the AIG bonus outrage. Their plan:

1. "…[T]he US trustees in charge of the firm [AIG] must immediately instruct the corporate treasurer to make no payments of any bonuses. They also need to order him to issue stop payment orders on any checks that fly out the door at the last minute, as with Merrill Lynch."
   
2. "…[T]he trustees need to split off the derivatives unit from the rest of the firm and separately incorporate it. This step leaves AIG's other businesses free to operate as usual. If the recipients of the bonuses refuse to waive them, then the derivatives unit should at once be thrown into bankruptcy, terminating all obligations to pay them."
   
3. "AIG CEO Edward Liddy, accordingly, should be asked to resign at once, for the sake of public confidence and to send a clear signal that gaming the system is unacceptable."
   
4. Investigate "…the validity of AIG's past accounting and securities disclosures and its executive compensation program…." "…[T]he Office of Thrift Supervision, the Securities and Exchange Commission, and the FBI" can perform this investigation.
   

A danger to the nation

Yves Smith of Naked Capitalism addresses once again the AIG bonus scandal. This time she extensively quotes from her email correspondence with William Black, a professor of law and economics at the University of Missouri-Kansas City. Given Professor Black's past work on the Savings and Loan crisis, his take on the AIG scandal is worth considering and reproducing in full:

This [the AIG situation] is the consequence of six things on the Treasury end of things:

(1) the failure to use Chapter 11 bankruptcy/pass-through receivership to deal with deeply insolvent financial institutions

(2) the failure to expose, and to the extent possible, remedy through restatements the massive accounting fraud that AIG was/is engaged in that triggers the bonuses

(3) the failure to bring criminal charges against the control frauds

(4) the failure of Treasury as negotiators — they had all the leverage when they bailed out AIG and could have conditioned the aid on at least the VP tier and above giving up their bonuses

(5) the weakness of Treasury's current lawyers who, if press reports are accurate, couldn't think of any way for the U.S. government to take effective action against what it reportedly views as a scandal,

(6) (and I haven't seen this discussed) why was Treasury blind-sided by this? It confirms that they did not conduct even the most obvious due diligence on AIG's assets and contingent liabilities

Given what we know about the lack of due diligence by AIG on underlying assets, particularly nonprime paper, this confirms exactly how dangerous Treasury is to the the nation. It is also consistent with the concern that it faces such a critical staff shortage, particulary [sic] in the relevant skills (which the folks it hires from Wall Street lack). I doubt that they have five senior officials that have ever reviewed loan files for a living or conducted meaningful due diligence (which requires cracking the loan files).

On the AIG end we see the perverse incentives of keeping the senior level folks on that caused the crisis. They have every incentive not to be honest about the true extent of the losses. They know the place is dead (hopelessly insolvent) and have strong incentives to loot the corpse, e.g., through bonuses. They do not alert Treasury sufficiently in advance even to bonuses that they should know will be perceived as scandalous (though another problem with keeping these failed elites in power is that they are clueless about the reaction of normal people). They do not work to limit bonuses, e.g., by being honest about past accounting fraud. I believe when the facts come out that we will find that they did not make criminal referrals on the prior senior officials that led AIG's accounting fraud (which would have given AIG and the Treasury a far stronger legal basis for refusing to pay bonuses that were "earned" via accounting control fraud.

I don't oppose bonuses that are actually earned through long term performance. That is not the case with the AIG bonuses. We can offer well designed performance pay if we use bankruptcy or receiverships.

Fraud and looting, dissembling and the force majeure now exercised by American finance capital — these are becoming the significant and blatantly outrageous features of the AIG bonus scandal.

Obama administration will try to block questionable AIG bonuses

The New York Times reports that:

President Obama vowed to try to stop the faltering insurance giant American International Group from paying out hundreds of millions of dollars in bonuses to executives, as the administration scrambled to avert a populist backlash against banks and Wall Street that could complicate Mr. Obama's economic recovery agenda.

Lest we forget, the federal government now owns about eighty percent of AIG. But will this fact matter? How could have this situation come about in the first place? After all, as Glenn Greenwald makes clear:

The only way a company like AIG throws up its hands from the start and announces that there is simply nothing to be done is if they are eager to make these payments. One might expect AIG to do so — they haven't exactly proven themselves to be paragons of business ethics — but the fact that Obama officials are also insisting that nothing can be done (even while symbolically and pointlessly pretending to join in the populist outrage over these publicly-funded "retention payments") is what is most notable here.

More pointedly, as the Razor's Edge wonders: "How did the AIG executives expect to sneak this by the media and angry taxpayers?" Can the AIG people be that clueless? Or did they expect the Obama administration to provide the political coverage they needed to further loot this company?

Catching up (3.16.2009)

Writing for CommonDreams, Robert Freeman wonders if the current situation in America compares to that found in Germany as the Weimar Republic concluded.

Writing for TomDispatch, Robert Dreyfus reviews the Charles Freeman incident and assesses its significance for American politics. He suspects — and rightly so — that Freeman's "defeat" at the hands of the Israel Lobby may have been the Lobby's "Waterloo."

Josh Marshall of Talking Points Memo believes AIG chief executive Edward Liddy humiliated the Obama administration when he decided to pay what are unjustified bonuses to AIG executives.

MSNBC's Rachael Maddow provides her take on Stewart vs. Cramer:

Decadence

The dollar a nanosecond men and women

According to the New York Times:

The American International Group, which has received more than $170 billion in taxpayer bailout money from the Treasury and Federal Reserve, plans to pay about $165 million in bonuses by Sunday to executives in the same business unit that brought the company to the brink of collapse last year.

Celebrity death match?

Cramer vs. Stewart

Howard Kurtz of the Washington Post thus characterized the latest round of this "epic battle":

Jon Stewart wasn't trying to be funny.

Jim Cramer wasn't trying to be obnoxious.

The result was riveting, if not particularly hilarious, television, with Stewart dominating all the way.

Yves Smith of Naked Capitalism asks:

Why is it that the Daily Show is the only media outlet calling out CNBC on its, how shall we put it politely, less than stellar moments?

Alessandra Stanley, writing for the New York Times, dismisses Stewart by comparing him to a Congressional grandstander with a messianic streak:

Mr. Stewart treated his guest like a C.E.O. subpoenaed to testify before Congress — his point was not to hear Mr. Cramer out, but to act out a cathartic ritual of indignation and castigation.

"Listen, you knew what the banks were doing, yet were touting it for months and months, the entire network was," the Democratic Senator from Comedy Central said. "For now to pretend that this was some sort of crazy, once-in-a-lifetime tsunami that nobody could have seen coming is disingenuous at best and criminal at worst."

Congress has — belatedly and showily — gone after the leaders of banks, auto companies and insurance companies for their complicity in the financial meltdown. Mr. Stewart has always had a messianic streak to his political satire, as when he ripped into Tucker Carlson and Paul Begala on "Crossfire" for "hurting America." He is now focusing on business news cable networks like CNBC, which not only failed to foresee the credit crisis, but, in his view, sided with the bankers and helped inflate the bubble.

She concludes with this gem: "Mr. Stewart kept getting the last word, but Mr. Cramer may yet have the last laugh."

Readers may judge the quality of the interview for themselves by watching the unedited version:

The Daily Show With Jon StewartM - Th 11p / 10c

Intro - Brawl Street: Get Ready to Buy Low! And Sell Die

Daily Show Full Episodes
Important Things w/ Demetri Martin

Political Humor
Jim Cramer

The Daily Show With Jon StewartM - Th 11p / 10c

Jim Cramer Unedited Interview Pt. 1

Daily Show Full Episodes
Important Things w/ Demetri Martin

Political Humor
Jim Cramer

The Daily Show With Jon StewartM - Th 11p / 10c

Jim Cramer Unedited Interview Pt. 2

Daily Show Full Episodes
Important Things w/ Demetri Martin

Political Humor
Jim Cramer

The Daily Show With Jon StewartM - Th 11p / 10c

Jim Cramer Unedited Interview Pt. 3

Daily Show Full Episodes
Important Things w/ Demetri Martin

Political Humor
Jim Cramer