"Rise" | June 20th Poor People's Campaign Promo

Unsanitized: The COVID-19 Daily Report, May 24, 2020 Predatory capitalists like Charles Koch are behind the rush to reopen the country. (David Zalubowski/AP Photo) Republicans, Predators and the Pandemic The worst kind of capitalists have persuaded the worst kind of Republicans to end the shutdowns. By Gautam Mukunda The following is a guest version of Unsanitized from Gautam Mukunda, a Research Fellow at Harvard Kennedy School’s Center for Public Leadership and author of Indispensable: When Leaders Really Matter. Spurred on by President Trump, Republican governors are reopening their states. In other states, protests against the lockdown roll on even as the country hits new highs in daily deaths. Despite the economic devastation, however, 80% of Americans still support shelter-in-place measures. Even among Republicans, 61% support shelter-in-place and 47% oppose the protests while only 36% support them. The experts are on the same page. Economists, virologists and epidemiologists all say that easing the lockdowns before the virus is under control would have disastrous consequences.  But while the experts and the public — Republicans included — are overwhelmingly on one side of the issue, many Republican officeholders, including President Trump, are on the other. It is rare, to put it mildly, for politicians to take positions opposed by most Americans, particularly those of their own party, on a subject of immense public interest. To understand why, we need to know where the support for ending the lockdown comes from and its roots in a profound flaw in the American economy. Much of the pressure to immediately end the lockdowns stems from a relatively small group of Republican financial elites. The President’s initial proclamation to reopen the economy by Easter was spurred in part by a widely-reported call with prominent investors. As well, the protests against governors’ shelter-in-place and social distancing orders have been quietly supported by major conservative donors like Charles Koch.  But not all billionaires are minimizing the danger of the virus. Bill Gates, for example, was a prophetic voice warning against the danger of a pandemic, and has continued to make the case for a forceful national response. He’s far from alone. So who are the open-it-up mega-rich, and why are they so powerful? There are two ways to make a great fortune. The first is creation — generating value and capturing a disproportionate share of it. We might criticize their tactics or business practices, but most Americans feel that Microsoft, Apple, and Google have greatly benefited America, and that we should have many more companies like them.  There’s another, and sadly easier, way to become stratospherically wealthy, however — predation. Instead of creating wealth, you capture it from others, leaving them, and society as a whole, worse off. If you inherit an oil company and build it into a giant it might be an impressive business achievement — but when you use a tiny fraction of that wealth to weaken environmental regulations, then take advantage of them to drive up your profits, you’re not creating wealth, you’re just imposing costs on everyone else. If you buy companies, load them up with debt to pay yourself huge fees, strip their assets, and then leave their workers unemployed with worthless pensions, the only thing you’re creating is suffering — but you will get rich. And if, like Trump, you inherit a real estate company, illegally dodge taxes, scam your customers, and refuse to pay your contractors, then you’ve won predation bingo. In 1954, the great business thinker Peter Drucker said that the only purpose of business is “to create a customer.” A few years later, however, Milton Friedman argued that the “only one social responsibility of business [is] to increase its profits.” You create customers by filling their needs so both you and they are better off. Profits, however, can just as easily — all too often, more easily — be increased through predation. Unfortunately, it was Friedman’s ideas, not Drucker’s, that came to dominate the way businesses were run, creating enormous fortunes for executives while making it easy for them to think of most Americans as prey.  What’s more, predators have realized that their best return on investment comes from spending on politics, particularly on Mitch McConnell’s money-driven Republican Party. We see this in the titanic power of conservative billionaires like the Kochs, Sheldon Adelson, and Robert Mercer. When your fortune is in the billions, spending tens or even hundreds of millions of dollars to lower your taxes is a bargain. What Republican donors want is often very different from what Republican voters do, as the polling on sheltering in place makes clear. Indeed, as the Republican Party became dependent on predatory capitalists, it followed their preferences to such an extent that with two years of unified control of the government from 2017-2019, the only significant bill it passed was a giant tax cut on the wealthy — even though a Fox News poll found that 54% of Republican voters support raising taxes on people with incomes over $1 million.  In this Administration, predators aren’t just behind the scenes — they’re center stage. There’s Trump, but there’s also Steve Mnuchin, who made hundreds of millions expediting foreclosures even though his company took $1.2 billion from the government to help homeowners avoid them, and Jared Kushner, who made millionsas a slumlord who refused to maintain apartments and gouged residents on fees. So why are some Republicans pushing to re-open immediately, even though the CDC predicts that this would result in deaths from the virus rising to more than 3,000 per day by June 1st? Why is Trump using the Defense Production Act to force meatpacking workers to labor in unsafe plants while refusing to use the power it grants him to increase the supply of Personal Protective Equipment? Why is McConnell trying to give companies immunity from lawsuits if they violate workplace safety rules and get their employees sick? Why did Republican Senators slip a $170 billion tax break into the CARES act that will provide more than 80% of its benefits (more than $1.6 million each) to wealthy real estate investors?  Because they need the predators. When you’re a predator, the calculation of when to reopen the economy looks very different than it does to most of us. In the absence of a vaccine or treatment, Covid-19, unchecked by social distancing, will likely kill hundreds of thousands of Americans. But for a predator, sacrificing other people to maximize your wealth is the way you got rich in the first place. When predators go unchecked, however, the system — beginning with its legitimacy -- can buckle. In 2009 President Obama told the CEOs of major banks, “My administration is the only thing between you and the pitchforks” when he was trying to persuade them to limit what they were paying their top executives (including themselves) after being bailed out by American taxpayers. The Obama Administration kept the pitchforks at bay, but his fundamental message — that the American people would not much longer accept a mutant strain of capitalism in which a few gained stratospheric wealth by immiserating many — remained unheard.  Today’s tradeoff is even starker. The details of the global financial system are hard for almost anyone to understand. But it takes no special skill to see that a relative handful of billionaires are using their influence over the Republican Party to end the lockdown with scant regard for the ensuing cost in human life. Beating the virus and creating a nation where we are citizens, not prey, requires us to reject their influence and remove from power the politicians who do their bidding. Votes, not pitchforks, are the weapons we must wield.

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How Private Equity Bankrupt J.C. Penny

David Dayen, American Prospect 
Century-old retailer JCPenney filed for bankruptcy late on Friday, the latest large retailer to succumb this year. And you could hear private equity fund managers breathing a sigh of relief. Unlike J.Crew and Neiman Marcus, JCPenney is a publicly traded company. At least private equity wouldn’t be called out for this retail bankruptcy, and maybe that could absolve them of the high debt loads and mismanagement that has driven much of the retail apocalypse. If public and private firms are equally at risk, maybe the sector’s just obsolete.
First of all, you can’t cherry-pick one company and absolve the failed PE business model. According to the Wall Street Journal, 27 of the 38 retailers with the “weakest credit profiles” are private equity-owned. The incredible debt burden placed on these firms made them inflexible amid industry changes. And that was JCPenney’s problem too; its downfall mirrored the tell-tale signs of a private equity portfolio company.
Back in 2010, hedge fund titan Bill Ackman and real estate investor Vornado bought a quarter of JCPenney stock, and vowed to turn around the company. They effectively installed a new CEO, Ron Johnson, who subsequently ran JCPenney completely into the ground. He brought in his own inexperienced managers, fired 19,000 workers in cost-cutting measures, and reorganized the stores without market testing. Sales dropped 25 percent in a year and by 2012 Johnson was fired. Ackman and Vornado sold out and took losses. Private equity circled around the company, hinting at a purchase. But there was a problem: it was already weighed down by too much debt.
By 2013, JCPenney had $1.9 billion in net debt. And a loan from Goldman Sachsadded another $1.75 billion. In other words, it was already acting like a private equity-held company, using debt to survive. Like its private equity-owned colleagues, JCPenney went into conserve-cash mode, shunning investments in the business. This made it impossible to adapt and build an enduring presence online as e-commerce grew. The company also sold off real estate, stripping assets out to feed the debt machine. 

But that debt mountain grew to $4 billion amid falling sales, and the coronavirus crisis tipped the company over the edge. It started skipping interest payments and the end was nigh. There are still 85,000 employees, most of them on the floor in sales and support. At least 200 stores will likely be shuttered.

After bankruptcy, JCPenney might finally become the attractive, debt-light company that private equity would want to play their turnaround game. It could find itself at the beginning of a new asset-stripping cycle, to the benefit of new private equity owners. The fear is that discounted, hobbled firms would get swallowed up into the PE borg, giving financiers an easy way to extend dominance.

But private equity may not be in the position to capitalize right now. Its portfolio companies keep going under or are considering bankruptcy. Major firms like KKRand Apollo have reported big losses. Valuations are impossible, given the uncertainty of reopening and returning sales. Selling companies, consequently, can’t happen. The federal government has supplied surprisingly little relief, although the Federal Reserve money cannon could still come to the rescue by purchasing junk bonds.

Private equity has lots of money in reserve for deals, and some have been dipping into that. But whether there will be enough appetite to take on companies like JCPenney is an open question. Meanwhile, we can say pretty definitively that the private equity business model adds hidden risk that can be incredibly damaging in a crisis. Where the valie lies is another question. 

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Trump Prepares for 134,000 Deaths

A Grim Viewpoint

First Response

David Dayen 

Everyone is trying to make sense of the leaked CDC model that shows coronavirus deaths peaking at 3,000 per day, 70 percent more than the current plateau, and a whopping 200,000 new cases every day as well. The noted IHME model out of the University of Washington doubled as well, now predicting more than 134,000 deaths by August after sitting on 70,000 for a while.
I don’t think it takes a savant to figure out what’s going on here. The IHME model was just wrong, we were about to hit the number of deaths it predicted for three months from now, and it recognized its error by tweaking a dial. Though it did hold out that its projections “reflect the effect of premature relaxations on restrictions,” a convenient alibi for a model that was already out of date.
The CDC model is a more appropriate manifestation of what we’ve been talking about here. The country is pulling back on lockdowns while stuck at a peak on deaths and cases. In fact, because aggregating a large country with one curve is completely misleading, the pullback is happening while peaking is still going on. If you remove New York, New Jersey, and Connecticut, where cases spiked early, you see a curve that goes down slightly in the middle of April, causing everyone to relax, and then starts its way up again.
No other country has given the go sign to its population under these conditions. Countries around the world are starting to return and there appears to be some jealousy or mass delusion that we’re in the same position. We’re not and we never were. In fact Italy’s relaxation of the lockdown looks a lot like our lockdown. Having blown February by botching testing, we’re on the precipice of blowing March and April by re-opening far too soon. Even California, seen as the responsible actor in this play, is dropping restrictions (albeit not many), doing its part to put the country on a bad trajectory. The signals are all in the direction of placating protesters and putting America back in an incredibly dangerous position.
So the CDC is adapting to circumstances like the IHME model, though in a more responsible fashion. It shows a ramp-up about two weeks from now, matching the beginning of the lockdown relaxations. This isn’t a second wave but the second half of a first wave that merely plateaued but never ended.
The Washington Post talked to the creator of the model, who disavowed knowing how the data was being used, but who helpfully explained that he was basing his decisions in the model on “reopening scenarios” that “could get out of control very quickly.” 
This likelihood, by the way, is the worst possible outcome. Reopening and then seeing cases and hospitalizations that will overwhelm the system again, leading to another closure, would be worse for public health and worse for the economy. 
The White House is sticking with a model made by their economist Kevin Hassett, who once predicted the Dow Jones Industrial Average would reach 36,000. (It hasn’t.) He’s using a “cubic” model which might as well be called a “fit the numbers to Donald Trump’s re-election plans” model. We’re seeing in real time a battle between epidemiologists and economists over predicting the future. Epidemiologists are catching up to limited data and reworking on the fly; economists are lying to flatter their bosses and ignoring reality.
If you really play out what the CDC model is showing, it gets you to half a million deaths by the end of the summer. You have to conclude, because what’s happening is so obvious, that this is an acceptable level of death to the president and his staff. They are fine with mass death in America. They have always been fine with mass death in America; we let mass murderers get guns, after all. They would rather have mass death than pay for unemployment benefits for too long. Their entire strategy throughout April was to figure out the best way to allow mass death, in service to the economy. This was a false choice, incidentally; we will have mass death and an obliterated economy. And when that happens, the only straw left to grasp will be the culture war.
Anyone working in the federal government on pandemic response right now who doesn’t want to be known historically as a mass murderer should probably resign.

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