Saturday, October 30, 2010

Pfizer Recalls Lipitor Over Odor

Pfizer joined Johnson & Johnson in recalling medicine due to noxious chemical 2, 4, 6-tribromoanisole(TBP).  Pfizer recalled over 225,000 bottles in 2010 due to the odor problem.  Note the company's response:

"Research indicates that a major source of tribromoanisole (TBA) appears to be 2, 4, 6-tribromoanisole(TBP), a chemical used as a wood preservative," the company said. "Although TBP often is applied to pallets used to transport and store a variety of products, Pfizer prohibits the utilization of TBP-treated wood in the shipment of its medicines."

What were the other sources of TBA?  Were they in packaging not shipped on TBP treated wood?  Was TBA in any medicinal ingredients?

J & J's Tylenol problems went beyond improper wood pallet use.  They shuttered their Ft. Washington plant and are working to line up suppliers for its reopening.

Pfizer said the bottles were supplied by a third-party manufacturer.

By whom and from where?  China is a favored supplier for drug manufacturers.  Cheap labor and ingredients, while providing substantial cost savings, do not ensure quality.

It's J & J's and Pfizer's job.  While nausea, stomach pain, vomiting and diarrhea aren't life threatening, medicines are supposed to relieve, not cause symptoms.

Dr. W. Edwards Deming said know your supplier, a difficult task when production is global.  Pfizer and J & J are in the midst of this lesson.

Friday, October 29, 2010

Unlikely Air Incidents & Terrorism

What are the odds that bombs would be found on planes the same day a flight decompressed from a several foot hole?  Two bombs were found on US bound flights.

“The cargo hold has always been of great concern in cargo planes because we’ve never really got our arms around the security of those planes.”
Not all packages fly in cargo planes, much less the cargo hold.  As a passenger, I've seen packages in the front of the plane, where flight personnel typically store their gear.  As for the plane that developed a two foot hole near the front left cabin door, it was going from Miami to Boston.

investigators say that they have yet to isolate the precise cause of the hole.
Officials say it is similar to cracks in the fuselage of a United 757, found last month.  A Southwest plane developed a gaping hole, pictured above.

Where had the plane been prior to landing at Miami International Airport?  Was it Dubai?  While inspection will ramp up on the packaging side of air travel, any inspection regime is hardly foolproof. (The British almost missed their package bomb, catching it only on a second lockdown.  That was after getting a printer cartridge description.)

What's greater, the error rate of an inspection effort or the chances of an exterior skin failure on the same day two bombs are found?   My guess, the error rate is the larger number.

Wednesday, October 27, 2010

John Browne's Misplaced Culture of Higher Education

Lord John Browne of Madingley released his report on British higher education.  He stated noble aims:

It is designed to make a system which lasts and increases quality and allows participation to go up.

It succeeds on the latter. University students will be charged £6,000 a year or more under Browne's plan. The reference to quality in the report, universities will "maintain minimum standards."  As for making the system last, Browne was mum on the details:

I don't know how much the government needs to take out of the higher education budget, but this system is designed to be sustainable for the future.

That sounds like the Lord John Browne giving deposition in fifteen deaths at BP's Texas City refinery.  For a Fortune 500 leader, Browne knew surprisingly little.

Lord Brown has a history of misplaced emphasis. James A. Baker, III's investigative report on the refinery explosion blamed a "misplaced culture of safety."  It cited a focus on personal safety vs. process safety.

Dr. W. Edwards Deming, once the world's foremost quality expert,  noted the overwhelming impact of organizational systems vs. individual effort on outcomes.  He said the system comprised 94%, the individual only 6%.  BP CEO Lord John Browne focused on the 6%, when he zeroed in on personal safety, while slashing operating costs, 25% in one year's time. 

Dr. Deming said profound knowledge comes from the outside.  That means people, i.e students, don't know what they don't know.  Lord Browne's plan puts the individual student in charge of their education, especially financially.  He's back to focusing on the 6%.  How will these changes impact higher education systems, the other 94%?

Lord Browne carved out a profitable student-housing niche for his employer, The Carlyle Group. No means testing is required for student living loans.  Carlyle has huge plans for student housing in London.  Carlyle loves when government effectively guarantees payment for services.  Browne is maddeningly slippery.

Lord John Browne's misplaced culture surfaces again, this time with a PEU odor.  Apparently, leaders are used to the smell, as private equity underwriters are now mainstream..

Update 10-31-10:  Browne aims for a 40% cut in government operating funds for higher education.

Wednesday, October 20, 2010

Today's Recalls

A surprising number of recalls hit the wires today.  They include:

J & J Tylenol 8 hour capsules (50 count)-MarketWatch

Tylenol's quality implosion is chronicled in two posts on this blog (here and here).  Other recalls involved automobiles manufactured by Chrysler and Volvo.  ABC News reported:

Chrysler's recall affects about 26,000 cars and pickup trucks that have power steering hoses that can develop leaks. The National Highway Traffic Safety Administration said on its website that steering fluid hoses can separate at the crimped end and leak fluid on the engine, potentially causing a fire.

The recall affects some 2010 models of the Chrysler 300 and Sebring, the Dodge Avenger, Charger, Challenger and Journey, and some 2011 Dodge Ram pickups.

The Volvo recall affects nearly 10,000 vehicles to fix front air bag systems that may not deploy in a crash.

The recall includes certain S80 sedans and XC70 crossover vehicles from the 2010-2011 model year and model year 2010 V70 wagons.

Children's toys were not exempt from the recall list.  Virginia Pilot reported:

Dollar Tree Inc. has recalled about 275,000 children’s flashlights because they can overheat and potentially burn users, according to the U.S. Consumer Product Safety Commission.

Dollar Tree, based in Chesapeake, voluntarily pulled the projector flashlights that depict the characters Wolverine, Spider-Man and Iron Man 2. They are about 6.5 inches long and were sold at Dollar Tree stores and its sister chains Dollar Bills, Dollar Tree $1 Stop and Deals since August.

The flashlight batteries and/or bulb can overheat, causing a potential fire hazard or burns, according to the commission.

The hazardous flashlights were made in China.  Even infant strollers were recalled:

Graco is recalling about 2 million strollers after getting reports that four infants died in those strollers. The Consumer Product Safety Commission says babies who aren't strapped in properly can slide through the opening between the stroller tray and bottom of the seat.

The reports are at least five years old, according to CNN Money:

The CPSC said the recall applies to Quattro and MetroLite strollers, which caused four infant deaths from strangulation. Deaths occurred between 2003 and 2005.
Food made the list:

The Pictsweet Company announced a voluntary recall of certain codes of store brand products containing frozen Green Peas after it learned some packages may contain glass fragments.

The Tennessee based company said in a statement on the FDA website, the product “may cause injury” if ingested.

Products distributed only to Kroger stores in the Southeast United States and Walmart stores throughout the United States were subject to the recall.

The company could not say how many packages are involved in the recall.

Also recalled, BMW motorcycles and luxury vehicles sold in China.  Even children's overalls and play toys were recalled.

Buyer beware is here and not going away anytime soon.  Leaders don't remember the name of the world's foremost quality guru, much less his teachings.

San Angelo's Health Department Decimation & ERRP Gift

Tight budgets over the last fifteen years caused the shedding of major health department services.  The Primary care clinic went first.  The city then shed its pharmacy and social services ($176,000 savings).  The 2010-2011 budget indicates what's left:

TB Clinic
Sexually Transmitted Disease Clinic

Oddly, the city added an employee health clinic while cutting services to the public.  This may make financial sense for San Angelo, as it could save health insurance costs, where the City is self insured.

Health reform included a $5 billion Early Retiree Reinsurance Program (ERRP) and the City was in the initial group approved for reimbursement.  Over a two year period the City expects $750,000 in ERRP funding.  The money is intended to keep health insurance affordable for early retirees.

Hewitt Associates generally projected a 25 to 35% savings within any retiree healthcare program.  That's $2,000 to $3,000 per early retiree. In this scenario, the City's expected funding translates to 150-175 early retirees

Veronica Sanchez with San Angelo Human Resources gave different numbers.  She cited a $200,000 savings on a $4 million program, savings more like 5%.  Had she used the $307,000 expected savings given by the City's benefit consultant (Holmes Murphy), the number would have been near 8%, but well below Hewitt's projection.

The City budget shows self insurance operating expenses of $6.7 million (page 36).  Veronica's $4 million in retiree health costs comprise 60% of the total.  Maybe 150 early retirees could cost more than 1,000 employees, but it seems out of whack.  Plus, if this were the case, wouldn't reinsurance, paying 80% of costs between $15,000 and $90,000 produce a much bigger check from Uncle Sam?

Is the city spreading ERRP savings over the whole self-insurance program?  There's more to this story.  The report from Holmes Murphy may have the answers.

Tuesday, October 19, 2010

Indigent Health Fund Transfer: New Record

Tom Green County's Indigent Health Program (IHP) had its best year ever.  It closed the year spending only $69,400 on medical bills.  However, the County began quarterly UPL contributions in January, at a rate of $250,000 per quarter.  Payments in May and August brought the year's UPL contribution to $750,000.  UPL dollars are matched by state and federal funds.  This magic $2.7 million UPL pot was exclusively for area hospitals to use on indigent care.

Esperanza Clinic got a portion of the $69,400, a tiny amount relative to historical expenditures.  Esperanza CEO Mike Campbell asked County Commissioners to add dental services as a benefit under Indigent Health.  Campbell projected it would cost $78,000 on an annual basis.  County Commissioners voted no by a vote of 3-2.

Note the blue surplus wave in the graph.  The year ended 8-31-10 saw roughly $1.12 million move from Indigent Health to general revenue (GR).  That beat 2004, when $1.05 million  was transferred from IHP to GR.  Over the last decade, the transfer averaged $750,000 per year, over $7.5 million in total.

Mike Campbell's request was roughly 10% of the annual surplus.  Some things are too much to ask.  It's hard to expand benefits locally, when cuts are on the way.  Children's health insurance, CHIP, stands to undergo Decimation II under the looming Texas General Assembly.  Nearly half the kids in Tom Green County fell off CHIP rolls in the first shedding

Campbell's rejection is portending.  Citizens will have to toughen up, even bite on the proverbial stick when in pair.  Some may have to gum it.

Maybe, CEO Mike should get with Bishop Mike and approach Judge Mike. 

Update:  At least Tom Green County Commissioners didn't crack jokes about higher cremation fees for dead obese indigents, as did Florida's Escambia County Commissioners

Geithner & Hatted Friends to Meet on China

Robert Wenzel of EPJ reported Treasury Secretary Tim Geithner will meet with an illustrious delegation to discuss bilateral economic relations with China.  On the American side we find Henry Kissinger, George Shultz, William Perry, Carla Hills and Bob Rubin.

Kissinger, Shultz and Perry penned a WSJ op-ed.  It posed deep concerns over the spread of nuclear weapons into potentially dangerous hands. Economic warfare on Iran could be discussed.  What might Uncle Sam ask of China in that regard?

Certainly, that's fodder for conspiracy theorists.  But consider the other two names.  Carla Hills and Bob Rubin serve on the Council on Foreign Relations (CFR) Board of Directors.  Perry and Shultz are members of CFR, where Kissinger's wisdom is well represented..

Carla Hills bio (from Gilead Sciences DEF-14A) states:

Carla A. Hills, age 76, joined our Board in January 2007. Since 1993, she has served as the Chair and Chief Executive Officer of Hills & Company, a firm providing advice to U.S. businesses on investment, trade and risk assessment issues outside the United States. Mrs. Hills served as U.S. Trade Representative from 1989 to 1993, and was principal advisor on international trade to President George H. W. Bush. Under President Gerald R. Ford, she served as Secretary of Housing and Urban Development. Mrs. Hills is a director of TCW Group, Inc. and serves on the international advisory boards of J.P. Morgan Chase, Rolls Royce and the Coca-Cola Company. Mrs. Hills previously served as a director of American International Group, Inc., Chevron Corporation and Time Warner, Inc. She is also Chair of the Inter-American Dialogue and the National Committee on U.S.-China Relations, Co-Chair of the Council on Foreign Relations and the International Advisory Board of the Center for Strategic and International Studies, a member of the Executive Committee of the Peterson Institute for International Economics and the Trilateral Commission and a member of the board of the International Crisis Group. 
Now that's a lot of hats, Council on Foreign Relations, CSIS, Trilateral Commission.  It makes me hungry for a Bilderberger.  But back to possible topics.

William J. Perry serves on the board of Fabrinet, a Cayman Islands exempted limited-liability company with a Chinese subsidiary.  Isn't Perry on the Blue team, interested in American companies providing jobs at home and paying taxes?  Fabrinet's S-1 describes Perry's current leadership roles:

Dr. William J. Perry has served on our board of directors since 2008. Dr. Perry is the Michael and Barbara Berberian Professor at Stanford University, with a joint appointment in the School of Engineering and the Institute for International Studies, where he is co-director of the Preventive Defense Project.  Dr. Perry serves on the board of directors of Lucent Government Systems (a subsidiary of Alcatel–Lucent), Covant Technologies, LLC, and Acuitus (a private company).
Covant Technologies is a private equity firm investing in defense, homeland security and government technology opportunities.  Acuitus had this to say about Perry's other leadership roles:

Dr. Perry serves on the board of directors of Anteon International Corporation and several emerging high-tech companies and is chairman of Global Technology Partners.
Defense contractor Anteon sold out to General Dynamics in 2006.  Global Technology Partners remains a viable private equity underwriter (PEU).

George P. Shultz is on the board of Accretive Health.  His bio states:

George P. Shultz has been a member of our board of directors since April 2005. Mr. Shultz has had a distinguished career in government, academia and business. He also chairs the Governor of California’s Economic Advisory Board and the J.P. Morgan Chase International Council; serves as Advisory Council Chair of the Precourt Energy Efficiency Center at Stanford University; chairs the MIT Energy Initiative External Advisory Board; and serves on the board of directors of Fremont Group, L.L.C., a private investment firm
Bob Rubin and Henry Kissinger are left.  Only Kissinger knows how to keep his name and corporate ties private.  Image having the gravitas to keep SEC information hidden.  Kissinger did state on his webpage:

At present, Dr. Kissinger is Chairman of Kissinger Associates, Inc., an international consulting firm. He is also a member of the International Council of J.P. Morgan Chase & Co.; a Counselor to and Trustee of the Center for Strategic and International Studies; an Honorary Governor of the Foreign Policy Association; and an Honor Member of the International Olympic Committee. Among his other activities, Dr. Kissinger is a member of the Board of Directors of ContiGroup Companies, Inc. and an Advisor to the Board of Directors of American Express Company. He is also a member of the Advisory Board of Forstmann Little and Co.; a Trustee Emeritus of the Metropolitan Museum of Art; a Director Emeritus of Freeport-McMoRan Copper and Gold Inc.; and a Director of the International Rescue Committee.
Kissinger is also partner with Mac McLarty in Kissinger-McLarty Associates.  McLarty is Senior Advisor at The Carlyle Group, yet another private equity firm.  Erskine Bowles lost his first fortune at Forstmann Little, but looks to make another at Carousel Capital.  McLarty, Bowles and Rubin all worked in the Clinton White House.  All are PEU's.

Bob Rubin's private equity employer is Centerview Partners.  He left CitiGroup in 2009.  The latest Citi information on Rubin cited his activities:

The Council on Foreign Relations (Co-Chairman), Insight Capital Partners (Advisory Board), Tinicum Capital Partners, L.P. (Special Advisor), Taconic Capital Advisors LLC (member of Advisory Board), and General Atlantic LLC (member of Executive Advisory Board.
Let's be clear, Geithner's many hatted friends have corporate interests at heart.  J.P. Morgan's desires may or may not be in America's interests.  How will "nice guy, noncommittal" Tim bridge the divide?

Monday, October 18, 2010

Where's Wardo? NRCC's Chris Ward

Embezzler Christopher J. Ward served as Treasurer for over 80 political action committees (PACs), including the National Republican Congressional Committee (NRCC).  His embezzlement gig was up in January 2008.  Since Ward left the political circus, little has been seen or heard from the man .

Chris Ward saw the guts of the Republican political machine, at the height of power and arrogance.  Ward was so implicitly trusted, he could move millions of dollars at his discretion.

Cindy Hampton served as Ward's Assistant Treasurer at the Senate Majority Committee.  That's before she landed in Senator John Ensign's lap.  What else did Chris Ward see or hear as insider money man? 

When crisis hits, politicians circle the wagons.  Advisers spin a hero story out of the capture, while elected officials pose.  Together they make the perpetrator disappear from public view, especially when they have insider knowledge of more shenanigans.  Silence is bought, while further unrevealed sins are privately repented.

Oddly, a Chris Ward appeared in the United Arab Emirates in October 2008.  One might expect a Deloitte CEO to show work experience prior to that date, especially one with wizened gray hair.  It could be an odd coincidence around a relatively common name.  But in case they're one and the same, here's Deloitte's PAC donor history.

Mike Conaway (R-TX) -- $34,999  (2002-present)

Representative Mike Conaway (R-TX) cracked Ward's nefarious plan, which was greatly aided by a lack of internal controls and somnambulist Congressmen (serving on the NRCC Executive Committee). 

Senator John Ensign (R-NV) -- $15,000 (2000-present)

Chris Ward served as treasurer for Ensign's Battle Born PAC, until he was replaced by Cindy Hampton, who had an affair with Ensign.  Fellow adulterer and "C Street" housemate, Chip Pickering, received over $37,000 from Deloitte & Touche.

Whether Republicans or Democrats control Congress, think of the stories they can tell.  Their truth is often more outrageous than fiction.

Update:  Chris Ward was sentenced to 37 months in prison for stealing $844,718.  His sentence began in January 2011.  The NRCC settled with the Federal Election Commission for a mere $10,000 fine.

Update 8-22-11:  Ward worked under Tom Davis (R-VA) at the NRCC.  Davis is now Director of Federal Government Affairs at Deloitte, the employer of one Chris Ward.  Davis couldn't perform his basic fiduciary function as chair of the NRCC, yet he now teaches how to transform the way government works.  Amazing.

Update 12-10-11:  The NRCC's Chris Ward and Deloitte's are two different people. 

Saturday, October 16, 2010

Rainfall Derivatives Coming to CME

The CME Group announced "it will begin listing and trading rainfall futures, options on futures and binary options."  CME Group's Managing Director of Agricultural Commodities and Alternative Investments stated:

"A significant number of industries, from agribusiness to recreation, are reliant on good weather, but also are at the mercy of bad weather. Rainfall contracts, in conjunction with our existing suite of weather products, will allow these businesses to manage the resulting risk."

Contracts locations include Chicago O'Hare International Airport, Dallas-Fort Worth International Airport, Des Moines International Airport, Detroit Metro Airport, Jacksonville International Airport, Los Angeles Downtown USC Campus, New York LaGuardia Airport, Portland International Airport and Raleigh/Durham International Airport.

This product will be a great benefit for all who recreate or grow crops at the airport.  Others can effectively gamble there, courtesy of the CME Group.

P.S. Did CME Group board member Jackie Clegg Dodd vote for the new product offering?  Husband and Senator Chris Dodd will soon search for employment?  What happens when rainmaker Chris lands in any of the nine cities?  Bet on money pouring into his pocket.  It's already gushing Jackie's way.

Friday, October 15, 2010

Bill Clinton Paved Way for Toxic Products

Toxic Chinese chemicals in pharmaceuticals killed dozens in Haiti in 1997 and a hundred people in Panama a decade later.  Chinese state-owned companies exported the dangerous chemicals as safe.  In both cases, Chinese officials stonewalled international investigators.

Bill Clinton was President during the first quality nightmare.  Given his strong Haiti connections, surely Clinton knew of this abominable situation.  Yet, he pushed to ease trade with China.  Bloomberg reported:

In 2001, China entered the World Trade Organization to gain greater access to international markets. In return, the government pledged to drop tariffs, crack down on the counterfeiting of Western goods and end favorable treatment of domestic investors.

Those promises persuaded then-U.S. President Bill Clinton to push for congressional approval for legislation paving the way for China’s WTO accession, saying in 2000 that membership would help shift China away from an economy dominated by state- owned firms. 
Compare Clinton's logic in 2000 with actual results.  The toxic chemical story (June 2007) stated:

Most of the buyers did not know that the ingredient came from China, known for producing counterfeit products.

Bill Clinton turned out to be a founding father for the global quality bottom and greed top.  He privatized government functions to the benefit of private equity underwriters (PEU's), worked with Congress to pass Gramm-Leach-Bliley, had the Minerals Management Service (MMS) adopt a voluntary approach to safety/environmental compliance and pushed for greater trade with China.  All four Clinton initiatives ended badly, at least for those not politically-connected billionaires. 

China executed the public official responsible for product adulterations, further proof they have no understanding of quality.  America and the world remain at risk for dangerous Chinese substitutions.  Even China's favorite guizi (Westerners) got taken with toxic products.

Wild Bill delivered for his Robber Baron friends.  He even admitted as much.

If you look at it, we had a global financial economy before we had a global trade economy, and certainly before we had any global environmental and labor safeguards.
How'd Bill allow globalism without safeguards?  Clinton opened the door to abysmal quality and profited greatly ever since.  President Obama hasn't a clue as to how to close it.  Beware Chinese drug ingredients and politicians offering spin.

Tuesday, October 12, 2010

The Baker Man

The Honorable James A. Baker, III was the subject of a recent story.  The speaker shared a table with Mr. Baker at a meeting sponsored by a moderate, philanthropic Muslim group.  Mr. Baker noted his first contact with their representatives, saying they seemed very nice.  When they left his office, Baker sent his staff to Washington, under orders to find out from the CIA who these people were.  In a happy ending, the group checked out and Baker offered his talents.

I'm glad intelligence authorities are responsive to some customers.  That hasn't been my experience.  Unfortunately, my questions involve Mr. Baker's close friends.  Is political pull preventing a response?

Monday, October 11, 2010

Tom Donilon's Fannie Chapter

President Obama's new National Security Adviser has a dark past.  Tom Donilon worked for Fannie Mae from 1999 to 2005 as a senior executive.  Fannie's leadership committed accounting fraud to maximize executive incentive pay.  A federal investigative report concluded Fannie Mae had an "arrogant and unethical" culture.

This dark group included CEO Franklin Raines and deputies Jamie Gorelick and Tom Donilon.  The asleep at the switch board included Ken Duberstein, James A. Johnson, Stephen Friedman and Fred Malek.

Tom Donilon's lobbying division played hardball with Fannie's regulator.  The report summarized Donilon's e-mail on Feb. 19, 2004:

Do you have any sense of the basis on which the agency believes that it has the authority to mandate practices in this area, hard to believe they have a safety and soundness rationale …There is a huge issue as to multiple enforcement regimes. We should speed up our work on the interaction between bank regulators and the SEC … When does Russ [Bruemmer, of WilmerHale] think that we should go into OMB? …Should we start working with the BRT [the Business Roundtable], Chamber [the U.S. Chamber of Commerce], ABA [the American Bankers Association] etc. now? Tom."

The WilmerHale link is interesting, given Jamie Gorelick's leaving Fannie for a spot with the law firm.  Donilon went on to secure the obscene consulting agreement with James A. Johnson.  Tom also wrote scripts for the Board's Compensation Committee meetings.

Tom Donilon's division engineered an effort to discredit the investigative agency prior to release of a damaging report.  Fannie was successful in getting the undermining report posted on a Congressional website for an hour.  Fannie Mae downloaded and distributed what they hoped would be a "face saving" document.

Now that the deficit is America's greatest threat, will National Security focus on white collar criminals, who steal for personal enrichment from shareholders, customers and sometimes the taxpayer?  While the best computer security person may be an ex-hacker, the prospect of Tom Donilon's public service makes me nervous.

Sunday, October 10, 2010

Greed Queen of Disaster: Jamie Gorelick

Jamie Gorelick, attorney with Wilmer Hale, had a role in two disasters, Fannie Mae and BP.  As Vice Chair of Fannie Mae, Gorelick served as #2 during a time of accounting shenanigans.  Those machinations were personally profitable for Jamie.  Her bonuses, based on fraudulent numbers, were:

According to the same SEC report, she held nearly 300,000 stock options.

A federal investigation found regarding Fannie Mae's improper accounting (Haggerty, et. al..):

1.  Applying accounting methods and practices that did not comply with the Generally Accepted Accounting Principles (GAAP) to the company's derivatives transactions and hedging.
2.  Using a “cookie jar” of reserves to improperly delay recognizing income so that it can be used to enhance results in later periods.
3.  Tolerating what it called “internal control deficiencies”.
4.  Maintaining a corporate culture that emphasized stable earnings at the expense of accurate financial disclosures.
5. The existence of an arrogant and unethical culture

Jamie established that corporate culture as Senior Executive and Vice Chair of the Board.  Her tenure, 1997-2003, mirrored the accounting scandal which ran from 1998-2004.  The investigation revealed Gorelick was paid more than $26 million during her time at Fannie.  Were any of her ill begotten gains returned?

Gorelick left Fannie, joining Wilmer Hale in June 2003.  Her role is described as follows:

Ms. Gorelick represents companies on regulatory, compliance, governance and enforcement issues.
Jamie went on to serve on BPAmerica's External Advisory Council.  Their 2008 description of her states:

One of the longest-serving Deputy Attorneys General, Gorelick is a member of numerous boards, and lectures on corporate governance and business ethics.
BP's "longest serving" equals three years, April 1994 to April 1997.  However, it's not Jamie's first time representing BP on an oil spill:

Gorelick is only reprising a role for BP that she played in 2007, when the company was scrambling to deal with yet another oil spill, off the coast of Alaska. Then, the company was fined $50 million. 
Jamie Gorelick worked magic in the White House.  BP avoided responsibility for unemployed oil field workers, while setting the company up to continue operating in the Gulf of Mexico.

Gorelick currently provides board leadership for public companies, United Technologies and Schlumberger.  She serves on compensation and audit committees.  Did she learn any lessons from Fannie Mae's distorting pay for performance?

It's hard to see the water when you're a fish.  Jamie Gorelick is the model for greed.

Saturday, October 09, 2010

Donilon & Duberstein: Fannie Mae's Anti-Regulatory Super Heroes

Tom Donilon's superhero status as White House National Security Adviser has precedent.  He was part of Fannie Mae's dynamic duo, capable of stopping regulatory bullets.  Lobbyist Donilon worked with Fannie Mae's Ken Duberstein to keep Congressional reform wolves at bay. Donilon served from 1999 to 2005, while Duberstein's board tenure ran from 1998 to 2007.  

SEC filings show Ken Duberstein also advised Fannie Mae on regulatory matters:

Mr. Duberstein is Chairman and Chief Executive Officer of The Duberstein Group, an independent strategic planning and consulting company, and is a nominee for election to the Board of Directors. The firm has provided services to Fannie Mae since 1991. During 2003, the firm provided services on an annual fixed-fee basis of $375,000 and will continue to provide similar services during 2004..

Ken garnered $1,875,000 in consulting fees over a five year period.

Both Donilon and Duberstein served during Fannie Mae's long running accounting scandal. Duberstein sat on the committee responsible for overseeing the use of derivative contracts, which Fannie fudged to boost executive incentive pay.  How much did Tom Donilon get in tainted bonus money?  Fannie Mae's 2004 proxy statement revealed Donilon's bonus pay:

Donilon also received $2 million in stock option grants, with performance based on rising Fannie Mae stock prices, artificially inflated by accounting shenanigans.

These bonuses were based on fraudulent figures.  Did Donilon return the tainted incentive awards?  If not, how are Americans to trust someone who would personally benefit from unethical to illegal behavior?

What else did Fannie's SEC filings reveal?

Mr. Donilon’s brother had an approximately 15 percent interest in The Glover Park Group during 2003. Fees and commissions paid to The Glover Park Group in 2003 (net of amounts passed through to other service providers) were approximately $429,000.

A federal investigation revealed the existence of an “arrogant and unethical culture“ at Fannie Mae. When CNN can proudly air Eliott Spitzer, Donilon belongs in the Obama White House.  There are no sins too great inside the heady world of power and wealth.  Pragmatism requires they be ignored.

While Senator Richard Shelby (R-AL) denigrates Donilon for his Fannie role, he won't touch Duberstein.  They're fellow Reds.  The Blues have similar standards, however low.  Brookings referred to Donilon and Duberstein in an Opportunity '08 introduction as:

Two of Washington's savviest and best connected figures

I have nothing to add.  It's best to leave any post on the new National Security Adviser on an upbeat note.

(Because of its business overlap, this is cross posted on PEU Report

Update 10-11-10 ABCNews did a story on Donilon's dark background.

Friday, October 08, 2010

BP Pays Feinberg's Firm More than $2.5 million for 3 1/2 Months

Bloomberg interviewed Ken Feinberg, but he failed to disclose his pay for managing BP's $20 billion Oil Spew liability fund.  Instead, former Justice Department Chief Mike Mukasey released compensation paid to Feinberg's law firm.  

The compensation disclosure underscores that Feinberg is an employee of BP.

BP and President Obama approved Feinberg's role.  Mukasey blessed the pay as reasonable.  Bloomberg reported:

The $850,000 monthly payments to Feinberg’s firm will continue through year-end and then will be reviewed, a person familiar with the contract said today.

The money goes to seven professionals at Feinberg’s firm and is paid by BP separately from the fund to help victims, according to the person, who spoke on condition of anonymity about details not spelled out in today’s report. Among those being paid is Feinberg’s brother David, according to the report. David Feinberg is listed on the firm’s website as director of special projects. 

That's sweet pay for dealing with crude. It remains to be seen what Mr. Feinberg's personal take is from his BP employment.

Update 11-21-10:  Feinberg continues managing BP's risk via Oil Spew Fund

BP Considered Quitting Runaway Well

Bloomberg reported:

BP Plc considered quitting its Macondo well in the Gulf of Mexico days before the drilling-rig explosion that killed 11 workers and caused the biggest offshore oil spill in U.S. history.

A team of engineers and technicians based in BP’s Houston office discussed suspending drilling and abandoning the project during a conference call in mid-April, Greg Walz, an engineer for London-based BP, said in testimony today to a federal panel investigating the blast. 

The possibility of quitting the project was part of a broader discussion of what sort of well design to use, he said.

This needs more probing.  

BP's Sad Quality Story

The Deepwater Horizon Joint Investigation Board heard another sad quality story from a BP engineer.  The issue involved the cement plug and the number of stabilizers.  Whether 21 or 6 were required isn't critical, it's whether the cement formed a complete bond.  Nola reported:

Walz said he stood by his decision to use six centralizers because any problems they might have discovered by testing the cement's integrity could then by fixed with more cement.

But Walz and Guide, who also testified Thursday, were part of a group of BP leaders who subsequently decided not to run the definitive test of cement integrity, called a cement bond log. They had hired a team from contractor Schlumberger and flew them out to the rig to do the test, but it was never done.

The test itself would have cost another $128,000 and taken another two days or so, at a cost of about $1 million a day. Other testimony this week established the well was already $54 million over-budget, and Walz and Guide testified Thursday that BP employees are graded every year based on how much money they save the company.

Walz acknowledged under questioning that BP's own internal protocols require a definitive test of cement integrity, such as a cement bond log, whenever cement covers less than 1,000 feet above a reservoir of oil. He admitted the Macondo well had only 920 feet of cement there, but he decided that was close enough "to the intent" of the rule, and he said no definitive test of cement integrity was ever done.
This is evidence that leaders and organizational systems work against quality.  Close enough? This too, shall pass. The question is what we learn and improve.

Thursday, October 07, 2010

MERS: Little Time for Quality

Not enough time or money for quality work,  it's a common story.  Poor practices in mortgage securitizing enabled bad loans to be written.  Even soundly underwritten mortgages, failing in the economic downturn, carry documentation problems from poor quality work.  WaPo reported:

Janet Tavakoli, founder and president of Tavakoli Structured Finance, a Chicago-based consulting firm, said that for much of the past decade, when banks were creating mortgage-backed securities as fast as possible, there was little time to check all the documents and make sure the paperwork was in order.

But now, when judges, lawyers and elected officials are demanding proper paperwork before foreclosures can proceed, the banks' paperwork problems have been laid bare, she said.

The result: "Banks are vulnerable to lawsuits from investors in the [securitization] trusts," Tavakoli said.

Mortgage companies formed MERS to streamline the mortgage process, which enabled securitization/trading. MERS reached the 3 million milestone in 2001, hit 20 million in 2003 and passed 50 million mortgages in 2007.  Due diligence broke down as the mortgage security mountain grew.

Companies continue to be surprised by inadequate internal processes and supplier failures.  More are forced to pay attention, slapped by consequences of past failures.  Ask J & J's William Weldon.

(Thanks to Economic Policy Journal)

Update 10-9-10:  WaPo's Ezra Klein talked with Janet Tavakoli on this issue.

Update 10-26-10EPJ's Robert Wenzel has an insightful, but disturbing piece on Ameriquest's Mortgage operations.

HHS Approves Corporate Dark Knights

International corporations find health reform's Early Retiree Reinsurance Program (ERRP) tantalizing. Currently feasting at the federal buffet are several dark corporate icons, A. T. Massey Coal (mine explosion) and Enbridge Employee Services, Inc.(oil pipeline spills).   Another firm with a dark shadow is Baxter International (deadly heparin).

Oddly, reinsurer General Re will benefit from the program. Even companies offering mini-med plans, McDonald's, Aetna and Cigna, are on the ERRP dole.  They get a free pass for under-insuring 1,000,000 Americans, plus a check from HHS (expected to last two years at current funding level of $5 billion).

Even lobbying firm Alston & Bird will formally gorge at the federal trough.  Health reform architect Tom Daschle worked for the lobbying house, alongside Bob Dole and ex-Medicare Chief Tom Scully.  Daschle switched employers mid legislation, going to DLA Piper.

Annually, these firms should get between $2,000 and $3,000 per under 65 retiree under ERRP.  It was once customary to errp, belch loudly after a good meal. It's amazing how traditions recur over time.

JP Morgan's ERRP

Forget TARP, TALF, TLGP, TAGP and PPIP.  The federal government has a new gift for Wall Street, health reform's Early Retiree Reinsurance Program (ERRP).  Consider the players receiving ERRP funds:

JP Morgan
Bank of America
Bank of New York Mellon
PNC Financial Services Group

JP Morgan began coverage on KeyCorp, rating it an overweight.  Is that because of a multimillion dollar ERRP profit boost?  Consider JP Morgan's likely ERRP boon.

Hewitt Associates estimates that the average federal reimbursement will represent between $2,000 and $3,000 per pre-65 retiree per year, or approximately 25 percent to 35 percent of total health care costs

JP Morgan's 10-K showed non-pension, post-retirement costs of $160 million last year.  Netting out life insurance benefits, let's assume 75% of is medical.  That equates to $120 million, of which Uncle Sam picks up $30 million to $42 million.

Wall Street must love alphabet soup.  After a big bowl, they can lean back in their chairs and give a resounding ERRP.

Note:  The above example is an estimate.  JP Morgan is welcome to provide their projections, should these be off base.

Wednesday, October 06, 2010

Orszag's "Political Economy" on Oil Spew Estimates

The White House Budget Office employed the "political economy of delayed information" on BP's oil spew.   Nola reported.

The commission said that in late April or early May the National Oceanic and Atmospheric Administration wanted to release some of the worst-case scenarios for the amount of oil spilling into the gulf.

But it said the White House Office of Management and Budget denied NOAA's request, according to NOAA staff interviewed by the commission.
It's not clear if the with hold was relative to the "M" in management or the "B" in budget.  It did meet the "O" in omission on page 10 of the report.

Peter Orszag's loyal soldiering should get him a cushier job post election.  Watch where he washes up.

Update 8-22-11:  Peter Orszag and Thad Allen share a board table at the Partnership for Public Service.   Orszag landed at Citi, while RAND hooked Thad.  Cover up and cash in, that seems to be the pattern.

Comparative Effectiveness Research without Cost Data

Coming soon, courtesy of Congress, comparative effectiveness research (CER) without cost comparisons.  CER will conduct benefit-benefit research.  MedPage reported:

The 2009 economic stimulus bill included $1.1 billion to fund comparative effectiveness research, and the Patient Protection & Affordable Care Act (PPACA), the healthcare reform law passed six months ago, established the Patient-Centered Outcomes Research Institute to identify priorities and conduct research to compare the clinical effectiveness of different medical treatments. But the PPACA explicitly forbids the new institute from considering costs of things like drugs, devices, treatments, services, or diagnostic tools in its comparative analyses.
Comparative effectiveness research looked the gold mine to insurers, ready to sell access to their databases.  Peter Orszag pushed clinical modeling, a move away from double blind clinical studies.  He compared clinical modeling to econometrics.  Recall what financial modeling did for Wall Street.

Tuesday, October 05, 2010

Wider ERRP

Health reform's Early Retiree Reinsurance Program added more participants.  As of October 1, 2010 the following companies will receive reimbursement for retiree claims:

Alston & Bird
Allstate Insurance
Applied Materials
Bank of America
Bank of New York Mellon
Cadillac Rubber & Plastics
Chevron Mining Inc.
Chrysler Corp
Chrysler Financial Services
Coca Cola Enterprises
Continental Airlines
General Re
International Bank for Reconstruction & Development
JP Morgan
Lockheed Martin
Mercedes Benz
Northern Trust
PGA Tour
Saudi Arabian Oil Company
Vinson & Elkins
Blue Cross/Blue Shield plans in five states (AK,AL, AZ, NC, NE)

More taxpayer help for companies with $2 trillion in cash on their balance sheet.  It should be a banner year for Executive Incentive Pay.

Monday, October 04, 2010

Caritas Christi's Catholic Identity "Out Clause"

Anything is for sale, nowadays.  One can buy nonprofit community hospitals, even their religious identity.   Modern Healthcare detailed the proposed deal between private equity underwriter (PEU) Cerberus Capital Management and Caritas Christi Health System (CCHS), the largest nonprofit community hospital system in New England.  MH stated:

Cerberus has agreed to allow Caritas to continue operating under Catholic healthcare ethical dictates. But the deal also has an out clause that would allow Cerberus to strip Caritas of its Catholic identity in exchange for an additional $25 million payment to a Catholic charity. 
Two additional stories relate to Caritas Christi.  According to, President Obama's and Governor Patrick's  $435 million hospital lifeline impacts Caritas' Carney Hospital and likely other CCHS hospitals. PEU's frequently count on Uncle Sam's largess to improve profitability.

Also, cash strapped Caritas Christie has been negotiating to acquire a Rhode Island hospital since June 2009.

“If Landmark Medical Center is acquired by Caritas Christi or by any company owning the Caritas Christi hospitals, the Landmark Medical Center will function within and abide by the Ethical and Religious Directives” for Catholic healthcare, Ralph de la Torre, CEO of the Boston-based, six-hospital Caritas Christi system, said in the statement.

What's the buyout fee on Landmark's Catholic identity, however temporary? It's clear hell hound PEU's worship profits.. Who knew the church would sell the altar?

Saturday, October 02, 2010

Thad Allen Established at RAND

National Incident Commander Thad Allen left BP's oil spew for a position at RAND.  In Allen's usual clarity, he stated:

The "National Incident Command is disestablished."

Was that responsive? Allen will join the RAND Corporation as a senior fellow.  WSJ reported:

At RAND, Allen will do research for the Homeland Security and Defense Center, which studies how to protect communities and key infrastructure from natural catastrophes and terrorist attacks. 

Will Thad's first job be creating an operational definition for Vessels of (Fleeting) Opportunity?  The numbers range from 3,500 to nearly 5,000 to 7,000

Let's hope RAND has improved the quality of their work.  They projected the number of uninsured illegal immigrants in the U.S. by extrapolating Los Angeles rates to the rest of the country.  RAND used LA County data from 2000 & 2001 to project a two decade long shift. LA County was 44.6% Hispanic in 2000, while the U.S. had 12.5% Hispanic or Latino population.  The media had the gall to state:
The increase in the number of people without health insurance has occurred largely because of illegal immigration, a study found.

If the trend for Los Angeles County held true for the rest of the country, about a third of that growth can be attributable to illegal immigrants.

The RAND study was responsive to Bush priorities in 2005, but not to the major causes of  growth in America's uninsureds, i.e. the other 2/3. 

Fuzzy estimates to further political ends, RAND and Thad, it might be the perfect fit.

Friday, October 01, 2010

Spike & Fran at WIF

"People are dead now because they did not do what they needed to do."

Spike Lee slammed the Bush administration's hapless response to Hurricane Katrina, only a member of Bush's Homeland Security team was a fellow speaker at the Washington Ideas Forum.

Frances Townsend, Bush Homeland Security Adviser, talked about cyber-security alongside Mike McConnell, former Director of National Intelligence.  The moderator introduced the topic with:

I think the dark and stormy background here is perhaps a fitting motif for this.

While people died, what did Fran Townsend do in the five days after Katrina sideswiped New Orleans?  She transferred a few phone calls before jumping on a plane to Saudi Arabia.  When Townsend returned, she crafted the abysmal White House Lessons Learned report, completely omitting the hospital with the highest death toll.  Interestingly, Mike McConnell's current employer, Booz Allen Hamilton, is a member of the corporate family.

Did Spike and Fran cross paths?  Did he ask her any questions about Katrina?  If so, I look forward to hearing the answers.

Update 10-7-10:  Fran was infuriated by an apparent unwillingness to share Homeland Security information.  She said, "It's a failure of policy and a failure of leadership." I share Fran's anger, only it's aimed at her Katrina failures.

Update 10-29-10:  Townsend served on the panel for American University's Excellence in Government Services Award.   The bar falls further.

Rahm's Changing Relationship between Business & Government

As White House Chief of Staff Rahm Emanuel departed, he cited the changing nature of the relationship between business and government.  Emanuel wants to be Chicago's Mayor.  The Windy City experimented with this new relationship by leasing its parking concession to Morgan Stanley & LAZ Parking for 75 years.  Mayor Richard Daley went through the $1.15 billion in four short years.

What public assets or revenue streams will Emanuel sell on the cheap to private equity underwriters (PEU's)?  Will his mentor at GTCR Golder Rauner get a piece of the action?  Will Rahm binge through the proceeds like Terrance Watanabe in a Harrah's Casino?

After the Chicago Mayorship will Emauel pursue the Presidency or cash-in like his predecessors, Ken Duberstein and Mac McLarty?  Don't cry for Rahm.  He'll be just fine.