What NYT Missed in Dangerous Chinese Drug Story

The New York Times ran a story on a dangerous drug made by a Chinese manufacturer. Their leukemia drug harmed 200 patients, leaving many paralyzed. Chinese drug regulators accused the manufacturer of a cover-up and have closed the factory that produced the tainted drugs. This prompted the F.D.A. to look at other drugs produced by this same company.

Guess which one hit the public spotlight? In the era of the ever present permanent campaign, how could this story be twisted to further key Republican aims? The FDA transferred the taint of Shanghai Pharmaceuticals' leukemia drug to their morning after contraception pill.

The drug maker, Shanghai Hualian, is the sole supplier to the United States of the abortion pill, mifepristone, known as RU-486. It is made at a factory different from the one that produced the tainted cancer drugs, about an hour’s drive away.

Guess what got left out of the above sentence? It would be the name of the company who contracted out manufacturing to China. Danco Laboratories incorporated in the Cayman Islands in 1995. Danco has a clear responsibility to ensure safe drugs are made for its patients. Where is their data on the quality of production runs?

Back to China and it's horrific management practices, sure to cause quality problems. (It happens the White House practices the same sorry leadership, only it calls their bad outcomes "glitches".) Both U.S. and Chinese leaders practice substitution and suboptimization to the detriment of their employees and customers. Both use fear to motivate, but instead it distorts. Workers at the plant systematically covered up the tainting's cause. Did they remember the Chinese drug official executed for his poor quality service to the people? Who wants to lose their life for a job paying a couple dollars a day?

The FDA's actions are telling. The United States Food and Drug Administration declined to answer questions about Shanghai Hualian, because of security concerns stemming from the sometimes violent opposition to abortion. Why would a Chinese manufacturer be at risk from U.S. hot heads? China as a state enforces population limits and has practices to control reproduction. If the FDA were truly concerned, this story wouldn't have hit the pages of the Times.

The paper asked the F.D.A. whether the Shanghai Pharmaceutical Group exported any drugs or pharmaceutical ingredients other than the abortion pill to the U.S. But after repeated requests, the agency declined to provide that information; it did not cite a reason. D'oh! The Times did find evidence of numerous other Shanghai Pharmaceutical drugs being imported to the U.S. Why didn't the FDA talk about other risks to patient care from a manufacturer known for making poor quality drugs?

This story is a tool to discredit a particular drug, one with no record of harming patients but clearly hated by the Bush administration. The facts behind the story should serve as an indictment of American leadership, in business, in government and the newspaper industry. But once again, nobody's watching, or they might be too afraid to speak up.

Carlyle Bigwigs Say "No Crisis" in "Purgatory"

Carlyle co-founder David Rubenstein and CEO Lou Gertsner delivered slightly different lines from the same page. Lou said his firm currently faced a correction, while David noted Carlyle needs to correct some public misperceptions. Consider their statements:

“We are in a welcome period for private equity. Capitalism is not a steady state but goes to extremes and…after excesses have built up…we needed to see a correction. The media and government might have converted this state to a ‘crisis’ but it is not that,” offered Lou Gertsner.

Mr. Rubenstein recently said the Golden Age of private equity had turned into the “Purgatory Age, where we’re going to have to atone for our sins a bit.”

Both statements could well apply to Carlyle's LifeCare affiliate which lost 24 patients in the aftermath of Hurricane Katrina. Lou's "what crisis?" perspective permeated their initial response. Carlyle sinned not only in the loss of two dozen patients, they blamed and continue to point the finger at everyone but themselves, Tenet Healthcare, Memorial clinicians, FEMA evacuation teams, and an unprecedented disaster. Admittedly, self rescue from dead, flooded hospitals is a difficult task, but HCA had medical evacuation helicopters at their facilities in no time. One might expect the premier private equity underwriter (PEU) in America, maybe even the world, to do as well.

Carlyle has much to atone for in its handling of LifeCare. It's good friend down Pennsylvania Avenue should join the PEU in making amends. Fran Townsend made no mention of LifeCare or its 24 deaths in her White House Lessons Learned report. The Bush Justice Department didn't ask the boys at Carlyle about their innovative defense of blaming the feds, claiming that LifeCare patients became "wards of the government" as soon as FEMA set up evacuation teams in New Orleans. Apparently one can fail patients in a time of crisis in one of twenty one LTAC's and still get the go ahead to buy 500 mostly nursing homes.

No crisis, time for atonement? The themes ring loud and clear, echoing for over two years now.

Role of 2005 Bankruptcy Bill in Sub Prime Mortgage Meltdown?

To no avail, I've searched for an answer regarding the relationship between loosened credit practices and the Republican passed 2005 Bankruptcy bill. Consider these two bits of information:

1) President Commends Congress for Passing Bankruptcy Reform Bill, 4-14-05. I commend the House for acting in bipartisan fashion to curb abuses of the bankruptcy system. These commonsense reforms will make the system stronger and better so that more Americans - especially lower-income Americans - have greater access to credit. I look forward to signing the bill into law.

2) Clayton, a publicly held company that is a major provider of mortgage due diligence services to investment banks, told state prosecutors that starting in 2005 it saw a significant deterioration of lending standards and a parallel jump in lending exceptions. At issue is what information about the quality and risk of the loans was given to the investment banks and what was given to the rating agencies.

Is there a causal or coincidental relationship?

Corporations Hit the Trifecta

Three recent legal judgements favor corporations and their bigwigs over little people harmed by their actions. Shareholders and employees took it on the chin in several court rulings. Consider the victory for corporations, even those behaving in a clearly fraudulent manner:

1) The Supreme Court ruled Tuesday against investors who sue businesses that help manipulate stock prices of publicly traded companies. In a 5-3 decision that split along conservative-liberal lines, the court gave a measure of protection from securities lawsuits to suppliers, banks, accountants and law firms that do business with corporations engaging in securities fraud. The justices ruled against investors who alleged that two suppliers colluded with Charter Communications Inc. to deceive Charter's stockholders and inflate the price of the cable TV company's stock.

2) The Supreme Court bounced an investor lawsuit targeting Enron and the investment banks, accounting firms and other groups that aided and abetted Ken Lay and Co.'s fraud. Without comment, the Supremes refused to hear the case .

3) The Texas Supreme Court ruled ex-BP President, Lord John Browne cannot be questionned without limits about the oil giant's deadly 2005 Texas City refinery accident that killed 15 workers and injured 170 more. The end result is Browne may not be deposed at all. London-based BP has said Browne has no unique knowledge relevant to the case. Exxon Mobil Corp. and several business groups filed a brief in support of BP, arguing such depositions would hurt corporate management and would discourage companies from moving to Texas. (This would be the same BP CEO given a free pass by James Baker in his federal government sponsored investigation into the accident, and the same John Browne later hired by The Carlyle Group's Riverstone Holdings, an energy joint venture. James Baker has close ties with Carlyle execs, including the recently passed Richard Darman. News reports and Carlyle's statement show the close relationship between the two men mentioned, James Baker and Richard Darman. Richard was instrumental in the launch and success of Riverstone, which later hired Lord John Browne away from BP.)

It appears business to business fraud is OK, even if it hurts the little guy, shareholders and employees. As for CEO's testifying, that's only if they have unique knowledge. That way they get to slink away to that new job their friends have waiting. So much for Harry Truman's, "The buck stops here" and Dr. Deming's, "It's management's job to know." It turns out "The buck stops below" and "management doesn't know squat", other than many how to cheat to inflate their stock price, thus maximizing their executive stock option compensation. At least that's what recent court actions and news articles indicate.

Carlyle Buys Japanese Nursing Homes

It seems like just days ago, Carlyle co-founder David Rubenstein defended his purchase of huge nursing provider, ManorCare, by saying, "We've only owned it two weeks." It turns out the huge private equity underwriter closed on the Japanese land and buildings of Bon Sejour Grand's resident paid nursing homes. Carlyle paid #136 million for the assets.

Recently, U.S. regulators paid no attention to Carlyle's track record in another health care company it had only owned "two weeks." The PEU purchased LifeCare in August 2005, right before Hurricane Katrina sideswiped the Big Easy. LifeCare's unit in Memorial Hospital lost 24 patients in the storm and its steamy, toxic aftermath.

I can see how Carlyle hoodwinked Fran Townsend and the Bush administration to leave them out of their Lessons Learned report, but how did they get the Japanese, noted for quality, to ignore their past failing to patients in a time of crisis? Maybe it's because Carlyle will only own the land and buildings.

But that carries its own risk, especially when patients need 24 hour patient care during a disaster. Carlyle's LifeCare sued its landlord after Katrina, obtaining an unknown settlement from the owner of Memorial Hospital, Tenet Healthcare. But Carlyle is famous for their risk management abilities. Getting Fran to leave them out of her poorly done investigative report was a stroke of genius. Funny, global risk management is Mrs. Townsend's stated next step in her storied career path. Will she end up at the PEU with offices just down the street from her prior employer? Time will tell...

Carlyle Turns to NonDemocratic State Owned Companies for Financing

Does anyone else find it odd that private equity underwriters can't find financing for new ventures here at home? One would think the best democracy in the world would have a substantial economic advantage over monarchies. And why would state or government owned firms be sitting on billions in cash, when private enterprise is clearly the better model? The Carlyle Group already sold 7.5% to a government firm in the United Arab Emirates. Carlyle co-founder indicated they will tap similar resources in the near future:

Carlyle Group co-founder David Rubenstein says private-equity firms may turn to sovereign wealth funds and large pension plans to help pay for deals as financing for leveraged buyouts dries up. State-managed funds in countries including Kuwait, Abu Dhabi and South Korea have ballooned to $3.2 trillion in assets, swollen by record oil prices and rising currency reserves. An Abu Dhabi state fund bought a $1.35 billion stake last year in Carlyle, based in the District.

PEU big dog David calls those kingly state owned firms, "sovereign wealth funds." It's the hot topic at the World Economic Forum in Davos, Switzerland. Condi showed yesterday to talk about "American Realism" in the world today. Why does everything seem so surreal?

Bush and Supremes Blame Individuals for Financial Failure

Two branches of the federal government sent a clear message to the American citizen, buyer beware in regard to your financial dealings. President George Bush noted the role of individual ignorance in the sub-prime mortgage meltdown. He said nothing of the 2005 Bankruptcy Bill which expanded borrowing opportunities for low income people. Bush was also silent on investment houses packaging junk loans into secure debt obligations and rating agencies giving those instruments high marks.

Meanwhile, the Supreme Court refused to hear a lawsuit from individual investors devastated by the Enron debacle. Despite corporate collusion to defraud investors, the shareholder will not get their day in court.

Here's the message from George W. and John Roberts, financial buyers beware. Now who wants to take out a mortgage or buy shares of stock? C'mon, the economy's fine...plus you need to pay for your health care and retirement.

Where's Al When You Need Him?

White House Economic Advisor Allan B. Hubbard resigned at the end of 2007, just in time to avoid the financial firestorm of 2008. A Washington Post piece said this regarding the potential impact of his departure, ""But if we went into a deep recession and felt like we needed a stimulus package, then the White House might be a little constrained by a lack of manpower."

But will we really miss Al's consultation? His health care advice was at least a decade old. I haven't had "first dollar" health insurance since the late 1980's. My self pay portion of premiums, deductibles and co-payments grew like Jack's beanstalk every year. Al joined the Bush administration fresh from the Board Room chair at WellPoint, a giant health insurer. There he sat next to William H.T. Bush and Mrs. Evan Bayh (Susan). President George W. recently blocked a planned children's health insurance expansion to protect "private insurers", including Uncle Bucky's WellPoint. Bush state his preference for private health care long ago.

Why would the head economic adviser leave during a time of deepening concern to spend time with family? Regardless of the true reason, the White House had the usual glowing things to say about another departing under performer. "Al Hubbard has led the economic policy making process in my administration for some of the most challenging economic issues confronting our nation," Bush said in a statement.

Here's my assessment. Al got the White House job to push changes in health policy. Entering an election year, that priority sat dead in the water. Besides his cushy board seat for WellPoint, Mr. Hubbard also sat on the board of Medical Savings Insurance, a company specializing in medical savings accounts. MSA's were the precursor to Bush's tonic for all the ills of America's health care system, health savings accounts or HSA's, which enable individuals to set aside tax free money to use on health care services.

Al pushed HSA's like crazy, only to have them end up on the Treasury Department's website. One might expect the National Economic Council to have their own website chartering their progress on key issues. Yet, both groups fudged the impact of the President's signature strategy. Al fumbled the most basic question on HSA's at a press conference. He couldn't state the predicted take up rate. Treasury fudges the number by projecting the number covered by "HSA type health plans" instead of those with actual health savings accounts. It's only 25% of those eligible.

I think simple Al got pushed aside, in favor of astute Hank. However, if the Treasury can't be honest with Americans about something as simple as how many people have funded health savings accounts, should we rest assured that Hank Paulson is managing our government's response to the credit crisis? While I have relief that Al's not involved, nagging doubts remain regarding the Bush team's ability to speak honestly to the public.

Hearings on Trans Texas Corridor

My local newspaper reported on 11 public hearings to be held the next several weeks in communities impacted by the planned Trans Texas Corridor. It stated two major concerns regarding the project:

About 580,000 acres would be seized through eminent domain to build the corridor, which would include separate highways for cars and trucks, rail lines, pipelines and utility lines stretching a quarter-mile across.

Another legitimate complaint is the cost - nearly $200 billion by the end of the project some 50 years from now. Our own concern is that it will be funded through tolls instead of the pay-as-you-go method always used in the past and that the tolls would be permanent.

The article didn't mention the setup by folks involved in the project and the likely futility of loud public protest. Recall the widespread public opposition to the FCC's relaxation of media cross-ownership? Just because they hold a public meeting, doesn't mean it will change any plans already in the works.

What chess pieces have been put in play to further this project? First, Governor Rick Perry's office worked with two firms to study the toll road, Zachry American Infrastructure and Cintra, a Spanish company with toll interests elsewhere in America. Cintra partnered with a huge Austrailian investor Macquarie, on the Chicago Skyway and the Indiana Toll Road. This leads to the second move.

In January 2007, Macquarie purchased 40 small town Texas newspapers whose readership overlaps nicely with the planned routes of the I-35 Trans Texas corridor. But the Trans-Texas corridor covers multiple east-west and north-south routes throughout the state.

The third move enables the corridor to set higher speed limits and virtually requires its "competition", regular interstates to travel at slower speeds. Governor Rick Perry's own website promotes the corridor's 85 mph speed limits. Developers want at least a significant speed differential favoring their product and placed incentives in the contract for that to happen.

The public meetings for the I-69 route will run during February, but guess what needs to be submitted on March 5th, 2008? It's the due date for the Zachry and Cintras led coalitions to submit their detailed proposals on developing and financing the I-69 project to TxDOT. A member of the Texas Transportation Commission had this to say.

“This corridor is a top priority not only for TxDOT but for Governor Perry as well. We’ve met with leaders along the corridor in recent weeks explaining the work we have underway to accelerate this long overdue project,” said Ned Holmes, a member of the Texas Transportation Commission. "The I-69 corridor has been a work in progress for the past 16 years and it is high time we pour some concrete. In fact we are ready to proceed to the next step."

I feel a Kevin Martin-FCC like series of public meetings coming on, especially given his transportation counterparts in the Bush administration. Secretary Mary Peters and Undersecretary D.J. Gribben primed the pump for the public meetings. Right after a Congressional Committee proposed a sore raising federal gas tax increase of 40 cents a gallon, Mary quickly offered the balm of privitization via a Wall Street Journal op-ed. It happens her number 2 in the department recently worked for Macquarie, a keen developer of toll roads wanting to expand their business.

While the boys at Freedom's Watch sat on their hands over beatings of Burmese Buddhist monks and protesting Pakistani lawyers, they did come off the sidelines to favor "free market" highways. The public may end up more like those beaten and bruised monks and lawyers by the time this is all over.

More Republican Bait & Switch

The National Surface Transportation Policy and Revenue Study Commission called for drastic changes in highway funding to repair and maintain aging bridges and roads. The divided special commission called for an increase in federal gasoline taxes of 40 cents per gallon over a five year period. The congressionally appointed panel recently finished its two year study and recently announced the bait of a large tax increase.

Within days, Secretary of Transportation Mary Peters offered the switch, the magic pill of privatization. Echoing her was the conservative group, Freedom's Watch. Apparently free markets get this group going. FW remained muzzled while Burma's Buddhist monks and Pakistan's protesting lawyers lost their lives in the pursuit of freedom. Obviously giving Americans the right to pay tolls to private infrastructure companies making a guaranteed 15% return cranks FW's tractor. Mary's number 2 at the Transportation Department, D.J. Gribben IV came with a private equity underwriter (PEU) background.

Staying on the Scent

“There are some men who lift the age they inhabit, til all men walk on higher ground in their lifetime. Mr. President, you are such a man.”

Frances Townsend, White House Homeland Security Adviser, used the compliment to George W. months before her resignation. She read it as her closing line during an October 21st, 2007 speech at Effat College in Saudi Arabia. For some reason, neither Karen Hughes’ hard work, nor Fran’s testimonial swayed the audience to think better of him. Only 12% of Saudis view Bush positively, according to a recent poll.

In December, the New York Times suggested Fran would leave office unscathed. Funny, how does one write a report on Hurricane Katrina, yet leave out the hospital with the highest number of patient deaths? Fran omitted any mention of LifeCare Hospital and its 24 patient deaths. Just weeks before Katrina sideswiped New Orleans, The Carlyle Group closed its purchase of LifeCare.

When Mrs. Townsend retired, she said she wanted to do global risk management for a large bank or financial services firm. She certainly has experience managing Carlyle's risk. They have to be happy about entering 24 potential wrongful death lawsuits with the feds silent on everyone’s performance.

Guess what else didn't come up recently, as Carlyle sought to buy huge nursing home provider, ManorCare? One might expect failing patients in a time of crisis to be an important consideration, but the topic never arose. Carlyle closed on ManorCare's over 500 facilities just before Christmas. If Carlyle can fail patients in one of twenty one long term acute care hospitals in a time of crisis, what can they do with over 500 mostly nursing homes?

But back to Fran's future and those managing her next steps. She hired an attorney who lists senior members of The Carlyle Group amongst his star struck client list. Hmmm, Fran leaves Carlyle out of an important government investigation and then hires a lawyer with experience serving their senior managers? Which large investment house will end up with her services? Could it be...