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BIG BUSINESS AND BANKRUPTCY PROFITEERING #1

June 30, 2012

 

BIG BUSINESS AND BANKRUPTCY PROFITEERING #1

Beware of the following word when uttered by any politician – REFORM. That word has been used as a cover for anything but reform, but it nevertheless conjures up notions of the reformed sinner newly set free of old wrongdoing and ready to (as Jesus advised an adultress) “go and sin no more.” Prisons are sometimes called “reformatories;” we are taught in law school that the purpose of the criminal law is not to punish, but to reform and rehabilitate; reform and all that goes with it is good – and anyone who is not for it is bad.

Politicians prey on this cultural understanding in proposing “reform” of particular statutes, ranging from the internal revenue code to the bankruptcy act. Usually such “reforms” are designed to enhance the interests of their rich constituents and have nothing to do with the cultural understanding of reform, as was the case in 2005, when Bush signed “The Bankruptcy Abuse Prevention and Consumer Protection Act,” presented for his signature by a republican-dominated congress. As with “No Child Left Behind” and other grossly misnamed acts of congress, the reform statute (unsurprisingly) did not foster either abuse prevention or consumer protection; it rather fostered both evils it was ostensibly designed to correct! So much for misnomers – and labels designed to mislead!

This legislative monstrosity will require a series of blogs, and I propose to write them, since it is clear that this (only) seven-year old act is itself in great need of reform – REAL REFORM! Under cover of this legislation, the rich and corporate class is stealing our store – and it’s legal! As we shall see, this act facilitates not just stiffing creditors; it also facilitates taking peoples’ pensions, their contractural rights, their very lives. It, along with other legislation on the books today, contains the (not so ultimate) seeds of our destruction. The bankruptcy code  as presently written is a brutal statement of policy for the many and a great enrichment device for the few.

(Some of the background for this blog and others I intend to write on our bankruptcy fiasco is from a book yet to be published by Robert Kuttner, entitled Debtors Prison. Mr. Kuttner is co-editor of The American Prospect.)

My followers will recall that I have criticized the internal revenue code’s provisions as the biggest welfare legislation we have (for the rich) and that the poor and middle class cannot afford to hire K Steet lobbyists to try to refashion the terms of that act to favor their interests. They will also recall that I have criticized the bankruptcy act as similarly lopsided in favor of the rich and corporate class (since the rich and corporate class CAN afford K Street lobbyists to carry the ball, and K Street scored a touchdown on this one).

 The bankruptcy act was “reformed” in 2005, long after I retired from the practice of law, so what bankruptcy cases I handled were all under the old (unreformed) act. I have heard many bankruptcy referees (we called them then) lecture my petitioners on discharge to (Jesus-like) “go and sin no more;” i.e., live within your means, make the old car last and similar but unenforceable directives to those now absolved of debt. A bankruptcy on your credit record then was a black mark – the mark of a person who didn’t keep his word. NO MORE. . . . . . Quite the contrary!

I will skip over the multiple Trump bankruptcies (and his gift of $25,000 recently to the pro-slavery Confederate president Jefferson Davis’ memorial) and confine this first blog to airlines.

Every major airline has been through bankruptcy at least once. All told, 189 airlines have declared bankruptcy since 1990. American Airlines was the last to take bankruptcy. By not taking bankruptcy for so long (while their competitors were availing themselves of such cost-cutting), American was becoming increasingly uncompetitive.

Bankruptcy was once thought to be designed to give a fresh start to individuals and enterprises overwhelmed by debt. That is not the case these days. The chief “creditors” of airlines are not those who provide them with jet fuel or terminal gate fees; they are its employees. These are the people who get up every morning and man the airlines’ ticket and reservations counters, fly their planes, see to the needs of their customers in flight, handle their baggage etc. These are the same people who may have labor contracts and pension and healthcare agreements with their airlines. Some will have worked for such airlines for a long time, trusting in the belief that their “company pensions” will supplement their social security and other savings when they retire. Vain hope!

American Airlines, last of the major airlines to take bankruptcy, finally hit upon a way to be competitive – join the parade with their competitors in filing under Chapter 11 for “reorganization” under the terms of the 2005 Act which permits, among other things, petitioners to divest themselves from labor, healthcare and pension agreements. American and their competitors with such filings could not only stiff their creditors but also stiff their employees, their “main creditors” by virtue of overhanging liability to pay what they had agreed to pay their employees, agreement(s) signed and in writing. The republican congress and Bush in 2005 took good care of their friends in the rich and corporate class, and the shareholders and managers of American and other airlines doubtless took good care of the congress when it came time to make “campaign contributions.” We can be assured that there was a celebratory party at American’s headquarters after the court approved its “reorganization” plan, a party to which its employees (now without healthcare, pension or labor contract) were not invited.

So did American and its competitors file for bankruptcy because of overwhelming indebtedness? No, they filed in order to break written contracts with their employees. (Stiffing other vendors and creditors was an added bonus.) That used to be a black mark on one’s credit history and a grounds for suit itself for breach of contract; now it is used as a business tool to enhance profitability and any liability for breach is extinguished by the court’s order approving such corporate “reorganization.”

Apparently there is no shame attached to their breaches of contract so long as some court approves a “reorganization” plan which allows the so-called “bankrupts” to breach them. Given this state of things, any company can promise the moon to employees in labor contracts and other agreements, knowing that if business slows down (or some shareholder files suit for breach of fiduciary duty), no problem! Just file for “reorganization,” abrogate all your written contracts, and profitability returns. (Parenthetical comment – perhaps this explains why so many people these days want to work for themselves.)

If you think that what you have just read is bad, get this: AFTER American’s bankruptcy, they PROMOTED the president to CEO! Good job there, boss!

I have saved the final insult for last: American Airlines, WHILE IN BANKRUPTCY, somehow found enough money to pay $525,000 A MONTH to a firm to advise it on labor rights. THE FIRM WAS BAIN CAPITAL!

Nice going, Mitt. Now tell us how the “creative destruction” of capitalism you so revere helped the disfranchised employees of American Airlines, and while you are at it, tell us again what a regular guy you are and how you are so concerned with unemployment in this country. Then go wash out your mouth with soap.  GERALD E

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