Author Archives: jgoldstein

This article is from http://www.nakedcapitalism.com and it is about American Express credit card.

American Express (AXP) reported 1st quarter earnings after the close Thursday and from the behavior of the stock, you’d think it suggested a major turnaround and economic recovery.

The stock was up 20% on very strong volume. The stock is now up 150% from it’s March 9th low – from $10 to $25.

If our country is suffering from a financial crisis, and most banks are closing down and losing customers, then how comes American Express company is actually making money? Well, in my opinion, I think the company report their first quater income because they wanted to show people that our economy is bouncing back and banks are doing good financially.

But in fact the report clearly shows continuing economic deterioration. Even though earnings beat analyst estimates, the quality of earnings is very low.

Most importantly, the credit card portfolio continues to show massive credit quality deterioration. The charge off rate on the $56.5 billion US Card portfolio leaped to 8.5% and the press release says AXP expects a 200 to 250 basis point increase in the 2nd quarter!

Consumers do not spend as much as before and they now only buy things that are necessary. Many credit card’s interest rates are continually going up and it seems that it will stay that way for awhile.

Further, spending by card members is dropping precipitously. US Card billed business dropped 15% from $114.6 billion to $97.4 billion. Average basic US cardmember spending dropped 15.8% from $2,838 to $2,391 for the quarter. This suggests worldwide consumer spending is in freefall.

Since the usage of credit cards are dropping, credit card companies are desperately approving credit to just about anyone who wants it. For example my 17 years old cousin, currently in high school and jobless, got approved recently for a VISA card limited to $500 access. Credit card companies are doing everything and anything just to bring in customers, they send emails to sign up for cards and keep sending mails to your house for approval. If you keep deleting the emails and ignoring the letters, they just keep on coming, until you join.

Financial crisis not only affect banks, credit card companies, businesses, Wallstreet, etc. but it also affect people’s spending. Consumers are not as big spenders like before. We tend to consume less and learn to adjust to our new spending habits.

st1\:*{behavior:url(#ieooui) }
<!– /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:””; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:”Times New Roman”; mso-fareast-font-family:”Times New Roman”;} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} –>
/* Style Definitions */
table.MsoNormalTable
{mso-style-name:”Table Normal”;
mso-tstyle-rowband-size:0;
mso-tstyle-colband-size:0;
mso-style-noshow:yes;
mso-style-parent:””;
mso-padding-alt:0in 5.4pt 0in 5.4pt;
mso-para-margin:0in;
mso-para-margin-bottom:.0001pt;
mso-pagination:widow-orphan;
font-size:10.0pt;
font-family:”Times New Roman”;
mso-ansi-language:#0400;
mso-fareast-language:#0400;
mso-bidi-language:#0400;}

I read my article from Naked Capitalism entitled “Musings on Structural Challenges to the Financial System” posted by Yves Smith. This article blames securitization as the main reason why the banks of today are such in a mess. The author starts off with how the current system of the banks is bothering him and how it reminds him of the Great Depression. According to Smith finance was different if you go back to 1980. In his opinion outside of New York City and MBA programs no one knew what an investment banker was. Banks were affected by being disintermediated which is when funds from banks are withdrawn and invested in other things that will yield a higher return. Smith says the following “Much of sound banking credit processes has been replaced by sophistry” this is show there was shady practices by these financial institutions.

One line that sums up the whole article is the following:” And securitization was and remains the epicenter of the crisis”.

From what I understand the author uses the factor of investment banks and regular banks to prove a point. The fact that he mentions banks was different as to going back to 1980. Then there is shift. What I’m wondering is if the rise of investment banks caused the trouble throughout the article its mention overtly and also in a subtle. At the end of the article refers to the Great Depression and says “And I worry that like the Depression , we will have to see it break down completely before we can start to rework it ins significant ways” The author seems to think with securitization and negligence he feels the financial system break down will take time to rework.

Dhanha Bien-Aime

“Crisis in China” by John Clegg, discusses the past crisis, present crisis and the possible future crisis of China. Over the past 20 years, China has been significantly industrializing. China was the “go to” spot for many capitalists looking to increase their profits. And because of that, it brought millions of migrant workers from the countryside into the cities where they would find work in factories. Many of the workers even saw themselves staying in the cities for the rest of their lives and therefore, they sold parts of the farm land.

Although China has been industrializing for the past 20+ years, many workers have complained about the conditions and wages of working in factories. This was the crisis for the past 20 years. Many workers weren’t satisfied and had enough of the harsh treatment. This forced many to strike and create movements to better the conditions of the factory life. Clegg states,

“after the beginning of the industrialization thrust, the number of struggles of migrant workers increased steadily, struggles against the horrendous working conditions, for improvements and higher wages, for their share of the fruits of the boom.”

While laborers were struggling, capitalists were making huge profits. And surprisingly, the Chinese government didn’t really care either because they were prospering too. Allowing external capitalists to run factories with cheap labor costs attracted even more capitalists to do the same. China was practically a market for capitalists to increase their profits. In addition, it was becoming one of the biggest exporters in the world.

“A labor activist said that the government wants factories to survive and stay, and that is why they ignore the problems at the workplaces.”

If the Chinese government begins to enforce the labor laws, many factories will have to be closed down. Besides the poor laborers, China saw this time of industrialization as a time of growth. That’s why they didn’t really bother with workers’ concerns.

Anyhow, the labor conditions and struggles was the crisis for the past 20 years. Now the crisis is something else and some are afraid that it might be even worse. In the fall of 2008, China believed that the recession wouldn’t hit them because they were such a big market for production. Unfortunately it hit China hard. Now they’re even in bigger crisis.

“In mid-January 2009 the Ministry of Labor announced that 10 million migrant workers had lost their jobs, in early February the number was raised to 20 million.”

Before, the working class was complaining about the conditions of working. Now, they don’t even have anything to complain about, except for the fact that they have no job. Soon or later, the workers are going to realize that the industrial boom is over and they will realize that their lives will change dramatically. Clegg believes there will be 2 scenarios:

a) The second generation of migrant workers does not want to live in the countryside anymore, or at least does not see its future there. So they could stay in the cities and, if unemployed, would have to search for alternatives for getting an income, accommodation and food, and possibly fight for and appropriate it. In many big cities they account for 30 to 80 percent of the population. Is there a chance for them to join forces with millions of urban poor who survive on petty trade and petty jobs?

b) The migrant workers could migrate back to their families in the villages where they still have the right to farm a piece of land. Maybe they will manage to get by with the money they saved, but without an urban wage the families will sooner or later run into financial problems. There are no jobs, no perspective, poverty and boredom.²⁹ In the past few years the countryside has seen many revolts against corrupt cadres, land dispossessions and environmental contamination. Even now in many regions the small plots are not big enough to feed a whole family, and there is still a rural labor surplus. The planned state subsidies for education, school fees and the setting up of businesses will not change much. If the migrant workers return to the countryside in masses – a temporary reversal of 30 years of urbanization – that would create an explosive mix.

In addition, some are even afraid of a bigger crisis. China is well known for social problems between the working class and the wealthy class. China has a history of working class citizens and peasants who try to revolt to overthrow the government. This is what Clegg and many analysts are really afraid of if the working class of China does not find any employment.

 People tend to generally assume that the word innovation always carries a positive connotation. While for the most part they may be right, this isn’t always the case. Innovation has the ability to fuel prosperity, but unfortunately it sometimes comes at the expense of the common man. The concept follows that of the distribution of wealth; where one man is rich only because another is poor. I recently came across a blog post by Yves Smith on NakedCapitalism.com titled “On Good and Bad Financial Innovation”, in which Smith explores the world of devious financial innovation. Although the entire post reads like a satire on capitalism and its inabilities to efficiently function unregulated on a mass scale.  

“Given the propensity of financial firms to take advantage of widows and orphans, a caveat emptor posture and investment in attaining a higher level of expertise seems prudent.”

Yves starts the topic by dissecting the perspectives of Ben Bernanke and Ryan Avent on the topic of financial innovation. Ryan Avent pointed out that in a recent speech Ben Bernanke had a tough time coming up with examples of good financial innovation that related to the current crisis. Bernanke took the generic route by citing credit cards and securitization. However what we generally have in mind these days are the complex financial derivatives that are the helm of the banking crisis.

 The major problem that Yves identifies is the extension of access to credit. He quotes Kwak,

The other kind of financial innovation has to do with extending access to credit. Here I think it’s less clear that innovation is unequivocally good. It is certainly possible for a society to be below the optimal level of access to credit. Consider the idyllic banking paradise that gets mentioned a lot these days, in which people deposited their savings with local banks which, in turn, lent money out to trustworthy local home buyers and held onto those mortgages to maturity. The good thing about this model is it encouraged responsible underwriting. The bad thing is that it isn’t very good at moving capital (money) from one part of the country to the other…. In short, financial innovations whose sole function is to increase access to credit do not in and of themselves make the world a better place.

Now sure hedging has its benefits, and is an essential tool that allows risk sharing or risk transfer. It is by far the root that is at the bottom of all these complex products. So even though hedging is a great tool, excess use of it can create probleme. First people who actually understand and make use of these credit default swaps should be using them. Take for example a recent case study done by the Motley Fool. When you purchase a corprate bond it has a certain risk attached to it, so it seems like a smart move to have Goldman Sachs insure your risky bond incase of a default. By purchasing this insurance policy you have basically transferred risk for an insurance premium. You have made a solid investment move for which you can now pat yourself on the back for. However you are not my concern, my concern is the man who is being sold a credit default swap but has no idea what he just bought. He purchased it because he believes that the guy selling it to him is smarter than he is, overlooking the fact that he is also the man inheriting the commission. This man has just bought from Goldman Sachs an insurance policy on his U.S. Treasury bond. That is by far the dumbest investment I have ever heard of. So the logic is that there could exist some catastrophic event that would have within it the power to wipe out the entire American Government, but would leave Goldman Sachs left standing to pay you your insurance money.

 The first is that these new products were sufficiently complex and opaque that risks were too often dumped on the hapless who didn’t know what they were buying. We’ve seen everything from German Landesbanken, Norwegian villages, Australian pension funds, Jefferson County and a host of other municipalities buying products or entering into swaps they didn’t understand.

Since U.S has accepted the new president, the nation have had hope that he would be the one who brings this financial crisis to the end, however, issues that this world faces is more complicated than ever. The International Labour Organization (ILO), stated that twenty million more people will be out of employment by the end of 2009 than 2007.

In this article, Mrtine Bulard talks about realities of U.S. dollars and how powerful China is today’s world economy. It became obvious that China is one of most powerful country today, however, it used to be just like other countries. How come China became so powerful, how much influence they have, and is there any way that U.S. will get back to the most powerful position like where they used to be at?

One of the reasons why the U.S. now has to care so much about what China argues is because China is the second major purchaser of U.S. Treasury securities debts. China vindicated that the most serious issue the U.S. faces is a huge diversity of rich and poor people. The U.S. used be the richest country all over the world. A biggest secret of what made it possible for U.S. to become the richest country is that rich people refused to pay proper wages to their employees. Rich people got richer, poor people never be able to save money. In this country, a company hires many illegal workers, because of their few job opportunities; they have only little right to say about their harsh job conditions. Because the U.S. faces such a difficult economic crisis, Chinese prime minister stated “And particularly at such difficult times, China reached out to the US. And we believe such a helping hand will help stabilize the entire global economy and finance and prevent major chaos from occurring. I believe now that cooperation is everything.” The cooperation of those two countries seems to be an alliance of capitalists. This statement makes clear that the U.S. now can not do anything without China’s help, however, China needs less help from U.S. than it used to be.

Chinese economic growth made by producing more stuff with less cost than any other country and export products all over the world. However, compare to international markets, China has developed internal markets only a little bit. That is why, only cities have developed and county sides left aside. Riches got richer, poor got poorer. Even though, China has the highest saving rate in the world, internal market does not develop that much. One of the reasons why people save money rather than purchasing products made in China is because of their low income. Chinese government put so many priorities on an economic growth; social security and health care system were left behind. People have to save their money for their retirement, and sickness.

Even though China took the first place of world’s economy, people in China got few benefits by that. It always does not make sense that employees who actually work hard to producing stuff gets less benefits than the government. The alliance of two capitalists that have the most economic power all over the world leads other countries to move on to capitalism.

Source: http://sites.google.com/site/radicalperspectivesonthecrisis/news/bulardtheworldturnedupsidedownfinancialrealitiesafterthedollar

The article Up in Smoke by Paul Mattick from Radical Perspective on the Crisis, explores how today’s’ economy recession can be compare to depression from the past. The difference between this two is that present situation can be controlled by government and it can be fixed but it has to be done fast. Governments started already working on this issue. It spent so much money; however, this is not enough. Out economy requires much more resources, which is more money.

“By the official end of summer, as I am writing this, that comparison is everywhere, if only as background for insistence that this time the downward spiral can be controlled—provided that the government does the right thing, and does it fast. (…) Commentators argue about what that thing is, of course, though everyone agrees that it will involve huge wads of money.”

Government is still thinking about the $700 billion plan for institutions that cannot find answer for their issues. What would happen to this money instead? It could be used for good for all people, ex. education, health etc. But no, government has to help companies that will not survive on the market and bankrupt. This money will be used in “good cause”, by this cause I mean paying executives, investors, the ones that lose money or will not get because of bad situation of companies.

“If the House finally knuckles under and passes it, one thing is clear: the trillion dollars or so that you might have fantasized would some day pay for new schools, healthcare, or even just bridges that don’t fall down, is going to flow instead into financial-institutional coffers, affecting nothing but the ability of those institutions to keep afloat. This will be money spent not for things or services but simply to replace some other money, now departed from this world of woe.”

Than we see how everything started to go bad with houses. Companies started using swaps, credit derivatives to invest and get some money. However, some companies such as AIG did it very bad. Because most of them are not regulated, and were not categorized as insurance product, companies did not have to put anything aside for losses. Therefore, when housing prices started falling, and losses started piling up, it had no way to pay them off. Not understanding the real risk, companies grievously mispriced it and lost money.

“It’s easy to forget amid all the fancy stuff—credit derivatives, swaps—that the root cause of all this is declining house prices.” People, from humble homeowners to Wall Street Masters of the Universe, imagined that house prices would climb forever. When they started to fall, the institutions that bought mortgages and borrowed against them, treating them as the equivalent of high-valued houses, suddenly found themselves unable to meet their obligations.”

 

 

Government tried to fix it and decrease interest rates, but this also increase debt so it made even worse. Than securitization of mortgages started to increase and money get lose in way between. Foreclosures went up, people lost their houses, and mortgage market shrunken. Therefore, government goes in and “print more money” for financial institutions. It has to help them because if not “what will the financiers invest in, if they become solvent again?” Moreover, money again will interrupt in economy, but will it rebuild? Some people says that “the real economy”—the economy of production, distribution, and consumption of actual goods and services— should appear and repair our situation. “

Again, we can see that big fellows get money, and we – little guys –  lose it. Is it fair? I do not think so. Government should do everything what is the best for all society, but instead they give money to those that have them, and the ones that need money will get zero. We see this everyday but now everyone can experience it. Economy was bad before when government gave money to financial institution and now the situation repeat again. We can see that government did not learn a lesson. We will wait and see for the next few years.

Edward Harrison of Credit Writedowns, posted this article on NakedCapitalism.com which dissects the government’s plan to buy up to 1.4 trillion dollars worth of toxic assets that are clogging up the banks balance sheets. This is an effort to stimulate the credit market, that if successful should partially revitalize the economy and reduce the fear of both lenders and consumers. In Harrison’s words “To cut to the chase, I believe this strategy could be successful in rekindling some increasing credit liquidity and, therefore, some consumer demand.” This program which runs the risk of inflation and catastrophic consequences has many opponents, but for now this is the course of action President Obama and his staff are going with. So at this point, whether you like it or not this is happening.

This program reflects a socialistic change, and at this point the American public will eat up anything that has the word change associated with it.  Harrison looks at four factors that will eventually decide our aggressive President’s fate. “The success of Geithner’s plan, the efficacy of the economic stimulus, ability to connect with the disenfranchised, and the will-in setting political agenda,” are the four crucial factors. First and foremost Geithner’s much criticized plan is essentially a miss or hit plan, and its failure could cloud our President’s term. Not to mention the reluctant support of this plan would essentially cease to exist if the administration prepares for another round of money pumping.

I have said often that Obama’s stimulus will not be sufficient given the state of the economy. Recently revised budget projections from the Congressional Budget Office confirm this — the budget deficit, therefore, will be significantly worse than originally projected. Nevertheless, the Japanese experience in the 1990s demonstrates that even a depressionary economy can experience brief respites from economic turmoil. This could be Obama’s saving grace.

The stimulus plan which has also been embraced with mostly ridicule, will be a crucial component in establishing credibility for President Obama’s administration. What concerns me more is a man that based his entire campaign on bringing change hasn’t deviated much from the norm. If you ask me the “too big too save” mentality has crippled Capitalism. Rather than letting these financial institutions fail, and letting the market hit a bottom we are prolonging economic stability. Also the president’s barrage of bailouts, have perhaps willingly aligned him with Wall Street rather than Main Street. It is only a matter of time before our humble president’s agenda is brought into question.

In my view, the Obama Administration, through its actions to date, has already politically cast its lot with the monied class. On Obama’s watch, we have the Citigroup situation, the Bank of America bailout, the Merrill Lynch bonus scandal, the AIG bailout and bonus scandal, the furore over golf tournaments and the backdoor bailouts under TALF and the Public-Private Partnership. All of these events demonstrate a transfer of wealth from taxpayers to the monied interests of the financial sector. Yes, none of these events individually is a fatal problem. However, taken as a collective, the preponderance of evidence points toward an Administration which will increasingly be seen as more aligned with Wall Street than Main Street. This is a catastrophe for a man who campaigned on “Change you can believe in.”

Moving back to our analysis of the new public-private partnership plan, it s truly in my opinion a bit too optimistic. Now first of all the program heavily relies on its ability to draw interest from the private sector( private investors, hedge funds etc…). The administration plans to accomplish this by offering low interest financing and also harboring a substantial amount of any potential losses. However, this plan revolves around creating a market for the toxic assets, but it seems as if the government is failing to accurately account for how bad these assets truly are. Meredith Whitney formerly of AIG who called this crisis in the summer has approximated these assets to be about 7-8 trillion.  Not to mention the administration has failed to take into account further bad news from other financial sectors. The crisis which eventually initiated only in the subprime mortgage market, spread like wildfire through the disturbingly unregulated financial derivatives market.

Unfortunately, Geithner’s view is not a correct interpretation of events. While prices have declined considerably in a number of markets, often to excessively low levels, there are many other assets which will become impaired going forward or have been impaired, but have yet to be written down. Commercial Real Estate, credit cards and prime mortgages are all distressed markets where one should anticipate further writedowns. So, even if the Treasury’s interpretation of events is correct — that many asset prices have fallen too far — it is irrelevant because there are so many more writedowns still to come.

What I fear most is that if this plan fails Obama might not get another chance. On the administation’s part I think they need to start living up to the promises they made. President Obama said his battle to revive the economy would be transparent. So far it has been anything but that, it is harder than ever to assess what his happening behind the closed doors of the Oval office. Perhaps he should also avoid speaking four times a weak, especially with the market swinging like a pendelum on his every word. I am siding with Harrison’s view of being “on-board” with this plan purely because it’s happenng and this might be our only shot at a resolution. So as the world anticapates the end of this recession I shall be watching along, with my fingers crossed.

I am reading an article from naked capitalism-an original post from The Huffington Post. This article echoes Jon Steward’s recent criticisms of CNBC superstar Jim Cramer and the entire network for acting like market cheerleaders rather than financial journalists. Thomas Frank, a Wall Street journal columnist, argues that financial journalism was an upward failure.

The reasons the financial-entertainment biz failed us are many and complex, but they ultimately come down to this: In the marketplace to describe the marketplace itself, there is precious little competition. There is a single, standard product that comes in packaging that is alternately sultry, energetic or fun — bitter, brainy or Cramer “crazy” — but which rarely strays beyond certain ideological boundaries. Adversarial voices are few. Criticism is sacrificed for access. Advice sometimes shades over into simple propaganda. Even the worst prognosticators sometimes go on to jobs with presidential campaigns or prominent think tanks.

Whether the experts at the TV’s No.1 financial news network knew what was going on behind the scenes on Wall Street and could have warned the public of the meltdown coming is debatable, but nobody can deny that they abandoned their journalistic duties and acted more like market cheerleaders. CNBC superstar Jim Cramer was very clever at downplaying his role on The Daily Show. By downplaying his role, he can absolve himself of any responsibility for the meltdown.

We know — or we think we know — about the roles played by other culprits in the debacle. The government regulators, for example: How could they have ignored the coming disaster? Well, they were incapacitated by decades of deregulation. What about the market’s own watchdogs? Well, from appraisers to ratings agencies the whole tough-minded system was apparently undermined by conflicts of interest. But what about the syndicated columnists and the beloved stock pickers and the authors of personal finance best-sellers, the industry for which CNBC is the perfect symbol? How did they manage to miss the volcano under their feet?

A former CNBC anchor said, “ they didn’t uncover the lies that were told to them. Nobody did. But they should be held to a higher responsibility.” Jon Steward’s criticisms of CNBC are not out of line as some would have us believed. Before the bust, it paid off being market cheerleaders than financial journalists. Clueless pundits and those who abandoned their journalistic duties were getting to the top while the few adversarial voices who saw the meltdown coming were being excluded and even ridiculed.

But the larger problem won’t go away. And it’s not just a matter of people missing the biggest economic story of the last 20 years. It’s a matter of those who minimized it and those who blew it off because it didn’t fit their worldview continuing in their plum positions of authority. Mr. Stewart wasn’t rude enough to ask it, but over all his inquiries there hung the obvious question: Why do you still have a job, Mr. Cramer?

Franks seems to have answered his own question, “if the world of financial infotainment can itself be described as a “market,” it is a market where accountability does not seem to exist, where the heaviest of incentives seems to carry no weight, and where consumers, to judge by what they get, seem constantly to choose the lousy over the good. The old order discredits itself, but the old order persists nevertheless.” Whatever happens next, Steward’s criticisms certainly raised serious question about the experts at TV’s No.1 financial news network.

I remember when I was talking to couple of my friends back in 2005 about housing market while it was booming. Everyone of us thought buying property and how well market is doing and how we may not be able to buy anything in next 5 years if prices will keep this way. However we were all mistaken and specially most of the entrepreneurs got in to this housing bubble, who invested everything they had. Today a lot them have properties which, are rent out to tenants and who’s houses are going for closure because of the landlord mistake.

 “There are renters all around the country who have been holding up their end of the bargain and paying their rent faithfully, but the landlord got into trouble, and so the renter is now unfairly facing eviction,”

Yes a lot of tenets who have probably lost their apartment because their building or house went for closure, mean while they have been paying their rent regularly and it not their fault , that their landlord got in to the housing bubble. However when I read this article, which made me breath little bit easy where Fannie Mae decides to let the tenants to live in their apartment even after for closure until the property is resold to new investors.

 

            “Fannie Mae owned 67,500 properties in foreclosure at the end of September, according to the company’s most recent filings. Most of those were owner-occupied. Under the new policy, former owners will most likely not be eligible to rent homes they lost in foreclosure”.

How far did we go , with the housing dream , where some of the entrepreneurs made $100,000.00 in three months, the whole market was like dream come thru for most of the business owners , everyone became a landlord in few past years. But can we imagen how many landlord just got exploding in the housing market , how many of them could lead tenant to be without their home, where will al this tenants have to go , how could they find their regular house while market is in the edge of explosure.

“While it may be sometimes tougher for us to sell a property when people are in it, we understand that lots of people are in tough situations right now,” said Chuck Greener, a Fannie Mae spokesman. “If a renter wants to stay in their home, we’ll make that happen. And if they want to move out, in many cases we’ll help them pay for the move.”

When I read this article it made me feel little better, however how many more of the tenants who are not living in the properties own by Fannie Mae , who must move out as soon as their house when for closures , who were paying their rent without delays and what is their fault in here?

           

 

In class we have spoken about many different financialized markets, most of who have some aspect of unproductive labor driving up their profits.  The article, Harvard Medical School in Ethics Quandary in the New York Times explains this aspect within the pharmaceutical market.

The article exposes the intimate ties between the large pharmaceutical companies, like Merck and Pfizer, and medical schools, specifically Harvard.  The once prestigious school is now seen as one of the most corrupt because of its excessive acceptance of industry funds.  As more and more professors disclose their industry ties students are left feeling much like this first year student says:

“We are really being indoctrinated into a field of medicine that is becoming more and more commercialized.”

She is justified in her feelings.  It is unfortunate to think that when these students step into their  pharmaceuticals 101 class, they are in store for nothing more than a long infomercial.  Having paid consultants as professors is the epitome of unproductive labor for these corporations.  They are able to get their advertisers into some of the most influential positions available.  This generates both more profits not only from consumers but also by creating a new set of commissioned marketers for their drugs, the new doctors who are being convinced that these drugs are the best to proscribe for a given sets of symptoms.  It seems like a smart move on the part of the pharmaceuticals that also give millions of dollars to help fund research at the school. It begs the question that the article in a sense leaves hanging: are the ties all bad?  On one hand there is the bias representation of drugs to the impressionable minds of America’s future doctors.  As one student suggests:

“I felt really violated,” Mr. Zerden, now a fourth-year student, recently recalled. “Here we have 160 open minds trying to learn the basics in a protected space, and the information he was giving wasn’t as pure as I think it should be.”

Or perhaps there are some benefits to be gained (other than profits) by this marriage of pharmaceutical corporations and medical schools.  Thanks to all the funding the schools receive there is more opportunity for research grants and thus more stimulation for future innovation. Perhaps the opportunities out way the cost of intellectual honesty.  As one doctor explains,

“Without the support of the private sector, we would not have been able to develop what I call our ‘bone team’ in our lab”

The ‘bone team’ she mentions is sponsored by Merck to develop a follow-up drug to Fosamax, which just went generic.  So it seems that thanks to Merck the are the funds available for more doctors to do more research and develop more drugs that hopefully will be better than any of those already on the market.  The key here though is the hope.  There is no gaurantee that the researchers are doing nothing more than developing a replacement to the ‘gone generic’ drugs.  The findings might not find anything remarkable but the professor/consultants will talk up these new drugs, pushing the side effects out of the picture, and promoting it as better than any generic on the market and therefore keep the cycle of profit pumping back to the pharmaceuticals.

The cycle also reminds me of lobbying, another source of unproductive labor constantly under the ethical microscope.  But I think that a lesson can be learned from the corruption of lobbying, that with every restriction placed on the amount of money a politician can accept, a new loophole is found by a lobbyist.  I think that Harvard needs a lot more than a few regulations to fix this mess and full disclosure might not be the end all solution, although it is a modest start.