Robert Kuttner is co-founder and co-editor of The American Prospect, as well as a distinguished senior fellow of the think tank Demos. He was a longtime columnist for Business Week and continues to write columns in The Boston Globe. He is the author of Obama's Challenge and other books. This piece draws on the themes of a book that Robert Kuttner is completing for Knopf, titled Debtors Prison.
"Linking all of these disparities between citizens and corporations is the political power of a new American plutocracy. Until our politics connects these dots and citizens start resisting, the financial elite will rule...
"The airline industry is only the extreme case. [No fewer than 189 airlines have declared bankruptcy since 1990.] In the past two decades, the roster of companies that declared bankruptcy includes Enron, WorldCom, Global Crossing, Adelphia, General Motors, Chrysler, Delphi, Kmart, and LTV Steel, not to mention several major financial houses.
"Private-equity companies routinely use Chapter 11 after they bleed dry the operating companies they acquire, load them up with debt, extract capital, and then declare that debts unfortunately exceed assets. Once out of bankruptcy, the company can be sold for more profit. Bain Capital, Mitt Romney’s firm, pocketed hundreds of millions of dollars as special dividends from such companies as KB Toys, Dade Behring, Ampad, GS Technologies, and Stage Stores, all of which subsequently filed for bankruptcy. In industries such as steel, airlines, and autos, where good union contracts were once common, one of the biggest appeals of a Chapter 11 reorganization is that contractual pension and retiree health obligations can be swept aside.
"In Chapter 11, even the executives who drove a company into the ground get a second chance. Post-bankruptcy, American Airlines’ president, Tom Horton, was promoted to CEO. And why not? Declaring bankruptcy will save American a small fortune. American, while in bankruptcy, has nonetheless found the money to pay a firm $525,000 a month to advise it on labor cuts. The firm is Bain Capital.
"...So while corporations continue to get a fresh start under Chapter 11, the aftermath of the financial crisis continues to sandbag millions of homeowners and the economy as a whole. This double standard is not just a question of fairness. The selective relief for corporations and banks, but not for the 99 percent, is killing the recovery. None of this will change until the citizenry builds a politics that demands a single standard."
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