Stephen King obtained fame writing about his nightmares. But he “ain’t got nuttin’” on David A. Stockman’s The Great Deformation: The Corruption of Capitalism in America (2013). Every page of Stockman’s financial nightmares is true. Stockman was Reagan’s budget director and one of the architects of the Reagan revolution to reduce taxes, cut spending, and shrink the role of government. His experience in the financial belly of the beast and his scholarly research for the book provides unique insight into America’s financial miasma.
Beginning with FDR’s flippantly insulting letter to the London Economic Conference where nations met to resolve post-WW I debt (negating the solution and setting the stage for WW II) up to the present. He provides a litany of Wall Street and Fed shenanigans resulting in decades of monetary entropy.
Stockman describes the incestuous relationship of the “financial politburo” – the Fed, Treasury and Wall Street. He identifies icons of integrity who tried –but ultimately failed- to maintain fiscal discipline. He credits Greenspan with creating “bubble financing” – avoiding economic downturns by spending our way into deeper and deeper debt simply to make successive administrations look good. Greenspan tilted a formerly level financial playing field into a Treasury Department routinely providing insider information (called “tiddie biddies”) to a few Wall Street CEOs and made the Fed and Treasury subservient to Wall Street’s one percent – actually .0005 percent. After the 2008 collapse, Greenspan admitted to the House Finance Committee his 43 years of financial expertise was wrong! Stockman explains how Wall Street “family offices” being “Fed” insider information purchase conglomerates, super inflate P/E ratios then sell before the debt is due garnering billions in bonuses – but leaving stockholders holding worthless certificates. He explains how the Dow Jones Industrial Average continues its’ climb without any subsequent improvement in the economy at large. He debunks the Treasury Secretary’s “too big to fail” lie. Main Street banks were doing just fine.
He cites blue-chip stock companies’ CEOs cannibalizing their own companies in the mergers-and-acquisitions (M&A) mania of the nineties through a process called “company equity withdrawal” (CEW). General Electric, Verizon and UniVision are just three that are still billions in debt barely able to obtain more loans just to cover operating costs on assets they can’t unload. The 21st century brought more “monetary heroin” to Wall Street as the Greenspan-Bernanke Treasury lowered interest rates at the exact time they should have been raised. This brought on a new speculative mania known as leveraged buyouts (LBOs). Stockman calls this buying based on debt upon debt upon debt. He calls Wall Street a financial gambling casino within a whorehouse – only with Treasury in their pocket it’s not really gambling.
Another example of the M&A/LBO mania going bust is the nation’s largest hospital chain, HCA, Inc. – which brings us to the new Sierra Vista hospital now being built.
Homer writes of Greeks failing to penetrate the walls of Troy and building an ornate, giant horse as a gift while presumably withdrawing from the battlefield. Trojans eagerly drew it inside their walls only to have Greek warriors erupt from within to ravage the city. Many consider the new hospital a “gift” from entrepreneur Marty Rash who told the Tucson Daily Star he has “hospitals in his blood.” Eh, not so much. A cursory search indicates he may be one of the many gamblers in the Wall Street casino:
Knoxville Post November 18, 2009 by Geert De Lombaerde: “Rash joins M&A fray in Ohio” (M&A is the Wall Street term for “flipping”).
Knoxville Post March 4, 2010 by Erin Lawley: “…reporter Michelle Eubanks sat down on Wednesday for a Q&A about his company’s plans for Coffee Health Group:
Q: What do you say to those who feel your interests are in flipping the hospital in the near future in order to turn a profit?
A: We’re not in the business of flipping hospitals. John (Rutledge) and I have been in business together for the past 25 years, with 10 years at Province Healthcare and 10 years at Community Health Systems.”
Well, let’s take a look at Mr. Rash’s Province Healthcare and Community Health Systems:
Knoxville Post, March 1, 2003 by Molly Cate –“ Perplexing Turns, My how times have changed for Province Healthcare Co. … Until recently, the rural hospital company was known for its consistent earnings and conservative, intense focus on operations. But newly discovered weaknesses in those exact areas have sent Province’s stock reeling. The Brentwood company lost 75% of its stock market value since summer. … others lay the blame on Rash himself.”
Rash unloaded Province HealthCare on Brim Holding Company. Brim subsequently won a trial lawsuit to recover contractual indemnification for pre-existing debt from Rash’s Province Healthcare. It was overturned on appeal. (Brim Holding Company, Inc. v. Province HealthCare Company; Chancery Court for Davidson County No. 061597-I filed May 28, 2008).
Venture Beat News, August 25, 2014 by Mark Sullivan: “Community Health Systems breach could cost up to $150 million. Last week’s data breach at Community Health Systems, the 207-hospital, 29-state operator, in which data from 5.4 million patients was lost could end up costing the health system [investors] between $75 million and $150 million, according to Forbes digital health columnist Dan Munro.”
Is Rash’s new Regional Care Hospitals, Inc. a Province/Community Health clone? For-profit hospitals make money recruiting and retaining doctors. Rural hospitals habitually have difficulty doing so. To compensate administrators inflate MediCare and MedicAid costs. In today’s speculative hospital merger mania market the only financial incentive is to get the bonuses and sell before the debt is due. In the process Trojan Horses routinely become white elephants for investors and taxpayers.
