2009 - %3, February

Off Label

| Mon Feb. 2, 2009 10:49 AM PST

OFF LABEL....As the sun was setting on the final days of the Bush administration, they left us with one final gift: a new rule that made it easier for drug manufacturers to promote "off-label" prescription drug uses. The pharmaceutical industry loves this, of course, and they spend millions of dollars promoting their latest narrowly targeted wonder drugs to a wider audience while pretending they're doing no such thing. Blue Girl explains:

The problem is, the system has become corrupted and drug companies do their own "research," get it published, and then promote the off-label uses that their "research" showed was effective. A really common one is to prescribe antidepressants for pain management. I refused to take Cymbalta along with my anti-inflammatory and pain management meds because I can not see where changing my neurochemistry would have any effect on my degraded and damaged knees. He got pissy when I questioned the wisdom of the drug makers — and I got a new doctor. Within the first five minutes of meeting him, I told him to make sure to put on my chart in big letters that I refuse off-label uses, and in fact, given that my only health problems are annoyances more than illnesses, I prefer to stick with drugs that have been around long enough to have generics available. When he found out I did some of the peer review on Rezulin, Vioxx and Baycol, he realized exactly where I was coming from.

In BG's case, using Cymbalta would have been an annoyance, not a life threatener. But that's not always the case, and the drug companies themselves certainly aren't the ones who should be making that call. "A legislative fix may be in order," says Chuck Grassley. More here.

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Amex Redux

| Mon Feb. 2, 2009 10:30 AM PST

AMEX REDUX....On Saturday I vented about American Express's habit of examining which shops you buy stuff at and then reducing your credit limit if they don't like what they see. Megan McArdle thinks I'm being unrealistic:

This is what credit management looks like: you try to shut off access to the poor. Poor people have less financial cushion than wealthier people, and they are therefore much more likely to default on their debt.

....You can't have it both ways. Either you want credit card companies and mortgage originators to do everything they can to keep credit risks out of their system — which means identifying people whose shopping patterns indicate financial trouble — or you want them to extend too much credit. The sad fact is that becoming a more responsible lender is largely synonymous with discriminating against the poor.

Saturday's post was a vent, motivated more by the fact that I hate credit card companies than anything else, so let me take a moment to explain my real issue with what Amex is doing. Here's the problem: I'm a privacy dinosaur who doesn't like the idea of corporate America having access to my shopping history. What I buy, and where I buy it, are my business and no one else's unless they have probable cause and a subpoena to make me cough it up.

Now, obviously I'm on the wrong side of history here, but I continue to think that Fortune 500 marketing departments having routine access to my shopping habits is a far more corrosive practice than most people acknowledge. In the case of supermarkets and their loyalty card tracking programs, though, at least I have a choice. It's not much of a choice for most people, since the only way to opt out is to increase your grocery bill considerably, but you can still do it. In the case of your credit card company, you can't. They occupy an extremely privileged place in the financial system that automatically gives them access to your shopping history.

Normally, when financial intermediaries have access to sensitive information like this, regulations on what they can and can't do with it are pretty strict. They should be here too. I don't have any real problem, for example, with generic transaction shaping being used for fraud detection. That's not punitive in any way and doesn't rely on knowledge of specific purchases. Credit limit decreases are another story, especially since they can trigger a surprisingly vast waterfall of dire consequences for people (thanks to some of the other indefensible practices of the credit card industry). So in the same way that auto insurance companies in California aren't allowed to use redlining to set rates even though it probably "works," I don't think credit card companies should be allowed to mine your private shopping history to decide whether or not to cut you off from your credit supply. They're taking unfair advantage of their inherent access to private information, and whether they like it or not, they shouldn't be allowed to use this information themselves any more than they should be allowed to sell it to telemarketers or direct sales companies.

I'll add two more things to this. First, shed no tears for the card issuers. They have plenty of other ways of tracking your creditworthiness. Taking this one away won't hurt them much. Second, it's pretty obvious that Amex understands they went too far, since (or so they say) they ended this program when people started asking questions about on Good Morning America and the New York Times. But I'd feel a lot better if, instead of relying on their PR horse sense, we had some federal regulation to make sure this program — and lot of other credit card practices much worse than this — were dead and buried for good.

Chutzpah Watch

| Sun Feb. 1, 2009 12:35 PM PST

CHUTZPAH WATCH....Everyone in America is justly outraged at the $18 billion in bonuses handed out to gazillionaire bankers last year. Not to mention $35,000 commodes and $50 million corporate jets. But if you want to see some real chutzpah in action, cast your eyes across the Atlantic to our friends at Lloyds Bank. In September, Lloyds acquired troubled banking giant HBOS, and a month later became troubled itself, accepting a £20 billion bailout from the government in return for a 44% equity stake.

So what happened next? Top execs immediately started making a case that they deserved a pay raise:

Advisers to the recently created Lloyds Banking Group are thought to have argued to shareholders that pay rises were warranted because the new bank was considerably larger as a result of the takeover of HBOS in a deal brokered by Gordon Brown last September at the height of the banking crisis.

One shareholder said: "It was not the best time to bring forward a plan where the potential rewards looked quite big."

In the face of shareholder reticence, Lloyds withdrew the plan and has not awarded pay rises for its directors.

But a fund manager said he still expected the bank to return with a new scheme, "but a little less generous".

Yes, you read that right. Troubled bank #1 buys troubled bank #2, thus creating an even more ginormous troubled bank that requires an even more ginormous taxpayer infusion, and the result is. . . .their top execs deserve more money! Chutzpah!

It's also a good case study of how corporate executives think these days, justifying their ever skyrocketing pay packages on the grounds that they're running bigger, more profitable companies than ever. But that's ridiculous. Running a big company requires different skills than running a small one, but economies of scale kick in pretty quickly. Running a $20 billion or a $50 billion corporation isn't really any harder than running a $10 billion company. And in most cases, the fact that corporate profits are up over the past three decades has everything to do with structural changes in the economy and just about nothing to do with brilliant executive management.

As for the financial industry, the long-term answer to their absurd pay packages is to figure out why the finance industry is so profitable. It shouldn't be. Especially now, it should be a cutthroat business with tiny margins, vanishing arbitrage opportunities, and competition ready to underbid you at every opportunity. So why — the past 12 months excepted — isn't it? Why hasn't increasing competition wrung the profits out of the industry? If we figure that out and fix it, gigantic Wall Street pay packages will become a thing of the past for good.

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Quote of the Day - 02.01.09

| Sun Feb. 1, 2009 11:41 AM PST

QUOTE OF THE DAY....From Jonathan Chait:

It's kind of funny how, when it comes to domestic politics, many liberals employ assumptions about human nature that are wildly at odds with the assumptions they use about human nature when it comes to foreign policy. When you read the liberal blogs on domestic politics, concessions to the enemy are always counterproductive, will must be met with will, etc. When you read them on foreign policy, all those asumptions are flipped on their head. I'm not saying that these two sets of assumptions are completely impossible to reconcile, but it is pretty odd how easily they sit together.

Discuss.

Federer-Nadal

| Sun Feb. 1, 2009 10:46 AM PST

FEDERER-NADAL...So I came down with some version of the creeping crud yesterday, which was a bummer. But there was a bright side: I kept waking up throughout the night, and whenever I did I turned on the TV and watched a few games of the Federer-Nadal match, inconveniently scheduled in the early California morning by our upside-down friends in Australia. The parts I saw were great tennis, and I don't blame Federer a bit for tearing up at the end. One of the stretches I was awake for was him blowing six consecutive break points at the end of the third set, any one of which would probably have won the match for him. Instead, he took home another loss. It was pretty excrutiating.

But I love this picture of the two of them after the match. When I first saw Nadal play a few years ago, he was a kid with stringy black hair, a sneer on his lips, always dressed in a muscle shirt, and hitting the absolute stuffing out of the ball. "This guy's a thug!" I thought, a tennis-playing Terminator — but of course nothing could be further from the truth. As I quickly learned, Nadal may very well be the nicest, sweetest, most generous tennis machine on the planet. He's almost too nice. It's hard to convince people that this is one of the great sport rivalries of all time when they spend more time hugging each other than trash talking.

But still a nice picture. And hopefully Roger will get his 14th before much longer.