Government: A national Harry & David moment
Debt is bad.
OK, so that's not exactly "E=mc2." It's not even "Eureka!"
Everyone's talking about debt these days. As a recent Opinion L.A. blog posited, the "we're broke" mantra is sprouting like dandelions in spring.
On Monday, a headline in The Times screamed "Frenzy in Washington grows over nation’s debt." The story detailed efforts by lawmakers to rein in the red ink. And it included this perceptive paragraph:
Without substantial changes in government policies, debt could reach 90% of gross domestic product by the end of the decade, according to the nonpartisan Congressional Budget Office -- a danger zone, experts say.
Thanks, experts. Good to know where the danger zone is. Question: Is 89% of gross domestic product OK?
On Tuesday, The Times' Mark Z. Barabak reported from Aurora, Colo., where he spoke with John Q. Public to get their ideas on cutting spending.
The story cited this helpful exchange with one Ernest Roy:
Roy said he too was glad the House went Republican. "I was hoping they would put a slamming, screaming halt to all this undue spending," said Roy, an independent and 20-year Air Force veteran. "We're spending our country into bankruptcy, and that's not good."
But, he said, lawmakers need to keep their hands off Medicare. At 75, his health is good, but his wife has had problems and without the federal program, "We wouldn't be here. I wouldn't own a home. I wouldn't have anything," he said.
Thanks, Ernie. Sound advice: Cut stuff, just don't cut the stuff I need.
But it's not just public-sector debt. Tuesday's Times highlighted the dangers of corporate debt: "Harry & David files for bankruptcy".
Crippled by debt piled upon it by its Wall Street owners, storied Oregon fruit company Harry & David has filed for bankruptcy protection.
See, I told you debt is bad. Even if you're just selling pricey pears.
But the Harry & David story isn't just about debt. It has another familiar element of today: greed.
The family sold the firm to RJR Nabisco in 1986. It changed hands a few more times before being purchased by Wasserstein & Co. in 2004 for $253.9 million.
The firm, founded by the late New York buyout king Bruce Wasserstein, financed the deal by issuing $250 million in bonds — and used some of the proceeds to pay itself back all of the cash it had put up to buy the company.
"All of the Wasserstein original investors got their money out of it and left Medford [Ore.] with a shell of a company with gigantic debt," said Charles Jaeger, a professor at Medford's Southern Oregon University business school. "They handled it in their typical greedy Wall Street way."
Thanks, Charles, for telling it like it is. But it gets worse:
The new management team Wasserstein installed proved controversial. The chief executive during the last year, Steve Heyer, had previously been pushed out as CEO of Starwood Hotels after facing allegations that he had sent inappropriate sexual emails. Harry & David's current marketing chief, Ross Klein, had been accused in a lawsuit by Starwood of stealing corporate documents after he left his job at the company.
Neither of the men relocated to Medford. Their offices in Atlanta and Beverly Hills were paid for by Harry & David, and Heyer was given a $9.4-million pay package, nearly seven times what the previous chief executive had earned.
So, to recap: Debt is bad. And debt + greed = really bad.
It's probably too late to help Harry & David. But as for the country, what would be so tough about this:
--Cut the defense budget by $100 billion.
--Have well-off retired people contribute more to Social Security and Medicare, or accept lower benefits, or something like that.
--Raise taxes by 5% on people making $500,000 and more.
Common-sense solutions. Many have been suggested by the Simpson-Bowles deficit-reduction committee. Americans like them all until, like Ernie (see above), something they need is being cut.
But we need to make some choices, or we could all end up like Harry & David -– broke, and trying to sell fruit.
-- Paul Whitefield
Photo: Harry & David will continue sending out its fruit boxes and operating its 70 retail locations as it reorganizes. Above, a store in Rockville, Md. Credit: Jay Mallin / Bloomberg News