PFIZER, THE DRUG COMPANY, GOT BUSTED FOR BRIBING FOREIGN DOCTORS

Sarah,

Pfizer is a large pharmaceutical company.  Recently, Pfizer reached a $45,000,000 settlement with the Securities and Exchange Commission to resolve charges of bribing doctors overseas to write prescriptions for Pfizer medicines.

The Law:

In 1977, the United States passed the Foreign Corrupt Practices Act.  This law prohibits companies from bribing foreign officials.

The Offense:

The offenses are pretty egregious and were committed in countries around the globe.  In China, a Pfizer subsidiary created a “point program” in which points were given each time a doctor prescribed Pfizer drugs.  The points could then be exchanged for cellphones or tea sets.  I call this the Chuck E. Cheese business model.  In other parts of China, Indonesia, and Pakistan, Pfizer dispensed with formalities and made cash payments to government doctors.

In case you were wondering, other drug companies are doing this as well and are currently cooperating with investigations.

Bottom line: Drug companies do what they want.

Source: “Pfizer Settles U.S. Charges Of Bribing Doctors Abroad." New York Times, 8/8/2012

CHINA IS ABOUT TO CHANGE LEADERSHIP; HERE ARE SOME PROBLEMS CHINA FACES:

Sarah,

China has dominated the last decade economically.  However, China has problems too.  Here are some of them:

Drama Within The Communist Party:

China is ruled by top officials in the Communist Party.  Top officials become top officials by being promoted from within the party.

China’s top leadership has decided that Xi Jinping will succeed Hu Jintao as president of China.  The transition should go smoothly.  However, there have been several political hiccups in the last year.

First, Bo Xilai, the ex-governor of Chongqing, an absurdly large Chinese city, has recently been purged from the party.  This is significant because he was enormously popular and once thought to be in contention for a top leadership position.  The drama started when a British acquaintance of Mr. Bo named Neil Heywood was found dead in a hotel room.  Now, Mr. Bo’s wife is now on trial for murdering Mr. Heywood. (given China’s 98% conviction rate she will surely be imprisoned or executed.)   Additionally, Mr. Bo loudly campaigned against China's growing economic inequality and this caused a rift with other party members.  In a system that values consensus, his dramatic expulsion is a big deal.

Second, China’s military is seeking greater influence over political decision making.  Many generals are grumbling that China’s military should be more assertive.  For now, Mr. Hu (the current president) serves as chairman of the Military Commission and may continue to do so even after he steps down.  This may create tension between Mr. Hu and the incoming Mr. Xi once he is president.

Economic Slowdown:

China’s economy is slowing down.  Its property prices have fallen and local government debt has grown.  Imports and exports are down and the government is taking steps to encourage banks to extend more loans.  Does this mean anything?  Maybe, I don’t know, I’m not an economist.  I do know that the overall economy is still growing at around 7.5%, more than three times faster than America’s economy

Rising Discontent In The Middle Class:

In the past decade, the number of people in China’s middle class has exploded.  This group of people is now connected to the internet and they are starting to complain about food safety, product safety, pollution, and corruption.  Thus far, protests have been manageable, but they seem to be growing.

Migrant Workers In The Cities:

At least 225 million people have left China’s countryside to find work in China’s wealthier coastal cities. (the total population of the United States is 314 million)  These migrant workers are not afforded the same rights as permanent residents and struggle to find housing, medical care, and education for their children.  As a result, there is a widening wealth gap between incoming workers and China’s emerging middle class.  Over the last year, migrant workers have rioted several times.

An Aging Population:

In 1978, China adopted a one-child policy restricting married, urban couples to one child.  Although it is not universally enforced, the policy has slowed down the birth rate.  Accordingly the percentage of the population that is over 65 is rising rapidly.

Pollution:

There is a consequence to having most of the world's factories.  Air and water pollution in China is bordering on ridiculous.  This will catch up with them sooner or later.

Bottom line: China is still growing, but it is facing more problems.

WHAT THE HELL IS LIBOR; UNDERSTANDING THE LATEST BANKING SCANDAL

Sarah,

The latest banking scandal revolves around a “benchmark rate” known as LIBOR.(London Interbank Offered Rate)  What hell is LIBOR?  I didn’t know either.  Here is the basic breakdown.  In the 80’s there arose the demand for a uniform interest rate.  A company in London started asking each major bank what their current interest rates were and then calculated an average interest rate based on these estimates.  Other banks and financial institutions then based their interest rates on the LIBOR average because it was deemed to be reliable.

So what’s the problem?  First, starting as early as 2008, there were indications that big banks were providing LIBOR with artificially low interest rates so they could borrow at lower rates and turn a profit.  These low rates also worked to make banks appear healthier financially. 

More recently, regulators have accused the bigger banks of colluding to manipulate their interest rates.  In the last year, Barclays, a British bank, was caught giving false rates to increase profits and manipulate the picture of its financial health.  The bank has since negotiated a settlement with authorities. 

Now, in the wake of the Barclay’s settlement, banks are scrambling to protect themselves from accusations of rate fixing.  Some are even turning on each other in exchange for immunity from regulators.  Expect other banks to be caught and fined in the near future.

Bottom Line: Banks are a joke.