Today's Papers

To Panic or Not To Panic

The Los Angeles Times and New York Timeslead with the new restructuring plan outlined by General Motors yesterday that would make the U.S. government the majority shareholder of what was once the world’s largest company. The old adage that what’s good for GM is good for America could become a reality. But first the automaker would have to get pretty much all of its bondholders to agree to receive next to nothing in return for the billions of dollars they lent the company. That seems unlikely, so the automaker might very well have to settle all this in bankruptcy court. Under the plan outlined yesterday, GM would accelerate its plans to become a smaller company by cutting 21,000 factory jobs and closing 13 plants and 2,600 dealers, while focusing on only four brands.

The Washington Post, USA Today, and the Wall Street Journal’s world-wide newsbox lead with, and everyone else fronts, the World Health Organization moving one step closer to declaring a pandemic as the number of confirmed swine flu cases continues to rise. The WHO raised its pandemic alert system to phase 4 from phase 3, indicating that the disease is being spread person-to-person and governments should be prepared for community outbreaks. Phase 6 is a pandemic. There are now at least 48 confirmed cases in the United States, and Spain and Scotland also confirmed their first cases of the new flu strain, raising fears that the disease has already spread throughout Europe. Mexico continues to be the epicenter, where officials say 149 people have died of influenza and at least 1,995 cases have been reported, although only 26 of the deaths and 172 of the cases have been confirmed to be swine flu. U.S. officials warned against unnecessary travel to Mexico, and the European Union has called on travelers to avoid the United States and Mexico.

Under the restructuring plan outlined yesterday by GM, the automaker asks the Treasury Department for an additional $11.6 billion in loans, in addition to the $15.4 billion it has already received. In return, the government would get a promise to be paid back half of the money and at least a 50 percent ownership of the company. For its part, the United Auto Workers would receive up to a 39 percent stake in the company as payment for half of the $20 billion that GM owes the retiree health care fund. Bondholders, on the other hand, would get the shortest end of the stick—so short, in fact, we might call it a twig. Investors holding $27.2 billion of GM bonds would get a 10 percent equity stake in the company, and, to no one’s surprise, current shareholders would be effectively wiped out and receive 1 percent.

Bondholders were none too happy with what GM proposed. The deal “must look to bondholders like something Tony Soprano dreamed up,” an analyst tells USAT. Bondholders are particularly upset at what they see as favorable treatment to the union, even though both parties would have similar claims in bankruptcy court. GM said it must get the support of 90 percent of bondholders in order to move forward, something that seems very unlikely. Bondholders have until May 8 to try to negotiate better terms, but if the offer is ultimately rejected, then it seems highly likely that GM will be declaring bankruptcy.

In a separate Detroit development, Chrysler announced that it had reached a deal with the UAW that would give the union a 55 percent stake in the automaker, while Fiat would eventually get 35 percent. The government and Chrysler’s lenders would get 10 percent. In other Chrysler news, the WP hears word that the Treasury Department is once again trying to play matchmaker. This time around, it wants GMAC, the nation’s largest auto-financing company, to buy Chrylser Financial, the automaker’s financing arm. GMAC wouldn’t be able to complete the purchase without further government financing, and the Federal Reserve and the Federal Deposit Insurance Corp. are resisting. In order to carry out the deal, the Fed would have to make an exception to its rule separating banking and commerce, which it has done before, but using FDIC resources for this purpose “would be without precedent,” declares the Post. Even if the sides manage to come to a deal, it’s not entirely clear that Chrysler would be able to avoid bankruptcy. If Chrysler can’t reach a deal with lenders, the automaker could file for bankruptcy by Thursday.

The WHO’s move to raise the pandemic alert system to phase 4 marks the first time that the organization has raised the threat of an influenza pandemic under a system that was revised after the SARS outbreak in 2003. “A pandemic is not considered inevitable at this time,” a WHO official said. U.S. officials urged caution, noting that the increase in cases doesn’t mean swine flu is spreading and could just mean that more testing is being done. In a front-page piece, the NYT notes that in responding to “its first domestic emergency,” the Obama administration is benefiting from measures instituted during his predecessor’s tenure. At the same time, White House officials are taking lessons learned from the Bush administration’s bungled response to Hurricane Katrina in trying to avoid sounding too alarmist while also making it clear that they have a handle on the situation. “It can be very dangerous to overreact. And it can be very dangerous to underreact,” one expert tells the paper. The Obama administration is now in the unenviable position of having to react to this crisis without some key officials, including a secretary of health and human services, who still hasn’t received confirmation from the Senate.

Mexican authorities say that while they’re doing everything they can to contain the spread of the disease, they don’t have sufficient resources to keep up with the fast-spreading virus. All schools nationwide have been closed for more than a week, and public gatherings have been limited. The country has received aid from around the world, including teams of specialized workers to help the country get a handle on the situation. The swine flu outbreak is obviously hitting the Mexican economy, but it’s hardly alone. In a piece inside, the WP notes that the outbreak comes at a time when economic data suggested the global financial crisis could be close to hitting bottom. But economists now say that if there is a full-blown pandemic, the recession “could become two or three times as painful.” Of course, airlines and the tourism industry could be the hardest hit. During the 2003 SARS outbreak, airline traffic to Asia fell by as much as 60 percent.

In an interesting op-ed piece, John Barry, author of The Great Influenza, writes that it’s impossible to know what will happen next since that “is chiefly up to the virus.” There is a “strong possibility” that if the cases begin to diminish soon, that could just be a sign that the virus has gone underground and could re-emerge in a few months, stronger than ever.  Barry notes that in all of the four well-known pandemics—in 1889, 1918, 1957, and 1968—”the gap between the time the virus was first recognized and a second, more dangerous wave swelled was about six months.” That is why it’s important to start working on a vaccine as soon as possible.

In the WSJ’s op-ed page, Henry Miller does an admirable job of explaining how a virus like swine flu can originate and why it’s so difficult to contain. “The epidemiology of such disease outbreaks is rather like a jigsaw puzzle,” writes Miller, “and we are now at the stage where the picture is intriguing even if we’re not sure what we’re seeing.” Pigs are essentially a great incubator for diseases, particularly since they can be infected by a virus that then can adapt and become more efficient at targeting other mammals. People who live close to the animals are particularly susceptible—indeed, Mexican authorities said the earliest known case involved a 4-year-old boy who lived near a pig farm in Veracruz. Mexico now looks like what “we might expect for an outbreak of a major human-to-human pandemic in its earliest stages.” But experience has also shown that attempts to prevent an outbreak from spreading can actually make matters worse.

The NYT fronts a look at how amid all the talk about how the United States is stepping up efforts to defend the nation’s computer systems from spies and attacks, little is being said about the ongoing debate over the billions of dollars the military and intelligence agencies are spending on offensive cyberwarfare capabilities. The paper makes clear that “there are no broad authorizations for American forces to engage in cyberwar,” although there have been a few isolated instances where such capabilities were used. Many think that building up defensive capabilities simply isn’t enough, but it’s difficult to come up with a policy to strike back against attacks when it’s often impossible to know who the attacker might be. Some say a policy of pre-emption should be instituted that would allow U.S. officials to go into foreign computers and destroy any threats before they become a problem. But, that, of course, would raise problems of its own if other countries, or individual hackers, decide to take revenge for such actions.

The WP’s Richard Cohen writes that while he’s “glad we’re no longer torturing anyone … ceasing this foul practice will not in any way make Americans safer.” It may seem ridiculous, but the debate over torture “has been infected with silly arguments” about whether it works. It’s impossible to say that torture, or at least the threat of it, doesn’t ever work, but that’s hardly the point. “America should repudiate torture not because it is always ineffective—nothing is always anything—or because others loathe it but because it degrades us and runs counter to our national values.”