Thursday, February 26, 2009

A Thick and Soupy Plot ... the Saga of Roland Burris Continues...

"Scandal Mushrooms" says a headline in today's Chicago Sun-Times. What sounds like a recipe for salmonella-infested fungi is instead the story about how Rod Blagojevich (when still governor) got Roland Burris' son a job prior to the elder Burris' appointment to the senate.

(Sounds like Blagojevich served as an excellent employment agency for the Roland Burrises.)

Roland Burris II (the senator's "mini-me") was facing foreclosure on his own home last summer when he was appointed (and I am not making this up) to a $75,000 job at the Illinois Housing Development Authority.

His home was in foreclosure because he apparently owed (again, I'm not making this up) more than $30,000 to the IRS.

Let's see if we can sum this up neatly...

A governor arrested for trying to sell a U.S. Senate seat then appoints a man who has not only raised money to purchase the seat hosted "fundraisers" for Blago, but whose son owes his job to the high-rolling ex-gov. And owes a bit of back taxes to the feds as well. And as the owner of a foreclosed home, is now working in some capacity at the state's Housing Development Authority.

It is a thick and heavy soup of scandal being served up right now in Illinois!

The Obfuscating Power of Words

The first hint of confusion came for me when reading about the banking CEOs who recently appeared before congress. As live-blogged by the Wall Street Journal, several of the executives claimed no need for TARP funds; that they in fact had rather unwillingly taken billions of dollars from the feds at the request of the Treasury Department.

The executives made statements like, "...we did not seek TARP funds..." and "we were strongly encouraged to participate [in TARP] and we did."

And now Northern Trust.

This is the Chicago-based bank now made famous to most Americans through a story brought to us by - the online gossip rag. As most of us know by now, thanks to the impeccable reporting of TMZ, the bank, which had received $1.6 billion in TARP funds, threw a lavish party recently as part of its commitment to host the Northern Trust Open charity event.

In an "open letter to Northern Trust Shareholders, clients and staff" issued to defend the institution's partying ways during the Northern Trust Open fundraiser, the bank also claims no need for the TARP funding they received:

"Northern Trust did not seek the government's investment under the U.S. Treasury's Capital Purchase Program, but agreed to the government's goal of gaining the participation of all major banks in the United States."

Until now, I did not realize that the Troubled Asset Relief Program required throwing billions of dollars at healthy banks. With all the buzz surrounding Paulson's bailout plans, I had thought that the program brought relief to institutions whose pipes were clogged with "troubled assets."

But I was wrong.

Interesting approach to fiscal policy, I suppose, to flood all banks with astronomical sums of money, not just the troubled ones.

Monday, February 23, 2009

The Crisis in Capitalism...

"Government is not the solution to our problem," said Ronald Reagan in his first inaugural address almost 30 years ago. "Government is the problem."

I keep thinking about those words of Reagan's as we see government forking over trillions to failed American banks and bankrupt car manufacturers.

And we see bailout funds getting used for things like bonuses and things of that nature.

And we see millions of Americans lose their jobs each month.

And I think that I'm really not sure that government can provide the solution that is needed to solve a crisis of this magnitude. But more disturbingly, business isn't providing the solution either - at least business as we know it today, thirty years after Reagan spoke those words about the evils of government.

In fact, it would appear that in today's political landscape, business is itself a significant problem.

A Bleak, Golden Fog
The landscape of American business today is pockmarked by bad judgment and destabilized by greed. Certainly, not every business in every sector has acted irresponsibly. I've had the good fortune to work with smart, focused executives who have been successful in leading their organizations.

But major corporations in key industries - auto manufacturing, banking, airlines - have contributed in significant ways to the demise of our economy - and I don't see their leaders taking effective action that could move these companies out of debt.

We don't yet know the extent of the problem in our free market banks - and that is something almost terrifying to contemplate - that months into the crisis, we don't yet know the full amount of debt on their books. We don't yet know what the CEOs' plans are for bringing their businesses back to profitability.

We don't even know what they're doing with the TARP money they've been blessed with – nor do they have to account for these funds.

Instead, we've seen business leaders appear more interested in negotiating fabulous salaries and handing out bonuses than leading a company into sustainable profit.

And we've seen business leaders racing (or flying their own private jets) with hands outstretched to Congress. "Self-regulation isn't working," they tell us. "We need money to recapitalize," they acknowledge. "Loan us money or we'll have to declare bankruptcy," they warn.

Then we've seen the bankers on Wall Street pay out astronomical bonuses to their employees - after receiving billions of tax dollars to recapitalize.

Yes. Clearly, self-regulation isn't working in an industry that can't understand why the need for a federal bailout should curtail bonuses for 2008. Who don't realize that the rest of the country (world) believes that "bonuses" are paid to reward profitable behavior, not the expected benefit of a vast federal entitlement program.

What Would Reagan Do?
I wonder what Reagan would make of all of this - how would he spin the golden fog emanating from Wall Street? What would he say to his banker buddies?

Would he pat them on the back for proving his point about the flaws of government?

Or would he chastise today's business leaders for running rapidly to the government for a solution, instead of crafting one themselves?

Wall Street in Washington

On February 11, CEOs of eight debt-ridden banking firms appeared before Congress. The WSJ live-blogged the proceedings. To see what these leaders have to say is an eye-opener. It seems like no TARP was ever needed or wanted by these executives, according to their testimony....

J.P. Morgan CEO Jamie Dimon: “While we did not seek the TARP funds…to strengthen our already-strong capital base…we are using that money to expand the spirit of TARP.”

(It was my understanding the spirit of TARP was to inject capital into firms that were desperately undercapitalized - so one must wonder why JP Morgan felt compelled to put the hand out for federal funding...)

Bank of New York Mellon chief executive Robert Kelly (whose bank was apparently profitable throughout 2008): “We were strongly encouraged to participate [in TARP] and we did, very quickly.”

(Who encouraged this savvy leader to take money his company didn't need? And why did he comply?)

Goldman Sachs CEO Lloyd Blankfein: “We understood that TARP funds were never meant to be permanent capital. We look forward to paying it back…so that money could be used elsewhere.”

(We'll see this money again? In my lifetime?)

Astronomical sums have been handed over to these people - and the crisis deepens. More people are laid off every day.

“I get the new reality,” says Citigroup's Vikram Pandit. “My goal is to return Citi to profitability as soon as possible and I have told our board of directors that my salary should be $1 a year with no bonus until we return to profitability.”

The new reality in American business. CEOs promising to earn a dollar a year until they see "a return to profitability."

Makes you wonder why we took such a sharp detour from profit in the first place.

Friday, February 20, 2009


Shock of shocks - Republicans define Obama's first month on the job as "disappointing."

CNN has the scoop here.

According to the CNN story, the GOP finds fault with Obama in a number of areas:

-Lack of bipartisan support
-Wasteful spending
-Questionable ethics.

From where I sit, if the Republicans look in the mirror, they'd see a remarkably similar visage....

Thursday, February 19, 2009

On Wallace Stegner's Big Rock Candy Mountain

The NY Times has a story today commemorating the centennial of Wallace Stegner's birth. For most people, Wallace Stegner is probably the least famous award-winning author they've never heard of. Though he won the the National Book Award and a Pulitzer Prize, his books are not easy to obtain and most students today have never heard of him or been assigned any of his books to read in class.

When I was a teenager, my father handed me Stegner's novel, Big Rock Candy Mountain. It had been one of my father's favorite books, and upon first read, it became one of mine.

It's loosely based on Stegner's life, in that the significant events of the book also happened to Stegner's family. Like the fictional Bruce Mason, Wallace Stegner was left to care for his dying mother alone after his father ran away from the situation.

Like Bruce Mason, Stegner had a father who killed himself after murdering a girlfriend.

Like Bruce Mason, Stegner was the only survivor of a family that had moved restlessly throughout the vast North American west when he was growing up.

A selection of quotes from the novel:

"The train was rocking through wide open country before Elsa was able to put off the misery of leaving and reach out for the freedom and release that were hers now."

"As August moved on day by cloudless day, they began to watch the southwest rather than the southeast. The days were hot, with light fingering winds that bent the wheat and died again, and in the evenings, there was always a flicker of heat lightening. The southwest was dangerous in August. From that direction came the hot winds, blowing for two or three days at at time, that had withered and scorched the wheat last year. They were like Chinooks, his father said, except that in summer, they were hot as hell. You couldn't predict them and you couldn't depend on their coming, but if they came you were sunk.

What a God damned country, his father said."

"This corpse was a thing you could bury without regret, put into the ground beside your brother's body and the other things, the qualities that had been mystically your mother, you buried within yourself, you became a grave for her as you were a grave for Chet, and you carried your dead unquietly within you."

Big Rock Candy Mountain paints a vivid portrait of a vanished lifestyle - the period following the close of the frontier, that era when restless Americans had to learn to live within the confines of a well-defined map. No longer could settlers carve out a new life in uncharted territories.

Yet the dreams of the drifters pushed them forward. Stegner's father spent a lifetime looking for the "land that's fair and bright," but he never found it.

Stegner wrote about that; he wrote about the west; he understood the vast yearning for independence that Americans use to propel the pursuit of happiness. Stegner also worked hard to convey the complexities of the dream.

"Perhaps that was what it meant, all of it. It was good to have been along and to have shared it. There were things he had learned that could not be taken away from him. Perhaps it took several generations to make a man, perhaps it took several combinations and re-creations of his mother's gentleness and resilience, his father's enormous energy and appetite for the new, a subtle blending of masculine and feminine, selfish and selfless, stubborn and yielding, before a proper man could be fashioned."

In Big Rock Candy Mountain, Stegner showed how unquietly his dead had lain within him, and the result is a moving novel that stays with you for a long time after you finish reading it.

Monday, February 16, 2009

Words Matter: Healing with Words and Medicine

There is a lovely story in today's Washington post about a doctor who turned to writing to help heal himself of the stress that came from treating AIDS back in the 1980s.

The writer is Dr. Abraham Verghese, an AIDS specialist who cashed in his 401K nearly 20 years ago to become a writer. He is a physician and a published author who lectures on the pen and the stethoscope: what writing can teach us about medicine. His primary thesis: that "...harried doctors must understand that to every patient, illness is a story."

Verghese is an Indian-Ethiopian who now lives in America. And given his diverse background and his work with AIDS patients, he understands that doctors dispense healing, not necessarily cures.

The narrative of medicine. The narrative of life. When dealing with the terribly ill, words matter. And Verghese is a doctor who understands the importance of the narrative as it relates to the patient.

For more, check out the story here. And you'll learn that Chekhov died sipping champagne instead indulging in further medical treatments. Which seems a completely appropriate narrative for a Russian writer dying of TB.

Sunday, February 15, 2009

BS...AKA the Burris/Blago Style

My senator, Roland Burris, is speaking up on an issue top-of-mind these days - his integrity.

It seems that people have questioned his integrity following his acceptance of disgraced Governor Blagojevich's senate appointment.

They're beginning to wonder just how Mr. Squeaky Clean gained the attention of the poetry-spouting scam artist formerly known as the governor of Illinois.

Apparently, there is a "major omission from his testimony...that appeared to contradict statements he made to a state House committee investigating former Gov. Rod Blagojevich's impeachment," says an AP article in today's Washington Post.

Blagojevich's brother allegedly had asked Burris to host a fundraiser prior to becoming Senator, a fact Burris failed to mention in any hearings into the matter.

Interesting - but not surprising - that a man seeking to sell the senate seat also sought to ask Burris to raise some $$s for him.

The Chicago Tribune characterizes Burris' testimony surrounding this issue as "evolving."

Wednesday, February 11, 2009

Rove's astonishing gaffe

Karl Rove says one of the most astonishing things in today's Wall Street Journal. You can read the entire story here.

But check out what he says about Obama's stimulus plan:

"The bill he signs will create a raft of new programs and be the biggest peacetime spending increase in American history, which will give us larger deficits and create pressure to raise taxes." (italics mine)

"The biggest peacetime spending increase...."

Has Karl Rove forgotten we're at war? On two fronts? Because we needed to stop Hussein from blowing us up with all those nukes he had - but when we found out the nukes were figments of the CIA's overactive imagination, we then shifted the purpose of the war to building democracy in a region not known for the love of personal freedoms?

And we're still searching for Bin Laden?

I knew the Bushies were going to offer up some revisionist history for us to digest, but this - wow! Rove's calling us a nation at peace, despite the fact our military is deployed on two fronts.

Then again, he's always been a proponent of the "truth is what I say, not what is true" philosophy of leadership.

The Nightmare on Wall Street.... offers "news, ideas and conversations for communicators worldwide," and today, one of their stories covers the nightmare on Wall Street. In the Ragan story, given that the audience is communicators, the nightmare is defined as a "PR nightmare."

What can communicators do to help solve this "PR debacle"?

As a communicator myself, I have to point out that this is not really a crisis of communication - this is a crisis of leadership. These companies have been following a business model that brought them to the brink of bankruptcy.

So we're not seeing the result of "bad PR" right now. The actions of the corporate leaders themselves has proven to be indefensible. Recipients of federal funds took off for a $400,000 spa visit, tried to buy a corporate jet, paid out billions in bonuses.

It's rarely easy for communicators to spin straw into gold.

And now, instead of acting prudently, instead of conserving money, Wall Street execs have spent a great deal of energy defending their outmoded compensation strategy - the need to pay bonuses to prevent the "brain drain" they're all obsessed about.

As an example, NY Attorney General today released the information that Merrill Lynch rewarded 700 employees with more than $1 million (each) in bonuses at the end of last year. (So much for argument about the need to use bonuses to support the admin staff...)

When a company's books have more red ink than a Valentine, one wonders about the brains in charge. How did the leaders let their companies get so riddled with debt? How can John Thain of Merrill Lynch - how can ANY TARP-funded company – justify paying billions in bonuses when they require substantial federal assistance to survive?

Today, leaders of eight of these banks are in Washington to chat about TARP with members of Congress. I'm sure that what they have to say will be fascinating.

Tuesday, February 10, 2009

Class Warfare as explained by the WSJ...

Allan Brinkley, provost and history professor at Columbia University, has an article in today's Wall Street Journal focused on the rise of economic populism he fears is about to sweep over the nation.

Brinkley brings up Huey Long, the Depression-era governor of Louisiana as a case in point - whose call for a radical redistribution of wealth was viewed by some contemporaries as "heroic," and he warns of the dangers we face right now:

"Whether or not we are now entering a new Great Depression, we are almost certainly entering a period in which resentment of financial and corporate titans will increase, and in which many politicians will feel they have no choice but to join the chorus of denunciation -- perhaps even a president with almost unprecedented approval ratings as he begins his term."

I'm here to say ordinary people don't resent people for being rich. They resent rich people for their sense of entitlement. For the idea that they can work the system to profit wildly when times are good, then turn around and socialize the losses when times get tough.

No one is pissed off at Bill Gates because of his billions. No one is about to rise up against Donald Trump, even though he's not the most likable guy.

People are filled with loathing for a particular class of rich people: the billionaires and millionaires on Wall Street.

And here's why. Ordinary Americans understand that Wall Street insiders profited handsomely by selling bad debt packaged prettily as "collateralized loan obligations" and "credit default swaps" and other nonsense.

They understand that the Wall Street executives are "free market" to the hilt when reaping extraordinary profits, but they become as liberal as McGovern when the losses show up on the books.

The millions of people recently laid off from their jobs see highly-paid capitalists running like sprinters to the fed for a handout - working the system like the best of the welfare queens. And their primary concern seems to have been focused on the amount of the bonus they feel they deserve for last year's performance.

It's not the wealth of others that is loathed. It's the hypocrisy. It's the notion that the middle class has to "bear any burden" and the elites get to cavort in the Hamptons again this summer, thanks to the welfare bonus checks they got ($18.4 billion in bonuses paid out to TARP firms!)

So if the "elites" are worried about "economic populism," they may want to start working as hard at getting their companies in the black as they are at negotiating their salaries.

Because to be frank, if we saw the people on Wall Street working that hard to bring sustainable profit back into their companies, I doubt Brinkley would have had a column today.

Monday, February 9, 2009

Fuzzy Math strikes again

There is the most absurd piece of information reported in the NY Times today.

It's about the unexpected impact of establishing salary caps on executives at firms receiving TARP funds:

"According to the latest cost estimate of the economic stimulus bill by the Congressional Budget Office, Uncle Sam will lose $10.8 billion in tax revenue that otherwise would have been paid by high-rolling Wall Street executives."

I'd really like to know how the CBO determined that figure. The assertion that the Wall Street bigwigs were handing over 10 bil to the feds in income tax prior to the crash seems absurd.

And it's also a ridiculous figure to toss around because the money they would have been using to pay themselves the salaries need to pony up such astronomical taxes actually would have come from tax revenues.

So heads they win, tails we lose.

I'll take the caps on salaries paid to federally funded CEOs over the income tax received on those same federally funded salaries any day.

Sunday, February 8, 2009

Gordon Gecko's Back!

"Greed Is Good" is the headline of a story in yesterday's Wall Street Journal, reminding me, of course, of Oliver Stone's wildly successful movie about the biz, Wall Street.

"Greed is good," says Gordon Gecko at one point in the movie, but in true Hollywood style, the greedy guy gets sent to jail. In reality, the greedy gents on Wall Street pay themselves bonuses out of federal bailout funds.

Roy Smith, a former partner at Goldman Sachs, is the author of the WSJ article. In it, he argues that "bonuses are an important and necessary part of the fast-moving, high-pressure industry, and its employees flourish with strong performance incentives."

How I wish bonuses had provided adequate incentive for sustainable profit on Wall Street! And how I wish that these banks had flourished along with the employees!

Perhaps if bonuses had been tied to performance, we wouldn't be in such a mess today.

I love how when the Wall Street insiders speak about the fiscal debacle they've crafted for us, they try to explain why paying bonuses are important, not provide a mea culpa for their greedy ways. Here's Smith on the importance of bonuses:

The Wall Street compensation system has evolved from the 1970s, when most of the firms were private partnerships, owned by partners who paid out a designated share of the firm's profits to nonpartner employees while dividing up the rest for themselves. The nonpartners had to earn their keep every year, but the partners' percentage ownerships in the firms were also reset every year or two. On the whole, everyone's performance was continuously evaluated and rewarded or penalized. The system provided great incentives to create profits, but also, because the partners' own money was involved, to avoid great risk.

All that changed, apparently, in recent years, when commercial banks were somehow allowed into the private club of investment banks.

As improving technologies created great arrays of new instruments to be traded, the partnerships went public to gain access to larger funding sources, and to spread out the risks of the business.

Greed took over and despite the headline for the story, the outcome has not been pretty.

You had to pay everyone well because you never knew what next year would bring, and because there was always someone trying to poach your best trained people, whom you didn't want to lose even if they were not superstars. Consequently, bonuses in general became more automatic and less tied to superior performance.

And again, I keep bumping up against the rather large wall that Wall Street has erected to protect themselves against common sense. Here, a former investment banker argues for the good of greed, yet in his story, greed divorced compensation from performance in a manner that has brought us to the brink of financial ruin.

Smith notes that not one CEO on Wall Street got a bonus in 2008. I'm curious to see if that is indeed the truth; somehow I'll bet they've paid themselves handsomely to compensate themselves for the stress of leading their companies into bankruptcy.

At any rate, somehow, someway, the people in companies that have received billions of bailout dollars gave themselves billions of dollars in bonuses. The CEOs may not have seen a penny of the bonuses, but large amounts of bonuses have been handed over to somebody in those firms.

At this point, I'm sick of Wall Street insiders defending greed as an admirable business trait. It's not admirable. It is bankrupt, both morally and financially.

What I want to see out of Wall Street isn't a defense of their greedy way of doing business.

I want to see a recognition that they have played a significant role in the destruction of capitalism as we know it, that their desire to socialize their astronomical losses runs completely counter to their arguments against government intervention.

I want them to understand that they are as despicable as the welfare queens mocked by Reagan back in the 1980s.

I want them to finally come to the realization that greed is not an appropriate way to build a business.

As Adam Smith once said, matching buyers to sellers is what counts in capitalism, not creating profit on fumes and clouds in the service of greed.

Thursday, February 5, 2009

Kings and Queens of the Con....

The nation seems all a twitter about Obama's move to impose salary caps on the people who work at firms receiving substantial financial assistance from the federal government.

In fact, reading some articles, one would think that the pay limits will ruin the free market as we know it.

Dave Krasne, a partner at a private equity firm, says in today's NY Times that "it would be a bad thing if Congress sets the precedent of passing legislation that caps compensation, and consequently productivity."

Evan Newmark, in yesterday's Wall Street Journal, goes to great lengths to explain why this strategy won't work. In his mind, "it's bound to end in disaster...because the Treasury pay guidelines run counter to the fundamental human truth that people act in their self-interest."

Newmark continues to explain that "the split on Wall Street between the good banks and the bad banks, the shareholder-owned winners and the taxpayer owned losers, will accelerate further."

Thus, disaster looms.

In my opinion, it is clear that investment banks that require billions in bailout funds to survive have clearly differentiated themselves from banks that are not so needy.

It is also clear to me that the "self-interest" Newmark refers to in his story has been seen in all its glory since the bailout. AIG execs hanging out at expensive spas, the new offices at Merrill Lynch, courtesy of federal funding, new jets, etc. and so on.

The self-interested folks on Wall Street have let their interests in the glitz overshadow their interest in the work of keeping a company profitable.

Thus, the caps. Seems reasonable to keep spending in check at bankrupt firms, and, sadly, it looks like the government needs to step in with some rules because the "self-interest" so prevalent on the Street makes it impossible for these execs to rein in spending themselves.

And rather than limiting productivity, one would think that these highly trained businessmen would work their asses off to get off the public dole.

They were fans of Reagan, were they not? Didn't these men rise up in righteous indignation when Ronald Reagan pointed out the glaring malfeasance shown when "welfare queens" drove caddies around in the 'hood?

Didn't they all celebrate when Reagan talked about the need to limit government entitlement programs to the poor?

So why now should the recipients of a trillion dollar entitlement program start squawking about restrictions on how THEY spend their federal dollars?