CEO Group – Corrupt, Egregious, and Odious Group

A Socialistic Solution to Protect “Capitalistic” Managers

Right after I had written a blog about corruption, I read the following in the Wall Street Journal, a.k.a. the Murdoch’s Opinion Piece.

“Displaced-Worker Aid Is Proposed CEO Group Backs $22 Billion Package,Funded by Taxes By DEBORAH SOLOMON
July 30, 2008; Page A12
A policy paper commissioned by the chief executives of the nation’s largest financial-services companies recommends a huge expansion in programs to assist workers displaced by international trade, with the $22 billion price tag financed through tax increases. The Financial Services Forum paper comes amid a growing backlash against global trade that has threatened to curtail U.S. trade agreements. The banking, investment and other CEOs who belong to the group have consistently cited protectionism as the leading threat to continued U.S. and global economic growth.”

The Doha round of WTO talks collapsed yesterday because U.S., on the one hand and China and India on the other could not agree on a range of issues.
The CEOs, who have personally benefited greatly from trading and specifically from outsourcing, want to continue it and make it look like a win-win for everyone. However, to pull the wool over people‘s eyes, they want to the Government to provide aid to ‘displaced workers’- an insulting phrase for people who have been fired. These are the same CEOs who got the dividend tax eliminated, got a cap on capital gains at 15%, and have also benefited from lower income tax rates- personal and corporate.
And now, they want to shift the burden for the problem they have created, to the public taxpayer, when the government is running a $500 Billion deficit next year. They are proposing funding this aid from taxes, while gleefully exploiting tax loopholes?
Business may not have any responsibility for creating employment, in which case it should come out and flatly say so. But using and discarding people like inanimate objects, and then couching it in slick language makes one sick.
A sad commentary on the business leaders.

Corrupt Environment and Corrupt Justice

Prof Nicholas Dorn writes a thoughtful letter titled “Just where does the locus of corruption lie?” in the Financial Times in which he talks about the Ponzi scheme developed by the U.S. based financial institutions.

While the common perception is that other countries are far more corrupt than the U.S., students in my courses consistently rank the U.S. as being high in corruption. In fact they are surprised that the U.S. ranks as high as it does in the Corruption Perceptions Index.

The definition of corruption needs to be broad based, as its effects are widespread and pernicious. Any action which deviated from fairness and impartiality it was ‘influenced by money or power or other variables’ and caused damage (or created the potential for damage) can be regarded as corrupt. Some recent examples:

• The U.S. Environmental Protection Agency is ordering its staff to “not respond to questions or make any statements” if contacted by congressional investigators, reporters or its own Office of Inspector General, according to documents released today by Public Employees for Environmental Responsibility, PEER. The EPA is gagging its employees- and this is supposed be be public service.
• Apparently “senior aides to former Attorney General Alberto R. Gonzales broke Civil Service laws by using politics to guide their hiring decisions, picking less-qualified applicants for important nonpolitical positions, slowing the hiring process at critical times and damaging the department’s credibility.” – NYT.
• Former CEOs of Citi, Merrill Lynch and other institutions who created the current mess but made away with many millions of dollars.
• President Bush commuting the sentence of Scooter Libby.
• Iraq War.
• Senator Ted Stevens of Alaska
• And plenty of other examples.

End of the Road?

* Update*
The WSJ reports that “Bush Calls for New Highway Tolls, More Private Funding of Roads.”
Last we checked, states were trying to essentially sell the highways (99 year leases, and other deals) and get money up front. Illinois, Indiana, and Pennsylvania have done it.

According to the WSJ “An unprecedented cutback in driving is slashing the funds available to rebuild the nation’s aging highway system and expand mass-transit options, underscoring the economic impact of high gasoline prices.” The article adds that “In many areas, the ragged edges are already showing. About 25% of bridges in the U.S. are either “functionally obsolete” or “structurally deficient,” like the Mississippi River bridge that collapsed in Minneapolis last August, killing 13 people.”

Driving around in Chicago and the suburbs can be a dangerous experience because of the condition of the roads. It was particularly bad this past winter, with enormous pot holes.

The United States is the only industrialized country with a poor (or non-existent) public transportation system. Perhaps the current oil prices will spur the public and the politicians to invest in public transportation that will, at the end of the day, boost Productivity, while saving resources.

Budget Deficits Justified by Intellectual Deficits

Today’s news brought a couple of contrasting headlines.

First, AP reported that “US deficit soaring to record half-trillion dollars as Bush leaves; sagging economy blamed.” Apparently, “government’s budget deficit will hit $482 billion in the 2009 budget year that will be inherited by Democrat Barack Obama or Republican John McCain, the White House estimated Monday. That figure is sure to rise after adding the tens of billions of dollars in additional Iraq war funding it doesn’t include, and the total could be higher yet if the economy fails to recover as the administration predicts.” Then the article repeats the White House view that this budget deficit would be around 3% of the GDP.
In FY 2007, the total interest expense paid by the U.S. Government was nearly $430 BILLION,on an average debt of 8,778 BILLION – an approximate interest rate of 4.9%.

A 2009 deficit of $550 billion (a conservative $68B for the war funding) will increase outstanding debt by more than 6%, and will increase the interest expense by $27 Billion per year at the 4.9% interest rate.

The total Receipts or Revenues for FY 2007 were $2,568 Billion dollars. The Receipts for FY 2008 are projected to be lower, at $2,521 Billion dollars. The OMB projects receipts to rise in FY 2009 to nearly $2,700 Billion. Even if we give this optimistic (foolish) forecast credibility, the total Interest Expense of approximately $450 Billion in FY2009 will account for 16.7% of receipts.

Would any fiscally responsible bank lend money to a person who is already paying more than 16% of his or her income in interest on existing debt? Whose debt level is more than 3 times his or her annual income? And the debt is ‘unsecured?’ Banks lending money without looking at these metrics is the primary reason behind the current financial crisis.

Sen. McCain, in his supposed ‘straight talk,’ says that he will balance the budget upon taking office by

• cutting pork – something he never truly cut in his twenty five years plus in Congress because he actually loves ‘pork’
• cuting taxes for wealthy individuals and businesses- the’ supply side economics’ actions that GWB and Ronald Reagan have embraced and saddled us with the current big deficit problem
• Committing to keeping troops in Iraq for ‘as long as it takes, even hundred years’- though how this reduces the deficit is yet to be explained

Mr. Obama wants to achieve deficit reduction by

• Selectively repealing Bush tax cuts
• Increasing tax cuts for the lower income people
• Reducing troop levels in Iraq but increasing them in Afghanistan
• Increasing public spending.

Again, what is implicit is that Mr. Obama waves a magic wand and the deficits disappear.

Debt as a % of GDP is misleading and simply fools people. What is fundamentally important is the revenue picture and the interest payments as a % of revenue. No one looks at a company’s financial statements and looks at interest payments as a % of GDP.

Story # 2:
WSJ reported today that “India’s Swelling Deficit Has Potential to Set Off Cascading Economic Trouble. “The writers criticize the Indian Government for running up a deficit “that could hurt much-needed investment in India’s ramshackle infrastructure, boost inflation and undermine growth.” It deplores a proposed once-a-decade salary increase that Standard & Poor’s estimates could mean pay increases of as much as 40% for 2.9 million central government employees.
The money is going to government servants who have been historically underpaid and have had to deal with the skyrocketing inflation.

Both these articles show the partisan nature of the business news media, with little care of intellectual honesty. The politicians have a vested incentive to prevent the public from ‘getting educated’ and ‘thinking about the problems.’ The major mass media support the politicians because they have a vested interest in exploiting the gullible public.

The Onus of Promoting an "Ownership Society," and Business Week Predictions

As I was going through my old collection of business magazines, I came across the following articles from Business Week:

A Prescription For Health-Care Reform (9/20/2004). Glenn Hubbard wrote that “An “Ownership Society” agenda has taken center stage in President George W. Bush’s agenda for a second term, with proposals for Personal Accounts in Social Security, expanded incentives to save for retirement, and Personal Reemployment Accounts to aid workers in finding a new job. But a central plank of this agenda, and one that can be enhanced to improve markets for health care, is already law: the Health Savings Accounts (HSAs) passed in the recent Medicare reform.” Nearly four years later, none of the three proposals put forth by Dr. Hubbard have seen the light of the day; in fact they have been dead for a while. It is rather scary to think of the consequences if people had put their “Personal Accounts” funds into the equity market as it was reaching a top, only to see the sharp downturn due to the credit crisis.

The September 20, 2004 Business Week issue had an article on tax code titled “What A “Fairer” Tax Code Might Look Like: A reelected Bush may rework the existing system — or try for a consumption tax. “ It says that “President George W. Bush has the tax code back in his sights — but this time he’s not just talking about tax cuts. In his Sept. 2 speech to the Republican National Convention and on the stump since, he has called for making the tax system “fairer, simpler, and more pro-growth” than the current ‘complicated mess.’ “
Another rosy forecast for a second Bush term. This forecast proved to be very taxing.

America’s Stark Fiscal Choice. Another article in the same issue says that “While President Bush’s soaring campaign rhetoric promises Americans that they can have it all — new and expanded tax credits for private health, savings, and retirement accounts plus big permanent tax cuts — the reality is beginning to bite. The cost of these ambitious plans, on top of committed expenditures for the new Medicare drug benefit, the war in Iraq, homeland security, agriculture, energy, highways, education, and more, will add trillions of dollars to a federal budget deficit already spinning out of control. Responsible Republicans are beginning to say that Bush must make a choice between his radical plan to change Social Security, health care, and savings programs and making his first-term tax cuts permanent. The wise choice would be to go with entitlement reform. America is facing a severe crisis as its health-care system cracks and the baby boomers approach retirement. “

The “business” publications like BW and WSJ painted such a rosy forecast of the Bush second term- however the results speak for themselves. Perhaps the greatest disaster Bush’s eight years have wreaked is the creation and destruction of hopes and dreams in millions of people, both in the U.S. and abroad- especially that of home ownership. Prudent progress towards it was derailed by the financial innovators, the Fed, and the Government.

McCoke doing the public a favor

Prices for food related commodities including grains, vegetables, and meat have been going straight up like an F-22 doing a demo at an air show. Consequently, food and beverage peddlers have been a) either raising prices to offset their cost increases, and/or b) shrinking the package sizes but keeping the price unchanged, i.e. lowering their cost per package and recovering the margin. While the paying public might feel that its goose has been cooked, perhaps McDonald’s and Coca Cola are doing their customers a favor by reducing the portions. Perhaps they should charge customers for reducing their potential health care costs, assuming they would have consumed the previous portions if available at the same price.

Coke to shrink size of cans in Hong Kong. “Hong Kong’s Coca-Cola drinkers are the commodity boom’s latest victims. Cans there are being cut in size from 355ml to 330ml. The reason? The price of aluminium has jumped 25 per cent this year owing to rising energy prices. The Chinese mainland’s struggling power grid exacerbates the problem. Some smelters agreed to cut output temporarily to reduce the risk of blackouts during the Olympics.”

Getting a Charge out of Deregulation

The textbook I use for a course on Global Business, (Global Business Today by Charles Hill) extolls the virtues of Deregulation and asserts that deregulation along with privatization and protection of intellectual property rights, are necessary for a market economy. Part of the argument is that deregulation and privatization increases competition.

There are counter examples over the past thirty years to show that the behavior of companies is predatory, and that companies will try to squelch competition and tend towards monopolistic behavior unless ‘regulated.’ A good example is the M&A that followed the break-up of Ma Bell in 1984, when the seven Baby Bells and AT&T were created and MCI was there too. Now have reverted to Verizon and AT&T and a little of Qwest.

Some interesting stories on deregulation.

Deregulation Jolts Texas Electric Bills

Amid Turmoil, U.S. Turns Away From Decades of Deregulation

Funny thing is that the Republicans including Mr. Paulson are pushing for Regulation in the Housing and Mortgage Industries. The events to watch for surround water. According to smart analysts, and in line with the mythical ‘common sense’ water should be treated as a scarce commodity and should be priced much higher to dry out the demand. How will people deal with life when opening the faucet produces air, if anything, but not water? Of if a person cannot afford to pay?
Looks like for now, the Re in RePublicans stands for ReGulation.

Food for ‘Weighty’ Thoughts

Two interesting gardening stories…

The Vegetable Patch Goes Luxe: Homeowners Hire Experts to Install Lavish Gardens; Why the Help Gets the Bounty

A Locally Grown Diet With Fuss but No Muss: For a fee, Mr. Paque, who lives in San Francisco, will build an organic garden in your backyard, weed it weekly and even harvest the bounty, gently placing a box of vegetables on the back porch when he leaves.

Now, did you know that

Fat friends can boost your size….?

The Times, They Are A-Changin’ …..Bob Dylan

Living up to One’s Name

Rep. Duncan Hunter’s (R-CA) staff recently contacted the U.S. embassy in Chad to see whether he could visit the country and distribute food at a refugee camp. He said he wanted to hunt wildebeest and then distribute the meat to the refugees…Read more of the story.
Way to go, Rep. Hunter. You live up to your name.

After flooding the world with cheap $ and creating a series of destructive bubbles, Former Fed Governor Alan “GreenSpan” denies responsibility for the current financial crises. With a name like ‘green’span, he should be doubly careful.

Personal Need for PRM

The 1980s and 90s saw the widespread deployment of ERP systems in the Enterprise. The recent ten plus years have seen increasing deployment of “relationship management” applications including Customer Relationship Management (CRM) and Supplier Relationship Management (SRM).
Study: CRM, SRM Key to Operational Excellence.

This decade has also seen “life cycle management” applications including Product Life cycle Management (PLM), Asset Life cycle Management (ALM), Technology Life cycle Management, and Software Life cycle Management.

What this author sorely needs is Personal Relationships Management, or PRM. Since success depends on managing relationships throughout their life cycles, and everything is ‘personal’ managing personal relationships is critical to the success of the individual and of the enterprise.

I will elaborate on this fascinating topic in a future blog, along with a model for Friendship Life cycle Management.

In the meantime, the curious reader will be well rewarded by reading a thoughtful and entertaining article, “The ex factor,” by Ms. Susie Boyt in the Financial Times. It examines reunions between ex-partners and reunions between ex-friends.

My data points suggest that the ‘dramatic’ fall-outs between friends happen when one person hurts another person’s core, and what makes it dramatic is that one does not expect it to come from good friends and is blind-sided. In my case, when any one of my friends puts me in a situation where I have to blink at my personal ethics and support his or her actions, that usually results in an ugly fall-out.

Over time, I have realized that even my ex friends had attributes I liked enough to have them as my friends once upon a time. So I am much more forgiving now, and when I run into one of them I get over the initial awkwardness and try to create a new friendship.

A more interesting situation involves people who start out by being friends, but after romance enters and leaves the picture, the friendships become very awkward.