Sunday, June 28, 2009

Shabbos Banker

Here's an interesting little story I noticed some time ago in the Economist. Apparently this gentleman, Adnan Yousif, has great ambitions for his particular brand of financial innovation. He is trying to rock the Arab financial world with what is currently only a niche industry. "People never thought big here, never thought globally," he says. Sounds good, right? Guess what this innovative service is...

Islamic Finance.

Now, you may be asking, as I did, what makes finance Islamic? According to the article:

Mr Yousif’s ambitions date to the founding of modern Islamic finance. During the 1970s oil boom the Gulf’s Muslim elite needed to put their new-found wealth somewhere, and American government bonds seemed the safest option. Yet Islam prohibits the charging of interest. So some sheikhs bought bonds but let their Western banks keep the interest, in the casual manner of a customer leaving change on a restaurant table. To Mr Yousif, then a young banker at American Express in his native Bahrain, this made no sense. At a time when Muslim countries had imposed an oil embargo over America’s support for Israel why, he wondered, refuse the Americans oil but give them billions of dollars?
So, nominally Islamic finance is about handling money without interest. Really, it's answering the question "How do we stick it to the Americans more efficiently?"

This concept of Islamic Finance--which seems to be simply replacing evil, unholy interest with "fees" and other equally silly price mechanism substitutions--reminds me of the Jewish concept of the Shabbos Goy.

For those of you unacquainted with the endearing habits of the Children of Israel, and please remember I am not making this up, "goy" is Yiddish slang for a gentile. Shabbos is the sabbath. In Jewish law, you are not allowed to do any work on the sabbath, including, but not limited to, turning on lights, starting a car, and even ripping paper (Yes, that includes wiping your ass, unless you have pre-ripped your sheets.

This poses a great problem for modern observant Jews. While, back in the good ol' second century b.c., one could easily avoid turning on lights or ripping toilet paper, such actions have become, to say the least, ubiquitous today. So what's a poor Jew to do? Why, hire a goy to do it for you, of course. Hence the term "Shabbos goy," a gentile who you hire to do all your sinful car starting for you on the sabbath. (Of course, you must pay the goy during the week, because handling money is also forbidden.

Returning to Islamic Finance, then, I find the practice funny--and sad--as it is simply a way for the faithful to pretend they're obeying God's ridiculous edicts, while still getting everything they want. They missed the whole point of being religious, which is the ample amount of suffering God wants you to endure.

In all, this is probably a good development, as the more integrated backwards religions get with civilized life, the more people decide, "you know what? This is stupid," and just junk the whole process. That's what happened to me when I attempted to keep kosher when I was young and naive. I thank God I grew out of that. If it weren't for him, I might never have turned atheist.

Wednesday, June 24, 2009

Fighting Back by Opting Out (Or Going Galt, If the Term Appeals to You)

It looks like is battling encroaching tax hikes the only way companies can these days, by withdrawing their business. The WSJ reports that Amazon threatened California legislators that they would end marketing affiliations with anyone in California if a proposed online sales tax is implemented. They made similar threats in North Carolina and Hawaii. They argue that the law is unconstitutional, and I think they're trying to preempt a court battle, which they aren't likely to win. Apparently, they and are fighting a similar sales tax in New York in court. Since the courts are basically useless these days, the only option is to cease business in any economically viable manner. Hopefully, the threat will make some in Sacramento stand up and take notice of the value that their tax victims provide to the state.

In other news, as anyone with a modicum of reasoning power should have been able to predict, financial firms are having trouble attracting top executive talent. While many hot-blooded capitalists would jump at the chance to revitalize troubled institutions, the prospect of being a government bureaucrat has a tendency to temper enthusiasm. I like this description:

At Citigroup, Jerry Grundhofer, the former chief executive of regional bank U.S. Bancorp who recently joined the New York company's board as part of a government-driven shake-up, is viewed as a strong potential successor to Vikram Pandit.

But Mr. Grundhofer, 64 years old, has expressed concern about the relatively low pay that likely would come with the job, along with the difficulty of leading a company that is so entangled with the U.S. government, according to people familiar with his thinking. The government soon will own as much as 34% of Citigroup.

Yeah, I don't blame you, Jerry. Who would want that job? No one worthwhile, as would be expected.

Saturday, June 20, 2009

Governance Issue at Apple

Recently, Apple has provided a very good example of why CEO succession planning is so important. According to the WSJ, Steve Jobs recently underwent a liver transplant. We all knew he was sick, and he's been away on leave for a little while. Apparently his #2, COO Tim Cook, has been running the day-to-day business in Jobs' absence, and now it appears he's being groomed to replace Jobs. This is a very good idea, and it's lucky that Jobs got a second chance to do this before exiting Apple completely.

In any corporation, but especially in one as large and innovative as Apple, well-done CEO succession is vital. Leadership is everything in a business where extraordinary vision is required simply to stay with the competition. Because there wasn't an heir apparent at Apple, when Jobs got sick, shareholders were rightly perturbed that his health was being kept a close secret. Frankly, the fact that they could keep a liver transplant secret for so long amazes me. Shareholders need to be sure that their company will transition into capable hands in the event of a CEO's sudden departure, as well as in the event of a planned departure. It's just as important as the Presidential line of succession, at least to the firm's shareholders.

Now, here's the really interesting part. As some very intelligent Kelley School of Business professors (I'm not biased) found in this paper, inside directorship (placing top executives on the board) is a very common and useful funnel for selecting a firm's next CEO. Accordingly, the WSJ article says that Cook is likely to be placed on Apple's board. So, it's pretty clear that he's the next in line. However, thanks to Sarbanes-Oxley, inside directorships have been limited, and now the average number of non-CEO executive board members in the Fortune 500 is less than 1. This makes it much more difficult to groom a capable successor. Thanks again, government.

Hopefully Apple will be able to navigate through Jobs' eventual exit. They seem to be taking the appropriate actions to ensure that now, albeit a little late.

Wednesday, June 17, 2009


Yesterday, His Majesty said in an interview that he aspires to a "light touch" when it comes to government intervention into the financial industry (article). Apparently, Larry Summers, one of The Chosen One's top economic advisors said in a speech the other day, "No, we're not socialists." It is in this type of scenario when one might say that actions speak louder than words. That is, except when your words get as much media attention as The Obama's.

Obama said, "The only real regulatory approach I've been interested in is raising fuel-efficiency standards so we can wean ourselves off dependency on foreign oil. Beyond that, the last thing I want is to be running a car company..." That, and little things like hand-picking members of the executive team and board of directors, but those aren't such a big deal.

Team Obama seems to have a pretty good system worked out. Instead of making a philosophical case to the nation for their policies, they simply carry out their policies and publicly deny that they're doing anything out of the ordinary. Observe:
1. Control a car company
2. "We don't want to control car companies"
3. Control a second car company
4. "We don't want to control car companies"
5. Give car companies more money
6. "We had to, otherwise they'd go bankrupt
7. Organize out-of-court bankruptcy
8. "We had to, otherwise the bankrupcty would be messy"

The concept of an "orderly" bankruptcy is a funny one, and yet administration apologists have been throwing it around a lot lately. "Orderly" is code for "make sure our friends don't get the short end of the bankruptcy stick, even though their claims are subordinate to those belonging to people who aren't our friends."

Just another example of the bullshit that is obfuscating our path to destruction. But otherwise, I guess it's been a good week.

Wednesday, June 10, 2009

Thank Goodness for Congressional Democrats

You heard me. In the ongoing war between politicians' evil and their stupidity--that is, between their desire to control and their complete inability to get even that right--Congress slipped some language into the bill limiting executive pay at TARP-receiving banks that essentially made it easier for banks to pay back the money sooner. The Treasury wanted to hold onto those claims for, well, let's just say awhile. Congress did this in order to justify slapping onerous restrictions on how banks do business. I think they honestly convinced themselves that all the banks needed the money.

So, happily, our benevolent overlords at Treasury announced yesterday that ten banks would be allowed (did you catch that, "allowed") to repay the TARP money that most of them didn't want in the first place. Hallelujah. Naturally, BB&T, The Money Speech's favorite bank bar-none, was one of the ten. Kelly King, their new CEO had a good quote:
This is an important achievement for BB&T....Repaying the government's investment will give us greater flexibility to benefit significantly from future opportunities that will be available as we emerge from this recession. In addition, we will become even more focused on the business of serving our clients, rather than dealing with government distractions.

That's over-regulated businessman speak for "Get the fuck off my lawn, government." A BB&T spokesman had another good line: "I haven't seen anybody swinging from the chandeliers yet, but obviously this was the result we wanted." These quotes are getting more than proportional press time, and I think it's due to the fact that the other spineless bank executives won't call the government out. Regardless, I must say I feel much safer as a BB&T shareholder, safer in the knowledge that the bank will, more or less (it is a regulated institution, after all) be run with my financial interests at heart.

Tuesday, June 9, 2009

Indiana Pension Fund Stands Up for Bondholders' Rights

In what might end up being a stunning blow to Obama's constant efforts to annihilate the concept of individual rights, the Supreme Court has put a stay on Chrysler's sale to Italian car maker Fiat. The suit was brought by Indiana pension funds, major Chrysler bondholders, who are claiming that the Administration's orchestrated bankruptcy plan for Chrysler elevates junior debtholders above secured, senior debtholders. This claim is quite true.

The Obamanons have been involved in a systematic reorganization of justice in this country, whereby the deserving subsidize the undeserving. If you saved money and didn't go into reckless debt, sorry. Obama's upping your credit card fees and your mortgage rates so that deadbeats aren't "unfairly" punished in debt markets. Did you run your business well over the past decade, building goodwill and a reputation for sound business practices? New regulations will make sure that your claim to any strategic advantage over your competitors is wiped out, and by the way, you need to take government money so your faltering competitors won't look bad to the capital markets.

Hopefully, the Supreme Court will rule that the Chrysler deal is invalid, and Chrysler is liquidated, rewarding senior debtholders first, as any minimal recognition of property rights demands. Encouraging is the penion funds' lawyer commenting that GM bondholders have contacted him about working on a similar suit for them. Hopefully, both groups will get the bankruptcy proceedings they merit as debtholders, and not the pandering backroom dealing we've come to expect from His Majesty.

Update 6/10: The Supreme Court gave the Chrylser sale the go-ahead. So much for bondholder justice.

Friday, June 5, 2009

A Couple Newsworthy Items

As part of the U.S.'s continuing endeavor to accumulate more czars than a Russian graveyard, His Royal Highness has appointed yet another overseer to make sure that we, the people, don't make too many decisions on our own. Yes, that's right, it's now time for the nation's first "Pay Czar" to take center stage. You heard me; a gentleman by the name of Kenneth Feinberg is going to be named to "interpret" the many conflicting TARP pay package restrictions that the foaming-at-the-mouth Congress passed in the last nine months. He's going to make sure that greedy capitalists who took (read: had foisted upon them) public money aren't taking too much home. What is too much, you ask? Shut up! Stop asking questions. Actually, I shouldn't call him a czar. The title being floated by the Administration is--I shit you not--"Special Master for Compensation." Honestly, sometimes I don't think they realize how often they parody themselves.

On a happier note, Amity Shlaes, the author of the magnificent Great Depression history, The Forgotten Man, has a good article on about Atlas Shrugged, its relevance, and its influence in today's culture. If you haven't read her book, stop what you're doing and go get it. Especially today, when the Obamanons appear dead-set on repeating the mistakes of the Roosevelt administration, it is crucial that people educate themselves on what really happened in the 1930s. In the Bloomberg article, Shlaes at one point compares Shwarzenegger to one of the politicians from Atlas. It's pretty dead-on.

Wednesday, June 3, 2009

Wise Words from Governor Daniels

A few days ago, I found myself trolling around the state of Indiana's website, and I discovered the transcript from the commencement speech Governor Mitch Daniels gave at Rose-Hulman Institute of Technology (In case you are unaware, this is one of the premier engineering schools.) I've often found that Daniels has a pretty good head on his shoulders, and when I met him he did express admiration for Ayn Rand and her works, occasional pragmatist though he is.

This commencement address surprised me, then, in its defense of talent, skill, production, and rationality, grossly uncharacteristic of a politician's speech. Here are a few of my favorite snippets:

"Amid grade inflation, dumbed-down SAT tests, and stagnant academic performance across most of American education, you chose the harder path. Your self-esteem was hard earned, not conferred as an exercise in social work. If any graduates in America today are ready for the tough world of a prolonged recession, you are."

"The Marines once had a recruiting slogan: "No one wants to fight, but somebody better know how." Today as never before, winning the world economic combat depends on someone knowing how to do the hard work of innovating, enhancing, designing and redesigning new goods and services, creating the kind of value some purchaser is willing to pay for."

"In case that's not already too heavy a load to lay on you, here's more. Even while you're designing, devising, and deploying the innovations that make tomorrow better, I hope you will make time to be active, vocal citizens. Our nation can no longer afford the luxury of its best scientific minds tending to their technical knitting and leaving major public decisions to the lawyers and career politicians.

The U.S. Congress contains eight times as many lawyers as scientists and engineers. In the Indiana General Assembly, only five of one hundred fifty members have a technical background. There is an endearing, but risky tendency for people of science and engineering to concentrate so passionately on the work of invention that they absent themselves from major debates on which their expertise is sorely needed.

I had a dream. A revolution erupted and the mob took all the most talented people to the guillotine. They put a banker in the stocks, but the blade didn't drop and, under the prevailing custom, they had to let him go free. Then they put a star athlete under the blade, but the same thing happened. Then they brought a Rose-Hulman graduate to the scaffold, and as he put his head beneath the knife he looked upward and said "Wait! I think I see your problem!"

We have passed the time when our best scientific minds can devote themselves solely to their chosen work, or to solving huge, avoidable problems after others have caused them. The issues that now face our country often require a technical understanding, or a grasp of statistics, or cost-benefit analysis, or an appreciation of the scientific method with which the general public is not equipped, and which our politicians neither understand nor particularly want to. People like those Rose-Hulman produces must increasingly challenge not just the design of the guillotine but the policies that would put it there in the first place."

Pretty nice, huh? Finally, he went on a screed about the pseudo-science behind global warming:

A relentless project has inundated Americans for years with the demand that we must drastically reduce the carbon dioxide we emit as a society. It is asserted that the earth is warming; that this warming would have negative rather than positive consequences; that the warming is man-made rather than natural; that radical changes in the American economy can make a material difference in this phenomenon; and that utility bills in Indiana must double because no better, less expensive alternative to this policy is discussable.

Well. All these contentions may be correct. It may be that they will all be borne out over the coming decades. But the average citizen has no way to be sure of that for now. Although there are scientists, and scientific studies, that are deeply skeptical of all these claims, they are rarely heard in what passes for public debate. The debate, so far, has been dominated by "experts" from the University of Hollywood and the P.C. Institute of Technology.

Joining this discussion will require more than technical competence; it will take courage, too. In what has become less a scientific than a theological argument, anyone raising a contrary viewpoint or even a challenging question is often subjected to vicious personal criticism. Any dissident voice is likely to be the target of a fatwa issued by one Alatollah or another of the climate change theocracy, branding the dissenter as a "denier" for refusing to bow down to the "scientific consensus."

Ayatollah Gore. I like it.