What Steve Jobs Did Well

I guess I should join the chorus of commentators eulogizing Steve Jobs' tenure as CEO of Apple.  Regardless of what you think of Jobs or of Apple products, you cannot deny that Jobs created substantial wealth for Apple shareholders, as well as for a slew of customers and suppliers.  Many of the latter would not even exist were it not for Apple.  There is an excellent op-ed in the WSJ today extolling Jobs' virtues as a man who created his own markets.  This, I think, is one of his greatest strengths.  He was not an inventor of much, but he was an innovator in that he could take new technology and find a way to make it palatable, even cool, to the everyday consumer.  This allowed him to reap economic profits from industries that had become commoditized for all his competitors.  He realized that he wasn't selling computers, he was selling a lifestyle.  This realization allowed him to expand from computers into MP3 players, phones, tablets, etc., because he was just bringing the value proposition he offered to a wider range of vehicles.  He has been compared to Thomas Edison in recent days, and I think that is fairly apt.  At least, it is in the sense that Jobs' genius was not in inventing technology, but in finding ways to market technology (and I don't just mean advertising) so that it would really add value to people's lives.

I had previously written that I thought Jobs had done a terrible job of preparing his organization for his eventual exit.  I believe this was true when he took medical leave in 2009, but I no longer think so.  Since then, he has groomed the new CEO, former COO Tim Cook, for the job.  Cook has effectively been running Apple since Jobs took on a diminished role in January.  This has eased the transition, and allowed the incoming CEO to hit the ground running.  The market knows Cook, the employees know Cook, and I think that Jobs will be effective in his new role as Chairman, providing some of his ingenious marketing insights, but otherwise staying out of managing the company.  As evidence of Jobs' effective succession planning, note that even though Apple's stock price dropped 5% in after-hours trading when the succession was announced, by the time trading opened the next morning, that drop had been cut in half.  That's as it should be.  A good leader prepares for his eventual exit so that the organization barely notices when he bows out.  Clearly everyone noticed, but I think that the questions about Apple's future will soon abate.  This is all the more remarkable given the suddenness of Jobs' announcement.

So, here's to Steve Jobs, a man who in the last decade and a half created, out of nothing, roughly $350 billion in shareholder wealth.  Not a bad track record for a career.

Two Great Perspectives on a Pretty Lousy Idea

In today's post, we get two for the price of one.  I am talking about a news story that brings us the wise musings of two capitalist ubermenschen.  The other day, Starbucks founder and CEO Howard Schultz (not one of our story's heroes) proposed that CEOs pledge to withhold their political contributions until Congress and His Majesty hurry back to Washington and start brewing up some deficit reduction.  While I'm all for lightening politicians' wallets, I have little faith that something like this would accomplish anything more than making Schultz feel less guilty for all the money he made charging too much for coffee.

Here is Paragon of Virtue #1 John Alison's take on the plan:

"If businesses and executives stop donating, does that mean pensions and unions will stop too?"

He makes a good point.  Businesses don't really donate because they think politicians are doing a good job.  They donate as damage control, and usually to counteract the efforts of...well...pensions and unions.  The article from Reuters also mentioned Warren Buffett's monumentally stupid plan to tax the rich more (real original, Warren).

Here is what the article said about Paragon of Virtue #2 T. J. Rodgers, Founder and CEO of Cypress Semiconductor:

Rodgers, who said that more than half of his income goes to the state of California and to federal taxes, is no fan of the Buffett plan.

The CEO, who invests his money in start-ups and other ventures, said the government would "invest" the extra tax money "in pork barrel projects of dubious merit, controlled by political rather than market forces" without added benefit.

"The fact is, the country will be less well off if they're investing my money instead of me," said Rodgers, who added that he has "been on the Schultz plan forever" because he doesn't give money to political candidates.

Well put.  It's nice to see prominent Objectivist businessmen getting called for their opinions on matters like this.  I think it's a good sign.

Why I Will Never Buy Google Stock (Again)

I think Google is a pretty good company.  At least for the time being, they seem to be able to capitalize on their current strengths (search) as well as have an eye on future growth opportunities (Android).  I think that they are currently fairly valued at about $600 per share.  Last summer, when they dropped below $500 per share over fears about an aging business model, I thought they were undervalued and I bought.  The stock went back up to $600 and I sold.  This spring, the stock dropped below $500 again (same old fears, no new evidence) and I thought: "I should buy."  But I didn't for one simple reason, and I subsequently missed out on the rise back to $600 that the stock experienced when it released its earnings.  And I am not the least bit upset about not grabbing that opportunity.

The reason is that while I think Google's business model is sound, I don't trust the Justice Department to leave it alone.  Google is the new Microsoft, meaning that one day or another, the government will see it as an unstoppable behemoth (tell that to Mark Zuckerberg) worth of an antitrust suit.  The more successful Google's business becomes, the more likely this outcome.  The writing is already on the wall.  This is what antitrust does to strategy and investing.  If the government decides that Google controls too much of search, their goes their revenue stream and shareholders take a haircut.  Frankly, I just don't think it's worth the risk.

It is important to note, I think, that since antitrust came on the scene, most prosecutions are not instigated by the government, they are instigated by competitors complaining that the companies out-competing them in the marketplace are being "anti-competitive" by competing too well.  This is what laws like antitrust do to competition.  Firms succeed based on their ability to lobby the Justice Department and the FTC, not on their ability to provide superior value.  Ironically, most of the antitrust threats against Google are coming from Microsoft.  Now tell me, faced with an environment like this, why would a person of integrity ever want to go into business?  They'd get eaten alive.

Why I Think News Corp Will Survive This Crisis

For those who are unaware, News Corp, owner of half the world's media including Fox, Dow Jones, and a whole lot more, was recently embroiled in a scandal.  It seems that employees of News of the World, a British tabloid owned by News Corp (at least it was until the paper closed last week), were hacking people's phones.  And these weren't just any people's phones, they were, like, really pathetic people's phones.  We're talking families of dead and missing children.  Pretty sick.

Anyway, this has ballooned into a gigantic ethics scandal involving News Corp. CEO Rupert Murdoch, his son, bigwigs at Scotland Yard, and even UK Prime Minister David Cameron.  Many have been talking about the 80-year-old Murdoch stepping down as a result of this embarrassment.  News Corp. has already abandoned its bid to acquire the remainder of British media outlet BSkyB, and there are a lot of questions surrounding News Corp.'s future.  Here is what I think about two of those questions:

Question: What will happen to Rupert Murdoch?

Answer: Probably not much.  Murdoch's family owns 40 percent of that company.  Odds are that he isn't going anywhere.  Yeah, the press will beat him up, but the press has been beating him up for years because of his political views, so that's nothing new.  A more interesting question is, "Should Murdoch step down?"  To this I also say "no".  At least, I don't think he should do it right now.  Murdoch has built this company from the ground up, and it pretty much runs on his vision.  Of course, he will die one day (some liberals' theories about him being a real-life Voldemort, notwithstanding), and because of this, it is crucial that he establish a succession plan.  That would be the prudent action to take now.  Develop a succession plan, and then gracefully bow out in about a year or so once all this mishegas has blown over.  He could probably assume an executive chairman role, but pass on management of the firm to his son or to this apparently very capable second-in-command.

Question: How will this crisis affect News Corp.

Answer: It won't!  Here's what makes crises potentially disastrous for companies.  In any crisis, usually some stakeholder is hurt or perceives themselves as potentially in danger.  In this case, it was some people who got hacked.  In BP's case, it was a bunch of fish in the Gulf.  In Toyota's case, it was all of their customers.  What makes a crisis potentially disastrous is that the stakeholder who got screwed is the one buttering your bread.  Yes, BP's stock tanked when they turned the Gulf into salad dressing, but their customers stopped buying BP gas for about a nanosecond.  Their revenues stayed where they had been, and no one even remembers the damn oil spill.  Conversely, Toyota (even though very little actually happened) appeared to put all their customers at risk.  WOOPS!  There go the sales.

Now look at News Corp.  They hurt some people who were newsworthy.  Here's the funny part: while some people may feign outrage, they're still tuning in to Fox News to learn about the scandal.  Murdoch is actually making money off his own screw-up!  Isn't capitalism awesome?  Ultimately, we like hearing about this stuff, even though we may think it's wrong, and so the only way a media outlet could actually hurt themselves is to be boring (you listening, MSNBC?).

Government Efficiency

My good friend A.J., who is currently proudly serving our country, sent me this delightful little anecdote:

I had to get a new hat because the Army changed from berets to soft caps. Then without warning, they moved up the date of the change, so instead of having a week to get one, I had...an afternoon. The military clothing and sales store on post that sold them was sold out of all usable sizes, and wouldn't have any more in for another week. After that week, I'd have to get rank sewn on, which currently had a 3-day wait. So I was basically stuck without the new hat I needed for about 2 weeks. Except that on the day I needed the hat, I walked into a small Korean alterations store, found an abundance of said hats, and got the rank sewn on in about 5 minutes. Whole thing was probably 50% cheaper than the process on post, as well.

What is the moral of this story?  Yes, the government is a grossly inefficient bureaucracy and the military is no exception. But I think there is a more pressing issue here: 60 years later, Korea is still kicking our ass.

Two Perspectives on Job Creation

Hi Everybody.  My comprehensive exams are over (I passed), and now I can devote some time to blogging without feeling guilty.  Today, I want to talk about "job creation" since that term has been batted around so much lately.  I won't pull out any of Fearless Leader's quotes on the matter.  I think everyone can predict my opinion of those.  Instead, I want to contrast the statements of two high-profile business leaders.

The first comes from an article that appeared today on Investors.com, written by capitalist He-Man John Allison.  For information on Allison, see some of my earlier posts.  His article has several observations you would expect from an Objectivist.  I won't get into all of them, but here's a choice sample:

Jobs are created so businesses can develop new products and services — and improve existing ones — and expand into new markets — and increase the quantities produced, and the efficiency of that production.

Sounds good, right?  Jobs are not created as an end in themselves, but rather as the means to make more money.  Contrast Allison's take on jobs with a recent article describing General Electric CEO (and Obama crony) Jeff Immelt's speech before the U.S. Chamber of Commerce:

At a conference where many of the comments were focused on government barriers to hiring, GE (GE, Fortune 500) Chairman and CEO Jeffrey Immelt acknowledged there needed to be some policy changes by Congress and the Obama administration. But he said that the responsibility for hiring lay with businesses.

"The people who are part of the business sector, the people in this room, have got to stop complaining about government and get some action underway," he told the group. "There's no excuse today for lack of leadership. The truth is we all need to be part of the solution."

Platitudes notwithstanding, what exactly does Immelt propose as action?  What is the solution?  Hire more.  Don't worry about those pesky profits.  Just hire more people, and stop complaining about how the government is making it impossible to hire more people.  Just do it!

Okay, Orren.  I mean, I understand that Immelt is basically working for Obama at this point, but does he have to be so transparent about it?  Where's the finesse?  Luckily, the rest of the Chamber didn't quite see things Immelt's way.

The Chamber also released a poll of small businesses that showed only 19% of businesses plan to add jobs in the next year, little changed from the 18% that increased their payrolls in the last year. Nearly 40% of those surveyed cited either worries about what the government will do next, the requirements of the new healthcare bill or too much regulation as the number one obstacle to hiring.

The comments also made me fell a little better:

JeddMcHead, 07/13/2011 11:40 AM

OMG, this tool needs to be put in the shed. Permanently.

Couldn't have said it better, myself.

Points for Honesty

As I'm sure many of you have already heard, AT&T is trying to buy T-Mobile from Deutsche Telekom.  Naturally, the antitrust goons have raised hell, along with Sprint who isn't real happy about the deal.  I'm sure that I have discussed on this blog how Antitrust laws are the Jim Crowe of business regulations.  They are the most unjust, indefensible business laws on the books.  Being indefensible, they have garnered a creative assortment of proposed justifications of the economic, moral, and social varieties.  The best one yet, the most honest and the most frightening, I heard a couple days ago while watching CNBC.

Steve Forbes was guest hosting, and they were interviewing one of Clinton's Fascist Communication Commission Chairmen by the name of Reed Hundt.  They were talking about this acquisition, and Forbes asked Hundt something like "Don't you think that antitrust is fairly obsolete in this case?  These aren't large manufacturing firms than can stifle competition.  Competition in this industry is incredibly fierce between the two major players."  Ignore the problems with that question for the time being.  Here was Hundt's answer, paraphrased:

"Well, I've been an antitrust lawyer all my life, so if antitrust is obsolete than I'm in a lot of trouble."

I think that boils antitrust legislation--and most regulation--down to its essence.  Antitrust is right because it's my job.  Love it!

Who is Ron Swanson?

In case you didn't catch my Ron Swanson reference in the last post, he is the Director of Parks and Recreation for the City of Pawnee, Indiana.  He is the most amazing character on TV right now...after Michael Westen and Jack Donaghy.  Here is a picture of him and his amazing mustache.

That's not the best part, though.  This is what his bio says on the Pawnee, IN website:

Ron enjoys woodworking, breakfast meats, and the works of Ayn Rand.

'Nuff said.

An MBA With Some Meat to It

This is pretty cool.  Tired of being abused in the court of public opinion by terrorist-sympathizers like PETA, the National Cattleman's Beef Association has started training ranchers, butchers, and other meat purveyors in a program it calls the M.B.A: Masters of Beef Advocacy.  No, I am not making this up, and yes, it is as awesome as it sounds.  Here is the article about it.  Here's a choice excerpt:

At the Denver training, South Dakota rancher Troy Hadrick—one of the first MBA graduates—told students about one of his recent triumphs.

It came about after Mr. Hadrick learned Yellow Tail wine had donated $100,000 and pledged $200,000 more to the Humane Society of the U.S., an animal-rights group that has embarrassed the cattle industry with undercover videos of slaughterhouse abuses.

Mr. Hadrick, outraged, set a video camera on a fence post and filmed himself dumping a bottle of Yellow Tail onto his snowy pasture while blasting the donations as an affront to ranching families.

Mr. Hadrick's video went viral on YouTube—at least among fellow cattlemen, who bombarded Yellow Tail with protest emails. Chagrined, the winery withdrew its $200,000 pledge to the animal-rights group.

 I'm sorry, but how awesome is that?  I think this is my favorite part, though:

MBA graduate Suzanne Strassburger, who sells steaks to high-end New York City restaurants, hasn't tried YouTube advocacy yet, but she says the course has helped her pump up her sales pitches. "It gives me more confidence" to talk about how the meat was produced, she said. And talk she does: Beef "is my love and my passion," Ms. Strassburger said. "This is what I get up for."

 Amen, Sister.  Amen!  You gotta love people who love what they do.  And few things combine quite as tastily as steak and capitalism.  Just ask Ron Swanson.  And if you don't know who Ron Swanson is, you do not watch enough good TV.

The Tao of Steve

I have mixed feelings about Steve Jobs.  In my quasi-academic opinion, the guy is a genius at marketing and a moron at management.  His ability to provide value to customers--and to extract said value for his company--is unquestionable.  However, he appears not to have cultivated a company that can run very well without him.  As evidence consider the fact that he is away on sick leave, but still calling all the major shots.

This becomes an even bigger issue as he gets older and sicker, and as Apple eventually begins to deal with the problem of who will replace the one true CEO?  At the company's annual shareholders' meeting, a group of shareholders proposed a measure that, according to the WSJ,

requested the board adopt and disclose a detailed succession planning policy that included the development of criteria for the CEO position, identification of internal candidates and the submission of an annual report to shareholders.

 Now, normally I don't have a high opinion of shareholder proposals because, frankly, shareholders are mostly idiots.  Just because you bought three shares of Apple doesn't mean you know anything about running a company.  My policy on stock holding is that you own the rights to proceeds from the firm's business, not the right to exert any kind of control over the business.  With limited liability comes limited rights.  Sorry, I'm on my soap box again.

Anyway, the proposal doesn't sound so bad to me, given Apple's circumstances.  But of course, the shareholders themselves voted it down.  What I can't understand is why the board would resist this.  My only thought is that they have bought into the Tao of Steve (it's a movie) and, like most Apple users I imagine, secretly wish that Steve Jobs would stick around until the next millenium.  The fact is, before too much longer he will have to step down, and it would be nice for Apple's stock price if the board had any clue how they would respond to that.

Again, I don't really like shareholder proposals, but it wouldn't be a bad idea for the board to communicate that they are thinking about these things.

More About Unions

Unions just seem to be topic of the week.  Right here in good, old Indiana, the Democratic legislators have taken a cue from the whack jobs in Wisconsin and gone on vacation.  This issue here is a little trickier than in Wisconsin, which is just a bunch of whining.  The fight is over a "right-to-work" legislation that Republicans want to push through.  Democrats don't like it because it hurts unions.  Ok, so far no surprises.  The question for me is what this proposed law actually says.  I'll show you what I mean.  Here's how the Wall Street Journal wrote it:

At issue in Indiana is a so-called right-to-work bill that would give members of private-sector unions the right to opt out of unions and not pay dues.

The right to opt out of unions?  I like rights.  That sounds good.  Did they not have that right before?  Who denied them that right?  On the surface this looks like a good thing.  Then I read this from both the Indianapolis Star and that bastion of quality journalism, USA Today:

[The legislation] bars a union and company from negotiating a contract that requires non-union members to pay fees for representation.

Barring?  I don't like barring.  That sounds bad.  It seems to me that the Republicans are engaging in a major PR cover-up here, masquerading their strictly anti-union bill as an expansion of liberty.  Of course, the Democrats aren't any better, because they're just throwing a little hissy fit because the bill hurts unions.

I'm not the biggest fan of unions, but there's nothing inherently wrong with them, as long as they play by the same rules as everybody else.  If a business wants to (or has to out of necessity) contract with a union agreeing it won't hire non-union folks, so be it.  I think it's a stupid idea, but sometimes that's what you need to do in business.  Barring certain kinds of contracts is not the way to make the state more competitive economically.

Taxes Suck

I just filed my 2010 taxes.  The government sucks.  That's all.

We're Back!

Ok, now that I've been enmeshed in school for a year and a half, I feel like I finally have enough of a handle on things to devote 10 minutes every couple days to discussing current events with the interwebs. As such, I'm bringing back The Money Speech. For those of you who have missed my flurry of questionably insightful comments, this is for you. For the rest, well, you probably didn't read my blog anyway, so we're all set. So, sit back and enjoy as I occasionally pepper your brain with disconnected thoughts on what's going on in the world today. Because, frankly, the world's too f*cked up these days not to comment on it. (This is a family blog)

To get us going, I will simply offer a rambling tirade about these protests in Wisconsin:

You know what Wisconsin public servants? Grow up. Right now. Seriously, I'm tired of this sh*t. You pay way less toward your health insurance than practically anyone in the private sector. You get a defined-payment pension which no one gets anymore because it's a fiscal disaster of an idea. "You mean we actually have to contribute something to our own retirement account? How unfair." Yes, time for you people to start acting like grownups and actually pay for some of your time past age 55!

Here's the bottom line, and this message is for all my friends who fall asleep at night dreaming blissfully about getting sick in Canada. If you want the government to provide something, get ready for the government to actually make decisions for you. You want them to provide schools? Get ready for education to become a matter of public opinion. You think teachers' benefits getting cut is bad? Take a trip down to Texas where voters have decided that the entirety of science can be learned from the first ten pages of Genesis. Another vocal group down there wants to teach children that America was founded by a poor black child from Mexico City.

Wait, why stop there? Now that the government is going to be more entwined with healthcare than ever before, we have Republicans redefining rape so that they will have to pay for fewer abortions. Isn't democracy awesome? But it's so great that we've put the government (a.k.a. idiot voters) in charge of all this.

Boy that felt good. I'm glad to be back.

Score One for the Good Guys

Prime capitalist institution, BB&T, has asserted itself as a healthy, thriving bank amidst a sea of faltering behemoths. Now, as the economy starts to show signs of life, the bank is breaking out of the gate and gobbling up its weaker competitors who made destructive lending decisions back in the day.

On Friday, BB&T acquired most of Colonial Bank Corp.'s deposits and assets through the FDIC's seizure of the bank. (Don't get me started on that whole process.) This will make BB&T the 8th largest bank in the US by deposits. That's good for us shareholders. (Incidentally, size of a company is most certainly not always a determinant of success, but with a company like BB&T, added market share means more opportunities to apply its winning strategy.)

Important to all friends of Objectivism, however, is the heightened profile of the bank. Take, for example, this WSJ article about the purchase, which mentions capitalist ubermensch John Allison, as well as Objectivism. Here's a slice:

Before Friday, BB&T had about $152 billion in assets, 29,000 employees and operations in more than 11 states. It will purchase an additional $22 billion in assets in the Colonial deal. Mr. Allison, an adherent of Objectivism as practiced by author Ayn Rand, shaped the bank's behavior around his philosophical outlook.

"BB&T Values," a 30-page guide to the company's 10 core principles, written by Mr. Allison, asks employees to practice "reason," justice," "productivity" and "independent thinking."

Employees are encouraged to adopt these principles at the nearby BB&T University training center.

The bank also has long opposed government intervention in the private sector, refusing to lend to any landowner who acquired property via eminent domain. BB&T did accept federal bailout money last year, but was among the first to pay it back. The day the company got approval to return the capital, executives, including Mr. King, cheered.

Other than the fact that the authors neglect to mention that BB&T was forced to take the money, this is very good coverage for the bank, Allison, and the philosophy. It implies that the bank's guiding philosophy put it in a position to be able to succeed in the current business environment.

Very positive stuff.

The West Bank Has A Stock Exchange?

This is a really heart-warming op-ed from the WSJ written by the Israeli ambassador to the United States. It's called "The West Bank Success Story," and in it, Ambassador Oren discusses the progress that the West Bank has made economically just in the last year. I want to include an extended excerpt here, because I think what he says is extremely important.

Since 2008, more than 2,000 new companies have been registered with the Palestinian Authority in the West Bank. Where heavy fighting once raged, there are now state-of-the-art shopping malls.

Much of this revival is due to Palestinian initiative and to the responsible fiscal policies of West Bank leaders—such as Prime Minister Salaam Fayyad—many of whom are American-educated. But few of these improvements could have happened without a vastly improved security environment.

More than 2,100 members of the Palestinian security forces, graduates of an innovative program led by U.S. Gen. Keith Dayton, are patrolling seven major West Bank cities. Another 500-man battalion will soon be deployed. Encouraged by the restoration of law and order, the local population is streaming to the new malls and movie theaters. Shipments of designer furniture are arriving from China and Indonesia, and car imports are up more than 40% since 2008.

Israel, too, has contributed to the West Bank's financial boom. Tony Blair recently stated that Israel had not been given sufficient credit for efforts such as removing dozens of checkpoints and road blocks, withdrawing Israeli troops from population centers, and facilitating transportation into both Israel and Jordan. Long prohibited by terrorist threats from entering the West Bank, Israeli Arabs are now allowed to shop in most Palestinian cities.

Considering the state the West Bank has existed in for half a century under the tyranny of religious rule, this is amazing news. For anyone familiar with the region, or who has even gone there and seen what the West Bank looked like (I was there at the end of 1999), the concept of shopping malls, movie theaters, foreign cars, and even a stock exchange is baffling.

I also find it to be an interesting example of how important the rule of law is. For years, the Palestinians have wavered somewhere between fascist centralized control and a sort of anarchic psychopathocracy. Introducing a consistent protection of individual rights, those of the Palestinians as well as the Israelis, is integral to forging an economic relationship between the two peoples. The possibilities for peace that arise from the scenario are enough to bring tears to one's eyes.

Oren also notes the contrast with Gaza, where the psychopaths continue to reign supreme, spending their money on rockets instead of shopping malls. Perhaps one day, if the West Bank pursues a pro-capitalist policy, enforcing property rights, the two regions on either side of Israel will become another study in opposites like East and West Germany or North and South Korea.

Honda, Who Knew?

I needed to look up something about Honda's Indiana plant for work, and this popped up in front of me when I opened the indiana.honda.com website:

The Human Being is born as a free and unique individual with the capacity to think, reason, and create--and the ability to dream. "Respect for the Individual" calls on Honda to nurture and promote these characteristics in our company by respecting individual differences and trusting each other as equal partners.
-Honda Philosophy

It's always nice to see reason and individualism promoted by a large corporation, even if inconsistently.

A Quick Thought About SEC Fines

In reading an article in the WSJ today about how the SEC has reworked its rules to allow confiscating executives' pay, even if the executives are not accused of any wrongdoing, something occurred to me. The SEC was founded in the 1930s to act as a protector of shareholders' rights. (Go ahead, laugh.) The idea was that businesses had become so large that their management was effectively kept hidden from the view of their owners. Theoretically speaking, there is nothing wrong with appointing a group of people to enforce laws against corporate fraud. Defrauding one's investors is a violation of their rights, and it is the government's job to defend against such injustice.

This, however, is not what the SEC did then or does now. The SEC concocts a bunch of hoops for managers to jump through, lest they be fined or thrown in jail, ranging from the grotesquely immoral to the just plain silly. The penalty for fraud is typically a corporate fine, paid to the SEC for some reason, and sometimes personal fines and/or jail time for executives depending on the crime. Similar punishments are doled out at the state level by rabid attorneys general like Elliot Spitzer.

What occurred to me is that the crimes are supposed to be violations of shareholders' rights, via mangerial fraud. And the punishment is a fine, which will be paid by who? That fine is coming right out of the shareholders' bottom line. So shareholders get screwed twice: once by the fraudulent management, and then again when the SEC fines them. This is, of course, assuming that any fraud existed in the first place, which may or may not be true.

This is just a little ammunition if you're ever in an argument and someone maintains that the SEC is necessary to protect innocent shareholders from unscrupulous executives.

Green Jobs

I've been working on a "green jobs" article the past few days for my job. I read way too many state and non-profit reports on the "green economy" and "green jobs," and then wrote up a comparison of different approaches. I will say it has been interesting to see the different methods used, and the different ways to define the ubiquitous, and too-often malleable, concept of the green economy. That said, the process has been as infuriating as it has been enlightening. A few thoughts:

For one, no study that I read mentioned any downside to the "greening" of the economy, as it is called. Going green is universally acknowledged as the saving grace of the US economy, the thing that will launch us into the 21st Century. This in spite of the fact that even the most optimistic studies put green jobs at somewhere between 3 and 4 percent of total employment. Since green is universally good then, these researchers never seemed to meet a green proposal they didn't like. No mention of opportunity costs, no mention of profitability lost by diverting resources to money-suck projects like wind farms. Certainly no mention of individual rights. What are you, crazy?

Second, the identification of a green job is difficult. Is the term limited to those employed at "green firms" like solar power manufacturers? Or does it include workers at non-green firms that perform green functions, like updating production lines to be more environmentally friendly, whatever that means. This creates discrepancies in final jobs totals on a scale of about 3.

Third, identifying a particular job activity as green is suspect. One study I looked at found hundreds of glaziers to be "energy efficient" jobs. This data was reported by employers in a survey. Glaziers, for those of you who've never worked on a house, are the people who apply glazing to windows. Glazing is the stuff that forms a seal on the outside of the window between the glass and the wood of the frame. Since it's used on wood frames, it's typically used on older houses. Nevertheless, I had a difficult time understanding how this job, one that's been around basically since glass windows were invented, could be anything but green. By keeping the pane in place, you are necessarily increasing "energy efficiency." Not much regard for marginal effects in this study.

What I'm trying to say is that the green economy consists of two components: economic activity that adds value by saving people and businesses money on energy, and economic activity that couldn't exist without coercing people into supporting it. This means that the policy implications are none for the former, since it will occur just fine on its own, and "stop, stop, for the love of god stop!" for the latter, since it shouldn't occur, EVER.

Not Very Accomodative Islamists

There's an interesting op-ed in the WSJ today by a gentleman named Sadanand Dhume. He is writing about the American hotel bombing in Indonesia. Specifically, he makes the case that American hotels are signs of Western influence that Islamists want destroyed. The writer makes the refreshing argument that Islamists' preference for attacking Western hotels is based on deeper premises than the sheer practicality of sneaking weapons into a place designed to be accomodating. He writes:

For Islamic radicals, who seek to order all aspects of 21st century life—from banking to burqas—by the medieval precepts enshrined in Shariah law, the secular nature of a hotel is galling enough. But perhaps this would not matter as much if it weren’t appealing to local elites. In a place like Peshawar or Kabul, and to a large degree even in Jakarta or Mumbai, a five-star hotel represents an island of order and prosperity in a sea of squalor. It hints at the prosperity promised by free markets and a culture of individual liberty. It is living proof that the worldly can successfully be split from the divine.

I'd say that's pretty much on the dot. He also discusses the necessarily secular nature of hotels, as they cannot display any religious preference, lest they lose a sizeable chunk of international clientele to competition.

Here is another example of how globalization is bringing the civility of capitalism to the Muslim world. At the same time, however, the dark ages philosophy prevalent in those societies is growing more and more violent in its resistance.

Shut Out of the Aristocracy of Pull

Well, the Aristocracy has revealed a financial services firm who isn't on their list. CIT, a company I hadn't heard of before this week, looks like it will go under this week barring some big infusion of private capital. The firm is a big lender to small and medium-sized businesses. I didn't think much about it, until I saw this WSJ article: The CEO Left Off the Lifeboat. According to this article:

On June 17, Jeffrey Peek, chief executive officer of CIT Group Inc., spoke at a conference in the nation's capital where the keynote speakers were Federal Reserve chief Ben Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair. His real mission there, Mr. Peek told others, was to raise his profile among Washington's movers and shakers.

This week his politicking foundered, as the U.S. spurned pleas for financial aid from CIT, one of the nation's largest lenders to small and midsize businesses.

Yep.

CIT had been trying for months to improve its connections in Washington. It spent close to $90,000 last year on lobbying, and $60,000 in the first quarter of 2009. It brought onto its board of directors former Congressman Christopher Shays, a Connecticut Republican.

One day I will conduct a study on the use of politicians on boards of directors. It's a really scary trend. And finally, there was a description of CIT's CEO that was one of those paragraphs that makes you double-take, and question you were reading a description of Jim Taggart, a description that is becoming far too ubiquitous:

He installed CIT's top brass in a glitzy office building on Manhattan's Fifth Avenue, eschewing the company's historical base near a big shopping mall in Livingston, N.J., and brought CIT into his high-society orbit as well. CIT became a sponsor of the New York City Opera. Its role as a donor to the Metropolitan Museum of Art may have helped Mr. Peek win a prestigious spot as a museum trustee in 2008.

Mr. Peek threw parties both at the office and in his home. At an Edwardian-themed fete at his home on Valentine's Day 2008, male guests donned top hats provided by the Peeks.

Mr. Peek is a "personable, likable guy" who showed incredible recall for names and personal details, said one former top CIT executive. When he arrived, Mr. Peek criticized CIT's culture, which he deemed too cautious, says the former executive. He hired a psychological-evaluation firm to "understand us," the executive recalled, and used the results to hire hundreds of new sales people who didn't fit the old CIT mold.

Not that there's anything wrong with supporting the opera, but you get the idea. I suppose it's a good development that the Powers have stopped finding "systemic risk" around every corner, but it could simply be that none of them had the requisite number of connections to this guy and his company. I don't really know what to read into this development. The whole situation is just kind of sad.

In other, better news, Mark Cuban is off the insider-trading hook. That's good.