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.

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!

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.

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.

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.

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.

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.

Innovation, If We Let It

Sorry I haven't been blogging in a while. I've been sort of busy. Today's post will be short. I simply have had a thought over the last few days. I've been reading several stories about innovation in the tech sector. Apparently, Google is coming out with its own operating system. At the same time, Microsoft is scrambling to replace the disastrous Vista. Similar movement is happening in the internet browser market. Conversely, Microsoft is trying to chip away at Google's dominance of the search engine market. Microsoft, despite having immense "market power" as the economics buzz word goes, continually has to innovate for fear of losing market share.

It is amid this whirlwind of creativity that the gruesome specter of ANTITRUST rises from its shallow grave like Jacob Marley, complete with ludicrous Dickensian morality. His Majesty's Justice Department understands Antitrust as the club it really is, and intends to use it as such. Microsoft and Google already need to dance around antitrust in hopes they don't compete too well to be labeled "anti-competitive." Obama is sure to extort some rents from them, the same way that the Clinton White House did with Bill Gates in the 90s. Also, hearings are being held on that pimple on the face of our nation known as Capitol Hill, ostensibly to determine the appropriateness of allowing cell phone makers to grant exclusive offering rights to service carriers, a la the iPhone.

I've said this before. After the murderous thugs at the FDA, anyone who would enforce Antitrust should be next in line for tar and feathering. This is a criminal legal quagmire, whose express purpose is to trap every business in its confusion, thus forcing all to bow to the whim of whatever feckless poll-dancer happens to be anointed our Leader. Draw what conclusions you may from that. I'm going to bed!

P.S.: For some excellent discussion of the current application of antitrust, reading any of ARI analyst Alex Epstein's writings on the subject.

Bullshit

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.

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.

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.

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 Bloomberg.com 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.

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.

Out of the courtroom and into the back room

I've been reading a little about Obama's Supreme Court pick, Sonia Sotomayor. She's not great, obviously, but she's probably not the worst result we could have gotten from Obama's "empathy" litmus test. Tom Bowden at ARI has a good blog post on why Sotomayor is unfit for the Court because of her opposition to objective judicial interpretation. (Does denial of its existence count as opposition?) Even so, a judge without principles is basically a broken clock, and ends up ruling well now and then due to sheer happenstance.

So, in reading about this woman, I came across a tidbit of information that troubled and saddened me. In the WSJ's article about Sotomayor's ruling history, this paragraph described one case of investor fraud:

In another pro-plaintiff ruling, Judge Sotomayor allowed a shareholder class-action suit against Merrill Lynch that alleged fraud. A unanimous Supreme Court in 2006 overruled Judge Sotomayor's Second Circuit opinion. The high court found that federal law assigned enforcement to the Securities and Exchange Commission, leaving no room for lawsuits under state fraud laws.

Ignoring the fact that legal philosophy has deteriorated in this country to the point that you're either pro-plaintiff or pro-defendent, I want to draw your attention to the Supreme Court's ruling in this case. As free-marketers, we always talk about how, without the SEC, investors could sue their management for fraud. This, and other vehicles of management's rational self-interest, make sure investors' interests are looked after. What we don't mention enough, I think, is that whent the government removes from the marketplace the competitive advantage that is integrity, investors are at the mercy of the SEC to protect their property rights, a charge the SEC also executes with broken-clock precision. For more on this type of issue, read Alan Greenspan's article in Capitalism: The Unknown Ideal called "The Assault on Integrity". (Greenspan's apostasy notwithstanding)

As in my previous post on regulation, in general, I stress that regulatory bodies like the SEC remove strategic advantages from firms, and drown all interested parties in a sea of mediocrity and subjective selection.

Published

It's official, I am now a published scholar. The Michigan Journal of Business, the only major undergraduate academic business journal to my knowledge, has published my paper on executive long-term compensation in its latest issue. Here's the link for the journal and for my paper. In my paper, I found that in a sample from the fifty largest U.S. banks, "long-term" compensation had no effect on either of two metrics of long-term thinking.

This is especially pertinent, if I do say so myself, because His Majesty has lately been talking about issuing new royal decrees governing compensation of all bank executives of the realm, TARP-receiving or not. Here's an article on the subject. A nice excerpt:

Few companies that would be affected by a federal crackdown on compensation would publicly discuss the options being considered by administration and regulatory officials, which include trying to more closely match pay with long-term performance. The wait-and-see response also reflects nervousness about openly challenging the Obama administration on an issue that has become a flashpoint for anger over Wall Street's culpability for the financial crisis and recession.

That's nice, Barack. What I love about this whole charade, other than the blatant violation of individual rights, of course, is that, as I show in my paper, that "long-term" compensation crap is bullshit. Throwing stock options at someone does not a long-term incentive make. This is just more of His Highness' Royal Circus.

So yeah, go me.

20th Century Motor Company, Anyone?

Okay, so today, GM announced its plan for how it's going to emerge from its current dilemma. Here is what the brains trust has produced:

Under the plan, GM is asking the Treasury Department for an additional $11.6 billion in loans, on top of the $15.4 billion it has already received. It envisions giving the government at least half ownership of the company as payment for half of the loans.

At the same time, GM said it would use stock instead of cash to pay off half the $20.4 billion it owes a United Auto Workers fund to cover retiree health care. That stock would leave the union owning about 39% of GM.

Um...what? So, if the Obamanoms own over half of the company (making it a government agency, right?) and the union owns 39%, what exactly is GM? Apparently 11% is left for whatever brain-dead shareholders want to go along for Mr. Car Czar's Wild Ride.

Believe it or not, I see this development as a good thing. GM abandoned maximizing shareholder value (the only valid purpose of a firm) as its guiding purpose long ago, in favor of a "stakeholder" position. This was not the shareholders' fault, really. The government has forced GM to comply with almost as many regulations as the financial industry must contend with. And labor makes sure that what little money GM makes from cars goes directly to them. This new arrangement simply makes explicit what has been the case for years.

In the same vein, Chrysler has now agreed to cede a majority share to the UAW, with big Gov taking a 10% stake. So, basically, the inmates are running the asylum. May U.S.G.M. and U.S. Chrysler get exactly what they've bought, I say.

As a side note, Ron Gettelfinger, the UAW's chief executive, is a graduate of the Indiana University School of Business. Thus, I'm sure he'll be more than capable of guiding these firms to success. Right? I guess it could be worse. He could be from Purdue.

What I want to know is, if the union is going to own Chrysler, and the government owns GM, who will the workers threaten to strike against?

Consult Your Regulator to See if Twitter is Right for You!

In yet another example of how regulators exert unfathomable control on business, this WSJ article describes how corporations are wary of disseminating information to investors via Twitter and blogs, lest they incur the wrath of the SEC. Here's a quote:

But even some tech-savvy companies remain wary. Intel Corp. in May will be among the first companies to allow shareholders to ask questions via the Web and vote online during its annual meeting. But the chip maker avoids blogs and Twitter for investor issues, because it fears violating SEC disclosure rules or inviting public criticism in a company-hosted forum, says Kevin Sellers, vice president of investor relations.

The second concern is valid, although I think Intel would get over it. The fact that disclosing more, and more easily accessible, information would violate SEC disclosure rules boggles the mind. This shows the pointlessness, in addition to the more obvious violation of individual rights, inherent in corporate regulation. Regulations are statutory, they are static, while the business world is dynamic and ever-changing. Companies should not have to ask the SEC's permission every time they want to improve service to their shareholders.

For another example of regulatory abuse, see the ongoing saga regarding how Paulson and Bernanke forced Ken Lewis to betray Bank of America's shareholders "for the good of the country." (To be blogged on once more details have trickled in.)

His Royal Barackness, King of Corporations

Holman Jenkins writes the "Business World" column for the WSJ, and he always has some pretty humorous and generally useful insights. Today's column pokes fun at the fact that Barack is acting like a monarch, and discusses the debacle of GM in this context. The article is worth reading for its descriptions of the various ways Barack is ensuring GM's abject failue under the guise of helping it along. But I particularly enjoyed the jabs at His Majesty. Like this picture:

wsj.com

I also enjoyed this paragraph:

King Barack could take a leaf from St. Jimmy the Simple, who faced a collapse of the railroad industry. He signed the Staggers deregulation law, returning power to the industry itself to decide what services to provide and which customers to chase. What had previously been an industrial basket case, halfway nationalized already, fixed itself almost overnight.

That would be Jimmy Carter, in case you didn't know.

How Absolute Power Is Obtained Today

I would like to comment briefly on what I see as the new form of power grab that the Obama administration has begun to employ. It used to be that the government caused some problem by distorting markets, blamed the non-existent free market for those problems, and grabbed even more power as a result. This method has worked very well for them over the years.

Now, however, Obama is employing a new, quasi-European form of power grab. I find it interesting, because they are abusing people's respect for an old and valid principle in order to destroy that same principle. (Rand said something about undermining the meaning of concepts, didn't she?)

What I am referring to is the involuntary infusion of capital into private firms, the imposition of rules and oversight on the basis that the government is a legitimate stakeholder, and finally the refusal to accept the money back. People respect the government's increased role because they see the infusion of capital as a legitimate claim. The refusal of repayment, as well as the involuntary nature of the loans in the first place, destroy this concept, but naturally they are all done very secretly.

It should be clear to anyone who knows the facts that the purpose of this facade is to grant Obama and his cohort absolute control over the actions of individual banks and auto firms, as well as whatever other poor companies have the misfortune of catching the King's eye.