Saturday, October 18, 2008

Clear Evidence that Our Leaders Don't Use "The Google" *

I'll get to the bulk of the weekend news, but the choir of "we just need to restore confidence" was so deafening last week, I thought I'd point out another famous use of that phrase.

Treasury Secretary Hank Paulson said "Today, there is a lack of confidence in our financial system, a lack of confidence that must be conquered," on Tuesday.

Then Sen. Obama stressed "the importance of restoring confidence — in America, our economy and ourselves. Confidence is the most valuable and fragile currency we have.

Well, anyone with "the Google" could take two minutes and pull up the following famous quote from Herbert Hoover from the fall of 1929 after the crash but before the Great Depression had really set in - "Any lack of confidence in the economic future and the basic strength of business in the United States is simply foolish. Our national capacity for hard work and intelligent cooperation is ample guaranty of the future of the United States."

I don't doubt the American capacity for hard work (well actually, maybe I do - how many of you are reading this right now on company time?), but there have been frequent periods of disconnect between stock prices and American innovation and hard work.

* The reference to "the Google" is tied to a CNBC interview with President Bush where he said "Occasionally. One of the things I’ve used on the Google is to pull up maps." Greatest quote EVER!


Back to the news of the day....

This story out of the UK is getting a lot of play globally and surprisingly little coverage here.

Wall St. Banks in $70 billion Staff Payout

Financial workers at Wall Street's top banks are to receive pay deals worth more than $70bn (£40bn), a substantial proportion of which is expected to be paid in discretionary bonuses, for their work so far this year - despite plunging the global financial system into its worst crisis since the 1929 stock market crash, the Guardian has learned.

Staff at six banks including Goldman Sachs and Citigroup are in line to pick up the payouts despite being the beneficiaries of a $700bn bail-out from the US government that has already prompted criticism. The government's cash has been poured in on the condition that excessive executive pay would be curbed.

Pay plans for bankers have been disclosed in recent corporate statements. Pressure on the US firms to review preparations for annual bonuses increased yesterday when Germany's Deutsche Bank said many of its leading traders would join Josef Ackermann, its chief executive, in waiving millions of euros in annual payouts.

A couple of points -

1) Paying out huge bonuses right now is not justifiable. If these employees believe in the value of their firms and the value that they provide to you and I (now equity holders in many of these firms) give them options as their bonus. We The People, just wrote a check for $250 billion to these firms and they're going to spend $70 billion on performance bonuses? That's unacceptable and frankly, it makes the US companies look like they are not taking the global economic issues seriously.

2) The vilifying of Wall Street has begun. CNN had a special tonight ripping the Wall Street fat cats. The guys that really, really got paid made their cash via equity participation. So it's wrong to say that Dick Fuld was paid $400 million. He was granted stock and options that became valuable as the firm he ran made more money. CNBC loves to refer to NY as the "Financial Capital of the World". I can tell you right now if we go through another series of perp walks and lengthy grand juries, the new Financial Capital of the World will be Shanghai, Mumbai, Dubai, or London.

3) The pay scale on Wall Street has never been normal. It was not uncommon on Wall Street for people to receive 70% or more of their annual compensation in the form of the year-end bonus. Clearly, the pay numbers sound obscene to the average American and they should, but it is a function of the global investment system that has been created. The more money that was to be invested, the more fees that could be generated and with virtually no overhead, the only place to put that money was in the pockets of their employees.

Full disclosure - I worked for Lehman Brothers and knew many of the senior executives, so assume that my rant is somewhat biased

Other news:

ING to get $13 billion from the Dutch government (Who knew the Dutch had $13 billion?)

A merger of General Motors and Chrysler would land a heavy economic blow on Michigan, a state already battered by waves of home foreclosures and the loss of tens of thousands of auto-industry jobs over the last few years.GM is negotiating a potential deal with Chrysler's majority owner, Cerberus Capital Management LP, hoping it can reap billions of dollars in cost savings by shutting down overlapping operations. Analysts estimate more than half of Chrysler's 66,000 employees would lose their jobs in a merger.

Merging GM and Chrysler is like taking two rocks and tying them together and hoping they will float together.

Yahoo Inc is expected to outline plans to cut expenses, which would include future job cuts, when it reports its quarterly earnings on Tuesday, a source familiar with the situation said on Sunday. The Internet company will discuss the scale and timing of the future layoffs, but specific details on the exact jobs to be eliminated will not be disclosed, the source said.
Yahoo was not immediately available to comment.

The Wall Street Journal reported that the future layoffs will exceed the 1,000 jobs Yahoo previously said it would eliminate. Some Yahoo managers have also been asked to identify operating budget cuts of around 15 percent.

I've heard job cut numbers in the 3,500 range, but those are just rumored numbers right now. If you plan on being around for 100 years, these times of economic uncertainty are when you put the pedal to the metal and push to gain market share. If you are working to keep investors happy for the next quarter, you cut jobs. In general, this is a bad, short-sighted move.
But wait you say, Microsoft might buy Yahoo, right?? See previous two rock metaphor :)

For all of you that are directionally challenged -

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