Michael Hassett's blogshttp://www.justmeans.com/editorials/sustainable-finance-and-responsible-investment/241.htmlFri, 25 May 2012 00:29:08 GMThttp://www.justmeans.com en hourly 1http://www.justmeans.com/News-Overload---SEC--BP-and-Dodd-Frank---who-wins-and-why/22616.htmlFri, 16 Jul 2010 14:24:34 GMTMichael Hassett "Mark this down as a good day", said President Obama on hearing the Wall Street reform bill had passed the Senate and the BP cap was looking good so far. Who else had a good day, and who did not.First, this column had a pretty good day - here was our call on SEC v Goldman when it began:"The fact that Goldman is stuck defending some unpleasant positions does not mean that it will, or should, lose the case. Normally a tenable, but ugly, defense, suggests settlement. Here, Goldman will not accept a Read Full Article ]]> "Mark this down as a good day", said President Obama on hearing the Wall Street reform bill had passed the Senate and the BP cap was looking good so far. Who else had a good day, and who did not.First, this column had a pretty good day - here was our call on SEC v Goldman when it began:"The fact that Goldman is stuck defending some unpleasant positions does not mean that it will, or should, lose the case. Normally a tenable, but ugly, defense, suggests settlement. Here, Goldman will not accept a resolution that includes culpability for fraud - even if the SEC imposed sanctions are palatable, the damage to its reputation won't be. Unless.......maybe, at some point if and when the SEC is feeling shaky about its case, Goldman can hang Fab out to dry and cut a settlement deal in which the firm accepts failure to supervise but not culpability for fraud."Pretty close to the final outcome, with failure to disclose replacing failure to supervise.Goldman and the SEC both join the President in marking this as as a good day. $550 million is palatable to Goldman. It's enough so the SEC can claim victory and argue, credibly, that similar conduct will be deterred. The civil result makes criminal action by the Justice Department on mortgage CDO's extremely unlikely. The Goldman announcement suggests the SEC has had enough in this arena. Private litigation may be expensive, it won't be life threatening for Goldman.Fabrice Tourre? Not a good day. Not a good day at all. He's not included in the settlement and the fact that Goldman settled without him is probably making him extremely nervous.The BP cap holding, so far, is a good day for - well pretty much everyone. If this cap holds, is it a repeatable solution to a difficult, deep water blowout? If yes, will the administration reconsider it's effort to impose a deep water drilling moratorium and focus on tougher regulation and back up planning - including a supply of caps like this, and the equipment it takes to install them, on standby, ready for use on short notice.Wall Street reform, aka Dodd-Frank? Democrats can claim they did something, a good day of sorts. Republicans Boehner and Chambliss are already calling for partial repeal, suggesting they don't think it's such a good day. The financial community lobbied hard against some elements of this bill, but so many provisions call for studies and regulatory action that the full impact won't be known for years. Too much for today's column, but definitely a good day for Homer Simpson,, Gordon Gekko and Henry David Thoreau. They will have fodder for many panel discussions to come, not to mention the publicity boost that's just around the corner when Gordon's sequel finally opens.]]>http://www.justmeans.com/LeBron--amp-amp--Co---Add-Dangerous-New-Twist-to-Old-Ploy/22375.htmlWed, 14 Jul 2010 13:09:27 GMTMichael Hassett "Superstar buddies work together to change the face of the game". That was the headline last week as LeBron James and Chris Bosh joined Dwyane Wade in Miami to make the Heat an instant favorite to reach the NBA Finals. So far it's good for the Heat, and probably the NBA. Fans are looking forward to next season, excited about a possible Heat-Lakers final. But last week wasn't the first time that headline has appeared. What was new this time was the motivation - the stars are looking to win a cham Read Full Article ]]> "Superstar buddies work together to change the face of the game". That was the headline last week as LeBron James and Chris Bosh joined Dwyane Wade in Miami to make the Heat an instant favorite to reach the NBA Finals. So far it's good for the Heat, and probably the NBA. Fans are looking forward to next season, excited about a possible Heat-Lakers final. But last week wasn't the first time that headline has appeared. What was new this time was the motivation - the stars are looking to win a championship, not win an economic war with the owners. What happened to some of the past all-star collaborations? What will happen to this one and will it be good for the game? Would your answer be the same if Kobe Bryant somehow joined the big 3 in Miami?In the first half of the 1960's Sandy Koufax and Don Drysdale carried the Los Angeles Dodgers to a mini-dynasty on the strength of their pitching. Back in the days before arbitration and free agency the reserve clause left the players only one option if they weren't satisfied with the salary the owner offered - refuse to play until the owner caved. In 1966 Drysdale and Koufax held out together, figuring Dodger's owner Walter O'Malley could not afford to field a losing team and drive the fans away. The holdout drew a mixed reaction from fans, O'Malley hung tough and the pair eventually signed for raises that were less than groundbreaking after missing much of spring training.In 1919, Charlie Chaplin, Mary Pickford, Douglas Fairbanks and D.W. Griffith tired of both the economic and artistic shackles of the studio system. These superstar buddies had an elegant solution - they started their own studio. United Artists survived for decades, but often just barely, until two lawyers, Arthur Krim and Robert Benjamin, took over in 1951 and revolutionized the business by getting rid of the physical studio and financing independent pictures instead.LeBron's world is vastly different. The players, especially in basketball and baseball, have won the war with the owners (thanks to Marvin Miller, Curt Flood, and, in an odd miscue that showed the players what free agency could be worth, Charles O. Finley and Catfish Hunter). Every superstar makes so much from salary and endorsements that they can well afford to leave a little on the table in exchange for quality of life. Quality of life can mean staying in a city you love, avoiding one you hate, playing on a team with your buddies, playing on a loaded team with a strong chance to win a title or any combination of the above.What's new, and a little scary, about LeBron & Co. collaborating on the move to Miami is the motive - these Olympic team pals plan to win an NBA title. Admirable, in a way, but it might work a little too well. If LeBron gets his ring will most of the biggest stars in basketball and baseball migrate towards one or two superfranchises - taking less pay to guarantee a title? Ultimately that would destroy competitive balance, the non-favored franchises would lose hope and the sports would suffer.Because the Heat was not historically a superpower franchise, because the Laker's still have a shot even if the Heat gel well, the sport's world doesn't seem overly worried about this -- yet. If LeBron wins his ring and three superstar outfielders and a starting pitcher suddenly sign with the Yankees at less than market value - wow. Suddenly free agency seems like it might really threaten professional sport, not because the players are getting paid too much, but because they are willing to take less to win.Photo Credit: David Shankbone]]>http://www.justmeans.com/Appleseed-Screens-Out-All-Big-Banks---Why/22172.htmlSun, 11 Jul 2010 15:32:23 GMTMichael Hassett The Appleseed Fund, a mutual fund that seeks to invest in sustainable, undervalued equities, has decided that too big to fail banks are not sustainable, and will be excluded from the fund's portfolio.Adam Strauss, one of the Fund's co-portfolio managers, explained the change in a populist statement that seems to jumble several related causes and effects. The relevant paragraphs from the release appear in full below, but let's do some unjumbling and take a look at those reasons one at a time.Why Read Full Article ]]> The Appleseed Fund, a mutual fund that seeks to invest in sustainable, undervalued equities, has decided that too big to fail banks are not sustainable, and will be excluded from the fund's portfolio.Adam Strauss, one of the Fund's co-portfolio managers, explained the change in a populist statement that seems to jumble several related causes and effects. The relevant paragraphs from the release appear in full below, but let's do some unjumbling and take a look at those reasons one at a time.Why does Appleseed believe all of the too big banks not sustainable? Because the financial system needed to be bailed out? True, but some of the big banks didn't need much help and paid it back quickly.Because Congress and the regulators have not done a good job changing the system to avoid future crashes? Possibly true. Much of the financial reform package will play out through regulation, so it's probably premature to make the call here. Even if it's true, excluding your investors from an entire industry as a way to send a message to Congress seems an unusual approach. When a fund targeting sustainable investments refuses to buy tobacco companies they are sending a message to Big Tobacco, not Congress. Deciding no big bank can be sustainable until Congress changes the system is a whole new ball game.Because the too big banks pay their execs extremely well, then run to the taxpayer when they flop? Well, it happened at least once. But we've already talked about Congress and regulatory change on the flop side. If we focus just on pay, then why not develop a sustainability screen based on pay and see if some of the banks can avoid exclusion instead of declaring an outright ban on all big banks?Because the too big banks aren't lending in the community? Not completely true. Even if this were true, why not a screen based on extent of local lending activity instead of a categorical ban?The Appleseed approach is drawing kudos in the blogosphere, but so does the Tea Party. For my money I'd like to see sustainability screens that target specific behaviors and processes, not a block ban that's directed at much as Congress as the companies that comprise potential investments. The Appleseed rationale appears below, decide for yourself.: "The cost of bailing out Wall Street since 2008 is over $3 trillion, or more than $20,000 per taxpayer, and that cost is increasing daily.The financial burden of that bailout will be felt for a generation and will be paid by children, some not yet born.Instead of an industry structure where the largest banks are serving the economy by lending capital, U.S. policies and regulations favor the largest banks, which have proven themselves incapable of fiscal rectitude."The banking system's current industry incentives are misaligned since employees keep a disproportionate amount of the profits while taxpayers subsidize the losses; this unhealthy imbalance is unsustainable and encourages excessive financial speculation.In the financial reform bill which recently passed the House of Representatives, Congress failed to break up or limit the size and scope of the largest banks that have destabilized the financial system and destroyed so much value over the past five years.We were disappointed lawmakers did not stand up to the banking lobby in order to avoid future bailouts.Without meaningful reform, we fear the next crisis will be larger and more devastating than the last."Given the failure of regulators to prevent the previous credit crisis and the subsequent failure of legislators to break up the massive and very much interconnected banks that helped to create the crisis, it is incumbent on depositors and investors to vote with their wallets.Until the financial system is truly restructured, the Appleseed Fund will avoid investments in too-big-to-fail banks, choosing instead to invest in regional banks, community banks, and credit unions which lend money to families and businesses that operate in the productive sectors of our economy."]]>http://www.justmeans.com/The-Dark-Side-of-Outside-Directors-Performance/18403.htmlTue, 15 Jun 2010 07:23:48 GMTMichael Hassett The Dark Side of Outside Directors: Do They Quit When They Are Most Needed? a working paper by Rdiger Fahlenbrach, Swiss Finance Institute, Ecole Polytechnique Fdralede Lausanne, Angie Low, Nanyang Business School, Nanyang Technological University,Ren M. Stulz, Department of Finance, The Ohio State University (link below) suggests that outside directors are actually rats, ready to leave a sinking ship when bad news is on the way instead of a good earning's performance. Reaching retirement age is Read Full Article ]]> The Dark Side of Outside Directors: Do They Quit When They Are Most Needed? a working paper by Rdiger Fahlenbrach, Swiss Finance Institute, Ecole Polytechnique Fdralede Lausanne, Angie Low, Nanyang Business School, Nanyang Technological University,Ren M. Stulz, Department of Finance, The Ohio State University (link below) suggests that outside directors are actually rats, ready to leave a sinking ship when bad news is on the way instead of a good earning's performance. Reaching retirement age is the most common reason for director departure and Dark Side takes this into account along with a model of director turnover based on characteristics other than age, to define certain outside director departures as surprise or unexpected departures. Dark Side ignores the departing directors stated rationale and assesses surprise departures in relation to corporate performance, establishing a correlation between "surprise" departures by outside directors and ensuing disasters like earnings restatements, securities fraud claims, and horrible earning's results.As Dark Side notes, association with a troubled company will damage the director's reputation, rendering him or her less attractive as a candidate for other boards. The director's workload also expands with problems while the director's compensation does not, in fact the value of non-cash comp may be falling along with the stock price.Dark Side recognizes that correlation is not causation and expends some effort ruling out the possibility that the companies are tanking because the outside directors left, rather than the outside directors leaving because they see bad news on the horizon. In most cases, the events creating the bad news occur before the resignation, even if the results do not become public knowledge until later, thus the departures are an unlikely cause. I fully agree with Dark Side's interpretation on this point, but using retirement age departures as a control might produce some additional, convincing data.Some of Dark Side's analyses based on relative stock prices suggests an investment strategy that might produce a winning performance. Follow EDGAR reports on director departures, plus compare proxy statements year to year to pick up directors who simply fail to stand for reelection. Each time you find a departure that is not clearly explained by age or some other extremely compelling rationale, short that company's stock. You can take an equal long position on a broad index if you want to hedge against general market movement.Massive kudos to Profs. Fahlenbrach, Low and Stulz for questioning the sacred cow of the independent director. Second, I think Dark Side is correct in positing that these outside director departures generate transitional costs and problems for the companies they formerly served, just at the point when the companies are having problems and needs experienced directors. The closing query on raising directors compensation to reduce desertions is relevant, but there may be a deeper question.How much is independence worth?. The theory that checks are needed to rein in the potentially dictatorial power of the CEO makes sense to me, but are there actually studies showing that increasing the percentage of outside directors improves corporate performance - on earnings, ESG or any other metric, even after the percentage is already high - will a board of ten do better with nine outside directors than eight? Footnotes in Dark Side suggest there are inconsistent results on this, and certainly no clearly established "tipping point" beyond which extra independent directors do not matter. Maybe, for example, it's important to get a simple majority of outside directors on the full board, audit and comp committees, and any more than that is a needless expense in good times and counterproductive in a crisis.Photo Credit: Wolfiewolf]]>http://www.justmeans.com/Rating--the-Tax-Code-s-Green-Performance---Part-3/17959.htmlMon, 14 Jun 2010 06:30:36 GMTMichael Hassett Our panel of Homer Simpson, Gordon Gekko (famed for his line "Greed is good." in the movie Wall Street) and Henry David Thoreau completes its look at the tax code's performance from a green perspective, completing the discussion that began with Part 1 and Part 2.Henry: How does the tax code effect energy production?Gordon: Personally, I'm into coal for investment performance, but the tax credits are getting harder to find. Apparently a bunch of geniuses from MIT concluded that no tax subsidies o Read Full Article ]]> Our panel of Homer Simpson, Gordon Gekko (famed for his line "Greed is good." in the movie Wall Street) and Henry David Thoreau completes its look at the tax code's performance from a green perspective, completing the discussion that began with Part 1 and Part 2.Henry: How does the tax code effect energy production?Gordon: Personally, I'm into coal for investment performance, but the tax credits are getting harder to find. Apparently a bunch of geniuses from MIT concluded that no tax subsidies or direct government expenditures to support clean, refined or any other kind of coal plant make any sense unless the project includes carbon capture and storage. The tax code isn't all the way there yet, but the carbon capture coal projects are the ones getting priority.Homer: What about nuclear, is Mr. Burn's getting any tax subsidies?Henry: Since 2005 "advanced" nuclear facilities have been eligible for a production tax credit of 1.8 cents per kilowatt hour. Advanced basically means new, Homer, so your employer is not collecting on this, but 21 planned plants have applied and the credit should make nuclear power costs competitive with coal and gas generated power.Gordon: Can I get a tax break next year if I invest in renewable energy, you know, wind, solar, geothermal, biomass, the really green stuff. I think it might impress my yoga instructor.Henry: Investment Tax Credits and Production Tax Credits are out there waiting for you Gordon, wind and geothermal are the credit performance champs on a per kilowatt hour basis.Homer: How does Congress decide which types of energy get the most support from tax credits?Gordon: Politics makes the world go round baby, even the green world. Ever hear of lobbying? How about some nice, bundled campaign contributions if you want performance from your Congressperson?Henry: Another good point Homer, why should Congress be picking and choosing? Just pass a carbon tax on green house gas emissions, then let the market figure out what works. If you want to use credits at all, use them to promote conservation.Gordon: Homer, for the rest of this year you can get a tax credit equal to 10% of the amount you spend on qualified energy efficiency improvements and property at your principal residence. Plus, if your power company has a discount or subsidy program to help you purchase energy efficient appliances or improve your home, you don't have to include the subsidy as income on your tax return.Homer: Like I would have included it anyway.Henry: There are other conservation credits too, for builders who make energy efficient homes or manufacturers who produce energy efficient appliances. If they really wanted conservation performance they would double heating fuel cost for every degree above 69 on your thermostat setting in winter and do the same thing for every degree below 74 in the summer.Gordon: That thermostat thing sounds a little scary Henry, did you read 1984? What do you think of cap and trade? I've got my trading room geared up to make a few bucks on that one. It's so complicated, I think I can get rich while everyone else figures the thing out.Henry: I think that's part of the problem, not the solution, and a simple carbon tax would do more with less misallocation of resources.Gordon: Ouch. Spoilsport.Henry: The truth hurts, Gordon. Taxes on the consumption of goods and services that cause pollution would generally be the simplest way to create prices that reflected true costs and shape behavior. Credits are less painful politically, but then Congress ends up picking winners and losers. If you really believe "greed is good" then you ought to be willing to let the market do that.Homer: My hair hurts. Professor Mann is one smart lady, but if we don't stop now, I think my head will explode.Photo Credit: hunterseakerhk]]>http://www.justmeans.com/Rating-the-Tax-Code-s-Green-Performance---Part-2/17867.htmlFri, 11 Jun 2010 05:44:40 GMTMichael Hassett Our panel of Homer Simpson, Gordon Gekko ("Greed is good" from the movie Wall Street) and Henry David Thoreau perseveres in its look at the tax code's performance from a green perspective, continuing yesterday's discussion.Henry: Let's start today off with transportation. We just mentioned that the tax code encourages low density housing, which makes it more difficult to use energy efficient public transportation. Congress lets employers pay a tax free parking allowance and a public transit comm Read Full Article ]]> Our panel of Homer Simpson, Gordon Gekko ("Greed is good" from the movie Wall Street) and Henry David Thoreau perseveres in its look at the tax code's performance from a green perspective, continuing yesterday's discussion.Henry: Let's start today off with transportation. We just mentioned that the tax code encourages low density housing, which makes it more difficult to use energy efficient public transportation. Congress lets employers pay a tax free parking allowance and a public transit commutation allowance, and they finally equalized the amounts last year, better than nothing, but why not make the public transit allowance even bigger?Gordon: Relax, Henry, it's no biggy. I'm not trading my limo for the bus, I don't care how big the allowance gets.Homer: Bart is riding his skateboard to a part-time job, can he collect?Henry: Not sure about skateboards, but employers can pay bicyclists a commuting allowance of up to $20/month tax free, now if only they would let the employers combine allowances for the people like me, I take my bike to the train.Gordon: Guys, busses, bikes who really cares. The glitz is in the cars. I just saw that new Porsche 918 Spyder hybrid - 500 horsepower, 189 mph top end, my name is already on the waiting list. I know the hybrid credit is over, but didn't tax credits help get all this hybrid stuff off the ground?Homer: You mean that Porsche 918 Spyder actually flies?Gordon: No Homer, it's idiomatic, just means tax credits helped the hybrids get started.Homer: Watch what you're calling me suit, or you won't live to take delivery on that Porsche.Henry: Relax gentlemen. Yes, there were and still are, an array of credits for alternate energy vehicles, and they helped, but really fuel cell, lean burn, plug in, three wheeler - is this any way to run a tax code. Why not just tax gasoline to the point where the gas price reflects the external costs of using gas, then the market would spur development of these alternate vehicles without a Chinese menu of credits.Gordon: Henry, I'm so proud of you - not crazy about the gas tax idea, but I love that whole "market would spur development" schtick, I'm rubbing off on you. What did you think of the performance of the Cash for Clunkers program.Henry: It actually had a pretty significant impact on the average fuel economy of the cars on our roads, but I don't suppose you had any clunkers.Gordon: No, but I've got a few bucks tied up in agribusiness and I'm crazy about the after-tax performance of my investments in ethanol.Henry: Of course you are Gordon, its subsidized up the wazoo, and it uses corn, which is a needy plant when it comes to water, fertilizer and pesticides, not to mention the fact that there are about a billion people who might like to eat that corn. Ever hear of switchgrass, Farmer Gekko, you can get an even bigger tax credit if you move into cellulosic ethanol - get there ahead of the crowd and you can make a few bucks. When it comes to credits, alternate fuels are another area that emits an aura of special interests and boondoggles. The thing that really drives me nuts is that we are still using the tax code to subsidize the production of fossil fuels for transportation, tax subsidies that will add up to the tune of $26 Billion over the next decade.Homer: So this is like that thing with the alternate vehicles - if we just stopped subsidizing fossil fuels and taxed gasoline to cover the climate change and environmental costs it generates, this alternate fuel stuff would sort itself out without a lot of complicated credits.Henry and Gordon, in awe: Nice performance, Homer, you were actually paying attention!Homer: Hey, I was, wasn't I. But now I'm very tired. Need donuts.Henry: OK, we'll finish our discussion with Part 3 , maybe we should get a little thank you gift for Professor Mann.Photo Credit: David Reber's Hammer Photography]]>http://www.justmeans.com/Rating-the-Tax-Code-s-Green-Performance/17797.htmlThu, 10 Jun 2010 06:44:23 GMTMichael Hassett Our trusty panel of Homer Simpson, Gordon Gekko (Best known for his line in the movie Wall Street - "Greed is good.") and Henry David Thoreau reconvenes for a look at the performance of the U.S. Tax Code from a green perspective, inspired by Professor Roberta F. Mann's article Back to the Future: Recommendations and Predictions for Greener Tax Policy from The Oregon Law Review, Vol. 88, p. 355 (2009).Homer: What's this green perspective stuff all about, are we supposed to be wearing sunglasses?H Read Full Article ]]> Our trusty panel of Homer Simpson, Gordon Gekko (Best known for his line in the movie Wall Street - "Greed is good.") and Henry David Thoreau reconvenes for a look at the performance of the U.S. Tax Code from a green perspective, inspired by Professor Roberta F. Mann's article Back to the Future: Recommendations and Predictions for Greener Tax Policy from The Oregon Law Review, Vol. 88, p. 355 (2009).Homer: What's this green perspective stuff all about, are we supposed to be wearing sunglasses?Henry: No Homer, green as in sustainable, ecological - what should we be doing with the tax code to make sure the planet is still here for our grandchildren.Gordon: That's right Homer, it's amazing how much taxes influence performance and behavior, why even Congress sometimes figures it out - tax incentives for renewable energy sources finally passed those for non-renewables and..Henry: Why don't I take the lead on this one, Gordon. After all, I actually pay my taxes, you just seem to come up with a new set of loopholes every year.Gordon: Suit yourself Henry, but when you're talking about greening the tax code, loopholes are what performance is all about.Henry: If, by loopholes, you mean tax expenditures, then you are probably right.Homer: It's always an expenditure when I pay taxes, where's the loophole in that?Henry: A tax expenditure is the amount of revenue loss attributable to a special deduction, credit, exclusion, etc. which is deliberately inconsistent with the general approach of the tax code. For example, interest on loans to buy cars, furniture, or any other personal item is not deductible, but interest on a home loan is deductible. So mortgage interest is a special deduction, and the result is an $80 Billion per year loss of tax revenue, which is a tax expenditure, and, in essence, a Federal subsidy for homeowners and, indirectly, the housing industry.As long as we're talking about housing, let's start there with our green look. What kind of performance do we get for that $80 Billion subsidy, via the mortgage deduction, plus the special exemption from tax on gain on sale of a principal residence ($16 Billion annual tax expenditure), property tax deduction (another $16 Billion), first time home buyer credit ($13.6 Billion) and some direct assistance? Not much green. The deductions are structured so that the bigger the house you buy, the more deduction you will get for mortgage interest and property tax. Essentially, the tax code encourages McMansions built in sprawling suburbs. Although credits have been proposed as an alternative to the mortgage interest deduction (eliminating the tax advantage of the rich over poor and the incentive to build ever bigger) the deduction is a sacred cow. The result is ever increasing home size. Fortunately, improved energy efficiency (spurred, in part, by tax credits) has off set some of the size factor, but seriously - big homes filled with few people built in towns that are off the public transportation map - hasn't Congress ever heard of climate change?Gordon: There are lots of voters with a lot invested in their homes, decisions they made thinking the mortgage interest and property tax deductions would be around forever. If you are serious about changing these, Henry, you better come up with some transitional relief for people who are already homeowners - like a very slow phase in of any changes, then maybe Congress could get something done. Sometimes you need to be practical to go green.Homer: Professor Mann had a lot to say, I need a donut break.Henry: OK, we'll meet tomorrow for Part 2and start with transportation, eventually we'll get to Part 3.Photo Credit: alan cleaver2000]]>http://www.justmeans.com/FTC--Staff-Discussion-Draft-on-Saving-Journalism---Bravo-Performance-2/17561.htmlWed, 09 Jun 2010 06:47:53 GMTMichael Hassett Yesterday's column included a rousing defense of the FTC staff's performance against the slings and arrows of outraged bloggers and a summary of the "Change In Law" portion of possible policies suggested by the discussion draft on reinventing journalism.Today we start with governmental support for journalism, which isn't all that new - consider the subsidies built into postal rates, the guaranteed business from legal notice publication requirements, the tax break from allowing current deduction Read Full Article ]]> Yesterday's column included a rousing defense of the FTC staff's performance against the slings and arrows of outraged bloggers and a summary of the "Change In Law" portion of possible policies suggested by the discussion draft on reinventing journalism.Today we start with governmental support for journalism, which isn't all that new - consider the subsidies built into postal rates, the guaranteed business from legal notice publication requirements, the tax break from allowing current deduction of funds spent promoting circulation - a capital expense, and the history of direct financial support for the Corporation for Public Broadcasting which, in turn supports the performance of NPR and PBS, both of which include journalism in the content they deliver.Possible policies include: 1) expanding thescope of performance atAmericorps (feds place young in jobs at non-profits) with a journalism division; 2) increase funding for PBS and NPR so they can develop strong local newsrooms - maybe, but what happens if those strong local newsrooms do their job and report news the pols don't want to hear, does National Endowment for the Arts and culture war ring any bells here, only now that war could be totally partisan and endless; 3)establish a national fund for local news - see above re culture war; 4) provide news organizations with a tax credit for every journalist employed; 5) establish citizen news voucher - basically a tax dollar allocation system - when you file your tax return you can designate a donation, up to, say, $200 to the nonprofit news organization of your choice, so that the taxpayers pick which news organizations get fed money rather than the pols - a little better than culture wars, but it still smells of the same problem and ties into the big 501(c)(3) issue, see below; 6) fund real reporting performance by student journalists; 7) allow nonprofit news orgs to take down Small Business loans; 8) use Voice of America material domestically - hmm, why waste that valuable propaganda on foreigners when you can indoctrinate your own citizens, Adolf and Chairman Mao would love this one, sure Voice of America does some quality work, but the incentive for pols to meddle with, and argue about, VofA content will create a whole new ball game if it's used domestically, 9) increase postal subsidies.How could we pay for all this stuff? The staff says consider: 1) charging tv and radio broadcasters for electro-magnetic spectrum use; 2) tax on consumer electronics; 3) tax on sales of that portion of the EM spectrum now auctioned for commercial use; 4) sales tax on advertising; 5) ISP- cell phone tax.Now the fun begins. Can a news organization be a 501(c)(3), which gives its "investors" the magic of the tax deduction. Right now, it's not all that clear. 501(c)(3)s are limited to specified purposes, which include educational, scientific and literary, but not journalistic. Specialty journals can often squeeze into the educational niche, but for a general periodical, 501(c)(3) is no safe haven. News organizations that endorse candidates or editorialize on political issues almost certainly do not qualify, since 501(c)(3)s must refrain from political campaigning and lobbying.After preliminary thought on this preliminary policy, I would create a new tax exempt category for nonprofit news organizations, call it 501(c)(3-J). The new category would define a news organization so as to require significant news gathering (perhaps defined by ratio of news gathering expense to total expense), not just disseminating, but no restriction on political activity - because I don't mind a journalist with an ax to grind, even a crazy ax, and I don't want to try to draw any fine lines on what political activity qualifies and what does not, because that is not something I trust the IRS to enforce. This approach would boost the news gathering dinosaurs before they go extinct, while not exactly punishing the aggregators and the rebroadcasters. Deductions reduce revenue and we will pay for this somehow, somewhere, but the deduction approach gives the pols little control, which is critical if you are going to let the tax exempt news media engage in politics.Photo Credit: cliff1066]]>http://www.justmeans.com/FTC--Staff-Discussion-Draft-on-Saving-Journalism---Bravo-Performance/17556.htmlTue, 08 Jun 2010 06:41:48 GMTMichael Hassett The Federal Trade Commission Staff recently released a discussion draft titled "Potential Policy recommendations to Support the Reinvention of Journalism"; a draft that was pilloried in blogs far and wide in a disappointing performance that seemed to completely overlook words like "discussion draft" and "possible" and jump directly to fear and loathing of even discussing policies that could benefit traditional investigative jounalism at the expense of aggregators and rebroadcaster's like, errr, Read Full Article ]]> The Federal Trade Commission Staff recently released a discussion draft titled "Potential Policy recommendations to Support the Reinvention of Journalism"; a draft that was pilloried in blogs far and wide in a disappointing performance that seemed to completely overlook words like "discussion draft" and "possible" and jump directly to fear and loathing of even discussing policies that could benefit traditional investigative jounalism at the expense of aggregators and rebroadcaster's like, errr, most of the blogs that were whining. In addition to earning penalty points for narrow minded self interest and premature whining, many of the blogs were so busy griping about new taxes and IP rights that they missed the biggest problem. Some of the possible policies would seem to allow government financial support for journalistic operations that support specific political parties or candidates. More on this below, but even I do not want to spend time considering a policy that allows politicians to decide which journalists to support, and then let's those journalists decide which politicians the media will support - sounds like incumbency for life to me. Concerns over a new American royalty aside, the goal of the FTC staff was to get people to recognize that journalism is in jeopardy and start thinking seriously about a very broad range of possible responses. The discussion draft does exactly that.Enough about the bloggers performance already, what did the FTC staff say. First, journalism is in a death spiral, ad revenues keep shrinking leading to staff cuts and less real reporting. Experiments with use of the Internet and new types of news organizations are ongoing, but have produced no sustainable business model as yet (not even Patch?). As the Staff puts it, "news is a "public good" in economic terms. That is, it is non-rivalrous (one person's consumption of the news does not preclude another person's consumption of the same news) and non-excludable (once the news producer supplies anyone, it cannot exclude anyone). Because free riding is usually easy in these circumstances, it is often difficult to ensure that producers of public goods are appropriately compensated. " Second, should we "wait and see" how the experiments turn out, or do something about that death spiral now, and what actions should we consider.Start with getting journalists some revenue by changing the law, beginning with intellectual property law. Should the "fair use" exception to copyright be limited so that a search engine or news digest can't pick up the lead of a story without paying a royalty? What about copyright protection for "hot news", the facts first aired in a news story and not just the specific means by which those facts are expressed. What about a news licensing system similar to that employed by the music industry to compensate performances?Next, consider antitrust changes that: 1) Allow news organizations to agree jointly to erect pay walls so that consumers must pay for access to online content; and 2) Allow news organizations to agree jointly on a mechanism to require news aggregators and others to pay for the use of online content, perhaps through the use of copyright licenses. These could have the most effective performance in combination with one or two of the IP changes discussed above.Tomorrow we move on to tax changes, direct government support and my favorite, a look at journalism as a non-profit.Photo Credit: Yan Arief]]>http://www.justmeans.com/Down-to-the-wire-for-Saratoga/16688.htmlFri, 04 Jun 2010 06:48:32 GMTMichael Hassett How did it come to this? Regular readers know I'm not a big fan of gambling. The state becomes dependent on gambling as a revenue source, and a source of patronage and perks. The result is regulation that ignores the needs of the citizenry (think about what the constant barrage of lottery ads does for the compulsive gamblers among us), and gambling operations that aren't very well run.The New York Racing Association (NYRA) is a case in point. A non-governmental, not-for-profit, NYRA runs Aqueduc Read Full Article ]]> How did it come to this? Regular readers know I'm not a big fan of gambling. The state becomes dependent on gambling as a revenue source, and a source of patronage and perks. The result is regulation that ignores the needs of the citizenry (think about what the constant barrage of lottery ads does for the compulsive gamblers among us), and gambling operations that aren't very well run.The New York Racing Association (NYRA) is a case in point. A non-governmental, not-for-profit, NYRA runs Aqueduct, Belmont and Saratoga race tracks and maintains a cozy relationship with the state's politicians in Albany. To get a feel for how gambling and New York politics mix, you need know only one fact - just a few years ago NYRA - a large and powerful not for profit that could, in theory, be a paragon of efficiency- had it's hands full defending racketeering charges, including money laundering.Despite the aura of cheap sleaze that often surrounds gambling, NYRA is entrusted with two gems: Belmont, which plays host to the triple crown finale on its spacious landscaped grounds; and, Saratoga, the nations oldest track, which is pictured in the dictionary under "park like setting." Both are places where you can actually take a family with children for a picnic, have fun with some two dollar bets and go home a winner every time.Saratoga Race Track is also an economic engine for Saratoga Springs. In addition to its famed mineral waters, the town has myriad, year round cultural, culinary and athletic attractions, but Saratoga Springs is scaled to handle the big crowds from the track and would decline sharply without them.This year NYRA reached the edge of insolvency, threatening cancellation of the Saratoga racing season. The immediate problem was twofold: NYC OTB defaulted on a $19 million debt to NYRA and NYRA had counted on revenue from video slot machines at Aqueduct, which weren't installed because the winning bidder was disqualified for - you guessed it- organized crime ties. In fact if you look in the dictionary under cheap sleaze you will see two pictures - a NYC OTB parlor filled with thousand mile stare patrons and a half finished slots parlor at the Big A. The legislature somehow emerged from its stalemate for a minute, just in time to authorize an emergency loan, but, once again, how did it come to this?Last year, in a deep recession with a rainy Travers Stakes, Saratoga had attendance of 854,400, a track handle (total bet at Saratoga) of $112 Million and a total handle (total legally bet on Saratoga races, including OTB parlors) of $513 Million. When you throw in concessions and licensing revenues, there is enough revenue in this package to run a nice track. Why tie Saratoga, or Belmont, to NYRA and its history of problems. Emergency loans may be a short term solution, but when you have a gambling operation that isn't sleazy, keep it privately, locally owned and as far away from Albany patronage as possible. How can NYRA go broke when it has a license to print money? Everybody's nephew is on the payroll. Let government regulate to ensure fairness, not to make a buck and get front row boxes for the pols and their friends. Get the good tracks out of NYRA before it's too late.Photo Credit: Samantha Decker]]>http://www.justmeans.com/Does-performance---market-value--for-Stan-the-Man/16837.htmlThu, 03 Jun 2010 06:52:48 GMTMichael Hassett We need to start this performance with introductions for the non-baseball fan. Stan Musial (Stan the Man) is one of the greatest players in the history of baseball - 3,630 hits, three world championships, three MVPs, seven batting titles, twenty seasons as an all star.. Musial was a line drive hitter, he led the league in doubles eight times, who didn't have that slight uppercut swing that produces a natural home run king like Ken Griffey, Jr. (Musial and both Griffeys are natives of Donora, Pa) Read Full Article ]]> We need to start this performance with introductions for the non-baseball fan. Stan Musial (Stan the Man) is one of the greatest players in the history of baseball - 3,630 hits, three world championships, three MVPs, seven batting titles, twenty seasons as an all star.. Musial was a line drive hitter, he led the league in doubles eight times, who didn't have that slight uppercut swing that produces a natural home run king like Ken Griffey, Jr. (Musial and both Griffeys are natives of Donora, Pa). All Stan the Man did was smash line drives so hard and so often that he hit 475 home runs without even trying. He looks just as good in the spotlight of recent statistical innovation - 8th on the all time WAR (wins above replacement) list, top 5 in all four of Bill James's Hall of Fame indicators.Joba Chamberlain is a young Yankee pitcher who generated a lot of interest with a heater that reached 100 miles per hour when he was a rookie, an outsize personality and a little controversy over how much he should play and whether he belonged in the bull pen or starting rotation. Joba has personality and performance potential, but he hasn't really accomplished much, especially compared to a player like Stan Musial. Michael Kaye and John Sterling are Yankee broadcasters who are popular with Yankee fans.At a silent auction for charity in Northern New Jersey recently, three autographed baseballs were for sale, one signed by Musial, one by Chamberlain, one by both Sterling and Kaye. What were the minimum prices? Part of this depends on supply - Stan is a popular and accomodating star who has signed a lot of balls. Part of it is like real estate, location matters and New Jersey is Yankee territory. Part of it is fame. Despite his performance, Stan the Man is considered the most underappreciated baseball star of all time. The fans who remember him are starting to dwindle and he didn't emit the kind of Ruthian aura that keeps a reputation alive with fans who have never seen him.Allowing for all these factors, one baseball is signed by Musial, one of the ten best baseball players ever, one by Chamberlain, who hasn't done much, and one by two announcers, what are the minimum prices? Chamberlain - $175; announcers - $175; Musial - $150 - OUCH.Does a niche like sports collectibles teach us anything? If you can achieve greatness, at anything, should the world somehow remember? Stan is a balanced and happy guy, a successful GM after his playing days, a man who doesn't need external recognition of his performance to thrive. This is really the fan's loss not Stan's. Still, it says a lot about fame, and maybe something about value. It's not too late for Stan to start using Twitter, but should he?There was one silver lining. Of the three autographed balls, only Stan the Man's sold that night.Photo Credit: shgmom56]]>http://www.justmeans.com/Raise-the-Rate---Ideas-to-Improve-Savings-Performance/16594.htmlTue, 01 Jun 2010 06:54:04 GMTMichael Hassett Asset manager TIAA-CREF is sponsoring a Raise the Rate contest on Facebook, and a first prize of $50,000 should spur performance. The prize goes to the best idea for improving the personal savings rate in the United States. Judges include Maria Bartiromo, but her judicial duties do not include a date with the contest winner, so you will have to be satisfied with the cash and recognition. Second prize goes to anyone who knows what TIAA-CREF stands for.Here's my entry:First, the obvious, sponsor a Read Full Article ]]> Asset manager TIAA-CREF is sponsoring a Raise the Rate contest on Facebook, and a first prize of $50,000 should spur performance. The prize goes to the best idea for improving the personal savings rate in the United States. Judges include Maria Bartiromo, but her judicial duties do not include a date with the contest winner, so you will have to be satisfied with the cash and recognition. Second prize goes to anyone who knows what TIAA-CREF stands for.Here's my entry:First, the obvious, sponsor a contest on Facebook (and/or Justmeans) for the best idea to raise the savings rate. Will be very surprised if TIAA- CREF does not love this idea, may have already locked up first prize.Second, encourage immigration from China, Japan and other countries that have consistently maintained high savings rates. Probably much simpler to import some savings performance than it is to reeducate the shop til you drop crowd. The hard part with this solution is to ensure the imports aren't contaminated by their exposure to American consumer culture. All visas are contingent on monthly attendance at three day seminars designed to re-immerse the immigrants in their native culture of saving.Third, shoot a documentary that hammers home the perils of reaching old age without savings - the "Blood on the Highway" of the 401(K). "Alpo at Eight" or "Cardboard Condo" might inspire some savings performance.Fourth, increase maximum allowed IRA and 401(K) contributions, eliminate minimum withdrawals and eliminate or reduce any income tax imposed on remaining balances that are distributed to a non-spouse on death. Sorry, there is no joke in this item.Fifth, get Nancy Pelosi and John Boehner to explain, in prime time, in plain English, with repeats available on YouTube, why social security faces a demographic dogfight that will require constant chipping away at retirement age and COLA adjustments in order to stay solvent. Then let a Tea Party representative respond. Resulting loss of confidence in political system sure to inspire savings.Sixth, require each entrant on last comic standing to announce his or her net worth and plan for retirement. Then give the other comics an hour to ridicule each retirement plan. Edit down to a series of one minute spots and release them as public service announcements.Teachers Insurance and Annuity Association - College Retirement Equities Fund - At least I get second prize.Photo Credit: Alan Cleaver]]>http://www.justmeans.com/BP-Revisited---Not-SRI--or-a-Buy--At-Any-Price/14815.htmlMon, 31 May 2010 11:20:39 GMTMichael Hassett Please look for other Gulf oil spill related posts today at all the great Justmeans News locations.An earlier post here suggested BP stock might, SRI or not, be a buy at $51, based on the decline in market cap in relation to an estimated spill liability of $14 Billion. Crow is on today's menu, and not because the price has slipped to $46 (as of May 13) - all other things being equal, that would be a reason to buy more - but because this is an SRI blog that somehow missed the SRI boat..What has c Read Full Article ]]> Please look for other Gulf oil spill related posts today at all the great Justmeans News locations.An earlier post here suggested BP stock might, SRI or not, be a buy at $51, based on the decline in market cap in relation to an estimated spill liability of $14 Billion. Crow is on today's menu, and not because the price has slipped to $46 (as of May 13) - all other things being equal, that would be a reason to buy more - but because this is an SRI blog that somehow missed the SRI boat..What has changed are the available facts - specific facts that go to the back of the envelope value calculation, but more importantly, two specific facts that go to management integrity, the core of SRI and a good first place to look even if you are all about the alpha.One is the news that the volume of oil spilling from open hole left by the explosion of the Deepwater Horizon may exceed BP's published estimates by a factor of ten. This may move that $14 Billion clean up cost guesstimate from the top of the reasonable range to the bottom. More important, why wasn't the original BP estimate on rate of spill accompanied by more warning. Sure, everyone understands "estimate" is nothing like a certainty, especially when your trying to assess a catastrophe in very deep water. However, a factor of ten is a big miss. Regardless of the actual spill rate, which is still uncertain, if the original BP estimates were potentially off by a factor of ten or more, this deserved a lot more public attention than BP gave it. The original post gave kudos to BP management for taking responsibility, looks like an SRI demerit may have been in order.The other is regulatory history, history that's gained more attention in the past few weeks, sad history that repeats itself over and over - the regulated industry co opts the process and then does a less than admirable job of regulating itself. Maybe it's too much to expect BP to be a saint in a sinner's world and we should focus on the regulators, but BP certainly gets no SRI gold star here either. As per usual, it's not hard to envision the SRI failure translating into financial loss - if big oil was able to avoid effective regulation, how many more expensive disasters await?Speaking of regulators, Cass Sunstein will be all over the news for the next week. Behavioral economics seems to have taken over all of social science, and even the popular imagination with outlets like Freakonomics and Outliers. Incentives and disincentives are useful tools, but BP seems like a reminder of an older lesson for regulators - show up and do your job, and keep doing it even after the glare of the last crisis is forgotten.Photo Credit: That Goatskin Bicycle Moment]]>http://www.justmeans.com/Execs-Not-Waiting-for-Climate-Change-Regulatory-Performance/15893.htmlThu, 27 May 2010 07:07:56 GMTMichael Hassett Two recent headlines in the world of SRI stirred some speculation here on the performance of business in dealing with climate change. First, American Businesses for Clean Energy came out with a study onbusiness support for climate change legislation, showing 6,000 companies support energy and climate legislation, based on an analysis of membership in six environmental business organizations. The study indicates these 6,000 companies employ an estimated 3.5 million workers, represent more than $2 Read Full Article ]]> Two recent headlines in the world of SRI stirred some speculation here on the performance of business in dealing with climate change. First, American Businesses for Clean Energy came out with a study onbusiness support for climate change legislation, showing 6,000 companies support energy and climate legislation, based on an analysis of membership in six environmental business organizations. The study indicates these 6,000 companies employ an estimated 3.5 million workers, represent more than $2.6 trillion in market capitalization, and totaled $3.5 trillion in estimated revenue in 2009. The 6,000 include twenty-one Fortune 100 companies and 49 Fortune 500 companies.Second, an Ernst & Young survey of 300 executives of major corporations ($1 Billion plus annual revenue) from 16 countries and 18 industry sectors found that most "expect to make significant investments to deliver both cost savings and revenue generation opportunities relating to climate change." 70% of the executives polled plan to increase their spend on climate change/reduced carbon performance in 2010-2012, despite regulatory uncertainty.Putting one and two together, let's come up with five, or maybe six, in some high performance lower mathematics. It's actually not that extraordinary for business to want regulation. If you plan on doing something "right", you can make sure your competitors incur the same expenses as you (or, with a little foresight, even greater expenses), if you can persuade a regulator that the "right" thing should be mandatory for all. The business reaction on climate change regulation is a different story on several counts. It's not one player in one industry looking for an edge or a level playing field - it's broad based. It's not always typical corporate low key, either. When climate change Neanderthals somehow captured the Chamber of Commerce, execs who normally avoid controversy like a down earnings quarter actually revolted.Wanting to be regulated - impressive. Spending money without waiting for regulation - priceless? There's nothing evil about dual motives, and some of that spend might be helping to promote a product or build a brand, but a big chunk of it will be lost (from a branding and profitability standpoint) in a generalized effort to anticipate regulations and reduce total system greenhouse gas emissions that can't be tied very well to a specific product. Even corporate level "do gooder" credit will be hard to claim if a large herd is doing the same thing.Execs usually want to do good when there is no downside, and specific execs and corporations will often make substantial commitments to specific causes, even when the only upside is favorable but very generalized and diffuse, PR. From my angle, the executive view on climate change seems to reflect a unique breadth and depth of commitment that is hard to explain with a profit motive analysis, even a broad, long-term analysis, unless you recall that long term survival is a prerequisite to long term financial performance. Maybe climate change is bringing a new depth to sustainability or ES&G, or maybe it's just that corporate executives have grandchildren too.Photo Credit: bfhoyt]]>http://www.justmeans.com/Need-Funds-Dial-M-for-Money/15759.htmlWed, 26 May 2010 08:22:47 GMTMichael Hassett Need funds? What are you doing and where do you live? In some countries it's been common for years to pay a vending machine or a parking fee with funds transferred by cell phone although for some reason, this hasn't caught on as quickly in the US. In emerging markets, cell phones are hot cakes all over, but mobile payments are syrup only in some. In both the developed and developing world, mobile payment systems are poised for takeoff.Pay Pal and now Mastercard have announced that software devel Read Full Article ]]> Need funds? What are you doing and where do you live? In some countries it's been common for years to pay a vending machine or a parking fee with funds transferred by cell phone although for some reason, this hasn't caught on as quickly in the US. In emerging markets, cell phones are hot cakes all over, but mobile payments are syrup only in some. In both the developed and developing world, mobile payment systems are poised for takeoff.Pay Pal and now Mastercard have announced that software developers may use Pay Pal and Mastercard technology in their own on-line apps and mobile phones. Besides just coming up with more convenient, simpler to use funds transfer systems, developers could use the technology to build a payment feature into a game or an e-commerce app - maybe I can buy a real cow on that farm thing - or alert a card holder by text just before clearing a purchase. As we know from the PDA that suddenly became a must have device, once you turn the developers loose, the apps may surprise everyone, even the core players in mobile payment.In the developed world mobile fund transfer technologies usually make life a little easier, faster, more fun. In the developing world they can make life possible. Historically, poverty and small transactions have meant limited service from financial organizations. The popularity of cell phones and the advance of mobile payment technologies can change all that. Funds to pay salaries, reimburse suppliers, or send remittances home from abroad are all available as mobile banking allows people to conduct transactions with less cost and greater efficiency than physical transactions, particularly when bank branches are not readily accessible. In some cases, it reduces the cost of money transfers by 50 percent. Think iMicrofinance. It also allows people to move out of cash-based informal systems and fully participate in the formal economy, making it a key way to improve livelihoods.IFC, the private sector development oriented arm of the World Bank Group plays an active role in bringing mobile payment to the developing world, supporting the Mobile Money Summit in Rio today and tomorrow. According to materials released for the summit, " the World Bank Group also offers an integrated set of products and services that help governments and the private leverage the mobile payments industry's development potential. These include:Direct investments in payment processors, financial institutions and mobile operators involved in payments;Advice and financing to governments for developing national payment systems and an enabling legal and regulatory environment;Advice to banks, financial institutions and payment processors on strategies and products that reach the base of the pyramid;Dissemination of global research and best practices from around the world; andInitial work on developing globally-agreed upon standards for cross-border remittances."Maybe one of those magical apps of the future will be the electronic drivers license, then we can just ditch the wallet or purse and take the phone.Photo credit: whiteafrican]]>http://www.justmeans.com/SRI-Metamorphosis-for-401-k--Performance/15147.htmlTue, 25 May 2010 06:53:56 GMTMichael Hassett With a nod to Kafka (fear not - SRI but no spiders today), you, Adam, have awoken to find yourself transformed into an employee of a major corporation, Widgco, the world's largest widget company. You are overjoyed to discover that you have been adding regularly to your 401(k), and Widgco has partially matched your savings, but you have a nagging feeling that somewhere in a prior life you were committed to making only socially responsible investments. Somehow your account has been split between t Read Full Article ]]> With a nod to Kafka (fear not - SRI but no spiders today), you, Adam, have awoken to find yourself transformed into an employee of a major corporation, Widgco, the world's largest widget company. You are overjoyed to discover that you have been adding regularly to your 401(k), and Widgco has partially matched your savings, but you have a nagging feeling that somewhere in a prior life you were committed to making only socially responsible investments. Somehow your account has been split between two funds - both managed by the 401(k) administrator, FidVan. One fund, Alpha Uber Alles, is an international growth fund with a track record of outperforming the S&P 500, making a decent comeback from last year. The other is a managed, balanced fund that shifted the portfolio heavily towards fixed income just as equities came back to life - ouch. Neither mentions anything about SRI or ES&G as a factor in selecting investments. Both seem to invest in arms manufacturers, tobacco companies, and, horrors, companies where one old white man is both CEO and Chair. After scanning the menu of investment options, you realize there is no fund on the list that promotes itself as socially responsible. You march steadfastly to your HR rep, Bob, to protest, only to find that Widgco is committed to offering only funds available through FidVan and the execs involved are so busy figuring out how to get employees to save that they aren't interested in any complications like social responsibility.The next day when you awaken you have become Bob, the HR rep. Having slept on Adam's request you see it in a new light. Lots of employees have a conscience, they might want to feel good about their investments. The literature shows the SRI funds can compete on return. Maybe SRI is actually a chance to capture the attention of some of the many Widgco employees who seem to be paralyzed by any investment decision related to their 401(k)s. You go to your boss, Chuck, who says "Nice Idea", maybe just a tad dismissively, before explaining that Widgco is contractually committed to deal exclusively with FidVan and the funds it offers (including some managed by third parties). Chuck adds that it just isn't feasible to deal with more than one administrator on the 401(k)s. FidVan just doesn't offer a lot in the way of SRI for it's 401(k)s.The next morning you are (surprise) Chuck. You have worked on some projects with Widgco's pension and investment committee and you know some of the pension trust for Widgco's defined benefit plan is managed by Trillium - Bob did have a point, maybe there's some way to expand the 401(k) menu. If we can have six different international funds maybe we can make room for one or two SRI funds. You have lunch with Dave, from Treasury, who knows everything and actually sits on the pension and investment committee. Dave snorts at the idea of two 401(k) administrators for one employer, and he's interested in sustainable investing but doesn't see much pressure on FidVan to add socially responsible funds. Dave says he once mentioned Social(k) to the pension and investment committee, but all he got was puzzled looks. Everyone uses FidVan, meaning there is safety in numbers, and no one is leaving without a reason. Dave thinks the SRI funds won't get much play on the 401(k) menus unless and until outfits like Riskmetrics put some serious weight on 401(k) options when they compile CSR ratings. Then, maybe, FidVan will start promoting some SRI options or many more mega-size multinational clients will take a harder look at outfits like Social(k).Next morning you are - not Dave, gotcha. You are a blogger inspired by Social(k)'s announcement that it has opened a San Francisco office. Great website, impressive commitment and one of the all time best names. "Social(k)", what else could evoke a breakfast cereal that promotes itself as a health food and the social contract of Hobbes, Locke and Rousseau in just seven letters, plus two)). That is actually not a typo stab at a smiley face, but a double chin - old bloggers need to get creative once in a while.Photo Credit: kilarin]]>http://www.justmeans.com/For-Long-Run-Performance-Bet-on-Google-TV/15370.htmlMon, 24 May 2010 06:46:35 GMTMichael Hassett Maybe Steve Job's performance at a product introduction is more dramatic than Eric Schmidt's. Maybe there's a lot of hurdles for tv that is truly integrated with the pc and Internet, hurdleslike recruiting more electronics manufactures and retailers as "partners", finding a market at a high price point then gradually building volume to drive that price point down. Hurdles or no, if I had to choose between iPad and Google TV for long term performance, my money is on Google.First, Google's got a n Read Full Article ]]> Maybe Steve Job's performance at a product introduction is more dramatic than Eric Schmidt's. Maybe there's a lot of hurdles for tv that is truly integrated with the pc and Internet, hurdleslike recruiting more electronics manufactures and retailers as "partners", finding a market at a high price point then gradually building volume to drive that price point down. Hurdles or no, if I had to choose between iPad and Google TV for long term performance, my money is on Google.First, Google's got a nice running start on the partners problem, with Sony, Logitech and Best Buy on board.Second, there's a substantial market for home entertainment systems and two major niches within this market will be early adopters for whom Google TV is a must have - the "just give me the best of everything" crowd and the "must be the first to have the latest in tech" crowd.Third, guys always want more size. (This is getting close to the line, but I promise not to use "performance" in this paragraph, even if it is a key word.) When purchasing a tv or monitor, the proper size can be determined with a simple practical measurement. Go to the full size movie theater nearest you. Sit front row center. Put a sheet of paper on your lap with a dot near the middle. Draw a line from the dot towards the left edge of the movie screen, ending at the edge of your paper. Now a second line toward the right edge of the movie screen. Take the paper home, sit in your favorite chair and extend those lines out to intersect the wall on which you will hang your tv. Your new tv should be wide enough so that its edges go to the points of intersection - in other words recreate that movie theater front row viewing angle at home. Most will be surprised to learn they need a set with with a screen diagonal of at least 91 inches. Sorry, I got a little off track there. I've tried to explain this to my wife so many times it just pops out.The more size thing is not just a joke. Seriously, what's the iPad. It feels less like a revolution than a solution to a problem - PDA apps got too cool for tiny little screens. Recognizing that there may always be room for the iPad (carrying those 91 inch tvs can be awkward, and then there's the whole cord issue) isn't bigger better. iPad has a beautiful Kindle display. Cute. Now put it on a big screen so you can read from your favorite chair and rev up the magic of apps to come. An auto search that finds related videos as you read, so that you can turn the page of Alice and Wonderland into a giant, Blue Ray illustration starring Johnny Depp. That's performance. When you finish your book switch to a youtube stand-up performance, in giant screen. Forget apps to come. Just having a really good search function for program selection might be worth the price of admission.Fourth, Job's is a product design and marketing genius, but Eric and Sergey think deeper. The closed source, we're in control approach can reduce bugs and increase profits, but long term I'm betting on the guys who knew when to say "enough" to the PRC..Photo Credit: Robert Couse-Baker]]>http://www.justmeans.com/Rating-Agency-Frankenstein-or-Performance-Solution/15229.htmlThu, 20 May 2010 07:02:46 GMTMichael Hassett On a scale of 10 (best) to 1, the performance of the major credit rating agencies in the years leading up to the bursting mortgage security bubble earned a 0, and that is generous. Most, this blogger included, assign much of the blame to a fee system in which the issuer of a proposed security is responsible for selecting the rating agency and paying the fee. The same basic conflict is inherent in every deal, give this security a high rating or I won't come back next time. To compound the inheren Read Full Article ]]> On a scale of 10 (best) to 1, the performance of the major credit rating agencies in the years leading up to the bursting mortgage security bubble earned a 0, and that is generous. Most, this blogger included, assign much of the blame to a fee system in which the issuer of a proposed security is responsible for selecting the rating agency and paying the fee. The same basic conflict is inherent in every deal, give this security a high rating or I won't come back next time. To compound the inherent conflict, the fee is due only if the rated security is actually issued, an aborted deal (which can be caused by a lower than expected credit rating) also eliminates the fee for the rating agency. Perhaps worse still, issuers could work on a preliminary basis with more than one rating agency, then go with the agency that offered the most favorable rating.Something had to be done. Senator Al Franken has proposed an amendment, now approved by a rare bipartisan vote of 64 to 35, to the financial reform bill that will solve the conflicts problem, and create a lot of big new problems instead. Sadly, we must conclude that if 64 Senators agree, they must be doing something horribly wrong.First, the usual conflicts disclosure. We can't bash the rating agencies for conflicts, then hide our own. Regular readers recognize these disclosure "therapy sessions" include an element of humor - thank God no Christian Brothers involved in this one-but some of this stuff might actually effect my outlook and blogging performance. So.....I'm crazy about Al's old "I, Al Franken" SNL routines. Hated Stuart Smalley. Love the fact that an ivy grad, comedy writer/performer and sometime stand up can get elected to Senate. I will be in the next NJ primary. I do not like public utilities, although I accept them as a necessary mediocrity in some industries.Unburdened, we consider what the Franken amendment will do. First, create a new Federal agency - ouch, never a good start. Next, make it part of the SEC - the same SEC that got a pre-crash performance rating of "-1" while the credit rating agencies earned their "0"? Now, let the new government agency assign all work to the credit rating agencies, that's right - whenever someone wants to issue a new security the new government agency will tell them which credit rating agency they must use. No more rating shopping, no more implicit pressure from that inherent conflict. But there are some huge buts.How about fees. The credit rating agency will have a captive customer, a mini-monopoly, created by government fiat, so it can charge whatever it wants, up to the point where the issuer says it will go to market with no rating whatsoever - a dicey and difficult proposition in today's universe. Solution -. new government agency sets fees. How about allocation of work. Right now there are ten rating agencies registered with the SEC: Moody's, S&P, Fitch, and the seven dwarfs. Will the new government agency give equal assignments to each of the ten? If so, the value of the seven dwarfs just went up one hundred fold by government fiat. Can I start a new credit rating agency, register and get one out of every eleven assignments, beginning on Monday? Guess the new government agency will decide.We have stripped the credit rating agencies of the incentive to rate too highly, but have we also stripped them of the incentive to work well, to work fast, to work hard? If assignments and fees are all determined by the new government agency, then it would seem so. Sounding more and more like a public utility?Better alternatives if you wan to incent performance from the credit rating agencies: 1) Let the securities buyers pay for credit ratings instead of the issuers and forget all this new Federal agency stuff. In some ways this is a return to prehistoric times, with lots of new logistical problems, but a smart guy like Al might find a way if he started working on it from this angle. 2) Keep the existing "market" system (issuer picks and pays the credit rating agency) but eliminate some sources of conflict - the credit rating agency gets paid even if the security is not issued and the issuer has to lock into one credit rating agency early on - no ratings shopping. The result still has that big, inherent conflict, but it's very similar to the CPA's inherent conflict - keep the client happy but still make sure that any certified financials are kosher, er GAAP.Photo Credit: Dano]]>http://www.justmeans.com/Goldman-v-World-2---Who-Wins-and-Why/14721.htmlWed, 19 May 2010 07:01:59 GMTMichael Hassett This continues yesterday's post.Blankfein was even more impressive on Charlie Rose, where he didn't have to fend off naked hostility while answering questions that required remedial finance rephrasings before he could even attempt an answer. He seemed genuinely concerned, maybe even remorseful, about the way the firm's role as a market maker had created conflict, or at least the appearance of conflict, with it's clients.Blankfein is worried about the first criticism, and maybe the third (which i Read Full Article ]]> This continues yesterday's post.Blankfein was even more impressive on Charlie Rose, where he didn't have to fend off naked hostility while answering questions that required remedial finance rephrasings before he could even attempt an answer. He seemed genuinely concerned, maybe even remorseful, about the way the firm's role as a market maker had created conflict, or at least the appearance of conflict, with it's clients.Blankfein is worried about the first criticism, and maybe the third (which is related, since Goldman chose to hedge it's own bets when it thought the real estate mortgage markets were overheated, not sound the alarm). In fact the core "clients" - Goldman shareholders, advisees, holders of funds managed by Goldman - have done well. Institutions climbing into a synthetic CDO were probably never "clients", in the narrowest sense of the term (although Mr. Cuomo may be trying to prove otherwise), but what Goldman could have done better is shout this in plain English so clearly the whole world understood what duties it was undertaking with whom, rather than relying upon boilerplate in the offer sheets. Blankfein is sounding a note of regret, but he is wisely allowing other voices, Goldman investor Warren Buffet and journalists like Fareed Zakaria, to come to Goldman's defense on this issue. The SEC case is a little more involved than these voices would lead you to believe, but they are right, and clear, about the big picture and if they overlook some of the more sordid details in the SEC claims of affirmative misrepresentation by Fabulous Fab, well, so much the better for Lloyd & Co.Over the last few weeks Goldman has implemented a much improved PR strategy in responding to criticisms that it bet against its clients and caused the crash, but what about the other critiques - crazy casino business, too much comp, runs the world? The SEC, US Attorney and NY Attorney General Cuomo may be coming to Goldman's rescue with investigations of Morgan Stanley, Citi, Deutsche Bank and others. Nothing like a little distraction and a reminder - other banks were doing the same thing as Goldman, just not as well. Congress will actually help out too. If it doesn't want banks running a casino it can say so - that's part of what the derivatives battle in financial reform legislation is all about- and at the same time remind people that synthetic CDOs, and other exotics that don't seem to do much for Main Street, were legal. What about those angry shareholders - seriously, who wants a feud with the Christian Brothers? Well, the same types of resolutions are presented to shareholders of other companies, usually drawing lower votes. The activist shareholders are not going away, they may eventually prevail, but if Goldman management improves its general image, treats the activist shareholders with respect, maybe even makes a concession or two, the shareholder situation will return to normal. In fact, despite its current villain status, Goldman has been repeatedly recognized as a leader in some areas of corporate social responsibility.So what's left? Too much compensation? Lloyd did ease off for a year, but I don't think management really wants to change this one. You might see a splashy charity campaign to offset some of the bad PR around comp, but Goldman already has active charity programs. Rules the world? Hey, I'm scared. Those kind words about Mr. Blankfein were no accident. Somehow I think Goldman management hopes we will all just forget about this one.Photo Credit: americans4financialreform]]>http://www.justmeans.com/Goldman-v-World-1--Who-Wins-and-Why/14646.htmlTue, 18 May 2010 06:54:55 GMTMichael Hassett The last Goldman post to appear in this space included a conflicts disclosure that turned into a mini-therapy session. This time, you can forget the mini.If you filter out the generalized anti-Wall Street, anti-elite, anti-semitic hatred there seems to be four major strains to the popular criticism of Goldman: 1) it bet against its own clients; 2) it's promoting crazy casino-like transactions that don't provide any benefit to the real economy; 3) its errors were a major contributor to the market Read Full Article ]]> The last Goldman post to appear in this space included a conflicts disclosure that turned into a mini-therapy session. This time, you can forget the mini.If you filter out the generalized anti-Wall Street, anti-elite, anti-semitic hatred there seems to be four major strains to the popular criticism of Goldman: 1) it bet against its own clients; 2) it's promoting crazy casino-like transactions that don't provide any benefit to the real economy; 3) its errors were a major contributor to the market crash and recession, but it was bailed out (via AIG) and suffered no consequences - this one includes the subhead that Goldman makes too much money - we've all seen the stat, average Goldman managing director earns median US wage in less than 2.73 milliseconds - and keeps on making it even asthe unemployed andMain Street struggle; 4) it's not so secretly running the world, with alumni in high office at all times, no matter what party is in power.Some of Goldman's initial reactions to the financial crisis - remember "doing God's work", or the claim that Goldman would have survived with no bailout - were ill advised and now everyone seems to be after Goldman's scalp, the SEC, Congress, the media, mortgage security derivatives investors, Andrew Cuomo, even its own shareholders. Does Goldman care? Yes, at least on a PR level, Goldman is worried about some of these criticisms, especially when financial regulatory reform is on the front burner and the derivatives business may be on the line. What can Goldman do?Let's start with Goldman management versus its own shareholders at the annual meeting held on May 7. A variety of shareholder proposals garnered some support at the meeting: 19% in favor of CEO not serving as Chairman; 33% for expanded disclosure on collateral in derivatives transactions; 31% for semi-annual reports on political contributions and expenditures; 5.5% for a resolution addressing pay disparity and withdrawal of a resolution seeking a compensation panel after management agreed to an annual Say on Pay vote. The NY Times hailed this as a management victory. Kudos to Robert Kropp at Social Investment News for pointing out how wrong the Times got it. These numbers reflect an unusual level of shareholder dissatisfaction, especially at a highly profitable company. As Mr. Kropp notes, a resolution can stay on the ballot forever as long as it can pull a 10% vote each year, but not many shareholder resolutions do. Of course, management's recommendation did prevail on these votes, but the Times is truly correct in only one sense. Given that much of the world had turned into an angry, torch waving anti-Goldman mob at the time of the meeting, the results could have been even worse for management.Now for the therapy, er conflicts disclosure. First, the resolution urging separation of the Chairman and CEO jobs came from the Christian Brothers Investment Service - no problem here with the whole brandy and St. Bernard thing, but my outlook is shaped (some might say scarred) by four years at a Christian Brothers high school. Second, Lloyd Blankfein impressed the heck out of me. As a witness in hostile Senate hearings he had a major advantage - he actually understood what he was talking about and the Senator's asking questions did not. He also seemed a lot more genuine and likable than the Senators, like some of my MIT friends from NYC's outer boroughs and public schools like Brooklyn Tech and Stuyvesant - a lot smarter than me, but they didn't have to prove it with every sentence.This post ends with part 2.Photo Credit: Mike Licht, NotionsCapital.com]]>