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The best line in today's Theo Francis and Ian McDonald WSJ piece about the culture change at AIG since Hank Greenberg was replaced by new CEO Martin J. Sullivan:
"The change became clear to many employees at the end of Mr. Sullivan's first employee conference call after he became CEO. Mr. Sullivan wrapped up by urging employees to keep working hard, said one person who heard the call. What came next took listeners by complete surprise: "And don't forget to have fun."
In the Journal's many decades of publishing, this has to be the first time the word "fun" has been used within two paragraphs of the word "insurance."
Posted by dan at 04:03 PM
In Today's Financial Times, Harvard economist Kenneth Rogoff likewise zings Treasury Secretary John Snow (a.k.a. Dean Wormer) for failing to mention the imbalance that dare not speak its name:
"Of course, what the Treasury report does not say is that "global imbalances" is a euphemism for "US borrowing binge". After all, America is now absorbing 75 per cent of the current account surpluses of the world's surplus countries, not just China. Nor does the report mention how extraordinarily lax US monetary and fiscal policies of the past few years have probably played a far bigger role than China's peg in exacerbating the problem. Now that the US recession has passed, the starting point for reducing global imbalances has to be faster macroeconomic policy normalisation in America. The report spews the official line that the government is already reducing its own fiscal deficit. But the official target of a 50 per cent deficit reduction by 2009 is hardly ambitious enough, even if it were fully credible. Monetary policy, too, needs to compensate for years of low interest rates that have fuelled an increasingly specula tive housing price boom, which has in turn contributed to low personal savings and a bigger current account deficit."
Posted by dan at 05:11 PM
Brad DeLong reads Harvey Rosen's WSJ op-ed, and calls him out for not mentioning the imbalance that dare not speak its name.
Posted by dan at 05:08 PM
Fresh off of dumping two horrendous IPOs -- Lazard and Warner Music Group -- on a groaning market in the past few weeks, Goldman, Sachs looked set to continue its run with Boise Cascade. Yet another IPO in which private equity players planned to cash in by selling shares to the public, and in which the company itself would get comparative slivers.
Yesterday, after having cut the price sharply, the offering was spiked. "When we started down this path, market conditions were obviously much different than they are at this time," said Boise Chief Executive Officer Tom Stephens said in a news release. "We concluded that it was in the best interest of our existing shareholders not to proceed in the current climate."
(Translation: Goldman has pissed off so many of its clients with two failed offerings in a row that it couldn't risk launching a third stinker.)
Posted by dan at 03:52 PM
An excellent scoop by Jon Fine, who writes in AdAge (registration required):
"In the latest sign of advertisers’ heightened sensitivity to editorial coverage, embattled financial giant Morgan Stanley informed key publications of new guidelines that require its ads to be pulled as negative stories about it are published.
“In the event that objectionable editorial coverage is planned, agency must be notified as a last-minute change may be necessary. If an issue arises after-hours or a call cannot be made, immediately cancel all Morgan Stanley ads for a minimum of 48 hours,” reads a key section of its planned addition to ad contracts, according to executives who’ve seen it.
. . . . Among the publications that have received that directive or have had other discussions concerning Morgan Stanley with its media agency, Publicis Groupe’s Starcom USA, according to executives with first-hand knowledge of the situation, are Gannett’s USA Today; Pearson’s The Financial Times and The Economist; McGraw-Hill Cos.’ Business Week; The New York Times and Time Inc.’s Fortune. Executives and their representatives declined to detail how such directives, and publications’ individual “pull policies,” were handled internally. A spokeswoman for Dow Jones & Co.’s Wall Street Journal said the paper was contacted about the policy.
Posted by dan at 04:20 PM
The wires and financial press were abuzz with the U.S. Treasury Department's stern warning to China that it better start thinking about revaluing its currency, and soon. Or else? . . . Well, that's not quite clear.
Treasury's report to Congress can be viewed here in its entirety.
And Treasury Secretary John Snow, assuming the role of stern lecturer, amplified the report's findings by invoking more hedges than can be found in an Easthampton estate.
On the one hand, China shouldn't let market forces decide the value of the currency just yet.
"First, we are not calling for an immediate full float with fully liberalized capital markets. This would be a mistake at this time – China's banking sector is not prepared. What we are calling for is an intermediate step that reflects underlying market conditions and allows for a smooth transition – when appropriate – to a full float."
On the other hand, if China continues to manipulate its own currencies in ways we don't like, it could be branded as a currency manipulator.
"As Treasury's report states, if current trends continue without substantial alteration, China's policies will likely meet the technical requirements of the statute for designation. China is now ready and should move without delay in a manner and magnitude that is sufficiently reflective of underlying market conditions."
Hey, this isn't high finance. It's Animal House. The Chinese are the Deltas. And John Snow is Dean Vernon Wormer.
Greg Marmalard: But Delta's already on probation.
Dean Vernon Wormer: They are? Well, as of this moment, they're on DOUBLE SECRET PROBATION!
Posted by dan at 03:27 PM
Barry Ritholtz takes a fine-tooth comb to CEA head Harvey Rosen's WSJ op-ed, and unearths all sorts of nits to pick.
Posted by dan at 12:51 PM
Harvey Rosen, the new chairman of the President Bush’s Council of Economic Advisers, makes a foray into the Wall Street Journal’s editorial page.
As expected, there’s plenty of cognitive dissonance. First, he notes that as bad as March seemed:
“the recent stream of good economic news should lift even the most dismal of spirits: The economy created 274,000 new jobs in April, 100,000 more than expected, and the preceding two months were revised upward by nearly 100,000 as well. Retail sales grew 1.4% in April, bouncing back from a soggy March. The March trade deficit came in $6 billion less than expected.”
But in the next paragraph he warns:
“The bounceback in recent data exemplifies that we shouldn't overreact to individual reports of economic data -- or even to a full month of data. The economy has a way of making anyone who puts too much emphasis on a single month look foolish.”
After a round of huzzahs over jobs data from the past year (and conveniently ignoring jobs data form the past four years), he returns to full-on cognitive dissonance mode.
Rosen notes that Bush plans to further strengthen the economy by making the tax cuts permanent and improving the nation’s fiscal standing by reducing the deficit, citing recent low increases in proposed discretionary spending. “By controlling spending and keeping taxes low, we can improve growth and fiscal health.”
Throughout the piece, Rosen urges us to focus on the long-term. Fine. What are the long-term implications of making the tax cuts permanent for fiscal health? Massive budget deficits in the out years. That’s why the Office of Management and Budget won’t include tax-cut extensions in its long-term projections. The picture would be too ugly.
And over the long-term, if you hold down growth on discretionary spending while massively increasing spending on defense, nation-building, and education, all while creating a hugely expensive open-ended Medicare prescription drug benefit, you don’t cut into the growth of government spending at all.
In other words, if you look at the administration’s recent record and take its stated policy goals at face value, the long-term fiscal pictures looks simply awful. “The long term, as always, is the smartest focus,” Rosen concludes. Right on.
Posted by dan at 09:01 AM
In the 1980s, as the Reagan administration budet official who was forced to justify the simultaneous reduction in income taxes and slashing of social programs, David Stockman found himself on the wrong side of the class war.
In recent years, the former Michigan Congressman turned investment banker tried to get back on the right side of the ongoing struggle--and get rich in the process. He helped form a new private equity firm, Heartland Industrial Partners.
Heartland was imagined as a different animal than its east coast counterparts. It would invest in struggling Midwestern industrial companies, and work with unions rather than try to destroy them.
So far, it's made four investments in large, well-known companies in auto parts and manufacturing. The investments certainly helped improve Stockman's image, as Tim Noah noted in Slate in 2003.
But some of the investments have been no more successful than Reagan's efforts to reduce government deficits. One of the firm's largest investment was in Collins & Aikman, a big car parts manufacturer. In August 2003, as the company struggled, Stockman himself was installed as CEO.
But in short order, he learned a tough lesson that many other midwestern CEOs have learned. When your main business is supplying parts to GM and Ford, and when the Big Two simultaneously squeeze suppliers and reduce production, the business sucks.
Last week, Stockman resigned as CEO.
And this morning, the Journal reports that the company is expected to file for Chapter 11 bankruptcy protection.
Posted by dan at 08:56 AM
A useful (and funny) reminder on the half-life of technology fame, from Barry Ritholtz.
The list of Time magazine's 1998 Top 50 cyber-elite is home to more deposed strongmen than the Cote D'Azur.
Posted by dan at 03:54 PM
Did you notice that the dollar was down today?
Ashraf Laidi, chief currency analyst at MG Financial Group hazards a guess as to why:
"The dollar is falling across the board after the Treasurys TICS report reported that net foreign purchases of US stocks and bonds tumbled 46% to $46 billion in March, falling below the $54 billion trade deficit for the corresponding month. This is the first trade deficit financing shortfall since October 2004. . . Central banks were net sellers of US Treasuries for the first time since August 2003, paving the way for foreign-registered hedge funds to snap up all of the $27 billion in foreign purchases of Treasuries."So the Asian central banks that have to buy our government debt and hold it in order to keep their currencies weak and ours strong may have stopped buying. And "foreign-registered hudge funds" (read: U.S.-based hedge funds domiciled in offshore tax havens) who have the attention span of a three-month-old puppy have stepped into the breach.
Posted by dan at 03:11 PM
I have a couple of pieces in New York magazine's excellent real estate package.
Posted by dan at 12:34 PM
We've long known the supply-side/Keynesians who relentlessly champion the fiscal policy of the last several years have difficulty with addition. But the latest "Buzzchart" on National Review reveals grammatical problems, too.
Maybe they can use some of the money they're raising in the current pledge drive to hire a copy editor. (Hint: the incorrectly spelled word is "impletation.")
Posted by dan at 09:34 PM