« September 10, 2006 - September 16, 2006 | Main | September 24, 2006 - September 30, 2006 »
Fortune's Nina Eaton has a good profile of Rep. Rahm Emanuel in the current issue. But in her sidebar on House Majority Leader John Boehner, she lets Boehner get away with a whopper.
Nearly a decade ago, Boehner opposed House Republicans eager to pursue impeachment of President Clinton. "If your opponent is committing suicide," Boehner likes to say, "there's no reason to murder him."
This line should have set off b.s. detectors, since the number of House Republicans who opposed the impeachment drive was very small. And a simple check of the Roll Call votes on the impeachment measures reveals that Boehner voted for every article of impeachment!
Posted by dan at 10:11 AM
Interesting article in the New York Times today by Julia Preston about fruit rotting in California becauuse of a lack of illegal immigrants to do the work. Farmers say they can't find people willing to work for the wages they have on offer. But clearly there is some price point at which they could have convinced people to come pick their fruit. Apparently, these fruit farmers being economically rational creatures, they preferred not to harvest the fruit to trying to harvest it at very low margins.
Posted by dan at 10:02 AM
The latest in the options backdating scandal. Peter Grant, James Bandler, and Charles Forelle report in the Wall Street Journal that at cablevision, a dead executive received backdated options.
Cablevision Systems Corp. awarded options to a vice chairman after his 1999 death but backdated them, making it appear the grant was awarded when he still was alive, according to a company filing and people familiar with the matter.The country's fifth-largest cable operator in terms of subscribers also improperly awarded a compensation consultant options but accounted for them as if he were an employee, according to a Securities and Exchange Commission filing, citing the results of a six-week investigation by an outside law firm.
The findings of the probe were released yesterday as the Bethpage, N.Y., company restated its financial results and said two of its directors had stepped down from posts on the board's audit and compensation committees as part of an escalating investigation into its improper granting of stock options.
The company also said it had received a grand jury subpoena in connection with an investigation into its options practices from the U.S. Attorney for the Eastern District of New York.The improprieties regarding the deceased executive -- Vice Chairman Marc Lustgarten, who died in 1999 -- and a compensation consultant are among the more unusual allegations of abuse that have surfaced in the scores of investigations that have been launched this year over improper stock-options practices. About 100 companies are under federal investigation for possibly backdating or otherwise manipulating stock-option grants to secretly boost their value.
Posted by dan at 09:54 AM
The Competitive Enterprise Institute has gone so far off the deep end on its global-warming skepticism that ExxonMobil won't fund it's junk science efforts anymore.
Posted by dan at 10:18 AM
This will be a test of the demand for hybrids. The AP reports via the Wall Street Journal:
Tax incentives for environmentally concerned drivers shopping for certain energy-efficient hybrids will soon start disappearing.The Internal Revenue Service said its tax collectors have been told that Toyota Motor Corp. this summer hit the legal production limit -- 60,000 vehicles -- that Congress imposed on vehicles eligible for a tax credit. The announcement means that federal tax credits for Toyota and Lexus hybrid vehicles will be cut in half beginning in October, the IRS said.
The $3,150 credit for the popular Toyota Prius, the largest hybrid tax credit available, will shrink to $1,575 on Oct 1.
Credits for other hybrids manufactured by Toyota, including certain Camry, Highlander and Lexus vehicles, will shrink to $775 to $1,300. Under the schedule set by the hybrid-tax-credit law, the tax break will be cut in half again to 25% of its original value six months later.
Beginning April 1, 2007, the tax credit for the Prius will be $787.50, and credits for other Toyota and Lexus vehicles will range from $387.50 to $650. No credits can be claimed for the purchase of Toyota hybrid vehicles beginning Oct. 1, 2007.
Taxpayers can still claim full tax credits for purchasing hybrids made by other manufacturers, such as Honda Motor Co., Ford Motor Co. and General Motors Corp., until those manufacturers trigger the vehicle-production limits or the tax break expires in 2011. Tax credits for other hybrids range from $250 to $2,600, depending on the vehicle.
I don't think it will hit sales of hybrids significantly because most buyers aren't motivated by potential tax savings.
Posted by dan at 10:13 AM
The Midwest, where home prices have been muted in recent years, may be hurt the most in the current slowdown. Lingling Wei reports in the Wall Street Journal:
Homeowners in the Midwest -- the nation's industrial heartland -- are starting to see a housing bust without ever experiencing a housing boom as more job losses trigger mortgage delinquencies and foreclosures.For months, the biggest worries over the slowing housing market in the U.S. have mainly focused on parts of the country that have seen exceptional price increases from 2000 to 2005, places with growing populations and strong economies such as California, Florida and Nevada. But recent data from the federal government and private-sector researchers point to areas in the Midwest that are witnessing a more dramatic slowdown in home prices and, in some cases, higher borrower defaults than the rest of the country.
Home prices in the region have hardly budged over the past few years because of its weaker economy as compared with other regions. Michigan, for example, has lost nearly 300,000 jobs since 2000, and its jobless rate has been consistently higher than the national average.
A recent report by the Office of Federal Housing Enterprise Oversight looked at housing prices in 275 metropolitan areas across the country. Six of the seven metropolitan areas that showed housing-price declines for the 12 months ended June 30 were in Indiana and Michigan. The study also stated that housing prices in states like Indiana, Ohio and Michigan were fairly flat over the past year but actually declined in the second quarter.
The decline in price appreciation threatens to pinch Midwest homeowners in an already difficult economic position. "In a rising unemployment situation, as experienced by some Midwest states," says Damien Weldon, director of collateral-risk analytics at First American LoanPerformance, "a lack of significant home-price appreciation can limit homeowners' ability to tap into their home's equity by refinancing their mortgages or taking out a home equity line of credit."
He adds, "The safety cushion a large amount of home equity provides simply doesn't exist for many people in that region."
An analysis conducted by First American LoanPerformance, a research firm in San Francisco, based on the latest information available, found that the percentage of loans in foreclosure in the Midwest states of Michigan, Ohio, Illinois and Wisconsin reached 0.93% in June, while foreclosures across the country averaged 0.5% -- still historically low. Michigan, hurt by job losses in the automobile industry, booked a 26.8% jump in foreclosure rates -- to 0.69% in June from a year earlier, the largest year-on-year increase within the Midwest. Meanwhile, the percentage of loans delinquent for more than 90 days in the hard-hit area was 15% higher than the national average.
Posted by dan at 10:09 AM
Two weeks ago, I posted about Pinnacle Development Partners, a firm that was advertising in national publications saying it would give 25% returns in 60 days for real estate investments. I noted that it sounded fishy. Today, Zachary Seward and John Hechinger reports in the Wall Street Journal that it sounds very fishy indeed:
California securities regulators are investigating an Atlanta company that has raised millions of dollars through a national advertising campaign promising fat returns investing in foreclosed properties, according to a person familiar with the matter.The state is examining Pinnacle Development Partners LLC, whose ads tell investors they will receive a 25% return on their investments in 60 days. Capitalizing on investors' thirst to strike it rich in a waning real-estate market, Pinnacle says it refurbishes foreclosed properties and then sells them at a hefty profit. However, real-estate records show the only buyers of the properties are located at Pinnacle's address. A person familiar with Pinnacle said those buyers are related to the company.
California officials are trying to determine whether Pinnacle is generating profits from buying and selling real estate, or whether it is paying returns using other investors' money, which would make it a Ponzi scheme, according to one person familiar with California's investigation. In a Ponzi scheme, earlier investors are paid with money from newer investors, until the supply of new investors runs out. . . .
Well worth the $ to read the whole thing.
Posted by dan at 10:04 AM
My latest in Slate, on Chrysler's woes.
Posted by dan at 10:02 AM
The concern over shipping jobs overseas may be overhyped. But the concern over shipping U.S. capital overseas may be underhyped. From the Economic Policy Institute's analysis of the latest data on capital flows.
Rapidly growing payments on foreign holdings of U.S. Treasury securities are the most important cause of the deficit on investment income, as shown in the figure below. Foreign holdings of treasury securities reached $2.0 trillion in the second quarter.2 Payments on this debt reached $36.3 billion (1.1% of GDP at an annual rate), an increase of $9.9 billion in the past year alone. The payments are growing both because the stock of Treasuries held by foreigners is growing rapidly, and because of rising interest rates.
Posted by dan at 04:17 PM
Ben White reports in the Financial Times on Goldman, Sachs's continuing labor arbitrage efforts:
Bangalore will soon surpass Tokyo as Goldman Sachs's third largest office by head count, according to executives at the investment bank.The shift underscores the pressure on securities firms to trim compensation costs, and the surging talent pool in India capable of performing everything from information technology support to sophisticated analytic research.
Goldman's Bangalore officeemploys close to 1,200 and is on track to soon overtake Tokyo, which employs 1,500, according to Goldman officials.
That would make Bangalore Goldman's third largest office by head count behind New York and London.
Posted by dan at 03:00 PM
Swedes push back hostile Germans! No, it's not a headline from an alternative history of World War II. Swedish truckmaker Scania is, so far, successfully, fighting off a bid from German competitor MAN. Richard Milne and James Mackintosh reports in the Financial Times:
MAN’s €9.6bn ($12.1bn) bid for Swedish truckmaker Scania ran into trouble on all fronts on Monday, with some of the German company’s directors warning that it could be opening itself to the threat of a takeover.The unsolicited cash and shares offer was rejected by Scania and its two biggest shareholders, Volkswagen and Investor, which together hold more than half of the voting rights.
Several non-executive directors warned that MAN itself could be in play if “it follows this high-risk strategy”, according to people close to its supervisory board. The board unanimously approved the offer at a Sunday afternoon meeting but several directors spoke out at length against the dangers of bidding without the approval of Scania’s two main shareholders.
MAN’s advisers believe VW and Investor’s resistance is mainly over price and that a sweetened offer could win them over as neither rejected the bid on principle.
Posted by dan at 02:57 PM
Well, here's one example of a center-left government losing out to a center-right government in Europe that can't be blamed on President Bush. The FT reports.
Posted by dan at 02:54 PM
Something tells me the gigantic losses at gigantic hedge fund, documented in the Wall Street Journal and New York Times today aren't going to show up in the various hedge fund indices that purport to track the performance of the sector.
Posted by dan at 10:32 AM
Either consumers are getting wise to nutrition, or they're running out of disposable cash. Yum Brands reported that U.S. sales at its flagship franchises--Pizza Hut, Taco Bell, and KFC--were down in the third quarter. Down 2 percent at Taco Bell, down 5 percent at Pizza Hut, and flat at KFC.
Posted by dan at 10:08 AM
The Treasury Department has published data on capital inflows to the U.S. for July. Net long-term investments from foreigners amounted to $32.9 billion in July 2006, down sharply from $75.1 billion in June and $63.6 billion in May.
Posted by dan at 10:04 AM
Clearly, the shareholders of Computer Associates have worse judgement than the citizens of New York. Yesterday, they re-elected former Sen. Alfonse D'Amato as a director. Just try saying the words "Alfonse D'Amato," "public trust," and "fiduciary duty" in the same sentence.
Posted by dan at 09:53 AM
A quiz:
The Wall Street Journal (a) and the New York Times (b) preview the National Retail Federation's holiday sales forecast.
Match the headline with the publication.
1. "Retailers See Strong Sales for Holidays: An Industry Group Expects a 5% Gain."
2. "Retailers Draw a Weak Forcast for Holidays."
Answer: 1b, 2a.
Posted by dan at 09:50 AM
My latest in Slate, on Google's new-style philanthropy.
Posted by dan at 09:08 AM
Greg Ip has a good piece in the Wall Street Journal on why there's not quite as much as meets the eye when it comes to the new income data.
Scorekeepers at the Commerce Department last month discovered that American workers were earning far more than previously estimated -- and that created an economic puzzle.The new data were out of step with other measures showing sluggish wage growth, a factor in widespread worker dissatisfaction turning up in the polls. And the increased income wasn't matched by more production -- that is, in gross domestic product -- as it should have been.
Solving this puzzle is important for understanding how well American workers and companies are doing and whether rising wages pose an inflation threat.
The answer appears to be stock options, a growing part of compensation for top-end workers. Accounting for them properly has been a major source of controversy for companies. Now it is complicating the government's economic accounting, as well.
The Commerce Department's Bureau of Economic Analysis, which keeps the nation's GDP books, treats profits from the exercise of options as labor income. But options aren't counted in most other measures of wages. So the BEA reports -- which are important both to markets and the Federal Reserve -- may be overstating the extent of wage pressure, and, for related reasons, at least temporarily overstating profits. . . . .
Last month, the BEA declared that labor income for all Americans in the first half was an annualized $95 billion, or 1.3%, more than it had estimated just a month earlier. This suggested Americans were flush with cash, welcome news for those worried about a slowing economy, but it also raised inflation alarm bells.
From 2001 to 2004, the productivity of American workers -- the amount they produced for each hour on the job -- rose enough so that companies could pay somewhat higher wages without raising prices. The new data changed that benign picture. They showed that business compensation per employee-hour soared almost 8% in the year through June. Adjusted for higher productivity, labor costs jumped 5%, a near six-year high.
But something didn't seem right. That jump in labor costs should have squeezed profit margins, yet margins are at a 40-year high. Plus, the 8% rise in hourly compensation far outstripped better-known measures of labor costs. The Labor Department's employment-cost index -- which includes hourly wages, benefits and bonuses -- rose just 3% in the same period. The weekly wage of workers at the statistical middle rose only 2.5%. .. . .
The likely explanation: stock options. The income earned when employees cash in stock options is counted in both gross domestic income and the Labor Department's productivity-adjusted labor-cost measures, but not in most of the other wage measures. . . .
Because higher-paid employees are more likely to have stock options, this helps explain why the advance in labor income doesn't reflect the average worker's experience.
Stock options also might have led the BEA to overstate profits, and thus gross domestic income. Here's why: Corporations keep separate books for shareholders and for the Internal Revenue Service. The BEA uses the latter to measure profits.
The two treat stock options differently. When reporting profits to shareholders, companies must expense only the fair value of the option on the day it was granted. That's usually quite low (unless the option was backdated, but that's another story).
But when reporting profits to the IRS, the company may expense the (usually) far-higher value of the option the day it was exercised. So in periods of heavy options exercise, shareholder profits will be higher than taxable profits.
Posted by dan at 04:30 PM
Not even a Rothschild can afford to own Liberation. Thomas Crampton reports in the New York Times.
The end could be near for Libération, the newspaper founded by the philosopher Jean-Paul Sartre and members of the extreme political left.After years of falling readership and advertising, the paper’s largest shareholder, Edouard de Rothschild, has stopped paying operating costs and, according to Pierre Haski, deputy editor of the newspaper, salaries have been frozen for October. “On Sept. 28, we hit the wall,” Mr. Haski said. “This seems too sad, but it is the reality.” . .
In June, Mr. Rothschild dismissed the newspaper’s longtime publisher, Serge July, and replaced him. Four of the newspaper’s most prominent journalists, including Florence Aubenas, who was held hostage in Iraq for five months, objected to the change and departed in protest in September. . . .
Mr. Rothschild invested in Libération in early 2005 to build a group in the media sector. In July, he reacted angrily to an opinion piece in Le Monde by a staff member from the early days of Libération who cited Sartre’s statement that “Money does not have ideas.” Mr. Rothschild replied, also in Le Monde: “Libération needs moral, intellectual and financial support. Libération does not need a requiem.” Libération’s audited circulation of 144,480 for 2005 was less than half that of other general-interest national newspapers like Le Monde and Le Figaro.
No investors have come forward, in part, analysts and newspaper executives say, because investors fear the publication may not have evolved financially beyond the 1970’s, when advertising was refused and all employees — from journalists to janitors — received the same salary.
Somewhere, an old lefty is doubtless smiling that Rothschild lost some chunk of his fortune as part of an effort to keep Liberation alive.
Posted by dan at 04:26 PM
An unintentionally funny article about the software company (formerly known as Computer Associates), a company where senior executives engaged in all manner of abuses, including securiites fraud. Richard Waters reports in the Financial Times.
Directors of CA, the software company that was at the centre of a $2.2bn accounting fraud earlier this decade, are set to come under renewed fire from shareholders today over their failure to prevent a continuing stream of accounting lapses.At the centre of the latest storm is Alfonse D'Amato, a former New York senator who has been a director since 1999, making him the only remaining person to have been on the board in 2000 and 2001, when the fraud was committed. Sanjay Kumar, former chief executive officer, pleaded guilty in April to securities fraud and obstruction of justice over the affair.
This is the only example of a company that hasn't replaced all the directors who were responsible for oversight during the periods of misconduct," said Gary Lutin, who runs a forum for CA shareholders. Others, such as Enron and Worldcom, have completely overhauled their boards, he added. A CA spokesperson declined to respond to the criticism. . . .
Despite the changes, the company has been hit with a series of fresh accounting woes this year. It has revealed that it paid too much in commissions to its salespeople, mistakenly understated its revenue, and exercised loose controls over employee stock options in common with some other companies caught up in the option backdating scandal.
CA's continuing troubles were underlined last week when the Department of Justice extended the term of an outside examiner to oversee efforts to improve financial compliance.
Appointed two years ago as part of a deferred prosecution agreement with the company, the examiner was due to step down last week. That term has been extended to next May as a result of the recent accounting lapses.
I'm sorry. I'm still trying to process the information that Al D'Amato has been the director of a public company for seven years--and that shareholders willingly purchased the securities of a company that had the perspicacity to place D'Amato on its board.
Posted by dan at 04:21 PM
The U.S. Chamber of Commerce says that if the accounting industry isn't given special protection when it commits negligence and gets in bed with crooked clients, we could all be doomed. Jeremy Grant reports ($ required) in the Financial Times:
The US Chamber of Commerce has warned that the auditing profession is "on the edge of disaster" if regulators, business and auditors do not tackle the litigation liabilities faced by the "big four" firms.It reflects concern over the possibility that one of them - PwC, Deloitte, KPMG or Ernst & Young - could collapse if multi-million dollar lawsuits brought for alleged negligence bring a firm's partnership to its knees.
The issue has haunted the financial services industry since claims against auditors began to increase in number and size in the 1990s, particularly in the US.
Last year, the US Department of Justice reached a settlement with KPMG over past sales of abusive tax avoidance schemes.
Auditors' risks will be discussed today in Chicago at the first of a series of meetings held by a special capital markets commission formed by the chamber.
It is co-chaired by William Daley, chairman of JPMorgan Chase's Midwest region and a former commerce secretary in the Clinton administration. Mr Daley told the Financial Times: "It's not that long ago that one of the big four came pretty close to being indicted. Had that firm gone down, the likelihood that the remaining three could have picked up the burden is pretty small because their risk would skyrocket. Whether that risk is manageable in the structure of partnerships is difficult to envision."
David Chavern, the chamber's chief of staff, said: "You have a system that is kind of on the edge of disaster and somebody's got to untie this Gordian knot between auditors, issuers and liability problems."
Posted by dan at 04:18 PM
Some very un-British boasting in the Financial Times by Clara Furse, chief executive of the London Stock Exchange.
In the past 18 months, the London Stock Exchange has attracted 152 international companies to its markets. Over the same period in America, the New York Stock Exchange and Nasdaq have attracted a combined total of 54 international companies. These figures are part of an important body of statistical data that confirms London’s lead over New York as a venue for international companies seeking to raise growth capital.Confronted with these data, the response of some practitioners in the US market has been curious. Rather than consider what may be drawing companies to London, they have focused only on what may be repelling them from the US and, in so doing, they have singled out the Sarbanes-Oxley Act (Sox) for special mention. . . .
As the head of one US exchange put it: “By setting the bar so high in the US, Sox has had the unintended consequence of triggering a ‘race to the bottom’ by stock markets and companies.”
This line of argument may reflect a combination of sour grapes and a tendency to believe that bigger must mean better; that in creating the world’s heaviest rulebook the US has also created the most effective and trusted regulatory environment. However, this view does a disservice to both the international companies that are coming to London and the world-class standards of regulation to which they aspire.
Indeed, London’s principles-based regime, rather than a more prescriptive rules-based approach, continues to prove itself as a model that facilitates pro-competitive innovation in a tough but sensible regulatory environment. All the important independent corporate governance surveys confirm that the UK is number one for corporate governance standards. . . .
Posted by dan at 04:15 PM
David Carr writes in the New York Times about the prospect of Time Warner selling off Time, Inc. It's the type of piece you read and say, "Gee, I wish I had thought of writing that first!" Oh, wait, I did. Three weeks ago in Slate.
Posted by dan at 11:02 AM