January 15, 2009
Geithner and Bailouts
Geithner's tax troubles are well known but less discussed is his role in the bank bailouts. The position of Chairman of the New York Federal Reserve Bank has, since the days of Strong in the 20s, been itself a very powerful position. The NY Fed is the best capitalized of the 12 Federal Reserve Banks and does much of the Fed's bidding. What was his role in the bailout bill, TARP? Did he recommend money to Citigroup and Bank of America? On what grounds? The press coverage out of New York on the appointment is very favorable and this itself should be a warning. The New York financial community is happy with his appointment. Why? Because he is soft on the New York financial community. Congress is barking up the wrong tree on his confirmation. So what else is new?
January 14, 2009
Citigroup and GE Need to Bust-up
Citigroup and GE and old fashioned conglomerates that grew too broadly, too fast and need to be busted-up, focusing on a core business and selling or spinning off all others. Too bad hostile takeovers are dead; a bust-up buyout would be appropriate for both companies.
Obama's choice for the Secretary of the Treasury, Geithner, has, as the press refers to it, a "hiccup" in his confirmation. He did not declare personal income on which to pay taxes for several years, corrected late, and, as Secretary of the Treasury will run the Internal Revenue Service. He also employed a house-keeper that, for a few months, had expired immigration papers. This is peanuts and will get some attention. But the item that is not peanuts, Geithner's significant supportive role in the crazy patchwork of government bailouts under Paulson, will go undiscussed and, apparently, does not matter. He will be confirmed. He ought not be confirmed, on the merits of his job performance as President of the NY Fed.
January 13, 2009
Independent Directors and Satyam Computer
Sat yam Computer, a Indian company, has been exposed as a giant financial fraud. The government of India is attempting to reduce the damage and, effectively, has taken over the company. On the board were two Harvard academics. One, Krishina G. Palepu, is a Harvard business school profession with an expertise in, you guessed it, corporate governance. The other, Mangalan Srinivasan, is an adviser to and distinguished fellow of the Kennedy School, Harvard. Both had approved the company's efforts to purchase two subsidiaries owed by the sons of the founder (the crook). Whether this says something about Harvard, academics, independent directors, or experts in managementor "corporate goverance," I leave to you.
January 12, 2009
President Hoover and the Great Depression
A quick education on the great depression has convinced me that President Hoover has "gotten a bad rap" or, more accurately, is blamed for the wrong thing -- doing nothing-- and should be blamed for the right thing -- starting the New Deal. The effect of blaming Hoover for laissez-faire and extolling the virtues of President FDR for the New Deal is to mount a case for the New Deal. But Hoover was not laissez-faire, as he himself laments later, he established the precedent and foundations of the New Deal -- he just did not put a name on it. Read Hoover's 1931 speech to Congress with his nine point plan -- it is very, very interventionist and statest. Hoover's administration acted to hold up wages (Davis-Bacon act, among other efforts), to lower Fed discount rates, to lower mortgage rates with the Home Loan Bank system, to attack short sellers and stock prices, to reform bankrutcy to facilitate debt forgiveness, to loan money through the RRC to states and local governments, to loan money to banks and railroads, to start multiple public works projects (remember the Hoover Dam?), to restrict immigration, to enact tariffs, to regulate capital requirements in banks (Glass-Steagall Act), and to cartels commodities to fix prices (wheat and cotton). If one wants to compare a laissez-faire government approach to a depression to an activities approach to a depression one should compare the 1921-22 depression with the 1929 to 1940 depression.
Litigation Over a Triggered Poison Pill: Selectica
When a poison pill threatens potential acquirers, the acquiring company usually files suit to have the pill declared invalid -- before the the acquisition. In an unusual case, a group of purchasers triggered a poison pill intentionally, the target company, Selectica, refused to withdraw it and the target company began litigation in the Delaware Chancery Court to have the pill declared valid. The pill, a shareholder rights plan that dilutes the acquirer by exchanging one right for one share of target stock not held by the acquiring group, had two unusual features, first it had a 4.99 percent trigger -- very low-- and second it gave the Selectica board ten days after the triggering purchase to withdraw or act on the pill's dilution. The case will provide the Delaware courts yet another opportunity to consider limits on the use of poison pill plans. I hope they will take it and declare the 4.99 percent trigger too low to be justifiable as a takeover protection.