Saturday, November 29, 2008

Mumbai Will Come Back

Here's an email I sent to our team on Wed, Nov 26th - many of whom either live or have family or friends in Mumbai...

I was sad to learn today about the coordinated attacks on Mumbai today. After just being there a few days ago, I can only hope that none of our team, friends or family were affected. Please let us know if someone we know has been impacted.

Since a number of people were killed or injured, we will look into how we can help our fellow brothers and sisters. Our thoughts and prayers are with them.

India has taken a number of hits over the last year. What amazes me is that no matter what happens, India is unbelievably resilient. The beat may skip for a short time, but then it resumes back on schedule. I remember the previous Mumbai rail bombings. In less than a day the rail system was back up and running. People kept on with their lives. When I went there 2 days later, the streets were teeming with people and Mumbai's normal restless energy. The country kept going without the violence of retribution. We hope the same occurs this time.

In the US, we will celebrate Thanksgiving tomorrow, a day in which friends and families get together to feast and give thanks for all of life's gifts. In the spirit of this day, we will take extra time to remember that with all the challenges and difficulties we encounter, there is more to life. We have each other.

Wednesday, November 26, 2008

Bailouts and Meltdowns - Accountability for Leaders

$700 billion this, $800 billion that, $200 billion here, hey throw me $25 billion. The final leg of 8 years of crony capitalism and personal irresponsibility rear their ugly head. During the last 8 years the rich got richer, the stupid get bailed out and if you are too big to fail, you and your company get a free ride from the taxpayers.

Take Citigroup, they have already received $20 billion from taxpayers, now they need another $25 billion. How about AIG, they get $125 billion because the side bets, oh I'm sorry the collateralized debt obligations or CDO, were not truly collateralized by their counterparties. These folks wanted no regulation, got it, but because their system is collapsing, we need to bail them out. Remember, 15 years ago, there was no CDO market, now there are trillons of dollars at risk. That's no mistake my friends, trillions.

People who played conservatively and by the rules have to pay, while overpaid executives take a small hit on their excessive option plans. As an entrepreneur, I've never understood why a Fortune 500 executive gets paid $10, $20, or $100 million a year. These large companies have highly paid staff, brands, customer momentum and during the last 8 years, benefits galore from a bought and paid for government. Anyone that has the luxury to spend millions to hire top firms like McKinsey or Bain to study their company is not really taking personal risk. Oh and if they get fired, there are massive severence packages. The worst of the lot are the Big 3 automakers. They come hat in hand to the taxpayer when they have spent years fighting against fuel economy, safety standards, and legitimate competition. Remember it was not long ago when domestic automakers were able to benefit from voluntary restraints from the Japanese from taking too much market share (remember the 80's). Make crappy cars, get really big, overpay your execs, then come crying to get bailed out.

Unfortunately, these banks and automakers have become too big to fail. It is the government's fault for not breaking them up or regulating them. And the government is made up of the people, so it's all of our fault for allowing our leaders to be corrupted by these companies. It is one thing to let one institution fail, but the whole system collapsing could cause all sorts of unintended consequences.

So if you are going to take government money, then there have to be strings. First, the taxpayers now get to own a piece of the upside. Second, if you are now a piece of the government, then execs should not get more then their government equivalent. Let me repeat this again, if you are part of government, you should not make any more than members of the government. On March 6, 2008 GM CEO Rick Wagoner received a 33% boost in pay to $2.2 million. Given that a US President makes $400,000 and a major Cabinet secretary makes $191,000, the most Rick should make is $200k. I mean running GM is more important, than say, the Department of Defense. Alan Mulally, CEO of Ford, gets $2 mil/year. While it's not culpable for years of Ford mismanagement, don't be coming down to Washington unless you cut salary under the President's. AIG's Martin Sullivan received $44 million with a severance of $15 mil. and bonus of $4 mil after writing down $20 bil of losses. Lately, Martin got press for declining severance, but that does leave $20 mil. At least the current AIG CEO, Liddy, is taking $1, but I'd like to see how valuable the equity grants truly are.

There was a time when a business that became too big would go under antitrust review. High incremental tax rates limited excessive salaries. The bottom line is if risk is low, then reward should be low. And getting fired is not a real risk deserving of a high salary (a typical CEO line). If you want a guarantee, go work for the government. And get government pay.

Sunday, November 02, 2008

One More Day

One more day of campaigning before this Presidential election is over. News junkie stations like CNN, MSNBC, Fox News, etc. are already showing retrospectives of the 2 year long period. The Sunday news shows have already made their prediction of an Obama landslide.

As a news junkie, it will be quite a respite to have this over with. It's captivating to see the race unfold - watching McCain try to pierce Obama's steadiness. The race has gone from the daily attack/response game to more of a rolling narrative. McCain has thrown all they can, but the economy has made it almost impossible to have impact. Like Bush in 2004, Obama has had a steady message of Change while positioning McCain as a 3rd term of Bush. While it may not have worked in the beginning with a maverick like McCain, over time message consistency + money make all the difference. In 2004, Bush labeled Kerry as a member of the waffling elite. It didn't work at first, but over time it catches on.

Obama has elicited an incredible level of energy and enthusiasm. Turnout is estimated at over 60% of the registered electorate with a massive level of new registrations. With early voting, last minute surprises are diminished. It will be hard to have last minute breaks, so polls are likely to be more accurate vs. previous periods.

Howard Dean is going to be seen as a hero for the Democrats. As the DNC head, he was originally criticized heavily for building an organizational footprint in all 50 states. Augmenting this was the Democratic proportional apportionment system forcing Obama and Clinton to run in all 50 states. Turnout is always higher when you are engaged during the primary.

Now I will be up during the night to see how those 14 odd California propositions fared. I wish we did not have so many of them, but hope most of them are shut down. We need to let our elected officials do their job.

On Wed, November 5th, I'll have no excuses. The race will be over, and I'll have to find something new to obsess over... well at least until 2010.