 Categories |
|
|
|
"Some entrepreneur ventures turn you inside out".
|
| Blog
Roll |
|
|
|
|
| |
|
|
|
|
|
|
| Page 1 of 2 (10 items) |
No. of Records to be
Displayed
|
|
|
| 1 2 |
| |
Subprime Had Its Prime
|
|
|
I have a view on the subprime mess that is slightly contrary.
While I know that it is a serious issue and that people’s lives are being thrown into turmoil, I am going to suggest that the mess has several participants and the question for the entrepreneur is, can you profit here and, if so, how?
First, the fault, Dear Brutus, lies in ourselves…the borrower did not understand the terms and conditions.
I just finished trying to buy life insurance. I have the benefit of being reasonably smart and have a cadre of smart advisors, but I can swear to you that the insurance business is not a business…it is a racket...and it is damn near impenetrable. I have been on the problem for 6 weeks...two brokers…two companies…and I cannot get a straight answer.
The reason I mention this is because the mortgage business, for most people, is equally opaque. What the borrower wants is the house. He or she wants it now….and will worry about the reset of the rates when that happens.
Nobody reads the fine print…the agent, broker, etc. told me that everything would be ok. So the first entrepreneur rule is: read the damn fine print. Yes, read it! Get a magnifying glass, ask questions…even stupid questions…it is your responsibility.
I have to tell you that I know lawyers who have closed giant multi-million dollar financings and the CEO has never read the docs. They rely on the lawyer or someone else… or maybe no one reads them.
Second on the guilty party list is the broker or agent. The compensation system rewards crookery, scammery and high pressure tactics. The broker is long gone when the loan blows up….he sells it, you sign, he gets paid, then he is “adios vaminose” and on his way to Hawaii. Reward unintended consequences when you design compensation packages for the salesmen in your company.
Number 3 – Wall Street. The packagers--they bundle the mortgages, slice and dice and rate them, and then they sell them to someone else who doesn’t know the broker, doesn’t know the borrower and doesn’t know the real estate.
So when the “plaintiff cry” from the homeowner says, “Hey, gimme a break…a little time,” the guy that owns the loan doesn’t know the borrower from nobody.
The owner of the mortgage is not the local banker who knows your family….it is First United Interstate Global American Financial Advisory Hedge Fund Corporation…so basically, you are a dead man.
Now to the point of the rant... making subprime loans put millions of people into homes and that is a good thing. As a percentage, the number of defaults is small compared to all the subprime loans made.
So, it is a mixed bag…there was awesome greed, no controls, wrong-headed compensation, and a “take the money and run” mentality which is sickening to me.
But it is also true that Betty and Bob got their first home.
Regarding the last point…if, not when, Betty and Bob lose the house in foreclosure, do not think you are going to steal it and get rich. Here is the reason: there are ads today in the paper for eight different seminars on how to make money in the coming real estate foreclosure mess. If it were so easy, they would not be giving a seminar – they would be doing it. Stop and think --- if eight guys in Sunday’s paper are pitching crap, do you think the horsehoe is possibly rigged?
The little guy has no business tangling with the monster on the Midway or Wall Street.
Focus on your business, grow your customers, create value, and make your mortgage payment each month. Do not touch the fire and brimstone...you will get burned.
|
|
| Posted
In
|
|
| Comments
|
|
|
|
|
|
|
CEOs Who Ride the Golden Bungee
|
|
|
I continue to be sickened by corporate greed and excess. The most recent person to be installed in the BABY’s Corporate Hall of Shame is Ron Zarella, the CEO of Bausch and Lomb. Along with accounting problems and product recalls of Renu (as well as 400 lawsuits from consumers who assert that their vision has been permanently harmed), he oversaw a 90% drop in earnings between 2004-2006. Then having run the company almost into the ground, he agreed to sell it to a private equity bail-out firm and the net result gives Zarella a $40 million payday.
What used to be a “golden parachute” has now become -- in the words of Pat McGurn, a corporate governance guru -- a “golden bungee jump.” Like the parachute, it bestows largesse in the form of increased options, perks, etc. on the CEO when the deal initially gets done. Then, as the company springs back to life going from private to feeding fat at the public trough, the CEO gets an even more generous reward on the rebound.
The classic “heads I win, tails you lose”...
For my money, the bungee cord could just break at the bottom and let the S.O.B. go down in flames.
Here’s another quick one that angers me…Martin Armstrong, creator of Princeton Notes - a $3 billion dollar Ponzi scheme, is finally going to jail for 5 years and ordered to repay $80 million in restitution. Investors, by the way, lost $700 million.
And I’m not done – I am STILL angry…
I resist politics, but I am revolted by the current assault of our Supreme Court on women, blacks and the disadvantaged. Where is the compassion of our civilization?
We have a huge trade deficit – $800 billion along with a sinking dollar…
We sell off pieces of our country to foreigners to raise money so we can indulge our thirst for oil and foreign goods – from Mercedes to Sony to Bolivian tin…
We have a Medi-care disaster that will take over $20 trillion to fund for the next 50 years. Do we care nothing for generations to follow us?...
We have people around the world who hate us…
And we have the specter of increased inflation and stagnating wages…
And health care – I won’t even go there…
It is a dark and gloomy horizon, but we cannot simply wallow in the slough of despond. We need to take some action.
And that leads to Baby Billionaire Rule # 119 – Paul Simon was right about building the bridge over troubled waters — and the steel that will allow you to do it is your savings…..start saving now.
It is the nest egg – no matter how small -- that will give you the chance to take a leap and be the architect of your own vision.
|
|
| Posted
In
|
|
| Comments
|
|
|
|
|
|
|
Wild and Crooked
|
|
|
I’m There for You Baby once again revisits the Corporate Hall of Shame...upon whose walls hang pictures of people who were definitely not “there for you baby.”
First up on the wall of the Hall today is Joe Francis. Joe is the founder of that intellectually uplifting, cinemagraphically brilliant, and morally valuable video DVD genre commonly known as “Girls Gone Wild.”
Yes, Joe sells videos of topless young women…and he sells a lot of them.
But he did not make the Hall because of a bit of erotica or even smut...no, Joe made the Hall because he appears to be “rich gone wild.” He has been indicted on federal income tax evasion charges.
Francis makes an estimated $29 million a year from videos of young women exposing their breasts, but it seems that wasn’t enough...so he chiseled on his income tax deductions.
What strikes me is that the Joe Francis story highlights the issue of how much is enough. I think back on Debi Akin who was on our show recently. When she was asked why she didn’t expand and open other restaurants, she said having one very successful restaurant – DZ Akin’s - was enough. She is a wonderful example of having a centered life and making choices that honor values other than money.
So now let’s turn to our second inductee into the Hall this week -- David Stockman.....
In 1981, David was budget director in the Reagan White House. He was fired from his post back then for selling the public a false sense of a rosy economy while privately knowing that the shit was about to hit the fan.
And, it appears Mr. Stockman may have done it again. It seems that Stockman never met a deal that could not be improved by borrowing a little more against it. First, it was against the gross national product of the United States, and now it is an auto parts company.
He has been indicted for defrauding investors and banks this time -- while serving as chairman of Collins and Aikman, an auto parts manufacturer that collapsed into bankruptcy only days after David resigned.
Does the phrase “rats and a sinking ship” ring any bells?
Stockman is accused of issuing fraudulent financial statements in order to raise capital; he is charged with conspiracy, bank fraud, securities fraud, wire fraud and obstruction of justice.
Not bad for a guy who was once trusted with running the budget for the United States.
Stockman was already wealthy (over $100 million net worth), but he wanted just a little bit more. So he inflated earnings at Collins and Aikman so that he could borrow some more money to prop up his failing company. To pump up the revenue, he used phony rebate schemes.
The loss at Collins Aikman is approximately $1.6 billion.
What happened is that Stockman had a private equity fund. They bought Collins and Aikman, layered a lot of debt on the company, took huge fees and salaries (more than $44 million), and then when it got lousy, David raced to the bank one last time, jiggered the financials and borrowed $75 million to prop up the company. Then when the light at the end of tunnel was really the train, and not the sunshine he so desperately hoped for, he resigned. Five days later the company filed for Chapter 11.
Nice work if you can get it. Another example of “Heads I win, tails you lose...”
The BABY is outraged at this kind of fraud, chicanery, crookery and bad faith. When is enough “enough”?
Any society that values its members by “who has the most toys” is a sad example of serving any kind of higher purpose. Where is the outrage at behavior that sinks great companies and causes thousands of people to lose their jobs?
And so we have Baby Billionaire Rule # 83 --- To quote Bob Dylan – “Everybody has to serve somebody” and if all you serve is yourself...you have served no one.
|
|
| Posted
In
|
|
| Comments
|
|
|
|
|
|
|
Jokers Wild
|
|
|
As you know, every few weeks the BABY inducts new members into the I’m There for You Baby’s Corporate Hall of Shame. To get into this prestigious group, candidates need to exhibit those certain characteristics which bring to mind the excesses of greed and chicanery. In particular, the words miscreant, crook, conniver, self-aggrandizing immoralist and criminal often apply… as well as the overriding attitude that suggests that the commonly accepted rules of civilized legal behavior do not apply to them. And today, we have a few new members to welcome to the Baby’s hall of shame.
The deal in question is called myCFO.com. This was a .com fantasy in 1999 which was formed to provide rich people a full menu of financial services. A CFO is shorthand for a chief financial officer--that is, someone in a company who is responsible for the money and for acting legally and honorably in a fiduciary role with respect to his bosses, namely the shareholders in the corporation.
At least that is what it is supposed to be…
Well, myCFO.com was going to help its clients shield hundreds of millions of dollars from taxes. Shield is an interesting choice of words--it can be translated loosely as “avoid”--as in avoid taxes on the millions in gains that the rich in Silicon Valley were making in 1999 and 2000. You remember those years I’m sure, when everyone with a computer science degree was a paper billionaire.
Well, myCFO only did one deal--a tax shelter scheme and it seems that the internal revenue service thinks it was a bogus deal at that. The IRS has filed a court document that says they are conducting an “ongoing criminal investigation involving various former employees of myCFO.com.”
The financial backers and board members of myCFO were Silicon Valley royalty. They included Jim Clark, co-founder of Netscape; John Chambers, of Cisco Systems; Tom Jermoluk, former chairman of excite@home; John Doerr, rainmaker partner of Kleiner Perkins; and Larry Sonsini-- famous lawyer to the stars. You may remember him as he was lately in the news because of his role in the HP scandal involving Chairman Patricia Dunn.
Well, you know the Baby’s Billionaire Rule # 172: Nothing good comes from excess.
Tax shelters in 2000 were a thriving business and the people who signed up for these shelters---- which later turned out to be scams and shams--- were some of the big boys of the Valley.
Let’s look at one deal done by myCFO. Tom Jermoluk paid a fee of $2.4 million and “presto chango” he ended up with losses to offset $50 million in revenue.
My kind of deal….heads I win, tails you lose…..except this time the coin ended up on its edge, and edge, everyone loses
Of course, everyone involved has denied any wrong doing, but come on folks, how does $2.4 million in fees generate $50 million in losses. It doesn’t pass the smell test.
No one will speak on the record. Everyone mentioned above has declined an interview and the only people talking are their lawyers at 700 bucks an hour.
The details are arcane and obscure, but if someone comes up to you and offers you a custom adjustable rate debt structure (CARDS for short), run the other way fast.
It involved some foreign banks, some swaps, some swips and some swoops… and lo and behold, the rich get richer. Except this time, the swoop got stuffed--goal tending was called--no basket. Pay your taxes.
Everyone is denying everything, but in essence folks, the CARDS deal hinges on something simple.
Quoting the IRS, “An artificial loss lacking economic substance is not allowable.” That sounds like something these geniuses should have learned in a first year MBA class.John Doerr and Jim Clark were on the board and they should have known better.
Didn’t anyone ask “is this kosher?”
Even though there were lawyer letters that said “don’t worry” they should have worried.
Baby Billionaire Rule # 106 says if your behavior smells like shit, it is shit….
One client of myCFO claimed a tax deduction greater than his entire net worth. Didn’t anyone wonder about this strategy? Was reality suspended? Is it time for the Jefferson Airplane and Alice in Wonderland?
myCFO was driven by big fees and big egos who thought that the system should, could and would be gamed for their personal benefit.
In a statement to the IRS, one of the foreign banks that profited admitted “the transactions were prearranged by the promoters—and had no purpose other than generating tax benefits for the clients involved….”
And so Baby inducts myCFO.com and all the promoters, directors and con men associated with it. It bespeaks arrogance of the highest order, because it takes the position that the rich are different than you and me.
F. Scott Fitzgerald said it first and tragically he is usually right.
But in this case, it turns out the big boys are going to all pay back taxes, penalties, fines, and some will serve hard time in prison. The wheels of justice grind slowly, but they do indeed grind fine. All I can say about the CARDS scheme is – it just wasn’t in the cards.
|
|
| Posted
In
|
|
| Comments
|
|
|
|
|
|
|
Corporate Hall of Shame
|
|
|
The BABY can no longer stand the most recent excesses of corporate America. This country has endured an extended period of greed and corruption in the executive suite starting back in the mid 90’s, rising to a crescendo with Enron and Worldcom….and reaching its Everest in the past year with the compensation and severance packages of a group of CEO’s that are at such heights that external oxygen tanks are required for the mere stockholder to be able to breathe.
And so the BABY herewith today – is making a call to arms……I am throwing down the gauntlet and standing up for all the little people – both shareholders and employees -- who have been royally screwed by their CEO’s and by the boards of directors that have rolled over like lap dogs in the corporate boardroom.
It is an unholy cabal and the BABY is calling for an end to this kind of thievery, crookery, excess, revolting, disgusting display of self dealing.
And so the BABY has formed the Corporate Hall of Shame……
Each week, I’m There for You Baby is going to be there for you by calling attention to one new member of the Hall who so richly deserves to be enshrined in its hallowed halls.
So allow me to introduce the initial freshman class for this prestigious award…..
Jeffrey Skilling – jailed for his role in the Enron scandal.
Sanjay Kumar – former CEO of computer associates….sentenced to 12 years in jail for stealing his company blind.
David Wittig – former CEO of Westar Energy got an 18 year sentence for looting millions from the corporate treasury.
Stuart Wolff – founder and CEO of Homestore - an online real estate concern – 15 years in the slammer – insider trading….
Robert Nardelli – shit-canned by his board at Home Depot…walks out with $200 million….
John Kanas – former CEO of North Fork Bancorporation upon its sale to Capital One was awarded a small bonus of $135 million…..
And finally Hank McKinnell-- former CEO of Pfizer who walked out of his job with almost $200 million of severance.
Allow me to detail some of the particulars of Mr. McKinnell’s take --- and thus make clear to my listeners why Hank is this week’s featured player in the Hall of Shame.
Pfizer is a large drug company that has suffered mightily under old Hank’s leadership…..when McKinnell started, the stock was 46….and after 4 years of his steady hand, the stock is now 25….in other words, $137 billion of Pfizer stock value evaporated under his watch.
Yes kids, the BABY spoke correctly….that number was $137 billion that Henry pissed away…..about 1/3 of what George Bush has spent in Iraq……
But Henry’s severance package is a lot better than Dubya’s…..
Here are the numbers that the board of directors of Pfizer gave to Mr. McKinnell after they sacked him. Remember he was fired, that is why he gets severance...he gets paid because he did a lousy job.
Don’t you love America.….in a foreign country they would hang the son of a bitch….and here, we send him packing with so much stuff he needs a Brink’s truck to haul it away.
Ok – the numbers….
McKinnell got:
1. A lifetime pension of $6.6 million
2. $78 million in deferered compensation
3. $18.3 million in performance based stock options...performance based…even though his performance sucked.
4. $12 million in actual severance.
5. $5.8 million in vested stock grants
6. And a $2.15 million bonus…..a bonus…..a bonus….
But that is not the end – no sir, when you have a chance to rape and pillage, why leave any village standing….McKinnell (to borrow liberally from Apocalypse Now) is the kind of guy who loves the smell of napalm in the morning….
He tacked on $576,000 in medical and dental payments….I hope the shit heel’s teeth fall out …
And finally, the board gave him $305,000 that represents the value of his unused vacation days.
Maybe if he had taken more vacation, the company would not have fared so poorly…..but think about it, after taking almost $200 million in severance and other bonuses, Hank simply had to dip one more time to get the last $305,000 for his unused vacation days.
I ask you….what is wrong in America? How do we allow this? What does this say to the vast majority of hard working men and women who do not have a roll over board of directors and cronies to pad their fall?
Remember, McKinnell is not being paid like Jack Welch of GE because he did a great job; he is being paid off because he was incompetent.
Incompetence nets $200 million. You do a good job and you get a gold watch.
Here is a quote from the New York Times --- “that Mr. McKinnell forced his shareholders to pay $305,644 for his unused days off after draining them of $137 billion is downright stupefying and odious.”
There is no Baby Billionaire Rule for this excess….. It boggles the mind and I, for one, have only revulsion for a board of directors that approved this deal.
And so it is with a clear conscience, sure that I have made the right decision, that I award this week’s hall of shame medal to Hank McKinnell…..
Heads I win, tails you lose…….that is my kind of coin….
Which brings me to Rule #202—
If your business behavior and personal ethics smell like shit, they are shit.
The BABY will no longer tolerate this kind of outrageous behavior and I intend to create a roll call for those who have been entrusted to act with integrity and leadership and concern for employees as well as shareholders and who have taken that oath and seen it as nothing more than an insider ticket to a private table in the wood paneled dining room of the executive suite where the menu serves up the lemon butter braised chance to rape, pillage, steal and lie your way to a souffle of obscene riches --- with the added perk that you get to send the bill to someone else.
|
|
| Posted
In
|
|
| Comments
|
|
|
|
|
|
|
| 1 2 |
|
|
|
| Page 1 of 2 (10 items) |
No. of Records to be
Displayed
|
|
|
|
|
|
 Past
Posts
|
|
|
|
|
|
 About
this Blog
|
|
|
|
 Save & Share
|
|
Digg: Submit this item to be shared and voted on my digg community. For more about digg,
|
|
|
Del.icio.us: mark am item as favourite to access later or share witg del.icio.us community. For more del.icio.us
|
|
Facebook: share an item with users of Facebook, a collection of school, company and regional social networks. For more about Facebook,
|
|
 Blog Readers
|
|
|
|
|
|
|
|