Monday, March 15, 2010

"Money From Nothing" ... how corporate America is failing ... by gimleteye

I'm reading my way through "Money For Nothing: How the Failure of Corporate Boards is Ruining American Business and Costing Us Trillions" in small bites, the way I did with the definitive "Paving Paradise: Florida's Vanishing Wetlands and the Failure of No Net Loss." It is not that I'm attracted to books with "failure" in their titles (can't forget, either, "Collapse: How Societies Choose to Fail or Succeed"). I do believe, however, that we can't successfully extract ourselves from the long emergency until there is a reckoning with the forces and powers that created so much jeopardy. Our current straits are not a blameless exercise, nor can we emerge from this time release economic depression by blinking hard and clicking our heels twice. Today's Miami Herald business section report on the re-ordering Florida's banking industry literally skips past the errors of judgment by bank boards of directors that cost taxpayers hundreds of billions and helped wreck the lives of so many homeowners.

I find myself putting down "Money for Nothing" after a few pages, the same way I did with "Paving Paradise". There is not a single reform that has passed Congress that would prevent the tragedy of the housing boom and its impacts to Florida's wetlands and natural resources from happening again, in exactly the same way, as before under the guise of "the free market". "Money From Nothing" quotes a forensic auditor hired by a desperate homeowner on the edge of foreclosure, trying to find evidence of a fraudulently inflated appraisal. "The managers and boards of these mortgage companies are to blame, as well as the regulators," the auditor said. "They just did not do their jobs--period. I mean, that's what you're paying the fees for. When you have people living off $40,000 or so a year who get defrauded and then have their life savings disappear almost overnight, someone needs to be held accountable." (page 62)

But no one is. In fact, as Eyeonmiami noted recently, the same business elites-- like Lennar, here, in Miami-- that fomented the housing asset bubble are now reconstituted to scavenge at a deep discount the very assets that they were able to fund, bankrupt and bought back for cents on the dollar. This is a deep, dark place the mainstream press is loathe to report out. It takes a strong constitution to digest the scope and scale of what went wrong under the banner of Chamber of Commerce values, political orthodoxy, and corporate boards that supported both. Not to mention, newspaper and television advertisement.

This is not a throw away point: "Companies spend enormous sums of shareholders' own money to fight proposed reforms directly or through organizations such as the Business Roundable and the US Chamber of Commerce. The SEC's proposal in the post-Enron era to allow shareholders to nominate a limited number of directors was dropped after a massive lobbying campaign led by the Roundtable, an association of CEO's whose companies account for a third of the total value of the US stock market. In mid-2009, in the wake of renewed efforts to reform the director nomination process, the US Chamber of Commerce announced a $100 million "sweeping national advocacy campaign encompassing advertising, education, political acitivities, new media, and grassroots organizing to defend and advance America's free enterprise values in the face of rapid government growth and attacks by anti-business activists." (page 33)

"So who pays for bad corporate governance? The answer, of course, is that we all do. Except perhaps for two categories of people: the CEO's, who leave with millions of dollars in their accumulated salaries and bonuses, deferred compensation, stock options and retirement packages--and often with board seats awaiting them at other companies; the directors themselves, who escape liability and even blame because so little is expected of them within their companies--the legal system absolves them, and the shareholders, as well as all the rest of us affected so profoundly by their failures, often don't even know who they are." (page 64)

Check out: "Money for Nothing" by John Gillespie and David Zweig. Hope you read the book.


Corporate Fail said...

You are 100% right, corporate America is a HUGE FAIL right now. I just don't get things sometimes...

Anonymous said...

60 Minutes ran the Michael Lewis story last night on the Wall Street meltdown. Only 12-20 analysts and investors were able to take advantage of the meltdown by betting against and insuring the "unsustainable." Very good story and sort of fits with this because of the bailouts there was a minimal price to pay.

Nice job as usual GE

Anonymous said...

You may have read yesterday how the US Chamber is spending tens of millions to defeat health care reform. All of these funds ultimately flow from shareholders. If you take each plank of the health reform package individually, a big majority of our countrymen supports all of them. Collectively the provisions are less popular, because the right wing echo chamber in corporate-owned media has been pumping out disinformation and propaganda.

Anonymous said...

Nice to see you turn your venom away from developers and towards general corporate greed. After all, 80% of loans in default are re-finances, not new construction. Across the country, banks couldn't wait to buy bloated loans, so originators would convince anyone to re-finance at twice what their property was worth, residential or commercial, and developers had nothing to do with it.