Wednesday, February 09, 2011

"Crony Capitalism"- CNBC Style

This morning's CNBC SquawkBox segment from the Harvard Business School marked a new low in the network's contribution to the notion of "crony capitalism."

It began with Carlos Q's typical looks of surprise, shock and awe as a guest who is apparently and adjunct professor, when he's not a hedge fund manager, discussed teaching HBS students about the new roles of finance in the economy. Of course the guy proclaimed such appearances with students as challenging and engaging.

Duh. He's a hedge fund manager, and the students want a job in 1-2 years. How does he think they'll react to him?

Then Bill Ackman was interviewed, giving him a platform from which to stump for his latest investment position, JC Penney. Despite his recent involvement in attempting to merge Borders and Barnes & Noble, Ackman's interest in clothing/general retailers goes back at least to his attempts to influence Target during the financial crisis of late 2008. What I notice now is that Ackman has, in both cases, ended up with interests in a more troubled firm in a sector. This morning, he actually, when asked, contended that Target's operational skills are better than Penney's. He was also a bit more vague on precisely how he'd use real estate values to turn Penney's around. Given the apparent setting of the CNBC segment in the business school library, to drive home the HBS surroundings, I'm unsure what the academic takeaway of Ackman's appearance was. Vulture hedge fund acquisition strategies? Shoot for the less-competent company in a sector and agitate from outside?

Ackman then pontificated on banking, announcing that lending to the largest US corporations was no longer profitable.

Gee, thanks for that stunning insight, Bill. We already knew that at Chase Manhattan 20 years ago.

It seemed mostly to be little more than another opportunity for Ackman to republicize his fund's Penney's position, demonstrating, once more, that it's nice, professionally, to be a crony of CNBC.

Then it was time for Michael Porter to trade on his decades-old reputation for a series of strategy books which mostly restated existing microeconomics. He babbled on about exchange-rate-based terms of trade and the usual verbiage about retaining a US base of suppliers and production. Nothing new, nor particularly relevant to his supposed specialty of strategy.

You'd like to hear Porter expound on how we should expect other countries to naturally compete for and capture lower value-added, less-technically complex production and other business functions and processes. That US competitiveness and ability to employ our workforce depends upon creating more value-added production and service jobs and functions. That we don't want to simply take back lower-skilled jobs, but, ideally, leave businesses free to innovate and create value that necessitates new jobs with different, greater value added. But that we have to accept the fact that an evolving, multi-lateral global economy will force the US to cede lower value-added jobs and grow only by creating new, higher value-added positions.

But nothing remotely like that escaped Mike's lips.

More cronyism in search of a purpose.

Perhaps the most egregious example of cronyism came next, as the hapless Vik Pandit, CEO of government-rescued Citigroup, appeared.

First, Carlos Q let everyone know that, off camera, Ackman had told Pandit he was 'the most underrated CEO in America.'

Really? Do tell, Bill. Why the sudden, undeserved accolade? Is Ackman greasing the skids for backup funding for his next takeover?

Meanwhile, Pandit gave one of the most stomach-churning performances I've seen on business/financial television in ages. After saying how grateful he and his bank are to the US taxpayer for saving his mismanaged company, he then went on to characterize his bank an institution. It's more than a bank, he claimed- it's an institution. So, you know, the US has to rescue Citigroup, no matter how ineptly it is run. Along the way, he mentioned a $12MM profit for the Treasury in exchange for saving Citi from bankruptcy. That's it? That's all we got for all the risk inherent in propping up that mess?

Pandit then claimed that his bank is 'back to basics,' but will repay American taxpayers by advising their companies abroad as the nation's 'only international bank.'

Can it get more cronyish than this? Here's the guy whose hedge fund, which was eventually closed amidst poor performance, was generously bought for cash by Citigroup, then magically elevated to CEO by a board dominated by a non-executive chairman, Bob Rubin, who helped lead the firm into near-ruin. Pandit doesn't have a banking background. He ran a middle-office operation at Morgan Stanley, then left to open a hedge fund. If there were ever an unqualified and unprepared guy heading a major bank, it would have to be Pandit.

If you look at the nearby price chart for Citi and the S&P500Index, beginning at December, 2007, when Pandit became CEO, you see how dismally the bank has performed.

Why on earth Ackman thinks Pandit has done well is anyone's guess. Why Pandit merits an appearance on CNBC's program, moreover at HBS, is equally curious.

Seems to be just more of CNBC's brand of crony capitalism.

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