Growth, Risk Management, & Attendant Excesses in Financial Service Firms: The Merrill Lynch Case

As I read yesterday's Wall Street Journal, it occurred to me how Merrill Lynch's recent firings, sub-prime experience, and diversification are a textbook example of why large financial service firms almost never provide consistently superior total returns for shareholders.

In case you missed the piece, or other news stories about it, Merrill fired its global head of fixed income, his deputy, the co-head of fixed income for the Americas, and the former co-head of institutional securities. According to the article, an unnamed analyst estimated that Merrill will be writing off nearly $4B in losses from its sub-prime mortgage holdings.

While other firms, such as Bear Stearns and UBS, have also ejected senior executives, I want to examine the Merrill situation in more detail, because of its size and business scope.

Mr Kim, Merrill's recently-fired co-head of institutional securities, had led the team and area which bought First Franklin Corporation, a subprime mortgage originator, for $1.3B.

A dissenting executive, Jeff Kronthal, was fired as the team bought the sub-prime firm.

Once purchased, of course, First Franklin became a machine with which this fixed income team churned out lots of CDOs, becoming the #1 underwriter of the instruments since 2004.

According to the Journal article, the former global head of fixed income, Mr. Semerci,

"and Mr. Kim were known for putting a greater priority on expanding market share than on risk controls."

And there you have the crux of the phenomenon.

At diversified financial service firms, managers compete for promotions, compensation and control. In order to win these, they must out-grow their peers.

So they take excessive risks in the mid-cycle of a business, riding high growth and turning it into more explosive, riskier growth.

Sometimes, this approach works and the executives involved rise to lead the firm. If not, they still get compensated well, and the firm takes the hit to its balance sheet when the risk catches up with the earnings.

When I was at Chase Manhattan Bank in the early 1990s, the Real Estate division pushed for high, risky growth via construction lending in Manhattan. Eventually, that bubble burst, leaving the bank to take several hundred million dollars in writedowns in 1990. Meanwhile, the executives who made the loans, often found, upon later auditing, to be improperly documented, if documented at all, received large bonuses for making loan origination quotas.

In a large, diversified financial services firm, this drama plays continuously. That is why some element of a diversified financial conglomerate like BofA, Citi, Chase, Merrill, et.al., seems to explode in fantastic losses every few years.

So long as these giants incent managers to get ahead by growing their businesses, which, in financial services, must, to sustain growth over time, lead to riskier business, this will be a permanent feature of the sector.

That's why my equity selections process never identifies a non-acquisitive diversified financial conglomerate as an investment. Sans acquisitions, which prop up revenue growth artificially for a time, these giants are continually prone to the sort of losses being recorded at Chase, Citi, Merrill, Bear Stearns, and UBS this year.

Merrill can axe three highly-ranked fixed income executives, but that won't stop this from happening to the firm again. The story is as old as Lehman's original fist fight in the partner's board room that saw Lew Glucksman, the firm's one-time trading titan, oust Pete Petersen, who went on to co-found the now-famous private equity BlackStone Group.

Glucksman went on to binge on trading and, subsequently, trading losses, in the next few years, leading the firm to fall into the lap of American Express.

Only the faces will change. The culture and internal climate of any diversified financial services firm will guarantee repetitions of the recent Merrill experience for years to come.

When financial service firms rely on one, or, at most, a very few businesses to fuel their value creation, and manage risk accordingly, only then will they avoid these recurring risk-management failures.

In short, it's risk management that brings down large, diversified financial service firms every time. More than anemic growth, excessive growth in one or two businesses inevitably leads to excessive risks, which are typically hidden from the credit and audit functions, as well as senior management. After all, the executives are playing with the firm's money, so it's a win/win or lose/win proposition for them. Either way, their firm takes any losses.

The days of smallish Wall Street partnerships in which risks were well-understood, acknowledged, and managed, because the partners owned the risk, are long gone now. Instead, diversified financial mega-firms such as Merrill and BofA own many business units, in which managers play a risky game to advance their careers.

Thus, the entire complexion of financial service businesses, markets, and the risks inherent in them, have changed irrevocably, as a function of the sector's current organization. That's why you can expect something like the current Merrill writedowns and firings every few years at one or more diversified financial giants.

Vindication: The Wall Street Journal Officially Buries "Wal-Mart Era"

Yesterday's Wall Street Journal featured a prominent, front page piece entitled, "Wal-Mart Era Wanes Amid Big Shifts in Retail."

As such, I'm going to declare yet another of my predictions vindicated. I wrote pieces on this blog, here, and here, as long ago as September of 2005, when I began writing this blog.

Among the quotes from my earlier posts are these from April of this year,

"Friday's Wall Street Journal ran a piece in their Money & Investing section on what ails Wal-Mart, and how to fix it. Trouble is, they mostly asked a group of money managers. Why they think those guys would have a lock on such knowledge is beyond me.

In my opinion, most of them are barking up the wrong tree. Wal-Mart isn't 'coming back' as they knew it. It's big, sluggish, and hard to manage with its saturated markets.

Rather, Wal-Mart is likely at a crossroads. If it desires to regain consistently superior total return performance via growth, then it needs to do a better job identifying those markets which will sustain its traditional, logistics-dependent strategy for dominating the low end of retail merchandising. Whether this means staying or leaving Japan, I don't know. But Wal-Mart's management should.

My own view is that it's unlikely that Wal-Mart will regain its former consistently superior outperformance record. Its size, need to be in multiple countries and exposed to radically varying cultures and logistics environments probably presents the firm's management with too many challenges to overcome simultaneously.

But, since I'm neither a broker, nor a current investor in Wal-Mart, I don't have a stake in convincing others to either buy, or sell the firm's stock based upon expectations. I'm just writing what I have observed, from both my proprietary research, track record of portfolio selections, and the recent media coverage of Wal-Mart's performance."

And these sentiments, from September, 2005,

"Back when I was earning my degrees in Marketing, there was a theory which was taught that went by the name of “the wheel of retailing.” It essentially observed that every so often, a new, low-cost retailer will arise that rips through the existing sector structure like a hot knife through butter, growing at the expense of outmoded, expensive older giants.

That said, the Wal-Mart saga since the 1980s is both remarkable, yet not surprising. What the company did is not all that new. It upended several existing chains of general merchandisers who had grown inefficient, insensitive to consumer needs and wants, and basically moribund. How it did it was with the latest version of what the lowest entrants on the wheel of retailing always use- low-cost supply of large volumes of goods. It looks glitzier now, with integrated IT functions shared among vendors. But if you go back to the architect of Sears’ great transformation, you will find that Robert Wood, the creator of that transformation, learned his supply skills as quartermaster on the Panama Canal, one of the more challenging logistical projects of that era.

What is puzzling me is why there is all this attention paid to the mid-late life growth pangs of a retail success. Retailers who began life at the bottom always try to extend growth, once they saturate the market with stores, by moving up-market. And they nearly always fail in doing so.So will Wal-Mart. The company appeared briefly as a selection in the large-cap equity portfolio I manage. That was back in the 90s. But it hasn’t performed in a consistently superior fashion in over a decade."

I'm quite proud of the fact that I called the demise of the "Wal-Mart era" two years ago. It's sort of sad that as fine a business newspaper as the Wall Street Journal both missed the boat for this long and, even now, in their comprehensive article yesterday, can't come up with a reporter who is familiar with the 'wheel of retailing' concept. Or Schumpeterian dyanmics. Because both figure in this story.

The 'wheel of retailing' is an old, but still valid, marketing concept which observes that, over time, low-end retailers eventually attempt to move upmarket, making way for new entrants, while tending to stall in their new product/markets. This is Wal-Mart, to a "T." Schumpeterian dynamics explains, additionally, why, over time, Wal-Mart sowed the seeds of its own competition, as well as became a target for regulatory and social activist forces, sapping its energy and tarnishing its reputation.

As it is, the article thoroughly documents Wal-Mart's troubles amidst shifting consumer values which place style and convenience above price. Further, having dominated their product/market spaces for so long, they became the target at which to shoot. Consequentially, the article mentions that many competitors, such as the drugstore chains, Walgreens and CVS, simply redefine their offerings to avoid head-to-head competition with the retailing giant. Krogers does the same in food, offering semi- and fully-cooked meals to differentiate itself from Wal-Mart's grocery stores. Tesco, the British food retailer, is about to enter the Western US market with a portfolio of store types, taking on Wal-Mart in this large product/market.

The Yahoo-sourced price chart in this post demonstrates, compares Wal-Mart's performance since the early 1970s with the S&P500. It's clear that, except for a brief 2-3 year period in the late 1990s, Wal-Mart's market performance has been stalled since 1992, i.e., for 15 years!

That's an awfully long time to be waiting for a turnaround, isn't it? That's why I called the company dead as a consistently superior total return performer. The Wall Street Journal article echoes my own research findings and observations about the retailer- it's simply grown too large and stable to respond with alacrity anymore to changes in consumer tastes. Further, with such a large, inertial sales volume, significant growth is no longer easy. Wal-Mart's ventures abroad have disappointed, suggesting their management style is not transferring well or easily to China, Europe, et. al.

As the chart above shows, if you had bought Wal-Mart stock over 30 years ago, and simply held, you'd still have outperformed the S&P for the period by a stunning margin. But you'd have to have sat and watched it tread water for this entire decade. Simply put, Wal-Mart's best days are behind it in terms of consistently superior shareholder return performance.

And you read it here first. Two years ago.

Chuck Prince's Nine Lives

I'm beginning to think Citigroup CEO Chuck Prince is some sort of shape-change artist out of Harry Potter, who is, in reality, a cat. A nine-lived cat, to be precise.

How many mistakes can a CEO make and still keep his job? Perhaps due to Prince's example, GE CEO Jeff Immelt figures he has lots of time left to continue to mismanage his firm.

But, back to Citigroup. Having taken the helm from Sandy Weill in 2003, after the latter's excesses of merger-mania, Prince has presided over a performance that underruns the S&P for the timeframe.

As observed in the nearby Yahoo-sourced chart of stock prices for Citigroup and the S&P500 Index for the last five years, Prince has led the banking firm to a clear underperformance during his tenure.
Despite the company's major shareholder, Saudi Prince Alaweed bin Talal, commenting,

"No financial institution is immune from the financial turmoil in global markets....It's a hiccup in our journey to reach normalization at Citibank,"
Prince never seems to do more than 'normalize' mediocrity. As the two-year price chart nearby shows, even before this summer's fixed income markets crises, which have led to Citigroup posting third-quarter earnings that are 60% below last year's similar quarter, Citi was already lagging the index, suffering a plunging stock price since early this year.

As I wrote in these posts, here and here, in May and January of this year, Prince has been mismanaging Citigroup for quite some time. It has nothing to do with the market troubles of this summer.

Here's what continues to confound me. Prince would probably not suffer performance like his own in a lieutenant for as long as his board has suffered his own mediocre performance, without firing them.

Why is Prince still CEO? As I have written in prior posts, he's out of his depth trying to run the overly-diversified Citigroup. And financial service firms so diversified almost never manage to post consistently superior total returns.

As I wrote in my last (linked) post,

"Ideally, Citi needs to be split up into more easily led and managed, standalone units which may more nimbly respond to market and competitive forces in their particular financial service sectors. As a financial supertanker, Citi has proven unmanageable in a manner that performs consistently better than the markt for its owners. Can it really do worse as a number of smaller, more responsive entities?"

And Prince should go- break up, or not. He is simply overmatched by the firm's and market's complexity. It would be nice if the Saudi Prince considered other shareholders, and voted to boot the American Prince.

American Century Investments & Lance Armstrong

This past weekend's edition of the Wall Street Journal featured an article on the recent management turmoil at American Century Investments. I last wrote a post about the firm here, in February of 2006, when I noticed that Lance Armstrong had formed a relationship with the firm.

As I mused in that post, it seemed odd that Armstrong would represent a service like mutual fund management, which is so prone to changes in fortunes.

And, as it happens, that's exactly what is occurring at American Century now. According to the Journal article, it has a number of poorly performing funds which have had management shake ups.

Meanwhile, the article tells us, the founding family of American Century, the Stowers, have moved on to endowing a medical research institution nearby to help cure the cancers with which both elder Stowers have diagnosed.

Between the family's focus on the medical institute, and Kansas City's declining attraction for many of the investment firm's managers, the talent drain began recently, seeing 20 or more managers and senior executives leave the firm. Some complained that the benefit to the institute of a rise in the price of American Century shares had eclipsed their use as long term incentive compensation for fund managers at the firm.

As for Armstrong, his own foundation receives more money from American Century when the investment firm's results exceed a certain threshold. The former cyclist is quoted as saying that he thinks people "want to be involved with a company that's put themselves out there on such a human level."

Personally, I think the average retail investor simply wants better returns. Institutional investors, which are a new focus of the investment management firm, are even more focused on returns, and less on social issues.

One of American Century's funds, Ultra, seems to be moving in the right direction this year, with its performance back up to 15%. However, it seems to me that the entire episode of wholesale management changeover, and a drop in returns of many of the firm's funds, until recently, demonstrate how risky it may be for someone of Armstrong's ilk to tie his fortunes to such a financial services vendor.

Home Depot Again: Stories from the Front Lines

This weekend, I had the pleasure of seeing old friends who are the parents of one of my daughter's friends. Having moved about an hour away, several years ago, my visits with Jon and his wife are now, though less frequent, longer and more involved.

Jon has had success in startup ventures in the past, and is currently busy with another one. An engineer by training, he fills a number of roles in the venture, including that of supply officer for the firm's various hardware, testing and building materials needs.

This was news to me. Jon related how he has become a regular at the Home Depot located within a few miles of his firm's offices in Northern New Jersey. Typically not that observant of details at stores, such as Home Depot, so Jon says, he has noticed a number of things this summer that corroborate my many posts describing the building supply chain's woes.

For example, he cited the many times he wanders the aisles, while knots of orange-aproned employees are busy talking among themselves, leaving him to fend for himself.

The aisles, he says, are far from presentable. I think he described them as cluttered and messy, when the shelves weren't empty.

But the best story he told involved product mix changes. Specifically, a ban saw.

His group does lots of research and experimentation, so they need power tools for building things on their test benches. Jon had recently bought a ban saw. Within a few weeks, they'd worn the blade out, and he returned to Home Depot for replacement blades.

No luck. It seems that the supply chain had switched product lines, and now markets, as Jon puts it, a decidedly cheaper ban saw.

Well, he was there for blades, not another saw, right? So, no problem.

Ooops! Home Depot told him they don't carry legacy parts for the old saws- meaning spare blades. None. Nada. Zippo.

So they sell him a fairly expensive power tool one month, only to drop support of the consumable blades the next month. No offers to search other stores, or order the blades, or even provide contact with the manufacturer.

My friend was both displeased, as well as bewildered as to how a major chain such as Home Depot could engage in such dysfunctional and unsupportive behavior.

At least when Apple dropped the price of its iPhones, the old ones still worked. In this case, Home Depot simply drops support for their customers who are foolish enough to buy a fairly expensive tool which requires spare parts support.

The nearby Yahoo-sourced chart displays prices for Home Depot, Lowes, and the S&P500 Index, for the past two years. While HD and LOW have moved very similarly over the period, there's no mistaking that HD has diverged very sharply from the index in 2007.

Lowes seems to have popped up a bit more from its recent bottom, coincident with the summer mortgage-based woes, than has Home Depot. Looking more closely, Lowes was back to a positive return when the housing finance crunch hit, whereas Home Depot was in the red. Then it appears that market forces hit Lowes, as well, from which it rebounded a bit better than Home Depot.

What really struck me, of course, was that my friend could instantly detect serious failings in Home Depot, from his perspective as a customer. It echoed what I have seen in the performance data for Home Depot for at least the past year.

I have a feeling that the firm's troubles now run deeper than simply an arrogant, overpaid, now-departed CEO. And that it may be a while before Home Depot is back on track, both with consumers, as well as investors.

More on GM's & The UAW's Recent Settlement

In my very first post on this blog, roughly two years ago, I suggested that unions had committed a grievous error back in the 1950s by agreeing to accept corporate financial promises, in lieu of cash on the barrelhead.

As I reflect further on this week's GM-UAW settlement, featuring the transfer of the former's healthcare liabilities to the former, in the shape of a $51B trust fund, described here, I believe that, once again, one of my contentions is being proven correct by realities of the marketplace.

As I reread yesterday's Wall Street Journal articles on the tentative pact, still to be approved by the UAW membership, I noticed a brief description of the failure of a similar provision, established between Caterpillar and the very same UAW in a recent contract. The healthcare trust fund is already bankrupt, and the union and Caterpillar are now locked in a legal battle over it.

Frankly, I'm surprised by three things. First, that Gettelfinger would resurrect this approach after it failed at Cat. Second, that Gettelfinger would try to somehow justify how the GM trust fund will be different, and not fail, where the Caterpillar one did, i.e., what has changed in two years? Third, that the UAW-Cat healthcare trust fund debacle was not a page one story on the day of the GM-UAW pact, as well as the featured story on CNBC.

Instead, I read it in the latter part of the Journal's long piece on the strike and pact, buried in the final columns of an inside page.

The more I think about this GM-UAW settlement, and the apparently-failed Cat-UAW 2005 settlement, of a similar nature, the more I see big labor slowly being forced to move in the direction of my post of two years ago- take cash, not promises.

Sure, right now, it's a lump sum, special/single-purpose trust fund. But how long is it until the companies lobby to give individuals a tax deduction on healthcare, and simply execute a one-time swap of policies for dollars, thus safely exiting the health insurance business?

With one fell swoop, they can argue for consistency, i.e., why pay today's employee's healthcare, when we just offloaded yesterday's to you in a trust fund? Let us just pay you what we pay for your healthcare, and you, the interested party, can, say, band together with your union buddies and all present as a single group to some insurer.

It's funny how policy sometimes occurs from the strangest sources. After all, our current third-party payer medical insurance is the unanticipated result of Harry Truman's Senate Committee freezing wages during WWII. This necessitated non-cash compensation competition by firms, in the form of 'fringe benefit,' i.e., non-cash promises- pensions, medical care, vacations, etc.

Who knew that this sort of wacky compensation would take root and completely warp American usage of healthcare, not to mention taking responsibility for their own health to begin with?

If for no other reason than perhaps sparking a trend that will make HillaryCare 2.0 irrelevant, the GM-UAW tentative agreement might just be a landmark deal, and we don't even know it yet. Would it not be ironic if, twenty years on, both the company and the union are shrunken remnants of their former selves, but the revolution in healthcare insurance payment arrangements they forged near the end of their influential phases becomes the legacy for which they are best known?

GM: The Strike and The Settlement

I would be remiss if I let the week pass without commenting on one of the biggest news stories about corporate America- the GM-UAW strike and subsequent contract.

A few weeks ago, I wrote about GM's stock price surge, here, suggesting that it is the product of speculation, rather than consistently excellent performance.

As the nearby Yahoo-sourced price chart of GM and the S&P500 for the last three months clearly shows, even the recent spike in GM's price, due to the UAW contract, only brings it to rough parity with the Index. For much longer periods, such as more than 2 years, the picture still looks even worse, as in that prior post.

However, leaving aside the immediate ramifications of the contract on GM's market value, there are two other aspects to this deal I wish to discuss.

The first comes by way of Wall Street Journal editorialist Holman Jenkin's excellent piece in yesterday's edition. He notes that the brief strike of the UAW GM workers called by Ron Gettelfinger may well have been so he could get them in the right head space regarding the sacrifices they are going to be asked to make in the new contract. Rather than it being a product of the negotiations, Jenkins reasonably theorizes that Gettelfinger, presiding over an ever-shrinking, less-important union, is worried that they won't accept the new contract, sending the near-term status and health of the union, with GM, into free fall.

That alone tells you something about the severity of the situation in Detroit right now.

But there's so much more to it. Many articles and pundits are trumpeting the new pact as a sea change in the American worker's situation.

This is because of the key element of the new contract, wherein GM finally exits the employee medical care guarantee business, in which it, and other firms, have been since WWII, by way of a $51B payout to a new union healthcare trust find.

Sure, GM is out of the business of yet another benefit provision. Along with defined contribution plans, rather than the older, now nearly-extinct defined benefit pension plans, healthcare is returning to its rightful place- as the province of the worker, paid for with cash from his own pocket.

However, given the context of the GM deal, instead of going right to the worker, the UAW-administered trust fund idea was used. It's necessary because of the mixed durations of claims by so many former and current GM workers on the company for healthcare.

Look at what this does. It now makes the workers' own union, the UAW, responsible for any healthcare shortfalls, service gaps, funding shortages, etc. Responsibility has hit the union movement at last. It's as if they returned to an ancient medieval guild structure, wherein they have provided in common for their retirement and healthcare.

I have several observations on this. First, the $51B number seems suspect to me. If the same minds that usually mess up healthcare cost management and estimation were involved, and it's hard to imagine who else would have been, it stands to reason that this amount will, ultimately, prove unequal to the claims made on it. Look out if you happen to succeed Ron Gettelfinger as UAW chief.

Second, there's a subtle, but important, aspect to the timing of this change. Right in the middle of a Presidential campaign featuring many Democratic candidates calling for more government-run universal healthcare, you have the major US union, the UAW, reverse course and take on the responsibility for its own healthcare insurance provision.

Will a major, blue-collar Democratic voting bloc now get a taste of individual control of their own health insurance, and lose their appetites for HillaryCare 2.0, as well as other Democratic health insurance plans which promote socialism?

It's an interesting thought.

Jenkins mentioned another interesting aspect of the deal. By moving the union's healthcare administration to .....the union.....the UAW has assured its existence and relevance for a little while longer, assuming they can get the contract passed by the membership. Because, now, the union has to exist to administer the healthcare benefits.

Otherwise, the UAW was in danger of simply being outsourced out of existence, as GM, Ford and Chrysler slowly lose market share and jobs in the US.

Finally, there's GM itself. What does this UAW pact do for it? Is it now going to soar like an eagle, with the dreaded healthcare burden about which Rick Wagoner has complained for his entire tenure as CEO finally lifted?

Well, first, as some have pointed out, GM has to actually fund the new UAW healthcare trust fund. Then there's the sad fact that being quit of some legacy expense base bears no relationship to an inability of GM to design and build cars which sell at prices for which a sufficient number of people will pay the sticker, in order to make the necessary profit per vehicle to stay in business for the long run.

Like draining a swamp, and still having to wrestle the alligators, this healthcare trust fund deal may simplify matters for GM, but it by no means solves its toughest market-related survival issues.

It will still take several years of consistently superior total return performance for me to judge GM as having "turned around." And, frankly, I just don't see that coming down the road for many years- UAW contract, or not.

Microsoft Tries New Online/Ad Strategies- Again

Yesterday, I wrote this post regarding a Wall Street Journal article which harkened back to GeoCities, the very first online networking site, and discussed today's landscape in that product space.

I suppose the timing of Dennis Berman's piece was no accident, appearing, as it did, as Microsoft is in talks to buy up to 5% of Facebook for a reported $300-500MM.

Tuesday's Journal carried a front-page article describing Microsoft's many, failed attempts to break into online businesses, from browsers to ad placement businesses. As I wrote here, in May of last year, I think the only way Microsoft will realize consistently superior returns for its shareholders is to break itself up into three pieces, each focusing on one business: applications software, operating software, and internet-related businesses. As it stands now, and for some years, Microsoft's diversified structure has simply led the software giant to become a veritable Gulliver, tied down in competition with many, more nimble adversaries in each of the niches in which it does business.

According to the Journal article, this time around, Microsoft is pinning everything on one Brian McAndrews, an executive whom it acquired in the deal to buy aQuantive, Inc., an online ad company, for $6B.

Of course, as the article also details,

"Just 17 months ago Microsoft hired Steve Berkowitz, from Internet search company Ask.com, as a vice president in its online group. Much as Mr. McAndrews is seen today, Mr. Berkowitz was positioned as the outsider needed to lead a cultural change at a company strong on technology but short on experience in the advertising industry.

A lack of political chops in working within the huge company and a clash with a highly respected engineering manager have hampered Mr. Berkowitz, say people familiar with the matter. Several of Mr. Berkowitz's duties were recently ceded to Mr. McAndrews."

So, once more, Microsoft has thrown money at a business in which it lags, without really re-orienting the company to address the fundamental strategic shift such actions implicitly acknowledge.

As I've written before, I don't think Microsoft truly understands, nor is currently capable, of competing totally all-out to win in the online business arena. It's still a software company trying to re-ignite growth by viewing online as a distribution platform, rather than a do-or-die business.

It seems to me, per Mr. Berman's article, that Facebook is the big winner here. Microsoft will, as usual, pay up but cede control. It won't seriously change to address the new business. And Facebook will reap a huge payday simply for carrying Microsoft ads.

If there's any downside for Facebook, it would be these: it's not selling enough of itself while the premium is stratospheric, and; it may, as Yahoo did with its payments from ATT years ago, grow fat and lazy on the passive revenue stream, only to wake up in a few years behind its competitors.

Time will tell. However, I cannot help but think that, once again, Microsoft's unfocused, half-hearted attempts to 'beat Google,' simply to do so, will enrich third parties, further impoverish its own shareholders, and continue the software giant's slide into relative unimportance as a leader in the technology product/market.

Online Communities: The GeoCities Story

Today's Wall Street Journal featured, on the front page of its Money & Investing section, one of the best analytical, staff-written articles I've read in the paper in ages.

Dennis Berman provides a timely and fascinating look back at the very first, now almost-forgotten online social networking site, GeoCities. Back in 1994, before, as Berman reminds us, high-speed cable or DSL, full motion video, etc., GeoCities, created by David Bohnett, contained the essential elements which today characterize FaceBook, MySpace, et. al.

To summarize the GeoCities story, it rose rapidly among then-popular websites, becoming the "third most-visited site on the Web" in August, 1998. In early 2000, amidst the dot com craze, Yahoo paid $4.7B to buy GeoCities. Bohnett and his team received his payday, and, as Berman writes,

"...their creation would soon wither before their eyes."

He further describes the wrenching, profound changes for GeoCities under Yahoo,

"Life inside Yahoo was smothering for GeoCities, say a number of people familiar with the transition. Developing new technologies for GeoCities' communities slowed to a crawl, as its staff of 30 software developers was cut to a skeleton crew. Yahoo focused instead of building traffic, not necessarily on the programming for improving person-to-person interaction. "Had they done things right with GeoCities, there would be no Facebook, YouTube or MySpace," says one. "

With my own posts regarding Terry Semel's 'leadership' of Yahoo, as may be found by searching on that label on this blog, the following passage almost made me laugh,

"Yahoo's treatment of GeoCities is particularly relevant for Mr. Zuckerberg, who reportedly rebuffed a $1 billion buyout from former Yahoo CEO Terry Semel."

So, having bungled the purchase, integration and management of the internet's very first social networking site, Yahoo was going back for a second bite of this hideously expensive apple? Amazing!

What intrigued me about Berman's article, and the GeoCities/Facebook story, is how perfectly it showcases the basics of Joseph Schumpeter's now long-ago vision of the dynamics of industry and competition. Note that GeoCities was sold to the one firm, Yahoo, which, at the time, could have capitalized its new acquisition and buried all comers with innovation, expansion of services and scale, etc.

Instead, Yahoo thought small, cut costs, and opened itself up to competition, and mismanaged this expensive beachhead into what has become a very hot online business. Talking to Bohnett about this, Berman writes,

"But if he could give advice to Mr. Zuckerberg, he'd recommend heavy investment in new technology to "stay true to what the user experience is." And he stressed the importance of keeping a young audience: "Those kids tend to get older and maintain some connection with an online community. You've got to capture that early adopter, young audience." "

At this point, Mr. Berman had already written a great article. But, next, he further probed the Schumpeterian nature of this product/market space, without explicitly acknowledging the famed dynamic.

In the final paragraphs of his article, Berman reviews Zuckerberg's (Facebook's founder) options and risks,

"Mr. Zuckerberg is in an especially good place right now. His site has developed a patina of invincibility, which in 2006 enabled him to wrangle an especially good advertising deal with Microsoft. Ever the Net-laggard, Microsoft is now guaranteeing about $75 million in revenue this year, which could become as much as $300 million by 2011 if traffic grows rapidly.

Alas, advertisers have found Facebook users to be a huge audience -- that could care less about ads. The percentage of users clicking onto site advertisements on Facebook and MySpace are lower than typical Web sites. That means it's essentially sucking up a subsidy from Microsoft, which wants to get its hooks into Facebook the best it can."

Which leads Berman to what I feel makes this an outstanding article. Rather than stopping short with an excellent review of GeoCities, a comparison of it and its fate with today's Facebook, and leaving it at that, he goes one step further. Berman risks alienating the entire business, i.e., Facebook and MySpace, by noting how dependent it is upon advertising, and how horribly, traditionally difficult it has been to make this work,

""It's not that easy to monetize social media," says Eric Hippeau, a managing partner of Softbank Capital that made more than 20 times its investment in GeoCities. He also sits on Yahoo's board. "Once Microsoft's deal with Facebook expires, as does Google's deal with MySpace, they're going to have to sell advertising for themselves and it's going to be a challenge." So far, he says, "it's not that easy to match the right advertising with the right audience."

That squares with the experience of Thomas R. Evans, GeoCities' former chief executive. "When you're as successful as GeoCities, everyone tells you how wonderful you are. It causes you to miss opportunities." Now the CEO of Web site Bankrate.com, he added that, "People at the time were dismissive of old media experience. But it turned out looking exactly like the old media business. You have to execute and provide both the consumer and the advertiser with significant value."

At some point, the questions about Facebook the business will eclipse the praise of Facebook the social phenomenon. And once that point hits, Mr. Zuckerberg will be less able to dictate the terms of how fresh capital is put to use."

Mr. Berman pulls no punches. From his initial description of the now-essentially-defunct GeoCities, to the likely fate of Facebook, his superb writing uncovers a wonderful, timeless story of business innovation, absorption, mismanagement, the rise of new competitors, and the continuing weakness of the underlying business model.

Aside from the marvelous business strategy expose, Mr. Berman makes it hard for the reader to avoid asking the question,

"If no other, larger firm, had bought, or bought stakes in, GeoCities, or was trying to buy or invest in Facebook, would Bohnett and Zuckerberger realize millions in wealth simply from the profitability of their businesses and business model? Or would they become, like Amazon, long on initial market value gains, but short on realized profits?"

Thus, leading to the ultimate question,

"Were/are the acquiring giants of these online social networking businesses the greater fools?"

Greenspan's Book & A Week of Reactions

Last week's business media was filled with news of and interviews with Alan Greenspan, retired Chairman of the Federal Reserve.

Appearing on CBS' 60 Minutes, NBC's Monday morning talk show, and numerous CNBC interviews, Greenspan was plugging his just-published book, "The Age of Turbulence."

Monday's Wall Street Journal had an 'official' staff article reviewing the book. It was pretty standard fare, recounting Greenspan's comments concerning various Presidents, how he handled the 1987 and 1998 market crises, his views on the current President and various economic affairs.

I think it's fair to say that the initial 48 hours of 'shock and awe' at Greenspan's apparently magisterial disrobing of his past obfuscations contained an almost-uniform measure of reverence. As if the various pundits and interviewing heads were saying,

"Alan said it, so it must be so. He was so awesome as Fed Chairman, we're lucky to get these nuggets of wisdom for only $35."

Then James Grant, editor of Grant's Interest Rate Observer, and noted monetary conservative, weighed in on Tuesday. In a Wall Street Journal review of the book, he panned Greenspan's consistency, credentials, and motives.

This passage aptly illustrates Mr. Grant's tone and perspective on Greenspan, and his book,

"The fantastic irony of Mr. Greenspan's career path -- from gold-standard libertarian to federal interest-rate fixer -- seems hardly to have registered on Mr. Greenspan himself. The closest he comes to acknowledging it is his description of how the Fed looked to him from the outside. It was, he writes, a "black box." Having watched his mentor, Arthur Burns, struggle with the chairmanship, Mr. Greenspan notes, "it did not seem like a job I felt equipped to do; setting interest rates for an entire economy seemed to involve so much more than I knew." A deeper kind of libertarian might have added: "Maybe nobody can know enough to set interest rates for an entire economy." "

He goes on to write,

"So Mr. Greenspan, a consulting economist of no special attainments (on the eve of the 1974 stock-market collapse, he was quoted in the New York Times saying "it is rare that you can be as unqualifiedly bullish as you can now"), agreed to perform the impossible. Succeeding Paul A. Volcker, he became America's monetary central-planner-in-all-but-name. Mr. Greenspan ruled the roost in 74 fiscal quarters, of which recession darkened only five.

Nobody can identify a bubble as it is inflating, Mr. Greenspan has long insisted -- though, as you will not read in these pages, Mr. Greenspan was so certain that he detected a stock-market bubble in 1994 that he tried to prick it by pushing interest rates up. Strangely, the author's bubble-sensor failed him later in the decade. He did, in 1997, utter the innocuous phrase "irrational exuberance," but that was as far as he went in attacking sky-high equity valuations.
Mr. Greenspan now writes that the enlightened central banker will let speculation take its course. Following the inevitable blow-up, he will clean up the mess with low interest rates and lots of freshly printed dollar bills -- thereby gassing up a new bubble.

Only one of the troubles with this prescription is that it requires an enlightened central banker to carry it out. Nowhere in this book does Mr. Greenspan own up to his role of underestimating the severity of the credit troubles of 1990, or of cheering on the tech-stock frenzy in 1998-2000, or of dangling the most beguiling teaser rate of all during the mortgage frolics of 2004 -- i.e., that 1% federal-funds rate. In February 2004, only months before the Fed started to raise its rate, in a speech titled "Understanding Household Debt Obligations," Mr. Greenspan demonstrated next to no understanding. His advice to American homeowners was not that they lock in a fixed-rate mortgage while the locking was good, but rather that they consider an adjustable-rate model. He who set the rates got it backward."

Grant pulls no punches in questioning Greenspan's consistency as a libertarian, and acolyte of Ayn Rand, by ending up as the sole determiner of the economy's key interest rate. He makes clear Greenspan's lack of significant accomplishment as an economist or equity savant, prior to his role as Fed Chairman, and his misunderstanding of housing finance, after he took the position.

As Joe Kernen, an anchor on CNBC, articulated, Grant also seems to question Greenspan's motive in writing this book. Whereas Kernen opined that Greenspan wants back in the limelight, Grant suggests it's about trying to write his own legacy, before someone else writes a less flattering one.

As the week went on, the Fed cut rates half a point, and the market surged, more people were beginning to wonder if perhaps Greenspan was being rather too self-important by writing his book.

By comparison, Greenspan's predecessor, Paul Volcker had a much harder job to do, and left things in far better shape than he found them. Yet, in over twenty years, Volcker has never spoken out about his Fed tenure, told tales out of school, nor, to my knowledge, even remarked on either Greenspan's or Bernanke's performances and policies as Fed Chairmen.

Instead, being, obviously, incredibly secure, Volcker moved on and continued his career of public service, assisting in cleaning up the Arthur Andersen mess, and hunting out graft and corruption in the recently-retired UN Secretary General Kofi Annan's troubled administration.

Were that Alan Greenspan were possessed of similar self-esteem, that he would not have needed to attempt another run into the public spotlight which he so recently left, when he retired as Fed Chairman. In some sense, he reminds me of Jack Welch, now-retired CEO of GE, who seems to have to pop up on business talk shows with now-annoying regularity, spouting little of current relevance.

I've always thought that Paul Volcker received far too little acclaim or gratitude for the heroic, difficult job he performed, taming the roaring inflation of the 1970s, left to us by Lyndon Johnson's fiscal policies during the Vietnam War, and compounded by economic mismanagement and taxation policies during the ensuing decade.

Compared to him, Greenspan seems to have performed capably, steering a large ship on, for the most part, calm seas. However, this summer's debt market troubles suggest that perhaps Greenspan's legacy won't be sterling, because it's now becoming evident that he owns the source of this latest marke.....ahhh.... turbulence.

Berkeley's Haas School's Dubious Move Into "Socially Responsible" Investing

This Tuesday's Wall Street Journal contained an article detailing the University of California, Berkeley's Haas Business School's new program to teach its MBA students about asset management. This will be done via a new, "socially responsible: fund, the $250,000 of initial capital for which was donated by Charlie and Doris Michaels. Mr. Michaels is a Haas alumnus and currently president of Sierra Global Management, to be managed by Haas students.

From the interview with Kellie McElhaney, the faculty member who is director of the Center for Responsible Business at the Haas School, we learn that the intent of the program is to teach MBA and MFE (Masters of Financial Engineering) matriculants about investing.

Just on this information alone, I have grave concerns about the direction Haas is taking business education.

In January, I wrote this post, commenting on an article in the Wall Street Journal regarding the very theme of this new Haas program, "socially responsible investing." It wasn't very pretty. Not at all.

I will cite just three passages from the Journal piece by Jon Entine, a fellow at the American Enterprise Institute, which I also cited in the January post,

"The social investing community also suffers from the hubris that it can separate the good guys from the bad guys. The Times report mentioned that half of the children attending a high school in South Africa suffer from asthma and other respiratory disorders that the Gates Foundation is committed to eradicating. It noted that a nearby refinery that spews out pollutants is owned in part by a foundation-held company, BP. Outrages like this would not happen, the Times suggested, if only the foundation would use socially responsible rating services of firms like the Calvert Group in Bethesda, Md. So much for investigative reporting. Calvert not only invests in BP, it praises the company as an environmental leader. For the record, Calvert added Enron to its approved list in March 2001, just as its ethical house of cards was collapsing, and also owned HealthSouth, ImClone and other ethically-challenged firms.

The dark secret of "social investing" is that it is neither art nor science: It's image and impulse. It reflects perceptions, not performance. Years ago I did a report on the Body Shop, the U.K.-based cosmetic company whose founder, Anita Roddick, was hailed as the Mother Teresa of Capitalism. In the early 1990s, the Body Shop was the world's most popular "socially responsible" investment. It was touted for its natural products, charity, fair trading and integrity. I discovered that Ms. Roddick had stolen the name, concept, product line and even its brochures from the San Francisco-based Body Shop that started seven years before she opened her copycat version. Ms. Roddick fabricated her history; she gave almost no money to charity over the company's first 11 years, and has given meagerly since. The Body Shop's products were made mostly from water and cheap petrochemicals; it had a record of exploiting poor Third World producers; and its franchise system was riddled with mismanagement, which eventually resulted in the company paying more than $500 million to buy out dissidents and diffuse fraud suits. My report sent the company's stock down by more than $600 million -- causing great anguish to social investors -- and contributed to a 10-year tailspin that resulted in its being sold.

It should come as no surprise that a recent Wharton study calculated that funds that layer on ideological screens often perform worse than the general market by about 31 basis points a year, a huge discrepancy. Domini Social Equity Index, considered the gold standard of social index funds, rates a lackluster C- in Business Week's latest ratings. Calvert's Social Index Fund has lost 1.82% since its inception in 2000, ranking it in the bottom 15% of all funds. Now Bill and Melinda Gates are being asked to turn over investment for billions of dollars to these same social researchers?"

Well, at least the kids in the new Haas program don't have such a high hurdle to clear, in order to beat the average "socially responsible" fund's returns.

Seriously, though, Entine's piece suggests that the Haas program is, to be blunt, folly. The very credentialing process by which firms are judged to be "socially responsible" looks to be pure art, and easily fooled, at that.

So how are 10 MBA and MBE students going to outwit the fraudsters who, for a living, fool professional investors on this dimension?

Then there's the "MBE" matriculants.

As I contended in my recent video post, here, the 'financial engineering' degree represents yet another step in the continuing degradation of the MBA into a purely narrow, technical degree, now far removed from the certification of general business management knowledge and capability for which it used to stand.

As Wilbur Ross hilariously commented, cited in this post, from one of his appearances on CNBC this summer,

'When someone mentions two words, financial engineering, you know it's really an attempt to underprice risk.'

Great. Now we have burgeoning degree programs designed explicitly to teach new wunderkinds how to parse, conceal and pass along mis-priced risk.

Haven't we just learned what systemic folly this is in the past two and a half months?

However, perhaps the most chilling part of the Journal article, for me, was these two passages,

"Will this experience give students the skills they need to land jobs with funds that have a social-responsibility focus?

Absolutely. It will give them a competitive advantage over students with just course work on social responsibility or just investment experience. There have been a lot more SRI funds created in recent years, and I see an increasing number of job opportunities out there. What I have yet to see are the traditional investment houses posting jobs for professionals with SRI experience. But I hope I will be able to send more knowledgeable students into the traditional Wall Street firms where they can raise social-responsibility issues from inside the companies.

Does this take corporate social responsibility to a new level in academia?

It definitely will because we'll have data. It may be negative, positive or inconclusive, but there will be data. We in corporate social responsibility are still really in the throes of proving ourselves to other academicians, and the only way we can do that is through research and data."

Reading these two passages, I don't whether to laugh, or cry.

With Entine's piece as background, the 'spread' of this disease to major institutional portfolio managers is likely to depress already-mediocre average returns, for which fund owners pay good money.

To further state that this program will 'prove' anything to anyone is laughable.

Rather than take even $1MM, ten students, dubious criteria for "socially responsibility," and actually buy and/or sell short various equities, wouldn't it be more useful to task these students to rigorous, refereed papers of the sort financial academics write, to attempt to refute research hypotheses concerning "socially responsible" investing and the performance thereof?

With only $100,000 apiece, these students won't impress anyone in the industry with their performance. Believe me, I know. It takes about $25MM before anyone pays serious attention to an investment track record.

However, financial theory is routinely advanced through the use of rigorous theory development, implementation via backtesting, and analysis of the results. Each of ten students formulating different "socially responsibility"-related hypotheses, then testing them over long periods using market data would produce more, and more convincing results, in my opinion, than the Haas' new, tiny investment laboratory.

Credit Markets: Is Evolution a One-Way Process?

A recent piece in 'breakingviews.com,' a feature on the back page of the Money & Investing section of the Wall Street Journal, touched on an interesting point.

The notional headline concerned whether investment banks/brokers may be bought by, or merge with, commercial banks. The contention is that banks have certain regulatory and accounting features which happen to allow them to weather the current sub-prime mortgage-sourced credit markets turmoil.

For instance, banks may borrow at the Fed's discount window for liquidity purposes, to avoid selling prime assets to raise cash. Brokers may not do this.

Banks may use their discretion in valuing questionable assets by placing them in an 'investment' account, thereby avoiding the need to mark them to current market value. Brokers must carry all of these types of assets at the best current market value they can deduce, regardless of the loss to the brokerage firm that such valuation may entail.

The column simply addressed the potential for mergers of banks and brokers. Perhaps brokers are merger fodder for commercial banks.

But a larger issue struck me in this piece. Maybe credit markets went too far in their evolution to total market pricing of credit and debt.

Commercial banks seem, after all, to have a few advantages that were unapparent in a consistently up-market.

Could it be that, rather than a uni-directional march toward market pricing and underwriting, credit markets are, in reality, about to swing between extremes? Moving from all-bank balance sheet valuation and warehousing, to heavily market-priced and securitized, and now back toward the original pole of bank-sourced and distributed credit instruments?

It's not something I've read anyone else hypothesizing. Even I just assumed that banks had pretty much become a mere origination platform for credit.

Now, with this latest credit market debacle, the first since really heavily asset securitization of mortgages and corporate loans have kicked in, we are learning that there are market conditions under which non-banks may not be viable for very long, if they originate and/or hold volatile fixed income assets.

It's an interesting phenomenon. Who would have guessed that there was life in the old commercial bank model, yet?

Back in my days at Chase Manhattan, our group's boss, Corporate Planning & Development SVP Gerry Weiss, attempted a number of efforts calculated to move Chase into some sort of arrangement with a US investment bank, in order to, as he put it, so to speak,

'get their management in charge of our assets, with the advantages of our regulatory structure.'

Therefore, it's ironic to me that something like this might happen. Sure, Sandy Weill agglomerated a bunch of different piece parts to form the now-unwieldy Citi bank. But Salomon and Smith Barney are now almost lost inside of it. And the bankers remained in power, as the investment banks they took over had been weakened by various events.

Now, it would be possible to see a Chase or BofA take Bear Stearns, for example.

An interesting development in the quest for a viable, efficient, profitable organizational structure with which to transact fixed income businesses.

GE's Immelt To Be Next (Democratic) President's Secretary of Commerce

Last week's Friday Wall Street Journal carried a page-one article extolling GE CEO Jeff Immelt's tackling of global warming with his firm's "ecoimagination" program. A program so important, it even has its own manager- Lorraine Bolsinger.

I won't go into details- you can find the article and read it. But suffice to say, Immelt's got a lot of unhappy power generation customers on his hands. Mostly coal-fired utilities and such.

Even within GE, many are angry at him for pushing to make ecological footprints of the company's businesses on a par with growth and profits.

Let me be just a wee bit cynical here, and suggest what is really going on.

Could Immelt be showcasing himself to be the next (Democratic) President's: Secretary of EPA, Commerce, or (gasp) Treasury?

Perhaps realizing he's already ruined GE in terms of long run growth prospects and lackluster under-performance during his current CEO tenure, he will go green. He can complain that "big business" just does not "get it."

Wouldn't a John Edwards or Hillary Clinton eat that up? Good cover, just like Bob Rubin was for Bill Clinton. A bona fide corporate chieftain joins the eco-camp and demands that business come to heel under the newly-green hobnail boot of the Federal government.


Thereby becoming highly useful cabinet material for a green Democratic President. Or even a moderate Republican.

By pretending to grapple with ecological issues at GE, involving customers, the EPA, talking about carbon caps and trading, etc., he actually benefits from failure to make much headway. He can cite his futile efforts as having given him depth and breadth of experience in the politics of corporate pollution and eco-business, while aspiring to go into 'public service,' where, thanks to his travails at GE, he will now realize the real source of power is to effect corporate eco-change.

Failing to nab the EPA job, which would be a power portfolio in a Democratic administration, Immelt could easily try for Commerce or Treasury, citing Carlos Gutierrez or John Snow as recent precedents.

With his tens of millions of dollars of cash compensation from GE, and much more in deferred compensation, Immelt is well-positioned to leave GE considerably wealthier, personally, than he has made his shareholders. No need for further headaches trying to lift GE out of the dumpster of long term, consistent total return under-performance. Just declare victory, or frustrating eco-defeat, and head off to Washington.

In the wake of Immelt's departure, GE will perhaps fall to a group of private equity firms, newly-emboldened by the Fed's newly-cheap funds, and be split up into its constituent parts. Which, as I have argued in prior posts involving GE, would be a natural and beneficial end to the company, as it is currently structured, in terms of shareholder returns.

Admittedly, it's a wild card scenario. But if something like this happens, you read it here first.

On MBA's, Financial Institutions, and Market Pundits

GM's Short-Term Surge

Saturday's Wall Street Journal carried the usual broadbrush coverage of the prior day's equity markets activities.

The headline of this edition's article, however, caught my eye. It read,

"GM Shares Surge 16% on the Week"

Do tell!

My equity portfolio, run according to my proprietary equity strategy, is up just shy of 20%, gross, as of the end of Friday. So GM's performance, while not quite up to my portfolio's, is indeed, well, eye-catching.

As this nearby Yahoo-sourced chart of GM's recent six-month price shows, it's been very choppy.

You would have had to hold GM for just the right period to gain this 16%. Sell to early, and you're out of luck. Buy too late, same thing.

For instance, this chart of the past year of GM's price performance is much less appealing. Over the past twelve months, the stock is up just a little over $2/ share, or less than 10%.

It's a lot like the market dynamics which I profiled in this recent post on the S&P's total ten-year performance tending to be concentrated in just 10 best days of the decade!

For reference, here are the same two GM charts, with the S&P500 Index added.

For the last six months, GM is significantly ahead of the index. Of course, much of this is a result of the past week's speculation on the outcome of the current labor contract negotiations between the firm and the UAW. Prior to that, GM's return had bounced down to 0%. Twice, since August first.

Over the past year, The S&P has outperformed GM for nearly the entire period. In the few days or weeks where GM was on top, it was briefly, and not by much.

Clearly, much of the play in GM's stock has to do with the UAW contract risk.

Hardly a company in which to make a long-term investment, is it?

Thus my continuing emphasis on consistently superior total return outperformance. Attempts to capture short-term, speculation-fueled returns like those of GM are fraught with excessive risk.

Greenspan's Non-Monetary Opinions

I was going to write this post in a few more days, but given all the hoopla surrounding Greenspan's weekend tour of the media, I think I'll post it today.

Let's face it, Alan Greenspan is an economist. He was a Fed chairman. He's a monetary guy.

Why do we care what he thinks about fiscal policy, more than any other economist who is not a sitting Fed member? Granted, Greenspan is a good economist. But we don't need him to tell us that the Republican Congresses of the past few years failed to restrain spending. And that President Bush might have used his veto more than he did.

I already knew this, Alan.

Frankly, who really cares what he thinks about Congress and the Fed?

And, further, why do I care what Greenspan thinks about Iraq? He happens to agree with Bush, and, therefore, with my own views. But I honestly do not care. He wasn't Secretary of Defense. He was Fed Chairman.

Do I look to Don Rumsfeld to remark on the Open Market Committee's actions? I do not.

Now there's even discussion that Greenspan botched the handling of LTCM. Greenspan is on the record as re-writing his reactions to that debacle. He was never as 'pre-emptive' in his own chairmanship as pundits now criticize Bernanke and his Fed for not being now, amidst a credit market turbulence.

Further, as Joe Kernen remarked pointedly this morning on CNBC, Paul Volcker never did what Greenspan is now doing- breaking silence with his retrospective, and forward-looking, views on the Fed, the economy, etc. Kernen noted Greenspan's response to Leslie Stahl, that he 'has to make a living,' as the reason why he's written the book he is now touting on the talk show circuit.

But, as Kernen further observed, Greenspan doesn't need the money. Both he and his wife, Andrea Mitchell, have done very well in private industry- he as an economics consultant, she as an on-air media personality.

I think Greenspan is doing the country, and himself, a great disservice with his book and outspoken second-guessing of current monetary policies. It seems to me to be a lot of hand-wringing and excitement over nothing.