My Saga of Ken Lewis' Awful Retail BofA: The End

Beginning about a month ago, I wrote two posts concerning my appalling treatment at the hand of Ken Lewis' Bank of America, here and here.

Now I can write the end of that sad story of Ken Lewis' hapless, gigantic money center bank.

Having had no acceptable follow-up from any BofA employee in the wake of their unexplained loss of sensitive customer data and related issuance of new debit/ATM cards, I had proceeded to open a new account with the new branch of an old, small local commercial bank.

When I balanced my BofA account this week, there was a new $12 'monthly account maintenance fee.' That did it.

It had been my intention to retain the BofA account, in case there was a reason to switch back. But when I saw them engaging in high-handed, extraneous fee-charging, I knew I had to act fast.

The next day, I wrote a check for the bulk of the balance of my account and deposited the check in my new account at the other bank. Then I visited the local BofA branch in Summit to close my personal account there.

Upon finally catching the eye of one of the platform officers, as his loud guffaws on an obviously personal phone call filled the cavernous old 1930s, echo-chamber style marble building, I announced in a loud voice that I had come to close my account.

Amidst some discussion of account numbers, drivers license IDs, etc., he informed me that I'd have to wait until all outstanding checks had cleared. I replied that, since his bank was now charging me monthly maintenance fees, I had absolutely no intention of allowing that to happen.

He must process my request now and close the account. With a defiant look, he said he couldn't, because he didn't know how much was left in the account. I told him I had just drained most of the funds into my new account at the other bank, and he then triumphantly claimed that now he'd have to wait for that to clear, unless I happened to know the amount of the check.

"Of course I know the amount. It's $382," I calmly replied.

With a scowl, the junior bank officer turned to his screen and typed in some figures, announcing a final, cleared balance, adding,

"Of course, that's not precise. The actual number might be slightly different."

"It had better be precise," I said, "I've been a VP at Chase, so I think I know that one of the basic, core functions of a bank is to know exactly what a customer's balance is."

More scowling from the bank employee, who heatedly said,

"I don't need your attitude!"

"Would you like to call your branch manager over here now?" I coolly replied.

"That's your choice," he said.

"No, it's yours," I responded, "but I think your manager would be surprised to hear you, in his presence, repeat your statement that your bank can't give me an exact accounting of my balance in the account at your branch."

More frowns and huffy breaths. Then the officer announced a final balance, had me sign a withdrawal, and disappeared for a few minutes to retrieve my cash.

When he returned, he handed me the envelope, printed an account closing confirmation document, and wished me well.

Memo to Ken Lewis, CEO of BofA:

Ken-

Nowhere in this process did your junior bank exec in the Springfield Avenue branch of your super-giant-sized bank ever ask me why I was closing my account. Or what, if anything, he or his manager, or anyone at BofA, could do to retain my business.

Instead, your young platform officer, having been forced to end his jocular personal call to attend to my business, merely performed the account closing as efficiently as possible, even dispensing some free attitude of his own to a departing customer.

A departing customer with a brain and mouth, Ken. Who has friends in the community, Ken.

Truth is, in the weeks since my first post, I helped two other members of my fitness club decide to close their BofA accounts, too.

How easy it would have been, Ken, for your bank to have flagged my account, so that if/when I came to close it, I would have been immediately sent to the branch manager's office to discuss how your bank might retain my account and business.

That might have caused me to think your employees and, by extension, you, actually cared about my business. But you don't. And they don't.

And it shows. It showed from the first ham-handed form letter from "Gordon Rains" announcing you had probably compromised some of my personal financial information, so you needed to send me a new ATM card.

No wonder why your bank is in such trouble Ken.

Best of luck sorting out this mess. Everyone knew you were overmatched when you tried investment banking. The Countrywide debacle isn't looking so good, either, lately. All those bribes Angelo allegedly gave to his Fannie Mae and Democratic Senate friends in the form of sweetheart jumbo mortgage loans.

At least we all thought you and your crew knew how to run a simple, basic retail bank branch business.

Well, we were all wrong.

Brian Wesbury On Change In America

Last Wednesday's Wall Street Journal featured an editorial by one of my favorite economists, Brian Wesbury, entitled "Change We Can Believe In Is All Around Us."

Wesbury's piece was nearly a full half-page in the Journal, so I won't go into excruciating detail. The headline themes will suffice for my purposes.

Partway through his piece, Wesbury wrote,

"Look at the chart nearby. America's manufacturing output, as measured by the Federal Reserve, is up seven-fold since 1950, but manufacturing jobs as a share of all jobs have fallen to 10% from 30%. Your grandfather and father may have worked for General Motors (and joined the UAW), but it's likely that you don't and won't.

The problem, if it really is one, is not foreign competition or evil financiers. It is technology and productivity. In the 10 years ending in 2007, durable goods manufacturing productivity averaged an annual growth rate of 4.8%. In other words, if real growth is less than 4.8%, the sector needs fewer workers year after year.

For the economy as a whole, overall U.S. business productivity rose 2.7% at an average annual rate during the decade ending in 2007, 1.7% in the decade ending in 1997 and 1.4% in the 10 years through 1987. Change is everywhere, and it's accelerating."

Wesbury thus notes that if you want change, baby, you're already getting it- in spades! As with rapid economic and social change throughout the centuries, this sort of change can actually make politicians fearful of blood running in the streets.

Back in the 1920s and '30s, when Schumpeter was writing about creative destruction, the hot economic topic of the day was whether unbridled American capitalism would destroy itself by depressing wages so low as to create social unrest and overthrow of our economic and governmental systems. Socialism was perceived as the greatest threat, and it actually came in the person of FDR and his many ill-considered New Deal programs- NRA, court packing, etc.

In a manner similar to Milton Friedman's and Anna Schwartz' "A Monetary History of the United States," Wesbury goes on to view American history as a collision of productivity and innovation with populism which has tried- and still tries- to control that economic vitality,

"This has happened before – in the Industrial Revolution – where the political environment bred America's first real populists, people like William Jennings Bryan and Theodore Roosevelt. Bryan was perhaps the best orator of American political history, and like Mr. Obama, he could affect people emotionally. Roosevelt, like Mr. McCain today, was a true American hero and one tough guy. History may not be exactly repetitive, but it sure seems to move to similar rhythms.

Unfortunately for the American economy, the populist movement of the late 19th and early 20th centuries led to a rapid growth in government intrusion into business activity. The populists didn't like the gold standard and demanded more government regulation.

In 1913, the Federal Reserve System was created and the income tax was introduced to pay for a growing government. And then, during the Great Depression – which was caused by the new Fed, trade protectionism and tax rate increases – a massive expansion in government took place.

Forty years later, in the malaise of the late 1970s and early 1980s, the U.S. finally figured out what it was doing wrong. By returning to hard money under Paul Volcker, and lower taxes and less regulation under Ronald Reagan, the high-tech leg of the Industrial Revolution began.

The fruits of this are plain to see. Rather than watching the sun set on the U.S., as many believed would happen in the early 1980s, the U.S. has experienced one of the greatest booms in wealth creation in world history. And the impact of our technological innovation has helped lift untold numbers out of poverty."

So to Wesbury, the American experiment has been a revolving door between economic wealth creation and lifting of all incomes by resulting economic expansion, and governmental attempts to restrain this vitality, tax it and use the proceeds to misallocate resources to 'the poor.'

Wesbury continues in that vein, noting,

"This technology has created massive amounts of change. Like the Industrial Revolution before it, the current transformation is anything but pain-free. It's what Joseph Schumpeter called creative destruction. Google, Craigslist and Microsoft have been prospering. General Motors, United Airlines and the New York Times have not. In the midst of layoffs in the newsroom, it's hard to see anything good happening in the rest of the economy.

Americans have had it so good, for so long, that they seem to have forgotten what government's heavy hand does to living standards and economic growth. But the same technological innovation that is causing all this dislocation and anxiety has also created an information network that is as near to real-time as the world has ever experienced.

Decades ago the feedback mechanism was slow. The unintended consequences of the New Deal took too long to show up in the economy. As a result, by the time the pain was publicized, the connection to misguided government policy could not be made. Today, in the midst of Internet Time, this is no longer a problem. So, despite protestations from staff at the White House, most people understand that food riots in foreign lands and higher prices at U.S. grocery stores are linked to ethanol subsidies in the U.S., which have sent shock waves through the global system.

This is the good news. Policy mistakes will be ferreted out very quickly. As a result, any politician who attempts to change things will be blamed for the unintended consequences right away."

Thus, Wesbury notes that because of recent rapid change, originally economic-based, in information technology, boneheaded governmental changes will be quickly penalized in the next election cycle, rather than, as in the last century, 30-40 years later.

This is important as both Presidential candidates and Congress have turned increasingly protectionist, focused on meddling in American business, and provincial with respect to US energy policy and the global energy situation.

Thus, Wesbury concludes,

"Both Mr. McCain and Mr. Obama view the world from a legislative perspective. Like the populists before them, they seem to believe that government can fix problems in the economy. They seem to believe that what the world needs is a change in the way government attacks problems and fixes the anxiety of voters. This command-and-control approach, however, forces a misallocation of resources. And in Internet Time this will become visible in almost real-time, creating real political pain for the new president.

In contrast to what some people seem to believe, having the government take over the health-care system is not change. It's just a culmination of previous moves by government. And the areas with the worst problems today are areas that have the most government interference – education, health care and energy.

The best course of action is to allow a free-market economy to reallocate resources to the place of highest returns. In the midst of all the natural change, the last thing the U.S. economy needs is more government involvement, whether it's called change or not."

Consider Mr. Wesbury's points when you read about Obama's desire to tax and spend millions on government-directed technology. Or McCain's neo-environmentalistic refusal to let private enterprise drill for oil within sensible parameters for protecting said environment.

We've had great, productive change in America since the reversal of the economic malaise that ended with the Carter era. If we want it to continue, creating wealth and jobs for Americans who want to work and accept the American proposition of positive change, we had better listen to Brian Wesbury.

The Death of Old Lane

Last Thursday's Wall Street Journal carried an article about the final death of Citigroup CEO's hedge fund, Old Lane, entitled "Citigroup To Close Hedge Fund; Blow to CEO."

The piece details the fund's founding, growth, purchase by Citigroup, at Chairman Bob Rubin's insistence, and, then, its demise.

But, a blow to Pandit? Hardly. Granted, $100MM of his $165MM payday for Old Lane's sale is still stuck in some sort of successor fund. Let's say he even loses 80% of that. Pandit still nets, right now, before taxes, $85MM.

That's right. Pandit was able to off-load a turkey of a hedge fund with less time operating in the public markets than any other financial institution would tolerate before even considering to invest large sums in it, let alone buy it. Remember, Pandit never actually ran a hedge fund before. He was a middle-office guy at Morgan Stanley.

So basically, after getting helped to leave Morgan Stanley amidst the scuffling a few years ago, Pandit and his colleagues started a hedge fund and ended up having one of America's largest commercial banks ask to buy it at an inflated price.

I think it's fair to say that most Americans, and even a lot of commercial bankers, would feel extremely fortunate to have failed at operating a hedge fund and be paid at least $85MM, pre-tax, for the privilege.

Don't you?

How in the world is the closing of Old Lane a blow to Pandit? Rubin, yes. Pandit, no.

If anything, it simply clarifies how lucky Pandit was, and how much teflon seems to be adhered to him now. That nobody even considers that the business and 'record' that attracted him to Citigroup's Chairman and board, now being discredited, are grounds to rethink Pandit's job qualifications says more about how badly-overseen Citigroup is than how inept Pandit is.

Of course, Pandit has plenty of time to provide more evidence, in addition to his so-far inept record as Citigroup CEO, that he is, in fact, pretty inept as a commercial bank CEO.

But this month, Bob Rubin should be taking the axe for his appallingly bad judgment in the Old Lane affair.

Murdoch, YouTube and Sensibility

Last week the Wall Street Journal published a special section on digital technology and strategies. Among the stories in the section was an interview with Rupert Murdoch.

In that interview, the following exchange was reported,

"Ms. Swisher: How do you look at a YouTube? Sumner Redstone sued Google. Why didn't you sue them?

Mr. Murdoch: We came down to the view in the end that it was doing more to promote our shows than it was to hurt them."

I loved this short portion of the article. It so typifies wh Murdoch has been so successful.

Back when Google acquired YouTube, and the whole lawsuit issue came up, my consultant friend, S, and I were discussing what Redstone was doing, and who else might sue.

We agreed that, for most older media properties, YouTube actually stimulates new viewing, usage and, ultimately, purchase, at no expense to the owners of the properties.

Redstone clearly did not see it that way. But if you look at Redstone's companies, it's not a really pretty picture.

Over the past five years, as the nearby, Yahoo-sourced chart of prices for News Corp, CBS, Viacom and the S&P500 Index indicates, both pieces of Redstone's empire, split up in late 2005, have done poorly.

While CBS unexpectedly outperformed Viacom, which was supposed to have the better assets, and was still headed by Redstone, it, too, under CEO Les Moonves, has come back down to earth.

While Murdoch's NewsCorp may trail the S&P, it has handsomely outperformed all of Redstone's media properties. Its recent decline, along with CBS and Viacom, has been much milder, and has even turned up again recently.

My guess is that Murdoch's instincts for content media, in which he began, rather than Redstone's self-aggrandizing management style and expansion from movie theaters, accounts for a lot of the performance difference.

Thus, Murdoch's sense of getting something for nothing by letting Google's YouTube use his media content without payment or lawsuits over the whole matter indicate his better feel and touch for new media.

The performance numbers certainly seem to bear this out.

What Shareholder Democracy Does NOT Mean

This week's news is replete with opportunities to discuss 'shareholder democracy.'

Dick Fuld's Lehman Brothers has mismanaged itself so badly for the past year that there are serious questions about its long-term viability. Fuld sacrificed his CFO and COO yesterday.

Where's the shame, Dick? How about your scalp, too?

Then we have Carl Icahn fighting for the average shareholder at Yahoo, seeking to replace its board with his own slate. Mr. Icahn, known as a corporate raider several decades ago, does pretty much the same thing now, but with a much better image.

Whereas he and his ilk were thought to be simply greedy in the 1980s, now they are more correctly viewed as threatening inept boards and corporate management teams.

Over at Citigroup, the current CEO's hedge fund, Old Lane, has finally been closed by the bank. Remember that it was Bob Rubin, Citi's Chairman, who pushed the bank to buy the untested, new fund in order to get Pandit. Now, the fund's mismanagement has caused outside investors to flee and the whole mess to be simply closed. At tremendous cost to Citigroup's shareholders.

Where's your shame, Bob?

Finally, we see InBev formally go after Annheuser-Busch, the American brewing giant headed, but not controlled by, a member of the company's founding family.

To a greater, or lesser extent, these corporate situations all involve an aspect of that now politically-correct, perennially-hot topic, shareholder democracy and its cousin, corporate governance.

As I understand the manner in which Congress, and many institutional investors, define shareholder democracy, they believe company owners, using their votes for slates of directors and various issues on proxy statements, should exert their will on a company's board of directors and management team.

Forgive me for being out of step, but I don't buy that. To me, that is not what shareholder democracy means.

In my view, shareholder democracy means one thing, and one thing only.

I can buy or sell any US equity for an inconsequential brokerage fee into a liquid market in which a price exists by reason of the competing forces of buyers and sellers for that, and other equities.

Look at the nearby Yahoo-sourced five-year price chart of the companies I mentioned above, and the S&P500 Index.

What do these companies have in common?

First, none have had a five-year run about which their CEOs should, or can be proud. Yahoo barely beat out the passive S&P Index.

As the next chart shows, also for the last five years, next to Google, Jerry Yang and Terry Semel did nothing for their shareholders.

So, what's my point?

This. Why would anyone own these turkeys, when there are many more, better-performing equities in the US markets?

A second thing all of those equities share is that we- my investment partner and I- don't own any of them, or options thereon, in our portfolios.

Sure, Carl Icahn, with billions to invest, representing his fund holders, has the experience, cachet and financial heft to take large positions and then create upward pressure on a stock because of what the market believes will probably occur once he gains influence over his target's board.

But the average investor- even an institutional one- is not Carl Icahn.

For the vast majority of them, the myth of voting their shares to change corporate behavior is just that- a myth.

The real genius of the US equity markets is the average, or even rather large investor's ability to simply sell what s/he no longer thinks is a good investment, and buy something else, at a very low transaction cost, and virtually no impact on market price.

Next to this simple, easy-to-understand capability and expectation, the long, expensive and typically futile process of buying sufficient shares to vote a board out or otherwise influence a company's management seems agonizingly difficult.

Finally, let's take a moment to consider the genesis of our modern publicly-held common stock corporations. I don't believe they exist because hundreds of colonial Americans came together down near Wall Street back in the early days of the country, near a buttonwood tree, to demand access to then-private investment vehicles.

No, I'm guessing our modern corporate form owes more to the Dutch and British trading companies which had common shareowners. These firms needed to raise capital, and issuing shares to investors was a good way to do that without the cumbersome need to have hundreds of equal 'partners.' Instead, a board was 'elected' by the shareowners, but the operating officers of the firm really ran the companies.

Even today, how many shareholders actually nominate directors who win board seats? Very few. Mostly, it takes a Carl Icahn to do that.

So the intent of the publicly-held corporation was never to let shareholders actually influence how the company was run. It was to give them the feeling that they voted for a group of respected people who oversaw the company's management.

Truth is, the people who founded and ran publicly-held companies, or do so today, don't want shareholder interference- just their money.

People, wake up! Shareholder democracy means you can enter and exit a publicly-held company's shareholder group easily and with minimal price impact.

It doesn't, never did, and is not supposed to mean you actually get to influence the management team, nor how much they are paid.

If you like the total returns you (could) enjoy from a company's management, then buy the firm's stock. If you don't, then don't buy, or sell it.

Period.

Believing that you, as an investor, can do anything more, with any real effect, is simply to delude yourself.

More On Lehman's Slide To Oblivion

Today's breaking financial service sector news is all about Lehman- again.


This time, the firm announced the departure of its CFO, Erin Callan, and its COO, Joseph Gregory.


Somehow, amidst the firm's turmoil and management mediocrity, CEO Dick Fuld remains untarnished and firmly in place.

As the nearby Yahoo-sourced three-month chart for the embattled investment bank and the S&P500 Index clearly shows, it's been a stunningly-fast decline for the firm's luckless shareholders.

Or, maybe witless shareholders?

In just three months, Fuld and his team have managed to destroy roughly 50% of their shareholder's value, while recapitalizing the firm just three days ago by about 50%, after first saying it was unnecessary.

While Lehman is the smallest and weakest of the four remaining investment banks- Goldman, Merrill and Morgan Stanley being the other three- one wonders why anyone would have bought equity in these firms after January. Especially in Lehman.

Trying to time 'turnarounds' is dicey in the best of circumstances. In financial services, trouble tends to come from excessive, poorly-managed risk. In Lehman's case, this is true in spades.

Being number four doesn't just mean being smaller. When it comes to risk management, judging by the results of the past twelve months, it seems to also mean just being worse at this key financial service firm function.

That said, I would simply re-emphasize the conclusions of my prior posts about Lehman, found here and here.

To repeat David Einhorn's observation, Lehman has added capital it said it didn't need, to offset losses it had earlier denied experiencing, from instruments about which it was less than forthcoming.

Now, the firm has jettisoned its two key members of its own mis-management team.

What trust can possibly be remaining by anyone regarding Lehman? Investors? Debt holders? Eventually, even counterparties and customers will worry about the safety of their assets or trades, and the slide into oblivion will accelerate for Lehman.

This time, though, Hank Paulson & the Fed have recent experience with Bear Stearns on which to draw to manage a less market-affecting end to the smallest public investment bank.

Dennis Kneale's Succinct Analysis: We Are NOT In Bad Shape

Yesterday on CNBC, co-anchor Dennis Kneale, late of Forbes, presented the very defensible and, in my opinion, correct view that the seemingly-widespread handwringing about the current US economic situation is overdone.

As Kneale noted, 1980 was far, far worse than 2008.

Back then, the price of a barrel of oil was roughly $107, versus $130 now, a rise of slightly less than 30%. But consider the following other measures.

The average fuel efficiency of a car was 25mpg in 1980, versus 32mpg now. Even with so many SUVs on the road. That's a rise of roughly 23%.

What about non-transportation usage of oil for power generation? Six years after the initial 1974 oil embargo, the US generated only 10% of electricity generated from oil. Now, it's down to only 1.6%! More than an 80% decline.

The inflation outlook is similarly different now from then. Back in 1980, a typical monthly CPI change was 1%, in contrast to today's modest .2%. Again, an 80% decline!

Lastly, interest rates are at totally different levels. In the Carter era, rates were north of 10%, whereas now they are far lower, with Treasuries at 4% this morning.

Yes, the Carter era was incomparably worse than today's Bush economy.

The US is nowhere near the levels of misery index and widespread despair that led to Carter's mistaken steps such as: windfall oil profit tax, gasoline rationing, and lectures to Americans on reducing credit usage and wearing more sweaters.

Certainly, with a Presidential election season gearing up, we'll be hearing a lot from at least one candidate about how the US is on the brink of depression, failure, catastrophe, etc.

Don't you believe it.

The Beauty of Markets: Energy and Julian Simon

Wednesday's editorial in the Wall Street Journal by Holman Jenkins, Jr., entitled "The Coming Oil Investment Boom," largely sums up my own thoughts on the current situation involving oil supply, demand and price.


Congress is engaged in folly, as it both tried, and failed to pass a massive piece of pork masquerading as an energy bill, decries the result of functioning world oil markets, demands more supply from others, yet won't fully exploit America's own energy supplies.

But, as Jenkins writes, the real world is reacting correctly to the oil situation,

"With a couple billion Chinese, Indians and others joining the global marketplace, they will need energy, and lots of it. The price mechanism is our only hope.

Sure enough, it's working. Money is pouring into Canada's massive tar sands. A thousand substitutions are taking place on the demand side. Sales of SUVs are falling; sales of four-cylinder sedans are up. The number of miles driven by American motorists shrank in February for the first time in 26 years.

At $70 a barrel, we worried only that the folly of India and China in artificially holding down prices to consumers would spread. The news is happy here too. Taiwan, Indonesia and Malaysia are cutting back subsidies or thinking about it. India and China may not let prices float anytime soon, but they're letting gas lines and spot shortages ration supply anyway."

Yes, already consumers and markets are adjusting supply and demand via price, while onlooking producers and investors are also behaving rationally. New substitutes for conventional, oil-based hydrocarbon energy are being developed without any government mandating them.

Jenkins continues by opining on whether the current price of oil is largely a function of speculation,

"If today's towering price of oil reflects some speculator's bet on a long-term scarcity of liquid motor fuels, this will prove the misguided bet of a lifetime. Hydrocarbons are abundant and can be extracted from living plant matter as well as from their fossil remains. Many oil fields under current technology are considered depleted when they're still 50% full. But technology advances, doesn't it?

Yet there's one miracle of adaptation that even $135 oil apparently can't vouchsafe. It can't bring intellectual coherence to American rhetoric or policy on energy.

By one count, America sits on enough oil and gas to meet its own needs for half a century. We won't help ourselves although our environmental delicacy somehow doesn't stop us from screaming at other countries to tear up their own pristine wildernesses to supply us with cheap energy. President Bush rushes to the Saudis, supplicating for more oil. Congress threatens OPEC with antitrust action. Go figure. That U.S. politicians can afford to indulge a persistent unreality about a basic input of industrial civilization only testifies to how responsive and resilient the global energy market has been despite the political silliness it meets at every turn."

This passage really hits home. Just this morning, on CNBC, the Democratic governor of Kansas spent several minutes speaking carefully out of both sides of her mouth. When asked directly by the program's guest host, a Bush administration economic official, whether she supported exploiting US energy resources currently off-limits due to Congressional legislation, the governor managed to say everything and nothing. She's for conservation and lower energy prices, preservation of American wilderness for future generations and energy production.

Nowhere did she acknowledge how silly American politicians look as they behave as described by Jenkins- demanding the despoiling, if that's what it is, of other countries' environments to supply the world with more, less expensive oil.

As I wrote here in November, Julian Simon would be nonplussed about the situation. Without the signals of higher oil prices, how will markets and consumers ever know to behave in ways which allow market forces to bring about solutions?

As Jenkins writes,

"But the biggest fools today may be those greenies who are clapping their hands over $135 oil as if this somehow represents the beginning of the end of fossil fuels. High prices are not the equivalent of carbon taxes – they will have the opposite effect in the long run, spurring investment and technological progress to bring vast new resources of fossil energy into production. For instance, turning coal, oil sands and oil shale into motor fuels, which is cost-effective at half of today's oil price, means massive additional releases of CO2. It's the worst nightmare of the climate worrywarts."

Yes, indeed. Because if you think that the US Congress or any other governmental body on the planet knows more about which energy sources, at what prices, should be developed to replace oil, you deserve the ham-handed governmental solution you're going to get from that.

In summary, Jenkins contends that the global warming crowd needs to 'grow up',

"Growing up would begin with recognizing that science doesn't prove the case against CO2. Our political system has been looking at the problem of climate change for a generation, and lack of action is not due to the machinations of big oil – but to the inability of policy to bridge a giant chasm between proposed costs and benefits. Even if carbon's guilt is assumed, the economics are far from certain that it wouldn't be cheaper just to endure a changing climate.

Growing up would also mean realizing that climate activists are in danger of losing all political credibility as they become handmaidens to corrupt pork bonanzas for the corn ethanol lobby and Silicon Valley alternative energy impresarios. Look no further than the climate bill being debated on Capitol Hill this week. The only real question it poses is how much Congress will spend on climate pork while having no discernible impact on climate.

Finally, growing up means recognizing that their one politically and morally saleable proposition is to offer carbon taxes as a de facto consumption tax, with the proceeds used to offset labor and capital taxes that discourage work and investment. This would be a case of taxing "bads" not "goods," with benefits for growth and the average voter's bottom line independent of any problematic evidence about CO2 and climate.

Voters and their representatives then could at least contemplate supporting a climate policy on cost-benefit grounds, rather than on the religious posturing that Al Gore and others adopt to push what they can't sell rationally. Will the greens learn these lessons? Not likely – which is why $135 oil may prove the beginning of the end of any political movement to do anything about climate change."

That last sentiment is really insightful. How many times do politicians mandate what won't sell on the free market? When you hear "mandate" from a legislator, look out. Someone's lobbyist hit pay dirt and you're going to pay.

In this case, as Jenkins notes, what Al Gore and company can't present as a salable proposition in the free markets, they hope to connive and manipulate the US Congress to mandate instead.

That energy/climate change bill mercifully failed already. In the meantime, people we don't even know, and some who we do, are busily engaged in innovation to supplant $135/barrel oil with new energy solutions for America and the world.

If we're lucky, oil prices will remain relatively high long enough to see these new technologies come to market and result in the world moving again to a lower long-run energy cost curve.

Lehman Again- Today!

Back in April, here, shortly after Bear Stearns' demise, and, again, more recently, here, I have written about the remaining weakest investment bank, Lehman Brothers.

Currently, the smallest public major investment bank is having difficulties due to largish losses and a very public fight with short-seller David Einhorn.

Einhorn was on CNBC one morning last week, launching salvos against Richard Fuld's Lehman. Lehman has been studiously silent and declined to also appear on CNBC to answer Einhorn's allegations regarding the investment bank's asset quality and probable writedowns, plus their need for capital.

This morning, as I write this, the news is that Lehman is, in fact, seeking some $6B in commmon and preferred equity to remain in decent shape in terms of its balance sheet.

On CNBC discussing all of this is, shock of shocks, my old boss of bosses, George Ball, once CEO of Hutton, now a part of Lehman, and, later, PruBache Securities. I find it curious why the former CEO of what were essentially retail wire houses would be the appropriate guest host to discuss a primarily institutional investment bank's potential demise.

And, to make my point, Ball was mouthing silliness such as, maybe when Fuld is under fire for leverage, is the time he should shrink, stay independent, and lever up even more, to stay independent!

You can't make this stuff up!

Who exactly does Ball think will lend a levered up Lehman more money? And with less total asset cushion, as they sell off assets to manage risk?

More to the point, the talk on CNBC was about just who would want to buy Lehman at this point. Like me in the second linked post, they felt that Lehman's business model is now hopelessly and fatally flawed.

And, like me, they considered the really strong players- private equity and hedge funds. I didn't bother to write about this element of the Lehman endgame, but it's sensible to me.

Commercial banks don't really need a Lehman, since they all compete with it anyway, lend it money for liquidity, and, to a bank, are in fairly serious straits themselves just now.

The more likely result is for the Blackstones and their ilk to cherry pick the choice employees and, finally, bid for parts of Lehman's balance sheet, after forcing writedowns of the toxic stuff.

The real issue here is, again, public versus private ownership of these types of financial institutions. As I've written for nearly a year now, the really good financial services talent, except for Goldman, has left for the private world years ago.

If you think I'm wrong, consider Dillon Read. How many times has that boutique investment bank sold itself to a slow, fat public financial services company- Equitable comes to mind in one round- at a market top, only to buy itself back at the bottom? I have literally lost count.

But it begs the question of why anyone thinks there are really good opportunities for long-running, consistently superior total returns at any publicly-held financial service firms anymore, when their competition is off the radar screen, in the privately-held world.

I suspect that if today, this week, this month, aren't the end of Lehman as an independent publicly-held company, they probably mark the beginning or middle of the end of that era.

On Microsoft's Mismanagement of Its Operating System Dominance

I've contended for at least two years, as noted in this May, 2006 post, that Microsoft would do its shareholders a service by breaking itself up into at least 3-4 pieces: operating systems, desktop applications, gaming, and online/advertising.

Now, in Wednesday's Wall Street Journal, technology columnist Lee Gomes provides more examples of how Microsoft's integrated businesses model has badly served customers in ways that almost certainly means it has also hurt shareholders.

Gomes' clever article was entitled "Dear Windows 7 Programmers, I Have a Few Ideas..." In it, he sends up some of XP's and Vista's worst faults.

Among his priceless quotes are,

"SKU stands for "stock keeping unit," and one of Microsoft's most baleful decisions for Vista was to wring from it as many SKUs as possible. Thus was born Vista Home, Vista Professional, Vegetarian Vista, etc. Each successive version had more features and, naturally, a bigger price tag.

Whatever incremental revenue Microsoft raised with this ploy couldn't possibly have been worth the confusion and ill-will it engendered. A certain technology columnist who will here go unnamed because I don't want to embarrass myself, once spent a lengthy session with Microsoft tech support trying to get my Vista to see a disk drive. Only well into the process was it discovered that the requisite "dynamic disk" feature wasn't in that particular SKU.

If society is going to be inflicted with an operating-system monopoly, society might at least get the benefits -- especially the one where everyone shares a common base of the same software. The Vista SKU epidemic gives us the worst of both worlds: software silos combined with a single big supplier.

Open-source software such as Linux is traditionally seen as the opposite of proprietary software from the likes of Microsoft and Apple. But that's a false dichotomy. Why can't Windows be proprietary, for-profit and copy-protected -- while at the same time be open for user control and inspection? If Windows were a car, you'd never be able to open the hood and see what was underneath.

OK, a cheap shot, I know, but just last week, I installed the new Service Pack 3 for XP, only to see my brand new Internet Explorer 7 crash in the first two minutes of use. Granted, I was doing something especially demanding -- surfing from one Web site to another one -- but still, I expected better.

It's well-known that massive teams of programmers are the worst thing possible for good software because they make the process so bureaucratic. But if a small team is what's needed to make Windows 7 great, then Microsoft is big enough to spend whatever it takes to build a team smaller than everyone else's."

I've felt for years that, no matter what else their market share dominance in desktop operating systems, Microsoft's arrogant attitude to issues such as Gomes mentions has caused them to have a customer base that actually loathes the company and its products.

That just can't be good. Dealing with your computer's Microsoft operating system is almost as bad as dealing with your- or my- bank. And if you've read my recent columns about that, you know it's not a good thing.

Would an independent operating systems group treat customers as badly as the current Microsoft unit does? As I saw at the old, integrated ATT of nearly three decades ago, I believe Microsoft's operating system group management is sub-optimized in favor of helping its fellow divisions- applications, gaming and online. Thus, rather than do what is the best thing for paying customers of operating systems, the group probably does what is best for maximizing overall Microsoft profits.

How differently would you or I expect a separate, standalone MSFT operating systems company to behave?

As Gomes notes, it might not lock the hood on your operating system, preventing you or anyone else from easily diagnosing problems in the software you now own.

Or maybe they'd go directly to the subscription model, similar to anti-virus vendors. That way, you'd enjoy more smooth, continuous updates and fixes to the software. And perhaps even some better online or on-system diagnostic tools.

For nearly every computer user to loathe buying a new machine, as I do, because of the trouble we know we're in for when we 'upgrade' to a new operating system must mean that we'd pay more for a better situation. Or the same to at least have something less awful.

If Microsoft's CEO's inability to manage the firm to consistently outperform the S&P500 over the past few years doesn't clue you in to the firm's problems, maybe knowing how much customers hate the firm for the necessity of buying its operating systems on their new PCs will.

GM's Further Woes

This week's GM shareholders' meeting was cause for more gloom and doubt about the continuing viability of America's largest- by market share- auto maker.

Yesterday's Wall Street Journal had one article noting that the price for credit-default swaps on GM instruments has been soaring, indicating a higher perceived risk of bankruptcy. It's cash position, relative to, say, Ford, is very weak. In light of GM's need for some serious product policy turnarounds, it's looking increasingly as if the company might finally bottom out financially before it can ever re-ignite sales and profit growth, let alone achieve some semblance of consistently superior total returns for shareholders.



No surprise there.



But this morning's edition of the business newspaper went much further in documenting the incredible, continuing ineptitude of the nation's battered vehicle-producing giant.

As the Journal article reports in a piece ominously titled "GM Shifts Its Strategy Into Reverse,"

"After three years of restructuring and tens of billions of dollars in losses, General Motors Corp. shifted direction once again Tuesday, unveiling plans to close four truck plants and possibly sell its Hummer brand.

The moves were forced on GM by soaring gasoline prices, which are prompting more consumers to opt for more fuel-efficient vehicles. The struggling auto maker must now try to rapidly reduce its dependence in North American truck sales, once seen as the key to its turnaround.



The abrupt shift, outlined at GM's annual meeting, is an acknowledgement that Chairman and Chief Executive Rick Wagoner miscalculated in 2005 when he bet big on trucks. That plan, based on expectations of steady vehicle sales and gas prices in the U.S. through 2008, won the backing of GM's board and helped Mr. Wagoner prevail in a 2006 board-room battle with then-shareholder Kirk Kerkorian."



If you are, sadly, unfortunately, still a GM shareholder, those paragraphs ought to be sufficient to end that. Plus the knowledge that Kerkorian sold his GM position and now owns shares of Ford.



Need I even state what I think the board should do to/with the hapless, inept Wagoner?

How can GM's board possibly defend continuing to let Wagoner hold any job at the company after an error of such tremendous magnitude that the vaunted turnaround of two years ago now must be reversed? SUVs were the wrong bet, and now Hummer has to be sold. How much do you think anyone else will pay for the latter, with US gasoline prices near and above $4/gallon?

Can you say, "shareholder value destruction," Rick?



As CNBC covered Wagoner's opening remarks at the GM meeting the other morning, I heard Wagoner try to smear lipstick all over the pig, including hopefully mentioning the company's new Volt electric car.

Too bad it's due out in....... 2010. Will an independent, non-bankrupt GM even still be around to produce and market the car by then?

Take a look at the nearby 45+ year stock price chart for GM, Ford and the S&P500 Index. Makes you sick, doesn't it?

At least Ford has had positive price action over nearly half a century.

Yet, in the same timeframe when the S&P rose nearly 2000%, GM has actually lost ground, and is now worth less, on a price basis, then it was when Kennedy was President! Sure, throw in some dividends and it's probably positive by a bit.

The bad news about Wagoner is how little he seems to understand what it takes to get GM to the point of delivering consistently superior shareholder returns. The only good news is that he's really not that much worse than every other GM CEO for the past half-century.

They have all been pretty mediocre CEOs, with boards to match, judging by the complacency with which the latter have allowed the former to preside over the slow death of this American automotive giant.

You know it's really bad when the Journal writes,

"Some shareholders are frustrated.

"You don't get a sense that the General Motors crowd really gets it," said Sister Patricia Daly, who represents the Sisters of Saint Dominic of Caldwell, N.J., a religious order that owns GM shares, in an interview on Friday.

"Even in the 1990s, it was clear they weren't going to be able to sell the big SUVs for 15 years without any impact." "



Now that's really scary, isn't it? A Catholic nun has better instincts about the US car market than the CEO of GM?

Here's hoping, for their Order's sake, that those sisters are out of GM by the end of tomorrow.

After Bear Stearns, Is Lehman Next To Collapse?

This week's hot investment banking story is the vulnerability of one of the remaining weak sisters among publicly-owned investment bank/brokerages, Lehman Brothers. I last wrote about this issue here in April.

Nearby is a price chart of Lehman, Goldman Sachs, Morgan Stanley, Merrill Lynch and the S&P500 Index for the past five years.

Goldman is clearly the class of the class, especially distinguishing itself since late 2006- months before last summer's mortgage finance-fueled fixed income markets crisis.

Of the other three investment banks, Lehman has the relatively 'best' performance. Of course, that's not saying very much, since none of the three could give an investor a better return than the S&P500 did over the period.

As I read yesterday's Wall Street Journal piece about Lehman's new difficulties, I noticed the article making a really big deal about how Lehman's leverage has recently been lowered from 31.7 to 27.3. Today's Journal has a lead piece in the Money & Investing section about Lehman looking abroad for capital.

In my opinion, this completely misses the point. As I wrote here in late March,

"Looking beyond simply Bear Stearns, can anyone truly justify the existence of all four of Goldman Sachs, Merrill, Lehman and Morgan Stanley? Especially in the modern world of large private equity firms and hedge funds? The former provide additional underwriting, M&A advisory and asset management, while the latter focus on providing trading capacity and investment management.

Other than emotional reaction of former employees seeing their old firm's name vanish, what would be different if one or more of those names were bought by or merged with a commercial bank?

Contrary to Andy Kessler's view, in the Wall Street Journal this past January, about which I wrote here, it's unlikely now that an investment bank will do the buying. With their high leverage and dependence upon commercial banks for funding, I suspect the investment banks are the more vulnerable. Now having access to the Fed discount window, it's only a matter of time before the regulators get around to levying a new regulatory framework on the investment banks."

It's not whether Lehman reduces their leverage right now by a pithy 4 or 5 percentage points. That's going to be irrelevant if/when their big meltdown comes. Bear Stearns saw billions of dollars of client assets, and customer business, vanish in days.

Quite simply, as I wrote in that prior post, Lehman exists at the pleasure of its commercial bank Broker Loan divisions to fund them beyond the current maturity of outstanding liabilities. Whether the leverage is 30, or 25, 20, 15, won't matter when customers leave within two days.

At that point, anything above 1:1 spells dissolution. The mechanics of profitability, risk management and leverage have simply changed for long term survival of most publicly-held investment banks.

A plethora of hedge funds and private equity shops have trimmed profit margins in virtually every investment banking business except asset management. There, the best managers head for private firms ASAP anyway. Meaning the publicly-held investment banks, with the exception, still, for now, of Goldman, are largely the province of the lesser-skilled bankers at the mercy of commercial bank funding and the need to take ever-larger risks to offset declining profit margins.

A recipe for long term death of these firms? You bet.

As I wrote later in that March post,

"A natural consequence to this will probably be even more smart financial services people migrating back to the privately-financed arena. Just like consumer goods merchandising has the 'wheel of retailing,' whereby new entrants compete at the low-cost end of the market, as existing players migrate upwards in terms of quality, service, selection and price, so, too, it seems, will financial services now have its own version of this 'wheel.'

Only in financial services, the 'wheel' is between publicly- and privately-held concentrations of capital and risk management. Again, viewed from afar over decades, the story of commercial and investment banking for the past forty years has been a gradual selling of transactions, asset and risk management businesses at their 'tops,' as formerly-private banks of both stripes went public, followed by managerial ineptitude, decline in risk management, and excesses in pursuit of growth via more risk."

And, as I wrote in my recent post on Wachovia CEO Ken Thompson's demise,

"To me, the pecking order of smart management in financial services begins with the best private equity and hedge funds. After them would come Goldman Sachs. Then.....well..I don't know if there is anyone else thereafter."

So to me, this breathless watch over Lehman's viability is sort of misplaced. As soon as confidence begins to erode, it's 'game over.' Bear's situation proves this. As I wrote in the earlier linked post, why doesn't Fuld just take the opportunity to sell to a commercial bank and retire gracefully, while his image is still in good shape?

The Folly of Corporate Diversification

I've written a handful of posts about diversification. Perhaps the two that I find most important in conveying my core philosophy about diversified companies are found here and here.

Not surprisingly, because it is probably the best known American diversified conglomerate, GE has been the primary subject of those two posts.

However, GE isn't the only American company that is probably overly-diversified. Consider yesterday's sacking of Wachovia's CEO, Ken Thompson. One of Thompson's mistakes, in his rush to make Wachovia larger and faster-growing, was the unwise purchase of Golden West Financial at the top of the real estate boom in 2006.

Now, it appears that Wachovia, like its Charlotte rival, BofA, would have done better simply remaining a large commercial bank without trying to become a major presence in the now-national business of mortgage lending.

Over the past decades, auto makers have bought, then sold: EDS, Hughes, and several financial service companies.

Who knows how much better-managed and -positioned for today's changing, challenging environment GM, Ford and Chrysler would have been, had they not frittered away precious capital and management attention on these diversifications?

Or consider TimeWarner's disastrous merger with AOL. Eventually it destroyed huge amounts of shareholder value. A needless diversification that never truly worked.

Microsoft has grown cumbersome and complicated to understand and manage, judging by their total return performance over the past decade.

When I consider both Microsoft and GE, it seems pretty obvious to me that too broad an assortment of businesses, especially when their commonality is eclipsed by their differences, leads to mediocre total return performances for shareholders.

Who really believes that Microsoft's applications businesses need to share a corporate structure with the games division?

Or that GE's aircraft engine business has a lot of interdependence with its Universal/NBC unit?

What are the odds that executives overseeing these unlikely combinations actually add value that exceeds the costs of their administration?

Look at the nearby price charts for five companies and the S&P500 Index for the past five years.

The monoline companies- Google and Apple- far outperform the diversified ones- GE and Microsoft.

I know there are many reasons to assail this comparison. What I want to show is the huge performance gap between operating models. The focused, largely single-business firms have created far more value for their shareholders in the last half decade than have the two diversified ones.

How can Gates, Ballmer and Immelt possibly excuse such lackluster performance for so long?

I contend that CEOs who collect and 'manage' businesses too many in number, with little inter dependencies, are ineffectively constructing mini-indices of their own. As Microsoft's and GE's performances so clearly demonstrate, at best, they might perform like an index..but with much higher risk.

That's why I have written for years that both GE and Microsoft would benefit their shareholders by splitting their companies into their logical constituent parts. In both cases, their business units are sufficiently large to operate as independent corporations, and would have much more transparency and focus if they did so.

With total return performances like GE's and Microsoft's, it's hard for anyone to argue I'm wrong.

Does any reader know of a legitimate exception to my position? That diversification of corporations is, in today's environment, with deep, broad equity pools, needless and counterproductive for shareholders and managements?

Synfuel & Energy Security

Back on May 21st, the Wall Street Journal ran an interesting article describing efforts by the US Air Force to test the use of synfuels in its bombers and fighters.

As the Journal article explained,

"Despite its high-tech connotations, synthetic fuel -- often dubbed "synfuel" for short within the industry -- has been around for decades. The basic technology for transforming coal or natural gas into synthetic fuel was invented by a pair of German researchers, Franz Fischer and Hans Tropsch, in the 1920s. The Nazis later used the Fischer-Tropsch process to mass-produce synthetic diesel fuel. During the apartheid-era embargo against South Africa, scientists there tweaked the technology so it could also produce synthetic jet fuel.

The Fischer-Tropsch process transforms a synthetic gas derived from coal or other material into liquid gas. The resulting synthetic fuel is different from biofuel, commonly produced from corn, sugar or other plants. Continental Airlines Inc. has announced plans for an experimental flight using biofuel this spring, which would be the first by a U.S. carrier; Virgin Atlantic also has done some testing."

I have had a vague awareness of this process for some time. Originally, I thought it converted coal into liquid hydrocarbons, then I later thought that was mistaken, and it only 'gassified' coal to burn like natural gas. In fact, it does produce liquid fuel. Sounds too good to be true, right?

Well, in a sense, it might be, as the Journal piece noted,

"The pure synthetic fuel Syntroleum sold the Air Force for the B-52 test flight in 2006 cost almost $20 a gallon. Its price since has come down sharply, but the synthetic product used in the B-1 supersonic test in March still cost $4.62 a gallon. It was mixed with petroleum fuel costing $3.04 a gallon, according to government officials."

You can guess, and the article confirms, that if large refiners knew that the US government stood ready to buy their output at some reasonable minimum price, the cost and, subsequently, price of synfuel would fall dramatically.

But then there's this aspect to the synfuel solution,

"Military use of synthetic fuel faces significant obstacles. The energy bill signed into law by President Bush last year included a clause preventing the government from buying the fuel if it emits more pollution than petroleum. Manufacturers have promised to meet that target by recapturing carbon dioxide and other greenhouse gasses produced in refining. Without those efforts, synthetic fuel can emit up to twice as much pollution in refining as conventional petroleum."

Here is where common sense would hopefully prevail. Seeing the US, as Boone Pickens believes, spend $500B per year buying oil from external suppliers, isn't it worth something to avoid that import bill?

Screw the greenhouse gases for now, we're talking energy security. Military energy security. As the Journal article states,

"The problems are particularly acute for the Air Force, which uses about 2.6 billion gallons of jet fuel a year, or 10% of the entire domestic market in aviation fuel. The Air Force's fuel costs neared $6 billion last year, up from $2 billion in 2003, even as its consumption fell by more than 10% over the same period because of energy-savings measures, including a campaign to shut off lights and lower thermostats at bases.

The Air Force wants to be able to purchase 400 million gallons of synthetic jet fuel a year by 2016, an amount equal to 25% of its total fuel needs for missions in the continental U.S. This year, it expects to buy slightly more than 300,000 gallons."

With all the handwringing about US energy security, surely it's worth first reducing our dependence on overseas petroleum, then working on the emissions issues.

Here we have a clear, proven, even old technology which will make good use of coal, the fuel which America has in such abundance that we are sometimes called the 'Saudi Arabia of coal.' And yet in the midst of tight petroleum supplies and dwindling non-sovereign control of the energy source, we needlessly hamper our own ability to convert coal into synthetic oil and gasoline.

And the Air Force tests? The Journal had this to report,

"On a clear day in March, the three men took off for New Mexico with a reporter aboard. When the B-1 crossed into the closed airspace above the White Sands Missile Range, Capt. Fournier yanked back his throttle and sent the plane climbing almost straight up, throwing the bomber's occupants back into their seats. He then pitched into a steep dive. Pens and other small objects hovered around the cabin, weightless, until the plane leveled off again.

Capt. Fournier fired the plane's afterburners and sent the bomber roaring over the range. A small dial in the cockpit showed that the bomber was flying faster than Mach 1.

Back at Dyess, the crew packed into a small conference room to analyze the flight with a crew of military and civilian officials, including a pair of engineers from GE, which makes the bomber's engines. Capt. Fournier said the plane handled normally at high speeds and on sharp turns. The only difference he noticed was that the synthetic fuel had a different smell than conventional jet fuel. "So it didn't give you the normal buzz?" one of the engineers joked.

With the B-1 certified to fly on the synthetic mix, Maj. Donald Rhymer, the deputy director of the Air Force's alternative-fuels certification office, said the Air Force would soon test fighters such as its workhorse F-16.

"Our biggest litmus test was Capt. Fournier coming out of the B-1 and saying that it was an unremarkable flight," Maj. Rhymer said as the meeting ended. "That's the subjective endorsement we're looking for with all of the planes.""

Ken Thompson Fired At Wachovia

Well, it's official. At least one commercial banker has gotten the axe for his boneheaded 'leadership.'

CEO of Wachovia Kennedy "Ken" Thompson's forcible resignation was announced this morning.

As the nearby Yahoo price chart illustrates, Thompson's Wachovia (WB) hasn't really delivered for shareholders for the past five years.

Wachovia barely tracked the S&P until early last year, when the bank's stock price went flat, while the index rose, and then plunged precipitously while the index flattened.

Guess buying Golden West, the California mortgage bank, in 2006, at the top of its value, wasn't so smart after all, eh, Ken?

Of course, the other Charlotte-based "Ken," Lewis, about whose bank I wrote here recently, has had his share of problems, as well, as depicted in the chart.

While Thompson's Wachovia actually lost about 25% of its value in five years, Lewis' BofA barely managed to stay above the flat line. Neither, at their best in the past half-decade, ever showed signs of out-performing the S&P.

In Lewis' case, the purchase of Countrywide, another California-based mortgage lender, hasn't helped BofA. The early purchase of an interest in the real estate financial firm, to help shore it up, looked expensive by the time Countrywide collapsed and offered the rest of itself to BofA at a much lower price.

Isn't it ironic that the two one-time North Carolina regional powerhouses, NCNB and First Union, by virtue of astute risk management in the 1990s, managed to scoop up the west coast money center titan, BankAmerica, and assorted other US bank chains. Then, in the latter half of this decade, squandered their shareholders' value by returning to..where else?....California to buy mortgage lenders which subsequently caused large loan losses.

Almost seems like some sort of revenge of California finance on the North Carolina banks worthy of a Greek tragedy, doesn't it?

Now Thompson's out, and Lewis is looking less and less effective.

This morning, on CNBC, Dick Bove, a long-time commercial bank analyst, opined that both franchises lost their focus and moved out of basic deposit-taking and lending, thus damaging themselves with mortgage banking.

As I wrote here last October,

"Quite simply, as a group, US commercial bank CEOs are typically less-broadly experienced and, frankly, less 'smart,' in a business sense, than their investment banking CEO counterparts.

Stretching back to the 1970s, I think only David Rockefeller and Walter Wriston were, among commercial bank CEOs, possibly on a par with their investment bank peers in terms of vision and business acumen. Even then, these two were encumbered by the inherent obligation, as leaders of large US banks, to act to protect the banking system, rather than focus primarily on their shareholders' interests."

Further on in that post, I noted,

"As I consider the M-LEC and its supporters, I can't help but see it as essentially an attempt by the less-savvy commercial bank CEOs to stave off a fire sale of fixed income assets which they abetted by their operation of various SIVs. Meanwhile, the savvier investment bank, hedge fund and private equity CEOs circle, like sharks in the water, waiting for the inevitable disgorgement of SIV assets to begin. They will wait for near-bottom prices, buy and hold and, eventually, realize tremendous profits for their risk taking."

Among the investment banks operating when I wrote that post, Bear Stearns is gone. Lehman is teetering, as it attempts to outlast liquidity concerns amidst weak performance. Merrill has been run for decades more akin to a money center bank than an investment bank.

To me, the pecking order of smart management in financial services begins with the best private equity and hedge funds. After them would come Goldman Sachs. Then.....well..I don't know if there is anyone else thereafter.

What Thompson, Lewis, and perhaps even Dimon, seem to forget is that commercial banking really only grows without excessive risk in two ways: with market demand, or by expanding geographically without overpaying for acquisitions. Typically, moving into new businesses, such as mortgage banking and capital markets, brings disaster.

It has for Wachovia and Thomson via Golden West. Lewis has capital markets losses and the specter of Countrywide's losses with which to contend.

It's too early yet to discern whether Chase has really bought anything worthwhile by scooping up the remains of Bear Stearns.

Commercial bank CEO's rarely learn the lesson of long term risk management vis a vis growth. Each large bank CEO wants their bank to be the largest, their asset and income growth to be the fastest.

To their shareholders continuing regret.