When the SEC filed civil charges against Goldman Sachs last April, we postulated that the end game would be:
…one of those vague and disappointing resolutions for which the SEC has become famous, as discussed here, whereby the defendant company’s shareholders pay a pile of money as a penalty for what management did (but for which it does not admit wrongdoing) along with some tinkering on the corporate governance side to make it look like more was done.
That seems to have been precisely what happened today with Goldman agreeing to pay some $550 million to settle the case — and without admitting or denying the charges, thanks very much. What strikes us even more than the fact of the settlement — where shareholders will have to cough up the half-billion dollars, as opposed to management having to pay anything out of the huge compensation they made when they were making the decisions that resulted in the penalty — is that news of the deal was obviously leaked during the trading day. A huge spike in volume occurred late Thursday while the NYSE was open and before the formal announcement was made. It was too much to be on the basis of speculation or idle gossip (see chart above).
The Goldman case was just one more example of why it often appears to ordinary investors that the market is a rigged game where those with inside information are the only ones who can profit. The timing of the settlement and what occurred just before it will only add to that suspicion.
Someone at the SEC or Goldman talked, and others made quite a lot of money on the knowledge. The idea that there would be an impropriety connected with the timing of the SEC settlement with a company it accused of wrongdoing and lack of disclosure is more than ironic. It is an outrage that needs a closer look and some fast answers from both the regulator and the company.
Far from setting the right example as the host country, Canada’s lavish G8 spending shows the Harper government knows neither restraint nor sound judgment as it asks other nations to cut their deficits.
It is a time when, we are told, when most nations of the world are, or should be, focusing like a laser on curbing the growth of government debt and stemming excessive expenditures. It is ironic then that when the leaders of the G8 nations descend upon Muskoka this week for their summit in the heart of Canada’s cottage country, they are unlikely to see the thick blanket of public spending hypocrisy that covers a land of pristine rocks and lakes. It is not the only anomaly that makes Muskoka a strangely disconnected place for a G8 summit.
For reasons that defy logic, but evidently not crass political expediency, some $50 million has been doled out to communities and local councils throughout the region in the name of the G8 summit. Canada’s Conservative government, led by Stephen Harper, calls it the G8 legacy infrastructure fund. Under this plan, towns and villages, some of which are an hour or more from the site of the G8 meeting, have been given vast sums to spend on public washrooms, new roofs, elaborate town welcome signs built out of stone, and garbage cans — lots and lots of garbage cans. The larger symbolism of associating litter bins with the G8 meeting does not seem to be something that occurred to the Harper government or to the local communities that sprouted all those garbage cans.
One town was given $1.5 million to improve its main street after spending close to that amount five years ago — on its main street. It has some very fancy designs embedded into the pavement and brand new garbage cans — lots and lots of garbage cans. In fact, there appears to have been a peculiar outbreak of fear throughout Muskoka that has prompted the need for a sudden increase in litter bins, which can be seen lined up like sentries every twenty feet or so on the main streets of several of the region’s hamlets.
Another town had so much money thrown its way that it was unable to fully spend its allotted $1.2 million by the deadline. It did manage to buy more garbage cans though — lots and lots of garbage cans — as part of what it calls its G8 legacy project. Of course, no G8 leader will ever set foot in any of these outlying communities, much less make use of the public washrooms, the newly shingled arena or even a single garbage can.
Few in Muskoka, where billionaires and American film stars make their summer homes and luminaries like conservative commentator David Frum can been seen dockside debating against a quickly melting ice cream cone, seem terribly bothered by this display of largesse. In fact, Muskoka could be a location that other politicians come to for tax and spending lessons. Local taxes have soared by more than fifty percent over the past four years. Water rates have risen by at least that. Some councils have racked up a level of debt in the same period that is triple their total annual operating and capital budgets. The head of the regional government has been in office longer than North Korea’s Kim Il Sung. Like Mr. Kim, he is not elected by the people. He is appointed by other members of the regional government. There is little appetite for change. In Muskoka, it is not uncommon to find local elected representatives holding office for a quarter century. Most local communities don’t have any effective ratepayers advocacy and the vast majority of citizens don’t bother to vote in municipal elections. Local councils frequently hold meetings behind closed doors.
Muskoka is known for many things — family cottages, dazzling lakes, the haunting late night call of the loon — but leading the way in transparency and accountability, the twin forces that are transforming governance around the world, does not appear to be among them. That alone makes the location for the G8 rather peculiar. Nor does the idea that fiscal restraint and deficit reduction, acknowledged by governments everywhere as a key to economic survival, appear to be something the Harper government thought should be applied to the G8 meeting in Muskoka, even though his government is running a $50 billion dollar deficit. It should be borne in mind that the security and logistics costs have to be duplicated in Toronto for the G20 meeting that is to follow. Estimates of more than a billion dollars have been given by government officials as the price tag for G8 and G20 security alone. Smart use of scarce resources is a challenge facing all government as they enter a new era of fiscal constraints. With all its duplication and unnecessary spending, the handling of the G8/G20 by their host country under Stephen Harper seems not to be the model to follow.
A $50 million spending spree may be small compared with the other costs of the summits. But it is emblematic of the wrong signal being sent at just the wrong time. If Canada wants other nations to commit to cutting deficit spending, it cannot put itself in the position of mindlessly throwing money around when the notion strikes it.
Whatever else may be said about it, the G8 in Muskoka will be remembered for its record costs and for the easy slush fund it created for towns and villages when the focus of the world is on exactly the opposite direction in public spending. And it will be remembered for all those garbage cans — lots and lots of garbage cans, which, to many, may be an apt symbol after all.
When he became BP’s CEO in 2007, Tony Hayward was quoted as saying that he would focus on safety matters like a laser. But his mind-blowing evasiveness and complete failure to show what he did in that regard before a frustrated Congressional Committee proved he could not muster the intensity of a bathroom nightlight.
America, and a good part of the world, have seen a number of unimpressive Congressional performances on the part of business leaders in recent months and years. Appearances by the heads of Citigroup, Goldman Sachs, Countrywide Financial and the major Detroit automakers leap to mind. But nothing can compare with the spectacle of BP CEO Tony Hayward, who testified — and the term can only be used in the loosest sense — before a subcommittee of the House Energy and Commerce Committee on Thursday. It is hard to imagine a more profuse display of insincerity, evasion and stonewalling on the part of the man who leads the company which saw the deaths of 11 workers on its Deepwater Horizon oil rig and caused the worst environmental disaster in U.S. history. Far from taking responsibility for what occurred on his watch, he pointed his finger at everyone lower down in the organization. Apparently, not even the company’s alarming emails indicating problems with the rig prompted any further investigation on Mr. Hayward’s part. His knowledge of the spill and the causes leading to it seemed no better than the what could be expected from the average housewife in Minneapolis who has never been on an oil rig, much less been paid $6 million in compensation for heading a global oil company. It was, in short, a performance that would have made Bruce Ismay, the infamous head of the White Star Line who owned the Titanic and managed to find his way into a lifeboat as the great ship was sinking, blush with embarrassment.
When he became CEO in 2007, Mr. Hayward was quoted as saying that he would focus on safety matters like a laser. But his mind-blowing evasiveness and complete failure to show what he did in that regard proved he could not muster the intensity of a bathroom nightlight.
A few days ago we suggested that the repeated failures of the company to arrest the spill and recap the well should prompt President Barack Obama to fire BP and put a new crew in charge. Since that time, the amount of oil still spewing from the well has increased dramatically. The spill has taken an even greater toll in terms of nature, shorelines and jobs. From a business perspective, no CEO has ever presided over a more horrendous loss of share value or such a steep decline in both investor and public esteem.
What is abundantly clear from today’s exhibition is that it is time for BP’s board to fire Mr. Hayward. He simply does not comprehend how a leader is expected to act in a time of crisis. To not do so immediately would be for BP to inflict yet more insult and calamity upon an investing public that has been shamefully beleaguered by management’s negligence and a shocked American public that is forced to witness this slow motion horror worsen with each day.
Fire BP. Incompetence, pure and simple, for the mishandling of the worst environmental disaster in U.S. history.
When the Titanic sank in 1912, it was the biggest calamity of its kind in history. Fortunately, the world was spared the spectacle of seeing the captain and owners repeatedly botch the rescue of the survivors. But that is precisely what is taking place with BP’s startling display of incompetency in failing to cap the oil well that continues to gush millions of barrels of crude from the bottom of the ocean.
BP’s long list of missteps that have brought it to this point, and will likely lead to its demise as a global oil company, have demonstrated that its judgment cannot be relied upon. Warning signals were ignored. Solutions have been bungled. Time frames have been missed and extended repeatedly. The amount of the spill has been consistently underestimated. Now we are told that it may be months before the well is fixed, according to BP’s best guess. Not good enough. BP’s time has run out. Bold action on a war footing is now required by the United States government.
Before the Obama administration becomes painted by the same brush of incompetency and indecision with which BP has tarred itself, the company should be fired immediately and removed from its current position. BP’s American assets should be frozen pending civil and criminal investigations. This is an appropriate move for the company that has become the Titanic of environmental disasters and may well have acted in a criminally negligent fashion. BP has abrogated its right to fix the problem. It is the problem.
New expertise needs to be recruited quickly and the full force of the U.S. government needs to be evident and placed both on the ocean site and on the land’s toxic assault. The presence of a U.S. Navy aircraft carrier fleet at the scene, from which the capping and ocean clean-up activities would be coordinated, and the establishment of a high-level government agency to deal with the human and ecological catastrophe in the Gulf region would offer a new approach that is urgently required. People need to see that that someone is actually on top of the disaster now — not making it worse day after day after day.
This is the worst man-made ecological catastrophe ever to occur in the United States. The damage to the ocean, to its stock of fish and wildlife and to the people who depend up on it may well go beyond what the imagination can now conceive. A further misstep by BP, which seems entirely likely given its record, could deliver a crippling blow to the area and to the Obama administration, for that matter.
How the President manages that challenge and whether his administration is capable of mounting a sea-changing response, or is merely a hapless bystander in observing the repeated blunders of others, will be something that America’s enemies are eager to learn. It is also something that millions who make their living from the sea and the region most affected are desperate to see with all available haste.
Ordinary people from Athens to Little Rock have had it with a bloated system where politicians take care of themselves, along with insiders and powerful interests when they run amok, and leave the public to scrimp, sacrifice and struggle to pay more debt.
As we predicted, the stock-lifting EUporia over the European rescue plan that arrived last Monday morphed into market-pounding fear and skepticism by Friday. The Euro currency is pretty much in a shambles, too. It looks like another huge bailout plan, like the initial incarnation of the TARP that was supposed to buy up billions in toxic assets, has been widely rejected as impractical and one that cannot possibly perform as intended. European leaders and central bankers have been left scratching their heads and wondering what hit them after they emerged from their Chamberlain moment, having pronounced their version of economic peace in our time.
The problems of Europe, and indeed, other nations that have too long been on a debt joy ride to fantasyland cannot be solved by either the profligacy of more debt accretion or the draconian paternalism of the IMF. When economies need to grow, you can’t tax them and shrink them into expansion, which is what they need to pay off their debt. The formula devised for Greece, which will see paychecks decimated, pensions slashed and taxes hiked, can have only one outcome — and it is neither pleasant nor a track to the growth that is needed. Nor can you push a country into greater debt for its salvation any more than you can make an addict recover by giving freer access to the source of the substance abuse.
TARP-type bailouts have become a flashpoint not just for the markets but also for the electorate. On this Super Tuesday of U.S. primaries, look to see Washington insiders who have been connected to these massive bailouts take a big hit. By tomorrow, one-time Pennsylvania Republican Senator, turned Democrat, Arlen Specter, will have lost his chance for a sixth term. Rand Paul, who has become a darling of the Tea Party, the quintessential anti-bailout brigade, is likely to receive the Kentucky Republican nod for the Senate. Democratic Senator Blanche Lincoln will probably lose her bid for renomination in Arkansas. Last week, it was three-term Republican Senator Robert F. Bennett of Utah who was turfed out by his party. This is just the opening act for the main event that will come in November, when the full effects of what we have dubbed turbo populism will see some seismic shifts in the political landscape and in the culture of excess that has come to define it.
Ordinary people from Athens to Little Rock have had it with a bloated system where politicians take care of themselves, along with insiders and powerful interests when they run amok, while leaving the public to scrimp, sacrifice and struggle to pay more debt. They know that approach is fundamentally corrupt and cannot be sustained either by precepts of ethics or principles of economics. That is the lesson of the bailout backlash in Europe and the anti-TARP movement in America.
Those in positions of power who ignore it do so at their peril.
