SeanReadsTheNews

Geoff Colvin Sounds Off on Senate Hearings...

From the pages of Fortune, one senior writer gets tired of being even-handed and thoroughly fisks the U.S. Senate.

Gee, Senator, your vitriolic scorn for gambling might surprise the hundreds of thousands of Missouri voters who love to play the Missouri Lottery, and it might really surprise the many Missouri farmers who are glad they can hedge their risks by buying crop and fuel derivatives, which are also "instruments that are created so that people can bet on them."

This has nothing to do with journalism, or public relations, and is actually only fractionally as funny as a Down Goes Brown, so it will probably end up as my most popular post of the week.

Fortune: Ratings Agencies in the Dock

Credit rating agencies Moody's and Standard & Poor's have nebulous legal status where they are officially sanctioned raters of creditworthiness among businesses and municipalities but also publishers of opinions.  That status could change, according to a Fortune article by Ken Stier .

In Congress, the draft financial reform bills could increase liability, unless agencies can show adequate due diligence. Lowering their liability standard to gross negligence -- as Barney Frank's bill currently does -- "could well drive credit agencies out of structured finance," warns John Coffee Jr., a Columbia Law professor and expert in this area. Any new congressional-set liability on agencies' speech could be fought all the way up to the Supreme Court, which is where the industry has promised to go if necessary.

The agencies are currently targets of investor lawsuits claiming they fraudulently or negligently gave high ratings to about-to-fail financial products prior to the meltdown.  The agencies' defense has been that their products are First Amendment-protected opinion. 

That official sanction, however, is complicating matters legally as Stier reports.

The investor lawsuits claim the actual fraud occurred in the wildly unreasonable assumptions made in ratings, particularly about default rates and correlations, explains Patrick Daniels, an attorney with Robbins Geller Rudman & Dowd, which is representing the plaintiffs in the so-called Rhinebridge case, the one which Judge Shira Scheindlin allowed to go forward. Daniels argues Moody's and S&P colluded with investment banks by blessing their bonds with inaccurate and undeserving ratings, without which the banks had no chance of selling those securities.

The free ride may be coming to a close as frustrations with the state of the financial system rise.  Moody's and S&P spokespeople have almost no visibility in the article - basically bunkered behind their lawyers.

When I represented Moody's back in the 1990s, I asked my contact there why they rated municipal bonds when there had only been two defaults in U.S. history, both to AAA rated debt.  I was asked not to ask that question.  Seems like someone who matters finally is.

NYT's Elliot on New Jersey Conquering America

Stuart Elliot of The New York Times devotes his advertising column today to the boom in pop culture shows devoted to New Jersey (where I live).

The bumper crop of Garden State shows includes “Boardwalk Empire” on HBO, “Cake Boss” on TLC, “Jersey Couture” on Oxygen, “Jerseylicious” on Style Network, “Jersey Shore” on MTV and “The Real Housewives of New Jersey” on Bravo.

Many advertisers in major categories like automobiles, fast food, hair care, movies, packaged foods and soft drinks are eager to sponsor New Jersey-focused series, include their products inside episodes or hire cast members for personal appearances. Among them are blue-chip brands like Jimmy Dean, Dial, Eastman Kodak, Target, Verizon and Warner Brothers.

Apparently, viewers are getting sick of watching the latest glamorization of Manhattan and are looking for more relatable characters, which they find out my way.

I do notice that none of these shows focus on glorifying New Jersey.  They aren't about scientists at Princeton or revolve around the social strata at Basking Ridge and how it's been affected by the AT&T buyout or deal with legal machinations at the Law Building on McCarter in Newark.  On the other hand, they aren't about mobsters or corrupt politicians, so I suppose that's something as well.

I make fun of The Wall Street Journal whenever it runs stories like this but it seems right at home in The New York Times' advertising coverage.  I'm not sure why.

USAT on 401(k) Strugges: Yes, But...

John Waggoner's feature on the state of the 401(k) plan in today's USA Today provides a valuable overview of trends in how Americans are using the accounts but but leaves out critical perspective about their value.

But the bear market and recession have also realized some of the shortcomings of a 401(k) plan. The markets can slash even a conservative portfolio in half. Companies can stop or reduce their matches. And a plan with a low participation rate can put tough limits on how much you can save.

The article includes a long list of ways that a 401(k) plan can fail to provide for retirement but like democracy being the worst form of government except for all the others, Waggoner leaves out the context.

There is no mention of the tax benefits of a 401(k), which are huge and a lot bigger than the admittedly high fees many plans carry.  Apparently, Waggoner feels it is bad to pay fund administrators to run a tax-sheltered account but not a concern when the money goes to government when it isn't sheltered.

The major benefit of a defined contribution plan, that you own it, is mentioned only in passing and backhandedly mocked by Waggoner.

Despite the pounding that investors have taken the past three years, they remain remarkably fond of their 401(k)s. At the end of 2009, 63% of investors polled by the ICI said they were somewhat confident or very confident that their retirement plan accounts will meet their retirement goals.

"I'm a firm believer in the fact that I at least control my own destiny," Wendel says. "I've had eight jobs in the last 15 years. If I had to rely on a traditional pension, I would not have had the flexibility that I currently enjoy."

Like Wendel, few seem nostalgic for a traditional pension. "A pension seems to offer more security, but with the pension cutbacks you see, you have to wonder if even that is secure," says Mike Longwell, a 35-year-old landscape architect from McKees Rocks, Pa.

Nevertheless, the numbers seem to belie investors' confidence in a comfortable retirement. Overall participation rates in 401(k) plans fell from 65% in 2009 to 60% this year, says Jack VanDerhei, EBRI's research director. And 57% of plan participants contribute 5% or less of their pay, according to T. Rowe Price.

Flexibility to pursue multiple jobs and protection from the pension provider failing or changing the rules are not trivial concerns to brush aside.  A generation of workers who put time in during the 60s and 70s lost "defined benefit" pensions when their companies went bankrupt (c.f. Bethlehem Steel).

This story skipped over basic facts about these accounts that made an otherwise valuable story less so.

CNN: Cord Cutting for Cable TV on the Rise

David Goldman of CNN.com today provides an update on the nascent trend of people cutting off cable TV providers to get all of their programming online.

One in eight consumers will eliminate or scale back their cable, satellite or other pay-TV service this year, according to a new study released this week by Yankee Group.

The study, which was the result of a survey of pay-TV operators and more than 6,000 U.S. consumers, found that many will choose to drop premium channels or cut their service down to a basic package, while others will choose to cut off their service completely.

Technology analyst groups like Yankee can torture data to make it say anything.  Their business models often involve a start-up hiring them and then the group issuing a report that says that company's market is expected to grow to $7 trillion by 2014, so I definitely take this with a couple of sacks of salt.

Goldman moves quickly past the flimsy hook to look at the how, why, and what of online TV viewing, providing a detailed view of what could happen.

Real investments by consumer electronics manufacturers, to add Internet capability to their products, mean more to validate this trend than Yankee studies - and those are coming.

Goldman's article should have acknowledged that piracy also plays a role in the decision to cord-cut but it's a minor quibble in an otherwise informative piece.

BusinessWeek on Lehman Scandal

James Sterngold's BusinessWeek scoop on how disgraced Lehman CEO Dick Fuld disavowed nearly $200 million in compensation during sworn testimony is noteworthy for its content but also as a flag to website revisions at BusinessWeek.

Among those closely observing Fuld was a 49-year-old former Lehman lawyer named Oliver Budde who was watching the hearing at home on C-Span. Budde (pronounced Boo-da) was certain Waxman's figures weren't too high. They were too low, and he could prove it. Fuld, he believed, had understated the amount he was paid during those years by more than $200 million, and now he had done it under oath, for the entire world to see.

Given all the nascar-type reporting of these scandals (goes around in circles, hard to distinguish any change unless you are a super-expert) having news emerge at this point is noteworthy.  It's bad enough when reporters get your e-mail, when your own lawyer starts handing them information, that's really bad.

I also want to celebrate Bloomberg BusinessWeek making it easier to find content form the current week's issue on its homepage, something that has been sorely lacking since the takeover.  There is now a "from the current issue" box on the upper right hand side of the screen with links. 

Thank you, Bloomberg editors.

WSJ on Catholic Church Scandal Response

The Wall Street Journal' Stacy Meichtry devotes a long feature to the Catholic Church's ad-hoc public relations response to the sex abuse scandal.

Vatican officials who typically don't work together have formed an ad hoc group that attempts to send a consistent church message. Dioceses in countries including Belgium and the Netherlands, meanwhile, have banded together to spur investigations into past abuses, attempting to get ahead of the scandal.

Lacking central direction, however, their strategies have been at times inconsistent or counterproductive. The Vatican public-relations team was forced to do quick damage control when the Vatican's No. 2 official linked sexual abuse of minors to homosexuality and a top Vatican preacher compared the scrutiny of the pope to anti-Semitism.

This isn't a business story so I don't want to spend too much time on it but I usually  do like to note when the big media cover public relations as they story itself, which is what happened here.

Nothing in the article would be particularly surprising to anyone who has counseled a client during a crisis, although all but the most experienced counselor probably never had to deal with decades of systemic sex-based crimes and related cover-ups as the crisis.

There's also a good quote from a Church official at the end basically saying, we need to get better at communication to get past this. 

While the pope hasn't shown a desire to direct communications, he appears to have blessed the use of some modern public-relations strategies. "Churches and religious institutions should not hesitate to encourage educational tracks" offered by Catholic and ecclesiastical universities, he said in a talk to Italian Church officials Saturday. "May the world of social communication fully enter pastoral programs. "

Can I get an "Amen?"

Bloomberg on Singapore's Quest for Water Independence

Frederik Balfour of Bloomberg reports on how global companies are working with Singapore to achieve water independence in another typically detailed international business story from the wire service.

With no natural resources, the country of five million people evolved from low-wage manufacturer to Asia’s only economy whose debt is rated triple-A by Standard & Poor’s. It is home to the world’s largest container port and oil refining hub, and the region’s biggest bio-tech and private banking centers.

To woo global water companies, the government is investing $240 million in research. Last year, the water division of GE opened a joint $108 million research lab with Singapore National University. It expects to double the number of scientists there to 70 by next year, said Kevin Cassidy, who heads the Fairfield, Connecticut-based company’s water business in the region.

The article is a good mix of background on how GE and Hyflux and Siemens are advancing water treatment technology working with Singapore's government as well as the business of meeting growing demands for water in the developing world.

For all the writing about "oil independence," there is much on the even more fundamental water independence so this article was particularly interesting reading.

Goldman's Next PR Headache: Employee Self-Evaluations

Katie Hoffman of Bloomberg drops a bombshell piece of information into the latest update on Goldman Sachs ongoing PR/legal issues - the company's employee self-evaluations might become evidence.

Senators quoted from the evaluations as part of the questioning two days ago (that I didn't watch) but Hoffman seems to be the only person who turned out an article on the implications.  The quotes Hoffman uses don't seem that incendiary - just further evidence that Goldman's leaders saw the housing meltdown early and acted on that belief even as they continued to meet market demand for products based on housing risk.  The wider implications must be scary to corporate HR, however.

The fact that self-evaluations were used against Goldman employees could keep companies from being open in their own review process, hampering feedback that makes evaluations productive, said Gary Hayes, co-founder of management consulting firm Hayes Brunswick & Partners in New York.

“That’s fairly chilling,” Hayes said. “It would make many senior executives very cautious, if not guarded in what they say in evaluations. You’ll hinder the kind of dialogue that’s necessary.” Such evaluations are “a standard part of corporate America,” he said.

I'd like to see some of the folks getting so concerned about immigration laws in Arizona get upset that the government can demand to see these papers as well.

Hoffman's expert sees companies drifting away from written evaluations as a result, removing a needed clarity from the employee management process and making management even less about mentoring and more about lawsuit-avoidance.

BW: Deficit Control Would Control Wall Street

Chris Farrell of BusinessWeek offers a novel take on how to control Wall Street - control government borrowing.  Without getting into the politics of his suggestion, this is a truly novel take on the history and incentives behind the 2009 Wall Street meltdown and a simple step that would address it.

Wall Street started changing during the high-inflation years of the 1970s and the deregulation of commissions. With the rise of supply side economics in the early 1980s, government debt volumes surged and Wall Street expanded with them. All that debt had to be distributed, sold, and traded in large volume. "It had a lot to do with transforming the business model of the firms from advice into being traders for its own sake," says Smith. "You can't be a market maker without being a trader."

Again, without endorsing his argument, this was fascinating reading that made me think differently about the crisis and its causes and is the result of giving a unique voice a strong platform.