Daily Blog

3,000 and Counting

    As we ring in the New Year, Saddam Hussein may have been rushed to the gallows but 3,000 U.S. men and women are dead (and more than 20,000 wounded in hostile action injuries) because of this immoral war--not to mention hundreds of thousands of Iraqi dead. From Reuters:

The number of U.S. military deaths in Iraq has reached 3,000 since the 2003 U.S.-led invasion, an authoritative Web site tracking war deaths said on Sunday.

The milestone comes as President George W. Bush weighs options, including more troops, for the deteriorating situation in Iraq, where daily violence plagues Baghdad and much of the country and has killed tens of thousands of Iraqis.

The Web site, www.icasualties.org, listed the death of Spec. Dustin R. Donica, 22, on December 28 as previously unreported, and said that 3,000 U.S. military personnel had now died. A U.S. military spokesman in Iraq could not immediately confirm that Donica's death had not previously been reported.

No soldiers were reported killed by small arms fire on December 28 but the death of an unidentified soldier in a bomb attack north of the capital was announced.

Ford Prolonged Our Nightmare

    One of the most common themes we are now asked to accept, as part of the hagiography surrounding the death of Gerald Ford, is that Ford ended our "long national nightmare" by pardoning Richard Nixon over his crimes in "Watergate" and that such an act remains a positive part of his legacy. In the debate over whether the pardon should have been granted, the focus has typically been on the dynamic at the time and what would be gained by putting the disgraced president and the nation through a criminal proceeding.

    Here's another way of seeing it: by pardoning Nixon, Ford actually prolonged our national nightmare and, along with others, paved our nation's march forward that has culminated in the deaths of hundreds of thousands of people in the Iraq War. We can only heal our nation now with the impeachment and trial of the current president and vice president. Richard Nixon broke the law.

    Each of the three Articles of Impeachment approved by the House Judiciary Committee in July 1974, ended with this sentence: "In all of this, Richard M. Nixon has acted in a manner contrary to his trust as President and subversive of constitutional government, to the great prejudice of the cause of law and justice and to the manifest injury of the people of the United States."

    Contrary to his trust as President. Subversive of constitutional government. Great prejudice to the cause of law and justice. Manifest injury to the people of the United States.

    Not to mention illegal conduct of the war in Cambodia. One of the two articles of impeachment that was rejected by the House Judiciary Committee was Article V that charged Nixon with violating his oath as Commander in Chief when he "authorized, ordered, and ratified the concealment from the Congress of false and misleading statements concerning the existence, scope and nature of American bombing operations in Cambodia in derogation of the power of the Congress to declare war, to make appropriations and to raise and support armies, and by such conduct warrants impeachment and trial and removal from office."

    Doesn't this all sound familiar?

    Nixon escaped trial and conviction by resigning from office. But, Ford's pardon, then, left Nixon unaccountable for the crimes he committed against the people of our country, and the conduct of an illegal war against the people of Cambodia. I would venture to guess that an actual trial in a court outside the Congress would have spread broadly beyond the approved Articles of Impeachment and incorporated the illegal war that Nixon (and his sidekick in crime, Henry Kissinger) conducted without the consent of the peoples' elected representatives.

    We needed a trial of Richard Nixon so that the people could clearly see the abuse of power. We needed a trial because the people needed to witness, in excruciating detail, the abuse of power that went far beyond a political break-in and cover-up. Nixon's abuse of power reverberated around the globe, particularly in illustrating how our country too often treats nations who don't particularly agree with our national global aims or do not want to heel to our "strategic" interests. The trial and conviction of Nixon in a court of law might have made quite clear to the nation how our country's leader behave in the name of the people and also sent a message to the world that our democracy means something because we hold lawbreakers accountable, no matter who they are.

    Gerald Ford may have been a regular guy. He may have been a really nice guy. I can't tell you that because I never met him. But, respecting the personal grief felt by his family at his passing, we shouldn't obscure the truth that he did damage to the rule of law--damage that we are still paying for.

    Which brings us to our current situation. I think it is a fair argument to make that had Nixon been convicted and served a prison term--as he should have--the Iraq war might never have happened--and hundreds of thousands of people would not have died, we would not have squandered as much as $2 trillion on an insane war and we would not have opened up a huge rift in our relations around the world. Is it not likely and plausible that, with the precedent of a Nixon conviction and imprisonment very much branded in the consciousness of our elected leaders, the current president and vice president (particularly the latter who worked in the Ford presidency) might have paused for a moment, in their improper, fallacious and illegal pursuit of an immoral war and the evisceration of our civil liberties, to ponder whether they were committing acts that might land them in jail? Given the individuals, I'll concede that perhaps nothing would have deterred them from committing impeachable offenses, that in the words of the House, were "subversive of constitutional government," caused "great prejudice to the cause of law and justice" and brought "manifest injury to the people of the United States."

   

We can undo some of the damage that the Nixon pardon caused. And that task must be taken up by the incoming Democratic majority. Incoming Speaker Pelosi and incoming Majority Leader Reid, if you continue to refuse to hold the current Administration accountable, as set forth in our Constitution, for the breaking of our laws and the violation of their sworn oaths, you will only be prolonging our national nightmare for years and possible generations to come. Future presidents will not hesitate to repeat the behavior of the Nixon and Bush Administrations because they will see our track record--our unwillingness to hold our elected leaders accountable for laws they violate. Based on lies that they will cloak in their own justification and without the proper Constitutional authority, future presidents will embark on wars that will kill countless more young men and women.

The Stock Option Scam

    See, i just can't tear myself away from keeping you'all informed...I read this article several times yesterday and managed to keep from posting, so i could keep a promise to myself to finish a pile of other work...but...I digress.

    Yesterday's Wall Street Journal had an amazing article, co-written by Mark Maremont, who I worked with some years ago at Business Week (yes, I toiled away in the belly of the capitalist publishing beast...it beat unemployment). Maremont and his co-writer Charles Forelle wrote a very long article digging into the abuse of stock options. Because this piece is for subscribers only, I'll try to give you a flavor:

Eugene Isenberg is the little-known chief executive of a modest-sized oil-services company in Houston. But he stands out in one way: He is among the highest-paid corporate executives in history. In the past 19 years, he has pocketed more than $450 million.

The key to this wealth: stock options, in abundance. His employer, Nabors Industries Ltd., has lavished more than 25 million options on him over the years.

They became lucrative partly because of Nabors's generally rising stock price, but also because of some controversial moves that gave the options more punch. When Nabors's stock fell below the price at which the options could be exercised, temporarily making them worthless, Nabors let him trade in some of his options for new ones with lower exercise prices. And when Mr. Isenberg cashed some options in, Nabors "reloaded" him, replacing those he'd exercised with the same number of new ones.

Stock options were hailed two decades ago as a remedy for runaway executive pay. Academics, politicians and investors, tired of seeing CEOs pocket big money for a so-so job, pushed to have stock options become a primary method of compensating executives. Options -- granting the right to buy stock tomorrow at today's price -- would pay off only if the company's stock went up. To advocates they were the ideal carrot, an incentive for good work that aligned executives' interests with those of shareholders.

That happened -- sometimes. But at many companies, options morphed into the biggest executive bonanza yet, pouring out cash like a stuck ATM, and sorely disappointing those who thought options would moderate executive pay.

Instead of replacing big bonuses, options became an additional form of pay slathered on top of already-generous packages. Employers doled out options in ever-growing numbers, in part because, until recently, accounting rules meant companies didn't have to treat this largess to executives as an expense. And like Nabors, some used repricing, reloading and other tactics that made it even easier for executives to score huge hauls.

    Essentially, Isenberg and others gamed the system.

    There is a chart that goes along with the article that is truly mindboggling (if you click on the chart, you can get a bigger, more readable, version). It looks at the 25 executives who cashed in the highest profits in stock options from 1992-2005. Some of them are recognizable names like Oracle's Larry Ellison and Dell's Michael Dell. But, others are probably people you never heard of like Dwight Shar of NVR and William Greehey of Valero Energy. What all these people have in common is a complaint board of directors willing to shower these executives with compensation without question. Here's some more perspective from the Journal's writers:

The backdating scandal at scores of companies shows one way stock options, once seen as an executive-pay reform, have often been distorted by corporate officials and their consultants. Nell Minow, a longtime corporate-governance advocate, calls backdating "just another in an endless and unstoppable series of mechanisms to subvert the purpose of stock options." A vocal proponent of options in the early 1990s, Ms. Minow now regrets that stance. "Options became completely disconnected from shareholder interests," she says. "I grossly underestimated the capacity of corporate boards and corporate managers to circumvent the principles we established."

From 1992 to 2001, the average value of option grants to CEOs of S&P 500 companies soared nearly tenfold, according to data compiled by Kevin J. Murphy of the University of Southern California. The result was that options, which in 1992 made up less than a quarter of the average CEO's pay, by 2001 provided more than half of pay packages -- packages that were much larger. Companies have started doling out fewer options in the past few years, but grants remain far more generous than a decade ago.

In 1985, Miami financier Victor Posner pulled down $12.7 million, putting him atop lists of best-paid CEOs that year. Last year, 393 executives earned more than that, thanks largely to gains from exercising options, according to Standard & Poor's ExecuComp, which tracks executive pay at about 1,800 public companies. The top 2005 earner was Barry Diller of IAC/InterActiveCorp., with $295 million, nearly all from options.

    So, those top 25 executives in the graphic above pocketed $9.6 billion--just from money reaped from stock options. Twenty-five people.

    In Isenberg's' instance, he benefitted from something called "reloading':

In the late '80s and early '90s, companies found another way to goose stock-option grants: "Reload" them.

Normally, options disappear when exercised. But with a reload plan, a person who exercises options automatically gets replacements. Typically the replacements number fewer than the options exercised. They carry the same expiration date but a different exercise price -- the current market price.

Reload plans are supposed to encourage executives to hold stock in their company, says Mr. Cook, the pay consultant, who invented them. To get a reload, executives exercising options generally must do so not with cash, but with stock. That is, they must hand in existing shares whose value equals the cost of exercising the options. Since executives can't do that unless they own shares, they have an incentive to be shareholders of the company and to hold onto new shares obtained when they exercise options.

Critics decried reloads as abusive, a kind of option replication machine that enriched top managers -- while diluting other stockholders' ownership as the number of shares outstanding rose.

    By giving Isenberg a "reload," and he cashed those in 2000 (reloaded, repriced and repriced) for a nice cool $54 million. There is also a suspicion that the company backdated the options--pricing the options earlier than they really were given, at doing so at a price that was more favorable to the CEO. That would be illegal. The Journal article says that 60 executives and director of public companies have been ousted because of the growing backdating scandal. We will see what happens with Mr. Isenberg.

A Short Break

    I'm taking a short blogging break until Jan 2nd. Though I reserve the right to be so inspired, compelled or enraged by something that I'll break my vow. Feel free to "chat" about anything you want. See you in a week.

The Disgusting Greed Continues

    The New York Times can't get enough out of the riches pouring into Wall Street and the consumption that follows. Today, more on what those newly rich or even more rich will do with their bonuses:

That is serious money. And the serious luxury goods markets are feeling the impact.

Miller Motorcars, in Greenwich, Conn., is fielding more requests for the $250,000 Ferrari 599 GTB Fiorano than it can possibly fill. One real estate broker laments a dearth of listings for two clients trying to spend $20 million on Manhattan properties. Financiers already comfortably settled in multimillion-dollar apartments and town houses are buying $5 million apartments for their children. Vacation homes, usually bought and sold in the spring, are now hot this winter, including ones in private resorts like the Yellowstone Club in Montana near Yellowstone National Park.

    And...

Then came bonus day. Last week, Michele Kleier, president of Gumley Haft Kleier, received a call from a hedge fund manager in his late 30s. He had spent $6 million on an apartment two years ago and, with his bonus, wanted to upgrade. His new price range? “Not more than $20 million.”

Ed Petrie, a broker at Sotheby’s in East Hampton, N.Y., is now fielding two bids for $8 million to $10 million properties in exclusive Georgica Pond — properties that have been on the market since the spring. “The fall was relatively slow and then suddenly, with news on bonuses, there has been quite a bit of activity,” he said.

    And...

Private planes, or shares of them, are also on the rise, with demand for charter planes at one company up 40 percent to 50 percent among financial services executives. “There is a noticeable difference this year compared to the past, especially in the financial sector,” said Jeffrey Menaged, founder and head of Chief Executive Air, the company that hired Ms. Clark for the day. A typical price for a charter flight is $30,000.

Sales of “jet cards,” a sort of debit card for private flying, increase during bonus season, Mr. Menaged said, as executives lock in last year’s gains with guaranteed comfort for the new year.

Exotic destinations are also being pitched to the Wall Street ultrarich. Unlimited Speed started Victory Lane in November, a 3,000-acre development in Georgia for motor racing aficionados. Along with a 4.5 mile racetrack, the development also has a 1,600-acre nature preserve, equestrian facilities, a golf course and spa. It already has 27 reservations, a quarter of them coming from Wall Street, said Andrew Goggin, president of Unlimited Speed.

    No mention in the article about what the 48 million Americans without health care are going to do with their bonuses...

I Can Top That

    And here I thought the CEO of Goldman Sachs should take the annual award for being the biggest pig at the trough. Silly me. With a deep apology to Lloyd Blankfein, may I introduce you to Hank McKinnell, the former chief executive of Pfizer, who is going to get a nice gift of $200 million from the company's board. In a harsh column today by Gretchen Morgenson of The New York Times, we learn that:

Since Pfizer dumped Mr. McKinnell last July, we have been awaiting the details of his severance arrangement. We guessed it would be dizzying — his pension alone had been estimated at $83 million.

But after the company said late last Thursday that the terms of the package would soon emerge — on a day when shareholders, distracted by holiday shopping, might not notice — we knew the amount would be odious.

Here’s how Mr. McKinnell’s $200 million package adds up. First is his pension of about $6.65 million a year for as long as he lives. The company estimates its value at $82.3 million. Sweet.

Next comes $78 million in deferred compensation, which includes $67 million in pay that Mr. McKinnell has set aside over the years. Then there is an estimated $18.3 million in performance-based shares. Given Pfizer’s recent results, perhaps it would be more accurate if these were identified as failure-based shares.

Tack on $12 million in severance, vested stock grants worth $5.8 million and a $2.15 million bonus and Mr. McKinnell has all the makings of a very, merry Christmas. But that’s not all.

Mr. McKinnell, 63, also received $576,573 worth of medical, dental and life insurance as well as the unspecified value of continued medical and dental coverage under Pfizer’s retiree plans for him and his partner, Joanna Slonecka. Included in this pot is the cost of financial counseling programs. (Maybe he can dip into that amount to help line up some therapy for Pfizer’s board.)

The most curious figure of all, though, is $305,644 — rounded up to the nearest dollar, presumably — that represents the value of Mr. McKinnell’s unused vacation days.

    You would think this guy earned the money for doing such a great job for the company. Well, we know better:

Mr. McKinnell’s $200 million is even more disturbing when put next to the roughly $137 billion in market value that vaporized on his watch. That Mr. McKinnell forced his shareholders to pay $305,644 for his unused days off after draining them of $137 billion is downright stupefying.

But this is how too many leaders behave in 2006. They give large numbers of pink slips to employees. They create really big losses for their shareholders. But they make sure they chisel the company’s owners for every nickel and dime, including dental coverage, unused vacation days and financial counseling programs.

The Donald on Bush

    I am no fan of Donald Trump. I think he is a blowhard, real estate leech. But, as the saying goes, even a broken clock is right twice a day. You may have already seen his comments in Maureen Dowd's column today. On the Bush twins, he says:

“When you’re a president who has destroyed the lives of probably a million people, our soldiers and Iraqis who are maimed and killed — you see children going into school in Baghdad with no arms and legs — I don’t think Bush’s kids should be having lots of fun in Argentina,” he says.

    And a bit more on Bush and others:

“No matter how long we stay in Iraq, no matter how many soldiers we send, the day we leave, the meanest, most vicious, most brilliant man in the country, a man who makes Saddam Hussein look like a baby, will take over and spit on the American flag,” he says. “Bush will go down as the worst and by far the dumbest president in history.”

Colin Powell, he considers irredeemable as well: “He’s speaking up now, but he’s no longer relevant. I call him a pathetic and sad figure.”

Murder in Iraq--Bush To Blame

    It's a sad story to read: U.S. soldiers charged with murder in Iraq over the deaths of civilians in Haditha. I'm sure, over time, we're going to read stories about the accused--how they were regular guys, probably loved animals and were solid family people and pillars of their community...or certainly some of them. i'm not excusing their conduct--but I can see how the completely crazy war in Iraq created the conditions for these guys to go off and kill people, if they are found to have done so.

    Which made me immediately think of the importance of pushing for the impeachment of Bush and Cheney. For all those who argue that it's time to move on, I would list the hundreds of thousands of dead and add on the lives of the accused Marines. The president initiated this ugly war. He is the one that needs to be held accountable, as do the grunts who pulled the trigger in Haditha.

Dolls That Make Workers Cry

    Shop, shop, shop--but don't forget some of the underside of the mad dash through the holidays--this from our friends at the National Labor Committee:

The Dirty Little Secret behind the flashy, best-selling Bratz dolls: Bratz dolls are all the rage, ranking as the most sought-after toy this holiday season, surpassing even Barbie, which has dropped to third place.  Bratz dolls now make up 40 percent of the fashion doll market, and will bring in $3 billion in sales this year.  Many parents are already concerned about the big doe-eyed, scantily-clad, high-heeled and half-emaciated Bratz dolls, some of which look like little hookers with supersized lips, being marketed to their very young children.

But there is another dirty little secret behind the Bratz dolls.  They are made in a sweatshop in China, where women are routinely forced to work seven days and 94 ½ hours a week, for wages of just 51 ½ cents an hour, $4.13 a day.

As bad as conditions are now, they are about to get worse.  The factory wants to fire all the workers and then bring them back as temporary workers with contracts of just one to eight months, which would strip them of any legal rights they might have.  As it is, the workers are denied sick days as well as work injury and health insurance.

In January 2007, out of desperation, the Bratz doll makers will go out on a wildcat strike.

There is another dirty little secret behind the Bratz dolls—a secret that MGA, Wal-Mart and Toys R Us do not want us to know:  It’s that the workers in China are paid just 17 cents for each doll they assemble, and that the total cost to produce the doll is $3.01.  When the Bratz dolls enter the U.S., the companies mark the price up by 428 percent—another $12.88—and retail the dolls for at least $15.89.  It’s a good deal for the companies and a very bad deal for the young workers in China, and—for more than one reason—for parents and children across the United States and Europe. Does MGA have a passion for fashion or just a passion for profits?

Tell Wal-Mart (ethics@wal-mart.com), MGA and Toys R Us not to fire these workers! These workers deserve real contracts. Tell them to give their workers full benefits: health care, pensions and work injury insurance.

    And the helpful NLC folks even provide a model letter (of course, the more you personalize it, the better):

I urge you to intervene immediately to prevent a major crisis at your contractor’s toy plant in China, the Hua Tai 4K factory in Shenzhen City.

The factory is in routine violation of many of China’s labor laws—and in even greater violation of the United Nations/International Labor Organization’s core worker rights standards.  Overtime is mandatory and excessive, at times exceeding China’s legal limit by 445 percent.  There are also instances, due to constant arbitrary production line speed-ups, when assembly workers failing to reach their production targets must work for free until they do so.  Workers report that there are no paid sick days, and in fact, missing a day can actually result in the loss of three days’ wages.  Moreover, in direct violation of China’s labor law, Article 72, factory management does not provide its workers with the required health and work injury insurance or a pension.  This is even the case for workers who have been employed at the Hua Tai 4K factory for over ten years.  Wages are also below subsistence levels, and workers can be fined five hours’ pay if they damage a toy they are working on.  The workers also report that factory dormitory conditions are primitive and that at the plant’s cafeteria the food is too little and of very poor quality.

However, the main crisis is this:  To avoid complying with a recently passed law in Shenzhen—which makes  it mandatory beginning in January 2007 that factories pay a bonus equal to one month’s wage to every worker who has been employed for one year or more—management is about to fire 4,000 workers, with the intention of bringing them back as “new” temporary workers.  As mentioned above, some workers have been employed at the Hua Tai 4K factory for more than 10 years.  From this point forward, management wants to limit all new work contracts to durations of just one to eight months.  Indeed, some workers are already being kept under such contracts.  This reduction to “temporary” status, will strip the workers of any legal rights they might have hoped to eventually win.  The workers can kiss goodbye any hope of receiving their legal health and work injury insurance, pension or yearly bonus.

It is possible, if management refuses to sit down in good faith with workers and reverse this illegal course, that there could be a wildcat strike in January—as the workers will have no other recourse.

Please immediately urge your contractor to reverse any attempt to turn its dedicated workforce into mere temporary workers.  We have all been told that worker rights conditions in China are improving along with rising wages, but at your contractor’s plant, this definitely does not appear to be the case.  pppp Thank you for your assistance on this very urgent matter. 

Nice Bonus, Lloyd

    I admit to having this fascination with the huge bonuses being doled out to Wall Street executives. Each day brings a new record. And it rings so Marie Antionette--48 million people without health care, pensions disappearing, wage growth puny if at all...and, in the face of all that, a few folks are just piling up gargantuan rewards. It's bizarre, weird, sick and disturbing.

    A few days ago, when I wrote about the $16 billion bonus money Goldman Sachs was going to dole out, no one yet had any firm figure on what the individual hauls might look like. Well, take a bow, Lloyd Blankfein--you just went into the record books:

Goldman Sachs paid Lloyd C. Blankfein, its chairman and chief executive, a bonus of $53.4 million in 2006, the highest ever for a Wall Street chief executive.

Added to his $600,000 salary, the bonus means that Mr. Blankfein will make $54 million this year, up from $38 million last year. The bank’s compensation committee awarded him $27.3 million in cash, $15.7 million in restricted stock and options to buy Goldman stock valued at $10.5 million.

The payout comes a week after Goldman reported a record profit of $9.5 billion, or $19.69 per diluted share, in 2006. Its stock price is up almost 60 percent for the year, and the firm’s market capitalization is nearly $90 billion, more than triple its value when it went public in May 1999.

    No word on how much Lloyd is turning over to charity.