BOB REED

Joining Lt. Gov Pat Quinn's Team

2008-12-31T14:24:00.008-06:00

Nearly a year ago, I posted my predictions for 2008. Among my cracked crystal ball observations: Hillary Clinton would be our next president.
So much for that one.
What's more, I also failed to predict a major turn in my professional life. After more than 20 years as a working journalist, much of it covering business and finance, I'm moving on to a new job as communications director for Illinois Lt. Gov. Pat Quinn.
If interested, click here for a brief description of my hiring.
It's a great assignment and obviously this is a fascinating time for Illinois. (Yes, that is an under-statement.)
In the coming days, I will be unwinding my own media business and agreements. Over the past few years, I've been very fortunate to work with good partners and clients including, Chicago magazine, Bnet.com, WBBM Newsradio 780, Businessweek and the Huffington Post.
I've also enjoyed a long association with the talented folks at WTTW/Channel 11's Chicago Tonight and Chicago Tonight The Week in Review.
These organizations give hope that good writing, editing, story-telling and investigative reporting will prevail even as the news business reconstitutes itself.
My sincere thanks to all who have read and reacted to this blog. It has only been around for about two years, but has been a blast to write.
That's enough about me.
Just one more thing: Have a great new year.

Taking a Blog Break

2008-12-08T13:40:00.000-06:00

I'm taking some time to tend to a few personal/business dealings so Reedbiz/Bob Reed blog will be on hiatus.

Chicago Tonight: The Week In Review

2008-12-05T14:00:00.001-06:00

Check out Chicago Tonight The Week in Review this weekend. Led by moderator Carol Marin, who's sitting in for Joel Weisman, a panel of local journalists talk about the major happenings in the Chicago-area and beyond.
This week,I'm on the panel along with newsman Phil Rogers of Channel 5/WMAQ-TV, sports reporter Cheryl Raye-Stout and political reporter Ben Calhoun, both of WBEZ-FM.
Led by Marin, we discuss the political fortunes of Illinois Gov. Rod Blagojevich, Mayor Daley's sale of city parking meters to a private firm, the fate of the local economy amid growing unemployment, and the state of Chicago's professional sports teams.
The show airs on Channel 11 at 7 P.M. Friday and again early Saturday morning.
If you're a Comcast cable TV subscriber, tap into the program at will by going to the "on-demand" menu and watching it anytime this weekend.

Advice To Team Obama: Keep FDIC's Bair

2008-12-04T10:35:00.011-06:00

Now comes word that Timothy Geithner, President-elect Barack Obama’s choice for U.S. Treasury Secretary, is trying to push Federal Deposit Insurance Corp. Chairman Sheila Bair out of office. So much for Obama's "team of rivals" governing philosophy.
Apparently, Geithner worries that Bair is not a team player, according to Bloomberg Business News, which broke the story.
Some infighting is considered good sport, even in the Obama era. But pushing out Bair is not a wise, nor politically astute, decision. Before things get out of hand, Obama's camp needs to rethink this one and back off.
That's because dumping Bair--a federal regulator who is serving the public well during this sorry economic passage--will send out a cruel message which states: The U.S. Treasury remains committed to saving Wall Street's hide but won't be a champion of ailing home owners on Main Street U.S.A.
Indeed, Bair is an outspoken advocate for directly attacking the housing crisis. For example, after taking over IndyMac Bank, Bair's FDIC launched a plan to help troubled borrowers rework mortgages and make them more affordable.
Yes, there are some kinks in this initiative, but overall the plan is considered a blueprint for providing needed relief to those facing foreclosure.
A Republican appointment, Bair isn't shy about openly taking on the GOP's Treasury Secretary Hank Paulson and his muddled bailout effort. From the outset, she pointedly questioned Paulson's ad hoc strategy, which bounced around from buying troubled bank assets to infusing capital directly into banks without any oversight, structure or conditions.
Had Paulson paid heed to Bair's advice, the major banks--which have already scarfed up over $250 billion in taxpayer-backed funds and guarantees--would now be lending a cut of that cash haul to businesses and consumers. Instead, they are using our money to plug gaps in their balance sheets and buy other banks.
And during one of the darkest moments of the economic meltdown, Bair successfully pushed for Congress to temporarily expand the FDIC safety net, raising the insured deposit rate to $250,000 per account from $100,000. That move boosted depositor confidence and likely blunted a number of nasty bank runs.
Does Bair have critics? You bet.
She's come under fire for pushing the sale of Wachovia Bank to Wells Fargo, after the FDIC paved the way for an agreement that allowed Citigroup to buy Wachovia. At the time, Citi argued that the FDIC had gone back on its word.
Yeah, it probably did. Still, it's highly problematic that Citi could have successfully acquired Wachovia even with government welfare. Remember, this is the same Citi that recently went back for a second helping of government bailout money because it was headed for the brink. So, it looks as if Bair made the right course correction, saving taxpayers big money along the way.
Technically, Bair still has a few years left of her five-year appointment. But a critical Treasury Secretary and unsupportive President could make her remaining years pretty miserable.
One of the concerns about proposed Treasury Secretary Geithner, who runs the New York Federal Reserve Bank, is he's very close to the giant banking powers and Wall St. Sort of a Hank Paulson-type but with more hair. And you'd hate to think that since Bair was considered a candidate for Treasury Secretary that Geithner wants her out of the way.
Let's hope not. We can't afford more of the same nonsense.
But Geithner can confound the critics--and live up to his boss' desire to forge a government from a knowledgeable "team of rivals"-- by putting aside his reservations and working with Sheila Bair.

Surprise! This Bank Refuses Fed Bailout

2008-11-25T11:58:00.005-06:00

The way major financial institutions are feasting on taxpayer-backed bailouts, you'd think every bank in this country has on the feed bag.
Not true.
Just north of Chicago, dwelling in the People's Republic of Evanston, is First Bank & Trust -- a 13-year-old community lender that doesn’t want any part of the U.S. government’s $700 billion bank bailout or, for that matter, any subsequent rescue plans.
You see, First Bank & Trust won't do business that way.
Says Robert R. Yohanan, CEO and one of the bank's founders: “We don’t need the money. More important, we don’t want the government as a partner.”
That refreshing approach makes First Bank & Trust a rarity in these dismal economic days.
First, it's a healthy institution that hasn't forsaken one of the main skills of successful banking: managing risk. For example a few years ago, First Bank & Trust shrewdly determined the home mortgage market was spinning out of control and greatly limited making real estate investments thus avoiding big trouble.
Secondly, this bank isn't looking to game the system by profiting from the government-backed bailout.
Believe me, one of the yet untold stories of this massive taxpayer-funded rescue is how many healthy lenders are grabbing for the government gold because it's a source of cheap and ready capital. Recently, one bank industry analyst told me that viable banks are under pressure from their institutional shareholders to take advantage of the bailout funding even if the lender doesn't need the cash cushion.
First Bank & Trust's management has a different approach.
It would rather fund bank operations through traditional means, like customer deposits, while also making a profit on sound loans. Moreover, it cringes at the prospect of selling even a slice of itself to the government, which usually gets preferred stock from any lender participating in the bailout.
"Who knows what is to come? They seem to be writing laws as they go along." says CEO Yohanan, who I spoke to while researching a story for Chicago magazine.
First Bank & Trust hasn't made a big deal out of the decision to go it alone.
For the most part, the bank's marketing initiatives travel more along the lines of neighborhood pumpkin carving contests. And to the best of my knowledge, the only mention of its bailout stance was made in a letter to the editor printed in a free local newspaper, which is where I learned of the "No Bailout Here" decision.
Yes, some critics will claim that First Bank & Trust shouldn't be held up as some shining example of restraint and fair play. They'll note this is a very small, conservative bank that caters to a niche of area business owners or operators and is surrounded by a fairly affluent depositor base. In addition, it doesn't provide the sweep of services and loans like JP Morgan Chase, Bank of America or other mega-banks and doesn't bear their heavy community reinvestment burdens.
All that may be true.
Still, I feel better knowing there's at least one bank out there not looking to score a free lunch.

Cuban's Cub Pitch Hammered By SEC

2008-11-17T11:09:00.005-06:00

When it comes to buying the Chicago Cubs, Mark Cuban no longer has game.
The brash billionaire's bid to acquire the baseball team from Tribune Co. was struck a fatal blow by the Securities and Exchange Commission, which is charging the Texas businessman with insider trading.
And the SEC isn't talking about trading baseball cards.Click here to read complaint.
Cuban is innocent until proven guilty. And considering his feisty temperament, he'll likely put up a spirited defense worthy of his basketball team, the Dallas Mavericks. (Cuban, who writes a fun blog, comments on the SEC action but doesn't say much.)
Nevertheless, if Cuban weren't already out of the running to purchase the Cubs before, he sure is now. The SEC action will overshadow any Cuban-charged effort to buy the team. Who's going to lend him the money? Who would want to be part of a buyout group that's led by someone under suspicion for insider trading?
More than that, the SEC's action gives MLB Commissioner Bud Selig--who didn't want Cuban to be part of baseball's ownership society anyway--the perfect reason for scuttling any offer the Texas-based entrepreneur would make.
You know, for the good of the game.
And even if some team owners were willing to take on Selig and rally behind a big-paying Cuban (and, by proxy, raise the value of their franchises), the SEC action ends that possibility.
It's doubtful TribCo CEO Sam Zell shares Selig's relief. Zell is pushing hard to sell the team sooner rather than later. He reportedly wants $1 billion for the Cubbies, while keeping a minority stake.
Cuban, who sportswriters often describe as a beer-guzzling "fan favorite", indicated he was willing to play ball with Zell and seemed anxious to fight the baseball lords over the Cubs. At the very least, Cuban was a "buyer-on-deck" who helped keep the Cubs value high in a down economy.
That's all over now. The SEC just ejected Cuban from the field of play.

Week In Review; Rob Feder Interview

2008-11-14T13:38:00.002-06:00

Check out Chicago Tonight The Week in Review this weekend. Led by moderator Joel Weisman, a panel of local journalists talk about the major happenings in the Chicago-area and beyond. This week,I'm on the panel along with David Greising, business writer/columnist with the Chicago Tribune, Laura Washington, opinion columnist for the Chicago Sun-Times and Greg Couch, sports columnist for the Sun-Times.
Lots to chat about including: Speculation about who will fill President-elect Obama's Illinois Senate seat; CTA fare hikes; new efforts to bail out local homeowners; and, of course, Da Bears, Bulls and Cubs (without closer Kerry Wood).
The show airs on Channel 11 at 7 P.M. Friday and again early Saturday morning. If you're a Comcast cable TV subscriber, tap into the program at will by going to the "on-demand" menu and watching it anytime this weekend.
After Weisman's Week in Review, John Callaway interviews Robert Feder, former Sun-Times TV and radio columnist,who recently took a buyout and left the paper.
For those of us who miss Rob's daily observations, this interview promises to be a great way to reconnect--even if it's for only 30 minutes or so.
Have a great weekend.

Congress Takes Aim At Griffin's Citadel

2008-11-11T17:06:00.007-06:00

Ken Griffin, local hedge fund magnate and one of the country’s wealthiest men, is the anti-Trump. Unlike The Donald, Griffin hates being noticed. Even in good economic times, or when making one of his eye-popping philanthropic donations, Griffin steers clear of the spotlight.
All that is about to change this Thursday.
Griffin is among a handful of hedge fund managers and experts taking center stage to explain to the country, via a Congressional panel, just what hedge funds do and what role they're playing in the deteriorating U.S. economy.
Inquiring minds want to know.
(Update: The hearings are underway today. Click on the Bloomberg Business News link for reports or go to a House-provided video link and web site.)
For Griffin, who founded and runs Citadel Investment Group, it does not promise to be an enjoyable session. Aside from his intense dislike for publicity, Griffin is up against Democrat Henry Waxman, who chairs the committee,and is known for being pro-regulation and not very happy with the investment banking/hedge fund world. The combative Waxman isn't shy about publicly broiling Captains of Commerce who think otherwise.
And Griffin despises the idea of greater scrutiny of his company, which has $20 billion in assets under management, or the aggressive policing of the hedge fund industry.
When I spoke to him in a rare interview in 2005, Griffin strongly asserted there were enough checks and balances within the financial system so the notion that hedge funds were unregulated was "fanciful".
His point: Get out of the way and let the free market boogie!
That attitude paid off handsomely for Citadel's investors and Griffin. For much of the last decade, Citadel posted annual investor returns in excess of 20 percent. As a result, Citadel management made a bundle by charging clients a standing fee of two percent of assets-under-management and 20 percent of any profits, a formula known in the parlance of hedge fund circles as the “2-plus-20” rule.
Citadel CEO Griffin is now super-wealthy, which enables him to be a world-class art collector and major benefactor to the Art Institute of Chicago and other causes. He’s ranked 97 on this year’s list of Forbes Richest Americans with a net worth of $3.7 billion as of Aug. 31.
Still, Griffin might look back on August as the good old days.
In mid-October, Griffin held an unprecedented conference call with bondholders designed to reassure backers of Citadel’s financial prowess. At that time, two of Citadel’s biggest hedge funds suffered asset declines of nearly 35 percent for the year, as scared investors cashed out and ran for cover.
In a letter, Griffin told Citadel investors that earnings for the remainder of 2008 would be "volatile."
Despite Citadel’s unusual public assurances, some critics say the firm’s bad run is far from over. One high-profile naysayer is Jim Cramer, the influential and energetic stock-picker who appears on financial cable channel CNBC and web site TheStreet.com. He argues that investors will continue fleeing Citadel’s hedge funds. “When you are down 35 percent, they run from you, not to you,” said Cramer in a recent web post entitled, “A Vulnerable Citadel.”
To counter its difficulties, Citadel is concentrating on building up its non-hedge fund business--something Griffin is likely to play up before Waxman's committee as he seeks to distance his company from the rest of the hedge fund riffraff.Still, that may not be enough for edgy legislators.
Expect the Waxman panel to bring up some thorny issues, including questions about how much money Citadel borrows and is it overly-leveraged?
(Citadel’s leverage ratio --the amount of money it borrows vs. the amount on hand—is three-to-one, which is down from the six-to-one ratio at the beginning of the year.)
Other questions: How much impact does Citadel have on the stock market? On any given day, Citadel can account for 6 percent of the trading on the NASDAQ and New York Stock Exchange. What happens to the rest of us, should Citadel tumble?
And then there's the issue of executive compensation. Don't expect Griffin's payday to go unnoticed by Waxman, who might just ask: "Is anyone worth that amount of money?".
Maybe no one is worthy of such a huge chunk of change. But this Thursday, publicity-shy Ken Griffin is going to earn his paycheck.

Obama, Harold, Blago and Fox. Oh my!

2008-11-05T09:30:00.003-06:00

No, he's not Superman. But we'll often expect him to be the Man of Steel.
Yes, President-elect Barack Obama has a huge job before him. Fixing the economy, ending the war, protecting the country, reviving the middle-class, shoring up the sagging educational system, curing the health care insurance crisis and on and on.
And that's just what we know about. Life has a habit of surprising each and everyone of us, including the President.
Is there little doubt that Obama looked almost grim, and very determined, as he spoke before a swelling Grant Park crowd yesterday night?
Others can celebrate, but Obama--who is more realist than charismatic idealist--grasps the gravity of what lies ahead.
At times, the Oval Office will seem like the loneliest place in the world.
But when that happens, President Obama should recall the greatest lesson of his historic election campaign: You are not alone.

Remembering Harold Washington. Speaking of charisma. The day after Harold Washington was elected Mayor of Chicago (April 23,1983) there was an electricity in the air--something Chicago never experienced.
I recall that the city crackled with a new vibrancy because Washington had beat the odds and was going to take charge.
The circumstances of Washington's local election and Obama's ascendancy are different and times have changed.
But you know what? Today, I'm feeling some of Harold's energy.

And Illinois' New Senator Is...Tons of speculation about who Governor Rod Blagojevich will name to replace Obama as Illinois Senator. As reported here last August, some close Obama backers want Val Jarrett, while other politicos are touting Jesse Jackson Jr.
My suggestion? How about Rod Blagojevich?
I'm only half-joking here, folks.
Blago goes to Washington and serves Obama's remaining term. (Whether he runs again is a topic for another time.)
Meanwhile, the able Lt. Gov. Patrick Quinn becomes Illinois governor and works with the General Assembly to break the current gridlock and actually get some things done. (And whether he runs again is a topic for another time.)
During an interview earlier this year, I asked Quinn to speculate on various Senate-appointment scenarios. He said this one worked for him.
Hey, why not? A man can dream.
But Quinn's pragmatic side quickly kicked into gear, saying Blago would never make that call.
I'm sure those steeped in the machinations of Springfield politics would agree.
Still, I sort of like the idea.

R.I.P. Fox News?The election night panel on Fox News resembled a wake as it reported the Democratic Party landslide and Obama's election.
Talk about a gloomy group.
Like the Republican Party, Fox is facing a tough decision.
Does it stay with its current business plan and become the "loyal opposition" to all-things-Obama? Or does it go with the "wisdom of crowds" and temper its deeply-conservative and combative approach?
Here's some advice: Ask yourself: What would Ayn Rand do?
Then do the opposite.

Get Out And Vote....

2008-11-03T16:17:00.000-06:00

OK, let's do this thing.

Economy's 'Dr. Doom' Makes Heroic Call

2008-10-29T11:01:00.004-05:00

He's been called Dr. Doom.
No, I'm not referring to the comic book super-villain and longtime nemesis of the Fantastic Four. For the last few years that nickname has been hung on Nouriel Roubini, professor of economics at the Stern School of Business, New York University, who in 2006 rightly predicted the economic malady now infecting the entire globe.
At the time, Roubini was written off by peers and Wall Street elite as an overly pessimistic crank.
Cranky he may have seemed, but overly pessimistic? Nope.
Buttressed by an uncanny ability to peer beyond the smoke,mirrors and spin of high finance, Roubini determined that an economic catastrophe was coming. The calamity would not be caused only by sub prime mortgages, which are still viewed as the ultimate culprit of the downfall, but by the planet's sub prime banking system.
In short, banks and investment banks (especially) really screwed the pooch.
Collectively, they took too many unwarranted risks and didn't have the capital--that's actual money in the sock--to withstand a collapse of the consumer credit market, including trillions in saggy mortgages, home equity loans, credit cards and auto loans.
What's more, Roubini was the first to say the business model for the stand-alone investment bank was dead. With leverage ratios in excess of 30-to-1 (for every $30 borrowed it had one dollar in cash), investment banks like Bear Stearns and Lehman Brothers would not make it through the hard times.
The other high priests of finance--Goldman Sachs and Morgan Stanley--abandoned their investment banking purity to become more highly-regulated bank holding companies. Meanwhile, Merrill Lynch headed for the hills by merging with Bank of America.
Even as the economic crisis unfolded, Roubini's views were still greeted with deep skepticism. I recall a Charlie Rose show, where the good professor was treated like a skunk at a garden party because he predicted the demise of huge investment banks and stated the traditional banking system was in big trouble.He was also among the first to say the Bush Administration's bailout plan was full of beans. You may recall that the original idea, advocated by our high-handed Treasury Secretary Hank Paulson, primarily centered on the U.S. government buying toxic mortgage-backed assets from investment houses and banks.
A bad idea, argued Roubini.
Instead, he said, the government needed to stabilize the financial and lending system by pumping money directly into the major banks. With that additional capital, banks will rebuild. They'll provide loans to each other again, restore confidence in the credit markets, and make more commercial lending available to worthy credits, Roubini asserted.
Once an obscure academic, Roubini is now teaching before a much larger audience.
He's all over the financial news channels, is a recurring guest on PBS and Charlie Rose, and is in demand as a speaker. He also runs a consulting business.
Let's hope the limelight and success doesn't ruin Professor Roubini.
Right now, however, Roubini is staying true to his calling. He figures there's more carnage ahead for the banking system and financial markets. And he would like to see another stimulus package, worth about $400 billion, to jump start the economy because we're looking down the spout at a deep, two-year recession, he said.
Nobody wants to hear such gloomy predictions. But at least Dr. Doom knows what he's talking about.

Bonus Time: You Give, Wall St. Takes

2008-10-22T11:31:00.003-05:00

For most workers, the year-end bonus no longer exists, having gone the way of company-paid holiday parties and gift turkeys. Indeed, such Yuletide Cheer is rare, except on Wall Street, which is licking its collective chops in anticipation of yet another round of big annual payouts.
And why not? Extra effort means extra pay. And no group has worked harder at bringing down the economy and forcing a massive taxpayer-backed rescue plan than Wall Street's rat pack of wheeler-dealers, incompetents, and nogoodniks.
Merry Christmas, folks.
It's not clear yet how deep the "bonus pool" will be. But looking at the year-to-date compensation estimates, count on it being pretty cavernous. One estimate of Wall Street pay, bonus and related costs goes up to $70 billion this year.
Whatever the ultimate number, we all get the honor of pitching in. Remember your government is initially investing $250 billion into shoring up the nation's largest banks, including that longtime bonus-leader Goldman Sachs & Co. It's all part of the fed's $700 billion master rescue plan.
For many of us the real question isn't how much Wall Streeters will be getting but why are they getting anything extra at all?
In the past when an investment bank made money, the bonus checks were passed out like candy. But now, as the traditional investment banking industry is being wiped off the face of the earth, wouldn't it be prudent to back off?
Apparently not.
Goldman is poised to hand out about $11 billion in compensation and bonuses, while Morgan Stanley is set to distribute nearly $10 billion. Citigroup, JP Morgan Chase, Merrill Lynch will be doing their bonus thing, too.
This redistribution of wealth comes while each of these financial services companies are getting ample cash infusions from the taxpayer-backed rescue plan, courtesy of Treasury Secretary Hank Paulson (who is a former Goldman chief).
Obviously, solvency isn't a requirement for getting a bonus. And forget about profitability--that's out the window, too. Instead, investment banks argue that big bonuses are needed to keep the crucial "talent" on board.
Really? You mean with Wall Street expected to cut 50,000-plus jobs in this downturn,companies are still concerned about losing key staff to rivals?
And what type of "talent" is being bought off?
Are these the same big brains who developed the sub prime mortgage market, credit swaps, and other obscure financial plays that are crippling the global economy and taking down Main Street?
In spite of everything that's happened, Wall Street hubris is alive and well.Everyone is making due with less. Much less. So why should an industry that's taken a huge role in bringing about a worldwide economic crisis still be allowed to adhere to its outdated standards as if nothing wrong has happened?
Yes, I know there's many innocent victims on Wall Street, people who went to work everyday and kept their noses clean. And I hate the idea of the government stepping in to control wages and bonuses.
But Wall Street is playing with our money now, so different rules and regulations must apply.
Hey, we'll gladly give up our holiday turkeys, provided Wall Street stops flipping us the bird.

Let's Rescue "The Bank of You and Me"

2008-10-14T16:47:00.005-05:00

All this ruckus over the financial rescue package is prompting many people to cook up their own plans for saving our economy. One innovative idea goes like this: Screw bailing out banks, give money directly to the American people.
Internet message boards are chatting up the idea. Callers on talk radio are asking about it. One of my closest relatives rang me up this weekend to discuss it and I, in turn, brought up the concept during a dinner with friends.
Yes, there's something inviting about investing in "The Bank of You and Me". The plan is so simple, especially when compared to the government's complex, daunting and time-consuming rescue attempt. Or as Sarah Palin might say: "Heck, what's not to like?"
Yet, before getting carried away, let's concede there will be no mass giveaway. After all, we're not bankrupt banks or insurance firms. But just for yuks, let's follow the plan's populist logic.
Basic premise: Instead of pumping $700 billion into the banks and into buying toxic mortgage securities, the U.S. Treasury gives every red-blooded U.S. household one million bucks. There's about 112 million U.S. households, according to the Census Bureau, so providing each a cool million could end up being a comparative bargain. Backers contend it will deliver the same results, or better, than the current bailout.
Since money doesn't flow like water, some restrictions will apply. For example, any household behind in its mortgage must use the proceeds to make that bank note current or to pay it off. Result? End of the mortgage crisis.
Other debts must also be paid. That means home equity loans, credit cards, student loans, child support, medical bills or other long term obligations have to be drastically whittled down. Presto! Credit crunch resolved.
Everyone would be required to plow a percentage of their million-dollar windfall into a safe retirement account. The payoff? Recapitalized banks and, as a bonus, the end of Social Security's troubles.
And because everyone needs a little fun in life, any remaining cash can be used for discretionary spending. That takes care of lagging consumer confidence and the recession.
You know if John McCain or Barack Obama wanted to wrap up the presidential election, all they have to do is come out in favor of this Million Dollar Baby during the next debate. Hell, maybe President George Bush should consider this option. It's gotta help his approval ratings.
Sophisticated financing types and macro-economists will dismiss this bailout brainstorm as costly (the actual tab for this plan is $12 trillion--high even by Bush Administration standards) inefficient, inflationary and unpatriotic. They may even say its just plain stupid.
Apparently, it's smarter to print up nearly one trillion dollars in new currency in order to shore up the sagging lenders that made awful loans, didn't properly assess risk, and concocted exotic and unsafe credit instruments that nobody will ever understand.
Yes, let's hope the government's current economic "rescue" attempt works.
But if it doesn't, we can always put "The Bank of You and Me" plan into action.

Sound the Alarm! Bank Buying Ahead

2008-10-09T10:50:00.005-05:00

The British bank rescue plan is coming! The British bank rescue plan is coming!
Treasury Secretary Hank Paulson doesn't resemble Paul Revere, our country's famous midnight rider, but he's definitely signaling that a British-backed effort to resolve the banking and economic crisis is on the way to America. Following the Brits lead, Paulson now wants to put taxpayer money directly into banks, often in return for ownership stakes.
Since we're all about to become bank shareholders, a few questions seem in order.
Will taxpayers back every ailing bank that knocks on Treasury's door or only selected lenders? And if we pick and choose, what's the criteria for allowing some banks to fend for themselves while giving help to others?
Will there be a pronounced "too big to fail" doctrine? Bank of America and JP Morgan Chase (Citigroup and Wells Fargo are also in the mix) have helped the government by taking over an ailing financial institution or two. As a result, each could come under significant financial strain. Will mega-banks have special sway or goodwill with Treasury?
What's the economic advantage of having taxpayers act as owners-of-last resort? Are there limits to Treasury's largess? For instance, if an investment goes even more sour, does Treasury pour additional money into it or simply walk away with a whopping loss?
And how does buying into banks help ease the mortgage crisis or keep people in their homes?
Backers of this cash-for-bank equity plan argue it's a faster cure for what ails the economy. In short order, bank balance sheets improve, fiscal confidence returns, and lenders start making loans again.
Abracadabra! End of credit crunch.
Maybe.
But there's plenty of risk, too. The public could eventually own a bunch of dog banks, which will require even more taxpayer funding. Already, the government is having to plow more cash into its so-called investment in insurance menace AIG, not to mention backing Fannie and Freddie.
The original intent of the $700 billion bailout was to carve out toxic securities from banks and other lenders. That move was also meant to spruce up balance sheets and allow lending to begin anew.
Apparently, that possibility wasn't enough to ease global investor panic.
Cripes! Some choices.
One day, perhaps we'll understand how we got into this mess.
Until then, it appears we're stuck making ad hoc and crummy decisions that may, or may not, salvage this very serious situation.
This much is clear: Like Paul Revere, we're seeing the start of a revolution. This time around, however, it's a global economic revolution.

Stock Plunge, Bank Fight and More!

2008-10-06T14:34:00.003-05:00

How does that goofy Disney song go?
"It's a small world, after all..."
Well, today's stock market plunge of nearly 800 points proves that point. It is a small world and we're in the midst of a full-blown global economic crisis.
Yes, the market rebounded but the panic-fueled free fall was triggered by news that major European nations are taking drastic measures to stabilize their financial institutions and economies. Among them: Austria, England, Iceland, Sweden and Germany.
But wait! There's more to come.
Europe is beginning to look a lot like Wall Street and not in a good way.
Many European investment banks are as highly leveraged as the our now brain-dead investment houses (aka Bear Stearns and Lehman Brothers), according to a recent Fortune magazine story.
More disturbing, these stock market gyrations aren't going to ease for awhile. Expect more fallout once a very resentful Europe is forced to cook up a U.S.-like bailout plan.(European leaders are royally ticked at the U.S. for infecting the Continent's financial system with sick subprime mortgage paper.)
And we've yet to hear from the major Asian economics, which have their own systemic problems.
All together now: It's a small world, after all.

Bank fight, bank fight! Wells Fargo and Citigroup are clawing over the bones of the near-insolvent Wachovia.
You can read details of that tussle here.
Suffice to say, Citigroup thought it had a deal to acquire Wachovia. That is until Wells Fargo stepped in with a better offer.
How will this battle be resolved?
My bet is that federal regulators, who started the Wachovia sales process rolling, will barter a Solomon-like deal.The result? Basically, Citi gets the eastern half of Wachovia and Wells gets the western half.
In the end, both banks avoid costly, and potentially ruinous, litigation. And they end up with some decent banking properties and a whole bunch of low-cost deposits for a very reasonable cost.
Half a loaf, as they say.

Flash! Economy chugs along. Despite the carnage on Wall Street, there are signs of the economy fighting back.
Some evidence: Mars completed its estimated $23 billion acquisition of Chicago-based Wm. Wrigley Jr. Co. (with an assist from billionaire Warren Buffett).
And Eli Lilly announced plans to make a $6.1 billion purchase of ImClone Systems Inc.
Now, don't we all feel a little better?

Free Enterprise? Buffett Counts On Bailout

2008-10-02T12:54:00.008-05:00

Throughout this ongoing economic crisis, the hardcore anti-bailout crowd crows that everything can be fixed if we just act more like multi-billionaire Warren Buffett.
Apparently, Buffett sees gold where others envision only muck. So, the "Oracle of Omaha" is digging deep--but not too deep, mind you--to acquire ownership stakes in a couple of venerable but wobbly institutions, namely GE and Goldman Sachs.
Some view his buying spree as proof-positive that there's gobs of hearty, private investors out there ready to buy, buy, buy into these sagging financial institutions. Just hang tight, they argue on CNBC and other outlets, because the private investor cavalry will save the day, allowing taxpayers to hang onto the $700 billion required to get the federal economic bailout (sorry, rescue plan) up and running.
I wish that were true. But it isn't.
In fact, the shrewd yet homespun Buffett is probably counting on the bailout more than most of us.
By investing at least $5 billion in Goldman Sachs, Buffett is betting a bailout will become law and that the U.S. Treasury will get moving and buy much of the toxic commercial paper on the books of Goldman and many other financial institutions.
Free of such nasty and corrosive investments, Goldman's balance sheet should quickly perk up. With Buffett's backing, Goldman is free to pursue its new strategy of being a bank holding company, while continuing to sell fee-generating investment banking services.
Same goes for GE.
Buffett expects the bailout to ease the lending burdens of GE's financial unit.It will also alleviate much of the credit crunch, which should free up financing that will make it easier for GE's customers to purchase its goods and services.
Don't kid yourself, Buffett knows the score. That's why he favors a bailout!
Believe me, without the distinct possibility of a taxpayer rescue, Buffett doesn't go anywhere near Goldman, GE or anything else. Remember, before a bailout plan surfaced he stopped one of his insurance firm's subsidiaries from insuring bank deposits above the amount guaranteed by the federal government.
And keep in mind that Buffett is only the best-known of a small band of wealthy investors plunking down cash and waiting for bailout relief. Scores of other well-heeled interests are making the same play.
But those who argue that private investment alone is enough to fix this mess can't see past their ideology.
Nope, private investors are buying some well-known brand names--JP Morgan Chase and Morgan Stanley for starters--in anticipation of a government-led bailout, not because of some ardent belief in the Free Enterprise system.
This is a painful time and we need public and private capital to save the economy from ruin.
But let's be honest: Warren Buffett can't do it all by himself.

GOP Fallback: When In Doubt Blame Pelosi

2008-09-29T14:53:00.004-05:00

Do you hear a fiddle? Because it sure feels like Rome is burning.
It's no huge surprise that the Bush Administration's massive economic rescue bill wasn't passed in the House of Representatives. Know anyone who approves of this thing? No, it is a deeply-flawed piece of legislation and even the reworked version, which includes greater taxpayer and consumer protection, cost too much and will likely accomplish too little.
But after watching the reaction of leading House Republicans, who are responsible for killing this bill, it's hard to believe that Congress can come up with something more worthwhile.
Why?
Because hardcore GOP opposition is preoccupied with petty and stupid political matters--primarily the conduct of some House Democrats, who support this wildly unpopular bailout bill served up by the GOP's own wildly unpopular president .
Instead of saying "this bill sucks, let's kill it and draft another, pronto", GOP leaders and obstructionists are ranting that the proposed bailout just went down in flames because of House Speaker Nancy Pelosi's tart tongue.
To the GOP's collective horror, Democrat Pelosi got up before the lower chamber, prior to the vote, and stated the obvious: This financial crisis occurred on the GOP's watch and during President Bush's nearly eight years of mass destruction.
Well, boo, friggin' hoo.
Yeah, that's the first time Republicans have ever heard that one.
If the ultra-conservative GOP wing has a real plan for rescuing this economy then let's see it. If not, then let's go with this plan and move on.
But don't insult the country, or waste its time, with this political nonsense and talk of bruised feelings. Save it for Fox News.
This economy is in deep trouble and, like it or not, a bailout plan is needed.
So stop fiddling around.

Buy Hasty Fed Bailout Now, Regret It Later

2008-09-24T12:19:00.013-05:00

In the teeth of a previous housing recession, a real estate agent looked me dead in the eye and said: "You have to buy now. Time is running out." Not true. It took a little longer, but my wife and I ended up buying the right house, although not from that agent.
Building a false sense of urgency is a bad salesperson's favorite tactic. It's the "get it now, while they last" theory of business and those who fall for it usually get burned.
That's why it's proper and just for lawmakers to take some time evaluating the proposed $700 billion federal economic bailout plan now being pitched to Congress. The plan's backers--President Bush, Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke--don't like waiting around and are pressing lawmakers to just shut up and sign on the dotted line.
Those three gents are right about one thing: We're in a real economic jam. But any dope can see that now. And I guarantee it will get worse if investor confidence is not restored to the market, so lenders can start making good loans again.
But pushing ahead without any significant effort to vet this plan is absurd and a sure-fire recipe for compounding our fiscal disaster.
Congress must question this bill and press for more safeguards.Have you read this thing? Basically it's like Paulson is declaring Martial law over the U.S. economy. No court can stop him. No lawmaker dare question the Treasury Secretary's rulings.
Most maddening wasPaulson's initial refusal to give on the issue of capping CEO pay. At this dire point in time, why does he care? Under pressure from Congress and angry taxpayers, Paulson caved on the compensation issue, which should help move the bailout process along.
We need to construct a systemic approach to solving this problem. What Paulson and Bernanke are rightly trying to do is cook up a structure to handle this enormous, often amorphous, problem of bad credit securities and loans.
But they don't have the right to do it without any accountability. I mean, isn't the lack of checks and balances how we got into this whole subprime lending and credit crunch mess?
Earlier this week, a longtime Wall Street trader went on CNBC and dismissed opposition to the bailout as just another Democratic Party conspiracy. He said if the Dems were going to hang ornaments, like CEO compensation and oversight, on this bill that investor confidence will be lost.
You see, the Wall Street guys still don't get it.
They're worried about losing investor confidence when they should be more concerned about the lack of confidence the American people have in them and this proposed solution.
Soon enough, a bailout plan will be passed. Taxpayers will be on the hook. The economy will suffer. We're screwed. And it's damn unfair.
So members of Congress, take some time and try to get it right. After all, that may be the best investment this country can make right now.

Why I Won't Shed Tears For Wall Street

2008-09-18T14:25:00.008-05:00

Call me small-minded, or vindictive, but I don't feel sorry for Wall Street.
Yes, I realize we're in a crisis and suffering through the roughest economic patch since the Great Depression. And I appreciate it isn't nice to pick on someone when they're down.
But I'll be honest, being charitable is not my first instinct here. There's part of me that resents Wall Street, especially its slew of money-hungry CEOs, cavalier investment bankers, heartless merger and acquisition specialists, and red meat-loving traders. I'll add to this lot the relentless gang of stock market pundits and pickers, who rant against even modest industry regulations or investor protections for fear of derailing their fantasy of a pure "free market" society.To each and every one of them I say: "Tough luck, folks. Your day of reckoning has come. You're getting just what you deserve."
It's too bad so many innocent people will have to pay for their avarice and hubris--especially those being tossed to the curb without work or prospects.
This is not some sudden backlash brought on by my staggering 401K portfolio or a rant sparked by uncontrolled panic that the stock market is forever down and out.
No, this resentment has been building for some time.
For more years than I care to remember I've reported and commented on business. When I began plying my trade as a pup reporter, publicly-owned companies didn't fixate on their stock prices as they do now. The stock price was an important component of something more grand: How well the company was managed; product quality; innovations; customer satisfaction--you know, the business.
And Wall Street? That was a place where companies went to raise capital for expansion and new products.
This was not a perfect dynamic. Often, top management was removed from the real world. But, on balance. I'd argue companies that focused on their knitting, and not merely pleasing shareholder interests and investment analysts, usually produced leaders in big industries like automotive, consumer products, financial services, technology, etc.
Over time that changed. Shareholders--especially institutional shareholders with ties to Wall St.-backed financial muscle--started pressing companies for greater returns. The mantra: Maximize shareholder value.
So, what mattered before didn't any longer. Shrewd CEOs quickly learned to bow to the almighty stock price or risk getting dumped. In essence, companies were being managed by institutional shareholders, backed by Wall St. investment houses.
For years, this situation has made life miserable for management teams that don't always meet or exceed quarterly profit and stock price expectations.
I recall a conversation with a CEO of a major company who ruefully told me that business wasn't the same anymore. Why? Because long term planning and investment were out and share price trumped every other concern.
Now ask yourself: How many companies have been damaged in the name of maximizing shareholder value? How many unnecessary mergers, spin-offs and other dumb deals were spawned just to give the stock a jolt? How many jobs and benefits were cut because Wall St. said that was an easy path to operating "efficiencies" and greater short-term returns?
Wall St defenders will argue that shareholders made a killing. Some did, some didn't. But I guarantee you that every investment bank involved in these transactions walked away with ample fees and never looked back.
Not satisfied with disemboweling Corporate America, investment banks turned to Main Street.
Once there, they encouraged lenders to keep making questionable subprime mortgages.Yeah, banks and mortgage lenders caused their share of problems by originating these awful loans. But Wall St. investment firms compounded the problem by manufacturing a market for these crappy credits, packaging and selling them to big and small investors globally in return for fat fees that translated into hefty annual bonuses.
Any attempt to throttle back this excess through regulation, or sheer common sense, was beaten back by Wall St.'s protector class--those bellicose traders, pundits, economists and stock gurus who blindly fight even the most minor regulatory enforcement. You know, the crew that ends up regularly on CNBC's Larry Kudlow show. Their type helped provide cover to the Bush Administration, which didn't want to stop the mortgage music anyway.
The real irony? The investment banks caused all this mischief on borrowed money. The bankrupt Lehman Brothers, the near-bust Bear Stearns (now part of JPMorgan Chase) along with "independents" Goldman Sachs and Morgan Stanley had leverage ratios in excess of 30 before it hit the fan.
That means for every dollar in the pot they borrowed $30. And these guys were being paid huge money for financial advice?
In my old neighborhood, we had a saying: If you owe someone a little money, they have you. If you owe them a lot of money, you have them.
Wall St. owes us a lot for these taxpayer-backed bailouts. Man they got us good and that's why I'm not shedding any tears.
Instead, I'm concerned that when this financial mess has passed, Wall St. is going to try and get us again.
And then we'll all have a good cry.

In A Gloomy Economy, Signs of Light

2008-09-15T14:02:00.003-05:00

At a time when the stock market is plunging and a once-venerable Wall Street investment house is going bankrupt, it may seem like all is lost.
Not true.
In fact, amid the carnage, some examples have emerged that stir --shall we say--a cautious optimism about getting free of this mess.
Specifically, I'm referring to three major deals that were just announced:Bank of America is acquiring Merrill Lynch in an all-stock transaction worth $50 billion; Walgreen's is offering $3 billion to buy Longs Drug Store chain; and Best Buy is spending about $120 million to acquire Napster.
These are not fire sales (yes, even the Merrill buyout), borne of desperation like some recent deals. Nor are they federally-funded bailouts ala Freddie Mac and Fannie Mae.
Instead, they're private sector deals designed to help buyers (or potential buyer in Walgreen's case because it's going up against CVS for Longs) expand and grow within their industries.
Each requires funding and financing, which helps make the credit markets hum. More important, they display faith in the U.S. economy's prospects. After all, who would plop down millions of dollars if they thought the downward spiral was never going to end?
That may be especially true of the BofA-Merrill transaction. Considering the bankruptcy of investment house Lehman Brothers, along with the prevailing dankness on Wall Street, BofA is paying a significant premium to acquire Merrill Lynch.
Why? Because once this current crisis subsides, BofA sees prospects of a global financial services market and wants to be a top-tier player in that competition. Merrill can help it get there.
True, these buyouts won't soon diminish the nightmare brought on by the subprime mortgage meltdown and subsequent troubles.
We're confronting a very real problem and it's going to take a Herculean effort--on the part of government, finance and consumers--to pull us out of the tar pit.
That said, there's reason to be hopeful during these dark days. So lighten up, there's still life in old economy yet.

Who Pays For Bogus UAL Bankruptcy Post?

2008-09-11T14:43:00.013-05:00

Show me the money.
Chances are that's what some angry UAL Corp. shareholders will soon be saying. It's a demand expected to surface in legal actions that may arise from the controversial Internet posting of a news story and headline earlier this week that stated the airline concern had filed for bankruptcy protection.
UAL didn't enter bankruptcy. But the story--which was six-years-old and in an archive--was mysteriously plucked from a Tribune Co.-owned Florida newspaper web site by search engine Google and blasted over the web. Ultimately, the entry made its way into the system of financial news and information provider Bloomberg, which ran a UAL bankruptcy headline on its terminals, prompting a brief but massive sell-off Monday before the mistake was discovered and corrected.
UAL lost about $1 billion in market capitalization during the free fall as its stock price tumbled from about $12 to $3 per share until trading was halted. Today, UAL shares remain below the $12 mark.
All of which sparks some questions that haven't been thoroughly addressed yet in the crush of news coverage about this debacle. They include: Can shareholders recoup losses or are they stuck? Do they have a case for being injured? If so, who gets sued for damages? Who is ultimately liable for this situation? Does UAL, in its capacity as a representative of shareholders and stakeholders, have grounds to sue for damages?
I rang up Andrew Stoltmann, one of Chicago's better-known shareholder rights attorneys, for some perspective. (I've interviewed Stoltmann many times, for print and radio, and he gets right to the point.)
Yes, he said, expect shareholders who believe they unjustly suffered losses to take their cases to court. The reason this hasn't happened already, he surmises, is that shareholders don't know who to sue--yet.
In fact, since the bogus UAL story emerged, there have been claims flying between Tribune Co., which owns the Florida Sun-Sentinel web site where the old bankruptcy story appeared, and Google.
Both Tribune and Google have issued conflicting statements about what happened.
Stoltmann, says one thing is for certain: "Someone is to blame."
He contends lawsuits will raise hot-button issues of "liability" or "negligence". Among those most eager to make up for any losses will be investors who had "Stop-loss" orders attached to their UAL stock positions. They may never recoup their losses, he notes. (The NASDAQ, where UAL is traded, is not busting or rescinding any of the UAL trades sparked by the faulty bankruptcy post).
Who's going to feel the wrath of UAL shareholder lawsuits?
Now, that's an interesting question. There's Tribune Co., which has nearly $13 billion in debt, and then there's Google, one of the richest and most profitable companies on the globe.
Hmmmm, which would you pick?
Actually, it could be one or all of the companies involved in this matter, most of which probably have some type of business insurance to help protect against damages, Stoltmann says.
Still, chances are this situation is not going to just blow over.
The SEC is conducting a preliminary investigation.
UAL is still outraged. When I spoke to the company earlier this week it did not back off of its previous statement that the Tribune's Florida newspaper started this mess. Perhaps Tribune and Google's more recent statements will temper that view. We'll see.
That said, I'll give Attorney Stoltmann, the last word on this matter today.
"It will be," he says " a Pandora's box of litigation."

Let's Get Story Behind Faulty UAL Post

2008-09-08T11:23:00.002-05:00

Well, you got to hand it to the Tribune Co. It made people feel sorry for United Airlines, one of those businesses the public just loves to hate.
Before going on, I need to say this: United Airlines' parent company has NOT filed for bankruptcy.
For awhile there today, investors were afraid UAL Corp.--United's parent company--was on an inbound flight back into bankruptcy court. Why? Because a story on the Florida Sun-Sentinel web site--owned by the Chicago-based Tribune Co.--reported the airline was filing for Chapter 11 bankruptcy reorganization.
One problem: That story was dead wrong. The posting was a six-year-old Chicago Tribune story with the date changed, according to a very ticked-off UAL. The inaccurate post's headline was picked up by Bloomberg , Wall Street's electronic bible, and within a few minutes a sell off occurred and UAL's stock plummeted from about $12 per share to nearly zilch--until trading was halted. Amid the craziness, the post and headline were taken down.
UAL is demanding Tribune management, led by CEO Sam Zell, conduct an investigation and reveal what happened. I suspect the NASDAQ, which makes a market in UAL shares and where today's trading is being reviewed, will also want to know how this debacle occurred. Maybe securities regulators will start asking questions, too.
Considering the fallout and damage to UAL and investors, Tribune Co. should examine this problem and make its findings public. Here's a few questions to start with:
Did someone screw up? If so, how and why?
Was it a systematic breakdown? A software problem? Did an online producer simply click away and not understand the importance of the story? Was there a lack of management oversight that allowed this story to be blasted into cyberspace?
More troubling, was it intentional? Knowing how Internet rumors can pollinate, did some knave decide to sell short and make a killing?
What can be done, so this doesn't happen again?
I'm not talking witch hunt or publicly pillaging some content producer who didn't know any better. Nor is this meant to sound sanctimonious. Having been in business journalism for a long while, I know bad things can happen to anyone at any time.
But let's not be too empathetic. With millions of dollars at stake--along with the Tribune Co.'s credibility--everyone linked to this faulty process should be called on the carpet. At the very least, TribCo web producers should be put on notice about being extra careful when handling reports of bankruptcy, bank failures or issues pertaining to the solvency of a business.
TribCo.'s not alone. Bloomberg needs to question its decision to pick up a bankruptcy report on a Chicago-based airline from a Florida newspaper's web site. That's the type of story that should ring alarm bells, no? But I can speak from experience and say Bloomberg takes its relationship with users very seriously, so expect some quick corrective action there.
What happened to UAL today was a run on the bank--except it wasn't depositors asking for their money back, it was investors.
And UAL didn't need to add to its list of woes.
This is a company struggling with labor strife, increased fuel costs, and passenger unrest. Who can blame it for being angry, even if its stock has rebounded?
The popularity of the World Wide Web may have lured media executives into thinking that news is a mere commodity, or worse, that it doesn't matter what appears on the Internet because it's a blip in time and cyberspace.
Today's UAL screw-up should help put that fable to rest.

Chi-Town Activists? Joke Is On GOP

2008-09-04T09:46:00.004-05:00

Yeah, that Jane Addams was a funny gal. Who wouldn't laugh at a community organizer who spent her adult life feeding hungry, homeless children and fighting for social reform?
Founder of Hull House? Nobel Peace Prize winner? Please, enough with the jokes.
What's that you say? It's not funny.
You're right. Only someone with a sick sense of humor would deride activists who toil in Chicago's worse neighborhoods, dedicating time and effort to providing poor and disenfranchise citizens with a voice in the political and social process.
Someone with a warped view like Sarah Palin, the Republican Party's newly-crowned vice-presidential nominee. Or Rudy Giuliani, who lusted for the GOP's presidential nod, but instead settled for making a keynote speech Wednesday before the party hopefuls.
Speaking to the convention, Sarah and Rudy poked fun at Democratic opponent Barack Obama's background as a community organizer from Chicago's inner-city. In doing so, they also derided the importance of such activism--slights that got the crowd yukking it up on cue.
I expect this duo to disagree with and attack the Democratic presidential candidate's politics and record. But it's a cheap, cheap shot to deride Obama's background as a community organizer, while in the same breath also diminishing the crucial role such activism has long had on improving Chicago and the world.
Perhaps they can take their eyes off of the GOP talking points to reflect on the contributions such activists have made. As Sarah and Rudy chided Chicago activism, I recalled scores of community organizers who've made huge contributions by following in Jane Addams footsteps.
I thought of the late Florence Scala. This daughter of an Italian tailor gave the first Mayor Richard Daley fits when he set out to bulldoze her West Side neighborhood and build the University of Illinois.
Scala didn't prevail against the mighty machine and took some knocks during her tussle with City Hall. But she also scored some important victories. Along the way, this brave yet modest woman--who later in life refused to have libraries or parks named after her--left a legacy and blue print for taking on the powerful and vested interests.
Then there's Gail Cincotta, a feisty and formidable fair housing advocate who dueled with the downtown banking giants over their redlining practices. Cincotta, who died a few years ago, was instrumental in forming a coalition of housing advocates that forced the banks--which were closing inner-city branches and heading for the suburbs--to end the exodus.Cincotta did the impossible. She convinced stubborn and fearful downtown bank executives that reinvesting in urban areas was also good business. To make that case, Gail and her cohorts did tons of protesting, picketing and lobbying outside bank buildings and at annual shareholder meetings.
While Sarah and Rudy chided community activism, I recalled Mary Nelson, founder of Bethel New Life on Chicago's West Side. For decades, Nelson doggedly sought private and charitable funding (she called them "seven layer cakes" of financing) needed to slowly rebuild abandoned buildings that had become havens for drug use and crime.
Now, those buildings are spruced up apartments and retail stores. I've seen them.
There's still a long way to go, but progress was made because of those "funny" activists like Scala, Cincotta, Nelson and their backers.
There's more that I'm not mentioning. Yet, even if you don't know them personally, you're probably aware of the organizations they helped spawn. They include: the Citizens Utility Board, which strives to keep the power and telecom companies honest; Woodstock Institute, which made lethargic state lawmakers aware of the excesses of payday lenders and the mortgage crisis, and South Shore Bank, which infuses capital and business disciplines into sagging residential properties and commercial districts, revitalizing neighborhoods, states and even other countries.
All of these organizations, and many more, continue to fight the good fight at the grassroots level.
Was Barack Obama the most effective community activist Chicago has ever seen? Probably not.
But I wouldn't dare diminish what he choose to do on those city streets. On this score, the Dem's campaign rhetoric is spot on. Obama could have gone straight out of college into the welcoming arms of Wall Street or LaSalle Street and made big bucks. But, he didn't.
Instead, he went to work on Chicago's South and West Sides trying to help those who were chronically unemployed and under-represented.
You see, that's what community organizers do.
Maybe Sarah, Rudy and the GOP think it's just a punchline designed to degrade Obama's resume.
But, seriously folks, that type of work is no joke.

First, Kill All Publicly-Traded Law Firms

2008-09-03T13:19:00.007-05:00

Great Britain's law firms will have the option of becoming publicly-traded companies in 2011, according to the latest Economist magazine. That means investors, from individuals to institutional players, could buy stock in the British-based XYZ Law Firm Inc.--or something like that, old chap-- as if it were McDonald's Corp. or Procter & Gamble Co..
Eventually, this is a trend that will make its way across the pond to the United States, home of some of the world's largest and most successful law firms. Yes, it would take some tinkering with laws and regulations, but don't dismiss the possibility of law firms or their subsidiaries being traded one day on the New York Stock Exchange and other exchanges.
Of course just because something can happen doesn't mean it should. I shudder at the thought that law firms, which usually are private partnerships, will convert to publicly-traded entities. I'm not alone, the American Bar Association isn't wild about the idea either and prohibits selling shares in law firms to non lawyers.
There are incentives for going public. Firms can put a value on their partnerships, name and equity partners could cash out with rich paydays, and the stock can be used as currency for merging or acquiring competitors. Naturally, the investment bankers like it because it's a new treasure trove of fees.
However, there's plenty of downside for the law firms, clients and investors.
First and foremost, there's a huge potential for conflict of interest. Remember, a law firm is suppose to exist to represent the interest of its clients (at least that's what they say).
As a publicly-traded concern, a law firm opens itself up to immediate questions over conflict of interest with every significant decision or strategy being called into question. For instance, is the law firm filing a lawsuit strictly in its client's interest or because the legal action promises to generate billings that will boost the law firm's share price?
And even if conflicts are well-managed, there's other inherent problems.
Running a large law firm is akin to herding cats. Compared to even the most dysfunctional publicly-traded concern, large law firms are more difficult to manage, prone to greater in-fighting and a bastion of petty fiefdoms.
More important, many law firms don't have a handle on their expenses. As the Economist points out, few managing partners know their firm's profits per billable hour--even though that's how the money is generated. That is a key ratio.
Cost Control? Forget about it.
For decades, law firms have focused on making money and wooing clients, not cutting costs. And while that's beginning to change, though mergers and cut backs, it's a long way from reaching the discipline required by successful publicly-traded companies.
Indeed, as shareholder-owned companies, law firms would be under greater pressure to contain associate starting salaries, fire under-performing partners, and sell those gleaming glass towers they all like so much.
Can you imagine the sheer joy a professional troublemaker,like shareholder activist Carl Icahn, would have going after some fat cat legal firm and compelling it to count the paper clips?
Despite all this, I'd be for publicly-traded law firms if they'd end up providing better counsel and service to their clients. Unfortunately, that wouldn't be the case.
These days, a publicly-traded company's first concern is increasing shareholder value. Everything else comes in second.
In a few years, that's something the Brits are going to discover.

Internet Limits, Bill Daley and Obama...

2008-08-29T10:26:00.003-05:00

It's three posts in one!

Those who believe the Internet is an unlimited force of nature are in for a surprise. Now comes word that Comcast will limit customers Internet usage starting Oct. 1.The cable TV/Internet/phone service provider says its running out of capacity to service all its customers, so it has to force big users to cut back or pay more.
So much for the myth that the Internet is without constraint.
Already, media empires, e-commerce players, entrepreneurs and global corporations, which are tailoring business models to depend on the World Wide Web, are finding the Internet is straining to meet demand and that Net capacity is more taxed than ever before.
Which underscores a fact of business life: Whether its the information superhighway or a concrete highway, infrastructure must constantly be improved and upgraded. And that can be expensive.
Companies may think the Internet is a perpetual free ride but it's quickly becoming a toll road.
At the very least, Internet providers--like Comcast--are going to go all airline on us. Expect them to start charging extra fees for the basic services we've come to use.
Email? That's 100 for $2 a month. Want to watch video? That's another $5. Blogging? Well, let's not go there.

Running for Guv? It's Bill Daley's call.
Bill Daley, youngest brother of Chicago's politically powerful Daley family, is interested in running for governor of Illinois.
Hey, youse gotta problem wit dat?
Mark Brown, a top-notch political columnist for the Chicago Sun-Times, does. In a recent column, he tells Bill not to run, arguing that we've topped out on Daleys in powerful posts and don't need another in the governor's mansion. A troika of Chicago Mayor Richard Daley, Cook County finance chairman John Daley, and a Governor Bill Daley would be too great a concentration of power for one family, Brown asserts.
I agree that's a ton of clout centered within one family. But I disagree with his advice to Bill Daley.
If Bill Daley wants to run for governor then he should do so. From there, it's up to the voters to decide if there's too many Daleys running the place.
Have faith, they'll know what to do.
More than that, however, I'm troubled at the suggestion that anyone should step back from competing for any opportunity because of their family lineage or history. We can't pick our parents or our siblings. It's what we do with our lives that's important.
So it seems the first order of business is whether Bill Daley is qualified to be governor. On that score, let's give the man his due.
This isn't some wet behind the ears kid who's being groomed to take daddy's job. Nor has he squandered his birth right or failed to make his own way in the world.
Right now, Bill Daley's resume stacks up against anyone else who's thinking of a gubernatorial run. Over the course of his professional life, he's distinguished himself as a lawyer, businessman (he's held high posts at two Chicago banks--Amalgamated Bank and JP Morgan Chase)and public servant (Commerce Secretary under President Bill Clinton.)
If he runs, some opponents will seek to diminish these efforts. They'll also say his family is a political cabal. Bill Daley, who has never run for public office, will have to fight back and make his case to voters.
Here's one guarantee: Should he run in the Democratic Party primary for governor, Bill Daley won't be at a loss for opponents--no matter how mighty his family. Governor Rod Blagojevich is itching for another campaign, and he'll be joined by Lt. Gov. Pat Quinn, Attorney General Lisa Madigan and a few more.
As much as anyone, Daley's got the right to run for the state's top slot.

Dems, Obama sparkle. GOP next.That was a whale of a convention the Democratic Party held in Denver. It was topped by presidential nominee Barack Obama's impressive, and very strong, acceptance speech.
Judy Barr Topinka, a staunch Illinois Republican (yes, there are still a few out there) and a Channel 11 political commentator, said the Dem's Thursday night showing from Mile High Stadium (aka Invesco Field) reminded her of China's eye-popping opening ceremonies for the Summer Olympics this year.
She got that right.
The GOP's John McCain gets going this week. He's got a tough act to follow.

Time For Obama To Whack Wall Street

2008-08-25T12:11:00.009-05:00

About a year ago, Barack Obama read Wall Street the riot act. Speaking before a group of traders and investment bankers, Obama blasted them for being short-sighted, greedy, sneaky and intentionally oblivious to the pain and suffering their wheeling and dealing is inflicting on America's middle class.
Now, that's what you call a keen grasp of the obvious.
Still, it's that type of righteous indignation and passion many voters on Main Street would like to see from Obama as he addresses the country's faltering economy and how he's going to fix it. In fact, upon accepting the Democratic Party's presidential nomination later this week at the Dem's Denver convention, Obama should assert that his presidency means a tough new cop will be walking the Wall Street beat.
As in his 2007 speech, Obama should call for more aggressive enforcement and regulations--yes, I used the dreaded "R" word--requiring greater accountability from the giant financial players plying their trade within the U.S.
Obama should make clear that talk of further deregulation of the financial services industry is over until the large investment banks, commercial banks, hedge funds and other financial players show they've cleaned up their balance sheets and are erasing the unwarranted risks they've taken during the punch-drunk Bush Administration.
Most important, Obama needs to give Wall Street a smack on the proverbial skull. He must remind cocky traders and total "free market" types that they are part of the United States of America--not just an island in a sea of global commerce.
If pressed, Obama can justifiably ask them: "Where were all those highly touted international investor pools when mortgage makers Fannie Mae and Freddie Mac were going under?" The answer: "No where to be found."
Obama knows the American taxpayers bailed out these sorry institutions and rescued the entire financial system, too. Obama can assure us the Fannie/Freddie bailout will remain top of mind within his administration, should Wall Street launch yet another wave of specious corporate and industry consolidations--mergers designed to quickly "maximize shareholder value" but which typically end up gutting major corporations, eliminating good-paying jobs, destroying communities and displacing thousands of workers and their families. In essence, Obama must let Wall Street know the Gordon Gekko era is over and that "greed is not good."
Some will argue that demonizing Wall Street is a cynical play for votes. A play to win votes? Absolutely. Cynical? No way.
Voters will view this as a necessary and realistic corrective action. Everyone knows that throughout the Bush Administration, Wall Street went wild. At the end of it all, a few folks got filthy rich while the rest of us were left with a tab for cleaning up the mortgage mess and recession.
Even President Bush, our first CEO/Commander-in-Chief, ruefully noted that Wall Street went on a bender (although he said it after insisting the TV cameras be turned off.)
My question is: Will Obama take on Wall Street?
Unfortunately, that's not as certain now as it was in 2007, when he went into the lion's den and spoke truth to power. Since then, Obama has embraced a more deliberate style, trying hard not to be painted as some wide-eyed economic populist or Teddy Roosevelt-style trust buster.Maybe Obama doesn't want to fan the flames of this burning economy. Or perhaps some ample Wall Street campaign contributions have prompted Obama to hold his tongue.
Let's hope not.
What we need is a spirited and candid discussion about the fate of our economy. That means dishing about taxes, Social Security and government spending. It also means taking on the financial industry's greed and excess.
In 2007, Obama gave voice to that issue. Let's see if he continues to talk about cracking down on Wall Street--beginning this week when he officially becomes the Democratic Party's presidential candidate.

It's Time For A Little Blog Break

2008-08-15T11:11:00.001-05:00

I'll be away for awhile, taking care of some personal business followed by vacation.
That means REEDBIZ/BOB REED will be dark for the next couple of weeks. See you back at this spot in late August.
Here's hoping that each of you get some time to recharge. Have a great rest of the summer one and all!

TribCo.'s 'Core Asset': Local TV Stations

2008-08-13T10:37:00.010-05:00

What is the incredible, shrinking Tribune Co.'s "core asset"? For most of its history, it was the media concern's far-flung empire of major daily newspapers. These days, under new CEO Sam Zell, it's TribCo.'s merry band of local TV stations, including Chicago's Very Own WGN-TV. (Home of Garfield Goose aka "King of the United States.")
As a result, the TV stations--which were viewed as cash cows but also a necessary evil under previous TribCo regimes--are poised to drive the company's business, including its Internet expansion.
As TribCo.'s newspapers are chopping away at staff, undergoing crash courses in redesign and scrambling to keep nervous advertisers, the TV stations are starting to add hours of fresh programming to their newscasts and make the cash register ring.
Recently, TribCo. announced that half of its 23 station are adding hours to their local newscasts and many of its other stations are expected to follow suit. Locally, WGN-TV is expanding its local newscast hours this September. It's already added anchorman Mark Suppelsa to its on-air roster and intends to give weather guru Tom Skilling even more time to discuss the Alberta Clipperand other meteorological wonders.
Why this sudden love of more local news? Let's say it's not just to better inform the public. Rather, this is a fast--and relatively painless way--for TribCo to generate revenue and make more money.
One media buying pro, a veteran of major commercial advertising buys, sees it this way: TribCo. is already paying for the sets, anchors, electricity and everything else needed to put on its current newscasts. Expanding the number of on-air news hours gives each station a bigger bang for that buck (and you get to work current staff harder). In return, viewers get more content while a greater amount of commercial inventory is created and sold to sponsors.
TribCo especially likes that it owns all of the added advertising time generated by these extended broadcasts. That's a better deal than buying less-popular syndicated programs, like a Montel Williams, to fill the day. (I'm not talking about ratings winners like Oprah, Wheel of Fortune, or Judge Judy!)
This way, TribCo doesn't buy any programming and it retains all the advertising dollars from its own local newscasts (this also aces out owners of syndicated programs, which own and sell a portion of the ad time linked to the airing of their shows).
What's more, because the costs are contained, the newscasts' ratings don't even have to be very good to turn a healthy profit.
But wait, there's more.
The additional newscast content can be reconstituted for each station's local web portal. And you guessed it: That video can be leveraged to accompany more paid advertising.
TribCo isn't alone, Fox is also adding hours to its newscasts and the network stations have also bulked up morning news shows.
What's all this got to do with the fate of the Tribune Co.?
Well, it's no secret that Zell & Co. don't have a great deal of faith in the current newspaper business model. They're hoping that impending redesigns and cost cuts (which are underway at the Chicago Tribune even as we speak) will pump new life into that business segment.
In the meantime, Zell is looking to generate some fast revenue to help pay down that estimated $13 billion in debt. The company just posted a second quarter loss.
If there is such a thing as a "core asset" to this company it's not the newspapers, the newspaper-linked web sites, the Chicago Cubs (which are being sold), or even the Tribune Co.'s real estate holdings (which are also heading for the sale block).
Nope, it's the local TV stations.

Hello, Huffington The Chicago version of the Huffington Post comes to town this week.
My friends at MidwestBusiness.com have a nice take on this turn of events. Click here to read its post
Periodically, this blog will be picked up by the Huffington Post. Hey, the more the merrier.
Welcome, Arianna & Co.!

Hillary Remains Obama's Best VP Call

2008-08-11T12:39:00.000-05:00

This weekend, I got a personal email from the Barack Obama campaign--me and few million other people. It asked if I want to be among the first to know who the Democratic Party hopeful names as his running mate. If so, I can sign up to receive a text message or email alert the second it happens.
Not bad. Who doesn't want to be among the first to know news like that,eh?
Obviously, we're getting down to decision time on the second slot of the Dems' ticket. That seems to me like a good time to again make the case for Obama picking Hillary Clinton as his running mate.
Yes, I know they're suppose to hate each other. And I realize that Obama is looking in another direction away from Hillary, who might not take his offer anyway. But, I still believe that Obama-Clinton is the best ticket for defeating the GOP's John McCain, which prompts this re-filing of an early post on that very topic.
Here goes:

Barack Obama, saddle up your Hobson's Choice.
English folklore states that a 17th Century liveryman, Thomas Hobson, would require every customer to take the horse nearest the barn. His patrons believed they had a choice but, in reality, they didn't. Old Man Hobson had already made the decision for them.
When he finally buttons up the Democratic Party's presidential nomination, Obama will be in a similar fix. The Illinois senator may think he has many choices for a running mate but, in fact, there's only one: Hillary Clinton.
Whether he likes her or not, Obama must make a sincere effort to get Clinton on his ticket, even if she rejects him. If Obama doesn't offer her the vice-presidential spot, he risks exiting the Democratic Convention as a much weaker and vulnerable candidate--one who exposes an important voter flank to GOP rival John McCain, who is going to be a much tougher candidate than most are giving him credit for right now.
Obama needs to reach out and bring Hillary's backers into his orbit. To win, Obama is going to require more than the hardcore support of young people, new voters and the black community. He'll also need Hillary's base of support, which includes Hispanics, working-class whites and middle-age women.
An Obama-Clinton ticket is the Dem's best bet for winning those voters.
Political experts, who follow this race more closely than many of us, say Obama-Clinton is a nightmare ticket, not a dream team.
I disagree.
Seems to me that this is a close replay of the Democratic Party nomination of 1960, when John F. Kennedy won a hard-scrabbled and nasty nomination fight against Texas Senator Lyndon Johnson.
Kennedy didn't want Johnson on his ticket, nor did JFK's ardent supporters. But, JFK was a pragmatist who knew the offer had to be made. Once Johnson accepted, he went to work bringing in a lot of southern votes and helping the Dem's ticket win a squeaker of an election over Richard Nixon.
You see, JFK embraced his Hobson's Choice.
That's what Obama has to do--if he wants to win this race.

(Hobson's Choice DVD cover art courtesy of ioffer.com on Google images. By the way,the David Lean movie with the great Charles Laughton is worth seeing.)

The Buzz: Valerie Jarrett For Senate?

2008-08-04T14:07:00.013-05:00

Valerie B.Jarrett, a trusted adviser to Democratic presidential hopeful Barack Obama, may also be a candidate to succeed him in the U.S. Senate if he should win the White House.
In recent weeks, Jarrett's name has surfaced within the state's tightly-knit political and financial circles as a viable possibility for the Senate slot, according to a highly-placed Obama source. Those discussions were confirmed by another high-level Democratic Party operative and corporate source.
An Obama presidential win would open up his Illinois senate seat and, under state law, Gov. Rod Blagojevich must name someone to serve Obama's remaining term.
I don't mean to make this sound more mysterious than it merits. But I've agreed to keep my sources on background. Also note that it's unclear where this "Jarrett-for-Senate" push originated, or if Obama has participated in any of the recent discussions.
Early last week, while working on another Obama story, I came across this information about Jarrett. At that time, I asked the Obama campaign--which is handling press inquiries pertaining to Jarrett's relationship with the Obama election effort --to respond. I've yet to receive an answer.
A strong case can be made for naming Jarrett to the Senate.
True, she's never held elected office but has been in politics much of her adult life--running various top agencies for Mayor Richard M. Daley.
Moreover, she's made her mark in the private sector, where she's currently CEO of real estate developer The Habitat Co. and is highly-regarded within Chicago's political and corporate elite. To read her resume, click here.
On top of these accomplishments, Jarrett is a close friend and confidant of Obama and his wife Michelle. Jarrett was an early and influential Obama-backer and remains extremely loyal to him. As an African-American woman, Jarrett would also bring some much-needed minority representation to the country's upper chamber.
While naming someone to succeed Senator Obama is Blagojevich's call, Obama will have a lot of influence on that decision. Other names that have surfaced include: U.S. Rep Jesse Jackson Jr., State Treasurer and Obama buddy Alexi Giannoulias, , Tammy Duckworth, director of the Illinois Department of Veterans’ Affairs, and Rep. Jan Schakowsky.
That's just some of the contenders.
There's even talk that Blagojevich would name himself and beat a hasty exit from Springfield. Don't count on that happening, however.
Senator Valerie Jarrett? That may also be a long shot.
Conventional wisdom is she'll take an upper-level job on Obama's staff or within his administration. Of course, that's provided Obama wins.

This Blog Goes Wild For Widgets

2008-07-31T16:45:00.005-05:00

When it comes to technology, I'm not what you'd call an early-adapter. My tendency is to jump on a trend after it's been around awhile but not so long that everyone knows all about it.
Which brings us to the topic of widgets.
Loyal users will notice something different in the right rail of this blog. There's a small, but hopefully useful, group of new widgets. They'll take you into the world of sports, business news, entertainment, weather and more. In the near future, my plan is to add a Chicago-based news widget, too.
Hey, it's one-stop info shopping right here on this blog!

ShopLocal Job Cuts, Sirius-XM Merger

2008-07-29T11:13:00.011-05:00

Looks like job cuts are on tap for ShopLocal, a Chicago-based interactive marketing and data concern. About half of the company's estimated workforce will soon be fired with cutbacks beginning Thursday, says an industry source.
ShopLocal employs about 55 people, according to Answers.com. Other web sites say its up to 200 staffers. It also operates ShopLocal.com, an e-commerce site that allows users to compare online shopping sites.
Until recently, ShopLocal was owned jointly by newspaper companies Tribune Co., McClatchy Co. and Gannett. On July 8, Gannett acquired the entire firm from its partners and began to absorb ShopLocal's operations into its Pennsylvania-based PointRoll, an interactive web advertising company.
When I get a tip like this I check with the companies involved. But frankly, I did that in early July, when I heard that ShopLocal was being sold, and no one from any of the merging companies got back to me. A few days later, an announcement of the sale was made public.
My information is credible. But if there's a mistake, ShopLocal or PointRoll can get back to me via this site.
My source suggests the ShopLocal and PointRoll combo makes limited sense (don't you like mergers that make only partial sense?). It will produce a stronger web advertising unit but fails to bolster the ShopLocal.com site's fortunes.
We'll see.

Let's get Sirius. One of the least consequential mergers ever proposed has finally been approved by government regulators.
Congratulations folks, you made the world safe for democracy.
I'm referring to the link-up between XM Satellite Radio and Sirius Satellite Radio, which in February of 2007 entered into a stock swap deal worth about $13 billion, including $1.5 billion in debt. It took 16 months to approve this deal--much longer than agreements triple its size.
As a rule, I'm not a big fan of mergers.
Typically, they generate a lot of hype but don't produce the rosy cost savings, revenue or operational benefits that are so often predicted. Also, just as we're seeing at ShopLocal, people end up losing their jobs.
Chances of the Sirius-XM merger succeeding are, at best, a 50-50 shot. In it's short life, satellite radio has yet to prove it can make a buck from the twin revenue streams of listener subscription fees and paid advertising.
This merger should go a long way toward proving if satellite radio is a viable business model or just a gutsy investment play.
Personally, I'm a Sirius subscriber and enjoy the option of listening to an uncensored Howard Stern, Bloomberg business news, and the music stations.
But lately it sounds to me like Sirius isn't reinvesting in its product, especially the music on the pop and rock stations, where the same selections are playing over and over.
Perhaps Sirius has been forced to spend too much money for lawyers and lobbyists to get this merger approved? Or is CEO Mel Karmazin --a tough man when it comes to spending money--falling back on his old cost-cutting ways?
With the merger approved (with some silly conditions)let's hope Sirius gets back to the business to reinvesting in content. That's why I, and millions more like me, subscribe.

Week in Review, Good Day Chicago

2008-07-25T11:50:00.004-05:00

Check out Chicago Tonight The Week in Review this weekend. Led by moderator Joel Weisman, a panel of local journalists talk about the major happenings in the Chicago-area and beyond. This week, I'm on the panel for Chicago magazine, along with political reporter Andy Shaw from ABC/Channel 7, Frank Main, who covers law enforcement and the courts for the Chicago Sun-Times and Fred Mitchell, sports writer with the Chicago Tribune.We chat about Democratic presidential hopeful Barack Obama's recent overseas trip, Chicago's growing use of surveillance cameras on city streets, the pending sale of the Chicago Cubs, the legacy of the late, great baseball writer Jerome Holtzman and more.
The show airs on Channel 11 at 7 P.M. Friday and again early Saturday morning. If you're a Comcast cable TV subscriber, tap into the show at will by going to the "on-demand" menu and watching it anytime this weekend.
Then on Monday morning, I'm scheduled to appear on WFLD/Channel 32's "Good Day Chicago" around 9:45 A.M.to talk about a recent Chicago magazine cover story, "Top Jobs For Tough Times" that reveals which local companies are still hiring, and even thriving, in this increasingly rough economy. Managing editor Shane Tritsch and I wrote the story.
Have a great weekend.

This Analyst Has Bank Industry's Number

2008-07-23T16:40:00.005-05:00

The CEO of a major investment house sent out an email blast to customers, including me, today. Nice of him to drop us a line. In his message, the CEO acknowledges that I--along with millions of fellow investors--may be a tad worried about our volatile economy and stock market. Yes it is troubling, he conceded, but don't worry.
Gee, suddenly I feel so much better.
But you know what would make me feel ecstatic? If one of the best and most candid financial analyst on the scene today--Oppenheimer & Co.'s Meredith Whitney--was telling us that we've turned the corner. But, Whitney's too honest and intelligent to say anything like that right now.
If you get a moment, click on this link from Bloomberg TV and listen to what Whitney is saying. In this interview, and in her recent report on the banking industry, Whitney shoots down any overly-optimistic talk about a bottoming out of the nation's housing and banking troubles.
Peppered throughout her Bloomberg interview are some truths we all need to hear.
On the bank industry: Revenues are going down, expenses are going up and that erodes capital.As we've noted here before, the whole banking crisis is about improving capital levels and until that occurs we aren't close to turning the corner and more banks will fail or be forced to merge.
On the housing market: Mortgage prices are still priced too high on banks' balance sheets. Until lenders "get real" and seriously shrink their mortgage exposure, this financial crisis lingers on.
On returning to basic business practices: Whitney says the banking system must return to the days of "My deposits financing your mortgage. Your deposits financing my mortgage." Until we return to that business model, the housing crunch goes on and on.
Whitney says its going to take time for the banking system to clean up its act (and for the economy to recover). She suggests the sooner the industry gets started, the faster we'll recover.
Whitney's remarks are worth highlighting because they illustrate a rare moment of candor, and in my view, are an honest assessment about the economy. As this crisis gets worse, comments like hers will assuredly come under attack from the institutions that are being targeted.
Some will try to intimidate the messengers and diminish their findings.
This week, for example, a Florida-based bank is suing an investment analyst whose research the institution disputes.
I'm a firm believer in transparency, especially when it comes to the murky and muddy world of finance.
We could use more experts like Meredith Whitney and fewer soothing homilies from CEOs.
So, here's a shout out to one Wall Streeter who's giving investment advice worth getting.

CEO Dimon Not Buying Wall Street Hype

2008-07-17T12:21:00.008-05:00

Sometimes even a CEO must be taken at his word. That's the situation with Jamie Dimon, who runs the giant JP Morgan Chase. He's telling anyone who'll listen that the U.S. banking storm is far from over and the economy remains shaky.
I don't want to believe Dimon, but do.
The Great Minds of Wall Street, however, don't buy into Dimon's dark forecast. They see a silver lining, even though Chase just announced a 53 percent quarterly earnings plunge, compared to a year ago. Wall Street forecasters expected much worse (that's called "a beat" on the Street), so they're confident it's getting brighter out there. After Chase revealed quarterly results, a bank stock rally began.
Whoopee!
But Dimon isn't giddy about the future. Not yet, at least.
In comments that accompanied the earnings report, he asserts the economy remains "under stress", which is prompting Chase to boost quarterly reserves by $1.3 billion, cash designated to cover loan losses.
Moreover, it's not lost on Dimon that his bank's consumer division--the unit that everyday people connect with for mortgages, auto loans and credit cards--suffered a 23 percent earnings decline.
Dimon concedes Chase screwed up by expanding its portfolio of so-called "prime" mortgages, home loans made to Chase's best customers. Those loan losses could climb by $300 million per quarter into 2009. These are chits taken out by upper-income folks, who are suppose to have the money to pay for jumbo loans on McMansions even in a down economy. It's not working out that way.
Rarely does a CEO say his company blew it. But in discussing the prime mortgage debacle, Dimon did just that and more--he actually told JP Morgan Chase investors he was "sorry".That's a word the irascible John Pierpont Morgan never would have uttered.
Dimon can afford to be magnanimous. Right now, Chase is one of the nation's strongest U.S. banks (increasingly, that's faint praise)with a strong capital base and the rare ability to acquire other financial institutions, as it did when it bought the near-bankrupt Bear Stearns with an assist from the feds.
Wall Street is right about one thing: Chase's numbers could have been much worse.
But, that's no reason to go bonkers over the bank's latest results.
There's plenty more bank-related pain coming to this economy. And the culprits will range from major institutions like Citicorp, which reported earnings Friday, right down to some neighborhood lenders.
Jamie Dimon knows it. The rest of us, including those Wall Street forecasters, better accept that fact, too.

Paging George Bailey, You Have A Call

2008-07-14T14:50:00.007-05:00

Most of us have never witnessed an actual run on a bank, where nervous depositors crash a teller's window demanding their money. Our closest view comes from the classic film, "It's a Wonderful Life", and the scene when customers swarm the Bailey Building & Loan. George Bailey, played by Jimmy Stewart, steps up to calm everyone down.
In the coming weeks, we'll need that type of Bailey-like resolve as the country sorts through the worse U.S. banking crisis since the Great Depression.
That's not an overstatement. Just consider what's going on.
The feds have taken over insolvent Pasadena, California-based IndyMac bank, where this week depositors flocked to check on their accounts. On Wall Street, we're witnessing an investor run on the bank, as fund managers and others flee well-known national and regional bank stocks. Talk of insolvency and FDIC takeovers abounds.
Some of the biggest names in banking--Citibank and JP Morgan Chase--are getting ready to announce quarterly earnings and it's going to be butt ugly. Meanwhile, small banks are cobbled by loan problems and may implode. Throughout the country, web sites, newspapers and business tabloids have been running stories about the "Texas ratio" of smaller banks.
The higher the percentage ratio, the greater the risk the bank tanks, unless it gets a cash transfusion.
And as anyone with a set of ears knows, housing loans are a huge problem--which is why the Bush Administration is stepping in to stabilize mortgage giants Fannie Mae and Freddie Mac.
There's more bad news to come.
Every banker worth their salt is scrambling for fresh capital (as is the U.S. auto makers and airlines.) but there's only so much money out there. After all, Warren Buffett can't buy everything.
As a wee reporter, I spent a few years covering the banking industry including the mammoth savings and loan crisis and subsequent taxpayer-backed industry bailout that cost about $200 billion. Throughout, I was constantly amazed at how many everyday folks were so blase' about the financial meltdown going on around them.
This time it's different.
Trouble has hit home--literally. People are noticing and have every right to be concerned.
We're not at a full-blown depositor panic and let's hope we don't get there. But there's little doubt that a growing number of the nation's banks, big and small, are on the brink.
Where's George Bailey when you need him?

From A Tiny ACORN, Scandal Grows

2008-07-09T11:26:00.007-05:00

Vice in the cathedral.
That term came to mind upon learning that ACORN, one of the nation's most influential community organization groups, is reeling from a case of embezzlement. More troubling, ACORN's leadership made matters worse by covering up the problem for years and now is sitting on its hands waiting for the scandal to pass.
Dummies.
Today's New York Times tells the sordid tale, so I won't get into all the details except to note that a trusted employee (funny how embezzlers are always trusted)walked off with a cool $1 million about eight years ago.
That's not the worse of it. Upon learning of the shortfall, ACORN's executive leadership keep this nugget of news to itself, never telling board members about the scandal and--get this--not bothering to tell the cops.
While embezzlement is bad, it can happen anywhere and any place. I've long believed that when anyone has unfettered access to other people's money, there's potential for abuse. That's why organizations--even do-gooder groups like ACORN--should be aggressively audited by outside accountants.
But where ACORN really screwed up is in its failure to come clean and tell the world.
ACORN argues that it stayed mum out of fear that its enemies would use the embezzlement against the group in the court of public opinion. ACORN, which stands for the Association of Community Organizations for Reform Now, is feared and hated by many corporate adversaries and some so-called conservative politicians, who despise its tactics when protesting in behalf of higher living wages, minority rights and improved health care. (In Chicago, ACORN opposition is one the reasons Wal-Mart has not been allowed to expand. Even the former community organizer and presidential hopeful Barack Obama has been slammed by some blogs for his earlier ties to ACORN.
I don't always care for ACORN's aggressive approach. But over the years I've seen ACORN play an important role in improving affordable housing for minorities and addressing other neighborhood grassroots issues.
But in this case, ACORN'S hypocrisy can't be ignored.
Imagine the fuss ACORN would have raised if one of its corporate targets or politicians had embezzled and then hid under a rock. Shouts of "Fraud!" and "Dereliction of Duty!" would have accompanied ACORN's protests, which would also include demanding the ousters of those responsible.
Right now, ACORN's leadership is content to sit tight and risk its organization's credibility and financial backing. Organizationally, its response to this scandal has been a minor reshuffling of the ACORN leadership deck.
That's not enough. Anyone who knew of the shortfall and stayed quiet is complicit. For the greater good of the organization, they gotta go.
Failure to sweep the place clean will only haunt ACORN, raising huge doubts about its judgement and managerial ability. Going forward, any protest it embarks upon will be tainted by its inability to handle this scandal.
And then there's the issue of money.
As a nonprofit, ACORN must procure funding from outside agencies and individuals. But ask yourself: After ACORN's bumbling of this situation, who will gleefully plow cash into a group that fails to come clean?
For decades, ACORN has held itself up as a protector of the poor and working class, providing a voice for those who increasingly don't have one in the halls of power.
To continue that sacred mission, Acorn must stamp out the vice in its own cathedral.

Starbucks Brewing Health Care Cuts?

2008-07-07T15:44:00.003-05:00

Once a successful blend of business and community values, Starbucks is now falling on difficult times. As costs increase and earnings tumble, the coffee house chain is about to close 600 U.S. stores and is likely to go through some other gut-wrenching changes. I'm afraid curtailing employee health care benefits, or cutting them outright, is on that agenda. What follows is an earlier post exploring that possibility.

I've had one cup of coffee in my life. Just can't stand the taste of the stuff, nor the aroma. Yet despite my java aversion, I'm a regular at Starbucks, where I'll pick up a cup for my wife or meet people for the occasional meeting. I even have one of those Starbucks debit cards.
But there's another big reason why I like doing business with Starbucks: It's one of a handful of major retailers offering every staff person access to affordable health care insurance, especially part-time helpers, who make up a large portion of the Starbucks workforce.
Just a little over 40 percent of its workforce takes advantage of this benefit, according to the company. Still, the point is that every staffer qualifies for coverage and in this day and age that's a rare and golden benefit.
(I know a young actor who moonlighted at Starbucks. She was hit by a car and required serious medical help and rehab. She was very glad to have the Starbucks coverage.)
Unfortunately, Starbucks is going through some very tough financial times and I'm concerned it may be forced to dramatically curtail, maybe even dissolve, health care benefits for its part-timers.Not only would that be a shock to the Starbucks culture, but it would be a major setback for employee-based health care coverage in this country. Indeed, Starbucks and Costco, the mega store chain that also provides health care benefits to part-timers, are often hailed as the type of service employer who is doing the right thing. In return, they usually attract more talented and engaged employees.
It would be a huge step backward should Starbucks reverse course and stop providing health care to its part-time baristas, counter help and other workers.
Still, it is within the realm of possibility.
Recently, Starbucks announced declining earnings for this year, while its stock is tumbling.
Things are so choppy that founder Howard Schultz has been forced to return to the executive suite and try to get the franchise cooking again.
Despite his best efforts, investors are getting antsy and that's never good. When management is under pressure it starts looking to quickly cut costs. In Starbucks case, trimming or ending expensive health care insurance would be an option.
Starbucks hasn't brought up the possibility of cutting health care benefits, but it must be on Schultz's mind.
Only a few years ago--when Starbucks could do no wrong--Schultz was already lamenting the escalating price of health care, noting that it was outstripping what Starbucks paid for coffee. Commodity prices are higher now, but I'm betting that's still true.
Schultz is trying to revitalize Starbucks by going back to its roots of exceptional customer service and products. He's also rethinking the company's recent expansion plans and deciding whether it should be an outlet for selling Cd's and other peripheral products.
But that's nibbling around the edges.
If a turnaround does not quickly occur, management may have no choice but to shelve good intentions and rethink its philosophy of providing health care to all workers.
In the short run, cutting benefits may be one of the most effective ways to save money, improve profits and keep investors from pressuring Starbucks into selling or merging.
But in the long haul?
Well, let's just say that would be an unhealthy choice for everyone who works at Starbucks or buys its coffee.

Hang On! Economy Hasn't Hit Bottom Yet

2008-07-01T11:08:00.013-05:00

Summertime and the cost of living ain't that easy. Not this year, at least.
We're at 2008's halfway mark and indications are the economy is tumbling with no sign of hitting a bottom. Some economic optimists say we'll start to bounce back in the third or fourth quarter. Don't count on it.
Perhaps 2009. Perhaps.
We all know the problems.
Home values are declining and foreclosures are rising, business and mortgage credit is tightening (although the credit card companies keep sending out those "You've been pre-approved" credit card applications to consumers), and household debt is piling up. Did I fail to mention the escalating price of gas and food?
What's more, greater unemployment is just around the corner. Recently, the Business Roundtable's CEO Outlook panel predicted a 6.5 percent unemployment rate by mid-2009. Right now, we're at 5.5 percent--so that's a significant increase at the unemployment line.
While everyday working people are scared, Wall Street types are in a near panic.
Trading floors have always been rumor mills, but lately they've really been buzzing with recurring tales of insolvencies, recapitalisation and bargain-basement buyouts of major investment houses.
This week, all eyes are on Lehman Brothers, which is rumored to be on the selling block and running out of money--something the firm denies. Keep in mind,however, that Bear Stearns said pretty much the same thing before it was swallowed whole by JP Morgan Chase (with an assist from the Federal Reserve).
We'll see.
Frankly, I don't mind if some greedy and crafty Wall Street players get their comeuppance. But Wall Street's missteps always have a way of tripping up Main Street and injuring innocent bystanders, so expect some major fallout if an investment firm bites the dust.
On CNBC, many so-called economic experts debate whether we're really in a recession.
Technically, it may not be a recession.
But you know what? It sure feels like one.

Clay Felker: An Editor With Style. More years back than I care to remember, I had my one and only dinner with famed editor Clay Felker. Throughout the meal, Felker told a string of fascinating stories about the New York media scene in the 1960s and 70s--his heyday for editing some of the world's best magazines.
We dined at the Mansion on Turtle Creek in Dallas. Felker, who was then running Adweek magazine, was talking to me about a position in its Chicago bureau. After eating, we took a stroll around the swanky neighborhood with Felker puffing on a cigar and ruminating on the state of journalism, politics and anything else he wanted.
A week or so later, I had a follow-up phone conversation with him and expressed some reservations about the job. Felker screamed at me and slammed down the phone. (I later learned that he was notorious for such fast and furious responses).
So, I never worked for him. But wish I had.
My wife, however, did work for Felker and, upon hearing of his death, remembered him as an editor with an unmatched sense of journalistic style. As usual, she's right.

Banking on Buffett. One fellow who is prospering in these uncertain times is ultra-wealthy investor Warren Buffett.
This blog has occasionally chronicled Buffett's shrewd investments and his ample marketplace clout.
To learn more about Buffett, pick up the latest issue of Bloomberg Markets and read it's excellent cover story, "Why Buffett is Buying."

Happy Fourth of July! Check out a fireworks display, unfurl the flag, go to a parade or rent a copy of "Yankee Doodle Dandy" with the late, great James Cagney as George M. Cohan.
Whatever you end up doing, put aside your concerns for a moment to ponder what a great country this is and how we can make it even better.
Have a terrific Fourth.
Cheers!

(Economy graphic courtesy of Stone Soup Station via Google Images)

Tribune Tower? Nice Condo With View

2008-06-25T12:57:00.008-05:00

A fews weeks ago I was chatting with a Tribune Co. editor about the resale value of his office within the Tribune Tower. We joked that the space will be worth a couple of million dollars, once Sam Zell figures a way to convert "The Tower" into condos.
That's no joke anymore.
Today, Zell informed the troops what he's already told creditors -- everything the Tribune Co. owns is in play.
This is especially true of the media concern's "hard assets" such as office buildings, printing plants, TV stations and anything else that will tip the interests of developers and real estate investors.
Tribune CEO Zell says he's in no hurry. By that he means the company won't be pressured into selling anything at a fire sale price in order to meet its hefty debt repayments and other obligations (which are in the multi-billions). Instead, Zell will seek to maximize the value of every parcel, while minimizing the impact of taxes.
That's how you get to be a billionaire.
A Tribune Tower transaction could be sliced a couple of ways.
The Tribune Co. could sell outright and lease back the space on a long term basis. Or it can sell and agree to vacate in a couple of years for cheaper office space somewhere in the area. God knows there's plenty of such space around.
Or it could maintain an equity stake and partner with a developer who turns the place into a high-end condominiums/retail palace on North Michigan Ave. Maybe they end up calling it "435 Mich Plaza", or something kitschy like that.
(You don't knock down the actual Tribune Tower, but perhaps redevelop the land that's immediately east of the building. And nagging details, like zoning restrictions, can always be hammered out, eh?)
One thing is certain, the day when newspaper companies reside in Stately Wayne Manor is done. Already many newspapers are located in industrial parks or, like the Chicago Sun-Times, are operating from rented office space.
The Los Angeles Times' building complex, also owned by TribCo., is on the chopping block, too.
I suspect Zell's people are busy sizing up the other Tribune properties with an eye toward selling them or "maximizing" their value. So look for further consolidation of news operations under more affordable roofs, and the eventual dismantling or consolidation of printing operations.
I won't even get into outsourcing copy editing and other centralized editorial and business functions like the Orange County Register.
None of this should comes as a huge surprise. Since taking control of the Tribune Co., Zell has basically said that he's open to selling anything and everything at the right time and for the right price.
Going forward, the question is this: Will Zell plow money from real estate sales back into saving and improving Tribune Co.? Or is this just a thinly-veiled, albeit orderly, liquidation playing out before our very eyes?
Either way, I see condos in the Tribune Tower's future.

Lt. Gov Quinn on Blago, Obama and Biz

2008-06-23T11:13:00.003-05:00

What follows is a question and answer session from May 13 with Lieutenant Governor Pat Quinn. Originally, this story was slated to run as a feature in the late, great BW Chicago magazine.
Over an order of crab cake sandwich, steamed asparagus and a modest slice of banana cream pie enjoyed at a downtown seafood restaurant, Quinn talks with me about his uneasy relationship with Democratic Gov. Rod Blagojevich and much more.
Editor/Blogger's note: Because BW Chicago is no longer around, I felt it was a professional courtesy to double-back and ask Quinn if he'd object to an edited version of the interview appearing on this blog. The Lt. Gov., who did not see this article beforehand, is OK with its posting. Here goes:

You have not always agreed with the Blagojevich administration, especially on big business issues. I opposed the gross receipts tax. I told the governor that privately and testified publicly against it.

Does the governor listen to you? The governor doesn't listen to me enough, in my humble opinion. On Election Day of 2002, I was hoping we would have a government totally focused on reform and cleaning up the problems of [former Governor] George Ryan. A lot of those aspirations are still waiting to be fulfilled. It's disappointing that the governor is not engaged in carrying out these missions. He's distracted by political feuds, many of them started by him.

How does he turn it around? I would say this if he were sitting right here: I think it's time to apologize to the people of Illinois for appointing a fellow like Stuart Levine to two boards.(Editor's note: Stuart Levine recently pleaded guilty to taking part in a scheme to obtain kickbacks from investment firms seeking business with those panels. He was also the star witness at the recent corruption trial of Antoin Rezko) That was a big, big mistake. People are willing to listen if you take the approach that a mistake was made. People do make mistakes. But the attitude that "all is well" and it's someone else's fault is the wrong way to go.

You favor a recall of elected officials, something not allowed under the state Constitution and something many politicians don't want. I've been for recalls since 1975. It keeps every incumbent on their toes. Recall is a last resort, a safety valve when the voters are truly irritated.

Does Illinois' reputation of "pay to play" --which compels individuals or companies to contribute to politicians' campaigns if they want to bid on public contracts -- hurt its ability to attract new business or investment? When you have a corruption tax, or fear of a corruption tax, who's going to raise their hand and volunteer to pay it? This is a state that wants the Olympics, so we have to have to project an image to the world that says, "We don't have to hide behind a tree when it comes to political corruption".

Does it matter if we get the Olympics in 2016? Yes, the Olympics would open the eyes of the world to Chicago.

Back to politics. You are for Illinois Senator Barack Obama for President and also a friend of his chief strategist, David Axelrod. I was for Obama from day one. I play basketball with David. He takes too many shots for his ability.

Let's consider this: Obama wins the presidency. The governor has to appoint a new senator. Would he name you? Well, it would be snowing in Hell. If it were up to me, I'd rather the governor appoint himself, and we could get a fresh start in Illinois . I think enough people on the Democrat and the Republican sides would say, "Hallelujah."

Would you make a good governor? I know I could get people in the huddle, and we'd come up with a play that everyone would carry out.

Chicago Tonight The Week In Review

2008-06-20T12:28:00.002-05:00

Check out Chicago Tonight The Week in Review this weekend. Led by moderator Joel Weisman, a panel of Chicago journalists try to make sense of the presidential race and an array of local issues, including the devastating floods affecting this area and the Midwest.
I'm on the panel for Chicago Magazine, along with Mary Wisniewski, who covers transportation for the Chicago Sun-Times, Dick Johnson, reporter/anchor for NBC/Channel 5 and Dan McGrath, sports editor for the Chicago Tribune.
The show airs on Channel 11 at 7 P.M. Friday and again early Saturday morning. If you're a Comcast cable TV subscriber, tap into the show at will by going to the "on-demand" menu and watching it anytime you want this weekend.

Buffett Says "Last Call" For Bud Brewer

2008-06-18T10:19:00.013-05:00

Super-investor Warren Buffett wants the King of Beers to abdicate.
Anheuser-Busch Cos., which brews Budweiser, Bud Light and a slew of other beers, will soon be acquired, most likely by Belgium-based InBev NV. When that happens, the A-B beers will be absorbed into InBev's stable of nearly 200 different brands, including Bass.
After the purchase, InBev intends to cut over $1 billion in costs, so the next sound you hear will be the Budweiser Clydesdales clomping off into history along with a crush of U.S.-based jobs.
St. Louis-based A-B's management, headed by the long entrenched Busch family, is trying to thwart InBev's hostile $46 billion takeover offer. Nonetheless, the wealthy Buffett, a major
A-B shareholder, has other ideas. He's reportedly advised A-B management to take the InBev offer, which is pouring out a frothy premium over A-B's current stock price.
The Oracle of Omaha hails from Middle America but he also firmly believes that money has no boundaries. By selling his A-B stake to InBev, Buffett's investment vehicle Berkshire Hathaway stands to make a cool$600 million profit, according to Bloomberg Business News.Having Buffett on your team is a double-edge sword.When he's on board, no one is a better ally. For example, his backing helped smooth some difficult management problems at The Coca-Cola Co. (Buffett loves to buy brand names!). But when Buffett thinks the time is ripe to sell, sentiment doesn't get in the way.
That's how you know that A-B is cooked, despite the growing union and political objections to an InBev sale.
A-B management is trying to carve out a friendlier deal with a Mexico-based brewer but it's probably too late for that approach.
Warren Buffett has made his call. This Bud is sold.

Mr Mayor: Knock Down This Wal-Mart Wall

2008-06-10T10:24:00.008-05:00

A recent visit to a West Side-based Wal-Mart finds it brimming with customers shopping for food, clothes and any other goods the purveyor of low, low prices can hawk. The Arkansas-based retailing behemoth opened its first Chicago store in 2006 and by any measure--corporate sales, community impact or customer satisfaction—it’s been a success.
Eager to replicate a winning strategy, Wal-Mart says it’s willing and able to invest up to $460 million into the local economy by building at least 10 Chicago neighborhood stores. Like its Austin area superstore, each outlet would become a font for hundreds of new community jobs and hefty sales tax receipts.
In a slowing economy, the prospect of more urban employment and greater tax revenues should sound pretty good. But it isn’t enough to win over a rabid Wal-Mart-hating coalition of aldermen, union leaders, and community activists, who’ve politically pressured City Hall into slamming the door on the chain’s Chicago expansion. In May, city officials rejected Wal-Mart’s bid to open a South Side store, effectively telling the chain to get lost.
This is a huge, pig-headed mistake. To fix it, Mayor Richard M. Daley needs to muster his political courage by pressing opponents to end their anti-Wal-Mart campaign, even if it means ticking off labor while the city competes for the 2016 Olympics. The mayor better get moving before this plum economic development opportunity forever slips away into the welcoming embrace of nearby suburbs.
I’ll concede it’s not easy to roll out the welcome mat for Wal-Mart.
Founder Sam Walton’s quest to provide customers with deep discounts on every item in stock has a dark side. There’s merit to activist claims that Wal-Mart’s nationwide expansion, coupled with its cold-blooded operating efficiencies, has relentlessly driven many small rivals out of business and has perpetuated the demise of some rural business districts. Organized labor rightly takes aim at Wal-Mart for low-paying front line jobs and spotty benefits, especially its resistance to making health care insurance more readily accessible to all its store employees.
But there’s another hard truth: Capping Wal-Mart’s Chicago expansion won’t solve these problems but fencing Wal-Mart off will needlessly deprive communities of many vital services and job opportunities.
For example, supermarkets with pharmacies are increasingly rare in many city neighborhoods but each Wal-Mart includes ample space dedicated to grocery aisles, while its in-store pharmacies sell 350 generic prescriptions for $4 per 30-day supply. Moreover, Wal-Mart’s money centers provide basic bill paying and cash checking at prices that are much lower than those charged by currency exchanges.
Meanwhile there’s a crying need for large employers in the minority and blue collar communities, which have lost thousands of stable, good-paying manufacturing positions. On average, Wal-Mart pays store employees about $12 per hour, which lags superstore rival Costco Wholesale Corp.’s estimated $18 per hour wage, but is also better than some other superstore chains, say retail experts and community leaders.
Despite union protestations, it’s pretty clear that Wal-Mart jobs are in demand. Austin community’s Wal-Mart hired 443 people and the number of applicants far exceeded available openings, according to a Wal-Mart spokesman. (When the chain opened a store in Evergreen Park in 2006, it had 2,500 applications for 325 jobs.)What’s more, the general public also stands to benefit from a significant Wal-Mart expansion.
Last year, the West Side Wal-Mart paid $7 million in local, state and other government taxes. Times that amount by 10 Chicago stores and Wal-Mart’s suddenly pumping a lot of money into Mayor Daley’s cash-strapped city coffers.
So why isn’t the mayor on board and using his influence to support Wal-Mart? The answer: Labor Peace and the 2016 Olympics bid.
Apparently, Mayor Daley doesn’t want a reprise of 2006’s vicious “big box” battle. Daley vetoed a proposed ordinance calling for superstore chains to pay $10 an hour plus $3 in benefits, incurring the wrath of the AFL-CIO and other unions that favored the measure and backed Daley opponents in a subsequent City Council election. Daley doesn’t want another embarrassing imbroglio with labor while Chicago is in the running to host the Olympics.
Here’s hoping Daley changes his tune and starts using his ample clout and political acumen to win over opponents of Wal-Mart.
Mr. Mayor, winning the Olympics will transform your city into a global player but allowing Wal-Mart to expand will let more Chicago neighborhoods go for the gold.

(FYI: This post is my column that was slated for BW Chicago magazine, which recently ceased publication.)

BW Chicago, We Hardly Knew Ye

2008-06-06T11:17:00.007-05:00

Word is getting out that Businessweek has pulled the plug on BW Chicago, a local monthly, produced by the magazine's Chicago bureau and a merry band of contributors, including myself.
Long ago, a fellow journalist said that he believed in the "six good clips" theory of career satisfaction. He meant that if you were really proud of a half-dozen stories, or clips as they're known in the dead tree world of newspapers and magazines, per year then you were doing alright.
For me, BW Chicago beat that average. It was out a scant eight issues, but I was proud to be associated with every one of them and grateful for the chance to write something that's increasingly rare in this skittish Chicago media market--a commentary/opinion column about local business.
BW Chicago's editor, Michael Arndt, is a truly gifted craftsman and a good boss. I look forward to reading his work in Businessweek. Same goes for Joe Weber, who runs the Chicago bureau, and everyone else in that office.
Good people, all.
Everyone knows that this is a brutal economy. There's a lot of fear out there right now and that's especially true of advertisers, who even in good times are leery of new media ventures. That goes for print and web products.
BW Chicago took a chance that didn't pay off. It was worth the gamble.

In Today's Biz World, Ties No Longer Bind

2008-06-05T09:35:00.011-05:00

OK, I'll admit it. I like wearing a necktie. It's the only thing I have in common with George Clooney.
Yes, it's passe' to drape a piece of ornamental cloth around your neck, especially in today's business world where the more casual you dress the higher you go in the organization. Power is never having to wear a suit and tie.
Indeed, business dress is becoming so yesterday that after 60 years the trade group that represented American tie makers is disbanding. I suspect the polo shirt/chinos association is humming along, however.
When I started out, mentors made it clear that business attire was expected and there was nothing casual about Fridays. You didn't dare go on an interview or an assignment without dressing up. Not only did your boss expect you to clean up your act, so did your sources--who were also required to wear business attire.
Journalism is notoriously casual but I've worked at a major newspaper where male reporters were told to go home and not come back unless they were wearing a tie. I've witnessed a boss order salesmen to immediately go out and buy black shoes because their brown loafers were inappropriate for meetings. As a manager, I've sat in on conversations with a human resources staffer, who read the riot act to employees about casual dress habits.
Those days are long gone.
Now, the only profession that regularly wears business suits are litigation attorneys. Apparently, the judges insist on it for the sake of courtroom decorum.
Tee-shirts, open-collar sports shirts, casual slacks, those dreaded brown loafers, are the uniform of the day.
I guess it makes sense, especially when people are chained to a computer or in a cubicle for most of the day. Why not be comfortable?
And managers? They have little choice but to go along with this new dress code. Otherwise, they aren't considered team players or are branded as "Old School", the death knell of career advancement.
Not to sound too Andy Rooney here, but sometimes the dressing down trend goes too far.
Casual clothes are seeping into many traditionally dressy events. Think not? Then check out any performance of the Chicago Symphony Orchestra where increasingly only the performers are gussied-up for the night.
Yes, the necktie is dead and that's too bad.
I'd go to the funeral but don't have anything appropriate to wear.

Obama Must Give Hillary VP Call

2008-06-02T09:32:00.014-05:00

Barack Obama, saddle up your Hobson's Choice.
English folklore states that a 17th Century liveryman, Thomas Hobson, would require every customer to take the horse nearest the barn. His patrons believed they had a choice but, in reality, they didn't. Old Man Hobson had already made the decision for them.
When he finally buttons up the Democratic Party's presidential nomination, Obama will be in a similar fix. The Illinois senator may think he has many choices for a running mate but, in fact, there's only one: Hillary Clinton.
Whether he likes her or not, Obama must make a sincere effort to get Clinton on his ticket, even if she rejects him. If Obama doesn't offer her the vice-presidential spot, he risks exiting the Democratic Convention as a much weaker and vulnerable candidate--one who exposes an important voter flank to GOP rival John McCain, who is going to be a much tougher candidate than most are giving him credit for right now.
Obama needs to reach out and bring Hillary's backers into his orbit. To win, Obama is going to require more than the hardcore support of young people, new voters and the black community. He'll also need Hillary's base of support, which includes Hispanics, working-class whites and middle-age women.
An Obama-Clinton ticket is the Dem's best bet for winning those voters.
Political experts, who follow this race more closely than many of us, say Obama-Clinton is a nightmare ticket, not a dream team.
I disagree.
Seems to me that this is a close replay of the Democratic Party nomination of 1960, when John F. Kennedy won a hard-scrabbled and nasty nomination fight against Texas Senator Lyndon Johnson.
Kennedy didn't want Johnson on his ticket, nor did JFK's ardent supporters. But, JFK was a pragmatist who knew the offer had to be made. Once Johnson accepted, he went to work bringing in a lot of southern votes and helping the Dem's ticket win a squeaker of an election over Richard Nixon.
You see, JFK embraced his Hobson's Choice.
That's what Obama has to do--if he wants to win this race.

(Hobson's Choice DVD cover art courtesy of ioffer.com on Google images. By the way,the David Lean movie with the great Charles Laughton is worth seeing.)

Uncoiling A Smart New COBRA Law

2008-05-30T09:49:00.012-05:00

Most people would like to see the nation's health care insurance crisis solved in one swoop. Barring that unlikely event, however, we have to chip away at this problem one bit at a time.
That's what two Illinois congressmen are trying to accomplish with an effort to greatly expand health care insurance for those who leave, or are pushed, from their jobs. U.S. representatives Mark Kirk and Dan Lipinski want to extend COBRA coverage for former employees until they qualify for Medicare at 65 years old.
Right now, COBRA runs out after 18 months.
This is one of the few initiatives that seeks to address the plight of providing health care coverage to middle-age people who have lost their insurance. Indeed, while there's been significant strides toward insuring children, and older people are covered under Medicare, little is being done to help anxious middle-age workers, who don't qualify for these programs and often bear the brunt of corporate lay-offs.
Once out of a job, they must scramble to find some type of medical coverage for themselves and their family after COBRA runs out.
That can be an expensive, and often cruel, experience especially if the former employee or a family member has a pre-existing medical condition. Insurance companies live to deny coverage to anyone with a hangnail.
For all you fiscal conservatives, this program has one big selling point: Extending COBRA should not shift any cost burdens to the government or taxpayers.
Right now, COBRA recipients pay the full cost of their insurance--a 100 percent-plus two percent in administrative charges. Under the proposed legislation, they'd pay 106percent.
Obviously that's a huge chunk of change and not everyone can afford it.
Still, for those who can make these hefty payments, it means the security of being covered under the same package they enjoyed as employees. Often those benefits are much better than the post-COBRA insurance packages now being offered by Blue Cross Blue Shield, Humana and other providers.
Will this measure pass?
It has a fighting chance. Already, the proposed Health Insurance for Life Act introduced last year is gaining bi-partisan support (Kirk is a Republican and Lipinski a Democrat).
Nonetheless, lawmakers should expect serious push-back from the powerful health care insurance lobby, which typically opposes even the most incremental reform.
Brace yourself for the howls of protest from insurance companies and their hired guns, who will scream about rising costs, increased risk and society traveling down a slippery slope toward "socialized" medicine.
Baloney.
This measure is a temperate and necessary step toward easing a major burden of middle-class people, who are willing and able to pay for their own health insurance, provided they can get a policy.

United-US Air Merger Crashes. Now comes word that United Airlines will not pursue a merger with rival US Airways.
Good.
Let's face it: No one knows how to solve this country's air transportation crisis. But one thing is certain--airline mergers only make the problem worse.
Let's move on from there.

(COBRA photo courtesy of Pandagon on Google Images. Airline photo courtesy of Barbados Free Press)

Trucking Industry Death Toll Hits Home

2008-05-27T10:48:00.018-05:00

The U.S. trucking industry is getting its brains beat out. The latest victim: Jevic Transportation Inc., a New Jersey-based hauler with a significant Chicago-area and Midwest presence.
With virtually no warning to customers and employees, Jevic shut down last week. The company, which is backed by Florida-based private equity firm Sun Capital Partners, blamed rising fuel costs and an inability to get enough credit to keep its big wheels moving.
(Typically, Sun buys a company and then lines up financing for operations, etc.)
Jevic is the latest in a sorry convoy of nearly 1,000 trucking firms that have been driven out of business this year. That's bad news because these companies keep our economy rolling by moving food and other essential goods to businesses and consumers.
Old trucking outfits and new web companies have one thing in common--both can go bust in the blink of an eye. Jevic was no exception, despite having been in operation for nearly 27 years.
While Jevic's backers seek sanctuary in bankruptcy court, it appears the taxpayers will be footing bills the defunct trucking firm leaves behind.
For example, the company's estimated 1,000 employees are losing their health care benefits and are not be eligible for COBRA coverage, according to the company's web site. Without access to COBRA, many of those Jevic employees--and their dependants--will be seeking health care coverage or direct medical assistance from various states, including Illinois.
Meanwhile, Sun Capital--which specializes in buying distressed companies--is on a whale of a losing streak.
Besides plowing millions into Jevic, Sun Capital has also bankrolled three major retailers--Wickes Furniture, Sharper Image and Lillian Vernon--which have also gone into bankruptcy this year.
Sun Capital needs to get a little smarter or find a less risky line of work.
As for the rest of us?
It's time our elected officials do their jobs and start developing a realistic energy policy--one that provides relief from escalating fuel prices and grants a stay of execution to the U.S. transportation industry, especially those battered truckers that we depend upon.

(Photo courtesy of Google images and Images of Route 66)

BW Chicago: Obama's Powerful Backers

2008-05-22T10:59:00.008-05:00

Another terrific issue of BW Chicago, Businessweek's local monthly magazine, is out. If you haven't yet subscribed to BW Chicago, then click here and start receiving this entertaining, provocative and informative magazine for free.
The June issue is highlighted by a cover story written by Roger O. Crockett, who takes a compelling look at the African American business leaders backing Barack Obama's presidential bid. It's an influential group, one that promises to have a huge impact on commerce and politics--in Chicago and beyond--for many years to come.
There's much more, of course.
For instance, how about the skinny on super-investor Warren Buffett's local investment play? Senior Correspondent Judith Crown explores the Oracle of Omaha's strategy behind his $4.5 billion purchase for 60 percent of Marmon Group, a grab bag of industrial companies run by Chicago's Pritzker family.
Meanwhile, Chief of Correspondents Joseph Weber profiles Northern Trust Co. economist Paul Krasriel, who's a little cranky and bearish about the current state of the economy. Also, J. Duncan Moore Jr. reports on the Treasure Island food store chain's expansion plans. The company (which touts itself as "America's Most European Supermarket" )is entering Hyde Park while hunting for more locations.
Contributor Howard Wolinsky writes about family-owned Horween Leather, which once supplied "Black Jack" Pershing's boots and now exclusively produces footballs for the NFL. Horween is an old company facing a new challenge: e-tailing.
And I chip in with my regular opinion column. This month: Why the recently-acquired Wm. Wrigley Jr. Co. will fade away. Click here to read it online.
There's much more.
So if you crave in-depth business news, analysis and information--presented in a bright and informative style-- then make the BW Chicago connection.

Turning Cable Company's "No" Into "Yes"

2008-05-16T13:11:00.016-05:00

Among the best pieces of advice I've ever received is this little ditty: "Never take 'no' from someone who can't say 'yes'".
Basically, that means if the person you're dealing with doesn't have the power or ability to grant your request, then don't accept their "no" as the final answer. Move on and find someone who has the capability to say yes and then make your case.
This is especially true when dealing with corporations and their customer service representatives.
One example: My cable TV provider. Last Saturday, the cable guy (we'll assume it's a guy) did not show for a scheduled appointment between 1 PM and 4 PM. At 4:30 PM, I called Comcast customer service and asked what was going on. After some back-and- forth, the customer representative said my appointment would have to be rescheduled.
Not good.
Then, he turned down my request for some type of compensation for my wasted time and inconvenience. I was not entitled to any payback because Comcast had done all it could for me, he harrumphed
Perhaps it was his condescending tone. Perhaps it was waiting an entire Saturday afternoon. Perhaps it was my gut instinct that this guy was clueless. No matter the motivation, I was ticked and not about to take his "no" as the final word. So, I hung up and then immediately called back Comcast, asking this time for a supervisor. I explained my tale of woe to her. After reviewing my situation, she went to work fixing the problem.
The result? A Comcast repair man showed up 20 minutes later and did a fine job that took a mere half hour. What's more, I was awarded a $25 credit (Yes, these exist! Who knew?) on my next cable bill for the missed appointment and inconvenience.
Now, everyone was happy.
Everyone, I dare say, except that first customer rep. Yup, I did rat him out to his boss. Hated to do that, but that's what happens when you just say no.

Taking a Short Blog Break...

2008-05-12T09:32:00.003-05:00

Reedbiz will be quiet for the next few days as I tend to some personal and business affairs, including wrapping up a couple of important magazine articles and other editorial projects.
Meanwhile, should you need a quick business news/commentary fix please feel free to check out the "Web Friends" sites, located on the right side of this blog.
Back in a few.
Take care.

Bracing For A Mars Attack on Wrigley

2008-05-04T18:14:00.024-05:00

Right now, conventional wisdom says the venerable gum maker Wm. Wrigley Jr. Co. will not get chewed up despite being acquired for $23 billion by candy maker Mars Inc.
In my column for the upcoming Businessweek's BW Chicago magazine, I take a more skeptical viewpoint that's entitled, "Wrigley: Another Great One Soon Gone".
Click here to read the column.
It was posted last Saturday on Businessweek.com.
As the column points out, it's rare when a corporate merger doesn't yield significant cost cuts and major changes for the acquired company. That's especially true when the buyer plunks down a pile of cash, which is what Mars is doing. No matter what assurances are given at the outset of a buyout process, chances are big changes are on the way.
You get the idea.
Many observers and industry analysts are saying the Mars buyout is going to be the exception. That's also what the gents at Mars and Wrigley are saying.
We'll see.
This deal must still be approved by Wrigley shareholders and regulators.
Meanwhile, please be on the look out for the next BW Chicago which is coming out soon.

(Photo courtesy of Betlza Scene Vol. 3 on Flickr.com)

Is Paul Vallas Worth The Wait?

2008-04-30T20:35:00.006-05:00

Paul Vallas, former CEO of the Chicago Public Schools and a defeated Illinois gubernatorial candidate, came back to town this week. He's been away for nearly five years, but judging from his personal and TV appearances, Vallas is anxious to get back and take another run at the governor's mansion.
Below is a post from April, 2007, when word came out that Vallas was leaving his job as chief of the Philadelphia school system. He has since gone on to run the New Orleans schools but his contract is up in a year.
To many people, Vallas is an acquired taste. I've always liked him and hope he comes back.
I think the following post holds up. You be the judge. It's been lightly edited for content.

In a fair and just world, Paul Vallas' expected return to Chicago would be cheered by the city's political and business elite. Then again, who said the world is always fair and just?
Vallas, who successfully ran the Chicago Public School System from 1995 to 2001, is apparently ready to come back to Sweet Home Chicago. Vallas isn't sure what he's going to do upon his arrival. He could open a consulting firm, head a non-profit or maybe---just maybe--take another stab at running for public office. (Vallas was beaten by Gov. Rod Blagojevich in the 2002 Democratic gubernatorial primary.)
Vallas has his supporters and a strong track record, but its going to be a tough homecoming if he wants to get back into public life. That's because it's doubtful the city's power brokers will be welcoming him back with open arms, especially if they take their cue (which they usually do) from his former employer, Mayor Richard M. Daley.
The two have had a long but uneasy relationship, partly because of their different styles--Vallas talks a mile a minute and Daley tends to grunt his conversations--but also because Vallas got ample credit and favorable press for Chicago school reform, forcing Daley--who sees himself as an "Education Mayor"-- to share the spotlight.
It would be a real shame if Vallas is frozen out of the city and state's public life because of political pettiness or fear. This is a man with much to offer.
Consider that during his tenure as Chicago Public Schools CEO, he presided over rising test scores, expanded summer school and the growth of charter schools (a device favored by business executives but hated by the teachers'union.)
What's more, he was one of the most engaged CEOs I've ever seen. He knew the Chicago Public School system inside out. He proved to be a formidable foe of its red tape. And he had a real feel for what was going on at the individual school level and for determining which reform measures clicked or failed.
A strong personality, Vallas did not always bend to the pressures of local school councils, which in theory are suppose to act in the best interest of their communities but can also become vehicles for rash and detrimental decisions.
Detractors like to point out that Vallas was a Whirling Dervish, installing new school-related programs that didn't always pan out. And he doesn't suffer fools lightly, which bruised feelings and alienated staff and school board members.
That all may be true. But you know what? I never once heard anyone initmate that Vallas didn't have the best interests of the school kids in mind. Or that he wasn't passionately committed to finding solutions. Or that he was ineffective.
I'll take that type of fire-in-the-belly leader, compared to the cynical political hacks that dominate this town.
Will Chicago's power brokers welcome Vallas back in a meaningful way? Unfortunately, I don't think so.
I suspect he'll land a good private-sector position or be part of a venture that will enable him to provide for his young family, which is and should be his top priority.
As for a political appointment or elected position? It's doubtful. Too many influential people won't move aside, or make way, for him. And since Vallas is not a wealthy person, he's not about to run for office again and rack up a huge debt (The Sun-Times reports he's just paid off a $537,000 gubernatorial campaign obligation in January). Nor does he come back to a town busting with benefactors, who want to bankroll a Vallas campaign for anything.
Upon his return, Vallas will get headlines, the occasional TV interview and have his name mentioned when the political speculation runs high.
But in the unfair and unjust world of local and state politics, there's no room for someone like Paul Vallas.

Mars-Wrigley? Buffett's Sweet Deal

2008-04-28T10:13:00.011-05:00

We see a couple of candy companies getting together. Billionaire Warren Buffett sees a replay of the Procter & Gamble and Gillette merger. Allow me to explain.
In 2005, uber-investor Buffett was a big fan of the $57-billion merger of consumer giant P&G and razor blade maker Gillette. He should have been: His investment vehicle Berkshire Hathaway was a major Gillette shareholder and made an estimated $600 million on the day the P&G-Gillette deal was announced. Buffett's firm is now a major P&G shareholder.
While not an exact replica, the Mars-Wrigley deal has many of the same characteristics of the P&G-Gillette marriage.
First and foremost, P&G bought Gillette mainly because it did not have a razor blade business. More than that, Gillette gave P&G inroads into a broader worldwide distribution system, one with a growing presence in Latin America, Europe and the Far East.
Buying Gillette cost P&G a pretty penny but that was cheaper than building its own line of razors and blades--not to mention less expensive than constructing a bigger international distribution network.
Indeed, the purchase price, product synergies and global potential of the bigger distribution network were the major reasons why Buffett described P&G and Gillette's hook-up as a "dream" deal. On top of all this, P&G shares have had an impressive post-merger ride and the maker of Crest, Tide and other household products is considered one of the best run companies in the world--maybe even a growth stock.
One more thing: Unlike many hot-to-trot investors,such as hedge fund manager Edward Lampert, Buffett invests in the management of the companies he backs. Rarely does he come in and clean house.
Back to $23-billion Mars-Wrigley deal.
First and foremost, these two companies' brand lines are complimentary. Mars markets mostly chocolate products (Snickers, Milky Way and my personal favorite 3 Musketeers), while Wrigley hawks gum (Juicy Fruit, Doublemint) and the recently acquired Altoids brand.
Moreover, Mars is in 100 countries while Wrigley has a growing international distribution system. This newly-formed company will be much better poised to take on overseas competitors Cadbury Schweppes (and U.S.-based Hershey Co. if it ever gets its act together).
And while Buffett doesn't have stock in Mars as he did Gillette, the Oracle of Omaha is getting the next best thing.
The billionaire is backing Mars' management's play by putting down some loose change to help finance the Wrigley acquisition. He wouldn't do that if he didn't approve of those running both companies.
Moreover, Buffett's debt will eventually be converted to shares in a newly-configured Mars, which will still be privately-held. At 77 years old, Buffett is still one of the world's most patient investors. So, don't rule out Mars going public one day, enabling Buffett to reap yet another huge payday.
For Mars and Wrigley, there's no better stamp of approval than Warren Buffett.
He did great when P&G bought Gillette. He may do even better with this sweet deal.

(Illustration compliments of Businessweek)

Starbucks Brews Health Insurance Woes

2008-04-27T21:40:00.015-05:00

I've had one cup of coffee in my life. Just can't stand the taste of the stuff, nor the aroma. Yet despite my java aversion, I've been a regular at Starbucks, where I'll pick up a cup for my wife or meet people for the occasional meeting. I even have one of those Starbucks debit cards.
But there's another big reason why I like doing business with Starbucks: It's one of a handful of major retailers offering every staff person access to affordable health care insurance, especially part-time helpers, who make up a large portion of the Starbucks workforce.
Just a little over 40 percent of its workforce takes advantage of this benefit, according to the company. Still, the point is that every staffer qualifies for coverage and in this day and age that's a rare and golden benefit,
(I know a young actor who moonlighted at Starbucks. She was hit by a car and required serious medical help and rehab. She was very glad to have the Starbucks coverage.)
Unfortunately, Starbucks is going through some very tough financial times and I'm concerned it may be forced to dramatically curtail, maybe even dissolve, health care benefits for its part-timers.
Not only would that be a shock to the Starbucks culture, but it would be a major setback for employee-based health care coverage in this country. Indeed, Starbucks and Costco, the mega store chain that also provides health care benefits to part-timers, are often hailed as the type of service employer who is doing the right thing. In return, they usually attract more talented and engaged employees.
It would be a huge step backward should Starbucks reverse course and stop providing health care to its part-time baristas, counter help and other workers.
Still, it is within the realm of possibility.
Recently, Starbucks announced declining earnings for this year, while its stock is tumbling.
Things are so choppy that founder Howard Schultz has been forced to return to the executive suite and try to get the franchise cooking again.
Despite his best efforts, investors are getting antsy and that's never good. When management is under pressure it starts looking to quickly cut costs. In Starbucks case, trimming or ending expensive health care insurance would be an option.
Starbucks hasn't brought up the possibility of cutting health care benefits, but it must be on Schultz's mind.
Only a few years ago--when Starbucks could do no wrong--Schultz was already lamenting the escalating price of health care, noting that it was outstripping what Starbucks paid for coffee. Commodity prices are higher now, but I'm betting that's still true.
Schultz is trying to revitalize Starbucks by going back to its roots of exceptional customer service and products. He's also rethinking the company's recent expansion plans and deciding whether it should be an outlet for selling Cd's and other peripheral products.
But that's nibbling around the edges.
If a turnaround does not quickly occur, management may have no choice but to shelve good intentions and rethink its philosophy of providing health care to all workers.
In the short run, cutting benefits may be one of the most effective ways to save money, improve profits and keep investors from pressuring Starbucks into selling or merging.
But in the long haul?
Well, let's just say that would be an unhealthy choice for everyone who works at Starbucks or buys its coffee.

(Photo courtesy of Day 117 on Flikr.com)

Hillary, Barack It's On To The Convention

2008-04-22T21:52:00.017-05:00

I've attended two presidential conventions. My first was the GOP's 1984 gathering in Dallas, where Ronald Reagan was nominated for his second time. Then again in Chicago in 1996, when the Democratic Party gave Bill Clinton his second nod.
While each event was unique neither provided what you'd call high drama.
This election year, I'm counting on an adrenalin rush. That's because every day it's looking more like the Democratic Party's presidential nomination could be determined at its convention, which is scheduled to be held in Denver between Aug. 25 and 28.
Many political operatives and experts say this won't happen, nor should it. Some argue the Dem's "party elders"--whoever they are--will decide what's best. Others say those mysterious super-delegates will be forced to pick a winner by June, so the party can begin to run against presumptive Republican Party nominee John McCain.
There's one problem with all this: Hillary Clinton.
She's the candidate who won't get beat, nor go softly into the night.
More important--as Sun-Times columnist Carol Marin points out in today's column--the voters aren't calling it quits either. They're still coming out in droves to back Clinton or Barack Obama.
Not so long ago, party nominations were meant to be decided at conventions. It's only been in recent times that these political confabs have morphed into predictable, made-for-TV events.
You have to wonder: What are the Dems concerned about? Don't they get what's going on here?
The tussle over their party's nomination is one of the greatest political shows on earth. It's building voter interest, not destroying it.
This ain't 1968 and the American people aren't babies. They can bear witness to a lively--even contentious-- nominating process, provided both sides are given a fair shot at winning and the decision-making process is conducted in the light of day.
History shows there are times when something good--even great--is forged from heat of a convention battle.
Remember, it took three ballots to nominate Abe Lincoln.
Heck, this year I'd settle for only two.

BW Chicago: The Tale of Jim Tyree

2008-04-18T09:35:00.014-05:00

The latest issue of BW Chicago is out. Once again, this local business monthly struts its stuff with an insightful and entertaining story mix. If you don't yet have your free BW Chicago subscription, click here to sign up.
You'll want to read Anne Moore's excellent profile of Jim Tyree, entitled "Baron In The Making". Tyree, a native South Sider who's overcome illness and personal obstacles, defied the odds and is transforming Mesirow Financial into a premier investment house.
There's more.
For over a decade, we've heard how biotech could become a major area industry. Well, it's not happening yet although there's signs that the local life-science industry is getting stronger. Stuart Luman's "Biotech Isn't In The DNA" tells why.
Remember that fat incentive package Boeing Co. got for relocating to Chicago from Seattle seven years ago? Senior Correspondent Judith Crown's story makes the case it was money well-spent. In her article, "Welcome Mat for Boeing Pays Off", Crown notes that the enticements have been paid back by Boeing with new jobs, taxes and $60 million in donations to local civic groups and charities.
BW Chicago's Ryan Blitstein reveals that deep funding and budget cuts threaten the future of Argonne National Laboratory.
And I pitch in with my regular opinion column. This issue, I call for more transparency and greater accountability from the very secretive and giant hedge fund, Citadel Investment Group.
Click here for a zinio version of this month's issue.
BW Chicago is produced by Businessweek magazine. If you haven't subscribed to BW Chicago, don't wait! Do it now.

March of Folly: Delta, Northwest Merger

2008-04-15T10:16:00.008-05:00

Bad mergers make bad companies. This is especially true of the airline industry.
Still, Delta Air Lines and Northwest Airlines are entering an estimated $3 billion merger agreement.
While the companies' boards have agreed to the all-stock transaction, this pact must also get the nod from federal regulators.
Yeah, it probably will.
But should it? No way.
Below is an earlier post, which has been slightly edited and updated, explaining why airline mergers are more trouble than they're worth. This one is no exception

Another wave of mega-airline mergers is ready for take-off. But will Uncle Sam just go along for the ride? Let's hope not.
A proposed deal is in the works between Delta and Northwest. So is a similar link-up between United and Continental. And don't rule out American finding a partner, too.
Going forward, however, events are less certain and more dodgy. Indeed, there are enough serious questions and concerns dogging airline combines that it would not be a surprise if a new Administration--whether it was headed by John McCain, Barack Obama or Hillary Clinton--sought to kill these agreements as they seek federal regulatory approval.
OK, I'll concede that looks problematic right now. But, bear in mind, none of the current crop of leading presidential contenders is great buddies with Corporate America-yet. Moreover, they know that anti-airline merger sentiment is building among influential stakeholders, including the airlines’ rank and file, business travel advocates, Congress and the many of the beleaguered flying public.
For a new president, that's not a bad constituency to have on your side.
As a result, should the anti-trust approval process slop into next year, as expected, airline honchos will be yearning for the bygone Bush Administration--which tripped over itself to quickly approve any giant merger that came along. There are plenty of reasons to question the wisdom of approving any huge airline merger.
First and foremost, this nagging question: How does shrinking the number of major carriers from six to three promote competition and better serve customers? Is the plan to go from six badly-run airlines to three terribly-run operations?
Moreover, fewer airlines will mean decreased service in many markets and--get this--higher fares in those markets where post-merger service is increased, according to a recent U.S. News and World Report/Airline Weekly investigation.
How's that working for you?
By the way, at airports where service is expanded, expect an even greater number of delayed departures and arrivals because those facilities will be strained beyond capacity.
Proponents of airline mergers usually include top industry executives who are eager to cash out their ample stock options; fee-hungry Wall Street investment bankers and institutional shareholders looking for a fast return on their investment buck.
They tend to argue that mergers are the best way to shrink the industry and restore pricing power to the airlines, which cannot sustain a profit because of their heavy fixed costs and competition from low-cost discount carriers like Southwest.
Without mergers, some airlines may go bankrupt and out of business, they fear.
Maybe.
But, frankly, how does bankruptcy differ from a mega-merger that results in basically the same result? Because of these transactions, there are thousands of lay-offs, greatly reduce benefits, gutted pensions and other cutbacks. Isn't that a bankruptcy of a different stripe?
And if the past is any measure, airline mergers have not been rollicking success stories.
Most have resulted in larger airlines that provide deteriorating in-flight service, dirty planes and nasty customer relations.
Labor peace? Forget about it. That's long gone. The unions hate consolidations and are girding for battle, especially the pilots who are openly contemptuous of airline management.
Looking at the big picture, it's criminal that this country is held hostage to an undependable, antiquated air transportation system. Everyone realizes that to fix it, something radical needs to be done.
The airline industry despises talk of re-regulation. But buying into another round of air carrier mergers is not the answer, not even the short-term answer.
We don't know who's going to be Uncle Sam's proxy in the White House next year. But the winner gets to confront this crisis in the air.

(Illustration courtesy of ljcybergal's photostream on Flikr.com. This post first appeared in Feb. 12, 2008)

Confessions of an Evanston Luddite

2008-04-10T12:59:00.012-05:00

OK, call me a Luddite.
That's the label that Blair Kamin, the Chicago Tribune's architecture critic and a fellow local blogger, is slapping on those who oppose new skyscraper construction in Evanston.
The Luddite reference is aimed at a grassroots "No Tower" campaign that's gaining traction within the community. Already, opposition to the original 49-story plan has forced the project's developers to literally go back to the drawing board and come back with a design for a shorter, squatter 38-story skyscraper.
Any major development requires the approval of the Evanston City Council.
Now Luddites are anti-progress. In the dawn of the industrial age, they destroyed machinery that threatened to take away their jobs. In the Internet era, Luddites oppose the use of cutting-edge information systems (although they are technically called neo-Luddites).
While I've never considered myself anti-progress, I'll gladly wear the Luddite jacket this time around. To me, it would be a huge mistake to build this proposed monstrosity in the heart of Evanston's downtown.
Even at 38 stories, we're looking at one ugly and unforgiving addition to the north suburb's skyline. Aesthetics aside, a project of this proportion will pose huge practical burdens by adding heaps of new traffic, congestion and parking on top of the city's already limited infrastructure and urban management expertise.
Remember this is a town that ran out of street salt this winter. So much for planning.
Moreover, whose idea is it to add more condominiums to Evanston's residential mix? Ask any real estate agent and they'll tell you that the condo and townhouse supply far exceeds demand and is expected to do so for many years to come. What is the economic benefit of having a tower that may not be filled or takes buyers away from existing buildings? Already, plans for new condo towers in Chicago and elsewhere are being tabled or are on shaky financial ground. What makes Evanston so special?
In addition, backers of the "Fountain Square" tower plan argue that the new development will boost local economic development and the tax base. Oh, really? I'd argue that any gains would be offset by the aforementioned stress on the city's infrastructure, services and quality of life--especially if the developers get a helping hand from the City Council in the form of a Tax Increment Financing plan.
(TIF districts are like catnip to developers. They must lick their chops at the mere thought of them.)
Kamin says he's got problems with the proposed condo plan and agrees with some of its critics. He also makes an argument that Evanston needs a "focal point" building of at least 35 stories. Without it, he contends, the skyline will look flat as a pancake (with the exception of those lumpy apple pancakes that are a speciality of Walker Bros. I assume).
Well, who said Evanston needs a focal point? I've lived there for nearly 20 years and started out as a reporter for the Evanston Review way back when and don't recall that issue being part of any municipal mandate or ballot referendum. Using the "focal point" criteria to approve any single project would be foolish.
And while I'm at it, who thinks Evanston has done such a terrific job with other condo developments that it has approved? To my eye, Evanston allows developers to get the biggest bang for their buck by building right to the tip of a boundary line with little or no decorative setting or public comfort zone. Take a drive through town, if you doubt that one.
In Chicago, Mayor Daley drives developers bats by demanding reasonable setbacks, ornamental fencing, flower pots, public spaces and other amenities.
That said, Evanston has done an admirable job of commercially developing its downtown. The addition of book stores, movie theatre, restaurants, parking are pumping vitality into a once stagnant district that now beckons families and young people from nearby Northwestern University and other suburbs.
Should downtown be further redeveloped? Yes.
I'd like to see the proposed condo tower site turned into a low-slung, attractive and financially viable mixed-use center--one that offers offices, stores (for chains and local merchants)and entertainment. Maybe some apartments, too.
Now, that's a plan every self-respecting Luddite can live with.

It's Three Posts in One! TV, L.A. and Icahn

2008-04-07T12:03:00.009-05:00

Back on duty after a week on the West Coast. Seems like a good time to share a few random thoughts on what's going on.

--TV layoffs. It's no surprise that local TV stations are trimming payroll even if it means dumping some well-known personalities. Name one Big Media outlet these days that's standing pat. Still, I hate seeing a major talent, like Channel 2 anchor and medical reporter MaryAnn Childers, being shown the door.
Like many viewers, I know Childers primarily through her gracious and professional appearances for Channel 2 news and, prior to joining that station, as an anchor at Channel 7.
She's also a good interviewer, someone who puts the viewer first (increasingly a rarity in TV news). I once had the pleasure of being an on-set guest during a live Channel 2 early-morning newscast, where we talked about airlines and the economy. It may have been 6:15 A.M. but Childers was raring to go, getting down to business with some good, tough and direct questions.
And in an era where local anchors whiz through town, Childers has roots in the community, often acting as emcee or host at numerous charity functions and meetings.
In the coming months, we're likely see more big name TV personalities pushed out. A recent article I wrote for Chicago magazine, entitled Changing Channels, tells why local stations are under such pressure to maintain profit margins, which are still hefty but eroding. Like their print brethren, local stations are getting smacked silly by a flurry of changes. Stations must cope with emerging technology, souped-up digital video recorders and the real-time demands of the Internet.
In the article, Bill Kurtis--the quintessential Chicago anchorman and a pretty good business executive--rightly predicted some high-priced talent will be on the streets.
Yes, I realize the firing of TV talent pales in comparison to the massive job reductions we're experiencing at major employers like Sears and Motorola.
Still, when well-known personalities abruptly leave, they take a little of the community with them.

--We love LA. Spent a week in Los Angeles with the family. Good time was had by all. We were able to score tickets to the Dodgers home opener (something I've never been able to do with Chicago baseball teams) and also got to see the Los Angeles Lakers, led by former Bulls coach Phil Jackson--who's looking more grey and even more unhappy than he did while coaching those championship Bulls teams.
I suspect Michael Jordan had a more soothing effect than Kobe Bryant.
Movie stars? Nope, didn't see any.
LA is a car lover's paradise. Rolls Royce, Bentley, Porsche and Mercedes nameplates seem to be everywhere. You've never seen so many expensive wheels this side of Saudi Arabia.
In fairness, I should note that LA was also chock-full of hybrid cars, especially what seems to be a growing Toyota Prius fleet. There's so many hybrids, in fact, that the government is thinking of taking away some special perks that owners of those cars currently enjoy, such as special lane access on highways and better parking spots.
As a hybrid car owner, I only hope the Chicago-area takes its time before following LA's lead on that one. It's nice to feel special, eh?

--Motorola bored. So that feisty financier Carl Icahn is getting his way at Motorola Inc. and will gain a couple of board seats. Good luck, Carl.
Let's see how well Icahn does turning around the ailing electronics and cell phone giant
Many have gone before him, only to fail.

Taking A Business Blog Break

2008-03-29T23:03:00.005-05:00

Even though blogging is great fun, it's time for a time out.
Reedbiz will be quiet for the next few days as I tend to some personal and business affairs.
Meanwhile, if you need a business news/commentary fix please feel free to check out the "Web Friends" sites, located on the right side of this blog.
Back in a few. Take care.

Will Moto Break-Up Please Icahn?

2008-03-26T10:01:00.007-05:00

Carl Icahn thinks there's only one person who should run Motorola Inc. and that's Carl Icahn.
As a result, it's doubtful the billionaire investor, who has been dueling with Motorola management since last year, will be placated by the company's plan to split itself into two publicly-traded companies--a cell phone business and a company that sells cable TV set-top boxes and other electronic devices.
In many ways, a company bust-up is what Icahn has been advocating since he started wolfing down about six percent of Motorola shares while baring his teeth at management. In recent days, Icahn has sued the company to obtain crucial documents, which he intends to use in an attempt to win four seats on Motorola's board.
Why would Icahn allow the management he's been fighting to run either company? Already his handiwork helped oust Ed Zander as Moto's CEO so why stop there?
Instead, Icahn may seek to have himself, or a proxy like his son, head one or both of the newly-formed companies. Or maybe he'll say forget about a restructuring, push for an outright sale of the company and move on.
We'll see.
Right now, Icahn is mum about the proposed Motorola split. But chances are he's only begun to fight.

BW Chicago: A Sad Sun-Times Saga

2008-03-23T19:09:00.016-05:00

Making the rounds is the latest BW Chicago, Businessweek's local monthly magazine.
Click here to subscribe and view a Zinio version of a terrific April issue.
As usual, a wealth of top-notch stories and information is featured. The new issue is anchored by an insightful cover story--written by Joseph Weber--on the troubles and challenges confronting the owner of the Chicago Sun-Times.
Veteran business reporter and former Sun-Times staffer Howard Wolinksy joins the BW Chicago team with a story on political operative David Axelrod, who is best-known for running Illinois Senator Barack Obama's presidential bid. "The Secret Side of David Axelrod", however, pulls back the curtain on the Democratic Party powerhouse'sother lucrative business--plotting strategy for corporate clients that "tilt public opinion their way", according to the article.
Health care stories are also part of the mix. Judith Crown writes about Walgreen's risky effort to build its in-store clinics. Meanwhile, Duncan Moore dissects the prospects of drug maker Hospira, which has some winning products but also a mountain of debt.
Those who want to go green or just care about the environment will enjoy Adam Aston's story on how the Merchandise Mart--yes, the big, bulky Merchandise Mart -- is successfully converting to an energy-efficient, "green" building.
And my column argues that United Airlines can go it alone without a major merger. But to succeed, it has to get beyond CEO Glenn Tilton and find a new leader. The column was posted on Businessweek.com last week and has hit a nerve with United's passengers, staff and other interested parties. When I last looked, more than 130 Web responses had been posted. Click here to read the column and add to the commentary thread. All views are welcome!
I've said this before and will again: BW Chicago is getting stronger every month with perceptive stories, crisp editing, commentary and a special blend of business/community journalism that respects and challenges readers.
If you haven't yet connected with BW Chicago, check it out.

Billionaire Crown Likes Sara Lee Corp.

2008-03-19T16:52:00.016-05:00

James S. Crown, a driving force behind the billionaire Crown family empire, just plunked down around $13 million to acquire one million shares of locally-based Sara Lee Corp. The purchase sure looks like a vote of confidence in Sara Lee CEO Brenda Barnes' sweeping efforts to turn around the lagging consumer product company that's best known for its cheesecake, breads and Jimmy Dean Sausage.
The Crowns have been busy recently. James Crown bought the Sara Lee stock last Friday,according to the company filing. That would be right around the same time another major Crown family investment--JP Morgan Chase-was in the midst of acquiring the near bankrupt Bears Stearns brokerage house for $2 a share, or $236 million.
James Crown, who has been a Sara Lee director for years but until now did not own a significant block of the stock,, will have direct control over 100,000 Sara Lee shares and indirect control over the remaining amount, according to the company filing.
Add these holdings to the Crown family's investment in General Dynamics, Hilton Hotels, an Aspen skiing company, sport teams (part-ownership in the Chicago Bulls and New York Yankees), and real estate, including the iconic Rockefeller Center.
The 54-year-old Jim Crown, president of Henry Crown & Co., defines heavy hitter. In addition to overseeing the family's operations and investments, he's also a trustee at the Chicago Symphony and chairman of the University of Chicago's board.
Recently, BW Chicago--the local monthly produce by Businessweek--named him one of the 10 most powerful people in the city's "new guard". (I know, because I wrote the article!)
CEO Barnes, one of the most influential women in Corporate America, became Sara Lee CEO in 2005. Since then, she has been overhauling the food and consumer products company--in hopes of improving earnings and stock performance--primarily by selling brands and assets (about 40 percent of the company).
She's also shaking up the place by relocating Sara Lee's headquarters to suburban Downers Grove from downtown Chicago, overhauling top staff and responsibilities, and cutting jobs.
Some have speculated that the only way Barnes will ever maximize shareholder value is by liquidating the company.
Right now, Wall Street's reaction to Barnes' changes is mixed. Recently, D.A. Davidson & Co. issued a buy recommendation, while JP Morgan downgraded the stock from neutral.
Maybe Jim Crown will have a talk with that bearish JP Morgan analyst just to remind him of the ad slogan: "Nobody doesn't like Sara Lee".

Sharing Wall Street's Anxiety Attack

2008-03-17T10:38:00.009-05:00

A panic attack can provoke a number of uncomfortable symptoms: Rapid heart beat; cold sweats; feelings of inadequacy; or an irrational uncertainty about your next move.
In short, everything Wall Street is feeling now.
But don't worry, be happy because Dr. Ben Bernanke is on the case and he's handing out the Xanax.
Easing the stock market's deepening sense of crisis is the primary reason the Federal Reserve Chairman is making an unprecedented effort to save Wall Street's hide. Bernanke has agreed to back up JP Morgan Chase's purchase of near-bankrupt Bear Stearns investment firm. The Fed, which lends to commercial banks, is now also making money available to other cash-strapped brokerage houses.
Nobody should be jumping for joy at this rescue strategy, least of all the American taxpayers who, in essence, are backing the Fed's play. Free market types will argue that Bear Stearns knew the risks of its investment and should go bankrupt, leaving its shareholders with nothing and its investors holding an empty bag. In bankruptcy, Bear would reorganize or liquidate.
In principle, I agree.
But in reality? Let's face it: We're damn frightened because nobody knows how bad this financial sickness will get. Ask yourself: How many other Bear Stearns' are out there? How pervasive is the sub prime lending mess? How financially fit and able are our largest banks or regional banks? Who's next to go over the edge?
There's talk that Lehman Brothers investment firm could be the next to face a cash crunch. (Lehman says liquidity is not a concern. That's what Bear Stearns said last week.)
The Fed is also scared and has to figure out some answers to these, and other, important questions.
In supporting the Bear Stearns buyout, and by pumping money into investment banks, Bernanke is buying time and paying for a temporary peace.
It may not work. Matters could get worse.
But right now, Wall Street is in need of a chill pill--even if it's an expensive one that's going to soon wear off.

(Illustration courtesy of brutepop.com )

Illinois Wrigley Field Play--Still a Bad Call

2008-03-13T12:09:00.003-05:00

Local news is breaking this week on the state's effort to acquire Wrigley Field. I don't think this purchase is necessary, nor a good deal for taxpayers. In this post from last December, I made the case for keeping the State of Illinois on the bench for this acquisition play.

The citizens of Illinois are in the running to acquire Wrigley Field. Which prompts this question: Why?
Chicago's daily newspapers report that the Illinois Sports Facilities Authority (ISFA) is exploring a purchase of Wrigley Field, home of the Chicago Cubs. The baseball team and Wrigley are being sold by the Tribune Co. The state isn't talking about buying the actual team, only the North Side stadium. Under that scenario, someone else gets the pleasure of owning the ball club and then hammering out a deal to play at Wrigley with the ISFA.
This is a bizarre turn of events, one that exceeds the ISFA's core mission and puts the public smack in the middle of what should be a clear-cut, private-party transaction--the selling of a healthy business to a willing buyer.
Historically, the ISFA has played the role of backer-of-last-resort, using its bonding authority to generate funds to pay for sports-related projects. It bankrolled construction of a new South Side stadium for the White Sox, when the team was making noises about moving to another state--I seem to recall Tampa Bay-St. Petersburg was building a new stadium and courting the Sox.
(When the ISFA came to the White Sox rescue, the idea was that the new ball yard would be an economic engine for the South Side, spawning a flock of new and minority-owned businesses. We're still waiting on that one.)
And the ISFA funded reconstruction of Soldier Field--in one of the ugliest rehab jobs in Chicago's history. It did so when the Chicago Bears were under fire from the National Football League to upgrade its facilities or risk losing a hefty amount of league-generated revenue.
But buying Wrigley Field? Getting involved in the sale of the Cubs?
This is not an endangered franchise, far from it. Moreover, Illinois taxpayers--who are the ultimate backers of ISFA bonds--shouldn't be involved in a deal that's already attracted a small parade of rich people willing to pay up to $1-billion-plus to acquire the Cubs and Wrigley.
The newspapers' say Tribune Co. thinks it can maximize its price by selling the team to one party and the real estate to another. Maybe it can, but the ISFA shouldn't be salting the way for TribCo. to win the highest price.
That's what investment bankers and management are suppose to accomplish.
In addition, I'm not so sure this is the best way to get top dollar. Anyone who goes to a Cubs game knows the Wrigley experience is important--maybe even crucial--to repeatedly packing the place with adoring fans.
Slicing the team from Wrigley may actually lower the franchise's value. Also, adding a third-party, like the ISFA, to the equation probably increases the deal's uncertainty and risk, which can translate into a lower bid. For example, anyone who buys only the team will not have immediate control over its own facility and will have to cut a long term arrangement with the ISFA for use and maintenance of Wrigley.
Like it or not, that new owner gets the ISFA as a partner, one that will share the revenue which the state will use to service bonds needed to pay for Wrigley upkeep and expansion.
Which leads to another question: Why should the ISFA bear the risk of rebuilding Wrigley, when any of the new owners would likely do the same?
Perhaps the state is truly concerned about the fate of Wrigley Field and believes a new owner will move the club, tear down the baseball palace and put up condominiums and a shopping mall. Or maybe Gov. Rod Blagojevich is truly worried about Wrigley's fate and he wants his administration to be remembered for saving the North Side baseball shrine, not some other things that have happened on his watch.
Yet considering the aforementioned "Wrigley impact" does anyone think this is a necessary option? Be assured, there would be hell to pay if any new owner decided to junk Wrigley and destabilize the surrounding neighborhood, too.
And even if the state were flush with cash and running like a top--which it isn't-- does it make economic sense for the ISFA to pony up for Wrigley? Especially when publicly-backed bonds are suppose to be used to finance more important matters, like saving public transit.
This just doesn't wash.
To preserve Wrigley Field, taxpayers need to keep buying baseball tickets, not the entire ball yard.

(Photo courtesy of Ken's Aviation's on Flickr.com

Spitzer: I Shot The Wall Street Sheriff

2008-03-11T11:10:00.016-05:00

As expected, New York Governor Eliot Spitzer's troubles are bringing tears to the eyes of many Wall Street power brokers. These are not tears of sorrow but of joy at the downfall of a longtime nemesis.
There's no need to go over Spitzer's bizarre conduct and why he's resigned. This is, after all, a family blog and the details of his tryst (is that even the right word?) can be easily found.
Going forward, it's safe to predict that Spitzer won't be remembered for his crime-busting work as New York State Attorney General. During his tenure, Spitzer was one of the few public officials who aggressively cracked down on the flagrant excesses and misconduct of New York-based investment firms and bankers.
In that one regard, we could use more like him.
Dubbed the "Sheriff of Wall Street", Spitzer confronted some of the world's richest and most powerful financial institutions, forcing them to pay hefty fines, treat clients fairly and reform their evil ways. While the Securities and Exchange Commission was taking a long snooze, Spitzer was shaking up Wall Street by going after glaring conflict of interests that put investors at risk.
One example: Merrill Lynch & Co., where so-called "independent" researchers were boosting stocks of companies that were also Merrill's clients. Merrill paid a $100 million fine and was forced to heel by separating its research staff from the firm's investment banking arm.
No fan of fat cats, Spitzer also took on Richard Grasso, former head of the New York Stock Exchange, who sought to walk away from his post with a $187 million exit package. In a lawsuit, Spitzer alleged Grasso misled the NYSE, a not-for-profit at the time, to get his plump payout.
Closer to home, Spitzer went after locally-based Aon Corp., a huge insurance brokerage firm, on corruption charges. Aon paid a $190 million settlement and set the stage to hire a new CEO to replace Patrick Ryan, who's now executive chairman of the insurance firm.
Those are only a few of his targets.
Wall Street types and many CEOs hated this guy. But the public liked the idea of an Eliot Ness of white-collar crime tracking down crooks and looking out for investors' interest. That image helped get him elected governor of New York and even sparked talk of an eventual presidential run.
That's all over now. I can't even imagine what Spitzer must do to repair the damage inflicted on himself, his family and career.
Yeah, to some it's ironic and funny. A squeaky-clean reform pol gets caught in one of the oldest badger games in history.
Ha ha.
Still, Spitzer's Wall Street opponents shouldn't laugh that hard. Remember, he also did a pretty good job of catching them with their pants down.

(Illustration courtesy of NewsCopyNewYork)

The Donald's Right: We're Fired!!

2008-03-08T14:42:00.000-06:00

If this isn't a recession, it will do until one comes along. The latest jobless numbers reflect a weakening economy with a loss of 63,000 jobs in February--the biggest decline in nearly five years. Bad times ahead. I'm afraid. Here's a post I wrote in January about the growing unemployment problem and why we're in this jam.

On "The Apprentice" TV show, Donald Trump cans an employee by barking out his signature catch phrase: "You're fired!" Yet if Trump was a really shrewd business executive, he'd find a way to collect royalties on that stinging rebuke because a lot of bosses are going to be using it.
So far, the economic story has centered on the sub prime mortgage crisis, corporate credit crunch and the federal government's efforts to skirt recession, including the accelerated lowering of a key interest rate. But a new act is about to unfold: Widespread job cuts and rising unemployment.
Already, Sprint-Nextel, Yahoo, BMW, Citigroup, Bank of America have announced thousands of job reductions. Locally, Sears Holdings is restructuring and Motorola is posting crummy earnings. Does anyone think this type of bad news won't be accompanied by more lay-offs?
Unfortunately, we're at an inflection point in this current economic downturn (OK, let's call it a recession), when nervous companies pull back, focus on containing costs and start dumping employees. But unlike past mini-downturns, this time around the job cuts threaten to go deep and be more painful--touching every geographical region and sector of the U.S. economy. In a few months, I fear the current national unemployment rate of 5.0 percent is going to look like the good old days.
The main culprit is the housing crisis. In past downturns, when technology stocks went bust or financial institutions ran into trouble, the pain was similar to a bout of the 24-hour stomach flu--quick, severe, contained and then over. This time, however, the ailing housing market is more like an undiagnosed disease--it hurts everywhere, is traveling through the bloodstream of the global economy, and there's no remedy in sight. Not yet, at least.
The stock market hates uncertainty and Corporate America despises it. As a result, companies are starting to rethink their 2008 business plans. They're backing off growth plans (set late last year or earlier) and reverting to serious cost-cutting. The fastest way to save big money is by dumping nagging fixed costs, like employees and jobs.
In past downturns, we've seen "regional recessions". For instance, when Wall Street suffered, New York felt the brunt of the decline. When manufacturing retrenched, the Midwest was hurt. And when technology stumbled, the Pacific Northwest reeled.
This time it's going to be widespread and again it comes down to housing.
New home construction throughout the country is in a free fall and anyone connected to the recent building boom is either out of a job or on the bubble--including contractors, trades, suppliers and retailers.
The credit problems connected with the bad sub prime loans has infiltrated every major and regional banking company, which have been forced to write-down loans and lay-off workers.
The investment banking brains on Wall Street packaged the sub prime loans and sold them on the secondary market to investors all over the world in an effort to "spread the risk." Well, it's spreading and nobody knows the actual value of these loan packages, nor how many dog sub prime notes are mixed in with healthier investments. Talk about uncertainty.
Even banks that have avoided major sub prime hits, are worried that established customers may not be able to pay down their home equity lines, credit card bills and auto loans if unemployment goes up.
Which brings us back to jobs.
Remember that a company's main priority is to make a profit, not employ people. In this age, that dynamic is more powerful than ever, especially as CEOs deal with bands of increasingly roguish shareholders who want bigger results and lower-than-ever costs.
That means many U.S. workers this year won't have to turn on Trump's show to hear that awful phrase: "You're fired".

(Photo courtesy of F. Sigorski on Flickr.com.)

Sharper Image Stabs Gift Card Holders

2008-03-04T13:47:00.000-06:00

Buying a gift card--instead of an actual present--is the coward's way to shop. Still there's a lot of us chickens out there, because the gift card industry racks up nearly $50 billion in annual sales.
Now, however, consumers must fear that those gift cars, bought with cold hard cash, will suddenly become worthless bits of plastic.
An excellent story on the Marketwatch financial web site today tells how those holding gift cards from the now-bankrupt Sharper Image chain are left holding the bag.
Sharper Image sales clerks are telling gift card customers to take a hike because the boss no longer has to honor these chits.
Apparently, federal bankruptcy laws allows the retailer to get away with this dodge.
Adding insult to injury, nearly $25 million in Sharper Image gift cards were bought by gift-givers during last year's Christmas holiday rush. With those proceeds in hand, the retailer filed for bankruptcy reorganization in January after posting dismal year end sales.
As a result, those expecting to buy a Roomba Vacuuming robot, Stretching Robotic Massage Recliner or other wacky items are stuck.
Lillian Vernon is another retailer that joined the recent march into bankruptcy.
You have to wonder how dim Sharper Image's bosses are to let this gift card debacle occur.Obviously, they aren't too sharp or the chain would not have entered bankruptcy. Still, if management harbors any hope of emerging from Chapter 11, it shouldn't be ticking off loyal customers who acquired these gifts cards, nor those who paid for them. That, my friends, is a constituency with a long memory.
Moreover, Sharper Image's retreat may also damage the entire industry's estimated $50billion-a-year-gift card business--a segment retailers have come to depend upon for that all-important fourth-quarter earnings pop.
As for bankruptcy, what can we say? It was once a mark of shame to go bust. Now, bankruptcy is merely another business strategy, often a crafty way to reposition a company and get out from under hefty obligations.
Airlines use it to abrogate union contracts and pensions, while automakers use it as a threat to reduce employee health care benefits and costs. Now, a major retailer is hiding behind it to skirt a direct obligation to consumers.
OK, buying a Sharper Image gift card is a cheap way to avoid braving the rigors of the shopping mall. But cheating customers by not honoring those cards? That's real cowardice.

(Photo courtesy of Jerome on Flickr.com)

Wall St. to Sun-Times: So Long, Sucker

2008-02-25T14:41:00.001-06:00

Sun-Times Media Group is getting the bum's rush from investors.
With its stock price dropping below $1 per share, the Sun-Times Media Group has been banished from the New York Stock Exchange, which last week suspended trading of the company's common shares.
This is standard-operating-procedure for the Big Board, which quickly turns its back on stocks that fall below $1.05 benchmark. Not known for sentiment, the NYSE contends the Sun-Times stock has got to go because it may become too volatile and threatens to disrupt trading on the exchange.
That's giving this little company more credit than it deserves. Nonetheless, the suspension is another dose of noxious financial news for the media company and a sad indication that it is quickly running out of time and options--even as Sun-Times management seeks to avoid more deep cuts or an outright bankruptcy.
And it may get worse.
If the company fails to get into compliance, the NYSE could delist the Sun-Times stock. If so, the media company's shares would be relegated to the "penny stock" world, which is often viewed as ultra-risky and a haven for fast-buck artists.
Moreover, a delisting would gut whatever remaining value the shares hold, virtually ending the Sun-Times Media Group's life as a publicly-held company. Delisting would make the Sun-Times company an even greater outcast with financiers, lenders and other potential money sources.
(Last year, the company revealed it could not get bank financing.)
The company may try to get back in the NYSE's good graces by doing a reverse stock split. That's basically a procedural play--a move that allows a company to reduce the number of outstanding shares, create fewer shares and raise the per-share price.
Even so, that tactic would be a temporary solution and perhaps a distraction to the bigger mission, namely finding a buyer for the entire place.
Unfortunately, with each passing day that's looking less plausible.
Some mid-sized media firms may take a run at the company's weekly newspapers or smaller dailies but the outlook for the flagship Sun-Times isn't promising.
It would take a hearty sort to buy the urban tabloid and that buyer has yet to surface. And I don't think Tribune Co. CEO Sam Zell is anxious to enter into a joint-operating agreement. Sam's got his own problems and agenda.
Still stranger things have happened, so hang on.
But one thing is certain: Don't count on Wall Street for any help. It's already given up on this company.

Check Out Latest BW Chicago

2008-02-22T10:31:00.000-06:00

Making the rounds this month is a new BW Chicago, a monthly local business magazine. You'll want to pick up this issue for in-depth and insightful stories about some of the Chicago-area's largest companies, biggest business personalities and emerging trends.
This month's cover story zeroes in on a quiet giant: Madison Dearborn, one of the country's top private equity funds with a hankering for expansion and deal-making. Also, Madison's top man--John Canning Jr.--is looking to buy the Chicago Cubs. BW Chicago Senior Writer Judith Crown reveals what makes Madison-Dearborn tick.
Another bigger-than-life personality featured in this issue is Leo Melamed, a driving force behind the Chicago futures exchange industry. Going strong at 75-years-old, Melamed sits down with Businessweek Bureau Chief Joe Weber to talk about markets, the economy and his family's flight from the Nazis in Poland during World War II.
Speaking of exchanges, my BW Chicago column tells why a proposed $11-billion merger between the CME and New York-based Nymex may be more trouble than its worth. (Shameless plug, noted).
Meanwhile, learn more about the return of Leslie Hindman, the art auction maven, who is back in the game.
Click here for a free subscription to BW Chicago and for a Zinio version of the latest issue.

How I Lost Face on Facebook.com

2008-02-20T10:06:00.000-06:00

In an attempt to stay relevant in this shifting digital age, a growing number of large media concerns are pushing employees--especially their reporters and commentators--to open Facebook.com accounts and post individual profiles.
Since I'll occasionally run with the pack, I also became a Facebook member--posting my name, photo and tidbits about my background. However, my time on the social network site was short-lived, lasting a few hours.
Why the fast exit? Well, when our teenager found out that dear old dad was on Facebook, he said it was "kind of creepy"--sort of like the 40-something man who thinks its cool to wear a turned-around baseball cap. And you know what? I agree with him.
Apparently, we're not the only family that thinks it's uncomfortable for Ma or Pa to share space on Facebook. This week, an industry colleague mentioned that her daughter would not sign up as a "friend" on Mom's Facebook site, because it would be embarrassing.
I grant you that this feedback is not sophisticated market research, but it sure has the ring of truth.
Mainstream media executives--and other corporate honchos--may not realize it yet but there's a significant Internet generation gap -- especially when it comes to those youth-oriented social networks such as Facebook.
Young people use these sites to connect with friends, or make new friends, and resent it when their outlets are used for ham-handed marketing efforts. They see past these missives and don't want the elders hanging out with them.
Now let me be clear: I'm not talking about giving teenagers complete and total free range on Facebook or anywhere else. I'm a big believer in parental oversight. Nor am I suggesting that any adult who uses a social network site is up to no good or is a weirdo.
In addition, I realize Facebook's emerging role in times of crisis, such as in the aftermath of the tragic shooting at Northern Illinois University, when parents tapped into the network to quickly connect with NIU students and loved ones.
My comments are strictly about business strategy.
Mainstream media types, such as me, risk looking like posers by being on Facebook. Remember, this site was started by college students for college students. It's done pretty well without us and I'm not certain we middle-agers should be crashing the party.
Moreover, I'd wonder if Facebook isn't concerned about the flood of professional types and established companies entering its space. While the prevailing wisdom of the Internet is the "more the merrier", having too many establishment players could easily drain the cool factor and remake Facebook into a watered-down, non-descript Web utility such as AOL.
To me, social networks are among the most dynamic concepts the Internet era has to offer. There's a bunch of them. Some have more users and clicks than others, but the good ones have a core mission. They aren't one size-fits-all. Not yet, at least.
From now on, I'll pick my networking spots more carefully.
I don't need Facebook. And it certainly doesn't need me.

Chicago Tonight The Week In Review

2008-02-08T15:08:00.001-06:00

Had the pleasure of being a guest on Chicago Tonight The Week in Review show, hosted by Joel Weisman. Always a blast to be included in this news and information show, which just celebrated its 30-year anniversary.
You can catch the Big Show on Friday at 7 P.M. on Channel 11, or its re-broadcast later for the insomniac crowd at 1:30 A.M. or 4:30 A.M. (Check local listings, as they say.)
Also, for all you Comcast subscribers: Click on the "On Demand" function and watch this local show and other past Chicago Tonight broadcasts. Usually, the cable company keeps the Chicago Tonight shows around for a couple of days after the original airing date.
Tonight's panel also includes: WLS-TV's political reporter Andy Shaw, Sun-Times columnist Mary Mitchell and Associated Press sports writer Jim Litke.
We mix it up on presidential politics, Mayor Daley, taxes and what seems like the never-ending possibilities of a United Airlines merger and the sale of the Chicago Sun-Times.
Week in Review is followed by Friday Night with John Callaway.
Have a great weekend.

The Real Election: Google or Microsoft?

2008-02-04T13:58:00.001-06:00

I have Microsoft's Windows XP on my computer and use its Internet Explorer to hop on the Web. Yahoo is my email provider. And this blog is part of the Google empire.
In short, I don't know who to root for in Microsoft's $44.5 billion bid to acquire Yahoo and compete with Google.
From this vantage point, they all seem pretty ominous.
However, it appears that the silly season regarding this huge deal is well underway. Google has the nerve to suggest that the combination of Microsoft and Yahoo would be anti-competitive. This is the same Google that won't rest until it knows everything about us and how best to cash in on that information with its sly brand of target marketing.
I suppose Microsoft would do the same if it could. But it can't--not yet at least, not until Yahoo and the federal government agree to the merger.
You have to wonder why Google is so uptight.
After all, neither Microsoft nor Yahoo have given the web-search firm a real run for the millions. What makes Google think the combination of these two will produce such an insurmountable threat?
Considering this is a very hostile offer by Microsoft, Google should get wise by dropping the anti-trust pretense and let this deal fly on its own accord.
Who knows? A Microsoft-Yahoo pact could be the best thing that ever happened to Google.

CEOs Can Relax--Edwards Is Gone

2008-01-30T11:05:00.001-06:00

Rest easy, Corporate America. John Edwards has left the building.
Edwards is ending his bid to win the Democratic Party's nomination for president. Know what? I'm sorry to see him go.
Throughout the 2008 election campaign, Edwards made his mark as the party's pacesetter--the candidate who shouted the loudest about the nation's economic shortfalls, especially the growing disparity between its wealthy elite and working-class.
A tenacious debater, Edwards prodded rivals for the nomination to confront core pocketbook issues and problems. That list includes: addressing the shameful lack of affordable health care insurance; ending corporate tax incentives that encourage companies to ship middle-class jobs overseas; and blaming Wall Street for the sub prime mortgage lending mess that is pushing our economy into recession.
In doing so, Edwards pressured, and occasionally shamed, Senators Hillary Clinton and Barack Obama into taking tougher positions and providing voters with a greater understanding of how they would deal with these challenges.
That's not a bad campaign legacy.
Was Edwards waging class warfare? I don't think so.
This country tends not to buy into such nonsense. Nevertheless, you'd have to be totally out to lunch not to realize that something isn't working for a growing cavalcade of citizens, who are strapped for cash and see their prospects diminishing.
Edwards is a successful capitalist. He made a good buck as a trial lawyer. And he tried to make even more by investing in a hedge fund, which made him look like a hypocrite and a dummy when he started bashing Wall Street.
But he effectively argued that the nation's middle class and working poor are being victimized by the callousness of many in the world of high finance and wanted to stop it. Moreover, he recognized that seismic changes are stirring up this global economy and believed that government--along with business--must strive to ease the burdens of those caught in the transition.
Edwards campaign didn't gloss over the country's economic shortfalls and that made business chiefs uneasy--especially those on Wall Street, where the investment houses are spending big money to back Clinton and Obama. Hell, Wall Street probably favors either of those Democrats over maverick Republican front-runner John McCain.
Big Business won't have to worry about the return of John Edwards this election year. But that doesn't mean the mammoth economic issues raised during his campaign are going to fade away.

(Photo courtesy of IowaPolitics.com on Flickr.com.)

Eddie Lampert Set To Bust-Up Sears

2008-01-28T15:52:00.000-06:00

Sears Holdings Corp.'s days are numbered. How much time the parent company of retailing chains Sears and Kmart has is undetermined--for now anyway. But it's pretty clear that Edward Lampert, the stressed-out Sears investor and hedge fund manager, is dressing up the company for a partial or outright asset sale.
Why else would he reorganize Sears into five stand-alone units--operating businesses, support businesses, brands, online and real estate?
Such a strategy has virtually no operational or managerial basis, especially for a troubled retailer that's going shopping for a new CEO to replace Aylwin Lewis, who today announced he's leaving Sears.
The new approach does, however, enable Lampert to more effectively showcase each business operation for potential buyers.
Nobody wants to buy all of Hoffman-Estates-based Sears Holdings, but outside investors and companies may be enticed to acquire a piece of the action, provided these units have the potential to become stand-alone companies or can be seamlessly integrated into a larger firm's structure.
Who knows? Maybe some retail rival will acquire Sears' online properties or brands, while commercial real estate players make a run at Sears' massive property holdings?
Not that long ago, investors lined up to buy Sears stock, often on a hunch that the company's break-up value was greater than the whole. Many of them have lost money waiting for the Lampert bust-up to get underway.
Here's betting they won't have to wait much longer.
Admirers once called Lampert the second Warren Buffett. Soon, they'll label him Lampert the Liquidator.

Trump Is Right: "You're Fired!"

2008-01-22T11:53:00.000-06:00

On "The Apprentice" TV show, Donald Trump cans an employee by barking out his signature catch phrase: "You're fired!" Yet if Trump was a really shrewd business executive, he'd find a way to collect royalties on that stinging rebuke because a lot of bosses are going to be using it.
So far, the economic story has centered on the sub prime mortgage crisis, corporate credit crunch and the federal government's efforts to skirt recession, including the accelerated lowering of a key interest rate. But a new act is about to unfold: Widespread job cuts and rising unemployment.
Already, Sprint-Nextel, Yahoo, BMW, Citigroup, Bank of America have announced thousands of job reductions. Locally, Sears Holdings is restructuring and Motorola is posting crummy earnings. Does anyone think this type of bad news won't be accompanied by more lay-offs?
Unfortunately, we're at an inflection point in this current economic downturn (OK, let's call it a recession), when nervous companies pull back, focus on containing costs and start dumping employees. But unlike past mini-downturns, this time around the job cuts threaten to go deep and be more painful--touching every geographical region and sector of the U.S. economy. In a few months, I fear the current national unemployment rate of 5.0 percent is going to look like the good old days.
The main culprit is the housing crisis. In past downturns, when technology stocks went bust or financial institutions ran into trouble, the pain was similar to a bout of the 24-hour stomach flu--quick, severe, contained and then over. This time, however, the ailing housing market is more like an undiagnosed disease--it hurts everywhere, is traveling through the bloodstream of the global economy, and there's no remedy in sight. Not yet, at least.
The stock market hates uncertainty and Corporate America despises it. As a result, companies are starting to rethink their 2008 business plans. They're backing off growth plans (set late last year or earlier) and reverting to serious cost-cutting. The fastest way to save big money is by dumping nagging fixed costs, like employees and jobs.
In past downturns, we've seen "regional recessions". For instance, when Wall Street suffered, New York felt the brunt of the decline. When manufacturing retrenched, the Midwest was hurt. And when technology stumbled, the Pacific Northwest reeled.
This time it's going to be widespread and again it comes down to housing.
New home construction throughout the country is in a free fall and anyone connected to the recent building boom is either out of a job or on the bubble--including contractors, trades, suppliers and retailers.
The credit problems connected with the bad sub prime loans has infiltrated every major and regional banking company, which have been forced to write-down loans and lay-off workers.
The investment banking brains on Wall Street packaged the sub prime loans and sold them on the secondary market to investors all over the world in an effort to "spread the risk." Well, it's spreading and nobody knows the actual value of these loan packages, nor how many dog sub prime notes are mixed in with healthier investments. Talk about uncertainty.
Even banks that have avoided major sub prime hits, are worried that established customers may not be able to pay down their home equity lines, credit card bills and auto loans if unemployment goes up.
Which brings us back to jobs.
Remember that a company's main priority is to make a profit, not employ people. In this age, that dynamic is more powerful than ever, especially as CEOs deal with bands of increasingly roguish shareholders who want bigger results and lower-than-ever costs.
That means many U.S. workers this year won't have to turn on Trump's show to hear that awful phrase: "You're fired".

(Photo courtesy of F. Sigorski on Flickr.com.)

Banking Fallout: Fewer Loans, Higher Fees

2008-01-17T09:26:00.000-06:00

After completing a routine business transaction, the Citigroup telemarketer asked if I'd like to pay a small fee to learn my credit rating. I politely said no and then suggested that my credit score was probably better than Citi's--which just took an $18 billion write-down, slashed its dividend and is laying off thousands of employees.
Ahh, the irony.
There's little doubt that this is a critical year for the nation's top banks and investment houses. Until--and unless--they turn their fortunes and profits around, the U.S. economy will tumble, despite the federal government's efforts to sidestep recession.
How will these lenders climb out of this growing hole they dug for themselves? Here's a few possibilities:
Recapitalize. We already know that Citigroup and Merrill Lynch are traveling to the four corners of the globe in search of investors, who will pump money into their barren coffers. The New York Times reports these institutions are looking for investors in Asia and the Middle East. Already, Prince Alwaleed bin Talal of Saudi Arabia is a major Citi shareholder and is plowing even more money into the sagging banking giant, as are investors from Singapore and Kuwait. Merrill is reportedly getting cash from the Middle East.
Let's not kid ourselves. For decades, foreign investors have been buying into major U.S. financial institutions.
This time, they may be throwing good money after bad. Or they could end up with some real bargains. Either way, crucial U.S. assets will end up in the hands of overseas buyers.
Is that a good thing right now? I'll get back to you on that one.
Sick cat mergers. Expect to see some big names gobbled up in major mergers, which will be quickly approved by a nervous federal government. Among those U.S. lenders likely to do the buying: JP Morgan Chase, Bank of America (which is already buying mortgage lender Countrywide Financial) and some better-capitalized regional banks. Meanwhile, some storied investment banking names could be swallowed up, including Bear Stearns (which has already talked about a link-up with Fortress Investments).
Yes, banks have been merging for years as have investment houses. The current financial travesty, however, will only accelerate that trend. The upshot: At the end of this mess, we'll have fewer banks and only a handful of national banking and investment powerhouses.
Limiting lending.Want a loan? Ha, ha ha ha. During this crisis, banks will be holding on tight to their cash. As a result, they're less willing and able to provide affordable business loans, lines of credit, home equity notes and mortgages to even above-average risks. With everyone screaming about the excesses of the sub prime lending and mortgage market, a borrower will be lucky to get an reasonable bank auto loan even with a sizable down payment. You've heard the phrase: Cash is King? That applies here.
Fee frenzy. How in the world will the banks make their money? Answer: Charging poor suckers like us more for basic services.
An example: JP Morgan Chase just raised its non-customer ATM fees to $3 per transaction (from $2). It's no mere coincidence this increase came as the New York-based bank, with a large Chicago-area presence, reported a 34 percent earnings slide for the last quarter. Get ready for higher fees on debit cards, checking accounts, money transfers and other transactions. My advice: Keep a close watch on your bank and 401K statements for fee surprises. By the way, as these players merge--expect transaction fees to go up, not down.
Federal Case. Yes, the federal government and Federal Reserve will find a way to inject some financial stimulus. Who knows if it will be enough to stave off recession? It may be too late for that anyway.
Meanwhile, the economy will become the top issue of the presidential campaign, barring any major terrorist event or worsening of the War in Iraq.
When it comes to the banking business, no one needs to buy a credit report to know the score: The country's top lenders are in deep trouble and fighting to survive.

(Photo courtesy of Fruitful Studios on Flickr.com)

Check Out Chicago, BW Chicago Mags

2008-01-15T10:26:00.001-06:00

One of the nice things about running your own blog is being able to shamelessly promote your latest work. Which is what I'm doing now.
In the current Chicago magazine, I take an in-depth look at the local television business and how it's trying to forge a totally new business model--one that includes coping with shifting viewer tastes, converting to high-speed digital technology and meeting the crushing real-time demands of the Internet.
Some stations are faring better than others, but all are forced to shake-up their operations and plans. On the table: Dumping some well-known, high-priced anchors.
Chicago magazine is on newsstands now.
Meanwhile, saving an ailing local newspaper company is the theme of my column in BW Chicago. The premise: What if one of the many potential buyers lining up to buy the Chicago Cubs for a cool $1 billion would instead opt to acquire the owner of the Chicago Sun-Times?
Something to think about.
As usual, BW Chicago is chock full of important and entertaining local business stories--including a smart look at the local executive recruiting industry and a candid Q&A with former Illinois Gov. James R. Thompson.
Check it out by clicking here for a subscription and a Zinio version of the latest issue.
End of commercial announcement!

Hillary's 2d Act: It's The Economy, Stupid

2008-01-09T09:48:00.000-06:00

You can't blame Hillary Clinton for yucking it up after winning the Democratic New Hampshire primary, which puts her right back in the race for her party's presidential nomination. After all, she who laughs last, laughs best.
There's no shortage of theories about why Hillary prevailed. Here's mine: It's the economy, stupid.
Sound familiar? It should because that was the rallying cry of husband Bill Clinton's successful presidential race for the White House in 1992, when he faced George Bush I, who didn't have a clue about the depth of the U.S. economy's problems.
Amid all the New Hampshire post-election chatter, one bit of analysis stood out. A CNN voter poll found that among the registered New Hampshire Democrats who think the economy is in trouble, a majority of them voted for Sen. Clinton because they believe she can fix it.
Hillary is in luck because the economy is going to get worse as unemployment ticks up, the number of home foreclosures increases, basic living costs rise and health care insurance rates escalate.
As the election season unfolds, cash-pinched middle-age and middle-class voters--who are emerging as Hillary's core demographic constituency--are going to remember better days, when the economy was humming along for most of Bill Clinton's Administration. Right or wrong, they'll expect Bill to backstop Hillary on key economic decisions.
For many people, presidential contender Illinois Senator Barack Obama inspires hope. But when it comes to the fixing economy, it's Hillary (and Bill) who inspire confidence.

WAR IS STILL JOB ONE. Yes, the economy is moving front and center right now. But the War in Iraq continues to be the back light to this election. That's as it should be. The war will not go away as an issue, especially if our troops again run into heavy trouble and casualties.

BAD ADVICE: DUMP BILL. Anyone who thinks Hillary is going to distance herself from Bill is inhaling. Who was the last Democrat to try that tact? Al Gore.

HOW DOES WALL STREET SPELL 'RELIEF?' You'd think the prospect of a change-agent Democrat, like Hillary or Barack, going to the White House would freak out the power brokers running the country's financial markets. Not so.
Wall Street can live with either one. And that should gives us pause.
Investment bankers, hedge funds, private equity players, traders on the New York-based exchanges have been generous in their financial support of both candidates. Word is the gents running the big investment houses, who are mostly over 50 years old, are backing New York's Senator Clinton. Meanwhile younger Turks are bankrolling Sen. Obama.
Who's not feeling Wall Street's love?
For one, there's lagging presidential hopeful John Edwards. Throughout his campaign Edwards has rightly laid the blame for the subprime lending meltdown at the feet of Wall Street and vows to crack down on such excess. The money-bag set hates this guy.
But Edwards isn't alone. On the other side of the aisle, the GOP's Mike Huckabee has sounded a similar alarm, blaming greedy Wall Street for Main Street's troubles. By the way, don't you get a kick out of that Huckabee-Chuck Norris ad?
Some TV pundits say Clinton and Obama will have to become "more populist" in their messages to scarf up Edwards' voters.
I suspect that means demonizing parts of Corporate America (after all, who doesn't hate health insurance companies?)while keeping a respectful distance from the powers-behind-the-throne on Wall Street, which deserve much of the blame for the nation's economic implosion.

HARD BALLING. What goes with MSNBC's Chris Matthews? This man harbors a grudge against the Clintons that's beyond reason. Either his boss, or a shrink, should talk to him about it.
In the early part of the New Hampshire election night coverage, Matthews could barely contain his glee at Hillary's difficulties and her expected trouncing. His attitude changed later in the evening, when he sheepishly conceded that he won't again make the mistake of under-estimating "The Clintons".
Whether you like the Clintons or not, why would anyone trust what this man has to say about them? He's so far off the charts.
In contrast, it was a pleasure to see Tom Brokaw back in the saddle last night providing some balanced, thoughtful commentary. Even Brokaw seemed peeved at some of the bizarre allusions and analogies that Matthews, and co-host Keith Olberman, cooked up during MSNBC's coverage.
I'll take more real reporting, less commentary. Except on this blog, of course.

(Photo courtesy of BHowdy's Photos on Flickr.com)

Predictions, predicaments for 2008

2008-01-02T12:26:00.000-06:00

Time to shake the lucky eight ball and make some predictions about the Chicago-area business scene and beyond for 2008. You know the rules, if I'm right--then you heard it here first. And if I'm wrong? Please have the decency to forget I said anything. Here goes:

--Elephant in the house: The housing crisis will not ease until 2009.Here's why: There's nearly a year of housing inventory already for sale throughout the Chicago-area, ranging from newly-built McMansions to trusty old brick Bungalows. On top of that, there's a backlog of people who are eager to sell their homes but haven't put them on the block yet. The result? An over-abundance of houses out there (not to mention a vast amount on vacant lots awaiting developments). Traditionally that would translate into a buyers' market. However, it's going be rougher than ever to get an affordable mortgage, so the number of qualified purchasers will be limited. Thank the gang on Wall Street for a credit crunch that just keeps on giving.

--Major merger maker. Got to be United Airlines with either Delta Air Lines or Continental Airlines. Look for the newly-merged airline to be headquartered in Chicago. Look for UAL Corp. CEO Glenn Tilton to cash out. But that's probably where the good news ends. Any merger with United will be driven by cost cuts, which means massive firings and consolidation. Ouch!

--Most likely corporate break-up. Motorola Inc. Even though the present board of directors doesn't want to bust up the company, it may have little choice--especially if the new CEO fails to quickly turn around its flagging cell phone business. Activist investor Carl Icahn wants to carve it up into four units. This may be his year.

--Fastest sinking ship. Sears Holdings Co.. With retail sales down, stores falling apart and the company stock tumbling it's shaping up to be a devastating year for the parent company of Sears Roebuck & Co. and K Mart. Major investor Edward Lampert, whose investment vehicle owns 40 percent of Sears, is running the show and the place is in a free fall. How bad is it? Even Lampert's most fervent Wall Street followers are turning on him because of this fiasco. Eddie may be ready to liquidate. If so, there goes a few thousand jobs!

--Olympic backlash coming. Recently, I saw a bumper sticker that read: "Say 'NO' to the 2016 Olympics". This may not be a fleeting sentiment. As the area's public works and transit problems grow, the local gentry may decide they've had enough. Look for populist politicos, grassroots activists and community leaders to form a coalition opposing the Olympic bid.

--Middle-class screwed. Beware rising costs ahead! Here's a partial list of basic needs expected to run more in 2008 vs. 2007: Health care (8 percent); college tuition (6-to-8 percent); energy (expect oil to hit $100 a barrel this year); area taxes (2-to-3 percent); and food (4-to-5 percent). Looking for a raise? Keep looking, pal. On average, 3.5 percent area raises are on tap for this year--and that's if you're lucky enough to have a steady job.

--Media upheaval. It's shaping up to be a make-or-break year for the Chicago Sun-Times, whose parent company intends to chop at least $40 million from operations. That's a deep, deep cut. As a result, everything is a cost-reduction candidate. Look for significant lay-offs, merging more community newspaper titles, selling some or all of the suburban dailies (perhaps to Shaw, Gatehouse Media or independent investor groups), maybe taking the Sun-Times to six days a week instead of seven. Don't rule out a sale of the entire company, either. At the Tribune Co., which has just gone private in an estimated $8 billion deal, there's also a sense of urgency. By mid-year, new CEO Sam Zell's team will have some idea of what they're up against. From there, look for asset sales that go beyond just dumping the Cubs. This will be a regrouping time for TribCo. but it's only a recess before another round of cuts and deeper reorganization.

--Speaking of the Cubs. Couple of predictions: A group led by John Canning, chairman of Madison Dearborn, will buy the team and Wrigley Field. The ball yard will NOT be acquired by the Illinois Sports Facilities Authority. Not only is it a bad idea but the timing is not right, especially considering the disgust people have for the state's leadership right now. And Lou Piniella will win NL Manager of the Year (why not?)

--Next president: Hillary Clinton.

So, there you have it. As you can tell, I'm bearish on the local economy and business scene for 2008. But on the bright side, we've been through difficult days before and have always come out alright.
Here's to fighting the good fight and Happy New Year.

(Photo courtesy of jakejacobsen's photos on Flickr)

BW Chicago: Meet Gen Next and More

2007-12-26T15:35:00.000-06:00

The latest issue of BW Chicago, the local monthly business magazine from BusinessWeek, is making the rounds.
It's another very strong endeavor, one that shows how BW Chicago is becoming a unique and viable voice within the community.
I'm biased, of course, because I work for this new publication. But don't take my word for it. Please check it out for yourself.
This month's cover story identifies the next generation of Chicago-area business leaders--the 10 people who will be running the show in the next decade. It's an impressive group, one that reflects Chicago's metamorphosis from Rust Belt and corporate headquarters hub to a bustling financial services center.
Who are they? BW Chicago names names! (I should know, having written the story.)
Speaking of change, were you aware of California-based Google's growing presence in the Chicago market? Probably not. But that's going to change once you read BW Chicago senior correspondent Judith Crown's article on Google's expansion, hiring spree and determination to become a local high-tech power.
Also is this issue: BusinessWeek's tech reporter Roger O. Crockett reveals Motorola's latest gamble--constructing an area-wide WiMax network. Let's see if this helps turn it around for the Schaumburg-based company.
There's much more, including my column on why Chicago's Mayor Daley shouldn't be selling the city's infra-structure to corporate sponsors and event planners. (Shameless plug, again noted.)
BW Chicago is coming on strong with readers and advertisers.
Subscriptions are free, just click here. And if you want to see the latest issue online, click here for a Zinio version.
Read and enjoy!

MERRY CHRISTMAS TO ALL!

2007-12-24T11:14:00.000-06:00

No talk of business or current affairs for the next few days on the old REEDBIZ blog. Just wanted to wish everyone a great Christmas and holiday season. Here's hoping the plump gentleman with the lush white beard and distinctive red suit bestows the gifts of love, peace and happiness upon you and your loved ones.
Cheers!

Getting Mugged By An Evil E-mail Hijacker

2007-12-21T09:02:00.000-06:00

Many friends called me yesterday, but it wasn't the holiday spirit that prompted them to reach out. Instead, they told me they'd received a weird e-mail, bearing my name and company address, promoting a slew of electronic products as my "Christmas gift recommendations."
It quickly became apparent that my e-mail address book and signature had been hijacked by some creep, who was illegally using my imprimatur to blast this bogus commercial message out to my contacts.
Those who know me, realized immediately that something funny was going on. The fact that the "Christmas recommendations" listed prices in Euros was also a tip-off. Nonetheless, this e-mail went far and wide, including to some top media executives, business leaders and even a former Illinois governor.
Not good.
Just for the record: I've never endorsed a commercial product. That's not my line.
Solving the hijacking took longer than I wanted. It didn't help that I was out on business most of Thursday and couldn't address the problem directly until late in the day.
But with the help of the Geek Squad, some important measures were taken.
We did a deep sweep (took all night) of my computer system and upgraded the anti-virus protections. No virus (including the hated malware) was found in my computer, nor in the e-mail that was blasted--although I would not recommend clicking on any of the links embedded in that bogus e-mail. I also improved security of the Yahoo e-mail system and installed anti-hijacking software.
Finally, I filed a complaint with the Illinois State Police's Internet theft unit.
It's a long shot, but let's hope they catch the jerk behind this caper. Industry data says that 90 percent of businesses have been a victim of Internet crime and 80 percent have suffered some financial loss because of it. I just joined the crowd.
Meanwhile, everyone should give themselves a holiday gift and upgrade their anti-virus software and online security.
Don't let e-mail identity theft happen to you!
Believe me, it's a giant hassle and no way to re-connect with old friends.

(Illustration courtesy of Flickr.com)

We're Paying for Greenspan's Goof

2007-12-18T09:21:00.000-06:00

There are people who bow their heads in reverence upon hearing the name of former Fed Chairman Alan Greenspan. I'm not one of them.
For my money--and it's actually all our money--I'll take the current Federal Reserve Chairman Ben Bernanke, who's stuck mopping up the economic mess his predecessor left by allowing the mortgage lending industry to run amok and make billions of dollars in sub-par loans. Today, Bernanke unveils some tougher lending rules.
This is something Greenspan should have done years ago but didn't. Instead, his free-marketeer approach, coupled with the Fed's constant lowering of key interest rates, lit the fuse for an explosion of bad loans, consumer defaults and probable recession.
And it's not like Greenspan didn't know what was going on during those heady mortgage-making days.
As the New York Times reports today, Greenspan was flagged on the mortgage lending abuses, starting in 2000, but it didn't appear to impress him. Had he acted as a regulator, as well as a the globe's super-economist, Greenspan could have brought the lending abuses to a screeching halt and saved everyone much pain and money.
By doing nothing, Greenspan sent a strong signal that the mortgage industry's aggressive lending policies were sanctioned by the banking regulators, including making home loans to those with terrible credit scores, no down payments, and no consistent income stream.
Even when Greenspan grudgingly conceded the emergence of a housing bubble, brought on by those questionable lending tactics, the Fed stayed on the sidelines. In the Times article, Greenspan defends his inaction by dragging out one of the oldest of bureaucratic chestnuts--the Fed didn't have the resources to police the industry.
C'mon Alan, you can do better than that.
During his Fed reign, Greenspan was the most listened to person on the planet when it came to the economy. Remember the "Greenspan Effect"? A passing remark from the Fed chairman could send the markets scurrying.
If Greenspan had wanted to put a sizable dent into those despicable mortgage lending practices he just needed to use his bully pulpit, not a small army of bank examiners.
Instead, Greenspan was determined to preserve economic growth on his watch, no matter what the ultimate cost. Buying into President Bush's quest to build an "ownership society", he saw the unprecedented housing boom as a way to hedge against the stock market's decline of the late 1990s and early 2000s, according to the Times story.
Even now, Greenspan is coming up with half measures to solve this problem. With millions of mortgages under water, Greenspan's best answer is provide stressed home owners with a tax credit. While not quite an anchor, a tax credit isn't a life preserver either.
We have to do better.
Right now, Bernanke is trying to salvage the situation. Recently, he took some heat when the Fed opted to cut a key interest rate by 25 basis points, instead of the much-expected 50 points. Market mavens went bats, claiming the cut was less than expected and would derail an anticipated year end stock rally.
Oh yeah? Well, that's too bad. The stock market always craves fast relief.
But Bernanke has the ungrateful task of saving the housing industry, stopping the economy from tipping into recession and keeping inflation at bay. Right now, it's prudent for the Fed to hold the line on interest rate cuts, while the banks and investment portfolios that are larded down with crummy mortgage loans, sort out their credit problems.
Let's restore more discipline to the lending system and then see if a rate cut is needed. If so, Bernanke will act.
It may also help to remember that Bernanke didn't cause these problems. That honor belongs to Chairman Greenspan.

(Illustration courtesy of Nose Cone on Flickr)

Bad Call: State Weighs Buying Wrigley

2007-12-13T09:48:00.000-06:00

The citizens of Illinois are in the running to acquire Wrigley Field. Which prompts this question: Why?
Chicago's daily newspapers report that the Illinois Sports Facilities Authority (ISFA) is exploring a purchase of Wrigley Field, home of the Chicago Cubs. The baseball team and Wrigley are being sold by the Tribune Co. The state isn't talking about buying the actual team, only the North Side stadium. Under that scenario, someone else gets the pleasure of owning the ball club and then hammering out a deal to play at Wrigley with the ISFA.
This is a bizarre turn of events, one that exceeds the ISFA's core mission and puts the public smack in the middle of what should be a clear-cut, private-party transaction--the selling of a healthy business to a willing buyer.
Historically, the ISFA has played the role of backer-of-last-resort, using its bonding authority to generate funds to pay for sports-related projects. It bankrolled construction of a new South Side stadium for the White Sox, when the team was making noises about moving to another state--I seem to recall Tampa Bay-St. Petersburg was building a new stadium and courting the Sox.
(When the ISFA came to the White Sox rescue, the idea was that the new ball yard would be an economic engine for the South Side, spawning a flock of new and minority-owned businesses. We're still waiting on that one.)
And the ISFA funded reconstruction of Soldier Field--in one of the ugliest rehab jobs in Chicago's history. It did so when the Chicago Bears were under fire from the National Football League to upgrade its facilities or risk losing a hefty amount of league-generated revenue.
But buying Wrigley Field? Getting involved in the sale of the Cubs?
This is not an endangered franchise, far from it. Moreover, Illinois taxpayers--who are the ultimate backers of ISFA bonds--shouldn't be involved in a deal that's already attracted a small parade of rich people willing to pay up to $1-billion-plus to acquire the Cubs and Wrigley.
The newspapers' say Tribune Co. thinks it can maximize its price by selling the team to one party and the real estate to another. Maybe it can, but the ISFA shouldn't be salting the way for TribCo. to win the highest price.
That's what investment bankers and management are suppose to accomplish.
In addition, I'm not so sure this is the best way to get top dollar. Anyone who goes to a Cubs game knows the Wrigley experience is important--maybe even crucial--to repeatedly packing the place with adoring fans.
Slicing the team from Wrigley may actually lower the franchise's value. Also, adding a third-party, like the ISFA, to the equation probably increases the deal's uncertainty and risk, which can translate into a lower bid. For example, anyone who buys only the team will not have immediate control over its own facility and will have to cut a long term arrangement with the ISFA for use and maintenance of Wrigley.
Like it or not, that new owner gets the ISFA as a partner, one that will share the revenue which the state will use to service bonds needed to pay for Wrigley upkeep and expansion.
Which leads to another question: Why should the ISFA bear the risk of rebuilding Wrigley, when any of the new owners would likely do the same?
Perhaps the state is truly concerned about the fate of Wrigley Field and believes a new owner will move the club, tear down the baseball palace and put up condominiums and a shopping mall. Or maybe Gov. Rod Blagojevich is truly worried about Wrigley's fate and he wants his administration to be remembered for saving the North Side baseball shrine, not some other things that have happened on his watch.
Yet considering the aforementioned "Wrigley impact" does anyone think this is a necessary option? Be assured, there would be hell to pay if any new owner decided to junk Wrigley and destabilize the surrounding neighborhood, too.
And even if the state were flush with cash and running like a top--which it isn't-- does it make economic sense for the ISFA to pony up for Wrigley? Especially when publicly-backed bonds are suppose to be used to finance more important matters, like saving public transit.
This just doesn't wash.
To preserve Wrigley Field, taxpayers need to keep buying baseball tickets, not the entire ball yard.

P.S.
I guess Mayor Daley agrees. Click here.

(Photo courtesy of Ken's Aviation's on Flickr.com

Conrad Black Checks Into The Big House

2007-12-10T13:58:00.000-06:00

Lord Conrad Black, your three hots and a cot await you.
Former media mogul Conrad Black has been sentenced to six and half years in jail for ripping off the company that once owned the Chicago Sun-Times and a bunch of other newspapers. The court didn't throw the book at him, but this is no mere slap on the wrist, either.
Looking from the outside in, it appears the court handed down a fair judgement. Considering the U.S. judicial system's mixed record toward penalizing white-collar criminals, it would not have been a shock if Black had been sentenced to less time. In the 1980s, such thieves practically got off with little or no jail, but in the post-Enron era, courts have become more circumspect.
Still, to paraphrase Vito Corleone aka The Godfather: A media mogul with "a brief case can steal more than hundred men with guns."
You bet.
Ironically, a contributing factor in giving this sentence may have been the complexity and deviousness of Lord Black's byzantine scheme. Not even the court knows how much money was lifted by Black, 62, and his sticky-fingered co-horts, who await sentencing. Prosecutors say $32 million but the probationary officials say its more like $6 million.We'll never really know.
There is one indisputable fact: The Black regime did heavy damage to the Chicago Sun-Times, which continues to dig itself out of a financial mess and is fighting for its very survival.
Meanwhile, the silver-haired Lord Black--who never admitted any guilt--is headed for the slammer on March 3.
A word of advice, M'Lord: Leave the brandy and cigars at home.

(Photo courtesy of Suzanne Berton on Flickr)

McDonald's Beats McHedge Fund Investor

2007-12-05T16:28:00.000-06:00

It's going to be a long time before another shareholder activist takes on Ronald McDonald. That clown is tougher than he looks.
Today, William Ackman, the aggressive head of Pershing Square Capital Management, confirmed to Bloomberg Business News that he's sold off his estimated 19 million shares, or a 1.6 percent ownership stake in McDonalds Corp.
McDonald's brass is probably not very sorry to see him go. Still Ackman, who bought into McDonald's about two years ago with hopes of shaking up the place, had little choice but to take the money and run. The fact is: McDonald's is humming along so well these days that there was little shareholder appetite for an Ackman-lead revolt against management or the company's business practices.
Ackman did some good things during his time. He prodded the Oak Brook-based company to accelerate its sale of company-owned stores to franchisees, who pay fees to the parent company. He also tweaked management into dipping into McDonald's ample cash reserves and boosting the dividend by 50 percent.
For his efforts, Ackman reportedly doubled his McDonald's money.
Beyond that, however, Ackman was pushed to the sidelines. Nothing beats a successful company and McDonald's sales and earnings are growing at an impressive clip, while its share price has climbed 78 percent since late 2005.
With those kind of results, Ackman couldn't rally fellow investors to press for more radical changes. Why would they bother?
Whether you like Big Macs or not, there's little doubt that CEO Jim Skinner's team has McDonald's operating at full tilt--especially compared to lackluster competitors like Burger King, Taco Bell and Kentucky Fried Chicken. (Internet business news site Marketwatch just named Skinner CEO of the year)
And even though McDonald's stock took a little hit today, dipping to about $59 per share, Wall Street wags think it's at least a $65 stock and climbing.
Plus, McDonald's isn't standing still under those Golden Arches.
The fast food giant is waging a successful coffee war against Starbucks, while expanding its offerings in the highly-lucrative breakfast segment (McSkillet Burrito anyone?).
Are there problems that can trip up McDonald's? You bet.
There's a price war looming with Burger King. There's continued concern about food safety, and tainted beef, in the U.S. and abroad. There's well-justified fears over child obesity that could potentially make McDonald's a social pariah.
But one problem McDonald's won't have to fret about for awhile is dealing with an unhappy shareholder activist like Ackman.
Armed with those huge red boots, Ronald just kicked him out the McDoor.

BW Chicago Explores Kraft Turnaround

2007-12-03T10:24:00.000-06:00

The second issue of BW Chicago is out. Lots of good stories and information in this new local business monthly magazine, including a terrific in-depth assessment of Kraft Foods turnaround effort and a look at the self-inflicted troubles at steel-maker Ryerson, which just laid off 600 workers. Judith Crown, senior correspondent for BW Chicago, wrote both stories.
You'll also want to check out the Q&A section with Rick Bayless, founder and CEO of Frontera Grill. He may mix ingredients but not words, when it comes to assessing the state of the restaurant business and one over-the-top TV chef. Also, Businessweek correspondent Roger O. Crockett provides a unique look at the impact a parade of owners has had on beleaguered online travel site Orbitz.
And when you get a moment, check out my column on why Macy's needs to stop apologizing for buying retailer Marshall Field's and fanatical Field's fans need to move on (shameless plug, I know.)
BW Chicago is distributed free to local Businessweek magazine subscribers. To get a BW Chicago subscription, click here.
Meanwhile, to read the current issue click here for a zinio version.
Obviously I'm biased, but BW Chicago is making huge strides within a short amount of time and will get even stronger in the months ahead.
Check it out.