Super Bowl - Groupon - Crowd Sourcing

The Super Bowl, of all places, raised two issues related to trends trends in economics and corporate governance.  In the first instance, the New York Times raised the issue of: "Did Groupon Cross the Line in Super Bowl Ad Debut?" In that ad, Groupon blatantly uses the suffering of Tibetans as a commercial marketing gimmick.

Here is a substitute reference link to replace links that are no longer available: Nobody Liked Groupon’s Super Bowl Commercials, Least of All China.

Like many I was shocked. When I read the New York Times' article, it reiterated my belief that the real shock was how morally corrupt our advertising is. All that Groupon did was take an advertising concept to an extreme logical conclusion.

There is an old joke where a guy asks a woman if she will sleep with him for $1 million dollars and she responds with an affectionate yes. He comes back with an offer of $1 and the woman is offended and with moral indignation: "NO! What kind of woman do you think I am." His response was the classic line of "We already established that, now we are just haggling price."

Peter Principle had a somewhat terse response: "The utter vacuity and moral nihilism of 21st century corporate capitalism on full public display."

The Dilbert Cartoon below also provides an pithy summation.

At lunch time, CNBC news also reviewed the Groupon ad. But they also raised another unexpected issue, that of user generated content (crowd sourcing).

David Faber asks Miles Nadal (of MDC Partners, the guest speaker) the question of what happens to professional advertisers if amateurs can produce ad content. Mr. Nadal skillfully parries the question.

Why is Mr. Faber's seemingly innocuous question important? In today's economic system, though we profess to follow free-market principles, those who are classified as professionals attempt to "lock-out" amateurs. Copyright law and patent law have morphed into mechanisms to protect business monopolies and discourage "amateurs" from generating new innovative content. Whether Mr. Faber was intending to go down that path with his question, I do not know. But the point is that the free-market should not protect a corporate income stream. If people seek to produce content for free, great.

10/16/2019 UPDATE: Underlying reference links no longer functional. The CNBC video clip that I had is no longer available.

Legalizing Theft - The New Capitalism III

Seems to be a rash of content related to "Capitalism: A Love Story" by Michael Moore. Steve Forbes, in the October 19, 2009, edition of Forbes had his own take, "Capitalism: A True Love Story". Steve's "Fact and Comment" is an excellent read. Positive points that he has made, which I have been harping on is that Capitalism is built on several fundamental principles. One is trust. Another is that both parties to a transaction walk away with a net benefit. While these are points that I can agree with, Steve continues to perpetuate the myth that the collapse of our financial system was caused by government regulation. Government regulation may have had a contributory relationship, but Steve overlooks the fact that it was the free-will of corporate leaders that created the bogus financial instruments and who also had the laws changed to allow them to work their "magic" with less regulatory oversight.

I have yet to hear of any regulation that "forces" someone to take a multimillion dollar bonus for issuing what has turned out to be almost worthless paper. A least Steve recognizes that "... a sizable portion of the assets created in recent years turned out to be "make believe," the result of an unsustainable, ephemeral bubble in housing and the churning out of increasingly exotic financial instruments. ... that created stuff ends up undermining the global financial system and battering the lives of hundreds of millions of other people. ... Even those individuals not normally hostile to free markets now hold suspicions that capitalism is fundamentally based on greed and is immoral ... "

Tom Toles, in the Washington Post published this cartoon, which is an excellent summary. (Click on the image to get a better picture.)

Legalizing Theft - The New Capitalism II

A confluence of events may have just occurred. Recently, by accident, I saw Michael Moore being interviewed by CNBC on his new movie "Capitalism: A Love Story". In that interview Michael noted that we have lost our moral compass when it comes to making money. Today, I ran across a New York Times article and video: "Profits for Buyout Firms as Company Debt Soared". This article concerns the buying and selling of the Simmons Bedding Company. With each buying and selling action, the private venture firms would increase the debt of Simmons and pay themselves. In that article, the Times is reporting that Simmons will be soon filing for bankruptcy protection. The Times notes that the employees and bondholders will lose but the private venture firm will be making a profit when this is all over.

What the Times is reporting is unfortunately not new, private equity firms have been buying companies and stripping them of there assets for many years. What is telling in this situation is that this article appeared just after the release of "Caplitalism: A Love Story". Now I don't know if the congruence of these two events is a coincidence or not, but they both further highlight that we have a corrupt form of Capitalism. How corrupt Capitalism has become was illustrated just over a year ago with the housing bubble and the use of Collateralized Debt Obligations that proved virtually worthless. We need to restore a moral balance to Capitalism. Furthermore, our corporate and elected leaders need to make decisions with the public interest in mind.

In summary, Rick A. in the reader comments section of the Times article remarked that:

"So in their supposed mission of making companies more efficient, and supposedly, more profitable, PE has actually succeeded in making companies grossly inefficient, and has destroyed lives, families and communities in the process, all while profiting from their shell games and paper-pushing. Then they avoid paying their fair share of taxes using lawyers, accountants and more shell games. All while our country sinks like a rock.

This is capitalism at its worst, and plainly indicates that business needs more regulation to do what's morally right, since the PE people have proven themselves to be morally bankrupt while they bankrupt the rest of us.

Ain't that America?"

Legalizing Theft - The New Capitalism

When I came home for lunch I turned on CNBC's Power Lunch as was surprised to see them interview Michael Moore who just released a new movie: "Capitalism: A Love Story". I was pleasantly surprised by his statements that we have lost our moral compass and that capitalism today is perceived as a means of "legalized theft".

I don't think that Mike fully understands capitalism and several of this comments are off base. Nevertheless I am pleased that he was given this airtime to present his viewpoint. My belief is that we are into corporatism. Our elected leaders today, seem to be nothing more than shills for the corporate interests that they represent. The result, our laws are of, by, and for the corporations. I hope that you will an opportunity to read my other post under Economics. There are some good Dilbert strips!


PS: This is my first attempt at embedding a video. Need to figure out how to eliminate the unused white space.

Good Performance or Bad Performance - Excessive Compensation

The New York Times article: "After Huge Losses, a Move to Reclaim Executives’ Pay" It is amazing that corporate executive get paid big bucks irrelevant of the issue of how well their company actually performed. These executives are essentially running private fiefdoms for their own benefit. In theory they are supposed to work for the shareholders, but that is a joke. Below are some reader comments on the article posted on Times webpage.

Elsie wrote: "To heck with "shortly before problems emerged." These guys--all corporate CEOs--are the new robber barons. They steal from the government, they steal from the shareholders, they steal from their employees. They steal from their customers. And because we value capitalism and a free market nothing can stop them. We need a new Teddy Roosevelt to drag these leeches off our necks. I think better than nothing would be to just bring back all the regulations that were put in place after the last depression--Glass-Steagal, et al."

Maryann wrote: "CEO salary contracts are a joke. They are not based on performance as they would be for a lower level worker, but based on the flawed assumption that, without these astronomical salaries, these "highly competent (that's a joke) executives would flee to other companies. ... That's what we've been hearing for years whenever the subject of lofty executive compensation in an unprofitable company came up."

Sampson wrote: "Go get 'em. I am all for a clawback. Doesnt the IRS get a clawback if we've made a mistake in our tax filing and been audited? These guys have made "mistakes" (no, the correct word is "cheated"). They have cheated their shareholders, the public, the entire nation and now the entire world. The least they can do is payback. The best case is to punish them for POOR performance. They took money saying they delivered good work and they deserved it. They didnt deliver and they dont deserve. Clawback."

Plus One - Obama

I am highly skeptical of Obama, but if you make a positive point you deserve a positive point. The New York Times wrote: " President Obama branded Wall Street bankers “shameful” on Thursday for giving themselves nearly $20 billion in bonuses as the economy was deteriorating and the government was spending billions to bail out some of the nation’s most prominent financial institutions."

The Washington Post wrote: "President Obama yesterday scolded Wall Street bankers who received millions of dollars in bonuses last year, calling the payouts "shameful" and chiding the executives for a lack of personal responsibility at a precarious time for the nation's economy."

Capitalism is not solely about pillaging the economy for your own personal benefit (Gordon Gekko famous line "greed is good"). It is about time that those who lead our nation vocally speak out that capitalism involves personal responsibility and social conscience.

Capitalism Lost Luster III

In Capitalism's Lost Luster II, I wrote how our falling "house of cards" that is our financial system is flushing out those who have apparently been a little less than honest. I concluded: "Sadly, I suspect that we will continue to see even more stories as time progresses." The New York Times has conveniently provided an update: "Troubled Times Bring Mini-Madoffs to Light".

In that article Leslie Wayne writes: "But the number of other people who have been caught running Ponzi schemes in recent weeks is adding up quickly, so much so that they have earned themselves a nickname: mini-Madoffs." I hope that you will have an opportunity to read the article.

More distressing news is reported on "TimesOnline" The article "Irish property tycoon commits suicide" discusses the suicide of property tycoon Patrick Rocca. Ian King wrote "There is speculation in Irish business and media circles today that Mr Rocca, who holidayed in Marbella and who bought a Sikorsky helicopter in November before upgrading to a Jet Ranger, may have lost a substantial sum in Anglo-Irish Bank — which was nationalised by the Irish Government late last week."

Capitalism, as a valid economic system, cannot exist if our corporate and polictical leaders lack moral ethics. The concept of self-responsibility implies that one will have self-control so as not to damage our social structure. John Thain is the current poster child of abuse. The Washington Post writes that Thain authorized bonuses that: "... were paid as Merrill was about to report a $15 billion fourth-quarter loss, and while Bank of America was seeking more federal funds to help it absorb the mounting losses at the New York-based investment bank. " Too bad our corporate and political leaders seem to be lagging.

Ethics in the Free Market

In following the discussions on websites such as TechDirt and The Technology Liberation Front and even the Washington Post and the New York Times, I have been surprised at how many people seem to accept the premise that companies are entitled to do whatever they need to do in order to make a profit. If that means making misleading statements to the consumer, that is OK. After all, they assert, it is the consumers obligation to figure out if they are being defrauded.

I find the premise that a company can do whatever it wants to make a profit fundamentally flawed. After all, if a company can do whatever it wants to make a profit, can't the consumer also justify that he or she is not obligated to pay for products in order to save money? I doubt that any one of us would like to live in a state of anarchy. In theory, we live in a civilized society. That means that both the consumer and the company have to operate on some sort of level playing field.

Larry Kudlow recently had a very good discussion on ethics and the free market system. Larry is a major proponent of a minimally regulated free market. Recently, as a response to the bursting of our financial bubble, he has become increasingly more adamant on the need for ethical behavior. Here is the CNBC video clip: Market's Malaise. The video clip is 16 minutes long.

While the discussion is ostensibly on the obligation of Apple to disclose the state of Steve Jobs health, the discussion that is germane to this post begins just after the 12th minute. In the last few minutes Kudlow calls for our leaders to start being honest and referred to Adam Smith's "The Theory of Moral Sentiments". Larry's summary words: "Free market capitalism works with a moral and ethical center" (more or less accurate).

Capitalism's Lost Luster II

The falling "house of cards" that is our financial system is flushing out those who have apparently been a little less than honest. Maddoff has been followed by Satyam Computer Services, then there are the suicides of Rene-Thierry Magon de la Villehuche and Adolf Merckle. Now Damien Cave of the New York Times reports: "Pilot Fakes Distress and Flees Before Crash". The NY Times writes: "A financial adviser from Indiana disappeared into the Alabama woods early Monday after faking a distress call and parachuting from a small plane that crashed in Florida. ... A Maryland court recently issued a judgment of more than $500,000 against one of three Indiana companies registered in his name — and all three are being investigated for securities fraud by the Indiana Secretary of State’s Office, a spokesman, Jim Gavin, said."

I have no idea whether this recent example is a big or little incident. But it is one more demonstration of the ethical decline in capitalism. Clearly there is a need for reflection that capitalism should not be about unbridled greed. Sadly, I suspect that we will continue to see even more stories as time progresses.

Capitalism's Lost Luster

The New York Times reports: "Madoff Investor's Suicide Leaves Questions" According to the NY Times article: "Mr. de la Villehuchet, a French aristocrat and professional investor who lived in the New York suburbs, had put at least $1.4 billion of his and his clients’ money with Mr. Madoff. He had lost his entire savings. He was overwhelmed and depressed, according to people who had spoken to him."

"“He had a true concept of capitalism,” Bertrand de la Villehuchet, 74, said of his brother. “He felt responsible and he felt guilty. Today, in the financial world, there is no responsibility; no one wants to shoulder the blame.”" (Emphasis added)

We profess to live in a capitalistic society, but our corporate leaders clearly do not live by free-market principles. Corporate managers (not all) seem devoid of any social consciousness. It is time that corporate managers, when they fail begin to accept responsibility for their failures.

Recently, the New York Times reported that "China Executes Former Drug Regulator" and that the "Former Head of Chinese Dairy Pleads Guilty". Additionally the denverpost.com reported in 2007 that: "Earlier this year, China put to death Wang Zhendong, chairman of Yingkou Donghua Trading Group Co. .... for swindling more than 36,000 people out of $385 million. He sold cardboard boxes full of ants for as much as $1,300 in a country where this is a decent annual salary. " While Chinese justice may not comply with the western concept of the "rule of law" and some may not consider that the punishment fits the crime; it does seem to speak to the fact that those who are responsible for a failure, pay for that failure. In the US it seems that the corporate executives get a free-pass by deploying a Golden Parachute, keeping their compensation, and retiring in luxury.

What happened to Mr. de la Villehuchet is a sad testament to the bastardization of the free market system by self serving corporate executives.