Capital Crime: Mitt Romney's Foes Denounce Creative Destruction

The Wall Street Journal had a Big Story purporting to analyze Mitt Romney's record at Bain Capital. Not surprisingly, some of Bain's investments failed, while others did exceedingly well. 

Mitt Romney's political foes are stepping up attacks based on his time running investment firm Bain Capital, tagging him with making a fortune from the rougher side of American capitalism—even as Mr. Romney says his Bain tenure shows he knows how to build businesses. 

Amid anecdotal evidence on both sides, the full record has largely escaped a close look, because so many transactions are involved. The Wall Street Journal, aiming for a comprehensive assessment, examined 77 businesses Bain invested in while Mr. Romney led the firm from its 1984 start until early 1999, to see how they fared during Bain's involvement and shortly afterward. 

Among the findings: 22% either filed for bankruptcy reorganization or closed their doors by the end of the eighth year after Bain first invested, sometimes with substantial job losses. An additional 8% ran into so much trouble that all of the money Bain invested was lost.
Another finding was that Bain produced stellar returns for its investors—yet the bulk of these came from just a small number of its investments. Ten deals produced more than 70% of the dollar gains. 

Some of those companies, too, later ran into trouble. Of the 10 businesses on which Bain investors scored their biggest gains, four later landed in bankruptcy court.

The WSJ did not find any widows and orphans whom Mitt had thrown out into the snow. They also did not make much of an effort to double-check Mitt's claim that he had created 100,000 net jobs over the course of his career. Still, this is a valuable, comprehensive look at an aspect of Mitt's career that will not escape scrutiny should he face Obama in the general election. In anticipation of this, Romney's GOP rivals have raised the Bain issue (you could say they're "Raising Bain"), each in their own ham-fisted way

It was unclear how much damage had been done by a mess of his own making in which Romney declared "I like being able to fire people," in addressing his desire for greater competition between health insurance companies. 

His opponents, Republican and Democratic alike, quickly seized on the comment as evidence of an out-of-touch politician and coupled it with attacks over his record at Bain Capital, a firm that bought companies and restructured them. 

"Governor Romney enjoys firing people. I enjoy creating jobs," Huntsman said.
In a remarkable turnaround in a party known for being friendly to business, Republicans seeking to slow Romney down sounded more like populists as they bashed Romney's work as a venture capitalist. 

Gingrich, brooding over negative attacks from Romney and his backers that knocked him out of the front-runner position, has launched the toughest onslaught on Romney. 

"Mitt Romney was not a capitalist during his reign at Bain. He was a predatory corporate raider," says a video produced by a pro-Gingrich group.

Criticizing Romney for "firing" people is all the rage, and it's certainly true that Democrats will demagogue the issue, but it is truly disheartening to see Republican politcians, especially ones fighting for the mantle of "conservative," to attack Romney for firing some folks. Sorry, boys, that's how the system works. I thought it was Democrats who wanted to create "permanent" employment, which experience has taught only leads to permanent stagnation. 


That's not to say Romney's business background should be treated as a net plus. In fact, wealthy business people like him are often mediocre (at best) at politics, both in getting elected, and at serving in office should they actually win. The ability to amass millions of dollars simply does not translate into the ability to amass millions of votes. We learned that anew in California when we ran, not one, but two moderate CEO's from the cutting edge tech industry against moss-backed liberals. In retrospect, neither Meg Whitman, nor Carly Fiorina had a chance, although Fiorina proved to be a feisty scrapper. They might have checked the correct ideological boxes, and presented comprehensive plans to reform the state, but when the first political challenge came - like, say, Gloria Allred showing up at a press conference with a rogue illegal immigrant maid - they were flummoxed, fatally so.


Romney's a little different. He came from a political family and saw governance and campaigning from the ground up. He even had a front row seat for one of the great political implosions of all time. And, Romney did win one election and served a term as governor of Massachusetts. He's not a neophyte and it shows. The guy is extraordinarily well prepared. He's also been very good at defending the theory and practice of capitalism. His comments like "corporations are people" and "I like being able to fire people" may sound like they're drawn from an Oliver Stone script, but that doesn't mean he's wrong. He's right! In fact, Romney's been at his best challenging the political shibboleths of the modern era, which used to be the sole provenance of the left, but apparently have been adopted by some on the right as well. 


But, there are times when Romney's lack of political knowledge really shows. A perfect example came during the now infamous exchange over banning contraceptives. Romney handled the question very well, in fact, saying it was a silly hypothetical because no states were presently planning to ban contraceptives. But, he has no idea how close he came to falling into a trap, and that only George Stephanopolus's inept questioning saved him. You see, George (or whomever it was who drafted the question) was trying to get Mitt to agree that, no, a state does not have a constitutional right to ban contraceptives. If they had gotten that, they could have moved on and said, "but doesn't that mean you accept the idea that there is a constitutional right to privacy?" (which was the basis for the Griswold decision overturning a Connecticut law banning the sale of contraceptives). And, then it's just a short walk to asking on what grounds could you possibly disagree with the right to privacy protecting abortion? Believe me, I was on the edge of my seat during that exchange, waiting for Mitt to fall into the trap, but he managed to avoid it. I shudder to think what would have happened to Rick Perry. 


Rick Santorum, by contrast, gave an excellent response to the "condom question;" Santorum addressing the legal and constitutional issues head on. (and Newt Gingrich gave a similarly excellent response to the gay marriage question, another where Romney had looked uncomfortable and flummoxed). Romney can buy and sell Santorum and Gingrich twenty times over, but these two (shudder) professional politicians have been marinating in these issues, and others, for a long time. They not only know the subtleties involved, they also know the code words and the concepts in a way you cannot learn simply by reading a briefing book. 


That's a much bigger danger for Mitt Romney than his record at Bain Capital. 

How To Lose The H-P Way

When Hewlett-Packard announced that it was essentially getting out of the PC business, my reaction was WTF??? Looks like a lot of people felt the same way:

Investors abandoned Hewlett-Packard Co. after its plan to get out of the personal computer business left serious questions about the technology company's strategy.

H-P Shares plunged 20% Firday to $23.60, erasing about $12 billion in market value and leaving the stock near six-year lows.

H-P shocked investors Thursday when it said it is looking to sell or spin off its PC business, the world's largest. It also agreed to pay more than $10 billion for British soft ware maker Autonomy Corp.

H-P is one of the largest PC makers in the world, a position it earned in part through the bruising (and expensive) Compaq merger of 10 years ago. Not saying that was a genius move, but if turning your back on that was also a turning your back on one of the defining moments in the company's history. Plus, it's a multi-billion dollar business. Maybe it's not the wave of the future anymore, but it's something.

The rationalization is that this is a post-PC world of tablets and smartphones, so it's best to get out of the hardware business now before it's too late. (Here's H-P board member Marc Andresson's defense of their strategic decision making). That may be, but it's hard to imagine that PC's are simply going to disappear, any more than we are going to see the rise of the paperless office. Adding to the confusion, H-P also announced that it was confronting the brave new world of tablets by ... getting out of the tablet business.

Anyway, it's a mess. As others have noted, H-P recent losses have erased entirely the gains they had under former CEO Mark Hurd, who lost his job after tripping over the company's peculiar approach to business ethics. You can talk grandly about how special your company is, but often the "H-P Way" is little more than a way for the Illuminati to assert their will.

Whatever the merits or demerits of the Compaq merger (and eventually it became more an exercise in ego and "doing the deal" than it was a business decision), you didn't need the "H-P Way" to tell you that buying a PC maker would be expensive and messy.

You didn't need the "H-P Way" to tell you that spying on journalists and H-P board members was a bad idea and border-line criminal (although it was funny that H-P's most determined compliance hounds were its most enthusiastic spies).

And you certainly didn't need the "H-P Way" to tell you whether your CEO's clumsy sexual interest in an aging blond was a firing offence.

Also, you don't need the "H-P Way" to make a decent printer. Have I mentioned my traumatic experiences with H-P printers yet?

The "H-P Way" should be like Google's "Don't Be Evil:" a cute little mission statement that is also a good bit of self-aggrandizing PR. But, H-P actually seems to make long term strategic decisions based on it. Why not toss the I-ching while you're at it? Like GM before, H-P has a business that has (temporarily) allowed it to print money. But, also like GM, H-P is unique in its industry for its combination of size and management flailing.

Lawyers, Guns, & Money: H-P's Bribery Scandal

Gotta love the "H-P Way." The company has just disclosed that the SEC is investigating it for paying bribes in Russia and other exotic locales. But, the H-P executives carrying the suitcases full of cash no doubt filled out all of their expense reports properly!

Hewlett-Packard Co. disclosed Thursday that a probe by the U.S. Department

of Justice and the Securities and Exchange Commission of possible bribes the

company paid in Russia is now wider than previously reported.

The disclosure, in an SEC filing, pertains to a long-running German investigation of

allegations that H-P, through a German subsidiary, paid bribes in Russia to secure a

contract valued at €35 million, or about $44.5 million, with the office of the

prosecutor general of the Russian Federation.

The contract spanned 2001 to 2006 and was for the delivery and installation of an

information technology network.

U.S. authorities have joined in that probe, as The Wall Street Journal first reported

in August.

Thursday's filing says U.S. authorities recently requested information about "certain

governmental and quasi-governmental transactions in Russia and in the

Commonwealth of Independent States subregion dating back to 2000." The wording

of the filing suggests a broader probe than previously revealed.

An H-P spokeswoman said investigators were focused "primarily" on the contract

with the Russian prosecutor's office but that they have "now expanded their

investigations beyond that particular transaction."

She said H-P "has been fully cooperating with the investigating authorities."

H-P strikes me as being very similar to those politicians who proclaim they are going to "drain the swamp" and run "the most ethical administration ever" - and then preside over worse corruption than before. Their focus is always on whether the right form has been filled out, and whether this guy or that guy has been chatting up this or that blonde. They never seem to focus on whether or not bribing foreign officials is the right thing to do. I won't even mention what I think about my crappy H-P printer.

The bribery allegations date from 2001 - 2006, btw, in case any of you are out there thinking Carly Fiorina was the best possible candidate for Senate. You may also recall that it came up in one of the GOP debates that Fiorina's H-P had used a subsidiary to sell printer ink in Iran. Think we'll be hearing more about this?

Culling the Herd: HP Loses Its CEO

Groan. HP's hyper competent CEO Mark Hurd, who brought the company back from the post-Fiorina doldrums, has resigned due to "sexual harassment"

Hewlett-Packard Co. Chairman and Chief Executive Mark Hurd has resigned in the wake of a sexual-harassment investigation

The investigation began after an unidentified outside contractor revealed to H-P that she had had a close personal relationship with Mr. Hurd at a time she was providing marketing services to the company, said H-P general counsel Michael Holston in a conference call with reporters.

The company said the probe revealed that Mr. Hurd had filed "numerous" inaccurate expense reports. The company didn't reveal the nature or amount of the inaccurate reports, but Mr. Holston said some payments made to the contractor were questionable.

H-P said the probe found there was no violation of the computer giant's sexual-harassment policy, "but did find violations of H-P's standards of business conduct."

Chief Financial Officer Cathie Lesjak will be interim CEO. She has been with the company 24 years and financial chief since January 2007.

Now, details are sketchy, and this story is just breaking, but...we're all adults here. There was no "sexual harassment" worth investigating. There was a short affair between Hurd and an HP vendor, and Hurd compounded that wrong by apparently filing some improper expense reports, presumably for 4-star hotel rooms, and negligees. Don't try to dress this up as some kind of "sexual harassment" controversy. I'm not ready for Nineties nostalgia.

HP has struggled with keeping its CEO chair filled. Carly Fiorina famously lost her job after the disastrous Compaq merger. Hurd's predecessor Patricia Dunn resigned after ordering company PI's to spy on journalists, and even some HP board members. Hurd had seemed like a breath of fresh air, someone who looked after the basics: the bottom line and product development. Now he's gone in a blaze of personal stupidity and politically correct neo-puritanism.

We're Gonna Make It: The Warriors Get Sold

Can't miss mentioning the imminent sale of the Golden State Warriors to a local venture capitalist whose $$ and savvy helped lead the Boston Celtics from the bottom of the East to 2008 champs. Call it Hoops & Change: Warriors Sold for $450 Million

The name "Larry Ellison" was the subject of every rumor throughout the four-month sales process. But the new owner isn't the Oracle CEO. It's Joe Lacob, a Silicon Valley venture capitalist whose name was rarely mentioned.

Lacob's investment group, which also features entertainment executive Peter Guber, signed a purchase agreement to buy the Oakland NBA team from Chris Cohan for a league record $450 million.

....

"We've got to address the on-court situation and try to improve it," said Lacob, a Warriors season-ticket holder who owns a partial stake in the Boston Celtics, which he will have to sell. "Our job is to turn this team into winners. We've talked about a lot of other things, but that is the bottom line."

Lacob hopes to see the Warriors make the same rebound that the Celtics did after he bought into them in 2006. The Celtics were 57-107 in the two seasons before winning the 2008 championship.

"I feel like I understand basketball. It's a tremendous passion of mine," Lacob said. "I tried to bring that to the Celtics. I was in the draft war room each year, and I'd like to think I had something to do with some of the big, bold moves that we made at the right time to get that thing turned around."

Lacob said he wouldn't talk about potential roster or front office moves with the Warriors until the sale is approved by the league - a process that sources believe will move swiftly. Until then, Lacob said, he expects that Cohan will listen to his suggestions.

Lacob "has incredible financial acumen, he lives there and he's a lifelong Warriors fan," said Guber, chairman of Mandalay Entertainment. "He has great familiarity with basketball, he's extremely clever and he understands partnerships."

There's a lot of talk about making wholesale changes in the organization, from coaching staff to the GM's office, to the food vendors. You know what would make a real difference right away? Get rid of the current medical staff (assuming there is one. for all we know they just get by with smelling salts and Ben-Gay). Every year, the Warriors' slim hopes are dashed by seemingly endless injuries that leave their roster hopelessly depleted for months on end. The team has a depressing tendency to endure season-ending injuries, even to guys in their early twenties. Then, the ones who survive get run ragged as they play dozens of "seven-man roster" games...which they lose. I tell you, it's depressing to think of how Stephen Curry might be getting mistreated as we speak.

The Warriors' new owners are already talking about building a championship contender, which means they must be planning to assassinate Kobe (or planning to send one of the Bay Area's many flaky blonds up to his hotel room for a "visit"). Let's work on keeping the team healthy for once. Do that and you can at least win your home games and make the playoffs every couple years, which is all I really would ask for now.

Business, Always Personal: American Business & Resisting The Left

Gregg Sherrill - CEO of Tenneco - has a good op-ed in the W$J today about the need for businessmen to be more full-throated in responding to attacks on the free market from our current leftist government: Speaking Up For American Capitalism

Business, in the dual role that politicians try to fashion for it—providing funds to government, and all too often serving as a scapegoat—has taken a pounding on Capitol Hill and at the White House. For the most part, the business community has remained relatively silent. In my view, we simply have not tried hard enough to make our case.

The reaction is partially understandable. We were hit from several directions at once, and the financial crisis turned so quickly into a collapse of demand that our primary concern was just to survive and work our way out of the rubble. Our focus turned inward.

Because the financial crisis and resulting recession caused so much pain, a bashing of our entire free enterprise system may have been inevitable. My fear is that by remaining quiet in the face of this onslaught, we have allowed it to intensify. In fact, other than those companies that were a part of the system of easy credit and disguised risk that so spectacularly collapsed, American business as a whole has nothing whatsoever to apologize for.

The good news is that despite the political cacophony, and our silence, most Americans still instinctively understand this.

Hear, hear; and all that, but...by some magical process, American politics is filled with people hostile to government, regardless of which party is in charge of the White House. Why is that? Sherrill offers some answers:

According to a recent analysis in The Economist magazine, the overwhelming majority of Americans say they prefer the free enterprise system to any collectivist alternative. In one such poll, as the Economist reports in a feature titled "The 70-30 Nation," the Pew Research Center asked respondents whether they were better off in a free market rather than a socialist economy "even though there may be severe ups and downs from time to time." Seventy percent said "Yes"

So why are the 30% in charge of the 70%? According to American Enterprise Institute President Arthur Brooks, the "game changer" was the economic crisis. As he writes in his book "The Battle," "the opportunity to expand the 30 percent coalition was not the Democratic sweep in 2008. It was the financial crisis of 2008-2009, which was used as a tool to attack the free enterprise system . . ."

Furthermore, Mr. Brooks argues that it's time to make "the moral case for free people and free markets." I couldn't agree more.

I can't argue with that, but I don't think American businessmen, especially those who run public companies, should get away with complaining that they are being unjustly attacked. I'm a free market kind of guy, but the behavior of the big league American capitalists during the financial crisis and the years leading up to it was positively embarrassing. How can you look at someone like GM's Rick Wagoner...or Lehman's Dick Fuld...or Merrill's Stan O'Neal...or anyone at Chrysler, Washington Mutual, Fannie/Freddie, Wachovia, or BP (which, just today, is being credibly accused of aiding the bogus "compassionate release" of Libya's Abdel al-Megrahi), and conclude that Big Business is behaving in a blameless manner?

These are guys who destroyed their companies, often in the face of clear warnings of danger. They didn't even carry out the most basic item on their list of tasks, which is to preserve shareholder value. And, then they walk away with multi-million dollar golden parachutes? What does that have to do with the free market? Absolutely nothing. The free market works when people have the space and the resources to succeed on their own and fail on their own. But, the failure part has been gradually legislated and regulated away. Instead, too many of America's businessmen are enthusiastic about their perks and power during good times; but, during bad times, they run to the government for protection - whether through bailouts, "stimulus," "green" subsidies or what have you.

And it gets worse. Health insurers and pharmaceutical companies enabled the passage of Obamacare. UPS has spent years trying to drag FedEx down to its level by seeking legislative mandates that it unionize its workforce. Tobacco companies "settled" lawsuits against them by paying $$ to the government, rather than to actual plaintiffs who had been harmed by their products. ADM and other ag-business titans seek out and receive billions for boondoggles like ethanol and farm supports that are politically sold to the public as supporting "family farms." And, so on.

And, that's not to mention the bad behavior of corporate titans, whether in the criminality of a Richard Scrushy (convicted of trying to buy a seat on a health care regulatory board), or the sheer tone deaf boorishness of, well, take your pick. I mean, what would possess a company like Chrysler to hire a man like Bob Nardelli as its CEO? And yet those are the sort of decisions that come naturally at the highest levels of American business.

The free market doesn't just mean business is free from legal or social responsibility. Call it noblesse oblige if you want, but the capitalists have social responsibilities that go beyond booking profits and making donations to the museum downtown. No, this isn't a call for "socially responsible" investing or "proxy access" or other leftist reforms (as if they care about business!). But, it is a call for business elites to at least pretend they live in the world with the rest of us. Surely, their education and sophistication has taught them that their bad behavior will be seized on by hostile elements in the media, government and society. Surely, they are aware that their bad behavior will reflect badly on the rest of us who are just trying to make a buck.

What we really have now is an increasingly unfettered social democracy where business elites protect their own interests through government fiat, rather than through innovation and competition. Sherrill is right that there are very few among his peers who makes the moral case for free markets. That's because many of them don't know what that case is, since it's been so long since they worked within a free market.

More Sh***y Senators

Jesus S. Christos! Carl Levin isn't the only Senator sticking his nose into the few thriving corners of the economy today. Senators Schumer, Begich, Bennet, and Franken have sent a letter to Facebook complaining about that site's privacy policy and connections to third party websites. Does any of this make sense? Senators' Letter To Facebook

Dear Mr. Zuckerberg,

We are writing to express our concern regarding recent changes to the Facebook privacy policy and the use of personal data on third party websites. While Facebook provides a valuable service to users by keeping them connected with friends and family and reconnecting them with long-lost friends and colleagues, the expansion of Facebook – both in the number of users and applications – raises new concerns for users who want to maintain control over their information.

Pretty strong words from four guys who just voted for Obamacare, a bill that will - if it survives - give the government unprecedented free rein to interfere in every American's health and medical care. Here's is one of their complaints:

1. Publicly available data. Facebook’s expansion of publicly available data to include a user’s current city, hometown, education, work, likes, interests, and friends has raised concerns for users who would like to have an opt-in option to share this profile information. Through the expanded use of “connections,” Facebook now obligates users to make publicly available certain parts of their profile that were previously private. If the user does not want to connect to a page with other users from their current town or university, the user will have that information deleted altogether from their profile. We appreciate that Facebook allows users to type this information into the “Bio” section of their profiles, and privatize it, but we believe that users should have more control over these very personal and very common data points. These personal details should remain private unless a user decides that he/she would like to make a connection and share this information with a community.

????

(As an aside, I want to say to any would be tech entrepreneurs out there: if you find yourself at the head of a billion dollar start-up, you might as well re-register as a Republican now. You might think Democrats are hip and innovative - hey, Al Franken was on Saturday Night Live! - but they are the only ones on the political spectrum who think nothing of sending out pompous letters of "concern" to private entities)

(Also as an aside, there's something about Facebook that seems to bug the hell out of certain people.)

Why in the world do these guys care? The Facebook "community" is known for bristling at that company's efforts to mine data from its users. There have been some pretty high profile cases where Facebook withdrew certain services after users complained that they didn't like how their personal data was being used/displayed. And, needless to say, Facebook membership is entirely voluntary. There are no Facebook "mandates," for example. You can join, quit, or not join at all. It's between you and Facebook, something the Facebook Four just can't seem to abide.

Eurofinger

Wow, there really is a secretive cabal of hedge fund managers who rule the world - or at least determine the economic fate of nations - if this article's tone is to be believed: Is The Man Who Broke the Bank of England at the Center of Hedge Funds Betting Against the Euro?

A secretive group of Wall Street hedge fund bosses are said to be behind a plot to cash in on the decline of the euro.

Representatives of George Soros's investment business were among an all-star line up of Wall Street investors at an 'ideas dinner' at a private townhouse in Manhattan, according to reports.

A spokesman for Soros Fund Management said the legendary investor did not attend the dinner on February 8, but did not deny that his firm was represented.

At the dinner, the speculators are said to have argued that the euro is likely to plunge in value to parity with the dollar.

The single currency has been under enormous pressure because of Greece's debt crisis, plus financial worries in Portugal, Italy, Spain and Ireland.

But, it has also struggled because hedge funds have been placing huge bets on the currency's decline, which could make the speculators hundreds of millions of pounds.

No word on whether the caterers who served the assembled Titans of Short Selling were later sealed in an underground vault to preserve their silence.

It is, of course, easier to blame George Soros and David Einhorn for all the problems in Europe, but really they are just taking advantage of the appalling fiscal position that Europe has boxed itself into. Does the antelope blame the jackals? Does the corpse rage against the vultures? Europe's elites have simply run up a tab that can no longer be paid off, either in the short or long term. And there doesn't appear to be a political solution that can arise from normally functioning institutions. Even if Greece, Spain, etc wanted to cut themselves to the bone, the rioting entitlement classes in Athens are a warning that there are millions who will continue to demand a seat at the buffet, even as the waiters are sweeping away the remains of the day. The spectre of (shudder) "hedge funds" attacking the Euro is simply the deus ex machina for this particular farce.

Soros, for his part is not the one to look to for a way out. He thinks the EU needs MORE centralized control, which is what he is seeking through chaos:

He said: 'Makeshift assistance should be enough for Greece, but that leaves Spain, Italy, Portugal and Ireland.

'Together they constitute too large a portion of euroland to be helped in this way.'

He believes that unless the European Commission is given sweeping powers over taxation and spending, the single currency will always be vulnerable to financial turbulence in individual states.

'If member countries cannot take the next steps forward, the euro may fall apart,' he added.

Children's Stories

Simon Johnson ridicules the political and media elites conclusion that Americans are "angry" and that the road to policy and political success lies in "populism:" "Populism"

The problem we face is not that the broader population wants pointless or destructive revenge on a financial elite that has done well. Nor is it the case that, if left largely to its own devices, our major banks will guide us back along the path to sustainable growth.

The consensus technocratic assessment is simple: We are smack in the middle of a doomsday cycle of repeated boom-bust-bailout (our version; the Bank of England’s take). The core issue – banks considered “too big to fail” – was not resolved in or after the crisis of 2008-09; if anything, as these banks have increased in size, the problem is now worse. We are therefore doomed to run headlong into another crisis.

The fact that dramatic banking reforms would be popular does not make them populist. It merely means that a broad cross-section of our population has woken up to part of our appalling reality. Sure, they are angry – but with good reason, and the remedies they seek are entirely appropriate. Most of our elites are on the side of the broader population on this issue; only the diseased heart of Wall Street holds out.

Frankly, true populism of the Huey Long variety can't work today because Americans - at least among likely voters - are better educated than in the past. A buffoon like Long wouldn't last 5 minutes in today's environment. Not only that, the idea that Barack Obama - who last year was waving his Ivy League credentials and sending his political allies out to mock Joe The Plumber - can transform himself into a shirt-sleeved populist is ludicrous. The other problem: the resentment and redistributionist impulse underlying populism is not really present - yet. People don't resent the fallen Masters of the Universe for their wealth. They are furious that nothing has changed since the on-set of the financial crisis, except that the economy is in a much more precarious position.

Nearly two years after Bear Sternes, and 18 months after Lehman/AIG, there have been no changes in basic finance law outside of a few marginal adjustments in the rules relating to short selling. Oh, sure there's been a lot of talk about - here we go again - "comprehensive reform." And there's been the faux-outrage over AIG bonuses. But absolutely nothing has changed that could prevent or at least alleviate another failure on the scale of Lehman Bros.

The problem with Lehman was not just its failure; it was that the failure was so chaotic. While the near-contemporaneous failures of Washington Mutual and Wells Fargo were handled expeditiously, Lehman was simply dropped into bankruptcy without warning. There was obviously no mechanism in place to wind down the affairs of an investment bank like Lehman, and 18 months later ... there still isn't! Similarly, we lack any kind of systematic way of handling another AIG situation. Instead, the plan apparently is to improvise a rescue when/if the time comes.

Do we really need "comprehensive reform" to accomplish the basic goal of preventing chaotic failures among financially significant entities? No one complains (much) about the Wachiva/Wamu failures because they were resolved according to settled law by a government agency following established procedures. Lehman and AIG, on the other hand, were improvised solely by the executive branch and the Fed and we are still living with the unhappy results of that improvisation today.

The analogy to the Bush-era post-9/11 reforms are obvious. The Patriot Act may have its noisy detractors, but it was passed and then renewed, by large congressional majorities, and its basic reforms have lasted. Meanwhile, the reforms that the Bush Administration put into place on its own initiative - designating unlawful combatants, military tribunals, GITMO, water-boarding and the rest - have withered from unrelenting assault despite their being useful and supported by a majority of the voters. Would it have killed Bush to involve Congress in the creation of military tribunals from the beginning, rather than go through years of court cases, Supreme Court decisions, and pompous speechifying by the legal Left? I don't think so, and we wouldn't be in the position we are today where GITMO can theoretically be closed at the stroke of a pen.

Similarly, if another AIG or Lehman situation presented itself tomorrow, it would be just as fraught and controversial as its predecessors because - again - regulators would not be acting under color of law, but only improvising in the face of an emergency. It really doesn't have to be this way. Yet, instead of promulgating such basic reforms, we are stuck with Chris Dodd and Barney Frank - two guys widely seen as having contributed to the crisis - arguing over what style of comprehensive reform we should adapt. The problem is that every attempt at comprehensive reform since 2005 has failed, but only after a months-long effort resulting in less than nothing.

People are not furious because they are jealous of someone's wealth. They are furious because absolutely nothing has been done to address even the most basic regulatory gaps that have allowed our economy to be damaged. Populism - even professional grade Ivy League populism - isn't the salve to this anger. Problem-solving and prioritization is.

Breaking Down Walls

This is unexpected; Google is threatening to leave China because of systematic hacking and phishing by the government there. Will the question "Who lost Google?" become a political flashpoint in Chinese politics? Google May Shut Down In China

In a surprise announcement late Tuesday, Google Inc. said it may turn its back on the massive Chinese marketplace, following a sophisticated cyber attack that targeted the e-mail accounts of human rights advocates in the Asian nation.

In response to the digital assault, the Mountain View Internet giant said it will stop censoring search results in the country, reversing a widely criticized compromise it first made when launching in China.

Google stopped short of accusing the Chinese government of orchestrating or encouraging the security breach, but the object of the attacks and Google's emphatic response both underscored the likelihood in the minds of many observers.

"That's the strong implication," said Greg Sterling, founding principal of Sterling Market Intelligence.

Many people have expressed unhappiness with Google (and Yahoo's) decision to essentially go along with Chinese demands regarding access to the web. It's more than a little hypocritical for companies to play the role of hip progressive free speech absolutists at home and dreary censors abroad. More important, it was a sign of the creeping censorship that threatened to infect the US as China's economic and cultural power grew. It's very easy to imagine a world in which the Chinese are able to dictate what is or is not acceptable simply by being the largest market in the world. If Google does leave China, that would be a real slap in the face, and a line in the sand for the primacy of American standards of free speech over the demands of the autocratic Chinese market.

Kraftwerk

Michael S Malone gives us a quick preview of the coming year in tech. Mostly, he sees us getting excited about the new Google phone and the Apple Tablet: Nexus One and the Tablet

Next Tuesday, Google is expected to announce its long-rumored Nexus One smartphone. It is undoubtedly designed to run the Google Android operating system for cellphones, which the search giant introduced more than a year ago. Android was envisioned as a major breakthrough in cellphones because it offered an ‘open’ operating system – i.e., one that other companies could use and design applications for.

....

Meanwhile, strong on momentum and flush with cash, Apple isn’t waiting around for the world to catch up with it. Two weeks from now, the company is expected to introduce yet another category-buster: this time it’s rumored to be a tablet device – think of an oversized iPod Touch, but no doubt with much of the functionality of a personal computer (not to mention all of those iPhone apps). It will also no doubt, have one or two very cool and unexpected new features that will make it a gotta-have for Apple fanatics everywhere. Once again, Apple will have a new product that challenges convention, seemingly obsoletes an entire multi-billion dollar industry (in this case, handheld computers) while overwhelming a second, newer industry (netbooks, such as the Kindle) and yet is still stunning to look at.

In other words, Malone sees Apple going from strength to strength, while Google struggles a bit to enter the smartphone market years after Apple led the way. We'll see. Personally, I find Google's range of services to be very useful, but get impatient with trying to use them on my cheapo Korean-built smartphone. A phone made by Google is something that I would look at lovingly.

What I would like to see in the coming year from the tech world is this: how about Facebook and Twitter show us why they are so revolutionary. I know that there are a lot of smart people out there who have written at length about these companies. Tyler Cowan, for one, discusses Facebook at length in Create Your Own Economy. I even use Facebook, and think it has a lot of utility, both as a social tool and communications forum. But, there's nothing going on there that wasn't happening on Friendster or Myspace, nothing radically different anyway. If there really is a revolution happening, I'm getting impatient for the storming of the Bastille.