Did Alan Greenspan err?

Many, especially on Capitol Hill, find it convenient to blame Greenspan for the financial crisis from which we are barely emerging. The argument runs thusly: the combination of very cheap money policies and of deregulation so fervently adopted by Geenspan brought about the housing bubble, the subprime mess and assorted financial debacles. Is this line of thinking correct? Mr. Taylor, a friend of Mr.Greenspan thinks so, others, including, not surprisingly, Mr. Greenspan remain unconvinced by Mr. Taylor’s criticism of Mr. Greenspan’s policies. CNNMoney’s Geoff Colvin penned an interesting article (click here to read it) that summarizes the arguments on both sides of the debate in a cogent and articulate manner


Les évolutions récentes de la fiscalité des fonds de private equity aux Etats-Unis et en France

Si vous souhaitez en savoir plus sur les propositions de réforme de la fiscalité des fonds de private equity lisez l’article p.49 du numéro 40 du Magazine des affaires d’avril 2009:Les évolutions récentes de la fiscalité des fonds de private equity aux Etats-Unis et en France

BBC Forum: Chaos theory, money and patients

On Sunday May 9, 2009 the BBC Forum (listen here) convened Lord Robert May, former scientific adviser to the British government, Gillian Tett, financial analyst and social anthropologist, and Abraham Verghese, doctor and author. Lord May showed how a very simple equation can be used to create a situation of chaos. His analysis, applicable to ecological changes as well as to epidemics, showed very clearly how a small change in initial conditions can create vastly different results. Gillian Tett, using her dual background presented a fascinating view of the lure of money and Dr.Verghese showed how the ritual of personal examination of a patient by the doctor fulfills an important therapeutic role-an observation worth pondering in this age of medicine by machines and of doctors who, pressured by costs and by greed, hardly spend any time with their patients preferring to rely on test results in lieu of personal observation.

French influence in Korea?

The recent publication of Robert Cohen’s book « Turning Around a Bank in Korea: A Business and Cultural Challenge » got me thinking. Here was a Frenchman, who after a distinguished 25-year career at the old Credit Lyonnais (now Calyon after some Executive Life troubles that got it absorbed by France’s « Green Bank », Caisse Nationale du Crédit Agricole), including 10 years as CEO of Crédit Lyonnais -Americas and a 3-year stint as vice-chairman of Republic National Bank under the late Mr. Safra took on the challenge of becoming the CEO of Korea’s largest bank, Korea First Bank with a mandate to turn it around. His slim volume is interesting on several levels: what  cultural and business challenges did he face, and how did he meet them, running a bank when you do not speak the language, a bank where women with PhD’s in economics are bank tellers ,a society in which seniority and age are possibly even more important than in Japan, a country where unions demonstrate by banging on drums for hours on end in the outer office of the CEO, a culture where his wife was expected to address him in Korean as Your Excellency ( I suspect he did not object too strenuously, when in Seoul…),a country where 15-or 30-year fixed rate mortgages were unknown because people only took out 3-to 5- year floating rate mortgages, where people spend fortunes on credit cards and do not use cheques. Such were his challenges and meet them well and truly he did. Not only was he able to turn around the bank and make a big pile for the private equity fund that had bought the basically bankrupt bank from the Korean Government after the 1997 Asian crisis by reselling the bank to Standard Chartered but he was the first to break the glass ceiling for Korean women when he promoted a woman to the post of senior vice president, something that had never been done before in Korea. Not at all a bad record for 4 years in Korea.

Was Robert Cohen the first Frenchman to exert such an influence in Korea? Important though his accomplishments may be, another Frenchman, General Legendre, blazed the trail 100 years before him. While Mr. Cohen fought with unions, General Legendre fought for the Union. Charles Legendre, born in 1830, was educated at the College Royal at Rheims and graduated from the Sorbonne. He met the daughter of a New York lawyer, Clara Mulock, married her in Brussels, moved to the United States and became a citizen. When the War Between the States started in 1861 he enlisted in the 51st NY Volunteers, Infantry. He served with distinction , was badly wounded at the battle of New Bern, North Carolina on 14 March 1862, « a ball injuring both the corner of the jaw and the spinal process. » Legendre was cited for displaying « most conspicuous courage until he fell wounded. »Later, serving under General Grant at the Second Battle of Wilderness he lost his left eye and the bridge of his nose. That did not prevent him from directing the defense of Annapolis from his hospital bed against Robert E. Lee’s last raid. He was given the title of brevet brigadier-general upon being honorably discharged and was soon appointed US consul to Amoy in China (1866-1872).

After a difference of opinions with the American minister in Beijing, Legendre resigned from the US Foreign Service to enter the Foreign Service of the Emperor of Japan. For his role in averting a war between Japan and China over Formosa, the Emperor made him the first recipient of the newly created Order of the Rising Sun. After spending 18 years in Japan, Legendre was called by the King of Korea in 1890 to become Vice President of the Home Office of Korea and adviser to the Household Department of the King. He died of apoplexy in 1899.It is hard for us today, used as we are to living and working in a global village, what it must have represented for such a man as General Legendre to go to Korea, a country about which not much was known at the time, and become one of the most influential people after the King!

Two very different destinies for two men of French origin who, 100 years apart, by happenstance, found themselves exerting a significant influence over Korean affairs. History: plus ça change plus c’est la même chose.

When Bonus Contracts Can Be Broken

Amid all the otherwise legitimate furor over the A.I.G. bonuses,it is refreshing ,and useful,to see the contract law framework for a good legal analysis set out by well regarded law professors such as Charles Fried of Harvard :see When Bonus Contracts Can Be Broken

Contracts Now Seen as Being Rewritable

For an update on the debate on the ability to rewrite employment contracts after signature see the NYT article by Walsh and Glater

Jeff Immelt waives his right to his bonus

The renunciation by Jeff Immelt of his 2008 bonus, though laudable, is not unique. the Chairmen of Costco, James Sinegal, and Whole Foods, John Mackey, in 2007 decided not to take their bonuses even though, unlike the GE shares, the shares of their respective companies under their tutelage had done quite well. Noteworthy in this context is the observation of Costco’ Compensation Committee as reported in Costco’s SEC filings :The Committee …wishes to respect Mr. Senegal’s wishes to receive modest compensation, in part because it believes that higher amounts would not change Mr. Senegal’s motivation and performance”.

Food for thought indeed in these times of compensation packages under ever greater scrutiny. Should other companies follow Whole Food’s lead and establish limits on the maximum cash bonuses as a function of the average hourly wages for all full-time employees ($15, 38/h or $ 31,900/year at Whole Foods which with a maximum multiplier of 19 translates to a top cash bonus of $ 607,800).

Clear from these examples is that money is not the alpha and the omega of compensation policies. After all, paying a CEO twice the current compensation will not mean that the CEO will work twice as hard since that CEO is already supposed to work all the time for the company’s best interests.

Should we, as Messrs Buffet and Munger do, ask whether the senior executives love the money or the business?

The 2% illusion

The political discourse is tilting towards « taxing the rich » to pay for the electoral promises.Today’s editorial in the Wall Street Journal elegantly demonstrates the fallacy of the « tax the rich » premise by showing that even if the so-called « rich » were taxed at the rate of 100%,effectively leaving them nothing,then the amount raised would still not be enough to pay for all the programs promised see: http://online.wsj.com/article/SB123561551065378405.html?mod=rss_opinion_main

HEC Visions of Leadership 2007

Speaker at HEC Visions of Leadership : http://appli7.hec.fr/vol/events.php?PHPSESSID=f1a37c616043f9c8130ef171acb9a5cc

Sharks, hemlines and the economy

According to traditional hemline theory ,as hemlines go up so does the market-remember the Roaring Twenties when the flappers’ skirts got noticeably shorter, or the Swinging Sixties heralding the miniskirt and a long up cycle in the market ,and as hemlines go down so does the market -as we witnessed in the 30s and 40s.

Now, according to  George Burgess, ichthyologist and director of the International Shark Attack File,at the University of Florida we can say ,with science on our side,that as shark attacks go down so does the level of economic activity .Perhaps the trend might be reversed if our ladies were to lift their skirts at the sharks!For more information, see: University of Florida. « Shark Attacks Decline Worldwide In Midst Of Economic Recession. » ScienceDaily 20 February 2009. 20 February 2009 <http://www.sciencedaily.com/releases/2009/02/090219111000.htm#>.