Ponzi got 14 years. Bernie, 150.

Either the US Justice system knows more than the rest of us about the demographic time bomb threatening pensions or its sentencing system may be a touch detached from reality. That's alot of porridge and a shade more than the 12 his lawyer suggested was "fair".

Some media coverage:

Newsweek - "The Greediest of All Time". Probably the only time Mr Madoff will share space with a Pope whose family clearly had fiscal taxation ideas way ahead of their time:

The Daily Telegraph - even coverage of dodgy UK parliamentarians must bow to Bernie in this slightly unfairly slanted (by title) piece "Ten Top American Fraudsters":

The FT - "Wall Street’s white-collar criminals". Is it comforting to know Ebbers and Skilling are scheduled to get out less than 5 months apart in 2028?

Time - "Top 10 Crooked CEOs" a list that skillfully manages to include a porn star liaison:

And finally, Forbes - "The Longest White-Collar Prison Sentences". If you thought Bernie's 150 was tops disabuse yourself. He's an improbable number 4 some distance behind numero uno Sholam Weiss (currently serving 845 summers).

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Have a good one:

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I cannot say with certainty that British Airways' management are most responsible for the current dire accounting position the carrier finds itself in. But it is particularly interesting that CEO Mr Walsh leads a team that deems the public demonisation of their front line staff a prerequisite to preventing a calamitous financial stall.

There are 13,000 pilots and cabin crew in a total headcount of 40,627. A public battle and fixation on this 30% of staff who face customers seems a curious way to built a harmonious, customer service tilted company.

Still, on this count I tip my hat to Mr Walsh's Investor Relations and PR squads - for the press has given them an easy ride. It is rare to see such a lack of media cynicism to his well-trailed CEO stunt of foregoing a month of pay and then a few weeks later floating the same idea for those staff who did not receive £90,678 in company-paid pension contributions last year (page 70).

That may seem irrelevant. But in its last accounts BA recorded a pension deficit roughly equal to its market cap of £1.4bn. And that represents an improved position - the last actuarial triennial in 2006 put the hole at £2.1bn.

Guess where an instant £400m of the reduction came from in 2007? Staff - including those terrible 1970's (in spirit) work to rule trouble makers - who agreed to less retirement benefits (which were not notably generous to begin with) and an older retirement age. The overall deal is also good for ongoing annual savings of £80m*.

That staff contribute that much and then see 1 in 3 of their number demonised a scant 24 months later as recalcitrant saboteurs seems a tad hypocritical.

Now, had they been responsible for the price fixing scandal and fines of 2007 (£270m and counting) it would be understandable. Or had they decided to sell the low cost carrier Go at the moment it became profitable in 2001 for £200m only to see it resold a bare year later for £374m to EasyJet who now carry more passengers than BA that, too, would be a mitigating factor. Or, having done that, had they then decided that being a one-trick London to NY pony was a Good, Diversified Strategy well, there too, demonisation might be a fair option. And is there a need to mention the customer goodwill (and compensation money) lost with the bungled Terminal 5 opening? It is not easy to stack 28,000 bags in a corner because they cannot be delivered with their owners.

So, in the circumstances, that management led by CEO Mr Walsh and CFO Mr Williams now talk about the high cost base of "legacy carriers" and attempt to set-up cabin crew as villains is very amusing in a pantomimish sort of way. Or it would be were a minority's livelihoods not, it appears, being lined up against the cost of past strategic mis-steps.

*Yet even this may not be enough with some analysts questioning the last pension deficit assessment. Citi, for example, expect the next actuarial triennial valuation (this September) to put it between £3bn and £3.5bn.

NB: Some scribe bias due, possibly, to the several BA and Air France staff he knows.

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Through my snail mail this morning arrived this cautiously optimistic piece from the LSE. An excerpt:

"At its core the recent failure of the global financial system reflects profound faults in our system of global governance. There has been no clear division of labour among the myriad of international institutions that have sought to address the crisis: their functions have often overlapped, their mandates have conflicted and their objectives have too often blurred. Attempts to tackle the crisis have been dogged by competition between states – leading to a dissonant response."

The authors emphasize the need, as ever, for reform but gloss over the process as "highly politicised". Understatement alert. It is a battleground with the Rest of the World aiming to reduce US and UK - its principle satellite ally in international fora - influence.

Revealing picture too:

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5 word response: Congrats, but where, Paul, where?

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Yesterday my hard drive died. As did the Obama Administration's plan to cap salaries at financial firms. But they still, apparently, intend to produce strong - very, very strong - "recommendations" (still unsurprisingly fuzzy in definition) on pay at some future date. Is there a link? Certainly.

Producing policy and guarantees that sell well but offer few protections to consumers is a valuable skill set. As Dell attempt to wiggle out of a warranty with 121 days to run whilst also encouraging the purchase of a further "extended guarantee" so administrators continue to behave like a guild of financial apothecaries floating one set of prescriptions then another all in the search, it seems, for something with no adverse side effects for themselves - or the patient - but that also proves popular.

The argument that government ought to "stay out of the private sector" is a powerful and usually adequate one. However, these are regulated firms for a reason: what they decide is optimal for them is not necessarily so for society. Extreme leverage, massive sector concentration and little financial downside for managers trying to goose the stock prices of firms greasing The Key Mechanism of the Credit System make it so.

Now the latest prescription out of the White House calls for a "pay czar". Snappy title but it does well to recall that the last real Czar did not enjoy a Disney ending. Perhaps a "pay commissar" might be more appropriate for (s)he might demand that financial executives' variable pay be tied to all the primordial interests in their firm - including those of depositors and debt holders*. More elegant than a cap.

Revolution! Not only would that keep owners' and executive option holders' wilder profit fantasies in check: it could be the shake-up (or should that be shake-down?) capable of taming leverage positions, fragmenting an industry in the interests of the greater good and injecting some semblance of institutional responsibility into the credit industry.

NB: Suggestions of cost-effective data recovery services most welcome.
* Full discussion of this approach by architects of the idea in June's newsletter.

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Newsletter alert

Monday, June 08, 2009 | | 0 comments »

The June Academic Research Monitor edition is out. Some highlights include:

  • The impact of corporate governance styles on profits in the current crisis
  • Re-tooling bankers' variable pay
  • The current under use of the US bankruptcy reorganisation procedure
  • The Great Depression vs the crisis of 2007-?
  • The effects of subprime fallout on retail lending levels
  • The common trait of recent asset bubbles
  • Price impact of foreclosures and distressed sales on the US house market
  • Time for gold, surely?

Subscribers, take your password and go here:

Potential subscribers, try a sample issue here.

Quarterly subscriptions are US$120. Email requirements or requests for more info to:

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Many interesting pics out moments ago from the Federal Reserve in the snappily titled report, Profits and Balance Sheet Developments at U.S. Commercial Banks in 2008. A sample, rearranged to tell their own story:

1) Bigger is better!

2) 'Cause concentration permits economies of scale!

3) Looked hunky dory 'till '07...

4) Damn ninjas! They lied to us!

5) And the so-called business elite were just as freaking imprudent! I mean, how the hell did some of the CEOs behind all these "strategic visions" get their jobs!?

6) Still, at least we managed to dodge the bullet to the heart - phew!

7) Course it was with help - the taxpayer backed us whole heartedly with new capital in recognition of our inherent worth and superior risk-management skills...

8) ...and just in time to stop these numbers changing sign! See you in Courchevel if not the Maldives!

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