Gretchen Morgenson

Big Rescues Must Work Because Smart People Care!

It is well known that smart people—particularly the subset of the intelligent sometimes called intellectuals—tend to overrate the role of intelligence in providing solutions to social problems. This was on display in lurid colors in Gretchen Morgenson’s Sunday column in the New York Times lamenting the lack of “an intelligent and comprehensive plan for dealing with mass foreclosures and the economic consequences associated with the [credit crash] debacle.”
Morgenson goes to great lengths to draw comparisons to New York City’s bankruptcy crisis in the midseventies—which, as she says, was avoided in part by a cabal of government officials and bankers conspiring to refinance the city’s teetering debt structure. But she goes too far in reading a greater lesson into this story. It becomes almost a fairy tale of intellectualism, in which well intentioned intellectuals swoop in from their glass and steel perches to rescue capitalism from its tendency toward anarchy. The idea that no rescue plan outside of permitting market processes to operate is available is reduced to “doing nothing.” A better way must be available because “America is full of smart and caring people!”
We’re second to no one in our appreciation of the smart and caring—we’re not supposed to call them the “best and the brightest” anymore—Inhabiting these Untied States. Unfortunately, we have stubborn memories that insist on recalling the fact that the mortgage crisis that set off the broader credit crisis has its origins in the plans of the smart and caring to expand homeownership beyond the levels established through market processes. Perhaps its time to give “doing nothing” a chance.
Big Rescues Can Work. Just Ask New York. [New York Times]

morgenson.184.jpgGretchen Morgenson may have a new punching bag and her name is Merrill Lynch. Bloomberg reports that subprime losses could make Merrill bonds riskier than debt issued by Bear Stearns.

Merrill may have the most potential for losses from so-called collateralized debt obligations, or CDOs, that repackage bonds backed by mortgages, analysts led by Jeffrey Rosenberg wrote in a research note this week. “The relative exposure to Merrill is likely understated,” Rosenberg said. Underwriting data “suggest Merrill Lynch has the most exposure of the brokers to subprime through the origination of CDOs,” his team wrote.
Merrill arranged $46 billion in structured-finance CDOs last year, according to data in the BofA report. Citigroup was second, with $21.3 billion, and Bear was 10th, packaging $9.4 billion of the deals.

We can only imagine that the response from Bear Stearns, who was taken to task by Morgenson a few weeks ago for what she regarded as “dubious industry practices and even fraud,” must be something along the lines of an off-color two-word phrase that we’re too Victorian to print here. This news couldn’t come at a better time—we hear Gretzky’s been looking to sink her claws into some fresh meat.
Earlier: Regards’ Just Seemed So Impersonal
SUBPRIME RISK HIGH [Bloomberg via NYP]

‘Regards’ Just Seemed So Impersonal

Dear Gret-Gret,
Bear here, just going to get right to it—what gives, sista? We thought we were buds, amigos, pals, in it through thick and thin. Why did you force us to get those matching tattoos last year in South Beach that say “Thick as a Brick” across our lower backs if you didn’t mean it? What happened to our pact: We take the good, we take the bad, we take them both and there you have: G-Bear. Apparently it got flushed down the toilet, along with, and we don’t want to say journalistic ethics, because that’s not the right word, but how about, YOUR FREAKING MIND?
So we had some losses—so what? “Like worms that surface after a torrential rain, revelations that emerge when an asset bubble bursts are often unattractive, involving dubious industry practices and even fraud.”? Excuse me? No, excuse you, Gret-Gret! No one else is going to tell you this because no one else knows you like we do but, damn, G, that was way harsh. And it’s so like you to pull this kind of shit. You get up there on your high horse and that tee-shirt you had made on Café Press that you guilted all of us into getting so you could get the minimum number of buys, you know, the one that says, “’No Shirt, No Shoes, No Pulitzer, No Service” and you just railllllll against everyone and rake us over the freaking coals like it’s your god damn duty. Well let us remind you of something, Miss Thang—we knew you when. We knew you when you were just Gretchy-Sue Molinsky, when you wore Candies and would sneak out of the house to visit your boyfriend at PSU, the one who you told you were a senior in high school. Senior in high school my ass, toots.
So let’s end this charade, missy and call a spade a spade. You don’t like us and we don’t like you. Maybe it’s time we just end this relationship before one of us does or says something we really regret– oh wait, you already did that. We hope that glorified piece of Hanukah gelt was worth trading our friendship for. Have a nice life.
-Bear
‘STEARN’ RESPONSE TO TIMES ARTICLE [NYP]

Gret-Gret Totally Loses Her —-

Morgenson1.jpgWe’ll admit it. One of the things we missed while we were hospitalized and recovering from our hostile merger with the front end of a fast-moving automobile was reading Gretchen Morgenson on Sundays. Her fevered columns may have forced law professor Larry Ribstein to give up his regular critiques of her work—apparently he sleeps better now that he doesn’t read her—but it’s just the sort of thing we need to get our blood flowing after a Saturday night of self-medication and saloon socializing.
This week Gret-Gret certainly didn’t disappoint. She’s in celebration mode. Her buoyant mood has arisen from her discovery of a recent speech by Wachtel, Lipton, Rosen & Katz named partner Marty Lipton warning that the current environment of criminal penalties attaching to corporate scandals may be diminishing the willingness of qualified individuals to serve as directors on corporate boards. This is indeed a difficult question—how do you encourage more responsible corporate government without making the job of a corporate director so unappealing that you diminish the quality of the willing candidates—but not one that has much of hold on Gret-Gret’s mind.
What’s got her excited is the simple fact that Marty Lipton—and presumably the corporate managers who are his clients—are worried. And whatever makes the Liptons of the world lose sleep is bound to bring ecstasy to Gret-Gret. And that’s a bit sad. Rather than attempting to find solutions to the very real problems of corporate governance and board accountability, it’s clear that Gret-Gret looks at this as a contest between the Good Guys and the Bad Guys.
But, to be honest, watching Gret-Gret fight with Lipton makes us feel like a bit like we’re looking through the farm house window at George Orwell’s pigs playing cards with the farmers. There’s certainly not much to choose between them, and no matter who wins we’re pretty sure it’s not going to benefit investing public.
Oh, and we’re sorry. But unless you are a “Times Select” subscriber, you can’t read the column yet. It’s hidden behind a the New York Times‘ brilliant attempt to jam its own signal. Something called “Times Select.”
Update: Even Professor Ribstein couldn’t resist Gret-Gret this week!

Memo to Shareholders: Shut Up
[$$] [New York Times]

Gret-Gret’s Dance of the Seven Veils

Morgenson1.jpgGret-Gret–sorry, Pulitzer Prize winning New York Times business writer Gretchen Morgenson–has been one of the foremost critics of executive compensation. And in today’s column you can practically smell the gloat-sweat. You just know somewhere in her office she’s got a little sliver platter with an effigy of Bob Nardelli’s head on it.
Of course, Gret-Gret is smart enough to let others do the actual crowing but it doesn’t take much guess work to understand that these people are being quoted because they are saying what Gret-Gret wants to write:

“The departure of Nardelli is good news for shareholders,” said Frederick E. Rowe Jr., a money manager in Dallas and president of Investors for Director Accountability. “To borrow from Winston Churchill, this is the end of the beginning in the war to make directors accountable to the shareholder owners they represent.” Mr. Nardelli’s fall from the executive firmament was fairly stunning. In just six years, he went from being one of the most sought-after chief executives, forged in the management crucible that is General Electric, to a top target of investors outraged by his $245 million in total pay over the last five years. That amount was seen as completely at odds with the dismal performance of Home Depot stock on his watch. Yesterday, the shares closed at $41.07, almost 6 percent lower than they were the day Mr. Nardelli arrived at Home Depot in December 2000.
“C.E.O.’s now will understand that they’ve got to put their conscience and shareholder wealth well above their personal gain,” said Jeffrey M. Cunningham, chairman and chief executive of Directorship, an online information service for board members. “Boards create termination packages when no one even contemplates there is going to be a termination and they are extraordinarily rich. You are going to see all those plans rethought and rationalized for the new environment.”

A Warning Shot by Investors to Boards and Chiefs [New York Times]

Morgenson1.jpgEvery weekend law professor Larry Ribstein must wake up with an evil grin on his face. Another Sunday New York Times Business Section means another column by Gretchen Morgenson—and another chance to smash her to tiny, little pieces. Some of his takedowns have been so effective that we actually start to feel bad for Gret-Gret.
This Monday we find that Larry actually has something nice to say about Gret-Gret’s Sunday column on share buybacks.

This week Gretchen Morgenson is writing about executive compensation. Who’d a thunk it.
Her specific issue is how share repurchases can help executives whose pay is pegged to earnings per share. So she’s proved that she can divide — when the denominator goes down and the numerator stays the same the fraction is larger. Very good, Ms M.

Well, we guess that’s kind of nice. Then it get’s nasty, again.

But I’ll pass all that and get to the dumbest part of the column. She says

when buybacks are used to offset multitudinous stock option grants to corporate executives, an even more pernicious outcome can occur: the purchases may actually destroy shareholder value by forcing companies to essentially buy stock in the open market at high prices to cover shares sold at lower prices to executives.

Ok, now Ms M proves she can subtract, too. But wait. How does one number relate to the other? It’s fine to prove you can subtract, but you really should know why you’re subtracting. Why should we care about the difference between the share price at the time of the repurchase and the share price at the time of the option exercise?
Believe it or not this isn’t the first time Morgenson has uttered this stupidity.

Gretchen Morgenson proves she can divide and subtract [Ideoblog]
Why Buybacks Aren’t Always Good News [New York Times ($$)]