Investing Curiouscatblog

Tag: ethics

  • Amazon Keeps Spending, Sales Growing But Not Income

    I think Amazon is a great company and Jeff Bezos is a great leader. I sold the stock I had in Amazon hoping that prices would fall and I could buy it back (I sold a small portion held in my 12 stock for 10 year portfolio). So far that hasn’t worked. The latest earnings from Amazon were more of the same. Very good revenue growth (up 38% to $9.86 billion). Very large increases in spending. And bad earnings news (net income down 33% year over year). I think this is due to smart choices by Amazon (I would be a bit more focused on current earnings but I understand the vision of Bezos and it is very wise and support it).

    Normally the stock market punishes this type of pattern. Even Google, that has a similar pattern (but with much better earnings growth), has a stock price that has been held back much more. This quarter investors again punished Google for good earning growth but also high expense growth. Amazon avoided that response, even with shrinking earnings and guidance of lower earnings. Jeff Bezos wrote about these decisions to invest in increasing expenses in Amazon’s shareholder letter

    The advances in data management developed by Amazon engineers have been the starting point for the architectures underneath the cloud storage and data management services offered by Amazon Web Services (AWS). For example, our Simple Storage Service, Elastic Block Store, and SimpleDB all derive their basic architecture from unique Amazon technologies.
    …
    All the effort we put into technology might not matter that much if we kept technology off to the side in some sort of R&D department, but we don’t take that approach. Technology infuses all of our teams, all of our processes, our decision-making, and our approach to innovation in each of our businesses. It is deeply integrated into everything we do.
    …
    And we like it that way. Invention is in our DNA and technology is the fundamental tool we wield to evolve and improve every aspect of the experience we provide our customers. We still have a lot to learn, and I expect and hope we’ll continue to have so much fun learning it. I take great pride in being part of this team.

    Operating cash flow increased 9% to $3.03 billion for the trailing twelve months, compared with $2.78billion for the trailing twelve months ended March 31, 2010. Free cash flow decreased 18% to $1.90 billion for the trailing twelve months, compared with $2.32 billion for the trailing twelve months ended March 31, 2010.

    Operating income was $322 million in the first quarter, compared with $394 million in first quarter 2010. Net income decreased 33% to $201 million in the first quarter, or $0.44 per diluted share, compared with net income of $299 million, or $0.66 per diluted share, in first quarter 2010.

    I continue to think Amazon is being a bad corporate citizen by fighting efforts to have Amazon play its proper role in the collection of sales tax. Ethics mean doing the right thing even if it costs you something personally. Amazon continues to act as an organization that fights what is right for society for their own greedy reasons. This is the worst behavior Bezos continues to push and does indicated a refusal to accept the responsibilities of participation in a society. Overall I believe Bezos does many great things but this disrespect for our society is a serious ethical problem.

    Related: Amazon Soars on Good Earnings and Projected Sales (Oct 2009) – 12 Stocks for 10 Years: Feb 2011 Update – Another Great Quarter for Amazon (July 2007) – Amazon’s Bezos on Lean Thinking

  • Executives Again Treating Corporate Treasuries as Their Money

    A huge problem with current practices at American companies is that senior executives believe they personally are due what the company earns. The repeated ethical lapses perpetrated by the senior executives and supported by their well paid board continues to undermine the economy of the country.

    Two events last week illustrate the level of disconnection with reality the current crop of ethically challenged senior executives.

    First, we have the senior executives at the too big to fail financial institutions that did fail and were bailed out by taxpayers. We all know the economic calamity caused by these executives, throwing millions of people out of work, adding huge burdens to already overburdened future taxpayers with the huge spending governments engaged in, in order to successfully avoid what would have been a depression. Fewer people realize the government has been systemically transferring money to these large, too big to fail financial institution from millions of savers with policies directly providing billions in profits to all the large financial institutions that had failed.

    So what did the senior executives that failed as spectacularly as anyone has ever failed economically in history do last week? They paid themselves tens of millions of dollars, paid for by all those who have received artificially lowered rates (through action by the Federal Reserve in order to save the economy and reward their member banks) on their savings which provided billions in profit to the failed large financial institutions. Just like 5 years ago, as they were doing their best to take such detrimental actions that would cause a depression (but for the government saving us from that outcome) they again use the excuse that they are just doing what all their colleagues are doing.

    The lack of honor of these men is amazing. And the lack of honor of those who continue to treat these people as anything but pariahs is amazing. That we continue to pursue policies that enable and enrich too big to fail financial companies on the backs of those that save and in so doing provide billions in profits for the executives to treat as their personal bank accounts is sad.

    The compatriots of those senior executives at Transocean showed the same disregard for honor, accuracy and truth. First, who is Transocean?

    A presidential commission concluded that the explosion [in the Gulf of Mexico last year] had been caused by cost-cutting and directly blamed Transocean, BP and Halliburton for the disaster.

    So with what was one of the worst (if not the worst) economic safety failures ever and 11 deaths in the explosion, this is what Transocean senior executives say, in their SEC filings:

    “Notwithstanding the tragic loss of life in the Gulf of Mexico, we achieved an exemplary statistical safety record as measured by our total recordable incident rate and total potential severity rate,” the report says.

    “As measured by these standards, we recorded the best year in safety performance in our company’s history, which is a reflection on our commitment to achieving an incident free environment, all the time, everywhere,” it adds.

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  • Greenspan Says Congress Should Let Tax Cuts Expire

    Alan Greenspan made several huge errors while chairman of the Federal Reserve. Failing to deal with the massive risk taking and fraud by the member banks of the Federal Reserve was one. And supporting tax cuts for a country that was hugely in debt (while current deficits were still huge was another. Yes anyone can claim (and he did) future surpluses, but there had yet to be a single year of surplus, and obviously we would have been in deficit even before the tax cuts put us much much further in debt, history has shown .

    But Greenspan said government estimates project more than enough surplus funds to pay off the debt and reduce taxes too.

    That is either amazingly bad economic forecasting or a lie. My guess is he knew this wasn’t true. Which would make it a lie. If he really was that out of touch with economic reality, we have to question why we ever thought he had insight into the economy.

    Greenspan Says Congress Should Let Tax Cuts Expire

    WOODRUFF: On those tax cuts, they are due to expire at the end of this year. Should they be extended? What should Congress do?

    GREENSPAN: I should say they should follow the law and let them lapse.

    WOODRUFF: Meaning what happens?

    GREENSPAN: Taxes go up. The problem is, unless we start to come to grips with this long-term outlook, we are going to have major problems. I think we misunderstand the momentum of this deficit going forward.

    Related: Estate Tax Repeal (2006) – Charge My Government to My Kids (2007) – USA Federal Debt Now $516,348 Per Household

    Accepting that, I don’t agree with those that vilify his performance. He was Fed chairman from 1987-2006. He made some very bad decisions that cost people dearly. But it isn’t very surprising someone in such power for so long would make some very bad and costly decisions. My guess is he caved to pressure from political allies that reminded him how the current President Bush’s father blamed Greenspan’s decisions for his losing the Presidency. And so Greenspan was trying to do what he could to do what the then President Bush wanted. Not a very honorable explanation but people often do not make the most honorable choices.

    In 2003 he publicly disagreed with the wisdom of additional cuts:

    Alan Greenspan, the Federal Reserve chairman, today rebutted many of President Bush’s arguments in favor of big new tax cuts, saying that the economy probably does not need any short-term stimulus and warning that budget deficits could spiral out of control.

    Politicians, eager to give favors, at the expense of the future, went ahead and passed more tax cuts – weakening the country for their (and their political allies) short term benefit.

    Related: Estate Tax Repeal (2006) – Charge My Government to My Kids (2007) – USA Federal Debt Now $516,348 Per Household

    Greenspan’s thoughts on the economy, from his July 16th 2010 interview:
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  • You Can Help Reduce Extreme Poverty

    The Life You can Save

    But extreme poverty is not only having unsatisfied material needs…
    You have a pervading sense of shame and failure because you cannot provide for your children. Your poverty traps you and you lose hope of ever escaping from a life of hard work for which, at the end, you will have nothing to show beyond bare survival.
    The number of people currently living in such conditions is 1.4 billion. This is bad, but not as bad as things were in 1981, when there were 1.9 billion people living in extreme poverty. That was about 4 in every 10 people in the world, whereas now fewer than 1 in 4 are extremely poor.
    …
    UNICEF, the United Nations International Children’s Emergency Fund, estimates that about 24,000 children die every day from preventable, poverty-related causes.

    Personal finance is not just about living within a budget and making sensible steps to make safe financial decisions (safe investment portfolio, proper insurance, adequate savings, emergency fund) it is also about using your finances appropriately for you. I believe strongly in helping those that have not been as lucky to have the opportunities I have economically.

    Some of my favorite ways to help reduce extreme poverty are Trickle Up, Kiva and using Global Giving to find small organizations (like the Anupshahar’s Girls School, Build Women’s Fair Trade Businesses, Profit for Poor Farmers, and Vegetable Gardens for India). I encourage you to join me: let me know if you contribute to Kiva and I will add your Kiva page to our list of Curious Cat Kivans. Also join the Curious Cats Kiva Lending Team (I am happy to say we have made over $7,500 in loans so far).

    If you like that webcast you will like The Girl Effect.

    Related: Creating a World Without Poverty – Financial Thanksgiving – 100th Micro Finance Entrepreneur Loan (I am not over 200) – 2006 Nobel Peace Prize to Founder of Micro-finance Bank – High School Team Project to Provide Clean Water

  • Can Bankers Avoid Taking Responsibility Again?

    Banks continue to pay our politicians well to make sure they continue doling out special favors to the large banks. It is up to you, and your neighbors whether you hold politicians accountable for the actions they took to create the climate for the credit crisis and the huge favors granted (with your money) by politicians to those investment bankers. The bankers count on their money buying the politicians. I would have to say they are smart to believe that, though there is a small chance the invulnerability they feel is possible to pierce with enough foolish moves by the bankers and their friends (but in order for that to happen people would have to actually vote to elect ethical, intelligent and patriotic politicians instead of those who play the public for fools). I would put my money on the public again using their votes to elect those that will enrich special interests that pay the politicians at the expense of the country.

    Banks Say No. Too Bad Taxpayers Can’t

    Fannie and Freddie helped grease the nation’s housing machinery before and during the boom years, scooping up loans from all corners of the country. The more of these that Fannie and Freddie bought, the easier it was for banks to write new mortgages.

    To protect themselves from getting piles of garbage loans shoveled their way when they buy mortgages, Fannie and Freddie require lenders or loan servicers to sign contracts requiring those firms to repurchase loans that don’t meet certain standards relating to borrower incomes, job status or assets. Loans that were extended fraudulently, or deemed to have been predatory, are also candidates for buybacks.

    Surprise, surprise: banks don’t want to repurchase these loans. So when Fannie or Freddie identify problem mortgages and request repayment, a battle royal begins. Banks may argue, for example, that the repayment requests have flaws of their own.

    But for us as taxpayers, watching this battle from the sidelines, one growing concern is how aggressively Fannie and Freddie will pursue their requests. If banks refuse to buy back flawed loans, taxpayers will have to cover more of the losses.
    …
    According to March 31 figures from Freddie, for instance, the amount of problem loans that it has asked other firms to buy back stood at $4.8 billion — up 26 percent from $3.8 billion just three months earlier.
    …
    Banks have been unwilling to mark all of the bad loans they have and mortgage securities they hold to their true values because that would require a loss,” said Kurt Eggert, a professor at the Chapman University School of Law. “But this is about banks trying to avoid losses and having the taxpayers absorb them.”
    …
    Michael Cosgrove, a Freddie spokesman, said that the company is aggressive about enforcing its right to recover on questionable loans because it has a duty to be a good steward of taxpayer dollars. “These reviews are more important than ever; there is no reason why taxpayers should pay for decisions that led to the sale of bad loans to Freddie Mac,” he said.

    $4.8 billion? That seems amazingly low for all the fraudulent activity these banks are suppose to have engaged in. But so long as they can foist the problem loans into the taxpayers hands they can claim to deserve billions in bonuses for themselves. The staggering magnitude of the special favors bought by the bankers is amazing. The politicians have shown they are supporting their banking friends while saying a few tough words. And most likely the politicians and bankers will be celebrating another successful election this fall. If we want to change the outcome we can. But we don’t seem interested in doing so.

    Related: Paying Back Direct Cash from Taxpayers Does not Excuse Bank Misdeeds – The Best Way to Rob a Bank is as An Executive at One – Sabotaging Regulated Financial Markets Leads to Predictable Consequences – Congress Eases Bank Laws – 1999

  • Private Foreign Banking Deposits by Country

    According to a new report on Privately Held, Non-Resident Deposits in Secrecy Jurisdictions the United States is the country with the largest amount of private, non-resident, deposits. Cayman Islands takes second, upholding its commonly held reputation as a tax haven often used to avoid paying taxes own by wealthy people. Switzerland comes in 9th.

    The countries with the most private, foreign deposits in billion of $US.

    Country June 2008 June 2009
    1 United States $2,899 $2,183
    2 Cayman Islands $1,515 $1,550
    3 United Kingdom $1,796 $1,534
    4 Luxembourg 588 435
    5 Germany 494 426
    6 Jersey 544 393
    7 Netherlands 413 316
    8 Ireland 273 276
    9 Switzerland 289 274
    10 Hong Kong 325 268

    Since 2001 deposits in the Cayman Islands have more than tripled, while those in the UK have close to tripled and in the USA they have a bit more than doubled.

    • Total Current total deposits by non-residents in offshore centers and secrecy jurisdictions are just under US$10 trillion;
    • The United States, the United Kingdom, and the Cayman Islands top the list of jurisdictions, with the United States out in front with more than US$2 trillion in non-resident, privately held deposits in the most recent quarter for which data are available (June 2009);
    • Contrary to expectations of perceived favorability for deposits, Asia accounts for only 6 percent of worldwide offshore deposits, although Hong Kong is the tenth most popular secrecy jurisdiction by deposits in this report;
    • The rate of growth of offshore deposits in secrecy jurisdictions has expanded at an average of 9 percent per annum since the early 1990s, significantly outpacing the rise of world wealth in the last decade. The gap between these two growth rates may be attributed to increases in illicit financial flows from developing countries and tax evasion by residents of developed countries.

    The report is an interesting read and provides some background on the banking practices often used in concert with wealthy people avoiding paying taxes. As you may we recall we noted that rich USA tax evaders tried to sue to hide their illegal activities from the Department of Justice. As far as I know those rich thieves have not been put in jail. I guess stealing tens and hundreds of thousands of dollars from the United States of America, by rich people, is not seen as important (either that or brides work to make sure the way rich people steal isn’t punished) say compared to some teenager stealing from a store.

    Related: Government Debt Globally as Percentage of GDP 1990-2008 – USA, China and Japan Lead Manufacturing Output in 2008 – Oil Consumption by Country in 2007

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  • Paying Back Direct Cash from Taxpayers Does not Excuse Bank Misdeeds

    Many people are ignoring huge costs (to the economy) and benefits (to those financial companies that ruined so many people’s lives and severely damaged the economy. Paying back money the government paid you is not that same as being innocent. While several of the too big to fail banks have paid back the direct cash they were given that is not an indication they are now off the hook for their disastrous behavior.

    First we know that much of the money “sent to AIG” just went directly to Goldman Sachs and others. Those big banks had taken risks and the only way those risks paid off was with billions from taxpayers. Without that they would have been bankrupt. And then when they paid the money they received directly they still haven’t paid back the billions they got from taxpayers (via AIG). And this money was paid back at 100 cents on the dollar though those instruments were trading for much less in the market (the government certainly would have found a less costly solution but for ignorance or a desire to reward their former company and friends at Goldman Sachs.

    Second, rates have been kept artificially low, to among other things, allow the big banks to make tens of billions (and costing savers tens of billions). Those savers have not been reimbursed for the losses caused by the big banks.

    And third if I gamble with money from my company and win my bet on the Super Bowl and then put the money back, I am still not innocent. Just because many of the big banks have paid back the money they were given directly by taxpayers does not mean they didn’t get huge benefits from the government. Pretending they are not bad guys because after ruining the economy, costing millions of people their jobs and savings, getting many benefits from the government, they then pay back the direct cash payments is not accurate.

    Response to: The New Bank Tax

    Related: Elizabeth Warren Webcast On Failure to Fix the System – The Best Way to Rob a Bank is as An Executive at One – Failure to Regulate Financial Markets Leads to Predictable Consequences – Jim Rogers on the Financial Market Mess – Congress Eases Bank Laws (1999)

  • Buffett Calls on Bank CEOs and Boards to be Held Responsible

    In his most recent letter to shareholders Warren Buffett suggests that bank CEOs and board members be held accountable when the risks they take (and reward themselves obscenely for when they payoff) backfire:

    In my view a board of directors of a huge financial institution is derelict if it does not insist that its CEO bear full responsibility for risk control. If he’s incapable of handling that job, he should look for other employment. And if he fails at it – with the government thereupon required to step in with funds or guarantees –
    the financial consequences for him and his board should be severe.

    It has not been shareholders who have botched the operations of some of our country’s largest financial institutions. Yet they have borne the burden, with 90% or more of the value of their holdings wiped out in most cases of failure. Collectively, they have lost more than $500 billion in just the four largest financial fiascos of the
    last two years. To say these owners have been “bailed-out” is to make a mockery of the term.

    The CEOs and directors of the failed companies, however, have largely gone unscathed. Their fortunes may have been diminished by the disasters they oversaw, but they still live in grand style. It is the behavior of these CEOs and directors that needs to be changed: If their institutions and the country are harmed by their
    recklessness, they should pay a heavy price – one not reimbursable by the companies they’ve damaged nor by insurance. CEOs and, in many cases, directors have long benefitted from oversized financial carrots; some meaningful sticks now need to be part of their employment picture as well.

    The lack of accountability or ethics from those risking the economy so they can take huge payments (and paying off politicians to allow those risks) has hugely damaged the USA and the economic future of the country. The longer we allow such unethical leadership to continue to the more we will suffer. The current low interest paid to savers and the wealth thus transferred to the banks (who then pay themselves even more bonuses) are but one legacy of this economically devastating path.

    By the way, there is no way the bankers will actually be held accountable. The behavior of politicians we continually elect shows they will not do something that those giving them the huge amounts of cash don’t like. If we don’t like that we have to elect different people – maybe people that care about the country and have moral principles instead of those lacking such qualities, that we do elect.

    The politicians believe in holding those that don’t give them huge payments accountable for their actions. They just draw the line at holding people that they play golf with accountable.

    Related: CEOs Plundering Corporate Coffers – Credit Crisis the Result of Planned Looting of the World Economy – The Best Way to Rob a Bank is as An Executive at One – Fed Continues Wall Street Welfare – Political Favors for Rich Donors – Why Pay Taxes or be Honest

  • The Best Way to Rob a Bank is as An Executive at One

    William Black wrote The Best Way to Rob a Bank Is to Own One: How Corporate Executives and Politicians Looted the S&L. I think he a bit off on the “owning one,” being the best way to loot. The looters are not owners, they are executives that loot from owners, taxpayers, customers… And those looters pay politicians a great deal of money to help them. He appeared on Bill Moneys Journal discussing the huge mess we know are in and how little is being done to hold those responsible for the enormous crisis created by them.

    Fraud is deceit. And the essence of fraud is, “I create trust in you, and then I betray that trust, and get you to give me something of value.” And as a result, there’s no more effective acid against trust than fraud, especially fraud by top elites, and that’s what we have.
    …
    The FBI publicly warned, in September 2004 that there was an epidemic of mortgage fraud, that if it was allowed to continue it would produce a crisis at least as large as the Savings and Loan debacle. And that they were going to make sure that they didn’t let that happen. So what goes wrong? After 9/11, the attacks, the Justice Department transfers 500 white-collar specialists in the FBI to national terrorism. Well, we can all understand that. But then, the Bush administration refused to replace the missing 500 agents. So even today, again, as you say, this crisis is 1000 times worse, perhaps, certainly 100 times worse, than the Savings and Loan crisis. There are one-fifth as many FBI agents as worked the Savings and Loan crisis.
    …
    Well, certainly in the financial sphere, I am. I think, first, the policies are substantively bad. Second, I think they completely lack integrity. Third, they violate the rule of law. This is being done just like Secretary Paulson did it. In violation of the law. We adopted a law after the Savings and Loan crisis, called the Prompt Corrective Action Law. And it requires them to close these institutions. And they’re refusing to obey the law.
    …
    In the Savings and Loan debacle, we developed excellent ways for dealing with the frauds, and for dealing with the failed institutions. And for 15 years after the Savings and Loan crisis, didn’t matter which party was in power, the U.S. Treasury Secretary would fly over to Tokyo and tell the Japanese, “You ought to do things the way we did in the Savings and Loan crisis, because it worked really well. Instead you’re covering up the bank losses, because you know, you say you need confidence. And so, we have to lie to the people to create confidence. And it doesn’t work. You will cause your recession to continue and continue.”
    …
    And their ideologies, which swept away regulation. So, in the example, regulation means that cheaters don’t prosper. So, instead of being bad for capitalism, it’s what saves capitalism. “Honest purveyors prosper” is what we want. And you need regulation and law enforcement to be able to do this. The tragedy of this crisis is it didn’t need to happen at all.

    Related: Fed Continues Wall Street Welfare – Credit Crisis the Result of Planned Looting of the World Economy – Lobbyists Keep Tax Off Billion Dollar Private Equities Deals – Poll: 60% say Depression Likely – Canadian Banks Avoid Failures Common Elsewhere – Too Big to Fail – Why Pay Taxes or be Honest