Friday, January 10, 2003

Speaking of Deficits

I was checking in on Scrappleface this morning and read this piece about the Accounting Oversight board, which was created by the Sarbanes-Oxley Act (Dem and Rep, one jackass from each).
The PCAOB, in its first meeting yesterday voted to pay its members $452,000 per year, which is $50,000 more than the U.S. President makes, and more than triple the salary of the S.E.C. chairman and Supreme Court Justices. It also voted to borrow $1.9 million to cover its expenses for this month, while it waits for Congressional funding of $540-$776 million a year, or so. The board also rented office space formerly held by the bankrupt Arthur Anderson accounting firm.
And I thought, he's so funny. What a card. Hey this can't be true... Or could it? Well, holy shite it is.
Other topics covered in the board's first meeting:
Board member salaries. The five board members agreed to set their own pay in line with the pay of Financial Accounting Standards Board members. FASB members are paid $452,000 a year, the chairman $556,000.
Ah yes, as an investor I feel so much better that the "public trust" is being protected by beauracrats that will forever be motivated in maintaining and increasing their salaries. Salaries that are set by the gov't itself. I have no idea if they are worth the money they are being paid. How will I know if they are doing a good job? How will I know if they are effective? If everybody behaves themselves will they cause problems just to justify their existence? In the case of the jackasses at Andersen they are gone, bankrupt. Their business relied on credibility. This oversight board will never go bankrupt, and the only time anybody is going to be fired is if these guys screw up royally. But if some more miscreants are found, who is really at fault? Is it the board or the miscreant? The miscreant, of course.

Nice work if you can get it, set your salary at half a million (don't want to seem greedy). Basically, the chances of fraud are already so tiny that you don't need to do any real work, you just need to pretend you are doing something. If a problem arises its not your fault, its the "criminal's".

Thursday, January 09, 2003

Wither, Old Media

The times they are a changing. But you already knew this.
During the day, more working adults turn to online news than traditional offline news such as television to access breaking news. 35% of study respondents used the Internet for news and information, followed by newspapers (25%), magazines (21%), radio (17%), broadcast television (6%) and cable television (3%).
The Internet is the preferred medium for national news with 37% interviewed using the Internet for this purpose compared to cable (25%) and broadcast (18%).
Based on my experience, there is so much in-depth information available on the internet that I have not watched a network news program for years. Mainly because the network news is a joke. Based on the number of blog readers and writers it seems a sizeable number of people have also. These are sad times for CNN, aka Cable Nitwit Network.

Saw this one coming

The Consumers Union (publishers of Consumer Reports) is whining about the cable companies raising cable rates. Never mind that the co's have invested $100's millions ($70 billion according to the cable co trade group) in upgrading networks to offer high-speed internet access, video on demand, digital cable. These investments are also known as risks since you and I may not buy the services. You and I may choose instead to get Direct TV if we think the cable companies are charging too much. And last I checked TV-viewing is not in Maslow's hierarchy of needs, so why is the Consumers Union so worked up about it? That is a rhetorical question. The Consumers Union will have a hard time of raising the $20 million in annual donations if it did not make a stink about something or other.

Bottom line, if the Consumers Union thinks they can do a better/cheaper job than the cable company they are welcome to try. In the 2001 fiscal year they had $161,354,741 in revenue and a profit gain of $9,233,339 (see here). In the May 2001 quarter they had $88,583,469 in investment and securities, $61,312,572 in fixed assets. That's a decent place to start. The Consumers Union can line up financing to build their low-cost cable network and use some of these assets as collateral. This would be putting your money where your mouth is, taking a risk, sometimes known as capitalism. If the Consumers Union took up this challenge it could be a milestone for the organization. Rather than trying to influence gov't mandated price controls via its traditional approach of using legal action, political lobbying and issuing press releases, they can directing impact prices by offering consumers something they can purchase at prices the Consumers Union thinks are fair.

Wednesday, January 08, 2003

Citizen Armey

Dick Armey has an editorial in the WSJ discussing his professional plans. Worth reading.
Which brings me to my final point. Freedom works. Freedom is good policy and good politics. There is an untapped constituency, ready to be engaged if our political leaders are willing to be more entrepreneurial. I saw promising signs of this in the last election, where successful candidates like New Hampshire's new senator, John Sununu, ignored the established political wisdom and engaged the voters on Social Security and the flat tax. Rep. Pat Toomey won a remarkably easy re-election in his union-leaning, Democrat district in eastern Pennsylvania by talking about across-the-board tax cuts and personal retirement accounts. In fact, so did most of the Republican candidates that make up the new Senate majority.

Today, the political left continues to cling to failed government programs because they have no new ideas. We do. We also have control of both the legislative and executive branches of government for the first time in a generation. There is a real opportunity to move our economic agenda. Moving forward, we need to continue to build a powerful, citizen army that can go toe-to-toe against the teachers' unions, trial lawyers, corporate tax lobbyists and liberal "consumer" groups. The ideas of liberty need the political power that can only be produced by patriotic Americans committed to our values, organized by community, trained in effective mobilization skills, and prepared to drive the policy agenda at the local, state, and federal levels.
Sign me up Dick. FYI, Citizens for a Sound Economy. The "We" being libertarians, classic liberals, not the socialist-liberals of todays left which have permeated the Democratic party.

Tuesday, January 07, 2003

Oh Barry

Dave Barry has an article up about his family's trip to the Smithsonian. Its pretty funny. Here's an excerpt.
I clung fiercely to my 2-year-old daughter, Sophie, afraid that if I set her down, she'd disappear into the mob, and I'd find her years later in the Pacific Cultures exhibit, wearing a grass skirt and demonstrating how ancient Pacific islanders would pound roots with rocks to make their favorite dish, Pounded Root.

Monday, January 06, 2003

Higher Phone Prices

There have been several articles (like this one from Fox) about phone companies raising rates. The articles are trying to reconcile how is it that despite, supposed, increased competition rates are going up. Its a funny twist of fate that technology is mostly to blame. Over the last decade phone companies, like AT&T(T), WorldCom(WCOME), Verizon(VZ), etc. have made some poor technological decisions and their problems (debt vs revenue) have been getting progressively worse.

Often you here talk about the telecom boom and bust accompanied by a ghoulish smirk, however, a very profound technological innovation happened during that period. The use of WDM telecom equipment (new generation of fiber optic equipment) completely changed the cost structure of handling telecom traffic, both voice and data. Many of these venerable phone companies had older equipment and networks designed around this old expensive stuff. As new comers like Level 3, Global Crossing and a myriad of other young guns started building competing networks the old guard did not make the right long term decision. They almost could not, for them to use the new equipment would have required them to make a multi-billion dollar investment and abandon their existing networks. The phone companies' situation is an excellent example of the Innovator's Dilemma.

Instead the phone companies invested in equipment that gave their old infrastructure incremental upgrades. They also invested billions of dollars in other businesses, like wireless and cable. Many of these investments were made during the boom period and they paid a high premium for their acquisitions. I can only guess that they were counting on reliable revenue from their phone operations to fund the debt. But time and the march of technology has not been on their side. Last year for the first time in more than 60 years the number of phone lines being laid to homes declined. What is going on? Its the internet stupid. Just speaking from my own little hovel, I have started using Vonage for my phone service and will soon cancel my Verizon local and MCI long distance (I'll write something about my Vonage experience later). Also people rely more on their wireless phones. All this adds up to more competition for the phone companies, from many unlikely places, not just their big brothers. They are like a very, very big ship with an increasing number of small holes. In the beginning the leaks are not noticeable but eventually they start to seem pretty critical.

So why are the rates going up? Things are getting desperate. AT&T has a debt/equity ratio of 1.0, Verizon 1.8, SBC Comm .74, BellSouth 1.01. High debt is not a problem if you have growing revenue to offset it (that is called a productive use of capital), or if revenue is stable and enough to service the debt. But when revenue is falling, or cresting, its time to panic.

Personally I don't care if they raise their rates. The fact that I don't care about the rate increase is a problem for them. I won't be using them much longer. Today about a third of all US households have high-speed access internet connections. That is a lot of consumers that can switch to VOIP (Voice Over IP) phone service in a heart beat. All those folks will not dump AT&T, MCI overnight, but little by little people will move, especially as prices go higher and higher.

Ironically, the "winners" in all this are the cable companies. They have the best high-speed connections and will benefit from the telecom implosion. The next needed tech innovation is a way to get high-speed access without using the cable connections. Why is it needed, because the cable operations are just as regulated as the phone companies. As the phone companies implode the regulators will move more of their attention to cable.

New Year

I would like to wish whom ever stumbles upon this corner of the WWW a belated happy and prosperous New Year. Things have gotten off to a slow start as far as the complaining, jokes and writing goes, but here is an annoying little piece from America: Who Really Pays the Taxes.
Page 204: from the Tax Reform Act of 1986

"(3) Special rule for beneficiary of trust--In the case of an individual-
(A) who is a beneficiary of a trust which was established on December 7, 1979, under the laws of a foreign jurisdiction, and
(B) who was not a citizen or resident of the United States on the date the trust was established, amounts which are included in the gross income of such beneficiary under section 951(a) of the Internal revenue code of 1986 whith respect to stock held by the trust (and treated as distributed to the trust) shall be treated as the first amounts which are distributed by the trust to such beneficiary and as amounts to which section 959(a) of such code applies.
{section 957(a)}"

the authors could not trace who this transition rule was written for. Representatives Rostenkowski, Duncan and Gephardt refused to tell who it was for.

From page 54"

"Turn to Section 543(b)...

Special Rules for Broker-Dealers--In the case of a broker-dealer which is part of an affiliated group which files a consolidated Federal income tax return, the common parent of which was incorporated in Nevada on January 27, 1972, the personal holding company income (within the meaning of section 543 of the Internal revenue code of 1986) of such broker-dealer, shall not include any interest received after the date of enactment of this act with respect to (1) any securities or money market instruments held as inventory, (2) margin accounts, or (3) any financing for a customer secured by securities or money market instruments.

By happy coincidence, Cantor, Fitzgerald & Co. Inc. happened to be the one company in American that met those requirements--it was incorporated in Nevada on January 27, 1972--and thus could escaped payment of taxes it otherwise would have been obliged to pay."
(Got this off a bbs)
Somehow I doubt you will see this on CNN.