Inauguration Day!

What will Obama mean for my stocks? I don't know. I won't even venture a guess. That's been done already by more than enough people, including Jim Cramer.

I'm taking a few moments to think about the new business landscape that we have. Citigroup has finally thrown in the towel on the financial supermarket concept. Jim Jubak in his latest article opines that Bank of America is heading down that same road. What about JPMorgan Chase? CEO Jamie Dimon cut his teeth and Citigroup as Sandy Weil's right hand man. It doesn't appear that he's given up his former mentor's quest. Are he and Lewis engaged in reckless empire-building? Time will tell.

I would not be a buyer of common stock in Citigroup or Bank of America until the government signals that that the common won't be wiped out.

More bad news is good news

I know it's hard to believe that sad saga of Bernie Madoff is a sign of good things to come, but it is. Fraud goes part and parcel with the bursting of any bubble and the hedge fund industry had definitely entered bubble territory. Years ago, Jim Rogers said in an interview "we have 25 000 or 30 000 hedge funds around the world. We don't have that many smart 29 year-olds in the world." Hedge funds are not a different asset class. If you believe that anyone can post positive or market-beating returns every year, regardless of market conditions, you aren't a sophisticated investor. You're either naive, stupid, or greedy.

Don't for one minute think that this is the end, though Madoff might go down as the poster boy of this era of financial tomfoolery/skulduggery. We've only begun to look for malfeasance. Think for a moment about everyone that was getting rich this decade. So far the real estate and financial realms have been carpet bombed, but what about the private equity guys? Are you telling me that there isn't one major fraudster out there amongst the Web 2.0 set? The resource industry is rife with slippery snake oil salesmen. I'm sure the alternative energy biz will produce a Madoff or two.

We just haven't had a perp walk yet.

I digress. These revelations, while painful, embarrassing, and criminal, are an important signal that excesses are being rung out of the system. We're starting to get our act together. Healing requires puss, bruising, scarring, and pain. We should want to hear as many of these stories as possible, get them priced into the market, so that we can move on.

Bad news is good news

When I see that the market is plunging on the news of the stalled auto bailout, then I get happy. Yes, that's perverse, but it's true. It means that it's closer to the point of maximum pessimism that Sir John Templeton liked so much. The whole world is swooning! That's great! Bargains for everyone.

I'm not calling a bottom. I have no idea if we're close, but things are starting to look better, that is people are getting more pessimistic. I won't even think of considering a bottom until the the market is trading at a single-digit P/E and many more firms have gone belly up.

A must read from an unlikely source

Eliot Spitzer isn't so dumb after all. Read his recent piece for Slate. It is well-reasoned, evenhanded, and shows an imagination that you wouldn't expect from a politican. Unlike most of the pieces that I've read concerning the litany of bailouts U.S. taxpayers are financing, Spitzer's aaks if we're merely rebuilding flawed institutions in the same manner and hoping that the same thing doesn't happen again. In the following paragraphs, he neatly sums up the existential crisis threatening the U.S. financial system.

This long-term change frames the question we should be asking ourselves: What are we getting for the trillions of dollars in rescue funds? If we are merely extending a fatally flawed status quo, we should invest those dollars elsewhere. Nobody disputes that radical action was needed to forestall total collapse. But we are creating the significant systemic risk not just of rewarding imprudent behavior by private actors but of preventing, through bailouts and subsidies, the process of creative destruction that capitalism depends on.

A more sensible approach would focus not just on rescuing pre-existing financial institutions but, instead, on creating a structure for more contained and competitive ones. For years, we have accepted a theory of financial concentration—not only across all lines of previously differentiated sectors (insurance, commercial banking, investment banking, retail brokerage, etc.) but in terms of sheer size. The theory was that capital depth would permit the various entities, dubbed financial supermarkets, to compete and provide full service to customers while cross-marketing various products. That model has failed. The failure shows in gargantuan losses, bloated overhead, enormous inefficiencies, dramatic and outsized risk taken to generate returns large enough to justify the scale of the organizations, ethical abuses in cross-marketing in violation of fiduciary obligations, and now the need for major taxpayer-financed capital support for virtually every major financial institution.

I don't think that there has ever been a more eloquent refutation of the financial supermarket every written.

Should we spare a dime for Detroit? Part 3

The first time around went poorly. Gettelfinger couldn't do much better. So now the Big Three are back. Last time they were given the homework assignment to come up with a plan to become viable. That seemed like a tall order to me. They've been struggling with such an assignment off and on for the last seven or eight years. What sort of brilliance was Congress expecting them to produce during this cram session?
Rick Wagoner has said that bankruptcy isn't an option. Congress is acting like the Jesuits in Portrait of the Artist as a Young Man. I think that Congress is going to give them the money they need and that this is theatrics. However, let's assume that all the options are on the table.

1. Bankruptcy: No one wants to push the red button. It symbolizes the abject failure of what was once a source of pride for this country. Despite the fact that it would probably allow the Big Three to get the necessary concessions from the UAW they need, no one knows just what it would mean cost-wise to the government. If you think that this is likely, then short the shares, the debts, their suppliers, and the Dow.

2. Bridge Loan to a Democratic Congress & President: This seems the most likely scenario to me. Again, the political fallout is too great for this not to happen. This is speculation pure and simple. Buy the common stock or LEAPS.

3. No Money, Big Problems: Let's say they get nothing,but still refuse to declare bankruptcy. This is highly unlikely, but since this is an academic exercise, let's think about it. Ford is the company best positioned to attempt such a far-fetched strategy as it has more cash. As in the bankruptcy scenario, short everything.

Should we spare a dime for Detroit? Part I

Sal: "Tom, can you get me off the hook? For old times' sake?"
Tom: "Can't do it Sally"
Tessio and Tom, The Godfather

I don't know where I stand on this, so I'm going to try to think about it as I write. There will be times where I might contradict myself, so please forgive me ahead of time. First of all, let me say that my brother is an autoworker, so I'm not completely impartial.

I shall try to ignore their three private jets, or their false concerns about safety(who would recognize these men that would want to kill them), or the alarmist tenor of their rhetoric. Try as hard as you can to stomach the fact, that only Nardelli would work for $1 a year.

To quote Tom Hagen from The Godfather yet again, "don't get personal. Keep it business."By the way, this is great stock picking advice.

I think that anyone who saw last week's testimony in front of Congress, came away with little sympathy for the automakers. I came away not only unsympathetic, but slightly incredulous. Rick Wagoner claimed that their current woes were not "our product lineup, or our business plan, or our long-term strategy. What exposes us to failure now is the global financial crisis, which has severely restricted credit availability, and reduced industry sales to the lowest per-capita level since World War II." This was not an unsubstantiated claim. He provided numerous supporting facts in his statement. I just don't buy it though. I feel that he was offering convenient facts and half-truths in attempt to lessen his audience's anger. This is the crux of the argument though, at least for me. If you believe that this is a temporary measure needed to help the Big Three get through a tough time, then by all means, giving them this money and averting the loss of 3 million jobs is an easy decision. If, however, and this is the side of the fence where I currently stand, you think this is nothing short of throwing good money after bad, then there's no way you give them one red cent.

As is usual in Washington, this has become a partisan political football. Republicans hate the idea. Democrats, although critical of the automakers, seem far more open to the bailout. In fact, Chris Dodd(D., Ct.), called the industry's wounds "largely self-inflicted."

Richard Shelby(R., Ky.)asked the question that is probably most on people's minds. "Is this the end, or just the beginning?"

Congress wants a plan for how to turn thsse business around. Have they not been paying attention to the last thirty years? The automakers haven't lacked for plans. Maybe they are playing a game at which they can't win? Maybe it's a fool's errand. No one in that room was willing to even contemplate that. I think that's a problem.

On Friday, I'll talk more about their problems and how this all happened.

Through the looking glass

No, not because,as Lindsay Lohan recently said, we've elected the first colored president. America has gotten away from its roots. I'm not talking about our Christian roots or manufacturing roots. I'm not talking about America descending into communism a la Red Dawn(don't worry, we're not). I'm talking about how we've become hostile to success and coddling of failure.

Parading rich hedge fund managers before Congress will not solve our current problems. Why only the top five moneymakers? Why not the top ten? I can see wagging your finger at Dick Fuld(who feels so sorry for helping destroy the company, but think that he shouldn't have to give back any of the $384 million in compensation he raked in), but Soros had been talking about this before it happened. Soros doesn't even really trade anymore, he just collects fees and manages his philanthropic enterprises.

Does anyone feel better if a rich person gets shamed for a few hours before their limo takes them to their Gulfstream and back to their pile of money? More importantly, there used to be a time in the country when we venerated people who made money honestly. Now we look at them with suspicion. Nowadays, we hand out billions to failures, hoping to prop up sad companies that should go bankrupt. I am all for a perp walk, just let it be the right guys not the most obvious targets. It's funny how for years hedge funds were supposed to be the danger to the financial system, but in the end, it was the "respectable" institutions like Citi, Lehman, WaMu, Merrill, etc.

I guess you can get an STD from an All-American cheerleader.

Shame on you, CNBC

The last year of coverage on CNBC has featured relentless cheerleading. With every downward thrust of the market, we find a CNBC reporter or anchor talking about the wonderful values being created in the wake of volatility. Well, the bargains kept coming. When they weren't encouraging you to snap up wonderful banks at fire sale prices, they were kvetching about the need for a rate cut or anything that might stave off the impending recession. I turned especially negative on the network in the last month, when they could offer nothing but parroting the breast-beating and wailing of their business friends and sources. The media is supposed to be in impartial conduit, not an unofficial mouthpiece. Were you watching the day Lehman went down? It was funereal. Now that they are past the depression phase of grieving, they have moved on to anger.

The vitriol at Congress for not passing the bailout almost comes through the screen. The Democrats could've passed this bill by themselves, but 90 of them voted against it. Americans overwhelmingly hate this deal. Do we need the $700 billion bailout? Yes. Will we get a deal done? Yes. My problem with CNBC is that they have led the charge in panic-mongering and rapping the knuckles of Main Street Americans for opposing the deal. They are doing Wall Street's light work.

Wall Street is like a panhandler who wants to dictate to you how much you should give him and in what denominations. They're going to get their money. They should try to at least appear grateful.

Ignore talk of a bottom

... in financials, in housing, in the market as a whole. Does this statement mean that I am Nostradamous of the Amazing Kreskin and know where the bottom is? No. In addition to not being either of those guys, I'm also NOT a technician.

I am basing my pessimism on the lack of pessimism on Wall Street. Take Yahoo! for example. Chairman Roy Bostock has the stones to defend his actions in the proposed merger with Microsoft. He claims that $30 a share wasn't a "compelling offer." Yahoo! just doesn't get it. Tney are are puzzle at a yard sale with a couple of pieces missing. This is not the Yahoo! of 1997 that ruled the search roost.

GM lost $15 billion in the second quarter, nearly twice as much as Ford... and still they won't throw in the towel and declare bankruptcy. Bankruptcy could give them the breathing room they need to take the drastic measures that they need to take in order to survive.

The peso is gaining strength against the dollar. Oil is at $125.10/bbl and people are relieved.

My point is that the market is delusional. Wave after wave of bad news hits the wires and the markets shrugs it off. Supposedly, it's all been priced into stocks. If the four horsemen of the Apocalypse descended, the talking heads would claim that this was priced in. Note: I would myself call such an event the bottom.

There will be no bottom until the optimism has been killed. When Cramer turns bearish, that might be a good indicator of the bottom. Or maybe not. The famous BusinessWeek cover, "The Death of Equities" came in 1979, three years before the '82 bull market began.

Bailout coming

Ignore the government right now. Paulson is speaking in both Wall Street and Washington gibberish. Bush said the mortgage giants are “very important institutions.” That's all I need to know. Despite its claims, this President is ot a conservative. He loves government interventions. Plus, he wants his party to win the next election. Bush is already being compared with Herbert Hoover and if he doesn't do something to try and save the housing market and the economy, they'll be linked as twins.

The Dow is under 11,000. Remember Dow 14,000? That's about where it was a year ago when I began this blog. The housing market is tumbling and might need another 25% shave in order to adjust to reasonable levels. Oil has hit yet another record high. The dollar is getting its ass handed to it. Unemployment is up.

Can we finally use the recession word?

The GE earnings release told me everything that I need to know about this economy. One of the best-run companies in the world which is a master of managing earnings, reached into it's hat and didn't pull out a rabbit. Earnings were flat.

Read this statement from CEO, Jeff Immelt:

"Led by double-digit segment profit growth in our industrial businesses and a strong relative performance in our financial services businesses, we delivered a solid quarter in a volatile environment," GE Chairman and CEO Jeff Immelt said.


"Many markets and industries remain healthy, while the U.S. economy is challenged," Immelt said. "Opportunities in emerging markets, infrastructure, commodities and global healthcare are creating demand for our businesses, while we fight through the difficulties of a burdened U.S. consumer, a tough housing market, inflation and volatile capital markets. Even with all this uncertainty, we still see growth opportunities ahead."

That's a nice summary of what's been working in the market and what hasn't. Simply put, if you live in an emerging market, then it's Everybody Wang Chung Tonight. If you live in the good ol' US of A, the song playing on your stereo is Drive by The Cars.

I think that Fannie and Freddie will rally on Monday. Some people with short this rally. I am not that brave. I am going to buy this bottom and wait for the cavalry.

Requiem

Noted value investor, Sir John Templeton is dead. Pneumonia struck him down at the ripe age of 95. Sir John is famous for having founded Templeton Growth back in the 1950s and making early bets on the rebound in Japan. Sir John was buying international equities long before Long before Mark Mobius or Jim Rogers trading securities. Sir John was not just about money however. Through his foundation, he gave away $60 million a year for research into religion and science.

For insight into his investment methodology, take a look at Investing the Templeton Way: The Market-Beating Strategies of Value Investing's Legendary Bargain Hunter by Lauren C. Templeton, his niece. It's a remarkable story of the value of thrift, patience, and truly being a contrarian.

Is the sky falling...still?

Home prices are falling. Oil is trading north of $138/bbl. Banks are hard up for cash. Has the financial world been on a repeating loop for the last year? Weren't we supposed to be past ugly things like writedowns, dilutive offerings, shareholder lawsuits and arrests? Maybe we've fired up the DeLorean and no one told me. Let's see, the Celtics were playing the Lakers, that would indicate that it was the 80s. Donald Trump is ubiquitous and annoying. However, George Michael is out of the closet and I don't hear "Walk Like an Egyptian" everywhere I go. Alright, I've got my bearings now. It's still 2008.

So now I need to gauge how things are going in America. Luckily, Darden Restaurants, Kroger, Remy Cointreau, and Sonic are reporting today. That should give me a good sense of whether or not Americans feel rich or poor. After all, when you don't have money to eat out, but you just want a sip of Cognac to get you through the night?

My guess is that things are bad, but not quite this bad. Certainly, not Mad Max bad or Waterworld bad.

Unfortunately, this is how it's going to be for at least the next two years. It took a while for the excesses to build up and it will take a good while for them to be siphoned off. There is no miracle weight-loss cure for the American economy. Instead, we're going to get a steady regimen of rice cakes and exercise.

It's good to be king

It's good to be king and have your own way.- Tom Petty

Not only is Dick Fuld a billionaire who runs the 4th largest investment bank in the U.S., but he can also throw underlings under the bus when he screws the pooch. It's good work if you can get it. Don't tell me that Erin Callan wasn't doing her master's bidding while she was deliberately misleading investors about Lehman. Don't worry though, this is Wall Street. They're not being shown the door for leading the bank to a 3 billion dollar quarterly loss. They're just being reassigned, sort of like the Seinfeld episode where Elaine keeps promotes the crazed Vietnam veteran in the mailroom at J. Peterman because he's doing such a bad job. Where is the chorus calling for Fuld's head? Isn't the board supposedly looking out for shareholders?

Hollywood got it right about Wall Street 20 years ago.

Gordon Gekko: [at the Teldar Paper stockholder's meeting] Well, I appreciate the opportunity you're giving me Mr. Cromwell as the single largest shareholder in Teldar Paper, to speak. Well, ladies and gentlemen we're not here to indulge in fantasy but in political and economic reality. America, America has become a second-rate power. Its trade deficit and its fiscal deficit are at nightmare proportions. Now, in the days of the free market when our country was a top industrial power, there was accountability to the stockholder. The Carnegies, the Mellons, the men that built this great industrial empire, made sure of it because it was their money at stake. Today, management has no stake in the company! All together, these men sitting up here own less than three percent of the company. And where does Mr. Cromwell put his million-dollar salary? Not in Teldar stock; he owns less than one percent. You own the company. That's right, you, the stockholder. And you are all being royally screwed over by these, these bureaucrats, with their luncheons, their hunting and fishing trips, their corporate jets and golden parachutes.

Cromwell: This is an outrage! You're out of line Gekko!

Gordon Gekko: Teldar Paper, Mr. Cromwell, Teldar Paper has 33 different vice presidents each earning over 200 thousand dollars a year. Now, I have spent the last two months analyzing what all these guys do, and I still can't figure it out. One thing I do know is that our paper company lost 110 million dollars last year, and I'll bet that half of that was spent in all the paperwork going back and forth between all these vice presidents. The new law of evolution in corporate America seems to be survival of the unfittest. Well, in my book you either do it right or you get eliminated.

Dick Fuld owns about 2 million shares; LEH has a float of over 500 million shares. In total insiders control about 3.6% of the shares outstanding. Do you honestly think these guys are working for the shareholder?

Maybe ol' Gordon was right.

Plunging

The market is taking a beating today. Why? The jobs report and oil. Let's ask ourselves, are these new phenomena? Hasn't news like this been reported for the last twelve to eighteen months? Just about everybody is taking a beating, but especially financials. Isn''t this also an old story? You mean there are still lots of bad loans out there and people who won't be able to pay their credit card bills, and this matters?

It seems that we priced so much optimism into the market that reality is getting it killed. It's like admitting that your kid is ugly after all. It's embarrassing and it hurts.

What is working right now? Energy. Should you rush there? Maybe. Now would be a good time to review your asset allocation. What's your exposure to energy already, not just in individual stocks, but via ETFs and mutual funds. Include your retirement accounts in this calculation. Do you need to rebalance?

As always, you should always look for bargains. The news often is as bad as the market would have you believe. Review the 52-week lows list. Try to identify beaten down industries. Set some price targets for favorite stocks.

As Gordon Gekko said to Bud Fox, "go to work."

Yahoo!, Microsoft, Carl Icahn, and letters

I've never been that impressed with Carl Icahn. Well, at least not as impressed as one normally would be by a man worth many billions. I find his greenmail and activist shareholder ploys mere bullying. Pressuring companies into asset sales and/or buybacks is not as romantic and going in, rolling up your sleeves, and reversing a decline. Then came the coup de grace; I learned that he and his wife sing showtunes together. Unforgiveable.

His full frontal assault on Yahoo! is starting to change my opinion. Yahoo! has just the sort of self-satisfied, entrenched management that his Icahn avatar Gordon Gekko rails against in Wall Street. Yahoo!(YHOO) was trading at around $19/share before Microsoft(MSFT) made their offer(their finally offer of $33/share represented a 72% premium). Was Yahoo! negotiating in good faith? Jim Cramer thinks not. Icahn is very smart and tenacious. He has brought along heavyweights like Mark Cuban and John Paulson, fresh from his huge subprime score. He is hoping to throw out the board, get his slate of ten directors elected, and then lure back Microsoft.

This is like having the high school quarterback asking a not so popular girl to prom, her giving him the cold shoulder, then having her mom swoop in and try to make the date happen anyway.

One of the sillier aspects of the whole thing has been the absurdly polite/passive-aggressive letters that have been exchanged. Why in 2008 do investors issue these things? This is not business, not a Jane Austen novel. Here is the text of Ballmer's we're no longer interested in Yahoo! letter that he sent to Jerry Yang. I can almost hear Roxette's "It Must've Been Love" playing in the background. His outlining of just how silly it would be for Yahoo! to seek "strategic alternatives" with Google makes sense.

How about Icahn's letter to the Yahoo! Chairman Roy Bostock? I love that he says a number of shareholders have asked him to lead a proxy fight. Ah, Carl Icahn, the reluctant warrior. He's like Aragorn, he never wanted to be king, but fate had other plans.

This letter reminds of that early in The Godfather: Part II, when Connie comes to Michael for money when she wants to marry Merle Johnson. After basically calling her an unfit mother and a whore, he offers her a place in the compound and whatever she wants. Then he chilling says, "Connie, if you don't listen to me, and marry this man, you'll disappoint me."

Do you think Yahoo! will disappoint Icahn? They just might. Read the Yahoo! response to his letter.

The Fall of Zoe Cruz

This week's issue of New York has a great profile of the rise and fall of Zoe Cruz written by Joe Hagan. It's a long read, but well worth the trouble. Zoe Cruz spent 25 years at Morgan Stanley, the only place she'd worked since graduating from Harvard Business School in 1982. She rose from currency trader to president of the firm. In the end, she was fired by the person whom she thought was her most staunch ally, CEO John Mack.

The story illustrates just how much of a boys club Wall Street still is. It also shows just how much of a snake pit it is, especially at the highest levels. Most importantly, it shows that Wall Street, like any other place is both about results and politics. You need to be a master of both to get ot the top.

You'll have decide for yourself after reading it if Cruz was hired for a)being a woman, b)losing money, c)being hard to work for, or d)all of the above.

My answer is d.

The Wall Street Journal's take on the Cruz firing.

The Rich are not like the rest of us

They are more delusional.

Why do we pay any attention to the investment mores of the rich? Are they really anymore informed than the small odd-lot investor? Aren't their financial advisers and brokers just as likely to give them self-serving advice? Didn't they get burned by the tech bubble too?

This MSNBC story claims that the rich are feeling the effects of the reeling economy just like everybody else. I'm not doubting its veracity, but there's a big difference between having to go on a less expensive vacation and facing foreclosure. So what if they are more pessimistic about the economy? They have the means to ride out a downturn and pick up some incredible bargains to boot.

This passage from the article is particularly illustrative of the disconnect between their perceptions and reality:

'Tellingly, about 19 percent of the people surveyed do not consider themselves wealthy, even though they have, on average, $3 million to invest and earn at least $270,000 a year.'

This reminds me of a Steve Schwartzmann's quote from a February 2008 profile in The New Yorker:

'I don't feel like a wealthy person. Other people think of me as a wealthy person, but I don’t. I feel the same as when I was a fifth-year associate trying to make partner at Lehman Brothers. I haven’t changed. I still think of Blackstone as a small firm. We have to prove ourselves in every deal. Every piece of paper is important. I’m always still trying.'

I can't make up my mind about this quote. Either a)his publicist told him to say something self-effacing,or b)he is one of the most ambitious/paranoid people on the planet. Remember, this was coming on the heels of his 60th birthday party that was something straight out of ancien régime France and the $700 million he had selling shares in the Blackstone IPO.

So I'm going to start ignoring the results of the latest survey about what the rich are doing. These people are no better at market timing than the rest of us.

P.S. This is what the other of the two Americas that John Edwards spoke of thinks.

Don't be fooled by Ford

This was supposed to be a picture of the famous blue Ford logo, not Willa Ford, but oh well. It's not completely unrelated though. Willa Ford is married to hockey player Mike Modano, who is from the suburbs of Detroit.

Anyway, yesterday was a big day for Ford. It announced a surprise profit of $100 million, while Wall Street was expecting about a $400 million loss. The stock jumped about 12%. Well on the surface a profit, when they hadn't made one since Q2 of last year, sounds like great news. As with any earnings release, you need to look beyond the raw numbers.

When you do, you notice that Ford operations in Europe and Latin America led the way. This no doubt has been helped by strong currencies in those regions and the weak dollar. North America continues to be s sore spot for the automaker. This morning, JPM and Bear Stearns have downgraded them F saying that the shares, which are up 25% YTD, are at fair value.

Wisely, CEO Alan Mulally has warned that 2008 will remain a challenging year, as U.S. auto sales are soft, especially those of high margin SUVs and trucks.

While Mulally's "Way Forward" has produced significant results, the company still faces major headwinds in the form of a U.S. and possibly, worldwide recession or economic slowdown, increased steel prices, increased oil prices, and a difficult credit environment.

Citi sucks, is up 7%

Read this dispatch from MSN Money. Read it twice if you have to. I did. Citi did worse than expected, and people see this as a good sign. What sort of perverse logic leads to this conclusion? As the article states, investors have chosen to interpret this as a bottom. Forgive me, I'm a little slow, but haven't people been calling a bottom in financials every quarter for a year? Don't investors foolishly believe that the worst is over with every new rash of write-downs or shotgun wedding mergers?

CEO Vikram Pandit is saying the right things. He's going to axe people. He claims that they are going to get back to basics, the usual we're going to stick to our knitting rhetoric that any new CEO announces after he replaces a guy that did the exact opposite.

This reminds me of NFL hiring practices. Every offseason, there are about four head coaching positions available. Two of those teams will want a taskmaster who will get tough with the players. The other two will want a "players coach" who will keep things relaxed.

CEO hirings are no different. American companies alternate between hiring vision guys or operations guys. Sandy Weill was the classic charismatic CEO that the 1990s business turned into a messiah. Unfortunately, he went a little too far with his vision. So the board hires Chuck Prince, the loyal soldier/counsel who spearheaded the bank's efforts to make nice with regulators. Then he got cute and got in over in his head with derivatives exposure.


So in comes Vikram Pandit, who cut his teeth at Morgan Stanley as an investment banker. He's got some tough guy plan to return Citigroup to its past glory. He'll have a 1-2 year honeymoon before the press and shareholders really start to grade his performance. In the meantime, all he need do is talk tough, slash the payroll, and wait for the market and/or the Fed to save his skin. If that happens, then he ends up looking like El Cid.

It is interesting that twice in a row, Citigroup has went with a non-banker, non-CEO to lead the company.

Citigroup Q1 2008 earnings release.

E. Stanley O'Neal

It's good to put a human face on calamities, lest we forget that real humans cause and are effected by them. There's been a lot in the press recently about the victims of credit markets, usually about how Joe Sixpack who was foolishly duped into taking a mortgage he couldn't afford, luring him with lenient terms and offering multiple refinances that allowed him to use his house as an ATM. Eventually the home is lost and lives are ruined, and some greedy fat cat or nerd quant trader is to blame. Such stories are true stories, but not the only stories out there.

John Cassidy wrote a superb profile of the deposed former Wall Street titan for the March 31, 2008 issue of The New Yorker. It's just the sort of penetrating, long form journalism that gives the reader more than a sound bite or a carefully crafted press release.

O'Neal has a truly all American story. His grandfather was born a slave. He worked the line at General Motors. He later parlayed that into a Harvard MBA. He was the first black CEO of a major Wall Street firm. Even the many enemies that she made at Mother Merrill would conceded that he was a smart, hardworking man. I didn't feel sorry for Stan O'Neal after reading it, but I did feel that I better understood his actions and the institution that he led.

Like many men of power, O'Neal seems to have been an imperious control freak. This is forgivable when profits are up, but when the lean times come, people are reluctant to stomach such behavior.

Last month, O'Neal(along with a rogue's gallery of disgraced former CEOs) appeared before the House Committee on Oversight and Government Reform to discuss the mortgage mess and CEO compensation. Here are his remarks.