Measuring Up

Am I fat or is my belt tight?

Today's guest post is by Peppercommer Milos Sugovic.

It all comes down to framing. No matter what policy or program is being put into place, how you frame it limits or defines the inferences that individuals make about the message. The audience likes to pick a side, even though two seemingly conflicting alternatives are at the core no different. Take for example the Fed’s latest attempt to jump-start the economy – which the media calls QE2 or Quantitative Easing 2 - in which it recently decided to buy $600 billion in long-term Treasuries over the next eight months and reinvest an additional $250 billion to $300 billion in Treasuries with the proceeds of its earlier investments. These bond purchases will culminate in Q3 of 2011 and will inject about $900 billion into the U.S. economy.
 
Such a move by the central bank invariably creates downward pressure on interest rates, making borrowing cheaper. In a healthy economy that’s like taking a fat kid to a candy store. It stimulates short-term growth by encouraging businesses to borrow for the purpose of investing in capital and machinery, while it gets consumers to spend…and then spend some more. However, in an ailing economy, such outcomes - even though highly desired - are just wishful thinking.
 
The U.S. economy is a fat diabetic that has become irresponsive to insulin. A body suffering from type 2 diabetes needs insulin, but like all medication, its effectiveness diminishes beyond a certain level and can become fatal. The U.S. economy is no different: it has become desensitized to the central bank’s flood of liquidity and cheap credit. No surprise, quantitative easing isn’t working. And that’s because the problem isn’t a lack of credit, or that it’s too expensive. The problem is that our accumulated and excess dead weight- also known as debt- has been transferred from bubble to bubble. Replacing that “old” 40” LCD TV, which you borrowed money for in the first place with the new and improved 42” LED model that comes with those scarce necessities like Google, Facebook and Twitter, will do only one thing: increase your debt. 
 
Unfortunately, the American Dream allows for no nightmares. So, the Fed is responding to consumer desires and is delivering cash in the form of "easy money" to an economy which has no need for it, except to gamble with in the financial markets. But blowing bubbles now and worrying about the consequences later is bound to backfire, as we have witnessed time and time again. Driving borrowing rates down to zero will obliterate the interest income for consumers with savings accounts and low-risk fixed investments. It is also likely to increase inflation, which will further eat away at the value of that shrinking interest income, especially because wages aren’t rising. Together, these forces will create a real interest rate equal to zero and incentives to take on more risk to earn a greater return – the same urge that got us into this mess in the first place. Is it any wonder that investors poured more than $18 billion into hedge funds in October, the highest level in 11 months?
 
“Lucky” for us the economy, like the body, has a way of correcting for imbalances and restoring equilibrium. The high unemployment rate is one way the bubble deflates itself. And no matter how hard the Fed and its troupe of chubby Americans try to swim against the current, they’re bound to fail. What’s needed is instead some tough love: some sweat, tears and then some more sweat.

But how does one sell such a message? No spinster can make lower spending and unemployment sound good, not even Mark Zandi, the chief economist and co-founder of Moody's.  At the end of the day, it all comes down to framing. What got us in this mess is, paradoxically, high spending and excessive risk taking when investing. So, what will get us out of it is lower spending and a higher tax rate on risky investments – but such policies are doomed to face severe criticism. On the other hand, advocating for higher savings and lowering the tax rate on stable, long-term investments will do only one thing – generate applause. The funny thing is, the former is no different from the latter, apart from how it’s framed.  That’s why, for us PR folks, it’s all about the formulation, not the logic, of an argument.

Show me the money…

I feel for my financial planner these days. He’s smart, has always understood the principles of investing and is a real good guy. And, in the past, he’s done well by me with solid, steady returns. But, life for him and thousands of others who have the same profession must be pretty unsettling these days. That’s because most are stuck in an untenable position of providing little to no return on their clients’ investments, and what’s much worse is that they have zero control to do anything about it.

Think about the yoyo we’ve experienced over the last 20 months, and this will all make sense. The first plummet was simply terrifying. We helplessly watched the market drop over a 60-day period, losing upwards of 30-50 percent of our investment portfolio value. At that point, some investors (who had little stomach for that experience) pulled all their money out of their brokers’ hands because they simply lost faith in the market system (and no one could blame them). However, most (including this blogger) decided to take a long-term approach to investing (as my financial planner had always taught me) and just let it all ride. None of the so-called financial gurus had any clue when the Dow would come back from the bowels of 7,000-8,000 points, but our hope (maybe prayer) was that, as life is cyclical, so would be the destiny of our stock market.

And wouldn’t you know it– toward the end of 2009 and certainly for the first four months of 2010, the market started roaring back. In fact, it came back very quickly… so rapidly that I remember asking myself and others, what is the cause to this effect? The problem is that no one could answer the question adequately. Jobs were still scarce; manufacturing production was/is still down. We had a host of crises in various countries across the globe. Yet, the Dow Index ran right through the 9,000s and all the way up to the 11,400 mark in a matter of months. It simply made no sense, but who cared? We were just ecstatic that our semi-worthless investments were now growing, and many were experiencing 15-25 percent gains in only one quarter of 2010.

With this exuberance, money began to flow once again into our brokerage accounts, and we were all excited with the prospects of making money on our money again. And then we all know what happened over the last 30 days. The market has lost about 10 percent of its value again, with the Dow settling back into the 9,000 point mark again on Tuesday. There have been plenty of estimates thrown around. But the one I continue to see is that, after the first market plummet, most average investors had lost all the investment gains they achieved over a ten-year period.  With this new, more recent dip, I’ve learned that the $100 I invested in 1999 would be worth about the same $100 dollars today. That simply isn’t acceptable. 

It certainly feels like average investors (investors who don’t buy and sell market investments every day) are now stuck in a system where they are taking on a lot of risk, without almost any ability to reap expected rewards. This makes little sense. The real problem is that trust in the financial markets and the professionals who are supposed to be navigating them for us was really tarnished at the beginning of this great recession. But, with the latest downward spiral, I’d say it’s almost completely gone. How can we believe that, once this market starts rising again--that six months, two years or (like it did this time) eight years later, it won’t fall into the abyss again, wiping out all of those realized long-term gains we had so heartily believed in?

Maybe I should be mad. But I’m not. I do feel for financial planners who try to do right through long-term, conservative investing for their clients, though. Many receive fees (still) based on assets but can’t show an inkling of a return for the money they take out of our accounts. How can a profession survive when it shows almost no real value at all? And, in many cases, this isn’t about making bad investment decisions on behalf of their clients. No, instead it simply focuses on the fact that they have lost all control because the forces that sway the market are well beyond anything they know or have experienced before.

Seems to me that this industry is heading toward a major shake-up. The fact is that there isn’t a financial planner on this earth who can look me in the eyes right now and honestly say that he/she knows that today’s investment will be worth that much more in three, five or 10 years. That’s a scary reality. This industry better start searching  for a new way to provide value to its customer base, or we might begin to think about letting our entire portfolios ride on 21, black in a Vegas roulette wheel. Because that is starting to seem just as credible and certainly more appealing than today’s option.

Not exactly "The Worlds Local Bank"

Does this line seem familiar? It should. HSBC Bank has been promoting this tagline in its long running advertising  campaign over the last 3-4 years.

I always thought that the positioning behind this advertising is both creative and compelling. And, the bank also takes an innovative approach to where the ads are seen. For example, some hit you right in the face in Newark, London, San Francisco and Hong Kong immediately after deboarding any Continental flight. The full-sized billboard ads are impossible to miss because they line the narrow runway that every passenger has to walk through to exit.

Think about what HSBC is trying to communicate about itself, for a moment. What small or mid-sized business and consumer wouldn't want to feel that their bank provides a plethora of sophisticated global benefits to them? Yet, at the same time, each customer is delightfully treated in a small town, warm and personalized “you matter to us," demeanor.

Sounds like a slice of heaven, right? Too bad (in my experience) the campaign doesn't ring true. And, for a variety of other reasons,  I believe HSBC should think seriously about dumping this very expensive marketing program because it only serves to damage the bank's image.

We spoke to HSBC about a year ago when my firm was looking at changing bankers. We wanted exactly what HSBC is advertising. Our first meeting went well -- we met with a nice team of bankers. Seemed bright. Told us we'd experience all that this campaign proudly promoted. Great.

Then, reality set in over the next few weeks as we poked and prodded HSBC and a variety of other big and small competitors to deliberate which one made sense for us.

For starters, HSBC wasn't competitive on price with other smaller ones because of huge, global overhead and risk concerns. I have no issue with higher costs if there is more value offered.  The problem is that because the bank was going through a world of hurt (bad subprime loans), every decision, on every loan deal had to be made from London. The result was that this "local" bank had underwriters (from a continent away) who didn't know us, making broad, cookie cutter decisions that clearly didn't fit our needs. And, they were so risk averse to any potential new loan that the cumbersome rules and terms being offered were downright valueless. On top of that, the time it took to actually receive a proposal was absurd. This was because of the lengthy bureaucratic red tape that existed in every single decision this behemoth had to make.

In the end, we received no local "care" or understanding of our needs and a whole lot of we "can't move on a dime" attitude. The experience was exactly the opposite of what HSBC promises in its ads. Needless to say, we passed on their offer.

The banking disaster that we all experienced over the last 15 months has made most customers feel very different about this industry. Even if there is an inkling of truth to HSBC's advertising, I have to question how credible it is to leave the same campaign running now, when so much big bank cynicism exists. Read the past headlines. HSBC was mired in the financial muck as much as the others. This bank suffered huge losses, shut down many operations and laid off thousands of people in local markets around the world.

Seems to me that it would have been much more credible for this bank to take a fresh, new look at its positioning after the financial destruction took place. After all, like the rest of them, it made some pretty bad decisions across the globe in so many of those individual markets where it is supposedly local.  More to the point, anyone can promote anything they want about their entity. But, if the messages being advertised don't fit the reality that customers experience, the communications isn't just worthless, it will actually serve to create negative feelings toward that company.

Would you like to know how I feel about HSBC?

The Foxes who live in this hen house

I really get nauseous every time I see another article and caption describing how Senator Chris Dodd and  Congressman Barney Frank are overhauling our financial system.

Weren't these two jokers part of the gang to blame for getting us into the housing mess in the first place? If memory serves, both men (who sat on banking/finance committees way back in the Clinton Administration days) pushed hard on opening up first home buying opportunities for those who never could afford to own before. They were quite successful because they forced Fannie Mae to significantly lessen its mortgage standards for who would be deemed credit worthy to buy a home. Their laws created opportunities for banks everywhere to drop any and all ethics they had left. The result was something called subprime mortgages. You can read about the rest in any good history book.

What's my point (you might be asking)?

I'll tell you. Our political system stinks. And, one big reason why is because guys like Dodd and Frank have become professional career politicians. Because of this, they can (and have) entrench themselves into committees that have absolute power. Incredibly, this allows them to remain in charge after they facilitated creating the biggest economic disaster in 80 years.

How are these jokers still in leadership roles charged with changing banking regulations now? It's just amazing. They continue to feast on power because our system allows it. And, that's just wrong.

I have a solution. And, I’ve said it (and written it) before. We, the people, should create a new law that prohibits any American from serving more than two terms in office. That would pertain to any public office.

Wasn't this the true concept that our founding fathers had over 200 years ago? Back then, Americans served their fellow man by taking public office for a brief period in their life. This ‘sacrifice’ away from their careers and/or livelihoods was deemed very important because it helped preserve (our ever so delicate) Constitution and these public servants created new laws that were needed to establish rule and order.

I know we live in a different world now. But, think about it. If politicians could only serve two terms, then they probably wouldn't need to spend all their time shoring up power and votes (i.e. always worrying about the next election). And just maybe, our system could simply focus on passing laws that a new breed of politicians actually think will do well for their fellow citizens versus what will keep them in office.

I think this new political system could also bring more ‘fresh blood’ and innovative thinking into our stale, corrupt pockets of government, as well.

Sure, I’ve thought about the negatives with my concept. We'd clearly lose lots of institutional knowledge on important issues within key committees (Military and Armed forces are two highly specialized ones that come to mind). Still, I'd  rather end this current system (and live with that sacrifice) when it allows two hatchet men like Dodd and Frank to remain in complete power, bumbling around the same issues that that they helped screw up more than a decade ago.

I just don’t get it…

I know it’s ancient news now. But, this weekend I found myself engrossed with the latest Bernie Madoff headlines again. For those of you who’ve stopped caring, now the trustee for this mess (Irving Picard) is going after Madoff’s two sons, niece and brother for over $200 million in ill gotten booty.

This is a civil action (not criminal), which makes me scratch my head in utter confusion as I mumble, “Huh?”

Let’s focus on Madoff’s sons (Mark and Andrew.) They were the co-directors of trading for Madoff’s investment company. Yes, we all know what happened many months ago.  These two ‘honest’ men immediately turned their father in when he finally clued them into the fact that for over 20 years, Madoff’s entire investment company has been nothing more than a ruse… just a pyramid scam where, in fact, not a single trade was actually ever made.

You know where I’m headed with this, right? Two serious investment professionals (Mark and Andrew) were in charge of TRADING. This means they were supposedly overseeing all the trades being recorded. I’m not by any means a trading expert, but I do have a fair amount of common sense (and I spoke to a few friends who are traders.) From what I can glean, it’s near impossible to direct trading at any firm (especially one as small as Madoff’s- it isn’t Morgan Stanley after all,) and not be able to actually watch, assess and then understand when a trade is really happening (or not). So, we are supposed to believe that in all the years these sons supposedly watched over trading activity, they never got an inkling that every single trade was actually a work of fiction. Weren’t they the ones who forged trading strategies, and managed those traders who were actually… trading? The only possible rationale I can think of is that both sons were in a coma, or simply never actually came to work to witness any trades.

This story gets better. According to reports, several trades in Mark and Andrew’s accounts were actually fabricated. The accounts never received a penny, but they reported millions in profits from nonexistent trades in shares of Microsoft, Dell and Lucent Technologies. Yet, the brothers were clearly bamboozled, like everyone else. Right?

OK, no more kidding around. These guys had to know. It just isn’t feasible that they didn’t. And, I cannot understand why no one is going after them on criminal charges like their crooked dad.

Of course, their lawyers repeatedly say that their clients were kept in the dark about the fraud by their father. That’s just poppycock, though.  The DA nailed the biggest fish (Bernie) and he is now serving a life time prison sentence. But, if memory serves, he never negotiated or offered up any important information to the Feds that would protect his kids from criminal prosecution. So, are we supposed to just sit back and believe that criminal justice has been served?

I guess so.

Someone needs to treat me like a third grader and explain to me in simple sentenced how this is possible. Because, as my headline reads, I just don’t get it…

“Bring back the better days of capitalism”

As I was working out this morning, I watched a taped version of Bill Maher’s interview the other night with documentary guru Michael Moore. The interview and brief glimpse of his new documentary, “Capitalism: A Love Story” seems really entertaining. No doubt, each of Moore’s films does a valiant job of shedding a few rays of light on particular parts of our “American way” that are broken and need some real fixing. But, my overall feeling about Moore is that he is an entertainer (much like Rush Limbaugh is at the other end of the political spectrum), versus a truly informed subject matter expert. I believe that the good people of America really need to understand this.

Please understand that I have nothing against Moore. I am not one of those conservatives who looks at him as the anti-Christ. Instead, I try to maintain an objective viewpoint to truly understand his story lines, facts and where he is generally coming from. The problem I have with taking Michael seriously is that his commentary is often distorted and sometimes it’s just plain wrong as Bill Maher really pointed out in this interview. Although his sensationalistic way of making consumers feel the issue at hand is both witty and unique. (That’s why his films do so well.) They also tend to misrepresent the absolute truth of the matter, versus correctly illuminating what the real issue should be.

Let’s take his current documentary. He came onto Maher’s show with great fanfare and to huge applause. (No surprise, Bill’s show is a sanctuary for those left thinkers.) After a few softball questions and answers, Bill asked a very good question. He said something like, “Michael in your film, you actually depict capitalism as evil. I don’t think it’s evil and disagree with you on that. Is that what you are saying?”

Moore’s response was, “I don’t mean that capitalism is evil. I just believe that we need to bring back the better days of capitalism when it was about the ‘American Dream’ and a much fairer system for all.”

Hmmmm…..

Let’s see. I’d like to ask Michael a few (rhetorical) questions based on that response. Michael, do you mean that capitalism was much more fair for all Americans 20 years ago when junk bonds blew up on Wall Street? I seemed to remember that tens of thousands of people lost their jobs then (many who weren’t involved with Wall Street) and thousands of other innocent victims lost their life savings.

Right. You must mean that the “better days” were actually much deeper into our American past. OK. How about when capitalism treated everyone so fairly during that little episode known as the Great Depression (lasting almost a decade)? If memory serves, millions of average and below average ‘Joes’ lost their livelihoods, homes and pretty much all they owned in every town and city across America.

No? You actually mean earlier than that, Michael? Ok, let’s go back further into the 19th century. Michael, have you ever read about the depression of 1890? During this period, capitalism ran amok, as well.  You see, too many people attempted to redeem silver notes for gold. A panic ensued because the statutory limit for the minimal amount of gold in the Federal Reserve was reached and US Notes could no longer be successfully redeemed for gold. Everything was heavily financed through bond issues, which of course had extremely high interest payments that couldn’t be paid anymore. (Can you spell excess?) From there, banks everywhere failed, giant railroads shuttered and over 15,000 companies went bankrupt, creating 25 percent unemployment in our “fair capitalistic” America.

I could go on and on by discussing the 1819 depression or the 1837-1843 depression, or even the 1869 depression. But, I won’t. 

My point is that socialists like Michael Moore tend to be more about ideals than what’s really pragmatic. More to the point, our capitalistic society has never been fair to all (and in fact, has periodically broken down since its inception.) It simply wasn’t built that way. Instead, it’s a system that needs strong checks and balances to ensure that it can work reasonably well for most. But unfortunately, greed and the need for excess have caused the system to break down about every 10-20 years. This typically happens when the checks and balances aren’t really working all that well anymore because most everyone is living too fat and happy.  That’s not good. But, it is the nature of this beast. The ‘American Way’ is something special that our form of capitalism does offer many Americans, though. Although the odds are long, there is a tall list of business people and entrepreneurs who came from no money and sometimes little education to become successful because of hard work, very smart decisions and a little fortune.

Michael Moore’s point of view really isn’t based on reality. That’s why I treat his films as entertainment. He wants to create a pure, socialistic society. But, that can never happen in America (at least in our lifetime.) If he really wants to live his dream, the man should just move to Sweden, where every day (for him) will be better than the one before it because capitalism just doesn’t exist.

You need to "live it" to get it

This morning, I read about Rupert Murdoch's bold prediction to stop the flood tide that is swiftly forcing almost all online media/content to be free. More specifically, Mr. Murdoch announced that he intends to charge for all of his company's news Web sites. And, he confidently believes that this will create a counter revolution, allowing for all other media to follow suit.

Rupert Murdoch is one smart dude. He's established a global media empire in the shrewdest of ways. There should be an entire class in business school offering case studies of how this man successfully built the News Corporation from the ground up.

But this time, I think he's finally lost his golden touch. You see, from everything I've read, it appears that Mr. Murdoch has only actually been on the Internet once or twice (and never by himself.) So, it just seems kind of crazy for a man to think he can be the force that halts the Internet's natural evolution towards providing free content and actually find a way to reverse current consumer wants and demands... when he clearly hasn't even experienced what it's all about.

Free. Yes, we've all heard it many times. Free is the optimal word now for news and information online.

Why?

Well, it's pretty simple. There are just too many free blogs, information sites and knowledgeable Web columnists with opinions for the masses to read. And, when almost any news story (or opinion about that story) can be searched in a second and clicked onto for free, why in the world would consumers pay to receive it, even if it's coming from a newspaper that they subscribe to or read every day?

Of course, there are exceptions to the rule. Some folks like and need the special alerts, feeds and other information that can provide up to the minute news. Thus, any number of trade magazines and even internationals such as The Financial Times do make revenues from real subscriptions. But, those are anomalies (and we're not talking about a lot of money generated, either.) The fact remains that the media industry has never found a way to create a sustainable revenue line from consumer subscriptions. And these days, many are facing real uphill battles maintaining their only real source of income -- selling advertising.

Maybe Mr. Murdoch's entertaining announcement is nothing more than a blustery (but weak) attempt to bridge attention away from his weak earnings (off more than 30 percent this quarter.) Or maybe, he has some grander scheme in mind to prop up one or more of his media properties in the hope of catching the eye of a suitable buyer.

Either way, it makes no difference to me. It just feels like his provocative prediction would prove a tad more credible if the man actually put himself in the shoes of today's consumer by actually "living" on the Internet for a while. Lord knows, he'd certainly have a better understanding of the subject at hand.

Bravo for BerkShares

Have you heard about BerkShares? I first learned about it Sunday night on this ABC News segment. This  alternative currency named after the region for which it was originated in Western Massachusetts (Berkshire County) has caught on like wildfire. And, I can see why.

Started in 2006, BerkShares are now being substituted for official US currency in over 370 businesses in Berkshire County. Basically, any citizen of this county can go to one of 12 banks there and pay $90 for $100 worth of BerkShares. (That's a 10 percent discount for those of you who aren't very good at math.) If you go to its web site, you can see that pretty much every type of service and product business from bakeries, and clothing stores, to restaurants, hotels, fitness centers and landscapers accept and transact business with BerkShares currency. Even residential and commercial landlords are accepting BerkShares as payment for rent. And, that is the critical point because the more consumers and businesses conduct commerce with any currency, the more value it will provide to the community by keeping money in the local economy. In fact, there is now over $2.3 million worth of BerkShares circulated within this small New England community.

There's nothing new about specific regions or communities creating alternative currencies. In fact, BerkShares are actually a throw-back to the Great Depression when a number of cities tried to print and circulate their own currency because our national one was worth almost nothing. The difference this time around is that nothing has ever been so widely adopted and enthusiastically accepted as BerkShares. And, that's pretty cool.

Everyone continues to look for bright spots in this dark economy. I think the Berkshire region has found a gem. The ability for its citizens to receive discounts on almost everything they buy with this currency is certainly the core economic benefit. But, what is really exciting to see is that this story is more about how a community is truly unifying in the toughest times to find ways to prosper. Many people in the Berkshires seem just plain giddy about what their tiny community has developed. And, a little happiness goes a long, long way these days.

Should America apologize to the world?

These are the newest media headlines floating around the last few days.

Give me a break. The theme is just dumb. It's a great sensationalistic story. But, dumb for a variety of reasons.

I'll start this argument with one of my favorite sensational quotes from a great movie created out of another financial crisis – "Greed is good." Gordon Gecko from Wall Street made that line famous. I don't necessarily agree with it. But, the point is that greed is a universal attribute. It doesn't begin with American capitalists and it certainly doesn't end with so many other financial executives around the world who willingly took part to create our current economic mess.

Yes, our U.S. economic and political system should be blamed as a willing leader of this debacle. But, what about all those other banks who willingly took part based in Scotland (RBS), Great Britain (HSBC and HBOS), Switzerland (UBS), Iceland (every bank) and the list goes on and on and on...

And, I haven't even mentioned that it was AIG's London arm that led the entire derivatives program which helped to push the global insurer over the edge.

Like anything that is too good to be true, human nature pushes human beings to stop asking questions and jump on the money-making bandwagon. That's what happened here. And, the United States is but one large culprit. Many others clearly deserve blame as well. As the New York Times reported yesterday, the real cause is actually skewed financial incentives around the world. These distortions have operated on multiple levels:
1)    An imbalance in world trade – China has huge surpluses, while everyone else is operating in serious deficits.
2)    Bailing out world financial systems whenever they are in trouble – This has greatly distorted the market.
3)    Having banks in many countries that were simply “too big to fail” – These banks took too many risks because they knew that bail outs would occur should the unthinkable happen (which actually did.)
4)    Lopsided incentive plans for the financiers – This created havoc in an otherwise naturally working free market system.
I really have to tip my hat to CNN, the Financial Times and all the other media that have carved out and pushed this tabloid-like storyline. With President Obama in Europe for the Summit meeting, it makes perfect sense to admonish our economic system for being too capitalistic. And, those sound bytes from other socialistic European economic leaders really nicely pit our leader who supposedly represents ‘free market’ capitalism (Obama) against everyone else.

The main problem is that this is not a cut and dried issue. Yes, there are many extenuating situations such as the fact that countries like France and Germany have had stagnating economies for over a decade with some of the worst unemployment in Europe. So, while they blame the US for its laissez-faire ways, they shouldn't forget that their policies, which border on socialism, have created state governments that had problems competing on a world scale and couldn't even employ their own employable workers much before this global crisis ever hit.

Maybe it's time to turn the tables. How about if we pin the blame squarely on the shoulders of our media?  I know. They've only helped to spread the rumors and harp on these negative themes so that they would be believed by all of us. They certainly didn't create the laws, provide the loans, or make the funky markets that traded us into crisis. Still, their powers have gone too far and if we could villanize them just for a week or two, it could certainly entertain many more people than what their stories intend to do now.

AIG just doesn’t give two sh*ts

When I first heard yesterday about how AIG had handed out $165 million in new bonuses, I thought it had to be a joke. Then, I knew it wasn’t, when I saw this article.

As a public relations practitioner, my first thought was – how could AIG have screwed up so badly again? Yet another body blow to a company that is hated, laughed at and is considered to be an almost unbelievable business case example of what is wrong today.

I mean… it’s CEO, Edward Liddy, concocted two reasons for the bonus hand outs that are simply implausible based on the situation our economy is in and based on who actually owns this insurance giant now.  They are:

Point #1 – AIG is contractually bound to pay these bonuses or the company will be sued.

Answer #1 – Ok, you are right Mr. CEO. AIG might be sued if these bonuses aren’t paid. But, who cares? We are living in unprecedented times. And, these times call for unprecedented actions. The fact is that if the government didn’t step in THREE times to pour billions of $$$ into AIG, the company would be bankrupt. Do you know what that means? There would be no money to pay bonuses anyway. Now, the public owns 80 percent of your company. So, much like the automakers did (can’t believe I’m saying something positive about this group,) all existing contracts/agreements and any other special considerations should have been considered null and void. Because the only thing that matters is the company’s survival. Not, whether it’s executives (many who helped AIG lose billions) continue to get rich. Bottom line – the bonuses were just plain wrong and are clearly a public relations tsunami.

Point #2 – AIG has to pay these bonuses to retain talent or they will leave for competitors.

Answer #2 – I have one question for you, Mr. Liddy. Where will they go? Last I checked, Wall Street has shredded over 400,000 jobs. Financial firms, insurance companies and everyone else in the industry are still laying off thousands. I’m really curious on this one– what other competitive jobs exist right now that will take in these high priced senior executives (many who have egg on their faces)? That’s right. It just doesn’t add up because there are no jobs to be had. And because of that, there is no credibility in this message.

Let’s get back to my original premise above. It took me a while (sorry, sometimes I am slow to see the obvious,) but now I get it. This really isn’t a public relations blunder for AIG, because AIG doesn’t care about its public image at all. That’s the only conclusion I can come to now. Over the last seven months, the company has continued to make mistake after mistake, with each one growing noticeably larger in the public’s eye. The most recent disaster was handled in such an amateurish way (the contents of the letter sent to our current Treasury Secretary,) that it’s almost inconceivable to me that AIG’s senior management  is even attempting to rebuild faith with the public or any of its key stakeholders (except those who received big bonuses, of course.)

Let’s keep our eyes wide open as to what comes next. With the President, Congress and the AG all swooping in, I think this might be the last mistake this now cartoonish looking company will be allowed to make.