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BusinessBecause
the magazine about business students around the world
Ian Priest / Kellogg School of Management / Evanston, USA
Read Ian's articles on BusinessBecauseEmail your recession horror stories to ian@businessbecause.com
3 February 2010
A Private Equity Bailout?
Today, the President went to New Hampshire to discuss small business. He talked about providing them with loans from a large federal fund and about giving them tax credits for hiring new employees. Of course, the former is only useful if there are any decent projects to invest in, and the latter only makes sense if the business is making income on which it pays taxes. That said, of all the community investment initiatives out there, these are pretty solid ideas. I mean, there have to be some small businesses who are making money and who want to grow, right? Right?!
Anyway, what caught my eye was a proposal that Obama had also mentioned in the State of the Union: cutting capital gains taxes on small business investment. This sounds nice, of course, until you think a little. Who invests in small businesses? Community banks? No, they generally provide them with term loans, not equity. Friends and family? A little, but usually informally, and with no real consideration to their eventual tax burden on capital gains. The government? Well, clearly, they don't pay taxes.
No, the only entities that really invest in small businesses are private equity and venture capital firms. Which is fine...until you realize that private equity people really are just bankers in disguise! Which means, this is all just another bailout for more bankers! Those dastardly con artists. Even when you think you're pushing them aside, they're standing right in front of you.
In all seriousness, this may prove to be a pretty effective investment tool. Projects and companies that may not have been worth the series investment of a VC fund may become so with a tax cut in place. This helps entrepreneurs. Sadly, it also helps bankers - which means it could blow up in the administration's face once someone at Kleiner Perkins lets the cat out of the bag.
30 January 2010
JD Salinger - Marketing Genius!
It looks like it's time to pour one out for Holden Caulfield.
Alas, poor JD Salinger - creator of one of the lasting literary cliches of the 20th Century. So burdened by this marvel that he went into seclusion, only to have his prominence grow because of it, and to become the architect of the most important marketing addages of the 20th Century: Always leave them begging for more.
If Salinger had gone on to create a few more decades of middling , uninspired works, inferior from those of his early career, it is unlikely that his death would be noticed with such fanfare. The fact that he only published a handful of books, and his best known to be really quite remarkable, is testament to a capacity for restraint we have foolishly lost in this over the top age of ours. The skill to quietly shut up is one that we don't really appreciate any more - a sad viture lost to the ages. But how effective. Just think how remarkable The Simpsons would be if it had stopped airing sometime in 1999. Instead, it's been trapped in a decade of mediocrity.
Once you've created the perfect product, shut up and just profit. Don't bugger with it!
(Of course, this discussion alone would make me a total "phony". I'll live with that.)
In the flesh, though, I'm sure Holden Caulfield would hate the internet. Because we all kind of do - the great thing about the character was his ability to voice the disenchantment so many people feel.
Personally, reading The Catcher in the Rye was a turning point in my life - granted I was 14. But to hear some of the innane dialogue on other blogs demonstrates how necessary the book still is. Take this discussion between Kevin Drum and Ezra Klein who both imply that the book is outdated. Drum read it in 1974 - Klein in 1999. Well, I read it in 1994 - unless alienation and loneliness become outdated, I will dare say that there will always be an audience for it. And that's what makes the book so great. There have always been people who get it and people who don't - I would venture to say that if you read it and didn't connect, then you're in the majority...not all that angry and isolated from the world. There's nothing wrong with that, I guess, but to pass it off as just some meandering celebration of youth culture proves its worth more than devalues it. I mean, Christ, to say "In 1951, Catcher in the Rye really was rebellious and titillating. By 1974, when I read it, not so much. By 1999, it might as well have been distributed on folio leaves." Let's get this straight: Catcher in the Rye was not the 1950s version of Jersey Shore, or even Gilmore Girls. It is a great dialogue on one of the most undying of human conditions: alienation. In that regard, it's second to James Joyce's Ulysses. Yeah, I just said that.
And the fact that Kevin Drum (who is really a great blogger), use this as inspiration to revise the "canon" is absurd. Do we really have to have policy implication for everything? And what does he want to do, have 'em read the Baby-Sitter's Club?
Anyway, for the Holden Caulfield haters, there's this
21 January 2010
Is it Chocolate Covered Cheese, or Cheese Covered Chocolate?
I haven't seen a lot of people denouncing Kraft's acquisition of Cadbury as the terrible idea that it really is yet...So let me denounce it.
It makes absolutely no sense in the world for a cheese company to take over a chocolate company. In the universe, in fact. Okay, so it's gross, but that's not important. What is is the fact that culturally the two companies don't mix, Kraft is probably overpaying, Cadbury doesn't really want them there, there are few cross promotional opportunities, and Kraft will waste an immense amount of time and resources for something that will be the AOL-TimeWarner merger of this decade. That worked out well.
What's worse, to follow through on this deal, the cheese company sold its frozen pizza business.
That's right. Kraft sold their frozen pizza business. In the middle of a recession - right when people are getting used to the flavor of eating frost bitten Tombstones instead of ordering out. Of course, I couldn't imagine that there are any significant synergies between pizza and cheese that chocolate and cheese can't replicate.
The official line is that Kraft is doing this to make a play for the international markets, where it hasn't been able to break through. Cadbury has a strong international distribution network that Kraft hopes to exploit. Of course, maybe Cadbury's strength abroad is due to the fact that people really like chocolate - and they really, really like good chocolate. Something tells me you won't have the same sort of success marketing American Cheese Product in Poland. I'm just saying: when Indians on the subcontinent start eating Mac 'N Cheese instead of Rice 'N Lentils, I'll eat my words - until then, color me skeptical.
Also, one main source of value for these sorts of deals is the tax dodge available through transfer pricing. I don't know the Consumer Package Goods industry too well, but unless you're printing the wrappers in Chicago and shipping them to Bournville, England, I don't see much opportunity for transfer pricing. Granted, there are a number of bankers that have thought this through, and the credit markets seem to be on board (and when have they ever been wrong about something?)
I think most importantly, whatever bet Warren Buffett makes, you don't really want to be on the other side of the table. Sure, he's human, but he's also Warren Freaking Buffett. Despite still claiming that Kraft is undervalued, I bet Buffett starts unloading his shares in the next 6-12 months...then you'll really see the dilutive power of this deal as the rest of the market follows suit.
Also, you've got to love this quote from Buffett about Kraft CEO Irene Rosenfeld: "She's a decent person." I think that falls right below "he has an interesting personality" in the pantheon of backhanded compliments.
Anyway, if I can start buying Flake bars at 7-11 becaues of all this, then I'll be a happy camper. Kraft shareholders? Probably less so.
20 January 2010
On Rewarding Bad Behavior
Not to turn a whiney blog about the economy into a whiney blog about politics, but today there was a US Senate race in Massachusetts. Let's just say, it didn't work out well. Unless you're China...in which case: Congratulations! Clearly, it's time to short America.
People are angry. And like most angry people, their response doesn't make any sense whatsoever. The Republicans have done nothing to garner the support of anyone in this country. Under their auspices they nearly destroyed the economy as well as the national psyche. There's a litany of reasons for people to be mad...and none of them logically comport with voting for a Republican.
Don't like the bailout...or the recession...or the wars...or the deficit...or the broken health care system...or the lack of jobs? Well guess what - now with a resurgent GOP, we can expect more.
Beyond the fact that this threatens the last best chance of creating a decent health care system, it's disappointing to see that after the blatant obstructionism of the Republicans, who have wanted to damage this president from day one with no concern about actually addressing our very real problems, the voters have decided to reward them.
Which means that obstructionism works...and that voters have created futher incentives for more obstructionism. This wouldn't be a problem if our country wasn't teetering on the precipice of internal collapse. Which, if you've spent any time here recently...it is. Like I said, if things get much worse, I'm going anarchist!
But other than that...Go Jets.
15 January 2010
Is B-School Like C-School?
Paul Wachter has a great write up on the Atlantic website asking if culinary school matters.
This is really terrific. For a long time I was looking for an academic program that was analogous to the borderline uselessness of an MBA, and here it is. The ambivalence about cooking school in the article perfectly captures my own feelings about business school. Yeah, I guess I learned all the language necessary to pretend like I know what I'm talking about, but for actual experience, nothing beats on the job training. If you want to become a great chef, you need to cook in a kitchen. If you want to become a CEO, you have to work in an office. As with C-School, at the end of B-School there is no accreditation - making results inconsistent and very lumpy, even within the same school.
And much like how MBAs can be blamed for using their knowledge to cause the subprime crisis in America, we can blame our trained chefs for causing America's obesity crisis. (Okay, maybe not).
Seriously, though, you can't determine the success of a field of study based on a few high profile names (be they Warren Buffett or Bobby Flay). Most MBAs won't be Warren Buffett, and most cooks won't be Bobby Flay (unless you are the overrated, bizarrely popular Emeril Lagasse, who for some reason is still popular despite the fact that he is a gimmicky schmuck) - for the average participant in these programs, one has to ask if they would have been better off "just tak[ing] a $25,000 loan and use that to survive while working my way up in a kitchen", as does one cook in the article. The problem, of course, is society doesn't give us loans for such experience. Instead, we can only access these affordable, subsidized loan packages through the auspices of a university. This prevents frauds from individuals - one has to ask, however, if it may not encourage fraud on the part of higher learning.
And after all, if business school or culinary school don't really matter - then aren't they just frauds?
I guess there's no answering that question any time soon. Anyway, at the end of the day, all an MBA has learned is to speak some jargon and do a discounted cash flow analysis. For the chefs, after they're done with the program...THEY KNOW HOW TO COOK REALLY GOOD FOOD! Honestly, that's a much better bargain.
10 January 2010
Bankers = The Stupidest People on Earth
For some reason investment bankers have developed a mythical quality of being more intelligent than us mere mortals. Well, in case the forseeable collapse of the economy caused by them wasn't confirmation that this view is patently false, that sound of imminent self defeat you hear is the coming bonus season.
If the banks are smart, no one would get a bonus this year. But they're not. Everyone will be going home with a fat check, which seems great in 2010, but will be less than brilliant in 2011 after Congress legalizes using them as fair sport for game hunting.
In all seriousness, now that the US Congress is wrapping up healthcare reform, the next big legislative push will be for financial reform. And the best way to ensure potent, strict, and effective legislation is for the banks to pay themselves a ton of money, during a recession, right before hand - and luckily, they seem willing to comply. No army of paid lobbyists will overcome the reality that these people are less popular than NAMBLA. But more than just stricter regulations, you're likely to see a British style tax on bonuses, which hasn't been floated in the States yet, but we'll start hearing a lot more about sometime around, say...Tuesday. So they probably won't even have the chance to take home a lot of it anyway.
Of course, banks are very concerned about "holding onto talent" - which is why they doll out these large bonuses, in theory. This is completely ridiculous. People wait until after bonus season to quit so they can get an expected pay out before executing an already planned career switch. The best way to hold on to talent would be to sequester funds into a bonus pool that will not be available to employees until 2013 - or even retirement. And if you leave before hand? You get nothing.
The reality is bonuses encourage departure. If you had to wait until retirement for your share of a bonus pool, no one would ever leave. In fact, that's the whole premise of a private pension. It encourages loyalty and good longterm decision making. Luckily for the banks, waiting until the end of your career to share in the rewards of labor only applies to union members.
The holding onto talent argument is doubly laughable given that NO ONE IS HIRING ANYONE FOR ANYTHING! Where are these people supposed to go?
Exactly.
8 January 2010
Someone Forgot to Tell the Economy that the Recession is Over
So, here we were, still enjoying that new year smell, and with little more than one week in, the unemployment numbers have to go and ruin it for everyone. I don't understand, though. The recession ended last September. Clearly, someone forgot to tell the economy.
My favorite part is how we act surprised when the idiots who got us into this mess are wrong when they predict it's over.
This is day 115 of the recession being over.
3 January 2010
Next time, let's not change the entire banking regulatory framework for the sake of one man's ego
Just sayin'.
Dont' worry for Sandy Weill, though, apparently: "He remains baronially wealthy...On another wall hangs a hunk of wood — at least 4 feet wide — etched with his portrait and the words 'The Shatterer of Glass-Steagall'."
In a more perfect world, Sandy Weill would be in jail. Instead, he's the subject of fawning "ah, shucks" profiles.
Our society is criminal.
WHICH SCHOOL?
Rotterdam School of Management
Internationally diverse (genuinely, not just marketing talk) RSM has some of the best global management thinkers and direct access to the Dutch corporate giants. Still a major trading port, with a strong art scene, many beer varieties and lots of bicycles.
George Washington Uni School of Business
Four blocks from the White House in the heart of Washington DC, arguably the center of US finance right now. Faculty and students have access to decision-makers within federal departments and agencies.
Nottingham University Business School
Nottingham University dates back to 1881 but the Business School sits in an avant-garde lakeside campus designed by the architects responsible for London’s Gherkin. But with global studying opportunities you may not stay there for long.
Cass Business School
With a mission to "lead London in education, research and knowledge transfer for businesses and the professions", Cass offers one of the widest ranges of specialist masters in Europe geared to the global financial services industry.
CEIBS
Shanghai-based prodigy among business schools. Founded in 1994 and ranked eighth in the world in 2009. The school everyone’s watching now.
Judge Business School
Founded in 1989, Judge has charted an independent course: from a curriculum that caters to Silicon Fen entrepreneurs and future museum directors alike, to its psychedelic premises and small teaching groups.
Warwick Business School
Warwick Business School (WBS) punches high; it's the largest part of the UK's established University of Warwick. Ranked 37th in the world by the Financial Times and 22nd by the Economist it's one of Europe's most successful schools.
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