January 24, 2007

Venture Capitalists Are Pumping up the Volume: Good News and Not-So-Good News

Filed under: Business Moves,Economy,Taxes & Government — Tom @ 2:15 pm

From AP:

Venture capitalists invested $25.5 billion in 2006, marking the industry’s biggest burst of dealmaking since the dot-com bust clogged the financial spigot for entrepreneurs five years ago.

As I noted in the first part of a two-parter on SarBox on December 26 (content not covered in the linked article), almost all venture-funded companies are not aiming to go public, but instead are hoping to be bought out by larger companies or buyout firms. The downside to this (because the going-public exit strategy is usually more lucrative) is that entrepreneurs are either not getting as much money as they “need” to do the deal right, or are giving up more control than they might have if going public were a more viable option (or a combination of both). The upside is that if they don’t go public and there is a flame-out reminiscent of 2000-2001, at least the general investing public won’t get burned as it did in the dot-com bubble.

Another downside is that the big-company fish often don’t handle the feisty small-company minnows they take on very well. Many smaller companies would grow faster, be more innovative, and change the economy much more for the better if they went public and stayed independent of big-company bureaucratic influences. To quote something I wrote in the second part of that December 26 SarBox post:

Imagine this — How different (i.e., NOT better) would the world be today if Apple’s or Microsoft’s exit strategy in the early 1980s had been to be acquired by IBM? What kind of computer would you be looking at (or would you even BE looking at one)? Or what if Yahoo’s founders or Amazon’s Jeff Bezos had planned only to sell out to Microsoft (Or even Wal-Mart or Home Depot to Sears or K-Mart?)?

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UPDATE: The news about Ohio’s venture funding is not so good.

From the ‘Careful What You Wish For’ Dept.: UAW May Be Taking Over Retiree Health Care

Filed under: Business Moves,Soc. Sec. & Retirement — Tom @ 9:34 am

If I were “Detroit’s auto makers,” I’d be tempted to tell the UAW to “be our guest”:

Auto union may run some retiree benefits

Detroit auto makers and the United Auto Workers are examining a plan that would shift to the union the responsibility for tens of billions of dollars in retiree health-care liabilities, The Wall Street Journal reported on Tuesday, citing people familiar with the matter.

The preliminary discussions highlight the determination of the UAW and the auto makers to find a way to restructure the auto industry without resorting to bankruptcy-court protection, the Journal said.

General Motors Corp. has hired advisers who worked on a similar deal between the United Steelworkers and Goodyear Tire & Rubber Co. last month.

Here are more details from the UK Independent, including reference to Ford’s involvement:

America’s biggest motor manufacturers are negotiating a revolutionary plan to rid themselves of tens of billions of dollars of healthcare liabilities by transferring the responsibility to employees’ unions.

General Motors and Ford have opened talks with the United Auto Workers (UAW) union about a scheme that would see the union run a massive fund to pay the healthcare bills for tens of thousands of retired car plant employees. In return for a one-off payment into the new UAW fund, the car makers could, with one bound, be free of liabilities they say are crippling them.

The proposed scheme would be modelled on a deal that ended a strike last month at Goodyear, the tyre producer, when the United Steelworkers took over $1.2bn (£606m) of healthcare liabilities.

This is indeed very clever on the part of GM and Ford, though I’m not sure that changing who handles the money will do anything to make the monstrous healthcare liability go away, or delay necessary plan design changes to stop the bleeding.

If history is any guide, one of the biggest dangers of transferring control and responsibility to the union has to be potential for corruption reminiscent of the Teamsters of days gone by. The Teamsters ran (and may still run) “multiemployer” plans, where the trucking companies paid into health and retirement funds managed by the union. The graft and corruption that occurred are the stuff of legend.

There’s a lot of employee money flowing through benefit plans. The UAW has avoided corruption by rarely, if ever, being in charge of them. That clearly may change. The folks at Solidarity House may be the most well-intentioned people in the world, but if strong reporting, budgeting, and reporting systems and controls aren’t in place, and taken seriously, the rank and file down the road will have more even more reasons than they have already to long for the good old days of “Generous Motors” and Henry Ford.

Well-Named: The Campaign for Ohio’s Future (Bankruptcy)

Filed under: Economy,Education,Taxes & Government — Tom @ 6:18 am

The last word was added by columnist Peter Tom Suddes (oops; HT to an anonymous e-mailer for the article, and to Scott for the correction) in a must-read Cleveland Plain Dealer opinion piece.

He’s describing the open-ended, anti-democratic, and mostly unaccountable perpetual spending-increase mechanisms built into the education initiative backers hope to put onto the ballot this November.

Here’s a lot of what you need to know (but read the whole thing):

The campaign’s hidden objective is to deny Ohioans the power they have over public school spending. Instead, voters would be told to pay up and shut up.

If the initiative makes November’s ballot and somehow passes, homeowners’ school taxes would rise with inflation without a vote. Ohio has long forbidden unvoted property tax increases, which would let school boards evade accountability to taxpayers.

Voters who can will, as has already occurred to an extent, vote with their feet — and go to a less taxpayer-hostile state.

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Previous Post:

- Jan. 21 — Ohio Schools: An Economy-Crippling Power Grab

Probably the Luckiest Failed CEO on the Face of the Earth

Filed under: Business Moves,Consumer Outrage — Tom @ 6:13 am

The guy who let the Gap go downhill is gone:

Gap Inc. was already struggling when it brought in Paul Pressler as chief executive more than four years ago. Those troubles look even more daunting as the clothing retailer ushers Pressler out the door with a $14 million severance package that leaves him in a lot better shape than the company he departs.

Pressler’s exit, announced late Monday, follows a dismal holiday shopping season that worsened the decay that has been eroding Gap’s sales since the spring of 2004.

I would like to be wrong, but it seems from here that Pressler is the luckiest failed CEO on the face of the earth. Everybody’s still so upset over Bob Nardelli getting $210 million to go away from Home Depot that Pressler’s $14 mil probably won’t even cause a ripple.

Campus Recruiting Gone Wild

Filed under: Business Moves,Economy,Education — Tom @ 6:08 am

In a free link, the Wall Street Journal relays news that should bring some relief to long-suffering parents enduring the costs of their kids’ postsecondary education:

Class of ’07 Gets Plenty Of Job Offers
January 23, 2007

Employers are diving back into the fountain of youth.

This year is shaping up as the strongest for college recruiting since the downturn earlier this decade, colleges report. Traditionally heavy recruiters, including management consulting firms, investment banks and accounting firms, are intensifying college recruiting efforts. They’re also facing more competition from other employers in such fields as technology, consumer products, government and even nonprofits.

Employers plan to hire 17% more graduates from the class of 2007 than they got from the class of 2006, according to the National Association of Colleges and Employers. That would make this year the strongest job market since 2000-2001, the association says. More than half of the surveyed employers said they planned to increase hiring; only 5% planned a decrease. Salaries were forecast to rise 4.6%, according to another survey by the same group.

“We now again have the nice problem of having to help some of our students choose among multiple job offers,” says Jack Tinker, director of recruiting at the career office of Connecticut College. Mike Hendel, interim director for the career center at Carleton College in Northfield, Minn., says he, too, is counseling students deciding among “two or three really good offers.”

Behind the increased recruiting are a relatively strong economy, growing business demands and heady corporate profits. Employers created about 1.8 million additional jobs in 2006. Average weekly earnings rose 4.5%, compared with a 3.2% increase in 2005.

Oh, this would be another indicator that the economy is in very good, and still improving, shape.

It’s also nice to see an acknowledgment that real wages have increased for the past two years, even if we have to wait for an article on college recruiting to see it.

Novak Skewers GOP on Student-Loan Bill Performance, and Rightly So; Local Reps Mostly Disappoint

Filed under: Education,Taxes & Government — Tom @ 6:03 am

Novak ripped Republicans in the House earlier this week for supporting the student-loan rate reductions that passed last week — and with good reason:

The bill, passed by an overwhelming bipartisan House vote, was headlined as reducing the interest on federally subsidized student loans from the present 6.8 percent to 3.4 percent. Actually, it gradually reaches the 3.4 percent level on July 1, 2011. A student taking out a loan July 1 this year would pay 6.12 percent after graduation. Only 29 percent of all students getting loans would be eligible for this gradual cut. Other student loan programs will be cut to help pay for the $7 billion cost over five years. And, contrary to Democratic implications, the bill does nothing to slow skyrocketing college tuition.

So now it appears that instead of today’s two-tier structure (“subsidized” and “unsubsidized” loans; both are actually subsidized, but so-called “unsubsidized” loans accrue interest while the student is in college), the new legislation goes to at least three and maybe four tiers, depending on which “subsidized” and “unsubsidized” loans are eligible for the lower-rate treatment. What, a, mess.

Back to Novak:

….. While Democratic support has been unanimous, Republicans are divided and listless.

Because Democrats are now committed to “pay-go” (offsetting all spending increases), this bill means cutting $6 billion from other federally subsidized student loan programs on top of a net $12 billion cut by the last Republican-controlled Congress.

On the eve of last Wednesday’s House debate, the Consumer Bankers Assn. and the Financial Services Roundtable sent a joint letter to members of Congress. The offset cuts in loan funding, the organizations warned, “cannot be absorbed by the nation’s loan providers without compromising the kinds of benefits and services now provided to college students and their families.”

This warning was not be expected to impact heady Democrats, but might should have promoted among Republicans. It did not. While Democrats were 232 to 0 for the bill, only 71 Republicans followed their leadership to vote against it.

The list of local (Metro Cincinnati), Ohio, and certain other noteworthy defectors (the complete list would be too long) is very disappointing. From the Roll Call vote, these “normally reliable” reps supported the bill:

Local — Chabot (OH), Turner (OH), Davis (KY)
Ohio — Tiberi (OH), Gillmor (OH), Pryce (OH), Regula (OH), LaTourette (OH), Hobson (OH)
Certain Noteworthy defectors — Ron Paul (TX-are you kidding me?), Jindal (LA), Ros-Lehtinen (FL), Walberg (MI — was backed by Club for Growth in GOP primary against an incumbent), Wilson (NM)

In Ohio’s GOP delegation, only Boehner, Jordan, and Schmidt voted against.

If this is a trend, it won’t matter whether or not President Bush locates that too-long-lost veto pen.

Positivity: Retirement does not stop hero firefighter from saving man

Filed under: Positivity — Tom @ 5:58 am

From Maryland:

Publish Date: 01/13/07

DAMASCUS — Tony Veith, a retired Montgomery County firefighter, was heading home to Mount Airy earlier this week when he rounded a corner and saw smoke and flames coming from a home in Damascus.

“I pulled up to make sure everyone was out of the house,” he said.

When he got to the house, he found a disoriented 70-year-old man trying to figure out how to unlock the door and get outside of his 26545 Ridge Road home.

“I guided him out,” Mr. Veith said. “He wanted to go back inside and get some stuff, but I told him ‘No, you can’t do that.’ Once I talked to him, he didn’t argue. I just helped him out and made sure no one else was in the house.”

Mr. Veith, 56, retired in May 2005 after 37 years with Montgomery County Fire and Rescue. He’s still working on engine maintenance for fire companies in Rockville and Bethesda-Chevy Chase.

While the 70-year-old man was not injured, two firefighters received minor injuries.

Montgomery County Fire and Rescue spokesman Pete Piringer said the man was unable to unlock the front door because he seldom used it. He usually used another door to get in and out.

Mr. Piringer said smoke and heat filled the house while Mr. Veith was helping the man escape. He later told fire investigators he was afraid he was not going to make it out as conditions were rapidly deteriorating.

Heavy smoke was coming from the house when the first firefighters got there about 11 p.m. Monday. Additional units from Montgomery, Carroll and Frederick counties also responded.

Mr. Piringer said the homeowner told fire investigators he had been watching a football game and at half time, got up to get clothes out of the dryer, but they were not dry.

He reset the dryer and went back to watching the game. About 15 minutes later, he began to smell smoke, Mr. Piringer said. Moments later he saw fire behind the dryer. He left and called 911, deciding to get out of the house through the front door. …..