Leveraged Real Estate, Leveraged Morals

In Big Sky country, a former timberman Tim Blixseth, started a luxury resort just south of Bozeman.  Yellowstone Club.  The idea was to have a private ski and golf resort where people whose "net worth" was over 1 million could hang out together behind gates.

As these things go, Blixseth got divorced from his wife, lenders it turns out, literally fell over themselves to loan money to Blixseth based on his ownership interest in the Club, the economy went south, and as testimony indicates in a bankruptcy court in Montana, the whole idea was over leveraged and essentially a ruse.

Ah, but for awhile the Blixseth's lived like millionaires, shuttling from their base in Palm Springs to France, the Caribbean, and of course, Montana in their private jets, yachts, and expensive cars.  

It seems to me one of the moral tales of this most recent boom is not to believe what you see.  Bernie Madoff, financial institutions profits, mega-mansions, Enron, all of it seemed to be based on either smoke and mirrors or lies.  And that ethic seeped into every corner of our culture: mega-church ministers deceiving their congregations, politicians assuring us there were weapons of mass destruction, manufacturers promising products which never worked...and we even deceived ourselves, thinking the real estate boom would never end, that our own homes could pay for cars, boats, tvs, granite counter tops, gorgeous appliances, college tuition.  

Now is the time to look at what was happening that made all of us go, well, er nuts.  As in "what were we thinking?"  Is greed really the dominant motivator in our culture?  Or can we find ways to restore some sense in our lives, where people don't feel the need to create private, exclusive clubs based on fake financial statements thinking that you need to live next door to someone who has an equally fake net worth?  Can we restore some sense of community to our world, where we don't think it's cool to be an investor who gets 30% returns at the expense of excluding our neighbors from the same investment (we won't even debate what Madoff's investors were thinking).  Or where employees of a company don't think it's right to jack up some elderly person's electrical rate because they can create fake power shortages?

The question really is how do we find our own moral compasses?  How do we reduce the leverage and become grounded?  

That's a Lot of Car Service

The recent news of former US Senator Tom Daschle's failure to declare much less pay taxes on the limo or car service he received for free from a friend (and Democratic fund raiser) brings up many many issues.  While I will speculate that he will be confirmed by the US Senate, I have, even before this tax issue arose, wondered about this appointment.  Tom Daschle is a man who has evolved from Washington, DC.  His wife (Linda Hall) is a lobbyist for aircraft manufacturers and other businesses, that while she claims she is not doing health care lobbying, hello!, aircraft manufacturers and associated businesses all provide health care benefits to their employees.  Working the "inside" the Beltway has become the family business for the Daschles.  And, after Tom Daschle is gone from being the Secretary of Health and Human Services you can bet he will be back at the lobbying angle.  As the former Democratic leader of the US Senate, Tom Daschle stood to make a lot of money from his connections after he lost the election for his seat in South Dakota.  Why go back to South Dakota for God's sake when you can ride around Washington, DC in a free limo?

So, really, here are my concerns: we're putting in someone for this job who is a creature of a bubble.  Understanding what is going on in not only health care, insurance, welfare, drug and alcohol addictions, and all the other pedestrian mandates in Health and Human Services takes, in my opinion, someone who has walked the walk.  Being a creature of DC is not that person.

Much less the fact his life is so far outside of the every day lives of the people he will impact the most.  I mean, to owe $128,oo0 on free limo services means he used an awful lot of limo service.  Just assume that the $128,000 is taxed at 25%, that means he used, what, over $500,000 in limo services during a less than three year time period!  That's amazing!  Hey, Tom, the rest of us take Metro!  That's a lot of self-importance.

Last, I am still concerned that so many of President Obama's appointments are from the same backgrounds.  By that I mean, federal legislators or people who have spent almost all of their careers in government service.  I don't know what is so unappealing about the Senate, but there sure seems to be a stampede to get out of there (sounds like a rather nice job to me, frankly).  While President Obama may not be afraid of having a lot of smart people around him (that's good), the one problem is that when all those smart people have had essentially the same lives, isolated in Washington, DC, it his team of rivals could end up being an echo chamber.  And that is not good.

Time to ditch Daschle and find someone who has actually had to live a normal life.

Questioning Microsoft Layoffs

I am not a big fan of Microsoft.  I jettisoned their MSN service in early 2001 when they lied to users about a week long break in service.  And when my PC hard drive crashed and burned I didn't take much convincing to beat a path to the Apple store for an iMac.  Having said that, I think it is important to focus on the Microsoft layoffs not because I don't particularly like their products, but because I think how the company is handling the economic woes is indicative of our current reality.

The most interesting headline on the layoffs said that "analysts" are not happy with the number.  In other words, Wall Street wanted more people on the street, not less.  This draconian attitude comes a mere three days after the euphoria of President Obama's inauguration and a general belief among Americans that he can and will do something to get our economy back on track.  So, I wonder, are these Lords of Wall Street reading the same news that I am reading?  How can they demand more layoffs when the economy is already reeling?  And the irony is, Microsoft was making money, just not enough money to satisfy Wall Street.

But here is the deal.  Investors have managed to make a lot of money off of Microsoft.  In fact, a little over 4 years ago, Microsoft not only issued a dividend higher than the Wall Street norm, but they also sent out checks to shareholders to the tune of $3 a share!  Bill Gates hauled in (are you sitting down?) $3 BILLION.  Steve Ballmer, the man to emailed Microsoft employees the details about the layoffs, took home $1.2 billion.  Cash.  Wow.

Now, many of the large individual shareholders still live in the Puget Sound area, headquarters to Microsoft.  Paul Allen, owner of the Seattle Seahawk football team, Portland Trailblazers basketball team, and the world's largest yacht (he has several as well as mansions all over the world), still has significant Microsoft holdings in his portfolio.  And last week, Paul Allen's company, Vulcan, also laid off people.  The interesting conflict, then, is that individual shareholders who stand to gain when Microsoft does what Wall Street analysts want, are laying off their neighbors.  

Steve Ballmer, the CEO of Microsoft, contributed over $50,000 to the Obama inauguration celebration, as well as several other top executives of the company.  Think about it, $50,000 could pay someone's salary for a year!  But the $50,000 will gain him important access as he wheels and deals even more tax credits for the company.

And the institutional investors?  Well, guess what?  One of them is JP Morgan Chase, yep, the same bank that is taking bail-out money.  Another large investor is Goldman Sachs.  Same company that former Secretary of the Treasury Henry Paulson came from.

Last, questions are beginning to surface about the status of laid off employees versus those that stay.  Microsoft, like many high-tech companies, hire significant numbers of foreign engineers who are employed under a special immigration status known as H1-B.  It will be interesting to see, if one is produced, an outline of how many H1-B employees were laid off.  

Bottom line, it seems to me, is the Microsoft layoffs open the door for discussions about corporate ethics, morality of employment, how much profit is enough, investor value, shareholder responsibility to the communities they live.  Of course, we know that those kinds of discussions will not happen, but, wait, can't we hope?  In the meantime, another headline today says Starbucks  is about to also announce layoffs.  Wanna' bet Wall Street is asking for those, too?