Now It's Not Just the Little Guys Yelling

Now it's the shareholders -- the owners, you should say -- who are yelling, too.

For weeks now, Main Streeters have been complaining about the huge bonuses Goldman Sachs is preparing to pay its top employees. For example, the Financial Times's Kevin Sieff reported on Monday about demonstrators from SEIU (Service Employees International Union) protesting outside Goldman's Washington offices. And I have written with considerable skepticism about Goldman CEO Lloyd Blankfein's claim to be doing "God's work" (which, to be fair, he came close to recanting Monday; as reported by Graham Bowley in the New York Times on Wednesday, Blankfein said, "We participated in things that were clearly wrong and have reason to regret. We apologize.")

Goldman received a $10 billion bailout from the taxpayer-funded Troubled Asset Relief Program in October 2008, but has already repaid that. As far back as June of this year, the firm reported that it had already earmarked more than $11 billion for employee bonuses.

As a result, most Wall Streeters have ignored the complaints from the little people. After all, making money, and lots of it, is what Wall Street is all about, isn't it?

Today's Wall Street Journal reports, in an article by Susanne Craig, that Goldman shareholders are starting to complain, too. As Craig notes, "Despite record net income and compensation at Goldman as markets rebound and the firm outmuscles weakened rivals for business, analysts expect its 2009 earnings per share to be 22% lower than in 2007 and roughly equal to 2006 earning." (italics mine)

Reducing the bonus pool could substantially boost per-share earning and the share price. Shares traded yesterday at more than $170, up nicely for the year, but still well below the $250 per share peak in 2007. Last time I checked, corporations were supposed to maximize shareholder value (or stakeholder value -- but that's a rant for another day). Considering that Goldman employees own between 10 and 15% of the company's stock, they might even appreciate the move. Or not.

Goldman's employees are on course to earn about $717,00 on average in 2009. This is far beyond Wall Street's previous high-water mark, set by Goldman in 2007, of $661,490 per employee (The per-employee figure, of course, a ruse in itself; the Goldman administrative assistants and janitors earn, um, somewhat less; as the Times noted back in July, three years ago, Goldman paid more than 50 employees more than $20 million each. Moreover, Goldman artificially reduced the bonus number by including temporary employees and consultants in its "employee count".).

I find it hard to believe that even the gifted Mr. Blankfein really warrants a one-year paycheck of this size, but that's just me.

The much more serious complaint is that Goldman is still using taxpayer money, so why is the taxpayer getting cut out of the Goldman payday? After all, Goldman has been borrowing Treasury (our) money at essentially 0%. Where does Treasury get the money? By borrowing it, at Treasury bond rates. Don't you wish your bank would let you do the same thing? Goldman has made great returns on its investments, but it wasn't playing with its own money, it was playing with ours, and I want some of mine back now, thank you.

Sometimes, The Good Guys Win

Let's celebrate the victory of what was once a ragtag group of student activists against the large and profitable Russell Athletic (owned by Fruit of the Loom).

As reported by Steven Greenhouse in today's New York Times, pressure on Russell picked up dramatically last January when the company closed one of its Honduran factories, Jerzees de Honduras, shortly after the 1200 workers there had voted to unionize.

The company agreed Tuesday (1) to open a new factory, Jerzees Nuevo Dia (New Day), which will hire the laid-off workers, (2) to recognize the workers' union and proceed with good-faith collective bargaining, (3) to place laid-off workers who cannot be placed at the new factory at other Russell facilities in Honduras, and (4) to pursue a policy of non-interference in regards to unionization efforts at all Honduran Russell and Fruit of the Loom facilities (click here to read the Russell public announcement).

The student lobbying effort was led by United Students Against Sweatshops (USAS), which over the course of a year orchestrated a nationwide campaign, convincing the administrations of universities from Boston College to the University of Michigan to suspend their licensing agreements with Russell. According to the Times, some of those agreements yielded more than $1 million in sales.

In addition, "student activists picked the NBA finals in Orlando and Los Angeles ... to protest the league's licensing agreement with Russell. They distributed fliers inside Sports Authority sporting goods stores and sent Twitter messages to customers of Dick's Sporting Goods to urge them to boycott Russell products."

USAS has been resisting Russell for years, slowly building the coalition that persuaded universities to adopt codes of conduct for licensees' factories that could then be used to convince those same universities to suspend Russell's licenses when the coalition produced evidence of worker harassment and intimidation.

USAS also persuaded more than sixty US members of Congress to sign a letter to Russell, expressing "grave concern" about the reports of violations of worker rights, and noting that if the reports were true, "the factory has violated internationally recognized labor standards, Russell's own code of conduct, and Honduran law...."

Ever wonder what just one person can do? Here's your answer: Organize.

Pharma Companies Take Page From Bankers' Playbooks

Sigh.

Duff Wilson, in today's New York Times, reports that major drug companies are aggressively raising prices in advance of health-care legislation (complete article, here). This sounds suspiciously like the ploy of credit-card companies, raising interest rates in advance of the approved-but-not-yet-in-force Credit CARD legislation (click here for an earlier blog post on that subject).

Note that the drug companies' moves are coming, as Wilson reports, at the same time that they have promised "to support Washington’s health care overhaul by shaving $8 billion a year off the nation’s drug costs after the legislation takes effect".

When is a sale not a sale? When the seller hikes prices beforehand to create an artificial "discount" price.

Moreover, these increases come at a time when, thanks to the deep recession, overall consumer prices have been falling: according to the Bureau of Labor Statistics, prices have fallen 1.3% over the last 12 months.

Prescription drug prices, in contrast, are up about nine percent.

But perhaps I'm being unfair to suggest that the pharmaceutical companies have learned from the credit-card companies. After all, Wilson notes that the same thing happened three years ago, just before the Medicare drug coverage program went into effect (click here for Times article from 2006). At that time, according to AARP (the American Association of Retired Persons), which conducted the pricing research, "prices charged by drug makers for brand-name pharmaceuticals jumped 3.9 percent, four times the general inflation rate during the first three months of this year and the largest quarterly price increase in six years."

So maybe it's the credit-card companies who learned from pharma. Either way, we need to send them the "don't be evil" memo.

A New Take on the Prosperity Gospel?

I've written a couple of times in the past about the apparent inability of bankers to understand why so many of us are furious with them (see here and here for the previous posts). Things are not improving.

You may have read last week's reports from London (one example, Julia Werdigier's piece for the New York Times is here) of bankers like Barclay's John Varley defending the purity of their motives ("Profit is not satanic," was my favorite among the quotes from his speech at the church of St. Martin in the Field. Meanwhile, over at St. Paul's Cathedral, you have Brian Griffiths, an advisor to Goldman Sachs, saying, "We have to tolerate the inequality as a way to achieve greater prosperity and opportunity for all.").

If you thought you heard an unrefined "Oh, yeah?" from me, you were right.

Compare the bankers' comments to these from Rowan Williams, the Archbishop of Canterbury: "There hasn't been a feeling of closure about what happened last year. There hasn't been what I would, as a Christian, call repentance. We haven't heard people saying 'well actually, no, we got it wrong and the whole fundamental principle on which we worked was unreal, empty'."

He added, "I feel that .... what I call the 'lack of closure' [is] coming home to roost. It's a failure to name what was wrong. To name that, what I called last year 'idolatry', that projecting of reality and substance onto things that don't have them."(click here for the complete article from the Times of London)

In today's Salon, Andrew Leonard pointed out an excellent (but long) article by John Arlidge in yesterday's Times of London, in which Goldman Sachs chairman and CEO Lloyd Blankfein claims to be doing, yes, "God's work."

My "Oh, yeah?" just got louder and more cranky.

Blankfein is aware that "people are pissed off, mad, and bent out of shape" at what bankers have wrought.

He just thinks that we're wrong to be so angry: "If the financial system goes down, our business is going down and, trust me, yours and everyone else's is going down, too."

Doesn't that sound like a threat? Doesn't it sound as though he's saying, 'Let me do whatever I want, unless you want me to wreck it all.'

Yeah, that's what I thought, too.

Snap, Crackle, Pow?

Kellogg's Corp. announced Wednesday that it will remove "immunity" labels from its Rice Krispies cereals. ("Now supports your child's IMMUNITY" the label announces across the front of the package. In smaller letters, it adds, "25% daily value of antioxidants and nutrients, vitamins A, B, C, and E")

In its press release, Kellogg's called the addition of antioxidants to the Rice Krispies (and Cocoa Krispies) formula "one way the Company responded to parents indicating their desire for more positive nutrition in kids' cereal."

"While science shows that these antioxidants help support the immune system, given the public attention on H1N1, the Company decided to make this change," the release continued.

According to Bruce Horovitz's article in USA Today, San Francisco's city attorney last week asked Kellogg's to prove its claim.

Many nutritionists were appalled by the claim; my favorite comment (quoted by USA Today) came from Kelly Brownell, director of Yale University's Rudd Center for Food Policy and Obesity: "By their logic, you can spray vitamins on a pile of leaves, and it will boost immunity."

Writing in her blog, Marion Nestle, Paulette Goddard Professor of Nutrition, Food Studies, and Public Health at New York University, said, "In the absence of FDA action, food marketing is allowed to run rampant, and city and state attorneys are doing the FDA’s job."

This isn't the first time I've written about wacky claims for breakfast cereals (click here for comments on the "Smart Choices" program). But these claims aren't just wrong (although they are); they're stupid, too.

Rice Krispies is one of the best-known cereal brands in America. When you've spent years building a brand, why on earth would you risk it by tacking on a claim that, as Dr. Brownell said, "belongs in the hall of fame" (and, obviously, not in a good way).

Many years ago, the late great advertising genius David Ogilvy told his "Mad Men", "The consumer is not an idiot. The consumer is your wife."

Fool me once...

When Is "Free" Not Free? When It Isn't Really Free.

The Federal Trade Commission has to date collected about $1.25 million (over five years) from Experian, one of the three major credit-reporting services, to settle charges that the firm misled consumers seeking genuinely free credit reports.

But it might not be enough.

As reported in Ron Lieber's article in today's New York Times, the annual revenues for monthly credit-monitoring services range from $650 million to $700 million. Experian is by far the biggest player in the sector. When an annual report is free, why are so many people -- upwards of nine million -- paying for monthly reports?

Could it be that these consumers are confused about what they're getting, and what they're paying for? Heaven forbid. If you've seen the many ads for freecreditreport.com, you too might think that what is being sold is a free credit report.

(I considered embedding one of the ads for freecreditreport.com, which Experian owns, here, but the jingle is one of the worst earworms out there. The FTC is now sufficiently annoyed about the freecreditreport situation that it has created and run its own parody ads, which are actually quite funny; I've posted one, below.)

Experian, of course, denies that it is doing anything dishonest. Lieber quotes the president of the firm's Consumer Direct division: "You get a free credit report and free score for test-driving our product... We've always felt that it's been very upfront and a fair opportunity for the consumer to become more aware and comfortable with the credit reporting concept."

That first report is free, but if you do not cancel immediately, you get hit with a monthly fee of $14.95. It appears that the amount is small enough that many consumers let such a relatively small amount slide, often for months, before they get around to canceling (canceling the service is not a completely stress-free experience, either; for example, while you can sign up for the service online, you can only cancel it by phone).

Remember that a genuinely free -- but annual, not monthly -- credit report is available from annualcreditreport.com, which is the only authorized (by the government) source for a free annual report. Obtaining a genuinely free report will still route you through the major suppliers (Experian, TransUnion, and Equifax) who will of course try to upsell you to a monitoring program before they provide the single free report (For more information, go to freecreditreport.gov -- which will redirect to an FTC site, ftc.gov/freereports).

Congress has since 2003 required the three major credit bureaus to provide one free credit report to every American each year. The similarity between the URLs has been confusing consumers since day one, to the point that, according to Lieber, "the FTC [at one point] asked Experian to give it the freecreditreport.com URL to end the confusion, but the company declined.")

I would feel a lot less suspicious of Experian's motives if they had given up that URL, wouldn't you?