A power play by AAA

Do you have AAA insurance?  I do, and for the most part I have loved them as an insurer.  If you have AAA insurance, and you are in an accident, you will find they are a strong advocate on your behalf.  So I was surprised when I read the proxy statement they mailed to me this week.

I am referring to the Northern California, Nevada, and Utah region, which is the area I live, as AAA is not an homogenous national organization. The proxy asked (as they all do) that I allow management to vote on my behalf.  Then I read what they were proposing.

The insurance arm of AAA is run by a board referred to as the Insurance Board.  The California Insurance Code requires that rules governing selection of that board be determined by the subscribers.  So management wants the members of that board to be voted in, by the members of the Insurance Board.  How's that for corporate governance in the interests of the stakeholders?

What you would have is a closed loop system, where management determines who management will be.  Do you see anything wrong with this picture?  Corporate America is filled with corporations whose primary loyalty is to entrenched management at the expense of the shareholders.  I liked to think that AAA was better than that, but I guess I need to rethink my position.

So, if you are insured by AAA and the Northern California, Nevada and Utah region, don't sign the proxy.  And if you can, go to the meeting (August 7th, 3055 Oak Road, Walnut Creek, CA at 11:00 AM) and vote against it.  And raise a little bit of Hell while you're at it.

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What does a company owe to shareholders?

Who remembers the novel Catch 22?  Remember when M&M Enterprises bombed the base?  It was OK because "everyone has a share".  This is the situation we find ourselves in today.


You work for Behemoth Industry Inc, a Fortune 500 company, and you are also a shareholder.  Every paycheck a small amount of money is deducted for the Employee Stock Purchase program.  You also have automatic dividend reinvestment, so every quarter you are watching the number of shares you own grow, helping to build your retirement nest egg.


One Monday morning you come to work and find there is a chain on the front gate, the plant is closed.  You are now unemployed.  A company press release announces that the quarterly dividend will increase one half cent because of their cost saving measures of shipping much of their manufacturing offshore.


You are one of thousands out of work, and the ripple effect hits your town, your county, your state.  Many of those who's lives have been damaged are stockholders also, as they own shares via their 401K's, in mutual funds, and direct investments in their IRA accounts.  All these people get one half cent per share extra per quarter, in exchange for being thrown into poverty.


I am not saying I have an answer here, only that we are a shareholder society.  Shouldn't we as shareholders be getting better treatment?  Is that one half cent per share all that they owe us for our investment?


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Bend over and crack a smile

Imagine you are driving along and you come to a traffic light.  It is green so you don't slow down.  As you cross the intersection you are struck from the side, your car rolls over several times, and you awaken in a hospital.

The next few months are spent in a painful recovery.  As you are unable to work, the bills pile up.  Your insurance company files suit against the insurance company of the other driver, and they settle on an amount that, while not making you whole, will at least pay off a lot of your medical bills.  Then you receive a letter from your insurer, telling you that they are going to keep all the money and you are left to fend for yourself.

That stinks, right?  OK, here is another story, and this one is true.

The banking industry discovers that if you write crappy loans, that are likely to default. you can sell them to some sucker if you package them with a bunch of other crappy loans as mortgage backed securities.  You might even make some additional profit by servicing the loan for the sucker you sold them to.

So your CEO gets a huge bonus, and because anyone and his brother can get a loan now, the price of real estate goes crazy.  Buying a home becomes more and more expensive.

Now you have a decent job, perhaps some savings for a down payment, and you go shopping for a house.  The prices are absurdly high, but that is just what they cost.  You take some comfort in the fact that with your purchase, you are building some equity, and you can recoup that when you sell.

Of course the house of cards that the banks have constructed eventually comes tumbling down, and then suddenly the house you have been making payments on every month for five, six, or seven years is worth dramatically less than you owe on it.

If you were to lose your job,  you cannot go somewhere else to look for a job because you cannot sell your house.  If you are ready to retire, you have no equity to pull out.  Need to move to a smaller, cheaper place now that the kids are grown?  Forget it.  Even if you walk away from that mortgage, your credit is trashed and you won't be able to buy another house for years.  Some landlords will not even rent to you.

Ever the federal government and the states.  They reach a settlement with the banks.  Now the amount of the settlement reached is a tiny percentage of the amount of equity that was wiped out as the result of the banks gaming the system.  But at least you may get some small amount of relief.

Until the state decides that they are going to keep your share of the money, the money that was supposed to provide you with some sort of relief.  That is what many states, including my own state of California intend to do.

So bend over and crack a smile.  You are about to get fucked in the ass...again.

A business model

To many people, knowing that Mitt Romney made a lot of money with Bain Capital is all they really need to know.  That means he must have done something that benefited the economy, the nation at large.  But that is only because they do not understand the business model of private equity firms.

So for the benefit of those people, I am going to publish a little history lesson, an object lesson that illustrates very clearly what role private equity plays in the world of business.

Mervyns was founded in 1949 by Mervin G Morris.  At it's peak it employed 30,000 people and had 257 stores.  It was acquired in 1978 by Dayton Hudson (now Target) and sold to the private equity firms Cerberus Capital Management, Sun Capital Partners, and Lubert-Adler in 2004.

At the time of the sale, the Mervyns stores were starting to show their age, Dayton-Hudson had been more interested in growing their Target brand than Mervyns.  But the business was still profitable.  It would have taken some work, but it was nowhere near a lost cause.

What happened?  The short version (the long version is a little more complicated but functionally the same), they sold off the real estate and the stores were compelled to lease it back at double the cost.  They sucked out $400 million in cash for themselves and left the company with $800 million in debt.  That was more than the company could survive.

The company was driven into bankruptcy, and 30,000 people lost their jobs.  But it was successful investment because the money borrowed to buy the company was debt to Mervyns, not to the private equity partners.  They got their money, everyone else got screwed.

This is the sort of capitalism that Mitt Romney represents.  It is the sort of capitalism that those who fund the tea party represent.  Yes, it really is legal.  But does this help or hurt anyone except the very few?  It is legal, but is it moral?  Is this really the sort of nation that we want to be?

If Occupy is to have a positive impact

When I was a teenager, I sat around a kitchen table with a group of people who were drafting a flyer.  There was going to be an anti-war rally at the local college campus, and we were discussing the text.  I submitted a draft text, and so did several others.  I learned a lesson that day.

The text that was overwhelmingly approved (not mine) was designed to appeal only to the most radical members of the movement.  Instead of reaching out to mothers who's children had been drafted and sent to Viet Nam, this was talking about solidarity with their Viet Cong brethren.  This was the left wing version of the Tea Party, and they were all patting themselves on the back for being so radical.

The anti-war and civil rights movements were successful when they evoked sympathy from the public at large.  When four anti-war protestors were killed by National Guard troops in Ohio, it served as a stark contrast between those protestors and the entrenched opposition.  When the network news showed the inhumanity of the police in response to black Americans who simply wanted to vote, that was also something that the American public at large could identify with.

Planning actions is the right thing to do.  They call attention to the movement, keep it in people's minds.  But if they do not want to be relegated to the lunatic fridge by the majority of Americans, then they need to adhere to three simple concepts.

• The purpose of an action is to focus the public's eye on both the Occupy movement, and the response of the establishment.  Getting the press there is important.
• Remember who your audience is.  You are on a stage.  You are trying to do three things.  Wake people up.  Highlight injustice.  Make them feel that you are standing up for them.
•  Avoid actions that are the political equivalent of public masturbation.  You are not there to please yourself, you are there to make a point that most of the 99 percent would understand and sympathize with.  Note I did not say agree with, there is almost nothing in this country that most people would agree with.  There were many people in America who did not want to sit next to a black man at a lunch counter, but sympathized with the desire of black Americans to be treated equally under the law, and to not have fire hoses set on them when they tried to protest.

Right now, I am not seeing that.  It makes me sad that a movement that could have been an important force for good in this country is marginalizing itself.

Went for his gun?

You are walking alone, being stalked by a stranger.   The stranger approaches you, and addresses you in a belligerent manner.  The stranger is not a police officer.  He are carrying a gun.  What do you believe is about to happen?  What do you do?

This is why George Zimmerman's excuse does not sound like any kind of an excuse at all to me.  Even if it is completely true that Trayvon Martin hit him and tried to take his gun, that would only mean that young Trayvon had decided that his best chance of getting out of there alive was to overpower his assailant.

The 'followed him back to his car' part of the story does not fit with the narrative that Martin's girlfriend provides.  She was receiving an ongoing account from Martin right up until the apparent struggle where he was killed.  She heard the initial exchange of words between them.

Lastly, how would Martin even know that Zimmerman had a gun to take away, unless he was brandishing it?

None of us know the whole story.  There may be much one to this than any of us know.  But why do I see these stories offered at face value, with none of the important questions being asked?

Prisoners of War

I had the opportunity to visit Andersonville, the site of the infamous prisoner of war camp run by the confederacy during the civil war.  Also there is the national Prisoner of War Museum.

The museum exhibits spoke in generalities, the history of how prisoners of war have been treated, and it also spoke personally, stories of individuals and their experience as prisoners of war.  And it talked about all the different flavors of prisoner.

The Japanese-Americans who were shipped to camps during the second world war, they were, in a way prisoners of war.  They had committed no crime, not taken up arms against this nation, and yet they were treated as hostile foreigners.  Their treatment was similar to civilians who were living in hostile or occupied countries when war broke out, interned for the duration.

But as I walked through the museum, reading the stories of men and women who had endured capture and sometimes torture, I could not help be be reminded of what a stain on our national soul is Guantanamo.

Someone in the Bush administration made up the term 'illegal combatants' to justify what would otherwise be illegal treatment of captives.  In 10+ years, how many of these men (and sometimes children) have been charged with any crime?  I still maintain that they must be treated as prisoners of war, or charged with some sort of crime.

We do not defeat terrorism by becoming terrorists.  Terrorism is a tactic used by the powerless against the powerful.  It is not an end unto itself.  As long as people feel oppressed, that their hopes and dreams are being ignored or actively suppressed, there will be terrorists.  You defeat that by attacking the root cause, and yet we continue to be the root cause instead.

As long as places like Guantanamo exist, there will continue to be more and more people who come to the conclusion that we are their enemy.  And how do you strike out an an enemy so large and powerful as the United States?  With acts of terrorism.

By our refusal to follow international convention, or even our own laws, we have become our own worst enemy.