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Monday, July 03, 2006

The WSJ: Wrong, Wrong, Wrong

The Wall Street Journal has published an amazing series of editorials in the past few weeks that simply defy logic and reason. The ideas presented are even more amazing given related coverage by the paper's own news staff that shed light on the dangers of the very ideas promoted by the editorial staff. I can't think of a more schizophrenic organization or publication on the planet.

Backdated Options are a Good Thing

Newspapers across the country have been covering literally dozens of cases of major corporations granting millions in back-dated options to CEOs and senior management. The Wall Street Journal's own news staff published a story on March 18, 2006 entitled "The Perfect Payday" that broke the story. The report analyzed the odds of hundreds of grants to CEOs all occurring on EXACTLY the date of a low-point of a company's stock and found the odds well over 300 billion to one.

http://www.stat.yale.edu/~jay/News/WSJmain.pdf

Of course, prior to the disclosure of the practice, you can be assured that every one of the CEOs benefiting from the practice argued that their largesse was due solely to their genius and leadership as a manager and that they EARNED every penny granted to them and if they HADN'T done such a wonderful job, they rightly would not have gained a cent. Just the free market doing what it does best.

Uh huh.

Undaunted by reality and the facts unearthed by his own newspaper, Holman Jenkins, a weekly columnist for the WSJ, wrote a piece on June 21, 2006 stating that back-dated options are NOT a bad thing. His terminology was "an innocuous and even sensible practice." Jenkins argued back-dated options simply reflect the desire of boards to better control total compensation by controlling both the number and the price of the options. Of course, this is pure rubbish. Not a single one of these publicly traded companies stated that as a goal in their annual reports or SEC filings for periods where the options were granted.

Jenkins' view also flies in the face of any understanding of the structure and purpose of an option taught to first year business school students. Options are intended to improve the alignment of interests between management and shareholders by offering an opportunity for upside compensation when management drives the firm's stock price higher. Of course, options are not a perfect motivation vehicle since they instill no "down-side" discipline to encourage preservation of capital which is ALSO a primary goal of shareholders.

For those of you rugged individualistic investors planning for your own retirement in a world devoid of pension plans, that would put the WSJ squarely in the corner of…

…already overcompensated executives bent on further rigging the game in their favor with money that is rightfully owed to you, the individual stockholder, trying to save for your own retirement.

Still feeling good about retiring early at 50? How about retiring at 65 with ANYTHING?


New York Times Bad, Wall Street Journal Good

After the New York Times published the story concerning US Government monitoring of international financial transactions through SWIFT, the Wall Street Journal devoted their entire editorial column to an explanation as to why the New York Time's reporting on the program was harmful to national security and the war on terror while the Wall Street Journal's coverage of the same story on the same day was not.

http://www.opinionjournal.com/editorial/feature.html?id=110008585

The most illogical thought in the entire WSJ commentary is in this single paragraph:

Some argue that the Journal should have still declined to run the antiterror story. However, at no point did Treasury officials tell us not to publish the information. And while Journal editors knew the Times was about to publish the story, Treasury officials did not tell our editors they had urged the Times not to publish. What Journal editors did know is that they had senior government officials providing news they didn't mind seeing in print. If this was a "leak," it was entirely authorized.

Basically, the WSJ believes the NYT was obligated to think about the larger impact of publishing information potentially damaging to the war on terror and that the NYT should have spiked the story when the government asked them not to publish it. At the same time, the WSJ basically states it was "authorized" to publish any information spoon-fed to it by the government in an attempt to dampen the splash a NYT scoop would make for the story. Even if the information was handed to the WSJ and other papers, if the WSJ thought it was so damaging, why run it? Do you believe every time the government tries to hide something, they are protecting us and every time they try to provide information, they're trying to inform us?

The WSJ's willingness to publish any story spoon-fed to it by the government is exactly the same type of lazy stenography by the press that got us into the Iraq war with virtually no serious questioning of tactics or need. Why didn't the WSJ criticize the NYT in 2002 when Judith Miller, despite working for the "liberal" NYT, published reports filled with unquestioned "facts" directly from White House and Pentagon intelligence briefings that had nothing resembling factual intelligence. We could have used some healthy skepticism about government policies, information and spin back two or three hundred billion dollars ago and 2500 lives ago.

Presidential Powers and the USSC Ruling on Gitmo

The Supreme Court issued a ruling in the case Hamden vs. Rumsfeld involving the detention of a man believed to be Osama bin Laden's bodyguard at Camp X-Ray in Guantanamo Bay, Cuba.

http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=US&vol=000&invol=05-184

In a nutshell, the Supreme Court ruled

ONE - The suspect cannot be tried by a military tribunal as desired by the Bush Administration because a tribunal must operate under rules of the Uniform Code of Military Justice (UCMJ) and the Administration has not clarified the standing of the suspect as a prisoner of war.

TWO - A lower court's rejection of the claim that a tribunal would violate terms of the Geneva Convention was wrong and was "not persuasive."

THREE - The argument that the Geneva Conventions cannot be applied when fighting an enemy who is not a signatory to the Conventions is invalid because Common Article 3 of the Conventions states an obligation of signatories to a minimum standard preventing the passing of sentences without prior judgment of persons placed hors de combat via detention.

The ruling did NOT state that all prisoners in Guantanamo and America's other secret gulags must be immediately freed. It did NOT state that we have no right to detain suspects captured via legitimate military efforts in combat zones until the cessation of combat. It simply reaffirms all such detainees have a minimum set of basic human rights we must honor, that we cannot operate judicial mechanisms outside the bounds of current military and civil law and that the President cannot operate said mechanisms outside the purview of the Legislature and the Courts.

Pretty revolutionary stuff, huh?

On the July 3, 2006 editorial page, the Wall Street Journal completed its "through the looking glass" editorial hat trick courtesy of the "After Hamden" piece. The very first paragraph begins with

American's political elites certainly have come a long way since September 11.

Wow, in the very first sentence, the editorial board manages to reframe a Republican dominated Supreme Court decision as the doings of "political elites" (read "liberals") and to confound a basic issue about human rights, due process and checks and balances with security in a post September 11 world.

The coup de grace of the Journal editorial comes in the following comment towards the end:

But there's a reason the Founders gave Presidents the bulk of the Constitutional power to wage war, leaving to Congress mainly the power to declare war and then finance it. The executive branch can act with speed and decisiveness that a committee of 535 simply cannot. Presidents can also be held directly accountable by voters in a way that a diffuse Congress (and especially the Supreme Court) cannot.

How are the people to hold a President accountable at the polls in a climate where the President systematically blocks the ability of any other branch of government to monitor his conduct? How can Congress be expected to "declare" war when the President has declared a new state of permanent semi-war justifying any level of military decision making without the prior consent of Congress? How can Congress effectively control the purse strings of the military when the President systematically hides the existence and cost of critical, costly programs from oversight by Congress?