Portfolio.com: Business Spin

Jack Flack Says Thank You.

Jack Flack — Fri, 24 Oct 2008 15:25:23 GMT

As Jeff Bercovici kindly noted yesterday, Jack Flack is indeed moving to DealBook at the New York Times, taking his annoyingly disorganized copy boy, Paul Pendergrass, with him.

A bit belatedly, but with a genuine lump in his throat, Jack Flack thanks the Portfolio.com team.

Matt Cooper made the always-risky move of recommending a friend for a gig, and Chris Jones took a chance on the then-odd concept of a flack writing about business spin. Most of all, Jack Flack would like to thank Dan Colarusso and Mark Stein. Dan is a great boss, with a clear vision and a true winner's spirit. Mark is a warm, generous soul with a cold, exacting editing eye. Both Dan and Mark know how to make good pieces better. Even more important, they know how make sure the bad ones never see the virtual light of day, for which Jack Flack will always be grateful.

Jack Flack also thanks his readers for their support, and looks forward to joining their ranks as a regular visitor to Portfolio.com.

Thanks.

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Fri, 24 Oct 2008 15:25:23 GMT

Lobbyist Wars: May the DOJ Be With You

Jack Flack — Tue, 30 Sep 2008 02:51:33 GMT

OK, the only thing missing now is for Bill Gates to put on his best James Earl Jones voice and utter the words, "Larry... Sergey... I am your father."

First, the FT's Richard Waters warned us that Google was fighting uphill against Microsoft's Imperial Stormtrooping army of lobbyists. Who would question that assertion, given that 10 U.S. Congressmen had just authored a hand-wringing little note encouraging the DOJ to give thorough scrutiny to the imminent Yahoogle alliance?

But then Waters and others broke the news that Google, ever eager to fight political firepower with political firepower, had trumped the 10 signatures, with 11 U.S. Representatives putting their names to a letter encouraging the DOJ to hold fire on the alliance.

We're still very early in the trilogy, but it seems the dark side of the force is quite strong in both Redmond and Mountain View.

Google Is Steaming Into an Antitrust Swamp

Jack Flack — Wed, 24 Sep 2008 14:51:10 GMT

For months, Jack Flack has suspected that Google was pursuing the impending Yahoogle alliance solely to delay its nearest competitor from falling into the hands of its fiercest rival, while prolonging the limbo period in which both Yahoo and Microsoft continue to fade into irrelevance as ad search players.

Google would repeat optimistic statements while slo-o-owly moving the deal forward. Then, the minute the alliance started to invite any antitrust scrutiny, the company would demure and politely apologize to Yahoo, not wanting to risk its relatively government-unfettered existence as arguably the single most influential commercial enterprise on the planet.

But after watching their spin efforts last week, Jack Flack now wonders if Google isn't genuinely serious about throwing some more coal on the alliance fire as it locomotes itself right into a hot, buzzing antitrust swamp.

First, at the company's annual Zeitgeist conference, C.E.O. Eric Schmidt told reporters that the company planned to move forward with the alliance in October, saying the deal was "designed precisely to meet the terms of antitrust law in the United States."

Then, two tech-world biggies came forward to argue against the skepticism generally expressed about the alliance's potential antitrust liabilities. Boomtown's Kara Swisher was fair enough to present an on-the-other-hand addendum to her previous smack-down of the alliance's prospects, prompted by "some insights from some smart people I have kibitzed with on the issue."

A couple of days later in Sunday's New York Times, Randall Stross reprised -- as SearchEngineWatch's Nathania Johnson pointed out -- most of the key points from two posts on Google's Public Policy Blog. Tagged with the headline, "Why Regulators Shouldn't Fear a Google-Yahoo Deal," the piece drew some heat from tech bloggers. In fact, more than one specifically noted the "unprecedented access" Stross received from Google while writing his latest book, which was generally hailed as a even-handed, insightful look at the company's innards.

So maybe Google does indeed really want the alliance? After all, who could blame them from wanting to keep Yahoo just healthy enough to continue to shrivel away independently?

But if that's the case, then the antitrust swamp surely waits.

Why?

There are almost too many reasons to count. But let's tag all the big ones.

Too technical. Virtually all of Google's public communications thus far indicate that the company feels like it has structured the deal to meet all technical requirements of the law. Google has undoubtedly solicited precise opinions from some of the best antitrust lawyers on the planet, seeking to understand exactly how far it can push things. That's usually dangerous territory. When corporate giants walk the edge of the legal cliffs, that edge often crumbles beneath their immense weight.

Too cute. When the technical argument seems to fail the "common sense" test, it usually comes off as hubris. Viewed through the "common sense" lens, the sheer size of the combined share numbers are damning, as the average person on the street would conclude that anything north of 70 percent smells like dominance. The argument that somehow an alliance doesn't give Google the same control as a merger seems particularly disingenuous.

Too obvious. Incrementally grinding down a competitor often goes unnoticed, but transactions often trigger alarm bells. And even with the Wall Street meltdown, the Microhooglecahn story will remain one of the most visible business dramas.

Too spooky. The very nature of Google's business invites nosiness. Not a lot of people care if some struggling new niche-industry like satellite radio falls under the control of a single power. They don't feel the same way about the all-powerful internet, which is why privacy will always be one of Google's key issues to manage. Combine the privacy and dominance issues together, and you've got "Big Brother."

Too many fronts. Because of the universal nature of its business, Google faces almost unlimited jurisdictions. California? D.O.J.? Jack Flack's money is on the Europeans, who traditionally use antitrust law to protect competitors, not just the consumer.

Too many enemies. And thus, too many parties who can file complaints of abuse down the line. Advertisers, oddly enough, get a little squeamish about "auctions" that occur in a marketplace with only one seller. Competing old media who have been watching all that cash flow out of their industry are a little horrified to see it all migrating to a single competitor. Even Yahoo shareholders would immediately chuck the alliance overboard if they knew they could get $27 per share by selling to Microsoft.

And oh yeah, there's Microsoft. Through the course of its own troubles, the previous monopolist has developed perhaps the single strongest network of lawyers, lobbyists and other antitrust specialists in existence. Think that network might be getting a little active?

Too Pre-Crash-of-'08. After last week's meltdown on Wall Street, the national appetite for regulation and oversight just went up, no matter which ticket leads the next administration.

So with all of those potential liabilities, why would Google risk inviting the nose of the regulatory camel into its otherwise happy, lucrative tent?

Again, let's rattle off a list.

Audacity. In its lone decade of existence, Google has not only made itself the world's single biggest business success story, but it has done so by actually changing the way much of the world works. When you've got that on your resume, and when you're fighting for control of the next tech-world iteration, what's a little regulatory trouble to overcome?

Pride. Google genuinely wants to make good on its promise to Yahoo.

Logic. When writing code is in your DNA, its easy to see the various legal and regulatory codes as the black-and-white absolutes about what will or won't get you into trouble. But almost every major antitrust struggle of recent years has been fought about the gray.

Fear. Google truly believes the tech world could slip back into a second dark age of Microsoft dominance.

Precedent. Google's lawyers undoubtedly fear that any retreat would be interpreted as a sign of guilt.

Identity. Google still sees itself as noble band of rebels who now simply huddle around the best-funded campfire in the world. They don't understand that dominant players are viewed differently than smaller competitors, both by regulators and consumers.

So what if Google does indeed steam ahead with the alliance, and what if that does indeed lead to an extended antitrust tangle? Is that really such a bad thing for Google?

For most companies, probably not. You take the critical headlines, and move on.

But somehow Google's situation seems different. Google first soared because it sold a better product, and then because it became a verb/brand that exuded a clear vibe of possibility. And in recent years, Google has become very good at using strength to create dominance. That dominance has created great fear and growing resentment in the tech, media and advertising industries.

That fear and resentment have not yet seeped into the consciousness of most consumers. But nothing could change that faster than a nice, prolonged, symbolic antitrust investigation, in which the brand that is all about "possibility" suddenly becomes more about "monopoly."

Google does indeed need better antitrust advice. But even more critically, Google needs to remember what kind of brand it must be if it wants consumers to continue to let it rule the world.

Parsing Goldman Sachs: All Hail Market Sentiment

Jack Flack — Mon, 22 Sep 2008 13:06:17 GMT

And then there were none.

Yet, true to form, America's long-time premier investment banking firm gives every indication that it will stride into the new era still shooting a mean cuff. While the Morgan Stanley confirmation release reads like pure disclosure, the Goldman release somehow feels much more like a statement.

Here's the parse.

Goldman: The Goldman Sachs Group, Inc. (NYSE: GS) today announced that it will become the fourth largest Bank Holding Company and will be regulated by the Federal Reserve.

Translation: James Bond today announced that he will now also work nights as a security guard.

Goldman: In recent weeks, particularly in view of market developments, Goldman Sachs has discussed with the Federal Reserve our intention to be regulated as a Bank Holding Company.

Translation: This was our idea. Ours.

Goldman: We understand that the market views oversight by the Federal Reserve and the ability to source insured bank deposits as providing a greater degree of safety and soundness.

Translation: We understand that the market was eating one old Wall Street firm a day, and there were only two left.

Goldman: We view regulation by the Federal Reserve Board as appropriate and in the best interests of protecting and growing our franchise across our diverse range of businesses.

Translation: We view regulation by the Federal Reserve Board as essential and in the best interests of saving our ass-ets.

Goldman: Since the spring of this year, the Federal Reserve has been reviewing our liquidity and funding profile, capital adequacy and overall risk management framework. We are pleased that the Federal Reserve recognizes the strength and health of our liquidity and funding and the overall quality of our risk management. We have maintained our Tier 1 capital levels well above the Federal Reserve's "well-capitalized" threshold of 6 percent since these ratios were first calculated in 2004. For the past several quarters, in light of the difficult market environment, we have been reducing our risk exposures and increasing our capitalization. Our Tier 1 capital ratio at the end of the third quarter was 11.6 percent.

Translation: If others had managed themselves as we well as we did, this would have never happened.

Goldman: "When Goldman Sachs was a private partnership, we made the decision to become a public company, recognizing the need for permanent capital to meet the demands of scale. While accelerated by market sentiment, our decision to be regulated by the Federal Reserve is based on the recognition that such regulation provides its members with full prudential supervision and access to permanent liquidity and funding," said Lloyd C. Blankfein, Chairman and CEO of Goldman Sachs.

Translation: Actually, this is all just part of our long-term strategy. It was just accelerated by market sentiment... sort of the same way the New Orleans levy-upgrade strategy was accelerated by weather sentiment back in '05.

Goldman: "We believe that Goldman Sachs, under Federal Reserve supervision, will be regarded as an even more secure institution with an exceptionally clean balance sheet and a greater diversity of funding sources."

Translation: We'll still be Goldman. And we'll make this work much better than you think.

Goldman: Goldman Sachs already has two active deposit taking institutions - Goldman Sachs Bank USA and Goldman Sachs Bank Europe PLC - which, together, hold more than $20 billion in customer deposits. We are moving assets from a number of strategic businesses, including our lending businesses, into GS Bank USA. With over $150 billion in assets, GS Bank USA will be one of the ten largest banks in the United States.

Translation: We're getting on with it, and there will be no self-pity period.

Goldman: While these assets are fully funded for term, they also are available to be funded by the Federal Reserve.

Translation: Yes, we probably could have ridden this out. But then what?

Goldman: We intend to grow our deposit base through acquisitions and organically.

Translation: And we'll soon have ATM's on every corner. What color lollipops should we put in the bowl by the tellers?

Goldman: Goldman Sachs is a leading global investment banking, securities and investment management firm that provides a wide range of services worldwide to a substantial and diversified client base that includes corporations, financial institutions, governments and high net worth individuals.

Translation: We haven't updated our boilerplate description yet.

Goldman: Founded in 1869, it is one of the oldest and largest investment banking firms.

Translation: We thought we'd have a ceremony with Yogi Berra.

Goldman: The firm is headquartered in New York and maintains offices in London, Frankfurt, Tokyo, Hong Kong and other major financial centers around the world.

Translation: We were America's last great national champion in global finance. The bold deals will now all belong to sovereign funds.

The release did not comment on whether Goldman's new status would require it to either confirm or deny if it had once employed Borat.

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Mon, 22 Sep 2008 13:06:17 GMT

Parsing Paulson: All Aboard. Now.

Jack Flack — Fri, 19 Sep 2008 17:12:38 GMT

There's no question who's driving the bus called America right now, as Hank Paulson barely looked up from the steering wheel while confirming that he's about to push through a government-funded "troubled asset relief program."

While the statement provoked CNBC's Mark Haynes into a couple of delightful "fat cat" mini-rants that were downright Dobbsian, few other pundits doubted that billing the taxpayer directly would be far less onerous than fully crashing the economy.

Eager to avoid adding an Economic-Katrina to his legacy, our current POTUS quickly made sure to appear with Paulson-Bernanke-Cox. He somehow resisted quipping, "You're doing a heck of a job, Hankie."

Here's the parse of Paulson's statement.

Paulson: Washington, DC-- Last night, Federal Reserve Chairman Ben Bernanke, SEC Chairman Chris Cox and I had a lengthy and productive working session with Congressional leaders.

Translation: Washington, DC-- Last night, Federal Reserve Chairman Ben Bernanke, SEC Chairman Chris Cox and I had a lengthy and productive tutorial with Congressional leaders. They took notes, and hardly fidgeted at all.

Paulson: We began a substantive discussion on the need for a comprehensive approach to relieving the stresses on our financial institutions and markets.

Translation: We had a very civilized Come-to-Jesus meeting.

Paulson: We have acted on a case-by-case basis in recent weeks, addressing problems at Fannie Mae and Freddie Mac, working with market participants to prepare for the failure of Lehman Brothers, and lending to AIG so it can sell some of its assets in an orderly manner.

Translation: We started out with triage.

Paulson: And this morning we've taken a number of powerful tactical steps to increase confidence in the system, including the establishment of a temporary guaranty program for the U.S. money market mutual fund industry.

Translation: We applied a tourniquet. Tourniquets quickly become problems themselves.

Paulson: Despite these steps, more is needed. We must now take further, decisive action to fundamentally and comprehensively address the root cause of our financial system's stresses.

Translation: I'm sick and tired of reacting to the symptoms. We always played offense at Goldman.

Paulson: The underlying weakness in our financial system today is the illiquid mortgage assets that have lost value as the housing correction has proceeded. These illiquid assets are choking off the flow of credit that is so vitally important to our economy.

Translation: Yes, "illiquid" is our way of saying, "vaporized."

Paulson: When the financial system works as it should, money and capital flow to and from households and businesses to pay for home loans, school loans and investments that create jobs. As illiquid mortgage assets block the system, the clogging of our financial markets has the potential to have significant effects on our financial system and our economy. As we all know, lax lending practices earlier this decade led to irresponsible lending and irresponsible borrowing. This simply put too many families into mortgages they could not afford. We are seeing the impact on homeowners and neighborhoods, with 5 million homeowners now delinquent or in foreclosure.

Translation: Karl said "ownership society" tested off-the-charts with focus groups.

Paulson: What began as a sub-prime lending problem has spread to other, less-risky mortgages, and contributed to excess home inventories that have pushed down home prices for responsible homeowners. A similar scenario is playing out among the lenders who made those mortgages, the securitizers who bought, repackaged and resold them, and the investors who bought them.

Translation: Dumb, greedy decisions fueled more dumb, greedy decisions, which fueled... uh, you get the point.

Paulson: These troubled loans are now parked, or frozen, on the balance sheets of banks and other financial institutions, preventing them from financing productive loans. The inability to determine their worth has fostered uncertainty about mortgage assets, and even about the financial condition of the institutions that own them. The normal buying and selling of nearly all types of mortgage assets has become challenged.

Translation: It's only "challenged." Please don't panic.

Paulson: These illiquid assets are clogging up our financial system, and undermining the strength of our otherwise sound financial institutions.

Translation: The "sound financial institutions" are now having to deal with their own unsound decisions.

Paulson: As a result, Americans' personal savings are threatened, and the ability of consumers and businesses to borrow and finance spending, investment, and job creation has been disrupted. To restore confidence in our markets and our financial institutions, so they can fuel continued growth and prosperity, we must address the underlying problem.

Translation: We have to save Wall Street to protect Main Street. Let's leave the phrase "fat cats" out of this, OK?

Paulson: The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy.

Translation: There, I said it.

Paulson: This troubled asset relief program must be properly designed and sufficiently large to have maximum impact...

Translation: Get ready for sticker shock. It takes a big explosion to raging kill oil-well fire.

Paulson: ...while including features that protect the taxpayer to the maximum extent possible.

Translation: We promise to limit the pain as much as we can.

Paulson: The ultimate taxpayer protection will be the stability this troubled asset relief program provides to our financial system, even as it will involve a significant investment of taxpayer dollars. I am convinced that this bold approach will cost American families far less than the alternative - a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion.

Translation: We have to soak the taxpayer a bit to prevent a true depression.

Paulson: I believe many Members of Congress share my conviction.

Translation: There's an election in six weeks.

Paulson: I will spend the weekend working with members of Congress of both parties to examine approaches to alleviate the pressure of these bad loans on our system, so credit can flow once again to American consumers and companies.

Translation: I will spend the weekend quietly steamrolling over politicians with the approach my guys have already developed.

Paulson: Our economic health requires that we work together for prompt, bipartisan action.

Translation: The politicians will fall in line because they are desperate to position themselves as part of the solution.

Paulson: As we work with the Congress to pass this legislation over the next week, other immediate actions will provide relief.

Translation: The symptoms will continue, and thus tourniquets will continue to be applied and released.

Paulson: First, to provide critical additional funding to our mortgage markets, the GSEs Fannie Mae and Freddie Mac will increase their purchases of mortgage-backed securities (MBS). These two enterprises must carry out their mission to support the mortgage market.

Translation: What's the point of nationalizing something if you can't use them they way you want?

Paulson: Second, to increase the availability of capital for new home loans, Treasury will expand the MBS purchase program we announced earlier this month. This will complement the capital provided by the GSEs and will help facilitate mortgage availability and affordability.

Translation: Clear!

Paulson: These two steps will provide some initial support to mortgage assets, but they are not enough. Many of the illiquid assets clogging our system today do not meet the regulatory requirements to be eligible for purchase by the GSEs or by the Treasury program.

Translation: They are so bad we won't even make Fannie or Freddie take them.

Paulson:I look forward to working with Congress to pass necessary legislation to remove these troubled assets from our financial system.

Translation: I look forward to working with Congress to passing the invoice directly to the taxpayer.

Paulson: When we get through this difficult period, which we will, our next task must be to improve the financial regulatory structure so that these past excesses do not recur.

Translation: We're not going to talk about re-regulation until after the bailout is secure.

Paulson: This crisis demonstrates in vivid terms that our financial regulatory structure is sub-optimal, duplicative and outdated.

Translation: I took this job to sort all of that out. Instead, I've been stuck with fighting fires.

Paulson: I have put forward my ideas for a modernized financial oversight structure that matches our modern economy, and more closely links the regulatory structure to the reasons why we regulate. That is a critical debate for another day.

Translation: My successor will have things easy. I've already created the plan, and now this crisis has created the political momentum needed to push it through. Hmmm, maybe I should stick around longer than I planned?

Paulson: Right now, our focus is restoring the strength of our financial system so it can again finance economic growth. The financial security of all Americans - their retirement savings, their home values, their ability to borrow for college, and the opportunities for more and higher-paying jobs - depends on our ability to restore our financial institutions to a sound footing.

Translation: It's important to conclude with a sound-bite for Main Street.

Paulson: -30-

Translation: -We're proudly old-school-

Parsing Bank of America: Crisis Is Our Friend

Jack Flack — Mon, 15 Sep 2008 18:30:17 GMT

For all the angst on Wall Street today, BofA's famously grind-stoning Ken Lewis demonstrated his version of giddiness at today's press conference, reminding us that he's been stalking Merrill for years. And when you're dealing from a position of relative strength, and when you know exactly what you want, a nice crisis can actually be very helpful in allowing you to execute your strategy at a significant discount.

But did BofA over-pay?

Probably not, given that Lewis has been studying Merrill for years, and he undoubtedly knew exactly what numbers were required for BofA to secure an acceptable bargain. While he could have tried to exploit the inevitable Monday morning slide of Merrill's stock, Lewis clearly didn't want to let short-term greed potentially derail BofA's long-term ambitions.

Here's the parse of the joint statement.

BoA: Bank of America Corporation today announced it has agreed to acquire Merrill Lynch & Co., Inc. in a $50 billion all-stock transaction that creates a company unrivalled in its breadth of financial services and global reach.

Translation: Must... have... the Precious.

BoA: "Acquiring one of the premier wealth management, capital markets, and advisory companies is a great opportunity for our shareholders," Bank of America Chairman and Chief Executive Officer Ken Lewis said.

Translation: Acquiring one of the premier wealth management, capital markets, and advisory companies has been our quiet obsession for years.

BoA: "Together, our companies are more valuable because of the synergies in our businesses."

Translation: More is more.

BoA: "Merrill Lynch is a great global franchise and I look forward to working with Ken Lewis and our senior management teams to create what will be the leading financial institution in the world with the combination of these two firms," said John Thain, chairman and CEO of Merrill Lynch.

Translation: "I found a responsible buyer. Can I go now?" pined John Thain, visiting chairman and CEO of Merrill Lynch

BoA: Under terms of the transaction, Bank of America would exchange .8595 shares of Bank of America common stock for each Merrill Lynch common share. The price is 1.8 times stated tangible book value.

Translation: There was no point in trying to peg it to stock prices. We want to get the deal done.

BoA: Bank of America expects to achieve $7 billion in pretax expense savings, fully realized by 2012. The acquisition is expected to be accretive to earnings by 2010.

Translation: Aren't stock deals great?

BoA: The transaction is expected to close in the first quarter of 2009. It has been approved by directors of both companies and is subject to shareholder votes at both companies and standard regulatory approvals.

Translation: Desperation tends to accelerate approvals.

BoA: Under the agreement, three directors of Merrill Lynch will join the Bank of America Board of Directors.

Translation: We already know who they are.

BoA: The combined company would have leadership positions in retail brokerage and wealth management. By adding Merrill Lynch's more than 16,000 financial advisers, Bank of America would have the largest brokerage in the world with more than 20,000 advisers and $2.5 trillion in client assets.

Translation: We're calling it "The Synergizing Herd." Kinda catchy, huh?

BoA: The combination brings global scale in investment management, including an approximately 50 percent ownership in BlackRock, which has $1.4 trillion in assets under management. Bank of America has $589 billion in assets under management.

Translation: More is more... once more.

BoA: Adding Merrill Lynch both enhances current strengths at Bank of America and creates new ones, particularly outside of the United States. Merrill Lynch adds strengths in global debt underwriting, global equities and global merger and acquisition advice.

Translation: Adding Merrill Lynch will finally get us the respect we deserve.

BoA: After the acquisition, Bank of America would be the number one underwriter of global high yield debt, the third largest underwriter of global equity and the ninth largest adviser on global mergers and acquisitions based on pro forma first half of 2008 results.

Translation: More is, uh... you get the picture.

BoA: Bank of America was advised by J.C. Flowers & Co. LLC, Fox-Pitt Kelton Cochran Caronia Wallerand Bank of America Securities. It was represented by Wachtell, Lipton, Rosen & Katz. Merrill Lynch was represented by Shearman & Sterling.

Translation: We've studied this forever, and all we had to do was push the button.

Parsing Paulson: It's a Systemic Thing

Jack Flack — Mon, 08 Sep 2008 14:00:00 GMT

Call it the "soft launch" of the Fran-Fred takeover.

Spoon-fed with lots of accurate details from unidentified sources, Friday's reports outlined the basics of the deal, and Saturday's follow-up stories thoroughly chewed the analytical cud. So by the time Treasury Secretary Henry Paulson stood up at Sunday's press conference, he knew that the potentially controversial move had already been almost fully digested.

Even so, a quick parsing of Paulson's long statement reveals that the Treasury Secretary knows he is making some hard choices.

Paulson: Good morning. I'm joined here by Jim Lockhart, Director of the new independent regulator, the Federal Housing Finance Agency, FHFA.

Translation: Good morning. We're here to confirm the strategic leaks.

Paulson: In July, Congress granted the Treasury, the Federal Reserve and FHFA new authorities with respect to the GSEs, Fannie Mae and Freddie Mac.

Translation: In July, Congress handed us the monkey.

Paulson: Since that time, we have closely monitored financial market and business conditions and have analyzed in great detail the current financial condition of the G.S.E.'s -- including the ability of the G.S.E.'s to weather a variety of market conditions going forward.

Translation: We didn't jump to conclusions.

Paulson: As a result of this work, we have determined that it is necessary to take action.

Translation: The moves we are making are deliberate, not panicky.

Paulson: Since this difficult period for the G.S.E.'s began, I have clearly stated three critical objectives: providing stability to financial markets, supporting the availability of mortgage finance, and protecting taxpayers -- both by minimizing the near term costs to the taxpayer and by setting policymakers on a course to resolve the systemic risk created by the inherent conflict in the G.S.E. structure.

Translation: We have a clear philosophy that will guide every action we take.

Paulson: Based on what we have learned about these institutions over the last four weeks -- including what we learned about their capital requirements -- and given the condition of financial markets today, I concluded that it would not have been in the best interest of the taxpayers for Treasury to simply make an equity investment in these enterprises in their current form.

Translation: We're not going to fund the perpetuation of a losing model.

Paulson: The four steps we are announcing today are the result of detailed and thorough collaboration between F.H.F.A., the U.S. Treasury, and the Federal Reserve.

Translation: Guess who drove?

Paulson: We examined all options available, and determined that this comprehensive and complementary set of actions best meets our three objectives of market stability, mortgage availability and taxpayer protection.

Translation: Did I already mention we have a clear philosophy that will guide all of our actions? Anybody still holding shares wasn't paying attention.

Paulson: Throughout this process we have been in close communication with the G.S.E.'s themselves. I have also consulted with Members of Congress from both parties and I appreciate their support as F.H.F.A., the Federal Reserve and the Treasury have moved to address this difficult issue.

Translation: Working in government is not like herding cats. It's like herding rats. Fortunately, nothing gets people in line like a genuine crisis.

Paulson: Before I turn to Jim to discuss the action he is taking today, let me make clear that these two institutions are unique.

Translation: Before I turn to Jim to discuss the action he has been driected to take today, let me make clear that we are not getting into the bail-out business. Really, we're not.

Paulson: They operate solely in the mortgage market and are therefore more exposed than other financial institutions to the housing correction. Their statutory capital requirements are thin and poorly defined as compared to other institutions.

Translation: They have never been run as real businesses.

Paulson: Nothing about our actions today in any way reflects a changed view of the housing correction or of the strength of other U.S. financial institutions.

Translation: Our actions reflect our previously established view. Things are neither better nor worse, and so don't characterize these actions as a reflection of either.

(Lockhart statement.)

Paulson: I support the Director's decision as necessary and appropriate and had advised him that conservatorship was the only form in which I would commit taxpayer money to the G.S.E.'s.

Translation: I support the Director's decision to follow directions, and had advised him that would not be turning over this kind of money without also taking control.

Paulson: I appreciate the productive cooperation we have received from the boards and the management of both G.S.E.'s.

Translation: Desperation tends to inspire productive cooperation.

Paulson: I attribute the need for today's action primarily to the inherent conflict and flawed business model embedded in the G.S.E. structure, and to the ongoing housing correction.

Translation: Bad models don't survive bad times.

Paulson: G.S.E. managements and their Boards are responsible for neither.

Translation: G.S.E. managements and their Boards should not be sued by shareholders.

Paulson: New C.E.O.'s supported by new non-executive Chairmen have taken over management of the enterprises...

Translation: You can't really have a New Day unless you have New Faces.

Paulson: ...and we hope and expect that the vast majority of key professionals will remain in their jobs.

Translation: But we're hoping the people who actually do the work will remain at their desks.

Paulson: I am particularly pleased that the departing C.E.O.'s, Dan Mudd and Dick Syron, have agreed to stay on for a period to help with the transition.

Translation: We're not firing them, which would be an assignation of liability. But $9 million and $14 million should buy us a wonderful transition.

Paulson: I have long said that the housing correction poses the biggest risk to our economy.

Translation: It used to bore the other children at recess. If only they'd listened to me.

Paulson: It is a drag on our economic growth, and at the heart of the turmoil and stress for our financial markets and financial institutions. Our economy and our markets will not recover until the bulk of this housing correction is behind us. Fannie Mae and Freddie Mac are critical to turning the corner on housing.

Translation: Don't you see? You're thinking of this place all wrong...

Paulson: Therefore, the primary mission of these enterprises now will be to proactively work to increase the availability of mortgage finance, including by examining the guaranty fee structure with an eye toward mortgage affordability.

Translation: We're no longer going to pretend these public services are actually businesses.

Paulson: To promote stability in the secondary mortgage market and lower the cost of funding, the G.S.E.'s will modestly increase their M.B.S. portfolios through the end of 2009. Then, to address systemic risk, in 2010 their portfolios will begin to be gradually reduced at the rate of 10 percent per year, largely through natural run off, eventually stabilizing at a lower, less risky size.

Translation: We need to get through this crisis, and then prevent the next one. I just hope my successor's successor's successor will stick to the plan.

Paulson: Treasury has taken three additional steps to complement F.H.F.A.'s decision to place both enterprises in conservatorship. First, Treasury and F.H.F.A. have established Preferred Stock Purchase Agreements, contractual agreements between the Treasury and the conserved entities. Under these agreements, Treasury will ensure that each company maintains a positive net worth

Translation: We've taken control.

Paulson: These agreements support market stability by providing additional security and clarity to G.S.E. debt holders -- senior and subordinated -- and support mortgage availability by providing additional confidence to investors in G.S.E. mortgage backed securities. This commitment will eliminate any mandatory triggering of receivership and will ensure that the conserved entities have the ability to fulfill their financial obligations.

Translation: You can stop breathing into that paper bag.

Paulson: It is more efficient than a one-time equity injection, because it will be used only as needed and on terms that Treasury has set. With this agreement, Treasury receives senior preferred equity shares and warrants that protect taxpayers.

Translation: It's not a bail-out.

Paulson: Additionally, under the terms of the agreement, common and preferred shareholders bear losses ahead of the new government senior preferred shares.

Translation: Like I said, we're no longer pretending this is a real business.

Paulson: These Preferred Stock Purchase Agreements were made necessary by the ambiguities in the G.S.E. Congressional charters, which have been perceived to indicate government support for agency debt and guaranteed MBS.

Translation: It's almost if the "ambiguities" were intentional.

Paulson: Our nation has tolerated these ambiguities for too long, and as a result G.S.E. debt and M.B.S. are held by central banks and investors throughout the United States and around the world who believe them to be virtually risk-free.

Translation: "Our nation" sounds so noble. "Our Congress" just sounds too accusatory.

U.S. Government created these ambiguities, we have a responsibility to both avert and ultimately address the systemic risk now posed by the scale and breadth of the holdings of G.S.E. debt and M.B.S.

Translation: Things like this never get fixed until they completely break down.

Paulson: Market discipline is best served when shareholders bear both the risk and the reward of their investment. While conservatorship does not eliminate the common stock, it does place common shareholders last in terms of claims on the assets of the enterprise.

Translation: Investor beware.

Paulson: Similarly, conservatorship does not eliminate the outstanding preferred stock, but does place preferred shareholders second, after the common shareholders, in absorbing losses.

Translation: I'm almost sure I mentioned that we have a clear philosophy driving all of our actions.

Paulson: The federal banking agencies are assessing the exposures of banks and thrifts to Fannie Mae and Freddie Mac.

Translation: We've taken a big whack at the root cause, but the symptoms will continue for some time.

Paulson: The agencies believe that, while many institutions hold common or preferred shares of these two G.S.E.'s, only a limited number of smaller institutions have holdings that are significant compared to their capital.

Translation: The collateral damage will only be lethal in a few instances.

Paulson: The agencies encourage depository institutions to contact their primary federal regulator if they believe that losses on their holdings of Fannie Mae or Freddie Mac common or preferred shares, whether realized or unrealized, are likely to reduce their regulatory capital below "well capitalized."

Translation: Dial 1 for English, 2 for Espanol.

Paulson: The banking agencies are prepared to work with the affected institutions to develop capital restoration plans consistent with the capital regulations.

Translation: We have a clear philosophy, but we also know we've got to minimize the negative implications of that philosophy.

Paulson: Preferred stock investors should recognize that the G.S.E.'s are unlike any other financial institutions and consequently G.S.E. preferred stocks are not a good proxy for financial institution preferred stock more broadly.

Translation: Do not set your valuations based on what we've done. It's not fair to the shareholders, but it's still the right thing to do.

Paulson: By stabilizing the G.S.E.'s so they can better perform their mission, today's action should accelerate stabilization in the housing market, ultimately benefiting financial institutions.

Translation: It's call the "trickle-around" principle.

Paulson: The broader market for preferred stock issuance should continue to remain available for well-capitalized institutions.

Translation: Bargains are available for well-capitalized institutions willing to assume some, uh... risk.

Paulson: The second step Treasury is taking today is the establishment of a new secured lending credit facility which will be available to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.

Translation: We're keeping control of the money.

Paulson: Given the combination of actions we are taking, including the Preferred Share Purchase Agreements, we expect the G.S.E.'s to be in a stronger position to fund their regular business activities in the capital markets.

Translation: Instead of serving two masters poorly, we're hoping they'll serve one master relatively competently.

Paulson: This facility is intended to serve as an ultimate liquidity backstop, in essence, implementing the temporary liquidity backstop authority granted by Congress in July, and will be available until those authorities expire in December 2009.

Translation: It's a backstop, not a pit stop. And it ends forever December 2009.

Paulson: Finally, to further support the availability of mortgage financing for millions of Americans, Treasury is initiating a temporary program to purchase G.S.E. MBS. During this ongoing housing correction, the G.S.E. portfolios have been constrained, both by their own capital situation and by regulatory efforts to address systemic risk. As the G.S.E.'s have grappled with their difficulties, we've seen mortgage rate spreads to Treasuries widen, making mortgages less affordable for homebuyers. While the G.S.E.'s are expected to moderately increase the size of their portfolios over the next 15 months through prudent mortgage purchases, complementary government efforts can aid mortgage affordability. Treasury will begin this new program later this month, investing in new G.S.E. MBS. Additional purchases will be made as deemed appropriate.

Translation: No, Treasury is not getting into the mortgage business. Not really, anyway.

Paulson: Given that Treasury can hold these securities to maturity, the spreads between Treasury issuances and G.S.E. MBS indicate that there is no reason to expect taxpayer losses from this program, and, in fact, it could produce gains.

Translation: We used to do smart stuff like this at Goldman all the time. It was so much more fun that what I do now.

Paulson: This program will also expire with the Treasury's temporary authorities in December 2009.

Translation: This program will expire 10 months after I'm gone.

Paulson: Together, this four part program is the best means of protecting our markets and the taxpayers from the systemic risk posed by the current financial condition of the G.S.E.'s. Because the G.S.E.'s are in conservatorship, they will no longer be managed with a strategy to maximize common shareholder returns, a strategy which historically encouraged risk-taking.

Translation: I'm telling you what I told you.

Paulson: The Preferred Stock Purchase Agreements minimize current cash outlays, and give taxpayers a large stake in the future value of these entities. In the end, the ultimate cost to the taxpayer will depend on the business results of the G.S.E.'s going forward. To that end, the steps we have taken to support the G.S.E. debt and to support the mortgage market will together improve the housing market, the US economy and the G.S.E.'s' business outlook.

Translation: We've done our best, but there's still much risk.

Paulson: Through the four actions we have taken today, F.H.F.A. and Treasury have acted on the responsibilities we have to protect the stability of the financial markets, including the mortgage market, and to protect the taxpayer to the maximum extent possible.

Translation:

Paulson: And let me make clear what today's actions mean for Americans and their families.

Translation: And let me resort to political rhetoric.

Paulson: Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe. This turmoil would directly and negatively impact household wealth: from family budgets, to home values, to savings for college and retirement. A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance. And a failure would be harmful to economic growth and job creation. That is why we have taken these actions today.

Translation: I'm still trying to figure out how we can also link this nationalization to gas prices and capturing bin Ladin.

Paulson: While we expect these four steps to provide greater stability and certainty to market participants and provide long-term clarity to investors in G.S.E. debt and MBS securities, our collective work is not complete.

Translation: I'm about to pass the monkey right back.

Paulson: At the end of next year, the Treasury temporary authorities will expire, the G.S.E. portfolios will begin to gradually run off, and the G.S.E.'s will begin to pay the government a fee to compensate taxpayers for the on-going support provided by the Preferred Stock Purchase Agreements. Together, these factors should give momentum and urgency to the reform cause. Policymakers must view this next period as a "time out" where we have stabilized the G.S.E.'s while we decide their future role and structure.

Translation: You have been warned, and my hands will be clean.

Paulson: Because the G.S.E.'s are Congressionally-chartered, only Congress can address the inherent conflict of attempting to serve both shareholders and a public mission. The new Congress and the next Administration must decide what role government in general, and these entities in particular, should play in the housing market. There is a consensus today that these enterprises pose a systemic risk and they cannot continue in their current form. Government support needs to be either explicit or non-existent, and structured to resolve the conflict between public and private purposes. And policymakers must address the issue of systemic risk.

Translation: Consider the monkey returned... with a smart new suit and decent haircut.

Paulson: I recognize that there are strong differences of opinion over the role of government in supporting housing, but under any course policymakers choose, there are ways to structure these entities in order to address market stability in the transition and limit systemic risk and conflict of purposes for the long-term.

Translation: Gee whiz, people, somebody had to make some choices based on simple business fundamentals.

Paulson: We will make a grave error if we don't use this time out to permanently address the structural issues presented by the G.S.E.'s.

Translation: I'm not interested having "grave error" added to my otherwise sparkling history.

Paulson: In the weeks to come, I will describe my views on long term reform. I look forward to engaging in that timely and necessary debate.

Translation: I've got to lock down as much as I can before I go.

Presented By:

Mon, 08 Sep 2008 14:00:00 GMT

Dear C.E.O.: Write Your Own Obituary

Jack Flack — Tue, 02 Sep 2008 12:42:50 GMT

The draft obituary Bloomberg accidentally published last Wednesday surely came to the attention of its subject, the still-very-much-alive Steve Jobs. Hopefully, it also caught the eye of a lot of other C.E.O.'s.

Some corporate bosses already knew that virtually all death reports of public figures are prepared in advance and then updated with a prescribed regularity. But most probably did not.

So, yes, if you run a big company, then big news organizations have already written your story. And consequently, if you suddenly collapse from hypothermia in the Davos snow, or if you slip on an errant dab of mango smoothie while making a regular-guy appearance in the employee cafeteria, all those reporters simply have to fill in the blanks and push the button, as if your life was a corporate Mad-Lib.

Thus, you might want to give some real thought to what that story would say, because the exercise will give you a very good indication of what your legacy will be after you are long dead and your grandson's conniving second wife is trying to get her hands on the trust.

And it's not just personal; it's business. Yes, the term "legacy management" is usually whispered in the hallways to deride vanity-driven executive decisions that ultimately prove counterproductive for the company. But the reality is that companies usually benefit when their CEOs actively manage their personal legacies, as long as they do so wisely.

Unfortunately, a lot of legacy management tactics are void of wisdom, and those unhealthy efforts generally fall in one of four categories.

Stretching the numbers. Ever notice how the first quarterly earnings report after a long-serving C.E.O. retires seems to offer a big negative surprise? That's because the new guy is wisely resetting the bar by executing a one-time house-cleaning of all the little financial liabilities that have accumulated over the years.

Overstaying. Some bosses can't resist hanging around after their optimal sell-by date has expired. Sometimes that's motivated by the desire to stick around to see a critical initiative come through the pipeline. More often, it's usually driven by the fact that the boss simply can't imagine no longer being the boss.

"Correcting" history. Some bosses, particularly those who have somehow been publicly damaged, waste time and effort trying have past events re-interpreted. It never works. Even if the original interpretation was dead wrong, history is almost impossible to rewrite, and thus savvy C.E.O.'s will quickly reset their sights on adding a new chapter that will correct their overall story. Bob Nardelli, for instance, could have argued himself as orange as an apron that he got a raw deal at Home Depot, but he was savvy enough to know that the only way to reset his professional legacy was to take on a whole new challenge.

Buying love. What if your performance has earned you the label of moron or scoundrel? Give your money to a charity, and put your name on it. The most telling example of the futility of this tactic was Alfred Nobel's attempt to change his legacy by funding a prize for great works. So, instead of going down in history as the "merchant of death" characterized in his famously premature obituary, he instead endures as "the guy who gave money away to change his obituary."

But done right, legacy management can actually be good for the business, often motivating C.E.O.'s who don't like their current legacy to consider what would truly be required to improve it. Healthy legacy-management actions also come in one of four categories.

Taking big risks. Even when trapped inside a business model that is incrementally disintegrating quarter-by-quarter, making a big strategic bet to change that model usually requires substantial courage. But the fear of having that incremental decline attached to your personal headstone often overcomes the fear of taking a big strategic risk. It might even prompt you to turn your flagging niche computer icon into The iPod Company.

Going "From/To." Here's a healthy question: How is the company different from the one you inherited? Lou Gerstner's tenure at I.B.M., for example, is generally characterized as having led the transformation of a technology hardware company from the brink insolvency to a profitable, competitive existence as a technology/services leader.

Leaving before you need to. What's easier to do? Time the performance of the business with your mandatory retirement date, or time your retirement date with the strong performance of the business? While that may seem selfishly opportunistic, it actually allows your successor to bring forward the next generation of ideas while there is still wind in the sails. At PepsiCo, Roger Enrico left earlier than expected, and then his successor, Steve Reinemund did the same five years later. Having spent many years on the Red side of the Cola Wars, Jack Flack would argue that those two fast-forwards have been critical to the Blue team's happy roll of the past decade, as each incoming generation of management has brought a new approach before it was needed.

Doing something more important. Let's say you're the richest guy on the planet, but not a lot of people seem to appreciate you very much. As noted, giving away a bunch of your money probably won't help, and might even backfire. But what if you get off the corporate train and focus your world-conquering abilities on things the world actually wants conquered?

Well, it could end up being downright healthy.

Parsing Google: You Needed Another Browser Choice

Jack Flack — Tue, 02 Sep 2008 11:09:38 GMT

Jack Flack is normally quite suspicious when a supposedly accidental leak leads to wide, mostly positive coverage. Particularly about a new product. And particularly on public holiday that ensures little competitive news on the business pages the next day.

But the Google leak felt like a genuine miscue, detected only because Kara Swisher's Weber apparently has a 3G card.

What makes it seem like a genuine mistake? Well, while the company moved quickly to confirm the reports, it was not prepared to make the new browser downloadable, thus squandering the full benefit of the coverage.

The launch confirms that the war for the supremacy in the next tech era is fully on. Just as Microsoft cannot afford to have Google operate virtually uncontested in search, nor can Google afford to have Microsoft operate virtually uncontested in browers.

Here's the parse.

Google: At Google, we have a saying: "launch early and iterate."

Translation: Outside Google, it's sometimes misheard as "launch early and dominate."

Google: While this approach is usually limited to our engineers, it apparently applies to our mailroom as well!

Translation: Heh, heh, heh. Even our mailroom guys are go-getters.

Google: As you may have read in the blogosphere, we hit "send" a bit early on a comic book introducing our new open source browser, Google Chrome.

Translation: The propellerheads thought it was far more interesting than Gustav or Bristol.

Google: As we believe in access to information for everyone, we've now made the comic publicly available -- you can find it here.

Translation: We won't try to stop you from reading our promotional material.

Google: We will be launching the beta version of Google Chrome tomorrow in more than 100 countries.

Translation: No, we are not simply testing the waters. It's a full-blown launch. Game on.

Google: So why are we launching Google Chrome?

Translation: So why did it take this many years for the rumor to become true?

Google: Because we believe we can add value for users and, at the same time, help drive innovation on the web.

Translation: Because we believe we cannot allow Microsoft to operate in any meaningful business segment uncontested.

Google: All of us at Google spend much of our time working inside a browser. We search, chat, email and collaborate in a browser. And in our spare time, we shop, bank, read news and keep in touch with friends -- all using a browser.

Translation: And we hate having to use anything that isn't ours.

Google: Because we spend so much time online, we began seriously thinking about what kind of browser could exist if we started from scratch and built on the best elements out there.

Translation: It was either that, or start a home-made jewelry business.

Google: We realized that the web had evolved from mainly simple text pages to rich, interactive applications and that we needed to completely rethink the browser. What we really needed was not just a browser, but also a modern platform for web pages and applications, and that's what we set out to build.

Translation: We're still not sure how to clearly differentiate our browser.

Google: On the surface, we designed a browser window that is streamlined and simple.

Translation: It may look like just another rental sedan, but wait till you see under the hood.

Google: To most people, it isn't the browser that matters.

Translation: Most people are hardly conscious of the default choices they make.

Google: It's only a tool to run the important stuff -- the pages, sites and applications that make up the web. Like the classic Google homepage, Google Chrome is clean and fast. It gets out of your way and gets you where you want to go.

Translation: If you like our other stuff, you'll like this, too.

Google: Under the hood, we were able to build the foundation of a browser that runs today's complex web applications much better.

Translation: It's a "foundation." We promise it will do a lot more later.

Google: By keeping each tab in an isolated "sandbox", we were able to prevent one tab from crashing another and provide improved protection from rogue sites. We improved speed and responsiveness across the board. We also built a more powerful JavaScript engine, V8, to power the next generation of web applications that aren't even possible in today's browsers.

Translation: Now how much would you pay?

Google: This is just the beginning -- Google Chrome is far from done.

Translation: Please don't try it on day-one, be unimpressed, and never reconsider it again.

Google: We're releasing this beta for Windows to start the broader discussion and hear from you as quickly as possible. We're hard at work building versions for Mac and Linux too, and will continue to make it even faster and more robust.

Translation: There will be problems. We'll work them out.

Google: We owe a great debt to many open source projects, and we're committed to continuing on their path.

Translation: We're all about choice... at least in businesses where we don't have a presence yet.

Google: We've used components from Apple's WebKit and Mozilla's Firefox, among others -- and in that spirit, we are making all of our code open source as well. We hope to collaborate with the entire community to help drive the web forward.

Translation: Yes, we're going hurt the smaller browsers more than IE, but we promise to be gentle as we do it.

Google: The web gets better with more options and innovation. Google Chrome is another option, and we hope it contributes to making the web even better.

Translation: We love choice. Have you heard?

Google: So check in again tomorrow to try Google Chrome for yourself. We'll post an update here as soon as it's ready.

Translation: By then we should be done waterboarding the guy who accidentally pushed the button.

Google: *Update 3:30 PM: We've added a link to our comic book explaining Chrome.

Translation: We use comic books. Who says we're menacing?

Not for Sale: Massive Media Conglomerate

Jack Flack — Mon, 25 Aug 2008 14:22:00 GMT

Since the day General Electric first acquired its way in to the media business back in 1986, it has had to deny it was about to divest its way out of the media business. Fueled by the growing assumption that G.E. had become way too complex to deliver the lush, consistent profit growth of years past, the latest round of speculation and denial has been pegged to the Beijing Olympics, with much of the chatter saying the deal would make more sense after the torch over the Bird's Nest was doused.

Even before the company's shocking first-quarter miss brought speculation to a full boil, G.E. was making big efforts to douse the heat. In his annual letter to shareholders in February, G.E. Chairman and C.E.O. Jeff Immelt could not have been accused of using waffling to clarify his intentions.

Should we sell NBCU? The answer is no! I just don't see it happening...not before the Beijing 2008 Olympic Games...not after the Olympic Games. It doesn't make sense.

Couldn't be any more clear than that, right?

Probably not. But, unfortunately for G.E., its seems that most people only reluctantly believe corporate bosses when they say they're not going to sell something when selling it would seem to make such good sense.

Still, it's hard to kill a solid drumbeat.

So once it was clear that NBC's ratings for the Games would completely thump expectations and bring in an additional $100 million, Immelt used the forum to again confirm G.E.'s commitment to the media business. Apparently, one of the handier features of owning a media business is the ability to do interviews in which you continue to douse speculation that you are selling your media business, as when Immelt told CNBC's Carl Quintanilla that divestiture has never even been considered.

"I always say, look, it's a good business. We run it well. We've never contemplated it. We don't think about it. We like the business."

Whew, it feels really good to finally get that settled once and for all: G.E. will not sell NBC Universal.

But, what if...

Nah, let's not speculate. The company has made its position clear. G.E. is an "infrastructure, media, and financial-services company," today and forever.

Ah, but what the heck. What if things change? What if Immelt suddenly comes to the radical conclusion that reliability and predictability are the keys to lifting G.E.'s price-earnings ratio to its appropriate level? What if he decides that while "content" can be a great business, no content business has ever really been reliable or predictable the way many of G.E.'s traditional businesses have been? What if he decides that few things are less reliable and predictable than the future of media conglomerates in the still-early days of the digital revolution? And what if he decides that it's no longer worth having the stock penalized by perceptions of NBC, a tiny contributor to G.E.'s overall profitability?

Or, even more understandable, what if he simply gets tired of living in the same world with Papa Bear?

So, just for giggles, let's speculate how things would go if Chairman Jeff changed his mind. If you were going to sell a massive media conglomerate, how would you spin it? What would the rescue memo advise?

Probably these six steps:

1. Say it's not for sale. And then say it again and again and again. Nothing compromises a bargaining position like a seller giving any hint of neediness.

2. Define it on your terms. Say "NBC Universal" to your average investor, and they'll mutter something about "fourth-place, Friends-less NBC." Set 'em straight. Repeatedly quantify how the network is not just a small contributor to G.E., but even a relatively small contributor to NBCU. Yammer incessantly about how you've figured out how to harness the steady strength of cable. In fact, do a few more minor deals to show that you're not selling, you're buying. To make sure your messages get through, start saying yes to a third of the media requests you get, which will translate into a low-level blitz. That will be important as you.

3. Clean and press your suit. Push Zucker's story forward, from "aging wonder boy struggles on the big stage" to "savvy young talent laser-locks on plan to thrive amidst industry revolution." This is the media industry, so don't underestimate how much "exposure" can translate into "stature." If you can, make sure that everybody knows he's a real relationship guy, not some Six Sigma robot who can't get a last-minute table at the Waverly. And, oh, make sure people know your best players are sticking around.

4. Lunch on the ascent. Don't wait for the up to arrive; start having chats with the likely acquirers on the first indication of positive momentum at NBC. Keep a straight face as you humbly admit the synergies you touted in Beijing are great, but nothing on the level another media conglomerate could realize with NBCU.

5. Smile and run. The morning you announce the deal, show up on the Squawk Box set to take the questions about why you sold. Let the feathers dangle from the corners of your mouth as you declare that the price was right. Shift hard to the G.E. business model. Confirm that you'll keep upgrading your portfolio, but declare victory in achieving the right "focus," reminding everyone of the other moves you've already made.

6. Do it again in 2010. When the financial markets fully recover, repeat this process for G.E. Capital. You'll probably have to do that one piecemeal, but the approach will need to be the same.

Ah, it's fun to speculate on the hypothetical. (Though, oddly enough, it seems that the first three steps have already been executed.)

Instead, let's get back to reality. What's going to happen to G.E.'s stock this year? Dunno. After all, we haven't seen the first episode of Knight Rider yet.

Presented By:

Mon, 25 Aug 2008 14:22:00 GMT