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112th Congress Reconciliation

January 13, 2011

The 112th Congress:

“…But at a time when our discourse has become so sharply polarized—at a time when we are far too eager to lay the blame for all that ails the world at the feet of those who think differently than we do—it’s important for us to pause for a moment and make sure that we are talking with each other in a way that heals, not a way that wounds….”

President Obama
Arizona, January 12, 2011

It has been a challenging week for the United States. The tragic events in Arizona find me in prayer with my thoughts to the families of all.

I drafted this observation before these events and will simply continue with the thought, and hope that its truth is only strengthened.  From tragedy, great things can emerge (by way of example, see the attached story on a classmate of mine from Providence College:  http://bit.ly/fkudOT).

With respect to politics, right after the mid-term elections I felt, and continue to feel, this 112th Congress, if they fully recognize it, is at the most meaningful inflection point for perhaps the next generation.  Certainly the challenges that face the U.S. are Herculean—health care, taxation (both corporate and individual), social security and the multiple wars, conflicts and occupations of our military and its pressure on the economic and emotional resources of all of us, and in particular, the families of the brave, courageous and selfless soldiers.

Right after every election cycle I feel a wave of confidence (although more often than not, it leads to disappointment).  This election cycle is no different.  Simply, I am confident that Speaker of the House, John Boehner, and President Obama can work together.  While I don’t know that there will be another relationship like the one between President Reagan and Speaker Tip O’Neil, this one has the necessary chemistry and could and should be close.

Speaker Boehner is a well documented emotional individual and he does not run from it—and I hope he does not use it for political gain.  (As an aside, there were at least two entertaining headlines: from the New York Post – “The Weeper of the House”; and from the Wall Street Journal – “In Come the Republicans and Out Comes John Boehner’s Handkerchief”).  I have seen with conviction that emotional individuals, regardless of gender, have a level of compassion, but more often than not, express and work through that compassion in a passive manner and work towards common ground versus planting positions on the extremes.

The next 24-36 months are perhaps the most critical this great nation will face in over a generation and the Administration, led by President Obama, and the House of Representatives, led by Speaker Boehner, will have to embark on the epic issues mentioned above.

While time does not permit, I hope through the grace of your God, this Congress and Administration can constructively focus on these important issues which so greatly affect the people of the United States (and its stature within the global framework), while being sensitive to the fiscal responsibilities of our nation.  And while it can’t yet be eradicated, we must figure out a way to mitigate the influence of money, pork and other favors within our political system, and focus on the necessary and appropriate solutions to these most important issues.  This is the first generation where there is a belief that the next generation will not be better off than the previous one.  That is unacceptable and the time to change that path is now.

With that, I hope as folks enter the weekend, all can engage in conversation with their colleagues, their friends and within their circles of comfort on these issues; but, more importantly, engage in conversation and dialogue with those outside of your colleagues, friends and circles of comfort.  Be open to their ideas, engage in constructive discussion and debate.   Perhaps you will respectively agree to disagree, but I suspect, as I have found, more often than not, something new and enlightening will be learned.  It is these dialogues around neighborhoods, schools, restaurants and, yes, perhaps enjoying a glass or two (or three!) of wine that will manifest itself and permeate the strength for this nation to move forward in a productive, respectful and constructive manner.

For President Obama and Speaker Boehner, perhaps the necessary compromise can be reached while enjoying a cigarette on the White House balcony.

Facebook Endnote:

The capitalist in me needs to acknowledge no matter my observations on Facebook and Goldman Sachs, the Goldman offering was, in IPO terms, effectively over subscribed—so a lot of high net worth clients of Goldman Sachs believe Goldman Sachs having a preferred interest in the first 20% of Facebook’s return is a good trade.

Facebook Continued . . .

January 6, 2011

I will get off this train soon (this may be the last stop);  however, one last comment, and please see the whole article in the New York Times (nytimes.com or http://nyti.ms/frjhpQ)

The authors, Andrew Ross Sorkin and Susanne Craig note that “…In the Facebook deal, Goldman is investing $450 million, at an implied $50 billion valuation. Goldman clients, however, are paying a 4 percent placement fee and a 0.5 percent expense reserve fee for their shares, as well as giving up 5 percent of gains. That means Facebook would need to be worth closer to $60 billion before they make any money…”

That is a 20% return on the investment before the investor sees a penny of paper profit to the their original investment.  That is one heck of a high water mark!

Facebook’s Stealth IPO

January 5, 2011

Today is quite a news day on several fronts, but I will limit to two observations:

Congress:

The 112th Congress will be sworn in, and of the 535 members of Congress, 202 have law degrees and of the same 535 members, 209 have a finance banking background (see today’s Wall Street Journal, page A5).  Over the course of the next several weeks, I will continue to reflect on the make up of Congress.

Facebook:

To go public or not to go public.  Again, more observations in the coming weeks; however, it will be fascinating to watch the dance between Goldman Sachs, Facebook and the Securities and Exchange Commission.

The 1934 Securities Exchange Act dictates that companies with 500 or more shareholders need to make certain financial information publicly available.  Goldman Sachs is creating a “Special Purpose Vehicle” to own its recent $500 million share of Facebook, which is considered a single shareholder under current SEC rules.  However, Goldman Sachs will then offer interests in this Special Purpose Vehicle to its most valued clients.  Does this circumvent the 1934 Securities Exchange Act?  Undoubtedly, Goldman Sachs has competent counsel and is fully aware of the workings of the 1934 Securities Exchange Act.  This very well may a be a new creative way to expand the investor base of companies that don’t want to go public — yet.

Mark Zuckerberg, at 26 years old, is perhaps simply not ready (by choice) to take on the role of CEO / Chairman of a major public company.  I don’t blame him.  This may be a very wise move by Mr. Zuckerberg to slowly ease into the role and responsibility of running a major public company.  Facebook, in relative terms, was effectively just born — the equivalent of Bill Gates creating the first prototype of a PC.  Yet, Facebook is purportedly worth $50 billion.  Bill Gates probably didn’t even dream that big six years after he created the first prototype, but here is Facebook, effectively still in a $50 billion garage!

A greater question is what does this mean to the future of public markets, venture capital, entrepreneurial efforts and the ability of individuals who do not have Goldman, JP Morgan, etc accounts?  Is the general investing public now effectively looking through a glass ceiling of opportunities that, in days past, they could access through their brokerage accounts, IRAs and 401(k)s?

I hope that is not case but will admit, as creative as this structure may be, it gives me pause looking to the workings of our economy.  Our economy, even with all its flaws, is still the best in the world and only works best when all who want access, may have access.

More soon…

P.S. – Excellent editorial by Hank Greenberg in today’s Wall Street Journal: http://on.wsj.com/hcF8hO

What to Expect?

July 14, 2010

Discussions and observations on  the continuing convergence of politics, Wall Street, economics, financial planning and management, taxes, and risk management (i.e., secret code word for insurance).

The linkage between these has never been greater and will only continue to converge over time.  The Legislative Branch (i.e. Congress) and the Executive Branch (and perhaps even the Judicial Branch) of the government will continue to have a greater influence on Wall Street and main street, and thus in turn, financial and tax planning increasing the need for appropriate risk management.  When new tax code and financial regulations are passed, they impact each of us in ways known, unknown and sometimes unintended. The observations will highlight both the obvious and not so obvious consequences.